Securities Industry Commentator by Bill Singer Esq

March 17, 2021








http://www.brokeandbroker.com/5749/finra-awc-sushi/
The price of sushi -- and I'm talking about the really good stuff -- can be astronomical. We're talking hundreds, even thousands of dollars, for a meal or what may amount to a few bites. In a recent case, a Wall Street executive wound up paying $5,000. To be clear, that tab was not presented by a restaurant but in the form of a fine by FINRA, and the mandatory gratuity was a nine-month suspension. To add insult to injury, I'm wondering if the soy sauce packet ripped apart upon opening and splattered the diner. 

https://www.justice.gov/usao-nh/pr/six-charged-crimes-related-virtual-currency-exchange-business
In an Indictment filed in the United States District Court for the District of New Hampshire, Ian Freeman (formerly "Ian Bernard"), Colleen Fordham, Renee Spinella, Andrew Spinella, Nobody [sic] (formerly "Richard Paul"), and Aria DiMezzo (formerly "James Baker") were charged with participating in a conspiracy to operate an unlicensed money transmitting business and other offenses, Additionally,  Freeman, Fordham, Renee Spinella, Andrew Spinella, and Nobody were charged with wire fraud and participating in a conspiracy to commit wire fraud; and Ian Freeman was further charged with money laundering and operating a continuing financial crimes enterprise; and, finally, Freeman and DiMezzo were charged with operating an unlicensed money transmitting business. As alleged in part in the DOJ Release:

[S]ince 2016, the defendants have operated a business that enabled customers to exchange over ten million dollars in fiat currency for virtual currency, charging a fee for their service. They operated their virtual currency exchange business using websites, as well as operating virtual currency ATM machines in New Hampshire. The indictment alleges that the defendants knowingly operated the virtual currency exchange business in violation of federal anti-money laundering laws and regulations. In furtherance of their scheme, the indictment alleges that some defendants opened bank accounts in the names of purported religious entities. According to the indictment, some defendants then engaged in substantial efforts to evade detection of their unlawful virtual currency exchange scheme by avoiding answering financial institutions' questions about the nature of the business and misleading financial institutions into believing their unlawful virtual currency exchange business was instead a religious organization receiving charitable contributions.

Bill Singer's Comment: Ummm . . . one of the Defendant's name is "Nobody"? Sort of reminds me of the scene in the Odyssey when Polyphemus a/k/a "Cyclops" asked Odysseus his name, and was told Nemo (or "Nobody"). And afterwards, when Odysseus had blinded Polyphemus and the gods asked who had blinded him, we get that age-old Greek Abbott & Costello routine that "Nobody" did.

 


Former Chief Investment Officer Admits Bank Fraud Relating To $91.5 Million Commercial Loan
https://www.justice.gov/usao-nj/pr/former-chief-investment-officer-admits-bank-fraud-relating-915-million-commercial-loan-0
Barton Schack pled guilty to one count of conspiracy to commit bank fraud as alleged in an Information filed in the United States District Court for the District of New Jersey
https://www.justice.gov/usao-nj/press-release/file/1376776/download As alleged in part in the DOJ Release:

Schack was the chief investment officer of Regent Medical Properties ("Regent"), a property management company located in Glen Rock, New Jersey.  Sovereign Medical Services, and affiliates ("Sovereign"), was a network of multi-specialty, out-patient medical practices headquartered in Glen Rock, New Jersey, with various practice locations.  Co-conspirator 1 was the founder and chief executive officer of both Regent and Sovereign.

In April 2016, Schack and Co-conspirator 1 used fraudulent representations to obtain a $91.5 million loan (the "Mortgage Loan") from Lender 1 and others secured by thirteen medical office buildings in New Jersey, New York, and Florida (the "Medical Properties").  The borrowers in the Mortgage Loan were thirteen separate special purpose entities-majority-owned by Co-conspirator 1-one for each collateral property (collectively, the "Borrowers"). 

Schack and Co-conspirator 1 exploited the fact that, through Sovereign, Co-conspirator 1 controlled approximately half of the tenants in the Medical Properties.  Schack and Co-conspirator 1 misrepresented to Lender 1 the physical occupancy status of certain affiliated tenants and the Medical Properties' true rental income.

After the Mortgage Loan closed, Schack and Co-conspirator 1 continued their scheme to conceal the actual financial status of the Medical Properties by submitting fraudulent financial statements to the loan servicer on a monthly basis.  Those misrepresentations allowed Schack and Co-conspirator 1 to avoid accelerated payment on the Mortgage Loan.

Finally, after the Mortgage Loan closing, Schack and Co-conspirator 1 diverted rent payments owed through the "lockbox" account procedure specified in the Mortgage Loan agreement.  Instead, Schack and Co-conspirator 1 used the funds for both Regent's operating expenses and Co-conspirator 1's personal expenses, including credit card bills of up to approximately $80,000 per month and private jet payments.  Through such means, Co-conspirator 1 diverted millions of dollars in rental payments from the "lockbox" account over the course of the Mortgage Loan for his own personal use.

