(SEC No-Action Letter to FINRA / April 12, 2018) In pertinent part, the NAL states:
[C]ontractual provisions that would permit, among other things, a service provider to delete or discard records in the event of non-payment by the broker-dealer are inconsistent with the retention requirements of Rule 17a-4 and the undertaking requirements of paragraph (i) of Rule 17a-4.7 Moreover, if a service provider deletes or discards broker-dealer records in a manner that is not consistent with the retention requirements in Rule l 7a-4, such action would constitute a primary violation of the rule by the broker-dealer and may subject the service provider to secondary liability for causing or aiding and abetting the violation.
of Justice Begins Second Distribution of Funds Recovered Through Asset
Forfeiture Totaling $1.2 Billion to Compensate Victims of Bernard Madoff Fraud
Scheme (DOJ Press Release)
On April 12, the Madoff Victim Fund (MVF) began its second distribution to over 21,000 victims of $504 million in funds forfeited to the U.S. Government in connection with the Bernard L. Madoff Investment Securities LLC (BLMIS) fraud scheme, bringing the total distributed to over $1.2 billion. Of the approximately $4.05 billion to be paid out, about $2.2 billion came from the civil forfeiture recovery from the estate of Jeffry Picower; about $1.7 billion via a Deferred Prosecution Agreement with JPMorgan Chase Bank N.A. and civilly forfeited in a parallel action. The remaining funds came from forfeiture actions against investor Carl Shapiro and his family, and from Bernard L. Madoff, Peter B. Madoff and their co-conspirators.
Two Defendants Indicted in Brooklyn Federal Court for Foreign Exchange Trading Scams / Defendants Stole Hundreds of Thousands of Dollars by Luring Korean-American Investors into Bogus Foreign Exchange Trading (DOJ Press Release) Tae Hung Kang, also known as "Kevin Kang," and John Won were indicted in the United States District Court for the Eastern District of New York ("EDNY") with conspiring to commit wire and securities fraud, securities fraud, and conspiring to commit money laundering, in connection with schemes involving foreign exchange trading that targeted defrauded dozens of Korean-Americans. Kang was also charged with substantive wire fraud. Kang and Won promised investors double-digit returns, and claimed to have a secret algorithmic trading method that would generate large profits with minimal risk. The Indictment alleges that Kang and Won had minimal trading experience, their algorithmic trading method never performed as promised, and investors suffered substantial losses. In a second fraud, Kang and Won persuaded investors to purchase shares of Safety Capital Management, Inc. ("Safety Capital"), which did business as FOREXNPOWER, which was purportedly engaging in foreign exchange trading.
CFTC Charges New York Residents Kevin Whylie and Matthew Zecchini and Their Company, Algointeractive Inc, with Commodity Pool Fraud, Misappropriation, and Registration Violations (CFTC Release 7710-18) CFTC filed a Complaint in the U.S. District Court for the Southern District of New York (SDNY) against Defendants Kevin P. Whylie; Matthew James Zecchini; and Algointeractive Inc, a New York corporation owned and controlled by Whylie and Zecchini. The CFTC Complaint alleges that from approximately April 2016 through the present, Defendants fraudulently solicited at least $300,000 for participation in a pooled investment vehicle for futures trading. The Complaint alleges, in part, that Defendants misrepresented or omitted material information about their own experience, track record, and amount of assets under management. Further, Defendants are charged with misrepresenting that participants' funds would be pooled and invested in, among other things, futures contracts, for the participants' benefit. CFTC seeks restitution, disgorgement, civil monetary penalties, permanent trading and registration bans, and a permanent injunction against further violations of the Commodity Exchange Act and CFTC Regulations.
FINRA Books Outside Business Activity Fine And Suspension (BrokeAndBroker.com Blog) Today's BrokeAndBroker.com Blog examines the curious case of a stockbroker acting as an agent for the collector of rare books. Sort of sounds like a movie plot. Be that as it may, we have a ten-year-long pattern of conduct that FINRA doesn't quite like. As the self-regulator is apt to do, it suspends and fines the guy. When it comes to a fine, howsabout we impose something like, say, ummm, okay, $1,000 to, what's a nice high-end number?, yeah, $5,000. What am I talking about? Well, what are you talking about? You never heard of a fine between $1,000 and $5,000? You never made a dinner reservation for 6 p.m. to 10 p.m.?
North Branford Man Admits to Hacking Apple iCloud Accounts of More Than 200 People, Including Celebrities (DOJ Press Release) Federal prosecutors alleged that from April 2013 through Octboer 2014, George Garofano sent e-mails to victims that appeared to be from security accounts of Apple and encouraged the victims to send him their usernames and passwords, or, in the alternative, to enter the information on a third-party website, where he would later retrieve them. Thereafter, Garofano would use the stolen information to access about 240 victims' iCloud accounts and obtain personal information including sensitive and private photographs and videos. Garofano waived indictment and pled guilty to one count of unauthorized access to a protected computer to obtain information.
