Securities Industry Commentator by Bill Singer Esq

February 23, 2021

Securities and Exchange Commission Obtains Final Judgment Against Connecticut Investment Adviser Who Misappropriated Funds from Clients (SEC Release)
Financial Planning's Andrew Welsch regales us with the unfolding litigation drama between Morgan Stanley and a departed team with $600 million in production. To the former reps' credit, they seemed to have spoken to one hell of a lawyer before they left UBS to join MS. They got a carve-out provision put into their 2010 MS affiliation agreement; and, if it holds up, they get to keep the clients that they brought with them to MS and now want to take to their new digs at RBC. Alas, even the best of agreements is often only words on paper. It will be up to the courts and/or FINRA arbitrators to sort through the language and see if it says what it says and means what it means. Great job setting the stage by Welsch!
Bill Singer's Comment: READ the full-text Temporary Restraining Order issued by DNJ on January 22, 2021 Pointedly, the Court declined to impose a plenary TRO that prohibited any and all contact. In fact, the TRO largely leaves the "crown jewels" in place with Defendants as is often the outcome [Ed: highlighting provided]:

ORDERED that Defendants are temporarily enjoined and restrained, directly or indirectly, and whether alone or in concert with others, from doing any of the following: 
(A) Soliciting or attempting to solicit any of Plaintiff's clients they serviced, or whose names became known to them, while in the employ of Plaintiff or as a result of their employment with Plaintiff, with respect to securities, commodities, financial futures, insurance, tax advantaged investments, mutual funds, or any other line of business in which Plaintiff or any of its affiliates is engaged (excluding (i) Defendants' immediate family and (ii) solicitations or attempted solicitations by Defendant Wade Martin or Defendant Arthur Martin of clients they serviced prior to joining Plaintiff as employees); 
(B) Using, disclosing, or transmitting for any purpose, any records, documents, or
information relating in any way to the clients, business or marketing strategies, or
business operations of Plaintiff, whether in original, copied, computerized, handwritten, or any other form, excluding only the names, addresses, phone numbers, and email addresses of clients Defendant Wade Martin or Defendant Arthur Martin serviced prior to joining Plaintiff as employees ("Records and Information"); . . .
As I have long noted in my blogs and pubic comments, I am a fervent supporter of whistleblowers and an ardent advocate for enhancing Wall Street reform via tips to the industry's regulators. Unfortunately, the SEC's whistleblower program takes on the trappings of a public relations ploy rather than an effective regulatory mechanism. For too long, we have heard mounting complaints about delayed processing of whistleblower claims and the untimely processing of the payments of previously rendered Awards. In response, the SEC continues to dawdle and delay and deflect. When it comes to issuing press releases, however, there's always enough staffing and budget. Without question, the SEC's Whistleblower Program is worthwhile and incredibly promising. As with far too many matters involving government bureaucracies, the good gets chewed up in make-work, endless layers of management, and a frustrating refusal to engage in substantive, timely communication.
Jose Anibal Linares, 42, plead guilty to one count of mail fraud in the United States District Court for the Northern District of Texas, and he was sentenced to 60 months in prison and ordered to pay over $2.3 million in restitution. As alleged in part in the DOJ Release:

[L]inares admitted to running a Ponzi-type scheme, luring investors into handing over "principal" that he later deposited in bank accounts at Wells Fargo, Bank of America, and Legacy Texas, then paying them "interest" from other investors' principal payments.

Mr. Linares, who operated JC Loans Finance and Inversiones JC Dallas, admitted he falsely told investors their funds were "insured by the FDIC" and promised monthly returns based on investments in commercial and residential real estate, including a water resort and shopping centers in Honduras. He then mailed investors letters thanking them for joining the JC "family."

Instead of investing their money, however, Mr. Linares admits he spent substantial amounts of investor funds on personal expenditures, and even wired some of the money to family members in Honduras.

In the meantime, he made lulling payments to investors by withdrawing large sums from his Bank of America and Wells Fargo accounts, generally using funds that had been deposited immediately beforehand from other investors. On some occasions, he even took investors' cash payments from one set of investors in his office, then turned the cash over to other investors waiting in his lobby for their monthly disbursements.

By summer 2017, Mr. Linares admits, he had ceased all monthly payments and did not return investors' principal investments.

