Securities Industry Commentator by Bill Singer Esq

November 21, 2018

http://www.brokeandbroker.com/4301/frumento-thanksgiving/
Much as a fish wouldn't know how good the water is until it's gasping in a fishnet, we don't really know our blessings until we are broke or in jail or stricken by illness, weather, violence, or idiotic leaders. We wouldn't know to be grateful that none of those have yet happened to us if we couldn't imagine the alternate realities of those unlucky bastards to whom they have.

https://www.justice.gov/usao-or/pr/springfield-man-pleads-guilty-federal-drug-charge-after-shipping-marijuana-styrofoam
Okay, sure, I'll admit it -- this headline sucked me in. 
Apparently, Curran Millican Manzer pled guilty in the United States District Court for the District of Oregon to one count of possession with intent to the distribute marijuana. As much as I'd like to present you with a punchy version of events, I'm going to sit back and let the DOJ Release speak for itself via this extract: 

According to court documents, in September 2017, the Springfield Police Department began an investigation after being contacted by United Parcel Service (UPS) regarding several packages Manzer shipped to Oklahoma City, Oklahoma that had a strong marijuana odor. UPS later confirmed that, in October 2017, Manzer sent several additional packages next day air to Oklahoma City also believed to contain marijuana. During the same time period, several packages containing numerous stacks of cash bound in $1,000 increments were sent to Manzer's home address in Springfield.

In November 2017, Springfield Police obtained a search warrant for all packages sent or received by Manzer via UPS. Shortly thereafter, an officer was conducting surveillance at a UPS store in Springfield when he saw Manzer arrive in a pickup truck with "Curran's Taxidermy" written on the side. The officer observed Manzer bringing six packages into the store, which he dropped off for next day shipment to Oklahoma. A Springfield Police canine unit responded to the scene and the canine alerted to the packages.

The Springfield Police officer executed a search warrant on the packages and located six large Styrofoam rocks containing 143 pounds of marijuana.

Manzer faces a maximum sentence of 20 years in prison, a $1 million fine and a three-year term of supervised release. He will be sentenced on February 26, 2019 before U.S. District Court Judge Ann Aiken.

As part of the plea agreement, Manzer agrees to forfeit any criminally-derived proceeds and property used to facilitate his crimes identified by the government prior to sentencing.

So . . . lemme see if I got this. We have states legalizing the growing and sale of cannabis. Cannabis companies are seeking to trade publicly or raise millions from private investors. There's such a wave of decriminalization of marijuana sweeping the country that I've heard it told that a lot of folks are using the scales held by the statues of Justice in the courthouses to weigh their stash of pot before sale. Tipping the scales of Justice has now been replaced by toking the scales of Justice. It's gotten so mainstream that the State of Oregon has, in part, posted this helpful bit of guidance on its "Recreational Marijuana FAQs Page
https://www.oregon.gov/olcc/marijuana/pages/faqs-personal-use.aspx:
Q:  When can I smoke/use recreational marijuana?
A:   As of July 1, 2015, Oregonians are allowed to grow up to four plants on their property, possess up to eight ounces of usable marijuana in their homes and up to one ounce on their person. Recreational marijuana cannot be sold or smoked in public. For more information go to: www.whatslegaloregon.com.
 
Q:  Where and when can I buy marijuana?
A:   You may purchase marijuana items at an OLCC licensed retail location. 

Q:  How much marijuana can I have?
A:  The personal possession limits are:
  • One ounce of usable marijuana in a public place;
  • Eight ounces of usable marijuana;
  • 16 ounces of a cannabinoid product in solid form;
  • 72 ounces of a cannabinoid product in liquid form;
  • Five grams of cannabinoid extracts or concentrates, whether sold alone or contained in an inhalant delivery system;
  • Four marijuana plants; and
  • Ten marijuana seeds. . .

With the holiday season approaching, it's almost a Christmas Carol: 

On the first day of Christmas my true love gave to me:
72 ounces of cannabinoid product in liquid form; 
16 ounces of cannabinoid product in solid form; 
10 marijuana seeds; 
8 ounces of usable marijuana; 
5 grams of cannabinoid extract; 
4 marijuana plants, and 
an ounce of usable marijuana in a styrofoam rock under a partridge in a pear tree. 

