Securities Industry Commentator by Bill Singer Esq

DreamFunded Dream Faded At FINRA (BrokeAndBroker.com Blog)

Boerne Man Sentenced for Ponzi Scheme with over $7.4 M in Losses (DOJ Release)

SEC Charges Former Executives of Registered Investment Adviser with Fraud (SEC Release)

Ex-Roommate and Co-Schemer of Former Eagles Linebacker Found Guilty of Trading on Inside Information Provided to Them (DOJ Release)

Lexington Man Sentenced to 120 Months for Investment Fraud (DOJ Release)

Loves Park Investment Advisor Charged With Fraudulently Obtaining More Than $950,000 From Customers (DOJ Release)

Passaic County Man Charged with Defrauding Investors of over $1 Million (DOJ Release)

Former CEO Of Melrose Credit Union Sentenced To Nearly 4 Years In Prison For Violating Bank Bribery Statute (DOJ Release)

Birmingham Business Owner Sentenced for Wire Fraud in Connection with a $23 Million Scheme to Defraud Local Real Estate Investors (DOJ Release)

SEC Charges Investment Bank Compliance Analyst with Insider Trading in Parents' Accounts and Obtains Asset Freeze (SEC Release)

PIABA REPORT: FINRA Arbitration's Persistent Unpaid Award Problem 

SEC Proposes to Enhance Proxy Voting Disclosure by Investment Funds and Require Disclosure of "Say-on-Pay" Votes for Institutional Investment Managers (SEC Release)

FINRA Fines and Suspends Rep for Business Expense Plan ("BEP") Violations

In the Matter of Ethan T. Binnion, Respondent (FINRA AWC)

Did SEC Permanently Bar Twice The Same Frivolous Whistleblower Claimant? 

(BrokeAndBroker.com Blog)

A Thought Piece on Risk from SEC Commissioner Caroline A. Crenshaw (BrokeAndBroker.com Blog)

traded on inside information provided by Damilare Sonoiki, at the time a junior analyst at Goldman Sachs, who had offered Kendricks information regarding upcoming mergers involving four Goldman Sachs clients.  Ramsey and Kendricks purchased call options in the target companies between July 2014 and November 2014. When the proposed merger was announced in each case, the value of the options purchased by Ramsey and Kendricks increased significantly. During the period of the conspiracy, the trading conducted by Ramsey and Kendricks from Kendricks' account resulted in profits of nearly $1.2 million on the four securities listed in the Superseding Indictment:

• The trading began when Sonoiki and Kendricks purchased call options for Compuware based on pending acquisition of Compuware that was known to Sonoiki. When Compuware announced on September 2, 2014, that it had been acquired by a private company, Kendricks made $78,423 in profits. 

• Sonoiki provided Kendricks and Ramsey inside information on a second deal in which Goldman represented News Corporation, which was in talks to acquire Move, Inc.  Ramsey and Kendricks purchased call options in Move during the month of September. When the News Corporation acquisition of Move was announced on September 30, 2014, Ramsey and Kendricks sold the open options contracts at profit of $278,701.  

• In early October 2014, Sonoiki provided Kendricks and Ramsey with inside information about a pending acquisition of Sapient, another company represented by Goldman.  Sapient was in discussions with Publicis Corporation regarding a merger deal. Ramsey began trading in Sapient on October 6, 2014. On November 3, the merger was announced, and Ramsey and Kendricks made a profit of $489,079. 

• In October 2014, Oplink was in discussions with Molex, a subsidiary of Koch Industries, regarding a merger deal. Goldman represented Molex and Koch Industries. Ramsey purchased call options in Kendricks's account between October 31 and November 17, 2014. Ramsey's trading occupied so much of the open call option market that there was a Reuters article on November 19, 2014, suggesting that someone must have had insider information. The deal was announced on November 19, 2014, at which time Ramsey and Kendricks made a profit of $351,872.

Defendants Sonoiki and Kendricks previously pled guilty to insider trading and conspiracy charges based on these same events.

Evans, doing business as Turning Point Investments, purported to be a professional investor and solicited substantial amounts of money from numerous friends and acquaintances as investments, into a fund that he would manage by investing on the commodity futures market. According to his plea agreement, he accepted funds from more than 20 investors, amounting to nearly $17 million, and invested a portion of that money on the commodity futures market, without registering as a commodity pool operator.  Evans convinced investors to turn over savings and liquidate their retirement accounts, promising substantial gains, low-risks, and coverage for any tax penalties.  He reported back to his investors that there were substantial gains on their investments, paid out distributions upon request, and continuously solicited more investments.  However, in reality, Evans lost nearly all the funds he invested on the commodity futures market, paid people distributions out of other people's investments, and spent some of the investment funds on personal expenditures. 

