ONCE AGAIN, IT WAS JUST TOO GOOD TO BE TRUE

           The SEC recently filed suit against a Texas man it alleged to have defrauded investors out of $14,000,000.  Many of the scheme’s victims were retired police officers.  

            According to the civil complaint, which you can read here, Victor Farias and his company, Integrity Aviation and Leasing, solicited investments from almost 100 different individuals.  The defendant company was supposed to use the funds as capital to support a business model in which it bought and leased aviation parts.  Instead, millions went toward unrelated ventures and personal expenses, such as country club bills.  Moreover, in true “Ponzi” fashion, funds from new investors were used to satiate the demands of earlier investors. 

            On a somewhat happier note, a Georgia businessman will pay back $23 million to at least 100 investors in his plan of converting landfill waste in to fuel.  As is common, the promoter over-stated the success of his business model and promised generous investment returns while diverting funds to support a lavish lifestyle.  According to the SEC, the businessman knew his company “never had the ability or expertise to develop [the project].” 

            The attorneys and paralegals at Cosgrove Law Group, LLC have been representing defrauded investors around the nation for over a decade.  Let us know if you need our help.

REPRESENTING ELDERS AND ATHLETES

It wouldn’t seem likely that elders and athletes would have much, if anything, in common.  But they do.  They are frequently blessed with substantial semi-liquid assets, and are therefore the targets of fraudulent or reckless investment schemes.

Much has been written about why professional athletes are frequent victims.  And the last professional athlete I represented possessed many of the following common attributes:

·         Young and inexperienced with finances;

·         Rapidly accumulating substantial wealth;

·         Easily identified as a person with substantial wealth subject to potential investment;

·         Highly focused on meeting the demands of a career requiring singular attention, frequent travel, and unplanned relocations.

As a result, the media is littered with accounts of massive investment losses suffered by current and former athletes.  Some of the statistics are shocking.  For example, from 1999-2002 78 NFL players lost over $40 million to fraud.  According to a Sports Illustrated article, approximately 60% of NBA players are “broke” within five years of their retirement from the league.  And in 2014 former Yankee star Jose Pasada sued two financial advisers that allegedly bilked him of $11 million through real estate and hedge-fund investments.

The National Football League Players’ Association took action in 2002 and created a Financial Advisors Program. The Program required advisers to apply and be screened for approval for inclusion in the program.  But it was not sufficiently robust.  For example, just a few years after the program was initiated, an approved financial adviser lured several active players in to a hedge fund.  The players lost almost $20 million and the adviser was convicted of securities fraud and money laundering.  Moreover, some approved advisers use their NFLPA registration as a marketing tool.  One even suggests that their athlete clients can be free of financial distractions while the adviser constructs a “bulletproof” financial retirement plan.  That type of pitch seems to encourage the very characteristics that lead to the financial victimization of athletes.  Laurence Landsman wrote an excellent article that was published in the National Sports Law Institute’s Journal in 2010.  He called for reforms to the NFLPA program.  And the NFLPA made them in 2012.  Now when will the NBA, NHL, and MLB get on board?

There are strong parallels between the methodology and prevalence of financial exploitation of athletes and elders.  Our firm has represented several elder investors over the years.  And all of us are former securities regulators that witnessed the pace and pattern of financial elder abuse.  Elders frequently have a large accumulation of wealth available for investments, and they are prone to over-trust and over-rely on their financial advisers.

In 2012 Stephen Dunn published in Forbes a list of do’s and don’ts for professional athletes.  They are, however, equally applicable to our elders.  Just a few of them are:

·         An adviser’s trustworthiness is paramount;

·         Invest with advisers associated with a well-established firm;

·         Don’t pretend you are a business mogul.  Kurt Schilling’s saga may be a good tale of caution, and;

·         Avoid complex investment schemes.

And I have one final self-serving but sound piece of advice:  retain an attorney that is independent of your financial adviser and who is also sophisticated in investment matters.  That attorney should be called upon to interface with your adviser and help you evaluate the wisdom and risk of your adviser’s proposals, background, etc.  Food for thought.

