Articles Posted in Disciplinary Actions

On May 6, 2015 the SEC announced charges and an emergency asset freeze against North Dakota Developments, LLC and its two principals, Robert L. Gavin and Daniel J. Hogan, for allegedly defrauding investors in a scheme to purportedly build and operate short-term housing facilities or “man camps” for workers in the Bakken oil and gas formation of North Dakota and Montana.

The SEC’s complaint alleges that North Dakota Developments and its owners Gavin and Hogan raised over $62 million from hundreds of investors for “units” in NDD’s projects by promising exceptionally high annual returns, up to 42%. The SEC also alleges that North Dakota Developments and its owners Gavin and Hogan offered investors the option of receiving a “guaranteed” annual return of up to 25% of the purchase price of their unit without regard to actual rental income.

As further inducement to invest, NDD and its owners Gavin and Hogan also promised investors that the various projects would be operational in a very short time frame, often within months. In reality, the SEC alleges, at the present time, none of the projects are fully operational.

On May 8, 2015 the SEC filed a complaint against ClearPath Wealth Management and its president and owner Patrick Churchville as defendants for operating a fraudulent scheme that the SEC alleges resulted in at least $11 million in losses to investors. The Multi-Strategy Funds and the HCR Value Fund, L.P. were named as relief defendants.

According to the SEC’s complaint, from at least December 2010, ClearPath and Patrick Churchville diverted deposits from new investors to pay prior investors, used proceeds from selling investments to pay unrelated investors, used investors’ funds as collateral for loans to make investments for their own benefit,converted investor funds into investments for ClearPath’s own benefit, and stole $2.5 million of investor funds to purchase Patrick Churchville’s waterfront home in Barrington, Rhode Island. The complaint alleges that Patrick Churchville and ClearPath used a variety of deceptive acts and misleading accounting tricks to conceal their fraud, and then prolonged the scheme by lying to investors about the status, worth, and disposition of those investments.

ClearPath, Patrick Churchville, and the Multi-Strategy Funds consented to the entry of an asset freeze and other preliminary relief. In addition to the asset freeze, the court prohibited ClearPath and Patrick Churchville from soliciting, accepting, or depositing any client funds, or from exercising any discretionary authority over clients’ accounts.

On June 9, 2015, The SEC announced that it had charged three men living in California with insider trading in the stock and options of Ardea Biosciences.

The SEC alleges that Michael J. Fefferman learned material nonpublic information as senior director of information technology at Ardea Biosciences, and tipped his brother-in-law Chad Wiegand, a stockbroker, in advance of major public announcements.

Chad Wiegand then purchased Ardea stock in various customer accounts based on the confidential information he received from Fefferman, and he tipped his friend and fellow stockbroker Akis  Eracleous so he could similarly buy stock on behalf of his customers.

On June 24, 2015, The SEC announced that it had obtained a court order freezing the assets of Capital Cove Bancorp and its owner Rashid K. Khalfani, charging them with pocketing money raised from investors.

The SEC alleges that Rashid K. Khalfani (real name Christopher M. Lee) operated under an alias, and hid his past criminal convictions while raising nearly $2 million through his firm Capital Cove Bancorp.

Khalfani aka Christopher Lee raised the money for purported investments in two private funds that invested in distressed real estate. Khalfani/Lee enticed investors by falsely claiming that REO Opportunities Fund II and Rittenhouse Square Trust were “vetted, qualified, and registered” with the SEC and several other government agencies. Lee misappropriated investor money from both funds, and used it to purchase his own real estate.

On June 26, 2015, The SEC announced that it had obtained a preliminary injunction against Interinvest Corporation and its owner for funneling more than $17,000,000 of client funds into   four Canadian gold and mineral exploration penny stocks companies that owner Hans Peter Black has undisclosed business and financial interests in. The SEC’s complaint alleges that Interinvest clients may have lost as much as $12 million in the penny stock companies.

According to the SEC’s complaint, Black’s involvement with these companies and his receipt of payments from them created a conflict of interest that he and Interinvest failed to disclose.

