New Fraud Charges After Investment Advisor Tries Paying Old Fraud Charges

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

Jacob Cooper, investment advisor at Total Wealth Management

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

SEC Officials Fight The SEC

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Brokerdealer.com blog update courtesy of InvestmentNews.Securities-and-Exchange-Commission

Yes, you read the title right, SEC officials are blasting the commission for turning a blind eye to fining brokerdealer firm Oppenheimer & Co. Inc. for further misconduct. As you may remember a brokerdealer.com blog from last week, Oppenheimer & Co. Inc. was fined $20 million for improper penny stock trades. The SEC said that the firm failed to prevent suspicious penny stock trading and pump-and-dump schemes. Officials are now claiming that further fines should be given to Oppenheimer due to continued misconduct. 

Two members of the Securities and Exchange Commission blasted the agency’s decision to spare Oppenheimer Holdings Inc. from additional sanctions related to a recent settlement, saying regulators were turning a “blind eye” to the investment bank’s pattern of misconduct.

SEC Commissioners Luis Aguilar and Kara Stein, both Democrats, said they opposed a waiver of a penalty that would have barred Oppenheimer from raising money for private firms and hedge funds after the company admitted last week to improperly selling billions of shares of penny stocks.

“These violations are just the most recent chapter in a long and unfortunate history of regulatory failures, some more significant than others, but cumulatively indicative of a wholly failed compliance culture,” Mr. Aguilar and Ms. Stein wrote in a statement released Wednesday.

Their dissent is the latest example of partisan disputes at the five-member SEC over how the agency polices Wall Street. The fight over waivers stalled an earlier settlement with Bank of America Corp. and portends future difficulties for companies seeking to end enforcement cases, especially if they are repeat offenders.

Ms. Stein previously criticized a penalty waiver that benefited Royal Bank of Scotland Group Plc and fought to attach more onerous conditions to a reprieve that Bank of America obtained after settling a $16.7 billion mortgage-bond case. SEC Chair Mary Jo White, an independent, and Commissioners Daniel Gallagher and Michael Piwowar, both Republicans, voted in favor of the waiver for Oppenheimer.

The SEC has typically granted waivers to keep from punishing parts of financial companies that weren’t implicated in the wrongdoing at issue.

Oppenheimer spokesman Stefan Prelog said the firm will hire “a fully independent law firm” to review its compliance procedures. The findings and recommendations will be reported to the company’s independent directors, he said.

‘LACKS TEETH’

Mr. Aguilar and Ms. Stein said the SEC’s action “lacks teeth” because it leaves the door open to Oppenheimer hiring a law firm it already uses, which “has every incentive to be accommodating by ignoring or dismissing inadequacies in the firm’s practices.”

Oppenheimer admitted Jan. 27 that it failed to report red flags that its client Gibraltar Global Securities, a Bahamas-based firm, was selling penny-stock shares without being registered in the U.S. The firm acknowledged additional sales of penny stocks for a different customer that resulted in about $588,400 in commissions, according to the SEC. Oppenheimer agreed to pay $20 million to settle the case.

“The company is dedicated to putting these issues behind it through the adoption of a strong compliance infrastructure,” Mr. Prelog said in the statement.

U.S. representative Maxine Waters, a California Democrat, agreed with Mr. Aguilar and Ms. Stein.

“Investors and the American public are greatly disserved when our regulators throw away valuable enforcement tools and adopt a policy of ‘too-big to bar,’” Ms. Waters said in a statement, adding that said she will work with other Democratic lawmakers on legislation that “sends a strong message to the markets that wrongdoers like Oppenheimer will be sufficiently held accountable for their misdeeds.”

Oppenheimer has settled at least 30 separate cases with regulators since 2005, according to Mr. Aguilar and Ms. Stein’s statement. In 2010, the firm agreed to pay $31 million to investors to settle the New York Attorney General’s claims it misrepresented the safety of auction-rate securities. The firm agreed in 2013 to pay $675,000 to the Financial Industry Regulatory Authority Inc. to settle claims that it charged unfair prices to customers buying municipal securities.

Cybercriminals Assault BrokerDealers; Most BDs Bamboozled by MITB and Phishing Schemes

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BrokerDealer.com blog update courtesy of extract below from 3 Feb WSJ story by Matthias Rieker

Cybercriminals Attack BrokerDealersMore than half of U.S. brokerage firms surveyed by regulators said they had been targeted by email scams aimed at tricking them into wiring away client money.

In many cases, brokers fell for the impostors and their firms had to reimburse their clients. Of the brokerage firms that received the fraudulent emails, 26% reported losses of more than $5,000, according to the Securities and Exchange Commission.

The SEC last year sampled 106 firms—57 broker-dealers and 49 registered investment advisers—to assess the industry’s cybersecurity risk.

On Tuesday, the regulator said 88% of the broker-dealers and 74% of RIAs it examined for its report had experienced some form of a cyberattack. The agency didn’t say in what years the attacks occurred.

The wealth-advisory industry has long been struggling with what security experts and advisers say has been an onslaught of fraudulent wire-transfer requests, many resulting from client email accounts being hacked. Fifty-four percent of broker-dealers and 43% of RIAs said they had received fraudulent emails seeking to transfer client money.

  • Fifty-four percent of broker-dealers and 43% of advisers said they had received fraudulent emails seeking to transfer client money.

For example, a former Morgan Stanley Smith Barney adviser—whose client’s email had been hacked—wired a total of $521,500 in four requests over two months last year. Also, a former Wells Fargo adviser failed to confirm two wire transfers for a total of $67,532 over two months in 2012 that turned out to be from an impostor.

