Posts

Former Systemax Director, Miami, Charged in Compensation Scheme

/in /by

Gilbert Fiorentino, a former director of Systemax Inc. (“Systemax”), a Port Washington, N.Y.-based consumer electronics retailer, is the subject of a Securities and Exchange Commission (SEC) civil action for fraud and associated proposed settlement.

The Commission’s Complaint, filed in the U.S. District Court for the Southern District of Florida, alleges that Gilbert Fiorentino, who in addition to serving on the board was the former chief executive of Systemax’s Technology Products Group in Miami, obtained over $400,000 in extra compensation directly from firms that conducted business with Systemax.

Fiorentino also stole several hundred thousand dollars worth of company merchandise that was used to market Systemax’s products online and in mail order catalogs.  Because Fiorentino was one of Systemax’s highest-paid executives, the federal securities laws required the company to disclose all compensation he received each fiscal year as well as his perks and other personal benefits.  Since Fiorentino failed to disclose his extra compensation and perks to Systemax or its auditors, the amounts were not reported to shareholders correctly.

Systemax placed Fiorentino on administrative leave in April 2011.  After the SEC began investigating the conduct, Fiorentino agreed to resign from all of his positions with Systemax, surrender stock and stock options valued at approximately $9.1 million, and repay his 2010 annual bonus of $480,000.

According to the SEC’s complaint, the misconduct occurred from January 2006 to December 2010.  Systemax sells personal computers and other consumer electronics through its websites, retail stores, and direct mail catalogs.  Fiorentino arranged the extra compensation as he dealt directly with external service providers, manufacturer representatives, and other entities that conducted business with Systemax.  For example, he demanded and received $5,000 to $10,000 monthly from an entity that supplied materials to Systemax’s subsidiaries for use in retail and mail order operations.

The SEC further alleges that through his executive position at Systemax, Fiorentino had access to company merchandise used to market Systemax products in mail order catalogs and online.  Fiorentino routinely misappropriated some of this merchandise and failed to disclose it to Systemax and its auditors.

According to the SEC’s complaint, as a result of Fiorentino’s actions, the information that Systemax filed with the SEC and provided to investors materially understated his compensation and omitted his personal financial interest in certain related-party transactions.  Fiorentino reviewed and signed each Systemax Form 10-K from fiscal year 2006 to 2010 while knowing that it failed to make the required disclosures.  Fiorentino also routinely signed management representation letters to Systemax’s independent auditors stating that he did not know of any fraud or suspected fraud involving Systemax’s management.

Fiorentino has consented to the entry of an injunctive order without admitting or denying the allegations in the Commission’s complaint.

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.

Miami Brokers Defrauded Brazilian Public Pension Funds, Says SEC

/in /by

Two former LatAm Investments brokers overcharged customers $36 million by using hidden markup fees on structured notes transactions, according to SEC fraud charges.

Fabrizio Neves allegedly conducted the scheme while working at LatAm Investments LLC, a broker-dealer that is no longer in business. He was assisted by Jose Luna, says the SEC. The pair defrauded two Brazilian public pension funds and a Colombian institutional investor that purchased from LatAm the structured notes issued by major commercial banks.

To conceal the excessive markups that Neves charged customers, Neves directed Luna to alter the banks’ structured note term sheets in half of the transactions by either whiting out or electronically cutting and pasting the markup amounts over the actual price and trade information, and then sending the forged documents to customers. Neves and Luna further concealed the egregious markups in most transactions by first purchasing the notes into accounts in the name of nominee entities they controlled in the British Virgin Islands.

“Neves lined his pockets with millions of dollars by charging customers exorbitant, fraudulent markups,” said Eric I. Bustillo, Director of the SEC’s Miami Regional Office. “Neves and Luna thought they could hide their scheme and evade regulators by using offshore nominee companies and forged documents, but they thought wrong.”

