Securities Industry Commentator by Bill Singer Esq

June 25, 2020

British Man Sentenced To 70 Months In Prison For Fraud Scheme That Victimized Hundreds of Thousands of U.S. Consumers (DOJ Release)

Pennsylvania Attorney Settles with SEC in $1.4 Million Dollar Ponzi Scheme (SEC Release)

Ad agency counting BMW, PayPal and Pepsi as clients joins Facebook boycott (CNBC by Sam Shead)
The SEC issued an Order announcing settled charges against broker-dealer SG Americas Securities LLC, for failing to provide complete and accurate securities trading information known as "blue sheet data."  SG Americas agreed to pay a $1.55 million civil penalty to resolve the SEC's charges and separately agreed to pay $1.55 million to the Financial Industry Regulatory Authority (FINRA) to resolve parallel charges. As alleged in part in the SEC Release:

[F]or more than five years, SG Americas made numerous deficient blue sheet submissions containing missing or inaccurate data, largely due to undetected coding errors. The order finds that SG Americas submitted missing or incorrect data for approximately 27.6 million transactions and had inadequate processes designed to validate the accuracy of its submissions. Broker-dealers are required to provide trade data, which the SEC uses to carry out its enforcement and regulatory obligations, including investigations of insider trading and other fraudulent activity.

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, SG Americas, LLC. ("SGAS") submitted a Letter of Acceptance, Waiver and Consent ("AWC"), which FINRA accepted. The AWC asserts that SGAS has been a FINRA member firm since 2005 with five branch offices and 830 registered persons; and that Newedge USA LLC was a FINRA member firm from 1996 to January 2015, at which time it merged into SGAS. In accordance with the terms of the AWC, FINRA imposed upon SG Americas, LLC a Censure and a $1.55 million fine ( from association with any FINRA member in any capacity (another $1.55 million fine is to be paid to the SEC). As set forth in part in the AWC:

This AWC relates to violations by both SGAS and Newedge. From 2012 to 2019, Newedge and SGAS submitted approximately 8,400 inaccurate blue sheets to FINRA, misreporting information on approximately 4.2 million transactions. Therefore, SGAS violated FINRA Rules 8211, 8213, and 2010. 

Further, Newedge did not maintain written procedures for validating blue sheet requests during the period January 2012 through January 2015. SGAS therefore violated FINRA Rules 3110(b) and 2010 and NASD Rule 3010(b).

Luxury buyers seeking second homes in suburbs catapult growth among million-dollar listings / Luxury market is leading housing rebound, expert says (Fox Business by Brittany De Lea)
As far as I'm concerned, this is nonsense. These are not "second" homes but COVID homes. Good luck juggling a primary and secondary residence when the secondary is actually the new primary, and the old primary can't be sold because no one wants to live in the City where the old primary (now the new secondary) is located. Let's see what happens when the COVID urban refugees flee their $5 million City condo, buy a $3 million suburban home, and then learn that the last, best offer for their City condo is $2.25 million and there are no other offers on the table. And then their law firm or CPA practice breaks up. Or their brokerage firm closes. Or their hedge fund is hit with liquidations. Or their office in the City relocates 1,000 away. Or . . . or . . . or. Grotesquely absent from this analysis is a grasp of what happens when the abandoned cities struggle to find their new relevancy, and retail storefronts shutter, service-industries fail, and all the once-abundant talent and staffing have relocated.  Absent from the analysis is some acknowledgment that suburbia is, indeed, sub-urban to a nearby City, and if that City fails or stumbles, the shockwaves will impact the dependent suburban communities. Put another way, you can't telecommute from the suburbs if the anchor office in the City closes for lack of business or staffing. We may well be witnessing an historic moment in population dislocation. That does not strike me as an event that should be framed by such terms as "growth" or "luxury market." 

