Securities Industry Commentator

October 16, 2017

Virtual Kidnapping / A New Twist on a Frightening Scam (FBI Internet Story)

As stated in the FBI posting:

"Law enforcement agencies have been aware of virtual kidnapping fraud for at least two decades, but a recent FBI case illustrates how this frightening scam-once limited to Mexico and Southwest border states-has evolved so that U.S. residents anywhere could be potential victims."

In explaining how the scam works, the FBI warns that:

"The incarcerated fraudsters-who typically bribe guards to acquire cell phones-would choose an affluent area such as Beverly Hills, California. They would search the Internet to learn the correct area code and telephone dialing prefix. Then, with nothing but time on their hands, they would start dialing numbers in sequence, trolling for victims.

When an unsuspecting person answered the phone, they would hear a female screaming, "Help me!" The screamer's voice was likely a recording. Instinctively, the victim might blurt out his or her child's name: "Mary, are you okay?" And then a man's voice would say something like, "We have Mary. She's in a truck. We are holding her hostage. You need to pay a ransom and you need to do it now or we are going to cut off her fingers.""

Ahmad Khan Rahimi a/k/a "Ahmad Rahami" convicted by federal jury on all eight counts of the Indictment, which charged him with offenses related to his execution and attempted execution of bombings in New York City on September 17, 2016. Rahimi was convicted of

one count each of: 
  • using a weapon of mass destruction, which carries a maximum sentence of life in prison; 
  • attempting to use a weapon of mass destruction, which carries a maximum sentence of life in prison; 
  • bombing a place of public use, which carries a maximum sentence of life in prison; 
  • destroying property by means of fire or explosive, which carries a maximum sentence of 20 years in prison; 
  • attempting to destroy property by means of fire or explosive, which carries a maximum sentence of 20 years in prison; and
  • interstate transportation and receipt of explosives, which carries a maximum sentence of 20 years in prison; and 
two counts of using of a destructive device in furtherance of a crime of violence, namely, the use and attempted use of weapons of mass destruction, each of which individually carries a mandatory minimum consecutive sentence of 30 years in prison, a potential maximum sentence of life in prison, and, by virtue of his convictions on both counts, a mandatory sentence of life in prison. 

Founder And CEO Of Wright Time Capital Group Pleads Guilty To Commodities Fraud (DOJ Press Release)

Defendant Michael S. Wright pled guilty to one count of commodities fraud in connection with his operation of Wright Time Capital Group ("WTCG"). Wright allegedly induced his victims to invest in his fund by misrepresenting WTCG's historical trading performance. DOJ further alleges that Wright had misappropriated a large portion of investors' funds for his personal use and benefit.  Moreover, after having lost most of his investors funds, Wright allegedly engaged in unsuccessful forex trades, and hid those loses by issuing fake account statements.  Reduced to its essentials, WTCG comes off as yet another Ponzi by which new investors' funds were used to repay disgruntled earlier investors. Wright faces up to 10 years in prison. As set forth in the Criminal Complaint:
WRIGHT started WTCG in January 2011, and ultimately obtained more than $400,000 in investments from victims (the "Victims").  In his pitch to potential investors, WRIGHT misrepresented WTCG's investment performance, falsely claiming that he had achieved double-digit gains through forex trading in WTCG's first six months of existence.  In fact, from the outset of WTCG, WRIGHT earned little to no money through his forex trading, and WRIGHT repeatedly falsified account statements to the Victims.  Additionally, after obtaining Victim funds, WRIGHT did initially purchase some forex trades on their behalf, but then began to steal their money, using investor funds to pay for personal expenses, including hotel stays, travel, and tattoos. 
Eventually, WRIGHT operated WTCG as a Ponzi scheme, soliciting funds from new investors in order to use their funds to make payments to other Victims who were demanding the return of their investments. 
Maryland Real Estate Flipper Sentenced To Prison for Obstructing IRS and Failing to File Tax Returns (DOJ Press Release)

After pleading guilty to obstructing the lawful function of the IRS and failing to file personal and corporate income tax returns, Defendant David J. Simard was sentenced to 36 months in prison and one year of supervised release plus he was ordered to pay a $10,000 fine.  According to the DOJ Press Release: 

David J. Simard, 58, purchased and sold real estate in Maryland and the Washington, D.C. metropolitan area since the mid-1980s.  In January 2008, Simard received notice that the Internal Revenue Service (IRS), in connection with an audit of his personal income taxes, had requested documents and information from third parties regarding his real estate transactions.  Less than one month after receiving this notice, Simard created Pegasus Home Corporation and began buying and selling properties in its name instead of his own.  From 2009 through 2010, Simard purchased and sold 96 properties in the name of Pegasus.  Simard attempted to conceal his ownership and control of Pegasus by falsely representing that his relative was the owner.  Simard had the same relative apply with the IRS for an employer identification number for Pegasus and used that number when buying and selling properties.  This caused the IRS to receive information falsely indicating that the relative owned Pegasus.  Simard also instructed the relative to open a bank account for Pegasus.  Simard did not file timely personal tax returns for tax years 2009 and 2010, despite earning income requiring him to file.  He also did not file timely corporate tax returns for Pegasus for the same years despite having an obligation to do so.  Simard last filed a timely personal income tax return in 1995.  The court found that Simard caused a tax loss of $1.5 million.

I must congratulate my younger 2015 self! Apparently, I was right on target when I opined that we had likely not heard "the final gasp in this contention matter. I fully expect that this whole mess will find itself, yet again, before a federal Circuit Court . . ."

Notwithstanding that in 2015, the DC Circuit had remanded Saad's case back to the SEC to address his claims of mitigating evidence, Saad petitioned the Court arguing that the SEC had failed to fairly consider the mitigating factors he had already presented. John M.E. Saad, Petitioner, v. Securities and Exchange Commission, Respondent (D.C. Circuit Opinion, No. 15-430, October 13, 2017) (the "2017 DC Opinion"). As succinctly set forth in the 2017 DC Opinion's syllabus:

John M.E. Saad, a broker-dealer, unlawfully misappropriated his employer's funds on two separate occasions, and then spent the next seven months misleading investigators in an effort to cover up his wrongdoing. After a lengthy review process, the Securities and Exchange Commission sustained a decision of the Financial Industry Regulatory Authority ("FINRA") permanently barring Saad from membership and from working with any of its affiliated members. Saad challenges the Commission's decision as insufficiently attentive to mitigating factors and argues that the permanent bar is impermissibly punitive rather than remedial. We hold that the Commission reasonably grounded its decision in the record, which extensively evidenced Saad's acts of misappropriation, his prolonged efforts to cover his tracks through falsehoods, and his repeated and deliberate obstruction of investigators. With respect to the permanent bar on Saad's registration with FINRA and affiliation with its members, the court remands for the Commission to determine in the first instance whether Kokesh v. SEC, 137 S. Ct. 1635 (2017), has any bearing on Saad's case. Accordingly, Saad's petition for review is denied in part and remanded to the Commission in part.

The "denied in part" is fine. On the other hand, omigod!!!, "remanded to the Commmission in part"????? Will this never end?  READ