Securities Industry Commentator by Bill Singer Esq WEEK IN REVIEW

April 21, 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:

FINRA'S BLACK HOLE: In 30 Years, Only 17 Women Won Sexual Harassment Claims Before Wall Street's Oversight Body (The Intercept, by Susan Antilla) O'Brien's case is one of 98 sexual harassment or hostile work environment claims and counterclaims made by women that The Intercept and the Investigative Fund found in the FINRA database over the past 30 years. FINRA does not categorize the cases in its database, so to assemble our list, we searched for words and phrases including "sexual harassment," "hostile environment," "sex," "sexual," and "harass." Our analysis is based on FINRA arbitration awards, brokers' regulatory records from FINRA and state securities regulators, and court records. FINRA's database includes legacy cases from the authority's two predecessor organizations - the NASD and the New York Stock Exchange - which we refer to here as FINRA cases. On March 14, in response to a request for information about sexual harassment on Wall Street, FINRA turned over a summary of arbitrations from the years 2010 to 2018 to Sen. Elizabeth Warren and two other Democratic senators.

Bureau of Consumer Financial Protection Announces Settlement With Wells Fargo For Auto-Loan Administration and Mortgage Practices (BCFP Press Release) In conjunction with the Office of the Comptroller of the Currency, the Bureau of Consumer Financial Protection announced a settlement with Wells Fargo Bank, N.A., in which the bank was found to have violated the Consumer Financial Protection Act in administering a mandatory insurance program related to its auto loans, and in its charging certain borrowers for mortgage interest rate-lock extensions. The Bureau assessed a $1 billion penalty against the bank and credited the $500 million penalty collected by the OCC toward the satisfaction of its fine. READ the FULL TEXT BCFP CONSENT ORDER  and the OCC CONSENT ORDER

Cyber Criminal Sentenced to 36 Months in Prison for Attempting to Steal More Than $3 Million From a Financial Institution and Government Agencies / Defendant Conducted Unauthorized Intrusion into a Government Website, and Attempted to Defraud the U.S. Department of Defense and Pension Benefit Guaranty Corporation (DOJ Press Release) Federal prosecutors alleged that between July 2015 and December 2015, Dwayne C. Hans submitted bids to the Defense Logistics Agency ("DLA") for contracts in the names of two different companies he created, and he was awarded 52 contracts worth about $533,000 on which he was paid about $12,000. In early 2016, Hans created numerous bank accounts in the name of a U.S. financial institution and he then modified payment information for that institution in order to redirect about $1.52 million payments a U.S. government agency intended to transfer to that institution, but his actions were detected before he could withdraw/transfer said funds. Hans also caused the electronic transfer of about $134,000 from two corporate bank accounts at the institution and used the proceeds to purchase stock, invest in real estate, and pay utility bills. Finally, Hans fraudulently attempted to secure $1.6 million from the Pension Benefit Guaranty Corporation in the form of bogus expenses for three pension plans that did not exist and had no such reimbursable expenses. Hans pled guilty in the United States District Court for the Eastern District of New York to one count each of wire fraud and computer intrusion and was sentenced to 36 months' imprisonment and ordered to pay $134,000.00 in restitution.


Pyrrhus, Battle Of Asculum, A Stockbroker, FINRA, And A Pyrrhic Expungement Victory ( Blog) Not being particularly fond of the times that I live in, I am a student of Ancient Greek and Ancient Roman history. In presenting today's Blog's coverage of a FINRA expungement arbitration, I am reminded of the Battle of Asculum, during which Pyrrhus of Greece defeated the Roman army. As far as defeats go, this was a lopsided on in which Pyrrhus sustained about half the losses of his enemy; however, his losses were still substantial and many of his field commanders were killed. As is famously ascribed to Pyrrhus ""If we are victorious in one more battle with the Romans, we shall be utterly ruined."

