Securities Industry Commentator by Bill Singer Esq

August 20, 2019

Publisher of the Blog and Securities Industry Commentator:

FINRA Small Member Firm Petition Candidate Linde Murphy defeated FINRA incumbent Small Member Firm Governor and FINRA Nominating Committee candidate Robert Muh. Additionally, Large Member Firm Petition Candidate Christopher Flint from FINRA member firm ProEquities, Inc. defeated incumbent Large Member Firm Governor and FINRA Nominating Committee candidate Andrew Duff of FINRA Member Firm Piper Jaffray & Co. See: "FINRA Announces Governor Elections and Appointment" (FINRA News Release). 
These outcomes constitute stunning rebuffs of FINRA's Nominating Committee and underscore the serious rifts that exist and are growing between FINRA's powers-that-be and its membership.

I have known defeated incumbent FINRA Small Firm Member Governor Robert Muh for over a decade and energetically supported his petition candidacy in 2016, when he narrowly won election amid a crowded field of petition candidates; see, for example, "Support ROBERT MUH For FINRA Small Firm Governor" ( Blog, July 5, 2016)

Bob is a long-time industry veteran and an articulate spokesman for industry reform and the legitimate needs of the FINRA Small Firm Community. As such, I fully supported Bob's re-election through much of July 2019; see, for example, "Securities Industry Commentator " (July 22, 2019)   

On July 26, 2019, I painfully withdrew my support for Bob's candidacy after FINRA's Nominating Committee transmitted a letter dated July 25, 2019, in support of his candidacy; see, "UPDATE: 2019 FINRA Contested Small Firm Election: Vote For Linde Murphy ( Blog / July 26, 2019).,

When Bob sought re-election this year, I had expected and urged him to pursue the petition route by which he won his seat in 2016. Although that somewhat arduous process required him to campaign for 3% of the Small Firm's community's vote, I was confident that he would easily obtain that threshold. I would have done everything possible to secure the qualifying petition votes on his behalf. For reasons that I believe Bob felt were right, he declined to run via petition and accepted FINRA's Nominating Committee's nomination. I urged Bob to decline that nomination but was willing to hold my nose because he is a sincere and fair-minded industry veteran. 

If FINRA's Nominating Committee had just stayed on the sidelines as it recently has, I have no doubt that Governor Muh would have been decisively re-elected. Stupidly, the Committee published an unnecessary communication (first on July 25th and another in early August) expressing its support for Muh. Those who have counseled FINRA down the path of confrontation with its Small Firm community, continue to exercise inappropriate influence over the regulator. Truly, I thought we were all moving in a better, more constructive direction. I was wrong. FINRA just doesn't seem to miss an opportunity to miss an opportunity.  

I was outraged when the Nominating Committee interfered in the contested election by sending out its July 25th communication supporting Bob. First, I thought that Petition Candidate Linde Murphy was a superb adversary and was a credible candidate for the beleaguered FINRA Small Firm community. Second, since I was one of the founders of the FINRA Dissident Movement, I felt ethically challenged by endorsing any candidate who appeared hand-picked by FINRA. Third, the FINRA Nominating Committee lacks ANY representation by ANY Small Firm Governor, and the three industry participants on that Committee who signed the communication in support of Muh's candidacy (and, as such, against Murphy's), had themselves been appointed or nominated by that same committee. Those circumstances forced me to rupture my relationship with Bob and throw my full support behind Linde Murphy. Despite all of that, I still consider Bob a wonderful individual and an articulate voice for industry reform. He deserved a second term. He was deprived of that victory because of FINRA's epic blunder. I will never forgive FINRA for forcing me to choose between friendship and integrity.

Ultimately, FINRA has yet again interfered in the affairs of its Small Firms in a manner that was heavy-handed, inept, ineffective, and evidencing a woeful misunderstanding of the smaller firms' mistrust of the regulator and its patrons. Despite so many efforts by the current administration at FINRA, those at the helm demonstrated a disheartening grasp of the regulator's political landscape. Yet again, the Dissident community felt betrayed and the detritus from FINRA's foolish foray into the organization's small-firm politics has devolved the healing between the regulator and the regulated back to the trenches.

I have reached out to FINRA and once again offered my services as an intermediary and conduit to and from the Small Firm community. I have no expectation of any positive response beyond a few errant meetings. More likely, FINRA's spin doctors will press a media campaign to minimize the implication of Muh's loss as an incumbent Small Firm Governor. If I take solace in anything, it is that the Small Firm community will be represented by three champions in Governors Stephen Kohn, Paige Pierce, and Linde Murphy. I will make my services available to them and their constituents, as I did during their petition campaigns.  

