Two Brokers Charged With Defrauding Institutional Investors

Two Brokers Charged With Defrauding Institutional Investors

Two Brazilian public pension funds and a Colombian institutional investor paid about $36 million in excessive mark ups in the latest fraudulent scheme uncovered by the SEC. Fabrizio Neves and Jose Luna, both registered representatives at now defunct Florida broker LatAm Investments, Inc. were the culprits who fleeced their clients, according to the Commission's complaint. SEC v. Neves, Case No. 1:12-cv-23131 (S.D. Fla. Filed Aug. 28, 2012).

Over a three year period beginning in 2006 Messrs. Neves and Luna are alleged to have fraudulently marked up the prices on about $70 million in structured notes issued by commercial banks. Central to the scheme are twelve transactions. Eight involved structured notes purchased by Mr. Neves in deals he negotiated for his clients. In these transactions Mr. Neves:

  • Negotiated the purchase;
  • Put the notes into a LatAm trading account;
  • Had the notes traded to one of his controlled nominee accounts at or close to the issuer price;
  • Had the notes repurchased into LatAm's trading account at significantly increased prices;
  • Marked up the notes again to as much as 67% over the issuance price; and
  • Sold the notes to the Brazilian Funds or in one instance the Columbian institutional investor.

In four other transactions the defendants boosted the prices of structured noted sold to the Brazilian Funds. The prices were as much as 36% over the issuance price.

To conceal the scheme Mr. Luna, at the direction of Mr. Neves, altered the banks' structured note term sheets in a number of transactions. The altered documents were then sent to the customers.

The complaint alleges violations of each subsection of Securities Act Section 17(a) and Exchange Act Sections 10(b) and 15(c).

Mr. Luna settled with the Commission, consenting to the entry of a permanent injunction based on the antifraud provisions cited in the complaint. He also agreed to pay disgorgement of $923,704.85 along with prejudgment interest and a penalty in an amount to be determined. In a related administrative proceeding Mr. Luna agreed to be barred from the securities business. Mr. Neves is litigating the action. See also, Lit. Rel. No. 22462 (Aug. 29, 2012); In the Matter of Angelica Aguilera, Adm. Proc. File No. 3-14999 (Aug. 29, 2012)(Failure to supervise proceeding against former principal of LatAm).

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