The SEC also instituted an administrative proceeding against LatAm’s former president Angelica Aguilera, who was the direct supervisor over Neves and Luna. The SEC’s Enforcement Division alleges that Aguilera failed to reasonably supervise Neves and Luna and effectively follow or implement LatAm’s supervisory policies and procedures to ensure the fairness of markups and markdowns they charged to LatAm customers. As a result, Neves and Luna were able to carry out the fraudulent markup scheme undetected.

According to the SEC’s complaint against Neves and Luna filed in U.S. District Court for the Southern District of Florida, Neves negotiated with several U.S. and European commercial banks to structure 12 notes on his customers’ behalf from 2006 to 2009. But instead of purchasing the notes for his customers’ accounts for prices around the banks’ issuance amounts – which totaled approximately $70 million – in most transactions Neves first traded the notes with one or more accounts in the name of offshore nominee entities that he and Luna controlled. Neves then sold the notes to his customers with undisclosed markups as high as 67 percent. Neves had no reasonable basis to mark up the prices that significantly.

The SEC alleges that as a result of the markup scheme, the Brazilian funds overpaid by approximately $24 million and the Colombian institutional investor overpaid by approximately $12 million due to the undisclosed, excessive fees. Neves enjoyed a financial boon from the scheme as LatAm paid him millions of dollars in inflated sales commissions for the structured note transactions that he made at inflated prices. Luna received hundreds of thousands of dollars in inflated salary and commissions from LatAm and tens of thousands of dollars in additional compensation from a company that Neves controlled.

The SEC’s complaint seeks disgorgement of ill-gotten gains, financial penalties, and injunctive relief against Neves to enjoin him from future violations of the federal securities laws.

Luna has agreed to the entry of a judgment ordering him to pay disgorgement of $923,704.85, prejudgment interest of $241,643.51, and a penalty amount to be determined. The judgment permanently enjoins him from violations of the anti-fraud provisions of the federal securities laws. Luna neither admitted nor denied the allegations in the SEC’s complaint. Luna also agreed to settle a related SEC administrative proceeding by agreeing to be barred from association with any broker, dealer, investment advisor, municipal securities dealer, municipal advisor, transfer agent, or credit rating agency.

Fort Lauderdale Securities Litigation Attorney and FINRA Arbitrator

Contact Fort Lauderdale securities litigation attorney Howard N. Kahn, Esq. if you or someone you know has a securities or broker dispute. In addition to being an experienced securities litigation attorney, Mr. Kahn also serves as a FINRA arbitrator for individual investors, brokers, and brokerage firms. You can reach him at 954-321-0176 or online.

FINRA Launches Large Arbitration Case Pilot Program

/in /by

Large arbitration cases involving claims of $10 million or more are the focus of a new pilot program recently launched by the Financial Industry Regulatory Authority (FINRA).

The program enables parties to customize the administrative process to better suit special needs of a larger case and allows them to bypass certain FINRA arbitration rules. Participation in the pilot program, which begins today, is voluntary and open to all cases. In order to be eligible, however, all parties will be required to pay for any additional costs of the program and must be represented by counsel.

Linda Fienberg, President of FINRA Dispute Resolution, said, “In response to the increasing number of very large cases, we wanted to introduce a more formal approach to give parties greater flexibility and more control over the administration of their case.”

Examples of how parties may customize the process include having the option to:

  • Have additional control over the method of arbitrator appointment and the qualifications of arbitrators;
  • Hire non-FINRA arbitrators for their case;
  • Develop their own procedures for exchanging information prior to the hearing;
  • Have expanded discovery options such as depositions and interrogatories; and
  • Choose from a wider selection of facilities.

All parties must agree and will be required to pay for any additional costs of the program such as costs for enhanced facilities or additional arbitrator honorariums. FINRA will send a letter to parties in cases involving claims of $10 million or more to solicit participation in the pilot.

Fort Lauderdale Securities Litigation Attorney and FINRA Arbitrator

Contact Fort Lauderdale securities litigation attorney Howard N. Kahn, Esq. if you or someone you know has a securities dispute. In addition to being an experienced securities litigation attorney, Mr. Kahn also serves as a FINRA arbitrator for individual investors, brokers, and brokerage firms. You can reach him at 954-321-0176 or online.

