Securities Industry Commentator by Bill Singer Esq

January 10, 2022
Once, a long time ago, four bad guys chased one good-guy Deputy. At high noon, with only himself to serve as prosecutor, judge, and jury, Marshall Will Kane stood alone against Frank Miller, Ben Miller, Jack Colby, and Jim Pierce. By himself, Marshall Kane battled for truth, justice, and the FINRA way of life -- or something like that. In 2022 Covid America, everything is reversed. Four guys in white hats chasing one guy in a black hat, and the bad guy skedaddled outta town last year. 

[S]hillin, while acting as an investment adviser, fabricated documents and made misrepresentations to clients, many of whom were elderly. As alleged, Shillin misrepresented that certain clients had successfully subscribed for IPO or pre-IPO shares in high-profile companies when they had not, and lied to clients about the true value of their investment portfolios. The complaint alleged that Shillin encouraged several advisory clients to roll over their existing life insurance policies into new policies, which caused certain clients to sell securities in order to pay premiums for policies that were non-existent or had far fewer benefits than Shillin claimed. Finally, the complaint alleged that Shillin received hundreds of thousands of dollars in ill-gotten gains as a result of his fraudulent conduct.
In a FINRA Arbitration Statement of Claim filed in May 2021, public customer Claimant Batista asserted breaches of contract, of implied covenant of good faith and fair dealing; negligence, and of fiduciary duty; unjust enrichment; non-disclosure or concealment; intentional interference with prospective economic advantage; negligent interference with prospective economic advantage; and violations of 15 U.S.C. § 78. Claimant Batista sought $32,428.00 in compensatory damages, punitive damages, interest, costs, and fees -- at the Hearing, the compensatory damages were revised to $39,761.98, and attorneys'' fees pegged at $14,401.46.. As set forth in the FINRA Arbitration Award:

The causes of action relate to Respondents placing trade restrictions on numerous stocks on January 28, 2021, including, but not limited to "KOSS" and "EXPR" on its trading platforms in the midst of an unprecedented stock rise.

The Robinhood Respondents generally denied the allegations and asserted affirmative defenses. The sole FINRA Arbitrator found Respondents Robinhood Financial, LLC and Robinhood Securities LLC, jointly and severally liable to and ordered them to pay to Claimant $29,460.77 in compensatory damages plus interest, and to reimburse Claimant for $150 in filing fees.
Christopher R. Esposito pled guilty in the United States District Court for the District of Massachusetts to one count of securities fraud. As alleged in part in the DOJ Release:

[E]sposito served as officer and director of Code2Action, Inc., a purported mobile marketing firm. Between August 2019 and February 2020, Esposito allegedly sold company shares to existing shareholders at sub-penny prices based on material misstatements and omissions and then misappropriated much of the proceeds. Specifically, it is alleged that Esposito deliberately misled prospective investors about, among other things, Code2Action's plan and ability to complete a reverse merger, which Esposito touted would enable the investors to sell their shares at a profit. It is further alleged that Esposito misappropriated over $57,000 to pay his personal expenses and failed to disclose to prospective investors, among other things, that the U.S. Securities and Exchange Commission had previously obtained a final judgment against him for committing securities fraud and barred him from certain securities-related activities. 

SEC Awards About $2.6 Million to Whistleblower 
Order Determining Whistleblower Award Claim
('34 Act Release No. 34-93935; Whistleblower Award Proc. File No. 2022-23)
The SEC's Claims Review Staff ("CRS") issued Preliminary Determinations recommending a Whistleblower Award of about $2.6 million to Claimant. The Commission ordered that CRS' recommendations be approved. The Order asserts that:

[C]laimant initially reported his/her concerns internally before providing information to Commission staff that significantly contributed to an existing investigation. Claimant revealed misconduct of which Commission staff were not aware, and Claimant's information helped Commission staff develop an efficient investigative plan to discover the full extent of the wrongdoing. Claimant also communicated with the staff over the course of the investigation and identified potential witnesses. Claimant's information and assistance was particularly significant in that it helped Commission staff obtain evidence of wrongdoing that was occurring abroad, which would have been difficult to acquire in the absence of Claimant's information and cooperation. 

Order Determining Whistleblower Award Claim ('34 Act Release No. 34-93936; Whistleblower Award Proc. File No. 2022-24)
The SEC's Claims Review Staff ("CRS") issued Preliminary Determinations recommending a Whistleblower Award of about $1.5 million to Claimant 1 and Claimant 2 on a joint basis. The Commission ordered that CRS' recommendations be approved. The Order asserts that:

[C]laimants 1 and 2 voluntarily provided original information to the Commission that led to the successful enforcement of the Covered Action. . . . Claimants 1 and 2 provided substantial ongoing assistance throughout the course of the investigation, providing several interviews and consulting telephonically with staff via counsel on numerous occasions, including before and after witness testimony of key witnesses. . . .