Securities Industry Commentator by Bill Singer Esq

Did You Hear The One About the Three Lawyers, the Judge, and The Talking Cat?

California Attorney Arrested For Multimillion-Dollar Investment Fraud Scheme (DOJ Release)

SEC Charges Former Minneapolis-Area Investment Adviser with Fraud for Misappropriating Client Funds (SEC Release)

SEC Obtains Default Judgments Against San Diego Broker and Colorado Trust in Fraudulent Offering Scheme (SEC Release)

New Jersey Woman Sentenced to 63 Months in Prison for $2 Million Bank Fraud Scheme (DOJ Release)

Statement of Acting Chair Allison Herren Lee on Empowering Enforcement to Better Protect Investors (SEC Release)

FINRA Censures and Fines Triad Advisors Over Supervisory Lapses

In the Matter of Triad Advisors, LLC, Respondent (FINRA AWC)

West Point Graduate Blows Up Wall Street Career (BrokeAndBroker.com Blog)

From at least 2012 through at least 2019, JONES solicited and obtained investments for various companies and investment funds he controlled, including the purported real estate development and investment firm BlueRidge Realty ("BlueRidge") and the purported venture capital firm Realize Holdings ("Realize").

JONES routinely made materially false oral and written statements to induce victims to invest, including statements that lied about BlueRidge's and Realize's assets.  For example, JONES falsely claimed that BlueRidge was developing a "resort village" on land it controlled in Washington State, when in fact neither BlueRidge nor JONES owned or controlled the property, let alone had begun developing a resort there.  Additionally, JONES sent a potential Realize investor an altered bank statement showing a balance in a Realize bank account of more than $7 million - at a time when that bank account actually had a negative balance of approximately $268.71.

JONES defrauded investors out of at least approximately $4.5 million.  He misappropriated investments and used the funds to, among other things, transfer money to himself or relatives, pay tuition for a private school attended by one or more of his children, and make Ponzi-like payments to other investors.  To prolong and conceal the fraud scheme, JONES regularly told lies designed to avoid meetings with or inquiries from victims.  For example, in explaining his failure to respond promptly to questions or his reason for postponing an upcoming meeting, JONES falsely told different investors, on different occasions, that one of his relatives was in poor health.  JONES also used the names of other individuals - without those individuals' authorization or knowledge - to communicate via email with investors and thus foster the illusion that JONES's businesses were viable operations with real employees.

[F]rom at least September 2018 to November 2020, Goodman, doing business through Becoming Financial Advisory Services, LLC, stole more than $2.25 million from at least 20 advisory clients. As alleged, Goodman falsely represented to these clients that he would invest their money in securities, including mutual funds and stocks for their retirement and investment accounts. Instead, Goodman allegedly misappropriated their money by using it for his own personal and business expenses, including home renovation and building expenses, car payments, and vacations. Goodman allegedly furthered the fraud by providing his clients with fake account statements and computer screenshots purporting to show that their funds were appropriately invested and their accounts had appreciated in value, and by making Ponzi-like payments to certain clients.

[I]n fact, the complaint alleged, the trading program did not exist, and the majority of investor money was misappropriated. The complaint further alleged that Leyton, the owner of a securities brokerage firm, assisted Coddington by opening brokerage accounts that enabled Coddington to misappropriate investors' CMOs. Specifically, the complaint alleged that Leyton opened brokerage accounts at his brokerage firm to enable investors to transfer their CMOs to the defendants, delayed the return of the CMOs to investors, and sold or assisted in the selling of the CMOs contrary to the terms of the investment agreements with investors. The complaint also alleged that Coddington transferred funds illegally obtained from investors through the fraudulent scheme to the Coddington Family Trust. The SEC charged the Coddington Family Trust as a relief defendant in the 2013 action.

