Securities Industry Commentator by Bill Singer Esq.

November 14, 2017

SEC Charges Georgia Man for Defrauding Retirees (SEC Litigation Release)

The Securities and Exchange Commission filed charges against Georgia-based Jay Costa Kelter, a former investment adviser and broker representative, for defrauding three retired clients out of more than $1.856 million. Securities and Exchange Commission v. Jay Costa Kelter,(No. 3:17-cv-1441 (M.D. Tenn. filed November 9, 2017). READ the FULL TEXT SEC COMPLAINT 

As set forth in part in the SEC Litigation Release:

According to the SEC's complaint, filed in federal court in Tennessee, from September 2013 through 2016, Kelter made misrepresentations to three clients and used their money to fund expensive purchases for himself. When Kelter left his former employer in 2013, he convinced the three seniors to move their accounts to a new brokerage firm, so he could continue to provide investment advice and trade on their behalf. The clients opened new accounts at TD Ameritrade and gave Kelter access to the accounts. As alleged in the complaint, Kelter sold securities in two of his clients' accounts to make unauthorized payments to his company BEK Consulting Partners, LLC. Kelter falsely told the two clients that BEK was a company that he was investing in on the clients' behalf. In fact, the SEC alleges that Kelter used the misappropriated client funds as his own personal piggy bank, buying a luxury car, paying for his personal day-to-day expenses, using one client's funds to return money to another client, and using the funds for futures and options trading in unrelated accounts. Kelter also allegedly guaranteed a third client that he would cover his trading losses up to $200,000, inducing the client to allow Kelter to continue to trade in his account. Kelter falsely told that retiree that he had substantial assets and access to personal funds to fulfill his guarantee when, as alleged, he had no such financial resources.

SEC Obtains Judgment against Defendant Charged with Conducting an Offering Fraud (SEC Litigation Release)

The United States District Court for the Eastern District of New York entered a final judgment against defendant Brian Quigley, who was charged in the case with conducting an offering fraud together with his brother, defendant Michael Quigley. Securities and Exchange Commission v. Michael Quigley et al.(No. 17-cv-4695 (E.D.N.Y. filed August 10, 2017). Brian Quigley consented to the entry of the final judgment imposing a permanent injunction and penny stock bar without admitting or denying the allegations in the underlying Securities and Exchange Commission's ("SEC") Complaint. The SEC's case against Michael Quigley, in which the SEC seeks a permanent injunction, penny stock bar, civil penalties, and disgorgement plus interest, is ongoing.

As set forth in part in a Securities and Exchange Commission ("SEC") Litigation Release:

According to the SEC's complaint, Michael Quigley and Brian Quigley convinced overseas investors to send money to U.S. bank accounts for purported investments in various securities, including well-known issuers, investment funds and penny stock companies, and claimed to be associated with entities that did not in fact exist, including fictional broker-dealers. The SEC alleged that the Quigleys did not make any investments with the money, and instead simply stole the investors' funds. According to the complaint, they used various methods to continue to defraud investors after their initial investments, including sending phony account statements, using a fake firm name similar to the name of an existing firm, making up numerous phony excuses for their failure to return funds, manufacturing stock certificates, falsely claiming on various occasions to be helping the investor recover previous losses, and requiring payment of bogus transfer agent fees purportedly to obtain the investors' stock certificates.

. . .

Michael and Brian Quigley's brother, William Quigley, was also involved in the fraud and set up some of the accounts into which investors wired money that was stolen by the Quigleys. On March 24, 2017, the Commission entered an order, with William Quigley's consent, directing him to cease and desist from committing or causing the violations found in the order, imposing securities industry and penny stock bars, and ordering disgorgement in the amount of $356,891, deemed satisfied by a forfeiture order in a parallel criminal case in which William Quigley pled guilty to criminal charges based upon the same conduct.

Federal Court Orders Arizona Resident Derek Springfield and His Company, Draven, LLC, to Pay over $2.2 Million in Restitution and a Penalty in CFTC Anti-Fraud Action (CFTC Press Release pr7642-17 )

The United States District Court for the District of Arizona entered a Consent Order
against Defendants Derek Springfield and his company, Draven, LLC ("Draven") finding that they fraudulently solicited and received at least $1.8 million from approximately 112 commodity pool participants in connection with pooled investments in commodity futures and foreign currency exchange. Further, the Consent Order found that the Defendants engaged in fraudulent sales practices, misappropriated pool participant funds, and provided false account statements to pool participants. The Order requires the Defendants to pay, jointly and severally, $1,487,964.45 in restitution to defrauded customers and an $800,000 civil monetary penalty. The Order also imposes permanent trading and registration bans against Defendants, among other things, and prohibits them from committing further violations of the Commodity Exchange Act and CFTC Regulations, as charged. 

As set forth in part in the CFTC Press Release:

The Order finds that, from at least June 2012 through December 2016, the Defendants used Draven's website, among other methods, to solicit potential pool participants to invest with Draven by telling them that their funds would be placed in segregated accounts and traded on their behalf by "institutional quality traders with extensive experience generating returns on the Futures, Forex and Options markets." In reality, however, the Order finds that Defendants never traded pool participants' funds in the manner advertised. Rather, Defendants pooled together the funds received from pool participants into two separate commodity pools. Defendants traded only a small percentage of the funds deposited into these pools. What trading was done on behalf of pool participants, according to the Order, was executed by Springfield through one or more trading accounts maintained in his name at various registered futures commission merchants and retail foreign exchange dealers. Springfield was not profitable in his trading of the trading accounts, and these accounts incurred net losses of approximately $195,880, according to the Order. In addition, Defendants deducted 10% management fees, based on profits, despite incurring net losses, the Order finds.

Merrill Lynch Employee Fined And Suspended For Business Meals By FINRA ( Blog)

Here we go again. FINRA, that staunch protector of Wall Street's honor and integrity, has fined and suspended an individual for submitting multiple bogus business meal expenses for reimbursement. Horror of horrors! When will this misconduct stop? When will Wall Street emerge from the shadows of such deception and fraud? Thankfully, we can all sleep better at night knowing that the securities industry's self-regulator is scrutinizing meal receipts, checking out the size of tips, and making sure that no one is ordering the truffles with that $75 supplement. Blog's publisher Bill Singer wonders why these FINRA business expense cases seem to involve a low-level sales assistant or stockbroker but, you know, never quite seem to address expense abuses in the C-SuiteREAD