2014 - Page 3 of 9 - Law Offices of Robert Wayne Pearce

Sep 30, 2014

The SEC Charges Two Former Wells Fargo Employees With Insider Trading Scheme

The Securities and Exchange Commission (SEC) has brought charges against two former Wells Fargo employees, Gregory T. Bolan Jr. (Bolan) of Nashville, Tennessee and Joseph C. Ruggieri (Ruggieri) of Raleigh, North Carolina, for an alleged insider trading scheme involving buying or short selling stocks ahead of research analyst reports which contained ratings changes. According to the SEC order, Bolan was a research analyst at Wells Fargo Securities, LLC (Wells Fargo) and provided Ruggieri, a former trader at Wells Fargo, with advance notice of forthcoming rating changes. This advanced information allegedly led to Ruggieri trading ahead of the ratings changes; short selling stock ahead of a downgrade and buying stock ahead of upgrades. Ruggieri allegedly generated over $117,000 in gross profits for Wells Fargo and was terminated from Wells Fargo after compliance questioned him about communications involving Bolan. Bolan resigned from Wells Fargo after being questioned by compliance personnel. The SEC’s order, instituting a litigation proceeding, charged Bolan and Ruggieri with violating Sections 17(a) and 10(b) of the Securities Exchange Act of 1934 and Exchange Act Rule 10b-5. The administrative proceeding will determine what, if any, relief is in the public interest, including disgorgement of ill-gotten gains, prejudgment interest, monetary penalties and other remedial measures. Illegal insider trading is the act of buying or selling a security, in breach of a fiduciary duty or other relationship of trust and confidence, while in possession of material, nonpublic information about a company. Insider trading violations may also include “tipping” such information; trading by the person tipped – the “tippee,” and trading by those who misappropriate such information. Section 10(b) of the Securities and Exchange Act of 1934 makes it unlawful for any person to “use or employ, in connection with the purchase or sale of any security registered on a national securities exchange or any security not so registered, any manipulative or deceptive device or contrivance in contravention of such rules and regulations as the [SEC] may prescribe.” To implement Section 10(b), the SEC adopted Rule 10b-5, which makes it unlawful to engage in fraud or misrepresentation in connection with the purchase or sale of a security.

Sep 29, 2014

Record Setting SEC Whistleblower Award Encourages Others to Come Forward

The Securities and Exchange Commission (SEC) has awarded over $30 million to a whistleblower, the largest ever award for a whistleblower’s information which led to a successful SEC enforcement action. The SEC program, in place since 2011, is meant to motivate tipsters from all over the world to come forward with credible information about violations of U.S. securities laws. The whistleblower in this case, from a foreign country, brought forward information about an ongoing fraud. According to the SEC, the award of over $30 million could have been even larger had the tipster come forward sooner. The award was reduced due to the whistleblower’s delay in reporting the misconduct. This award is more than double the previous high for an SEC award of $14 million, which was awarded to a whistleblower in October 2013. Under the SEC’s whistleblower program, tipsters are encouraged to come forward with credible, quality, original information about violations of U.S. securities laws that lead to a successful enforcement action of more than $1 million. The whistleblower awards can range from 10-30% of the money collected in a case. Most importantly, the whistleblower’s identity and confidentiality are strictly protected, so that tipsters can safely come forward.

Sep 25, 2014

Wells Fargo Advisors Fined $5 Million for Failure to Prevent Employee’s Insider Trading

