Securities Industry Commentator by Bill Singer Esq

April 23, 2018

In the Matter of the Arbitration Between Morgan Stanley Smith Barney, LLC. Claimant, v. Barry Franklin Connell, Respondent (FINRA Arbitration Decision, Majority Public Panel, 17-01958 / April 19, 2018)
In a FINRA Arbitration Statement of Claim filed in July 2017, Claimant Morgan Stanley asserted conversion, fraud, and breach of fiduciary duty. Claimant sought $6 million compensatory damages, punitive damages, interest, expenses, and fees. Respondent represented himself pro se. The Panel found Respondent liable to and ordered him to pay to Claimant $6 million in compensatory damages and a $2,500 filing fee reimbursement. Also see, Former Financial Adviser At Global Bank Charged In Manhattan Federal Court With Multimillon-Dollar Scheme To Defraud Clients / Barry Connell Allegedly Made Misrepresentations to the Bank and Stole at Least $5 Million of his Clients' Funds (DOJ Press Release, February 3, 2017)

FINRA Death Cab For An Un-Fare Email Cutie ( Blog)
Much of life is unfair. Sometimes life can also be un-fare -- as when you stiff the cab driver. Then again, sometimes those drivers are over-charging you and figure you wouldn't see that they were taking a really, really, long detour. None of which has much if anything to do with today's Blog, which is about a respondent who settled with FINRA over a batch of disputed emails. On the other hand, the cab thing does have something to do with the respondent's past, except maybe not anything to do with FINRA's case. Then again, maybe this is all nothing but a clever diversion in the form of a long-winded detour designed to suck y'all into reading today's blog. Did I mention that there are three music videos embedded in the article?

Wedbush Securities, Inc. and Edward William Wedbush, Petitioners, v. Securities and Exchange Commission, Respondent (Memorandum, United States Court of Appeals for the Ninth Circuit, 16-73284) The 9Cir Memorandum states in pertinent part:

1. Substantial evidence supports the Securities & Exchange Commission's finding that Edward Wedbush failed to reasonably supervise the regulatory filings of Wedbush Securities. See 15 U.S.C. § 78y(a)(4). Throughout the relevant period, Wedbush was the firm's president and, for part of the period, he was also its chief compliance officer and the manager of the business-conduct department. As such, Wedbush had ultimate responsibility for the firm's regulatory compliance. Because Wedbush was on notice as to the firm's continuing failure to satisfy its regulatory requirements, he was liable for ensuring its compliance. 

2. The Commission did not abuse its discretion in affirming Wedbush's suspension. The Commission found that the firm's violations were egregious, and the sanctions were intended to gain Wedbush's specific compliance. The sanctions therefore were not "unwarranted in law or without justification in fact." Ponce v. SEC, 345 F.3d 722, 740 (9th Cir. 2003). 

3. The Commission correctly concluded that Wedbush and the firm received a fair hearing. In its complaint, FINRA's Enforcement Department requested sanctions under FINRA Rule 8310(a), which lists suspension among the range of possible sanctions. In addition, the FINRA Sanction Guidelines expressly contemplate a suspension of up to 30 business days. Wedbush therefore had fair notice of the sanctions he ultimately received.

SEC Charges Additional Defendant in Fraudulent ICO Scheme (SEC Litigation Release 2018-70)
The SEC filed an Amended Complaint in the United States District Court for the Southern District of New York in its investigation of Centra Tech Inc.'s $32 million initial coin offering. The SEC charged Raymond Trapani, a co-founder of Centra, in connection with the alleged fraudulent scheme related to Centra's 2017 ICO, in which the company issued "CTR Tokens" to investors.  Previously, the SEC and criminal authorities charged Centra's two other co-founders, Sohrab "Sam" Sharma and Robert Farkas, for their roles in the scheme. READ the FULL TEXT Amended Compliant. set forth in part in the SEC Litigation Release:

The SEC's amended complaint alleges that Trapani was a mastermind of Centra's fraudulent ICO, which Centra marketed with claims about nonexistent business relationships with major credit card companies, fictional executive bios, and misrepresentations about the viability of the company's core financial services products.  The amended complaint further alleges that Trapani and Sharma manipulated trading in the CTR Tokens to generate interest in the company and prop up the price of the tokens. 

Text messages among the defendants reveal their fraudulent intent.  After receiving a cease-and-desist letter from a major bank directing him to remove any reference to the bank from Centra's marketing materials, Sharma texted to Farkas and Trapani: "[w]e gotta get that s[***] removed everywhere and blame freelancers lol."  And, while trying to get the CTR Tokens listed on an exchange using phony credentials, Trapani texted Sharma to "cook me up" a false document, prompting Sharma to reply, "Don't text me that s[***] lol.  Delete." 

The SEC's amended complaint, filed in federal court in Manhattan, charges Trapani with violating the anti-fraud and registration provisions of the federal securities laws.  The amended complaint seeks permanent injunctions, the return of allegedly ill-gotten gains plus interest and penalties, as well as bars against Trapani prohibiting him from serving as a public company officer or director and from participating in any offering of digital or other securities.  

In a parallel action, the U.S. Attorney's Office for the Southern District of New York today announced criminal charges against Trapani. . .