Securities Industry Commentator by Bill Singer Esq

Imagine That a $10 Million FINRA Arbitration Claim Settles for $100,000 (BrokeAndBroker.com Blog)

Federal Court Says Customer Had Duty To Notify Schwab of Malfunctioning Order System (BrokeAndBroker.com Blog)

Removal of FINRA Arbitrator Cited by Schwab and Interactive Brokers in HFT Customer Dispute (BrokeAndBroker.com Blog)

Attorney General James Sues Former CEO of Celsius Cryptocurrency Platform for Defrauding Investors / Alex Mashinsky Lied to Investors, Concealed Celsius's Dire Financial Condition, and Failed to Register as Required by State Law (NYSAG Release)

FTC Proposes Rule to Ban Noncompete Clauses, Which Hurt Workers and Harm Competition / Agency estimates new rule could increase workers' earnings by nearly $300 billion per year (FTC Release)

Superintendent Adrienne A. Harris Announces $100 Million Settlement with Coinbase, Inc. after DFS Investigation Finds Significant Failings in the Company's Compliance Program / DFS Investigation Found Wide-Ranging and Long-Standing Failures in Coinbase, Inc.'s Anti-Money Laundering Program, Including with Regard to its Know Your Customer/Customer Due Diligence, Transaction Monitoring, and Suspicious Activity Reporting Systems, Among Others / Settlement Requires Coinbase to Pay $50 Million Penalty and to Invest an Additional $50 Million in its Compliance Program  (NYS Department of Financial Services Release)

U.S. Attorney Announces Fraud And Money Laundering Charges Against Additional Cryptocurrency Ponzi Scheme Promoters (DOJ Release)

Former Bank Manager in Orange County Pleads Guilty to Bank Fraud for Stealing $1.2 Million from Elderly Customers' Account

     

Italian Citizen Pleads Guilty To Multi-Year Manuscript Theft And Impersonation Scheme (DOJ Release)

Reality Show Cast Member Jennifer Shah Sentenced To 78 Months In Prison For Running Nationwide Telemarketing Fraud Scheme (DOJ Release)

Tampa Man Sentenced to 72 Months in Prison for Bank Fraud Conspiracy (DOJ Release)

Monmouth County Man Sentenced to 33 Months in Prison for $2.8 Million Securities Fraud Scheme (DOJ Release)

Ohio Man Pleads Guilty for Unlawfully Stealing Over 712 Seized Bitcoin Subject to Forfeiture in Brother's Pending Criminal Case / Defendant's Brother Convicted of Running the Money Laundering Service Helix (DOJ Release)

Digital Advertising Business Owner And Operator Sentenced To Prison For $5 Million Ponzi Scheme (DOJ Release)

Non-Fungible Token (NFT) Developer Charged in Multi-Million Dollar International Fraud Scheme /  Purchasers of "Mutant Ape Planet" NFTs Were Defrauded of $2.9 Million (DOJ Release)

Arizona man arraigned in the District of New Mexico on mail and wire fraud indictment (DOJ Release)

Former Chief Financial Officer Of Two SPACs Pleads Guilty To Fraud Scheme / Cooper Morgenthau Embezzled More Than $5 Million and Caused False Statements to Be Made to Accountant and Auditor and in SEC Filings (DOJ Release)

SEC Charges Former Public Company Chairman and Officers in Fraudulent SEC Filings and $8 Million Pump-And-Dump Scheme (SEC Release)

SEC Obtains Emergency Asset Freeze, Charges Colorado Pharmaceutical Company with Fraud (SEC Release)

SEC Awards About $5 Million Whistleblower Award to Claimant

Order Determining Whistleblower Award Claims

SEC Charges Former BlackRock Portfolio Manager with Undisclosed Conflict of Interest (SEC Release)

SEC Charges Creator of CoinDeal Crypto Scheme and Seven Others in Connection with $45 Million Fraud / Orchestrator used investors' funds to buy cars, real estate, and a boat (SEC Release)

SEC Obtains Judgment Against Individual in Multi-Million Dollar Securities Offering Fraud (SEC Release)

SEC Obtains Partial Judgments Against Two CodeSmart Defendants (SEC Release)

SEC Charges Former SPAC CFO for Orchestrating $5 Million Fraud Scheme (SEC Release)

