Securities Industry Commentator by Bill Singer Esq

March 17, 2020

A worldwide interactive map detailing the total number of confirmed 
"active," "recovered" and "fatal" COVID-19 cases:

FINRA NAC Affirms OHO Findings and Bar in Exploitation of Senior Customer. In the Matter of FINRA Department of Enforcement, Complainant, vs. Peter Orlando, Respondent (FINRA National Adjudicatory Council Decision, Complaint No. 2014043863001)
As preliminarily set forth in the introductory portion of the NAC Decision:

Peter Orlando ("Orlando") appeals a January 29, 2019 Hearing Panel decision. The Hearing Panel found that Orlando violated FINRA rules as the Department of Enforcement ("Enforcement") alleged in a three-cause complaint. First, the I Tearing Panel found that Orlando violated FINRA Rule 2010 by using his position as a registered representative to exploit unethically a senior customer to become her attorney-in-fact, executor, and beneficiary of her bank account and primary beneficiary of her will. Second, the Hearing Panel found that Orlando violated FINRA Rules 2111 and 2010 by recommending that the customer surrender a variable annuity, a recommendation that was unsuitable for the customer given her financial profile. Finally, the Hearing Panel found that Orlando violated FINRA Rule 2010 by unethically maintaining in his files two forms that the customer signed in blank. The Hearing Panel barred Orlando from associating with any FINRA member in any capacity for using his position to obtain control of his customer's assets, money, and property unethically. The Hearing Panel also ordered that he pay his customer $4,000 in restitution, plus prejudgment interest. In light of the bar, however, the Hearing Panel did not impose the sanctions it assessed for Orlando's remaining FINRA rule violations. 

After reviewing the entire record, we affirm the Hearing Panel's findings. Although, as we explain below, we modify the sanctions the Hearing Panel imposed, by assessing a unitary sanction for Orlando's unethical exploitation of his customer and unsuitable recommendation, we nevertheless affirm them in their effect. We thus, like the Hearing Panel, bar Orlando from the securities industry and order that he pay his customer restitution in the sum of $4,000, plus prejudgment interest. 

In imposing a Bar upon Orlando, the NAC vented its ire:

First, we conclude that DW's age and age-related, cognitive decline made her unable to protect her own interests. At the relevant time, she was 81-years-old, suffered from memory issues, and was prone to anxiety and confusion. See U.S. SEC. AND EXCH. COMM'N, OFFICE OF THE INVESTOR ADVOCATE, ELDER FINANCIAL EXPLOITATION: WHY IT IS A CONCERN, WHAT REGULATORS ARE DOING ABOUT IT, AND LOOKING AHEAD 2 (June 2018) ("Cognitive decline is a key factor that makes the elderly more susceptible to financial exploitation."). She had difficulty assessing the trustworthiness of others, making her vulnerable to becoming an unwitting victim to her desire simply to go along with what she was told or asked, without asking questions. See id. ("[O]lder persons can fall prey to deception and scams if they experience a decline in their ability to judge trustworthiness and riskiness."). In many respects, DW was a logical mark for Orlando. He knew well, and had observed, the full scope of DW's finances, her previous financial exploitation and her recent widowhood, that she did not handle her finances or make her own financial decisions, that she maintained a tenuous level of independence after moving to an assisted living facility, and that she was open to his instructions. All of these facts optimized the occasion for Orlando's abuse and lead us to infer that Orlando knew or must have known of DW's diminished capacity to protect herself.28 
at Page 17 of the NAC Decision

Moreover, Orlando intentionally exploited a senior customer who lacked financial sophistication and, because of her declining cognitive abilities and memory, was unable to manage her own financial affairs.41By causing DW to name him beneficiary of her bank account, attorney-in-fact with general powers to dispose of her assets, and executor and primary beneficiary of her will, Orlando obtained control of the entirety of DW's finances and placed himself in a commanding position to obtain DW's money, and her real and personal property, whether DW lived or died.42At the same time, Orlando affected DW financial harm by causing her to surrender her MetLife variable annuity and engaging attorneys to conduct legal work that served Orlando's interests only.43 
at Page 25 of the NAC Decision

