Securities Industry Commentator by Bill Singer Esq

Hedge fund Bridgewater Associates sued by former co-CEO Murray (Reuters by Bhargav Acharya and Kanishka Singh)

Former CEO and Founder of Technology Company Charged in Investment Fraud Scheme (DOJ Release)

SEC Charges Trustify Inc. and Founder in $18.5 Million Offering Fraud (SEC Release)

Quebec trio charged with running fraudulent cryptocurrency / Investors defrauded of $8M worth of phony cryptocurrencyy (DOJ Release)

SEC Obtains Final Judgment Against Massachusetts Defendant in Insider Trading Case (SEC Release)

SDNY Confirms FINRA Arbitration Award Against Defaulting Associated Person

Clifford L. Gelman, M.D., Petitioner, v. Thomas Joseph Borruso, Respondent (Memorandum Opinion & Order, SDNY, 19-CV-10649  / July 23, 2020)

Only One Litigant Shows Up For the FINRA Schoolyard Fight (BrokeAndBroker.com Blog)

Murray had informed the Financial Industry Regulatory Authority (FINRA), a self-regulatory agency that she now chairs, of the dispute with Bridgewater, which is the world's largest hedge fund. In response, Bridgewater told Murray on July 14 in writing that her public disclosures of her dispute with the firm would result in a forfeiture of her deferred compensation, according to the complaint.

. . .

In the suit, Murray, who was one of the highest-ranking female executives in the industry as co-CEO of the hedge fund, called Bridgewater's attempt to withhold the deferred pay an "improper gambit to silence her voice" and "part of a cynical plan to intimidate and silence her."

The hedge fund, founded by billionaire Ray Dalio, was found to have "filed its claims in reckless disregard of its own internal records, and in order to support its allegations of access to trade secrets, manufactured false evidence," court documents made public on Monday showed.

"We conclude that Claimant [Bridgewater] did not have a reasonable basis for filing its claims of misappropriation of trade secrets or disclosure of confidential information as to Squire or Minicone," according to the documents, which quoted the findings of a panel of three arbitrators of the American Arbitration Association.

17. While her dispute with Bridgewater has become protracted, Plaintiff has continued to gain professional recognition since her departure from Bridgewater. 

18. Plaintiff was recently named Chairperson of the Financial Industry Regulatory Authority, known as FINRA. 

19. Plaintiff was also recently named to the Board of Directors of the international bank, HSBC, and the Guardian Life Insurance Company. 

20. Plaintiff has also been approached with opportunities to join other Boards and to consider various investment initiatives which necessarily require disclosure about material matters impacting, or potentially impacting, her participation. 

21. Based on Plaintiff's present and potential roles and duties, including without limitation her judgment about what is appropriate and necessary to disclose to current and prospective business partners, Plaintiff has informed Bridgewater that she has disclosed, and plans to disclose, to various third parties the existence of her dispute with Bridgewater. 

22. Consistent with the foregoing, Plaintiff specifically informed Bridgewater that she disclosed to FINRA that she was involved in a dispute with Bridgewater which involves unequal treatment by Bridgewater and significant unpaid compensation due her. 

[B]eginning in 2015, Boice fraudulently solicited investments in Trustify, a privately-held technology start-up company that connected customers with private investigators.  Boice allegedly raised approximately $18.5 million from over 90 investors by, among other things, falsely overstating Trustify's financial performance.  The indictment also alleges that Boice made false statements to investors about the amount of investor funds that he would personally receive, while diverting a substantial amount of the investor money to his own benefit. 

[B]etween 2015 and 2018, Trustify and Boice falsely held Trustify out as a successful startup with lucrative corporate clients, thousands of investigators in its network, and growing revenues.  According to the complaint, however, Trustify's number of investigators and revenue were far lower than represented and the company was unable to pay its employees and vendors and effectively ceased operations.  Boice allegedly misappropriated at least $8 million of investor funds to pay for personal expenses for himself and his then-wife, also a Trustify executive, including private jet charters, vacations, a luxury car, jewelry, and mortgage payments.  Boice also allegedly diverted hundreds of thousands of dollars to his purported consulting company GoLean DC LLC.

[F]rom May 2017 to December 2017, the defendants conspired together to induce investors to purchase PlexCoin, a cryptocurrency offered through an entity known as PlexCorps. The cryptocurrency would become available to investors during an ICO or Initial Coin Offering. The defendants intended to use the ICO as a way to defraud investors and enrich themselves.

To carry out their alleged scheme, the defendants and their co-conspirators marketed and promoted PlexCorps and the PlexCoin ICO to the public, including investors within the Northern District of Ohio, via social media and publicly accessible Internet websites.

The indictment states that the defendants made numerous false claims about PlexCorps and PlexCoin in order to obtain digital and fiat currency from investors, including that PlexCorps' management consisted of a global "team" of financial, managerial and other subject-matter experts headquartered in Singapore; the proceeds of the PlexCoin ICO would be used to develop other PlexCorps products; and that investors would receive significant returns for their initial investment. The defendants are also alleged to have omitted certain materials facts about the ownership and operations of PlexCorps to conceal their true intent.

