Securities Industry Commentator by Bill Singer Esq

September 10, 2019
Former Wells Fargo personal banker Leopoldo Lara Aguilera pled guilty in the United States District Court for the Southern District of California to money laundering conspiracy and bank fraud. As set forth in part in the DOJ Release:

[A]guilera abused his position of trust as a personal banker with Wells Fargo Bank by opening bank accounts with false identities and wire transferring millions of dollars to Mexico. Aguilera conducted these transactions in exchange for thousands of dollars in cash payments from the criminal organization.  The FBI's investigation linked these funds to the sale of narcotics, specifically the sale of multi-kilogram amounts of fentanyl in the Midwest. 

Aguilera pleaded guilty to opening twenty-six bank accounts for the money laundering organization, including eleven that were created by Aguilera using fictitious identities.  Specifically, Aguilera used his position as a personal banker with Wells Fargo Bank to knowingly enter false names, passport numbers, and dates of birth on the fictitious bank accounts.  These eleven fictitious accounts alone were used by the criminal organization to wire transfer a total of $3.8 million to Mexico, the vast majority of those wire transfers were conducted by Aguilera himself.  Aguilera's use of these fictitious accounts were identified by Wells Fargo and brought to the attention of the FBI.   

In conjunction with Aguilera's arrest, the FBI identified and seized seventeen bank accounts that belonged to the money laundering organization containing in excess of $230,000.
At times, the relationship between the stockbroker and the company frays -- or someone cherry-picks the top producers with a better offer. When it comes time to movin' on, not every former employer is thrilled about the departure of every former employee. In today's blog we consider a recent split between employee and employer, and we see how the machinery ramps up during the ensuing lawsuit. A frequent question asked of industry lawyers is "What can my former firm do to me after I've left?" Today's featured case provides some answers.
The SEC voted to propose amendments to the national market system plan governing the Consolidated Audit Trail (the "CAT NMS Plan")  The SEC Release asserts that the proposals:

are designed to decrease the likelihood of additional delays to CAT implementation by increasing operational transparency and attaching financial accountability to the Participants' regulatory obligation to implement the CAT in an efficient and expeditious manner.

As set forth in part in the SEC Release:

The proposed amendments to the CAT NMS Plan would require self-regulatory organizations that are participants to the CAT NMS Plan (the "Participants") to file with the Commission and publish a complete implementation plan for the Consolidated Audit Trail ("CAT") and quarterly progress reports, each of which must be approved by the Operating Committee established by the CAT NMS Plan and submitted to the CEO, President, or equivalently situated senior officer at each Participant.  In addition, the proposed amendments would include financial accountability provisions that establish target deadlines for four implementation milestones and reduce the amount of fee recovery available to the Participants if those target deadlines are missed.

Ummm . . . oh, sure . . . nothing like proposing amendments, which require at least a 45-day comment period to decrease further (and I stress further) delays. In a roll-out that has been hideously beset by disgraceful delays already, we are supposed to take comfort that:

Financial Accountability Amendments

The proposed amendments establish target deadlines for four critical implementation milestones defined in the proposal, based largely on dates previously published by the SROs:
    • April 30, 2020: Initial Industry Member Core Equity Reporting 
    • December 31, 2020: Full Implementation of Core Equity Reporting Requirements
    • December 31, 2021: Full Availability and Regulatory Utilization of Transactional Database Functionality
    • December 31, 2022: Full Implementation of CAT NMS Plan Requirements
If the Participants do not meet these target deadlines, the amount of CAT funding that they can recover from Industry Members will be reduced at regular intervals.

Bill Singer's Comment: After years of delays and foot-dragging (much of which preceded Chair Clayton's tenure), we are now presented with a somewhat disingenuous CAT "update." While we continue to await the roll-out of CAT, the SEC maintains its misplaced reliance upon the industry's outdated Electronic Blue Sheets ("EBS") paper trail. See, for example:  Three Broker-Dealers to Pay More Than $6 Million in Penalties for Providing Deficient Blue Sheet Data (SEC Press Release, 2018-275 / Dec. 10, 2018)  While Wall Street's self-regulatory-organizations dawdle with implementing CAT, brokerage firms continue to generate incomplete and inaccurate securities trading information via EBS production. This lack of reliable production inhibits the SEC's ability to carry out its enforcement and regulatory obligations. If you think I'm being overly pessimistic, consider these comments from Statement on Status of the Consolidated Audit Trail (by SEC Chair Jay Clayton)

[I]n 2016, the Commission approved the CAT NMS Plan prepared by the SROs, which set forth deadlines for CAT's implementation beginning in November 2017.  The SROs have not met the CAT NMS Plan deadlines for the implementation of the CAT.
Cassio Orville Donald Slowden pled guilty in the United States District Court for the Western District of Pennsylvania to one count of theft of mail. As set forth in part in the DOJ Release:

In connection with the guilty plea, the court was advised that in February 2019, Citizens Bank replacement debit cards and PIN reminders were fraudulently ordered for several customers in McMurray, Pennsylvania. On the afternoon of February 11, U.S. mail was delivered to the mailbox of one of the residences in McMurray. Shortly after, Slowden removed several pieces of mail from the mailbox and drove away from the residence. Slowden's vehicle was stopped by law enforcement, and a search of the vehicle recovered stolen mail, including the Citizens Bank replacement debit card and PIN reminder taken from the mailbox of the McMurray residence.

