SEC Settles Insider Trading Charges Against Former Investment Banking Analyst and Associate of Former NFL Player (SEC Release)
SEC Charges Oracle a Second Time for Violations of the Foreign Corrupt Practices Act / Company to Pay $23 Million to Settle Charges (SEC Releases)
Attorney General James Sues Cryptocurrency Platform for Operating Illegally and Defrauding Investors / Nexo Failed to Register as Required by New York Law and Lied to Investors about Their Registration (NYAG Release)
CFTC Orders Texas Commodity Trading Advisor to Pay $200,000 for Failing to Register as a Swap Execution Facility (CFTC Release)
CFTC Orders Wisconsin Resident and Company to Pay Over $190,000 for Failing to Register as an Introducing Broker and Other Violations (CFTC Release)
Former Securities Brokers Sentenced to Federal Prison Terms for Perpetrating Securities Fraud Scheme (DOJ Release)
Idaho I.T. Professional Pleads Guilty To Misappropriating Pre-Publication Investment Recommendations For Insider Trading Scheme / David Stone Electronically Accessed an Investment Advice Service's Unannounced Stock Picks and Used That Information to Generate Millions in Trading Profits and to Provide Inside Tips to Another (DOJ Release)SEC Charges Father-Son Duo and Associate in Market Manipulation Schemes Resulting in a New Jersey Deli with a $100 Million Valuation (SEC Release)SEC Charges Los Angeles-Based Company and Its Principal with Perpetrating an $11.7 Million Offering Fraud Targeting the Vietnamese-American Community (SEC Release)SEC Charges Convertible Note Firm and Its Managing Member with Acting as Unregistered Securities Dealers (SEC Release)CFTC Orders California Trader and Prop Firm to Pay $750,000 for Spoofing in Treasury Futures (CFTC Release)CFTC Orders Wisconsin Resident and Company to Pay Over $190,000 for Failing to Register as an Introducing Broker and Other Violations (CFTC Release)
According to the SEC's complaint filed on August 29, 2018, Sonoiki tipped Kendricks confidential, nonpublic information about several upcoming corporate mergers. The complaint alleges that, by trading on this information in advance of the merger announcements, Kendricks made approximately $1.2 million in illegal profits. According to the SEC's complaint filed on May 21, 2019, Ramsey also participated in the insider trading scheme by obtaining material nonpublic information from Sonoiki concerning the corporate acquisition targets and placing illegal trades in Kendricks's trading account.Sonoiki and Ramsey were both charged criminally by the U.S. Attorney's Office for the Eastern District of Pennsylvania. Sonoiki pleaded guilty to securities fraud and conspiracy to commit securities fraud and was sentenced to one month in prison, three years of supervised release, a fine of $5,000, and forfeiture of $10,000. Ramsey was convicted at trial of securities fraud and conspiracy to commit securities fraud. Ramsey was sentenced to 60 days in prison, three years of supervised release, and a fine of $5,000.Sonoiki and Ramsey both consented to the entry of final judgments permanently enjoining them from violating the antifraud provisions of Sections 10(b) and 14(e) of the Securities Exchange Act of 1934 and Rules 10b-5 and 14e-3 thereunder and ordering Sonoiki to pay a civil penalty of $15,000.Additionally, on September 19, 2022, the Commission entered an administrative order, upon consent, barring Sonoiki from association with any broker, dealer, investment adviser, municipal securities dealer, municipal advisor, transfer agent, or nationally recognized statistical rating organization, or from participating in any offering of a penny stock.
[O]racle subsidiaries in Turkey and UAE also used the slush funds to pay for foreign officials to attend technology conferences in violation of Oracle policies and procedures. The order found that in some instances, employees of the Turkey subsidiary used these funds for the officials' families to accompany them on international conferences or take side trips to California.The SEC previously sanctioned Oracle in connection with the creation of slush funds. In 2012, Oracle resolved charges relating to the creation of millions of dollars of side funds by Oracle India, which created the risk that those funds could be used for illicit purposes.
