Securities Industry Commentator by Bill Singer Esq

May 11, 2022

On Wall Street, the regulated and the regulators each have a role to play in the regulatory scheme. The regulated need to follow the rules. The regulators need to ensure that the rules are followed. Unfortunately, the industry's rulebook isn't so much a single volume as it is a massive encyclopedia with annual yearbook updates -- a reference for those old folks among us who still remember the hard-copy likes of an Encyclopedia Britannica. For regulation to work, there needs to be a sensitivity to the difference between willful and inadvertent noncompliance. Beyond merely imposing fines, Wall Street regulators have an obligation to timely flag oversights and misunderstandings. Unfortunately, on modern day Wall Street, too much of the art of regulation seems mired in gotcha.
Thank you for the kind introduction. It's good to be back with the International Swaps and Derivatives Association (ISDA) again.

As is customary, I'd like to note that I'm not speaking on behalf of my fellow Commissioners or the SEC staff.

Swaps emerged in the 1980s to provide producers and merchants with a way to lock in the price of commodities, interest rates, and currency rates. Our economy benefits from a well-functioning swaps market, as it's essential that companies have the ability to manage their risks.

When I first appeared before this group, as Chair of the Commodity Futures Trading Commission (CFTC), Washington was still developing the regulatory response to the 2008 financial crisis. At the time, I had the honor of working with then-CFTC Commissioner Scott O'Malia, now the CEO of ISDA, on reforms to the swaps market. A decade ago, I called it a "new era for the swaps marketplace." [1]

The financial crisis had many chapters, but a form of security-based swaps - credit default swaps, particularly those used in the mortgage market - played an important role throughout the story.

International banks were using credit default swaps to lower regulatory capital requirements and to hedge their bank loan portfolios - or so they thought.

These derivatives were at the core of what led to the $180 billion bailout of AIG, whose near-failure accelerated the crisis.

More than a decade later, we've continued to see the relevance of this market. For instance, in light of Russia's invasion of Ukraine, many market participants are closely watching the credit default swaps related to Russian companies and sovereign debt.

The security-based swap market comprises also includes single-name and narrow-based equity swaps, some of which are called total return swaps.

Hedge funds and other asset managers increasingly have been using total return swaps to express a position that then may be held on the balance sheet of their prime broker or bank.

In March 2021, a month before I was sworn in as SEC Chair, Archegos Capital Management failed. Archegos used total return swaps based on large concentrated positions in underlying stocks, and prime brokers had significant exposure to that family office. In April, we charged Archegos Capital Management and affiliated individuals with committing fraud and manipulating stock prices using total return swaps.[2]

Ten years before the collapse of AIG, in 1998, Long-Term Capital Management failed. It brought with it more than $1 trillion of derivatives contracts, many of which were total return swaps. I was serving at the U.S. Department of the Treasury at the time, sent along with the Federal Reserve to examine the impending failure of this firm.

Thus, the role of security based swaps in the market jitters in 1998, 2008, and 2021 help inform how I think about security-based swaps.

When Congress decided to bring reforms to the overall swaps market, they assigned the bulk of the swaps market to our sibling agency, the CFTC, which I had the honor of chairing. They assigned authority over security-based swaps, however, to the SEC, as these derivatives were related to the securities, issuers, and markets at the core of our remit.

Congress sought to align key aspects of the security-based swap market with our policy perimeter for other aspects of the securities markets: reducing risk, increasing transparency, and enhancing market integrity.

While we have adopted many reforms to the security-based swap market, we have work to do to further fulfill our obligations under Dodd-Frank and update rules for this marketplace. Thus, we are embarking on yet another "new era."

Risk Reduction

The reforms included two main ways to reduce risk. First, dealers would have to register with the SEC. In doing so, they'd need to have key back-office controls and adequate cushions against losses.

Last year, in November, security-based swap dealers and major security-based swap participants were required to register with the Commission for the first time.

The requirements for the 47 conditionally registered security-based swap dealers include new counterparty protections, requirements for capital and margin, internal risk management, supervision and chief compliance officers, trade acknowledgement and confirmation, and recordkeeping and reporting procedures.[3]

The other part of Dodd-Frank's risk-reduction regime was central clearing.

In 2016, we adopted new rules for clearinghouses. The SEC now regulates three clearinghouses that clear security-based swaps, in particular credit default swaps.


