Securities Industry Commentator by Bill Singer Esq

January 23, 2020

Venezuelan Man Sentenced for Aggravated Identity Theft and Access Device Fraud (DOJ Release)

Former Cruise Line Call Center Rep Pleads Guilty to Threatening Customer (DOJ Release)
Former cruise line service representative Allison C. Dixon pled guilty in the United States District Court for the District of Kansas to one count of transmitting a threatening communication. I could tell you what Dixon did but, hey, howsabout we just read an excerpt from the DOJ Release:

[I]n April 2018, she took a call from a Celebrity customer in Illinois who became dissatisfied with her service and hung up on her. About three minutes later, Dixon called the customer back. Dixon told the customer she knew where the customer lived and she intended to come to Illinois and kill the customer and the customer's family.

Venezuelan Man Sentenced for Aggravated Identity Theft and Access Device Fraud (DOJ Release)
Ricard Abdel pled guilty in the United States District Court for the Eastern District of North Carolina to a criminal Information charging him with access device fraud and aggravated identity theft, and he was sentenced to 48 months in prison plus three years of supervised release, and he was ordered to pay $19,966.71 in restitution. As alleged in part in the DOJ Release:

In March 2018, the Wilmington Police Department (WPD) was alerted by investigators with the State Employees' Credit Union (SECU) fraud division of ongoing fraudulent debit/credit card withdrawals being made from member accounts at various automated teller machines (ATMs) in the Wilmington area.  On March 5, 2018, the United States Secret Service (USSS) was notified by the SECU and the WPD that three individuals were attempting to illegally withdraw money from an SECU ATM located on Wrightsville Avenue in Wilmington.  Officers responded to that location and conducted a traffic stop of a vehicle in which ABDEL and two other persons were riding.  A search of the vehicle revealed approximately $9,319 in United States currency, numerous debit/credit cards, computers, digital storage media, and two debit/credit card readers/encoders.

Investigators with the SECU's fraud unit and the USSS determined that the fraudulent debit/credit cards were used at multiple ATM locations in the Wilmington area over a period of several days.  Further, the SECU's fraud unit confirmed that an illegal debit/credit card skimming device had been placed on a SECU ATM in Leland, North Carolina.  A forensic search of the seized laptop computers and cell phones revealed 566 individual card numbers which were issued by 71 different financial institutions, including 7 card numbers which were issued by financial institution in Mexico and 1 from India.  The intended loss was calculated at $283,000.

On July 3, 2018, investigators received credible information identifying co-conspirators based in Venezuela and in the Miami, Florida, area who were involved in the scheme to commit access device fraud.  The conspirators downloaded credit card data from Bluetooth debit/credit card skimming devices which were secretly installed in Tritan ATMs.  After obtaining the debit/credit card and personal identification numbers (PIN) from the debit/credit card skimming devices, the coconspirators used a credit card reader/writer to reencode counterfeit debit/credit cards.  In March 2018, ABDEL and his conspirators used the fraudulent debit/credit cards at ATMs in the Wilmington area to withdraw funds from multiple victims' accounts.  The investigation revealed that the group was traveling to various states, including Georgia, California, and Florida, to install debit/credit card skimming devices.  It is estimated that the group made $250,000 monthly as a result of the fraudulent scheme.  

Additionally, investigators learned that in March 2018, ABDEL spent four or five days in the Wilmington area placing pin-hole camera skimming devices on ATMs and collecting account numbers.  Those numbers were then encoded onto magnetic stripe cards and used to fraudulently withdraw funds from ATMs.  ABDEL and the others also travelled to the Wilmington area two to three weeks earlier in order to recover debit/credit card skimming devices and computers which were left in a suitcase in a storage unit by another coconspirator.
Legal pundit Aegis Frumento, Esq. sees the Supreme Court's recent IBM v. Jander opinion as the embodiment of the so-called Trolley Problem, in which a conductor must choose between two bad outcomes. In Jander, the management committee of IBM's ESOP was charged with maximizing value; however, members of the committee were also senior IBM execs, who had obligations to their employer and were subject to the federal securities laws.  In their roles as IBM executives, members of the ESOP management committee became aware of alleged inside information that IBM's stock was overvalued because a division was performing badly. If the ESOP managers kept buying IBM stock, they would harm the ESOP participants if the stock's price fell when the negative news went public; however, if the managers acted on the inside information and stopped the purchases or sold, they would be running afoul of various company confidentiality rules and likely violating federal insider trading laws.
As alleged in part in the SEC Release

[I]n the first action, the whistleblower alerted the agency to a fraudulent scheme.  The SEC awarded the whistleblower more than $277,000.  In the second action, the whistleblower, a harmed investor, provided critical information that enabled the SEC staff to recover assets that were later returned to victims.  The SEC awarded the whistleblower $45,000.