According to the indictment, around June 2017, PlexCorps began promoting PlexCoin to the public as a new digital cryptocurrency that would be available through an upcoming ICO. Around August 2017, PlexCorps published a whitepaper for PlexCoin entitled "PlexCoin: The Next Cryptocurrency" ("Whitepaper"), which was available for review on the internet by potential investors. This Whitepaper contained numerous false claims, including that some investments in PlexCoin could result in a 1,354% return.

This Whitepaper explained that funds raised through the PlexCoin ICO and pre-sale would be used to further the maintenance and development of PlexCoin and, later on, allow for PlexCorps to offer additional products and services for sale.

Investors were permitted to begin investing in PlexCoin in August of 2017. During the ICO, investors purchased PlexCoin using a variety of methods, including digital currency, such as Bitcoin, Ether and Litecoin, to wallet addresses on a blockchain.  Investors also tendered fiat currency, including USD and Canadian dollars (CAD), and provided credit card information through payment portals available on the PlexCoin website or through U.S.-based online payment processors such as PayPal, Square, or Stripe.

The indictment states that the first transfer of PlexCoin occurred in August of 2017, and the PlexCoin ICO continued through October of 2017.  Court documents show that the defendants and their co-conspirators regularly transferred investor funds from the PlexCoin ICO into fiat currency accounts, and cryptocurrency addresses belonging to themselves for the purpose of daily living expenses and home renovation products. Investors purchased approximately $8,000,000 USD worth of PlexCoin throughout the ICO.

This action arises from an arbitration proceeding between Petitioner, a surgeon residing in Pismo Beach, California, and Respondent, a financial advisor working out of Woodbury, New York. Am. Pet., Dkt 11, ¶¶ 1-3 & Ex. 3 ("Statement of Claim") ¶¶ 7, 12. Respondent was an employee and registered representative of LPL Financial LLC ("LPL"), a FINRA member. Am.Pet. ¶ 3 & Ex. 2.

Sometime prior to March 11, 2015, Respondent solicited an investment from Petitioner

and recommended that he move his retirement savings to LPL to maximize his returns. Id. ¶ 11.In June 2015, Respondent opened an investment account for Petitioner's retirement funds with the objectives of growth and income. Id. ¶ 12. Without seeking the permission of Petitioner, Respondent invested "in speculative stocks that were unsuitable to [Petitioner's] goals" and made "excessive trades that lost money for [Petitioner], while generating large commissions for Respondent and his employer." Id. Respondent invested virtually all of Petitioner's retirement funds in SunEdison, a solar energy company that went bankrupt on April 21, 2016, causing Petitioner "out-of-pocket losses" of $391,647.01 and leaving him with only $12,734 of his initial investment of $404,382. Id. ¶ 13 & Statement of Claim ¶ 39. Although Respondent's trades left Petitioner with only a fraction of his initial investment, Respondent charged Petitioner over $32,000 in commissions. Am. Pet. ¶¶ 12-13; Statement of Claim ¶¶ 3, 20. 

After these events, the dispute resolution arm of FINRA took regulatory action against Respondent and barred him from association with any FINRA member in any capacity. Am. Pet. ¶ 15. Respondent's registration with FINRA was suspended on June 26, 2017, and he was permanently barred from association with any FINRA member on September 5, 2017. Id. ¶ 20 & Ex. 2 at 9-10. 

[T]hus, even though Respondent has "cho[sen] the perilous path of failing to submit a response to a summary judgment motion, the district court may not grant the motion without first examining the moving party's submission to determine if it has met its burden of demonstrating that no material issue of fact remains for trial." Amaker v. Foley, 274 F.3d 677, 681 (2d Cir. 2001). 

[T]he fact that Respondent was suspended on June 26, 2017 and barred from association with FINRA on September 5, 2017, see Am. Pet. ¶ 20 & Exs. 2, 5, does not defeat his status as an "associated person of a member." The FINRA Code defines an "associated person of a member" to include a "sole proprietor, partner, officer, director, or branch manager of a member, or other natural person occupying a similar status or performing similar functions, or a natural person engaged in the investment banking or securities business who is Case 1:19-cv-10649-RA Document 28 Filed 07/23/20 Page 6 of 10 7 directly or indirectly controlling or controlled by a member, whether or not . . . [a]ny such person's registration is revoked, cancelled, or suspended, [or] the person has been expelled or barred from FINRA." FINRA Rule 12100(w)(2) (emphasis added). Moreover, FINRA Rule 12801(a) provides that a "claimant may request default proceedings against any respondent" who "fails to file an answer within the time provided by the Code" if that respondent was "[a]n associated person whose registration is revoked, cancelled, or suspended, who has been expelled or barred from FINRA, or whose registration has been terminated." FINRA Rule 12801(a)(4). . . .

[H]ere, Respondent has not complied with the award. And by not opposing this petition, he has offered no justification for his failure to do so. The Court thus grants Petitioner's request for attorneys' fees in bringing this action to confirm the award. See First Nat'l Supermarkets, 118 F.3d at 896. The Court directs Petitioner to submit an affidavit with an accounting of costs and fees within fourteen days of this Order. . . .

After these events, the dispute resolution arm of FINRA took regulatory action against Respondent and barred him from association with any FINRA member in any capacity. Am. Pet. ¶

This form is to be used by arbitrators who want to refer potential disciplinary violations to FINRA Member Regulation for investigation. Please submit the form to the attention of Todd Saltzman, Vice President of Dispute Resolution . . .

• Securities Industry Commentator
• Bill Singer