Securities Industry Commentator by Bill Singer Esq

Unhappy Customers Pull Out All the GameStops In FINRA Arbitration Win Against Charles Schwab (BrokeAndBroker.com Blog)

SEC Obtains Final Judgment Against Former Company Controller Charged with Insider Trading (SEC Release)

Former Analyst Sentenced To 33 Months In Prison For Committing Insider Trading Through Front-Running (DOJ Release)

SEC Charges Wisconsin Woman in Fraud Scheme Targeting Hmong-Americans (SEC Release)

CFTC Charges Wisconsin Woman and Her Companies with Fraud and Misappropriation (CFTC Release)

What Happens in The Metaverse Does Not Stay In The Metaverse Texas Securities Commissioner Stops Metaverse Casino Securities Scheme (TSSB Release)

New York Man Pleads Guilty for His Role in a Computer Fraud Scheme that Targeted the Elderly (DOJ Release)

Montgomery County and Florida Women Convicted of Conspiring to Access Company Computers For Money (DOJ Release)

DC Solar CFO Sentenced to 6 Years in Prison for Billion Dollar Ponzi Scheme (DOJ Release)

SEC Charges Shareholders, Attorney in Penny Stock Fraud Scheme (SEC Release)

FINRA Censures and Fines First Horizon Advisors Over Failed Supervision of Rep's Undisclosed Business Activity Involving Investment Club 

In the Matter of First Horizon Advisors, Inc, Respondent (FINRA AWC)

FINRA Fines and Suspends Morgan Stanley Rep Over Joint Production Credits With Retired Rep's Estate

In the Matter of William Martin Beasley, Respondent (FINRA AWC)

For a Second Time, Federal Court Says Price Isn't Right In UBS Whistleblower Retaliation (BrokeAndBroker.com Blog)

Former Morgan Stanley Rep Should Count His FINRA Settlement Blessings (BrokeAndBroker.com Blog)

From at least in or about 2014 through in or about October 2019, SERGEI POLEVIKOV was employed as a quantitative analyst at an asset management firm with headquarters in New York, New York (the "Employer Firm").  In his role at the Employer Firm, POLEVIKOV had regular access to information regarding contemplated securities trades on behalf of the Employer Firm's clients, which included investment companies.  During the period charged in the Complaint, POLEVIKOV engaged in a front-running scheme to misappropriate confidential, material, nonpublic information about the securities trade orders of the Employer Firm on behalf of its clients in order to engage in short-term personal securities trading in a brokerage account opened in his wife's name.  POLEVIKOV's scheme was designed to profit by executing trades that take advantage of relatively small price movements in a company's stock that follow from large securities orders executed by the Employer Firm on behalf of its clients.  In total, POLEVIKOV's scheme yielded more than $8.5 million in illicit profits.     

[B]etween April 2017 and April 2021, Yang, a resident of Mequon, Wisconsin, and Xapphire LLC engaged in the unregistered offer and sale of securities issued by her entities AK Equity Group LLC and Xapphire Fund LLC. The complaint further alleges that Yang falsely represented to prospective investors, many of whom were members of the Hmong-American community in Wisconsin and Minnesota, that she would invest their money primarily through foreign exchange trading, they could expect annual returns ranging from 20% to 50%, and the trading was consistently successful. As alleged in the complaint, in reality, Yang used less than half of the investors' money for foreign exchange trading and had many months with large net trading losses, resulting in negative returns. In addition, the complaint alleges that Yang also misappropriated approximately $4,060,000 of the investors' money to fund her and her family's lifestyle, including spending on casinos, travel, homes, and cars, and to repay investors in a previous venture. The SEC also named Yang's husband, Chao Yang, as a relief defendant for improperly receiving proceeds of the fraud according the complaint.

[F]rom approximately April 2017 through March 2020, the defendants solicited and pooled millions of dollars of investors' funds in bank and trading accounts for the purported purpose of trading forex.

The complaint alleges, among other things, the defendants falsely represented to existing and potential pool participants that they successfully managed hundreds of millions of dollars in a variety of investment vehicles; consistently achieved positive monthly returns; would allocate 100% of pool participants' funds to forex trading; and would adhere to a trading strategy that included low leverage ratios and moderate trading frequencies. These were false claims and the defendants routinely suffered trading losses using high leverage and high frequency trading strategies. The defendants also failed to disclose they misappropriated significant amounts of pool participants' funds to pay for Kay Yang's personal expenses. For example, Yang spent over $700,000 at casinos and on gambling-related purchases, more than $439,000 on travel and luxury hotels, and at least $248,000 on cars and car-related expenses. Furthermore, Yang made net transfers of approximately $200,000 to bank accounts in her name, at least $1.4 million to bank accounts in her husband's name  and more than $1 million to joint bank accounts she shared with her husband.         

