Among recent enforcement actions by the Securities and Exchange Commission were charges against a company and its general counsel/chief compliance officer for failure to disclose a loss contingency and victory in a jury trial against the City of Miami and its former budget director for fraud in municipal bond offerings.
In addition, the agency won settlements in three separate cases, from concealment of problems and red flags from investors to a newsletter scheme to undisclosed credit risk in investments.
Jury Finds Miami, Boudreaux Liable in SEC Fraud Case
A jury has found the City of Miami and its former budget director Michael Boudreaux liable for multiple counts of antifraud violations of the federal securities laws. Boudreaux and the city were charged in 2013 with fraud in municipal bond offerings.
The agency had brought charges in the case after it found that the city and Boudreaux made materially false and misleading statements and omissions about some interfund transfers in three 2009 bond offerings totaling $153.5 million. They were also alleged to have provided false and misleading information in the city's fiscal 2007 and 2008 comprehensive annual financial reports (CAFRs) received by investors, particularly those who had invested in previously issued city debt.
In a statement, the SEC said, "We are very pleased by today's jury verdict holding the City of Miami, a recidivist violator of the federal securities laws, and its former budget director (Michael Boudreaux) liable for multiple counts of antifraud violations of the federal securities laws."
The agency added, "[T]he jury took less than a day to decide that the City and Boudreaux had committed securities fraud in connection with their disclosures concerning the deteriorating financial condition of the City during 2007 and 2008 and in three separate offerings of municipal securities in 2009."
Newsletter Scheme Costs "Whiz Kid" $1.5 Million
A self-proclaimed "stock trading whiz kid" and his stock newsletter company in Los Angeles have agreed to pay nearly $1.5 million to settle charges that they defrauded subscribers through false statements and misrepresentations.
According to the agency, Manuel Jesus and his newsletter company Wealthpire Inc. used advertising materials and websites touting him as "the untutored prodigy of stock investing" under the alias Manny Backus. A self-proclaimed "math whiz" who boasted a "skyscraping" IQ and training as a professional chess player, Backus claimed to be actively trading in the stock market with "real money" by age 19.
The SEC also said Wealthpire materials claimed that Backus made millions of dollars before "deciding to help other investors" by starting an alert service that let traders copy his every trading move. However, from at least January 2012 to September 2014, Backus was not trading in the same stocks recommended by his services as he claimed.
In addition, he wasn't the one making all of the recommendations. The SEC said that Robert Joiner was paid by Wealthpire to make all the stock picks for one alert service, without any guidance from Backus on how to choose them. Joiner posed as Backus during chat room sessions, signing in using a password that Backus supplied, and Joiner told investors that he was buying and selling certain recommended stocks when no such transactions were actually taking place.
Joiner also is named in the SEC's complaint and agreed to settle.
The SEC also noted a series of other misrepresentations to Wealthpire subscribers, including false claims about one particular stock alert service that supposedly made historic trading recommendations that yielded huge past returns higher than 1,400 percent.
Backus and Wealthpire agreed to pay disgorgement of $1,135,145 plus interest of $112,902, and Backus also must pay a $235,000 penalty. Without admitting or denying the allegations, Backus, Wealthpire, and Joiner consented to a final judgment permanently enjoining each of them from future violations.
SEC Charges Firm, General Counsel for Not Disclosing Loss Contingency
The SEC has charged RPM International, Inc. and its general counsel and chief compliance officer Edward Moore after it said they failed to disclose a loss contingency or record an accrual for the loss contingency based on an investigation by the Department of Justice.
According to the agency, the DOJ investigated, beginning in 2011, a complaint filed under the False Claims Act against RPM and its wholly owned subsidiary Tremco, Inc. for overcharging on government contracts. In 2013, RPM settled the DOJ investigation and underlying litigation for $61 million.