SEC Obtains Final Judgment Against Individual Behind Bogus Tender Offer (SEC Release)

CFTC RELEASES

FINRA RELEASES

FINRA Fines and Suspends Rep For Unapproved Borrowing from Customers and Undisclosed Settlements

In the Matter of Scott P. Smith, Respondent (FINRA AWC)

FINRA Censures and Fines UBS Securities LLC for OTC Options Reporting and Position Limits 

In the Matter of UBS Securities LLC, Respondent (FINRA AWC)

FINRA Censures and Fines Sequence Financial Specialists LLC for Contingency Offering 

In the Matter of Sequence Financial Specialists LLC, Respondent (FINRA AWC)

FINRA Fines and Suspends Rep For Forging Customer's Signature

In the Matter of Kevin Dominic Klickna, Respondent (FINRA AWC)

FINRA Censures and Fines Blaylock Van, LLC for MSRB Supervision

In the Matter of Blaylock Van, LLC, Respondent (FINRA AWC)

PEREZ defrauded Forcount's victim-investors ("Victims") and then sought to conceal his fraud by laundering Victim funds through shell companies and by making large personal expenditures, including on real estate.  

In or about 2018, at the direction of SILVA, NUÑEZ began presenting himself as Forcount's CEO under the alias "Salvador Molina."  In reality, NUÑEZ was an actor paid by SILVA to promote Forcount.

During the summer of 2020, Pothos - who worked as a relationship manager at a Bank of America branch in Yorba Linda - and an accomplice worked together to steal the savings of approximately $1.2 million from two married senior citizen clients who shared an account with the bank.

In June 2020, Pothos used one victim's personal identifiable information to create an online banking profile for the victim without the victim's knowledge or permission. Using Bank of America's internal computer system, Pothos then changed the victims' mailing address to a hair salon in Yorba Linda that Pothos frequented and also changed their telephone number to a phone number she used. Using that phone number, Pothos called the bank several times while impersonating one of the victims. In July 2020, Pothos' co-schemer opened a new bank account and email address in one victim's name.

On seven occasions from July 2020 to October 2020, approximately $1,212,144 was transferred out of the victims' bank account into the fraudulently opened account Pothos and her accomplice controlled, then transferred again to an account used by the co-schemer at a different bank. The stolen money was then used for personal expenses, including $47,000 that was transferred to a Pothos-controlled entity.

Beginning in at least August 2016 and continuing through his January 2022 arrest, BERNARDINI, who was based in London and worked in the publishing industry, impersonated agents, editors, and other individuals involved in publishing to fraudulently obtain prepublication manuscripts.  In carrying out this scheme, BERNARDINI created fake email accounts that were designed to impersonate real people employed in the publishing industry, including literary talent agencies, publishing houses, literary scouts, and others.  BERNARDINI created these accounts by registering more than 160 internet domains that were crafted to be confusingly similar to the real entities that they were impersonating, including only minor typographical errors that would be difficult for the average recipient to identify during a cursory review.  Over the course of this scheme, BERNARDINI impersonated hundreds of distinct people and engaged in hundreds of unique efforts to fraudulently obtain electronic copies of manuscripts that he was not entitled to.  BERNARDINI obtained more than a thousand manuscripts through fraud.

In addition, BERNARDINI engaged in a phishing scheme to surreptitiously gain access to a database maintained by a New York City-based literary scouting company ("Scouting Company-1").  BERNARDINI created a webpage that impersonated Scouting Company-1's website.  Then, in or about July 2020, BERNARDINI impersonated a Scouting Company-1 employee and emailed two individuals, directing them to BERNARDINI's look-alike webpage and prompting the users to provide their usernames and passwords.  BERNARDINI's webpage was programmed to automatically forward the input usernames and passwords to an email account controlled by BERNARDINI.  BERNARDINI obtained the login information of approximately 20 users.

From at least 2012 until her arrest in March 2021, SHAH was an integral leader of a wide-ranging, nationwide telemarketing fraud scheme that victimized thousands of innocent people.  The scheme principally involved selling those victims so-called "business services" in connection with the victims' purported online businesses (the "Business Opportunity Scheme").  In particular, SHAH knowingly and intentionally facilitated the sale of "leads" - contact information for potential victims who had been identified as susceptible to the scheme's lies - to sales floors that were perpetrating the Business Opportunity Scheme and, during the latter portion of her participation in the scheme, owned and operated one of the sales floors that was part of the scheme.

