The Wall Street Legal & Regulatory Feed

Securities Industry Commentator by Bill Singer Esq

June 10, 2022








ENDORSED BY BILL SINGER,
publisher of the BrokeAndBroker.com Blog and the Securities Industry Commentator

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. 


Let me be your voice.

Stephen Kohn 
(303) 880-4304  Cell Phone

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.  

https://www.brokeandbroker.com/6483/insecurities-aegis-frumento-straightpath
He's Back!!! Guest Blogger Aegis Frumento Esq has returned with a bang with his thoughts about the SEC's case against StraightPath. As the SEC saw it, the Defendants raised at least $410 million from more than 2,200 investors from November 2017 through February 2022. The Defendant's allegedly used an unregistered broker-dealer and commingled investor funds, paid themselves over $75 million, and paid their sales agents nearly $48 million from illegal, undisclosed markups on the pre-IPO shares. Oh, and another thing, purportedly two of the three founders ran the funds despite being barred from the brokerage industry.  All of which is grist for Aegis' legal-mill -- and let's not forget that wonderful text about an "a***hole regulator." So . . . welcome back Aegis.

https://www.brokeandbroker.com/6481/finra-ce/
Among the dirty secrets on Wall Street is so-called CE (continuing education) -- or at least the short cuts that some folks take when it comes to satisfying their need to take various courses, training, and tests. Some of the short cuts involve getting someone else to sign in and sit through your training.  Some of the short cuts involve getting someone to take your tests for you.  Some of the short cuts involve cheating. Frankly, it's not a unique problem on Wall Street because wherever an industry or profession requires CE, there are those who never quite seem to have the time to do what's required. Among the more troubling aspects of getting around CE is when a male manager relies upon a female subordinate to, hey, well, you know, not that anyone actually needs to know, but, ummm, it would really help me out if, you know, well, you know, right? Read about a recent FINRA settlement involving a number of CE short cuts that, in the end, short circuited one associated person's career.

https://www.justice.gov/opa/pr/stock-trader-pleads-guilty-defrauding-investors-medical-technology-company
Jason Nielsen pled guilty in the United States District Court for the Northern District of California to one count of securities fraud. As alleged in part in the DOJ Release, Nielsen was a:

large shareholder of Arrayit, a publicly traded medical device company based in California. From approximately 2019 through April 2020, Nielsen engaged in an unlawful "scalping" and "spoofing" scheme to manipulate the price of Arrayit securities. Nielsen used online message boards to publicly post false and misleading information about the nature of his trading in Arrayit securities, in order to induce others to purchase Arrayit securities and thereby drive up the stock's price, a practice known as "scalping." 

Nielsen admitted that he placed orders to buy Arrayit stock that he intended to cancel before execution. The purpose of these orders was to deceive the public and Arrayit shareholders by signaling demand for Arrayit securities which did not exist. This allowed Nielsen to sell his shares at artificially inflated prices, a practice known as "spoofing." While engaged in these practices, Nielsen was secretly selling his own previously acquired shares at an artificially inflated price.

https://www.sec.gov/litigation/litreleases/2022/lr25417.htm
The United States District Court of the District of Rhode Island entered Final Judgment permanently enjoins Patrick Churchville 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, Sections 206(1) and (2) of the Investment Advisers Act of 1940 and Rule 206(4)-8 thereunder, as well as the custody and compliance provisions of Rule 206(4)-2 and Rule 206(4)-7 thereunder. The Final Judgment orders Churchville to pay $29,103,738 in disgorgement, $4,577,810 in prejudgment interest, and $225,000 civil penalty. As alleged in part in the SEC Release:

Prior to the entry of the permanent injunction, Churchville and ClearPath were subject to a preliminary injunction and asset freeze entered by the court in the SEC's action, which was filed on May 7, 2015. According to the SEC's amended complaint, from at least December 2010, Churchville's and ClearPath's fraudulent conduct caused at least $27 million in losses to the private funds they advised and controlled. Churchville and ClearPath misallocated and misappropriated investor assets, used fund assets to secure undisclosed borrowing that they repaid with monies due to investors, stole approximately $2.5 million of investors' funds to purchase Churchville's waterfront home, and engaged in a multi-million dollar Ponzi scheme, using investor money to pay off a series of prior investments. In July 2015, the court appointed a receiver to marshal assets of the two defendants as well as the assets of the private funds advised by Churchville and ClearPath, for the benefit of harmed investors. The receiver's work continues. On March 16, 2017, Churchville was sentenced to 7 years in federal prison following his guilty plea to five counts of wire fraud and one count of tax evasion in connection with orchestrating the Ponzi scheme and misappropriating additional money from funds he advised.

