Securities Industry Commentator by Bill Singer Esq

94 Days And Counting For FINRA's Independent Review Of Its Arbitration Selection Process  (BrokeAndBroker.com Blog)

Stephen A. Kohn Announces 2022 Run for Small Firm Governor on FINRA Board of Governors

SEC Halts Alleged Ongoing $39 Million Fraud by Hedge Fund Adviser (SEC Release)

SEC Charges RiverSource Distributors with Improper Switching of Variable Annuities (SEC Release)

The Nasdaq Stock Market LLC, et al., Petitioners, v. Securities and Exchange Commission, Respondent (Opinion, DCCir / March 24, 2022)

Glencore Entered Guilty Pleas to Foreign Bribery and Market Manipulation Schemes / Swiss-Based Firm Agrees to Pay Over $1.1 Billion (DOJ Release)

CFTC Orders Glencore to Pay $1.186 Billion for Manipulation and Corruption (CFTC Release)

Former Chief Executive Officer of Publicly Traded Company Pleads Guilty to Conspiracy to Commit Securities Fraud / Defendant Made Millions in Pump-and-Dump Scheme Involving Company Stock and Induced Elderly Victims to Invest (DOJ Release)

South Bend Man Sentenced to 121 Months in Prison And Ordered To Pay $1,938,193.15 in Restitution (DOJ Release)

Rockland County Man Sentenced To 7 Years For Ponzi-Like Securities Fraud Scheme Targeting Local Haitian Community (DOJ Release)

Former Art Dealer Sentenced To 7 Years For $86 Million Fraud Scheme (DOJ Release)

SEC Charges BNY Mellon Investment Adviser for Misstatements and Omissions Concerning ESG Considerations (SEC Release)

FINRA Fines and Suspends Rep for Falsifying Customer's Signature

In the Matter of Marcella Luz Cofre, Respondent (FINRA AWC)

FINRA Fines and Suspends Rep for Misrepresentations About Fund Performance

In the Matter of Blakely Page, Respondent (FINRA AWC)

Did You Know That You Could Trade With Imaginary Money at Schwab?

In the Matter of the Arbitration Between Charles Schwab & Co., Inc., Claimant, v. Marcin Dusza, Respondent (FINRA Arbitration Award)

From Stephen A. Kohn, Candidate for 2022 FINRA Small Firm Governor:

THE BULLIES ARE OUT TO GET US . . . And they're doing a good job of it!

I've been in this business for a long, long time; just under four decades. With the exception of a few months at a wire-house, I've always been a small firm guy. And, in all that time, one would think things would change, get better, or at least, stay the same.  But the mantra has NEVER changed, "GET RID OF THE SMALL FIRMS."

And, between the large firms, FINRA and the SEC, the bullies are unrelenting and keep whittling away at our sisters and brothers.

So, where are we? The small firm community is on its death bed.  Biased regulators are trying to engineer us out of existence through overblown rulebooks and biased regulation.  Given that FINRA is a membership organization, one would have hoped for some energetic opposition to the inevitable decline of some of the 90% of FINRA's membership -- look it up, the so-called FINRA Small Firms account for 90%-plus, and dwindling of the total number of member firms.  Where is the voice of the FINRA Board of Governors?  Sadly, it is a whisper if anything at all.  The Board seems beholding to the anti-Small Firm agenda of large firms, FINRA and the SEC.  Almost no Governor appears to have the inclination or the guts to take a stand that offers some relief to the little guys.

I have served you before and now, I need to get back on the Board of Governors, to again be your voice and to finish my work.

I am asking for your petition.  Get me on the ballot in this upcoming BOG election.

I make no promises to change what's been done.

My goal is to stop things from getting worse!

Please click the PandaDoc link below and sign my petition, get me on the ballot and back on the BOG to work for our common survival. 

https://eform.pandadoc.com/?eform=df558958-493a-4ce0-85f4-5e0ed39c1778

Let me be your voice.

