Securities Industry Commentator by Bill Singer Esq

August 23, 2018

UBS Securities LLC, Plaintiff/Appellee, v. Gregory M. Leitner, Defendant/Appellant (Summary Order, United States Court of Appeals for the Second Circuit, 17-2763)
In April 2015, Gregory M. Leitner invested over $750,000 the ETRACS 2x Leveraged Long Alerian MLP Infrastructure Index ("MLPL"), which had been issued by non-party UBS AG in July 2010. When the securities were redeemed pursuant to an acceleration provision in the offering documents, Leitner lost about $500,000. On February 8, 2017, Leitner filed a FINRA arbitration statement of claim against UBS Securities, which moved in the United States District Court for the Southern District of New York ("SDNY") to enjoin Leitner from proceeding with the arbitration. SDNY granted UBS Securities' motion, entered final judgment permanently enjoining Leitner from proceeding with the arbitration. On appeal, 2Cir found no abuse of discretion by SDNY and affirmed. In part, 2Cir affirmed the lower court's finding that Leitner and UBS Securities did not enter into an arbitration agreement in connection with Leitner's purchase of MLPL. Pointedly, citing FINRA Rule 12200's requirement that a member firm must arbitrate disputes as required by a written agreement or as requested by a customer, 2Cir affirmed that the parties had not entered into a written arbitration agreement and declined to characterize Leitner as a "customer." In not deeming Leitner a customer, 2Cir noted that he had failed to demonstrate that he had purchased a good or service from UBS Securities, and the court underscored that Leitner did not have a brokerage account with the firm.

In connection with their roles in a $147 million scheme to defraud investors in publicly traded companies, two defendants pled guilty in the United States District Court for the Eastern District of New York:
Ronald Hardy, a manager at My Street Research and its predecessors: to conspiracy to commit securities fraud, conspiracy to commit wire fraud, conspiracy to commit money laundering and five counts of securities fraud; and
McArthur Jean, a cold-caller at the boiler room: one count of conspiracy to commit securities fraud and agreed to forfeit more than $110,000.  

Hardy and Jean are among 16 defendants charged in this case, and the ninth and tenth defendants, who have already pled guilty. Previously, guilty pleas were entered by Erik Matz, a manager at the Boiler Room; and Boiler Room cold-callers Brian Heepke, Dennis Verderosa, Emin L. Cohen, Paul Ewer, Ashley Antos and Sergio Ramirez; and Robert Gilbert, a cold-caller operating from his own company. Federal prosecutors alleged, in part, that:

Between January 2014 and July 2017, Hardy and Jean, together with their 14 co-defendants and others, engaged in a scheme to defraud investors and potential investors in publicly traded companies, including National Waste Management Holdings, Inc., trading under the ticker symbol NWMH; CES Synergies, Inc., trading under the ticker symbol CESX; Grilled Cheese Truck, trading under the ticker symbol GRLD; Hydrocarb Energy Corporation, trading under the ticker symbol HECC; and Intelligent Content Enterprises, Inc., trading under the ticker symbol ICEIF (collectively, the "manipulated public companies").  The defendants executed this scheme by (a) artificially generating price movements and trading volume in the shares, (b) causing material misrepresentations and omissions in their communications with victim investors about the advisability of purchasing the shares and (c) fraudulently concealing their control of shares of the manipulated public companies that were held in brokerage accounts in the names of other individuals or entities.  In addition, Hardy and other defendants conspired to launder approximately $14,714,493 in proceeds of the stock manipulation scheme.

GUEST BLOG: Of Trust, Lattes and Blockchains by Aegis Frumento Esq ( Blog)
It may be some time coming, but don't underestimate what blockchain technology might do to the securities industry.  In our example, a self-validating blockchain allowed one coin exchange to replace all of the brokers, clearing firms, the stock exchange, DTC and the transfer agent that we otherwise would have had to trust with accomplishing our simple stock sale.  That's pretty revolutionary, and I think that's just the start.

(DOJ Release)
Former Swiss bank managing director and vice chairman Matthias Krull pled guilty in the United States District Court for the Southern District of Florida to one count of conspiracy to commit money laundering. Among private clients that Krull brought to the bank was Francisco Convit Guruceaga, who was indicted on money laundering charges, and also three unnamed conspirators. The alleged conspiracy involved a a currency exchange scheme that was designed to embezzle around $600 million from Venezuelan state-owned oil company Petroleos de Venezuela, S.A. (PDVSA), which is that nation's primary source of income and foreign currency. Krull joined the conspiracy to launder $1.2 billion of embezzled funds through Miami, Florida real estate and other schemes.

Two Nigerian Men Sentenced For Spearphishing Email Scheme (DOJ Release)
Eneye Dania and Osariemen Isibor were sentenced in the United States District Court for the District respectively to 17-months and 14-months in prison and are expected to be removed from the United States and returned to Nigeria. The defendants conspired to transmit "spearphishing" emails designed to look like human resources department communications to employees of local governments, colleges, and universities, When a given link was clicked, the employee was sent to a page operated by members of the conspiracy, where usernames and passwords were captured. Upon obtaining the confidential information, the conspirators attempted to file fake tax returns on behalf of the employee, with the hope of receiving a fraudulent tax refund.   The IRS detected most of the fraudulent tax filings before refunds issued.