The Securities and Exchange Commission (SEC) has charged Wells Fargo Advisors with failing to maintain adequate controls in order to prevent one of its employees from using confidential customer information to engage in insider trading. Additionally, the SEC charged Wells Fargo Advisors with producing an altered document in a compliance review of the broker’s trading activities. This case, in which Wells Fargo has agreed to the monetary penalty of $5 million, is the first time the SEC has charged a brokerage firm for its failure to protect a customer’s confidential information, an important ruling at a time when many peoples’ personal information is reportedly being compromised due to computer hacking. According to the SEC’s order, a Wells Fargo broker received confidential information from a customer that Burger King was being acquired by private equity firm 3G Capital Partners. The broker, Waldyr Da Silva Prado Neto (Prado), then used that confidential information to enact trades ahead of the public announcement. The SEC has also charged Prado with insider trading, freezing his assets to prevent any transfers of the ill-gotten profits, alleged to be $175,000. The SEC’s order goes on to state that multiple groups responsible for compliance or supervision at Wells Fargo were told of the broker’s misuse of customer information, but failed to act. According to Andrew J. Ceresney, Director of the SEC’s Enforcement Division, “When investors entrust private information to their stockbrokers or investment advisors, they have the right to expect that it will not be exploited.” Wells Fargo admitted to the SEC’s findings and agreed to pay the $5 million penalty. Section 15(g) of the Securities Exchange Act of 1934 and Section 204A of the Investment Advisers Act of 1940 require broker-dealers and investments advisers to establish, maintain, and enforce policies and procedures reasonably designed to prevent the misuse of material nonpublic information. Brokerage firms like Wells Fargo Advisors have a legal duty to protect their customers’ confidential information and to supervise their brokers to ensure compliance and prevent violations of the rules and regulations of the securities industry.

Jul 31, 2014

Former Aegis Capital Broker Malcolm Segal Under Investigation for Unauthorized Transfers

According to the Financial Industry Regulatory Authority (FINRA), former Aegis Capital Corporation (Aegis) stockbroker Malcolm Segal, of Langhorne, Pennsylvania and Boynton Beach, Florida, is under investigation for a Pennsylvania-based customer complaint alleging that $225,000 was transferred from his account without his authorization. According to FINRA records, “Mr. Segal failed to cooperate with an internal investigation into a customer complaint alleging that in December 2013, Mr. Segal, on an unauthorized basis, transferred monies via wire from the client’s account.” Malcolm Segal was discharged by Aegis on July 28, 2014.

Jul 28, 2014

Novice Investor Wiped Out by Merrill Lynch Stockbroker

This arbitration arises from a series of unsuitable recommendations by a Merrill Lynch financial advisor for the Claimant to purchase and hold overconcentrated, leveraged Puerto Rico bonds in a Merrill Lynch account. As a result of Merrill Lynch and its employee, the Claimant suffered substantial investment losses.

Jul 24, 2014

Brookville Capital Partners and Anthony Lodati Named in FINRA Complaint for Alleged Fraud

Melville, New York-based Brookville Capital Partners LLC (Brookville Capital) and the firm’s president, Anthony F. Lodati, were named in a Financial Industry Regulatory Authority (FINRA) complaint alleging that the firm and Mr. Lodati defrauded investors in connection with a private placement offering. According to the complaint, Brookville Capital and Mr. Lodati solicited customers to invest in a private placement offering that failed to disclose material facts about an individual involved in the offering. Anthony Lodati allegedly learned that the individual, who had effected transactions on behalf of the private placement, had been fined by the Securities and Exchange Commission (SEC) for securities fraud and had been convicted of a felony by the state of Florida. The FINRA complaint alleges that Mr. Lodati failed to inform any of the potential investors of the individual’s involvement. Moreover, the private placement memorandum (PPM) allegedly made no mention of the individual or of his regulatory or criminal background.