Florida Court Enters Final Judgment against James Clements & Zeina Smidi

/in /by

A Ponzi scheme that offered investors guaranteed monthly returns ended in a court judgment. Defendants Clements and Smidi first told investors they would use investor proceeds to trade in foreign currencies and later stated they would use proceeds to invest in Swiss high-yield, fixed-rate savings accounts. In reality, however, Clements and Smidi siphoned approximately $3 million of investors’ money to their personal bank accounts, and paid out approximately $3 million for travel, expenses, and luxury items. [SEC v. Clements, Civil Action No. 11-60673-CIV- Dimitrouleas/Snow (S.D. Fla.)]

The Commission announced that on May 21, 2012, a District Judge in the Southern District of Florida entered Final Judgments Ordering Disgorgement, Prejudgment Interest and a Civil Penalty against Defendants James Clements and Zeina Smidi. Pursuant to Section 20(d) of the Securities Act of 1933 (Securities Act) and Section 21(d) of the Securities Exchange Act of 1934 (Exchange Act), District Court Judge William P. Dimitrouleas ordered Defendant Clements to pay disgorgement of $339,451, prejudgment interest of $88,975.66, and a civil penalty of $339,451, and ordered Defendant Smidi to pay disgorgement of $2,492,000, prejudgment interest of $611,837.60, and a civil penalty of $2,492,000.

The District Court previously entered by consent permanent injunctions against Clements and Smidi on February 6 and 17, 2012. The permanent injunctions enjoined Clements from future violations of Securities Act Sections 5(a), 5(c), and 17(a), and Exchange Act Sections 10(b), 15(a), and Exchange Act Rule 10b-5, and enjoined Smidi from future violations of Exchange Act Section 10(b), and Exchange Act Rule 10b-5. Clements and Smidi neither admitted nor denied the allegations of the complaint in their consents.

Fort Lauderdale Securities Litigation and FINRA Arbitration

Contact Fort Lauderdale securities litigation attorney Howard N. Kahn, Esq. if you or someone you know has a securities dispute. In addition to being an experienced securities litigation attorney, Mr. Kahn also serves as a FINRA arbitrator for individual investors, brokers, and brokerage firms. You can reach him at 954-321-0176 or online.

Nasdaq Glitches with Facebook IPO Result in Bad Trades

/in /by

Nasdaq OMX Group Inc. (NDAQ) is under fire from brokers and traders who lost money on Friday’s initial public offering of Facebook Inc.

Technical issues at the exchange caused orders placed between 11:11 a.m. and 11:30 a.m. on May 18th to go into a “black hole,” according to the Wall Street Journal. Other investors experienced difficulties when they tried to cancel IPO orders. Nasdaq indicates that it may earmark at least $13 million to resolve bad trades.

The Financial Industry Regulatory Authority, or Finra, is expected to oversee the process of arbitrating and distributing the money to investors. The U.S. Securities and Exchange Commission (SEC) is also expected to review the Facebook IPO trading activity.

Florida Securities Litigation and FINRA Arbitration

Contact Fort Lauderdale securities litigation attorney Howard N. Kahn, Esq. if you or someone you know has a securities dispute. In addition to being an experienced securities litigation attorney, Mr. Kahn also serves as a FINRA arbitrator for individual investors, brokers, and brokerage firms. You can reach him at 954-321-0176 or online.

SEC Suspends Trading in 379 Microcap Shell Companies

/in /by

Hijacking by securities fraudsters who scam investors through reverse mergers or pump-and-dump schemes was the reason given by the Securities and Exchange Commission (SEC) in an unusual one-day move to suspend tradingin the securities of 379 dormant companies.

The trading suspension marks the most companies ever suspended in a single day by the agency as it ramps up its crackdown against fraud involving microcap shell companies that are dormant and delinquent in their public disclosures.

