The Wall Street Legal & Regulatory Feed

Securities Industry Commentator by Bill Singer Esq

May 27, 2020

Salaries Get Chopped for Many Americans Who Manage to Keep Jobs (Bloomberg by Matthew Boesler and Reade Pickert)

New Jersey Man Arrested For $45 Million Scheme To Defraud And Price Gouge New York City During COVID-19 Pandemic (DOJ Release)

Private Equity Firm Ares Management LLC Charged With Compliance Failures (SEC Release)

Taleb-Asness Black Swan Spat Is a Teaching Moment / Investors should recognize where the "Black Swan" author and a quant fund pioneer tend to agree rather than differ. (Bloomberg by Aaron Brown)

Market to Hit New Highs, Shut Down Was An Historic Mistake Says Professor Jeremy Siegel (BrokeAndBroker.com Blog)

SEC Seeks Contempt Order Against Perpetrator of Offering Fraud (SEC Release)

Rep Fined and Suspended for Private Securities Transactions and Email Compliance. In the Matter of Robert Nicholas Korzik, Respondent (FINRA AWC)

Rep Fined and Suspended for Borrowing Money from Firm Customer. In the Matter of Paul Liebman, Respondent (FINRA AWC)

Former Morgan Stanley Rep Fined and Suspended for Signing ACAT Form. In the Matter of Sachin Kumar, Respondent (FINRA AWC)

Rep Fined and Suspended for Private Securities Transaction. In the Matter of Michelle L. Gill, Respondent (FINRA AWC)



Salaries Get Chopped for Many Americans Who Manage to Keep Jobs (Bloomberg by Matthew Boesler and Reade Pickert)
https://www.bloomberg.com/news/articles/2020-05-27/salaries-get-chopped-for-many-americans-who-manage-to-keep-jobs?srnd=premium
As the Bloomberg article notes, wages are not supposed to fall during recessions -- if you ask enough economists. Unfortunately, economic modeling and history aside, Boesler and Pickert report in part that:

Outside of "high-demand sectors such as grocery stores," there are signs of "general wage softening and salary cuts" all over the economy, according to a Fed business survey in April. A study by Thomvest Ventures, which looked at 22 public and private technology companies, found that non-executive employees had seen pay reduced by an average of 10% to 15%.

New Jersey Man Arrested For $45 Million Scheme To Defraud And Price Gouge New York City During COVID-19 Pandemic (DOJ Release)
https://www.justice.gov/usao-sdny/pr/new-jersey-man-arrested-45-million-scheme-defraud-and-price-gouge-new-york-city-during
https://www.justice.gov/usao-sdny/press-release/file/1278731/download with  one count each of conspiring to commit wire fraud, wire fraud, and conspiring to violate the Defense Production Act. As alleged in part in the DOJ Release:

In approximately February 2020, ROMANO, a used car dealer, began attempting to obtain for resale large quantities of personal protective equipment ("PPE"), including N95 respirators.  In furtherance of the scheme, ROMANO, among other things, created a fictitious authorization letter in March 2020, which falsely represented that ROMANO's company was authorized to sell millions of units of 3M-brand PPE.Shortly thereafter, in mid-March 2020, brokers acting on ROMANO's behalf approached New York City (the "City"), which at the time was in critical need of legitimate, potentially lifesaving PPE, including respirators, in order to supply frontline healthcare workers and first responders during the COVID-19 public health emergency.During ensuing negotiations, ROMANO and others repeatedly made false and fraudulent representations regarding, among other things, their authority and ability to supply 3M-brand PPE manufactured in the United States, and their track record in other PPE deals. In an effort to close a deal for seven million N95 respirators, ROMANO, among other things, submitted a false and misleading references document to the City, which, among other things, listed a PPE deal with the Florida Division of Emergency Management (the "FDEM") that had never occurred and separately provided a co-conspirator as a reference. ROMANO hoped to get profit quickly through the scheme. As he described in a message to a co-conspirator, "I'm working on a few deals that if I get any of them you might be buying a Ferrari." 

In furtherance of this scheme, ROMANO attempted to sell PPE at prices far above the prices at which he hoped to acquire the PPE, including after such PPE was designated as scarce materials under the Defense Production Act on March 25, 2020.  ROMANO offered three-ply N99 facemasks to FDEM at prices marked up by more than 500% from the manufacturer's prices, and he separately offered the City millions of 3M-brand N95 respirators at more than a 400% markup from the list price for such respirators.

