The Wall Street Legal & Regulatory Feed

Securities Industry Commentator by Bill Singer Esq

September 17, 2021

RBC Charged With Failing to Give Priority to Retail and Institutional Investors in Municipal Offerings (SEC Release)

SEC Charges School District and Former Executive with Misleading Investors in Bond Offering (SEC Release)

SEC Charges New York Investment Adviser and Its Owner with Fraud (SEC Release)

Former Nantucket Bank Employee Charged in Two Fraud Schemes (DOJ Release)

Leader of International Robocall Scam Sentenced for Defrauding Over 4,000 U.S. Victims Out of More Than $10 Million (DOJ Release)

CFTC Charges Former Hawaii Resident in Forex and Futures Ponzi Scheme (CFTC Release)

Texas Securities Board Stops Another Online Impersonation Scam (TSSB Release)

SEC Awards Over $7 Million and Over $4.5 Million to Two Whistleblowers
Order Determining Whistleblower Award Claim

SEC Awards About $1.2 Million to Whistleblower
Order Determining Whistleblower Award Claim

SEC Awards 30% of Covered Action and Related Action to Whistleblowers
Order Determining Whistleblower Award Claim 

FINRA Arbitration Panel Awards $200,000 Against Vanderbilt Securities and Individual Respondent
In the Matter of the Arbitration Between Ernest Guenin and Monique Guenin, Claimants, v. Vanderbilt Securities, LLC, Stephen Distante, Steven Howe, Thomas Murphy, Stephen Trask. Joseph Trifiletti, and Barry Champney, Respondents (FINRA Arbitration Award)

FINRA Arbitration Panel Awards Overs $1.8 million Against Interactive Brokers
In the Matter of the Arbitration Between FPP CIS Opportunities Fund, L.P, Claimant, v. Interactive Brokers, LLC, Respondent (FINRA Arbitration Award)

FINRA Arbitrator Awards Overs $57,000 Against Cape Securities
In the Matter of the Arbitration Between Patrick L. Taylor, Claimant, v. Cape Securities Inc., SW Financial, Woodstock Financial Group, Inc., Anthony Branca, Christopher Collins, Thomas Diamante, Dennis Murphy, Jamaal Potter, William Raike, III, James Webb, and Melissa Whitley, Respondents (FINRA Arbitration Award)

The Wheels on the Bus Go Round and Round and Drive Over A Wall Street Career (BrokeAndBroker.com Blog)

SEC Permanently Bars Frivolous Claimant from Whistleblower Program
(BrokeAndBroker.com Blog)

FINRA Fines and Suspends Young Merrill Trader For Spoofing Treasuries (BrokeAndBroker.com Blog)

Without admitting or denying the findings in the SEC RBC Order
https://www.sec.gov/litigation/admin/2021/34-93042.pdf, RBC Capital Markets LLC consented to a public administrative and cease-and-desist order that finds it violated the order disclosure, fair dealing, and supervisory provisions of Municipal Securities Rulemaking Board ("MSRB") Rules and the related Exchange Act provision, caused the flippers' violations of the broker registration provisions of the Exchange Act, and failed reasonably to supervise certain of its registered representatives within the meaning of the Exchange Act; and RBC will be Censure and ordered to pay a $150,000 penalty, disgorgement of $552,440, plus prejudgment interest of $160,886. Without admitting or denying the 
Former RBC Head of Municipal Sales, Trading and Syndication, Kenneth G. Friedrich; and RBC Head of Municipal Syndicate Desk Jaime L. Durando consented to public administrative and cease-and-desist orders finding they violated the order disclosure and fair dealing provisions of MSRB Rules and the related Exchange Act provision; and, as to Friedrich, that he violated the supervisory provisions of MSRB Rules and failed reasonably to supervise Durando within the meaning of the Exchange Act. Friedrich agreed to a censure and to pay a civil penalty of $30,000, and Durando agreed to a censure and to pay a civil penalty of $25,000. Friedrich further consented to a six-month limitation on supervisory activities and a six-month prohibition on trading negotiated new issue municipal securities. As alleged in part in the DOJ Release:

