Securities Industry Commentator by Bill Singer Esq

July 25, 2022
Fidelity Brokerage Services LLC filed a FINRA Arbitration Statement of Claim against a former employee citing her alleged misuse of confidential customer information. Then, on a second track, Fidelity chugs into federal court with another lawsuit, which prompted amended complaints and counterclaims, and the addition of a non-FINRA-member-firm. On top of that, the former employee filed her own claims involving alleged age and sex discrimination. What's arbitrable? What's not? Where should all of this get decided? Should one of the litigation trains get stopped in its tracks? 

Notice of Annual Meeting of FINRA Firms and Election Proxy (FINRA Election Notice)

FINRA will conduct its Annual Meeting of firms on Friday, August 19, 2022, and the purpose of the meeting is to elect an individual to fill one small firm seat on the FINRA Board of Governors. All eligible small firms should submit a proxy, which must be signed by the executive representative of the firm eligible to vote in the election.

Time to clean house at the FINRA Board of Governors

The " Blog" and the "Securities Industry Commentator"
 urge all FINRA Small Firms to vote for:

Stephen A. Kohn, President
DMK Advisors Group, Inc.

Stephen Kohn has been employed in the financial services industry since 1984, to
which he has devoted most of his working life.

Mr. Kohn founded, owned and operated a FINRA small member firm, Stephen A.
Kohn & Associates, Ltd. (SAKL) located in Lakewood, Colorado since 1996. On January 1, 2020 ownership of SAKL was turned over to DMK Advisor Group, Inc. (DMK). He has assumed the role of president of DMK and, will continue as such well into the future.

In 2017, Mr. Kohn was elected by the Small Firm Membership to the FINRA Board
of Governors to represent Small Firm interests and issues at the highest levels. He
served on the Regulatory Policy and Audit Committees.

He has been twice elected to the National Adjudicatory Council (NAC) by FINRA's
small firms, first in 2009 and again in 2014. The NAC is FINRA's appellate division,
hearing appeals to enforcement decisions and other issues.

While on the NAC, Mr. Kohn served on the Sanction Guideline Review and Revision
Sub-Committee. This sub-committee was convened to review the Sanction
Guidelines to ensure that sanctions in appeals that are upheld by the NAC are fair
and appropriate and to recommend revisions as needed. He is also an industry
arbitrator and has served on the District 3 Committee.

Mr. Kohn holds the following securities licenses: Series, 7, 14, 24, 53, 63, 72, 73, 79
and 99. He graduated from C.W. Post College of Long Island University in 1964 with a
BA degree. He has served in the U.S. Coast Guard.
FINRA Small Firm advocate Stephen Kohn is running for the FINRA 2022 Small Firm Governor. Stephen is supported by many reform voices in the FINRA Small Firm community and is supported by Bill Singer, Esq., an outspoken critic of regulatory incompetency and the publisher of the "Securities Industry Commentator" and the " Blog." Stephen offers his supporters the opportunity to join and meet like-minded small firm executives and show FINRA that we are not a rag-tag group of greedy opportunists but a group of members that really care about the well-being of our clients, the investing public. VOTE FOR STEPHEN KOHN!!!!
Stephen Buyer allegedly used inside information to buy $1.5 million in stocks
In a Complaint filed in the United States District Court for the Southern District of New York, former Indiana Congressman Stephen Buyer was charged with violating Section 10(b) of the Securities Exchange Act and Rule 10b-5 thereunder.Related criminal charges were filed in a parallel action. As alleged in part in the SEC Release:

[A]fter leaving Congress in 2011, Buyer formed a consulting firm, the Steve Buyer Group, which provided services to, among other clients, T-Mobile. In March 2018, Buyer attended a golf outing with a T-Mobile executive, from whom he learned about the company's then nonpublic plan to acquire Sprint. Buyer began purchasing Sprint securities the next day, and, ahead of the merger announcement, he acquired a total of $568,000 of Sprint common stock in his own personal accounts, a joint account with his cousin, and an acquaintance's account. After news of the merger leaked in April 2018, Buyer saw an immediate profit of more than $107,000.

