The Wall Street Legal & Regulatory Feed

Securities Industry Commentator by Bill Singer Esq

February 8, 2022













http://www.brokeandbroker.com/6278/finra-rifkind-arbitration/
The nice thing about saying nothing is that it makes it difficult to put words in your mouth. All of which may be a commendable way to keep the peace. When it comes to judge's ruling on matters of fact and law, biting one's tongue fails to develop a useful record on appeal. A decision is supposed to resolve the dispute, not leave the allegations suspended in the air and open to further interpretation. A recent FINRA customer arbitration shows what happens when arbitrators take "summary" too literally.

https://www.justice.gov/opa/pr/two-arrested-alleged-conspiracy-launder-45-billion-stolen-cryptocurrency
In a Complaint filed in the United States District Court for the District of Columbia
https://www.justice.gov/opa/press-release/file/1470181/download and Statement of Facts
https://www.justice.gov/opa/press-release/file/1470186/download, Ilya Lichtenstein and his wife, Heather Morgan, were charged with conspiracy to commit money laundering and conspiracy to defraud the United States. As alleged in part in the DOJ Release:

[L]ichtenstein and Morgan allegedly conspired to launder the proceeds of 119,754 bitcoin that were stolen from Bitfinex's platform after a hacker breached Bitfinex's systems and initiated more than 2,000 unauthorized transactions. Those unauthorized transactions sent the stolen bitcoin to a digital wallet under Lichtenstein's control. Over the last five years, approximately 25,000 of those stolen bitcoin were transferred out of Lichtenstein's wallet via a complicated money laundering process that ended with some of the stolen funds being deposited into financial accounts controlled by Lichtenstein and Morgan. The remainder of the stolen funds, comprising more than 94,000 bitcoin, remained in the wallet used to receive and store the illegal proceeds from the hack. After the execution of court-authorized search warrants of online accounts controlled by Lichtenstein and Morgan, special agents obtained access to files within an online account controlled by Lichtenstein. Those files contained the private keys required to access the digital wallet that directly received the funds stolen from Bitfinex, and allowed special agents to lawfully seize and recover more than 94,000 bitcoin that had been stolen from Bitfinex. The recovered bitcoin was valued at over $3.6 billion at the time of seizure.

. . .

The criminal complaint alleges that Lichtenstein and Morgan employed numerous sophisticated laundering techniques, including using fictitious identities to set up online accounts; utilizing computer programs to automate transactions, a laundering technique that allows for many transactions to take place in a short period of time; depositing the stolen funds into accounts at a variety of virtual currency exchanges and darknet markets and then withdrawing the funds, which obfuscates the trail of the transaction history by breaking up the fund flow; converting bitcoin to other forms of virtual currency, including anonymity-enhanced virtual currency (AEC), in a practice known as "chain hopping"; and using U.S.-based business accounts to legitimize their banking activity.

Customer Advisory: Avoid Forex, Precious Metals, and Digital Asset Romance Scams (CFTC Release)
https://www.cftc.gov/LearnAndProtect/AdvisoriesAndArticles/CustomerAdvisory_RomanceScam.html
As set forth in the preamble to the CFTC Release:

The Commodity Futures Trading Commission advises the public to avoid offers to trade foreign currency contracts (forex), precious metal contracts, and digital assets with people they meet through dating apps or social media, even if the relationship has been building for weeks or months.

Romance scams can target people of any age, including individuals who are comfortable using online dating apps and trading forex, precious metals, and digital assets. The CFTC has received complaints about frauds that originated on dating apps and social media platforms. In many cases, the victims believed they were in romantic relationships that had formed over several weeks. These frauds are often conducted by people and entities outside the United States and use unregistered trading websites or third-party trading software.

Pointedly, the CFTC Release offers this excellentlist of warnings:

Dating App Fraud: 10 Ways to Protect Yourself and Your Money

1.Keep conversations on the dating or social media platforms. Many platforms utilize harmful language filters that can detect fraud. Fraudsters want to quickly move conversations to private messaging apps to avoid detection.

2. Screen capture the love interest's profile picture or other pictures and use reverse image searches to see if they have been used in other scams or by other people.

3. If contacts refuse to meet or video chat, that should be a red flag. Try other ways to verify their identities in real-time. For example, ask the person to send a selfie holding a piece of paper with your name and date next to his or her face.

4. Check to be sure the people or firms you trade with are registered with federal or state authorities. Relying on registration alone won't protect you from fraud, but most scams involve unregistered entities, people, and products. Learn more, visit cftc.gov/check.
  • For forex trading, check with the National Futures Association, nfa.futures.org/basicnet.

