The Securities and Exchange Commission and the Justice Department have instituted civil and criminal proceedings against a U.K.-based broker-dealer and its investment manager alleged to have engaged in stock manipulation with an undercover FBI agent.
The SEC announced securities fraud charges against Beaufort Securities Ltd. and Peter Kyriacou, an investment manager at Beaufort, in connection with manipulative trading in the securities of HD View 360 Inc., a U.S.-based microcap issuer.
The SEC also announced charges against HD View's CEO, another individual and three entities they control for manipulating HD View's securities as well as the securities of another microcap issuer, West Coast Ventures Group Corp.
These charges arise in part from an undercover operation by the FBI, which also resulted in related criminal prosecutions against these defendants by the Office of the United States Attorney for the Eastern District of New York.
The scheme involved an undercover FBI agent who described his business as manipulating U.S. stocks through pump-and-dump schemes. The SEC alleges that the defendants helped the FBI agent pursue his scheme because they would receive kickbacks.
Kyriacou and the agent discussed depositing large blocks of microcap stock in Beaufort accounts, driving up the price of the stock through promotions, manipulating the stock's price and volume through matched trades, and then selling the shares for a large profit.
The SEC's complaint against Beaufort and Kyriacou alleges that they opened brokerage accounts for the undercover agent in the names of nominees in order to conceal his identity and his connection to the anticipated trading activity in the accounts.
According to the SEC, Beaufort and Kyriacou executed multiple purchase orders of HD View shares with the understanding that Beaufort's client had arranged for an associate to simultaneously offer an equivalent number of shares at the same price.
A second complaint alleges that in a series of recorded telephone conversations with the undercover agent, HD View CEO Dennis Mancino and William Hirschy agreed to manipulate HD View's common stock by using the agent's network of brokers to generate fraudulent retail demand for the stock in exchange for a kickback from the trading proceeds.
"This action demonstrates that we will continue to be vigilant in policing microcap markets and will continue to take action as appropriate against those that undermine the integrity of the market with manipulative practices, like matched trading, as alleged in our complaint," said Antonia Chion, associate director of the SEC's Enforcement Division, in a statement.
The SEC is seeking injunctions, disgorgement, prejudgment interest, penalties, and penny stock bars from Beaufort and Kyriacou. With respect to Hirschy, Mancino, and their corporate entities, the SEC is seeking injunctions, disgorgement, prejudgment interest, penalties, penny stock bars, and an officer-and-director bar against Mancino.
Voya Advisors to Pay $3.6M for Failing to Disclose Conflicts of Interest
The SEC charged two investment advisor subsidiaries of Voya Holdings Inc. with failing to disclose conflicts of interest and making misleading disclosures in connection with their practice of recalling securities on loan so their affiliates could receive tax benefits.
The advisors agreed to pay approximately $3.6 million to settle the charges, including more than $2 million directly to the affected mutual funds for the benefit of their investors.
That settlement amount is "a fairly large sum for this type of case," said Tod Cipperman of Cipperman Compliance Services in an email to ThinkAdvisor. "Voya did disclose that it would engage in securities lending in its discretion and disclosed to the Board that affiliates could benefit from the tax deduction. The SEC asserts that the disclosure didn't go quite far enough."
According to the SEC's order, Voya Investments and Directed Services served as investment advisors to certain insurance-dedicated mutual funds offered to annuity and life insurance customers through insurance companies affiliated with the advisors.
In order to generate additional income for the mutual funds and their investors, the Voya advisors lent securities held by the funds to parties looking to borrow the securities. The Voya advisors recalled loaned securities before their dividend record dates so that the advisors' insurance company affiliates, who were the record shareholders of the funds' shares, could receive a tax benefit based on the dividends received. But, as the order explains, the recall practice caused the funds and their investors to lose securities lending income without receiving any offsetting tax benefit.
The order found that the Voya advisors failed to disclose the conflict of interest to the funds' board of directors or in the funds' prospectuses.
"Generally, in disclosure cases, courts ask whether investors relied on the disclosure or would have made a different investment decision with full disclosure," Cipperman continued. "[In this case,] the SEC applies a strict liability standard, arguing that the lack of disclosure and conflict of interest is a per se violation of the Advisers Act. This looks like the kind of 'broken windows' case that the [former chair] Mary Jo White SEC used to bring."
The Voya advisor affiliates agreed to be censured and consented to the entry of the SEC's order. The Voya advisors agreed to cease and desist from committing any further violations, and neither admitted nor denied the findings.
Investment Advisor Barred, Fined for Cheating Clients in Cherry-Picking Scheme
The SEC announced settled charges against an Austin, Texas-based investment advisor for defrauding his clients through a "cherry-picking" scheme.
The advisor, Robert Mark Magee, who is the principal, sole owner and sole employee of Valor Capital Asset Management, agreed to be banned from the securities industry and pay more than $715,000 to resolve the charges.
According to the SEC's order, for almost three years, Magee traded securities in Valor's omnibus account but waited to allocate the trades to client accounts until after the securities' performance changed over the course of the day.
