by T. GormanPosted on Posted in SECActions

The Commission has brought a number of suits against investment advisers, money managers and their affiliates in recent weeks. See, e.g.,SEC v. Falcone, Civil Action No. 5027 (S.D.N.Y.)(recently settled action against Philip Falcone); SEC v. Dearman, Civil Action No. CV-553 (N.D. Okla. Filed Aug. 27, 2013)(action against former representative of investment adviser); In the Matter of Carl D. Johns, Adm. Proc. File No. 3-1544 (Filed Aug. 27, 2013)(proceeding against employee of Bolder Investment Advisers). In filing an action against Ronald Feldstein and his controlled entities, however, the agency names as a defendant a would be, but not an actual, money manager. SEC v. Feldstein, Civil Action No. 13 CV 61681 (S.D.N.Y. Filed September 3, 2013).

Mr. Feldstein, Mara Capital Management LLC and Vita Health of America, LLC executed two consecutive fraudulent schemes. One left three broker-dealers with over $2 million in losses in a matter of weeks. A second bilked investors out over $450,000 in a short period.

The first scheme took place from December 2008 and continued through February 2009. During that period Mr. Feldstein and his two entities, also named as defendants in the Commission’s action, opened accounts for trading at three brokerage firms. The accounts opened did not require that funds or securities be deposited. Rather, the defendants opened “delivery versus payment” or DVP accounts. That type of account does not require that funds be deposited. It operates on the understanding that the owner has sufficient cash that is held with a third party custodial bank. When trades executed through the account require settlement, the funds are to be wired in from the custodial account. The defendants here represented to the three brokers, or at least lead them to believe, that there were custodial accounts and the required wire transfers would be made in a timely fashion to settle trades.

Mr. Feldstein, Mara and Vita did not have any custodial accounts, according to the complaint. The DVP accounts at the three brokerage firms were in fact part of a free riding scheme. Accordingly, when securities were purchased and the price increased, the position was liquidated. The sale proceeds would be used to pay for the purchase. In contrast, if the trade was not profitable, it would be abandoned. The repeated implementation of this scheme over a period of weeks left the three brokers where the defendants opened accounts which huge losses.

After defrauding the brokerage firms, the defendants moved on to individual investors. Later in 2009 Mr. Feldstein induced several individual investors to give him a total of $450,000 for investment. Under the plan the funds would be used to purchase select penny stocks and invest in an IPO and a hedge fund that was represented to be successful. In fact none of the money was invested. Mr. Feldstein converted it to his personal use.

The Commission’s complaint alleges violations of Securities Act Section 17(a) and Exchange Act Section 10(b). The case is pending.

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by T. GormanPosted on Posted in SECActions

Three employees of a New York broker-dealer pleaded guilty on Friday, August 30, to charges of conspiracy, violating the FCPA, violating the Travel Act, money laundering and conspiracy to obstruct justice. Specifically, Ernesto Lujan, Jose Hurtado and Tomas Clarke each pleaded guilty to six counts: Two count of conspiracy to violate the FCPA; one count of violating the FCPA; one count of violating the Travel Act; one count of money laundering; and one count of conspiracy to obstruct justice. U.S. v. Lujan, Case No. 13 Crim 671 (S.D.N.Y. Aug. 29, 2013); U.S. v. Hurtado (S.D.N.Y. Aug. 29, 2013); U.S. v. Clarke, 13 Crim 670 (S.D.N.Y. Aug. 29, 2013).

Messrs. Lujan, Hurtado and Clarke were employed by New York based registered broker-dealer Direct Access Partners LLP. Mr. Lujan was a Managing Director in the Global Markets Group while Mr. Clarke was a vice president in the same group. Mr. Clarke was an employee of the firm. Beginning in early 2009, and continuing through 2012, the three defendants participated in a bribery scheme involving Maria de los Angeles Gonzales de Hernandes, according to the charging papers. Ms. Gonzales was an official at Banco de Desarrollo Economico y Social de Venezuela or BANDES. The bank is a controlled enterprise of the Venezuelan government.

During the period of the scheme, Direct Access is alleged to have received about $60 million in mark-ups and mark-downs from the business directed to it by Ms. Gonzales from BANDES. Substantial portions of those revenues were split with her. Those splits are reflected in e-mail and other documents, according to the charging papers.

In an effort to conceal the scheme, the payments were often funneled to Ms. Gonzales through off-shore accounts or through Switzerland. At the same time Messrs. Lujan and Clarke are alleged to have received substantial benefits from the scheme.

As the scheme was unfolding in November 2010 the Commission staff conducted an inspection of the broker dealer. The three defendants were concerned that the scheme would be discovered. Accordingly, they destroyed certain e-mail. Mr. Clarke also lied to the SEC inspection staff, according to the court documents.

In a related scheme Messrs. Lujan, Clarke and Hurtado are alleged to have paid bribes to an official at another Venezuelan state controlled bank.

Sentencing for Mrs. Lujan and Clarke is scheduled for February 11, 2014. Sentencing for Mr. Hurtado is scheduled for March 6, 2014. The SEC’s parallel case is pending. SEC v. Clarke, Civil Acton No. 13 CV 3070 (S.D.N.Y. Filed May 13, 2013).

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