Wall Street Whistleblowers Tip Off SEC -- But Hear Nothing Back (Bloomberg, DEEP DIVE by John Holland)
Man Pleads Guilty To Defrauding Customers Who Bought Cryptocurrency-Mining Computers And Miner Hosting Services (DOJ Release)Home Health Aide Sentenced to 57 Months in Prison for Stealing U.S. Savings Bonds from Elderly Woman (DOJ Release)
SEC Obtains Final Judgment Against Former Owner of California Film Distribution Company Charged with Defrauding Publicly Traded Fund (SEC Release)In the Matter of the Application of Laurence G. Allen for Review Taken by FINRA (SEC Order Denying Motion for a Stay)SEC Orders $20 Million Whistleblower Award to Claimant 1, Claimant 2, and Claimant 3 But Denies Award to Claimant 4
From at least 2019 until his arrest in April 2022, STOJANOVICH controlled various companies, including Chet Mining Co. LLC ("Chet Mining"). Starting in or about March 2019, STOJANOVICH engaged in a scheme to defraud people who were seeking to purchase Miners and Miner hosting services through which they expected to obtain "hash power" convertible into cryptocurrency and money. STOJANOVICH defrauded these victims by falsely telling them that he would purchase, and had purchased, Miners on their behalf and that he would provide them with Miner hosting services and had already obtained such Miner hosting services for them.In total, STOJANOVICH fraudulently induced more than a dozen customer-victims to pay a total of more than $2 million to STOJANOVICH and his companies, ostensibly in return for Miners and Miner hosting services. Despite fraudulent representations to the contrary, STOJANOVICH: (1) failed to provide many of the Miners that he told customers he had acquired; (2) failed to provide the Miner hosting services and cryptocurrency hash power that he represented he would provide; (3) employed deceptive practices to create the illusion that such Miners had been acquired and were being used to provide hash power to those customers; and (4) misappropriated his customers' funds and spent the funds on unrelated and personal expenditures, including chartered air flights, hotel rooms, limousines, and private parties.Defrauding at Least 10 Victims in 2019In the spring and early summer of 2019, STOJANOVICH fraudulently induced at least 10 customers to pay a total of more than $2 million to STOJANOVICH and Chet Mining in return for Miners and Miner hosting services. Based on these and other misrepresentations, STOJANOVICH issued at least 15 invoices to these 10 victims with instructions to make payment to STOJANOVICH or one of his companies. As directed by STOJANOVICH, these customers paid STOJANOVICH more than $2 million in bank wires and cryptocurrency transfers. However, STOJANOVICH failed to provide the Miners and Miner hosting services that he had agreed to provide and for which he had been paid.Defrauding Three More Victims in 2021In or about August and September 2021, STOJANOVICH induced at least three additional customer-victims to pay him a total of approximately $179,880 as payment for a total of 127 Miners. Ultimately, STOJANOVICH provided those customers with only three of the 127 Miners they had paid for and repaid those customers only approximately $61,000 of the $179,880 they had paid, mostly from funds misappropriated from another customer.The March 2022 DepositionSeveral of the victims of the scheme described in the Indictment brought lawsuits against STOJANOVICH in federal court in Manhattan. In one such lawsuit, Holmes et al. v. Chet Mining, Chet Stojanovich, et ano., Case No. 20 Civ. 4448 (LJL) (S.D.N.Y.), STOJANOVICH was ordered by the court to appear for a deposition on March 4, 2022. During that deposition, STOJANOVICH testified falsely on a number of subjects. For example, in response to several questions, STOJANOVICH testified that he did not know the answers without looking in his personal cellphone and falsely testified that his phone was downstairs in his rental car or in storage. The deposition was thereupon adjourned for a half-hour, and STOJANOVICH was instructed to retrieve his cellphone and return to the deposition. Instead, STOJANOVICH left the deposition and loitered in the vicinity of his car until after everyone else participating in the deposition had left. Shortly thereafter, he returned to Canada, where he resided until he was arrested on April 11, 2022, following his attempt to re-enter the United States.
