Founders of Fake “Hedge Fund” Plead Guilty to Federal Charges for Orchestrating a $4 Million Ponzi Scheme |
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The founders of a supposed Kings Mountain “hedge fund” pleaded guilty on April 27th to federal charges for orchestrating a $4 million Ponzi scheme following a joint investigation by the NC Secretary of State’s Securities Division, the FBI and US Postal Inspection Service. |
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Secretary Marshall joined Dena J. King, U.S. Attorney for the Western District of North Carolina, Robert R. Wells, Special Agent in Charge of the Federal Bureau of Investigation. and the FBI and Tommy D. Coke, Inspector in Charge of the Atlanta Division of the U.S. Postal Inspection Service (USPIS), in making the announcement after Austin Delano Page, 26, of Grover, N.C., pleaded guilty to wire fraud, and Brandon Alexander Teague, 26, of Belmont, N.C., pleaded guilty to securities fraud on Wednesday, April 27th. U.S. Magistrate Judge David C. Keesler accepted the defendants’ guilty pleas.
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According to filed plea documents and the plea hearings, from October 2020 to December 2021, Page and Teague engaged in an investment scheme that defrauded hundreds of investors, some of whom were at or near retirement age, of more than $4 million. Court documents show that the defendants falsely represented to victims that Page and Teague were running a hedge fund in Kings Mountain, N.C., D&T Investment Group (D&T), that invested in various securities, including stock of well-known companies like Apple. Contrary to representations made to victim investors, D&T was not a hedge fund and it did not hold any securities licenses or registrations. Also, Page and Teague were not licensed to sell securities and did not have a background associated with the sale of securities. In fact, prior to orchestrating the investment scheme the defendants sold campers.
According to court documents and admissions made in court, Page and Teague required investors to sign, among other documents, an investment contract with D&T. These documents contained false information, including that D&T would guarantee 100% of the investors’ initial investment, and that investors would receive 70% of the trading profits. In reality, the investors’ money was not guaranteed, and the purported “profits” investors received were Ponzi-style payments, whereby the defendants used new investors’ money to make payments to existing investors. To cover up the fraud, Page and Teague sent victim investors monthly statements that reflected fictitious trading gains. When certain investors and D&T employees began to question the legitimacy of D&T’s operations, Page created fictitious screenshots of various financial accounts that reflected inflated D&T account balances. For example, Page created a fake screenshot of a D&T brokerage account that reflected a balance of over $16,000,000, when in reality the account had a balance of less than $7.00.
Contrary to representations made to victims, their money was not generally invested in securities. In addition to making Ponzi payments to investors, a significant portion of the funds was used to pay excessive salaries and other compensation to D&T employees, including to members of Page’s family. For example, Page paid several D&T employees annual salaries of over $100,000 and also paid certain employees several thousand dollars each for getting the D&T company logo tattooed on their bodies. The defendants also squandered victims’ money on personal expenses such as clothing, jewelry, travel, luxury car rentals, and to make cash withdrawals.
On December 2, 2021, as the fraudulent scheme was collapsing, the defendants traveled to Italy. On the same day, Page informed D&T employees, who did not know that D&T was a fraud, that they would be closing the company. The pair was arrested on New Year’s Eve at JFK Airport in New York upon their voluntary return to the United States.
The defendants were released on bond with home detention and location monitoring following the plea hearings. Page pleaded guilty to one count of wire fraud, which carries a maximum prison term of 20 years and a $250,000 fine. Teague pleaded guilty to one count of securities fraud, which carries a maximum prison term of five years and a $250,000 fine. A sentencing date for the defendants has not been set.
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Two Men Face Federal Charges in Connection with Multi-Million Dollar Investment Scheme
Two Cornelius residents are facing federal charges in connection with a multi-million dollar investment scheme. Dena J. King, U.S. Attorney for the Western District of North Carolina, announced on April 22nd that a federal grand jury had returned a criminal indictment against Marlin Hershey and Dana Bradley. Hershey and Bradley were charged with mail and wire fraud conspiracy, mail fraud, securities fraud, and money laundering conspiracy. The indictment was unsealed on April 22nd following Hershey’s appearance in court.
North Carolina Secretary of State Elaine F. Marshall and Robert R. Wells, Special Agent in Charge of the Federal Bureau of Investigation's Charlotte Division, join U.S. Attorney King in making the announcement. The Secretary of State's Securities Division and the FBI led the joint investigation.
