(SEC Press Release 2018-35) The SEC charged two investment adviser subsidiaries of Voya Holdings Inc. with failing to disclose conflicts of interest and making misleading disclosures in connection with their practice of recalling securities on loan so their affiliates could receive tax benefits. The Voya adviser affiliates agreed to be censured and consented to the entry of the SEC's order finding that they willfully violated Sections 206(2) and 206(4) of the Investment Advisers Act of 1940, and Rule 206(4)-8. Also, the advisers agreed to cease and desist from committing any further violations, and neither admitted nor denied the findings. Finally, they agreed pay about $3.6 million, which includes over $2 million directly to the affected mutual funds for the benefit of their investors. READ the FULL TEXT SEC Order.
In anticipation of the institution of proceedings by the SEC but without admitting or denying the findings, Merrill Lynch, Pierce, Fenner & Smith Incorporated submitted an Offer of Settlement, which the federal regulator accepted. In the Matter of Merrill Lynch, Pierce, Fenner & Smith Incorporated, Respondent (Order Instituting Administrative And Cease-And-Desist Proceedings, Making Findings, And Imposing Remedial Sanctions And A Cease-And-Desist Order; Invest. Adv. Act Rel. No. 4665; Admin. Proc. File No. 3-17879 / March 13, 2017) (the "OIP"). READ the FULL TEXT OIP. Merrill Lynch agreed to be censured, consented to the order requiring it to cease and desist, and agreed to pay a penalty of $1.25 million and more than $154,000 in disgorgement and prejudgment interest from commissions and fees earned on the improper sales. The SEC revoked the registration of Longtop's securities.
Investment Adviser Settles Charges for Cheating Clients in Fraudulent Cherry-Picking Scheme (SEC Press Release 2018-36) For almost three years, Rober Mark Magee, the principal, sole owner, and sole employee of Valor Capital Asset Management LLC, allegedly traded securities in Valor's omnibus account but waited to allocate the trades to client accounts until after the securities' performance changed over the course of the day. Allegdly, Magee disproportionately allocated profitable trades to his accounts and unprofitable trades to his clients' accounts, which resulted in cherry-picked profits for himself at his clients' expense. Without admitting or denying the SEC's findings, Magee and Valor agreed to the entry of a cease-and-desist order and to pay disgorgement, prejudgment interest, and civil penalties totaling $715,871.57. Magee also agreed to be barred from the securities industry. READ the FULL TEXT SEC Order.
Wells Fargo Unpaid Overtime Class Action Gets Second Circuit Nod for AAA Arbitration (BrokeAndBroker.com Blog) In 2015, former Wells Fargo Advisors, LLC entry-level financial advisors Reagan Tucker, Benjamin Dooley, Marvin Glasgold, Livia Sappington, Ewa Kelly, and Patrick LaBorde filed putative class arbitrations before the Financial Industry Regulatory Authority ("FINRA") and the American Arbitration Association ("AAA") seeking unpaid overtime from Wells Fargo pursuant to the Fair Labor Standards Act ("FLSA") and State wage and hour laws. The Employees' employment contract required arbitration under Missouri law. FINRA rejected the actions citing its rules forbidding class and collective arbitrations. Read how the disputes fared on appeal to the United States Court of Appeals for the Second Circuit.
SEC Charges Company and Executives in Oil-and-Gas Offering Fraud (SEC Press Release 2018-33) The SEC filed a Complaint in the United States District Court for the Northern District of Texas charging Shezad Akbar, his company, Americrude, Inc. and Americrude's nominal President Daniel Waite with defrauding investors in seven securities offerings that purportedly raised at least $950,000 in funds to acquire working interests in oil-and-gas prospects. Without admitting or denying the SEC's allegations, Waite consented to the entry of a final judgment that permanently restrains and enjoins him from violating Sections 5(a), 5(c) and 17(a)(2) of the Securities Act and Sections 10(b) and 15(a) of the Exchange Act and Rule 10b-5(b) thereunder; restrains and enjoins him from participating in the issuance, purchase, offer, or sale of any oil-and-gas related securities, provided however that such injunction does not prevent Waite from purchasing or selling oil-and-gas related securities for his own personal account; and orders him to pay disgorgement of ill-gotten gains totaling $32,409.52, prejudgment interest of $1,763.30, and a penalty of $100,000. READ the FULL TEXT Complaint.
