All information in this report was compiled from public records maintained by the SEC.
Fail to Surveil Penny Stocks
Archipelago Trading Services, a Florida corporation with its principal place of business in Chicago, on Aug. 29 entered into an SEC offer of settlement for failing to file hundreds of required reports of suspicious financial transactions related to OTC securities executed on the company’s alternative trading system (ATS).
Archipelago operated an OTC equity securities ATS called Global OTC, which broker-dealers used to execute trades. Global OTC played a significant role in executing microcap and penny stock securities. However, the company never established an anti-money laundering surveillance program for its transactions until Sept. 2020.
Between Aug. 2012 and Sept. 2020, the company allegedly failed to file hundreds of Suspicious Activity Reports (SARs). Archipelago failed to surveil the transactions executed on Global OTC for possible red flags like spoofing, wash trading, pre-arranged trading, and layering — and at least 461 of the unfiled SARs involved penny stocks.
Daniel R. Gregus, Director of the SEC’s Chicago Regional Office, said when firms “fail to investigate red flags, especially those involving higher-risk microcap and penny stock securities, they put the investing public at risk.”
Archipelago agreed to a cease-and-desist order and to pay a penalty of $1.5 million.
Defrauding Clients for Self-Reward
Anthony B. Liddle, 40, of Wausau, Wisconsin, on Aug. 30 entered into an SEC offer of settlement for defrauding over a dozen of his investment advisory clients of about $1.9 million.
From July 2019 to May 2022, Liddle was a registered investment adviser with two SEC-registered firms as investment advisers and broker-dealers. Liddle was also the majority owner and managing member of Prosper Wealth Management, a state-registered investment adviser.
On Jan. 25, 2023, Liddle pled guilty to one count of wire fraud and one count of money laundering before the United States District Court for the Western District of Wisconsin. He was sentenced to a 97-month prison term on each count, to run concurrently, followed by a three-year term of supervised release. Liddle was also ordered to make restitution of $1,662,041.
As the managing member of Prosper, Liddle defrauded his advisory clients by using client funds on personal expenses and to pay down debt rather than investing the funds as promised, according to the SEC. He also used client funds to pay other clients and investors.
Also, from June 2019 through May 2022, while associated with an SEC-registered broker-dealer, Liddle solicited $1.9 million from 13 investors to purchase L bonds issued by GWG Holdings. He did not use the funds for that purpose and instead used them for personal expenses, the SEC reported. Additionally, many of Liddle’s clients were seniors.
Liddle is barred from participating in any offering of a penny stock and barred from associating with any dealer, broker, municipal securities dealer, investment adviser, transfer agent, municipal advisor, or nationally recognized statistical rating organization.
Unregistered Securities Sales for Profit
Blake Cathey, 24, of Naples, Florida, on Aug. 30 entered into an SEC offer of settlement for illegally selling securities; he was never registered as a broker-dealer.
From June 2019 until Sept. 2022, Cathey allegedly sold Florida-based Accanito Equity, Accanito Equity II, Accanito Equity III, and Accanito Equity IV securities totaling nearly $4.7 million to 15 retail investors in five states. Though Cathey was not registered as a broker-dealer and not permitted to sell securities, he received about $760,729 in sales commissions from Accanito.
The SEC previously filed enforcement against the Accanito LLCs, Brent Seaman, and affiliated entities on July 27 in connection with this alleged scheme.
Cathey is barred from associating with any broker, dealer, investment adviser, transfer agent, statistical rating organization, municipal securities dealer, or municipal advisor and agreed to a penny stock bar.
Billion-Dollar Ponzi Scheme
Leroy King, 76, a dual citizen of the United States and Antigua and Barbuda, on Aug. 30 entered into an SEC offer of settlement for obstructing a proceeding before the SEC and conspiracy to obstruct an SEC proceeding.
King was extradited to the United States in 2019 and pled guilty on Jan. 30, 2020, to one count of conspiracy to obstruct justice and one count of obstruction of justice for blocking the SEC investigation into Stanford International Bank (SIB). He was sentenced to 10 years in prison in connection with a $7 billion Ponzi scheme.
In about 2002, King was the administrator and SEC of the FSRC, an agency of the Antiguan government. As such, he was responsible for Antigua’s regulatory oversight of SIB’s investment portfolio, including reviewing financial reports and requests by foreign regulators, such as the SEC, for documents and information about SIB.
Around 2005, the SEC started investigating R. Allen Stanford and Stanford Financial Group, making official inquiries about the value and content of SIB’s investments. Stanford’s cash payments to King totaled about $520,963 throughout the alleged conspiracy. Other perks included Super Bowl tickets and flights on private jets, the SEC said.
Stanford was found guilty in June 2012 for his role in a 20-year investment fraud scheme in which he misappropriated $7 billion from SIB to pay for his personal businesses. He is now serving a 110-year prison sentence, with five others convicted for their roles in the scheme, spending three to 20 years in prison.
King is also barred from associating with any broker, dealer, or investment adviser and barred from any offering of a penny stock.