October 30, 2018
Matthias Krull pled guilty to one count of conspiracy to commit money laundering in the United States District Court for the Southern District of Florida.As the former Managing Director and Vice Chairman of a Swiss bank, Krull attracted private clients, particularly clients from Venezuela, among whom was Francisco Convit Guruceaga, who was indicted on money laundering charges. Krull joined a conspiracy to launder $1.2 billion worth of funds that were embezzled from Petroleos de Venezuela, S.A. (PDVSA) via Miami, Florida real estate and sophisticated false-investment schemes. Krull was sentenced to 120 months in prison plus three years of supervised release.; and ordered to pay a fine in the amount of $50,000 and a forfeiture money judgment of $600,000.
Jacob Burrell Campos pled guilty today in the United States District Court for the Southern District of California to conducting an unlicensed money transmitting business. Campos operated an unlicensed money transmitting business, in connection with his sale of hundreds of thousands of dollars in Bitcoin to over 1,000 customers throughout the United States from January 2015 to April of 2016. Burrell admitted to operating a Bitcoin exchange without registering with the Financial Crimes Enforcement Network (FinCEN) of the U.S. Department of Treasury, and without implementing the required anti-money laundering safeguards. Burrell advertised his business on Localbitcoins.com, and communicated with his customers through email and text messages, often using encrypted applications. He negotiated a commission of 5% above the prevailing exchange rate, and accepted cash in person, through nationwide ATMs, and through MoneyGram; but he lacked any anti-money laundering or "know your customer" program, and performed no due diligence on the source of his customers' money. Burrell exchanged his U.S. currency, which he kept in Mexico, with Joseph Castillo, a San Diego-based precious metals dealer. Castillo pled guilty to making a false statement on his federal tax returns, and is awaiting sentencing. According to his plea agreement, Burrell agreed to forfeit to the United States a total of $823,357.00 and he is awaiting sentencing.
Between January 2015 and January 2017, Louis F. Petrossi, the founder and president of the Wealth Research Institute, a purported investment research firm, solicited over $1.8 million in investments from more than 25 investors . Petrossi promoted Chadwicke Partners LLC and Chadwicke Ventures LLC as providing the opportunity to invest in high-profile startups companies such as Lyft, Inc., Maplebear Inc., Pinterest Inc., Spotify Technology SA, and Palantir Technologies, Inc. among others. Petrossi invested approximately $665,400 in privately held startup companies but used more than $1.1 million in investor funds to pay for personal expenses, including payments to BMW, renovations to his home and to pay his personal legal fees. In or around August 2016, Petrossi sent emails to Chadwicke investors attaching a spreadsheet that contained false and misleading statements about the purchase price and value of the securities held by the Chadwicke funds in order to conceal his misappropriation of investor money. After a four-day jury trial in the Middle District of Pennsylvania, Petrossi was convicted on three counts of securities fraud, investment adviser fraud, and wire fraud for his role in a scheme to defraud investors. Petrossi was sentenced to 100 months and three days in prison for stealing investors' money. The sentence will run concurrent (with three days consecutive) to the 44-month sentence he received in the Eastern District of New York in May 2017 for his role in the ForceField Energy Inc. securities fraud scheme. Petrossi was also ordered to pay $2,265,735.84 in restitution and $1,170,940 in forfeiture.
Naah, there's nothing here other than Mass Hysteria's securities' registrations were revoked. Why then, you might ask, did I bother to post this matter? Well, for one thing, I'm still a bit childish; and, for another thing, when was the last time you saw anything from the SEC involving one issuer named "Mass Hysteria Entertainment" and another one named "Stark Naked Bobbers." And if I'm such a child and a jerk, then, you tell me, how come you're reading this? And for another thing, what the hell did Stark Naked Bobbers make and what were they charging? Yeah, sure, like you're not going to start looking up "Stark Naked Bobbers." Let me save you the effort. What I found online about the company is as follows: Stark Naked Bobbers was formed in the state of Nevada on September 25, 2013. We are a development stage company with a plan of operation that offers bobber kits for the most popular motorcycles sold. A bobber is a term for a custom motorcycle that typically has had all superficial parts." Hey, live and learn. Something new everyday on the Securities Industry Commentator! Oh, sure, okay, I didn't mean to slight Mass Hysteria; here's what I found about that firm: "Mass Hysteria Entertainment Company, Inc. (Mass Hysteria), incorporated on November 2, 2005, is a multi-media entertainment company. The Company produces feature films for theatrical, digital versatile disc (DVD), video on demand (VOD) and television distribution with an interactive component for commercial, documentary and educational film market. The Company is focused on creating original interactive theatrical films and second screen (mobile application) experience for non-Mass Hysteria films. The Company is focused on creating film and television projects. The Company has developed a mobile application that allows the user to interact with the film in live time. The Company allows audience to interact with the film through Web-enabled smart phones offering a range of in-movie features, including gaming, texting, contests and additional content." Hmm . . . if we could only merge the two companies into "Mass Stark Naked Bobbers Hysteria Entertainment" we might have something there. No . . . I ain't got a clue what to do with "TOA Holdings," unless we could get them to change the name to T&A Holdings -- and you wonder why they pay me the big bucks?
Securities and Exchange Commission v. Philip Thomas Kueber, No. 15-cv-04479 (E.D.N.Y.)
In a Complaint filed in the United States District Court for the Eastern District of New York, the SEC alleged that Philip Kueber concealed his control of microcap issuer Cynk Technology Corp. and its purportedly non-restricted shares through nominees and straw shareholders. Kueber was thwarted from profiting from his scheme when the SEC suspended trading in the Cynik. In a criminal case, Kueber pleaded guilty, forfeited $1.2 million, and was sentenced to three years of supervised release. In the SEC action, the Court entered a final judgment on consent for Kueber's orchestration of a fraudulent investment scheme using and imposed a permanent injunctions against violations of Section 17(a) of the Securities Act of 1933, Section 10(b) of the Securities Exchange Act of 1934, and Rule 10b-5 thereunder, which are antifraud provisions of the federal securities laws. The judgment also imposes a permanent officer and director bar and a permanent bar from participating in an offering of penny stock.
In a recent federal lawsuit, we're on the third version of the Complaint and facing yet another motion to dismiss. As the parties wend their way from the United States District Court for the Southern District of New York to the United States Court of Appeals for the Second Circuit, Defendant E*TRADE contests allegations that it had violated the duty of best execution. Is the third time the charm? Do you get a third bite of the apple?
Regulatory Transformation Specialist (Job Posting)
You're gonna have to trust me on this one because it involves a job posting by a major bank for something called a "Regulatory Transformation Specialist." I'm not going to divulge the bank's name because someone might actually need a job and I don't want to screw things up by outing the idiot organization that posts such nonsense. For starters, what the hell is a "Regulatory Transformation Specialist?" I'd try to paraphrase some of the nonsense that passes these days for a job description but I can't do this justice, so here's part of what's posted:
[Y]ou will be responsible for understanding and implementing tactical and strategic solutions for various regulations, such as Dodd Frank CFTC, Dodd Frank SEC, Volcker, and Uncleared Margin. Roll out will be done across the global Client Onboarding team.
You will serve as a Run-The-Bank escalation contact (for other stakeholders as well as within Client Onboarding Operations) for the various processes and controls relating to the regulation on system defects or workflow inquiries. In addition, you are responsible for management of the regulatory control reports which include analysis to identify root causes and the resolution of the exceptions.
Oooh . . . sign me up! All aboard the Client Onboarding team!! Do we have team jerseys? Then you have to hand it to the wordsmith who actually thinks that anyone would ever create a job to be known as the "Run-The-Bank escalation contact." I'm guessing that there's an Up Escalation and a Down Escalation contact but that only the Up can go up and the Down can go down. Even worse, consider this bullet-point among the "Main Responsibilities:"
- Train onshore, nearshore and offshore teams on new procedures
Oh for godsakes, really? I mean, really? Imagine if this posting were written for a hospital seeking a Ob/Gyn Doctor: "Train pregnant, near-pregnant, and not-pregnant teams on new procedures." Pregnant I get. Not pregnant I get. What the hell is near-pregnant? Onshore I get. Offshore I get. What the hell is nearshore -- you got one foot in the ocean and the other in the bank's vault? After some 36 years on Wall Street , I would love to have this job because I know exactly how it would play out.:
What does Bill Singer do?
Oh, Bill's our Regulatory Transformation Specialist.
Umm, sorry, but what's that?
Oh, Bill serves as our Run-The-Bank escalation contact.
What the hell is that?
Bill manages regulatory control reports and identifies root causes and resolutions for exceptions. From what I'm told, it's a seven-figure-a-year job.
They're paying him millions for that?
Bill has like some 40 years on Wall Street and in addition to being incredibly good looking, he is apparently very smart. From what I understand the bank was thrilled to get him and would have paid twice as much.
How do you know that?
Bill's job is so complex that no one understands what his job involves and he's always in his office behind a closed door and he regularly books travel all over the world because he says that he has to monitor offshore exceptions and when you try to book a meeting with him, Bill apologizes by saying that he's near-shore that day and can't make the meeting.
As the heir apparent to former SEC Commissioner Daniel M. Gallagher, Commissioner Peirce has a penchant for stirring things up and asking uncomfortable questions. Among her recent provocations were these observations:
Narratives of AIG often suggest that the company was unregulated, but that is far from the case. The life insurance companies and their involvement in the securities lending program were regulated by multiple regulators, and AIG, as a whole, had many more regulators. AIG, in a way therefore, is the ultimate poster child for the financial crisis, which was not neatly attributable to one cause and clearly implicates both the private and the public sectors.
Poorly designed regulations had a role in bringing about the crisis. The favorable regulatory treatment given to highly rated securitization tranches is one example of a regulation that distorted risk-taking activity in the lead-up to the crisis. Unlike one-off bad decisions by market participants, bad regulation has the effect of creating a common set of problems across the markets that can affect people and firms globally. The stakes are high when regulators get it wrong.
It is not always easy to identify in advance regulations that are poorly designed, as the flaws may not become apparent until thrown into the harsh light of a severe crisis. But I think we regulators owe it to the public to do the hard work of looking at our regulatory efforts with a skeptical eye to identify potential vulnerabilities and distortions created or encouraged by our rules.