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According to allegations contained in the indictment, from approximately 2009 to 2021, Hershey and Bradley induced dozens of victims to invest millions of dollars in unregistered securities offerings, promoted by the defendants through Performance Holdings and other entities controlled by the defendants and other individuals, including Performance Retire on Rentals, LLC, Distressed Lending Fund, LLC, Moteng Funding, LLC and Southeast Lot Acquisitions, LLC, among others. |
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The indictment alleges that the investment materials Hershey and Bradley provided to victim investors in connection with these securities offerings contained false and/or misleading statements and failed to disclose material information. For example, the indictment alleges that the offering materials failed to disclose that the defendants received commissions based on the amount of investments they sold, and often provided investors with offering materials that represented the opposite – that nobody would be paid a commission in connection with the investments. In fact, the indictment alleges, the defendants received commissions that were typically 10% of an investor’s initial investment and often received an additional commission when an investor extended an investment. In this manner, Hershey and Bradley were paid millions of dollars in undisclosed commissions from the sale of securities. In addition to the commissions, the indictment also alleges that the defendants received regular undisclosed “management” fees from the various entities.
According to allegations in the indictment, as part of the scheme, Hershey and Bradley also failed to disclose to investors other material information, including negative information about the defendants’ backgrounds and the financial woes faced by some of the entities for which they were soliciting investments. To the contrary, because the defendants often solicited the same group of investors to invest in the various projects, the defendants took steps to conceal such financial difficulties by making undisclosed loans to various entities so that the entities could, in turn, make their required interest payments to investors. The indictment also alleges that Hershey and Bradley solicited new investors and, contrary to representations they made to the investors, used the new investors’ money to repay the loans and previous investors. The defendants also allegedly sent to investors periodic reports about the status of the investments that failed to include material negative information.
According to the indictment, in 2019, investors learned that several of the projects in which they had invested were in financial distress and could no longer meet their obligations to investors, which totaled several million dollars.
Hershey was released on bond following his court hearing. Bradley had his first court appearance on Monday, April 25, 2022. The mail and wire fraud conspiracy charge and the mail fraud charge each carry a maximum prison term of 20 years and a $250,000 fine. The securities fraud charge carries a maximum prison term of 20 years and a $5 million fine. And the maximum prison term for money laundering conspiracy charge is 10 years and a $500,000 fine.
The indictment also includes a notice of forfeiture, which gives notice that the defendants must forfeit to the United States all of the property involved in the offenses charged in the indictment. The government will pursue a forfeiture money judgment in the amount of at least $7.5 million which the government contends constitutes the proceeds of the violations alleged in the indictment.
All the charges contained in the indictment are allegations. The defendants are presumed innocent until proven guilty beyond reasonable doubt in a court of law.
Assistant U.S. Attorneys Daniel Ryan and Graham Billings, of the U.S. Attorney’s Office in Charlotte, are in charge of the prosecution.
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Marshall Announces Expansion of Rural RISE NC
Initiative Connects New Businesses with Crucial Resources for Success
North Carolina Secretary of State Elaine Marshall has announced the expansion of the agency initiative known as Rural RISE NC (Resources for Innovators, Start-ups, and Entrepreneurs) to more new business owners after a successful pilot phase. The unique pilot project connects new business creators with mentors, business counselors and funding opportunities, both locally and elsewhere. Rural Rise NC links new businesses to significant free and low-cost resources such as:
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A much-requested checklist of crucial steps new business should follow to be successful, such as important tax and reporting deadlines
- Lenders that focus on small and start-up businesses
- Business counselors for permitting and other questions
- Connections to local service providers who can help identify target markets and develop business plans
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In launching Rural RISE NC, the agency focused on analyzing historic business data and surveying North Carolina’s new entrepreneurs around their needs.
“Our data shows that the first three years are the most challenging for new businesses. The sooner we put these entrepreneurs in touch with valuable business resources and funding opportunities, the more likely they will be making good money, creating jobs and supporting their communities,” said Secretary Marshall. “With the explosive growth of new business creations over the last 22 months, we took this initiative to help our new rural businesses thrive.”
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The Secretary of State’s Office saw a record number 178,300 new business creations in 2021, smashing the previous year’s total of 127,000. That’s more than 700 new businesses created each day.
“The Secretary of State’s Office was the front door to more than 178,000 new businesses in 2021 entering North Carolina’s entrepreneurial ecosystem,” said Marshall. “Our mission and our challenge is give each of these businesses and the ones created before them every opportunity at being successful.”
