Securities Industry Commentator by Bill Singer Esq

January 23, 2018

Operator of Investment Scheme Involving Seniors Pleads Guilty (SEC Litigation Release 24029)
Defendant Daniel H. Glick pled guilty to one count of wire fraud under in United States v. Daniel Glick (United States District Court for the Northern District of Illinois, No. 17-CR-739. Also see, FULL TEXT SEC Glick Complaint
As set forth in part in the SEC Litigation Release:

According to the plea agreement, from at least 2011 through at least 2017, Glick engaged in a fraudulent scheme to benefit himself to the financial detriment of his clients and two financial institutions. According to the plea agreement, as part of the scheme, Glick misappropriated at least $5.2 million dollars from clients, provided financial institutions with forged checks and other documents, and lied to clients about the use, status, and safety of their invested funds. The plea agreement further states that most of the funds that Glick misappropriated belonged to elderly clients, including his mother-in-law and father-in-law and an individual in a nursing home, and that Glick used some of the stolen funds to pay personal and business expenses.

On March 23, 2017, the SEC brought an emergency action against Glick and his unregistered, Chicago-Based investment advisory firm, Financial Management Strategies (FMS), based on substantially the same conduct. In its complaint, the SEC alleges that Daniel H. Glick and FMS provided clients with false account statements to hide Glick's use of client funds to, among other things, pay personal and business expenses, purchase a Mercedes-Benz, and pay off loans and debts. The SEC's action also named three relief defendants, including Glick's accounting firm, Glick Accounting Services. . .

SEC Charges State-Registered Investment Adviser, CEO, and Former COO with Offering Fraud (SEC Litigation Release No. 24031)
In Securities and Exchange Commission v. Hoplon Financial Group et al. (C.D. Cal., 18-CV-00047,  January 12, 2018), Hoplon Financial Group and its CEO, Daniel B. Vazquez, Sr.,Hoplon are charged with violations of Section 17(a) of the Securities Act of 1933 and Sections 10(b) and 15(a) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder. Former Hoplon Financial Group COO Gilbert Fluetsch is charged with violations of Section 17(a) of the Securities Act, and with aiding and abetting Hoplon and Vazquez's violations of Section 10(b) of the Exchange Act and Rule 10b-5 thereunder. READ the FULL TEXT Complaint.
As set forth in part in the SEC Litigation Release:

According to the SEC's complaint, Hoplon Financial Group and its CEO, Daniel B. Vazquez, Sr., created the New Economic Opportunities Fund I, LLC vehicle for the ostensible purpose of pooling investor funds to purchase and flip residential real estate properties. The complaint alleges that between 2011 and 2014, Hoplon and Vazquez sold membership units in the fund, raising $2.18 million from 27 investors, primarily from investors' individual retirement account funds, based on misrepresentations about how much compensation they would take. The complaint further alleges that virtually from the outset of the offering, Hoplon and Vazquez, with the assistance of Hoplon's then-COO Gilbert Fluetsch, misused most of the funds to pay unrelated business or personal expenses, including approximately $780,000 that was misappropriated since January 2013. In addition, the complaint alleges that, by promoting and selling these securities, Hoplon and Vazquez-a state-registered investment adviser and registered representative of a broker-dealer, respectively, at the time of the alleged misconduct-violated federal broker-dealer registration provisions.

Six Accountants Charged with Using Leaked Confidential PCAOB Data in Quest to Improve Inspection Results for KPMG (SEC Press Release 2018-6)
The Securities and Exchange Commission charged six certified public accountants among which were former staffers at the Public Company Accounting Oversight Board (PCAOB) and former senior officials at KPMG LLP, with making unauthorized disclosures of PCAOB plans for inspections of KPMG audits from 2015 through February 2017, thus allowing the former KPMG partners to analyze and revise audit workpapers in an effort to avoid negative findings by the PCAOB.  The U.S. Attorney's Office for the Southern District of New York announced criminal charges against the six accountants in a parallel action. As set forth in part in the SEC Press Release:

[W]hile preparing to leave his supervisory position at the PCAOB for a job at KPMG, Brian Sweet downloaded confidential and sensitive inspection-related materials that he believed might help him at KPMG. KPMG had recruited him to join the firm at a time when it had a high rate of audit deficiencies. Indeed, nearly half of the KPMG audits that the PCAOB inspected in 2013 were found deficient.

After leaving the PCAOB, Sweet allegedly continued to gain access to confidential PCAOB materials through Cynthia Holder, a PCAOB inspector. After Holder joined Sweet at KPMG, a third PCAOB employee, Jeffrey Wada, allegedly leaked confidential information about planned PCAOB inspections of KPMG to Holder. According to the SEC's order, Wada leaked this information while he was seeking employment at KPMG.

