The traditional retirement portfolio of stocks and bonds is down 20% for only the fourth time since WWII (CNBC by Michael Santoli)A food crisis looms as coronavirus forces farms to stay idle and countries hoard supplies (CNBC by Huileng Tan)Coronavirus hits already struggling US farmers: 'We've stopped saying it can't get worse' (CNBC.com by Emma Newburger)District Court Orders Injunctions against Two Telecom Carriers Who Facilitated Hundreds of Millions of Fraudulent Robocalls to Consumers in the United States / First of Their Kind Injunctions Obtained by Justice Department (DOJ Release)FINRA Imposes Fine and Principal Bar For Failure to Reasonably Supervise. In the Matter of Arive Capital Markets, LLC, Respondent (FINRA AWC)The Louis Ottimo FINRA to SEC to FINRA Regulatory SagaThe Robert G. Nash FINRA to SEC to FINRA Regulatory Saga
Upon request, Ritholtz Wealth Management research director Michael Batnick went back in history to track each time the 60/40 portfolio had taken at least a 20% hit. Such a decline struck initially at only the following points since 1945 (using month-end data for 60% S&P 500 and 40% five-year Treasuries): August 1974, September 2002 and January 2009.. . .Are there reasons to be skeptical that holding fast to the 60/40 stance this time will not fare as well as in past decades? Some investment professionals have discussed for some time that the essential premise of the 60/40 mix has been challenged due to extremely low bond yields that leave far less room for bonds to appreciate in an economic slowdown or crisis, mitigating their value as ballast to stocks.
"Some countries could resort to trade restrictions or aggressive stockpiling in a bid to safeguard food security, which could quickly escalate and support grain and oilseed prices," said Fitch Solutions.Among the major crop producing countries that have implemented export restrictions are Vietnam, which has curbed rice exports and Russia, which has halted processed grain exports. Kazakhstan has also suspended exports of wheat flour, buckwheat, sugar, sunflower oil, and some vegetables.
But panic is surging as more states shutter businesses and order people to stay mostly indoors. Consumer demand for items like beef, chicken and fish has dropped as restaurants close indefinitely. More people are opting for cheaper, nonperishable goods like pasta and beans at grocery stores."It's not looking good. Product can't be moved. Farmers are very concerned," said Aubrey Onley, a farmer in Perquimans County, North Carolina.The numbers are grim: Corn futures have declined almost 10%, soybean futures more than 4% and wheat futures nearly 2% in the past several weeks. Futures prices for lean hogs have dropped 12% in the past two weeks and prices for cattle have declined nearly 13%.
Below please find links to certain TM-related documents in response to the effects of COVID-19. This is not an exhaustive list. Please refer to the SEC Coronavirus (COVID-19) Response page for more information:
United States v. Nicholas Palumbo, et al.In the first case, the District Court issued a preliminary injunction against spouses Nicholas and Natasha Palumbo of Scottsdale, Arizona, and the Arizona companies they own and operate, Ecommerce National LLC d/b/a TollFreeDeals.com and SIP Retail d/b/a sipretail.com. The District Court held, in a written opinion, that the evidence presented by the United States demonstrated probable cause to conclude that the defendants were engaged in "widespread patterns of telecommunications fraud, intended to deprive call recipients in the Eastern District of New York and elsewhere of money and property."The preliminary injunction issued by the court bars those defendants from carrying any VoIP calls destined for phones in the United States and providing any U.S. telephone numbers (often used as call-back numbers in the fraudulent robocalling schemes) to any individuals or entities during the pendency of this litigation. The court noted that though defendants had been warned more than 100 times of specific instances of fraudulent calls being transmitted through their network, they never severed their business relationship with any entity they learned was associated with fraudulent call traffic, prior to the United States' filing of its lawsuit. The court further noted that "the telecommunications 'intermediary' industry is set up perfectly to allow fraudulent operators to rotate telephone numbers endlessly and blame other parties for the fraudulent call traffic they carry," that the United States "demonstrat[ed] probable cause to conclude that defendants' business is permeated with fraud," that "multiple individual victims in the United States suffered significant fraud losses," and that "[e]very day that the defendants' actions in this vein continue, the public is at risk of harm in the form of additional high-dollar fraud losses.". . .United States v. John Kahen, et al.In the second case, the District Court entered consent decrees permanently resolving the matter against five individuals and entities who were also operating intermediary VoIP carriers. The court entered a consent decree on March 2, 2020 against Jon Kahen, a/k/a Jon Kaen of New York, and New York corporations Global Voicecom Inc. and Global Telecommunication Services Inc., permanently barring those defendants from, among other things, using the U.S. telephone system to: deliver prerecorded messages through automatic means, carry calls to the United States from foreign locations, and provide calling and toll-free services for calls originating in the United States. In addition, the defendants are permanently barred from serving as employees, agents, or consultants to any person or entity engaged in these activities. In a second consent decree, entered on March 24, 2020, the District Court barred KAT Telecom Inc., a New York corporation, from conveying or causing any other person or entity from conveying fraudulent telephone calls, fraudulent recordings, and unauthorized "spoofed" telephone calls. In the event that KAT Telecom, Inc. resumes operations, it must also implement strong anti-fraud measures, including anti-fraud monitoring, mitigation, and know-your-customer measures.