Orlando Man Sentenced To More Than Four Years For Multi-Million Dollar Investment Fraud Scheme (DOJ Release)
Edison Denizard, 41, pled guilty to conspiracy to commit wire fraud in the United States District Court for the Middle District of Florida, and he was sentenced to four years and nine months in prison, and a $1,677,794.57 money judgment was entered against him. As alleged in part in the DOJ Release:

[B]etween March 2016 and June 2017, Denizard raised millions of dollars from dozens of victims who believed that they were investing in specific music concerts through legitimate businesses owned by Denizard and a co-conspirator, Andres Fernandez. Fernandez and Denizard lured investors by guaranteeing them large monetary returns and promising that all of the funds that they provided would be invested in events by top artists, including Drake, Garth Brooks, Pitbull, The Weeknd, and Maná. In fact, neither Denizard nor Fernandez was involved in most of the events.

Denizard used most of the funds that he had received from investors to pay fraudulent "investment returns" to earlier investors and for his own personal use, including to purchase a new lakefront residence, to make payments on his new luxury vehicle, and to stay in luxury hotels. The total amount of victims' losses attributable to Denizard are $7,479,453.

Fernandez, who was the instigator of the scheme, previously pleaded guilty to 12 counts of wire fraud and was sentenced last year to 10 years in federal prison.
Issah Mohammed, a/k/a Yissa and Ali, 33, pled guilty to for conspiracy to commit bank and wire fraud in the United States District Court for the District of Maryland, and he was sentenced to to nine years in prison plus five years of supervised release and also ordered to pay $697,982.30 restitution. 
Mohammed "Kofi" Kwaning, age 40; Mark Dennis, age 33; and Charles Mensah, age 35, were all convicted at trial and sentenced to 121 months, 27 months and 30 months in federal prison, respectively, each followed by five years of supervised release.  As alleged in part in the DOJ Release:

[F]rom at least January 31, 2013, through May 12, 2014, Mohammed was part of a conspiracy that acquired stolen vehicles, some of which were stolen from other states and transported to Maryland, and then shipped the stolen vehicles to Africa for sale. Members of the conspiracy in the United States would hire others to steal vehicles - with the keys - so that the vehicles could be more easily sold.  Mohammed and other members of the conspiracy: purchased the stolen vehicles from the thieves or an intermediary; arranged to store the vehicles at parking lots and other locations, known as "cooling spots"; loaded the vehicles into a shipping container; and transported the containers to a port, including the Port of Baltimore, for export to destinations including Lagos, Nigeria and Accra, Ghana.

In order to ship vehicles overseas, shipping companies are required to have valid titles for the vehicles.  As part of the scheme, Mohammed and other members of conspiracy used fraudulent title information in an effort to conceal the fact that the cars they sought to ship had been stolen.  Mohammed and other conspirators acquired false Vehicle Identification Numbers (VINs) and replaced the true VINs on the stolen vehicles, and they also registered businesses with the state of Maryland, and then used these businesses to create registration paperwork for the vehicles, including false bills of sale utilizing the false VINs.  In that manner, the conspirators were able to acquire or forge title(s), registration(s), and proof(s) of insurance for the vehicles to fill out the necessary paperwork so they could ship the cars overseas.  The loss for the cars, both recovered and not recovered, was over $200,000.

As detailed in his plea agreement and other court documents, from March through November 2014, Mohammed, co-defendant Mohammed Kwaning, and other conspirators participated in a bank and wire fraud scheme in which they acquired account information of individual victims, including from investment account management firms and impersonated the victims to steal money from their accounts.  

Issah Mohammed recruited individuals, including Mark Dennis, Charles Mensah, and others, who registered corporate shell entities with the state of Maryland.  The recruits set up bank accounts at multiple banking institutions in the names of these shell entities. Kwaning then either directed that the funds from the compromised accounts be wired into the bank accounts opened in the names of the shell entities or provided altered or fabricated checks from the compromised accounts to Issah Mohammed.  Mohammed then provided the checks to Mark Dennis, Charles Mensah, and the other recruits to be deposited into the shell entities' bank accounts.  Mohammed and the recruits then withdrew or transferred the funds from the business accounts they maintained to receive the victims' funds to other accounts the conspirators controlled before the bank discovered that the funds were from compromised accounts.

