Securities Industry Commentator by Bill Singer Esq

The Unsecured Convertible Note, The FINRA CMA, The Pro Se Plaintiff, The Federal Complaint, and the Legal Clinic (BrokeAndBroker.com Blog)

Notice of Filing and Immediate Effectiveness of a Proposed Rule Change to Extend the Expiration Date of the Temporary Amendments set forth in SR-FINRA-2020-015 and SR-FINRA-2020-027 (SEC Release)

Sanjay Wadhwa Named Deputy Director of Enforcement Division (SEC Release)

Virginia Man Sentenced for Role in Multimillion-Dollar Investment-Fraud Scheme (DOJ Release)

Dearborn Resident Pleads Guilty in Investment Fraud Scheme (DOJ Release)

Florida Woman Convicted Of Damaging Her Former Employer's Computers After She Was Fired (DOJ Release)

SEC Charges Netflix Insider Trading Ring (SEC Release)

SEC Charges IIIinois Resident with Insider Trading (SEC Release)

SEC Charges Investment Adviser, Others with Fraud in Offering of Promissory Note (SEC Release)

SEC Charges Company and Its CEO with Fraudulent Statements Concerning Covid-19 Products (SEC Release)

SEC Charges Investment Adviser and His Advisory Business for Misappropriating More Than $1 Million from a Client and Prospective Client and Defrauding Investors (SEC Release)

SEC Charges Biopharmaceutical Company Employee with Insider Trading (SEC Release)

SEC Charges Investment Adviser and Associated Individuals with Causing Violations of Regulation SHO (SEC Release)

CFTC Charges Nebraska Commodity Pool Operator and its Owner with Fraud and Regulatory Violations (CFTC Release)

CFTC Charges Unregistered Michigan Forex Firm and its Owner with Fraud and Misappropriation  (CFTC Release)

FINRA Censures and Fines Ascendiant Capital Markets for Reg SHO Violations
In the Matter of Ascendiant Capital Markets, LLC, Respondent (FINRA AWC)

FINRA Fines and Suspends Rep for Excessive/Unsuitable Trading
In the Matter of Maxim Beliakov, Respondent (FINRA AWC) 

FINRA Fines and Suspends Rep for Excessive/Unsuitable Trading
In the Matter of Alfonse Joseph Stazzone, Respondent (FINRA AWC)

In response to the COVID-19 global health crisis and the corresponding need to restrict in-person activities, FINRA filed proposed rule changes, SR-FINRA-2020-015 and SR-FINRA2020-027, which respectively provide temporary relief from some timing, method of service and other procedural requirements in FINRA rules and allow FINRA's Office of Hearing Officers ("OHO") and the National Adjudicatory Council ("NAC") to conduct hearings, on a temporary basis, by video conference, if warranted by the current COVID-19-related public health risks posed by an in-person hearing. In April 2021, FINRA filed a proposed rule change, SR-FINRA2021-006, to extend the expiration date of the temporary amendments in both SR-FINRA-2020- 015 and SR-FINRA-2020-027 from April 30, 2021, to August 31, 2021. 

While there are signs of improvement, much uncertainty remains for the coming months. The emergence of the Delta variant, dissimilar vaccination rates throughout the United States, and the uptick in transmissions in many locations indicate that COVID-19 remains an active and real public health concern. Based on its assessment of current COVID-19 conditions and the lack of a clear timeframe for a sustained and widespread abatement of COVID-19-related health concerns and corresponding restrictions, FINRA has determined that there is a continued need for temporary relief for several months beyond August 31, 2021. Accordingly, FINRA proposes to extend the expiration date of the temporary rule amendments in SR-FINRA-2020-015 and SRFINRA-2020-027 from August 31, 2021, to December 31, 2021.

. . .

[A]mong other things, the need for FINRA staff, with limited exceptions, to work remotely and restrict in-person activities - consistent with the recommendations of public health officials - have made it challenging to meet some procedural requirements and perform some functions required under FINRA rules. For example, working remotely makes it difficult to send and receive hard copy documents and conduct in-person oral arguments. The temporary amendments have addressed these concerns by easing logistical and other issues and providing FINRA with needed flexibility for its operations during the COVID-19 outbreak, allowing FINRA to continue critical adjudicatory and review processes in a reasonable and fair manner and meet its critical investor protection goals, while also following best practices with respect to the health and safety of its staff. 

