by T. GormanPosted on Posted in SECActions

Investment fund fraud and Ponzi schemes have become a staple of SEC enforcement. The investment fraud schemes often cross from securities into other areas such as the currency markets. In such instances either the CFTC or the U.S. Attorney may initiate an action. For example, at the close of last week the Manhattan U.S. Attorney’s Office filed criminal charges centered on what is claimed to be a forex scheme. U.S. v. Beatty (S.D.N.Y. April 21, 2015).

Mr. Beatty solicited investors through his investment firms, Peak Capital Management Group, Inc. and Peak Capital Group, Inc. Over a period of about two and a half years, beginning in January 2011, he and his firms solicited investors who were interested in trading in foreign currency. The solicitations were made through the website of Peak Capital, email and the mail. Mr. Beatty and his firm used a series of false statements in these solicitations, according to the criminal complaint, including:

Use of funds: Investors were told that their funds would be used in forex trading when in fact most investor funds were not;

Returns: Investors were told that Mr. Beatty’s trading results were generally positive with returns as high as 43.9% when in fact his trading was almost always unsuccessful;

Individual accounts: Investors were assured that their funds would be in an individual account would be created for each investor when in fact they were not; and

Account statements: False account statements were furnished to investors.

Overall about $825,000 was raised from 49 investors. Of the funds, raised about $184,000 was distributed to other investors in an effort to conceal the scheme. The majority of the investors were Japanese citizens who were not authorized to trade leveraged, margin, or financial forex in individually managed accounts under the Commodity Exchange Act.

The criminal complaint alleges one count of commodities fraud and one count of wire fraud. The case is pending.

Previously, the CFTC entered an order against Mr. Beatty. The Order alleged essentially the same scheme as detailed in the criminal complaint. It also claimed that Mr. Beatty lied to the agency during its investigation, denying that he solicited investors for forex trading. The action was resolved with the CFTC directing that $641,000 in disgorgement be paid along with a $1 million penalty. Mr. Beatty was permanently barred from the industry. In the Matter of Scott A. Beatty, CFTC Docket No. 14-34 (Sept. 30, 2014).

Program: Key Issues in SEC Enforcement, webcast by the ABA Criminal Division, May 2, 2016 from 1:00 to 2:30 p.m. EST. Moderators: Thomas O. Gorman and Frank Razzano. Panelists: Stephen Cohen, Associate Director, SEC Division of Enforcement, Harry Weiss, partner Wilmer Hale and Olga Greenberg, partner Southerland Asbil. Additional information and registration is available here.

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by T. GormanPosted on Posted in SECActions

Apple stock is well known and popular among investors. It is also attractive to fraudsters who focus on the high tech giant’s shares for schemes. One scheme, for example, brought down New York brokerage Rochdale Securities when a registered representative had a fool proof scheme: buy $1 billion in shares on one day and, if the price went up by the end of the day take the profits, or if not disavow the trades. The scheme ended with the firm out of business and the trader charged by the U.S. Attorney and the SEC. U.S. v. Miller, 3:12-mj-0028 (D. Mass April 15, 2013); SEC v. Miller, Civil Action No. 3:13-cv-00522 (D. Mass. Filed April 15, 2013).

The SEC settled another case centered on Apple stock at the end of last week. SEC v. Bliss, Civil Action No. 2:15-cv-00098 (D. Utah Filed Feb. 11, 2015). In this action Roger Bliss operated a multimillion investment fraud scheme over a seven year period beginning in 2008. Unlike many investment schemes which claim to be based on proprietary trading techniques or which supposedly invest in exotic instruments, Mr. Bliss only invested in one stock – Apple. Mr. Bliss claimed that he day-traded exclusively in Apple stock. He never had a losing day, according to his sales pitch. He also told potential investors that he had more than $300 million in assets under management. About $260 million was supposedly his capital. Returns of course were guaranteed – and those returns would be at least 100% and up to as much as 300%.

Investors flocked in. In fact Mr. Bliss had lots of losing days. His brokerage records for the period January 2012 through the end of 2015 showed that he had losses of over $3.2 million. The scheme ended with Mr. Bliss pleading guilt to state securities fraud charges. He was ordered to pay over $20 million in restitution. He also pleaded guilty to charges of perjury and obstruction of justice for lying to the court in connection with a freeze order secured by the SEC in its case against him.

Last week the court entered a final judgment against Mr. Bliss. In that judgment the court entered a permanent injunction against Mr. Bliss, prohibiting future violations of the registration and antifraud provisions of the federal securities laws. The order also directs that he pay almost $11 million in disgorgement which will be deemed satisfied at the conclusion of a court-appointed receivership. See Lit. Rel. No. 23524 (April 22, 2016).

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