California Man Indicted in Cryptocurrency Money Laundering Conspiracy (DOJ Release)Former Bank Employee Sentenced To Federal Prison For Stealing From Deceased Customers (DOJ Release)
Justice Department Expands Transnational Elder Fraud Strike Force to Protect Older Americans from Fraud (DOJ Release)
Former Lawyer Sentenced to More than 3 Years in Prison for Conning Clients via Sham Court Documents Containing Forged Judge Signatures (DOJ Release)
Non-Payment of Federal Income Tax on Cryptocurrency Earnings Leads to Conviction for South Florida Resident (DOJ Release)
SEC Charges the Hydrogen Technology Corp. and Its Former CEO for Market Manipulation of Crypto Asset Securities / CEO of Hydrogen's "Market Maker" Also Being Charged for Role in Scheme (SEC 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 Four Defendants in Connection with Fraudulent Scheme to Sell Public Company Stock (SEC Release)
CFTC Charges Delaware Precious Metals Dealer, Depository, and Their Owner with Ongoing Fraud (CFTC 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
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 Changing Rep Code
In the Matter of Robert Paul Barberis, Respondent (FINRA AWC)
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 AWC)
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)
In the Matter of the Arbitration Between Jill Jester, Claimant, v. Dinosaur Financial Group, LLC, Respondent (FINRA Arbitration Award)
[K]huu is alleged to have conspired with others to launder the proceeds of his drug trafficking organization through cryptocurrency. The defendant allegedly distributed counterfeit pharmaceutical pills and other controlled substances on dark web markets to customers across the United States. Customers paid for their purchases by transferring cryptocurrency, usually Bitcoin, from their dark web market customer accounts to one of Khuu's vendor accounts. Khuu and his co-conspirators traded the Bitcoin for U.S. currency and laundered the proceeds through hundreds of transactions and dozens of financial accounts.During the course of the conspiracy, Khuu and his co-conspirators allegedly laundered more than $5,350,000.00.On May 18, 2022, a federal grand jury in the Eastern District of Texas returned an indictment charging Khuu with conspiracy to commit money laundering. On August 17, 2022, a federal grand jury in the Northern District of California returned a two-count indictment charging Khuu with unlawful importation of a controlled substance.
[S]tarting in January 2018, Kane and Hydrogen, a New York-based financial technology company, created its Hydro token and then publicly distributed the token through various methods: an "airdrop," which is essentially giving away Hydro to the public; bounty programs, which paid the token to individuals in exchange for promoting it; employee compensation; and direct sales on crypto asset trading platforms. The complaint further alleges that, after distributing the token in those ways, Kane and Hydrogen hired Moonwalkers, a South Africa-based firm, in October 2018, to create the false appearance of robust market activity for Hydro through the use of its customized trading software or "bot" and then selling Hydro into that artificially inflated market for profit on Hydrogen's behalf. Hydrogen allegedly reaped profits of more than $2 million as a result of the defendants' conduct.
A total of 724 US companies paid their lawyers $640 million for work on IPO registrations in the first three quarters of last year, according to data compiled by Bloomberg and an analysis by Bloomberg Law.The drop-off this year is eye-watering: A mere 66 companies reported paying their lawyers $64 million.That's $575 million less in lawyer fees, and just 10% of the amount from a year ago.
[B]etween July 2019 and June 2020 Roblero Rangel worked as a personal banker at SunTrust Bank in Sarasota. Roblero Rangel misused his position of trust by stealing customer information and repeatedly conducting fraudulent transactions using their personal identifying information. For nearly a year, Roblero Rangel embezzled $44,187.18 from five different bank customers.As part of his criminal scheme, Roblero Rangel targeted elderly, deceased bank customers. For example, on December 18, 2019, Roblero Rangel ordered a replacement credit card for a deceased customer. The card was mailed to the branch office located in Sarasota. Roblero Rangel fraudulently used the card between December 26, 2019, and January 28, 2020, and conducted multiple transactions totaling $10,041.24. When investigators confronted Roblero Rangel, he admitted to committing the fraud and stated that he had only stolen from one customer. Further investigation, however, revealed four additional victims. Roblero Rangel used each additional victim's debit card to withdraw funds from various Truist Bank ATMs throughout the Middle District of Florida. In many instances, he was captured on surveillance video conducting the transactions.
