Securities Industry Commentator by Bill Singer Esq

February 14, 2020
In a Complaint filed in the United States District Court for the Central District of California, the SEC charged investment advisory firm Criterion Wealth Management Insurance Services, Inc. and co-owners Robert Gravette and Mar MacArthur with violating the antifraud provisions of Sections 206(1) and 206(2) of the Investment Advisers Act of 1940. Further, the Complaint charges Criterion and Gravette with violations of Section 207 of the Advisers Act, and Criterion with violations of Section 206(4) of the Advisers Act and Rule 206(4)-7 thereunder. Also, the Complaint charges Gravette and MacArthur with aiding and abetting Criterion's violations of Sections 206(1) and 206(2) of the Advisers Act and Gravette with aiding and abetting Criterion's violation of Section 207 of the Advisers Act. As alleged in part in the SEC Release:

[F]rom 2014 to 2017 the defendants recommended that their advisory clients invest more than $16 million in four private real estate investment funds without disclosing that the fund managers had paid them more than $1 million, which was on top of the fees that defendants were already charging their clients directly. The complaint further alleges the defendants were incentivized to keep their clients invested in the funds, rather than allocate their capital elsewhere, because the additional side compensation was recurring and depended on Criterion's clients remaining invested. For two of the funds, this undisclosed compensation arrangement resulted in reduced investment returns for the defendants' advisory clients.

In an Indictment filed in the United States District Court for the District of Columbia, Larry Harmon was charged with money laundering conspiracy, operating an unlicensed money transmitting business, and conducting money transmission without a D.C. license. As alleged in part in the DOJ Release:

[H]armon operated Helix from 2014 to 2017.  Helix functioned as a bitcoin "mixer" or "tumbler," allowing customers, for a fee, to send bitcoin to designated recipients in a manner that was designed to conceal the source or owner of the bitcoin.  Helix was linked to and associated  with "Grams," a Darknet search engine also run by Harmon.  Harmon advertised Helix to customers on the Darknet as a way to conceal transactions from law enforcement. 
. . . 

The indictment alleges that Helix moved over 350,000 bitcoin - valued at over $300 million at the time of the transactions - on behalf of customers, with the largest volume coming from Darknet markets.  Helix partnered with the Darknet market AlphaBay to provide bitcoin laundering services for AlphaBay customers.  AlphaBay was one of the largest Darknet marketplaces in operation at the time that it was seized by law enforcement in July 2017.
After a five-day trial in the United States District Court for the Western District of Texas, a jury convicted Bullion Direct, Inc.' Chief Executive Officer/owner Charles McAllister of two counts of wire fraud and one count of engaging in a monetary transaction with criminally derived property. McAllister was sentenced to ten years in prison plus three years of supervised release and ordered to pay $16,186,212.56 in restitution to over 5,800 victims. As alleged in part in the DOJ Release:

[F]rom at least January 2009 through July 2015, McAllister perpetrated a scheme that falsely represented that funds obtained from individual customers would be used to purchase precious metals on behalf of the customer and either shipped directly to the customer or stored in BDI's vault.  Instead of buying the precious metals with the customer's funds and storing customer metals, McAllister spent customer property on BDI corporate expenses, on other investment activities, and for his own personal use and benefit.
Marina Bondarenko and her now-husband Volodimyr Pigida were indicted in the United States District Court for the Western District of Washington for conspiracy, mail, wire, and bankruptcy fraud; Pigida awaits trial but Bondarenko pled guilty to bankruptcy fraud.  Bondarenko was sentenced to 38 months in prison plus three years of supervised release, and she was ordered to pay $2,359,914 in restitution. As alleged in part in the DOJ Release, Bondarenko:

operated a 'work-at- home' email scheme that ultimately crashed - but not before she and her partner raided the cash to purchase homes, expensive cars, and a yacht.  The two set up a series of trusts to try to hide the diverted assets from the bankruptcy trustee after the sham company declared bankruptcy.  At the sentencing hearing, Chief U.S. District Judge Ricardo S. Martinez said he was concerned about respect for the law.  "She submitted false documents in two different judicial proceedings," Chief Judge Martinez said. "She committed perjury - she took the witness stand and lied."

According to records filed in the case, between July 2013 and March 2014, BONDARENKO and her partner, Volodimyr Pigida, siphoned off more than $3 million from a company they had established that essentially operated as a Ponzi scheme.  The pair used the money to purchase four properties, a yacht, and numerous cars.  As the Ponzi scheme unraveled, the company filed for bankruptcy protection.  BONDARENKO and Pigida never revealed to the bankruptcy court that they had looted the company coffers and transferred assets purchased with that money to ten trusts they had established.  In all, the pair attempted to conceal $3,334,750 in assets from the bankruptcy court and creditors.

. . .

The company the two formed, Trend Sound Promoter AMG Corp., was supposed to conduct advertising and music promotion over the internet.  The couple sold Ad-promoting packages whereby those who bought a package were to be paid for email marketing.  The couple made claims to those purchasing the packages that they could make big money for sending emails on Trend Sound's behalf.  In reality, the only money being generated was from those purchasing the packages, and it was used to pay earlier purchasers as in a typical Ponzi scheme.  As purchasers got wise and the money started to run out, BONDARENKO and Pigida accelerated their looting of the company, eventually transferring $3.3 million out of the company for their personal benefit.

