Scams

DNC Spamming in Are Code 954

If your number has a 954 area code, you are probably getting more of those dreaded robocalls than most people around the country.

Broward County’s main area code ranks high on YouMail’s September Robocall List.

The company says that 4.4 billion robocalls were made last month nationwide. That comes out to 147 million per day, or more than 13 per person. However, in Broward, the number jumps to 31 calls per person.

Broward was fifth on the list, while, Miami’s 305 area code was last on the Top 20 list. Perhaps surprisingly to some, Palm Beach County’s area code did not make the list.

YouMail estimates that about 36 percent of the robocalls were scams. Another 20 percent or so were telemarketing calls, and payment reminders and alerts account for the remainder.

Relief is on the way, though.

A strategy is being developed to end robocalling. The Federal Communications Commission has issued a license for a new technology called Signature-based Handling of Asserted information using toKENs (SHAKEN) and Secure Telephone Identity Revisited (STIR). In short, it would assign each phone number a digital certificate of authenticity to ensure that calls made from a phone number are actually coming from that number.

That solution can’t come soon enough.

Chicago CPA Charged with Insider Trading

Chicago, IL: Federal Prosecutors have charged a certified public accountant and former director of corporate audits for Chicago based Allscripts Healthcare Solutions with insider trading.

Steven M. Dobrowski has been charged with 16 counts of securities fraud in the indictment, each of which carries a maximum penalty of 20 years in prison and a fine of $5 million.

According to the indictment, Dombrowski who is 49, used non-publically disclosed about Allscripts performance in the first quarter of 2012 for personal benefit. Using knowledge he had learned auditing and testing the processes and procedures Allscripts uses to compute and report it financial performance, Dombrowski accumulated trade profits of $286,000. In order to discuss his efforts at using insider information, Dobrowski purchased options through a trading account which he set up, and controlled, in his wife’s maiden name.

Because of his intimate knowledge of the company’s internal financial reporting, Dombrowski decided to sell short 1,000 shares of Allscripts stock in the weeks leading up to the earnings release, as well as buy more than 510 options that would be profitable if the company’s share price declined, the SEC said.

After the earnings release, Dombrowski liquidated and closed his positions and took in more than $286,000 in illegal profit. On April 26, 2012, Allscripts announced first quarter financial results that were much worse than the market had expected. Allscripts also announced that its Chief Financial Officer would soon leave the company for another job, and that the Chairman of the Board and several other members of the Board had resigned. Immediately after the announcement Dombrowski purchased Allscripts stock to close his short position, and the next day, on April 27, Dombrowski sold all of his options positions as Allscripts’ common stock fell $5.72, or approximately 35.7% from the previous day’s close.

“As alleged in our complaint, Dombrowski attempted to profit off his company’s poor financial results and hide his breach of duty to his employer by conducting his illegal trading through his wife’s account,” said Timothy L. Warren, associate director of the SEC’s Chicago office.

The Securities and Exhange Commission (SEC) in a parallel actions, is seeking a judgment that permanently enjoins Dombrowski from future violations of these provisions of the federal securities laws, orders him to disgorge all of his ill-gotten gains, plus prejudgment interest, and orders him to pay an appropriate civil penalty. The SEC also seeks an order requiring Dombrowski’s wife, relief defendant Lisa Fox, to pay disgorgement, plus prejudgment interest, as Dombrowski’s illegal trades were in her account.

 

Money Manager Charged With False Advertising

New York, NY: The Securities and Exchange Commission (SEC) has charged a New York based money manager and his firm of false advertising.

The charges stem from claims made by the company on their Twitter, newsletters, and other communications about the success of their investment advice and a mutual fund that the firm manages.

In an SEC order issued against Mark A. Grimaldi and Navigator Money Management (NMM), the SEC found that they selectively promoted and touted the performance of the Sector Rotation Fund (NAVFX) and specific securities recommendations they had made to client in the past. The order found that the firm cherry picked what it chose to highlight, while excluding less favorable data and relevant facts that would have painted a more complete picture.

“The securities laws require investment advisers to be honest and fully forthcoming in their advertising to give investors the full picture.

Grimaldi and his firm are being held accountable for using social media and widely disseminated newsletters to cherry-pick information and make misleading claims about their success in an effort to attract more business.” said Sanjay Wadhwa, senior associate director for enforcement in the SEC’s New York Regional Office.