[F]rom about May 2012 through September 2015, Kellen profited at his clients' expense by cherry-picking profitable trades using an omnibus account, which is intended to facilitate purchases of securities for multiple client accounts.. . .On September 27, 2022, the SEC ordered in settled follow-on administrative proceedings pursuant to Section 203(f) of the Investment Advisers Act of 1940 that Kellen is barred from association with any investment adviser, broker, dealer, municipal securities dealer, municipal advisor, transfer agent, or nationally recognized statistical rating organization.
In February 2013, Barberis entered into an agreement through which he agreed to service certain customer accounts, including executing trades for those accounts, under joint representative codes (also known as joint production numbers) that he shared with a retired representative. The agreement set forth what percentages of the commissions Barberis and the retired representative would earn on trades placed using the joint representative codes.From February 2014 through January 2018, Barberis placed a total of 157 trades in accounts that were covered by the agreement using his own personal representative code. Specifically, although the firm's system correctly prepopulated the trades with the applicable joint representative codes, Barberis entered the transactions under his personal representative code. Barberis negligently failed to verify whether the 157 transactions at issue were subject to the joint production agreement. As a result, Morgan Stanley's trade confirmations for the 157 trades inaccurately reflected Barberis' personal representative code instead of the joint representative code that Barberis shared with the retired representative.Barberis' actions resulted in his receiving higher commissions from the 157 trades than what he was entitled to receive pursuant to the agreement. In November 2021, Morgan Stanley reimbursed the retired representative.By causing Morgan Stanley to maintain inaccurate trade confirmations, Barberis violated FINRA Rules 4511 and 2010.
The Justice Department announced today that as part of its continuing efforts to protect older adults and to bring perpetrators of fraud schemes to justice, it is expanding its Transnational Elder Fraud Strike Force, adding 14 additional U.S. Attorney's Offices. Since 2019, current Strike Force members - including the Department's Consumer Protection Branch, six U.S. Attorneys' Offices, the FBI, U.S. Postal Inspection Service, and Homeland Security Investigations - have brought successful cases against the largest and most harmful global elder fraud schemes and worked with foreign law enforcement to disrupt criminal enterprises, disable their infrastructure, and bring perpetrators to justice. Expansion of the Strike Force will help to coordinate the Department's ongoing efforts to combat sophisticated fraud schemes that target or disproportionately impact older adults. The expansion will increase the total number of U.S. Attorneys' Offices comprising the Strike Force from six to 20, including all of the U.S. Attorneys' Offices in the states of California, Arizona, Texas, Florida, Georgia, Maryland, and New York."We are intensifying our efforts nationwide to protect older adults, including by more than tripling the number of U.S. Attorneys' offices participating in our Transnational Elder Fraud Strike Force dedicated to disrupting, dismantling and prosecuting foreign-based fraud schemes that target American seniors," said Attorney General Merrick B. Garland. "This expansion builds on the Justice Department's existing work to hold accountable those who steal funds from older adults, including by returning those funds to the victims where possible.""At the FBI, we swear an oath to protect the American people, and this includes our most vulnerable populations like the elderly," said FBI Director Christopher Wray. "Efforts like these display our unwavering dedication to protecting our older citizens and combating fraudsters who look to exploit them. I am proud of the work by FBI agents and analysts, as well as our local, state, and federal law enforcement partners, in bringing those criminals to justice. If you think you may be a victim of elder fraud, or you know someone who is, we encourage you to reach out. We are here to help.""The U.S. Postal Inspection Service is a longstanding member of the Transnational Elder Fraud Strike Force," said Chief Gary Barksdale of the Postal Inspection Service. Postal inspectors are proud to contribute to the impactful cases that help numerous victims, many of them older Americans, and aid in the recovery of their losses through restitution. Postal inspectors have a long history of protecting the vulnerable, and our ongoing efforts demonstrate the Postal Inspection Service's continued commitment to the task. We are excited to learn of the Department of Justice's decision to expand the strike force."The strike force expansion will further enhance the Department's existing efforts to protect older adults from fraud and exploitation. During the period from September 2021 to September 2022, Department personnel and its law enforcement partners pursued approximately 260 cases involving more than 600 defendants, both bringing new cases and advancing those previously charged. The matters tackled by the Department and its partners ranged from mass-marketing scams that impacted thousands of victims to bad actors scamming their neighbors. Substantial efforts were also made over the last year to return money to