Fast forward about 2,300 or so years and we leave the bloody field of Asculum and arrive at the more sedate setting of a FINRA arbitration hearing room. After the stockbroker Claimant and two of his former firms do battle, the Claimant emerges with a victory that is Pyrrhic in nature. He won the recommended expungment of a customer complaint. Unfortunately, he lost the sought expungement of a second customer complaint and that lack of redress may not be permanently etched into his industry record -- what was once written in pencil now takes on the appearance of being carved in stone. 


SEC Charges Businessman with Stealing Millions from a Pension Plan (SEC Litigation Release No. 24116) The SEC filed a complaint in the United States District Court for the Western District of Tennessee charging John S Jumper with stealing millions of dollars from Snow Shoe Refractories, LLC's pension plan through the use of forged documents, including fake Board of Directors resolutions. Jumper diverted the allegedly stolen funds, in part, to repay personal debts and, to invest in another business that paid a significant fee to a broker-dealer that Jumper co-owned. Relief Defendants Alluvion Securities, LLC, American Investments Fund II, LLC, Speedee Brakes, LLC, Thousand Hills Capital, LLC and Evertone Records, LLC were named for the purpose of recovering stolen pension funds allegedly in their possession. Criminal charges were filed in the United States District Court for the Middle District of Pennsylvania in a parallel proceeding. READ THE FULL TEXT SEC Complaint,


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

In today's Securities Industry Commentator feed:

Chicago Investment Advisor Sentenced to More Than 12 Years in Federal Prison for Misappropriating $5.2 Million in Client Funds (DOJ Press Release) Investment advisor Daniel Glick owned and operated Financial Management Strategies Inc., Glick Accounting Services Inc., and Glick & Associates Ltd., through which he purportedly provided accounting, tax, investment, and financial services. From 2011 to 2017, federal prosecutors alleged that Glick furnished forged checks and other phony documents to financial institutions, lied to clients about the use and safety of their investments, and misappropriated client funds to pay hundreds of thousands of dollars to two business associates, and to make Ponzi-type payments to clients. Glick purportedly stole over $5 million largely from elderly clients and used some of the stolen funds to pay personal and business expenses, including the purchase of a Mercedes-Benz automobile and payment of his mortgage. After pleading guilty to one count of wire fraud, Glick was sentenced to 151 months in prison and ordered to pay $5.2 million in restitution. 


Former Equipment Rental Company Executive Sentenced to Two Years Imprisonment for Failing to Pay Millions in Disgorgement to SEC (SEC Litigation Release No. 24115 ) In Securities and Exchange Commission v. John N. Milne, (08-CV-505, United States District Court for the District of Connecticut), in 2008, the SEC charged John N. Milne, former Chairman of United Rentals, Inc ("URI")., and others with fraud for engaging in a series of fraudulent transactions designed to meet URI's forecasts and analyst expectations. Milne was also indicted in a parallel federal criminal action. Pursuant to a guilty plea and settlement, a judgment was entered against Milne in the SEC's action ordering him, in part, to pay $6.25 million disgorgement and interest, on which he paid $1 million to the SEC. In his criminal case, the Court ordered him to pay the remaining $5.25 million to the SEC as a condition of his supervised release.  In 2018, the Court found that Milne had the ability to pay more than the $500,000 that he had to date, as evidenced by his expenditures on luxury services, personal items, and travel. Despite being given the opportunity to make further payments, Milne failed and was sentenced to two years imprisonment for violating the conditions of his supervised release by failing to pay court-ordered disgorgement in a civil action brought by the Securities and Exchange Commission.


Of Bullet Fees And In House Counsel Fees In FINRA Employment Arbitration( Blog) I'm not sure whether it's fact or fiction, but I've heard that in Iran and China there's a "bullet fee," which is a bill sent by the government to the families of executed prisoners. Be that as it may, there is a practice among some employers to try and charge former employees for advice and counsel rendered during so-called exit interviews, particularly when a lawyer from the General Counsel's office is sitting in on the proceedings and urges you to pay a past-due bill or reimburse the firm for a disputed charge. Sometimes that in-house lawyer's advice is presented with the intent to smooth things along and avoid litigation -- you may even appreciate the counsel. Other times, the advice is a not-so-subtle threat tantamount to we can do it the easy way or we can do it the hard way. In a recent FINRA arbitration pitting a former employer against a former employee, we are presented with an interesting issue about the employer Claimant's effort to obtain reimbursement, in part, for advice provided by its in-house counsel to an employee who eventually became the Respondent. 


