Wisconsin Adviser Charged With Defrauding Elderly, Ill Clients

The US Securities and Exchange Commission (SEC) has charged a Wisconsin investment adviser with defrauding at least 100 clients, many of whom were elderly and some of whom were ill. According to the SEC, Michael Shillin “systematically betrayed their trust, plying them with lies. Too often, the results were devastating.”

According to the SEC’s complaint, Shillin encouraged several advisory clients to roll over their existing life insurance policies into new policies, such as variable annuities, causing some clients to sell securities to pay premiums for policies that were non-existent or had far fewer benefits than Shillin claimed. The SEC also alleges that Shillin received hundreds of thousands of dollars in ill-gotten gains from the fraud.

The SEC said Shillin told several couples that their policies would cover long-term care benefits for both of them, when in reality the policy only provided the benefits for one spouse. It also said that to conceal the lies he made to an elderly client—and to prevent the policy from lapsing—Shillin secretly sold securities from the client’s advisory account to pay a premium.

“Unfortunately, Shillin thereafter failed to make subsequent payments, and the policy ultimately lapsed pursuant to its terms just weeks before the client’s death,” said the complaint. “All the while, Shillin continued lying to [the client’s] family, insisting the policy remained in effect.”

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In another incident, Shillin allegedly told a client that a life insurance policy he sold him contained a long-term care benefit. However, it did not, and the SEC said the client, who now has stage IV cancer, learned there was no such policy or benefit only after he was diagnosed with the illness.

And for at least six years, Shillin allegedly misrepresented that certain clients had successfully subscribed for initial public offering (IPO) or pre-IPO shares in high-profile companies, including Fitbit Inc., Zoom Video Communications, Pinterest, and SpaceX, when they had not, and then lied about the true value of their investment portfolios. The SEC said Shillin lied about his access to shares of the IPO companies to existing and potential advisory clients. Several new clients, including some high-net-worth individuals, said they agreed to invest their funds with Shillin because he appeared to have access to such opportunities.

“To conceal his deception, Shillin gave clients access to an online portal where they could track the value of their investments,” said the complaint. “There, an investor could sign on to see her fictitious interests in these high-profile companies, and the purported increasing value of her (nonexistent) shares.”

The complaint, which was filed in federal court in the Western District of the US District Court for the District of Wisconsin, charges Shillin with violating the Securities Act of 1933, the Securities Exchange Act of 1934, and the Investment Advisers Act of 1940. The SEC seeks injunctive relief, disgorgement with prejudgment interest, a civil penalty, and a bar against Shillin serving as an officer or director of a public company.

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Tags: Fitbit, Fraud, Inc., initial public offering, IPO, Michael Shillin, Pinterest, SEC, SpaceX, Zoom Video Communications

Ken Griffin

Hedge fund kingpin Ken Griffin is taking it heavy again over last winter’s Robinhood mess. A lawsuit was recently filed accusing him of restricting trading in GameStop and other meme stocks through his firm Citadel Securities, a large market maker that handles the no-fee online brokerage’s trades—to aid Griffin’s own positions.

After a torrent of anti-Griffin charges appeared Tuesday, the hedge fund operator struck back denying that he or Citadel had colluded with Robinhood Markets to freeze meme trades. Griffin testified before a congressional panel in February that he had nothing to do with Robinhood’s decision to temporarily stop customers from buying GameStop and kindred stocks.

The lawsuit, filed in a Miami federal court, contends that Citadel Securities amassed a substantial short position in GameStop and the others, and leaned on Robinhood to bar its amateur traders from buying the shares. Senior executives at both Citadel Securities and Robinhood had “numerous communications with each other that indicate that Citadel applied pressure on Robinhood,” the suit read.

The market-making firm, which says it is independent from the Citadel hedge fund operation even though Griffin controls both, has denied that. So has Robinhood.

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The short squeeze campaign last winter of meme stock aficionados to bid up prices of short-targeted stocks sought to stick it to hedge funds that were betting on those shares to fall. Robinhood has said that it squelched the flood of trading in GameStop, AMC Entertainment, and the rest because it was running short on capital. Specifically, Robinhood said it needed to find the money to post more collateral with the Depository Trust and Clearing Corporation (DTCC), the clearinghouse that’s the crucial nexus in equity transactions.

Yesterday, tweets with the hashtag #KenGriffinLied were trending heavily on Twitter, demanding that the hedge fund impresario be prosecuted for lying to Congress. They also pilloried Robinhood CEO Vlad Tenev for purportedly coordinating the trading shutdown with Citadel Securities. One read: “Ken Griffin lied about directing Robinhood to scam retail traders out of billions of dollars by disabling the buy button.”

Griffin himself responded with several tweets branding the allegations false. In a statement, he declared: “It must frustrate the conspiracy theorists to no end that Vlad and I have never texted, called, or met each other. But I must say, kudos to Vlad and his team at Robinhood for their remarkable success story.”

Tenev, in his own statement, said that the lawsuit presents “a false narrative of collusion.”