Securities Industry Commentator by Bill Singer Esq

November 28, 2018

Imagine if the investment was payable in Bitcoin and also offered shares in a Cannabis company!
In an Indictment filed in the United States District Court for the Northern District of Georgia, former attorney Timothy Cobb was charged with wire and tax fraud. The Indictment alleges that Cobb started Skyboxx Sports, LLC and collected $500,000 from investors in order to launch a fantasy football lottery league with the Georgia Lottery Corporation. Instead of using the proceeds for the league, Cobb allegedly spent the money on himself for trips to Barbados and Mexico City, dining in restaurants in Atlanta, Miami Beach and New York, and other personal items.
Former investment advisers James Polese and Cornelius Peterson pled guilty in the United States District Court for the District of Massachusetts to one count of conspiracy and investment adviser fraud, eight counts of bank fraud, and one count of aggravated identity theft. Federal prosecutors alleged that Polese and Cornelius Peterson transferred without authorization $100,000 from a client's account to invest in a wind farm project; and $400,000 from another client's account to back a letter of credit in support of the wind farm project. Additionally, Polese transferred funds from a client's account to pay personal expenses, including college tuition payments and credit card bills. Polese was sentenced to five years in prison, three years of supervised release, and ordered to pay a fine of $30,000 and $462,000 restitution; Peterson was sentenced to 20 months in prison, two years of supervised release and ordered to pay $462,000 restitution.
In today's blog, we come across a relatively short FINRA Arbitration Decision that proves how interesting cases can sometimes come in small packages. By way of a tease but without a spoiler, imagine that Stockbroker X and Stockbroker Y agree to a 50/50 split of a commission on a joint-production account. Just before that split is to occur, however, Stockbroker Y exits the picture and can no longer share in the commission.  Does Stockbroker X have the right to retain 100% of that commission? 

In the Matter of Ricardo H. Goldman, Respondent (Order Instituting Proceedings, Making Findings, and Imposing Remedial Sanctions; '34 Act Rel. No,. 84665; Admin. Proc. File No. 3-18905) In anticipation of the institution of proceedings by the SEC but without admitting or denying the findings, Ricardo H. Goldman submitted an Offer of Settlement, which the federal regulator accepted. In accordance with the OIP, Goldman was barred from:
  • association with any broker, dealer, investment adviser, municipal securities dealer, municipal advisor, transfer agent, or nationally recognized statistical rating organization; and Pursuant to Section 15(b)(6)(B) of the Exchange Act; and 
  • participating in any offering of a penny stock, including: acting as a promoter, finder, consultant, agent or other person who engages in activities with a broker, dealer or issuer for purposes of the issuance or trading in any penny stock, or inducing or attempting to induce the purchase or sale of any penny stock. 
As set forth in pertinent part of the OIP:

1. At all relevant times, Goldman, 69, was a resident of Miami, Florida. Goldman was associated as a broker with an unregistered broker-dealer, American Capital Group ("ACG U.S.") . 2 From at least November 2010 to at least August 2015, Goldman solicited securities traders through day trading seminars he taught, as well as by offering day trading software and services. Goldman established and maintained sub-accounts for traders under a U.S. brokerage account belonging to America Capital Group LTD ("ACG Belize") held at Letsgotrade, Inc., d/b/a ChoiceTrade ("ChoiceTrade"), a registered broker-dealer based in Puerto Rico. Goldman received transaction based compensation in the form of commissions. Neither ACG U.S. nor ACG Belize has ever registered with the Commission in any capacity.

2. On November 8, 2018, a final judgment was entered by consent against Goldman, permanently enjoining him from future violations of Sections 10(b), 15(a)(1), and 15(b)(6)(B) of the Exchange Act and Rule 10b-5 thereunder, in the civil action entitled Securities and Exchange Commission vs. Ricardo Goldman, Civil Action Number 1:18-cv24678-CMA. in the United States District Court for the Southern District of Florida. 

