Securities Industry Commentator by Bill Singer Esq

December 7, 2022




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In the United States District Court for the Southern District of New York, an Indictment was filed charging Rikesh Thapa was charged with one count of wire fraud As alleged in part in the DOJ Release: 

RIKESH THAPA co-founded and was the Chief Technology Officer ("CTO") of the Victim Company, which during the relevant period was involved in using blockchain and other technology to provide a ticketing platform for live events.  Between December 2017 and September 2019, THAPA used his position to carry out a scheme to defraud the Victim Company.

In 2018, the Victim Company sought to diversify its banking because of its understanding that certain financial institutions were reluctant to maintain relationships with companies, such as the Victim Company, involved in cryptocurrency transactions.  In furtherance of that effort, THAPA agreed to receive and hold $1 million of the Victim Company's money in his personal bank account (the "THAPA Account") while the Victim Company explored banking options.  Soon after receiving the $1 million, however, THAPA began using the funds on personal expenses.  Nevertheless, THAPA repeatedly acknowledged what was supposed to be the temporary nature of his possession of the funds, representing to a colleague, in substance and in part, that the money was "a stationary 1mil in my account" that was held "for safe keeping."  THAPA then falsified records to conceal his theft, providing the Victim Company with a forged bank statement, which falsely represented that THAPA held over $21 million, approximately $1 million of which was held in a particular savings account (the "Purported Account").  In fact, THAPA did not have the Purported Account and held much less than $21 million at the relevant bank.  In 2019, THAPA refused to return the $1 million, which he spent on, among other things, nightclubs, travel, and clothing.

In addition, between December 2017 and September 2019, THAPA used his control over the Victim Company's cryptocurrency holdings to embezzle at least 10 Bitcoin from the Victim Company.  For example, in August 2018, THAPA diverted at least one of the Victim Company's Bitcoin for his own benefit, selling the Bitcoin for approximately $6,500 and depositing the proceeds into the THAPA Account (the "August 2018 Bitcoin Transaction").  To avoid detection, THAPA falsified trading records and deleted emails.  In July 2019, THAPA sent the Victim Company's CEO a fraudulent transaction report that misrepresented the August 2018 Bitcoin Transaction.  After the CEO, copying THAPA, thereafter requested and received a transaction report directly from the Victim Company's cryptocurrency brokerage, THAPA disabled the CEO's email account at the Victim Company (the "CEO Email Account"), deleted the cryptocurrency brokerage's email from the CEO Email Account, and then deleted the entire CEO Email Account.

In yet another facet of the scheme, THAPA stole the Victim Company's utility tokens.  Such tokens are a type of cryptocurrency that can be used to access particular services, products, or features.  In July 2019, unbeknownst to the Victim Company's CEO, THAPA set up a meeting in Italy between THAPA and individuals who claimed to be interested in purchasing the Victim Company's utility tokens.  Before the meeting, THAPA provided account information for the THAPA Account so that the purported investors could wire him funds.  During the meeting, however, THAPA agreed to receive cash in exchange for utility tokens.  After the meeting, THAPA transferred, without authorization, approximately 174,285 of the Victim's utility tokens to the purported investors.  THAPA later determined that the cash he had received from the purported investors was counterfeit.

Today, the Commission reopened the comment period for the proposed rulemaking on Share Repurchase Disclosure Modernization.[1] The comment period was reopened to add a memorandum prepared by the Division of Economic and Risk Analysis ("DERA") to the public comment file, and to seek public feedback on the memorandum. The memorandum analyzes the impact of section 4501 of the Internal Revenue Code of 1986 (the "Internal Revenue Code") [2] on the potential economic effects of the proposed rulemaking. Section 4501, which was added to the Internal Revenue Code by the Inflation Reduction Act of 2022 (the "Inflation Reduction Act"),[3] imposes upon a covered corporation a non-deductible excise tax equal to 1% of the fair market value of any stock repurchased by the corporation, subject to certain exceptions.

