Securities Industry Commentator by Bill Singer, Esq WEEK IN REVIEW
April 14, 2018
http://www.rrbdlaw.com/3921/securities-industry-commentator/
In today's
Securities Industry Commentator feed:
Securities
and Exchange Commission / Division of Trading and Markets No-Action Letter to
FINRA: Third-Party Recordkeeping Services under Rule 17a-4 (SEC No-Action Letter to FINRA / April 12,
2018) In pertinent part, the NAL states:
[C]ontractual
provisions that would permit, among other things, a service provider to delete
or discard records in the event of non-payment by the broker-dealer are
inconsistent with the retention requirements of Rule 17a-4 and the undertaking
requirements of paragraph (i) of Rule 17a-4.7 Moreover, if a service provider
deletes or discards broker-dealer records in a manner that is not consistent
with the retention requirements in Rule l 7a-4, such action would constitute a
primary violation of the rule by the broker-dealer and may subject the service
provider to secondary liability for causing or aiding and abetting the
violation.
Department
of Justice Begins Second Distribution of Funds Recovered Through Asset
Forfeiture Totaling $1.2 Billion to Compensate Victims of Bernard Madoff Fraud
Scheme (DOJ Press Release)
On April 12, the Madoff Victim Fund (MVF) began its second distribution to over
21,000 victims of $504 million in funds forfeited to the U.S. Government in
connection with the Bernard L. Madoff Investment Securities LLC (BLMIS) fraud
scheme, bringing the total distributed to over $1.2 billion. Of the
approximately $4.05 billion to be paid out, about $2.2 billion came from the
civil forfeiture recovery from the estate of Jeffry Picower; about $1.7 billion
via a Deferred Prosecution Agreement with JPMorgan Chase Bank N.A. and civilly
forfeited in a parallel action. The remaining funds came from forfeiture
actions against investor Carl Shapiro and his family, and from Bernard L.
Madoff, Peter B. Madoff and their co-conspirators.
Two
Defendants Indicted in Brooklyn Federal Court for Foreign Exchange Trading
Scams / Defendants
Stole Hundreds of Thousands of Dollars by Luring Korean-American Investors into
Bogus Foreign Exchange Trading (DOJ Press Release) Tae Hung Kang,
also known as "Kevin Kang," and John Won were indicted in the United States
District Court for the Eastern District of New York ("EDNY") with
conspiring to commit wire and securities fraud, securities fraud, and
conspiring to commit money laundering, in connection with schemes involving
foreign exchange trading that targeted defrauded dozens of
Korean-Americans. Kang was also charged with substantive wire fraud. Kang
and Won promised investors double-digit returns, and claimed to have a secret
algorithmic trading method that would generate large profits with minimal
risk. The Indictment alleges that Kang and Won had minimal trading
experience, their algorithmic trading method never performed as promised, and
investors suffered substantial losses. In a second fraud, Kang and Won
persuaded investors to purchase shares of Safety Capital Management, Inc.
("Safety Capital"), which did business as FOREXNPOWER, which was purportedly
engaging in foreign exchange trading.
CFTC Charges
New York Residents Kevin Whylie and Matthew Zecchini and Their Company,
Algointeractive Inc, with Commodity Pool Fraud, Misappropriation, and
Registration Violations (CFTC Release 7710-18) CFTC filed a Complaint
in the U.S. District Court for the Southern District of New York (SDNY) against
Defendants Kevin P. Whylie; Matthew James Zecchini; and Algointeractive Inc, a
New York corporation owned and controlled by Whylie and Zecchini. The
CFTC Complaint alleges that from approximately April 2016 through the present,
Defendants fraudulently solicited at least $300,000 for participation in a
pooled investment vehicle for futures trading. The Complaint alleges, in part,
that Defendants misrepresented or omitted material information about their own
experience, track record, and amount of assets under management. Further,
Defendants are charged with misrepresenting that participants' funds would be
pooled and invested in, among other things, futures contracts, for the
participants' benefit. CFTC seeks restitution, disgorgement, civil monetary
penalties, permanent trading and registration bans, and a permanent injunction
against further violations of the Commodity Exchange Act and CFTC Regulations.
