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SEC Reportedly Investigating Wells Fargo Over Possible Inappropriate Investment Sales to Wealth Management Clients
According to news reports, the US Securities and Exchange Commission is investigating Wells Fargo’s (WFC) Wealth Management unit to see whether its clients were inappropriately sold certain in-house investment services even though these were not in their best interests. A source told Bloomberg that the regulator’s role in the probe has not been publicly disclosed.

However, in a regulatory filing, Wells Fargo revealed that it is looking into whether inappropriate recommendations were made related to 401(k) plan rollovers, alternative investments, and brokerage customer referrals to the firm’s “investment and fiduciary-services business.” The bank noted that it was assessing these matters in its wealth management business in the wake of inquiries made by federal agencies.

Bloomberg notes that it was in 2015 that JPMorgan Chase & Co. (JPM) consented to pay $267M over allegations that its customers were not told that it had profited by placing their funds in certain hedge funds and mutual funds that charged particular fees.

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In a securities fraud case, the SEC has brought charges against Beaufort Securities Ltd., which is a UK-based brokerage firm, and investment manager Peter Kyriacou accusing them of engaging in manipulative trading involving shares of HD View, which is a CCTV company located in Florida. The regulator’s case is part of an undercover operation involving the FBI.The Commission claims that Kyriacou’s scam sought to create the fake impression of liquidity.

The SEC’s complaint contends that Beaufort and Kyriacou became involved in a pump-and-dump scam with a man that they didn’t know was working for the FBI. With him, they purportedly spoke about using promotions to raise stock prices, engaging in matched trades to affect the stock price, and selling the shares to make a profit.

The SEC filed another complaint contending that in recorded phone calls, HD View CEO Dennis Mancino and CEO of WT Consulting Group LLC William T. Hirschy consented to manipulate the company’s stock by utilizing the undercover agent’s broker network to create a “fraudulent” demand. The two of them were supposed to “manipulate HD View stock” so that its price would go up prior to having the brokers in the agent’s network liquidate their positions. In return, there would be a kickback paid from the money made from trading. The regulator has also filed civil charges against Mancino, Hirschy, and the entities TJM Investments Inc., WT Consulting Group, and DJK Investments 10 Inc.

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The US Securities and Exchange Commission has filed civil charges against “repeat securities law violator” Steven J. Muehler, who it has barred from associating with any broker-dealer since 2016. Once again, the regulator is accusing him of defrauding small businesses.

Muehler and his companies Altavista Capital Markets LLC, Alta Vista Securities, LLC, and Alta Vista Private Client, LLC—all unregistered brokerage firms— offered broker-dealer services to a number of small business clients. Services include finding investors and raising money from them through an online securities change that was supposedly proprietary. In exchange, fees were paid to Muehler and his brokerage firms, as well as rights to a percentage of the funds raised and equity in each business.

Muehler and his firms claimed that they have been successful in raising millions of dollars on clients’ behalf. However, in a previous SEC case, he admitted defrauding small businesses.

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Four ex-Georgeson LLC employees are now on trial for fraud. Michael Sedlak, Charles Garske, Donna Ackerly, and Richard Gottcent are accused of bribing an Institutional Shareholder Services (ISS) employee for information about the way Georgeson’s investor clients vote on shareholder proposals. Georgeson is a proxy solicitation firm. ISS is registered with the US Securities and Exchange Commission as an investment adviser.

According to prosecutors, the ISS employee, Brian Bennett, was given $14K in bribes in the form of tickets to different events, including a U2 concert and Boston Red Sox baseball game, as well as for meals and an airline ticket. Assistant U.S. Attorney Eric Rosen told a federal jury that the purpose of procuring the information was to obtain an illegal advantage in their work, which involved representing companies when there are shareholder votes. Rosen said that the defendants were “not entitled” to these “secrets” that they purchased.

It is the job of proxy advisory firms to give information and recommendations to institutional investors about proposals that publicly traded company shareholders are expected to vote on. These firms collect information about institutional investors’ holdings and public votes and they share that information with publicly traded companies. This allows proxy solicitors and their clients to assess how certain shareholder votes on proposals will likely go, which can help clients figure out how they might affect certain shareholder votes.

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Us District Court Judge Kiyo Matsumoto has ruled that Martin Shkreli is going to be held responsible for $10.4M in financial losses sustained by investors after he is sentenced for his crimes. Shkreli, who was found guilty of two counts of securities fraud and one count of conspiracy to commit securities fraud, had tried to argue that he wasn’t responsible for those losses, seeing as investors eventually profited when he partially paid them back with Retrophin stock while he was the CEO of that pharmaceutical company.

The fraud charges are related to his running of the investment funds MSMB Capital, Elea Capital, and MSMB Healthcare. Federal prosecutors accused him of bilking investors of more than $11M in a Ponzi scam. Shkreli also is accused of lying to investors, including failing to tell them when two of the hedge funds he operated failed. Prosecutors contend that Shkreli was the cause of somewhere between $9M and $20M in investor losses.

