Securities Industry Commentator by Bill Singer Esq

Another day on Wall Street and another firm attempts to secure another Temporary Restraining Order against another former employee. As has been reported over the years in this blog, presented with more or less the same facts albeit in different cases, one court will grant a TRO whereas another will deny it. More often than not, it comes down to whether the applicant proves that the harm allegedly sustained is so severe as to be irreparable absent the intercession of a TRO. For some judges, that's a high bar to vault over; for others, they had a big bowl of bran flakes for breakfast and are in a dyspeptic mood.

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CFPB Action to Require Citizens Bank to Pay $9 Million Penalty for Unlawful Credit Card Servicing / Citizens failed to properly manage and respond to customers’ credit card disputes and fraud claims (CFPB Release)
https://www.consumerfinance.gov/about-us/newsroom/cfpb-action-require-citizens-bank-pay-9-million-unlawful-credit-card-servicing/
In the United States District Court for the District of Rhode Island, CFPB filed a Complaint alleging that Citizens Bank, N.A. failed to reasonably investigate and appropriately resolve billing error notices and claims of unauthorized use, failed to properly credit consumers’ accounts when unauthorized use and billing errors occurred, and failed to provide credit counseling disclosures to consumers as required by Regulation Z.
https://files.consumerfinance.gov/f/documents/cfpb_citizens-bank_complaint_2020-01.pdf

Pursuant to a Stipulated Final Judgment and Order, CFPB and Citizens Bank reached a settlement of the charges and the Bank will pay a $9 million civil money penalty.
https://files.consumerfinance.gov/f/documents/cfpb_citizens-bank_proposed-final-stipulated-judgment-order_2023-05.pdf

As alleged in part in the CFPB Release:

Citizens Bank is a large bank headquartered in Providence, Rhode Island, with branches and ATMs in 14 states and the District of Columbia. Citizens Bank is a subsidiary of Citizens Financial Group (NYSE:CFG), which reported $222 billion in assets as of March 31, 2023, and is one of the 15 largest consumer banks in the country. The CFPB originally sued Citizens Bank in January 2020.

. . .

In the 2020 lawsuit, the CFPB alleges that Citizens Bank violated the Truth in Lending Act and its implementing Regulation Z by:

Improperly denying customer reports of fraud and errors and failing to provide refunds: The bank failed to reasonably investigate and resolve billing error notices and claims of unauthorized use by making customers jump through unnecessary and burdensome hoops, which are not required under the Truth in Lending Act, to report fraud. The bank also failed to fully credit customers’ accounts when unauthorized use and billing errors occurred by sometimes not refunding all finance charges or fees owed to customers.
Failing to provide required documents and referrals: The bank did not provide certain individuals who submitted billing error notices with required acknowledgment and denial notices, which inform them that their disputes have been received and, if applicable to a person’s case, that the dispute was denied. The bank also did not disclose required credit counseling information to individuals who called the bank’s toll-free number designated for that purpose, and instead routed some individuals to the bank’s collections department.

Florida man charged in multi-million dollar elder fraud scheme (DOJ Release)
https://www.justice.gov/usao-ndwv/pr/florida-man-charged-multi-million-dollar-elder-fraud-scheme
In the United States District Court for the Northern District of West Virginia, an Indictment was filed charging Samuel Kristofer Bunner with wire and bank fraud, identity theft and money laundering. As alleged in part in the DOJ Release:

[B]unner befriended the victim while they were both working at the American Legion in Charles Town. The victim had cognitive impairment and Bunner began assisting with his medical appointments. Bunner then accompanied the victim to a law firm, where the victim made Bunner his power of attorney and gave him the ability to control his financial accounts. Over a two-year period, Bunner enriched himself by selling the victim’s real estate, emptying investment and bank accounts, and opening a credit card in the victim’s name. Bunner and his wife purchased real estate, motor vehicles, and luxury items, along with taking vacations.

