Securities Industry Commentator by Bill Singer ESQ

January 15, 2018

Mobile Phone Industry Executive Sentenced In Manhattan Federal Court To 5 Years In Prison For Role In Multimillion-Dollar Consumer Fraud Scheme (DOJ Press Release)

Following a three-week federal criminal jury trial, Fraser Thompson, former Senior Vice President of Strategic Operations at Mobile Messenger was convicted and sentenced today to five years in prison and three years of supervised release, and ordered to forfeit $1,552,114.56. for his participation in a fraudulent scheme to charge mobile phone customers over $100 million dollars in monthly fees for unsolicited, recurring text messages without the customers' knowledge or consent - a practice known as "auto-subscribing."  As set forth in part in the DOJ Press Release:

[I]n the relevant time period, mobile aggregators like Mobile Messenger compiled, or "aggregated," charges for premium text messaging services - such as monthly horoscopes, celebrity gossip, and trivia facts - on consumers' mobile phone bills.  Between 2011 and 2013, THOMPSON and others engaged in a massive scheme to defraud ordinary consumers by placing unauthorized charges for premium text messaging services on their cell phone bills, through a practice known as auto-subscribing.

The auto-subscribing scheme essentially involved two main players in the cell phone industry: mobile aggregators, such as Mobile Messenger, and content providers, which sent consumers the unwanted text messages that ultimately resulted in them being billed for services they had not authorized.  Mobile Messenger worked with four different content providers in the scheme, each of which were essential to the scheme's success.  THOMPSON participated in auto-subscribing through two of those content providers, CF Enterprises and DigiMobi, which were operated by one of THOMPSON's co-conspirators, Eugeni Tsvetnenko, a/k/a "Zhenya." 

The plan to auto-subscribe with Tsvetnenko came about in early 2012, in connection with discussions between THOMPSON and three other Mobile Messenger executives, co-conspirators Darcy Wedd, Erdolo Eromo, and Michael Pajaczkowki, a/k/a "Paj," about how to increase revenue at Mobile Messenger in the wake of the decreasing profitability of premium text messaging services.  Tsvetnenko had been kicked off Mobile Messenger's aggregation platform in the past due to suspicious subscribing practices, including past incidents of auto-subscribing.  Nevertheless, in early 2012, THOMPSON, Wedd, Eromo, and Pajaczkowski agreed to allow Tsvetnenko to establish two new content providers, CF Enterprises and DigiMobi, to conduct a scheme to auto-subscribe on Mobile Messenger's aggregation platform. 

THOMPSON, Wedd, Eromo, and Pajaczkowski agreed to a revenue split with Tsvetnenko, pursuant to which Tsvetnenko would keep approximately 70% of the auto-subscribing proceeds generated by CF Enterprises and DigiMobi, and the remaining 30% of the auto-subscribing proceeds would be divided evenly among THOMPSON, Wedd, Eromo, and Pajaczkowski.  THOMPSON, Wedd, Eromo, and Pajaczkowski also devised a method of receiving and distributing the auto-subscribing money through multiple layers of shell companies, in an effort to conceal the nature and purpose of the money.  These auto-subscribing activities with Tsvetnenko, which began in approximately April of 2012, and continued into 2013, resulted in hundreds of thousands of mobile phone users being auto-subscribed through Mobile Messenger.  THOMPSON, moreover, personally received over $1.5 million in fraud proceeds as a result of his participation in the illegal scheme.

In the Matter of Michael W. Crow, Alexandre S. Clug, Aurum Mining, LLC, PanAm Terra, Inc., and The Corsair Group, Inc. (Order Regarding Inability to Pay Evidence, United States Securities and Exchange Commission, File No. 3-16318; Admin. Proc. Rul. Release No. 5456 / January 12, 2018)
SEC Administrative Law Judge Patil had previously found at a hearing that Respondent Clug had "convincingly demonstrated his inability to pay disgorgement or a civil penalty," and, accordingly, the ALJ discounted the amount of disgorgement and did not impose a civil penalty on Clug. The Commission remanded for reconsideration at which time the Division of Enforcement submitted evidence that:

[A]fter Clug's testimony about his financial condition but before I issued my initial decision, Clug and his wife purchased a home in a cash transaction. This asset was not disclosed in Clug's financial statement, and Clug did not update his financial statement before I issued the initial decision or while the proceeding was before the Commission on appeal.

