Securities Industry Commentator by Bill Singer Esq

November 18, 2020

Florida Man Sentenced to 37 Months in Prison for Laundering More Than $9 Million in Account Takeover Scheme (DOJ Release)

Former Resident of Bergen County Admits Role in $1.5 Million Investment Fraud Scheme (DOJ Release)
The expression is "better late than never." Quite often, those words of wisdom prove to be sage advice. When it comes to Wall Street regulation, however, sometimes being late isn't better, particularly if you're the Respondent in a belated FINRA action.
In what DOJ asserts is a "first-of-its-kind indictment," fraud charges were filed against Indian-based Voice over Internet Protocol (VoIP) provider, E Sampark, and its Director, Gaurav Gupta. Pursuant to a consent permanent injunction, a federal court has also ordered a Florida-based server farm to stop providing E Sampark and Gupta with servers used to help perpetuate the fraud scheme. As alleged in part in the DOJ Release:

[D]efendant Gaurav Gupta directed and operated E Sampark, d/b/a VG-Tech Serve Private Limited, a Voice Over IP (VoIP) company that allegedly sent calls from criminal India-based call centers to victims in the United States, both directly and through VoIP providers located in the United States.  From May 2015 to June 2020, the defendants passed tens of millions of scam calls from India into the United States, leading to reported victim losses of over $20 million.  The callers purported to be legitimate government agencies and businesses and misled victims over the phone.  The callers allegedly used multiple frauds, including Social Security impersonation, IRS impersonation, and loan scams.

As part of a Social Security scam, India-based callers posed as federal agents in order to mislead victims into believing their Social Security number was involved in crimes.  Callers threatened arrest and the loss of the victims' assets if the victims did not send money.  The callers directed victims to send cash to aliases used by other members of the fraud network, and to transfer funds via gift cards to the callers.  In one instance in November 2019, the callers kept a Marietta, Georgia woman on the phone for over eleven hours while they convinced her that her Social Security number had been compromised, that there was a warrant for her arrest in Texas, and that she should tell no one about the purported investigation.  The callers told the victim that her assets were going to be frozen and that she should purchase gift cards in order to protect her money.  Per the callers' directions, the victim went around Cobb County to purchase over $35,000 in gift cards, including Target, GameStop, Sephora, and Nordstrom gift cards.  The callers had the victim provide them with the numbers on the back of the cards, which allowed them to steal the funds from her.  E Sampark and Gupta allegedly connected the victim with the fraudsters. 

As part of the IRS impersonation scam, India-based callers posed as IRS or Treasury officials and defrauded the U.S. residents into believing they owed money to the IRS or would be arrested and fined if they did not pay alleged back taxes, fines, and fees immediately.  For example in April 2017, a Georgia resident received numerous calls from an individual who claimed to work for the IRS.  A caller told the victim that he owed $28,000 to the IRS in back taxes and that if he did not pay, he would be arrested.  After the victim explained that he could not pay the full amount, the caller directed him to send two wire transfers for $500 and $1,990 to two aliases in order to resolve the issue.  The victim followed the caller's instructions, and the funds sent by wire transfer were retrieved by a co-conspirator in South Carolina. Again, E Sampark and Gupta allegedly connected the victim with the fraudsters.

As part of the loan scam, India-based callers misled American consumers into believing that the callers worked for lending institutions and that the victims were eligible for fictitious loans.  The India-based callers directed the victims to pay upfront fees to demonstrate their ability to repay the loan.  At times, the callers directed victims to provide their bank account information and made it appear as though they had deposited funds into the victims' accounts.  The callers then told the victims to withdraw the funds and transfer them via wire transfer and gift cards.  After the victims sent the funds, the deposits that the callers supposedly made bounced.  The victims received nothing in return.