Many of SHAH's victims were elderly or vulnerable.  Many of those people suffered significant financial hardship and damage.  At SHAH's direction, victims were defrauded over and over again until they had nothing left.  She and her co-conspirators persisted in their conduct until the victims' bank accounts were empty, their credit cards were at their limits, and there was nothing more to take.

SHAH was not deterred by the Federal Trade Commission's investigations or enforcement actions, nor by learning that dozens of her co-conspirators had been arrested by federal law enforcement, pled guilty for their roles in the scheme, and that two were convicted at trial.  SHAH was not ignorant of these developments: she took a series of increasingly extravagant steps to conceal her criminal conduct from the authorities.  She directed others to lie, she put businesses and bank accounts in the name of others, she required payment in cash, she instructed others to delete text messages and electronic documents, she moved some of her operations overseas, and she tried to put computers and other evidence beyond the reach of investigators.  These efforts were not short-lived or narrow in scope.  She engaged in a yearslong, comprehensive effort to hide her continued role in the scheme.

In June 2021, the Alton, Illinois Police Department filed a report when a resident received a phone call from an individual who claimed to be a member of law enforcement warning her that her identity had been stolen. The caller demanded the victim to send $29,000 to an address in Florida so he could help rectify the situation. The story was false: the victim's identity had not been stolen, the caller was not law enforcement, and no legitimate law enforcement officer would ever demand money from a victim. But the victim didn't know that, so she sent the money. A few days later, Patel turned up to pick up the package in Florida and was arrested.

Further investigation showed the fraud on the Alton victim was a small part of the criminal scheme. There were several other victims across the United States who were bullied and frightened out of their hard-earned money. In just a few weeks in 2021, Mr. Patel picked up or intended to pick up packages sent by victims containing more than $481,000.

Individuals should use caution when speaking with strangers on the phone, especially if a caller is asking the person to send money. Legitimate law enforcement will never try to blackmail victims or request residents to send cash by mail. Talk to a family member or someone who can help if something doesn't sound quite right. There are resources available:

National Elder Fraud Hotline: 833-FRAUD-11. The Department of Justice maintains a National Elder Fraud Hotline. Staffed by experienced case managers who provide personalized support to callers, the hotline serves to assist elders and caretakers who believe they have been a victim of fraud by reporting and providing appropriate services.

Money Mule Initiative. In October 2018, the Department and law enforcement partners began a concentrated effort across the country and around the world to disrupt, investigate, and prosecute money mule activity used to facilitate fraud schemes, especially those victimizing senior citizens. Money mules are individuals used to move criminal proceeds around on behalf of other criminal actors, and money mules may be knowing or unknowing. Efforts by law enforcement disrupt hundreds of money mule operations every year.

Marchi, who was previously barred from the securities industry, purported to provide investment adviser services to clients. Beginning in December 2015, he managed and controlled Precipio Capital LLC, after previously managing and controlling a different investment company called Global Alliance Capital, LLC. Through Global Alliance, Marchi solicited investments from multiple investors, and when he ceased operating Global Alliance, Marchi represented to those investors that he rolled over their accounts into Precipio. Marchi also solicited investors to invest directly into Precipio. 

Instead of using the funds on legitimate investments, Marchi diverted approximately $2.8 million of those funds from victim investors for other purposes, including paying back previous Global Alliance investors and his own use. Marchi made repeated misrepresentations to the victim investors, which included false claims about the status and performance of investments and false assurances to victims that their investments were profitable. Marchi also provided victims with falsified records, including trading records, performance reports, and K-1s. 

[I]n February 2020, the defendant's brother, Larry Harmon, was arrested for his operation of Helix, a darknet-based cryptocurrency money laundering service, known as a "mixer" or "tumbler." As Harmon later admitted, Helix laundered over 350,000 bitcoin - valued at over $300 million at the time of the transactions - on behalf of customers, with the largest volume coming from Darknet markets.  As part of the arrest, law enforcement seized various assets, including a cryptocurrency storage device containing Larry Harmon's illegal proceeds generated through the operation of Helix, which were subject to forfeiture in the criminal case.  However, law enforcement was initially unable to recover bitcoin stored on the device due to the device's additional security features. 

