Securities Industry Commentator by Bill Singer Esq

October 4, 2022

SEC Four-Year Strategic Plan Is Generic, Non-Specific, Drivel (BrokeAndBroker.com Blog)

Non-Payment of Federal Income Tax on Cryptocurrency Earnings Leads to Conviction for South Florida Resident (DOJ Release)

SEC Charges Southern California Firm with Operating a Ponzi-Type Scheme (SEC Release)

SEC Obtains Final Judgment Against Former Dewey & Leboeuf, LLP Executive (SEC Release)

Statement on Financial Stability Oversight Council's Report on Digital Asset Financial Stability Risks and Regulation Before the Financial Stability Oversight Council Open Meeting by SEC Chair Gary Gensler

SEC Charges Kim Kardashian for Unlawfully Touting Crypto Security (SEC Release)

SEC Halts Crypto Asset-Related Fraud Victimizing Latino Investors (SEC Release)

SEC Charges Two Canadian Software Engineers with Insider Trading (SEC Release)

SEC Charges Four Defendants in Connection with Fraudulent Scheme to Sell Public Company Stock (SEC Release)

SEC Charges Family Office Executives with Insider Trading (SEC Release)

SEC Charges California Attorney for Role in $910 Million Ponzi Scheme (SEC Release)

SEC Charges Eight in Scheme to Fraudulently Promote Securities Offerings (SEC Release)

SEC Charges Former Controller of Network Infrastructure Company with Accounting Fraud (SEC Release) 

SEC Charges Infinity Q's Former Senior Officer for Role in Massive Valuation Fraud (SEC Release)

SEC Charges South Florida Man and Others with Real Estate Investment Fraud (SEC Release) 

SEC Files Charges in a Crypto Asset Pump-And-Dump Scheme (SEC Release) 

SEC Charges Vivera Pharmaceuticals and Its CEO with Offering Fraud (SEC Release)

SEC Charges Michigan Resident with Conducting an Unregistered Securities Offering (SEC Release)

CFTC Charges Digital Asset Derivatives Platform and Miami Resident with Facilitating Unlawful Futures Transactions, Failing to Register, and Attempted Manipulation of Native Token (CFTC Release)

CFTC Orders Swap Execution Facility to Pay $1.9 Million for Swap Reporting and Core Principle Violations (CFTC Release)

Statement of CFTC Commissioner Christy Goldsmith Romero Regarding Enforcement Action and Settlement with Swap Execution Facility BGC Derivative Markets, L.P. / Systemic Swap Reporting Violations Harm Market Transparency and Integrity

Wall Street Regulator Eliminates Cap on Fines for Rule-Breakers (Barron's by Kenneth Corbin)

FINRA Extended Hearing Panel Expels NYPPEX, Bars Former CEO Laurence Allen and Suspends Current CEO and CCO Michael Schunk (FINRA Release)

FINRA Fines and Suspends Rep for Willful Omission of Felony Charges
In the Matter of Stacee Lei Bradley, Respondent (FINRA AWC)

FINRA Censures and Fines UBS Securities for VWAP and FTD
In the Matter of UBS Securities LLC, Respondent (FINRA AWC)
 

FINRA Censures and Fines UBS Securities for Aggregation of Foreign Affiliate Accounts
In the Matter of UBS Securities LLC, Respondent (FINRA AWC)

FINRA Censures and Fines Lightspeed Financial Services Group LLC for Order Coding
In the Matter of Lightspeed Financial Services Group LLC, formerly known as Lime Brokerage, LLC, Respondent (FINRA AWC)

FINRA Censures and Fines Rep for Insurance OBA
In the Matter of German Ricardo Mora, Respondent (FINRA)

FINRA Censures and Fines Rep for Economic Injury Disaster Loan
In the Matter of Steven Horn, Respondent (FINRA AWC)

FINRA Fines and Suspends Rep for OBA and PST
In the Matter of Nathan M. Plumb, Respondent (FINRA AWC)

= = =
10/4/2022

https://www.justice.gov/usao-sdfl/pr/non-payment-federal-income-tax-cryptocurrency-earnings-leads-conviction-south-florida
Ethan Thomas Trainor pled guilty to attempted tax evasion in the United States District Court for the Southern District of Florida. As alleged in part in the DOJ Release:

[T]rainor admitted that he used cryptocurrency to buy and sell hacked online account logins (usernames and passwords) on dark web marketplaces. The hacked logins were connected to paid movie and music streaming services, pornography websites, educational websites, ride-share service accounts, and other on-line services.  

Taxpayers who transact business in cryptocurrency must report their virtual earnings to the IRS and pay federal taxes on that income. From 2014 to 2017, Trainor earned over $1 million in cryptocurrency through dark web transactions and tried to avoid paying taxes on it by using services and techniques designed to conceal that the money was his.  For example, Trainor ran his virtual currency transactions through "mixers," on-line services that pool together (mix) the cryptocurrency transactions of different users, then distribute "clean" cryptocurrency to the users' virtual wallets. The mixing makes it harder to determine the identity of those dealing in the cryptocurrency.      

https://www.sec.gov/litigation/litreleases/2022/lr25550.htm
https://www.sec.gov/litigation/complaints/2022/comp25550.pdf, the SEC charged JMJ Capital Group and Richard Lee Ramirez with violating the antifraud provisions of Section 17(a) of the Securities Act and Section 10(b) of the Securities Exchange Act, Rule 10b-5 thereunder, and with violating the registration provisions of Sections 5(a) and 5(c) of the Securities Act. A parallel criminal action was filed against JMJ Capital and Ramirez. As alleged in part in the SEC Release:

[F]rom at least 2019 through 2021, defendants told potential investors that they could earn returns of up to 30% through short-term investments in JMJ Capital, and that those investments could be easily withdrawn after expiration of a 30-90 day lockup period. The complaint further alleges that defendants claimed investor capital would be used to purchase receivables and personal protective equipment (PPE). According to the complaint, however, investors encountered difficulty withdrawing their investments, and defendants misappropriated investor funds to pay back earlier investors and to pay Ramirez's personal expenses, including payments for luxury automobiles, trips to Hawaii, and tickets to Disneyland and Legoland. The SEC alleges that defendants raised millions from more than forty investors through these false representations.

https://www.sec.gov/litigation/litreleases/2022/lr25549.htm
The United States District Court for the Southern District of New York entered a Final Judgment against former Dewey & LeBoeuf, LLP executive Joel Sanders, Esq., whereby he will pay disgorgement of $86,250.00 and prejudgment interest thereon of $8,779.71; and will be permanently enjoined from future violations of Section 17(a) of the Securities Act and Section 10(b) of the Exchange Act of 1934, and Rule 10b-5 thereunder, and prohibited from acting as an officer or director of a public company. Sanders was also suspended from appearing or practicing before the Commission as an attorney. As alleged in part in the SEC Release:

In 2014, the SEC filed suit against Sanders and others in federal district court in Manhattan. The SEC's complaint alleged that in 2008 and 2009, Sanders, then the chief financial officer of Dewey & LeBoeuf, in conjunction with other employees, hatched a scheme, and directed his staff, to materially falsify the firm's financial statements in order to meet lender covenants. In March 2010, Dewey & LeBoeuf conducted a $150 million private placement of bonds. According to the SEC's complaint, Sanders defrauded the firm's investors in that offering by, among other things, providing a private placement memorandum to investors that incorporated the fraudulent financial statements.
Thank you, Secretary Yellen. I'd like to thank the staff of the Financial Stability Oversight Council (FSOC) for working to produce today's thoughtful report on the financial stability risks associated with the crypto market, and I'm pleased to support it.

The first big crypto token, Bitcoin, was proposed 14 years ago this month, on a cypher-punk mailing list. It was Halloween night, 2008, in the middle of the financial crisis. Satoshi Nakamoto wrote about a new way to move value on the internet, without a central intermediary.[1]

Nakamoto - we still don't know who she, he, or they were - didn't have faith in the financial sector overseen by folks like us, sitting around this table.

What does the crypto market look like, now that it's a teenager?

First, it is a highly volatile, speculative investment class.

Second, this market isn't so decentralized. Now, we see this industry populated by large, concentrated intermediaries, which often are an amalgam of services that typically are separated from each other in the rest of the securities markets.