Florida Man Indicted for International Email Impersonation and Fraud Scam (DOJ Press Release) Frank Gregory Cedenowas indicted for conspiracy to commit wire fraud and conspiracy to commit money laundering in connection with a scam that solicited over $1.3 million and caused over $235,000 in losses. As alleged in the criminal Complaint, Cedenowas and his co-conspirators defrauded victims by pretending to be employees of the Securities and Exchange Commission. Co-conspirator Leonel Alexis Valerio Santana was previous charged and is detained pending trial. That complaint alleged that, between June 2015 and June 2017, there were at least 95 victims targeted by the scam, with fraudulent solicitations exceeding $1.3 million and actual losses of more than $235,000.
For starters, this case caught my attention because of its somewhat idiotic headline. I mean like someone is going to hire a hitman to murder three "un" intended victims? Perhaps there's a discount if you let the hitman pick any three victims rather than making him go through the effort of killing three folks of your choice. Beyond my initial grammatical concerns, I found the allegations in this case fascinating. Joel Rosquette a/k/a "Rick" was arrested and charged with three counts of murder-for-hire.
CCO Fined and Suspended For Amending Her Own U5 (BrokeAndBroker.com Blog) Let's assume that a FINRA member firm fires its Chief Compliance Officer at 3 p.m. on February 8, 2018. So . . . who files that CCO's Form U5? Is the last act that a CCO should undertake is to file her own U5 and notify CRD that she is no longer registered with the member firm? Before you're too quick to answer, assume that the discharge was based upon the firm's inability to continue to pay the CCO's salary but otherwise it's all good and everyone is still friendly. Now assume that the firing is hostile and the CCO was told to get out of here immediately. Finally, simply assume that no one is particularly angry about the termination but there is no one on premises other than the COO with the registration necessary to prepare and submit the CCO's U5. Yeah, I know, that's quite a fact pattern to work through. In any event, consider today's featured FINRA AWC analysis by our publisher Bill Singer, Esq. and see what you think about the bit of self-help engaged in by a terminated CCO.
Three Plead Guilty to $29
Million Bank Fraud Scheme (DOJ Press
From January 2011 through March 2016, Eddie Contreraz was the owner and operator of Preferred Marketing Group, Inc. ("PMG"), which assisted clients with credit repair and obtaining funding from lenders During the relevant period, at least 95% of PMG's clients obtained funding while using false and fictitious documents Contreraz produced, among which were inflated false income figures; false representations that the loan applicant's position was the manager of a company; false and fraudulent corroborating pay stubs, W- 2 tax documents, and/or utility bills. Contreraz caused six, co-defendant employees to assist borrowers to fraudulently obtain at least 2,300 loans, credit lines, and/or credit cards from at least ten FDIC insured banks and at least another 140 loans, credit lines, and/or credit cards from three non-FDIC insured consumer lenders totaling at least $29,000,000. Contreraz pled guilty to one count of bank fraud. Co-defendants Stephanie Loraine Contreraz and Abraham Valdez, each pleaded guilty to one count of conspiracy to commit bank fraud.
Statement on Potentially Unlawful Online Platforms for Trading Digital Assets (SEC Divisions of Enforcement and Trading and Markets) As set forth in part in the SEC Statement, If a platform offers trading of digital assets that are securities and operates as an exchange then the platform must register with the SEC as a national securities exchange or be exempt from registration. READ the FULL TEXT Statement.
