Securities Industry Commentator by Bill Singer Esq WEEK IN REVIEW
April 7, 2018
http://www.rrbdlaw.com/3908/securities-industry-commentator
/In today's
Securities Industry Commentator feed:
Order Filed
to Stop Cryptocurrency, Marijuana Investments
(Texas State Securities Board Release) TSSB entered an Emergency Cease and
Desist Order against alleged Mark J. Moncher, who was offering investments in
an unregistered cryptocurrency trading program that purportedly delivers
returns of 8% per week. Moncher alleged published an online advertisement
targeting Texas residents, who were directed to a website containing
information about both offerings. TSSB alleges that Moncher controls the
Financial Freedom Club Inc. and has concealed from investors his 2009 federal
mail and wire fraud convictions for which he was sentenced to 57 months in federal
prison plus three years of supervised release, and ordered to pay $2 million in
restitution. READ the FULL TEXT TSSB Order.
Former Private Equity Firm
Partner Charged With Secretly Billing Clients for His Vacations and Salon
Visits
(SEC
Litigation Release No. 24093) The SEC filed a Complaint in the United States
District Court for the Southern District of New York ("SDNY")
alleging that former Apollo Management L.P. senior partner Mohammed Ali Rashid
had defrauded clients by secretly billing them for about $290,000 in personal
expenditures, including his family vacations, visits to a hair salon, and
purchases of designer clothing and high-end electronics. Among the SEC's
allegations is that Rashid doctored a receipt for his purchase of a $3,500 suit
for his father in order to give the transaction the appearance of a business
expense. Despite being caught by the firm and told to stop on two occasions in
2010 and 2012, Rashid allegedly continued to expense personal items to clients
into 2013. READ the FULL TEXT Complaints
California Man Pleads
Guilty To Multimillion-Dollar Fraud On Film Investors
(DOJ Press Release) From 2009 through 2017, Steven Brown and co-conspirators
solicited millions of dollars for investments in the marketing and production
of feature-length films and documentaries from investors, including by
furnishing them with fraudulent documents and by promising guaranteed returns.
The proceeds were primarily used to fund projects other than those presented,
to engage in a Ponzi-like scheme by which previous victims were paid, and to
cover personal expenses including Brown's purchase of a condominium. Brown pled
guilty to one count of conspiring to commit wire fraud
Crash And Burn Upon Entry
Into Wall Street (BrokeAndBroker.com Blog) Most
of us run into some problems during our lifetimes. For some of us, the
resolution of such issues may be to pay a fine or sit down for a suspension or
promise never to do something again. In some cases, our problems involve
dealing with a government agency and the sanctions that they hand down may be
so severe as to amount to the ending of a career -- which often prompts folks to
seek work elsewhere and try to start over. In a recent FINRA disciplinary
settlement, we come across the tale of a former escrow agent who wound up
getting fined and barred by two different states in 2013 and 2014 respectively.
Perhaps trying to start anew, this individual attempted a new career in the
securities industry. Sometimes you can run from your past. Sometimes you can't.
Today's BrokeAndBroker.com Blog examines the latter variation. Another story of
crash and burn on Wall Street
Defendant in SEC Cases
Involving Ticket Resale Investment Schemes Sentenced to More than Six Years'
Imprisonment in Parallel Criminal Case
In
2017, the SEC filed two enforcement actions
in the United States District Court for the Southern District of New
York ("SDNY") against Joseph Meli. The first Complaint alleged that
Meli and his co-defendants had solicited investments for the bulk purchase and
resale of tickets to popular Broadway shows and concerts, but used the majority
of the more than $97 million raised to make payments to earlier investors and
to enrich Meli, his family, and a co-defendant. SDNY entered a preliminary
injunction and asset freeze. The second Complaint alleged that Meli and New
York sports radio personality Craig Carton raised millions from investors by
falsely claiming that they had access to large blocks of face-value tickets to
popular concert performances. Carton and Meli allegedly misappropriated at
least $3.6 million to repay earlier investors in a Ponzi-like scheme and to
cover other expenses, including Carton's gambling debts.