According to the SEC’s order, The Money Navigator is a newsletter which was used extensively by Grimaldi and NMM to solicit clients. For the Sector Rotation Fund. Grimaldi, who is the majority owner, president and, Chief Compliance Officer of NMM, promoted their successes in a way that was misleading and did not give a full accounting. For example, according to the details provided in the SEC order they misleadingly claimed in a December 2011 newsletter that Sector Rotation Fund was “ranked number 1 out of 375 World Allocation funds tracked by Morningstar.”  However, a time period of Oct. 13, 2010 to Oct. 12, 2011 was cherry-picked to broadly acclaim that ranking, and Sector Rotation Fund had a poorer relative performance during other time periods.  From Jan. 1 to Nov. 30, 2011, the day before Grimaldi published the ad, at least 100 other mutual funds in that same Morningstar category outperformed Sector Rotation Fund.

The investigation and subsequent SEC order process began in 2008, when the SEC conducted an investigation of NMM and a fund it manages.

The SEC staff conducting the investigation then informed NMM that the newsletters could be considered a solicitation or advertisement under Rule 206(4)-1, which generally prohibits false or misleading advertisements by investment advisers.  SEC staff also noted that the newsletters could be considered advertisements under Rule 482, which governs advertisements for mutual funds and other investment companies and has specific requirements for ads containing performance data.

Other violations detailed in the order claim that NMM was advertised as a “five star (Morningstar) money manager” in the newsletters, on the website, and in emails sent out. This would be misleading because Morningstar rates mutual funds, not investment advisors. Grimaldi is also found to have made misleading statements on Twitter. He claimed responsibility for model portfolios in his newsletters that “doubled the S&P 500 the last 10 years.”  However, Grimaldi made the claim even though he had no involvement in the model portfolio performance for the first three years.

Grimaldi and NMM, without admitting to any of the specific finding have agreed to pay a $100,000 fine, to be censured, and to comply with certain undertakings including the retention of an independent compliance consulting company for three years. The company also agreed to cease and desist from future violations of these sections of Securities Laws.

Advertising, regardless of their source, can often be misleading with even small discrepancies painting an entirely different picture from reality. Vetting and conducting due diligence is highly recommended for any investor, regardless of whom you are dealing with or what the level of interaction.

Executives Charged with Securities Fraud

Austin, Texas: The Federal Bureau of Investigation (FBI) announced today that ArthroCare Corporation has agreed to pay $30 million in a monetary penalty to resolve charges that senior executives in the company engaged in securities fraud.

ArthoCare is a multi-business medical device company that manufactures, develops, and markets medical devices. However, members of the company’s executive staff have been charged with perpetrating securities fraud that resulted in more than $400 million in losses to investors. According to information released by the FBI ArthoCare perpetrated the fraud between December 2005 and 2008. ArthroCare’s shareholders held more than 25 million shares of ArthroCare stock. On July 21, 2008, after ArthroCare announced publicly that it would be restating its previously reported financial results from the third quarter 2006 through the first quarter 2008 to reflect the results of an internal investigation, the price of ArthroCare shares dropped from $40.03 to $23.21 per share. The drop in ArthroCare’s share price caused an immediate loss in shareholder value of more than $400 million.

“Truthful corporate earnings reports are critical to the soundness of our financial system. Today’s indictment alleges that those at the top of ArthroCare deceived investors and regulators by manipulating the company’s reports to inflate its stock, ultimately causing hundreds of millions in losses in shareholder value. The Criminal Division will continue to aggressively pursue corporate executives who undermine our financial markets for personal gain.” said Acting Assistant Attorney General Raman.