(BrokeAndBroker.com Blog) FINRA should not require registered persons to notify their member firms of a mere "intention" or "preparation" to open their own BD or RIA. Requiring such "premature" notice to an employer is an invitation for the employer to engage in anti-competitive and retaliatory efforts to derail or hamper the employee's proposed venture. FINRA has the right to require prior written notice when a registered person intends to begin substantive BD/RIA activities in furtherance of fundraising and/or engaging in business. Activities that are generic to merely creating an entity or preparing to engage in a business, however, should not trigger the proposed FINRA Rule 3290 prior notice requirement.
In anticipation of the institution of proceedings by the SEC but without admitting or denying the findings, the New York Stock Exchange LLC, NYSE American LLC, and NYSE Arca, Inc. submitted an Offer of Settlement, which the federal regulator accepted. In the Matter of New York Stock Exchange LLC,, NYSE American LLC, and NYSE Arca, Inc. Respondents (Order Instituting Administrative And Cease-And-Desist Proceedings, Making Findings, And Imposing Remedial Sanctions And A Cease-And-Desist Order; '33 Act Re. 10463; '34 Act Rel. No. 82808 ; Admin. Proc. File No. 3-18388 / March 6, 2018) (the "OIP"). READ the FULL TEXT OIP In accordance with the offer settlement, the exchanges agreed to pay a $14 million penalty in connection with having engaged in business practices without having in place required and effective rules; and operating in a manner that did not comply with the exchange rules or federal securities laws. Also see, Division of Corporation Finance/Staff No-Action, Interpretive & Exemptive Letters "Incoming Letter: New York Stock Exchange LLC and NYSE American (March 2, 2018)" and In the Matter of the Intercontinental Exchange, Inc. (Order Granting a Waiver from Being an Ineligible Issuer/March 6, 2018).
William McFarland Pleads Guilty In Manhattan Federal Court To Defrauding Investors And A Ticket Vendor Of Over $26 Million / McFarland Engaged in a Scheme to Defraud over 80 Investors in Fyre Media Inc. and Fyre Festival LLC, as well as a Fyre Festival Ticket Vendor, Causing More Than $26 Million in Losses (DOJ Press Release) William McFarland , founder and CEO of Fyre Media, Inc., pled guilty to one count of wire fraud in connection with the scheme started around 2016 and lasting until about May 2017 in which he fraudulently induced some 80 investors to invest over $24 million in his company. Also, McFarland p pled guilty to a second count of wire fraud in connection with a scheme to defraud a ticket vendor
East Bay Resident Pleads Guilty To Wire Fraud In Scheme To Defraud Concert Promoters / Defendant Admits Misrepresenting His Connections to the Red Hot Chili Peppers and Falsifying an Escrow Account to Secure a $450,000 Payment (DOJ Press Release) On January 12, 2017, a federal grand jury in the United States District Court for the Northern District of California indicted Quincy Krashna on seven counts of wire fraud involving a scheme to defraud European concert promoters.. Krashna pled guilty to Count One of the indictment and agreed to make restitution.
Federal Court in New York Enters Preliminary Injunction Order against Patrick K. McDonnell and His Company CabbageTech, Corp. d/b/a Coin Drop Markets in Connection with Fraudulent Virtual Currency Scheme (CFTC Press Release pr7702-18) CFTC obtained in the United States District Court for the Eastern District of New York a Preliminary Injunction Order against Defendants Patrick K. McDonnell and CabbageTech, Corp. d/b/a Coin Drop Markets (CDM) in connection with the CFTC's January 18, 2018 Complaint charging Defendants with fraud and misappropriation in connection with purchases and trading of the virtual currencies Bitcoin and Litecoin. READ FULL TEXT CFTC Order.