In 2019, according to the SEC's complaint, Buyer purchased more than $1 million of Navigant Consulting, Inc. securities ahead of the public announcement that it would be acquired by another one of Buyer's consulting clients, Guidehouse LLP. Buyer again spread the purchases across several accounts, including his own accounts, joint accounts with his wife and son, his wife's personal account, and the same acquaintance's account involved in the Sprint trading. The complaint alleges that, in August 2019, on the day that the Navigant acquisition was publicly announced, Buyer sold nearly all of the shares he had acquired across the various accounts and profited more than $227,000.
In Complaints filed in the United States District Court for the Southern District of New York:

The SEC alleged insider trading charges against nine individuals in connection with three separate alleged schemes. As alleged in part in the SEC Release:

Chief Information Security Officer Tipped Friends

In one action, the SEC alleges that Amit Bhardwaj, the former CISO of Lumentum Holdings Inc., and his friends, Dhirenkumar Patel, Srinivasa Kakkera, Abbas Saeedi, and Ramesh Chitor, traded ahead of two corporate acquisition announcements by Lumentum, thereby generating more than $5.2 million in illicit profits.

The SEC's complaint alleges that, through his work at Lumentum, Bhardwaj learned material nonpublic information (MNPI) about the company's plans to first acquire Coherent, Inc. and later acquire NeoPhotonics Corporation. Based on this MNPI, Bhardwaj allegedly purchased Coherent securities ahead of the January 2021 announcement of Lumentum's agreement to acquire Coherent and tipped his friend Patel, with the understanding that Patel would later share some of his ill-gotten gains. The SEC further alleges that, during October 2021, Bhardwaj shared MNPI about Lumentum's planned acquisition of NeoPhotonics with his friends Kakkera, Saeedi, and Chitor, who then amassed large positions of NeoPhotonics based on Bhardwaj's tips. After the November 2021 announcement of the NeoPhotonics acquisition, Chitor indirectly transferred funds to Bhardwaj's relative in India, as instructed by Bhardwaj.

In addition to the relief described above, the SEC's complaint seeks disgorgement of illicit profits with prejudgment interest from relief defendants Gauri Salwan, the Kakkera Family Trust, All US Tacos Inc., and Janya Saeedi. The case was investigated by Ann Marie Preissler, Joshua Geller, John Rymas, and Simona Suh of the MAU, and by Elzbieta Wraga of the New York Regional Office (NYRO). Ms. Preissler, Mr. Geller, and Ms. Suh will lead the SEC's litigation.

Investment Banker Tipped Friend

In another action, the SEC alleges insider trading by investment banker Brijesh Goel and his friend Akshay Niranjan, who was a foreign exchange trader at a large financial institution. The SEC alleges that the two men, close friends from business school, made more than $275,000 from illegally trading ahead of four acquisition announcements in 2017 that Goel learned about through his employment. The complaint further alleges Niranjan purchased call options on the target companies and later wired Goel $85,000 for Goel's share of the proceeds.

The case was investigated by Andrew Palid, David Makol, and Michele T. Perillo of the MAU, and by Chip Harper of the Boston Regional Office (BRO). Messrs. Harper and Palid along with Amy Burkart from BRO will lead the SEC's litigation.

Former FBI Trainee Tipped Friend

Finally, in a third action, the SEC alleges that Seth Markin, a former FBI trainee, and his friend Brandon Wong made approximately $82,000 and $1.3 million, respectively, from illegally trading ahead of the February 2021 announcement of a tender offer by Merck & Co., Inc., to acquire Pandion Therapeutics, Inc. The SEC's complaint alleges that Markin secretly reviewed the binder of deal documents about the planned tender offer from his then-romantic partner, who worked as an associate for a law firm representing Merck on the deal, traded on the MNPI, and tipped his close friend Wong. The complaint alleges that, after the announcement, Wong bought Markin a Rolex watch to thank him for the tip.

Delray Beach Woman Sentenced To 30 Months In Prison For Her Role In International Boiler Room Conspiracy (DOJ Release)
After pleading guilty to conspiracy to commit wire fraud in the United States District Court for the Middle District of Florida, Tracy Lee Jedlicki, 56, was sentenced to 30 months in prison; and ordered o forfeit $750,000, a 4.01 carat diamond ring, a 11-carat diamond necklace, and a South Florida residence worth more than $2 million; and, further, J ordered to pay $3,244,592 in restitution. As alleged in part in the DOJ Release:

[J]edlicki and her coconspirators operated international boiler rooms in Panama and elsewhere.  The boiler rooms used high-pressure sales techniques to defraud individuals who believed they were investing substantial amounts of money in regulated financial products or markets, such as options in commodities and stocks. The majority of the victims targeted by the boiler rooms operated by Jedlicki and her coconspirators were located in Canada, the United Kingdom, Australia and New Zealand.

