(Texas State Securities Board Release) TSSB entered an Emergency Cease and Desist Order against alleged Mark J. Moncher, who was offering investments in an unregistered cryptocurrency trading program that purportedly delivers returns of 8% per week. Moncher alleged published an online advertisement targeting Texas residents, who were directed to a website containing information about both offerings. TSSB alleges that Moncher controls the Financial Freedom Club Inc. and has concealed from investors his 2009 federal mail and wire fraud convictions for which he was sentenced to 57 months in federal prison plus three years of supervised release, and ordered to pay $2 million in restitution. READ the FULL TEXT TSSB Order.
Former Private Equity Firm Partner Charged With Secretly Billing Clients for His Vacations and Salon Visits (SEC Litigation Release No. 24093) The SEC filed a Complaint in the United States District Court for the Southern District of New York ("SDNY") alleging that former Apollo Management L.P. senior partner Mohammed Ali Rashid had defrauded clients by secretly billing them for about $290,000 in personal expenditures, including his family vacations, visits to a hair salon, and purchases of designer clothing and high-end electronics. Among the SEC's allegations is that Rashid doctored a receipt for his purchase of a $3,500 suit for his father in order to give the transaction the appearance of a business expense. Despite being caught by the firm and told to stop on two occasions in 2010 and 2012, Rashid allegedly continued to expense personal items to clients into 2013. READ the FULL TEXT Complaints
California Man Pleads Guilty To Multimillion-Dollar Fraud On Film Investors (DOJ Press Release) From 2009 through 2017, Steven Brown and co-conspirators solicited millions of dollars for investments in the marketing and production of feature-length films and documentaries from investors, including by furnishing them with fraudulent documents and by promising guaranteed returns. The proceeds were primarily used to fund projects other than those presented, to engage in a Ponzi-like scheme by which previous victims were paid, and to cover personal expenses including Brown's purchase of a condominium. Brown pled guilty to one count of conspiring to commit wire fraud
Crash And Burn Upon Entry Into Wall Street (BrokeAndBroker.com Blog) Most of us run into some problems during our lifetimes. For some of us, the resolution of such issues may be to pay a fine or sit down for a suspension or promise never to do something again. In some cases, our problems involve dealing with a government agency and the sanctions that they hand down may be so severe as to amount to the ending of a career -- which often prompts folks to seek work elsewhere and try to start over. In a recent FINRA disciplinary settlement, we come across the tale of a former escrow agent who wound up getting fined and barred by two different states in 2013 and 2014 respectively. Perhaps trying to start anew, this individual attempted a new career in the securities industry. Sometimes you can run from your past. Sometimes you can't. Today's BrokeAndBroker.com Blog examines the latter variation. Another story of crash and burn on Wall Street
Defendant in SEC Cases Involving Ticket Resale Investment Schemes Sentenced to More than Six Years' Imprisonment in Parallel Criminal Case In 2017, the SEC filed two enforcement actions in the United States District Court for the Southern District of New York ("SDNY") against Joseph Meli. The first Complaint alleged that Meli and his co-defendants had solicited investments for the bulk purchase and resale of tickets to popular Broadway shows and concerts, but used the majority of the more than $97 million raised to make payments to earlier investors and to enrich Meli, his family, and a co-defendant. SDNY entered a preliminary injunction and asset freeze. The second Complaint alleged that Meli and New York sports radio personality Craig Carton raised millions from investors by falsely claiming that they had access to large blocks of face-value tickets to popular concert performances. Carton and Meli allegedly misappropriated at least $3.6 million to repay earlier investors in a Ponzi-like scheme and to cover other expenses, including Carton's gambling debts.
SEC Charges Investment Adviser with Engaging in Ponzi-like Scheme (SEC Litigation Release No. 24094) The SEC filed a Complaint in the United States District Court for the Southern District of New York ("SDNY") alleging that starting around 2010, Michael Scronic began to raise money from at least 42 friends and acquaintances to invest in an options trading strategy. Although Scronic purportedly asserted that the investment was liquid and redemptions would be quickly satisfied, the SEC asserts that Scronic had sustained at least $15 million in investment losses since April 2010. For the period ending June 30, 2017, Scronic allegedly reported to investors total assets of at least $21,837,475; but the June 30, 2017, balance was just under $27,500. Scronic allegedly resorted to Ponzi-like practices in order to obtain additional investment funds to satisfy redemption requests In a parallel action, the U.S. Attorney's Office for the Southern District of New York announced criminal charges against Scronic. READ the FULL TEXT Complaint
SEC Obtains Final Judgment Against Former Football Player Charged With Running $10 Million Fraud (SEC Litigation Release No. 24101) The SEC alleged that Merrill Robertson, Jr., Sherman C. Vaughn Jr., and the company they co-owned, Cavalier Union Investments LLC, promised to invest in diversified holdings but stole nearly $6 million of the more than $10 million they raised from investors. The $6 million in diverted proceeds was spent on personal expenses such as cars, family vacations, repayment of mortgage and credit-card debt, luxury goods, clothing, entertainment, educational expenses for family members, and a luxury suite at a football stadium. They also used the stolen money to make various donations and gifts to alma maters, churches, and other third parties. Robertson, who was criminally charged based on the conduct alleged by the SEC, was sentenced to 40 years' imprisonment, ordered to pay over $8 million in disgorgement, and permanently enjoining him from violating federal securities laws.
