Securities Industry Commentator by Bill Singer Esq

July 10, 2019
An Edward Jones stockbroker met with a customer and they agreed to reduce risk and increase income via portfolio rebalancing. Within a month of the rebalancing and after the stockbroker had departed the firm, the customer seemed to have complained that the trades were unauthorized. In response, Edward Jones cancelled the trades and the customer's complaint was noted on the former stockbroker's industry record. About a year after the busted trades, the stockbroker filed an arbitration against his former employer in an effort to expunge the purported customer complaint. What ensues is a tribute to both the FINRA Arbitrator deciding the case and the stockbroker's lawyer.
After a five-day jury trial in the United States District Court for the Central District of California found Nikishna Polequaptewa was found guilty of one felony count of unauthorized impairment of the integrity and availability of data, programs, systems, and information, and he was sentenced to 27 months in prison and ordered to pay $53,305 in restitution. As set forth in part in the DOJ Release:

Beginning in April 2014, Polequaptewa worked at Blue Stone Strategy Group, which provided consulting services to Native American tribal governments throughout the United States. In addition to his consulting responsibilities, Polequaptewa led information technology and marketing at Blue Stone. 

After he began falling behind on work, Polequaptewa was relieved of IT and marketing duties in November 2014. Polequaptewa then was assigned to a consulting project in Florida for the Seminole Tribe. While on that project and angry that he had been stripped of his other job duties, Polequaptewa retaliated against Blue Stone by deleted the website and marketing materials that the company had developed over eight years. Polequaptewa's deletions cost Blue Stone more than $50,000 to restore its system to its state before Polequaptewa's deletions. 

After he resigned from the Florida project in November 2014, Polequaptewa continued to delete Blue Stone files, including client information, Blue Stone work product, and the company's backup files held by a third-party. Polequaptewa's final deletion was done by sending a "wipe" command to a Blue Stone desktop computer in Irvine. Polequaptewa's deletions were first detected when an employee in Irvine saw files being deleted from a Google drive account by Polequaptewa while he was working on the Florida project.

Rhode Island Man Charged In Connection With Business Email Compromise Fraud Targeting Massachusetts Lawyer (DOJ Release)
Sayon Balogun a/k/a "Oshine" was indicted in the United States District Court for the District of Massachusetts on one count of money laundering conspiracy involving a so-called Business Email Compromise ("BEC") fraud. As set forth in part in the DOJ Release:

[I]n January 2018, Balogun's co-conspirators gained access to email accounts belonging to a Massachusetts attorney engaged in real estate closings. The co-conspirators then mimicked (spoofed) the real estate attorney's email account and sent emails to a Massachusetts resident who was the purchaser in a legitimate real estate transaction. The spoofed emails directed the Massachusetts real-estate purchaser to wire transfer $531,981 (which the purchaser believed was for a legitimate real estate transaction) to a bank account held by a California woman. The California women then sent $60,000 to an account in the name of "David Tecum," a fraudulent identity used by Oghenetchouwe Adegor Ederaine Jr., one of Balogun's co-conspirators, who received fraud proceeds at Balogun's direction. Ederaine has pleaded guilty to aggravated identity theft and money laundering conspiracy charges.
Following a two-month trial in the United States District Court for the Eastern District of New York, 
Mark Nordlicht, the founder and Chief Investment Officer of Platinum Partners L.P., and David Levy, the co-Chief Investment Officer of Platinum, were convicted of securities fraud, securities fraud conspiracy and wire fraud conspiracy. As set forth in part in the DOJ Release:

Platinum was a New York City-based hedge fund founded in 2003.  The evidence at trial established that between approximately November 2011 and December 2016, Nordlicht and Levy, together with their co-conspirators, orchestrated a fraudulent scheme to defraud third-party holders of Black Elk's publicly traded bonds (the bondholders) by diverting to Platinum the proceeds from the sale of the vast majority of Black Elk's most lucrative oil fields even though the bondholders had priority over Platinum's equity interests. To execute this scheme, in early 2014, Nordlicht, Levy and others caused Platinum to secretly purchase Black Elk bonds on the open market and gain control of $98 million of the $150 million of outstanding bonds. The bonds were then transferred through a number of related entities to conceal their ownership and control by Platinum. Nordlicht, Levy and their co-conspirators then rigged a consent solicitation vote to amend the Black Elk indenture so that the proceeds from the sale of Black Elk's best assets would be paid to the preferred equity - which was held by Platinum and Platinum insiders - ahead of the other bondholders. Notably, non-Platinum related bondholders overwhelmingly voted against changing the indenture; one bondholder explained that to do so would constitute "giv[ing] up my rights and not get[ting] anything back for it," which he characterized as "kind of stupid." 