Court Orders California Firm and Founder Charged with Defrauding Investors to Pay Over $3.8 Million (SEC Litigation Release No. 24109) The United States District Court for the Central District of California ("CDCA") ordered Christopher M. Lee, (who operated under the alias Rashid K. Khalfani) and his firm Capital Cove Bancorp LLC to pay over $3.8 million in disgorgement and civil penalties.As charged in an SEC Complaint, Lee and his company purportedly raised investments in distressed real estate through REO Opportunities Fund II LLC and Rittenhouse Square Trust LLC. The SEC alleged that Khalfani hid dhis prior criininal history from investors, stole the investments and, in some instances, used the proceeds to purchase real estate for his own benefit. Khalfani and Capital Cove are permanently enjoined from violating Section 17(a) of the Securities Act of 1933, Sections 5 and 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder, Section 207 of the Investment Advisers Act of 1940, and Capital Cove from violating, and Khalfani from aiding and abetting violations of, Section 203A of the Advisers Act. Securities and Exchange Commission v. Capital Cove Bancorp LLC and Christopher M. Lee aka Rashid K. Khalfani (15-CV-980, CDCA)
(SEC Litigation Release 24108) The SEC filed a Complaint in the United States District Court for the Southern District of New York alleging that New York-based brokers William C. Gennity and Rocco Roveccio recommended investments that involved frequent buying and selling of securities without any reasonable basis to believe their customers would profit. Further, the Complaint asserts that Gennity and Roveccio churned customer accounts, engaged in unauthorized trading, and concealed material information about transactional costs from their customers. The SEC alleged customer losses of $683,038 while Gennity and Roveccio allegedly received about $280,000 and $206,000, respectively, in commissions and fees. Separately, broker Laurence M. Torres settled SEC charges against him that he had no reasonable basis to believe it that his recommended frequent trading was suitable for his customers, and that he also had engaged in churning and made unauthorized trades. Without admitting or denying the findings, Torres agreed to be barred from the securities industry and penny stock trading, and he must pay $225,359.36 in disgorgement plus $25,748.02 in interest, and a $160,000 penalty. READ the FULL TEXT SEC Complaint
Drinking, Driving, Felonies, And A Wall Street Regulatory Head-On Collision (BrokeAndBroker.com Blog) Drinking and driving is never a good idea. In today's BrokeAndBroker.com Blog, we cover yet another instance of the impact of drinking, driving, felony charges, and felony pleas on a registered representative's Wall Street career. It is a sobering message.
Jamaican man admits to scamming Americans with
lottery scam (DOJ
Zicko Peterkin pled guilty to one count of conspiracy to commit wire fraud in connection with his role in a scam involving unsolicited phone calls and emails making false claims that the recipients had won a multi-million dollar lottery prize and a Mercedes Benz vehicle. Peterkin sent images of forged cashier's checks to the recipients with their name as the payee, and victims were told that they needed to send processing fees in order to obtain their prizes. At least $250,000 was wired to Peterkin and his co-conspirators. Puhlease tell your grandmother and grandfather about this case the next time they tell you about the call that they got informing them that they won a foreign lottery!
Nigerian Man Pleads Guilty In Manhattan Federal Court To Participating In Business Email Compromise Scams (DOJ Press Release) Onyekachi Emmanuel Opara pled guilty in the United States District Court for the Southern District of New York to one count of conspiracy to commit wire fraud and one count of wire fraud in connection with his participation in fraudulent business email compromise scams between 2014 and 2016that targeted thousands of victims around the world, including the United States. Prosecutors alleged that fraudulent emails were sent to employees of various companies, purportedly from their supervisors or from third party vendors, directing that funds be transferred to specified bank accounts.
Owner Of U.S. Energy Partners, Inc. Of Bowling
Green, Kentucky, Sentenced To Prison For Wire Fraud, Securities Fraud, And
Money Laundering / Fraudulent
Investment scam resulted in loss exceeding $1,000,000 for eleven partners (DOJ
Press Release) After two hours of deliberation, a federal jury convicted
Clay Shelton. the owner of U.S. Energy Partners, Inc. of wire fraud, securities
fraud, and money laundering as part of a scheme that defrauded 11 investors of
$1,175,000. Federal prosecutors alleged that from March 2011 through September
2012, Shelton fraudulently represented to the investors that their funds would
be held in escrow as a down payment until he was able to complete financing to
purchase the Monterey Pipeline, after which investors would receive either a
25% return on their investment or Monterey Pipeline Partners LLC would buy
their interest in any Tennessee well program they previously purchased through
U.S. Energy Partners. Shelton diverted the funds from escrow for investment in
collateralized mortgage obligations or for business expenses. He was sentenced
to 50 months in federal prison.