SEC Charges Investment
Adviser with Engaging in Ponzi-like Scheme
(SEC Litigation Release No. 24094) The SEC filed a Complaint in the United
States District Court for the Southern District of New York ("SDNY")
alleging that starting around 2010, Michael Scronic began to raise money from
at least 42 friends and acquaintances to invest in an options trading strategy.
Although Scronic purportedly asserted that the investment was liquid and
redemptions would be quickly satisfied, the SEC asserts that Scronic had
sustained at least $15 million in investment losses since April 2010. For the
period ending June 30, 2017, Scronic allegedly reported to investors total
assets of at least $21,837,475; but the June 30, 2017, balance was just under
$27,500. Scronic allegedly resorted to Ponzi-like practices in order to obtain
additional investment funds to satisfy redemption requests In a parallel
action, the U.S. Attorney's Office for the Southern District of New York
announced criminal charges against Scronic. READ the FULL TEXT Complaint
SEC Obtains Final Judgment
Against Former Football Player Charged With Running $10 Million Fraud (SEC
Litigation Release No. 24101) The SEC alleged that Merrill Robertson, Jr.,
Sherman C. Vaughn Jr., and the company they co-owned, Cavalier Union
Investments LLC, promised to invest in diversified holdings but stole nearly $6
million of the more than $10 million they raised from investors. The $6 million
in diverted proceeds was spent on personal expenses such as cars, family vacations,
repayment of mortgage and credit-card debt, luxury goods, clothing,
entertainment, educational expenses for family members, and a luxury suite at a
football stadium. They also used the stolen money to make various donations and
gifts to alma maters, churches, and other third parties. Robertson, who was
criminally charged based on the conduct alleged by the SEC, was sentenced to 40
years' imprisonment, ordered to pay over $8 million in disgorgement, and
permanently enjoining him from violating federal securities laws.
http://www.rrbdlaw.com/3906/securities-industry-commentator/
In today's
Securities Industry Commentator feed:
SEC Charges
Florida Resident with Market Manipulation Scheme (SEC
Litigation Release No. 24091)n a Complaint filed in the United States District
Court for the Middle District of Florida, the SEC alleged that between August 4 and August 15, 2016, Gregory M. Bercowy sold shares of certain
Fortune 500 companies, including Abbott and Apple, in his relative's brokerage
account in order to buy over three million shares of Aureus at a total cost of
more than $2.8 million. The Complaint alleges that while Bercowy was
accumulating Aureus shares of Aureus, he manipulated the market by entering and
then cancelling a large number of buy orders at prices higher than the
then-current price of Aureus stock. READ the FULL TEXT Complaint.
File this under how could I not post this
one with this heading: Cape Cod Man who Disguised
Money as Gift-Wrapped Books Ordered to Forfeit Funds by Federal Judge /
Defendant attempted to carry $100,000 disguised as books through airport
security (DOJ Press Release)Daniel R.
Ormond booked a one-way flight from Boston to California and attempted to pass
through a Transportation Security Administration (TSA) checkpoint with a bag
that contained two gift-wrapped packages, which appeared to be books. Upon
inspection, the books turned out to be $100,000 in cash divided into two
separate bundles of currency sandwiched between cardboard and then wrapped in
carbon-paper. Ormond initially denied any knowledge of the currency and claimed
that his mother had packed the two gifts, which he said were intended for a
relative graduating high school. Unfortunately, mom denied both giving her son
the gifts/cash or knowledge of the purported graduation. On top of everything,
while talking to law enforcement, Ormond received a call from a friend, who
asked whether he was able to get through security without any issues. After
federal prosecutors filed a complaint for forfeiture of the $100,000 as the
alleged proceeds of drug trafficking or money intended for same, the Court
ordered the forfeiture.