During the period October 27, 2015 through March 8, 2016 (the "Relevant Period"), Arive failed to develop and implement an anti-money laundering program ("AIVILCP") reasonably designed to achieve and monitor the Firm's compliance with requirements of the Bank Secrecy Act and the implementing regulations thereunder. Specifically, the Firm failed to establish and implement policies and procedures that could be reasonably expected to detect and cause the reporting of potentially suspicious activity related to low-priced securities transactions. Arive also failed to conduct annual independent testing (on a calendar-year basis) of its AMLCP in 2015 and 2016.As a result of the foregoing conduct, Arive violated FINRA Rules 3310(a) and (c) and 2010.
During the Relevant Period, three registered representatives of the Firm had 22 customer accounts that engaged in a pattern of trading hundreds of thousands of shares in a particular low-priced security, which comprised a significant volume of the total trading in the stock (i.e., on certain days, the trading exceeded 50% of the total daily trading volume). There were various red flags in connection with this pattern of trading, including the following:
Arive failed to take reasonable steps to identify, investigate and address these numerous red flags, and because of these failures, the Firm failed to detect the suspicious trading in
the low-priced security.
D. Respondent may attach a Corrective Action Statement to this AWC that is a statement of demonstrable corrective steps taken to prevent future misconduct. Respondent understands that it may not deny the charges or make any statement that is inconsistent with the AWC in this Statement. This Statement does not constitute factual or legal findings by FINRA, nor does it reflect the views of FINRA or its staff.
I am responding on behalf of Arive Capital Markets ("Arive") to the above-referenced Letter of Acceptance, Waiver and Consent ("AWC"). The AWC is related to Arive's implementation of an anti-money laundering program ("AMLCP") reasonably designed to achieve and monitor the Firm's compliance with the requirements of the Bank Secrecy Act and the implementing regulations thereunder. The findings in the AWC have been addressed and mitigated as explained in this Corrective Action Statement.This Corrective Action Statement is submitted by Arive. It does not constitute factual or legal findings by FINRA, nor does it reflect the views of FINRA, or its staff.Arive updated its Written Supervisory Procedures ("WSPs") in 2016 when it became aware of the issues identified in the AWC.In particular Arive adopted additional procedural safeguards regarding the purchase and sale of low-priced securities. Arive now actively reviews all transactions in low priced securities. Further, Arive now requires its brokers to receive approval from the Compliance Department prior to conducting any transactions involving a low-priced security. Individual brokers are reminded of this policy on an annual basis and sign an annual attestation that they will not engage in any transaction involving low-priced securities without prior approval from the Compliance Department.Arive believes that implementing these changes addresses the shortcomings in its AMLCP noted in the AWC. That there has been no reoccurrence of such issues from 2016 to the present has born that belief out.Arive has also taken steps to address the gap in its independent auditing schedule noted in the AWC. Arive has conducted annual audits of its AMLCP every year since 2017.Having addressed the issues noted in the AWC, Arive is confident that similar issues will not reoccur. Please contact me if you have any questions concerning the corrective actions taken.
