Securities Industry Commentator by Bill Singer Esq

No Show Respondent in FINRA  Arbitration Prompts No Explanation in Award (BrokeAndBroker.com Blog)

Founder of Investment Advisory Firm Charged with Wire Fraud, Investment Adviser Fraud and Money Laundering (DOJ Release)

SEC Charges Dialysis Provider and Three Former Senior Executives with Revenue Manipulation Scheme / American Renal Associates Agrees to Pay $2 million Civil Penalty (SEC Release)

Owner of Cannabis Company Charged in Federal Court With Swindling Investors Out of More Than $950,000 (DOJ Release)

Former Netflix engineer sentenced to prison for insider trading / Friend who profited from trading on privileged information also gets prison sentence (DOJ Release)

Florida man sentenced for defrauding W.Va. churches, citizens (DOJ Release)

Gold Dealers Sentenced for Financial Crimes and Gun Crimes (DOJ Release)

SEC Obtains Judgment Against Investment Professional Charged with IIIegal Trading Scheme (SEC Release)

SEC Obtains Final Judgment Against Former Company Executive Charged with Fraud for False Disclosures About Management (SEC Release)

Court Enters Default Judgment Against Microcap Company and Orders Penalty for Fraudulent Press Release (SEC Release)

FINRA Suspends Rep for Bond Recommendations

In the Matter of Eric Carl Willer, Respondent (FINRA AWC)

FINRA Censures and Fines Citigroup Suspends for Wage Garnishment Orders

In the Matter of Citigroup Global Markets Inc, Respondent (FINRA AWC)

[S]lothower was the founder and operator of Battery Private, a New York investment advisory firm.  While operating Battery Private, Slothower solicited business from Victim-1 and Victim-2, a couple from California whose money Slothower had managed at another financial services firm.  Slothower promised the victims he could beat any rate of return they were receiving and do so without market risk.  Victim-2 thereafter signed an investment advisory contract with Battery Private.  Slothower continued soliciting Victim-1's business, and, in 2017, he offered to invest Victim-1's money into what Slothower described as bonds backed by homeowner's association fees (the "HOA Bonds"), which would pay Victim-1 an eight percent return.   Based on these representations, Victim-1 agreed to invest money with Slothower through Battery Private. 

Slothower sent Victim-1 wiring instructions for his investment and attached a document that made additional representations about Victim-1's purported investment, claiming that Victim-1's money would be held in the "capital reserves" of Battery Private.  Thereafter, between January 25, 2017 and January 27, 2017, Victim-1 sent more than $500,000 to Slothower at Battery Private to be invested in the purported HOA Bonds.  However, that money was not invested in HOA Bonds or held in "capital reserves" as represented by Slothower; instead, Slothower used that money to, among other things, wire money to himself, purchase a luxury automobile and pay fees for a private golf club on Long Island.  To further the fraudulent scheme, Slothower thereafter made payments to Victim-1 that were falsely represented as quarterly distributions from Victim-1's investment. 

Later, Slothower sought out additional funds and asked Victim-1 to find money to invest including money from Victim-2 who was then a Battery Private client.  Victim-2 learned about the HOA Bond investment from Victim-1, including the fact that Victim-1 had been receiving purported quarterly returns from the investment.  Thereafter, Victim-2 agreed to invest in the same purported HOA Bonds, and in or about December 2017, Victim-2 sent more than $500,000 to Slothower at Battery Private that was for investment in the HOA Bonds.  However, like Victim-1, Victim-2's money was not invested in HOA Bonds or held in "capital reserves" as represented by Slothower.  Instead, Slothower used that money to, among other things, pay personal credit card bills.  To further the fraudulent scheme, Slothower made payments to Victim-2 that were falsely represented as quarterly distributions from Victim-2's investment

In June 2018, Victim-1 made an additional investment of approximately $84,000 into the purported HOA Bonds.  Again, Slothower did not invest that money in HOA Bonds or hold it as "capital reserves," as he previously represented.  Instead, Slothower used Victim-1's money to, among other things, make purported quarterly payments to Victim-1 and Victim-2 that were falsely represented as their investment returns and to pay the private golf club on Long Island.

Thompson owned and operated a Canadian-based cannabis company that did business in Colorado.  According to a criminal information filed Thursday in U.S. District Court in Chicago, Thompson in 2018 and 2019 solicited and obtained money from investors by falsely representing that their funds would be used for expanding the company's business and holding an initial public offering of securities. 

In reality, the information alleges that Thompson knowingly misrepresented the company's financial condition and that he knew the company was not in a position for an IPO at that time.  Thompson instead misappropriated investor funds for his and his family's personal use and to make Ponzi-type payments to lull earlier investors, the information alleges.

As a result of the scheme, Thompson caused the victim investors to suffer at least $952,000 in losses, the charge alleges.

According to records filed in the case, from July 2016 to February 2017, Sung Mo Jun was employed by Netflix as a software engineer.  He had access to subscriber data and had been trained by the company that such data was material, non-public information.   Nevertheless, Jun disclosed that information to his brother Joon Jun, 45, of Issaquah, Washington, and his close friend, Junwoo Chon, knowing that the two intended to use the information to profit on the purchase and sale of Netflix securities.  After Chon made significant profits on the securities, Sung Mo Jun asked Chon to provide Sung Mo Jun with $60,000 in cash as Sung Mo Jun's share of the profits.