Fourteen counties comprised the initial pilot phase (see image below), and this announcement means Rural Rise NC will focus on expanding these crucial resources into the rest of the 78 counties identified as rural by the NC Rural Center. The Secretary of State’s Office is working with local partners to deliver their business support content by e-mail to these new business owners upon creation.
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Secretary Marshall is a nationally recognized leader for designing and offering innovative and efficient e-government services to businesses and other customers. More than 1.7 million North Carolina businesses have been created during her tenure as Secretary of State.
If you are a small business in one of the fourteen counties listed above and would like more information about the resources available to you, please email to Patty Williams at pwilliams@sosnc.gov with "Rural RISE NC" in the subject line. Please be sure to indicate the county in which you reside. The checklist for small businesses is available to any business in the state regardless of location.
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Secretary Marshall and Anne Shaw, State Director for the NC Community College System's Small Business Center Network, joined Tim Boyum on Spectrum News 1's Capital Tonight recently to discuss the initiative and its potential impact on small businesses across rural North Carolina.
(Click on the image below to watch the interview in its entirety.)
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NC Partnership to Address Adult Abuse Annual Conference:
"Real Solutions to Real Problems"
On May 5th, the North Carolina Partnership to Address Adult Abuse (NCPAAA) held its virtual annual conference. It featured a full day of representatives from various federal and state agencies, including the Secretary of State's Office, who all provided concrete, actionable information for adult services providers and advocates that will help them make better, more efficient referrals when fraud, abuse and/or exploitation of older citizens is suspected.
Featured speakers included representatives from the:
- Consumer Financial Protection Bureau
- Centers for Medicare & Medicaid Services
- Federal Trade Commission
- US Postal Inspection Service
- Internet Crime Complaint Center of the FBI
- Social Security Administration
- NC Department of Insurance
- NC Department of Justice
- NC Department of Health & Human Services
- NC Department of the Secretary of State
Some presentations were not recorded due to the sensitivity of some of the information presented. However, many of the presentations were recorded and are available for viewing on the Partnership's website.
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Investor Bulletin – Top 10 Investment Tips for College Students
One of the best ways to build wealth is by saving and investing over a long period of time. The earlier you start, the easier it is for your money to grow. Opening your first investment account is a key step in beginning your investment journey. College students may receive offers to open investment accounts from their bank, a family friend, or even at a campus coffee shop. Those offers also can include incentives, like free stock or cash to invest, as a way to entice you to sign up. Here are ten important investment tips from the SEC’s Office of Investor Education and Advocacy to consider when opening any investment account.
1. Consider paying off high interest debt first.
No investment strategy consistently pays off as well as, or with less risk than, eliminating high interest debt. Most credit cards charge high interest rates – as much as 18% or more – if you don’t pay off your balance in full each month. No investment will give you guaranteed returns to outweigh the high interest rate you generally pay with a credit card or other high interest debt. That’s why you should think about paying off high interest debt before investing.
2. Open the account that is right for you.
Investment firms generally offer at least two types of brokerage accounts – a cash account and a margin account:
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In a cash account, you must pay the full amount for securities purchased. You cannot borrow funds from your investment firm in order to pay for transactions in this account. To learn more, read our Investor Bulletin “Trading in Cash Accounts.”
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In a margin account, you can borrow funds from your brokerage firm to purchase securities (buying securities "on margin"). You pay interest on the money you borrow, and the brokerage firm uses the securities in your margin account as collateral for the money it lends to you to purchase these securities. To learn more, read our Investor Bulletin “Understanding Margin Accounts.”
Important: When opening a brokerage account, some brokerage account applications make margin accounts the default account type. Confirm you are opening the account type you want before you sign your Account Application.
3. Use investment apps responsibly.
Many investment firms allow their customers to invest through mobile applications (apps). Investment firms may market these apps to customers as an easy way to get started investing, using a simple interface and design features that make the app look and feel like a video game. These apps can provide you with convenient tools to make and to monitor your investments. But you should carefully consider any investment decision you make using these apps -- they can have a real impact on your financial well-being.
- Some investment apps may limit your customer support options and your ability to interact with human representatives when you need help. Before using an investment app, make sure you understand your investment firm’s customer support policy when using their investment app.
- Investment apps may include default notification settings that automatically send you information about investment products and strategies you may not want or need. Find out if you can adjust these notification settings. If so, turn off unwanted buy/sell notifications and solicitations related to stocks and other investment products and strategies that you do not own, use, or have not affirmatively requested information about.
4. Be extra careful when buying or selling options, investing in microcap stocks, using margin to buy stocks, or selling stocks short.
