Securities Industry Commentator by Bill Singer Esq

March 22, 2018

A.G. Schneiderman Announces $230 Million Settlement With UBS Over Misconduct Leading Up To Financial Crisis / Settlement Secures $189 Million in Consumer Relief for New Yorkers Impacted By the Housing Crash; $41 Million in Cash for New York State / Today's Settlement Brings Total Cash and Consumer Relief Secured by AG Schneiderman in Aftermath of Financial Crisis Up to $3.93 Billion (New York State Attorney General Press Release)
New York State Attorney General Eric T. Schneiderman announced a $230 million settlement with UBS in connection with the packaging, marketing, sale, and issuance of residential mortgage-backed securities ("RMBS") to investors leading up to the financial crisis. The settlement includes $189 million worth of consumer relief for New York homeowners and communities and $41 million in cash to New York State. Pursuant to the settlement, UBS admits the findings contained in the statement of facts, agrees to pay $41 million in cash, and provides community-level relief to New Yorkers. READ the FULL TEXT Settlement Agreement and Statement of Facts.
As set forth in part in the NYAG Press Release:

[UBS] sold investors RMBS backed by mortgage loans based on inaccurate statements in prospectus supplements and/or investor presentations for the RMBS. Indeed, many of the mortgage loans did not comply with underwriting guidelines or applicable laws and regulations, among other defects. The loan pools backing the securitizations suffered billions of dollars of collateral losses, causing investors to experience shortfalls in principal and interest payments, as well as declines in the market value of their certificates. The conduct uncovered by Attorney General Schneiderman's office harmed countless New York homeowners and investors, as home values declined dramatically during the financial crisis.

During this time, UBS's diligence vendors determined that loans sold by the loan originators to UBS did not conform to underwriting guidelines; yet UBS packaged and sold them anyway. Moreover, UBS limited the scope of the diligence conducted on mortgage loans, and UBS admits that it securitized various loans for which no diligence was performed to assess whether the loans conformed to underwriting guidelines or had other defects. Further, UBS's review of securitized mortgage loans, which defaulted shortly after issuance, showed serious problems in the origination of the loans. Nevertheless, even after identifying these problems, UBS continued to purchase and securitize risky loans from the same originators. 

Federal Court Orders Former Church Pastor Wesley Allen Brown, Maverick International, Inc., and Edward Rubin to Pay More than $8.6 Million for Commodity Fraud Scheme that Preyed on Church Congregation / Brown Is Currently Serving a Seven and One-Half Year Prison Sentence in Florida (CFTC Press Release 7707-18)
The CFTC filed a Complaint in the United States District Court for the Middle District of Florida alleging that the Defendants Maverick International, Inc. and its principals Edward Rubin and Wesley Allen Brown (also a church pastor) engaged in a fraudulent scheme to solicit funds for a purported commodity pool trading futures contracts and precious metals. Brown is currently serving a 7 1/2 year sentence for securities fraud, embezzlement, and other crimes related to the conduct at issue in the CFTC's action. The Court ordered the Defendants to pay $8,605,274.92 in restitution/civil monetary penalties, of which  Rubin is jointly and severally liable for $500,000 in restitution and $140,000 of the civil monetary penalty, while Maverick is jointly and severally liable for $2,065,178 in restitution and the entire civil monetary penalty.  Brown is jointly and severally liable for the full $8,605,274.92 amount. READ the FULL TEXT Judgment; Order; and Supplemental Consent Order (Rubin and Maverick).

SEC Obtains Preliminary Injunction Against Purported Hedge Fund Manager Charged with Conducting an Ongoing Fraud (SEC Litigation Release No. 24071)
In Securities and Exchange Commission v. Nicholas J. Genovese, Willow Creek Investments, LP, and Willow Creek Advisors, LLC, (18-CV-942, SDNY), the SEC charged Genovese, his hedge fund and advisory firm with fraudulently raising over $5.3 million from at least six investors. In part, the SEC alleged that Genovese concealed his criminal history and lied about his securities industry experience. The SEC obtained a preliminary injunction and continuing asset freeze. READ the FULL TEXT Complaint.

Former Business Manager of Assisted Living Facility Indicted for Stealing Hundreds of Thousands of Dollars from Elderly Victim (DOJ Press Release)
Marcella Drakeford, the business manager of a Morristown, New Jersey, assisted living facility., was indicted in the United States District Court for the District of New Jersey on six counts of mail fraud in connection with allegations of exploiting her position to steal approximately $237,000 from an elderly victim under her care. As set forth in part in the DOJ Press Release:

Beginning in December 2016, Drakeford allegedly agreed to help manage her victim's financial affairs and pay for her care. She was granted limited access to the victim's checking account. Unbeknownst to victim or the victim's guardian, Drakeford already had fraudulently gained access to the victim's credit card account and had several cards issued in her name. Drakeford then used the credit cards for personal expenditures, including clothing, jewelry, and automobiles, dental work, rent, and utilities. Drakeford paid off the credit card bills with checks drawn on the victim's checking account, all without permission. Drakeford allegedly defrauded the victim of approximately $237,000. 

2 Wrongs Don't Add Up To 1 Right In FINRA Regulatory Settlement ( Blog)
Imagine we got six customers with eight brokerage accounts. Now, imagine that for some four years we got a stockbroker who engages in 1,290 purportedly unauthorized transactions in those customers' accounts. Let's have a bit of fun with the math. To annualize the transactions, let's divide 1,290 by 4 and come up with 322.5. Next, let's divide 322.5 by 8 accounts and get about 40. Finally, let's divide 40 by 12 to see how that breaks down per month, which is about 3.4 trades a month per account. 

