Securities Industry Commentator by Bill Singer Esq

November 2, 2018
In 2009, Lorindo Powell contacted 79-year-old teacher "Jane Doe #1" with a purported opportunity to claim lottery winnings; and in furtherance of that scam, Powell induced Jane Doe #1 to skip her mortgage payments and make payments to her instead.  As a result, Jane Doe #1 was evicted from her home in 2011.  Powell took control of Jane Doe #1's retirement account, changing the email address to Powell's own, and impersonating Jane Doe #1 in order to make withdrawals.  Jane Doe #1 lost at least $589,000 as a result of Powell's actions. 
We're not done. It keeps getting worse.
Beginning in 2011, Powell induced Jane Doe #3 and her husband (both suffering from dementia) to wire money to Powell and others, purportedly to claim lottery winnings.  In total, the two victims lost at least $119,476.50. 
No . . . not done yet.
In October 2016, Powell defrauded 89-year-old  John Doe #1 of approximately $23,000 after contacting him about purported sweepstakes winnings. Oh, and between December 2016 and April 2017, Powell obtained a nonagenarian retirement-home resident's (Jane Doe #2) personal identification information by posing as a bank representative and stole over $38,000 by making withdrawals from her checking account and charging purchases to her credit card. In total, Powell stole at least $770,632.50 from all her victims.  
There is no happy ending here. There is no justice. 
All we got is Powell pleading guilty in the United States District Court for the Eastern District of New York to one count of conspiracy to commit wire and bank fraud and one count of access device fraud. Powell was sentenced to 51 months' imprisonment and ordered to pay $770,632.50 in restitution. Co-defendant Tavoy Malcolm pled guilty and is awaiting sentencing.

SEC Charges Bitcoin-Funded Securities Dealer and CEO (SEC Litigation Release No. 24330)
In a Complaint filed in the United States District Court for the District of Columbia, the SEC charged 1pool Ltd. a/k/a 1Broker and its Chief Executive Officer Patrick Brunner with violating registration provisions of the federal securities laws, including Section 5(e) of the Securities Act of 1933, and Sections 6(l) and 15(a)(1) of the Securities Exchange Act of 1934, and seeks permanent injunctions, disgorgement plus interest, and penalties.  The Complaint alleges that the Defendants solicited investors to buy and sell security-based swaps. Investors could open accounts by simply providing an email address and a user name, and could fund their account using bitcoins. An undercover FBI Special Agent purchased several security-based swaps on 1Broker's platform from the U.S. despite not meeting the discretionary investment thresholds required by the federal securities laws. Allegedly, Brunner and 1Broker failed to transact its security-based swaps on a registered national exchange, and failed to properly register as a security-based swaps dealer. In a parallel action, the CFTC filed a Complaint against 1Broker arising from similar conduct. READ the FULL TEXT Complaint
There are times when I swear that FINRA's rules were drafted by Franz Kafka. For those of you unfamiliar with the author's works, he's the guy who wrote "The Metamorphosis," which is a story about salesman Gregor Samsa, who goes to sleep one night a human being and wakes up the next morning a giant insect. In a recent FINRA arbitration, we come across another salesman who went to sleep one night with a sterling reputation and awoke to find out that he had a dreaded FINRA "record." The thing is, just like Samsa, he hadn't done anything to cause his condition.

