Securities Industry Commentator by Bill Singer Esq

April 27, 2021
As with many lawsuits, it's not always easy to figure out just where to start the tale of woe. Sometimes there are numerous pathways that converge on the courthouse steps. For our purposes today, we're going to start in June 2019, when Wealth2k, Inc. filed a lawsuit against Key Investment Services, LLC. In trying to explain how we wound up in federal court, we're going to start moving backwards in time and then move forward, but it's going to be in fits and starts. Ultimately, we may find that out journey ends beyond the courtroom and before a FINRA arbitration panel.

In a Complaint, filed in the United States District Court for the Middle District of Florida, the SEC charged various Harbor City Capital Corp., Harbor City Ventures, LLC, HCCF-1 through 5 LLCs, Harbor City Digital Ventures, Inc., HCC Media Funding, LLC, and Jonathan P. Maroney as Defendants; and, Celtic Enterprises, LLC and Tonya L. Maroney as Relief Defendants. The SEC file obtained a temporary restraining order and an asset freeze. As alleged in part in the SEC Release:

[S]ince about May 2015, Maroney and his companies raised at least $17.1 million from more than 100 investors in a series of fraudulent securities offerings. The complaint alleges that Maroney, his company Harbor City Capital Corp., and his various other entities told investors that offering proceeds would be used to finance the defendants' online "customer lead generation campaigns,"  and promised investors annual returns ranging from 10% to 60% from the resale of those leads to other businesses. In fact, according to the complaint, little if any investor funds actually went to the lead generation business. Instead, the complaint alleges, Maroney misappropriated at least $4.48 million in investor funds to enrich himself and his family, including the purchase and maintenance of his waterfront home and a Mercedes Benz, and to pay for his extensive credit card bills and renovation-related expenses on the house. The complaint further alleges that Maroney misused investor money by making payments to other entities unrelated to the supposed purpose of the offerings, and that he fraudulently used investor funds to make monthly interest payments and other payouts to investors in a classic Ponzi scheme fashion.
In an Indictment filed in the United States District Court for the Southern District of Mississippi, Neman Zahid was among ten defendants charged in connection with their alleged roles in a telemarketing fraud. Zahid pled guilty to money laundering. As alleged in part in the DOJ Release:

[B]eginning no later than on or about January 10, 2015, and continuing through on or about December 20, 2018, Zahid conspired with eight other defendants, located both across the United States and in India, to commit the federal offenses of wire fraud, mail fraud, and bank fraud, in addition to offenses of money laundering, aggravated identity theft, and passing fictitious obligations.

As stated in court documents and testimony in open court, Zahid assisted leaders of a fraud ring which sent tech support emails or telephone messages wrongly advising consumers that their computers were infected with malware or otherwise compromised, and offering for a price to help free their computers.  Once given permission to access remotely the victims' computers, conspirators from the United States or abroad would help themselves to personal identification information and bank account passwords from their victims' computers.  Victims often were senior citizens.

Zahid specifically aided the conspirators by incorporating a company called US Professional Support, Inc., and opening bank accounts for the business.  Conspirators would then use the business names and the bank accounts to transfer and remove money obtained from victims during the scam.
In a FINRA Arbitration Statement of Claim filed in September 2020, associated person Claimant Howe sought the expungement of customer dispute information from her industry records. Respondent Wells Fargo Advisors took no position on the request relief but asserted various affirmative defenses. On March 1, 2021, Claimant Howe filed a Death Record and Obituary for the customer; and, thereafter, the sole FINRA Arbitrator conducted a telephonic expungement hearing. In accordance with FINRA Rule 2080, the FINRA Arbitrator found that the customer's claim, allegation, or information is factually impossible or clearly erroneous. The Arbitrator offered one of the more jaw-droppin' rationales that I have read:

The Customer never filed the complaint at issue; instead, the complaint was filed by another individual, without the Customer's permission. Also, that individual was later arrested for fraud and received a jail sentence. Furthermore, the investments recommended by Claimant were appropriate.
In a FINRA Arbitration Statement of Claim filed in May 2020, public customer Claimant Peterson asserted:

breach of fiduciary duty, negligence, and negligent supervision. The causes of action relate to Claimant's allegations that his financial advisor failed to liquidate his portfolio upon his request and that, when the investments were later sold, they had declined significantly.

Respondent Wells Fargo generally denied the allegations, asserted various affirmative defenses, and sought the expungement of the matter from the Central Registration Depository records ("CRD") of the unnamed registered representative. On March 8, 2021, Claimant Peterson settled the matter and voluntarily dismissed his claims with prejudice -- the unnamed rep (but cited in the  FINRA Arbitration Award as "Bellcase") did not contribute to the settlement. The sole FINRA Arbitrator conducted an expungement hearing, and Claimant Peterson did not participate.  The Arbitrator recommended expungement and made a FINRA Rule 2080 finding that the Peterson's claim, allegation, or information is factually impossible or clearly erroneous. The arbitrator offered this rational for the recommended expungement:

Claimant focused his claim solely on a March 13, 2020, email trade order, but he knew or should have known that trade orders may not be made via email. Claimant and Bellcase spoke the next business day, and Claimant revoked the email trade order. In addition, based on the facts, the damage claim vastly exceeded any possible actual damages, even in the worst case scenario.
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, Sun Hyung Kim submitted a Letter of Acceptance, Waiver and Consent ("AWC"), which FINRA accepted. The AWC alleges that Sun Hyung Kim was first registered in 1990 and by March 2015, he was registered with Kayan Securities, Inc. The AWC asserts that Kim "does not have any relevant disciplinary history." In accordance with the terms of the AWC, FINRA imposed upon Kim a Bar from associating with any FINRA member in all capacities. As alleged in part in the AWC:

During the Relevant Period, Kim effected 162 unauthorized transactions in the brokerage accounts of a customer. Kim also did not obtain approval from the customer before executing the 162 transactions. Therefore, Kim violated FINRA Rule 2010.
. . .

During the course of its investigation, FINRA asked Kim, pursuant to FINRA Rule 8210, whether the customer authorized the 162 transactions at issue. In response, Kim twice stated that the customer provided authorization using the KakaoTalk mobile telephone application. However, FINRA obtained the KakaoTalk records showing that the customer did not provide Kim with this authorization. Kim's response was, accordingly, false. Therefore, Kim violated FINRA Rules 8210 and 2010. 
. . .

During the Relevant Period, Kim mismarked 162 trades in the accounts of the customer as "unsolicited," causing Kayan to have inaccurate books and records. Therefore, Kim violated FINRA Rule 4511 and 2010.
140 Victims. Over $8 million in lost investments. What was being sold? Oh -- nanotechnology that turned dirt into gold. No . . . don't laugh. That's was the pitch. That was the fraud. The larger question was what, if any, due diligence did the victims perform before writing out their checks. Did anyone uncover the criminal histories of the guys pushing the deal?