The Wall Street Legal & Regulatory Feed
Securities Industry Commentator by Bill Singer Esq WEEK IN REVIEW
June 16, 2018
State Attorneys General offices in Alabama, Alaska, Arizona, Arkansas, California, Colorado, Connecticut, District of Columbia, Delaware, Florida, Georgia, Idaho, Illinois, Indiana, Iowa, Kansas, Louisiana, Maine, Maryland, Massachusetts, Michigan, Minnesota, Missouri, Montana, Nebraska, Nevada, New Jersey, New York, North Carolina, North Dakota, Ohio, Oklahoma, Oregon, Pennsylvania, Rhode Island, South Carolina, Tennessee, Utah, Virginia, Washington, West Virginia, and Wisconsin.announced a $100 million settlement with Citibank for fraudulent conduct involving U.S. Dollar (USD) LIBOR, a benchmark interest rate. READ the FULL TEXT Settlement Agreement. Citibank allegedly misrepresented the integrity of the LIBOR benchmark by concealing, misrepresenting, and failing to disclose that it had made USD LIBOR submissions to avoid negative publicity and protect the reputation of the bank; asked Citibank personnel to avoid offering higher rates than Citibank's USD LIBOR submissions; and that other banks purportedly made USD LIBOR submissions that were inconsistent with their borrowing rates and contributed to inaccurate LIBORs.
United States of America v. Paul J. Manafort, Jr., and Konstantin Kilimnik, Defendants (Superseding Indictment, 17-CR-00201, United States District Court for the District of Columbia / June 8, 2018)
District Judge Amy Berman Jackson granted the government's motion, revoked Defendant Manafort's bail, and ordered him to jail over charges that he had tampered with witnesses while out on bail awaiting trial on federal conspiracy and money-laundering charges.
GUEST BLOG: A Suicide On Wall Street (BrokeAndBroker.com Blog)
Today's BrokeAndBroker.com Blog presents a "Guest Blog" reprinted from an email, which was sent to us by an individual who prefers to maintain his anonymity and has asked to be known only as "A Former NASD Employee." It is a powerful and heart-wrenching story about a former regulator who became an industry compliance officer. Tomorrow, our publisher Bill Singer will offer his comments. For today, we let the email speak for itself.
The Human Factor On Wall Street (BrokeAndBroker.com Blog)
"A Former NASD Employee" shoves our faces in the toilet bowl and makes us hold our breath as we struggle. It's not a pretty picture. We have an industry where good people often find themselves at bad firms. Some say that's part of the problem. Good folks shouldn't work at bad firms. Good folks shouldn't rationalize how they are furthering fraud. Good folks shouldn't prop up dishonest firms and low-life stockbrokers.
The Human Factor On Wall Street (BrokeAndBroker.com Blog) "A Former NASD Employee" shoves our faces in the toilet bowl and makes us hold our breath as we struggle. It's not a pretty picture. We have an industry where good people often find themselves at bad firms. Some say that's part of the problem. Good folks shouldn't work at bad firms. Good folks shouldn't rationalize how they are furthering fraud. Good folks shouldn't prop up dishonest firms and low-life stockbrokers.
Montana Man Sentenced to 36 Months in Prison for Designing Fraudulent Mail Solicitations for Use in Transnational Elder Fraud Scheme (DOJ Press Release) Federal prosecutors had alleged that Thomas Ressler created more than 200 fraudulent sweepstakes and prize-notification letters that falsely informed recipients they could claim cash or other valuable prizes by submitting a processing or delivery fee. Co-conspirators Ryan Young and Ercan Barka sent the solicitations to victims throughout the United States and foreign countries. No victim who submitted a fee in response to a solicitation ever received the large cash prize or other valuable items touted in the solicitations. At most, some victims received a report listing unrelated sweepstakes or a worthless piece of jewelry. Barka and Young pled guilty and are awaiting sentencing. Ressler pled guilty to conspiracy to commit mail fraud and was sentenced to 36 months in prison.
Former CEO Of Sunnyvale-Based Tech Company Sentenced To Two Years In Prison For Insider Trading In His Company's Securities /Defendant Traded Before Negative Earnings Announcements and an Acquisition of the Company (DOJ Press Release) Former President, Chief Executive Officer, and Chair of the Board of Directors of Alliance Fiber Optic Products, Inc. (AFOP), Peter C. Change pled guilty in the United States District Court for the Northern District of California to having used two brokerage accounts, held in the names of his brother and his wife, to purchase and sell AFOP stock based upon material nonpublic information about the company,. Said trades allowed Chang to avoid losses in advance of earnings announcements and to generate profits in advance of the public announcement of AFOP's acquisition. Chang was sentenced to 24 months in prison plus three years supervised release.