[B]eginning in January 2005, David Wellington, 62, of Albuquerque, and his business partner Stacy Underwood, 51, of Albuquerque, operated National Business Services, which promoted, sold and created Limited Liability Companies (LLCs) under New Mexico State Law. For many clients, National Business Services would open bank accounts under the names and IRS employer identification numbers (EINs) of the LLCs, and the clients - whose names were not associated with the bank accounts - would have access to the funds in those accounts. Clients received debit cards, online bank access information and pre-signed checks with Underwood's signature, which clients could use to access the money despite the bank never associating the client with the account.In his plea agreement, Shrock admitted that he contacted National Business Services in 2006 for help avoiding federal taxes by incorporating a business in New Mexico. Shrock spoke with Underwood and Wellington, and became a client of National Business Services.Wellington and Underwood created three LLCs in New Mexico for Shrock: White Top Enterprise LLC; Poultry Enterprises LLC; and TALC Properties LLC. Shrock was not listed on the Articles of Organization. Instead, Underwood was listed as the "Organizer," and National Business Services was the initial registered agent for each of the three LLCs.On May 9, 2011, Underwood opened a bank account in the business name of White Top Enterprise, LLC, utilizing the company EIN. Shrock's name was not on the signature card for the account. Underwood provided Shrock with online access to the bank account and a book of pre-signed checks with her signature. Between May 9, 2011, and June 30, 2015, Shrock caused approximately $4,875,940 to be deposited into the White Top Enterprise LLC bank account, and over the same time period, Shrock and his wife withdrew or caused the withdrawal of approximately $4,875,940. Among the withdrawals was a wire transfer of approximately $352,216 for the purchase of a home.Prior to his indictment in this case on June 23, 2021, Shrock did not file a personal or business tax return with the IRS reporting the White Top Enterprises LLC income. At the time of the deposits and withdrawals, Shrock had a large outstanding IRS assessment for unpaid taxes, penalties and interest. Because it was not opened in his personal name, the White Top Enterprises LLC bank account enabled Shrock to generate and deposit income while evading the outstanding assessment and avoiding personal and business taxes on the income.Wellington was arraigned on July 9, 2021, charged with conspiracy to defraud the United States and operation of an unlicensed money transmitting business. Wellington remains on conditions of release pending trial, which is scheduled for June 12, 2023. If convicted, Wellington faces up to 10 years in prison.On Oct. 23, Underwood pleaded guilty to conspiracy to defraud the United States. Underwood is scheduled for sentencing on Jan. 30, 2023.
[S]ingh stole hundreds of thousands of dollars in U.S. Savings Bonds from an elderly woman for whom she provided home health services. The victim had purchased the bonds for her grandchildren and other relatives. After the victim died, Singh contacted Glen Campbell, also known as "Nick," who enlisted the help of another individual to redeem the stolen bonds at a financial institution and provide Singh and Campbell with a portion of the proceeds. Between October 2020 and January 2021, as part of an undercover investigation, law enforcement coordinated the purchase of more than 100 savings bonds, with face values ranging from $50 to $1,000, from Singh and Campbell. Campbell traveled to Connecticut to complete the transactions.Singh and Campbell were arrested on January 29, 2021. At the time of Singh's and Campbell's arrests, the value of the bonds they had delivered during the undercover investigation was $287,312.39.In June and July 2021, Singh attempted to obstruct the investigation and prosecution of this matter by offering to pay a witness if he agreed to lie and provide false testimony. Singh has been detained since August 4, 2021. On August 19, 2022, she pleaded guilty to one count of conspiracy.Campbell pleaded guilty to the same charge on June 15, 2022, and awaits sentencing.Singh faces immigration proceedings when she completes her prison term.
[F]rom November 2017 to July 2018, Akinleye and his co-conspirators conspired to fraudulently obtain money from pension accounts held by members of the Pension Fund of the Christian Church and the Lutheran Church Extension Fund by impersonating those members. The funds provide pension and retirement systems for members of the religious community, including ministers. As part of the scheme, Akinleye and his co-conspirators obtained the names and personal identifying information of account holders, and then used that information to make withdrawals and transfers from the victim accounts to accounts the conspirators controlled. As a result of the scheme, Akinleye and his co-conspirators attempted to fraudulently obtain over $400,000 from the two funds.
