The Wall Street Legal & Regulatory Feed
Securities Industry Commentator by Bill Singer Esq
May 6, 2019
FINRA Censures and Fines Firm Over Supervision of Watch and Restricted Lists
(BrokeAndBroker.com Blog)
(BrokeAndBroker.com Blog)
http://www.brokeandbroker.com/4577/FINRA-AWC-Lists/
Oh the games people play. Oh the game regulators play. Oh the games FINRA plays. In today's blog, we consider the plight of a FINRA member firm and its seemingly all-in-one executive known but to FINRA -- well, sort of. But for the self-regulator's silliness in hiding the apparent malefactor's name, the regulatory settlement is a useful exercise in how to better supervise employee trading and to implement watch and restricted lists.
Christopher Wolf was convicted in the United States District Court for the Eastern District of New York on two counts of tax evasion and two counts of aiding and assisting the preparation of false tax returns. Wolf was sentenced to 24 months in prison plus three years of supervised release, and ordered to pay $237,550 in restitution. As set forth in part in the DOJ Release:
[I]n 2010 and 2011, Christopher Wolf operated Rothchild & Associates LLC ("Rothchild"), in Brooklyn, New York. Rothchild was in the business of selling precious metals to investors over the telephone. Although Wolf controlled all aspects of Rothchild's operations, it was technically owned by a third party. Wolf concealed the income he earned from Rothchild by instructing the third party owner to pay Wolf's commissions to two shell corporations.Wolf filed a false 2010 individual income tax return that did not report any of the commissions he earned selling precious metals. For 2011, he did not file an individual tax return. He also caused corporate income tax returns to be filed for the companies where he deposited his commissions, but included phony deductions on those returns to avoid paying the taxes he owed. Wolf's conduct caused a tax loss of approximately $240,000 to the Internal Revenue Service (IRS).In 2000, in an unrelated case, Wolf was convicted of securities fraud, money laundering, and conspiracy to commit wire fraud and was sentenced to prison for over ten years.
Marcus Hutchins Pleads Guilty to Creating and Distributing the Kronos Banking Trojan and UPAS Kit Malware (DOJ Release)
https://www.justice.gov/usao-edwi/pr/marcus-hutchins-pleads-guilty-creating-and-distributing-kronos-banking-trojan-and-upas
Marcus Hutchins, aka "MalwareTech," pled guilty in the United States District Court for the Eastern District of Wisconsin guilty to one count of conspiracy to commit computer fraud and one count of advertising a device used to intercept electronic communications. As set forth in part in the DOJ Release:
[H]utchins, age 24, developed UPAS Kit and Kronos and then worked with an accomplice to sell the malware programs for profit. Both UPAS Kit and Kronos were designed to be deployed secretly on victim computers, and then to intercept communications and transmit personal information, including usernames, passwords, email addresses, and financial data to the person controlling malware program. The malware was specially tailored to target victims' banking information. Since 2014, Kronos has been used to infect numerous computers around the world and steal banking information.Hutchins and his accomplice, "Vinny," advertised Kronos and UPAS on various websites, including the AlphaBay market and Darkode forum. The advertisements highlighted the ability of the malware to steal information and avoid antivirus programs. Hutchins updated the malware code as needed, and Vinny and Hutchins shared profits from the sales.
https://www.sec.gov/news/press-release/2019-66
In response to SEC Orders Instituting Proceedings, making findings, and imposing Cease-and-Desists, but without admitting or denying the findings, GT Advanced Technologies, Inc. and its former Chief Executive Officer Thomas Gutieerez consented to the entry of :
- GT Advanced Technologies Order https://www.sec.gov/litigation/admin/2019/33-10636.pdf
- Gutierrez Order https://www.sec.gov/litigation/admin/2019/33-10637.pdf
The Orders found that the respondents had violated antifraud provisions of the federal securities laws; and each h agreed to cease and desist from further violations, and Gutierrez agreed to pay more than $140,000 in monetary relief. As set forth in part in the SEC Release:
[I]n the fall of 2013, Apple agreed to advance $578 million in four installments to GT in exchange for sapphire glass that met certain technical standards. The agreement was closely watched by the market and highly material to GT's revenue, liabilities, and stock value. By late April 2014, GT had failed to meet the required standards, resulting in Apple withholding $139 million and giving it the right to accelerate repayment of $306 million previously advanced to GT. To avoid recognizing the debt as current, which would have had an immediate impact on its status as a going concern, GT took an unsupported, undisclosed position that Apple had breached part of the agreement, thus releasing GT from its performance obligations. Yet in second quarter 2014 earnings calls, then-CEO Thomas Gutierrez falsely stated that GT expected to hit performance targets and receive the fourth installment payment from Apple by October 2014. Gutierrez also provided unsupported sales projections, causing GT to misstate its second-quarter liquidity and non-GAAP earnings-per-share projections. Within two months, GT filed for bankruptcy, resulting in significant investor harm. It later exited bankruptcy and is now privately held.