Securities Industry Commentator by Bill Singer Esq WEEK IN REVIEW

May 26, 2018

Court Enters Final Judgment Against Florida Resident Charged with Market Manipulation Scheme (SEC Litigation Release No. 24149) In a Complaint filed in the United States District Court for the Middle District of Florida, the SEC alleged that Gregory M. Bercowy manipulated the price of pennystock Aureus, Inc. while he was associated with a state-registered investment adviser. Bercowy stated in recorded phone calls with a representative of a brokerage firm that he and others were trying to boost Aureus's stock price. Pursuant to a default judgment, Bercowy is enjoined from future securities law violations and ordered to pay a civil penalty of $507,513 and permanently barred from participating in an offering of a penny stock. READ the FULL TEXT SEC Complaint 

As The FINRA WORM Turns ( Blog) Blog publisher Bill Singer, Esq. lets it fly today with his analysis of a FINRA regulatory settlement involving a four-rep member firm. It's not that the firm didn't screw up. It appears that it did. Some nonsense involving how it stored emails going back some six years. Bill gives FINRA that much. There was misconduct. There were violations. He's not arguing those points. On the other hand, what's accomplished with the meaningless gesture of a Censure and the impotent imposition of a $5,000 fine? Would you like fries with that settlement? Would you like to super-size your beverage? Is that to go? Will that be cash or charge? Have a nice day! 

The CFTC file a Complaint in the United States District Court for the Central District of Californiacharging Defendants Jin Choi and his companies, Apuro Holdings Ltd. (Apuro) d/b/a ApuroFX and JCI Holdings USA (JCI) d/b/a JCI Trading Group, LLC, with off-exchange retail foreign currency (forex) fraud and failure to register as a Commodity Trading Advisor and Associated Person of a Commodity Trading Advisor. CFTC seeks restitution to defrauded investors, disgorgement of ill-gotten gains, civil monetary penalties, permanent registration and trading bans, and a permanent injunction against future violations of the Commodity Exchange Act. READ the FULL TEXT CFTC Complaint. The Complaint alleges that Choi, individually and as agent and principal of Apuro and JCI, fraudulently solicited at least $350,600 from not less than six individuals for the purported purpose of trading off-exchange leveraged or margined retail forex contracts on their behalf. 

SEC Charges Marijuana Company and its CEO With Fraud (DOJ Litigation Release No. 24148) In complaints filed in the United States District Courts for the Sourthern District of California and the Northern District of Iowa, the SEC alleged that Bud Genius and Aaron "Angel" Stanz issued false and misleading press releases about a purported licensing agreement with comedian Tommy Chong, who was described as falsely characterized as a partner. The SEC further alleged that an unregistered offering sold billions of shares of Bud Genius stock for more than a $540,000 profit, of which about $140,000 was paid to Bud Genius and Stanz. Without admitting or denying the SEC's allegations, Stanz, Bud Genius, Moffitt, Febles, and U.S. CoProducts agreed to a judgment enjoining them federal securities laws/ Additionally Stanz agreed to a five-year officer-director and penny stock bars, and ordering disgorgement and prejudgment interest of $158,829. Also, Moffitt, Febles, and U.S. CoProducts agreed to be jointly and severally liable for $435,595 in disgorgement and prejudgment interest. Further, Moffitt and Febles agreed to penny stock bars of three years and one year respectively, and to pay civil penalties of $35,000 and $20,000 respectively. READ the FULL TEXT Complaints.