In a deferred prosecution agreement with prosecutors, ArthoCare admitted that senior executives inflated the company’s revenues by millions of dollars, artificially driving the shares higher. The company also admitted that its senior executives had conducted a number of sham transactions which were used to manipulate ArthoCare’s the earnings reports delivered to investors. Other revelations included a systematic “parking” of millions of dollars’ worth of medical devices at distribution facilities and then reporting these shipments as sales in its quarterly and annual filings, causing the company to appear to have met or exceeded external earnings forecasts

Two senior vice presidents John Raffle and David Applegate had previously plead guilty to conspiracy to commit securities and wire fraud in connection with the fraud scheme. David Applegate, 54, pleaded guilty before U.S. Magistrate Judge Mark Lane in Austin, Texas, to two counts of a superseding information which charges him with conspiracy to commit securities, mail and wire fraud, and with a false statements violation. Applegate admitted that he and other co-conspirators inflated falsely ArthroCare’s sales and revenue through a series of end-of-quarter transactions involving ArthroCare’s distributors and that he and other co-conspirators caused ArthroCare to file a Form 10-K for 2007 with the U.S. Securities and Exchange Commission that materially misrepresented ArthroCare’s quarterly and annual sales, revenues, expenses and earnings.  Other executives are also facing charges in 2014. ArthroCare’s former chief executive officer, Michael Baker, and chief financial officer, Michael Gluk, are scheduled to stand trial on related charges on May 5, 2014.

“These senior corporate executives participated in a scheme to artificially inflate their company’s stock prices, cheating shareholders and the investing public out of hundreds of millions of dollars,” Assistant U.S. Attorney General Lanny Breuer said in a statement.

Senior Citizens Targeted for Investment Scams

Over 80% of the private wealth in the United States is held by those that are 55 and older.

Senior citizens maintain the most wealth and are the most likely to be targeted for an investment scam.  Many seniors are taken advantage of by people they know, friends, family, and outsiders looking to raise a buck. Seniors need to be cautious to ensure that they do not fall victim to some of the recent investment scams sweeping the nation.

Missouri Secretary of State, Jason Kander, has been working to educate seniors.  In a recent educational tour Kander discussed what he feels are the greatest risks to seniors.

  1. Unlicensed sales people.  When seniors, or any investor, is contacted by someone claiming to be a certified investment advisor, they should contact the state to make sure they are actually licensed.  Those that claim to be, but aren’t, should be avoided and reported.
  2. Online brokerage accounts managed by a third party.  When a third party is involved there can be sharing of information and the likelihood of inappropriate transactions between the parties increases. We recently published a story about a company that was making trades with its affiliate at the expense of investors.
  3. Ponzi schemes.  It is important to research the investment to make sure it is not a ponzi scheme.  Ask to see information on their dealings to see how revenue is generated.  The company needs to make money in order to pay investors dividends.  If they don’t sell anything, they shouldn’t have money to pay out.  If they do have money to pay out, it is probably coming from new investors.
  4. Out of the area real estate investments.  Kander warns of real estate investments that you cannot physically visit.  If it is in an obscure location exercise extreme caution.
  5.  Investment Funds.  When you invest in a fund, that is supposed to invest in companies, you have less ability to conduct due diligence than if you invest in a company directly.

Kander isn’t the only one warning seniors.  CNBC published an article this week warning of common investment scams that target seniors.  These include:

  • Scammers pretending to be legitimate charities. Scam artists have been posing as charities, calling seniors on the phone, and getting their credit card information for identity theft.  You can protect yourself by taking down the name of the charity and calling their office during business hours.  Use a phone number you find from an independent source and make a donation when you initiate the call, not the other way around.
  • Grandma scams.  In this case the scammer calls up an elderly person late at night, while they were probably in bed, and poses as a grandchild in trouble.  The scammer asks for them to wire money without telling anyone due to embarrassment.  Low and behold the person calling is actually not a relative.
  • Stimulus check.  This scam surfaced last year where people would call seniors and say they qualified for a one time only stimulus check.  They would proceed to ask them personal questions that would enable them to steal the persons identity.

As a senior, or any investor, it is important to protect yourself from investment scams.  Ask questions, discuss the opportunity with friends, and do your research.  There are plenty of solid investment opportunities to chose from.  Those that are legitimate will welcome your questions and provide information freely and easily.

 

 

Insider Trading in Miami

Miami, Florida: In a insider trading bust today, the Securities and Exchange Commission (SEC) charged a Miami based trader for trading in the stock of Chinese company and for conducting an illegal short sale in the securities of three other companies.