Hudson County Man Sentenced to 21 Months in Prison for Conspiracy to Steal Cryptocurrency (DOJ Release)
https://www.justice.gov/usao-nj/pr/hudson-county-man-sentenced-21-months-prison-conspiracy-steal-cryptocurrency
In the United States District Court for the District of New Jersey, Ebrahem Adeeb, 20, pled builty to conspiring to commit wire fraud; and he was sentenced to 21 months in prison plus three years of supervised release, and ordered to pay restitution of $504,418. As alleged in part in the DOJ Release:

From October 2020 through May 2021 Adeeb and his conspirators “swapped” the subscriber identity module (SIM) associated with a victim’s phone number for another SIM loaded into a mobile device they controlled in order to access and control the victim’s accounts. Adeeb and his conspirators then sent a password reset request to a digital currency exchange platform, which caused the company to send a password reset link to the victim’s email account. Adeeb and his conspirators then accessed the victim’s email account and account at the currency exchange company and transferred cryptocurrency from the victim’s account to a cryptocurrency wallet they controlled. Adeeb and his conspirators stole cryptocurrency valued at more than $500,000 at the time of the thefts.

SEC Charges Internet Streaming Company for Overstating Paying Subscribers and Violating the Whistleblower Protection Provisions (SEC Release)
https://www.sec.gov/enforce/33-11196-s
Without admitting or denying the findings in an SEC Order
https://www.sec.gov/litigation/admin/2023/33-11196.pdf that Gaia, Inc. violated Section 17(a)(2) and 17(a)(3) of the Securities Act of 1933, as well as Section 13(a) of the Securities Exchange Act of 1934 and Rules 12b-20 and 13a-11 thereunder; and that the company's Chief Financial Officer Paul C. Tarell caused said violations; and, further, that the company violated the securities whistleblower protection provisions of Section 21F(h) of the Exchange Act, and Rule 21F-17 thereunder; Gaia consented to a Cease-and-Desist Order and a $2 million civil penalty and certain specified undertakings; and Tarell agreed to a $50,000 civil penalty. As alleged in part in the SEC Release:

[G]aia overstated the number of its paying subscribers for the first quarter of 2019 in an earnings call and a current report. According to the order, on April 29, 2019, Gaia announced that it met its previously forecasted subscriber target and "ended the [first] quarter with 562,000 paying subscribers." The order also finds that on an earnings call that same day, Tarell represented that this figure excluded "subscribers for whom we were unable to successfully charge on our last renewal due to their credit cards becoming invalid." These statements were false, according to the order, because (i) Gaia's reported number of paying subscribers for the quarter included approximately 15,000 subscribers that had been gifted a free month in mid-March 2019, and had neither paid through the end of the month nor reactivated their paying memberships; and (ii) the reported number of paying subscribers also included approximately 4,500 others that Gaia was unable to successfully charge because the associated credit cards were declined.

According to the order, Gaia also retaliated against a whistleblower who reported the subscriber count issue both internally to Gaia management and to the Commission, when it terminated the whistleblower "for cause." The order further finds that from July 2018 through August 2021, Gaia included provisions in 23 employee severance agreements that required employees to forgo any monetary recovery in connection with providing information to the Commission, and thereby impeded individuals from communicating directly with Commission staff about possible securities law violations.

SEC Shuts Down WeedGenics $60 Million Cannabis Offering Fraud (SEC Release)
https://www.sec.gov/news/press-release/2023-97
In the United States District Court for the Central District of California, the SEC filed a Complaint charging Integrated National Resources Inc. ("INR") and its woners Rolf Rolf Max Hirschmann and Patrick Earl Williams with violating the antifraud provisions of the securities laws.
https://www.sec.gov/litigation/complaints/2023/comp-pr2023-97.pdf
The Court granted the SEC emergency relief against INR, Hirschmann, Williams, and several relief defendants, including a temporary restraining order, an order freezing their assets, and appointment of a temporary receiver over INR and the entity relief defendants. As alleged in part in the SEC Release:

[S]ince at least June 2019, Hirschmann and Williams have promised investors they would use raised funds to expand WeedGenics facilities, which they guaranteed would produce up to 36 percent returns, but in reality Hirschmann and Williams never owned or operated any facilities—it was all a sham. The complaint alleges that when Hirschmann and Williams received investors' funds, they transferred the money through multiple accounts to enrich others and for personal use such as entertainment, jewelry, luxury cars, and residential real estate. The complaint further alleges that in an attempt to avoid detection, Hirschmann, acting as the face of the company, used the fake name Max Bergmann the entire time he communicated with investors, while Williams, as Vice President of the company, worked behind the scenes while spending investor funds on his more public career as a rap musician known as “BigRigBaby.”

