Securities Industry Commentator by Bill Singer Esq

June 4, 2019
Notwithstanding the self-congratulatory press releases from the Securities and Exchange Commission about the purported success of its Whistleblower program, not every whistleblower shares that perspective. Nothing seems to get accomplished according to a reasonable timeline. There are delays without explanation. There are delays with explanations that lack credibility. There are delays because the federal regulator seems to relish being a bully and thinks that it's always doing everyone a favor and you should simply take a number, wait your turn, and keep your mouth shut. In the end, far too much of the SEC's Whistleblower program treats the whistleblower as an adversary and the whistleblower's tips as an annoyance. Lost in that misguided approach is that the benefit of a whistleblower program is its role as an early warning system to protect the investing public and better police Wall Street. Despite a lot of crap that continues to bedevil the effectiveness of the SEC's Whistleblower program, a recent SEC Order making a $3 million award is a very, very pleasant surprise and an encouraging step in the right direction!

CFTC Whistleblower Alert: Blow the Whistle on Foreign Corrupt Practices in the Commodities and Derivatives Markets (CFTC Whistleblower Alert)
The CFTC is seeking in part whistleblower submissions about:
  • Corrupt practices that alter the prices in commodity markets that drive U.S. derivatives prices
  • Bribes employed to secure business in connection with regulated activities like trading, advising, or dealing in swaps or derivatives, paid out of funds investors believed were being used to invest 
  • Corrupt practices used to manipulate benchmarks that serve as the basis for related derivatives contracts,as prices that are the product of corruption might be falsely reported to benchmarks
As noted in the CFTC Alert, the federal regulator will:

pay monetary awards to persons who voluntarily provide us with original information on a Form TCR about violations of the CEA or its rules, if that information leads to a successful CFTC enforcement action resulting in more than $1 million in monetary sanctions. The program also affords confidentiality and anti-retaliation protections.

Bill Singer's Comment: I have successfully represented and presently represent Whistleblowers. I welcome inquiries from those seeking to report industry misconduct and fraud, and am prepared to accept such clients or refer you to other legal professionals.
Efstratios "Elias" Argyropoulos pled guilty in the United States District Court for the Central District of California to one felony count of wire fraud for defrauding investors by making false promises to use their money purchase shares of Facebook and Twitter prior to the companies' initial public offerings. As set forth in part in the DOJ Release:

[B]etween October 2010 and October 2015, Argyropoulos operated Prima Ventures Corporation, a Santa Barbara-based financial services firm of which he was the president and sole shareholder. Argyropoulos represented to investors that he had access to "amazing" investment opportunities that would provide a high rate of return on any money invested, court papers state.

Argyropoulos misrepresented to investors that he would pool their money to purchase pre-initial public offering shares of companies such as Facebook and Twitter, according to court documents. Argyropoulos also falsely told investors he had access to good investment opportunities in companies such as Alibaba, Etsy, and E-Waste, the plea agreement states. As he admitted, Argyropoulos also represented that he and Prima were licensed brokers, when in truth, neither he nor Prima was licensed by the Securities and Exchange Commission or any other regulatory authority to sell securities. Instead of purchasing the stocks, Argyropoulos diverted the investor funds for other uses, such as day-trading in stocks unrelated to the promised investments, and personal expenses, such as landscaping, utilities, and his legal expenses arising out of an investigation into his activities conducted by the SEC, the plea agreement states.

Argyropoulos, who was charged in a 21-count federal grand jury indictment last year, admitted to causing at least $1,495,657 in uncompensated losses in connection with his schemes to defraud.

Argyropoulos also admitted to willfully violating a January 2015 court order in a lawsuit brought by the Securities and Exchange Commission, which was based on the fraudulent Facebook and Twitter scheme. The injunction prohibited Argyropoulos from selling fraudulent investments and acting as an unlicensed broker.
This is the tale of Carlos Iglesias, alias "Abraham Reyes" who was detained in the United States District Court for the District of Virgin Islands pending his removal to the District of Rhode Island for bank fraud and identity theft charges. As set forth in the DOJ Release:

On Thursday, May 30, 2019, Iglesias was taken into custody by Homeland Security Investigation as he attempted to board a JetBlue flight to New York's JFK International Airport. Iglesias is wanted in Rhode Island on charges stemming from a 2009 bank fraud conspiracy scheme. According to the complaint, on December 2, 2009 and December 3, 2009, Iglesias and his co-defendant entered Bank of America in Pawtucket, RI and cashed or attempted to cash fraudulent Bank of America cashier's checks. At Bank of America, Iglesias presented a fake United States passport in the name of "Abraham Reyes", with his photograph in it. Iglesias opened a checking account with Bank of America in the name of "Abraham Reyes", then cashed a fraudulent cashier's check in the amount of $65,000 against the account, using the fake passport as identification. Because the branch bank had insufficient funds on hand to honor the cashier's check, Bank of America gave Iglesias two cashier's checks in the amounts of $19,000 and $27,000, both of which Iglesias cashed and kept $19,000 for himself. On a third occasion, Iglesias attempted to cash another fraudulent cashier's check in the amount of $53,000, payable to "Abraham Reyes". Bank of America, upon discovering the check cashing scheme, reported the incidents to the authorities.

