Securities Industry Commentator by Bill Singer Esq

January 13, 2022

FINRA Mulls A Defaulted Bond's Worth ( Blog)
In a recent regulatory settlement, FINRA charged an industry respondent with violating FINRA Rule 3220's limit of a $100 gift. You'd think that with such a hard dollar amount that the published regulatory settlement would have alleged the value of the cited gift. Making matters worse, the gift in question involved a defaulted bond. How much is a defaulted bond worth? According to the settlement: "still well beyond the gift limit allowed by FINRA Rule 3220." That's a ridiculous allegation to be found in a final, FINRA, regulatory, settlement document -- "well beyond?" Are you serious? What's next? Charging folks with "a lot" or "often?" 

Donna Osowitt Steele pled guilty to wire fraud in the United States District Court for the Western District of North Carolina. In a fact pattern that is, at times, jaw-dropping, and, at times, mesmerizing, the DOJ Release alleges in part that:

[F]rom least 2013 to January 2020, the defendant executed an extensive scheme to defraud her employer, identified in court documents as Victim Company A, a privately held U.S. based subsidiary of a foreign company that manufactures carbide products. The owners of Victim Company A and its parent company reside overseas. Court records show that Steele embezzled over $15 million from Victim Company A and used the money to support a business run by her and her family and to fund an extravagant lifestyle.

As Steele admitted in court today, she was employed by Victim Company A from 1999 to January 2020. Initially, Steele worked in the shipping department and was promoted over the next 20 years to various positions within the company, including to the position of Chief Executive Officer (CEO), which she held until she was terminated in January 2020. While serving as Vice President and later as CEO, Steele used her positions to embezzle funds from Victim Company A in a number of ways, including through fraudulent company credit card purchases, company checks, Quickbooks transactions, and wire transfers. For example, filed court documents show that Steele used company credit cards to pay for $6 million in personal expenditures, including to make high-end retail store purchases, to pay for luxury hotel accommodations and event ticket purchases, to buy expensive jewelry, to pay for family weddings, and to make purchases related to Opulence by Steele, a luxury clothing and boutique company the defendant founded in 2013.

In addition to the credit card purchases, Steele admitted to issuing and causing to be issued to herself approximately 98 checks totaling more than $2.8 million from Victim Company A's bank accounts, which Steele deposited into her personal bank account. Furthermore, Steele caused 127 fraudulent and unauthorized wire transfers to be executed as Quickbooks transactions, transferring more than $4.7 million from Victim Company A's bank accounts to her personal bank account. During the same time period, Steele executed at least 117 fraudulent and unauthorized bank wires, totaling more than $2.2 million, from Victim Company A's bank accounts to the defendant's personal bank account, which she then used for her personal benefit, including to fund a personal real estate closing.

According to filed documents, as a result of Steele's embezzlement, Victim Company A experienced several difficulties, including vendors withholding products from the company for non-payment or late payments, customers complaining about being placed on credit holds, notwithstanding timely payments of their bills, employees having their company credit cards declined when they were trying to use them for legitimate business expenses, employees not being paid on time, and/or employees having their insurance cancelled without warning. Steele admitted that, in an effort to hide the fraudulent scheme, she limited communications and interactions between the employees and owners for Victim Company A and monitored communications that did occur, she convinced employees that company owners should be feared, and lied to employees about the true nature of Victim Company A's financial trouble.
The United States District Court for the Eastern District of New York entered a Final Judgment against the former Chief Financial Officer of Aceto Corporation, Douglas A. Roth, in which he consented to being permanently enjoined from violating the antifraud provisions of Section 10(b) of the Securities Exchange Act and Rule 10b-5 thereunder, to the imposition of Bars upon him from serving as an officer or director of a public company. Previously, the SEC issued an Order suspending Roth 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:

[R]oth, while working as Aceto's CFO, obtained non-public information concerning several negative developments at Aceto. The complaint further alleged that, while in possession of this confidential information, and within days of his March 31, 2018 retirement, Roth sold all of the Aceto shares that vested upon his retirement.

In a parallel criminal action brought by the U.S. Attorney's Office for the Eastern District of New York, Roth pleaded guilty on November 9, 2020, and was sentenced on July 7, 2021 to six months in prison, six months of home incarceration, one year of supervised release, a fine of $150,000, and forfeiture of $147,802.64.
Without admitting or denying the charges in a CFTC Notice of Intent to Suspend or Modify Registration, Ted Brent Alexander consented to the entry of a CFTC Order 
that suspends his registrations as a commodity trading advisor ("CTA") and an associated person ("AP"). As alleged in part in the CFTC Release:

Alexander has been registered with the CFTC as a commodity trading advisor (CTA) and associated person (AP) since October 2008. The CFTC's Notice of Intent states that the relevant indictment charges Alexander with the commission of, or participation in, crimes involving violations of federal law that reflect upon his honesty or fitness to act as a fiduciary and that are punishable by imprisonment for a term exceeding one year. Federal commodity laws allow Alexander's registration to be suspended until his criminal matter is completed. If Alexander is found guilty of the charges, his CTA and AP registrations can be permanently revoked.
Once, a long time ago, four bad guys chased one good-guy Deputy. At high noon, with only himself to serve as prosecutor, judge, and jury, Marshall Will Kane stood alone against Frank Miller, Ben Miller, Jack Colby, and Jim Pierce. By himself, Marshall Kane battled for truth, justice, and the FINRA way of life -- or something like that. In 2022 Covid America, everything is reversed. Four guys in white hats chasing one guy in a black hat, and the bad guy skedaddled outta town last year.