FINRA Books
Outside Business Activity Fine And Suspension (BrokeAndBroker.com
Blog) Today's BrokeAndBroker.com Blog examines the curious case of a
stockbroker acting as an agent for the collector of rare books. Sort of sounds
like a movie plot. Be that as it may, we have a ten-year-long pattern of
conduct that FINRA doesn't quite like. As the self-regulator is apt to do, it
suspends and fines the guy. When it comes to a fine, howsabout we impose
something like, say, ummm, okay, $1,000 to, what's a nice high-end number?,
yeah, $5,000. What am I talking about? Well, what are you talking about? You
never heard of a fine between $1,000 and $5,000? You never made a dinner reservation
for 6 p.m. to 10 p.m.?
North
Branford Man Admits to Hacking Apple iCloud Accounts of More Than 200 People,
Including Celebrities (DOJ Press Release) Federal prosecutors alleged
that from April 2013 through Octboer 2014, George Garofano sent e-mails to victims
that appeared to be from security accounts of Apple and encouraged the victims
to send him their usernames and passwords, or, in the alternative, to enter the
information on a third-party website, where he would later retrieve them.
Thereafter, Garofano would use the stolen information to access about 240
victims' iCloud accounts and obtain personal information including sensitive
and private photographs and videos. Garofano waived indictment and pled guilty
to one count of unauthorized access to a protected computer to obtain
information.
Court
Orders California Firm and Founder Charged with Defrauding Investors to Pay
Over $3.8 Million (SEC Litigation Release No. 24109) The United
States District Court for the Central District of California ("CDCA")
ordered Christopher M. Lee, (who operated under the alias Rashid K. Khalfani)
and his firm Capital Cove Bancorp LLC to pay over $3.8 million in disgorgement
and civil penalties.As charged in an SEC Complaint, Lee and his company
purportedly raised investments in distressed real estate through REO
Opportunities Fund II LLC and Rittenhouse Square Trust LLC. The SEC alleged
that Khalfani hid dhis prior criininal history from investors, stole the
investments and, in some instances, used the proceeds to purchase real estate
for his own benefit. Khalfani and Capital Cove are permanently enjoined
from violating Section 17(a) of the Securities Act of 1933, Sections 5 and
10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder, Section
207 of the Investment Advisers Act of 1940, and Capital Cove from violating,
and Khalfani from aiding and abetting violations of, Section 203A of the
Advisers Act. Securities and Exchange Commission v. Capital Cove
Bancorp LLC and Christopher M. Lee aka Rashid K. Khalfani (15-CV-980, CDCA)
http://www.rrbdlaw.com/3919/securities-industry-commentator/
In
today's Securities Industry Commentator feed:
EC
Detects Brokers Defrauding Customers (SEC
Litigation Release 24108) The SEC filed a Complaint in the United States
District Court for the Southern District of New York alleging that New
York-based brokers William C. Gennity and Rocco Roveccio recommended
investments that involved frequent buying and selling of securities without any
reasonable basis to believe their customers would profit. Further, the
Complaint asserts that Gennity and Roveccio churned customer accounts, engaged
in unauthorized trading, and concealed material information about transactional
costs from their customers. The SEC alleged customer losses of $683,038 while
Gennity and Roveccio allegedly received about $280,000 and $206,000,
respectively, in commissions and fees. Separately, broker Laurence M. Torres
settled SEC charges against him that he had no reasonable basis to believe it
that his recommended frequent trading was suitable for his customers, and that
he also had engaged in churning and made unauthorized trades. Without admitting
or denying the findings, Torres agreed to be barred from the securities
industry and penny stock trading, and he must pay $225,359.36 in disgorgement
plus $25,748.02 in interest, and a $160,000 penalty. READ the FULL TEXT
SEC Complaint
Drinking, Driving, Felonies, And A Wall Street
Regulatory Head-On Collision (BrokeAndBroker.com
Blog) Drinking and driving is never a good idea. In today's BrokeAndBroker.com
Blog, we cover yet another instance of the impact of drinking, driving, felony
charges, and felony pleas on a registered representative's Wall Street career.
It is a sobering message.
