Securities Industry Commentator by Bill Singer Esq WEEK IN REVIEW

May 19, 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:

Does BrokerCheck Do More Harm Than Good? (Financial Advisor IQ) Many broker-dealers have voiced the opinion that because even unfounded customer or employer complaints can be included in BrokerCheck records, they can indeed be more harmful than helpful. But Finra believes BrokerCheck's potential to save investors from unscrupulous broker-dealers more than makes up for any broker-dealer having a false claim listed in their record. 

SEC Moves Quickly To Shut Down Fake Pre-IPO Share Scam (SEC Litigation Release No. 24144)
The SEC filed a Complaint in the United States District Court for the Central District of California allleging that Keenan Gracey with the fraudulent sale of purported pre-IPO shares in Perspecta, Inc., a new company that will be formed as a result of the merger of three other companies. The Complaint alleges that Gracey used publicly available information about the merger and false claims about his supposed connections with the companies to tout 60 time returns. The SEC obtained an asset freeze and a temporary restraining order to halt the offering.

FINRA Stretches Definition Of Participating In A Private Securities Transaction ( Blog) What's a lot? What's reasonable? How many times is frequently? When is enough, enough? What does it mean to participate? These and other mysteries of the Universe keep publisher Bill Singer awake through the night and into the early morning. You are able to sleep soundly because of the unselfish efforts of folks like Bill who man the ramparts of philosophical thought and aimless rumination. In today's blog, Bill has tanked up on coffee after spending staying awake to ponder whether hand delivering a check rises to the level of participating in a private securities transaction. Bill is also wondering how his New York Mets started off with 11 wins and 1 loss and now have a record of 20 wins and 19 losses. 

FINRA Department of Enforcement, Complainant, vs Francisco Jose Ortiz, Respondent (Order Accepting Offer of Settlement, FINRA Office of Hearing Officers, May 14, 2018) (the "Order"). In accordance with the terms of the Order, FINRA imposed a $5,000 fine and a one-month suspension from association with any FINRA member in all capacities. Francisco Jose Ortiz allegedly processed a customer wire transfer based on email instructions despite knowing that an unknown imposter had compromised the customer's email account and that the wire request was fraudulent. In order to process the wire transfer, Ortiz falsely represented on a Wells Fargo Advisors LLC wire transfer request form that the request had been orally confirmed with the customer causing WFA's books and records to be inaccurate. 

In the Matter of Industrial and Commercial Bank of China Financial Services LLC, Respondent In accordance with the terms of the AWC, FINRA imposed upon ICBCFS a Censure, a$5,300,000 fine; and the firm agreed to various undertakings involving the retention of an Independent Compliance Consultant Allegedly, ICBCFS's anti-money laundering program was not reasonably designed to detect and cause the reporting of potentially suspicious transactions with respect to this new business line. Despite clearing and settling the liquidation of more than 33 billion shares of penny stocks, ICBCFS did not have in place procedures reasonably designed to ensure that penny stock transactions were sufficiently scrutinized for potentially suspicious activity.  

Arizona Men Charged In Manhattan Federal Court With $23 Million Fraud And Money Laundering Scheme In Connection With Purported Fundraising For Numerous Scam Political Action Committees (DOJ Press Release) William Tierney a/k/a "Bill Johnson," and Robert Tierney were each charged in a complaint filed in the United States District Court for the Southern District of New York with one count of wire fraud conspiracy; mail fraud conspiracy; conspiracy to commit money laundering; and conspiracy to engage in monetary transactions in property derived from specified unlawful activity in connection with their alleged fraud of tens of thousands of donors to at least nine political action committees that they controlled, operated, and influenced and for which they raised over $23 million between 2014 and 2017, and more than $50 million in the past 10 years. Prosecutors allege that virtually all of the funds raised was either paid to the scheme participants or used to perpetuate the fraud through additional telemarketing, fundraising, and overhead expenditures.

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

In today's Securities Industry Commentator feed:

AMAZING ICO Sale Now Going On! OVER 1% daily returns, with DOUBLE 2% returns on Tier 1 investors in pre-ICO stage secured purchases. The average registered coin return over a two month period in 2017 was an amazing 72%. Based on market conditions, including record-setting prospects in both the digital asset and travel industries, we expect surpassing that BEFORE the Tier 2 offering closes. HODL! Minimum growth rate of between 7% to 15% annualized, making HoweyCoins attractive for long-term investment. In addition, HoweyCoins can serve as a GUARANTEED hedge against inflation and market loss. VISIT: Use Promo Code: Clayton124C4U 

SEC Charges California Investment Adviser in Multi-Million Dollar Fraud (SEC Litigation Release No. 24142) In a Complaint filed in the United States District Court for the Central District of California, the SEC alleged that William M. Jordan had fraudulently raised over $71 million from about 100 advisory client through a scheme involving overstating the value of the assets in several of his 16 private investment funds. Jordan settled the action by consenting to the entry of a permanent injunction without admitting or denying the allegations of the complaint. 

