The Wall Street Legal & Regulatory Feed
Securities Industry Commentator by Bill Singer Esq
February 4, 2020
Two sentenced in securities fraud conspiracy (DOJ Release)Florida Resident Sentenced to 21 Months' Imprisonment for Mail Theft Related to Fraud Scheme Targeting Financial Institutions (DOJ Release)FINRA Fines Paulson Investment Company for Unregistered Distributions. In the Matter of Paulson Investment Company, LLC, Respondent (FINRA AWC)
Two sentenced in securities fraud conspiracy (DOJ Release)
https://www.justice.gov/usao-sdtx/pr/two-sentenced-securities-fraud-conspiracy
John David Brotherton, 60, and Charles Earl Grob, 39, pled guilty to their roles in a conspiracy to commit microcap securities' fraud and were sentenced, respectively, to 60 months and 12 months in prison plus three years of supervised released, and were ordered to forfeit $1.9 million and $242,907.09, respectively -- and each will pay restitution to their victims. As alleged in part in the DOJ Release:
Brotherton and Grob admitted they participated in a conspiracy to commit fraud in microcap securities. During the course of the conspiracy, they obtained control of the stock of numerous companies, then "pumped up" the price of the stock through false and misleading press releases and fraudulent trading techniques. They then "dumped" their shares of stock onto the market for a significant profit.Brotherton, who is in now in custody following violations of his conditions of release, will remain there pending transfer to a U.S. Bureau of Prisons facility to be determined in the near future. Grob was permitted to remain on bond and voluntarily surrender at a later date.Five others - Andrew Ian Farmer, 41, Thomas Galen Massey, 49, Eddie Douglas Austin Jr., 69, and Carolyn Price Austin 65, all of Houston; and Scott Russell Sieck, 61, of Winter Park, Florida, also pleaded guilty for their respective roles and will be sentenced later this year.
Florida Resident Sentenced to 21 Months' Imprisonment for Mail Theft Related to Fraud Scheme Targeting Financial Institutions (DOJ Release)
https://www.justice.gov/usao-wdpa/pr/florida-resident-sentenced-21-months-imprisonment-mail-theft-related-fraud-scheme
Cassio Orville Donald Slowden, 28, pled guilty to mail theft in the United States District Court for the Western District of Pennsylvania, and he was sentenced to 21 months in prison plus three years of supervised release. As alleged in part in the DOJ Release:
[I]n February 2019, Citizens Bank replacement debit cards and PIN reminders were fraudulently ordered for several customers in McMurray, Pennsylvania. On the afternoon of February 11, U.S. mail was delivered to the mailbox of one of the residences in McMurray. Shortly after, Slowden removed several pieces of mail from the mailbox and drove away from the residence. Slowden's vehicle was stopped by law enforcement, and a search of the vehicle recovered stolen mail, including the Citizens Bank replacement debit card and PIN reminder taken from the mailbox of the McMurray residence.The Court was further advised that Citizens Bank, Bank of America, and other financial institutions were victims of an ongoing multistate fraud scheme. The scheme involved one or more callers contacting banks and impersonating customers. The caller would order replacement debit cards and debit card PIN reminders to the customer's address on file. The suspects would intercept the cards and use them to make fraudulent ATM withdrawals. Slowden is connected to at least $116,277.19 in losses related to fraudulent withdrawals from accounts of at least 12 Citizens Bank and Bank of America customers.
http://www.brokeandbroker.com/5050/finra-arbitration-oppenheimer/
For many of Wall Street's associated persons, the industry's voluminous rule book is filled with new and unfamiliar proscriptions. Which might explain why so many folks tend to violate the same old rules over and over but still profess ignorance. On the other hand, c'mon, there are just some folks who view rules and regulations as challenges to be overcome and circumvented. Be that as it may, in today's blog we cover, yet again, the scenario of an industry employee who walked away from a job at a time when commissions had been paid but not fully earned, or so the former employer argued. That prompted an Arbitration. That may only be the start of the Respondent's ordeal.
FINRA Fines Paulson Investment Company for Unregistered Distributions. In the Matter of Paulson Investment Company, LLC, Respondent (FINRA AWC 2018056269003)
https://www.finra.org/sites/default/files/fda_documents/2018056269003
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%20Paulson%20Investment%20Company%2C%20LLC%20CRD%205670%20AWC%20sl.pdf
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, Paulson Investment Company, LLC submitted a Letter of Acceptance, Waiver and Consent ("AWC"), which FINRA accepted. The AWC alleges that Paulson Investment Company, LLC has been a FINRA member firm since 1071 and derives over 50% of its revenue from underwriting, and employs about 60 registered representtives at nine branches. The AWC alleges that Paulson Investment Company, LLC "does not have any disciplinary history with the Securities and Exchange Commission, any state securities regulators, FINRA, or any other self-regulatory organization." In accordance with the terms of the AWC, FINRA found that Paulson Investment Company, LLC had violated FINRA 2010 by acting in contravention of Section 5 of the Securities Act; and the self regulator imposed upon the firm a $50,000 fine. As alleged in part in the AWC [Ed: footnotes omitted]:
Between May 2017 and April 2018, Paulson sold interests in six separate private placement offerings, each of which claimed exemption from registration pursuant to Rule 506(b) of Regulation D. During this period, Paulson solicited 11 separate individuals to invest approximately $4.5 million in those offerings. However, Paulson began participating in each offering well before the firm created a substantive relationship with any of these 11 individuals. The firm participated in those offerings by engaging in steps necessary to the distribution of securities, including but not limited to: conducting due diligence on the offerings; assisting the issuers with the preparation of offering materials; communicating with prospective investors; selling interests in the offerings; and executing placement agent agreements.While Paulson eventually established a substantive relationship with each of the 11 individuals who invested in the offerings prior to their purchases, that relationship did not exist prior to the firm's participation in those offerings.For example, Paulson began participating in a private offering of securities on behalf of Issuer No. 1 in 2017. The firm executed the placement agent agreement for that offering on July 31, 2017 and first began selling interests in the offering to investors on September 11, 2017. On or before these dates, the firm did not have a substantive relationship with individual DE. Paulson subsequently established such a relationship with DE and sold him interests in Issuer No. l's offering on October 23, 2017, but the firm's substantive relationship did not pre-date Paulson's participation in that offering.Similarly, Paulson began participating in a private offering of securities on behalf of Issuer No. 2 in 2017. The firm executed the placement agent agreement for that offering on October 27, 2017 and first began selling interests in the offering to investors on December 26, 2017. On or before these dates, the firm did not have a substantive relationship with individual KS. Paulson subsequently established such a relationship with KS and sold her interests in Issuer No. 2's offering on February 8, 2018, but the firm's substantive relationship did not pre-date Paulson's participation in that offering.Paulson solicited and sold the securities of four other private placement offerings to nine other investors in the manner similar to those described above. On each occasion, Paulson failed to have a substantive relationship with each investor prior to the firm's participation in those offerings.Because Paulson began participating in each of the six private placement offerings prior to establishing a substantive relationship with DE, KS, and the 9 other individuals noted above, the eventual solicitations and resulting sales of those offerings each constituted a general solicitation and resulted in the unregistered distribution of securities.