Securities Industry Commentator by Bill Singer Esq

March 29, 2018

In the Matter of Martin Shkreli (Order Regarding Notice of Deposition and Document Subpoena Directed to Respondent, Admin. Proc. Rul. Rel No. 5663; Admin. Proc. File. No. 3-18127 / March 28, 2018)
Martin Shkreli was recently sentenced to 84 months in federal prison and is currently an inmate. The SEC Division of Enforcement asked Administrative Law Judge ("ALJ") Grimes to grant permission to depose Respondent Shkreli and issue a subpoena for five categories of documents. Shkreli opposes the deposition request, indicating through his counsel that he will invoke his Fifth Amendment privilege as to all questions. In part, he opposes the document request. The Division states that in the event Shkreli invokes his privilege against self-incrimination, it will seek an adverse inference.. Shkreli concedes unavailability but asserts, through his counsel, that he will invoke his privilege against self-incrimination. Although ALJ Grimes affirms that a blanket invocation of the Fifth Amendment is usually prohibited, he admonishes that the law does not require the ritual performance of a useless act. Pointedly, ALJ Grimes states that:

[G]iven that Shkreli appears determined to invoke his privilege against self-incrimination, the parties may agree to an alternate procedure less likely to waste everyone's time. If the parties are amenable, they may proceed as follows. By April 4, 2018, the Division may supply Shkreli's counsel with the questions that it would pose if it were to depose him. By April 11, 2018, Shkreli may submit an affidavit to the Division invoking his privilege against self-incrimination as to questions that implicate the privilege. If the parties follow this procedure, I will entertain the Division's request that I impose an adverse inference. 

Bill Singer's Comment: Readers of the Blog and the Securities Industry Commentator know that I am a bit of a fan of ALJ Grimes, who typically attends to his duties with style, class, and all the professionalism that his job requires. The above Order is but another example of an ALJ who seeks to do justice and ensure due process -- and who knows where to draw lines and how to do so with eloquence. 

Former Wells Fargo bank teller and whistleblower Yesenia Guitron wins the 2018 James Madison Freedom of Information Award sponsored by the Northern California Chapter of Society of Professional Journalists (Video Interview)Yesenia Guitron worked at Wells Fargo's St. Helena, California Branch from 2008 to 2010, and after she refused to open fake bank accounts and complained about what she felt were fraudulent practices, she terminated by the bank. Her federal whistleblower claims were dismissed because the courts found that Wells Fargo had presented clear and convincing evidence that Guitron could have otherwise been terminated for failing to meet sales goals, insubordination, and refusing to return to work after being placed on administrative leave. Notwithstanding the federal courts' decisions, allegations have since arisen that the Occupational Safety and Health Administration ("OSHA") failed to properly investigate Guitron's allegations of wrongful retaliation. Similarly, Wells Fargo has been subjected to serious regulatory sanctions as a result of many of the revelations prompted by Guitron and others. Recently, the Society of Professional Journalists awarded to Guitron a James Madison Freedom Of Information Award. There aren't all that many heroes walking around today. In the opinion of Bill Singer, Esq., publisher of the Blog and the Securities Industry Commentator, Guitron is one. Take a moment to watch her video. Take a moment to understand the horrific uphill battle face by industry whistleblowers. Take a moment to recognize the incompetence and corruption that has polluted Wall Street, its regulatory system, and our political system. 

Also, read:

Historic Federal Reserve Restrictions On Wells Fargo ( Blog, February 5, 2018)

Broker-Dealer Admits It Failed to File SARs (SEC Press Release 2018-50)
Broker-dealer Aegis Capital Corporation admitted that it failed to file Suspicious Activity Reports (SARs) on numerous suspicious transactions. As part of its investigation, the SEC settled with Aegis Capital Corporation, its former AML Compliance Officer McKenna, and its former Chief Executive Officer Eide. The SEC is proceding to a hearing concerning its allegations against former Aegis AML Compliance Officer Terracciano. READ the FULL TEXT SEC Orders against Aegis Capital; McKenna and Eide; and Terracciano.  As set forth in part in the SEC Press Release:

The SEC's order found that Aegis willfully violated an SEC financial recordkeeping and reporting rule.  Aegis agreed to pay a $750,000 penalty and retain a compliance expert.  FINRA also announced a settlement with Aegis today that includes an additional $550,000 penalty. 

In a separate settled order, Aegis' former anti-money laundering (AML) compliance officer Kevin McKenna was found to have aided and abetted the firm's violations.  Aegis CEO Robert Eide was found to have caused them.  Without admitting or denying the SEC's findings, Eide and McKenna agreed to pay penalties of $40,000 and $20,000, respectively.  McKenna also agreed to a prohibition from serving in a compliance or AML capacity in the securities industry with a right to reapply.     

In a litigated order, the Enforcement Division alleges that another former Aegis AML compliance officer, Eugene Terracciano, failed to file SARs on behalf of Aegis.  Terracciano is alleged to have aided and abetted and caused Aegis' violations.  The matter pertaining to Terracciano will be scheduled for a public hearing before an administrative law judge, who will prepare an initial decision stating whether the Enforcement Division has proven the allegations in the order and what, if any, remedial actions are appropriate. 

