Securities Industry Commentator by Bill Singer Esq

June 16, 2021
Among the mysteries of the Universe is whether a revocation of a license is the same as a bar of a license.  On top of that puzzler, if something happens but you didn't know about it at the time but you eventually learn about it, does that mean you had failed to timely report what you didn't know had happened but now do?  Finally, we are asked to ponder the ethical and legal implications of whether the SEC should stay a determination by FINRA that someone has become statutorily disqualified after that same individual voluntarily reported the facts that prompted FINRA's determination.

The Nasdaq Stock Market LLC, et al., Petitioners, v. Securities and Exchange Commission, Respondent (Opinion, United States Court of Appeals for the District of Columbia Circuit / No. 20-1181)
As set forth in the preamble portion of the Opinion:

Several stock exchanges challenge a Securities and Exchange Commission (SEC) order directing them to submit a proposal to replace three plans that govern the dissemination of certain types of data with a single, consolidated plan. Specifically, they challenge provisions of the order requiring them to include three features relating to plan governance. The Commission, however, has yet to decide whether the challenged features will make it into the new plan, and section 25(a) of the Securities Exchange Act ("Exchange Act") confers authority on the courts of appeals to review only "final order[s]." 15 U.S.C. § 78y(a)(1). Accordingly, we lack jurisdiction and so dismiss the petitions. 

Six Charged in Silicon Valley Insider Trading Ring (SEC Release)
In a Complaint filed in the United States District Court for the Northern District of California, the SEC charged Nathaniel Brown, Benjamin Wylam, Naveen Sood, Marcus Bannon, Matthew Rauch, and Naresh Ramaiya with violating Section 10(b) of the Securities Exchange Act and Rule 10b-5 thereunder. Without admitting or denying the allegations in the SEC's Complaint, Bannon, Rauch, and Ramaiya consented to the entry of final judgments whereby Bannon agreed to pay a civil penalty of $281,497, Rauch agreed to pay a civil penalty of $128,230, and Ramaiya agreed to pay a civil penalty of $65,780. Also, Sood consented to the entry of a final judgment and agreed to pay a civil penalty of $178,320.  The final judgments would permanently enjoin Bannon, Rauch, Ramaiya, and Sood from violating Section 10(b) of the Securities Exchange Act and Rule 10b-5 thereunder.  Finally, Wylam consented to a permanent injunction with civil penalties as may be imposed. The SEC's litigation continues against Brown. Parallel criminal proceedings were filed against Brown, Wylam, and Sood. As alleged in part in the SEC Release:

[N]athaniel Brown, who served as the revenue recognition manager for Infinera Corporation, repeatedly tipped Infinera's unannounced quarterly earnings and financial performance to his best friend, Benjamin Wylam, from April 2016 until Brown left the company in November 2017.  The SEC's complaint alleges that Wylam, a high school teacher and bookmaker, traded on this information and also tipped Naveen Sood, who owed Wylam a six-figure gambling debt. Sood allegedly traded on this information and tipped his three friends Marcus Bannon, Matthew Rauch, and Naresh Ramaiya, each of whom also illegally traded on the information.         

The SEC's complaint further alleges that Bannon tipped Sood with material, nonpublic information concerning Bannon's employer, Fortinet Inc.  As alleged in the complaint, Bannon learned in early October 2016 that Fortinet was going to unexpectedly announce preliminary negative financial results.  Bannon allegedly tipped this information to Sood, who used it to trade.  After learning the information, Sood allegedly tipped Wylam and Ramaiya, who also traded.

Bill Singer's Comment: Defendant Wylam is a "high school teacher and bookmaker." My -- you don't see that everyday. What an interesting career. I'm guessing that Wylam teaches math: 

Okay, class, so, imagine that NY is on a five game winning streak but it's a night game in LA and NY will have just flown in and they have a 5 and 8 record for night games. If the odd are 7:3 in favor of NY, what's the likelihood of winning that bet, and, for extra credit, if you were to place a $100 bet and the vigorish is 10% per diem and you stiff your bookie for ten days, how long would it take for an associate of the bookie to break your leg if he runs 22 miles an hour and you run 23 miles an hour but there are only two miles of road that he's chasing you on before it comes to a dead end?

SEC Charges Additional Unregistered Brokers Who Sold Equialt Securities to Retail Investors (SEC Release)
In a Complaint filed in the United States District court for the Southern District of California, the SEC charged Robert Joseph Armijo and his company Joseph Financial, Inc. with violating the securities registration provisions of Sections 5(a) and 5(c) of the Securities Act  and the broker-dealer registration provisions of Section 15(a)(1) of the Securities Exchange Act. As alleged in part in the SEC Release:

[B]etween approximately February 2016 and February 2020, Armijo and his company, Joseph Financial, Inc., sold approximately $4.85 million of securities of funds managed by Florida-based EquiAlt LLC (the Funds) to more than 50 investors located in Arizona, California, Texas, and Oregon. Armijo, through Joseph Financial, received approximately $1.1 million in commissions from EquiAlt, despite neither Armijo nor Joseph Financial being registered as a broker-dealer. The SEC previously filed an enforcement action against EquiAlt and the Funds, EquiAlt's CEO Brian Davison, and EquiAlt's Managing Director Barry Rybicki, alleging that they were operating a Ponzi scheme which raised more than $170 million from approximately 1,100 investors in 35 states. The SEC also previously charged four of EquiAlt's top sales agents with various registration violations., the SEC charged  Ali Asif Hamid, Michael Gietz, and Cristine Page a/k/a Cristina Page with violating and aiding and abetting violations of the antifraud provisions of the federal securities laws and with violating securities registration requirements. Without admitting or denying the SEC's allegations, Page agreed to a settlement, subject to court approval, that includes permanent injunctions, disgorgement of the digital assets that she received in connection with her misconduct, and a civil penalty of $192,768. The charges were in connection with an alleged $30 million initial coin offering ("ICO") fraud that was spearheaded by convicted criminal Boaz Manor and his associate, Edith Pardo. In January 2020, the SEC had charged Manor, Pardo, and their companies, CG Blockchain, Inc. and BCT Inc. SEZC in connection with the scheme. As alleged in part in the SEC Release, Hamid, Gietz, and Pardo:

played leadership roles in an ICO that would purportedly fund the development of technology to trade digital assets, while at the same time actively hiding Manor's role as the head of this venture. As alleged in the complaint, the three defendants knew that Manor was a convicted criminal at the center of a widely publicized Canadian hedge fund collapse. To conceal Manor's involvement and his history from investors, they used Manor's chosen alias "Shaun MacDonald" in ICO related-communications and helped create and distribute materially misleading ICO marketing materials, which omitted any reference either to Manor or to the fictional "MacDonald" and instead touted a purported "executive team" of individuals who, in reality, had no senior managerial authority over the business.

Former Energy Broker Pleads Guilty to Insider Trading and Kickback Scheme (DOJ Release)
Matthew Webb pled guilty in the United States District Court for the Southern District of Texas to conspiracy to commit commodities fraud and wire fraud and to violate various provisions of the Commodity Exchange Act. As alleged in part in the DOJ Release, Webb:

admitted he conspired with others to misappropriate material, nonpublic information and to use that information to engage in fraudulent, pre-arranged trades in natural gas futures contracts. He shared the net profit from these fraudulent trades with others involved in the fraudulent trading scheme. Webb further admitted he and others agreed to falsely document certain proceeds as income on IRS forms in part to conceal the true nature of the funds and to make the illicit profits appear to be legitimate income paid.

According to court documents, Webb also admitted that he paid kickbacks to an energy trader and co-conspirator from commission fees paid by the co-conspirator's employer to Webb's brokerage. In exchange for these commission fee kickbacks, Webb's co-conspirator agreed to direct his employer's business to Webb's brokerage. The scheme generated proceeds of approximately $5.9 million, and Webb personally profited in the amount of $585,000.
Without admitting or denying the findings in an SEC Order, real estate settlement services company First American Financial Corporation agreed to a Cease-and-Desist Order and will pay a $487,616 penalty based upon allegations that it had violated Rule 13a-15(a) of the Exchange Act. As alleged in part in the SEC Release:

[O]n the morning of May 24, 2019, a cybersecurity journalist notified First American of a vulnerability with its application for sharing document images that exposed over 800 million images dating back to 2003, including images containing sensitive personal data such as social security numbers and financial information.  In response, according to the order, First American issued a press statement on the evening of May 24, 2019, and furnished a Form 8-K to the Commission on May 28, 2019.  However, according to the order, First American's senior executives responsible for these public statements were not apprised of certain information that was relevant to their assessment of the company's disclosure response to the vulnerability and the magnitude of the resulting risk.  In particular, the order finds that First American's senior executives were not informed that the company's information security personnel had identified the vulnerability several months earlier, but had failed to remediate it in accordance with the company's policies.  The order finds that First American failed to maintain disclosure controls and procedures designed to ensure that all available, relevant information concerning the vulnerability was analyzed for disclosure in the company's public reports filed with the Commission. 

The training program, "Addressing and Reporting Financial Exploitation of Senior and Vulnerable Adult Investors," can be used by firms to train associated persons on how to detect, prevent, and report financial exploitation of senior and vulnerable adult investors. The presentation serves as a resource for firms implementing the requirements of the Senior Safe Act and certain state training requirements relating to senior investment protection.
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, Michael Brent Bertino submitted a Letter of Acceptance, Waiver and Consent ("AWC"), which FINRA accepted. The AWC  asserts that Michael Brent Bertino was first registered in 2013 with J.P. Morgan Securities L.L.C. The AWC asserts that Bertino "does not have any relevant disciplinary history." In accordance with the terms of the AWC, FINRA found that Bertino violated FINRA Rule 2010 and  imposed upon him a $10,000 fine and a one-year suspension from associating with any FINRA member in all capacities.  As alleged in part in the FINRA AWC:

[F]rom October 12, 2017, through November 22, 2019, while associated with JPMS, Bertino sought and obtained reimbursement of $7,492.87 by submitting 17 expense reports mischaracterizing 43 personal expenses as business expenses under the policy. By improperly seeking and obtaining reimbursement for expenses such as personal meals and ride-sharing services for personal trips, Bertino improperly used funds.
Some say that FINRA stands all along the watchtower and protects the investing public from the oncoming hordes of Wall Street. Some say that FINRA is perched atop the castle walls, enjoying a smoke of a dubious substance, sippin' a glass of wine, and mesmerized by the sunset. Others say that FINRA had some other regulator punch in for them and blew off the whole standing on the bulwarks thing. In any event, today's blog features yet another example of FINRA discharging its role as the protector of the realm. We don't have raging hordes threatening to storm the castle. No, today's attackers are from the fearsome tribe of the Notaries. And as the joker said to the thief, there's too much confusion and I can't get no relief.