Securities Industry Commentator by Bill Singer Esq

January 29, 2020

SEC Charges Wisconsin Broker with Defrauding Retail Investors (SEC Release)
Featured in today's FINRA regulatory settlement is the hot-button issue of a stockbroker receiving a loan from a customer, who was a widow. Further, that same widow also paid for three vacations for that same stockbroker. Shortly after the loans and the gifts, the widow died. Not exactly a warm and fuzzy picture. 

SEC Charges Wisconsin Broker with Defrauding Retail Investors (SEC Release)
In a Complaint filed in the Eastern District of Wisconsin, the SEC charged Edward E. Matthes with violating the antifraud provisions of Section 17(a) of the Securities Act, Section 10(b) of the Securities Exchange Act and Rule 10b-5 thereunder, and Sections 206(1) and 206(2) of the Investment Advisers Act of 1940. Without admitting or denying the allegations in the Complaint, Matthes consented to the entry of a judgment that permanently enjoins him from violating the charged provisions and orders him to pay disgorgement, interest, and penalties. As alleged in part in the SEC Release:

[M]atthes convinced his brokerage customers and advisory clients to invest in what he described as a safe investment that would earn a guaranteed minimum yield of 4% per year. As alleged in the complaint, the purported investment did not exist, and Matthes stole approximately $1.4 million for his personal use. Matthes allegedly stole an additional $1 million by making unauthorized sales and withdrawals from his customers' variable annuities. To cover up his fraud, Matthes allegedly created fake account statements and paid approximately $170,000 in Ponzi-like payments.
The United States  District Court for the District of Columbia entered a Amended Final Judgment in United States v. Ticketmaster Entertainment, Inc., et al.,(DDC 10-CV-00139) and also set the procedure for naming of the Independent Monitoring Trustee. Although the 2010 Final Judgment permitted Live Nation to merge with Ticketmaster, the company was prohibited from:
  • retaliating against concert venues for using another ticketing company,
  • threatening concert venues, or 
  • undertaking other specified actions against concert venues for ten years. 
DOJ alleges that notwithstanding the prohibitions in the Final Judgment, Live Nation engaged in the prohibited conduct. As set forth in part in the DOJ Release:

'Live Nation broke the promises they made to the court and the American people when they merged with Ticketmaster in 2010; today, we are holding them accountable,' said Assistant Attorney General Makan Delrahim of the Justice Department's Antitrust Division.  'The amended decree reimburses the American people millions of dollars and makes it easier for the Antitrust Division and state enforcers to identify and prosecute future transgressions.'
DOJ filed civil actions for temporary restraining orders against five companies and three individuals allegedly responsible for carrying hundreds of millions of fraudulent robocalls. In two cases filed on February 28, 2020,  DOJ charged 
  • Ecommerce National LLC d/b/a; SIP Retail d/b/a; and their owner/operators, Nicholas Palumbo and Natasha Palumbo; and
  • Global Voicecom Inc., Global Telecommunication Services Inc., KAT Telecom Inc., a/k/a IP Dish, and their owner/operator, Jon Kahen.
As alleged in part in the DOJ Release:

In the cases announced today, the United States alleges that the defendants operated voice over internet protocol (VoIP) carriers, which use an internet connection rather than traditional copper phone lines to carry telephone calls.  Numerous foreign-based criminal organizations are alleged to have used the defendants' VoIP carrier services to pass fraudulent government- and business-imposter fraud robocalls to American victims.  The complaints filed in the cases specifically allege that defendants served as "gateway carriers," making them the entry point for foreign-initiated calls into the U.S. telecommunications system.  The defendants carried astronomical numbers of robocalls.  For example, the complaint against the owners/operators of Ecommerce National d/b/a alleges that the defendants carried 720 million calls during a sample 23-day period, and that more than 425 million of those calls lasted less than one second, indicating that they were robocalls.  The complaint further alleges that many of the 720 million calls were fraudulent and used spoofed (i.e., fake) caller ID numbers.  The calls facilitated by the defendants falsely threatened victims with a variety of catastrophic government actions, including termination of social security benefits, imminent arrest for alleged tax fraud and deportation for supposed failure to fill out immigration forms correctly.

Robocalls from to U.S. Phones May 20-26, 2019 Heat Map
In a FINRA Arbitration Statement of Claim filed in September 2019, pro se associated person Claimant Weldon alleged that Respondent Nuveen had wrongfully withheld 25% of his final commission. Claimant sought $17,356 in earned but unpaid commissions from April to May 29, 2019. Respondent Nuveen filed a Motion to Dismiss, which Claimant opposed. The sole FINRA Arbitrator denied the Motion to Dismiss but also denied Claimant's claims. The Arbitrator offered this rationale:

FINDINGS: The Arbitrator finds that Respondent's Motion to Dismiss was based generally on a lack of evidence to support the Statement of Claim and might have been more properly made as a Motion for Summary Judgment. However, since this is a matter to be decided on the pleadings, the Arbitrator further finds that Respondent's filing was unnecessary since the matter was at a point where a final ruling could be made to dispose of the case. 

Bill Singer's Bemused Comment with Rhetorical Flourishes: Okay . . . so, lemme see if I got what the Arbitrator found. The Arbitrator deemed that the Motion to Dismiss was arguing that Claimant's case was predicated upon a woeful lack of evidence. As such, the Arbitrator opines that the Motion to Dismiss probably would have been better filed as a Motion for Summary Judgment, which typically argues that even if everything as alleged against me is taken for argument's sake as "true," there still ain't jack s#!t of a case against me. Having offered his critique of  Respondent's manner of motion practice, the Arbitrator then concedes that since the case before him was submitted "on the pleadings," the Motion to Dismiss was unnecessary because, well, you know, because the parties had agreed to allow the Arbitrator to decide the dispute based upon the pleadings and, hey, why bother with a Motion to Dismiss, right? In any event, since the Arbitrator had reviewed the pleadings and gotten to the point where he could make a final ruling, he then pretty much says that everything he had just said was sorta the jurisprudential equivalent of shootin' the breeze because he's going to rule on the pleadings and not the Motion.