Grand Jury Indicts 8 in Online Romance Money Laundering Scam (DOJ Press Release) Kwabena M. Bonsu, Kwasi A. Oppong, Kwame Ansah, John Y. Amoah, Samuel Antwi, King Faisal Hamidu, Nkosiyoxoxo Msuthu and Cynthia Appiagyei were indicted in the United States District Court for the Southern District of Ohio for conspiring to launder and for laundering the proceeds of online romance scams. As alleged in the Indictment, the defendants created online dating profiles and after establishing relationships, they requested money that was wired in amounts ranging from $10,000 to more than $100,000. The defendants purportedly used some proceeds to purchase salvaged vehicles sold online and often exported to Ghana.
(SEC Litigation Release 24063) In Securities and Exchange Commission v. Edward Henderson (Complaint, 11-CV-12116, United States District Court for the District of Massachusetts), the SEC alleged that Edward Henderson had engaged in a kick-back scheme with others to trigger investments in various thinly-traded stocks. Unbeknownst to Henderson, he was dealing with an undercover FBI agent, who agreed that Henderson would receive a fee for introducing the representative to executives willing to pay kickbacks in exchange for funding. The Court's final judgement permanently prohibits Henderson from violating Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder, holds him liable for $12,650 in disgorgemen but deems it satisfied by a forfeiture order entered against Henderson in a related criminal action. The judgment also prohibits Henderson from participating in penny stock offerings.
SEC Charges Unregistered Broker for Illegally Brokering Sales of EB-5 Securities (SEC Press Release 2018-30) The SEC alleged that between April 2014 and March 2017, Edwin Shaw LLC solicited foreign nationals to invest in a taxi and limousine company's securities pursuant to the EB-5 Immigrant Investor Program, which provides a residency pathway for foreign investors.The SEC alleged that Edwin Shaw LLC received a fee ranging from $5,000 to $50,000 from over 30 foreigners investors, and, thereafter, misused about $400,000 of the investor fees on its own expenses and personal expenses of the firm's principal. Without admitting or denying the allegations in the order, Edwin Shaw agreed to a cease-and-desist order and agreed to pay disgorgement of $400,000 plus prejudgment interest of $54,209.20 and a penalty of $90,535.READ the FULL TEXT SEC ORDER
In The Year 2525 If FINRA Arbitration Is Still Alive (BrokeAndBroker.com Blog) In the year 2525, if man is still alive, if woman can survive, they may find that a Claimant in a 2018 FINRA arbitration had requested a postponement. In the year 3535, ain't gonna need to tell the truth, tell no lies. everything you think, do, and say. is in the pill you took today, and FINRA will find a way to notify arbitrators about a postponement request within one day. For options traders, there is the wisdom of Black & Scholes. For Wall Street regulators, there is the wisdom of Dodd & Frank. For those of us involved with FINRA arbitration, we have the wisdom of Zager & Evans.
CFTC Charges Iowa Resident Lon Olen Friedrichsen with Solicitation Fraud in Violation of the Commodity Exchange Act / CFTC also Charges Friedrichsen with Acting as an Unregistered Commodity Trading Advisor (CFTC Press Release pr7701-118) In a Complaint filed in the United States District Court for the Southern District of New York ("SDNY"), the CFTC alleged that from at least December 16, 2014 through May 24, 2017, Lon Olen Friedrichsen fraudulently solicited clients via Craigslist ads, telephone, and e-mail. Freiderichsen allegedly fraudulently induced clients to provide him with access to their personal commodity futures accounts held at Futures Commission Merchants; and, thereafter, purportedly traded commodity futures in those accounts and advised clients to conceal his involvement. Friedrichsen allegedly demanded 50% of any profits but abandoned his clients after he lost money trading their accounts. The Complaint asserts that at least twelve clients lost at least $160,382 versus Freiderichsen's retention of some $45,369 in fees. READ the FULL TEXT Complaint
In anticipation of the institution of proceedings by the SEC but without admitting or denying the findings, Financial Fiduciaries, LLC and Thomas Batterman submitted an Offer of Settlement, which the federal regulator accepted. In the Matter of Financial Fiduciaries, LLC and Thomas Batterman , Respondents (Order Instituting Cease-And-Desist Proceedings, Making Findings, And Imposing A Cease-And-Desist Order; Invest. Adv. Act Rel. No. 4863; Admin. Proc. File No. 3-18385 / March 5, 2018) (the "Order"). In accordance with the terms of the settlement, the SEC ordered that Respondents cease and desist from any violations of the Advisers Act. Respondent Financial Fiduciaries shall pay a $40,000 civil money penalty, and Respondent Batterman shall pay a $20,000 civil money penalty READ the FULL TEXT SEC Order. These proceedings arise out of Respondent Financial Fiduciaries' nondisclosure of financial conflicts of interest and violations of the "Custody Rule" of the Advisers Act.