1.  https://www.sec.gov/news/pressrelease/2016-83.html
2.  ESPN's "Broke" : https://www.youtube.com/watch?v=Elfw0ESih-A

Feds Take Aim at Investment Advisers

The SEC and DOJ brought a slew of cases against IAR's and RIA's in the first half of 2015. At least six cases were filed just last month alone. Here is a brief summary of a sampling of those cases.

On January 21, 2015, the SEC filed fraud charges and an asset freeze against a Fort Lauderdale, Florida-based investment advisory firm, its manager, and three related funds in a scheme that raised more than $17 million. The SEC’s complaint filed in federal court in the Southern District of Florida charged Elm Tree Investment Advisors LLC, its founder and manager, Frederic Elm, and Elm Tree Investment Fund LP, Elm Tree “e”Conomy Fund LP, and Elm Tree Motion Opportunity LP. According to the complaint, Elm, formerly known as Frederic Elmaleh, his unregistered investment advisory firm, and the three funds misled investors and used most of the money raised to make Ponzi-like payments to the investors. The complaint alleges that Elm used the funds to buy a $1.75 million home, luxury automobiles, and jewelry, and to cover daily living expenses.

On March 6, 2015, an investment adviser was hit with felony charges alleging that he defrauded clients of more than $1 million while running his own investment firm in Chicago. Philip E. Moriarty II is accused of six counts of wire fraud related to allegations that he defrauded investors of at least $1.1 million while he was the CEO of First Street Capital Partners in Chicago from 2008 to 2010. He’s accused of convincing four investors that they were investing in his businesses through the use of fraudulent documentation, and then spending the funds on personal expenses, including payments to a golf, hunting and fishing club, and $23,000 to a boarding school in New Hampshire.

Late that month, the SEC filed fraud charges against an investment adviser and her New York-based firms accusing them of hiding the poor performance of loan assets in three collateralized loan obligation (CLO) funds they managed. The SEC’s Enforcement Division alleged that Lynn Tilton and her Patriarch Partners firms breached their fiduciary duties and defrauded clients by failing to value assets using the methodology described to investors in offering documents for the CLO funds. Tilton and her firms allegedly have avoided significantly reduced management fees because the valuation methodology described in fund documents would have given investors greater fund management control and earlier principal repayments if collateral loans weren’t performing to a particular standard.

In April, 2015, a former JPMorgan Chase investment adviser was arrested on charges he stole $20 million from customers and spent the funds on unprofitable trading and other personal expenses. Michael Oppenheim allegedly took money from at least seven bank clients in a fraud scheme he operated from March 2011 to March 2015. Oppenheim worked as a JPMorgan investment adviser. He advised approximately 500 clients who collectively kept roughly $89 million in assets under his management, according to a criminal complaint filed by Manhattan federal prosecutors.

Later in April, a former Merrill Lynch and Smith Barney investment adviser already serving a federal prison term for investment fraud pleaded guilty to additional fraud charges in connection with a nearly two-decade-long scheme to defraud clients of hundreds of thousands of dollars. Jane E. O’Brien of Needham, MA, pleaded guilty to three counts of mail fraud, two counts of wire fraud, and two counts of investment adviser fraud. As alleged in the indictment, between 1995 and 2013, O’Brien defrauded several clients for whom she provided investment advisory services. As part of the scheme, O’Brien misappropriated funds entrusted to her through a variety of means, including persuading clients to withdraw money from their bank and brokerage accounts to invest. After gaining control of her clients’ money, however, O’Brien made no such investments. Instead, she used the misappropriated client funds for a variety of improper purposes, including paying personal expenses, paying purported investment returns, or repaying personal loans to other clients. Finally, in order to perpetuate her fraud and conceal it from her clients, O’Brien made false statements and misrepresentations to clients, including by making lulling payments to clients and otherwise providing them with false assurances of their financial security.