Defendants Gupta and E Sampark maintained approximately sixty servers in Florida that the company used at times to connect criminal India-based callers with American consumers.  The servers contained over 130,000 recordings of scam calls, including robocall voicemail recordings and conversations between the India-based scammers and U.S.-based victims.
Another superb bit of journalism from Bloomberg. In an investigative report about troubling aspects of an SBA loan program, we learn that:

A day after the first of those loans was approved, Kalantarli registered the first of the 72 agriculture-themed companies, all of which used the address of his house on Forestview or two other suburban properties owned by a company he controls. A visit this month showed that each is a modest suburban home with a small yard and no sign of agricultural activity. The registered agents for the companies are Kalantarli, his relatives and another unidentified person who shares his last name. Although Kalantarli posts extensively on social media about his various business ventures, Bloomberg News found no mention of farming activity.
James T. Booth, 75,  pled guilty in the United States District Court for the Southern District of New York to one count of securities fraud, and he was sentenced to 42 months in prison plus three years of supervised release, and ordered to pay $4,969,689.00 in forfeiture. As alleged in part in the DOJ Release:

From 2013 through 2019, BOOTH solicited money from clients of Booth Financial and falsely promised to invest their money in securities offered outside of their ordinary advisory and brokerage accounts.  Specifically, BOOTH directed certain of his clients to write checks or wire money to an entity named "Insurance Trends, Inc."  Instead of investing his clients' funds, BOOTH, who controlled the bank account of Insurance Trends, Inc., subsequently misappropriated his clients' funds to pay his personal and business expenses.

In total, BOOTH raised more than $4.9 million from approximately 40 investors.  BOOTH lured many of his victims with false promises of safe investments with high returns.  For example:  
  • BOOTH convinced a recently widowed elderly investor ("Investor-1") to move money she had received from her late husband's pension into Insurance Trends, Inc.  BOOTH falsely promised Investor-1 that she would have $1 million by the time she was 100 years old.  As a result of BOOTH's false assurances, Investor-1 invested more than $600,000 with BOOTH.
  • BOOTH similarly convinced another investor ("Investor-2") to move his money into an investment product that, according to BOOTH, would never lose its principal and would grow with the market.  Based on this false representation, Investor-2 moved money he had set aside for his child's college expenses, at least approximately $60,000, to BOOTH.  BOOTH subsequently failed to provide Investor-2 with documentation of his investment or to allow Investor-2 to redeem his investment.
  • BOOTH convinced another elderly investor ("Investor-3") to withdraw money from an annuity established for the care of his disabled sibling - approximately $18,000 - and invest that money with BOOTH.  Investor-3 gave the money to BOOTH with the understanding that BOOTH would invest that money for the benefit of Investor-3's sibling's continued care.
To prevent investors from seeking a return of their money, and to induce additional investments, BOOTH provided investors with fabricated account statements that falsely indicated that BOOTH had purchased certain securities on their behalf and that those investments had generated a profit.  BOOTH further concealed the truth from investors by using money obtained from new investors to make redemption payments to previous investors, in a Ponzi-like fashion.
Igor Buzyukov pled guilty in the United States District Court for the District of New Jersey to conspiracy to commit money laundering, and he was sentenced today to 37 months in prison plus three years of supervised release and ordered him to pay $160,000 in restitution. As alleged in part in the DOJ Release:

Between February 2018 and July 2018, several clients of Company-1, a financial technology company headquartered in San Jose, California, fell victim to an account takeover scheme resulting in total losses exceeding $9 million.

The scheme generally involved an unidentified individual or individuals calling Company-1 and impersonating a representative of one of the victim companies. The impostor(s) would then request that an unauthorized bank account be added to the victims' Company-1 accounts and be designated to receive payments from e-commerce customers.

The unauthorized bank accounts added to the victims' Company-1 accounts were each controlled by Buzyukov under the name of a corporation registered to him in the State of Florida.  After monies were deposited to the unauthorized accounts, Buzyukov would transfer the funds to other accounts controlled by him. Buzyukov then wired the majority of the funds to several bank accounts held by various individuals in Russia, Turkey and Ukraine.

Buzyukov also admitted to creating fake invoices in the amounts of the wire transfers in order to make the transactions appear legitimate.
Matthew Benjamin pled guilty in the United States District Court for the District of New Jersey to one count each of wire fraud and securities fraud. As alleged in part in the DOJ Release:

From May 2017 through August 2019, Benjamin falsely represented to at least three families that his company, Clear Solutions Group LLC, had lucrative contracts to purchase closeout or excess cosmetic inventory from Company A, which he would then resell at a mark-up to Company B. Benjamin told the victims that he had access to these closeout goods through his contacts in the cosmetics and fragrance industry, which he purportedly made through his work at his family's cosmetic wholesale and distribution business prior to starting Clear Solutions Group. Benjamin induced the victims to provide him with money to purchase the inventory from Company A and promised significant profits in return. Instead of investing the money as he promised, Benjamin misappropriated the investor's money for his own use and benefit.

