Securities Industry Commentator by Bill Singer Esq

August 16, 2018
A jury in the United States District Court for the Northern District of Texas convicted Derrick Adrian Johnson of disguising himself in a painter's suit from a nearby construction site, covering his face with a towel and robbing a Wells Fargo bank in Dallas, Texas, on July 9, 2016. On July 8, 2016,  Johnson had been released from federal custody for a 2008 bank robbery conviction, which also involved his covering his face with a towel and attempting to rob a Wells Fargo bank. 

Let's file this one under OMG! Really? Is there no more innovation in crime? Recidivist Fraudster Pleads Guilty for the Third Time to Securities Fraud, Sent to Jail by Judge (DOJ Press Release)
Howard M. Appel pled guilty today to one count of conspiracy to commit securities fraud. Appel admitted that after his release from prison following two prior securities-fraud related convictions, he participated in a new securities fraud scheme involving publicly traded companies, including Virtual Piggy, Inc. (ticker symbol "VPIG"), and Red Mountain Resources, Inc. (ticker symbol "RDMP"). Using nominees o hide his ownership from investors, Appel and made between $3,000,000 and $4,000,000 by artificially inflating the share price through such manipulation as engaging in coordinated buying and selling with co-conspirators. Also, he traded on inside information that he obtained as a result of his "consulting" work for the companies, including the status of the companies' efforts to get listed on NASDAQ.  

In the Matter of Ameriprise Financial Services,Inc., Respondent (Order Instituting Administrative And Cease-And-Desist Proceedings, Making Findings, And Imposing Remedial Sanctions And A Cease-And-Desist Order; '34 Act Rel. No. 83848; Admin. Proc. File No. 3-18642 / August 15, 2018 ) (the "OIP"). 
In anticipation of the institution of proceedings by the SEC but without admitting or denying the findings, Ameriprise Financial Services, Inc. submitted an Offer of Settlement, which the federal regulator accepted.In accordance with the terms of the OIP, Respondent Ameriprise was Censured; ordered to ease and desist from committing or causing any violations and any future violations of Section 206(4) of the Advisers Act and Rule 206(4)-7 thereunder; and ordered pay a $4,500,000 civil penalty. As set forth in the "Introduction" portion of the OIP [Ed: footnote omitted]:

1. This matter concerns the failure of Ameriprise, a dually-registered investment adviser and broker-dealer, to adopt and implement policies and procedures reasonably designed to safeguard retail investor assets against misappropriation by the firm's representatives. Ameriprise provides investment advisory and brokerage services to advisory clients and brokerage customers (together, "the clients") through a national network of approximately 9,700 representatives. From 2011 through 2014 (the "relevant period"), as part of its compliance and supervisory systems, Ameriprise employed certain automated surveillance tools to prevent and detect whether a representative may have engaged in fraud by misappropriating funds from a client account. One system did not function properly and a second faced limitations, thereby preventing Ameriprise from detecting the misappropriation of over $1 million in client funds by five representatives. 

2. The first, known as the Fraud Early Detection System ("FEDS"), was intended, among other things, to identify situations where a representative attempted to change the address associated with a client's account to an address controlled by the representative (such as his home or business address). Ameriprise considered attempts to replace a client's address with an address controlled by a representative to be suspicious and indicative of a possible attempt to improperly gain control of the client's account and misappropriate funds. However, because of a technical error that went undetected until December 2013, FEDS did not function properly. Specifically, it did not identify instances where a representative sought to gain control of a client's account by improperly changing the address associated with the account to one that the representative controlled. One representative was able to perpetrate a fraud on two of her retail clients without Ameriprise detecting that the representative and her daughter improperly replaced client addresses on the account with their controlled addresses.

3. The second, an automated transaction-based analysis tool (hereinafter "Analysis Tool"), was intended to identify, among other things, situations where a representative attempted to direct a cash disbursement from a client account to an address controlled by a representative. Ameriprise viewed such a money movement as an indicator that a representative could be engaged in fraudulent activities. However, during the relevant period, because of a limitation in its design, with respect to cash disbursements via check, the Analysis Tool was unable to detect certain unauthorized disbursements from client accounts to addresses associated with the representative. In addition, the Analysis Tool was not utilized to detect fraudulent money movements where the disbursement was made by wire transfer. Ameriprise relied on a manual process to detect wire transfers to external accounts controlled by a representative. On multiple occasions during the relevant period, Ameriprise did not detect the fraudulent transfer of funds from client accounts to destinations that were controlled by its representatives. 

4. Each of the five representatives at issue, who are identified in Part III.C.3, was terminated by Ameriprise for misappropriating client funds (the "Terminated Representatives"). In violation of their fiduciary duties under the Advisers Act to their clients, the Terminated Representatives committed numerous unauthorized acts, including forging client documentation, making unauthorized address changes, and/or submitting requests to disburse client funds without their clients' knowledge or approval. All of the Terminated Representatives violated Sections 206(1) and 206(2) of the Advisers Act. Moreover, because in some instances, the misappropriation was in connection with the sale of securities, certain of the Terminated Representatives violated Section 10(b) of the Exchange Act and Rule 10b-5 thereunder. 