According to the allegations by the SEC, Charles Raymond Langston III had previously learned confidential information about AutoChina International’s stock. The new was obtained by Mr. Langston prior to a general announcement, which would subsequently significantly lower the stock of the Chinese firm. Later when Langston was approached by placement agents he promptly sold the 29,000 shares short. Collecting $198,108 from the illicit trading, Langston violated an agreement he had in place to keep the information which he had learned confidential and to not trade until after the company had made a public announcement.

“Langston agreed to keep confidential the information he learned from AutoChina’s placement agent and abstain from trading on it.  Yet he chose to place personal greed ahead of the integrity of the securities markets,” said Eric I. Bustillo, director of the SEC’s Miami Regional Office.

Fully aware of the duplicity and the illegal nature of his actions Langston attempted to hide the transactions. He made the trades through a separate entity, owned by himself, than the entity with which he had purchased the shares. He also use a different broker and a different account to help cover his tracks.

The SEC’s complaint filed in federal court in Miami further alleges that Langston and two of his companies, Guarantee Reinsurance and CRL Management, violated Rule 105 of Regulation M, which prohibits the short sale of an equity security during a restricted period. The restricted period is traditionally five business days before a public offering. The regulation further prohibits the purchase of that same security through the same offering. The rule has been put in place to prevent the reduction in proceeds received by a company through artificially decreasing its share value by illegally selling the shares short before the company places its public offering. Langston and his companies, Guarantee Reinsurance and CRL Management, made an unlawful gain of around $1.3 million.

“During restricted periods, Langston and his companies executed short sales that gamed the system and resulted in illegal profits. The SEC is resolutely committed to pursuing those who violate Rule 105.” said Glenn S. Gordon, associate director for enforcement in the SEC’s Miami Regional Office.

This case is likely to reach a swift conclusion as Langston has agreed to a settlement to the insider trading charges in the amount of $193,108, prejudgment interest of $22,204, and a penalty of $193,108.  Langston and the two companies also agreed to be enjoined for the short selling violations with monetary sanctions to be determined by the court at a later date. Langston, however, neither admits nor denies that he violated any SEC regulations.

Illicit behavior for profit is not uncommon in the share market world, which is why sharing information is a dangerous habit. Only giving information to trusted insiders, who cannot and will not benefit from the inside knowledge is a safety net that all companies must have when dealing with public offerings to avoid having their shares priced lower than they are worth due to the unscrupulous dealings of traders like Charles Langston.

80% of People Targeted by Investment Scams

Yahoo news reported a shocking statistic.  Almost 80% of US adults have been targeted by an investment scam.  FINRA conducted the poll and found that 40% of the people surveyed were unable to recognize the classic red flags of an investment scam.  They asked additional questions and found that 96% of people would not admit to being victim to a financial fraud so many investment scams go unreported.

With these shocking statistics it is important for people to protect themselves.  Here are some things you can do to make sure you don’t become victim to an investment scam.

  • Read the SEC updates on recent scams that have been busted.
  • If you are investing in a private offering check the SEC database to see if they have filed a Form D.  The Form D will provide information on the offering.
  • Read the SCOR disclosures associated with a Reg D offering.  Some companies will complete this in order to answer investor questions.
  • Research the industry.  Make sure that the claims a company is making coincide with what is happening in the market place.  For example if someone wants you to invest in a new technology that is currently being used by 30 other companies…. you should probably run away.
  • Run a background check.  You can a small fee and run a criminal background check on the owners.
  • Use an escrow account.  Instead of giving the company a check deposit the funds into an escrow account and only release them after you have received all of the necessary documents to prove your ownership.
  • Speak with the company attorney.  If the company does not have an attorney that is willing to speak with you that should be a red flag.  Issuing a private offering is a big deal and hiring council is part of that process.  Take down the information on the attorney and let them know you are doing it.  Check with the state bar to see if they are licensed.
  • Review their financial disclosures with your own CPA or accountant.  They will be able to point out red flags and tell you if the company is in line with industry standards.
  • If it sounds too good to be true it probably is.
  • Don’t be pressured.  If a company is pressuring you to invest without reviewing documents, consulting your accountant, or attorney – run the other way. Reputable companies will have no problems with you discussing the opportunity with your advisers.
  • Invest in what you understand.  If you know the industry, or are able to research it, then you are more likely to make a wise decision.  When you invest in things that you don’t understand or simply don’t make sense it is easier to be fooled by scammers.
  • Invest in U.S. based companies.  Sending money overseas is extremely risky and inadvisable.  If you want to have investments abroad focus on investing through a foreign exchange.
  • Stay local.  When you invest in a local company you have an opportunity to meet with the owners, inspect operations, and speak with their vendors and clients.  The more you know about a company the less likely you are to be scammed.
  • Read, read, read – everything.  Even if you are investing in a reputable company, through a broker dealer, or buying municipal bonds read the offering statement thoroughly.  Even cities have defrauded investors so take your time to read and research.

