Securities Industry Commentator by Bill Singer Esq

January 26, 2021

Former PG&E Employee Sentenced to 22 Months in Prison for Fraud Conspiracy Involving $82.1M (DOJ Release)
It's the story everyone is talking about and Marketwatch's DeCambre and Keshner are all over it. A stock skyrockets but why? Ah -- now that's the fascinating aspect. Is it manipulation? Is it fundamentals? Is it pay-back by the little guys squeezing the big shorties? I'm not sure that there's a nice, neat answer but it's still riveting as it all unwinds.
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, Goldman Sachs & Co. LLC  submitted a Letter of Acceptance, Waiver and Consent ("AWC"), which FINRA accepted. The AWC alleges that Goldman Sachs & Co. LLC  has been a FINRA member since 1936 wit some 28,000 registered and non-registered individuals. The AWC alleges that Goldman Sachs & Co. LLC  "does not have any relevant disciplinary history." As set forth in the "Overview" of the AWC:

Federal securities laws require that FINRA member firms fingerprint most associated
persons prior to or upon association with a firm. The firms review the fingerprint results as part of their background check to determine, among other things, whether a
prospective associated person has previously engaged in misconduct that subjects that
person to a statutory disqualification. As set forth in Section 3(a)(39) of the Securities
Exchange Act of 1934, certain criminal and regulatory events will subject a person to a
statutory disqualification. 

Between January 2015 and November 2019, Goldman failed to fingerprint and screen for statutory disqualification a significant number of its U.S.-based non-registered associated persons, Between January 2015 to January 2018, Goldman failed to timely fingerprint at least 1,061 non-registered associated individuals. The Firm was unable to determine whether it timely fingerprinted an additional 4,089 non-registered associated persons because it failed to locate any documentation reflecting that the Firm fingerprinted these individuals. In addition, the Firm failed to maintain fingerprint records for an additional 466 non-registered associated persons whom the Firm did fingerprint. 

Separately, between April 2018 and November 2019, Goldman permitted two nonregistered associated persons, who were subject to statutory disqualification, to associate with the Firm. 

The Firm's failure to fingerprint and properly screen its associated persons to meet Exchange Act and FINRA requirements arose from its failure to maintain a reasonable supervisory system and written procedures to identify and properly screen individuals who became associated with the Firm in a non-registered capacity. The Firm self-reported this matter to FINRA and commenced a remedial review and screening process of non-registered associated persons at Goldman. 

As a result of the foregoing, Goldman violated Section 17(f) of the Exchange Act and Rule 17f-2 thereunder, FINRA By-Laws, Article III, Section 3(b), Section 17(a) of the Exchange Act and Rule 17a-3 thereunder, and FINRA Rules 4511, 3110 and 2010. 

In accordance with the terms of the AWC, FINRA imposed upon Goldman Sachs a Censure, a $1,250,000 fine, and an undertaking to review its systems and procedures for fingerprinting compliance. 

Bill Singer's Comment: Amazin' -- truly amazin' !!! According to FINRA, Goldman Sachs has no "relevant disciplinary history" after some 85 years of NASD/FINRA membership. Zippo. Nada. Zilch. And to think that there are reports of Goldman Sachs having paid over $16 billion in various penalties since only 2000 yet not a single one of those fines/sanctions warranted so much as a blip on FINRA's "relevant" disciplinary history screen. See:

Ex-Bank Branch Manager Sentenced to Nearly 3 1/2 Years in Federal Prison for Stealing Over $1 Million from Customer with Dementia (DOJ Release)
Marie Fulle pled guilty in 2019 to an Information in the United States District Court for the Central District of California charging her with two counts of bank fraud and was sentenced to 41 months in federal prison and ordered to pay $1,091,230 in restitution. As alleged in part in the DOJ Release:

Fulle formerly was a branch manager of a Comerica bank in Tustin. From February 2013 to April 2014, she targeted a vulnerable customer - an elderly man with dementia - and cultivated an exclusive banking relationship with him. Fulle then opened various bank accounts with the victim and used them to create a confusing web in which she could hide unauthorized transfers, and forged withdrawals with cashier's checks.

