Securities Industry Commentator by Bill Singer Esq

June 13, 2019

https://www.usatoday.com/in-depth/news/investigations/2019/06/11/seniors-face-foreclosure-retirement-after-failed-reverse-mortgage/1329043001/
An absolutely stunning bit of investigative reporting! 

These elderly homeowners were wooed into borrowing money through the special program by attractive sales pitches or a dire need for cash - or both. When they missed a paperwork deadline or fell behind on taxes or insurance, lenders moved swiftly to foreclose on the home. Those foreclosures wiped out hard-earned generational wealth built in the decades since the Fair Housing Act of 1968.


http://www.brokeandbroker.com/4640/aegis-frumento-AI/
Our experience with Artificial Intelligence is so new and so counterintuitive that it plays havoc with our common sense. We feel that need to hold some human responsible for things that go wrong. We can't quite yet live with the possibility that the machine just fucked up. But who to sue can be elusive.

Sham Investment Advisor Sentenced to 10 Years in Prison / Rick Guyon Defrauded Investors of $1.9 Million (DOJ Release)
https://www.justice.gov/usao-id/pr/sham-investment-advisor-sentenced-10-years-prison
After pleading guilty in the United States District Court for the District of Idaho to wire fraud, Rick Guyon, a/k/a, Richard Guyon, a/k/a Rick Garrison, a/k/a Mark Thomas was sentenced to 120 months in prison plus three years of supervised release, and ordered to pay $1,956,400 in restitution. As set forth in part in the DOJ Release:

[F]rom 2015 through 2017, Guyon devised a scheme to defraud individual investors.  The scheme involved soliciting $1,956,400 from investors based on false and fraudulent representations about Guyon's education, employment history, and financial condition, false and fraudulent representations that the money would be invested in financial markets, and that he would not collect any commissions on the investments.  Once Guyon obtained the money, he spent it on personal expenses.  To cover up what he had done, Guyon provided investors with false and fraudulent monthly account statements showing positive returns on investments.

According to court records, Guyon's scheme to defraud investors (i) resulted in an actual loss of between $1,500,000 and $3,500,000; (ii) resulted in a substantial financial hardship to investor-victim R.F., who personally lost approximately $1,281,783 and (iii) involved the defendant acting as an organizer and leader of at least three other participants in the scheme.

https://www.justice.gov/usao-cdca/pr/ex-financial-advisor-history-professional-misconduct-arrested-fraud-charges-alleging
In a 17-count Indictment filed in the United States District Court for the Central District of California, Paul Ricky Mata was charged with mail fraud, wire fraud, and making false statements in a bankruptcy proceeding, among other offenses.  In 2015, the SEC iled a civil action against Mata and two business associates, alleging that they operated the real estate scam; and, thereafter, the federal regulator obtained a judgment enjoining Mata from violating securities laws and ordering him to pay $11,748,831. As set forth in part in the DOJ Release:

[F]rom August 2008 to September 2015, Mata caused victims to invest in several of his businesses, including Secured Capital, Logos Real Estate and other ventures. Mata failed to disclose his disciplinary history to his victims, including his 2009 termination from Ameriprise Financial Services, Inc. for violating company policies, the indictment alleges. Mata also allegedly failed to disclose other disciplinary actions against him, including ones filed by the states of Nevada and California, and a one-year suspension and $10,000 fine imposed by the Financial Industry Regulatory Authority stemming as a result of his Ameriprise misconduct.

As part of the alleged scheme to defraud, Mata induced his victims to invest their money in Secured Capital, a real estate investment program that purportedly invested in "government-backed tax liens," "asset-backed deed certificates," and distressed commercial and residential properties. Mata guaranteed investors that Secured Capital's investment return generated annual rates of 5 percent to 10 percent, when in fact, investments in Secured Capital had significant loss risks and did not make a profit from 2011 onward, the indictment alleges.

Instead of properly investing his clients' money, Mata allegedly used Secured Capital investor funds to pay his personal expenses, including a $197,000 down payment on his personal residence, loans to himself and to other entities he created, and $370,000 that was transferred into his personal bank accounts. 