Salamah, who worked as an investment advisor in Loves Park, fraudulently obtained more than $950,000 from the accounts of three customers from August 2017 to May 2021, the information states.  Salamah told the customers that he needed to move the money to diversify their assets, when, in fact, Salamah deposited the money into a bank account that he controlled, the charge alleges.  Salamah allegedly used the money for his own benefit and without the customers' knowledge or consent. 

Ciccone, who was previously convicted of wire fraud and filing a false tax return, once again orchestrated an investment fraud scheme whereby he obtained approximately $1.5 million from at least 22 investors through short-term, high-interest promissory notes in less than two years. Ciccone represented to prospective investors that his companies, Platinum Travel and Entertainment LLC, a New Jersey-based LLC, and Platinum Enterprises & Concierge Services Inc. (Platinum) were reserving blocks of rooms at luxury hotels, which would later be resold to elite clients at a profit.

Investors were promised 15 percent to 50 percent return on their investments for term periods ranging from one month to six months. Instead of using the funds to reserve blocks of rooms at luxury hotels, Ciccone diverted the funds for personal expenses and, in certain instances, paid other investors to make them believe that their investment was generating profits. When confronted with requests for transparency and redemptions by certain investors, Ciccone failed to honor the redemption requests, made misrepresentations about his inability to honor the redemption requests, misstated and omitted material facts, and provided certain investors with forged, modified, or otherwise fraudulent documentation.

Ciccone did not disclose to certain victim investors before they invested that he had a federal criminal conviction and that the conditions of his supervised release prohibited him from entering into promissory notes without approval of his U.S. Probation officer, which he had not requested.

From May 2019 through November 2019, Ciccone also made material misrepresentations to additional victim investors directly and through Individual 1, who began raising money on behalf of Ciccone in May 2019. Ciccone told Individual 1 about, and sent emails containing, lists of Platinum's purported "immediate bookings" at various hotels to support his need to raise money for Platinum. Ciccone made these statements to Individual 1 knowing Individual 1 would communicate the information to investors and prospective investors. Ciccone's statements to Individual 1, which Individual 1 disseminated to investors, were false. Platinum and Ciccone had not secured the hotel reservations, and Ciccone did not use the funds obtained from the Victim Investors to secure the hotel bookings listed in these communications.

Over the course of the scheme, Ciccone misappropriated the majority of funds received from victim investors, totaling at least $1.35 million, by using the money to pay for personal items, such as $54,330 to buy a BMW; approximately $235,000 to purchase clothes, wine, and other personal items; and over $216,000 in cash withdrawals. Ciccone also used investor funds to pay approximately $120,000 to other investors with overdue notes.

In 2010, Georgiton purchased a home in Jericho, New York (the "Jericho Residence"), and permitted KAUFMAN to live in that home rent-free for over two years.  While KAUFMAN was living rent-free at the Jericho Residence, KAUFMAN personally approved the refinancing of over $100 million worth of loans at Melrose CU held by a company owned by Georgiton with favorable terms.  The head of Melrose CU's loan department did not sign off on the loans made to Georgiton because, among other things, he believed that the terms were too favorable and did not comply with Melrose CU's loan policy.

In 2011, KAUFMAN sought approval from Melrose CU's board of directors (the "Melrose Board") for Melrose CU to purchase the naming rights to a ballroom under construction in Astoria, Queens (the "Melrose Ballroom").  That ballroom was owned by a company that was in turn owned by Georgiton.  KAUFMAN did not disclose to the Melrose Board that he was living rent-free in a house owned by Georgiton at the time he sought Melrose Board approval for the naming rights acquisition.  Over the next five years, Melrose CU paid $2 million to Georgiton's company for the naming rights to the Melrose Ballroom.  KAUFMAN also directed that payment for the naming rights be paid a year in advance of the Melrose Ballroom's actual opening for operations.   

In 2013, KAUFMAN purchased the Jericho Residence from Georgiton, with financing that largely came from Georgiton.  To purchase the Jericho Residence, KAUFMAN took out a $200,000 loan from Melrose CU, co-signed by Georgiton and secured by Georgiton's shares in Melrose CU.  Georgiton also gave KAUFMAN a $240,000 unsecured personal "loan."  Georgiton has never made a demand for payment on that purported loan and KAUFMAN has never made a payment on that purported loan.  Rather than repay the loan, the following year, KAUFMAN purchased a used Maserati sports car valued at over $100,000 for his wife. 