(TSSB Enforcement Report) After its Enforcement Division conducted a four-week investigation involving 32 investigations, the Texas State Securities Board found widespread fraud in cryptocurrency offerings. READ the FULL TEXT Report.
British Lawyer Found Guilty After Trial For His Participation In Multimillion-Dollar Tax Fraud Scheme Involving Swiss Bank Accounts (DOJ Press Release) After a three-week trial in the United States District Court for the Southern District of New York, a jury found British Attorney Michael Little (who is also licensed to practice law in New York) guilty of obstructing and impeding the due administration of the internal revenue laws, failing to file personal income tax returns from 2005 to 2010, willfully failing to file reports of foreign bank and financial accounts, conspiracy to defraud the United States, and aiding and assisting the preparation of false tax returns. The conviction was in connection with Little's participation in an 11-year tax fraud scheme in which he advised and helped the American Seggerman family to defraud the Internal Revenue Service by hiding approximately $14 million in overseas Swiss bank accounts and by other means, failed to file his own personal tax returns, and assisted in the filing of false tax returns.
Oppenheimer And Euro Pacific Duke It Out In $35 Million Unfair Competition Arbitration (BrokeAndBroker.com Blog) Today's BrokeAndBroker.com Blog presents an old-fashioned knock-down-drag-out fight involving former employer Euro Pacific Capital, its former employee Steven Savoy, and his new employer Oppenheimer & Co. From the opening bell, it's obvious that there's more than a tad of bad blood between the former employer and employee. We got Euro Pacific comin' out swingin' and seeking to land a knock-out in the form of an extensive permanent injunction. In fact, before Euro even gets into the FINRA arbitration ring, the firm gets in a few shots during a preliminary bout in federal court. The fans were expecting a tag team between Oppenheimer and Savoy but the latter was nowhere to be found.
(SEC Litigation Release No. 24106) The United States District Court for the Southern District of New York ("SDNY") granted the SEC's request for a court order freezing over $27 million in trading proceeds from allegedly illegal distributions and sales of restricted shares of NASDAQ-listed Longfin Corp. stock involving the company, its founding CEO and controlling shareholder, Venkata Meenavalli,, and corporate secretary and Longfin director Amro Izzelden "Andy" Altahawi, Dorababu Penumarthi, and Suresh Tammineedi. Longfin's stock price dramatically increased following announcement of the company's acquisition of a purported cryptocurrency business.
Former Wealth Manager Sentenced for Wire Fraud, Identity Theft, and Money Laundering (DOJ Press Release) Following his guilty pleas, former wealth manager Leon A. Smith was sentenced today to 51 months in federal prison for wire fraud, identity theft, and money laundering in connection with his stealing nearly $1.3 million from professional athlete clients and misusing their identities during a scheme that ran from September 2011 through January 2015. Also, Smith was ordered to forfeit $1,298,506.82.
INVESTOR ALERT: PONZI SCHEMES TARGETING SENIORS (SEC Investor
The SEC's Office of Investor Education and Advocacy (OIEA) and Retail Strategy Task Force issued a warning to investors about Ponzi schemes that prey on senior investors.
LPL, RR, BD, IRS, U5, FINRA, And AWC (BrokeAndBroker.com Blog)
A word to the wise: It's tax season! A word to the wary: It's tax season! As folks are scrambling around to come up with the funds for this year's tax bite, it's inevitable that many will come up short. Some will beg. Some will borrow. Some will steal. It's easy enough to urge you to keep a close eye on transfers out of your bank and brokerage accounts, but what about your elderly grandparents, parents, and other family-members and friends? Similarly, what about those in failing health that compromises their abilities to monitor their finances? Today's BrokeAndBroker.com Blog sets off a bright, red warning flare in the form of a Financial Industry Regulatory Authority settlement involving a wayward stockbroker who apparently engaged in a bit of self-help when it came to paying her taxes.
FINRA Department of Enforcement, Complainant,
v. Gerard Chandler Gremillion, Respondent. (FINRA OHO Hearing
Panel Amended Decision, FINRA Proceeding No.
2015044600801, April 5, 2018)
Respondent Gremillion , representing himself pro se, was found to have willfully failed to update his Form U4 to disclose two tax liens, a bankruptcy filing, and a civil monetary judgment, and provided a false answer in an amendment to his Form U4. For these violations, Respondent is suspended from associating with any FINRA member firm in any capacity for two years and fined $20,000. The Panel's finding of willfulness subjects him to statutory disqualification. Respondent is also assessed the costs of the hearing.
