Securities Industry Commentator by Bill Singer Esq

July 10, 2020

Houston May Have a Problem . . . (TSSB Release)

CEO of Century 21 parent says suburban home search is up across the country, following New York's lead (CNBC by Tyler Clifford)

Trump v. Vance Supreme Court Opinion
Two centuries of experience likewise confirm that a properly tailored criminal subpoena will not normally hamper the performance of a President's constitutional duties.
While we certainly recognize Congress's important interests in obtaining information through appropriate inquiries, those interests are not sufficiently powerful to justify access to the President's personal papers when other sources could provide Congress the information it needs.

Wells Fargo tells new clients they need $1 million in balances for certain mortgage refinancings (CNBC by Hugh Son)
Oh that's nice -- how responsible of Wells Fargo. Sure, I can see how the firm wants at least $1 million in balances before providing a jumbo loan. Makes sense to me. Just by way of jogging my memory, when Wells Fargo opened those millions of unauthorized, fraudulent savings and checking accounts, what was the minimum assets the victimized customers were required to have? Yeah, I know, I'm one sarcastic bastard.
Speaking of the legacy of Wells Fargo's pervasive fraud (see article immediately above), consider this observation by CNBC's Levitt:

The firm's expenses have surged in recent years on legal costs, remediation and fines related to a series of scandals that began with the 2016 revelation that employees opened unauthorized customer accounts to meet sales goals. Yet its job cuts have been relatively modest over the past decade, a period in which Bank of America shrank its workforce by about 80,000 people. Wells Fargo has more people than its top competitor, JPMorgan, despite pulling in about $30 billion less revenue last year.
(FYI -- the all-caps are in the original DOJ headline. Why? I dunno, maybe someone's hard of hearing or didn't realize they were typing with the "caps lock" on.Archie G. Overby, 71, pled guilty in the United States District Court for the Eastern District of Wisconsin to misapplication of funds by a bank officer., and he was ordered to pay $1.6 million in restitution and to foreit $146,023.35 to the United States. Notably, the Court declined to impose any prison sentence "because of Overby's age and documented and significant health issues." As alleged in part in the DOJ Release:

[O]verby had been the President, Chief Operating Officer, and Chairman of the Board of First National Bank in Waupaca.  Pursuant to a plea agreement, Overby admitted that starting by 2010 and continuing through 2013, he caused the bank to pay for $1.6 million in travel, entertainment, and other personal expenses for himself, family members, friends, and associates, all of which had no legitimate banking purpose. The expenses included airfare, lodging, and a climbing expedition to Mt. Kilimanjaro, Tanzania, as well as stays at a spa in Arizona and in villas in St. Maarten.

The criminal case followed a civil action by the Office of the Comptroller of Currency (OCC), the bank's federal regulator. That case, which Overby settled in 2017, resulted in his lifetime prohibition from participation in the financial institution industry, and his agreement to pay $1.6 million in restitution and a $100,000 civil money penalty. After the settlement, however, Overby released a statement asserting that he had admitted no wrongdoing and "never would." He described the regulator as "overzealous," claimed to be the victim, and alleged that the regulator improperly had sought to "tarnish his reputation."  As part of his guilty plea, Overby acknowledged not only his criminal conduct but also that the OCC had acted properly and within the bounds of its authority.

. . .

Judge Griesbach noted that Overby's criminal conduct, which had gone on for years, was serious and hard to understand, particularly in light of the fact that Overby had been "so well compensated."  Judge Griesbach concluded that it was a betrayal of trust that could only be attributed to "greed and callous disregard for others."  Judge Griesbach explained that "in ordinary circumstances, this case would call for a guideline prison sentence."  However, Judge Griesbach found that due to Overby's age and demonstrated health issues, exposure to COVID-19 in prison could amount to a death sentence.  As such, Judge Griesbach accepted the recommendation that Overby receive a non-custodial sentence.
FINRA member firm Sharemaster and its principal Howard Feignbaum battled for 11 years about the firm's 2009 audit. A battle that involved FINRA, the PCAOB, the SEC, and the 9th Circuit. A battle that wasted time. Wasted money. As FINRA hemorrhages money, and as FINRA's Small Firm community inexorably evaporates under the onslaught of COVID and the rising costs of compliance/regulation, Sharemaster should serve as an alarm about all that's wrong with self regulation. But it won't. As Will Rogers famously asked about the Great Depression: "If stupidity got us into this mess, why can't can't it get us out?"

