Securities Industry Commentator by Bill Singer ESQ WEEK IN REVIEW

September 1, 2018


New York Man Is Indicted For Scamming North Carolina Victims In Investment Fraud Scheme While He Was Being Prosecuted For Similar Scam In Another State (DOJ Release) Rudolph Carryl was indicted  in the United States District Court for the Western District of North Carolina by a federal grand jury on charges of securities fraud, wire fraud, and money laundering.  Carryl, who allegedly held himself out as an investment advisor, purportedly operated Carryl Capital Management (CCM), an investment management firm with offices in New York City.  

In any event Norbert or Habib, or, you know, whoever -- whomever -- I'm just going to go with Norbert because I've never known anyone by that name and it has a lovely ring to it. Norbert, you truly don't need to apologize for offering me this wonderful opportunity to obtain the unclaimed millions that were abandoned at a reputable financial security institution by an unnamed deceased person. If you know the dearly departed, please send my condolences to his family -- and, sure, you have my permission to do so in a top secret fashion in keeping with the nature of your proposed transaction. As to that reputable financial security institution, excuse my hesitation, but after some 37 years working on Wall Street, I can't quite think of any financial institution that I would honestly call "reputable," but why quibble over an adjective when there's so much unclaimed money sitting around in the dead guy's account, he should only rest in peace but maybe not directly on my money. If you can, scooch him over just a bit, okay? Wash your hands afterwards.

In the Matter of Donald F. ("Jay") Lathen, Jr., Eden Arc Capital Management, LLC, and Eden Arc Capital Advisors, LLC (Initial Decision on Equal Access to Justice Act Application; Initial Decision Release No. 1259; Administrative Proceeding File No. 3-17387) On August 16, 2017,  SEC Administrative Law Judge Jason S. dismissed the proceeding against Donald F. Lathen, Jr., Eden Arc Capital Management, LLC (EACM), and Eden Arc Capital Advisors, LLC (EACA), finding that they had committed no violations of the securities laws. On December 5, 2017, EACM and EACA filed an application under the Equal Access to Justice Act (EAJA)for the recovery of legal fees and expenses. Although the ALJ found that the Applicants meet EAJA's eligibility requirements, he also found that the Division's position in the litigation was substantially justified, and , accordingly, denied the application. READ the FULL TEXT Initial Decision. 

(SEC Litigation Release No. 24251) In a Complaint filed in the United States District Court for the Northern District of California, the SEC charged Amer Deeba, the former Chief Commercial Officer of Qualys, Inc. (a cloud security and services company) with insider trading by tipping his brothers in advance of the company's announcement of poor financial results, thus helping them avoid losses of over half a million dollars. Although Deeba made no profits from his conduct, his brothers collectively avoided $581,170 in losses. Without admitting or denying the allegations, Deeba settled the charges by agreeing to a bar from serving as an officer or director of any SEC-reporting company for two years; to the entry of a final judgment permanently enjoining him from future violations of Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder; and to a $581,170 penalty.READ the FULL TEXT Complaint 




CFTC Orders BNP Paribas to Pay $90 Million Penalty for Attempted Manipulation and False Reporting of U.S. Dollar ISDAFIX Benchmark Swap Rates (CFTC Release 7776-18) CFTC issued an Order filing and settling charges against BNP Paribas Securities Corp. for attempted manipulation of the ISDAFIX benchmark and requiring BNP Paribas to pay a $90 million civil monetary penalty. The CFTC Order finds that beginning in or about May 2007 and continuing through at least August 2012, BNP Paribas attempted to manipulate the U.S. Dollar International Swaps and Derivatives Association Fix (USD ISDAFIX), a leading global benchmark referenced in a range of interest rate products, to benefit BNP Paribas's derivatives positions in instruments such as cash-settled options on interest rate swaps and certain exotic structured products.  BNP Paribas's unlawful conduct involved multiple traders and included supervisors. In addition to the $90 million civil monetary penalty, the Order requires BNP Paribas to cease and desist from further violations as charged, and take specified remedial steps, including measures to detect and deter trading intended to manipulate swap rates such as the USD ISDAFIX, to ensure the integrity and reliability of the Bank's benchmark submissions, and to improve related internal controls. In accepting the BNP Paribas's Offer, CFTC recognized the bank's cooperation with the Division of Enforcement's investigation, and the federal regulator purportedly took note that the bank had "commenced significant remedial action to improve internal controls and policies related to all benchmarks, including ISDAFIX and its successor benchmark, independent of the Commission's investigation." READ the FULL TEXT CFTC Order 

