Securities Industry Commentator by Bill Singer Esq

May 29, 2019

Court Enters Final Judgment Against James Alan Craig (SEC Release)
In a Complaint filed in the United States District Court for the Northern District of California, the SEC charged James Alan Craig with securities fraud for tweeting false statements about two companies which caused sharp drops in their stock prices and triggered a trading halt in one of them. Allegedly, Craig deceptively created the source Twitter accounts to appear to be those of well-known securities research firms. Without admitting or denying the allegations, Craig consented to the judgment that permanently enjoined him from violating the antifraud provisions of Section 10(b) of the Securities Exchange Act and Rule 10b-5 thereunder, and ordered him to pay disgorgement and prejudgment interest totaling $217. In what must be deemed a fitting case of irony, the SEC Release states in part that:

[A]fter making the fraudulent tweets, Craig allegedly placed trades in an attempt to capitalize on the stock price movements. Notwithstanding Craig's attempt to capitalize on the downward stock price movement he caused, he allegedly waited too long to place each trade, resulting in only $97 in illicit trading profits.

Scott Edward Cavell pled guilty in the United States District Court for the Eastern District of California to one count of causing misbranded drugs to be introduced into interstate commerce, and he was sentenced to three years in prison. As set forth in part in the DOJ Release:

[B]etween 2015 and 2017, Cavell, with others, developed a scheme to market and sell a drug, 2,4-Dinitrophenol (also known as DNP), as a weight loss drug and "fat burner" despite knowing that DNP is not approved by the FDA as a substance for human consumption. Cavell sold DNP in pill form and called it a fertilizer -- a term under which is it legally sold in other circumstances.

Cavell admitted that he controlled websites that marketed the drug as a supplement while at the same time discouraging its use. He proceeded to sell DNP pills on another website,, for the purpose of misleading U.S. Food and Drug Administration regulators.

DNP has been commercially used to manufacture dyes and wood preservatives, as a fertilizer, and as a pesticide. The U.S. Food and Drug Administration has declared that DNP is too toxic to be used for human consumption under any circumstances.

According to court documents, Cavell collected at least $763,000 for compounding cheap fertilizer into pills for human consumption.
Bill Singer's Comment: So . . . to put the DOJ Release's headline in other words "Sacramento Man Sentenced to 3 Years in Prison for Selling Shit as a Fat-Burning Pill."  Frankly, when you put it like that, it's a bit of a yawner. After all, Wall Street has been selling shit as reputable investments for generations.
In a recent FINRA expungement case, the sole arbitrator recommended expungement of two customer complaints. In the first occurrence, employer Morgan Stanley had denied the customer's claim and no litigation or settlement ensued.  In the second occurrence, the stockbroker was not named as a Respondent in the customer's arbitration against Morgan Stanley. Unfortunately, in recommending expungement, the FINRA arbitrator unwittingly opens up a can of worms.

Miami Man Detained in Alleged Five-State "Cashout Scheme" (DOJ Release)
In a Complaint filed in the United States District Court for the District of Rhode Island,, Dean Emmanuel Colin was charged with conspiracy to commit access device fraud and access device fraud allegedly as a result of his role in a "cashout scheme." As explained in the DOJ Release:

A "cashout scheme" is a criminal conspiracy whereby individuals utilize stolen or otherwise compromised bank or credit card company account numbers encoded on access devices such as ATM cards, credit cards, gift cards, and hotel keys, to withdraw large sums of currency from ATMs.  These "cashout schemes" are often multi-layer conspiracies wherein computer hackers and their associates steal confidential financial information, including business and personal account numbers and personal identification numbers.  The hackers often transmit this information to co-conspirators through an array of online communication mechanisms. Ultimately, the purchasers of the stolen financial information use the account numbers to encode plastic cards with magnetic stripes, which they then use to withdraw currency from ATMs.

