The Wall Street Legal & Regulatory Feed

Securities Industry Commentator by Bill Singer Esq

April 12, 2021








http://www.brokeandbroker.com/5796/scienter-mannkind-9cir-cdca/
If you file a securities fraud claim under Section 10(b) of the Securities Exchange Act of 1934, a basic element of your proof must be to show that the defendant had acted with "scienter." What's scienter? Ahh, that's as easy as explaining what's cryptocurrency -- or what's "enough" or "a lot" or "frequently." In legalese, courts refer to "scienter" as a mental state embracing intent to deceive, manipulate, or defraud. Yeah, sure, that's helpful (not). Complicating things, in 1995, the Private Securities Litigation Reform Act imposed a further threshold upon plaintiffs in that they must plead a "strong inference" of scienter; and, as held in 2007 by the United States Supreme Court in Tellabs, Inc. v. Makor Issues & Rights, LTD, a securities fraud complaint must allege facts establishing that the strong inference of scienter is "cogent and at least as compelling as any opposing inference of nonfraudulent intent." Confused? Welcome to the club. See how all of this plays out in a recent Class Action.

https://www.justice.gov/opa/pr/three-men-indicted-30-million-foreign-exchange-fraud-scheme
In an Indictment filed in the United States District court for the Southern District of Florida, Patrick Gallagher and Michael Dion were charged with conspiracy to commit securities fraud, securities fraud, conspiracy to commit wire fraud, and conspiracy to commit money laundering. As alleged in part in the DOJ Release, Gallagher and Dion:

allegedly devised a scheme in which Dion and Gallagher would solicit victims to invest in their foreign exchange company, Global Forex Management, by promising them large returns based on fabricated prior trading results. The defendants allegedly told the victims that their funds would be traded using an online trading platform provided by Echadi's company, IB Capital. However, according to the indictment, Gallagher, Dion, and Echadi instead were working together to steal the victim investors' money. In May 2012, they allegedly executed their scheme by intentionally creating losing trades for the investors and stole $30 million from their victims. After fabricating the massive trading loss, the defendants allegedly concealed the scheme from victims by creating fraudulent trading records and then routed the stolen money through shell companies they had set up all over the world.

FINRA found that owner of former member firm violated its rules by causing firm to violate interim restrictions placed on firm; by responding to FINRA's requests for information by providing falsified documents and false testimony and failing to produce all computers he used for firm business; and by participating in the falsification of compliance records that were provided to FINRA. FINRA also found that registered representative of former member firm participated in providing falsified compliance records to FINRA and caused firm to maintain inaccurate and incomplete books and records by evading firm's email retention system through the use of personal email. Held, FINRA's findings of violation are sustained in part and remanded in part and sanctions are sustained in part, remanded in part, and modified in part.

Pointedly, the SEC ordered as follows:

ORDERED that FINRA's findings of violations against Trevor Michael Saliba and Arthur Mansourian are sustained, except that FINRA's findings that Saliba violated FINRA Rule 2010 by providing falsified memos to FINRA's Department of Member Regulation, and FINRA Rules 8210 and 2010 by providing falsified memos to FINRA's Department of Enforcement, are remanded to FINRA for further proceedings consistent with our opinion; and it is further 

ORDERED that the sanctions imposed by FINRA on Saliba and Mansourian are sustained, except that FINRA's imposition of a bar on Saliba based in part on the violations being remanded by this opinion is also remanded to FINRA for further proceedings consistent with our opinion, and FINRA's imposition of a bar on Mansourian is modified to a bar with a right to reapply for association with a FINRA member firm in two years.

Federal Court Orders The Alista Group, LLC and Florida Man to Pay More Than $2.6 Million in Precious Metals Fraud (CFTC Release)
https://www.cftc.gov/PressRoom/PressReleases/8379-21
The United States District Court for the Middle District of Florida entered an Order granting the CFTC's motion for entry of default judgment
https://www.cftc.gov/media/5831/enfalistagrouporder033121/download against defendants The Alista Group, LLC and Luis M. Pineda Palacios, a/k/a Luis Pineda. The Default Order requires Alista to pay $560,540.95 in restitution and a civil monetary penalty of $1,681,622.85; and requires Pineda to pay  the  $77,500 in restitution and a civil monetary penalty of $370,484. In separate, concurrently issued orders, the court also permanently enjoined Alista and Pineda from engaging in conduct that violates the Commodity Exchange Act, from registering with the CFTC, and from trading in any CFTC-regulated markets. Litigation continues against remaining defendants Marvin W. Courson III and Christopher A. Kertatos. As alleged in part in the CFTC Release:

[F]rom July 2016 through at least January 2018, Alista engaged in a scheme to defraud customers located throughout the U.S.in connection with precious metals transactions. These transactions constituted illegal, off-exchange retail commodity transactions. Notably, Alista's leveraged precious metals transactions never resulted in the actual delivery of the full amount of metal purchased by its customers. 

