The Wall Street Legal & Regulatory Feed
Securities Industry Commentator by Bill Singer Esq
April 7, 2021
JP Morgan Customer Seems To Have Accused Stockbroker of Not Exercising Unauthorized Discretion (BrokeAndBroker.com Blog)
http://www.brokeandbroker.com/5786/finra-expungement-discretion/
Over a decade ago, when the stock markets were cratering in the wake of the Great Recession, investors saw their pre-2009 gains vanish. Lots of black ink became red. As was all too common in those days (but, let's be fair, often justified), customers complained that they were given lousy investment advice by their stockbroker. And that wave of customer complaints flooded onto the industry records of thousands of men and women. A recent case illustrates that once posted online, a customer complaint may have the half-life of xenon-124 -- trust me, that's a long half-life.
Beverlywood Man Arrested for Allegedly Bilking Investors by Falsely Claiming to License Latin American Film Rights to Netflix and HBO / Investigators Estimate Victims of Ponzi Scheme Put Nearly One-Quarter Billion Dollars into Company that Has Not Been Repaid (DOJ Release)
https://www.justice.gov/usao-cdca/pr/beverlywood-man-arrested-allegedly-bilking-investors-falsely-claiming-license-latin
-and-
SEC Obtains Emergency Asset Freeze, Charges Actor with Operating a $690 Million Ponzi Scheme (SEC Release)
https://www.sec.gov/news/press-release/2021-58
https://www.sec.gov/news/press-release/2021-58
In a Complaint filed in the United States District Court for the Central District of California, Zachary Joseph Horwitz, who has used the screen name "Zach Avery," was charged with wire fraud. As alleged in part in the DOJ Release:
[O]ver the course of about five years, Horwitz solicited investors to invest in his company - 1inMM Capital LLC - which he claimed would use the funds to purchase regional distribution rights to films and then license the rights to online platforms such as Netflix and HBO. Horwitz provided promotional materials to investors that claimed 1inMM Capital offered "safe" investments because "we receive confirmation from each of our outputs indicating their desire to acquire the rights to any title we purchase PRIOR to us releasing funds for the film," according to the affidavit.However, instead of using the funds to acquire films and forge distribution deals, Horwitz allegedly operated 1inMM Capital as a Ponzi scheme, using victims' money to repay earlier investors and to fund his own lifestyle, including the purchase of his $6 million Beverlywood residence.The scheme allegedly began in 2015, when investment firms began entering into a series of 6-month or 12-month promissory notes with 1inMM Capital based on Horwitz's statements. The funds supplied under each note were supposed to provide money for 1inMM Capital to acquire the rights to a specific film. To convince investors he was legitimate, the affidavit states, Horwitz provided investors with fake license agreements, as well as fake distribution agreements with Netflix and HBO, all of which contained forged or fictional signatures. Despite Horwitz's claim of "solid relationships" with online platforms, representatives for Netflix and HBO have denied that their companies engaged in any business with Horwitz or 1inMM Capital, the affidavit states.Investors started to complain after 1inMM Capital began defaulting on notes at various times in 2019, the affidavit states. To prolong the scheme in the wake of mounting defaults, Horwitz provided excuses that were purportedly given by Netflix and HBO, forwarding to investors spoofed correspondence with Netflix and HBO in which Horwitz again fraudulently used the identities of Netflix or HBO employees.According to the affidavit, private investment firms have transferred approximately $227 million to 1inMM Capital pursuant to promissory notes since late 2018. Horwitz, through 1inMM Capital, allegedly has defaulted on all these underlying notes.
In a Complaint filed in the United States District Court for the Central District of California
https://www.sec.gov/litigation/complaints/2021/comp-pr2021-58.pdf, the SEC charged Horwitz and 1inMM with violating the antifraud provisions of the federal securities laws. In addition to an asset freeze and other emergency relief granted by the Court, the SEC Complaint seeks a permanent injunction, disgorgement, prejudgment interest, and civil penalties against Horwitz and 1inMM. As alleged in part in the SEC Release:
https://www.sec.gov/litigation/complaints/2021/comp-pr2021-58.pdf, the SEC charged Horwitz and 1inMM with violating the antifraud provisions of the federal securities laws. In addition to an asset freeze and other emergency relief granted by the Court, the SEC Complaint seeks a permanent injunction, disgorgement, prejudgment interest, and civil penalties against Horwitz and 1inMM. As alleged in part in the SEC Release:
[H]orwitz falsely claimed to have a track record of successfully selling movie rights to Netflix and HBO when, in fact, neither Horwitz nor 1inMM had ever sold any movie rights to, or done any business with, HBO or Netflix. Horwitz allegedly showed investors fabricated agreements and emails regarding the purported deals with HBO and Netflix. The complaint alleges that Horwitz and 1inMM promised investors returns in excess of 35%, and for many years paid supposed returns on earlier investments using funds from new investments. The complaint further alleges that Horwitz misappropriated investor funds for his personal use, including the purchase of his multi-million dollar home, trips to Las Vegas, and to pay a celebrity interior designer.