Former Chief Financial Officer Pleads Guilty In Manhattan Federal Court To Defrauding Former Employer Of Over $2 Million (DOJ Press Release) Randy Wang pled guilty to an Information in the United States District Court for the Southern District of New York charging him with one count of wire fraud in connection with defrauding his former employer, a company that manages a global airline alliance comprising about 13 international airlines and their affiliates. Wang pled guilty to incurring over  $2.2 million in unauthorized charges unrelated to his job on the company's credit card account. Among the alleged charges were 443 laptop computers, 241 mobile electronic devices, 24 tablet computers, and numerous other electronics. READ the FULL TEXT INDICTMENT.


Essex County, New Jersey, Man Admits Bribing Letter Carriers To Deliver Parcels Containing Marijuana (DOJ Press Release) I mean, c'mon, how could you not want to read about this case with a headline like that? Glenn Blackstone pled guilty to an Information in the United States District Court for the District of New Jerseky to one count of giving bribes and one count of conspiracy to distribute marijuana. Blackstoner admitted to conspiring to obtain marijuana from California to sell in New Jersey, and paying cash bribes to two U.S. Postal Service mail carriers to intercept and deliver parcels to him, These parcels had fictitious names and addresses on them and were not addressed directly to Blackstone. READ the FULL TEXT INDICTMENT.


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 Unveils Public Service Announcement to Promote Background Checks on (SEC Press Release 2018-66) The SEC is releasing a public service announcement ("PSA") to encourage investors to check the background of their investment professional by using a free search tool on before investing. 


Defendant Indicted for Swindling Investors in Binary Options and Crytocurrency Scheme / Defendant Allegedly Lied to the FBI and Altered Documents to Obstruct Investigation (DOJ Press Release) Blake Kantor a/k/a "Bill Gordon" was indicted in the United States District Court for the Eastern District of New York on conspiracy to commit wire fraud, obstruction of an official proceeding, and making false statements to Special Agents of the Federal Bureau of Investigation.  Federal prosecutors alleged that in March 2014, Kantor established Blue Bit Banc or Blue Bit Analytics, Ltd. ("BBB"), a company that purportedly sold binary options. From approximately 2014 to 2017, Kantor and others allegedly solicited from 713 investors about $2.1 million but did not disclose to those investors that BBB computer software allowed the company to fraudulently alter data so that the probability of investors earning a profit favored BBB.  Further, Kantor allegedly converted investors' funds into ATM Coin, a purportedly worthless cryptocurrency.


My Way Rules In Pro Se Expungement Case Against J.P. Morgan ( Blog)
Today's Blog considers the lawsuit of a registered rep who handled his own expungement arbitration against his former employer J.P. Morgan Securities. Sometimes these pro se cases go well. Sometimes they just go off the rails. Regardless of the outcome, the self-represented party often takes some satisfaction in knowing that he did it "My Way." He may not have won his case but he did get to end his lawsuit humming one helluva pop tune.


SEC Obtains Final Judgment Against Investor Relations Writer Charged with Fraudulent Stock Promotion Scheme (SEC Litigation Release No. 24113) The United States District Court for the Western District of Washington entered a final judgment against Vincent Cassano for his role in a fraudulent stock promotion scheme. The SEC had alleged that Lidingo Holdings, LLC hired writers like Cassano to publish bullish articles on its clients that appeared to be independent research but were, in fact, paid advertisements. The SEC's litigation continues against Lidingo Holdings, Kamilla Bjorlin, Andrew Hodge and Brian Nichols.


