The Wall Street Legal & Regulatory Feed
Securities Industry Commentator by Bill Singer Esq
July 2, 2018
Three Convicted In Manhattan Federal Court For The Fraudulent Issuance And Sale Of More Than $60 Million Of Tribal Bonds (DOJ Press Release)
https://www.justice.gov/usao-sdny/pr/three-convicted-manhattan-federal-court-fraudulent-issuance-and-sale-more-60-million
Following a 5 1/2 week trial in the United States District court for the Southern District of New York, defendants John Galanis, a/k/a "Yanni," Devon Archer, and Bevan Cooney were each convicted today of conspiracy to commit securities fraud and securities fraud. , following a five and half week trial before U.S. District Judge Ronnie Abrams. Galanis, Archer, and Cooeny along with co-conspirators Jason Galanis, Hugh Dunkerley, Gary Hirst, and Michelle Morton fraudulently induced the Wakpamni Lake Community Corporation ("WLCC"), a Native American tribal entity, to issue a series of bonds (the "Tribal Bonds"); and, thereafter, the conspirators deceptively induced clients of asset management firms controlled by Morton and others to purchase the Tribal Bonds, which the clients were then unable to redeem or sell because the bonds were illiquid and lacked a ready secondary market. Although the Tribal Bonds were supposed to be invested in an annuity, Hugh Dunkerley, at the direction of Jason Galanis, transferred significant bond proceeds to support the defendants' business and personal interests. Jason Galanis, Michelle Morton, Gary Hirst, and Hugh Dunkerley each pled guilty.
Customer And Brokerage Firm Agree: I Wuz Robbed! (BrokeAndBroker.com Blog)
http://www.brokeandbroker.com/4057/finra-arbitration-romer/
http://www.brokeandbroker.com/4057/finra-arbitration-romer/
In today's featured arbitration, we got an unhappy public customer complaining that he was duped by his stockbroker into an investment that was beset by fraud. Frankly, the customer seems to have had a point. Turns out that the broker-dealer filed its own claim against the stockbroker "for his acts of theft." When your best defense admits that the complaining customer was the victim of theft and you file your own claim seeking to be made whole from by the same thief, there's not that much to do beyond write out a settlement check to the customer.
(SEC Press Release 2018-124)
https://www.sec.gov/news/press-release/2018-124
In anticipation of the institution of proceedings by the SEC but without admitting or denying the findings, Morgan Stanley Smith Barney submitted an Offer of Settlement, which the federal regulator accepted. The SEC issued an order finding that MSSB failed to have reasonably designed policies and procedures in place to prevent its advisory representatives from misusing or misappropriating funds from client accounts. Although MSSB's policies provided for certain reviews of disbursement requests,the order found that the reviews were not reasonably designed to detect or prevent such potential misconduct. Pointedly, the order found that the cited lapses contributed to MSSB's failure to detect or prevent advisory representative Barry F. Connell, from misusing or misappropriating approximately $7 million out of four advisory clients' accounts in approximately 110 unauthorized transactions occurring over a period of nearly a year. MSSB is required to pay a $3.6 million penalty, and will be censured and subject a to cease-and-desist order, and has agreed to undertakings related to the firm's policies and procedures. The SEC previously filed fraud charges against Barry Connell, who was also criminally charged. READ the FULL TEXT SEC Order
https://www.sec.gov/litigation/admin/2018/34-83571.pdf
In anticipation of the institution of proceedings by the SEC but without admitting or denying the findings, Morgan Stanley Smith Barney submitted an Offer of Settlement, which the federal regulator accepted. The SEC issued an order finding that MSSB failed to have reasonably designed policies and procedures in place to prevent its advisory representatives from misusing or misappropriating funds from client accounts. Although MSSB's policies provided for certain reviews of disbursement requests,the order found that the reviews were not reasonably designed to detect or prevent such potential misconduct. Pointedly, the order found that the cited lapses contributed to MSSB's failure to detect or prevent advisory representative Barry F. Connell, from misusing or misappropriating approximately $7 million out of four advisory clients' accounts in approximately 110 unauthorized transactions occurring over a period of nearly a year. MSSB is required to pay a $3.6 million penalty, and will be censured and subject a to cease-and-desist order, and has agreed to undertakings related to the firm's policies and procedures. The SEC previously filed fraud charges against Barry Connell, who was also criminally charged. READ the FULL TEXT SEC Order
https://www.sec.gov/litigation/admin/2018/34-83571.pdf
SEC Division of Corporation Finance Staff No-Action, Interpretive & Exemptive Letters
Waiver: Morgan Stanley Smith Barney LLC (June 29, 2018)Waiver: Morgan Stanley Certain Unauthorized Transactions (June 29, 2018)
I mean, seriously? First the SEC goes out and whacks these firms to the extent that technically they would be deemed "ineligible issuers," and then, wink, wink, nudge, nudge, say no more, the magical wand of forgiveness is passed thrice over the heads of the miscreants and all is good and at peace in the realm? READ SEC Commissioner Stein Stands Alone In Her Defense Of The Investing Public And Industry (BrokeAndBroker.com Blog, May 22, 2015).Yeah, sure, I know, Wall Street would grind to a stop if the nuclear option of ineligibility were imposed. Odd though -- when it comes to pennystock hustlers, felons, market manipulators, and the like, no such mercy is shown. How is that?
Based on the facts and representations in your letter, and assuming FIRM complies with the Order, we have determined that FIRM has made a showing of good cause under clause (2) of the definition of ineligible issuer in Rule 405 and that FIRM will not be considered ineligible issuers by reason of the entry of the Order. Accordingly, the relief described above from FIRM being ineligible issuers under Rule 405 of the Securities Act is hereby granted. Any different facts from those represented or failure to comply with the terms of the Order would require us to revisit our determination that good cause has been shown and could constitute grounds to revoke or further condition the waivers. The Commission reserves the right, in its sole discretion, to revoke or further condition the waivers under those circumstances.
SEC Charges New York-Based Firm and Supervisors for Failing to Supervise Brokers Who Defrauded Customers (SEC Press Release 2018-123)
https://www.sec.gov/news/press-release/2018-123
https://www.sec.gov/news/press-release/2018-123
In anticipation of the institution of proceedings by the SEC but without admitting or denying the findings, broker-dealer Alexander Capital L.P. and two of its managers Philip A. Noto II and Barry T. Eisenberg each submitted an Offer of Settlement, which the federal regulator accepted. The SEC issued orders finding that Alexander Capital failed to reasonably supervise brokers William C. Gennity, Rocco Roveccio, and Laurence M. Torres; and, that the firm lacked reasonable supervisory policies and procedures and systems to implement them. Further, the SEC found that Noto and Eisenberg ignored red flags indicating excessive trading and failed to supervise brokers. In addition to hiring an independent compliance consultant, Alexander Capital agreed to be censured and pay $193,775 of allegedly ill-gotten gains, $23,437 in interest, and a $193,775 penalty. Noto agreed to a permanent supervisory bar and to pay a $20,000 penalty; and Eisenberg agreed to a five-year supervisory bar and to pay a $15,000 penalty. These penalties will be paid to harmed retail customers. READ the FULL TEXT SEC ORDERS: Alexander; Noto; and Eisenberg