Securities Industry Commentator by Bill Singer Esq

June 11, 2018

Town Officials in New York Who Hid Financial Troubles from Bond Investors Agree to Lifetime Municipal Security Bars (SEC Litigation Release No. 24161)
In addition to the lifetime municipal security bars from participating in municipal bond offerings, Nachman Aaron Troodler, Nathan Oberman and Michael Klein were permanently enjoined in the United States District Court for the Southern District of New York from violating Section 17(a) of the Securities Act of 1933, and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder. Oberman was ordered to pay $10,000 in civil penalties and Klein to pay $25,000 in civil penalties. Additionally, Oberman and Klein were required to resign from their employment with Ramapo, N.Y. and they are prohibited for five and seven years, respectively, from being employed by Ramapo. The SEC's litigation against Christopher St. Lawrence continues. 

FINRA Suspends Stockbroker For Reimbursing Customer Options Losses ( Blog)
Wall Street can be a frustrating, infuriating, puzzling, and perplexing place to work. And those emotions can be felt with equal fervor by the industry's firms, employees, public customers, and regulators. At times, it seems that you get rewarded for doing bad and punished for doing good. Other times, what, at first blush, seemed good turns out to be bad and vice versa. There are no easy answers. There are no easy solutions. In today's Blog we consider the story of a stockbroker who made a nice chunk of change for his customer in the speculative world of options trading -- that is, until the stockbroker made a few lousy investments and lost a nice chunk of change for the same customer. The options trading losses shocked the stockbroker, who came up with a formula to repay his client. It's nice that a stockbroker puts his money where his mouth is and digs into his own pocket when a proposed investment goes into the toilet. I'm sure the client thought he was dealing with a stand-up guy. The thing is, however, that the stockbroker entered into the repayment schedule without telling his employer brokerage firm. They got a rule against that on Wall Street. When you understand the rationale for the rule, it makes sense. Making sense is a good thing. How we make sure that sensible things get done isn't always a pretty sight to behold, as today's FINRA regulatory settlement demonstrates.

Assistant Bank Manager and Wife Charged in Bank Fraud Scheme (DOJ Press Release)
Former Citizens Bank Assistant Manager Craig Green and his wife Bridgette Green were indicted in the United States District Court for the Eastern District of Pennsylvania on one count of conspiracy to commit bank fraud, one count of bank fraud, one count of aggravated identity theft, and 26 counts of money laundering. Federal prosecutors allege that Craig Green improperly accessed a customer's bank account information and created a second, fraudulent account in the name of that same customer. After allegedly transferring funds from the legitimate to the fraudulent account, the Greens allegedly wrote checks against the fraudulent account to a co-conspirator, who deposited the checks and thereafter forward about $165,498 to the defendants.

Leavitt Sentenced To 36 Months In Prison After Convictions For Wire Fraud, Money Laundering In Connection With Fraud Scheme (DOJ Press Release)
After pleading guilty in the United States District Court for the District of Utah to wire fraud and money laundering in connection with an affinity fraud scheme, Ronald Wayne Leavitt was sentenced to  36 months plus 36 months of supervised release and ordered to pay $519,420.55 in restitution. As set forth in part in the DOJ Press Release:

[L]eavitt acknowledged that he told a variety of lies to friends and neighbors to get them to invest in his schemes. He told some that he owned several limousines while telling others he was the executor of large trust fund and that he owned property worth millions of dollars.  He also told some victims he had inherited millions of dollars from his parents. He also told victims that the investment opportunity was limited and, if they were lucky, he could get them a spot in the investment. He told others victims that an investor had pulled out and, although other investors would be upset, he would allow them to invest and make it work.

After gaining their trust, Leavitt admitted he convinced several individuals to invest in one of three different ventures.  Leavitt pitched a real estate venture in California, a high-end real estate development venture in Moab called Hidden Mesa, and a sugar substitute start-up company.

According to documents filed as a part of the plea agreement, Leavitt admitted that the real estate venture in California was an investment he fabricated.

The Hidden Mesa real estate development venture was an idea that Leavitt had discussed with an individual who had purchased land in Moab. This individual discussed with Leavitt the possibility of developing the land and talked with Leavitt about seeking investors for the project. However, without this individual's knowledge, Leavitt used the concept of the venture to pitch the investment opportunity to some of his neighbors and some of their family members, eventually persuading some of them to invest in the venture.  He promised them returns as large as 300 percent within 60 to 90 days.  Leavitt admitted that once they made an investment in the project, he never provided any of that money to the individual who had purchased the land in Moab.

The sugar substitute start-up company is an actual company that Leavitt's brother was involved in.  Leavitt had talked with his brother and another individual about trying to find investors.  As a part of his scheme to defraud, Leavitt admitted he convinced individuals to invest in the company.  Once they did, he did not inform the company of their investment or give them the money. Like the other two ventures, Leavitt admitted he kept the funds for himself and spent them.

Leavitt admitted that he spent the majority of the money he took from victims of the fraud schemes rather than investing it in anything. . .

Statement at Open Meeting on Amendments to the Volcker Rule (Statement by SEC Commissioner Hester Peirce)
In what will likely be merely an opening salvo (READ THE FULL TEXT STATEMENT] in the battle to save, remove, or refashion the Volcker Rule, SEC Commissioner Peirce notes in part that 

My views on the Volcker Rule are no secret. Although I share the concerns that led to the enactment of this provision of the Dodd-Frank Act -- hat taxpayers should not be required to subsidize banks' proprietary trading -- I believe that the Volcker Rule is an unwieldy tool for addressing these concerns.  It attempts to distinguish prohibited proprietary trading from permitted market-making and hedging activity, but because the differences between these activities are exceedingly fine, the regulatory framework is exceedingly complex.  It imposes detailed and highly technical restrictions on the activity of banking entities that pose significant and expensive compliance challenges for these entities. . .

"A Framework of Trust" (Speech by SEC Commissioner Kara Stein)
SEC Commissioner delivered a thoughtful speech (READ THE FULL TEXT REMARKS) on a number of issues. In pertinent part, she admonished that:

As you think about a possible career in finance and investing, I want you to come back to the two themes I've discussed this evening -- how can smart rules help promote healthy investment? And what is your role, as an investor, adviser or entrepreneur, in helping Americans achieve their dreams? If talented women like you focus on those questions, I am confident that we will be in good hands as your generation steps into leadership roles in the years to come.