Securities Industry Commentator by Bill Singer Esq

January 22, 2018

Michael "The Situation" Sorrentino and His Brother, Marc Sorrentino, Plead Guilty to Tax Crimes (DOJ Press Release)
"The Jersey Shore" television personality Michael "The Situation" Sorrentino pleaded guilty respectively to one count of tax evasion and his brother Marc Sorrentino pleaded guilty to one count of aiding in the preparation of a fraudulent tax return. Michael Sorrentino faces a maximum of five years in prison; and Marc Sorrentino faces three years. Their accountant Gregg Mark pleaded guilty in 2015 to conspiring to defraud the United States with respect to their tax liabilities.  As set forth in Season One, Episode One of the DOJ Press Release

Michael Sorrentino admitted that in tax year 2011, he earned taxable income, including some that was paid in cash, and that he concealed a portion of his income to evade paying the full amount of taxes he owed.  He also made cash deposits into bank accounts in amounts less than $10,000, in an effort to ensure that these deposits would not come to the attention of the IRS.  

Marc Sorrentino admitted that for tax year 2010, he earned taxable income and that he assisted his accountants in preparing his personal tax return by willfully providing them with false information and fraudulently underreporting his income. 

Investment Adviser And Broker Sentenced For Securities Fraud Scheme (DOJ Press Release)
After their conviction following a three-week jury trial in the United States District Court for the Southern District of New York, Christopher Cervino a/k/a "Smitty" was sentenced to one year and one day in prison, and Sheik F. Khan a/k/a "Abida Khan" was sentenced to 53 months in prison for their roles in a securities fraud scheme involving the shares of a publicly traded company called VGTel, Inc. ("VGTL"). Additionally, both Defendants were sentenced to three-years-supervised-release, and Cervino ordered to forfeit $35,000, and Kahn ordered to forfeit $290,787. As set forth in part in the DOJ Press Release

The securities fraud scheme was conceived and led by Edward Durante, a recidivist securities fraud defendant, who pled guilty in August 2016 to various crimes related to the scheme, including conspiracy, securities fraud, money laundering, and perjury.  As part of the scheme, Durante, CERVINO, KHAN, and others conspired to control and manipulate the public stock of VGTL in order to artificially inflate the stock price and trading volume so as to profit from sales of VGTL stock and to further induce investments in private shares of VGTL.  

Durante, through entities he controlled, held a majority of the publicly traded stock of VGTL.  Durante recruited CERVINO, a broker, to open brokerage accounts associated with Durante-controlled entities and investors who were clients of KHAN, an investment adviser.  Many of KHAN's clients had no idea that KHAN and Durante had opened accounts on their behalf with CERVINO.  KHAN, along with Durante, then induced her clients to purchase VGTL stock through CERVINO - sometimes without the clients' knowledge or permission - while Durante and CERVINO ensured that many of these purchases were matched with sales of VGTL stock by Durante-controlled accounts.  The reality of these transactions was that Durante and his co-conspirators were effectively taking both sides of a single transaction in VGTL stock in order to artificially control VGTL's stock price.  The defendants' efforts to artificially inflate the market for VGTL increased the stock price from approximately $.25 per share to as much as $1.90 during the course of the scheme, and dramatically inflated the trading volume, which increased the defendants' abilities to raise private investments in VGTL and to unload Durante-controlled shares at artificially high prices at the expense of victim investors.  To compensate CERVINO for his efforts to control and manipulate the market in VGTL, Durante made at least two cash payments to CERVINO totaling $35,000, in addition to the substantial commissions CERVINO received for executing trades in VGTL.  For her part, KHAN received more than $400,000 from Durante, including more than $100,000 in payments for liquidating her clients' investments in safe annuities so that the money could then be invested into VGTL.  In total, CERVINO purchased more than $3.5 million of VGTL shares in client accounts controlled by KHAN and/or Durante.  The VGTL shares were ultimately worthless and clients lost the entirety of their investments.

FINRA Sanctions Charitable Remainder Trust Pitch ( Blog)
In today's Blog, our publisher Bill Singer, Esq. analyzes an excellent FINRA AWC involving the promotion of a charitable remainder trust by a registered rep. Bill applauds FINRA's well-written settlement and finds the self-regulator's rationale compelling. On top of that, the imposed fine and suspension seem balanced and fair. The regulator did a superb job in presenting its case. The Respondent's lawyer did a superb job in negotiating a reasonable package of sanctions. Unfortunately, there's a voluntary Corrective Action Statement appended to the published AWC and as Blog readers know, Bill doesn't like these after-thoughts -- not one bit.
CFTC filed a civil enforcement action in the United States District Court for the Eastern District of New York against Defendants Dillon Michael Dean and his company The Entrepreneurs Headquarters Limited, a UK-registered company. The CFTC Complaint charges the Defendants with engaging in a fraudulent Bitcoin scheme that misrepresented that customers' funds would be pooled and invested in products including binary options. CFTC alleges that Defendants made Ponzi-style payments to commodity pool participants from other participants' funds. Allegedly, after misappropriating over $1 million, Defendants stopped making payments to their customers and Dean has purportedly launched another similar trading venture under the name Real Trade Profits, using a website to solicit customers to deposit Bitcoin for a pooled investment in binary options trading and promising high rates of return.

CFTC Charges Patrick K. McDonnell and His Company CabbageTech, Corp. d/b/a Coin Drop Markets with Engaging in Fraudulent Virtual Currency Scheme (CFTC Press Release pr7675-18)
CFTC filed a federal civil enforcement action in the United States District Court for the Eastern District of New York against Defendants Patrick K. McDonnell and CabbageTech, Corp. d/b/a Coin Drop Markets (CDM) charging them with fraud and misappropriation in connection with purchases and trading of Bitcoin and Litecoin. The CFTC Complaint asserts that although Defendants represented that they would provide real-time virtual currency trading advice and for virtual currency purchasing and trading on behalf of the customers under McDonnell's direction, in fact, those representations were false and the customers' funds were misappropriated. CFTC alleges that in an effort conceal their scheme, soon after obtaining customer funds, Defendants removed their website and social media materials from the Internet and ceased communicating with CDM Customers, who lost most if not all of their invested funds.