Having found good cause to reconsider his prior findings, ALJ Patil gave Clug until February 12, 2018, to respond and to update his Form DA disclosure of assets. Pointedly, the ALJ ordered that:

Clug's response should also include any other evidence relevant to his inability to pay defense and should explain why he did not include the house or the funds used to purchase it in his original financial disclosures. . .

BrokeAndBroker.Com Blog By Bill Singer Esq WEEK IN REVIEW

A Hard Rainmaker Gonna Fall At FINRA ( Blog)
Paperwork. On Wall Street when it comes to compliance and regulation, it often comes down to paperwork -- or whatever passes for that now-quaint term in this digital age. You got to collect information. You got to review information. You got to store information. You got to produce information when a regulator wants to see that you collected, reviewed, and stored. Sometimes you just never got around to writing stuff down; and sometimes, well, just between us, you figured it was a waste of time and who the hell is ever going to need to see this crap anyway -- which, as such logic goes, doesn't quite help you out of the fix you're now in because someone from FINRA or the SEC is sitting in the conference room going through boxes of paperwork and that one damn thing that you didn't collect, review, and store is what those regulators are now asking to see. READ

FINRA Arbitrators Award $140,000 In Employee Defamation Case( Blog)

An industry veteran takes on her former FINRA member firm in an effort to clear her name. She put on quite the battle and is not only to be complimented for waging the good fight but also for coming away from the fray with a nice chunk of change. For those who say that you can't beat your former employer, consider today's featured FINRA intra-industry arbitration.READ

I Can't See Clearly (And Convincing) Now In Morgan Stanley FINRA Arbitration ( Blog)
Umm . . . someone . . . anyone . . . puhlease . . . I'm not askin' for much . . . not a whole lot . . . but, you know, like tell me just what the hell this FINRA public customer arbitration is about? I'm not blaming the parties but I'm sorta wonderin' if FINRA couldn't have, you know, read through a draft of the proposed FINRA Arbitration Decision and, well, okay, like maybe asked for a tad more content and context as in, well, like, how should I put it, like, just what the hell is it that the Claimants alleged had happened at Morgan Stanley Smith Barney concerning, lemme see, oh yeah, concerning their "purchase of call options in Apple, Inc. stock." Maybe it's all that expensive law school training that I paid for or maybe it's that I'm a demanding pain in the ass who's never satisfied but, whatever, is it asking all that much to simply get the facts? Who purchased the Apple calls and why did the customers complain about the purchase and how did that purchase result in something shy of $3 million in losses? How's that Johnny Nash song go?

I can't see clearly now, the rain is here,

I can't see all the obstacles in my way

Here are the dark clouds that have me blind

It's gonna be a dark (dark), dark (dark)

FINRA Arbitration day.

Rep Emails Self 1,300 Account Numbers And FINRA Comes A Knockin' ( Blog)
We are nearing that time of year when folks get happy feet and consider moving on to another employer. Some of that is prompted by disappointment with the size of a holiday bonus or the failure to win the promised promotion. Other motivations are a growing unhappiness with an organization's loss of direction and the sense that another year went by without improvement. Whatever has lit a fire under you, please keep in mind that you can't simply do a data dump from your employer's platform to your email or thumb drive. There's whatever is left of the Broker Protocol that may govern some of your freedom of choice; and then there's Reg S-P.READ

Who Owns The Customer? Open Letter To FINRA Board From Bill Singer Esq ( Blog)

The Broker Protocol is a self-serving agreement negotiated among  employers/management and imposed without benefit of bargaining upon employees/labor and foisted upon equally disenfranchised public investors. There is no place for such fiat within self-regulation --- except, you know, the FINRA Board of Governors sat in silence as its large member firms sliced and diced control of public customers among themselves and then forced the convention upon their employees, smaller firms, and customers. Now, as that private agreement dissolves, the Board again gives silent assent. In resolving "who owns the customer," FINRA's role is not that of a combatant but as the protector of the public investor and the industry. As members of the Board of Governors, your role is to act when your intervention is necessary, and this is such a moment in time. For once, assert your independence and protect the public and the industry. No one is asking you take sides. Embrace the task of corporate governance and do your job. READ