Securities Industry Commentator by Bill Singer Esq

May 30, 2018

In the Matter of Alexander Kon (Order Making Findings and Imposing Remedial Sanctions and a Cease-and-Desist; '33 Act Release No. 10501; '34 Act Release No. 83336; Admin. Proc. File No. 3-17674 / May 29, 2018)
On November 14, 2016, the SEC instituted public administrative proceedings against Alexander Kon, and without 
admitting or denying the findings, Kon submitted an Offer of Settlement, which the SEC accepted. The SEC deemed that Kon had willfully violated Section 17(b) of the Securities Act. The Order asserts in part that:
1. In early 2014, as part of an effort to increase his company's ("Issuer A") stock price, Issuer A's former CEO (the "Former CEO") retained Kon to disseminate information about Issuer A. 

2. Kon possessed an email list and various websites through which he touted microcap stocks. Oftentimes, Kon hired other promoters to help distribute touts. 

3. After various email exchanges and phone calls between the Former CEO and Kon, they agreed that for $25,000, Kon would run a marketing campaign on Issuer A stock on April 14, 2014 via four websites that Kon operated: 1); 2); 3); and 4) 

4. Kon and the Former CEO interacted with each other to both organize the promotional campaign and to make arrangements for payment for the campaign. The $25,000 payment to Kon was effected via wire transfer by the Former CEO and was in response to an invoice Kon sent directly to the Form

er CEO. However, despite Kon interacting exclusively with the Former CEO, sending the invoice directly to the Former CEO, and receiving payment from a transaction effected by the Former CEO, Kon determined that the disclaimer for each of the touts on the four websites would note that Kon received money from "third party Casey Cummings." Moreover, Kon was aware that Casey Cummings was the Former CEO's son, yet did not disclose this in the touts either.

In accordance with the terms of the settlement, the SEC ordered Kon to cease and desist from committing or causing any violations and any future violations of Section 17(b) of the Securities Act; and suspended him for twelve months from participating in any offering of a penny stock, including: acting as a promoter, finder, consultant, agent or other person who engages in activities with a broker, dealer or issuer for purposes of the issuance or trading in any penny stock, or inducing or attempting to induce the purchase or sale of any penny stock. Finally, Kon was ordered to pay $25,000 disgorgement, $332 interest and a $20,000 civil money penalty.  For background on the Kon case read:
In a Complaint filed in the United States District Court for the Central District of California ("CDCA"), the SEC alleged that Titanium Blockchain Infrastructures Services Inc. President Michael Alan Stollery, a/k/a Michael Stollaire, a self-described "blockchain evangelist," lied about business relationships with the Federal Reserve and dozens of firms, including PayPal, Verizon, Boeing, and The Walt Disney Company.  SEC v. Titanium Blockchain Infrastructure Services, Inc., et al. (Compliant, CDCA, No. 18-4315). Stollaire and Titanium are charged with violating the antifraud and registration provisions of the federal securities laws; EHI Internetwork and Systems Management Inc., is also charged with violating the antifraud provisions.  The Complaint seeks preliminary and permanent injunctions, return of allegedly ill-gotten gains plus interest and penalties, and a Bar against Stollaire to prohibit him from participating in offering digital securities in the future.  Following the court's entry of a temporary restraining order against them, Stollaire and his companies consented to the entry of a preliminary injunction and the appointment of a permanent receiver over Titanium. CDCA approved an emergency asset freeze and the appointment of a receiver for Titanium.READ the FULL TEXT SEC Complaint
In today's Blog we consider the case of a former Ameriprise stockbroker accused of entering 30 unauthorized mutual fund purchases valued at some $260,000. Her brokerage firm seems to have been on top of its compliance duties, and busted the trades. FINRA seems to have been on top of its regulatory duties, and demanded answers. The stockbroker ducked FINRA and was suspended and then barred for her dilatory conduct but -- Eureka! -- after some eight months of playing regulatory hide-and-seek, she gets FINRA to lift the bar when she finally cooperates. And after her belated cooperation, go figure, she winds up barred. 