Third, crypto cannot exist outside of our public policy frameworks, regardless of what the crypto industry initially expected or what certain market participants might say today.  The policy frameworks include protecting investors and consumers, guarding against illicit activity, and supporting financial stability. Whether you call something a crypto token, stablecoin, or decentralized finance platform (DeFi), those public policy goals remain the same.

As Aristotle said: Treat like cases alike.

Of the nearly 10,000 tokens in the crypto market, I believe the vast majority are securities. Offers and sales of these crypto security tokens are covered by the securities laws.

Given that most crypto tokens are securities, it follows that many crypto intermediaries are transacting in securities and have to register with the Securities and Exchange Commission (SEC) in some capacity.

As the FSOC report notes, there's a difference between regulatory arbitrage and noncompliance. All market participants benefit when there's broad compliance with the rules. Further, it increases investor confidence in our markets. Frankly, though, in the crypto market there is a lot of noncompliance with the securities laws.

Thus, SEC staff is working with market participants to help ensure that investors in the crypto market get time-tested protections that exist in other securities markets and that all market participants have a fair playing field.

In addition, I look forward to working with Congress to achieve our public policy goals, consistent with maintaining the regulation of crypto security tokens and related intermediaries at the SEC. In doing so, let's not inadvertently undermine securities laws underlying $100 trillion capital markets.

To the extent that crypto intermediaries may need to one day register with both the SEC and the Commodity Futures Trading Commission (CFTC), I would note we currently have dual registrants in the broker-dealer space and in the fund advisory space. Furthermore, I believe that, should bank regulators receive authority around the safety and soundness of stablecoins, it's important that market regulators maintain conduct authority over stablecoins on intermediaries that should already be in compliance with the securities laws.

I look forward to working with colleagues to enhance the investor protection and resiliency of the crypto market. We can't let this market undermine our broader capital markets or the economy.

Thank you.  

 [1]See "Bitcoin P2P e-cash paper" (Oct. 31, 2008), available at https://satoshi.nakamotoinstitute.org/emails/cryptography/1/.

Bill Singer's Comment: Okay, seriously, is that headline a joke or just unintentionally incomprehensible? 

Did Chair Gensler hire someone from the Department of Redundancy Department in order to have that someone from the Department of Redundancy Department write the above title above? 

Just for fun, let's parse through this monstrosity: Statement on Financial Stability Oversight Council's Report on Digital Asset Financial Stability Risks and Regulation Before the Financial Stability Oversight Council Open Meeting:

First, we got a "Statement" by Chair Gensler (we're gonna call that the Gensler Statement).
Second, the Gensler Statement is about a Report from the Financial Stability Oversight Council (we're gonna call that the FSOC Report).
Third, The FSOC Report is on Digital Asset Financial Stability Risks and Regulation (we're gonna call that the FSOC DAFSRAR Report).
Fourth -- and this is where I get lost -- we got two possibilities:

1. the Gensler Statement is about the FSOC DAFSRAR Report, which is "Before" the FSOC Open Meeting; or
2.  the Gensler Statement is being made "Before" an FSOC Open Meeting and the SEC Chair is making a statement about the FSOC DAFSRAR Report to those at the meeting.

https://www.finra.org/sites/default/files/fda_documents/2021072713001
%20Stacee%20Lei%20Bradley%20CRD%207320122%20AWC%20gg.pdf
For the purpose of proposing a settlement of rule violations alleged by the Financial Industry Regulatory Authority ("FINRA"), without admitting or denying the findings, prior to a regulatory hearing, and without an adjudication of any issue, Stacee Lei Bradley submitted a Letter of Acceptance, Waiver and Consent ("AWC"), which FINRA accepted. The AWC asserts that Stacee Lei Bradley entered the industry in December 2020 as a non-registered fingerprint person ("NRF") with Morgan Stanley Smith Barney LLC. In accordance with the terms of the AWC, FINRA imposed upon Bradley a $5,000 fine and six-month suspension from associating with any FINRA member in all capacities. The AWC includes this admonition:

Respondent understands that this settlement includes a finding that she willfully omitted to state 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 omission makes her subject to a statutory disqualification with respect to association with a member. 

As asserted in part in the AWC:

On September 8, 2018, Respondent was charged with two felonies for grand larceny and falsifying business records. Respondent learned of the charges no later than September 9, 2018. Subsequently, on a Form U4 filed on February 25, 2021 for the purpose of registering with FINRA through an association with Morgan Stanley, Respondent falsely responded "no" to Disclosure Question 14A(1), which asked, inter alia, the following question: "Have you ever . . . . (b) been charged with any felony?" (emphasis in original). As a result, Respondent filed inaccurate and misleading information with FINRA. Bradley did not disclose the felony charges until September 3, 2021. 

Therefore, Bradley willfully failed to timely disclose two felony charges, in violation of Article V, Section 2(a) of FINRA's By-Laws, and FINRA Rules 1122 and 2010. 

FINRA Censures and Fines UBS Securities for VWAP and FTD
https://www.finra.org/sites/default/files/fda_documents/2016050211701
%20UBS%20Securities%20LLC%20CRD%207654%20AWC%20Final%20geg.pdf
For the purpose of proposing a settlement of rule violations alleged by the Financial Industry Regulatory Authority ("FINRA"), without admitting or denying the findings, prior to a regulatory hearing, and without an adjudication of any issue, UBS Securities LLC submitted a Letter of Acceptance, Waiver and Consent ("AWC"), which FINRA accepted. The AWC asserts that UBS Securities LLC has been a FINRA Member Firm since 1978 with about 1,800 registered representatives at 30 branches. In accordance with the terms of the AWC, FINRA imposed upon UBS Securities LLC a Censure and $2.5 million fine, and an undertaking to certify compliance with Rule 204 of Reg SHO. As asserted in part in the AWC [Ed: footnotes omitted]:

From 2009 until March 2016, UBS improperly considered shares released from segregation for customer long sales as shares available to reduce or satisfy its Rule 204(a) close-out obligations. This caused UBS to incorrectly assess its delivery and close-out obligations, including whether FTDs existed on that date and, if so, the number of shares it was required to borrow or purchase to close out the FTDs. 

UBS's books and records did not enable it to assess the number of Rule 204(a) violations resulting from its inaccurate calculation of its delivery and close-out obligations. 

Therefore, UBS violated Rule 204(a) of Regulation SHO and FINRA Rule 2010.
. . .

Each time that UBS purchased shares to address a FTD with a revocable VWAP or limit order as described above, the close-out did not comply with Rule 204(a). As a result, the equity securities should have been subject to the penalty box under Rule 204(b). However, UBS did not add those securities to its list of penalty box securities or otherwise restrict short sales in these securities. As a result, between 2016 and 2018, UBS routed or executed at least 71,000 short sales in securities for which it had an open FTD without first borrowing or arranging to borrow the shares as required by Rule 204(b). 

Additionally, at various times between 2009 and 2016, three of UBS's order management systems were not configured to check the firm's penalty box list of securities and prohibit all short sales in these securities. For example, one of the order management systems checked the penalty box list for customer-side trades, but not for broker-dealer-side trades. During one month in 2016, following a routine update, a fourth order management system failed to monitor for and restrict trading in securities added to the penalty box list during the trading day. As a result, the four order management systems did not always restrict short sales in securities with an unsatisfied close-out requirement, resulting in another 2,567 violations of Rule 204(b) in July 2016. 

Therefore, UBS violated Rule 204(b) of Regulation SHO and FINRA Rule 2010. 

. . .

From 2009 to 2016, UBS's systems and WSPs treated shares released from segregation in connection with a customer long sale as eligible for inclusion in its calculation of its delivery and close-out obligations. Although UBS conducted a review of its Rule 204 systems each year as part of its annual compliance testing, UBS did not detect that its improper treatment of shares associated with a customer long sale could lead to its undercalculating its delivery and close-out obligations as required by Rule 204(a) of Regulation SHO. 

Since 2009, UBS's WSPs also provided that the firm's order management systems would enforce Rule 204(b)'s penalty box by blocking short sales of securities with FTDs. However, UBS failed to identify that the four order management systems did not comply with its WSPs until a system malfunction in 2016 caused the firm to review its order management systems for Rule 204 compliance. The programming flaws in two of the systems existed for six and seven years, respectively. 