https://www.sec.gov/litigation/litreleases/2022/lr25415.htm
The United States Court of Appeals for the Second Circuit affirmed a district court order requiring compliance with SEC investigative subpoenas served on Terraform Labs Pte Ltd and Do Kwon. As alleged in part in the SEC Releae:

[T]erraform and Kwon argued on appeal that the SEC violated its Rules of Practice when it served the subpoenas by handing copies to Kwon, Terraform's chief executive officer, while he was present in New York, and that the district court lacked personal jurisdiction because Kwon and Terraform had insufficient contacts with the United States. In rejecting those arguments, the appellate court reasoned in relevant part that Terraform's and Kwon's "reading of the Rules is contrary to the text and would produce absurd results by allowing a party to insist on service through counsel, but allow the party to block said service by not authorizing their counsel to receive any filings." The appellate court further rejected Terraform's and Kwon's jurisdictional arguments, noting the district court's jurisdiction over Terraform and Kwon arose from their "purposeful and extensive U.S. contacts," such as promoting to U.S. investors, employing U.S.-based personnel, and contracting with U.S.-based entities.

https://www.sec.gov/litigation/litreleases/2022/lr25416.htm
After pleading guilty in the United States District Court for the Southern District of New York to insider trading charges, Puneet Dikshit consented to the entry of a Judgment that permanently enjoins him from violating the antifraud provisions of Section 10(b) of the Securities Exchange Act and Rule 10b-5 thereunder. As alleged in part in the SEC Release:

The SEC's complaint charged Dikshit with illegally trading in advance of a corporate acquisition by one of the firm's clients in September 2021. According to the complaint, in the course of providing consulting services, Dikshit learned highly confidential information concerning The Goldman Sachs Group Inc.'s impending acquisition of the consumer loan fintech platform GreenSky Inc. In the days leading up to the acquisition announcement on Sept. 15, 2021, Dikshit used this information to purchase out-of-the-money GreenSky call options that were set to expire just days after the announcement. The SEC's complaint further alleged that Dikshit violated his firm's policies by failing to pre-clear these options purchases, which he sold on the morning of the acquisition announcement for illicit profits totaling over $450,000.

https://www.sec.gov/litigation/litreleases/2022/lr25414.htm
In a Complaint filed in the United States District Court for the District of Massachusetts
https://www.sec.gov/litigation/complaints/2022/comp25414.pdf the SEC charged Trends Investments Inc., Clinton Greyling, Leslie Greyling, Brandon Rossetti, Roger Bendelac, and Thomas Capellini with engaging in a penny-stock fraud. In part, the SEC Release alleges:

According to the SEC's complaint, Trends Investments Inc., an unregistered entity, and Trends personnel Clinton Greyling of Florida, Leslie Greyling (Clinton's father, a resident of the United Kingdom), and former Massachusetts resident Brandon Rossetti engaged in a scheme to defraud investors in private offers and sales of shares of two publicly traded penny stock companies, Alterola Biotech Inc. and Token Communities Ltd. The Greylings and Rossetti allegedly lied to investors about whether Trends owned and could deliver to investors the shares it claimed to be selling. They are further charged with making a variety of misrepresentations to investors in order to keep investor funds, obtain further investments, placate investor concerns, and avoid detection. According to the complaint, Rossetti also acted as an unregistered broker by soliciting investors, receiving transaction-based compensation from Trends, and claiming to be a "broker" or "wealth manager."

The SEC's complaint also charges New York resident Roger Bendelac with participating in the scheme by placing manipulative trades in one of the securities Trends was offering and selling to investors, including through the use of two relatives' brokerage accounts to purchase securities which Bendelac sold from a different brokerage account. The SEC's complaint also alleges that Bendelac's relative, New York resident Thomas Capellini, gave Bendelac access to Capellini's brokerage account and funded the account so that Bendelac could place manipulative trades.

