Securities Industry Commentator by Bill Singer, Esq

November 15, 2017

Justice Department Obtains $5.4 Million in Additional Relief to Compensate Servicemembers for Unlawful Repossessions by Wells Fargo Dealer Services (Department of Justice Press Release)

The Servicemembers Civil Relief Act ("SCRA") requires a court to review and approve any repossession if the servicemember took out the loan and made a payment before entering military service.  The court may delay the repossession or require the lender to refund prior payments before repossessing.  The court may also appoint an attorney to represent the servicemember, require the lender to post a bond with the court and issue any other orders it deems necessary to protect the servicemember.  

On Sept. 29, 2016, the Department of Justice ("DOJ") filed a Complaint in United States v. Wells Fargo Bank N.A., d/b/a Wells Fargo Dealer Services (United States District Court for the Central District of California) alleging that between Jan. 1, 2008 and July 1, 2015, Wells Fargo had repossessed without court orders 413 vehicles of SCRA-protected servicemembers. DOJ agreed to a settlement that required Wells Fargo to:
  • pay $10,000 to each of the affected servicemembers, plus any lost equity in the vehicle with interest; 
  • pay a $60,000 civil penalty to the United States; and 
  • repair the credit of all affected servicemembers.   
READ the Well Fargo 2016:

Subsequent to the September 2016 settlement, Wells Fargo has identified additional violations  during the covered period affecting approximately 450 servicemembers, and the company has begun to provide over $5,400,000 in compensation to these additional servicemembers whose vehicles were unlawfully repossessed in violation of SCRA by Wells Fargo Bank, N.A.

SEC Charges Vail, Colorado-Based Perpetrators of Offering Fraud and Freezes Assets (Securities and Exchange Commission Litigation Release)

The Securities and Exchange Commission ("SEC") filed fraud charges and sought an emergency asset freeze against a Vail, Colorado-based company and the estate of its deceased principal for defrauding investors out of millions of dollars. As set forth in part in the SEC Litigation Release:

The SEC alleges that Michael F. Anderson and his company, The End of the Rainbow Partners, L.L.C. (Rainbow Partners), raised approximately $5.3 million from investors who were told that Anderson was a retired, successful hedge fund manager who intended to day trade their funds using a proprietary algorithm. Claiming he no longer needed income and instead wanted to help friends and charitable causes, Mr. Anderson falsely told investors that he would fund his wife's charitable organization for abused women and children, The End of the Rainbow Foundation, Inc. (Rainbow Foundation), with up to 20% of his trading profits, and divide the remaining profits among investors.

According to the SEC's complaint filed last week in the U.S., between March 2014 and February 2017 Rainbow Partners and Anderson misappropriated more than $2.3 million from investors by, among other things, transferring investor funds to Mr. Anderson's wife, Carolyn Anderson, her purported charity, the Rainbow Foundation, a second company owned by Ms. Anderson, Seaoma Consulting Company (Seaoma), and another hedge fund managed by Mr. Anderson, Bighorn Wealth Fund, L.P. (Bighorn). The SEC alleges that the misappropriated funds were used to pay the Andersons' personal expenses, including tax debts, mortgage payments, private school tuition, life insurance premiums, credit card bills, and car payments. According to the complaint, the Rainbow Foundation was a sham entity that never conducted any legitimate business.

In addition to misappropriating investor funds, the SEC alleges that Rainbow Partners and Mr. Anderson incurred substantial trading losses of nearly $600,000 while falsely assuring investors that trading was profitable. To hide these losses, the SEC alleges that Rainbow Partners, through Mr. Anderson, generated and distributed fabricated account statements to investors reflecting non-existent profits and used approximately $1.9 million in investor money to repay other investors in a Ponzi-like scheme. In a sworn affidavit drafted before his death, Anderson admitted to much of the misconduct alleged in the SEC's complaint.

Humpty Dumpty, FINRA, Sharing, Guarantee, And Losses ( Blog

Many laws, rules, and regulations were apparently drafted by folks with a warped sense of humor and a penchant for irony. I say that because much of what guides our conduct on Wall Street comes down to sternly worded proscriptions against engaging in conduct that is wrongful, improper, unfair, or unreasonable -- which is all well and fine except when you believe with every fiber in your body that your conduct was right, proper, fair, or reasonable. All of which is exacerbated by the the reality that those with influence and money who do what you did get a pass while you're being charged and prosecuted. A recent Financial Industry Regulatory Authority regulatory settlement challenges us on many levels. First, we're not quite sure what the self-regulatory-organization is implying or what we should infer given the holes in the fact pattern. Second, assuming that respondent did what we think he did, FINRA appears to have jammed a size 10 foot into a size 8 shoe in order to make the underlying conduct fall under one of its rules. READ

The Commodity Futures Trading Commission ("CFTC") issued an Order filing and settling charges against Statoil ASA ("Statoil") based upon findings that as early as October 2011 through November 2011, Statoil attempted to manipulate the Argus Far East Index ("FEI") in order to benefit Statoil's physical and financial positions, including its NYMEX-cleared over-the-counter swaps. In addition to imposing a Cease-And-Desist, the CFTC Order requires a $4 million civil monetary penalty READ the FULL TEXT CFTC Order

Aleksandr Burman, an individual with no medical license, established eight medical clinics in Brooklyn (the "Related Clinics"), which operated between 2007 and 2013. For each clinic, Aleksandr Burman hired a doctor, one of whom was VAID, as the nominal owner of the clinic, since New York State law requires that such clinics be owned by a medical professional. In fact, however, VAID was hired by Aleksandr Burman simply to pose as the owner of one of the clinics, and to sign medical charts falsely stating that he had examined a number of Paid Patients, and to provide prescriptions and referrals for medically unnecessary supplies.

Dr. Mustak Y.Vaid pled guilty to charges of falsely holding himself out as the owner of one medical clinic, and falsely signing medical documents stating that he had provided medical services that he had not.
Marina Burman pled guilty to charges that, as the registered President and owner of Universal Supply Depot, she fraudulently billed Medicaid more than $3 million for medical equipment, particularly including large amounts of undispensed adult diapers. Also, she was charged with arranging for Paid Patients to exchange their diaper prescriptions for valuable merchandise, such as bed linens, tablecloths, dishes, kitchen appliances, and other housewares. (Marina Burman's former husband, Aleksandr Burman, had previously pleaded guilty in a related indictment and was sentenced in May 2017 to 10 years in prison).

Siblings Asher Oleg Kataev, a/k/a "Oleg Kataev," and Tsirlin pled guilty to charges of helping operate two of the fraudulent clinics, where they participated in bribing patients and causing fraudulent bills to be submitted to Medicare and Medicaid. 

Ivan Voychak pled guilty to charges that he helped operate a medical ambulette company that fraudulently billed Medicaid for transportation services that were not medically necessary, and participated a scheme to pay kickbacks to patients at the fraudulent medical clinics.

Five additional defendants remain under indictment in the case, which is awaiting trial. 

READ the following Plea Agreements: