In May 2009, the SEC filed a civil injunction against FTC, Clamens, and FTC employee Lina Lopez for engaging in millions of dollars of unauthorized securities trading through the accounts of two FTC customers. The complaint alleges that the broker-dealer defrauded Citgo Petroleum Corp. and its parent company PDV Holdings Inc. Clamens, with the help of Lopez, purportedly knowingly prepared and sent the customers false account statements that omitted the unauthorized securities trades and falsely listed holdings exclusively in short-term, low risk, liquid investments of the type that the customers authorized FTC to make on its behalf.

The Commission claims that Clamens and Lopez defrauded FTC’s customers in part to conceal their prior fraudulent sale of $50 million in non-existent notes to a Venezuelan bank through an FTC affiliated entity and unregistered broker-dealer Emerging Markets. When the notes held by the Venezuelan bank came due in August 2008, Clamens allegedly misappropriated $50 million from FTC customers to fund the redemption.

The Ponzi-like scheme began to unravel around October 2008 when investors began requesting withdrawals from their accounts and there wasn’t enough cash to fulfill the requests.

Clamens and Lopez have also been charged criminally by federal prosecutors in the U.S. Attorney’s Office in Manhattan. Lopez pleaded guilty in October 2009 to conspiracy and securities fraud and awaits sentencing. Clamens has been ordered to pay $1.7 million in interest and penalties but is reported to remain at large.

The SEC alleges that the state misled investors to believe it was adequately funding the $34 billion Teachers’ Pension and Annuity Fund (TPAF) and the $28 billion Public Employees’ Retirement System (PERS). From August 2001 through August 2007, New Jersey allegedly sold more than $26 billion worth of municipal bonds in 79 offerings that helped mask the truth about New Jersey’s pension contributions.

The SEC’s order found that New Jersey made material misrepresentations and omissions about the underfunding of TPAF and PERS in preliminary official statements, official statements, and continuing disclosures. New Jersey allegedly misrepresented or omitted information regarding legislation adopted in 2001 that impacted the benefits employees and retirees enrolled in TPAF and PERS, as well as the state’s use of Benefit Enhancement Funds as part of a five year plan to begin making contributions to the pension funds.

According to the SEC findings, New Jersey was aware of the underfunding and its potential effects. The state allegedly had no written policies about the review of bond offering documents, nor did it provide training to its employees about the state’s disclosure obligations.

New Jersey has neither admitted nor denied the SEC’s findings, and is required to cease and desist from committing any violations or future violations.

On August 13, 2010 the SEC, FINRA and NASAA issued an addendum to that report summarizing additional compliance, supervisory and other practices being used by securities professionals.

The 2010 Addendum focuses on communicating effectively with senior investors; training and educating firm employees on senior-specific issues; establishing an internal process for escalating issues and taking next steps; obtaining information at account opening; ensuring appropriateness of investments; conducting senior-focused supervision, surveillance and compliance reviews.

“Securities regulators continue to bring solid enforcement cases to protect our seniors from investment fraud and abuse,” said NASAA President Denise Voigt Crawford. “Strong regulation coupled with effective industry compliance, supervision and innovative senior-specific practices are essential toward ensuring that our growing population of senior investors is being treated fairly and responsibly by the financial services industry.”

According to the SEC, as a result of the economic downturn, older investors are dealing with smaller nest eggs. The industry regulator estimated that total retirement assets decreased by $4.5 trillion from 2007 to the first quarter of 2009.

The two Westchester County residents allegedly sold investors fake promissory notes and common stock in Infinity Reserves-Tennessee Inc., an inoperative company owned by a client of their accounting firm. The duo took the company name and represented themselves as senior officers with authority to sell the securities.

As early as 2008, Brown and Mangini began selling the securities to clients of their accounting practice and other investors, according to the SEC’s complaint filed in federal court in Manhattan.

The SEC claims Brown and Mangini promoted Infinity Reserves as being a profitable company operating a gas pipeline in Tennessee. They proclaimed to have a “captive market in its area and a stable minimum rate of production with quality gas that could be sold well above market prices.” The alleged fake notes promised investors a 10 percent annual return that would be paid semiannually on the principal amount of the investment.

According to the SEC complaint, Infinity Reserves owns a gas gathering and trunk pipeline system located in Tennessee that has not operated for more than a decade. The offering document put together by Brown and Mangini allegedly portrayed the investment as interests in an active system.

The pair reportedly raised more than $2.1 million from investors, returning approximately $136,000 to certain investors in the form of interest payments. In typical Ponzi scheme fashion, at least $1.6 million of investor funds were allegedly transferred to personal bank accounts controlled by Brown, Mangini, or family members, who are being named as relief defendants.

The SEC charged the CPAs with violations of the anti-fraud provisions of the federal securities laws, and seeks permanent injunctions, disgorgement of the defendants’ and of relief defendants’ ill-gotten gains plus prejudgment interest, and financial penalties.

The brochure is comprised of the second part of the investment advisors SEC registration form, known as Form ADV Part 2.

According to SEC Chairman Mary L. Schapiro, the amendments to Part 2 “will help transform the brochure into a plain English narrative that is well-suited to serve investors’ needs.”

