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)
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According to the lawsuit and Bass’ television interview, he gave the SEC everything it needed to take on UDF, then ignored him when he asked to be paid for his efforts.
“They denied our award when we gave them an 80-page PowerPoint that was connecting all the dots for them,” Bass said in the interview. “The SEC has to do a better job with whistleblowers. It’s that simple.”
Long Island Man Sentenced to 41 Months in Prison for Multi-Million-Dollar Ponzi Scheme (DOJ Release)
In the United States District Court for the Eastern District of New York, John Quadrino, 57, pled guilty to one count of conspiring to commit wire fraud; and he was sentenced to 41 months in prison, and ordered to pay over $3.3 million restitution. As alleged in part in the DOJ Release:
Quadrino represented to potential investors that the Gold Purchasing Companies were involved in the sale of gold, jewelry and diamonds to refineries and jewelers. He asked investors to invest large sums of money, for fixed periods of time, in exchange for a guaranteed, fixed rate of return at the end of the agreed upon time period. Quadrino never actually purchased gold, jewelry or diamonds in any significant quantities. Instead, Quadrino systematically engaged in a classic Ponzi scheme, over the course of five years, returning investor principal and interest from the investor capital of other victims. As a result, investors invested approximately $13.1 million with the Gold Purchasing Companies and suffered total losses of approximately $3.3 million. The defendant used investor capital to issue checks to himself and to pay for his personal gambling expenses.
SEC Resolves Fraud Case Against Former CEO of New York-Based iFresh, Inc. (SEC)
Without admitting or denying the allegations in an SEC Complaint filed in the United States District Court for the Eastern District of New York, Long Deng (former Chief Executive Officer of iFresh, Inc.) consented to the entry of a Final Judgment https://www.sec.gov/litigation/litreleases/2023/judg25735-deng.pdf in which he agreed to be permanently enjoined from Section 17(a) of the Securities Act, and Section 10(b) of the Securities Exchange Act and Rule 10b-5 thereunder, or from aiding and abetting violations of Sections 13(a), 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act and Rules 12b-20 and 13a-1 thereunder. Also, Deng agreed to pay $44,706 in disgorgement and prejudgment interest, a $90,000 civil penalty, and to be Barred from acting as an officer or director of any public company for a period of five years. The case against iFresh, Inc. continues. As alleged in part in the SEC Release, public issuer iFresh, Inc.:
repeatedly filed materially inaccurate financial statements that failed to fully disclose related party transactions from August 10, 2016 through August 13, 2020 that were related to Deng. During that time iFresh failed to properly disclose numerous transactions with entities related to Deng and his brother. iFresh's financial statements were allegedly materially misstated in the each of the years 2016 through 2020. In addition, between 2017 and 2020, from 18% to 54% of iFresh's accounts receivable allegedly were from undisclosed related party transactions. The complaint further alleged that between 2016 and 2020, iFresh failed to disclose over $12 million in payments to a company owned by Deng's brother. Finally, the complaint alleged that by misrepresenting information about iFresh's related party transactions, iFresh deprived investors of the true scope of iFresh and Deng's intertwined business interests.
SEC Awards Over $600,000 Whistleblower Award to Claimant
Order Determining Whistleblower Award Claim ('34 Act Release No. 34-97573; Whistleblower Award Proc. File No. 2023-60)
The Claims Review Staff ("CRS") issued a Preliminary Determination recommending a Whistleblower Award of over $600,000 to Claimant. The Commission ordered that CRS's recommendations be approved. The Order asserts in part that:
[C]laimant provided substantial, ongoing assistance, including communicating with Commission staff multiple times, and providing documents and testimony, which helped expedite the staff’s investigation.
“Bear in the Woods” Remarks before the Investment Company Institute by SEC Chair Gary Gensler
Thank you, Jose. As is customary, I’d like to note that my views are my own as Chair of the Securities and Exchange Commission, and I’m not speaking on behalf of my fellow Commissioners or the SEC staff.
Investment Company Act of 1940
There is a saying when you’re in the woods. “You don’t have to outrun the bear; you just have to outrun one of your fellow campers.”