The SEC's complaint, filed in federal court in Boston, Massachusetts, charges Trends, Clinton Greyling, Leslie Greyling, and Rossetti with violating Section 17(a) of the Securities Act of 1933 ("Securities Act") and Section 10(b) of the Securities Exchange Act of 1934 ("Exchange Act") and Rule 10b-5 thereunder. The complaint also charges Rossetti with violating Section 15(a) of the Exchange Act, charges Bendelac with violating Sections 17(a)(1) and (3) of the Securities Act and Sections 9(a)(2) and 10(b) of the Exchange Act and Rules 10b-5(a) and (c) thereunder, as well as aiding and abetting Trends', Rossetti's, and the Greylings' violations, and charges Capellini with aiding and abetting Bendelac's violations. The SEC's complaint seeks remedies that include injunctions, disgorgement, prejudgment interest, civil penalties, and penny stock bars. Without admitting or denying the allegations, Clinton Greyling has consented to the entry of a judgment permanently enjoining him from future violations of the charged provisions. In addition, Clinton Greyling has consented to a penny stock bar. The settlement, which is subject to court approval, would leave disgorgement, prejudgment interest, and civil penalties to be determined by the court at a later date.

https://www.finra.org/sites/default/files/fda_documents/2021069366701
%20Walter%20Waitak%20Light%20CRD%201494331%20AWC%20va.pdf
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, Walter Waitak Light submitted a Letter of Acceptance, Waiver and Consent ("AWC"), which FINRA accepted. The AWC asserts that Walter Waitak Light was first registered in 1986, and by 2003, he was registered with Treasure Financial Corp.. The AWC asserts that [Ed: footnote omitted]:

In 2000, Light entered into an AWC with FINRA through which he consented to the entry of findings that he violated NASD Rules 2110, 2310, and 2860(b) by, among other things, making an unsuitable recommendation to a customer. The AWC imposed a 30 business-day suspension and a fine of $15,000 and required that Light requalify as a general securities principal and registered options principal. 

In accordance with the terms of the AWC, FINRA imposed upon Light a $5,000 fine and a one-month suspension from associating with any FINRA member in all capacities. As alleged in part in the AWC:

From July 1, 2020, through July 1, 2021, Light effected at least 140 discretionary trades in 22 separate customer accounts. Although the customers knew that Light was exercising discretion in their accounts, Light did not have prior written authorization to do so from any of the customers. Additionally, Treasure Financial did not accept any of the accounts as discretionary. Therefore, Light violated FINRA Rules FINRA Rules 3260(b) and 2010. 

https://www.finra.org/sites/default/files/fda_documents/2020068101001
%20Sam%20Shehu%20CRD%202486647%20AWC%20lp.pdf
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, Sam Shehu submitted a Letter of Acceptance, Waiver and Consent ("AWC"), which FINRA accepted. The AWC asserts that Sam Shehu was first registered in 1994, and by 2019, he was registered with LPL Financial LLC until his September 2020 termination. In accordance with the terms of the AWC, FINRA imposed upon Shehu a $7,500 fine and a two-month suspension from associating with any FINRA member in all capacities. As alleged in part in the AWC:

Beginning in February 2019, Shehu electronically signed his registered representative partner's name on account opening and discretionary authority agreements. LPL required both representatives of record to sign new account and discretionary authority agreements. When his partner was unavailable, Shehu would electronically sign for his partner and submit the documents to LPL. Although Shehu believed he had permission to sign documents on behalf of his partner, he failed to alert the firm he was doing so and falsified his partner's signature on dozens of documents. 

Shehu's misconduct is aggravated by his effort to conceal the falsifications from LPL. After LPL began investigating his falsifications, Shehu asked his partner to falsely claim that he had electronically signed the documents. Shehu also falsely stated on two compliance questionnaires that he had not signed another person's signature on a document. 

Therefore, Shehu violated FINRA Rules 2010 and 4511.

Bill Singer's Comment: Okay, sure, no question, I see LPL and FINRA's concern about unauthorized signatures. On the other hand, let's not lose sight of the actual facts in the Shehu AWC, namely, that he is charged with electronically affixing his partner's signature on new account and discretionary documents AND that he "believed he had permission" to do same. So . . . watta we got here? We got a rep who is apparently one of two team members, and, gee, when his pal is in the bathroom takin' a leak or out of the office getting lunch or whatever, he logs on to LPL's computer and sort of pushes a button to indicate that the absent partner had signed off on the documents. Note that we're not talking about a manual signature attempting to accomplish a forgery but one of these newfangled electronic thingamajiggies. There's no customer fraud. There's no dispute that the joint production team was authorized to file the cited documents. Unfortunately, the Computer Age being what it is, we now have digital signatures. All that being said, and whatever "credit" one would afford to Shehu for this signature brouhaha, he did himself no favors by asking his partner to lie and engaging in efforts to muddy the waters with his compliance department. When all is said and done, I have no quibble with FINRA's regulatory action based upon the exacerbating circumstances; but given the facts, the AWC could have let Shehu off with a 10-day suspension and, max, a $5,000 fine. 

