Securities Industry Commentator by Bill Singer Esq

How I Invest My Money: Finance experts reveal how they save, spend, and invest by Joshua Brown  and Brian Portnoy (Harriman House; 1st edition (November 17, 2020)

GUEST BLOG: Bill Singer Talks To Industry Recruiter Michael King of Michael King Associates (BrokeAndBroker.com Blog)

Former Lawyer And CPA Charged With Tax Crimes In Addition To Defrauding Elderly Investors (DOJ Release)

Local Law School Graduate Who Twice Failed Bar Exam And Set Up Two Fake Law Firms Sentenced To More Than Four Years In Federal Prison (DOJ Release)

FINRA Fines and Suspends Rep For Text Messaging with Customers

In the Matter of John Hillman Timberlake, Respondent (FINRA AWC)

FINRA Fines and Suspends Rep For Pension-Stream PSTs

In the Matter of David T. Phillips, Respondent (FINRA AWC)

FINRA Imposes Fine and Principal-Capacity Bar For Failed Supervision

In the Matter of Brett S. Briggs, Respondent (FINRA AWC)

FINRA Imposes Fine and Principal-Capacity Bar For Failed Supervision

In the Matter of Efrain B. Trujillo, Respondent (FINRA AWC)

The world of investing normally sees experts telling us the "right" way to manage our money. How often do these experts pull back the curtain and tell us how they invest their own money? Never. How I Invest My Money changes that. In this unprecedented collection, 25 financial experts share how they navigate markets with their own capital. In this honest rendering of how they invest, save, spend, give, and borrow, this group of portfolio managers, financial advisors, venture capitalists and other experts detail the "how" and the "why" of their investments. They share stories about their childhood, their families, the struggles they face and the aspirations they hold. Sometimes raw, always revealing, these stories detail the indelible relationship between our money and our values. Taken as a whole, these essays powerfully demonstrate that there is no single "right" way to save, spend, and invest. We see a kaleidoscope of perspectives on stocks, bonds, real assets, funds, charity, and other means of achieving the life one desires. With engaging illustrations throughout by Carl Richards, How I Invest My Money inspires readers to think creatively about their financial decisions and how money figures in the broader quest for a contented life. With contributions from: Morgan Housel, Christine Benz, Brian Portnoy, Joshua Brown, Bob Seawright, Carolyn McClanahan, Tyrone Ross, Dasarte Yarnway, Nina O'Neal, Debbie Freeman, Shirl Penney, Ted Seides, Ashby Daniels, Blair duQuesnay, Leighann Miko, Perth Tolle, Josh Rogers, Jenny Harrington, Mike Underhill, Dan Egan, Howard Lindzon, Ryan Krueger, Lazetta Rainey Braxton, Rita Cheng, Alex Chalekian.

[W]asserman, a former lawyer and licensed insurance agent, and Rossman, a Florida certified public accountant and licensed insurance agent, made false and fraudulent misrepresentations and concealed material information in order to convince elderly victim-investors to put their money into Wasserman's new insurance venture, "FastLife." Some victims were persuaded to liquidate traditional investments, such as annuities, and/or to borrow funds against existing life insurance policies to generate cash to invest in the venture. These victims were not told about surrender fees and other costs associated with the liquidations, and Rossman prepared income tax returns for victim-investors in a manner designed to conceal negative personal tax consequences that resulted from the liquidations from both the victim-investors and the Internal Revenue Service. Wasserman paid Rossman a percentage of the victim-investors' money as compensation for his role in the conspiracy. Wasserman also used the victim-investors' funds to make payments both to earlier victim-investors in the FastLife venture and to victim-investors in his earlier hedge fund and real estate fund ventures. Wasserman spent a significant amount of the victim-investors' money to finance a lavish lifestyle that included luxury residences, high-end vehicles, jet skis, jewelry, entertainment, gambling, retail shopping, home improvements, personal insurance, and many other expenses, for his personal benefit and the benefit of his family members.

The superseding indictment also alleges that Wasserman took numerous steps to evade payment of more than $900,000 in taxes and filed false individual and corporate income tax returns. It also alleges that Rossman filed false income tax returns for himself and for victim-investors.

[I]n 2014, Guedes graduated from Stetson University College of Law, but twice failed the Florida Bar exam. Guedes has never been licensed to practice law in Florida nor in any other state. Despite this, in the fall of 2014, Guedes incorporated two fake law firms-Ferguson and McKenzie LLC, and Immigration and Litigation Law Office, Inc. Guedes marketed her legal services and rented office space at the Rivergate Tower in downtown Tampa. She took on multiple client-victims, misrepresenting herself as an attorney. Guedes charged her client-victims fees for services, which ranged from representation in immigration proceedings to family law matters. At times, Guedes impersonated a law school classmate and licensed attorney who had no involvement in Guedes's sham law firms. As part of her fraudulent scheme, Guedes filed court pleadings and immigration petitions using her former classmate's name and Florida Bar number, and she also made several personal appearances in federal immigration court (Orlando) and in Hillsborough County court posing as a licensed attorney.

