Securities Industry Commentator by Bill Singer Esq

December 21, 2017

Two Defendants Plead Guilty in Multimillion Dollar Prize Promotion Scams Targeting Elderly Victims (DOJ Press Release) 
In connection with their roles with two  multi-million dollar prize promotion scams that defrauded many elderly victims out of over $20 million, Glen Burke and Michael Rossi entered guilty pleas in federal court. Previously, Burke had been subject to a 1998 court order in which the Federal Trade Commission had him permanently banned from telemarketing and making misrepresentations to consumers. As set forth in part in harrowing detail in the DOJ Press Release:

Burke pleaded guilty to contempt for violating the court order prohibiting him from making misrepresentations to consumers.  That charge stemmed from Burke running a mass-mailing operation that misled consumers into believing that they had won large cash prizes, often millions of dollars. Burke specifically mailed consumers solicitations that used fake names and, in many cases, looked like they came from law firms or financial institutions, advising consumers to pay a fee - usually $20 to $30 -to claim their promised winnings.  Once consumers paid, however, Burke never sent any consumer a promised prize. 

Burke, along with Rossi, also pleaded guilty to conspiracy to commit mail and wire fraud for running a fraudulent telemarketing operation.  Telemarketers working for Burke and Rossi falsely told victims that they had won one of five valuable prizes, typically: a Chevy Camaro; a Boston Whaler boat; a diamond-and-sapphire bracelet; $3,000 cash; or a cruise that could be exchanged for $2,300.  To claim the prize, consumers were told to pay hundreds, or in some cases thousands, of dollars.  Once they paid, victims received a nearly worthless piece of costume jewelry or nothing at all. 

Former Chief Financial Officer at Publicly Traded Company Charged with Accounting and Securities Fraud Scheme (DOJ Press Release)
Edward J. DiMaria, former chief financial officer for Bankrate Inc., a publicly traded financial services and marketing company, was charged in a federal Indictment with:
  • one count each of:
    • conspiracy to make false statements to a public company's accountants and to falsify a public company's books, records and accounts; 
    • conspiracy to commit securities fraud and wire fraud
    • wire fraud 
    • securities fraud
  • three counts of false statements to a public company's accountants 
  • six counts of false entries in a public company's books, records and accounts; 
READ the FULL TEXT INDICTMENT As set forth in part in the DOJ Press Release:

The indictment alleges that between 2011 and 2014, DiMaria and his co-conspirators carried out a complex scheme to manipulate Bankrate's financial statements and artificially inflate Bankrate's earnings.  According to the indictment, DiMaria and his co-conspirators allegedly engaged in so-called "cookie jar" or "cushion" accounting where over a million dollars in unsupported expense accruals were left on Bankrate's books and then selectively reversed in later quarters to meet earnings goals.  In addition, DiMaria and his co-conspirators allegedly misrepresented certain company expenses as "deal costs" in order to artificially inflate publicly reported adjusted earnings metrics, and made materially false statements to conceal the improper accounting entries from Bankrate's auditors, shareholders and the investing public.  The indictment further alleges that while Mr. DiMaria was misleading Bankrate's auditors and the public about the company's financial condition he realized millions of dollars from selling his own shares of Bankrate stock. 

Arbitrators OK Raymond James Liquidation Of JTWROS Account For Broker Husband's Loan ( Blog)

Today's Blog deals with unanswered questions. We start with a fairly straightforward proposition of Raymond James wanting to be repaid the remaining balance on a loan it made to a former associated person. Fair enough. On the other hand, it seems that Raymond James is holding on for dear life to the former associated person's Joint Tenants With Right of Survivorship account, in which his wife is the other tenant. In filing its lawsuit, Raymond James named the husband as a Respondent and also named the wife as a Respondent. The wife refused to submit to FINRA arbitration. Now what? Can Raymond James essentially seize the assets in the JTWROS to satisfy the husband's debt if the wife is not subject to FINRA arbitration jurisdiction? Also, how come the wife isn't subject to FINRA jurisdiction? READ

