The Securities and Exchange Commission announced administrative proceedings against New York-based brokerage firm Windsor Street Capital and its former anti-money laundering officer John D. Telfer.
The SEC's Enforcement Division alleges that the firm, formerly named Meyers Associates L.P., failed to file Suspicious Activity Reports (SARs) for $24.8 million in suspicious transactions, including those occurring in accounts controlled by microcap stock financiers Raymond H. Barton and William G. Goode who were separately charged by the SEC with conducting a pump-and-dump scheme.
The SEC's Enforcement Division alleges that Meyers Associates and Telfer should have known about the suspicious circumstances behind many transactions occurring in customer accounts.
"The SEC's Broker-Dealer Task Force AML initiative is focused precisely on the conduct charged against Meyers Associates, which we allege systematically flouted its obligations under the securities laws to report suspicious activity," said Andrew M. Calamari, director of the SEC's New York Regional Office and co-chair of the Enforcement Division's Broker-Dealer Task Force.
According to the SEC, customers like Barton and Goode allegedly deposited large blocks of penny stocks, liquidated them typically amid substantial promotional activity, and then transferred the proceeds away from the firm.
The SEC's Enforcement Division further alleges that the shares deposited by Barton and Goode could not be sold legally because no registration statement was in effect and no registration exemption was available.
Rather than conduct a reasonable inquiry into the deposits, Meyers Associates allegedly accepted registration exemption claims by Barton and Goode at face value.
"We allege that when other brokerage firms were rejecting similar deposits by Barton and Goode, Meyers Associates not only effectuated their illegal stock sales but then failed to report them as required by law," Calamari said in a statement.
The matter pertaining to Meyers Associates and Telfer will be scheduled for a public hearing before an administrative law judge, who will prepare an initial decision stating what, if any, remedial actions are appropriate.
Meanwhile, the SEC separately filed a complaint in federal court against Barton and Goode along with Matthew C. Briggs, Kenneth Manzo and Justin Sindelman. The complaint alleges they participated in a pump-and-dump scheme that acquired shares of dormant shell companies supposedly in the dietary supplement business, falsely touted news and products stemming from those companies, and dumped the shares on the market for investors to purchase at inflated prices.
Without admitting or denying the allegations, Barton, Goode and Briggs agreed to settle the charges and consented to court orders requiring them to pay disgorgement plus interest and penalties totaling more than $8.7 million. Manzo agreed to admit wrongdoing and pay more than $95,000 to settle the charges. The litigation continues against Sindelman.
Morgan Stanley, Citigroup Charged With Misleading Investors About Forex Trading Program
Morgan Stanley Smith Barney and Citigroup Global Markets have agreed to pay more than $2.96 million apiece to settle the SEC's charges that they made false and misleading statements about a foreign exchange trading program they sold to investors. According to the SEC's orders, Citigroup held a 49% ownership interest in Morgan Stanley Smith Barney at the time, and registered representatives at both firms were pitching a foreign exchange trading program known as "CitiFX Alpha" to Morgan Stanley customers from August 2010 to July 2011.
The SEC's orders find that their written and verbal presentations were based on the program's past performance and risk metrics, and they failed to adequately disclose that investors could be placed into the program using substantially more leverage than advertised and markups would be charged on each trade. The undisclosed leverage and markups caused investors to suffer significant losses.