Knowing that the government was seeking to recover the bitcoin stored on the seized device for forfeiture in Larry Harmon's criminal case, Gary Harmon used his brother's credentials to recreate the bitcoin wallets stored on the device and covertly transfer more than 712 bitcoin, valued at approximately $4.8 million at the time, to his own wallets - stealing those funds and obstructing the pending criminal forfeiture proceeding.  Gary Harmon further laundered the proceeds through two online bitcoin mixer services before using the laundered bitcoins to finance large purchases and other expenditures. 

In August 2021, Larry Harmon pled guilty to money laundering conspiracy in connection with his case.

As part of his plea today, Gary Harmon also agreed to the forfeiture of cryptocurrencies and other properties derived from the fraudulently taken proceeds, including more than 647.41 Bitcoin (BTC), 2.14 Ethereum (ETH), and 17,404,400.64 Dogecoin (DOGE).  Due to the increase in market prices, the total value of these forfeitable properties exceeds $12 million. 

[F]rom at least March 2018 through June 2019, Andrew DeFrancesco, the chairman of Cool Holdings' board, devised and implemented the scheme with Marlio Mauricio Diaz Cardona, Cool Holdings' chief executive officer; Carlos Felipe Rezk, Cool Holdings' chief marketing officer; and Nikola Faukovic, one of DeFrancesco's employees. According to the complaint, DeFrancesco, Diaz, and Rezk made false statements and omitted material information in Cool Holdings' filings with the Commission, including about a critical business relationship, in order to mask Cool Holdings' perilous financial condition and future prospects. The complaint further alleges that DeFrancesco, Diaz and Rezk arranged for the publication of a series of fraudulent promotional articles about Cool Holdings that DeFrancesco secretly funded. In addition, according to the complaint, with Faukovic's assistance, DeFrancesco secretly sold hundreds of thousands of Cool Holdings shares, which he held in the name of nominee entities, and ultimately sold over 1.6 million shares for proceeds of more than $8 million. Further, as alleged in the complaint, DeFrancesco, aided by Faukovic and his ex-wife Catherine DeFrancesco, also concealed his ownership of Cool Holdings shares, including by filing false beneficial ownership reports with the SEC.

The SEC's complaint charges Andrew DeFrancesco with 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, the registration provisions of Sections 5(a) and (c) of the Securities Act, and the beneficial ownership disclosure provisions of Sections 13(d) and 16(a) of the Exchange Act and Rules 13d-1(a) and 16a-3 thereunder. The complaint also charges Diaz and Rezk with violating certain of the antifraud provisions, and, in the alternative, aiding and abetting certain of DeFrancesco's violations; charges Faukovic with aiding and abetting certain of DeFrancesco's violations; and Catherine DeFrancesco with violating beneficial ownership disclosure provisions of Section 13(d) of the Exchange Act and Rule 13d-1(a) thereunder. The complaint seeks injunctive relief and civil penalties against all defendants, disgorgement and prejudgment interest thereon from Andrew DeFrancesco, Diaz, Rezk, and Faukovic, and officer-and-director bars against Andrew DeFrancesco, Diaz, and Rezk.

[S]ince approximately January 2019, Reven, which does business as Reven Pharmaceuticals, raised at least $44 million from approximately 175 investors, purportedly to develop a drug called Rejuveinix. The complaint alleges that Lange, Volk, and Denomme collectively misappropriated at least $8.8 million by using investor funds to pay for personal expenses such as real estate, mortgage payments, personal credit card payments, expensive jewelry, personal travel, and high-end cars. The complaint alleges that Lange, Volk, and Denomme took investor money through a variety of means, including by funneling those funds through a shell company that they controlled.

Claimant's information was important in that it caused staff to promptly open its

investigation, and Claimant's allegations are closely aligned with the Commission's charges against the Company. Claimant also provided some additional assistance in the course of an in-person meeting and two phone calls. On the other hand, by the time Claimant first contacted the Commission, Enforcement staff was investigating REDACTED and already possessed evidence that the Company REDACTED in connection with the Transaction, which it only disclosed when asked directly.

. . .