Therefore, UBS violated NASD Rule 3010 and FINRA Rules 3110 and 2010. 

https://www.finra.org/sites/default/files/fda_documents/2017053779201
%20UBS%20Securities%20LLC%20CRD%207654%20AWC%20geg.pdf
For the purpose of proposing a settlement of rule violations alleged by the Financial Industry Regulatory Authority ("FINRA"), without admitting or denying the findings, prior to a regulatory hearing, and without an adjudication of any issue, UBS Securities LLC submitted a Letter of Acceptance, Waiver and Consent ("AWC"), which FINRA accepted. The AWC asserts that UBS Securities LLC has been a FINRA Member Firm since 1978 with about 1,850 registered representatives [Ed: AWC 2016050211701 reported immediately above asserts that UBS has "about 1,800 registered representatives" -- so the firm either gained or lost about 50 reps during the two FINRA AWCs reported on October 3, 2022) at 30 branches. In accordance with the terms of the AWC, FINRA imposed upon UBS Securities LLC a Censure and $520,000 fine ($173,334 payable to FINRA). As asserted in part in the AWC [Ed: footnotes omitted]:

From January 2011 through October 2017, UBS organized the accounts used by its traders into AGUs based on trading strategy and without regard to whether the accounts were owned by a foreign affiliate. UBS included nine accounts owned by UBS AG London and used by UBS traders in four AGUs. UBS automatically netted the securities positions in the trading accounts of each AGU-including the UBS AG London accounts-to calculate the AGU net position, which it then used to determine whether the AGU's sale orders should be marked long or short. However, UBS AG London's positions should not have been included in the firm's AGU net positions because UBS AG London was not subject to Commission examination. As a result, UBS did not accurately calculate the net positions of, or assess long and short sales by, four AGUs during this period.

Therefore, Respondent violated Regulation SHO Rule 200(f) and FINRA Rule 2010. 

. . .

UBS failed to establish and maintain a supervisory system reasonably designed to achieve compliance with Rule 200(f) from January 2011 through October 2017 and failed to establish, maintain, and enforce written procedures reasonably designed to achieve compliance with Rule 200(f) from January 2011 through March 2020. UBS's supervisory system, including its written procedures, failed to require the exclusion of foreign affiliate accounts used by UBS's traders from the net positions of its AGUs. By mid-2015, UBS determined, based on prior FINRA disciplinary actions involving improper inclusion of certain affiliate accounts in AGUs' net positions, that it needed to remove the UBS AG London accounts from its AGUs. UBS failed, however, to take reasonable steps to implement these changes in a timely manner. UBS began to work on a remediation plan for removing affiliate accounts from its AGUs' net positions. However, in July 2016, UBS improperly added another UBS AG London account to its AGUs. Only after FINRA raised the issue directly with the firm in March 2017 did UBS remove the UBS AG London accounts from its AGUs' net positions. UBS removed the accounts over the course of eight months, from March 2017 through October 2017. Beginning in late November 2017, UBS provided AGU supervisors with separate monthly reports listing AGU accounts and non-AGU foreign affiliate accounts and instructed them to review the reports as part of their monthly AGU reviews. However, UBS failed to update its written procedures to prohibit the inclusion of foreign affiliate accounts in the net positions of its AGUs and to require supervisors to verify that only firm accounts were included in AGUs until April 2020. 

Therefore, Respondent violated NASD Rule 3010 and FINRA Rules 3110 and 2010. 

= = =
10/3/2022

https://www.brokeandbroker.com/6676/sec-strategic-plan/
Another four-year strategic period has ticked off at the SEC, which means that it's time for the SEC's Strategic Plan for 2022 - 2026. These strategic plans are the stuff of rumination and aspiration and wholly lacking in pragmatism and reality. The SEC Strategic Plan for 2022 - 2026 is generic. It is non-specific. It is glossy drivel churned out by folks who should be doing something worthwhile on the taxpayer's dollar. One only needs to read the 2014 and 2018 iterations of the SEC's Strategic Plan to realize the silliness of the undertaking.

SEC Charges Kim Kardashian for Unlawfully Touting Crypto Security (SEC Release)
https://www.sec.gov/news/press-release/2022-183
Without admitting or denying the findings in an SEC Order
https://www.sec.gov/litigation/admin/2022/33-11116.pdf, that Kimberley Kardashian violated the anti-touting provision of the federal securities laws, she agreed to pay about $260,000 in disgorgement (her promotional payment) plus prejudgment interest, and a $1,000,000 penalty; and, further, agreed to not promote any crypto asset securities for three years. As alleged in part in the SEC Release:

[K]ardashian failed to disclose that she was paid $250,000 to publish a post on her Instagram account about EMAX tokens, the crypto asset security being offered by EthereumMax. Kardashian's post contained a link to the EthereumMax website, which provided instructions for potential investors to purchase EMAX tokens.


https://www.sec.gov/litigation/litreleases/2022/lr25547.htm
In a Complaint, filed in the United States District Court for the Southern District of Texas
https://www.sec.gov/litigation/complaints/2022/comp25547.pdf, the SEC charged Mauricio Chavez, Girogio Benvenuto, and CryptoFX, LLC with violating, or aiding and abetting violations of, the antifraud provisions of Section 17(a) of the Securities Act and Section 10(b) of the Securities Exchange Act and Rule 10b-5 thereunder. Further, the Complaint charged Chavez with violating Sections 206(1) and 206(2) of the Investment Advisers Act of 1940, and Chavez and CryptoFX of violating the securities registration provisions of Sections 5(a) and 5(c) of the Securities Act. As alleged in part in the SEC Release:

[I]n 2020, Chavez began holding paid classes for the ostensible purpose of educating and empowering the Latino community to build wealth through crypto asset trading. However, the complaint alleges Chavez had no background, education, or training in investments or crypto assets. According to the complaint, the seminars were merely conduits for soliciting investors to give their money to CryptoFX, which Chavez would then supposedly use to conduct crypto asset and foreign exchange trading. As alleged, Chavez claimed, among other things, to have earned outsized returns from crypto trading and to have "literally made over 5 millionaires in the last year." He also provided investors false documents that, among other things, grossly overstated his crypto experience and guaranteed that investors would not bear any losses. The defendants ultimately raised over $12 million from more than 5,000 investors.

The SEC alleges that Chavez was actually running a Ponzi scheme; rather than use investor funds for crypto trading, Chavez used more than 90% of investor funds to pay fake returns to investors, support his lifestyle, and purchase and develop real estate that he and Benvenuto controlled. For his part, Benvenuto allegedly solicited a large investor into the scheme and diverted investor funds to himself and a company that he and Chavez owned, CBT Group, LLC. In total, the SEC alleges that Chavez and Benvenuto made approximately $2.7 million in Ponzi payments while diverting almost $8 million for their own use, including nearly $1.5 million that Chavez spent on cars, credit card payments, jewelry, adult entertainment, and a house in his wife's name.

SEC Charges Two Canadian Software Engineers with Insider Trading (SEC Release)
https://www.sec.gov/litigation/litreleases/2022/lr25548.htm
In a Complaint filed in the United States District Court for the District of New Jersey
http://www.sec.gov/litigation/complaints/2022/comp-pr2022-181.pdf, the SEC charged Harpreet Saini and John Lester Mandac Natividad with violating Section 10(b) of the Securities Exchange Act and Rule 10b-5 thereunder. The Ontario Securities Commission charged Saini and Natividad with fraud and insider trading offenses under the Ontario Securities Act. As alleged in part in the SEC Release:

[F]rom at least May 2018 to July 2021, Harpreet Saini and John Lester Mandac Natividad, both of Ontario, were employed by a newswire distribution company specializing in corporate press releases, and had access to its internal press release distribution system that allowed them to preview headlines, times, and publication dates of forthcoming announcements. As alleged, Saini and Natividad collectively traded in advance of more than 1,600 announcements distributed by their employer and would routinely exit their positions after the market reacted to the news in the press releases.