[N]exo promoted and sold securities in the form of an interest-bearing virtual currency account called the Earn Interest Product with promises of high returns for participating investors, while failing to register as a securities broker or dealer as required by state law. In addition, the lawsuit alleges that Nexo engaged in the unregistered purchase and sale of securities and commodities through its virtual currency trading platform called the Nexo Exchange, and misled investors by falsely representing that it was in compliance with applicable laws and regulations. Roughly 10,000 New Yorkers have accounts with Nexo.
[B]arton allegedly traveled to Hangzhou, China to market real estate investment opportunities in Texas to Chinese investors.During his presentations - which highlighted his supposed ties to U.S. politicians - Mr. Barton allegedly claimed that the properties in question were located in sought-after neighborhoods in the Dallas Fort Worth Metroplex. He introduced a builder, identified in court documents as S.W., who he claimed would purchase lots to build on to sell to future home buyers.Mr. Barton allegedly promised investors annual interest payments for two years, followed by the return of their initial investment at the end of the second year. He allegedly claimed that the investors would contribute 80 percent of the funds necessary for the project, and he and others would contribute the remaining 20 percent. Mr. Barton also allegedly represented that no commissions would be paid out of investor funds.In loan agreements signed by the investors, Mr. Barton allegedly inflated the cost of each property by as much as 195 percent, and in some instances, never actually purchased the property. Mr. Barton also allegedly paid interest payments to early investors with investor funds from later projects.Contrary to his loan agreements, Mr. Barton allegedly paid commissions out of investors' funds, and even funneled investors' money into unrelated projects. Still other funds were used to pay consultants or even to pay an unrelated company's AmEx bill. According to the indictment, investors lost more than $26,000,000 to the scheme.
[B]arton partnered with home builder Stephen T. Wall and Haoqiang Fu a/k/a Michael Fu to entice investors - mostly Chinese nationals - into purchasing securities issued by limited liability companies the defendants controlled. Barton and Fu gave investors offering documents representing that their investments would only be used to purchase specific real estate parcels for residential development and would be fully repaid, with interest, in two years. But according to the complaint, none of this was true. Instead, the SEC alleges that the defendants misrepresented to investors that they were purchasing real estate at particular prices that were in fact as much as three times higher than what the defendants had already contracted to pay for the properties. The defendants also allegedly misappropriated nearly all investor funds for such undisclosed purposes as making Ponzi payments to other investors, purchasing real estate in the names of other Barton companies, paying sales commissions to Fu, and funding Barton's personal lifestyle, including a private aircraft purchase. According to the SEC, the properties were never developed and investors have not been repaid.
[F]rom at least February 2021 to May 2021, the Phans used falsified brokerage account applications and bank accounts with minimal funds to induce two broker-dealers to provide instant deposit credits of more than $222,000 into four brokerage accounts controlled by one or both of them. The complaint also states that after deceiving the broker-dealers into providing credit in anticipation of the incoming deposits, the Phans made a series of online securities purchases with plans to withdraw their profits before their bogus bank deposits reversed. None of the Phans' trading was actually profitable, according to the complaint, as Sang Phan's trading resulted in losses of approximately $13,000, while all of Rich Phan's trading was cancelled by a broker-dealer that linked his trades to those of his brother.
[F]rom approximately September 2017, ARM operated an unregistered SEF that provided clients the ability to execute swaps by accepting bids and offers made by multiple participants on a trading system or platform in various swap tenors and volumes. To communicate with clients and counterparties and execute the swaps, ARM used various means of interstate commerce including phone, instant messaging, and email.During the relevant period, ARM often recommended that clients execute swap transactions in which the underlying commodity was natural gas, natural gas liquids, or crude oil. In a typical swap transaction, ARM received a request for swap pricing from a client and then submitted the pricing request (and sometimes other terms) to counterparties with whom the relevant client had an ISDA agreement. After potential swap counterparties responded to ARM with a proposed price, ARM, if authorized by the client, would approve or reject a price based on the client's pre-approved threshold, including by communicating "done" via chat or email. ARM would then separately confirm the swap execution with the client. If ARM did not have authority to execute the swap on behalf of the client, ARM would typically join the client on a phone call with the relevant counterparty, during which ARM's client would agree to the terms.
