Securities Industry Commentator by Bill Singer Esq

September 11, 2019
As noted in part in the New York Post article:

Lawyers for his bosses at the Parisian railroad construction company TSO insisted he was not performing duties when he had the heart attack - blaming the "adulterous sex act that he had had with a complete stranger," according to the report.

But appeals court judges ruled that an employee on assignment "is entitled to their employer's protection for the duration of their mission . . . whether or not the accident takes place as part of a professional activity or as an act of normal life," the report said.

Bill Singer's Comment: Would FINRA consider this conduct inconsistent with high standards of commercial honor and just and equitable principles of trade, in violation of FINRA Rule 2010? Similarly, would adulterous sex constitute an outside business activity ("OBA") requiring prior written notice to an employing member firm? If having adulterous sex with a complete stranger falls under the protection of an employee being "on assignment," will the protection also cover adulterous sex with a partial stranger? Does this case now make Viagra a reimbursable business expense? Finally, the lawyer in me is wondering what would be the law if the employee had, you know, taken matters into his own hands and died as a result? And puhlease don't get me started with jokes about the "duration of their mission."
Messy fact patterns tend to make for headaches in FINRA arbitrations. In today's featured case, we clearly have a mess! We got shares in a TD Ameritrade account with old CUSIP numbers. We got shares trading in the market with new CUSIP numbers. We got an online customer trying to sell his old shares but mistakenly buying new ones without selling the old ones. The customer winds up with a modest loss, which mushrooms into a larger one. The customer sues TD Ameritrade. The customer represents himself. Take two aspirin and call me tomorrow.
Investment Adviser Michael J. Breton pled guilty to fraud in the United States District Court for the District of Massachusetts and was ordered to pay $1,326,696 in disgorgement and prejudgment interest; howver, his obligation is deemed satisfied by entry of the restitution order entered against him in the parallel criminal case.sentenced. As set forth in part in the SEC Release:

On January 25, 2017, the SEC charged Breton and his firm Strategic Capital Management, LLC with fraud for engaging in a cherry-picking scheme whereby Breton placed trades through a master brokerage account and then allocated profitable trades to himself and unprofitable trades to client accounts. On February 17, 2017, the court entered partial judgments by consent against Breton and Strategic Capital, enjoining them from violating Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder, as well as Sections 206(1) and 206(2) of the Investment Advisers Act of 1940. On March 13, 2017, Breton was barred by the Commission from association with any broker, dealer, investment adviser, municipal securities dealer, municipal advisor, transfer agent, or nationally recognized statistical rating organization. In a parallel criminal case, Breton pled guilty and was sentenced to two years in prison, two years of supervised release, and ordered to forfeit $1,326,696 and to pay restitution in the same amount.
Mitzi Shawn Sears pled guilty in the United States District Court for the Eastern District of Kentucky to bank fraud and was sentenced to 33 months in prison plus five years of supervised release, and she was ordered to pay $502,780.10 in restitution and forfeit her rights to a property she purchased with the victims' money. As set forth in part in the DOJ Release:

[S]ears convinced the victims to buy a certain piece of real property in Pulaski County with her as an investment. Sears then told the victims that the property was part of a lawsuit and they needed to provide more funds to pay attorneys and others in order to finish the transaction, but the transaction never existed. To keep the victims unaware of the scheme, Sears pretended to be various people in phone calls and drafted fake emails. When the victims ran out of money to give to Sears, they took out a $40,000 loan and provided their bank with the false information that Sears had given to them.

Sears used those checks to purchase a different property in Nancy that she must now forfeit. Additionally, Sears forged 16 checks belonging to the victims.

Ymer Shahini Pleads Guilty To Securities Fraud Conspiracy In Connection With Scheme To Defraud Investors And Shareholders (DOJ Release)
Ymer Shahini pled guilty in the United States District Court for the Southern District of New York to one count of conspiracy to commit securities fraud. As set forth in part in the DOJ Release:

From 2009 to 2011, YMER SHAHINI, along with co-defendants Jason Galanis, John Galanis, Derek Galanis, Gary Hirst, and Gavin Hamels, engaged in a scheme to defraud the shareholders of a publicly traded company called Gerova Financial Group, Ltd. ("Gerova"), and the investing public, by obtaining secret control over millions of shares of Gerova stock and then manipulating the market for the stock as the defendants caused their secretly held shares to be sold.  As part of the scheme, the defendants fraudulently generated demand for Gerova stock by bribing investment advisers to purchase for client accounts the Gerova stock that was sold by the defendants, thereby enabling the defendants to cash out from the scheme and make millions in illegal profits.   