https://www.finra.org/sites/default/files/fda_documents/2020068652401
%20Tameem%20Habib%20CRD%205507746%20AWC%20va.pdf
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, Tameem Habib submitted a Letter of Acceptance, Waiver and Consent ("AWC"), which FINRA accepted. The AWC asserts that Tameem Habib was first registered in 2008, and by December 2019, he was registered with J.P. Morgan Securities LLC until his November 2020 discharge. In accordance with the terms of the AWC, FINRA imposed upon Habib a $2,500 fine and a two-month suspension from associating with any FINRA member in all capacities. As alleged in part in the AWC:

In 2020, the federal government initiated several programs to assist small businesses adversely impacted by the COVID-19 pandemic, including the Economic Injury Disaster Loan program, which was administered by the SBA. In or about March 2020, while a registered representative of J.P. Morgan, Habib applied to the SBA for an Economic Injury Disaster Loan on behalf of a car service business he intended to operate as a sole proprietorship. Habib failed to carefully review the loan application before submitting it to the SBA. In his application to the SBA, Habib negligently misrepresented that his business had earned revenue between January 31, 2019, and January 31, 2020, when, in fact, it had not. 

Based on Habib's negligent misrepresentation, the SBA approved his loan application and separately approved Habib for a $1,000 advance payment, which he received on April 24, 2020. On May 23, 2020, before he received the balance of the loan, Habib sought approval from J.P. Morgan to conduct his outside business activity, but the firm denied his request. Thereafter, Habib withdrew his Economic Injury Disaster Loan application without signing a loan agreement with the SBA. To date, Habib has not repaid the $1,000 to the SBA. 

Therefore, Habib violated FINRA Rule 2010.

https://www.finra.org/sites/default/files/fda_documents/2020068668803
%20Nicholas%20Lee%20Ash%20CRD%206244799%20AWC%20va.pdf
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, Nicholas Lee Ash submitted a Letter of Acceptance, Waiver and Consent ("AWC"), which FINRA accepted. The AWC asserts that Nicholas Lee Ash was first registered in 2014 with OFG Financial Services, Inc. In accordance with the terms of the AWC, FINRA imposed upon Lee a $5,000 fine and a two-month suspension from associating with any FINRA member in all capacities. As alleged in part in the AWC:

During November 2017, Ash became a 12.5% owner of a limited liability company ("Company A") that purchased and operated rental properties. Ash performed repair and maintenance work on the properties. He co-owned Company A with three family members. Two of these co-owners were OFG registered representatives who collectively owned 75% of Company A and who caused Company A to buy certain properties from, and to lease certain properties to, OFG customers. Ash did not disclose his outside business activity with Company A to OFG until August 2018. Prior to his August 2018 disclosure, Ash received approximately $1,500 in profit and compensation in connection with Company A. 

Additionally, during the period between October 2019 and July 2021, Ash worked as an independent contractor for another real estate business that was owned and controlled by one of Company A's owners ("Company B"). Company B owned a rental property and leased it to another OFG customer. On three occasions, Ash completed repair and maintenance projects for Company B in exchange for compensation totaling approximately $500. However, he did not disclose this activity to the firm, and OFG only learned about the activity after FINRA commenced an investigation during April 2021. 

Therefore, Respondent violated FINRA Rules 3270 and 2010. 

https://www.brokeandbroker.com/6482/gallagher-finra-exam/
Heslin Gallagher hoped to embark upon a Wall Street career. About the only obstacle in her way was the Series 7 exam, which she studied for and took . . . and took . . . and took.  What Heslin Gallagher was not going to take was what she thought was FINRA's manner of administering the exam that she failed three times. Heslin Gallagher was angry and she went about putting her anger into action.

https://www.brokeandbroker.com/6480/jpms-nonsolicit-arbitration/
I am not a fan of Wall Street Non-Compete/Non-Solicit agreements, which tend to be forced upon employees and are rarely, if ever, the byproduct of free and fair negotiation. All of which underscores that Wall Street's employment contracts are cynical take-it-or-leave-it propositions whereby the employer takes it all when the financial advisor leaves. Infuriatingly, the contribution of the men and women who cold call, open the new accounts, and service the customers is valued at next to nothing upon the cessation of the employment relationship. 

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