Securities Industry Commentator by Bill Singer Esq

April 16, 2019

EB-5 Activity by Immigration Attorneys Lead to Industry BarsIn the Matter of Hui Feng and Law Offices of Feng & Associates, P.C. (SEC Initial Decision Making Findings and Imposing Sanctions by Default; Init. Dec. Rel. No. 1373, Admin. Proc. File No. 3-18209)
Respondents are barred from  from associating with any broker, dealer, investment adviser, municipal securities dealer, municipal advisor, transfer agent, or nationally recognized statistical rating organization and from participating in an offering of penny stock. As set forth in the SEC Default Decision in part [Ed: footnotes omitted]:

The facts of Respondents' misconduct are described in the court's August 10, 2017, Amended Order Re: Motions for Summary Judgment, SEC v. Hui Feng, ECF No. 101: Respondents are immigration attorneys, who have been involved from 2010 through at least August 2017 in the EB-5 Immigrant Investor Program. The EB-5 program was created by Congress in 1992 to stimulate the U.S. economy with investment from foreigners. Foreigners who invest $500,000 or $1,000,000 in a domestic commercial enterprise may petition the U.S. Citizenship and Immigration Services and receive conditional permanent residency ("green card") status. Many EB-5 investments are administered by so-called "regional centers." The conduct underlying SEC v. Hui Feng included Respondents' receipt of undisclosed commissions from regional centers in connection with their clients' EB-5 program investments. Respondents failed to disclose to clients that they received commissions from regional centers for referring clients to invest in a regional center's offerings. Respondents also falsely represented to regional centers that foreign-based persons or entities were responsible for finding EB-5 investors, when in reality Feng's relatives or an entity controlled by him received commissions for referring clients. Respondents advertised for clients and promoted EB-5 projects on the internet and through Feng's website. Respondents performed due diligence regarding EB-5 projects, were involved in negotiations between regional centers and clients, and recommended specific regional centers to clients. As of February 2015, Feng began to disclose that he would receive referral fees in the engagement agreements clients signed prior to retaining Feng's legal services. As a result of SEC v. Hui Feng, some regional centers refused to do business with Respondents and their foreign-based entity, and Feng created a new law firm and a new foreign-based entity in which he has a 50% ownership interest. 

According to the Commission's official records and FINRA records: Neither Respondent has ever been registered as, or associated with a registered broker-dealer or other registrant. 

On August 10, 2017, Respondents were enjoined from violating Sections 10(b) and 15(a) of the Exchange Act and Rule 10b-5 thereunder and Section 17(a) of the Securities Act of 1933. They were ordered to pay disgorgement of ill-gotten gains of $1,268,000 plus prejudgment interest of $130,517.09 for a total of $1,398,517.09, for which they are jointly and severally liable; Feng was ordered to pay a civil penalty of $160,000; and Law Offices of Feng & Associates was ordered to pay a civil penalty of $800,000. SEC v. Hui Feng, ECF No. 102

UniCredit Bank AG Agrees to Plead Guilty for Illegally Processing Transactions in Violation of Iranian Sanctions / UniCredit Group Banks agree to Pay Over $1.3 Billion for Violating Sanctions (DOJ Release)
UniCredit Bank AG ("UCB AG") operating under the name of HypoVereinsbank entered a guilty plea to conspiring to violate the International Emergency Economic Powers Act  ("IEEPA") and to defraud the United States by processing hundreds of millions of dollars of transactions through the U.S. financial system on behalf of an entity designated as a weapons of mass destruction proliferator and other Iranian entities subject to U.S. economic sanctions. Also, UniCredit Bank Austria ("BA") agreed to forfeit $20 million and entered into a non-prosecution agreement to resolve an investigation into its violations of IEEPA. The parent of UCB AG and BA, UniCredit SpA, agreed to ensure that UCB AG and BA's obligations are fulfilled. Further, UCB AG entered into a plea agreement with the New York County District Attorney's Office ("DANY") for violating New York State law pursuant to which it will pay $316,545,816. Similarly, BA entered into a non-prosecution agreement with DANY for violating New York State law. Moreover, UniCredit SpA, UCB AG and BA entered into settlement agreements with the U.S. Department of the Treasury's Office of Foreign Assets Control ("OFAC"), the Board of Governors of the Federal Reserve System (the Federal Reserve) and the New York State Department of Financial Services ("DFS") under which they will pay $611,023,421 to OFAC, which will be satisfied in part by payments to the Justice Department and the Federal Reserve' $157,770,000 to the Federal Reserve; and $405 million to DFS. As set forth in part in the DOJ Release:

[O]ver the course of almost 10 years, UCB AG knowingly and willfully moved at least $393 million through the U.S. financial system on behalf of sanctioned entities, most of which for an entity the U.S. Government specifically prohibited from accessing the U.S. financial system.  UCB AG engaged in this criminal conduct through a scheme, formalized in its own bank polices and designed to conceal from U.S. regulators and banks the involvement of sanctioned entities in certain transactions.  UCB AG routed illegal payments through U.S. financial institutions for the benefit of the sanctioned entities in ways that concealed the involvement of the sanctioned entities, including through the use of companies that UCB AG knew would appear unconnected to the sanctioned entity despite being controlled by the sanctioned entity. Blog)
There are times when Wall Street's so-called self regulation seems like a toll road, where you drive up to the toll booth on a nice sunny day, hand the guy a bill, and wait for your change. Then the damn toll collector disappears. You're getting impatient because he owes you, but, hey, what's with that car backing up in front of you and who are all those guys with fedoras and machine guns? Uh oh, this ain't gonna end well.

Credit Suisse Prevails in Promissory Note Dispute. In the Matter of the Arbitration Between Neal David Carlson, Claimant, v. Credit Suisse Securities (USA) LLC, Respondent (FINRA Arbitration Decision 17-00611, April 15, 2019)
In a FINRA Statement of Claim filed in March 2017 and as amended, associated person Claimant Carlson asserted breach of contract, fraud by nondisclosure, and tortious interference with contract. Claimant sought $2,220,422 in damages plus interest, costs, and fees. The FINRA Arbitration Decision asserts in part that: 

[T]he causes of action related to Claimant's allegations that Respondent, with false representations and promises, fraudulently induced him into joining the firm's private wealth management division and entering into a promissory note ("the Note") as an employment incentive. Claimant alleges that Respondent failed to disclose it was in the process of eliminating the division and intended to direct employees to seek employment with other brokerage firms. Claimant alleges he suffered pecuniary losses as a result.

Respondent Credit Suisse generally denied the allegations, asserted various affirmative defenses; and filed a Counterclaim asserting breach of contract related to the Note, breach of contract related to compensation over-payment, and, in the alternative, unjust enrichment. Credit Suisse sought $1,816,652.19 in full repayment of the Note, $5,329.34 in alleged arrears; and $10,883.63 in allegedly overpaid compensation.The FINRA Arbitration Decision asserts in part that:

[T]he causes of action related to Respondent's allegations that pursuant to the Note, Claimant was obligated to immediately repay all outstanding balances on the Note if he left Respondent for any reason and has failed to repay such amounts after resigning to join another brokerage firm. 

The FINRA Panel of Arbitrators denied Claimant Carlson's claims. The Panel found Claimant Carlson liable to and ordered him to pay Credit Suisse $1,832,865.87 in compensatory damages plus interest. 

FINRA Arbitration Involves Allegation of Exploitation of Elderly Person. In the Matter of the Arbitration Between 
Kenneth R. Lieblein, individually and as Trustee of 
the Kenneth R. Lieblein Revocable Trust U/A/D 
10/17/14, and Robin Lieblein, individually
, Claimants, v. 
Herbert J. Sims & Co., Inc. and 
Larry C. Wolfe 
, Respondents (FINRA Arbitration Decision 16-01153, April 15, 2019) 
In a FINRA Statement of Claim filed in April 2016 public customer Claimants asserted:

[C]ommon law fraud; breach of fiduciary duty; negligence (gross negligence); breach of contract; and violation of Florida Statute §825.103, Exploitation of an Elderly Person. The causes of action relate to Claimants' investments in bonds, including, but not limited to, investments in Aleris, Lehman Brothers Holdings, Van Eck Gold Fund, Adams City, HJSI Port, Bank of Nova Scotia, Black Elk Energy, Citigroup, Inc., Genon Escrow Corp., Morgan Stanley, Wells Fargo, and Burnet County Texas bond.

Ultimately, Claimant sought $9 million in compensatory and punitive damages plus interest, costs, and fees. Respondents HJ Sims and Wolfe generally denied the allegations and asserted various affirmative defenses.  The FINRA Panel of Arbitrators found Respondents jointly and severally liable to and ordered them to pay to Claimants $480,000 in compensatory damages, $30,000 in costs, and $600 reimbursed filing fee.