Private Equity Firm Ares Management LLC Charged With Compliance Failures (SEC Release)
https://www.sec.gov/news/press-release/2020-123
Without admitting or denying the findings in  an SEC Order https://www.sec.gov/litigation/admin/2020/ia-5510.pdf , private equity firm Ares Management LLC consented to the entry of a cease-and-desist order and a Censure, and agreed to pay a $1 million civil penalty. The SEC Order finds that Ares violated the compliance policies and procedures requirements of Sections 204A and 206(4) of the Investment Advisers Act of 1940 and Rule 206(4)-7 thereunder.  As alleged in part in the SEC Rlease:

[I]n 2016, Ares invested several hundred million dollars in a public company through a loan and equity investment that allowed Ares to appoint a senior employee to the company's board.  The order finds that Ares's compliance policies failed to account for the special circumstances presented by having an employee serve on the portfolio company's board while that employee continued to participate in trading decisions regarding the portfolio company.  According to the order, Ares obtained potential material nonpublic information about the company, including through Ares's representative on the company's board, relating to changes in senior management, adjustments to the company's hedging strategy, and decisions with respect to the company's assets, debt, and interest payments.  After receiving this information, Ares purchased more than 1 million shares of the company's common stock, which was 17% of the publicly available shares.  The order finds that Ares did not require its compliance staff, prior to approving the trades, to sufficiently inquire and document whether the board representative and members of his Ares team possessed material nonpublic information relating to the portfolio company.  

https://www.bloomberg.com/opinion/articles/2020-05-26/twitter-spat-over-market-risks-is-a-teaching-moment?srnd=premium
I'm a sucker for intelligent, thoughtful analysis, and, boy, do I get a truckload of that in Brown's opinion piece about the disagreement between "Black Swan" author Nassim Taleb and  AQR Capital Management LLC's Cliff Asness -- it's a somewhat academic and somewhat real-world debate about how to effectively hedge against so-called "tail risk" remote events. I commend Brown's piece to your consideration.

http://www.brokeandbroker.com/5235/cnbc-jeremy-siegel/
Siegel's observations smack of the musings of someone who has gone beyond his area of expertise. His purported nugget of wisdom amounts to little more than: If my aunt were a man, she'd be my uncle. If the COVID crisis ends, if there is no second wave, if there is a therapeutic but not a cure or vaccine, if sanity will replace stupidity overnight -- as if by magic, if pigs will fly, everything will work out just great and, wow, the markets will skyrocket. It is poetry without rhyme or reason. Siegel asks us to ponder what if a much of a which of a wind gives the truth to summer's lie. We consider blowing hope to terror, blowing life to isn't, blowing death to was. It is sad to see a Wharton professor waste his talent and intellect on such silliness.

SEC Seeks Contempt Order Against Perpetrator of Offering Fraud (SEC Release)
https://www.sec.gov/litigation/litreleases/2020/lr24823.htm
In a Complaint filed in 2017 in the United States District Court for the Southern District of California ("SDCA"),
https://www.sec.gov/litigation/complaints/2017/comp23890.pdf, the SEC charged Cash Capital, LLC, America's Strategic Ore Properties, LLC, and Robert W. Wilson with violating Sections 5(a) and (c) and 17(a) of the Securities Act and Section 10(b) of the Securities Exchange Act and Rule 10b-5 thereunder. Also, Wilson was charged under Section 20(a) of the Exchange Act as a control person for Cash Capital's and Strategic Ore Property's violations of Section 10(b) of the Exchange Act and Rule 10b-5 thereunder. On April 25, 2019, the SDCA final consent judgments against the Defendants that, among other things, (i) permanently enjoined Wilson from directly or indirectly participating in the issuance, purchase, offer or sale of any security except securities listed on a national securities exchange for his own personal account, and (ii) ordered Wilson and his two companies to pay, on a joint and several basis, disgorgement in the amount of $1,540,000, plus prejudgment interest of $205,376. On May 26, 2020, in a Motion for an Order to Show Cause filed in the United States District Court for the Southern District of California, 
https://www.sec.gov/litigation/litreleases/2020/motion24823.pdf, the SEC seeks to hold Wilson in contempt for his alleged failure to comply with an April 2019 judgment that prohibited him from offering and selling securities and ordered him to pay disgorgement and prejudgment interest. As alleged in part in the SEC Release:

[A]s early as October 2019, Wilson, in violation of the consent judgment enjoining him from participating in the offer or sale of securities, solicited prior investors and the general public for a new alleged gold milling venture he called the "Golden Unicorn," purportedly on the same property described in the SEC's prior complaint. Wilson allegedly advertised that for investments as low as $5,000, investors could choose a 50% return in 12 months or a 100% return in 24 months. According to the SEC's contempt action, Wilson allegedly claimed that he could generate the returns by processing abandoned stockpiles into marketable gold and silver. The SEC also contends that Wilson has not paid the court-ordered disgorgement and prejudgment interest. The SEC seeks a hearing at which the court will determine whether Wilson should be held in civil contempt and impose appropriate sanctions; a sworn accounting by Wilson with respect to any securities he controls; and expedited discovery concerning the allegations in the SEC's motion.