[F]rom July 2017 to January 2019, without being registered with the CFTC, Quantum Financial acted as an introducing broker on behalf of two overseas, leveraged foreign currency (forex) and leveraged precious metals trading platforms. The company introduced eight commodity pools comprised of more than 150 U.S. retail customers to the trading platforms, and received compensation from them. As its controlling person, Gospodarek is liable for those violations.Additionally, the order finds that from July 2017 to January 2019, without being registered with the CFTC, Gospodarek acted as an associated person of a commodity trading advisor (CTA) by assisting the CTA in soliciting customers and engaging in the business of advising customers as to the advisability of trading in leveraged forex and leveraged precious metals through webinar appearances, videos, and responses to individual customer questions on behalf of the CTA. Gospodarek also identified and formulated leveraged forex and leveraged precious metals trading strategies that he promoted to customers using the same means.In accepting the settlement offer from Gospodarek and Quantum Financial, the CFTC recognizes their substantial cooperation during the Division of Enforcement's investigation of this matter.
[I]n 2020 and continuing until April 2022, Hardiman and others conspired and agreed to knowingly conduct and attempt to conduct bank fraud and financial transactions affecting interstate commerce. Specifically, Hardiman and others knowingly conspired to defraud multiple financial institutions throughout the Sioux Falls area and elsewhere and to obtain funds by means of false or fraudulent pretenses, representations, and promises.After obtaining funds through fraud, it is alleged that Hardiman and others engaged in depositing, transferring, wiring, and withdrawing the funds at financial institutions. It is alleged they knew the transactions were designed in whole or in part to conceal and disguise the nature, location, source, ownership, or control of the proceeds of the fraud scheme and that the funds involved represented the proceeds of unlawful activity.
Between October 2014 and April 2016, Horn and Plummer contacted prospective investors and made materially false statements and omissions about the private placement offering of restricted common shares of Sunset Capital Assets (formerly known as Sunset Brands). Horn and Plummer failed to disclose to prospective investors that that the brokers would receive exorbitant commissions from the sale of Sunset stock. In addition, Plummer failed to disclose his real name to prospective investors, using the alias "Al Goldstein" to conceal his extensive disciplinary history in the securities industry. This discipline history included cease-and-desist orders issued by state regulators in Colorado and Arkansas that prohibited Plummer from engaging in certain securities activities in those states.Horn and Plummer misled prospective Sunset investors in other ways. For example, Horn sent Private Placement Memoranda and other written offering materials to investors that misrepresented both Sunset's assets and the company's intended use for the funds. Horn, Plummer, and others funneled nearly all $1.5 million of Sunrise investor money into their own pockets. Neither Horn nor Plummer held an active securities license with the Financial Industry Regulation Authority (FINRA) when they contacted investors about the Sunset offering.
"charges set forth in a superseding indictment in March 2018, including two counts of securities and wire fraud conspiracy, two counts of securities fraud, and one count of wire fraud relating to his manipulation of stocks of multiple microcap or "penny" stocks . . ."
