Securities Industry Commentator by Bill Singer Esq

In 2023 FINRA Settles With Goldman Sachs Over Mismarked Short Sales Dating Back to 2015 (BrokeAndBroker.com Blog)
https://www.brokeandbroker.com/6974/goldman-sachs-finra/
There are times when Wall Street's regulators just don't seem in much of a rush. When of the industry's whales is involved, everything seems to slow down. If it were one of the small fry, we all suspect that things would have moved quicker and with more devastating sanctions. In a recent FINRA settlement, the regulator alleged that Goldman Sachs had engaged in short selling misconduct from October 2015 to April 2018 involving 60 million short sale orders. And here we are 2023. What took so long?

Goldman Sachs gets $3M FINRA fine for 60 million short sale errors (Financial Planning by Victoria Zhuang)
https://www.financial-planning.com/news/goldman-sachs-fined-3m-by-finra-for-short-sale-errors
Financial Planning's Victoria Zhuang reports on the too-little-too-late regulation of Wall Street. Apparently, when Goldman Sachs screws up 60 million short sales, the industry's regulators come up with a modest fine, Goldman writes out the check, and, hey, the cost to Goldman is like a day's worth of toilet paper.

Nonprofit owner charged with misappropriating funds as the fiduciary to a veteran (DOJ Release)
https://www.justice.gov/usao-nm/pr/nonprofit-owner-charged-misappropriating-funds-fiduciary-veteran
In the United States District Court for the District of New Mexico, an Indictment was filed charging Faye Janzad with two counts of fiduciary misappropriation and two counts of making false statements. As alleged in part in the DOJ Release:

[J[anzad was the owner and director of Veterans Independent Living of Albuquerque (VILA), a nonprofit company that provides housing and services to veterans at various levels of care. In January 2018, Janzad was appointed to serve as the fiduciary to a disabled veteran under VILAs care. At that time, two cashier’s checks in the amount of $20,360.26 and $143,002.77 were dispersed from the veteran’s prior fiduciary to Janzad. Rather than deposit the checks into the veteran’s beneficiary account, Janzad deposited both checks into VILA’s corporate bank account.

In Oct. and Nov. of 2018, the VA asked Janzad to provide bank statements showing the disposition of the veteran’s money. Instead, Janzad led the VA to believe that she had invested the veteran’s money in a mortgage on a VILA property, earning 5% interest. In Dec. 2018, Janzad recorded a mortgage with Bernalillo County which purported to grant the veteran an interest in a property, though the mortgage erroneously referred to a property that was not owned by VILA but had been owned by one of VILA’s other clients. Shortly after, the VA removed Janzad as fiduciary for the veteran and demanded that she forward all monies to the successor fiduciary. Janzad never fixed the faulty mortgage, never made any payments on the mortgage, and never forwarded the veteran’s funds to his successor fiduciary.

During the investigation, Janzad provided the Department of Veterans Affairs with a Fiduciary Statement of Account that omitted any mention of the veteran’s $163,363, and she knowingly made false, fictitious, and fraudulent statements to VA personnel.

Final Defendant Sentenced for Million-Dollar Credit Card Fraud Scheme Involving Arlington Coffee Shop (DOJ Release)
https://www.justice.gov/usao-edva/pr/final-defendant-sentenced-million-dollar-credit-card-fraud-scheme-involving-arlington
In the United States District Court for the Eastern District of Virginia
Adiam Berhane, 50, was sentenced to 10 years in prison for her role in the conspiracy; Keith Lemons, 56, was sentenced to time served and six months of home confinement for his role; and Tiffany Younger, 51, was sentenced to 2 years of probation. As to what prompted those sentences, well, this is one of those case that I'm not sure I can offer much embellishment upon the DOJ Release's prose:

[F]rom at least May 2016 until Oct. 2016, Adiam Berhane, 50, conspired to carry out a fraud scheme with Tiffany Younger, 51, and Keith Lemons, 56, involving stolen credit card information that was used to purchase gift cards, expensive luxury goods, and other items from local retail stores. Berhane would obtain stolen identities of residents of the Washington, D.C. metropolitan area and elsewhere for the creation of fraudulent credit cards. The fraud caused over hundreds of thousands of dollars in losses to area retailers and financial institutions.

