Securities Industry Commentator by Bill Singer Esq

October 6, 2021

Testimony Before the United States House of Representatives Committee on Financial Services  by SEC Chair Gary Gensler / Oct. 5, 2021 ( Blog)

Two New Jersey Men Arrested And Charged With Securities Fraud For Scheme To Defraud Investors In Hemp Company / Vitaly Fargesen and Igor Palatnik Misappropriated Approximately $4 Million of Investor Funds (DOJ Release)

SEC Charges Hemp Company and Co-Founders With Fraud (SEC Release)

Loves Park Investment Advisor Pleads Guilty to Fraud Charge for Misappropriating More Than $950,000 in Customer Funds (DOJ Release)

Charlotte Man Pleads Guilty To Wire Fraud For Return Scheme Targeting Amazon (DOJ Release)

Essex County Man Admits Conspiring to Fraudulently Obtain More Than $700,000 (DOJ Release)

Buffalo Man Charged With International Email Scam Targeting Businesses And Defrauding Victims Out Of Hundreds of Thousands Of Dollars (DOJ Release)


Robinhood Prevails in FINRA Customer Arbitration
In the Matter of the Arbitration Between Mohammad N. Naser, Claimant, v. Robinhood Financial, LLC and Robinhood Markets, Inc., Respondents (FINRA Arbitration Award)
READ the FULL-TEXT of SEC Chair Gensler's Published Testimony

In an Indictment filed in the United States District Court for the Southern District of New York, Vitaly Fargesen and Igor Palatnik were charged with one count of conspiracy to commit securities fraud, one count of securities fraud, one count of conspiracy to commit wire fraud, and one count of wire fraud. As alleged in part in the DOJ Release:

From in or about March 2019 to in or about March 2020, CanaFarma was a privately-held Delaware corporation with offices in Manhattan, New York.  Beginning on or about March 19, 2020, CanaFarma was listed on the Canadian Stock Exchange and beginning on or about March 23, 2020, CanaFarma was listed on the Frankfurt Stock Exchange. CanaFarma marketed itself to the investors as a "fully integrated cannabis company addressing the entire cannabis spectrum from seed to delivery of consumer products." FARGESEN and PALATNIK, who held themselves out as Senior Vice Presidents at CanaFarma, in fact exercised full control of CanaFarma,  The men hid their control from the investing public by, among things, convincing an experienced businessman to falsely present himself to the market as the CEO of the company.

Using their control of CanaFarma, FARGESEN and PALATNIK devised and carried out a scheme to defraud CanaFarma's investors by soliciting more than $14 million in funds, including investments in private shares of CanaFarma, with false and misleading representations concerning the company's management, products, and financials, failing to invest investor's funds as promised, causing the manipulation of the public stock price of CanaFarma for the purposes of advancing the scheme to defraud investors and enriching themselves, and secretly misappropriating at least $4 million of CanaFarma funds for their own benefit. 

FARGESEN and PALATNIK effectuated the scheme by: (a) purchasing a Canadian shell company through a straw purchaser; (b) directing the reverse merger of the shell company and CanaFarma to exercise secret control of the resulting publicly traded company; (c) controlling CanaFarma through a nominal Chief Executive Officer who reported to FARGESEN and PALATNIK; (d) supporting CanaFarma's stock price through manipulative trading; (e) attempting to artificially inflate CanaFarma's reported revenue; and (f) making false statements to CanaFarma's auditors., the SEC charged CanaFarma Hemp Products Corp. and its Co-Founders Vitaly Fargesen and Igor Palatnik with violating antifraud provisions of the federal securities laws. Parallel criminal charges were filed against Fargesen and Palatnik. As alleged in part in the SEC Release:

[I]n 2019 and 2020, CanaFarma, a Canadian startup hemp company with offices in Vancouver and New York City, and its co-founders Vitaly Fargesen and Igor Palatnik raised millions of dollars from investors.  According to the complaint, while raising these funds, the defendants made misrepresentations to investors, including claims that CanaFarma was a fully integrated company that was processing hemp from its own farm when in fact it had not processed any of this hemp and its products used hemp supplied by third parties.  The complaint also alleges that financial information provided to investors misstated historical revenue numbers and included baseless projections about future revenues.  In addition, according to the complaint, Fargesen and Palatnik misappropriated at least $4 million and used the funds for their personal use and purposes unrelated to CanaFarma.
Pursuant to a Plea Agreement, Naseem Salamah pled guilty to wire fraud in the United States District Court for the Northern District of Illinois As alleged in part in the DOJ Release, Salamah:

was an investment advisor who fraudulently obtained more than $950,000 from the accounts of three of his customers between August 2017 and May 2021.  According to a written plea agreement, Salamah told the customers that he needed to move the money to diversify their assets, when, in fact, Salamah used the money for his own benefit and without the customers' knowledge or consent.
Hudson Hamrick, 31, pled guilty to wire fraud in the United States Distirct Court for the Western District of North Carolina. As alleged in part in the DOJ Release;

[F]rom 2016 to 2020, Hamrick executed the return scheme by ordering expensive items through Amazon, such as electronics, guitars, tools, computers and other high-end consumer products, and then obtaining fraudulent refunds from the company by returning items that were significantly cheaper or broken. Hamrick also admitted to defrauding Amazon by obtaining replacement products for items he falsely claimed to have been lost or damaged, and then keeping the new items or reselling them online. Court documents show that Hamrick engaged in more than 300 fraudulent transactions that resulted in losses to the company of more than $290,000.
Jefferson Robert, 31, pled guilty to conspiracy to commit wire fraud in an Information in the United States District Court for the District of New Jersey As alleged in part in the DOJ Release [Ed: references below to  Coronavirus Aid, Relief, and Economic Security Act ("CARES Act");Pandemic Unemployment Assistance ("PUA"); unemployment insurance benefits ("UIB"); and the Washington State Employment Security Department ("ESD")]

Robert opened bank accounts with a fraudulent passport in another individual's name. He and his conspirators then caused an application to be made to ESD for UIB in the name of Victim 1. In response, ESD caused UIB to be deposited into one of the fraudulent bank accounts. Robert and his conspirators: partook in business email scams, including causing a victim to transfer approximately $28,000 into one of the bank accounts; partook in romance scams, including causing a victim to make five deposits into one of the bank accounts totaling approximately $19,000; and fraudulently obtained money from the IRS by causing the IRS to transfer payments in four victims' names into one of the bank accounts. Once the fraudulently obtained money was in the bank accounts, Roberts moved the money, including through the purchase of money orders. Robert and his conspirators caused more than $700,000 in losses.
In a Complaint filed in the United States District Court for the Western District of New York, Eric Iwu a/k/a James was charged with conspiracy to commit wire fraud in connection with a Business Email Compromise ("BEC"). As alleged in part in the DOJ Release:

In October 2018, Homeland Security Investigations (HSI) in Buffalo received information that a victim (Victim 1) in Dubai, UAE, was the subject of a BEC fraud utilizing a Wells Fargo checking account. Wells Fargo Bank stated that Victim 1, a power construction company, sent a wire transfer in the amount of $461,612.00 to the bank account of Zeeco Inc. Within days of receiving the wire transfer, two outgoing wire transfers totaling $300,000 were sent to bank accounts at Bank of America in Washington, DC, and Northwest Bank in Buffalo. Subsequently, a checking account was opened at a Citizens Bank in West Seneca, NY, under the name Krispy Kreme Doughnut Company LLC. Two wire transfers, one for $35,000.00, and another for $4,950.00, were subsequently sent from the Bank of America account in Washington, DC. The registered owner of the Citizens Bank account is the defendant Eric Iwu. Wells Fargo eventually received a wire recall at the request of Victim 1.