Microcap companies typically have limited assets and low-priced stock that trades in low volumes. An initiative tabbed Operation Shell-Expel by the SEC’s Microcap Fraud Working Group utilized various agency resources including the enhanced intelligence technology of the Enforcement Division’s Office of Market Intelligence to scrutinize microcap stocks in the markets nationwide and identify clearly dormant shell companies in 32 states and six foreign countries that were ripe for potential fraud.

“Empty shell companies are to stock manipulators and pump-and-dump schemers what guns are to bank robbers — the tools by which they ply their illegal trade,” said Robert Khuzami, Director of the SEC’s Division of Enforcement. “This massive trading suspension unmasks these empty shell companies and deprives unscrupulous scam artists of the opportunity to profit at the expense of unsuspecting retail investors.”

Thomas Sporkin, Director of the SEC’s Office of Market Intelligence, added, “It’s critical to assess risks to investors in the capital markets and, through strategic planning, develop ways to neutralize them. We were able to conduct a detailed review of the microcap issuers quoted in the over-the-counter market and cull out these high-risk shell companies.”

The SEC’s previously largest trading suspension was an order in September 2005 that involved 39 companies. The federal securities laws allow the SEC to suspend trading in any stock for up to 10 business days. Subject to certain exceptions and exemptions, once a company is suspended from trading, it cannot be quoted again until it provides updated information including accurate financial statements.

Pump-and-dump schemes are among the most common types of fraud involving microcap companies. Perpetrators will tout a thinly-traded microcap stock through false and misleading statements about the company to the marketplace. After purchasing low and pumping the stock price higher by creating the appearance of market activity, they dump the stock to make huge profits by selling it into the market at the higher price.

The existence of empty shell companies can be a financial boon to stock manipulators who will pay as much as $750,000 to assume control of the company in order to pump and dump the stock for illegal proceeds to the detriment of investors. But with this trading suspension’s obligation to provide updated financial information, these shell companies have been rendered essentially worthless and useless to scam artists.

Click on the link for the full list of 379 dormant microcap shell stocks subject to the SEC’s trading suspension.

Florida Securities Litigation and FINRA Arbitration

Contact Fort Lauderdale securities litigation attorney Howard N. Kahn, Esq. if you or someone you know has a securities dispute. In addition to being an experienced securities litigation attorney, Mr. Kahn also serves as a FINRA arbitrator for individual investors, brokers, and brokerage firms. You can reach him at 954-321-0176 or online.

SEC to Review J.P. Morgan Chase $2 Billion Trading Loss

/in /by

SEC officials are looking at accounting and disclosure issues related to the trading loss, according to The Wall Street Journal. Early Wall Street Journal reports in early April noted that a trader at J.P. Morgan known in the market as the “London Whale” made large bets on credit derivatives, supposedly to “hedge structural risks.”

Formal news of the loss came in the form of a disclosure in J.P. Morgan’s first quarter 10Q filed with the SEC on May 10, 2012. The following excerpt is taken from page 9:

“In Corporate, within the Corporate/Private Equity segment, net income (excluding Private Equity results and litigation expense) for the second quarter is currently estimated to be a loss of approximately $800 million. (Prior guidance for Corporate quarterly net income (excluding Private Equity results, litigation expense and nonrecurring significant items) was approximately $200 million.) Actual second quarter results could be substantially different from the current estimate and will depend on market levels and portfolio actions related to investments held by the Chief Investment Office (CIO), as well as other activities in Corporate during the remainder of the quarter.

Since March 31, 2012, CIO has had significant mark-to-market losses in its synthetic credit portfolio, and this portfolio has proven to be riskier, more volatile and less effective as an economic hedge than the Firm previously believed.

The losses in CIO’s synthetic credit portfolio have been partially offset by realized gains from sales, predominantly of credit-related positions, in CIO’s AFS securities portfolio. As of March 31, 2012, the value of CIO’s total AFS securities portfolio exceeded its cost by approximately $8 billion. Since then, this portfolio (inclusive of the realized gains in the second quarter to date) has appreciated in value.

The Firm is currently repositioning CIO’s synthetic credit portfolio, which it is doing in conjunction with its assessment of the Firm’s overall credit exposure. As this repositioning is being effected in a manner designed to maximize economic value, CIO may hold certain of its current synthetic credit positions for the longer term.

