Securities Industry Commentator by Bill Singer Esq

June 28, 2022
A FINRA Panel of Arbitrators found Citigroup Global Markets, Inc. ("CGMI"), Citigroup, Inc., and Citibank, N.A. guilty of discrimination, harassment, hostile work environment, and retaliation. All of which cost the Respondents $1.4 million in damages and attorney's fees. What's Wall Street's leading self-regulatory-organization, FINRA, going to do about those horrific arbitration findings? If past is prologue -- NOTHING. Actually, that's not entirely correct . . . FINRA's lackluster Board of Governors will likely create task forces and call for summits and hold conferences and develop an exam and propose to implement some initiative that will likely never quite get off the ground but, hey, the whole point is giving the appearance of action rather than actually acting, right? Why fix anything when you can just issue a press release!
Aziz Choukri pled guilty in the United States District Court for the Northern District of Georgia to wire fraud. As alleged in part in the DOJ Release:

[I]n 2016, Choukri met the victim, then 79 years old, at a fitness facility in Alpharetta, Georgia. Choukri cultivated a close relationship with the elderly victim to gain his trust.  Choukri convinced the victim to invest almost $650,000 in his music management company.  Choukri convinced the victim that the investment carried no risk and was guaranteed to earn a return. 

Specifically, Choukri promised that the victim would be compensated the full amount of any investment, plus interest, and even told the victim that he would guarantee him a $1,000,000 return.  Choukri did not tell the victim that the money would be used to fund Choukri's lifestyle. 

Instead of using the money as an investment in a music business, Choukri used the victim's money largely on Choukri's own personal expenses, including, among other things, Choukri's activities of daily living (e.g., fast food, gas, and uber), payments for his daughter's college tuition and sorority expenses, dental work for his girlfriend, payments to his girlfriend for tutoring and babysitting, and repayment of a personal loan.  Choukri also transferred a significant amount of the victim's money to his children's accounts and withdrew thousands of dollars in cash.  Notably, Choukri's accounts show that almost all of Choukri's income in 2016 and 2017 was from the victim. 

An SEC Order found that Ernst & Young LLP ("EY"):
  • violated a Public Company Accounting Oversight Board ("PCAOB") rule requiring the firm to maintain integrity in the performance of a professional service, 
  • committed acts discreditable to the accounting profession, and 
  • failed to maintain an appropriate system of quality control. 
EY has admitted the facts underlying these findings and acknowledged that its conduct violated the integrity standard and provides a basis for the SEC to impose remedies. As alleged in part in the SEC Release:

EY admits that, over multiple years, a significant number of EY audit professionals cheated on the ethics component of CPA exams and various continuing professional education courses required to maintain CPA licenses, including ones designed to ensure that accountants can properly evaluate whether clients' financial statements comply with Generally Accepted Accounting Principles.

EY further admits that during the Enforcement Division's investigation of potential cheating at the firm, EY made a submission conveying to the Division that EY did not have current issues with cheating when, in fact, the firm had been informed of potential cheating on a CPA ethics exam. EY also admits that it did not correct its submission even after it launched an internal investigation into cheating on CPA ethics and other exams and confirmed there had been cheating, and even after its senior lawyers discussed the matter with members of the firm's senior management. And as the Order finds, EY did not cooperate in the SEC's investigation regarding its materially misleading submission.

In addition to paying a $100 million penalty, the Order requires EY to engage in extensive undertakings, including retaining two separate independent consultants to help remediate its deficiencies. One consultant will review the firm's policies and procedures relating to ethics and integrity. The other will review EY's conduct regarding its disclosure failures, including whether any EY employees contributed to the firm's failure to correct its misleading submission.
In a Complaint filed in the United States District Court for District of Massachusetts, the SEC charged Bradley Moynes and Digatrade Financial Corp with violating Sections 5(a), 5(c), and 17(a) of the Securities Act and Section 10(b) of the Securities Exchange Act and Rule 10b-5 thereunder. Vancap Ventures, Inc. was named as  a relief defendant. As alleged in part in the SEC Release:

The SEC's complaint alleges that Moynes was the President, CEO and Director of two small and thinly traded companies, Formcap Corporation and Digatrade, whose stock was publicly traded in the U.S. securities markets. According to the complaint, Moynes used foreign nominee companies to hold stock in these microcap companies, thus concealing his ownership. The complaint alleges that he and his associates generated demand for his stock by paying promoters to tout the stock and then secretly sold his stock into that demand, generating substantial illicit profits from unsuspecting investors.

