Securities Industry Commentator by Bill Singer Esq

Philadelphia Woman Indicted in $68 Million Securities Fraud Scheme (DOJ Release)

FINRA Suspends Stockbroker Over Suitability Involving Disabled, Unemployed Customer. In the Matter of Hector Ramos, Respondent (FINRA AWC)

FINRA Fines and Suspends Stockbroker Over Emails. In the Matter of Donald G. Padilla, Respondent (FINRA AWC)

Wells Fargo Sues Over Transitional and Production Bonuses And Rep Fights Back (BrokeAndBroker.com Blog)

Florida Man Pleads Guilty, Sentenced to Federal Supervision for Falsely Claiming to Represent The Village People Band (DOJ Release)

CFTC Obtains $700,000 Judgment Against New York Man in Fraud and Misappropriation Scheme (CFTC Release)

CFTC Charges Kentucky Man in Multi-Million Dollar Fraud Scheme (CFTC Release)

Former Memphis Attorney Pleads Guilty to Scheme to Defraud Clients (DOJ Release)

Petition to Nominate Stephen A. Kohn for 2020 Small Firm Seat on FINRA Board of Governors

Smith managed and controlled Broad Reach Capital LP, a purported investment fund.  Broad Reach Capital was a pooled investment fund/hedge fund that was established in February 2016 and was open to accredited investors with a minimum investment of $1 million.

From February 2016 through August 2019, Smith allegedly orchestrated a scheme in which she made misrepresentations to investors and promised that she would invest their funds in particular trading strategies that Broad Reach Capital was optimally situated to execute.  Smith referred to these strategies as dividend capture, VIX Convergence, and opportunistic trading. Instead of investing the money as she advertised, Smith diverted tens of millions of dollars of investor funds out of Broad Reach Capital for purposes inconsistent with the trading strategies, including for personal use and to pay out millions of dollars to other investors.

Smith misrepresented the success and performance of Broad Reach Capital to investors and prospective investors. She touted Broad Reach Capital as a trade-focused investment fund that was highly liquid and employed a robust risk management program. Smith distributed written materials about Broad Reach Capital to investors and prospective investors that included purported historical performance information, such as claimed annual returns of over 33 percent in 2017 and positive monthly returns in 2018. In fact, the total cash and securities in the Broad Reach Capital bank and brokerage accounts decreased from December 2016 through June 2019.  For example, the written materials claimed that Broad Reach Capital had a 1.76 percent return in February 2018 when in reality, Broad Reach Capital's brokerage accounts lost over 50 percent of their value.

To lull investors and induce them to continue investing, Smith provided monthly account statements that falsely showed that their investments were safe and earning significant returns.  Smith also falsely represented that she was personally invested in Broad Reach Capital and provided a fictitious account statement to at least one investor.

As part of the fraudulent scheme, Smith collected more than $68 million of cash into Broad Reach Capital from approximately 40 investors. At its peak, however, the value of cash and securities in the Broad Reach Capital bank and brokerage accounts did not exceed $32 million. Instead of investing the money as she promised, Smith transferred tens of millions of dollars out of Broad Reach Capital to entities she controlled for purposes inconsistent with its trading strategies, including more than $10 million for mineral mining operations and $2 million for American Express credit card bills. When investors requested redemption of their investments, Smith diverted other investors' funds to pay the requested redemption amounts. 

AV opened an account with the Firm in October 2014, with Ramos as her broker. At the time, AV was disabled, unemployed, living on a fixed income, and had limited investment experience. Most of AV's net worth derived from an award she had received in a medical malpractice suit and was invested in her account at the Firm. 

