Securities Industry Commentator by Bill Singer Esq

October 8, 2018

Convicted Fraudster Sentenced To Five Years In Prison For $7 Million Ponzi Scheme (DOJ Release)
After a one-week trial, Kevin Kyes was convicted in the United States District Court for the Northern District of California of one count of conspiracy to commit wire fraud, seventeen counts of wire fraud, one count of conspiracy to commit money laundering, and two counts of money laundering in connection with a nearly $7 million Ponzi scheme involving over 60 Japanese investors and about $6.8 million. The jury acquitted Kyes of one count of wire fraud. Kyes worked with John Holdaway to defraud the Japanese investors through "Money Management Strategies," a business that purportedly would use investors' proceeds in high-speed trading programs with historical returns of well over 100% annually, and the principal investment would allegedly remain on deposit in a bank accounts against which a credit line would fund trading. Holdaway and Kyes did not invest the money but spent the money themselves and a gold-related business and to pay creditors, and further engaged in Ponzi-type payments back to investors. Kyes was sentenced to five years in prison for wire fraud and money laundering convictions plus three years of supervised release and ordered to pay over $3.6 million in restitution.  Holdaway pled guilty to one count of conspiracy to commit wire fraud and one count of filing false tax returns, and awaiting sentencing. 

10 Years After, World Is Changed For Ameriprise Stockbroker In FINRA Expungement ( Blog)
I'd love to change the world. The question is where to start. Take Wall Street, for example, where the overwhelming majority of customer complaints strike me as meritorious. On the other hand, after nearly four decades on the Street, I have concluded that the overwhelming majority of stockbrokers are honest, decent men and women. It is a continual battle reconciling my sense that most complaining customers are frequently right with the fact that many stockbrokers named in complaints are innocent of the alleged misconduct. In order to balance out those different aspects, it often turns out that in a given customer dispute, the employing brokerage firm is solely at fault rather than the individual associated person, or, a given product was toxic and the flaw hidden from the stockbroker; or, losses were sustained not from misconduct but from the vagaries of the markets involved. In trying to establish equilibrium, I also must accept the fact that some customers are full of crap and are merely trying to avoid losses and some stockbrokers are full of crap and are merely doing whatever it takes to make a sale. Pick any industry where there are customer relationships, however, and you'll likely find the same dynamic. It's not just Wall Street. When the two worlds of unhappy customers and indignant stockbrokers collide, justice may prove elusive. Biases and memories being what they are, we tend to err on the side of the customer who lost money -- I got no problem with that. Seems fair but to a point. In today's Blog we come to just such a point. After a decade of apparent injustice, a stockbroker asks to have his records scrubbed clean. Ten years later, he asks to have his world changed  -- hmmm, wasn't there a rock band and song . . . and what was their name . . . and what was the song's title???

Real Estate Developer Charged by SEC and DOJ

SEC Charges Real Estate Developer With Fraud in Project Tied to New Commuter Rail Station (SEC Release 20188-229)

Fairfax Man Arrested for $16 Million Securities Fraud Scheme (DOJ Release)

In a Complaint filed in the United States District Court for the Eastern District of Virginia, the SEC charged eal estate developer Todd Elliott Hitt and his companies Kiddar Capital LLC, and Kiddar Group Holdings Inc. with violating the antifraud provisions of the federal securities laws. The Complaint alleges that Hitt used the two Kiddar entities to raise over $20 million from investors for the purpose of acquiring and operating the Silver Line office building, new home construction in Northern Virginia, and a fund managed by Hitt that invested in a startup business.  The Complaint alleges that Hitt made misrepresentations about his own investments in the ventures and misappropriated several million dollars of investor funds for personal use and to  make Ponzi-like payments. Hitt consented to entry of a judgment freezing his assets and enjoining him from participating in the offer or sale of interests in real estate development companies; and he consented to the appointment of a receiver over a number of the corporate defendants and relief defendants.  READ the FULL TEXT Complaint
Hitt was charged in United States District Court for the Eastern District of Virginia with securities fraud. In that parallel criminal action, federal proseuctors allege that Hitt falsely claimed that Kiddar Capital managed $1.4 billion in assets and that he had raised over $16 million from investors by misrepresenting that he would invest $6 million as a general partner as part of a planned $33 million purchase of a Herndon building adjacent to a future stop on the Silver Line of the Washington, D.C., Metro. Further, Hitt is charged with failing to disclose to investors his use of funds to lease private jets and purchase sports tickets, jewelry, among other things.