fraud victims.In the past year, the Department has held multiple transnational organized crime syndicates to account for their targeting of older Americans. On Sept. 16, 2022, for instance, the Department's Consumer Protection Branch and the U.S. Attorney's Office for the Southern District of California secured a guilty plea from the Chief Executive Officer of a global telecommunications provider for serving as a gateway carrier for Indian-based fraudulent robocalls that targeted elderly Americans. Similarly, in September 2021, the U.S. Attorneys' Offices for the Eastern and Northern Districts of Texas secured two indictments collectively charging 34 individuals with, allegedly, facilitating a range of schemes, including romance scams. In March 2022, an individual charged by the U.S. Attorney's Office for the Central District of California was sentenced to nine years in prison for participating in an international scheme that placed phone calls purportedly from government agents warning victims that they faced arrest or that their identities or assets were in jeopardy.Many schemes connected to transnational criminal organizations involved impersonation to convince victims into sending money to fraudsters. "Grandparent scams" are especially pernicious versions of such schemes. Those scams typically begin when a fraudster contacts an older adult and poses as either a family member or someone calling on behalf of a family member. Call recipients are told that their family member is in jeopardy and urgently needs money. When recently sentencing one of eight perpetrators of a grandparent scam indicted under the Racketeer Influenced and Corrupt Organizations (RICO) Act, a federal judge described such scams "heartbreakingly evil." That case was brought by the Department's Consumer Protection Branch and the U.S. Attorney's Office for the Southern District of California and investigated by the FBI's San Diego Elder Justice Task Force. The Department also prosecuted other grandparent scam cases during the last year in the Middle District of Pennsylvania, Western District of Pennsylvania, District of Maryland, Central District of California, Southern District of Illinois, and Southern District of Indiana.Other cases advanced by the Department over the past year with a more local nexus involved schemes in which individuals who knew their victims took advantage of those victims' trust. For instance, in March 2022, the U.S. Attorney's Office for the Northern District of Ohio convicted at trial an investment advisor, charged in 2020, who stole more than $9.3 million from his customers; the advisor was sentenced to nearly 22 years in prison. In September 2022, the U.S. Attorney's Office for the Eastern District of Missouri secured charges against a bank branch manager who, allegedly, stole $175,000 from elderly customers by, among other things, logging into customer accounts and transferring funds.Efforts to Return Money to VictimsThe Department and its law enforcement partners continue to use all of the tools available to return money to elder fraud victims, including forfeiture, remission, restoration, restitution, and direct payments. As part of the Department's efforts since September 2021, approximately 550,000 fraud victims were notified that they could be eligible to receive a payment. More than 150,000 of those victims cashed checks totaling $52 million, and thousands more are eligible to receive checks.In one matter resolved on Sept. 15, 2022, Wiland Inc., a consumer data company, agreed through a non-prosecution agreement to pay $4.4 million in victim compensation for its acknowledged sale of consumer data to operators of fraudulent schemes. Victims of fraud schemes that used consumer data sold by Wiland (many of whom were older adults) were targeted with "sweepstakes" or "astrology" solicitations that falsely promised prizes or individualized services if victims paid a fee. Many victims lost thousands of dollars. The matter was prosecuted by the Department's Consumer Protection Branch and the U.S. Attorney's Office for the District of Colorado, and was investigated by the U.S. Postal Inspection Service.Victim compensation paid by Wiland as part of its resolution with the Department will be added to a fund previously developed in connection with cases brought against two other marketing companies by the Department's Consumer Protection Branch and the U.S. Attorney's Office for the District of Colorado, with the support of the U.S. Postal Inspection Service. The two companies, Epsilon Data Management LLC and KBM Group LLC, entered into deferred prosecution agreements in January 2021 and June 2021, respectively, that required them to distribute $127.5 million and $33.5 million, respectively, to victims who were included on consumer lists sold by Epsilon and KBM Group to fraudsters. In addition, all three of the companies agreed through their resolutions to implement significant compliance and reporting obligations to prevent the recurrence of misconduct.Compensation payments associated with the Epsilon, KBM, and Wiland resolutions have been, and will continue to be, sent directly to eligible victims identified through a review of relevant evidence by the Department of Justice. Information about compensation payments is available here.The Department also continued its efforts to return money to consumers, especially older Americans, who were victimized by scams and paid fraudsters via Western Union. In the past year, the Department has identified and contacted over 300,000 consumers who may be