Securities Industry Commentator by Bill Singer Esq

July 12, 2022

In today's Guest Blog, anonymous author "Regulated or Aggrieved" notes the discrepancy between the data privacy required under the Federal Credit Reporting Act ("FCRA") and the relative lack of privacy of the Central Registration Depository ("CRD") data of hundreds of thousands of industry associated persons. The author wonders why CRD and FINRA accumulate and preserve their data in a manner that does not seem to conform to the letter of the FCRA law (or its spirit). Further, the author points to Regulation S-P, which protects brokerage customers' data, and asks why such a framework doesn't apply to the industry's employees.
Jayton Gill pled guilty in the United States District Court for the Western District of North Carolina to operating an unlicensed money transmitting business and willful failure to file a tax return. As alleged in part in the DOJ Release:

[F]rom at least 2015 to February 2021, Gill operated an unlicensed money transmitting business involving the exchange of millions of dollars of cash and other monetary instruments for cryptocurrencies such as Bitcoin and Monero. During the relevant time, Gill conducted thousands of transactions involving thousands of Bitcoins. As Gill admitted in court today, he advertised his unlicensed money transmitting business on various public websites and made claims on one such website that he had conducted more than 4,200 transactions with 2,700 different parties. Gill also conducted unlicensed money transactions in person and via the U.S. Postal Service.

Gill further admitted that he failed to file U.S. Individual Income Tax Returns for tax years 2015 through 2019, despite earning significant income from his unlicensed money transmitting business and from investing in cryptocurrency.
In an Information filed in the United States District Court for the Northern District of Ohio
James Gagliardini, Michael Shumak, Anthony Palazzolo, and Jack Kronis were each charged with one count of wire fraud. As alleged in part in the DOJ Release:

[D]efendants portrayed themselves as employees of Paragon International Wealth Management, Inc., a Canadian investment firm that sold investors diamonds and other jewelry items via unsolicited phone calls to individuals in the United States and Canada. 

It is alleged that from 2013 to 2018, Paragon would purchase lists of potential customers in the U.S. and Canada and made unsolicited telemarketing phone calls to these individuals.  During these phone calls, it is alleged that Paragon representatives persuaded potential investors to make small investments in "pink diamonds," which Paragon claimed would increase in value.  If an individual agreed to invest, court documents state that Paragon would often mail the customer a real pink diamond and a legitimate appraisal certificate as a show of good faith.

According to court records, after some time, Paragon would contact the customer again to persuade them to invest more money using false or misleading information and several fictitious schemes it had concocted.

One scheme is alleged to have involved informing investors that a wealthy international buyer would purchase the investor's diamonds at a significant profit if the investor gave Paragon more money to increase the diamond's physical size.  Another scheme allegedly involved asking investors to give Paragon more money in order to "upgrade" their diamonds and make them more valuable at fabricated diamond auctions.  A third scheme allegedly involved sending customers fraudulent appraisal certificates, which inflated the value of an investor's diamonds they purportedly owned.
Naresh Rane, 68, pled guilty in the United States District Court for the District of New Jersey to knowingly and intentionally using and causing the use of facilities in interstate commerce to promote, manage, establish, carry on, and facilitate the business of prostitution, and he was sentenced to 33 months in prison plus three years of supervised release. As alleged in the DOJ Release::

Rane owned and operated Axiom Healthcare Academy, which purported to provide classes in massage therapy training. Rane held himself out as a businessman who, for a fee that ranged from $1,000 to $2,600, could provide massage therapy training certificates to anyone who wished to obtain a massage license without the required training. Rane was also willing to provide phony transcripts listing classes and grades.

Between November 2013 and March 2014, Rane provided 10 fraudulent massage therapy training certificates and transcripts to a former Westwood, New Jersey, councilman who then gave them to prostitutes working in different massage parlors located in Union, Passaic, Hudson and Middlesex counties. Rane admitted today that he knew the documents he was producing and selling were used to disguise prostitution activities as legitimate massage services.  