SEC Charges Four Defendants in Connection with Fraudulent Scheme to Sell Public Company Stock (SEC Release)
https://www.sec.gov/litigation/litreleases/2022/lr25546.htm
In a Complaint filed in the United States District Court for the Southern District of California
https://www.sec.gov/litigation/complaints/2022/comp25546.pdf, the SEC charged David Stephens, Donald Linn Danks, Jonathan Destler, and Robert Lazerus with violating the antifraud provisions of Sections 17(a)(1) and 17(a)(3) of the Securities Act and Section 10(b) of the Securities Exchange Act and Rules 10b-5(a) and (c) thereunder. Further, the Complaint charged Danks and Destler with violating the antifraud provisions of Section 10(b) of the Exchange Act and Rule 10b-5(b) thereunder and charges Lazerus with violating the broker-dealer registration provisions of Section 15(a) of the Exchange Act. Daniel Solomita (President/Chief Executive Officer/Director of Loop, and 8198381 Canada, Inc.) was named as a Relief Defendant. As alleged in part in the SEC Release:

[I]n 2015, Stephens obtained control of a large portion of Loop's stock and engaged in deceptive conduct to evade disclosure and reporting requirements under U.S. securities laws and conceal the amount of stock he controlled. The complaint alleges that between 2015 and 2018, Stephens held his Loop stock in the names of various nominee entities to hide from market participants, such as transfer agents and brokerage firms, that he owned significant amounts of Loop stock. As alleged, Stephens dumped the stock into the public U.S. securities markets to investors who were unaware of his ownership of a significant amount of Loop stock. Stephens allegedly also worked with Danks, who at the time was a member of Loop's board of directors, and Destler, a consultant to Loop, to sell Loop stock in private transactions using a network of entities owned and controlled by Danks and Destler. As part of the scheme, Danks and Destler allegedly made material misrepresentations to brokerage firms to conceal their connections to Loop. The complaint also alleges that Lazerus facilitated the fraud by soliciting investors to buy Loop stock in the public U.S. securities markets, including soliciting an elderly investor who invested millions of dollars in Loop at the same time that Stephens, Danks, Destler, and Lazerus sold Loop stock.

SEC Charges Family Office Executives with Insider Trading (SEC Release)
https://www.sec.gov/litigation/litreleases/2022/lr25545.htm
In Complaints filed in the United States District Court for the Southern District of New York, the SEC charged:

with violating Section 10(b) of the Securities Exchange Act and Rule 10b-5 thereunder.

Without admitting or denying the allegations in the SEC Complaint, Holzer consented to the entry of a judgment permanently enjoining him from violating Section 10(b) and Rule 10b-5, permanently barring him from acting as an officer or director of a public issuer, and ordering him to pay disgorgement, plus prejudgment interest, and a civil penalty, in amounts to be determined by the court.

Without admitting or denying the allegations in the SEC Complaint, Moraes consented to the entry of a final judgment permanently enjoining him from violating Section 10(b) and Rule 10b-5, ordering him to pay disgorgement of $8,842 plus prejudgment interest of $1,647 and a civil penalty of $48,646, and permanently barring him from acting as an officer or director of a public issuer.

As alleged in part in the SEC Release:

[A]bout a week before the announcement, Holzer was approached by an investment adviser to discuss a pooled investment opportunity on a "no names" basis, pending execution of a non-disclosure agreement. The SEC alleges that, once the NDA was signed, the adviser sent Holzer and Moraes a 109-page investment presentation that described the proposed transaction, including identifying DNB as the acquisition target, $145 per share as the purchase price (a 15% premium to market), the anticipated date of the public announcement as on or before August 9, 2018, and other material nonpublic information.

According to the SEC's complaints, the NDA required Holzer and all employees of his family office to keep confidential all information about DNB and the proposed transaction and to use it solely for the purpose of evaluating the pooled investment opportunity. Instead, the SEC alleges, Holzer and Moraes used the information to trade in DNB options ahead of the announcement, realizing ill-gotten profits of $96,091 and $8,842, respectively. The SEC also alleges that Holzer tipped his cousin who realized $672,000 in trading profits, and Moraes tipped a business associate who realized $65,332 in trading profits.

https://www.sec.gov/litigation/complaints/2022/comp25544.pdf, the SEC charged Ari Lauer with with violating the antifraud provisions of the federal securities laws. As alleged in part in the SEC Release;

[L]auer served as the outside general counsel for DC Solar. Lauer is alleged to have been an important participant in a massive Ponzi scheme that raised over $910 million from investors between 2011 and 2018. The complaint alleges that Lauer helped obtain investments in securities issued by DC Solar that purportedly delivered gains in the form of tax benefits, guaranteed lease payments, and additional profits from the leasing of mobile solar generators. In reality, the complaint alleges, thousands of the purportedly profitable generators were never even manufactured, let alone put into use, and the vast majority of revenue to existing investors came from funds from new investors.

Lauer is alleged to have created misleading transaction documents and provided false information about purported leases to investors, in order to hide the lack of legitimate lease revenue from them. According to the complaint, Lauer made millions of dollars from the scheme, while investors lost their money.

https://www.sec.gov/news/press-release/2022-182
In a Complaint filed in the United States District Court for the Central District of California
https://www.sec.gov/litigation/complaints/2022/comp-pr2022-182.pdf, the SEC charged Jonathan William Mikula a/k/a William Mikula; Christian Fernandez a/k/a Christian Crockwell; Amit Raj Beri a/k/a Raj Beri; Sway Energy Corporation f/k/a Elegance Brands, Inc.; Avtar Singh Dhillon, M.D.; Emerald Health Pharmaceuticals, Inc.; and James DeMesa. Defendants Elegance, Beri, Emerald Health, DeMesa, and Dhillon have agreed to settle to permanent injunctions from violations of the anti-fraud and other charged provisions, and will pay a combined total of $2.5 million to settle fraud charges against them. Additionally, Dhillon agreed to a permanent bar from serving as an officer and director, DeMesa agreed to a five-year bar from serving as an officer and director, and Beri agreed to a ten-year bar from serving as an officer and director and a conduct-based injunction prohibiting him from engaging in certain promotional activities. 
In settling an SEC Order Instituting Proceedings 
https://www.sec.gov/litigation/admin/2022/33-11111.pdf, Lisa Sanford agreed to pay a penalty of $25,000 and to be suspended from appearing or practicing before the SEC as an accountant with the right to apply for reinstatement after three years. As alleged in part in the SEC Release:

[J]onathan William Mikula, a recidivist securities law violator who resides in Georgia, promoted the securities of four issuers-Elegance Brands Inc. (now Sway Energy Corp.), Emerald Health Pharmaceuticals Inc., Hightimes Holding Corp., and Cloudastructure Inc.-without disclosing his receipt of compensation for the promotions. As alleged, Mikula promoted the securities through Palm Beach Venture, a newsletter for which he served as an author and chief analyst, and presented the recommendations as unbiased and not paid for, while he was secretly compensated in the form of cash and lavish expenses. The complaint also alleges that investors purchased approximately $80 million in the securities offered by these issuers following Mikula's promotion.  

The SEC's complaint further charges Christian Fernandez and Raj Beri, associates of Mikula's, who allegedly acted as middlemen for the promotional scheme. According to the complaint, Fernandez and Beri, CEO of Elegance Brands, arranged to receive a percentage of investor funds raised by the issuers, in exchange for arranging Mikula's promotion, under the guise of consulting agreements with the issuers. The complaint also alleges that Fernandez and Beri tried to disguise their receipt of payments from the issuers by submitting invoices for fake consulting services, and by funneling payments through offshore accounts for Mikula's benefit. 