Investment Adviser Admits Stealing Millions Of Dollars From Clients (DOJ Press Release) Former broker and investment adviser Gary Basralian pled guilty in the United States District Court for the District of New Jersey to an Information charging him with one count each of wire fraud and investment adviser fraud. From July 2007 through November 2017, Basralian defrauded his clients by falsely telling them that he would invest their money in securities and other investments when, in fact, he admitted to stealing at least $2 million, and misappropriated those funds and used them for his own personal expenditures - including payments on a BMW automobile and tens of thousands of dollars in credit card bills. On May 22, 2018, the N.J. Bureau of Securities in the Office of the N.J. Attorney General issued a summary revocation order against Basralian that revoked his agent and investment adviser representative registrations. READ the FULL TEXT Information 

https://ww.riabiz.com/a/2018/8/30/lisbeth-cherringtons-long-strange-career-fraught-with-regulatory-actions-takes-another-bizarre-turn-over-her-latest-finra-sanction-lying-about-her-age An ongoing saga continues. 

GUEST BLOG: Twits or Tweeters by Aegis Frumento Esq (BrokeAndBroker.com Blog) Musk was a twit for tweeting out his half-baked idea in the first place, but that the investing public would buy close to $12 billion in Tesla stock on a tweet says more about us than about him. People bet on Tesla going private because Elon Musk thought about it out loud on Twitter. But people bet on lots of things for no good reason. Since Tesla is not actually going private, and Musk never said that it was, what stance should securities law take?

Brazilian Man Extradited From Switzerland For Defrauding Financial Institutions And Identity Theft (DOJ Release) Pursuant to a Complaint and and Indictment filed in the United States District Court for the Southern District of New York, Marcos Elias was charged with one count each of conspiracy to commit wire fraud, wire fraud, and receipt of stolen property; and two counts of aggravated identity theft, The charges are in connection with Elias's alleged role in fraudulently obtaining over $750,000 at financial institutions using false representations and the stolen identities of Brazilian account holders. The alleged wire fraud scheme used a front company in Panama and a bank account in Luxembourg. READ the FULL TEXT Complaint and Indictment 

SEC Charges New Jersey Man with Fraud in Selling Online Gaming Company Stock (SEC Litigation Release No. 24248) In a Complaint filed in the United States District Court for the District of New Jersey, the SEC alleged that Snady J. Masselli, the Chairman and CEO of various entities including Carlyle Gaming & Entertainment Ltd. and Carlyle Entertainment Ltd., fraudulently raised some $3 million from investors. The Complaint alleged that Masselli falsely claimed that the companies were on the verge of conducting a lucrative initial public offering and would soon be listed on major U.S. stock exchanges. Masselli allegedly used investors' money to pay personal expenses. READ the FULL TEXT COMPLAINT

SEC Obtains Partial Judgment in $135 Million Real Estate Investment Scheme (SEC Litigation Release No. 24247) In a Complaint filed in the United States District Court for the Northern District of Illinois, the SEC  alleged that Defendants Equitybuild, Inc. Equitybuild Finance, LLC, Jerome H. cohen, and Shaun D. Cohen sold at least $135 million in unregistered promissory notes to at least 900 investors throughout the country.The Court entered a partial judgment against defendants Jerome Cohen and Shaun Cohen that imposes a permanent injunction against future violations by Jerome Cohen and Shaun Cohen of the antifraud provisions of cited sections of the '33 and '34 Acts; and further prohibits Jerome and Shaun Cohen from soliciting any new investors for the remaining duration of the litigation. The Cohens consented to the previously entered order appointing a receiver to continue until the final disposition of the case.