A bit gruesome, yet this helps explain why investors might try to cash out of investments before the proverbial bear—of dilution and illiquidity—catches them.
It also helps explain why savers might try to cash out of deposits before that proverbial bear catches them at the bank.
Bear this in mind, this is not a new feature of finance; it has been around for centuries.
Runs, when otherwise uncorrelated actors suddenly become correlated, have brought down many a financial firm over time. Financial fires at banks and nonbanks alike have led policymakers to put in place laws to prevent such fires and associated runs, as well as to help fire departments contain fires.
The Panic of 1907 ultimately led to President Wilson’s reforms to establish the Federal Reserve with authorities both as a regulator and as a form of a fire department.
The 1929 Crash and ensuing Great Depression led President Roosevelt and Congress to set up the Federal Deposit Insurance Corporation and SEC.
When I started at Goldman Sachs, there was lore about how the firm barely survived the crash, in part due to a closed-end fund, Goldman Sachs Trading Corp. Author and journalist William Cohan said it “nearly bankrupted all the investors that invested in it; it was a bit of a Ponzi scheme.”
Due to many failures of investment trusts and investment companies, Congress adopted the Investment Company Act and Investment Advisers Act of 1940, also the year the Investment Company Institute was established. Among the abuses that served as a backdrop for the Investment Company Act, were “practices which resulted in substantial dilution of investors’ interests.”
In advocating for passage of the Acts, SEC Commissioner Robert Healy said, “The functions of investment trusts should be to afford the small investor an opportunity to spread his investment risks by a diversification of security holdings.”
Benefits to Investors
Well-regulated collective investment vehicles—as opposed to the failures of the investment trusts of the 1920s and 1930s—are among the great financial innovations of the last 90 years. They provide everyday investors diversification and lower costs than buying individual stocks or bonds. As Jack Bogle aptly said: “Don’t look for the needle in the haystack. Just buy the haystack.”
Registered investment funds have grown to more than $30 trillion, with more than 16,000 funds. More than half of American households and more than 120 million individual Americans own registered funds. When I started on Wall Street, it was less than 6 percent of households.
There have been significant innovations over the decades. Money market funds came about in the early 1970s. Individual retirement accounts and 401(k)s began investing in mutual funds after the Revenue Act of 1978. Exchange-traded funds (ETFs) brought even lower costs to investors in the 1990s.
Fund Dilution and Liquidity
The 1940 Acts along with SEC rules to implement them addressed the failures of the Depression-era investment funds and have lowered the risk of financial fires spreading from funds. They’ve done so through fiduciary duty obligations, liquidity requirements, leverage limits, daily net-asset valuations, and pricing rules for sales and redemptions to help guard against dilution.
To be sure, however, risk remains—particularly in times of stress. Money market funds and open-end bond funds, by their design, have a potential liquidity mismatch—between investors’ ability to redeem daily on the one hand, and on the other, funds’ securities holdings that may have lower liquidity.
Indeed, in 2008 and 2020, sparks emanated from registered funds, particularly money market and open-end bond funds, putting everyday Americans at risk.
In 2008, after one money market fund “broke the buck,” the government’s fire departments stepped in with extraordinary actions. The Federal Reserve established liquidity facilities, and the Department of the Treasury temporarily guaranteed money market funds.
In response, the SEC sought to address structural issues in these funds through a series of reforms adopted in 2010 and 2014.
At the onset of COVID-19, during the “dash for cash,” again there were calls for fire department support both for money market and open-end bond funds—in other words, Federal Reserve support.
I’m not going to name any names, but you in the industry who called the SEC and other agencies know who you are.
The government stepped in yet again to stabilize short-term funding markets, establishing the Money Market Mutual Fund Liquidity Facility and other programs. It also, for the first time, broadened that support to the corporate and municipal bond markets, including through the Secondary Market Corporate Credit Facility and the Municipal Liquidity Facility.
As these real-world events demonstrate, stress on these funds is not unsubstantiated hypothesis.
President’s Working Group and Financial Stability Oversight Council reports under several Treasury secretaries and presidents have written about them. The Financial Stability Board has written about them as well.
