Securities Industry Commentator by Bill Singer Esq

March 15, 2018

READ the FULL TEXT VIX Class Action Complaint  Atlantic Trading USA, LLC, Plaintiff individually and on behalf of all others similarly situated, v. DOES 1-100, Defendants (Class Action Complaint, 18-CV-01754, United States District Court for the Northern District of Illinois / March 9, 2018)
cites alleged manipulation by traders of the final settlement price of VIX futures and options. 

FINRA Department of Enforcement, Complainant, v. Austin Wayne Morton, Respondent (OHO Hearing Panel Decision, Financial Industry Regulatory Authority, Office of Hearing Officer, Disciplinary Proceeding No. 2016052347901 / March 14, 2018)
As set forth in the "Introduction" to the OHO Hearing Panel Decision [Ed: Footnotes omitted] :

Department of Enforcement filed a Complaint against Respondent Austin Wayne Morton consisting of two causes of action. The first cause of action alleges that, on two separate occasions in September and October 2016, Morton converted a total of $36,000 from "GR" in violation of FINRA Rule 2010. The Complaint alleges that the first conversion occurred when Morton allegedly took possession of $20,000 cash that GR had withdrawn from his bank account. The Complaint further alleges that the second conversion occurred when Morton obtained, filled out, and cashed a check signed by GR for $22,000, when GR had intended the check to be for $6,000. At the time of the alleged conversions, GR was 82 years old and had been diagnosed with dementia. He had been a customer of Morton's at FINRA member Edward D. Jones & Co until mid-September 2016.

The second cause of action alleges that Morton was compensated in the amount of $2,000 cash for assisting GR in locating and cashing out a variable annuity and thereby engaged in an undisclosed outside business activity in violation of FINRA Rules 3270 and 2010.

A hearing was held in Fayetteville, Arkansas on December 5-6, 2017. A majority of the Hearing Panel concludes that Enforcement failed to meet its burden of proving the two causes of action: conversion of funds from GR and receipt of compensation in the amount of $2,000 cash  (for an alleged undisclosed outside business activity.

Theranos, CEO Holmes, and Former President Balwani Charged With Massive Fraud / Holmes Stripped of Control of Company for Defrauding Investors (SEC Press Release 2018-41)
The SEC charged Silicon Valley-based private company Theranos Inc., its founder and CEO Elizabeth Holmes, and its former President Ramesh "Sunny" Balwani with raising more than $700 million from investors through an elaborate, years-long fraud in which they exaggerated or made false statements about the company's technology, business, and financial performance.  Without admitting or denying the allegations and subject to Court approval, Theranos and Holmes have agreed to settle the fraud charges. Holmes agreed to pay a $500,000 penalty, be barred from serving as an officer or director of a public company for 10 years, return the remaining 18.9 million shares that she obtained during the fraud, and relinquish her voting control of Theranos by converting her super-majority Theranos Class B Common shares to Class A Common shares. The SEC will litigate its claims against Balwani in federal district court in the Northern District of California. READ the FULL TEXT Complaint against Theranos and Holmes; and against Balwani

UPDATE: Stockbroker Barred For Abusive Conduct Deemed Threat to Public and Industry
No one should come away from this case feeling satisfied or smug.  FINRA presents this registered rep as a hot-head, a walking time-bomb, and a danger to his colleagues and the public.  Whoever Gadelkareem is and was, the fact remains that much of his cited history was available for the asking to any number of employers and regulators.  He did not become a raging storm overnight and his anger issues never seemed to have stopped any number of FINRA member firms from hiring him -- and it's more than a bit unnerving to realize that FINRA tolerates the presence of such folks in its community and, similarly, never quite seems to take exception with a firm's hiring of such folks until all hell breaks loose. At what point does sexism cross the line and pose a threat to the public and industry? At what point does homophobia and racism drag a member firm and an industry into the gutter and becomes a regulatory issue? At what point does FINRA and its member firms stop excusing outrageous conduct when the bad actor is a big producer or in a C-Suite? It's always funny until it's not. READ

Additional Charges Filed Against Former Monroe County Financial Advisor For Investment Fraud (DOJ Press Release)
Anthony Diaz, was indicted on May 12, 2016, on six counts of wire fraud by using false and misleading statements and misrepresentations to induce his clients to purchase high risk and/or otherwise unsuitable investment products, through which Diaz received substantial fees and commissions to which he was not entitled.  Federal prosecutors filed a superseding indictment adding five counts of mail and wire fraud and additional victims. As set forth in part in the DOJ Press Release:

Diaz allegedly operated the scheme between approximately 2006 and 2015, while he was a registered representative and/or a certified financial planner associated with financial investment firms.  Diaz had his own office, under the name of Financial Planners Group of America, with employees reporting to him during the periods when he was associated with other firms.  From December 2006 through May 2015, Diaz allegedly sold what were called "alternative investment products" to his clients.  Such products are generally high risk, speculative and illiquid (i.e., they cannot readily be converted to cash); may require long holding periods of up to nine years, and have "suitability requirements" related to the net worth and/or income of investors.  

As part of the scheme, Diaz allegedly instructed clients to sign blank or partially completed documents, and provided false information on documents concerning the clients' net worth, income, risk tolerance and/or investment experience to falsely make it appear that the clients met the applicable requirements to invest in the products.

Diaz also allegedly failed to explain to clients that alternative investment products lacked liquidity and had no public market for resale. He allegedly falsely assured clients they would have access to their funds and falsely told some of them the investments were "guaranteed" to earn a certain rate of return, when, in fact, he knew there was no guaranteed rate of return.

Diaz allegedly told his clients that he voluntarily left the broker dealers he was associated with at various times and for the clients' benefit, when, in fact, he was terminated or asked to leave.  As a result, some clients incurred additional fees and expenses.