Moynes allegedly violated the U.S. securities laws because he defrauded investors by concealing information about his ownership and control over the stock he was selling. Moynes allegedly signed numerous filings with the SEC that contained misstatements about his ownership of Digatrade shares. Moynes allegedly misled investors, brokers, and transfer agents (companies that maintain records of stock ownership) in order to convince these parties that his stock shares were eligible for trading in the public markets. The complaint alleges that, as a result of Moynes' deceptive conduct, investors buying the stock he sold were deprived of important information-that the stock they purchased was being dumped by the President and majority shareholder of the company.

FINRA Fines and Suspends Former UBS for Rock Salt
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, Patrick Reid Murray submitted a Letter of Acceptance, Waiver and Consent ("AWC"), which FINRA accepted. The AWC asserts that Patrick Reid Murray was first registered in 1989, and by 2009, he was registered with UBS Financial Services Inc. In accordance with the terms of the AWC, FINRA imposed upon Murray 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:

In March 2018, Murray and two other individuals established a company called Integrity Salt, LLC (Integrity) to buy and sell rock salt by filing articles of organization with the Ohio Secretary of State. Murray made capital contributions to Integrity and made at least one vendor payment on behalf of the company by wiring more than a million dollars from his personal account directly to the vendor. Murray also earned approximately $78,704 in compensation from his Integrity-related activities. Murray did not provide prior written notice to or obtain UBS's approval before commencing his outside activities with Integrity. In July 2018, Murray also inaccurately certified that he was in compliance with the firm's WSPs relating to outside business activities. 

Therefore, Murray violated FINRA Rules 3270 and 2010.

Bill Singer's Comment: Oh for godsakes, really? Consider this disclosure in the AWC:

In a Uniform Termination Notice for Securities Industry Registration (Form US) dated October 15, 2021, UBS reported that Murray had been discharged after a firm review determined that he exceeded the approved scope of an outside business activity. 

So . . . Murray got fired by UBS in 2021 because he went into the rock salt business in 2018. Okay, sure, whatever. Then, on top of losing his job, FINRA socks Murray with $5,000 in fines and a one-month suspension. 

Let's just make sure that we are all on the same page as things are spelled out in the AWC. 

First, Murray and two others filed articles of organization for a rock salt biz in 2018. One could argue that the filing does not rise to the level of "engaging" in an outside business as much as preparing to do so. 

Second, Murray made a capital contribution. Again, one could argue that funding a start-up is preparation to engage in a business and not the actual activity of being in business. 

Third, Murray took cash out of his own pocket and wired that to a vendor. Perhaps you need to buy $1 million of rock salt to be able to sell any rock salt, so, again, this could easily be characterized as the preparation to engage in a business, which seems all the more reasonable since the payment was not issued from the company but undertaken personally by Murray. 

Fourth, the AWC claims that Murray "earned" $78,704 in compensation from the company's "related" activities. That's an odd turn of a phrase. 

Missing from the AWC is any statement as to Murray's explanations. Perhaps Murray did not feel that he had engaged in an outside business because Integrity Salt hadn't actually moved forward to the point of being an ongoing business. Perhaps Murray covered up his activities. Perhaps Murray misunderstood what he needed to disclose to UBS and when. I dunno. The AWC sure as hell doesn't clarify anything. Did all of this amount to the basis for termination, suspension, and a fine? Perhaps -- but FINRA doesn't present any facts that convinces me of its case. Blog publisher Bill Singer Esq. is no fan of non-solicit/non-compete provisions. Sure, there could be . . . there are . . . compelling fact patterns when a departed employee may have really gone over the edge and deserves to have the crap sued out of him. On the other hand, given that Wall Street is the purported bastion of free enterprise and Capitalism, it's a tad cynical to exalt the benefits of free markets and competition but, you know, then go sue folks for practicing what you preach. Bill often counsels employer-brokerage-firms to handle departing employees with class and grace. Wish 'em well. Let 'em know how much you valued their contribution and how much you regret the departure. Shake hands. Send a bottle of champagne or something when they open their new shop. Let 'em know that if things don't work out, you would always welcome an opportunity to renew the professional relationship in the future. Not a lot of brokerage firms follow Bill's advice. A more popular option is the scorch-the-earth-and-send-'em-a-message gambit. Sometimes it works. Sometimes not. Read about a recent federal case involving Edelman Financial Engines, LLC.