Securities Industry Commentator by Bill Singer Esq

January 8, 2020

featured in today's Securities Industry Commentator:

SEC Office of Compliance Inspections and Examinations Announces 2020 Examination Priorities (SEC Release)

Cause something is happening and you don't know what it is. Do you, FINRA? ( Blog)

Camdenton Man Pleads Guilty to Romance Fraud Scheme on the Day of Trial (DOJ Release)

SEC Obtains Fraud Judgment Against Former Investment Adviser (SEC Release)
The SEC's Office of Compliance Inspections and Examinations (OCIE) published its 2020 examination priorities  As set forth in the SEC Release, the 2020 priorities are:

Retail Investors, Including Seniors and Those Saving for Retirement - OCIE will continue its focus on the protection of retail investors, including the various intermediaries that serve and interact with retail investors and the investments marketed to, or designed for, retail investors. Examinations in these areas will include reviews of disclosures relating to fees, expenses, and conflicts of interest.

Market Infrastructure - OCIE will continue its focus on entities that provide services critical to the functioning of our capital markets, including clearing agencies, national securities exchanges, alternative trading systems, and transfer agents. Particular attention will be focused on the security and resiliency of entities' systems.

Information Security - OCIE will continue to prioritize cyber and other information security risks across the entire examination program.

Focus Areas Relating to Investment Advisers, Investment Companies, Broker-Dealers, and Municipal Advisors - OCIE will continue its risk-based examinations for each type of these registered entities. In particular, examinations of registered investment advisers (RIAs) will focus on RIAs that have never been examined, including new RIAs and RIAs registered for several years that have yet to be examined. These examinations will include RIAs advising retail investors as well as private funds.  Investment company examinations will focus on mutual funds and exchange-traded funds, the activities of their RIAs, and the oversight practices of their boards of directors. Broker-dealer examinations will focus on issues relating to the preparation for and implementation of recent rulemaking, along with trading practices. Municipal advisor examinations will include review of registration and continuing education requirements and municipal advisor fiduciary duty obligations to municipal entity clients.

Anti-Money Laundering Programs - OCIE will continue to review for compliance with applicable anti-money laundering (AML) requirements, including whether entities are appropriately adapting their AML programs to address their regulatory obligations.

Financial Technology (Fintech) and Innovation, Including Digital Assets and Electronic Investment Advice - OCIE recognizes that advancements in financial technologies, methods of capital formation and market structures, as well as registered firms' use of new sources of data (often referred to as "alternative data"), warrant ongoing attention and review. OCIE also will continue to identify and examine SEC-registered firms engaged in the digital asset space, as well as RIAs that provide services to clients through automated investment tools and platforms, often referred to as "robo-advisers."

FINRA and MSRB - OCIE will continue its oversight of the Financial Industry Regulatory Authority (FINRA) by focusing examinations on FINRA's operations, regulatory programs, and the quality of FINRA's examinations of broker-dealers and municipal advisors. OCIE will also continue to examine the Municipal Securities Rulemaking Board (MSRB) to evaluate the effectiveness of its operations and internal policies, procedures, and controls.
Yet again, another dubious bit of silliness finds its way into FINRA's published annals. To be clear, it's not silliness for the associated person Claimant; to the contrary, it's about as critical an issue as there is. The Claimant wants to clear his name. He wants something expunged from his industry record. That being said, we walk into the FINRA Dispute Resolution hearing room (with the Dylanesque pencil in our hand) but we emerge not knowing what the hell is going on. Frankly, there ought to be a law against you coming round.
Ivan Joseph Stark, Jr. pled guilty in the United States District Court for the Western District of Missouri to one count of bank fraud and one count of aggravated identity theft. As alleged in part in the DOJ Release:

Stark became romantically involved with his victim, identified in court documents as "C.H.," after they met on a dating website. Stark, who used an alias and omitted details regarding his past prison sentence, obtained C.H.'s credit cards on March 1, 2018. Stark obtained the credit cards by falsely telling C.H. he intended to repair an electronic sign and sell the sign for a profit. Stark falsely claimed he already had a buyer for the sign. Stark promised to repay C.H. for purchases he made with C.H.'s credit cards using the proceeds from the sale of the sign. Stark also promised to split a portion of the proceeds of the sale with C.H. In reality, there was no electric sign or project to repair any sign.

Stark obtained a total of $78,280 through this scheme. One of the credit cards, for example, was used to make a $10,180 down payment on a 30-foot trailer from Flying A. Motorsports. Another credit card was used to make a $1,500 down payment on a Dodge Ram truck, which was made over the phone with another woman who purported to be the victim.

Stark opened a Square account under the name AVR Industries. Stark falsely represented to Square that AVR was a taxicab and limousine business, when in fact, no such business was in operation. Stark conducted approximately $43,000 in transactions through Square, using C.H.'s credit cards, to make payments to AVR. As a result of these transactions, $41,817 was deposited into Stark's personal bank account.

Stark, without C.H.'s knowledge or consent, requested a credit limit increase on two of C.H.'s
credit cards. 

Stark ultimately charged one of C.H.'s credit cards to a balance above $43,000. Stark made an electronic payment from his personal account in the amount of $21,947, payable to C.H.'s credit card, knowing that his account contained insufficient funds to cover the payment. Before his unfunded payment was reversed, however, Stark made approximately $21,154 in charges to C.H.'s credit card. This resulted in a statement balance of $43,607, which was $21,607 over the card's credit limit.

SEC Obtains Fraud Judgment Against Former Investment Adviser (SEC Release)
In a Complaint filed in the United States District Court for the Middle District of Tennessee, the SEC alleged that former registered investment adviser/registered representative Jay Costa Kelter had defrauded three retired clients out of over $1.85 million via false guarantees concerning their losses; and, further, that he had misappropriated $1.4 million of client funds for his own use .In a parallel criminal matter, Kelter pled guilty to one count of securities fraud and one count of wire fraud; and he was sentenced to 29 months imprisonment and ordered to pay restitution of $1.467 million. In resolving the SEC's civil allegations, Kelter consented to the entry of a final judgment, enjoining him from future violations of the antifraud provisions of Section 10(b) of the Securities Exchange Act and Rule 10b-5, Section 17(a) of the Securities Act, and Sections 206(1) and (2) of the Investment Advisers Act of 1940. The judgment orders Kelter to pay $1.467 million disgorgement plus $331,985 interest, deemed satisfied by the restitution ordered against him in the criminal case. Also, Kelter consented to an order permanently barring him from the securities industry.