SEC Charges Owner of Alternative Investment Firm in Belize Airport Financing Scam (SEC Press Release 2018-89) In a Complaint filed in the United States District Court for the Southern District of New York, the SEC alleged that between 2014 and 2017, Brent Borland sold over $21 million of promissory notes to dozens of investors, promising that the funds would be used as bridge financing for development of an international airport in Placencia, Belize, and that the investments would be protected by pledges of real estate as collateral.  The notes were sold through Borland Capital Group LLC, which purports to be active in "alternative investment," and Belize Infrastructure Fund I, LLC, which purports to be in the business of construction finance. The Complaint alleges that Borland diverted $6 million of the investors' funds for personal, non-business expenses such as mortgage and property tax payments on his family's Florida mansion, multiple luxury automobiles, private school tuition for his children, $36,000 for his family's beach club membership, and almost $2.7 million to pay off credit cards. Borland's wife, Alana LaTorra Borland, and a corporation controlled by Borland and his wife, Canyon Acquisitions, LLC are named as relief defendants. In a parallel action, the U.S. Attorney's Office for the Southern District of New York announced criminal charges against Borland.

SEC Charges Brokerage Firms and AML Officer With Anti-Money Laundering Violations (SEC Press Release 2018-87) The SEC settled charges against broker-dealers Chardan Capital Markets LLC and Industrial and Commercial Bank of China Financial Services LLC (ICBCFS) for failing to report suspicious sales of billions of penny stock shares.From October 2013 to June 2014, Chardan, an introducing broker, allegedly liquidated over 12.5 billion penny stock shares for seven of its customers and ICBCFS cleared the transactions.  The SEC alleged that Chardan failed to file any SARs notwithstanding red flags, and that ICBCFS similarly failed to file any SARs despite ultimately prohibiting trading in penny stocks by some of the seven customers. The SEC's orders found that Chardan and ICBCFS violated the Exchange Act and an SEC financial recordkeeping and reporting rule and that Chardan's anti-money laundering (AML) officer, Jerard Basmagy, aided and abetted and caused the firm's violations. Also, ICBCFS was found to have failed to produce documents promptly to SEC staff.  Without admitting or denying the SEC's findings, the parties agreed to settlements requiring Chardan to pay a $1 million penalty, ICBCFS to pay $860,000, and Basmagy to pay $15,000.  Both firms consented to censures and, along with Basmagy, to cease and desist from similar violations in the future.  Basmagy also agreed to industry and penny stock bars for a minimum of three years. READ the FULL TEXT SEC ORDERS

The Disqualified Stalking Felon Stockbroker, The Texting Stockbroker, The Missouri Waltz, And FINRA ( Blog) A statutorily disqualified individual sells her book of business and it is assigned to a duly registered stockbroker. So far, so good. The stockbroker's firm tells him it's okay to communicate with the disqualified broker in order to arrange for the smooth and orderly transfer of clients but, beyond that handing off of her biz to you, you draw a thick, red line and don't cross it. She's disqualified. You're not. You don't discuss any private customer information with her. So . . .  what could possibly go wrong with that scenario?

Investment Advisor Sentenced to More Than 5 Years in Prison for Misappropriating $6.5 Million in Client Funds (DOJ Press Release) HCM Assett Management LLC investment advisor owner Henry Meyer pled guilty to one count of mail fraud and was sentenced in the United States District Court for the Northern District of Illinois to 69 months in prison and ordered to pay $6.5 million in restitution. Meyer fraudulently solicited investors (who were mostly family members and friends, some of whom were elderly) for a non-existent "European Derivative Investment Program" promising returns as high as 600%. Meyer diverted funds to pay personal expenses, including rent, utilities, restaurants, trips, and car payments.  

Former Bank Branch Manager Charged In $5 Million Fraud Involving Two New York Area Banks (DOJ Press Release) Former bank branch manager Moshe Benenfeld a/k/a "Michael Benenfeld" was charged in a criminal Complaint in the United States District Court for the Southern District of New York with one count of bank fraud involving hundreds of unauthorized transactions at two different banks. As a result of the Benenfeld's alleged unauthorized transactions, one of the banks purportedly sustained in excess of $5 million in losses. 

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

In today's Securities Industry Commentator feed:

Houston Firm Ordered to Stop Fraudulent Crypto Offering (TSSB Press Release)
The Texas State Securities Board entered an Emergency Cease and Desist Order to stop Wind Wide Coin Inc. and three sales agents from fraudulently offering investments in a cryptocurrency trading program that uses an "automatic trading bot" and purports to combine " "no risk" and extraordinarily high returns. Wind Wide Coin's marketing extends to a rotating sequence of celebrity and political endorsements. TSSB alleges that the company's website has featured a photograph of Jennifer Anniston, but identified her as "Kate Jennifer," an investor and a photograph of Prince Charles, who was identified as "Mark Robert," another investor who provided a testimonial. The testimonial was then attributed verbatim to a "Johnson Smith," supposedly a U.K. investor. The office address provided by Wind Wide Coin is for a location at which no building of any kind exists. 

SEC Files Charges in International Manipulation Scheme (SEC Press Release 2018-85)The SEC filed a Complaint in the United States District Court for the Southern District of New charging Francisco Abellan Villena, Guillermo Ciupiak, James B. Panter Jr., and attorney Faiyaz Dean with violating antifraud and registration provisions of the federal securities laws. The Complaint alleges that the defendants manipulated the market for and illegally sold the stock of microcap issuer Biozoom Inc. through hidden ownership, offshore accounts, nominees, and through resort to manipulative trading techniques to artificially inflate Biozoom's share price in a manner that reaped nearly $34 million in unlawful proceeds. Separately, the SEC charged two registered representatives for their roles in the unregistered sales of Biozoom stock and a brokerage firm for supervisory and recordkeeping failures.  Previously, the SEC obtained a judgment against Abellan for his role in another market manipulation scheme 

Colorado Court Shuts Down FINRA Over Expungement Confirmation( Blog)
You ever go to a meeting where it seemed that everyone showed up on time, they started the presentations at the designated hour, and then, just as things began to roll, some idiot executive walks in late? Can someone please get me a cup of coffee, two sugars, a little milk, and, if there's a warm cheese danish left, I'll take that, otherwise, I'll take anything with cinnamon. Oh, where's the nearest outlet, I need to plug in my phone. Thanks -- please, don't allow me to interrupt anything. Did we already cover Item One in the agenda? You did? Sorry but could you just catch me up, briefly. Did we place orders for lunch yet? Yeah, there's always that idiot. Speaking of idiots arriving late and messing things up for everyone, consider a recent FINRA expungement arbitration in which the industry Claimant wins but FINRA decides to intervene by way of a partial objection in court to the confirmation of the award. 

Recidivist Securities Fraudster Edward Durante Sentenced To 18 Years In Prison For Securities Fraud, Money Laundering, And Perjury Offenses (DOJ Press Release)
When we talk about a long and checkered career, it is hard to imagine a better example than that of Edward Durante a/k/a "Ted Wise," a/k/a "Efran Eisenberg," a/k/a "Yulia," a/k/a "Ed Simmons." In 2001, Durante was sentenced to 121 months in prison, ordered to pay over $39 million in disgorgement and interest, and was barred from certain activities in the securities industry following his convictions for conspiracy to commit securities fraud, wire fraud, and money laundering, as well as making false statements in connection with a market manipulation scheme in which the defendant also used the alias "Ed Simmons."  After his release from prison, between 2009 and March 2015, Durante and his co-conspirator fraudulently induced at least 100 victims to invest over $15 million in private shares of VGTL, whose share price the conspirators manipulated. In August 2016, Durante, now 64 years old, pled guilty in the United States District Court for the Southern District of New York to to conspiracy to commit securities fraud, securities fraud, money laundering, and perjury and was sentenced to 215 months in prison plus three years of supervised release and ordered to forfeit $15,404,231.

