Securities Industry Commentator by Bill Singer Esq

April 9, 2021

Customer Complaints and Away Settlements -- Matters of Interpretation? ( Blog)

Jane Norberg, Chief of the SEC's Office of the Whistleblower, to Leave Agency (SEC Release)

Boston Man Pleads Guilty to Investment Fraud Scheme (DOJ Release)

Bank Employee Arrested For Defrauding Her Employer Of $1.7 Million (DOJ Release)

Federal Court Grants Temporary Restraining Order Against Operators Of "Get-Rich-Quick" Scheme / The Mass Mail Fraud Scheme Targeted Seniors and Swindled Victims Nationwide (DOJ Release)

Federal Court Orders New Mexico Man to Pay Over $10.3 Million for Defrauding Commodity Futures Clients in Long-Running Ponzi Scheme (CFTC Release)

Federal Court Orders Nevada Company and its Owner to Pay More Than $32 Million for Cryptocurrency Fraud and Misappropriation Scheme (CFTC Release)

FINRA Gives Credit to Credit Suisse for Not Having A Relevant Disciplinary History ( Blog)
A lot of what passes for misconduct on Wall Street is a matter of interpretation. You say that you did or didn't do something. Your firm's compliance department or FINRA says what you did or didn't do was a violation. Sometimes you're right, sometimes they're right, sometimes everyone's right -- and sometimes, no one is right. Unfortunately, you can be right, they can be wrong, but, still, you're getting fined and suspended. In three FINRA matters, we consider the importance of understanding the inferences and implications of words such as "complaint" and "settlement," and how the disputed definitions of such terms can negatively impact a registered rep's career.

Jane Norberg, Chief of the SEC's Office of the Whistleblower, to Leave Agency (SEC Release)
Jane Norberg, Chief of the SEC's Office of the Whistleblower ("OWB"), is planning to leave the agency this month. Norberg was OWB's Deputy Chief in 2012 and then its Chief since 2016. 
Deputy Chief, Emily Pasquinelli will serve as Acting Chief following Norberg's departure.
Tanmaya Kabra pled guilty in the united States District Court for the District of Massachusetts to four counts of wire fraud. As alleged in part in the DOJ Release:

Kabra conducted business through a company called LLC and several affiliated entities. He held himself out to investors as a successful serial entrepreneur, venture capitalist and angel investor in start-up companies. Offering lucrative and low or no-risk returns on investments, Kabra lured investors with representations that their funds would be used to foster the growth and development of start-up companies, in order to prepare those companies for sale or for other legitimate business opportunities. In reality, Kabra used the money that he received from investors to pay off existing debts to prior investors in his scheme and to fund his lavish personal expenses, including using more than $200,000 of fraudulently obtained funds to purchase a power boat.

As part of his plea agreement, Mr. Kabra admitted to victimizing more than 10 individuals who suffered more than $1.5 million in losses as a result of the scheme.  

Bank Employee Arrested For Defrauding Her Employer Of $1.7 Million (DOJ Release)
In a Complaint filed in the United States District Court for the Southern District of New York, Gangadai Rampersaud Azim a/k/a "Julie Azim" was charged with (1) conspiring to commit wire fraud and bank fraud, (2) bank fraud, (3) wire fraud, (4) bank theft, embezzlement, or misapplication, (5) conspiring to commit money laundering, and (6) money laundering. As set forth in part in the DOJ Release:

Between August 2008 and January 2021, AZIM, a long-time employee of a New York, New York-based bank ("Bank-1") stole approximately $1.7 million from her employer.  Over the course of approximately 12 years, AZIM executed hundreds of wire transfers of Bank-1 funds to co-conspirators and related companies, who then sent portions of the ill-gotten funds to AZIM's personal bank account. 