On May 15, 2015, Bryan Binkholder of St. Louis was sentenced to 108 months in prison on multiple fraud charges involving his financial planning and investment strategy businesses. In addition to the prison sentence, he was also ordered to pay $3,655,980 in restitution to the victims. According to court documents, Binkholder labeled himself “The Financial Coach” and provided investment and financial planning advice to the public through his affiliated websites and an investment related talk-radio show that aired on local radio stations. In 2008, he developed a real estate investment he termed “hard money lending.” Using his platform as an investment advisor and financial talk show host, Binkholder solicited his clients and others to invest in the hard money lending program. As part of his sales pitch he represented that he had relationships with developers who were not able to secure financing from traditional banks. As part of the hard money lending program, Binkholder told investors that they would invest money with him, and he would act as a bank and provide short term loans to these developers at a high rate of interest which would be shared with the investor. Instead of exclusively making hard money loans as promised, he took in millions of dollars of investor money, made only a small number of hard money loans and caused investors to lose more than $3,000,000.

On May 21, 2015, The Securities and Exchange Commission filed fraud charges against an Atlanta-based investment advisory firm and two executives accused of selling unsuitable investments to pension funds for the city’s police and firefighters and other employees. The SEC’s Enforcement Division alleged that Gray Financial Group, its founder and president Laurence O. Gray, and its co-CEO Robert C. Hubbard IV breached their fiduciary duty by steering these public pension fund clients to invest in an alternative investment fund offered by the firm despite knowing the investments did not comply with state law. Georgia law allows most public pension funds in the state to purchase alternative investment funds, but the investments are subject to certain restrictions that Gray Financial Group’s fund allegedly failed to meet. The SEC alleged that Gray Financial Group collected more than $1.7 million in fees from the pension fund clients as a result of the improper investments.

On June 3, 2015, the SEC filed two cases against purported investment advisers who falsified their credentials. In one case, the SEC charged that Todd M. Schoenberger of Delaware solicited at least a dozen people to invest in promissory notes issued by LandColt Capital, an unregistered advisory firm. According to the SEC, he said the notes would be repaid from management fees. Just a few days later, a Chicago investment adviser was arrested on federal charges that he defrauded his clients of at least $1 million, some of which he allegedly gambled away at local casinos. Alan Gold was charged in a criminal complaint that was unsealed following his arrest.

On June 11, 2015, the United States Attorney for the Western District of Wisconsin announced the unsealing of a 21-count indictment charging Pamela Hass with wire fraud and money laundering. The indictment also contains a forfeiture allegation seeking $460,831.27 in criminal proceeds. The indictment alleges that Hass engaged in a wire fraud scheme to defraud investors by promising returns from an investment in internet pop-up ads. According to the indictment, Hass falsely told investors they would obtain a return of anywhere from five to 20 times their original investment, and that if the investment failed, she would personally guarantee the return of the original investment plus 7 percent interest.

Also last month, The Securities and Exchange Commission announced fraud charges against a Washington D.C.-based investment advisory firm’s former president accused of stealing client funds. The firm and its chief compliance officer separately agreed to settle charges that they were responsible for compliance failures and other violations. SFX Financial Advisory Management Enterprises is wholly-owned by Live Nation Entertainment and specializes in providing advisory and financial management services to current and former professional athletes. The SEC alleged that SFX’s former president Brian J. Ourand misused his discretionary authority and control over the accounts of several clients to steal approximately $670,000 over a five-year period by writing checks to himself and initiating wires from client accounts for his own benefit.

Just a day later, Kenneth Graves, a former investment adviser representative in Corpus Christi whose license to sell securities was revoked last year by the Texas Securities Commissioner, was indicted on fraud charges related to the sale of investment contracts and excessive fees for his firm’s services. The indictment alleges that Graves defrauded six clients of his firm, Warren Financial Services LLC, through the sale of $420,720 in investment contracts. The indictment alleges that in a separate fraud in 2013 and 2014, Graves misapplied $128,918 in fees he had collected from clients of Warren Financial.

Finally, on June 17, 2015, the SEC announced fraud charges against a Massachusetts-based investment advisory firm and its owner for funneling more than $17 million in client assets into four financially troubled Canadian penny stock companies in which the owner had an undisclosed financial interest. The SEC alleged that clients at Interinvest Corporation may have lost as much as $12 million of their $17 million investment based on the recent trading history of shares in the penny stock companies, some of which were purportedly in the business of exploring for gold or other minerals. Interinvest’s owner and president Hans Black served on the board of directors of these companies, which have collectively paid an entity he controls approximately $1.7 million. Black’s involvement with these companies and his receipt of payments from them created a conflict of interest that he and Interinvest failed to disclose to their advisory clients.

