The Wall Street Legal & Regulatory Feed
Securities Industry Commentator by Bill Singer Esq
March 23, 2021
SEC Charges Additional Unregistered Broker Who Sold $8.5 Million in 1 Global Securities to Retail Investors (SEC Release)
SEC Charges Bahamian Broker-Dealer and Its Principal with Operating Illegally in the United States (SEC Release)Portland Man Sentenced to Federal Prison for Fraud Schemes Targeting Family and Friends (DOJ Release)
http://www.brokeandbroker.com/5760/schwab-order-system/
It's not just Robinhood. It's not just GameStop. It's not all the fault of Reddit or social media. To the contrary, Wall Street expanded to a point where its operational capacity doesn't keep pace. In the rush to cut commissions, expand online trading, and cater to those eager to "play" the stock market, brokerage firms are frequently overwhelmed by surges in volume or computer outages. Sure, there are times when it's just the nature of technology. More recently, a finger might even be pointed at COVID. But where are the industry's regulators? Where are the consequences for a lack of planning or a lack of funding or a lack of management? In a recent lawsuit against Schwab, a customer raises many of these issues.
SEC Charges Additional Unregistered Broker Who Sold $8.5 Million in 1 Global Securities to Retail Investors (SEC Release)
https://www.sec.gov/litigation/litreleases/2021/lr25057.htm?utm_medium=email&utm_source=govdelivery
In a Complaint filed in the United States District Court for the Southern District of Florida
https://www.sec.gov/litigation/complaints/2021/comp25057.pdf, the SEC charged John W. Fisher with violations of the securities registration provisions of Sections 5(a) and 5(c) of the Securities Act and the broker-dealer registration provisions of Section 15(a)(1) of the Securities Exchange Act. Previously, the SEC charged 1 Global Capital, LLC, a South Florida merchant cash advance company, its owner, and others with operating a fraudulent scheme to misappropriate millions of dollars from at least 3,600 investors; and eight of 1 Global's top sales agents were further charged with various registration violations. As alleged in part in the SEC Release:
https://www.sec.gov/litigation/complaints/2021/comp25057.pdf, the SEC charged John W. Fisher with violations of the securities registration provisions of Sections 5(a) and 5(c) of the Securities Act and the broker-dealer registration provisions of Section 15(a)(1) of the Securities Exchange Act. Previously, the SEC charged 1 Global Capital, LLC, a South Florida merchant cash advance company, its owner, and others with operating a fraudulent scheme to misappropriate millions of dollars from at least 3,600 investors; and eight of 1 Global's top sales agents were further charged with various registration violations. As alleged in part in the SEC Release:
[F]isher, was among 1 Global's top revenue producers, selling more than $8.5 million of 1 Global's unregistered securities to numerous investors. According to the complaint, Fisher marketed 1 Global securities to investors as a safe and secure alternative to the stock market, baselessly claimed that the investments would achieve high single-digit or low double-digit annual returns, and earned $329,000 in commissions on his sales, even though he was not registered as broker-dealer or associated with a registered broker-dealer.
SEC Charges Bahamian Broker-Dealer and Its Principal with Operating Illegally in the United States (SEC Release)
https://www.sec.gov/litigation/litreleases/2021/lr25058.htm
https://www.sec.gov/litigation/litreleases/2021/lr25058.htm
In a Complaint filed in the united States District Court for the Southern District of Florida
https://www.sec.gov/litigation/complaints/2021/comp25058.pdf, the SEC charged
https://www.sec.gov/litigation/complaints/2021/comp25058.pdf, the SEC charged
MintBroker International Ltd., f/k/a Swiss America Securities, Ltd. and d/b/a as SureTrader, a Bahamas-based broker-dealer, with unlawfully operating as a broker-dealer in the United States without being registered. Also, the SEC charged Guy Gentile, SureTrader's founder, owner, and CEO, as SureTrader's control person with respect to SureTrader's unlawful activities. As alleged in part in the SEC Release:
[B]eginning in March 2016 and continuing through November 2019, SureTrader, under Gentile's leadership, operated an offshore broker-dealer that marketed its ability to help novice day traders in the United States circumvent U.S. rules that regulate "pattern day trading." A pattern day trader is any margin customer that day trades four or more times in five business days, provided the number of day trades are more than six percent of the customer's total trading activity for that same period. The SEC alleges that SureTrader, through its website, by email, and by means of advertisements on popular U.S.-based day trading websites, solicited thousands of U.S.-based customers to open accounts with and trade through SureTrader. The SEC further alleges that, although it was not registered with the SEC as a broker-dealer during this period, SureTrader nevertheless engaged in ongoing securities relationships with U.S. customers, including by holding funds and executing transactions on their behalf. According to the complaint, as a result of their efforts, SureTrader and Gentile received millions of dollars in transaction-based compensation.