Liquidity and dilution management has been a bedrock principle of open-end funds since the passing of the Investment Company Act. As Commissioner Healy said in the hearings leading to the Act: “Due to the right of the stockholder to come in and demand a redemption, the [open-end fund] has to keep itself in a very liquid position. That is, it has to be able to turn its securities into money on very short notice.”
Recent events are a reminder there is more work to be done. Thus, we’ve put out proposals intended to address the structural issues and enhance liquidity risk management for both money market and open-end funds.
Money Market Funds
Money market funds came about in the 1970s, offering a cash management tool to investors. This was a time when high inflation surpassed Federal Reserve regulations limiting what banks could pay on deposits. Money market funds gave shareholders market-based returns fully backed one to one in the markets.
Money market funds and banks both are involved in the transformation of maturity and liquidity risk. Thus, policymakers over the years have put in place laws and rules to address such risks.
Based on the reforms of the 1940s and subsequent SEC rules, money market funds’ assets are valued on a daily basis as well as priced for redeeming and purchasing shareholders.
Money market funds are invested dollar for dollar in readily marketable securities—in essence, a narrow bank concept.
Further, money market funds are invested in instruments with short maturity duration. Subsequent to the SEC reforms adopted in 2014, nearly 80 percent of money market fund assets are in government funds. These funds primarily are invested in and funding the U.S. Treasury and Federal Reserve.
Such money market funds, though, are not without risk. Remember that bear rattling the campers—there still is the risk of runs and resulting dilution. Money market funds also have no capital buffer.
Money market funds now stand at $5.8 trillion. During the last year, when interest rates were rising, we saw an increase of $717 billion in these funds.
Further, given the rise of the digital economy coupled with the higher-rate environment, we might see consequential changes to the deposit and banking landscape. Money market funds could potentially take a greater share.
This is all the more reason to update rules last addressed in 2014 to lower the chance the fire department, the Federal Reserve, has to be called in yet again.
Given the experience of the last nine years, we proposed changing a rule from 2014 that could be procyclical in times of stress. The proposal would prevent money market funds from imposing limits on redemptions in times of stress, such as so-called “gates.”
We also proposed enhanced liquidity requirements.
To better address pricing and reduce dilution in times of stress, we proposed so-called swing pricing as well as alternatives regarding liquidity fees. Such swing pricing or liquidity fees would apply only to institutional prime and tax-exempt money market funds, less than 20 percent of the field. These institutional funds invest in bank-issued commercial paper and certificates of deposit, which tend to be illiquid in stress times.
Aside from providing investors diversification, open-end funds also provide maturity and liquidity transformation.
Lest we forget, the Federal Reserve in 2020 bought corporate bond ETFs, amongst other actions, to alleviate stresses in the markets. Thus, we’ve issued proposals regarding the liquidity, pricing, and plumbing of these funds.
First, we proposed updating the 2016 liquidity rule. The proposal would establish minimum standards for liquidity classifications, designed to prevent funds from overestimating the liquidity of their investments.
Second, as to pricing, we put forward a number of alternatives. These alternatives—either within the framework of swing pricing or liquidity fees—are being considered with the goal that redeeming shareholders bear the appropriate costs associated with their redemptions, particularly in times of stress.
Third, as to the plumbing, we proposed to shorten the lag between when investors’ orders are placed and when the fund receives those orders. Such lag in the data getting to fund companies can create vulnerabilities; shortening that lag can lessen risk.
Similar Products Overseen by Bank Regulators
Before I close, I want to touch upon two related forms of collective investment vehicles overseen by bank regulators, short-term investment funds and collective investment funds.
Such funds managed by bank trust departments or for certain tax-qualified retirement funds are exempt from SEC oversight.
Short-term investment funds, estimated to total more than $300 billion in assets, operate similarly to money market funds. Collective investment funds are estimated to be $7 trillion, $5 trillion at the federal level and $2 trillion at the state bank level. The Office of the Comptroller of the Currency last substantively revised rules for short-term investment funds in 2012.
Rules for these funds lack limits on illiquid investments and minimum levels of liquid assets. There is no limit on leverage, requirement for regular reporting on holdings to investors, or requirement for an independent board.
