The Wall Street Legal & Regulatory Feed
Securities Industry Commentator by Bill Singer Esq WEEK IN REVIEW
September 8, 2018
In the Matter of FINRA Department of Enforcement, Complainant, v. Mark C. Cohen, Respondent. (Office of Hearing Officers, Order Accepting Offer of Settlement, No. 2014040761001). Without admitting or denying the allegations of the Complaint and solely for the purposes of FINRA's proceedings, Respondent Cohen consented to the imposition of the sanction of a Bar. While registered with FINRA member firm MetLife Securities, Inc., Cohen obtained at least $14,6060.94 in reimbursements for false expense reports because the corresponding pre-approved client marketing events did not occur and, therefore, he did not incur any costs As set forth in Paragraph 18 of the Order, Cohen apparently submitted the following:
March 28, 2012: New York Knicks Basketball Game $1,314.15June 5, 2012: Dinner at Porter House Restaurant $2,700.00July 24, 2012: Dinner at The Palm Restaurant $1,630.54October 25, 2013: Dinner at Avenue Restaurant Group $2,962.25November 23, 2013: Kanye West Concert $6,000.00
GUEST BLOG: Labor's Belabored Day By Aegis Frumento Esq (BrokeAndBroker.com Blog) NYU sociologist Richard Sennett researched back-office employees of Wall Street firms in the wake of the 2008 subprime mortgage collapse, and he recounts the industry's long decline, as short-term profits displaced loyalty and culture as business objectives. Mid-level and lower officers soon began thinking that the executives to whom they reported in revolving-door fashion were incompetent hustlers rather than financial professionals. With lack of respect all around, employees with decades of experience were thrown out on the Street with barely a fare-thee-well as firms scrambled to regain quarterly profitability. There will be more of this to come, as blockchain and other technologies threaten to eliminate hundreds of traditional Wall Street positions.
SEC Charges Cannabis Investment Fund and Founder in Fraudulent Scheme / Agency Warns Retail Investors About Risks of Marijuana-Related Investments (SEC Release 2018-177) In a Complaint filed in the United States District Court for the Northern District of Texas, the SEC charges with securities fraud and violations of the registration provisions of the federal securities laws in connection with allegations that they defrauded investors out of over $3.3 million through false promises of massive returns in cannabis-related businesses. The Complaint alleges that Cone employed boiler room sales staff, who made cold calls to investors and promised them up to 24 percent annual returns from investments in Greenview. Allegedly, Cone used an alias to conceal his prior criminal convictions, lied about having a former U.S. Drug Enforcement Administration agent on staff, and falsely claimed to have a long record of profitably investing millions in cannabis-related businesses. Cone allegedly spent investors' money on designer clothes and luxury cars, and on payments to earlier investors to prolong the alleged scheme. The SEC release asserts that Cone agreed to an officer-and-director bar and a permanent injunction, and that the Court will determine disgorgement and prejudgment interest. In a parallel criminal proceeding, the U.S. Attorney's Office for the Central District of California charged Cone and seized approximately $1.4 million in cash and assets. READ the FULL TEXT COMPLAINT
SEC Charges Two Men With Fraud in Fake Trading Accounts Scheme (SEC Release 2018-178)
Michigan Man Admits Role in Worldwide Trading Account Simulator Scheme; Another Conspirator Indicted / Scheme targeted hundreds of investors in more than 30 countries (DOJ Press Release) In a Complaint filed in the United States District Court for the District of New Jersey, the SEC charged Jeffery Golman and Christorpher Eikenberry with fraud and aiding and abetting fraud for their roles in a fake accounts scheme perpetrated by a phony day-trading firm, Nonko Trading. The Complaint alleges that over 260 Nonoko's customers were defrauded out of at least $1.4 million when they deposited funds into what they thought was Nonko's state-of-the-art platform for day-trading professionals. Allegedly, customers' funds were diverted to personal expenses and for Ponzi-like payments to customers who wanted to close their accounts. Allegedly, Nonko deliberately targeted traders who were inexperienced or had a history of trading losses and lured them by promising generous leverage, low trading commissions, and low minimum deposit requirements. In a parallel action, the