SEC Charges Founder of Medical Marijuana Company in Sale of Unregistered Securities (SEC Litigation Release No. 24246)  In a Complaint filed in the United States District Court for the District of Maine, the SEC alleged that Richard J. Greenlaw raised approximately $500,000 from at least 59 investors by offering securities in 20 cannabis-related entities that he formed, which purportedly sold medical marijuana products that did not contain the chemical THC. Allegedly, although no registration statement was on file or in effect with the SEC, Greenlaw sold ownership interests in the companies by posting advertisements on Craigslist, and responded to investor queries with securities offering documents and sales materials. Greenlaw and the 20 cannabis-related entities consented to the entry of a final judgment imposing permanent injunctions; and Greenlaw consented to a conduct-based injunction. The settlement also requires Greenlaw to pay disgorgement and prejudgment interest of $340,142 and a civil penalty of $50,000. READ the FULL TEXT Complaint 

SEC Charges NFL Player and Former Investment Banker With Insider Trading (SEC Release) In a Complaint filed in the United States District Court for the Eastern District of Pennsylvania, the SEC alleged that professional football player Mychal Kendricks and a former investment banker Damilare Sonoiki engaged in insider trading in advance of corporate acquisitions facilitated through coded text messages and FaceTime conversations. The Complaint alleges that Kendricks made $1.2 million in illegal profits, and, thereafter rewarded Sonoiki. The U.S. Attorney's Office for the Eastern District of Pennsylvania today announced parallel criminal charges against Kendricks and Sonoiki.
READ the FULL TEXT SEC COMPLAINT 


SEC Charges Moody's With Internal Controls Failures and Ratings Symbols Deficiencies (SEC Release 2018-169) Without admitting or denying SEC charges, credit rating agency Moody's Investors Service Inc. agreed to pay $15 million to settle charges of internal controls failures involving models it used in rating U.S. residential mortgage-backed securities (RMBS) and will retain an independent consultant to assess and improve its internal controls. Also, Moody's agreed to pay $1.25 million and to review its policies, procedures, and internal controls regarding rating symbols. This marks the first SEC enforcement action involving rating symbol deficiencies. One SEC order alleged that, in part, Moody's failed to establish and document an effective internal control structure as to models that Moody's hadoutsourced from a corporate affiliate and used in rating RMBS from 2010 through 2013. Moreover, Moody's failed to maintain and enforce existing internal controls that should have been applied to the models. Ultimately, Moody's corrected more than 650 RMBS ratings with a notional value exceeding $49 billion, due, in part, to errors in the models. Also, in 54 instances, Moody's failed to document its rationale for issuing final RMBS ratings that deviated materially from model-implied ratings. The second SEC Order addressed 
rating symbols, for 26 ratings of securities known as "combo notes" with a total notional value of about $2 billion. Allegedly, Moody's assigned ratings to combo notes in a manner that was inconsistent with other types of securities that used the same rating symbols. READ the FULL TEXT SEC Orders 

U.S. States, Canada, Continue Crackdown on Crypto Investments (TSSB Release). In the last six months of 2017 the price of one bitcoin increased from $2,364 to an all-time high of $19,205, driving an increase in promoters illegally and fraudulently using online advertising, social media, and other public solicitations to attract investors. By the end of 2017 the market capitalization of all cryptocurrencies had skyrocketed to more than $500 billion. In response to concerns about Initial Coin Offerings ("ICOs") fraud, U.S. state and Canadian securities regulators  have taken 47 enforcement actions against fraudulent cryptocurrency-investment promoters and opened more than 200 investigations since May 1. READ the FULL TEXT Release.

Two Friends, Their Option Deal, A Stockbroker, His Restaurant, UBS, And FINRA (BrokeAndBroker.com Blog) All that BrokeAndBroker.com Blog publisher Bill Singer wanted to do was go on a Labor Day vacation and publish a few puff pieces to hide his absence. But no, FINRA had to go out and work over a registered rep for his alleged violation of the regulator's Private Securities Transactions and Outside Business Activities rules. Bill doesn't like either of those rules -- at least as they are written. He thinks that they are too often speed traps on FINRA's regulatory highway. Bill ain't pulling no punches in today's slice-and-dice analysis.




