Securities Industry Commentator by Bill Singer Esq

Interactive Brokers, Robinhood glitches send users scrambling (Reuters)

Day Traders Roiled By Interactive Brokers, Robinhood Outages (Bloomberg)

Outrageous Romance Scam Earns Even More Outrageous Sentence (BrokeAndBroker.com Blog)

Texas Man Pleads Guilty to Felony in $375,000 Investment Scheme (DOJ Release)

SEC Obtains Final Judgment Against Company for Misleading Covid-19-Related Claims (SEC Release)

DISH Network to Pay $210 Million for Telemarketing Violations / DISH to pay historic civil penalty in a telemarketing enforcement action (DOJ Release)

Merrill to pay $26 million to New Hampshire, former NH Governor to settle churning allegations (CNBC)

Cameroonian Operator Charged in Fraudulent Online "Puppy Scam" that Exploited the COVID-19 Pandemic

SEC Issues Multiple Whistleblower Awards Totaling Nearly $3 Million (SEC Release)

FINRA Censures and Fines Mizuho Securities for Electronic Communication Supervisory Failures Involving Senior Management

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

"It is a nightmare holding a position you cannot close at will. It's like sitting in a car without brakes," a Berlin-based Interactive Brokers user told Reuters.

"Please fix the app we can't sell or buy, for options trading it's killing us every time service is down," a Robinhood user said on Twitter.

Retail brokers have been under scrutiny over outages and spent months shoring up their platforms ahead of last month's U.S. elections in preparation for expected record volumes, but several high-profile glitches have happened since.

Some customers were frustrated by a lack of help. Eric Ince, a 37-year-old business owner from East Moriches, New York, was in the middle of a trade when his Interactive Brokers account froze at 6:48 a.m.

"I got nervous, and I panicked," Ince said. By 9 a.m., he was down $2,700.

He called the customer service line, but it sent him to voice mail. The company's online chats weren't working either, Ince says, and he couldn't locate an email address to ask for support. He had to wait until 9:50 a.m. for the issue to be partially fixed.

"I still can't get on their website," Ince said. "It was the worst time for me."

Kern convinced the victim to invest $375,000 in a "Private Placement Platform" with two other individuals by promising a low risk financial transaction for an exclusive group of investors and an abnormally high rate of return over a period of just two months. Several years later, the victim received no return on the investment. As part of a federal grand jury investigation, grand jury subpoenas were served upon a company owned and controlled by Kern requesting documentation and records related to the investment transaction. At the plea hearing, Kern admitted that he intentionally obstructed the grand jury investigation by concealing hundreds of documents responsive to the grand jury subpoenas.

Individuals should consult with a licensed investment broker prior to responding to solicitations for investments into "Platform" trading investments. The FBI has participated in numerous investigations of fraud activity commonly referred to as Platform Trading, Private Platform Programs (PPPs), Prime Bank Trading, or Medium-Term Note Trading Programs. In these schemes, perpetrators falsely represent their ability to offer above-average market returns with below-market risk through the trading of bank instruments.

Several common characteristics include claims that: (1) investor funds can be placed in a bank account and then used, without risk, to trade bank debentures or other financial instruments; (2) invested funds can be used to lease or rent U.S. Treasury Obligations and then use these same leased securities as collateral for further trading programs; (3) trading Medium Term Notes (MTNs), Prime Bank Notes, or any other bank instruments, on a riskless basis, will yield above market returns; (4) Letters of Credit or Standby Letters of Credit can be discounted or traded for profits; (5) certain high-yield foreign trading programs are sanctioned or supported by the Federal Reserve, International Monetary Fund, International Chamber of Commerce, or other U.S. or international agencies; (6) special connections to the Federal Reserve or some other internationally renowned organization such as the United Nations, the IMF or the World Bank; (7) benevolent, humanitarian, or charitable projects; (8) the need for extreme secrecy and nondisclosure agreements; (9) banking and regulatory officials will deny knowledge of such instruments; (10) these investment opportunities are by invitation only, available to only a handful of special customers, and historically reserved for the wealthy elite; (11) the financial instruments are too technical or complex for non-experts to understand.

In general, investment programs that purport to offer an introduction to secret investment markets, which offer above-market rates of return with below-market rates of risk for privileged customers with special access, are fraudulent. There are no secret markets in Europe or in North America in which banks trade securities.

[A]pplied BioSciences fraudulently stated in a March 31, 2020 press release that it had begun offering and shipping finger-prick COVID-19 tests to the general public that could be used for "Homes, Schools, Hospitals, Law Enforcement, Military, Public Servants or anyone wanting immediate and private results." The complaint alleged that contrary to these claims, the tests were not intended for home use by the general public and could be administered only in consultation with a medical professional. The complaint further alleged that Applied BioSciences had not shipped any COVID-19 tests as of March 31, 2020 and its press release failed to disclose that the tests were not authorized by the U.S. Food and Drug Administration.

This case was filed in 2009 and went to trial in 2016.  The United States - along with its co-plaintiffs, the States of California, Illinois, North Carolina, and Ohio - alleged that DISH made millions of unlawful telemarketing calls to consumers and was responsible for millions more made by retailers that marketed DISH products and services. In a 2017 opinion, the district court found DISH liable for more than 66 million telemarketing violations of the TSR and other federal and state statutes, imposing significant compliance measures on DISH and awarding the plaintiffs $280 million in civil penalties and damages, with $168 million going to the United States and $112 million to the state plaintiffs.  In 2020, the U.S. Court of Appeals for the Seventh Circuit affirmed those liability findings, but vacated and remanded the civil penalties and damages awards for recalculation. 