[O]ver a nearly four-year period, RBC improperly allocated bonds intended for institutional customers and dealers to parties known in the industry as "flippers," who then resold or "flipped" the bonds to other broker-dealers at a profit. In addition, the order finds that, in three instances where an issuer had instructed RBC to place retail customer orders first, RBC violated those instructions by allocating bonds to flippers ahead of orders for retail customers. The order finds that RBC knew or should have known that flippers were not eligible for retail or institutional priority and that allocating bonds to the flippers ahead of customers and other dealers violated RBC's internal priority policy for allocating municipal bonds in primary offerings. The order also finds that, in certain offerings not underwritten by RBC, RBC improperly obtained bonds for its own inventory by placing orders with flippers, which allowed RBC to circumvent the lower priority it would have been assigned had it attempted to place direct orders with the underwriters.
https://www.sec.gov/news/press-release/2021-178
Without admitting or denying the allegations in an SEC complaint
https://www.sec.gov/litigation/complaints/2021/comp-pr2021-178.pdf, former Sweetwater Union High School District Chief Financial Officer Karen Michel agreed to settle the charges that she had violated Section 17(a)(3) of the Securities Act, and to be enjoined from future violations of the charged provision as well as from participating in any future municipal securities offerings; and, further, she agreed to pay a $28,000 penalty. Additionally, Sweetwater agreed to settle with the SEC and consented, without admitting or denying any findings, to the entry of an SEC Order
https://www.sec.gov/litigation/admin/2021/33-10981.pdf finding that it violated Sections 17(a)(2) and 17(a)(3) of the Securities Act, and requiring it to engage an independent consultant to evaluate its policies and procedures related to its municipal securities disclosures. As alleged in part in the SEC Release:

[I]n April 2018, Sweetwater and Michel provided investors with misleading budget projections that indicated the district could cover its costs and would end the fiscal year with a general fund balance of approximately $19.5 million, when in reality the district was engaged in significant deficit spending and on track to a negative $7.2 million ending fund balance. The order finds that Michel managed the bond offering for the district and was aware of reports showing that the projections were untenable and contradicted by known actual expenses. Nevertheless, as stated in the order, Sweetwater and Michel included the projections in the April 2018 bonds' offering documents and also provided them to a credit rating agency that rated the district, while omitting that the projections were contradicted by internal reports and did not account for actual expenses. Additionally, the complaint alleges that Michel signed multiple certifications falsely attesting to the accuracy and completeness of the information included in the offering documents.

https://www.sec.gov/litigation/litreleases/2021/lr25209.htm
In a Complaint filed in the United States District Court for the Southern District of New York
https://www.sec.gov/litigation/complaints/2021/comp25209.pdf, the SEC charged Raquel Moura Borges and Global Access Investment Advisor, LLC with violations of the antifraud provisions of Section 17(a) of the Securities Act, Section 10(b) of the Securities Exchange Act and Rule 10b-5 thereunder, and Sections 206(1) and 206(2) of the Investment Advisers Act of 1940; and further charged Borges with aiding and abetting the violations of Global Access and violating the control person provisions of Section 20(a) of the Exchange Act. As alleged in part in the SEC Release:

[F]rom 2013 to 2018, Borges, a Brazilian national, and Global Access, based in New York, NY, defrauded at least eight advisory clients by misappropriating at least $11 million of their funds. The complaint alleges that Borges and Global Access directed sales of securities in client accounts in order to misappropriate the proceeds, misappropriated proceeds of loans against client accounts arranged by Borges and Global Access, and misappropriated client funds intended for investment by writing checks to Borges and otherwise using client funds for Global Access's operations. The complaint further alleges that Borges and Global Access concealed their fraudulent misappropriation of assets by sending clients portfolio statements and bank documents showing inaccurate account balances. According to the complaint, Borges used client funds to purchase real estate in Manhattan for her personal benefit, pay herself, and repay other clients.