Bill Singer's Comment: Lemme see if I got this -- about a decade ago in late 2013 to early 2014, Rane provided 10 fraudulent certificates to a politician, who, in turn, gave them to prostitutes. Slow forward a decade and we got a 68-year-old Rane going away for 33 months -- for that? I doubt that customers of so-called "massage parlors" are expecting a lot of legitimate massaging behind the curtains;  and, frankly, they're probably paying for a happy ending rather than a massage. Second, does Rane's role in this crime argue for just shy of three years in prison? By way of a reference point, consider:

            WASHINGTON - A Maryland man was sentenced today to 33 months in prison for assaulting law enforcement officers and obstructing an official proceeding during the breach of the U.S. Capitol on Jan. 6, 2021. His and others' actions disrupted a joint session of the U.S. Congress convened to ascertain and count the electoral votes related to the presidential election.

            Matthew Ryan Miller, 23, of Cooksville, Maryland, was sentenced in the District of Columbia.

            According to court documents, as a mob gathered on the West side of the U.S. Capitol on Jan. 6, Miller threw a full beer can in the direction of the Capitol building and police protecting it. At the time, he was draped in a Confederate flag. Miller then used a section of temporary barriers as a ladder to scale the walls of the west side of the plaza.  He also assisted other rioters in scaling the walls and other architectural obstacles. Miller and others then moved to the Lower West Terrace and close to the tunnel area leading into the building. Miller waved his hand, and said multiple times, "Come on," as the mob chanted "Heave! Ho!" and rocked back and forth in pushing towards the tunnel entrance that law enforcement officers were attempting to secure. Multiple times, Miller put up his fingers and yelled, "one, two, three, push!" From this position, he also threw batteries towards the Lower West Terrace tunnel, where police were guarding the entrance to the Capitol building. Then, at about 4:55 p.m., and at his closest position to the tunnel, Miller used a fire extinguisher to spray directly into the tunnel onto police officers; several officers were impacted by this assault.

            Miller was arrested on Jan. 25, 2021, in Cooksville, Maryland. He pleaded guilty on Feb. 9, 2022, to obstruction of an official proceeding and assaulting, resisting, or impeding officers. Following his prison term, Miller will be placed on 24 months of supervised release. He also must pay $2,000 in restitution. . . .
Anthony Todd Leonard, 55, pled guilty in the United States District Court for the Southern District of Indiana to wire fraud and money laundering offenses, and he was sentenced to 40 months in prison plus three years of supervised release. As alleged in part in the DOJ Release:

[F]rom 2013 through 2019, Leonard sought out and obtained investors in his companies that purportedly focused on the development of educational software products, including nurseVersity LLC, Versity Edu, Versity Inc, VersityU, and Bridge-It Learning (collectively, the "Versity companies"). The products included nurseVersity software designed to assist nursing students in passing their board examinations; ptVersity, software designed to assist physical therapy students; and Bridge-It Learning, software designed to help students in the education system.

Leonard made material misrepresentations to induce investors to not only invest in his companies, but to also continue providing money once they were involved. These misrepresentations included providing inflated sales figures and other metrics; providing false bank statements and business financial documents to investors; and misrepresenting qualifications, medical history, and company personnel issues to secure additional funds.

As a result of these misrepresentations, investors paid, and continued to pay Leonard for purported ownership interests, loans, other rights to his companies, and for other business reasons, leading to losses of over $1.4 million. Leonard admitted to law enforcement that he misrepresented the amount of revenue his companies generated, and that his companies never actually made the money he represented to investors.

Most of the funds received from these investors were used by Leonard and his wife for their personal enrichment, such as the purchase of a large parcel of land in New Albany, Ind. with a lake house, the construction of a new residence on that parcel, expensive dinners, trips, and other expenses unrelated to the Versity companies and products.  Property obtained by Leonard with stolen investor funds was seized by the government and will be forfeited.
In a Complaint filed in the United States District Court for the Western District of Washtington former Wells Fargo branch manager Brian Davie was charged with Bank Fraud and Aggravated Identify Theft. As alleged in part in the DOJ Release:

Davie worked for Wells Fargo in Battle Ground from March of 2014 until he was fired in June 2019. According to the criminal complaint, Davie used his position as a manager at the branch to conduct unauthorized transactions. Davie had access to customer files containing information about bank account balances, as well as examples of customer signatures. Davie allegedly used this knowledge to forge signatures on cashier's checks, withdrawal slips and other bank forms. Davie allegedly hid his criminal activity by repeatedly exchanging cashier's checks until they were small enough to cash without triggering banking reporting requirements.