California Man Charged In White Plains Federal Court With Operating Multimillion-Dollar Mail Fraud Scheme Targeting Small Businesses (DOJ Press Release) Mark Mushkin was charged in a Complaint filed in the United States District Court for the Southern District of New York with mail fraud for allegedly operating a scheme between 2011 and 2017 in which he sent false invoices to over 800 small businesses throughout the country, predominately law firms, from a IT Tech Products demanding payments for the purported shipment and sale of copier toner. Victimized businesses allegedly paid about $3.3 million in response to the invocies. Over 800 businesses mailed over 1,900 checks to IT Tech Products based on their mistaken belief that the invoices were legitimate. These checks totaled approximately $3.3 million and were deposited into a bank account controlled by MUSHKIN. In the event that a business inquired about the origin of the invoice after payment had been made, MUSHKIN or a representative of IT Tech Products would send a refund, allowing him to continue operating his scheme undetected.
CFTC Charges Florida-Based Mark Olsen Mining Company and Betty Lea Grimes with Engaging in Illegal, Off-Exchange Precious Metals Transactions (CFTC Press Release 7738-18) The CFTC filed a Complaint in the United States District Court for the Southern District of Florida charging Mark Olsen Mining Company (MOMC) and the firm's President, controlling person, and managing member Betty Lea Grimes with engaging in allegedly illegal, off-exchange transactions in precious metals with retail customers on both a fully paid as well as a leveraged, margined, or financed basis. Neither MOMC nor Grimes has ever been registered with the CFTC. READ the FULL TEXT Complaint.
GUEST BLOG: A Suicide On Wall Street (BrokeAndBroker.com Blog) Today's BrokeAndBroker.com Blog presents a "Guest Blog" reprinted from an email, which was sent to us by an individual who prefers to maintain his anonymity and has asked to be known only as "A Former NASD Employee." It is a powerful and heart-wrenching story about a former regulator who became an industry compliance officer. Tomorrow, our publisher Bill Singer will offer his comments. For today, we let the email speak for itself.
United States of America v. AT&T Inc., DirectTV Group Holdings, LLC, and Time Warner Inc. (Opinion, United States District Court for the District of Columbia, 17-CV-02511 / June 12, 2018) READ FULL TEXT DOJ Complaint, DDC Opinion, and DOJ Pleadings Archive Senior Judge Richard J. Leon of the United States District Court for the District of Columbia denied DOJ's request to enjoin the proposed merger. Imposes no conditions. Denies any stay. Concluded that the government has failed to meet its burden of proof, and characterized the Antitrust Division's arguments against the deal as "fatally anemic" and "gossamer thin." Says:
[T]o use a stay to accomplish indirectly what could not be done directly -- especially when it would cause certain irreparable harm to the defendants -- simply would be unjust. I hope and trust that the Government will have the good judgment, wisdom, and courage to avoid such a manifest injustice. To do otherwise, I fear, would undermine the faith in our system of justice of not only the defendants, but their millions of shareholders and the business community at large.
SEC Charges Merrill Lynch for Failure to Supervise RMBS Traders / Merrill Ordered to Return More than $10.5 Million to Harmed Customers (SEC Press Release 2018-105) Merrill Lynch, Pierce, Fenner & Smith Inc. will pay over $10.5 million to its customers and about $5.2 million in penalties pursuant to a settlement of SEC charges that the firm's employees misled customers into overpaying for Residential Mortgage Backed Securities (RMBS). As set forth in the SEC Order, Merrill Lynch traders and salespersons deceived customers about the price Merrill Lynch paid to acquire the securities, which resulted in undisclosed profits in the form of mark-ups. Merrill Lynch allegedly failed to have compliance and surveillance procedures in place that were reasonably designed to prevent and detect the misconduct.
