October 11, 2019
featured in today's Securities Industry Commentator:
Kevin B. Merrill, 54, pled guilty in the United States District Court for the District of Maryland to conspiracy and wire fraud; and he was sentenced to 22 years in federal prison plus three years of supervised release, and he was ordered to pay at least $189,166,116 in restitution. The SEC has a pending parallel civil action in this matter. As alleged in part in the DOJ Release:
[B]eginning in January 2013, Merrill and his co-conspirators, Jay B. Ledford and Cameron R. Jezierski, perpetrated a Ponzi scheme to defraud investors of more than $396 million. Specifically, Merrill and Ledford invited investors to join them in purchasing consumer debt portfolios. Merrill knowingly used fictitious sales agreements and other documents, including tax returns, provided by Ledford, to induce individuals to invest with his companies, Delmarva Capital and Global Credit Recovery. For 2013, Merrill deposited approximately $4.3 million from investors, while Ledford raised just over $186,000 from investors. Thereafter, Merrill's superior sales ability caused Ledford to assume a background role supplying Merrill with fictitious documents, while Merrill was the "front man," promoting the fraudulent investments to potential investors.
Specifically, the conspirators falsely represented to investors that they would use the investors' money to buy consumer debt portfolios and make money for them by (1) collecting the payments that people made on their debts or (2) selling the portfolios for a profit to other third-party debt buyers, in a practice called "flipping." According to court documents, the victim investors included small business owners, restauranteurs, construction contractors, retirees, doctors, lawyers, accountants, bankers, talent agents, professional athletes, and financial advisors, located in Maryland, Washington, D.C., Northern Virginia, Boulder, Texas, Chicago, New York, and elsewhere.
To induce investors to participate, Merrill and his co-conspirators falsely represented who they were buying the debt portfolios from and how much they were paying for the portfolios, whether they were investing their own funds, and their track record of success. According to their plea agreements, sometimes there was no underlying debt portfolio purchased with the investors' money. To conceal the truth, Merrill, Ledford, and Jezierski created imposter companies with names similar to actual consumer debt sellers or brokers and opened bank accounts in the names of those imposter companies. In addition, to lend credibility to the transactions, Ledford created false portfolio overviews, created false sales agreements which used the names and forged signatures of actual employees of the sellers, created false collections reports, and falsified bank statements and merchant account reports. In late 2014, Ledford transferred Cameron Jezierski to manage debt collections for Riverwalk/DeVille. DeVille had a collections center in Euless, Texas, and the conspirators began to invite prospective investors to tour Riverwalk's office and the collections center, which added substance to their claims regarding the success of their portfolio purchasing strategy and collections efforts. In December 2017, Ledford recruited Jezierski to the criminal conspiracy because his analytical skills enabled him to contribute significantly to creating false documentation to induce investors to invest, and to conceal the mark-up Merrill and Ledford added to the purchase price charged to investors for debt portfolios.
Further, Merrill and Ledford falsely represented that the monies the conspirators paid to investors were "proceeds" from collections and/or flipping debt portfolios, when in fact, the proceeds were paid from funds provided by other investors. Merrill and Ledford provided monthly or quarterly reports to investors regarding the "purported progress of the portfolio and its recovery," which Merrill and Ledford created. From 2013 to 2018, the scheme to defraud took in over $396 million, and at the time of their arrests, the co-conspirators were attempting to obtain an additional $260 million from investors. Ledford assisted Merrill to divert investors' funds to purchase a home in Naples, Florida, and also helped Merrill falsify records to the bank lender. Ledford diverted fraud proceeds to purchase and renovate a home in Las Vegas, Nevada; refinance a home in Texas; gamble at casinos; purchase luxury automobiles and jewelry; and to support a lavish lifestyle.
Finally, Merrill admitted that while the scheme was ongoing, he met with the FBI, lied to the investigating agents, and provided false documents to the FBI. As detailed in his plea agreement, after his arrest, Merrill attempted to obstruct justice by causing his wife to remove assets from their Naples, Florida home on October 13, 2018, and by preparing a handwritten note instructing his wife to conceal assets from the court-appointed receiver, which he intended to hold up to the glass in the detention center on December 5, 2018, when his wife visited. These actions violated the restraining order with which Merrill was served in the criminal case, and the preliminary injunction ordered by the Court in the SEC's civil action.
In a Complaint filed in the United States District Court for the Southern District of New York in 2017
https://www.sec.gov/news/pressrelease/2017-63.html, the SEC alleged that Lek Securities Corp. and its Chief Executive Officer Sam Lek facilitated manipulative trading schemes by its customer, Avalon FA Ltd., headquartered in Kiev, Ukraine. Allegedly, Avalon illegally profited from layering
via placing and canceling orders to trick others into buying or selling stocks at artificial prices, and cross-market manipulation
via buying or selling stocks to artificially impact options prices. The Complaint alleged that Lek Securities and Sam Lek facilitated the fraud by giving client Avalon access to the U.S. markets, relaxing the brokerage firm's layering controls after Avalon complained, allowing Avalon to conduct the trading activity, and improving Lek Securities' technology to assist Avalon's trading.