Mata also is charged with making false statements on bankruptcy court documents, and fraudulently concealing from the government and his creditors personal property, including a 2008 Mini Cooper and a 2001 Jeep. . . .

https://www.justice.gov/usao-wdpa/pr/cambria-county-investment-advisor-sentenced-6-years-prison-45m-fraud-scheme
After pleading guilty to five counts of securities fraud, wire fraud, and filing false income tax returns, Douglas P. Simanski was sentenced in the United States District Court for the Western District of Pennsylvania to 78 months in prison plus three years' supervised release. As set forth in part in the DOJ Release:

[B]etween February 2002 and May 2016, Simanski, an investment advisor and broker, devised and executed a scheme to fraudulently obtain approximately $4.5 million from various investors. As part of his scheme, Simanski fabricated "Tax Free Investment" contracts and "fake CDs" which listed guaranteed rates of return and payouts, and used the documents to solicit investors. Simanski used portions of the invested funds to pay "returns" to other investors to make it appear their investments were legitimate. He also used a portion of the funds to purchase personal items and to fund personal home improvement projects, and placed some of the funds into a personal E*Trade account. Also, Simanski filed false income tax returns for 2012, 2013, and 2014.

https://www.justice.gov/usao-edny/pr/long-island-man-and-queens-rabbi-arrested-7-million-extortion-attempt
Attorney Mark Weissman pled guilty in the United States District court for the Eastern District of New York to conspiring to obstruct an official proceeding by engaging in a scheme to impede the enforcement of another individual's obligation to pay millions of dollars in court-ordered restitution to victims in an unrelated securities fraud case. See, Long Island Man and Queens Rabbi Arrested in $7 Million Extortion Attempt / Defendants Sought to Disguise the Extorted Funds as a Charitable Donation (DOJ Release / June 18, 2018) https://www.justice.gov/usao-edny/pr/long-island-man-and-queens-rabbi-arrested-7-million-extortion-attempt
As set forth in part in the DOJ Release:

[I]n 2011 and 2012, two individuals (Individual A and Individual B) pleaded guilty in federal court in Brooklyn to securities fraud, conspiracy to commit securities fraud, and money laundering conspiracy.  At their sentencing proceedings in 2014, they were ordered to pay approximately $12.7 million in restitution to the victims of their securities fraud scheme.  Thereafter, in February 2017, Weissman advised Individual A that incriminating information about him would be provided to law enforcement, unless he paid $6 million to Individual B.  At his guilty plea proceeding today, Weissman admitted that he believed this payment would impede the enforcement of the restitution judgment against Individual B.  

Union County, New Jersey, Man Sentenced To 25 Months In Prison In Scheme To Manipulate Microcap Stock By Touting A 'Wellness Social Community For People And Their Pets' (DOJ Release) https://www.justice.gov/usao-nj/pr/union-county-new-jersey-man-sentenced-25-months-prison-scheme-manipulate-microcap-stock
James Farinella pled guilty in the United States District Court for the District of New Jersey
to one count of conspiracy to commit securities fraud and was sentenced to 25 months in prison plus three years of supervised release. As set forth in part in the DOJ Release:


From June 2012 through December 2012, Farinella and others allegedly operated a scheme to profit by fraudulently inflate the prices of Pazoo Inc. (PZOO). Pazoo had little or no real business operations, and when it started trading in June 2012, Farinella controlled 98 percent of the free-trading shares in Pazoo.

Farinella and other conspirators allegedly inflated the price of those shares by orchestrating a series of trades between accounts they controlled to create the appearance that Pazoo stock was rising in price and heavily traded. In order to further inflate the prices, Farinella and his conspirators also disseminated misleading promotional materials to lure investors to purchase the stocks, including touting Pazoo as a leading provider of nutritional supplements for people and their pets.

After inflating the price of the stock, Farinella and his conspirators sold large volumes of the stock to over 1,000 investors at the artificially inflated prices. The company's stock price then dropped, causing victims of the scheme to suffer losses. The alleged stock manipulation scheme generated approximately $1.1 million in gross trading proceeds.

In the Matter of Christopher M. Gibson (SEC Order on Reissuance of Subpoena; Admin. Proc. Rul. Rel. No. 6599; Admin. Proc. File No. 3-17184)
https://www.sec.gov/alj/aljorders/2019/ap-6599.pdf
Lucia v. SEC is the gift that keeps on giving and delaying and extending and confounding. In yet another emanation of the expected and unexpected ramifications of the Supreme Court's Opinion, we have a Respondent who was served with a Subpoena signed by the SEC's Chief Administrative Law Judge, who substituted for an unavailable ALJ James E. Grimes, who is now assigned to the matter.  Respondent Gibson moved to quash the Subpoena, arguing that:

in cases like this one, where a hearing had already taken place, there must be a new hearing before a different, properly appointed administrative law judge. Since the Chief Administrative Law Judge presided over the first hearing in this proceeding, Respondent asserts that she cannot participate in this matter further, even to sign subpoenas.

To avoid further controversy over Appointments Clause issues and in an abundance of caution, I am reissuing the subpoena under my signature as of today. I will consider Respondent's motion to quash in reference to the new subpoena. . . .