The changes will add depth to the descriptions of investment advisers’ explanations of advisory services, fees, methods of risk analysis, disciplinary history, code of ethics, and brokerage practices.

One of the biggest changes is the disclosure of conflicts of interests, which will be followed by an explanation of how the investment adviser addresses those conflicts. This change is notable for advisers or an affiliate who might have a material financial interest in a client account for which it makes recommendations to clients, or buys or sells. “The investment advisor must also disclose whether it or an affiliate invests (or is allowed to invest) in the same securities that it recommends to clients or in related securities, such as options or other derivatives.” In addition, an investment adviser that “trades in the recommended securities at or around the same time as the client has to explain the specific conflicts of interest.”

Other conflicts of interest outlined on the brochure will include performance-based fees that an investment adviser may receive from some accounts and not others, as well as soft dollar practices, client referrals, directed brokerage and trade aggregation.

The current format of the brochure is made up of advisers’ responses to a series of multiple choice and fill-in-the-blank questions, which in some cases does not allow investment advisors to bet describe their business or conflicts.

The disclosure obligation is designed to ensure that Employee Retirement Income Security Act (ERISA) plan fiduciaries are provided the information they need to make better decisions when selecting and monitoring service providers for their plans.

The rules define service providers that must comply with the disclosure requirements, as being fiduciaries, investment advisers and record keepers or brokers who make investment alternatives to a plan.

According to the DOL, the regulation will apply to defined contribution and defined pension plans and focuses on the disclosure of the direct and indirect compensation certain service providers receive. Plan service providers that expect to receive at least $1,000 in compensation in connection with their services will be expected to provide a detailed account of the fees they are charging to manage the retirement plans.

Such services will include “certain fiduciary or registered investment advisory services; recordkeeping or brokerage services to a participant-directed individual account plan in connection with the investment options made available under the plan; or certain other services for which indirect compensation is received.”

Information must also be disclosed about plan investments and investment options.

According to the DOL, “the new rules are aimed at assisting plan sponsors in assessing the reasonableness of contracts or arrangements, including the reasonableness of service providers’ compensation and potential conflicts of interest.”

The new rules are scheduled to go into effect in July 2011.

According to the SEC complaint, “Goldman misstated and omitted key facts regarding a synthetic collaterized debt obligation (CDO) it marketed that hinged on the performance of subprime mortgage-backed securities.” The CDO, known as ABACUS 2007-AC1, was created by Goldman in 2007 as a vehicle for the bank and some of its clients to bet against the housing market.

Goldman allegedly told investors that the bonds were chosen by independent manger, ACA Management LLC. Instead, the SEC claims that Goldman failed to disclose to investors that hedge fund manager John Paulson of Paulson & Co. Inc. was allowed to select mortgage bonds that he believed were most likely to lose value. Investors lost more than $1 billion in the deal, while Paulson netted an estimated $3.7 billion by betting on the housing bubble to burst, according to the complaint.

In the settlement papers, Goldman stated that “the marketing materials for the ABACUS 2007-AC1 transaction contained incomplete information. In particular, it was a mistake for the Goldman marketing materials to state that the reference portfolio was ‘selected by’ ACA Management LLC without disclosing the role of Paulson & Co. Inc. in the portfolio selection process and that Paulson’s economic interests were adverse to CDO investors.
Goldman regrets that the marketing materials did not contain that disclosure.”

Of the $550 million to be paid by Goldman, $250 would be returned to harmed investors through a Fair Fund distribution and $300 million would be paid to the U.S. Treasury.

The settlement does not include charges against Goldman employee Fabrice P. Tourre, who played a key role in marketing the security to potential investors, according to the SEC.

The expansion will increase the number of customer complaints reported publicly and extend the public disclosure period for the full record of a broker who leaves the industry within the ten preceding years. Complaints dating back to 1999, when electronic filing of broker information began, will be available. These complaints will include customer complaints, regulatory actions, arbitrations and litigations.

Currently, a broker’s record is publicly available for two years after he or she leaves the securities industry. The expanded BrokerCheck will make a former broker’s record public for ten years, enabling investors to access information about individuals who may work in other sectors of the financial services industry.

Investors will benefit from the additional information when deciding whether to begin or continue their business with a particular broker or firm, said FINRA Chairman and CEO Rick Ketchum. “Just as important, it will provide valuable information about persons who have left the securities industry, often not of their own accord, who have established themselves in other segments of the financial services industry and can still cause great harm to the investing public.”

Last year, BrokerCheck started making information about regulatory action such as bars, suspensions and fines, against former brokers permanently available to the public. The more comprehensive version will include additional information reported to FINRA since 1999. The additional information will include reportable criminal convictions or pleas of guilty or nolo contendere, civil injunctions or findings of involvement in a violation of any investment-related statute or regulation, and arbitration awards or civil judgments based on the individual’s involvement in alleged sales practice violations.

Current and former brokers will be able to submit a written notice of dispute to FINRA with all supporting documentation, if they believe the information to be inaccurate or out of date. A notation signifying the broker is disputing the information will be posted to the broker’s BrokerCheck report, and removed following an investigation.

The first wave of changes will come in late August, when all historic complaints will be added to current and former broker’s reports. By the end of the year, full records for any broker registered within the last 10 years will be public, and all permanent information will be added to the appropriate broker reports.