(SEC Litigation Release No. 24091)n a Complaint filed in the United States District Court for the Middle District of Florida, the SEC alleged that between August 4 and August 15, 2016, Gregory M. Bercowy sold shares of certain Fortune 500 companies, including Abbott and Apple, in his relative's brokerage account in order to buy over three million shares of Aureus at a total cost of more than $2.8 million. The Complaint alleges that while Bercowy was accumulating Aureus shares of Aureus, he manipulated the market by entering and then cancelling a large number of buy orders at prices higher than the then-current price of Aureus stock. READ the FULL TEXT Complaint.
File this under how could I not post this one with this heading: Cape Cod Man who Disguised Money as Gift-Wrapped Books Ordered to Forfeit Funds by Federal Judge / Defendant attempted to carry $100,000 disguised as books through airport security (DOJ Press Release)Daniel R. Ormond booked a one-way flight from Boston to California and attempted to pass through a Transportation Security Administration (TSA) checkpoint with a bag that contained two gift-wrapped packages, which appeared to be books. Upon inspection, the books turned out to be $100,000 in cash divided into two separate bundles of currency sandwiched between cardboard and then wrapped in carbon-paper. Ormond initially denied any knowledge of the currency and claimed that his mother had packed the two gifts, which he said were intended for a relative graduating high school. Unfortunately, mom denied both giving her son the gifts/cash or knowledge of the purported graduation. On top of everything, while talking to law enforcement, Ormond received a call from a friend, who asked whether he was able to get through security without any issues. After federal prosecutors filed a complaint for forfeiture of the $100,000 as the alleged proceeds of drug trafficking or money intended for same, the Court ordered the forfeiture.
Securities And Exchange Commission Imposters Target Public (BrokeAndBroker.com Blog)The Securities and Exchange Commission recently posted "SEC Warns of Government Impersonators" (SEC Press Release 2018-55) warning investors about an ongoing scam in which fraudsters claiming to be SEC employees attempt to trick investors into sending money or revealing sensitive account information. As reported by some targets of this fraud, the scheme may start with what seems like a bona fide solicitation to buy stock from a stockbroker or other purported industry professional. Thereafter, you may be contacted by a conspirator pretending to be from the SEC and claiming to need to verify or confirm that transaction. Listen to a taped conversation.
Carrolton Man Pleads Guilty For His Role in a "Foreclosure Rescue Scheme" That Exploited Vulnerable Homeowners Facing Foreclosure (DOJ Press Release)A federal grand jury in the United States District Court for the Northern District of Texas indicted Mark Demetri Stein, Bruce Kevin Hawkins, Richard Bruce Stevens, and Christina Renee Caveny, for their roles in a fraudulent foreclosure rescue scam in which they represented to homeowners that they had "investors" standing by who were ready to quickly purchase the homeowner's present loan from the lender holding the current mortgage. They also falsely represented that they would use investors to purchase the homeowner's loan from the original lender at a greatly reduced price through a "short sale" process. As part of the scheme, the conspirators fraudulently required homeowners make all future loan payments to them and to ignore late payment notices sent by lenders. The defendants victimized at least 70 distressed and vulnerable homeowners who were facing the imminent threat of foreclosure on their homes and fraudulently collected a total of at least $242,000 from them. The conspirators concealed that all down payment and monthly mortgage payments fraudulently collected from homeowners and spent the proceed for their own personal benefit. Following their indictment, Hawkins, Stevens, and Caveny pled guilty and Hawkins and Caveny have been sentenced to 41 months and 15 months in federal prison, respectively. Stevens and Stein are awaiting sentencing.
