Securities Industry Commentator by Bill Singer Esq

SEC Claims Review Staff Tortures Whistleblower With Denial of Eventual $14 Million Award (BrokeAndBroker.com Blog)

TM Staff Statement / SEC Division of Trading and Markets

Statement on Planned Departure from the Commission by SEC Commissioner Allison Herren Lee

Reporter Teri Buhl Wins Summary Judgment In High-Profile Harvey Kesner Defamation Case

Harvey J. Kesner, Plaintiff/Counter-Defendant v. Teri Buhl, Defendant/Counter-Claimant (Opinion, SDNY)

Nevada Man Convicted by Federal Jury of Fraud and Money Laundering / Defendant Solicited Investments Money from Victims for Drug and Alcohol Rehab Centers in KS and AZ (DOJ Release)

Union County Investment Advisor Arrested for Stealing Client Money (DOJ Release)

Idaho Man Pleads Guilty for Role in Tribal Fraud Scheme (DOJ Release)

FINRA Sanctions Respondents Over Marketing of Financial Technology Platform and Booking of Business/Personal Expenses

FINRA Department of Enforcement, Complainant, v. StockKings Capital LLC and Gregory Antonius Lewis, Respondents (FINRA Offer of Settlement)

FINRA Sanctions Firm and Owner/President/CCO for Suitability and Excessive Trading Supervision

In the Matter of Vorpahl Wing Securities and Tim James Vorpahl, Respondents (FINRA AWC)

FINRA Sanctions Firm for 11 Years of Quarterly AML Testing 

In the Matter of Aegis Investments, Inc., Respondent (FINRA AWC)

Staff of the Division of Trading and Markets ("Staff") urges broker-dealers and other market participants to remain vigilant to market and counterparty risks that may surface during periods of heightened volatility and global uncertainties.  It is always prudent that broker-dealers have strong risk management practices.  In particular, broker-dealers should be mindful of the following.

1. Broker-dealers should collect margin from counterparties to the fullest extent possible in accordance with any applicable regulatory and contractual requirements. 
   
   
2. Concentrated positions of prime brokerage counterparties pose particular concerns.  Staff urges broker-dealers to seek sufficient information to determine counterparties' aggregate positions in any markets that may experience liquidity concerns and work with the counterparties to mitigate risk. 
   
   
3. Staff urges broker-dealers to stress test positions with the proper severity in light of current events and potential market movements, and act to manage the risk of the positions, particularly those that are concentrated, appropriately.
   
   
4. Staff urges broker-dealers to monitor risk management limits, calibrated to the financial resources of the broker-dealer, closely intraday and escalate any breaches promptly to senior management.

This statement represents the views of the Staff.  It is not a rule, regulation, or statement of the Securities and Exchange Commission ("Commission"). The Commission has neither approved nor disapproved its content.  This statement, like all staff statements, has no legal force or effect: it does not alter or amend applicable law, and it creates no new or additional obligations for any person.

My term as Commissioner expires in June of this year, and I have notified President Biden that I intend to step down from the Commission once my successor has been confirmed. Serving investors and the public as a Commissioner and as Acting Chair has been an extraordinary honor. My fellow Commissioners and the Commission staff are dedicated and tireless public servants, and working alongside them has been the privilege of a lifetime. Over the coming weeks and months, I will remain actively engaged in the Commission's critically important work, and I look forward to continued progress in advancing the Commission's regulatory agenda.

This case involves libel claims arising out of blog posts about plaintiff Harvey J. Kesner ("Kesner") by defendant Teri Buhl ("Buhl"). Kesner is an attorney who represented public companies embroiled in an alleged pump~and-dump stock-selling scheme that became the subject of an investigation by the Securities and Exchange Commission ("SEC"). Kesner's role in his clients' misdeeds was the subject of various unflattering media reports. These led Kesner to bring this libel suit against Buhl, a frequent blogger and investigative journalist focused on financial reporting, Dow Jones & Company, Inc. ("Dow Jones"), and William Alpert ("Alpert"). Kesner's claims against the latter two were based on an October 2018 article Alpert wrote for the Dow Jones magazine Barron's. 

The Court previously dismissed in its entirety Kesner's libel claims against Dow Jones and Alpert, and in principal part Kesner's libel claims against Buhl, for failure to state a claim. See Kesner v. Dow Jones & Co., Inc., 515 F.Supp.3d 149, 158 (S.D.N.Y. 2021), appeal dismissed (2d Cir. Apr. 16, 2021). The Court left standing Kesner's claims only to the extent that Buhl, in three of her many blogs and tweets on the subject, had accused Kesner of criminal activity. Before the Court now is Buhl's motion for summary judgment as to the three surviving claims against her. Also before the Court is Kesner's motion to dismiss a counterclaim that Buhl brought during discovery, asserting a violation of New York Civil Rights Law § 70-a.