Louis Ottimo appeals an Extended Hearing Panel decision issued on July 10, 2015. The Extended Hearing Panel found that Ottimo fraudulently omitted material information in a personal biography in the offer and sale of securities, in violation of Section 10(b) of the Securities Exchange Act of 1934 ("Exchange Act"), Rule 10b-5 thereunder, and FINRA Rules 2020 and 2010. It further found that Ottimo willfully failed to disclose or disclose timely on the Uniform Application for Securities Industry Registration or Transfer ("Form U4") material information related to his unsatisfied tax liens, judgments, and a bankruptcy filing, in violation of FINRA Rules 1122 and 2010, NASD IM-1000-1, and Article V, Section 2(c) of FINRA's ByLaws. For his fraud violation, the Extended Hearing Panel barred Ottimo from association with any FINRA member in all capacities. For his Form U4 violation, the Extended Hearing Panel assessed, but in light of the bar did not impose, a $25,000 fine and a two-year suspension in all capacities. The Panel also found Ottimo's misconduct was willful, as a result of which he was statutorily disqualified. On appeal, Ottimo challenges before the National Adjudicatory Council ("NAC") the Extended Hearing Panel's fraud findings and corresponding sanction. He does not challenge the Extended Hearing Panel's Form U4 findings but requests the NAC to reduce the Panel's assessed sanctions. Based on an independent review of the record, we affirm the Extended Hearing Panel's findings of violation and sanctions.I. BackgroundOttimo entered the securities industry in 1995. He was employed with several FINRA member firms before he joined his father's brokerage firm, EKN Financial Services Inc. ("EKN" or "Firm"), as a general securities representative in 2008. Prior to his association with EKN, Ottimo was the co-owner of Jet One Jets, Inc. ("Jet One Jets"), a broker that arranged private jet charters, and the owner and president of Wheatley Capital Corporation ("Wheatley"), a company that handled back-office operations for EKN. In February 2012, Ottimo created and sold interests in First Secondary Market Fund LLC ("Fund"), a special purpose vehicle created to purchase shares of Facebook Inc. ("Facebook") in the secondary market before its initial public offering ("IPO"). FINRA expelled EKN in October 2012. Ottimo's most recent employer terminated his registration in February 2014 and he has not associated with a FINRA member firm since then.
Louis Ottimo, a former registered representative with EKN Financial Services Inc. ("EKN"), a former FINRA member firm, seeks review of a FINRA disciplinary action finding that he fraudulently omitted information from his biography in a private placement memorandum (the "PPM") in violation of Section 10(b) of the Securities Exchange Act of 1934, Rule 10b-5 thereunder, and FINRA Rules 2020 and 2010. FINRA also found that Ottimo failed timely and accurately to update his Uniform Application for Securities Industry Registration or Transfer ("Form U4") to reflect unsatisfied tax liens, judgments, and a bankruptcy filing in violation of FINRA Rules 1122 and 2010, NASD IM-1000-1, and Article V, Section 2(c) of FINRA's ByLaws. For the fraud violations, FINRA imposed a bar. For the Form U4 violations, FINRA assessed -- but in light of the bar did not impose -- a $25,000 fine and a two-year suspension in all capacities. FINRA also found that Ottimo's misconduct was willful and that he was statutorily disqualified from association with a FINRA member firm as a result.We affirm FINRA's finding of the Form U4 violations, which Ottimo does not challenge, and affirm in part its findings of fraud as to the PPM. But part of FINRA's fraud findings is not supported by the record. Accordingly, we remand for FINRA to reassess the sanctions.
