The Wall Street Legal & Regulatory Feed
Securities Industry Commentator by Bill Singer Esq
August 19, 2019
https://www.justice.gov/usao-ndoh/pr/toledo-man-indicted-allegedly-trying-launder-drug-profits-casino
I'm not exactly sure why DOJ offers this how-to guide to money laundering but, in any event, Todd Brown was indicted in the United States District Court for the Northern District of Ohio on 15 -- count 'em: 15 -- counts of money laundering. As set forth in part in the DOJ Release:
Brown, on 15 different occasions between March 2016 and June 217, went to the Hollywood Casino in Toledo, where he "fast fed" currency into gaming machines. "Fast feeding" is a practice of taking large sums of cash to casino, inserting the cash into a slot machine, playing the slot machine for a brief period of time, then receiving a cash-out ticket for the unused currency and redeeming the ticket. Fast feeding is often used to make cash obtained from unlawful activity appear to be casino winnings.Brown took proceeds from drug trafficking and fast-fed the cash to gaming machines at the Hollywood Casino in Toledo. He fast-fed approximately $138,843 at the casino in an effort to launder the money, according to the indictment.
Municipal Advisors Guidance Regarding Member Firms' Supervisory Obligations when Participating in Investment-Related Activities with Municipal Clients (FINRA Regulatory Notice 19-28)
As set forth in the "Summary" of the FINRA Regulatory Notice:
FINRA is issuing this Notice to remind member firms of their supervisory obligations under FINRA Rules 3110 (Supervision) and 3120 (Supervisory Control System) if they hold or transact in customer accounts owned by municipal entities or obligated persons (municipal clients), as defined in Section 15B of the Securities Exchange Act of 1934 (Exchange Act), and participate in investment-related activities with municipal clients, such as recommending or selling non-municipal securities products to such municipal clients. Under these circumstances, member firms are obligated to determine if such activities require registration as a municipal advisor.
Bill Singer's Comment: Wall Street outsiders rarely appreciate the incomprehensibility of various industry rules and regulations -- and how useless a regulator's so-called advice often proves to be. For an example of how FINRA excels in saying something that looks like it means something but, upon further reflection, has all the substance of cotton candy, consider this gem from the FINRA Regulatory Notice:The "municipal advisor" definition, including the exclusions and exemptions from the definition, are nuanced. A lack of understanding of the breadth and scope of the relevant terms comprising the "municipal advisor" definition create additional risks of unintentionally engaging in municipal advisory activities that would require registration as a municipal advisor. The numerous contours of the municipal advisor regulatory scheme make it possible that without reasonably designed supervisory systems and controls, member firms operating in the general securities market30 (e.g., by providing brokerage services to municipal clients purchasing non-municipal securities) may engage in unregistered municipal advisory activities.=====Footnote 30: This issue may be more pronounced with firms that do not participate in public finance activities, but have municipal entities as customers of the firm.What does that mean? We got a "nuanced" definition replete with exclusions and exemptions from that definition. There is a "breadth and scope of the relevant terms." Nuanced breadth and scope? No wonder you that you may unintentionally engage in unregistered advisory activity! Also, you better be aware of the "numerous contours" of the regulatory scheme. Said contours may be "more pronounced" if you're not involved in public finance activities but have municipalities as a customer. FINRA's Regulatory Notice admonishes its member firms that the definition of a Municipal Advisor is nuanced with risky breadth and scope on a landscape studded with dangerous contours that could prompt an unintentional violation. And FINRA says all of that with a straight face.
Reps File FINRA Arbitration Against Former Employer Over Failed Transition
(BrokeAndBroker.com Blog)
(BrokeAndBroker.com Blog)
http://www.brokeandbroker.com/4761/bonus-EFL-transition/
After many years of employment at Wells Fargo, two reps decided to join another firm. Hey, it happens. The new employer offered a substantial upfront bonus. Nice! The new firm promised to facilitate the transition of the reps' accounts. Alas, after some six-months into the new gig, the transition thing didn't seem to go as smoothly as the reps had expected. All of which prompted the reps to resign and move on. They want to keep their bonuses. The new employer wants the moolah back. The lights dim. The curtain rises. Act I, Scene 1 of an intra-industry FINRA lawsuit.
https://www.sec.gov/news/press-release/2019-155
Without admitting or denying the findings in an SEC Order that it had failed reasonably to supervise its securities lending desk personnel, BMO Capital Markets Corporation https://www.sec.gov/litigation/admin/2019/34-86693.pdf agreed to pay over $2.2 million in disgorgement, over $546,000 in prejudgment interest, and a $1.2 million penalty. Additionally, without admitting or denying the findings in an SEC Order that it had violated Section 17(a)(3) of the Securities Act of 1933 and also failed reasonably to supervise its securities lending desk personnel, Cantor Fitzgerald & Co. https://www.sec.gov/litigation/admin/2019/33-10672.pdf agreed to pay over $359,000 in disgorgement, over $88,000 in prejudgment interest, and a $200,000 penalty. The Orders acknowledge each firm's cooperation in the investigation. As set forth in part in the SEC Release, Cantor Fitzgerald and BMO settled charges of:
improper handling of "pre-released" American Depositary Receipts (ADRs). With today's actions, the SEC has charged 13 financial institutions in its ongoing investigation into abusive ADR pre-release practices, which, thus far, has included monetary settlements exceeding $427 million.ADRs - U.S. securities that represent foreign shares of a foreign company - require a corresponding number of foreign shares to be held in custody at a depositary bank. The practice of "pre-release" allows ADRs to be issued without the deposit of foreign shares, provided brokers receiving the ADRs have an agreement with a depositary bank and the broker or its customer owns the number of foreign shares that corresponds to the number of shares the ADRs represent.According to the SEC's orders, both Cantor Fitzgerald and BMO Capital obtained pre-released ADRs when they should have known that the pre-release transactions were not backed by foreign shares. The SEC orders find that both brokers improperly obtained pre-released ADRs indirectly from other broker-dealers, and the order as to Cantor Fitzgerald finds that the firm also improperly obtained pre-released ADRs directly from depositary banks.