https://www.justice.gov/usao-ma/pr/former-nantucket-bank-employee-charged-two-fraud-schemes
Rushell Harris plead guilty in the United States District Court for the District of Massachusetts to two counts of conspiracy to commit wire fraud. As alleged in part in the DOJ Release:

[B]etween approximately June 2014 and November 2018, Harris engaged in two separate wire fraud conspiracies. In the first conspiracy, Harris allegedly exploited her position at Nantucket Bank by obtaining personal identifiable information of a customer and surreptitiously taking photographs of the victim's account information. It is alleged that Harris then shared that information with co-conspirators who attempted to transfer funds out of the customer's bank account without authorization.

In the second conspiracy, Harris allegedly helped perpetuate a fraudulent lottery scheme targeting at least 13 victims. According to the charging documents, victims were contacted by co-conspirators via phone and were informed they won large prizes, and that in order to receive the funds they needed to pre-pay taxes on their winnings. In reality, no such prizes existed. After victims made an initial payment, they were advised that additional advance payments were required for expenses such as insurance, transportation or other international customs' fees. It is alleged that Harris and her co-conspirators transferred proceeds of the scheme to associates in Jamaica and in the United States.

https://www.justice.gov/usao-edva/pr/leader-international-robocall-scam-sentenced-defrauding-over-4000-us-victims-out-more
Shehzadkhan Pathan, 40, pled guilty in the United States District Court for the Eastern District of Virginia to conspiracy and identity theft and was sentenced to 22 years in prison.  As alleged in part in the DOJ Release, Pathan:

operated a call center in Ahmedabad, India, from which automated robocalls were made to victims in the United States. After establishing contact with victims through these automated calls, Pathan and other "closers" at his call center would coerce, cajole, and trick victims into sending bulk cash through physical shipments and electronic money transfers. Pathan and his conspirators used a variety of schemes to convince victims to send money, including impersonating law enforcement officers from the Federal Bureau of Investigation (FBI) and Drug Enforcement Administration (DEA) and representatives of other government agencies, such as the Social Security Administration, to threaten victims with severe legal and financial consequences. Conspirators also convinced victims to send money as initial installments for falsely promised loans.
. . .
In addition to operating the call center, Pathan recruited and supervised a multitude of money couriers, whom he directed to receive money sent by victims. Pathan's network of money couriers was located in multiple states, including but not limited to Virginia, New Jersey, Minnesota, Texas, California, South Carolina, and Illinois. Pathan assigned various aliases to these individuals and supplied them with hundreds of counterfeit identification documents to facilitate their receipt of victim cash shipments and money transfers. Pathan then directed the couriers to send the money to himself and other conspirators through various means, including cash deposits into numerous bank accounts and via informal money transmitters known as Hawalas.

https://www.cftc.gov/PressRoom/PressReleases/8426-21
In a Complaint filed in the United States District Court for the District of Hawaii
https://www.cftc.gov/media/6361/enfbryantcomplaint091521/download, the CFTC charged Gregory Demetrius Bryant, Jr., with fraudulent solicitation, misappropriation, operation of an unlawful commodity pool, and failure to register with the CFTC.  As alleged in part in the CFTC Release:

[B]ryant fraudulently solicited approximately $426,000 from at least 35 participants for pooled futures and foreign currency (forex) trading-misappropriating at least $356,000 to pay personal expenses, including international travel, shopping, and rent, as well as at least $66,000 to make Ponzi payments to conceal and further his fraudulent scheme.

Case Background

The complaint alleges that since approximately September 2016 through at least June 2020, Bryant-while using the alias "Gregory Surrey England," purported president of the nonexistent company "Surrey Libor Capital, LLC"-falsely guaranteed monthly futures and forex trading returns of $6,000 to $8,000 in some instances and 60 percent to 80 percent in other instances. It is further alleged that Bryant made numerous false statements to prospective and current pool participants about his trading experience, his trading success, and being registered with the National Futures Association. According to the complaint, Bryant also failed to tell pool participants that he was a convicted criminal with a history of financial problems, including three bankruptcies.