5. As a result of the foregoing, Ameriprise violated Section 206(4) of the Advisers Act and Rule 206(4)-7 thereunder, and failed reasonably to supervise the Terminated Representatives within the meaning of Section 203(e)(6) of the Advisers Act and Section 15(b)(4) of the Exchange Act with a view to preventing and detecting the Terminated Representatives' violations of Sections 206(1) and 206(2) of the Advisers Act and Section 10(b) of the Exchange act and Rule 10b-5 thereunder. 

GUEST BLOG: A Trillion Reasons By Aegis J. Frumento, Esq.( Blog)
News that Apple broke the $1 trillion market cap made me remember 1977. Mostly, I remember being twenty-something.  But also, Star Wars (the original) was the year's blockbuster.  Woody Allen's Annie Hall didn't quite show the Manhattan where I lived, in the pre-grunge grunginess of the West (Greenwich) Village. Saturday Night Fever jump-started the disco era.  (In April, Donald married Ivana, but that spins a different tale.)  And Scientific American devoted its entire September issue to the future of the computer.

Dominican National Sentenced for International E-Mail Impersonation and Fraud Scam (DOJ Press Release)
Federal prosecutors alleged that for approximately two years, Leonel Alexis Valerio Santana conspired with others to defraud victims by pretending to be employees of the SEC. In one version of the scam, victims received e-mails that used official-seeming documentation with the SEC seal to support a false claim that the victim must pay a fee in order to receive a portion of a legal settlement. Another version sent e-mails and official-seeming documents labeling the victim as a defendant in a civil lawsuit alleging that the victim owed tens of thousands of dollars in supposed disgorgement, penalties and fees. Victims were told to either appear in court to contest the lawsuit or pay a smaller fee. During Santana's participation in the scheme, the couriers he recruited received $105,869 in victim funds; however, the total solicitations from those victims was over $283,874 in intended loss.  
Santana pled guilty to conspiracy to commit money laundering; conspiracy to commit wire fraud; to impersonating a federal employee; and to misusing a government seal. Santana was sentenced in the United States District Court for the District of Massachusetts to 63 months in prison, three years of supervised release, and ordered to pay restitution of $105,869.

Middlesex County, New Jersey, Man Admits Role In Credit Card Fraud And Aggravated Identity Theft Conspiracy (DOJ Press Release)
Henry Abdul pled guilty in the United States District Court for the District of New Jersey to an Information charging him with one count of conspiracy to commit bank fraud and one count of aggravated identity theft. Federal prosecutors alleged that between October 2015 and January 2018, Abdul, Alexus Omowole, and others conspired to obtain control of credit card accounts by, among other things, contacting the relevant financial institution and posing as the account owner in order to change the personal information associated with the customer accounts, including the residential address, email address, and telephone number. Abdul admitted that the scheme caused between $250,000 and $550,000 in losses, and involved more than 10 separate victims.  Omowole pled guilty to conspiracy to commit bank fraud and aggravated identity theft and is awaiting sentencing. READ the FULL TEXT Information

Plattsburgh Man Sentenced to 63 Months for Online Fraud (DOJ Press Release)
Pursuant to his guilty pleas in the United States District Court for the Northern District of New York, Thomas J. Howe was sentenced to 63 months in prison and 3 years of post-release supervision for committing fraud and identity theft. Howe admitted that he and Jared R. Hudson defrauded banks, merchants and individual consumers by purchasing information including credit card numbers, bank account numbers, expiration dates, security codes, answers to security questions, and other personal identification information, and to using that information to electronically purchase goods, and to fraudulently transfer and attempt to transfer funds electronically.Howe had opened investment accounts in his name, which were funded with money taken from other people's bank accounts using stolen account numbers, routing numbers, identification, and bank security information.  Howe admitted that his conduct caused at least $508,053.33 in losses. Hudson was sentenced to 79 months in prison and 3 years of supervised release.
In a 21-count indictment filed in the United States District Court for the District of Rhode Island, three more individuals have been charged with schemes to steal and use the personal identifying information of others to defraud, among others, banks, finance companies, car dealerships and retailers. Octavio Andres Difo-Castro and Patricia Peralta were charged with conspiracy, aggravated identity theft, wire fraud, and fraudulent use of a Social Security number in connection with their creating and use of fraudulent documents using stolen identities to purchase goods at retailers in Rhode Island, Massachusetts, Connecticut and Pennsylvania. It is also alleged that they conspired together to execute schemes to defraud a finance company and two credit unions for the purchase of one vehicle, the leasing of a second vehicle and the purchase of a motorcycle. Separately, Jeffry Rodriguez was charged with conspiracy, bank fraud and aggravated identity theft in connection with his opening bank accounts using stolen personal identifying information of others that were used to deposit and withdraw car loan funding obtained fraudulently with the use of stolen identifying information.