VOTE FOR STEPHEN KOHN for 2020 FINRA Small Firm Governor

On August 7, 2020, the Financial Industry Regulatory Authority ("FINRA") will conduct its annual meeting, at which time the self-regulatory organization will elect one Small Firm Member Governor (1 to 150 registered representatives).  Pursuant to FINRA's rules, member firms may only vote for a nominee from their respective sized firm. A proxy was mailed to each eligible firm's Executive Representative. Proxies may be submitted by "any lawful means," which include telephone, mail, or Internet.  "Notice of Annual Meeting of FINRA Firms and Proxy" (Election Notice, July 8, 2020). 
In order to ensure that the voice of FINRA's small firm community is heard, it is critical that your firm's proxy is promptly submitted by your firm's Executive Representative. 

A personal message from Bill Singer, Esq.,
publisher of the 
Securities Industry Commentator and the Blog

Stephen A. Kohn, President/CCO of DMK Advisor Group, Inc, is one of three candidates for the 2020 FINRA Small Firm Governor seat. For some two decades, Stephen has advocated for industry reform and effective, fair regulation. Stephen seeks re-election as the 2020 FINRA Small Firm Governor in order continue the fight for the legitimate needs of FINRA's besieged small firms. 

Stephen Kohn has complained about the lack of a Small Firm Governor on five or FINRA's eight Standing Committees (non-representation highlighted in red below):

Audit Committee
Executive Committee
Finance, Operations & Technology Committee
Investment Committee
Management Compensation Committee
Nominating & Governance Committee
Regulatory Policy Committee
Regulatory Operations Oversight Committee

Pointedly, Stephen Kohn cites the disgraceful absence of even one Small Firm Governor on FINRA's powerful and influential Management Compensation Committee and Nominating & Governance Committee. How important are those two Committees to the operation of FINRA? Why is the Small Firm community's lack of representation so outrageous? Consider these descriptions from FINRA's website:

Management Compensation Committee

The Management Compensation Committee reviews and recommends changes to FINRA's compensation policies, programs and practices, with the primary objective that FINRA attract, develop and retain high performing individuals who are capable of achieving FINRA's mission of ensuring market integrity and investor protection. The Committee also reviews the plans for the development, retention and succession of key executives of the Corporation and its subsidiaries.

Nominating & Governance Committee (Nominating Committee)

The Nominating and Governance Committee is responsible for nominating persons for appointment or election to the FINRA Board, as well as nominating persons to fill vacancies in appointed or elected governor seats on the Board. The Committee also nominates Industry and Public members for positions on FINRA's National Adjudicatory Council.

The Committee is responsible for periodically reviewing and recommending changes to standing committee charters and, in consultation with the CEO, nominates the members and chairs of each standing committee of the Board. Also in consultation with the CEO, the Committee develops and recommends to the Board guidelines for effective corporate governance. In addition, the Committee reviews and approves appointments to each of FINRA's advisory committees and changes to the advisory committee enabling resolutions.

As I recently observed:

[F]INRA's Board of Governors is a non-representative entity nurtured by an indefensible system of gerrymandering whereby over 91% of the organization's member firms (those designated as "Small" and defined as having at least 1 but no more than 150 registered representatives) are restricted to only 3 of 24 seats (less than 13% of the organization's membership). Worse, FINRA's Nominating and Governance Committee, which nominates candidates for Governors, does not have one Small Firm Governor among its seven member committee
With the exception of Small Firm Governor Stephen Kohn, who is now seeking re-election to a second term, I know of no current Governor who is aggressively supporting efforts to seat a Small Firm Governor on the Nominating Committee. 