Accordingly, net income in Corporate likely will be more volatile in future periods than it has been in the past.”

Florida Securities Litigation and FINRA Arbitration

Contact Fort Lauderdale securities litigation attorney Howard N. Kahn, Esq. if you or someone you know has a securities dispute. In addition to being an experienced securities litigation attorney, Mr. Kahn also serves as a FINRA arbitrator for individual investors, brokers, and brokerage firms. You can reach him at 954-321-0176 or online.

SEC Charges Kevin Sepe in Florida Stock Scheme

/in /by

The SEC alleges that Kevin Sepe of Miami masterminded two separate schemes to illegally sell stock, including one that sought to capitalize on circumstances in Haiti following the earthquake that destroyed much of the country’s infrastructure in January 2010. Ten others were also charged.

Three licensed attorneys and several others who collectively reaped illegal profits of more than $3.5 million allegedly helped Sepe in schemes involving two microcap companies — Recycle Tech and HydroGenetics. Aventura, Fla.-based attorney Ronny Halperin assisted Sepe in both schemes.

The Recycle Tech scheme involved a promotional campaign to pump the price and volume of the purported home container building company’s stock in the wake of the Haiti earthquake. The HydroGenetics scheme took millions of unregistered shares of the company — purportedly in the business of acquiring emerging alternative energy companies — and improperly converted its debt into free-trading shares that were dumped on the investing public.

Six of the 11 individuals involved have agreed to settlements ordering them and companies they own to collectively pay more than $3.2 million.

“Sepe, Halperin, and others chose to ignore the laws governing stock sales and play by their own set of rules,” said Eric I. Bustillo, Director of the SEC’s Miami Regional Office. “Some of these individuals were attorneys and corporate officers who should have known better, and we will continue to crack down on any such gatekeepers who put investors at risk with their harmful activities to manipulate the markets.”

According to the SEC’s complaint filed in federal court in Miami, Sepe and Halperin evaded registration requirements by converting backdated and fabricated promissory notes into unrestricted stock of Recycle Tech, quoted on the Pink Sheets. With help from Recycle Tech’s CEO and president Ryan Gonzalez, they conducted a pump-and-dump scheme from January to March 2010 by enlisting the help of two promoters — Anthony Thompson and Jay Fung — who touted Recycle Tech in their newsletters.

David Rees, a Utah-based attorney, became involved in the scheme when he drafted an improper legal opinion letter authorizing the issuance of unrestricted Recycle Tech shares.

The SEC alleges that the participants collectively made more than $1 million in illegal profits through the scheme, which touted that Recycle Tech signed a binding letter of intent to build up to 50 container homes in Haiti following the earthquake. However, Recycle Tech failed to disclose to investors that it had no funds, no finished container homes, and minimal operations. Sepe orchestrated, coordinated, and funded the scheme and sold Recycle Tech stock along with Halperin and Rees without any exemption from registering those securities with the SEC.

Gonzalez, who lives in Miami, made the scheme possible by incorporating a sham private company, turning the public shell of that company into Recycle Tech through a reverse merger, and signing various fraudulent documents to authorize the issuance of Recycle Tech securities. Gonzalez also drafted and issued false press releases used to hype Recycle Tech stock. Thompson and Fung — through their firms OTC Solutions LLC and Pudong LLC — touted Recycle Tech in their newsletters without disclosing that they were selling shares or adequately disclosing the compensation they received for their touts.

According to the SEC’s other complaint filed in Miami, Sepe and Halperin schemed with Miami-based attorney Melissa Rice and others to illegally issue and liquidate 90 million unregistered shares of HydroGenetics from April 2008 until at least June 2009. Sepe headed a group that purchased convertible debt of a South Florida publicly-held company. He then formed HydroGenetics and parsed out portions of the convertible debt to friends, family, and others who converted the debt to stock that they then sold publicly.

