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 promotional materials.
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 $235,000 penalty.
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.