Securities Industry Commentator by Bill Singer Esq WEEK IN REVIEW

December 2, 2017

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

In today's Securities Industry Commentator feed: 

BREAKING NEWS: United States of America v. Michael T. Flynn, Defendant (Criminal Information, 17-CR-00232, United States District Court for the District of Columbia) One Count of False Statements.

SEC Charges Florida Penny Stock Operators With Defrauding Elderly Investors in Push to Crack Down on Repeat Offenders / Miami Office's Recidivist Initiative Nets 23 Enforcement Actions to Date (SEC Press Release 2017-218). The Securities and Exchange Commission filed a Complaint in the United States District Court for the Southern District of Florida charging Joseph A. Rubbo and Angela Beckcom Rubbo Monaco, both of Coral Springs, Florida, with defrauding elderly investors through offerings by their companies VIP TV LLC, VIP Television Inc., and The Spongebuddy LLC. The SEC Press Release characterizes Rubbo and Monaco as repeat offenders who were previously convicted of criminal charges and the subject of SEC injunctions. The U.S. Attorney's Office for the District of Colorado has filed parallel criminal charges against Rubbo, Monaco, Steven J. Dykes, and others relating to the scheme. READ the FULL TEXT Complaint.

In Re Pending Administrative Proceedings (Order, Securities and Exchange Commission, '33 Act Rel. No. 10440; '34 Act Rel. No. 82178; Invest. Adv. Act Rel. No.  4816; Invest. Co. Act Rel. No. 32929 / November 30, 2017). As set forth in pertinent part in the SEC Order:

On November 29, 2017, the Solicitor General on behalf of the United States submitted a brief in Raymond J. Lucia and Raymond J. Lucia Companies, Inc. v. Securities and Exchange Commission (No. 17-130) in which the Solicitor General agreed with the petitioners that the U.S. Supreme Court should decide whether administrative law judges of the Commission are inferior officers under the Appointments Clause, U.S. Const. Art. II, § 2, cl. 2. The Solicitor General took the position that Commission administrative law judges are inferior officers for purposes of the Appointments Clause but recommended that the Supreme Court appoint an amicus curiae to defend the contrary judgment of the Court of Appeals for the District of Columbia Circuit.

To put to rest any claim that administrative proceedings pending before, or presided over by, Commission administrative law judges violate the Appointments Clause, the Commission -- in its capacity as head of a department -- hereby ratifies the agency's prior appointment of Chief Administrative Law Judge Brenda Murray and Administrative Law Judges Carol Fox Foelak,Cameron Elliot, James E. Grimes, and Jason S. Patil. . .

Two Real Estate Investors Sentenced For Rigging Bids at Northern California Public Foreclosure Auctions (DOJ Press Release) After trial on Jun3 2, 2017, Gregory Casorso and Javier Sanchez were convicted of conspiring to rig bids at foreclosure auctions in Alameda County, California; and Sanchez was also convicted of bid rigging in Contra Costa County, California.  Casorso was sentenced to serve 18 months in prison and ordered to pay a criminal fine of $20,000.  Sanchez was sentenced to serve 21 months in prison and ordered to pay a criminal fine of $88,140.

Not Fade Away Tops FINRA Regulatory Chart  ( Blog) In a recent FINRA regulatory settlement, one unlucky registered rep hit the trifecta when he was sanctioned for maintaining an away account, for trading away from his firm, and for landlording (I think that's a word but if it isn't, well, you know what, it is now).  If you're planning on joining a new firm next year, make sure to carefully consider the ramifications of maintaining or opening a new brokerage account that will not be housed at your next firm. Similarly, if you're thinking of buying some rental property, take note of the need to notify your firm of that outside business activity.