Busted Out Credit Cards Bust Defendants ( Blog) I'm sure that you've read about crooks stealing personal identification and then running around charging all sorts of stuff on credit cards that they loaded with the information that they stole. Sure, I could do that  -- you've probably said to yourself -- but if I applied for that job, they'd never hire me. I got the talent but not the know-how. Some of you may have even gone online to see if there's some kind of how-to guide you could read and learn the ropes yourself.  A word of caution, if there's a free app showing you how to bust out credit cards but it requires you to provide your name, address, social security number, and father's middle name, I would likely decline but, you know, I'm just a suspicious kind of fellow. Maybe you're more trusting? If so, bust that move and go for it. And while you're busting your moves, consider United States of America v. Talat Ali Maan, Syed Rehman, Kashif Idrees, Jaweed Wahed Ahmed, and Fatou Djambo (Criminal Complaint, United States District Court for the District of New Jersey, No. 18-6095)

California Man Claiming to be a Billionaire Financier Convicted in Multimillion-Dollar Fraud Scheme (DOJ Press Release) Following a two-week trial, a federal jury in Denver, Colorado, has convicted Kenneth Brewington of one count of conspiracy to commit mail and wire fraud, one count of mail fraud, five counts of wire fraud, one count of conspiracy to commit money laundering, one count of laundering monetary instruments, and two counts of engaging in monetary transactions in property derived from specified unlawful activity. The Defendant told victims that he required millions of dollars in supposed fees in order to access his extraordinary wealth, which in turn could be used for financing.  During the scheme, the defendant and his co-conspirators sold promissory notes to victims, who lost over $3 million.

Greenwood Man Pleads Guilty to Securities Fraud (DOJ Press Release) Leonard Wimmer Jr. pled guilty to securities fraud in the United States District Court for the District of South Carolina in connection with allegations that about 25 individuals invested $3.6 million with Wimmer, who pooled the money into one bank account from which he traded in high-risk securities and futures contracts.  Of the $3.6 million invested, Wimmer lost approximately $3 million. Instead of reporting his losses, Wimmer emailed his investors monthly account statements that falsely listed gains of 8-10 percent on an annualized basis.  

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, Lawrence Eugene Murphy submitted a Letter of Acceptance, Waiver and Consent ("AWC"), which FINRA accepted. In the Matter of Lawrence Eugene Murphy, Respondent (AWC .2016051227701, May 21, 2018).  In accordance with the terms of the AWC, FINRA imposed upon Murphy a $7,500 fine and a suspension for 20 business days with any FINRA member in any capacity. The AWC asserts that Murphy was first registered in 1984 and by 2004, he was registered with FINRA member firm MSI Financial Services, Inc. f/k/a MetLife Securities Inc., where he remained until August 2016. The AWC alleged in pertinent part that fter his son had been terminated by MSI and had become associated with another member firm, Murphy provided him with the files of approximately 87 of his son's former MSI customers. 

James A. Nickels was indicted on 18 counts of wire fraud and one count of money laundering in the United States District Court for the Eastern District of Wisconsin. Federal prosecutors allege tht Nickels fraudulently induced investments in "The Fiscal Concierge," but did not disclose that he was running what amounted to a Ponzi scheme using new investors' funds to pay interest and principal promised to previous investors, and to pay his personal expenses.  Allegedly, Nickels obtained over $5 million and the investors' net loss was $3,193,616.

PIxarBio Corp Chief Executive Officer Frank Reynolds and M. Jay Herod were indicted in the United States District Court for the District of Massachusetts on two counts each of securities fraud and manipulative trading. scheme to defraud. Prosecutors alleged in part that Reynolds promised investors huge returns and touted a prospective drug, carbamazepine, (which actually already existed) as an opiate addiction treatment. Also, prosecutors alleged that Herod had engaged in market manipulation through such techniques as matched trading or marking at the close. 

District Court Permanently Enjoins Two Individuals and One Company Responsible for a Florida-Based Mail Fraud Scheme (DOJ Press Release) Federal prosecutors alleged Art Masters LLC, which does business as Palm Beach Liquidation Gallery, and its principal Eugene Marotta, and William Clutter, who does business as Edge Graphics, mailed over 150,000 fraudulent solicitations styled as personalized notifications that the recipient won a large package of cash and prizes worth more than $350,000, but needed to pay a fee of $161.25 to claim the package. Victims who sent fees received a list of publicly-advertised sweepstakes and an ink-jet printed reproduction of artwork. The United States District Court for the Southern District of Florida entered a consent decree of permanent injunction against  Art Masters LLC, Marotta, and Clutter enjoining them from mailing solicitations promising delivery of a prize, offering for sale information on sweepstakes or lotteries, or making other deceptive representations. Defendants are also precluded from creating, renting, or selling lists of victims who responded to defendants' mailings. Finally, the consent decree authorizes the U.S. Postal Inspection Service to return any victim money or personal checks sent to the defendants and detained by the Postal Inspection Service.