On a final note--Investors and accountants should take the time to read Brian Carroll's article regarding investment advisory fraud in the Journal of Accounting.

In addition to founding the Investment Adviser Rep Syndicate, David Cosgrove, a former regulator and prosecutor, is the founding Member and Manager of Cosgrove Law Group, LLC. The law firm represents both investors and investment advisers across the nation. In doing so, the firm's members have a unique strategic advantage and insight when it comes to litigation or conflict resolution in the financial services and investment arena. 

The Standard for Claims of Aiding and Abetting Securities Fraud

Section 20(e) of the Securities Exchange Act of 1934 allows the SEC, but not private litigants, to bring civil actions against aiders and abettors of securities fraud. The SEC may bring such an action against “any person that knowingly or recklessly provides substantial assistance to another person in violation of a provision of this chapter." 15 U.S.C. § 78t(e). Similarly, the Missouri Securities Act provides under Section 409.6-604 that the Commissioner may bring an enforcement action against a person who has materially aided, is materially aiding, or is about to materially aid an act, practice, or course of business constituting a violation of the Act.

There are no Missouri cases addressing the aiding and abetting liability under the Missouri Securities Act. However, “Missouri courts have often looked to cases decided by courts from other jurisdictions to aid in comprehending the definitional limitations of the [Missouri Securities] Act, particularly when the language of the federal and state securities statutes involved is nearly identical.” Moses v. Carnahan, 186 S.W.3d 889, 904 (Mo. App. W.D. 2006) (finding that the Missouri Securities Commissioner was justified in looking to federal cases interpreting the federal Securities Acts in construing the meaning of the term “offer” as contained in the Missouri Uniform Securities Act).

The only Eighth Circuit case to directly address aiding and abetting liability under § 20(e) of the Securities Exchange Act is S.E.C. v. Shanahan, 646 F.3d 536 (8th Cir. 2011). In that case, the court noted that to establish aiding and abetting liability , the SEC must prove (1) a primary violation of the securities laws; (2) “knowledge” of the primary violation on the part of the alleged aider and abettor; and (3) “substantial assistance” by the alleged aider and abettor in achieving the primary violation. Id. at 547 (citing K & S P'ship v. Cont'l Bank, N.A., 952 F.2d 971, 977 (8th Cir.1991), cert. denied, 505 U.S. 1205, 112 S.Ct. 2993, 120 L.Ed.2d 870 (1992)). The court also stated that “[n]egligence ... is never sufficient,” and “a bare inference that the defendant must have had knowledge” of the primary violator's transgressions is insufficient. Id. The Eighth Circuit found that the SEC failed to make its case against an outside director of a corporation because it failed to prove “knowledge” of the corporation's alleged primary violations.

In a footnote, the court noted that Section 20(e) had recently been amended to include liability for “any person that ... recklessly provides substantial assistance to another person in violation of a provision of this chapter." See Dodd–Frank Wall Street Reform and Consumer Protection Act, Pub.L. No. 111–203, § 929O, 124 Stat. 1376, 1862 (July 21, 2010), codified at 15 U.S.C. § 78t(e). However, this amendment was not applicable to the appeal before the court.

There have been no reported cases located which have addressed the "recklessly" providing substantial assistance element of an aiding and abetting claim. However, it is generally understood that reckless conduct means that the actor realized or should have realized there was a strong probability his conduct would cause the injury. It follows that "recklessly" providing substantial assistance would, at the least, amount to providing substantial assistance in situations where the actor should have realized a primary violation of the securities laws.  This of course lowers the bar for what the SEC must plead and prove in order to make a claim for aiding and abetting.

