Tuesday, 24 November 2015

SEC Charges Political Intelligence Firm

The Securities and Exchange Commission today announced that a political intelligence firm agreed to admit wrongdoing and pay a $375,000 penalty for compliance failures.

Marwood Group Research LLC also agreed to retain an independent compliance consultant after an SEC investigation found that the firm failed to properly inform compliance officers about instances when analysts obtained potential material nonpublic information from government employees.  Under Marwood Group’s written policies and procedures, compliance officers are central to the firm’s efforts to prevent confidential or nonpublic information from being released to clients, who in turn could use it to influence their securities trading decisions.

"Government employees routinely possess and generate confidential market-moving information.  When political intelligence firms like Marwood Group obtain information from government employees, they must take the necessary steps to prevent the dissemination of potentially material nonpublic information obtained in the course of their research,” said Andrew J. Ceresney, Director of the SEC’s Enforcement Division.

According to the SEC’s order instituting a settled administrative proceeding:

  • Marwood Group’s misconduct occurred in 2010, when analysts sought and received information about policy issues or pending regulatory approvals at the Centers for Medicare & Medicaid Services and the Food and Drug Administration.
  • As part of its business, Marwood Group provided hedge funds and other clients with regulatory updates and analysis about potential timing and developments for future government actions or rulemaking decisions.
  • In gathering content for these “research notes,” Marwood Group encouraged its analysts to maintain relationships with government employees.  Since government employees often are familiar with confidential matters at their agencies, such interactions increased the likelihood that Marwood Group employees could acquire material nonpublic information in the course of their work.
  • Marwood Group’s written policies and procedures expressly prohibited the acquisition and dissemination of material nonpublic information and required employees to bring it to the attention of the compliance department if they encountered anything confidential.
  • Despite the red flags regarding information received by analysts, Marwood Group drafted research notes and distributed them directly to clients who could have used any material nonpublic information to inform securities trading decisions.
  • Marwood Group’s analysts failed to bring the information to the compliance department’s attention so it could be properly vetted for any material nonpublic information ripe for insider trading.

The SEC’s order finds that Marwood Group violated Section 15(g) of the Securities and Exchange Act of 1934 and Section 204A of the Investment Advisers Act of 1940.

The SEC’s investigation was conducted John O’Halloran, Edward Saunders, Joshua Mayes, Kristin Murnahan, and Stephen E. Donahue in the Atlanta Regional Office.  The case was supervised by William P. Hicks.

Monday, 23 November 2015

SEC: Stockbroker Stole Investor Money for Home Renovations

The Securities and Exchange Commission today announced fraud charges against a former stockbroker accused of stealing investor money to remodel his house and pay other bills.

The SEC alleges that Bernard M. Parker raised more than $1.2 million from his longstanding brokerage customers and others who were told they were purchasing legitimate real estate tax lien certificates and would earn returns of six to nine percent annually.  However, Parker only used a small amount of investor funds to purchase tax liens and instead used their money to remodel his home in Indiana, Pa., make car payments, and pay bills for his father-in-law. 

“We allege that while Parker was using investor funds for his personal expenses, he provided investors with computer printouts of vacant lots or homes and falsely told them that his company held liens on those properties,” said Sharon B. Binger, Director of the SEC’s Philadelphia Regional Office.  “Once he gained their trust, investors gave Parker thousands of dollars apiece for purported investments, and he swiftly stole their money.” 

In a parallel action, the U.S. Attorney’s Office for the Western District of Pennsylvania today announced criminal charges against Parker.

According to the SEC’s complaint filed in federal court in Pittsburgh:

  • Parker conducted the unregistered and fraudulent offering from 2008 to 2014 through his company Parker Financial Services.
  • Parker was a registered representative associated with a dually-registered broker-dealer and investment advisory firm to which he did not disclose this side business.
  • Parker induced investors to purchase the securities by making materially false and misleading statements and omissions about his actual use of investor funds. 
  • Parker told prospective investors that Parker Financial Services would use their funds to purchase tax liens placed by municipalities on properties primarily in Florida, Arizona, and Colorado.
  • Parker pooled the money he raised from investors into several bank accounts, and when he cashed investors’ checks he routinely deposited a portion of the money into a bank account and took the remainder in cash.
  • Parker withdrew more than $650,000 in investor funds in cash from teller transactions, ATM withdrawals, and checks cashed at local supermarkets.  He additionally spent approximately $197,000 of investor money in point-of-sale transactions, $150,000 through personal checks, and $169,000 for online bill payments. 
  • Parker also made approximately $188,000 in purported interest payments to earlier investors in an effort to keep his scheme from being discovered. 

The SEC’s complaint charges Parker with violations of Sections 5(a), 5(c) and 17(a) of the Securities Act of 1933 as well as Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5.  The SEC seeks disgorgement plus prejudgment interest and penalties as well as a permanent injunction.

The SEC’s continuing investigation is being conducted by Brian P. Thomas and Kelly L. Gibson in the Philadelphia office, and the litigation will be led by David L. Axelrod and Nuriye C. Uygur.  The case is being supervised by G. Jeffrey Boujoukos.  The SEC appreciates the assistance of the U.S. Attorney’s Office for the Western District of Pennsylvania, the Federal Bureau of Investigation, and the U.S. Postal Inspection Service.

