SEC Charges JPMorgan, UBS, and TradeStation for Deficiencies Relating to the Prevention of Customer Identity Theft (SEC Release)SEC Charges Former CFO and COO with Falsifying Books and Records and Circumventing Internal Controls to Misappropriate Funds (SEC Release)SEC Charges Former Chief Petty Officer with Fraud in Investment Scheme That Targeted U.S. Navy Veterans and Sailors (SEC Release)SEC Files Subpoena Enforcement Action Against GP Capital Group, Inc. and Its President, Shannon W. IIIingworth (SEC Release)SEC Charges Florida Resident with Operating a Ponzi Scheme That Targeted Haitian-American Community (SEC Release)Disbarred New York Attorney Sentenced To Three Years In Prison For Multi-Million Dollar Securities Fraud Scheme (DOJ Release)Portage Man Sentenced To 16 Years' Imprisonment For Leading Scheme To Defraud Amazon's Textbook Rental Program / Talsma is last of four defendants sentenced for participating in the mail fraud scheme (DOJ Release)Brazilian Woman Charged With Defrauding Clients And Misappropriating Their Money / Raquel Moura Borges Misappropriated More Than $4 Million of Her Clients' Funds (DOJ Release)Justice Department and Consumer Financial Protection Bureau Secure Agreement with Trident Mortgage Company to Resolve Lending Discrimination Claims / Settlement Provides Over $20 Million to Increase Credit Opportunities in Neighborhoods of Color / First Redlining Settlement Against Mortgage Company; Second Largest Redlining Settlement in Justice Department History (DOJ/CFPB Release)Executives of Card Payment Processing Company Indicted in East Texas for Nationwide Multimillion Dollar Fraud Scheme (DOJ Release)District-Based Financial Services Professional Pleads Guilty to Federal Charge of Insider Trading / Defendant Admits Using Non-Public Information for Personal Benefit (DOJ Release)Notice of Annual Meeting of FINRA Firms and Election Proxy (FINRA Election Notice) VOTE FOR STEPHEN A. KOHN FOR SMALL FIRM GOVERNORGUEST BLOG: FINRA and Another Nail . . . A Personal Message From Stephen Kohn, Candidate for FINRA 2022 Small Firm Governor (BrokeAndBroker.com Blog)Former Wells Fargo Advisors Senior Vice President Moves Federal Court to Undo 2017 FINRA Settlement (BrokeAndBroker.com Blog)
[F]rom at least January 2017 to October 2019, the firms' identity theft prevention programs did not include reasonable policies and procedures to identify relevant red flags of identity theft in connection with customer accounts or to incorporate those red flags into their programs. In addition, the SEC's orders find that the firms' programs did not include reasonable policies and procedures to respond appropriately to detected identity theft red flags, or to ensure that the programs were updated periodically to reflect changes in identity theft risks to customers.. . .
JPMorgan: The JPMorgan order also finds that the firm failed to exercise appropriate and effective oversight of all service provider arrangements and failed to train staff to effectively implement one of its identify theft prevention programs in 2017.UBS: The UBS order also finds that the firm failed to periodically review new or existing types of customer accounts to determine whether and how its identity theft prevention program should apply to them; failed to adequately involve the board of directors in the oversight, development, implementation, and administration of the program; and failed to train its employees to effectively implement the program.TradeStation: The TradeStation order also finds that the firm failed to adequately involve its board of directors in the oversight, development, implementation, and administration of its identity theft prevention program and failed to exercise appropriate and effective oversight of service provider arrangements.The SEC's orders find that each firm violated Rule 201 of Regulation S-ID. Without admitting or denying the SEC's findings, each firm agreed to cease and desist from future violations of the charged provision, to be censured, and to pay the following penalties: JPMorgan: $1.2 million, UBS: $925,000, and TradeStation: $425,000.