Final judgments were entered on consent in SDNY, and Lek Securities and Sam Lek admitted that as Avalon's trading activity through Lek Securities constituted violations of the federal securities laws.. Lek Securities agreed to a three-year injunction requiring it to terminate business with foreign customers potentially engaged in market manipulation or manipulative trading and largely prohibiting it from providing intra-day trading to foreign customers; and, further, the firm agreed to retain an independent compliance monitor for a three-year period; and, additionally, with Sam Lek, the firm agreed to permanent injunctions from violating the antifraud and manipulative trading provisions of Sections 9(a)(2) and 10(b) of the Securities Exchange Act and Rule 10b-5 thereunder, and Section 17(a) of the Securities Act. Lek Securities also agreed to a Censure; and Sam Lek agreed to associational and penny stock bars with a right to reapply after 10 years. Finally, Lek Securities will pay a $1 million penalty, plus $525,892 in disgorgement and prejudgment interest, and Sam Lek will pay a $420,000 penalty.
Captain's log Star Date 20191011. We are circling planet FINRA, which is a dangerous place inhabited by a race of treacherous salespersons and their aggressive regulators. They live in an uneasy symbiosis. Before the landing party embarks for that hostile clime, we need to better understand the consequences of our actions when we interact with the denizens of the place. They do not always seem to act logically. What sometimes results in the extreme civil penalty of disqualification from their society, may also result in little more than an obligation to pay a fine in their local currency and sit on a rock for several months and get your mind right -- or so that's how it seems to us as we circle above. Mr. Spock will lead the party down to the surface but he is grousing about how the race of inhabitants are illogical. And he doesn't like illogical. Spock is a very logical fellow. Painfully logical. Frankly, I'm glad to be rid of him for a few days. He's not a party dude if you get my drift; however, I've asked him to look into that binary options deal that was transmitted to us by one of the planet's salespersons. Frankly, it's supposedly guaranteed and I can double my money in one star-date.
In a Complaint filed in the United States District Court for the Eastern District of Washington
https://www.sec.gov/litigation/complaints/2019/comp24641.pdf, the SEC alleged that Anton Senderov and Lion Babazara a/k/a Lior Bar violated the securities registration provisions of Sections 5(a) and 5(c) of the Securities Act and with Section 20(a) of the Securities Exchange Act "by acting as control persons for LianTech, LBinary, and Ivory Option's uncharged violations of the antifraud provisions of Sections 10(b) and 15(a) of the Exchange Act and Rules 10b-5(a) and (c) thereunder."[sic] [Bill Singer's Comment: In the last quoted passage, I think I know what the SEC Release was going for here but it seems like not everything that was "cut" got "pasted" back into the final draft. I'm not quite sure how you act as a "control person" for an entity's "uncharged violation." I think the SEC meant that the Defendants had acted as the entities' control persons during times when violations were committed
.] The SEC seeks disgorgement of ill-gotten gains, prejudgment interest, financial penalties, and permanent injunctions against all three defendants. As alleged in part in the SEC Release, over 2,800 investors were purportedly defrauded out of over $5 million when:
[T]he defendants conned investors through two online binary options brokers they controlled, LBinary and Ivory Option. The SEC alleges that the defendants also owned and controlled LianTech Finance Marketing, Ltd., which operated a call center in Israel that functioned as a "boiler room." Employees at the call center allegedly persuaded investors to open binary option trading accounts and deposit large sums into those accounts. According to the complaint, call center employees lied to investors about their professional backgrounds and falsely told investors that the brokers earned money only if investors made money. In reality, the brokers earned money only from investor losses and therefore had no incentive to advise investors on how to trade binary options profitably. As alleged, most investors lost money, with some losing their entire savings. The SEC also alleges that the brokers largely refused to honor investor requests to withdraw money from their trading accounts.
In a Complaint filed in the United States District Court for the Northern District of Georgia, the SEC alleged that between 2010 and late 2014, Thomas Conrad Jr. directed preferential redemptions/disbursements out of a hedge fund and its feeder funds operated by firms he controlled. Allegedly, Conrad directed disbursements to himself, his extended family, and certain favored investors, while representing to other investors that redemptions were suspended. Additionally, Conrad allegdly failed to disclose conflicts arising from loans the funds made to his family members, and from Conrad's appointment of himself as a sub-manager, for which he received a fee. Finally, offering documents given to prospective investors allegedly touted Conrad's significant experience in the securities industry, but failed to disclose his disciplinary history, which included a 1971 SEC Bar.
NDGA entered a final judgment enjoining Conrad from future violations of Section 17(a) of the Securities Act, Section 10(b) of the Exchange Act and Rule 10b-5 thereunder and Sections 206 (4) of the Investment Advisers Act of 1940 and Rule 206(4)-8 thereunder; and he was ordered to pay a $327,500 civil penalty.