Following the initiation of a Florida Bar investigation into her conduct, Guedes falsified and filed a third party affidavit in an attempt to undermine and discredit that investigation.  

Guedes furthered her fraudulent scheme by using other victims' personal identity information. For example, Guedes used one victim's Social Security number, birthdate, and other identifying information to form corporations and to open bank accounts, credit cards, and other lines of credit for personal expenses and business-related expenses for her sham law firms.

Over more than 5 years from at least March 2014 through August 2019, while associated with two member firms, Timberlake used his personal cellular phone to exchange numerous text messages with Customer 1 and Customer 2 about their accounts and investments. Timberlake confirmed orders, communicated regarding specific securities and related news, and texted the customers information about their profits and losses. Timberlake did not forward any of these text messages to his employing firms. 

. . . 

From July 2018 through August 2019, Timberlake sent to Customer 1 at least 10 text messages containing exaggerated, unwarranted, promissory, and misleading statements. For example, Timberlake sent messages concerning an anticipated "major announcement," that appeared to promise profits or suggest that the security would increase in value, and misleadingly implied that one equity's performance could be similar to others referenced in his text message. 

Between May 2017 and April 2018, Respondent solicited eight investors to purchase $876,636 in securities of Future Income Payments, LLC (FIP). FIP represented itself as a structured cash flow investment that purchased pensions at a discount from pensioners and then sold a portion of those pensions as a "pension stream" to investors. FIP generally promised investors a seven to eight-percent rate of return on their investment.¹ Respondent received a total of $33,184 in commissions in connection with his sales of FIP securities.² 

At all times during the stated period, Respondent's respective employer member firms prohibited their registered representatives from participating in private securities transactions without prior written approval from the firm. Respondent did not provide notice to his respective employer member firms prior to participating in the FIP sales. 

= = = = =

Footnote 1: In April 2018, FIP ceased business, owing nearly $300 million in unpaid investor payments. In a March 12, 2019 indictment, the United States charged FIP and its owner, Scott A. Kohn, with conspiracy to engage in mail and wire fraud related to FIP's operations. 

Footnote 2: In February 2020, Respondent entered into a settlement agreement with a court-appointed receiver for FIP, agreeing to repay $22,500 of the $33,184 in commissions that Respondent received from his sales of FIP securities. 

Briggs has been a Respondent in two separate FINRA disciplinary matters. In 1991, Briggs consented to an AWC for a net capital-related violation, in which he consented to a censure, and a joint fine of $5,000 with other respondents.2 In 1994, Briggs, consented to an Offer of Settlement, also for a net capital-related violation, in which he consented to a censure, a six-month suspension in a principal capacity, and a $10,000 fine.3 In addition, on November 30, 1993, the Indiana Securities Division issued a final decision denying Briggs's request to become a registered agent;4 and on May 18, 1994, the Ohio Division of Securities issued a decision denying Briggs's application for a salesman's license based upon his disciplinary history. 

Between December 2013 and July 2017, Briggs served as the designated Office of Supervisory Jurisdiction (OSJ) Supervisor and OSJ Manager (collectively, OSJ Supervisor) of the Brentwood OSJ office of Financial West. In these capacities, Briggs was responsible for supervising the Brentwood registered representatives, including four representatives who have since been barred for trading misconduct. Financial West's written supervisory procedures (WSPs), among other things, required Briggs, as the OSJ Supervisor, to review the transactions of these four representatives to ensure the suitability of the transactions they recommended to customers. 

Between December 2013 and July 2017, when Briggs was the OSJ Supervisor for Financial West's Brentwood OSJ office, he failed to reasonably supervise the four representatives notwithstanding multiple red flags that should have prompted greater scrutiny of the representatives' trading activities by Briggs, but did not. Despite the red flags, Briggs failed to further investigate the potential trading misconduct which was suggestive of both excessive trading and qualitatively unsuitable recommendations involving options, low-priced securities, and Non-Traditional ETPs. 

In December 2013, a Financial West compliance principal specifically informed Briggs of red flags indicative of excessive trading in the accounts of customers assigned to two of the four representatives. In addition, between January 2014 and November 2016, there were additional red flags that should have prompted Briggs to investigate specific trading activity by the four representatives in the nine customer accounts, including:

• the accounts repeatedly appearing on the Monthly Account Supervision exception reports and reflecting high annualized turnover rates and a high number of transactions suggestive of excessive trading; 
• the daily trade blotter for the representatives' transactions, reflecting their daily trading volume, and high daily and year-to-date commissions being charged to the customers; 
• in-and-out trading in the customers' accounts; 
• investment objectives for the customers' accounts that were inconsistent with the short-term trading activity in the accounts; 
• inverse and/or leveraged ETF positions remaining in accounts for multiple trading sessions; 
• trading in certain customer accounts involving short-term trading in low-priced securities; 
• options trading in one customer account by one representative that was speculative and inconsistent with the customer's investment objectives and risk tolerance; and 
• sustained losses due to the representatives' excessive trading in all nine customer accounts.