The Commission's Order finds that Aegis Capital Corporation violated various provisions of the federal securities laws because, among other things, certain of its registered representatives made unsuitable recommendations that customers invest in a complex financial instrument. I am unable to support the Order for a number of reasons, but write to highlight one particularly problematic aspect.The Order recites that "[i]n determining to accept [Aegis's offer of settlement], the Commission considered remedial acts undertaken by [Aegis] and the CEO's sworn certification" that Aegis had in fact undertaken the listed remedial acts. Among the remedial acts that the Commission took into consideration is that, during the Commission's investigation, Aegis adopted a policy that "expressly prohibit[s] the firm and its associated persons from purchasing [Variable Rate Structured Products ("VRSPs")] for retail customer accounts." I can understand why Aegis adopted a policy that flatly prohibits its registered representatives from recommending VRSPs to retail customers, given that the Commission was investigating it for that precise conduct. I am concerned, however, that by citing this policy-backed up by a CEO certification-as a consideration in accepting Aegis's settlement offer, the Order inadvertently suggests that certain investment products, categorically, should be unavailable to certain types of investors. Other firms might think they have to follow suit. And what if Aegis later determined that a subset of investors would be well-served by these products? Could it change its policy without running afoul of the Commission's order?Complex financial instruments like VRSPs undoubtedly are unsuitable for some retail investors. Nevertheless, investors, working with their chosen financial professional, should be free to fashion their investment portfolios in the way that best suits their investment objectives and life circumstances. The Commission's orders should not intimate that certain types of investments are never suitable for particular classes of investors. I am concerned that the Commission's acknowledgment of, and reliance on, the remedial step taken here by Aegis may be read either as implying that an absolute prohibition on the sale of a specific product is the only acceptable remedial measure here or an as expectation for other firms dealing with retail clients.
[O]kunak directed the creation of, and in some cases approved for processing and payment, falsified purchase orders and invoices that purported to relate to services being performed for his employer, but in reality did not. As described in the complaint, the purchase orders and invoices were instead used to direct funds to companies in which Okunak had an interest, companies performing services for companies in which he had an interest, and to pay for his personal expenses. For example, Okunak allegedly used falsified purchase orders and invoices to direct $2.5 million to a company he owned, and directed $90,000 to a sports complex operator to pay for his suite license fee. According to the complaint, Okunak circumvented internal controls by submitting false certifications that failed to disclose his conflict of interest and his knowledge of improper payments. We allege that Okunak also circumvented controls related to the onboarding and payment of vendors.
[F]rom September 2020 through January 2022, Murray, formerly of North Canton, Ohio, solicited prospective investors in a Facebook group for current and former members of the Navy and offered securities in Deep Dive Strategies, LLC, a fund he controlled. In the unregistered offering, Murray, who was acting as an unregistered investment adviser, raised nearly $355,000 from approximately 44 investors in 14 states and told investors that the fund would invest in publicly traded securities. However, according to the complaint, Murray used a portion of the investor funds to trade options and misappropriated about $148,000 for his personal gain, including to gamble at a casino.
[F]rom approximately January to April 2020, Weitzberg and Gonzalez caused PASO to issue press releases and tweets that created the false impression that PASO was actively negotiating a merger with another entity. As alleged, Gonzalez, with Weitzberg's authorization, also promoted the fictional narrative of an upcoming merger by posting public letters falsely claiming that Gonzalez and a member of PASO's board of advisors purchased millions of PASO shares. The complaint alleges additional deceptive acts by Gonzalez, including impersonating a chiropractor to promote PASO on a radio talk show, and misleadingly posing as an unaffiliated investor-using a pseudonym-to post false and misleading statements promoting the merger and insider purchases on an Internet chat board.
[T]he SEC is investigating whether GP Capital Group and Illingworth, among others, violated the federal securities laws by, among other things, not registering the offer or sale of securities, acting as an unregistered broker or dealer, and/or making material misrepresentations or omissions in connection with the offer or sale of securities.
[O]n August 3, 2018, Pablo Rubinstein, a scientific advisor to Ampio, learned that the U.S. Food and Drug Administration had concluded that the clinical study for Ampio's developmental drug Ampion was not adequate and well-controlled. The SEC alleges that Pablo Rubinstein then unlawfully passed that information - before it was publicly disclosed - to his brother, Eduardo Rubinstein, who sold more than 103,000 shares of Ampio stock (nearly all of his Ampio holdings) based upon that information. Minutes after selling his own shares, Eduardo Rubinstein, in turn, allegedly passed that nonpublic information to his son-in-law, Mark Klein, who promptly sold his entire position of 100,000 shares of Ampio stock. As a result of their sales prior to the FDA's negative conclusions being made public, Eduardo Rubinstein and Mark Klein avoided losses of approximately $226,000 and $207,000, respectively.
