Securities Industry Commentator by Bill Singer Esq WEEK IN REVIEW

May 12, 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:

Former Currency Trader Indicted for Participating in Antitrust Conspiracy (DOJ Press Release)
Former bank currency trader Akshay Aiyer was indicted in the United States District Court for the Southern District of New York on one count of Conspiracy to Restrain Trade involving efforts to fix prices and rig bids and offers in Central and Eastern European, Middle Eastern, and African (CEEMEA) currencies, which were generally traded against the U.S. dollar and the euro. From at least as early as October 2010 through at least July 2013, Aiyer, along with other New York-based CEEMEA traders working for rival banks, allegedly participated in a conspiracy designed to suppress competition in order to increase each trader's profits and decrease each trader's losses by engaging in near-daily conversations through private electronic chat rooms, telephone calls, and text messages, in which they exchanged trading positions, confidential customer information, planned pricing for customer orders, and other categories of competitively sensitive information.

NEW RESEARCH BY CFP BOARD CENTER FOR FINANCIAL PLANNING EXPLORES LACK OF RACIAL AND ETHNIC DIVERSITY IN THE FINANCIAL PLANNING PROFESSION / Stakeholders Disagree on Root Causes but Agree on Path Forward (CFP Board Center for Financial Planning Press Release) Self-reported data provided to CFP Board discloses that less than 3.5 percent of all 80,000 CFP professionals in the United States are black or Latino, which is significantly less than the representation of blacks and Latinos in the U.S. population. 

Was That Stockbroker's Customer Blowing Steam Or Making A Complaint? ( Blog)
Listen . . . I'm not happy with my REIT investment . . . damn thing is illiquid . . . get me out of that dog as soon as you can. Okay, so, put your FINRA regulatory thinking caps on. If you are a stockbroker and you get the above in an email from a customer, would you deem the language to constitute a "complaint"? If you disclose that email on all of your industry records as a complaint, it will be seen as a mark against you because, well, you know, it's a customer complaint. What part of the email is actually complaining about anything that the stockbroker did versus the toxic nature of an investment? Does that matter? Should it matter?


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

In today's Securities Industry Commentator feed:

Second Circuit Sustains FINRA Bar in Variable Annuity Surrender Case (FINRA NAC Decision; SEC Opinion; and 2Cir Order). Bernard McGee appealed the final order of the Securities and Exchange Commission, Bernard G. McGee, Exchange Act Rel. No. 80314 (Mar. 27, 2017), sustaining disciplinary action by the Financial Industry Regulatory Authority, Inc. ("FINRA") against him for inducing a transaction and conducting business activities in violation of Section 10(b) of the Securities Exchange Act ("Exchange Act") and FINRA rules. The underlying FINRA case involved a 71 year old client who was financially unsophisticated and receiving income of only $1000 a month, McGee chose her to serve as a case study to determine whether 54Freedom's charitable gift annuity program worked. McGee violated his duty as a broker to disclose to CF that he would receive compensation from her investment in Freedom. 

Former Law Firm Clerk Resentenced To 37 Months In Prison For Role In $2 Million Insider Trading Scheme (DOJ Press Release) Former lSimpson Thacher & Bartlett LLP law firm managing clerk Steven Metro pled guilty in the United States District Court for the District of New Jersey ("DNJ") to the first two counts of an indictment charging him with securities fraud and conspiracy to commit securities and tender offer fraud attendant to his theft of sensitive, confidential information from the law firm during a five-year insider trader scheme that yielded net profits of more than $2 million. In September 2016, DNJ sentenced Metro to 46 months in prison.  Following Metro's appeal of DNJ's 46-month sentence, the United States Court of Appeals  for the Third Circuit vacated Metro's sentence in February 2018 after review of the total loss attributable to him, and remanded to the District Court for resentencing.  

