SEC Charges Former Miami Brokers for $36 Million Fraud

The Securities and Exchange Commission has charged two former brokers in Miami with fraud for overcharging customers by about $36 million.

(August 29, 2012) — The Securities and Exchange Commission (SEC) has charged two Florida-based brokers for defrauding Brazilian public pension funds.

The US regulatory agency has claimed the brokers overcharged customers by approximately $36 million by using hidden markup fees on structured note transactions. According to a SEC statement, Fabrizio Neves conducted the scheme while working at LatAm Investments LLC, a broker-dealer no longer in business. He was assisted by Jose Luna.

Neves and Luna defrauded two Brazilian public pension funds and a Colombian institutional investor that purchased from LatAm the structured notes issued by major commercial banks, the SEC stated. The regulator’s statement continues: “To conceal the excessive markups that Neves charged customers, Neves directed Luna to alter the banks’ structured note term sheets in half of the transactions by either whiting out or electronically cutting and pasting the markup amounts over the actual price and trade information, and then sending the forged documents to customers. Neves and Luna further concealed the egregious markups in most transactions by first purchasing the notes into accounts in the name of nominee entities they controlled in the British Virgin Islands.”

Eric I. Bustillo, director of the SEC’s Miami regional office, said: “Neves lined his pockets with millions of dollars by charging customers exorbitant, fraudulent markups. Neves and Luna thought they could hide their scheme and evade regulators by using offshore nominee companies and forged documents, but they thought wrong.”

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Meanwhile, Neves is going through Chapter 7 bankruptcy proceedings, which includes some adversarial actions, the South Florida Business Journal reported.

The SEC alleges that as a result of the markup scheme and undisclosed, excessive fees, the Brazilian funds overpaid by approximately $24 million and the Colombian institutional investor overpaid by approximately $12 million.

According to the SEC’s complaint against Neves and Luna filed in US District Court for the Southern District of Florida, “Neves negotiated with several US and European commercial banks to structure 12 notes on his customers’ behalf from 2006 to 2009. But instead of purchasing the notes for his customers’ accounts for prices around the banks’ issuance amounts, in most transactions Neves first traded the notes with one or more accounts in the name of offshore nominee entities that he and Luna controlled. Neves then sold the notes to his customers with undisclosed markups as high as 67%.”

The SEC seeks disgorgement of ill-gotten gains, financial penalties, and injunctive relief against Neves to enjoin him from future violations of the federal securities laws.