Securities Industry Commentator by Bill Singer Esq

May 7, 2019

Argentine Man Sentenced in Witchcraft Extortion Scheme (DOJ Release)
Ariel Boiteux pled guilty in the United States District Court for the Southern District of California to the foreign transmission of an extortionate threat and was sentenced to two years in prison. As set forth in part in all its jaw-dropping detail in the DOJ Release, Boiteux and his associated operated out of Paraguay under the business name of "Amarres Immdiatos," and:

offered to perform rituals that could improve one's romantic relationships.  Boiteux advertised these services on Facebook, Instagram, and MercadoLibre. The advertised services included casting spells designed to foster romantic relationships.

Clients who contacted Amarres Inmediatos soon learned that the rituals were performed remotely rather than in person. Clients were provided with a list of items to purchase, which typically included candles, alcohol, vegetables, and photographs. The ritual called for the client to drink alcohol, recite sexually explicit incantations, and perform sexual acts, all while recording the ritual. The client would then send the recordings of the ritual back to Boiteux and his associates, who would threaten to publicize the sexually explicit recordings unless the client paid an amount that far exceeded the initial price agreed upon for the ritual.  In his plea agreement, Boiteux admitted to researching the clients to see who would be susceptible to extortion. 

In February 2017, the plea agreement said, Boiteux obtained sensitive recordings of a client performing a ritual. The defendant researched the client's background and determined that she was a well-connected public figure with access to significant financial resources. Boiteux and his associates then contacted the client and threatened to publicize the recordings unless she paid more than $250,000.

According to the plea agreement, in the fall of 2017, an undercover agent from Homeland Security Investigations called a phone number on the Amarres Inmediatos website and offered to purchase recordings of another victim, portions of which had been uploaded to publicly-available websites in an attempt to extort that victim.  Boiteux agreed to sell the recordings for thousands of dollars and instructed the undercover agent to send a money transfer through Western Union.  After the agent sent the money transfer, Paraguayan law enforcement officers waited at a Western Union in Ciudad del Este, Paraguay where Boiteux had picked up a previous money transfer. As expected, Boiteux arrived a short time later to pick up the transfer, but instead was arrested by Paraguayan officers.  Boiteux was extradited to San Diego in July 2018.

Cantor Fitzgerald Files $7.2 Million FINRA Arbitration Promissory Note Claim. In the Matter of the Arbitration Between Cantor Fitzgerald & Co., Claimant, v. Ilan Shlomo Adika, Respondent (FINRA Arbitration Decision  17-02431)
In a FINRA Arbitration Statement of Claim filed in September 2017 and as amended, FINRA member firm Cantor Fitzgerald & Co. asserted against former associated person Respondent Adika repayment of promissory notes; breach of employment agreement; breach of implied covenant of good faith and fair dealing; breach of loyalty and fiduciary duty; breach of confidentiality agreement; and conversion. Ultimately, Claimant sought repayment of loans in the amount of $7,222,222.00, at least $10,000 in compensatory damages plus  interest, costs, and expenses. Respondent Adika generally denied the allegations, asserted various affirmative defense, and filed a Counterclaim asserting breach of contract; quantum meruit-unjust enrichment; promissory estoppel; and fraudulent inducement. The FINRA Arbitration Panel found Respondent Adkika liable to and ordered hium to pay to Claimant Cantor Fitzgerald $7,000,000.00 in compensatory damages. Also, the Panel granted Respondent Adika's request for expungement of his Central Registration Depository record ("CRD") via the recommendation in part that explanations on his Form U5 should be revised to state that the firm's internal "investigation has concluded," and further reflect that "The firm commenced an investigation into client entertainment activities. The employee resigned during the investigation."
Imagine that a former employee has been saying nasty things about your brokerage firm. In response, you file an arbitration complaint to enjoin that individual from making further statements that slander, libel, or otherwise defame your firm. When the former employee doesn't file an Answer and doesn't show up for the hearings, maybe you ask the arbitrators to take things a bit further. Maybe you ask for a permanent injunction to prohibit the former employee from making comments that disparage, criticize or otherwise reflect adversely upon the firm. Maybe the arbitrators hear your arguments, hear none from the absent former employee, and, hell, they give you what you asked for. That seems fair. Except, you know, should a FINRA Arbitration Panel restrain mere criticism? Should arbitrators restrain mere adverse comments? 

Self-Regulatory Organizations; Financial Industry Regulatory Authority, Inc.; Order Approving a Proposed Rule Change to Expand Time for Non-Parties to Respond to Arbitration Subpoenas and Orders of Appearance of Witnesses or Production of Document (SEC Order Approving FINRA Proposed Rule Change; Release No. 34-85781; File No. SR-FINRA-2019-004) The SEC approved amending FINRA's Customer and Industry Codes of Arbitration to:

(1) extend the response time for non-parties to object to an order or subpoena from 10 calendar days of service to 15 calendar days of receipt of the order or subpoena;
(2) exclude first-class mail as an option to serve documents on a non-party and as an option for the non-party to file the objection to the scope or propriety of the order or subpoena; and
(3) codify the current practice that the Director sends, at the same time, objections and responses to the panel after the reply date has elapsed, unless otherwise directed by the panel.
In response to an three-count Indictment filed in the United States District Court for the Eastern District of New York, Ng Chong Hwa, a/k/a "Roger Ng," has been extradited to the United States from Malaysia. While employed as a Managing Director at a financial institution which underwrote more than $6 billion in bonds issued by 1MDB in three separate bond offerings in 2012 and 2013, Ng is charged with conspiring to:
  • launder billions of dollars embezzled from 1Malaysia Development Berhad (1MDB), 
  • violate the Foreign Corrupt Practices Act ("FCPA") by paying bribes to multiple government officials in Malaysia and Abu Dhabi, and 
  • violate the FCPA by circumventing the internal accounting controls of a major New York-headquartered financial institution. 
As set forth in part in the DOJ Release:

[B]etween approximately 2009 and 2014, Ng conspired with others to launder billions of dollars misappropriated and fraudulently diverted from 1MDB, including funds 1MDB raised in 2012 and 2013 through three bond transactions it executed with the Financial Institution.  As part of the scheme, Ng and others conspired to bribe government officials in Malaysia and Abu Dhabi to obtain and retain lucrative business for the Financial Institution, including the 2012 and 2013 bond deals.  They also conspired to launder the proceeds of their criminal conduct through the U.S. through the promise and payment of hundreds of millions of dollars in bribes.  In the course of executing the scheme, Ng and others at the Financial Institution conspired to circumvent the Financial Institution's internal accounting controls. Through its work for 1MDB during that time, the Financial Institution received approximately $600 million in fees and revenues along with increased reputational prestige.  At the same time, Ng and other co-conspirators at the Financial Institution received large bonuses and enhanced their own reputations at the Financial Institution.  In total, Ng and the other co-conspirators misappropriated more than $2.7 billion from 1MDB.  Low remains at large.
Eugene Smith was convicted after a trial in the United States District Court for the Eastern District of Pennsylvania for conspiracy to commit wire fraud, wire fraud, conspiracy to traffic in counterfeit goods, and trafficking in counterfeit goods. As set forth in part in the DOJ Release, Smith's  convictions were in connection with his:

leadership role in the production and sale of counterfeit tickets to sporting events, including the National Football League's Super Bowl LI (51) in Houston (between the Patriots and the Falcons) and Super Bowl LII (52) in Minneapolis (between the Eagles and the Patriots), a National Basketball Association All-Star game, National Collegiate Athletic Association Championship football and basketball games, and other sporting events and concerts. The counterfeit tickets bore the authentic trademarks of the respective organization or agency that was registered with the United States Patent and Trademark Office. Smith sold the counterfeit tickets at the various venues and also distributed the counterfeit tickets to other sellers nationwide for resale to victims.

Smith targeted events and victims based on profitability - the bigger the event, the bigger the payoff. The scheme involved several steps and multiple players: after determining which events would draw the most profit, Smith provided a real ticket to the event to his printer for use in the production of multiple tickets for the event.  Smith would then travel to venues to sell the counterfeit tickets or he provided the counterfeit tickets to other sellers to resell to unwitting fans. This scheme involved sophisticated printing that mimicked the authentic tickets' markings and hologram.  

At Smith's sentencing hearing, Eric Ferguson, who was also charged with the same offenses, testified that he was recruited by Smith to produce the counterfeit tickets for the sporting events and concerts. The government presented evidence that the face value of the counterfeit tickets printed by Ferguson was at least $170,000, but the government estimated that the actual resale value of the tickets, particularly the Super Bowl tickets, far exceeded their face value.

You don't see this everyday. In the Matter of the Registration Statement of Starkot Corp. (SEC Order to Show Cause; Admin. Proc. Rul. Rel. No. 6564; Admin. Proc. File No. 3-19146)
The SEC instituted proceedings (the "OIP") in response to Starkot's filing of S-1 registration statements in 2017. As alleged in part in the SEC Order to Show Cause: 

[T]he Registration Statement contained material misstatements and omissions; and that Starkot failed to cooperate with, and attempted to obstruct, Commission staff's examination of the Registration Statement pursuant to Section 8(e) of the Securities Act. The OIP ordered Starkot to file an Answer within ten days after service of the OIP and ordered that a hearing on the allegations commence at 9:30 a.m. on May 6, 2019  . .

The SEC alleges that Starkot was served with the OIP on April 22, 2019, but the company has failed to file an Answer, due on May 2, 2019; and did not appear at the scheduled May 6th hearing. The SEC Order to Show Cause seeks to determine why Starkot "should not be deemed to be in default and the effectiveness of the registration statement it filed should not be suspended. . . ."

SEC Obtains Final Judgment Against Former Broker for Defrauding Customers (SEC Release)
In a Complaint filed in the United States District Court for the Southern District of New York, the SEC alleged that alleges that from July 2012 to October 2014, Rocco Roveccio recommended to seven customers a pattern of high-cost, in-and-out trading without any reasonable basis to believe that his customers could make a profit; and that said trades resulted in losses for the customers and gains for Roveccio. Also, Roveccio allegedly lied to his customers about the accounts' profit-potential; and he engaged in unauthorized trading and churning. The Court entered a final consent judgment, which permanently enjoins Roveccio from violating the antifraud provisions of Section 17(a) of the Securities Act  and Section 10(b) of the Securities Exchange Act  and Rule 10b-5 thereunder, and orders him to pay $324,614, consisting of $147,115 in disgorgement, $17,499 in prejudgment interest and a civil penalty of $160,000. Separately, the SEC instituted settled administrative proceedings against Roveccio; and thereafter, without admitting or denying the findings, Roveccio consented to an SEC order barring him from the securities industry and penny stock trading. Roveccio was formerly associated with Alexander Capital L.P., and in June 2018, the SEC filed settled charges against the broker-dealer and two of its managers, including Roveccio's former supervisor; and in September 2017 and March 2019., the SEC also settled with two other former Alexander Capital brokers.