Articles Posted in Securities and Exchange Commission Investigation

The Securities and Exchange Commission’s latest reward of  $50 million to two whistleblowers is an indicator that the program is successfully unveiling major frauds and more are anticipated. The $50 million awards relate to an SEC investigation stemming from whistleblower info which resulted in J.P. Morgan wealth management subsidiaries paying $267 million and admitting wrongdoing to settle charges that they failed to disclose conflicts of interest to clients.

An SEC investigation found that the firm’s investment advisory business J.P. Morgan Securities LLC (JPMS) and nationally chartered bank JPMorgan Chase Bank N.A. (JPMCB) preferred to invest clients in the firm’s own proprietary investment products without properly disclosing this preference.  This preference impacted two fundamental aspects of money management – asset allocation and the selection of fund managers – and deprived JPMorgan’s clients of information they needed to make fully informed investment decisions.

One whistleblower received an award of $37 million and the other received an award of $13 million.  The $37 million award is the Commission’s third-highest award to date after the $50 million award made in March 2018 to joint whistleblowers and more than $39 million award announced in September 2018.  One of the whistleblowers was represented by Attorney Jordan Thomas of the firm Labaton Sucharow

The Securities and Exchange Commission sued Kik Interactive Inc. for conducting an illegal $100 million securities offering of digital tokens.  The SEC charges that Kik sold the tokens to U.S. investors without registering their offer and sale as required by the U.S. securities laws.

As alleged in the SEC’s complaint, Kik had lost money for years on its sole product, an online messaging application, and the company’s management predicted internally that it would run out of money in 2017.  In early 2017, the company sought to pivot to a new type of business, which it financed through the sale of one trillion digital tokens.  Kik sold its “Kin” tokens to the public, and at a discounted price to wealthy purchasers, raising more than $55 million from U.S. investors.  The complaint alleges that Kin tokens traded recently at about half of the value that public investors paid in the offering.

The complaint also says that Kik marketed the Kin tokens as an investment opportunity.  Kik allegedly told investors that rising demand would drive up the value of Kin, and that Kik would undertake crucial work to spur that demand, including by incorporating the tokens into its messaging app, creating a new Kin transaction service, and building a system to reward other companies that adopt Kin.  At the time Kik offered and sold the tokens, the SEC alleges these services and systems did not exist and there was nothing to purchase using Kin.  Kik also allegedly claimed that it would keep three trillion Kin tokens, Kin tokens would immediately trade on secondary markets, and Kik would profit alongside investors from the increased demand that it would foster.  The Kin offering involved securities transactions, and Kik was required to comply with the registration requirements of the U.S. securities laws.

Jay-Z-to-testify-300x225A federal judge has ordered Jay-Z to testify as part of an SEC investigation. The rapper, whose real name is Shawn Carter, must testify next week relating to the decade old sale of his clothing brand.

Unanswered Subpoenas

Apparently, Jay-Z has failed to respond to two SEC subpoenas. The judge noted the SEC investigation has been delayed for 5 months because of his inaction. The ruling came just days after the SEC filed a request for an order seeking to enforce the subpoenas.

Martin Shkreli, the 32 year old pharmaceutical mogul who hiked the price of an HIV-related drug by 5,000 percent, was arrested by the FBI, at his Manhattan condo, and hid indictment accused him of orchestrating a “trifecta of lies, deceit and greed.”

A review of the unsealed indictment overviews the former hedge fund manager-turned-pharmaceutical company CEO and a multi-layered  securities fraud scheme involving the publicly-traded pharma company Retrophin LLC, which fired Shkreli as its CEO in 2014. Shkreli Indictment

Shkreli, was taken into custody at his Manhattan residence. He is the head of Turing Pharmaceuticals and KaloBios Pharmaceuticals and was previously the manager of hedge fund MSMB Capital Management and chief executive of biopharmaceutical company Retrophin Inc.

The Securities and Exchange Commission (SEC) today announced fraud charges against ITT Educational Services Inc., its chief executive officer Kevin Modany, and its chief financial officer Daniel Fitzpatrick.

