Securities Industry Commentator by Bill Singer Esq

March 29, 2019
Our publisher Bill Singer loves to spin a good yarn. Some say Bill is one of Wall Street's great raconteurs. Some say he's just a loud-mouth pain in the ass. Frankly, there are those who say he's all of that, but, you know, to each his own, right? In today's blog, Bill regales us with yet another oddball tale from the annals of FINRA's arbitration forum. This time we are asked to consider a dispute involving seven promissory notes amounting to just shy of $800,000. They don't give such bucks out on the Street to deadbeats, so the recipient was likely among UBS's top producers. And if the Respondent in today's featured arbitration was sharp enough to earn the underlying loans, then he's probably going to do everything he can to fight his former employer's effort to obtain repayment. Sadly, as much as Bill would love to add his own color to this story, the arbitrators did such a great job penning their Decision that there's not much left for him to do. On the other hand, Bill did add some fun music videos from Jackson Browne, Humble Pie, and the Thompson Twins. Now that's quite the amalgamation!

Former Chief Operating Officer Of Asset Management Company Arrested For Defrauding The Company And Its Clients (DOJ Release)
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In a Complaint filed in the United States District Court for the Southern District of New York,
former Chief Operating Officer of an asset management company Richard Diver was charged with one count of investment advisor fraud and one count of wire fraud.  As set forth in the DOJ Release:

DIVER was the Chief Operating Officer ("COO") of a Manhattan-based asset management company ("Company-1") that offers its customers investment planning and wealth management services.  As COO, DIVER's responsibilities included overseeing the company's payroll and billing functions. 

Beginning in 2011 and continuing into December 2018, DIVER fraudulently caused Company-1's third-party payroll vendor to pay him salary significantly beyond his authorized salary and bonus.  Over that period, DIVER caused over $4.5 million to be routed to his personal checking account above and beyond his approved compensation.

In 2017, DIVER also began to defraud Company-1's clients.  Typically, Company-1 billed its clients quarterly, in most cases having been authorized by the clients to deduct its investment advisory fees directly from their custodial accounts.  DIVER began to cause an employee to run the billing process, which was based on a fixed percentage of the assets the clients had under the company's management, at off-cycle intervals as to certain clients in addition to the regularly quarterly billing process.  These billings were not accompanied by any notice to the clients.  The clients affected by this practice therefore had their accounts debited twice, but were only notified of the single legitimate billing in periodic reports and correspondence from the company.  DIVER routed the excess funds to his own personal bank accounts through the company's payroll system.  Through this mechanism, DIVER defrauded the clients of over $700,000.

In December 2018, certain clients noticed the overbilling and complained to Company-1's president, who confronted him.  DIVER admitted to the Company-1 president both fraudulent practices, stating that the funds he had stolen were consumed by his own "wild" spending.  More recently, law enforcement agents recorded a conversation in which DIVER acknowledged having defrauded the company of $4.5 million through the payroll fraud and certain clients of over $700,000 through the billing fraud

In the SEC's Complaint filed in the United States District Court for the Southern District of New York,, Diver was charged with aiding and abetting the investment adviser's violations of the antifraud provisions in Sections 206(1) and 206(2) of the Investment Advisers Act of 1940. The SEC is seeking a judgment ordering permanent injunctive relief, disgorgement plus prejudgment interest thereon and civil monetary penalties against Diver. 

Georgia man pleads guilty to hacking apple accounts of professional athletes and musicians (DOJ Release)
Hey, watta ya want me to do? The headline was posted with "apple" not "Apple." Maybe they'll catch the error and change it, maybe not? In any event, Kwamaine Jerell Ford was indicted in the United States District Court for the Northern District of Georgia on six counts each of wire fraud, computer fraud, access device fraud, and aggravated identity theft. Ford pled guilty to one count of computer fraud and one count of aggravated identity theft.  As set forth in part in the DOJ Release:

[B]eginning in at least March 2015, Ford obtained login credentials for Apple accounts belonging to victims primarily through a phishing scheme, which is a scheme in which the perpetrator sends a message that purports to be from a legitimate source. Ford primarily targeted college and professional athletes, including NBA and NFL players, and rappers in his scheme. Ford sent thousands of phishing emails to his intended victims from email accounts he set up to spoof legitimate Apple customer service accounts. Ford, posing as an Apple customer support representative, requested that the victims send him their username and password or answers to security challenge questions, which Ford claimed was needed either to reset their Apple accounts or to access videos that individuals were purportedly trying to send the victims. Dozens of victims provided their login credentials based on the phishing scheme.

After obtaining the victims' login credentials, Ford logged into their Apple accounts and attempted to take over the accounts. Specifically, he attempted to reset the account password, change the contact email account to an email address he controlled, and alter the security challenge questions. As a result, the victims could not log into their own accounts unless they contacted Apple by phone and proved their identity. Apple records showed hundreds of unauthorized logins to victim Apple accounts.

After gaining control of the victims' accounts, Ford found credit card information belonging to several of the victims. Ford then used the stolen credit card numbers to pay for thousands of dollars in air travel, hotel stays, other travel expenses, furniture, and money transfers to online payment accounts under his control.

SEC Charges College Official for Fraudulently Concealing Financial Troubles From Municipal Bond Investors (SEC Release)
In a Complaint filed in the United States District Court for the Souterhn District of New York,, the SEC charged Keith Borge, the former controller of the not-for-profit College of New Rochelle with violating, and aiding and abetting violations of, the antifraud provisions of the federal securities laws. Borge agreed to a partial settlement that would permanently enjoin him from future misconduct, with potential monetary sanctions to be determined at a later date. In a parallel action, the U.S. Attorney's Office for the Southern District of New York today announced criminal charges against Borge. who pled guilty to those charges. After considering the College of New Rochelle's extensive cooperation and remediation, the SEC decided not to charge the institution, which upon discovering Borge's actions conducted a review, publicly reported the issues, engaged outside expertise to fully investigate, and restated its financial results. As set forth in part in the SEC Release:

[T]he College of New Rochelle came under considerable financial stress because of declining student enrollment and plummeting revenue from tuition. To hide the college's deteriorating financial condition from investors, the college's former controller, Keith Borge, created false financial records, didn't file payroll tax submissions, and didn't assess the collectability of pledged donations that were increasingly unlikely to be received as donors became more frustrated with the college's operations. Borge's misconduct resulted in the college's financial statements for its 2015 fiscal year falsely overstating net assets by almost $34 million. Borge also falsely certified the accuracy of the college's financial statements. The financial statements were published by Borge to an online repository in connection with the College's continuing disclosure obligations stemming from a 1999 bond issuance, and significantly influenced investors' decisions to invest in the bonds.