Securities Industry Commentator by Bill Singer Esq

September 10, 2021

In a new episode of the Financial Planning podcast hosted by reporter Julie Coleman, lawyer Bill Singer answers four questions:

  • Why is fraud so difficult for wealth managers to detect and prevent?

  • How can advisors help regulators and law enforcement catch fraudsters?

  • What is the craziest case of fraud you've heard of?

  • The SEC seems to be releasing a lot of fraud cases - what do you think is the reason for this?

Alpine Securities Corporation, Plaintiff, v. Financial Industry Regulatory Authority, Defendant (Memorandum Decision and Order Granting Motion to Dismiss, United States District Court for the District of Utah ("DUT") / September 7, 2021)
As set forth in the "Background" section of the Decision [Ed: footnotes omitted]:

Alpine Securities Corporation (Alpine) is a registered broker-dealer, clearing firm, and member of FINRA. In August 2019, FINRA's Department of Enforcement (DOE) began disciplinary proceedings against Alpine regarding alleged excessive fees Alpine had charged.4 FINRA has been authorized under the Securities Exchange Act of 1934 (Exchange Act) to create rules and regulations regarding how it conducts proceedings and investigations. In defending against the disciplinary proceeding, Alpine appeared at an in-person hearing that began on February 18, 2020. The DOE presented six witnesses and documentary evidence while Alpine presented one witness before the hearing was adjourned on February 22, 2020 due to an urgent matter for Alpine's counsel. The hearing was to resume in late April 2020, but the COVID-19 pandemic delayed the hearing. Over the next few months, the parties discussed the possibility of proceeding and potentially presenting testimony virtually. Alpine expressed its concerns about proceeding virtually. On August 31, 2020, FINRA adopted a temporary amendment (Amendment) to FINRA Rule 9261 providing that FINRA proceedings could continue virtually. On November 2, 2020, the Chief Hearing Officer ordered the remainder of Alpine's proceedings to resume on November 30, 2020 by virtual means. 

Shortly thereafter, Alpine filed a complaint against FINRA for: (1) declaratory judgment that FINRA breached its agreement with Alpine, (2) violation of Alpine's Due Process Rights; (3) preliminary and permanent injunctive relief; and (4) declaratory judgment that the Amendment to FINRA's rules is invalid. 

FINRA moved to dismiss the case on six grounds: (1) the Exchange Act's exclusive review process strips this court of subject-matter jurisdiction; (2) Alpine lacks a private right of action to pursue claims; (3) FINRA is immune from claims arising from the performance of its regulatory functions; (4) Alpine's due process claim fails because FINRA is not a state actor; (5) Alpine's declaratory relief claims are meritless; and (6) Alpine admitted it was not entitled to injunctive relief.  

at Pages 1 - 2 of the DUT Decision

In its Complaint, Alpine asserted that it will be disadvantaged if the remainder of the FINRA disciplinary hearing is held virtually rather than in-person -- essentially, that video conferencing violates its rights to a full and fair hearing. In considering whether it has jurisdiction to hear the dispute between a FINRA member firm and FINRA concerning the manner in which a regulatory hearing is conducted, the Court finds in part that [Ed: footnotes omitted]:

[A]lpine's dispute with FINRA about its own rules can be pursued under the Exchange Act. As the D.C. Circuit made clear, the plaintiff "could not sue FINRA in federal district court for FINRA's alleged failure to comply with the Act." The same is true here. Alpine is attacking the disciplinary proceeding which is governed by the Exchange Act's detailed scheme. Alpine is entitled to multiple layers of review if it proceeds with the remote disciplinary hearing and receives an unsatisfactory result. The statutory scheme provides the exclusive appellate process for all decisions related to the outcome of Alpine's disciplinary hearing. 

at Page 11 of the DUT Decision

DUT granted FINRA's Motion to Dismiss solely on the basis of lack of jurisdiction and Defendant's five other arguments were pointedly not addressed. In rather simplistic terms, the Court has concluded that Alpine must exhaust its administrative remedies by litigating an Office of Hearing Officers ("OHO") hearing, then, if desired, appealing to the National Adjudicatory Council ("NAC"), and after adjudications by the OHO and NAC, if desired, on appeal to the SEC, and after arguing its case before the federal regulator, an appeal is available to a United States Court of Appeal (in contradistinction to a United States District Court). That is purportedly the exhaustion-of-administrative-remedies pathway that Alpine must exhaust before seeking redress in the federal courts. DUT decided that Alpine's short-circuit does not withstand judicial scrutiny. 