The Gambling Stockbroker, His Elderly Customers, And Their Loans To Him ( Blog) When regulators and prosecutors realize that they're dealing with a defendant or respondent who simply wants to get it over with and settle, it's sometimes viewed as an invitation to pile on the prose and paint a far worse picture of what allegedly happened. After all, if the adversary has thrown in the towel and there's no chance of going to trial, why not burnish your image and do a little bit of self-serving public relations? In a recent FINRA regulatory settlement, it's hard to tell where the reality of what seems a horrific scenario begins and where the fiction of making a bad situation look even worse ends. We got a stockbroker with gambling debts. We got elderly customers. We got loans from those customers to their stockbroker. It could all be benign. Then again, it may be as frightening as it seems. Unfortunately, FINRA's statement of facts is so pregnant with negative possibilities that it's impossible to come away from this case with any sense that you know what went on and you understand how it all got wrapped up. And if the misconduct is truly as bad as FINRA suggests it is, then how are we to explain what comes off as a somewhat tepid fine and suspension?  

Hedge Fund Founder, Portfolio Manager, And Trader Charged In Manhattan Federal Court With Mismarking Securities By Hundreds Of Millions Of Dollars / Former Hedge Fund Chief Risk Officer and Trader, and Former Salesman at a Broker-Dealer, Have Each Pled Guilty and are Cooperating with the Government (DOJ Press Release) Anilesh Ahuja a/k/a "Neil," the founder, chief executive officer, and chief investment officer of a New York-based investment firm that managed hedge funds focused on structured credit products ("the Firm"), Amin Majidid, a former partner and portfolio manager at the Firm, and Jeremy Shor, a former trader at the Firm AHUJA, MAJIDI, and SHOR are indicted in the United States District Court for the Southern District of New York for allegedly participating in a scheme, from in or about 2014 through in or about 2016, to commit securities fraud and wire fraud relating to the mismarking of over $200 million worth of securities held in hedge funds that the Firm managed. Charges were also announced against Ashish Dole, a former chief risk officer and trader at the Firm, and Frank DiNucci, Jr. a former salesman at a broker-dealer, both of whom pled guilty and are cooperating. 

SEC Levies Fraud Charges Against Texas-Based Municipal Advisor, Owner for Lying to School District (SEC Press Release 2018-82)
In anticipation of the institution of proceedings by the SEC but without admitting or denying the findings, Barcelona Strategies, LLC and Mario Hinojosa submitted an Offer of Settlement, which the federal regulator accepted. The OIP found that Hinojosa and Barcelona engaged in fraudulent, deceptive, or manipulative acts and breached their fiduciary duties to municipal clients.  Barcelona and Hinojosa consented to a cease-and-desist order and are jointly and severally liable for paying $362,606 in disgorgement and $19,514 in prejudgment interest.  Hinojosa was barred from association with various regulated entities, including municipal advisors and assessed a $20,000 civil penalty. Barcelona was assessed a  $160,000 civil penalty.

Atlanta investment advisor sentenced for stealing nearly $3 million from clients (DOJ Press Release)
In February 2011, Paul James Marshall formed investment advisory firm Bridge Securities LLC, and falsely promised clients (mostly elderly) that their funds would be invested in specific securities in JP Morgan accounts. Marshall said funds into JP Morgan Chase checking accounts under his control and then converted about $2.9 million for such personal expenses as luxury trips, private school tuition, country club fees, and payments to his ex-wife. When clients sought information about their savings, Marshall either mailed fake account statements showing investment accounts, lied to them, or ignored their inquiries. After pleading guilty to wire fraud, Marshall was sentenced in the United States District Court for the Northern District of Georgia to six years and nine months in prison plus two years of supervised release, and ordered to pay $2,892,982.52 restitution.

Five Real Estate Investors Sentenced for Rigging Bids at Northern California Public Foreclosure Auctions (DOJ Press Release) Between 2008 and January 2011, Joseph Giraudo, Kevin Cullinane, Raymond Grinsell, Daniel Rosenbledt, Mohammed Rezaian and other bidders conspired not to bid against one another at real estate foreclosure auctions in San Mateo County, California. The conspirators designated a winning bidder and negotiated payoffs among themselves. Giraudo, Cullinane, Grinsell, Rosenbledt, and Rezaian pled guilty to bid rigging in violation of the antitrust laws. 