Next, I'd like to discuss transparency. Under Dodd-Frank, Congress determined that the security-based swap markets would benefit from more transparency, both pre-trade and post-trade.

Pre-Trade Transparency

Congress determined that the platforms where swaps were traded could strengthen the pre-trade transparency of this market.

The SEC originally proposed rules for security-based swap execution facilities (security-based SEFs) in 2011. Subsequently, the CFTC was able to stand up a framework for its SEFs, a framework that experts have said has worked well over the past decade. In fact, Bank of England economists found that that regime saves end users millions of dollars per day.[4]

Thus, in April, the Commission proposed to create a framework for the registration of security-based SEFs that would harmonize with the SEF framework of the CFTC.[5]

We expect that the entities that will register as security-based SEFs also are registered as SEFs with the CFTC. This would facilitate efficiencies for market participants.

Post-Trade Transparency

With regard to post-trade transparency, the SEC has implemented two initiatives, and the Commission recently put out another proposal for comment.

First, in November, new rules related to reporting of security-based swap data went into effect. These rules require such transaction data to be reported to a security-based swap data depository, and thus be available to the SEC.

Second, beginning in February, the security-based swap data repositories were required to disseminate data about individual transactions to the public, including the key economic terms, price, and notional value.[6] In April, there was about $50 billion traded across about 16,000 trades in credit default swaps.[7] In the early days of April, total return swaps accounted for about $500 billion in volume across 70,000 trades per day.[8] So it's a significant and sizable market!

Third, in December, the Commission proposed to require public reporting of large security-based swap positions. Congress provided this authority, under Exchange Act section 10B, in response to the lessons of the 2008 financial crisis.[9] This position data is another step toward increasing transparency in this opaque market. The staff are currently working through comments from the public.[10]

Altogether, I believe the increased transparency provided by these rule implementations and proposals would help alert the SEC and the public to cases in which individual funds have positions across multiple prime brokers or banks.

Market Integrity

Next, I'd like to turn to two proposals we made to enhance integrity of the security-based swap market.

First, in December, the Commission re-proposed new Exchange Act rule 9j-1 to prevent fraud, manipulation, and deception in connection with security-based swap transactions.

The rule is designed to take into account the unique features of a security-based swap. Namely, it would explicitly reach misconduct in connection with the ongoing payments and deliveries that typically occur throughout the lifecycle of these instruments. Thus, this rule is designed to guard against problematic behavior while protecting beneficial activity.

Second, in December we also proposed under section 15F of Dodd-Frank to prohibit the personnel of security-based swap dealers from unduly influencing their chief compliance officers. This gets to our mission to protect investors and safeguard market integrity.

Other Topics

Lastly, I'd like to raise two other topics before I close.

Crypto and Derivatives

One is on the intersection of crypto assets with derivatives.

The fact is, most crypto tokens involve a group of entrepreneurs raising money from the public in anticipation of profits - the hallmark of an investment contract or a security under our jurisdiction. Some, probably only a few, are like digital gold; thus, they might be like commodities. Even fewer, if any, are actually being used in general commerce for payments.

My predecessor Jay Clayton said it, and I will reiterate it: Without prejudging any one token, most crypto tokens are investment contracts under the Supreme Court's Howey Test.

Make no mistake: If a swap is based upon a crypto asset that is a security, then that is a security-based swap. Thus, our rules apply to them. Any offer or sale to retail participants must be registered under the Securities Act of 1933 and effected on a national securities exchange.

And furthermore, if platforms - whether in the decentralized or centralized finance space - offer security-based swaps, they are implicated by the securities laws and must work within our securities regime.

I know ISDA is working on a project to develop legal standards with respect to crypto derivatives.[11] Such standardized approaches can be a good thing for markets. At the end of the day, though, I think it's important to recognize that if the underlying asset is a security, the derivative must comply with securities regulations.

We've brought some cases involving retail offerings of security-based swaps, including charges against Abra and a related company that conducted security-based swaps transactions over the blockchain;[12] unfortunately, there may be more. We will continue to use all of the tools in our enforcement toolkit to ensure that investors are protected in cases like these.

Swaps and Complex Products

Finally, I want to touch upon the use of derivatives within structured and so-called complex products.

A lot of attention has been paid to bitcoin futures ETFs. That's just one kind of investment product that is based upon or wrapped around derivatives.

