Securities Industry Commentator by Bill Singer Esq WEEK IN REVIEW

February 17, 2018

BREAKING NEWSU.S. v. Internet Research Agency, et al (Indictment, 18-CR-32, United States District Court for the District of Columbia) READ the FULL TEXT Indictment alleging that 13 Russian nationals and 3 Russian entities accused interfered with U.S. elections and political processes.

Securities Industry Commentator: A legal, regulatory, and compliance feed curated by veteran Wall Street lawyer Bill Singer 

In today's Securities Industry Commentator feed:

Baton Rouge-Based Investment Adviser To Be Barred and Firm Registration To Be Revoked For Hiding Losses From Investors (SEC Litigation Release 24050) In Securities and Exchange Commission v. Commonwealth Advisors, Inc. and Walter A. Morales (United States District Court for the Middle District of Louisiana,  No. 3:12-CV-00700 ) a final judgment was entered against hedge fund manager Walter A. Morales and Commonwealth Advisors Inc. In part, the judgment ordered Morales to pay a $130,000 penalty. Separately, Morales and Commonwealth agreed to the entry of an SEC Order revoking Commonwealth's registration and barring Morales from associating with an investment adviser with the right to apply for reentry after five years. The litigation was in connection with alleged investment losses involving residential mortgage-backed securities also known as RMBS.

Court Orders Connecticut Hedge Fund Manager and Firms to Pay Nearly $13 Million in SEC Case (SEC Litigation Release No. 24049) In SEC v. Southridge Capital Management LLC, et al., (United States District Court for the District of Connecticut, No. 10-cv-1685), the SEC obtained final judgments against hedge-fund manager Stephen Hicks, and his investment advisory businesses Southridge Capital Management LLC, and Southridge Advisors LLCa Ridgefield, The Defendants were ordered to pay $7,864,064 in disgorgement and prejudgment interest, and Hicks was ordered to pay a $5 million penalty for their illegal diversion of investor money for use by other hedge funds that were illiquid and in need of cash. 

Chicago Trader Facing Federal Fraud Charge for Allegedly Misappropriating $2 Million in Cryptocurrencies (DOJ Press Release) Joseph Kim, a former assistant trader for Consolidated Trading LLC,, was charged in a federal criminal Complaint with one count of wire fraud.  The Complaint alleges that over a two-month period in 2017, Kim concealed his misappropriation of at least $2 million of the firm's Bitcoin and Litecoin cryptocurrency.

Austin Crypto-Investment Firm Signs Compliance Order (Texas State Securities Board Press Release) TSSB entered an Order against Daniel Neves, the CEO of Investors in Crypto LLC, in which he agreed to halt sales unregistered securities in various cryptocurrency trading programs and investment portfolios until  such time as he and his firm register with the Securities Commissioner or qualify for an exemption. READ the FULL TEXT TSSB Order 

30 Months Of Violations Under FINRA's Nose ( Blog) There are times when the Financial Industry Regulatory Authority's regulation of its Wall Street member firms looks a lot like someone reading toe-tags in the morgue. As an exercise in explaining to us how someone died, that's fine. As an exercise in preventing their death, well, you know, it's a tad too little and too late. There are times when we need better written laws, rules, and regulations. There are times when we need more intelligent and savvy folks walkin' the beat. There are times when we need more adept prosecutors. There are times when we need more capable judges. The cohesion of the social contract depends upon the right amount of glue inserted at many points. As a recent FINRA regulatory settlement shows, there are times when self-regulation comes apart at the seams -- even if that failing takes 30 months to happen. The question is whether FINRA should be more proactive. The cynical question is whether FINRA sees its role as a hypocritical toll-taker or as an active partner in self-regulation. 

Manhattan U.S. Attorney Announces Criminal Charges Against U.S. Bancorp For Violations Of The Bank Secrecy Act / Charges to Be Deferred For Two Years Under an Agreement Requiring U.S. Bancorp to Admit Its Conduct and Pay Penalty of $528 Million (DOJ Press Release) Subject to Court approval, the United States Attorney for the Southern District of New York, announced a two-year Deferred Prosecution Agreement whereby the U.S. Bancorp ("USB") accepts responsibility for its conduct, pays a $453 million civil forfeiture and a $75 million scivil money penalty assessed by the Office of the Comptroller of the Currency (the "OCC"), and continues reforms of its Bank Secrecy Act ("BSA") /anti-money laundering program ("AML") compliance program. The matter arises in connection with two alleged felony violations of the USB's subsidiary, U.S. Bank National Association (the "Bank"), the fifth largest bank in the United States, for willfully failing to have an adequate AML program to file a suspicious activity report ("SAR").  READ the FULL TEXT Source Documents. 