Black consented to the entry of the preliminary injunction against him, and the court determined to impose the same preliminary relief against Interinvest, freezing the assets of both Interinvest and Black, and prohibiting them from continuing to exercise investment authority over client assets under management.

On June 25, 2015, the SEC charged Malcolm Segal with conducting a Ponzi scheme and stealing investor money to purchase a condominium in Florida, and pay for vacations and other luxuries.

The SEC alleges that former Aegis Capital Corp. stockbroker Malcolm Segal fraudulently sold certificates of deposits (CDs) to his customers by falsely claiming that he could get them higher interest rates than otherwise available to the general public. Malcolm Segal purchased CDs on behalf of investors but secretly redeemed them early and took the proceeds.  Other times, Segal did not purchase CDs at all.

Malcolm Segal raised over $15,000,000 from investors.  Besides spending the money on himself, Segal used it in a Ponzi scheme fashion to make interest and principal repayments to earlier investors.

On June 25, 2015, The SEC filed a civil injunctive action in U.S. District Court in Utah relating to the offering of securities by Silverleaf Financial, LLC and its owner Dwight Baldwin. The Commission’s Complaint alleges that from June 2010 through late 2011, Dwight Baldwin and Silverleaf offered and sold securities in the form of promissory notes and investment contracts, raising $8,000,000 from investors.

The Commission’s Complaint alleges that in connection with the offer and sale of these securities, Dwight Baldwin and Silverleaf made untrue statements regarding material facts, omitted important information and operated a scheme to defraud investors.

The Commission’s complaint alleges that Silverleaf and Dwight Baldwin violated Section 17(a) of the Securities Act of 1933, Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder. The Commission’s Complaint is seeking permanent injunctions against future violations of Section 17(a) of the Securities Act and Section 10(b) of the Exchange Act and Rule 10b-5 thereunder.

On October 23, 2015 The SEC announced a settlement with Vladimir Eydelman, a former stockbroker with Oppenheimer & Co. and Morgan Stanley for his role in the passing of material, nonpublic information obtained by Steven Metro, a law firm employee, regarding pending corporate transactions involving clients of the firm.

Metro allegedly passed the information to Vladimir Eydelman through a mutual friend, Frank Tamayo, who settled a separately filed SEC complaint. The SEC alleged that after receiving the tips from Metro, Tamayo typically met Eydelman near the clock at the information booth at Grand Central Terminal and chewed up or ate post-it notes or napkins after using them to show Vladimir Eydelman the ticker symbol of the company that would be acquired.

The SEC alleged that following this meeting, Vladimir Eydelman returned to his office and typically gathered research about the target company, which he then emailed to Tamayo to create a false paper trail with a justification for the trading. Eydelman then allegedly traded for himself, Tamayo, and other customers.

On August 27, 2015 The SEC announced fraud charges and an emergency asset freeze to halt a California-based scheme involving investments in oil and gas projects.

According to the SEC’s complaint filed under seal in federal court in Los Angeles, Harrison Schumacher and his two companies Quantum Energy LLC and Quaneco LLC allegedly raised more than $12,000,000 from hundreds of investors nationwide via unregistered securities offerings.

The SEC has previously warned investors about risks and possible fraudulent activity involving private offerings of securities for oil-and-gas ventures, and has issued an investor alert specifically about private oil-and-gas offerings like those offered by Schumacher and his companies.

On September 29, 2015 the SEC announced that former UBS broker Jose Ramirez of Puerto Rico was charged with making material misrepresentations and omissions and orchestrating a scheme involving the use of credit line proceeds from a UBS affiliated bank to purchase shares in UBS Puerto Rico affiliated mutual funds.

The complaint filed in federal court in Puerto Rico against Jose Ramirez, a former registered representative in UBS’s Guaynabo branch office alleges that Ramirez increased his compensation by at least $2.8 million by having certain customers use proceeds from lines of credit with UBS Bank USA to purchase additional shares in UBSPR closed-end mutual funds.

These funds lost value as the Puerto Rico bond market declined, requiring the customers to pay down a portion of the loans or risk having their investments liquidated.