The Court was further advised that Citizens Bank, Bank of America, and other financial institutions were victims of an ongoing multistate fraud scheme. The scheme involved one or more callers contacting banks and impersonating customers. The caller would order replacement debit cards and debit card PIN reminders to the customer's address on file. The suspects would intercept the cards and use them to make fraudulent ATM withdrawals. Slowden is connected to at least $116,277.19 in losses related to fraudulent withdrawals from accounts of at least 12 Citizens Bank and Bank of America customers.
Psychologist Pamela Antell a/k/a Pamela Gruenhut pled builty in the United States District Court for the Northern District of Illinois to one count of health care fraud, and she was sentenced to six months in prison, fined $100,000, and ordered to pay $1,464,810 in restitution to insurers and Medicare. As set forth in part in the DOJ Release:

[F]rom 2011 to 2018, Antell submitted fraudulent claims to private insurers and Medicare for mental health services that were not rendered.  Some of the fraudulent claims were submitted for an individual who was not actually a patient, while in other instances Antell was not in Illinois on the dates she claimed to have provided treatment.  Antell also attempted to obstruct justice by instructing a former patient to lie to investigators about the frequency of treatment sessions and the patient's payment of copayments.

Bill Singer's Comment: For those of you wondering what you can get via a high-price lawyer, let me share with you the strategy by which I might have defended Defendant Antell. Pointedly, I would have had her argue that she had, in fact, rendered mental health services but that her patients were all paranoid and mistakenly believed that she was trying to hurt them; or, in the alternative, that they were all psychotic and unable to recognize the reality of her treatments. Yeah, I know, brilliant!

Erroneously Named Rep Wins Expungement of Customer Complaint. In the Matter of the Arbitration Between Brian Joseph Lombardi, Claimant, v. IAA Financial, LLC, Respondent (FINRA Arbitration Decision 18-04054)
In a FINRA Arbitration Statement of Claim filed in November 2018, associated person Claimant Lombardi sought the expungement of a customer complaint from his Central Registration Depository record ("CRD"). FINRA member firm Respondent IAA Financial did not Answer, did not contest the requested relief,  and did not participate in the hearing. In recommending expungement, the sole FINRA Arbitrator offered this concise and persuasive rationale:

The customers in the underlying arbitration filed a Statement of Claim against IAA Financial, LLC (f/k/a CBG Financial Group, Inc.) ("CBG") in FINRA Case No. 14- 01823, which identified Lombardi and another representative within the body of the Statement of Claim as having violated FINRA rules. Subsequently, the customers amended their Statement of Claim to omit all references to Lombardi. In fact, CBG stated in its Answer to the First Amended Statement of Claim that the underlying customers "originally named Brian Lombardi as a broker in this action but subsequently amended the SOC [Statement of Claim] to remove allegations against Mr. Lombardi when it became clear that he has no involvement in this matter." A few months later, in October 2014, the customers withdrew their claims completely. 

A year and a half later, in April 2016, the customers filed a new Statement of Claim, naming CBG's affiliate, International Assets Advisory, LLC ("IAA") and two individuals in FINRA Case No. 16-01159. The customers in FINRA Case No. 16- 01159 then amended that Statement of Claim to add another individual. Claimant Lombardi was not named in this action, nor referenced in the body of the Statement of Claim. 

The Arbitrator concluded that Mr. Lombardi was erroneously referenced in the original FINRA arbitration (Case No. 14-01823) and should have his CRD records expunged of all references to that matter.

Rep Named as Nominal Respondent Wins Expungement of Customer  Arbitrations. In the Matter of the Arbitration Between Scott Layne Hultsman, Claimant, v. Eplanning Securities, Inc. Respondent (FINRA Arbitration Decision 18-04054)
In a FINRA Arbitration Statement of Claim filed in August 2018, associated person Claimant Hultsman sought the expungement of customer arbitrations from his Central Registration Depository record ("CRD"). FINRA member firm Respondent Eplanning and the customer did not Answer, did not contest the requested relief, and did not participate in the hearing. In recommending expungement, the FINRA Arbitration Panel offered, in part, this rationale:

The Panel noted that the subject investment offerings in the Underlying Arbitrations were primarily real estate products sold away from Respondent. 

Claimant was named only as a nominal respondent in the Underlying Arbitrations and was not involved in any of the following activities: 
    • The due diligence in relation to the investment offering; 
    • The sale of the investment(s) to the Customers, including but not limited to the advertising, solicitation, approval, and/or processing of the purchase; or 
    • In the context of the underlying transactions, the supervision of the brokers/representatives who sold the investments; i.e. Claimant had no supervision duties in relation to outside business activities and/or private securities transactions. 
In summary, Claimant had nothing to do with the sale of the investments in question in any way. He had no control and supervision over the brokers/representatives who sold the investments. Claimant was named in the Underlying Arbitrations solely due to his role as Respondent's Operations Officer and Registered Operations Principal. Therefore, to have the information remain on Claimant's CRD record serves no meaningful investor protection or regulatory value. 

Form CRS Relationship Summary; Amendments to Form ADV / a Small Entity Compliance Guide (SEC Release)
As set forth in part in the "Introduction" to the SEC Release [Ed: footnotes omitted]:

On June 5, 2019, the Securities and Exchange Commission (the "Commission") adopted Form CRS and new rules, as well as amendments to its forms and rules, under both the Investment Advisers Act of 1940 ("Advisers Act") and the Securities Exchange Act of 1934 ("Exchange Act").

Form CRS and its related rules require registered investment advisers and registered broker-dealers (together, "firms") to deliver to retail investors a brief customer or client relationship summary that provides information about the firm. Firms must file their relationship summaries with the Commission.

The relationship summary is designed to assist retail investors with the process of deciding whether to (i) establish an investment advisory or brokerage relationship, (ii) engage a particular firm or financial professional, or (iii) terminate or switch a relationship or specific service.

Firms must follow certain requirements concerning their relationship summaries including formatting, filing, delivery, updating, and recordkeeping requirements.