Rather than trade futures and forex as he represented in his solicitations, Bryant, as alleged, misappropriated the vast majority of pool funds for personal expenses and to make purported "returns" to pool participants. Bryant further concealed his fraud and misappropriation of pool participants' funds by falsely telling them their accounts were "in great shape," to expect returns or disbursements soon, and/or that his business was being impacted by the coronavirus pandemic.

https://www.ssb.texas.gov/news-publications/texas-securities-board-stops-another-online-impersonation-scam
The TSSB entered an Emergency Cease and Desist Order as part of its effort to stop Riek Capital from allegedly promoting fraudulent investments in trading programs, and resorting to an impersonation scheme whereby the company allegedly misappropriated the identity of a registered person and used his credentials to falsely claim legitimacy. Also named in the Order are Joshua Oj Robertson, Nicolai A. Andresen, Robert Costomoris, Katherine C.B. Cullum, Steve Welch, Jeffery T. Winter, Marcos D. Leon, John M. Willock and Gareth M. Cope. As set forth in part in the TSSB Release:
 
[R]iek Capital - a business purportedly operating from Manchester in the United Kingdom - published an advertisement in Dealstream.  Dealstream is an online marketplace with more than 100,000 members from 100 countries - including members from Texas.  Riek Capital allegedly used the advertisement and the forum to promote lucrative investments in trading programs tied to binary options, forex and cryptocurrencies. 
 
Riek Capital has been touting generous returns associated with its trading programs.  For example, Riek Capital allegedly claims a principal investment of $21,000 in its Gold Plan purportedly pays as much as 6% per week and a principal investment of $100,000 in the same program purportedly pays as much as 0.93% per day.  According to the order, Riek Capital claims the returns are guaranteed regardless of the actual profitability of the underlying trading activities.
 
Riek Capital is not registered to sell securities with Texas.  However, according to the order, the business is misappropriating the identity of a person registered with FINRA and another state securities regulator.  It is accused of falsely claiming the registrant is a principal of Riek Capital - a means of falsely adding legitimacy to its operations.

Order Determining Whistleblower Award Claim ('34 Act Release No. 34-93016; Whistleblower Award Proc. File No. 2021-93049)
https://www.sec.gov/rules/other/2021/34-93049.pdf
The SEC's Claims Review Staff ("CRS") issued a Preliminary Determinations recommending a Whistleblower Award to Claimant 1 of over $ 7 million and to Claimant 2 of over $4.5 million of the sanctions collected in a Covered Action. The Commission ordered that CRS' recommendations be approved. The Order asserts that:

[(1)] Claimant 1's tip was the initial source of the underlying investigation; (2) Claimant 1's tip exposed abuses REDACTED  including at the Firm, that would have been difficult to detect without Claimant 1's information; (3) Claimant 1 provided Enforcement staff with extensive and ongoing assistance during the course of the investigation, including identifying witnesses, including REDACTED , and helping staff understand complex fact patterns and issues related to the matters under investigation; (4) the Commission used information Claimant 1 provided to devise an Redacted Redacted investigative plan and to craft its initial document requests to the Firm and REDACTED (5) Claimant 1 made persistent efforts to remedy the issues, while suffering hardships; and (6) Claimant 1 was the main source of information for the underlying investigation and an important source of information for the Covered Action.

Claimant 2's specific information about the Firm was particularly helpful to the staff in the Covered Action because it was based on Claimant 2's more recent experience REDACTED and, specifically, with the REDACTED and allowed the staff to have a much better understanding of this aspect of the REDACTED In addition, we positively assessed the following facts in determining Claimant 2's award percentage (1) based on Claimant 2's information, the staff was able to tailor requests to the Firm that resulted in the Firm's production of exhibits which evidenced the REDACTED and assisted  the staff in its settlement negotiations with the Firm; (2) Claimant 2 provided the staff with significant information and REDACTED at the Firm,, which informed Staff's understanding of REDACTED provided helpful information relevant to the practices engaged in by the Firm; and (4) Claimant 2 provided information and documents, participated in staff interviews, and provided clear explanations to the staff regarding the issues that Claimant 2 brought to the staff's attention.