Between February 2013 and May 2013, Fulle embezzled approximately $43,400 over the course of six transactions. After Fulle lost an anticipated promotion at work in May 2013, she began embezzling larger amounts of the victim's money, unilaterally changing the address for one of the victim's accounts, which prevented the statements from being delivered to the victim and his bookkeeper. Fulle manipulated this account for her embezzlement and, after she changed the address, significant amounts of the victim's money began flowing through it. Fulle also conducted much of the victim's banking activities one-on-one in private, away from the view of other bank personnel or security cameras.

During the scheme, Fulle used the money she stole from the victim to pay for Tiffany jewelry, at least one Louis Vuitton bag, spa days for herself and her then-boyfriend, and trips to Las Vegas, where she gambled.

Comerica fired Fulle in April 2014 for embezzling money from her cash drawer. When Comerica subsequently discovered the fraud Fulle committed against the victim, it reimbursed the victim nearly $1.3 million for disputed transactions that Fulle processed, lost interest and attorneys' fees. The total loss that Fulle caused to the victim was $1,057,230. The restitution amount includes the victim's attorneys' fees.
In an Indictment filed in the United States District Court for the Northern District of Georgia in 2017, Joshua Polloso Epifaniou was charged with one count of wire fraud conspiracy, two counts of wire fraud, one count of computer fraud conspiracy, and one count of extortion related to a protected computer. In addition, to pleading guilty to one count of computer fraud in a 24-count indictment transferred from the District of Arizona for purposes of his plea, Epifaniou also pled guilty in the United States District Court for the Northern District of Georgia to accessing multiple major websites based in the United States without authorization, stealing user data, and demanding that the website operators pay a ransom to prevent his release of the data. Prior to the plea, Epifaniou paid nearly $600,000 in restitution to the victims, and he agreed to forfeit an additional $389,113 and nearly 70,000 euros to the government in his plea agreement. As alleged in part in the DOJ Release:

[B]etween at least October 2014 and November 2016, Epifaniou was a teenage hacker in Cyprus who searched website traffic rankings to identify potential targets of his extortion scheme. After selecting targets, Epifaniou worked with co-conspirators to steal personally identifiable information from user and customer databases at victim websites. Epifaniou stole the sensitive information either by directly exploiting a security vulnerability at the websites or by obtaining a portion of the victim website's user data from a co-conspirator who had hacked into the victim network. Once the personally identifiable information was obtained, Epifaniou used proxy servers located in foreign countries to log into online email accounts and send messages to the victim websites threatening to leak the sensitive data unless a ransom was paid in cryptocurrency. 

During his scheme, Epifaniou's victims included:
  • An online sports news website owned by Turner Broadcasting System Inc. in Atlanta, Georgia;
  • A free online game publisher based in Irvine, California;
  • A hardware company based in New York, New York;
  • An online employment website headquartered in Innsbrook, Virginia;
  • A consumer report website headquartered in Phoenix, Arizona.

Former PG&E Employee Sentenced to 22 Months in Prison for Fraud Conspiracy Involving $82.1M (DOJ Release)
Ronald S. Schoenfeld, 65, pled guilty in the United States District Court for the Eastern District of California to one count of conspiracy to commit honest services wire fraud and receiving kickbacks, and he was sentenced to 22 months in prison and ordered to pay $1,476,295 in restitution. As alleged in part in the DOJ Release, while employed at Pacific Gas and Electric Company ("PG&E"), Schoenfeld: 

conspired to obtain contracts from PG&E for his cousin's transportation business in exchange for kickbacks from that business worth approximately 2.5% of the value of the contracts. Schoenfeld concealed from PG&E his familial relationship with his co-conspirator from PG&E, provided confidential information to his co-conspirator, and, at times, directly intervened in the consideration of contracts between PG&E and his co-conspirator's business, all contrary to PG&E's policies.

From March 2007 through February 2015, PG&E paid at least $82.1 million to the business operated by Schoenfeld's cousin for services it provided pursuant to PG&E contracts. During the same period, Schoenfeld's co-conspirator paid him at least $1,476,295.15 in kickbacks for his role in the conspiracy.