The Wall Street Legal & Regulatory Feed
Securities Industry Commentator by Bill Singer Esq
March 4, 2022
Fictitious CIA Mission With Bogus Red Cross and Delta Force Influences Became An IRS and Investor Fraud (BrokeAndBroker.com Blog)
http://www.brokeandbroker.com/6325/cia-marshall-sicario/
In these plague days, in these pre- or post-Apocalyptic times, there's often nothing like a good tale to divert our attention from the daily horrors with which we live. In that spirit, I shall gladly accept the role of raconteur and offer a story of intrigue, of dubious derring-do, of international men of mystery, and, in the end, of a garden variety investor fraud somewhat gussied up by a lot of hyperbole.
Are Finra Arbitrators Qualified to Decide Industry, Customer Cases? / The Financial Industry Regulatory Authority's arbitrator selection process is designed to allow for flexibility in who gets to hear the cases (Financial Advisor IQ by Josh Azar)
https://www.financialadvisoriq.com/c/3523074/449694/finra_arbitrators_qualified_decide_industry_customer_cases?referrer_module=issueHeadline
https://www.financialadvisoriq.com/c/3523074/449694/finra_arbitrators_qualified_decide_industry_customer_cases?referrer_module=issueHeadline
Reporter Josh Azar revisits the FINRA arbitration process and asks some timely questions in light of growing concerns raised by the courts.
Florida Man Indicted For Wire Fraud, Bank Fraud, Money Laundering, And Aggravated Identity Theft (DOJ Release)
https://www.justice.gov/usao-edtn/pr/florida-man-indicted-wire-fraud-bank-fraud-money-laundering-and-aggravated-identity
https://www.justice.gov/usao-edtn/pr/florida-man-indicted-wire-fraud-bank-fraud-money-laundering-and-aggravated-identity
In a 15-count Indictment filed in the United States District Court for the Eastern District of Tennessee, Johntavis Rogers was charged with wire fraud, bank fraud, money laundering, and aggravated identity theft. As alleged in part in the DOJ Release:
[R]ogers used interstate wire communications to defraud financial institutions. According to the indictment, Rogers contacted unsuspecting persons in the Eastern District of Tennessee through various social media platforms, such as Facebook, Messenger, and Instagram. Rogers would convince unsuspecting victims that he had discovered a way to legitimately deposit funds into their accounts with financial institutions and share the proceeds. When customers provided their account login information, the indictment alleges that Rogers would use online banking applications to deposit fraudulent checks into their accounts and then cause the transfer of proceeds from those checks to himself. The indictment alleges that the scheme affected six financial institutions in this area between March 2021 and August 2021.
Federal Court Orders Florida Men to Pay Over $1.6 Million for Precious Metals Fraud (CFTC Release)
https://www.cftc.gov/PressRoom/PressReleases/8497-22
https://www.cftc.gov/PressRoom/PressReleases/8497-22
The United States District Court for the Middle District of Florida ("MDFL") entered a Consent Order against Marvin W. Courson III https://www.cftc.gov/media/7026/enfcoursonconsentorder030122/download and a Consent Order against Christopher A. Kertatos https://www.cftc.gov/media/7021/enfkertatosconsentorder030122/download. The Court had previously entered Consent Order against The Alista Group, LLC and Luis M. Pineda Palacios, a/k/a Luis Pineda. In the most recent action, MDFL imposed a $560,152.60 civil monetary penalty and $560,152.60 in restitution on Courson; and a $274,988 civil monetary penalty and $274,988 in restitution on Kertatos -- and both men are subject to permanent trading and registration bans and a permanent injunction prohibiting further violations of the Commodity Exchange Act and CFTC regulations, as charged. As alleged in part in the CFTC Release:
[F]rom July 2016 through approximately January 2018, Courson and Kertatos defrauded customers intending to engage in illegal, off-exchange retail commodity transactions involving precious metals by misappropriating their funds to speculate in precious metals for Alista's own account; paid Alista's business expenses; and made Ponzi-style payments to customers who attempted to cash out some of their purported holdings. At all times during Alista's operation, Courson was in control of its various bank accounts, business operations, and hiring decisions.In addition, Kertatos individually defrauded some of Alista's customers by using individual and/or corporate bank accounts under his personal control to accept Alista customer funds. He then misappropriated those funds to pay for personal and other expenses unrelated to leveraged precious metals transactions on behalf of Alista's customers.