In April 2019, HSI Buffalo received information from Northwest Bank stating that a victim (Victim 2) in the United Kingdom was the subject of a BEC fraud utilizing a Northwest Bank checking account. On February 8, 2019, Victim 2, a tooling and automation company, sent a wire transfer in the amount of $55,242.36 to the Northwest Bank account of Gunes Dinamik LLC. Shortly thereafter, Northwest Bank received a wire recall at the request of Victim 2, who claimed the wire transfer was a fraudulent payment and not intended for the beneficiary account. The wire recall was denied because the funds were depleted from the account. The account was traced to the defendant.

In February 2020, HSI Buffalo received information from Citizens Bank stating that a business account opened in June 2019, in Buffalo, was the subject of a suspected BEC fraud. The account was registered to Jasa Cipta Rembaka LLC, (Victim 3) alleged to be operating as an insurance carrier specializing in accident and health insurance. Citizens Bank stated that on June 26, 2019, Victim 3 sent a wire transfer in the amount of $131,636.39 to Jasa Cipta Rembaka LLC, Citizens Bank account. In September 2020, an attorney for Victim 3, located in Singapore, confirmed that the wire transfer of $131,636.39 was re-directed to the Citizens Bank account based on a fraudulent email received by a representative at the company in Singapore. On December 6, 2019, a winery in California (Victim 4) sent a second wire transfer in the amount of $112,912.02 to the Citizens Bank account. Victim 4 also confirmed that the winery was a victim of the wire fraud for $112,912.02. The account was also traced to Iwu.
FINRA's NAC affirmed an OHO Decision's findings that Respondent had engaged in undisclosed PSTs, made false statements to his employer, and willfully caused the employer to file a misleading initial Form U4 and four misleading amendments. The NAC affirmed all OHO sanctions but eliminated the heightened supervision requirement. 

The United States District Court for the Central District of California granted the SEC's request for a temporary restraining order against Defendants Ron Harrison and Global Trading Institute, LLC,  and Relief Defendant Irina Parfyonova. The Order freezes the assets of Harrison, Global Trading Institute, and Parfyonova, and orders them to provide an accounting, among other relief. As alleged in part in the SEC Release:

[H]arrison fraudulently collected over $900,000 in performance and other fees from twenty-two clients since 2016. The complaint alleges that Harrison collected these fees based on purported gains from his option trading in the clients' brokerage accounts when, in fact, almost all of the clients suffered substantial losses from Harrison's trading. The complaint also alleges that Harrison touted to his clients his experience as a Wall Street trader, but misleadingly failed to disclose that FINRA had barred him from associating with any member. The complaint also names Harrison's company, Global Trading Institute, LLC, as a defendant for allegedly participating in Harrison's fraud and names his girlfriend, Irina Parfyonova, as a relief defendant for allegedly receiving from Harrison more than $279,000 in proceeds from the fraud.

Robinhood Prevails in FINRA Customer Arbitration
In the Matter of the Arbitration Between Mohammad N. Naser, Claimant, v. Robinhood Financial, LLC and Robinhood Markets, Inc., Respondents (FINRA Arbitration Award 21-01183)
In a FINRA Arbitration Statement of Claim filed in May 2021, public customer Claimant Naser asserted violation of the Illinois Consumer Fraud and Deceptive Business Practices Act, fraudulent misrepresentation, and negligent misrepresentation. Claimant sought $1,667 in damages, punitive damages, costs, fees, injunctive relief, and a declaratory judgment. The FINRA Arbitration Award states in part that:

[T]he causes of action related to allegations that, on January 28, 2021, Claimant was restricted from purchasing AMC Entertainment Holdings (AMC) stock and his position in Nokia Oyj (NOK) was harmed as a result, and the restriction illustrates the false, deceptive, and misleading nature of Respondent and RMI's marketing regarding unlimited trades.

Because Robinhood Markets, Inc. is not a FINRA member firm and did not voluntarily submit to arbitration, no determination was made as against that Respondent. The sole FINRA Arbitrator denied Claimant's claims.