Market participants' use of derivatives touch so many parts of our markets, from SEC registered funds wrapping these products in publicly offered strategies, to numerous private funds using derivatives at significant exposure levels. Exchange-traded products (ETPs), exchange-traded funds (ETFs), and exchange-traded notes use strategies and structures that are more complex than typical stocks and bonds.

For example, some products might be so-called "leveraged" or "inverse" ETFs, or might be linked to a volatility index. [13] The use of derivatives can present unique and potentially significant risks to investors across market sectors.

These investment products, though, also can pose risks even to sophisticated investors, and can potentially create system-wide risks by operating in unanticipated ways when markets experience volatility or stress conditions.[14]

In the past few months alone, with our regulatory and law enforcement partners, we have brought charges for historic events involving funds and derivatives against Archegos and Infinity Q.[15] There may be more to come, unfortunately.

Such conduct, including alleged inappropriate valuations, fraud, or manipulative activity, reminds us that we must promote transparency-enhancing initiatives to lower risk and protect investors. When products are made available to the public, they must comply with requirements related to marketing, sales practices, ongoing valuations, and risk management.

I've asked our Division of Investment Management and Division of Examinations to take a renewed and focused look at the use of derivatives by registered investment companies so that they're compliant with our rules. In addition, the compliance date for an October 2020 rule regarding the use of derivatives comes later this year.[16]

Though the listing and trading of complex products can be consistent with the federal securities laws,[17] that doesn't mean they are right for every investor. I encourage all investors to consider these risks carefully before investing in these products.


In conclusion, I believe that we have the opportunity to reduce risk, increase transparency, and strengthen the integrity of the derivatives market.

I'd also like to thank ISDA and its members for offering comments on our proposals. Staff carefully reviews the feedback we receive, and we greatly appreciate the time and care you put into your comments.

On occasion, security-based swaps have moved from the corners of the market to front and center. Various market events over the decades - from Long-Term Capital Management in 1998 to AIG in 2008 to Archegos in 2021 - remind us of that. I think it's important to shine light on these markets before any future such tremors arise. Thank you.

[1] See Gary Gensler, "The New Era of Swaps Reform" (Oct. 10, 2012), available at

[2] See "SEC Charges Archegos and its Founder with Massive Market Manipulation Scheme," available at

[3] See "List of Registered Security-Based Swap Dealers and Major Security-Based Swap Participants," available at As of May 9, 2022, there are 47 conditionally registered security-based swap dealers and no major security-based swap participants.

[4] See Evangelos Benos, Richard G. Payne, and Michalis Vasios, "Centralized Trading, Transparency and Interest Rate Swap Market Liquidity: Evidence from the Implementation of the Dodd-Frank Act" (Journal of Financial and Quantitative Analysis, Vol. 55, No. 1, Feb. 2020, p. 159-192).

[5] See Gary Gensler, "Statement on Registration of Security-Based Swap Execution Facilities" (April 6, 2022), available at

[6] See Gary Gensler, "Statement on Public Dissemination of Security-Based Swap Transactions" (Feb. 16, 2022), available at

[7] See Chris Barnes, Clarus Financial Technology, "Most Actives in CDS Trading" (May 4, 2022), available at

[8] See Amir Khwaja, Clarus Financial Technology, "SBSDR - A Look at Equity Total Return Swaps" (April 12, 2022), available at

[9] See Gary Gensler, "Statement on Exchange Act 10B and Rule 9j-1" (Dec. 15, 2021), available at

[10] Relatedly, in February, the Commission proposed to shorten the deadlines by which beneficial owners of a company - those who own at least 5 percent of the company - have to inform the public and other investors of their position. The proposal would clarify when and how certain derivatives acquired with control intent count towards the 5 percent threshold for reporting. See Gary Gensler, "Statement on Beneficial Ownership Proposal" (Feb. 10, 2022), available at

[11] See Scott O'Malia, "Developing Contractual Standards for Crypto Derivatives" (Jan. 18, 2022), available at

[12] See "SEC Charges App Developer for Unregistered Security-Based Swap Transactions" (July 13, 2020), available at

[13] See Leveraged and Inverse ETFs: Specialized Products with Extra Risks for Buy-and-Hold Investors, Office of Investor Education and Advocacy (Aug. 1, 2009), available at This statement, like all staff statements, has no legal force or effect; it does not alter or amend applicable law, and it creates no new or additional obligations for any person. Exchange-traded funds that seek to provide the multiple of a performance of a benchmark across a single day are commonly referred to as "leveraged ETFs," while funds that seek to provide the opposite performance of a benchmark are commonly referred to as "inverse ETFs."