The evidence at the trial of his co-conspirator Abraxas Discala established that Josephberg and his co-defendants participated in two schemes to manipulate the stock price of CodeSmart and Cubed as part of an overarching conspiracy to commit securities, mail and wire fraud with respect to the Manipulated Public Companies.Josephberg's co-defendant Abraxas Discala purported to raise capital for private start-up companies and offered to take them public through reverse mergers with public shell companies in exchange for obtaining control of a large portion of the free trading or unrestricted stock. Josephberg, Discala and their co-conspirators, including co-defendants Ira Shapiro, Marc Wexler, Matthew Bell, Victor Azrak, Darren Goodrich, Darren Ofsink and Michael Morris, then artificially inflated that stock through manipulative trading and promotional campaigns, generating large profits for themselves at the expense of unwitting investors. Josephberg, a registered investment advisor, sold inflated shares in the Manipulated Public Companies to his clients, ultimately leaving them with worthless shares while he made approximately $700,000 in trading profits, as well as additional commission income.1. The CodeSmart SchemeIn early May 2013, Discala and his co-conspirators engineered a reverse merger of CodeSmart, a private company, with a shell public company. After gaining control of CodeSmart's unrestricted shares, Discala and his co-conspirators on two occasions, fraudulently inflated CodeSmart's share price and trading volume and then sold the unrestricted CodeSmart stock at a profit when the share price reached desirable levels. Shapiro, the Chief Executive Officer of CodeSmart, issued numerous press releases, including press releases with false information to facilitate inflating CodeSmart's stock price. The defendants fraudulently manipulated CodeSmart's stock price from $1.77 to a high of $6.94 on July 12, 2013, leading to an inflated market capitalization of over $85 million.The co-conspirators, including Josephberg, profited by selling CodeSmart stock, issued to them at pennies, to their clients and customers. On some occasions, Josephberg had his customers buy CodeSmart shares without his customers' knowledge and consent. Additionally, Josephberg sold CodeSmart shares in his personal trading accounts at the same time that he purchased CodeSmart stock in his customers' accounts.Josephberg, Discala, Wexler, Bell, Ofsink and Morris made more than $6 million in illicit trading profits from the CodeSmart scheme, and the co-conspirators caused more than $12.5 million in losses to approximately 900 CodeSmart investors who purchased the publicly traded stock.2. The Cubed SchemeIn March 2014, Discala and his co-conspirators took Cubed public through an asset purchase agreement by a shell public company. After gaining control of all of Cubed's unrestricted shares, between April 22, 2014 and April 30, 2014, Discala and his co-defendants, including Josephberg, Wexler, Bell, Goodrich and Azrak, fraudulently created trading volume in Cubed stock by purchasing more than 50% of the total number of Cubed shares purchased during this period. The defendants also were able to successfully control the price and volume of Cubed's stock. Josephberg both purchased and placed bids on Cubed stock at specific prices to help manipulate the stock price and create the appearance of false demand. On June 23, 2014, Cubed reached its highest closing price of $6.75 per share, resulting in a market capitalization of approximately $200 million. Investors who bought publicly traded Cubed stock lost over $400,000. In addition, Cubed was able to raise over $2 million in a private offering of stock to investors who were deceived by how Cubed stock was performing in the market. Discala and Wexler also made over $1 million worth of illegal private sales of Cubed stock to over three dozen investors. Discala and his co-conspirators caused more than $4 million in total losses to approximately 100 Cubed investors.***Discala, who was convicted after a trial, was previously sentenced to 138 months imprisonment and ordered to pay $16,346,023 in restitution. The remaining convicted defendants entered guilty pleas. Shapiro was previously sentenced to 21 months imprisonment and ordered to pay $12,557,553 in restitution, Goodrich was previously sentenced to 41-months imprisonment and ordered to pay $479,007.05 in restitution, and Morris was sentenced 6 months imprisonment and ordered to pay $112,575. 35 in resitution. Wexler, Bell, Azrak, and Ofsink are awaiting sentencing.