SEC Voluntarily Dismisses Claims Against Benjamin Wey and Co-Defendants (SEC Litigation Release No. 24105 / April 9, 2018) Securities and Exchange Commission v. Benjamin Wey, et al. (SDNY, 15-CV-07116) As set forth in the SEC's Litigation Release: on September 1, 2017, the Securities and Exchange Commission voluntarily dismissed its claims against defendants Benjamin Wey, New York Global Group, Michaela Wey, Robert Newman, and William Uchimoto. On September 1, 2017 and October 27, 2017, the SEC voluntarily dismissed its claims against relief defendants Advantage Consultants, Ltd., York Capital Management, Ltd., Four Tong Investments, Ltd., Strong Growth Capital, Ltd., Median Assets Investments, Ltd., and Han Hua, Ltd., as those entities had been dissolved. On March 8, 2018, the SEC voluntarily dismissed its claims against Tianyi Wei.
SEC Charges Texas Company, Principals in Multimillion Dollar Ponzi Scheme Targeting Seniors (SEC Press Release 2018-63) The SEC filed a Complaint in the United States District Court for the Southern District of Texas charging two Texas companies and their principals in a $2.4 million Ponzi scheme and in a related, $1.4 million offering fraud targeting retirees. Securities and Exchange Commission, Plaintiff, v. The LIfepayGroup, LLC, SMDRE LLC, Clifton E. Stanley, and Michael E. Watts, Defendants
(BrokeAndBroker.com Blog) I am angered by reports that article(s) have appeared online that allegedly use my image (without my express permission) and attribute comments to me that I deem a grotesque distortion of what I believe, have stated and/or published. Similarly, I post online comments using my own name with links back to my websites or social media; and any purported postings by a "Bill" that imply my authorship are fraudulent to that extent.
In anticipation of the institution of proceedings by the SEC but without admitting or denying the findings, Securities America Advisors, Inc. submitted an Offer of Settlement, which the federal regulator accepted. In the Matter of Securities America Advisors, Inc., Respondent (Order Instituting Administrative And Cease-And-Desist Proceedings, Making Findings, And Imposing Remedial Sanctions And A Cease-And-Desist Order; Invest. Adv. Act Rel. No. 4876; Admin. Proc. File No. 3-18424 / April 6, 2018) (the "OIP In addition to ceasing and desisting from further securities laws violations and being Censured, Securities America Advisors agreed to pay $5,828,448.64 in disgorgement, prejudgment interest, and a civil monetary penalty. As set forth in the "Summary" section of the OIP, these proceedings arise out of breaches of fiduciary duty, inadequate disclosures, and deficiencies in compliance policies and procedures by registered investment adviser SAA in connection with its mutual fund share class selection practices.
In anticipation of the institution of proceedings by the SEC but without admitting or denying the findings, PNC Investments LLC, submitted an Offer of Settlement, which the federal regulator accepted. In the Matter of PNC Investments LLC, Respondent (Order Instituting Administrative And Cease-And-Desist Proceedings, Making Findings, And Imposing Remedial Sanctions And A Cease-And-Desist Order; '34 Act Rel. No. 83004;Invest. Adv. Act Rel. No. 4878; Admin. Proc. File No. 3-18426 / April 6, 2018) (the "OIP"). In addition to ceasing and desisting from further securities laws violations and being Censured, PNC Investments LLC agreed to pay $5,847,200 in disgorgement, prejudgment interest, and a civil monetary penalty, and also $497,144 in disgorgement, $63,426 prejudgment interest, and a $900,000 civil monetary penalty . As set forth in the "Summary" section of the OIP, these proceedings arise out of improper mutual fund share class selection and billing practices by PNCI, a registered investment adviser and broker-dealer.
In anticipation of the institution of proceedings by the SEC but without admitting or denying the findings, Geneos Wealth Management, Inc. submitted an Offer of Settlement, which the federal regulator accepted. In the Matter of Geneos Wealth Management, Inc., Respondent (Order Instituting Administrative And Cease-And-Desist Proceedings, Making Findings, And Imposing Remedial Sanctions And A Cease-And-Desist Order; '34 Act Rel. No. 83003; Invest. Adv. Act Rel. No. 4877; Admin. Proc. File No. 3-18425 / April 6, 2018) (the "OIP"). In addition to ceasing and desisting from further securities laws violations and being Censured, Geneos Wealth Management, Inc. agreed to pay $1,135,129.07 in disgorgement and prejudgment interest, and $422,933.06 in disgorgement and prejudgment interest, and a $250,000 civil monetary penalty. As set forth in the "Summary" section of the OIP, these proceedings arise from a series of failures by Geneos, a registered investment adviser and broker-dealer, in connection with its mutual fund share class selection practices and its receipt of revenue sharing payments.