After Sung Mo Jun left Netflix, he obtained additional non-public information about subscriber data from another Netflix employee, software engineer Ayden Lee, 33, of San Jose, California.  Jun not only passed that information on to his brother and Chon, he also used it to make his own trades.  Between April 2017, and July 2019, Sung Mo Jun made a profit of $434,086 by trading in Netflix stock and options with this inside information.  Between July 2016 and April 2017, Jun's brother, Joon Jun, made $215,419 and co-conspirator Junwon Chon made $521,400.  All told, the insider trading attributable to Sun Mo Jun in Netflix securities resulted in an illicit gain of $1,170,905.  Chon is responsible for illicit profits of $1,642,855

Sung Mo Jun also obtained insider information from a "tipper" he knew at another tech company and shared this information with his brother and Chon.  Their profits from trading on that inside information was less than $2,000.

In addition to the prison sentences, both men will be on one year of supervised release following prison and must complete 50 hours of community service. 

As Judge Jones imposed the sentence, he told Jun "You had no reason to pursue this additional wealth, and yet you chose to engage your brother and best friend in this scheme.  There is just one reason: greed."

Jun told the court, "What I did was foolish, wrong, illegal . . .. I have no excuse.  I disappointed many people."

Jun is forfeiting $495,188 to the U.S. and Chon is forfeiting $1,582,885 to the U.S. The forfeiture amounts are based on the illegal gain by each defendant. 

The two remaining conspirators will be sentenced next year.  Joon Jun is responsible for illicit profits totaling $1,106,208. Lee is connected to illicit profits totaling $453,465.

The Securities and Exchange Commission (SEC) has filed a separate civil enforcement action against the defendants who have each entered into settlements with the SEC. Both men still face potential penalties from the SEC.

Conley portrayed himself as an investment advisor even after his broker's license was suspended in December 2015. He formed a company called ALPAX, LLC, and persuaded victims to invest in false ventures such as student housing construction, high-yield fixed income securities, oil and gas technology, mineral rights, and timber leasing. Conley provided investors with a false sense of security by mailing them dividend statements that misstated the value of the investment accounts.

Conley's victims included churches in Charleston, Parkersburg and Morgantown. Small business owners were also victimized, along with friends and family members of Conley. He spent the stolen money on private jets, designer clothes, fine dining, jewelry, and housing and living expenses.

Between 2017 and 2018, defendants GGEX, Owen, Warren, and Morrow employed various money laundering, fraud, and unlicensed money transmitting techniques to conduct unlawful transactions through GGEX and GGEX's bank accounts, including transacting with a "local cartel out of Mexico;" falsifying invoices for sales of gold, when in reality it was the receipt of a large cash deposit, and returned by check after GGEX took a 10 percent fee; agreeing with "clients" to tell law enforcement or tax authorities that the transactions were sales/purchases of precious metals; and advising clients to mail GGEX parcels filled with heavy substances to mimic the weight of gold, all to falsely document the nature of GGEX's transactions.

[F]rom at least January 2019 through June 2021, Boccara used his access to the family fund's account to make hundreds of trades between the family fund and himself to generate over $500,000 in illicit profits. Boccara's allegedly illegal trades included buying options from the family fund and then selling the same options back at higher prices, buying options from the family fund and then selling those options on the open market for a profit, and selling worthless options to the family fund and pocketing the profit.

[O]n September 17, 2019, Simeo created the false appearance to the public that Viking had a CFO by repeatedly affixing the CFO's signature to Viking's periodic reports and SOX certifications, when in reality, the Company had no CFO. The court granted the SEC's motion for summary judgment on September 3, 2021, finding that undisputed facts established that Simeo had made materially misleading disclosures in Viking's filings regarding the purported CFO.

According to the SEC's complaint, filed on September 30, 2019, Michael J. Starkweather, while serving as Andiamo's CEO, caused Andiamo to issue a press release announcing the unveiling of a smartphone Andiamo had purportedly developed, touting the phone's technical features, and claiming that the phone was available for distribution. In reality, the complaint alleged, Starkweather knew that the purported smartphone did not exist. The complaint also charged Starkweather with allegedly receiving "kickbacks" from a stock promoter during the months leading up to this allegedly false press release.

From January 2017 to December 2018, Willer recommended that 13 potential investors purchase bonds in two private placement offerings without having a reasonable basis to believe that the bonds were suitable for any investor, in violation of FINRA Rules 2111 and 2010. Additionally, Willer negligently misrepresented and omitted material facts when he distributed offering documents to four potential investors that included misrepresentations and omissions, in violation of FINRA Rule 2010.

[C]itigroup received 192 wage garnishment orders from courts and tax authorities for 122 registered representatives. The firm, however, failed to conduct a sufficient inquiry to determine if the underlying event triggering each garnishment order involved a disclosable event that should have been reported on the registered representative's Form U4. In fact, 52 of the wage garnishment orders received by Citigroup on behalf of 43 registered representatives arose from unsatisfied liens or judgments that should have been reported on the respective representative's Form U4. The firm failed to file an amendment to the representative's Form U4 to disclose 19 of the unsatisfied liens or judgments. After review, the firm subsequently filed Form U4 amendments to disclose 33 liens or judgments late. 

The firm failed to file the required Form U4 amendments, or filed them late, because although it had a system in place to determine whether the wage garnishment orders arose from a disclosable lien or judgment, the system was not reasonably designed. When it received a wage garnishment order, the firm would contact the representative and rely on the representative's determination whether the wage garnishment order was the result of a reportable event. The firm did not conduct a further inquiry, nor did it do an independent review, to determine if the underlying event triggering each garnishment order involved a disclosable event. 

Therefore, Citigroup violated Article V, Section 2(c) of FINRA's By-Laws, FINRA Rule 3110, and FINRA Rule 2010. 

• Securities Industry Commentator
• Bill Singer