All investing has risks. But when you buy or sell options, invest in microcap stocks, use margin to buy stocks, or sell stocks short, some of these risks may be magnified.
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Options (contracts to buy or sell a stock for a specified price on or before a certain date), like other securities, carry no guarantees. You should be aware that it is possible to lose more than your initial investment. Some options strategies may even expose you to UNLIMITED losses. To learn more, read our Investor Bulletin “An Introduction to Options.”
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Microcap stocks refer to the stocks of companies with low or micro market capitalizations and include “penny stocks” (stocks lower than $5 per share). Investing in microcap stocks may involve risks such as a lack of liquidity (the ease of selling a stock at the current market price), high volatility (large price changes in a short period of time), and fraud. To learn more about microcap stocks and their related risks, read our series of three Investor Bulletins on microcap stocks: Microcap Stock Basics (General Information), Microcap Stock Basics (Research), and Microcap Stock Basics (Risk).
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Using margin (borrowed money from your investment firm) to buy stocks or other securities can be very risky. You may have to deposit additional cash or securities in your account on short notice to cover market losses (a “margin call”) and you can lose more money than you have invested. To learn more, read our Investor Bulletins: “Understanding Margin Accounts” and “Margin Rules for Day Trading.”
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Short sales involve the sale of a stock you do not own. Short sellers believe the price of a stock will fall. If the price falls, short sellers buy the stock back at the lower price and make a profit. However, if the price rises, short sellers incur a loss because they have to buy the stock back at a higher price. Short sales can expose an investor to the possibility of unlimited losses, since a stock can theoretically keep rising indefinitely. To learn more, read our Investor Bulletin “An Introduction to Short Sales.”
5. Use caution investing in “crypto” and other digital assets
Make sure you consider the risks if you are considering a digital asset-related investment – including crypto-assets, coins, tokens such as those offered in so called initial coin offerings (ICOs) or other digital assets. Some risks of investing in digital assets include:
- Volatility. Digital assets may have significant price changes over short periods of time.
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Lack of investor protection. Since many digital assets are currently unregulated, you may not have the same level of investor protection you would have from investments like stocks, bonds mutual funds and ETFs. For example, you may not have Securities Investor Protection Corporation (SIPC) protection for these assets. If your brokerage firm goes bankrupt or dissolves, SIPC protects you against the loss of your securities or cash held at the firm up to certain monetary limits. SIPC protects you against the loss of the cash and securities themselves, not market losses.
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Lack of transparency and fraud. There often may be limited publicly available information about the operations, financials or governance behind some digital asset investments. This lack of transparency can make these investments even more vulnerable to misinformation, rumors or fraud. Take the time to learn as much as you can about a digital asset investments and look for warning signs of fraud.
6. Don’t invest based solely on information from social media.
Investors are increasingly turning to social media, including Facebook, YouTube, Twitter, Reddit, LinkedIn, TikTok, Discord, Twitch and other online networks for information about investing. Social media platforms allow almost anyone – from expert investment professionals to social media influencers with limited investment experience – to easily share information about investments with a large number of people. You should exercise caution before following any investment advice from a social media source. Do your own research by examining the financial or public disclosures of the company or investment product, before you invest your money in that product or company. For free resources to help you research companies and products, check out the SEC's Researching Investments page on Investor.gov, or read:
Also, fraudsters on social media may pretend to be someone they are not. They may create sites, accounts, emails, direct messages, or webpages that look and feel legitimate. Fraudsters sometimes pay people – for example, actors to pose as ordinary people turned millionaires, social media influencers, and celebrities – to tout an investment on social media. To learn more about avoiding fraudulent investment schemes, visit the SEC's “How to Avoid Investor Fraud” webpage on Investor.gov.
7. Avoid putting all your eggs in one basket and invest for the long term.
Buying a single investment or only one type of investment may increase the risk and volatility in your portfolio. Asset allocation and diversification are investment techniques that can help you reduce risk and volatility in your portfolio. Asset allocation involves dividing your investment portfolio among different asset categories, such as stocks, bonds, and cash.
Diversification involves spreading your investments among different investment products, including within each of your portfolio’s asset categories. For example, within the stock category, you may decide to hold stocks with differing characteristics, such as U.S. stocks, foreign stocks, or mutual funds or ETFs that hold a varied mix of U.S. and/or foreign stocks.
