Securities Industry Commentator by Bill Singer Esq WEEK IN REVIEW

March 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:

SEC Obtains Permanent Officer-and-Director and Penny Stock Bars Against CEO of Syringe Manufacturer (DOJ Litigation Release No. 24072) A federal jury in the United States District Court for the Northern District of Georgia found that Revolutions Medical Corp. and its CEO, Ronald L. Wheet had engaged in securities fraud by issuing press release that had falsely portrayed the company as a successful manufacturer of a safe and effective syringe slated for imminent mass production and distribution; and having secured significant sales agreements, including one with the U.S. Department of Defense. Securities and Exchange Commission v. Revolutions Medical Corp., et al., (12-CV-03298 (NDGA) READ the FULL TEXT Judgment and Permanent Injunction.


Former Equifax Executive Charged with Insider Trading (SEC Litigation Release No. 24073) In a Complaint filed in the United States District Court for the Northern District of Georgia, the SEC alleged that former Chief Information Officer of Equifax's United States business unit, Jun Ying, had engaged in insider trading in advance of the company's September 2017 announcement of a data breach that exposed the social security numbers and other personal information of about 148 million U.S. customers. Ying purportedly avoided over $117,000 in losses by exercising and selling his vested Equifax stock options. Securities and Exchange Commission v. Jun Ying (18-CV-01069, NDGA) READ the FULL TEXT SEC Complaint 


Merrill Lynch Wins Puerto Rico Bond Arbitration Via Counterclaim ( Blog) Frequent readers of the Blog know that our publisher Bill Singer, Esq. is a long-suffering critic of FINRA Arbitration. In particular, Bill frequently derides what he calls the "lack of content and context" in the arbitration forum's published decisions. Notwithstanding that he is often dismissed as a gadfly, a nit-picker, or a pain in the ass, Bill is unapologetic for shining an unwelcome light upon the inequities of mandatory consumer and industry arbitration, and upon the woeful state of FINRA's published/public disclosures. That being said, today, all the angels are singing and heaven is a happy place because Bill absolutely loves a recently published FINRA Arbitration Decision involving the thorny issue of an angry public customer's investments in unpopular Puerto Rican debt.


False EDGAR Filer Sentenced to Two Years in Prison for Fitbit Manipulation Scheme (SEC Litigation Release No. 24075) The SEC filed a Complaint in the United States District Court for the Southern District of New York alleging that Robert M. Murray purchased Fitbit call options minutes before a fake tender offer that he orchestrated was filed on the SEC's EDGAR system. Fitbit's spiked when the tender offer became publicly available on Nov. 10, 2016, and Murray sold all of his options for a profit of approximately $3,100. Securities and Exchange Commission v. Robert W. Murray (17-CV-03788 SDNY). A criminal complaint arising from the same underlying facts was filed in United States v. Robert M. Murray (17-CR-00452, SDNY). Following his guilty plea in the criminal case, Murray was sentenced to two years imprisonment. READ the SEC Complaint

Irvine Man Found Guilty of Defrauding Businessman out of $648,000 with Claims Investment would Develop Stem Cell Research Product (DOJ Press Release) After a two-day trial, Aiman Alexander Ataba was found guilty in the United States District Court for the Central District of California of eight counts of mail fraud and three counts of money laundering in connection with defrauding a businessman via a bogus stem cell research investment. Federal prosecutors alleged that Ataba falsely represented that his company, Fountain Valley business, Innovation Validation and Design Technologies would manufacture and sell a device that would be used in hospitals for stem cell research and that the company was on the verge of being acquired. Over 4 1/2 years, the victim invested $648,000 in exchange for stock warrants. Ataba purportedly diverted the investment from the business to his personal account and withdrew about $350,000 for personal uses such as rent, restaurants, a car purchase, and gambling.

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

 In today's Securities Industry Commentator feed:

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.


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.


2 Wrongs Don't Add Up To 1 Right In FINRA Regulatory Settlement ( Blog) 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 math: We add up two wrongs and . . . hmm . . . I still can't get one right.