eligible for remission. Since March 2020, more than 148,000 victims have received more than $366 million as a result of a 2017 criminal resolution with Western Union for the company's willful failure to maintain an effective anti-money laundering program and its aiding and abetting of wire fraud. The Money Laundering and Asset Recovery Section of the Department's Criminal Division and numerous U.S. Attorneys' Offices secured and are administering the resolution with Western Union. Information about payments made through the Western Union resolution is available here.In addition, the FBI's Internet Crimes Complaint Center (IC3) successfully employed its Recovery Asset Team (RAT) to identify ongoing elder fraud schemes and to freeze victims' funds before they could reach fraudsters' pockets. Over the last 12 months, the IC3 RAT worked approximately 375 incidents involving older adult victims, freezing over $21 million, making recovery and return of those funds possible.The Consumer Financial Protection Bureau also published a report that provides the first comprehensive description of the experience of how and when older adults recover funds they have lost to fraud and exploitation. The report derives insights from interviews with older adults, caregivers, and professionals.Public Education, Outreach, and Fraud ReportingIn conjunction with today's announcement, the Department, the Consumer Financial Protection Bureau, the Department of Health and Human Services' Administration for Community Living, the COPS Office, AmeriCorps Seniors, and other agencies and components are conducting outreach to raise public awareness of grandparent scams. Free awareness materials related to grandparent scams are available from the CFPB here and from the FTC here.The Department also commended FinCEN for releasing an advisory to alert financial institutions to the rising trend of elder financial exploitation. Filings under the Bank Secrecy Act (BSA) are a critical tool in the fight to protect older adults, and the Department is engaging with financial institutions to amplify FinCEN's advisory and emphasize the importance of BSA filings.Reporting from consumers about fraud and fraud attempts is critical to law enforcement efforts to investigate and prosecute schemes targeting older adults. If you or someone you know is age 60 or older and has been a victim of financial fraud, help is available through the National Elder Fraud Hotline: 1-833 FRAUD-11 (1-833-372-8311). This Department of Justice Hotline, managed by the Office for Victims of Crime, is staffed by experienced professionals who provide personalized support to callers by assessing the needs of the victim and identifying next steps. Case managers will identify appropriate reporting agencies, provide information to callers to assist them in reporting or connect them with agencies, and provide resources and referrals on a case-by-case basis. The hotline is staffed seven days a week from 6:00 a.m. to 11:00 p.m. ET. English, Spanish, and other languages are available. More information about the Department's elder justice efforts can be found on the Department's Elder Justice website, www.elderjustice.gov.Some of the cases referenced in today's announcement are charges, which are merely allegations, and the defendants are presumed innocent unless and until proven guilty beyond a reasonable doubt in a court of law.
Elstein was a licensed California attorney from December 1994 until the State Bar of California ordered him inactive in March 2019. From June 2015 to July 2018, Elstein engaged in a scheme to defraud his clients by falsely claiming he obtained favorable legal resolutions for them, when in fact the favorable resolutions had never been obtained.In some cases, Elstein never initiated any legal action. Elstein also admitted to misappropriating funds by falsely informing victims their fees were going into his client trust account, when in fact he directed them to deposit money into his personal bank account.. . .For example, in June 2016, Elstein falsely informed a corporate client that it had won a $52 million default judgment. He emailed the victim-client a fake court order that contained a judge's forged signature. In order to conceal the fact that he never actually filed a lawsuit on his client's behalf, Elstein further misrepresented that the case was improperly under seal due to a United States Department of Justice investigation.To further his fraudulent scheme, Elstein presented his clients with a fake settlement agreement between the client and the United States Attorney's Office for the Eastern District of California. It was not until the company reached out to that United States Attorney's Office to authenticate the settlement agreement that it discovered that the agreement was a forgery.Elstein also fabricated depositions in a federal case in Washington state in September 2015. Because these depositions were fake, no one appeared for them. Nonetheless, Elstein had a court stenographer present and made a formal record of the nonappearances. Elstein also billed the client for attending the sham depositions and his travel expenses to Seattle.Elstein also falsely told the victim that he had obtained a $4.25 million judgment in the victim's favor and provided the victim with a fake court order containing the forged signature of a judge. When the victim traveled to Seattle to collect the judgment, he was informed by the court that no such case existed.In total, Elstein's fraudulent schemes resulted in losses of at least $358,855 to his victims.