Younger and Lemons were recruited by Berhane to make purchases using fraudulent credit cards. As part of the scheme, items purchased with victims’ credit card information would sometimes be returned for refunds to bank accounts that Berhane controlled. In addition to fraudulently purchasing items and receiving fraudulent refund proceeds to her bank accounts, Berhane used fraudulent payment cards to purchase gift cards at retail stores which were then redeemed at her business, Caffe Aficionado, in Arlington. More than a third of Caffe Aficionado’s income from June 2013 to July 2016 came from a pattern of highly unusual redemptions of American Express gift cards, with the pattern beginning several months before Caffe Aficionado opened in approximately October 2013.

Following a December 2022 jury trial, Berhane was convicted of multiple charges of conspiracy to commit bank fraud, bank fraud, trafficking in unauthorized access devices, aggravated identity theft, unlawful possession of 15 or more access devices, and possession of access device-making equipment with intent to defraud.

Criminal Marketplace Disrupted in International Cyber Operation / Genesis Market Offered Access to Data Stolen From Over 1.5M Compromised Computers Worldwide and Was a Key Enabler of Ransomware (DOJ Release)
https://www.justice.gov/opa/pr/criminal-marketplace-disrupted-international-cyber-operation
In part, the DOJ Release asserts that:

Since its inception in March 2018, Genesis Market has offered access to data stolen from over 1.5 million compromised computers around the world containing over 80 million account access credentials. Account access credentials advertised for sale on Genesis Market included those connected to the financial sector, critical infrastructure, and federal, state, and local government agencies. Genesis Market was also one of the most prolific initial access brokers (IABs) in the cybercrime world. IABs attract criminals looking to easily infiltrate a victim’s computer system. Genesis Market offered for sale the type of access sought by ransomware actors to attack computer networks in the United States and around the world, and published private-sector reports indicate that they indeed were used by ransomware actors to attack such systems.

Genesis Market was user-friendly, providing users with the ability to search for stolen access credentials based on location and/or account type (e.g., banking, social media, email, etc.). In addition to access credentials, Genesis Market obtained and sold device “fingerprints,” which are unique combinations of device identifiers and browser cookies that circumvent anti-fraud detection systems used by many websites. The combination of stolen access credentials, fingerprints, and cookies allowed purchasers to assume the identity of the victim by tricking third party websites into thinking the Genesis Market user was the actual owner of the account.

Genesis Market users were located all over the world. Federal law enforcement has worked to identify prolific users of Genesis Market who purchased and used stolen access credentials to commit fraud and other cybercrimes. This effort resulted in hundreds of leads being sent to FBI field offices throughout the United States, as well as to foreign law enforcement partners. Further, as part of this operation, dubbed Operation Cookie Monster, law enforcement seized 11 domain names used to support Genesis Market’s infrastructure pursuant to a warrant authorized by the U.S. District Court for the Eastern District of Wisconsin.

SEC Obtains Over $1 Million Final Judgment Against Three Individuals in Microcap Fraud Scheme Targeting Retail Investors (SEC Release)
https://www.sec.gov/litigation/litreleases/2023/lr25689.htm
Without admitting or denying the allegations in an SEC Complaint filed in the United States District Court for the Eastern District of New York, Matthew Nicosia, William Reininger, and Ronald Touchard consented to the entry of Final Judgments permanently enjoining them from violating the antifraud provisions of Section 17(a) of the Securities Act, and Section 10(b) of the Securities Exchange Act and Rule 10b-5 thereunder and imposing five-year penny stock bars; and, as to Nicosia and Reininger only, further enjoining them from violating the registration provisions of Section 5 of the Securities Act and imposed five-year officer-and-director bars.

Nicosia was ordered to pay disgorgement of $526,050, prejudgment interest of $46,311, and a civil penalty of $223,229.
Reininger was ordered to pay disgorgement of $272,000, prejudgment interest of $23,940, and a civil penalty of $80,000 and
Touchard was ordered to pay disgorgement of $7,400, prejudgment interest of $830, and a civil penalty of $50,000.

As alleged in part in the SEC Release:

[F]rom August 2019 to at least September 2020, defendants Nicosia, Reininger, and Touchard worked with others to fraudulently sell stock in microcap companies by making misleading statements during high pressure sales calls and/or email promotions. The SEC alleges that, as part of the scheme, Touchard introduced Nicosia and Reininger to a fourth defendant, Fabrizio Di Carlo, who ran a boiler room that identified potential investors and pressured them to purchase stock in Odyssey Group International Inc. According to the complaint, Nicosia and Reininger were Odyssey insiders working with an individual previously charged by the SEC, Charlie Abujudeh, to dump Odyssey shares during the promotional campaigns they were funding. The SEC alleges that the promotions were deceptive and failed to disclose that Nicosia and Reininger were Odyssey insiders, controlled nearly all of the stock that was deposited and available for public trading, and were selling their Odyssey stock into the increased demand created by the promotions they were funding and controlling. According to the complaint, the defendants shared the profits from over $2.6 million in illicit stock sales. The SEC alleges that Reininger and/or Nicosia similarly funded the promotion of Scepter Holdings, Inc. stock and CannaPharmaRx, Inc. stock and failed to make key disclosures to investors to whom they sold that stock.

