Securities Industry Commentator by Bill Singer Esq

[B]etween approximately June 2007 and July 2016, Flaum placed thousands of orders to manipulate the prices of gold, silver, platinum and palladium futures contracts traded on the New York Mercantile Exchange Inc. (NYMEX) and Commodity Exchange Inc. (COMEX), which are commodities exchanges operated by CME Group Inc.  Flaum routinely placed orders for precious metals futures contracts with the intent to cancel those orders before execution.  This trading strategy was intended to deceive other market participants about the existence of supply and demand, and to artificially move the price of precious metals futures contracts in a direction that was favorable to Flaum and the two banks for which he worked.

In June and July 2018, THOMPSON induced one victim company ("Company-1") to send Volantis over $3 million to fund the purchase of Bitcoin for Company-1 after falsely assuring Company-1 that THOMPSON had the Bitcoin in hand and Company-1's money could not be lost.  After taking Company-1's money and failing to provide any Bitcoin in return, THOMPSON lied for days about why the deal had not worked out and the location of Company-1's Bitcoin and money, which was never returned.  Among other things, THOMPSON provided Company-1 with a false account statement purporting to show Company-1's money held for it by THOMPSON, when in fact THOMPSON had already misappropriated thousands of dollars of Company-1's money.  Additionally, even though THOMPSON had told Company-1 that before any transaction "cash is with me, coin is with me," THOMPSON sent over $3 million of Company-1's money to a third-party entity purportedly in exchange for Bitcoin without first receiving any of the Bitcoin in hand.  THOMPSON never returned Company-1's money, nor provided it with any Bitcoin. 

In July 2018, THOMPSON induced another victim company ("Company-2") to send Volantis over $4 million to fund the purchase of Bitcoin for Company-2 based on false representations.  After receiving Company-2's money, THOMPSON sent a substantial portion of the money to a third party-about whom THOMPSON was aware of several warning signs-without first receiving any Bitcoin in return.  THOMPSON never provided Company-2 with any Bitcoin, nor did he return Company-2's money.  THOMPSON also lied to Company-2 about the location of the Bitcoin and the reasons the transaction was not completed.

Since 2012, a Brazilian company (the "Client") held an account at a financial institution headquartered in Manhattan (the "Firm").  Beginning in June 2014, cooperating witness Evandro Dos Reis Jr. ("Dos Reis"), who was then a Senior Vice President at the Firm, communicated with ELIAS, a longtime friend, regarding the Client's account.  Shortly thereafter, Dos Reis began receiving emails to his Firm email account purportedly from an employee of the Client (the "Client Employee") instructing Dos Reis to transfer the Client's money to a bank account in Luxembourg (the "Luxembourg Account") that appeared to be in the name of the Client.  Those emails were sent from an email address that was never used by the Client Employee and contained bogus wire instructions with the forged signature of the Client Employee.  On July 15, 2014, as a result of the false documentation provided to Dos Reis which he forwarded to another Firm employee to be executed, the Firm transferred approximately $752,000 from the Client's account at the Firm to the Luxembourg Account (the "Fraudulent Transfer"), believing it to be a legitimate transfer requested by the Client.

In actuality, the Client did not authorize the Fraudulent Transfer, did not have any bank accounts in Luxembourg, and did not send the emails to Dos Reis requesting the transfer.  Rather, it was ELIAS who sent the emails purporting to be from the Client Employee that contained forged wire instructions to Dos Reis.  Further, the Luxembourg Account that received the Fraudulent Transfer was beneficially owned by ELIAS and opened in the name of a company formed in Panama at ELIAS's direction the week prior to the Fraudulent Transfer.  The Panama company used by ELIAS to open the Luxembourg Account contained the name of the Client in order to create the false impression that the Client's funds were being transferred to an account beneficially owned by the Client, when in fact such account was beneficially owned by ELIAS. 

In addition to the scheme to defraud the Firm, ELIAS and Dos Reis also attempted to fraudulently obtain money from accounts at a second financial institution headquartered in Manhattan using the identities of the Client Employee and other members of the Client Employee's family without their authority.

The account in question was a non-discretionary account. The client was a sophisticated and experienced investor who refused to take protective losses when the market went down. He also received reduced fees due to his activity levels and friendship with Claimant. Claimant spoke with the customer on a daily basis. The client always received trade confirmations when trades were made, in addition to monthly statements. The customer had losses in his account due to market forces related to the September 11, 2001 attacks on the United States. 

Two securities were listed on the customer complaint. 1000 shares of ARIBA were purchased but only 200 shares traded on the sell order (due to market demand at the requested price). Because the sell order was only partially completed, the customer complained about being charged full commission on the trade, which was subsequently adjusted. The complaint about the commission is deemed to be a contemporaneous acceptance of the buy and sell orders. The rest never sold because the price dropped and the client was unwilling to lower the sales price to avoid losses. Customer sold a naked put on stock ACLN. A few days before the option expired, some unexpected bad news was released about the company, causing the company's stock price to drop. Trading in ACLN's securities was halted. When trading resumed, the customer was forced to purchase the stock to satisfy the option. The client complained about the commission on his transaction, which was adjusted. This request is deemed to be a contemporaneous acceptance of the trade. 

Josephthal compliance investigated the complaint and denied the claim. No further claims were filed by the customer against Claimant after Josephthal denied the initial complaint. 

• Securities Industry Commentator
• Bill Singer