Jamaican man admits to scamming Americans with
lottery scam (DOJ
Press Release)
Zicko Peterkin pled guilty to one count of conspiracy to commit wire fraud in
connection with his role in a scam involving unsolicited phone calls and emails
making false claims that the recipients had won a multi-million dollar lottery
prize and a Mercedes Benz vehicle. Peterkin sent images of forged cashier's
checks to the recipients with their name as the payee, and victims were told
that they needed to send processing fees in order to obtain their prizes. At
least $250,000 was wired to Peterkin and his co-conspirators. Puhlease tell
your grandmother and grandfather about this case the next time they tell you
about the call that they got informing them that they won a foreign lottery!
Nigerian Man Pleads Guilty In Manhattan Federal
Court To Participating In Business Email Compromise Scams (DOJ Press
Release) Onyekachi Emmanuel Opara pled guilty in the United States District
Court for the Southern District of New York to one count of conspiracy to
commit wire fraud and one count of wire fraud in connection with his
participation in fraudulent business email compromise scams between 2014 and
2016that targeted thousands of victims around the world, including the United
States. Prosecutors alleged that fraudulent emails were sent to employees of
various companies, purportedly from their supervisors or from third party
vendors, directing that funds be transferred to specified bank accounts.
Owner Of U.S. Energy Partners, Inc. Of Bowling
Green, Kentucky, Sentenced To Prison For Wire Fraud, Securities Fraud, And
Money Laundering / Fraudulent
Investment scam resulted in loss exceeding $1,000,000 for eleven partners (DOJ
Press Release) After two hours of deliberation, a federal jury convicted
Clay Shelton. the owner of U.S. Energy Partners, Inc. of wire fraud, securities
fraud, and money laundering as part of a scheme that defrauded 11 investors of
$1,175,000. Federal prosecutors alleged that from March 2011 through September
2012, Shelton fraudulently represented to the investors that their funds would
be held in escrow as a down payment until he was able to complete financing to
purchase the Monterey Pipeline, after which investors would receive either a
25% return on their investment or Monterey Pipeline Partners LLC would buy
their interest in any Tennessee well program they previously purchased through
U.S. Energy Partners. Shelton diverted the funds from escrow for investment in
collateralized mortgage obligations or for business expenses. He was sentenced
to 50 months in federal prison.
http://www.rrbdlaw.com/3917/securities-industry-commentator/
In today's
Securities Industry Commentator feed:
Enforcement
Investigation Finds Widespread Fraud in Crypto Offerings (TSSB
Enforcement Report) After its Enforcement
Division conducted a four-week investigation involving 32 investigations, the
Texas State Securities Board found widespread fraud in cryptocurrency
offerings. READ the FULL TEXT Report.
British
Lawyer Found Guilty After Trial For His Participation In Multimillion-Dollar
Tax Fraud Scheme Involving Swiss Bank Accounts (DOJ
Press Release) After a three-week trial in the United States District
Court for the Southern District of New York, a jury found British Attorney
Michael Little (who is also licensed to practice law in New York) guilty of
obstructing and impeding the due administration of the internal revenue laws,
failing to file personal income tax returns from 2005 to 2010, willfully
failing to file reports of foreign bank and financial accounts, conspiracy to defraud
the United States, and aiding and assisting the preparation of false tax
returns. The conviction was in connection with Little's participation in an
11-year tax fraud scheme in which he advised and helped the American Seggerman
family to defraud the Internal Revenue Service by hiding approximately $14
million in overseas Swiss bank accounts and by other means, failed to file his
own personal tax returns, and assisted in the filing of false tax returns.