Judge Matsumoto’s ruling regarding Shkreli’s financial responsibility is more about determining the length of the recommended prison term he should get and not about how much he owes the government, along with his sentence. With this latest ruling, Shkreli could face up to 20 years behind bars. Previous to that, his defense attorneys were hoping to get him either no time in prison or under 16 months. However, the higher the loss involved in a crime, federal guidelines recommend the calculation of a longer prison term.

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In a preliminary settled reach in a private US antitrust lawsuit, Deutsche Bank AG (DB) will pay $240M to settle allegations that it conspired with other banks to rig the London interbank offered rate (Libor) benchmark. The plaintiffs in the Libor manipulation lawsuit are “over-the-counter” investors that engaged directly in transactions with banks belonging to the panel tasked with determining the key benchmark.

Banks use Libor to establish rates on mortgage, credit card, student loan, and other transactions, as well as to figure out how much it would cost to borrow from one another. Libor is expected to be phased out before 2022.

Despite settling, the German lender denied any wrongdoing. The settlement must still be approved by a court before it is final.

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In its first customer protection advisory regarding pump-and-dump scams involving virtual currencies, tokens, or digital coins, the US Commodity Futures Trading Commission cautioned that even seasoned investors could be targeted. The regulator recommended that customers do a good job of researching prospective investments, learn the signs of possible investment fraud, and stay away from investments that “they don’t fully understand.”

Pump-and-dump scams typically involve raising the demand for a stock, and as a result, its share price, before dumping whatever shares are left so that the stock price drops. Remaining investors are left with practically worthless stock while the fraudsters usually have made a profit from dumping (selling) their shares when the stock price was still high. The CFTC is cautioning that this same fraud is now being used with virtual currencies.

Online message boards, mobile messaging applications, and other new technologies are now taking the place of boiler rooms to handle the solicitation of money from prospective investors, with some chat rooms holding thousands of members. It is also that fake news about these virtual investments is being published.

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Medical Products Executives Settle Insider Trading Charges
The US Securities and Exchange Commission announced that insider trading settlements have been reached with two ex-In Home Medical Solutions LLC officers, who are also board members. Todd M. Lavelle and Ara Chackerian are accused of illegally trading in Emeritus Corp. based on inside information.

The regulator contends that LaVelle and Chackerian purchased Emeritus securities after learning about the upcoming merger between the company and Brookdale Senior Living Inc. However, they did this before the deal was disclosed to the public. On the day of the announcement of the merger, they sold their Emeritus shares, allegedly making more than $25K and $157K, respectively, in illegal profits.

LaVelle, who is settling the case but without denying or admitting to the allegations, will pay over $25K in disgorgement, more than $2,600 in prejudgment interest, and an over $25K civil penalty. Chackerian, who is also settling without denying or admitting to the findings, will pay over $157K of disgorgement, the same amount as a civil penalty, and more than $18,600 of prejudgment interest.

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The Commodity Futures Trading Commission will pay $30M to one whistleblower who provided information that brought about the $367M asset management settlement in a case against JPMorgan Chase & Co. (JPM). Federal regulators alleged that the bank didn’t tell wealth management clients about conflicts of interests that may have affected how the financial institution managed their money between 2008 and 2013. The two JPMorgan units involved were its nationally chartered bank and its securities subsidy.

JPMorgan, which is the biggest bank in the US according to assets, neglected to tell customers that it made money when it placed their money in hedge funds and mutual funds that earned the firm fees. Both high net worth customers and retail mutual fund customers were purportedly affected.

The bank was also accused of not telling investors that it’s wealth business preferenced its own proprietary products over others’ products when deciding where to invest clients ‘funds. JPMorgan was accused of violating its fiduciary duty when it failed to notify customers that more costly share classes of proprietary mutual funds were chosen for them. Although JPMorgan acknowledged its failure to properly disclose the information, the bank maintained that such omissions were not done on purpose, and it has since remedied the matter.

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Walter A. Morales III, a money manager who for years worked with high net worth individual investors and pension funds, is now barred from the securities industry. Morales resolved the US Securities and Exchange Commission’s 2012 civil lawsuit accusing him and his Commonwealth Advisors of fraud and mismanagement this week.

The regulator contends that of the approximately $750M that his clients invested through him, Morales and his firm lost over $178M in subprime and residential mortgage-backed securities (RMBSs). According to the Commission, Morales lied about heavy mortgage-backed securities losses to clients and instead tried to conceal them through trades involving his different hedge funds while touting prices that were fraudulent.

The regulator claims that Walters and his investment adviser firm recommended that the hedge funds buy into Collybus, a collateralized debt obligation (CDO) that was considered among the most high risk of such investments and the lowest of tranches. MBSs were sold into CDOs at outdated prices even while Morales was purportedly aware that the market for RMBSs had since dropped. When the CDOs kept doing poorly, Commonwealth employees were directed to engage in manipulative trading among the hedge funds they advised to hide a $32M loss sustained by one of the funds that invested in Collybus.

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