Benjamin provided the victims with falsified documents, including fake purchase orders, invoices, promissory notes and bank records showing inflated assets of Clear Solutions Group. To lull victims and induce them to continue investing, Benjamin provided them with documents that purported to detail the investors' profits.

Benjamin misrepresented to certain investors that portions of their profits on the investment contracts were being reinvested in additional deals to purchase and sell cosmetics, which in turn would generate more profits. From time to time, Benjamin made payments to the investors that were purportedly their profits on certain cosmetics contracts.

In reality, Benjamin misappropriated the investors' money by making payments to other investors in Clear Solutions Group, which were characterized as those investors' profits from the nonexistent cosmetic contracts, thereby enabling Benjamin to continue to perpetuate his fraudulent scheme; and by funding Benjamin's and his family's lifestyle, including paying for car and house rental payments, food, international travel, legal fees, technology equipment, and summer camp tuition for his family members.

Robinhood Seeks Advisers for Potential IPO Next Year (Bloomberg by Crystal Tse and Scott Deveau)
Robinhood appears on a tear and has certainly attracted substantial numbers of new accounts, all of which bodes well for its rumored IPO. On the other hand, with the company's rapid growth has come a number of hiccups as reported in part in the Bloomberg article:

In the first half of this year, U.S. consumer protection agencies received more than 400 complaints about Robinhood -- roughly four times more than competitors such as the brokerage units of Charles Schwab Corp. and Fidelity Investments. The grievances, obtained via a public records request to the Federal Trade Commission, depict novice investors in over their heads, struggling to understand why they've lost money on stock options or had shares liquidated to pay off margin loans.

Almost 2,000 accounts on its platform were compromised in a hacking spree last month and 10,000 accounts were held hostage.
As noted in the "Summary" to the Electronic Signatures in Regulation S-T Rule 302

We are adopting amendments to Regulation S-T and the Electronic Data Gathering, Analysis, and Retrieval system ("EDGAR") Filer Manual ("EDGAR Filer Manual" or "Filer Manual") to permit the use of electronic signatures in signature authentication documents required under Regulation S-T in connection with electronic filings on EDGAR that are required to be signed. We are also adopting corresponding revisions to several rules and forms under the Securities Act of 1933 ("Securities Act"), Securities Exchange Act of 1934 ("Exchange Act"), and Investment Company Act of 1940 ("Investment Company Act") to permit the use of electronic signatures in signature authentication documents in connection with certain other filings.

As noted in the "Summary" to the Amendments to the Commission's Rules of Practice

The Securities and Exchange Commission ("Commission") is adopting amendments to its Rules of Practice to require persons involved in Commission administrative
proceedings to file and serve documents electronically. 

The Promise of Structured Data: True Modernization of Disclosure Effectiveness (Speech by SEC Commissioner Commissioner Allison Herren Lee)
SEC Commissioner Lee reviews the history of structured data and its impact, and she notes, in part, that:

Structured data is a pivotal factor in ensuring that EDGAR continues to live up to its original promise of revolutionizing investment decisions and enhancing the efficiency of the securities markets. But, just as financial market participants continue to innovate and evolve with respect to the data they generate and use, the SEC must keep pace and continually evaluate how to enhance the usability and quality of data in our filings. We've done a lot of rulemaking recently in the name of "modernization" and disclosure effectiveness, and achieving modernized, effective disclosure should include thoughtful consideration of structured data standards like XBRL. 

Today I want to highlight three areas of focus as we continue to consider disclosure effectiveness and modernization. First, expanding the use of XBRL outside of the financial statements, specifically to proxy data, climate change and other environmental, social and governance (or ESG) data, Management's Discussion and Analysis (or MD&A), and earnings releases. Second, continued emphasis on improving the accuracy and quality of structured data. And third, the benefits of open, freely available financial identifiers.