In the Matter of the CONSOLIDATED ARBITRATION APPLICATIONS For Review of Actions Taken by FINRA (SEC Opinion; '34 Act Rel. No. 97248)
https://www.sec.gov/litigation/opinions/2023/34-97248.pdf
As set forth in part in the SEC Opinion:

This proceeding concerns currently or formerly associated persons of FINRA member firms who attempted to access FINRA’s arbitration forum to seek expungement of customer dispute information concerning final adverse arbitration awards from FINRA’s Central Registration Depository (“CRD”). FINRA prohibited each applicant from accessing its arbitration forum for this purpose. Each applicant now seeks review of FINRA’s action. We sustain seventeen of FINRA’s actions, finding that FINRA acted in accordance with its rules when it denied use of its arbitration forum for collateral attacks on final adverse arbitration awards. But we remand six proceedings for further action because we cannot determine whether FINRA’s actions in those proceedings were in accordance with its rule that only the Director of FINRA Dispute Resolution Services may deny use of the FINRA arbitration forum.

= = =
4/4/2023

FULL TEXT:THE PEOPLE OF THE STATE OF NEW YORK
-against- DONALD J. TRUMP, Defendant (Indictment, SUPREME COURT OF THE STATE OF NEW YORK/ COUNTY OF NEW YORK
https://s3.documentcloud.org/documents/23741577/read-trump-indictment-related-to-hush-money-payment.pdf

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Industry Group Calls on Finra to Drop Series 7 Sponsorship Requirement / To take the Series 7 exam, a person must be sponsored by a Finra member firm, which a recently formed industry group argues is creating unnecessary barriers to entry for young and diverse candidates. (Financial IQ by Sam Rowe/ April 3, 2023)

https://financialadvisoriq.com/c/4004464/517204/industry_group_
calls_finra_drop_series_sponsorship_requirement

Financial IQ Reporter Sam Rowe interviewed Financial Securities Professionals, Ltd Co-Founder Ron Filler, Esq. about his proposal to "help bring younger people into the industry and reduce financial pressure on smaller broker-dealers."

Latest SEC budget request emphasizes an enforcement agenda (April 4, 2023 by Dan Shaw)
https://www.financial-planning.com/news/latest-budget-proposal-for-sec-puts-enforcement-of-securities-rules-front-and-center
It's another year, and as Financial Planning's Dan Shaw reports, SEC Chairman Gary Gensler wants $2.4 billion. That's a $200 million increase over the current fiscal year. Are taxpayers getting their money's worth?

Former Start-Up CEO Charged In $175 Million Fraud / Former CEO of Frank Charged with Making False Claims and Submitting False Data to J.P. Morgan Chase in $175 Million Acquisition Fraud Scheme (DOJ Release)
https://www.justice.gov/usao-sdny/pr/former-start-ceo-charged-175-million-fraud
-and-
SEC Charges Founder of Frank with Fraud in Connection with $175 million Sale of Student Loan Assistance Company (SEC Release)
https://www.sec.gov/news/press-release/2023-74

In the United States District Court for the Southern District of New York, a Complaint was filed charging Charlie Javice, 31, (founder of the defunct student loan assistance company Frank) with one count of conspiracy to commit bank and wire fraud, one count of wire fraud affecting a financial institution, one count of bank fraud, and one count of securities fraud.
https://www.justice.gov/usao-sdny/press-release/file/1577861/download
As alleged in part in the DOJ Release:

In or about 2017, JAVICE founded TAPD, Inc., d/b/a Frank (“Frank”), a for-profit company that offered an online platform designed to simplify the process of filling out the Free Application for Federal Student Aid (“FAFSA”). FAFSA is a federal government form, available free of charge, that students use to apply for financial aid for college or graduate school. JAVICE was Frank’s CEO.