[14] For example, the SEC's Asset Management Advisory Committee noted that while "ETPs generally performed as designed" during volatility associated with COVID-19, "[c]ertain ETPs, particularly those offering inverse or leveraged exposures, experienced conditions that industry participants might have found hard to predict, such as triggering provisions that resulted in product liquidation." The Committee made six recommendations to the SEC and FINRA designed to improve the ETP ecosystem. Preliminary Recommendations of ETP Panel Regarding COVID-19 Volatility: Exchange-Traded Products, Asset Management Advisory Committee (Sept. 16, 2020), available at Additionally, during the February 5, 2018, market event known as "Volmageddon," the VIX futures market experienced a rapid increase in price and corresponding increase in demand. During this period, several VIX-related ETPs that held VIX futures attempted to execute their daily rebalance activity; due to their size, the Investors in many of these ETPs suffered significant losses. See The Day The VIX Doubled: Tales of "Volmageddon," Luke Kawa, Bloomberg (Feb. 6, 2019), available at

[15] See "SEC Charges Infinity Q Founder with Orchestrating Massive Valuation Fraud" (Feb. 17, 2022), available at

[16] The rule applies to most registered investment companies (mutual funds but not money market funds, exchange-traded funds, registered closed-end funds, and business development corporations). See Release No. IC-34084, Use of Derivatives by Registered Investment Companies and Business Development Companies" (Oct. 2020), available at

[17] See, e.g., Order Setting Aside Action by Delegated Authority and Approving a Proposed Rule Change, as Modified by Amendment Nos. 2 and 4, to List and Trade Shares of the 2x Long VIX Futures ETF Under BZX Rule 14.11(f)(4) (Trust Issued Receipts), Release No. 34-93299 (October 1, 2021), available at;Order Setting Aside Action by Delegated Authority and Approving a Proposed Rule Change, as Modified by Amendment Nos. 1 and 3, to List and Trade Shares of the -1x Short VIX Futures ETF Under BZX Rule 14.11(f)(4) (Trust Issued Receipts), Release No. 34-93230 (October 1, 2021), available at
In a FINRA Arbitration Statement of Claim filed in January 2021, public customer Claimant Delahunty asserted negligent supervision, negligence, breach of fiduciary duty, breach of contract, omissions to state a material fact, and violation of FINRA rules, including, but not limited to, fair and equitable principles of trade. As characterized in the FINRA Arbitration Award: "The causes of action related to Claimant's allegation that Respondent knowingly put Claimant in harm's way by allowing him to hold a product meant to be held for a day or two, to instead to be held for 199 days. The security that is the subject of this arbitration, Velocity Shares 3x Long Crude Oil ETN (Nasdaq: UWTI), is a leveraged exchange traded note." At the FINRA Arbitration Hearing, Claimant Delahunty sought $480,051 in compensatory damages and $5,000 in expert fees. Respondent TD Ameritrade generally denied the allegations and asserted defenses. The FINRA Arbitration Panel found Respondent TD Ameritrade liable to and ordered it to pay to Claimant Delahunty $360,000 in compensatory damages with interest; $5,000 in costs, and $425 in FINRA filing fees.  

Former Chief Financial Officer of $21 Billion Biopharmaceutical Company Indicted for Insider Trading (DOJ Release)
In a three-count Indictment filed in the United States District Court for the District of New Jersey, Usama Malik was charged with insider trading, securities fraud, and securities fraud conspiracy. As alleged in part in the DOJ Release:

From 2018 through October 2020, Malik was the chief financial officer (CFO) of a New Jersey-based biopharmaceutical company listed on the NASDAQ Stock Exchange. On April 6, 2020, the company publicly announced for the first time that its breast cancer drug - an antibody-based drug designed to treat certain breast cancer patients who had very limited treatment options beyond chemotherapy - had proven effective in pre-market clinical trials. In October 2020, another biopharmaceutical company acquired the company for which Malik worked for approximately $21 billion. 

