Securities Industry Commentator by Bill Singer Esq

July 21, 2020
Prominent radio talk-show host Hugh Hewitt announced his support for the re-election of FINRA Small Firm Governor Stephen Kohn
As Bloomberg's Goldman reports in part:

About one in four office employers intend to reduce their footprint by at least a fifth, and about 16% expect to move jobs out of the city, according to the Partnership for New York City, an influential group composed of corporate chief executives, which hired over a dozen consulting firms to conduct the study.

Bill Singer's Comment: Wall Street is evaporating. Madison Avenue has vanished. The Garment District is gone. The restaurants are shuttered. The hotels are closed. Broadway is dark. Notwithstanding, some local politicians still want to add a stock transaction tax, and a billionaire's tax, and a millionaire's tax, and expand all sorts of laudable programs that the City can't afford. On top of that, the politicos drive away the likes of Amazon with the absurd result that large corporations won't pay taxes on the jobs that they never get to create and won't produce revenue to sustain local businesses. Ultimately, the solution is not raising taxes but ending graft and corruption. It's not about taxing the rich into an exodus to more friendly tax havens, but in ensuring that municipal Requests for Proposals do not exclude smaller, more competitive, local bidders from qualifying. Alas, businesses will move out of NYC. The wealthy will move out of NYC. The politicians will promise everything for free to everyone but without the tax base to pay for the largesse. Last one out, turn off the lights. It was one helluva party while it lasted!
In a Complaint filed in the United States District Court for the Northern District of California, the SEC alleged that YouPlus and its founder/Chief Executive Officer Shaukat Shamim violated the antifraud provisions of the federal securities laws. In a parallel action, criminal charges were filed against Shamim. As alleged in part in the SEC Release:

The SEC's complaint alleges that from 2018 to 2019, Shaukat Shamim, the founder and CEO of YouPlus, a private company that purported to have developed a machine-learning tool to analyze videos on the internet, raised funds from investors while repeatedly misrepresenting the company's financial condition.  According to the complaint, Shamim falsely told investors that YouPlus earned millions of dollars in annual revenue and had more than 100 customers, including Fortune 500 companies.  When one investor pressed Shamim for information substantiating those claims, Shamim allegedly provided the investor with falsified bank statements in an effort to conceal the fraud.  The scheme allegedly unraveled in late 2019 when Shamim confessed to certain investors that YouPlus had in fact earned less than $500,000 and obtained only four paying customers from the company's inception in 2013.

Without admitting or denying the findings, UBS Financial Services Inc. consented to an SEC cease-and-desist order that finds it violated the disclosure, fair dealing, and supervisory provisions of Municipal Securities Rulemaking Board Rules G-11(k), G-17, and G-27, and also failed reasonably to supervise within the meaning of Section 15(b)(4)(E) of the Securities Exchange Act. The SEC Order imposes a $1.75 million penalty, $6.74 million in disgorgement of ill-gotten gains plus over $1.5 million in prejudgment interest, and a censure. In companion actions, without admitting or denying the findings, UBS registered representatives William S. Costas and John J. Marvin consented to SEC Orders finding they violated MSRB Rules G-11(k) and G-17.  Costas agreed to pay disgorgement and prejudgment interest  totaling $16,585 and a civil penalty of $25,000; and Marvin agreed to pay disgorgement and prejudgment interest totaling $27,966 and a civil penalty of $25,000; and both consented to a 12-month limitation on trading negotiated new issue municipal securities. Previously, the SEC settled charges against former UBS Executive Director Jerry E. Orellana for submitting retail orders to the underwriting syndicate from certain UBS customers who were flippers. As alleged in part in the SEC Release:

[O]ver a four-year period, UBS improperly allocated bonds intended for retail customers to parties known in the industry as "flippers," who then immediately resold or "flipped" the bonds to other broker-dealers at a profit.  The order finds that UBS registered representatives knew or should have known that flippers were not eligible for retail priority.  In addition, the order finds that UBS registered representatives facilitated over 2,000 trades with flippers, which allowed UBS to obtain bonds for its own inventory, thereby circumventing the priority of orders set by the issuers and improperly obtaining a higher priority in the bond allocation process.
Everything is big in the Lone Star State. And this lawsuit is no different. As Financial Planning's Corbin reports in part:

A Texas judge will hear arguments later this month in a dispute between UBS and a former broker who jumped ship to Morgan Stanley, allegedly improperly bringing more than $97 million in client assets with her.