When the Commission initially proposed the Share Repurchase Disclosure Modernization rulemaking on December 15, 2021,[4] the Inflation Reduction Act had not become law. Accordingly, the proposing release's discussion of the rulemaking's costs and benefits did not consider the impact that the excise tax would have on the incidence and level of share repurchases. A potential implication of the excise tax is that it might cause companies to decrease their share repurchase activity and to possibly favor dividends (including special dividends) as the preferred method of returning capital to shareholders. Any such decrease in share repurchase activity could, in turn, affect the costs and benefits analysis in the proposing release. To satisfy its statutory rulemaking obligations,[5] the Commission must understand, to the furthest extent possible, the qualitative and quantitative impacts that the excise tax will have on share repurchase activity and the proposed rulemaking's costs and benefits.

I appreciate the efforts by the DERA staff to address these issues in its memorandum and by the staff of the Divisions of Corporation Finance and Investment Management to prepare the reopening release. While I support the addition of the DERA memorandum to the public comment file and the reopening of the comment period generally, I disagree with the 30-day comment period for the public to provide feedback. This 30-day period is especially problematic when it commences shortly before, and will overlap with, major holidays later this month.

One might ask: what is the purpose of the comment period? Is it merely an item to be checked off to satisfy the lowest acceptable standard of process required by the Administrative Procedures Act?[6] Or is it a vital component of a discussion between an administrative agency and the public in order to better understand the effects of a proposed rule, especially under a changed factual scenario? I believe it is the latter.

A longer period, such as 45 days, would increase the likelihood that the Commission receives more thoughtful responses. Even for commenters who can provide feedback within the 30-day period, they likely would appreciate the additional time to fine tune their analysis, while continuing their regular duties and spending quality time with their family and friends during the holidays.[7]

[1] Reopening of Comment Period for Share Repurchase Disclosure Modernization, SEC Release No. 34-96458 (Dec. 7, 2022), available at

[2] 26 U.S.C. 4501.

[3] See Pub. L. No. 117-169, 136 Stat. 1818, 1828 (2022).

[4] Share Repurchase Disclosure Modernization, SEC Release No. 34-93783 (Dec. 15, 2021) [87 FR 8443 (Feb. 15, 2022)], available at

[5] See 15 U.S.C. 78c(f) (requiring the Commission, whenever it is engaged in rulemaking, to "consider, in addition to the protection of investors, whether the action will promote efficiency, competition, and capital formation") and 15 U.S.C. 78w(a)(2) (requiring the Commission to consider "the impact any [rulemaking] would have on competition" and prohibiting the Commission from adopting any rule that "would impose a burden on competition not necessary or appropriate in furtherance of the purpose of [the Securities Exchange Act of 1934]").

[6] See, e.g., National Association of Manufacturers v. SEC, (W.D. Tex.) (Dec. 4, 2022) (stating that the "[c]ourt will not introduce its own policy preferences [over that of the Commission] about what is a 'meaningful opportunity' [to comment on a rulemaking proposal]" and denying the plaintiff's motion for summary judgment that a 31-day comment period covering Christmas and Hanukkah violated the Administrative Procedures Act), available at

[7] I have previously spoken about my concerns with the short comment periods for recent Commission rulemaking and the 30-day comment period in this instance is the latest example of those concerns. See Mark T. Uyeda, Remarks at the APABA-DC Awards and Installation Reception (Oct. 19, 2022), available at, and Mark T. Uyeda, Statement on Electronic Recordkeeping Requirements for Broker-Dealers, Security-Based Swap Dealers, and Major Security-Based Swap Participants (Oct. 12, 2022), available at

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After the Bernie Madoff scandal, the SEC created a whistleblower program that encouraged people to provide information by promising them a cut of the recovered funds.

At first, the agency was inundated with tips. But now, the number of people reporting financial fraud is dwindling. The guests on this week's episode of our weekly podcast, On The Merits, say they know why.