1. This Emergency Cease and Desist Order is being entered to stop an illegal and fraudulent securities scheme tied to virtual casinos - including virtual casinos in metaverses. 

2. Metaverses are virtual worlds focused on social connections, interactivity, commerce, entertainment and business. Various concepts of a singular metaverse or many different metaverses incorporate blockchain and web 3.0 technologies, access points such as computers and AR or VR headsets, the interoperability of digital assets and the use of non-fungible tokens or NFTs. 

3. In this case, the parties are representing they are developing an internet casino and virtual casinos in various metaverses. Customers, acting virtually through avatars, will purportedly visit the metaverse casinos, particulate in weekly tournaments, gamble on virtual horse racing and play virtual games such as blackjack, poker and baccarat. 

4. The parties are funding the internet and metaverse casinos through the sale of more than 12,000 NFTs to the public. 

5. The NFTs entitle owners to various benefits, including a pro rata share of profits generated by the internet and metaverse casinos. Respondents are estimating these profits may be worth as much as $6,750 per month or $81,000 per year. 

6. Although the NFTs constitute securities, Respondents are advising purchasers that securities laws do not currently regulate NFTs and are considering further steps to obstruct the regulation of their NFTs. 

7. The advice regarding regulation is simply not true and the offering of NFTs is a high-tech scam. The parties are concealing their locations, hiding the identities of managers, misleading potential purchasers about their experience and obscuring the significant risks associated with investing in their NFTs. 

8. The Securities Commissioner is entering this Emergency Cease and Desist Order to stop the scheme and prevent immediate and irreparable harm to the public.

[I]n December of 2016, Alam became involved in a computer technical support fraud scheme that targeted elderly victims throughout the United States including the Middle District of Louisiana.  The scheme involved international participants, targeted over 30 victims, and took in approximately $340,000 in fraudulent proceeds.

Members of the scheme tricked victims into thinking their computers needed technical support, then offered to fix their computers for a fee.  After the victims paid, a member of scheme would contact the victims seeking access to their bank accounts, claiming that the victims were entitled to a discount.  With that information, a member of the scheme would manipulate the victims' account balances to where the victims thought that they owed money to the computer company.  The victims would then send money to accounts controlled by Alam and others.

Between December of 2016 and March of 2018, Alam utilized multiple bank accounts to receive the victims' funds.  He operated these accounts at the direction of an overseas associate, who instructed him how to distribute the funds, which he then sent to foreign and domestic accounts as directed.

In September 2019, the defendants were charged with one count of conspiracy, three counts of unauthorized access to a computer, and aiding and abetting, stemming from their scheme to receive a payment of money from the Prostate Cancer Foundation (PCF), Denis' former employer. In support of that scheme, they accessed internal documents obtained via unauthorized access to the computer system of PCF and threatened to release them to the public. Denis was hired by PCF in August 2014 but left her position shortly thereafter.

Evidence presented at trial showed that on several occasions over the course of several days after Denis left her employment, PCF computers were accessed, and documents were downloaded to her laptop and emailed to Eddings. In a series of emails sent by Eddings to PCF, the defendants demanded a payment of $150,000 in lost wages for Denis, as well as a $37,500 payment for Eddings for acting on Denis' behalf. In those emails, Eddings threatened to release the documents to the public if their demands were not met. When their demands were ultimately not met, Eddings sent a series of emails to the PCF Board, PCF donors, and members of the media, sharing her previous correspondence and attaching the documents.

[K]armann was a certified public accountant (CPA) that DC Solar hired first as its Controller in 2014, and later as its Chief Financial Officer. DC Solar manufactured mobile solar generator units (MSG), which were solar generators that were mounted on trailers. The MSGs were sold to investors who were given generous federal tax credits, and who were falsely led to believe that there was extensive demand from third parties to lease these MSGs to create a revenue stream. In fact, that demand was virtually non-existent. DC Solar had instead become a fraud scheme that took new investor money to pay older investors, using circular transactions that were fraudulently disguised to look like real third-party lease revenue.