UBS is suing to block Alexandra Van Meurs, a top-ranked advisor on Forbes' list, from soliciting her former clients after she made the leap to a Houston office of Morgan Stanley in May, bringing four members of her practice with her.
Lester Lavin, 44, pled guilt in the United States District Court for the District of Southern Florida to conspiracy to steal funds in excess of $1,000 from Miccosukee Indian Gaming, conspiracy to commit computer fraud, and conspiracy to commit money laundering. Lavin was sentenced to 51 months months in prison. Previously, Lavin's girlfriend, Anisleydi Vergel Hermida, pled guilty to conspiracy to commit money laundering; and she was sentenced to six months in prison.  Lavin and Vergel Hermida agreed to forfeit Lavin's Miami Beach condominium, another residential property in Miami, and the Florida Prepaid College Plans. Awaiting sentencing, former employees Michel Aleu, Yohander Jorrin Melhen, and Leonardo Betancourt pled guilty to conspiracy to steal funds in excess of $1,000 from Miccosukee Indian Gaming, conspiracy to commit computer fraud, and conspiracy to commit money laundering offenses; and their respective spouses and Co-Defendants, Maria Del Pilar Aleu, Milagros Marile Acosta Torres, and Yusmary Shirley Duran pled guilty to conspiracy to commit money laundering offenses. As alleged in part in the DOJ Release:

Lavin worked for Miccosukee Indian Gaming, at its casino, for 12 years -- from 2003 to 2015.  For the first six years, Lavin worked as a video technician at the casino, servicing the casino's electronic gaming machines such as video slot machines.  In 2009, Miccosukee Indian Gaming promoted Lavin to Video Supervisor.  Two years into his new job, in 2011, Lavin began conspiring with his own supervisor, Michel Aleu, two of his video technicians, Yohander Jorrin Melhen, and Leonardo Betancourt, and others, to steal money from the casino.  To accomplish their theft, Lavin and his co-conspirators tampered with the gaming machines' computers, causing the machines to generate credit vouchers or tickets falsely showing that they had won money. Other members of the conspiracy, who did not work at the casino, would then exchange the credit vouchers for cash at ATMs located on the casino floor and at floor cashiers.  Lavin and his co-conspirators perpetrated their fraud and embezzlement scheme for more than four years. From January 2011 through May 2015, they stole about $5.3 million from the Miccosukee Indian Gaming casino.

Among other things, Lavin used his share of the stolen money to purchase a condominium in Miami Beach, to pay down various debts, including mortgages on properties in Miami-Dade County, and to purchase Florida Prepaid College Plans for two of his children. Lavin laundered at least $654,150 of fraud proceeds, on his own, and with help from others, including his co-defendant, Vergel Hermida. Lavin and Vergel Hermida lived together in the Miami Beach condominium that Lavin purchased with fraud money.
In a Complaint filed in the United States District Court for the District of Maryland, the SEC alleged that Michael Barry Carter with violations of the antifraud provisions of the Securities Exchange Act of 1934 and the Investment Advisers Act of 1940. The SEC is seeking injunctive relief, the return of allegedly ill-gotten gains plus prejudgment interest, and a civil penalty. In a parallel action, criminal charges were filed against Carter, who pled guilty. As alleged in part in the SEC Release:

[C]arter, a financial advisor in the McLean, Virginia office of a large financial institution, falsified internal documents in order to effect dozens of unauthorized wire transfers, totaling millions of dollars, from the accounts of brokerage customers to his personal bank account.  According to the complaint, to generate some of the funds that he misappropriated, Carter sold securities without customer authorization. As alleged, Carter employed various methods to conceal his misconduct from his brokerage customers, including diverting account statements to addresses he controlled. The complaint further alleges that Carter made almost $1.5 million in unauthorized transfers from the accounts of an elderly advisory client, sending nearly $1 million to himself, and using some of the remainder to repay funds he had taken from a brokerage customer. Carter also allegedly misappropriated funds from the client that originated from 529-plan college savings accounts held at another financial institution for the benefit of the her grandchildren. The complaint alleges that Carter used the funds he misappropriated from his customers and client to support his lavish lifestyle.
Michael Barry Carter pled guilty in the United States District Court for the District of Maryland to wire fraud and investment adviser fraud. As alleged in part in the DOJ Release:

[F]rom August 7, 2006 to April 29, 2011, and again from November 16, 2011 to July 29, 2019, Carter was employed by a financial institution and worked primarily out of the financial institution's Tysons Corner, Virginia location.  In 2012, Carter was promoted to financial adviser in the wealth management section of the financial institution and was registered to sell securities and act as an investment adviser in Maryland and Virginia, among other locations.  Carter managed and had authority over multiple investment accounts maintained by Victims 1 through 5 with the financial institution, which contained a mix of assets including securities and cash deposits.  As a financial adviser, Carter was required to manage the victim accounts in the best interests of his clients, consistent with their investment objectives, and not for his personal benefit.