From approximately 2016 through 2019, to finance his art business, PHILBRICK engaged in a scheme to defraud multiple individuals and entities in the art market located in the New York metropolitan area and abroad (the "Fraud Scheme"). NEWLAND was PHILBRICK's business partner and financial adviser and conspired with PHILBRICK to perpetrate the Fraud Scheme. NEWLAND and PHILBRICK made material misrepresentations and omissions to art collectors, investors, and lenders to access valuable art and obtain sales proceeds, funding, and loans. NEWLAND and PHILBRICK knowingly misrepresented the ownership of certain artworks, for example, by selling a total of more than 100%ownership in an artwork to multiple individuals and entities without their knowledge and by selling artworks and/or using artworks as collateral on loans without the knowledge of co-owners and without disclosing the ownership interests of third parties to buyers and lenders.Over the years, PHILBRICK obtained over $86 million in loans and sale proceeds in connection with the Fraud Scheme. Artworks about which NEWLAND and PHILBRICK made these fraudulent misrepresentations in furtherance of the Fraud Scheme include, among others, a 1982 painting by the artist Jean-Michel Basquiat titled "Humidity," a 2010 untitled painting by the artist Christopher Wool, and an untitled 2012 painting by the artist Rudolf Stingel depicting the artist Pablo Picasso.In the fall of 2019, NEWLAND and PHILBRICK's Fraud Scheme collapsed as various investors and lenders learned about the material misrepresentations and omissions PHILBRICK and NEWLAND had made.
From 2020 up to at least March 2022, DAVID STONE exploited market-moving stock recommendations made by an investment recommendation service ("Advisor-1") before those recommendations were released to paying subscribers. STONE, an I.T. professional, accessed Advisor-1's computing system using log-in credentials he obtained without authorization and used his improperly obtained access to view information relating to Advisor-1's recommendations before they were announced to Advisor-1's paying subscribers.Advisor-1's stock recommendations typically, but not always, lead to higher closing prices for the recommended stock as compared to the prior day's closing price. By trading on those recommendations before they were announced, STONE was able to obtain significant profits unavailable to other market participants. In fact, across all the brokerage accounts he traded in, STONE realized gains of at least $3.5 million.In addition to his own trading, STONE supplied trading tips to at least one other person ("Tipee-1"). Between in or about January 2021 up to and including in or about March 2022, on approximately 45 different days, STONE sent emails to Tipee-1 providing stock names and/or ticker symbols ahead of Advisor-1 announcements of stock recommendations to its paying subscribers. A brokerage account associated with Tipee-1 traded ahead of Advisor-1 recommendations on more than a dozen occasions. As a result of that trading, Tipee-1 profited more than approximately $2.7 million.Before providing tips to Tipee-1, STONE summarized the terms by which STONE would provide information to Tipee-1, including steps they would take to hide their scheme. Among other things, STONE acknowledged that "what we are doing could be considered insider trading," and accordingly, he recommended that Tipee-1 "[d]o other trades besides just what I tell you," explaining, "[i]f all your trades are up 5x and you never make a loosing [sic] trade it may call attention of regulators.
