Securities Industry Commentator by Bill Singer Esq WEEK IN REVIEW

March 17, 2018

Securities Industry Commentator: A legal, regulatory, and compliance feed curated by veteran Wall Street lawyer Bill Singer

In today's Securities Industry Commentator feed:

File this one under I was really impressed by the over-the-top nature of this fraud and, frankly, found myself somewhat in awe of this defendant's audacity and creativity. Self-Proclaimed "Commissioner" Of The Office Of The Commissioner, "His Excellency" Brandon Jones, Guilty Of All Charges (DOJ Press Release) Following an eight-day jury trial in the United States District Court for the Southern District of New York, Brandon Jones a/k/a "Brandon McGeer," a/k/a "Brandon Jones-McGeer," was convicted on all three-counts of passing fictitious government obligations, wire fraud, and conspiracy to commit wire fraud. What you might ask (go ahead, ask, otherwise we're gonna be here all day -- wonderful! thanks for asking!!) did Jones do? I can't make this up but he did, so lemme go slow here. Jones proclaimed himself the "Commissioner" of the "Office of the Commissioner," which he asserted was an Intergovernmental Organization (an "IGO"). As Jones apparently told those who would listen, the IGO Office of the Commissioner was funded by the federal government for its United Nations work. Okay, so, sure, Jones made up the whole IGO Office and his exalted role of Commissioner but let's give the guy some credit for managing to work the system.

Westchester Hedge Fund Manager Pleads Guilty To Securitihes Fraud (DOJ Press Release) Former Scronic Macro Fund hedge-fund manager Michael Scronic pled guilty to one count of securities fraud guilty in connection with defrauding 45 investors of over $22 million from April 2010 to October 2017. In addition to losing money on trades, Sconic used investor money for personal expenses. .

Merrill Lynch Employee and AllianceBernstein Work It Out In Unfair Competition Dispute ( Blog) Everything is good until it's not. Particularly when it comes to an employee's decision to move on to a competitor. Once we add "former" to an employee's status, all hell often breaks out. At times, it all starts off with we love ya, we don't want ya to leave, watta we gotta do to get you to stay. Then it becomes good riddance to ya -- you were never a team player anyway. Then someone pours gasoline on a floor. Then someone lights and then tosses a match. And before you know it, we've set the building and everyone in it on fire. Other times, calmer heads seem to prevail and commonsense seems to squeeze its way into the midst of a lot of anger. In a recent FINRA arbitration, we got a AllianceBerstein former employee who apparently found peace and happiness at Merrill Lynch, but not so much peace and happiness as to preclude his former employer from filing a FINRA arbitration seeking seven figures in damages and an injunction. And then -- will Wall Street miracles never cease? -- the combatants apparently sat down, tried to see it my way and your way, worked things out, and life goes on and everyone is happy, particularly the lawyers if they got paid.

Former Siemens Executive Pleads Guilty To Role in $100 Million Foreign Bribery Scheme (DOJ Press Release) After having been arraigned on a three-count federal Indictment, Eberhard Reichert, the former Technical Manager of the Major Projects division of Siemens Business Services GmbH & Co. OGH (SBS), pled guilty to one count of conspiring to violate the anti-bribery, internal controls and books and records provisions of the Foreign Corrupt Practices Act (FCPA) and to commit wire fraud. The plea is in connection with the payment of tens of millions of dollars in bribes to Argentine government officials to secure, implement and enforce a $1 billion contract to create national identity cards. READ the FULL TEXT PLEA AGREEMENT

Former Partner in Global Consulting Firm Sentenced to Two Years in Federal Prison for Billing $586,000 in Bogus Consulting Work and Travel Expenses (DOJ Press Release) Navdeep Arora, a former partner in the Chicago office of McKinsey & Company Inc., pled guilty to one count of wire fraud in connection with having plotted with a former internal consultant at State Farm Mutual Automobile Insurance Co., Matthew Sorensen, to defraud both companies out of phony consulting fees. Additionally, Arora fraudulently obtained from McKinsey, State Farm and other McKinsey clients work-related travel reimbursements for what were personal trips. Arora was sentenced to two years in federal prison. Sorensen pled guilty to wire fraud and was sentenced to one year and one day in federal prison.

Executive of Yacht Sharing Club Admits to Operating Investment Fraud Scheme (DOJ Press Release) President, CEO, and CFO of Waters Club, Andrew Deme, pled guilty to one count of conspiracy to commit mail and wire fraud in connection with an investment fraud scheme involving the solicitation of investors and business partners in a yachting venture. Waters Club promoters, Thomas Heaphy, Jr. and Brian Ferraioli, who recruited at least 12 investors to pay a total of at least $1,289,500 for Waters Club shares) pled guilty to the same charge. Heaphy's total gain from the scheme was $307,658, and Ferraioli's total gain was $297,546.