One problem: it's unclear how or why the SEC pays rewards to some whistleblowers but not others. And, even if you're entitled to a reward, it can take years of waiting for the agency to pay out. Bloomberg Law's John Holland speaks with whistleblower Janice Shell and whistleblower attorney Bill Singer about the problems with this program and how they can be fixed.
In the United States District Court for the Southern District of New York, Frank Glassner, 68, pled guilty to one count of securities fraud; and he was sentenced to one year and one day in prison, and ordered to pay a $368,000 forfeiture. As alleged in part in the DOJ Release:

Between July 2021 and September 2021, Kadmon, which, prior to its acquisition by Sanofi, was a publicly-traded biopharmaceutical company traded under the ticker symbol "KDMN" on the NASDAQ, engaged GLASSNER and the Consulting Firm to provide executive compensation consulting services related to a potential acquisition.  In connection with this engagement, GLASSNER had access to material, non-public information, which he misappropriated and, in violation of the duties that he owed to Kadmon, used to trade Kadmon stock and call options between on or about August 3, 2021, and on or about August 23, 2021.  On September 8, 2021, Kadmon publicly announced that it had agreed to be acquired by Sanofi for a per-share price significantly above the share price at which Kadmon was trading.  That day, Kadmon's share price increased by approximately 71%, and GLASSNER ultimately profited $368,000 on the Kadmon stock and call options he had previously purchased.
In the United States District Court for the Southern District of New York, Frank Okunak, 56, pled guilty to one count of wire fraud and one count of falsification of the books and records of a public corporation; and he was sentenced to 52 months in prison plus three years of supervised release, and he agreed to forfeit $10,823,575.57 and to pay restitution of $16,043,603.71. As alleged in part in the DOJ Release:

For nearly a decade, FRANK OKUNAK, who was the chief financial officer and later chief operating officer of a leading global public relations firm (the "PR Firm"), embezzled over $16 million from the PR Firm and, ultimately, the shareholders of the PR Firm's publicly traded parent corporation.  OKUNAK used the embezzled funds to finance his personal lifestyle and his own private business ventures.  OKUNAK concealed and facilitated his theft by preparing and causing others to prepare materially false accounting books and records, including invoices and payment records that falsely described expenditures as having been undertaken for the benefit of the PR Firm, when funds were actually used for OKUNAK's personal benefit or for the benefit of his personal business associates.

Specifically, from 2011 through 2020, OKUNAK used his authority as an officer of the PR Firm to cause the PR Firm to make unauthorized payments for OKUNAK's personal and business ventures unrelated to the activities of the PR Firm or its corporate parents.  OKUNAK used the PR Firm's assets to provide the start-up capital for his personal, independent business ventures, to purchase tickets and luxury boxes at sporting events, and even to cover donations to his alma mater.  To hide the illicit nature of these expenditures, OKUNAK frequently prepared or caused others to prepare false or misleading invoices and other documentation to suggest, falsely, that the funds were used for legitimate corporate purposes.
In the United States District Court for the Northern District of Texas, Sallie Lazzaro, a/k/a Sallie Marie Perry pled guilty to theft by a bank employee. As alleged in part in the DOJ Release:

[L]azzaro, who began as a teller and was later promoted to vault manager, admitted she repeatedly stole cash from the FDIC-insured bank.

She purloined cash from her teller drawer, hid it in her pocket or purse, and input false information into the bank's computer system in order to manipulate teller and vault balances.

On May 20, 2021, when Ms. Lazzaro was on duty as vault manager, a cash count revealed that the bank was missing more than $100,000.
In the United States District Court for the District of Connecticut, Glen Campbell a/k/a "Nick," 41,
and Jhanannie Singh a/k/a "Jasmine" and "Sharmala Persaud" each pled guilty to one count of conspiracy. Campbell was sentenced to 12 months and one day in prison, and Singh was sentenced to 57 months in prison. As alleged in part in the DOJ Release:

[Singh]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 Campbell 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 the arrests, the value of the bonds they had delivered during the undercover investigation was $287,312.39.