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

In today's Securities Industry Commentator feed:

Latest Internet Crime Report Released / IC3 Says Victim Losses Exceeded $1.4 Billion in 2017 (FBI Press Release) The Internet Crime Complaint Center ("IC3") released its 2017 Internet Crime Report, which presents an often chilling depiction of online scams. A fascinating read! 

Nicholas Webb, et al., Plaintiffs-Appellants, v. Financial Industry Regulatory Authority, Inc., Defendant-Appellee.(Opinion, United States Court of Appeals For the Seventh Circuit, 16-CV-04664)  In October 2013, Jefferies & Company, Inc. brokers Nicholas Webb and Thad Beversdorf were fired, abd they sued their former employer in the Financial Industry Regulatory Authority's ("FINRA") arbitration forum. Their dispute with Jefferies proceeded in arbitration for the next two-and-a-half years, at which point they withdrew their claims before a final decision was rendered. Under FINRA's rules, that withdrawal constituted a dismissal with prejudice.  After the arbitration failed, Webb and Beversdorf sued FINRA in the Circuit Court of Cook County, Illinois, alleging that FINRA breached its contract to arbitrate their dispute with Jefferies by, among other things, failing to properly train arbitrators, failing to provide arbitrators with appropriate procedural mechanisms, interfering with the arbitrators' discretion, and failing to permit reasonable discovery. FINRA removed the dispute to federal court, where it moved to dismiss on multiple grounds, including arbitral immunity. The district court held that FINRA was entitled to arbitral immunity and dismissed the suit. Webb and Beversdorf appeal to the 7th Circuit, which vacated the lower court's order with instructions to remand to state court..

Money For Nothing Leaves Stockbroker In Dire Straits With FINRA ( Blog) Money for Nothing. Take the Money and Run. Catchy tunes. You get them in your head and they stay there. Sort of like today's Blog in which we watch a stockbroker push the plunger on his career -- even if only for a few months -- because of a measly $555. Maybe this respondent sort of confused a "sweep account" with his "business development account" and figured that he should sweep the year-end remaining balance from his firm into his own pockets? I mean, okay, we all have been tempted by such an impulse from time to time. On the other hand, most of us avoid that temptation. Most of us distinguish between that's mine, that's theirs, and, geez, if I get caught this could end in disaster. How's that lyric go?   Money for nothing and . . . oops, I don't think the rest of that lyric is still politically correct. How's that other song go? Oh yeah: Bill Mack is a FINRA detective. You know he knows just exactly what the facts is. He ain't gonna let those two escape justice.  

FINRA Sanctions Fifth Third Securities, Inc., $6 Million for Cost and Fee Disclosure Failures and Unsuitable Recommendations Related to Variable Annuity Exchanges(FINRA Press Release)
FINRA fined Fifth Third Securities, Inc., $4 million and required the firm to pay about $2 million in restitution to customers for failing to appropriately consider and accurately describe the costs and benefits of variable annuity exchanges, and for recommending exchanges without a reasonable basis to believe the exchanges were suitable. READ the FULL TEXT AWC. The FINRA Press Release noted that this is the "second significant FINRA enforcement action against Fifth Third involving the firm's sale of variable annuities." In a 2009 action, FINRA found that, from 2004 to 2006, Fifth Third effected 250 unsuitable VA exchanges