For the reasons that follow, the Court grants both Buhl's summary judgment motion and Kesner's motion to dismiss. 

From April 2018 through November 2020, Rivero, while serving in his capacity as an investment advisor employed by a large brokerage firm, misappropriated at least $529,870 from four clients. Rivero, who had been entrusted to manage client funds responsibly, instead perpetrated a scheme to defraud multiple clients. He obtained his clients' money under the fraudulent pretense that he would invest the funds, but instead, Rivero unlawfully diverted the funds to enrich himself and others.

[WSEDC], also known as Warm Springs Ventures (WSV), is a Tribal organization owned and operated by the Warm Springs Tribes. WSV operates as the management organization for several Tribal business entities, including the Warm Springs Construction Enterprise (WSCE).

Ariwite and an accomplice, Thomas Valentino Adams, 49, a Nevada resident and the former manager of WSCE, created a construction company called Warbonnet Construction Services LLC. While drawing tribal salaries and travel reimbursements, Ariwite and Adams engaged in work projects for Warbonnet. In 2018, Ariwite and Adams used tribal funds to hire a subcontractor for a Warbonnet project and submitted vouchers for expenses they incurred on behalf of themselves and Warbonnet, which were reimbursed with tribal funds. In total, Ariwite and Adams' scheme cost the Warm Springs Tribes more than $50,000.

On September 24, 2020, a federal grand jury in Portland returned a six-count indictment charging Ariwite and Adams with conspiracy and theft of funds from a Tribal organization. In a separate indictment, Ariwite was charged with one count of interstate transportation of a security taken by fraud.

Ariwite faces a maximum sentence of 15 years in prison, a $500,000 fine and three years' supervised release. He will be sentenced on June 6, 2022 before U.S. District Court Judge Michael W. Mosman.

As part of his plea agreement, Ariwite has agreed to pay $39,613 in restitution to the Warm Springs Tribes and $3,000 to an unnamed adult victim.

On August 23, 2021, Adams pleaded guilty to theft of funds from a Tribal organization. He will be sentenced on March 29, 2022 before Judge Mosman.

Since 2013, Gregory Antonius Lewis has been the founder, majority owner, and Chief Executive Officer (CEO) of FINRA member StockKings Capital LLC ("StockKings Capital" or the "Firm"). From the time he formed StockKings Capital, Lewis has maintained financial and decision-making control over the Firm.

In 2015, Lewis began raising funds for a business that he told potential investors would aggregate and analyze investor portfolios on a financial technology platform. In a series of unregistered, private securities offerings from 2015 through 2019, Lewis raised more than $2.7 million for this business. However, Lewis never launched this platform. 

In connection with his solicitation efforts, from November 2016 to December 2018, Lewis and the Firm created and transmitted investment materials that made false, exaggerated, misleading, promissory, and unwarranted claims about StockKings Holdings, Inc. ("StockKings Holdings"), StockKings Capital, and StockKings.com-the platform they were purportedly developing. (StockKings Holdings and StockKings Capital are referred to collectively as "StockKings.") In these documents, Lewis and StockKings: falsely claimed they had received a patent; overstated the progress StockKings had made toward bringing its platform to market; falsely claimed the StockKings.com platform was stalled due to a FINRA materiality consultation; and made baseless and unwarranted valuation claims and revenue projections. As a result, StockKings Capital and Lewis violated FINRA Rules 2210(d)(1) and 2010. 

Separately, from January 2017 through September 2019, Lewis used over $42,000 of StockKings Capital funds to pay for personal expenses. Lewis directed the Firm's FINOP to misclassify those expenses as business expenses of the Firm. As a result, Lewis caused the Firm to maintain inaccurate books and records, which were in turn used to create FOCUS reports that inaccurately understated Lewis's compensation and overstated the Firm's expenses. By causing StockKings Capital to maintain inaccurate books and records, Lewis violated FINRA Rules 4511 and 2010. By failing to maintain accurate books and records, StockKings Capital violated Section 17(a) of the Securities Exchange Act of 1934 ("Exchange Act") and Rules 17a-3 and 17a-5 thereunder, and it violated FINRA Rules 4511 and 2010. 

Finally, StockKings Capital failed to make all of the required disclosures with respect to the intended use of proceeds, offering expenses, and the amount of selling compensation to be paid in its offering documents in 2015 and 2018 and, relatedly, failed to timely file offering documents with FINRA for two separate member private offerings in 2015 and 2018. As a result, StockKings Capital violated FINRA Rules 5122 and 2010.

