Securities Industry Commentator by Bill Singer Esq

Whistleblower Gets Screwed But FINRA Doesn't Care (BrokeAndBroker.com Blog)

In the Matter of the Application of Michael Andrew DeMaria for Review of Action Taken by FINRA (SEC Order)

California Resident Sentenced to 121 Months in Prison for Facilitating Telemarketing Conspiracy that Defrauded Thousands of Vulnerable U.S. Consumers (DOJ Release)

Second Man Sentenced to Prison in Traveling Bank Fraud (DOJ Release)

Maryland Man Pleads Guilty to Financial Scams Using Online Dating Sites (DOJ Release)

Worcester Man Charged With Attempting to Fraudulently Purchase $83,000 Sports Car (DOJ Release)

SEC Obtains Final Judgment Against Broker Charged with Defrauding Customers (SEC Release)

FINRA Fines and Suspends Rep Over Excessive/Unsuitable Trading

In the Matter of Carl George Antaki, Respondent (FINRA AWC)

On January 6, 2021, Michael Andrew DeMaria filed an application for review of FINRA's determination that his statement of claim requesting expungement of information from the Central Registration Depository ("CRD") was not eligible for arbitration. DeMaria's statement of claim had requested expungement of information related to (1) FINRA's suspension of DeMaria due to his failure to respond to a request for information and (2) a Letter of Acceptance, Waiver, and Consent entered into by DeMaria and FINRA. Upon consideration of the briefs filed, we believe that additional briefing regarding our jurisdiction over DeMaria's application for review would "significantly aid the decisional process." 

The Commission recently held that it has jurisdiction to consider FINRA actions "denying [applicants] access to FINRA's arbitration forum to seek expungement of prior adverse arbitration awards arising from customer disputes . . . . because FINRA's action[s] prohibited access to a fundamentally important service that it offers." The Commission observed that "FINRA's rules permit representatives to seek expungement in its arbitration forum of certain information reported in CRD and BrokerCheck." The Commission cited FINRA Rules 2080, 12805, and 13805, which discuss expungement of customer dispute information from the CRD. 

Here, DeMaria has requested access to FINRA's arbitration forum to seek expungement not of customer dispute information but of regulatory action information. We recognize that the Commission recently stated in the Consolidated Arbitration Applications that "FINRA's service of providing arbitration of expungement claims is 'fundamentally important' and central to its function as a[] [self-regulatory organization]." But the applicants in those cases had requested expungement of customer dispute information only. The Commission did not consider whether arbitration of requests to expunge other kinds of information is also a fundamentally important service that FINRA offers. And the Commission emphasized that it did "not express any views . . . about whether there could be other circumstances under which we would not have jurisdiction to review an arbitration eligibility determination."  

Accordingly, the Commission requests briefing on whether it has jurisdiction over DeMaria's application for review. In considering this general question, the Commission may benefit from the parties' views on the following issues: 

• In this case, what is the relevant service under Exchange Act Section 19(d)(1)? For example, is the relevant service: (1) arbitration generally, (2) the arbitration of all types of expungement claims, or (3) the arbitration of requests to expunge regulatory action information?
  
  
• Assuming that the relevant service is the arbitration of requests to expunge regulatory action information, does FINRA offer this service? ⁸ If so, is the service fundamentally important? ⁹ 

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Footnote 8: For example, DeMaria's reply brief seems to contend that the availability of this service is implied by FINRA Rule 8312(g) and Notice to Members 99-54. See FINRA Rule 8312(g) (providing that "FINRA reserves the right to exclude, on a case-by-case basis, information that contains . . . offensive or potentially defamatory language" from release on BrokerCheck); NASD Notice to Members 99-54, 1999 NASD LEXIS 30, at *4 (July 1999), https://www.finra.org/sites/default/files/NoticeDocument/p004219.pdf (providing that FINRA's predecessor was "continuing to expunge information from the CRD system based on expungement directives in arbitration awards rendered in disputes between firms and current or former associated persons, where arbitrators have awarded such relief based on the defamatory nature of the information in the CRD system"). 