The SEC's Enforcement Division and Office of the Chief Accountant allege that upon his arrival at KPMG, Sweet told his supervisors in KPMG's national office that he had taken confidential materials from the PCAOB and revealed, for example, the KPMG audit clients that the PCAOB intended to inspect that year. Allegedly encouraging Sweet to divulge the stolen information to them and others at the firm were his supervisors - David Middendorf, KPMG's then-national managing partner for audit quality and professional practice and Thomas Whittle, KPMG's then-national partner-in-charge for inspections and another high-level partner at the firm, David Britt, KPMG's banking and capital markets group co-leader. The SEC's Enforcement Division and Office of the Chief Accountant allege that Middendorf, Whittle, Sweet, Holder, and Britt worked together to review the audit workpapers for at least seven banks they were told the PCAOB would inspect in an effort to minimize the risk that the PCAOB would find deficiencies in those audits. Middendorf and Whittle allegedly instructed that no one disclose that they had confidential PCAOB information.

Sweet agreed to settle pursuant to a Commission Order requiring that he cease-and-desist from violating PCAOB ethics rules and barring him from appearing or practicing before the Commission as an accountant .


In the Matter of Brian Sweet, CPA, Respondent (Order Instituting Public Administrative and Cease-And-Desist Proceedings, Making Findings, and Imposing Remedial Sanctions; '34 Act Rel. No. 82557; Acct. and Aud. Enf. Rel. No.3919;Admin. Proc. File No. File No. 3-18347 / January 22, 2018)

In the Matter of Cynthia Holder, CPA; Jeffrey Wada,CPA; David Middendorf, CPA; Thomas Whittle, CPA; and David Britt, CPA Respondents (Order Instituting Public Administrative and Cease-And-Desist Proceedings; '34 Act Rel. No. 82556; Acct. and Aud. Enf. Rel. No.3918; Admin. Proc. File No. File No. 3-18346 / January 22, 2018)

Statement on Charges Against Former KPMG and PCAOB Personnel / Jay Clayton 

Jan. 22, 2018

Today, the U.S. Department of Justice and the SEC initiated enforcement actions against six former KPMG LLP and PCAOB personnel related to an alleged misappropriation of confidential PCAOB inspection information. More information relating to allegations can be found in the Orders Instituting Proceedings (Order 1, Order 2) and the accompanying press release. 

The alleged conduct is disturbing, and I support the SEC's enforcement action. Audited financial statements are at the heart of the SEC's disclosure-based regulatory regime: a company's financial statements provide investors with a wealth of material information, and independent audits give investors confidence that those statements can be trusted. The PCAOB is a critical part of the oversight of our local, national, and international capital markets, in that it helps to promote high-quality audits of the financial statements of issuers and broker-dealers, upon which investors rely.

In matters of this type, I am also concerned about potential adverse collateral effects, including on our Main Street investors. Based on discussions with the SEC staff, I do not believe that today's actions against these six individuals will adversely affect the ability of SEC registrants to continue to use audit reports issued by KPMG in filings with the Commission or for investors to rely upon those required reports. I do not expect that these actions will adversely affect the orderly flow of financial information to investors and the U.S. capital markets, including the filing of audited financial statements with the Commission. 

I have asked the SEC staff to monitor this matter closely and to stand ready to work with issuers to ensure that collateral effects, if any, to issuers and, in particular, their shareholders are minimized.  

As to the PCAOB, I understand that when the alleged breaches were first discovered, the Board members and staff at the time took remedial action, including with respect to the PCAOB's internal information technology and security controls. I have asked Chairman Duhnke to review the prior assessment and to take further action, if necessary.   

Registrants and investors who have additional questions or concerns may contact the SEC at 202-551-4120 and

FINRA Arbitrators See No UBS, Citigroup, Or Merrill Customers And Dismiss Case ( Blog)

Some public customers approach a FINRA arbitration against their former brokerage firm and stockbroker as if it's a fairly informal event -- not like going to court and maybe you could even show up in shorts and flip-flops. Other public customers come to FINRA arbitration deadly serious. They ain't takin' no prisoners. They ain't playin' no games. They enter the hearing room with a wheelbarrow filled with documents and intent to answer the bell for the 13th round of a 12 round fight. In today's featured FINRA arbitration we got the deadly-serious version of unhappy Claimants. The Claimants filed a Statement of Claim that is breath-taking in terms of its breadth and depth of charges. As combatants, the Claimants seemed ready to go toe-to-toe in furtherance of their claims. They sort of entered the ring and met in the middle of the mat where the ref told them not to hit below the belt and when to go to a neutral corner. And, okay, maybe the contestants even grudgingly banged gloves as a token of respect. Unfortunately, the Claimants never got to that point in the match where the bell rings for the first round. To the surprise of all in attendance, the judges refused to allow the contest to go forward and disqualified the Claimants.