Portland Man Sentenced to Federal Prison for Fraud Schemes Targeting Family and Friends (DOJ Release)
https://www.justice.gov/usao-or/pr/portland-man-sentenced-federal-prison-fraud-schemes-targeting-family-and-friends
https://www.justice.gov/usao-or/pr/portland-man-sentenced-federal-prison-fraud-schemes-targeting-family-and-friends
Joseph D. Galvan was charged with 17-counts of wire fraud and money laundering in the United States District Court for the District of Oregon, and he pled guilty to wire fraud and money laundering. Galvan, 46, was sentenced to 46 months in prison plus three years of supervised release, and he was ordered to pay $658,060.39 in restitution. As alleged in part in the DOJ Release:
FINRA Fines and Suspends Rep for Reusing Signature Pages for Account Transfers[B]etween January 2018 and August 2020, Galvan devised a scheme to defraud his ex-wife's family and friends, most of whom had emigrated to the U.S. from Romania or were of Romanian descent. Galvan posed as a savvy, high-rolling investment trader and promised his victims he would invest their money and help them achieve financial security, retire early, and live a good life. He also promised to teach his victims, many of whom were elderly and spoke English as a second language, how to successfully navigate the stock market.Once victims transferred their funds into an account controlled by Galvan, he failed to open investment accounts on their behalf as promised. Galvan used an app called StockMaster to create false investment profile accounts for each victim and would periodically send them phony screen shots of their profiles. Galvan subsequently spent victims' money on various personal expenses including rent, car payments, travel, dining, food, guns, and voluntary cosmetic procedures. Total losses incurred by these victims exceeded $518,000, which, for many, constituted their entire life savings.During this same time, Galvan engaged in a separate scheme targeting his own family and friends. In July 2019, he told a victim he had purchased a house in Lake Oswego, Oregon for $900,000, despite the home being worth approximately $2 million. He further told the victim that he sued the owners of the house after they refused to leave. According to Galvan, a court judgment allegedly required the owners to pay him a large settlement that was placed into an escrow account. Galvan falsely claimed the settlement had grown in escrow to $1 million, but that the court would not release the funds until certain conditions with Galvan's bank account were met.Galvan convinced the victim to pay for various fees and costs associated with the house purchase while he awaited the settlement funds. Galvan told the victim he would pay him $250,000 if the victim agreed to provide these funds. Galvan also promised to pay the victim an additional $100,000 every time the victim provided more funds toward house purchase expenses. Galvan encouraged the victim to convey a similar offer to several of the victim's relatives and a family friend. Based on Galvan's false promises, the victim and several others paid him more than $130,000. In reality, Galvan had never purchased a home in Lake Oswego and there were no settlement funds in escrow.
https://www.finra.org/sites/default/files/fda_documents/2019063926101
%20Allan%20Katz%20CRD%202166004%20AWC%20va.pdf
%20Allan%20Katz%20CRD%202166004%20AWC%20va.pdf
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, Alan Katz submitted a Letter of Acceptance, Waiver and Consent ("AWC"), which FINRA accepted. The AWC alleges that Alan Katz was first associated in 1991. and from April 2004 through May 2020, he was registered with Royal Alliance Associates, Inc. and from June 2012 through October 2017, he was first registered with Aegis Capital Corp. The AWC asserts that Katz "does not have any relevant disciplinary history." In accordance with the terms of the AWC, FINRA found that Katz violated FINR Rule 2010. Accordingly, the self regulator imposed upon Katz a $5,000 fine, an 20-business-day suspension from associating with any FINRA member in all capacities. As alleged in part in the AWC:
On or about February 20, 2019, Katz recommended, among other things, that his elderly customer move directly-held mutual funds into two management investment accounts. To effect those transactions, the customer signed two account transfer forms to transfer two retirement and nine non-retirement mutual funds into both an IRA and individual management investment account, respectively.The mutual fund company then notified Katz that it required separate account transfer forms for each mutual fund. On or about March 5, 2019, Katz reused the original account transfer form signature page for the IRA management investment account and resubmitted it to the mutual fund company on two new account transfer forms. He reused the original account transfer form signature page for the individual management investment account and resubmitted it on nine new account transfer forms. In total, Katz reused the customer's original signature pages 11 times to expedite the processing of the transactions
Bill Singer's Comment: At first blush, the allegations seemed lurid because the customer at issue is described in the AWC as "elderly." After further review of the allegations, FINRA's case is that Katz "reused" the customer's signature "11 times to expedite the processing of the transactions." The heart of the issue was not elder fraud but the mutual fund company's insistence upon 11 signatures for each of the two retirement and nine non-retirement funds that were being transferred. No -- I'm not excusing Katz's customer-service-short-cut but I do acknowledge that FINRA seems to have recognized the true nature of the misconduct under consideration and imposed a relatively modest 20-business-day suspension and $5,000 fine. As such, I compliment FINRA on its handling of the settlement.
FINRA Censures and Fines Firm for Private Placement Supervision and Filing
https://www.finra.org/sites/default/files/fda_documents/2019060754601
%20Dalmore%20Group%20LLC%20CRD%20136352%20AWC%20va.pdf
%20Dalmore%20Group%20LLC%20CRD%20136352%20AWC%20va.pdf
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, Dalmore Group LLC. submitted a Letter of Acceptance, Waiver and Consent ("AWC"), which FINRA accepted. The AWC alleges that Dalmore Group LLC. has been registered with FINRA since 2005, and the firm has about 40 registered representatives and three branches. The AWC alleges that Dalmore Group "does not have any relevant disciplinary history." In accordance with the terms of the AWC, FINRA found that Dalmore Group violated FINRA Rules 5123, 3110, and 2010. Accordingly, the self regulator imposed upon Dalmore Group a Censure and $40,000 fine. As alleged in part in the AWC:
For two private placement offerings that Dalmore recommended and sold to customers between March 2017 and December 2018, the firm failed to conduct and document reasonable investigations of the offerings before recommending these securities to customers. The firm failed to review any business plans or models, prospects for the industry, any existing or potential regulatory restrictions on the business and the competitive position of the issuer. Further, the firm, rather than conducting an independent investigation, relied almost exclusively on documentation and information the issuers provided. As a result, the firm failed to uncover relevant information regarding the issuer. For example, for one offering, the firm failed to identify a securities-related litigation against a key director and officer of the issuer.. . .Between April 2017 and February 2019, Dalmore failed to make timely filings with FINRA related to 26 private placements sold by the firm. Instead of filing offering documents within 15 calendar days of the date of first sale, the firm made its filings from 16 days to 335 days after the date of the first sale.