In furtherance of her scheme to defraud Bank-1, AZIM repeatedly made false entries in Bank-1's systems, misappropriating funds paid to Bank-1 by its clients to satisfy outstanding loan obligations and then extending the maturity dates of those loan obligations, making it appear as though the loan obligations had not yet been paid.  When even the fraudulently extended maturity dates came due, AZIM originated new, fraudulent loans.  AZIM utilized the proceeds of those fraudulent loans to satisfy the loans for which she had previously stolen the client payments.  In doing so, AZIM abused her position at Bank-1 and enriched herself at the expense of her employer.

AZIM's fraud was discovered by Bank-1 when AZIM took a leave from her position at Bank-1 as a result of illness earlier this year.  In January 2021, Bank-1 debited the account of a client of Bank-1 ("Client-1") in order to pay off an outstanding loan obligation Client-1 had coming due.  Client-1 then alerted Bank-1 that the debit was improper, as Client-1 had, in fact, paid off that obligation in 2019.  Upon further investigation, Bank-1 discovered that while the funds had been withdrawn from Client-1's account in or about 2019, AZIM had misappropriated those funds, using them for purposes other than satisfying Client-1's obligation.

As a result of identifying this discrepancy, Bank-1 officials discovered approximately 14 loan obligations (the "Fraudulent Loan Obligations"), worth more than approximately $1 million, for which no underlying documents existed.  AZIM appears to have entered each of the Fraudulent Loan Obligations in Bank-1's systems so that the proceeds could be used, in significant part, to pay off outstanding loan obligations coming to maturity; those loan obligations had, in fact, already been satisfied by clients, but AZIM had misappropriated the payments.  In addition, Bank-1 officials discovered approximately five outstanding loan obligations, worth more than approximately $706,000, for which AZIM appears to have extended the maturity dates, despite the relevant clients having paid off the loan obligations.  

The approximately $1.7 million of loan proceeds resulting from the Fraudulent Loan Obligations and the improperly extended maturity dates appear to have been misappropriated by AZIM.  Over the course of approximately 12 years, between 2008 and 2020, AZIM caused approximately 200 wire transfers of Bank-1's funds, each for an amount under $10,000, to be sent to third party accounts, including those of co-conspirators and related companies, which then returned portions of those funds to AZIM.
In response to a Complaint filed on April 5, 2021, alleging that Keivy Chavez a/k/a Kamilo Correa, Jhon F. Palacio a/k/a Richard Diamond, Sr., and John Doe a/k/a Tom Jowarski, through several fictitious business entities including KC Promotions a/k/a Miracle Profits, TJ Ads and CS Enterprises, engaged in an ongoing chain letter mass mailing fraud scheme, the Court entered a Temporary Restraining Order barring the defendants and their companies from continuing to engage in such predatory schemes to prevent further harm to potential victims.. As alleged in part in the DOJ Release:

[T]he defendants allegedly made material misrepresentations and fraudulent statements through deceptive mass mailings in the form of chain letters and Internet advertisements, to induce victims to enroll in one or more of their fictitious "money-making" programs, including the "Cash and Gold Tycoon Program" and the "MAJOR BUX! HUGE BUZZ!! Money Making Program." The complaint states that the defendants induced the victims by promising exponential profits in the form of cash, commission payments, gold coins and silver bars, among other things. The complaint also states that many victims relied on the defendants' fraudulent misrepresentations and paid over $1,000 each to enroll in the fraudulent programs, only to receive nothing in return. According to the complaint, since February 2021, the defendants have sent thousands of unlawful mass mailings, and during the same time frame the United States Postal Inspection Service (USPIS) has collected over 30 mailings, including enrollment applications and payments, addressed to KC Promotions, from victims residing in 18 states, including in North Carolina.