"Mutualism: Reimagining the Role of Shareholders in Modern Corporate Governance" (Remarks at Stanford University by SEC Commissioner Kara M. Stein) A thoughtful and provocative speech by SEC Commissioner Stein. In presenting her thought-piece, Commissioner Stein touches upon such flash-points as Cyberthreats, Board Composition, Shareholder Activism, and Dual-Class Capital Structures 

Securities Industry Commentator: A legal, regulatory, and compliance feed curated by veteran Wall Street lawyer Bill Singer 

In today's Securities Industry Commentator feed:

Georgia Prisoner Pleads Guilty to Phone Scam (DOJ Press Release) Calhoun State Prison inmate Jay Byron Wright pled guilty to Conspiracy to Commit Wire Fraud in connection with a scheme involving a cellphone smuggled into the prison. Wright and other prisoners called citizens of Oregon using a cell phone smuggled into their prison, told the Oregonians they were in contempt of court for not showing up for jury duty, and that they owed the court money.

Days Late and Dollars Short For Former Oppenheimer Employee ( Blog) Being a day late and a dollar short happens. Be that as it may, those are not exactly words to live by. In a recent FINRA arbitration, a former Oppenheimer & Co. employee is representing himself against his former firm's demands for repayment of compensation. Rule #1 for handling your own lawsuit is always be on time -- and, of course, show up in court or arbitration with clean underwear. Those first impressions are very important. In today's featured arbitration, the Respondent didn't start off on the right foot.

Former IT Employee of Transcontinental Railroad Sentenced to Prison for Damaging Ex-Employer's Computer Network (DOJ Press Release) After a five-day federal jury trial, former Canadian Pacific Railway IT employee Christopher Victor Grupe was convicted of one count of intentional damage to a protected computer and sentenced to one year and one day in prison. Grupe deleted files, removed administrative-level accounts, and changed passwords on administrative-level accounts, and attempted to conceal his activity by wiping the laptop's hard drive. 

National Consumer Bankruptcy Law Firm Sanctioned for Harming Financially Distressed Consumers and Auto Lenders (DOJ Press Release After a four-day trial in the United States Bankruptcy Court for the Western District of Virginia, a national consumer bankruptcy law firm and its local partner attorneys were found, in part, to have systematically engaged in the unauthorized practice of law, provided inadequate representation to consumer debtor clients, and promoted and participated in a scheme to convert auto lenders' collateral and then misrepresented the nature of that scheme, Robbins v. Delafield et al., (Bankr. W.D. Va., Adv. No. 16-07024, Feb. 12, 2018), and Robbins v. Morgan et al., (Bankr. W.D. Va., Adv. No. 16-05014, Feb. 12, 2018).READ the FULL TEXT Court Memorandum Opinion 

Securities Industry Commentator: A legal, regulatory, and compliance feed curated by veteran Wall Street lawyer Bill Singer 

In today's Securities Industry Commentator feed: 

Chicago Restaurateur Charged with Fraud for Allegedly Swindling Investors in His West Loop Eatery (DOJ Press Release) Chicago restaurateur Attila Gyulai was charged with wire fraud in a federal criminal complaint with misappropriating funds and swindling investors out of at least $300,000. In part, he is charged with using company funds for personal stock trading during the operation of the restaurant.