Legg Mason Charged With Violating the FCPA (SEC Release 2018-1680) The SEC alleged that between 2004 and 2010, a former Legg Mason Inc's asset management subsidiary, Permal Group Inc., partnered with a French financial services company to solicit investment business from Libyan state-owned financial institutions. As a result of the corrupt scheme involving bribery, Legg Mason, through its Permal subsidiary, was awarded business tied to $1 billion of investments that produced about $31.6 million net revenues Pursuant to an SEC Order, Legg Mason agreed to disgorge approximately $27.6 million of ill-gotten gains plus $6.9 million in prejudgment interest to settle the SEC's case. Previously, the firm agreed to pay $33 million to the U.S. Department of Justice in sanctions resulting from the firm's involvement in the Libyan bribery scheme.  READ the FULL TEXT ORDER 

Statement on Status of the Consolidated Audit Trail (Brett Redfearn, Director, SEC Division of Trading and Markets) Director Redfearn warns, in part, that: To date, the SROs have not begun reporting required data to the CAT as required by the first phase of the SRO CAT Plan.  There continue to be delays in the SROs' development and build of the CAT, and, recently, the SROs and Thesys have missed new, self-imposed deadlines.  The SROs' currently expected timetable for compliance with their obligations under the CAT Plan is discussed below.  READ the FULL TEXT STATEMENT

Date Of Birth On Driver License Crashes Stockbroker Career (BrokeAndBroker.com Blog) There's poetic license and there's your driver's license. Of course, we all know folks who sort of take liberties at the MVA with facts such as whether they really, really, really need glasses to drive. We also know folks who may add just a teeny, tiny inch or so to their height when filling out the renewal form. Then there are those who simply aren't willing to go under the knife for plastic surgery and prefer to estimate the year of their birth. Not that it's a good thing to lie on your driver's license but, hell, it's not a good thing when they send you to the window under the green light to pay the fee and after about 20 minutes waiting on that line, the MVA employee closes the window for a break and sends you to the line behind the other green light where they won't take you next even though you were waiting for, what is now, like 30 minutes, and then they start in with the thing about lowering your voice, and then it's I'm done talking to you, and if you don't move away from my closed window, I'm calling security, to which, the guy waiting on line who is now red in the face and with trembling hands says to the security guard, yeah, go ahead, put your hands on me again and I'll show you what I'll do with that green light! But, okay, sure, let's not get into that whole MVA line-thing now because today's BrokeAndBroker.com Blog is about the consequences faced by a stockbroker who lied about her date of birth on her driver's license. 

Transamerica Entities to Pay $97 Million to Investors Relating to Errors in Quantitative Investment Models (SEC Release 2018-167) The SEC alleged that investors put billions of dollars into mutual funds and strategies using faulty models developed by investment adviser AEGON USA Investment Management LLC (AUIM). AUIM, its affiliated investment advisers Transamerica Asset Management Inc. (TAM) and Transamerica Financial Advisors Inc., and its affiliated broker-dealer Transamerica Capital Inc., claimed that investment decisions would be based on AUIM's quantitative models. In fact, the models were purportedly developed solely by an inexperienced, junior AUIM analyst. Further, the SEC alleged that the models contained numerous errors, and did not work as promised. When AUIM and TAM learned about the errors, they allegedly stopped using the models without telling investors or disclosing the errors. Without admitting or denying the SEC's findings, four Transamerica entities agreed to settle the SEC's charges and pay nearly $53.3 million in disgorgement, $8 million in interest, and a $36.3 million penalty, and will create and administer a fair fund to distribute the entire $97.6 million to affected investors. In separate orders, the SEC also found that AUIM's former Global Chief Investment Officer, Bradley Beman, and AUIM's former Director of New Initiatives, Kevin Giles, each were a cause of certain of AUIM's violations. In particular, the Commission found that Mr. Beman did not take reasonable steps to make sure the mutual funds' models worked as intended and that Mr. Beman and Mr. Giles both contributed to AUIM's compliance failings related to the development and use of models. Beman and Giles agreed to settle the SEC's charges without admitting or denying the findings and pay, respectively, $65,000 and $25,000 in penalties that also will be distributed to affected investors. 
READ the FULL TEXT Orders.