The Financial Industry Regulatory Authority, Wall Street’s self-regulator, suspended and fined both advisers last month. Neither admitted or denied the allegations, and their firms fired them, according to Finra. Morgan Stanley and Wells Fargo declined to comment on the cases.

Like most firms, Morgan Stanley and Wells Fargo have strict procedures on how to thwart such scammers, but some advisers haven’t been vigilant enough to ensure the requests are actually from their clients. Of the broker-dealers that reported losses from fraudulent emails, a quarter said the losses were the result of employees not following the firms’ authentication procedures, the SEC said.

SEC chairwoman Mary Jo White says assessing the readiness of market participants and providing investors with information on how to better protect online investments from cyberthreats is an important focus of her agency.

Finra said that last year it brought 37 cases related to the improper transfer of investors’ money to third-party accounts.

“Cybersecurity threats know no boundaries,” SEC Chair Mary Jo White said in statement. “That’s why assessing the readiness of market participants and providing investors with information on how to better protect their online investment accounts from cyber threats has been and will continue to be an important focus of the SEC.”

The SEC also said it found that 58% of broker-dealers but only 21% of RIAs are insured against losses from cyberattacks. One broker-dealer and one adviser reported that they had filed claims, the SEC said.

For the full story from the WSJ, please click here

Oppenheimer’s Penny Stocks Results in $20M Fine 

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PennyStocks

Oppenheimer fined for failure to report suspicious penny stocks

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

Brokerdealer firm, Oppenheimer & Co. Inc., has reach a deal with the SEC and FinCEN resulting in the firm paying $20 million, pleading guilty, and hiring an independent consultant over improper penny stock trades. The SEC and FinCEN said,  firm failed to prevent suspicious penny stock trading and pump-and-dump schemes.

The firm, which runs a retail brokerage operation with around 1,400 financial advisers, failed to properly detect and report suspicious trades in penny stocks, which are thinly traded securities that can be vulnerable to manipulation by stock promoters, according to FinCEN. The regulator identified at least 16 customers in five states who engaged in “patterns of suspicious activity.”

“Broker–dealers face the same money laundering risks as other types of financial institutions,” said FinCEN Director Jennifer Shasky Calvery, in a release. “And by failing to comply with their regulatory responsibilities, our financial system became vulnerable to criminal abuse. This is the second time FinCEN has penalized Oppenheimer for similar violations. It is clear that their compliance culture must change.”

In a parallel action, the SEC pointed to two instances between 2008 and 2010 in which the firm engaged in unregistered sales of penny stocks.

In one case, a financial adviser and his branch manager willfully engaged in unregistered sales of 2.5 billion shares of penny stocks on behalf of a customer, despite the fact that the shares were not exempt from registration, according to the SEC settlement. The trades generated $12 million in proceeds, of which Oppenheimer was paid $588,400 in commissions.

The settlement did not name the broker or branch manager, but said that its investigations into the matter were ongoing.

The other charge revolves around Oppenheimer’s role in possibly assisting allegedly illegal activity by a Bahamas-based brokerage firm, Gibralter Global Securities.

The firm disclosed in quarterly filings earlier this year.

that it was setting aside $12 million to deal with the possible fallout from regulatory investigations, mostly dealing with penny stock issues.

The head of the firm’s retail brokerage, Robert Okin, resigned in December, reportedly to pursue other interests. His Finra BrokerCheck record discloses he is facing an SEC investigation.

A spokesman for Oppenheimer, Stefan Prelog said in an email that the firm was “pleased to put these matters, which involve activity that occurred years ago, behind it.”

The firm has also agreed to hire an independent consultant as part of the settlement.

 

SEC Sends Former CT BrokerDealer to the Slammer For Cherry-Picking

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download (3)BrokerDealer.com blog update courtesy of SEC news release issued Jan 14

The Securities and Exchange Commission announced today that Noah L. Myers of Lyme, Connecticut and the former owner of MiddleCove Capital, LLC, an investment adviser formerly registered with the SEC, was sentenced to 40 months in prison followed by three years of supervised release following his conviction on one count of securities fraud. On October, 20, 2014, Myers waived his right to indictment and pleaded guilty to one count of security fraud.

On January 16, 2013, the SEC accepted offers of settlement from Myers and MiddleCove and instituted a cease-and-desist order against them. The SEC order found that from approximately October 2008 to February 2011, Myers engaged in fraudulent trade allocation – “cherry-picking” – at MiddleCove. Myers executed his cherry-picking scheme by unfairly allocating trades that had appreciated in value during the course of the day to his personal and business accounts and allocating trades that had depreciated in value during the day to the accounts of his advisory clients. Myers did this by purchasing securities in an omnibus account and delaying allocation of the purchases until later in the day (and sometimes the next day), after he saw whether the securities appreciated in value. When a security appreciated in value on the day of purchase, Myers would often sell the security and disproportionately allocate the purchase and the realized day-trading profit to his own accounts or to accounts benefiting himself or his family members. In contrast, for securities that did not appreciate on the day of purchase, Myers would disproportionately allocate these purchases to his clients’ accounts and his clients would hold the position for more than one day. Myers carried out his cherry-picking scheme with regard to several securities, but was most active with an inverse and leveraged exchange traded fund (ETF). Myers finally ceased these practices in February 2011 when one of his employees threatened to contact the Commission.

The SEC’s January 16, 2014 order found that Myers and MiddleCove willfully violated Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder and Sections 206(1), 206(2) and 207 of the Investment Advisers Act of 1940. The SEC order revoked the registration of MiddleCove as an investment adviser, barred Myers from the securities industry, and ordered Myers and Middlecove to pay disgorgement of $462,022, prejudgment interest of $26,096, and a civil money penalty of $300,000.