In the Matter of the Application of Consolidated Arbitration Applications for Review of Action Taken By FINRA (Order Severing Proceedings, '34 Act Rel. No. 92923; Admin. Proc. File Nos. 3-18616, 3-18617, 3-18877, 3-18879, 3-18883, 3-18910, 3-18919, 3-18934, 3-18988, 3-19013, 3-19016, 3-19017, 3-19219, 3-19228, 3-19405, 3-19573, 3-19574, 3-19588, 3-19611, 3-20160, 3-20205
After FINRA denied their expungement requests as ineligible for arbitration, Kent Vincent Pearce and Alton Theodore Davis, Jr. each filed an application for review with the SEC. Their appeals were consolidated with other appeals where FINRA had prohibited the applicants' access to its arbitration forum for seeking expungement of customer dispute information. In ordering the severance of Pearce's and Davis's appeal from the consolidated proceeding, the SEC found in part that:

The underlying customer arbitration awards issued against Pearce and Davis seem to indicate that, unlike the other applicants in the Consolidated Arbitration Applications, they requested and were denied expungement of the information regarding the underlying arbitrations from their records during the underlying customer arbitration proceedings. Because it appears as a result that Davis and Pearce may not have been denied access to the arbitration forum for their requests to expunge the prior adverse arbitration awards, 5 we sever Davis and Pearce from the Consolidated Arbitration Applications under our Rule of Practice 201(b). Orders requesting additional briefing as to the jurisdiction issue in Davis and Pearce will issue separately.
= = = = =

Footnote 5: Cf. Dustin Tylor Aiguier, Exchange Act Release No. 88953, 2020 WL 2743938, at *2-3 (May 26, 2020) (holding that FINRA's action denying applicant's request to reopen an earlier arbitration hearing did not limit his access to FINRA's arbitration service, and thus there was no jurisdiction under Section 19(d), because applicant had accessed FINRA's arbitration forum); John Boone Kincaid III, Exchange Act Release No. 87384, 2019 WL 5445514, at *3-5 (Oct. 22, 2019) (concluding that FINRA action giving effect to arbitrator's award was not a limitation of access to arbitration, and thus there was no jurisdiction under Section 19(d), where the applicant received a ruling from the arbitrator denying the requested relief and sought to challenge the ruling as an erroneous application of FINRA's rules). This severance order expresses no view as to whether FINRA in fact denied Pearce and Davis access to the arbitration forum. Pearce, Davis, and FINRA will have the opportunity to address that question in additional briefs.
Take a woman. Put her in a relatively low-level Wall Street job. Put her in a position where she's more likely to fail than succeed. Put her in situations where she either follows orders or else. Then enlist an industry regulator to pretend that everything this vulnerable woman did was on her own volition. After you've blindfolded justice and stuffed her ears, impose sanctions on this same woman in the guise of Wall Street regulation. Despicable. Shameful. Then again, it's how things work on the Street. Certainly, it's part of FINRA's tawdry record of failing to confront sexism,  racism, and discrimination/harassment in the industry.
The amazing story of Cynthia DiBartolo, Esq., founder of Tigress Financial Partners.
In response to an Indictment filed in the United States District Court for the District of New Jersey, Brenda Smith pled guilty to one count of securities fraud Previously, the SEC filed a parallel civil complaint against Smith. As alleged in part in the DOJ Release:

Smith managed and controlled Broad Reach Capital LP, a pooled investment fund/hedge fund that was established in February 2016 and was open to accredited investors with a minimum investment of $1 million.

From February 2016 through August 2019, Smith orchestrated a scheme in which she made misrepresentations to investors and promised that she would invest their funds in particular trading strategies that Broad Reach Capital was allegedly optimally situated to execute. Smith referred to these strategies as dividend capture, VIX Convergence, and opportunistic trading. 

Smith misrepresented the success and performance of Broad Reach Capital to investors and prospective investors. She touted Broad Reach Capital as a trade-focused investment fund that was highly liquid and employed a robust risk management program. Smith distributed written materials about Broad Reach Capital to investors and prospective investors that included purported historical performance information, such as claimed annual returns of over 33 percent in 2017 and positive monthly returns in 2018. In fact, the total cash and securities in the Broad Reach Capital bank and brokerage accounts decreased from approximately December 2016 through June 2019. For example, the written materials claimed that Broad Reach Capital had a 1.76 percent return in February 2018 when in reality, Broad Reach Capital's brokerage accounts lost approximately 50 percent of their value.