The asset allocation and diversification that works best for you at any given point in your life will depend largely on your time horizon (how long until you expect to want to sell the investment) and your ability to tolerate risk (the degree of uncertainty and/or potential financial loss inherent in an investment decision). For additional information on asset allocation and diversification, please read our “Beginners’ Guide to Asset Allocation, Diversification, and Rebalancing.”
Long-term investing involves buying, holding, and growing the value of a diversified investment portfolio over a long period of time--typically years. A long-term investing approach will generally provide you with a more stable way to reach your investing goals.
In contrast, short-term trading generally involves a more time-consuming, active plan of buying and selling securities, trying to capitalize on short-term price changes. In some instances, short-term trading also involves borrowing or leveraging capital in order to purchase and sell assets. Short-term traders may also make emotional buy/sell decisions based on market movements and end up with potential losses.
One especially complex and risky example of short-term trading is day trading. Day trading can lead to substantial financial losses in a very short period of time. Typical investors generally should not engage in day trading unless and until they fully understand its considerable risks and have the financial resources to weather potential losses. For more information, please see: Thinking of Day Trading? Know the Risks.
Long term investing may provide you with some tax advantages. Day trades or other investments held for less than a year are generally taxed at higher rates than investments you hold for at least a year. For more information about taxation and investments, please consult a tax advisor or visit the IRS website.
8. Be aware of behaviors that can undermine your investment performance.
- Holding losers too long and selling winners too soon. Investors tend to hold on to losing investments too long and sell winning investments too soon. This can be detrimental to your portfolio, as winning investments often continue to outperform losing investments.
- Focusing on past performance and ignoring fees. Investors may choose mutual funds primarily based on the funds’ past annualized returns without considering the funds’ expense ratios, transaction costs, and load fees. Fees and expenses can significantly cut into your investment returns.
- Buying what you know. Investors tend to favor investments from their own country, region, state or company, or to favor “glamour investments” that are well-known or popular. This can decrease diversification and increase risk exposure in your portfolio.
9. Secure your online investment accounts.
You should always take steps to safeguard your personal financial information (for example, social security numbers, financial account numbers, and usernames and passwords for online financial accounts). Here are some online security tips to help secure your online investment accounts:
- Use strong passphrases with random words, using characters that include symbols, numbers, and both capital and lower-case letters, or strong passwords consisting of at least twelve or more characters that include symbols, numbers and both capital and lowercase letters.
- Activate two-step or “multifactor” authentication, if available, so if someone attempts to log into your account with your username and password, they also need to enter a unique code sent to you by e-mail or text message.
- Turn “on” account activity alerts to send you an email or text message about certain activities in your account (for example, password changes, account logins, personal information changes, and account transactions).
- Verify the source before clicking on a link in an e-mail or text message regarding your investment accounts.
- Secure your devices by turning on password protection and automatic locking features.
- Update your devices to make sure the software and apps remain up-to-date with the latest software fixes and security patches.
10. Look out for investment fraud.
Be wary of any investment pitch that guarantees high investment returns (think 10% or more) with little or no risk. This is a classic sign of investment fraud. In general, the potential for higher investment returns involves higher risk.
Unlicensed, unregistered persons commit much of the investment fraud in the United States, so you should always check to see whether someone is registered with the SEC and the NC Secretary of State's Securities Division. Call the NC Investor Hotline at 1-800-688-4507 to make sure that the individual offering you an investment opportunity is registered to sell securities in North Carolina and that the investment opportunity itself is registered before making a decision to invest with them. You can also use the free tools on Investor.gov. It’s worth spending a few minutes of time to protect your money!
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One Call Could Save Your Life Savings!
Is that individual offering you an investment opportunity licensed to sell securities in North Carolina? Is the investment opportunity itself registered? Know before you sign!
While registration in and of itself is no guarantee against fraud, not being registered is a very big red warning flag.
We urge you to take five minutes to call our NC Investor Hotline at 1-800-688-4507 to see if the person you have been dealing with – perhaps even for years – is properly registered and/or has a disciplinary history. You can also check to see if the actual investment itself is properly registered.
Pick up the phone and call us. You owe it to yourself and your family to check. And please also consider sharing the information in this newsletter with YOUR contacts or your social networks. Doing so will help keep your friends and loved ones safe, too. More information can be found at https://www.sosnc.gov/divisions/securities/for_investors.
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The Essential Senior Investor Protection Tools: FINRA Rules 2165 and 4512
MAY 03, 2022
Every year, millions of seniors become victims of financial exploitation, resulting in billions of dollars in losses. In this episode of FINRA’s Unscripted podcast, Jeanette Wingler and Jim Wrona from FINRA’s Office of General Counsel talk about how FINRA Rules 4512 and 2165, the first uniform national senior investor protection standards, can help broker-dealer firms and representatives protect their senior and other vulnerable adult customers.
