Securities Industry Commentator by Bill Singer Esq

Let's Go to the Video: SEC Gamifies Wall Street Regulation During Pandemic And Economic Crisis (BrokeAndBroker.com Blog)

Three Charged with Conspiracy to Defraud Five People of $3.25 Million in Investment Fraud Scheme (DOJ Release)

Man Who Ran $1.4 Million Ponzi Scheme from Prison Sentenced to 8 More Years (DOJ Release)

Tulsa Man Sentenced for Defrauding Investor and Banks of Millions (DOJ Release)

Houston area unlicensed cryptocurrency business results in conviction (DOJ Release)

Jury finds Canal Winchester man guilty on all counts in romance scam money laundering conspiracy (DOJ Release)

CFTC Charges Gemini Trust Company for Making Material False or Misleading Statements and Omissions to the Commission (CFTC Release)

SEC Charges Louisiana Town and Former Mayor with Fraud in Two Municipal Bond Deals / Town's Municipal Advisor and its Owner also charged (SEC Release)

SEC Obtains Final Judgment Against Tech Employee Charged with Insider Trading (SEC Release)

SEC Charges New York Grocery Supermarket Chain and CEO for Financial Fraud (SEC Release)

SEC Obtains Final Judgments Against IIIinois Company and Its President for Affinity Fraud Targeting Christian Investors (SEC Release)

FINRA Appoints Michael Solomon Senior Vice President of Examinations (FINRA Release)

FINRA Orders Merrill Lynch, Pierce, Fenner & Smith, Inc. to Pay $15.2 Million in Restitution (FINRA Release)

FINRA Censures and Fines Suntrust Robinson Humphrey, Inc. n/k/a Truist Securities, Inc. Overstated Trading Volume 

In the Matter of SunTrust Robinson Humphrey, Inc. (n/k/a Truist Securities, Inc.), Respondent (FINRA AWC)

FINRA Fines and Suspends Former National Securities Corp's CEO for Flipper Penalty Bid

In the Matter of David Charles Levine, Respondent (FINRA AWC)

FINRA Fines and Suspends Rep for Tax Liability of Variable Annuities Withdrawals

In the Matter of Philip Norris Smith, Respondent (FINRA AWC)

FINRA Fines and Suspends Rep for Tax Liability of Variable Annuities Withdrawals

In the Matter of Camille Cordova, Respondent (FINRA AWC)

During 2017, the conspirators advertised an investment opportunity in Standby Letters of Credit (SBLC), which are essentially a guaranty of payment by a bank or financial institution. The investments were offered through Hampton's company, 5 Star Investments LLC. Kuzma handled inquiries from potential investors, and forwarded investment contracts via email to potential investors. The contracts were deliberately vague and confusing, and contained false and fraudulent statements, including promising "guaranteed" returns which were unrealistic and which no investor had achieved, and promising to return the investor's monies if the SBLC's were not created. Davis was identified as the "asset manager," and investors were instructed to wire their investment monies to a bank account in the name of Davis' company, Jet Exclusive Aviation LLC.

From from March through May 2017, five investors entered into contracts with Hampton, Kuzma and Davis, and wired approximately $3.25 million to Davis' account. The defendants did not invest the monies as promised, but rather converted them for their own use. Within days of the first victim's "investment" money going into Davis' account, Davis began transferring money to his other bank accounts, and also to an account held in Hampton's relative's name. Hampton thereafter transferred some of the proceeds to Kuzma. In response to complaints by the victims, the defendants continued to falsely assure the victims that the investments were moving forward, and later that the victims would get their monies back. That did not happen. Instead, Hampton, Kuzma and Davis spent the victims' money on personal expenses, cars, and travel, and also transferred money to other bank accounts controlled by themselves or their family members.

[I]n September 2017, Mr. Carroll - already 36 months into a 70-month sentence for a prior fraud conviction - lied to investors about his intention to secure funding for their ventures and invest their funds into legitimate investment ventures.

He admitted that he pitched investors on bridge loans, short term loans used to buy assets or cover obligations until longer-term financing is found, promising 40 to 50 percent rates of return in just one to three months.  He claimed that each bridge loan was backed by a bank and therefore guaranteed.

He concealed the fact that he was a convicted felon, and if asked about it, claimed he had been falsely accused and had the charges dismissed.

Instead of actually investing the money, however, he set up a Ponzi scheme, secretly using new investor funds to make payments to older investors. This gave them the false impression that their "investments" were yielding profits, thereby lulling them into a false sense of security and encouraging them to make more fraudulent investments.  

He used excess money from his scheme to fund his lavish lifestyle, which included for a private jet service, luxury vehicles, high-end dining, and suites at NFL games.

