Securities Industry Commentator by Bill Singer Esq

Former Trader for Major Multinational Bank Convicted for Price Fixing and Bid Rigging in FX Market (DOJ Release)

Former Beaufort Securities Investment Manager Pleads Guilty to Conspiracies to Commit Securities Fraud and to Defraud the United States by Failing to Comply With Foreign Account Tax Compliance Act (DOJ Release)

10 Defendants Charged In Manhattan Federal Court With Running Nationwide Telemarketing Fraud Scheme Targeting The Elderly / Defendants Allegedly Created and Used "Money Sucking Website" to Identify Vulnerable Victims Whom They Then Targeted and Victimized (DOJ Release)

[In]Securities: Who'll Be Watching Whom? by Aegis Frumento Esq (BrokeAndBroker.com Blog)

CEO Of Security Company Charged With Multimillion-Dollar Stock And Carbon Credit Fraud (DOJ Release)

Former CEO of Braskem Indicted for His Role in Bribery Scheme / Approximately $250 Million Allegedly Diverted from Braskem Through a Secret Slush Fund to Pay Bribes to Government Officials and Political Parties in Brazil (DOJ Release)

FINRA Censure and Fines NYLIFE over Higher-Risk Mutual Funds' Suitability Supervision. In the Matter of NYLIFE Securities LLC, Respondent (FINRA AWC)

FINRA Suspends MML Investors' Rep Over Outside Business Activity and Untimely Rule 8210 Responses. In the Matter of Alexander G. Lycouris, Respondent (FINRA AWC)

engaged in near-daily communications with his co-conspirators by phone, text and through an exclusive electronic chat room to coordinate their trades of the CEEMEA currencies in the FX spot market.  The jury heard evidence that the defendant and his co-conspirators manipulated exchange rates by agreeing to withhold bids or offers to avoid moving the exchange rate in a direction adverse to open positions held by co-conspirators and by coordinating their trading to manipulate the rates in an effort to increase their profits.  By agreeing not to buy or sell at certain times, the conspiring traders protected each other's trading positions by withholding supply of or demand for currency and suppressing competition in the FX spot market for emerging market currencies.  They also heard evidence that the defendant and his co-conspirators took steps to conceal their actions by, among other steps, using code names, communicating on personal cell phones during work hours and meeting in person to discuss particular customers and trading strategies.

The Antitrust Division has charged five companies and six individuals in its investigation of collusion in the FX spot market. On May 20, 2015, four major banks - Citicorp, JPMorgan Chase & Co., Barclays PLC and The Royal Bank of Scotland plc - pleaded guilty and agreed to pay collectively more than $2.5 billion in criminal fines for their participation in an antitrust conspiracy in the euro-U.S. dollar FX spot market.  On Jan. 25, 2018, BNP Paribas USA, Inc. pleaded guilty and agreed to pay a $90 million criminal fine for its participation in an antitrust conspiracy involving emerging market FX prices.  On Jan. 4, 2017 and Jan. 12, 2017, plea agreements were announced for two former traders in connection with an antitrust conspiracy involving emerging market FX prices.

In the fall of 2016, an Undercover Agent contacted Kyriacou and stated that he was a U.S. citizen interested in opening brokerage accounts at Beaufort Securities to execute trades in several multi-million dollar stock manipulation deals in stocks traded on U.S. over-the-counter markets.  In furtherance of the scheme, Kyriacou and Beaufort Securities opened six brokerage accounts.  Notwithstanding that a U.S. citizen would be the beneficial owner of each of the accounts, at no time did Kyriacou request FATCA Information from the Undercover Agent.  The brokerage accounts were opened for the Undercover Agent in the names of various international business corporations based in Belize, with Belizean nominees listed as the beneficial owners. 

In January 2018, Kyriacou facilitated the manipulation of trading in the stock of HD View 360, Inc., a publicly traded U.S. company that traded under the ticker symbol HDVW, by executing a match trade of HDVW stock.  In addition, Kyriacou agreed to launder what the Undercover Agent represented to be the proceeds of securities fraud through the purchase and sale of artworks.

