The SEC brought an enforcement action against Keiko Kawamura of Honolulu, Hawaii for fraudulently raising assets from subscribers to a web site and investors in a hedge fund she allegedly managed. The SEC found that she engaged in two separate fraudulent schemes in connection with the purchase and sale of securities, made material misrepresentations and omissions in connection with money she raised directly from investors, and made material misrepresentations and omissions in connection with a website she operated to provide investment advice.
From December 2011 through June 2012, Kawamura offered and sold interests in a self-described hedge fund. The SEC stated that Kawamura told investors that she would pool their funds in a single brokerage account in which Kawamura would invest in stocks and options. Kawamura told investors that she would be compensated by receiving 20% of any profits achieved in the account. In total, Kawamura raised approximately $200,000 from at least seven investors.
Contrary to Kawamura’s representations to investors that she would invest all of the funds she raised in stocks and options, the SEC found that she misappropriated much of the hedge fund’s money to pay for her living expenses and for luxury vacations to Miami and London. Of the approximately $55,000 Kawamura did invest, she pooled the money in one brokerage account and lost it all in highly risky options trades.
The SEC stated that Kawamura also posted screenshots of portions of a brokerage account statement on her Twitter account, which many of her investors followed, that suggested that she was obtaining incredible returns in her own brokerage accounts. In fact, the SEC found that the screenshots reflected particular returns on unusually successful trades and/or trading days from her boyfriend’s brokerage account and were not indicative of the performance of the trading in her account.
In August 2012, Kawamura started a website called kawamurafinancial.com. Kawamura promoted her website primarily through social media, including Twitter and Facebook. Kawamura used the website to provide investment advice to members who paid a monthly fee of between $94.95 and $174.95. The subscription fee varied based on the level of access granted to Kawamura’s website. All subscribers received access to, among other things, a locked Twitter account that Kawamura used to provide recommendations on when to sell or purchase particular stocks and options.
The SEC stated that Kawamura’s website contained numerous material misrepresentations and omissions that she acknowledges were intended to attract subscribers. Kawamura claimed on the site that she had “been in the Investment banking industry for nearly a decade, specializing in Wealth Management for a major Financial Institution.”
According to the SEC, Kawamura also falsely claimed on her site that “Her Personal IRA account is up almost 800% YTD (2012).” In fact, as Kawamura knew at the time she created her website, she lost all of the money in her personal IRA brokerage account over a period of about two months in 2012.
The SEC found that Kawamura also provided all subscribers to her website with access to one-on-one advice over Skype’s instant message service in which she would provide specific recommendations regarding stocks and options to the subscriber. Subscribers that paid $174.95 a month were also provided access to Kawamura’s trades in “real-time.” Kawamura received nearly $50,000 from approximately 70 subscribers to her website.
Click here to access the enforcement action.