Leyton and the Coddington Family Trust did not answer or otherwise respond to the SEC's complaint. In its orders entering the default judgments, the court found that Leyton aided and abetted violations of the antifraud provisions of Section 17(a) of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder, and permanently enjoined him from future violations. The court also ordered Leyton to pay disgorgement of $176,964, prejudgment interest of $69,374, and a civil penalty of $176,964. Finally, the court ordered the Coddington Family Trust to pay disgorgement of $1,591,962 and prejudgment interest of $665,220.

The SEC also sought, and the court granted, dismissal of its claims against defendant Stonerock Capital Group LLC and its president, relief defendant Joanna I. Columbia, because the disgorgement that the SEC sought from Stonerock (which is now defunct) and Ms. Columbia was included in a judgment against her former husband, defendant Michael B. Columbia.

The SEC previously obtained judgments against Merlyn Curt Geisler, Marshall D. Gunn, Jr., and Michael B. Columbia in connection with their roles in the alleged prime bank scheme, and dismissed its claims against Coddington (who passed away in January 2019) and others, including several entities that are now defunct. The SEC's case is continuing against Jesse W. Erwin, Jr., Lewis P. Malouf, and Daniel Scott Coddington. The litigation is being led by Leslie J. Hughes and Stephen C. McKenna, and supervised by Gregory A. Kasper.

From March 2017 to June 2018, Taylor agreed with others to execute a scheme to defraud various financial institutions located in New Jersey, New York, and elsewhere. She purchased a significant amount of stolen personal identifying information via the dark web, including bank account information and online security question answers. Taylor then used the information to access victim accounts at various banks and other financial institutions.

Taylor, and others acting at her direction, would travel to banks and impersonate victim account holders to withdraw funds from accounts held by the victims at those institutions. Taylor would also communicate with the banks by phone and request that wire transfers be made from victim accounts and into accounts held by Taylor. Finally, it was part of the scheme that Taylor would travel to victims' homes and intercept debit cards and other financial documents from the mail to facilitate the fraud.

In consultation with Division of Enforcement Acting Director Melissa Hodgman, today I restored a vital tool to our enforcement program to better protect investors by authorizing senior officers in the division to approve the issuance of a Formal Order of Investigation. This will empower senior officers to exercise the delegated authority of the Commission to authorize staff to subpoena documents and take sworn testimony. This delegation of authority will enable investigative staff to act more swiftly to detect and stop ongoing frauds, preserve assets, and protect vulnerable investors.

Returning this authority to the division's experienced senior officers, who have a proven track record of executing it prudently, helps to ensure that investigative staff can work effectively to protect investors in an era when the pace of fraud - like the pace of markets themselves - is ever more rapid.

From June 3, 2015, through July 31, 2017, Triad failed to establish and maintain a reasonable supervisory system to achieve compliance with suitability requirements regarding switching and short-term trading of class A share mutual funds and failed to supervise such trading. As a result of the foregoing, Triad violated FINRA Rules 2111, 3110 and 2010. 

Additionally, from June 2015 through December 2017, Triad failed to establish, maintain, and enforce a reasonable supervisory system and Written Supervisory Procedures (WSPs) that were reasonably designed to identify possible inappropriate rates of VA exchanges. As a result of the foregoing, Triad violated FINRA Rules 2330(d), 3110 and 2010. 

Finally, from June 2015 through December 2017, Triad failed to timely file 19 Rule 4530 disclosures in connection with customer-related arbitrations and written customer complaints. In addition, in six instances, Triad failed to timely update its registered representatives' Uniform Application for Securities Industry Registration or Transfer Form (Form U4) to disclose reportable events. In ten instances, Triad failed to timely update Uniform Termination Notice for Securities Industry Registration Form (Form U5) to disclose reportable events. As a result of the foregoing, Triad violated FINRA By-Laws, Article V, Sections 2 and 3 and FINRA Rules 4530(a)(1)(G), 4530(d), and 2010.

• Securities Industry Commentator
• Bill Singer