The complaint states that two of the issuers promoted by Mikula, Elegance Brands and Emerald Health, as well as their respective CEOs, Beri and James DeMesa, participated in the scheme and made material misrepresentations and omissions in their respective filings with the SEC and other investor materials concerning the promotion and related payments. According to the complaint, Emerald Health's co-founder, Avtar Dhillon, played a key role in the scheme to promote Emerald Health. A separate administrative proceeding against Emerald Health's CFO, Lisa Sanford, finds that she negligently participated in the scheme. The complaint also charges Elegance and Beri with engaging in an offering that was unregistered and not covered by a valid registration exemption.   

https://www.sec.gov/litigation/litreleases/2022/lr25543.htm
https://www.sec.gov/litigation/complaints/2022/comp25543.pdf, the SEC charged FTE Networks, Inc.'s former Controller Daniel Moser with violating the antifraud provisions of Sections 17(a)(1) and (a)(3) of the Securities Act and Section 10(b) of the Securities Exchange Act and Rule 10b-5(a) and (c) thereunder, and Exchange Act Section 13(b)(5) and Rules 13(b)2-1 and 13(b)2-2 thereunder; and further charged him with aiding and abetting violations of Section 10(b) of the Exchange Act and Rule 10b-5(b) thereunder, the reporting provisions of Exchange Act Section 13(a) and Rules 12b-20, 13a-1, 13a-11 and 13a-13 thereunder, and the books and records and internal controls provisions of Exchange Act Sections 13(b)(2)(A) and 13(b)(2)(B). Moser consented to a bifurcated settlement enjoining him from violating the charged securities laws. As alleged in part in the SEC Release:

[M]oser helped FTE's former CEO, Michael Palleschi, CFO, David Lethem, and Chief Administrative Officer and President, Anthony Sirotka, inflate FTE's revenue by directing FTE to improperly recognize revenue and related accounts receivable for nonexistent construction projects. The complaint also alleges that Moser, together with Palleschi, Lethem, and Sirotka, misled FTE's auditor about approximately $12.5 million in fictitious revenue and related accounts receivable, by, among other things, providing false and misleading materials to the auditor.

https://www.sec.gov/litigation/litreleases/2022/lr25542.htm
https://www.sec.gov/litigation/complaints/2022/comp25542.pdf, the SEC Charged Infinity Q Capital Management LLC's former Chief Risk Officer/Head of Operations/Chief Compliance Officer/Former Portfolio Manager/Valuation Committee Member Scott Lindell with violations of Sections 17(a)(2) and (3) of the Securities Act, Rule 13b2-2 of the Securities Exchange Act, Sections 206(2), 206(4), and 207 of the Investment Advisers Act of 1940, and Rule 206(4)-8 thereunder, and with aiding and abetting Infinity Q's violations of Sections 204(a) and 206(4) of the Advisers Act and Rules 204-2(a) and 206(4)-7 thereunder. In settling the charges, Lindell agreed to being permanently enjoined from violating the cited provisions of the federal securities laws. As alleged in part in the SEC Release:

[L]indell failed to appropriately discharge his responsibilities in the face of multiple red flags regarding Infinity Q's valuations. The SEC alleges that, from at least February 2017 through February 2021, James Velissaris, Infinity Q's founder and former Chief Investment Officer, actively manipulated the valuation models available from a certain third-party pricing service and altered inputs to mask the poor performance of the mutual fund and hedge fund that Infinity Q advised. As alleged, Lindell negligently misrepresented to investors and potential investors, representatives of the mutual fund's board, and others that the pricing service was "independent" of Infinity Q when, in fact, Velissaris exercised control over the pricing service. As further alleged, Lindell, at Velissaris's direction, helped Velissaris submit misleading documents to the SEC staff in response to the SEC's initial inquiries in this matter and, on one occasion, helped Velissaris mislead the mutual fund's auditor. As set forth in the complaint, Lindell also made misstatements on various Infinity Q filings with the Commission.

https://www.sec.gov/litigation/litreleases/2022/lr25540.htm
https://www.sec.gov/litigation/complaints/2022/comp25540.pdf, the SEC charged Paulo Fernando De Bastos, Joao Pedro Fonseca, RBF Trust LLC, and D3 Gestion Immobiliere LLC with violating the anti-fraud provisions of Section 17(a) of the Securities Act and Section 10(b) of the Securities Exchange Act and Rule 10b-5 thereunder; and, further, charged De Bastos and Fonseca with violating the registration provisions of Sections 5(a) and (c) of the Securities Act, and charged De Bastos with violating the broker-dealer registration provisions of Section 15(a)(1) of the Exchange Act. As alleged in part in the SEC Release:

[F]rom 2016 to early 2020, De Bastos and Fonseca conducted a fraudulent, unregistered securities offering, raising more than $40 million from hundreds of investors in connection with the sale and management of investment properties in Detroit, Michigan. According to the SEC's complaint, De Bastos, Fonseca, RBF Trust LLC, and other companies owned and controlled by De Bastos and Fonseca sold more than 900 properties to investors without actually owning the properties they were selling in a majority of the transactions. The SEC's complaint alleges De Bastos and D3 Gestion Immobiliere LLC misrepresented they would manage completely the properties and guarantee the properties had paying tenants.

https://www.sec.gov/litigation/litreleases/2022/lr25537.htm
In a Complaint filed in the United States District Court for the Southern District of Florida
https://www.sec.gov/litigation/complaints/2022/comp25537.pdf, the SEC charged 
Arbitrade Ltd., Cryptobontix Inc., Troy R. J. Hogg, James L. Goldberg, Stephen L. Braverman, and Max W. Barber with violating the antifraud and securities registration provisions of the federal securities laws. Specifically, the complaint alleges that:

  • Arbitrade and Cryptobontix violated Sections 5(a) and 5(c) of the Securities Act , and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder; 
  • Hogg and Goldberg violated Sections 5(a), 5(c), and 17(a) of the Securities Act, and Section 10(b) of the Exchange Act and Rule 10b-5, and that Hogg is also liable as a control person for Arbitrade and Cryptobontix's violations of Section 10(b) and Rule 10b-5, and that Goldberg is also liable as a control person for Arbitrade's violations of Section 10(b) and Rule 10b-5; 
  • Braverman and Barber aided and abetted violations of Section 10(b) Exchange Act and Rule 10b-5; and
  • SION Trading FZE was named as a Relief Defendant.
As alleged in part in the SEC Release:

[B]etween May 2018 and January 2019, Arbitrade and Cryptobontix, through Hogg, Goldberg, Braverman, and Barber, issued announcements falsely claiming that Arbitrade had acquired and received title to $10 billion in gold bullion, that the company intended to back each DIG token issued and sold to investors with $1.00 worth of this gold, and that independent accounting firms had performed an "audit" of the gold and verified its existence. As alleged, Arbitrade claimed to have acquired the gold through a purchase transaction with Barber and his company, SION Trading FZE. In reality, according to the complaint, the gold acquisition transaction was merely a sham to boost demand for DIG, thereby allowing Hogg and Goldberg, with Braverman's assistance, to sell at least $36.8 million of DIG, including to U.S. investors, at prices fraudulently inflated by the public misstatements about the supposed gold acquisition.

https://www.sec.gov/litigation/litreleases/2022/lr25538.htm 
In a Complaint filed in the United States District Court for the Central District of California, https://www.sec.gov/litigation/complaints/2022/comp25538.pdf, the SEC charged Vivera Pharmaceuticals, Inc., EFT Global Holdings, Inc. d/b/a Sentar Pharmaceuticals, and Paul P. Edalat with violating the anti-fraud provisions of Sections 17(a)(1) and (3) of the Securities Act, and Section 10(b) of the Securities Exchange Act and Rules 10b-5(a) and (c) thereunder. Further, the Complaint charges Vivera and Edalat with violating the anti-fraud provisions of Section 17(a)(2) of the Securities Act and Section 10(b) of the Exchange Act and Rule 10b-5(b) thereunder. As alleged in part in the SEC Release: 

[F]rom May 2018 until June 2020, Vivera raised money from investors through private placements of Vivera stock. As alleged, Vivera claimed to hold an "exclusive global license" to a sublingual drug-delivery technology for the pharmaceutical use of CBD and THC. The SEC further alleges that, among other things, Vivera failed to disclose that Edalat was the controlling shareholder of both Vivera and the ostensible licensor, Sentar, and that there was an ongoing dispute around the validity of Vivera's license due to Sentar's prior conveyance of the same license to a third party. According to the complaint, in December 2018, Vivera filed a lawsuit challenging the third party's claim to the relevant license rights and lost that action in May 2020. The SEC further alleges that Sentar received $4,510,000 in purported licensing fees from Vivera and then transferred significant sums into various accounts controlled by Edalat, from which Edalat made lavish purchases, including down payments on two homes and a $425,000 luxury car.