The SEC's complaint, filed on May 22, 2020, alleged that BlackRock Multi-Sector Income Trust (BIT), a registered closed-end management investment company, invested approximately $75 million in Aviron Group LLC, a film distribution company Sadleir founded, owned, and operated. The complaint alleged that Sadleir represented that the investments would be used to support the company's distribution of films. Contrary to these representations, Sadleir allegedly used a sham company as a vehicle to fraudulently divert and misappropriate BIT funds and issued fake invoices seeking additional BIT funds for services that were never provided. Sadleir allegedly used the funds to pay personal expenses, including his purchase, furnishing, and renovation of a Beverly Hills mansion. In a parallel action, the U.S. Attorney's Office for the Southern District of New York filed criminal charges against Sadleir in connection with similar conduct. United States v. William Sadleir, No. 20-cr-0320 (S.D.N.Y. filed May 22, 2020).On January 19, 2022, Sadleir pled guilty in the criminal matter, and on May 6, 2022, Sadleir consented to a partial judgment in the SEC matter in which he was permanently enjoined from violating Section 17(a) of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder, and enjoined from participating in the issuance, offer, or sale of any security, except in his own account. The final judgment in the SEC matter orders Sadleir to pay disgorgement of $13,834,239 plus prejudgment interest of $3,979,140 for a total of $17,813,379, which shall be deemed satisfied by the restitution order entered against Sadleir in the criminal case. On September 9, 2022, the court in the criminal case sentenced Sadleir to 72 months in prison and ordered him to pay restitution of $31.6 million. On September 22, 2022, the court further ordered Sadleir to forfeit a Tesla he acquired from his misconduct.
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.
[W]e consider whether (i) there is a strong likelihood that the movant will eventually succeed on the merits of the appeal; (ii) the movant will suffer irreparable harm without a stay; (iii) no other person will suffer substantial harm as a result of a stay; and (iv) a stay is likely to serve the public interest. "The appropriateness of a stay turns on a weighing of the strengths of these four factors; not all four factors must favor a stay for a stay to be granted." "The first two factors are the most critical, but a stay decision rests on the balancing of all four factors." To obtain a stay under this framework, a movant need not establish that it is likely to succeed on the merits, but it must at least show "that the other factors weigh heavily in its favor" and that it has "raised a 'serious legal question' on the merits." Allen fails to satisfy his burden.
With respect to irreparable harm, Allen argues that he and NYPPEX "will suffer tremendous and irreparable harm" and "irreparable damage and hardship which cannot be reversed or compensated for thereafter" if Allen were "forced to terminate his association with NYPPEX pending Commission review." This, we are told, is due to that fact that "NYPPEX depends on Mr. Allen - its founder and principal, and a pioneer in the development of secondary private markets." But Allen did not support his assertions of irreparable harm with a timely declaration or affidavit. And without submitting evidence about an inability to meet financial obligations or continue in business, we cannot find that NYPPEX will suffer irreparable harm absent a stay. For instance, Allen does not explain why other NYPPEX employees would be unable to step in and run NYPPEX while Commission review proceeds.
[W]hether or not NYPPEX itself participated in the underlying misconduct, it was the direct recipient of millions of dollars of funds that Allen misappropriated from ACP. Moreover, even if NYPPEX's customers suffered no harm, the New York action establishes that Allen has a history of grievously harming investors, specifically the ACP investors through his misappropriation and other fraudulent conduct. In any case, we have long held that an inquiry into the public interest "extends beyond the consideration of particular investors to the public-at-large," and Allen's misconduct demonstrates that he poses a risk to investors generally. Finally, the fact that NYPPEX's investors might all be "sophisticated private investors" does not insulate them from future harm perpetrated by Allen. After all, Allen himself characterizes the ACP investors as "solely . . . 'qualified purchasers' - the most sophisticated investors as defined by federal law."Finally, we recall that the New York courts found "that Allen engaged in a lengthy and extensive scheme that involved 'a shocking level of self-dealing, breaches of fiduciary duty, misappropriation of enormous sums of [ACP's] capital and outright fraud.'" Allen cannot challenge these findings here, and they establish knowing and serious violations that created a risk of harm to investors and the market as a whole. For all of these reasons, at this stage of the proceedings, the risk of harm to others and the public interest weigh against a stay.
