Securities Industry Commentator by Bill Singer Esq

November 21, 2019

featured in today's Securities Industry Commentator:

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)
After a three-week jury trial in the United States District Court for the Southern District of New York, former currency trader and bank Executive Director Akshay Aiyer was convicted of conspiring to fix prices and rig bids in Central and Eastern European, Middle Eastern and African (CEEMEA) currencies, which were generally traded against the U.S. dollar and the euro, from at least October 2010 through at least January 2013. READ a copy of the Indictment
As alleged in part in the DOJ Release, Aiyer:

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.

Former Beaufort Securities Limited investment manager Panayiotis Kyriacou pled guilty in the United States District Court for the Eastern District of New York to conspiring to commit securities fraud and to defraud the United States by failing to comply with the Foreign Account Tax Compliance Act ("FATCA"), which requires foreign financial institutions to identify their U.S. customers and report information about financial accounts held by U.S. taxpayers, either directly or through a foreign entity. As alleged in part in the DOJ Release:

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., Anthony Cheedie, Chad Allen, Shane Hanna, Cameron Brewster, Kevin Handre, Joseph Ciaccio a/k/a "Joseph Gallagher," Joseph Minetto, Joseph DePaola  a/k/a "Joe Hall," Derrek Larkin a/k/a "Derrek Martin," and Mattie Cirilo are each charged with conspiracy to commit wire fraud in connection with telemarketing; and, additionally, Larkin and Cirilo are charged with obstruction of justice.  As alleged in part in the DOJ Release:

The Business Opportunity Scheme

From at least 2012 until at least November 2019, CHEEDIE, ALLEN, HANNA, BREWSTER, HANDREN, CIACCIO, MINETTO, DEPAOLA, LARKIN, and CIRILO carried out a wide-ranging telemarketing scheme that defrauded hundreds of victims (the "Victims") throughout the United States, many of whom were over age 70, by selling those Victims so-called "business services" in connection with the Victims' purported online businesses (the "Business Opportunity Scheme"). 

To perpetrate the Business Opportunity Scheme, certain of the defendants and their co-conspirators sold "services" purporting to make the management of Victims' businesses more efficient or profitable, including tax preparation or website design services, notwithstanding that many Victims were elderly and did not own a computer.  At the outset of the Business Opportunity Scheme, certain participants employed by a "fulfillment" company sent the Victims electronic or paper "pamphlets" or provided so-called "coaching sessions" regarding these purported online businesses, but at no point did the Victims actually earn any of the promised return on their intended investment. 

In order to perpetrate the Business Opportunity Scheme, the defendants and their co-conspirators engaged in a widespread, coordinated effort to traffic in lists of potential victims, or "leads," many of whom had previously made an initial investment to create an online business with other participants in the Scheme.  As a general matter, leads were initially generated by sales floors operating in, among other places, Arizona, Nevada, and Utah, including those sales floors operated by ALLEN, HANNA, BREWSTER, and HANDREN.  ALLEN, HANNA, BREWSTER, and HANDREN operated in coordination with several telemarketing sales floors in the New York and New Jersey area, including in Manhattan, and provided lead lists and fulfillment services to other co-conspirators operating those floors, including CHEEDIE, CIACCIO, and MINETTO.  BREWSTER, for example, provided lead lists through a website referred to by BREWSTER and other co-conspirators as the "Money Sucking Website" or "MSW."  CIACCIO and MINETTO employed several salespeople who sold the so-called business services to Victims of the Business Opportunity Scheme and worked to prevent Victims from receiving refunds on their investments, including DEPAOLA, LARKIN, and CIRILO.

Certain participants in the Business Opportunity Scheme, including ALLEN and HANNA, also told Victims that the Victims had qualified for a government grant, often in connection with starting a small business, and that the Victims should purchase the business services offered as part of the Business Opportunity Scheme as a way to earn money while waiting for the Victim's grant money to be received.  In truth and in fact, no such government grants existed.