From 2014 through September 2022, Patten, Coker Sr., and Coker Jr. conspired to enrich themselves through a scheme to manipulate securities prices via a pattern of coordinated trading, which injected inaccurate information into the marketplace, creating false impressions of supply and demand for these securities.As part of the securities fraud scheme, the defendants targeted two publicly traded companies - Hometown International Inc. and E-Waste Corp. - which were both traded on the OTC Link Alternative Trading System, also known as the OTC Marketplace. The OTC Marketplace is an alternative trading system that contains three tiers of markets, which are largely based on the quality and quantity of the listed companies' information and disclosures.Patten, Coker Sr., and Coker Jr. took steps to gain control of both entities' management and stock with the ultimate intention of entering reverse mergers, a transaction through which an existing public company merges with a private operating company. A successful reverse merger would allow the defendants to sell shares of each entity at a significant profit.In or around 2014, two New Jersey residents began the process of opening a local deli in Paulsboro, New Jersey. One of the individuals discussed his interest in opening the deli with Patten, a long-time friend, who suggested the creation of Hometown International, an umbrella corporation, under which the deli would operate as a wholly owned subsidiary. Unbeknownst to the deli owners, almost immediately after Hometown International was formed, Patten and his associates began positioning Hometown International as a vehicle for a reverse merger that would yield substantial profit to them.Around October 2019, Hometown International began selling shares on the OTC Marketplace. Shortly thereafter, Patten, Coker Sr., And Coker Jr. undertook a calculated scheme to gain control of Hometown International's management and its shares from the deli owners. Patten, Coker Sr., and Coker Jr. took similar actions to gain control of E-Waste Corporation's stock and management.Once the defendants gained control of Hometown International and E-Waste's shares, they arranged for the transfer of millions of shares of stock to a number of nominee entities, including entities controlled by Coker Jr., in an effort to mask their control of the shares.In addition, the defendants transferred shares to family members, friends, and associates and gained control over their trading accounts by obtaining their log-in information in order to conceal the defendants' involvement. The defendants then used those accounts to commit a number of coordinated trading events, often referred to as match and wash trades, to trade in Hometown International and E-Waste Corp.'s stock on both sides of the transaction.These tactics artificially inflated the price of Hometown International and E-Waste's stock by giving the false impression that there was a genuine market interest in the stock. Their scheme had the ultimate impact of artificially inflating Hometown International's stock by approximately 939 percent and E-Waste's stock by approximately 19,900 percent.
[T]hese schemes included artificially inflating the share price of Hometown International, which operated a New Jersey deli producing less than $40,000 in annual revenue, from approximately $1 per share in October 2019 to nearly $14 per share by April 2021, leading to a grossly inflated market capitalization of $100 million.According to the SEC's complaint, Patten, Coker Sr., and Coker Jr., who was the former Chairman of the Board of Hometown International, took control of the outstanding shares of Hometown International and a separate shell company, E-Waste Corp., artificially inflated the price of both issuers' stock through manipulative trading, and used the entities to acquire privately-held companies in reverse mergers, with the intent to thereafter dump their shares at grossly inflated prices. Before the defendants were able to reap the intended profits of the schemes, as alleged, numerous news articles were published discussing the issuers' inflated stock prices.
[F]rom at least 2019 to 2021, Pinder offered loan agreements to investors promising returns of up to 50%, within 30 to 90 days. As alleged, Pinder made statements to investors claiming the investment was safe and that investor funds would be used to make advance loans to personal injury clients of a prominent Miami-based attorney. In fact, as the SEC alleges, Pinder, misappropriated investor funds and used investor funds to make Ponzi-like distributions to investors.
[C]ompass repeatedly assured investors in 2017 that a technology upgrade at its Goderich mine - the world's largest underground salt mine which is located near Ontario, Canada and hailed by the company as its crown jewel - was on track to materially reduce costs and boost its operating results starting in 2018. Compass's statements were misleading because they failed to tell investors that costs at the mine were increasing rather than decreasing, which substantially undermined the projected savings. The SEC also found that Compass misled investors by overstating the amount of salt it was able to produce at Goderich.Separately, the order finds that Compass's deficient disclosure controls resulted in the company failing to properly assess the financial risks of mercury contamination by one of its former facilities near the Botafogo River, in Pernambuco, Brazil, and that facility's cover-up of the misconduct by submitting inaccurate test reports to Brazilian environmental authorities. Compass was required to assess whether it must disclose the financial uncertainties of that misconduct to investors, but failed to do so.
[T]hompson, Loveless, and Mylock provided Spyr's auditors with false and misleading information about an SEC investigation into Spyr's investment in a biotechnology company. The SEC alleges that the defendants told Spyr's auditors that they were not aware of "any situations where the company may not be in compliance with any federal or state laws or government or other regulatory body regulations," even after Spyr had received a Wells notice, settlement discussions with SEC staff had broken down, and management believed that an SEC action would be filed soon. The complaint also alleges that Thompson and Loveless signed Spyr's 2017 Form 10-K and 2018 first quarter Form 10-Q, neither of which disclosed the potential SEC enforcement action. According to the complaint, Spyr was required by generally accepted accounting principles to disclose the potential SEC enforcement action because it was reasonably possible that it could lead to a material loss for the company.