SEC Charges Canadian Accountant with Insider Trading (SEC Litigation Release No. 24164) In a Complaint filed in the United States District Court for the District of New Jersey, the SEC's charged Kurt J. Bordian with violating Section 10(b) of the Securities Exchange Act of 1934, and Rule 10b-5 thereunder. Without admitting or denying the allegations in the SEC's complaint, Bordian consented to the entry of a final judgment that permanently enjoins him from future violations, prohibits him from acting as an officer or director of a public company, and orders him to pay disgorgement of $220,500, prejudgment interest of $14,358, and a civil penalty of $220,500. Bordian also consented to an SEC order suspending him from appearing or practicing as an accountant before the federal regulator. While working as an accountant and personal assistant for a director of InterOil Corporation, Bordian alleged received e-mail messages indicating that the company was entering into a merger; which prompted him to purchase out-of-the-money InterOil call options that ultimately yielded a $220,500 profit.
R.I.P. PCAOB Audits by Stephen Kohn (BrokeAndBroker.com Guest Blog) FINRA Small Firm advocate and industry reformer Stephen Kohn views the PCAOB Audi as "one of the most egregious requirements stuffed down our throats that I can remember in my 22 years of small firm ownership." Kohn reports that bi-partisan Senate and House Bills are attempting to make their way to the respective floors for approval. Learn more about the proposed changes and what you can do to further the effort. FULL TEXT Bills and Congressional Contact Lists online.
U.S, Attorney Brady Announces the Arrest in Nigeria of an Individual who Conspired with 4 Others Charged in a Business E-Mail Compromise Scheme / Arrest is part of a coordinated International Enforcement Operation targeting hundreds of individuals in BEC schemes (DOJ Press Release) Taiwo Musiliudeen Idris was charged in a criminal complaint in the United States District Court for the Western District of Pennsylvania with one count of conspiracy to commit money laundering as part of a Business Email Compromise (BEC) scheme, which targets businesses that regularly perform wire transfer payments, as well as individuals, including the elderly and purchasers of real estate. A BEC scheme typically involve impersonating a key employee or other party in order to gain access to that person's email account and then dupe victims into wiring funds. Idris was allegedly one of 29 individuals arrested in Nigeria caught as the result of Operation Wire Wire, a coordinated law enforcement effort by the U.S. Department of Justice, U.S. Department of Homeland Security, U.S. Department of the Treasury, and the U.S. Postal Service, to disrupt Business Email Compromise (BEC) schemes. Idris allegedly conspired with Ismail Shitu, Nathanael Nyamekye, Adnan Ibrahim, and Akintayo Bolorunduro to launder over $411,000 in fraudulently obtained real estate settlement proceeds from victimized sellers of residential property in Maryland, along with their real estate company, and the settlement company. Shitu, Ibrahim, and Bolorunduro pleaded guilty to conspiracy to commit money laundering. Bolorunduro was sentenced to 63 months' imprisonment.
In the Matter of Play La Inc. and Titan Trading Analytics, Inc. (Order Regarding Service and Postponing Hearing, Admin. Proc. Rul. Rel. No. 5788; Admin. Proc. File No. 3-18492 / June 11, 2018) SEC Chief Administrative Law Judge Brenda P. Murray considered the manner of service on a British Virgin Islands corporation of an order instituting proceedings ("OIP:). In part the ALJ found that the attempted service of the OIP was not compliant with methods authorized for international service.
SEC Obtains Emergency Order Halting Securities Offering Scheme (DOJ Litigation Release No. 24162) The SEC filed a Complaint in the United States District Court for the Southern District of Florida charging Dragon-Click Corp, Isaac Grossman, Adriana Grossman and Dragon Management, LLC with violations of Section 17(a) of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934 and Rules 10b-5(a) and 10b-5(c) thereunder, and Dragon-Click Corp and Isaac Grossman with additional violations of Section 10(b) of the Exchange Act and Rule 10b-5(b) thereunder. The Complaint alleges that Dragon-Click Corp, its president Isaac Grossman, his wife Adriana Grossman, and her unregistered investment adviser Dragon Management, LLC with an ongoing fraudulent offering of Dragon-Click stock and membership interests in Dragon Partners, LLC. The Grossmans allegedly misused at least $1.3 million in investor funds to pay their personal living expenses and to fund their lifestyle, which included funding Isaac Grossman's gambling habits as well as the purchase of luxury vehicles and jewelry. The Court ordered a halt to the alleged ongoing fraud and approved an emergency asset freeze. READ the FULL TEXT SEC Complaint
Town Officials in New York Who Hid Financial Troubles from Bond Investors Agree to Lifetime Municipal Security Bars (SEC Litigation Release No. 24161) In addition to the lifetime municipal security bars from participating in municipal bond offerings, Nachman Aaron Troodler, Nathan Oberman and Michael Klein were permanently enjoined in the United States District Court for the Southern District of New York from violating Section 17(a) of the Securities Act of 1933, and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder. Oberman was ordered to pay $10,000 in civil penalties and Klein to pay $25,000 in civil penalties. Additionally, Oberman and Klein were required to resign from their employment with Ramapo, N.Y. and they are prohibited for five and seven years, respectively, from being employed by Ramapo. The SEC's litigation against Christopher St. Lawrence continues.