The complaint alleges that Davie continued undetected because he stole from  elderly customers who might be less likely to closely monitor their account balances. Some of Davie's victims had dementia, or had limited English skills and did not understand banking transactions. In at least one case, Davie failed to file the paperwork to install a victim's relative as a co-signer on the victim's accounts.  That failure prevented the relative from being able to monitor the account and detect the fraudulent transactions.

Davie deposited some of the stolen money in an account he created in the name of a relative's business. He made some of the cashier's checks payable to that relative or to the business account he created. Much of the money was withdrawn as cash.

Wells Fargo reimbursed victims for their losses.

Reality Show Cast Member Pleads Guilty To Running Nationwide Telemarketing Fraud Scheme (DOJ Release)
Jennifer Shah pled guilty in the United States District Court for the Southern District of New York to one count of conspiracy to commit wire fraud, and she agreed to forfeit $6.5 million and to pay restitution up to $9.5 million. As alleged in part in the DOJ Release:

From 2012 until March 2021, JENNIFER SHAH, together with others (collectively, the "Participants") carried out a wide-ranging telemarketing scheme that defrauded hundreds of victims (the "Victims") throughout the United States, many of whom were over age 55, by selling those Victims so-called "business services" in connection with the Victims' purported online businesses (the "Business Opportunity Scheme"). 

In order to perpetrate the Business Opportunity Scheme, Participants, including SHAH, engaged in a widespread, coordinated effort to traffic in lists of potential victims, or "leads," many of whom had previously made an initial investment to create an online business with other Participants in the Scheme. 

SHAH, among other things, sold leads to other Participants for use by their telemarketing sales floors with the knowledge that the individuals they had identified as "leads" would be defrauded by the other Participants, including by lying to Victims about how much they would earn after purchasing the business services and the purported success of others who had purchased the services.  SHAH received as profit a share of the fraudulent revenue per the terms of their agreement with those Participants.  SHAH often controlled each aspect of the frauds perpetrated by other Participants on the individuals they had identified by, among other things, determining which "coaching" sales floor could buy leads from them, selecting the downstream sales floors to which the "coaching" sales floor was permitted to pass the leads, choosing the firms to provide "fulfillment" services, that is, documents and records purporting to demonstrate that the services the Participants claimed to provide to those Victims were actual and legitimate, setting how much the downstream sales floors could charge, and determining which "products" each of the downstream sales floors could sell. 

In approximately 2017, SHAH began operating a Manhattan-based sales floor that sold downstream "business opportunity" products to victims on lead lists provided by the defendant as part of the Business Opportunity Scheme (the "Manhattan Sales Floor").  Between 2018 and 2020, SHAH controlled the day-to-day operations of the Manhattan Sales Floor.  Among other things, SHAH, with other Participants, moved certain operations for the Manhattan Sales Floor to Kosovo to avoid law enforcement and regulatory scrutiny.  The salespeople at the Manhattan Sales Floor engaged in the same fraudulent sales practices as other telemarketing floors in the Business Opportunity Scheme: namely, lying to and misleading Victims into purchasing "business opportunity" products to ostensibly advance their non-existent online businesses.  

SHAH undertook significant efforts to conceal her role in the Business Opportunity Scheme.  For example, SHAH, among other things, incorporated her business entities using third parties' names and instructed other Participants to do the same, used and directed others to use encrypted messaging applications to communicate with other Participants, and made numerous cash withdrawals structured to avoid currency transaction reporting requirements.
The United States District Court for the Eastern District of new York entered a Consent Judgment against attorney Shimon Rosenfeld enjoining him from future violations of Section 17(a) of the Securities Act, Section 10(b) of the Securities Exchange Act and Rule 10b-5 thereunder. The Final Consent Judgement ordered Rosenfeld to pay $5,997,525 in digorgement plus prejudgment interest of $1,104,353.84, which is deemed satisfied by the payment of restitution and forfeiture ordered in the parallel criminal action, in which Rosenfeld was sentenced to 6 months in prison plus three years of supervised release, and ordered to pay $6,787,525 in restitution and $4 million in forfeiture. As alleged in part in the SEC Release:

[B]etween May 2014 and March 2018, Rosenfeld solicited investors by promising them that he would pool their funds to purchase and then resell real estate for a profit, which he would then split with the investors. According to the complaint, the investors provided Rosenfeld with approximately $7 million for the proposed real estate transactions. The complaint alleges that, contrary to what Rosenfeld told investors, he never used investor funds to purchase any real estate. Instead, Rosenfeld allegedly misappropriated the investor funds and used them to trade securities in his own personal brokerage account. According to the complaint, while Rosenfeld returned approximately $1 million to investors, his undisclosed and unsuccessful securities trading resulted in the loss of the remaining $6 million of investor funds.
The United States District Court for the Southern District of New York entered a Default Judgment enjoining Jerry Li from violating or aiding and abetting violations of Sections 13(b)(5) and 30A of the Securities Exchange and Rule 13b2-1 thereunder, and aiding and abetting violations of Sections 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act. Further, Li was ordered to pay a $550,092 civil penalty. As alleged in part in the SEC Release:

[F]rom 2006 to 2016, Li orchestrated a scheme in China to bribe local, provincial, and national government officials in order to obtain direct selling licenses and curtail government investigations of his company's business practices. The complaint further alleged that Li directed that the bribes be made through payments of cash, gifts, travel, meals and entertainment, and that Li falsified company expense reports to conceal the bribes.

Today and in the coming weeks, a new type of complex exchange-traded product will become available to investors in the U.S.: single-stock levered and/or inverse exchange-traded funds. For years, the Office of Investor Education and Advocacy, staff in other Divisions and Offices, and a number of Commissioners have warned that complex products present several risks to investors. These new products are no exception, as they provide levered and/or inverse exposure to a single security, which can present risks for investors.

Holding a levered and/or inverse single-stock ETF is not the same as holding the underlying stock, a traditional ETF, or even a non-single stock levered and/or inverse ETF. It is riskier for several reasons. Importantly, like many other complex exchange-traded products, levered and/or inverse single-stock ETFs aim to provide returns over extremely short time periods (in some cases even a single day). New risks may emerge for investors who hold these products for longer than that. Investors should be aware that if they were to hold these funds for longer than a day, the performance of these funds may differ significantly from the levered and/or inverse performance of the underlying stock during the same period of time.

Additionally, unlike traditional ETFs, or even other levered and/or inverse ETFs, these levered and/or inverse single-stock ETFs track the price of a single stock rather than an index, eliminating the benefits of diversification. Because levered single-stock ETFs in particular amplify the effect of price movements of the underlying individual stocks, investors holding these funds will experience even greater volatility and risk than investors who hold the underlying stock itself.

Though these products will be listed and traded on an exchange, they are not right for every investor. Levered and/or inverse single-stock ETFs pose risks that are unique and complex. We encourage all investors to consider these risks carefully before deciding to invest in levered and/or inverse single-stock ETFs.

Bill Singer's Comment: I'm not sure that there is anything more idiotic than calling a "single stock" ETF a "complex exchange-traded product." I might not take as much exception if this newfangled ETF was called an asinine idea for moron investors, but that's just my thought on the product. Of course, how could you not love the prospect of a leveraged or inverse single-stock ETF? What's next? Perhaps a single-stock-triple-leveraged ETF pegged to a single-stablecoin-triple-leveraged ETF keyed to Elon Musk's Twitter feed and all rolled into a managed ETN? If anyone wants to run with that idea at least consider paying me royalties, okay?
Last year, Commissioner Lee and I called for improvements to the regulatory framework for complex exchange-traded products to address concerns about investor protection and potential risks to the financial system.[1]  A new type of complex product will arrive on the market shortly: so-called "single-stock ETFs."  These newly engineered offerings provide leveraged, inverse or other complex exposure to one single security rather than the typical portfolio of multiple, more diversified securities.  While I have expressed concern about leveraged and inverse ETFs before, I worry that these single-stock ETFs pose yet another, perhaps greater, risk for investors and the markets.

