Facebook Pre-IPO Share Sales Draw SEC Scrutiny

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Managers of private investment funds established solely to acquire the shares of Facebook and other Silicon Valley firms were charged by the Securities and Exchange Commission with misleading investors and pocketing undisclosed fees and commissions. The SEC alleges that the fund managers collectively raised more than $70 million from investors.

Separately, the SEC charged SharesPost, an online service that matches buyers and sellers of pre-IPO stock, with engaging in securities transactions without registering as a broker-dealer.

The charges stem from the SEC’s yearlong investigation of the fast-growing business of trading pre-IPO shares on the secondary market.

“While we applaud innovation in the capital markets, new platforms and products must obey the rules and ensure the basic fairness and disclosure that are the hallmarks of sound financial regulation,” said Robert Khuzami, Director of the SEC’s Division of Enforcement.

“Fund managers must fully disclose their compensation and material conflicts of interest.  Investors deserve better than the kind of undisclosed self-dealing present in these cases,” said Robert Kaplan, Co-Chief of the SEC Enforcement Division’s Asset Management Unit.

Contact Fort Lauderdale securities litigation attorney Howard N. Kahn, Esq. if you or someone you know has been the victim of securities fraud. Mr. Kahn is an experienced securities fraud and litigation attorney. He is also a FINRA arbitrator in securities disputes among individual investors, brokers, and brokerage firms. You can reach him at 954-321-0176 or online.

SEC Charges Thornburg Mortgage with Fraud

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The Securities and Exchange Commission today charged the senior-most executives at formerly one of the nation’s largest mortgage companies with hiding the company’s deteriorating financial condition at the onset of the financial crisis. The plan backfired and the company lost 90 percent of its value in two weeks.

The SEC alleges that Thornburg Mortgage Inc. chief executive officer Larry Goldstone, chief financial officer Clarence Simmons, and chief accounting officer Jane Starrett schemed to fraudulently overstate the company’s income by more than $400 million and falsely record a profit rather than an actual loss for the fourth quarter in its 2007 annual report. Behind the scenes, Thornburg was facing a severe liquidity crisis and was unable to make on-time payments for substantial margin calls it received from its lenders in the weeks leading up to the filing of its annual report on Feb. 28, 2008.

According to the SEC’s complaint filed in federal court in New Mexico, even though Thornburg was violating lending agreements by failing to make on-time payments, the executives were unwilling to disclose the severity of their liquidity crisis to investors and Thornburg’s auditor.

For example, in a February 25 e-mail from Starrett to Goldstone and Simmons, she said, “We have purposefully not told [our auditor] about the margins calls.” Goldstone, Simmons, and Starrett scrambled to satisfy all outstanding margin calls and then timed the filing of the annual report to occur just hours later in order to precede additional margin calls and avoid full disclosure. As Goldstone had earlier stated to Simmons and Starrett in an e-mail, “We don’t want to disclose our current circumstance until it is resolved.” The intention was “to keep the current situation quiet while we deal with it.”

The SEC alleges that the executives’ plan to never disclose the delayed margin call payments fell through when they were unable to raise cash quickly enough to meet more margin calls received soon after filing the annual report. When Thornburg began to default on this new round of margin calls, it was forced to disclose its problems in 8-K filings with the SEC. By the time the company filed an amended annual report on March 11, its stock price had collapsed by more than 90 percent. Thornburg never fully recovered and filed for bankruptcy on May 1, 2009.

Contact Fort Lauderdale securities fraud attorney Howard N. Kahn, Esq. if you or someone you know has been the victim of securities fraud or commercial mortgage fraud. Mr. Kahn is an experienced mortgage fraud and securities litigation attorney. He works with commercial lenders, borrowers, and investors in cases involving mortgage fraud or securities litigation. You can contact him at 954-321-0176 or online.

Mortgage Fraud Accusations for Nationwide Investment

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Nationwide Investment Firm, a Palm Beach County foreclosure rescue firm, is the target of increasing homeowner complaints.

Clients allege that Nationwide promises to arrange short sales, negotiate loan modifications, or work with lenders to delay homeowner foreclosures, according to a lawsuit filed in Palm Beach County. Rather than getting help, however, unsuspecting victims actually sign over the deed to their home to Nationwide.

Seven lawsuits charging fraudulent business practices have been filed against the company in the past year, according to the Palm Beach Post. Nationwide Investment now has title to 65 homes in Palm Beach, Broward, Miami-Dade, St. Lucie and Lee counties, according to the article.

The Florida Office of Financial Regulation confirmed last week that it is conducting an investigation into the firm.

Watch a Channel 5 News video about the mortgage fraud allegations involving Nationwide Investment Firm.

Contact Fort Lauderdale mortgage foreclosure attorney Marcy Resnik or Howard Kahn to discuss how you can defend your legal rights in a foreclosure. You can contact them online or call her at 954-321-0176.

South Florida Men Sentenced in $9 Million Mortgage Fraud Scheme

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An elaborate mortgage fraud scheme ended with defendants Oscar Bravo, 58 of Port St. Lucie, Jorge Bravo, 57 of Miami, and Sean Dickens, 44, of West Melbourne, Florida being sentenced to thirty-seven (37) months in prison on charges of conspiracy to commit mail and wire fraud.