In or about 2021, JAVICE began to pursue the sale of Frank to a larger financial institution. Two major banks, one of which was JPMC, expressed interest and began acquisition processes with Frank. JAVICE represented repeatedly to those banks that Frank had 4.25 million customers or “users.” JAVICE explicitly defined “users” — to both banks — as individuals who had signed up for an account with Frank and for whom Frank therefore had at least four identified categories of data (i.e., first name, last name, email address, and phone number). In fact, Frank had less than 300,000 users.

When JPMC sought to verify the number of Frank’s users and the amount of data collected about them — information that was critical to JPMC’s decision to move forward with the acquisition process — JAVICE fabricated a data set. To do this, JAVICE and a co-conspirator (“CC-1”) first asked Frank’s director of engineering to create an artificially generated data set (a so-called synthetic data set). The director of engineering raised concerns about the legality of the request, to which JAVICE responded, in substance and in part, “We don’t want to end up in orange jumpsuits.” The director of engineering declined the request.

JAVICE then approached an outside data scientist and hired him to create the synthetic data set. After the data set was created, JAVICE provided that synthetic data set to an agreed-upon third-party vendor in an effort to confirm to JPMC that the data set had over 4.25 million rows. JAVICE then caused the third-party vendor to convey to JPMC that the data set had over 4.25 million rows, consistent with JAVICE’s misrepresentations that Frank had 4.25 million users.

In reliance on JAVICE’s fraudulent representations about Frank’s users, JPMC agreed to purchase Frank for $175 million. As part of the deal, JPMC hired JAVICE and other Frank employees. JAVICE received over $21 million for selling her equity stake in Frank and, per the terms of the deal, was to be paid another $20 million as a retention bonus.

Unbeknownst to JPMC, at or about the same time that JAVICE was creating the fabricated data set, JAVICE and CC-1 sought to purchase, on the open market, real data for over 4.25 million college students to cover up their misrepresentations. AVICE and CC-1 succeeded in purchasing a data set of 4.5 million students for $105,000, but it did not contain all the data fields that JAVICE had represented to JPMC were maintained by Frank. JAVICE then purchased an additional set of data on the open market in order to augment the data set of 4.5 million users. After JPMC acquired Frank, JPMC employees asked JAVICE and CC-1 to provide data relating to Frank’s users so that JPMC could begin a marketing campaign to those users. In response, JAVICE provided what was supposedly Frank’s user data. In fact, JAVICE fraudulently provided the data she and CC-1 had purchased on the open market at a small fraction of the price that JPMC paid to acquire Frank and its purported users.

In the United States District Court for the Southern District of New York, the SEC filed a Complaint charging Charlie Javice (founder of the defunct student loan assistance company Frank) with violating the antifraud provisions of the Securities Act and Securities Exchange Act; and further charging as Relief Defendants trusts held by Javice.
https://www.sec.gov/litigation/complaints/2023/comp-pr2023-74.pdf As alleged in part in the SEC Release [Ed: JPMorgan Chase Bank "JPMC"):

[J]avice orchestrated a scheme to deceive JPMC into believing that Frank had access to valuable data on 4.25 million students who used Frank’s service when in reality the number was less than 300,000.

The SEC’s complaint alleges that Javice made numerous misrepresentations about Frank’s purported millions of users to entice JPMC. As negotiations progressed, JPMC pressed the Frank executives for the data associated with its customers, and Javice allegedly sought the help of Frank’s director of engineering to generate synthetic data to make it appear as if Frank had 4.25 million customers. When the director refused to comply, Javice allegedly paid a data science professor to manufacture the data required to close the deal with JPMC.

The SEC’s investigation shows that, as a result of the eventual $175 million acquisition of Frank, Javice received $9.7 million directly in stock proceeds, millions more indirectly through trusts, and a contract entitling her to a $20 million retention bonus as a new employee of JPMC.

SEC Charges South Carolina Resident with Operating $20 Million Ponzi Scheme (SEC Release)
https://www.sec.gov/litigation/litreleases/2023/lr25688.htm
In the United States District Court for the Northern District of Georgia, the SEC filed a Complaint that charges Michael J. French and MJF Holdings https://www.sec.gov/litigation/complaints/2023/comp25688.pdf
with violations of the registration provisions of Section 5 of the Securities Act and the antifraud provisions of Section 17(a) of the Securities Act, and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder; and, further charges MJF Capital with aiding and abetting French's and MJF Holdings' alleged fraud.