As reflected in the stipulated judgment entered by the court today, DISH will pay the United States $126 million in civil penalties to resolve the monetary portion of the case and has agreed not to contest the court's factual findings or liability determination.  DISH will continue to follow the robust compliance measures imposed by the court in 2017.  The injunction strictly prohibits any future telemarketing violations and significantly restricts DISH's future telemarketing activities.  DISH also has been ordered to prepare and abide by a telemarketing plan, submit telemarketing compliance materials to the department and the FTC twice annually until 2027, and provide compliance reports requested by the department or the FTC. 

[F]rom around June 2018 to the present, Fodje Bobga knowingly conspired with others to offer puppies and other animals for sale on Internet websites, including lovelyhappypuppy.com. He and others communicated by text message and email with potential victims to induce pet purchases.  Following each purchase, Fodje Bobga and the co-conspirators claimed that a transportation company would deliver the puppy or other animal and provided a false tracking number for the pet. Fodje Bobga and his co-conspirators, acting as the transportation company, then claimed the pet transport was delayed and that the victim needed to pay additional money for delivery of the pet. 

More recently, Fodje Bobga and the co-conspirators told some victims that they needed to pay even more money for delivery because the pet had been exposed to the coronavirus. The perpetrators used false and fraudulent promises and documents regarding shipping fees and coronavirus exposure to extract successive payments from victims.  Among the fake documents were a "refundable crate and vaccine guarantee document" that purported to have been issued by the "Supreme Court of the United States of America" and bore the seal of the court, along with the signature of a Clerk of the Court.  After Fodje Bobga and the co-conspirators received money directly and indirectly through wire communications from the victims, Fodje Bobga and the co-conspirators never delivered the pets.

The affidavit and criminal complaint detail the alleged dealings of Fodje Bobga and his co-conspirators with six victims in Western Pennsylvania and elsewhere who were seeking to purchase a puppy. According to the affidavits and criminal complaint:

• Victim 1, of New Brighton, Pennsylvania, was seeking to purchase a mini-dachshund puppy for her mother in mid-March of 2020.  Victim 1 was induced to lose $9,100 due to false claims that the puppy was being shipped, needed insurance, and was exposed to COVID-19;
• Victim 2 of Fruitland, Iowa, was seeking to purchase a mini dachshund puppy for herself in mid-March of 2020.  False claims induced Victim 2 to lose $1,840;
• Victim 3 of Marion Center, Pennsylvania, was seeking to purchase a teacup Chihuahua and paid $600.  Victim 3 became suspicious when asked for an additional $800 for shipping.  Fodje Bobga allegedly provided a false Refundable Crate and Vaccine Guarantee Document, purported to have been issued by and containing the seal of the Supreme Court of the United States, in an attempt to induce Victim 3 to pay the additional charges.  Victim 3 lost $600;
• Victim 4 is a Dallas, Texas, couple who were seeking to purchase a dog.  Following the payment of $950 for the agreed upon dog named Snow White, the couple was contacted regarding issues with shipment and induced to pay $850 more by Zelle, an online payment service.  The couple was contacted again with the claim that payment did not go through due to the wrong name being listed, but refused to resend $850.  Victim 4 lost $1,800;
• Victim 5 of Cheswick, Pennsylvania, was seeking to purchase a Chihuahua named Bentley for $600.  After sending a $600 MoneyGram to the alleged seller, Victim 5 was contacted repeatedly regarding problems with payments, transportation issues and the need to purchase a U.S. Department of Agriculture permit.  Victim 5 lost $1,500; and
• Victim 6 of Pittsburgh, Pennsylvania, was searching for a puppy online but became suspicious and did not send any payments.  According to the complaint, 55 text messages were exchanged with Victim 6's phone number, between Jan. 23, 2020, and Jan. 24, 2020, that attempted to induce Victim 6 to pay for a puppy.

In the first order, the SEC awarded the whistleblower nearly $1.8 million. The whistleblower, a company insider, provided information that would have been difficult to detect in the absence of the tip and provided extraordinary assistance to SEC staff resulting in the return of money to investors.

In the second order, the SEC awarded a total of approximately $750,000 to two whistleblowers. The first whistleblower provided a detailed tip that prompted the opening of the investigation and received an award of more than $500,000. In awarding this whistleblower, the SEC exercised its discretion to waive the TCR filing requirement. The second whistleblower, who received more than $250,000, provided new information that resulted in the inclusion of additional allegations in the covered action. Both whistleblowers provided substantial assistance, including participating in interviews and providing subject matter expertise.

In the third order, the SEC jointly awarded nearly $400,000 to two individuals whose analysis prompted the opening of an investigation that led to the SEC's enforcement action. They also provided substantial and continuing assistance during the course of the investigation.

At the time an employee is hired, Mizuho decides whether to include that employee in its electronic communication monitoring. From 2007 through the present, Mizuho's written supervisory procedures identified "non-producing members of senior management...that handle sensitive information" as persons whose electronic communications would be captured and retained but would not be monitored as part of the firm's review process involving lexicon-based and random percentage reviews. In excluding members of senior management from monitoring, Mizuho did not have a process in place for the review of communications of those senior management associated persons relating to its securities business. Nor did the firm establish a separate process by which it might effectively review "sensitive information" in the communications of senior management. For example, from March 2017 through April 2020, Mizuho excluded the electronic communications of twelve senior executives, including the firm's heads of the banking, equity, fixed income, and futures divisions, among others, from review. Mizuho failed to monitor communications that reflected these senior executives' involvement with the firm's securities business, including client transactions, hedging strategies, and deal approval. 

• Securities Industry Commentator
• Bill Singer