Stephen Kohn 

(303) 880-4304  Cell Phone

sakohn7@gmail.com

Stephen Kohn has been employed in the financial services industry since 1984. In 1996, he founded FINRA member firm Stephen A. Kohn & Associates, Ltd. ("SAKL")  On January 2, 2020, he passed ownership of SAKL to DMK Advisor Group, Inc. ("DMK"), still a small, Independent broker/dealer, catering to the needs of forty-one independent representatives and their clients, with office locations in five states, registered in forty-one and Puerto Rico.  

 

Stephen holds Series 7, 24, 53, 63, 72, 73, 79 and 99 registrations. He has the honor of having been elected to the FINRA Board of Governors in 2017, representing the Small Broker/Dealer Community.  He was also twice elected to the National Adjudicatory Council ("NAC") in 2009 and 2014. He serves as an Industry Arbitrator and has been elected to the District 3 Committee. 

 

Stephen graduated from C.W. Post College in 1964 with a BA degree. He has the distinction of having served in the United States Coast Guard.

 

Well known to those in the NASD and now FINRA small-firm community as a passionate and persistent advocate for small broker/dealers, who comprise more than 90% of FINRA membership, Stephen continues to speak out on behalf of his industry constituents and colleagues. He intends to remain active in the FINRA reform movement and urges all like-minded industry participants to reach out to him in full confidence concerning any and all matters.  

[F]rom at least mid-2017 to April 2022, EIA and Middlebrooks deceived investors in their hedge fund, EIA All Weather Alpha Fund I, LP, including by making repeated false statements about the fund's performance and total assets; providing falsified investor account statements; misrepresenting that the fund had an auditor; and creating and disseminating a fake audit opinion to investors. The SEC's complaint also alleges that EIA and Middlebrooks misused new investor money to make Ponzi-like payments to other investors in the fund in order to continue to deceive investors into believing that the fund was profitable. According to the complaint, Middlebrooks also misappropriated investor funds for personal use, including for jewelry and credit card payments.

[R]iverSource offered and sold variable annuities to retail investors through an affiliated broker-dealer/investment adviser, Ameriprise Financial Services, LLC. The order finds that certain employees of RiverSource developed and implemented a sales practice that caused exchange offers to be made to holders of variable annuities to switch from one variable annuity to another which had the effect of increasing sales commissions for RiverSource employees, while also increasing RiverSource's variable annuity related revenues. According to the order, these types of transactions increased significantly from 2016 until 2018 when RiverSource's compliance department put a stop to the sales practice abuses.

ROGERS, Circuit Judge: In 2020, the Securities and Exchange Commission revised its decades-old regulation concerning securities market data, which had become largely obsolete in the face of transformative technological advances. Petitioners, securities exchanges that also develop and sell proprietary securities market data products using the data generated by trades on their respective platforms, challenged the new Market Data Infrastructure Rule as arbitrary and capricious and contrary to the goals and policies of the Securities Exchange Act. The Rule, however, clearly represents a reasonable balancing of the objectives Congress directed the Commission to address in a complex and technical area based on the record before the Commission. Accordingly, the court denies the petitions. 

The FCPA Case

According to admissions and court documents filed in the Southern District of New York, Glencore, acting through its employees and agents, engaged in a scheme for over a decade to pay more than $100 million to third-party intermediaries, while intending that a significant portion of these payments would be used to pay bribes to officials in Nigeria, Cameroon, Ivory Coast, Equatorial Guinea, Brazil, Venezuela, and the Democratic Republic of the Congo (DRC).

Between approximately 2007 and 2018, Glencore and its subsidiaries caused approximately $79.6 million in payments to be made to intermediary companies in order to secure improper advantages to obtain and retain business with state-owned and state-controlled entities in the West African countries of Nigeria, Cameroon, Ivory Coast, and Equatorial Guinea. Glencore concealed the bribe payments by entering into sham consulting agreements, paying inflated invoices, and using intermediary companies to make corrupt payments to foreign officials. For example, in Nigeria, Glencore and Glencore's U.K. subsidiaries entered into multiple agreements to purchase crude oil and refined petroleum products from Nigeria's state-owned and state-controlled oil company. Glencore and its subsidiaries engaged two intermediaries to pursue business opportunities and other improper business advantages, including the award of crude oil contracts, while knowing that the intermediaries would make bribe payments to Nigerian government officials to obtain such business. In Nigeria alone, Glencore and its subsidiaries paid more than $52 million to the intermediaries, intending that those funds be used, at least in part, to pay bribes to Nigerian officials.