FINRA Dept of Enforcement, Complainant, v. David JC Bolton, Respondent (Default Decision, Office of Hearing Officer, Disciplinary Proceeding No. 2016049775701) FINRA Complaint alleged that Respondent Bolton engaged in unsuitable short-term trading of Class A mutual fund shares in the accounts of his two largest customers, and unsuitably split one of the customer's mutual fund investments into 42 different funds across 11 fund families. Bolton's customers allegedly paid $24,747 in unnecessary sales charges. In connection with the same two customers, the Complaint alleged that Bolton caused his member firm employer to maintain inaccurate books and records by mismarking or causing others to mismark as "unsolicited" 120 electronic order tickets. Finally, the Complaint alleged that Bolton caused his firm employer to fail to preserve accurate books and records by taking the files of his customers with him when he transferred to another firm and later destroyed those files. Respondent is barred from associating with any FINRA member firm in any capacity for having caused a member firm to maintain inaccurate books and records and caused a member firm to fail to preserve books and records.

Thousand Oaks Man Sentenced to Nearly Five Years in Federal Prison in $11 Million Bank Fraud Case (DOJ Release) Mohsen Hass a/k/  "Mike Hass" and "Mohsen Hassanshahi," pled guilty in the United States District  for the Central District of California to one count of making false statements to a financial institution in connection with his fraudulent scheme by which he obtained over $11 million in loan to buy a gas station and two car washes. Lenders suffered losses when Hass defaulted on the loans. At least one bank insider, Ataollah Aminpour, participated in the scheme and allowed loans to go through despite knowing about the false information. Aminpour pled guilty and is pending sentencing. Although initially charged in 2014, Hass fled to Iran for nearly four years before surrendering in February 2018.  Hass was sentenced to 57 months in prison and ordered to pay $5,737,585 in restitution.


Entertainment Industry Business Manager Convicted of Defrauding Celebrity Clients, Bankruptcy Fraud and Tax Charges (DOJ Release) Kevin R. Foster was convicted after a jury trial in the United States District Court for the Southern District of Ohio on 16 charges of wire fraud, money laundering, bankruptcy fraud, tax evasion and filing a false tax return, Foster, as the principal of his management/accounting firm, Foster & Firm, Inc., and as business manager for Shaffer Smith, a/k/a Ne-Yo, induced Smith to invest $2 million into OXYwater under false representations. Without his client's knowledge, Foster invested an additional $1.5 million of Smith's money into the product without his consent and fraudulently took out $1.4 million in lines of credit under Smith's name by forging his signature. Foster also defrauded a second celebrity client, Brian McKnight, as a way to secure money to help keep Imperial solvent. Foster also stole millions of dollars from Smith and McKnight's bank accounts in order to fund the operations of OXYwater as well as his own lavish lifestyle, including multiple luxury vehicles, a personal driver, designer watches, and season tickets to the New York Giants and New York Knicks. Smith and McKnight agreed to invest in the company, not knowing that Foster was receiving a substantial commission based on their investments, that he served as an officer/controller of Imperial and that he controlled an Imperial bank account. In addition, Foster failed to report on his 2012 and 2013 tax returns the millions of dollars that he stole from Smith and McKnight. He also claimed millions of dollars in bogus deductions in order to further reduce his tax liability.

Chicago Financial Advisor Guilty of Fraud for Swindling Investors and Family out of More Than $2 Million (DOJ Release) Vishal Savla, who operated the VCAP LLC investment fund, pled guilty in the United States District Court for the Northern District of Illinois to one count of wire fraud.  After raising about $2.3 million from investors, VCAP lost about 96% of its investors' funds in 2014 and over 99% in the first eleven months of 2016,  While continuing to solicit and accept investment cash, Savla hid the losses, in part, by  representing to clients that he accidentally committed a "fat finger trade, which cause a one-day loss of about 90%; in fact, no such error occurred. Further, Savla spent about $260,000 of investor funds for his own personal benefit, including living expenses. READ THE FULL TEXT PLEA AGREEMENT.