We know from history that financial fires can spread from regulatory gaps as well as herding and network interconnectedness. Such gaps include when regulations don’t treat like activities alike. Market participants may then seek to arbitrage such differences.
We’re in discussions with the bank regulators on these topics.
I hope you can tell from my bear hug of collective investment vehicles that I believe they have really benefited investors. That doesn’t mean, though, that we don’t need to protect investors from the bear of dilution.
To me, this is about getting back to what Roosevelt and Congress were trying to address in 1940—that funds are liquid to meet redemptions, and valuations appropriately reflect the prices of the underlying portfolio.
We’ve benefitted from a great deal of feedback on the SEC’s proposals. The goal, if adopted, is that the rules help keep investors from getting eaten by the bear and minimize calls for fire department support.
 See “History of Economic Turmoil in the U.S. Part 1 of 3 – The Early Years,” available at https://americandeposits.com/history-economic-turmoil-united-states-early-years/.
 See Federal Deposit Insurance Corporation, “Historical Timeline,” available at https://www.fdic.gov/about/history/timeline/1930s.html.
 See Library of Congress, “National Recovery Administration (NRA) and the New Deal: A Resource Guide,” available at https://guides.loc.gov/national-recovery-administration/new-
 See “Goldman Sachs’ Long History Of ‘Money And Power’” (April 11, 2011), available at https://www.npr.org/2011/04/11/135246269/goldman-sachs-long-history-of-money-and-power.
 See Investment Company Institute, “History of the Investment Company Institute,” available at https://www.ici.org/ici-history.
 See Statement of SEC Commissioner Robert E. Healy before subcommittee of Committee on Banking and Currency on Wagner-Lea Act, S. 2580, to regulate investment trusts and investment companies (April 2, 1940), at 5, available at https://www.sec.gov/news/speech/1940/040240healy.pdf.
 Ibid at 13.
 See Paul A. Merriman, “The genius of John Bogle in 9 quotes” (Nov. 25, 2016), available at
 Staff analysis of Form N-CEN filings as of April 2023.
 See Investment Company Institute “2023 Investment Company Fact Book” (May 2023), available at https://www.ici.org/system/files/2023-05/2023-factbook.pdf.
 See Investment Company Institute, “ICI Research Perspective: Ownership of Mutual Funds and Shareholder Sentiment, 2022” (October 2022), at 1, available at https://www.ici.org/system/files/2022-10/per28-09.pdf.
 See Karen Arenson, “Impact of Money Market Funds” (March 6, 1979), available at https://www.nytimes.com/1979/03/06/archives/impact-of-money-market-funds-rapid-growth-could-distort-feds.html.
 See Kathleen Elkins, “A brief history of the 401(k), which changed how Americans retire” (Jan. 24, 2017), available at https://www.cnbc.com/2017/01/04/a-brief-history-of-the-401k-which-changed-how-americans-retire.html.
 See Bob Pisani, “The first ETF is 30 years old this week. It launched a revolution in low-cost investing,” (Jan. 23, 2023), available at “https://www.cnbc.com/2023/01/23/the-first-etf-is-30-years-old-this-week-it-launched-a-revolution-in-low-cost-investing.html.
 See Financial Stability Oversight Council, “Annual Report” (December 16, 2022), available at https://home.treasury.gov/system/files/261/FSOC2022AnnualReport.pdf.
 See Federal Reserve, “Money Market Mutual Fund Liquidity Facility,” available at (https://www.federalreserve.gov/monetarypolicy/mmlf.htm.
 See Federal Reserve, “Secondary Market Corporate Credit Facility,” available at https://www.federalreserve.gov/monetarypolicy/smccf.htm.
 See Federal Reserve, “Municipal Liquidity Facility,” available at https://www.federalreserve.gov/monetarypolicy/muni.htm.
 See “President’s Working Group on Financial Markets Releases Report on Money Market Funds” (Dec. 22, 2020), available at https://home.treasury.gov/news/press-releases/sm1219.
 See Gary Gensler, “Money Market Funds Statement” (June 11, 2021), available at https://www.sec.gov/news/public-statement/gensler-fsoc-money-market-funds-2021-06-11.