Securities Industry Commentator: A legal, regulatory, and compliance feed curated by veteran Wall Street lawyer Bill Singer

In today's Securities Industry Commentator feed:

READ the FULL TEXT VIX Class Action Complaint  Atlantic Trading USA, LLC, Plaintiff individually and on behalf of all others similarly situated, v. DOES 1-100, Defendants (Class Action Complaint,18-CV-01754, United States District Court for the Northern District of Illinois / March 9, 2018) cites alleged manipulation by traders of the final settlement price of VIX futures and options.

FINRA Department of Enforcement, Complainant, v. Austin Wayne Morton, Respondent (OHO Hearing Panel Decision, Financial Industry Regulatory Authority, Office of Hearing Officer, Disciplinary Proceeding No. 2016052347901 / March 14, 2018) FINRA's Department of Enforcement filed a Complaint against Respondent Austin Wayne Morton alleging that, on two separate occasions in September and October 2016, Morton converted a total of $36,000 from "GR," who was 82 years old and had been diagnosed with dementia. A second cause of action alleges that Morton was compensated in the amount of $2,000 cash for assisting GR in locating and cashing out a variable annuity. A majority of the FINRA OHO Hearing Panel concluded that Enforcement failed to meet its burden of proving the two causes of action.

Theranos, CEO Holmes, and Former President Balwani Charged With Massive Fraud / Holmes Stripped of Control of Company for Defrauding Investors (SEC Press Release 2018-41) The SEC charged Silicon Valley-based private company Theranos Inc., its founder and CEO Elizabeth Holmes, and its former President Ramesh "Sunny" Balwani with raising more than $700 million from investors through an elaborate, years-long fraud in which they exaggerated or made false statements about the company's technology, business, and financial performance.  Without admitting or denying the allegations and subject to Court approval, Theranos and Holmes have agreed to settle the fraud charges. Holmes agreed to pay a $500,000 penalty, be barred from serving as an officer or director of a public company for 10 years, return the remaining 18.9 million shares that she obtained during the fraud, and relinquish her voting control of Theranos by converting her super-majority Theranos Class B Common shares to Class A Common shares. The SEC will litigate its claims against Balwani in federal district court in the Northern District of California. READ the FULL TEXT Complaint against Theranos and Holmes; and against Balwani

UPDATE: Stockbroker Barred For Abusive Conduct Deemed Threat to Public and Industry No one should come away from this case feeling satisfied or smug.  FINRA presents this registered rep as a hot-head, a walking time-bomb, and a danger to his colleagues and the public.  Whoever Gadelkareem is and was, the fact remains that much of his cited history was available for the asking to any number of employers and regulators.  He did not become a raging storm overnight and his anger issues never seemed to have stopped any number of FINRA member firms from hiring him -- and it's more than a bit unnerving to realize that FINRA tolerates the presence of such folks in its community and, similarly, never quite seems to take exception with a firm's hiring of such folks until all hell breaks loose. At what point does sexism cross the line and pose a threat to the public and industry? At what point does homophobia and racism drag a member firm and an industry into the gutter and becomes a regulatory issue? At what point does FINRA and its member firms stop excusing outrageous conduct when the bad actor is a big producer or in a C-Suite? It's always funny until it's not.

Additional Charges Filed Against Former Monroe County Financial Advisor For Investment Fraud (DOJ Press Release) Anthony Diaz, was indicted on May 12, 2016, on six counts of wire fraud by using false and misleading statements and misrepresentations to induce his clients to purchase high risk and/or otherwise unsuitable investment products, through which Diaz received substantial fees and commissions to which he was not entitled.  Federal prosecutors filed a superseding indictment adding five counts of mail and wire fraud and additional victims.

Securities Industry Commentator: A legal, regulatory, and compliance feed curated by veteran Wall Street lawyer Bill Singer

In today's Securities Industry Commentator feed:

Foreign Affiliates of KPMG, Deloitte, BDO Charged in Improper Audits (SEC Press Release 2018-39)The SEC alleged that without registering with the Public Company Accounting Oversight Board, the Zimbabwe affiliates of Deloitte & Touche and KPMG improperly audited the majority of assets and revenues of a publicly traded company. Although the two principal auditors (KPMG's South African affiliate and BDO's Canadian affiliate) were registered with the PCAOB, the SEC alleged that they improperly relied upon the work of the two unregistered foreign component auditors to complete their audits of the company. Accordingly, the SEC charged the foreign affiliates of KPMG, Deloitte & Touche, and BDO for circumventing the PCAOB's oversight. Without admitting or denying the findings, BDO Canada agreed to pay a $50,000 penalty, KPMG in South Africa agreed to pay a $100,000 penalty, Deloitte in Zimbabwe agreed to pay disgorgement and interest totaling $99,057, and KPMG in Zimbabwe agreed to pay disgorgement and interest totaling $141,305. READ FULL TEXT Orders: BDO Canada; Deloitte & Touche: KPMG Inc.; and KPMG