Rules (Public Investors Arbitration Bar Association Report, by Andrew Stoltmann, Esq. and Adam J. Gana, Esq. )
As set forth in the PIABA Report's "Introduction":

FINRA's Stated Mission: "[S]afeguard the investing public against fraud and bad practices."  

The Financial Industry Regulatory Authority ("FINRA") is currently contemplating the evisceration of crucial protections that have been in place for decades to safeguard investors against investment schemes by brokerage firms' registered representatives, including "selling away" schemes. If FINRA's proposed changes are approved, there will likely be more investment scams perpetrated by registered representatives.
Without admitting or denying the allegations in an SEC Complaint filed in the United States District Court for the District of Connecticut that she was engaged in insider trading, Katherine M. Hanratty, the alleged girlfriend of former Heartland Payment Systems, Inc. Chief Executive Officer Robert O. Carr consented to the entry of a final judgment that permanently enjoins her from violations of Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder, orders her to pay $277,980 in disgorgement and prejudgment interest as well $250,628 as a penalty. The SEC's case against Carr is ongoing. The Complaint alleged that Carr provided Hanratty with confidential information about a potential acquisition of Heartland by another payment processing company. In the weeks leading up to the merger announcement, Carr allegedly gave Hanratty $1 million to open a brokerage account and instructed her to use almost all of the funds to purchase Heartland stock, which resulted in her purchase of over 11,000 shares.
Following guilty pleas in the United States District Court for the District of New Jersey, MTV's "Jersey Shore" television personality Michael "The Situation" Sorrentino was sentenced to eight months in prison, and his brother, Marc Sorrentino, was sentenced to 24 months in prison for violating federal tax laws. Further, Michael Sorrentino was ordered to serve two years of supervised release and pay $123,913 in restitution and a criminal fine of $10,000; and Marc Sorrentino was ordered to serve one year of supervised release and pay a criminal fine of $7,500.The Sorrention brothers created businesses, such as MPS Entertainment LLC and Situation Nation Inc., to take advantage of Michael's celebrity status. In Tax year 2011, Michael Sorrentino earned taxable income, including some that was paid in cash, and that concealed some of his income by making cash deposits into bank accounts in amounts less than $10,000 each so that these deposits would not come to the attention of the IRS.Marc Sorrentino admitted that during tax years 2010, 2011 and 2012, he under-reported his total and taxable income, and had assisted his accountants in preparing his personal tax return for those years, willfully providing them with false information.
Following a 12-day bench trial, the United States District Court for the District of Utah ordered R. Gregory Shepard,  and Neldon Johnson, RaPower-3 LLC, and International Automated Systems, Inc. to disgorge over $50 million in gross receipts from facilitating and promoting an abusive tax scheme involving false tax deductions and solar energy credits; and Defendants were barred from promoting and marketing the scheme and ordered to ensure that the public is not further harmed by their actions. Defendant Johnson claimed to have invented solar energy technology involving solar thermal lenses placed in arrays on towers; and, he decided to sell the solar lenses component. The Court found that the Defendants made "gross valuation overstatements" when they sold lenses for a total purported price of $3,500 because the raw cost of manufacture was very low and the "technology does not work, and is not likely to work to produce commercially viable electricity or solar process heat. Therefore, each ‘lens' is just one component of an inoperable system. It is not a piece of sophisticated technology such that premium pricing is appropriate for it."