SEC Obtains Judgment Against Market Manipulator (SEC Release)
In the United States District Court for the District of Massachusetts, a Final Judgment was entered against 
Eric T. Landis and Ridgeview Capital Markets LLC ordering them to pay over $2.5 million in disgorgement and deeming that amount satisfied by the same amount ordered as forfeiture in a parallel criminal action. As alleged in part in the SEC Release:

[L]andis orchestrated a scheme to manipulate trading in at least 97 microcap stocks, which included placing thousands of manipulative trades over the course of three years using multiple accounts he controlled, including accounts in the name of Ridgeview. In August 2019, the court entered judgments by consent against Landis and Ridgeview that imposed multiple injunctions restricting their future conduct.

Landis was sentenced on January 24, 2020, in a parallel criminal action to six months in prison and two years of supervised release, and ordered to pay a $50,000 fine. The court later ordered Landis to pay forfeiture of $2,505,488. Landis had pleaded guilty in January 2019 to one count of securities fraud and one count of aiding and abetting securities fraud.

Landis and Ridgeview have consented to a final judgment in the SEC action that permanently enjoins them from violating the antifraud provisions of 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 the market manipulation provisions of Section 9(a) of the Exchange Act. The judgment also prohibits Landis and Ridgeview from promoting or participating in the issuance, purchase, offer, or sale of any security, including penny stocks, with the exception for Landis trading in his own name in securities listed on a national securities exchange, and finds them jointly-and-severally liable for disgorgement of $2,505,488, which the court deemed satisfied by the order of forfeiture against Landis in the related criminal proceeding.

Landis was previously found liable in 2003 in a lawsuit brought by the SEC and convicted of related criminal charges in a prior market manipulation scheme.

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Time To Overhaul SEC Whistleblower Program ( Blog)
After a decade of existence, it is time for the United States Securities and Exchange Commission's Office of the Whistleblower to provide timely updates to whistleblowers and their legal counsel after a Form WB-APP is submitted in response to a published Notice of Covered Action. The federal regulator's lack of timely communication with whistleblowers often devolves into counter-productive hostility that is inappropriately directed at individuals attempting to further investor protection.
In the United States District Court for the Middle District of Florida, Allen Levinson f/k/a Allen Ameh pled guilty to conspiracy to commit wire fraud, and he was sentenced to six years and six months in prison . As alleged in part in the DOJ Release:

[L]evinson was the leader of a scheme that attempted to defraud the United States government of more than $63 million through the filing of false and fraudulent tax returns in the names of hundreds of identity theft victims. The scheme operated from summer 2014 through 2019. Out of the $63 million claimed in tax refunds, the IRS paid over $5.5 million, the majority of which went to Levinson.

Levinson recruited coconspirators T'Andre McNeely, Brandon Williams, Michael Carr, and others-through job placement ads and word of mouth-to collect the proceeds of the tax fraud and send it to Levinson.

Levinson used sophisticated cyber means to obtain the personal data used to file the returns. He also hired other foreign nationals-including individuals located in a boiler room in Vietnam-to prepare and file the returns quickly and in large batches. The returns were filed from real certified accounting firms across the United States, all of whom had been hacked by third parties and often had their information sold on darkweb marketplaces, including a website formerly known as the xDedic Marketplace. The xDedic Marketplace was a website that operated for years and was used to sell access to compromised computers worldwide and personally identifiable information of U.S. residents.

