The Wall Street Legal & Regulatory Feed
Securities Industry Commentator by Bill Singer Esq
July 20, 2021
SEC Files Charges in Multi-Million Dollar Fraud Involving Two Companies (SEC Release)
https://www.finra.org/sites/default/files/fda_documents/2020067467601
%20Precision%20Securities%20LLC%20CRD%20103976%20AWC%20DM.pdf
%20Precision%20Securities%20LLC%20CRD%20103976%20AWC%20DM.pdf
For the purpose of proposing a settlement of rule violations alleged by the Financial Industry Regulatory Authority ("FINRA"), without admitting or denying the findings, prior to a regulatory hearing, and without an adjudication of any issue, Precision Securities LLC submitted a Letter of Acceptance, Waiver and Consent ("AWC"), which FINRA accepted. The AWC alleges that Precision Securities LLC has been a FINRA member since 2000 and employs 30 registered representatives at three branches. In accordance with the terms of the AWC, FINRA imposed on Precision Securities LLC. a Censure and $350,000 fine and an undertaking to retain an Independent Consultant. As alleged in part in the AWC's "Overview":
From January 2017 through December 2018, Precision Securities failed to develop and implement an anti-money laundering (AML) program reasonably designed to achieve and monitor the firm's compliance with the Bank Secrecy Act and the implementing regulations thereunder. In particular, the firm did not establish and implement policies and procedures tailored to the firm's CenterPoint business, which could be reasonably expected to detect and cause the reporting of suspicious activity in domestic and foreign-based retail accounts. As a result, the firm violated FINRA Rules 3310(a) and 2010.
As further alleged in part in the AWC:
For example, during 2017 and 2018, the firm failed to detect, investigate and respond to suspicious trading by multiple customers based in China. Two of these accounts alone generated over 33,000 orders and traded over $200 million in securities over three months. Nearly all of the trades related to low-volume securities and presented red flags of attempts to manipulate prices.One customer deposited $77,000 and traded more than $195 million in numerous low-volume stocks over two months. The customer entered a significant number of order cancelations, which the firm never detected and which is an indicator of potential market manipulation. The customer also traded in a pattern of buy orders at incrementally higher prices and sell orders at incrementally lower prices, which is an indicator of manipulative trading strategies designed to influence the price of a security. The customer also engaged in trading that did not appear to make economic sense by buying at high prices and selling at low prices and selling short low and buying back higher. Another customer also entered a significant number of cancelations in one day of trading, which the firm never detected, and traded high volumes of low-volume stocks. The firm failed to respond reasonably to these red flags.
https://www.sec.gov/news/press-release/2021-130
Without admitting or denying the findings in an SEC Order
https://www.sec.gov/litigation/admin/2021/ia-5781.pdf, UBS agreed to cease and desist from violations of Rule 206(4)-7 of the Investment Advisers Act of 1940, a censure, and disgorgement and prejudgment interest of $112,274 and a civil penalty of $8 million, which will be distributed to investors harmed by the conduct at issue. As asserted in part in the SEC Release:
As described in the SEC's order, the ETP at issue is designed to track short-term volatility expectations in the market as measured against derivatives of a volatility index. According to the order, the issuer of the product warned UBS that it was not appropriate to hold the product for extended periods, and the product's offering documents made clear that the product was more likely to decline in value when held over a longer period. The order finds that UBS prohibited brokerage representatives from soliciting sales of the product and placed other restrictions on sales of the product to brokerage customers, but did not place similar restrictions on certain financial advisers' use of the product in discretionary managed client accounts. The order further finds that UBS adopted a concentration limit on volatility-linked ETPs, but failed to implement a system for monitoring and enforcing that limit for five years. According to the order, UBS prohibited the financial advisers from making additional recommendations of this ETP prior to being contacted by the Commission staff.The order also finds that between January 2016 and January 2018, certain financial advisers had a flawed understanding of the appropriate use of the volatility-linked ETP and failed to take sufficient steps to understand risks associated with holding the product for extended periods. These financial advisers, the order further finds, purchased and held the product in client accounts for lengthy periods, including hundreds of accounts that held the product for over a year, resulting in meaningful losses.
