The Wall Street Legal & Regulatory Feed
Securities Industry Commentator by Bill Singer Esq
April 4, 2022
3Cir Considers Absolute Privilege For Alleged Form U5 Defamation (BrokeAndBroker.com Blog)
http://www.brokeandbroker.com/6364/form-u5-privilege/
On Wall Street, there are rules and regulations requiring that a former employer truthfully disclose certain aspects of the firing of a former employee. That disclosure regimen is supposed to ensure that investor protection concerns are addressed by alerting the regulators to any troublesome aspect of the former employee's conduct that prompted the termination. Some think it is a healthy approach to encourage former employers to send up flares and ring alarms, even if it turns out that some of the initial concerns weren't warranted. Others think it's a terrible idea that weaponizes the termination process in a manner designed to hamstring former employees and hobble their abilities to retain their customers or subsequently compete with their former employer. In a recent federal lawsuit, a lot of the pros and cons of Wall Street's termination protocol are on full display.
Order Determining Whistleblower Award Claims ('34 Act Release No. 34-94589; Whistleblower Award Proc. File No. 2022-46)
https://www.sec.gov/rules/other/2022/34-94589.pdf
The SEC's Claims Review Staff ("CRS") issued a Preliminary Determination recommending whistleblower awards to Claimant 1 in the amount of about $160,000 and to Claimant 2 in the amount of about $80,000. The Order asserts that [Ed: footnote omitted]:
[C]laimant 1's information, together with Claimant 2's information, caused the opening of the investigation and was an underlying source that formed the basis for the Covered Action. Further, Claimant 1 provided additional information and assistance to the Enforcement staff by submitting a detailed written narrative that provided a roadmap for the investigative staff early in the investigation that conserved significant Commission staff time and resources. While Claimant 2's information also was important in that it helped Commission staff identify the wrongdoing, the helpfulness of Claimant 2's information was more limited as compared to Claimant 1's information and assistance.
Canadian Man Arrested and Charged with Conspiracy, Wire Fraud / Defendant is co-conspirator in a $300 million nationwide telemarketing fraud scheme (DOJ Release)
https://www.justice.gov/usao-mn/pr/canadian-man-arrested-and-charged-conspiracy-wire-fraud
Abdou Diallo a/k/a Abdou-Rahmane Diallo was charged with one count conspiracy to commit wire fraud and four counts of wire fraud. Another Canadian Defendant, Saman Moghbel, pled guilty to one count of conspiracy to commit wire fraud. As alleged in part in the DOJ Release:
According to court documents, Abdou Diallo, also known as Abdou-Rahmane Diallo, 34, of Montreal, Quebec, was a co-owner and operator of Readers Services and NP Readers Inc., both Canadian-based companies that carried out a telemarking fraud scheme. From 2011 through 2020, Diallo and his co-conspirators provided "lead lists" and fraudulent sales scripts to their telemarketing employees for use in carrying out the fraud scheme. The scheme targeted people who had previously fallen victim to a fraudulent magazine sales scam and been tricked into signing up for multiple expensive magazine subscriptions they did not want and could not afford. Diallo and his co-conspirators took advantage of the victims' desperation to make the magazine subscriptions stop. They called the victims pretending to be from the "magazine cancellation department." Diallo and his co-conspirators offered to pay off the victims' "outstanding balance" and cancel their existing magazine subscriptions in exchange for a large, lump-sum payment. None of this was true. In reality, the victims did not owe the defendants or their companies any money. Diallo and his co-conspirators had no power or ability to cancel the victims' existing magazine subscriptions or any outstanding balance owed to any other magazine companies. This scheme ultimately defrauded more than 20,000 victims-many of whom were elderly and vulnerable-across the United States out of approximately $30 million.
Rochester Man Sentenced To 10 Years' Imprisonment In Multi-Million Dollar Nationwide Ponzi Scheme (DOJ Release)
https://www.justice.gov/usao-mdpa/pr/rochester-man-sentenced-10-years-imprisonment-multi-million-dollar-nationwide-ponzi
John Law, age 43, was pled guilty in the United States District Court for the Middle District of Pennsylvannia to conspiring to commit mail fraud, wire fraud, and bank fraud, and he was sentenced to 10 years in prison and ordered to pay $1.3 million in restitution. As alleged in part in the DOJ Release, Law had pled guilty in connection with a:
[P]onzi scheme that netted over $115 million and resulted in more than $70 million in losses to victims, some of whom were located in the Middle District of Pennsylvania. Law conspired with Perry Santillo, also of Rochester, New York, who also previously admitted his role in the scheme and was recently sentenced in New York to serve 210 months' imprisonment. Santillo is awaiting sentencing in the Middle District of Pennsylvania.
Santillo and Law offered and sold securities to the public and provided investment advice to customers around the country. Law operated what purported to be legitimate investment advisory business in Scotrun, Pennsylvania. Law and Santillo admitted that the Scotrun business was fraudulent and operated as a Ponzi scheme where the fraudsters misappropriated substantial amounts of the investor's funds and used the remaining funds to pay off investors who requested withdrawals from their accounts. The Scotrun operation, one of many operated by Santillo, used various business names, including Advice and Life Group, Poconos Investments, First American Securities, and Financial Planners Group of America.As part of the scheme, Santillo and others travelled the country and bought books of business from investment professionals such as registered representatives and investment advisors. The Scotrun business was purchased from Anthony Diaz in 2015. Coincidentally, Diaz was convicted of perpetrating an entirely different fraudulent investment scheme and was sentenced by Judge Mannion to serve 210 months' imprisonment on March 26, 2021. Many of the customers defrauded by Santillo and Law were previously defrauded by Diaz.
SEC Charges California Investment Adviser for Undisclosed Conflicts of Interest Related To Real Estate Ponzi (SEC Release)
https://www.sec.gov/litigation/litreleases/2022/lr25354.htm
In a Complaint filed in the United States District Court for the Northern District of California, the SEC charged Richard Dow Rockwell and Dow Rockwell LLC with violating the securities registration provisions of Sections 5(a) and 5(c) of the Securities Act, the broker-dealer registration provisions of Section 15(a)(1) of the Securities Exchange Act and Sections 206(1), 206(2) and 207 of the Investment Advisers Act of 1940. The SEC Release alleges in part that:
[F]rom 2017 through 2020, California-registered investment adviser Dow Rockwell LLC, through its sole proprietor, Richard Dow Rockwell, raised approximately $8 million for PFI by selling PFI's securities to their advisory clients. According to the complaint, Rockwell and Dow Rockwell LLC earned approximately $400,000 in referral fees from PFI for soliciting and recommending PFI investments to their clients, and they failed to disclose the compensation they received. The complaint also alleges that Dow Rockwell LLC and Rockwell did not disclose the past criminal conviction of PFI's founder to their clients. The SEC further alleges that during the time Dow Rockwell LLC and Rockwell offered and sold PFI securities, neither was registered as a broker-dealer with the SEC or associated with a broker-dealer.