“SEC-Approved” Ponzi Scheme Shut Down, 10 Years Later…

Posted on February 13, 2015 by admin

Brokerdealer.com update courtesy of Mandy Perkins from Bank Investment Consultant.

California-based RIA is in big trouble after leading investors to believe that what they were doing was given the OK from the SEC. GLR Advisors were running a basic ponzi scheme over the last ten years with no one including the SEC noticing until recently.

Most advisors know better than to oversell a product’s performance, but what about its “approval” by the SEC?

The SEC barred a California-based RIA from the industry this week after the firm was charged with misleading investors — including falsely claiming that its fund was “SEC approved.”

According to charges filed by the SEC in 2012, John A. Geringer of GLR Advisors and GLR Capital Management raised over $60 million by inflating the performance and misrepresenting the strategy of a private investment fund he told investors was “SEC approved.”

Between 2005 and 2011, the SEC says, the firm advertised its “SEC approved” GLR Growth Fund as having returns of 17%-25% during every year of its operation.

The commission says GLR’s marketing materials claimed the fund was “tied to well-known stock indices such as the S&P 500, Nasdaq and Dow Jones, as well as in oil, natural gas and technology-related companies.” But since mid-2009, the regulator says, the fund did not invest in any publicly-traded securities. Instead, funds were placed in “illiquid investments” in two private startups and used to pay back other investors and fund the “entities Geringer controlled,” the SEC says.

Beyond that, the SEC charges, “to the extent Geringer engaged in actual securities trading, far from generating high annual returns, he consistently lost money.”

Geringer could not be reached for comment. His attorney William Michael Whelan declined to comment on the case.

‘CAN’T CATCH EVERYBODY’

Needless to say, registration with the SEC does not imply endorsement by the regulator. So why were these advisors able to get away with it — not to mention the Ponzi scheme — for so long?

According to Todd Cipperman, principal at Cipperman Compliance Services, the SEC can only examine about 10% of advisors each year, making it easier for bad behavior to go undetected.

“This stuff goes on. There are bad folks out there and they lie to people,” he says. “You know, it’s just like any other law enforcement…[the SEC] can’t catch everybody and they eventually caught these guys.”

Third-party examinations could help solve this problem, Cipperman argues. “This is exactly the kind of case that it could have helped with,” he says. “A small advisor like this is not a targeted priority.”

But even advisors who aren’t using false statements or running fraudulent schemes should be careful about how they market their services — particularly when mentioning SEC registration.

Cipperman’s advice? “At the end of the day, if you have to scrunch up your nose when you make statements, it’s not a good statement to make,” he says. “We all accept a certain level of puffery in marketing, but when you’re a fiduciary, you can’t do that…you need to back up your statements with facts.”

PRISON SENTENCE

The SEC’s decision to bar Geringer comes just weeks after one of his partners in the business, Chris Luck, was sentenced to 10 years in prison and ordered to pay over $33 million in restitution for his role in the scheme.

Last year, both Luck and Geringer pleaded guilty to securities fraud, mail fraud and conspiracy to commit mail and wire fraud, according to SEC and Justice Department documents. During the trial, Luck told a California court that investor money brought in by the fund paid both his salary and bonus payments, according to the sentencing statement.

Both Geringer’s case and that of another partner, Keith Rode, are ongoing, according to court records.

Pot Court Case May Be Pot of Luck for Investors: $Billions At Stake

Posted on February 12, 2015 by admin

Brokerdealer.com blog update is courtesy of Karen Gullo from Bloomberg Business.

About a month ago, the Brokerdealer.com blog profiled Peter Thiel’s Founders Fund, a venture capital firm best known for backing tech companies including Facebook, SpaceX, Airbnb and Spotify, making a multimillion-dollar investment in Privateer Holdings, a Seattle-based private equity firm focused on pot. Now the further success of this private equity firm hangs on the outcome of a current pot court case in California.

A federal drug enforcement agent turned private-equity manager at a firm backed by PayPal Inc. co-founder Peter Thiel is watching the trial of a garden-variety pot grower with high hopes for the nascent marijuana industry.

It may sound like an only-in-California story — and it is, for now — but a win by the defendant may move the entire nation toward legalization of a business some value at more than $50 billion a year.

Patrick Moen, head of compliance and chief lawyer at Privateer Holdings Inc., an investment firm focused on cannabis, is following the case of a man described by prosecutors as the “go-to” guy at a sprawling marijuana plantation in the mountains of Northern California.

The defendant’s lawyers won the right to challenge the government’s treatment of marijuana as a controlled substance, as dangerous as heroin. They’re making their final pitch Wednesday for a federal judge to declare the government’s position unconstitutional in light of evidence of pot’s medical uses and steps the U.S. has taken to recognize legalization efforts in several states.

A defense win would boost the legal market for cannabis-related products and confirm for investors that the times for pot are changing.

‘Enormously Significant’

“It’s pretty obvious that a positive outcome would be well-received by policy advocates and the markets,” Moen said in an interview. “Just the fact that the judge has agreed to consider the issue is an enormously significant event.”