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, Robert Nicholas Korzik submitted a Letter of Acceptance, Waiver and Consent ("AWC"), which FINRA accepted. The AWC asserts that Korzik entered the industry in 1981 and by October 2011, he was associated with FINRA member firm Ameriprise Financial Services, Inc. The AWC alleges that Korzik "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 Gill  had violated FINRA Rules 3280; 2210(d)(1)(A),(B), and (F); and 2010 and imposed upon him a $8,500 fine and a nine-month suspension from associating with any FINRA member firm in all capacities. As set forth in part in the AWC's "Overview":


Between September and December 2016 (the "Relevant Period"), Korzik participated in and solicited Firm customers to invest in private securities transactions without prior written Firm approval. Specifically, Korzik personally invested $50,000 in a private securities transaction involving an energy company, and solicited and facilitated the purchase of approximately $550,000 of these securities by three Firm customers, in violation of FINRA Rules 3280 and 2010.

In connection with these private securities transactions, Korzik forwarded an email containing sales communications to potential investors including Firm customers that failed to comply with FINRA's content standards for communications with the public. Based on the foregoing, Korzik violated FINRA Rules 2210(d)(1)(A), 2210(d)(1)(B), 2210(d)(1)(F) and 2010.
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, Paul Liebman submitted a Letter of Acceptance, Waiver and Consent ("AWC"), which FINRA accepted. The AWC asserts that Liebman entered the industry in 1991 and by 2014, he was associated with FINRA member firm Wells Fargo Advisors Financial Network, LLC. The AWC alleges that Liebman "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 Liebman had violated FINRA Rules 3240 and 2010 and imposed upon her a $5,000 deferred fine and a two-month suspension from associating with any FINRA member firm in all capacities. As set forth in part in the AWC, Wells Fargo's:

written procedures prohibited its registered persons from borrowing money from the Firm's securities customers, except for immediate family members. In 2017, Respondent borrowed approximately $16,000 from one of his Firm's securities customers, who was not a member of Respondent's family. Respondent did not notify the Firm about the loan, and Respondent did not receive the Firm's approval for the loan. In addition, Respondent falsely stated on a Firm compliance questionnaire in 2018 that he had not engaged in any lending or borrowing arrangement with any Firm customer. 

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, Michelle L. Gill submitted a Letter of Acceptance, Waiver and Consent ("AWC"), which FINRA accepted. The AWC asserts that Gill was first registered in 2015 with FINRA member firm Paradigm Equities, Inc. The AWC alleges that Gill "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 Gill  had violated FINRA Rules 3280 and 2010 and imposed upon her a $5,000 deferred fine and a two-month suspension from associating with any FINRA member firm in all capacities. As set forth in part in the AWC:

In a Form U4 Amendment in December 2015, Gill disclosed to Paradigm an outside
business activity for company MBC. Gill stated that she would receive no compensation
related to MBC, described her activity as "non-investment related," and represented that her participation with MBC would be limited to "support[ing]/consult[ing]" her husband as the President of MBC as needed.

Between June 2018 and June 2019, however, Gill's activities related to MBC became
"investment-related," as she participated in the company's private offering of preferred
shares to potential investors. Gill did so without providing written notice of this
participation to, or obtaining approval from, Paradigm.

Specifically, in connection with this private offering, Gill provided information related to
MBC's business and operations, discussed investment opportunities in MBC, and
provided subscription agreement documents to facilitate investments in the company to
other Paradigm registered representatives, customers of the firm, and other potential
investors. Furthermore, Gill completed subscription agreements for certain investors
(including for one Paradigm customer), assisted other investors with completing their
subscription agreements, and accepted funds for investments in MBC and deposited those funds into MBC's bank account. Finally, Gill met with a Paradigm customer at his home, provided him with a subscription agreement, and assisted him with completing his subscription agreement for the offering of MBC preferred shares.

All of Gill's activities related to her participation in the sale of securities on behalf of
MBC were outside the regular course or scope of her employment with Paradigm and, as a result, her participation violated FINRA Rules 3280 and 2010.