German payments firm Wirecard files for insolvency after revealing $2 billion accounting black hole (CNBC by Ryan Browne)
First the billions were, you know, "missing." Then the funds were sort of there but not "there" there but somewhere else. Then that somewhere else turned out to be a dead end. As CNBC's Brown reports in part:

Wirecard had attempted to locate the missing cash, alleged to be held with two banks in the Philippines. But that hunt came to a crashing halt after both of the banks denied any business ties with Wirecard and documents purporting to show the company deposited funds with them had been falsified.
Three roommates thought that they had pulled off a successful bank robbery. They thought wrong. Frankly, some aspects of the case are so comical that, who knows, this may all end up as a warped Buddy Film.
Aegis Frumento, Esq. reminds us that the Roman Emperor Caligula ruled was killed after announcing that he would appoint his horse a Roman Senator. Why is Aegis writing about Ancient Rome? Who the hell knows. He's socially distancing. Telecommuting. Watching countless old episodes of "Law & Order" and desperately hoping that the jury acquits during this re-run. Like all of us, Aegis is going stir crazy. Regardless, as Aegis further notes, after Caligula's assassination, one hypocrite Consul bloviated, "Our first duty now is to give the highest possible honors to those who have killed the tyrant," all the while still wearing Caligula's loyalty ring. Aegis thinks that the unfaithful Consul would feel right at home in our own Senate. 

Religion Meets Profit Generation in a Slew of New Faith-Based ETFs / Funds aim to attract Muslims and Christians seeking to align their money and their values (Bloomberg by Claire Ballentine and Vildana Hajric)
A fascinating glimpse into a developing area of investing. In part, the Bloomberg article reports that:

Wahed's ETF, for instance, doesn't own banks or companies that get revenue from the sale of alcohol or pork products. Yet some of its top holdings, such as Tesla Inc., carry a lot of interest-bearing debt. And while makers or sellers of weapons are shunned by indexes tracked by the Wahed and SP Funds, some Muslim-based indexes allow those companies.

At Timothy Plan, which since 1994 has managed what it calls "biblically-oriented" mutual funds, companies that manufacture firearms are acceptable. But it won't hold Target Corp. because of, among other reasons, the retailer's policy allowing people to use bathrooms that correspond to their gender identity. According to founder Arthur Ally, shares of Walt Disney Co. are also out in part because the company produces entertainment showcasing "unbiblical" married lifestyles. "We refuse to invest in companies that are pursuing an unholy agenda," Ally says. . . .

Chuck E. Cheese parent files for bankruptcy, another casualty of pandemic (Reuters by Kanishka Singh)
You can hear the sobs of kids all over America. As reported in part by Reuters' Singh:

As of Wednesday, 266 Chuck E. Cheese and Peter Piper Pizza restaurant and arcade venues were re-opened, with the company expecting to maintain ongoing operations in the locations throughout the Chapter 11 process.

Irving, Texas-based CEC was taken private by Apollo Global Management (APO.N) in 2014 in a $1.3 billion deal, including debt.

In the Matter of Ryan M. Davis, Respondent (FINRA AWC 2019061456701)
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, Ryan M. Davis submitted a Letter of Acceptance, Waiver and Consent ("AWC"), which FINRA accepted. The AWC asserts that Ryan M. Davis entered the industry in 2013 and by 2015, he was registered with FINRA member firm Wells Fargo Clearing Services, LLC. The AWC asserts that Davis "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 imposed upon Davis a $15,000 deferred fine to be paid upon reassociation or prior to any application/request from statutory disqualification, and an 18-month suspension from association with any FINRA member in any capacity. As set forth in part in the AWC:

From April 2015 until January 2019 (the "Relevant Period"), Davis engaged in undisclosed outside business activities away from the Firm. Specifically, from at least the start of the Relevant Period, Davis established and/or participated in the operations of five business entities created to invest in cryptocurrencies, and one entity to trade commodity futures, without providing prompt notice to his employer firm. By engaging in business activities without providing written notice to his employer firm, Davis violated FINRA Rules 3270 and 2010.

In addition, in December 2017, Davis violated FINRA Rules 3280 and 2010 by participating in six private securities transactions without providing prior written notice to his employer firm. Davis marketed investment pools to others through two of the companies trading cryptocurrencies.