In the DRC, Glencore admitted that it conspired to and did corruptly offer and pay approximately $27.5 million to third parties, while intending for a portion of the payments to be used as bribes to DRC officials, in order to secure improper business advantages. Glencore also admitted to the bribery of officials in Brazil and Venezuela. In Brazil, the company caused approximately $147,202 to be used, at least in part, as corrupt payments for Brazilian officials. In Venezuela, Glencore admitted to conspiring to secure and securing improper business advantages by paying over $1.2 million to an intermediary company that made corrupt payments for the benefit of a Venezuelan official.

In July 2021, a former senior trader in charge of Glencore's West Africa desk for the crude oil business pleaded guilty to one count of conspiracy to violate the FCPA and one count of conspiracy to commit money laundering.

Under the terms of the plea agreement, which remains subject to court approval, Glencore pleaded guilty to one count of conspiracy to violate the FCPA, agreed to a criminal fine of $428,521,173, and agreed to criminal forfeiture and disgorgement in the amount of $272,185,792. Glencore also had charges brought against it by the U.K.'s Serious Fraud Office (SFO) and reached separate parallel resolutions with the Brazilian Ministério Público Federal (MPF) and the CFTC. Under the terms of the plea agreement, the department has agreed to credit nearly $256 million in payments that the company makes to the CFTC, to the court in the U.K., as well as to authorities in Switzerland, in the event that the company reaches a resolution with Swiss authorities within one year.

The department reached its agreement with Glencore based on a number of factors, including the nature, seriousness, and pervasiveness of the offense conduct, which spanned over a 10-year period, in numerous countries, and involved high-level employees and agents of the company; the company's failure to voluntarily and timely disclose the conduct to the department; the state of Glencore's compliance program and the progress of its remediation; the company's resolutions with other domestic and foreign authorities; and the company's continued cooperation with the department's ongoing investigation. Glencore did not receive full credit for cooperation and remediation, because it did not consistently demonstrate a commitment to full cooperation, it was delayed in producing relevant evidence, and it did not timely and appropriately remediate with respect to disciplining certain employees involved in the misconduct. Although Glencore has taken remedial measures, some of the compliance enhancements are new and have not been fully implemented or tested to demonstrate that they would prevent and detect similar misconduct in the future, necessitating the imposition of an independent compliance monitor for a term of three years.

The Commodity Price Manipulation Case

According to admissions and court documents filed in the District of Connecticut, Glencore Ltd. operated a global commodity trading business, which included trading in fuel oil. Between approximately January 2011 and August 2019, Glencore Ltd. employees (including those who worked at Chemoil Corporation, which was majority-owned by Glencore Ltd.'s parent company and then fully-acquired in 2014) conspired to manipulate two benchmark price assessments published by S&P Global Platts (Platts) for fuel oil products, specifically, intermediate fuel oil 380 CST at the Port of Los Angeles (Los Angeles 380 CST Bunker Fuel) and RMG 380 fuel oil at the Port of Houston (U.S. Gulf Coast High-Sulfur Fuel Oil). The Port of Los Angeles is the busiest shipping port in the U.S. by container volume. The Port of Houston is the largest U.S. port on the Gulf Coast and the busiest port in the United States by foreign waterborne tonnage.

As part of the conspiracy, Glencore Ltd. employees sought to unlawfully enrich themselves and Glencore Ltd. itself, by increasing profits and reducing costs on contracts to buy and sell physical fuel oil, as well as certain derivative positions that Glencore Ltd. held. The price terms of the physical contracts and derivative positions were set by reference to daily benchmark price assessments published by Platts - either Los Angeles 380 CST Bunker Fuel or U.S. Gulf Coast High-Sulfur Fuel Oil - on a certain day or days plus or minus a fixed premium. On these pricing days, Glencore Ltd. employees submitted orders to buy and sell (bids and offers) to Platts during the daily trading "window" for the Platts price assessments with the intent to artificially push the price assessment up or down.