3. The Commission's complaint alleged that Goldman provided day traders with margin leverage, which allowed them to trade against the equity of ACG Belize's pooled master trading account. Goldman also provided day traders with equipment, office space and remote access, which resulted in at least $2.5 billion in securities transactions. During the relevant time period, Goldman received approximately $6.9 million from 77 investors, which he transferred to ACG Belize's ChoiceTrade brokerage account. The brokerage account incurred significant losses as a result of some traders' trading, but other traders shared in these losses because of Goldman's undisclosed commingling of traders' funds. Additional losses were caused by Goldman's undisclosed use of traders' funds for personal expenses. Goldman made material misrepresentations and omissions regarding the trading program and his prior disciplinary history, which included permanent antifraud and registration injunctions, and approximately $500,000 in civil penalties, interest and disgorgement, and a broker-dealer bar.
In an Indictment filed in the United States District Court for the Southern District, Steven Brown was charged with defrauding victims of over $12.5 million by participating in a fraudulent scheme to solicit investments in feature-length films and documentaries based on misrepresentations and fraudulent documents. On one occasion, Brown sent an email to a victim attaching what purported to be a current bank statement for an account held by the fictitious entity, as well as an email from an executive at the fictitious entity guaranteeing the victim's investment -- neither the account nor the executive existed. Investors' funds were primarily used to fund other projects, to pay back previously defrauded investors a la Ponzi, and to pay the personal expenses of the conspirators, including, among other things, the purchase of a condominium for Brown. After pleading guilty to one count of conspiring to commit wire fraud, Brown was sentenced to 63 months in prison plus three years of supervised release and ordered to forfeit his ownership interest in a California property and $673,028.93 in criminal proceeds.
In an Indictment filed in the United States District Court for the District of Colorado, Daniel Coddington and Jesse W. Erwin, Jr.,were charged with defrauding investors via a collateralized mortgagte obligations ("CMOs") scam. Coddington held himself out as the principal and owner of a Golden Summit Investors Group Ltd. and he touted a CMO Trade Program through which investor money would purchase CMOs, which would then be "hypothecated" to obtain loans that would be exponentially larger than the purchase price and market value of the CMOs. Investors were told that the proceeds of the loans would fund pre-trade distributions and that the remainder of the loan proceeds would be placed into a CMO Loan Program that would yield high returns. In fact, Coddington diverted substantial amounts of investor money placed into the CMO Trade Program and the CMO Loan Program for his own personal use and for purposes other than for purchasing CMOs.  Further, he did not successfully "hypothecate" or "monetize" any CMOs to obtain loans for either the CMO Trade Program or the CMO Loan Program. From at least October 2010 through April of 2011, Coddington obtained from investors more than $17 million for the CMO Trade Program and the CMO Loan Program.  Erwin pled guilty to wire and securities fraud and was sentenced to 58 months in federal prison, followed by 3 years on supervised release. After jury trial, Coddington was convicted of wire and securities fraud, and sentenced to 120 months in federal prison plus 3 years on supervised release, and ordered to pay $18,021,669.74 in restitution.
In response to an Information filed in the United States District Court for the Northern District of Georgia, Gogut Serban pled guilty to access device fraud and aggravated identity theft. The DOJ Release alleged that Serban and his co-conspirators used illegal skimming devices to steal over $80,000 from credit union customers by installing the devices at Associated Credit Union automated teller machines. The skimmers electronically recorded customers' debit card numbers and a camera irecorded the ATM keyboard as the customer entered their PIN. Serban and others then encoded new cards with the stolen account information and used the altered cards at ATMs, draining money from over 70 victims' bank accounts. Serban was sentenced to two years, two months in prison plus three years of supervised release, and ordered to pay restitution in the amount of $84,760.50.  

You ever wonder what some folks are thinking . . . or not thinking? 
Prison Sentence for Hutchinson Woman Who Said She Was Selling Drugs To Pay Off her Bondsman (DOJ Release)
Kimberly R. Phillips pled guilty in the United States District Court for the District of Kansas to one count of possession with intent to distribute oxycodone and one count of carrying a firearm in furtherance of drug trafficking. You're right -- that's fairly mundane criminal stuff but, hold on, you also have to factor this bit of lunacy into the equation:

In her plea, Phillips admitted investigators found 64 tablets of oxycodone when they searched her residence. She also admitted that when investigators stopped her car they found her Derringer handgun and methamphetamine. She told investigators she was selling drugs to pay back her bondsman.