[L]am and NineSquare told investors that they would use their money to trade securities and reported monthly returns ranging from 1.24% to 100%. The complaint alleges that undisclosed to investors, Lam used less than 60% of the investors' money to trade securities, lost almost all of that money through losing trades, and misappropriated the rest to benefit himself and make Ponzi-like payments to certain investors, among other things. The complaint also alleges that Nguyen and the Nguyen Group were principally responsible for raising money from investors through his Money Smarts classes that they promoted on Nguyen's website. The complaint named as relief defendants Yi Ping Lu, Lam's wife, and Thy Stacy Nguyen, Nguyen's wife. According to the complaint, Lam used proceeds from the fraud to partially pay for luxury homes purchased in their names.
[A]s President and CEO of the company, Ohio-based Gold Lakes Corp., Vallos had the ability to direct its management and policies, and through a series of sham transactions and misleading statements to market intermediaries concealed his identity in order to appear to be just an ordinary investor seeking to sell his shares. The complaint alleges that the federal securities laws require that, before selling stock, a person with the ability to control a company must comply with certain registration requirements, sale restrictions, and disclosure obligations. According to the complaint, during the course of the scheme Vallos made false and misleading statements to a lawyer, transfer agent, and broker-dealer all designed to conceal the fact that the true owner of the Gold Lakes shares was also its President and CEO. The complaint further alleges that Vallos sold his shares for a profit and that his scheme deprived investors of the benefit of the disclosures required by federal securities laws.Vallos was charged criminally by the U.S. Attorney's Office for the Northern District of Ohio for his involvement in the scheme and his attempt at a similar scheme with a second microcap company. On August 19, 2022, after pleading guilty to one count of securities fraud in United States v. Vallos, No. 22-CR-00010-SL (N.D. Ohio), Vallos was sentenced to a term of incarceration of 24 months, three years of supervised release, and a $25,000 punitive fine.
[B]etween at least July 2017 and December 2021, Morningview Financial engaged in the business of purchasing convertible notes and warrants from penny stock issuers, converting the notes into stock at a large discount from the market price, and selling those newly issued shares into the market at a significant profit. Morningview Financial allegedly purchased at least 68 convertible notes and 4 warrant agreements from 35 separate issuers and sold more than 3 billion shares of newly issued penny stock into the market, generating over $14.8 million in trading profits. As alleged, neither Morningview Financial nor Riccio was registered as a dealer with the SEC or associated with a registered dealer, in violation of the mandatory registration provisions of the federal securities laws. By failing to register, Morningview Financial and Riccio avoided certain regulatory obligations for dealers that govern their conduct in the marketplace, including regulatory inspections and oversight, financial responsibility requirements, and maintaining books and records.
The order against Chen, who was a Tanius employee at the time, finds that he engaged in spoofing (bidding or offering with the intent to cancel the bid or offer before execution) on over 1,000 separate occasions from October 1, 2020 to June 30, 2021 in 12 CME futures contracts-primarily Treasury futures contracts. The order against Tanius finds the firm vicariously liable for Chen's spoofing, which Chen engaged in while trading for Tanius.
Between February 2020 and June 2020, Respondent effected at least 56 trades in the brokerage accounts of two firm customers without first speaking to the customers on the dates of the transactions. Respondent did not have written authorization from the customers to exercise discretion in their accounts, and Morgan Stanley prohibited registered representatives from exercising discretion in brokerage accounts.At all times during the relevant period, Morgan Stanley's written supervisory procedures required that business communications be transmitted through firm-approved systems. However, from at least December 2019 through October 2020, Respondent exchanged text messages related to securities business with firm customers using his personal cellular phone, rather than a firm-approved system. Respondent did not provide these messages to the firm and he subsequently deleted them. As a result, the firm did not capture or preserve these messages.