OTC Markets Group Launches New Stock Promotion Flag / Latest Data Points Provide Increased Market Transparency and Disclosure (OTCMG Press Release) As set forth in part in the OTCMG Press Release:

OTC Markets Group Inc. (OTCQX: OTCM), operator of financial markets for 10,000 U.S. and global securities, today released a new stock promotion flag that will enable investors to easily identify securities that are the subject of current promotional activity. This new flag, which is shaped like a megaphone, will appear on the promoted company's quote page on

Manipulative and misleading stock promotion continues to be an industry-wide concern that affects trading on both national exchanges and in the OTC markets. Promotion is not only a problem associated with the smallest companies, as our historical stock promotion data shows 70% of the dollar volume impact is in securities listed on a national exchange.  Stock promotion harms investors, impedes capital formation and disrupts efficient pricing mechanisms. Our new promotion flag will serve to alert investors to the presence of promotional activity and help broker-dealers enhance compliance and AML processes. 

"Anonymous, paid stock promotion should have no place in the public markets," said R. Cromwell Coulson, President and Chief Executive Officer, OTC Markets Group. "We are taking responsibility to provide transparency to investors and encourage public companies to disclose and correct misinformation that can harm the efficient market pricing process. We continue to work with regulators to advocate for the modernization of promotion regulations, including requiring additional disclosure around paid stock promotion and identifying the people associated with these campaigns."

FINRA Arbitration Panel Divines Intent Of Deceased In Dividing Account Assets ( Blog)
In today's Blog we are confronted with yet another variation on the theme of how folks attempt to provide for their loved ones after death but how life, regulation, compliance, and law may frustrate such intentions. Given the often incomprehensible state of estate law and some profound misunderstanding about how the mechanics of joint, tenants in common, and transfer-on-death brokerage accounts work, public customers often think that their after-death desires are going to be accomplished through resort to a 'of estate-planning and trust documents and maneuvers. Sometimes it all works out. Sometimes it's a mess. One of the rewarding things about the BrokeAndBroker Blog's coverage of near-disasters and disasters is that we call attention to issues that folks haven't given enough thought to and frequently get thanked for the warning. 

SEC Obtains Summary Judgment in EDGAR Manipulation Case (SEC Litigation Release No. 24086)

The United States District Court for the Southern District of New York granted the SEC's motion for summary judgment against Nauman Aly, a trader in Pakistan , who allegedly made $425,000 manipulating the price of Integrated Device Technology securities by filing a false tender offer on the SEC's EDGAR system. READ the FULL TEXT Memorandum Opinion and Order

Manhattan U.S. Attorney Announces Lawsuit Against Foreclosure Law Firm For Systematically Overbilling Fannie Mae For Foreclosure Expenses (DOJ Press Release)
Following the initiation of the matter  by a Relator pursuant to the Qui Tam tam provisions of the False Claims Act, the United States  filed a Complaint-in-Intervention in the United States District Court for the Southern District of New York ("SDNY") against foreclosure law firm Rosicki, Rosicki & Associates, P.C. and its wholly owned affiliates, Enterprise Process Service, Inc. and Paramount Land, Inc. for allegedly engaging in a scheme to generate false and inflated bills for foreclosure-related expenses and causing those expenses to be submitted to and paid for by the Federal National Mortgage Association, known colloquially as Fannie Mae.   READ the FULL TEXT Complaint-In-Intervention As set forth in the "Preliminary Statement" to the Complaint:

1. The United States of America brings this action seeking treble damages and penalties against Defendants Rosicki, Rosicki & Associates, P.C. ("Rosicki"), Enterprise Process Service, Inc. ("Enterprise"), and Paramount Land, Inc. ("Paramount" and collectively, "Defendants") under the False Claims Act, 31 U.S.C. § 3729 et seq., based on Defendants' scheme to generate expenses for foreclosure-related services that were falsely and fraudulently inflated with knowledge that those expenses would be passed on to, and paid by, the Federal National Mortgage Association ("Fannie Mae"). 

2. As set forth more fully below, the United States alleges that, since at least May 27, 2009, and continuing to the present, Rosicki, a law firm specializing in mortgage foreclosures; Enterprise, a service of process company wholly owned by the two founding partners of Rosicki (the "Rosicki partners"); and Paramount, a title search company also wholly owned by the Rosicki partners, defrauded Fannie Mae, a Government-Sponsored Entity. Specifically, Defendants perpetrated a scheme whereby Rosicki, acting as counsel to any one of numerous mortgage servicing companies (the "Servicers"), engaged Enterprise and Paramount, ostensibly to serve process and perform title searches as required to effectuate a mortgage foreclosure for Fannie Mae-owned mortgage loans. In reality, however, Enterprise and Paramount carried out these functions by engaging third-party vendors to perform the majority of the work, and then applied exponential mark-ups to those vendors' bills for foreclosure-related services despite adding little or no value to the services that the vendors performed. Enterprise and Paramount submitted their marked-up expenses, which exceeded market rates, to Rosicki, which then billed the Servicers for those expenses, with knowledge that the Servicers would submit claims to Fannie Mae for reimbursement of the expenses, and that Fannie Mae would pay those claims. Defendants' submission of these fraudulently inflated expenses to the Servicers, which then sought and received reimbursement from Fannie Mae, caused Fannie Mae to pay millions of dollars for falsely and fraudulently inflated foreclosure expenses generated by Defendants.