Home » misprepresentations

Tag: misprepresentations

Day Trader Lied About Track Record

The SEC charged an unregistered day trader for lying about his trading success and misappropriating client funds. The defendant convinced clients to hire him by asserting that that he had done very well as a day trader over several years and then promised over 50% annualized returns.  Once retained, the trader did very poorly and siphoned client assets for personal expenses.  According to the SEC, he then concealed his misconduct by delivering false account statements and implementing a microcap wash sale scheme.  The defendant also faces criminal charges brought by the U.S. Attorney’s Office for the Eastern District of New York.

Lying about your investment track record constitutes securities fraud, subjecting you to civil and criminal penalties.  Do not make performance claims unless you can affirmatively support your claims with hard data. 

Adviser Faces Industry Death Penalty and Criminal Prosecution for Ignoring Custody Rule

An adviser agreed to shutter the firm and close its private fund and pay over $1.1 Million in disgorgement and interest for lying to clients about the safety of their assets.  The firm’s principal has also been barred from the industry and faces criminal prosecution.  According to the SEC, the firm violated the custody rule (206(4)-2) by failing to deliver audited fund financial statements and then lying to clients about the fund’s assets and pendency of the audit.  The SEC alleges that the respondents misappropriated client assets for personal and firm expenses and lied to clients with false account statements, tax documents and Form ADV.  The SEC also charges the respondents with securities fraud.

It is a HUGE warning sign when a fund manager fails to deliver audited financial statements, regardless of the ostensible reasons for delay.  What may be most shocking is that this firm engaged in unlawful conduct for at least 11 years until the SEC uncovered wrongdoing during a routine OCIE exam in 2018. 

SEC Alleges Short Seller Disseminated False Negative Information

 

The SEC has commenced enforcement proceedings against a hedge fund manager for taking short positions in a public company and then engaging in a negative and public relations campaign to drive down the company’s stock price.  The hedge fund manager used interviews, social media and published research reports to make false claims about the company’s product and financial situation.  According to the SEC, the false negative information had the intended effect of lowering the company’s stock price, which fell 34% during his negative campaign.  The SEC charges violations of the anti-fraud rules.

OUR TAKE:  We suspect that many public companies are cheering this action because the SEC seeks to chill a short seller from disseminating negative information for financial gain.  In this case, the SEC maintains that the hedge fund made false factual statements.  This type of case will not help prevent negative opinions based on accurate facts.