Blotter
SEC Busts Another Ponzi:
The SEC filed securities fraud charges against Salvatore “Sam” Favata, the former president of National Consumer Mortgage (NCM), a California company that held itself out as a residential mortgage broker. The complaint alleges that from 2001 to 2006, Favata used NCM to raise more than $30 million in a massive Ponzi scheme — a system of passing new investors' money to longer-term investors as if it were a return on investment. Favata promised rates of return from 30 percent to 60 percent to investors he met at church gatherings and investment seminars. Instead of investing their money, he allegedly used it to pay his $10 million-plus debts, including gambling, payments on luxury vehicles, house parties and music festivals. Favata neither admitted nor denied the allegations but consented to a permanent bar from association with any broker or dealer in the future. Separately, Favata faces a possible five-year prison sentence from the U.S. Attorney's Office of the Central District of California. In that case he has agreed to plead guilty to mail fraud, pay restitution of $20 million and forfeit his residence.
Broker Bends for Hedgies:
The SEC filed an enforcement action against former broker Gene Mancinelli, alleging he permitted his hedge fund customers to late trade and deceptively market time mutual funds. Between April and October 2001, Mancinelli executed more than 2,000 trades in mutual funds for one hedge fund client well after the 4:00 p.m. close of the market. To escape detection by mutual fund companies and to hide his identity, as well as the identities of his market-timing customers, he used multiple accounts and broker numbers.
NASD Says Firm Ignored Red Flags:
The NASD charged Las Vegas-based NevWest Securities Corporation and two of its top executives, President Sergey Rumyantsev and Vice President Antony Santos, with violating its Anti-Money Laundering Rule. Specifically, the firm failed to catch a customer that opened 32 accounts at the firm and sold more than 250 billion shares of a so-called subpenny stock, which generated total sales proceeds of over $53 million between January 2003 and May 2005. NASD alleges that NevWest earned commission revenue on the sales of $2.5 million — 36 percent of the firm's total revenues during the period. James Shorris, NASD head of enforcement said: “Broker/dealers have an obligation to investigate ‘red flags’ indicating suspicious activity and…to file SARs [suspicious activity reports]. Despite a multitude of very obvious red flags, NevWest chose to look the other way, earning millions for itself in the process.”
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