Malik was among the first, and one of the few, employees who received the material non-public information about the breast cancer drug before the public announcement. Within minutes of obtaining that information, Malik passed it along to Lauren S. Wood, 33, also of Washington, D.C. Wood lived with Malik at the time and was formerly employed by the same company as him. Before April 6, 2020, and within hours of receiving the insider information from Malik, Wood placed an order for approximately 7,000 shares of the company's stock, despite the fact that during the same time period the company's stock was downgraded by financial experts. After the company announced that its cancer drug had proven effective in pre-market clinical trials, its stock price increased. After selling her shares, Wood more than doubled her investment, realizing gross profits of $213,618.

Former San Bernardino County Sheriff's Deputy Pleads Guilty to Fraud and Tax Charges in Multimillion-Dollar Investment Swindle (DOJ Release)
Christopher Lloyd Burnell (a former San Bernardino County sheriff's deputy) pled guilty inn the United States District Court for the Central District of California to 11 counts of wire fraud and two counts of filing a false tax return. As alleged in part in the DOJ Release:

[B]urnell falsely claimed to have accumulated tens of millions of dollars from lawsuits he purportedly won against the San Bernardino County Sheriff's Department and Kaiser Permanente; from selling a patent for an air-cooled, bullet-resistant vest to Oakley Inc.; and through investments in small businesses and money-lending opportunities. The scheme began no later than November 2010 and continued until September 2017.

After deceiving victims into believing he was a wealthy businessman, Burnell then induced victims to invest up to hundreds of thousands of dollars at a time with him by offering exclusive investment opportunities that promised rates of returns as high as 100% to be repaid in a few weeks, according to prosecutors' trial memorandum. In some instances, Burnell asked the victim for an initial trial investment with him, during which he would fulfill his promised returns - and gain the victim's trust - only to ask for a larger amount from them.

But these investment opportunities did not exist. Rather, Burnell spent the money on maintaining a life of luxury. Burnell spent victims' money on, among other things, gambling and luxury items, including losing more than $2 million in gambling at the San Manuel Casino in Highland, $500,000 in private jet trips, $70,000 on Louis Vuitton merchandise, and $175,000 on luxury cars and an apartment lease for his then-girlfriends, the trial memorandum states. Burnell continued this investment fraud scheme for years until he could not identify new victims to defraud and the money from his victims ran out.

Burnell caused victim-investors to distribute at least $5,672,380 to him, according to court documents.

As victims began to raise concerns to him about a lack of repayment and defaults, Burnell claimed that his money had been tied up in a trust fund and his remaining assets had been seized by federal authorities. He then cheated some of the victims out of additional funds by falsely claiming he needed loans to pay for his then-wife's cancer treatment, a child custody dispute with his father-in-law, and other personal expenses.

To alleviate victims' concerns, Burnell showed many victims a fabricated Wells Fargo bank statement that said he had more than $150 million in his account that he would use to pay back victims once his funds were no longer tied up. In truth, Burnell had less than $6,500 in that account.

Burnell did not report any of the money he received from victims in 2011 or 2012 on his personal income tax returns that he filed jointly with his then-wife. Instead, Burnell only reported income from gambling winnings in 2011 and 2012 - estimated to be more than $1 million - all of which was purportedly offset by gambling losses.
In a Complaint filed in the United States District Court for the Eastern District of New York, Idris Dayo Mustapha was charged with computer intrusion, securities fraud, money laundering, bank fraud and wire fraud, among other offenses. As alleged in part in the DOJ Release:

[S]tarting in 2011, Mustapha and his co-conspirators engaged in a long-running scheme to steal money through a variety of computer intrusions and frauds.

In one part of the scheme, Mustapha and his co-conspirators allegedly obtained login information for victims' securities brokerage accounts through various methods.  The conspirators then used their access to those accounts to steal money and conduct trades to their own benefit.  Initially, conspirators accessed the victims' brokerage accounts and transferred money from those accounts to other accounts under their control.  After financial institutions began to block those unauthorized transfers, Mustapha and his co-conspirators accessed other victims' brokerage accounts and placed unauthorized stock trades within those accounts while simultaneously trading profitably in the same stocks from accounts that they controlled.  For example, on or about April 16, 2016, Mustapha and a co-conspirator exchanged electronic chat messages in discussing this unauthorized trading.  During the exchange, Mustapha's co-conspirator announced access to the computers of a brokerage firm and questioned whether to engage in unauthorized trading or simply to wire money out of the brokerage account.  Mustapha wrote back: "better to go trade up and down and [] not direct fraud wire." Additionally, as part of the scheme, Mustapha flew to New York in June 2015 and opened an account at a U.S. financial institution in New Jersey; Mustapha and his co-conspirators later transferred approximately $104,000 from a brokerage account used to conduct unauthorized trading to Mustapha's U.S. bank account.