SEC Charges Virginia Investment Adviser with Fraud (SEC Litigation Release No. 24114) 
In a Complaint filed in the United States District Court for the Eastern District of Virginia, the SEC alleged that from at least February 2015, Amrit J. S. Chahal used his company, Kane Capital Investment Group, LLC, to fraudulently solicit approximately $1.4 million from about 50 individuals by falsely claiming to be an experienced and successful trader who could generate above-market returns through a low-risk trading strategy. The Complaint alleges that contrary to his representatings, Chahal had substantially no financial/securities industry experience or trading securities on behalf of clients. After sustaining purporedly substantial losses, Chahal allegedly lied to his clients about their investments,and diverted funds for such personal use as to pay for his luxury car, rent, travel, dining, and other living expenses, and to make Ponzi-like payments to earlier investors.
READ the FULL TEXT Complaint.


In anticipation of the institution of proceedings by the SEC but without admitting or denying the findings, Arlington Capital management, Inc. and Joseph F. LoPresit submitted an Offer of Settlement, which the federal regulator acceptedIn the Matter of Arlington Capital management, Inc. and Joseph F. LoPresti, Respondents (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. 4885; Admin. Proc. File No. 3-18437 / April 16, 2018) (the "OIP"). The SEC alleged, in part, that from at least 2012 to 2015, Arlington, a registered investment adviser, had issued misleading advertisements about its investment performance in written communications to clients and prospective clients and in weekly radio broadcasts and video webcasts by Joseph F. LoPresti, Arlington's President, 80 percent owner, and Chief Compliance Officer. In accordance with the terms of the settlement, the SEC Censured Respondents Arlington and LoPresti and ordered them to cease and desist from committing or causing any violations and any future violations of the Advisers Act and Rules thereunder. Respondent Arlington was ordered to pay a $125,000.00 civil penalty and Respondent LoPresti to pay a $75,000.00 civil penalty. 


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


In today's Securities Industry Commentator feed:

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, Instinet, LLC, submitted a Letter of Acceptance, Waiver and Consent ("AWC"), which FINRA accepted. In the Matter of Instinet, LLC, Respondent(FINRA AWC 2013036836015, April 12, 2018) The Financial Industry Regulatory Authority, BOX Options Exchange LLC; the CBOE BZX Exchange, Inc.; Investors Exchange LLC; the NASDAQ Stock Market LLC; and the New York Stock Exchange; and certain of their affiliated Exchanges censured and imposed a $1.575 million fine on Instinet, LLC for violations of various provisions of Rule 15c3-5 of the Securities Exchange Act of 1934 (known as the Market Access Rule) and related exchange supervisory rules. As set forth in part in the FINRA AWC:

Instinet provided market access to numerous clients. FINRA and the Exchanges found that the Firm failed to supervise trading to detect and prevent potentially violative and manipulative activity. Further, FINRA and the Exchanges found that the firm failed to comply with the Market Access Rule by failing to implement financial and regulatory risk management controls and procedures reasonably designed to prevent the entry of erroneous or duplicative orders, orders that exceeded appropriate pre-set credit or capital thresholds, or erroneous messaging activity resulting from malfunctioning customer algorithms and trading systems.


Former Long Island Investment Adviser Sentenced to 57 Months in Prison for Stealing $3 Million from Investors (DOJ Press Release) Federal prosecutors alleged that between approximately January 2016 and February 2017, former investment adviser/hedge fund manager Eric Erb fraudulently solicited about $5.4 million from investors, who believed that he would follow their investment instructions. Although Erb persuaded the investors that they were earning profits, in fact, they were suffering losses and their investments had been diverted by Erb for such personal purposes as home renovations, country club dues and private school tuition.  Erb pled guilty in the United States District Court for the Eastern District of New York to wire fraud. He was sentenced to 57 months in prison plus three years supervised release, and ordered to pay $5.3 million in restitution and a $5.3 million forfeiture judgment and a $215,000 forfeiture of the proceeds from the sale of his former residence.