FINRA Fines and Suspends Rep Over High-Risk Options Strategy
In the Matter of Matthew Platnico, Respondent (FINRA AWC 2020067385401)
https://www.finra.org/sites/default/files/fda_documents/2020067385401
%20Matthew%20Platnico%20CRD%202102086%20AWC%20vr.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, Matthew Platnico submitted a Letter of Acceptance, Waiver and Consent ("AWC"), which FINRA accepted. The AWC asserts that Matthew Platnico was first registered in 1991, and by 2019 was registered with Allied Millenial Partners, LLC. In accordance with the terms of the AWC, FINRA imposed upon Platnico a $10,000 fine and a nine-month suspension from associating with any FINRA member in all capacities. No restitution was imposed in consideration of a customer settlement with the firm. As alleged in part in the AWC:

Prior to September 2019, Platnico recommended a high-risk options trading strategy in a joint account held by the customer and her late husband. Platnico communicated about that strategy regularly with the customer’s husband. In September 2019, however, following the death of the customer’s husband, the customer and Platnico spoke by telephone once, and Platnico continued to execute the trading strategy in the account. Platnico did not contact the customer before placing the options transactions at issue, nor did he have discretionary trading authority in the customer’s account. Additionally, although Platnico occasionally called the customer’s son to discuss the options trading strategy employed in the customer’s account, Platnico never obtained written trading authorization from the client for her son to direct the trading in the account.

Moreover, Platnico did not conduct reasonable diligence to confirm that the options strategy continued to be suitable for the customer’s investment profile. In fact, it was not given that the strategy involved a substantial risk of loss, the customer was retired, had limited investment knowledge and experience, and the customer had only a moderate risk tolerance. Platnico placed at least 100 unsuitable and unauthorized options trades in the customer’s account from September 2019 through March 2020, which caused her to suffer substantial losses in February and March 2020.

As a result of the foregoing, Platnico violated FINRA Rules 2111 and 2010.

FINRA Bars Associated Person For Accessing Internet During Series 7 Examination
In the Matter of Antonino Giaccone, Respondent (FINRA AWC 2021072383703)
https://www.finra.org/sites/default/files/fda_documents/2021072383703
%20Lizbeth%20Saavedra%20CRD%206785677%20AWC%20lp.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, Antonino Giaccone submitted a Letter of Acceptance, Waiver and Consent ("AWC"), which FINRA accepted. The AWC asserts that Antonino Giaccone entered the industry in March 2021 with eToro USA Securities Inc. In accordance with the terms of the AWC, FINRA imposed upon Giaccone a Bar from associating with any FINRA member in all capacities. As alleged in part in the AWC:

Giaccone took the FINRA Series 7 examination on June 16, 2022. Prior to beginning the examination, Giaccone attested that he had read and would abide by the FINRA Rules of Conduct. During the examination, Giaccone accessed the internet, including online forums, to assist with answering examination questions. By cheating on the Series 7 examination, Giaccone violated FINRA Rule 1210.05 and Rule 2010, both independently and by virtue of his violation of Rule 1210.05.

= = =
5/22/2023

FINRA Pulls Its Punches In Felony Non-Disclosure Settlement (BrokeAndBroker.com Blog)

https://www.brokeandbroker.com/7045/finra-awc-tedeschi-felonies/

In a recent FINRA Acceptance, Waiver and Consent regulatory settlement, it was alleged that despite the fact that the Respondent registered representative was aware that he had been charged with two felonies, and, further, that he had discussed those charges with his brokerage firm's supervisors, he did not timely amend his Form U4 to disclose the charges. FINRA did not allege that the non-disclosures were willful. That's great news for the rep. Unfortunately, for those who labor in the industry's compliance departments and render legal services, FINRA's benevolence doesn't make sense in light of the fact pattern. Some explanation by the self-regulatory-organization was warranted. None was forthcoming.

SCOTUS Reverses 6Cir and Remands to FDIC
HARRY C. CALCUTT, III v. FEDERAL DEPOSIT INSURANCE CORPORATION (Opinion, United States Supreme Court)
https://www.supremecourt.gov/opinions/22pdf/22-714_4315.pdf
As set forth in SCOTUS' Syullabus:

The Federal Deposit Insurance Corporation (FDIC) brought an enforcement action against petitioner, the former CEO of a Michigan-based community bank, for mismanaging one of the bank’s loan relationships in the wake of the “Great Recession” of 2007–2009. After proceedings before the agency concluded, the FDIC ordered petitioner removed from office, prohibited him from further banking activities, and assessed $125,000 in civil penalties. Petitioner subsequently filed a petition for review in the Court of Appeals for the Sixth Circuit. That court determined that the FDIC had made two legal errors in adjudicating petitioner’s case. But instead of remanding the matter back to the agency, the Sixth Circuit conducted its own review of the record and concluded that substantial evidence supported the agency’s decision.