The complaint further alleges that, in connection with this activity, Alista defrauded these customers by misappropriating their funds to speculate in precious metals for Alista's own account, pay Alista's business expenses, and make Ponzi-style payments to customers who sought to cash out some of their purported holdings. In addition, Pineda individually defrauded at least some of Alista's customers by using an individual bank account under his personal control to accept Alista customer funds and then misappropriate those funds to pay for personal and other expenses unrelated to leveraged precious metals transactions on behalf of Alista's customers.

In a FINRA Arbitration Statement of Claim filed in October 2019, associated person Claimant Hall alleged "breach of contract, fraud and suppression, civil theft (Fla. Stat. Ann. § 772.11), unjust enrichment, conversion, violation of the Florida Communications Fraud Act (Fla. Stat. Ann. § 817.034), and conspiracy. The causes of action related to Claimant's allegations that Respondents stole Claimant's commissions and tried to cover up the theft by sending Claimant falsified documents." Wow . . . now that's one that you don't see everyday: An alleged cover-up designed to steal commissions. Ultimately, Claimant Hall sought $34,983.00 in compensatory damages, $2,958.69 in pre-judgment interest, $83,488.44 in attorneys' fees,hearing fees and all other arbitration fees, $104,949.00 in treble damages, and $25,000.00 in punitive damages.Respondents generally denied the allegations. The FINRA Arbitration Award notes in part that:

At the hearing, Claimant reasserted his request for sanctions. Herein, the Panel grants Claimant's request for sanctions on the grounds that Respondents consistently and repeatedly ignored the Panel's Orders to comply with discovery and never produced certain documents that they were ordered to produce. 

The FINRA Arbitration Panel found Respondents jointly and severally liable and ordered them to pay to Claimant Hall $34,983 in compensatory damages, $2,958.59 in pre-award interest, post-award interest, $83,488.44 in attorneys fees as a sanction, and $375 in filing fees. 

FINRA Sanctions Independent Financial Group Over Supervision
https://www.finra.org/sites/default/files/fda_documents/2018059223401
%20Independent%20Financial%20Group%2C%20LLC
%20CRD%207717%20AWC%20sl.pdf
For the purpose of proposing a settlement of rule violations alleged by the Financial Industry Regulatory Authority ("FINRA"), without admitting or denying the findings, prior to a regulatory hearing, and without an adjudication of any issue, Independent Financial Group, LLC submitted a Letter of Acceptance, Waiver and Consent ("AWC"), which FINRA accepted. The AWC alleges that  Independent Financial Group, LLC  has been a member firm since 1978 with 660 registered representatives at 370 offices. The AWC asserts that the Independent Financial Group "does not have any relevant disciplinary history." As alleged in the AWC's "Overview" [Ed: footnote omitted]:

From January 2008 through March 2016, IFG failed to reasonably supervise one of the firm's former registered representatives ("RR 1") who made unsuitable recommendations to customers. RR 1 recommended that his customers concentrate their retirement assets and liquid net worth in speculative and illiquid securities. IFG became aware of red flags indicating that RR 1 was making unsuitable recommendations to his customers yet the firm failed to take reasonable actions to investigate and stop the misconduct. By reason of the foregoing, IFG violated NASD Rule 3010 and FINRA Rules 3110 and 2010.

Accordingly, FINRA imposed upon Independent Financial Group a Censure and $200,000 fine; and an undertaking to implement compliant supervisory procedures as specified.

In the Matter of Alternative Execution Group and Richard Alter, Respondents (FINRA AWC 2018056458301)
https://www.finra.org/sites/default/files/fda_documents/2018056458301
%20Alternative%20Execution%20Group%20CRD%20167830
%20Richard%20Alter%20CRD%202697740%20AWC%20va.pdf
For the purpose of proposing a settlement of rule violations alleged by the Financial Industry Regulatory Authority ("FINRA"), without admitting or denying the findings, prior to a regulatory hearing, and without an adjudication of any issue, Alternative Execution Group and Richard Alter submitted a Letter of Acceptance, Waiver and Consent ("AWC"), which FINRA accepted. The AWC alleges that Alternative Execution Group has been a member firm since 2013 with 10 registered representatives at one office; and that Richard Alter was first registered in 1996, and in 2013, he founded Alternative Execution Group, where he was the firm's Chief Executive Officer and partial owner. The AWC asserts that the Respondents "do not have any relevant disciplinary history." As alleged in the AWC's "Overview": 