Bill Singer

FINRA Arbitrators Award UBS Wealth Management Team Member $750,000 Against Former Team Members. In the Matter of the Arbitration Between Mark Gilbert, Claimant, vs. Eileen Berman and Brian Lowenthal, Respondents (FINRA Arbitration Decision 18-02681)
In a FINRA Arbitration Statement of Claim filed in July 2018, associated person Claimant Gilbert asserted unjust enrichment and constructive trust as a result of alleged compensation due to him from the transition of his and associate persons Respondents Berman and Lowenthal's UBS Financial Services, Inc's. wealth management team. Claimant Glbert sought $2,645,000 in compensatory damages, interest, and costs. Respondents generally denied the allegations and asserted various affirmative defenses. The FINRA Arbitration Panel found both Respondents liable and ordered them to pay to Claimant Gilbert:
  • Respondent Berman: $450,000 in compensatory damages
  • Respondent Lowenthal: $300,000 in compensatory damages
Tori Smith, Ally Bell, and Robert Peters pled guilty to conspiracy to pass or utter counterfeit obligations or securities in the United States District Court for the Northern District of Ohio. Smith and Bell were sentenced, respectively, to five and three years in prison; and Peters is awaiting sentencing. As set forth in part in the DOJ Release:

Smith, Bell and Peters conspired together between April 2917 and April 2018 to pass counterfeit $100 bills to purchase items that they sometimes returned to cash. They traveled together to stores Pennsylvania, Michigan and Ohio.

For example, on April 6, 2017, Bell passed four counterfeit $100 bills to an employee at Dick's Sporting Goods in Butler, Pennsylvania to purchase items. Two days late, Bell traveled to the Dicks's Sporting Goods store in Mentor, Ohio, and returned the items he purchased for cash, according to court documents.

On April 27, 2017, Peters passed seven counterfeit $100 bills to employees at the Kohl's in State College, Pennsylvania to purchase two Citizen watches. The next day, at the Kohl's in Macedonia, Ohio, Peters returned one of the watches for approximately $409.96, according to the indictment.

Bill Singer's Comment: I'm sorta wonderin' -- you know, just thinkin' out loud here -- but if they had made their purchases on Amazon, would they have been given a 10% sentencing reduction as Prime members?

Jury Returns Conviction in On-Line Dating Fraud Conspiracy (DOJ Release)

Nnamdi Franklin Ojimba was convicted in the United States District Court for the Western District of Oklahoma of conspiring to commit wire fraud. As set forth in part in the DOJ Release:

[O]jimba and others defrauded individuals by fostering what appeared to be a genuine romantic relationship on-line and then convincing those individuals to send them money.  Ojimba and others used the persona "Edward Peter Duffey" and claimed to be a successful financial advisor or affiliated with charitable causes.  He purported to have inside financial information, such as knowledge that the investment firm used by the victim was under investigation or was financially unsound.  As a result of these fraudulent claims, victims wired money to conspirators for what they believed would be investments.  In reality, Ojimba and his conspirators kept the money for themselves.

Two of Ojimba's conspirators, Ken Ejimofor Ezeah and Akunna Baiyina Ejiofor, have already been convicted and sentenced.  Ezeah, who pleaded guilty to conspiracy, was sentenced to 11 years in prison on October 6, 2017, and ordered to pay $4,678,302.79 in restitution to ten victims.  Ejiofor was convicted by a jury on March 30, 2017, and sentenced to seven years in prison on September 28, 2017.

In October 2018, a jury was unable to reach a verdict on the conspiracy count.  The United States re-tried the conspiracy case against Ojimba beginning on August 12, 2019, before a different jury.  On August 16, he was found guilty.  Chief United States District Judge Timothy D. DeGiusti ordered that Ojimba be detained in the custody of the U.S. Marshals Service pending further proceedings.

Delaware Businessman Sentenced to Federal Prison In Multi-Million Dollar Ponzi Scheme (DOJ Release)
Carl Chen, owner of Chenmax Properties, Inc., a Delaware Real Estate Investment Trust, and part-owner of Re/Max Sunvest Realty Co., pled guilty to wire fraud in the United States District Court for the District of Delaware and was sentenced to 51 months in prison. As set forth in part in the DOJ Release:

[C[hen operated Chenmax Properties since 1997, soliciting large real estate investments from his real-estate clients and others. Chen promised his investors guaranteed interest and a full return of their principal payments.  However, by 2013, Chen's business was losing money, and Chen began diverting newly invested funds to pay prior investors. 

The government calculated that Chen fraudulently collected at least $3.32 million in investments from twenty different victims between 2013 and 2017.  In October 2017, Chen declared bankruptcy in the United States Bankruptcy Court for the District of Delaware, seeking to discharge $6.738 million of debt he owed to investors, including the victims of his fraud.

United States District Judge Richard G. Andrews, who sentenced Chen, noted that the case was "One of the most horrendous white collar offenses that I remember seeing."

Victims at the sentencing hearing described how Chen solicited hundreds of thousands of dollars in investments from them on multiple occasions, claiming that the investments were for real estate ventures.  In actuality, the money investors paid Chen was immediately used to pay off other investors or for Chen's personal expenses.

