The Wall Street Legal & Regulatory Feed
Securities Industry Commentator by Bill Singer Esq.
December 27, 2017
SEC Charges Attorney and Accountant with Aiding and Abetting Adviser's $9 Million Theft from Charity Client, Adviser Settles Related Fraud Claims (SEC Litigation Release 24022)
https://www.sec.gov/litigation/litreleases/2017/lr24022.htm
The SEC accepted the settlement offer of Train Babcock Advisors LLC ("TBA"), which is in the process of winding down its operations, has agreed to settle the SEC's charges by paying more than $1.7 million in disgorgement, interest, and penalties for these and other violations. TBA has also agreed to be censured and to withdraw its registration with the SEC as an investment advisor. According to the SEC Litigation Release:
[B]etween 2004 and 2016, [John] Rogicki took advantage of his roles as investment adviser and trustee to the foundation by liquidating securities positions in the foundation's advisory account with TBA [Train Babcock Advisors LLC] and misappropriating a total of more than $9 million from the foundation for his own personal benefit. The SEC's complaint alleges that [Robert] Gaughran and [Kevin] Clune aided and abetted TBA's and Rogicki's fraudulent scheme. While serving as a trustee of the foundation, Gaughran allegedly accepted outsized fees and ignored glaring signs of Rogicki's theft that were apparent from the foundation's brokerage statements and other documents that he regularly reviewed. Gaughran also drafted the trust and estate papers that put Rogicki in charge of the charitable foundation and knew the size of the estate that should have flowed to the charitable foundation, but for Rogicki's misappropriation of $9 million of its assets. According to the SEC's complaint, Clune, an accountant who performed tax work for both the estate that created the charitable foundation and the charitable foundation itself, ignored multiple and repeated red flags revealing Rogicki's and TBA's fraudulent scheme. In addition, both Gaughran and Clune were actively involved in concealing the theft by providing false information to an outside audit firm during a surprise examination of the charitable foundation that was conducted in 2014.On October 19, 2017, the SEC filed a civil injunctive action in federal district court against Rogicki. In a parallel criminal action, Rogicki pleaded guilty to criminal charges brought against him by the Manhattan District Attorney on October 19, 2017. On December 14, 2017, Rogicki was sentenced to serve 30 to 90 months in prison and ordered to pay $6,728,391.77 to the foundation, of which he forfeited $2.5 million, in connection with his criminal plea. The SEC also previously instituted administrative proceedings against former TBA CEO Brian J. Keenan on September 26, 2017, in connection with his misappropriation of assets from a separate client account. The administrative proceedings against Keenan were settled on October 23, 2017.
FINRA Expungement Arbitration Shows Failed System (BrokeAndBroker.com Blog) http://www.brokeandbroker.com/3740/finra-expungement-arbitration/
The BrokeAndBroker.com Blog's publisher Bill Singer, Esq. takes this last opportunity in the waning days of 2017 to rage against the machine and call for the reform of FINRA's failed expungement system. As Singer notes, the present appellate process by which Wall Street's men and women seek to clear their names is a bastard child no one claims as their own. Public advocates are correct that Wall Street's bygone practice of buying and selling indulgences was a disgrace that needed to be stopped. Similarly, the industry had ample warning of the need to tend to its own mess but chose to do nothing. Consequently, the present expungement process is an angry reaction to a persistent failure to reform. Unfortunately, the ensuing rush to judgment yielded what such angry efforts will: a lack of balance and fairness. For those industry men and women whose good name is besmirched by the mistaken complaint or the erroneous allegation -- no matter how few in number those innocent victims may be -- the relief is little more than a rigid system that takes too long, costs too much, and, in the end, sends the victor on an even more time-consuming and expensive route to the courts.
https://www.justice.gov/usao-sdny/pr/kaleil-tuzman-former-chairman-and-ceo-technology-start-company-kit-digital-and-omar
After a six-week trial in the United States District Court
for the Southern District of New York:
Kaleil Isaza Tuzman,
the former chairman of the board of directors and chief executive officer of
the technology start-up company KIT digital ("KITD"), was found guilty of one
count of conspiracy to commit securities fraud and one count of conspiracy to
commit wire fraud with respect to the market manipulation scheme. For the accounting fraud scheme, he was found
guilty of one count of conspiracy to commit securities fraud, make false statements
in annual and quarterly SEC reports, and make false statements to
auditors. Tuzman faces a combined
maximum term of imprisonment of 30 years, which includes five years each on the
conspiracies to commit securities fraud and 20 years on the conspiracy to
commit wire fraud.
Omar Amanat, an
associate of Tuzman's, was found guilty of one count of conspiracy to commit
wire fraud, one count of wire fraud, one count of aiding and abetting
investment advisor fraud, and one count of conspiracy to commit securities
fraud, all in relation to the market manipulation scheme. Amanat faces a combined maximum term of
imprisonment of 50 years, which includes five years each on the conspiracies to
commit securities fraud and aiding and abetting investment advisor fraud and 20
years each on the conspiracy to commit wire fraud and wire fraud counts.