First, we note that Claimant's motivation is not an award criterion, so we need not make a specific finding on this issue. Second, Claimant's assertion that Claimant had done nothing wrong is also not related to any award criterion, so we decline to make any findings on that issue. 

Regardless of Claimant's motivation for submitting the tip when he/she did, we find that Claimant substantially and unreasonably delayed in reporting Claimant's information by waiting approximately four years to provide information to the Commission and doing so only after Claimant received a subpoena from the SEC related to Claimant's own misconduct.  We further find that a ***% award will adequately acknowledge Claimant's involvement with, and contributions to, the Covered Action, while taking into account his/her substantial delay in reporting. 

Between December 2009 and August 2017, Smith borrowed $78,000 from an elderly customer (Customer A) through five separate loans. None of these loans met any of the conditions set forth in the firm's WSPs or complied with any of the conditions set forth in FINRA Rule 3240 or predecessor NASD Rule 2370. Customer A, who was one of Smith's retail customers at Edward Jones, was not Smith's immediate family member nor was she in the business of lending money. The amounts of the loans ranged from $3,000 to $40,000, and Smith used the funds to pay for personal expenses. No payment terms were discussed or memorialized for any of these loans, nor did Smith provide any promissory notes for these loans. In 2020, after receiving a complaint from the estate of Customer A, Smith repaid each of the five loans. 

Smith did not provide notice (written or otherwise) to Edward Jones about any of the loans. On the contrary, he concealed the loans from Edward Jones by instructing Customer A to wire the proceeds for certain of the loans from one of her Edward Jones accounts to her personal checking account, which she held outside of Edward Jones, and then to write a check payable to a member of Smith's immediate family. On one occasion Smith instructed Customer A to wire money directly from her Edward Jones account to Smith's mother-in-law-again to evade detection by Edward Jones. Moreover, on three compliance attestations, Smith falsely attested that he had not received a loan from any Edward Jones client. 

Therefore, Smith violated NASD Rule 2370 and FINRA Rules 3240 and 2010. 

. . .

In 2019, following the death of Customer A, Customer A's daughter discovered that Customer A had made loans to Smith, and Customer A's estate demanded that Smith provide a full accounting of all loans outstanding. In February 2020, in response to that demand, Smith sent an attorney representing the estate a check for $40,000, which the estate accepted. Smith did not notify Edward Jones, his employing firm at the time, that Customer A's estate had complained that he had borrowed money from Customer A or that that he had paid money to Customer A's estate to settle the complaint. 

In June 2020, after Smith had left Edward Jones and while he was registered with FINRA through an association with J.W Cole, Smith offered Customer A's estate a second check for $25,000, which the estate accepted. This check was also in response to the estate's demand for a full accounting of the loans Smith took from Customer A. Before making the June 2020 payment of $25,000, Smith did not notify Edward Jones or J.W Cole of the complaint by Customer A's estate, nor did he seek or receive authorization from either firm to resolve the complaint. 

Therefore, Smith violated FINRA Rule 2010.

About one in five American workers-approximately 30 million people-are bound by a non-compete clause and are thus restricted from pursuing better employment opportunities. A non-compete clause is a contractual term between an employer and a worker that blocks the worker from working for a competing employer, or starting a competing business, typically within a certain geographic area and period of time after the worker's employment ends. Because non-compete clauses prevent workers from leaving jobs and decrease competition for workers, they lower wages for both workers who are subject to them as well as workers who are not. Non-compete clauses also prevent new businesses from forming, stifling entrepreneurship, and prevent novel innovation which would otherwise occur when workers are able to broadly share their ideas.  The Federal Trade Commission proposes preventing employers from entering into non-compete clauses with workers and requiring employers to rescind existing non-compete clauses. The Commission estimates that the proposed rule would increase American workers' earnings between $250 billion and $296 billion per year. The Commission is asking for the public's opinion on its proposal to declare that non-compete clauses are an unfair method of competition, and on the possible alternatives to this rule that the Commission has proposed. 

operated a Ponzi scheme between January 2014 and April 2015 by fraudulently soliciting over $5 million for his business R.B.J. Generational Wealth Management LLC d/b/a Adz on Wheelz from more than 200 unwitting investors. He devised a scheme to defraud victims by falsely claiming that: (1) Adz on Wheelz owned and operated a fleet of luxury vehicles that could be customized for digital advertising; (2) Adz on Wheelz had already received millions of dollars in contracts from advertisers; (3) investors would receive a guaranteed weekly royalty payment; and (4) investors could cancel at any time or receive a refund of their investment.