To lull investors and induce them to continue investing, Smith provided monthly account statements to investors that falsely showed that their investments were safe and earning significant returns. Smith also falsely represented that she was personally invested in Broad Reach Capital and provided a fictitious account statement to at least one investor.

Over the course of the scheme, Smith collected more than $100 million of cash into Broad Reach Capital from approximately 40 investors. At its peak, however, the value of cash and securities in the Broad Reach Capital bank and brokerage accounts did not exceed approximately $32 million. Instead of investing the money as she promised, Smith transferred tens of millions of dollars out of Broad Reach Capital to entities she controlled for purposes inconsistent with the trading strategies, including more than approximately $10 million for mineral mining operations and approximately $2 million for American Express credit card bills.  When investors requested redemption of their investments, Smith diverted other investors' funds to pay the requested redemption amounts.
A three-count criminal Indictment filed in the United States District Court for the Eastern District of New York charged Roberto Gustavo Cortes Ripalda, Fernando Haberer Bergson, and Ernesto Heraclito Weisson Pazmino with conspiracy to commit wire fraud, conspiracy to commit bank fraud, and conspiracy to commit money laundering. As alleged in part in the DOJ Release:

According to the indictment, Cortes and Weisson founded Biscayne Capital, a financial services company, in 2005. Between approximately 2013 and 2018, Cortes, Haberer, and Weisson, together with others, orchestrated a scheme to defraud Biscayne Capital clients and financial institutions through a series of material misrepresentations and omissions about, among other things, how Biscayne Capital client funds would be used. The defendants and their co-conspirators used the funds they fraudulently obtained from clients and financial institutions to pay other investors, cover Biscayne Capital expenses, and pay themselves millions of dollars. 

The indictment further alleges the defendants and their co-conspirators falsely told some Biscayne Capital clients that the clients' investments in certain private investment products (referred to in the indictment as "Proprietary Products") would be used to finance the development of real estate projects, when in fact, the defendants and their co-conspirators used the clients' investments to pay other Biscayne Capital clients. The indictment also alleges the defendants and their co-conspirators invested certain clients' money in Proprietary Products without those clients' knowledge, and then provided those clients with fraudulent account statements that showed fake investments. The defendants and others also conspired to fraudulently induce financial institutions to extend short-term credit to help further the scheme. Haberer then generated fake letters of authorization to repay the banks out of Biscayne Capital clients' accounts without those clients' authorization. 

By September 2018, the alleged scheme collapsed, and Biscayne Capital went into liquidation, causing more than $155 million in losses to Biscayne Capital clients.
Following a jury trial in the United States District Court for the Eastern District of North Carolina, Stephen Condon Peters was convicted of nine counts of wire fraud; four counts of engaging in monetary transactions in criminally derived property; and one count each of investment advisor fraud, fraud in the sale of unregistered securities, corruptly endeavoring to influence a federal agency, aggravated identity theft, conspiracy to make and use false documents and to falsify and conceal records, making and using false documents, and falsifying and concealing documents during an SEC examination. Peters (a former investment advisor and owner of Visionquest Wealth Management) was sentenced to 40 years in prison and ordered to pay $15,063,624.30 in restitution and to forfeit assets. Following his appeal to the United States Court of Appeals for the Fourth Circuit, the sentence was fully affirmed. As alleged in part in the DOJ Release:

Peters was convicted on all charges against him in a week-long trial in 2019.  The evidence showed that Peters, in his role as a Registered Investment Advisor, defrauded his numerous clients by steering them into investments in which Peters had a direct financial interest.  He then compounded his crimes by attempting to defraud the SEC with false documents and statements.  At sentencing, the judge commented that Peters's crimes were "breathtaking," but were proven with a "tsunami of evidence."  In issuing its 40-year sentence, the Court also noted that Peters "quadrupled down" on the crime by, among other things, perjuring himself at trial.
A lot of practitioners and many of their clients often desire to keep secrets during SEC administrative proceedings. Sometimes there are confidential finances involved. Sometimes there are trade secrets. Similarly, the SEC sometimes desires to keep its own secrets. In a recent SEC administrative proceedings the SEC and Respondents jointly moved  Administrative Law Judge Joseph E. Grimes for the entry of a protective order limiting the public disclosure of sensitive personal information. In granting the protective order, ALJ Grimes publishes what amounts to a precis as to what actually constitutes "sensitive personal information" and how such protected information may and may not be used by the parties. In his typically clear prose, ALJ Grimes offers a primer for many practitioners as to how to best frame a request for a protective order and the various elements that should be considered in compounding said request.