The United States District Court for the District of New Mexico entered a Consent Order for permanent injunction, monetary sanctions, and equitable relief against Douglas Lien. and requires that Lien pay restitution of $5,195,679 and a civil penalty of $5,195,679, and imposes permanent trading and registration bans. As alleged in part in the CFTC Release:

[F]rom at least August 2000 until December 9, 2019, he solicited more than $14.2 million from 45 individuals to manage their trading in commodity futures, specifically U.S. Treasury Bond futures. However, Lien did not invest the client funds, but instead operated a classic Ponzi scheme, using the money to pay other clients. He also kept more than $3.5 million for so-called "management fees" he billed clients based on false trading profits. In addition, Lien gave his clients inaccurate account statements, including erroneous annual IRS Form 1099s that reported millions in fake profits. The order also states Lien failed to register as a futures commission merchant (FCM) to legally solicit and accept money from commodity futures clients for futures trades.
The United States District Court for the District of Nevada entered a default judgments against defendants David Gilbert Saffron  and Circle Society, Corp. The Court's March 29, 2021 final judgment requires defendants Saffron and Circle Society, jointly and severally, to pay restitution of $14,841,280 to defrauded pool participants, disgorgement of $15,815,967, and a civil monetary penalty of $1,484,128; and, further, the defendanst are permanently enjoined from engaging in conduct that violates the Commodity Exchange Act and CFTC regulations, registering with the CFTC, trading in any CFTC-regulated markets, and trading in any commodity interest for himself or others. As alleged in part in the CFTC Release:

[F]rom December 2017 through the present, Saffron fraudulently solicited and accepted at least $15,815,967 worth of Bitcoin and U.S. dollars from at least 179 individuals to trade off-exchange binary options on foreign currencies (forex) and cryptocurrency pairs, among other things. During the early stages of his activity, Saffron created Circle Society and used this entity to perpetrate his fraud. According to the CFTC complaint and motion for default judgment, Saffron and Circle Society solicited members of the general public to participate in a commodity pool operated by Circle Society by making false claims of Saffron's trading expertise and guaranteeing rates of return up to 300%. Rather than using pool participants' funds to trade as promised, the defendants misappropriated funds, including by holding participants' funds in Saffron's personal electronic cryptocurrency wallet and by using funds to pay some participants with the funds of other participants, in the manner of a Ponzi scheme. The majority of participants, however, have been unable to obtain a return of any of their funds despite their repeated demands. 

( Blog)
Yet again, I say. Yet again. Wall Street's lackluster regulatory scheme fails to proactively detect an oncoming tsunami, and the markets get flooded. There was not so much as a single warning from the industry's many regulators about the oncoming Archegos disaster. Yet again, a hedge fund blows up and sends shockwaves through the financial system. Yet again, a major financial services firm, this time Credit Suisse, is swamped. Yet again, I ask, what's the point of having self regulators, state regulators, federal regulators, and international regulators when those systems don't coordinate and ferret out oncoming disasters? Yet again, our 1930's regulatory approach shows its age. Yet again, at some point, don't we need to turn off the lights on self regulation and send FINRA's Board of Governors packing?
Over a decade ago, when the stock markets were cratering in the wake of the Great Recession, investors saw their pre-2009 gains vanish. Lots of black ink became red. As was all too common in those days (but, let's be fair, often justified), customers complained that they were given lousy investment advice by their stockbroker. And that wave of customer complaints flooded onto the industry records of thousands of men and women. A recent case illustrates that once posted online, a customer complaint may have the half-life of xenon-124 -- trust me, that's a long half-life.
At its best, remorse demonstrates a pang of conscience. At its worst, it may arise only in anticipation that you are about to get caught. Contrition and regret are two very different things. As such, we're often caught up in the ambivalence of the moment when we consider the motivation behind someone's renunciation of a crime or fraud. Were the remedial steps prompted by a guilty conscience or the malefactor's sense that someone's hot on his trail? In a recent FINRA regulatory settlement we have all the classic elements of such puzzle.
If your brokerage firm decides that a customer "communication" was a complaint, the drafting of a regulatory disclosure often involves a lot of interpretation, inferences, assumptions, and filling-in-the-blanks. At times, what gets reported isn't a fair or accurate reflection of what the customer said.  Which means that an expungement may not involve removing what a customer said but what a brokerage firm thought was said or, worse, what was meant. A recent case illustrates the worst aspects of this process.