Securities Industry Commentator by Bill Singer Esq

Guest Blog: Considering Breaking Away from a Wirehouse? / The Pros and Cons of Going Independent by Michael King of Michael King Associates (BrokeAndBroker.com Blog)

Whoops: Schwab Sues Former Customer It Accidentally Sent $1.2 Million (Advisor Hub by Jake Martin)

FINRA: Firms Failed to Supervise Alt Mutual Fund Sales / Cambridge Investment Research, Securities America and J.W. Cole Financial failed to see the risk as reps sold options-laden 'short-vol' LJM Preservation and Growth Fund to investors, according to the regulator. (Wealthmanagement by Patrick Donachie)

Arizona Rubber-Stamps Trajan Wealth's Ownership of Law Firm / The new 'hybrid firm' is the latest in the growing trend toward states opening up law firm ownership to nonlawyers.(Wealthmanagement by Asia Martin)

Financial planner sentenced to 17 years behind bars / Anthony Diaz allegedly bilked clients out of millions over the course of a long-running scheme. (CityWire RIA by Andrew Foerch)

San Diego Business Leader Gina Champion-Cain Sentenced to 15 Years for Massive Ponzi Scheme and Obstruction of Justice (DOJ Release)

Washington Man Pleads Guilty to $244 Million Ghost-Cattle Scam (DOJ Release)

CFTC Charges Washington State Rancher and Feedyard with $233 Million Phantom Cattle Fraud Scheme (CFTC Release)

FINRA Fines and Suspends Rep for OBA

In the Matter of Gordon Bryan, Respondent (FINRA AWC)

FINRA Censures and Fines Merrill Lynch for Supervision of Employee Communications

In the Matter of Merrill Lynch, Pierce, Fenner & Smith Incorporated, Respondent (FINRA AWC)

First Circuit Remands NY Life Racism Case to FINRA Arbitration (BrokeAndBroker.com Blog)

The Great FINRA Hand Sanitizer Caper!!! (BrokeAndBroker.com Blog)

When An Undisclosed Settlement Gets Disclosed to FINRA (BrokeAndBroker.com Blog)

Spadoni opened a Schwab One account-a "basic" brokerage account with no account minimums, according to Schwab's website-in January. She closed the account after a month, and Schwab was attempting to transfer the $82.56 balance it said she was actually owed when it mistakenly sent the additional $1,205,536.84. 

Schwab representatives, who discovered the error the following day, tried to reclaim the errant transfer by contacting Fidelity, but it was too late, they said. Schwab attributed the error to "an issue created by a software enhancement" it had installed about a week before, causing "excess cash" to be added to a pending transfer request from Spadoni.

Schwab said Spadoni has not responded to its "numerous" attempts to contact her, including by telephone, text message and email. The firm's corporate counsel called Spadoni at her work number, but her employer said she was "present but could not come to the phone," according to the complaint.

On Feb. 5, 2018, the S&P 500 fell 113 points and market volatility increased by the largest one day rise in its history, according CBOE Volatility Index. The fund lost about 80% of its value in two days. On Feb. 7, the fund closed to new investors, and by the end of March, it was liquidated and dissolved. At the time, it was among the most significant funds to "fall victim to the popular 'short vol trade,' " according to CNBC.

The Arizona Supreme Court gave its blessing to Jeff Junior of Trajan Wealth, a registered investment advisor in Scottsdale, Ariz., to co-own an estate law firm, according to a recent announcement. Arizona recently eradicated its rule opposing nonlawyer ownership of law firms.

After years of Trajan Wealth referring clients to estate attorneys, the wealth management firm with nearly $700 million in assets under management can now keep the bulk of a client's estate planning needs in-house. 

Gina Champion-Cain, a long-time San Diego business leader, restauranteur, and real estate magnate, was sentenced in federal court today to 15 years in prison for masterminding a massive, years-long Ponzi scheme and obstructing justice by hiding and destroying evidence from federal investigators. 

When she pleaded guilty on July 22, 2020, Champion-Cain admitted that she raised more than $350 million from investors by promising to use their money to make loans to business owners who were attempting to acquire California liquor licenses. The investors were unaware, however, that Champion-Cain was not keeping her promise. 

According to court records, Champion-Cain and her co-conspirators instead used funds from new investors to pay back others whose investments would soon be redeemed, and embezzled funds to support her other businesses and her lifestyle.  Champion-Cain and her co-conspirators kept the scheme going by, among other things, fabricating documents, forging signatures, and telling investors lies through fake email accounts so that when investors attempted to double-check on their investments with third parties, they were often really communicating with the defendant or her employees. 

. . .