Securities And Exchange
Commission Imposters Target Public
(BrokeAndBroker.com Blog)The Securities and Exchange Commission recently posted
"SEC Warns of Government Impersonators" (SEC Press Release 2018-55)
warning investors about an ongoing scam in which fraudsters claiming to be SEC
employees attempt to trick investors into sending money or revealing sensitive
account information. As reported by some
targets of this fraud, the scheme may start with what seems like a bona fide
solicitation to buy stock from a stockbroker or other purported industry
professional. Thereafter, you may be contacted by a conspirator pretending to
be from the SEC and claiming to need to verify or confirm that transaction.
Listen to a taped conversation.
Carrolton Man Pleads Guilty
For His Role in a "Foreclosure Rescue Scheme" That Exploited Vulnerable
Homeowners Facing Foreclosure (DOJ Press
Release)A federal grand jury in the United States District Court for the
Northern District of Texas indicted Mark Demetri Stein, Bruce Kevin Hawkins, Richard Bruce Stevens,
and Christina Renee Caveny, for their roles in a fraudulent foreclosure rescue
scam in which they represented to homeowners that they had "investors" standing
by who were ready to quickly purchase the homeowner's present loan from the
lender holding the current mortgage.
They also falsely represented that they would use investors to purchase
the homeowner's loan from the original lender at a greatly reduced price
through a "short sale" process. As part of the scheme, the conspirators
fraudulently required homeowners make all future loan payments to them and to
ignore late payment notices sent by lenders. The defendants victimized at least
70 distressed and vulnerable homeowners who were facing the imminent threat of
foreclosure on their homes and fraudulently collected a total of at least
$242,000 from them. The conspirators
concealed that all down payment and monthly mortgage payments fraudulently
collected from homeowners and spent the proceed for their own personal benefit.
Following their indictment, Hawkins, Stevens, and Caveny pled guilty and
Hawkins and Caveny have been sentenced to 41 months and 15 months in federal
prison, respectively. Stevens and Stein are awaiting sentencing.
http://www.rrbdlaw.com/3904/securities-industry-commentator/
In
today's Securities Industry Commentator feed:
FINRA
Settles Failure to Supervise Case
(FINRA
Offer of Settlement) In response to the filing of a Complaint on December 12,
2018, by the Financial Industry Regulatory Authority's ("FINRA's")
Department of Enforcement, Respondent Jeffery Allen Fanning submitted an Offer
of Settlement dated March 19, 2018, which the regulator accepted. Under the terms of the Offer of Settlement,
without admitting or denying the allegations in the Complaint, Respondent
Jeffery Allen Fanning consented to the entry of findings and violations and to
the imposition of the sanctions. FINRA Department of Enforcement, Complainant,
vs Jeffery Allen Fanning, Respondent (Order Accepting Offer of Settlement,
FINRA Office of Hearing Officers, 2015043246401, April 2, 2018) (the "Order")
As alleged in part in the Order Fanning failed to reasonably supervise the
equity trading of registered representatives at his firm.
Stormy Daniels Issue Hits
FINRA Arbitration Remand (BrokeAndBroker.com Blog) Among the more
difficult roles that I have as the publisher of the BrokeAndBroker.com Blog is
to present an analysis of a case in which I am troubled by the facts and
angered by the decision. In reporting on Wall Street's legal, regulatory, and
compliance developments, I frequently find myself at odds with the powers that
be. I am an unabashed libertarian (with a small "l") and an
unrepentant advocate for free-markets, robust competition, and fair play. I
love the clash of ideas in the marketplace. I detest when vested interests
unbalance the scales. I hate it when corrupt politicians and regulators do the
bidding of their patrons and rig the system. Yes . . . your're right . . . I'm
not always right, everyone else is not always wrong, and sometimes I just need
to chill. That being said, you're an idiot and I fully respect that you have
the right to be wrong. Having shown my magnanimous attitude, let me present to
you today's featured court opinion about Wall Street arbitration . . .
grrrrrrrrrr . . .