As detailed in the statement of facts, from at least October 2007 to at least July 2019, Carter made numerous unauthorized transactions from the victim accounts for his personal benefit, defrauding Victims 1 through 5 of at least $5 million.  To effect the unauthorized wire transfers, Carter caused the submission of an internal bank authorization form that falsely stated that Carter had received verbal client instructions from each victim authorizing the transfer at a specific date and time.  Carter caused the wire transfers to be sent to his personal accounts and used the money to pay for his lifestyle expenses, including Carter's mortgage, credit card bills, and country club membership fees.

Carter's fraud was first discovered when Victim 1 and her adult daughter attempted to obtain a bridge loan from the financial institution to cover relocation expenses to an assisted living facility in Florida until the sale of Victim 1's home in Columbia, Maryland, was completed.  When they applied for the loan, Victim 1 and her daughter discovered that an $800,000 loan had already been obtained in Victim 1's name, without Victim 1's knowledge or permission.  The financial institution determined that the disbursement of the loan proceeds went to Carter's personal bank account and that Carter used his personal e-mail address in furtherance of the fraud.  The financial institution then learned that Carter had transferred approximately $5 million in unauthorized funds associated with clients of the financial institution.

On July 29, 2019, Carter was fired from the financial institution.  On August 2, 2019, during a call with employees from the financial institution, Carter admitted that he had defrauded the five victims over a period of years, that he had forged clients' signatures on bank authorization forms, that he had created false financial statements to disguise his theft, and in some cases had mailed those financial statements.  With respect to Victim 1, Carter further admitted that he met with the victim at her home and answered Victim 1's phone in order to authorize the transactions, unbeknownst to Victim 1.  Carter did this in order to overcome the financial institution's multi-factor verification system required to execute the transactions.

According to the plea agreement, during the course of the scheme Carter made at least 53 unauthorized transfers from his clients' accounts to his own accounts.  In addition, Carter admitted that he embezzled over $50,000 from a non-profit sports organization located in Loudoun County, Virginia.  In all, Carter stole at least $6,149,162.77.  Prior to his offenses being detected, Carter caused $1,794,052.38 to be returned to the victims.  After learning that his fraud had been discovered, in October 2019, Carter also repaid the non-profit organization for its loss.  Of the total amount repaid, $1,118,318.52 was repaid through transfers Carter made from other victim accounts. 

The net proceeds obtained by Carter was at least $4,355,110.39.  As part of his plea agreement, Carter will be required to pay a money judgment in that amount.

In the Matter of the Application of Fred F. Liebau, Jr. (Order Directing Additional Submissions, SEC, '34 Act Rel. No. 89349; Admin. Proc. File No. 3-9907)
From the school of "what does that have to do with anything," we consider the predicament of a former BD Persident/CCO who was barred way back in 1999 from associating with any BD as a supervisor/principal. In 2020, the barred fellow petitions the SEC to vacate the bar so that he can serve in various RIA roles. What exactly does the Petitioner want the SEC to do? Ahhh . . . that's not all that clear. As set forth in pertinent part in the SEC Order [Ed: footnotes omitted]:

In 1999, the Commission instituted an administrative proceeding pursuant to Sections 15(b) and 19(h) of the Securities Exchange Act of 1934 against Fred F. Liebau, Jr., resulting in a settled order ("Order"). In the Order, the Commission found that Liebau, while president and chief compliance officer of a registered broker-dealer, had failed to reasonably supervise a registered representative for approximately five years, during which time the representative operated a Ponzi scheme involving at least 97 people.  The Order, among other things, required Liebau to pay a $10,000 civil money penalty; suspended him from associating with any broker or dealer for three months; and barred him from associating with any broker or dealer as a supervisor or principal, with the right to reapply for such association after two years to the appropriate self-regulatory organization, or, if none, the Commission.

On May 1, 2020, Liebau filed a "[p]etition to [v]acate . . . [his] [a]dministrative [b]ar . . . in accordance with Rule 193 [of the Commission Rules of Practice] . . . regarding applications by barred individuals for consent to associate." According to Liebau, while he has been employed in the financial industry for most of the past 20 years, he is requesting relief now so that he can serve as president, proprietor, and an unsupervised Investment Advisory Representative (IAR) of an investment advisor. Liebau's petition does not explain why relief from a bar against associating with a broker or dealer in a supervisory or principal capacity would be necessary for him to associate as president, proprietor, and an unsupervised IAR of an investment advisor.

It is unclear from Liebau's submission whether he is seeking to modify or vacate his administrative bar, or whether he is seeking consent to associate with a registered entity not regulated by a self-regulatory organization, such as an investment advisor, pursuant to Commission Rule of Practice 193. These are separate forms of relief with separate standards. Relief granted under Rule 193 permits a particular association while the bar remains in place, while relief granted in response to petitions to vacate removes the bar in its entirety. 