https://www.sec.gov/litigation/litreleases/2022/lr25539.htm
In a Complaint filed in the United States District Court for the Eastern District of Michigan
https://www.sec.gov/litigation/complaints/2022/comp25539.pdf, the SEC charged Mark J. McKinley, Paystr LLC, and JumpStart Equity LLC with violating Section 5 of the Securities Act. Without admitting or denying the allegations in the Complaint, McKinley, Paystr, and JumpStart Equity consent to the entry of Final Judgment that includes a conduct-based injunction that permanently enjoins them from directly or indirectly participating in the issuance, purchase, offer, or sale of any security in an unregistered offering by an issuer, and permanently enjoins them from future violations of Section 5 of the Securities Act, and which imposes civil penalties of $67,500 and $82,500, respectively, on McKinley and Paystr. As alleged in part in the SEC Release:

[F]rom at least August 2019 through May 2021, the Defendants offered and sold securities in one company, JumpStart, in order to obtain funding for a related company, Paystr, to provide consulting services to start-up companies. Both JumpStart and Paystr were founded and controlled by McKinley. As alleged, the Defendants did not register with the SEC these public offers and sales of JumpStart securities, as required by federal securities law, and no exemption or safe harbor from this requirement applied. The complaint alleges that the Defendants illegally raised a total of approximately $890,000 from 37 investors, several of whom were unaccredited, through the sale of JumpStart securities. As alleged, JumpStart investors have not received any profits, interest or return of principal on their investments to date.

In a Complaint filed in the United States District Court for the Southern District of Florida
https://www.cftc.gov/media/7826/enfdigitexcomplaint093022/download, the SEC charged Adam Todd, Digitex LLC, Digitex Limited, Digitex Software Limited, and Blockster Holdings Limited Corporation with illegally offering futures transactions on a platform other than a designated contract market and also with attempting to manipulate the price of the Digitex Futures native token. As alleged in part in the CFTC Release:

The complaint alleges that from approximately May 2020 through May 2022, Todd and Digitex Futures operated a digital asset derivatives exchange from an office in Florida. The Digitex Futures exchange allegedly sought participation from U.S. customers through web-based solicitations, despite the fact Todd knew such participation subjected Digitex Futures to U.S. regulation.

In addition to the alleged registration and regulatory violations, the complaint states Todd attempted to manipulate the price of DGTX, the exchange's "native currency," between approximately May 2020 and August 2020. Digitex Futures required users to deposit DGTX into their accounts to margin their trading on the futures exchange. According to the complaint, throughout the summer of 2020-the time when the exchange was readying for "launch"-Todd repeatedly attempted to, in his words, "pump" the price of DGTX as reported by third-party exchanges.

Todd allegedly accomplished his "pumping" activity by, among other things, deploying a "bot" on third-party exchanges he designed to be "always buying more than it was selling" and by filling large over-the-counter orders to purchase DGTX on third-party exchanges rather than out of the Digitex Futures "treasury." The complaint alleges Todd took these steps intending to increase the price of DGTX, as reported by third-party exchanges, even though he acknowledged this practice would result in trading losses because Todd knew the higher DGTX price would benefit the vast amounts of DGTX held by the Digitex "treasury." 

https://www.cftc.gov/PressRoom/PressReleases/8604-22
A CFTC Order filed and settled charges against swap execution facility ("SEF") BGC Derivative Markets, L.P. https://www.cftc.gov/media/7821/enfbgcderivativeorder093022/download that requires BGCD to cease and desist from further violations, pay a $1.9 million civil monetary penalty, and to comply with specified undertakings. As alleged in part in the CFTC Release:

The order specifically finds that from January 2017 to March 2022, as a result of 11 separate reporting systems issues, BGCD failed to report or accurately report nearly 12,500 swap transactions to the CFTC and/or to the public on its public website. As a result of three other reporting systems issues during this same time period, BGCD failed to report real-time transaction and pricing data for over 3,500 transactions to an SDR and further failed to timely submit corrected data to the SDR for a subset of those transactions. In aggregate, these 14 issues led to BGCD's failure to report or accurately report (including both under and over reporting) over 16,000 swap transactions in various products (interest rate, FX, credit, and equities), on hundreds of trading dates.

The order further finds BGCD had inadequate processes and procedures for reporting swap transactions and identifying reporting issues as they arose. As a result, BGCD did not timely identify the majority of these reporting issues. Specifically, over half of BGCD's reporting issues were unknown to BGCD for eight months or more, with two of them being undetected (and uncorrected) for over four years. Moreover, these persistent and recurring issues, according to the order, show BGCD's capacity to capture and transmit accurate and complete trade information to the public and to the CFTC was deficient. Further, the order finds BGCD was aware it lacked a process for reconciling its reports with the SEF's trading activity, but failed to timely implement a reconciliation process or other policies and procedures to significantly reduce, if not eliminate, these reporting and publication errors. 
Swap reporting is fundamental to post-crisis financial regulation - a critical tool for promoting transparency and market integrity in swap markets that used to be opaque.  It has been a decade since the Commodity Futures Trading Commission ("CFTC") implemented Dodd-Frank Act requirements for swap reporting.  However, in my six months of serving as a CFTC Commissioner, I have seen multiple enforcement cases involving swap reporting failures, which is troubling. 

As a market regulator, we must send a strong message that systemic swap reporting failures are unacceptable.  Swap Execution Facilities ("SEFs") should have a culture of compliance.  I support the Commission's enforcement action against BGC Derivative Markets, L.P., an affiliate of Cantor Fitzgerald, L.P. ("BGCD") based on its systemic failure to report, or misreporting of, swap transactions.  But I do not support the provisions of the settlement.  I do not agree that the $1.9 million penalty combined with no admissions by BGCD in settlement is sufficient to deter future violations or provide accountability and transparency.  Therefore, I vote to concur, rather than fully support.

A higher penalty and defendant admissions to wrongdoing would serve as a stronger deterrent for BGCD and other SEFs.  Further, this case warrants the heightened accountability and transparency that comes with requiring the defendant to admit to its wrongdoing.[1] 

The CFTC should have required BGCD admissions because BGCD's violations were egregious.  BGCD had systemic reporting problems for five years.  Because BGCD had inadequate processes and procedures for reporting swap transactions and identifying reporting issues as they arose, BGCD failed to report, or accurately report, over 16,000 swap transactions under CFTC rules intended to enhance transparency in swap markets.  BGCD took more than a year to implement a reconciliation process identified by its compliance department in March 2020 that would ensure that all transactions on the SEF were being reported. 

As the Commission's proposed order states, "Reporting is at the heart of the Commission's market and financial surveillance programs, which are critical to the Commission's mission to protect market participants and promote market integrity.  Accurate swap data is essential to the effective fulfillment of the regulatory functions of the Commission, including meaningful surveillance and enforcement programs." 

If reporting is at the heart of the Commission's market surveillance and enforcement programs, we should take a hard stance when we find violations of our swap reporting rules. 

[1] I recently called for more defendant admissions in CFTC settlements.  See Statement of Commissioner Christy Goldsmith Romero: Proposal for Heightened Enforcement Accountability and Transparency (HEAT) Test to Require More Defendants to Admit Wrongdoing in Settlements (Sept. 19, 2022), available at https://www.cftc.gov/PressRoom/SpeechesTestimony/romerostatement091922.

Bill Singer's Comment: BRAVO!!! Beleaguered investors seem to have found a champion in CFTC Commissioner Romero who expresses the frustration voiced by industry reform advocates like me who have long-ago tired of federal regulators offering settlements of serious misconduct without requiring an admission of the cited violations -- and, similarly, granting disqualification waivers to recidivists. Commissioner Romero hits the sentiment pitch perfect when she asserts "If reporting is at the heart of the Commission's market surveillance and enforcement programs, we should take a hard stance when we find violations of our swap reporting rules." Also see: "SEC Hides Disqualification Waiver Order In High Profile Recordkeeping Release" (BrokeAndBroker.com Blog / September 28, 2022)
https://www.brokeandbroker.com/6685/sec-disqualification-waiver/, which noted, in part:

I applaud CFTC Commissioner Romero's compelling statement. Unfortunately, absent from the her remarks is an acknowledgement that the SEC granted all of its Respondents a Disqualification Waiver in the very same breath that it rang up its regulatory cash register. To the extent the CFTC did not move in lock step with the SEC in granting waivers, bravo! That the fines imposed by CFTC "dwarf the next largest penalties," as the CFTC Commissioner notes in Footnote 3 ought not be taken for more than it is -- an admission that regulation has become somewhat sterile and tends to confuse fining miscreants for reforming their behavior. In reality, the fines will likely come out of the pockets of the shareholders of the public companies at issue rather than from those in the C-Suites or those responsible. As Commissioner Stein so aptly lamented, it's business as usual on Wall Street and at the industry's federal regulator.

