Securities Industry Commentator by Bill Singer Esq WEEK IN REVIEW

February 24, 2018

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

In today's Securities Industry Commentator feed:

U.S. v. Paul J. Manafort, Jr., and Richard W. Gates III (Indictment, 1:18-CR-83, Eastern District of Virginia) Paul J. Manafort, Jr., and Richard W. Gates III, were indicted in a Superseding Indictment in the United States District Court for the Eastern District of Virginia on 16 counts related to false individual income tax returns, 7 counts of failure to file reports of foreign bank and financial accounts, 5 counts of bank fraud conspiracy, and 4 counts of bank fraud. READ the FULL TEXT SUPERSEDING INDICTMENT

Federal prisoner sentenced for running a taxi service for escaped inmates (DOJ Press Release) Okay, I gotta admit it. That headline grabbed me. In May 2013, Deldrick D. Jackson was convicted in federal court of conspiring to distribute cocaine and conspiring to launder money, and sentenced to 10 years, eight month sentence. From July 2016 to April 2017, he was incarcerated at the medium-security United States Penitentiary in Atlanta, Georgia, where he was visited by his fiancée Kelly M. Bass. Jackson pleaded guilty to conspiracy to escape from custody and to escape from custody and was sentenced to serve an additional one year, six months in prison. Bass pleaded guilty to conspiratorial and substantive escape charges and was sentenced to six months in prison followed by eight months of home confinement. So . . . what the hell was with the tax and contraband services and the whole custody thing? From approximately November 2016 to April 2017, Jackson and Bass provided escaped inmates with transportation from USP Atlanta to nearby restaurants, hotels, or residences. No . . . I'm not making that up. Read the DOJ Press Release for details.

Scottrade Customer Margin Case Tossed During Discovery ( Blog) In today's Blog, we come upon yet another FINRA arbitration involving a public customer who represented himself. The case involves what appears to be the familiar flashpoint of a customer's purported attempt to timely satisfy a margin call before a sell-out By the time the customer enters into the Discovery phase of his lawsuit against FINRA member firm Scottrade, you get the sense that he is a seething cauldron of rage. Enraged pro se litigants don't tend to do well.  This case proved to be no exception.

Hawaii Man Arrested For Decade-Long Scheme To Defraud Banks And Investment Firms / Lawrence H. Wolf, a/k/a "Larry," Allegedly Obtained and Spent More Than $12 Million in Victim Funds by Falsely Claiming Ownership Over Valuable Oil and Gas Assets (DOJ Press Release) Lawrence H. Wolf a/k/a "Larry" was charged in a federal Complaint with one count each of wire fraud affecting financial institutions and aggravated identity theft. READ the FULL TEXT Complaint.

Justice Department Coordinates Nationwide Elder Fraud Sweep of More Than 250 Defendants (DOJ Press Release) DOJ and various law enforcement partners announced what is characterized as the "largest coordinated sweep of elder fraud cases in history.": As set forth in part in the DOJ Press Release, the cases involve over 250 defendants worldwide who victimized over a million Americans, most of whom were elderly.  In total, the charged elder fraud schemes caused losses of more than half a billion dollars.  The fraud schemes involved mass mailing, telemarketing and investment frauds to individual incidences of identity theft and theft by guardians.

Atlanta businessmen convicted of market manipulation and investment fraud (DOJ Press Release) Federal prosecutors alleged that from July 2009 through September 2001, Marc E. Bercoon, William A. Goldstein, and Peter P. Veugeler conspired to manipulate the market for shares of MedCareers Group, Inc., a publicly traded company, and carried out a second investment fraud scheme using a new business corporation that they organized as the bait for investors.  Bercoon and Goldstein were convicted on 12 counts of conspiracy, mail fraud, wire fraud, and securities fraud in connection with the two fraudulent schemes. Veugeler pleaded guilty to conspiracy to commit securities fraud and wire fraud and testified at trial.

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

In today's Securities Industry Commentator feed:

Big Island Capital Fraudster Sentenced To 110 Months In Prison For Million Dollar Ponzi Scheme  (DOJ Press Release) From around December 2014 until May 2017, Jeremy Richard Lundin claimed to conduct "options trading" through his company Big Island Capital while soliciting  over $1 million from at least 51 investors. The raised funds were diverted from options trading and spent on Lundin's and his wife vacations, clothes, vehicles, and boat. Pursuant to his guilty plea to one count each of mail fraud and money laundering in the United States District Court for the District of Minnesota, Lundin was sentenced to 110 months in prison, three years of supervised release, and ordered to pay $969,788.96 in restitution

Daspin Death Star Battles SEC and a Lone ALJ Jedi Knight ( Blog) Let it be known to all who here read these words that Jedi Knight Bill Singer took a knee in the galactic fight and surrendered. In doing so, Jedi Singer offers a nod of admiration to ALJ Grimes who, despite all reason, battles on as the Force awakens . . . or reawakens . . . or rises from a slumber to take a leak or whatever. I mean, just to be clear, I'm fed up with this whole Daspin saga and pretty much gave up following it in December 2015, which is over two years in Earth time or whatever it is in Star Wars time. Truly, my heart goes out to ALJ Grimes and if it's okay with the SEC, like, you know, I'd like to buy Grimes a few rounds of drinks and have a loooooong off-the-record conversation with him.

Securities Trader Indicted In Scheme That Netted Tens Of Millions Of Dollars In Illicit Profits (DOJ Press Release) Joseph Taub was charged in a 13-count indictment filed in the United States District Court for the District of New Jersey. From 2014 to 2016, Taub and others allegedly conspired to manipulate securities prices of numerous public companies by coordinating trading in dozens of brokerage accounts that they secretly controlled. READ the FULL TEXT Indictment.