Recidivist Defendant Pleads Guilty To Defrauding A Native American Tribe And Various Investors Through The Fraudulent Issuance And Sale Of More Than $60 Million Of Tribal Bonds (DOJ Press Release) I'm guessing the folks at the United States Attorney's Office for the Southern District of New York are up to the letter "R" in their "Improve Your Word Power in 30 Days" book because this is the second press release today to have a headline beginning with "Recidivist." On September 28, 2016, Gary Hirst was convicted following a jury trial for manipulating the market for shares of NYSE-listed Gerova Financial Group, Ltd. and he was sentenced to 78 months in prison. Be that as it may Gary Hirst has now pled guilty to guilty to conspiracy to commit securities fraud, securities fraud, investment adviser fraud, and conspiracy to commit investment adviser fraud in connection with his scheme to defraud a Native American tribal entity and various investment advisory clients of tens of millions of dollars in connection with the issuance of bonds by the tribal entity and the subsequent sale of those bonds through fraudulent and deceptive means. In addition to Hirst's guilty plea, Jason Galanis was sentenced to 173 month in prison following his guilty plea to one count of conspiracy to commit securities fraud, one count of securities fraud, and one count of conspiracy to commit investment adviser fraud. Hugh Dunkerley pled guilty to one count of conspiracy to commit securities fraud, two counts of securities fraud, one count of bankruptcy fraud, and one count of falsification of records with the intent to obstruct a Government investigation, and he is awaiting sentencing. Defendants John Galanis, Michelle Morton, Devon Archer, and Bevan Cooney are awaiting trial and are presumed innocent unless and until proven guilty in a court of law beyond a reasonable doubt.

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

In today's Securities Industry Commentator feed:

Broker Representative and Investment Adviser Indicted for Scheme to Defraud Investors (DOJ Litigation Release No. 24140) On May 2, 2018, Leon Vaccarelli, a defendant in an ongoing SEC litigation, was indicted in a parallel criminal proceeding in the United States District Court for the District of Connecticut on multiple counts of mail fraud, wire fraud, and money laundering. As previously alleged in the SEC Complaint, Vaccarelli,fraudulently persuaded several elderly customers to invest with him but he allegedly deposited customer funds into his personal and business bank accounts. Allegedly, Vaccarelli asked one customer to sign an agreement that she would not provide certain information to FINRA or the SEC.  

No Show No Way No How Public Customer FINRA Arbitration ( Blog) You know how you plan for months for a big party and then you send out invitations, and some folks don't get back with a "yes" or a "no" and others ask if they can bring a guest and then, the day of the party, there's a hurricane, so virtually no one can get to your house and even if they did, the caterer couldn't make it, and, of course, a few folks who told you that they couldn't come show up because they lost power to their house and figured since you were having a party and you had asked them that they may as well show up given how the storm had forced them out of their home? Yeah, I know, we've all been through that, right? Anyway, so . . . we got this FINRA arbitration in which a customer is seeking some $108,000 in losses and hired a lawyer but then his lawyer withdrew and a lawyer for some respondents withdrew and some of the respondents either got dismissed or filed for bankruptcy or got expelled by FINRA and then the public customer asks FINRA for help and, well, you've heard that whole thing before, right?

Founders Of Cryptocurrency Company Indicted In Manhattan Federal Court With Scheme To Defraud Investors / Government Recovers Digital Funds Worth More Than $60 Million (DOJ Press Release)
Ohrab Sharma a/k/a "Sam Sharma," Raymond Trapani a/k/a "Ray," and Robert Farkas a/k/a "RJ," a/k/a "Bob," co-founders of a Centra Tech, Inc. ("Centra Tech"), a company that purported to offer cryptocurrency-related financial products were indicted in the United States District Court for the Southern District of New York on one count of conspiracy to commit securities fraud; one count of conspiracy to commit wire fraud; one count of securities fraud; and one count of wire fraud. The charges arose in connection with the Defendants' alleged scheme to induce victims to invest millions of dollars' worth of digital funds for the purchase of digital currency tokens issued by Centra Tech. Following the Defendants' arrests, this Office and the Federal Bureau of Investigation seized 91,000 Ether units worth over $60 million and representing digital funds raised from victims. The SEC has filed a parallel civil action against Sharma, Trapani, and Farkas.

Repeat Investment Fraudster Sentenced to 8 Years in Prison for Wire Fraud, Securities Fraud and Aggravated Identity Theft / Victims met Defendant through Martial Arts Studio; Defendant lied about Criminal Past and Stole Disabled Man's Retirement Savings (DOJ Press Release)
Richard Thomas Zieske was convicted in the United States District Court for the Western District of Washington of five counts of wire fraud, one count of securities fraud and two counts of aggravated identity theft. Zieske was sentenced to 8 years in prison plus three years of supervised release. In 2005, Zieske as sentenced to 41 months in prison and ordered to pay more than $1.3 million in restitution after pleading guilty to mail fraud, securities fraud and wire fraud in connection with his fraudulent solicitation of nearly $2 million from members of his church and others.