Given FINRA's social engineering of its Board and key Committees, and given the ongoing demise of FINRA's overall membership, I refuse to afford this so-called self-regulatory-organization any legitimacy and continue to call for its decertification. Consequently, while I welcome the election of Eileen Murray as Chair, I urge her to rectify the outrageous lack of fair representation on FINRA's Board and Committees.

at "Securities Industry Commentator" July 1, 2020

The re-election of Stephen Kohn as one of only three FINRA Small Firm Governors will ensure that the Small Firm community retains a bulwark against the ongoing erosion of their voice and interests. The small firms constitutes over 91% of the organization's member firms, which makes the marginalization of that group outrageous and ominous. I have been a vocal critic of this social engineering by FINRA to suppress its Small Firms' influence and to artificially constrain their proper role in fashioning the self-regulatory-organization's agenda. 

In the past, Stephen Kohn joined me in seeking redress of FINRA's unfair fine and excessive term of suspension imposed upon military veteran Richard Botkin, read: "Stephen Kohn and Hugh Hewitt Champion Richard Botkin's FINRA Appeal" ( Blog, July 14, 2017) A testament to Stephen's character and dedication was revealed when he immediately reached out to me and offered his assistance on Botkin's behalf. Moreover, Stephen took the initiative and contacted FINRA to press for reconsideration of Botkin's sanctions. 

Also, in response to "FINRA Baseball Caps, Rice Krispies Treats, Hiring Spree, And ZOOM OTRs" ( Blog,  May 1, 2020), Stephen Kohn investigated the use (and potential abuse) of ZOOM video by FINRA for On-the-Record regulatory interviews ("OTRs") and arbitration hearings during the onslaught of the COVID-19 pandemic. Stephen's active advocacy for issues that truly matter is in marked contrast to the posturing of many former and current Governors. 

Time and time again, Stephen Kohn steps forward when other Governors hang back. 

Time and time again, Stephen Kohn speaks up when other Governors remain silent. 

As a 38-year industry veteran and a founder of the NASD and FINRA Dissident Movement (See, "THE MARKETS; Two Independents Are Elected To Serve on N.A.S.D.'s Board" (New York Times, December 22, 1998), I have tired of far too many candidates for FINRA elective office who talk the talk but won't walk the walk. Following his election as the 2017 FINRA Small Firm Governor, Stephen Kohn pressed for a number of meaningful reforms. Too often it was Stephen and only Stephen who fought for the small firms. Despite his lonely advocacy, Stephen persisted. If re-elected in 2020, Stephen will remain a passionate voice in raising the legitimate grievances of the small firm community. READ about Stephen's activism during his 2017 - 2020 term as Small Firm Governor

I urge all Securities Industry Commentator, RRBDLaw, and Blog readers to press their FINRA Small Firm's Executive Representative to cast a proxy in support of Stephen Kohn's candidacy for the 2020 FINRA Small Firm Governor.

Stephen Kohn's Biography

Stephen A. Kohn
DMK Advisor Group, Inc.

7114 W. Jefferson Ave., Ste. 305
Lakewood, CO 80235

I have been employed in the financial services industry since 1984, to which I have devoted most of my working life.  Founded in 1996, I owned and operated a FINRA, member firm, Stephen A, Kohn & Associates, Ltd. ("SAKL") located in Lakewood, Colorado.  SAKL has recently had a change of ownership and is now DMK Advisor Group, Inc. ("DMK"), still a small, still a full service, independent broker/dealer, catering to the needs of forty-five independent representatives and their clients, with office locations in eight states and Puerto Rico, registered in forty-five. I remain with DMK as its President and CCO.

I have been twice elected to the National Adjudicatory Council ("NAC") by FINRA's small firms, first in 2009 and again in 2014.  The NAC is FINRA's appellate division, hearing appeals to enforcement decisions and other issues.