Operator Of Bitcoin Investment Platform Charged With Perjury And Obstruction Of Justice / Jon E. Montroll Allegedly Lied Repeatedly to SEC Staff During Testimony to Conceal Substantial Customer Losses Due to a Software Exploit (DOJ Press Release) Jon E. Montroll a/k/a "Ukyo" was named in a Complaint filed in the United States District Court for the Southern District of New York for his alleged giving of false sworn testimony and false documentation to the staff of the New York Regional Office of the Securities Exchange Commission. Montroll purportedly operated the online bitcoin services WeExchange Australia, Pty. Ltd. and, the former of which allegedly functioned as a bitcoin depository and currency exchange service; and the latter allegedly facilitated the purchase and trading of virtual shares of business entities listed on its platform. In November 2013, Montroll allegedly provided sworn testimony to the SEC's New York Regional Office in connection with their investigation into the Exploit and BitFunder's activities. In his testimony, he denied that there had been a successful hack and assured that a software issue had been immediately corrected.

Securities and Exchange Commission Statement and Guidance on Public Company Cybersecurity Disclosures (SEC Release Nos. 33-10459; 34-82746) The SEC published its interpretive guidance to assist public companies in preparing disclosures about cybersecurity risks and incidents. READ the FULL TEXT SEC GUIDANCE.

Supreme Court Narrows Definition of Whistleblower  Digital Realty Trust, Inc. v. Somers (Opinion, United States Supreme Court, No. 16-1276 / February 21, 2018) Real Estate Investment Trust Digital Realty Trust, Inc. employed Paul Somers as a Vice President from 2010 to 2014.  Somers alleged that shortly after he reported suspected securities-laws violations by the company to its senior management, he was terminated. Somers did not report his suspicions to the Securities and Exchange Commission and did not file an administrative complaint within 180 days after his termination. Somer filed a federal lawsuit in the United States District Court for the Northern District of California alleging, inter alia, a claim of whistleblower retaliation under Dodd-Frank. Digital Realty moved to dismiss that claim, arguing that Somers did not meet the statutory definition of a "whistleblower." The District Court denied the motion in part upon its finding that Somers was not required to have reported his concerns to the Securities and Exchange Commission in order to be deemed a Dodd-Frank "whistleblower." A divided United States Court of Appeals for the Ninth Circuit affirmed. On appeal to the United States Supreme Court, the "Question Presented" was whether the anti-retaliation provision for ''whistleblowers" in the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 extends to individuals who have not reported alleged misconduct to the Securities and Exchange Commission and thus fall outside the Act's definition of a ''whistleblower." Read the Transcript of the Oral Argument. Listen to the Oral. Read Full TEXT Supreme Court 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:

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." READ the FULL TEXT SEC LETTER.

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 Criminal Information; Plea Agreement; and Statement of the Offense.

Public Customer Appeals Wells Fargo Arbitration Loss To Federal Appeals 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 penny stock 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 Complaints and Order.

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 pleaded guilty to interstate communication of a threat by voicemail against New York Congressman John Katko and his family. Angelo threatened to kill Katko and his family if the Congressman did not support Net neutrality. Angelo faces a maximum penalty of five years in prison, a $250,000 fine, or both

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

In today's Securities Industry Commentator feed:

Jury Convicts KC Man of Investment Fraud Scheme (DOJ Press Release) After about two hours of deliberation, a federal jury convicted Ryan Scott Luscombe of three counts of wire fraud, two counts of mail fraud and one count of money laundering in connection with his solicitation of about $483,482 in investments for his business, Five Star Trading Group, Inc. Luscombe had claimed that he would utilize his stock trading expertise to produce exorbitant returns. Luscombe used the funds for on personal expenditures including the purchase of a 2010 BMW 750I and a trip to Bermuda.

SEC Suspends Trading in Three Issuers Claiming Involvement in Cryptocurrency and Blockchain Technology (SEC Litigation Release 2018-20) The SEC issued Trading Suspension Orders based upon allegations that press releases issued by Cherubim Interests Inc. (CHIT), PDX Partners Inc. (PDXP), and Victura Construction Group Inc. (VICT) claimed that those companies had acquired AAA-rated assets from a subsidiary of a private equity investor in cryptocurrency and blockchain technology; and, in the case of CHIT, based upon that's company's announcement about the execution of a financing commitment to launch an initial coin offering. The SEC alleges that the Orders were issued based upon questions about the companies' business operations and the value of their assets, and, CHIT's alleged delinquency in filing annual and quarterly reports. READ the FULL TEXT ORDERS

Pro Se Former Nationwide Employee Wins $1 And CRD Expungement ( Blog) As readers of the Blog know, pro se litigants don't always obtain a great outcome. In some cases, the financial award rendered in favor of or against a self-represented party justified the decision to no incur legal fees. In other cases, self-represented parties could not afford to hire a lawyer and suffered for the lack of counsel. In a recent FINRA intra-industry arbitration, a former associated person sued his former employer firm in an effort to obtain the expungement of disputed language from his Form U5/CRD records. There is no question that this pro se Claimant walked away a winner. There is a question as to whether he should have sued for more.

United States of America, v. Steven Metro, Defendant/Appellant (Opinion, United States Court of Appeals for the Third Circuit, No. 16-3813, February 14, 2018) This appeal involves a New York City law firm's former managing clerk, Steven Metro, who between February 2009 and January 2013, allegedly used his position at the law firm to obtain material nonpublic information concerning thirteen distinct corporate transactions. As set forth in 3Cir's Opinion the District Court's factual findings are insufficient to support the sentence.