Securities Industry Commentator by Bill Singer Esq

Stockbroker Wins Expungement of Two Edward Jones Customer Complaints (BrokeAndBroker.com Blog)

Former HP Planning Manager Pleads Guilty To $5+ Million Wire Fraud Scheme / Defendant Identifies List of Cars, Handbags, Jewelry and Other Luxury Items That Are Forfeited as Part of Plea Agreement (DOJ Release)

Four Men Indicted for $16 Million Investment Fraud Scheme (DOJ Release)

Rhode Island Man Pleads Guilty in Insider Trading Scheme / Defendant profited from trades based on information obtained from public company executive (DOJ Release)

Treynor Man Sentenced for Investment Fraud Scheme / Jeff Carley scammed victims using his sham investment company (DOJ Release)

Man Sentenced to 99 Months in Prison for Committing Mail Fraud while Serving Federal Sentence for Previous Fraud (DOJ Release)

SEC Finds Division of Enforcement's Proof of Service Lacks Appropriate Certification

In the Matter of Michael Vax (SEC Order Regarding Service)

SEC Proposes Amendments to Remove References to Credit Ratings from Regulation M (SEC Release)

FINRA Fines and Suspends Aegis Capital Corp Rep for Excessive/Unsuitable Trading

In the Matter of Arkady Ginsburg, Respondent (FINRA AWC)

FINRA Censures and Fines Wolfe Research Securities Over Advertised Trading Volumes

In the Matter of Wolfe Research Securities, Respondent (FINRA AWC)

Wells Fargo Promissory Note Case Enters Its Second Decade of Litigation (BrokeAndBroker.com Blog)

Motion to Vacate FINRA Arbitration Award Fails To Raise Federal Jurisdiction (BrokeAndBroker.com Blog)

FINRA Bars JP Morgan Securities Rep Over Chase Bank Credit Card Charges (BrokeAndBroker.com Blog)

[S]zeto was responsible for making payments to HP vendors and was issued multiple HP commercial credits cards to make the payments on HP's behalf. Rather than make payments in accordance with the company's policies, Szeto devised a fraudulent scheme whereby she sent approximately $4.8 million in unauthorized payments from her HP commercial credit cards to several Square, PayPal, and Stripe merchant accounts under her control.  

The plea agreement provides several details of the scheme.  For example, the agreement describes how, as part of her employment with HP, Szeto was issued multiple American Express commercial credit cards that were intended only for business expenses.  Szeto then set up bogus merchant accounts with PayPal, Stripe, and Square that she maintained under her control, but represented were for legitimate vendors.  Szeto then unlawfully sent payments from the credit cards to the bogus accounts.  To further her plan, Szeto uploaded falsified invoices to HP's internal system and falsely represented to HP that the payments were made to legitimate vendors.  She also made false representations to Square that the payments sent from the credit cards were sent to HP's approved vendors for legitimate business transactions and falsely represented to her bank that the money from HP was for legitimate business transactions.  

According to the plea agreement, Szeto caused at least $4.8 million to be fraudulently from HP accounts to accounts she controlled and attempted to steal an additional approximately $330,000 from HP.  Szeto acknowledged that the total loss and attempted loss from her scheme was at least $5.2 million.  

Furthermore, the plea agreement contains a list of items for which Szeto has forfeited her interest.  The list includes items such as the proceeds of a First Republic Bank account; a 2020 Tesla sedan; a 2021 Porsche sport utility vehicle; several bags and purses from Dior, Gucci, Hermes, and Chanel; and a collection of jewelry and timepieces including necklaces, rings, pendants, and watches from Rolex, Bulgari, Audemars Pignet, and Cartier.  The list has 161 line items-some lines of which include multiple items such as "7 necklaces with clover-shaped design," "6 gold necklaces with pendants," and "26 pairs of earrings." 

in an investment fraud scheme between 2013 and 2021 through their firm, The Brittingham Group, by falsely representing the nature of their investment offerings and promising large returns they could not and did not produce. The indictment further alleges that Nock and Brittsan directed victims to send their funds to bank accounts controlled by Griffith, Ituma, and others, and the defendants then transferred the money through a complex web of bank accounts throughout the world. 

