by T. GormanPosted on Posted in SECActions

The Commission filed two proceedings centered on investment advisers. One is based on improper fee and trading practices. The second is based on the misappropriation of funds from pooled investment vehicles by the adviser.

In the Matter of WFG Advisors, L.P., Adm. Proc. File No. 3-17320 (June 28, 2016) is a proceeding naming the registered investment adviser as a Respondent. The adviser has about $1.4 billion in regulatory assets under management. Those assets are held largely in separate accounts for over 9,900 clients. WFG represented that clients participating in its wrap account program would not be charged commissions in connection with alternative investments. Nevertheless, from January 2011 through August 2013 clients were in fact charged a commission and the advisory fee. During approximately the same period the firm also engaged in securities transactions with advisory clients on a principal basis through its broker-dealer without providing prior written disclosures or obtaining consent from the client. The firm failed to adopt policies and procedures reasonably designed to ensure that advisory fees were calculated as represented.

The order alleged violations of Advisers Act Sections 206(2), 206(3) and 207. To resolve the action Respondent agreed to certain undertakings, consented to the entry of a cease and desist order and a censure and will pay a civil penalty of $100,000.

In the Matter of Jan F. Helen, Adm. Proc. File No. 3-17319 (June 28, 2019). Respondent Helen is the sole owner of Janco Properties, the manager and investment adviser to JEP II and JEP III regarding their oil and gas investments. JEP II and JEP III were formed to invest in working interests in oil and gas exploration. Over a period of months beginning in March 2013 Respondent misappropriated $165,200 from the two entities. The misappropriation was discovered in 2014 during a regulatory review of Respondent’s then affiliated broker-dealer. The Order alleges violations of Securities Act Section 17(a), Exchange Act Section 10(b) and Advisers Act Section 206(4). The proceeding will be set for hearing.

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by T. GormanPosted on Posted in SECActions

The key to China based Longwei Petroleum Investment Holding Limited’s business was its storage facilities for oil, gas, fuel oil and solvents, claimed to be the largest in the area. While the firm repeatedly made representations about its storage capacity which were the same, the number of tanks it owned varied. And, questions were raised in the media about its sales which were followed by misrepresentations designed to trick shareholders into exercising warrants, giving the firm an infusion of cash. SEC v. Toups, Civil Action No. 23584 (June 27, 2016).

Defendant Michael Toups was the CFO of Longwei, a Colorado corporation with its primary place of business in Shanxi province China. The firm’s shares were at one time listed on the New York Stock Exchange.

Longwei built is storage business by making three acquisition. The first was in June 2008 which gave it 50,000 metric tones of storage, according to the firm. The number of tanks listed varied from 8 to 14. The second was in 2009 when it acquired 70,000 metric tons of storage capacity. The number of tanks listed varied from 7 to 8 to 14. The third was in 2012 when the firm acquired 100,000 metric tons of storage. With this addition the company claimed to be the largest of any private enterprise in Shanxi, China. In making the storage capacity estimates the firm never allowed for the density of the material which changes the amount of product that can be stored.

In late 2012 a shareholder questioned the claims regarding storage. Mr. Toup took a variety of steps to investigate the claim. Eventually he learned that the firm was overstating not just its storage capacity but also its inventory. Nevertheless, in January 2013 Mr. Toup drafted a press release for the firm which claimed the representations regarding storage were made in accord with industry standards. The stock price jumped the day of the release. The same day Mr. Toup received documents from the Fire Protection Bureau in Shanxi, China demonstrating that the capacity claims were incorrect. No corrective disclosure was made.

The day after the press release was issued a research firm published a report claiming that Longwei was a “massive fraud.” In part the report alleged that the firm was overstating its sales. The stock price dropped 73%. The firm’s U.S. based auditors traveled to China to visit. They were prevented from accessing portions of the facilities and speaking from certain executives. Mr. Toups and the auditors were also denied access to the company records. A request by the chair of the audit committee to fund an investigation was ignored. Eventually he resigned. The firm issued a press release reiterating the representations made earlier about its storage capacity and representing that management was cooperating with the inquiry. Later the NYSE delisted the stock.

In October 2012, shortly before certain warrants were due to expire, an advisor to the firm’s CEO told Mr. Toups that the company was in urgent need of cash. To raise the funds Mr. Toups was asked to pressure warrant holders to exercise their holdings before month end. He did without disclosing that the warrants were going to be extended. This gave the firm a cash injection. The complaint alleges violations of Securities Act Section 17(a) and Exchange Act Sections 10(b) and 13(a). The case is pending. The Commission has also instituted a proceeding under Exchange Act Section 12j as to the firm. See Lit. Rel. No. 23584 (June 27, 2016).

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