U.S. District Judge Kathryn Kimball Mizelle previously sentenced three of Levinson's money laundering affiliates in a related indictment. McNeely and Carr were each sentenced to six years and six months' imprisonment. Williams was sentenced to one year and one day in prison.
In the United States District Court for the Middle District of Florida, four Indictments were unsealed charging Akinola Taylor, Olayemi Adafin, Olakunle Oyebanjo, and Kazeem Olanrewaju Runsewe with conspiracy to commit wire fraud, filing false claims with the United States, theft of public money or property, and aggravated identity theft.  As alleged in part in the DOJ Release:

[T]aylor and Runsewe obtained unauthorized access to United States businesses' computer servers, participated in stealing from those servers the personally identifying information of United States residents and used that information to file false and fraudulent Internal Revenue Service (IRS) Form 1040, United States Individual Income Tax Returns ("Form(s) 1040") seeking income tax refunds with the IRS. Adafin and Oyebanjo assisted in the collection fraud proceeds directed to prepaid debit cards in their possession or to addresses or bank accounts they controlled or to which they had access and transferred a share of the fraud proceeds to other conspirators.

One of the places that Taylor and Runsewe had obtained unauthorized access to computer servers was the xDedic Marketplace, a website that operated for years and was used to sell access to compromised computers worldwide and personally identifiable information of U.S. residents. The xDedic administrators strategically maintained servers all over the world to facilitate the operation of the website. 

The xDedic Marketplace was taken down as part of coordinated, global enforcement operations led by the FBI (Tampa Division) the IRS-CI (Tampa Field Office) and the U.S. Attorney's Office for the Middle District of Florida.
Without admitting or denying the allegations in a Complaint filed in the United States District Court for the Southern District of New York, AT&T, Christopher Womack, Michael Black, and Kent Evans consented to final judgments permanently enjoining them from violating, or aiding and abetting violations of, Regulation FD and Section 13(a) of the Securities Exchange Act. As alleged in part in the SEC Release:

[T]he penalty that AT&T agreed to pay is the largest ever in a Regulation FD case.

According to the SEC's complaint, AT&T learned in March 2016 that a steeper-than-expected decline in its first quarter smartphone sales would cause AT&T's revenue to fall short of analysts' estimates for the quarter. The complaint alleges that, to avoid falling short of consensus revenue expectations for the third consecutive quarter, AT&T investor relations executives Christopher Womack, Michael Black, and Kent Evans made private, one-on-one phone calls to analysts at approximately 20 separate firms. On these calls, the AT&T executives allegedly disclosed AT&T's internal smartphone sales data and the impact of that data on internal revenue metrics, even though, among other things, internal documents specifically informed investor relations personnel that AT&T's revenue and sales of smartphones were types of information generally considered "material" to AT&T investors, and therefore prohibited from selective disclosure under Regulation FD. The complaint further alleges that the nonpublic information provided on these private calls caused analysts to substantially reduce their revenue forecasts, allowing AT&T ultimately to beat the overall consensus revenue estimate when AT&T reported its results to the public on April 26, 2016.

In response to an Information filed in the United States District Court for the Eastern District of Virginia charging ABB Ltd. ("ABB") with  conspiracy to violate the FCPA's anti-bribery provisions, conspiracy to violate the FCPA's books and records provisions, and substantive violations of the FCPA, ABB entered into a Deferred Prosecution Agreement ("DPA") whereby it agreed to pay over $315 million to resolve alleged violations of the Foreign Corrupt Practices Act ("FCPA") stemming from the bribery of a high-ranking official at South Africa's state-owned energy company. Additionally,  ABB subsidiaries ABB Management Services Ltd. (Switzerland) and ABB South Africa (Pty) Ltd. (South Africa) each pleaded guilty to one count of conspiracy to violate the anti-bribery provisions of the FCPA.  As alleged in part in the DOJ Release:

The department reached this resolution with ABB based on a number of factors, including: 1) the nature and seriousness of the misconduct; 2) ABB's demonstrated intent to disclose the misconduct promptly to the department; 3) ABB's extraordinary cooperation with the department's investigation; 4) ABB's extensive remediation, including carrying out a root-cause analysis of the misconduct and making significant investments in compliance personnel, compliance testing, and monitoring through the organization; 5) ABB's commitment to further enhance its compliance program and internal controls, including enhanced reporting provisions that require ABB, during the pendency of the DPA, to meet with the department at least quarterly and to submit yearly reports regarding the status of its remediation efforts, the results of its testing of its compliance program, and its proposals to ensure that its compliance program is reasonably designed, implemented, and enforced, so that it is effective in deterring and detecting violations of the FCPA and other applicable anti-corruption laws; 6) ABB's decade-old criminal history, which includes two prior criminal resolutions by ABB entities with the department for FCPA violations in 2004 and 2010, as well as a guilty plea by an ABB entity for bid rigging in 2001; 7) ABB's agreement to concurrently resolve separate investigations by authorities in South Africa and Switzerland, as well as the SEC, and its anticipated resolution of a related investigation by German authorities; and 8) ABB's agreement to continue to cooperate with the department in ongoing investigations. In light of these considerations, the criminal monetary penalty reflects a 25% discount off the mid-point between the middle and high end of the otherwise applicable U.S. Sentencing Guidelines fine range.

Pursuant to the DPA, ABB's total criminal penalty is $315 million. The department has agreed to credit up to one-half of the criminal penalty against amounts the company pays to authorities in South Africa in related proceedings, along with other credits for amounts ABB pays to resolve investigations conducted by the SEC and authorities in Switzerland and Germany, so long as payments underlying an anticipated resolution with German authorities are made within 12 months of today's date. 

. . .

According to ABB's admissions and court documents, between 2014 and 2017, ABB, through certain of its subsidiaries, paid bribes to a South African government official who was a high-ranking employee at the state-owned and controlled energy company, Eskom Holdings Limited (Eskom) to obtain business advantages in connection with the award of multiple contracts. ABB engaged multiple subcontractors associated with the South African government official and made payments to those subcontractors that were intended, at least in part, as bribes. ABB worked with these subcontractors despite their poor qualifications and lack of experience. In return, ABB received improper advantages in its efforts to obtain work with Eskom, including, among other benefits, confidential and internal Eskom information. 

As part of the scheme, ABB conducted sham negotiations to obtain contracts at inflated prices that ABB had pre-arranged with the South African government official, all on the condition that ABB employ a particular subcontractor associated with that official. ABB also falsely recorded payments to the subcontractors as legitimate business expenses when, in fact, a portion of the payments were intended as bribes for the South African government official.

In response to an SEC Order charging ABB with FCPA violations, the company agreed to pay a $75 million civil penalty in settlement. In part, the SEC Release alleges that: 

[F]rom 2015 through 2017, ABB executives in Switzerland and South Africa colluded with a high-ranking government official at Eskom, an electricity provider owned by the South African government, to funnel bribes to the official through complicit third-party service providers with whom the government official had close personal relationships. ABB paid the service providers more than $37 million to bribe the government official. In return ABB obtained a $160 million contract to provide cabling and installation work at Eskom's Kusile Power Station.

. . .

ABB consented to the SEC's cease-and-desist order that it violated the anti-bribery, books and records, and internal accounting controls provisions of the FCPA and agreed to pay a civil monetary penalty of $75 million. The SEC also ordered ABB to pay more than $72 million in disgorgement; however, the Commission deemed the payment satisfied by ABB's reimbursement of its ill-gotten gains to the South African government as part of an earlier civil settlement based largely on the same underlying facts as the SEC's action. In addition, ABB agreed to regularly report to the SEC for a three-year period the status of its ongoing remediation of its internal accounting controls and compliance program. ABB was the subject of two prior FCPA cases by the SEC in 2004 and 2010.

SEC Charges Seven Parties in a Combination Pump-And-Dump and Securities Offering Scheme (SEC Release)
In the United States District Court for the Southern District of California, the SEC filed a Complaint charging Joseph R. Earle Jr, Barry D. Reagh, William Clayton, Francis T. Dudley, Steven E. Bryant, Upper Street Marketing, Inc. and Project Growth International, Inc. with running an allegedly fraudulent pump-and-dump scheme of Upper Street Marketing, Inc. stock while at the same time selling new stock shares through a boiler room. On June 27, 2019, the SEC had suspended trading in Upper Street Marketing securities for ten business days. As alleged in part in the SEC Release:

[B]etween 2018 and 2019, Joseph R. Earle, Jr. and Barry D. Reagh designed and executed a campaign to pump up Upper Street's stock price and trading volume so they could dump their shares into the market for a profit. As alleged, before the campaign began, Reagh and William Clayton deceived a brokerage firm to accept their Upper Street shares by giving the impression that Clayton and others controlled the shares and decided whether the sell Upper Street stock. According to the complaint, however, it was Reagh who was in control of the shares.

