Securities Industry Commentator by Bill Singer Esq

Three-Handed Dilemma Grabs NYAG, NYPPEX, Laurence Allen, and FINRA (BrokeAndBroker.com Blog)

Wells Fargo Slammed With $1 Million Defamation/Fraud Award in FINRA Arbitration

In the Matter of the Arbitration Between Aaron Olson, Claimant, v. Wells Fargo Advisors, LLC, Respondent (FINRA Arbitration Award)

SEC Charges Former Broker for Stealing from Elderly Investors (SEC Release)

United Kingdom Citizens Indicted in Brooklyn Federal Court for Multi-Million Dollar Loan Scheme / The Defendants Allegedly Caused Investors to Invest over $99 Million in Sham Loans Purportedly Collateralized by Valuable Bottles of Wine (DOJ Release)

Man Indicted for Frac Sand Ponzi Scheme (DOJ Release)

Three Defendants Sentenced For Illegal Bitcoin Business (DOJ Release)

New York Man Sentenced To 12 Years' Imprisonment For $1.3 Million Fraud Scheme (DOJ Release)

Frequently Asked Questions Regarding FINRA Rules Relating to Financial Exploitation of Senior Investors (FINRA FAQ)

FINRA Fines and Suspends Former Jefferies VP and Senior Software Developer Over Away Accounts

In the Matter of Jayanth Hebbar, Respondent (FINRA AWC)

Federal Courts and FINRA Arbitrators Consider If A Terminable-At-Will Employee Can Be Wrongfully Terminated (BrokeAndBroker.com Blog)

[I]n the process of filing that amended U5, WFA failed to follow filing requirements outlined in FINRA's requirements and guidelines and acted inconsistently with earlier and later more egregious takings of WFA's highly confidential non-protocol customer information by other terminated financial advisors. The Panel concludes that, under all of the evidence and reasonable inferences therefrom, the filing of and the information in the amended U5 was both vindictive and defamatory in nature causing material and continuing harm to Claimant's reputation and career as a financial advisor.

Court Finds FINRA Arbitration Process Not Fundamentally Fair (BrokeAndBroker.com Blog /  February 4, 2022)

http://www.brokeandbroker.com/6265/finra-wells-fargo-arbitration/

You know those days when you just want to pull the covers over your head and not get out of bed? Well, FINRA had one of those days. As to what caused all of FINRA's anxiety, let's start with these words in a court's order about a FINRA public customer arbitration hearing: "The transcripts satisfy the Investors' burden of proving the fraud on the panel by clear and convincing evidence. The audio tapes, which were not available to the Investors until after the close of the hearing, confirm that Wells Fargo's key witness used the delay caused by the medical emergency to materially change his testimony and offer perjured testimony in direct contravention of the earlier testimony. In addition, counsel for Wells Fargo inserted himself as a fact witness and purported to testify to the Panel himself to support the changed story."

solicited $1.2 million dollars from four investors, ages 78 to 94, by claiming that he would invest their funds in two private companies and in a promissory note with a guaranteed 13% annual return. According to the complaint, the promissory note was fake, and the private companies - which did not carry out any real business activities - were created by DeGregorio to facilitate his fraud. As alleged, DeGregorio stole most of the investors' money, and used a portion of the funds to repay investors in a Ponzi-like fashion.

[F]rom at least June 2017 and continuing through February of 2019, the defendants posed as executives of a company called Bordeaux Cellars.  The defendants solicited investors, including residents of the Eastern District of New York, at investor conferences held in the United States and overseas.  The defendants claimed to investors that Bordeaux Cellars brokered loans between investors and high-net-worth wine collectors that would be fully collateralized by high-value collections of wine.  The defendants promised that investors would receive regular interest payments from the borrowers, and that Bordeaux Cellars would keep custody of the wine pledged as collateral while the loans were outstanding.  As alleged, these representations were false, the "high-net-worth wine collectors" did not actually exist and Bordeaux Cellars did not maintain custody of the wine purportedly securing the loans.  Instead, the defendants used incoming loan proceeds to make fraudulent interest payments to investors and for their own personal expenses.  Burton is a fugitive. Anyone with information related to his whereabouts is asked to contact the FBI by calling 1-800-CALL-FBI or by visiting tips.fbi.gov

[B]etween 2017 and 2022, Perez allegedly used PBP to perpetuate a Ponzi scheme by soliciting investor money based on misrepresentations.  During this time, Perez took in over $11 million through the scheme.  He used most of the funds for his own personal benefit, buying luxury vehicles, property and vacations.

According to the indictment, Perez offered victims the opportunity to fund or invest in PBP transactions.  However, the representations Perez allegedly made were based on false and misleading promises, such as promising victims that their investments would be used to purchase frac sand at a discount and then be resold at a profit to fracking operations in and around the Permian Basin. Investors also were promised they would receive back their entire investment plus an additional return.  Perez rarely used the investment money to purchase frac sand or complete promised transactions. Instead, he is accused of diverting significant amounts of investor money to pay for his personal expenses and to keep the scheme running, such as by making payments to prior PBP investors.