FINRA staff, with limited exceptions, continue to work remotely to protect their health and safety. As indicated in its previous filings, FINRA has established a COVID-19 task force to develop a data-driven, staged plan for FINRA staff to safely return to working in FINRA office locations and resume other in-person activities. Based on its assessment of current COVID-19 conditions, FINRA does not believe the COVID-19-related health concerns necessitating this relief will meaningfully subside by August 31, 2021, and therefore proposes to extend the expiration date of the temporary rule amendments originally set forth in SR-FINRA-2020-015 from August 31, 2021, to December 31, 2021.

Mr. Wadhwa joined the SEC as a staff attorney in 2003. As co-head of Enforcement in the SEC's New York office, he was responsible for the day-to-day functions of that office's enforcement program. He also previously served in additional roles in the Enforcement Division, including Deputy Chief of the Market Abuse Unit and Assistant Director in NYRO. Prior to joining the SEC in 2003, Mr. Wadhwa served as a tax associate at Cahill Gordon & Reindel LLP and Skadden, Arps, Slate, Meagher & Flom LLP.

[F]rom around 2014 to 2017, Smith participated in a worldwide scheme through Chimera Group Ltd., a purported investment company based out of the United Kingdom. The fraud operated as an advance-fee scheme in which the defendants acted as promoters who promised to pay the victims a sum of money at a later date in exchange for an up-front payment. Among other misrepresentations, Smith and his co-conspirators told potential victims that their principal payments would be protected based on letters of credit and other documents that purported to be from a large financial institution. However, these documents were fabricated, sometimes with the assistance of Smith himself. The evidence also showed that Smith and his co-conspirators used escrow attorneys, who were themselves part of the scheme, in order to give the victims the impression that their money would remain secure until the defendants' promises had been kept. Smith and his co-conspirators stole at least $5.7 million from their victims.

Co-conspirator Stuart Jay Anderson, 54, of Aliso Viejo, California, an escrow attorney involved in the scheme, was sentenced to four years in prison on Dec. 3, 2020. Co-defendant James Michael Johnson, 70, of Richmond, was sentenced to more than eight years in prison on March 5. Co-defendant Brian Michael Bridge, 48, of London, England, a fugitive, was also charged in the superseding indictment, and is presumed innocent until proven guilty.

[B]azzi owned and operated a purported investment company in Dearborn, Michigan known as Welther Oaks, LLC.  Using the business name Welther Oaks, Bazzi solicited funds from individuals in various parts of the United States, including Michigan, Illinois and California, purportedly for investments. Bazzi represented to prospective investors that their funds would be invested primarily in foreign currency exchange markets; he also represented that the funds may be invested in certain commodities, including gold. Bazzi told the investors that Bazzi's trading model would ensure that they earned high rates of return on their investment. Bazzi provided investors with written trading agreements and other materials. Bazzi also falsely represented that he was a licensed professional. Investors primarily funded their investments via checks mailed to Welther Oaks, or via wire transfers to bank accounts owned and controlled by Bazzi.

According to the plea documents, approximately 30 individuals invested funds with Bazzi over the course of his scheme, which ran from approximately March 2018 through March 2020. These investments totaled approximately $500,000. Contrary to his representations to the investors, Bazzi diverted most of the investors' funds to his own personal uses and expenses. According to the plea documents, Bazzi spent investor funds on a sports car, other luxury vehicles, and expensive jewelry. To conceal the scheme. Bazzi provided investors with periodic investment account statements that listed fictitious trading activity and account balances.

The plea agreement further states that Bazzi engaged in financial transactions with the fraudulently obtained funds, including wiring some $28,429.20 to a business in Nevada for the lease of an exotic sports car.

[S]ung Mo "Jay" Jun was at the center of a long-running scheme to illegally trade on non-public information concerning the growth in Netflix's subscriber base, a key metric Netflix reported in its quarterly earnings announcements. The complaint alleges that Sung Mo Jun, while employed at Netflix in 2016 and 2017, repeatedly tipped this information to his brother, Joon Mo Jun, and his close friend, Junwoo Chon, who both used it to trade in advance of multiple Netflix earnings announcements.

The SEC's complaint further alleges that after Sung Mo Jun left Netflix in 2017, he obtained confidential Netflix subscriber growth information from another Netflix insider, Ayden Lee. Sung Mo Jun allegedly traded himself and tipped Joon Jun and Chon in advance of Netflix earnings announcements from 2017 to 2019. The SEC alleges that Sung Mo Jun's former Netflix colleague Jae Hyeon Bae, another Netflix engineer, tipped Joon Jun based on Netflix's subscriber growth information in advance of Netflix's July 2019 earnings announcement. Sung Mo Jun, Joon Jun, and Chon allegedly used encrypted messaging applications to discuss their trading in an attempt to evade detection. According to the complaint, Sung Mo Jun, Joon Jun, and Chon made approximately $3 million in total profits from the illegal scheme. The SEC Market Abuse Unit's Analysis and Detection Center uncovered the trading ring by using data analysis tools to identify the traders' improbably successful trading over time.