While on the NAC, I was appointed to, and served on the NAC's Sanction Guideline Review Sub-Committee.  This sub-committee was convened to review and revise the guidelines, ensure that sanctions in appeals that are upheld by the NAC are fair and appropriate and to recommend revisions to the Sanction Guidelines as needed.  I am also an Industry Arbitrator.

I hold the following securities licenses: Series, 7, 24, 53, 63, 72, 73, 79 and 99.  I graduated from C.W. Post College of Long Island University in 1964 with a BA degree and have also served in the U.S. Coast Guard.

I have been, and will continue to be, your outspoken voice, fighting for serious recognition as a more than viable asset to the investing public.

In 2017 you elected me to the FINRA Board of Governors, representing our small firm community.  I have worked tirelessly, oftentimes behind-the-scenes to preserve and promote issues that have a direct effect on us all as well as defend us on issues I feel will have negative implication on our business.

In an environment of rapidly changing technology, the small Broker/Dealer provides a real, live voice on the other end of the line, to the investing public.  We service the investors with whom the "big guys" consider a bother and waste of time.  Yet, we're not taken as a serious force in the industry even though we are over 90% of FINRA's membership.

Things will not change overnight or, perhaps, ever.  But the only promise I can make to you is that, on your behalf, our voices will be heard and, hopefully, make a difference in the misguided perception that we are orphans, waiting to be adopted, or give up and go away.

There are issues that are unresolved upon which I have been working and it's imperative that I am able to see them to completion or they may die for lack of support.

I am asking for your vote to make that happen.

The need for regulation is necessary now, more than ever.  But it must be meted out with an even hand.  We cannot be held to the same standard as those "too big to fail" institutions.  We must be judged relative to who we are and the services we provide.

The "Regulators" will never know who we really are until they've walked a mile in our shoes and judge us accordingly.

Your vote will bring me to where I can deliver our message to those who control our destiny.

Romanian Programmer Admits that He Helped Create Bitclub Network, a Fraud Scheme Worth at Least $722 Million (DOJ Release)

Silviu Catalin Balaci pled guilty in the United States District Court for the District of New Jersey to a Superseding Information charging him with one count of a dual-object conspiracy to commit wire fraud and to offer and sell unregistered securities. Co-Defendants Matthew Brent Goettsche, Russ Albert Medlin, Jobadiah Sinclair Weeks, and Joseph Frank Abel were indicted in December 2019 in connection with the scheme. As alleged in part in the DOJ Release:

From April 2014 through December 2019, the BitClub Network was a fraudulent scheme that solicited money from investors in exchange for shares of purported cryptocurrency mining pools and rewarded investors for recruiting new investors into the scheme. Balaci assisted Goettsche and Medlin in creating and operating the BitClub Network and served as a programmer for the BitClub Network.  

As a part of the scheme, Balaci and Goettsche discussed that the target audience for the BitClub Network would be "dumb" investors, referred to them as "sheep," and plotted that they would be "building this whole model on the backs of idiots."  The BitClub Network told investors that they could invest in three different bitcoin mining pools; however, Balaci admitted that, at no point during the conspiracy was he aware of the BitClub Network operating three separate bitcoin mining pools.  Balaci admitted that he, at Goettsche's behest, changed the figures displayed as bitcoin mining earnings to make it appear that the BitClub Network was earning more than what was actually being mined.  For example, in February 2015, Goettsche directed Balaci to "bump up the daily mining earnings starting today by 60%," to which Balaci warned "that is not sustainable, that is ponzi teritori [sic] and fast cash-out ponzi . . . but sure."  In connection with his plea, Balaci confirmed that during the course of the scheme, the BitClub Network took at least $722 million worth of bitcoin from investors.