He preyed on more than two dozen victims and fraudulently obtained at least $1.4 million, inducing multiple fraudulent transfers from investor accounts into accounts associated with his businesses, MCC Holdings, SLJ Holdings, and STR America Holdings.

Mr. Carroll is currently incarcerated at the federal correctional institution in Seagoville, TX.

[M]ulder misrepresented himself as worth millions to friends. Mulder told several individuals that a wealthy Missouri widow had left him over $100 million in a blind trust in appreciation for his services as an insurance salesman for the widow. In another story, he said he was the beneficiary of a different blind trust worth hundreds of millions of dollars from his father. Mulder convinced his friends that if they pooled their investments with his fortune, they could grow their money faster. The government asserted there were no investments made by Mulder on their behalf but instead, Mulder deposited checks into his personal bank accounts and used the funds to pay off credit card debts and to run a coffee shop chain.

To cover his tracks, Mulder created a web of convoluted rules and restrictions to keep the victims from seeing the progress of their investments. He also moved money between more than 60 bank accounts to make it difficult for the investors and law enforcement to follow the trail of money.

In his plea agreement, Mulder specifically admitted that beginning in 2000 and continuing through 2017, he received numerous checks totaling approximately $4.5 million from the investor, who was a local businessman and friend to Mulder. Mulder advised the victim to create a trust for his special needs son for which Mulder would be the trustee and have complete discretion and control. Mulder told the victim that he would prudently invest the funds on the son's behalf. Instead, Mulder used the funds for his own personal expenses and to enrich himself.

Mulder also admitted that in December 2015, he fraudulently received a check from the victim in the amount of $142,500 and deposited funds from the check in the amount of $83,378.54 into his personal account, which he later used on a personal investment in generators in Missouri.

Further, Mulder admitted that he lied about his assets and submitted fabricated documents to obtain loans from Oklahoma banks in order to support a lifestyle he couldn't afford on his own.

Prosecutors contended that Mulder applied for and received loans worth millions of dollars from five banks. From 2004 to 2014, Mulder obtained the loans by pledging phony collateral that included fictitious life insurance policies supposedly issued by Merrill Lynch that appeared to insure Mulder and his family members. Mulder used the same phony policy numbers with every new bank he swindled, adding new phony policies as he went. To secure each loan, he provided the banks with the same types of fabricated records and documents. On some of the documents, Mulder forged the signature of a former Merrill Lynch colleague. Mulder was able to pay off three of the banks by obtaining new loans from other banks. Ultimately, two banks- Firstbank and BancFirst- suffered about $3.9 million in losses.

Prosecutors asserted that Mulder further tried to impede the federal investigation into his criminal conduct by fabricating a story blaming one of his bankers for creating the fictitious life insurance policies in Mulder's and his family members' names. Agents debunked the claim based on the evidence that Mulder began his scheme long before he ever met the accused banker.

Vo used Paxful and LocalBitcoins to buy and sell Bitcoin - websites where people can buy and sell cryptocurrencies. He profited from sales by collecting a percentage of the transactions which ranged from 5-30%. During the transactions, Vo did not ask clients for any form of identification nor the purpose for which they were purchasing the cryptocurrency.

Vo received funds in the form of cash, direct bank deposits, American Express credit cards as well as Amazon and generic gift cards. He used several bank accounts to conduct his business, but the banks shut down the accounts after inquiring about the origination of the funds.

During the course of three months, the unlicensed money transmitting business received and transmitted approximately $515,147.19 in Bitcoin.

The perpetrators of the romance scams created several profiles on online dating sites and then contacted men and women throughout the United States and elsewhere. The scammers cultivated a sense of affection and, often, romance, with the victims they met online before requesting money for investment or need-based reasons. The romance scam perpetrators then provided victims with bank account information where the money should be sent. Nyamekye controlled one of these accounts and received more than $1.3 million in romance fraud proceeds from victims. 

The government proved beyond a reasonable doubt at trial that Nyamekye laundered the victims' money on behalf of the conspiracy. The defendant conspired with others from at least June 2016 until February 2018 to commit money laundering in multiple transactions of more than $10,000 with the purpose of concealing the fraudulent nature of the proceeds. 

At least eight victims sent their money directly to Nyamekye's bank account, which was in the name of Gloseth Ventures LLC. For example, one victim was defrauded by a purported member of the military and sent a $170,000 wire transfer to Nyamekye's bank account. Another victim fell in love with a man he met online who also claimed to be in the military overseas and sent two wire transfers to Nyamekye totaling $73,000. A separate victim believed she was engaged to the man who was scamming her and sent $50,000 to the defendant's bank account. 

After the funds were deposited into Nyamekye's bank account, Nyamekye took a cut of the victims' money and then conducted financial transactions to move the funds where the perpetrators of the romance fraud could enjoy the criminal proceeds. 

