In June 2014, the Office of Investor Education and Advocacy at
the Securities and Exchange Commission issued an alert cautioning that investment newsletters
are often "used to carry out schemes designed to deceive
investors." In particular, the SEC advised investors to be
"highly suspicious" of newsletter "promises" of
"high investment returns" and to contact the SEC to
report potential securities fraud in newsletters and other
On September 13, 2016, the Commission announced the settlement
of charges against an investment management company and its
principal whose conduct did not live up to the marketing hype.
According to the SEC's contemporaneously filed complaint, Manuel Jesus, his company
Wealthpire, Inc., and employee Robert Joiner were charged with
violations of Section 10(b) of the Securities Exchange Act for
making false statements to entice investors into subscribing to
Wealthpire's various stock picking services.
The SEC alleged that since at least 2012, Jesus operated
Wealthpire under the nom de guerre "Manny Backus,"
representing that he was a stock trading "whiz kid," an
"untutored prodigy of stock investing" with a
"skyscraping" IQ who could guarantee above-market
investing results for his clients. Jesus allegedly deployed
numerous advertising-related schemes through which to defraud
prospective subscribers to Wealthpire's services. For example,
the advertisements for Wealthpire's stock picking "alert
services" claimed that "Backus" had developed a
proprietary stock analyzing tool "that can predict the exact
movement of select stocks at an exact point in time, all with
unprecedented precision!" Jesus also set up a stock trading
chat room, and represented that subscribers could log in and watch
him pick and trade stocks "in real time" and trade
alongside him. He also claimed that his alert service had
fantastically high returns and stock pick success rates,
e.g., that the alert service "returned
1,430.51% in 2012, and chose 48 'winners' out of 51 stock
picks for a 96% 'winning ratio.'"
According to the SEC, none of these claims were true. Jesus and
Wealthpire had no proprietary "predictive" stock
analyzing tool. In fact, neither Jesus nor Joiner were engaged in
any "real time" trading. Rather, Joiner
was employed to log into the Wealthpire chat room under the user
name MANNY_BACKUS, but he simply pretended to buy and sell certain
stocks at specific prices. Finally, the performance figures given
for Wealthpire's alert services were fake, inflating gains and
minimizing losses that actually would have occurred if Jesus'
"methodology" had been followed.
Without admitting or denying the SEC's allegations, Jesus,
Wealthpire, and Joiner consented to a judgment permanently
enjoining each from future violations of the securities laws. As
part of the settlement, Jesus and Wealthpire agreed to pay of $1.2
million in disgorged profits, and Jesus agreed to pay an additional
The Wealthpire case is not the first example
of the SEC charging an entity or individual with a violation of the
securities laws in connection with allegedly fraudulent
advertising. See e.g., In re Bennett Group Financial Servs.,
LLC (cease-and-desist order against a financial
adviser that "grossly overstated" the amount of assets
under management in advertising to lure prospective clients). It
is, however, a reminder that investors should carefully review the
claims made in advertising and promotional materials before
investing. If an investment sounds "too good to be true,"
it probably is.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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In August 2016, a former risk officer wrote an opinion piece published by the Financial Times explaining his reason for allegedly rejecting a whistleblower award of USD 8.25 million (half of the 16.5 million total).
The SEC recently proposed new Rule 206(4)-4 under the Investment Advisers Act of 1940, which would require registered investment advisers to adopt and implement business continuity and transition plans.
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