The SEC’s Federal Court Complaint asserts that the ITT Educational, a national operator of for-profit colleges and the two executives, fraudulently concealed from ITT’s investors poor performance and negative impending financial impact of two student loan programs that ITT financially guaranteed.

The student loan programs, known as the “PEAKS” and “CUSO” programs provide off-balance sheet loans for ITT’s students.  To induce others to finance these risky loans, ITT provided a guarantee that limited any risk of loss from the student loan pools.

A second whistleblower complaint has been filed against Dominos by a former franchisee filed a second whistleblower to the Securities and Exchange Commission against Domino’s Pizza and its executives. The newer one alleges the company mislead investors in its SEC Filing 10-K that falsely specified franchisees were not required to purchase food and supplies from the franchisor, nor was it agreed by a 100 percent unanimous vote by franchisees to increase Domino’s advertising fund.

The original September 2013 SEC complaint says Domino’s 2012 franchise disclosure document was incomplete and failed to comply with Federal Trade Commission requirements regarding Item 3, which reveals litigation history.

The former franchisee details the multiple issues in conjunction with his previous complaint. He outlines how company employees and franchisees stated in depositions in his litigation with Domino’s that franchisees are required to purchase supplies from Domino’s commissary. But Domino’s SEC Filings 10-K states it differently. It says:

 Two securities exchanges, the EDGA and EDGX echanges have agreed to pay a total $14 million to settle federal charges of giving inaccurate information to trading firms about the buy and sell orders they used. It is the largest penalty it had imposed on a U.S. stock exchange and the first case involving types of trading orders used.

The exchanges gave full information about their ranking of orders by price and other data to some of their trading firm members — including some high-frequency firms — but not to all of their firm members says the SEC . That created a risk that not all investors could understand how the orders worked, the agency said.

High-frequency trading firms,  use computer algorithms to buy and sell stocks in millisecond. This account for a majority of stock trading volume and is the subject of potential laws to prohibit the practices where the high frequency firms get a jump on competitors by using computers to rapidly analyze market data and exploit minuscule price differences.

The United States Securities and Exchange Commission (SEC) has ordered F-Squared Investments Inc. the largest U.S. exchange traded funds (ETF) strategist to pay $35 million to settle charges it made false claims about the performance of its flagship investment product.
The SEC had charged F-Squared with touting a seven-year track record in its AlphaSector strategy that was not based on strategies connected to real money, as well as with using faulty calculations to inflate results. F-Squared reported $25 billion in ETF-managed-portfolio assets as of September, according to Morningstar Inc. AlphaSector grew to become one of the most popular  ETF strategies with portfolio managers, who used the funds as building blocks and often promoted them as mitigating the risks of a stock market rout after the 2008 financial crisis.

F-Squared, which also manages a suite of five mutual funds for Virtus Investment Partners Inc., agreed to retain for an additional nine months a compliance consultant hired earlier this year. Virtus (VRTS) shares rose 1.57% in afternoon trading Monday.

The Securities and Exchange Commission has filed civil fraud charges against two Massachusetts men and a California lawyer saying they falsely hyped a stock in a company called CitySide Tickets Inc. They touted the company as a ticket reseller that would be a good target for takeover by Ticketmaster.

The Boston-based stock promoters, Coleman Flaherty of Hingham and Thomas Brazil of Topsfield, were charged by the US Attorney with conspiracy, securities fraud, and wire fraud. The third man, attorney Richard Weed of Newport Beach, Calif., was charged with the same thing.

The men apparently raised over $3 million which the SEC wants returned plus interest and penalties.

The Securities and Exchange Commission is investigating various companies raising funds to invest in marijuana farmers and marijuana consultants who train people how to market the product. This comes on the heels of 20 states legalizing the drug in some way and an increase in sales which is expected to exceed 10 billion in a few years.

The reason the SEC is looking into the financing of these companies is the concern that some of them might not be real businesses earning real moneys.

For example, one company called GrowLife Sciences reported a net loss of $52.2 million in the first half of 2014 on sales of $4.6 million. That does not mean that financing is illegal or that the company has done anything illegal. In addition, no one has been accused of any securities law violations.