Wall Street Regulator Eliminates Cap on Fines for Rule-Breakers (Barron's by Kenneth Corbin)
https://www.barrons.com/advisor/articles/finra-sanctions-update-eliminates-cap-on-fines-51664564226?mod=read_next
Barron's Kenneth Corbin offers a concise take on FINRA's recent proposals to revise certain aspects of its Sanctions Guidelines.

https://www.finra.org/media-center/newsreleases/2022/finra-extended-hearing-panel-expels-nyppex-bars-former-ceo-laurence
FINRA announced the issuance of FINRA Department of Enforcement, Complainant, v. NYPPEX, LLC, Laurence Allen, and Michael Schunk, Respondents (Extended Office of Hearing Officers ("OHO") Hearing Panel Decision, Discip. Proc. No.2019064813801)
https://www.finra.org/sites/default/files/fda_documents/2019064813801
%20NYPPEX%2C%20LLC%20CRD%2047654%2C
%20Laurence%20Allen%20CRD%201063970%2C
%20Michael%20Schunk%20CRD%20732595%20OHO%20Decision%20jlg.pdf  
The FINRA Release asserted in part that:

In May 2021, FINRA's Department of Enforcement filed a nine-cause complaint against NYPPEX, Allen, and Schunk alleging a pattern of misconduct that followed a temporary restraining order issued against Allen and others in December 2018 by a New York state court. That order-issued after the New York Attorney General (NYAG) alleged that Allen was engaging in "fraudulent and deceptive practices arising out of [Allen's and others'] management and operation" of a private equity fund-preliminarily enjoined Allen from engaging in securities fraud and converting investor funds, among other activities.

Following an 11-day hearing, the panel ruled in favor of Enforcement on all nine causes of action of the complaint. Specifically, the panel found that, shortly after the December 2018 court order, NYPPEX and Allen launched an aggressive sales campaign to raise $10 million by selling interests in NYPPEX Holdings (NYPPEX's parent company). The panel concluded that during the campaign, NYPPEX and Allen committed securities fraud when they "intentionally or, at a minimum, recklessly" made material misstatements and omissions to prospective investors about NYPPEX Holdings' valuation and financial condition, the New York court's order against Allen, and the ongoing investigation by the NYAG into Allen and NYPPEX-affiliated entities, among other matters.

The panel also found that NYPPEX and Allen failed to cooperate with FINRA's investigation into their misconduct and that their "failure to comply completely was intentional, and part of a lengthy pattern throughout the investigation of flouting FINRA 8210 requests." (FINRA Rule 8210 requires registered firms and their associated persons to provide information orally, in writing, or electronically and to testify under oath on any matter involved in a FINRA investigation, complaint, examination, or proceeding.) In addition, the panel found that NYPPEX, Allen, and Schunk submitted a false and misleading response letter to FINRA in which they "attempted to deceive [FINRA] into mistakenly believing, among other things, that they had complied with regulatory requirements" when they had not.

The panel also found that:

  • Although the December 2018 New York court order statutorily disqualified Allen, he improperly remained associated with NYPPEX, and during that time engaged in securities fraud;

  • NYPPEX and Allen made false and misleading statements to investors during a March 2019 "webinar" and on NYPPEX's website. Allen repeated the false and misleading statements in an affidavit submitted to the New York court and to FINRA; and
     
  • Schunk failed to reasonably supervise Allen, when he, "abdicated his supervisory responsibilities and rubber-stamped Allen's misconduct." This "lax approach to supervision. . . allowed Allen to act with impunity, leading to serious infractions of the federal securities laws."

As set forth in the Syllabus of the OHO Decision:

NYPPEX, LLC is expelled from FINRA membership and Laurence Allen is barred from associating with any FINRA member firm in any capacity for responding untimely and incompletely to FINRA requests for information and documents. 

In light of the expulsion, no further sanctions are imposed against NYPPEX for its other violations: permitting Allen, a statutorily disqualified person, to remain associated with NYPPEX; making misrepresentations and omissions of material fact to prospective investors in connection with a securities offering; violating FINRA's advertising standards in communications to prospective investors and in material posted on NYPPEX's website; violating just and equitable principles of trade by making false or misleading statements on NYPPEX's website; failing to reasonably supervise Allen; and making false or misleading statements in response to FINRA information requests. 

In light of the bar, no further sanctions are imposed against Allen for his other violations: remaining associated with NYPPEX after he became statutorily disqualified; making misrepresentations and omissions of material fact to prospective investors in connection with a securities offering; violating FINRA's advertising standards in communications to prospective investors and in material posted on NYPPEX's website; violating just and equitable principles of trade by making false or misleading statements on NYPPEX's website, to a court, and to FINRA; and making false or misleading statements in response to FINRA information requests.

Michael Schunk is fined $70,000 and suspended in all capacities from associating with any FINRA member firm for 18 months for permitting a statutorily disqualified person to remain associated with NYPPEX; barred from acting in any principal or supervisory capacity with any FINRA member firm for failing to supervise Allen; and fined $50,000 and suspended in all capacities from associating with any FINRA member firm for two years for making false or misleading statements in response to FINRA information requests. Schunk's all-capacities suspensions are imposed concurrently.

Bill Singer's Comment: The Respondents appealed the OHO Decision to FINRA's National Adjudicatory Council ("NAC"). 

For more context on this case, read: "Three-Handed Dilemma Grabs NYAG, NYPPEX, Laurence Allen, And FINRA" (BrokeAndBroker.com Blog / March 1, 2022)
https://www.brokeandbroker.com/6324/nyppex-allen-finra-nyag/

Compliments to FINRA Hearing Officer David R. Sonnenberg for penning one of the finest Decisions to have issued from the self-regulatory-organization in years . . . perhaps in decades. Hearing Officer Sonnenberg's opus weighs in at some 85 pages, but given the many issues and disputes, the length is understandable, as is the need to fully present the pertinent content and context underpinning the case. As one of FINRA's longest and most vocal critics, I have often chided the organization for the brevity of its regulatory Decisions and lack of substantive rationale. I offer no such criticisms of Sonnenberg's Decision. It may be that on appeal to the NAC or beyond that the Respondents will prevail and overturn the findings and sanctions. That is the nature of our adversary system. FINRA's obligation as a regulator is to present with clarity its charges against a given Respondent, to fairly consider a Respondent's arguments/defenses, and, finally, to impose sanctions pursuant to an explanation as to why such fines/suspensions are not punitive but remedial. Without question, OHO Hearing Officer Sonnenberg has produced a comprehensive Decision that checks off all the boxes. I can ask no more of any hearing officer. 

https://www.finra.org/sites/default/files/fda_documents/2019061928701
%20Lightspeed%20Financial%20Services%20Group%20LLC%20CRD
%20104369%20AWC%20lp.pdf
For the purpose of proposing a settlement of rule violations alleged by the Financial Industry Regulatory Authority ("FINRA"), without admitting or denying the findings, prior to a regulatory hearing, and without an adjudication of any issue, Lightspeed Financial Services Group LLC submitted a Letter of Acceptance, Waiver and Consent ("AWC"), which FINRA accepted. The AWC asserts that Lightspeed Financial Services Group LLC has been a FINRA Member Firm since 2001 with about 35 registered representatives at 2 branches. In accordance with the terms of the AWC, FINRA imposed upon Lightspeed Financial a Censure and $25,000 fine. As asserted in part in the AWC:

From July 1, 2018 through May 14, 2019, Respondent submitted to one of the third-party broker-dealers with which it had contracted options orders for two customer accounts that had incorrect origin codes. Specifically, Respondent submitted for execution 28,959 options orders, totaling 90,657 contracts, that incorrectly stated that the orders originated from Customers, even though the customers were in fact Professional Customers at the time of the orders. The inaccurate origin codes were caused by a computer coding error in the firm's order routing system. Respondent fixed the error on May 15, 2019, after FINRA contacted it about the error. 

