In Re Windsor Street Capital: Cease-and-Desist Proceedings against John Telfer and Windsor Street Capital
In In re Windsor Street Capital L.P., S.E.C., No. Admin. Proc. File No. 3-17813, Jan. 25, 2017, the Securities and Exchange Commission (“SEC”) filed an order instituting administrative and cease-and-desist proceedings against John Telfer (“Telfer”) and Windsor Street Capital, L.P. (“Windsor”) (f/k/a Meyers Associates, L.P.) (“Meyers”) (collectively, “Defendants”) for alleged violations of Sections 5(a), 5(c), and 17(a) of the Securities Act of 1933 (“1933 Act”) and Rule 17a-8 thereunder, and Section 15(b) and 21C of the Securities Exchange Act of 1934 (“Exchange Act”).
According to the SEC’s allegations, from January to October 2014, Meyers violated Section 5 of the 1933 Act by engaging in the unregistered sales of hundreds of millions of penny stock shares on behalf of customers Barton and Goode (“Customers”) without first performing a reasonable inquiry of whether the stock sales complied with Section 5. None of the stock sales were registered with the Commission. Meyers accepted all Customers’ representations as true without further inquiry, even though there were multiple red flags. Meyers failed to file suspicious activity reports (“SARs”) regarding the suspicious penny stock sale transactions, as required by the Bank Secrecy Act of 1970 (“BSA”), which resulted in proceeds of at least $24.8 million. Meyers earned at least $613,000 in commissions and fees for the suspicious, illegal penny-stock transactions. The SEC alleged Meyers willfully violated Section 5(a) and 5(c) of the 1933 Act, and Section 17(a) of the Exchange Act and Rule 17a-8.
Respondent Telfer, according to the allegations, became associated with Meyers in September 2013, and served as Meyer’s chief compliance officer (“CPO”) and anti-money laundering (“AML”) officer from November 2013 until his separation from the firm in September 2016. The SEC alleged that Telfer failed to monitor customer transactions and failed to file SARs, which caused Meyers’ violations of Section 17(a) of the Exchange Act and Rule 17a-8 thereunder.
Regulations adopted under the BSA require broker-dealers to file SARs with FinCEN when transactions involve funds or other assets of at least $5,000, and the broker-dealer knows, suspects, or has reason to suspect that the transaction “involves funds derived from illegal activity or is intended or conducted in order to hide or disguise funds or assets derived from illegal activities . . . as part of a plan to violate or evade any Federal law or regulation or to avoid any transaction reporting requirement under Federal law or regulation.” The Exchange Act Rule 17a-8 requires broker-dealers to comply with the SAR rule. Rule 144, safe harbor, exempts stock sales from Section 5 if the customer is not affiliated with the issuer, held the stock for more than a year, and the issuer is not a shell company.
In light of the SEC’s investigation and allegations, the SEC deemed it appropriate in the public interest to begin public administrative and cease-and-desist proceedings to determine the validity of the allegations, and to determine if any remedial action would be appropriate, including but not limited to disgorgement and civil penalty. The SEC ordered a public hearing before an Administrative Law Judge to take evidence, and ordered Defendants to file an answer to the allegations contained in the order.
The primary materials for this case may be found on DU Corporate Governance website.