The SEC has also been aided by recent court decisions interpreting the "substantial assistance" element of an aiding and abetting claim. In S.E.C. v. Apuzzo, 689 F.3d 204 (2d Cir. 2012) cert. denied, 133 S. Ct. 2855 (U.S. 2013), the district court had found that the SEC had not adequately alleged substantial assistance.  Specifically, the court held that “the [C]omplaint contains factual allegations which taken as true support a conclusion that there was a ‘but for’ causal relationship between Apuzzo's conduct and the primary violation, but do not support a conclusion that Apuzzo's conduct proximately caused the primary violation.” Concluding that such proximate causation was required to satisfy the “substantial assistance” component of aider and abettor liability, the district court granted the motion to dismiss.

The Second Circuit found that in the context of an enforcement action by the government, where the goal is deterrence and not compensation, proximate cause is too stringent a standard to apply.  Instead, to satisfy the substantial assistance element, the SEC must allege and prove facts sufficient to show that a defendant “in some sort associate[d] himself with the venture, that he participate[d] in it as in something that he wishe[d] to bring about, [and] that he [sought] by his action to make it succeed.”  Id. at 206.  As such, the Second Circuit reversed the decision of the district court.

The Dodd-Frank amendment and the Apuzzo decision reflect enhancements to the SEC’s ability to bring aiding and abetting claims against individuals who assist in carrying out a fraudulent scheme.  Arguably a claim can now be brought even if an individual did not have actual knowledge of the primary violation and even if the individual's actions do not result in direct harm.

Second Circuit Finds That SEC is Immune from Lawsuit by Bernie Madoff Victims

In Molchatsky, et al. v. United States, 11-2510-cv(L), the Plaintiffs sought to hold the United States liable for SEC employees’ failure to detect Bernard Madoff’s Ponzi scheme and for the financial losses that Plaintiffs claim they suffered as a result. The Plaintiffs’ principal allegation was that the SEC negligently failed to uncover Madoff’s fraud despite receiving numerous complaints over a sixteen-year period. Plaintiffs claim that the SEC’s clear negligence exposes the agency to liability under the Federal Tort Claims Act (“FTCA”).

The FTCA is an exception to the rule that the United States is typically immune from suit. The district court determined that the Discretionary Function Exception (“DFE”), an exception to the exception to the rule of United States immunity, barred Plaintiffs’ claims. The DFE suspends the FTCA from applying to:

[a]ny claim based upon an act or omission of an employee of the Government, exercising due care, in the execution of a statute or regulation, whether or not such statute or regulation be valid, or based upon the exercise or performance or the failure to exercise or perform a discretionary function or duty on the part of a federal agency or an employee of the Government, whether or not the discretion involved be abused.

28 U.S.C. § 2680(a).

The Second Circuit Court of Appeals agreed with the district court. The court of appeals stated that the DFE is not about fairness, it “is about power,” National Union Fire Insurance v. United States, 115 F.3d 20 1415, 1422 (9th Cir. 1997); the sovereign “reserve[s] to itself the right to act without liability for misjudgment and carelessness in the formulation of policy,” id. “[T]he DFE bars suit only if two conditions are met: (1) the acts alleged to be negligent must be discretionary, in that they involve an ‘element of judgment or choice’ and are not compelled by statute or regulation and (2) the judgment or choice in question must be grounded in ‘considerations of public policy’ or susceptible to policy analysis.” Coulthurst v. United States, 214 F.3d 106, 109 (2d Cir. 2000) (quoting United States v. Gaubert, 499 U.S. 315, 322-23 (1991)) The court of appeals noted that Plaintiffs bear the initial burden to state a claim that is not barred by the DFE. See Gaubert, 499 U.S. at 324-25.

The court of appeals concluded that in the case before it, the Plaintiffs failed to make the necessary showing. The conduct Plaintiffs sought to challenge was “too intertwined with purely discretionary decisions” made by SEC personnel. Gray v. Bell, 712 F.2d 490, 515 (D.C. Cir. 1983); see generally id. at 515-16.