Because of this lack of clarity, further briefing would be helpful to the Commission. Liebau is thus directed to file an additional written submission clarifying the relief he seeks. 

Accordingly, it is ORDERED that Fred F. Liebau, Jr. file a statement, not to exceed 3,000 words, by August 3, 2020, addressing the issues outlined in this order. . . .
The CFTC issued an Order settling an enforcement action against Southwest Group, LLC finding that from April 2018 through September 2018, Southwest Group, through its website, offered transactions in off-exchange foreign currency via its "Preimum + Layaway Program" (financed by the company as counterpary) to ineligible retail customers.  Instead of retail customers receiving their forex within two days of the transactions, it took 30 or 45 days.Southwest Group is required to cease and desist from further violations of the Commodity Exchange Act and CFTC regulations, as charged, and to pay a $75,000 civil monetary penalty.

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, Precision Securities, LLC submitted a Letter of Acceptance, Waiver and Consent ("AWC"), which FINRA accepted. The AWC alleges that Precision Securities, LLC has been a FINRA member firm since 2000 with four branches employing about 24 registered individuals -- the AWC characterizes the firm as one that "executes agency or riskless principal transactions on behalf of its primarily institutional customer base." The AWC alleges that Precision Securities, LLC "has no relevant 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 Precision Securities, LLC had violated  violated NASD Rule 1032(f) (for conduct prior to October 1, 2018) and FINRA Rule 1220(b)(4)(a) (for conduct on and after October 1, 2018), NASD Rule 3010 (for conduct before December 1, 2014) and FINRA Rule 3110 (for conduct on and after December 1, 2014), and FINRA Rule 2010; and the self regulator imposed upon a $7,500 fine for the qualification and registration violations and a $5,000 fine for the supervisory violations. The AWC notes that a related disciplinary action by the NASDAQ Stock Market LLC was filed concurrently. As alleged in part in the AWC:

3. During the period March 28, 2014 through February 2, 2019, "MB" took agency orders from clients and executed them on Precision's Order Management System ("OMS") platform. Despite this, Precision failed to qualify or register MB as an Equity Trader (prior to January 4, 2016) or a Securities Trader (since January 4, 2016).3 On February 2, 2019, the firm took steps to prevent MB from engaging in any such activity that would require qualification or registration as a Securities Trader.4

4. By virtue of the foregoing, Precision violated NASD Rule 1032(f) (for conduct prior to October 1, 2018), FINRA Rule 1220(b)(4)(a) (for conduct on and after October 1, 2018), and FINRA Rule 2010.

5. During the period May 3, 2018 through June 10, 2019, "SG" routed orders for clients through the Firm's OMS. However, Precision failed to qualify and register SG as a Securities Trader until June 10, 2019.5 

6. By virtue of the foregoing, Precision violated NASD Rule 1032(f) (for conduct prior to October 1, 2018), FINRA Rule 1220(b)(4)(a) (for conduct on and after October 1, 2018), and FINRA Rule 2010. 

7. Additionally, NASD Rule 3010(b)(1) (for conduct before December 1, 2014) and FINRA Rule 3110(b)(1) (for conduct on and after December 1, 2014) requires that, "[e]ach member shall establish, maintain, and enforce written procedures to supervise the types of business in which it engages and the activities of its associated persons that are reasonably designed to achieve compliance with applicable securities laws and regulations, and with applicable FINRA rules." 

8. During the relevant period, Precision's WSPs, revised as of November 2017, designated the Chief Compliance Officer ("CCO") responsible for "ensuring" that associated persons obtained the required "registration and licensing prior to the commencement of work," and stated a policy that, "[n]o associated person of the [F]irm will act in any registered capacity without the appropriate license(s)." The WSPs further required the CCO to conduct and document internal reviews regarding registration, including to "ensure" that all supervisory personnel and principals were qualified for their duties. However, the WSPs failed to specify the process, method, or frequency for the CCO's reviews for registration compliance. Accordingly, Precision's WSPs failed to specify a process or method through which the Firm would reasonably monitor for and effectively review whether its associated persons were appropriately qualified and registered for their activities and duties, in compliance with applicable requirements. By virtue of the foregoing, Precision violated NASD Rule 3010 (for conduct before December 1, 2014), FINRA Rule 3110 (for conduct on and after December 1, 2014), and FINRA Rule 2010. 

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Footnote 3: On January 4, 2016, FINRA's Regulatory Notice 15-45 eliminated the registration category of "Equity Trader" and its qualification examination, Series 55, and replaced it with the registration category of "Securities Trader" and corresponding Series 57 examination for registered individuals engaged in securities trading activity.

Footnote 4:  MB was qualified and registered with FINRA as a General Securities Representative (Series 7) during the relevant period.  

Footnote 5: SG was qualified and registered with FINRA as a General Securities Representative during this period.