U.S. Attorney's Office for the District of New Jersey today announced criminal charges against Goldman and Eikenberry. Eikenberry pled guilty to an Information charging him with one count of conspiracy to commit securities fraud. Goldman was indicted on one count of conspiracy to commit securities fraud and one count of wire fraud. Previously, the SEC had charged Naris Chamroonrat and Adam Plumer, who have settled the SEC's charges. Chamroonrat also pled guilty in a parallel criminal case and is awaiting sentencing. Also, the SEC had previously charged Yaniv Avnon and Ran Armon, whose cases are pending -- and they were both also named in a pending criminal case. READ the FULL TEXT SEC COMPLAINT, Goldman Indictment, and Eikenberry Information
Robert Glen Mouritsen was indicted in the United States District Court for the District of Utah on three counts of wire fraud and three counts of money laundering in connection with his alleged fraud perpetrated on friends and fellow church members to give him money to further a financial fraud scheme he called "The Project." Allegedly, the Project involved a series of complicated international transactions that would replace fiat money with an asset-backed currency system with the backing of several governments. Mourtisen failed to tell investors that The Project had failed to produce any returns in over a decade and that he had used significant amounts of investors' funds for his own personal use and benefit.
In the Matter of Lincoln Investment Planning, LLC,, Respondent (AWC 2017053723701, August 5, 2018). 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, Lincoln Investment Planning, LLC,, submitted a Letter of Acceptance, Waiver and Consent ("AWC"), which FINRA accepted. In accordance with the terms of the AWC, FINRA imposed upon Lincoln a Censure and a plan of Remediation. FINRA member firm Lincoln Investment Planning has about 1,506 registered representatives at some 421 branch offices. Allegedly, Lincoln disadvantaged certain retirement plan and charitable organization customers who were eligible to purchase Class A shares in certain mutual funds without a front-end sales charge but were instead sold Class A shares with a front-end sales charge or Class B or C shares with back-end sales charges and higher ongoing fees and expenses. During this period, Lincoln failed to establish and maintain a supervisory system and written supervisory procedures reasonably designed to ensure that Eligible Customers who purchased mutual fund shares received the benefit of applicable sales charge waivers. As a result, Lincoln violated NASD Conduct Rule 3010 (for misconduct before December 1, 2014), FINRA Rule 3110 (for misconduct on or after December 1, 2014), and FINRA Rule 2010.
SEC Charges Former President of Tennessee-Based Company for Deceiving Investors as to Role of Two Convicted Criminals in Oil Investment Scheme (SEC Litigation Release No. 24256) In a Complaint filed in the United States District Court for the Southern District of Georgia, the SEC charged Robert William Dorrance, the former president of Southern Energy Group, Inc., with concealing from investors that two convicted criminals ran the company and led a $15 million oil investment scheme affecting more than 150 investors. Dorrance's main work experience was as a former stereo salesman and he largely performed clerical and administrative work at the direction of the two convicted criminals. Dorrance agreed to be permanently prohibited from violating the antifraud provisions of 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, and to pay $101,075 in disgorgement plus interest, and $42,500 in civil penalties, for a total of $143,575. READ the FULL TEXT COMPLAINT
Ghanian Fraudster Sentenced to Over 10 Years for a $1.4 Million Conspiracy to Commit Bank and Wire Fraud (DOJ Press Release) Following his jury conviction in the United States District Court for the District of Maryland, Mohammed "Kofi" Kwaning was sentenced to 121 months in prison, three years of supervised release, for conspiracy to commit bank and wire fraud, as well as bank and wire fraud, and aggravated identity theft. Federal prosecutors alleged that Kwaning and his co-conspirators attempted to steal nearly $1.4 million in funds from the personal, retirement, and business accounts of various victims after the conspirators had acquired account information of individual victims, including from investment account management firms, as well as forged checks containing bank account information of both individual and corporate victims from across the United States.