In 2019, the Commission adopted Rule 6c-11 under the Investment Company Act of 1940.[2]  In combination with changes to the listing standards at stock exchanges, that rule created a framework that allowed exchange-traded funds (ETFs) meeting certain criteria to come directly to market without first obtaining permission, through what is called an exemptive order, from the SEC.[3]

Nowhere in Rule 6c-11 is there a discussion of single-stock ETFs; there is no indication that the rule contemplated such products.  However, single-stock ETFs are nonetheless coming to market under the auspices of that rule.  And, in addition to presenting a high level of risk by virtue of their leveraged and inverse exposure to a single stock, these ETFs[4] rebalance on a daily basis, like most existing leveraged and inverse ETFs.  The daily rebalancing and effects of compounding may cause returns to diverge quite substantially from the performance of the, in this case, one underlying stock, especially if these products are held over multiple days or more.[5] 

In other words, investors' returns over a longer period of time might be significantly lower than they would expect based on the performance of the underlying stock.  These effects are likely to be especially pronounced in volatile markets.  And as Commissioner Lee and I previously noted, in addition to presenting significant investor protection issues,[6] in periods of market stress or volatility, leveraged and inverse products can act in unexpected ways and potentially contribute to broader systemic risks.[7]

Because of the features of these products and their associated risks, it would likely be challenging for an investment professional to recommend such a product to a retail investor while also honoring his or her fiduciary obligations or obligations under Regulation Best Interest.[8] However, retail investors can and do access leveraged and inverse exchange-traded products through self-directed trading.  While investors can gain similar upside and downside exposures to an equity security through the use of options and other derivatives, single-stock ETFs are likely to be uniquely accessible and convenient for self-directed retail investors, in particular.

As I have noted before, a comprehensive and consistent approach to the review of complex exchange-traded products is long overdue.  I appreciate that the Chair has expressed a willingness to work on these issues,[9] and I am encouraged by the steps FINRA has taken toward updating its complex products framework.[10]  However, I am disappointed that, months after Commissioner Lee and I called for improvements to the rules for complex exchange-traded products, we have not updated our regulatory framework to better address the risks these products pose to investors and the markets. Further, with respect to single-stock ETFs in particular, I am disappointed that the Commission has thus far failed to make use of the tools it does have, such as rulemaking under the Investment Company Act of 1940 and/or the Securities Exchange Act of 1934, to grapple with the question of whether these products are appropriate in the public interest and consistent with the protection of investors.  I strongly encourage my colleagues to consider rulemaking in this case.

As with other complex exchange-traded products, single-stock ETFs may be useful to certain investors who understand their unique features.  However, they are risky products for investors and potentially for the markets, as well.  The arrival and proliferation of these products on the market underscores the importance of addressing the investor protection concerns and market risks that these and other exchange-traded products can entail.

[1] Commissioner Allison Herren Lee and Commissioner Caroline Crenshaw, Statement on Complex Exchange-Traded Products (Oct. 4, 2021).

[2] Exchange-Traded Funds, Release Nos. 33-10695; IC-33646 (December 23, 2019). See also Use of Derivatives by Registered Investment Companies and Business Development Companies, Release No. IC-34084, (Oct. 28, 2020) (amending Rule 6c-11 to allow leveraged and inverse ETFs that satisfy the rule's conditions to operate without an exemptive order).

[3] Exchange-Traded Funds, Release Nos. 33-10695; IC-33646 (December 23, 2019). Prior to the passage of Rule 6c-11, exchange-traded funds had to meet certain listing criteria established by rules at the relevant exchanges. Single-stock ETFs would not have satisfied the criteria established by those rules, and therefore could not have come directly to market. However, after the passage of Rule 6c-11, the exchanges established generic listing standards for ETFs that are permitted to operate in reliance on Rule 6c-11.  See, e.g., NYSE Arca, Inc.; Notice of Filing of Amendment No. 2 and Order Granting Accelerated Approval of a Proposed Rule Change, as Modified by Amendment No. 2, to Adopt NYSE Arca Rule 5.2-E(j)(8) Governing the Listing and Trading of Exchange Traded Fund Shares, Release No. 34-88625 (April 13, 2020).  Other exchanges made similar rule changes.