Oppenheimer
And Euro Pacific Duke It Out In $35 Million Unfair Competition
Arbitration (BrokeAndBroker.com
Blog) Today's BrokeAndBroker.com Blog presents an old-fashioned
knock-down-drag-out fight involving former employer Euro Pacific Capital, its
former employee Steven Savoy, and his new employer Oppenheimer & Co. From
the opening bell, it's obvious that there's more than a tad of bad blood
between the former employer and employee. We got Euro Pacific comin' out
swingin' and seeking to land a knock-out in the form of an extensive permanent
injunction. In fact, before Euro even gets into the FINRA arbitration ring, the
firm gets in a few shots during a preliminary bout in federal court. The fans
were expecting a tag team between Oppenheimer and Savoy but the latter was
nowhere to be found.
http://www.rrbdlaw.com/3915/securities-industry-commentator/
In today's
Securities Industry Commentator feed:
SEC Obtains Emergency Freeze of $27 Million in Stock Sales of Purported Cryptocurrency Company Longfin (SEC Litigation Release No. 24106) The United States District Court for the Southern District of New York ("SDNY") granted the SEC's request for a court order freezing over $27 million in trading proceeds from allegedly illegal distributions and sales of restricted shares of NASDAQ-listed Longfin Corp. stock involving the company, its founding CEO and controlling shareholder, Venkata Meenavalli,, and corporate secretary and Longfin director Amro Izzelden "Andy" Altahawi, Dorababu Penumarthi, and Suresh Tammineedi. Longfin's stock price dramatically increased following announcement of the company's acquisition of a purported cryptocurrency business.
Former Wealth Manager Sentenced for Wire Fraud,
Identity Theft, and Money Laundering (DOJ Press Release) Following his
guilty pleas, former wealth manager Leon A. Smith was sentenced today to 51
months in federal prison for wire fraud, identity theft, and money laundering
in connection with his stealing nearly $1.3 million from professional athlete
clients and misusing their identities during a scheme that ran from September
2011 through January 2015. Also, Smith was ordered to forfeit
$1,298,506.82.
INVESTOR ALERT: PONZI SCHEMES TARGETING SENIORS (SEC Investor
Alert)
The SEC's Office of Investor Education and Advocacy (OIEA) and Retail Strategy
Task Force issued a warning to investors about Ponzi schemes that prey on
senior investors.
LPL,
RR, BD, IRS, U5, FINRA, And AWC (BrokeAndBroker.com
Blog)
A word to the wise: It's tax season! A word to the wary: It's tax season! As
folks are scrambling around to come up with the funds for this year's tax bite,
it's inevitable that many will come up short. Some will beg. Some will borrow.
Some will steal. It's easy enough to urge you to keep a close eye on transfers
out of your bank and brokerage accounts, but what about your elderly
grandparents, parents, and other family-members and friends? Similarly, what
about those in failing health that compromises their abilities to monitor their
finances? Today's BrokeAndBroker.com Blog sets off a bright,
red warning flare in the form of a Financial Industry Regulatory Authority
settlement involving a wayward stockbroker who apparently engaged in a bit of
self-help when it came to paying her taxes.
FINRA Department of Enforcement, Complainant,
v. Gerard Chandler Gremillion, Respondent. (FINRA OHO Hearing
Panel Amended Decision, FINRA Proceeding No.
2015044600801, April 5, 2018)
Respondent Gremillion , representing himself pro se, was found to have
willfully failed to update his Form U4 to disclose two tax liens, a bankruptcy
filing, and a civil monetary judgment, and provided a false answer in an
amendment to his Form U4. For these violations, Respondent is suspended from
associating with any FINRA member firm in any capacity for two years and fined
$20,000. The Panel's finding of willfulness subjects him to statutory
disqualification. Respondent is also assessed the costs of the hearing.
SEC Voluntarily Dismisses Claims Against Benjamin
Wey and Co-Defendants (SEC Litigation
Release No. 24105 / April 9, 2018) Securities and Exchange Commission
v. Benjamin Wey, et al. (SDNY, 15-CV-07116) As set forth in the SEC's
Litigation Release: on September 1, 2017, the Securities and Exchange
Commission voluntarily dismissed its claims against defendants Benjamin Wey,
New York Global Group, Michaela Wey, Robert Newman, and William Uchimoto. On
September 1, 2017 and October 27, 2017, the SEC voluntarily dismissed its
claims against relief defendants Advantage Consultants, Ltd., York Capital
Management, Ltd., Four Tong Investments, Ltd., Strong Growth Capital, Ltd.,
Median Assets Investments, Ltd., and Han Hua, Ltd., as those entities had been
dissolved. On March 8, 2018, the SEC voluntarily dismissed its claims against
Tianyi Wei.
