SEC Extends Enforcement Reach in 2019 | Chief Investment Officer

The long arm of the SEC extended a little further in 2019 as the regulator brought 41 more enforcement actions, and obtained $400 million more in disgorgement and penalties than last year, a 5% and 10% increase, respectively.

As a result of the enforcement actions, the Securities and Exchange Commission returned just under $1.2 billion to swindled investors, a 50% jump from the $794 million returned to harmed investors in 2018, That’s according to the SEC Division of Enforcement’s annual report for 2019.

“The results depicted in this report reflect the division’s focus on rooting out misconduct that can do significant harm to investors and our markets,” SEC Chairman Jay Clayton said in a statement. “Across a broad array of cases, the enforcement staff has continued to show determination, sophistication, and thoughtfulness in detecting and deterring bad conduct and crafting meaningful remedies.”

In fiscal year 2019, the SEC brought a total of 862 enforcement actions, including 526 standalone actions, up from 821 actions, and 490 standalone actions in fiscal 2018. It also obtained judgments and orders of more than $4.3 billion, up from $3.9 billion in 2018. The actions concerned issues such as auditor misconduct, issuer reporting/accounting and auditing matters, investment advisory issues, securities offerings, market manipulation, insider trading, and broker-dealer misconduct.

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The enforcement actions also led to 595 bars and suspensions, and a suspension of trading in the securities of 271 issuers in 2019. That compared with the suspension of trading in the securities of 280 companies, and 550 bars and suspensions in 2018.

Among the SEC’s standalone cases in 2019, 36% concerned investment advisory and investment company issues, 24% involved securities offerings, and 17% were over issuer reporting/accounting and auditing matters. Another 7% of actions were related to broker-dealers, while 6% involved insider trading, and another 6% concerned market manipulation.

The SEC said the 5% of cases that involve the largest financial remedies in 2019 accounted for most of all financial results the SEC obtained. The remaining 95% of cases accounted for about 30% of monetary remedies.

The picture, however, wasn’t all bright. The SEC said despite the successes in enforcement and recovery, its actions have been hurt by a 2017 Supreme Court ruling that has led to a disgorgement shortfall of more than $1.1 billon.

In the June 2017 decision in Kokesh v. SEC, the Supreme Court held that SEC claims for disgorgement are subject to a five-year statute of limitations.

“The Kokesh decision has had a significant impact, as many securities frauds are complex, well concealed, and are not discovered until investors have been victimized over many years,” the SEC said in its report. “The actual impacts of Kokesh are likely far greater than this number reflects, however, because – since the Kokesh decision – – the division has shifted its resources to those investigations which hold the most promise for returning funds to investors.”

The SEC also reported that 69% of the standalone actions in 2019, excluding actions brought as part of the share class initiative, involved charges against one or more individuals. The individuals charged include those at the top of the corporate ladder, such as CEOs, CFOs, and COOs, as well as gatekeepers such as accountants, auditors, and attorneys.

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Tags: disgorgement, division of enforcement, Enforcement Actions, Kokesh v. SEC, penalties, SEC

The Securities and Exchange Commission has charged a New York investment advisor with operating a multimillion-dollar investment club that was allegedly a Ponzi scheme that scammed members of the local Haitian community as well as his family and friends.

According to the SEC complaint, Ruless Pierre ran the Amongst Friends Investment Group, an investment club that was actually a swindle that raised more than $2 million from at least 100 investors who were predominately Haitian New Yorkers.

Filed in the US District Court for the Southern District of New York, the complaint charges Pierre with violating the antifraud provisions of the federal securities laws. It also names R. Pierre Consulting Group as a relief defendant, which means it is not accused of wrongdoing but received something illegally to which it has no legitimate claim.

Pierre allegedly lured investors by promising unrealistically high rates of return that ranged from 20% every 60 days to as high as 40% every 60 days. The SEC, however, said those returns were fabricated and that Pierre had in fact incurred heavy losses when trading in securities.

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“We allege that Pierre’s Amongst Friends investment opportunity that targeted members of Pierre’s local Haitian community was built on a foundation of lies and deceit,” Marc Berger, director of the SEC’s New York Regional Office, said in a statement. “Investors should be wary of investments promising rates of return that seem too good to be true and are encouraged to ask questions and check on their investment professional’s background.”

The SEC said that Pierre’s trading resulted in losses of more than $300,000 in 2017, and nearly $1 million in 2018, and that he concealed the losses by using new investor funds to pay older investors. He created false account statements that showed investment gains, the SEC said. Pierre also allegedly helped finance the fraud by using money he embezzled from a former employer to make interest payments to investors.

According to the US Attorney’s Office, from November 2016 through February 2019, Pierre lost approximately $1.4 million through day trading. He also allegedly used investor funds to purchase luxury vehicles and a fast food franchise for himself.

The SEC’s complaint also alleges that Pierre fraudulently raised at least $375,000 from more than 15 investors related to a scheme involving the sale of partnership interests in a fast-food chain. As part of that scheme, Pierre allegedly falsely guaranteed monthly returns of 10%, plus quarterly profit sharing. The SEC said that Pierre knew that the franchise could not provide enough profits to pay investors the promised returns.

In a parallel action, the US Attorney’s Office filed criminal charges against Pierre. He is charged with one count of securities fraud and one count of wire fraud, each of which carries a maximum sentence of 20 years in prison. He also faces one count of structuring, which carries a maximum sentence of five years in prison.

“Pierre used his ties to the Haitian community, his trusted reputation in that community, and convincing pitch to target and cheat hundreds of victims in an illegal investment Ponzi scheme,” Philip Bartlett, inspector-in-charge of the New York Field Division of the US Postal Inspection Service, said in a statement. “If an investment promises unusually high returns, it’s likely bogus. Don’t let greed override common sense.”

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Tags: Fraud, Ponzi Scheme, Ruless Pierre, SEC, US Postal Inspection Service