The two even filed suit in King County Superior Court in an attempt to stop an unhappy customer from warning others about the company's sham offering. . . .
Sonovah Judith Hillman entered into a Plea Agreement and pled guilty in the United States District Court for the Eastern District of Louisiana
to one count of conspiracy to commit wire fraud. As alleged in part in the DOJ Release:

[H]ILLMAN acted as a "money mule" in a scheme to victimize Victim A, a floating crane and stevedore Victim headquartered in Convent, Louisiana, within the Eastern District of Louisiana.  HILLMAN and her co-conspirator(s) engaged in a "business email compromise" (BEC) scheme.  They accomplished their scheme by obtaining access without authorization to the email accounts of one or more employees of Victim A for the purpose of obtaining private data, including usernames, passwords, bank account information, and the content of email accounts through a "phishing" scam.  After gaining access to an email account of a Victim A employee, the individual(s) arranged to have emails in the account forwarded to a separate email account under their control.   Thereafter, HILLMAN's co-conspirators registered a domain name similar to Victim A's domain (for example, "Victin A" instead of "Victim A") and, pretending to be representatives of Victim A, sent emails to Victim A's customers, including Victim B.  The false emails stated that there had been an audit of Victim A's bank accounts and that Victim A's customers should remit funds owed to Victim A to a new bank account.  

On about May 10, 2017, HILLMAN's co-conspirators contacted one of Victim A's customers (Victim B) via email and, pretending to be employees of Victim A, instructed that Victim B should remit funds owed to Victim A, approximately $92,007.85, to a Bank of America account that belonged to HILLMAN.  After Victim B sent the funds to HILLMAN's account, HILLMAN engaged in a series of transactions over the next five days to transfer the money to others, withdraw over $40,000 in cash, and spend ill-gotten money on personal items, including vacations and airline flights.
The CFTC issued an Order, in which the federal regulator simultaneously filed and settled charges against Matthew R. White and M.W. Global Futures LLC ("MWGF") for: 
  • fraudulently soliciting about $1.2 million for a pooled investment vehicle trading commodity futures contracts, 
  • misappropriating over $280,000 in pool participants' funds to pay for personal expenses, and 
  • operating without registration as required. 
The Order requires White and MWGF to pay a $200,000 civil monetary penalty and $883,974 in restitution (of which $602,003 has been paid); and White and MWGF are required to cease and desist from further violations of the Commodity Exchange Act, as charged. The Order recognizes White's cooperation via a reduced civil monetary penalty. Separately, White pled guilty in the United States District Court for the Western District of Washington to one count of wire fraud in connection with fraudulent solicitation and misappropriation of funds from investors. As alleged in part in the CFTC Release:

[F]rom at least February 2014 to July 2018, White and MWGF solicited and received funds from at least six individuals (pool participants) residing in Florida and Washington state, for the purpose of trading commodity futures contracts. White pooled the participants' funds in his personal bank and trading accounts and deposited only a portion of the pooled funds into commodity interest trading accounts. From 2014 to 2018, White traded pool participants' funds in two commodity interest accounts, both in his own name. In the first account, there were at least 31 months in which no trading occurred, and the account was closed with a total cumulative loss of $687. In the second account, opened in April 2018, trading occurred in only one month and ended with a cumulative loss of $308.

White made false or misleading statements and omitted material facts regarding the profitability of his commodity futures trading to prospective and current pool participants. For example, White failed to disclose that his trading had actually resulted in a net loss and that the highest monthly profit he had earned was roughly $934. Additionally, White created and delivered monthly account statements to at least two pool participants, which falsely represented that he engaged in trading every month, that his trading was profitable, and that participants were earning positive returns on their deposits.

The order further finds that White misappropriated $281,970 of pool participants' funds, diverting most of it for personal expenses, including credit card, auto loan, and rent payments. This amount was far greater than any commissions that White and MWGF could have claimed on the minor, sporadic profits generated by his trading. 

Of the approximately $1.2 million collected from pool participants, MWGF and White initially repaid more than $400,000, and during the CFTC's investigation, White repaid an additional $602,003 to pool participants. 

The order also finds that in soliciting and holding funds for a pooled investment vehicle trading commodity futures contracts, White and MWGF illegally operated as unregistered commodity pool operators and White illegally acted as an unregistered associated person of MWGF.

Next Financial to Refund $500,000 to Customers, Pay $100,000 Fine (TSSB Release)
Next Financial Group Inc. entered into an Order with the Texas State Securities Board ("TSSB") and agreed to refund $500,000 to customers and pay a $100,000 fine for failing to properly supervise an agent, who worked for the brokerage from 2007 until Sept. 27, 2019. As alleged in part in the TSSB Release:

Next Financial Group will apportion the $500,000 to the former agent's customers based on the amount of mutual fund trading in their accounts during the five-year period.

From 2014 through 2018, the agent made hundreds of trades involving the Class A shares of mutual funds, which typically cost investors more than other mutual fund share classes because they carry an upfront sales charge of up to 5% or higher.