The United States District Court for the Eastern District of New York entered a final consent judgment against former Retrophin, Inc. lawyer Evan Greebel
https://www.sec.gov/litigation/litreleases/2021/judgment25065.pdf, who was also convicted in a related criminal case. In the SEC matter, Greebel consented to the entry of a final judgment enjoining him from violating the antifraud provisions of Section 10(b) of the Securities Exchange Act and Rule 10b-5 thereunder and barring him from serving as an officer or director of a public company. As alleged in part in the SEC Release, the SEC's 2015 Complaint https://www.sec.gov/litigation/complaints/2021/comp25065.pdf
had alleged that Greebel assisted Martin Shkreli, and that:
https://www.sec.gov/litigation/litreleases/2021/judgment25065.pdf, who was also convicted in a related criminal case. In the SEC matter, Greebel consented to the entry of a final judgment enjoining him from violating the antifraud provisions of Section 10(b) of the Securities Exchange Act and Rule 10b-5 thereunder and barring him from serving as an officer or director of a public company. As alleged in part in the SEC Release, the SEC's 2015 Complaint https://www.sec.gov/litigation/complaints/2021/comp25065.pdf
had alleged that Greebel assisted Martin Shkreli, and that:
[F]rom September 2013 through March 2014, Shkreli, who was then Retrophin's CEO and also controlled various hedge funds, fraudulently induced Retrophin to issue stock and make cash payments to certain disgruntled investors in Shkreli's hedge funds. Specifically, the complaint alleged that Shkreli had investors enter into agreements with Retrophin that misleadingly stated that the payments were for consulting services, when in fact the payments were for the release of potential claims against Shkreli. This alleged misconduct was, according to the complaint, aided and abetted by Greebel, who was Retrophin's outside counsel and served as corporate secretary. The complaint alleged that Greebel drafted sham consulting agreements and failed to disclose to Retrophin's Board of Directors the true purpose of the agreements.
Mandan, ND, Man Sentenced to 4 years in Federal Prison for Bank Fraud and Interstate Transportation of Stolen Livestock (DOJ Release)
https://www.justice.gov/usao-nd/pr/mandan-nd-man-sentenced-4-years-federal-prison-bank-fraud-and-interstate-transportation
After a multi-day trial in the United States District Court for the District of North Dakota, Kelly Anthony Glatt, was convicted on bank fraud and the interstate transportation of stolen livestock; and he was sentenced to concurrent prison terms of 48 months and 36 months, respectively, plus three years of supervised release, and ordered to pay $1,839,846.30 in restitution and a $200 special assessment. Ah yes . . . the old watered stock gambit! As alleged in part in the DOJ Release:
On February 20, 2014, Glatt, a rancher, took out a loan from a North Dakota financial institution in the amount of $1,500,000 to purchase cattle and livestock-related supplies. The financial institution obtained a security interest in the cattle, which were left in Glatt's custody. Additionally, Glatt took custody of multiple other individuals' cattle as either cattle caretaker, cattle manager, or cattle partner. Evidence introduced at trial demonstrated, between 2014 and 2017, Glatt took affirmative steps to hide collateral from the financial institution; hid assets from the financial institution and other victims; fraudulently filed an agricultural statutory lien in another person's name with the intent to deprive the financial institution of future foreclosed funds; and finally, transported stolen cattle belonging to the financial institution and the other victims from North Dakota to South Dakota.