So . . . each and every month for about 48 months, your stockbroker is executing between 3 and 4 unauthorized trades in one of your brokerage accounts. I have a brokerage account. I would know if there were 3 to 4 unauthorized trades in that account. I would be screaming bloody murder and you can sure as hell bet that no one is going to enter that many trades in my accounts without my consent over a four-year period. 

On the other hand, there are a lot of crooks and con artists out there. Sometimes they dupe customers into believing that what looks like a trade isn't or what looks like a buy was a back-office error. Then you have customers with medical or mental conditions and they just can't follow their accounts. In the end, it often comes down to whether an apparent fraud is intentional or inadvertent, whether something was a misunderstanding or willful failure to follow instructions, whether there was a miscommunication or knowing disregard. 

In a recent FINRA regulatory settlement, it sure as hell seems like a stockbroker stepped over the line repeatedly and violated the rules. In contrast, FINRA's published AWC settlement leaves out a lot of content and context and comes off as a somewhat careless attempt to wrap things up and just move on. Let's have a bit of fun with the math again. We add up two wrongs and . . . hmm . . . I still can't get one right. READ

Fraudulent car dealer sentenced for aggravated identity theft and wire fraud conspiracy (DOJ Press Release)
Okay, okay, okay . . . you're right, I should NOT admire a fraudster's fraud. Folks got hurt. Money was lost. I know . . . you're right. On the other hand, sometimes you just have to stand back, sit down, and wonder why so much talent was wasted on such stupidity. We start at the end of the line: Farran S. Campbell was sentenced to four years and three months in federal prison plus three years of supervised release, and ordered to pay $31,724.70 in restitution. The sentence was imposed following Campbell's plea to aggravated identity theft and conspiracy to commit wire fraud in connection with a loan fraud scheme involving fake car dealerships. For a better, fuller, richer sense of Campbell and his crime, consider this portion of the DOJ Press Release:

In 2014, Campbell set up a car dealership called Campbell's Cars, LLC, using the stolen identity of O.C., a Georgia resident who had good credit, but no connection to Campbell or the business.  Campbell then used the new car dealership entity and O.C.'s good credit to obtain a loan from a commercial lender.  The lender was unable to recover its losses by repossessing the cars that were supposedly collateralizing the loan, and eventually sued O.C. to collect the debt. 

On March 31, 2017, while Campbell was on bond in another federal case, agents executed search warrants at Campbell's home and business.  These searches caught Campbell "red-handed," in the process of carrying out the same fraud scheme with a new lender and two new identity theft victims.  At Campbell's workplace, agents discovered a fake ID in the name of one of Campbell's previous identity theft victims. 

At Campbell's home, agents discovered a complete loan package ready to be mailed to the lender from a new fake car dealership named Launch Auto Sales, more fake IDs in the names of two new identity theft victims, and pieces of paper on which Campbell had been practicing the signatures of the victims repetitively.  Shortly thereafter, Campbell's bond was revoked and he has been in custody since April 2017.

During the case, Campbell repeatedly claimed to be a physician, even though he is not.  As part of this deception, Campbell had the same criminal associate prepare a fake income tax return for him claiming income from a local hospital and showing employment as a physician.  This tax return was never filed with the IRS, and appears to have been intended to help Campbell get approved for a rental home.  Campbell also swore out a false affidavit, which he provided to a DeKalb County Assistant District Attorney, in which he falsely claimed to be a licensed neurologist.  The affidavit was submitted to the DeKalb County prosecutor as part of an unsuccessful attempt to convince that official to dismiss a car theft case pending against a friend of Campbell's.

On May 8, 2017, Campbell entered a negotiated plea of guilty to a criminal information charging aggravated identity theft and conspiracy to commit wire fraud.  Campbell admitted that, from at least June 2014 through September 2014, he had conspired with others to commit wire fraud victimizing the commercial lender, and that he had also committed aggravated identity theft by using the identity of O.C. to apply for credit from the lender. 

Real Estate Investor Sentenced to 30 Months in Prison for Rigging Bids at Northern California Public Foreclosure Auctions (DOJ Press Release)
Real estate investor Michael Marr was indicted in the United States District Court for the Northern District of California and convicted of conspiring to rig bids at public foreclosure auctions in Alameda and Contra Costa County. Marr was sentenced to 30 months in prison plus three years of supervised release, and ordered to pay a $1,397,061.59 criminal fine.

California Man Indicted On Mail And Wire Fraud Conspiracy Charges For Telemarketing Scheme (DOJ Press Release)
Naif Wedad Nazer was indicted in the United States District Court for the Middle District of Florida with conspiracy to commit mail and wire fraud in connection with a timeshare marketing scheme. As set forth in part in the DOJ Press Release:

[B]etween 2011 and 2015, Nazer founded and operated 10 different businesses, each of which engaged in cold-calling timeshare owners across the United States and fraudulently inducing them to pay advance fees for services that the businesses never intended to render. Nazer, and others that he had recruited for this scheme, made a series of false claims to victims, including that Nazer's businesses would help the owner market his or her timeshare; that they had identified buyers to purchase the timeshare; that they would facilitate the sale of the timeshare; and that they would refund the advance fee within a prescribed time period if the timeshare sale did not go through.