At the end of January 2015, AV's account was valued at approximately $114,000, which represented approximately 75% of her net worth. Starting in February 2015, Ramos recommended that AV invest primarily in four energy sector securities. Despite the volatility of the energy market, the volatility of the specific securities, and AV's investment profile, Ramos repeatedly recommended that AV increase her positions in energy sector securities, including two additional energy sector securities, throughout the Relevant Period. Further, Ramos recommended that AV increase her investment in one coal company, even after that company issued a profit warning and its stock price dropped more than 22% in one day. By September 2015, approximately 99% of AV's account value was invested in four energy sector securities, with over 50% of AV's account invested in the coal company discussed above. 

On March 9, 2016. AV's account at the Firm was closed and her balance transferred to Westpark with Ramos as her broker. As of March 2016, more than 96% of AV's account value was invested in energy sector securities, and more than 80% was invested in the one coal company. AV realized losses totaling $86,891. 

[R]espondent sent numerous electronic communications via two unapproved email accounts to Firm customers regarding Firm business such as, among other things, account funding confirmations, portfolio recommendations, fee summaries, and trade confirmations. Respondent hid the unapproved email accounts from the Firm during branch audits.

[I]n August 2015, The Mill Casino, owned and operated by the Coquille Indian Tribe, received a flier from Harlib advertising the opportunity to book The Village People for a show at the casino. Casino employees contacted Harlib, who spoke with them about dates, pricing, and other matters involved in the booking. The same day, Harlib sent the casino a brochure with information about his company, Premier Entertainment. Harlib claimed the band had a show in Las Vegas, Nevada the night before one of the dates discussed with the casino and, therefore, traveling to North Bend would not be an issue.

Later, Harlib emailed the casino an artistic engagement contract, which the casino signed and returned to Harlib with a check for $12,500. Harlib cashed the check two days later. In January 2016, the casino discovered that The Village People were scheduled to appear in Florida the same day they were booked to play in North Bend. After having difficulty reaching Harlib, the casino contacted another representative of the band. The representative confirmed that Harlib did not have any association with the band. Harlib later admitted he had no authority to book the band.

Harlib's history of frauds and swindles dates back decades, to at least 1992. In 2004, he was convicted of third degree grand theft in Florida for the same exact scheme: contracting with two victims to have The Temptations, The Supremes, and Jimmie Walker perform at their venues. After spending five years in prison for that conviction, Harlib spent another five years in prison for impersonating a doctor and possessing a variety of prescription medications.

[B]eginning in late 2015 and lasting until October of 2019, Alper fraudulently solicited members of the public to trade futures and foreign currency (forex) contracts through managed accounts.  To solicit customer funds, Alper made material misrepresentations and omissions, including that he was an experienced and successful trader who controlled a large-dollar trading account at a UK-based trading firm. Additionally, Alper never opened trading accounts for his customers as promised, but instead misappropriated virtually all of the funds provided to him to pay his own personal expenses, including, among other things, international travel, restaurant bills, and car rentals. To conceal his misappropriation, Alper sent false statements to his customers reporting profits in the fictitious accounts and lied to customers about conditions that purportedly prevented him from honoring their withdrawal requests.

[S]ince at least September 2018, Evans accepted at least $10 million from clients of which he misappropriated at least $8.4 million. Evans allegedly paid some clients with non-existent profits in the manner of a Ponzi scheme while diverting other funds for his personal use. Although Evans promised participants that they would enjoy double-digit profits, the transactions he engaged in resulted in losses he failed to disclose. The complaint further alleges that Evans acted in a capacity requiring him to register with the CFTC as a commodity pool operator but failed to do so. 

A federal grand jury returned an indictment against Skouteris in August 2019, alleging that between 2011 and January 2016, Skouteris engaged in a scheme to defraud his clients by settling cases without notifying his clients and forging their endorsements on the settlement checks made jointly payable to him and the client. The indictment alleged that Skouteris then deposited the checks to bank accounts he maintained at Suntrust Bank and First Tennessee Bank. According to the indictment, Skouteris fraudulently obtained in excess of $600,000 during the course of the scheme.

• Securities Industry Commentator
• Bill Singer