October 24, 2018
If you have ever interacted with FINRA, whether that be in a disciplinary action, an expungement matter, or up against them in court, then this article will not shock you. You have certainly experienced the frustrations that come along with the vague rules that are ever-changing and seem as though they must be designed simply to make everyone's lives that are affected by them just a tad more complicated. The latest and greatest in arbitrary FINRA practices is the denial of Dispute Resolution Forum to brokers requesting expungement of customer dispute occurrences that arose from a prior arbitration that resulted in an award/judgment.
In a Complaint filed in the United States District Court for the Southern District of New York, the SEC charged John Madsen with masterminding a pump-and-dump scheme involving Nevada-based penny stock company, Andalusian Resorts and Spas, Inc. and with recruiting a strawman CEO, Bernard Fried, to conceal Madsen's secret control of the issuer and his prior guilty plea to mail fraud. I a parallel criminal case, Fried settled the SEC's charges by consenting to the entry of a final judgment on January 11, 2018, which enjoined him from violating the antifraud provisions of Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder, barred him from serving as an officer or director of public companies or from participating in penny stock offerings, and ordered him to disgorge $3,311 in ill-gotten gains plus interest. The SEC obtained a default judgment against Andalusian on May 10, 2018 that enjoined it from violating the antifraud provisions of Section 10(b) of the Exchange Act and Rule 10b-5 thereunder. Madsen agreed to the entry of a judgment that enjoined him from violating the antifraud provisions of Section 10(b) of the Exchange Act and Rule 10b-5 thereunder, barred him from participating in penny stock offerings, and provided that the court would determine whether to impose a civil penalty based on the SEC's motion. The court entered a final judgment on October 17, 2018 that imposed an $80,000 penalty. READ the FULL TEXT SEC Complaint
In a Complaint filed in the United States District Court for the Southern District of New York, the SEC charged Alexander C. Burns with violating the antifraud provisions of Section 17(a) of the Securities Act of 1933, Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder, and Sections 206(1), (2), and (3) of the Investment Advisers Act of 1940, and with aiding and abetting violations of Section 17(a)(2) of the Securities Act, Section 10(b) of the Exchange Act and Rule 10b-5(b) thereunder, and Sections 206(1), (2), and (3) of the Advisers Act by the affiliated private equity firm and investment adviser. Also, the Complaint charged Andrew B. Scherr with aiding and abetting Burns' violations of Sections 206(1) and (2) of the Advisers Act. The Complaint seeks permanent injunctions, disgorgement and civil penalties. The SEC's Complaint alleges Burns, the majority owner and control person of Southport Lane Management, LLC, acquired insurance companies and thereby obtained the ability to control the investment decisions for the insurance companies and those companies' related reinsurance trusts. Burns allegedly used fraudulent transactions, which he recommended through his affiliated registered investment adviser, Southport Lane Advisors, LLC, to steal money from the companies/trusts, which forced at least five insurance companies into receivership when the lacked sufficient assets to pay policyholder claims. Allegedly, Scherr, a co-owner of Southport Lane, aided and abetted Burns' fraud by acquiring assets that were worthless or overvalued and which were sold by Burns to his advisory clients. Without admitting or denying the allegations in the SEC's complaint, Burns consented to the entry of a judgment permanently enjoining him from violating the charged provisions of the federal securities laws. READ the FULL TEXT SEC Complaint
After a three-day jury trial in the United States District Court for the Northern District of Georgia, Olayinka Olaniyi was convicted on charges of conspiracy to commit wire fraud, computer fraud and aggravated identity theft in connection with "phishing scams" that targeted colleges and universities in the United States, including the Georgia Institute of Technology and the University of Virginia. Co-defendant, Damilola Solomon Ibiwoye pled guilty to similar charges. Although Olaniyi and Ibiwoye are Nigerian citizens, they committed their crimes while living in Kuala Lumpur, Malaysia, and were extradited to the United States. The Defendants stole payroll deposits by changing the bank account into which the payroll was deposited; and, further, they gained access to employee W2 forms, which they used to file fraudulent tax returns. Olaniyi was sentenced to 5 years, 11 months in prison plus 3 years of supervised release, and ordered to pay $56,175.44 restitution; Ibiwoye was sentenced to 3 years and 3 months in prison plus 3 years of supervised, and ordered to pay $56,175.44 restitution.
Gregory Bayard pled guilty to wire fraud in an Information filed in the United States District Court for the Southern District of New York. In 2008, Bayard had been appointed administrator of an estate, but in 2009, the decedent's son filed a motion in the Surrogate's Court to remove Bayard as the administrator of his father's estate. While the motion was pending, Bayard wrote approximately 14 checks totaling more than $435,000 and sent over 70 wires totaling over $1 million from the estate's account to himself; and, he spent the money on home renovations, college tuition, and other personal expenses and transferred some of the money to family members.
at the Council of Institutional Investors 2018 Fall Conference)
Commissioner Stein shares her thoughts on how the SEC should improve disclosure to investors in the Digital Age, and particularly expresses her concern with the dissemination of so-called "non-GAAP metrics" and "Key Performance Indicators." In attempting to grapple with such issues, Stein admonishes that [Ed: footnotes omitted]:
The Commission should not be focused on information overload or decreasing the amount or timeliness of information in the market. Instead, the Commission should be focused on how to organize it and ensure that it is fairly presented. We should be encouraging better communication between investors and issuers to the benefit of both parties. Since 1934, the Commission has insisted on full, complete, accurate, and informative disclosure. We should continue to do so in 2018 and beyond.
That does not mean that the Commission needs to impose its own standards. The Commission has historically looked to the private sector to help establish standards, which has created an important joint responsibility. In particular, the accounting profession was instrumental in narrowing varying practices into financial reporting standards that were uniform and consistent (e.g., GAAP).
Self-styled "frack master" Christopher A. Faulkner pled guilty in the United States District Court for the Northern District of Texas to securities fraud, engaging in illegal monetary transactions, and tax evasion. Previously, entered into a civil settlement with the Securities & Exchange Commission that requires him to disgorge $23.8 million; permanently enjoins him from violating, among other things, the antifraud provisions of the federal securities laws and from participating in any unregistered securities transactions; and bars him from serving as an officer or director of any SEC-reporting company and from participating in any offering of a penny stock. From 2011 to 2016, Faulkner fraudulently raised over $71 million from working interest investors, who took on a fixed portion of projected drilling costs in exchange for a share in his oil and gas profits. Faulkner routinely oversold shares, then transferred investment funds into commingled accounts, despite promising investors their money would be deposited in a segregated bank account used only to pay for drilling activities.Further, he diverted about $23 million for his own personal benefit, shelling out hundreds of thousands of dollars at a time for luxury travel, professional concierge services, maintenance of multiple residences, and at least seven vehicles, including an Aston Martin, a Bentley, and a Mercedes Benz.