SEC Charges Texas Company, Principals in
Multimillion Dollar Ponzi Scheme Targeting Seniors (SEC Press
Release 2018-63) The SEC filed a Complaint in the
United States District Court for the Southern District of Texas charging
two Texas companies and their principals in a $2.4 million Ponzi scheme and in
a related, $1.4 million offering fraud targeting retirees. Securities and
Exchange Commission, Plaintiff, v. The LIfepayGroup, LLC, SMDRE
LLC, Clifton E. Stanley, and Michael E. Watts, Defendants
http://www.rrbdlaw.com/3913/securities-industry-commentator/
In today's
Securities Industry Commentator feed:
Setting The
Record Straight By Bill Singer, Esq. (BrokeAndBroker.com
Blog) I am angered by reports that article(s) have appeared online that
allegedly use my image (without my express permission) and attribute comments
to me that I deem a grotesque distortion of what I believe, have stated and/or
published. Similarly, I post online comments using my own name with links back
to my websites or social media; and any purported postings by a
"Bill" that imply my authorship are fraudulent to that extent.
In anticipation of the institution of
proceedings by the SEC but without admitting or denying the findings,
Securities America Advisors, Inc. submitted an Offer of Settlement,
which the federal regulator accepted. In the Matter of Securities America Advisors,
Inc., Respondent (Order Instituting Administrative And
Cease-And-Desist Proceedings, Making Findings, And Imposing Remedial Sanctions
And A Cease-And-Desist Order; Invest. Adv.
Act Rel. No. 4876; Admin. Proc. File No. 3-18424 / April 6, 2018) (the
"OIP In addition to ceasing and desisting from further securities laws
violations and being Censured, Securities America Advisors agreed to pay
$5,828,448.64 in disgorgement, prejudgment interest, and a civil monetary
penalty. As set forth in the "Summary" section of the OIP, these
proceedings arise out of breaches of fiduciary duty, inadequate disclosures,
and deficiencies in compliance policies and procedures by registered investment
adviser SAA in connection with its mutual fund share class selection practices.
In anticipation of the institution of
proceedings by the SEC but without admitting or denying the findings, PNC
Investments LLC, submitted an Offer of Settlement, which the
federal regulator accepted. In the Matter of PNC Investments
LLC, Respondent (Order Instituting Administrative And
Cease-And-Desist Proceedings, Making Findings, And Imposing Remedial Sanctions
And A Cease-And-Desist Order; '34 Act Rel.
No. 83004;Invest. Adv. Act Rel. No. 4878; Admin. Proc. File No. 3-18426 / April
6, 2018) (the "OIP"). In addition to ceasing and desisting from
further securities laws violations and being Censured, PNC Investments
LLC agreed to pay $5,847,200 in disgorgement, prejudgment interest, and a
civil monetary penalty, and also $497,144 in disgorgement, $63,426
prejudgment interest, and a $900,000 civil monetary penalty . As set
forth in the "Summary" section of the OIP, these proceedings arise
out of improper mutual fund share class selection and billing practices by
PNCI, a registered investment adviser and broker-dealer.
In anticipation of the institution of proceedings by the SEC but without admitting or denying the findings, Geneos Wealth Management, Inc. submitted an Offer of Settlement, which the federal regulator accepted. In the Matter of Geneos Wealth Management, Inc., Respondent (Order Instituting Administrative And Cease-And-Desist Proceedings, Making Findings, And Imposing Remedial Sanctions And A Cease-And-Desist Order; '34 Act Rel. No. 83003; Invest. Adv. Act Rel. No. 4877; Admin. Proc. File No. 3-18425 / April 6, 2018) (the "OIP"). In addition to ceasing and desisting from further securities laws violations and being Censured, Geneos Wealth Management, Inc. agreed to pay $1,135,129.07 in disgorgement and prejudgment interest, and $422,933.06 in disgorgement and prejudgment interest, and a $250,000 civil monetary penalty. As set forth in the "Summary" section of the OIP, these proceedings arise from a series of failures by Geneos, a registered investment adviser and broker-dealer, in connection with its mutual fund share class selection practices and its receipt of revenue sharing payments.