[Y]ounis was close friends with co-conspirator David Forte, whose relative was a senior executive at Analog Devices, Inc. (Analog), a Norwood-based semiconductor company. Beginning in or around June 2016, Forte allegedly obtained material non-public information from his relative about Analog's planned acquisition of Linear Technology Corp. (Linear), a semiconductor company based in Milpitas, Calif. Forte allegedly passed the information to Younis, who purchased shares of Linear stock and call options (bets that the price of a stock will increase prior to the expiration of the option) in the week leading up to the public announcement of the acquisition on July 26, 2016. Younis also tipped a business associate to purchase Linear shares. After the deal was announced, Younis and his associate sold their Linear securities at a profit.

Forte and Manning have pleaded not guilty and are awaiting trial.

Carley was a financial investment counselor and he owned or had an ownership interest in Carley Financial Group, Prosperity Partners, and Main Street Solutions. From as early as 2013, until December of 2020, Carley encouraged his clients to move money from their traditional IRA accounts to a "self-directed" IRA. Carley then advised his clients to move their money from the "self-directed" IRA to investment opportunities Carley owned or had ownership interest in and advised clients they would receive a financial return. Carley never told his clients that he owned or had an interest in the investments he represented to them as solid investments. Carley also failed to invest the clients' money and instead used the funds for his personal expenses.

On July 18, 2017, Fisher was sentenced by Judge Bumb to 60 months in prison for conspiring to commit mail fraud using various companies he owned and controlled. In that case, Fisher and his companies won bids for U.S. government contracts; subcontracted with victim-businesses to provide goods to the government pursuant to the contracts; collected payments from the government for fulfilling the contracts; and then failed to pay the subcontractor victim-businesses that actually provided the goods.

The fraud scheme sentenced today involved another company, Atlantic Safety Corp., controlled by Fisher, and began when Fisher was nearing the end of his previous prison sentence. Fisher used Atlantic Safety to bid on federal contracts through a reverse auction online marketplace that enabled government agencies to post requirements for goods. Upon submitting a winning bid, Atlantic Safety was awarded a contract to provide goods to a government agency.

Fisher orchestrated his fraud by using an alias to subcontract with a third-party vendor to provide goods directly to the government agency. Fisher induced the third-party vendor to ship the goods to the government agency on credit by falsely promising to pay the vendor for the goods. Fisher also made fraudulent representations to other potential subcontractor vendors about the creditworthiness and financial status of Atlantic Safety.

In addition to the prison term, Judge Bumb also sentenced Fisher to 54 months of additional supervised release.

[T]he Declaration attached an exhibit described as "the notice of service," which consisted of an automated email from Cavalier to the Division stating that the OIP was served on Respondent by leaving a copy of it with his "co-resident/wife" at "the usual place of abode of" Respondent.. 

Commission Rule of Practice 141(a)(3) states that "[i]f a division serves a copy of an order instituting proceedings, the division shall file with the Secretary . . . proof of service consisting of a statement by the person who made service certifying the date and manner of service; the names of the persons served; and their mail or electronic addresses, facsimile numbers, or the addresses of the places of delivery, as appropriate for the manner of service" (emphasis added). The email from Cavalier attached as an exhibit to the Declaration does not appear to comply with Rule 141(a)(3) because it does not contain a statement from the person who made service certifying the information required under the Rule. 

Accordingly, IT IS ORDERED that the Division of Enforcement file a proof of service consisting of a statement by the person who made service certifying the information required by Rule 141(a)(3) by April 6, 2022; and, if the Division cannot file such a proof of service, it file a status report concerning service of the OIP by April 6, 2022, and every 28 days thereafter until service is accomplished. 

