by T. GormanPosted on Posted in SECActions

In the string of investment fund fraud cases the Commission has brought since the arrest of Ponzi king Bernard Madoff, enforcement officials typically do not arrive in time to save investors from losing their money. Despite diligent efforts, law enforcement typically arrives on the scene after investors have given the fraudster millions of dollars based on a pitch focused on guaranteed safety and fabulous returns from some proprietary trading or investment system. Much, if not all of the money investors entrusted to the fraudster is gone. Investors are lucky to recover pennies on the dollar. This is just the way these schemes unfold.

In the recent case involving Uche Akwuba and his investment advisory firm Hanes Morgan & Co. however, it appears that the Commission arrived in time to save investors. The man behind Hanes Morgan, which did business as Mega Trakker Endowments, is a convicted fraudster who served 46 months in prison and three years on probation after being convicted of wire fraud and other charges. He has also been fined and barred from association with any member of the NASD.

Nevertheless, from July 29 to November 29, 2010 Hanes Morgan operated as a registered investment adviser. The firm solicited possible clients through its website. There investors were told that the firm owned trading platforms located in major American banks. It also had a staff of professional stock traders, according to the site. ChenTrack, a scientific trading system used by the firm, was consistently successful, enabling it to deliver guaranteed growth of 10% per year, compounded. The system had been created by a brilliant mathematician and had been market tested. Would be investors were invited to open a “Wall Street Savings Account” with a minimum initial investment of $2,150. No doubt more could be invested.

The Commission’s Order Instituting Proceedings, which names the firm and its principle as Respondents, alleges that the representations on the website are false. There are no trading platforms at major banks. ChenTrak is not a sure fire system developed by a brilliant mathematician. Rather, it is Mr. Akwuba’s intuition. The system had not been tested. There were trading results however. Respondents’ created a dummy account, selected stocks Mr. Akwuba claims he would have selected and, with backdated results, achieved positive returns. Somehow the website failed to disclose these facts or mention Mr. Akwuba’s prior encounters with law enforcement.

The Commission instituted a proceeding against the firm and its principle. The Order does not allege that the Respondents were successful in soliciting investor money or using it for their own benefit as in most investment fund fraud cases. It does allege violations of Advisers Act Sections 206(1), 206(2) and 205(4). Respondents resolved the proceeding by consenting to the entry of a cease and desist order based on the sections cited in the Order. Respondent Akwuba also agreed to be barred from the securities business. Each Respondent will pay a civil money penalty of $100,000. In the Matter of Hanes Morgan & Co., Adm. Proc. File No. 3-14649 (Nov. 29, 2011).

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by T. GormanPosted on Posted in SECActions

The reorganization of the Division of Enforcement which spawned the re-introduction of specialty groups was, in part, designed to focus the resources of the Division and increase efficiency and effectiveness. Three recently filed cases are an example of the results of the reorganization and the creation of specialty units. In the Matter of Asset Advisors, LLC, Adm. Proc. File No. 3-14644 (Nov. 28, 2011); In the Matter of Feltl & Company, Inc., Adm. Proc. File no. 3-14645 (Nov. 28. 2011); and In the Matter of Omni Investment Advisers Inc., Adm. Proc. File No. 3-14643 (Nov. 28, 2011). Each proceeding is against an investment adviser. Each Order alleges compliance failures. Each proceeding stems from an initiative between Enforcement’s Asset Management Unit and SEC examiners to proactively protect investors by ensuring that advisers have the required compliance policies and procedures in place.

The proceeding against Asset Advisors centers on the failure of the registered investment adviser to adopt written compliance policies and procedures from October 2004 through April 2007. From January 2005 through early 2007 the firm also failed to adopt a written code of ethics. Following an alert from the examination staff on each issue the firm adopted written compliance policies and procedures in May 2007 and a code of ethics. It failed, however, to fully implement a compliance program. It also failed to enforce the code of ethics by collecting written acknowledgements that supervised persons had received a copy and the required periodic reports. The firm resolved the proceeding by consenting to the entry of a censure and a cease and desist order based on Advisers Act Sections 204A and 206(4). It also agreed to pay a civil penalty of $20,000. In addition, the firm agreed to implement certain undertakings.

The second proceeding is against Felti & Company, Inc., a registered broker-dealer and investment adviser. As the firm’s business grew and evolved, it failed to adopt the required policies and procedures for its advisory business. Specifically, Felti failed to adopt and implement comprehensive written compliance policies for that business from early 2008 through March 2011. It also failed to adopt a code of ethics. As a result the firm engaged in hundreds of principal transactions with its advisory client accounts without making the proper disclosures and obtaining the necessary consents. The firm also charged undisclosed fees to its clients who participated in the wrap fee program by charging the wrap fees and commissions. In April 2011, as a result of the exams and investigation by the staff, the firm adopted a new compliance manual for its advisory business. The Order alleges violations of Advisers Sections 206(2), (3) and (4) as well as 204A. The firm resolved the proceeding by consenting to entry of a cease and desist order based on the cited sections and a censure. It also agreed to pay disgorgement of $142,527 along with prejudgment interest, the applicable portions of which shall be paid to the affected advisory clients. The firm will also pay a civil penalty of $50,000 and implement certain procedures including the retention of an independent consultant.

The proceeding against OMNI Investment Advisors is similar. That proceeding names as Respondents the firm and its sole owner and CEO, Gary Beynon. In a manner similar to the other two proceedings, OMNI failed to adopt and implement a compliance program between September 2008 and August 2011. Similarly, the firm failed to establish, maintain and enforce a written code of ethics and to maintain and preserve certain books and records. For much of the period the firm also did not have a Chief Compliance Officer. In November 2010 Mr. Beynon assumed that position. He preformed virtually no responsibilities however since he was living in Brazil. Nevertheless, in response to a subpoena OMNI produced client advisory agreements signed by Mr. Beynon. The agreements reflected his supervisory approval. In fact the dates on the agreements were not correct. Rather, Mr. Beynon executed the documents the day before they were produced to the staff. To resolve the proceeding the Respondents consented to the entry of censures and cease and desist orders based on Advisors Act Sections 204(a), 204A, 206(4) and the related rules. Mr. Beynon also agreed to a bar from serving in a supervisory capacity in the securities business and to the pay of a $50,000 civil penalty. The firm agreed to implement certain undertakings.

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