Securities Industry Commentator by Bill Singer Esq

July 29, 2021

SEC Charges Unlicensed Broker With Defrauding Investors (SEC Release)

SEC Obtains Final Judgment Against Accountant in Market Manipulation Scheme (SEC Release)

Another Office Girl Gets Slammed By FINRA  ( Blog)
Given the sexual politics on Wall Street, a lot of men in positions of authority "get the girl to do it" when it comes to something that seems a tad dicey from a compliance or regulatory perspective. Later on, when whatever the girl did blows up and the regulators come a knockin', well the old boys' playbook tends to call the same audible. The girl was never told to do that. The girl acted on her own. No one knew. She went rogue. Of course, FINRA is too eager to buy into that crap, and the industry's women and minorities pay a disproportionate price for their relatively low-level infractions. Consider a recent FINRA regulatory settlement with another of the industry's female employees.
In a Complaint filed in the United States District Court for the Southern District of New York, the SEC charged Trevor R. Milton with violating the anti-fraud provisions of the Securities Act and the Securities Exchange Act.  As alleged in part in the SEC Release:

[M]ilton founded Nikola in 2015 with the primary goal of manufacturing trucks that run on alternative fuels with low or zero emissions, and building an alternative fuel station infrastructure to support those vehicles.  Milton allegedly helped Nikola raise more than $1 billion in private offerings and go public through a business combination conducted by a special purpose acquisition company (SPAC).  According to the SEC's complaint, during that time and after Nikola was publicly traded, Milton acted as Nikola's primary spokesperson appearing regularly on national media and communicating directly with investors through social media.  Milton allegedly encouraged investors to follow him on social media to get "accurate information" about the company "faster than anywhere else."  Instead, however, Milton allegedly used his extensive media platform to repeatedly mislead investors about, among other things, Nikola's technological advancements, products, in-house production capabilities, and commercial achievements.  The complaint further alleges that Milton ultimately reaped tens of millions of dollars in personal benefits as a result of his misconduct., the SEC charged Joshua L. Rupp with violating the antifraud provisions of the federal securities laws and acting as an unregistered broker. As alleged in part in the SEC Release:

[R]upp engaged in a fraudulent investment scheme from January 2018 through July 2019 which included misstatements, false documents and misappropriation of investor funds.  According to the complaint, Rupp raised over $2.2 million from about 20 investors who lacked significant investment experience by misrepresenting that he was a licensed securities professional, he would generate profits for investors by trading on their behalf, and investors' principal was protected from losses.  In addition, Rupp allegedly provided investors fake documents purporting to show he was associated with a licensed broker-dealer, and false account statements and trading data to make it appear that his trading on their behalf was generating as much as 115 percent increase in value. 

The complaint further alleges that, in reality, Rupp was not affiliated with any brokerage firm or licensed in the securities industry, his securities trading resulted in significant losses, and he misappropriated and misused hundreds of thousands of dollars of investor funds.  Investors allegedly lost most of their money, including retirement funds, through Rupp's fraud.
The United States District Court for the District of New Jersey entered a final Consent Judgment against Shaun Greenwald, a Certified Public Accountant, that permanently enjoins him from violating the antifraud provisions of Section 10(b) of the Securities Exchange Act and Rule 10b-5 thereunder and Section 17(a) of the Securities Act  and the market manipulation provision of Section 9(a)(2) of the Exchange Act. Pursuant to an SEC Consent Order, Greenwald was permanently barred from association with any broker, dealer, investment adviser, municipal securities dealer, municipal advisor, transfer agent, or nationally recognized statistical rating organization, and from participating in any offering of a penny stock. On July 20, 2021, the SEC issued an Order suspending Greenwald from appearing or practicing before the SEC pursuant to Rule 102(e)(2) of the SEC's Rules of Practice. As alleged in part in the SEC Release:

[G]reenwald actively participated in a fraudulent market manipulation scheme in which co-defendants Joseph Taub and Elazar Shmalo utilized dozens of securities accounts at several brokerage firms to artificially influence the market prices of more than 2,500 exchange-traded securities. The complaint further alleged that Greenwald concealed from brokerage firms that Taub was trading in accounts that Greenwald opened in his own name and the names of entities that he set up, in exchange for a portion of the profits. In a parallel criminal action, the U.S. Attorney's Office for the District of New Jersey filed criminal charges against Greenwald. On February 20, 2018, Greenwald pled guilty to one count of conspiracy to commit securities fraud and one count of conspiracy to commit tax fraud. Greenwald was sentenced on February 23, 2021 to probation for a term of three years, ordered to submit to home detention for a period of eight months, ordered to forfeit all right, title and interest in the contents of a specified bank account, and ordered to pay restitution to the Internal Revenue Service in the amount of $394,424.00.
As readers of the "Securities Industry Commentator" and the " Blog" know, I am often a critic of many FINRA online postings, which tend to border on asinine and seem designed for no purpose other than generating undeserved publicity. In a rare sighting, I just read an excellent FINRA posting, which focuses on an issue of importance to public investors: imposters posing as stockbrokers or brokerage firms. The FINRA Staff Release offers useful guidance that, in part, warns about:

The fraudsters behind broker imposter websites take the name and other publicly available professional details about a registered investment professional and use this information to establish a fraudulent website. The fraudsters then call and direct potential customers to the imposter websites. Their likely goal is to mimic a legitimate website to obtain existing or potential clients' personal information or login credentials.

. . .

Another type of broker imposter scheme involved an unregistered individual impersonating a registered investment professional to lure in potential investors. In this instance, the scammer created a fake version of a public FINRA BrokerCheck® report of a legitimate broker-picking an experienced broker with a spotless regulatory record.
In a Complaint filed in the United States District Court for the District of Utah, the SEC charged Mine Shaft Brewery, Timothy Andrew Nemeckay, John Allen Logan, and Charles Vernon Whittington with violating the antifraud provisions of Section 17(a) of the Securities Act, Section 10(b) of the Securities Exchange Act, and Rule 10b‒5 thereunder, and the registration provisions of Securities Act Sections 5(a) and 5(c); further, Nemeckay was charged with violating Section 15(b)(6)(B)(i) of the Exchange Act. A parallel federal criminal investigation resulted in the indictment of Nemeckay on securities fraud, among other criminal charges; and a parallel investigation by the Utah Department of Commerce‒Division of Securities resulted in the filing of a civil action against Mine Shaft Brewing, Nemeckay, Logan, and Whittington for violating the antifraud and licensing and registration provisions of Utah law. As alleged in part in the SEC Release:

[R]ecidivist Timothy Andrew Nemeckay, John Allen Logan, and Charles Vernon Whittington told investors that their funds would be used to develop the Mine Shaft Brewery, which included building a brewery, restaurant, and retail store. Investors were allegedly told that approximately 70% of invested funds would be used to acquire brewery and restaurant equipment and to purchase a building or make improvements to an existing building, with the remaining 30% of invested funds used for inventory and other Mine Shaft business expenses. Instead, as alleged, Nemeckay used his personal LLC as a pass through to pay his personal expenses, including restitution obligations to victims from his prior securities fraud scheme. The complaint alleges that in all, Nemeckay used approximately $1.7 million (63%) of investor funds for his own personal use. The complaint further alleges that, of the remaining investor funds, approximately 10% were used to make Ponzi payments to investors and 10% were used to compensate Whittington and Logan, with less than 17%, used consistently with disclosures to investors.
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, Gilbert A. Kuta submitted a Letter of Acceptance, Waiver and Consent ("AWC"), which FINRA accepted. The AWC asserts that Gilbert A. Kuta was first registered in 1982, and from August 2009 to March 2020, he was registered with Capitol Securities Management, Inc. In accordance with the terms of the AWC, FINRA imposed upon Kuta a $5,000 fine and a 10-business-day suspension from associating with any FINRA member in all capacities. As alleged in part in the AWC, during the relevant period from December 2017 through June 2018:

[K]uta effected at least 50 discretionary trades in numerous customer accounts. Although the customers knew that Kuta was exercising discretion in their accounts, Kuta did not have prior written authorization to do so from any of the customers. Additionally, Capitol Securities Management had not approved any of these accounts for discretionary trading. 

