Securities Industry Commentator by Bill Singer Esq

November 20, 2018
A one-count felony Information was filed in the United States District Court for the Southern District of New York charging Societe Generale S.A. with conspiring to violate the Trading with the Enemy Act and the Cuban Asset Control Regulations promulgated thereunder. The Information alleges that  SG conspired to process billions of dollars of transactions using the U.S. financial system in connection with credit facilities involving Cuba. 
In response to the Information, SG agreed to accept responsibility for its conduct by stipulating to the accuracy of an extensive Statement of Facts, to pay penalties totaling $1,340,165,000 to federal and state prosecutors and regulators, to refrain from all future criminal conduct, and to implement remedial measures as required by its regulators. Assuming SG's continued compliance with the Agreement, the Government has agreed to defer prosecution for a period of three years, after which time the Government will seek to dismiss the charges. The $1.34 billion in penalties is the second largest penalty ever imposed on a financial institution for violations of U.S. economic sanctions. READ the: 
Forfeiture Complaint
Statement of Facts and Information
Bill Singer's Comment: An appalling bit of garbage from DOJ that will inevitably encourage the too-big-to-fail to continue to "game" the compliance and regulatory system. The DOJ Release is a laughable exercise in equivocation when you consider that SG's "willingness to enter into" the settlement replete with various commitments somehow "weighed in favor of deferral of prosecution and outweighed" the failure to self-report. Worse, DOJ doesn't even deny that "SG's senior management and Group Compliance" were aware that the firm had engaged in unlawful conduct and did not timely disclose that to any regulator or law enforcement agency. Let that all sink in and percolate a bit. A major financial institution's senior management and compliance team knew that the firm was engaging in billions of dollars of illegal transactions allegedly involving trading with an enemy of the United States and  those same men and women failed to self-report the ongoing misconduct and apparently took steps to cover their trail. And for that horrendous knowing, willful misconduct, all that happens is someone writes out a big, fat check. As if a pennystock firm or an individual registered person would be afforded such largesse. Sadlly, this SocGen settlement is the stuff of checkbook regulation whereby large firms suffer no meaningful consequence beyond taking money from their shareholders to pay monetary sanction and to agree to policies and protocols that should have been in place beforehand -- and will likely be ignored should the cost-benefits analysis once again urge such an evasion. Mark my words: There will be another interaction between SocGen and DOJ and/or the SEC; and there will be another set of allegations that the firm knowingly covered up its misconduct and failed to self report -- and my guess is that we will see yet another tepid criminal/regulatory response. No . . . I am not asserting that $1.3 billion is chicken feed. It is a substantial sanction; on the other hand, it seems little more than a calculated cost of doing business that a financial institution knows is wrong, illegal, and improper but, what the hell, if we get caught, we'll just pay the freight. It's not just SocGen. It is the entire financial services community and the impotent response that continues to flow from inept and ineffective regulators and prosecutors. Let's see how long it takes for another criminal or regulatory event to surface in which large firms knew of misconduct, hid it, never self reported, and then were asked to write out a check. How is that approach even remotely remedial? Consider these quotes from the DOJ Release and ask yourself if I'm wrong:

The Government entered into this resolution due, in part, to SG's acceptance and acknowledgement of responsibility under the laws of the United States for its conduct, as exhibited by its undertaking of a thorough internal investigation, collecting and producing voluminous evidence located in other countries to the full extent permitted under applicable laws and regulations, and its enhancement of its compliance program and sanctions-related internal controls both before and after it became the subject of a U.S. law enforcement investigation. These factors and SG's willingness to enter into the commitments set forth in the  Agreement, along with all other relevant factors and considerations, collectively weighed in favor of deferral of prosecution, and outweighed in this particular case SG's failure to self-report all of its violations of United States sanctions laws in a timely manner, as described below.

. . .

Despite the awareness of both SG's senior management and Group Compliance that SG had engaged in this unlawful conduct, SG did not disclose its conduct to OFAC or any other U.S. regulator or law enforcement agency until well after the commencement of the Government's investigation. 

This investigation was triggered by the blocking by other U.S. financial institutions, in March 2012, of two transactions that SG processed on behalf of a Sudanese sanctioned entity, and a subsequent February 2013 voluntary disclosure by SG regarding $22.8 million in transactions with the Sudanese entity and a small number of transactions with other sanctioned entities that violated U.S. sanctions. The Bank did not, however, disclose the existence of the Cuban Credit Facilities at that time, but rather did so only in October 2014, after SG performed a detailed forensic analysis based on the scope of investigation required by the Government and the other investigating agencies. 

SEC Declines to Lift Temporary Suspension of Inactive CPA. In the Matter of Karen Bruton (SEC Order Denying Petition to Lift Temporary Suspension and Directing Hearing; '34 Act Rel. No. 84627; Admin. Proc. File No. 3-18790)
The SEC temporarily suspended Karen Bruton, an inactive certified public account, from appearing or practicing before the federal regulator based upon her having been permanently enjoined from violating antifraud provisions of the federal securities laws. On October 18, 2018, Bruton filed a petition to lift her temporary suspension and set the matter down for a hearing. The SEC denied her request to lift the temporary suspension but set the matter down for a hearing.