Sepe sold HydroGenetics stock without any exemption from registration the securities with the SEC. Halperin was the HydroGenetics CEO and a director. He executed corporate resolutions to help issue millions of shares of HydroGenetics stock, including 11 million shares to his daughter who he told to sell it and funnel a portion of the illegal proceeds back to him. Rice assisted Sepe in converting convertible debt to unrestricted HydroGenetics shares, and wrote four opinion letters improperly opining that the Rule 144 safe harbor was applicable and the debt could be converted to unrestricted HydroGenetics shares. Rice also sold her shares of HydroGenetics stock.

The SEC alleges that three other Miami residents also received illegal profits in the HydroGenetics scheme: Luz Rodriguez, who worked as an office administrator and assistant to Sepe; Howard Ettelman, a provider of accounting services to various companies owned by Sepe and Rice; and Seth Eber, a self-employed jeweler who was on the list of individuals that Sepe provided Rice to assign shares.

The SEC further alleges that Charles Hansen III of Lighthouse Point, Fla., succeeded Halperin as HydroGenetics CEO in April 2009 and signed five corporate resolutions authorizing HydroGenetics to illegally issue stock that Rice then used along with her opinion letter to facilitate the scheme.

The individuals agreeing to settle the SEC’s charges in the complaints without admitting or denying the allegations are Sepe, Halperin, Rees, Rice, Ettelman, and Hansen.

  • Sepe agreed to disgorgement of $1,416,466.16, prejudgment interest of $126,761.86, and penalties of $185,000 as well as a permanent bar from participating in an offer or sale of penny stocks.
  • Halperin agreed to disgorgement of $427,609.95, prejudgment interest of $33,595.33, and a penalty of $100,000 as well as a permanent penny stock bar and a five-year officer and director bar. He also agreed to surrender 1.97 million shares of HydroGenetics stock.
  • Rees agreed to disgorgement of $5,982, prejudgment interest of $406.25, and a penalty of $7,500 as well as a one-year prohibition from providing professional legal services connected to the offer or sale of securities.
  • Rice agreed to disgorgement of $422,445, prejudgment interest of $39,239.18, and a penalty of $60,000 as well as a five-year penny stock bar and three-year prohibition from providing professional legal services connected to the offer or sale of securities.
  • Ettelman agreed to disgorgement of $32,667, prejudgment interest of $3,093.27, and a penalty of $25,000 as well as a five-year penny stock bar and the surrender of 300,000 shares of HydroGenetics stock.
  • Hansen agreed to a $37,500 penalty.

Two companies — Charter Consulting Group (owned and controlled by Sepe) and West Coast Investments Enterprises (owned by Rice) — were named as relief defendants in the SEC’s complaints because they received a portion of the illegal trading profits in the schemes. They each settled the case, with Charter agreeing to disgorgement of $150,000 and prejudgment interest of $9,125 and West Coast agreeing to disgorgement of $125,000 and prejudgment interest of $11,262.71.

Separately, the SEC issued orders to suspend trading in the securities of Recycle Tech and HydroGenetics and to institute administrative proceedings against each company to determine whether the registration of their securities should be revoked or suspended based on their failure to file required periodic reports.

The SEC also instituted separate settled administrative proceedings against HydroGenetics in which the company, without admitting or denying the findings, consented to an order requiring it to cease and desist from committing or causing violations of the registration provisions of the federal securities laws.

Florida Securities Litigation and FINRA Arbitration

Contact Fort Lauderdale securities litigation attorney Howard N. Kahn, Esq. if you or someone you know has a securities dispute. In addition to being an experienced securities litigation attorney, Mr. Kahn also serves as a FINRA arbitrator for individual investors, brokers, and brokerage firms. You can reach him at 954-321-0176 or online.

SEC Censures UBS Financial Services Inc. of Puerto Rico

/in /by

UBS PR made misrepresentations and omissions to investors involving secondary market prices and liquidity concerning 23 affiliated, non-exchange-traded closed-end funds (CEFs) in Puerto Rico, according to the SEC.