 See “FSB publishes final report with policy proposals to enhance money market fund resilience” (Oct. 11, 2021), available at https://www.fsb.org/2021/10/fsb-publishes-final-report-with-policy-proposals-to-enhance-money-market-fund-resilience/ to-enhance-money-market-fund-resilience/.
 See Investment Trusts and Investment Companies: Hearings on H.R. 10065 before a Subcommittee of the House Committee on Interstate and Foreign Commerce, 76th Cong., 3d Sess. 112 (1940), at 57 (Statement of Robert E. Healy). The SEC said in a report in 1942: “Open-end investment companies, because of their security holders’ right to compel redemption of their shares by the company at any time, are compelled to invest their funds predominantly in readily marketable securities.” See Investment Trusts and Investment Companies: Report of the Securities and Exchange Commission (1942), at 76.
 During the 1970s, the Federal Reserve Regulation Q limit ranged from 4.75 percent to 5.25 percent, while three-month Treasury bill rates rose to exceed 14 percent. See R. Alton Gilbert, “Requiem for Regulation Q: What It Did and Why It Passed Away” (February 1986), available at https://files.stlouisfed.org/files/htdocs/publications/review/86/02/Requiem_Feb1986.pdf. See also “The 1970s: New Inflation High Interest Rates, and New Competition” (1991) available at https://fraser.stlouisfed.org/files/docs/publications/ERP/pages/6688_1990-1994.pdf.
 Based on Form N-MFP data (77 percent).
 Per Form N-MFP filings.
 3(c)(3) and 3(c)(11) of the Investment Company Act.
 Estimates are based on SEC staff analysis of data from FFIEC Call Reports, Morningstar, Brightscope, and other industry reporting.
 12 CFR § 9.18.
CFTC Orders a California Commodity Trading Advisor to Pay More Than $4 Million for Fraud and Registration Violations (CFTC Release)
A CFTC Order filed/settled charges against Sharief Deona McDowell
https://www.cftc.gov/media/8621/enfshariefmcdowellorder052523/download for fraud in connection with options on commodity futures contracts by a commodity trading advisor ("CTA") and for failing to register as a CTA. The CFTC Order imposed a Cease-and-Desist and and permanent registration and trading bans upon McDowell, and required her to pay $2,376,509.96 in restitution and a $2,376,509.96 civil monetary penalty.. As alleged in part in the CFTC Release:
The order finds that from October 2018 through approximately March 2022, McDowell, doing business through a company she founded known as Presidential Investments LLC, engaged in a fraudulent scheme through which she solicited and accepted more than $2 million from at least 29 individuals or entities for the purported purpose of trading commodity futures contracts and options on commodity futures contracts on their behalf and then misappropriated the funds for her personal use.
By claiming to engage in discretionary trading of futures and options contracts on behalf of her clients, McDowell acted as a CTA, without being registered or exempt from registration with the CFTC as required by the CEA. In addition, in telephone, text message, and email communications with prospective and existing clients, McDowell knowingly made material misrepresentations and omitted material facts about her use of client funds and the profits purportedly earned by her clients. Among other misrepresentations, McDowell told clients that she used the funds they transferred to Presidential Investments to trade options and futures contracts on their behalf. Contrary to these statements, McDowell did not conduct any trading on behalf of her clients and instead knowingly misappropriated client funds for her direct personal benefit. To conceal and perpetuate her fraudulent scheme, McDowell issued fabricated trade confirmations and updates to clients that falsely reflected profitable returns from her supposed trading activity.
Parallel Criminal Action
On November 30, 2022, McDowell entered a guilty plea in a related criminal case in the U.S. District Court for the Central District of California. She is scheduled to be sentenced on June 30, 2023. [See United States v. McDowell, 5:22-cr-00274-AB]
FINRA Censures and Fines Vanguard Marketing Corp. for Overstating Yield and Income
In the Matter of Vanguard Marketing Corp., Respondent (FINRA AWC 2018058111301)
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, Vanguard Marketing Corp. submitted a Letter of Acceptance, Waiver and Consent ("AWC"), which FINRA accepted. The AWC asserts that Vanguard Marketing Corp. has been a FINRA member firm since 1977 with 8,000 registered representatives at 13 branches. In accordance with the terms of the AWC, FINRA imposed upon Financial Security Management, Incorporated a Censure and a $800,000 fine. As alleged in the "Overview" portion of the AWC:
From November 2019 to September 2020, VMC overstated projected yield and projected annual income for nine money market funds on approximately 8.5 million VMC account statements. From at least October 2019 to June 2021, certain VMC account statements inaccurately presented market appreciation/depreciation and investment returns. Additionally, VMC failed to reasonably supervise its account statements by failing to timely address customer reports of inaccuracies. Therefore, VMC violated FINRA Rules 2210, 3110, 4511 and 2010.