Daniel Rivas, a former IT employee of a large bank, misused his access to a bank computer system to tip James Moodhe, Roberto Rodriguez, Rodolfo Sablon, and Jhonatan Zoquier, who traded on the information. Further, Zoquier tipped Jeffrey Rogiers, who also traded on the information. Overall, the Defendants were charged with realizing millions of dollars in combined profits from 30 impending corporate deals from October 2014 to April 2017. In 2017 and 2018, each of the seven defendants named in the SEC's complaint pleaded guilty to related criminal charges. In final judgments entered in SDNY Rodriguez, Rogiers, Sablon, Siva, and Zoquier were enjoined from violating Sections 10(b) and 14(e) of the Securities Exchange Act and Rules 10b-5 and 14e-3 thereunder; and each Defendant was ordered to disgorge their profits but subject to an off-set for the forfeiture entered in the parallel criminal matter. Rivas and Moodhe are enjoined from violating Sections 10(b) and 14(e) of the Securities Exchange Act and Rules 10b-5 and 14e-3 thereunder.
In 2014, Nicholas Zanen was indicted in the United States District Court for the District of Connecticut on one count of conspiracy to commit securities fraud and three counts of securities fraud. After his 2019 extradition from Italy back to the United States, Zanen and his Co-Defendant Francis J. Van Steenberge pled guilty to one count of conspiracy to commit securities fraud. Zanen was sentenced to 15 years in prison and ordered to pay a $6,000 fine. Van Steenberge awaits sentencing. In Securities and Exchange Commission v. Nicolas Zanen and Francis J. Van Steenberge, Zanen paid $832,398.45 in disgorgement, interest and penalties. As alleged in part in the DOJ Release:
[Z]anen was employed by Cheniere Energy, Inc. ("Cheniere"), a Houston-based energy company whose common stock traded on the New York Stock Exchange under the symbol LNG. Zanen was a vice president of trading in the Cheniere's United Kingdom Branch and was based in London. Cheniere maintained written policies prohibiting the direct or indirect disclosure of confidential information and requiring employees to prevent the disclosure of such confidential information. In his position, Zanen had access to non-public information concerning Cheniere's deals, financings, and other business information, and he was in possession of inside information prior to public announcements.
Between November 2011 and December 2012, Zanen disclosed Cheniere inside information to a friend, Francis J. Van Steenberge, and advised him whether to buy or sell Cheniere securities with the understanding that Van Steenberge would execute the security transactions on the basis of these instructions. Zanen and Van Steenberge generated approximately $1 million through this scheme.
Zanen also caused to be made materially false and fraudulent statements to the Financial Industry Regulatory Authority ("FINRA") that he was unaware of the circumstances under which Van Steenberge gained knowledge of Cheniere's business activities.
Former Metlife Securities Inc. and Prudential employee Winston Wade Turner was indicted in the United States District Court for the Northern District of Georgia on mail and wire fraud. Turner pled not guilty to charges that he represented to investors (who were former clients) that he was a broker for "North American Bio Fuel," allegedly a biofuel producer that Turner characterized as "up and coming company" and already producing biofuel. During the time of the alleged representations, prosecutors assert that the company was only a shell company. The Indictment alleges that Turner caused, and attempted to cause, wire transfers in the hundreds of thousands of dollars from victims and that he misused investor funds for personal and other corporate purposes. Turner, 50, was sentenced to two years and nine months in prison plus three years of supervised release; and he was ordered to pay $877,188 in restitution, and to forfeit $1600,149.52. As alleged in part in the DOJ Release:
[T]urner encouraged his victims, former clients from his previous employment at two financial services firms, to move funds he had invested for them, or in some cases, new funds, in North American BioFuel. Turner promised them their ‘loans' would generate a stream of monthly interest payments and return of the full principal at the end of investment periods ranging from one to three years.
Unknown to his victims, Turner had been fired, lost his broker's license and been banned from the securities industry. Turner represented the company as specializing in and already producing biofuel, at a time when it was in fact only a shell company consisting of a rented mailbox address and articles of incorporation in Florida. Turner typically made a fraction of the promised interest payments, did not return the principal, and ceased contact with the victims. Turner was found to have bilked investors in the fictitious biofuel firm of $877,188.
Angel Armando Adrianzen was indicted in the United States District Court for the Southern District of Florida on conspiracy to commit mail fraud and wire fraud, five counts of wire fraud, five counts of mail fraud, and four counts of extortion. As alleged in part in the DOJ Release:
[A]drianzen partnered with a series of Peruvian call centers that contacted U.S. consumers, many of whom were elderly and vulnerable, using Internet-based telephone calls. According to the indictment, these callers claimed to be attorneys and government representatives, and falsely told victims that they had failed to pay for or receive delivery of products. The callers also falsely threatened victims with court proceedings, negative marks on their credit reports, imprisonment, or immigration consequences if they did not immediately pay for the purportedly delivered products and settlement fees. Many victims made monetary payments based on these baseless threats. According to the indictment, Adrianzen received the victims' payments and shipped products to the victims for these call centers, knowing that they used fraudulent and extortionate means to extract money from vulnerable victims.