File this one under it's a slow news day and I was desperately looking for addition stuff to pad this otherwise thin offering: Erie Man Charged with Punching Out Federal Courthouse Complex Window (DOJ Press Release) Paul Howard Scalf was indicted in the United States District Court for the Western District of Pennsylvania on a charge of willfully injuring or committing any depredation against any property of the United States. Sometime around December 23, 2017, a couple of days before Christmas, Scalf allegedly "punched out a window causing it to shatter on the southwest side of the Erie Federal Courthouse Complex which caused damaged in excess of $1,000.00." If convicted, Scalf faces up to 10 years in prison, a fine of $250,000, or both. Depredation against government property? Depredation of property?? Well, you live long enough and you can still come across something new. Imagine that our federal tax dollars actually go to purchase a window that not only costs over $1,000 but could be shattered by nothing more than a measly, old punch. Now that's one helluva a procurement system!

No Winners In FINRA Customer Arbitration ( Blog) You ever watch a fight in which it's hard to tell who the winner is? In today's Blog we are asked to score a bout between a public customer and his former stockbroker.  Frankly, the customer is a loser in terms of the decision. On the other hand, it's sort of tough to find a winner on the other side of the card. I'm a loser. No . . . I'm a loser.

UPDATE: "Bill Singer Esq Comments On FINRA Notice To Members 18-08: Outside Business Activities" ( Blog). Bills two comments on NTM 18-08 now posted on website.

Securities Industry Commentator: A legal, regulatory, and compliance feed curated by veteran Wall Street lawyer Bill Singer

In today's Securities Industry Commentator feed:

Defendant Sentenced in Multimillion Dollar Prize Promotion Scams Targeting Elderly Victims (DOJ Press Release) In December 2017, Glen Burke pled guilty to criminal contempt of court and conspiracy charges arising from his operation of two predatory schemes that defrauded thousands of victims out of over $20 million. Burke's conduct was in violation of a 1998 court order permanently banning him from telemarketing. Burke was sentenced to 87 months in prison plus three years of supervised release and ordered to pay $2,785,508.36 in restitution.

Disturbing FINRA Settlement Involving Elderly Client With Dementia ( Blog) In today's Blog, publisher Bill Singer, Esq. presents us with a disturbing FINRA regulatory settlement -- disturbing in so many ways. Disturbing in that we are presented with alleged misconduct by a veteran stockbroker in a elderly client's account. Disturbing in that the alleged misconduct spans some four years. Disturbing in that the client was in his 90s with dementia. Disturbing in that the stockbroker had a disturbing history of settled customer complaints. Disturbing in that FINRA member firms seem all too willing to take on what we will euphemistically call "baggage." Disturbing in that despite clanging alarms and blazing flares, those in compliance and regulation seem deaf and blind. Disturbing in that we see similar signs and similar settlements over and over again but no one pushes the STOP button. Disturbing in that FINRA thinks it's doing its job by simply barring folks long after the damage and harm is done. Disturbing in that the Blog keeps publishing these settlements and keeps complaining about the impotent regulatory and compliance response but once the harangue dies down, nothing changes . . . and, apparently, nothing will.

Jury Finds Stockbroker Guilty of Insider Trading for Dealing in Stock of Local Biotechnology Firm (DOJ Press Release) Stockbroker Paul Rampoldi was found guilty by a federal jury of conspiracy to commit insider trading, wire fraud, and money laundering, in connection with insider trading pursuant to a tip about the merger of Ardea Biosciences, Inc. with AstraZeneca. William Scott Blythe, Rampoldi's client who placed the trade and secretly paid Rampoldi his share of the profits in tens of thousands of dollars in cash, pled guilty to engaging in the same conspiracy.