SEC Division of Enforcement Annual Report
The SEC's Enforcement Division issued the annual report, which highlights several significant actions and initiatives that took place in FY 2018.  READ THE FULL TEXT REPORT
Mamdouh Abdel-Sayed, formerly a full-time lecturer in the Biology Department at the City University of New York's Medgar Evers Colleg allegedly taught unauthorized health care courses at the college from 2013 through 2017 on topics such as Electrocardiograms, Phlebotomy, and Sonography, and provided students with sham certificates of completion for the courses. Apparently not doing this out of the goodness of his heart, Abdel-Sayed charged $1,000 per certificate of coursework completion. 
What were the students supposed to do with these sham certificates?
According to Abdel-Sayed, there were encouraged to present them to potential employers in the health care field. 
What if someone like a hospital were to check-up on the authenticity of the certificates? 
No worry, Abdel-Sayed falsely informed the agencies that the certificates were issued by Medgar Evers College. It was a fairly easy lie because Abdel-Sayed had personally created the sham certificates -- and as an extra bit of largesse, he provided certificates to students even if the students did not attend his unauthorized courses, so long as the students paid for the paper. And for an extra nice fillip, Abdel-Sayed provided his students with national certification examinations in order to assist the students in passing licensing examinations supposedly administered by the State for certain medical techniques. Another way to describe this assistance was cheating. Alas, Abdel-Sayed was taped on a recorded conversation telling his students that it was "illegal" for them to possess the national exams. True to form, when Abdel-Sayed became aware of the investigation, he instructed an undercover law enforcement investigator, who had posed as a student and purchased several unauthorized certificates from him, to provide false information to federal law enforcement agents and to conceal those certificates from the agents. The college put Abdel-Sayed on administrative leave after his arrest. That's nice, don't you think? Abdel-Sayed pled guilty to wire fraud in the United States District court for the Southern District of New York and he was sentenced to six month in prison  plus six months of home confinement and two years of supervised release, and ordered to pay $20,000 in restitution and $20,000 forfeiture.
In an Indictment filed in the United States District Court for the Northern District of California, United Microelectronics Corporation ("UMC"), a Taiwan semiconductor foundry; Fujian Jinhua Integrated Circuit, Co., Ltd. ("Jinhua'"), a state-owned enterprise of the PRC; and Taiwanese nationals: Chen Zhengkun, a/k/a. Stephen Chen; He Jianting, a/k/a. J.T. Ho; and Wang Yungming, a/k/a. Kenny Wang were charged with engaging in a conspiracy to steal the trade secrets of Micron Technology, Inc. (Micron), a leader in the global semiconductor industry specializing in the advanced research, development, and manufacturing of memory products, including dynamic random-access memory (DRAM).  Micron is the only United States-based company that manufactures DRAM.  The Indictment alleges, in part, that:
  • Defendant UMC mass produces integrated-circuit logic products based on designs and technology developed and provided by its customers.
  • Defendant Jinhua is funded entirely by the Chinese government, and established in 2016 for the sole purpose of designing, developing, and manufacturing DRAM. 
  • Defendant Chen was a General Manager and Chairman of an electronics corporation that Micron acquired in 2013; and he later became the President of Micron Memory Taiwan ("MMT"), a subsidiary responsible for manufacturing at least one of Micron's DRAM chips.  Chen resigned from MMT in 2015 and began working at UMC, where he arranged a cooperation agreement with Fujian Jinhua whereby, with funding from Fujian Jinhua, UMC would transfer DRAM technology to Fujian Jinhua to mass-produce and to be jointly shared. Chen became the President of Jinhua and was put in charge of its DRAM production facility.
  • Defendant Ho and Defendant Wang were MMT employees recruited by Defendant Chen during his tenure at UMC. Prior to leaving MMT, Ho and Wang allegedly both stole and brought to UMC several Micron trade secrets related to the design and manufacture of DRAM.  Allegedly, Wang downloaded over 900 Micron confidential and proprietary files before he left MMT and stored them on USB external hard drives or in personal cloud storage, from where he could access the technology while working at UMC.
Separately, the United States filed a civil lawsuit seeking to enjoin the further transfer of the stolen trade secrets and to enjoin certain defendants from exporting to the United States any products manufactured by UMC or Jinhua that were created using the trade secrets at issue. READ the FULL TEXT Indictment
In an Indictment filed in the United States District Court for the Eastern District of New York (EDNY), Low Taek Jho a/k/a "Jho Low," and Ng Chong Hwa a/k/a "Roger Ng," were charged with conspiring to launder billions of dollars embezzled from 1Malaysia Development Berhad (1MDB), Malaysia's investment development fund, and conspiring to violate the Foreign Corrupt Practices Act (FCPA) by paying bribes to various Malaysian and Abu Dhabi officials.  Further, Ng was charged with conspiring to violate the FCPA by circumventing the internal accounting controls of a major New York-headquartered financial institution (Financial Institution), which underwrote more than $6 billion in bonds issued by 1MDB in three separate bond offerings in 2012 and 2013, while Ng was employed at the Financial Institution as a managing director.  
In response to an Information filed in EDNY, Tim Leissner, the former Southeast Asia Chairman and participating managing director of the Financial Institution, pled guilty to conspiring to launder money and conspiring to violate the FCPA by both paying bribes to various Malaysian and Abu Dhabi officials and circumventing the internal accounting controls of the Financial Institution while he was employed by it.  Leissner has been ordered to forfeit $43.7 million as a result of his crimes.
Low and Ng Indictment
Leissner Information
As set forth in the SEC Opinion's Syllabus:
Former registered representative of FINRA member firm appeals from FINRA disciplinary action finding that he willfully failed to update, and did not timely update, his Form U4 and provided false information in his firm's annual compliance certifications. Held, FINRA's findings of violations and imposition of sanctions are sustained. 
For a detailed analysis of this case, READ "SEC Nixes Stay Of Statutory Disqualification" ( Blog, November 8, 2017) An interesting aspect of the SEC Opinion provides this interesting commentary on the issue of statutory disqualification [Ed: footnotes omitted]:

Although Riemer characterizes the statutory disqualification finding as a "death sentence," a person subject to a statutory disqualification may still associate with a FINRA member firm. After FINRA imposes a suspension for conduct that results in a person's statutory disqualification (such as the six-month suspension in this case), the person may, having served the suspension, be permitted to associate with a FINRA member firm if the firm applies to FINRA and is granted permission to remain a member while associating with that person. We have held that such an application may not be denied solely on the basis of the misconduct that led to the original sanction. Consequently, a statutory disqualification "does not necessarily preclude a person from participating in the securities industry."

Additionally, the SEC Opinion addresses various procedural issues involved in FINRA settlements [Ed: footnotes omitted]:

We also reject Riemer's argument that FINRA disregarded its Sanction Guidelines by rejecting his contested settlement offer. Riemer relies on Sanction Guidelines General Principle Number 1, which provides that "disciplinary sanctions should be designed to protect the investing public." Riemer explains that he "offered to permanently and irrevocably covenant not to seek registration with a member firm," an obligation he characterizes as "the functional equivalent of a lifetime bar." Because his settlement offer also denied that he acted willfully, Riemer contends that, if accepted, his proposal would have "resolve[d] this matter without a statutory disqualification," which he says would allow him to continue his career in the insurance industry. Riemer asserts that his settlement proposal provided for a sanction "far greater" than his six-month suspension, and thus "provided greater protection for the investing public than the sanction crafted by the Hearing Panel," thereby advancing General Principle Number 1. 

Riemer's argument fails. FINRA was not required to accept Riemer's contested offer of settlement. FINRA "had no obligation to settle this proceeding on [Riemer's] terms, and settlement negotiations are irrelevant to the sanctions determination."

Because FINRA was not required to accept his settlement offer, Riemer's related claim that it was "procedurally unfair in violation of the Exchange Act" for FINRA to "force a plenary hearing on the issue of willfulness" also fails. So does Riemer's claim of bias by Enforcement and unfairness by the Hearing Panel in rejecting Riemer's contested offer of settlement. We have independently reviewed the record and found that it does not support Riemer's claims.