Moen, who in November 2013 became the first agent to leave the U.S. Drug Enforcement Administration for a job in the cannabis industry, according to the Privateer Holdings website, said he wasn’t alone at the DEA in believing that banning marijuana “was foolish and a waste of resources.”

While most of his cases involved crack cocaine, heroin and methamphetamine, his team busted medical-marijuana growers in Oregon, he said. Moen said he came to the realization that “this whole policy is just wrong.”

Some DEA colleagues were disappointed with his new career, though most were supportive and share his feelings, Moen said, adding that he’ll be looking to hire former agents in the next year as part of his effort to professionalize the cannabis industry.

Marijuana Investments

Thiel’s venture capital firm, Founders Fund, last month announced its investment in Privateer. The Seattle-based holding company owns marijuana-related businesses, including the information website Leafly, Canadian medical marijuana company Tilray and Marley Natural, a cannabis brand venture with the family of singer Bob Marley that will offer Jamaican marijuana strains and cannabis- and hemp-infused topical products and accessories.

Founders Fund didn’t say how much it contributed.

“This is a multibillion-dollar business opportunity,” Founders Fund partner Geoff Lewis said in January.

Voters in Alaska, Oregon, Washington, Colorado and the District of Columbia have legalized recreational marijuana, and medical use of the drug is allowed in 23 states.

Pot smokers and investors are tracking the Sacramento, California, case of Brian Pickard, one of 16 people charged in 2011 with growing almost 2,000 marijuana plants in a national forest and in gardens off a dirt road in Hayfork, a town of 2,000 about 100 miles south of the Oregon border.

U.S. District Kimberly Mueller, an appointee of Democratic President Barack Obama, decided last year to allow Pickard’s lawyers to argue that classifying pot as one the nation’s most dangerous drugs is irrational.

PE Firms Raiding BrokerDealers in Battle for Young Bankers

Posted on February 11, 2015 by admin

young bankers Brokerdealer.com blog update courtesy of the New York Times Deal Book section.

Young bankers fresh out of college are in high demand for private equity firms. Firms what the brightest and best that show great tenacity and enthusiasm for Wall Street. Firms are so aggressive about finding the best candidates that recruiters are interviewing potential employees up to 18 months before the start of the actual job.

They are only in their early to mid-20s, but some young bankers on Wall Street are the most sought-after financiers around, with lucrative pay packages dangling before them.

Junior investment bankers who graduated from college only last year are being madly courted by private equity firms like Apollo Global Management, the Blackstone Group, Bain Capital and theCarlyle Group in a scramble that kicked off last weekend. After back-to-back interviews, many are now fielding offers for jobs that won’t start until the summer of 2016.

This process has become an annual rite by private equity firms, which raise money from investors (like pension funds) to buy entire companies. But it has grown more frenzied since the financial crisis, and it started this year weeks earlier than many in the industry had expected. Fearful of missing the best talent being developed at investment banks, the giants of private equity have turned Wall Street’s white-collar entry-level workers into a hot commodity.

“It’s as if these were star athletes,” said Adam Zoia, chief executive of the recruiting firm Glocap Search, who helps private equity firms hire young workers. “The irony is they are professionals six, seven months out of undergrad. It’s hard to imagine you can tell if someone’s a star or not.”

For the young bankers, who are known as analysts, the recruiting race is an important step on a journey to becoming a Wall Street tycoon who can command a seven-figure (or more) pay package. These workers, graduates of elite colleges, often hope to spend two years at investment banks, learning the basics of corporate finance, before leaving for private equity firms, where they can use those skills to make investments. That career path makes them prime candidates for an elite business school, or something even more financially rewarding.

Even though these youthful analysts are starting at big Wall Street firms, the sector’s reputation has lost some of its sheen since the financial crisis. At the same time, Silicon Valley is luring away talent.

But private equity firms can offer higher pay to young bankers. A private equity associate — one who is just three years out of college — can earn as much as $300,000 a year, including salary and bonus. That is roughly double what a second-year banker might earn at Goldman Sachs. “Private equity is the preferable place to be in terms of compensation,” said Jeff P. Visithpanich, a managing director at the compensation consulting firm Johnson Associates.

While data is hard to come by, a December report from Vettery, a start-up recruiting firm, said that private equity was the single most popular destination for Wall Street’s junior workers. Roughly 36 percent of junior bankers with two-year contracts in 2012 have now joined private equity firms, compared with 27.5 percent who stayed in the same division at their bank, Vettery said.

It may seem surprising that these untested financiers are being so heavily courted when the overall unemployment rate of workers between the ages of 20 and 24 in January was more than twice as high as the rate for those 25 and older.

But the process of hiring these workers has grown only more frenzied since the crisis, as financial firms increasingly believe they must work harder to attract ambitious graduates. The banks, from which these workers are being poached, are raising salaries or offering additional days off in an effort to retain them.