FINRA Settles Private
Securities Transactions Supervision Case (FINRA
AWC) For the purpose of proposing a settlement of rule violations alleged by
the Financial Industry Regulatory Authority ("FINRA"), without
admitting or denying the findings, prior to a regulatory hearing, and without
an adjudication of any issue, Richard Hunt Crockett submitted a Letter of
Acceptance, Waiver and Consent ("AWC"), which FINRA accepted. In the
Matter of Richard Hunt Crockett, Respondent (AWC 2017053992302, April 3,
2018).In pertinent part, the AWC alleges that Crockett approved brokers'
private securities transactions in but failed to reasonably supervise those
transactions.
http://www.rrbdlaw.com/3902/securities-industry-commentator/
In today's
Securities Industry Commentator feed:
Federal Courts Wrestle With Opening Doors To US Courthouse To KOSPI Class Action
When we talk about the globalization of Wall Street, we need look no further than a recent class action lawsuit filed in the United States District Court for the Southern District of New York ("SDNY") by five Korean citizens plaintiffs, who traded KOSPI 200 future contracts in the after-hours (the "night market") on the Korea Exchange ("KRX"). You might ask with some validity as to how such a case would have jurisdiction in the US courts. That's a fair question and, frankly, you're a pretty clever person to have raised the point. Then there's the whole mixing of the real and the digital worlds. Where does anything online occur anymore? If you enter a trade in Korea that is sent to a server based in the United States but routed back for settlement to Korea, how do we figure out just where "where" is? As more transactions move to the Cloud, the question of where something takes place may become more difficult. Read on and see how the US court system handled that very problem
SEC Halts
Fraudulent Scheme Involving Unregistered ICO
(SEC Press Release 2018-53)The SEC charged Centra Tech, Inc. co-founders Sohrab "Sam" Sharma and Robert Farkas with
raising over $32 million from thousands of investors pursuant to an allegedly
fraudulent initial coin offering ("ICO") in which Centra purportedly
offered and sold unregistered investments through a "CTR Token."
Sharma and Farkas allegedly claimed that funds raised in the ICO would help
build a suite of financial products including a debit card backed by Visa and
MasterCard that would allow users to instantly convert cryptocurrencies into U.S.
dollars or other legal tender. In a parallel action, the U.S. Attorney's Office
for the Southern District of New York filed criminal charges against Sharma and
Farkas. READ the FULL TEXT SEC
Complaint. https://www.sec.gov/litigation/complaints/2018/comp-pr2018-53.pdf
In the Matter of the
Application of Lek Securities Corporation
for Review of Disciplinary Action Taken by FINRA
(Opinion, SEC, '34 Act Rel. No. 82981; Admin. Proc. File No. 3-17677 / April 2, 2018 ) On appeal, the SEC
sustained FINRA's finding that Lek Securities had violated NASD Rules 3011(a) and
2110 and FINRA Rules 3310(a) and 2010 by failing to establish and implement
Anti-Money-Laundering policies, procedures, and internal controls that could be
reasonably expected to detect and cause the reporting of suspicious
transactions and that were reasonably designed to achieve compliance with the
Bank Secrecy Act. Further, the SEC sustained FINRA's imposition of a Censure
and $100,000 fine.
Federal Appeals Court
Reverses PCAOB and SEC over Denial of Ernst & Young Expert Witness (BrokeAndBroker.com
Blog) You know when you read something
that's "official" and, at first blush, it doesn't make sense? Of
course, you figure you must have missed something, so you re-read it but, gee,
it still doesn't make sense. Then you look at the heading of the document and
it's from some governmental agency or court and you figure that they must know
what they're talking about and, after all, I'm just an idiot. At this point,
you often go back, re-read the thing a third time but now assume whatever is
necessary to bring reason to the pages and you relinquish all sorts of
objections that get in the way. Voila, it now all makes sense! Of course, you
may also wind up walking away as did Galileo muttering "And yet it
moves." Speaking of walking away and how things still move, I recently
followed a mess involving the PCAOB, the SEC, and a Ernst & Young audit
partner. The E&Y audit partner came within the crosshairs of PCAOB and was
suspended and fined, which the SEC affirmed. Frankly, I didn't feel much
sympathy for the guy and felt and still feel that PCAOB had him dead to rights.