Throughout her scheme, Champion-Cain made agreed-upon payments to her investors so that they would continue to believe that the supposed investment program was legitimate, according to court filings.  This, in turn, helped her perpetuate the scheme and recruit more victims. Champion-Cain also stole tens of millions of dollars of investor funds to keep her other businesses afloat and enrich herself.  Because many of Champion-Cain's restaurant and retail businesses were failing or had negative cash flow, they needed funds to meet expenses. Time after time, Champion-Cain and Torres worked together to steal millions of dollars of investor funds to cover the shortfall. Champion-Cain also spent millions of investor dollars to pay for her own salary, box seats at professional baseball and football games, credit card bills, automobiles, jewelry, and other personal luxuries.

Champion-Cain's plea agreement also describes her efforts to obstruct federal investigations into the scheme.  Beginning in July 2019, after learning of investigations being conducted by federal agencies, she instructed her employees to destroy emails; not produce electronic calendar, messaging, and trash files; alter accounting records to hide the fact that investor funds were used to pay her personal expenses; and shred paper records.  Champion-Cain even attempted to solicit an investment of $150 million in the hopes that she could use the funds to hide her scheme.  Despite her efforts, investigators were able to recover a significant volume of the evidence Champion-Cain attempted to destroy.

used his company, Easterday Ranches Inc., to enter into a series of agreements with Tyson and Company 1 under which Easterday Ranches agreed to purchase and feed cattle on behalf of Tyson and Company 1. Per the agreements, Tyson and Company 1 would advance Easterday Ranches the costs of buying and raising the cattle. Once the cattle were slaughtered and sold at market price, Easterday Ranches would repay the costs advanced (plus interest and certain other costs), retaining as profit the amount by which the sale price exceeded the sum repaid to Tyson and Company 1.

Beginning in approximately 2016 and continuing through November 2020, Easterday submitted and caused others to submit false and fraudulent invoices and other information to Tyson and Company 1. These false and fraudulent invoices sought and obtained reimbursement from the victim companies for the purported costs of purchasing and growing hundreds of thousands of cattle that neither Easterday nor Easterday Ranches ever purchased, and that did not actually exist. As a result of the scheme, Tyson and Company 1 paid Easterday Ranches over $244 million for the purported costs of purchasing and feeding these ghost cattle.

Easterday used the fraud proceeds for his personal use and benefit, and for the benefit of Easterday Ranches, including to cover approximately $200 million in commodity futures contracts trading losses that Easterday had incurred on behalf of Easterday Ranches. In connection with his commodity futures trading, Easterday also defrauded the CME Group Inc. (CME), which operates the world's largest financial derivatives exchange. On two separate occasions, Easterday submitted falsified paperwork to the CME that resulted in the CME exempting Easterday Ranches from otherwise-applicable position limits in live cattle futures contracts.

[E]asterday accumulated more than $200 million in losses over a 10-year period from speculative trading in the cattle futures markets. To meet margin calls, Easterday devised a scheme to defraud one of his biggest business partners, a South Dakota-based beef producer. The complaint alleges that, from at least October 2016 to November 2020, Easterday caused Easterday Ranches to submit false invoices and reimbursement requests relating to more than 200,000 head of cattle that Easterday Ranches never actually purchased or raised on the producer's behalf. Through the use of fraudulent invoices and reimbursement requests, Easterday Ranches received from the producer more than $233 million to which it was not entitled.

In addition, the complaint alleges that Easterday caused Easterday Ranches to report false or misleading information concerning its cattle inventory, purchases, and sales to the Chicago Mercantile Exchange in at least two hedge exemption applications seeking permission to exceed the exchange's position limits. Easterday allegedly made the false statements to the exchange in 2017 and 2018 to avoid disciplinary actions and scrutiny when Easterday Ranches exceeded exchange-based position limits in the live cattle and feeder cattle futures markets. Because they were based on false or misleading information, the hedge exemptions were invalid. As a result, Easterday Ranches violated exchange-set position limit violations on at least two occasions.

In September 2017, Bryan formed a limited liability company (the "Company") with four other individuals, three of whom were Bryan's Wells Fargo clients, to purchase and develop a local shopping center. Bryan did not provide written notice to the firm of the Company until October 2017. In addition, he did not disclose that firm clients co-owned the Company until December 6, 2017, after the Company's November 30, 2017 purchase of the shopping center. 

After the firm made inquiries about this disclosure during December 2017, Bryan stated that he would not play a role in the Company's operations. However, he continued to engage in operational activities for the Company, including marketing shopping center space to tenants, negotiating lease terms, and communicating with commercial lenders. 

In addition, Bryan stated during December 2017 that he would transfer his ownership interest in the Company to his wife. Although Bryan subsequently attested that the Company remained one of his outside business activities on an August 2018 compliance questionnaire, he described it as a passive real estate business, rather than one in which he engaged in operational activity. In addition, he stated inaccurately that his wife had become a partner in the Company, even though he did not transfer his partnership interest to his wife until later in August 2018.

From on or about September 1, 2013 through approximately June 2016 (the Relevant Period), Merrill did not reasonably supervise certain types of public and private side employee communications under the firm's policies and procedures, in violation of NASD Rule 3010 and FINRA Rules 3110 and 2010.

• Securities Industry Commentator
• Bill Singer