  • For virtual currency, see if the platform is registered as a money service business with the Financial Crimes Enforcement Network (fincen.gov/msb-registrant-search) or with your state using the Nationwide Multistate Licensing System (csbs.org/nationwide-multistate-licensing-system).
5. Never make payments or give sensitive information to anyone you've only met online.

6. Before making any investment, get a second opinion. Talk it over with a financial advisor, trusted friend, or family member.

7. Don't trade in markets or products you don't fully understand.

8. Never pay more money to get your money back. If you suspect fraud, report it immediately to the Internet Crime Complaint Center, ic3.gov, or cftc.gov/complaint.

9. Learn more about romance scams at consumer.ftc.gov or other reliable websites.

10. Learn more about spotting and avoiding forex, precious metals, or digital asset frauds, and stay current on developing trends, visit cftc.gov/LearnAndProtect.

https://www.cftc.gov/PressRoom/PressReleases/8493-22
https://www.cftc.gov/media/6961/enfwtradecomplaint020722/download, the CFTC charged The W Trade Group LLC, Larry Ramos Mendoza, and Joseph Carvajales with fraud and misappropriation of over $19 million involving futures, forex and options. As alleged in part in the CFTC Release:

The complaint alleges that W Trade Group LLC, acting under Ramos' control, operated a long-running scheme from approximately June 2013 through June 2020 that defrauded futures, forex, and options customers. W Trade Group and Ramos are alleged to have misappropriated more than $19 million from at least 220 customers. In order to further this scheme, W Trade Group and Ramos allegedly sent false account statements to customers electronically showing purported profits and trading activity, when in fact none existed. 

The complaint also states that Carvajales, in conjunction with W Trade Group and Ramos, fraudulently solicited customers for the fraudulent scheme by making false claims such as the existence of a sophisticated trading algorithm, and limited downside risk. 

https://www.cftc.gov/PressRoom/PressReleases/8491-22
The Commodity Futures Trading Commission, the Consumer Financial Protection Bureau (CFPB), the Department of Homeland Security's U.S. Immigration and Customs Enforcement (ICE), the U.S. Postal Inspection Service, and the U.S. Treasury's Financial Crimes Enforcement Network (FinCEN) have launched Dating or Defrauding?, a national awareness effort to alert the public to romance scams that target victims largely through dating apps or social media. As alleged in part in the CFTC Release:

Romance scams are not new, but with the proliferation of online dating apps, social media, and even messaging apps, new types of scams are emerging that target new audiences and have drained victims of millions of dollars. According to the Federal Trade Commission (FTC), 2020 was a record year for romance scams. Consumer reports to the FTC indicate that the number of romance scam complaints continued to increase through 2021. A year-over-year comparison through the third quarter showed a 48 percent increase in reported romance frauds.

The joint federal agencies' initiative shows the public how to recognize the scams before they give any money or assets and provides steps to take if they are victimized. Over the coming weeks, the interagency Dating or Defrauding? awareness campaign will reach the public via social media, local and national media outreach, and public-private partnerships to encourage them to be vigilant when making online love connections.

In a FINRA Arbitration Statement of Claim filed in October 2019, associated person Claimant Luckett asserted that the:

[F]orm U5 filed by JPMS, as part of registration records maintained by the Central Registration Depository ("CRD"), is defamatory and asserted the following causes of action: invasion of privacy: false light, tortious interference with prospective business expectancies, and breach of implied covenant of good faith and fair dealing. The causes of action related to events occurring after the conclusion of Claimant's employment with JPMS.

Respondents generally denied the allegations and asserted affirmative defenses. The FINRA Arbitration Award states that:

At the hearing and in Claimant's Itemization of Damages exhibit, Claimant requested damages of $5,585,353.00, exclusive of interest and costs, including compensatory damages of $3,689,015.00, punitive damages of $500,000.00, and attorneys' fees of $1,396,338.00. Alternatively, Claimant requested damages of $4,402,769.00 exclusive of interest and costs, including compensatory damages of $2,802,077.00, punitive damages of $500,000.00, and attorneys' fees of $1,100,692.00. Claimant withdrew the request for attorneys' fees on the record. 

The FINRA Arbitration Panel found Respondent JPMS liable and ordered the firm to pay to Claimant Luckett $1.4 million in compensatory damages and $600 in reimbursed filing fees. In granting expungement to Claimant, the Panel recommended the expungement of:

[T]he Termination Explanation in Section 3 of Dustin Blake Luckett's (CRD Number 5126374) Form U5 filed by J.P. Morgan Securities LLC on June 29, 2017 and maintained by CRD. The Reason for Termination shall remain the same and the Termination Explanation shall be replaced with the following language: "Non-investment related. After a dispute about a clerical process, RR became disillusioned with the company's atmosphere requiring separation of his at-will employment." This directive shall apply to all references to the Termination Explanation. 