New Jersey Federal Court Orders Alcibiades Cifuentes, Jennifer Wee Cifuentes, and Cifuentes Fund Management, LLC, to Pay More Than $2.2 Million for Forex Fraud Scheme (CFTC Release 7724-18)
An Order of default judgment and permanent injunction was entered in the United States District Court for the District  of New Jersey against Alcibiades Cifuentes, Jennifer Wee Cifuentes, and their corporate entity, Cifuentes Fund Management, LLC. The Court found that from at least April 2013 through March 2015, the Defendants devised a sham commodity pool trading in off-exchange foreign currency, and in order to induce participants to transfer funds, the Defendants made false statements, fabricated account documents, and established a practice, or "demo," forex trading account that involved no actual funds and posed no risk of loss. The Defendants posted "profitable" trades from the demo account online and falsely represented them to be the Defendants' actual trades, without disclosing that the demo account had sustained "losses" exceeding $5 million. Further, Cifuentes and Wee misappropriated pool participants' funds by purchasing luxury vehicles, jewelry, and clothing for themselves. Also, the Defendants engaged in Ponzi-like payments to other victims. READ the FULL TEXT ORDER> Defendants were ordered to pay on a joint and several basis $457,120 in restitution to pool participants, a $1.7 million civil monetary penalty, plus post-judgment interest on both amounts; and they are permanently banned from the markets the CFTC regulates, and permanently enjoined from future violations of the Commodity Exchange Act and CFTC Regulations. In a parallel action, Cifuentes and Wee were indicted on one count of wire fraud conspiracy, four counts of wire fraud, and one count of embezzlement and theft by a commodity pool operator.

Hedge Fund Firm Charged for Asset Mismarking and Insider Trading / CFO Charged With Failing to Supervise Portfolio Managers (SEC Press Release 2018-81) The Securities and Exchange Commission ("SEC") filed two Orders Instituting Administrative Proceedings (the "OIPs") against Respondents Visium Asset Management LP and its Chief Financial Officer Steven Ku. In anticipation of the institution of proceedings by the SEC but without admitting or denying the findings, Visium and Ku submitted an Offer of Settlement, which the federal regulator accepted. The SEC alleged that Visium had engaged in asset mismarking and insider trading by its privately managed hedge funds and portfolio managers; and, separately, that Ku had failed to respond appropriately to red flags that should have alerted him to the asset mismarking. Visium agreed to settle the SEC's charges by, among other things, disgorging over $4.7 million in illicit profits plus $720,711 in interest, and paying a penalty of more than $4.7 million. Ku agreed to pay a $100,000 penalty and to be suspended from the securities industry for twelve months. READ the FULL TEXT SEC ORDERS 

Connecticut Man Sentenced To Prison For Role In $5 Million Investment Fraud Scheme (DOJ Press Release) James Trolice, President and owner of Trolice Consulting Services LLC and President and Chief Marketing Officer of eAgency, pled guilty in the United States District Court for the District of New Jersey to a two-count information charging him with securities fraud and transacting in criminal proceeds. Trolice and Lee Vaccaro sold investors interests in Trolice Consulting Services and other companies controlled by Vaccaro through misrepresentations that such companies held eAgency warrants. Vaccaro pled guilty to his role and was sentenced to 78 months in prison. Trolice was sentenced to 19 months in prison plus three years of supervised release, and ordered him to pay $5,000,512.65 representing the proceeds of his offense. 

Former South Bay Resident Convicted Of Defrauding Japanese Investors In Almost $7 Million Ponzi Scheme (DOJ Press Release) After a one-week trial, Kevin Kyes was convicted in the United States District Court for the Northern District of California of one count of conspiracy to commit wire fraud, seventeen counts of wire fraud, one count of conspiracy to commit money laundering, and two counts of money laundering in connection with a nearly $7 million Ponzi scheme involving over 60 Japanese investors. The jury acquitted Kyes of one count of wire fraud. 

Former Belmont Resident Convicted of $6 Million Investment Fraud Scheme (DOJ Press Release) After a two week trial in the United States District Court for the District of Massachusetts, John William Cranney, a/k/a Jack Cranney was convicted on three counts of wire fraud, 12 counts of mail fraud, and three counts of money laundering. From 2001 through 2012, Cranney solicited money by representing that he would invest their money in an investment fund or a retirement plan he said he managed. However, instead of investing the money, Cranney spent his victims' savings and retirement on his own bills and debts to fund his declining health and nutrition products distributorship. He set up a sham Employee Stock Ownership Plan to convince victims to transfer their IRA and 401k retirement funds to him.


