Showing posts with label UNREGISTERED OFFERINGS. Show all posts
Showing posts with label UNREGISTERED OFFERINGS. Show all posts

Wednesday, January 28, 2015

SEC CHARGES OPPENHEIMER & CO. REGARDING THE SALE OF PENNY STOCKS

FROM:  U.S. SECURITIES AND EXCHANGE COMMISSION 

The Securities and Exchange Commission today charged Oppenheimer & Co. with violating federal securities laws while improperly selling penny stocks in unregistered offerings on behalf of customers.

Oppenheimer agreed to admit wrongdoing and pay $10 million to settle the SEC’s charges.  Oppenheimer will pay an additional $10 million to settle a parallel action by the Treasury Department’s Financial Crimes Enforcement Network (FinCEN).

According to the SEC’s order instituting a settled administrative proceeding, Oppenheimer engaged in two courses of misconduct.  The first involved aiding and abetting illegal activity by a customer and ignoring red flags that business was being conducted without an applicable exemption from the broker-dealer registration requirements of the federal securities laws.  The customer was Gibraltar Global Securities, a brokerage firm in the Bahamas that is not registered to do business in the U.S.  Oppenheimer executed sales of billions of shares of penny stocks for a supposed proprietary account in Gibraltar’s name while knowing or being reckless in not knowing that Gibraltar was actually executing transactions and providing brokerage services for its underlying customers, including many in the U.S.  The SEC separately charged Gibraltar last year for its alleged misconduct.

The SEC’s order finds that Oppenheimer failed to file Suspicious Activity Reports (SARs) as required under the Bank Secrecy Act to report potential misconduct by Gibraltar and its customers, and the firm failed to properly report, withhold, and remit more than $3 million in backup withholding taxes from sales proceeds in Gibraltar’s account.  Oppenheimer also failed to recognize the resulting liabilities and expenses in violation of the books-and-records requirements, and improperly recorded transactions for Gibraltar’s customers in Oppenheimer’s books and records.

According to the SEC’s order, the second course of misconduct involved Oppenheimer again engaging on behalf of another customer in unregistered sales of billions of shares of penny stocks.  The SEC’s investigation, which is continuing, found that the sales generated approximately $12 million in profits of which Oppenheimer was paid $588,400 in commissions.  The firm’s liability stems from its failure to respond to red flags and conduct a searching inquiry into whether the sales were exempt from registration requirements of the federal securities laws, and its failure reasonably to supervise with a view toward detecting and preventing violations of the registration provisions.  

“Despite red flags suggesting that Oppenheimer’s customer’s stock sales were not exempt from registration, Oppenheimer nonetheless allowed unregistered sales to occur through its account, failing in its gatekeeper role,” said Andrew J. Ceresney, Director of the SEC’s Division of Enforcement.  “These actions against Oppenheimer demonstrate that the SEC is fully committed to addressing lax AML compliance programs at broker-dealers through enforcement action.  The sanctions imposed on Oppenheimer, which include admissions of wrongdoing and $20 million in monetary remedies, reflect the magnitude of Oppenheimer’s regulatory failures.”

The SEC’s order requires Oppenheimer to cease and desist from committing or causing any violations and any future violations of Section 15(a) and 17(a) of the Securities Exchange Act of 1934 and Rules 17a-3 and 17a-8, and of Section 5 of the Securities Act of 1933.  In addition to the monetary remedies, Oppenheimer agreed to be censured and undertake such remedial measures as retaining an independent consultant to review its policies and procedures over a five-year period.

The SEC’s investigation is being conducted by Robert Giallombardo, Margaret W. Smith, Robert Nesbitt, Gary Peters, and Jesse Grunberg with assistance from Christian Schultz.  The case is being supervised by Doug McAllister and Nina Finston.  The SEC appreciates the assistance of FinCEN and the Financial Industry Regulatory Authority.

Thursday, October 10, 2013

FORMER ENVIT CAPITAL BOILER-ROOM SALESMAN SETTLES FRAUD CHARGES

FROM:   U.S. SECURITIES AND EXCHANGE COMMISSION 
Former Envit Capital Boiler-Room Salesman Settles SEC Fraud Charges

The Securities and Exchange Commission announced today that on October 8, 2013, the federal court in Massachusetts entered a judgment against Jonathan Fraiman in a previously-filed case, arising from his alleged participation in a boiler room operated by Edward M. Laborio. Fraiman consented to the entry of the judgment.

On August 10, 2012, the Commission charged Fraiman, Laborio, Matthew K. Lazar, and seven entities owned and controlled by Laborio, including a non-existent hedge fund, (collectively, the "Envit Companies") with raising up to $5.7 million from more than 150 investors through the fraudulent sale of five unregistered offerings. The Complaint alleged that Laborio hired Fraiman in January 2008 to market Envit Capital Multi Strategy Mixed Investment Fund I LP, a purported hedge fund that in reality never conducted any business, and Laborio also named Fraiman as the Director and Chief Compliance Officer of Envit Capital Private Wealth Management, LLC, the purported investment adviser arm of the Envit Companies. Among other conduct, the Complaint alleged that Fraiman raised hundreds of thousands of dollars for Laborio by misrepresenting the historical returns and financial health of the Envit Companies, including that: (i) the non-existent hedge fund returned 42.9% in 2006 and 43.7% in 2007; (ii) shares in one of the unregistered offerings pay a 5% to 10% dividend; and (iii) the company had no debt and was cash flow positive.

On October 8, 2013, the Court entered a final judgment against Fraiman: (i) permanently enjoining him from violating Section 17(a)(2) of the Securities Act of 1933 (Securities Act); Sections 10(b) and 15(a)(1) of the Securities Exchange Act of 1934 (Exchange Act) and Rule 10b-5(b) thereunder; and Sections 206(1), 206(2), and 206(4) of the Investment Advisers Act of 1940 (Advisers Act) and Rule 206(4)-8 thereunder; (ii) barring him from participating in any offering of penny stock; (iii) finding him liable for disgorgement of $180,961.42 and prejudgment interest of $24,537.22, for a total of $205,498.66; and (iv) waiving payment of the disgorgement and prejudgment interest, and not imposing a civil penalty, based upon the representations in Fraiman's sworn statement of financial condition. Fraiman agreed to settle the Commission's charges without admitting or denying the allegations in the Complaint.

To settle the Commission's charges in related administrative proceedings that the Commission will separately institute, Fraiman has consented to be barred from any future association with any broker, dealer, investment adviser, municipal securities dealer, municipal advisor, transfer agent, or nationally recognized statistical rating organization, with the right to reapply after ten years.

The Commission's civil injunctive action against Laborio, Lazar, and the Envit Companies, SEC v Laborio et al., 1:12-cv-11489-MBB (D. Mass., Aug. 10, 2012), is still pending.

In conducting its investigation, the Commission acknowledges assistance from the U.S. Attorney's Office for the District of Massachusetts, the Federal Bureau of Investigation, the State of Florida Office of Financial Regulation, and the Financial Industry Regulatory Authority (FINRA).

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