Claimant 4 does not qualify for an award under either of the above-described provisions. We credit Staff's declaration ("Declaration"), provided under penalty of perjury, which confirms that Staff opened the Investigation, in part, because of tips that the Commission received from certain individuals (other than Claimant 4), including Claimant 1 and Claimant 2.Additionally, while Staff communicated with and received information from Claimant 4, Claimant 4 did not provide information that significantly contributed to the success of the Covered Action. Beyond Claimant 4's tip, Claimant 4 spoke to Staff via telephone with his/her counsel in March 2017, subsequently provided a thumb drive of additional internal corporate documents, and sat for testimony before the Commission in Redacted . Claimant 4 argues that in light of the volume of the documents he/she provided in his/her initial tip and then again following Claimant 4's discussion with Staff, it is difficult to believe that none of the documents were documents that the Commission did not already have or did not use in the Investigation. Claimant 4 also argues that the documents he/she provided were from a Company 1 hard drive and were subject to a non-disclosure agreement that contained materials that were not widely circulated or publicly available. Claimant 4 alleges that it is doubtful that the Commission received duplicative information and files from other Company 1 Redacted Claimant 4 believes that the Commission brought the Covered Action based, in part, on at least some of Claimant 4's information; Claimant 4 therefore alleges that he/she dese1ves to receive at least a po1tion of any award issued for the Covered Action.Despite Claimant 4's contentions, Staff was already aware of Claimant 4's through its own investigative efforts, as confirmed by the Declaration. The Declaration also confirms that Staff obtained the documentation that Claimant 4 provided from other sources. The Declaration explains in detail why Claimant 4's information and documentation did not substantially advance or impact the Investigation and why none of Claimant 4 's information was used in, or had any impact on, the charges brought by the Commission in the Covered Action.
The Panel recommends the expungement of the Termination Explanation in Section 3 of Jack Anthony Thomas' (CRD Number 5721600) Form U5 filed by USAA Investment Services Company (CRD Number 5475) on October 15, 2019, and the Form U5 filed by USAA Financial Advisors, Inc. (CRD Number 129035) on October 15, 2019 and maintained by the CRD. The Reason for Termination shall remain the same. The Termination Explanation shall be deleted in its entirety and replaced with the following language: "At-will employee terminated for call avoidance." This directive shall apply to all references to the Termination Explanation.
Iconix, whose shares traded on the NASDAQ, was in the business of acquiring various brands, including clothing and fashion brands, and then licensing those brands to retailers, wholesalers, and suppliers who, in turn, produced and sold clothing and other products bearing the brand names.Iconix utilized joint ventures ("JVs") to profit from its brands in foreign markets. With respect to these JVs, Iconix transferred ownership of a trademark or brand to the JV while maintaining a 50 percent ownership interest in the JV itself. The other party involved in the JV purchased a 50 percent interest in the JV from Iconix. As part of the JV agreements, each JV partner was generally entitled to 50 percent of the JV's licensing revenue. When it entered into a JV, Iconix recognized as revenue the buy-in purchase price paid by the JV partner, less Iconix's cost basis in the trademarks.Among the most critical financial metrics disclosed in Iconix's public filings with the SEC were Iconix's quarterly and annual revenue and non-GAAP diluted earnings per share ("EPS"). Iconix executives, including COLE, publicly identified revenue and EPS as the principal metrics demonstrating Iconix's growth. They also touted Iconix's consistent