Lastly, throughout the Relevant Period, Davis intentionally provided false information to
Wells Fargo to conceal his outside business activities and private securities transactions, in violation of FINRA Rule 2010.
Gareth David Long, 41, pled guilty in the United States District Court for the District of Nevada to wire fraud and aggravated identity theft; and he was sentenced to 70 months in prison. As alleged in part in the DOJ Release:

From 2008 through 2013, Long operated a third-party payment processing company, V Internet Corp, which also did business as Altcharge and Check Process.  As a payment processor, Long specialized in the creation and deposit of remotely-created checks (RCCs).  An RCC is a check created not by the account holder but by the third-party payee.  In place of a signature, Long's RCCs contained a typed statement claiming that the check was authorized by the account holder.  Because of this payment processing activity, Long possessed the personal and financial information of hundreds of thousands of consumers whose accounts he debited in 2012 and before.  

In January 2013, Long stopped acting as a third-party payment processor for other merchants, and simply started using RCCs to charge the bank accounts of consumers whose personal identifying information he had acquired over the previous five years, as well as other consumers whose information Long purchased in the form of "lead lists."  Long did not have authorization to charge any of these victims' accounts.   

During the wire fraud and identity theft scheme from January through July of 2013, Long created and deposited more than 750,000 RCCs totaling more than $22 million.  While approximately half of the RCCs were immediately reversed by victims' banks, Long nevertheless succeeded in stealing approximately $11 million over a six-month period.

The U.S. Postal Inspection Service seized more than $2.9 million from Long's company bank accounts.  Postal Inspectors also seized property that Long purchased with the proceeds of his fraudulent activity, including three airplanes and the other vehicles and property described above.  As part of the sentencing hearing, the court issued a forfeiture money judgment of more than $11.2 million and Long forfeited the ranch and land he purchased in Texas.

Pennsylvania Attorney Settles with SEC in $1.4 Million Dollar Ponzi Scheme (SEC Release)
In a Complaint filed in the United States District Court for the Eastern District of Pennsylvania, the SEC alleged that Todd H. Lahr, Esq. had orchestrated a $1.4 million Ponzi scheme that victimized at least 10 retail investors (among which were clients of his law firm). As alleged in part in the SEC Release:

Lahr, together with co-defendant Thomas Megas of Switzerland, targeted Lahr's clients to raise funds for several Megas-led business ventures, including mining operations in Papua New Guinea and real estate investments in Barcelona and London. Instead, Lahr and Megas allegedly used investor funds to pay earlier investors and for various personal expenses, including Lahr's mortgage payments and credit card bills and Megas' restaurant bills and ATM withdrawals.

In a parallel criminal action by the U.S. Attorney's Office for the Eastern District of Pennsylvania and the Fraud Section of the Department of Justice, Lahr pleaded guilty and is awaiting sentencing.

The final judgment against Lahr permanently enjoins him from violating the registration provisions of Sections 5(a) and (c) of the Securities Act of 1933, and the antifraud provisions of Sections 17(a)(1) and (3) of the Securities Act and Section 10(b) of the Securities Exchange Act of 1934 and Rules 10b-5(a) and (c) thereunder. The final judgment also orders Lahr to disgorge ill-gotten gains of $976,879 plus $179,888 in prejudgment interest, for a total of $1,156,767, which will be offset by the forfeiture and restitution ordered in the parallel criminal action.

In a related administrative proceeding, the SEC today issued an order permanently suspending Lahr from appearing and practicing before the SEC as an attorney
Does a trickle become a flood or remain a trickle? Advertising agency Goodby Silverstein (whose clients include BMW, HP, PayPal, Pepsi, Doritos, and Adobe) is joining the July 2020 "#StopHateForProfit" campaign and pulling its advertising from Facebook. As reported in part by CNBC's Shead:

Last week, a group of six organizations, including the Anti-Defamation League, the National Association for the Advancement of Colored People, Sleeping Giants and Color of Change, called on Facebook advertisers to halt their spending on the social media platform during the month of July. They're asking large brands "to show they will not support a company that puts profit over safety."