In another part of the scheme, Mustapha and his co-conspirators allegedly obtained login information for victims' email accounts and accessed those accounts without authorization to obtain financial and personal identifying information about their victims.  The conspirators then contacted the victims' financial institutions-by phone and by email messages -- requesting that the victims' financial institutions wire money from the victims to overseas bank accounts that the conspirators controlled.  For example, in May 2013, Mustapha and his co-conspirators obtained $50,000 from an investment account that belonged to U.S. victims, and Mustapha directed the transfer of those funds to a series of bank accounts controlled by the conspirators.  In April 2013, Mustapha and his co-conspirators attempted to defraud a victim located in the Eastern District of New York by obtaining control over the victims' email account and using it to send written instructions-which falsely appeared to have been signed by the victim-to transfer $225,000 from one of the victim's accounts, but the victim's financial institution rejected the transfer request. 

As a result of these schemes, Mustapha and his co-conspirators realized financial gains while causing losses of more than $5 million to financial institutions, including brokerage firms.
Florin Vaduva pled guilty in the United States District Court for the District of Maryland to conspiracy to commit bank fraud and wire fraud; and he was ordered to pay at least $1,085,151.42 in restitution.  As alleged in part in the DOJ Release:

[F]rom June 2018 to January 2021, Vaduva, Mateus Vaduva, Nicole Gindac, Daniel Velcu, Marian Unguru, Vali Unguru, and others conspired to steal checks from the U.S. mail intended for religious institutions and deposit the illegally obtained funds into multiple fraudulent bank accounts at various victim financial institutions.  Conspirators, including Vaduva, conducted the thefts by driving to roadside mailboxes of churches and other religious institutions and removing the mail, specifically targeting donation checks.

As part of the scheme to defraud, Vaduva and other co-conspirators fraudulently opened bank accounts at victim financial institutions under false identities.  Conspiracy members often opened fictitious bank accounts with the aid of a conspiracy member that was an employee at one of the victim financial institutions. 

Vaduva and his co-conspirators fraudulently negotiated the stolen checks at the victim financial institutions by depositing the stolen checks into bank accounts by means of ATM transactions.  Subsequently, Vanduva and his co-conspirators withdrew money from the fraudulently opened bank accounts and spent the proceeds using debit cards.

For example, from January 2020 to May 2020, Vaduva deposited or participated in the deposit of at least 49 stolen checks totaling at least $27,508.84 from churches located in Delaware, Florida, Georgia, Indiana, Kentucky, Maryland, North Carolina, South Carolina, and Virginia into five fraudulently opened bank accounts.  The total of stolen checks deposited into those accounts totaled approximately $36,660.91.  Over the course of the conspiracy, conspiracy members received approximately at least $1,085,151.42 from 2,657 stolen checks.  After becoming aware of the investigation, Vaduva fled to the United Kingdom.  He was later apprehended on September 5, 2021 and was extradited to the United States.
After pleading guilty in the United States District Court for the Middle District of Pennsylvania to conspiracy to commit mail and wire fraud, Itcace Abramovici, age 72, was sentenced to 30 months in prison plus one year of supervised release, and ordered to make $461,886.49 in restitution. As alleged in part in the DOJ Release:

[A]bramovici played a leadership role in a Montreal-based telemarketing and money laundering organization that targeted elderly victims in the United States, including those living in central Pennsylvania.  Abramovici and his co-conspirators informed prospective victims that they had won a substantial amount of money in a lottery or sweepstakes and then directed those victims to send money in order to obtain their winnings.  The victims' payments were falsely characterized as taxes, customs fees, processing fees, and legal and insurance fees. None of the victims received any money, and many of their losses were substantial, with more than $460,000 in victim losses being attributed to Abramovici's role in the fraud, and with losses to victims of the broader fraud at more than $1.3 million.  As part of his guilty plea, Abramovici admitted to playing a leadership role in the scheme.  The investigation that led to Abramovici's prosecution identified at least 17 individual victims.