[G]revas learned material, non-public information about the planned tender offer during a telephone call with her spouse, who was a member of Lundbeck's due diligence team for the Alder tender offer, in August 2019. According to the complaint, after the call, and unbeknownst to her spouse, Grevas purchased 30,800 shares of Alder stock in five brokerage accounts under her control, trading nearly every trading day until Lundbeck's announcement. According to the SEC's complaint, after Lundbeck announced the tender offer on September 16, 2019, Alder's share price increased 84% from its prior day's closing price, and Grevas obtained gains of $286,960.

[F]rom 2010 to 2016, the defendants solicited individual retail investors and advisory clients to purchase promissory notes issued by Fusion Holdings and raised $1.4 million from 10 investors without disclosing material facts regarding FAIP's declining financial condition. The complaint further alleges that Conte, on behalf of FAIP and Fusion Holdings, made material representations to investors regarding FAIP's profitability and the safety and soundness of the promissory notes.

[R]ising Biosciences and Hall made false and misleading statements in press releases, on websites, and in social media videos that Rising Biosciences' disinfectant products, including Oxithymol, Oxi Thyme, and/or their ingredients, were CDC approved or EPA registered. The complaint alleges that neither Oxithymol nor its purported ingredients were CDC approved, and the EPA has not registered Oxithymol or Oxi Thyme for any use. The complaint also alleges that Rising Biosciences did not use Oxithymol in its Oxi Thyme system, but instead purchased, rebottled, and sold a product produced by another company for use in the Oxi Thyme system. The other company's product is EPA registered as a pesticide. It is not registered for use in killing viruses and does not appear on the EPA's "List N" of products that meet EPA criteria for use against the virus that causes COVID-19, according to the complaint.

[S]lothower, through his entity Battery Private, Inc., engaged in two separate fraudulent schemes. In the first alleged scheme, Slothower misappropriated more than $1 million from an advisory client and her spouse, a prospective client. In the second alleged scheme, Slothower made material misrepresentations in connection with private sales of a penny stock owned by Battery Private. The SEC's complaint further alleges that Slothower exaggerated the size of Battery Private's regulatory assets under management in SEC filings.

[P]anuwat, the then-head of business development at Medivation, a mid-sized, oncology-focused biopharmaceutical company, purchased short-term, out-of-the-money stock options in Incyte Corporation, another mid-cap oncology-focused biopharmaceutical company, just days before the Aug. 22, 2016, announcement that Pfizer would acquire Medivation at a significant premium. Panuwat allegedly purchased the options within minutes of learning highly confidential information concerning the merger. According to the complaint, Panuwat knew that investment bankers had cited Incyte as a comparable company in discussions with Medivation and he anticipated that the acquisition of Medivation would likely lead to an increase in Incyte's stock price. The complaint alleges that Medivation's insider trading policy expressly forbade Panuwat from using confidential information he acquired at Medivation to trade in the securities of any other publicly-traded company. Following the announcement of Medivation's acquisition, Incyte's stock price increased by approximately 8%. The complaint alleges that, by trading ahead of the announcement, Panuwat generated illicit profits of $107,066.

[F]rom June 2016 through October 2017, the respondents provided erroneous order-marking information on hundreds of sale orders of their hedge fund client to the hedge fund's brokers, causing those brokers to mismark the hedge funds' sales as "long." The order finds that in providing the inaccurate information, the respondents also caused the hedge fund's brokers to fail to borrow or locate shares prior to executing the sales. The order further finds that Murchinson and Bistricer caused the hedge fund to engage in dealer activity without registering with the SEC or being exempt from registration.

[B]eginning in at least 2012, and continuing through the present, Centurion and Svejda solicited approximately $790,000 from approximately 27 persons to invest in a commodity pool that would use pool funds to invest in exchange-traded commodity futures contracts. However, the defendants failed to invest participant funds, and misappropriated more than 80 percent of the pool's assets. 

The complaint also charges Centurion and Svejda for multiple regulatory violations. Centurion is charged with failing to register with the CFTC as a CPO, commingling pool participant funds, and failing to provide required disclosure documents. Svejda is charged with failing to register as an associated person of Centurion. 