From February 2017 through December 2018, Alternative Execution Group and Alter failed to establish and implement an anti-money laundering (AML) compliance program reasonably designed to detect and cause the reporting of potentially suspicious transactions. Principal A, the Firm's AMLCO, was responsible for the firm's AML program. Alter knew Principal A lacked AML oversight experience relevant to his duties and did not take corrective action after becoming aware that Principal A had not performed his AML duties in a reasonable manner. By reason of the foregoing, Alternative Execution Group and Alter violated FINRA Rules 3310(a) and 2010. 

During the same period, Alternative Execution Group and Alter failed to establish and maintain a supervisory system reasonably designed to achieve compliance with Section 5 of the Securities Act of 1933. Although Principal A was responsible for maintaining a supervisory system reasonably designed to achieve compliance with Section 5, Alter was aware that Principal A was not carrying out those duties in a reasonable manner. By reason of the foregoing, Alternative Execution Group and Alter violated FINRA Rules 3110(a) and 2010.

Accordingly, FINRA imposed upon Alternative Execution Group a Censure and $100,000 fine; and upon Alter a $15,0000 fine, a two-month suspension from associating with any FINRA member in all Principal capacities, and an undertaking to complete 16 hours of AML-related continuing education. 

In the Matter of William Assatly, Respondent (FINRA AWC 2019064947801)
https://www.finra.org/sites/default/files/fda_documents/2019064947801
%20Dannia%20Ferreira%20CRD%207154160%20AWC%20sl.pdf
For the purpose of proposing a settlement of rule violations alleged by the Financial Industry Regulatory Authority ("FINRA"), without admitting or denying the findings, prior to a regulatory hearing, and without an adjudication of any issue, William Assatly submitted a Letter of Acceptance, Waiver and Consent ("AWC"), which FINRA accepted. The AWC alleges that William Assatly was first registered in 1993 and from December 2013 through March 2019, he was registered with Alternative Execution Group, where he served as the firm's Anti-Money Laundering Compliance Officer ("AMLCO") from December 2013 until March 2019, and as the firm's Chief Compliance Officer from June 2016 until March 2019. The AWC asserts that Assatly "does not have any relevant disciplinary history." In accordance with the terms of the AWC, FINRA found that Assatly violated FINRA Rules 3310(a), 3110(a), and 2010. Accordingly, the self regulator imposed upon Assatly a $5,000 fine, and a two-month suspension from associating with any FINRA member in all Principal capacities. As alleged in the AWC's "Overview":

From February 2017 through December 2018, Assatly failed to establish and implement an anti-money laundering (AML) compliance program reasonably designed to detect and cause the reporting of suspicious activity. As a result, Assatly violated FINRA Rules 3310(a) and 2010.

During the same period, Assatly also failed to establish and maintain a supervisory
system reasonably designed to achieve compliance with Section 5 of the Securities Act of 1933. As a result, Assatly violated FINRA Rules 3110(a) and 2010

https://www.finra.org/sites/default/files/fda_documents/2019064947801
%20Dannia%20Ferreira%20CRD%207154160%20AWC%20sl.pdf
For the purpose of proposing a settlement of rule violations alleged by the Financial Industry Regulatory Authority ("FINRA"), without admitting or denying the findings, prior to a regulatory hearing, and without an adjudication of any issue, Dannia Ferreira submitted a Letter of Acceptance, Waiver and Consent ("AWC"), which FINRA accepted. The AWC alleges that Dannia Ferreira entered the industry in July 2019 with J.P. Morgan Securities, and in November 2019, she applied for registration. The AWC asserts that Ferreira "does not have any relevant disciplinary history." In accordance with the terms of the AWC, FINRA found that Ferreira violated FINR Rules 1210.05 and 2010. Accordingly, the self regulator imposed upon Ferreira a $5,000 fine, and an 18-month suspension from associating with any FINRA member in all capacities. As alleged in part in the AWC:

On November 8, 2019, Ferreira took the Series 6 qualification examination. Prior to beginning the exam, Ferreira attested that she had read and would abide by the Rules of Conduct, which require candidates to store all personal items in the locker provided by the test vendor prior to entering the test room and prohibit any use or attempted use of personal items, including study materials, during the examination. During an unscheduled break that lasted approximately twenty minutes, Ferreira possessed and had access to study materials that she had hidden in the testing center's restroom prior to beginning the exam. Therefore, Ferreira violated FINRA Rules 1210.05 and 2010. 

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