Securities Industry Commentator by Bill Singer Esq

January 22, 2020

SEC Charges Founder of Purported Blockchain Marketplace for Fraudulent ICO (SEC Release)

SEC Files Charges Against Scheme to Sell Fictitious Interests in Marijuana Company (SEC Release)

Asheville Man Pleads Guilty To Securities Fraud And Money Laundering For $22 Million Ponzi Scheme / The Defendant Admitted to Defrauding more than 23 Victims, Including some at, or near, Retirement Age (DOJ Release)

FINRA Fines and Suspends Operations Manager for Falsely Affixing Signature Stamps. FINRA Department of Enforcement, Complainant, vs Shawna Choate, Respondent (Order Accepting Offer of Settlement, FINRA Office of Hearing Officers)

Matthew White, 27, pled guilty in the United States District Court for the Western District of Washington to wire fraud. As alleged in part in the DOJ Release:

[B]etween 2011 and 2018, WHITE solicited funds from investors in Florida and Washington State.  WHITE represented that he would use the money to successfully trade in futures contracts first under his own name, and later under the name of his company, M.W. Global Futures LLC, of which he was the sole member.  WHITE claimed to have expertise as a commodities trader, with special training.  He also claimed to be a member of the Chicago Board of Trade.  All of these claims were false.

WHITE provided promotional materials that claimed his trading would provide a high return on investment.  In October 2017, he sent one elderly investor a brochure claiming a return on investment in excess of 16% annually.   Once he got their funds, WHITE sent investors statements purporting to show substantial trading activity and profits.  The statements also showed WHITE's commissions, which were allegedly tied to the level of profits.  WHITE sent some of these fictitious statements via email, constituting wire fraud.  Very little of the money was actually traded in investment accounts, and the investments that were traded resulted in losses.

Of the $1.29 million, WHITE repaid approximately $425,000 as redemptions and purported profits during the scheme.  In November 2018, WHITE was contacted by investigators from the Commodity Futures Trading Commission.  He then repaid an additional $602,000 to two victims.  Under the terms of the plea agreement, WHITE owes the remaining $281,970 in restitution to his victims.
In a Complaint filed in the United States District Court for the Eastern District of New York, the SEC charged Sergi "Sergey" Grybniak and his company Opporty Internation, Inc.with violating the antifraud provisions of Section 17(a) of the Securities Act and Section 10(b) of the Securities and Exchange Act and Rule 10b-5 thereunder, and the registration provisions of Sections 5(a) and (c) of the Securities Act; and also charged Grybniak with aiding and abetting Opporty's violations. Also,  Clever Solution Inc., another entity controlled by Grybniak, is named as a Relief Defendant. As alleged in part in the SEC Release, Grybniak and Opporty allegedly:

raised approximately $600,000 from nearly 200 investors in an ICO of Opporty's unregistered digital asset securities called "OPP Tokens." Grybniak and Opporty allegedly made multiple false and misleading statements to investors, including exaggerating the number of actual and potential users of its business platform and falsely claiming that the ICO was "SEC regulated," "SEC compliant," and "SEC registered." The SEC's complaint further alleges that Grybniak and Opporty engaged in other deceptive acts, including misappropriating third-party content without approval or attribution, to create the false impression that actual users of Opporty's platform had created such content.
In a Complaint filed in the United States District Court for the District of Central District of California, the SEC charged Guy S. Griffithe, Robert W. Russell, SMRB LLC, and Green Acres Pharms LLC with  with violating the antifraud provisions of the federal securities laws. In addition, the complaint charges Griffithe, Renewable, and Green Acres Pharms with violating the registration provisions of the federal securities laws. Sonja Russell, Robert W. Russell's wife, was named as a Relief Defendant. As alleged in part in the SEC Release:

[B]etween August 2015 and December 2017, Griffithe, of California, used Renewable Technologies Solution, Inc., an entity he controlled, to sell investors purported ownership interests in SMRB LLC, a Washington company owned by Russell that held a license to grow marijuana under the state's recreational cannabis laws. According to the complaint, Griffithe and Russell led investors to believe their investments in Renewable would be used to operate SMRB, but in reality the securities did not convey any legitimate stake in SMRB. Instead, Griffithe allegedly spent approximately $1.8 million of investor funds on personal and unrelated business expenses, including payments toward several luxury cars for himself and a yacht for Russell. Griffithe also allegedly deposited approximately $1.7 million into Russell's personal bank accounts. To create the illusion that the marijuana business was profitable and paying dividends as promised, Griffithe allegedly paid out purported profit distributions to some investors, which were partially funded in a Ponzi-like fashion using funds from other investors.

