Securities Industry Commentator by Bill Singer Esq

March 14, 2022




http://www.brokeandbroker.com/6340/sec-crs-denial/
After a whistleblower files a Form WB-APP with the SEC in order to secure a Whistleblower Award, far too much time elapses until the issuance of a Preliminary Determination by the Claims Review Staff. SEC Chair Gensler needs to reform the manner in which the CRS handles its docket, which seems to have mushroomed into somewhat unmanageable dimensions given the growing chorus of complaints from Claimants and their lawyers. Before you buy into the recent spate of self-serving press about the SEC Whistleblower Program, consider a recent case in which one deserving whistleblower was jerked around by the process.

https://www.justice.gov/usao-edpa/pr/former-temple-business-school-dean-sentenced-over-one-year-prison-rankings-fraud-scheme
After a jury trial in the United States District Court for the Eastern District of Pennsylvania, the Dean of Temple University's Richard J. Fox School of Business and Management from 1996 to 2018, Moshe Porat, 75, was convicted on conspiracy to commit wire fraud and wire fraud; and he was sentenced to one year and two months in prison plus three years of supervised release, and ordered to pay a $250,000 fine. As alleged in the DOJ Release:

In November 2021, the defendant was convicted after trial on charges that he conspired and schemed to deceive the school's applicants, students, and donors into believing that the school's business degree programs legitimately earned top rankings, so that they would pay tuition and make donations to Temple. In April of the same year, Porat was charged by Indictment with one count of conspiracy to commit wire fraud and one count of wire fraud, stemming from a multi-year conspiracy in which the defendant participated with a Fox professor named Isaac Gottlieb and a Fox employee named Marjorie O'Neill to submit false information about the school's online MBA ("OMBA") and part-time MBA ("PMBA") programs to U.S. News & World Report in order to inflate Fox's rankings in the annual U.S. News surveys of top OMBA and PMBA programs.

Among other things, the conspirators agreed to provide false information to U.S. News about the number of Fox's OMBA and PMBA students who had taken the Graduate Management Admission Test ("GMAT"); the average work experience of Fox's PMBA students; and the percentage of Fox students who were enrolled part-time, all because it was believed that better numbers for these metrics would result in better rankings for the programs.  And indeed, the scheme was successful. Relying on the false information it had received from Fox, U.S. News ranked Fox's OMBA program Number One in the country four years in a row (2015 - 2018). U.S. News also moved Fox's PMBA program up its rankings from No. 53 in 2014 to No. 20 in 2015, to No. 16 in 2016, and to No. 7 in 2017. Finally, the defendant boasted about these rankings in marketing materials directed at potential Fox students and donors. Enrollment in Fox's OMBA and PMBA programs grew dramatically in a few short years, which led to millions of dollars a year in increased tuition revenues.

https://www.justice.gov/usao-edva/pr/woodbridge-money-launderer-sentenced-his-role-romance-fraud-scheme
According to the DOJ Release, Abdul Rasak Garuba, 41, was sentenced to 21 months in prison "for engaging in financial transactions with illegal proceeds as part of a romance fraud scheme against mostly elderly victims." Okay, sure, that's nice but nowhere in the DOJ Release are we informed as to whether Garuba was convicted after a jury trial or pled guilty --- and further missing from the DOJ Release is a not-so-minor detail disclosing the charges on which Garuba was convicted or to which he entered a plea. Other than those glaring omissions, the DOJ Release alleges that:

[B]eginning in February 2016, Abdul Rasak Garuba, 41, received large wire transfers from a number of senior citizens living throughout the United States who were duped into believing that they were sending money at the request of and for the benefit of romantic partners they met through online dating sites. In fact, the victims had been directed to send money to Garuba by individuals in Nigeria who were operating a "romance fraud" scheme.

To receive the funds, Garuba opened a number of bank accounts at local bank branches in Virginia. A victim of the scheme called his bank to report that the money he wired to Garuba was induced through fraud. In the ensuing investigation, Garuba lied and told his bank that he was engaged in business with the victims, had purchased cars for them, and had the paperwork to prove it. Garuba's bank closed his account for fraud when he failed to produce any records. However, he continued to perpetrate the fraud scheme by accepting shipments of cash and wire transfers from victims.

In total, Garuba transferred approximately 15% of the nearly $2.9 million that the fraudsters obtained from the victims. During this period, Garuba was aware that much of this money was obtained through fraudulent means and that he was furthering the fraud. Garuba used the illegal proceeds to purchase vehicles at auction in the United States and then shipped the vehicles to Nigeria for the benefit of the leaders of the "romance fraud" scheme. 

https://www.finra.org/sites/default/files/fda_documents/2020068109001
%20Crown%20Capital%20Securities%2C%20L.P.%20CRD%206312%20AWC%20sl.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, Crown Capital Securities, L.P. submitted a Letter of Acceptance, Waiver and Consent ("AWC"), which FINRA accepted. The AWC asserts that Crown Capital Securities, L.P. has been a FINRA member firm since 1972 with about 300 registered representatives at 164 branches. In accordance with the terms of the AWC, FINRA found that Crown Capital Securities violated FINRA Rules 2040 and 2010, and imposed upon the firm a Censure, $75,000 fine, and a certification of compliance with commission and payment arrangements per Rule 2040. As alleged in part in the AWC:

Between January 2017 and January 2021, Crown Capital paid approximately $19.3 million in commissions earned by 18 of its registered representatives to 18 unregistered entities. The unregistered entities were corporations and limited liability companies created by the registered representatives to serve as doing business as names for their securities businesses and were disclosed and approved outside business activities. Crown Capital made payments to the unregistered entities instead of paying commissions directly to the registered representatives.