That was error. It is “a simple but fundamental rule of administrative law” that reviewing courts “must judge the propriety of [agency] action solely by the grounds invoked by the agency.” SEC v. Chenery Corp., 332 U. S. 194, 196 (1947). “[A]n agency’s discretionary order [may] be upheld,” in other words, only “on the same basis articulated in the order by the agency itself.” Burlington Truck Lines, Inc. v. United States, 371 U. S. 156, 169 (1962). By affirming the FDIC’s sanctions against petitioner based on a legal rationale different from the one adopted by the FDIC, the Sixth Circuit violated these commands. We accordingly grant the petition for certiorari limited to the first question presented; reverse the judgment of the Sixth Circuit; and order that court to remand this matter to the FDIC so it may reconsider petitioner’s case anew in a manner consistent with this opinion.

Watertown Father and Son Sentenced to Prison for Decade-Long Lottery and Tax Fraud Scheme / More than 40 Massachusetts lottery agent licenses to be revoked or suspended (DOJ Release)
https://www.justice.gov/usao-ma/pr/watertown-father-and-son-sentenced-prison-decade-long-lottery-and-tax-fraud-scheme
In the United States District Court for the District of Massachusetts, after a jury trial, Ali Jaafar, 63, and Yousef Jaafar, 29, were convicted of one count of conspiracy to defraud the Internal Revenue Service, one count of conspiracy to commit money laundering and one count each of filing a false tax return; and Ali and Yousef Jaafar were respectviely sentenced to five years in prison and to 50 months in prison, and ordered to pay $6,082,578 in restitution and forfeit their profits. Previously, Mohamed Jaafar, another son of Ali Jaafar, pled guilty to conspiracy to defraud the Internal Revenue Service and awaits sentencing. As alleged in part in the DOJ Release:

In 2019 alone, Ali Jaafar was the top individual lottery ticket casher for Massachusetts. Mohamed Jaafar was the third highest individual ticket casher and Yousef Jaafar was the fourth highest individual ticket casher. The scheme also resulted in federal tax losses of over $6 million, more than $1.2 million of which went directly to the defendants in the form of fraudulent tax refunds.

. . .

Between 2011 and 2020, the defendants purchased winning lottery tickets from individuals across Massachusetts who wanted to sell their winning tickets for a cash discount instead of claiming their prizes from the Massachusetts State Lottery Commission. This allowed the real winners to avoid identification by the Commission, which is legally required to identify lottery winners and withhold any outstanding taxes, back taxes and child support payments before paying out prizes. The defendants recruited and paid the owners of dozens of convenience stores to facilitate the transactions. After purchasing tickets from the lottery winners at a discount, using the convenience stores as go-betweens, the defendants lied to the Commission, claiming the full amount of the prize money as their own. The defendants then further profited by reporting the winnings on their income tax returns and claiming equivalent fake gambling losses as an offset, thereby avoiding federal income taxes and receiving fraudulent tax refunds.

Woman Guilty of Using Threats and Intimidation to Bilk Elderly Victim Out of More Than $1.6 Million (DOJ Release)
https://www.justice.gov/usao-ndil/pr/woman-guilty-using-threats-and-intimidation-bilk-elderly-victim-out-more-16-million
In the United States District Court for the Northern District of Illinois, Lee Turner a/k/a "Ashley Turner" pursuant to a Plea Agreement pled guilty to one count of using a facility of interstate commerce to promote and carry on unlawful activity, namely theft and intimidation
https://www.justice.gov/d9/2023-05/0076_-_0000_-_plea_agreement_as_to_lee_turner_rc_.pdf As alleged in part in the DOJ Release:

Turner admitted in a plea agreement that from 2018 to 2021 she communicated numerous threats and fraudulent statements to the victim, who was in his seventies and had limited vision. Turner’s communications threatened to expose the victim’s purported criminal activity, even though Turner had no knowledge of any such activity committed by the victim. Turner took on false personas to convey false statements purportedly from others, including alleged gang members, individuals involved in organized crime, prosecutors, journalists, and corrupt law enforcement officers.

