Securities Industry Commentator by Bill Singer Esq

December 18, 2018
Perhaps one of the more asinine and dubious press releases to emanate from the FBI in recent years. This one seems to be a fairly transparent attempt to piggy-back upon the just-released Clint Eastwood film "The Mule." Based upon that impetus, we should soon be seeing FBI Releases about:
  • Don't Be A Spiderman: FBI Joins International Campaign to Stop Multiverse Spidermen from endangering citizens by jumping from skyscrapers and spewing an unknown white sticky material over unsuspecting pedestrians.

  • Don't Be a Mary Poppins: FBI Joins International Campaign to Stop women from becoming enslaved by criminal ring that enlists them as human drones propelled by umbrellas in fiendish child-rearing scam.

  • Don't Be An Aquaman: FBI Joins International Campaign to Stop half-man-half-fish polluter who pees in America's waterways -- like where the hell did you think Aquaman peed?
Following a two-week jury trial, former President/Chief Executive Officer of First Call Ventures, LLC (the parent company of First Call Movers & Transport of Florida, LLC) Thomas Michael White was convicted in the United States District Court for the Southern District of Florida one count of conspiracy to commit mail and wire fraud and four counts of mail fraud in connection with a scheme to fraudulently raise $2 million from over a dozen elderly victims throughout the United States. As set forth in part in the DOJ Release:

[F]rom November 2011 through mid-2014, White ran the Broward-based moving business' call center that booked moves throughout the Southeast.  He also oversaw a "phone room" out of his corporate offices to raise money from investors.  During telephone calls, White and his co-conspirators used false statements, manipulation, and high-pressure tactics to target elderly investors (victims) and their retirement money.  The victims included retired teachers, farmers, small business owners, and homemakers, from across the United States.  When his targets did not have available funds to invest, White tricked them into converting their Individual Retirement Account ("IRA") money and transferring the funds to his corporate bank account.  White promised his investors that their money was safe and secure, would be returned after a year, and yield high-value interest payments to be paid on a monthly basis.  White and his co-conspirators provided written and oral "Investor Reports" that falsely conveyed security and profitability of the First Call Ventures moving business.  As a result, White and his conspirators were given a total of more than $2 million from over a dozen senior citizens.

In truth and fact, White and his partners used the investors' money for themselves, including millions in cash and bank check payments.  Bank records also demonstrated that over the course of the fraud scheme, White withdrew over $130,000 in investor proceeds at the Seminole Coconut Creek casino.  White and his partners siphoned all profits and victim money to their own personal accounts, declared a $1.8 million "loss," and shuttered the business.  As a result of the fraudulent scheme, some of the senior citizens are now living on food stamps, lost their homes, or were forced to take on odd jobs for income. 

Four other individuals tied to this case and a related indictment previously pled guilty.  White's co-defendants, John Kevin Reech, 56, of Delray Beach, Florida, and Joseph Mario Genzone, 53, of Boca Raton, Florida, previously pled guilty.  Genzone and Reech were also recently charged by Information for operating a separate offering fraud (Case No. 18-80193-CR-Bloom).  Reech pled guilty in both matters and was sentenced to a concurrent term of 51 months in prison.  Genzone also pled guilty and is scheduled to be sentenced by Judge Bloom on December 21, 2018, in both cases.  Daniel Joseph Touizer, 44, of Aventura, Florida was sentenced to 68 month in prison for leading a similar fraud scheme linked to White and Reech's criminal conduct (Case No. 17-60286-CR-Bloom).  Saul Daniel Suster, 66, of Sunny Isles Beach, Florida, a phone room worker of Touizer's, was sentenced to 30 months in prison.
After reading a recent FINRA Arbitration Decision about a public customer case, we don't come away with much of a sense as to where things ended. Oh, sure, the arbitrators dismissed all of the customer's claims but we seem to think that the case may have settled. Or not. Unquestionably, we are lost. We're not even sure that we can find our way back to where we lost the scent. Alone and afraid, we keep searching for answers but can't seem to find them. Respondents came to the hearing and stayed but they said that the case had settled. Claimant never appeared at the hearing and insisted that there was no settlement. Where do things stand now? Will we ever catch up? Will we ever understand what the hell happened here? Probably not.

