Securities Industry Commentator by Bill Singer Esq

October 27, 2020

Holistic Wellness Business Founder Charged In Ponzi Scheme / Founder Claimed He had Cured Himself of Cancer and Awarded $2 Million from Vanderbilt for Research (DOJ Release)
Starting with his being censured, fined, and suspended pursuant to two FINRA Office of Hearing Officers Decisions in 2015, Chief Compliance Officer Thaddeus J. North's career then pursued a regulatory odyssey to FINRA's National Adjudicatory Council, to the Securities and Exchange Commission, and the federal courts. North's tale is a wake-up call for the industry's CCOs.
As CNBC's Fitzgerald reports in part, Charles Schwab announced the lay-off of about 1,000 employees. A Schwab Press Release: "Company Statement on Integration-Related Job Actions," states in pertinent parts that:

[W]e have begun notifying individuals that their roles have been eliminated and they will be leaving the firm. This will result in a reduction of approximately 1,000 positions or about 3% of the combined workforce of Charles Schwab and TD Ameritrade.

. . .

These reductions are part of our efforts to reduce overlapping or redundant roles across the two firms, but the combined firm will continue to hire in strategic areas critical to support our growing client base. Employees whose roles are impacted by today's changes will have early access to all newly opened positions and be treated as internal candidates for the more than 1,000 currently open positions at Schwab through their 60-day notice period. 

Bill Singer's Comment: Y'all remember the promised "soaring" of staff?

In an Information filed in the United States District Court for the Middle District of Tennessee, Howard L. Young, 75, the founder of Integrative Medical Services ("IMS") was charged with four counts of bank fraud; six counts of wire fraud; and aggravated identity theft. The Information alleges that Young held himself out to hold a Doctor of Naturopathy but did not hold a Medical Doctorate and did not have a medical license. As alleged in part in the DOJ Release:

As early as 2017, Young began soliciting cancer patients, investors and employees, telling them that he had obtained a $2 million grant from Vanderbilt University to study cancer patients and other patients with chronic medical conditions.  Young claimed he was awarded this grant because he had cured himself of cancer using naturopathic methods.  Young also promised that, as part of the study, patients would receive nutritional supplements, blood testing, nutrition and exercise coaching, gym memberships, massages, and acupuncture.

In order to participate in the study, Young told patients that Vanderbilt required an up-front payment of $10,000 but the funds would be returned to them at the conclusion of one year.  If patients could not afford to pay the upfront money, they were required to secure a CareCredit credit card or open a Health Credit Services account.  Each of these products is designed to assist patients in paying for medical treatments and functions like a revolving line of credit or an unsecured installment loan and requires the patient to make monthly installment payments.  Young promised patients that he would hold the initial funds withdrawn in escrow and would make all monthly payments and would pay off all existing balances at the conclusion of one year, so long as the patient continued to abide by all study protocols. 

In fact, Vanderbilt had not awarded any grants to Young or IMS.  Young's representations that IMS had a grant from Vanderbilt were false and was intended to induce patients to apply for and obtain credit and loan accounts at Synchrony Bank, MetaBank, and Cross River Bank; to induce investors to give him funds for his fraudulent scheme; and to induce employees to help him solicit additional patients to participate in his fraudulent scheme.

Young did not hold the money in escrow as he promised and withdrew a portion of the funds for his own personal use, made payments to his personal credit cards, and made minimum payments on account holders' credit accounts and loan accounts.  Patients did not routinely receive the nutritional supplements promised by Young, nor did they receive nutrition and exercise coaching, gym memberships, massages, or acupuncture as promised.  To further conceal his scheme, Young also changed the mailing addresses for patients' accounts at CareCredit and HCS so that the monthly account statements went to a post office box he controlled.  Young made minimum payments on the CareCredit and HCS accounts to conceal the fraud and to keep his scheme going so that he could recruit additional patients to participate in the fictitious grant study.

IMS generated little, if any, revenue. The vast majority of funds flowing into IMS were deposits from the CareCredit credit accounts and the HCS loan accounts.  By July 2019, Young had received a total of approximately $669,470 from CareCredit and HCS.

Man Sentenced to Nearly 3 Years in Federal Prison for Role in Lottery Scam that Defrauded Elderly Victims out of Almost $200,000 (DOJ Release)
Tito Lozada, 50, pled guilty in the United States District Court for Central District of California to one count of conspiracy to commit wire fraud; and he was sentenced to 33 months in prison; and he and his Co-Defendants were ordered to pay $190,422 in restitution. As alleged in part in the DOJ Release:

From March 2017 until September 2019, Lozada and his co-defendants rented vehicles under false names and then drove in search of elderly victims - primarily Hispanic women between the ages of 65 and 85 years old. Once a victim was located, a member of the scheme approached her and lied about having a winning lottery ticket that the co-conspirator needed help cashing.          

The defendants preyed on their victims' emotions by claiming the conspirators needed help finding their way home or to a church, or by claiming they were illegally in the United States and needed help finding a lawyer or immigration services. One victim identified Lozada as the thief who stole her money and co-defendant Maria Luisa Henao, 44, a dual citizen of Colombia and the United States, as the suspect who cried as a ploy to lure her into the scheme.          

To further deceive the victims, one of the co-conspirators generally telephoned a purported lottery official - actually a cohort - who then "confirmed" the phony lottery ticket was a winner that only could be released by paying a fee or cash deposit.          

The defendants general drove victims to their home or bank so they could retrieve jewelry or large sums of cash to pay for the sham lottery ticket deposit. Once the co-conspirator had the victim's money or jewelry in hand, they used a ruse in order to flee.  
J. Michael Clancy pled guilty in the United States District Court for the Central District of California to wire fraud and he was sentenced to 46 months in prison and ordered to pay $3,003,084 in restitution. As alleged in part in the DOJ Release:

From July 2014 until July 2016, Clancy operated Multiplied Equities and Quantum Capital California LP, both located in Lake Forest, which he claimed offered short-term loans secured by real estate. Clancy sold partnership interests to investors, telling them their funds would be used to make short-term loans. Clancy further promised to sell the loans to outside investors, which would earn profits for his victims and free up funds to make additional short-term loans.

Instead of using his victims' funds as promised, Clancy used the money to operate a house-flipping scheme, purchase a personal residence in Silverado Canyon, pay family members, and make "interest" payments to earlier investors in the scheme.

In total, 11 victims lost $3,003,084 as a result of the scheme.