by T. GormanPosted on Posted in SECActions

The main street investor focus of SEC Enforcement has spawned a series of offering fraud cases. It has, at the same time, resulted in a series of actions involving investment advisers which has become one of the largest groups of cases brought by the Commission. This week the agency added to the number of those actions by naming another adviser in a fraud case for fraudulently inflating NAV. SEC v. TCA Fund Management Group Corp., Civil Action No. 1:20-cv-21964 (S.D. Fla. Filed May 11, 2020).

TCA is a registered investment adviser which has offices in New York, Las Vegas, London and Melbourne. TCA Global Credit Fund GP, Ltd., a Cayman firm , was also named as a defendant. That firm serves as the general partner of Master Fund and Feeder Fund.

TCA advises the funds. The Feeder Funds raise capital from investors. Those funds feed the Master Fund. It Provides investment banking services to small and medium sized firms. The adviser is compensated based on the amount of the Funds’ assets or NAV. The other entities involved are compensated based on the profitability of the Master Fund.

Over a nine-year period tracing to 2010, TCA has falsely inflated NAV and its compensation through two methods. First, fees paid to the Master Fund were prematurely recognized. When that Fund entered into a lending arrangement typically a term sheet was executed. Rather than waiting for the deal to close and the fees to be earned, TCA had Master Fund recognize the fees at the time the term sheet was signed.

Second, over a three-year period, beginning in 2016, the adviser caused the Master Fund to prematurely recognize fees for investment banking services. Specifically, when an agreement for services was entered into TCA immediately recognized the fees as income despite the fact that little if any of the services had been provided.

Collectively, these practices left Master and Feeder Funds in difficult financial conditions. NAV had been falsely inflated by almost $160 million. In 2017 and 2018 the auditors issued a qualified opinion with respect to 89% of the Master Fund’s NAV. In January the Feeder Funds were forced to suspend redemptions. The complaint alleges violations of Securities Act Section 17(a), Exchange Act Section 10(b) and Advisers Act Sections 206(1), 206(2) and 206(4). The case is pending.

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by T. GormanPosted on Posted in SECActions

In the days of COVID-19 the only topic of conversation seems to be the virus. The Commission and other enforcement authorities are investigating claims tied to the virus. Law firms are busy putting out memoranda that somehow tie back to the virus or the programs combatting it.

One of the Commission’s most recent cases is not about the virus, although one was brought last week against a Florida firm. Nor is it one of the seemingly endless stream of offering frauds being filed. Rather, it combines manipulative matched trades and a boiler room into a new scheme to profit from manipulation and false statements. SEC v. Tucker, Civil Action No. 8:20 – cv- 00875 (C.D. CA. Filed May 11, 2020).

Defendant Clinton Tucker II is not a securities professional or apparently even a stock trader, at least as far as can be discerned from the Commission’s complaint. Nevertheless, beginning in late 2014 he launched what became a multi-year manipulative and deceptive scheme keyed to matched trades of microcap stocks and boiler rooms that was profitable for him and those with whom he worked.

It began with an investor who controlled a microcap Nevada firm. The Investor managed to secure large blocks of shares in the Nevada firm. Mr. Tucker arranged to help sell the shares.

Selling large blocks of microcap stocks frequently takes a considerable period of time or crushes the market price since there is often little liquidity in the market. Mr. Tucker devised a scheme to facilitate the purchase-sale transactions and avoid the difficulties inherent in the microcap market. The scheme keyed to these steps: First, Mr. Tucker began with an arrangement tied to Investor who held large blocks of a microcap stock. Second, he arranged for a group to solicit buyers for the shares. Third, the solicitors, using a boiler room type operation, were able to procure buyers for the shares. Mr. Tucker then arranged to match the price and share amount of the buyer with a seller – a matched trade. While the Investor knew of the scheme others did not.

By 2015 Mr. Marshall began working with other securities solicitation operations to expand the scheme initiated with the Investor and the Nevada firm. He operated essentially the same boiler room type operation and matched trade scheme. This permitted Mr. Marshall to earn almost $600,000 in fees over a four year period. Investors were not aware of Mr. Marshall’s name since he typically used a fictitious name.

The relationships generated through the trading scheme created another opportunity. Mr. Marshall began soliciting largely elderly investors to invest in shares of various companies. In many instances he misappropriated the funds. This scheme netted Defendant about $165,000. The complaint alleges violations of Securities Act Section 17(a) and Exchange Act Sections 10(b) and 15(a)(1). The case is pending. See Lit. Rel. No. 24814 (May 11, 2020).

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