From in or about 2009 up to and including in or about 2015, RALSTON and other co-conspirators engaged in a scheme to defraud victims in the United Kingdom through the sale of false, fraudulent, and materially misleading investments, and to launder the proceeds through bank accounts in the United States and foreign countries.  RALSTON used the services of telemarketing call centers to identify and cold-call potential victims, who were primarily individuals residing in the United Kingdom.  Many of the victims were elderly or retired.  Over a series of telephone calls, the telemarketers persuaded victims to invest money under various false and misleading pretenses, including the promise of short-term, high-yield, no-risk returns, when in fact the investments were high-risk, illiquid, and in some instances, entirely fictitious.  Many victims were persuaded to make additional investments under the false pretense that they would not be permitted to sell their holdings until they purchased more.  In reliance on the false representations and promises, the victims wired funds to various bank accounts in the United States, including in the Southern District of New York, in the names of corporate entities controlled by RALSTON.  RALSTON then mailed and emailed documents related to the fraudulent investments, including purchase contracts and investment certificates, to the victims.  Victims who tried to sell their investments found they were unable to do so.  The victims never received a refund on their principal or any return on their investments.  In total, RALSTON's accounts received approximately $9 million from victims. 

In order to conceal the nature, location, source, ownership, and control of the proceeds of the fraudulent scheme, RALSTON regularly transferred a substantial portion of the fraud proceeds from bank accounts in the United States, including in the Southern District of New York, to overseas bank accounts, including accounts in Cyprus, Switzerland, and the United Kingdom, in the names of various shell companies.

The nature of the particular fraudulent investment vehicles being marketed to the victims changed over time.  From in or about 2009 until in or about 2011, RALSTON and his co-conspirators sold DirectView stock to the victims based on telemarketers' false representations and promises that the shares were a no-risk, short-term investment in a debt-free company, and that the shares were likely to increase over 100 percent in value in a short period of time.  In contrast to what RALSTON represented to victims, DirectView's annual report filed with the United States Securities and Exchange Commission ("SEC") for the year ending December 31, 2010, contained dire warnings about the poor fiscal health of DirectView and the risk attendant in purchasing stock, including that the company "may be forced to cease operations" due to losses and cash flow problems, and purchasers "may find it extremely difficult or impossible to resell our shares."

From in or about 2011 until in or about 2015, RALSTON and his co-conspirators engaged in the sale of fraudulent "carbon credits."  "Carbon credits," which are issued as part of governmental and voluntary regulatory regimes, are permits representing the right to emit a certain number of tons of carbon dioxide into the atmosphere.  "Carbon offsets," which are tied to particular carbon dioxide emissions-reducing projects, represent a reduction in carbon dioxide emissions, and can be purchased by individuals and companies to "offset" their or third parties' "carbon-footprints."  The victims were falsely promised that the carbon-related investments they purchased could be easily sold, carried no risk, and would yield a significant, short-term return.  In fact, the carbon credits and offsets that were sold to the victims were fake, and did not represent any actual carbon credits or offsets.

[B]etween approximately 2002 and 2014, Grubisich and his co-conspirators created a slush fund by making payments from Braskem's bank accounts in Brazil, New York and Florida pursuant to fraudulent contracts with offshore shell companies secretly controlled by Braskem.  The shell companies then funneled the slush funds to a department within Odebrecht that was responsible for making bribe payments on Braskem's behalf.

As CEO of Braskem, Grubisich participated in negotiating and approving the bribes to government officials, including the payments made to ensure that Braskem retained a contract for a significant petrochemical project in Brazil and to ensure that Braskem could obtain favorable pricing in contract negotiations with Petroleo Brasileiro S.A. - Petrobras, Brazil's state-owned and state-controlled oil company.  Grubisich regularly discussed the bribe payments with his co-conspirators and was informed of bribe payments made on behalf of Braskem.  Various bribe payments that were negotiated and authorized by Grubisich were ultimately paid after Grubisich left his position as CEO in 2008, but while he continued to serve in other capacities at Odebrecht and Braskem, and while he was a stockholder of Braskem.

Also while serving as CEO of Braskem, Grubisich agreed to falsify Braskem's books and records by causing Braskem to record the payments to the offshore shell companies controlled by Braskem as "commissions."  He also signed false certifications submitted by Braskem to the United States Securities and Exchange Commission that attested to the fairness and accuracy of Braskem's annual reports and financial condition, and to the disclosure of any fraudulent conduct by Braskem's management and other employees with control over Braskem's financial reporting.