SEC Charges Head Sales Agent in South Florida Alternative Investments Scheme (SEC Release)
In a Complaint filed in the United States District Court for the Southern District of Florida, the SEC alleged that Scott P. Strochak violated 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, as well as the broker-dealer registration provisions of Section 15(a) of the Exchange Act. Strochak agreed to a judgment that permanently enjoins him from violating the charged provisions of the federal securities laws, and orders him to pay $250,056 in disgorgement and prejudgment, to be offset by any restitution order entered against him in the parallel criminal case, in which he pled guilty and is awaiting sentencing.  As set forth in part in the SEC Release:

[S]trochak participated in a fraudulent scheme that raised nearly $3.8 million from at least seventeen retail investors until the SEC halted the scheme in February when it filed an emergency action against Castleberry Financial Services Group, LLC, its president T. Jonathon Turner and its CEO Norman M. Strell. According to the SEC's complaint, Strochak, who had decades of experience in the financial services industry, solicited investors using false representations that Castleberry investments were bonded and insured by leading insurance companies, even after he received several complaints from investors who were not provided proof of such insurance. Strochak also allegedly misrepresented Castleberry's profitability, despite knowing that Castleberry denied some investors' requests to withdraw their principal due to insufficient funds. The complaint further alleges that Strochak was reckless in repeating Castleberry's false claims that it had grown by $600 million in capital and 300 investors in 2018, when he knew that, as the sole sales agent until December 2018, he had brought in only about $2 million from about seven investors that year.
In a Complaint filed in the United States District Court for the District of Columbia, the SEC alleged that Christopher Paul Rabalai and his purported alter egos, Crystal World Holding, Inc. and the New Sports Economy Institute violated the registration and antifraud provisions of Sections 5(a), 5(c), 17(a)(2), and 17(a)(3) of the Securities Act. As set forth in part in the SEC Release:

[R]abalais and his alter ego entities, Crystal World and The New Sports Economy Institute, solicited over $1.5 million from retail investors from 2014 through 2019 by misleadingly describing the Crystal World stock as "gifts" offered in exchange for "donations" to The New Sports Economy Institute, a nonprofit entity that Rabalais founded and controlled. According to the Complaint, throughout the fundraising period, Rabalais and his entities further misled investors and prospective investors by repeatedly promising that the Crystal World stock would soon be registered with the SEC, stressing the importance of buying the stock before registration made it valuable. In fact, Rabalais and his entities never took any steps to register the stock and, for much of the fundraising period, did not understand how to achieve such registration.

FINRA Fines and Suspends Rep Who Impersonated Customers in Calls to Mutual Fund. In the Matter of John Hunter Tillotson, Respondent (FINRA AWC 2019062100401)
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, John Hunter Tillotson submitted a Letter of Acceptance, Waiver and Consent ("AWC"), which FINRA accepted. In accordance with the terms of the AWC, Having found the Tillotson violated FINRA Rule 2010, in accordance with the terms of the settlement, the self-regulatory-organization imposed upon John Hunter Tillotson a $5,000 fine and a 15-business-day suspension from association with any FINRA member in any and all capacities. As set forth in part in the FINRA AWC:

In December 2018, five customers signed documents to transfer their simple IRA accounts, held at a mutual fund company, to a new 401(k) plan provided by Morgan Stanley. Tillotson received permission from these five customers to directly contact the mutual fund company in the event additional information was necessary to complete the transfers. Thereafter, Tillotson impersonated the five customers during five telephone calls to the mutual fund company to obtain the information necessary to complete the transfers. Although the customers gave Tillotson permission to obtain this information, they did not give Tillotson permission to impersonate them with the mutual fund company.  

FINRA Fines and Suspends UBS Rep Over Variable Annuities Exchanges. In the Matter of David Rookasin, Respondent (FINRA AWC 2019062100401)
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, David Rookasin submitted a Letter of Acceptance, Waiver and Consent ("AWC"), which FINRA accepted. In accordance with the terms of the AWC, Having found the David Rookasin violated FINRA Rules 2010 and 2320(g)(1), in accordance with the terms of the settlement, the self-regulatory-organization imposed upon David Rookasin a $10,000 fine, the disgorgement of $50,318.86 in compensation received plus interest to be paid to FINRA, and a four month suspension from associating in any and all capacities with any FINRA member firm. As set forth in part in the FINRA AWC:

In 2014, Rookasin recommended that his client, LS, exchange a $1.3 million fixed annuity for a combination of three variable annuities, but UBS later rejected the proposed transaction pursuant to an internal policy. Thereafter, in the fall of 2014, Rookasin aided JD, a registered representative of another member firm with whom Rookasin had no prior relationship, in JD's execution of this exchange for LS after LS opened an account at JD's member firm with JD as her registered representative. 

JD recommended and LS exchanged her fixed annuity to purchase two different variable annuities in the account she had opened at JD's firm. Rookasin, remained involved with the transactions, including by being the point of contact between LS and JD. In late 2014 and early 2015, Rookasin accepted compensation from JD in the amount of $50,318.86, which represented approximately half of the total commissions JD earned in connection with the transactions. Rookasin did not notify UBS of this arrangement.