Some of the victim accounts were compromised by individuals who called investment firms pretending to be the actual account holders and were able to reset the password for the investment accounts.  Individuals also hacked the e-mails of victims and, posing as the account holders, requested funds be wired from their retirement accounts to the bank accounts of the shell corporations controlled by the conspirators.  The attempted loss during the nine months of the scheme was over $1.3 million, and the conspirators were able to withdraw over $229,000 of the stolen funds, which they then split amongst themselves.
Oyindamola Akinrinola, 23, pled guilty in the United States District Court for the 
District of Kansas. As to exactly what she pled guilty to, well, try as I might, I can't actually find a precise fraud or conspiracy count spell out, so, you know, I'll leave it all to your fertile imagination. I'm guessing that it's likely something likely conspiracy to commit wire fraud but at this point in the proceedings, DOJ should spell out that critical component of her pleaconviction. As alleged in part in the DOJ Release:
[A]kinrinola, a Nigerian national who was granted legal permanent residency in the United States in 2018, was part of a scheme to defraud U.S.-based victims out of money and property. Akinrinola's co-conspirator in Nigeria orchestrated several scams, such as tricking victims into believing they were eligible for fictitious awards or establishing purported (but false) romantic relationships with victims and exploiting their affections. 

The co-conspirator in Nigeria directed victims to send money to Akinrinola. While in Kansas as a college student, she received funds from the scam victims-in amounts ranging from hundreds of dollars to as much $20,000-via wire transfers, money orders, financial applications, Wal-Mart money grams, Western Union, the United States Postal Service, and various other means. Akinrinola kept a portion for herself as her reward and sent the bulk of the funds to her co-conspirator in Nigeria. To do so, she generally used the Sendwave, WorldRemit, or Boss Revolution mobile applications.  

The following are just a few examples of the scams Akinrinola and her co-conspirator perpetrated:  
  • Victims 1 and 2 received Facebook messages from an individual who purported to be with FedEx. They were told they won a $130,000 grant and that FedEx would deliver the cash after Victim 2 paid a "case file fee." Victim 2 then deposited $2,500 cash into a Bank of America account for the fee. Victim 2 was then told she needed to pay another $1,000 for a "winning certificate." Because Victims 1 and 2 did not have $1,000, they allowed the purported Facebook account holder to purchase three iPhones through their Verizon account. Victims 1 and 2 were instructed to mail the iPhones to Akinrinola (in Kansas). Victim 2 then received an image from the Facebook account claiming to be from the IRS and requesting $15,000 before release of the grant funds.

  • Victim 3 was the victim of an online dating scam and lost approximately $8,000, of which he sent $900 to Akinrinola via a kiosk at a Walgreens store.

  • Victim 4 also was the victim of an online dating scam. Victim 4 lost approximately $3,815, and he sent $710 to Akinrinola. Victim 4 believed the money was for musical instruments for children in Nigeria.

  • Victim 5 was the victim of a Facebook scam. A man on Facebook, known to Victim 5 as "Steven," told Victim 5 that he was in the military and needed money, and Victim 5 sent $1,000 to Akinrinola in this scam.
Litigation Release No. 25033 / February 22, 2021
In a Complaint filed in 2019 in the United States District Court for the District of Connecticut ("DCT"), the SEC alleged that investment adviser James T. Booth operated a multi-million dollar Ponzi scheme that bilked over three dozen retail investors, including senior citizens saving for retirement, of $4 million in assets. In 2020, after pleading guilty to one count of securities fraud in parallel criminal action filed in the United States District Court for the Southern District of New York, Booth was sentenced  to 42 months in prison plus three of supervised release, and he was ordered to pay $4,969,689 in forfeiture. On February 19, 2021, the DCT entered a final judgment by consent against Booth in the SEC's action, whereby he was permanently enjoined from future violations of the antifraud provisions of Section 17(a) of the Securities Act, Section 10(b) of the Securities Exchange Act and Rule 10b-5 thereunder, and Sections 206(1) and 206(2) of the Investment Advisers Act of 1940. Previously, the SEC ordered Booth barred from associating with any broker, dealer, investment adviser, municipal securities dealer, municipal adviser, transfer agent, or nationally recognized statistical rating organization, as well as participating in the offering of a penny stock.