Notwithstanding the ongoing decriminalization of cannabis, the federal government, in all its august majesty, is going after some idiot who's driving around in a taxidermy pickup truck and sending via UPS styrofoam rocks filled with marijuana. And that horrific crime of Manzer's could put him into federal prison for 20 years and hit him with a million dollar fine. I mean, you know, styrofoam rocks filled with grass?  Sort of gives new meaning to the term "getting stoned." 

https://www.justice.gov/opa/pr/district-court-enters-temporary-restraining-order-blocking-three-elder-fraud-schemes-sendin-0
In a Complaint filed in the United States District Court for the Eastern District of New York, Defendants Charles Kafeiti; Anthony Kafeiti  and Steven Diaz are charged with operating fraud schemes that lead victims to believe a large cash awards awaits them. The schemes primarily victimized the elderly or vulnerable via purported personalized notices informing recipients that they had won a large cash prize but needed urgently to pay a fee to claim their winnings. Over half a million mailings targeted victims, who sent in about $4.8 million in requested fees but did not receive the promised payments. The Complaint alleges that the schemes were assisted by Drew Wilson, who provided logistical support. Also named as Defendants are Dennis Hunsaker and his company, Digital Matrix International Inc., which assisted the direct mailers with online tools to manage their mailings, lists of recipients, lists of respondents, and fulfillment. Further, the Complaint alleges that Carmine Maietta and Elizabeth Maietta opened and processed victim returns; and that SixEvolution GmbH, and its operator, David Anthony, also processed returns. 

https://ag.ny.gov/press-release/attorney-general-underwood-announces-nationwide-policy-changes-national-retailers-part
Do yourself a favor -- do your parents and grandparents (especially!) a favor -- print out a copy of the NYAG Release and pass it around the Thanksgiving and Christmas tables. I've gotten the phone call. You've gotten the phone call. An elder relative is upset because someone called and threatened to arrest them if they didn't immediately pay their taxes or their grandkid's kidnappers. 

No, mom, the IRS will not send someone to your apartment with handcuffs and, no, mom, don't go to Duane Reade and buy a gift card and call back those idiots. Yes, mom, I'm a lawyer and I know what I'm talking about. No, mom, don't listen to your friend in the building whose daughter works for a dentist and one of the patients has a son who cleans toilets at law firms, and that toilet guy said that you better get the card and read the serial numbers to the scamsters. Yes mom, I like my hair like this. No, mom, I' m not trying to imitate President Trump. Yes, mom, he's a wonderful man and will make America great again. No, mom, listen, President Trump is not coming to arrest you if you don't buy that card. Yes, mom, his wife is beautiful and so's his daughter. No, mom, his kids will not send the police to your home. No, mom, his wife won't either.

Please consider this portion of the NYAG Release:

Although there are many types of gift card scams, the most common are: 

Grandparent Scam - The scammer impersonates a grandchild of the victim who claims to be in some sort of trouble, typically related to a car accident or arrest, and in need of money to pay for bail or a lawyer. Victims report that the scheme was believable because the scammers knew the names and other information about their grandchild and sounded like their grandchild. Click here to read more about the Grandparent Scam, including a PSA on how to avoid being duped.

IRS Scam - The scammer impersonates someone from the IRS attempting to collect taxes allegedly owed. The scammer usually threatens arrest that day if the debt is not paid immediately via gift cards. Again, the victims report that the scheme is believable because the scammers may give the name and badge number of a real IRS agent whose identity can be verified online, the scammers may know detailed information about the victim's tax history, or the scammers may send the victim an email that appears to be from an IRS domain.

Tech Support Scam - The scammer impersonates a tech support employee claiming to work for the manufacturer of the victim's computer. The scammer claims there is a virus and requests remote access to the victim's computer. After the scammer "fixes" a non-existent problem, he or she demands payment for the services and refuses to unlock the computer until the victim pays.

With all of these scams, the scam artists frequently direct the victims to purchase thousands of dollars in gift cards, provide the scammers with the numbers on the back of the cards, and then destroy them, which prevents the consumers from subsequently asking the retailer to freeze the cards. Scammers also often train their victims to give false information to retail clerks who may question a large gift card purchase. The scammer then uses the gift cards almost immediately - often to purchase third-party gift cards such as iTunes, Steam, or Google Play cards. This makes it very unlikely that a victim will be able to get any money back. Once a consumer falls victim to the scheme, the scammer often continues to call the victim demanding more money in gift cards, resulting in large losses to consumers. For example, one New York resident reported losing $36,000 as the result of a grandparent scam. 