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

In today's Securities Industry Commentator feed: 

SEC: Ramapo, RLDC Consent to Court-Appointed Independent Consultant Among Other Undertakings (SEC Litigation Release 23997) Pursuant to a Consent Judgment in Securities and Exchange Commission v. Town of Ramapo, et al.,(United States District Court for the Southern District of New York, 16-cv-2779) the Town and the Ramapo Local Development Corp. ("RLDC") are enjoined from further violations of the '34 Act and subject to the following undertakings as set forth in the SEC Press Release:

(a) requiring the Town and RLDC to retain an independent consultant (IC) with municipal finance experience appointed by the Court to review and recommend improvements to the Town's and RLDC's financial reporting procedures and controls, as well as the Town's and RLDC's municipal securities offerings disclosure policies and procedures, to require the Town and RLDC to adopt any such recommendations, and for the IC to review and assess the sufficiency of the Town's and RLDC's implementation of the IC's recommendations for two full fiscal years thereafter; (b) requiring the Town and RLDC, for fiscal years 2017, 2018, and 2019, to retain an Independent Auditing Firm, not unacceptable to the SEC staff, to conduct audits of the Town's and the RLDC's annual financial statements for those fiscal years; and (c) requiring that, for a period of three years from the date of the entry of the Judgment, the Town and RLDC may not participate in the offer and sale of any municipal securities for which the Town and RLDC are issuers or obligated persons unless the Town and RLDC have, prior to each such offering retained an Independent Disclosure Counsel (IDC) not unacceptable to the SEC staff and which are also unaffiliated with the bond counsel retained for such offering. The IDC shall participate in the preparation of the disclosure document for the offering, assist the Town and RLDC in performing a reasonable investigation concerning the accuracy and completeness of that disclosure document, and render an opinion to the effect that, during its work, nothing came to its attention that would cause it to believe that the disclosure document contains, as of the date of the opinion, any untrue statement of a material fact or omits to state any material fact necessary to make the statements made therein, in light of the circumstances under which they were made, not misleading, including the disclosure therein of the terms of the Judgment in this case.

Czar Entertainment Founder James Rosemond Convicted In Manhattan Federal Court For Ordering The Murder Of Lowell Fletcher (DOJ Press Release) As lurid as the headlines about business on Wall Street may become, we tend to forget that the misdeeds of the securities industry often pale in connection with those of other business sectors. If you think things get nasty on the Street, you should consider a recent federal murder trial involving the music biz. After a nine-day trial in the United States District Court for the District of New York, James Rosemond a/k/a/ "Jimmy the Henchman" was found guilty of one count of substantive murder-for-hire, one count of conspiracy to commit murder-for-hire, and two firearms counts in connection with the murder of Lowell Fletcher, a/k/a "Lodi Mack." The path to conviction was not a straight one. Rosemond's first trial in 2014 ended with the jury unable to reach a verdict on the murder-for-hire. The second 2014 trial ended with a conviction on all counts but was overturned in 2016 by the United States Court of Appeals for the Second Circuit based, in part, on Rosemond's contention that he was barred from raising the defense that although he had ordered hit-men to shoot Fletcher, he did not intend for the shooting to result in Fletcher's death. As set forth in part in the DOJ Press Release:

JAMES ROSEMOND was the founder of Czar Entertainment, a rap music management company, and also the head of a large-scale cocaine trafficking organization.  In March 2007, members and associates of a rival rap music group known as "G-Unit," including Marvin Bernard, a/k/a "Tony Yayo," and Lowell Fletcher, a/k/a "Lodi Mack," assaulted ROSEMOND's son.  ROSEMOND's son was not seriously injured in the assault, and Fletcher ended up serving prison time for his involvement in the assault.  Nevertheless, in 2009, ROSEMOND recruited a crew of men to murder Fletcher upon his release from prison by promising at least $30,000 in payment for killing Fletcher.  At ROSEMOND's direction, members of the murder crew selected a dark and secluded location for the murder in the vicinity of Mount Eden and Jerome Avenues in the Bronx, and lured Fletcher to that spot.  When Fletcher arrived there in the evening on September 27, 2009, a member of the murder crew stepped out of the shadows and fired five bullets into Fletcher's back and arms using ROSEMOND's .22 caliber handgun with a silencer.  Fletcher died later that night.  On October 2, 2009, ROSEMOND had a trusted employee of his cocaine organization provide a kilogram of cocaine - worth about $30,000 in street value - to a member of his murder crew as payment for the murder.