[F]rench, through MJF Holdings, sold more than $20 million in high-yield promissory notes to over 400 investors throughout the country. The complaint alleges that French falsely told investors that the notes - promising 12% returns for a one-year investment - were backed by a low-risk investment program, under which the note proceeds would be loaned to small businesses and/or invested in commercial loans on a fractional basis to produce returns. The complaint also states that French claimed that the loans selected for investment to back the promissory notes were strictly underwritten and thus posed little risk to investors. According to the SEC's complaint, the lending program was a sham, and French spent the money he raised to repay earlier investors and to fund a lavish lifestyle. The complaint also states that French ultimately defaulted on the notes and ceased communicating with investors..

SEC’s OMWI FY 2022 Annual Report Highlights the Agency’s Diversity, Equity, and Inclusion Initiatives and Progress (SEC Release)
https://www.sec.gov/news/press-release/2023-75
Oh my!!! the SEC's 2022 Annual Report https://www.sec.gov/files/omwi_annual_report_fy2022.pdf
is out and for Baby Boomers, it's about as exciting as when they published the new phone book. For those of you dying to know, here's the SEC's own prose:

The Securities and Exchange Commission’s Office of Minority and Women Inclusion (OMWI) today released its Fiscal Year (FY) 2022 Annual Report to Congress. The report summarizes the SEC’s actions and achievements towards promoting diversity, equity, inclusion, and accessibility (DEIA) in the SEC’s workforce, increasing opportunities for minority-owned and women-owned businesses, and leveraging DEIA for mission effectiveness.

Notable highlights from the report include:

The representation of minorities among Senior Officers (Senior Officers are equivalent to Senior Executive Service at other federal agencies) increased from FY 2021 to FY 2022;
37.6 percent of the SEC contract payments made in FY 2022 were to minority- and women-owned businesses;
The SEC increased the number of paid internship programs from FY 2021 to FY 2022; and
35.9 percent of the workforce identify as minorities.

OMWI provides leadership and guidance for the SEC’s DEIA efforts and works in close collaboration with all SEC divisions and offices. This year’s annual report highlights the steps OMWI took to cultivate strategic relationships, as well as share its knowledge and resources to facilitate and support the SEC’s collective DEIA efforts.

State Regulators Stop Fraudulent Artificial Intelligence Investment Scheme (TSSB Release)
https://www.ssb.texas.gov/news-publications/state-regulators-stop-fraudulent-artificial-intelligence-investment-scheme
The Texas State Securities Board, Alabama Securities Commission, and Montana Securities Commission filed enforcement actions charging YieldTrust.ai and Stefan Ciopraga with illegally soliciting investments tied to a decentralized application ("dApp") that purportedly uses quantum artificial intelligence to trade digital assets. As alleged in part in the TSSB Release:

[Y]ieldTrust.ai is illegally marketing its dApp, known as the YieldBot, through an internet website, its social media channels and various online influencers. YieldTrust.ai is allegedly claiming the YieldBot is powered by cutting-edge artificial intelligence designed to interact with the market for digital assets. It is purportedly touting the sophistication of the artificial intelligence, claiming it is “capable of executing 70 times more trades with 25 times higher profits than any human trader could.” YieldTrust.ai is also allegedly claiming the artificial intelligence continuously evolves, as the YieldBot “continually improves itself. . . becoming more effective with each trade made.”

The YieldBot was purportedly developed for Binance’s BNB Smart Chain and YieldTrust.ai allegedly permits clients to stake Binance USD, USD Coin and Tether. According to the orders, YieldTrust.ai is claiming the YieldBot interfaces with the staking programs, and that it “picks up on the money deposited” and then “uses… funds on various centralized exchanges to generate profits with every withdrawal.” The promised profits are highly lucrative – YieldTrust.ai is allegedly claiming the YieldBot generated returns of 2.6% per day for four months and new investors can expect to earn up to returns of up to 2.2% per day.

. . .

According to the orders, an independent firm recently published an audit of the smart contract tied to the YieldBot. The audit showed the smart contract is dangerous and the deploying team retained sufficient control to block users from withdrawing their assets. After the publication of the smart contract audit, YieldTrust.ai allegedly announced it would cease operations. Instead, the orders accuse YieldTrust.ai of raising capital from the public to cover withdrawals from prior investors. Alabama, Montana and Texas filed today’s actions to stop this illegal and fraudulent scheme.