[F]rom at least 2020 to 2021, Robert, through Chalala Academy LLC and Lendvesting Academy Corp, two companies she owned and controlled, offered investment programs to investors and promised "risk-free" returns of 10% to 48%. As alleged, Robert and the two companies made statements on the company's website and via social media claiming they raised more than $4 million from more than 1,000 investors, paid out $2.6 million in profits to investors, and were going to pay "guaranteed" investment returns from underwriting loans to small businesses. In fact, the SEC alleges, Robert, who is of Haitian descent, and her two companies, raised only approximately $900,000 from 80 investors, including many members of the Haitian-American community. As alleged in the complaint, instead of executing an investment strategy designed to generate the promised returns, Robert misappropriated investor funds and used investor funds to make Ponzi-like distributions to investors.
The SEC's complaint, filed on March 24, 2020, accused Megas, together with co-defendant Todd H. Lahr, of targeting Lahr's clients to raise funds for several Megas-led business ventures, including mining operations in Papua New Guinea and real estate investments in Barcelona and London. Instead, Megas and Lahr allegedly used investor funds to pay earlier investors and for various personal expenses, including Megas' vacation to the Caribbean, restaurant bills, and ATM withdrawals.Days after the entry of the final judgment on July 30, 2021, Megas filed a motion to vacate the Court's decision. On July 20, 2022, the Court denied Megas' action, concluding that Megas failed to present a meritorious defense or any evidence in support of his request to vacate the judgment against him. It also found that Megas willfully avoided timely action in this matter with his own testimony confirming that he knew about the SEC's litigation for one year before entry of the judgment.Previously, the SEC obtained a final judgment against Lahr, and Lahr was sentenced to 78 months in prison in a parallel criminal action brought by the U.S. Attorney's Office for the Eastern District of Pennsylvania and the Fraud Section of the Department of Justice.
[A]lthough Claimant 1 did not file a Form TCR within 30 days of first contacting the Commission, Claimant 1 satisfies Exchange Act Rule 21F-9(e) and is entitled to a waiver of this procedural requirement because the record reflects that Claimant 1 submitted a Form TCR within 30 days of learning of the TCR filing requirement and Claimant 1 otherwise unambiguously qualifies for an award.. . .[C]laimant 2's information did not lead to the success of the Covered Action because it was duplicative of information that staff had already learned prior to Claimant 2's submissions. None of the information provided by Claimant 2 helped the Enforcement staff (1) save time and resources, (2) recommend bringing additional charges, or (3) recommend bringing charges against any additional parties.. . .Claimant 3 has not shown what information (if any) Claimant 3 provided to the Federal Reserve, when Claimant 3 provided it, that it was the same information that Claimant 3 provided to the Commission and that Claimant 3 provided the information to the Commission within 120 days of providing it to the Federal Reserve.Moreover, as noted, Claimant 3 did not comply with the procedural requirements of Rule 21F-9 in Claimant 3'submissions of information to the Commission. Claimant 3 does not qualify for an automatic waiver of the TCR filing requirements under Rule 21F-9(e) because the record does not unambiguously demonstrate that Claimant 3 otherwise qualifies for an award. For all of these reasons, Rule 21F-4(b)(7) is not applicable to Claimant 3's award claim.
From at least in or about 2017 through in or about 2019, BIRNBAUM obtained more than $3 million in investments for Cash4Cases based on fraudulent misrepresentations. These investments were in the form of promissory notes, titled "Investor Security Agreements" ("ISAs"), which purported to provide the relevant investors with a security interest in the recoveries associated with certain specified lawsuits that were ostensibly purchased by Cash4Cases. In fact, in some instances, the lawsuits that were either never funded by Cash4Cases or BIRNBAUM had previously pledged their recoveries to other parties.To help carry out his fraud, BIRNBAUM directed an employee to falsify his company's books and records to make it appear that the recoveries from lawsuits that had already been paid out were still available to be pledged as collateral to new investors.BIRNBAUM also misappropriated a substantial portion of investors' funds for his personal use and to make promised payments to earlier investors in Ponzi-like manner. As one example, BIRNBAUM obtained a $1 million investment for Cash4Cases in September 2019. Prior to this investment, BIRNBAUM told the investor that Cash4Cases would use the money exclusively for advances to litigants. However, contrary to this representation, BIRNBAUM used the money to make a $530,000 down payment on the purchase of a house and to pay for other personal expenses and Ponzi-like payments to earlier investors.