The complaint also charges Svejda with liability for all of Centurion's misappropriations and misrepresentations as a controlling person who knowingly induced the violations or did not act in good faith. Additionally, Centurion is charged with liability for Svejda's violations of the CEA and CFTC regulations, as such violations occurred within the scope of his employment, office, or agency with Centurion.

[S]tarting in at least March 2018, Bazzi, the owner of Welther Oaks, fraudulently solicited at least $470,000 from at least 25 pool participants for a commodity pool that would purportedly trade forex. As alleged, in order to entice pool participants, Bazzi and Welther Oaks falsely represented that they had made large profits trading forex; and that pool participants would realize guaranteed profits as high as 15% per month on their funds without losses, and could withdraw their funds at any time. The complaint further alleges that Bazzi and Welther Oaks used only a small fraction of the funds they collected to trade forex and concealed their fraud by issuing false account statements to the pool participants that purported to show trading profits. In addition, the complaint alleges that defendants misappropriated at least $387,000 of participants' funds to spend on automobiles, jewelry, retail purchases, meals and entertainment and travel for Bazzi.

On May 7, 2015, Ascendiant's market making desk effected 45 short sales in an equity security, Riviera Tool Co. (RIVT), for its own account, without complying with the locate requirement of Rule 203(b)(1) of Regulation SHO of the Securities Exchange Act of 1934 (Regulation SHO). In each of these 45 instances, the firm erroneously relied upon the bona-fide market making exemption to Rule 203(b)(1) of Regulation SHO, effecting each short sale without (1) borrowing the security, or entering into a bona-fide arrangement to borrow the security; or (2) having reasonable grounds to believe that the security could be borrowed so that it could be delivered on the date delivery was due; and (3) documenting compliance with Rule 203(b)(1) of Regulation SHO. This conduct violated Rule 203(b)(1) of Regulation SHO and FINRA Rule 2010, and generated $26,720 in net profits for the firm and its traders. 

Moreover, Ascendiant failed to follow in connection with these 45 transactions the process outlined in its written supervisory procedures (WSPs) for verifying the applicability of the bona-fide market making exception. Ascendiant thereby failed to enforce a system of supervision that was reasonably designed to comply with Regulation SHO in violation of FINRA Rules 3110(b) and 2010.  

Between September 2017 and August 2018, while he was registered through Woodstock, Beliakov engaged in quantitatively unsuitable trading in the account of one customer (Customer 1), a 57 year old manager at a printing company whose only prior experience with securities was with mutual funds in his retirement account. The funds with which Customer 1 opened his account at Woodstock came from savings bonds. Beliakov and another registered representative with whom he worked recommended all of the trades in Customer 1's account and Customer 1 followed their recommendations. As a result, Beliakov exercised de facto control over Customer 1's account. 

Beliakov recommended frequent trading in Customer 1's account, which resulted in an annualized cost-to-equity ratio of 221.56. This means that Customer 1's investments had to grow by more than 221 percent to break even. Customer 1 paid more than $173,000 in commissions during this period.² The securities transactions recommended by Beliakov in Customer 1's account were excessive and unsuitable given the customer's investment profile. 

Therefore, Beliakov violated FINRA Rules 2111 and 2010.

= = = = =

Footnote 2: Customer 1 initiated an arbitration against, among others, Beliakov and Woodstock. Woodstock subsequently settled with Customer 1.

Between September 2017 and August 2018, while he was registered through Woodstock, Stazzone engaged in quantitatively unsuitable trading in the account of one customer (Customer 1), a 57 year old manager at a printing company whose only prior experience with securities was with mutual funds in his retirement account. The funds with which Customer 1 opened his account at Woodstock came from savings bonds. Stazzone and another registered representative with whom he worked recommended all of the trades in Customer l's account and Customer 1 followed their recommendations. As a result, Stazzone exercised de facto control over Customer l's account. 

Stazzone recommended frequent trading in Customer l's account, which resulted in an annualized cost-to-equity ratio of 221.56. This means that Customer l's investments had to grow by more than 221 percent to break even. Customer 1 paid more than $173,000 in commissions during this period.² The securities transactions recommended by Stazzone in Customer l's account were excessive and unsuitable given the customer's investment profile. 

Therefore, Stazzone violated FINRA Rules 2111 and 2010. 

= = = = =

Footnote 2: Customer 1 initiated an arbitration against, among others, Stazzone and Woodstock. Woodstock subsequently settled with Customer 1.

• Securities Industry Commentator
• Bill Singer