The United States Secret Service and Warwick Police allegedly determined that Colin fit the description of an individual who made repeated large fraudulent withdrawals from an ATM in Warwick, R.I., at a branch office of the same bank, totaling more than $35,000. Allegedly, ATM transactions connected to Colin by video surveillance involve at least 29 different American Express Platinum account numbers.When arrested, police officials seized from Colin or his property $65,920 in cash, 11 cards with magnetic strips, a card reader/writer and USB cable used to encode bank cards, rubber bands used to wrap currency, two cellular telephones, a receipt from the U.S. Post Office in Warwick, R.I. for a package mailed to Colin's residence in Florida, and an airline boarding pass in Colin's name from Miami to Boston on May 22, 2019.
In a conviction that DOJ asserts marks the first time that it has "targeted a company and convicted its chief executive for knowingly providing transnational criminal organizations with the encrypted infrastructure to conduct the international importation and distribution of narcotics," Vincent Ramos, the chief executive of Canada-based Phantom Secure, was convicted in the United States District Court for the Southern District of California on Racketeering Conspiracy (RICO Conspiracy) and sentenced to nine years in prison and ordered to forfeit $80 million as proceeds of the crime and various assets. Co-Defendants Kim Augustus Rodd, Younes Nasri, Michael Gamboa and Christopher Poquiz were charged with charged with Conspiracy to Commit RICO and Conspiracy to Distribute Controlled Substances and remain international fugitives. As set forth in part in the DOJ Release:
Ramos advertised Phantom Secure's products as impervious to decryption, wiretapping or legal third-party records requests. Phantom Secure routinely deleted and destroyed evidence from devices that it knew had been seized by law enforcement.  According to Court documents, Phantom Secure's clients used email handles like the following to conduct criminal activities:;;;;;;     

According to court documents, one of Ramos's customers, Owen Hanson (who was previously sentenced to 21 years in custody), used only six Phantom Secure devices to coordinate the transportation of more than a ton of cocaine from Mexico into the United States and on to Canada and Australia.  The government conservatively estimates there were at least 7,000 Phantom Secure devices in use at the time Ramos was arrested--meaning that "the amount of drugs Phantom Secure aided and abetted in transporting by providing devices and services to criminals worldwide was too high calculate." 

Ramos' customers used his products to devastating and sometimes deadly effect, and Ramos used this to market his encryption services to criminals across the world.  According to court documents, in response to a March 5, 2014 news article that reported investigations of a gangland murder were stymied because the suspects used Phantom Secure devices to coordinate the killing, Ramos wrote, "this is the best verification on what we have been saying all along - proven and effective for now over nine years.  It is the highest level of authority confirming our effectiveness.  It can't get better than that."    

Phone Provider Found Guilty for Role in $11 Million International Telemarketing Scheme (DOJ Release)
Following a five-day jury trial in the United States District Court for the Western District of North Carolina, Donald Dodt was convicted of one count of conspiracy to commit wire fraud and mail fraud, two counts of mail fraud, eight counts of wire fraud, one count of conspiracy to commit international money laundering and 10 counts of international money laundering. Dodt was involved in a telemarketing scheme operating from Costa Rican call centers that targeted primarily elderly victims and reaped about $7 million. As set forth in part in the DOJ Release:

[D]odt worked in a call center in Costa Rica in which co-conspirators, who posed as representatives of the District of Columbia Department of Consumer and Regulatory Affairs and federal agencies, including the U.S. Federal Trade Commission, and who also posed as federal judges, contacted victims in the United States - primarily senior citizens - to tell them that that they had supposedly won a substantial "sweepstakes" prize.  After convincing victims that they stood to receive a significant financial reward, the co-conspirators told victims that they needed to make a series of up-front cash payments before collecting, purportedly for items like insurance fees, taxes and import fees.  Co-conspirators used a variety of means to conceal their true identity, such as Voice over Internet Protocol (VoIP) services provided by Dodt that made it appear that they were calling from Washington, D.C., and other places in the United States. 