This matter is before us on remand from the Securities and Exchange Commission ("Commission"). In our initial decision, the National Adjudicatory Council ("NAC") found that Louis Ottimo fraudulently omitted material information in his private placement memorandum ("PPM") biography in the offer and sale of securities, in violation of Section 10(b) of the Securities Exchange Act of 1934 ("Exchange Act"), Exchange Act Rule 10b-5, and FINRA Rules 2020 and 2010. The NAC further found that Ottimo willfully failed to amend, or amend timely, on the Uniform Application for Securities Industry Registration or Transfer ("Form U4") material information related to his unsatisfied tax liens and civil judgments, and a bankruptcy filing. For his fraud violation, the NAC barred Ottimo from associating with any FINRA member in all capacities. For his Form U4 violations, the NAC assessed a two-year suspension in all capacities and a $25,000 fine, but in light of the bar did not impose them. Because Ottimo engaged in willful misconduct, he was subject to statutory disqualification. See Dep't of Enforcement v. Ottimo, Complaint No. 2009017440201, 2017 FINRA Discip. LEXIS 10 (FINRA NAC Mar. 15, 2017).On appeal to the Commission, Ottimo challenged only those portions of the NAC's decision that found him liable for engaging in fraud. The Commission affirmed FINRA's findings that Ottimo repeatedly failed to timely and accurately report material information on his Form U4 in violation of FINRA rules, and that his violations were willful. Thus, Ottimo is statutorily disqualified. The Commission further affirmed FINRA's findings that Ottimo violated the antifraud provisions under SEC and FINRA rules, with one exception. The Commission found that Ottimo willfully violated Exchange Act Section 10(b) and Rule 10b-5, and FINRA Rules 2020 and 2010, by omitting material facts in his PPM biography related to Jet One Jets, Inc. ("Jet One Jets"), a private jet charter company he co-owned. The Commission also sustained FINRA's finding that Ottimo is statutorily disqualified on this ground. The Commission, however, set aside FINRA's finding that Ottimo's failure to disclose bankruptcy information regarding Wheatley Capital Corporation ("Wheatley") constituted a material omission of fact that made his biography in the PPM misleading. Because the Commission set aside a portion of the fraud findings, it remanded the case to FINRA to re-determine the sanctions. See Louis Ottimo, Exchange Act Release No. 83555, 2018 SEC LEXIS 1588 (June 28, 2018).Having reconsidered the matter based on the full record, the Commission's findings of violation, and the briefs the parties submitted on remand, we impose the sanction of a bar on Ottimo. As explained below, we do so based on Ottimo's fraudulent omissions regarding Jet One Jets, and assess, but in light of the bar do not impose, a two-year suspension and $25,000 fine for his Form U4 violations.
Respondent Merrimac Corporate Securities violated (1) FINRA Rules 8210 and 2010 by providing false documents to FINRA; (2) FINRA Rule 2010 by selling unregistered securities in violation of Section 5 of the Securities Act of 1933; (3) NASD Rule 3011 and FINRA Rules 3310 and 2010 by failing to establish and implement Anti-Money Laundering ("AML") policies and procedures that can be reasonably expected to achieve compliance with AML rules and regulations and monitor and detect suspicious activity; (4) NASD Rules 3010 and 2110 and FINRA Rule 2010 by failing to maintain a reasonable supervisory system; and (5) FINRA Rule 2010 by effecting securities transactions while its registration was suspended.Respondent Robert G. Nash violated (1) FINRA Rules 8210 and 2010 by providing false documents to FINRA; and (2) NASD Rules 3010 and 2110 and FINRA Rule 2010 by failing to maintain a reasonable supervisory system and procedures. The Panel dismissed the AML charges against Nash, alleging violations of NASD Rule 3011 and FINRA Rules 3310 and 2010.Merrimac is fined a total of $225,000, suspended from FINRA membership for 30 business days, suspended for one year from receiving and liquidating penny stocks for which no registration statement is in effect, and required to retain an independent consultant to revise its written supervisory procedures. The sanctions associated with each violation are as follows: For violating FINRA Rules 8210 and 2010 by providing false documents to FINRA, Merrimac is fined $50,000. For violating FINRA Rule 2010 by selling unregistered securities in violation of Section 5 of the Securities Act, Merrimac is fined $50,000. For violating NASD Rule 3011 and FINRA Rules 3310 and 2010 by failing to establish and implement AML policies and procedures that can be reasonably expected to detect and cause the reporting of suspicious transactions, Merrimac is fined $25,000. For violating NASD Rules 3010 and 2110 and FINRA Rule 2010 by failing to maintain a reasonable supervisory system, Merrimac