FINRA Censures and Fines SpeedRoute for New Issues Market Orders
In the Matter of SpeedRoute LLC , Respondent (FINRA AWC 2018060520901)
https://www.finra.org/sites/default/files/fda_documents/2018060520901
%20SpeedRoute%20LLC%20CRD%20104138%20AWC%20gg.pdf
For the purpose of proposing a settlement of rule violations alleged by the Financial Industry Regulatory Authority ("FINRA"), without admitting or denying the findings, prior to a regulatory hearing, and without an adjudication of any issue SpeedRoute LLC submitted a Letter of Acceptance, Waiver and Consent ("AWC"), which FINRA accepted. The AWC asserts that SpeedRoute LLC has been a FINRA member firm since 2009 with 12 registered representatives. In accordance with the terms of the AWC, FINRA imposed upon SpeedRoute LLC a Censure and $45,000 fine. As alleged in part in the "Overview" of the AWC:

From September 2016 through February 2019, SpeedRoute accepted market orders for the purchase of shares of new issues in the secondary market prior to the commencement of trading of those shares in the secondary market. As a result, SpeedRoute violated FINRA Rules 5131(d)(4) and 2010.

Additionally, from September 2016 through June 2019, SpeedRoute failed to establish and maintain a supervisory system, including written supervisory procedures, reasonably designed to achieve compliance with FINRA Rule 5131(d)(4). As a result, SpeedRoute violated FINRA Rules 3110 and 2010.

= = =
4/3/2023

FINRA Arbitration Award Gives Us A Case of Gas From Chipotle Bean Burrito Puts (BrokeAndBroker.com Blog)

https://www.brokeandbroker.com/6962/schwab-chipotle-finra/

Two public customers alleged that an error made by their TD Ameritrade rep prompted a large margin call; and, as a result, they alleged they sustained about $264,000 in damages when forced to cover. FINRA arbitrators determined that the error involved negligence. So . . . how big a check did the arbitrators tell TD Ameritrade to write out to the customers? $300 -- reimbursement for part of their arbitration filing fee.

Steven Schwartz, Plaintiff, v. Allstate Insurance Company, Defendants (Memorandum and Order, United States District Court for the Eastern District of New York, 20-CV-00079)
https://www.govinfo.gov/content/pkg/USCOURTS-nyed-2_20-cv-00079/pdf/USCOURTS-nyed-2_20-cv-00079-0.pdf
As set out in the Syllabus to the Order:

Plaintiff Steven H. Schwartz (“Plaintiff”)—a Jewish man born in 1956—alleges that Defendant Allstate Insurance Company (“Allstate”) discriminated against him based on his age and religion in violation of the Title VII, the ADEA, and the New York State Human Rights Law (“NYSHRL”). Plaintiff also alleges that Defendant retaliated against him for complaining about a hostile work environment. Currently pending before the Court is Defendant’s motion for summary judgment. For the reasons set out below, Defendant’s motion is GRANTED

The EDNY Order is a compelling read and I urge you to invest the time. For a sense of what was involved, consider this in part:

Plaintiff contends that he did not receive sufficient leads to allow him to earn any commissions and was ignored by his supervisor, who, according to Plaintiff, told Plaintiff that he would not have hired an “old Jewish guy” for Plaintiff’s territory in Queens. Ferrara maintains that Plaintiff did not receive additional leads because he stopped communicating with Ferrara and failed to obtain the required Series 63 license to sell securities. As for Plaintiff’s termination, Allstate contends that Plaintiff was ultimately terminated because he abandoned his job and ignored directives to attend meetings.

at Page 5 of the EDNY Memo/Order

California Man Charged in $23 Million Fraudulent Investment Scheme (DOJ Release)
https://www.justice.gov/usao-ndil/pr/california-man-charged-23-million-fraudulent-investment-scheme
In the United States District Court for the Northern District of Illinois, an Information was filed charging Sean Grusd with wire fraud
https://www.justice.gov/d9/2023-04/23-cr-193_information_-_unsigned_copy_stamped_43202393133.pdf As alleged in part in the DOJ Release:

[F]rom February 2021 through December 2022, SEAN GRUSD, 31, of California, is alleged to have devised and carried out a scheme to defraud investors in Dylan Ventures LLC, November Acquisitions SPV LLC, and December Acquisitions SPV LLC (collectively, "the Grusd Entities") out of more than $23 million dollars. Grusd falsely represented that the victims’ money would be used to make investments in privately owned businesses. Instead of making those investments, Grusd misappropriated the victims’ funds, using the money to pay personal expenses and purchase luxury items, including expensive cars, vacations, and real estate.

As part of his scheme, Grusd provided victims with false and forged documents, including fraudulent stock certificates that showed November Acquisitions had paid $50 million for shares in Company A; and that December Acquisitions had paid $100 million for shares in Company B; when, in fact, neither of those Grusd Entities purchased shares in either of those companies. Additionally, Grusd provided one victim with a fabricated bank statement for December Acquisitions that he knew falsely reflected a balance of $133 million, when, in fact, the balance in that account was zero.