CFTC Orders New York Man to Pay More than $1 Million for Role in Fraudulent Binary Options Scheme (CFTC Release)
https://www.cftc.gov/PressRoom/PressReleases/8374-21
The CFTC filed an Order settling charges against Glenn Olson pertaining to alleged binary options fraud that harmed U.S. customers involving Blue Bit Banc, a United Kingdom company, and Blue Bit Analytics, Ltd, located in Turks and Caicos. The Order requires Olson to disgorge $241,070, and orders him to pay $846,405 in restitution (a joint obligation with others found liable and enjoined by a federal court in a prior CFTC enforcement action. [See CFTC v. Kantor, No. 18-cv-2247-SJF-ARL (E.D.N.Y. Oct. 23, 2019) and CFTC Press Release No. 8069-19] Further, Olson is ordered to cease and desist from further violating the Commodity Exchange Act and CFTC regulations, from trading on or subject to the rules of any CFTC-registered entity, and from engaging in any activities requiring registration with the CFTC. As alleged in part in the CFTC Release:
[F]rom approximately April 2014 through March 2018, he was affiliated with Blue Bit Banc and related entities, selling binary options to customers for Blue Bit using alias names and also supervising other sales staff at Blue Bit's Manhattan office. Olson also admitted that, as part of the scheme, he and others misrepresented the profitability of trading through Blue Bit, manipulated or fabricated purported trades in their customers' accounts to the customers' disadvantage, prevented customers from withdrawing funds, and misappropriated customer funds.The order states that Olson also admitted he knowingly made false statements, omitted statements of material fact, and took other actions to defraud customers, while receiving disbursements totaling $241,070.30. In addition, Olson was involved in the conversion of some customers' Blue Bit account holdings into ATM Coin, a worthless cryptocurrency that was represented as being worth substantial money. According to the order, at least 27 customers lost a total of $846,405 as a result of the fraudulent scheme.
FINRA Censures, Fines, and Orders Restitution in Dawson James Securities AWC
https://www.finra.org/sites/default/files/fda_documents/2017052790301
%20Dawson%20James%20Securities%2C%20Inc.%20CRD%20130645%20AWC%20va.pdf
%20Dawson%20James%20Securities%2C%20Inc.%20CRD%20130645%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, Dawson James Securities, Inc. submitted a Letter of Acceptance, Waiver and Consent ("AWC"), which FINRA accepted. The AWC alleges that Dawson James Securities has been a FINRA member firm since 2004 with 40 registered representatives at three offices. The AWC alleges that Dawson James "does not have any relevant disciplinary history." In accordance with the terms of the AWC, FINRA found that Dawson James violated FINRA Rules 2121 and 2010; and the self regulator imposed upon the firm a Censure, a $20,000 fine, $7,083.93 in restitution. The AWC alleges in part that:
During the period of June 2015 through April 2020, Dawson James charged commissions on certain transactions in equity securities that were not fair and reasonable, taking into consideration the factors set forth in Rule 2121 Supplementary Material .01, and that exceeded five percent. As a result, on a total of 236 transactions during the relevant period, the firm charged $7,083.93 in excessive commissions. The commissions charged ranged from approximately five percent to 66 percent of the transactions' principal value.
As set forth in the "Summary":
Last year, as FINRA staff looked to adjust to a new exam and risk monitoring program structure, the industry and the world was struck with an unprecedented global crisis. On this episode, the second in a two-part series, we hear how the program adapted in the face of the pandemic before looking ahead to priorities for 2021.
FINRA Fines and Suspends Former Barclays Rep Over Reimbursed Expenses (BrokeAndBroker.com Blog)
http://www.brokeandbroker.com/5784/finra-awc-woolford/
At its best, remorse demonstrates a pang of conscience. At its worst, it may arise only in anticipation that you are about to get caught. Contrition and regret are two very different things. As such, we're often caught up in the ambivalence of the moment when we consider the motivation behind someone's renunciation of a crime or fraud. Were the remedial steps prompted by a guilty conscience or the malefactor's sense that someone's hot on his trail? In a recent FINRA regulatory settlement we have all the classic elements of such puzzle.
http://www.brokeandbroker.com/5785/finra-expungement-bobolia/
If your brokerage firm decides that a customer "communication" was a complaint, the drafting of a regulatory disclosure often involves a lot of interpretation, inferences, assumptions, and filling-in-the-blanks. At times, what gets reported isn't a fair or accurate reflection of what the customer said. Which means that an expungement may not involve removing what a customer said but what a brokerage firm thought was said or, worse, what was meant. A recent case illustrates the worst aspects of this process.