The Commission issued an Order Instituting Administrative and Cease-and-Desist Proceedings Pursuant to Section 8A of the Securities Act of 1933 and Sections 15(b) and 21C of the Securities Exchange Act of 1934, Making Findings, and Imposing Remedial Sanctions and a Cease-and-Desist Order (Order) against UBS Financial Services Inc. of Puerto Rico (UBS PR).

Based on the above, the Order censures UBS PR and requires it to cease and desist from committing or causing any violations and any future violations of Section 17(a) of the Securities Act, Sections 10(b) and Section 15(c) of the Securities Exchange Act of 1934, and Rule 10b-5 thereunder, and pay $11.5 million in disgorgement, $1.1 million in prejudgment interest and a $14 million penalty. UBS PR also consents to certain undertakings, including a review by an independent consultant of UBS PR’s disclosures and trading and pricing policies relating to the CEFs, implementation of the independent consultant’s recommendations and annual follow-up reviews of the implementation for a period of three years. UBS PR consented to the issuance of the Order without admitting or denying any of the findings. (Rels. 33-9318; 34-66893; File No. 3-14863)

Florida Securities Litigation and FINRA Arbitration

Contact Fort Lauderdale securities litigation attorney Howard N. Kahn, Esq. if you or someone you know has a securities dispute. In addition to being an experienced securities litigation attorney, Mr. Kahn also serves as a FINRA arbitrator for individual investors, brokers, and brokerage firms. You can reach him at 954-321-0176 or online.

Florida Attorney on Mutual Benefit Viatical Fraud Faces SEC Charges

/in /by

Michael J. McNerney, the former attorney for Mutual Benefits Corp. (“MBC”), is charged by the SEC with violations of the federal securities laws arising from his involvement in MBC’s fraud that raised more than $1 billion from approximately 29,000 investors. MBC offered unregistered securities in the form of fractional interests in discounted life insurance policies known as viatical settlements from 1994 to 2004.

From 1995 through at least May 2004, McNerney served as primary securities regulatory counsel for MBC. The complaint alleges that in this role, he helped conceal the fraud, met with investors, and supervised the filing of false reports with state regulators. The Commission’s complaint charges McNerney with aiding and abetting MBC’s violations of Section 10(b) and Rule 10b-5 of the Securities Exchange Act of 1934. The Commission seeks permanent injunctive relief against McNerney, who has consented to the entry of Final Judgment providing for full injunctive relief.

In addition to the civil action against McNerney, the Commission simultaneously issued an Order pursuant to Rule 102(e)(2) of the Commission’s Rules of Practice forthwith suspending McNerney from appearing or practicing before the Commission based on the entries of a felony conviction against him. On August 26, 2011, the Honorable Adalberto Jordan, United States District Judge for the Southern District of Florida, sentenced McNerney to 5 years in prison, followed by three years of supervised release, and ordered him to pay restitution, along with his co-conspirators, in the amount of $826,839,642.

On May 3, 2004, the Commission first halted the on-going fraud at MBC when it filed a contested emergency civil enforcement action against MBC and its principals. In its complaint, the Commission alleged that the defendants raised over $1 billion from thousands of investors through a fraudulent, unregistered offering of securities in the form of fractionalized interests in viatical and life settlements. The Commission obtained a restraining order to halt the alleged fraud at MBC, and thereafter the United States District Court for the Southern District of Florida appointed a receiver to identify and trace the assets of MBC.

The Commission’s actions regarding MBC have resulted in nine injunctions and other relief against nine defendants and eight relief defendants, and orders to pay disgorgement and civil penalties totaling $30 million. In addition, the United States Attorney’s Office for the Southern District of Florida has charged 12 defendants in criminal actions for their roles in the fraud.

Securities Litigation and FINRA Arbitration

Contact Fort Lauderdale securities litigation attorney Howard N. Kahn, Esq. if you or someone you know has a securities dispute. In addition to being an experienced securities litigation attorney, Mr. Kahn also serves as a FINRA arbitrator for individual investors, brokers, and brokerage firms. You can reach him at 954-321-0176 or online.