July 26, 2018
Three Defendants Charged In White Plains Federal Court With "Forced Posting" Fraud (DOJ Press Release)
File this one under it's not everyday that I learn something new and fascinating and, at the same time, am torn between being angry with alleged criminals but, on the other hand, also have a bit of admiration that someone has thought up something that is so original that you sort of wish that they had used all of their brainpower for good rather than the alleged evil. In any event, all that ambivalence aside, Latoya Robinson, Dashawn Johnson, and Tanya Hatwood were each charged in a Complaint filed in the United States District Court for the Southern District of New York with one count of conspiracy to commit wire fraud and one count of wire fraud. Robinson and Johnson were arrested but Hatwood remains at large. READ the FULL TEXT Complaint https://www.justice.gov/usao-sdny/press-release/file/1083111/download
There's no way that I can do the allegations more justice than simply citing to the pertinent part of the DOJ Press Release:
When a customer presents a debit card to purchase merchandise at a store and the card is swiped at an electronic card reader maintained by the merchant, electronic signals are routed from the merchant to the brand of the customer's debit card, and then routed to the underlying bank that issued the debit card. The bank then verifies whether the customer has sufficient funds in the account to cover the requested transaction, which is then relayed back to the merchant. When there are insufficient funds on the debit card presented by the customer, the card reader will display a message that the transaction request was denied.
Many card readers have a functionality, though, that allows someone to input a code that serves to take the card reader offline, overriding the denial message and verifying the transaction. Malign actors can take advantage of this functionality by inputting a fictitious code not provided by the issuing bank under the guise of entering a pin code or other authorization code, which could cause the card reader to show that the transaction was authorized. The merchant may then let the customer leave with any merchandise the customer attempted to purchase; the merchant would not learn that the code was fictitious and the transaction invalid until days or even months later. The process by which a customer could take advantage of the functionality is called "forced posting" or "forcing the off."
Bank records, corroborated by interviews with more than 30 merchants, show that from 2013 up to May 2018, LATOYA ROBINSON, DASHAWN JOHNSON, and TANYA HATWOOD, together and separately, performed forced posting on dozens of occasions, and schemed to take or attempt to take more than $900,000 in merchandise in total.
The United States District Court for the Northern District of Texas ordered both Relief Defendants Tamra M. Freedman (ex-wife of Chris Faulkner, the self-proclaimed "Frack Master,") and Jetmir Ahmedi (one of the purported Frack Master's friends), to disgorge $900,000 and $222,000, respectively. Fitzwater also entered a final judgment against on February 21, 2018, ordering Ahmedi to disgorge $222,000. The SEC charged Faulkner and 11 other defendants for their roles in an alleged $80 million oil-and-gas securities fraud scheme. In settling with the SEC, Freedman and Ahmedi neither admitted nor denied the allegations in the SEC's complaint. The United States Attorney's Office for the Northern District of Texas filed a criminal complaint against Faulkner that alleged, among other things, that Faulkner committed securities fraud, mail fraud, and money laundering. As impressed as I guess I should be by the self-proclaimed Frack Master, alas, I never heard of him. These days, just about everyone is self-proclaiming something. Fact is, I have often heard myself referred to as "Bill Singer, legal genius and master of all things regulatory and compliance on Wall Street." Now, in all candor, I am usually the one whispering those accolades but, you know, just because I'm voicing all those compliments does not mean that I have not heard myself referred to in the cited glowing terms, right? Further, if a self proclamation is voiced in the woods and the self proclaimer hears it, then the self proclaimer has heard self proclamations about himself.
Bucks County Stock Broker Sentenced to 10 Months in Federal Prison for Insider Trading (DOJ Press Release)
Kevin Hamilton pled guilty in the United States District Court for the Eastern District of Pennsylvania to two counts of securities fraud and was sentenced to 10 months in prison, ordered to pay $635,000 in restitution and to forfeit $656,421.11. As set forth in part in the DOJ Press Release:
First, in 2009 and 2010, Hamilton abused his position as a principal of the Philadelphia Brokerage Corporation ("PBC") to engage in illegal insider trading in connection with the stock of BMP Sunstone Corporation. As one of three principals of PBC, Hamilton provided brokerage services to PBC's clients while another principal was responsible for PBC's investment banking business. In his role, Hamilton obtained access to material, non-public information about BMP Sunstone's potential sale from the investment banking side of PBC's business and then provided this inside information to some of his brokerage clients. In addition, Hamilton used this information to trade in his clients' discretionary accounts with PBC and to make trades in his personal account. These activities breached PBC's clear policies against insider trading and PBC's duty to BMP Sunstone to keep this information confidential. As a result of this activity, Hamilton, his clients, and tippees reaped over $2.3 million in illegal profits.
You enter into an agreement to do something. You think you did it. The other party to the agreement may think that you didn't. Such is the simple setting of the stage for a lawsuit. In today's BrokeAndBroker.com Blog, we have a FINRA arbitration in which an associated person apparently believes that he raised money for a customer and is entitled to a commission in the form of cash and units. Since the matter is being litigated, the customer apparently saw things differently. The fascinating aspect of the dispute is that it presents us with the oddity of a FINRA arbitration in which an associated person is suing a customer -- as much a man bites dog story as exists on Wall Street. That being said, we're going to need a pooper-scooper by the time we've finished reading the FINRA Arbitration Decision.