In addition, from in or about 2010 through in or about 2015, KAUFMAN solicited and accepted lavish vacations and other gifts worth tens of thousands of dollars from CBS Radio and other media vendors, after KAUFMAN approved advertising spending by Melrose CU.  For example, in 2010, CBS Radio paid for KAUFMAN and his wife, who also worked at Melrose CU, to fly to Paris, France, and stay at the Four Seasons George V Paris.  In 2012, CBS Radio paid for KAUFMAN and his wife to fly to Maui, Hawaii, and stay at the Four Seasons in Wailea.  In 2013, CBS Radio paid for KAUFMAN and his wife to attend the Super Bowl in New Orleans.

KAUFMAN did not seek approval for these vendor-paid trips from the Melrose Board, nor did he disclose these vendor-paid trips to the Melrose Board, in violation of Melrose CU's anti-bribery policy.

According to court records, Gjonaj admitted that in June 2016, he thought he had discovered a guaranteed way to win huge jackpots in the Michigan Lottery Dailey 3 and 4 games. To accomplish this, he had to substantially increase the times he played and amounts he spent. In 2017, Gjonaj began losing more money than he won and more money than he could afford to lose. Rather than ending his gambling, Gjonaj devised a scheme to trick individuals into giving him money by falsely promising them he would invest it in lucrative real estate deals. To make the deals look legitimate, Gjonaj created a fake title company and instructed the victim-investors to wire transfer money into the bank account of the fake company. Gjonaj described the fraudulent real estate deals in great detail and encouraged victim-investors to continue giving him money by disbursing payments to them which he falsely claimed were profits on their "investment." By early 2019, Gjonaj was betting over $1 million a week on Michigan Lottery games using money fraudulently obtained from victims. In August 2019, Gjonaj's scheme to defraud unraveled resulting in over $23 million in losses to victims.

[S]anchez had broad access to highly sensitive information regarding mergers and other transactions in which his firm was involved, in connection with his work as a compliance analyst. Sanchez had access to this information so that he could assist the firm's efforts to ensure that employees kept the information confidential and did not engage in insider trading. However, between September 2020 and May 2021, Sanchez allegedly abused that position of trust by trading on at least 45 events involving the investment bank's clients based on the investment bank's material, nonpublic information. To avoid detection, Sanchez allegedly traded in multiple U.S.-based brokerage accounts held in the name of one of his parents-Jose Luis Casero Abellan and Maria Isabel Sanchez Gonzalez -and, in most instances, also refrained from placing large trades and made only modest profits. The complaint alleges that Sanchez generated more than $471,000 in ill-gotten gains during the course of the scheme.

If the goal is to protect people from suffering devastating injuries, would it be best to install seatbelts before the car accident, or after? Retirement savers and other individual investors today have no meaningful protection against unscrupulous stockbrokers, investment advisors, and firms who handle hundreds of millions of customer dollars but conduct business without sufficient capital reserves or liability insurance. Wall Street and the securities industry as a whole encourages Americans to trust their financial professional with their retirement savings. But few investors understand that the securities industry does not mandate protections to ensure investors can be made whole after successfully proving a claim for recoverable losses against their financial advisor. American investors have enjoyed the benefits of a stock market that has risen to all-time highs without a meaningful correction for the last decade, and a national economy that has flourished under the most adverse of circumstances. Despite these favorable dynamics, unpaid arbitration awards are still hovering at more than 24% of all dollars awarded to investors in arbitration administered through the Financial Industry Regulatory Authority ("FINRA"). Nearly 30% of all FINRA awards in customer claimants' favor in 2020 went unpaid.

Many investors do not discover the misconduct in their investment accounts until there is a market correction. For these investors, most of whom rely on their own savings - often in a retirement plan - rather than a pension to fund their retirements, a meaningful market downturn will likely reveal unprecedented harm to America's retirees and those on the verge of retirement. Since the industry has shown no interest in taking steps to ensure it maintains the same sort of financial responsibility it preaches to its customers, it is time for regulators and legislators to mandate seat belts, in the form of a national investor recovery pool.