Finally, we note that, in contrast to Claimant 1, who persistently alerted the Commission to the ongoing abusive practices for a number of years before the investigation was opened, Claimant 2 delayed reporting to the Commission for several years after becoming aware of the wrongdoing. Accordingly, we find that Claimant 2 unreasonably delayed reporting to the Commission and that a reduction in Claimant 2's award percentage is appropriate.

Order Determining Whistleblower Award Claim ('34 Act Release No. 34-92013; Whistleblower Award Proc. File No. 2021-92)
https://www.sec.gov/rules/other/2021/34-92013.pdf
The SEC's Claims Review Staff ("CRS") issued Preliminary Determinations recommending a Whistleblower Award of about $1.2 million to Claimant. The Commission ordered that CRS' recommendations be approved. The Order asserts that:

[C]laimant's information prompted the opening of the investigation, and Claimant thereafter provided substantial, continuing assistance that saved Commission time and resources. Claimant communicated with Commission staff multiple times, identified potential witnesses, helped the staff draft targeted information requests, and explained key documents. 

Order Determining Whistleblower Award Claim ('34 Act Release No. 34-93016; Whistleblower Award Proc. File No. 2021-93)
https://www.sec.gov/rules/other/2021/34-93016.pdf
The SEC's Claims Review Staff ("CRS") issued Preliminary Determinations recommending a Whistleblower Award to Claimants of 30% of the sanctions collected in a Covered Action and in a Related Action. The Commission ordered that CRS' recommendations be approved. The Order asserts that:

[(1)] the Claimants' information both caused the opening of the Commission's and the Other Agency's investigations and was the underlying source that formed the basis for the Covered Action and Related Action; (2) Claimants provided substantial, ongoing assistance that focused the investigation and conserved significant Commission and Other Agency time and resources; and (3) there was substantial law enforcement interest in the information provided, as it related to a fraud involving the misappropriation of investor funds. There also have been no collections to date in these matters. 

Finally, we find that the contributions made by Claimants to the Covered Action are similar to the contributions of the Claimants to the success of the Related Action, and, therefore, it is appropriate that the Claimants receive the same award percentage for the Related Action.



In a FINRA Arbitration Statement of Claim filed in June 2020 and as amended, public customer Claimants Ernest and Monique Guenin asserted unsuitable investments; breach of fiduciary duty; negligence; failure to supervise; failure to explain the risks and disadvantages of its investment advice, vicarious liability; violations of the Pennsylvania Securities Act; and breach of the Unfair Trade Practices and Consumer Protection Law ("UTPCPL"). Claimants sought at least $1.4 million in compensatory damages, punitive damages, treble damages, restitution, interest, fees, and costs. As set forth in the FINRA Award:

The Statement of Claim filed on June 21, 2020 included Barry Champney as a Respondent. Respondents' counsel informed FINRA Dispute Resolution Services on July 10, 2020 that Barry Champney passed away on November 25, 2018. Therefore, Claimants filed an Amended Statement of Claim on July 27, 2020 excluding Barry Chapman as a Respondent. 

The appearing Respondents generally denied the allegations and asserted various affirmative defenses. In May 2021, Claimants filed a Motion for a Zoom Hearing, which Respondents opposed. The FINRA Arbitration Panel granted the motion for the Zoom hearing. 

The Panel found Respondents Vanderbilt Securities, LLC and Stephen Trask jointly and severally liable for and ordered them to pay to Claimants $200,000.00 in compensatory damages. Claimants' claims against Murphy, Distante, Trifiletti and Howe were denied. Respondent Trask's request for expungement of the above-captioned arbitration was denied.