is fined $50,000, suspended for one year from receiving and liquidating penny stocks for which no registration statement is in effect, and required to retain an independent consultant, acceptable to Enforcement, with experience in designing and evaluating broker-dealer procedures to review and approve its written supervisory procedures. For violating FINRA Rule 2010 by effecting securities transactions while its registration was suspended, Merrimac is fined $50,000 and suspended from FINRA membership for 30 business days. Merrimac's suspension from receiving and liquidating penny stocks for which no registration statement is in effect shall run consecutive to Merrimac's 30-business day suspension from FINRA membership.Nash is fined a total of $50,000, suspended for one year in all principal capacities, and required to requalify as a principal. The sanctions associated with each violation are as follows: For violating FINRA Rules 8210 and 2010 by providing false documents to FINRA, Nash is fined $25,000 and suspended for one year in all principal capacities. For violating NASD Rules 3010 and 2110 and FINRA Rule 2010 by failing to maintain a reasonable supervisory system and procedures, Nash is fined $25,000, suspended for one year in all principal capacities, and required to requalify as a principal before acting in any capacity requiring that qualification. Nash's suspensions shall be concurrent. In addition, Respondents are ordered to pay costs.
Merrimac Corporate Securities, Inc. provided false documents to FINRA; sold unregistered securities; failed to establish and implement adequate AML policies; failed to maintain a reasonable supervisory system and adequate written supervisory procedures; and effected securities transactions while its registration was suspended.Respondent Robert Nash provided false documents to FINRA and failed to maintain a reasonable supervisory system and adequate written supervisory procedures.Held, findings and sanctions affirmed.
Registered securities association found that member firm and its chief compliance officer violated the association's rules. Both applicants provided falsified documents to FINRA, and failed to maintain an effective supervisory system. Firm also caused the unregistered sale of securities not subject to exemption in violation of Section 5 of the Securities Act of 1933, failed to establish and implement an effective anti-money-laundering system, and effected securities transactions while its registration was suspended. Held, FINRA's findings of violations and imposition of sanctions are sustained in part.
[N]ash was responsible for reviewing and drafting the firm's WSPs, and the WSPs provided that all advertising would be reviewed for misleading or inaccurate statements and that David Matthews, the firm's president, would do so. The WSPs also specified that "[a]ll business messages on the internet shall be considered advertising." And NASD Rule 2210 defined "advertisements" to include "[a]ny material . . . that is published, or used in any electronic . . . public media, including any Web site." Yet the NAC faulted Nash for not "identify[ing]" in the WSPs that "websites [are] advertising to be reviewed"; its rationale for holding Nash liable was that "Merrimac's procedures did not specifically state that websites were advertising." Neither the NAC's cursory explanation nor FINRA's briefs on appeal have demonstrated why the WSPs were inadequate in light of the various provisions of the WSPs and the terms of NASD Rule 2210. Under the circumstances, Nash did not fail to establish a reasonably designed supervisory system with respect to the websites.
For his supervisory violations, the NAC fined Nash $25,000, imposed a one-year suspension in a principal capacity, and required him to requalify as a general securities principal. The NAC based these sanctions, in part, on its finding that Nash failed to establish reasonable WSPs regarding the investment-related websites. Because we set aside that finding of violation, we remand for the NAC to determine the appropriate sanctions for Nash's supervisory violations that we sustain. We express no opinion as to the appropriate sanctions on remand.
On remand, Enforcement argues that we should impose the same sanctions for Nash's supervisory failures that were imposed in the NAC Decision. We are cognizant, however, that the Commission dismissed one of the bases for those sanctions and, accordingly, we find that a reduction of the fine and suspension imposed in the NAC Decision is appropriate. We also note that the supervisory violations that were affirmed by the Commission are serious and warrant significant sanctions. Accordingly, we find that a $22,500 fine, a ten-month suspension in all principal and supervisory capacities, and a requirement that Nash requalify by examination as a registered principal before again acting in that capacity are appropriately remedial sanctions for Nash's violations.