Ya Hear The One About The Stockbroker Who Listened to Idiots and Never Got His Record Expunged? (BrokeAndBroker.com Blog) So . . . this guy calls me a few weeks ago and tells me this story about how he's been in the biz for a few decades and when the markets crashed for the Great Recession, he got two customer complaints, one was bull shit and his firm told the customer to shove it, the other case, well, you know, he hadn't done anything wrong but the firm settled it for peanuts, nuisance value they told him, and he was pissed off because he hadn't done anything wrong, and he was all set to fight it to the bloody end, when his employer said just go with the flow and move on, but he said no way, and refused to pay one penny towards the few thousand in cash handed over in this extortion racket to the customer. We spent a couple of hours on the phone over a few calls and I got the details, which pretty much supported the guy's version of events -- plus, being the circumspect kind of fellow that I am, I poked around on my own and confirmed his whole tale of woe about how "I really, really, really didn't do anything wrong but they settled one of the complaints anyway." I set out the costs for undertaking the filing of two expungement claims, detailed all the what-ifs, and gave my opinion that this unhappy stockbroker had a damn good shot at expunging the unsettled matter and a very good shot at clearing out the settled one too. Perhaps the most challenging aspect of the battle-plan was whether to file an expungement for the unsettled matter first (at least get that mark quickly removed) and then, using the momentum so to speak, seek an expungement of the second matter without having to deal with a "Yes" answer for the first matter (which, at that point, would have been expunged). I also presented the option of simply filing a two-for-one FINRA arbitration expungement claim and saving some time and money. My preference was to opt for the two expungements in one application. A couple of weeks later, the stockbroker telephones me and says that he spoke to some guys in the office and they told him that you can't get a settled customer complaint expunged. No way that FINRA will ever do that, those geniuses opined. On top of that, if you have two -- count 'em -- two complaints, FINRA will never, ever expunge the settled one under such circumstances. In response, I summoned up my 36 years of savvy and experience on Wall Street and told the potential client that the idiots who told him that he couldn't get an expungement of a settled matter were, just that, idiots. Well, he said, they seemed to know what they were talking about. Are any of them lawyers, I asked. No but, again, they were positive that I would only be wasting my money. Sensing that this potential client had fallen asleep next to an idiot pod near the office water cooler that had been planted by one of the idiots giving him wrong advice, I wished him well and simply got on with my life, having lost two hours of time that I will never recapture. Oh, and just for the hell of it, I hope that he reads today's BrokeAndBroker.com Blog about another stockbroker who didn't pay attention to the legal advice dispensed around the office water-cooler and he now has two "YES" answers on their way to two "NO" answers.

CFTC Wins Trial against Virtual Currency Fraudster / Court Orders Defendants to Pay over $1.1 Million in Penalties and Restitution in Connection with the "Vicious Defrauding of Customers" (CFTC Release 7774-18) After a four-day bench trial, the United States District Court for the Easter District of New York entered final judgment ordering Patrick K. McDonnell and his company CabbageTech, Corp. d/b/a Coin Drop Markets. The CFTC had alleged that the defendants engaged in a virtual currency scheme to induce customers to send money and virtual currencies to CDM, purportedly in exchange for real-time expert virtual currency trading advice and for virtual currency purchasing and trading on behalf of the customers under McDonnell's direction. On a joint and several basis, the Defendants were ordered to pay $290,429.29 in restitution and a $871,287.87 civil monetary penalty; and they were permanently enjoined them from further violations of the Commodity Exchange Act and CFTC Regulations, as charged. READ the FULL TEXT Memorandum and Judgment/Order.

Ukrainian Sentenced for Trafficking in Hacked Financial Information / $31 Million Estimated Loss to Victims' Online Banking Accounts and Credit Cards (DOJ Release) Ruslan Yeliseyev sold stolen financial information on underground Russian-speaking criminal websites.  The information, which had been stolen from about 40,000 hacked computers, included over 62,000 credit card numbers as well as usernames and passwords to victims' online banking accounts. Following his extradition to the United States,Yeliseyev was sentenced today to six years in prison for trafficking stolen financial information obtained through computer hacking.