(Click on the image below to listen to the podcast.)
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CYBERSECURITY HELP FOR SMALL BUSINESSES
The Cybersecurity and Infrastructure Security Agency (CISA) released advice for cybersecurity best-practices for the US’s more than 32 million small businesses during National Small Business Week.
Noting that small businesses are increasingly under threat by cyber bad actors and may be face challenges in integrating cybersecurity plans into and practices into their operations, Assistant Director for Integrated Operations at CISA, Bridget Bean, shared these tips to help small businesses strengthen their cyber posture.
Practice Good Cyber Hygiene
- Establish and enforce strong password requirements for all users and require multi-factor authentication (MFA) for all remote users and those with administrative access.
- Enable auto-update for software where possible. Where auto-update is unavailable or infeasible, prioritize updating applications that are accessible via the Internet.
- Consider using a Managed Security Provider (MSP) for many security services. Consider using a Cloud Service Provider (CSP) to host your organization’s data, applications, and services. Particularly consider using a Software-as-a-Service provider for email and workplace productivity solutions, such a Google Workspace or Microsoft Office365.
Train Your Staff
- Avoid phishing schemes by educating your employees about thinking before they click. More than 90% of successful cyber-attacks start with a phishing email.
- Ensure that resources are in place to identify and quickly assess any unexpected or unusual network behavior, whether via MSP or the organization’s own personnel device.
Prepare to Respond if an Incident Does Occur
- Assure availability of key personnel; identify means to provide surge support for responding to an incident.
- Develop a cyber incident response plan and conduct exercises to ensure employees understand their roles during an incident.
- Ensure that critical data is backed up. Test backup procedures to ensure that critical data can be rapidly restored and ensure that your backups are isolated from network connections.
Read and Use CISA’s Free Cybersecurity Resources
CISA makes available several resources, at no cost, for organizations and businesses looking to improve their cybersecurity practices. Here are a few:
While ransomware and cyber attacks are on the rise among small and medium sized businesses, the good news is that these businesses can take steps NOW to avoid becoming a victim in the first place and lessen the impact if an incident does occur.
For more information, visit CISA’s small business webpage – cisa.gov/small-business - which includes specialized information and resources. If your business does fall victim to a cyber incident, you can contact CISA 24/7 at report@cisa.gov or (888) 282-0870.
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NASAA Annual Public Policy Symposium Focused on Investor Protection in a Digital Age
Securities regulators from across North America convened in the nation’s capital on May 17th to address critical investor protection and regulatory issues at the annual North American Securities Administrators Association (NASAA) 2022 Public Policy Symposium. This year’s symposium, themed “Investor Protection in a Digital Age,” focused on in-depth conversations and panel discussions on policy issues related to ongoing innovation within the capital markets and the challenges those innovations may pose to investor protection.
The Symposium opened with U.S. Securities and Exchange Commission Chair Gary Gensler delivering prerecorded remarks focused on retail investor matters, followed by a question-and-answer session with NASAA President and Maryland Securities Commissioner Melanie Senter Lubin.
The agenda also featured a fireside chat between NASAA Enforcement Section Committee Co-chair and Alabama Securities Commission Director Joseph P. Borg and U.S. Commodity Futures Trading Commission Chair Rostin Behnam.
“The theme for this year’s Symposium underscores the important work regulators are doing to protect investors amid ever-evolving products and practices in our capital markets. We look forward to discussing these important topics and hearing from panelists and speakers including SEC Chair Gary Gensler and CFTC Chair Rostin Benham,” said Lubin.
The symposium also included two panel discussions:
Public Policy Symposium Panel #1: The Implications of New Technologies for Financial Inclusion and Investor Protection
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Moderator: Claire McHenry, Deputy Director, Nebraska Department of Banking & Finance Bureau of Securities
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Panelists: Bruce Johnson, Financial Technology Association; Andrew Park, Americans for Financial Reform and Americans for Financial Reform Education Fund; Tom Quaadman, U.S. Chamber of Commerce; and Cary Martin Shelby, Washington and Lee University School of Law.
Public Policy Symposium Panel #2: Symposium Takeaways for the Policy Community
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Moderator: Justin Burse, Deputy Commissioner, Kentucky Department of Financial Institutions
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Panelists: Michael Piwowar, The Milken Institute; Kara M. Stein, The Public Company Accounting Oversight Board; and Urska Velikonja, Georgetown University Law Center.
