«INITIAL DECISION RELEASE NO. 501 ADMINISTRATIVE PROCEEDING FILE NO. 3-14999 UNITED STATES OF AMERICA Before the SECURITIES AND EXCHANGE COMMISSION ...»
INITIAL DECISION RELEASE NO. 501
FILE NO. 3-14999
UNITED STATES OF AMERICA
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
In the Matter of : INITIAL DECISION : July 31, 2013
ANGELICA AGUILERA :___________________________________
APPEARANCES: Laura R. Smith and Edward D. McCutcheon for the Division of Enforcement, Securities and Exchange Commission Luis F. Biason for Respondent Angelica Aguilera BEFORE: Cameron Elliot, Administrative Law Judge
SUMMARYThis Initial Decision finds that Respondent Angelica Aguilera (Aguilera) failed reasonably to supervise Fabrizio Neves (Neves) and Jose Luna (Luna) within the meaning of Sections 15(b)(4)(E) and 15(b)(6) of the Securities Exchange Act of 1934 (Exchange Act), with a view to preventing and detecting their violations of the antifraud provisions of the securities laws. The Initial Decision bars Aguilera from association with a broker or dealer in a supervisory capacity and bars Aguilera from the securities industry.
I. Introduction A. Procedural Background The Securities and Exchange Commission (Commission) issued its Order Instituting Administrative Proceedings (OIP) on August 29, 2012, pursuant to Section 15(b) of the Exchange Act. Aguilera filed her Answer on January 15, 2013.
A hearing was held from February 25 through February 28, 2013, in Washington, D.C.
The admitted exhibits are listed in the Record Index issued by the Commission’s Office of the Secretary on May 22, 2013. The Division of Enforcement (Division) and Aguilera filed their post-hearing briefs on April 19, 2013, and their reply briefs on May 10, 2013. 1 Citations to the transcript of the hearing are noted as “Tr. ___.”. Citations to Aguilera’s Answer are noted as “Answer ___.”. Citations to exhibits offered by the Division and Aguilera B. Summary of Allegations The instant proceeding concerns Aguilera’s alleged failure to supervise Neves, a shareholder and registered representative associated with LatAm Investments, LLC (LatAm), and Luna, a back office operations employee at LatAm, who allegedly engaged in a fraudulent markup and markdown scheme to defraud two Brazilian public pension funds and another foreign institutional customer in the offer, purchase, and sale of structured notes. OIP, p. 2. The OIP alleges that Neves and Luna violated Section 17(a) of the Securities Act of 1933 (Securities Act), Section 10(b) of the Exchange Act and Rule 10b-5 thereunder, and willfully aided and abetted violations of Section 15(c)(1) of the Exchange Act, and that Aguilera, a shareholder, Financial & Operations Principal (FINOP), and President of LatAm from October 2007 through 2010, failed to effectively follow or implement LatAm’s policies and procedures with a view to preventing violations by Neves and Luna. Id., pp. 1-2, 5-6. The Division seeks a supervisory bar, an industry bar, disgorgement, and civil penalties. Div. Br., pp. 44-53.
Aguilera denies that she held a supervisory role over trading at LatAm, despite her title as President and FINOP, and argues that other individuals at LatAm exercised de facto control over the firm. Resp. Br., pp. 3, 7. She argues that LatAm’s Written Supervisory Procedures (WSPs) did not accurately reflect her job responsibilities and that her job primarily consisted of administrative, human resources, and marketing tasks, but not trading supervision. Resp. Reply Br., p. 6. Aguilera also contends that a cover-up was an integral part of Neves’ and Luna’s fraudulent scheme, which prevented her from discovering and preventing it. Id., pp. 1-5.
II. Findings of Fact
The findings and conclusions herein are based on the entire record. I applied preponderance of the evidence as the standard of proof. See Steadman v. SEC, 450 U.S. 91, 102 (1981). I have considered and rejected all arguments, proposed findings, and conclusions that are inconsistent with this Initial Decision.
A. Respondent and Other Relevant Individuals and Entities
Aguilera, at the time the OIP issued, was a 46-year old resident of Boca Raton, Florida.
OIP, p. 1; Answer, p. 1. She has worked in the financial services industry since 1994. 2 Tr. 361.
are noted as “Div. Ex. ___.” and “Resp. Ex. ___.”, respectively. The Division’s and Aguilera’s post-hearing briefs are noted as “Div. Br. ___.” and “Resp. Br. ___.”, respectively. The Division’s and Aguilera’s reply briefs are noted as “Div. Reply Br. ___.” and “Resp. Reply Br.
Aguilera received a master’s degree in business administration from California State University and a graduate degree in international management from a school in San Francisco, California.
She earned her Series 7 securities license in 1996, and also holds Series 24 and 27 securities licenses. Tr. 361-62. Aguilera was the relationship manager for Prime Brokerage accounts at Bear Stearns from 2001 through 2003, managing the reporting, day-to-day operations, and back office support groups in Bear Stearns’ Boca Raton office. Tr. 362. While at Bear Stearns, Aguilera met Maximino “Jimmy” Acosta (Acosta), with whom she later formed LatAm. 3 Tr.
Aguilera was LatAm’s FINOP from 2004 until the firm withdrew its FINRA registration in 2010. OIP, p. 2; Answer, p. 1; Tr. 364. Aguilera was LatAm’s Anti-Money Laundering Compliance Officer beginning in 2004, and held the position until Esdras Vera (Vera) joined LatAm as its chief compliance officer in October 2007. Tr. 364, 490. Aguilera became the President of LatAm when Acosta left LatAm in October 2007, and she remained President until LatAm ceased operations in 2010. OIP, p. 1, Answer, p. 1; Div. Ex. 17, pp. 2, 17.
2. Jose Luna and Fabrizio Neves
Luna, age 45, who came to the United States in 1987 from Lima, Peru, joined LatAm in
2006. Tr. 55-56, 74-75. Prior to joining LatAm, Luna worked at Global Strategic Investments (Global Strategic) in Miami, Florida, where he met Neves, who also worked at Global Strategic at the time. 5 Tr. 64. After Neves left Global Strategic in 2005, he encouraged Luna to resign and work for him at Capital Investment Services, which Luna did. Tr. 66-68. At Capital Investment Services, Luna’s job included processing and confirming Neves’ trades with counterparties. Tr. 68. Neves’ customers at the time were two pension funds for post office employees in Brazil, the Brazil Sovereign II Fund (Sovereign II) and the Atlantica Real Fund (Atlantica Real) (collectively, the Brazilian Pension Funds or Funds), and he traded sovereign debt for them. Tr. 68-71, 80-81.
In 2006, Neves and Luna joined LatAm. Tr. 74-75. According to Luna, Neves joined LatAm because he was interested in acquiring an ownership interest in a broker-dealer. Tr. 75.
Luna served as operations manager at LatAm, and he processed trades for Neves and other brokers, confirmed trades with counterparties, and confirmed settlements with LatAm’s custodian, Pershing, LLC (Pershing). Tr. 79-80.
Acosta managed clearing operations for Bear Stearns, and, according to Aguilera, he was terminated in 2003 as a result of a dispute that arose regarding his alleged role in market timing of mutual funds. Tr. 362-63. Aguilera quit her job at Bear Stearns around the same time that Acosta was terminated. Tr. 363.
Luna holds a bachelor’s degree in business administration in management and finance from Mercy College in New York. Tr. 55.
Luna was employed at Bankers Trust in New York from 1995 through 1999; Chase Manhattan Bank in Brooklyn, New York, in 1999; HWF Capital, a Florida hedge fund from 1999-2002; and Global Strategic in Miami, Florida, from 2002 through 2005. Tr. 55-60; Div. Ex. 52. He performed operations-related tasks, such as confirming and processing trades, sending wire transfers, and handling clients and account problems for these firms. Tr. 55-58.
Luna left LatAm in December 2009, following the departure of the Brazilian Pension Funds as clients of LatAm, because the firm could no longer afford to pay him. Tr. 63. In June 2010, the Financial Industry Regulatory Authority, Inc. (FINRA), permanently barred Luna, by consent, from association with any FINRA member in any capacity. Tr. 60-61; Div. Ex. 52. In SEC v. Neves, No. 1:12-cv-23131 (S.D. Fla. Aug. 29, 2012), a federal judge barred Luna from the securities industry as part of a consent to settle securities fraud charges with the Commission relating to conduct he engaged in at LatAm. 6 Tr. 61; Div. Ex. 52. Over the course of his career, Luna obtained Series 7 and 11 securities licenses, but no longer holds them. Tr. 60.
In May 2010, FINRA permanently barred Neves, by consent, from association with any FINRA member in any capacity. Div. Ex. 51. Neves was also named as a defendant in SEC v.
Neves, and the case remains pending against him.
Acosta Financial Services was formed sometime in 2003 and was the predecessor to LatAm. Tr. 301-02, 363. Acosta contributed over $300,000 to start Acosta Financial Services, and Aguilera joined the company a little later and contributed $125,000 of her own funds to the firm. Tr. 659-60. At that time, Acosta and Aguilera shared ownership of the firm 70% and 30%, respectively. Tr. 660. Acosta was a principal of LatAm when it was founded, and he served as its CEO or President. Tr. 280-81.
