Securities Industry Commentator by Bill Singer Esq

December 31, 2019

as featured in today's Securities Industry Commentator:
In today's featured FINRA Arbitration case, we have the double-negative issue of a respondent not not being not allowed to not speak. Although the associated person Respondent's testimony was not allowed by the arbitrators, he was, in fact, not allowed to not testify through the brokerage firm Claimant's non-attorney representative, who is likely not not his representative but, in fact, not the Claimant firm's representative, who, as it turned out, was allowed to not not speak. Oh and another thing, although the Panel says it would not have mattered if the non-attorney rep had not spoken about what he was not supposed to not speak about, the Panel would not have changed its Award had it not not heard all of the not allowed information!

Second Main Co-Conspirator In TimeShare Resale Fraud Scam Targeting Elderly Victims Sentenced To Prison For Defrauding Victims Out Of $3.37 Million (SEC Release)
Paul Michael Marciniak pled guilty in the United States District Court for the District of Nevada to conspiracy to commit mail fraud and wire fraud; and he was sentenced to 70 months in prison plus three years of supervised release; and he was ordered him to pay $3.37 million in restitution. As alleged in part in the DOJ Release:

[F]rom[ October 2010 to April 2012, Marciniak and his co-conspirators (including Daniel Boyar, the leader of the scheme) devised and participated in a telemarketing scam to defraud over 1,000 timeshare owners out of more than $3.3 million dollars. They used stolen data to identify timeshare owners and promised to sell the timeshares in return for the owners paying in advance half of the costs associated with the purported sales. But there were no buyers and the timeshare sales never occurred. This is a common criminal telemarketing scheme known as "the buyer's pitch."

The scam operated out of Orlando, Florida, under several different business names including Holiday Advertising, First Capital Financial Services Corporation, Great West Funding Incorporated, Beneficial Business Solutions, Vacation Funding Partners LP, and Property, People, Travel, using fake front companies in various cities across the country, including Las Vegas. The co-conspirators would buy inactive companies that had previously been licensed in their target state, use false identities, and lease temporary office spaces. The co-conspirators created websites with false information including customer testimonials, company officers, and press releases.  They also used telephone numbers that made it appear as if they were calling from the location of the fake front company. These actions were intended to mislead the victims and make the scam appear legitimate. 

20 of Marciniak's co-conspirators were charged and have pleaded guilty for their involvement in this fraud scheme. 17 of these co-conspirators have been sentenced and the remainder await sentencing.

FINRA Orders Oppenheimer & Co. Inc. to Pay $3.8 Million in Restitution to Customers for Supervisory Failures Involving Unit Investment Trusts (FINRA Release)
FINRA member firm Oppenheimer & Co. Inc.was ordered to pay over $3.8 million in restitution to customers who incurred potentially excessive sales charges caused by early rollovers of Unit Investment Trusts (UITs); and was further fined $800,000 for failing to reasonably supervise early UIT rollovers. As alleged in part in the FINRA Release:

From January 2011 through December 2015, Oppenheimer executed more than $6.4 billion in UIT transactions - $753.9 million of which were early rollovers. However, FINRA found the firm's WSPs and supervisory system - which did not involve the use of automated reports or alerts - were not reasonably designed to supervise the suitability of those early rollovers. As a result, Oppenheimer did not identify that its representatives recommended potentially unsuitable early rollovers that, collectively, may have caused customers to incur more than $3.8 million in sales charges that they would not have incurred had they held the UITs until their maturity dates.   

In entering into its Acceptance, Waiver and Consent settlement with Oppenheimer, FINRA asserts in its Release that it had:

recognized the firm's extraordinary cooperation for having (1) provided substantial assistance to FINRA's investigation, including by retaining an outside consultant to analyze the firm's UIT trading and voluntarily sharing the results of the consultant's analysis with FINRA; (2) developed and implemented a methodology that efficiently identified customers eligible for restitution; and (3) voluntarily employed corrective measures to revise its procedures to avoid recurrence of the conduct described above, including by establishing automated alerts to identify when representatives recommend early UIT rollovers.
The TSSB filed an Emergency Cease and Desist Order against Onoriode Ikimi a/k/a "Steve Ikimi," and his firm, Inkprint Finance; and Inkprint trader, Kevin Flores a/k/a "Kevin Ulises Flores Santos." As alleged in part in the TSSB Release:

[I]kimi and Inkprint are telling investors that Inkprint has at least one licensed forex trader and that Ikimi is a broker. They are representing that Ikimi maintains a forex portfolio through an online platform that has a balance of $1.4 million.

According to the order, Ikimi and Flores are not licensed to sell securities in Texas, nor are they registered with the National Futures Association. There is also no evidence that Ikimi or Inkprint maintains a portfolio of foreign currencies of that value on any platform.

The guaranteed returns are being offered without any disclosure of the risks in the complex, global market of currency trading. Currency traders seek to profit from minor fluctuations in exchange rates and speculate on changes in the values of currencies.

According to the order, Ikimi and Inkprint are intentionally failing to disclose the risks inherent in currency trading, including fluctuations in a country's interest rates, fees associated with trading foreign currencies, and leveraging transactions using borrowed money. . .

SEC Proposes to Codify Certain Consultations and Modernize Auditor Independence Rules (SEC Release)
The SEC proposed amendments to update auditor independence rules. As set forth in part in the SEC Release:

Since the initial adoption of the auditor independence framework in 2000 and revisions in 2003, there have been significant changes in the capital markets and those who participate in them.  The proposed amendments primarily focus on fact patterns presented to Commission staff through consultations that involve a relationship with, or services provided to, an entity that has little or no relationship with the entity under audit, and no relationship to the engagement team conducting the audit.  In these scenarios (including the examples outlined below), the staff regularly observes that the audit firm is objective and impartial and, as a result, does not object to their continuing the audit relationship with the audit client.
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