Securities Industry Commentator by Bill Singer Esq

May 25, 2021

Chattanooga Man Charged with Defrauding Investor in Covid-19-Related PPE Scheme (DOJ Release)

Living in a Material World: Myths and Misconceptions about "Materiality" (Speech by SEC Commissioner Allison Herren Lee)

FINRA Censures and Fines Wolverine Execution Services Over Trade Reporting, Disclosures, and Supervision
In the Matter of Wolverine Execution Services, LLC , Respondent (FINRA AWC)
Janice Kay Jurgensen, 40, pled guilty in the United States District Court for the Northern District of Iowa to one count of wire fraud; and she was sentenced to 27 months in prison plus two years of supervised release, and ordered to make $122,351.93 in restitution to her victim's conservator. As alleged in part in the DOJ Release:

[I]n 2018 and 2019, she stole the life savings of an elderly resident of a nursing home.  The victim suffered from significant cognitive and physical disabilities due to dementia and a severe stroke.  The nursing home resident was a veteran who had served in the Army and was stationed in Germany for a time. The victim had lived frugally during his lifetime and was related to Jurgensen.

In 2018, Jurgensen hired a lawyer to draft a power of attorney for her victim, which purported to appoint Jurgensen as the victim's attorney-in-fact with complete authority to manage his financial affairs. The victim ostensibly signed the power of attorney form despite his disabilities. The form stated Jurgensen was not entitled to any compensation and could not make any gifts to herself. After obtaining the power of attorney, however, Jurgensen used a debit card linked to her victim's bank account to make purchases for her own benefit, including food, gas, teacher union fees, "wonder nails," and a dating website. As a result of Jurgensen's crime, her victim lost his life savings and was unable to pay for his nursing home care. 

Texas Man Pleads Guilty to Conspiring to Commit Wire Fraud (DOJ Release)
Russell Hearld pled guilty in the United States District Court for the District of Maine to conspiracy to commit wire fraud. As alleged in part in the DOJ Release, in 2017 and 2018, Hearld:

participated in a scheme to defraud involving investments in Standby Letters of Credit (SBLCs). Investors were promised that they could receive a portion of the value of an SBLC, worth millions of dollars, for a much smaller initial investment. Investors were promised returns equal to many times the amounts of their initial investments in a matter of weeks. They were also promised that their money would remain in the attorney trust account of a co-conspirator-who at the time was a licensed attorney in Florida-until confirmation was received that the SBLC had been issued.

Contrary to these representations, Hearld routinely directed the co-conspirator attorney to withdraw investor funds as soon as they were deposited into the attorney's trust account. For example, in March 2017, an investor wired $500,000 from his bank account in Maine to the attorney's trust account in Florida. On the previous day, Hearld had sent the attorney an email, directing the attorney to disburse the investor's funds. At Hearld's direction, the attorney wired $200,000 to Hearld's bank account; $150,000 to the account of the attorney's law firm; $100,000 to the account of another co-conspirator; and $40,000 to the attorney's personal account.

Chattanooga Man Charged with Defrauding Investor in Covid-19-Related PPE Scheme (DOJ Release)
David Michael Wright pled guilty in the United States District Court for the Eastern District of Tennessee to a two-count Information charging him with wire fraud and money laundering. As alleged in part in the DOJ Release:

[F]rom April to September 2020, Wright devised a scheme to defraud and obtain money under fraudulent pretenses from at least one victim. Wright and the victim began discussing investment opportunities involving the purchase and resale of Personal Protective Equipment (PPE) to hospitals and retailers in response to the COVID-19 pandemic. Wright falsely claimed that he had contacts with Chinese manufacturers to source the manufacture of PPE products, that Wright was importing PPE products from China, and that Wright was then selling those products in the United States at a significant profit, including KN95 masks. In July 2020, Wright emailed the victim with an attached fraudulent $49,700.00 pro forma invoice from an alleged Chinese manufacturer for the purported purchase of 70,000 KN95 masks, which Wright falsely claimed could be purchased by the victim and then resold to CHI Memorial Hospital for $210,000.00, resulting in a profit of $140,000.00 for the victim. Several days later, the victim paid Wright $49,700.00 cash, for the purchase of KN95 masks, and Wright provided the victim with a fraudulent DHL tracking number for the "shipment" from China. In August 2020, Wright gave the victim a check for $210,000.00 representing the victim's proceeds from the sale of the KN95 masks to CHI Memorial Hospital. However, Wright knew he did not have sufficient funds to cover that check, as CHI Memorial Hospital had made no agreement to purchase PPE from Wright, nor had they paid any money to Wright. Wright also learned that the victim had a connection with a hand sanitizer manufacturer, Miramar Labs. Wright fraudulently represented that Publix Super Markets, Inc. (Publix) was going to purchase 40,000 bottles of hand sanitizer, and, to maintain that deception, Wright wired some of the money obtained from the fraudulent KN95 scheme to Miramar Labs, while the victim paid the remaining amount. In total, Wright obtained approximately $80,500.00 as part of his fraudulent scheme.

