The Securities and Exchange Commission (SEC) has charged a New Jersey businessman with running a stock-lending scheme that defrauded public company officials and brought restricted stock to market.
Ayuda Equity Funding and AmeriFund Capital Holdings, both located in New Jersey, and owner Manuel Bello, agreed to settle the SECs complaint without admitting or denying the allegations. Bello and the firms jointly agreed to return $3.2 million of allegedly ill-gotten gains, plus interest. Bello also agreed to pay a $500,000 penalty and be permanently barred from the securities industry.
According to the SECs complaint, Ayuda and AmeriFund reaped more than $3.2 million of illegal gains on loans to public company officers and directors who put up stock as collateral. Although some borrowers received written and oral assurances that the stock would not be sold as long as they did not default on their loan payments, Ayuda and AmeriFund sold the shares before or soon after making the loans, the SEC alleged.
The SEC also alleged that in at least 35 loan transactions, Ayuda and AmeriFund sold the borrowers restricted shares into the market without registering the transactions and the firms and Bello themselves failed to register with the SEC as brokers or dealers. Without admitting or denying the SECs allegations, Ayuda, AmeriFund, and Bello consented to a final judgment permanently enjoining them from violating federal anti-fraud, broker-dealer registration, and securities registration laws. The settlement is subject to court approval.
In a separate administrative proceeding, the SEC charged Howard Blum, alleging that he brokered numerous transactions for Ayuda without being registered as a broker or dealer. Blum, without admitting or denying the SECs findings, agreed to return more than $1 million of allegedly ill-gotten gains, plus interest, pay a $50,000 penalty, and be suspended from the securities industry for twelve months.
This is the second time the SEC has charged stock-lending companies, who it claims defrauded public company officials. In March, the regulator charged two executives and their California-based firm with defrauding corporate officials in an $8 million stock-lending scheme.
We are continuing to clamp down on misconduct in the opaque stock-collateralized lending industry, said Scott Friestad, associate director of the SECs Division of Enforcement. Firms cannot induce borrowers to transfer stock to them as purported collateral for loans but then turn right around and sell the borrowers stock into the market to fund their operations.
The SECs latest investigation was conducted by Jacob Krawitz and supervised by Julie Riewe.
(JDC)