City National Rochdale to Pay More Than $30 Million for Undisclosed Conflicts of Interest / Harmed Investors to Receive Amounts Recovered (SEC Release)
https://www.sec.gov/news/press-release/2022-33
Without admitting or denying the findings in an SEC Order, registered investment adviser City National Rochdale, LLC ("CNR") agreed to cease and desist from committing or causing any future violations of these provisions; be censured; provide notice of the settlement to affected advisory clients; retain an independent compliance consultant; and pay disgorgement, prejudgment interest, and a civil penalty totaling $30,361,803 that will be distributed to investors through a Fair Fund. The SEC Order found that CNR violated Sections 206(2) and 206(4) of the Investment Advisers Act of 1940 and Rule 206(4)-7 thereunder. As alleged in part in the SEC Release:
[F]rom at least 2016 through 2019, CNR, which has discretionary authority over client accounts, failed to inform its clients of its practice of investing their assets in proprietary mutual funds that generate fees for CNR and its affiliates, rather than in competitor funds whose fees may be lower. Additionally, the SEC's Order finds that from at least 2016 until 2019, CNR failed to inform some prospective clients that they could invest in CNR's proprietary funds at lower cost. Clients who opened accounts with certain CNR affiliates did not pay annual marketing or distribution fees, known as 12b-1 fees, but most clients who invested with CNR through their own financial advisors did.
SEC Charges Investment Adviser with Failing to Disclose Conflicts Arising from Mutual Fund and Account Recommendations (SEC Release)
https://www.sec.gov/litigation/litreleases/2022/lr25340.htm
https://www.sec.gov/litigation/litreleases/2022/lr25340.htm
In a Complaint filed in the United States District Court for the Southern District of Iowa
https://www.sec.gov/litigation/complaints/2022/comp25340.pdf, the SEC charged Cambridge Investment Research Advisors, Inc. ("CIRA") with violating Sections 206(2) and 206(4) of the Investment Advisers Act of 1940 and Rule 206(4)-7 thereunder; and the Complaint also names Cambridge Investment Research, Inc. as a Relief Defendant. As alleged in part in the SEC Release:
https://www.sec.gov/litigation/complaints/2022/comp25340.pdf, the SEC charged Cambridge Investment Research Advisors, Inc. ("CIRA") with violating Sections 206(2) and 206(4) of the Investment Advisers Act of 1940 and Rule 206(4)-7 thereunder; and the Complaint also names Cambridge Investment Research, Inc. as a Relief Defendant. As alleged in part in the SEC Release:
[S]ince at least 2014, CIRA repeatedly breached its fiduciary duty to advisory clients by failing to disclose material conflicts of interest. In particular, the complaint alleges that CIRA invested client assets in certain mutual funds and money market sweep funds that generated millions of dollars in revenue sharing payments to an affiliated broker-dealer, Cambridge Investment Research, Inc., instead of lower-cost share classes and investment options that would have yielded less or no revenue sharing. These undisclosed investment practices, the complaint alleges, also allowed CIRA to avoid paying millions of dollars in transaction fees. In addition, according to the complaint, CIRA converted hundreds of accounts to its more expensive wrap account program without adequate disclosure and without analyzing whether doing so was in its clients' best interests. The complaint further alleges that CIRA failed to disclose that its investment adviser representatives received compensation in the form of forgivable loans in exchange for meeting certain criteria such as maintaining certain asset levels and tenure with CIRA.
FINRA Fines and Suspends Rep In Tequila Fraud
In the Matter of Michael Mandel, Respondent (FINRA AWC 021070900301)
https://www.finra.org/sites/default/files/fda_documents/2021070900301
%20Michael%20Mandel%20CRD%204939165%20AWC%20jlg.pdf
%20Michael%20Mandel%20CRD%204939165%20AWC%20jlg.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, Michael Mandel submitted a Letter of Acceptance, Waiver and Consent ("AWC"), which FINRA accepted. The AWC asserts that Michael Mandel was first registered in 2005, and bet3een August 2008 and December 2015, he was registered with Royal Alliance Associates, Inc.; and, from December 2015 to February 11, 2022, with LPL Financial LLC. In accordance with the terms of the AWC, FINRA found that Mandel violated NASD Rule 3040 (for conduct prior to September 21, 2015), FINRA Rule 3280 (for conduct on and after September 21, 2015), and FINRA Rule 2010; and the regulator imposed upon him a $5,000 fine, a $5,635.35 disgorgement, and a seven-month suspension from associating with any FINRA member in all capacities. As alleged in part in the AWC:
Mandel participated in private securities transactions by soliciting 18 investors, seven of whom were firm customers, to invest a total of approximately $815,000 in a tequila production company. Starting in approximately May 2014, and continuing until at least October 2016, Mandel invited investors to promotional events for the company, introduced them to the company's founder, and provided investors with documents regarding the opportunity to invest. Mandel received $5,635.35 from the tequila company and expected to receive a portion of the founder's equity in the company.During the relevant period, Royal Alliance Associates, Inc. and LPL each prohibited registered representatives from participating in private securities transactions. Mandel did not provide written notice to either firm prior to participating in the transactions, nor did he receive approval from either firm to participate in the transactions. Additionally, Mandel falsely stated on LPL's 2016 annual compliance questionnaire that he had not participated in private securities transactions outside of the firm.On November 15, 2021, the founder of the tequila company pled guilty to charges that he made false and misleading statements to investors in the tequila company and misused investor funds.3 On February 17, 2021, the SEC filed a complaint in the United States District Court for the Southern District of New York against the founder, alleging that he made material misrepresentations to investors in the tequila company and misappropriated investors' funds for personal use. The U.S. District Court issued a judgment against the founder and enjoined him from further violations of the securities laws on December 3, 2021.4= = = = =Footnote 3: United States v. Cimino, Case No. 7:21-cr-334 (S.D.N.Y.).Footnote 4: SEC v. Cimino, Case No. 21-cv-1375 (S.D.N.Y.).As PUBLISHED In "SECURITIES INDUSTRY COMMENTATOR" (November 16, 2021) at
https://www.justice.gov/usao-sdny/pr/hudson-valley-tequila-producer-pleads-guilty-securities-fraud-schemeJoseph Cimino pled guilty in the United States District Court for the Southern District of New York to an Information https://www.justice.gov/usao-sdny/press-release/file/1448046/download charging him with one count of securities fraud and one count of wire fraud. As alleged in part in the DOJ Release:[F]rom in or about 2014 to 2018, CIMINO raised approximately $935,000 from at least 25 investors based on fraudulent representations. To attract investors, CIMINO falsely inflated the amount of capital that he had raised from prior investors, and falsely described as investors several individuals who, in fact, had not contributed any funds. CIMINO also falsely inflated his company's sales. For example, in July 2017, CIMINO claimed in an investor report that year-to-date sales totaled 3,410 cases of tequila, when the actual sales totaled only 350 cases. Similarly, in October 2017, CIMINO falsely claimed that year-to-date sales totaled 6,035 cases, which was approximately five times the actual total. CIMINO further claimed in October 2017 that his company would receive reimbursement for 800 cases of tequila supposedly destroyed at a Puerto Rican warehouse as a result of Hurricane Maria. In reality, no inventory was destroyed in the hurricane, and the company lacked insurance.CIMINO also misused a substantial portion of investor money that was intended to fund the operations of his tequila business for personal expenses. For example, from 2014 to 2018, CIMINO transferred approximately $472,000 of investor money to his personal bank account in order to subsidize his food, entertainment, and other living expenses.
No Good Deed Goes Unpunished As FINRA Sanctions Rep For Lending Money to Friend (BrokeAndBroker.com Blog)
http://www.brokeandbroker.com/6316/finra-loan-awc/
A close friend of yours is in a bind and needs a few thousand bucks for home renovations. You lend him the money. As it turns out, you're a stockbroker. Happily, your friend fully repays you. Some of the repayment comes from the friend's brokerage account and some comes from his bank account. No one's complaining. Everyone's happy. That is, until FINRA pokes its nose into the loan.
Every so often, we are confronted with what I call the "three-handed dilemma" -- you know, when you start with "on the one hand," and then go to "on the other hand," and then find yourself compelled to note another "on the other hand." In an unfolding drama involving a private equity fund manager, the New York State Attorney General, a FINRA registered person, and FINRA, we are quickly running out of hands. On the one hand, we started with the NYAG's victory in a private-equity-fund fraud case. On the other hand, the defendants have appealed the court Order in the NYAG's case. On the other hand, FINRA stepped into the fray with some apparent justification but not without some questionable conduct of its own. Which then prompted a series of on the other hands when FINRA found itself in state court and then federal court and then back in state court.
Federal Courts and FINRA Arbitrators Consider If A Terminable-At-Will Employee Can Be Wrongfully Terminated (BrokeAndBroker.com Blog)
http://www.brokeandbroker.com/6315/warfield-icon-finra/
Let's assume that you just got called into your boss' office and fired. You're angry. The termination was garbage and undertaken in bad faith, or so you say. As you simmer in anger, you dial a lawyer, pay her retainer, and find yourself before a FINRA Arbitration Panel seeking damages for "wrongful termination." Your former employer says you're an at-will employee, and, further, that you and your lawyer are morons because, obviously, you can't wrongfully terminate someone who's an at-will employee. Cleverly, your lawyer argues to the arbitrators that an at-will employee can't be forced to litigate an employment dispute before a FINRA Arbitration Panel; and, since we're all arguing before such a panel, my client was not an at-will employee and, as such, he was wrongfully terminated! Read today's blog to see how the case fared.