In the Matter of Hui Feng and Law Offices of Feng & Associates, P.C. (Initial Decision, Securities and Exchange Commission; Initial Decision Release No. 1242; Administrative Proceeding File No. 3-18209 / March 12, 2018) Respondent Hui Feng graduated from Columbia Law School in 1997 and his law firm (the Law Office of Feng & Associates, P.C.) was incorporated in October 2011. Feng's legal practice focused primarily on immigration law, and in 2010, he became involved in the EB-5 Immigrant Investor Program through which entrepreneurs who invest in a U.S. commercial enterprise and create/preserve permanent full-time jobs for U.S. workers are eligible to apply for permanent residence. A United States District Court found, in part, that Respondents acted as unregistered broker-dealers and had failed to disclose to their clients that they received commissions The Court ordered Respondents to jointly and severally disgorge the $1,268,000 in commissions in addition to $130,517.09 in prejudgment interest, and to pay $160,000 in civil penalties against Feng and $800,000 against the Law Offices. Finally, the Court permanently enjoined Respondents. Based upon the above facts and findings, the ALJ granted the Division of Enforcement's motion for default and sanctions and ordered that Hui Feng and the Law Offices of Feng & Associates, P.C., are barred from associating with a broker, dealer, investment adviser, municipal securities dealer, municipal adviser, transfer agent, or nationally recognized statistical rating organization and from participating in an offering of penny stock.

Virginia Man Sentenced To Two Years In Prison For Scheme To Manipulate The Market For Fitbit Stock (DOJ Press Release) Following his guilty plea, Robert Walter Murray was sentenced to 24 months in prison plus two years of supervised release and ordered to forfeit $3,914.08 in connection with his manipulating the market for the stock of Fitbit, Inc. by filing a sham tender offer with the Securities and Exchange Commission in November 2016 that resulted in a temporary increase of Fitbit's market capitalization of around $100 million.

Defendant pleads guilty in international business email compromise scam (DOJ Press Release) Kerby Rigaud pled guilty to conspiracy to commit wire and bank fraud and money laundering in connection with an international business email compromise scheme, Victims received emails purportedly from sources such as banking representatives and closing agents, and were directed to wire money to specific bank accounts,. After receiving the wires, Rigaud directed his recruits on where to send the money, including Asian financial institutions in Asia.

Securities Industry Commentator: A legal, regulatory, and compliance feed curated by veteran Wall Street lawyer Bill Singer

In today's Securities Industry Commentator feed:

New York Investment Adviser Convicted Of Defrauding Investors (DOJ Press Release) Between January 2015 and January 2017, Louis F. Petrossi, the founder and president of the Wealth Research Institute, a purported investment research firm, solicited over $1.8 million in investments  from more than 25 investors . Petrossi promoted Chadwicke Partners LLC and Chadwicke Ventures LLC as providing the opportunity to invest in high-profile startups companies such as Lyft, Inc., Maplebear Inc., Pinterest Inc., Spotify Technology SA, and Palantir Technologies, Inc. among others.  Petrossi invested approximately $665,400 in privately held startup companies but used more than $1.1 million in investor funds to pay for personal expenses, including payments to BMW, renovations to his home and to pay his personal legal fees. In or around August 2016, Petrossi sent emails to Chadwicke investors attaching a spreadsheet that contained false and misleading statements about the purchase price and value of the securities held by the Chadwicke funds in order to conceal his misappropriation of investor money.After a four-day jury trial in the Middle District of Pennsylvania, was convicted on three counts of securities fraud, investment adviser fraud, and wire fraud for his role in a scheme to defraud investors. 

Federal Court Sustains FINRA / SEC Over CEO Reckless Disregard of Net Cap Rule ( Blog) Keith D. Geary was the owner, Chairman, and Chief Executive Officer of FINRA member firm Capital West Securities, which became Geary Securities, Inc. During two days in May 2009 and 13 days during a three-week stretch in January and February 2010, FINRA alleged that Geary Securities operated pursuant to subparagraph (a)(2)(i) of '34 Act Rule 15c3-1, which imposes a $250,000 minimum net capital requirement based upon the firm's regular receipt of customer checks payable to the broker-dealer. FINRA alleged that the firm failed to maintain its requisite minimum Net Capital. Geary Securities filed a BDW on February 29, 2012, and purportedly ceased doing business on April 30, 2012. On September 17, 2012, FINRA's Department of Enforcement filed a Complaint against Keith D. Geary and Norman Frager, who was the firm's Financial and Operations Principal ("FINOP") and the person responsible for preparing and filing the Financial and Operational Combined Uniform Single Reports ("FOCUS Reports

Boca Raton Man Arrested for Securities Fraud and Mail Fraud Conspiracy (DOJ Press Release) A ten-count indictment filed in United States District Court for the Northern District of Alabama charged Brian Roger "Mailman' Sodi with conspiracy to commit securities fraud and mail fraud, and related charges. Sodi allegedly used his Florida-based publishing houses to distribute deceptive promotional mailers recommending the purchase of select penny stocks, while hiding from potential investors that he secretly was selling the stocks he was urging them to buy. Sodi allegedly obscured his involvement in the scheme by using offshore accounts and intermediaries to launder the proceeds of his fraud back to himself and his publishing houses.