An important and pervasive online tool has been used to lure investors to a new Ponzi scheme, according to the Securities and Exchange Commission (“SEC”). In a press release dated April 8, 2014, the SEC alleges that Joseph Signore of JCS Enterprises, Inc. and Paul L. Schumack II of T.B.T.I., Inc. colluded to use YouTube videos as promotional devices for selling investments in their proposed high-return product virtual concierge machines (“VCM”s). These VCMs, the videos purported, would be “ATM-like machines that businesses could use to advertise products and services via touch screen and printable tickets or coupons,” and would be accessible at hotels, airports and stadiums, with revenue supposedly generated through businesses advertising in the VCMs. Promising a “300 to 500 percent return within 4 years,” investor’s funds in upwards of $40 million (from 2011 to 2014) were instead used to pay returns to earlier investors and, according to the SEC, these investors “aren’t enjoying the riches touted on YouTube” from the VCMs.

The securities industry became privy once again to a form of manipulative trading – termed “layering” or “spoofing” – through the Securities and Exchange Commission’s (“SEC’s”) recent charges against the Holmdel, N.J.-based firm Visionary Trading, LLC (“Visionary”). According to the SEC’s April 4, 2014 press release, Visionary Trading, its owner, Joseph Dondero, and other owners not only participated in manipulative “layering” trading, but also perpetuated registration violations, including operating an unregistered brokerage firm, and policies and procedures issues that failed to “prevent and detect the improper sharing of commissions between its registered representatives.” We will briefly focus in on the “layering” charges of this case in this blog post.

Last April in a speech to the American Bar Association, the Securities and Exchange Commission's ("SEC") Chief Counsel of the Division of Trading and Markets, David Blass, sent shock waves throughout the investment advisory community when he suggested that employees who market an investment adviser’s private fund may need to be registered representatives of a licensed securities broker-dealer, with the investment adviser being the registered broker-dealer. Even though the Chief Counsel retreated somewhat from this controversial position and the SEC has not published any official clarifying guidance or rulemaking on the matter, the SEC Staff remains focused on broker-dealer issues. Accordingly, it is important for investment advisers to private funds to take note of this focus and maintain awareness of the rules governing their marketing activities.

A St. Petersburg, Florida-based financial services firm was recently charged with inappropriately-calculated fee discounts and inadequate policies and procedures (“P&P”). Charges were filed against Transamerica Financial Advisors (“Transamerica”) by the Securities and Exchange Commission (“SEC”) at the beginning of April 2014. The SEC found, through examinations and a later investigation based on the examination result, that Transamerica falsely offered advisory fee discounts to their clients “when they increased their assets in certain investment programs,” for which they would become eligible for discounts by “aggregat[ing] the values of related accounts.” The aggregation requests for discounted fees were not applied in all client accounts, causing certain “retail investors to overpay for advisory services in thousands of client accounts.”

The Department of Labor (“DOL”) released a fact sheet in March 2014 detailing a proposed amendment to Section 408(b)(2) of the Employee Retirement Income Security Act of 1974 (“ERISA”) that would, if passed and enacted, require a guide for plan fiduciaries to follow when disclosures are provided, particularly “if the disclosures are contained in multiple or lengthy documents.” In current regulation, pension plan service providers must provide disclosure documents to plan fiduciaries “before entering into, extending or renewing contracts or arrangements for services,” but these documents can be “complex” and difficult to navigate, making compensation information related to service providers harder to find.