H. C. Wainwright: Censure; $1.5 million fine, and undertaking to certify its remediation effort as requiredChambers: $15,000 fine and 30-calendar-day suspension from associating with any FINRA member firm in all capacitiesKristal: $15,000 fine and 30-calendar-day suspension from associating with any FINRA member firm in all capacities.
Between September 2017 and September 2020, H.C. Wainwright failed to preserve and reasonably supervise its employees' business-related text messages.During that period, at least 24 firm employees communicated about firm business in text messages outside of the firm's approved communications platforms on their personal cellphones. The firm did not obtain, and thus did not preserve, these communications at the times they were exchanged; the firm first obtained certain of these communications in the course of, and as a consequence of, the investigations that led to this AWC. The failure to preserve these communications prevented FINRA from fully investigating matters in two FINRA investigations. As a result of the firm's failure to preserve business-related communications, the firm violated § 17(a) of the Securities Exchange Act of 1934, Exchange Act Rule 17a-4, and FINRA Rules 4511 and 2010.Senior members of the firm's management were among the employees who communicated about firm business in text messages on their personal cellphones. Chambers (the firm's president and head of its investment banking department) and Kristal (the firm's director of research) routinely exchanged text messages about firm business with each other on their personal cellphones outside of the firm's approved communications platforms. Chambers and Kristal exchanged these text messages despite the firm's prohibition on business-related written communication between investment banking and research personnel. The firm did not obtain, and thus did not preserve, any of these text messages at the times they were exchanged. Nearly all of these text messages were deleted before FINRA requested them and thus could not be provided to FINRA staff in connection with an investigation into whether the firm's investment banking personnel improperly influenced the firm's research coverage. By communicating about firm business in text messages that the firm did not preserve, Chambers and Kristal violated FINRA Rules 4511 and 2010.While the firm's written supervisory procedures (WSPs) prohibited employees from using text messaging for business-related communications, and the firm's compliance department discussed this prohibition with employees several times each year, the firm's management knew that firm employees were using text messaging for business-related communications, because they themselves were texting each other and others about firm business. But the firm did not take reasonable steps to prevent those communications. The firm therefore failed to enforce its WSPs prohibiting the use of text messaging for business-related communications. In addition, the firm took no steps to preserve or review its employees' text messages so it could reasonably supervise them. Therefore, the firm violated FINRA Rules 3110(a), (b)(1), and (b)(4) and 2010.Between March 2019 and September 2020, the firm also failed to reasonably supervise its employees' email communications. The firm's WSPs, for example, did not reasonably describe or address the type or scope of reviews to be conducted, who at the firm was responsible for conducting the reviews, and how and under what circumstances any concerning email should be escalated. As a result, the scope and substance of the firm's email review was unreasonable and, in many instances, the review did not occur for more than a year after an email was sent or received. Therefore, the firm violated FINRA Rules 3110(a), (b)(1), and (b)(4) and 2010.Between September 2017 and January 2020, the firm failed to enforce written policies and procedures designed to achieve compliance with provisions of FINRA Rule 2241 relating to the firm's obligation to manage conflicts of interest related to the interaction between research analysts and those outside of the research department. Specifically, H.C. Wainwright prohibited business-related written communications between the firm's research and investment banking personnel and prohibited business-related phone calls between research and investment banking personnel unless chaperoned by compliance department personnel. Nevertheless, Chambers and Kristal often communicated with each other about firm business in text messages and on unchaperoned phone calls using their personal cell phones. Therefore, the firm violated FINRA Rules 2241(b)(1), 2241(b)(2)(G), and 2010.