Shortly after the closing of the Mortgage Loan in April 2016, Lender 1 sold its interest into two commercial mortgage-backed security loans.  By 2019, approximately three years after the closing of the Mortgage Loan, the Borrowers were sixty days behind on loan payments, and administration of the loan was referred to a special servicer.  In February 2020, the Borrowers declared bankruptcy.   

https://www.justice.gov/usao-dc/pr/former-bank-teller-sentenced-fifteen-months-jail-stealing-wells-fargo-bank-customers
Tiara Langston, 29, pled guilty in the United States District Court for the District of Columbia to, and she was sentenced to 15 months in prison and ordered to pay restitution to Wells Fargo, which incurred losses on behalf of its customers. As alleged in part in the DOJ Release:

[L]angston admitted to participating in a scheme to steal from Wells Fargo's customers while she was employed at the bank as a teller during 2017.  According to the government's evidence, Langston used Wells Fargo's systems to check the account balances of customers without customers' knowledge. Langston would then share with a confederate the customer's name and account balance.  The confederate then entered the bank and withdrew funds from the customer's account by presenting a forged signature for the customer. The conspirators used this scheme to steal $124,000 in cash and an $80,000 cashier's check from two of the bank's customers. Wells Fargo was able to detect the theft and stop payment of the $80,000 cashier's check, thus incurring total losses on behalf of its customers in the amount of the $124,000 in cash that Langston and others stole. 

https://www.sec.gov/news/press-release/2021-44
The SEC awarded about $1.5 million to a whistleblower claimant. As asserted in part in the Order Determining Whistleblower Award Claims ('34 Act Rel. No. 91280, Whistleblower Award Proc. File No., 2021-33)
https://www.sec.gov/rules/other/2021/34-91280.pdf:

Claimant reported concerns internally to Claimant's employer. Claimant provided information that caused Enforcement staff to open an investigation, including multiple written submissions detailing Claimant's tips and identifying potential witnesses to Enforcement staff. Claimant also provided assistance through ongoing discussions with Enforcement staff by meeting multiple times to explain Claimant's information.

Paper, Plastic, Peer-to-Peer / Remarks at the British Blockchain Association's Conference "Success Through Synergy: Next generation Leadership for Extraordinary Times" (SEC Commissioner Hester M. Peirce)
https://www.sec.gov/news/speech/peirce-paper-plastic-peer-to-peer-031521
As I have long observed, Commissioner Peirce does not shy away from controversy or pushing buttons. If there is a recurring theme to Peirce's regulatory critiques, it frequently comes down to her perceived desire to eschew regulation that seems fomented in response to a demonstrated need but as something that merely fills a vacuum. In Peirce's eyes, there are consequences, often unintended, from the rush to regulate and the compulsion to prohibit. No -- she and I are not always in agreement but that's fine with me. I take comfort in knowing that she does not merely go through the motions but shows up to work with passion and, sure, sometimes she may aim her slingshot at a new, shiny window at the SEC. In a recent speech, Peirce offers in part these observations [Ed: footnotes omitted]:

The SEC's reluctance to permit traditional investment vehicles to hold bitcoin or bitcoin futures has contributed to investors seeking more expensive, less convenient, or less direct substitutes, but it also has heightened the stakes of any regulatory approval for a mainstream retail product we might one day grant. By waiting we also have magnified the first-approved advantage in the bitcoin ETP or registered fund space. Moreover, because we have comported ourselves like merit regulators, investors might view any approvals as an official blessing by the Commission about the quality of the products we approve. That would be the wrong inference to draw; investors, alone or with the help of an investment professional, need to think carefully about whether any particular security -- crypto-based or not -- is right for them.

Regulators should commit themselves to providing regulatory clarity so that traditional financial market participants can engage with crypto with confidence that they are complying with their regulatory obligations. For example, under the eye of our sister regulator, the Commodity Futures Trading Commission, a healthy bitcoin futures market has developed, and an ether-based futures market recently initiated trading. Another federal financial regulator, the Office of the Comptroller of the Currency ("OCC"), has opened the door for the banks and thrifts it supervises to participate in independent node verification networks and to use stablecoins for payment activities. SEC staff has issued guidance, including, most recently, a risk alert from our Division of Examinations designed to help investment advisers, broker-dealers, transfer agents, and exchanges craft policies and procedures for digital asset securities. We need to do more, and I look forward to working to provide that clarity with our incoming Chairman and my other fellow Commissioners.

The Grandfather FINRA OBA Paradox (BrokeAndBroker.com Blog)
http://www.brokeandbroker.com/5736/finra-grandfather-paradox/
In the "Grandfather Paradox" we are asked to wonder whether you could travel back in time to kill your grandfather before he conceived your father. If your time travel was successful, then how were you able to kill your grandfather and prevent your birth if, in fact, you were never born? In a variation on this theme, the "FINRA Paradox," we are asked whether you could backdate a document that was supposed to be submitted before you got approval to engage in an outside business activity. Which prompts the obvious question: If your backdating was successful, then would your grandfather have hired you to engage in outside business activity if a tree fell on Wall Street while you were clapping with one hand and no one heard the tree fall but, nonetheless, everyone bought GameStop shares on Robinhood in the face of naked shorting?