Former Fresno Bank Employee Pleads Guilty to Stealing More Than $70,000 from Customers’ Accounts (DOJ Release)
https://www.justice.gov/usao-edca/pr/former-fresno-bank-employee-pleads-guilty-stealing-more-70000-customers-accounts
In the United States District Court for the Eastern District of California, Lladira Hernandez, 23, pled guilty [Ed: as to what she pled guilty to, well, oddly, DOJ says in its Press Release that she pled guilty to "stealing," which, last I looked, isn't actually what you would get charged with. Could be wire fraud or bank fraud. Should be that when DOJ publishes a press release that it sets out the actual charge to which a Defendant has pled guilty]. As alleged in part in the DOJ Release:

[I]n April 2022, Hernandez was hired by the bank as a customer service representative. She began stealing the bank account information for customers she helped over the phone and used it to pay bills for herself and her associates. This included mortgage payments, car payments, and phone bills. In August 2022, Hernandez transferred more than $45,000 from two customers’ accounts into her own account and abruptly quit her job at the bank. She proceeded to withdraw that money from her account and was captured doing so on surveillance video.

Nevada Attorney Indicted In Multimillion-Dollar Ponzi Scheme (DOJ Release)
https://www.justice.gov/usao-nv/pr/nevada-attorney-indicted-multimillion-dollar-ponzi-scheme
In the United States District Court for the District of Nevada, an Indictment was filed charging Matthew Wade Beasley with five counts of wire fraud and three counts of money laundering. As alleged in part in the DOJ Release:

[F]rom about 2017 to March 2022, Beasley falsely represented to another person that he could find plaintiffs in personal injury lawsuits who wanted to borrow money against their pending settlements and would pay high interest rates to do so. He created fake contracts to lend money to purported personal injury plaintiffs. Beasley caused others to find investors to invest in these fake contracts.

The indictment further alleges that, Beasley caused victim investors to wire transfer their investments to Beasley’s IOLTA account, which is a bank account set up by an attorney to hold client monies. He used the money from the scheme to buy luxury homes, cars, and recreational vehicles.

SEC Charges Merrill Lynch for Failing to Disclose Foreign Exchange Fees to Clients (SEC Release)
https://www.sec.gov/news/press-release/2023-73
Without admitting or denying the findings in an SEC Order
https://www.sec.gov/litigation/admin/2023/34-97242.pdf that it had violated Sections 206(2) and 206(4) of the Investment Advisers Act of 1940 and related rules, Merrill Lynch, Pierce, Fenner & Smith Incorporated agreed to a cease-and-desist order, a censure, and to pay disgorgement of approximately $4.1 million, prejudgment interest thereon of $760,000, and a civil penalty of $4.8 million. As alleged in part in the SEC Release:

[B}etween May 2016 and July 2020, Merrill Lynch offered programs to advisory clients in which the clients paid Merrill a fee in exchange for a range of investment advisory services, including foreign currency exchanges. In the program’s client agreements and brochures, Merrill Lynch disclosed that it charged a markup or markdown on foreign currency exchanges, but it did not disclose an additional fee it referred to as a production credit, which, in more than 80 percent of the transactions, was equal to or greater than the disclosed markup or markdown. Merrill Lynch paid a percentage of these production credits to its financial advisors and referred to this charge as a commission in internal documents. The SEC’s order also finds that Merrill Lynch failed to adopt and implement policies and procedures reasonably designed to prevent its disclosures from being misleading about the fees it charged on foreign currency exchanges.

SEC Charges Chatham Asset Management and Founder Anthony Melchiorre for Improper Fixed Income Securities Trading (SEC Release)
https://www.sec.gov/news/press-release/2023-72
Without admitting or denying the findings in an SEC Order
https://www.sec.gov/litigation/admin/2023/ia-6270.pdf that they had violated Section 206(2) of the Investment Advisers Act of 1940, and that they aided and abetted and caused violations of the Investment Company Act of 1944, Chatham Asset Management LLC and its founder Anthony Melchiorre agreed jointly and severally to pay $11 million in disgorgement and around $3.4 million in prejudgment interest; and to pay civil penalties of $4,400,000 and $600,000, respectively. Finally, they agreed to prohibitions from serving in certain positions in the investment industry, pursuant to the Investment Company Act. As alleged in part in the SEC Release:

[F]rom 2016 through 2018, one Chatham-advised client sold certain American Media, Inc. (AMI) bonds while a different Chatham-advised client purchased the same bonds through various broker-dealers. Chatham engaged in these trades to address portfolio constraints such as industry or issuer fund concentration limits, meet investor redemptions, and allocate capital inflows and outflows. The order further finds that these trades were executed at prices Chatham and Melchiorre proposed and had the effect of increasing the price of the AMI bonds at a significantly higher rate than the prices of similar securities. Chatham’s and Melchiorre’s trading in the AMI bonds accounted for the vast majority of trading in those securities and therefore over time had a material effect on their pricing.

