Securities Industry Commentator by Bill Singer Esq

FINRA NAC Affirms OHO But Eliminates Heightened Supervision (BrokeAndBroker.com Blog)

Founder of Russian Bank Pleads Guilty to Tax Fraud / Admits to Concealing More Than $1 Billion in Assets when Renouncing U.S. Citizenship and Agrees to Pay More Than $500 Million Penalty (DOJ Release)

SEC Charges Webcast Host for Role in Market Manipulation Scheme (SEC Release)

SEC Charges Investment Adviser, Affiliated Broker-Dealer and Their President for False and Misleading Statements and Omissions (SEC Release)

Chicago Man Charged in Federal Court With Engaging in Unauthorized Trading That Caused $30 Million in Losses (DOJ Release)

SEC Charges Rogue Trader Who Bankrupted His Firm (SEC Release)

SEC Awards Over $1.7Million to Whistleblower But Denies Award to Second Claimant 

Order Determining Whistleblower Award Claims

was born in Russia and became a naturalized United States citizen in 1996. From that time through 2013, he filed U.S. tax returns. In late 2005 or 2006, Tinkov founded Tinkoff Credit Services (TCS), a Russia-based branchless bank that provides its customers with online financial and banking services. Through a foreign entity, Tinkov indirectly held the majority of TCS shares. 

In October 2013, TCS held an initial public offering (IPO) on the London Stock Exchange and became a multi-billion dollar, publicly traded company. As part of going public, Tinkov sold a small portion of his majority shareholder stake for more than $192 million, and his assets following the IPO had a fair market value of more than $1.1 billion. Three days after the successful IPO, Tinkov went to the U.S. Embassy in Moscow, Russia, to relinquish his U.S. citizenship.

As part of his expatriation, Tinkov was required to file a U.S. Initial and Annual Expatriation Statement. This form requires expatriates with a net worth of $2 million or more to report the constructive sale of their assets worldwide to the IRS as if those assets were sold on the day before expatriation. The taxpayer is then required to report and pay tax on the gain from any such constructive sale.

Tinkov was told of his filing and tax obligations by both the U.S. Embassy in Moscow and his U.S.-based accountant. When asked by his accountant if his net worth was more than $2 million for purposes of filling out the expatriation form, Tinkov lied and told him he did not have assets above $2 million. When his accountant later inquired whether his net worth was under $2 million, rather than answer the question, Tinkov filled out the expatriation form himself falsely, reporting that his net worth was only $300,000. On Feb. 26, 2014, Tinkov filed a false 2013 individual tax return that falsely reported his income as only $205,317. In addition, Tinkov did not report any of the gain from the constructive sale of his property worth more than $1.1 billion, nor did he pay the applicable taxes as required by law. In total, Tinkov caused a tax loss of $248,525,339.

Tinkov was arrested on Feb. 26, 2020, in London, United Kingdom (UK), on these charge. Since that time, he has been contesting extradition on medical grounds. Tinkov has provided to the government and a court in the UK expert medical reports supporting his claim that he is undergoing a UK-based intensive treatment plan for acute myeloid leukemia and graft versus host disease, which has rendered him immunocompromised and unable to safely travel. As part of the plea, Tinkov has agreed to make the expert reports available to the court.

Tinkov's sentencing hearing is scheduled for Oct. 29 before U.S. District Judge Jon S. Tigar. Under the terms of the plea agreement, Tinkov agrees to pay no less than $506,828,377, which includes the 2013 taxes, the civil fraud penalty, and statutory interest on that tax, totaling $448,957,108 as well as tax liabilities for other years that Tinkov acknowledged he owes. Per the terms of the plea agreement, the parties have agreed to recommend a custodial sentence of time served, followed by one year of supervised release, and an additional fine of $250,000. This recommendation binds the court once it accepts the plea agreement.

[M]elnick received advance notice of companies about which another scheme participant planned to spread false rumors, and then shared the companies' names with subscribers to his online trading room. Melnick advised the subscribers that he had taken positions in the companies, while other scheme participants also spread the false rumors through real-time financial news services, financial chat rooms, and message boards. These false rumors caused the prices of the subject companies' securities to rise temporarily. Between January 2018 and January 2020, Melnick allegedly spread and/or traded around the false rumors over 100 times, generating more than $374,000 in illicit profits. The other scheme participants also traded around the false rumors, generating significant profits.

[F]rom June 2014 through April 2020, TCFG and Roberts breached their fiduciary duty to advisory clients. As alleged, TCFG and Roberts disclosed that TCFG Wealth "may" receive portions of the fees charged to TCFG accounts by its unaffiliated clearing and custody firm when, in fact, Roberts had directed that firm to charge TCFG clients significant markup fees that were paid to TCFG Wealth. The complaint alleges that TCFG and Roberts later disclosed the existence of markups, but continued to mislead TCFG clients by claiming that it was only imposed "in some limited instances." Roberts and TCFG allegedly knew, or were reckless and negligent for not knowing, that the clearing and custody firm's ticket charges were instead marked up approximately 60 percent of the time. The complaint further alleges that TCFG - for which Roberts served as chief compliance officer - failed to implement written policies and procedures reasonably designed to prevent the sorts of disclosure and conflict of interest violations that arose from these practices. According to the complaint, Roberts used TCFG Wealth to aid and abet TCFG's and Roberts's violations.

[F]rom June through August 2019, Wakefield engaged in unauthorized speculative trading in U.S. Treasury securities, on behalf of IFS and incurred millions of dollars in losses for the firm. The complaint further alleges that Wakefield engaged in a variety of fraudulent practices to create the appearance of fictitious trading profits and disguise his unauthorized trading losses, including falsifying IFS's books and records. As alleged, from January 2017 through August 2019, Wakefield also fraudulently obtained approximately $820,000 in commission income from IFS based on fictitious commission payments from customers that he fabricated and recorded on IFS's books and records. According to the complaint, Wakefield's fraud came to an end in August 2019 when IFS was unable to honor millions of dollars in unauthorized fixed income securities trades executed by Wakefield with more than one dozen counter-parties. As a result, IFS was forced to close its business, withdraw its registration as a broker-dealer, and file for bankruptcy.

Claimant 1 provided new, detailed, and highly valuable information that prompted the opening of the investigation and provided substantial assistance during the course of the investigation. Claimant 1 met with staff multiple times, provided sworn testimony that was critical to the investigation, provided information that formed part of the Commission's charges in the Covered Action, and helped the court-appointed Receiver secure millions of dollars which were returned to harmed investors. 

. . .

[T]he information Claimant 2 provided consisted of additional examples of conduct by parties that had already been identified by the Commission staff prior to receiving Claimant 2's information and who were not charged in connection with the Covered Action. The information Claimant 2 provided did not prompt the staff to take the testimony of any of the anticipated defendants and Claimant 2's information was not used by the staff during such testimony. Based on information Claimant 1 provided, Enforcement staff had been investigating the Redacted aspect of the case before Claimant 2 provided information. As such, Claimant 2's information did not provide the basis for any of the charges *** in the Covered Action and did not otherwise contribute to the success of the enforcement action. 

• Securities Industry Commentator
• Bill Singer