' ' '
  • You cannot pay bail, a lawyer, the IRS, or tech support using retail gift cards. If someone demands to be paid with a gift card, it's a scam.
  • Never give gift card numbers on the back of gift cards to someone you don't know.
  • Taxpayers should remember the IRS does not initiate contact with a consumer over a tax debt by phone, but through official mail. A big red flag for these scams are angry, threatening calls from people who say they are the IRS, urging immediate payment. 
  • Develop a secret code or "password" with family members that can be used to verify the identity of family members over the phone. You can also ask a question that only the real family member would know the answer to, such as "what was the name of your first pet?"  
  • In general, it's a good idea to ignore phone calls if you don't recognize the number. If it's someone you know, they will leave a voicemail or send you a text.  
  • If a retail clerk warns you that you may be the victim of a gift card scam, heed the advice and call your loved one or law enforcement officials.
https://www.justice.gov/usao-ma/pr/bank-executive-and-husband-sentenced-after-embezzling-27-million
https://www.justice.gov/usao-ma/pr/boston-woman-pleads-guilty-role-27-million-bank-fraud-scheme

In an Indictment filed in the United States District Court for the District of Massachusetts, former Bank of America Global Wealth & Investment Management Division Senior Vice President Palestine Ace a/k/a Pam Ace, her husband, Jonathan Ace, and Brianna Alexis Forde, who worked with local non-profit organizations, were charged with engaging in an embezzlement and kickback scheme to defraud Bank of America of about $2.7 million.
Palestine Ace misappropriated funds from a marketing budget and authorized 75 transactions, each under $50,000, to be transferred to non-profit organizations; thereafter, Palestine and her husband informed the non-profit organizations that a substantial portion of the donated funds had to be returned in order to ensure that Bank of America would continue to fund the organization; and the returned funds were transacted via a check to Jonathan Ace or Forde, or to a Bank of America account to which the couple had access. Allegedly, at times, Jonathan Ace pressured the recipients of the donated funds to return a higher percentage of the funds to him, by using intimidation and threats of public humiliation. The non-profit organizations either wrote a check to Jonathan Ace or Forde, or they returned funds to a Bank of America account, to which the defendants had access.
Palestine Ace pled guilty to one count of conspiracy to commit bank fraud, five counts of wire fraud, and 12 counts of bank fraud; and Jonathan Ace pled guilty to one count of conspiracy to commit bank fraud, three counts of wire fraud, and one count of engaging in an unlawful monetary transaction. Palestine Ace was sentenced to one year and one day in prison plus two years of supervised release and ordered to pay restitution of $2,778,000,
Jonathan Ace was sentenced to two years in prison plus two years of supervised release and ordered to pay restitution of $1,855,000. 
Forde pled guilty to one count of conspiracy to commit wire fraud and two counts of wire fraud. 
Bill Singer's Comment: I was so intrigued by this scam that I actually located a copy of the Indictment. READ the Indictment http://brokeandbroker.com/PDF/AceIndict.pdf I was particularly intrigued by these paragraphs:

11. By virtue of her position at BOA, ACE could process and approve payments of less than $50,000 from a BOA marketing budget. As ACE well knew, payments above $50,000 required further scrutiny and approval. ACE purposefully exploited this lack of scrutiny to embezzle funds belonging to BOA. 

12. Over the course of the scheme, ACE fraudulently caused BOA to pay approximately $2.7 million in purported donations, in approximately 75 different transactions each under $50,000, to various non-profit organizations in the Boston and Atlanta area. ACE was not authorized to make these payments and in fact did not have the authority to make charitable donations or sponsorships on behalf of BOA. ACE attempted to conceal the fraud by instructing others within BOA to exclude the fraudulent transfers from regular accounting reports to her supervisor. 

13. After causing BOA to make the payments to the various non-profit organizations, ACE and J.ACE caused the non-profits to return a substantial portion of the necessary to ensure additional funding from BOA. At various times, J.ACE pressured the recipients of the BOA funds to give him a higher percentage of the funds by using intimidation and threats of public humiliation. 

14. As a further means, to avoid detection, ACE caused a significant portion of the funds the non-profits paid back to ACE to be deposited into a BOA account in the name of a family relative who resided in California ("the Relative's Account"). For the most part, each of the cash deposits into the Relative's Account were below $10,000 and were calculated to avoid reporting requirements under the Bank Secrecy Act for cash deposits over $10,000.
So, lemme see if I got this. One of the world's biggest banks sets a $50,000 level at which payments need to be subjected to enhanced scrutiny and approval -- which, like, duh, invites crooks to simply structure payments just at or below $50,000 in order to exploit that threshold and fly under the radar. Then, this same too-big-to-fail bank has such a rigorous in-house audit and compliance system that all you need to do to steal millions of dollars is utilize subterfuge that merely requires " instructing others within BOA to exclude the fraudulent transfers from regular accounting reports to her supervisor." One disappointment was the lack of detail as to how the specifics of Jonathan Acer's "intimidation and threats of public humiliation," that "pressured the recipients of the BOA funds to give him a higher percentage of the funds." Finally, yet again, we have the old $10,000 Bank Secrecy Act reporting threshold and, yet again, we have a bunch of crooks who merely structure their transactions below that BSA cut-off point. Sadly, I had hoped to come across some clever embezzlement but merely found another droll example of how porous large corporations audit and compliance protocols remain.