Footnote 9:  See, e.g., Consolidated Arbitration Applications, 2020 WL 4569083, at *2-3 (explaining that the Commission has jurisdiction to review a prohibition or limitation of access to a service only if the service is fundamentally important).

partnered with a series of Peruvian call centers that contacted U.S. consumers, many of whom were vulnerable recent immigrants, using internet-based telephone calls. Those callers claimed to be attorneys or government representatives, and falsely told victims that they had failed to pay for or receive delivery of products. The callers also falsely threatened victims with court proceedings, negative marks on their credit reports, imprisonment, or immigration consequences if they did not immediately pay for the purportedly delivered products and settlement fees. Many victims made payments based on these baseless threats. Adrianzen received the victims' payments and shipped products to the victims for these call centers, knowing that the call centers used fraudulent and extortionate means to extract money from vulnerable victims. Adrianzen was also convicted of and sentenced for two counts of possession of child pornography, found on his laptop computer and cell phone when search warrants were executed upon those devices. 

As part of his guilty plea, Adrianzen admitted that from April 2011 until at least September 2019, he was the owner and operator of AAD Learning Center (AAD). Adrianzen operated and oversaw AAD from California and worked in partnership with call centers in Peru to contact Spanish-speaking consumers in the United States, including in the Southern District of Florida. At AAD, Adrianzen participated in a fraudulent telemarketing scheme that offered various products to Spanish-speaking consumers in the United States to obtain payments from vulnerable victims. 

In pleading guilty, Adrianzen admitted that he assisted his co-conspirators in Peru in setting up and staffing call centers that contacted victims in the United States and, at times, provided the call centers with lists of consumers to contact and call scripts to use when doing so. The scripts incorporated various false statements, including directing callers to falsely claim to be attorneys with the U.S. Department of Education. In other scripts, the callers were directed to falsely claim to be associated with Spanish language television channels, radio stations, or toothpaste companies. 

Adrianzen further admitted that his co-conspirators falsely claimed that they were lawyers, sometimes calling from a "legal department" of a company, or from a supposed "minor crimes court." Adrianzen's co-conspirators falsely threatened to have victims deported, arrested, and charged with crimes, and to have negative marks placed on their credit reports if they failed to pay the hundreds of dollars of demanded fees. Ultimately, Adrianzen processed over $3,500,000 in payments as part of the scheme.

On March 2, 2020, Collado and Lugo-Cales flew from New York to St. Louis for the sole purpose of defrauding banks using stolen identities. They were paid members of a criminal organization based in New York. Collado was the driver and coordinated the scheme through text messages with a co-conspirator in New York. Lugo-Cales was known in the scheme as a "soldier" - a person willing to travel to a new city, walk into banks, and conduct fraudulent transactions face-to-face with bank tellers using fake IDs and counterfeit checks. On March 5, 2020, Collado drove Lugo-Cales in a rental car to a US Bank location in Edwardsville, Illinois. Lugo-Cales went inside the bank while Collado waited in the car. Lugo-Cales walked up to a bank teller and presented a counterfeit check in the amount of $3,650.00 made payable to an identity theft victim from Colorado. The check had a forged endorsement and the victim's social security number written on the back. Lugo-Cales also presented a false U.S. passport card bearing Lugo-Cales' photograph and the name of the victim. He then asked the bank teller to cash the check.

The bank teller recalled an internal e-mail she had received warning branches about a man traveling around the St. Louis area attempting to cash counterfeit checks. Seeing that Lugo-Cales fit the description of the suspect, she notified her bank manager and stalled the transaction while the bank manager called the police.

Lugo-Cales grew nervous and demanded the bank teller return his check and passport card. When the teller refused, he left the bank and drove away with Collado, leaving behind the counterfeit check and passport card with his picture on it. The two men were pulled over and arrested nearby.