Smith managed and owned two Hollywood-based production companies, Hoplite Entertainment Inc., and Hoplite Inc. To convince a private lender to fund a $2 million loan in 2020, Smith falsely represented that his two companies had accounts receivable of $3,348,000, and he submitted falsified license agreements and other forgeries to back up the claim.Based on these and other misrepresentations, the victim lender agreed to the loan and, on September 30, 2020, transferred $1,951,416 to a Hoplite Entertainment bank account.To convince the private lender to give him additional time to repay the loan, court documents state, Smith falsely represented that payment was imminent. He also emailed a fake record showing a $100,000 wire payment from Hoplite, Inc. to the lender. In fact, the loan was never repaid.
[F]rom January 2016 to March 2021, Talsma defrauded Amazon by using the internet to create numerous Amazon accounts and email accounts to rent textbooks and sell the textbooks for a profit when he should have returned the textbooks or paid the agreed upon buy-out price. Talsma caused Amazon to ship the textbooks through the United States Postal Service or across state lines using private commercial carriers. He concealed his fraudulent activities in part by recruiting and paying unwitting individuals to accept shipments of stolen textbooks at their homes so that Amazon would not detect a pattern of large volumes of books going to locations associated with him. Over time, Talsma taught some of these same individuals his scheme to defraud and actively supervised their participation in the fraud. Defendant shared the profits of the fraud scheme with these individuals after he sold the textbooks over the internet and at various bookstores, including a bookstore in Kalamazoo, Michigan. Additionally, according to the plea agreement, Talsma also ordered rental textbooks in the names of unwitting individuals and then pretended to be those individuals when calling Amazon and falsely claiming that he did not receive the textbooks. Talsma then received a credit from Amazon that he used to order additional textbooks. The fraud scheme caused losses to Amazon well in excess of $3,000,000.00.
From at least in or about 2017 until at least in or about 2018, RAQUEL MOURA BORGES represented to Victim-1 that she was making financial investments, including a private placement investment in a particular Brazilian company, on Victim-1's behalf. In or about December 2017, over the course of three transactions, BORGES caused approximately $2.7 million to be transferred from Victim-1's account to accounts controlled by BORGES. Contrary to the representations made by BORGES to Victim-1 and in violation of the duties she owed Victim-1, none of the $2.7 million was actually invested on Victim-1's behalf. Instead, BORGES diverted the money to others and spent approximately $160,000 on interior design fees for an apartment in Manhattan, New York that BORGES owned and used personally. To conceal her misappropriation of Victim-1's funds, in or about June 2018, BORGES sent Victim-1 a fake bank statement that falsely reflected a transfer of $2.7 million for the purpose of a "private placement purchase."From at least in or about 2016 until at least in or about 2017, BORGES represented to Victim-2 that she was making financial investments on Victim-2's behalf. In or about August 2016, BORGES caused approximately $1.95 million to be transferred from Victim-2's account to a GAIA account controlled by BORGES (the "GAIA Account"). The purported reason for the transfer was an investment in real estate in New York. Contrary to the representations made by BORGES to Victim-2, and in violation of the duties she owed Victim-2, none of the $1.95 million was actually invested on Victim-2's behalf. Instead, on or about August 23, 2016, the same date that the $1.95 million wire from Victim-2's account arrived in the GAIA Account, BORGES signed a check drawn on the GAIA Account in the amount of $1,500,000 payable to herself (the "$1.5M Check"). The "For" line of the $1.5M Check read "RB's new house." Also on or about August 23, 2016, BORGES caused the $1.5M Check to be deposited into her personal account.
In or about October 2017, in a meeting with a family member of Victim-2 and in a subsequent e-mail communication, BORGES admitted, in substance and relevant part, that she had misappropriated Victim-2's money. Among other things, BORGES stated, in sum and substance, that BORGES had used Victim-2's money to cover other clients' losses and that BORGES would find a way to pay back Victim-2.