The Commission proposes to replace the credit-rating requirement included in Rule 101's exception, which is available to distribution participants and their affiliated purchasers, with requirements that the nonconvertible debt securities and nonconvertible preferred securities meet a specified probability of default threshold, and that the asset-backed securities be offered pursuant to an effective shelf registration statement filed on the Commission's Form SF-3. In addition, the proposed changes would eliminate Rule 102's exception, which is available to issuers, selling security holders, and their affiliates, for investment grade nonconvertible debt securities, nonconvertible preferred securities, and asset-backed securities.

The Commission also voted to propose a recordkeeping requirement under Rule 17a-4(b)(17) for broker-dealers who make probability of default determinations in reliance on Rule 101's proposed exception for nonconvertible debt securities and nonconvertible preferred securities.

[G]insburg engaged in excessive and unsuitable trading in the accounts of three of his customers at Aegis, Customer A, Customer B, and Customer C. Ginsburg's trading in these customers' accounts, two of which were heavily margined, generated high cost-to-equity ratios and turnover rates, as well as significant losses and trading costs. Because Ginsburg recommended the trading in the customers' accounts and the customers routinely followed his recommendations, Ginsburg controlled the volume and frequency of trading in the accounts and therefore exercised de facto control over the accounts of Customer A, Customer B, and Customer C. During the relevant period, Ginsburg earned a total of $113,591 in commissions from the accounts. 

• Customer A opened an account with Ginsburg at Aegis in August 2014 and funded his account with an initial deposit of approximately $202,000 and subsequently deposited approximately $66,000. From August 2014 to December 2015, Ginsburg executed 252 trades in Customer A's account, which was heavily margined. During this period, Ginsburg's trading generated an annualized cost-toequity ratio of 48.68 percent and an annualized turnover rate of 50.7. As a result of Ginsburg's trading, Customer A suffered market losses of $157,539, while Ginsburg earned $32,255 in commissions. 
  
  
• Customer B opened an account with Ginsburg at Aegis in March 2018, after receiving a cold call from Ginsburg, and funded the account with a deposit of approximately $1,600,000. From March 2018 to June 2020, Ginsburg executed 384 trades in Customer B's account, which was heavily margined. During this period, Ginsburg's trading generated an annualized cost-to-equity ratio of 34.55 percent and an annualized turnover rate of 17.78. As a result of Ginsburg's trading, Customer B suffered market losses of $509,863, while Ginsburg earned $76,303 in commissions. 
  
  
• Customer C, a senior customer, opened an account with Ginsburg at Aegis in February 2018 and funded the account with a deposit of $100,000. After a planned IPO in which he was going to participate did not proceed, Customer C withdrew approximately $90,000 from the account but, in January 2019, deposited an additional $30,000 into the account at Ginsburg's suggestion. From January 2019 to May 2020, Ginsburg's trading in Customer C's account generated an annualized cost-to-equity ratio of 30.82 percent and an annualized turnover rate of 8.88. As a result of Ginsburg's trading, Customer C suffered losses of $19,238.39, while Ginsburg earned $5,033 in commissions.
  
  

Wolfe Research Securities has been a FINRA member firm since May 2010. The firm has approximately 150 registered representatives and six branch offices, with its principal place of business in New York, New York. It distributes affiliate research, acts as an underwriter or selling group participant, and arranges corporate access and guest speaker events for clients. During the time period relevant to this AWC (between September 2017 and October 2020), Wolfe Research also provided execution services for clients, but it stopped doing so as of January 1, 2021.

On 32 occasions between September 2017 and October 2020, Wolfe Research overstated its executed daily trading volume advertised through Bloomberg, L.P., a private subscription-based provider of market data, in violation of FINRA Rules 5210 and 2010. 

Additionally, during the same time period, Wolfe Research's supervisory system, including its written supervisory procedures (WSPs), was not reasonably designed to achieve compliance with FINRA Rule 5210, which governs the accuracy of advertised trading volume. By virtue of the foregoing, the firm violated FINRA Rules 3110 and 2010.  

• Securities Industry Commentator
• Bill Singer