At the end of every month, the SEC publishes a Notice of Covered Action (NOCA) for recent enforcement actions with monetary penalties exceeding $1 million. For September the SEC published fifteen NOCAs which featured nearly $36 million in sanctions.
Once a NOCA is published, any whistleblower who provided information to the SEC on the case has 90 days to claim a whistleblower award by filing a Form WB-APP. With $36 million in fines noticed in September, there is nearly $12 million in potential whistleblower awards up for grabs.
Here’s a summary of the NOCAs from this month which feature fraudsters hawking fake real estate investments, an app that can(not) detect Covid, $90 million in family loans, luxury cars, vacations and illicit spending on romantic partners.
- Shimon Rosenfeld
According to the SEC, Shimon Rosenfeld (an attorney in Brooklyn) convinced friends to send him $7 million in investment funds by telling them he would invest it in real estate. Rosenfeld actually put the funds into a personal brokerage account and lost almost all of it trading, leading to a loss of $6 million to the investors. The case is ongoing.
- Aron Govil
The SEC settled charges against an alleged fraudster, Aron Govil. The SEC alleges that Govil defrauded investors in two companies he controlled, Cemtrex and Telidyne. The SEC alleges that Govil:
- Took company money and used it to finance personal expenses;
- Secretly sold company stock while paying stock promoters to tout the stock; and
- Lied about the companies’ ability to create an app that could, among other things, detect Covid.
Govil has consented to pay ~$1.3 million to settle the charges without admitting wrongdoing.
- Christopher Dougherty
The SEC charged investment advisor Christopher Dougherty with running a Ponzi scheme that defrauded clients out of $7 million. The SEC alleges that Dougherty provided investment advice to “school district employees, hospital employees, veterans, and neighbors, most of whom were unsophisticated investors and trusted Dougherty completely.” Unfortunately, Dougherty lost most of the money he took from these individuals and Dougherty then filed for bankruptcy. The case is ongoing.
- Sergei Polevikov
The SEC charged Sergei Polevikov with insider trading after the SEC’s Market Abuse Unit picked up “improbably successful trading” by Polevikov, who worked at two prominent asset management firms. The SEC alleges that when Polevikov saw large orders coming in at work, he would use his wife’s trading account to “front run” the orders. The SEC alleges that Polevikov ran the scheme for over 5 years and netted at least $8.5 million. The case is ongoing.
- Deccan Value Investors
The SEC settled charges against Deccan Value Investors for breaching fiduciary duties to two university clients. The SEC alleged that Deccan locked university funds into investments when Deccan knew that the universities wanted to imminently withdraw their funds. The breaches cited by the SEC included misleading statements, deleting text messages and failing to make proper disclosures about investment decisions. The charges were settled for ~$1.6 million.
- Angel Oak Capital
The SEC settled charges against Angel Oak Capital Advisors for misleading investors about its financial performance. Angel Oak raised $90 million from investors with the intention of using the money to offer loans to people who wanted to fix up properties before quickly selling them (known as ‘fix-and-flip’ loans). When the fix-and-flip loans started to underperform, Angel Oak manipulated performance data to hide the growing delinquencies. This allowed Angel Oak to avoid triggering a contractual provision that would have forced them to return money to investors. Angel Oak settled the charges for ~$1.8 million.
- Bancorp (TBBK)
The SEC settled charges against Bancorp Inc. for failing to follow generally accepted accounting principles when valuing securities. Bancorp settled the charges for $1.75 million.
- JP Morgan (JPM), UBS (UBS) and TradeStation Securities
The SEC settled charges against JP Morgan, UBS and TradeStation Securities for failures in their identity theft protection programs. Each of the companies was required to have controls in place to mitigate the risk that their customers would be subject to identity theft. The SEC charged the companies for failing to implement appropriate policies and procedures, failure to involve the board of directors in oversight, and failure to train employees correctly. Acting Chief of the SEC’s Crypto Assets and Cyber Unit Carolyn M. Welshhans said that the fines “are reminders that broker-dealers and investment advisers must design and operate identity theft prevention programs that are appropriately tailored to their businesses and update them in response to the increased threat and changing nature of identity theft.” The charges were settled for ~$2.5 million.
- Surgalign Holdings (SRGA)
Surgalign Holdings, a spinal implant company, settled charges brought by the SEC alleging that it had manipulated revenue figures by accelerating and pulling-forward revenue to mask disappointing sales. The SEC alleged that when sales figures dipped in a particular time period, Surgalign cannibalized future revenue by pulling-forward sales by shipping orders early to make the period appear more successful. As a result of the charges, Surgalign paid $2 million in civil penalties and executives at the company returned over half a million in incentive-based compensation.
- Crown Bridge Partners
The SEC settled charges with Crown Bridge Partners for its sale of hundreds of securities without being registered as a broker-dealer with the SEC. As part of the settlement, Crown Bridge will pay approximately $9 million in monetary relief.
- Eagle Bancorp (EGBN)
The SEC settled charges against Eagle Bancorp (and its CEO) for the company’s failure to inform investors that it had given loans of nearly $90 million to the CEO’s family. Critically, the SEC pointed out that the company publicly denied misconduct even after a short-seller (Aurelius Value) accused the company of wrongdoing in a research report in 2017. The charges were settled by Eagle Bancorp and the CEO for ~$13.5 million. Given the SEC action may have been triggered by the short-seller’s report, the short-seller may be eligible for a whistleblower award, as the SEC does not require whistleblowers to be employees at the company they report.
- Aegis Capital
The SEC settled charges with Aegis Capital and senior employees for recommending financial products that were unsuitable for retail customers. The SEC alleges that Aegis recommended highly complex and risky products to several customers whose risk tolerance and financial goals did not align with the product Aegis sold them. The charges were settled for ~$2.5 million.
- Victor Lee Farias
The SEC charged Victor Lee Farias with running an investment scam in which Farias convinced retirees to withdraw money from their retirement accounts and transfer it to him so he could invest in aircraft parts leasing. Instead of using the money for the business venture, Farias allegedly made Ponzi-like payments to other investors and spent millions on personal expenses. Astonishingly, when Farias received an SEC subpoena regarding the misconduct, he clipped the letterhead from the SEC’s subpoena and showed it to investors to convince them he was talking with the SEC about taking the venture public. The case is ongoing.
- William Milles and Donald Lutzko
According to the SEC, William Miles and Donald Lutzko operated a Ponzi scheme which conned investors out of almost $4 million. Investors were told that their money would be invested in oil and gas projects, however, Miles and Lutzko “grossly overstated” the project’s past and current oil and gas production, and in fact, none of the wells they controlled ever produced any revenue. The case is ongoing.
- German Nino
According to the SEC, former UBS broker German Nino stole almost $6 million from UBS clients which he then used to buy gifts for women with whom he had romantic relationships. Among his purchases, Nino allegedly spent money on vacations, luxury cars, private school tuition and an apartment in Colombia. The case is ongoing.
- Naseem Mohammed Salamah
According to the SEC, Naseem Salamah stole more than $950,000 from three elderly advisory clients. The SEC alleges that Salamah chose these clients because he did not think they would pay close attention to their account statements when he stole the money. The SEC alleges that Salamah used the stolen money for personal expenses, including vacations, luxury cars, and private school tuition. The case is ongoing.