We agree with the Hearing Panel that Orlando's failure to grasp the grievous nature of his misconduct warrants a substantial sanction. See Dep't of Enforcement v. Akindemowo, Complaint No. 2011029619301, 2015 FINRA Discip. LEXIS 58, at *48 (FINRA NAC Dec. 29, 2015) ("His failure to appreciate the requirements of the securities business and the gravity of his misconduct and the harm it caused warrants significant sanctions."), gird, Exchange Act Release No. 79007, 2016 SEC LEXIS 3769 (Sept. 30, 2016). Like other respondents who have embarked on similarly unethical paths, he has evinced a complete lack of understanding of his role and duties as a registered representative and engaged in conduct that is antithetical to the high standards of commercial conduct and just and equitable principles of trade that are required of all FINRA members and their associated persons. See Butler, 2015 FINRA Discip. LEXIS 35, at *29; Evans, 2011 FINRA Discip. LEXIS 36, at *39.
at Page 26 of the NAC Decision

The integrity of the securities industry is undermined substantially by registered representatives who, like Orlando, exercise undue influence to exploit financially seniors and persons who are not able to protect their own interests due to a mental or physical impairment. We condemn Orlando's actions and seek to protect the investing public by barring him from FINRA membership. 
at Page 29 of the NAC Decision

Bill Singer's Comment: Compliments to the NAC for a concise and compelling Decision, which not only tackles the underlying facts with patience but presents the Respondent's despicable and outrageous conduct in a spot-on perfect manner. An exceptionally well crafted condemnation of elder abuse.
In an Indictment filed in the United States District Court for the District of Puerto Rico, Wilson Nieves-Santiago was charged with 27 counts of bank fraud and two counts of money laundering. At issue are $170,867.63 in deposits, $86,000 in electronic transfer, a a two-door 2018 ford Mustang Coupe, and a white 2018 Hyundai Accent coupe. As alleged in part in the DOJ Release, starting sometime around 2015, Nieves-Santiago:

became a caretaker of C.B.R., and elderly female, and her late husband, M.L.R., in Dorado, Puerto Rico, and Philadelphia, Pennsylvania. As part of his responsibilities, Nieves-Santiago would drive C.B.R., run errands, assist her in cleaning, paying bills, and depositing checks. The defendant had online access to C.B.R.'s bank accounts and credit cards, and would pay the victim's expenses with them.On or about April 29, 2015, Nieves-Santiago opened a joint bank account with C.B.R. at PNC Bank. This particular account was managed and controlled solely by the defendant. The indictment charges that Nieves-Santiago began diverting monies belonging to C.B.R. to the joint bank account in February of 2018. The defendant was entitled to salary of $2,170 every two weeks, paid from a trust account. As part of the scheme, Nieves-Santiago would sometimes transfer funds, or endorse checks for an additional $2,170 from C.B.R.'s account without her authorization, in an effort to conceal the payment and make it appear as if it were part of the defendant's regular salary. Nieves-Santiago electronically transferred large sums of money from C.B.R.'s account into the PNC Bank account he controlled without the victim's authorization.
A stockbroker invests his own money in a real estate deal. His money. No customers involved whatsoever. How does that get him in trouble with his employer? How does that rise to the level of a FINRA fine and suspension? Great questions. Read today's blog for the answers.

In a FINRA Arbitration Statement of Claim filed in October 2019, FINRA member firm Claimant tastyworks, Inc. asserted breach of a customer agreement against public customer Respondent Ali. Claimant sought $38,277.22 plus interest and attorneys' fees. Respondent did not appear. As set forth in part in the FINRA Arbitration Decision:

[T]he cause of action relates to Claimant's allegations that Respondent entered into a customer agreement with Claimant on September 4, 2018, in which Respondent agreed to pay any and all debit balances in his trading account, and that Respondent subsequently failed to satisfy the debit balance, despite several requests by Claimant to do so. 

Surprisingly . . . shockingly . . . the sole FINRA Arbitrator dismissed without prejudice Claimant's case, and offered this rationale:

The Arbitrator determined that Respondent was not properly served with the Statement of Claim and did not receive due notice of the proceedings.