In the Matter of Lynn Tilton; Patriarch Partners, LLC,; Patriarch Partners VIII, LL; Patriarch Partners XIV LLC; And Patriarch Partners XV LLC, Respondents (Notice of Finality; Invest. Adv. Act Rel No.4815, Invest. Co. Act. Rel. No. 62926; Admin. Proc. File 3-16462 / November 28, 2017). On September 27, 2017, SEC ALJ Foelak issued In the Matter of Lynn Tilton; Patriarch Partners, LLC,; Patriarch Partners VIII, LL; Patriarch Partners XIV, LLC; And Patriarch Partners XV, LLC, Respondents (Initial Decision; Init. Dec. Rel. No. 1182; Admin. Proc. File 3-16462 / September 27, 2017), which dismissed all charges and, in pertinent part, stated that:

In applying the law to the facts of the instant case, it must be emphasized that the trustee reports and financial statements were not publicly available, unlike financial statements of a public issuer in the issuer's periodic reports published on the Commission's website. Rather, pursuant to the Funds' indentures, they were made available to the noteholders, the trustee, and a limited group of entities. The investors and potential investors in the Funds were Qualified Institutional Buyers and Qualified Purchasers, such as Barclays, SEI Investments, Varde Partners, and MBIA; not, in the words of Commission Chairman Jay Clayton, "Mr. and Ms. 401(k)."61 While there may have been an information asymmetry between Tilton and the noteholders, there was not a power asymmetry.62 While Respondents did not maximize the ease of finding it, they also did not conceal - omit to state - material information such as the amount of interest actually being paid and the interest rate and principal on the Portfolio Companies' loans. This material information underlies the alleged miscategorization of loans and consequent OC Ratio Test in the trustee reports and is related to the alleged improper valuation of assets in the financial statements.

In the Matter of Lynn Tilton; Patriarch Partners, LLC,; Patriarch Partners VIII, LL; Patriarch Partners XIV LLC; And Patriarch Partners XV LLC, Respondents (Notice of Finality; Invest. Adv. Act Rel No.4815, Invest. Co. Act. Rel. No. 62926; Admin. Proc. File 3-16462 / November 28, 2017), the time to petition for review having expired without submission, the Initial Decision has become the final decision with respect to Lynn Tilton, Patriarch Partners, LLC, Patriarch Partners VIII, LLC, Patriarch Partners XIV, LLC, and Patriarch Partners XV, LLC. Accordingly, the administrative proceeding is dismissed. READ:"BREAKING NEWS: SEC Loses Dramatic CLO Case Against Tilton And Zohar" ( Blog, September 27, 2017)

FINRA Arbitrator Gets By With A Little Help Of A Friend ( Blog) Another day and another lawsuit over a variable annuity. In today's offering, we have an interesting wrinkle involving a minor who was named as the beneficiary of a VA and a registered representative who may not have timely submitted the paperwork to effectuate the beneficiary designation. Frankly, it's not really clear as to why a lawsuit was even needed to resolve the dispute but, hey, I'm a lawyer and, you know, what good is being a lawyer if folks don't have to pay for my services.