In 2006, Neves invested approximately $300,000 in LatAm in exchange for an ownership interest in the firm. Tr. 366, 662-63. According to Aguilera, initially Neves had hoped to open his own broker-dealer, but when he could not reach an agreement with Pershing or receive the necessary approvals, he instead invested in LatAm. 8 Tr. 366, 662-63. The initial plan was to sell Neves an 80% ownership interest in LatAm, but because Neves did not have a principal license, Acosta only sold Neves a 1% interest. Tr. 285, 366, 661-63; Div. Ex. 17, p. 2. Aguilera understood that Neves would bring the Brazilian Pension Funds, which had business worth millions of dollars, to LatAm as clients when he joined the firm, and she and Acosta would provide operational support and the relationship with Pershing. 9 Tr. 367.
Luna testified that the fact that the Commission has not yet made a recommendation as to the appropriate civil penalty to be imposed in Neves would not affect the truth or completeness of his testimony during the hearing. Tr. 62.
Acosta Financial Services and LatAm are referred to throughout the transcript and this Initial Decision as LatAm. Tr. 363.
Aguilera first met Neves at a restaurant sometime in 2006 with Acosta. Tr. 366, 661-63.
According to Aguilera, LatAm’s legal counsel from Greenberg Traurig LLP conducted a background investigation of Neves when he joined LatAm. Tr. 663-64.
Acosta left LatAm as a principal in late 2007 to form a broker-dealer in Panama. Tr. 281.
Acosta became a consultant to LatAm after he left, which allowed him to remain active in the firm and receive payment for his work; however, he was no longer a signatory of the firm. Tr.
281-83; Div. Ex. 16. After Acosta left, he placed his shares of LatAm in a voting trust, and Aguilera became the sole trustee and controlled the trust. Tr. 310, 669-70. According to Aguilera, she never used the trust to control the company and no vote was ever taken during her trusteeship. Tr. 310, 669-70. Aguilera assumed Acosta’s role as President of LatAm when Acosta became a consultant. Tr. 284; Div. Ex. 17, p. 8. Acosta rejoined LatAm, possibly in May 2009, but he did not resume the role of President; Aguilera remained as President until LatAm ceased operations. OIP, p. 1; Answer, p. 1; Tr. 329, 676.
In 2007, Acosta and Aguilera hired Vera to be LatAm’s Chief Compliance Officer, and he remained in the position until September 2009. 10 Tr. 490-91. Howard Landers, principal at First Bridgehouse Consulting (Bridgehouse Consulting), which performed regulatory consulting work for LatAm beginning in 2004 or 2005, recommended Vera for the position. Tr. 491.
In July 2008, Marcos Konig (Konig) 11 joined LatAm as Chief Operating Officer. 12 Tr.
564-66. According to Aguilera, Konig was hired because LatAm needed someone with a Series 24 license to “look over all the operations,” including compliance. 13 Tr. 369-70. Konig understood his role to be to help LatAm establish an institutional equity trading business, since the firm’s fixed-income business was already established, and to develop a piggyback or clearthough business. Tr. 566.
In November 2009, Darius Lashkari (Lashkari) was hired to replace Vera as Chief Compliance Officer at LatAm. 14 Tr. 447. One month after Lashkari joined LatAm, he began working to close down the firm. Tr. 449.
Vera graduated from the Inter-American University in Puerto Rico in 2003 and has worked in the financial industry for over twenty-four years. Tr. 489. He currently holds Series 7, 24, 66, and 79 securities licenses. Tr. 430. Vera currently owns Lali Consulting and is the chief compliance officer for two firms. Tr. 489.
Konig, age 67, received bachelor’s degrees from Philadelphia College of Textiles and Science and Louisiana State University. Tr. 562. He holds Series 4, 7, 27, 44, 55, and 63 securities licenses. Tr. 563.
Konig testified that although his employment contract stated he was hired as the Sales and Branch Manager of LatAm’s Miami office, his title at or shortly after joining LatAm was COO.
Tr. 571; Div. Ex. 98.
In early 2008, Aguilera was working from home and sporadically came into LatAm’s office because of her son’s medical condition, which required hospitalization. Tr. 370.
Lashkari, age 39, graduated from Queens College of New York in 1998 with majors in urban planning and social studies. Tr. 440. He holds Series 4, 7, 9, 10, 24, 53, 63, 66, 79, and 99 securities licenses. Tr. 440-41.
In January 2010, LatAm ceased trading operations, and in April 2010, it filed a Form BDW, withdrawing its registration with the Commission. Div. Exs. 77, p. 5; 106.