Under the proposed consent order, which is subject to court approval and was filed in conjunction with a complaint today in the U.S. District Court for the Eastern District of Pennsylvania, Trident has agreed to invest over $20 million to increase credit opportunities in neighborhoods of color in the Philadelphia metropolitan area. Trident will invest at least: $18.4 million in a loan subsidy fund for residents of neighborhoods of color in the Philadelphia metropolitan area; $750,000 for development of community partnerships to provide services that increase access to residential mortgage credit; $875,000 for advertising and outreach; and $375,000 for consumer financial education. Because Trident no longer operates a lending business, it will contract with another lender to provide loan subsidies and services to the "redlined" communities. Trident will ensure that the lender employs at least four mortgage loan officers dedicated to serving neighborhoods of color in and around Philadelphia, Camden, and Wilmington; maintains at least four office locations in those neighborhoods; and employs a full-time manager of community lending who will oversee the continued development of lending in neighborhoods of color in the Philadelphia metropolitan area. Trident will also pay a civil money penalty of $4 million.Trident has also entered into agreements with Pennsylvania, New Jersey, and Delaware. Those agreements resolve allegations against both Trident and Fox & Roach LP, a real estate affiliate of Trident. In addition to the settlement terms included in the federal consent order, under the agreements with Pennsylvania and New Jersey, Trident will reimburse the states for costs incurred in conducting the investigations. Fox & Roach will also invest $150,000 in marketing to communities of color in the Philadelphia metropolitan area.
ETS was a card processing company located in Virginia that provided equipment and services to facilitate credit and debit card payment transactions for merchant clients, including government municipalities, private businesses, and charity organizations throughout the country. According to the indictment, between 2012 and 2019, the defendants, at the direction of ETS president Ed Vaughan, are alleged to have defrauded ETS merchant clients by deliberately disguising a portion of their processing fees for thousands of clients. The indictment describes how the defendants executed their fraud, including by embedding the hidden markups in "Interchange fees," misleading merchant clients in emails and contracts, and failing to disclose the true fee structure in billing and account statements.The indictment also details how Vaughan and Akkad used the fraudulently obtained funds to personally enrich themselves through multimillion-dollar bonuses, luxury vehicles and private aircraft, and high-end real estate purchases. In addition, because the fraud was concealed prior to ETS' acquisition, Vaughan received an additional $107 million, and Akkad received $33 million from the sale of the company.
[U]meh participated in a series of online scams - including romance, advance fee and business email compromise (BEC) schemes - designed to defraud victims into sending money to accounts controlled by him and his co-conspirators. Romance scams occur when a criminal adopts a fake online identity to gain a victim's affection and trust. The scammer then uses the illusion of a romantic or close relationship to manipulate and/or steal from the victim. Advance fee scams occur when a criminal asks a victim to pay a fee up front-usually described as a fee, tax, or commission-in order to obtain a bigger payout later, but that payout never occurs. BEC schemes occur when a criminal sends email messages that appear to come from a known source (e.g., "spoofing" a legitimate business email account) to cause victims to transfer funds to accounts controlled by the scammers.It is alleged that Umeh used fake passports in the names of numerous aliases to open bank accounts in and round Boston to collect and launder the proceeds of the online scams. Umeh and co-conspirators then rapidly executed large cash withdrawals from those accounts, often within days of the deposit and generally structured in amounts less than $10,000, allegedly in an effort to evade detection and currency transaction reporting requirements.
[H]aywood is a District of Columbia-based financial services professional who managed investments on behalf of his family and friends. On Jan. 22, 2020, at approximately 9 a.m., Neurotrope, a clinical-stage biopharmaceutical company (now known as Synaptogenix) announced that it was being awarded a $2.7 million grant from the National Institutes of Health following positive clinical trial results for a medicine for the treatment of Alzheimer's disease. This resulted in an increase of its stock price to a high of $3.85 per share.Later that day, at approximately 12:50 p.m., Haywood spoke to a representative of Neurotrope by telephone. The person offered to share material non-public information relating to Neurotrope with Haywood so long as Haywood agreed not to execute or attempt to execute any stock trades with the information. Haywood agreed to receive material non-public information, subject to these conditions. The representative then informed Haywood that Neurotrope would issue a registered direct offering later that day and invited him to participate in it. The offering was expected to cause Neurotrope's stock price to fall.Immediately after receiving material non-public information, Haywood sold or attempted to sell shares of Neurotrope worth over $328,701.16, despite having agreed to receive the information, and not to execute or attempt to execute any stock trade with it. Based on the daily closing price of $1.42 per share, Haywood avoided a loss of at least $179,297.18 on the sale of those shares between the time he received the material non-public information, and the time the registered direct offering was announced to the public.