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

In today's Securities Industry Commentator feed:

Federal Court Orders California Residents Joseph Dufresne, Megan Renkow, and Their Companies to Pay More than $4.9 Million in Restitution and a Monetary Penalty for Fraud in Connection with Offering and Selling Futures Trading Strategies and Systems (CFTC Press Release pr7651-17) The CFTC obtained a Consent Order in the United States District Court for the Central District of California against Defendants Joseph Dufresne (a/k/a/ Joseph James) and Megan Renkow (a/k/a Megan James), both of Palos Verdes Estates, California, and their companies, United Business Servicing, LLC and United Business Servicing, Inc. (collectively, United Business), doing business as (SoT), who were charged with fraud and other violations in connection with the offer and sale of futures trading strategies and systems. The Defendants are jointly/severally liable to pay over $3.9 million in restitution and $1 million in a civil monetary penalty.

UPDATE: SEC Says No Mulligans For FINRA Settlements ( Blog) In the current installment of this regulatory saga, Bruce M. Zipper sought a stay from the Securities and Exchange Commission pending his appeal of FINRA's denial of permission for his continued association with a member firm attendant to his statutory disqualification.

Remarks at the Third Annual Conference on the Evolving Structure of the U.S. Treasury Market (SEC Chair Jay Clayton Speech) In his remarks, SEC Chair Clayton covered the regulatory coordination inherent in global capital markets' oversight; the importance of trading data for the Treasury market; and the SEC's approach to the future regulation of certain other aspects of the fixed income markets. READ SEC Chair Clayton's FULL TEXT Speech

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

In today's Securities Industry Commentator feed:

UBS Trails Morgan Stanley Out the Door on Broker Protocol (Financial Advisor IQ, by Rita Raagas De Ramos November 28, 2017) UBS is withdrawing from the Protocol for Broker Recruiting, effective December 1, making it the second wirehouse and first original signatory to announce its exit.

Edward Jones Stockbroker Shot Blanks In FINRA Customer Signature Settlement ( Blog) It's holiday time and that means another year about to go under your belt. Which also means that you're getting ready for another round of annual compliance meetings, annual compliance questionnaires, and annual reviews of your book of business (and you're once again hoping that your firm doesn't uncover that short-cut you took with some paperwork and doesn't ask too many questions about the losses in that nice widow's account). In a recent FINRA regulatory settlement, we consider the fine and suspension imposed upon a registered rep who engaged in an excess of customer service when it came to completing forms and obtaining original signatures. Bah Humbug!  Now that's the holiday spirit!

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

In today's Securities Industry Commentator feed:

Leandra English, Deputy Director and Acting Director, Consumer Financial Protection Bureau, Plaintiff, v. Donald John Trump, in his official capacity as President of the United States of America, and John Michael Mulvaney,in his capacity as the person claiming to be acting director of the Consumer Financial Protection Bureau, Defendants.(Complaint for Declaratory and Injunctive Relief / Emergency Temporary Restraining Order Sought / United States District Court for the District of Columbia / 17-CV-02534 / November 26, 2017)

U.S. Charges Three Chinese Hackers Who Work at Internet Security Firm for Hacking Three Corporations for Commercial Advantage (Department of Justice Press Release) The DOJ Press Release alleges that a federal grand jury indicted Chinese nationals/residents Wu Yingzhuo, Dong Hao and Xia Lei for allegedly conspiring between 2011 and May 2017 to hack into private corporate entities in order to maintain unauthorized access to, and steal sensitive internal documents and communications from U.S. and foreign employees and computers of three corporate victims in the financial, engineering and technology industries.

FINRA Suitability Settlement Involves Five Elderly Retired Morgan Stanley Customers ( Blog). Today's Blog considers a recent regulatory settlement imposed upon a former stockbroker by the Financial Industry Regulatory Authority. Our publisher Bill Singer accepts that allegations as true but is troubled by the lack of effective compliance oversight, which amounts to little more than reading toe tags in the morgue. Bill asks what is the value of the self-regulation of Wall Street when FINRA announces in November 2017 that it has fined and suspended an individual who retired from the industry in April 2015 after he had allegedly engaged in misconduct throughout 2014 that caused nearly $1 million in losses during in the accounts of elderly, retired customers?