Therefore, Kuta violated NASD Rule 2510(b) and FINRA Rule 2010.
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, CODA Markets f/k/a PDQ ATS, Inc. submitted a Letter of Acceptance, Waiver and Consent ("AWC"), which FINRA accepted. The AWC asserts that CODA became a FINRA member in 1994 and has 20 registered persons an one branch. The AWC characterizes CODA's business as "sponsors and operates an alternative trading system (ATS) and provides routing and executions services to its subscribers . . .". In accordance with the terms of the AWC, FINRA imposed upon CODA a Censure, $1.25 million fine ($405,000 payable to FINRA) and a series of undertakings requiring an Independent Consultant.  As under the "Overview" of the AWC:

From July 14, 2011 through the present. CODA Markets provided its subscribers with direct market access (DMA) to multiple exchanges and unaffiliated ATSs through use of its market participant identifiers (MPIDs). During this time. CODA Markets' DMA business grew and became its largest revenue source. Nonetheless. CODA Markets failed to establish and maintain a supervisory system. including written supervisory procedures (WSPs), and regulatory risk management controls reasonably designed to monitor for potentially manipulative trading, such as potential layering. spoofing, wash trades, prearranged trades. marking the close, and odd-lot manipulation. During this time CODA Markets generated more than 350,000 exceptions and alerts at FINRA and multiple exchanges for potentially manipulative trading. 

During the relevant period, CODA Markets failed to develop and implement an anti-money laundering (AML) program reasonably designed to detect and cause the reporting of potentially suspicious transactions. In addition. during the periods specified below, the firm's AML testing and training were not reasonable. 

During the relevant period, CODA Markets also failed to establish, document, and maintain financial risk management controls and WSPs reasonably designed to prevent the entry of: (1) orders that exceed appropriate pre-set credit thresholds and (2) erroneous orders. In addition, CODA Markets failed to establish and maintain a supervisory system. including WSPs. reasonably designed to achieve compliance with the requirement under Rule 15c3-5(e) of the Securities Exchange Act of 1934 to regularly review the effectiveness of its risk management controls. Finally. during the periods specified below. CODA Markets' supervisory control system reports failed to comply with NASD Rule 3012 and FINRA Rule 3120, and its certifications failed to comply with Exchange Act Rule 15c3-5(e)(2), FINRA Rule 3130, or both. 

CODA Markets' failures have resulted in potentially manipulative trading occurring through its MPIDs. potentially suspicious transactions not being reasonably detected and reported, and hundreds of millions of orders entering the markets without being subjected to reasonably designed risk management controls or reasonably designed post-trade supervisory reviews. Based on the conduct described in this AWC, CODA Markets violated Exchange Act §15(c)(3); Rule 15c3-5(b), (c)(l)(i). (c)(l)(ii). (c)(2), (e), (e)(l), and (e)(2) thereunder; FINRA Rules 3110, 3120, 3130, 3310. and 2010; and NASD Rules 3010 and 3012.

FINRA Arbitrators Put It There In Disputed AMZN Options Trade ( Blog)
You ever read something and you think that you understand what happened but when you go back and re-read the same document, you realize that you assumed a lot of stuff that wasn't in there and, geez, the more I read this thing, the less confidence that I have with what I'm being told happened because I don't think that what they meant is what they said, but if that's the case, then I don't think that they said what they meant, but if they did, I'm not quite sure that it makes sense but for the fact that I still think that I intuit what went on here even if I can't actually explain it. And thus we begin the tale of a recent public customer's FINRA Arbitration.

( Blog) adult entertainment/ 
BofA/Merrill Lynch alleged that it discharged an analyst for using his corporate credit card at a so-called adult entertainment venue. They also sold steak there, in case you were wondering. The thing about FINRA's regulator case is that it sure as hell didn't have much proof. What it did have was four FINRA lawyers going after some poor shlub who must have wished the floor would open up and swallow him.