SEC Sues Brokers|for $36 Million

MIAMI (CN) - Two brokers in Miami overcharged customers $36 million by using hidden markup fees on structured notes transactions, the SEC said in court.

The SEC sued Fabrizio Neves and Jose Luna.

The complaint states: "From November 2006 to September 2009, defendants Fabrizio Neves and Jose Luna engaged in a scheme to fraudulently mark up prices of approximately $70 million in structured notes issued by major commercial banks, charging approximately $36 million in undisclosed excessive fees to their brokerage customers: two Brazilian public pension funds and a Colombian institutional investor. Neves and Luna were both registered representatives associated with the now-defunct Miami, Florida broker-dealer LatAm Investments. ...

In eight transactions between July 2008 and September 2009, 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 into LatAm's trading account. But Neves did not directly sell the notes to the customers at or close to the issuer's price. Instead, Neves first traded the notes with one or more nominee accounts he, Luna and others controlled. Neves, with Luna's assistance, then repurchased the notes from these nominee accounts into LatAm's trading account at dramatically increased prices, resulting in windfall profits to Neves, Luna, and the others who controlled the nominee accounts. Finally, Neves and Luna marked up the prices of the structured notes again, and arranged for the Brazilian Funds or, in one instance, the Colombian institutional investor, to purchase the notes at prices as much as 67 percent over the prices at which the banks had issued them.

"In four other transactions between November 2006 and May 2007, Neves and Luna improperly boosted the prices of the structured notes by selling them to the Brazilian funds at excessive markups up to 36 percent more than the prices at which the banks had issued the notes that same day.

"As a result of the defendants' markup scheme, the Brazilian funds paid a total of approximately $24 million in undisclosed, excessive fees and the Colombian institutional investor paid more than $12 million in undisclosed, excessive fees."

Luna agreed to disgorge $923,705 plus $241,644 in interest and a penalty to be determined, the SEC said in a statement. As is customary with the SEC, Luna did not admit anything.

The SEC seeks disgorgement and penalties from Neves.

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