Securities Industry Commentator by Bill Singer Esq

February 21, 2018

Recommendation to FINRA Regarding Arbitration Procedures Relating to Expungement (Securities and Exchange Commission Office of the Investor Advocate, Letter to  FINRA dated February 15, 2018)
The Office of the Investor Advocate commented on FINRA Regulatory Notice 17-42 concerning the proposed  changes involving broker-dealer information contained in the online Central Registration Depository ("CRD").  OIA believes that FINRA's existing expungement framework "needs substantive improvements and additional regulatory input in order to better 
serve the interests of retail investors." Further, OIA admonishes that "FINRA should consider ways that its rules may discourage brokers from sidestepping its dispute resolution forum by filing requests for expungement directly with a court. "As set forth in the Letter's "Conclusion:"

While we commend FINRA for proposing procedural changes that should benefit retail investors, we are concerned that the proposal could incentivize brokers to avoid the Rule 2080 expungement process entirely and instead file requests for expungement directly with the courts. We encourage FINRA to consider how to best mitigate this risk and limit the circumstances where a broker can circumvent the Rule 2080 process. We are also concerned that arbitrators, as non-regulator third-parties, will not understand the regulatory terms "investor protection" and "regulatory value" as terms of art. We encourage FINRA to provide greater clarity with respect to these terms and develop a framework to guide how these terms should be interpreted and applied by arbitrators. On the whole, however, we are largely supportive of the proposed procedural changes contained in the Notice and we wish to see FINRA, after reviewing all the comments and consulting with NASAA, move quickly in seeking Commission approval for these rules. 

United States of America v. Alex van der Zwaan, Defendant (1:18-CR-31, District of Columbia). Defendant van der Zwaan pleaded guilty on Feb. 20, 2018, to making false statements to FBI agents, in violation of 18 U.S.C. 1001. READ the Full-Text: 

As set forth in part the "Statement of the Offense":

1. At all relevant times herein, the Special Counsel's Office had an open investigation into Paul J. Manafort, Jr. and Richard W. Gates III in connection with, among other things, their work in the United States on behalf of foreign principals as to which they had not registered under the Foreign Agents Registration Act (FARA). The investigation encompassed United States lobbying and public relations work on behalf of the Ukraine Ministry of Justice in 2012, including the dissemination to the United States media and others of a report written by an international law firm (Law Firm A) concerning the trial of Yulia Tymoshenko (the Report). On October 27, 2017, arising in part from this investigation, a Grand Jury indicted Manafort and Gates, among other things, for acting as unregistered agents of a foreign principal in violation of FARA, 22 U.S.C. §§ 615 and 618(a)(l). The indictment was unsealed on October 30,2017. 

2. The defendant, ALEX VAN DER ZWAAN, was an English lawyer associated with Law Firm A. He had worked on the Report. 

3. On November 3, 2017, in Washington, D.C., VAN DER ZWAAN was interviewed by the Special Counsel's Office, including Department of Justice prosecutors and Special Agents of the Federal Bureau of Investigation. He was represented by counsel. He was warned that intentionally false statements to the Office could subject him to criminal charges. He indicated that he understood. 

4. VAN DER ZWAAN thereafter made materially false statements during the interview. 

5. During the November 3, 2017, interview, VAN DER ZWAAN knowingly and intentionally falsely stated the following: 

a. his last communication with Gates was in mid-August 2016, which consisted of an innocuous text message; 

b. his last communication with a longtime business associate of Manafort and Gates in Ukraine (Person A) was in 2014, when he talked with Person A about Person A's family; and 

c. he did not know why Law Firm A had not produced to the Special Counsel's Office a September 2016 e-mail between him and Person A. 

6. In truth and in fact, VAN DER ZW AAN well knew and believed the following facts, when he made each of the above statements: 

a. In or about September 2016, VAN DER ZWAAN spoke with both Gates and Person A regarding the Report. In early September 2016, Gates called VAN DER ZWAAN and told him to contact Person A. After the 2 call, Gates sent VAN DER ZWAAN documents including a preliminary criminal complaint in Ukraine via an electronic application called Viber. VAN DER ZWAAN then called Person A and discussed in Russian that formal criminal charges might be brought against a former Ukrainian Minister of Justice, Law Firm A, and Manafort. VAN DER ZWAAN recorded the call. VAN DER ZWAAN then called the senior partner on the Report at Law Firm A and partially recorded that call. Finally, VAN DER ZWAAN called Gates and recorded the call. VAN DER ZWAAN also took notes of the calls. 

b. Prior to the November 3, 2017, interview, VAN DER ZWAAN did not produce to Law Firm A and deleted and otherwise did not produce emails he possessed that he understood had been requested by either the Special Counsel's Office or Law Firm A, or both, including an email in Russian . dated September 12, 2016 in which Person A asked VAN DER ZWAAN to contact Person A and to use an encrypted application. 