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. Consider that Campbell set up a car dealership called Campbell's Cars, LLC, using someone's stolen and then got a loan from a commercial lender. Also, Campbell repeatedly claimed to be a physician, even though he is not. Plus he swore out a false affidavit claiming to be a neurologist and provided it to County Assistant District Attorney.

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

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

In today's Securities Industry Commentator feed:

Iranian National Arrested for Scheme to Evade U.S. Economic Sanctions by Illicitly Sending More Than $115 Million From Venezuela Through the U.S. Financial System (DOJ Press Release) Ali Sadr Hashemi Nejad (Sadr) was indicted on Tone count of Conspiracy to Defraud the United States; one count of Conspiracy to Violate the International Emergency Economic Powers Act; one count of Bank Fraud; one count of Conspiracy to Commit Bank Fraud; one count of Money Laundering; and one count of Conspiracy to Commit Money Laundering in the United States District Court for the Eastern District of Virginia. The Indictment charges Sadr with participating in a scheme in which in which more than $115 million in payments for a Venezuelan housing complex were illegally funneled through the U.S. financial system for the benefit of Iranian individuals and entities as part of an effort to evade U.S. economic sanctions against Iran, to defraud the U.S., and to commit money laundering and bank fraud.


Branch Office Agreement At Heart Of Industry Arbitration ( Blog) When things fall apart on Wall Street, they can get nasty. In a recent example, we have a dipsute about a Branch Office Agreement, which prompts, in part, claims of defamation, fraud, tortious interference with business relations, bad faith, and failure to provide services. There's more than enough finger-pointing to go around for both sides of the lawsuit caption.


Watch Out for These 4 Behaviors by Your Financial Professional (FINRA:"The Alert Investor")The Financial Industry Regulatory Authority cites four behaviors of financial professionals that they should be wary of: "Asking for a Personal Loan," "Sales of Promissory Notes," "Using Personal Email," and "Asking You to Write a Check to a Person or Entity Other Than the Firm."

In the Matter of Craig Blattner, Respondent (FINRA AWC  #2017053438501, March 20, 2018).For the purpose of proposing a settlement of rule violations alleged by the Financial Industry Regulatory Authority ("FINRA"), without admitting or denying the findings, prior to a regulatory hearing, and without an adjudication of any issue, Craig Blattner submitted a Letter of Acceptance, Waiver and Consent ("AWC"), which FINRA accepted.In accordance with the terms of the AWC, The AWC alleges that in April 2013, Blattner settled a customer complaint away from his firm in violation of FINRA Rule 2010. FINRA imposed upon Blattner a $5,000 fine and a 15 business-day suspension from associating with any FINRA-regulated broker-dealer in any capacity. As set forth in part in the AWC, Blattner did not disclose a customer's complaint about losses in a joint account and did not disclose a $15,000 check payment " to generate trading profits to recoup the losses they had suffered in the joint account."


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

In today's Securities Industry Commentator feed:

In the Matter of Department of Enforcement, Complainant, vs. Kenneth J. Mathieson, Respondent (FINRA National Adjudicatory Counsel Decision, Complaint No. 2014040876001 / March 19, 2018) As set forth in the Syllabus of the NAC Decision [Ed: footnotes omitted]:

Respondent Kenneth J. Mathieson appeals the sanctions imposed on him in a December 16, 2016 Extended Hearing Panel decision. The Extended Hearing Panel suspended Mathieson for one year in all capacities and fined him $50,000 for participating in private securities transactions and engaging in outside business activities without prior written notice to, and permission from, his member firm, Morgan Stanley Smith Barney, LLC ("Morgan Stanley"). The Extended Hearing Panel also found that Mathieson submitted a false compliance questionnaire. On appeal, Mathieson admits his violations, but argues that the Extended Hearing Panel misapplied the relevant aggravating and mitigating factors and, consequently, the sanctions imposed are too severe. 

After an independent review of the record, we affirm the Extended Hearing Panel's findings of violation and the $50,000 fine, but reduce Mathieson's suspension to six months.