Former Morgan Stanley Financial Advisor Sentenced to Over 7 Years in Prison for Executing a Multimillion Dollar Ponzi Scheme (DOJ Release)
In the United States District Court for the Eastern District of North Carolina, Shawn Edward Good pled guilty to wire fraud and money laundering; and he was sentenced to 87 months in prison plus three years of supervised release, and ordered to pay $3,619,594 in restitution to victims. As alleged in part in the DOJ Release:
[G]ood was employed as a registered representative and investment advisor for Morgan Stanley Smith Barney, LLC in Wilmington. From 2012 to February 2022, Good executed a scheme to obtain money through an investment fraud commonly known as a Ponzi scheme. Specifically, Good solicited investments from business clients and others for purported real estate projects and tax-free municipal bonds, touting these opportunities as low-risk investments that would pay returns of between 6% and 10% over three- or six-month terms.
To effectuate these investments, Good caused some clients to obtain a liquid asset line of credit (LAL) secured by their Morgan Stanley investment or retirement accounts. Good directed clients to transfer the LAL funds to their personal bank accounts and then wire the funds directly to Good’s own personal bank account. Other victims paid Good by paper check and wire transfers using funds derived from sources other than Morgan Stanley accounts.
At least 12 victims invested approximately $7,246,300 based on false statements and misrepresentations made by Good. Instead of investing in land development or bonds, Good used the money for personal expenditures including his Wilmington residence; a condominium in Florida; luxury vehicles including a Mercedes Benz, a Porsche Boxster, a Tesla Model 3, an Alpha Romeo Stelvio, and a Lexus RX350; fine dining; and vacations to Paris, France; Cinca Terra, Italy; Jackson, Wyoming; Las Vegas, Nevada; and other destinations. To lend credibility to the Ponzi scheme and to elude detection, Good also used a portion of investor funds to make payments to earlier investors.
Bill Singer's Comment: Take note -- careful note -- that Good's fraud transpired over a decade . . . not months or a few years. Moreover, those victimized were at least 12 in number and were defrauded to the extent of $7,246,300. Despite all of Wall Street's layers of regulators with their own set of rules and regulations, and the so-called frontline of defense in the form of in-house compliance staff, this fraud continued undetected and unchecked for far too long. That's a sobering lesson and warning!
Two Men Sentenced in Multimillion Dollar Fraud Scheme (DOJ Release)
In the United States District Court for the Eastern District of Virginia, Carl Anthony McNeill, 59, and Richard Thornhill Crock, 75, were each sentenced to 46 months in prison and ordered to pay, respectively, restitutuion in the amount of over $5.8 million and over $2.4 million. Co-defendants Jayson Ryman Colavalla and Ksyntoilious Miller await sentencing for their roles in the conspiracy. As alleged in part in the DOJ Release:
[F]rom approximately September 2016 to March 2021, Carl Anthony McNeill, 59, of Mechanicsburg, Pennsylvania, and Richard Thornhill Crock, 75, of Mableton, Georgia, along with other co-conspirators, ran an advance fee scheme targeting individuals, small businesses, churches, and other entities that could not obtain conventional lines of credit though banks. The co-conspirators promised these victims that, using their relationships with major investment banks, the co-conspirators could obtain lines of credit for the victims. The scheme required that the victims advance a deposit consisting of 10-15% of the line of credit sought, representing that the deposit would be held in escrow and returned if they did not obtain the line of credit. In fact, the co-conspirators did not have any relationships with the investment banks mentioned in their dealings with the victims, and did not safeguard the victims' funds in escrow.