Gonna Take My Arbitration Problem To The United Nations ( Blog) Most of the time what fascinates me about a lawsuit are the facts in dispute. The whole he-said-she-said thing. Then, as we read about the evidence and testimony, we learn that what was black became white and what was clear became cloudy and what was the irrefutable truth became refutable and a lie. Sometimes it's not about the facts, however, and what entices me to read about a lawsuit is the process. There are cases that quickly come to trial and there are those that meander and digress and ramble. When we find ourselves aboard a detoured lawsuit, the scenery is often entrancing and the little side-trips may take us to lovely settings or dead-ends. Join the Blog caravan as we start out upon the interstate, get re-routed to a highway, take a detour along a county road, and wind up in a cul-de-sac from which we can't turn around

SEC Launches Share Class Selection Disclosure Initiative to Encourage Self-Reporting and the Prompt Return of Funds to Investors (SEC Press Release 2018-15) As set forth in part in the SEC Press Release, the SEC Division of Enforcement announced the issuance of a Share Class Selection Disclosure Initiative. READ the FULL TEXT SEC SCSD Initiative. In part, the SCSD Initiative recommends that Among other things, for eligible advisers that participate in the SCSD Initiative, the Division will settlements may require an adviser to disgorge its ill-gotten gains and pay those amounts to harmed clients, but not impose a civil monetary penalty.

Deutsche Bank to Repay Misled Customers / Firm and Former Head Trader Settle SEC Charges (DOJ Press Release 2018-13) The Securities and Exchange Commission settled an enforcement action against Deutsche Bank Securities Inc., in which the firm agreed to pay $3.7 million to customers, which includes $1.48 million that was ordered as disgorgement. In the Matter of Deutsche Bank Securities, Inc. and Benjamin Solomon, Respondents (Order Instituting Administrative Proceedings, Making Findings, and Imposing Remedial Sanctions; '34 Act Rel.No. 82686; Admin. Proc. File No. 3-18367 / February 12, 2018) READ the Full Text SEC Order. 

Securities Industry Commentator: A legal, regulatory, and compliance feed curated by veteran Wall Street lawyer Bill Singer 

In today's Securities Industry Commentator feed:

Six Individuals Charged in $7 Million International Investment Scam (DOJ Press Release)Uju Okigbo, Chioma Okafor, Marita Ranalan Underwood, John Christian Rutledge, and Osa May Martin were charged in an Indictment in  the United States District Court for the Southern District of Texas with one count of conspiracy to commit wire fraud.  Okigbo and Okafor were also charged with one count of conspiracy to launder monetary instruments, two counts each of wire fraud, and two counts each of concealment money laundering.  Okigbo is also charged with three counts of engaging in transactions with proceeds of specified unlawful activity, and one count of aggravated identity theft for impersonating a U.S. banking executive.  Underwood, Rutledge and Martin are also charged with one count of conspiracy to wrongfully use government seals. Tiffany Sourjohn, was charged by an Information with one count of conspiracy to commit wire fraud and wrongful use of government seals. The charges are in connection with the six defendants' alleged impersonation of Branch Banking & Trust (BB&T) and JPMorgan Chase (Chase) executives, the fabrication of U.S. government documents, the creation of fraudulent investment agreements in the name of BB&T and Chase, and the purchase of luxury vehicles to launder the proceeds of the scheme. The scheme allegedly resulted in losses of more than $7 million from victims in more than 20 countries. 

Emergency Surgery Fails To Remove Margin Call ( Blog) With the roller-coaster of a stock market lately, I suspect that a lot of public customers are going to get hit with margin calls. The complaints often explain that the brokerage firm sold 5,000 shares of XYZ at $12, which the customer had purchased at $11; and that sale was to cover the diminished account value caused by the ABC shares which were purchased at $3 and dropped to 35 cents. The problem is that the next day, XYZ announced that it had developed the cure for cancer and the stock is now worth $1,000 per share but for the fact that the margin sell-out left the unhappy customer with no shares. Okay, that's all a bit over-the-top but if you talk to enough public customers about what happened to them when they got hit with a margin sell-out, their version of events sure as hell sounds pretty similar to my hypothetical. Read a recent FINRA arbitration in which a public customer relates his tale of margin-call woe.

Minnesota Man Sentenced to 65 Months in Federal Prison for Bank Fraud Conspiracy and Aggravated Identity Theft (DOJ Press Release) After pleading guilty to conspiracy to commit bank fraud and aggravated identity theft in connection [with defrauding financial institutions in order to obtain funds to purchase methamphetamine for his use and to distribute to others for money, Jason Maurice Fagin was sentenced to 65 months of custody and 3 years of supervised release, ordered to forfeit personal property and contraband, and to pay restitution and $200 to the Federal Crime Victims Fund. Angelica Marie Hatch-Pequin also pled guilty to the same charges,