As a part of the scheme to defraud, Jason Galanis obtained such control over Gerova so as to be able to cause Gerova to enter into transactions of his design, and for his benefit, including the issuance of Gerova stock.  Jason Galanis obtained this control without identifying himself as an officer or director of Gerova to avoid the SEC-imposed bar that prohibited him from holding such positions at publicly traded companies.  Among other means and methods, Jason Galanis, with the assistance of Gary Hirst, caused more than five million shares of Gerova stock, which represented nearly half the company's public float and which was intended for Jason Galanis's ultimate benefit, to be issued to and held in the name of YMER SHAHINI, who knowingly served as a foreign nominee for Jason Galanis.  SHAHINI, Jason Galanis, John Galanis, Derek Galanis, and Hirst understood that the purpose of the stock grant to SHAHINI was to disguise Jason Galanis's ownership interest in the stock, and to evade the SEC's regulations for issuing unregistered shares of stock. 

At the same time, and as a further part of the scheme to defraud, John Galanis and Derek Galanis, among others, with the knowledge and approval of YMER SHAHINI and Jason Galanis, opened and managed brokerage accounts in the name of SHAHINI (the "SHAHINI Accounts"), effected the sale of Gerova stock from the SHAHINI Accounts, and received and concealed the proceeds, knowing that this activity was designed to conceal from the investing public Jason Galanis's ownership of and control over the Gerova stock.

Jason Galanis also fraudulently induced investment advisers, including Gavin Hamels and others, to purchase shares of Gerova stock in the investment advisers' client accounts by offering compensation and/or other benefits to the respective investment adviser.  By causing the purchase of Gerova stock at the time, quantity, and/or price of their choosing, Jason Galanis was able to, among other things, effectuate the sale of large quantities of Gerova stock from the SHAHINI Accounts that Jason Galanis controlled while artificially maintaining the price of Gerova stock through coordinated match trading.  Such coordinated trading served to manipulate the market for Gerova stock and deceive the investing public.  As a result, Jason Galanis and his co-conspirators reaped nearly $20 million in profits.

Former CFO of Long Island Real Estate Company Pleads Guilty to Multi Million Dollar  Fraud / Defendant Admitted Stealing Millions of Dollars for Personal Expenses (DOJ Release)
Former The Mulholland Group Chief Financial Officer Kwesi Bovell pled guilty in the United States District Court for the Eastern District of New York to one count of wire fraud. As set forth in part in the DOJ Release:

[B]ovell was hired in 2015 as CFO of Mulholland, and was given signature authority over numerous bank accounts of the company and its subsidiaries.  Over the next three years, Bovell fraudulently transferred over $3.5 million from Mulholland to his own company, Southgate Holding, LLC.  Bovell used the stolen funds to support two laundromats and a fitness center that he owned and to purchase luxury goods.

SEC Denies Whistleblower Award. In the Matter of the Claim for Award  (SEC Order Determining Whistleblower Award Claim, '34 Rel. No. 86902; Whistleblower Award Proc. File No, No. 2019-10)
The SEC Claims Review Staff ("CRS") issued a Preliminary Determination recommending the denial of Claimant's whistleblower award claim, to which Claimant timely contested. The denial was based upon the CRS' determination that the Claimant's information did not lead to the successful enforcement of the Covered Action. Claimant had submitted a tip to the SEC after the filing of the initial Complaint, and had only spoken with Staff by telephone on one occasion. Although not contesting the timing of the filing of the tip, Claimant [Redacted is as used in the original Order]:

focuses on Claimant's asserted interactions with agents at the Redacted Claimant contends that Claimant answered questions from agents at the Redacted and provided them with Redacted Redacted and used to support the case. Claimant contends that Claimant was told over the phone that Redacted while not "‘the smoking gun', was beneficial and helped support the case." In the response, Claimant does not identify any additional communications with the Staff; nor does Claimant attempt to explain how Action.

The SEC Order denying an award offers in part this rationale [Redacted is as used in the original Order]:

[C]laimant submitted the tip approximately Redacted after the Commission filed its initial complaint in federal district court in Redacted  Claimant does not dispute that the Staff was already aware of Redacted  Redacted  the Company, as alleged in the initial complaint, by the time Claimant submitted the tip or that the Commission's allegation of Redacted remained unchanged in the amended complaint filed in Redacted  Nor does Claimant's response to the Preliminary Determination offer any reason to doubt the Staff's Declaration that none of the information provided by Claimant to the Staff in the tip and subsequent telephone call contributed in any way to either the investigation or the litigation of the Covered Action.