Batting 500 In FINRA Expungement ( Blog) Ty Cobb's career batting average was .3664 and Rogers Hornsby's was .3585. Those are the two best career averages in the history of major league baseball. All of which means that if you get a hit about three times for every ten plate appearances, you're likely an All-Star and maybe headed for the Hall of Fame. Not everything in life, however, equates to baseball. If only a third of a surgeon's patients survive, that doctor ain't no all-star or future hall-of-famer. Lawyers -- well, that's an interesting scenario. Prosecutors should probably win over 90% of their cases because they are supposed to have probable cause before filing charges. Defense lawyers, on the other hand, well those folks tend to represent a large percentage of guilty folks; and sometimes the best you can do is reduce a death sentence to life, a life sentence to 20 years, a 20-year sentence to 5 years, and possession of a truckload of cocaine to possession of narcotics paraphernalia (the coke spoon around your neck). Like I said, you got baseball and you got life. In a recent FINRA expungement case, the Claimant stockbroker batted 500. You be the judge as to how well he did.

To exercise such reasonable diligence, care, skill, and prudence the broker-dealer would be required to do three things when it recommends a securities transaction or investment strategy to a retail customer.
o First, the broker-dealer would need to understand the risks and rewards associated with the security or investment strategy, and have a reasonable basis to believe that it could be in the best interest of at least some retail customers.
o Second, the broker-dealer would be required to match this understanding of the security or strategy to the particular retail customer to form a reasonable belief that the security or strategy is in the retail customer's best interest. The customer's investment profile would be developed using the extensive investment profile information that broker-dealers are required to attempt to gather today pursuant to FINRA rules. We thought that the investment profile information that is currently required has worked well, so we did not propose to change it. 
o Finally, the broker-dealer would be required to have a reasonable basis to believe that a series of recommended transactions is not excessive and is in the retail customer's best interest when taken together in light of the customer's investment profile.

Grand Blanc Man and Flint Woman Indicted For Involvement in Fraudulent Investment Scheme (DOJ Press Release) Larry A. Holley, 61 and Patricia Enright a.k.a. Patricia Gray were indicted in the United States District Court for the Eastern District of Michigan on conspiracy to commit wire and mail fraud, wire fraud, mail fraud, and money laundering. The Indictment alleges that Holley, who is a pastor at Abundant Life Ministries in Flint, and Enright operated Treasure Enterprise, LLC, which fraudulently purported to provide financial planning and asset management services to investors.  Holley and Enright allegedly solicited many of their investors at financial seminars held at churches. 

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

In today's Securities Industry Commentator feed:

Epic Systems Corp. v. Lewis (United States Supreme Court Opinion) Gorsuch, J., delivered the opinion of the Court, in which Roberts, C. J., and Kennedy, Thomas, and Alito, JJ., joined. Thomas, J., filed a concurring opinion. Ginsburg, J., filed a dissenting opinion, in which Breyer, Sotomayor, and Kagan JJ. joined. Congress has instructed in the Arbitration Act that arbitration agreements providing for individualized proceedings must be enforced, and neither the Arbitration Act's saving clause nor the NLRA suggests otherwise. READ FULL TEXT Supreme Court Opinion. 

Texas Spearheads US-Canada Probe of Cryptocurrency Investments (TSSB Press Release)
On the heels of the North American Securities Administrators Association (NASAA) May 1st launch of its  "Operation Cryptosweep," the Texas State Securities Board has joined over 40 U.S. state and Canadian regulators in the investigation of fraudulent cryptocurrency-related investment products. In December 2017 TSSB started a four-week investigation into cryptocurrency offerings that provided the framework for the NASAA sweep. In addition to the 10 orders, TSSB is investigating over 60 suspect offerings in which promoters are allegedly attempting to capitalize on the hype and excitement associated with Bitcoin and other cryptocurrencies to defraud senior citizens, retirees and other investors. 