On December 21, 2016, Braskem and Odebrecht pleaded guilty in the Eastern District of New York to criminal informations separately charging each with conspiracy to violate anti-bribery provisions of the FCPA for their involvement in the bribery and money laundering scheme.

From September 2014 to December 2016, Respondent had written procedures for supervising the suitability of sales of higher-risk mutual funds.' Those procedures required such sales to conform to customers' stated risk tolerances and investment objectives, as well as other aspects of their investment profiles, to protect customers against unsuitable concentrations in higher-risk securities. Respondent identified potentially unsuitable sales of higher-risk mutual funds that did not comport with customers' investment profiles via an automated surveillance system. This system established concentration limits for each customer's holdings in higher-risk funds that were based on the customer's investment objective and risk tolerance. For example, this system would generate an alert if a customer with an investment objective of "income with moderate growth" and a risk tolerance of "moderately conservative" sought to purchase a higher-risk mutual fund in an amount that exceeded 30% of the customer's overall portfolio. 

Respondent assigned responsibility for investigating sales that its automated surveillance flagged to a group of reviewers. Respondent's written procedures directed the assigned reviewers, working with the registered persons who handled the sales, to offer customers a choice: reallocate their portfolio to reduce risk, or change their investment profile to a higher risk tolerance and more aggressive investment objective. The procedures specifically prohibited Respondent's employees from suggesting how investment profiles could be changed to accommodate sales.  

Respondent failed to enforce those written procedures. That failure was due partly to the workload of the reviewers and their supervisor, which prevented them from reasonably investigating each alert that Respondent's automated surveillance generated. Respondent failed to allocate sufficient resources to the reviewers and their supervisor to ensure that they carried out their responsibilities under Respondent's written procedures. 

Respondent's reviewers adjusted customers' investment profiles to accommodate a sale of higher-risk mutual funds without determining whether a representative had discussed the option of reallocation with the customer and typically without first contacting the customer. In fact, some customers' investment profiles were changed before Respondent obtained information about the customers' true risk tolerance and investment objective. 

Respondent's failure to enforce its written procedures for supervising sales of higher-risk mutual funds facilitated a registered representative's soliciting unsuitable investments to approximately four dozen customers in a trio of non-diversified mutual funds that focused on the exploration, production, storage, transportation, processing, and use of energy and natural resources. At least six customers with relatively conservative risk tolerances and investment objectives invested 35% or more of their liquid net worth in these mutual funds, and two of those customers invested more than 80% of their liquid net worth in those funds. Respondent's automated surveillance generated alerts concerning those sales, but the alerts were resolved by adjusting the customers' risk tolerance and investment objective to aggressive levels, without confirming the customers' prior consent to such adjustments. Following a dramatic decline in oil prices, the mutual funds' values plummeted by up to 75% shortly after Respondent permitted the sales, causing the customers to lose more than $1.4 million in the aggregate. Twenty-one of the customers complained and, prior to any regulator's intervention, Respondent voluntarily paid full restitution to those customers. These restitution payments totaled $1.1 million. 

Following these customer complaints and FINRA's investigation, Respondent voluntarily made improvements to its operations, including hiring three new registered principals and a fourth registered person to investigate surveillance alerts pertaining to the concentration of customer holdings in higher-risk mutual funds. 

In December 2017, Lycouris began working for Standpoint Research, Inc. ("SRI"), a company offering subscription-based stock and cryptocurrency research and recommendations. SRI enlisted him to design an automated system that would direct emails to SRI's existing subscribers nearing expiration, as well the founder's followers on Linkedln. Over a period of approximately nine months, SRI paid Lycouris a salary and bonuses for his employment. 

On August 27, 2018, during MML's routine monitoring of representatives' social media, it discovered Lycouris' employment with SRI. Lycouris had never provided notice to MML prior to engaging in his outside business activity, as required by FINRA Rule 3270. 

VISIT the BrokeAndBroker.com Blog "OBA" Cases Archive

http://www.brokeandbroker.com/index.php?a=topic&topic=oba

PDF Copy of Bill Singer, Esq.'s OBA Rule 3270 Analysis

http://brokeandbroker.com/PDF/Rule3270OBAAnalysis.pdf

• Securities Industry Commentator
• Bill Singer