(FINRA Offer of Settlement) In response to the filing of a Complaint on December 12, 2018, by the Financial Industry Regulatory Authority's ("FINRA's") Department of Enforcement, Respondent Jeffery Allen Fanning submitted an Offer of Settlement dated March 19, 2018, which the regulator accepted. Under the terms of the Offer of Settlement, without admitting or denying the allegations in the Complaint, Respondent Jeffery Allen Fanning consented to the entry of findings and violations and to the imposition of the sanctions. FINRA Department of Enforcement, Complainant, vs Jeffery Allen Fanning, Respondent (Order Accepting Offer of Settlement, FINRA Office of Hearing Officers, 2015043246401, April 2, 2018) (the "Order") As alleged in part in the Order Fanning failed to reasonably supervise the equity trading of registered representatives at his firm.
Stormy Daniels Issue Hits FINRA Arbitration Remand (BrokeAndBroker.com Blog) Among the more difficult roles that I have as the publisher of the BrokeAndBroker.com Blog is to present an analysis of a case in which I am troubled by the facts and angered by the decision. In reporting on Wall Street's legal, regulatory, and compliance developments, I frequently find myself at odds with the powers that be. I am an unabashed libertarian (with a small "l") and an unrepentant advocate for free-markets, robust competition, and fair play. I love the clash of ideas in the marketplace. I detest when vested interests unbalance the scales. I hate it when corrupt politicians and regulators do the bidding of their patrons and rig the system. Yes . . . your're right . . . I'm not always right, everyone else is not always wrong, and sometimes I just need to chill. That being said, you're an idiot and I fully respect that you have the right to be wrong. Having shown my magnanimous attitude, let me present to you today's featured court opinion about Wall Street arbitration . . . grrrrrrrrrr . . .
FINRA Settles Private Securities Transactions Supervision Case (FINRA AWC) 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, Richard Hunt Crockett submitted a Letter of Acceptance, Waiver and Consent ("AWC"), which FINRA accepted. In the Matter of Richard Hunt Crockett, Respondent (AWC 2017053992302, April 3, 2018).In pertinent part, the AWC alleges that Crockett approved brokers' private securities transactions in but failed to reasonably supervise those transactions.
Federal Courts Wrestle With Opening Doors To US Courthouse To KOSPI Class Action
When we talk about the globalization of Wall Street, we need look no further than a recent class action lawsuit filed in the United States District Court for the Southern District of New York ("SDNY") by five Korean citizens plaintiffs, who traded KOSPI 200 future contracts in the after-hours (the "night market") on the Korea Exchange ("KRX"). You might ask with some validity as to how such a case would have jurisdiction in the US courts. That's a fair question and, frankly, you're a pretty clever person to have raised the point. Then there's the whole mixing of the real and the digital worlds. Where does anything online occur anymore? If you enter a trade in Korea that is sent to a server based in the United States but routed back for settlement to Korea, how do we figure out just where "where" is? As more transactions move to the Cloud, the question of where something takes place may become more difficult. Read on and see how the US court system handled that very problem
(SEC Press Release 2018-53)The SEC charged Centra Tech, Inc. co-founders Sohrab "Sam" Sharma and Robert Farkas with raising over $32 million from thousands of investors pursuant to an allegedly fraudulent initial coin offering ("ICO") in which Centra purportedly offered and sold unregistered investments through a "CTR Token." Sharma and Farkas allegedly claimed that funds raised in the ICO would help build a suite of financial products including a debit card backed by Visa and MasterCard that would allow users to instantly convert cryptocurrencies into U.S. dollars or other legal tender. In a parallel action, the U.S. Attorney's Office for the Southern District of New York filed criminal charges against Sharma and Farkas. READ the FULL TEXT SEC Complaint. https://www.sec.gov/litigation/complaints/2018/comp-pr2018-53.pdf
In the Matter of the Application of Lek Securities Corporation for Review of Disciplinary Action Taken by FINRA (Opinion, SEC, '34 Act Rel. No. 82981; Admin. Proc. File No. 3-17677 / April 2, 2018 ) On appeal, the SEC sustained FINRA's finding that Lek Securities had violated NASD Rules 3011(a) and 2110 and FINRA Rules 3310(a) and 2010 by failing to establish and implement Anti-Money-Laundering policies, procedures, and internal controls that could be reasonably expected to detect and cause the reporting of suspicious transactions and that were reasonably designed to achieve compliance with the Bank Secrecy Act. Further, the SEC sustained FINRA's imposition of a Censure and $100,000 fine.