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, Citigroup Global Markets, Inc.,submitted a Letter of Acceptance, Waiver and Consent ("AWC"), which FINRA accepted. In the Matter of Citigroup Global Markets, Inc.., Respondent (AWC  2014039653701, May 21, 2018). FINRA alleges that from June 2006 through at least September 2017, the CGMI failed to have adequate supervisory procedures reasonably designed to ensure compliance with federal securities laws and NASD and FINRA rules regarding the issuance of accurate customer trade confirmations. Pointedly, CGMI issued approximately 12.5 million customer trade confirmations that contained inaccurate information. In accordance with the terms of the AWC, FINRA imposed upon CGMI a Censure, a $550,000 fine, and an undertaking to address the deficient supervisory system and WSPs and to implement remedial measures.  

Arbitration Mistake Becomes A FINRA Moneymaker ( Blog) Imagine that you logged on to the wrong website and were charged $12,000 for that oops. Imagine that Amazon was charged $12,000 every time it sent a package to the wrong address. Imagine that you got socked with a $12,000 fee for each time you butt dialed someone. If life teaches us anything, it's that we often pay for our mistakes. On the other hand, when folks goof, it shouldn't be an opportunity to a fee and a surcharge and a penalty fee and a service fee. An oops is still an oops -- except when you need two forms of photo ID and a credit card to make amends. Consider the cost of a public customer's screw-up in a recent FINRA arbitration. It's gotta be FINRA's favorite mistake and quite the money maker! 

In the Matter of Department of Enforcement, Complainant, vs. Michael Todd Clements. Respondent. (FINRA National Adjudicatory Council Decision, Complaint No. 2015044960501) 
Compliments to FINRA NAC for drafting a thorough and compelling Decision! The Financial Industry Regulatory Authority's National Adjudicatory Council ("NAC") found that Respondent Clements had made material misrepresentations and omissions of material fact in connection with self-offerings to investors and failed to supervise his firm's capital raising. Upon finding Respondent had engaged in fraud, the OHO barred Clements from association with any FINRA member in all capacities. For his failure to supervise, OHO assessed, but did not impose (in light of the bar,) a $73,000 fine and a Bar in all principal capacities. Clements appealed the OHO decision. The NAC affirmed the OHO findings of liability and modified the sanctions to order restitution instead of rescission and also impose the Bar in all principal capacities. 

In the Matter of Department of Enforcement, Complainant, vs. Allen Holeman, Respondent (FINRA National Adjudicatory Council Decision, Complaint No. 22014043001601) Again, compliments to FINRA NAC for drafting a thorough and compelling Decision! A Financial Industry Regulatory Authority Office of Hearing Officers ("OHO") Panel found that Respondent Holeman had willfully failed to timely amend his Uniform Application for Securities Industry Registration or Transfer ("Form U4") to disclose three federal tax liens. 

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 Mobile Phone Industry Manager Sentenced In Manhattan Federal Court To 30 Months In Prison For Role In Multimillion-Dollar Consumer Fraud Scheme (DOJ Press Release)
Federal prosecutors had alleged that between 2011 and 2013, Christopher Goff, an account manager for Mobile Messenger, a U.S. aggregation company in the mobile phone industry, engaged in an auto-subscribing scheme that placed unauthorized text-messaging charges on their cell phone bills.  In or about 2010, Lin Miao, CEO of Tatto, and others built a computer program that could spoof the required consumer authorizations for premium text messaging services. In 2011, Miao met with Goff and asked him to provide large batches of phone numbers from Mobile Messenger's databases in exchange for payment. In total, Miao and Tatto took more than $50 million from consumers via the scheme, of which Goff received over $350,000. Goff pled guilty in the United States District Court for the Southern District of New York to one count of participating in a conspiracy to commit wire fraud, and he was sentenced to 30-months in prison plus two years of supervised released and ordered to forfeit $352,799.56. To date, Andrew Bachman, Miao, Michael Pajaczkowski, Erdolo Eromo, Jonathan Murad, Francis Assifuah, and Jason Lee have pled guilty in connection with their participation in the fraud.  Two additional defendants, Fraser Thompson and Darcy Wedd, were convicted following three-week jury trials.  