According to court records, Iglesias was later interviewed by the Rhode Island State Police and admitted that on three occasions he cashed or attempted to cash fraudulent cashier's checks at three or four Bank of America branches. Iglesias also told the authorities that he had traveled to Rhode Island from New York to visit a friend who provided him with the fake passport, and offered him $20,000 - $30,000 as payment for cashing the fraudulent checks.

Again, Puhlease Tell Me It Ain't This Easy. SEC Seeks Emergency Relief to Halt Ponzi Scheme Run From College Fraternity House (SEC Release)
In a Complaint filed in the United States District Court for the Middle District of Georgia, the SEC charged Syed Arham Arbab, Artis Proficio Capital Investments LLC, and Artis Proficio Capital Management LLC, with violating the antifraud provisions of the federal securities laws;; and the SEC sought an order freezing certain assets of Arbab and his entities, as well as a temporary restraining order, preliminary and permanent injunctive relief, return of allegedly ill-gotten gains with prejudgment interest, and civil penalties. As set forth in the SEC Release, Arbab allegedly conducted a fraud from a fraternity house near the University of Georgia, and in furtherance of the alleged schem, Arbab:

allegedly offered investments in a purported hedge fund called "Artis Proficio Capital," which he claimed had generated returns of as much as 56% in the prior year and for which investor funds were guaranteed up to $15,000. Arbab also allegedly sold "bond agreements" which promised investors the return of their money along with a fixed rate of return. The SEC's complaint alleges that at least eight college students, recent graduates, or their family members invested more than $269,000 in these investments.

According to the SEC's complaint, no hedge fund existed, Arbab's claimed performance returns were fictitious, and he never invested the funds as represented. Instead, as money was raised, Arbab allegedly placed substantial portions of investor funds in his personal bank and brokerage accounts, which he used for his own benefit, including trips to Las Vegas, shopping, travel, and entertainment. Arbab also allegedly used portions of new investor money to pay earlier investors who had asked for their money back, the hallmark of a Ponzi scheme. Arbab even instructed some new investors to send their money - unwittingly - to existing investors through payment applications such as Venmo, Zelle, and Cash App, and misleadingly told them that the existing investors were either a "partner" or "manager" in the fund. 

Here's one you don't see everyday! In the Matter of the Application of Constantine Gus Cristo for Review of Action Taken by FINRA (SEC Opinion; '34 Act Rel. No. 86018; Admin. Proc. File No. 3-18539 / June 3, 2019)
As set forth in the Syllabus to the SEC Opinion:

In September 2017, Constantine Gus Cristo sued Charles Schwab & Co., Inc., a FINRA member firm, and certain of its affiliates (collectively, "Schwab") in federal district court. Cristo alleged that Schwab violated federal law by releasing financial records to the Internal Revenue Service ("IRS") beyond those requested in an administrative summons. The court granted Schwab's motion to compel Cristo to arbitrate his claims before FINRA. 

Cristo requested that FINRA declare his claims ineligible for arbitration. But FINRA explained that its rules reserved that determination for an arbitration panel to make based on a developed record. Cristo also submitted a complaint about Schwab to FINRA's Investor Complaint Center. The complaint restated the allegations made in Cristo's federal lawsuit. FINRA investigated Cristo's complaint and closed the matter. 

Cristo then filed an application for review of FINRA's actions under Section 19(d) of the Securities Exchange Act of 1934. Because Cristo does not challenge any action that we have jurisdiction to review under Section 19(d), we dismiss his appeal for lack of jurisdiction. 

FINRA Suspends Rep Over 215 Unsolicited Trades That Were Solicited. In the Matter of Curtis Ile, Respondent (FINRA AWC 2017054678101, May 31, 2019)
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, Curtis Ile submitted a Letter of Acceptance, Waiver and Consent ("AWC"), which FINRA accepted. In accordance with the terms of the AWC, FINRA found that Respondent Ile violated FINRA Rules 2114 and 2010, and NASD Rule 2510(b) and in accordance with the terms of the AWC imposed upon him a six month suspension from association with any FINRA member firm in any capacity. The AWC asserts that in "light of the financial status of Respondent, no monetary sanctions have been imposed." As set forth in the "Overview" of the AWC:

Between June 2015 and July 2018, Ile violated FINRA Rules 4511 and 2010 by mismarking 215 order tickets as unsolicited when the transactions were, in fact, solicited, thereby causing the firm's books and records to be inaccurate. During the same period, Ile violated FINRA Rules 2114 and 2010 by recommending 16 over-the-counter ("OTC") equity securities to customers without reviewing the current financial statements of the issuers. Finally, during the same period, Ile violated NASD Rule 251 O(b) and FINRA Rule 2010 exercising discretion without written authorization in 17 customer accounts. 

Director Redfearn comments on the SEC's agenda for the equity markets, and focuses on leading issues such as Thinly-Traded Securities, Transaction Fee Pilot, and Market Data and Market Access