SEC Obtains Final Judgment Against Former California Real Estate Company CFO for Role in Ponzi Scheme (SEC Release)
In a Complaint filed in the United States District Court for the Northern District of California, the SEC charged Manuel A Romero with with violating Section 10(b) of the Securities Exchange Act and Rule 10b-5 thereunder and Section 17(a) of the Securities Act. Without admitting or denying the charges in the SEC Complaint, Romero consented to the court's order that permanently enjoins him from violating these provisions and bars him from serving as officer or director of a public company. Romero also agreed to pay disgorgement of $91,819 with prejudgment interest of $6,655 and a civil penalty of $50,000. As alleged in part in the SEC Release:

[F]rom October 2016 through May 2020, Marin, California resident, Manuel A. Romero falsified financial statements provided to investors and made fraudulent cash transfers as part of a Ponzi scheme operated by Professional Financial Investors, Inc. ("PFI") and its now-deceased founder and former president. The SEC alleged that PFI and related entities raised hundreds of millions of dollars from investors by falsely telling them their money would be used primarily to purchase real property and make improvements to real property owned by PFI and its related entities. Instead, according to the complaint, a substantial portion of investor funds were used to pay previous investors or to cover operating losses. The SEC alleged that Romero played a key role in carrying out the Ponzi scheme by commingling investor funds across the various PFI entities' bank accounts and making distributions to existing investors from new investor funds.
The United States District Court for the Eastern District of Michigan entered a Final Judgment against Steven F. Muntin for defrauding one of his investment advisory clients out of more than $314,000. Without admitting or denying the SEC's allegations, Muntin consented to the entry of a judgment that permanently enjoins him from violating the antifraud provisions of Section 17(a) of the Securities Act, Section 10(b) of the Securities Exchange Act and Rule 10b-5 thereunder, and Sections 206(1) and 206(2) of the Investment Advisers Act of 1940 and orders him to pay disgorgement of $314,799 plus prejudgment interest of $46,121, and a civil penalty of $258,557. As alleged in part in the SEC Release:

[W]hile working for the registered investment adviser, Muntin also managed certain investments for his clients through his own company, Executive Asset Management, Inc., which was previously registered as an investment adviser with the state of Michigan. As alleged in the complaint, between March 2016 and February 2020, Muntin solicited one of his elderly advisory clients to write checks totaling $305,750 to Executive Asset Management for purported investments in securities. However, according to the complaint, Muntin did not invest the client's money in securities, and instead spent it for his own benefit, including paying his mortgage, real estate taxes, health insurance, boat and car loans, and credit card bills. The complaint further alleged that Muntin also overcharged the client at least $9,000 in assets under management fees.

SEC Obtains Final Judgment Against Pharmaceutical Company Founder Charged with Insider Trading (SEC Release)
The United States District Court for the Southern District of New York entered a Final Consent Judgment against Sepehr Sarshar (a founder and former board member of Auspex Pharmaceuticals, Inc.) who was charged with insider trading ahead of a tender offer The Judgment permanently enjoins Sarshar from violating Section 14(e) of the Securities Exchange Act of 1934 and Rule 14e-3 thereunder, and orders him to pay a civil penalty in the amount of $56,222. As alleged in part in the SEC Release:

[S]arshar communicated material nonpublic information to his friends and family and/or caused them to trade prior to the March 2015 public announcement that Teva Pharmaceutical Industries Ltd. had commenced a tender offer to acquire Auspex. The complaint alleges that in February and March of 2015, Sarshar learned through his position on Auspex's board of directors that Teva and other pharmaceutical companies were interested in acquiring Auspex, and that Auspex's board and management were taking active steps to facilitate a sale of the company. According to the complaint, Sarshar communicated material nonpublic information regarding the highly confidential tender offer process to numerous friends and family, and caused them to trade in Auspex stock ahead of the tender offer announcement, at the expense of other Auspex shareholders.