[F]rom approximately July 2017 to around December 2017, Gemini, directly and through others, made false or misleading statements of material facts, or omitted to state material facts, to the CFTC during an evaluation of the potential self-certification of a bitcoin futures contract by a designated contract market (DCM). The proposed bitcoin futures contract was to be settled by reference to the spot bitcoin price on the relevant day as determined by an auction held on Gemini's digital asset trading platform (Gemini Bitcoin Auction). 

According to the complaint, Gemini, directly and through the DCM, provided information to the CFTC concerning Gemini's trading platform and the Gemini Bitcoin Auction, and certain statements and information conveyed or omitted by Gemini were false or misleading with respect to, among other things, facts relevant to understanding whether the proposed Bitcoin Futures Contract would be readily susceptible to manipulation. As alleged in the complaint, Gemini personnel knew or reasonably should have known that such statements were false or misleading.

In performing its market oversight responsibilities, the Commission and its staff must be able to rely on information submitted by market participants to the Commission and its staff. Here, as the complaint alleges, the proposed Bitcoin Futures Contract was significant because it was to be among the first digital asset futures contracts listed on a designated contract market, and information provided directly and indirectly by Gemini to the CFTC was important to the CFTC's work as it sought to fulfill its statutory mission, including ensuring financial integrity of transactions subject to the CEA, protecting market participants, deterring and preventing price manipulation and any other disruptions to market integrity, and promoting responsible innovation.

The Securities and Exchange Commission today charged the town of Sterlington, Louisiana and its former mayor, Vern A. Breland, as well as the town's unregistered municipal advisor, Twin Spires Financial LLC, and its owner, Aaron B. Fletcher, with misleading investors in the sale of $5.8 million in municipal bonds across two offerings in 2017 and 2018.

According to the SEC's complaints, the town of Sterlington issued the revenue bonds to finance the development of a water system and improvements to its existing sewer system. As required by state law, Sterlington applied to the Louisiana State Bond Commission (SBC) for approval of the two offerings. The SEC alleges that Sterlington submitted false financial projections, created by Fletcher and Twin Spires, with then-Mayor Breland's active participation and approval, substantially overstating the number of historical and projected sewer customers in order to mislead the SBC as to the town's ability to cover the debt service for the proposed bonds. The town and Breland allegedly did not disclose to investors that SBC approval of the bonds was based on the false projections or that Breland had directed the misuse of more than $3 million from earlier bond offerings intended for sewer system updates to instead pay for sports complex improvements, town legal fees, and payroll. The SEC further alleges that Twin Spires and Fletcher provided municipal advisory services to Sterlington without Twin Spires being registered as a municipal advisor with the Commission. vigorously pursue advisors who continue to flout those requirements."

The SEC's complaint, filed on December 3, 2021 in federal district court in Los Angeles, alleged that Pithapurwala unlawfully tipped his brother-in-law, Ammar Kutiyanawalla, who purchased Snap options on the basis of material nonpublic information ahead of the company's February 6, 2018 earnings announcement. As alleged in the complaint, Pithapurwala and Alifiya funded Ammar's Snap trading by transferring $20,000 to Ammar through intermediaries, and Ammar and Pithapurwala agreed to share the profits. The SEC charged Alifiya, who is Ammar's sister, with aiding and abetting the insider trading.

Pithapurwala and Alifiya consented to the entry of a judgment permanently enjoining them from violating the antifraud provisions of Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder. Pithapurwala agreed to pay a civil penalty of $523,031, and Alifiya agreed to pay a civil penalty of $75,000.

[F]rom August 10, 2016 through August 13, 2020, iFresh failed to properly disclose numerous transactions with entities related to Deng and his brother. The complaint alleges that iFresh's financial statements were allegedly materially misstated in 2016, 2017, 2018, 2019, and 2020. As alleged in the complaint, between 2017 and 2020, from 18% to 54% of iFresh's accounts receivable were from undisclosed related party transactions. The complaint further alleges that between 2016 and 2020, iFresh failed to disclose over $12 million in payments to a company owned by Deng's brother. Finally, the complaint alleges that by misrepresenting information about iFresh's related party transactions, iFresh deprived investors of the true scope of iFresh and Deng's intertwined business interests.

The SEC initially charged Henderson and GRL in September 2019, and, after learning of additional securities law violations by Henderson and GRL, filed an amended complaint on December 3, 2020. The SEC's amended complaint alleged that between December 2016 and June 2017, Henderson and GRL conducted two unregistered and fraudulent securities offerings, telling investors their funds would be used to obtain financial instruments necessary to broker Nigerian crude oil transactions, from which significant investor profits would be generated and paid in short periods of time. In fact, as set out in the amended complaint, Henderson spent nearly all of the $60,000 raised on his personal expenses and vacations.