7. During the November 3, 2017, interview, VAN DER ZWAAN stated that he played a passive role in the roll out of the Report, limited to defending the Report to ensure Law Firm A's work was properly portrayed. However, in or about late July-early August 2012, VAN DER ZWAAN gave, without authorization, an advance draft of the Report to the public relations firm retained by the Ukraine Ministry of Justice to manage the global press and lobbying strategy for the Report, and in September 2012 provided Gates talking points for use in the public relations campaign as to how to describe the Report in ways favorable to the client. For instance, VAN DER ZWAAN advised that the text of the Report could be used to Ukraine's advantage if 3 one looked beyond the Report's description of "procedural" infractions in Tymoshenko's trial and focused instead on the fact that her defense was weak.

Customer Appeals Wells Fargo Arbitration Loss To Federal Court ( Blog)
When it comes to issuing arbitration decisions, the Financial Industry Regulatory Authority plays hide and seek. In today's featured FINRA public customer arbitration, there is not so much as one word of explanation about who the Claimant is, the capacity in which she sued Wells Fargo Advisors, or the underlying facts in dispute. The FINRA Arbitration Decision gives us the parties' names, provides the legalese names of the claims, and lets us know how many dollars in damages were sought but that's it. Who allegedly did what to whom? What transaction(s) were in dispute? When and where did various acts occur? Well . . . FINRA ain't tellin'. You think that Blog's publisher Bill Singer is making all that up? Take Bill's challenge and read the FINRA Arbitration Decision for yourself -- and then call him and apologize for doubting his word.

SEC Obtains Bars and Suspensions Against Individuals and Accounting Firm in Shell Factory Scheme  (SEC Press Release 2018-21)

In a Complaint filed in the United States District Court for the Eastern District of New York, the Securities and Exchange Commission alleged that  Israeli residents Sharone Perlstein, Aric Swartz, and Hadas Yaron created at least 15 shell companies by filing false and misleading registration statements and periodic reports with the SEC, creating phony business plans, and appointing nominal officers and directors, who also acted as straw-man shareholders for the shell companies.  In a separate  Complaint filed in the United States District Court for the District of Columbia, The SEC alleged that attorney Jonathan Strum assisted in drafting false and misleading registration statements and periodic reports and signed fraudulent opinion letters; that CPA Alan Weinberg and his Baltimore-based accounting firm Weinberg & Baer LLC, issued misleading audit reports for at least seven of the shell companies.  Without admitting or denying the charges, the defendants agreed to the entry of permanent injunctions, disgorgement, and prejudgment interest totaling $1,656,121.18 for Perlstein; $307,510.15 for Swartz; $106,146.64 for Yaron; $62,899.82 for Weinberg and Weinberg & Baer, jointly and severally; and $33,610.89 for Strum.  Perlstein, Swartz, and Yaron have also agreed to the entry of pennystock bars.  Subject to court approval of the settlements, Weinberg and Weinberg & Baer have also consented to be suspended from appearing and practicing before the SEC as accountants, and Swartz and Strum have consented to the entry of orders suspending them from appearing and practicing before the SEC as attorneys. Also, he SEC also instituted settled administrative proceedings against accountant Simcha Baer for failing to properly perform and document various engagement quality reviews for audits and interim reviews, and repeatedly back-dating and falsifying documentation subsequently produced to SEC staff.   Without admitting or denying the findings of the SEC's order, Baer consented to be permanently barred from appearing and practicing before the SEC as an accountant. READ the FULL TEXT:

FINRA Warns Investors of 'Regulator' Imposter Scams / Con Artists Posing as FINRA CEO ‘Guarantee' Fraudulent Investments (FINRA News Release) FINRA issued an Investor Alert warning investors that fraudsters had used FINRA's name and logo in correspondence, including a fake signature from FINRA President and Chief Executive Officer Robert W. Cook, to create the false impression that FINRA provided guarantees related to an investment opportunity that was, in fact, an advance-fee scam. READ the FULL TEXT FINRA Investor Alert:

Syracuse Man Pleads Guilty To Threatening Death Against A New York Congressman And His Family (DOJ Press Release)
Patrick D. Angelo, 28, of Syracuse, NY, pleaded guilty to interstate communication of a threat by voicemail against New York Congressman John Katko and his family. Angelo faces a maximum penalty of five years in prison, a $250,000 fine, or both.  As set forth in part in the DOJ Press Release:

The message stated: "Listen Mr. Katko, if you support net neutrality, I will support you. But if you don't support net neutrality, I will find you and your family and I will kill. . . you. . . all. Do you understand?" The message continued: "I will literally find all. . . of. . . you and your progeny and t- just wipe you from the face of the earth. Net neutrality is more important than the defense of the United States. Net neutrality is more important than free speech. Net neutrality is more important than health care. Net neutrality is literally the basis of the new society. That even if you don't understand, how important it is, net neutrality is literally the basis of the new. . . free . . . society. So if you don't support it, I am willing to lay down my li- (recording ends)."