https://www.sec.gov/news/press-release/2021-131
In a Complaint filed in the United States District Court for the District of Nevada
https://www.sec.gov/litigation/complaints/2021/comp-pr2021-131.pdf, the SEC charged Profit Connect Wealth Services Inc., Joy I. Kovar and her son Brent Kovar with violating the antifraud provisions of the securities laws; and further charged Joy Kovar as a control person for each of Profit Connect's violations under the Securities Exchange Act of 1934. As alleged in part in the SEC Release)
https://www.sec.gov/litigation/complaints/2021/comp-pr2021-131.pdf, the SEC charged Profit Connect Wealth Services Inc., Joy I. Kovar and her son Brent Kovar with violating the antifraud provisions of the securities laws; and further charged Joy Kovar as a control person for each of Profit Connect's violations under the Securities Exchange Act of 1934. As alleged in part in the SEC Release)
[S]ince at least May 2018 the defendants have raised investor funds through Profit Connect while assuring investors that their money would be invested in securities trading and cryptocurrencies based on recommendations made by an "artificial intelligence supercomputer." As alleged, Profit Connect claims that its supercomputer consistently generates enormous returns, which in turn allows Profit Connect to guarantee investors fixed returns of 20-30 percent per year with monthly compounding interest. According to the complaint, however, over 90 percent of Profit Connect's funds came from investors. The complaint further alleges that the defendants did not use funds received from investors to trade securities, buy cryptocurrencies, or do any of the things that Profit Connect promised its investors it would do with their money. Instead, the complaint alleges that the defendants misused investor money by, among other things, transferring millions of dollars to Joy Kovar's personal bank account, paying millions of dollars to promoters, and making Ponzi-like payments to other investors. The complaint alleges that Profit Connect actively encourages investors to use money from retirement funds and home equity, and targets investors looking to build educational funds for their family.. . .On July 14, the court granted the SEC emergency relief against the Kovars and Profit Connect, including a temporary restraining order and an order freezing their assets. A hearing is scheduled for July 26, 2021, to consider, among other things, whether to continue the asset freeze, issue a preliminary injunction, order an accounting, and appoint a receiver over Profit Connect.
https://www.sec.gov/news/press-release/2021-132
https://www.sec.gov/litigation/complaints/2021/comp-pr2021-132.pdf, the SEC charged Aron Govil, controlling shareholder/executive director of Cemtrex Inc. with violations of antifraud provisions of the federal securities laws, as well as violations of Section 16(a) of the Securities Exchange Act which requires corporate officers, directors, and major shareholders to disclose their transactions in their company's stock. Without admitting or denying the complaint's allegations in the SEC Complaint, Govil consented to the entry of a final judgment that enjoins him from violating the charged provisions; imposes officer and director and penny stock bars; imposes, in connection with certain violations, disgorgement in the amount of $626,782, plus prejudgment interest thereon in the amount of $76,693.95; and imposes a civil penalty in the amount of $620,000. As alleged in part in the SEC Release, Govil:
misappropriated over $7 million of Cemtrex investor funds between April 2016 and January 2018 to finance his personal business ventures and to pay his personal expenses. The complaint also alleges that Govil engaged in scalping - secretly selling Cemtrex stock while paying stock promoters to recommend that retail investors buy the company's stock - and insider trading. The complaint alleges that Govil did not file with the SEC any of the required disclosures in connection with his Cemtrex trading.The SEC's complaint also alleges that Govil, while serving as Telidyne's chief executive officer, made material misrepresentations to investors regarding the company's products. According to the complaint, between at least April 2019 and May 2020, Govil falsely told investors that Telidyne, which purports to be a developer of mobile phone applications or "apps," had developed the "Teli App," which allowed users to transact in cryptocurrencies from their mobile phones, and also had started work on an app to detect COVID-19. These statements allegedly were false because the Teli App did not have the stated cryptocurrency functionality and Telidyne had not started work on the COVID-19 detection app.