Prior to June 2016, a number of Von Borstel's customers had 529 plan accounts established for the purchase of Class C shares that had identified beneficiaries that were minors 12 years of age or younger (young beneficiaries). When he established those accounts for his customers, Von Borstel completed new account forms that accurately identified the intended beneficiaries of those accounts as young beneficiaries.In June 2016, LPL implemented a new policy prohibiting the purchase of Class C shares in 529 plan accounts for young beneficiaries, unless the firm granted an exception. Under the firm's policies, an exception could be granted where, for example, a representative provided evidence that Class C shares were more cost effective than Class A shares for a particular customer or account.Between August 2016 and December 2017, after LPL's new policy became effective, ten of Von Borstel's customers decided to close approximately 20 existing 529 plan Class Cshare accounts for young beneficiaries and to open new 529 plan C-share accounts. The customers decided to do this based on estate planning and financial aid considerations, as well as a desire to avoid multiple account maintenance fees. As part of this process, Von Borstel established 15 new 529 plan Class C-share accounts for these customers directly with 529 plan fund companies, which were funded with assets from the closed accounts. The new 529 accounts were established for the benefit of young beneficiaries, including those who were previously identified as beneficiaries on the closed 529 plan accounts.However, when Von Borstel completed the required LPL forms to establish the new 529 plan Class C-share accounts, instead of identifying the young beneficiaries on the account forms, he identified adults who were related to the young beneficiaries, typically a parent, as each account's beneficiary. By doing so, Von Borstel enabled these new accounts to bypass LPL's review under its new 529 plan policy and caused LPL's books and records to be inaccurate.Therefore, Respondent violated MSRB Rule G-8.
In April 2019, Green and four other individuals formed an entity (Company A) for the purpose of pooling their funds to invest. Green and the four other individuals were the sole shareholders of Company A. Although he did not contribute any funds to Company A, Green served as a director of Company A and as its president. Company A's shareholders, including Green, expected to receive a return from Company A's investment. In April 2019, Green attended a meeting with the other Company A shareholders, and they agreed to wire $350,000 to an asset manager to invest. Company A and the asset manager entered into a Management and Deposit Agreement, dated April 22, 2019, pursuant to which Company A agreed to provide the funds to the asset manager's escrow agent, and the asset manager agreed to place Company A's funds, once released from escrow, "into one or more asset enhancement transactions." Green conducted due diligence on the asset manager, opened Company A's bank account, and facilitated the $350,000 wire from Company A to the asset manager's escrow agent. The asset manager subsequently filed for bankruptcy in 2021.
Green did not provide prior written notice to his firm before engaging in the above-described business activity with Company A. Therefore, Green violated FINRA Rules 3270 and 2010.
In April 2019, Baraker and four other individuals formed an entity (Company A) for the purpose of pooling their funds to invest. Baraker and the four other individuals were the sole shareholders of Company A. Baraker, as the managing member of a personal limited liability company (Company B), signed Company A's shareholder agreement.2 Although he did not contribute any funds to Company A, Baraker served as a director and the treasurer of Company A. Company A's shareholders, including Baraker, expected to receive a return from Company A's investment.In April 2019, Baraker attended a meeting with the other Company A sharebolders, and they agreed to wire $350,000 to an asset manager to invest. Company A and the asset manager entered into a Management and Deposit Agreement. dated April 22, 2019, pursuant to which the asset manager agreed to place Company A's funds "into one or more asset enhancement transactions." Baraker, on behalf of Company A. signed the Management and Deposit Agreement and an escrow agreement with the asset manager. Baraker also conducted due diligence on the asset manager, opened Company A's bank account, and facilitated the $350,000 wire from Company A to the asset manager's escrow agent. The asset manager subsequently filed for bankruptcy in 2021.
Baraker did not provide prior written notice to his firm before engaging in the above-described business activities with Company A or Company B. Therefore, Baraker violated FINRA Rules 3270 and 2010.