Jul 23, 2014

Meyers Associates Broker Craig Josephberg Arrested

Last week, Craig L. Josephberg, a Meyers Associates, LP stockbroker, was arrested for engaging in a penny stock fraud scheme involving many securities including CodeSmart Holdings, Cubed, Inc., StarStream Entertainment, Inc. and The Staffing Group, LTD. He was indicted along with A.J. Discala, Marc E. Wexler, Kyleen Cane, Victor Azrak and Ira Schapiro for allegedly defrauding investors and potential investors in several public companies. The scheme in which Mr. Josephberg allegedly participated was “built on lies, deceit and manipulated trading activity to defraud the securities markets and investing public,” according to the US Attorney’s office for the Eastern District of New York. Mr. Joesphberg’s alleged “pump and dump” scheme included false and misleading press releases and SEC filings, stock market manipulation techniques such as “wash trades,” “matched trades,” “marking the close,” and unauthorized trading for clients who entrusted the stockbrokers with their life savings. As in all such schemes, the price of the various public corporations climbs for no real reason and then falls from the sky with the investors holding worthless stock. Mr. Josephberg’s clients were allegedly on the dumping side of the scheme. According to the FBI, some of the victims had no idea that the stock was being purchased in their accounts by the stockbrokers. The fraudulent scheme purportedly took place in 2013 and this year.

Jul 22, 2014

Santander Securities Broker Switches Investors Into Unsuitable Closed End Funds

This arbitration arises out of a Santander stockbroker’s unsuitable investment decision with regard to the Claimants’ Santander investment account which was reinvested and overconcentrated in Puerto Rico, resulting in the Claimants suffering substantial monetary losses.

Jul 21, 2014

Former WFG Investments Broker Matthew Bell Arrested

Last week, Matthew A. Bell, a former WFG Investments, Inc. stockbroker was arrested for engaging in a penny stock fraud scheme involving many securities, including CodeSmart Holdings, Cubed, Inc., StarStream Entertainment, Inc. and The Staffing Group, LTD. He was indicted along with A.J. Discala, Marc E. Wexler, Kyleen Cane, Victor Azrak and Ira Schapiro for allegedly defrauding investors and potential investors in the 4 public companies. The alleged scheme was “built on lies, deceit and manipulated trading activity to defraud the securities markets and investing public,” according to the US Attorney’s office for the Eastern District of New York. The defendants alleged “pump and dump” scheme included false and misleading press releases and SEC filings, stock market manipulation techniques such as “wash trades,” “matched trades,” “marking the close,” and unauthorized trading for clients who it entrusted the stockbrokers with their life savings. As in all such schemes, the price of the various public corporations climbs for no real reason and then falls from the sky with the investors holding worthless stock. According to the FBI, some of Mr. Bell’s victims had no idea that the stock was being purchased in their accounts by the stockbroker.

Jul 17, 2014

John Warren DuBrule Barred by FINRA for Misrepresenting Hedge Fund Values to Investors

John Warren DuBrule, a former Orlando, Florida registered principal employed by Altamonte Springs, Florida-based Merrimac Corporate Securities, Inc., submitted an Offer of Settlement in which he consented to, but did not admit to or deny, the entry of the Financial Industry Regulatory Authority’s (FINRA) findings that he engaged in securities fraud by knowingly causing the distribution of summary quarterly statements that contained false information about the valuation of a hedge fund in willful violation of industry rules and regulations. FINRA found that Mr. DuBrule allegedly inflated the value of the fund’s assets on its quarterly statements by including the face value and promised interest of defaulted promissory notes as assets of the fund. FINRA found that the quarterly statements falsely inflated the value of investors’ interests in the fund. Further, that the summary quarterly statements contained false and misleading statements that the fund utilized the services of an independent firm to prepare statements and tax reports, and that they were prepared in accordance with generally accepted accounting principles (GAAP). According to FINRA, Mr. DuBrule allegedly failed to disclose that the valuation of the fund was also based on defaulted and cancelled promissory notes. Mr. DuBrule allegedly misappropriated investor funds by withdrawing the funds despite knowing that the promissory notes had been cancelled and the fund’s value had decreased substantially. Mr. DuBrule allegedly made materially false and misleading statements and omissions to customers to entice them to invest $3.8 million into the fund. Consequently, John DuBrule was barred from association with any FINRA member in any capacity.