by T. GormanPosted on Posted in SECActions

The UK Financial Services Authority announced a settled market crisis action in which UBS was fined £9.45 million for exposing sophisticated investors to unacceptable investment risk.

From December 2003 through September 2008 the firm sold shares in the AIG Enhanced Variable Rate Fund to 1,998 investors. All were high net worth individuals. The investments totaled £3.5 million. The investments were in a money market fund. Unlike most money market funds however, this fund focused on delivering enhanced returns. It sought to do this by investing a significant portion of its assets in mortgaged backed securities and floating rate notes.

As the market crisis unfolded, the value of some of the assets in the fund dropped below book value. Following the collapse of Lehman Brothers in September 2008 the share price dropped significantly. There was a run on the fund. Redemptions were halted and many investors could not recover their funds.

UBS failed to ensure the suitability of its advise, the regulator concluded. This is evidenced by the fact that:

• The firm failed to carry out adequate due diligence before marketing the shares to investors;
• The firm failed to provide adequate training to its sales force to ensure that the shares were only sold to suitable customers;
• Its advisers recommended the fund to customers despite the fact that it did not provide the sought after level of security;
• Customers were not furnished with a report about the reason the fund was suitable for them;
• The firm told some customers it was a cash fund when in fact a large portion of its assets were invested in high risk instruments;
• The firm failed to respond appropriately to its growing concerns about the fund and its realization of the risk;
• The firm failed to assess customer complaint fairly; and
• It did not maintain adequate sales records.

UBS has agreed to implement a remediation program. Since UBS agreed to settle at an early stage it was given a 30% reduction in the fine which otherwise would have been £13.5 million.

by T. GormanPosted on Posted in SECActions

A path to U.S. citizenship premised on an immigration program crafted to help create jobs, and surrounded with misrepresentations and false documents was the lure used by Anshoo Seithi and his controlled entities to defraud 250 investors of millions of dollars, according to an SEC complaint. The Commission obtained a temporary asset freeze over $145 million in investor funds and a retraining order at the time of filing its complaint against Mr. Seithi, A Chicago Convention Center, LLC and Intercontinental Regional Center Trust of Chicago, LLC, both recently formed entities. SEC v. A Chicago Convention Center, LLC, Case No. 13cv982 (N.D. Ill. Filed Feb. 6, 2013).

The EB-5 Program was created as part of the 1990 Immigration and Nationality Act. It promised foreign nationals who invested $1 million creating or preserving at least 10 U.S. workers jobs in this country the opportunity to obtain a green card. Alternatively, $500,000 could be invested in a high unemployment or rural area. The program is administered by the U.S. Citizenship and Immigration Service or USCIS.

Mr. Seithi used this program to solicit investors to purchase notes in A Chicago Convention Center, claiming it would build and operate what he called the World’s First Zero Carbon Emission Platinum LEED certified” hotel and conference center in the Chicago area. The conference center was supposed to generate over 8,000 jobs, thus qualifying it for the EB-5 Program. Investors were asked to wire a minimum of $500,000 each for their investment and, in addition, $41,5000 as an administrative fee. Investor funds would be held in escrow. Those funds would only released to Defendants if USCIS determined that: (1) the hotel project was capable of generating the minimum number of jobs to qualify for the EB-5 program; and (2) adjudication of the individual investors’ application for a provisional visa, a preliminary step toward obtaining a green card. Those procedures did not, however, apply to the administrative fee.

The offering memorandum claimed the project was moving forward. Several major hotel chains were part of the project, according to the document. All necessary permits and approvals to construct the project were in place investors were told. And, defendants would contribute real estate valued at over $177 million.

The representations were false, according to the SEC’s complaint. Contrary to the offering memorandum claims, Starwood, Intercontinental and Hyatt hotels had not executed franchise agreements. Few steps have been taken to move the project forward. The land that would be contributed was vastly overvalued. And, a falsified letter purporting to be from Hyatt Hotels was furnished to USCIS in an effort to secure provisional approval. A significant amount of the $10,726,466 collected as administrative fees has been misappropriated.

The Commission’s complaint alleges violations of Securities Act Sections 17(a)(1) & (2) and Exchange Act Section 10(b). The case is in litigation. See also Lit. Rel. No. 22615 (Feb. 8, 2013).

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