In a FINRA Arbitration Statement of Claim filed in August 2020, public customer Claimant FPP CIS Opportunities Fund asserted : breach of fiduciary duties; fraudulent concealment of material information; gross negligence; negligent misrepresentation; and violation of FINRA Rule 2010. The FINRA Award asserts that the "causes of action relate to May 2020 West Texas Intermediate Futures contracts." Claimant sought at least $3,918,040 in compensatory damages, interest, costs, and fees. Respondent Interactive Brokers generally denied the allegations and asserted various affirmative defenses. The FINRA Arbitration Panel found Respondent liable to and ordered it to pay to Claimant $1,881,500 in compensatory damanges.

In a FINRA Arbitration Statement of Claim filed in September 2019, public customer Claimant Taylor asserted statutory and common law fraud, misrepresentation, suitability, failure to supervise, negligence, churning, gross negligence, breach of contract, breach of fiduciary duty, breach of covenants of good faith and fair dealing, unauthorized trading, excessive trading, excessive commission, unjust enrichment, and respondeat superior. The FINRA Award asserts that the "causes of action related to Claimant's allegation that Respondents took advantage of him, generated excessive commissions, and made unsuitable recommendations." Claimant sought $94,353 in compensatory damages, punitive damages, disgorgement, interest, costs, and fees. Claimant also sought $10,000 in sanctions against Respondent Cape and Respondent Webb's counsel.
Respondents SW, Diamante, Collins, Murphy, Potter, and Whitley did not file Answers or submit a Submission Agreements. Respondents Cape and Webb generally denied the allegations, asserted affirmative defenses, and filed a Counterclaim in which they asserted breach of contract, abuse of process, defamation of license, and interference with business relationships or expected relationships. The FINRA Award asserts that the "causes of action related to Cape and Webb's allegations that they relied on Claimant's representations in signed account paperwork to recommend stocks and execute trades and that Claimant breached his contracts with Cape."

In November 2019, Claimant voluntarily dismissed without prejudice Respondent Whitley; and settled with Respondents SW, Diamante, and Collins. In December 2019, Claimant settled with Respondents Woodstock, Branca, Raike, and Whitley. 

The sole FINRA Arbitrator found Respondent Cape liable and ordered it to pay to Claimant Taylor $57,035 in compensatory damages plus interest. The Arbitrator denied Claimant's claims against Webb. The Arbitrator denied without prejudice, Claimant's claims against Murphy and Potter.

http://www.brokeandbroker.com/6063/finra-awc-bus/
In today's blog we come upon an all-too common bit of Wall Street misconduct: fudging personal expenses so as to make them look like reimbursable business expenses. Some of the machinations that we've reported about come off as piggish, pathetic, and, okay, perhaps a bit laughable despite it all. What is no joke are the consequences after getting caught. More often than not, you get fired. More often than not, a devastating disclosure is placed on your industry record. More often than not, a regulator will fine and suspend (or bar) you. All of which leaves us wondering why you did it; and, frankly, I suspect that you're left to wonder the same thing for the rest of your life.

http://www.brokeandbroker.com/6062/sec-frivolous-whistleblower/
Among the explanations/excuses offered by the SEC's Office of the Whistleblower ("OWB") for the delays in processing claims for whistleblower awards is that the regulator's docket is rife with filings by serial filers of frivolous claims. The SEC would have us believe that such frivolity overwhelms the regulator's resources. Of course, one might fairly wonder about the apparent lack of managerial protocols to quickly re-route such serial abusers onto an administrative off-ramp, where they might be expeditiously reviewed and prevented from jamming up the timely processing of the meritorious WB-APPs that are now rotting away. Yet again, Big Government proves more adept at presenting excuses than providing solutions.

http://www.brokeandbroker.com/6061/spoofing-treasuries/
In keeping with Wall Street's ever-changing guard, we come upon a young Merrill Lynch trader in his 20s. He has the pedigree. He has the chops. He even seems to have a few tricks up his sleeve. Unfortunately, as FINRA sees it, he's got several Aces of Spades hidden above his wrist and is rigging the game -- sure, let's call it as it is: He's cheating. Not there there's really anything amounting to a fair shuffle of the cards or a fair deal on the Street, but, hey, if it makes you feel better, we can all wink and nod knowingly.

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