The fraudulently obtained funds from victims were misapplied to pay co-conspirators; cover the payroll and operating expenses of C&D Corporate Services, the company McNeill used to commit the fraud; and pay frustrated victims seeking the return of deposited money. Crock also falsely represented to victims that their advanced funds would be insured via policies issued through a Georgia-based insurance company. These policies were also fraudulent, as the insurance company did not have sufficient assets on hand to compensate victims under such policies.
Bill Singer's Comment: Oh for godsakes, seriously? This scam is still extant and folks are still falling for it? Oh well, only goes to show you how a well-used con still retains vitality over the decades. One thing about this DOJ Release that annoys me is the lack of indication as to whether the Defendants were convicted after trial, pled guilty, or any explanation whatsoever as how they came to be sentenced.
SEC Charges Investment Adviser for Compliance Failures (SEC Release)
Without admitting or denying the findings in an SEC Order
https://www.sec.gov/litigation/admin/2023/ia-6315.pdf that it had violated Section 206(4) of the Investment Advisers Act of 1940 and Rule 206(4)-7 thereunder, Sciens Diversified Managers, LLC (successor to Sciens Investment Management, LLC) consented to a Cease-and-Desist Order, Censure, the payment of a civil penalty of $275,000 on a joint-and-several basis, and undertakings that include retaining an independent compliance consultant. As alleged in part in the SEC Release:
According to the SEC's order, Sciens charges management fees to the private funds quarterly based on its determinations of the fund net asset value, and these funds primarily invest in equity, debt of private companies or assets for which there is frequently no readily available market pricing information and no significant observable inputs are available. The order finds that since at least 2016, Sciens' written policies and procedures were not reasonably designed in light of the nature of the investment mandates of the funds, giving only minimal guidance regarding how to value the investments in accordance with Generally Accepted Accounting Principles and other standards set forth in the funds' offering documents.
SEC Obtains Final Judgments Against Stock Promoter and Microcap Issuer in Penny Stock Fraud Scheme (SEC Release)
In the United States District Court for the Southern District of New York, Final Judgment were entered against stock promoter Eleazar Kauderer
https://www.sec.gov/litigation/litreleases/2023/judg25734-kauderer.pdf and HempAmericana, Inc.
https://www.sec.gov/litigation/complaints/2023/comp25734-hemamericana.pdf Without admitting or denying the allegations in the SEC's Complaint, Kauderer consented to the entry of a final judgment permanently enjoining him from violating Section 17(a) of the Securities Act of 1933, Section 10(b) of the Securities Exchange Act and Rule 10b-5 thereunder, imposing a five-year penny stock bar and ordering him to pay $888,012 in disgorgement and $23,782.74 in prejudgment interest. Due to Kauderer's significant cooperation, no penalty was sought.The Final Judgment against HempAmericana was entered on default, and enjoined the company from future violations of the antifraud provisions of Section 17(a) of the Securities Act, Section 10(b) of the Exchange Act and Rule 10b-5 thereunder. Previously, Final Judgments enjoined four other defendants
https://www.sec.gov/litigation/litreleases/2023/judg25734-gpl.pdf from violating the antifraud provisions of Section 17(a) of the Securities Act, Section 10(b) of the Exchange Act and Rule 10b-5 thereunder. As alleged in part in the SEC Release:
On May 2, 2023, the U.S. District Court for the Southern District of New York entered a final judgment on default against HempAmericana. The SEC's complaint against HempAmericana and others, filed on August 13, 2021, alleged that, from 2017 through 2019, HempAmericana schemed with the largest investor in the company's Regulation A stock offerings to use a significant percentage of the offering proceeds to secretly promote the stock so that the investor could sell its shares at a profit. The promotions funded by HempAmericana did not disclose the source of the funding, or the investor's intent to sell stock during the promotions. HempAmericana allegedly further misled the public by failing to disclose in offering circulars filed with the Commission that a significant percentage of its Regulation A offering proceeds would be used for stock promotion.
