SEC Charges Adviser With Fraudulently Operating Private Fund

Anthony Cottone allegedly raised nearly $3 million usingfalse and misleading representations, and misappropriated funds.

The Securities and Exchange Commission (SEC) has charged a Florida investment adviser with fraudulently operating a private fund, for which he raised approximately $2.8 million from 11 investors, allegedly through false and misleading representations and material omissions.

According to the SEC’s complaint, Anthony Cottone, who was the owner and sole manager of the now-defunct Retirement Planning Institute LLC (RPI), failed to tell investors that he used fund assets to pay investors from a previous unrelated offering and to operate a startup car dealership that he managed. He also allegedly neglected to inform his investors that his undisclosed commission payments came out of fund assets and that he has a prior criminal conviction. The SEC also alleges Cottone misappropriated at least $134,000 from the fund.

The fund, known as the Secured Capital Strategies Fund, was formed in March 2017 as a private fund to make loans to and equity investments in private companies. A fund manager unaffiliated with Cottone originally controlled the fund until RPI took over all management interests and rights a month later. In its confidential offering memorandum, the fund indicated that investors would be entitled to an annual “preferred return” of 12%. The fund made its last payments to its investors in June 2018, and RPI was administratively dissolved three months later.

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The complaint noted that Cottone was charged in January 2015 with conspiracy to commit a crime against the US by introducing misbranded prescription drugs into interstate commerce. It said Cottone was charged with managing payment processing services for websites operated by co-conspirators who he knew were using the sites to illegally sell prescription drugs. Cottone pleaded guilty and was sentenced to one year of probation in 2016.

And in December 2018, the Financial Industry Regulatory Authority (FINRA) permanently barred Cottone from associating with any of its members for failing to respond to a request for information related to an investor complaint. As a result of the FINRA bar, Cottone had his certification as a financial planner revoked in March 2020.

The complaint said the SEC was seeking a permanent injunction, disgorgement of ill-gotten gains, and civil penalties. Without admitting or denying the SEC’s allegations, Cottone consented to the entry of the judgment that permanently enjoins him from violating federal securities laws and to have the court consider at a later date the SEC’s claims for disgorgement, prejudgment interest, and civil penalties.

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Broken Homes: Trouble Stirs in Booming Housing Sector

Affordability questions and rising rates chill once-hot builder stocks.



Everything is great in the home-building market. Or is it?

The stats sure look encouraging. In December, work commenced on 1.7 million homes, rounding out the best year for housing starts since 2006, per the US Census Bureau. And this year looks no less robust, with permits issued in December to construct 1.87 million homes, up almost 9% from the month before. Home builder sentiment remains near all-time highs, said a report from the National Association of Home Builders (NAHB).

But there are a couple of problems, and the stock market seems to be picking up on those. For one, mortgage interest rates are heading higher. The average 30-year fixed mortgage rate just shot up to 3.64%, from 3.11% last month, according to the Mortgage Bankers Association. This is the biggest one-month hike since 2013.

Meantime, home prices are spiraling, raising questions about affordability. The median new-home selling price hit $416,900 in November, the Census Bureau found. That marks an enormous increase of almost 26% compared with February 2020, right before the pandemic appeared. A shortage of some materials hasn’t helped matters.

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Such news stirs doubt about the durability of the housing craze, as “the specter of rising rates has the potential to overshadow the group’s impressive results,” wrote Stephen Kim, an analyst at investment bank Evercore, in a report.

He expects industry earnings to be solid by year-end, but in the interim predicts that residential real estate stocks will have a rocky ride. Kim wrote that “the path forward for the stocks will be volatile, as pressure on valuation ebbs and flows with rate sentiment.”

Following a nice 2021 run-up, the SPDR S&P Homebuilders exchange-traded fund (ETF) has tumbled 14% this year, including almost 2.1% on Thursday, when the stock market turned around from its losing ways. Building company Toll Brothers, for instance, is off 19% in 2022.

The Federal Reserve is set on lifting interest rates, and that’s always a bad thing for builder stocks. The rising mortgage rates of late show how the credit markets are already getting ready for Fed tightening. “We think history shows that a rising rate environment could be an overhang on stock performance,” Janney Montgomery Scott analyst Tyler Batory wrote in a research note.

Nonetheless, despite the turbulence, he added that the industry’s fundamentals, such as high demand and well-financed builders, will end up with good results up ahead.

What’s more, the fallout from the 2008-09 financial crisis created a big slowdown in construction, leading to a shrunken supply, which helps buoy builders’ results. The pandemic has spurred Americans’ nesting instincts and the Millennial generation in particular is now reaching a point where it wants to settle down.

Maybe builder stocks will, too.

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