In reality, Marshall would use money solicited from new investors to make the "royalty payments" owed to prior investors. He also transferred investor funds to other accounts under his control and used investor money for his own personal expenses. Through this scheme, investors lost approximately $3.5 million.

[M]utant Ape Planet NFTs were a digital asset stored on the Ethereum blockchain.  As an NFT, each Mutant Ape Planet NFT was unique, freely transferrable, and gave purchasers exclusive ownership over each NFT.  The NFTs were marketed with promises of exclusive benefits potential purchasers would receive.  Those benefits included exclusive opportunities for additional investments, giveaways, merchandise, and other rewards.  However, after sending their cryptocurrency and obtaining the NFT, purchasers received nothing while their cryptocurrency was diverted from the Mutant Ape Planet NFT project to cryptocurrency wallets controlled by the defendant Aurelien Michel.  In total, more than $2.9 million in purchasers' cryptocurrency was diverted as part of the Michel's scheme. 

As alleged, in a social media chat with current and prospective purchasers, Michel admitted to the fraudulent "rug pull," but blamed the community of NFT purchasers for his actions, stating, "We never intended to rug but the community went way too toxic."

[F]rom 2015 to 2019, BlackRock Multi-Sector Income Trust (BIT), a closed end publicly traded fund, invested in Aviron Group, LLC subsidiaries by loaning the subsidiaries, which were in the business of funding advertising budgets of motion pictures, as much as $75 million. Robertson, a co-portfolio manager of BIT, had a significant role recommending and overseeing BIT's loans to the Aviron subsidiaries. At the same time, Robertson asked Aviron to help advance his daughter's acting career. Aviron helped Robertson's daughter obtain a small role in a film produced in 2018. Robertson did not disclose to BIT's board of trustees or BlackRock's compliance and legal teams that he asked Aviron to help advance his daughter's acting career or that Aviron helped his daughter obtain a film role.

1. Between 2018 and at least June 2022, Defendant Alex Mashinsky ("Mashinsky" or "Defendant") engaged in a scheme to defraud hundreds of thousands of investors, including more than 26,000 New Yorkers, by using false and misleading representations to induce them to deposit billions of dollars in digital assets with his cryptocurrency lending company Celsius Network LLC (together with its parent and related entities, "Celsius"), which he founded and led as chief executive officer. Mashinsky promoted Celsius as a safe alternative to banks while concealing that Celsius was actually engaged in risky investment strategies.

2. Mashinsky was the public face of Celsius. In hundreds of interviews, blog posts, and livestreams, Mashinsky promised investors high yield with minimal risk, assuring them that their digital assets would be as safe as money in a bank and that Celsius would always act in investors' best interest. Touting himself and his company as a modern-day Robin Hood, Mashinsky boasted that Celsius "deliver[s] yield . . . to the people who would never be able to do it themselves, [and] we take it from the rich. . .." Mashinsky promised investors some of the highest yields in the industry, as high as 17%. He told investors that Celsius would generate sustainably high returns by making low-risk collateralized loans to first-tier institutions and cryptocurrency exchanges as well as overcollateralized loans to retail borrowers.

3. These promises were false - but proved wildly popular. By early 2022, Mashinsky's promotional efforts had helped Celsius amass $20 billion in digital assets from investors all over the world. But as Celsius grew larger, it struggled to generate enough revenue to pay the promised yields on investors' deposits. In search of revenue, Celsius moved into significantly riskier investments, extending hundreds of millions of dollars in uncollateralized loans, and investing hundreds of millions of dollars in unregulated decentralized finance platforms. 

4. When Celsius suffered losses on risky investments, Mashinsky failed to disclose these losses to investors. Instead, he continued to promise and pay high yields to attract new deposits and to tell investors to keep their cryptocurrency with Celsius which, he continued to promise, would invest it safely and pay better returns than the banks. In one video Mashinsky claimed that: "All you need to do to become a millionaire… is to HODL," using a popular industry term that originated as a misspelling of the word "hold" and has come to mean "hold on for dear life." The term is often used to discourage investors from selling (or, in the case of Celsius, withdrawing their cryptocurrency from the platform) during market declines or volatility. 