Bill Singer's Comment: OMG -- how the hell do you lose such a slam-dunk case with a non-appearing customer? Just out of curiosity, I located an online copy of "tastyworks Customer Agreement,", and note this paragraph:

8. Payment Of Indebtedness Upon Demand
You acknowledge and agree that you will be liable at all times for the payment upon demand, of any debit balance, liability, and indebtedness owing in your Account. Furthermore, you acknowledge and agree that you will be liable for any deficiency remaining in your Account in the event of a liquidation thereof in whole or in part by you or by tastyworks or the Clearing Firm, and you shall make payment of such obligations upon demand.

(DOJ Release)
In an Indictment filed in the United States District Court for the District of South Dakota, 
Robert Blom was charged with 9 counts of wire fraud, 6 counts of mail fraud, and 17 counts of money laundering, As alleged in part in the DOJ Release:

Blom operated a custom cattle-feeding business in the Corsica area.  As part of his business, Blom solicited investors for groups of cattle.  He purchased groups of cattle from various livestock companies and the cattle were raised on feedlots owned or used by him.  Blom raised the cattle to maturity and then sold them to processing plants.  After the groups of cattle were sold, Blom paid the profits to the investors in the groups. 

It is alleged, however, that Blom sold the same groups of cattle to multiple different investors.  Each invoice should have been used for just one group of investors, but Blom knew that he did not have and could not purchase as many head of cattle as he represented to investors.  Sometimes Blom altered the cattle purchase invoices in an effort to conceal that he sold the same group of cattle to multiple different investors.

Also as part of the scheme and artifice, Blom falsely and fraudulently represented to investors that he would use their money to purchase groups of cattle and to care for those cattle.  Instead, he routinely used money from new investors to pay back old investors.

On multiple occasions, Blom mailed invoices and other investment-related documents to investors and several investors mailed their investment payments to him.  Also on multiple occasions, Blom received payments from investors, often by check and Blom also paid old investors, often by check.

The estimated loss amount at this time is approximately $20 million.
Jimmie and Thanikwa Thompson each pled guilty to one count of Conspiracy to Commit Wire Fraud in the United States District Court for the Northern District of West Virginia; and Jimmie, age 27, was sentenced to 37 months in prison and Thanikwa, age 25, to 37 months in prison. As alleged in part in the DOJ Release: 

The Thompsons secured a renter's insurance policy from Allstate Insurance Company for $85,000 in February 2018. Later that month, the Thompsons purchased a space heater from a retailer and positioned it against an inflatable air mattress in their apartment on Winchester Avenue in Martinsburg. The couple then left the apartment with their dog to allow the space heater time to catch the apartment on fire. They then filed a fraudulent claim with Allstate to recover $50,000 of losses from the fire, and to secure a hotel room for several months of temporary housing. The Thompsons were ordered to pay $54,891.28 in restitution.
In an Amended Complaint filed in the United States District Court for the Southern District of New York, the SEC alleged that Robert Ladd had committed violations of registration provisions of Sections 5(a) and (c) of the Securities Act, and ownership reporting provisions of Sections 13(d) and 16(a) of the Securities Exchange Act  and Rules 13d-2(a) and 16a-3 thereunder' and the aforementioned additional charges were added to prior ones alleging violations of the antifraud provisions of Section 17(a)(2) of the Securities Act, Section 10(b) of the Exchange Act and Rule 10b-5(b) thereunder, aiding and abetting Barry Honig's and others' violations of Section 10(b) of the Exchange Act and Rule 10b-5(a) and (c) thereunder, aiding and abetting Barry Honig's and others' violations of Section 17(a)(1) and (3) of the Securities Act, and aiding and abetting MGT's violations of Section 13(a) of the Exchange Act and Rules 13a-1 and 12b-20 thereunder. In part, the SEC Release states:

On March 16th, the Securities and Exchange Commission filed a second amended complaint in an ongoing civil action in which it alleges that numerous individuals and associated entities participated in microcap schemes that generated over $27 million from unlawful stock sales. The amended complaint includes additional allegations in support of its claims against Robert Ladd, the only non-settling defendant of the twenty original defendants in this action.

Since the filing of the initial complaint on September 7, 2018 and its first amendment thereof on March 8, 2019, the SEC has obtained final consent judgments as to twelve defendants and entered into partial consent judgments with six other defendants, all of which allegedly had a role in the schemes. The SEC previously dismissed its charges against the twentieth defendant, a now-defunct entity.