According to a press release issued by the U.S. Attorney’s Office for the Southern District of Florida, a co-conspirator located residential properties for sale. The defendants then purchased the properties, with a plan to flip them for a profit after some property enhancements. The properties were 100% lender financed. The price of the properties was falsely inflated in their mortgage applications with the difference between the actual price and the inflated mortgage loan used to make payments on the mortgage loan and to pay for repairs to the properties.

In total, this mortgage scheme involved approximately $9 million in fraudulent mortgage loans. Click on the link to read the full press release.

Contact Fort Lauderdale mortgage fraud attorney Howard N. Kahn, Esq., if you or someone you know has been the victim of commercial mortgage fraud. Mr. Kahn is an experienced mortgage fraud and litigation attorney. He works with commercial lenders or borrowers in cases involving mortgage fraud or other distressed properties. You can him at 954-321-0176 or online.

Brokerage Account Statements: Investor Alert

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The Financial Industry Regulatory Authority (FINRA) has issued an Investor Alert called “It Pays to Understand Your Brokerage Account Statements and Trade Confirmations.”

Investors are advised to carefully review their brokerage account statements every month, not just to confirm the balance but to also look for errors or signs of unauthorized trading or overcharges. 

Signs of Brokerage Account Fraud

FINRA warns investors to be aware of statements that appear unprofessional or altered in any way, since this may be a red flag for fraud. In some cases, according to FINRA, fraudsters simply cut and paste the logo of a legitimate firm onto their own bogus statement.

Other signs of fraud mentioned by FINRA include:

  • No specified end date or statement period on your statement.
  • End dates or statement periods that don’t follow a consistent pattern (such as the last day, last business day or last Friday of each month).
  • Account number that doesn’t match previous statements.
  • Wrong or outdated address, which could hamper delivery of account information.
  • Incorrect or outdated account ownership information.
  • The financial professional’s name is unfamiliar to you.
  • A phone number that is out of service or always busy or not answered.

Read more from FINRA’s guide, “It Pays to Understand Your Brokerage Account Statements and Trade Confirmations.”

Contact Fort Lauderdale securities attorney Howard N. Kahn, Esq., if you or someone you know has been the victim of fraud or unauthorized trading in regard to an investment or brokerage account. Mr. Kahn is an experienced securities attorney and FINRA arbitrator. You can him at 954-321-0176 or online.

George Elia Ponzi Scheme Trial Scheduled for This Week

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The $11 million Ponzi scheme perpetrated on members of the Wilton Manors, Florida gay community from March 2005 to January 2012 is headed for trial this week in a Miami federal court.

Defendants George Elia and his company, International Consultants & Investment Group Ltd. Corp., orchestrated a Ponzi scheme in which Elia raised approximately $11 million from approximately 25 investors, according to an SEC complaint. Elia allegedly lied to investors by claiming to generate returns as high as 26% through day trading stocks and exchange-traded funds.

Elia allegedly transferred the funds to entities he controlled, including Relief Defendants 212 Entertainment Club, Inc., and Elia Realty, Inc. He also used some of the funds to pay personal expenses such as mortgage and car payments, and to pay an associate to introduce him to potential investors to sustain his Ponzi scheme.

George Elia, 69, faces 10 fraud-related charges, according to the Sun-Sentinel. Co-defendant James F. “Jim” Ellis, who recruited investors using his connections in the gay community, pleaded guilty last month to a single count of conspiracy to commit mail and wire fraud.

Fort Lauderdale Securities Litigation and Arbitration Attorney

Contact Fort Lauderdale securities litigation and arbitration attorney Howard N. Kahn, Esq. if you or someone you know has a securities or broker dispute. He is an experienced securities litigation and arbitration attorney, and is available to assist individual investors, brokers, and brokerage firms involved in securities matters. You can reach him at 954-321-0176 or online.

Unauthorized Trading Target of SEC Risk Alert

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Helping broker-dealers and investment advisers prevent and detect unauthorized trading in brokerage and advisory accounts is the subject of a new Securities and Exchange Commission risk alert.

According to the SEC, “unauthorized trading can include rogue trades in customer, client, or proprietary accounts or trades that exceed firm limits on position exposures, risk tolerances, and losses. Unauthorized trading can be done by traders, assistants on trading desks, portfolio managers, brokers, risk managers, or other personnel, including those in administrative positions in a firm’s back office.”

Red flags for unauthorized trading include changes in trading patterns, a high volume of trade cancellations or corrections, manual trade adjustments, or unexplained profits for a particular trader or client may warrant additional scrutiny.

Contact Fort Lauderdale securities attorney Howard N. Kahn, Esq., if you or someone you know has been the victim of unauthorized trading in regard to an investment or brokerage account. Mr. Kahn is an experienced securities attorney and FINRA arbitrator. You can him at 954-321-0176 or online.

Click on the link to read the SEC’s release on unauthorized trading.