5. But as cryptocurrency markets plummeted in the spring of 2022, Celsius's unsustainable business model began to unravel. By May 2022, Celsius's liabilities exceeded its diminishing assets by hundreds of millions of dollars, and investor withdrawals were accelerating. Rather than disclose Celsius's dire situation, Mashinsky doubled down. He repeatedly and falsely assured investors that Celsius was stronger than ever, that investor assets were safe at Celsius, and that Celsius had billions of dollars in liquidity to cover anyone who wanted to withdraw their assets. In late May 2022, Mashinsky was still actively recruiting new investors, urging them to disregard all criticism of Celsius from "naysayers and haters," to "ignore the FUD" (a popular crypto term that stands for fear, uncertainty, and doubt), and continued to encourage existing investors to HODL. 

6. On June 12, 2022, Celsius froze customer withdrawals. A month later, on July 13, 2022, Celsius filed for bankruptcy, revealing that its liabilities exceeded its assets by more than one billion dollars.

7. The collapse of Celsius left many individuals in a state of desperation and financial ruin, which they described in letters to the bankruptcy court and the OAG. One New York resident mortgaged two properties to invest with Celsius. A father of three lost his life savings of more than $375,000. A disabled veteran lost his investment of $36,000, which had taken him nearly a decade to save up. Another disabled citizen, who depended upon government assistance to supplement his $8 per hour income, lost his entire investment and was left feeling "humiliated and defeated."

From January 2010 through September 2021, UBS failed to report and inaccurately reported OTC options positions to the LOPR in at least 7.1 million instances in violation of FINRA Rules 2360(b)(5) and 2010. In addition, from January 2010 through June 2018, UBS established certain options positions that exceeded applicable OTC position limits in violation of FINRA Rules 2360(b)(3) and 2010. Lastly, from November 2013 through November 2022, UBS failed to establish and maintain a supervisory system, including written procedures, reasonably designed to achieve compliance with FINRA Rule 2360(b)(5) in violation of NASD Rule 3010 and FINRA Rules 3110 and 2010.

The contingency offering at issue here commenced on August 17, 2020 and required that the issuer raise a minimum of $10,766,000 by December 1, 2020. The private placement memorandum (PPM) further stated that the offering termination date could be extended up to December 15, 2020. On December 1, 2020, when the minimum contingency had not been met, a supplement to the PPM was issued extending the offering termination date to December 28, 2020. By December 28, 2020, the minimum contingency had still not been met and an additional supplement was issued extending the offering termination date to December 30, 2020. Sequence Financial did not send written reconfirmation offers to the investors disclosing either of the offering period extensions prior to the December 15, 2020 offering termination date. As a result, Sequence Financial did not obtain confirmation in writing from any customers of a decision to continue their investments and their funds were not returned to them. The minimum contingency amount for the offering was met by the December 30, 2020 extended deadline and the offering closed. 

Through this conduct, Respondent willfully violated Exchange Act Rule 10b-9 and thereby violated FINRA Rule 2010. 

[L]opez was the founder and president of Personal Money Management Company (PMMCO), which ostensibly provided financial management services to clients, many of whom were retired or near retirement. Beginning in 2014, Lopez held himself out as an investment advisor with considerable expertise who could consistently and substantially beat the market average return on investment.

Lopez allegedly communicated to clients and prospective clients various false promises and misrepresentations related to his investment ability and strategy. As alleged in the indictment, Lopez falsely told clients and prospective clients that he could guarantee annual returns of 10 percent on their principal investment no matter how volatile the stock market might be, and that he could make an annualized 19.2-percent return on a retirement investment, in which clients would keep their initial principal investment as well. Lopez allegedly claimed that he had developed a computer program or algorithm that resulted in consistent and substantial above-average market returns on investments.  He allegedly told clients and prospective clients that he would invest their money primarily in stocks and bonds, moving their money between those two investment instruments when market indicators or his computer algorithm told him to move them between the two.