[E]asterday, 51, of Mesa, used his company, Easterday Ranches Inc., to enter into a series of agreements with Tyson and Company 1 under which Easterday Ranches agreed to purchase and feed cattle on behalf of Tyson and Company 1. Per the agreements, Tyson and Company 1 would advance Easterday Ranches the costs of buying and raising the cattle. Once the cattle were slaughtered and sold at market price, Easterday Ranches would repay the costs advanced - plus interest and certain other costs - retaining the difference as profit.. . .Between approximately 2016 and November 2020, Easterday submitted and caused others to submit false and fraudulent invoices and other information to Tyson and Company 1. These false and fraudulent invoices sought and obtained reimbursement from the victim companies for the purported costs of purchasing and raising hundreds of thousands of cattle that neither Easterday nor Easterday Ranches ever purchased, and that did not actually exist.As a result of the fraud scheme, Tyson and Company 1 paid Easterday Ranches over $244 million for the purported costs of purchasing and feeding over 265,000 ghost cattle. Easterday used the fraud proceeds for his personal use and benefit, and for the benefit of Easterday Ranches, including to cover approximately $200 million in commodity futures contracts trading losses that Easterday had incurred on behalf of Easterday Ranches. In connection with his trading, Easterday also defrauded the CME Group Inc. (CME), which operates the world's largest financial derivatives exchange, by submitting falsified paperwork, which resulted in the CME exempting Easterday Ranches from otherwise-applicable position limits in live cattle futures contracts.
[R]amirez ran a fraudulent investment scheme with his company JMJ Capital Group ("JMJ") and obtained at least $8 million from investors since 2018. The indictment alleges he used investors' money for personal expenses and to make Ponzi-style payments to other investors, rather than advancing JMJ's purported business and investment opportunities.According to the indictment and statements made in court, Ramirez solicited investments in JMJ from dozens of people by falsely telling them JMJ purchased and resold personal protective equipment (PPE), factored accounts receivable, imported and sold furniture, and, among other things, contracted with a cruise line to refurbish ships' air-conditioning units. Ramirez promised investors returns of approximately 10 to 14 percent within 90 days and 20 to 30 percent within one month, which purportedly would be generated by JMJ's business opportunities. Ramirez misrepresented to investors that they could withdraw their money at any time. Also, as alleged in the indictment, he sent investors funding agreements and account statements that furthered his fraud by falsely representing returns and the value of investments with JMJ.According to the indictment, instead of using investors' money as he said he would, Ramirez used it to pay for luxury cars, travel, potential real-estate transactions, and other personal expenses, and to pay different investors who tried to redeem their investments and returns. Through his fraudulent scheme, according to the indictment and statements in court, Ramirez caused JMJ's investors to lose money and ultimately stole at least $5 million of the $8 million or more he received from them.
[F]rom approximately January 2014 through the present, Argent and FSD, acting as a common enterprise controlled by Higgins, engaged in a fraudulent and deceptive scheme to solicit and misappropriate at least $7 million in funds and silver from at least 200 customers in connection with a fraudulent silver leasing program referred to as the "Maximus Program." The complaint further alleges Higgins either directly engaged in deceptive conduct in furtherance of the scheme or did so indirectly by virtue of his being the control person of Argent and FSD.As alleged in the complaint, the Maximus Program purported to offer customers guaranteed monthly lease payments in exchange for the use of silver purportedly purchased from Argent or silver owned by customers. Customers were told they would earn a monthly "lease" payment based on a sliding scale that in part depended on the amount of silver the Maximus customers leased to Argent. Customers were falsely told, among other things, that Argent would acquire silver on their behalf, their silver was securely stored by FSD in a storage facility, and their investments were guaranteed and fully insured.In reality, as alleged in the complaint, customers' precious metals were not securely stored at FSD, but instead were misappropriated by the defendants. Moreover, on several occasions, the defendants also misappropriated funds intended to be used to purchase metals.As alleged in the complaint, the defendants' fraudulent scheme was not limited to the Maximus Program. The defendants misappropriated other client assets and misled and deceived those clients when they attempted to withdraw their assets or transfer them to another depository. In addition, the defendants lied about the insurance coverage FSD maintained and failed to adequately insure its clients' assets despite representations and guarantees it made to the contrary.
[C]laimant's allegation that Respondent and its agent recommended real estate investment trusts ("REITs") and direct participation programs ("DPPs"), including Griffin America Healthcare REIT II, Griffin Capital Essential REIT, and Healthcare Anywhere DPP, which were not suitable for Claimant's husband's IRA and resulted in exorbitant commissions and fees.
[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.
[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.
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.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.
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?
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; or2. 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.
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.
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.
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.
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.
[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.
[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.
[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.
[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.
[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.
[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.
[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.
[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.
[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.
[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.
[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.
[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.
[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.
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."
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.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. 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.
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.
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."
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.
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.
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.
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.
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.