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Day trading earnings weren’t the payday Warrior Trading promised
If you’re looking to put in time and work investing, a free day trading webinar that promises to show you how to make $100,000 or more in “verified profits” in “under 45 days” might have you thinking “what have I got to lose?” Unfortunately, you might lose a lot. In the case of Warrior Trading, the promises were false and many people lost thousands of dollars, the Federal Trade Commission (FTC) says.
According to the FTC’s complaint, Warrior Trading drew people in with a “free webinar” that promised to demonstrate “a quick and simple way to get your dream of day-trading success going.” Once the company had people on board, it convinced them to pay hundreds or thousands of dollars to be a part of its trading programs.
But the company’s advertised results weren’t typical, and the company didn’t have the evidence to back up its claims. The FTC says most customer accounts actually lost money — so people not only lost the money they paid for the program but also lost money trading.
To settle the FTC’s charges, Warrior Trading has agreed to stop making claims about earnings without evidence and will pay $3 million, which will be refunded to customers.
Before you purchase any investment-related service or any offer that includes claims about earnings:
- Take your time.
- Avoid high-pressure sales pitches that require you to act now or risk losing out.
- Be skeptical about success stories and testimonials.
- Search online for the company’s name plus words like “review,” “scam,” or “complaint.” But know that dishonest companies sometimes create websites and videos to convince you their companies aren’t scams.
- Be suspicious of any review that tries to sell you something, including similar services and products.
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SEC Proposes New Rules
April 6, 2022 -- Registration and Regulation of Security-Based Swap Execution Facilities
The Securities and Exchange Commission has proposed new Regulation SE under the Securities Exchange Act of 1934 (the Exchange Act) to create a regime for the registration and regulation of security-based swap execution facilities (SBSEFs). The new regulatory framework was one of the major reforms required under Title VII of the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act) relating to the over-the-counter derivatives market.
If adopted, this proposal would implement the Exchange Act’s trade execution requirement for security-based swaps and address the cross-border application of that requirement; implement Section 765 of the Dodd-Frank Act to mitigate conflicts of interest at SBSEFs and national securities exchanges that trade security-based swaps; and promote consistency between proposed Regulation SE and existing rules under the Exchange Act. Comments should be received on or before June 10, 2022. For more information, see https://www.sec.gov/rules/proposed/2022/34-94615.pdf.
May 25, 2022 -- Changes to Prevent Misleading or Deceptive Fund Names
The Securities and Exchange Commission has proposed amendments to enhance and modernize the Investment Company Act “Names Rule” to address changes in the fund industry and compliance practices that have developed in the approximately 20 years since the rule was adopted. A fund’s name is an important marketing tool and can have a significant impact on investors’ decisions when selecting investments, and the Names Rule addresses fund names that are likely to mislead investors about a fund’s investments and risks. The proposal follows a request for comment the SEC issued to gather public feedback on potential reforms to the rule in March 2020.
The Names Rule currently requires registered investment companies whose names suggest a focus in a particular type of investment (among other areas) to adopt a policy to invest at least 80 percent of the value of their assets in those investments (an “80 percent investment policy”). The proposed amendments would enhance the rule’s protections by requiring more funds to adopt an 80 percent investment policy. Specifically, the proposed amendments would extend the requirement to any fund name with terms suggesting that the fund focuses in investments that have (or whose issuers have) particular characteristics. This would include fund names with terms such as “growth” or “value” or terms indicating that the fund’s investment decisions incorporate one or more environmental, social, or governance factors. The amendments also would limit temporary departures from the 80 percent investment requirement and clarify the rule’s treatment of derivative investments. For more information, see https://www.sec.gov/news/press-release/2022-91.
May 25, 2022 -- Enhanced Disclosures by Certain Investment Advisers and Investment Companies About ESG Investment Practices
The Securities and Exchange Commission has proposed amendments to rules and reporting forms to promote consistent, comparable, and reliable information for investors concerning funds’ and advisers’ incorporation of environmental, social, and governance (ESG) factors. The proposed changes would apply to certain registered investment advisers, advisers exempt from registration, registered investment companies, and business development companies. For more information, see https://www.sec.gov/news/press-release/2022-92.
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Fee Rate Advisory #1 for Fiscal 2022
The Securities and Exchange Commission has announced that starting on May 14 the fee rates applicable to most securities transactions will be set at $22.90 per $1 million.