On March 17, 2022, the Court granted the SEC's motion for summary judgment on all of its claims against Henderson, finding that Henderson's offers and sales of securities were "based on knowing lies as a part of a fraudulent scheme to obtain money that Henderson immediately used on himself not to obtain financing instruments to facilitate crude oil transactions as he claimed." On May 26, 2022, the Court entered a final judgment permanently enjoining Henderson and GRL from violating Sections 5 and 17(a) of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder, and permanently enjoining both from participating in the issuance, purchase, offer, or sale of any security, except for purchasing or selling securities for Henderson's own personal accounts. The Court also ordered Henderson and GRL to pay, on a joint and several basis, $50,000 in disgorgement of ill-gotten gains plus $10,997 in prejudgment interest thereon. Henderson was also ordered to pay a civil penalty of $103,591.

Solomon was most recently the General Counsel and Chief Compliance Officer for Rockefeller Financial LLC.  Prior to joining Rockefeller, Mr. Solomon spent seven years as the Senior Vice President and Northeast Regional Director for FINRA, where he had responsibility for the Examination and Surveillance Programs in the region and oversaw a staff of 350 people in FINRA's five northeast offices. Prior to his tenure at FINRA, he had senior legal and compliance roles at several global financial services firms, including Jefferies, UBS and Merrill Lynch. Michael was also a trial counsel in the NYSE Enforcement Division and began his legal career as an assistant district attorney in Manhattan where he investigated and prosecuted violent street crime, narcotics trafficking, fraud, and organized crime.

Merrill Lynch maintained an automated system designed to restrict a customer's purchase of Class C shares when lower cost Class A shares were available. The system, however, often failed to correctly identify and implement applicable purchase limits on Class C shares. As a result, thousands of Merrill Lynch customers purchased Class C shares, incurring fees and charges, when Class A shares were available at a substantially lower cost.

For example, in November 2019, the firm's system failed to flag a customer's purchase of Class C shares with annualized expenses of approximately 1.76 percent when the customer could have purchased Class A shares with lower annualized expenses of approximately 0.96 percent without paying a sales charge.

. . .

In addition to providing restitution to harmed customers, Merrill Lynch has agreed to convert certain customers' existing Class C holdings to Class A shares, where appropriate. FINRA did not impose a fine due to the firm's extraordinary cooperation and substantial assistance with the investigation. Merrill Lynch voluntarily and proactively conducted an internal review, engaged an outside consultant to identify affected customers and calculate remediation, and established a remediation plan to repay customers and convert shares, where applicable.

During the relevant period, SunTrust increased its principal trading volumes in some of the Focus List stocks. In several instances, the firm's trading volume increased on the first day a stock was added to the Focus List and, in one instance, the firm's principal trading represented as much as 46 percent of the total daily volume in that security. To achieve this result, the firm sometimes entered principal orders to buy and sell shares of Focus List stocks in quick succession, sometimes losing money but increasing the firm's volume in those securities. For example, in one instance, the firm entered a buy order for 77,777 shares in a security on the Focus List and a sell order for 77,777 shares in the same security eight seconds later, executing the purchase at a higher price than the sale. 

SunTrust overstated its advertised trading volume in Focus List stocks on 962 occasions, totaling over 12 million shares. For example, on March 12, 2015, the firm traded 927 shares in one security but advertised that it traded 9,668 shares. By overstating its advertised trade volume in the securities on the Focus List, SunTrust was able to increase its trading rank without trading in those securities. 

After receiving an inquiry from FINRA, SunTrust conducted an internal investigation, self-reported the cause and scope of the over-advertising, and instituted remedial changes. 

Therefore, SunTrust violated FINRA Rules 5210 and 2010. 

. . .

SunTrust's supervisory system, including its written procedures, was not reasonably designed to achieve compliance with FINRA Rule 5210. Although the firm had a Restricted List and a Watch List, as well as surveillance to review trading in the securities on those lists, the surveillance only reviewed the traders' personal accounts- not the firm's principal accounts-until October 2017. Moreover, SunTrust had surveillance reports designed to detect potentially manipulative trading, including wash trades, but the firm had no controls or reviews designed to identify its equity traders' orders to buy and sell stocks in similar or the same quantities within short periods of time in the firm's principal accounts until August 2017. Finally, the firm had no procedure or designated supervisor to review the firm's trading volume and compare it to the volume reported to third party publishing platforms until August 2015. 

Therefore, SunTrust violated NASD Rule 3010 and FINRA Rules 3110 and 2010. 

• Securities Industry Commentator
• Bill Singer