During the relevant period, Vorpahl Wing's WSPs required Vorpahl to establish and maintain a supervisory system and WSPs reasonably designed to achieve compliance with FINRA's suitability rule, including the obligation to detect and review for unsuitable and excessive trading. In accordance with the firm's system and WSPs, Vorpahl was the firm's designated principal responsible for supervising for potentially unsuitable and excessive trading, which included, but was not limited to: reviewing Daily Activity Reports containing trade blotter information, daily order tickets, and monthly exception reports, known as Monthly Active Account Reports. The Monthly Active Account Reports identified, among other things, accounts with: (i) greater than 10 trades per month; and (ii) commissions greater than $1,200 per month. 

The Monthly Active Account Reports included both the annualized turnover rates and the commission-to-equity ratios for the current month, the past three months, and the past 12 months. The reports also included the total number of trades, and total commissions for the same time periods. 

Notwithstanding the inclusion of turnover rates and commission-to-equity ratios, as well as other information contained in these reports, Vorpahl Wing and Vorpahl failed to establish WSPs reasonably designed to specify how Vorpahl, the firm's direct supervisor for the former registered representative and the firm's other registered representatives, should review transactions in customer accounts for potentially unsuitable and excessive trading. For example, during the relevant period, the firm had no WSPs: (i) addressing or establishing thresholds for annualized turnover rates and cost-to-equity ratios; (ii) specifying criteria for identifying and investigating active or potentially excessive trading; or (iii) addressing when the supervising principal (i.e., Vorpahl) should contact customers to verify whether trading in their accounts was acceptable.

. . .

During the relevant period, Vorpahl was the former registered representative's direct supervisor and was responsible for reviewing and supervising the former registered representative's trading activity. As set forth below, Vorpahl identified red flags indicating that the former registered representative was recommending unsuitable and excessive trading in two customer accounts but failed to reasonably respond to the red flags. Customers 1 and 2 were retired and Customer 1 was a senior customer. 

Specifically, Vorpahl Wing and Vorpahl were aware of, but failed to respond to, the following red flags that should have alerted them to the former registered representative's trading recommendations involving potentially unsuitable and excessive trading: 

• the accounts appeared on the firm's Monthly Active Account Reports (exception reports) and reflected high annualized turnover rates and commission-to-equity ratios; 
• n-and-out trading occurred in the accounts-i.e., the sale of all or part of the securities in an account and the reinvestment of the sales proceeds in other securities, followed by the sale of newly acquired securities; 
• the customers' investment objectives and risk tolerance were inconsistent with the short-term trading activity occurring in their accounts; and 
• the customers were sustaining losses due to the former registered representative's unsuitable and excessive trading. 

Vorpahl Wing and Vorpahl failed to take any reasonable action in response to the red flags associated with the former registered representative's unsuitable and excessive trading in the customers' accounts. While Vorpahl sent certain form letters to customers, the letters did not reflect that the customers' accounts were being excessively traded, nor did the letters quantify the number of trades or the costs incurred as a result of the former registered representative's trading. 

The two customer accounts at issue had annualized turnover rates from 6.49 to 6.78 and cost-to-equity ratios ranging from 20.68% to 24.46%. And, as a result of the former registered representative's unsuitable and excessive trading, the customers collectively paid $35,223.82 in commissions and other costs. 

Based on the foregoing, Vorpahl Wing and Vorpahl failed to reasonably supervise the trading activities of the former registered representative by failing to reasonably respond to red flags indicative of unsuitable and excessive trading. 

Although Aegis Investments conducted quarterly testing of its AML compliance program between 2011 and 2020, the test was performed by a registered representative² who was supervised by, and reported to, the firm's AML Compliance Officer and therefore was not "independent" as required by FINRA Rule 3310(c). Because the testing focused on reviewing transactions for unusual activity and did not evaluate the firm's written AML procedures or compliance program, Aegis Investments also failed to conduct a risk-based review of its AML program and its compliance with the Bank Secrecy Act. 

= = =

Footnote 2: The individual became registered as a General Securities Principal in 2014. 

This Corrective Action Statement is submitted by the Respondent. It does not constitute factual or legal findings by FINRA, nor does it reflect the views of FINRA, or its staff.

Immediately upon learning from the FINRA examiners that the person assigned to conduct the AML test was not qualified to perform the independent AML test, Aegis hired a qualified outside independent firm to conduct the independent AML annual audit. A contract was signed on July 20, 2021 for the current year and each year going forward. The audit was completed in August 2021. The auditor's recommendations for the written supervisory procedures and training were implemented in September 2021. A date has already been determined for the 2022 audit.

• Securities Industry Commentator
• Bill Singer