Articles Posted in SEC

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On April 29, 2016, the Securities and Exchange Commission (“SEC”) filed an Order Instituting Administrative and Cease-and-Desist Proceedings Pursuant to Section 4C of The Securities Exchange Act of 1934, Section 203(k) of The Investment Advisers Act of 1940, and Rule 102(e) of The Commission’s Rules of Practice, Making Findings, and Imposing Remedial Sanctions and A Cease-and-Desist Order (the “Order”) against Santos, Postal & Company, P.C. (“Santos, Postal & Co.”), an accounting firm, and Joseph A. Scolaro, CPA (“Scolaro”), a Santos, Postal & Co. partner since 2004 (collectively the “Respondents”).  The Order involves improper examinations by Santos, Postal & Co. of its clients’ funds, of which it had custody.  Further, Santos, Postal & Co. and Scolaro filed two (2) Forms ADV-E with materially false statements relating to the examinations.  Santos, Postal & Co. has been registered with the SEC’s Public Company Accounting Oversight Board since 2010, and Scolaro regularly conducted public accounting services before the SEC.

The Respondents’ improper examinations relate to the misappropriation of client funds by SFX Financial Advisory Management Enterprises, Inc.’s (“SFX”) Vice President, Brian J. Ourand (“Ourand”).  SFX first engaged Santos, Postal & Co. to perform its examinations in 2004 and continued to engage them until 2012 when SFX withdrew its registration with the SEC.

Santos, Postal & Co. is a certified public accounting and management consulting firm based in Rockville, Maryland, that provides accounting, tax, and auditing services.  Scolaro was one of five partners and owned 25% of Santos, Postal & Co.  He was the only engagement partner for services for SFX.

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On June 12, 2015, the Securities and Exchange Commission (“SEC”) solicited public comment on its approval and regulation of exchange traded products (“ETPs”).  ETPs are similar to open-ended mutual funds, but can be bought and sold throughout the day at market prices, rather than net-asset value.  ETPs include, but are not limited to, exchange-traded funds, pooled investments, and exchange-traded notes.  The SEC’s request for comment asked fifty-three (53) sets of questions touching on subjects such as arbitrage mechanisms, pricing, listing standards, legal exemptions, suitability requirements, and broker-dealer marketing and sales practices with respect to ETPs among other subjects.

According to the SEC, the number of ETPs available to retail customers rose dramatically from 2006-2013.  As of 2014, the SEC estimates there are approximately 1,664 ETPs listed on U.S. exchanges, with a market value surpassing $2 trillion.  Some financial firms design complex ETPs and market them to retail clients in an effort to outperform the market.  In a press release accompanying the SEC’s request for industry comment, SEC Chairwoman Mary Jo White stated,  “[a]s new products are developed and their complexity grows, it is critical that we have broad public input to inform our evaluation of how they should be listed, traded and marketed to investors, especially retail investors.”

In line with the SEC’s concern for retail investors, the SEC solicited industry comment regarding broker-dealer sales practices and investors’ understanding and use of ETPs that generally focused on:

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On Monday, June 22, 2015, the Securities Exchange Commission (“SEC”) Office of Compliance Inspections and Examinations (“OCIE”) announced that it was launching a multi-year Retirement-Targeted Industry Reviews and Examinations (“ReTIRE”) Initiative.  The new ReTIRE Initiative follows OCIE’s 2015 Examination Priorities, which focuses on “examining matters of importance to retail investors and investors saving for retirement.”

The ReTIRE Initiative addresses high-risk areas of broker-dealers’ or investment advisers’ sales, investment and oversight procedures, with emphasis on select areas where retail investors saving for retirement may be harmed.  Specifically, the ReTIRE Initiative will focus on the following areas:

  • Reasonable Basis for Investment Recommendations: Broker-dealers and investment advisers must have a reasonable basis when making recommendations or providing investment advice.  OCIE staff will assess how registered representatives and investment adviser’s: 1) select account types; 2) perform due diligence on investment options; 3) make initial investment recommendations; and 4) provide on-going account management.
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On April 22, 2015, the Securities and Exchange Commission (“SEC”) filed a Complaint in the District Court for the United States Southern District of Indiana, Indianapolis Division (the “Complaint”), against Veros Partners, Inc., Matthew D. Habb, Jeffery B. Risinger, Veros Farm Loan Holding LLC, Tobin J. Senefeld, FarmGrowCap LLC, and PinCap LLC alleging that Veros Partners, Inc. and Mr. Habb, its president, propagated and executed a Ponzi scheme and “fraudulently raised at least $15 million from at least 80 investors … mostly from Veros’ own clients, in two separate farm loan offerings.”

The Complaint states that SEC seeks “to enjoin Defendants from raising additional investor funds, to prevent them from ensnaring more victims in their scheme, and to prevent the further dissipation of investor assets.” The SEC also seeks “the disgorgement of Defendants’ ill-gotten gains, as well as prejudgment interest and significant civil penalties.”

The Ponzi-scheme offerings took place from 2013 to 2014, when investors purchased securities issued by Veros Farm Loan Holding LLC and FarmGrowCap LLC, two companies run by Matthew D. Habb, Jeffrey B. Risinger and Tobin J. Senefeld.  Investors were told that their funds would be used “to make short-term operating loans to farmers for the 2013 and 2014 growing seasons.”  Although some funds were used for the stated purpose, most was used to cover the unpaid debt of the farms, and $7 million was used to pay investors in other, unrelated offerings.  Further, over $800,000 went directly to Matthew D. Habb, Jeffrey B. Risinger and Tobin J. Senefeld for “success” and “interest rate spread” fees.