After the rigged vote was complete, Nordlicht, Levy and their co-conspirators took millions of dollars from the asset sale for themselves, family members and friends, including approximately $7 million to Nordlicht's father, approximately $250,000 to Levy and approximately $2 million to the brother of a co-conspirator.

Nordlicht, Levy and Joseph SanFilippo were acquitted of counts related to a separately charged scheme involving investors in the Platinum funds.  

FINRA Arbitrator Recommends Expungement and Finds Lawyer's Letter Not Equivalent to Client's Testimony. In the Matter of the Arbitration Between Wilson Blanton Garnett, Jr., Claimant, v. LPL Financial LLC, Respondent (FINRA Arbitration Decision 19-00089)
In a FINRA Arbitration Statement of Claim filed in January 2019, associated person Claimant Garnett sought the expungement of a customer complaint from his Central Registration Depository record ("CRD"). Respondent LPL did not opposed the requested relief and participated in the hearing. Although notified of the expungement request and hearing, the customer did not appear. In recommending expungement, the sole FINRA Arbitrator found that the customer's claim, allegation, or information is factually impossible or clearly erroneous. In pertinent part, the Arbitrator explains that:

I found that no evidence supporting the customer's underlying complaint was presented. The customer's attorney's letter, dated November 29, 2010, is the sole evidence supporting the customer's claim. I find that this letter states an attorney's position for a client which, without testimony of the client (the customer), would be inadmissible at a hearing. Further, based on Claimant's testimony at the hearing, I found Claimant's explanation of his advice to the customer to be credible regarding the various characteristics of the underlying annuity investments, which the customer purchased with full knowledge, as evidenced by her signature on the sales documents. 

FINRA Fines and Suspends Wells Fargo Rep for Borrowing from 94-year-old Customer. In the Matter of Linda Sue Zara, Respondent (FINRA AWC 2018056922501)
The AWC asserts that Zara entered the industry in 1993 and from August 2012 to January 2018, she was associated with FINRA member firm Wells Fargo Clearing Services, LLC d/b/a Wells Fargo Advisors. The AWC states that Zara "has no prior disciplinary history." FINRA alleged that Zara had borrowed $44,292 from her customer without first notifying and obtaining written approval from Wells Fargo, in violation of FINRA Rules 3240 and 2010.  In accordance with the terms of the AWC, FINRA imposed upon Zara a $5,000 fine and a three-month suspension from association with any FINRA member in any capacity. As set forth in part in the AWC:

On June 28, 2017, Zara and Firm customer HR executed a promissory note, which provided that Zara could borrow up to $50,000 from HR. The loan carried a 2% interest rate and matured on December 31, 2017. HR, who was 94 years old at the time of the loan, was not a member of Zara's immediate family, and Zara was the registered representative of record for HR's Firm accounts.

From July 2017 to October 2017, Zara borrowed a total of $44,292 from HR to pay her personal credit card bills. In October 2017, Zara repaid the amount she borrowed from HR in full, plus interest. 

Zara did not seek prior approval for, or disclose the receipt of, the loan to the Firm.

Financial Capability Study, Part I: Does a Rising Tide Lift All Boats? (FINRA Unscripted)

The U.S. economy is improving, but not all Americans are benefiting equally. Many Americans are failing to save, struggling with student loan debt and facing decreasing financial literacy, according to the new FINRA Foundation Financial Capability Study. On this episode, we delve into the study results and their implications.
The CFTC and SEC approved a joint proposal to align the minimum margin required on security futures with other similar financial products; and set the minimum margin requirement for security futures at 15 percent of the current market value of each security future.