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, Sachin Kumar submitted a Letter of Acceptance, Waiver and Consent ("AWC"), which FINRA accepted. The AWC asserts that Kumar was first registered in 2007 and from May 2016 through August 2019, he was registered with FINRA member firm Morgan Stanley. The AWC alleges that Kumar "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 Kumar had violated FINRA Rule 2010 and imposed upon him a $5,000 fine and a one-month suspension from associating with any FINRA member firm in any and all capacities. As set forth in part in the AWC:

Customer A was Kurnar's customer at Morgan Stanley, and he had several accounts with Kumar at the Firm. During an in-person meeting in February 2019, Kumar and Customer A discussed potentially transferring additional brokerage accounts of Customer A to Morgan Stanley; Kumar directed Customer A to sign a blank ACAT form. The ACAT form was not completed or submitted at that time. 

On April 11, 2019, Kumar and Customer A discussed transferring a brokerage account at another firm with a value in excess of $1 million to Morgan Stanley. At That meeting, Customer A handed Kumar the account statements to be attached to the previously executed ACAT form. On April 12, 2019, Kumar, believing that Customer A had authorized the transfer of the account, completed the blank ACAT form that had been signed by Customer A in February and submitted it to the Firm for processing. However, Customer A emailed Kumar later that day and directed Kumar not to transfer the account to Morgan Stanley. By the time Kumar responded the following business day, the transfer had already been processed. 


A personal note from Bill Singer, BrokeAndBroker.com Blog:

Stephen A. Kohn is running as a candidate for the 2020 Financial Industry Regulatory Authority ("FINRA") Small Firm Governor seat on the self-regulatory organization's Board. Stephen has demonstrated a persistent and consistent record as an unabashed advocate for industry reform and effective regulation. He is not running for office in order to burnish his resume. Without question, Stephen seeks a Board seat in order to shake things up, to force consideration of reforms that are long overdue, and to make sure that someone fights for the legitimate needs of FINRA's besieged small firms.  

I supported Stephen's successful candidacy for the 2017 FINRA Small Firm Governor seat and support his bid for a second term in 2020. I urge all Securities Industry Commentator and BrokeAndBroker.com Blog readers to press their FINRA member firm's Executive Representative to support Stephen's candidacy for the Board.

As set forth in part "Upcoming FINRA Board of Governors Election / Petitions for Candidacy Due: June 22, 2020" (FINRA Election Notice / May 8, 2020)
https://www.finra.org/rules-guidance/notices/election-notice-050820:

Petition Process for Additional Candidates

A person who has not been nominated by the Nominating Committee for election to the FINRA Board may be included on the ballot for the election of governors if:

a. within 45 days after the date of this Election Notice (Monday, June 22, 2020), such person presents to FINRA's Corporate Secretary petitions in support of his or her nomination, duly executed by at least 3 percent of FINRA member firms entitled to vote for such nominee's election. If, however, a candidate's name appears on a petition in support of more than one nominee, the petition must be endorsed by 10 percent of FINRA member firms entitled to vote for such nominees' election; and

b. the Corporate Secretary certifies that such petitions have been duly executed by the executive representatives of the requisite number of FINRA member firms entitled to vote for such person's election, and the person being nominated satisfies the classification of the governorship to be filled.

As of the close of business on Thursday, May 7, 2020, the number of FINRA large firms was 166, and the number of small firms was 3,165. Therefore, the requisite number of petitions for a large firm petitioner is 5, and the requisite number of petitions for a small firm petitioner is 95.

Firms may only endorse one petitioner for the same firm size seat as their own. No firm may endorse more than one such petitioner.

Petitioners must submit sufficient information to determine the person's status with respect to the category for which he or she is petitioning to be nominated. Individuals seeking nomination for election as a Large Firm Governor or a Small Firm Governor have an obligation to satisfy the firm-size classification on the date the petition is circulated, the date the petitions are certified by FINRA's Corporate Secretary, and the date of the annual meeting. Individuals who fail to meet this requirement will be disqualified from election. 

Petitioners must also provide information sufficient for the Corporate Secretary to determine that the petitions are duly executed by the executive representatives of the requisite number of applicable size firm members. In addition, to assist in the process of verifying petitions, FINRA requests that all petitions submitted be dated by their signatory.

Petitions must be submitted no later than Monday, June 22, 2020.

The names of persons obtaining the requisite number of valid petitions will be included on the appropriate proxy mailed to eligible firms in advance of the annual meeting. . . 


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