Police found numerous items concealed under Collado's clothing, including over $25,000 in cash, multiple counterfeit IDs, counterfeit credit cards, and 19 blank counterfeit checks. A subsequent search of Collado's cell phone revealed that he had traveled to at least two other cities to conduct the same scam with the names and banking information of at least 45 identity theft victims.

]B]eginning in December 2014 and continuing through at least January 2018, Eugene Johnson Jr., 39, used online dating sites to establish romantic connections with various women. In these communications, Johnson used aliases and made other false claims about his identity, frequently describing himself as a U.S. Marine with a son whose mother had died. When purporting to establish a romantic relationship with his victims, Johnson claimed that he wanted to marry each victim, buy a house with her, and raise his son and any children they might have together.

Shortly thereafter, Johnson would ask the victims to send him money for various pressing financial needs. Although his claims varied, they generally involved some form of car, financial, legal, or health problems about which Johnson claimed to be very emotional. To bolster these claims, Johnson sent the victims text messages from different phone numbers in which he posed as individuals who could corroborate his prior claims. Johnson also falsely promised to repay the victims from income sources that he did not actually possess.

When victims agreed to send him money, Johnson directed them to do so via interstate wire transfers and bulk cash shipments. Thereafter, Johnson continued to ask the same victims for more money to meet other claimed needs until the victims exhausted their own resources, refused, or questioned the truth of his claims. In total, Johnson obtained at least $276,361 from at least eight women residing in three different states. Contrary to his claims and promises, Johnson used the victims' money to pay personal debts and expenses and never repaid any of the victims.

[O]n April 17, 2021, Brouillard arrived at a Chevrolet dealership in Norwood, Mass. to test drive a 2021 Chevrolet Camaro. After test-driving the Camaro, Brouillard allegedly agreed to purchase it for $83,000 and paid for the vehicle with a cashier's check made out to the dealership. It is alleged that Brouillard provided his Massachusetts driver's license, proof of insurance and signed a sales contract, Massachusetts application for registration and car title in connection with the purchase. 

On April 19, 2021, Brouillard allegedly picked up the Camaro from the dealership. On April 23, 2021, the dealership learned that the account listed on the bank check provided by Brouillard was frozen. The dealership contacted Brouillard, who allegedly promised that he would wire $83,000 to pay for the car.

On April 26, 2021, an Arizona resident contacted local police and reported an attempted fraudulent wire transfer of $83,000 from the victim's bank account. The victim reported that a fraudulent email purportedly from the victim was sent to the bank, requesting a wire transfer of $83,000 to pay for the victim's "brother-in-law's car." The bank contacted the victim for verification, and the victim did not approve the transfer. It is alleged that starting in or about September 2020, the victim's accounts were compromised, and large fraudulent purchases were made and shipped to Brouillard's address. It is estimated that approximately $500,000 of the victim's funds were stolen.

Between August 2017 and June 2019, while he was registered through First Standard, Antald engaged in excessive and unsuitable trading in the account of one customer (Customer 1), a 52-year-old executive at a manufacturing company. Customer 1 relied on Antaki's advice and accepted his recommendations. During the relevant period, Antaki recommended that Customer 1 place frequent trades in his account. Although the account had an average monthly equity of approximately $55,000, Antaki recommended and executed trades in Customer l's account with a total principal value of more than $1 million over the relevant period, which resulted in an annualized turnover rate of more than eight. Collectively, the trades that Antaki recommended caused Customer 1 to pay $22,865 in commissions and other trading costs, which resulted in an annualized cost-to-equity ratio of more than 30 percent-meaning that Customer l's account would have had to grow by more than 30 percent annually just to break even. 

Antaki's recommended securities transactions in Customer 1's account were excessive and unsuitable given Customer 1's investment profile. Therefore, Antald violated FINRA Rules 2111 and 2010. 

• Securities Industry Commentator
• Bill Singer