For example, if Glencore Ltd. had a contract to buy fuel oil, Glencore Ltd. employees submitted offers during the Platts "window" for the express purpose of pushing down the price assessment and hence the price of the fuel oil that Glencore Ltd. purchased. The bids and offers were not submitted to Platts for any legitimate economic reason by Glencore Ltd. employees, but rather for the purpose of artificially affecting the relevant Platts price assessment so that the benchmark price, and hence the price of fuel oil that Glencore Ltd. bought from, and sold to, another party, did not reflect legitimate forces of supply and demand.

Between approximately September 2012 and August 2016, Glencore Ltd. employees conspired to and did manipulate the price of fuel oil bought from, and sold to, a particular counterparty, Company A, through private, bilateral contracts, by manipulating the Platts price assessment for Los Angeles 380 CST Bunker Fuel. Between approximately January 2014 and February 2016, Glencore Ltd. employees also undertook a "joint venture" with Company A, which involved buying fuel oil from Company A at prices artificially depressed by Glencore Ltd.'s manipulation of the Platts Los Angeles 380 CST Bunker Fuel benchmark. Finally, between approximately January 2011 and August 2019, Glencore Ltd. employees conspired to and did manipulate the price of fuel oil bought and sold through private, bilateral contracts, as well as derivative positions, by manipulating the Platts price assessment for U.S. Gulf Coast High-Sulfur Fuel Oil.

A former Glencore Ltd. senior fuel oil trader, Emilio Jose Heredia Collado, of Lafayette, California, pleaded guilty in March 2021 to one count of conspiracy to engage in commodities price manipulation in connection with his trading activity related to the Platts Los Angeles 380 CST Bunker Fuel price assessment. Heredia's sentencing is scheduled for June 17, 2022.

Glencore Ltd. pleaded guilty, pursuant to a plea agreement, to one count of conspiracy to engage in commodity price manipulation. Under the terms of Glencore Ltd.'s plea agreement regarding the commodity price manipulation conspiracy, which remains subject to court approval, Glencore Ltd. will pay a criminal fine of $341,221,682 and criminal forfeiture of $144,417,203. Under the terms of the plea agreement, the department will credit over $242 million in payments that the company makes to the CFTC. Glencore Ltd. also agreed to, among other things, continue to cooperate with the department in any ongoing investigations and prosecutions relating to the underlying misconduct, to modify its compliance program where necessary and appropriate, and to retain an independent compliance monitor for a period of three years.

A number of relevant considerations contributed to the department's plea agreement with Glencore Ltd., including the nature and seriousness of the offense, Glencore Ltd.'s failure to fully and voluntarily self‑disclose the offense conduct to the department, Glencore Ltd.'s cooperation with the department's investigation, and the state of Glencore Ltd.'s compliance program and the progress of its remediation.

The order finds that from as early as 2007 through at least 2018, Glencore sought to increase profits from its physical and derivatives oil products trading by manipulating or attempting to manipulate U.S. price-assessment benchmarks relating to physical fuel oil products, and related futures and swaps, in order to benefit Glencore's trading positions. As stated in the order, Glencore personnel engaged in this conduct with the specific intent to manipulate the price of fuel oil products in interstate commerce and to create artificial prices, and could and at times did create artificial prices. Glencore engaged in this scheme on hundreds of days in order to manipulate Platts price assessments connected to four fuel oil products, and associated derivatives, in three different United States geographic markets. 

The order further finds that Glencore's conduct also involved fraud and corrupt payments (e.g., bribes and kickbacks) to employees and agents of certain state-owned entities (SOEs), including in Brazil, Cameroon, Nigeria, and Venezuela, and misappropriation of confidential information from employees and agents of certain SOEs, including in Mexico. Glencore or its affiliates made the corrupt payments in exchange for improper preferential treatment and access to trades with the SOEs. Glencore's conduct was intended to and did secure unlawful competitive advantages in trading physical oil products and related derivatives to the detriment of its counterparties and market participants.

