The Wall Street Legal & Regulatory Feed

Securities Industry Commentator by Bill Singer Esq

December 22, 2021









https://www.justice.gov/usao-de/pr/found-guilty-wire-fraud-bank-fraud-and-money-laundering-bear-man-sentenced-three-years
Oh my . . . the Feds have discovered the existence of the much-rumored but very-very-rare "Bear Man." Unlike the now jejune Wolf Man or the over-exposed Abominable Snow Man a/k/a Big Foot a/k/a Yeti, the elusive Bear Man seems to have opted for a life of crime, albeit, a somewhat sophisticated penchant for wire fraud, bank fraud, and money laundering. Pray tell, you good folks at DOJ, what is afoot here? Sadly, the underlying fact pattern does not live up to the intriguing headline. Sigh. As set forth in part in the DOJ Release: 

[D]avid C. Weiss, U.S. Attorney for the District of Delaware, announced today that a resident of Bear, Delaware was sentenced on Tuesday to 36 months in prison for committing wire fraud, bank fraud, and money laundering against several banks, the Social Security Administration ("SSA"), and Sutter Health, a California healthcare company. Proven losses from the defendant's schemes totaled approximately $225,000.  United States District Judge Leonard P. Stark pronounced sentence.

According to court documents and testimony at the August 2021 trial, Aaron Davis, 44, engaged in a series of schemes with unknown accomplices to defraud the SSA, Sutter Health, Citizens Bank, and SunTrust Bank between July 2017 and October 2017.  One scheme involved serially opening bank accounts; depositing money fraudulently taken from Sutter Health and the SSA into those accounts; and withdrawing the money before those funds could be verified.  Another scheme involved depositing fraudulent checks into bank accounts and withdrawing funds before the fraudulent nature of the checks could be detected.  A third money laundering scheme involved moving the illegally acquired money from one bank account into another to make the funds appear legitimate. 




http://www.brokeandbroker.com/6207/finra-suntrust-email/
There are times when brokerage firms implement half-assed compliance policies. Similarly, there are times when Wall Street's regulators promulgate half-assed regulations. All of which fosters compliance departments and industry regulators that are incapable of effectively enforcing their own rules. Among the most breathtaking sights on the financial services landscape is the lightshow that emerges from the collision of failed compliance with incompetent regulators. Sit back and enjoy today's fireworks!

https://riabiz.com/a/2021/12/21/mckinseys-31-billion-ria-for-mckinsey-staffers-pays-18-million-fine-a-real-slap-on-the-wrist-considering-repeated-violations-related-to-having-zero-recusal-process-for-insiders-in-its-compliance-plan-a-lawyer-says
Oh my . . . what a lovely Christmas gift in the form of an old-fashioned bit of kick-ass journalism from one of the best writers on today's Wall Street beat!  Once again, Oisin Breen invites us to consider all sides of a story, and he does so with his own unique style. If you want to know what's really bothering savvy industry professionals about the SEC's much-trumpeted, recent McKinsey settlement, click on the link to Breen's fabulous article.

https://www.justice.gov/opa/pr/natwest-markets-pleads-guilty-fraud-us-treasury-markets
In an Information filed in the  the United States District Court for the District of Connecticut
https://www.justice.gov/opa/press-release/file/1457981/download, U.K.-based global banking and financial services firm NatWest Markets Plc pled guilty in to one count of wire fraud and one count of securities fraud. Pursuant to a Plea Agreement
https://www.justice.gov/opa/press-release/file/1457986/download, the firm will pay about $35 million in a criminal fine, restitution, and forfeiture, serve three years of probation, and retain an independent compliance monitor. As alleged in part in the DOJ Release:

[B]etween January 2008 and May 2014, NatWest traders in London and Stamford, Connecticut, independently engaged in schemes to defraud in connection with the purchase and sale of U.S. Treasury futures contracts. Separately, in 2018, two other traders employed at NatWest's Singapore branch engaged in a fraud scheme in connection with the purchase and sale of U.S. Treasury securities in the secondary (cash) market.

In each scheme, NatWest traders engaged in "spoofing" by placing orders with the intent to cancel those orders before execution, attempting to profit by deceiving other market participants by injecting false and misleading information regarding the existence of genuine supply and demand in the market. The spoof orders were designed to artificially push up or down the prevailing market price so that the NatWest traders could trade more profitably as a result of these schemes. In some instances, one of the NatWest traders took advantage of the close correlation between U.S. Treasury securities and U.S. Treasury futures contracts and engaged in cross-market manipulation by placing spoof orders in the futures market in order to profit from trading in the cash market.

The 2018 securities fraud scheme constituted a material breach of the Oct. 25, 2017 Non-Prosecution Agreement between the U.S. Attorney's Office for the District of Connecticut and NatWest's U.S. broker-dealer subsidiary, NatWest Markets Securities Inc. (formerly RBS Securities Inc.), and occurred while NatWest (formerly The Royal Bank of Scotland Plc) was on probation following its May 20, 2015 guilty plea and Jan. 5, 2017 sentencing for conspiring to manipulate the foreign currency exchange market.