Living in a Material World: Myths and Misconceptions about "Materiality" (Speech by SEC Commissioner Allison Herren Lee)
Read Commissioner Lee's Keynote Remarks at the 2021 ESG Disclosure Priorities Event Hosted by the American Institute of CPAs & the Chartered Institute of Management Accountants, Sustainability Accounting Standards Board, and the Center for Audit Quality. In summing up her remarks, Commissioner Lee notes in part that:

[W]e must not operate under the false assumption that the securities laws already effectively elicit the information investors need. We must not be diverted by mistaken views regarding the SEC's rulemaking authority. And we must not be persuaded to ignore scientific evidence or other decision-useful data on the grounds that it intersects with issues of political or social concern. I hope we can dispense with these misnomers as we continue the important debate on how best to craft a rule proposal on climate and ESG risks and opportunities. . . .

FINRA Censures and Fines Wolverine Execution Services Over Trade Reporting, Disclosures, and Supervision

In the Matter of Wolverine Execution Services, LLC , Respondent (FINRA AWC 2018057166105)
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, Wolverine Execution Servics, LLC. submitted a Letter of Acceptance, Waiver and Consent ("AWC"), which FINRA accepted. The AWC alleges that Wolverine Execution Servics, LLC has been a member firm since 2002 with 46 registered representatives. The AWC asserts that Wolverine Execution Services, LLC "does not have any relevant disciplinary history." As alleged in the AWC's "Overview":

Between May 2016 and March 2019, Wolverine violated Regulation SHO (Reg SHO) Rule 200(g), promulgated under the Securities Exchange Act of 1934, as amended (the Exchange Act), and FINRA Rule 2010, by inaccurately marking sell orders as long rather than short in 18,756 instances. The firm also violated Reg SHO Rule 203(b) and FINRA Rule 2010 by failing to document compliance with the locate requirement in 556,388 instances during February 2018. Moreover, between December 20, 2017 and June 20, 2018, Wolverine violated FINRA Rules 7230A and 2010 by failing to report or submitting incorrect reports to the FINRA Trade Reporting Facility (TRF) in at least 706 instances. During this same period, Wolverine also failed to report accurate order information to the Order Audit Trail System (OATS) in 31 instances, in violation of FINRA Rules 7450 and 2010, and violated FINRA Rules 7440 and 2010 by failing in 15 instances to record and preserve order event information. 

Additionally, during Q1 2018, the firm violated Regulation NMS (Reg NMS) Rule 606, promulgated under the Exchange Act, and FINRA Rule 2010, by failing to disclose all material aspects of its relationship with significant execution venues, including a description of any payment for order flow (PFOF) arrangement between the firm and any such execution venue. 

Finally, Wolverine violated FINRA Rules 3110(a) and (b) and 2010 by failing to establish and maintain supervisory systems, including written supervisory procedures (WSPs), reasonably designed to achieve compliance with the above-cited rules.

Accordingly, FINRA imposed upon Wolverine a Censure and $170,000 fine.

Whistleblower Gets Screwed But FINRA Doesn't Care ( Blog)
Some things are debatable. For example, when public customers complain about misconduct by their stockbroker, there may be some points raised in the Complaint or Answer that may, or may not, be true. That's where the adversarial system comes into play and we rely upon a panel of arbitrators to sift through the evidence. On the other hand, some things aren't debatable -- the facts speak for themselves and dispel any notion of uncertainty. In a recent FINRA arbitration, it seems that the stockbroker had done no wrong. Worse, he blew the whistle on the bad guy. Why then did that whistleblower need to bear the burden of filing for an expungement? Why didn't FINRA step in and do the right thing, at its own cost?