Two Former Deutsche Bank Traders Charged With Deceptive and Manipulative Trading Practices in U.S. Commodities Markets (DOJ Press Release)
Former Deutsche Bank AG employees James Vorley and Cedric Chanu were indicted in the United States District Court for the Northern District of Illinois each on one count of conspiracy to commit wire fraud affecting a financial institution and one count of wire fraud affecting a financial institution The two Defendants allegedly engaged in a conspiracy that included former Deutsche Bank AG trader David Liew to defraud other traders on the Commodity Exchange Inc., which was an exchange run by the Chicago Mercantile Exchange Group. The conspirators allegedly placed fraudulent orders that they did not intend to execute in order to create the appearance of false supply and demand and to induce other traders to trade at prices, quantities and times that they otherwise would not have traded. READ the FULL TEXT Indictment https://www.justice.gov/opa/press-release/file/1083116/download
In a nine-count indictment filed in the United States District Court for the Eastern District of New York, former licensed financial advisor and registered broker-dealer affiliate Stephen Pagartanis was charged with securities fraud, mail and wire fraud conspiracies, and money laundering. The Indictment alleges that. from January 2000 to March 2018, Pagartanis solicited elderly victims to invest in real estate-related investments and promised the victims that their principal would be secure and earn a fixed return, which he typically claimed to be between 4.5 to 8 percent annually. Pagartanis allegedly obtained over $13 million and then used the investors' funds to pay personal expenses, buy luxury items and make the guaranteed "interest" or "dividend" payments to other victims. The Indictment investors sustained in excess of $8 million in losses, which often represented a substantial portion of a victim's life savings. READ the FULL TEXT Indictment https://www.justice.gov/usao-edny/press-release/file/1083051/download In the Matter of Royal Alliance Associates, Inc., FSC Securities Corporation, SagePoint Financial, Inc., and Woodbury Financial Services, Inc, Respondents (AWC 2016047636601 , July 24, 2018). 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, Royal Alliance Associates, Inc., FSC Securities Corporation, SagePoint Financial, Inc., and Woodbury Financial Services, Inc. submitted a Letter of Acceptance, Waiver and Consent ("AWC"), which FINRA accepted. In accordance with the terms of the AWC, all Respondents were Censured, agreed to certify aspects of supervisors of multi-class variable annuities and additionally for Royal Alliance the monitoring of 1035 exchange rates; and the following fines imposed: Royal Alliance: $350,000; FSC: $200,000; Sage Point: $200,000; and Woodbury: $250,000. As set forth under the "Overview" portion of the AWC:
Royal Alliance (between February 2014 and December 2015) and FSC,
SagePoint, and Woodbury (between January 2013 and December 2014) failed to
establish, maintain and enforce a supervisory system and written procedures
designed to reasonably supervise representatives' sale of multi-share class
variable annuities and failed to provide training to their representatives and
principals on the sale and supervision of multi-share class variable annuities. As a
result, the Advisor Group Firms violated FINRA Rules 2330(d) and (e), NASD
Rule 3010 (for conduct before December 1, 2014), F1NRA Rule 3110 (for
conduct on and after December 1, 2014), and FINRA Rule 2010.
In addition, Royal Alliance (between February 2014 and March 2016) failed to
reasonably supervise variable annuity exchanges in that it failed to implement a
reasonable supervisory system and procedures to determine if any of its registered
representatives had inappropriate rates of variable annuity exchanges. As a result,
Royal Alliance violated FINRA Rule 2330(d), NASD Rule 3010 (for conduct
before December 1, 2014), FINRA Rule 3110 (for conduct on and after December
1, 2014), and FINRA Rule 2010.
In the Matter of National Planning Corporation, Investment Centers of America, Inc., SII Investments, Inc., and IFC Holdings, Inc. (a/k/a) INVEST Financial Corporation, Respondents (AWC 2015047177001, July 24, 2018). 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, National Planning Corporation, Investment Centers of America, Inc., SII Investments, Inc., and IFC Holdings, Inc. (a/k/a) INVEST Financial Corporation submitted a Letter of Acceptance, Waiver and Consent ("AWC"), which FINRA accepted. In accordance with the terms of the AWC, all Respondents were Censured and the following fines imposed: NPC: $650,000; ICA: $115,000; SII: $325,000; and IFC: $600,000. Also, NPC, SII and IFC agreed to various undertakings. As set forth under the "Overview" portion of the AWC:
Between January 2013 and June 2015 (the "Relevant Period"), NPC, ICA, SII, and IFC failed to
establish, maintain and enforce a supervisory system and written procedures, and develop and
document specific training reasonably designed to ensure that representatives' recommendations
of variable annuities complied with applicable securities laws and regulations, and FINRA Rules.
As a result, the National Planning Firms violated FINRA Rule 2330(d) and (e), NASD Rule
3010 (for conduct before December 1, 2014), FINRA Rule 3110 (for conduct on and after
December 1, 2014) and FINRA Rule 2010. NPC, SII and IFC also failed to detect red flags in
their principal review and approval of the sale of certain multi-share class variable annuities. As
a result, NPC, SII and IFC violated FINRA Rule 2330(c), NASD Rule 3010 (for conduct before
December 1, 2014), FINRA Rule 3110 (for conduct on and after December 1, 2014) and FINRA
In addition, between April 1, 2010 and March 30, 2015, ICA and SII failed to establish, maintain
and enforce a supervisory system and written procedures reasonably designed to ensure that
customers received sales charge discounts on all eligible purchases of Unit Investment Trusts
("UITs"), in violation of NASD Rule 3010 (for conduct before December 1, 2014), FINRA Rule
3110 (for conduct on and after December 1, 2014) and FINRA Rule 2010.