In a Complaint filed in the United States District Court for the Central District of California, the SEC charged TKO Farms, Inc., Agravitae, Inc., Kenneth Dewayne Owen, Reynaldo Aguilar, James Brian Blaylock, Ross Gregory Erskine, and the Estate of Gilbert Allan Penhollow with violations of the registration provisions of Section 5 of the Securities Act and the broker-dealer registration provisions of Section 15(a)(1) of the Securities Exchange Act. Additionally, TKO Farms, Agravitae, and Owen were further charged with violating the antifraud provisions of Section 17(a) of the Securities Act, Section 10(b) of the Exchange Act, and Rule 10b-5 thereunder. As alleged in part in the SEC Release:

[B]etween May 2017 and March 2021, TKO Farms and Agravitae raised nearly $20 million from investors through offerings of their securities. The SEC alleges that Owen, who had a history of criminal convictions, regulatory actions, government liens, and a bankruptcy, possessed undisclosed de facto control over both companies and, acting on the two companies' behalf, directly or indirectly recruited and engaged Aguilar, Blaylock, Erskine, and Penhollow, none of whom were registered as a broker or dealer, to solicit investors for the securities offerings. As further alleged, defendants TKO Farms, Agravitae, and Owen misrepresented Owen's history and control over the two companies and the use of investor funds.
In a Complaint filed in the United States District Court for the Eastern District of California, the CFTC charged Eshaq M. Nawabi, Nawabi Enterprises, and Hyperion Consulting Inc. with fraud and misappropriation related to an off-exchange foreign currency (forex) trading scheme in which they solicited funds totaling at least $543,000 from at least seven investors. The Court entered a Statutory Restraining Order against the defendants, freezing their assets and permitting the CFTC immediate access to their books and records. In addition, the court scheduled a Preliminary Injunction hearing for May 11, 2022.  As alleged in part in the CFTC Release:

According to the complaint, from approximately October 2019 through the present, the defendants solicited and pooled hundreds of thousands of dollars from at least seven pool participants for the purported purpose of trading forex. To persuade the pool participants to send them money, the defendants made fraudulent and material misrepresentations and omissions including they had historically made large profits, between 8 to 25% per month, for themselves and pool participants from trading forex; (2) pool participants would realize profits of 8 to 25% per month on their funds with minimal risk; (3) the defendants would trade forex with the funds the pool participants deposited; and (4) upon request, pool participants could withdraw their funds at any time. 

Instead of trading pool participant funds as promised, the defendants misappropriated their money for Nawabi's own personal benefit as well as to pay other pool participants in a Ponzi-like scheme. To conceal their misappropriation, the defendants created and issued false account statements that misrepresented trading returns purportedly earned by pool participants. When pool participants requested return of their funds, the defendants either ignored their requests, provided bogus promises and excuses, or engaged in conduct designed to delay payouts to Pool Participants for as long as possible.
For the purpose of proposing a settlement of rule violations alleged by the Financial Industry Regulatory Authority ("FINRA"), without admitting or denying the findings, prior to a regulatory hearing, and without an adjudication of any issue, Erin Bridget Settle submitted a Letter of Acceptance, Waiver and Consent ("AWC"), which FINRA accepted. The AWC asserts that Erin Bridget Settle was first registered in 2018 with GWFS Equities, Inc. In accordance with the terms of the AWC, FINRA imposed upon Settle a $5,000 deferred fine and an 18-month suspension from associating with any FINRA member in all capacities. As alleged in part in the AWC:

On March 17, 2021, Settle took the Series 66 Investment Advisor examination. Prior to the examination, Settle attested that she had read and would abide by the FINRA Qualification Examinations Rules of Conduct, which among other things, prohibits the use or attempted use of "personal notes and study materials" during the examination. The Rules of Conduct also require candidates to "store all personal items in the locker provided by the test vendor prior to entering the test room." Prior to starting the examination, Settle placed her personal notes and study materials in the restroom instead of the locker. During an approximately ten-minute unscheduled break, Settle went to the restroom where she had access to and possessed the personal notes and study materials she had placed there. These materials contained exam-related content. Therefore, Settle violated FINRA Rules 1210.05 and 2010.
Your broker-dealer just fired you. You're angry because they sandbagged you and it was a set-up, or so you say. All of which prompts you to dial a lawyer, pay a hefty retainer, and, maybe in a year (if you're lucky), you'll find yourself before a FINRA Arbitration Panel asking for damages for "wrongful termination." Your former employer says that you and your lawyer are morons because you're a terminable-at-will employee, and, duh, you can't wrongfully terminate someone who's an at-will employee. In response, your lawyer points out to the FINRA arbitrators that we're all sitting in an arbitration hearing room because the former employee was forced by the former employer and industry rules to arbitrate his employment disputes: There's nothing at-will about any employment subject to mandatory arbitration. Read today's blog to see how such a case fared.