Securities Industry Commentator by Bill Singer Esq

December 7, 2017

SEC Continues Crackdown on Brokers Defrauding Customers (SEC Press Release 2017-223)

In Securities And Exchange Commission, Plaintiff, v. Zachary S. Berkey and Daniel T. Fischer, Defendants. (Complaint, United States District Court Southern District Of New York, 17-CV-09552),, 
the federal regulator alleged that ten customers of Four Points Capital Partners LLC (where the Defendants had worked) incurred $573,867 losses while Berkey and Fischer respectively earned about $106,000 and $175,000 in commissions. As set forth in part in the SEC Press Release:

[S]ince the customers incurred significant costs with every transaction and the securities were held briefly, the price of the securities had to rise significantly for customers to realize even a minimal profit.  The complaint also alleges that Berkey and Fischer churned customer accounts and concealed material information from their customers, namely that the costs associated with their recommendations, including commissions and fees, would almost certainly exceed any potential gains on the trades.  The complaint further alleges that Fischer engaged in unauthorized trading.

Without admitting or denying the SEC's allegations, Fischer consented to a final judgment that permanently enjoins him from similar violations in the future and orders him to return his allegedly ill-gotten gains with interest and pay a $160,000 penalty.  The settlement is subject to court approval.  Fischer separately agreed to an SEC order barring him from the securities industry and penny stock trading.  The SEC's litigation against Berkey will proceed in federal district court in Manhattan.

The FINRA Auction Market For Regulatory Fines And Suspensions ( Blog)

At first blush, today's Blog presents two somewhat mundane FINRA regulatory settlements. Upon further examination, our publisher Bill Singer, Esq. sees these two settlements as examples of a troubling trend in Wall Street regulation. As Bill would explain, imagine that we're on a hypothetical "Main Street" and we have two cars both parked at expired meters. When the cop on the beat comes upon both vehicles, one has been at an expired meter for one-hour beyond its time and the other for 45-minutes. Bottom line: both vehicles haven't fed the meter and both get a ticket. You'd sort of expect that each driver would pay the same fine -- let's say $100. How would you feel if, after negotiations with a City traffic cop, one driver paid $75 and the other paid $100? To add to that hypothetical, it turns out that both drivers have $1,000 in unpaid parking tickets but one driver's license is suspended for 30 days and the other's for 45 days.  

Two Men Charged In Theft Of Over $2 Million In Stock Certificates From Deceased Manhattan Woman (DOJ Press Release

In United States of America, V. Stephen Decker and Luis Mercado, Defendants (Indictment , United States District Court for the Southern District of New York, 17-CR-738) Defendants were charged with conspiracy to commit wire fraud, wire fraud, and aggravated identity theft. The wire fraud counts each carry a maximum sentence of 20 years in prison; and the one count of aggravated identity theft, carries a mandatory sentence of two years in prison. READ FULL TEXT INDICTMENT As set forth in part in the DOJ Press Release
From March 2016 to February 2017, DECKER and MERCADO engaged in a scheme designed to steal over $2 million from a deceased Manhattan woman (the "Victim").  As part of the scheme, DECKER and MERCADO stole stock certificates valued at over $2 million from the Victim's Manhattan apartment after the Victim's death in March 2016.  In August 2016, based on false representations made by DECKER and MERCADO, a financial institution ("Company-1") opened a brokerage account (the "Account") in the Victim's name.  DECKER and MERCADO then deposited the stolen stock certificates into the Account.  In September 2016, based on additional false representations made by DECKER and MERCADO, Company-1 sold the shares in the brokerage account opened in the Victim's name, resulting in a cash balance in the Account of more than $2 million.  DECKER and MERCADO then attempted to purchase over $2 million in gold coins using the assets in the Account.