( Blog)
Timing in life is everything, and all the more so when it comes to litigation. The sooner a complaint is filed, the more likely it is that an unhappy brokerage customer will be viewed as sincere. Unfortunately, sometimes a gruntled customer just doesn't know that she should be disgruntled. Maybe she was defrauded by her stockbroker. Maybe she was lied to by the brokerage firm. Maybe she misunderstood her statements. Similarly, a stockbroker may think that he's doing a great job and his clients are a happy and contented bunch but, wham, out of nowhere, he learns that complaints are coming in about trades that were done many months or years ago. In today's featured FINRA arbitration, we have a stockbroker who seems to have been on the receiving end of some stale customer complaints. The stockbroker let those complaints sit on his industry record for about a decade; and during that period in Wall Street's cellar, those wines didn't improve with age but turned to vinegar. Rather than throw the vinegar out, the stockbroker turned it into salad dressing.
Blake Kantor a/k/a "Bill Gordon" pled guilty in the United States District Court for the Eastern District of New York to conspiracy to commit wire fraud. Kantor formerly operated binary-options company Blue Bit Banc and Blue Bit Analytics ("BBB"), and he  told investors that they could place binary option trades, or that a BBB representative could do so for them; and that the predetermined profits promised them would be based on the actual prices of securities, currencies and other investments at particular points in time.  Kantor did not inform the investors, however, that a computer software program of BBB's rigged the binary options investments so that the probability of investors earning a profit favored BBB. After FBI agents informed Kantor that they were investigating his involvement in binary options, he directed a co-conspirator to alter BBB customer lists; and, further, he falsely stated to the FBI that he had not been involved in binary options since August 2013.

FINRA Bars Rep for False Mileage Expenses. For the purpose of proposing a settlement of rule violations alleged by the Financial Industry Regulatory Authority ("FINRA"), without admitting or denying the findings, prior to a regulatory hearing, and without an adjudication of any issue, John Robert Nicholson submitted a Letter of Acceptance, Waiver and Consent ("AWC"), which FINRA accepted. In the Matter of  John Robert Nicholson, Respondent (AWC 2016052411501, November 19, 2018). The AWC asserts that Nicholson was first registered in 1995 with FINRA member firm Merrill Lynch, Pierce,Fenner & Smith Incorporated, where he remained until his resignation in November 2016, when he was allegedly "the subject of an internal review where "[t]he Finn's review determined that [Nicholson] made improper submissions of personal expenses for reimbursement."  In accordance with the terms of the AWC, FINRA imposed upon Nicholson a Bar from association with any FINRA member firm in any capacity. The AWC asserts in part that during the relevant period of f December 2014 to November 2016 when Nicholson was the firm's Cincinnati, OH Complex manager and responsible for visiting various offices:

[T]he Firm permitted Nicholson to request and obtain reimbursement for mileage expenses he incurred to travel by car for this purpose. On multiple occasions during the Relevant Period, Nicholson intentionally submitted false expense reports to the Firm, overstating the miles he actually traveled and claiming that he incurred fictitious mileage expenses, in order to obtain funds from the Finn that he was not entitled to receive. For example, during November 2015, Nicholson represented that he incurred mileage expenses totaling $2,268. However at least $1,355 of those expenses were fictitious. In addition, in October 2016, Nicholson misrepresented that he incurred mileage expenses totaling $604.80, even though he never actually incurred those expenses. Based on the false expense reports, Nicholson obtained at least $1,959.80 from the Firm that he was not entitled to obtain.

FINRA Bars Rep for Converting Elderly Mother's Funds. For the purpose of proposing a settlement of rule violations alleged by the Financial Industry Regulatory Authority ("FINRA"), without admitting or denying the findings, prior to a regulatory hearing, and without an adjudication of any issue, Robert Lee Basile submitted a Letter of Acceptance, Waiver and Consent ("AWC"), which FINRA accepted. In the Matter of Robert Lee Basile, Respondent (AWC 2018058953201, November 16, 2018). The AWC asserts that Basile was first registered in 2014 with FINRA member firm Waddell & Reed, Inc, and he registered with another FINRA firm in January 2018. In accordance with the terms of the AWC, FINRA imnposed upon Basile a Bar from association with any FINRA member firm in any capacity. Under the heading "FACTS AND VIOLATIVE CONDUCT," the AWC asserts:

In September 2014, shortly after Basile joined Waddell, his elderly mother opened a brokerage account at Waddell. Basile served as the broker on his mother's account. Between January 2015 and October 2017, Basile withdrew funds from the account and used over $130,000 to pay his own living expenses without his mother's knowledge or consent.

FINRA Rule 2150(a) provides that "[n]o member or person associated with a member shall make improper use of a customer's securities or funds." By converting funds from his mother, Basile violated FINRA Rules 2150(a) and 2010.

The AWC further discloses that:

[O]n June 22, 2018, Waddell filed an amended Uniform Termination Notice For Securities Industry Registration (Form U5) reporting that, on May 31, 2018, Waddell had initiated an internal review after being notified that Basile "was arrested for 'theft by caretaker' related to an elder abuse investigation."