SEC Charges Investment Banking Analyst with Insider Trading (SEC Release)
https://www.sec.gov/litigation/litreleases/2019/lr24568.htm
https://www.sec.gov/litigation/litreleases/2019/lr24568.htm
In a Complaint filed in the United States District Court for the Southern District of New York https://www.sec.gov/litigation/complaints/2019/comp24568.pdf, the SEC charged investment bank analyst Bill Tsai with violating Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder. The SEC seeks disgorgement of ill-gotten gains plus interest, penalties, and injunctive relief. In a parallel action, the U.S. Attorney's Office for the Southern District of New York announced criminal charges against Tsai. As set forth in part in the SEC Release:
On August 12, 2019, the Securities and Exchange Commission ("SEC") charged an analyst at a large international investment bank with insider trading based on confidential information that he learned about Siris Capital Group's plans to acquire Electronics for Imaging, Inc. ("EFII").
According to the SEC's complaint filed in federal court in Manhattan, Bill Tsai, a junior investment banker in the bank's New York office, learned of the acquisition when Siris consulted the bank about providing financing and advice on the transaction. The SEC alleges that soon after learning about the deal, Tsai purchased EFII call options, which he sold for a profit of approximately $98,750 shortly after the deal was announced in mid-April 2019.
Tsai allegedly attempted to hide his illegal activity by conducting his trading in a brokerage account that he concealed from his employer, and by circumventing the bank's policies that require employees to pre-clear securities trades.
SEC Obtains Final Judgment Against Securities Attorney in Market Manipulation Scheme (SEC Release)
https://www.sec.gov/litigation/litreleases/2019/lr24566.htm
https://www.sec.gov/litigation/litreleases/2019/lr24566.htm
In a judgment entered into on consent in the United States District Court District of Massachusetts, securities attorney Jehu Hand is permanently prohibited from participating in penny stock offerings, and enjoined from violating the antifraud provisions of Section 17(a) of the Securities Act of 1933 ("Securities Act") and Section 10(b) of the Securities Exchange Act and Rule 10b-5 thereunder, and the registration provisions of Sections 5(a) and (c) of the Securities Act .In a parallel criminal action in the District of Massachusetts, Hand was convicted by a jury on May 21, 2018 of securities fraud, wire fraud, and conspiracy to commit those offenses, and was subsequently sentenced to 66 months in prison plua three years of supervised release; and he was ordered to pay a $1,000,000 fine and to pay $486,953 in restitution. Also, the SEC suspended Hand from appearing or practicing before the Commission pursuant to Rule 102(e)(2) of the Commission's Rules of Practice, based on his criminal conviction. As set forth in part in the SEC Release, Hand was charged for his role in:
a pump-and-dump scheme involving the stock of Greenway Technology in 2015. In that action, the SEC alleged that Hand carried out the pump-and-dump scheme by, among other things, writing and sending false legal opinion letters to brokerage and other firms transacting in Greenway stock. These opinion letters were designed to clear the way for Greenway stock held by the scheme participants to be sold, without restriction, to unsuspecting investors in the market.
SEC Obtains Final Judgment Against Former Stock Promoter (SEC Release)
https://www.sec.gov/litigation/litreleases/2019/lr24569.htm
https://www.sec.gov/litigation/litreleases/2019/lr24569.htm
In a final judgment entered on consent in the United States District Court for the District of Massachusetts, Samuel Brown was enjoined from future violations of the antifraud provisions of Sections 17(a)(1) and (3) of the Securities Act and Section 10(b) of the Securities Exchange Act of 1934 and Rules 10b-5(a) and (c) thereunder, and prohibiting Brown from participating in the offering of a penny stock. As set forth in part in the SEC Release, the final judgement was entered against Brown, who was a:
former stock promoter for a Massachusetts-based medical diagnostics company previously called Endeavor Power Corp. The SEC previously charged Brown and two other defendants with a scheme to defraud potential investors in Endeavor's publicly traded stock. The SEC's complaint alleged that Brown - who previously pled guilty to charges that included making false statements to the SEC during its investigation - attempted to manipulate the market for Endeavor's stock by, among other things, engaging in coordinated trading designed to artificially inflate its price.
https://www.sec.gov/litigation/litreleases/2019/lr24567.htm
Without admitting or denying the allegations in an SEC Complaint filed in the United States District Court for the Central District of California, former Sientra Inc. Chief Executive officer Hani Zeini consented to the entry of a judgment permanently enjoining him from violating Section 17(a) of the Securities Act and Section 10(b) of the Exchange Act and Rule 10b-5. Zeini was ordered to pay a $160,000 civil penalty, and was subjected to a five-year officer and director bar. As set forth in part in the SEC Release:
[S]ientra sells silicone breast implants in the United States, and at the time of the offering, all of its implants were made by a company in Brazil. Three days before Sientra was preparing to close its stock offering, Zeini allegedly learned from the Brazilian company's CEO that its manufacturer's "CE certificate," which is a sign of regulatory compliance required to sell products in the European Union, had been suspended. Zeini allegedly concealed this information from Sientra's general counsel and the underwriters for the offering. The day after the offering closed, news of the suspension became public and Sientra's stock price fell 52.6% from $20.58 to $9.70 per share after it issued a release disclosing the suspension. Even after that, Zeini allegedly lied to those asking about the matter, and tried to destroy records that showed when he knew about the CE certificate suspension.