San Diego, California Man Sentenced To Federal Prison For His Role In Million Dollar Scheme Targeting Thousands Of U.S. Servicemembers And Veterans (DOJ Release)

Trorice Crawford, 32, pled guilty in the United States District Court for the Western District of Texas to one count of conspiracy to launder monetary instruments; and he was sentenced  to 46 months in federal prison plus three years of supervised released, and he was ordered to pay $103,700 in restitution. As alleged in part in the DOJ Release:

[C]rawford admitted that from May 2017 to July 2019, he conspired with Robert Wayne Boling, Jr. (a U.S. citizen), and others to steal money belonging to U.S. Servicemembers and veterans.  By pleading guilty, Crawford admitted to recruiting at least 30 individuals (aka "money mules") who provided their bank account information to receive funds stolen from military affiliated individuals.  On average, each unauthorized transfer from a victim's accounts ranged from between $8,000 to $13,000.  Crawford kept a percentage of the withdrawn funds for himself and oversaw the transmission of the remaining amounts by means of international money remittance services to Boling and others in the Philippines.

. . .

In October, Crawford's co-defendant Frederick Brown, age 38 of Las Vegas, NV, pleaded guilty to federal charges in connection with this scheme.  Brown, a former civilian medical records administrator for the U.S. Army at the 65th Medical Brigade, Yongsan Garrison, South Korea, admitted that while logged into the Armed Forces Health Longitudinal Technology Application, he illegally captured on his cell phone personal identifying information (PII) of thousands of military members, including names, social security numbers, DOD ID numbers, dates of birth, and contact information.  Brown further admitted that he subsequently provided that stolen data to Boling so that Boling and others could exploit the information in various ways to access Department of Defense and Veterans Affairs benefits sites and steal millions of dollars. 

As asserted in the federal grand jury indictment, Boling, together with his Philippines-based co-defendants Allan Albert Kerr (Australian citizen) and Jongmin Seok (South Korean citizen), specifically used the stolen information to compromise a Department of Defense portal designed to enable military members to access benefits information online. Once through the portal, the defendants are alleged to have accessed benefits information.  Access to these detailed records enabled the defendants to steal or attempt to steal millions of dollars from military members' bank accounts. The defendants also stole veterans' benefits payments. Evidence of the defendants' scheme was detected earlier this year, advancing the investigation that led to the indictment.

The Departments of Defense and Veterans Affairs are coordinating with the Department of Justice to notify and provide resources to the thousands of identified victims.

Boling, Kerr, and Seok are charged with multiple counts of conspiracy, wire fraud, and aggravated identity theft.  Boling, Kerr, and Seok remain in the Philippines.  Measures are being taken to effect their transfer to the Western District of Texas.  Brown remains in federal custody awaiting sentencing scheduled for 10:30 am on September 17, 2020, before Judge Garcia in San Antonio. 

Houston May Have a Problem . . . (TSSB Release)

In an unusually short Press Release, TSSB states:

The Texas State Securities Board issued two emergency cease and desist orders against firms and individuals claiming to provide lucrative investment opportunities in international cryptocurrency trading platforms that trade bitcoin and mine cryptocurrency. The subjects of the orders purport to operate out of the same residential address in Houston, Texas, and tout daily, potential profits ranging from 35% to better than 600% based upon the amount of money investors are willing to part with.

The respective orders entered against LoudMines and Swiftminex may be accessed at LoudMines order and Swiftminex order.

CEO of Century 21 parent says suburban home search is up across the country, following New York's lead (CNBC by Tyler Clifford)

An intriguing article by CNBC's Clifford, who reports in part that:

"In every urban geography, the web traffic of people and what they're searching for has changed, versus six to 12 months ago, to be much more suburban," he said Thursday on CNBC's "The Exchange." "Even in the urban geographies where that rotation has not happened in the actual housing purchase and sales yet, the consumer searching is going in that direction and we continued to see that through the whole Covid crisis in the last three months."