Jedlicki and her coconspirators then laundered fraud proceeds generated by the boiler rooms through several money laundering rings, to overseas accounts, with the launderers receiving a percentage of the funds they had moved. Jedlicki's duties included, among other tasks, arranging travel for boiler room workers to the boiler room locations, calling victims while posing as an employee of a fake investment firm to set up loading calls for coconspirators operating the boiler rooms, serving as a liaison between the boiler rooms and a money laundering organization, maintaining records of coconspirator wire transfer payments to foreign and domestic bank accounts, and reconciling payments between the boiler rooms and the money laundering organization.

Jedlicki herself received a 2% referral fee for referring victims' funds to a money laundering ring and used the funds to perpetuate the conspiracy and for her own personal enrichment.  Jedlicki and her coconspirators wired or caused to be wired victims' funds in the approximate amount of $3,244,592 to money laundering accounts in furtherance of the wire fraud conspiracy.
As set forth in the 2Cir's Syllabus:

This case presents the question whether a person who submits information about potential securities laws violations to the Securities and Exchange Commission is entitled under Section 21F of the Securities Exchange Act to receive a whistleblower award from the SEC when other federal agencies use that information to help secure a financial settlement with the alleged wrongdoer. On review, we agree with the SEC that  neither the settlements secured by the other agencies nor any investigative or  information-sharing activities undertaken by the SEC with respect to Hong's tip qualifies as a "judicial or administrative action brought by the [SEC]" under Section 21F. 15 U.S.C. § 78u-6. We further decide that the settlements are not "related actions" to any action brought by the SEC. Having so construed the statute, we reject Hong's arguments that he was entitled to an award and that the SEC was obligated to provide him with additional records regarding its investigation into the wrongdoer.

The petition for review is DENIED. The motion to dismiss is DENIED as moot.

Bill Singer's Comment:

The stench that reeks from the abuse of whistleblower Hong is set out in all its shame in this lament from 2Cir:

[W]e are mindful that this decision may strike some as inconsistent with the principal statutory goal of the Program-namely, Congress's desire to incentivize and reward whistleblowers who may risk their reputations and careers to help hold financial institutions responsible for unlawful behavior. But it is not our role to rewrite the limitations on eligibility set forth in the Exchange Act, nor to override the SEC's reasonable interpretations of that statute, in order to ensure that this goal is satisfied in every instance. 

at Pages 28 - 29 of the 2Cir Opinion
In 2020, Health and Wellness Lifestyle Clubs, LLC. ("HWLC") filed a FINRA Arbitration Statement of Claim naming as Respondents Carolyn Valentine and H. Beck, Inc. n/k/a Grove Point Investments, LLC. Valentine is a registered representative with FINRA member firm H. Beck. The arbitration arose from a purportedly failed transaction whereby HWLC sought to buy two country clubs owned by John Rainieri. First, HWLC sued Rainieri and others and the United States District Court for the Northern District of Ohio ("NDOH") granted Rainieri Summary Judgment on the breach of contract claim, which was affirmed by 6Cir, and the parties dismissed all claims without prejudice. Next, HWLC sued Valentine in Ohio State Court and she eventually obtained a jury verdict in her favor. Then the cited FINRA arbitration was docketed. Valentine and H. Beck filed Motions for Preliminary Injunctions to Enjoin the FINRA Arbitration with NDOH, which denied the motions and they appealed to 6Cir. 

In pertinent part, in dismissing the appeal, 6Cir holds that:

That is not the case here. The requests for a declaratory judgment and a permanent injunction, as well as the counterclaims, were not resolved by the denial of the preliminary injunction. Because those claims persist, the district court's denial of the motion for a preliminary injunction was not an appealable final order but an unappealable interlocutory order. 