Federal Appeals Court Reverses PCAOB and SEC over Denial of Ernst & Young Expert Witness (BrokeAndBroker.com Blog) You know when you read something that's "official" and, at first blush, it doesn't make sense? Of course, you figure you must have missed something, so you re-read it but, gee, it still doesn't make sense. Then you look at the heading of the document and it's from some governmental agency or court and you figure that they must know what they're talking about and, after all, I'm just an idiot. At this point, you often go back, re-read the thing a third time but now assume whatever is necessary to bring reason to the pages and you relinquish all sorts of objections that get in the way. Voila, it now all makes sense! Of course, you may also wind up walking away as did Galileo muttering "And yet it moves." Speaking of walking away and how things still move, I recently followed a mess involving the PCAOB, the SEC, and a Ernst & Young audit partner. The E&Y audit partner came within the crosshairs of PCAOB and was suspended and fined, which the SEC affirmed. Frankly, I didn't feel much sympathy for the guy and felt and still feel that PCAOB had him dead to rights. On the other hand, when the PCAOB was investigating the audit partner, they scheduled an interview at which he was accompanied by a lawyer employed by E&Y. Not my preferred manner of representation given the potential for conflicts in such cases but it's common enough that it's not that big a deal. On the other hand, PCAOB denied the lawyer's request to be accompanied by an accounting expert, who was also an E&Y employee. As best I could understand PCAOB's position on denying the expert's attendance, the regulator kept saying that it didn't want an employee of the firm present at the individual's interview -- but, you know, I kept noticing that the lawyer representing the individual was an E&Y employee and, hey, what's up with that? How come it's okay to have one E&Y employee present at the interview but not another? Seemed to me that PCAOB was sort of making it up as it went along.
SEC Charges Fintech Company Founder With Scheme to Defraud Investors and Misappropriate Funds (SEC Press Release 2018-52) The SEC charged Michael Liberty, founder of the fintech firm Mozido Inc., his wife Brittany Liberty, his attorney George Marcus, his cousin Richard Liberty, and his cousin's friend Paul Hess with fraudulently inducing investors to purchase unregistered interests in shell companies controlled by Michael Liberty. Although said shells were represented as having transferrable interests in Mozido, they did not. The alleged scheme duped investors out of over $48 million, which was allegedly diverted to fund such private expenses as private jet flights, multi-million dollar residences, expensive cars, and movie production ventures. READ the FULL TEXT Complaint. https://www.sec.gov/litigation/complaints/2018/comp-pr2018-52.pdf
Federal Courts Wrestle With Opening Doors To US Courthouse To KOSPI Class Action (BrokeAndBroker.com Blog) When we talk about the globalization of Wall Street, we need look no further than a recent class action lawsuit filed in the United States District Court for the Southern District of New York ("SDNY") by five Korean citizens plaintiffs, who traded KOSPI 200 future contracts in the after-hours (the "night market") on the Korea Exchange ("KRX"). You might ask with some validity as to how such a case would have jurisdiction in the US courts. That's a fair question and, frankly, you're a pretty clever person to have raised the point. Then there's the whole mixing of the real and the digital worlds. Where does anything online occur anymore? If you enter a trade in Korea that is sent to a server based in the United States but routed back for settlement to Korea, how do we figure out just where "where" is? As more transactions move to the Cloud, the question of where something takes place may become more difficult. Read on and see how the US court system handled that very problem
Brazilian Couple Charged in ATM Skimming Scheme (DOJ Press Release) Brazilian couple Alexandre Kawamura and Karem Kawamura were charged in the United States District Court for the District of Massachusetts in connection with their roles in an alleged ATM skimming scheme. Alexandre Kawamura was caught on ATM security video placing and removing skimming devices on drive-up ATM, and on two occasions, Karen Kawamura was in the car with him.
Cambridge, Massachusetts, Man Sentenced In Manhattan Federal Court For Insider Trading (DOJ Press Release) Fei Yan's spouse worked at a law firm, which in 2016 was retained by a mining company in connection with its negotiations to acquire publicly traded Stillwater Mining company ("SWC"). The spouse came into contact with material nonpublic information about the negotiations, which she shared with her husband, who bought hundreds of SWC options before the completion of the acquisition was made public. While engaging in such purchase, Fei Yan searched online for information about insider trading. On December 9, 2016, when the acquisition of SWC was announced, Yan sold his options for a profit of $109,420. In addition to being sentenced to 15 months in federal prison and three years supervised release and ordered to forfeit $119,428.50, representing the amount of proceeds obtained as a result of trading in Stillwater Mining and related relevant conduct involving trades in the Mattress Firm.