Hal H. Brown Jr., 70, pled guilty in the United States District Court for the Western District of North Carolina to securities fraud and transactional money laundering. As alleged in part in the DOJ Release:

[F] at least 2006 through September 2019, Brown fraudulently obtained more than $22 million from dozens of victims, some of whom were at, or near, retirement age, by engaging in an investment scheme through his company Oodles Inc. and its various affiliates (collectively, "OODLES").  Individual victims invested anywhere from a few thousand to a few million dollars in OODLES. To induce victims to invest their money, Brown falsely represented that OODLES owned hundreds of millions of dollars in intellectual property, namely family entertainment shows and movies. As part of the scheme, Brown repeatedly lied to victims about the imminent sale of those intellectual properties to various well-known media companies. To perpetuate the fraud, Brown developed marketing material seeking investments or loans for OODLES that claimed large returns on funds invested or lent to the company.

As Brown admitted in court today, to convince victims the scheme was legitimate and to appease investors who sought an explanation about delays in payouts, Brown provided victims with a number of fraudulent and misleading statements and fictitious information, including fake bank statements and falsified company agreements, among others.

Brown used a substantial part of victim money on personal expenses unrelated to purported OODLES transactions.  He also used funds contributed by new investors to make payments to existing investors, commonly referred to as "Ponzi" payments.
The CFTC filed an Order and settled charges against proprietary trading firm Propex Derivatives Pty Ltd for spoofing in the Chicago Mercantile Exchange E-mini S&P 500 futures market. Propex was ordered to pay $464,300 in restitution, $73,429 in disgorgement, and a $462,271 civil monetary penalty; and the firm is required to cease and desist from violating the Commodity Exchange Act's prohibition on spoofing. In a parallel action, the  Department of Justice entered into a Deferred Prosecution Agreement with Propex. As alleged in part in the CFTC Release:
[B]etween July 2012 and March 2017, a Propex trader engaged in proprietary trading in commodity futures markets on behalf of Propex. On numerous occasions during that time period, the trader engaged in typical spoofing activities - placing bids and offers for E-mini futures contracts with the intent to cancel the bids and offers before execution. The trader typically placed order(s) that he wanted to get filled (genuine orders), on one side of the market, while on the opposite side of the market, he placed order(s) that the trader intended to cancel before execution (spoof orders).  The spoof orders typically consisted of orders that were five times as many contracts as the genuine orders. Generally, the trader cancelled the spoof orders shortly after placing them, often after the genuine orders were filled.
In 2005, Ty Storlie began working as an external wholesaler in Prudential Insurance of America's annuity business. In November 2017, when Storlie was 53 years of age with 18 months remaining before he would become eligible for Prudential's pension program, his employer informed him that his sales results were deemed "unacceptable," and his employment was terminated. On Storlie's Uniform Termination Notice for Securities Industry Registration ( the "Form U5"), Prudential's narrative under "Termination Explanation" was "Did not meet management's expectations. Not compliance related." Some might think that Storlie's age and his proximity to vesting in Prudential's pension program prompted the negative review and the ensuing termination. Clearly, Storlie did.

FINRA Fines and Suspends Operations Manager for Falsely Affixing Signature Stamps. FINRA Department of Enforcement, Complainant, vs Shawna Choate, Respondent (Order Accepting Offer of Settlement, FINRA Office of Hearing Officers, 2016051209103) (the "FINRA Settlement Order")

In response to the filing of a Complaint on June 18, 2019, by the Financial Industry Regulatory Authority's ("FINRA's") Department of Enforcement, Respondents Shawna Choate submitted an Offer of Settlement in January 2019, which the regulator accepted.  Under the terms of the Offer of Settlement, without admitting or denying the allegations in the Complaint, Respondent Choate consented to the entry of findings and violations and to the imposition of the sanctions. The FINRA Settlement Order asserts that Respondent Shawna Choate entered in the industry in 1993, and was first registered in 2010  with FINRA member firm Spencer Edwards, Inc., where she was that firm's Manager of Operations from 2014 to 2015. In accordance with the terms of the FINRA Settlement Order, FINRA imposed upon Respondent. Choate a $5,000 fine and a two-months suspension from associating with any FINRA member. As alleged under the "Summary" portion of the FINRA Settlement Order:

In 2014 and 2015, Respondent falsified dozens of forms by using a stamp to affix a registered principal's signature to the forms, representing that the principal had reviewed and approved deposits of penny stocks even though the principal had not done so. The falsified forms were subsequently provided to a clearing firm and FINRA. By falsifying those documents, Respondent failed to observe high standards of commercial honor and just and equitable principles of trade, and thus violated FINRA Rule 2010.