As the evidence presented at trial illustrated, Dodt was an integral part of this scheme in that he knowingly provided services that were necessary for the scheme to operate and that facilitated the concealment and, ultimately, success of the scheme for many years.  Specifically, Dodt provided and maintained VoIP phone technology and assigned phone numbers associated with locations in the United States through which members of the conspiracy were able to make the fraudulent calls to victims in the United States and conceal their identities and location.  Dodt specifically assigned virtual phone numbers with area codes associated with Washington, D.C., to make it appear that the calls originated from within the United States and that also bolstered conspirators' misrepresentations that they were representatives of government agencies located in Washington.  Dodt also warned the co-conspirators if certain numbers were "hot" - i.e., there were customer complaints or law enforcement inquiries - and replaced those phone numbers with new phone numbers that the co-conspirators then used in furtherance of the scheme, the evidence showed.
Candace Rispoli pled guilty in the United States District Court for the District of Connecticut to one count of wire fraud; and Michael Maino, allegedly Rispoli's boyfriend, pled guilty to one count of conspiracy to commit wire fraud. Maino awaits sentencing, and Rispoli was sentenced to 12 months and one day in prison plus three years of supervised release (the first six months in home confinement), and she was ordered to pay $1,098,176 in restitution. As set forth in part in the DOJ Release:

[F]rom approximately January 2012 until June 2016, Rispoli was employed by Lodestone Management Consultants, later known as Infosys Consulting (the "company").  Beginning in approximately 2013, Rispoli worked for the company from her former home in East Haven, which she shared with her then-boyfriend, Michael Miano.  In her capacity as a company employee, Rispoli had an American Express credit card to use to pay for travel, entertainment and other business expenses incurred by the company's employees and potential employees.

From approximately 2013 until July 2016, Rispoli charged more than $250,000 of her own and Miano's personal expenses to the company's American Express card.  Rispoli also fraudulently transferred more than $800,000 in funds from the company's American Express card to PayPal and Venmo accounts controlled by Rispoli and Miano.  To conceal her scheme, Rispoli altered the company's American Express account statements and created false billing summaries, which she emailed to the company's accounting firm.
John K. Morrow was sentenced in the United States District Court for the Western District of Louisiana to 7 1/2 years in prison plus three three years of supervised release and ordered to pay $2,066,923 restitution. As set forth in part in the DOJ Release:

Morrow was the owner of a Louisiana company called UVC Technologies LLC, which was formed in 2011. UVC Technologies represented itself as providing green, chemical free disinfection machines utilizing ultraviolet germicidal irradiation to meet the needs of various medical communities. From 2011 to 2016, Morrow solicited individuals to invest money in the company. He used false statements and misrepresentations indicating that the funds would only be used for business expenses and distribution of additional disinfection machines. He promised large sums of money in a short time period for their investments. When the investors complained about not being paid back and for the purpose of soliciting funds from them, Morrow falsely claimed that the business had been sold for millions and that their money would be paid back from the proceeds of the sale.  Morrow also told investors that he would use funds for business expenses, but he spent their funds on personal living and travel expenses. Morrow defrauded the investors out of more than $2 million during the course of the scheme. He pleaded guilty to the federal charges on January 14, 2019.

SEC Charges Investment Adviser With Fraud (SEC Release)
In an Order Instituting Proceedings, the SEC charged investment adviser Stephen Brandon Anderson (the owner/operator of the defunct River Source Wealth Management LLC) with having violated Sections 206(2) and 207 of the Investment Advisers Act, and aided and abetted and caused River Source's violations of the books and records and compliance provisions of the Advisers Act. Without admitting or denying the SEC's findings, Anderson consented to the SEC Order and agreed to a Censure, cease-and-desist order, and agreed to pay disgorgement and prejudgment interest of $405,381 and a $100,000 penalty. Further, the SEC Order prohibits Anderson from acting in a supervisory or compliance capacity or from charging advisory fees without supervision for at least three years, and requires Anderson to provide notice of the SEC order to clients and prospective clients.   In part the SEC Release asserts that:

[R]iver Source's primary revenue stream was customer advisory fees.  Customer agreements provided that those fees would be based on each customer's assets under management.  The SEC's order finds, however, that in 2015 and 2016, Anderson overcharged a majority of his clients.  The amount and percentages of the overcharges varied but, in the aggregate, amounted to approximately 40% more than the agreed-upon maximum customer advisory fees.  As described in the order, Anderson also misled his clients about the reason he transferred their assets from River Source's long-time asset custodian, falsely stating that it was his decision and that the separation was "amicable."  In fact, as the order finds, the asset custodian ended the relationship with River Source after it noticed irregular billing practices and failed to receive sufficient supporting documentation from Anderson.  Furthermore, the order finds that Anderson made material misstatements in reports filed with the Commission, including overstating River Source's assets under management by at least $34 million (18%) in 2015 and $61 million (35%) in 2016, and failed to implement required compliance policies and procedures. . . .

In the Matter of Robert L. Harger, Jr., Respondent and Christopher Michael Dowden, Respondent (FINRA AWC 2017055821401, May 28, 2019) 
%20Christopher%20Michael%20Dowden%20CRD%204089978%20AWC%20sl.pdf For the purpose of proposing a settlement of rule violations alleged by the Financial Industry Regulatory Authority ("FINRA"), without admitting or denying the findings, prior to a regulatory hearing, and without an adjudication of any issue, Alexander Michael Panas, III, submitted a Letter of Acceptance, Waiver and Consent ("AWC"), which FINRA accepted
The AWC asserts that 
  • Harger entered the securities industry in 1978 and in March 1982 was associated with FINRA member firm Harger and Company, Inc. ("HCI"); and
  • Dowden entered the securities industry in 2009 and in October 2000 was associated with FINRA member firm HCI
The AWC asserts that Dowden "has no disciplinary history." The AWC asserts the following relevant disciplinary history for Harger:
  • 1984 SEC settlement for failing to dislcose information in the offer and sale of securities resulting in a 60-day suspension in all capacities plus a nine month suspension in a supervisory capacity;
  • 1983 NASD settlements by HCI and Harger involving private securities transactions, offer-and-sale misrepresentations, and lack of a cancellation rider for HCI"s Fidelity Bonding Coverage resulting in a Cenesure and $1,000 for Harger, and a $1,500 joint and several fine plus $80 in costs; and
  • 1983 NASD settlement by Harger involving books and records issues resulting in a Censure and $5,000 fine.
As set forth in the 2019 FINRA AWC under the heading "OVERVIEW":

During the period March 2010 through October 2016 ("Relevant Period"), Harger permitted customers to sign without date partially completed Variable Annuity ("VA") Exchange Forms. Subsequently, Harger entered the missing information before submitting the forms to Dowden, the designated supervising principal, for review and approval of the proposed transactions. Dowden then wrote in a date next to the applicable customer's undated signature using the date he approved the transaction. By virtue of this conduct, Harger and Dowden violated NASD Rule 3110 (from March 2010 through December 4, 2011) and FINRA Rules 4511 (from December 5, 2011 through October 2016) and 2010. 

In accordance with the terms of the AWC, FINRA imposed upon:
  • Harger: $15,000 fine and a three-month suspension from any FINRA member firm in any and all capacities; and 
  • Dowden: $10,000 fine and a two-month suspension from any FINRA member firm in any and all capacities; and 
Both Respondents submitted a "Statement of Corrective Action," which in pertinent part stated:


Since this matter has been brought to my attention I have learned that it is important to both fully and accurately complete all forms on which client signatures appear and insure that the client dates the forms at the time of signature even when I have fully explained all of the information contained on the form to the client. Had I done this I would have avoided the violation. I will do this in the future on any client form for which there is information which is confirmed by the client. 

By taking the above steps I've alleviated any risk that the issues presented in my Letter of Acceptance, Waiver and Co repeated in the future. 


Since this matter has been brought to my attention, I have learned that it is important that all documents signed by a client be dated not only as of the actual date of the client's signature but be dated on the actual date of the signature. Had I insisted that the form be dated when the form was completed and signed by the client, I would have avoided the violation. I will do this in the future on any form submitted to me for approval. 

By taking the above steps I've alleviated any risk that the issues presented in my Letter of Acceptance, Waiver and Consent may be repeated in the future.