SEC Charges Telecommunications Expense Management Company with Accounting Fraud (SEC Litigation Release No. 24255) In a Complaint filed in the United States District Court for the District Connecticut, the SEC charged Tangoe Inc. (a purported telecommunications management company), its former CEO Albert R. Subbloie, former CFO Gary R. Martino, former Vice President of Finance Thomas H. Beach, and former Senior Vice President of Expense Management Operations Donald J. Farias with violating antifraud provisions of the federal securities laws. The Complaint alleged that Tangoe improperly recognized about $40 million of revenue, and, at times, reported revenue prematurely for work that had not been performed and also for non-revenue-producing transactions . The SEC alleges that Donald J. Farias, a Tangoe executive, falsified business records, some of which were provided to Tangoe's external auditors to support revenue recognition decisions. Without admitting or denying the allegations, Tangoe, Subbloie, Martino, and Beach have agreed to settle the SEC's charges and to pay civil penalties in the amount of $1.5 million, $100,000, $50,000, and $20,000, respectively.
Maryland Man Sentenced to Prison in Bank Scam That Defrauded Victims Out of Over $560,000 (DOJ Release) After pleading guilty to one count of wire fraud, Mohammed Mohajer was sentenced in the United States District Court for the Middle District of Florida to 33 months in prison plus three years of supervised release, and ordered to forfeit $194,000, and pay restitution in the amount of $565,000 to two victims. Mohajer defrauded his victims out of $565,000 via a scam in which he falsely represented that he had a relationship with a bank in the Dominican Republic, and that in exchange for an up-front payment, he could help them access credit at the bank, and that the bank would confirm access to said funds via the issuance of a SWIFT interbank message to the victims' designated banks.
FINRA Ends The Beguine But Did It Begin The Beguine? (BrokeAndBroker.com Blog) In a recent FINRA regulatory settlement, we know how things turned out: a stockbroker is barred. We even know what caused the mess: the diversion of an elderly customer's checks. What we can't quite figure out is how FINRA found out about the misconduct and what prompted the regulator's ensuing investigation. Yes, it all ends well from a public policy perspective but something just doesn't seem right. We can find the end. We can't quite find the beginning.
Defendant Misrepresented His Connections to the Red Hot Chili Peppers and Falsified an Escrow Account to Secure a $450,000 Payment (DOJ Release) Quincy Krashna pled guilty in the United States District Court for the Northern District of California to one count of wire fraud and was sentenced to 24 months in prison plus a three-year term of supervised release, and ordered to pay $450,000 in restitution. The victims were interested in promoting Red Hot Chili Peppers concerts in Eastern Europe, and Krashna misrepresented that he would hold in an escrow account a $450,000 down payment to secure the band's services. The concert promoters wired $450,000 into a fake escrow account created by Krashna, who transferred the money into other accounts that he controlled.