The problem of unpaid securities arbitration awards is not a new one. Twenty-one years ago, the U.S. General Accounting Office ("GAO") issued a report on unpaid awards.3 In its survey of investors who received arbitration awards during 1998, the GAO estimated 49% of the awards went unpaid, an additional 12% were only partially paid, and nearly 80% of the total $161 million awarded to investor claimants that year went unpaid.4 While FINRA now publishes some recent data on unpaid award statistics, and has implemented or proposed certain rule changes to try to curb abusive industry practices, neither FINRA nor state and federal regulators have directly addressed the fundamental lack of meaningful recovery protection. The problem of unpaid arbitration awards is only growing, thanks in large part to the increasing role of investment advisers, and their common use of commercial and for-profit arbitration forums other than FINRA Dispute Resolution for which there is no public reporting and little regulatory accountability. This report contains PIABA's third analysis of the problem of unpaid arbitration awards, and a renewed call for substantive remedial measures to protect retirement savers and all other individual investors.

[I] urge FINRA to create a Wall Street Anti-Fraud Fund, a proposal that I have made for some two decades and which continues to fall on deaf ears. Wall Street should have an "Anti-Fraud Fund" for the benefit of defrauded public customers who have proven the liability of a FINRA member firm but are unable to fully collect their compensatory damages, costs, and fees because of that firm's insolvency. I do not favor extending such a guaranty into punitive damages or "unreasonable" attorneys' fee and other charges. Fervently, I believe that the securities industry has the wherewithal and the moral/ethical obligation to put its money where its dirty mouth has been. There may be legitimate debate as to how best to fund the anti-fraud fund, but that only goes to the mechanics of doing the right thing. . . .

[T]he proposed rulemaking would require funds to tie the description of each voting matter to the issuer's form of proxy and to categorize each matter by type to help investors identify votes of interest and compare voting records. The proposal also would prescribe how funds organize their reports and require them to use a structured data language to make the filings easier to analyze. Funds would also be required to disclose how their securities lending activity impacted their voting.

Further, the rulemaking would require institutional investment managers to disclose how they voted on executive compensation, or so-called "say-on-pay" matters, which would fulfill one of the remaining rulemaking mandates under the Dodd-Frank Wall Street Reform and Consumer Protection Act. Managers generally would be subject to the same Form N-PX reporting requirements as funds with respect to their say-on-pay votes.

SIDE BAR: The SEC Chair and Four Commissioners Offer Their Views on the Proxy Vote Proposal:

Statement on Proposal to Enhance Reporting of Proxy Votes by Registered Management Investment Companies And Reporting of Executive Compensation Votes by Institutional Investment Managers / Chair Gary Gensler
https://www.sec.gov/news/public-statement/gensler-open-meeting-2021-09-29

Statement on Enhanced Reporting of Proxy Votes by Registered Management Investment Companies; Reporting of Executive Compensation Votes by Institutional Investment Managers / Commissioner Hester M. Peirce
https://www.sec.gov/news/public-statement/peirce-open-meeting-2021-09-29

Statement on Proposed Changes to Asset Managers' Proxy Voting Disclosures / Commissioner Elad L. Roisman
https://www.sec.gov/news/public-statement/roisman-open-meeting-2021-09-29

Shining a Light on Corporate Democracy: Statement on Updates to Form N-PX / Commissioner Allison Herren Lee
https://www.sec.gov/news/public-statement/lee-open-meeting-2021-09-29

Statement on N-PX Proposal / Commissioner Caroline A. Crenshaw
https://www.sec.gov/news/public-statement/crenshaw-open-meeting-2021-09-29

While Binnion was associated with Edward Jones, he participated in the firm's BEP program in multiple years. Through the BEP program, the firm permitted registered representatives to use BEP funds toward approved business expenses, including awarding bonuses to administrative staff. Binnion understood that BEP funds could only be used for approved business expenses. 

The amount available to a registered representative each trimester under the BEP program was based on the registered representative's trailing 12-month gross commissions. Although unspent BEP funds carried over from trimester to trimester during a calendar year, unspent BEP funds did not carry over from one calendar year to the next, and instead would be forfeited to the firm. 

In December 2019, Binnion had $941 remaining in his BEP account. Binnion knew those funds would not carry over to 2020. Thus, in December 2019, Binnion requested the firm disburse $941 as a bonus to his branch office administrator (BOA). Binnion told the BOA that he expected her to repay him the $941. After the BOA received the $941 bonus in a paycheck from the firm, Binnion requested she write him a check for $941, which she did. Binnion did not use the $941 for any approved business expenses. 

By virtue of the foregoing, Binnion violated FINRA Rule 2010.

• Securities Industry Commentator
• Bill Singer