https://www.justice.gov/usao-ma/pr/orleans-investment-adviser-pleads-guilty-multi-million-dollar-fraud-and-identity-theft
Kimberly Kitts pled guilty to an Information in the United States District Court for the District of Massachusetts charging her with one count of investment adviser fraud, four counts of wire fraud and one count of aggravated identity theft. Among the allegations, Kitts converted some $3,085,939 from her clients via such acts as transferring funds out their brokerage accounts or redirecting distributions from their Individual Retirement Accounts. 
Kitts is a Defendant in a pending SEC action that alleges she forged her clients' signatures on withdrawal requests to misappropriate money from their variable annuity and investment accounts over six years via 82 unauthorized withdrawals from these accounts. The SEC Complaint alleges that Kitts used , falsified account statements to conceal her theft. Read the SEC Complaint 
https://www.sec.gov/litigation/complaints/2018/comp24208.pdf

https://www.sec.gov/litigation/litreleases/2018/lr24357.htm
In Complaints filed in the United States District Courts for the Northern District of Texas and the Eastern District of Louisiana, the SEC charged the now-defunct Dallas and New Orleans-based disaster remediation and construction business Home Solutions of America, Inc.'c's ("HSOA's") former Chief Executive Officer Frank J. Fradella, and former Chief Financial Officer Jeffrey M. Mattich, Brian M. Marshall, Rick J. O'Brien, Stephen C. Gingrich, Thomas L. Davis, and Jeffrey T. Craft with fraud for lying about non-existent business deals in the 2005-2008 time period and inflating the company's revenues and stock price. READ the Complaint
 https://www.sec.gov/litigation/complaints/2009/comp21314.pdf
In parallel criminal actions, Marshall pleaded guilty to one count of securities fraud and was sentenced to 48 months in prison, and Fradella pleaded guilty to one count of false certification of financial reports by a corporate officer (in addition to an unrelated count) and was sentenced to one year in prison.In response to the Complaint the following settlements have occurred:
  • Fradella: $1 million in disgorgement, a lifetime bar from serving as an officer or director of a public company, and to be permanently prohibited from violating the antifraud provisions of Section 17(a) of the Securities Act and Section 10(b) of the Exchange Act and Rule 10b-5 thereunder, the books-and-records provisions of Section 13(b)(5) of the Exchange Act and Rules 13b2-1 and 13b2-2 thereunder, and the certification provision of Rule 13a-14 of the Exchange Act. In addition, he agreed to be permanently prohibited from aiding and abetting violations of the reporting provisions of Section 13(a) of the Exchange Act and Rules 12b-20, 13a-1, and 13a-13 and the books-and-records provisions of Sections 13(b)(2)(A) and (B) of the Exchange Act; 
  • Mattich: $86,620 in disgorgement and a civil penalty of $50,000, and agreed to be permanently prohibited from violating the antifraud provisions of Section 17(a)(2) and (3) of the Securities Act, the books-and-records provisions of Section 13(b)(5) of the Exchange Act and Rules 13b2-1 and 13b2-2 thereunder, and the certification provision of Rule 13a-14 of the Exchange Act. He also agreed to be permanently prohibited from aiding and abetting violations of the reporting provisions of Section 13(a) of the Exchange Act and Rules 12b-20, 13a-1, and 13a-13 and violations of the books-and-records provisions of Sections 13(b)(2)(A) and (B) of the Exchange Act;
  • Marshall: $111,168 disgorgement and interest and a civil penalty of $90,238, barred him for life from serving as an officer or director of a public company, permanently prohibited him from violating the antifraud provisions of Section 17(a) the Securities Act of 1933 and Section 10(b) the Securities Exchange Act of 1934 and Rule 10b-5 thereunder, and the books-and-records provisions of Section 13(b)(5) of the Exchange Act and Rules 13b2-1 and 13b2-2 thereunder. It also permanently prohibited him from aiding and abetting violations of the books-and-records provisions of Sections 13(b)(2)(A) and (B) of the Exchange Act and Rules 13b2-1 and 13b2-2 thereunder and the reporting provisions of Section 13(a) of the Exchange Act and Rules 12b-20, 13a-1, and 13a-13 thereunder.