Decoy Client
Sometimes a fake client is an advisor's best friend, unless, that is, the advisor gets caught. On March 9, 2009, the SEC charged Leila Jenkins and her firm, Locke Capital Management Inc., with inventing a client with a massive — and confidential — account in Switzerland. She allegedly set up the decoy to lure in unsuspecting “real” clients.
The SEC complaint alleges that Jenkins claimed the client's accounts held over $1 billion in assets that she managed, and that she included fake information about the fake accounts in brochures, meetings, submissions to online databases that prospective clients used to select money managers and in SEC filings from at least 2003 to 2009. Jenkins even produced bogus statements and other documents to send to the SEC in connection with the bogus client's account. Jenkins apparently began to take on actual clients in late 2006, but never amassed more than a fraction of the $1 billion she claimed to manage.
Squawk A Lot
On March 11, Merrill Lynch agreed to pay $7 million to settle SEC charges that its retail brokers allowed day traders at other firms to listen in on its “squawk boxes,” the internal intercom system used by broker/dealers to broadcast confidential company information. The Merrill Lynch brokers allegedly put their telephones next to the squawk boxes, allowing the day traders to listen in, often for the entire trading day. The day traders then used these broadcasts to trade ahead of orders placed by Merrill Lynch customers. This is one of several squawk box-related suits the SEC has pursued against Merrill and other firms and their employees.
Ponzi Pie
There seems to be no end to uncovered Ponzi schemes of late. Most recently, on March 11, the SEC charged Anthony Cassallo and Kenneth Kenitzer for bilking investors of at least $40 million dollar ponzi scheme. Vassallo agreed to a court order freezing his assets and the SEC is still trying to freeze the assets of Vassallo's company, Equity Investment Management and Trading. According to the SEC's complaint, Vassallo and Kenitzer raised the money from 150 investors between May, 2004 and November, 2008. Vassallo met many of the investors through his church, and told them that he had proprietary computer software that allowed him to generate returns of 3.5 percent per month on the purchase and sale of stock options. He claimed there was little risk of loss.