Rashomon Plays Out In Merrill Lynch Discretionary Case ( Blog) A recent FINRA regulatory settlement presents us with the puzzling scenario of three versions of the same event as told by the stockbroker, his employer, and the industry regulator. There seems little doubt that according to the letter of the rulebook, the stockbroker entered unauthorized trades. The more interesting question is why and whether there were circumstances that might excuse or explain the questioned use of discretion. All of which reminds me of the famed film Rashomon and its characters the bandit, the samurai, and the samurai's wife. In the end, wrong was committed but as to who did what and why -- ahhhh, that's the movie. 


Long Island Investment Portfolio Manager Sentenced to 28 Months in Prison for Scheme to Steal More Than $440,000 from Clients / Defendant Created Sham Investment Advising Business (DOJ Press Release) Federal prosecutors alleged from about July 2014 to October 2015, Patrick Morgan Schiro fraudulently induced five individuals to invest $440,000 with his alleged investment management business Black Rock Morgan LCC ("BRM") by falsely stating, for example, that BRM had many clients, managed millions of dollars in assets, and had "a team of investment professionals with significant sector-specific expertise." Schiro purportedly diverted the bulk of the investments to such personal use as his children's university tuition and then concocted excuses as to why he could not redeem investments. Moreover, Schiro allegedly concealed his prior federal conviction for securities fraud from at least four of the five investors.  Schiro pled guilty in the United States District Court for the Eastern District of New York to wire fraud and was sentenced to 28 months in prison with restitution to be determined. $440,000.  


SEC Charges CEO in Penny Stock Fraud Scheme (SEC Litigation Release No. 24111) The SEC filed a Complaint in the United States District Court for the Northern District of Illinois against Andrew J. Kandalepas, the CEO of an alleged penny-stock company the Wellness Center USA, Inc. ("Wellness") for allegedly making false and misleading statements in the company's SEC filings and press releases and with manipulating the company's stock. Securities and Exchange Commission v. Andrew J. Kandelapas, (18-cv-02637, NDIL)The Complaint alleges that Kandalepas took $450,000 in unauthorized withdrawals from the company and then concealed his actions by causing Wellness to characterize his withdrawals as salary, prepayments, or loans in false and misleading Forms 10-K and 10-Q. Further, Kandalepas was charged with manipulating the market for Wellness stock and causing Wellness to issue false and misleading press releases touting non-existent sales of medical devices by a subsidiary. Separately, the SEC made findings with respect to the involvement of settling Respondents Wellness, its auditor Li and Company, P.C. (Li & Co.), audit engagement partner Tony Li, and Matthew T. Mushlin, who Kandalepas hired as an unregistered broker to solicit investments in Wellness through private placement agreements. Without admitting or denying the SEC's findings. Wellness agreed to a cease-and desist order. Mushlin agreed to a cease-and-desist order, to pay disgorgement of $232,925 with $23,101 of prejudgment interest, and a $240,000 civil penalty, and bars and prohibitions from association. Li & Co. and Li agreed to a cease-and-desist order, to each pay $22,500 in disgorgement with $2,643 of prejudgment interest, and to pay, jointly and severally, a $45,000 civil penalty, and to be permanently suspended from appearing or practicing before the Commission as an accountant, which includes not participating in the financial reporting or audits of public companies.


South Florida Certified Public Accountant Indicted for Tax Fraud (DOJ Press Release) Certified public accountant Darryl Sharpton, the owner of the public accounting firm The Sharpton Group, was indicted in the United States District Court of the Southern District of Florida with tax evasion, failing to file tax returns, and failing to pay over payroll taxes to the Internal Revenue Service. The Sharpton Group allegedly specialized in financial and management consulting, audit and attestation, and tax and wealth planning. Allegedly, Sharpton filed personal income tax returns for the years 2004 through 2008 and 2010, but failed to pay the reported taxes' and, further, he failed to file personal income tax returns for years 2011 through 2016 despite his obligation to do so. After the IRS audited him and issued levies/liens, Sharpton then purportedly removed himself from his company's payroll, paid his personal expenses through the corporate bank accounts, lied to an IRS collections official, and failed to timely pay over to the IRS payroll taxes that he withheld from the paychecks of The Sharpton Group's employees.