A number of relevant considerations contributed to the department's criminal resolution with NatWest, including the nature and seriousness of the offense, NatWest's substantial prior history of other criminal conduct and civil and regulatory actions against it, its breach of a prior agreement, and the state of NatWest's compliance program. 

https://www.sec.gov/litigation/litreleases/2021/lr25293.htm
Litigation Release No. 25293 / December 22, 2021
In a Complaint filed in the United States District Court for the Western District of Texas
https://www.sec.gov/litigation/complaints/2021/comp25293.pdf00238 (W.D. Tex. filed December 14, 2021), the SEC charged Marco "Sully" Perez and Permian Basin Proppants, Inc.,( a Texas company that Perez allegedly controls as President) with violating the antifraud and securities registration provisions of Sections 5(a), 5(c), and 17(a) of the Securities Act and Section 10(b) of the Securities Exchange Act, and Rule 10b-5 thereunder. On December 14, 2021, the Court issued a temporary restraining order halting the defendants' ongoing offering, freezing the defendants' assets, and granting other emergency relief. As alleged in part in the SEC Release:

The SEC's complaint, filed under seal on December 14, 2021, alleges that Perez offered investments in Permian, which he claimed bought sand for use in oil and gas drilling. Perez allegedly told investors that Permian would use their funds to buy sand that would then be sold to drillers at a markup, generating guaranteed returns ranging from 10% to 100% in as little as 30 days. To further gain prospective investors' trust, especially current and former military members, Perez allegedly touted his veteran status as part of his investment pitch. As the complaint alleges, Perez used these tactics to raise at least $9.25 million from approximately 265 investors.

According to the complaint, however, Perez's investment program was fraudulent because Permian used little, if any, investor funds for acquiring sand and did not have the agreements to sell sand to drillers as it represented. Instead, the SEC alleges that Perez used investor funds to make Ponzi payments and to pay personal expenses, including exotic cars, private-jet travel, jewelry, gambling, and his wedding aboard the Queen Mary. The SEC also alleges that Perez gave investors false account statements that he had fabricated to show phony sand transactions and non-existent investment returns. 

Without admitting or denying the findings in an SEC Order https://www.sec.gov/litigation/admin/2021/33-11018.pdf, Nikola Company consented to findings that it had violated the antifraud and disclosure control provisions of the federal securities laws; and the company agreed to cease and desist from future violations of the charged provisions, to certain voluntary undertakings, and to pay a $125 million penalty. Further, Nikola agreed to continue cooperating with the SEC's ongoing litigation and investigation. As alleged in part in the SEC Release:

[B]efore Nikola had produced a single commercial product, Milton embarked on a public relations campaign aimed at inflating and maintaining Nikola's stock price. Milton's statements in tweets and media appearances falsely gave investors the impression that Nikola had reached certain product and technological milestones. The order finds that Milton misled investors about Nikola's technological advancements, in-house production capabilities, hydrogen production, truck reservations and orders, and financial outlook. The order also finds that Nikola further misled investors by misrepresenting or omitting material facts about the refueling time of its prototype vehicles, the status of its headquarters' hydrogen station, the anticipated cost and sources of electricity for its planned hydrogen production, and the economic risks and benefits associated with its contemplated partnership with a leading auto manufacturer.

SEC Charges Additional Unregistered Brokers Who Sold Equialt Securities to Retail Investors (SEC Release)
https://www.sec.gov/litigation/litreleases/2021/lr25292.htm
In a Complaint filed in the United States District Court for the Northern District of California
https://www.sec.gov/litigation/complaints/2021/comp25292.pdf, the SEC charged John Marques and his company Lifeline Innovations & Insurance Solutions LLC with violating the securities registration provisions of Sections 5(a) and 5(c) of the Securities Act and the broker-dealer registration provisions of Section 15(a)(1) of the Securities Exchange Act. As alleged in part in the SEC Release:

[B]etween approximately August 2016 and February 2020, Marques and his company, Lifeline Innovations & Insurance Solutions LLC, sold approximately $7.9 million of securities of funds managed by Florida-based EquiAlt LLC to more than 50 retail investors located in California and Washington State. The complaint further alleges that Marques, through Lifeline Innovations, received approximately $824,000 in commissions from EquiAlt, even though neither Marques nor Lifeline Innovations was registered as a broker-dealer or associated with a registered broker-dealer. The SEC previously filed an enforcement action against EquiAlt, EquiAlt's CEO, EquiAlt's Managing Director, and entities they control, alleging that they fraudulently raised millions of dollars by making material misrepresentations to investors about EquiAlt's investment strategy, the financial condition of the investments, and the uses of investor proceeds. The SEC also previously charged five of EquiAlt's top sales agents with various registration violations.

http://www.brokeandbroker.com/6218/finra-sutter-indemnification/
After a stockbroker/advisor resigns or is terminated, a former employer often resorts to "self help" when it comes unpaid items purportedly owed by the ex-employee to the firm  -- with the most common "quick fix" being to "dock" the former rep's trailing commissions/fees. The legal term for such a balancing-of-the-books is "indemnification." Of course once we start throwing around legal terms, disputes are going to arise as to whether a former employer has "rightfully" indemnified itself against an actual loss/cost. Read today's featured FINRA arbitration for an example of how self-help and legalese can come into conflict. 

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