Friday, 20 November 2015

Atlanta Businessman Charged in Nursing Home Investment Scheme

The Securities and Exchange Commission today announced fraud charges and an emergency asset freeze obtained against an Atlanta-based businessman accused of misusing investor funds raised to purchase and renovate senior living facilities.

The SEC alleges that Christopher F. Brogdon amassed nearly $190 million through dozens of municipal bond and private placement offerings in which investors supposedly earn interest from revenues generated by the nursing home, assisted living facility, or other retirement community project supported by their investment.  But Brogdon secretly commingled investor funds instead of using the money to finance the project described to investors in the disclosure documents for each offering.  From the commingled accounts, he has diverted investor money to other business ventures and personal expenses.

“As alleged, Brogdon deceived investors about the true nature of these investment opportunities,” said Sanjay Wadhwa, Senior Associate Director of the SEC’s New York Regional Office.  “Brogdon falsely promised investors they were investing in specific senior living projects when in reality they also were funding his personal expenses and other businesses, including some that are struggling financially.”

According to the SEC’s complaint filed in federal court in Newark, N.J., Brogdon has been making payments to investors by borrowing money from third parties, using proceeds from other offerings, and drawing down on personal lines of credit, all of which are improper sources under the offering disclosures made to investors. 

The SEC complaint charges Brogdon with violations of the antifraud provisions of the securities laws and related SEC rules, and seeks the return of ill-gotten gains with interest and penalties.  The complaint also seeks permanent injunctions against further violations of the securities laws, and a bar prohibiting Brogdon from serving as an officer or director of a public company.  The complaint also names Brogdon’s wife and son and a number of his other business entities as relief defendants for the purpose of recovering ill-gotten gains plus interest for investors.

The SEC’s continuing investigation is being conducted by Ranah L. Esmaili, Lee A. Greenwood, Kerri L. Palen, and Joseph Chimienti, and the litigation will be handled by Ms. Esmaili, Mr. Greenwood, Neal Jacobson, and Alexander Vasilescu.  The case is being supervised by Lara S. Mehraban and Mr. Wadhwa.  The SEC appreciates the assistance of the New Jersey Bureau of Securities and the Financial Industry Regulatory Authority, which today filed an enforcement action against Cantone Research Inc., a broker-dealer that served as a placement agent for some of Brogdon’s offerings.

Thursday, 19 November 2015

Assets Frozen in Alleged Immigration Scam

The Securities and Exchange Commission today announced it has obtained a court order freezing the assets of a South Florida woman and her company accused of purchasing a boat and luxury cars with money she raised from investors seeking U.S. residency through the EB-5 Immigrant Investor Pilot Program. 

Under the EB-5 program, foreign citizens may qualify for U.S. residency if they make a qualified investment of at least $500,000 in a specified project that creates or preserves at least 10 jobs for U.S. workers.  The SEC alleges that Lin Zhong and her company EB5 Asset Manager LLC raised at least $8.5 million for use by U.S. EB-5 Investments LLC in job-creating real estate development projects, but they diverted nearly $1 million to purchase a boat, a BMW, and a Mercedes among other improper personal uses of investor funds.

“We allege that Zhong promised investors their money would be used to develop real estate projects, but she misused their funds to enrich herself while making material misrepresentations and omissions to investors,” said Eric I. Bustillo, Director of the SEC’s Miami Regional Office.

The SEC also obtained a court order appointing a receiver to administer and manage the business affairs and assets of the company and its subsidiaries for the protection of investors.

According to the SEC’s complaint filed earlier this month in U.S. District Court for the Southern District of Florida against Lin Zhong, who also goes by the name Lily Zhong:

  • Investors were told that money they invested in U.S. EB-5 Investments LLC would be used for real estate development including a mixed-use commercial project planned for the City Center in Port St. Lucie, Fla. 
  • Zhong and EB5 Asset Manager diverted approximately $900,000 of those funds for unrelated personal uses that also included her own real estate taxes as well as education expenses for her family members.
  • Zhong and EB5 Asset Manager also made misrepresentations to investors about the use of U.S. EB-5 Investments’ funds and failed to disclose Zhong’s past failed real estate venture.
  • Investors were falsely told that U.S. EB-5 Investments would prepare and provide unaudited financial reports to investors.
  • Zhong and EB5 Asset Manager falsely claimed that certain investors’ funds would be held in escrow until the form filed by potential EB-5 investors to petition the U.S. Citizenship and Immigration Services (USCIS) for immigration status received that agency’s approval.
  • Zhong and EB5 Asset Manager also made material omissions and false statements about conflicts of interest, and made false statements about the location of real estate development projects.

The SEC’s complaint alleges that Zhong and EB5 Asset Manager violated the antifraud provisions of Section 17(a) of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5.  Zhong has agreed to stipulate to the asset freeze and receiver following a lengthy hearing on the SEC’s motions when the court issued a separate order granting expedited discovery, prohibiting the destruction of documents, and requiring Zhong, EB5 Asset Manager, and relief defendants to provide the SEC and the court with a sworn accounting of their assets.

The SEC’s continuing investigation is being conducted by Shelly-Ann A. Springer-Charles and Margaret Vizzi in the Miami office, and the case is being supervised by Eric R. Busto.  The SEC’s litigation will be led by Alejandro Soto.  The SEC appreciates the assistance of the USCIS.