FINRA Suspends Stockbroker For Reimbursing Customer Options Losses (BrokeAndBroker.com Blog) Wall Street can be a frustrating, infuriating, puzzling, and perplexing place to work. And those emotions can be felt with equal fervor by the industry's firms, employees, public customers, and regulators. At times, it seems that you get rewarded for doing bad and punished for doing good. Other times, what, at first blush, seemed good turns out to be bad and vice versa. There are no easy answers. There are no easy solutions. In today's BrokeAndBroker.com Blog we consider the story of a stockbroker who made a nice chunk of change for his customer in the speculative world of options trading -- that is, until the stockbroker made a few lousy investments and lost a nice chunk of change for the same customer. The options trading losses shocked the stockbroker, who came up with a formula to repay his client. It's nice that a stockbroker puts his money where his mouth is and digs into his own pocket when a proposed investment goes into the toilet. I'm sure the client thought he was dealing with a stand-up guy. The thing is, however, that the stockbroker entered into the repayment schedule without telling his employer brokerage firm. They got a rule against that on Wall Street. When you understand the rationale for the rule, it makes sense. Making sense is a good thing. How we make sure that sensible things get done isn't always a pretty sight to behold, as today's FINRA regulatory settlement demonstrates.
Assistant Bank Manager and Wife Charged in Bank Fraud Scheme (DOJ Press Release) Former Citizens Bank Assistant Manager Craig Green and his wife Bridgette Green were indicted in the United States District Court for the Eastern District of Pennsylvania on one count of conspiracy to commit bank fraud, one count of bank fraud, one count of aggravated identity theft, and 26 counts of money laundering. Federal prosecutors allege that Craig Green improperly accessed a customer's bank account information and created a second, fraudulent account in the name of that same customer. After allegedly transferring funds from the legitimate to the fraudulent account, the Greens allegedly wrote checks against the fraudulent account to a co-conspirator, who deposited the checks and thereafter forward about $165,498 to the defendants.
Leavitt Sentenced To 36 Months In Prison After Convictions For Wire Fraud, Money Laundering In Connection With Fraud Scheme (DOJ Press Release) After pleading guilty in the United States District Court for the District of Utah to wire fraud and money laundering in connection with an affinity fraud scheme, Ronald Wayne Leavitt was sentenced to 36 months plus 36 months of supervised release and ordered to pay $519,420.55 in restitution. In part. Lavitt pitched two real estate ventures and a sugar substitute start-up company. He told various investors that he owned several limousines, was the executor of large trust fund, owned property worth millions of dollar, had inherited millions of dollars from his parents. Leavitt spent the majority of his victims' funds and did not undertake the proposed investments.
Statement at Open Meeting on Amendments to the Volcker Rule (Statement by SEC Commissioner Hester Peirce) In what will likely be merely an opening salvo (READ THE FULL TEXT STATEMENT] in the battle to save, remove, or refashion the Volcker Rule, SEC Commissioner Peirce notes in part that
My views on the Volcker Rule are no secret. Although I share the concerns that led to the enactment of this provision of the Dodd-Frank Act -- hat taxpayers should not be required to subsidize banks' proprietary trading -- I believe that the Volcker Rule is an unwieldy tool for addressing these concerns. It attempts to distinguish prohibited proprietary trading from permitted market-making and hedging activity, but because the differences between these activities are exceedingly fine, the regulatory framework is exceedingly complex. It imposes detailed and highly technical restrictions on the activity of banking entities that pose significant and expensive compliance challenges for these entities. . .
"A Framework of Trust" (Speech by SEC Commissioner Kara Stein) SEC Commissioner delivered a thoughtful speech (READ THE FULL TEXT REMARKS) on a number of issues. In pertinent part, she admonished that:
As you think about a possible career in finance and investing, I want you to come back to the two themes I've discussed this evening -- how can smart rules help promote healthy investment? And what is your role, as an investor, adviser or entrepreneur, in helping Americans achieve their dreams? If talented women like you focus on those questions, I am confident that we will be in good hands as your generation steps into leadership roles in the years to come.