As reflected in the order, Glencore's unlawful conduct involved traders and other personnel throughout its oil trading group, including senior traders, desk heads, and supervisors up to and including the global head of the oil group, and resulted in hundreds of millions of dollars in improper gains.

[B]etween May 2013 and June 2016, the defendant and others engaged in a multi-million dollar scheme to defraud investors and potential investors in FCHS by artificially controlling the price and volume of traded shares in FCHS through, among other things:

• artificially generating price movements and trading volume in the shares, and
• material misrepresentations and omissions in their communications with victim investors about FCHS stock, relating to, among other things, the advisability of purchasing such stock.

To execute this scheme, the defendant and others fraudulently concealed their control of shares of FCHS stock that were held in brokerage accounts in the names of other individuals or entities.

[M]arshall practiced law as an attorney in South Bend in the area of wills, trusts, estates, and other elder law matters. He also provided financial accounting services and sold investment securities. From approximately 2003 until its collapse in December 2017, Marshall's investment business, Trust & Investment Advisory Services of Indiana, Inc., defrauded investors by paying their supposed investment returns with other investors' money. He also used investors' money for his personal expenses. Marshall stole more than $730,000 from 16 different investors over the course of his scheme. Many of Marshall's victims invested their entire life savings and suffered substantial financial hardship after they lost their money.

In addition to defrauding investors, Marshall also embezzled more than $1.3 million from seven clients who had hired Marshall to prepare their wills and estates. Marshall did not distribute the victims' money according to their directives, but instead, used the estates' money for his own personal and business expenses.  The beneficiaries of these wills never received the money the victims wanted to leave them. These beneficiaries included numerous local churches, schools, religious communities, and charitable organizations.

Investment Promissory Fraud

From at least November 2016 through October 2019, PIERRE solicited money from investors in Ruless Pierre Consulting Group ("RPCG") by falsely promising them that he would earn a 20% return on their initial investment every 60 days through stock trading (the "Promissory Note Fraud").  The investments were written down in documents known as "Investment Promissory Notes."  These investment contracts generally promised that the investor would be paid 20% interest every 60 days and that the investor could withdraw all funds from the investment with 30 days' notice.  Based on these documents and the false representations of PIERRE, the investors understood that their principal and interest were guaranteed.  

During the course of the investment fraud scheme, PIERRE fraudulently obtained over $2 million from approximately 100 investors.  After receiving money from investors, PIERRE deposited the money into one of his personal bank accounts or bank accounts of RPCG.  PIERRE then transferred the money to trading accounts, where he engaged in unprofitable day trading.  Despite his trading losses, PIERRE repeatedly and falsely represented to investors, including in investment statements containing fictitious balances, that the trading was profitable and that their investments were growing as promised.  In addition to losing their money, PIERRE also used investors' funds to pay for personal expenses, including luxury vehicles.  Additionally, PIERRE further concealed the truth from investors by using money obtained from new investors to make redemption payments to previous investors, in Ponzi-like fashion.

The Franchise Investment Fraud

Beginning in or about November 2018, PIERRE began to offer investors, including some individuals who invested in his Promissory Note Fraud, the opportunity to purchase partnership interests in a partnership that would run three fast-food franchise locations (hereinafter, the "Franchise Investment Fraud").   At the time, PIERRE did not own any of the fast-food franchises, but he was in discussions regarding purchasing them.  Each investment was memorialized in a document entitled "Silent Partnership Agreement." 

The Silent Partnership Agreements promised the investors a 5% monthly return on the investment, in addition to a 40% pro rata share of the quarterly gross operating profit.  The minimum investment was $5,000. 

The Silent Partnership Agreements further provided that PIERRE was the General Partner, and that he was responsible "for the complete management, control, and policies related to the operation and conduct of the business."

PIERRE received financial statements for the franchise locations, which showed minimal profits.  Nonetheless, PIERRE promised investors an unrealistic 5% monthly return on their investment.