From February 2014 through November 2021, Lopez received approximately $19.4 million from clients. During that same period, rather than invest primarily in stocks and bonds, Lopez allegedly purchased $13.3 million in precious metals, such as gold and silver. Lopez disbursed approximately $6.1 million to clients, which he allegedly represented as investment gains.

After securing client money, Lopez allegedly generated periodic account statements, purportedly showing substantial investment gains. For example, in November 2021, a client received a purported account statement reflecting that an investment of $200,000 with Lopez and PMMCO in 2016 had grown to $3,289,273, a 1,544-percent increase over an approximate five-year period. This growth calculation excluded a $565,000 withdrawal during 2021. In October 2021, those statements represented that PMMCO client account values were collectively worth approximately $39 million.

On Nov. 9 and 10, 2021, government agents seized PMMCO assets, mostly comprising precious metals, which were valued at less than $15 million.

Lopez allegedly continued to generate deceptive PMMCO account statements after the government seized PMMCO's assets. On May 31, 2022, those statements represented PMMCO client account values worth approximately $49 million.

[C]handran, Davidson, Glaspie, Knott, and Mossel falsely claimed that investors could generate extravagant returns by investing in a blockchain technology called CoinDeal that would be sold for trillions of dollars to a group of prominent and wealthy buyers. From at least January 2019 to 2022, Chandran, Davidson, Glaspie, Knott, and Mossel allegedly disseminated false and misleading statements to investors regarding the purported value of CoinDeal, the parties involved in the supposed sale of CoinDeal, and the use of investment proceeds. According to the complaint, no sale of CoinDeal ever occurred and no distributions were made to CoinDeal investors. The complaint further alleges that the defendants collectively misappropriated millions of dollars of investor funds for personal use, and that Chandran used investor funds to purchase items such as cars, real estate, and a boat.

On March 23, 2021, Klickna affixed a customer's signature electronically on an annuity account application without the customer's consent. Further, on March 25, 2021, Klickna copied the same customer's signature and affixed it to a rollover form. The customer eventually noticed the forgery on the rollover form and complained to Equitable. 

Therefore, by forging the customer's electronic signature on the annuity account application and affixing the customer's signature on the rollover form, Klickna violated FINRA Rule 2010. 

In addition, by causing Equitable to maintain inaccurate books and records, Klickna violated FINRA Rules 4511 and 2010." 

Blaylock's Supervisory System was not Reasonably Designed to Detect Pre-Arranged Trading. 

From October 2016 through June 2021, Blaylock failed to establish and maintain a supervisory system reasonably designed to achieve compliance with applicable securities laws and regulations prohibiting manipulative pre-arranged trading. 

Blaylock's WSPs prohibited pre-arranged trading, a form of manipulative trading. However, the firm's supervisory system failed to provide for reasonable surveillance or supervisory reviews for pre-arranged trading. A single supervisor conducted a daily review of the firm's trade blotter to identify potential pre-arranged trading. The daily trade blotter listed hundreds of transactions but did not associate transactions between potentially related customers - i.e., by name or account number that would assist the supervisor in identifying potential pre-arranged trading. 

In addition, the firm's WSPs did not provide guidance regarding how a supervisor was to identify or review for possible indicia of pre-arranged trading. 

Blaylock Failed to Detect Potential Pre-Arranged Trading. 

Between October 2016 and April 2017, Blaylock executed 34 pairs of municipal securities transactions on a principal basis with two institutional customers that were under common control. In these instances, the customers directed a Blaylock representative to buy from one customer and then sell the same bonds to the other customer at prices that were agreed to by the customers.² The customers would trade the bonds back and forth sometimes at increasing prices that were between three and twelve points above the prevailing market price. 

As a result of the firm's failure to have a reasonably designed supervisory system, the firm did not detect the pre-arranged trading pattern even though the transactions appeared on the firm's daily trade blotter. The trading stopped in April 2017, when one of the two customers refused to pay for bonds purchased from Blaylock. The firm immediately closed the customers' accounts and sold the bonds into the marketplace for a monetary loss. 

By failing to establish and maintain a supervisory system, including WSPs, reasonably designed to detect and prevent pre-arranged trading, Blaylock violated MSRB Rule G-27. 

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Footnote 2: In some instances, the pattern of trading commenced with one customer selling the bonds to Blaylock. 

• Securities Industry Commentator
• Bill Singer