Statistically most investors will make a mistake from time to time.  If you have, just focus on being more diligent next time.  For more tips visit the SEC’s website.  They publish investor bulletins on a regular basis in order to educate the general public on niche industries and investment vehicles.

Son Reveals Father’s Ponzi Scheme

Now Investors to Be Paid Back

Investors are unknowingly taken advantage of all the time.  While there are thousands of good companies raising capital for legitimate needs, there are also thousands of scammers willing to take your money and spend it on themselves.

For investors that were victims of the Lupas Ponzie Scheme, justice was served when a chief justice of the Pennsylvania Supreme Court decided they will share in a $3.25 million fund.  The court created this fund by collecting annual attorney registration fees.  It has now reached millions of dollars and will be put to good use by giving some victims their money back.

Judge stumbled across the information while cleaning out his father’s law office after he was injured.

The case gets even more interesting when you learn who brought the ponzi scheme to light in the first place.  Judge David Lupas, son of Anthony Lupas, is who turned authorities onto his father’s scam.  Judge Lupas wrote a statement that said…

“he came to learn of circumstances involving him which I believed warranted an investigation. Accordingly, I reported this matter to the proper authorities and requested an investigation.”

Apparently the judge stumbled across the information while cleaning out his fathers law office after he was injured.  It is believed that at least 80 people have been victimized by the scheme.

Anthony Lupas was a Wilkes-Barre Pennsylvania lawyer and a school district solicitor. According to the charges he ran a Ponzi scheme where he continued to take investment money from new investors and used it to give returns to older investors.  He continued to promise high returns but there were really no returns at all.  What he didn’t pay out he kept for himself. He is also charged with conspiracy and mail fraud.

He took millions from investors without anyone knowing their was a ponzi scheme in play.

If it wasn’t for him becoming injured, and his son cleaning out his office as a result, the scam may not have been uncovered for years.  The case is still ongoing so more details are likely to surface regarding the exact amount that investors were cheated out of.

He has not stood trial yet because his family says he has Alzheimer’s. The prosecutor in the case says he is fully aware of the charges and is asking a judge to have him tried anyway.   In the meantime 47 people that invested with Lupas have hope as they will get some of their money back through this state fund.  This is no doubt in part at the urging of Judge David Lupas who must feel some level of responsibility for not catching the scheme sooner.  His prompt reporting of it shows his clear disapproval while it may make for an interesting family dynamic around the Thanksgiving table….

 

 

 

SEC’s Top Violator List

“All types of organizations can be in violation and investors are the ones that typically pay.”

As an investors, it is important to do your due diligence before investing into any deal.  Many investors think they are safe if they work with a reputable company, broker, investment group, or invest in municipal bonds.  If that’s you – think again.  According to the SEC all types of organizations can be in violation and investors are the ones that typically pay.

Here is the top violator list for the SEC (this is only a sampling of the people and companies that have recently been in violation for defrauding or misleading investors).

Citigroup (aka your bank)

That’s right; even banks can be in violation of the SEC.  In this particular case, it was a subsidiary of Citigroup that was charged with misleading investors.  This broker dealer division (known for issuing private offerings) was charged with misleading investors over a CDO that was tied to the housing market.  There is a proposed settlement that would require Citigroup to pay $285 million to investors.

Stifel, Nicolaus & Co. and RBC Capital Markets

These two companies were involved in a scheme where five Wisconsin school districts purchased unsuitable CDO investments.  As a result, RBC Capital Markets had to pay $30.4 million to the school districts through a Fair Fund.

JP Morgan Securities

According to the SEC, this reputable investment advisory firm mislead investors as part of a complicated mortgage securities transaction.  J.P. Morgan has agreed to pay investors their money back to the tune of $153 million.