record of revenue and earnings growth and of meeting or exceeding Wall Street analyst consensus with respect to these metrics.The Accounting Fraud SchemeCOLE engaged in a scheme to falsely inflate Iconix's reported revenue and EPS by orchestrating a series of "round trip" transactions in which COLE and a senior Iconix executive induced a JV partner, a Hong Kong-based international apparel licensing company ("Company-1"), to pay artificially inflated buy-in purchase prices for JV interests, with the understanding that Iconix would then reimburse Company-1 for the overpayments. COLE executed the scheme for the purpose of enabling Iconix to report fraudulently inflated revenue and EPS figures based on the inflated buy-in purchase prices it obtained from Company-1.COLE arranged for Iconix to enter into at least two JVs with Company-1 that included inflated buy-in purchase prices from Company-1: (1) an amendment to a preexisting Southeast Asia joint venture, which closed on or about June 30, 2014 ("SEA-2"), and (2) a second amendment to the Southeast Asia joint venture, which closed on or about September 17, 2014 ("SEA-3") (collectively, the "SEA JVs"). SEA-2 and SEA-3 involved a fraudulent "round trip" transaction, lacking in economic substance, in which Company-1 paid an artificially inflated buy-in purchase price for its interest in the JV, in exchange for COLE's agreement that Iconix would give back the inflated portion of the purchase price to Company-1. COLE and a senior Iconix executive hid from Iconix's lawyers and outside auditors that COLE had reached an understanding with Company-1 to artificially increase the consideration Company-1 paid Iconix in exchange for COLE's agreement to round-trip the overpayment back to Company-1.Through the scheme, COLE caused Iconix to report fraudulently inflated revenue and EPS figures to the investing public. COLE did so, in part, to ensure that the reported figures met analyst consensus and to fraudulently convey the impression to the investing public that Iconix was growing quarter after quarter, as COLE had touted to the investing public.
Claimant 2's information did not cause Enforcement staff to open the Covered Action investigation or to inquire into different conduct as part of the Covered Action investigation and did not significantly contribute to the success of the Covered Action. Enforcement staff responsible for the Covered Action investigation did not review Claimant 2's first tip. Enforcement staff received Claimant 2's second tip on the same day the Covered Action was filed, and the tip related to Redacted which was not part of the Commission's charges. Furthermore, Enforcement staff provided a supplemental declaration, which we credit, confirming that the law firm to which Claimant 2 provided his/her second tip did not represent the Company in the underlying investigation, and as such, there is no evidence supporting Claimant 2's supposition that the second tip motivated the Company to settle the charges.. . .Enforcement staff opened the Covered Action investigation based on a source unrelated to Claimant 5. Enforcement staff responsible for the Covered Action investigation clarified in a supplemental declaration, which we credit, that on Redacted, OMI sent an email to an Enforcement accountant ("Accountant"), summarizing information that had been provided by Claimant 5 in his/her Redacted complaint and proposing that a disposition of no further action appeared warranted given the lack of substantiating evidence supporting Claimant 5's allegations. That same day, the Accountant agreed with the proposed disposition. On Redacted , almost nine months after the Redacted email communication discussed above, Enforcement staff opened the Covered Action investigation based on information provided by an individual other than Claimant 5. While the Accountant became the lead accountant on the Covered Action investigation, the information in Claimant 5's Redacted complaint was not used in the Covered Action investigation and did not contribute to the Covered Action.