The Debt Relief Scheme

When there were no more services to sell the Victim as part of the Business Opportunity Scheme and/or the Victim had reached the maximum limit on his or her credit cards, the defendants and their co-conspirators effectively refinanced their Victims' participation in the Business Opportunity Scheme into a new scheme, capitalizing on the Business Opportunity Scheme Victims' credit card debts by offering to consolidate or settle the Victims' debt in exchange for an up-front payment (the "Debt Relief Scheme").  The perpetrators of the Debt Relief Scheme entered into revenue-sharing agreements with certain participants in the Business Opportunity Scheme by which the perpetrators of the Debt Relief Scheme paid certain participants for leads based on a percentage of the sales made to Victims.  In truth and in fact, the perpetrators of the Debt Relief Scheme did not settle or consolidate the Victims' debt. 

Obstruction of Justice 

In or about January 2019, law enforcement conducted a search of the telemarketing sales floor at which LARKIN and CIRILO were employed.  During the search, law enforcement seized several electronic devices from LARKIN and CIRILO.  Following the search, LARKIN and CIRILO knowingly deleted, and attempted to delete, the data on those devices in an effort to prevent law enforcement from using that data in the instant investigation into the Business Opportunity Scheme.

[In]Securities: Who'll Be Watching Whom? by Aegis Frumento Esq ( Blog)
As industry lawyer Aegis Frumento sees it, a stockbroker who faces Employee Forgivable Loan claims in an arbitration, now has the ability to raise, in that same arbitration, anti-retaliation claims under Dodd Frank -- and those claims can include double back-pay and attorneys' fees. Unfortunately, there's a catch.  In order to be eligible for Dodd Frank anti-retaliation remedies, you need to be deemed a "whistleblower" via the filing of a Form TCR with the SEC.
In an Indictment filed in the United States District Court for the Southern District of New York, Roger Ralston, the Chief Executive Officer of DirectView, Inc.. was charged with conspiracy to commit mail and wire fraud; substantive mail fraud, and substantive wire fraud (with a penalty enhancement for telemarketing); conspiracy to commit money laundering; two counts of money laundering; and one count of engaging in monetary transactions in property derived from specified unlawful activity. As alleged in part in the DOJ Release:

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.
In an Indictment filed in the United States District Court for the Eastern District of New York, Jose Carlos Grubisich (the former Board member and Chief Executive Officer of Braskem S.A.) was charged with one count each of conspiracy to violate the anti-bribery provisions of the Foreign Corrupt Practices Act, conspiracy to violate the books and records provisions of the FCPA, and conspiracy to commit money laundering, As alleged in part in the DOJ Release:

[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.
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, NYLIFE Securities LLC submitted a Letter of Acceptance, Waiver and Consent ("AWC"), which FINRA accepted. The AWC asserts that NYLIFE has been a FINRA member firm since 1970 with about 2,389 branches and 9,082 registered persons. The AWC asserts that the firm "does not have any relevant disciplinary history with the Securities
and Exchange Commission, any state securities regulators, FIN RA, or any other self-regulatory organization. "In accordance with the terms of the AWC, for violations of NASD Rule 3010(b) and FINRA Rule 3110(b), and consequently FINRA Rule 2010, FINRA imposed upon NYLIFE Securities LLC a Censure, $250,000 fine, restitution/rescission to 28 customers, and an undertake to certify that its written procedures properly address the suitability of recommendations to purchase mutual funds As set forth in part in the AWC:

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.
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, Alexander G. Lycouris submitted a Letter of Acceptance, Waiver and Consent ("AWC"), which FINRA accepted. In accordance with the terms of the AWC, for violations of FINRA Rules 3270, 8210, and 2010, FINRA imposed upon Alexander G. Lycouris a seven-month suspension from association with any FINRA member in any capacity (no monetary sanction was imposed based upon Lycouris's inability to pay). The AWC asserts that Lycouris entered the industry in 2014 and was first registered in 2015; and by March 2017, he was associated with MML Investors Services, LLC, until he was permitted to resign on August 31, 2018. The AWC asserts that Lycouris "does not have any disciplinary history with the Securities and Exchange Commission, any state securities regulators, FINRA, or any other self-regulatory organization." As set forth in part in the AWC: 

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.