[4] Single-stock ETFs have been introduced in certain other jurisdictions. However, those jurisdictions have different regulatory frameworks and markets.

[5] See Office of Investor Education and Advocacy, Leveraged and Inverse ETFs: Specialized Products with Extra Risks for Buy-and-Hold Investors (Aug. 1, 2009).  The Commission's Office of Investor Education and Advocacy has received complaints from investors expressing concerns that, while certain leveraged/inverse products may have operated in accordance with their terms, the pricing and trading dynamics of these products during periods of market volatility was not consistent with investor expectations.

[6] Commissioner Allison Herren Lee and Commissioner Caroline Crenshaw, Statement on Complex Exchange-Traded Products (Oct. 4, 2021) (describing investor protection concerns). See also Jay Clayton, Dalia Blass, William Hinman, Brett Redfearn, Joint Statement Regarding Complex Financial Products and Retail Investors (October 28, 2020) ("[L]everaged/inverse products and other complex products may present investor protection issues-particularly for retail investors who may not fully appreciate the particular characteristics or risks of such investments, including the risks that holding such products may pose to their investment goals.")

[7] See, e.g., Luke Kawa, Bloomberg, The Day The VIX Doubled: Tales of "Volmageddon" (Feb. 6, 2019).

[8] As the Commission stated at the time of Regulation Best Interest's adoption, leveraged and inverse exchange-traded products are "highly complex financial instruments" and the fact that they reset daily means such products are unlikely to be "suitable for, and as a consequence also not in the best interest of, retail customers who plan to hold them for longer than one trading session, particularly in volatile markets." Regulation Best Interest: The Broker-Dealer Standard of Conduct, Release No. 34-86031 (June 5, 2019) at 263-264.  The Commission explained further that these products are unlikely to be in the best interest of a retail investor absent an identified, short-term, customer-specific trading objective. Id. at 264. 

[9] Chair Gary Gensler, Statement on Complex Exchange-Traded Products (Oct. 4, 2021).

[10] See FINRA, Regulatory Notice 22-08: FINRA Reminds Members of Their Sales Practice Obligations for Complex Products and Options and Solicits Comment on Effective Practices and Rule Enhancements (Mar. 8, 2022).

I support granting temporary exemptive relief for certain provisions of the consolidated audit trail ("CAT"). The CAT, a project designed to give the Securities and Exchange Commission and other regulators comprehensive market insight, has proved much harder and more expensive to implement than anyone anticipated. I have grave concerns about the whole project. The dollars, distraction, dissension, and drain of endless meetings over the past several years of CAT implementation are reasons enough to reconsider the entire project; the risks to liberty and security posed by the project should compel us to do so.

With respect to liberty, I plead with my fellow Americans to care about your financial privacy. Why should the government, without any indication of wrongdoing on your part, follow you around the securities markets to monitor every order you place and every trade you make? With respect to security, I plead with my fellow regulators to rethink the wisdom of creating a massive database of information that hackers may try to exploit for their nefarious ends. Given these concerns, my preference would be to see the project placed in the SEC's catacombs-dead and buried forever.

Nevertheless, the CAT lives on, so I support granting additional time to resolve a number of implementation issues, which is what today's order does.

Order Determining Whistleblower Award Claims ('34 Act Release No. 34-95247; Whistleblower Award Proc. File No. 2022-63)
The SEC's Claims Review Staff ("CRS") issued a Preliminary Determination recommending the denial of a Whistleblower Award to Claimant. The Commission ordered that CRS' recommendations be approved. The Order asserts that [Ed: footnote omitted]:

[T]he CRS concluded that Enforcement staff had already opened the investigation that led to the Covered Action approximately four years before Claimant submitted his/her information, and that Claimant's information was otherwise vague, insubstantial, and did not warrant any further investigative efforts by the staff. The CRS also determined that the staff did not use any information from Claimant's submission. 