In connection with findings that Defendants had engaged in illegal off-exchange precious metals transactions and that the two individuals had also engaged in fraud, the CFTC obtained Consent Orders of Permanent Injunction against Defendants Mintco LLC and its owners Stuart Rubin and Richard Q. Zimmerman. Mintco is ordered to pay a $250,000 civil monetary penalty. Rubin and Zimmerman are each ordered to pay separate $45,000 civil monetary penalties. The three Defendants are prohibited from engaging in illegal, off-exchange precious metals transactions. A three-year trading and permanent registration ban is imposed on Rubin. In the event that Zimmerman seeks to become a CFTC-registered principal, he is required to provide pre-review promotional materials to the National Futures Association. The Orders also permanently prohibit the three Defendants from engaging in illegal, off-exchange precious metals transactions. As set forth in part in the CFTC Press Release:

The Consent Orders find that Mintco's customers did not qualify as Eligible Contract Participants (ECPs) and that Mintco did not itself acquire and store any financed metal on behalf of its customers. The Court further found that Mintco never delivered precious metals to any customers with respect to the leveraged metals transactions made on behalf of Mintco's customers. Under the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (Dodd-Frank Act), transactions of this nature are unlawful unless they result in actual delivery of metals within 28 days of the purchase or sale or the customers have sufficient net worth to be considered ECPs. As a result, the Orders find that that the Defendants' precious metals transactions constituted unlawful off-exchange retail commodity transactions. The Mintco Consent Order also finds that Mintco was not registered as a Futures Commission Merchant, as required under the Commodity Exchange Act to offer those transactions.
. . .

The Consent Orders further find that Mintco and Rubin defrauded retail customers by misrepresenting or omitting to disclose material facts to potential or existing retail customers, which included: 1) misrepresenting the nature of the relationship between Mintco and retail customers by stating that Mintco would act in their best interest and as customer's agent or representative; (2) not adequately disclosing the break-even price of investments in precious metal in financed transactions; and (3) omitting to inform customers that in excess of 80% of the retail customers' investments in financed and fully paid stored precious metal failed to appreciate enough during the relevant period to cover the costs associated with the investment and earn a profit.

Bitcoin Promoter USI-Tech Hit With Emergency Order (Texas Securities Board Press Release)
The Texas Securities Board entered an Emergency Cease and Desist Order against USI-Tech Limited, an overseas firm that is promising low-risk, triple-digit returns from investments tied to Bitcoin mining via Craiglist, YouTube, and other Internet activities. READ the FULL TEXT CFTC ORDER As set forth in part in the TSB Press Release:

According to the order, USI-Tech is telling potential investors they can make more money by convincing other individuals to invest in the company's bitcoin platform. Investors can earn "up to 35% commissions" through its "unique referral marketing plan."

USI-Tech is not informing investors of the danger in being paid commissions from referrals. Individuals paid these commissions must either be registered with the State Securities Board or qualify for an exemption from registration.

SEC Obtains Final Judgment Against Investment Adviser, Its Principal and Associate Who Boasted Phony Assets and Track Record (SEC Litigation Release 24018)
In Securities and Exchange Commission v. Matrix Capital Markets, LLC, Nicholas M. Mitsakos and Courtlin L. Holt-Nguyen (SDNY, 16-CV-06395) the SEC charged Defendants with pretending to manage millions of dollars in assets and fabricating a hypothetical portfolio of investments that purportedly earned returns of 20 to 66 percent. According to the SEC's complaint, Mitsakos and Matrix then stole money from the first client who invested with them based on their misrepresentations. SDNY entered final judgments permanently enjoining Matrix, Mitsakos and Holt-Nguyen from further violations and ordered them to pay disgorgement of $861,163.62 plus $57,474.30 prejudgment interest. The court also imposed an officer and director bar against Mitsakos and ordered Holt-Nguyen to pay a $25,000 civil penalty. In separate administrative proceedings, Mitsakos agreed to be barred from the securities industry and from participating in penny stock offerings; Matrix agreed to be censured; Holt-Nguyen agreed to an industry bar with the right to apply for reentry after three years, but which permits him to continue his current employment with an investment adviser, limiting him to providing only information technology and administrative functions.In a parallel criminal action based on the same conduct, Mitsakos was sentenced to a prison term of 30 months and was ordered to pay $861,163.62 in restitution and $861,163.62 in forfeiture.