While the court expressed sympathy for Plaintiffs’ predicament (and at the same time expressing antipathy for the SEC’s conduct), it found that Congress’s intent to shield regulatory agencies’ discretionary use of specific investigative powers via the DFE was fatal to Plaintiffs’ claims. See Berkovitz by Berkovitz v. United States, 486 U.S. 531, 538 & 538 n.4 (1988) (quoting H.R.Rep. No. 1287, 79th Cong., 1st Sess., 616 (1945)). The court found that the first prong of the DFE was satisfied because the SEC retains complete discretion over when, whether and to what extent to investigate and bring an action against an individual or entity. See 15 U.S.C. § 78u(a)(1); 17 C.F.R. § 202.5(a)-(b). It also found that the second prong of the DFE was satisfied by virtue of the SEC’s choices regarding allocation of agency time and resources being sufficiently grounded in economic, social and policy considerations. See Bd. of Trade of City of Chicago v. SEC, 2 883 F.2d 525, 531 (7th Cir. 1989); cf. Coulthurst, 214 F.3d at 108-11.

The court concluded that the SEC’s actions, along with its “regrettable inaction,” were shielded by the Discretionary Function Exception, and affirmed the district court’s dismissal of Plaintiffs’ claims for lack of subject matter jurisdiction.

THOSE THINGS YOU NEVER READ

There may be many documents that qualify for this blog entry, but I am writing specifically about your brokerage account statements. Sure, you may take a peek at the bottom line now and then, but actually reading the entire statement—who does that?! Let me suggest that next month it will be YOU! 

Brokerage statements hold information your brokerage firm is required to provide to you on a regular basis. They hold key information about your life investments and how they are being managed. The Financial Industry Regulatory Authority (“FINRA”) has provided helpful insight to consumers regarding understanding brokerage statements and the importance of the information contained in those statements. Additionally, most regulators are going to agree that staying on top of your brokerage accounts is extremely important in ensuring your accounts are being handled in an appropriate manner. 

This doesn’t mean you have to know a lot about investments, but, according to FINRA, “Not only do these documents help you stay on top of your investment holdings, but they also provide valuable information that can alert you to errors, or even misconduct by your broker or brokerage firm such as unauthorized trading or overcharging customers for handling transactions.” So, even if you don’t know everything a particular Mutual Fund holds, your statements can bring to light problems you might not otherwise notice in a timely manner. Some examples of “red flags” are: Information or transactions in the account summary that you did not authorize or expect, or income that appears on your statement, but has not been deposited in your account. 

FINRA has provided a helpful key information guide that breaks down sections of an account statement and provides information about why it is important and what activity might qualify as a red flag. 

Many consumers are overwhelmed by the thought of reviewing financial information on a regular basis. Either they lack confidence that they will understand the statements and their holdings, or they fear activity in the market may have decreased their balance so they just avoid opening the statement all together. If you start out slow, only focusing on certain portions of your statement until you feel like you have an understanding of what should be there and what it means, you can progress to fully reading the account statement. While it may be uncomfortable and time consuming, it is an important step in overseeing how your hard earned money is being managed. It is a way to protect yourself from fraud and other unsavory activity and, should you come across something on your statement you are concerned about, FINRA recommends that you “immediately call the firm that issued the statement or confirmation about any transaction or entry [you] do not understand or did not authorize, and re-confirm any oral communication in writing with the firm.” 

So the next time that statement comes in the mail, think positive—this is an opportunity to protect your assets and you can start out slow—just be sure to start!

SEC’s Whistleblower Rewards Program – Who are the Real Bounty Hunters?

The U.S. Securities and Exchange Commission (“SEC”) made its first payout of $50,000 to a whistleblower since a program was created last year to reward people who provide regulators with evidence of securities fraud. 

The SEC set up a whistleblower program in August 2011 to reward individuals who provide evidence of securities law violations which lead to SEC sanctions of more than $1 million. The program was authorized in the 2010 financial-regulation overhaul. Potential awards could range from 10 percent to 30 percent of the money collected. 

The unnamed whistleblower helped the SEC bring an enforcement action that resulted in more than $1 million in sanctions.  The SEC rewarded the anonymous whistleblower 30% of the recovery.  So far the SEC has only collected $150,000 but as more of the sanctions are recovered, the whistleblower’s reward will increase.  The SEC believes the announcement of its first reward payout will give the program a boost.  However a second person in the same matter was denied a whistleblower reward because the information provided by the person did not lead to or significantly contribute to the enforcement action. 