Order Determining Whistleblower Award Claims ('34 Act Release No. 34-95222; Whistleblower Award Proc. File No. 2022-62)
The SEC's Claims Review Staff ("CRS") issued a Preliminary Determination recommending the denial of a Whistleblower Award to Claimant. The Commission ordered that CRS' recommendations be approved. The Order asserts that [Ed: footnote omitted]:

[T]he CRS concluded that Claimant's information did not either (1) cause the Commission to (a) commence an examination, open or reopen an investigation, or inquire into different conduct as part of a current Commission examination or investigation, and (b) thereafter bring an action based, in whole or in part, on conduct that was the subject of claimant's information, pursuant to Rule 21F-4(c)(1); or (2) significantly contribute to the success of a Commission judicial or administrative enforcement action under Rule 21F-4(c)(2) of the Exchange Act. The CRS determined that the investigation that led to the Covered Action was opened and pursued as a result of referrals from another regulatory agency (the "Other Agency"). The CRS also determined that Claimant's information did not significantly contribute to the Covered Action and consisted primarily of publicly available information, information already known to the staff, or information that was otherwise vague and unsubstantiated. 

The CRS also concluded that Claimant did not qualify for an award because Claimant's information was provided before July 21, 2010, the date of the enactment of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the "Dodd-Frank Act"), and thus did not constitute original information within the meaning of Section 21F(b)(l) of the Exchange Act and Rules 21F-3(a)(2) and 21F-4(b)(1)(iv) thereunder. The CRS determined that Claimant's whistleblower application was based on emails sent to the Commission and other agencies beginning in Redacted The record before the CRS demonstrated that Claimant's information provided to the Commission after July 21, 2010 was already known to the staff, publicly available, or contained general or vague allegations of wrongdoing that were unsubstantiated and did not lead to the success of the Covered Action under Rule 21F-4(c)(2) of the Exchange Act.

Order Determining Whistleblower Award Claims ('34 Act Release No. 34-95221; Whistleblower Award Proc. File No. 2022-61)
The SEC's Claims Review Staff ("CRS") issued a Preliminary Determination recommending the denial of a Whistleblower Award to Claimant. The Commission ordered that CRS' recommendations be approved. The Order asserts that [Ed: footnote omitted]:

[R]ule 21F-9(a) requires a whistleblower to submit information through the Commission's online Tips, Complaint, or Referral ("TCR") portal, or by mailing or faxing a Form TCR to the Commission's Office of the Whistleblower. Claimant's whistleblower application stated that Claimant submitted information to the Commission by email on or about Redacted but Claimant did not cite to any specific TCR submission. The CRS concluded that Claimant did not submit any information pursuant to these procedures until Redacted 

The CRS also concluded that Claimant did not qualify for an award because Claimant did not provide information to the Commission that led to the successful enforcement of the Covered Action. The CRS concluded that none of the information submitted by Claimant either (1) caused the Commission to (a) commence an examination, open or reopen an investigation, or inquire into different conduct as part of a current Commission examination or investigation, and (b) thereafter bring an action based, in whole or in part, on conduct that was the subject of claimant's information, pursuant to Rule 21F-4(c)(1); or (2) significantly contributed to the success of a Commission judicial or administrative enforcement action under Rule 21F-4(c)(2) of the Exchange Act. The record demonstrated that Enforcement staff opened the investigation that led to the Covered Action (the "Investigation") on Redacted based upon a source other than the Claimant, that Claimant submitted his/her Form TCR almost three years after the Investigation was opened, and that staff responsible for the Investigation confirmed that Claimant's information was not used in the Investigation or the resulting litigated enforcement action in any way.

As first published at in "Securities Industry Commentator" on November 3, 2021

Risky Whiskey - Securities Commissioner Stops International Investment Scheme (TSSB Release)
The Texas State Securities Board entered an emergency cease and desist order
to stop an allegedly illegal international whiskey investment scheme purportedly advertised by Whiskey & Wealth Club Limited. Also named in the Order are Scott Sciberras, a Co-Founder, Director and CEO; William Fielding, a Co-Founder, Director and COO; Alex Mook, a Wealth Manager; Richard Falconer, a Wealth Advisor; and Benjamin Dunlop, a Senior Wealth Manager. As alleged in part in the TSSB Release:

[W]hiskey & Wealth Club is advertising the scheme through the internet - using a website, and promoting advertisements published in Reddit, and social media platforms such as Facebook, YouTube, Instagram, and LinkedIn. It is also allegedly using other media to bolster its legitimacy, including various press releases and articles published in Forbes, Bloomberg, Yahoo Finance and Fox Business News. The pitch is simple: whiskey improves with age and investing in whiskey improves returns over time. Investors purchase casks of whiskey from foreign distilleries, store the whiskey in overseas facilities and then sell the whiskey for a profit. Whiskey & Wealth Club is touting the returns - claiming investors can earn between 12 and 20 percent annualized returns if investors hold their whiskey for at least three years and preferably five to 10 years. Whiskey & Wealth Club purportedly provides discounted brokerage services, permitting investors to liquidate their whiskey for a below-market fee. Although Whiskey & Wealth Club is reportedly touting the profits it earns after three years or longer, there's a problem: according to the order, Whiskey & Wealth Club has been incorporated for less than three years. Moreover, according to Companies House, the UK registrar for corporations, Whiskey & Wealth Club's corporate accounts are also overdue.

UPDATE: July 11, 2022:
After Respondents requested a hearing to modify/set aside the TSSB Emergency Order, the Respondents and the TSSB Enforcement Division entered into an Agreed Order whereby the Emergency Order was dismissed and set aside entirely subject to Respondent Whiskey and Wealth Club's compliance with this Undertaking:

13. Respondent Whiskey & Wealth Club, representing its commitment to complying with the law and as a measure of good faith, has executed an Undertaking, which shall be deemed filed contemporaneously with the execution and entry of this Agreed Order and is hereby fully incorporated within this Agreed Order.

14. As described within the Undertaking, Respondent Whiskey & Wealth Club is committed to reviewing its marketing materials and purchase contracts. 

FINRA Fines and Suspends Rep for Insurance OBA
In the Matter of Michael Ohlemacher, Respondent (FINRA AWC 2021070251201)
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, Michael Ohlemacher submitted a Letter of Acceptance, Waiver and Consent ("AWC"), which FINRA accepted. The AWC asserts that Michael Ohlemacher was first registered in 2010 with W&S Brokerage Services, Inc. In accordance with the terms of the AWC, FINRA imposed upon Ohlemacher a $5,000 fine and a three-month suspension from associating with any FINRA member in all capacities. As alleged in part in the AWC:

Ohlemacher sold insurance products primarily through WSLIC, the firm's insurance affiliate. Firm policy allowed Ohlemacher to refer clients to insurance companies not affiliated with WSLIC for certain insurance products not offered by WSLIC, and to receive compensation for such referrals, provided he sought and received prior written permission from both W&S Brokerage and WSLIC. From 2012 through 2020, Ohlemacher engaged in an outside business activity where he referred at least eighty individuals - both W&S Brokerage clients and non-clients - to an insurance company not affiliated with WSLIC, earning over $94,000 in commissions. Ohlemacher never disclosed this outside business activity in writing to W&S Brokerage or WSLIC, nor did he receive firm approval for it. In addition, during the relevant period, Ohlemacher falsely attested on five annual compliance questionnaires that he had disclosed all outside business activities. 

Therefore, Ohlemacher violated FINRA Rules 3270 and 2010.

In the Matter of the Arbitration Between RBC Wealth Management, a division of RBC Capital Markets, LLC, v. David William Weigel, Respondent, v. John Bernard Moran, Third-Party Respondent (FINRA Arbitration Award 20-40094)
IN a FINRA Arbitration Statement of Claim filed in December 2020, FINRA member firm RBC Wealth Management asserted breach of promissory note against associated person Respondent Weigel. Weigel generally denied the allegations, asserted affirmative defenses, and file a Counterclaim and Third-Party Claim asserting violation of New York City Human Rights Law; violation of New York State Human Rights Law; breach of contract and breach of the obligation of good faith and fair dealing, including FINRA Rule 2010. The FINRA Arbitration Panel found Respondent Weigel liable to and ordered him to pay to Claimant RBC $1,117,656.38 in compensatory
damages plus interest; plus $78,563.02 in accrued interest; $5,173.61 in costs; and $215,854.85 in attorneys' fees. Finally, the Panel granted Claimant's Motion for Sanctions and ordered that Respondent return to Claimant all of Claimant's confidential material in Respondent's possession.