Securities and Exchange Commission v. Fabrizio Neves, et al., Case No. 1:12-cv-23131 (S.D. Fla.). On August 29, the SEC filed fraud charges against former Miami brokers Fabrizio Neves and Jose Luna. Neves and Luna were involved in a scheme to mark up prices of approximately $70 million in structured notes issued by commercial banks, charging around $36 million in undisclosed fees to their brokerage customers: two Brazilian public pension funds and a Colombian institutional investor. Neves and Luna were both registered representatives. Neves negotiated the structuring of the notes on his customers’ behalf. The banks issued the structured notes at a certain price and Neves purchased them at that price. However, Neves did not directly sell the notes to the customers for issuer’s price. Rather, he traded the notes with nominee accounts that he, Luna and others controlled. Neves and Luna then repurchased the notes from these nominee accounts at increased prices, resulting in windfall profits to Neves and Luna. They also marked up the prices of the structured notes again, and arranged for the Brazilian Funds to buy the notes at excessively high prices. Through the markup scheme, the Brazilian funds paid a total of $24 million in undisclosed, excessive fees and the Colombian institutional investor paid more than $12 million in undisclosed, excessive fees.
The SEC charged Neves and Luna with violating Section 17(a) of the Securities Act, Section 10(b) of the Exchange Act and Rule 10b-5 thereunder, and aided and abetted violations of Section 15(c) of the Exchange Act. The SEC seeks disgorgement of ill-gotten gains, financial penalties, and injunctive relief against Neves. Luna has agreed to the entry of a judgment ordering him to pay disgorgement of $923,704.85, prejudgment interest of $241,643.51, and a penalty amount to be determined. The judgment permanently enjoins him from violations of the antifraud provisions of the federal securities laws. Luna also agreed to settle a related SEC administrative proceeding by agreeing to be barred from association with any broker, dealer, investment advisor, municipal securities dealer, municipal advisor, transfer agent, or credit rating agency.