CFTC Orders X-Change Financial Access LLC to Pay a $150,000 Civil Monetary Penalty for Supervisory and Recordkeeping Failures (CFTC Release 7735-18)
CFTC issued an Order filing and simultaneously settling charges against X-Change Financial Access LLC (XFA) for failure to diligently supervise its employees' handling of its customer accounts and failure to preserve complete records.  At the time of the conduct charged, XFA was registered with the CFTC as a Futures Commission Merchant and is now registered as an Introducing Broker. The CFTC Order requires XFA to pay a $150,000 civil monetary penalty and to cease and desist from further violations of the Commodity Exchange Act. READ the FULL TEXT CFTC ORDER As set forth in the "Summary" section of the CFTC Order:

Between at least January 2013 and January 2014 ("Relevant Period"), XFA failed to diligently supervise its employees concerning accounts owned or controlled by its client, who was the associated person ("AP") and founder of a commodity trading advisor ("CT A") and commodity pool operator ("CPO"). The CTA/CPO's AP and founder ("Client") managed commodity futures accounts for numerous individual customers as well as a commodity pool ("Pool"). During the Relevant Period, the Client executed bunched orders on behalf of customer and proprietary accounts through an XF A floor broker ("Broker") and subsequently sent allocation instructions to the Broker. The Client used post-execution allocation to engage in an unlawful scheme to the Client's benefit and to the detriment of certain of the Client's customers. During the Relevant Period, XF A had no written policies or procedures concerning the postexecution allocation of bunched orders and did not train its staff on their obligations regarding the handling of such bunched orders. As a result, the Broker processed the Client's allocations despite various red flags indicating that the Client was not complying with Commission regulations governing such allocations. 

In addition, during the Relevant Period, the National Futures Association ("NF A") issued two Member Responsibility Action ("MRAs") against the Client and the CT A/CPO prohibiting the Client from soliciting funds or withdrawing money from managed accounts, and ultimately, banning the Client from trading. Despite the MRAs, of which the Broker and XF A supervisory personnel were aware, the Client was still able to allocate trades to a new account in the name of the Client's spouse ("Spouse Account"), and the Broker executed trades in the Spouse Account after the trading ban took effect. XFA's failure to identify the relationship between the Client and the Spouse Account, which enabled the Client to circumvent the MRAs and delayed detection of the Spouse Account by regulators, demonstrated the insufficiency of XF A's policies and procedures regarding compliance with regulatory actions. 

Through these actions, Respondent failed to diligently supervise the handling of its customer accounts, in violation of Regulation 166.3, 17 C.F.R. § 166.3 (2017). 

Finally, although XFA retained the IMs between the Client and its Broker, some of which contained bunched orders or post-execution allocation instructions, XF A failed to preserve the timestamps on the IMs. XF A's failure to properly preserve these records violated Section 4g of the Act, 7 U.S.C. § 6g (2012), and Regulations 1.31 and l.35(a)(l) and (b)(5)(v)(C), 17 C.F.R. §§ 1.31, 1.35(a)(l) and (b )(5)(v)(C) (2017), which require an FCM to maintain complete records of all transactions relating to its business of dealing in commodity interests, including orders subject to post-execution allocation, and to preserve electronic records in native file format. 

On May 25, 2018, Anthony Gignac, a/k/a "Khaled Al-Saud," a/k/a "Khalid Al-Saud," a/k/a "Khalid Bin Al-Saud," a/k/a "Khalid Bin Sultan Al-Saud," a/k/a "Sultan Bin Khalid Al Saud," 47, of Miami, pled guilty in the United States District Court for the Southern District of Florida to one count of impersonating a foreign diplomat or foreign government official; one count of aggravated identity theft; and one count of conspiracy to commit wire fraud. Federal Prosecutors had alleged that Gignac and one of his co-conspirators created Marden Williams International LLC ("MWI"), which fraudulently sought financial investments, in part, by falsely presenting. Gignac as a member of the Saudi Royal family.  One of the fraudulent investment schemes was purported to be a pre-initial private offering of a legitimate private Saudi Arabian business.  One victim invested approximately $5,000,000 into the fraudulent scheme.