In response to all this, Valentine leans on the fact that § 16(b) bars review only of interlocutory orders enjoining an arbitration "subject to" to the FAA. According to Valentine, the FINRA arbitration is not subject to the FAA because the FAA only governs arbitrations where there is a written agreement to arbitrate, and no such agreement exists here. 

We disagree. The relevant "agreement" to arbitrate is between Valentine and FINRA, not Valentine and HWLC. Valentine does not dispute that she is a member of FINRA and agreed, by virtue of the FINRA Code, to arbitrate at least certain kinds of disputes with customers pursuant to FINRA Rule 12200. "Numerous courts have held that FINRA Rule 12200 constitutes an enforceable arbitration agreement within the meaning of the FAA." Reading Health Sys. v. Bear Stearns & Co., 900 F.3d 87, 100 n.62 (3d Cir. 2018). And we have previously observed that the NASD code is an "agreement in writing" sufficient to invoke the FAA. Liberte Cap. Grp., LLC v. Capwill, 148 F. App'x 413, 416 (6th Cir. 2005). Because the NASD rules are "substantively equivalent" to the FINRA rules, we treat them the same. See Wilson-Davis & Co., Inc. v. Mirgliotta, 721 F. App'x 425, 428 n.2 (6th Cir. 2018). 

Valentine's argument in effect recasts the merits. The district court disagreed with Valentine's argument that HWLC was not her customer and held that she had "agreed" to arbitrate with it. That decision may have been wrong, and, indeed, we have serious concerns about the soundness of the district court's opinion and the way it tracked, nearly-word-for-word, the proposed findings of fact and conclusions of law submitted by HWLC. Nevertheless, Valentine's argument that HWLC was not actually her customer is irrelevant to whether arbitration under the FINRA Code is covered by the FAA and its provisions regarding appellate jurisdiction. See Arthur Andersen LLP v. Carlisle, 556 U.S. 624, 628 (2009) (stating that jurisdiction over an appeal under the FAA "must be determined by focusing upon the category of order appealed from, rather than upon the strength of the grounds for reversing the order.") (quoting Behrens v. Pelletier, 516 U.S. 299, 311 (1996)). To hold otherwise would mean that any time a party argues that it did not agree to arbitrate, that arbitration is not covered by the FAA. 

Valentine provides no authority suggesting that arbitration under the FINRA Code- whether or not it has rightfully been invoked-is not an arbitration "subject to [the FAA]" within the meaning of § 16(b)(4). The order she appeals, therefore, is both (1) interlocutory and (2) one refusing to enjoin an arbitration subject to the FAA. Section 16(b) bars us from hearing appeals of those orders. We therefore must dismiss this case for lack of jurisdiction, while expressing no opinion on whether Valentine is correct that her claims do not belong in FINRA arbitration.

at Pages 7 - 8 of the 6Cir Opinion
After a jury in the United States District Court for the Southern District of Florida found Jason Van Eman, 44. guilty of conspiracy, wire fraud, and money laundering; he was sentenced to 262 months in prison and ordered to pay $9 million in restitution. As alleged in part in the DOJ Release: 

Van Eman held himself out as a film producer and financier, offering to fund independent motion pictures, Broadway shows, music festivals, and other productions.  Van Eman promised the victims (producers and others seeking financing), that his partner (a co-conspirator named Benjamin McConley) would match any cash that the victims contributed to their projects.  Then, with the combined starting capital (which made the projects more attractive to investors), McConley would apply for and secure financing from financial institutions.

Based on these lies, victims sent over $60 million to accounts controlled by the fraudsters.  Contrary to what Van Eman promised victims, his partner never matched their cash contributions or applied for financing.  Instead, Van Eman and his co-conspirators stole the victims' money by transferring it to their personal and corporate bank accounts, often within days of deposit.  To make the scam more believable, Van Eman and McConley recruited Benjamin Rafael, a bank employee, whose role was to assure victims that their cash contributions had been matched and that their money was secure - neither of which was true.

Van Eman, McConley, and Rafael used the stolen money to purchase luxury automobiles, personal watercraft, real estate, jewelry, home furnishings, designer clothes, hotel accommodations, and private and commercial air travel.  Van Eman used some of the stolen cash to fund movies in which he was cast as an actor.    

Bill Singer's Comment: For a list of Van Eman's acting credits, visit