To read the complete article from the New York Times, click here.

BrokerDealer Fiduciary Standards and White House Leak: “I’m Shocked!” Says Frmr SEC Honcho Schapiro

Posted on February 9, 2015 by admin

BrokerDealer.com blog is not as easily shocked as former SEC Chair Mary Shapiro seems to be, but then again, Ms. Shapiro left the SEC top job a mere two years after being appointed.

This update is courtesy of BankInvestmentConsultant.com

A leaked White House memo supporting a fiduciary definition for brokers selling retirement investments proposed by the Department of Labor was “pretty shocking,” according to former SEC chairwoman Mary Schapiro.

But in a discussion of industry issues at the NICSA Strategic Leadership Forum, Schapiro said that there was no clarity as to how the regulator would handle the proposal.

“It’s a muddled mess,” Schapiro said.

The memo, which was first reported by The Hill, states that there was evidence that “the current regulatory environment creates perverse incentives that ultimately cost savers billions of dollars a year.” The memo is in support of a proposed fiduciary definition for professionals selling retirement investments to 401(k) beneficiaries under the Employee Retirement Income Security Act.

Schapiro said it is difficult to understand how the proposal will ultimately be received by the SEC, as it has its supporters and detractors within the commission. “The issue is politically difficult within SEC,” she said.

Those who do not see any benefit for the proposal note that broker-dealers are already subject to more stringent regulation and scrutiny than financial advisors, Schapiro said.

She added that if the SEC does throw its support behind the proposal, it might cause SIFMA to walk away from its support of a fiduciary standard.

SIFMA believes the DOL proposal “is an overbroad expansion of the fiduciary standard,” but it does support a uniform fiduciary standard.

Raymond James Financial CEO Paul Reilly is among the industry executives against the proposal, calling it in a recent email to employees “an example of biased and distorted research (that) impugns the integrity of the work our advisors do every day to help clients achieve their financial goals.”

Schapiro said the goal in helping investors gain a better understanding of their investment options was valid. “We have to make things easier for investors one way or another,” she said, but predicted more debate before any resolution on the fiduciary standard matter.

“It’s completely unclear where it will go, but it will continue to be a fight,” she said.

New Fraud Charges After Investment Advisor Tries Paying Old Fraud Charges

Posted on February 9, 2015February 9, 2015 by admin

Brokerdealer.com blog update is courtesy of InvestmentNews’ Mason Braswell.

Jacob Cooper, investment advisor at Total Wealth Management

Investment Advisor firm, Total Wealth Management, was ordered to pay SEC fraud fines in April. After paying the fine, the firm is now being charged with using clients’ money to pay the initial fraud fines.

Investment adviser Jacob Cooper and his firm, Total Wealth Management, face a fresh set of fraud charges after they attempted to use client funds to settle an earlier fraud case with the Securities and Exchange Commission, according to a new complaint filed Wednesday.

The Securities and Exchange Commission filed the charges against Mr. Cooper and his San Diego-based firm after, according to the complaint, they misused investor money for the original settlement and defrauded clients through unexplained “administrative” fees.

The SEC is now seeking to freeze the firm’s assets, appoint a receiver to oversee remaining funds and assess civil penalties.

Total Wealth Management, which Mr. Cooper founded in 2009 and built up through a weekly radio show on investing, allegedly borrowed $150,000 in client funds to help settle an SEC administrative action from April. In that action, the SEC accused him of fraud for pooling around 75% of clients’ $100 million assets into a private fund, which he then invested in unaffiliated funds that paid an undisclosed revenue-sharing fee back to clients.

In addition, the SEC alleged in its most recent complaint that Mr. Cooper was using investor money to pay for legal fees on a related class action brought by clients, who have not been able to withdraw their money or terminate their relationship.

He allegedly charged several Total Wealth investors between $3,500 and $7,500 per account under the guise of “administrative” fees, the agency said.

Then, in a mass email from Total Wealth Management, the firm purportedly told clients: “Many of you were aware of a class action lawsuit brought on by only a few clients causing fee increases for all.”

“The irony is that [the class action] counsel and a very small group of investors have caused a significant amount of those increased fees they have complained about,” the email added.

The SEC disagreed.

“[Mr.] Cooper has an inherent conflict of interest since he is using investor money to defend himself in a lawsuit brought against him by investors,” the complaint stated.

A lawyer for Mr. Cooper, Charles Field of Chapin Fitzgerald Knaier, declined to comment. A number listed for Total Wealth Management was not in working order.

Mr. Cooper has stated that he is in a period of “deep financial stress,” and that he has “no income” and “no job opportunities,” according to the complaint.

He has been writing fantasy novels, however, including one published last July called “Circle of Reign (The Dying Lands Chronicle Book 1).”

Total Wealth Management had about $103 million in assets under management and 773 client accounts, according to its Form ADV from December. The firm found clients through a weekly radio show Mr. Cooper hosted and through free lunches, the SEC said.

For the original article from InvestmentNews, click here