Mizuho Securities USA

This U.S. subsidiary of Japan based Mizuho Financial Group was charged with misleading investors by inflating a deals credit rating by using dummy assets.  Several employees were also charged, and Mizuho settled by paying a $127.5 million fine.

Wells Fargo

Their brokerage firm and a Vice President was charged with selling mortgage-backed securities without fully disclosing information to investors.  They settled by paying over $6.5 million.

UBS Securities

The SEC charged them with violating securities laws by failing to disclose that it retained upfront cash. This cash should have gone to the CDO and since it did not they settled by paying $50 million.

Sometimes the most “reputable” companies are the riskiest.

These are only some of the companies that have violated securities laws in the past couple of years.  The SEC fields violation complaints on a daily basis and routinely investigates people. A lesson can be learned from this list.  Sometimes the most trusted companies will place investors in harms way by using their reputation to their advantage.  Investors should take the time to research deals, read the disclosure statements, and conduct market research.  Investigate things for yourself to make sure that what is being presented looks and feels right.  There is no way to protect yourself 100%.  The best thing you can do is to take the time to research so that you can be confident in your investment decisions.  Don’t assume that your bank or investment advisor has it right.  Ask questions, and if it’s a good deal, they will be happy to answer them.

 

SEC Assess a Penalty Against Municipal Issuer

The SEC Assess a Penalty Against a Municipal Issuer for the First Time

Municipal Issuer Hid the Fact that an Independent Consultant Reviewed Financial Projections and Raised Concerns Over Financial Viability.

The Greater Wenatchee Regional Events Center Public Facilities District, in Washington State, was charged with misleading investors by the SEC.  They issued a bond offering to finance the construction of a regional events center that would house a hockey arena.  The bond issuance mislead investors and the developer Global Entertainment, CEO Richard Kozuback, the underwriter Piper Jaffray & Co. and Jane Towery, and Allison Williams, a senior staff member for Public Facilities District were included in the charges.  As a result the Public Facilities District is settling by paying a $20,000 fine to the SEC, the first time a municipal issuer has ever had to do so.

Andrew Ceresney, co-director of the SEC’s Division of Enforcement said, “Financial penalties against municipal issuers are appropriate for sanctioning and deterring misconduct when, as here, they can be paid from operating funds without directly impacting taxpayers.  This municipal issuer is paying an appropriate price for withholding negative information from its primary offering document and giving investors a false picture of the future performance of the project.”

Furthermore, Piper Jaffray & Co. and Towery will pay penalties of $300,000 and $25,000 each.  Global Entertainment and Kozuback will pay penalties of $10,000.  Williams consented to a cease-and-desist order.  None of the parties admit to or deny the SEC charges.

Mr. Ceresney’s statement that they paid an “appropriate price” may be up for debate by investors.  Afterall they issued $41.77 million in bond anticipation notes and three years later defaulted on principal payments.  One has to ask how much money the developer made on a project of this size.  Is $10,000 anything more than a slap on the hand?

The issuer, The Greater Wenatchee Regional Events Center Public Facilities District, is formed by nine cities and counties in Washington State.  They created it to fund the Town Toyota Center in Wenatchee, Washington.  This Eastern Washington town is rural and mostly known for wine production and agriculture.  It is also the largest city in the area, and where people in surrounding towns go to access big box retailers.

During their investigation, the SEC  found inaccuracies in the primary disclosure document that accompanied their offering in 2008.  

Calling it inaccurate is tame, as the omitted facts directly impact investors.  The statement claimed that no independent party had reviewed the financial projections.  In truth, an independent consultant had examined them multiple times and raised concerns that the project was not financial viable. Additionally the financial projections had been revised to show an increase in revenue and profits based on city leaders saying the community would support the project.  The challenge is that there were not risk factors mentioned pertaining to the city’s proposed support such as, the City of Wenatchee’s debt capacity limits its ability to support future long-term bonds.

Unfortunately, investors made decisions based on facts that simply were not true.  They trusted the District, the auditor, and the offering statements to be accurate and have suffered because of it.  As with any investment scheme it is important to review the provided documents and decide for yourself if it makes sense. Conduct your own due diligence before investing.  Even municipalities and cities make mistakes and can be corrupted by greed so don’t trust the name – trust your research.

sec logo