The SEC’s order also finds that Chatham and Melchiorre calculated the net asset values, or NAVs, of their client funds’ holdings using pricing data that was based, in part, on the trading prices of the securities. As a result, during the relevant period, the NAVs of Chatham’s clients were higher than they would have been if the subject trades were removed from the market for the AMI bonds, which, in turn, resulted in higher fees being charged to the clients.

SEC Obtains Final Judgments Against Two Additional Defendants in Codesmart Fraud (SEC Release)
https://www.sec.gov/litigation/litreleases/2023/lr25686.htm
In the United States District Court for the Eastern District of New York, the SEC charged MIchael T. Morris with violating Sections 5(a), 5(c) and 17(a) of the Securities Act, Sections 9(a) and the antifraud provisions of 10(b) of the Securities Exchange Act and Rule 10b-5 thereunder; and, also charged Darren Ofsink with violating Sections 5(a) and 5(c) of the Securities Act. The Court entered separate Final Consent Judgments against Morris and Ofsink that permanently enjoined each from violations of the charged provisions and to penny stock bars; and they each agreed to disgorge over ill-gotten gains ($292,409.11 for Ofsink and $27,526 for Morris) and prejudgment interest thereon, the payment of which was deemed satisfied by the restitution order in the parallel criminal proceeding, United States v. DiScala, et al., 14 Cr. 399 (E.D.N.Y.). As alleged in part in the SEC Release:

[S]tarting in 2013, Ofsink and Morris, along with the other defendants, were involved in a scheme to manipulate the securities of CodeSmart Holdings, Inc. ("CodeSmart"). The SEC alleged that Ofsink, an attorney, helped execute the reverse merger of CodeSmart into a public shell company and thereafter, received and sold shares of CodeSmart, the offer and sale of which was not registered, and obscured the holdings of other key individuals. As to Morris, the SEC alleged that he engaged in matched trading for the purpose of inflating the price of CodeSmart securities and received and sold shares of CodeSmart, the offer and sale of which was not registered.

FINRA Fines and Suspends Rep For Private Securities Transaction
In the Matter of Larry Eugene Norton, Respondent (FINRA AWC 2022074961401)
https://www.finra.org/sites/default/files/fda_documents/2022074961401
%20Larry%20Eugene%20Norton%20CRD%20No.%201765551%20AWC%20geg.pdf
For the purpose of proposing a settlement of rule violations alleged by the Financial Industry Regulatory Authority ("FINRA"), without admitting or denying the findings, prior to a regulatory hearing, and without an adjudication of any issue Larry Eugene Norton submitted a Letter of Acceptance, Waiver and Consent ("AWC"), which FINRA accepted. The AWC asserts that Larry Eugene Norton was first registered in 1987, and by December 1987, he was registered with PFS Investments Inc. In accordance with the terms of the AWC, FINRA imposed upon Norton a $5,000 fine and a 30-calendar day suspension from associating with any FINRA member in all capacities. As alleged in part in the AWC:

Between March 2020 and May 2021, while associated with PFS, Norton personally invested a total of approximately $138,000 in investment contracts offered and sold by Company A, which purported to be an invoice factoring company that provided cash to
companies in exchange for their accounts receivable. Norton made his investments in this security by entering into 14 separate "Funding Partner" agreements pursuant to which Norton provided capital funding to Company A in exchange for a promise that Company A would acquire accounts receivable solely for his account and generate 12-25% returns on his investments. Norton did not make these investments through PFS, nor were were they securities offered by PFS, and thus, they were outside the regular course or scope of Norton's employment with PFS. Norton did not provide written notice to PFS prior to investing in the private securities transactions involving Company A. On firm compliance
questionnaires in 2020 and 2021, Norton marked "N/A" in response to a question where the firm indicated that "N/A" should be marked where one had not and did not intend to engage in a private securities transaction.

Therefore, Norton violated FINRA Rules 3280 and 2010.

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