FINRA Fines and Suspends Rep for Forging Customer SignaturesIn March 2014, Garapedian and other registered representatives working from the same branch office entered into an agreement through which they agreed to service certain customer accounts, including executing trades for those accounts, under a joint representative code (also known as joint production number) that they shared with the estate of a retired representative. The agreement set forth what percentages of the commissions the estate of the retired representative, Garapedian, and the other representatives earned on trades placed using the joint representative code.From July 2014 through November 2016, Garapedian directed a junior registered representative on his team to place trades in accounts that were covered by the agreement using different joint representative codes than the one Garapedian should have used pursuant to his agreement with the estate of the retired representative. Specifically, although Morgan Stanley's system correctly prepopulated the trades with a joint representative code Garapedian shared with the estate of the retired representative, Garapedian directed the junior registered representative to enter 417 transactions under different joint representative codes through which Garapedian received a higher percentage of commissions than what he was entitled to receive pursuant to the agreement.2 Garapedian mistakenly assumed that he had permission to change the representative codes in this manner to equalize commissions earned by him and the other registered representatives across accounts serviced by the branch office, including those covered by the joint production agreement. However, Garapedian had not verified that the estate of the retired representative agreed that Garapedian could change the representative code for the transactions at issue.As a result, Garapedian's actions caused Morgan Stanley's trade confirmations for the 417 trades to inaccurately reflect another joint representative code instead of the joint representative code that Garapedian shared with the estate of the retired representative. Garapedian's actions resulted in his receiving higher commissions and the retired representative's estate receiving less commissions from the 417 trades than what each was entitled to receive pursuant to the agreement. In January 2021, Morgan Stanley paid restitution of approximately $8,000 to the estate of the retired representative, which is the approximate amount of additional commissions Garapedian received as a result of changing the representative code on the 417 trades.By falsifying the representative code on the 417 trades, Garapedian violated FINRA Rule 2010. In addition, Garapedian violated FINRA Rules= = =Footnote 2: During this same time period, Garapedian directed the junior registered representative to enter an additional 322 trades under different joint representative codes through which Garapedian received a lower percentage of commissions than what he was entitled to receive pursuant to the agreement.
Before becoming associated with any FINRA member firm, Seymour provided tax preparation and trust administration services through his wife's tax and estate business. Beginning around 2010, Seymour also served as co-trustee of Trust A. Both Trust A and the beneficiaries of Trust A later became customers of Seymour at Morgan Stanley and Raymond James.Upon associating with Morgan Stanley and Raymond James, Seymour sought to continue working for his wife's tax and estate business. In considering Seymour's requests for approval of his outside business activity, each firm placed restrictions on the scope of his participation in the activity. In June 2014, Seymour disclosed to Morgan Stanley that he served as co-trustee of Trust A, and that he worked for his wife's tax and estate business. Morgan Stanley approved Seymour's work for his wife's business as an outside business activity, but prohibited him from continuing to serve as co-trustee for Trust A. When Seymour later became associated with Raymond James in February 2017, he again requested approval to work for his wife's business, but did not disclose to the firm that he provided trust administration services, including performing the duties of a co-trustee for Trust A, through his wife's business. Instead, Seymour's written request for approval described his responsibilities for his wife's business merely as "[t]ax [p]reparation." Raymond James subsequently approved Seymour's work for his wife's business as an outside business activity, but prohibited him from serving as a trustee or maintaining billpaying authority over any third-party bank account.Seymour exceeded the scope of his approved outside business activity while he was associated with each firm. From June 2014 to November 2020, Seymour, at the direction of the remaining co-successor trustee, continued to perform the duties of a co-trustee for Trust A, even though both Morgan Stanley and Raymond James had prohibited him from serving as a trustee. And from February 2017 to at least November 2020, Seymour failed to comply with Raymond James's prohibition against having bill-paying authority over any third-party account. Using his check-writing authority for Trust A's bank account, Seymour issued checks, including checks to compensate himself for the services he provided Trust A. In so doing, Seymour engaged in outside business activities without providing full and accurate prior written notice to his firms of those activities.Additionally, from 2017 to 2020, Seymour submitted five compliance questionnaires to Raymond James, in which he falsely attested that he had not participated in outside business activities that he had not disclosed to the firm.Therefore, Seymour violated FINRA Rules 3270 and 2010.
During the period Jtne 2017 through September 2019, FFEC failed to establish, maintain, and enforce a supervisory system, including written supervisory procedures (WSPs), reasonably designed to achieve compliance with the suitability requirements of FINRA Rule 2111 as they pertain to margin use. In addition, FFEC and Graves failed to reasonably supervise the use of margin in two customer accounts and failed toreasonably supervise mutual fund switches in two customer accounts. These failures caused the customers to pay more than $112,000 in commissions, fees, and margin interest. By this conduct, FFEC and Graves violated FINRA Rules 3110 and 2010.