CFTC Charges Five Defendants with Fraudulent Digital Assets Trading Scheme (CFTC Release)
In the United States District Court for the Central District of California, the CFTC filed a Complaint against David Carmona, Juan Arellano Parra, Moses Valdez, David Brend, and Marco A. Ruiz Ochoa all jointly doing business as Icomtech
https://www.cftc.gov/media/8616/enfcarmonacomplaint052423/download . As alleged in part in the CFTC Release:
[F]rom approximately August 2018 through December 2019, to get actual and prospective customers to give them money, the defendants and other Icomtech agents falsely represented they would use the money to trade Bitcoin and other digital asset commodities for the customers; that Icomtech would provide “daily returns” of between 0.9% to 2.8% on the customers’ money from trading; and Icomtech would double the customers’ money in approximately four to eight months from trading. As alleged in the complaint, in actuality, the defendants did not trade Bitcoin or other digital asset commodities for the customers as they said, and did not earn daily returns nor double the customers’ investments based on trading. Instead, the defendants misappropriated the customer funds, and some customers lost all of their money.
Parallel Criminal Action
On October 13, 2022, the U.S. Attorney’s Office for the Southern District of New York (SDNY) unsealed an indictment charging Carmona, Arellano, Valdez, Brend and Ruiz with wire fraud in connection with the Icomtech scheme. United States v. Carmona, 1:22-cr-00551-JLR (S.D.N.Y October 13, 2022), ECF No. 2 (indictment).
FINRA Censures and Fines Firm for BSA/AML Compliance
In the Matter of Financial Security Management, Incorporated, Respondent (FINRA AWC 2018058111301)
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, Financial Security Management, Incorporated submitted a Letter of Acceptance, Waiver and Consent ("AWC"), which FINRA accepted. The AWC asserts that Financial Security Management, Incorporated has been a FINRA member firm since 1997 with 43 registered representatives at six branches. In accordance with the terms of the AWC, FINRA imposed upon Financial Security Management, Incorporated a Censure and a $25,000 fine. As alleged in part in the AWC:
Between March 2019 and February 2021 FSM lacked reasonable procedures to ensure that a firm employee was actually and timely reviewing and responding to 314(a) requests from FinCEN. During this period, the firm failed to search its records in response to any 314(a) requests. The firm's written procedures failed to designate a
responsible person by name or title. The wTitten procedures also failed to explain any steps the responsible person was supposed to take to search firm. records in response to such requests. In addition, the written procedures failed to state how any such steps
should be documented. The firm designated an employee to complete such searches during the relevant period, but the employee failed to do so and the firm had no process for checking that the searches were being completed. In February 2021, FSM updated its wiitten procedures and systems to address compliance with 314(a) requests.
By failing to establish and implement policies, procedures, and internal controls reasonably designed to achieve compliance with the BSA and implementing regulations, Respondent violated FIN RA Rules 3310(b) and 2010.
. . .
Although FSM conducted annual testing of its AML compliance program between 2017 and 2020, the individual who conducted it reported to the firm's AML compliance officer and therefore was not "independent" within the meaning ofFINRA Rule 33I0(c). This individual also lacked training and experience concerning applicable requirements under the BSA and its implementing regulations. Finally, FSM also failed to conduct a risk-based review of its full AML program and its compliance with the BSA mid its
implementing regulations. The testing was limited to the review of a random sample of accounts for compliance with the firm's know-your-customer and customer identification program requirements. The firm took no other steps to review or test any other processes
outlined in the finn's written AML procedures, including its process for searching firm records in response to FinCEN 314(a) requests. Since 2021, FSM has used a qualified outside party to perform annual AML testing.
By failing to conduct annual independent testing of its AML compliance program,Respondent violated FINRA Rules 3310(c) and 2010.
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)
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.
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.
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:
Florida man charged in multi-million dollar elder fraud scheme (DOJ Release)
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)
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)
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)
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 RolfRolf Max Hirschmann and Patrick Earl Williams with violating the antifraud provisions of the securities laws.
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)
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)
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.
SCOTUS Reverses 6Cir and Remands to FDIC
HARRY C. CALCUTT, III v. FEDERAL DEPOSIT INSURANCE CORPORATION (Opinion, United States Supreme Court)
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)
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)
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)
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)
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.