FINRA Suspends Spencer Edwards Inc Ability to Accept Certificates and Liquidate Shares. In the Matter of Spencer Edwards, Inc., Respondent (FINRA AWC 2016051209102) 
http://www.finra.org/sites/default/files/fda_documents/2016051209102
%20Spencer%20Edwards%2C%20Inc.%20SEI%20CRD%2022067%20AWC%20jm.pdf
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, Spencer Edwards, Inc. submitted a Letter of Acceptance, Waiver and Consent ("AWC"), which FINRA accepted. In accordance with the terms of the AWC, FINRA imposed upon Spencer Edwards, Inc. a $250,000 fine, $512,261 restitution to listed customers plus interest, and this unusual additional sanction:

Suspension of SEI's business accepting deposits of stock certificates and liquidating previously deposited certificated securities until the firm implements measures to remedy the AML violations addressed in this AWC and the firm's chief compliance officer certifies, in writing to FINRA, that the firm has implemented an AML compliance program reasonably designed to detect and cause the reporting of suspicious activity . . .

 As set forth in the "Overview" section of the AWC:

From September 2013 to August 2015, SEI failed to establish and implement, as part of its anti-money laundering ("AML") compliance program, policies and procedures reasonably designed to detect and cause the reporting of suspicious activity in its primary business-accepting and liquidating customers' deposits of microcap securities. As a result, SEI violated FINRA Rules 2010 and 3310(a). 

During the same time period, SE1, acting through its manager of operations, affixed its chief executive officer's signature to representations required by SEI's clearing firm, thereby representing that the chief executive officer had reviewed customers' stock deposits, even though she had not actually done so. As a result, SEI violated FINRA Rule 2010. 

Finally, from November 2014 to August 2015, SEI charged more than 5% of the principal amount of more than 5,600 stock transactions, representing two-thirds of the firm's transactions during that period. SEI's charges for those transactions were unfair and unreasonable. In doing so, SEI failed to enforce its written supervisory procedures governing charges for transactions. As a result, SEI violated FINRA Rules 2010, 2121, and 3110, and NASD Rule 3010. . . .

Bill Singer's Comment: At first blush, I was very, very impressed with FINRA's intelligent and appropriate sanction of suspending SEI's business of accepting deposits of stock certificates and liquidating previously deposited certificated securities until the firm implements measures to remedy the AML violations addressed. Then I noticed this under the heading of "Background":

[O]n December 17, 2018, SEI filed a Form BDW, indicating that it expected to cease operations in early 2019. While SEI's Form BDW was pending, FINRA cancelled the firm's membership on February 1, 2019, for failure to pay outstanding fees. During the period at issue below, SEI' s primary business -- accounting for more than 80% of the firm's revenue -- was accepting and liquidating customers' deposits of microcap securities. During that period, SEI had approximately twenty registered persons; currently, it has one. Although SEI no longer is a FINRA member, it remains subject to FINRA's jurisdiction pursuant to Article IV, Section 6 of FINRA's By-Laws of the Corporation.

If any of my readers want to take a shot at it, go ahead, but I'm not quite understanding how a firm whose FINRA membership was cancelled on February 1, 2019, is impacted by a June 11, 2019 AWC in which that same firm's ability to accept certs and liquidate previous securities is "suspended." How do you actually suspend a firm from doing anything in June 2019 after that firm seems to have gone out of business in February 2019? I don't want to say it's a meaningless gesture but, you know, it sort of looks like a meaningless gesture, no?

Talking About Meaningless Gestures (Part II). In the Matter of Donna Flemming, Respondent (FINRA AWC 2016051209101) 
http://www.finra.org/sites/default/files/fda_documents/2016051209101
%20Donna%20Flemming%20CRD%201791388%20AWC%20jm.pdf
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, Donna Flemming submitted a Letter of Acceptance, Waiver and Consent ("AWC"), which FINRA accepted. The AWC asserts that Flemming entered the industry in 1988 and was associated with FINRA member firm Spencer Edwards, Inc. (see AWC article immediately above) from 2003 to February 2019, d-2017. during which time she was SEI's Chief Executive officer from 2012 to February 2019, and the firm's Chief Compliance Officer and Anti-Money Laundering Compliance Officer from 2012 until mid-2017. In accordance with the terms of the AWC, FINRA imposed upon Donna Flemming a Bar from associating in any capacity with any member of FINRA. As set forth under the AWC heading "Overview":

From September 2013 to August 2015, Flemming failed to implement an AML compliance program reasonably designed to detect and cause the reporting of suspicious activity in SEI's primary business -- accepting and liquidating customers' deposits of microcap securities -- in violation of FINRA Rules 3310(a) and 2010. Additionally, Flemming allowed a subordinate to affix Flemming's signature to representations required by SEI's clearing firm, thereby representing that Flemming had reviewed documents supporting customers' stock deposits, even though she had not actually done so, in violation of FINRA Rule 2010.