In or about April 2019, PIERRE purchased one fast food franchise for approximately $50,000.  Pierre did not purchase the other franchises.

PIERRE deposited the fast-food franchise investors' money in various bank accounts, which commingled the funds from the Franchise Investment Fraud with the Promissory Note Fraud.  In Ponzi-like fashion, PIERRE fraudulently misappropriated some of the fast-food franchise investors' money to pay back investors in the Promissory Note Fraud.

In total, PIERRE raised at least $200,000 by selling the Silent Partnership Agreements to at least 18 investors.  Some of the investors were paid their five percent monthly distribution, but the vast majority of the investors were not been made whole.  The fast-food franchise went out of business in December 2019.

The Embezzlement Fraud Scheme and Structuring

In the another scheme, PIERRE embezzled money from his former employers.  From approximately 2007 until February 2016, PIERRE was the director of finance for two different hotels, which were owned by the same company ("Company-1").  One hotel was located in the Palisades, New York ("Hotel-1"), while the other was located in Armonk, New York ("Hotel-2") (collectively, "the Hotels").   As the director of finance, PIERRE was the signatory on several bank accounts held in the name of the management companies that managed the Hotels ("Management Companies"). 

After August 2018, PIERRE no longer worked at either Hotel-1 or Hotel-2, but he regularly wrote himself checks payable to cash from the Management Companies' bank accounts.  Specifically, from September 2018 through March 2019, PIERRE wrote over 70 checks to "cash" or "petty cash" from one of the bank accounts for Hotel-1, for over $300,000.

In addition, from March 2017 through 2019, PIERRE deposited large amounts of cash into his personal bank accounts in amounts that were generally less than $10,000.  The deposits were conducted at various bank locations and typically took place on the same day, consecutive days, or within a short period of time.  For example, in just seven months, from June 2018 through December 2018, PIERRE deposited approximately $225,612, through 138 cash deposits all under $10,000, into a bank account in the name of RPCG.

From approximately 2016 through 2019, to finance his art business, PHILBRICK engaged in a scheme to defraud multiple individuals and entities in the art market located in the New York metropolitan area and abroad.  PHILBRICK made material misrepresentations and omissions to art collectors, investors, and lenders to access valuable art and obtain sales proceeds, funding, and loans (the "Fraud Scheme").  PHILBRICK knowingly misrepresented the ownership of certain artworks, for example, by selling a total of more than 100 percent ownership in an artwork to multiple individuals and entities without their knowledge; and by selling artworks and/or using artworks as collateral on loans without the knowledge of co-owners, and without disclosing the ownership interests of third parties to buyers and lenders. PHILBRICK furnished fraudulent contracts and records to investors to artificially inflate the artworks' value and conceal his scheme, including a contract that listed a stolen identity as the seller.

Over the years, PHILBRICK obtained over $86 million in loans and sale proceeds in connection with the Fraud Scheme.  Artworks about which PHILBRICK made these fraudulent misrepresentations in furtherance of the Fraud Scheme include, among others, a 1982 painting by the artist Jean-Michel Basquiat titled "Humidity," a 2010 untitled painting by the artist Christopher Wool, and an untitled 2012 painting by the artist Rudolf Stingel depicting the artist Pablo Picasso.  

By in or about the fall of 2019, PHILBRICK's Fraud Scheme began to come to light as various investors and lenders learned about the fraudulent records PHILBRICK had provided and the material misrepresentations and omissions he had made.  By in or about mid-October, a lender officially notified PHILBRICK that he was in default of approximately a $14 million loan, and by November 2019, various investors had filed civil lawsuits in multiple jurisdictions regarding PHILBRICK's Fraud Scheme in connection with various artworks.  At around the same time, PHILBRICK's art galleries in Miami and London closed, and PHILBRICK stopped responding to legal process.  PHILBRICK fled the United States shortly before public reporting began about the lawsuits.  A fugitive, PHILBRICK resided in Vanuatu from approximately October 2019 until he was arrested there on June 11, 2020, in connection with this case.   

• Securities Industry Commentator
• Bill Singer