As alleged, Earle and Reagh conducted a promotional campaign, including hiring Dudley to hype Upper Street stock in research reports distributed through the internet and social media, as well as re-releasing Upper Street press releases. According to the complaint, however, Dudley falsely stated that one of his company's paid for research reports when in reality Reagh and Upper Street did. As alleged, once Upper Street's stock price and trading volume increased, Reagh dumped his shares.

According to the complaint, to help pay for the promotional campaign, Upper Street, Earle, Steven E. Bryant, and Project Growth International, Inc. also offered and sold new Upper Street's stock shares through what they claimed was a private offering. As alleged, this private offering was never registered with the SEC nor were Bryant and Project Growth registered as brokers

FINRA Fines and Suspends Rep for Discretion But Offers No Helpful Guidance
In the Matter of Patrick A. Perugino, Respondent (FINRA AWC 2020068811301)
For the purpose of proposing a settlement of rule violations alleged by the Financial Industry Regulatory Authority ("FINRA"), without admitting or denying the findings, prior to a regulatory hearing, and without an adjudication of any issue, Patrick A. Perugino submitted a Letter of Acceptance, Waiver and Consent ("AWC"), which FINRA accepted. The AWC asserts that Patrick A. Perugino was first registered in 2015 and from July 2016 through November 2017, he was registered with David Lerner Associates, Inc.; and, thereafter, from January 2018 through October 2020 with Spartan Capital Securities, LLC; and, since September 2020, with Craft Capital Management LLC. In accordance with the terms of the AWC, FINRA imposed upon Perugino a $5,000 fine and one-month suspension from associating with any FINRA member in all capacities. The AWC asserts in part that:

Between December 2016 and August 2021 , Perugino exercised discretion to effect 183 trades in four customers' accounts. For one customer, Perugino exercised discretion in placing one trade in the customer's account in January 2017 while Perugino was associated with DLA. With respect to the other three customers, Perugino engaged in discretionary trading by placing numerous trades in their accounts while these accounts were at DLA, Spartan and Craft. None of the four customers provided prior written authorization for Perugino to exercise discretion in their accounts at any of these firms. The written supervisory procedures (WSPs) for DLA and Spartan prohibited registered representatives from exercising discretion in a customer's account. Although Craft's WSPs permitted discretionary accounts, Perugino did not follow the firm's procedures to obtain written authorization from the customers or seek approval from Craft to maintain any discretionary accounts at Craft. Instead, Perugino failed to disclose the discretionary trading, incorrectly marking on two Craft annual attestations that he did not handle any customer accounts on a discretionary basis. 

Therefore, Perugino violated NASO Rule 2510(b) and FINRA Rules 3260(b) and 2010.

Bill Singer's Comment: 183 trades. Over a span of about 56 months. Four customer accounts. At three different FINRA member firms: DLA, Spartan, and Craft. Doesn't say a lot about the FINRA community's in-house compliance policies and procedures. Doesn't say a lot about FINRA's regulatory oversight. Typical for this somnambulant form of FINRA regulation is that the self-regulatory-organization publishes this AWC but fails to set out any guidance or advice as to just how any of its member firms could have -- should have -- detected the exercise of discretion. The AWC clearly asserts that "Perugino did not follow the firm's procedures to obtain written authorization," and that he had "failed to disclose the discretionary trading." Given the absence of any pointers from FINRA as to "better practices," this settlement comes off as nothing more than the ka-ching of a cash register.