Broker Charged With Repeatedly Putting Customer Assets At Risk (SEC Press Release 2018-45) The Securities and Exchange Commission alleged that during 2015, registered broker-dealer Electronic Transaction Clearing (ETC) improperly transferred almost $8 million of fully paid securities belonging to cash customers to an account at another clearing firm to meet margin requirements on borrowed funds. The SEC further alleged that the firm had used over $17 million of securities of two customers to borrow funds without consent. Finally, the federal regulator alleged that ETC had improperly commingled customers' securities and allowed a customer's excess margin securities to be loaned out by the other clearing firm. Without admitting or denying the SEC's findings, ETC agreed to the entry of an Order charging it with violation the Securities Exchange Act and Customer Protection Rule as well as other related rules, and the firm agreed to cease and desist from further violations.  Also, ETC agreed to a censure and to pay an $80,000 penalty


Securities and Exchange Commission v. Americrude, et. al., (SEC Litigation Release 24068) In a Complaint filed in the United States District Court for the Northern District of Texas, the SEC alleged that Shezad Akbar used his company, Americrude, Inc., and the firm's purportedly nominal President Daniel Waite used cold calls, high-pressure sales pitches, and false and misleading statements to lure investors into Americrude's fraudulent offerings. The defendants allegedly misrepresented Americrude's track record, the reserve potential of its oil-and-gas prospects, and its intended use of proceeds. Without admitting or denying the allegations, Waite consented to the entry of a final judgment that permanently restrains and enjoins him from violating the '33 and '34 Acts, and restrains and enjoins him from participating in the issuance, purchase, offer or sale of any oil-and-gas related securities (said injunction does not prevent Waite from purchasing or selling oil-and-gas related securities for his own personal account). Waite is ordered to disgorge $32,409.52, prejudgment interest of $1,763.30, and a civil penalty of $100,000. The SEC's litigation against Americrude and Akbar continues. READ the FULL TEXT SEC Compliant.


SEC Obtains Summary Judgment in Grand Central Post-It Notes Insider Trading Case (SEC Litigation Release No. 24070)
Securities and Exchange Commission v. Steven Metro, (United States District Court for the District of New Jersey,14-CV-05844)
The District Court granted the SEC's motion for summary judgment against former law firm employee Steven Metro, who had been permanently enjoined and ordered to pay a $25,000 civil penalty pursuant to his role charged as part of an insider trading scheme infamously involving the passing of information on paper napkins.


International Money Laundering Conspiracy / Seven individuals have pled guilty to participating in a multi-million dollar international money laundering conspiracy.  (DOJ Press Release)
Geannis Gonzalez, Alfredo Tovar, Robinson Castillo, Jamie Vives Castillo, Quiana Velasco, Jose Daniel Estrella, and Pedro Reyes have all pled guilty to conspiracy to commit money laundering in connection with having opened bank accounts in the names of shell corporations in order to receive the proceeds of various fraudulent schemes, including romance frauds, email hacking schemes, and inheritance and lottery scams, that victimized individuals and corporations across the United States.  The cited bank accounts received illegal proceeds ranging from $3,381,110 to $7,177,442; and the overall laundered proceeds was about $94 million.


Founder And CEO Of Defunct Tampa Technology Company Sentenced To 80 Months In Prison For Investment Fraud (DOJ Press Release)
In 2010, Timothy Munro Roberts and Terrance Taylor founded Savtira Corporation, Inc., which purportedly offered a centralized cloud-based shopping cart platform for retailers. Roberts and Taylor fraudulently solicited investors for the company by claiming it was profitable and owned patents, that they had entered into executed agreements with nationally recognized technology firms, and that Savtira was valued between $450 million and $540 million. Roberts and Taylor misused and misappropriated investor funds for personal expenses and made cash withdrawals without the investors' consent. Further, the two never disclosed to investors that Roberts had previously been fined and banned from selling unregistered securities pursuant to his settlement with the SEC. Following his guilty plea in federal court, Roberts was sentenced to six years and eight months in federal prison for wire fraud and ordered to pay $5,874,912.52 in restitution.