While the program is supposed to encourage individuals to come forward with information relating to securities fraud, Peter Sivere, a former compliance officer at JPMorgan Chase had a much different experience with his efforts to “do the right thing.”  To be clear, the story of Peter Sivere occurred from 2003 to 2005 before the whistleblower program was adopted by the SEC. 

During an SEC investigation of whether a New Jersey hedge fund, a big client of JPMorgan, was late trading mutual funds, Sivere was allegedly terminated from JPMorgan for turning over emails to the SEC and expressing concerns that JPMorgan was not fully cooperating with the investigation.  The emails indicated that JPMorgan had provided a $105 million line of credit to the hedge fund that it used to facilitate its late trading in mutual funds.  Late trading occurs when one buys shares at the day’s final price even though the market has closed. 

Before his termination, Sivere contacted SEC lawyer George Demos by email seeking to become a whistleblower and inquiring whether he would be able to collect a reward for his information.  Even though Demos informed him that a “bounty” would not be available, Sivere turned the emails over to the SEC anyways.  Sivere was later fired and JPMorgan reported on his U-5 that he was terminated for “accessing e-mails without authorization.”  JPMorgan later agreed in a settlement to amend his U-5 to state his employment ended as a result of a “disagreement regarding the scope of [Sivere’s] authority.” 

Sivere reported the alleged retaliation to the Occupational Safety and Health Administration (“OSHA”) and it was discovered during their investigation that Demos informed JPMorgan’s lawyers that Sivere had asked the SEC for a whistleblower bounty and Demos even encouraged JPMorgan to use this information in the lawsuit between Sivere and JPMorgan.  While Demos’ behavior violates SEC protocol, and the allegations were confirmed by the SEC’s inspector general, no disciplinary action was taken against Demos.  In fact, Demos held his position with the SEC until 2009.
 
More recently, a whistleblower’s identity was inadvertently revealed during an SEC investigation of Pipeline Trading Systems, LLC when an SEC lawyer shared the whistleblower's notebook with one of Pipeline’s executives.  The executive recognized the whistleblower's handwriting.  The whistleblower, Peter Earle, was a former employee of one of Pipeline’s trading affiliates and expressed his disappointment in the SEC’s failed efforts to keep his identify private.

The new whistleblower rewards program is supposed to guarantee anonymity, yet the SEC has scars from the past which might be counter intuitive for the program, especially since no action was taken against Demos for the confidentiality violation. 

If you think you have information that may lead to a recovery under the whistleblower program, contact the attorneys at Cosgrove Law Group, LLC to have your rights represented and your identity protected.

In the Wake of Facebook’s IPO, Several Firms are Accused of Securities Fraud

 The SEC and FINRA have responded to the increased popularity in owning private shares of major technology companies such as Facebook and Twitter by stepping up enforcement of the pre-IPO market. 

The SEC recently charged Frank Mazzola and his two private investment funds (Felix Investments, LLC and Facie Libre Management Associates, LLC) with securities fraud.   The funds were established solely to acquire shares in Facebook and other tech firms with securities fraud.  The SEC has alleged that these firms misled investors and pocketed undisclosed fees and secret commissions. 

While fund managers are required to fully disclose material conflicts of interest and their compensation, Mazzola and his firms allegedly failed to do so.  Mazzola, Felix, and Facie Libre also earned commissions above and beyond the 5% commission that was disclosed in offering materials during the acquisition of Facebook stock.  To make matters worse, Mazzola and his firms allegedly mislead investors into believing Felix and Facie Libre had ownership in stock of certain tech companies such as Facebook and Zynga, and made false statements which inflated the revenue of Twitter to attract investors.  According to the SEC and FINRA, Mazzola improperly raised over $70 million from investors using such deceitful tactics. 

The SEC complaint against Mazzola, Felix, and Facie Libre request that they be permanently enjoined from violating the various securities laws and to disgorge any and all wrongfully obtained benefits. 

It is important for investors to use caution and diligence when investing in pre-IPO stocks because they typically lack the type of public disclosures that are required for public stock.  If you have been a victim of broker fraud or negligence the attorneys at Cosgrove Law, LLC may be able to help you recover your losses.