Consequently, each SRO will continue to pay the Commission a rate of $5.10 per million for covered sales occurring on charge dates through May 13, 2022, and a rate of $22.90 per million for covered sales occurring on charge dates on or after May 14, 2022.
The substantial increase in the fee rate is primarily due to the very low fee rate of $5.10 per million for fiscal year 2021. The current fee rate represents a return to levels similar to those prior to 2021 i.e. $22.10 in 2020 and $20.70 in 2019. The fiscal year 2021 fee rate was set at this low rate because of unprecedented covered sales volumes during the Covid-19 pandemic which continued throughout the fiscal year. This resulted in very high collections prior to the annual adjustment, which became effective on February 25, 2021.
The assessment on security futures transactions will remain unchanged at $0.0042 for each round turn transaction.
The Commission determined these new rates in accordance with Section 31 of the Securities Exchange Act of 1934. These adjustments do not directly affect the amount of funding available to the SEC.
The Office of Interpretation and Guidance in the Commission’s Division of Trading and Markets is available for questions on Section 31 at (202) 551-5777, or by e-mail at tradingandmarkets@sec.gov.
The Commission will issue further notices as appropriate to keep the public informed of developments relating to fees under Section 31. These notices will be posted at the Commission's Internet Website at http://www.sec.gov.
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On April 17, 2022, the founders of a Fake "Hedge Fund," Austin Delano Page and Brandon Alexander Teague, pleaded guilty to federal charges for orchestrating a $4 Million Ponzi scheme. For more information, see this press release.
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On April 22, 2022, Marlin Hershey and Dana Bradley, were indicted on federal charges in connection with a multi-million dollar investment scheme. Click here for details.
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On March 8, 2022, former Forsyth County Investment Adviser, Russell Joseph Mutter, pleaded guilty and was sentenced to a minimum of 16 years, 3 months and a maximum of 22 years, 5 months in prison for a scam that cost 12 victims - most of them elderly -- more than $3.3 million. Click here for more details.
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On November 15, 2021, Joshua Matthew Houchins, 36, of Raleigh, NC, was sentenced to ten years in prison on charges of Wire Fraud, in violation of Title 18, United States Code, Section 1343, and Possession of a Firearm by a Felon, in violation of Title 18, United States Code, Section 922(g). The defendant was also ordered to serve three years of supervised release and to pay restitution to victims in the total amount of $1,771,382.25. According to court documents and arguments made in court, Houchins, owner of various Raleigh real estate development companies, carried out a Ponzi scheme upon numerous local real estate investors. Houchins also possessed a rifle and several rounds of ammunition after having been convicted of a felony. For more details, see the related story in this newsletter and this press release.
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On July 29, 2021, the North Carolina Department of the Secretary of State, Securities Division entered into a Final Consent Order ("Order") with Tannin Capital, LLC. The Order states that Tannin Capital was ineligible for an exemption from state registration as an investment adviser from October 2019 through on or about April 2020. Pursuant to the Order, Tannin Capital agreed to immediately cease and desist from violating any provision of the North Carolina Investment Advisers Act and any related administrative rules, to pay a civil penalty and reimbursement of the costs of investigation. The North Carolina Department of the Secretary of State thanks the U.S. Securities and Exchange Commission, Atlanta Regional Office for their assistance in this matter. For more information on this Order, click here.
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On May 21, 2021, the North Carolina Department of the Secretary of State, Securities Division entered into a Final Consent Order (“Order”) with Roy Neil Carlson. The Order states that Carlson violated North Carolina law during the last two years by transacting business in North Carolina as an investment adviser representative without a valid registration pursuant to the North Carolina Investment Advisers Act. Pursuant to the Order, Carlson agreed to immediately cease and desist from violating any provisions of the North Carolina Investment Advisers Act and any related administrative rules, to pay a civil penalty, and cost of investigation. For more information, click here.
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On April 5, 2021, Anthony Wayne March, 49, of Wake Forest, NC, was sentenced to 135 months imprisonment for wire fraud and ordered to pay $6,040,965.00 in restitution. (See the full story above.) The Internal Revenue Service Criminal Investigation Division (IRS-CI), and the North Carolina Secretary of State, Securities Division conducted the investigation in this matter. The Office of the U.S. Bankruptcy Administrator for the Eastern District of North Carolina provided substantial assistance. Assistant United States Attorney Ethan Ontjes, Special Assistant United States Attorney Brian Behr, and Special Assistant United States Attorney Kevin Harrington represent the United States.
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NC Department of the Secretary of State
Securities Division
Investor Protection & Education Services
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