Rabobank NA Sentenced for Conspiring to Impair, Impede, and Obstruct Its Primary Regulator (DOJ Press Release) Federal prosecutors alleged that Rabobank National Association (Rabobank),a California subsidiary of the Netherlands-based Cooperatieve Rabobank U.A., operated branches in Imperial County, California that were heavily dependent on cash sourced from Mexico. Prosecutors asserted that the bank knew this Mexican cash was likely tied to narcotics trafficking and organized crime. Rabobank allegedly continued soliciting cash-intensive customers from Mexico, while failing to employ appropriate BSA/AML policies and procedures to address the heightened risk, until approximately May 2013, when Rabobank placed a moratorium on originating new account relationships for Mexico-based businesses entities. Rabobank, through at least three executives, knowingly obstructed the Department of the Treasury's Office of the Comptroller of the Currency's (OCC's") 2012 examination by responding to the OCC's February 2013 initial report of examination with false and misleading information about the state of Rabobank's BSA/AML program and by making false and misleading statements to the OCC regarding the existence of reports developed by a third-party consultant that described the deficiencies and resulting ineffectiveness of Rabobank's BSA/AML program.  In furtherance of the scheme to defraud the OCC, Rabobank also demoted or terminated two RNA employees who provided information to the OCC regarding Rabobank's BSA/AML deficiencies. Rabobank plead guilty to conspiracy to defraud the United States and to corruptly obstruct an examination of a financial institution, and the bank was sentenced in the United States District Court for the Southern District of California for impairing, impeding and obstructing its primary regulator, the Department of the Treasury's Office of the Comptroller of the Currency (the OCC), by concealing deficiencies in its anti-money laundering (AML) program and for obstructing the OCC's examination of Rabobank.  Rabobank was sentenced to a two-year term of probation, and ordered to pay the statutory maximum fine of $500,000.  Additionally, as part of its guilty plea, Rabobank forfeited $368,701,259 to the United States as a result of allowing illicit funds to be processed through the bank. 

Post Mortem Auto-Pilot Trading Sends Stockbroker's Career Into Head-On Regulatory Crash ( Blog) Regardless of the business that you're in, if you have clients, they can and do die. Sometimes you are prepared for a customer's demise because they have been in failing health. Sometimes it's an unexpected accident or medical event. When a customer dies, businesses servicing such deceased parties typically have many policies and procedures that kick in -- some designed to protect the business and others to protect the interest of the deceased. Despite the best of plans and intentions, the protocols in place to address a customer's death don't always stand up to the demands of the customer's heirs (purported or otherwise) or the best-intentions of those with whom the deceased had business dealings. In a recent FINRA regulatory settlement, we come across the post-mortem conduct of a stockbroker who didn't yet know that his customer had died. 

Security Guard to Company Board Member Settles Insider Trading Charges (SEC Litigation Release No. 24145) Without admitting or denying the allegations, Todd David Alpert consented to the entry of a judgment in the United States District Court for the Southern District of New York that permanently enjoins him from future violations of the Securities Exchange Act, and orders him to pay disgorgement of his profits of $43,873 disgorgement plus $1,627 interest and to pay a $43,873 civil penalty. The SEC had alleged in a Complaint that Alpert, who worked as a security guard at the home of an H.J. Heinz Company board member, misappropriated material nonpublic information concerning Berkshire Hathaway, Inc. and 3G Capital Partners Ltd. pending acquisition of Heinz. Alpert purportedly purchased 1,000 shares and 30 call options in Heinz and reaped about a $44,000 profit.