The Panel further recommends the expungement of all references to Occurrence Number 1940121 from the registration records maintained by the CRD for Dustin Blake Luckett. Any "Yes" answers should be changed to "No," as applicable. 

The Panel recommends expungement based on the defamatory nature of the information. The above recommendations are made with the understanding that the registration records are not automatically amended. Dustin Blake Luckett must forward a copy of this Award to FINRA's Credentialing, Registration, Education and Disclosure Department for review.

In a FINRA Arbitration Statement of Claim filed in September 2020, associated person Claimants James Rego and Robert Hill asserted "breach of contract; breach of implied contract of good faith and fair dealing; quantum meruit; violations of the New York Labor Law; violations of the Illinois Wage Payment and Collection Act; unjust enrichment; promissory estoppel; and violations of the Delaware Limited Liability Act." Claimants sought $847,253.58 plus interest in compensatory damages, liquidated damages, costs, fees and an injunction against Ronin Capital from "making any distributions to its limited liability company members before it makes distributions to Claimants of the full amount due and owing to them, or otherwise violating the Delaware Limited Liability Company Act . . ." Respondents generally denied the allegations and asserted affirmative defenses. In December 2021, Claimants dismissed Respondent Stafford Jr. as a Respondent. The FINRA Arbitration Panel found Respondent Ronin Capital liable to and ordered it to pay to Claimants $500,000 in compensatory damages plus interest. 

https://www.sec.gov/litigation/litreleases/2022/lr25325.htm
In a Complaint filed in the United States District Court for the Central District of California
https://www.sec.gov/litigation/complaints/2022/comp25325.pdf, the SEC charged Michael M. Beck a/k/a @BigMoneyMike6 with violating the antifraud provisions of Section 17(a) of the Securities Act, Section 10(b) of the Securities Exchange Act and Rule 10b-5 thereunder. Helen P. Robinson was named as a Relief Defendant. In part the SEC Release alleges that:

[S]ince at least February 2017, Beck engaged in scalping of eight different penny stocks - recommending a stock without disclosing his intent to sell the stock, and then selling it at inflated prices to generate profits. According to the complaint, Beck repeatedly purchased blocks of penny stock shares and then tweeted that he would soon be issuing a new stock recommendation to his millions of followers and the public at large. As alleged, Beck's tweets encouraged readers to join "TeamBillionaire" so that they could receive the recommendation by email. The complaint further alleges that, a few days before Beck publicly tweeted a recommendation, he typically emailed it to TeamBillionaire members or had third parties post favorable commentary about the stock on investor message boards. As alleged, Beck then typically began to sell his shares, and shares owned by his mother, relief defendant Helen Robinson, before tweeting the recommendation publicly and typically sold additional shares after tweeting positively about the stock. The complaint alleges that Beck failed to disclose his plans to sell, or his ongoing selling, of shares in any of the tweets, emails, or message board posts, and that he obtained approximately $870,000 in total proceeds from his scalping activities.

https://www.finra.org/sites/default/files/fda_documents/2018057883102
%20William%20Nicholas%20Athas%20CRD%203165470%20Order%20Accepting%20Offer%20jlg.pdf
In response to the filing of a Complaint on January 18, 2022, by the Financial Industry Regulatory Authority's ("FINRA's") Department of Enforcement, Respondent William Nicholas Athas submitted an Offer of Settlement dated February 1, 2022, which the regulator accepted.  Under the terms of the Offer of Settlement, without admitting or denying the allegations in the Complaint, settling Respondent Athas consented to the entry of findings and violations and to the imposition of the sanctions; and, accordingly FINRA imposed upon Athas a Bar from associating with any FINRA member in all capacities. As set forth in the Order's "Summary":

From December 2014 through April 2020, Respondent William Nicholas Athas, while associated with K.C. Ward Financial (CRD No. 145135) and Worden Capital Management LLC (CRD No. 148366), churned and excessively traded nine accounts of seven different customers. During this period, Athas-who exercised de facto control over each of these accounts- continuously executed short-term equities trades in the accounts, holding stocks for an average of approximately 20 days. When combined with his customary high commissions on each trade- 2% to 3% on both buy and sells-and the use of margin in some accounts, Athas' trading resulted in cost-to-equity ratios ranging from approximately 56% to 246%, and turnover rates ranging from approximately 17 to 75. Athas' churning and excessive trading caused these customers to pay approximately $1.6 million in commissions and other trading costs and to suffer approximately $1.1 million in losses. Conversely, Athas generated commissions of approximately $1.5 million for himself and his firms. By churning and excessively trading the nine accounts, Athas willfully violated Section 10(b) of the Securities Exchange Act of 1934 (Exchange Act) and Rule 10b-5 thereunder, and he also violated FINRA Rules 2111, 2020, and 2010. 