In one example cited in the plea agreement, Turner, using the alias “Big Joe,” sent a series of messages to the victim, claiming that the victim had to pay $30,000 to prevent law enforcement from raiding the victim’s residence and a relative’s residence. On June 13, 2019, the victim paid Turner $30,000 to avoid the purported raids, the plea agreement states. The money was one of dozens of similar payments, ranging in value from $5,000 to $66,000, that the victim made to Turner. In all, Turner received $1,611,975 from the victim as a result of the scam, the plea agreement states.

FINRA Censures and Fines J.P. Morgan Securities LLC For Erroneous Orders
In the Matter of J.P. Morgan Securities LLC, Respondent (FINRA AWC 2018058111301)
https://www.finra.org/sites/default/files/fda_documents/2018058111301
%20J.P.%20Morgan%20Securities%2C%20LLC%20CRD%2079
%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, J.P. Morgan Securities LLC submitted a Letter of Acceptance, Waiver and Consent ("AWC"), which FINRA accepted. The AWC asserts that J.P. Morgan Securities LLC has been a FINRA member firm since 1936 with over 30,000 registered persons at over 5,400 branches. The AWC asserts in part under the "Background" section that [Ed: footnote omitted]:

In June 2017, the firm consented without admitting or denying the findings to a $800,000 fine and an undertaking imposed by multiple exchanges for violations of Securities Exchange Act of 1934 (Exchange Act) Rule 15c3-5 and applicable exchange rules. The exchanges found, in relevant part, that between May 2012 and April 2016, the firm failed to have reasonable controls to prevent the entry of erroneous orders by rejecting orders that exceed appropriate price or size parameters, or that indicate duplicative orders.

In November 2021, the firm consented without admitting or denying the findings to a fine of $120,000 imposed by Cboe BZX Exchange, Inc., Cboe BYX Exchange, Inc., Cboe EDGX Exchange, Inc., and Cboe EDGA Exchange, Inc. for violations of Exchange Act Rule 15c3-5. These exchanges found that, on August 7, 2018, and December 19, 2019, the firm failed to prevent the entry of erroneous orders because, in part, the firm’s thresholds for size and price controls were too high to be effective, and its supervisory system for review of soft blocks was not reasonably designed. Some of the violative conduct in this AWC relates to the same controls at issue in the aforementioned Cboe settlements.

In accordance with the terms of the 2023 AWC, FINRA imposed upon Respondent JP Morgan Securities a Censure and a $750,000 fine to be paid jointly to Nasdaq and FINRA ($187,500 is allocated to FINRA). As alleged in the "Overview" of the 2023 AWC:

From January 2019 to July 2022, the firm’s financial risk management controls and supervisory procedures were not reasonably designed to prevent certain erroneous orders that exceeded appropriate price or size parameters, on an order-by-order basis or over a short period of time, or that indicated duplicative orders. Accordingly, the firm violated Exchange Act § 15(c)(3) and Rule 15c3-5(b) and (c)(1)(ii), and FINRA Rule 2010

FINRA Suspends Rep Over Private Securities Transaction and Outside Business Activities
In the Matter of Lizbeth Saavedra, Respondent (FINRA AWC 2021072383703)
https://www.finra.org/sites/default/files/fda_documents/2021072383703
%20Lizbeth%20Saavedra%20CRD%206785677%20AWC%20lp.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, Lizbeth Saavedra submitted a Letter of Acceptance, Waiver and Consent ("AWC"), which FINRA accepted. The AWC asserts that Lizbeth Saavedra entered the industry in 2017 as a Non-Registered Fingerprint individual ("NRF") with PFS Investments Inc. and in that same year became registered.

In accordance with the terms of the AWC, FINRA imposed upon Saavedra a 60-calendar-day suspension from associating with any FINRA member in all capacities. No fine was imposed in consideration of her financial status. As alleged in part in the "Overview" portion of the AWC:

In September 2020, while associated with PFSI, Saavedra violated FINRA Rules 3280 and 2010 when she personally invested $8,000 in a merchant cash advance company (Company A), without providing prior written notice to, or obtaining written approval for her private securities transaction from, the firm.

From December 2020 to August 2021, Saavedra also violated FINRA Rules 3270 and 2010 by engaging in two outside business activities without providing prior written notice to PFSI. From December 2020 to August 2021, Saavedra worked as an administrative assistant for representatives of, and later directly for, Company A, earning approximately $30,000 in compensation. In January 2021, Saavedra created and registered a limited liability company for business.

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