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

In today's Securities Industry Commentator feed:

Two Cryptocurrency Firms Hit With Emergency Orders (TSSB Press Release) The Texas State Securities Board entered emergency orders against Bitcoin Trading & Cloud Mining Ltd. also known as BTCRUSH, and Forex EA & Bitcoin Investment LLC, which are described as unregistered promoters who are fraudulently offering high-return investments in programs tied to cryptocurrencies. The TSSB Press Release alleges that BTCRUSH, whose principals list an address in London, is soliciting Texas investors with the promise of huge returns from the mining of cryptocurrencies at three massive computing centers featured in videos on the company's website. The TSSB Press Release further asserts that BTCRUSH claims an investment in its mining investment program has been paying 4.1% interest daily on a lifetime contract since going live on March 8, 2018. According to the order, that means a $10,000 investment would return $410 per day and $149,650 over one year. READ the FULL TEXT TSSB ORDERS  

FINRA Orders Partial Restitution In Activity Letter Settlement ( Blog) Imagine that a contractor installed a state-of-the-art sprinkler system but never connected it to any water source. Now start a fire. With that image in mind, consider today's Blog, which discusses a recent FINRA regulatory settlement involving allegations that a member firm botched its use of so-called activity letters. It's a fairly compelling effort by FINRA but for the fact that the published settlement agreement raises a few questions that aren't answered. 

Two Long Island Men Sentenced to 6 Years in Prison for Participating in Investment Fraud Schemes (DOJ Press Release) Thomas Heaphy and Brian Ferraioli pled guilty in the United States District Court for the District of Connecticut to one count of conspiracy to commit mail and wire fraud and one count of tax evasion related to a stock pump and dump scheme, and one count of conspiracy to commit mail and wire fraud related to an investment scheme involving the Water Club Holding, Inc. and Waters Club Worldwide, Inc.. Heaphy was ordered to pay $6,738,539 in restitution and Ferraioli was ordered to pay $6,896,927 restitution, and both were sentenced to 72 months of imprisonment and three years of supervised release. Previously Corey Brinson pled guilty to one count of engaging in a monetary transaction in property derived from specified unlawful activity and was sentenced to 36 months of imprisonment. 

Massachusetts Hedge Fund Manager, Defendant in SEC Action, Sentenced to Six Years' Imprisonment in Parallel Criminal Case (SEC Litigation Release No. 24135) Former hedge fund manager Yasuna Murakami pled guilty to wire fraud and was sentenced in the United States District Court for the District of Massachusetts to 6 years in prison and ordered to pay $10,520,634 in restitution for defrauding hedge fund investors. The criminal case arises from the same conduct alleged in an action the SEC filed against Murakami in 2017. Murakami admitted to diverting millions of dollars of investor funds to business and personal accounts that he controlled, and using the money to pay for such personal expenses as a luxury sports car, international travel, payments to personal credit cards and high-end department stores, and to place investments in his own name and make Ponzi scheme-like payments to investors who requested redemption.  

Statement By Attorney General Eric T. Schneiderman "It's been my great honor and privilege to serve as Attorney General for the people of the State of New York. In the last several hours, serious allegations, which I strongly contest, have been made against me. While these allegations are unrelated to my professional conduct or the operations of the office, they will effectively prevent me from leading the office's work at this critical time. I therefore resign my office, effective at the close of business on May 8, 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:

Two Romanian citizens extradited to Atlanta to face cyber and fraud charges in connection with a "vishing and smishing" scheme (DOJ Press Release)
Teodor Laurentiu Costea and Robert Codrut Dumitrescu were extradited from Romania and arraigned in the United States District Court for the Northern District of Georgia on wire fraud conspiracy, wire fraud, computer fraud and abuse, and aggravated identity theft. Co-Defendant Cosmin Draghici, is in custody in Romania awaiting extradition to the United States. The Defendants were indicted for allegedly engaging in "vishing" (voice-recording phishing) and "smishing" (text messaging phishing) attacks from Romania. The defendants allegedly utilized computers in the Atlanta area to install software to initiate thousands of automated telephone calls and text messages to victims in Atlanta and around the country. The messages purported to be from a financial institution and directed victims to call a telephone number due to a problem with their respective financial account. When victims called the telephone number, they were prompted by the interactive voice response software to enter their bank account numbers, PINs, and full or partial Social Security numbers. At the time of his arrest in Romania, Costea possessed 36,051 fraudulently obtained financial account numbers. The financial losses from the defendants' scheme are estimated to be over $18 million.

Sharemaster The Beastmaster Tames FINRA And SEC In PCAOB Dispute ( Blog)
Come with me as we journey back in time some nine years to December 2009, when FINRA member firm Sharemaster submitted its 2009 annual audit. That 2009 audit was submitted without an attestation that it had been conducted by a Public Company Accounting Oversight Board ("PCAOB") registered accounting firm. On May 3, 2010, the FINRA Department of Member Regulation (the "Department") notified Sharemaster that its membership would be suspended because the firm had submitted its 2009 audit without the PCAOB attestation allegedly required pursuant to '34 Act Rule 17a-5. Some nine years later, after hearings at FINRA, and appeals at the SEC and the 9th Circuit, the SEC finally puts this beast out of its misery. What a pathetic misuse of FINRA and SEC regulatory staff and resources, and what a goddamn waste of time! 

Four Defendants Convicted In Manhattan Federal Court For Stealing Confidential Government Information And Using It To Engage In Illegal Trading (DOJ Press Release) David Blaszczak, a political intelligence consultant;  Christopher Worrall, a Centers for Medicare and Medicaid Services employee; Deefrield Management Company L.P. partners and analysts Theodore Huber, and Robert Olan were with participating in a scheme from around 2009 to 2014 by which they committed securities and wire fraud when they used material nonpublic information wrongfully obtained from CMMS in order to execute profitable trades at Deerfield.   As a result of these trades, Deerfield reaped more than $7 million in profits.The four Defendants were convicted in the United States District Court for the Southern District of New York after a four-week trial. 

Corporate Executive Convicted in $300 Million Market Manipulation Scheme / Defendant Profited by Selling Worthless Shares to Investors (DOJ Press Release) After a five-week trial, Abraxas J. Discala, also known as "AJ Discala," the Chief Executive Officer of OmniView Capital Advisors LLC, was convicted in the United States District Court for the Eastern District of New York on convicted of conspiracy to commit securities fraud, conspiracy to commit mail fraud and wire fraud, and two securities fraud counts related to the publicly-traded companies CodeSmart Holdings, Inc. and Cubed, Inc., and four counts of wire fraud related to Cubed and the publicly-traded company StarStream Entertainment Inc.  The jury acquitted Discala of two wire fraud counts.  Separately charged defendant Kyleen Cane was acquitted of the three counts against her. 

‘Incorrigible' Defendant Responsible for $7.5 Million Bank Fraud Scheme Sentenced to more than 16 Years in Prison / Defendant Finished Last Federal Sentence and Immediately Returned to Fraud Activity on a Bigger Scale (DOJ Press Release) Lonnie Eugene Lillard, 42, pled guilty to conspiracy to commit bank fraud involving mainly successful attempts to steal over $7.5 million over 18 months. Lillard had accumulated a prior history of 12 felony convictions by the age of 20; and he began planning the current fraud even before he completed his last prison sentence. Lillard was sentenced in the United States District Court for the Western District of Washington to 196 months in prison and five years of supervised release. Co-Defendant Nathaniel Wells was sentenced to just over 11 years in prison; and Wells and Lillard are responsible for $5,816,938 in restitution.