As set forth in part in the two Awards:

In the Matter of the Claim for an Award in connection with Redacted Redacted Notice of Covered Action Redacted ('34 Act Rel. No. 88014; Whistleblower Award Proc. File No. 2020-5) (the $45,000 Award)

[C]laimant was a harmed investor who lost money in the scheme; while not the source of the investigation, Claimant provided new, critical, time-sensitive information that allowed staff to recover assets that were later returned to harmed investors; Claimant's information saved the staff time and resources in conducting its investigation and helped the Commission shut down a fraudulent scheme targeting retail investors; Claimant provided continuing assistance; and collections from the defendants of the monetary sanctions ordered were low.

In the Matter of the Claim for an Award in connection with Redacted Notice of Covered Action Redacted ('34 Act Rel. No. 88015; Whistleblower Award Proc. File No. 2020-6) (the $277,000 Award)

(1) Claimant reported significant information to the Commission, alerting the staff to an ongoing fraudulent scheme; (2) Claimant's information saved Commission time and resources; (3) Claimant's information bears a close nexus to the charges brought by the Commission, as well as by the USAO; (4) Claimant provided assistance to staff in the form of an in-person interview; (5) there are significant law enforcement interests here, as Claimant's information helped the agency shut down an ongoing fraudulent scheme that was preying on retail investors; and (6) there have been low collections to date.
Steven Ray Williams pled guilty in the United States District Court for the Eastern District of Kentucky to bank fraud and aggravated identity theft. As alleged in part in the DOJ Release:

In 1999, Williams borrowed a series of loans from the Farm Services Agency (FSA), a division of the U.S. Department of Agriculture. To pledge collateral for the loans, Williams listed farm equipment that he owned, as well as cattle and other livestock. In April 2012, the Williams failed to make a loan payment to the FSA and in May 2012, he declared bankruptcy.

According to the plea agreement, from March 2012 through June 2015, Defendant Williams regularly sold off the cattle at various stockyards in central Kentucky, and because they had been previously pledged as collateral to the FSA, the Defendant sold the cattle in the name of others and not in his own name. Upon receiving payment for the cattle sold in the form of a check, the Defendant would forge the signature of the person the check was made out to, and then add his own signature below, enabling him to deposit the funds into his own bank account. Because he was in default on his FSA loans, Williams' actions brought about a financial gain and deprived the FSA any chance at recovering proceeds from livestock that had been pledged as collateral.

FINRA Imposes Fine and Principal Bar For Failure to Reasonably SuperviseIn the Matter of Michael Leahy, Respondent (FINRA AWC 2019063631802)

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, Michael Leahy submitted a Letter of Acceptance, Waiver and Consent ("AWC"), which FINRA accepted. The AWC alleges that Michael Leahy was first registered in 1998, and since July 2017, he was registered with FINRA member firm First Standard Financial Company LLC. As set forth in Footnote 1 of the AWC:

On October 31, 2019, the New Jersey Bureau of Securities issued a Summary Revocation Order against First Standard, revoking the Firm's registration in the State of New Jersey for, among other things, engaging in "a fraudulent course of business that consisted of excessive, unsuitable, and frequently unauthorized short-term trading in customer accounts that generated commissions for First Standard and its agents at its customers' expense." 

First Standard filed a Uniform Request Withdrawal from Broker-Dealer Registration ("Form BDW") on or around November 5, 2019. 

The AWC alleges that Leahy "does not have any disciplinary history with the Securities and Exchange Commission, any state securities regulators, FINRA, or any other self-regulatory organization." In accordance with the terms of the AWC, FINRA found that Leahy had violated FINRA Rules FINRA Rules 3110 and 2010; and the self regulator imposed upon him a $5,000 fine and a Bar from association with any FINRA member firm in all Principal capacities. As alleged in part in "Overview" of the AWC:

From September 18, 2019 through October 8, 2019 (the "Relevant Period"), Leahy failed to reasonably supervise PS, a former registered representative, who, while registered through First Standard, engaged in a pattern of unauthorized trading, using margin without authorization, recommending excessive and otherwise unsuitable transactions, and charging excessive commissions in dozens of customer accounts. Leahy, the sole principal at the Firm and the only individual responsible for supervising PS during the Relevant Period, was aware of multiple red flags of PS's misconduct. The red flags included: daily trade blotters that showed frequent in-and-out trading and commissions often exceeding 5%; numerous customer complaints alleging unauthorized trading, unauthorized use of margin, and excessive commissions; and notification from the Firm's clearing firm of potential unauthorized trading by PS. Leahy did not investigate those red flags or otherwise take reasonable action to curtail PS's pattern of misconduct. As a result of Leahy's failure to reasonably respond to those red flags, PS's misconduct continued unabated until the New Jersey Bureau of Securities summarily revoked PS's registration in the State of New Jersey on October 8, 2019.