In the Matter of the Bank of New York Mellon, Respondent (SEC Order Instituting Cease-and-Desist Proceedings, Making Findings, and Imposing a Cease-and-Desist Order; '33 Act Rel. No. 10586; Admin. Proc. File No. 3-18933)
Without admitting or denying the findings in the SEC's Order and in anticipation of the institution of proceedings, Respondent Bank of New York Mellon submitted an Offer of Settlement, which the SEC accepted. In addition to being ordered to Cease-and-Desist, the Bank was ordered to pay $29,369,032.45 disgorgement with $4,260,199.67 in interest, and a $20,558,322.70 civil money penalty. As set forth under the "Summary" portion of the SEC Order [Ed: footnotes omitted]:

1. These proceedings arise out of BNY Mellon's improper practices involving the pre-release of American Depositary Receipts ("ADRs").

2. Sponsored ADR facilities, which provide for the issuance of ADRs, are established by a depositary bank (the "Depositary"), such as BNY Mellon, pursuant to a deposit agreement ("Deposit Agreement"). For unsponsored ADR facilities, ADRs are issued pursuant to the terms and conditions of the ADR. 

3. As part of its role, a Depositary issues ADRs to a market participant that has delivered the corresponding number of foreign securities to the Depositary's foreign custodian ("Custodian"). However, in certain situations, Deposit Agreements may provide for "prerelease" transactions in which a market participant can obtain newly issued ADRs from the Depositary before delivering ordinary shares to the Custodian. Only brokers (or other market participants) that have entered into pre-release agreements with a Depositary ("Pre-Release Agreements") can obtain pre-released ADRs from the Depositary. The Pre-Release Agreements, consistent with the Deposit Agreements, require the broker receiving the pre-released ADRs ("Pre-Release Broker"), or its customer on whose behalf the Pre-Release Broker is acting, to beneficially own the ordinary shares represented by the ADRs, and to assign all beneficial right, title, and interest in those ordinary shares to the Depositary while the pre-release transaction is outstanding. In effect, the broker or its customer becomes the temporary custodian of the ordinary shares that would otherwise have been delivered to the Custodian. 

4. Contrary to how pre-release transactions were supposed to work, BNY Mellon at times pre-released ADRs to Pre-Release Brokers in circumstances where BNY Mellon was negligent with respect to whether the Pre-Release Brokers, or the parties on whose behalf the pre-released ADRs were being obtained, actually beneficially owned the corresponding number of ordinary shares, as they represented to BNY Mellon in their Pre-Release Agreements. The result of this conduct was the issuance of ADRs that in many instances were not backed by ordinary shares as required by the ADR facility.This conduct violated Section 17(a)(3) of the Securities Act.
In a Complaint filed in the United States District Court for the Central District of California, the SEC alleged that investment advisor Craig Arsenault and his advisory firm Atlas Capital Management, Inc. a company that he controlled (ACT Global Investments) with violating the antifraud provisions of Section 17(a) of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder, and Arsenault and Atlas with violating the antifraud provisions of Sections 206(1) and 206(2) of the Investment Advisers Act of 1940. The Complaint alleges that Arsenault solicited $5.7 million in investments in ACT by telling his advisory clients that their funds would be used to make secured loans to doctors for the purpose of acquiring medical equipment; however, Arsenault and ACT purportedly used client funds to make unsecured loans to, for example, a used car dealership, and to acquire undeveloped real estate. READ the Complaint
Moshe Benenfeld a/k/a "Michael Benenfeld" pled guilty in the United States District Court for the Southern District of New York to one count of bank fraud in connection with hundreds of unauthorized transactions that he conducted in bank customer accounts while employed by two different New York-area banks and which cause over $5 million in losses. The DOJ Release asserts in part that:

From 2000 to 2016, BENENFELD was the branch manager at a branch of a New York-area bank ("Bank-1").  Beginning in or about 2004 and continuing into 2016, while employed at Bank-1, BENENFELD conducted hundreds of unauthorized transactions involving the accounts of over 20 bank customers, including the accounts of BENENFELD's relatives.  BENENFELD made unauthorized draws on, and payments to, the customers' lines of credit; made unauthorized withdrawals from, and deposits to, the customers' deposit accounts; and used the customers' deposit accounts as collateral for other customers' lines of credit without authorization.  To effect the unauthorized transactions, BENENFELD, among other things, forged the signatures of bank customers and used a document previously signed by a bank customer to create paperwork that falsely purported to authorize a different transaction.  In or about April 2016, after having discovered BENENFELD's conduct, Bank-1 terminated BENENFELD's employment.  In or about June 2016, BENENFELD was hired by another New York-area bank ("Bank-2").  At Bank-2, BENENFELD continued to conduct unauthorized transactions involving customer accounts.  As a result of the unauthorized transactions conducted by BENENFELD, Bank-1 sustained losses of over $5 million.
Without admitting or denying FINRA's charges but consenting to the regulator's finding, UBS Financial Services Inc. (UBSFS) $4.5 million and UBS Securities LLC (UBSS) entered into an Acceptance, Waiver and Consent ("AWC") settlement by which they were fined $500,000 for failing to establish and implement anti-money laundering (AML) programs reasonably designed to monitor certain high-risk transactions in customer accounts. The high-risk transactions included foreign currency wire transfers at UBSFS, and transactions in low-priced equity securities, or "penny stocks," at UBSS. READ the FINRA AWC
Separately, the Securities and Exchange Commission and the Financial Crimes Enforcement Network of the United States Department of the Treasury announced that UBSFS has agreed to pay a $5 million penalty in separate actions for AML violations. READ the SEC Order 
As set forth in part in the FINRA Release:

FINRA found that, from January 2004 to April 2017, UBSFS processed thousands of foreign currency wires for billions of dollars, without sufficient oversight. UBSFS's AML surveillance systems failed to reasonably monitor billions of dollars in foreign currency wires flowing through customer accounts, including hundreds of millions of dollars in foreign currency wires to and from countries known to be at high risk for money-laundering. For example, for foreign currency wires to and from certain accounts, UBSFS's AML surveillance systems did not capture the number and identity of customers, the number and dollar value of the transfers, whether the transfers involved third parties and whether the transfers involved countries known for money-laundering risk. UBSFS's failure to monitor these high-risk transactions went undetected for more than eight years until discovered in 2012, and the firm failed to implement a reasonable system until April 2017.

With respect to UBSS, FINRA found that, from January 2013 to June 2017, the firm failed to reasonably monitor penny stock transactions that its Swiss parent routed to UBSS for execution through an omnibus account. During this time, UBSS facilitated the purchase or sale of more than 30 billion shares of penny stocks valued at over $545 million through the omnibus account for undisclosed customers.

Florida Man Pleads Guilty in $28 Million Solar Farm Ponzi Scheme (DOJ Release) former founder and Chief Investment Officer of Clean Energy Advisors (CEA), Christopher B. Warren, pled guilty in the United States District Court for the Middle District of Tennessee to one count of mail fraud and one count of securities fraud for operating a $28 million Ponzi scheme. CEA recruited 60 investors for its private investment funds: Utility Solar IV and Utility Income Fund. In soliciting those investors, Warren claimed that CEA owned working solar farms and that Duke Power had agreed to purchase the energy produced by those farms. In furtherance of his fraud, Warren created phone audited financial statements and made regular Ponzi payments to select investors.