On the other hand, when the PCAOB was investigating the audit partner, they
scheduled an interview at which he was accompanied by a lawyer employed by
E&Y. Not my preferred manner of representation given the potential for
conflicts in such cases but it's common enough that it's not that big a deal.
On the other hand, PCAOB denied the lawyer's request to be accompanied by an
accounting expert, who was also an E&Y employee. As best I could understand
PCAOB's position on denying the expert's attendance, the regulator kept saying
that it didn't want an employee of the firm present at the individual's
interview -- but, you know, I kept noticing that the lawyer representing the
individual was an E&Y employee and, hey, what's up with that? How come it's
okay to have one E&Y employee present at the interview but not another?
Seemed to me that PCAOB was sort of making it up as it went along.
SEC Charges Fintech Company
Founder With Scheme to Defraud Investors and Misappropriate Funds
(SEC Press Release 2018-52) The SEC charged Michael Liberty, founder of the
fintech firm Mozido Inc., his wife Brittany Liberty, his attorney George
Marcus, his cousin Richard Liberty, and his cousin's friend Paul Hess with
fraudulently inducing investors to purchase unregistered interests in shell
companies controlled by Michael Liberty. Although said shells were represented
as having transferrable interests in Mozido, they did not. The alleged scheme
duped investors out of over $48 million, which was allegedly diverted to fund
such private expenses as private jet flights, multi-million dollar residences,
expensive cars, and movie production ventures. READ the FULL TEXT Complaint.
https://www.sec.gov/litigation/complaints/2018/comp-pr2018-52.pdf
Federal Courts Wrestle With
Opening Doors To US Courthouse To KOSPI Class Action (BrokeAndBroker.com
Blog) When we talk about the globalization of Wall Street, we need look no
further than a recent class action lawsuit filed in the United States District
Court for the Southern District of New York ("SDNY") by five Korean
citizens plaintiffs, who traded KOSPI 200 future contracts in the after-hours
(the "night market") on the Korea Exchange ("KRX"). You
might ask with some validity as to how such a case would have jurisdiction in
the US courts. That's a fair question and, frankly, you're a pretty clever person
to have raised the point. Then there's the whole mixing of the real and the
digital worlds. Where does anything online occur anymore? If you enter a trade
in Korea that is sent to a server based in the United States but routed back
for settlement to Korea, how do we figure out just where "where" is?
As more transactions move to the Cloud, the question of where something takes
place may become more difficult. Read on and see how the US court system
handled that very problem
Brazilian Couple Charged in
ATM Skimming Scheme (DOJ Press Release)
Brazilian couple Alexandre Kawamura and Karem Kawamura were charged in the
United States District Court for the District of Massachusetts in connection
with their roles in an alleged ATM skimming scheme. Alexandre Kawamura was
caught on ATM security video placing and removing skimming devices on drive-up
ATM, and on two occasions, Karen Kawamura was in the car with him.
Cambridge, Massachusetts, Man Sentenced In Manhattan Federal Court For Insider Trading (DOJ Press Release) Fei Yan's spouse worked at a law firm, which in 2016 was retained by a mining company in connection with its negotiations to acquire publicly traded Stillwater Mining company ("SWC"). The spouse came into contact with material nonpublic information about the negotiations, which she shared with her husband, who bought hundreds of SWC options before the completion of the acquisition was made public. While engaging in such purchase, Fei Yan searched online for information about insider trading. On December 9, 2016, when the acquisition of SWC was announced, Yan sold his options for a profit of $109,420. In addition to being sentenced to 15 months in federal prison and three years supervised release and ordered to forfeit $119,428.50, representing the amount of proceeds obtained as a result of trading in Stillwater Mining and related relevant conduct involving trades in the Mattress Firm.