[B]oden, DeJager, and Vogt operated an unlicensed money transmitting business at The Geek Group, a registered non-profit entity, between March 2017 and December 2018, when federal agents searched the business.  After the search, Boden, who was president of The Geek Group, and Vogt, its executive director, decided to close the business.  DeJager purchased bitcoin from registered exchanges, often laundered it, and then sent it to Boden to sell.  Boden and other staff at The Geek Group, including Vogt, would sell bitcoin to customers.  Boden, Vogt, and others then "structured" deposits of the cash proceeds to avoid detection of their operation and to purchase more bitcoin.  The defendants sold more than $740,000 in bitcoin.  Boden's customers included drug dealers, and he held himself out to be a money launderer, explaining to prospective customers that "people buy from" him because he sold "clean" bitcoin, not "dirty" bitcoin that could be traced.  Boden boasted that he did not collect certain information required to be collected by a federal law that prevents money laundering, commonly known as "know your customer" information. 

In connection with sentencing, DeJager explained to the Court that he and Boden started selling bitcoin because of their "anarchy streak": they were drawn to "[t]he possibility of making a lot of money while deposing government controlled currency with one that was anonymous."  Boden acknowledged to the Court that they "mixed" bitcoin to thwart anti-money-laundering controls put in place by licensed cryptocurrency exchanges: they knew licensed exchanges would not sell them bitcoin if the exchanges discovered Boden's customers were doing "something . . . illegal with it." 

Boden also solicited an undercover agent to collect a bitcoin debt that had purportedly accrued to $500,000 by using violence if necessary.  Boden delivered a dossier with information on the debtor to the agent and said, among other things: "If all I wanted to do was f*** him up, his head in burlap is easy to do.  I want my money.  I don't give a f*** about him; I don't give a f*** about his family.  I want my money."  And: "What happens to him, I don't give a sh** . . . [Y]ou kill him, he ain't gonna pay me.  And, and I don't need him dead; he's dumb. . . . How you handle this, this is your world.  I care that I get my money back.  Beyond that, it's whatever's most efficient for you."  Boden told the agent, who he thought was a cocaine dealer, that a drug dealer was his "exact favorite kind of client."  Boden also said, "I want to get your world working on bitcoin."

[H]enry and his co-conspirators executed a scheme to defraud Sprint through fraudulent cell phone service contracts that were created using the stolen personal identification information of 390 identity theft victims, resulting in bogus orders for 1,630 iPhone XR cell phones.  According to evidence presented at the sentencing, as a result of the fraud scheme approximately 892 iPhones were shipped to locations throughout the United States, including Centre, Northumberland, Montour, and Mifflin Counties.  The fraud and identity theft scheme caused Sprint to incur actual and attempted losses totaling approximately $1,338,247.  Henry and his co-defendants used shipment tracking numbers to determine when packages containing iPhones were scheduled for delivery, traveled from New York to the individual victims' residences in Pennsylvania and other states, and retrieved the packages at the delivery locations, or directly from delivery persons using counterfeit identification documents bearing the personal identification information of the individual victims and photos of the conspirators.

[R]ule 2165 permits a member to place a temporary hold on a securities transaction or disbursement of funds or securities from the account of a Specified Adult customer when the firm reasonably believes that financial exploitation of that adult has occurred, is occurring, has been attempted or will be attempted. FINRA Rule 4512 (Customer Account Information) requires members to make reasonable efforts to obtain the name of and contact information for a trusted contact person ("trusted contact") for a customer's account.

From August 2018 through December 2020, Hebbar did not obtain Jefferies' prior written consent before opening, or continuing to maintain, at least 11 outside brokerage accounts in which Hebbar could effect securities transactions and had a beneficial interest. Prior to his association with Jefferies in August 2018, Hebbar had opened or otherwise established nine outside brokerage accounts. Hebbar disclosed one of those nine accounts on the Jefferies New Hire Compliance Questionnaire in August 2018. Hebbar did not obtain Jefferies' written consent to maintain the remaining eight of those accounts within 30 calendar days of becoming associated with Jefferies or at any other time. Hebbar also opened three outside brokerage accounts after his association with Jefferies without obtaining Jefferies' prior written consent to open the accounts. On account opening forms for one of the accounts, Hebbar misrepresented his employer and occupation and failed to disclose his association with Jefferies. Finally, for 10 of the 11 undisclosed outside brokerage accounts, Hebbar did not notify in writing the financial institutions at which he held the accounts that he was associated with Jefferies. 

Additionally, from August 2018 through December 2020, Hebbar engaged in thousands of transactions in several of the undisclosed outside brokerage accounts. Hebbar executed trades in approximately 56 securities on Jefferies' Expanded Watch List and in approximately 14 securities on Jefferies' Restricted List. By trading in securities on Jefferies' Expanded Watch and Restricted Lists, Hebbar violated firm policies. Hebbar further violated Jefferies' policies by not pre-clearing transactions in the undisclosed outside brokerage accounts and not adhering to required holding periods. 

Hebbar also signed and submitted compliance questionnaires while associated with Jefferies. On the questionnaires, Hebbar disclosed one brokerage account held at another FINRA member firm but did not disclose the existence of the other outside brokerage accounts. Instead, Hebbar improperly attested he had disclosed all outside employee and employee-related accounts. 

• Securities Industry Commentator
• Bill Singer