Thank you for the kind introduction. I'd like to note that my views are my own, and I'm not speaking on behalf of my fellow Commissioners or the staff.

I'm glad to participate in my second meeting of the Investor Advisory Committee. I thank the members for your time and willingness to represent the interests of American investors. Investor protection is at the heart of the SEC's three-part mission.

Today, I'd like to discuss a few areas related to topics you're discussing today, including the behavioral design of online trading platforms, 10b5-1 plans, and SPACs. I also look forward to your readout from your panel discussion on the Public Company Accounting Oversight Board.

Behavioral Design of Online Trading Platforms
In the last few years we've seen a proliferation of trading apps, as well as wealth management apps and robo-advisers, that use various practices to develop and provide investment advice to retail investors. 

While new financial technologies can bring increased efficiencies in finance and greater access, in many cases these individualized features may encourage investors to trade more often, invest in different products, or change their investment strategy.

Predictive analytics and other digital engagement practices (DEPs) often are designed, in part, to increase platform revenues, data collection, and customer engagement, leading to potential conflicts between the platform and investors.

We've put out a request for information and comment on the use of DEPs.[1] I'm hopeful that today's panel discussion will augment that request and help us learn more about how these practices are used.

Elissa and Paul, I'm sure you've thought out some very important questions for our panelists, but, if I may, I'd like to add a few more:

How are investors protected in light of the potential conflicts of interest that may exist when DEPs optimize for platform revenues, data collection, or investor behavior?

How might that affect whether DEPs are making a recommendation or providing investment advice, which has implications in our securities laws?

How do these new business models ensure for fairness of access and pricing, particularly given underlying data used in the analytic models could reflect historical biases that may be proxies for protected characteristics, like race and gender?[2]

I look forward to hearing the panel's thoughts on these important questions and ask anybody who is listening to today's meeting submit comments to the request for comment on our website.

Recommendations Regarding Rule 10b5-1 Plans
Next, I'd like to turn to insider trading, and in particular 10b5-1 plans. I thank the members who helped formulate the draft recommendations on these plans for their thoughtfulness and care in identifying ways to strengthen our rules.

I believe plans under Exchange Act Rule 10b5-1 have exposed potential gaps in our insider trading enforcement regime. As staff considers recommendations for changes to the rule, you've pointed out some important areas that are in line with what I've asked staff to consider in a proposed rulemaking.

These include a mandatory cooling off period between adoption of a plan and the first trades under the plan; prohibitions against an insider having multiple plans at the same time; and enhanced public disclosure of 10b5-1 plans.

I look forward to hearing more detail about your recommendations. Updates to Rule 10b5-1 are on the unified agenda, and your feedback will assist our staff in formulating recommendations to freshen up the rule.

Recommendations Regarding Special Purpose Acquisition Companies
Also on the unified agenda are rules regarding special purpose acquisition companies (SPACs).

I appreciate this committee's draft recommendations on this topic.

I agree with your assessment that we can do more to strengthen SPAC disclosures, especially around dilution.[3] One recent study,[4] which you cited in your draft recommendations, shows that SPAC sponsors generate significant dilution and costs for investors. I've asked staff to look closely at each stage of the SPAC process to ensure that all investors are being protected. This includes developing rulemaking recommendations to elicit enhanced disclosures and conducting economic analysis to better understand how investors are advantaged or disadvantaged by SPAC transactions.

Beyond the topics you're discussing today, the unified agenda, published earlier this summer, touches on a number of areas related to investor protection. I encourage you all to be active participants as we develop those rulemakings and put them out to public comment - particularly as they affect investors.

Thank you.

[1] See

[2] See Gary Gensler and Lily Bailey, "Deep Learning and Financial Stability," available at

[3] See

[4] See Michael Klausner, Michael Ohlrogge and Emily Ruan, "A Sober Look at SPACs," Yale Journal on Regulation (forthcoming 2021), available at

Remarks at Meeting of Investor Advisory Committee by SEC Commissioner Hester M. Peirce

Thank you, Jennifer. And thank you to the rest of the Committee for your hard work, which is evident in today's two draft recommendations and the panel discussions you have planned for today.