SEC Sustains FINRA Rejection of Commonwealth Capital Securities' MC-400 per Kimberly Springsteen-Abbot Affiliation
In the Matter of the Application of Commonwealth Capital Securities Corp. for Review of Action Taken by FINRA (SEC Opinion, '34 Act Rel. No. 89260, Admin. Proc. File No.3-18554)

As set forth in the Syllabus:

Member firm of registered securities association filed application for review of association's decision denying member firm's application to permit its continued membership while associating with an individual who was subject to a statutory disqualification. Held, application for review is dismissed.

As asserted in pertinent part in the SEC Opinion:

[T]he NAC denied CCS's membership continuance application on May 24, 2018. 

The NAC found that Springsteen-Abbott was statutorily disqualified because of FINRA's August 2016 and July 2017 decisions imposing a bar and that "it is not in the public interest, and would create an unreasonable risk of harm to the market or investors, for Springsteen-Abbott to continue to associate with" CCS. First, the NAC found that Springsteen-Abbott improperly continued to associate with CCS following the August 2016 bar and that CCS's application sought "to avoid the real and immediate effects of the unqualified bar." Second, the NAC found that the conduct underlying Springsteen-Abbott's statutory disqualification was serious and the bar was recent and noted that Springsteen-Abbott and the other hearing witnesses "attempted to downplay the seriousness of her misconduct by recasting it as having resulted from mere accounting errors and other process deficiencies that have been corrected." Third, the NAC found that CCS could not stringently supervise Springsteen-Abbott in the manner it proposed. It observed that Abbott lacked the necessary independence to supervise his wife, that it is difficult for employees to supervise the owner of a firm, and that the proposed supervisory plan was inadequate as it "consist[ed] mainly of boilerplate language and other generic provisions and contain[ed] a number of provisions that are inapplicable to [CCS's] business."

at Pages 4 - 5 of the SEC Opinion

In setting out its rationale, the SEC noted in part [Ed: footnotes omitted]:

In this case, the NAC denied CCS's application because the conduct underlying Springsteen-Abbott's bar was serious and FINRA imposed the bar recently, she engaged in intervening misconduct, and CCS's proposed supervisory plan was inadequate. The NAC based its conclusions on the totality of the circumstances, supported its conclusions with evidence and precedent, and adequately explained the bases for its conclusions. We agree that the considerations the NAC cited provided a reasonable basis for denying the application. Indeed, we have held that where a statutory disqualification results from a bar that the Commission imposed that did not include a right to reapply for association after a specified period of time, "[n]othing more than the nature and seriousness of the underlying conduct that led to the statutory disqualification and bar as assessed by the Commission is necessarily required" for FINRA to "deny the application" for consent to associate notwithstanding the disqualification. On this record, we would have considered the nature and seriousness of the misconduct underlying the bar that we recently sustained and the inadequacy of CCS's proposed supervisory plan to be sufficient grounds for denying the membership continuance application. As a result, it was reasonable for FINRA to consider the nature and seriousness of the underlying misconduct that led it to impose an unconditional bar along with Springsteen-Abbott's intervening misconduct and the deficiencies in the supervisory plan and conclude that permitting Springsteen-Abbott's continued association with CCS was not in the public interest. 

CCS argues that the NAC erred in discounting that public investors in the Funds would pay more if CCC had to rely on an unaffiliated broker-dealer to offer the Funds rather that its inhouse broker-dealer CCS. But the NAC acknowledged CCS's argument that investors would benefit from Springsteen-Abbott's continued association with the firm because then she could continue to fund it and determined that this did not compel approving the application. The NAC reasonably concluded that the risks posed by Springsteen-Abbott's continued association with the firm as a result of the seriousness of the underlying misconduct, recency of the bar, and inadequacy of CCS's proposed supervisory plan outweigh any potential increased expense to the Funds' investors, and we concur. 

at Pages of the SEC Opinion 

For background on this matter, READ: "The Saga of FINRA Versus Kimberly Springsteen-Abbott (2015 - 2020 -- and likely not done yet)"
( Blog / February 10, 2020)