Among recent enforcement actions by the SEC were an emergency freeze order in a Ponzi scheme that involved companies in the U.S. and New Zealand, charges against a municipal issuer and others in the Wenatchee, Wash., area for misleading investors on a bond offering and an asset freeze to shut down a California-based real estate investment scam.
SEC Charges Royal Bank of Scotland Subsidiary for Misleading Investors
The SEC charged RBS Securities Inc., a subsidiary of the Royal Bank of Scotland plc, with misleading investors in a 2007 subprime residential mortgage-backed security (RMBS) offering. RBS agreed to settle the matter and pay more than $150 million, which the SEC will use to compensate investors for harm suffered as a result of RBS' conduct.
RBS, without admitting or denying the SEC's allegations, has agreed to a final judgment that orders it to disgorge $80.3 million, plus prejudgment interest of $25.2 million, and pay a civil penalty of $48.2 million.
The SEC alleges that RBS said the loans backing the offering "generally" met the lender's underwriting guidelines even though nearly 30% fell so short of the guidelines that RBS should have excluded them from the offering. Stamford, Conn.-based RBS, then known as Greenwich Capital Markets, quickly reviewed a very small portion of the loans and was paid approximately $4.4 million for its work as the lead underwriter on the transaction, the SEC said in a complaint filed in federal court in Connecticut.
"In its rush to meet a deadline set by the seller of these loans, RBS cut corners and failed to complete adequate due diligence, with predictable results," said George Canellos, co-director of the SEC's Division of Enforcement.
In its complaint, the SEC said RBS gave investors a misleading impression of the quality of the loans backing the offering and the likelihood of their repayment.
SEC Freezes Assets in Ponzi Scheme Reaching from U.S. to New Zealand
An emergency asset freeze helped the SEC put a stop to a Ponzi scheme that stretched to the other side of the globe, involving companies in the U.S. and New Zealand that offered phony investments in everything from a bank trading program to kidney dialysis clinics.
According to the agency, Christopher Pedras, who has residences in Turlock, Calif., and New Zealand, misled his initial investors into believing they were investing in a profitable trading platform in which his company served as an intermediary between global banks. He promised them returns of 4%–8% monthly.
Pedras brought in more than $5.6 million from at least 50 investors in the U.S. since July 2010 by selling securities in two phases. Pedras, his business partner Sylvester Gray II and lead sales representative Alicia Bryan first solicited investors for their Maxum Gold Small Cap Trade Program, in which Pedras's company Maxum Gold supposedly serves as the intermediary between banks that can't legally trade directly with one another.
Maxum Gold's trade platform was supposed to provide an intermediary means for them to do business and was also supposed to share portions of the trading profits with investors.
However, when his companies had trouble delivering a return to investors, they began steering those investors to a different investment program that was supposed to increase the value of their investment by 80% by funding kidney dialysis clinics in New Zealand.
That was the FMP Renal Program, which was characterized as an investment in a New Zealand company called FMP Medical Services Ltd. that would be publicly traded and operate kidney dialysis clinics in New Zealand. Maxum Gold investors who bit and converted their investment into the FMP Renal Program were supposed to instantly realize an 80% increase in the value of their investment.
Gray and Alicia Bryan helped Pedras solicit investors for that scheme, too, but of course nobody ever invested the money they got. Instead, they paid earlier investors with $2.4 million out of later proceeds, with Pedras stealing more than $2 million for cash withdrawals, car and retail purchases, and spending another $1.2 million on commissions to sales agents who sold the scheme to U.S. investors.
Pedras, Gray, Bryan and the Maxum Gold and FMP entities have all been charged by the SEC.