Therefore, Respondent violated Exchange Act § 17(a) and Exchange Act Rule l 7a3(a)(6)(i), and FINRA Rules 4511 and 2010. 
. . .
From July 1, 2018 through May 14, 2019, Respondent's supervisory system, including written procedures, was not reasonably designed to ensure that the options orders the firm submitted included correct origin codes. Respondent maintained written procedures requiring it to conduct quarterly reviews to determine whether the firm was using accurate origin codes on its options orders. Respondent's origin code reviews were, however, limited to determining whether customers who qualified as Professional Customers were properly categorized in the firm's systems. Respondent's origin code reviews did not encompass its order routing system or a review of executed trades to ensure that orders the firm submitted to other broker-dealers for execution contained accurate origin codes. After FINRA contacted it about the matter in May 2019, Respondent revised its relevant supervisory procedures. 

Therefore, Respondent violated FINRA Rules 3110 and 2010. 

https://www.finra.org/sites/default/files/fda_documents/2021070633001
%20German%20Ricardo%20Mora%20CRD%205032958%20AWC%20lp.pdf
For the purpose of proposing a settlement of rule violations alleged by the Financial Industry Regulatory Authority ("FINRA"), without admitting or denying the findings, prior to a regulatory hearing, and without an adjudication of any issue, German Ricardo Mora submitted a Letter of Acceptance, Waiver and Consent ("AWC"), which FINRA accepted. The AWC asserts that German Ricardo Mora entered the industry in 2005 and was first registered in 2006, and by June 2019, he was registered with Intercam Securities, Inc. and also registered with the firm's investment advisory affiliate Intercam Advisors, Inc. In accordance with the terms of the AWC, FINRA imposed upon Mora a $5,000 fine and 45-calendar-day suspension from associating with any FINRA member in all capacities. As asserted in part in the AWC:

Between March 2020 and March 2021, while associated with the firm, Mora engaged in an outside business activity by becoming an insurance agent with Company A. In March 2020, Mora obtained insurance illustrations from Company A and sent them to an Intercam customer. In April 2020, Mora sold a life insurance policy to the customer through Company A, and in June 2020, Mora received $5,785 in compensation from Company A for that sale. Mora continued to work as an insurance agent for Company A with the authorization to sell insurance products with Company A's affiliated insurance carriers until March of 2021. Intercam did not give approval to Respondent to sell any life insurance or any products offered by Company A. 

Respondent did not provide prior written notice of these outside business activities involving Company A to Intercam, or seek approval from the firm prior to engaging in them. Additionally, Respondent falsely attested on Intercam's December 2020 annual compliance questionnaire that his previous Form U4 OBA disclosures, were accurate and complete, even though he did not include his outside business activities with Company A. As a result, the December 2020 attestation was false. 

By engaging in an outside business activity without providing prior written notice to Intercam, Respondent violated FINRA Rules 3270 and 2010. 

https://www.finra.org/sites/default/files/fda_documents/2020068856201
%20Steven%20Horn%20CRD%202579003%20AWC%20gg.pdf
For the purpose of proposing a settlement of rule violations alleged by the Financial Industry Regulatory Authority ("FINRA"), without admitting or denying the findings, prior to a regulatory hearing, and without an adjudication of any issue, Steven Horn submitted a Letter of Acceptance, Waiver and Consent ("AWC"), which FINRA accepted. The AWC asserts that Steven Horn entered the industry in 1995 and from February 2016 through December 2020, he was registered Citigroup Global Markets, Inc. In accordance with the terms of the AWC, FINRA imposed upon Horn a $10,000 fine and seven-month suspension from associating with any FINRA member in all capacities. As asserted in part in the AWC:

In 2020, as a result of the COVID-19 pandemic, the federal government initiated several programs to assist small businesses, including the COVID-19 Economic Injury Disaster Loan Program, which was administered by the SBA. In July 2020, Horn submitted an application to the SBA for an Economic Injury Disaster Loan. Prior to submitting the application, Horn did not sufficiently review the Economic Injury Disaster Loan program requirements to determine his eligibility. In addition, Hom did not review the instructions for completing the application, which contained additional information about program eligibility. 

In the application, Horn recklessly misrepresented that he owned a sole proprietorship under the business name Steven Hom, using a Tax ID number that was identical to his personal social security number. Hom further misrepresented that the primary email address for this business was his personal email address and that the revenues and costs associated with his Citigroup business were those of the sole proprietorship. In actuality, Horn was providing financial services only in his capacity as a registered representative with Citigroup. Horn did not have any outside business activities, including any sole proprietorship or other financial services business bearing his name and personal social security number. Additionally, Hom was using only his Citigroup-issued email address to conduct his financial services business, not his personal email address. Hom's Citigroup business was not eligible for an Economic Injury Disaster Loan, and he did not have any other business eligible for an Economic Injury Disaster Loan from the SBA. 

Based on Horn's misrepresentations, the SBA approved Horn's application. On August 8, 2020, Horn signed the loan agreement, which contained an affim1ation that the representations made in Horn's application were correct. Horn did not review the loan agreement before signing it. On August 11, 2020, the SBA provided Hom with a $150,000 loan. 

In October 2020, Citigroup commenced an investigation of Hom's activity. In early November 2020, prior to his resignation from Citigroup, Horn repaid the loan in full, with interest to the SBA. 

Based on the foregoing, Horn violated FINRA Rule 2010. 

https://www.finra.org/sites/default/files/fda_documents/2020068210301
%20Nathan%20M.%20Plumb%20CRD%204598158%20AWC%20geg.pdf
For the purpose of proposing a settlement of rule violations alleged by the Financial Industry Regulatory Authority ("FINRA"), without admitting or denying the findings, prior to a regulatory hearing, and without an adjudication of any issue, Nathan M. Plumb submitted a Letter of Acceptance, Waiver and Consent ("AWC"), which FINRA accepted. The AWC asserts that Nathan M. Plumb entered the industry in 2002 and by December 2016, he was registered with Lincoln Financial Advisors Corporation. In accordance with the terms of the AWC, FINRA imposed upon Plumb a $10,000 fine and four-month suspension from associating with any FINRA member in all capacities. As asserted in part in the AWC:

In June 2016, before associating with Lincoln, Plumb submitted an outside business activity disclosure form to Lincoln disclosing his role as a board member of a mutual fund company (Fund Company). Lincoln approved Plumb's disclosed role. In August 2017, Plumb's role with the Fund Company expanded, and he began working for the company as chief financial officer and treasurer. Plumb did not disclose his new role with the Fund Company to Lincoln. 

Additionally, in January 2017, Plumb began providing consulting services to a registered investment advisory firm and the investment advisor to the Fund Company pursuant to a consulting agreement. Plumb provided economic research, marketing support, and financial analysis to the investment advisory firm. Plumb did not disclose to Lincoln his role with the investment advisory firm until December 2018. In March 2019, Lincoln denied Plumb's request to work for the investment advisory firm. Notwithstanding this, Plumb continued to work for, and receive compensation from, the investment advisory firm throughout his association with Lincoln. 

Between November 2017 and December 2019, Plumb incorrectly attested on three annual compliance questionnaires submitted to Lincoln that he had disclosed all outside business activities. 

Therefore, Plumb violated FINRA Rules 3270 and 2010. 
. . .

While associated with Lincoln, Plumb was approached by and assisted four individuals in purchasing mutual fund shares directly from the Fund Company. These individuals purchased approximately $387,000 of mutual fund shares directly from the Fund Company. Plumb assisted these individuals with their purchases by meeting with them to discuss their investments, completing the paperwork required to purchase the mutual fund shares, and advising them on how to send payment to the Fund Company for the mutual fund share purchases. Plumb did not receive any commissions or other payments for his role in the transactions, though he was affiliated with the Fund Company as a member of the board and the chief financial officer and treasurer. Plumb did not provide written notice to Lincoln prior to participating in those individuals' transactions. 

Therefore, Plumb violated FINRA Rules 3280 and 2010.