One of today's panels deals with "Reimagining Investor Protection in a Digital World." When confronted with new technologies, new products, and new ways of doing things, the regulator's tendency is to say no instead of yes, to say stop instead of go, to see danger instead of possibility. The regulatory labyrinth we have built over the years serves this "Not so fast, sonny, you might put your eye out!" mindset well. The SEC's focus is appropriately on investor protection, particularly retail investor protection, and market integrity.

This Committee, however, can play a role in reminding us that investor opportunity matters too. By investor opportunity, I mean the chance for investors to try new products and services, to include in their portfolios new types of assets, to use the latest technologies, to get in on the ground floor of new opportunities, to experiment and learn from investment successes and failures. The regulatory process underrates investor opportunity, and investors lose out.

Investors want protection from fraud and easy access to robust disclosures, but they also want to be able to interact with their financial firms using the latest technologies, to have access to the full range of investment options, and to take charge of their financial future by spending their hard earned money as they see fit. Investors at times may be willing to take on more risk than the regulator thinks is prudent. A healthy regulatory response would resist the urge to override investor decisions and instead engage and educate investors using the same technologies through which they are investing. As you discuss digital platforms and other topics in the future, help us to remember that a regulator who always says no or takes too long to say yes is not serving investors well. 

Remarks at the Meeting of the Investor Advisory Committee by SEC Commissioner Elad L. Roisman

Good morning, and thank you for gathering to discuss two important topics.  Before I go further, I want to say that my remarks are my own and do not necessarily reflect the views of the Commission or my fellow Commissioners.

The topic of your first panel-Reimagining Investor Protection in a Digital World-is quite timely.  About two weeks ago, the Commission issued a request for comment on what we are calling "digital engagement practices" of broker-dealers and investment advisers.  I encourage all who are interested in these topics to review the request and engage with us on the many questions we posed.  Requests for comment are helpful to us, particularly in dealing with emerging areas of technological innovation. Importantly, the request for comment provides investors with an opportunity to give feedback directly to us.  Hearing from investors on how they are engaging with the securities markets and using investing platforms is invaluable.  I hope the feedback we receive will allow us to establish a common base of facts before we draw conclusions regarding what, or whether, Commission action is warranted.

In my view, learning about investments is a continuous journey, and individuals can benefit by starting early.  Early investments have time to grow, and such gain can eventually help people provide for their families, pay for education, and retire comfortably.  This is not to say that the start of any investing journey will come easy to everyone or that every investment will be successful.  For many, the journey can be daunting-I do not know a single person who felt 100 percent comfortable the first time he or she put money into the markets.  Only over time, and with experience, do people feel more comfortable making investment decisions.  Experience also teaches us that not every investment will turn out the way we want or plan.  This is another reason I believe people generally benefit from starting their investing journeys early on.  The extra time can help investors recover from losses.

In sum, I am excited by the fact that so many people-including many young people, who access our markets through newer technology-are currently interested in investing in our markets, and I believe this is a wonderful development for their lives and futures.  While we should, of course, explore the risks that they may encounter on their journeys, we must not lose sight of the substantial benefits that technological innovation has provided and will continue to provide to these investors and our markets.

As we consider whether to make changes to our market structure, let us also keep in mind that, right now, our markets are the deepest, most liquid, and most investor friendly in the world.  While U.S. investors have all sorts of different goals, needs, and behavioral preferences, there are financial services available for just about everyone.  We should encourage this type of innovation to continue increasing investors' engagement.  This is particularly important among investors that historically have been less likely to participate directly in the securities markets.  New technologies can help provide useful education for investors to better understand markets as well as efficient avenues through which they can invest.

I am also looking forward to your second panel on auditor competition and regulatory reform.  I understand that you will discuss, among other things, questions of audit quality.  Our markets owe much of their well-deserved reputation to the quality of issuers' financial reporting, including the quality of the audits of those financials.  It is important that we not lose sight of how valuable focused, detailed financial reporting and audit quality are to the continued health of our markets. 

Finally, I appreciate the work the Committee has done in developing the two recommendations it will consider today.  I look forward to using the Committee's insights in future Commission work in these two areas.  Thank you again for your work and I look forward to your discussions.