According to court documents, Karmann and the other co-conspirators, including company founder Jeff Carpoff, carried out an accounting and lease revenue fraud using the Ponzi-like circular payments. Carpoff and others lied to investors about the market demand for DC Solar's MSGs and its revenue from leasing to third parties. Then Karmann, Carpoff, and others covered up these lies with techniques including false financial statements, false operation reports, and false written summaries of the supposed revenue from leasing MSGs to third parties. In 2016, 2017, and 2018, Karmann oversaw the hidden circular transfers of funds, delivered false financial information to another co-conspirator for use in tax returns and tax documents, provided false compiled financial statements to an investor representative for multiple funds, and provided other false information to investor representatives about DC Solar's third-party leasing. Karmann also directed others in DC Solar's accounting department, including one subordinate whom Karmann told to "make it up" when responding to a customer request for location reports on their MSGs. During these years that Karmann knowingly joined in the fraud, DC Solar pulled in over $600 million in investor funds as a result of this scheme.

On Nov. 9, 2021, Jeff Carpoff was sentenced to 30 years in prison and ordered to pay $790.6 million in restitution for conspiracy to commit wire fraud and money laundering. His wife, Paulette Carpoff, 47, has pleaded guilty to conspiracy to commit an offense against the United States and money laundering, and is scheduled to be sentenced on May 10, 2022.

On Nov. 16, 2021, Joseph W. Bayliss was sentenced to three years in prison and ordered to pay $481.3 million in restitution for securities fraud and conspiracy in connection with the DC Solar scheme.

Other defendants have pleaded guilty to criminal offenses related to the fraud scheme and are scheduled for sentencing: Alan Hansen, 50, of Vacaville, is scheduled to be sentenced on April 26, 2022; Ronald J. Roach, 54, of Walnut Creek, is scheduled to be sentenced on May 3, 2022; and Ryan Guidry, 44, of Pleasant Hill is scheduled to be sentenced on June 7, 2022.

[F]rom at least April 2017 through August 2017, the defendants each played a role in a scheme that enabled Herman and Island Capital to sell shares of penny stock issuer NxGen Brands, Inc. f/k/a Pyramidion Technology Group, Inc. ("PYTG") to unsuspecting investors. To create the appearance that PYTG had assets and business operations and was not merely a public shell company, Baker allegedly facilitated a sham acquisition by PYTG. For his part in the scheme, Horn allegedly provided PYTG's transfer agent with fraudulent Rule 144 opinion letters that enabled Herman and Island Capital to obtain unrestricted shares of PYTG. According to the complaint, Herman and Island Capital then engaged in manipulative trading to raise PYTG's share price and, with the assistance of paid boiler rooms, dumped their shares of PYTG at the inflated price, reaping profits of over $1 million, collectively.

From July 2015 through November 2016, First Horizon failed to reasonably supervise a registered representative (the Representative), who engaged in an undisclosed business activity involving an investment club with two married couples who experienced significant losses through their participation.² The firm failed to take reasonable steps to investigate red flags that the Representative was engaged in an undisclosed business activity, in violation of FINRA Rules 3110 and 2010.

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Footnote 2: One of the two married couples who invested and lost money were former customers of the Representative at First Horizon. They initiated a civil lawsuit against the Representative and First Horizon's parent company. The Representative settled the claims brought against him; the claims against the firm's parent company remain pending. 

In approximately January 2016, Beasley entered into an agreement through which he agreed to service certain customer accounts, including executing trades for those accounts, under a joint representative code (also known as a joint production number) that he shared with the estate of a retired representative. The agreement set forth what percentages of the commissions Beasley and the retired representative's estate would earn on trades placed using the joint representative code. 

From January 2016 through December 2020, Beasley placed a total of 114 trades in accounts that were covered by the agreement using his own personal representative code. Specifically, although the firm's system correctly prepopulated the trades with the applicable joint representative code, Beasley negligently entered the 114 transactions at issue under his personal representative code. The firm's trade confirmations for the 114 trades inaccurately reflected Beasley's personal representative code instead of the joint representative code that Beasley shared with the estate of a retired representative. 

Beasley's actions resulted in his receiving higher commissions from the 114 trades than what he was entitled to receive pursuant to the agreement. In September 2021, Morgan Stanley reimbursed the estate of the retired representative.  

• Securities Industry Commentator
• Bill Singer