Athas also failed to have a reasonable basis to believe that his recommended trading strategy was suitable for at least some customers. When recommending trades, Athas failed to consider how the cumulative costs associated with his frequent, high-commission trading, often on margin, would impact the ability of his customers to earn a profit. As a result, Athas also failed to fulfill his reasonable basis suitability obligations, in violation of FINRA Rules 2111 and 2010.

FINRA Fines and Suspends Rep for Short-Term UIT Trading
https://www.finra.org/sites/default/files/fda_documents/2018060460401
%20Lynn%20Cooper%20Faust%20CRD%20729012%20AWC%20jlg.pdf
For the purpose of proposing a settlement of rule violations alleged by the Financial Industry Regulatory Authority ("FINRA"), without admitting or denying the findings, prior to a regulatory hearing, and without an adjudication of any issue, Lynn Cooper Faust submitted a Letter of Acceptance, Waiver and Consent ("AWC"), which FINRA accepted. The AWC asserts that Lynn Cooper Faust entered the industry in 1980 and by March 1998, she was registered with Raymond James and Associates, Inc. As alleged in part in the AWC:

Between January 4, 2013 and December 22, 2017, in connection with approximately 300 customer accounts, Faust recommended that customers sell UITs short of maturity dates and roll the proceeds into new UITs on approximately 4,500 occasions. 

The majority of the UITs that Faust recommended had maturity dates of at least twentyfour months and carried net sales charges of up to 3.95%. Faust recommended that most of her customers sell and roll over their positions in UITs, on average, after 296 days. 

Of those rollover transactions, approximately 2,200 were "series to series" rollovers. Thus, on those occasions, Faust recommended that her customers roll over a UIT well before its maturity date in order to purchase a subsequent series of the same UIT, which generally had the same or similar investment objectives and strategies as the prior series. 

Faust's recommendations, which caused her customers to incur unnecessary excess sales charges, were unsuitable considering the frequency and cost of the transactions.3 

Therefore, Faust violated FINRA Rules 2111 and 2010
= = = = =
Footnote 3: Raymond James paid restitution to customers relating to the early sale of Has pursuant to a settlement with the Securities and Exchange Commission. See Raymond James Financial Services, et al., SEC Administrative Proceeding File No. 3-19464 (Sept. 2019).

In accordance with the terms of the AWC, FINRA imposed upon Faust a $5,000 fine and a three-month suspension from association with any FINRA member in all capacities.

FINRA Fines and Suspends Rep for Muni Bond Discretionary Trading
https://www.finra.org/sites/default/files/fda_documents/2022073661801
%20Michael%20G.%20Mancinelli%20CRD%205505925%20AWC%20jlg.pdf
For the purpose of proposing a settlement of rule violations alleged by the Financial Industry Regulatory Authority ("FINRA"), without admitting or denying the findings, prior to a regulatory hearing, and without an adjudication of any issue, Michael G. Mancinelli submitted a Letter of Acceptance, Waiver and Consent ("AWC"), which FINRA accepted. The AWC asserts that Michael G. Mancinelli was first registered in 2013, and from February 2017 through October 17, 2018, he was registered with Dinosaur Financial Group, LLC. As alleged in part in the AWC's "Overview" [Ed: footnote omitted]:

From February 3, 2017 through August 30, 2017, Mancinelli violated Municipal
Securities Rulemaking Board (MSRB) Rules G-8 and G-17 when he exercised
discretionary trading in a customer account without having first obtained written
authorization from the customer and written approval by his firm. In addition, between
February 3, 2017 and December 31, 2017, Mancinelli improperly marked municipal
securities transactions in the same customer's account as unsolicited, causing the firm's
books and records to be inaccurate, in violation of MSRB Rule G-8.

In accordance with the terms of the AWC, FINRA imposed upon Mancinelli a $10,000 fine and a 30-business-day suspension from associating with any FINRA member firm in all capacities.

http://www.brokeandbroker.com/6265/finra-wells-fargo-arbitration/
You know those days when you just want to pull the covers over your head and not get out of bed? Well, FINRA had one of those days. As to what caused all of FINRA's anxiety, let's start with these words in a court's order about a FINRA public customer arbitration hearing: "The transcripts satisfy the Investors' burden of proving the fraud on the panel by clear and convincing evidence. The audio tapes, which were not available to the Investors until after the close of the hearing, confirm that Wells Fargo' s key witness used the delay caused by the medical emergency to materially change his testimony and offer perjured testimony in direct contravention of the earlier testimony. In addition, counsel for Wells Fargo inserted himself as a fact witness and purported to testify to the Panel himself to support the changed story."

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