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Footnote 2: Although Baraker formed Company B in 2015, it was not active until April 2019 when Baraker used Company B to facilitate his participation in the transactions involving Company A.
In April 2019, Vial and four other individuals formed an entity (Company A) for the purpose of pooling their own funds to invest. Vial, as the president of a personally owned corporation (Company B), signed Company A's shareholder agreement. 2 Vial and the four other individuals were the sole shareholders of Company A. Vial served as a director of Company A and as its corporate secretaiy. Company A's shareholders, including Vial, expected to receive a return from Company A's investment.
In April 2019, Vial attended a meeting with the other Company A shareholders, and they agreed to wire $350,000 to an asset manager to invest, with Vial contributing a portion of that amount through Company B. Vial also conducted due diligence on the asset manager. Company A and the asset manager entered into a Management and Deposit Agreement, dated April 22, 2019, pursuant to which Company A agreed to provide the funds to the asset manager's escrow agent, and the asset manager agreed to place Company A's funds, once released from escrow, "into one or more asset enhancement transactions." The asset manager subsequently filed for bankruptcy in 2021.
Vial did not provide prior written notice to his firm before engaging in the above-described business activities with Company A and Company B. Therefore, Vial violated FINRA Rules 3270 and 2010.
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Footnote 2: Although Vial formed Company B in June 2018, it was not active until April 2019 when Vial used Company B to facilitate his participation in the transactions involving Company A and the asset manager. Furthermore, Vial disclosed Company B in writing to his firm in January 2019, but the disclosure was not updated in April 2019 to specifically include Company B's participation in the transactions involving Company A.
From October 2017 to August 2018, Hogan participated in five private securities transactions in Asia-based funds by three Merrill Lynch customers, who invested a total of $630,000 in the funds. Hogan participated in the transactions by soliciting the investments from the customers and directing his assistants to process the investment documentation. Specifically, in October 2017, Hogan solicited Customer A to invest approximately $220,000 in a Hong Kong equity fund and solicited Customer B to invest approximately $110,000 in the same fund. Between June and August 2018, Hogan solicited Customer C to invest a total of $300,000, in three separate transactions, in a Vietnam equity fund. Merrill Lynch did not offer these funds for investment by customers, and the customers' investments were not custodied with the firm.
In December 2018, Hogan disclosed, on the firm's AIM system, that he had personally invested in the Hong Kong equity fund but attested that he had not co-invested with customers or solicited others in connection with the investment. Contrary to this representation, Customers A and B had invested in the same fund, based upon Hogan's recommendation, prior to Hogan's AIM disclosure. Hogan did not provide written notice to Merrill Lynch prior to participating in private securities transactions by Customers A and B in the Hong Kong equity fund or by Customer C in the Vietnam equity fund.
Therefore, Hogan violated FINRA Rules 3280 and 2010.
On January 7, 2020, while associated with Charles Schwab, Young was indicted by a Maricopa County, Arizona grand jury for three felonies: one count of aggravated assault and two counts of endangerment. Young received written notice of the indictment on March 17, 2020. Young willfully failed to amend his Form U4 to disclose the felony charges against him within 30 days as required. On July 12, 2021, Young pled guilty to a felony charge, which rendered him statutorily disqualified from associating with a member firm. Young was required, but willfully failed to amend his Form U4 to disclose the felony guilty plea against him within 10 days, or by July 22, 2021. In fact, Young amended his Form U4 to disclose the felony conviction and the previous three felony charges when he resigned from Charles Schwab on July 26, 2021, four days after the deadline for disclosing the felony conviction and over a year after the deadline for disclosing the felony charges. The felony charges and guilty plea were material facts that an employer or customer would want to know about a representative. Additionally, Young falsely stated on two annual compliance questionnaires that he had not been charged with any felonies. By virtue of the foregoing, Young violated Article V, Section 2(c) of FINRA's By-Laws and FINRA Rules 1122 and 2010.
Respondent understands that this settlement includes a finding that he willfully misrepresented a material fact on a Form U4, and that under Section 3(a)(39)(F) of the Securities Exchange Act of 1934 and Article III, Section 4 of FINRA's By-Laws, this misrepresentation makes him subject to a statutory disqualification with respect to association with a member.