Brazilian National Pleads Guilty to ATM Skimming / Defendant withdrew $43,000 from ATMs throughout Metro Boston (DOJ Press Release) Helisson Benazi de Souza pled in the United States District Court for the District of Massachusetts to one count of using counterfeit access devices (debit cards); one count of possessing 15 or more counterfeit access devices (debit cards); three counts of possessing device-making equipment (ATM skimming devices); one count of illegal transactions with an access device (other persons' debit cards); and two counts of aggravated identity theft. As set forth in part in the DOJ Press Release, Souza was part of an ATM skimming
(DOJ Press Release 18-063) After a four-week trial, film producer Geoffrey S. Berman was convicted in the United States District Court for the Southern District of New York of Conspiracy to Commit Investment Adviser Fraud and Securities Fraud; two counts of Investment Adviser Fraud; two counts of Securities Fraud; Wire Fraud; and Conspiracy to Commit Wire Fraud in connection with defrauding investors of more than $26 million. Co-defendant Keith Wellner had previously pled guilty and has been cooperating with the Government.
Two Executives Arrested for Pump and Dump Securities Fraud Scheme / Complaint Filed in Brooklyn Federal Court Charges Defendants with Fraudulently Inflating the Price of Penny Stock (DOJ Press Release) Dennis Mancino, the President and Chief Executive Officer of HD View 360, Inc. ("HDVW") and William Hirschy, the Chief Executive Officer of WT Consulting Group, LLC, were arrested on charges of conspiracy to commit securities fraud by manipulating the price and trading volume of HDVW, a publicly-traded company that purported to distribute and install security surveillance systems. READ the FULL-TEXT Mancino and Hirschy Complaint.
Citigroup Hit With Over $4 Million Award In Wrongful Termination Arbitration (BrokeAndBroker.com Blog) When a former Citigroup Global Markets employee hits the firm with a FINRA Arbitration demand for over $16.5 million in damages, we know that there was likely a lot of bad blood engendered by what was alleged to be a wrongful termination. By the time the arbitration ended, there was quite a bit of blood pouring out of Citigroup as the firm took quite a beating before the final bell rang.
SEC Charges U.K. Brokerage Firm, Investment Manager, CEO, and Others for Manipulative Trading in U.S. Microcap Stocks (SEC Press Release 2018-28) The SEC filed a Complaint in the United States District Court for the Eastern District of New York ("EDNY") alleging securities fraud charges against U.K.-based broker-dealer Beaufort Securities Ltd. and its investment manager Peter Kyriacou,in connection with the alleged manipulative trading in the securities of HD View 360 Inc., a purported U.S.-based microcap issuer. Separately, the SEC announced the suspension of trading in HD View and filing of a second Complaint against HD View Chief Executive Officer Dennis Mancino and William T Hirschy, and three entities they control. The defendants apparently became unknowingly involved with an undercover FBI agent, who described his business as manipulating U.S. stocks through pump-and-dump schemes. These charges arise in part from an undercover operation by the Federal Bureau of Investigation, which also resulted in related criminal prosecutions against these defendants by the Office of the United States Attorney for the Eastern District of New York. READ the Beaufort Complaint, the Mancino Complaint, and the HD View Suspension.