SEC Announces Its Largest-Ever Whistleblower Awards (SEC Press Release 2018-44) The SEC announced its highest-ever Dodd-Frank whistleblower awards, with two whistleblowers sharing a nearly $50 million award and a third whistleblower receiving more than $33 million. As set forth in part in the SEC Press Release, the SEC has awarded more than $262 million to 53 whistleblowers since issuing its first award in 2012. 

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

In today's Securities Industry Commentator feed:

North Suburban Trader Facing Federal Criminal Charge for Allegedly Defrauding Investors
Richard D. Carter was a trader at Blue Guru Trading LLC , which claimed to specialize in trading futures contracts. Beginning in June 2016 and running to January 2018, Carter allegedly prepared fraudulent documentations showing that the firm's proprietary trading model was profitable.At a time when Blue Guru held about $9,000 in investor funds, Carter's fabricated statements showed over $6.1 million. Carter was charged in a federal criminal complaint with one count of wire fraud in connection with misappropriating at least $750,000. Previously, the Commodity Futures Trading Commission filed a civil enforcement lawsuit against Carter.


In the Matter of Rosalind Herman (Order, Admin. Proc. Rul. Rel. No. 5650, Admin. Proc. File No. 3-17828 / March 16, 2018)
In a follow-on proceeding of United States v. Herman, No. 1:12-cr-10015 (D. Mass. Aug. 1, 2016), ECF Nos. 299-300, aff'd, 848 F.3d 55 (1st Cir. 2017), cert. denied, 137 S. Ct. 1603 (2017), in which Rosalind Herman was convicted of securities and wire fraud and other crimes, the SEC Division of Enforcement filed a motion for summary disposition. Respondent Herman filed on March 2, 2018, a "Motion for Assistance of Counsel at Administrative Proceedings," in which she requested the SEC Administrative Law Judge to appoint counsel to assist her in the SEC proceeding. In denying that request, the ALJ states in part that the SEC does not appoint counsel to represent respondents in administrative proceedings.


FINRA Arbitrators Deem CRD / U5 Disclosures Defamatory

It's one of the most common questions asked of industry lawyers when approached by an angry former employee looking to sue the former employer firm: Can I win? Hand in hand with such a preliminary query are the questions of how much is my case worth and is there anything you can do about that crap they posted on my Form U5? A recent FINRA Arbitration answers some of those nagging questions. Whether or not the answers are satisfactory depends on a number of factors.


Woman Sentenced for $1.3 Million Investment Frauds (DOJ Press Release) Grenetta Wells was the Chief Operating Officer of Micro-Enterprise Management Group (MEMG), which allegedly helped poor people in developing countries by providing small, short-term loans to start or expand existing businesses by working with a network of established micro-finance institutions. Wells worked with Terry Wayne Millender, the former senior pastor of Victorious Life Church in Alexandria and Chief Executive Officer of MEMG, and his wife Brenda Millender, who was a founding member of MEMG to solicit investors. After guaranteeing investors rates of return and promising the safety of loan principal, the Wells and the Millenders used the funds to conduct risky trading on the foreign exchange currency market and day trading by Wells. Wells pled guilty to conspiracy to commit wire fraud and was sentenced to 30 months in prison and ordered to pay $1.3 million in restitution. Following their convictions, the Millenders are awaiting sentencing.


Facebook posting from prison leads to new charges against federal inmate (DOJ Press Release)On January 5, 2018, Joe L. Fletcher arrived at the United States Penitentiary in Atlanta, Georgia to serve his sentence for drug trafficking and illegal possession of a firearm. On January 27, 2018, he posted a 49-minute video to his public Facebook page. The recording was of a phone conversation Fletcher was having with family members and friends. During the conversation, he allegedly bragged that he could possess a phone in any prison and that he was enjoying his time inside USP Atlanta. As set forth in part in the DOJ Press Release, after calling himself "a motivational speaker for gangsters," Fletcher then claimed credit for committing a murder in 2010.