In the face of this information indicative of violative trading practices, Briggs acted unreasonably by failing to further scrutinize the conduct of the four representatives. Briggs was aware of but failed to, investigate and address specific red flags indicating trading misconduct suggestive of excessive trading and qualitatively unsuitable recommendations, in violation of FINRA's suitability rules, including the suitability rules relating to options trading. 

For example, in March 2016, the Financial West compliance principal notified Briggs of red flags suggesting that an unsuitable double-leveraged ETF position was being held in a customer's account for multiple trading sessions (for an account with investment objectives that included capital appreciation, income, and capital preservation). Briggs, however, acted unreasonably by failing to investigate and curtail the misconduct. As a result, the customer's account held this unsuitable double-leveraged ETF position for over 520 days, from February 2016 until July 2017. 

For the above reasons, Briggs failed to reasonably supervise the trading activities of the four representatives in the Brentwood OSJ office by ignoring and not reasonably responding to numerous red flags suggestive of excessive trading and qualitatively unsuitable trading. 

As the OSJ Supervisor, Briggs profited from the excessively traded, and qualitatively unsuitable transactions executed by the four representatives in the nine customer accounts through his receipt of commission overrides and ticket credits. Briggs's bi-monthly commission records reflected the commission override amounts and ticket credit amounts he received from the customers on all trades that the four representatives executed in their respective accounts. Specifically, between January 2014 and November 2016, Briggs received commission override amounts ranging from 15% to 40% on the gross amounts charged for each transaction executed by three of the representatives in eight customer accounts, and a $2 ticket credit for each trade, which, collectively, totaled $52,432.81. 

In December 2013, the OSJ Supervisor orally delegated to Trujillo, another principal in the Brentwood OSJ office, certain supervisory responsibilities required by the firm's WSPs. Those responsibilities, later documented in writing in accordance with the WSPs, included: reviewing customer account transactions on a daily, monthly and periodic basis, and taking reasonable steps to ensure the representatives' recommended transactions were suitable. At the time of the delegation of the responsibilities to Trujillo in December 2013, Trujillo had just passed the General Principal examination in order to act in a principal capacity. 

Between December 2013 and July 2017, when Trujillo was designated with certain supervisory tasks for Financial West's Brentwood OSJ office, he failed to reasonably supervise the four representatives notwithstanding multiple red flags that should have prompted greater scrutiny of the representatives' trading activities by Trujillo, but did not. Despite the red flags, Trujillo failed to further investigate the potential trading misconduct which was suggestive of both excessive trading and qualitatively unsuitable recommendations involving options, low-priced securities, and Non-Traditional ETPs.

In December 2013, a Financial West compliance principal specifically informed Trujillo of red flags indicative of excessive trading in the accounts of customers assigned to two of the four representatives. In addition, between January 2014 and November 2016, there were additional red flags that should have prompted Trujillo to investigate specific trading activity by the four representatives in the nine customer accounts, including:

• the accounts repeatedly appearing on the Monthly Account Supervision exception reports and reflecting high annualized turnover rates and a high number of transactions suggestive of excessive trading; 
• the daily trade blotter for the representatives' transactions, reflecting their daily trading volume, and high daily and year-to-date commissions being charged to the customers; 
• in-and-out trading in the customers' accounts; 
• investment objectives for the customers' accounts that were inconsistent with the short-term trading activity in the accounts; 
• inverse and/or leveraged ETF positions remaining in accounts for multiple trading sessions; 
• trading in certain customer accounts involving short-term trading in low-priced securities; 
• options trading in one customer account by one representative that was speculative and inconsistent with the customer's investment objectives and risk tolerance; and 
• sustained losses due to the representatives' excessive trading in all nine customer accounts.

In the face of this information indicative of violative trading practices, Trujillo acted unreasonably by failing to further scrutinize the conduct of the four representatives. Trujillo was aware of but failed to investigate and address specific red flags indicating trading misconduct suggestive of excessive trading and qualitatively unsuitable recommendations in violation of FINRA's suitability rules, including the suitability rules relating to options trading. 

For example, in March 2016, the Financial West compliance principal notified Trujillo of red flags suggesting that an unsuitable double-leveraged ETF position was being held in a customer's account for multiple trading sessions (for an account with investment objectives that included capital appreciation, income, and capital preservation). Trujillo, however, acted unreasonably by failing to investigate and curtail the misconduct. As a result, the customer's account held this unsuitable double-leveraged ETF position for over 520 days, from February 2016 until July 2017. 

For the above reasons, Trujillo failed to reasonably supervise the trading activities of the four representatives in the Brentwood OSJ office, by ignoring and not reasonably responding to numerous red flags suggestive of excessive trading and qualitatively unsuitable trading. 

• Securities Industry Commentator
• Bill Singer