In the Matter of Gary C. Snisky (SEC ALJ Initial Decision; Init. Dec. Release No. 1251; Admin. Proc. File No. 3-17645) On February 5, 2015, Gary C. Snisky pled guilty to committing mail fraud and to engaging in monetary transactions in property derived from mail fraud, which resulted in $5,226,965.93 in investors' losses. He was sentenced to two concurrent eighty-four month terms of imprisonment, and ordered to pay $2,531,032.22 restitution. On August 11, 2016, a default final judgment in the form of a permanent injunction was entered against Snisky. In consideration of the criminal and civil cases, the SEC barred Snixky from association with a broker, dealer, investment adviser, municipal securities dealer, municipal advisor, transfer agent, or nationally recognized statistical rating organization. 

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

In today's Securities Industry Commentator feed:

Moshe Marcel Ajdler, Plaintiff/Appellant v. Province of Mendoza Defendant/Appellee (Order, United States Court of Appeals for the Second Circuit, 17-CV-2704 / May 11, 2018)
Because existing New York law does not clearly settle whether claims for interest on principal continue to accrue after a claim for the principal itself is time‐barred, 2Cir certified questions pertaining to that issue to the New York Court of Appeals, deferring the federal court's resolution of this appeal in the interim. 

FINRA Arbitrator Recommends Multiple Expungements For Veteran Stockbroker ( Blog) It seems that each week there are increasing numbers of arbitrations filed with FINRA seeking expungement of various matters from a registered rep's industry record. Must be bringing in a nice chunk of change to the self-regulatory-organization via filing fees, membership fees, hearing fees, and the like. Of course, given the explosion of such cases, we should also be asking if these matters truly belong before an arbitration panel and not within the regulatory framework. Why is it that so many disclosures are being deemed non-disclosable? Why are so many allegations being questioned and rejected? Should there be more scrutiny of customer allegations and employer claims before they are carved into a industry employee's record? Should we be concerned that too much is being removed from the public record? Is anyone asking either of those questions?  

Tossing Fish and Catching Capital: Remarks at the Washington State Bar Association (Speech by SEC Commissioner Hester Pierce) This is why I'm often puzzled when investor protection is presented as somehow in opposition to capital formation. The SEC's tripartite mission-to facilitate capital formation, protect investors, and maintain fair, orderly, and efficient markets-works as a cohesive whole. No one mandate is in tension with another, and focusing on one doesn't mean sacrificing another. While investor protection means deterring and punishing truly bad actors, it also means not erecting barriers that prevent investors from accessing investment. Facilitating capital formation means, in part, facilitating investor opportunity.

Dominican National Pleads Guilty to International E-Mail Impersonation and Fraud Scam (DOJ Press Release) Federal prosecutors alleged that from at least June 2015 through November 2017, Leonel Alexis Valerio Santana conspired with others to defraud at least 95 victims by pretending to be employees of the Securities and Exchange Commission and demanding in excess of $1.3 million from victims. Upon receipt, the conspirators generally withdrew the funds it from bank accounts and forwarded much of it to individuals in the Dominican Republic. Valerio Santana pled guilty in the United States District Court for the District of Massachusetts to conspiracy to commit money laundering and conspiracy to commit wire fraud. At least 25 of the cited returns used the names and social security numbers of individuals with cerebral palsy who did not need to file tax returns and 386 of the returns used the identities of incarcerated individuals, and in both situations, the individuals did not authorize Lasset to file their tax returns.  The cited returns claimed earned income tax credits based on false claims of earning income as "household help" employees, and falsely claimed education credits designed to reimburse college and other higher education expenses. Lasset pled guilty tin the United States District Court for the Southern District of Florida to one count of wire fraud and one count of aggravated identity theft. 

Canadian Who Operated Unlicensed Bitcoin Trading Business Sentenced / Defendant Engaged in Bitcoin Exchanges with Undercover Agents despite Knowledge the Money was Drug Trafficking Proceeds (DOJ Press Release)  Louis Ong was sentenced after pleading guilty in the United States District Court for the Western District of Washington to operating an unlicensed money transmission business and was sentenced  to 20 days of incarceration plus three years of supervised release and ordered to forfeit over $1 million. On had placed regarding buying and selling and traveled to the Seattle area to exchange cash for bitcoin.  At various times, undercover agents specifically told him that the funds they were exchanging for bitcoin came from drug trafficking - to which he repeatedly told them he did not want to hear that so that he had ‘plausible deniability.'