In the Matter of Massachusetts Financial Service Company, Respondent (Order Instituting Proceedings, Making Remedial Findings, and Imposing Sanctions and Cease-and-Desist; '40
Rel. No. 4999; Admin. Proc. File No. 3-18704) In anticipation of the institution of proceedings by the SEC but without admitting or denying the findings, Massachusetts Financial Service Company ("MFS") submitted an Offer of Settlement, which the federal regulator accepted. The SEC imposed upon MFS a Censure, Cease-and-Desist, a $1.9 million civil penalty. As set forth in the "Summary" portion of the Order:
1. This matter arises from material misstatements and omissions by registered investment adviser MFS to certain of its advisory clients and others concerning hypothetical stock returns associated with MFS's blended research stock ratings. In 2001, MFS introduced its blended research strategies to investors. The blended research strategies combine research ratings from MFS's fundamental analysts and quantitative models to manage portfolios of stocks for client investment.2. From approximately 2006 to 2015, MFS advertised that the basis of its blended research philosophy was that fundamental and quantitative management styles excel in differing market conditions, and that blending fundamental and quantitative stock ratings could over time yield better returns than either type of ratings alone. To illustrate the validity of its claim that blending two sources of ratings was better than one source alone, MFS advertised the results of a hypothetical portfolio of stocks rated "buy" by both MFS's fundamental analysts and quantitative models. In its advertisements, MFS showed how this hypothetical portfolio had annualized returns from 1995 forward that exceeded the annualized returns of either a hypothetical portfolio of fundamental "buy" rated stocks or a hypothetical portfolio of quantitative "buy" rated stocks.3. MFS's advertisements that demonstrated the superior returns of the hypothetical portfolio of stocks rated "buy" by both MFS's fundamental analysts and quantitative models were misleading because the materials failed to disclose that some of the quantitative ratings used to create the hypothetical portfolio were determined using a retroactive, back-tested, application of MFS's quantitative model. Specifically, for the period 1995-2000, MFS used back-tested quantitative ratings. For the period 2000-2003, MFS used some live quantitative ratings and some back-tested ratings. In some advertisements, MFS also falsely claimed that the hypothetical portfolio was based on MFS's own quantitative stock ratings dating back to the mid-1990s, even though before 2000 MFS did not have a quantitative research department or generate its own quantitative stock ratings. MFS started the performance period in 1995 instead of 2000 or 2003 because its stored fundamental ratings dated back to 1995 and the longer period reflected multiple market environments; but inclusion of the market environments in the backtested period also contributed to the superior performance of the blended "buy" ratings portfolio. MFS advertised these hypothetical returns to institutional clients and prospective institutional clients, financial intermediaries (including broker-dealers, insurance companies, and investment advisers) and consultants. As a result, MFS violated Sections 206(2) and 206(4) of the Advisers Act and Rule 206(4)-1(a)(5) thereunder by publishing, circulating, and distributing advertisements that contained misleading statements of material fact.4. MFS's misleading advertisements were due in part to a failure to adopt and implement written compliance policies and procedures reasonably designed to prevent violations of the Advisers Act and the rules thereunder, as required by Section 206(4) of the Advisers Act and Rule 206(4)-7. Specifically, MFS failed to adopt and implement policies and procedures reasonably designed to prevent inaccurate advertisements that it directly or indirectly published, circulated, or distributed.
OPEN CALL For BrokeAndBroker.Com Blog Contributors
http://www.brokeandbroker.com/4161/open-call-guest-bloggers/
http://www.brokeandbroker.com/4161/open-call-guest-bloggers/
If you would like to pitch a Guest Blog for the BrokeAndBroker.com Blog, please send a brief outline of the proposed article to rrbdlawyer@gmail.com. I don't open attached files from unknown senders, so make sure that your pitch is in the text portion of the email. There is no compensation offered; however, I am happy to include in any article your direct contact information and professional biography.
Real Estate Developer Charged In Manhattan Federal Court For Operating Years-Long Real Estate Investment Scheme In And Around New York City (DOJ Press Release) Real estate developer Michael D'Alessio was indicted in the United States District Court for the Southern District of New York on wire fraud in connection with alleged defrauding of investors in luxury real estate development projects in Manhattan, the Hamptons, Westchester, and elsewhere. In soliciting investors, D'Alessio allegedly misrepresented that funds would be used only to develop the relevant properties and to cover related business expenses. Allegedly, D'Alessio misappropriated investor funds for his own use and benefit, including to pay off debts, and to fund significant gambling and other personal expenses. READ the FULL TEXT Indictment
FINRA Arbitrators Admit FINRA SEC Regulatory Settlements In UBS Puerto Rico Case
(BrokeAndBroker.com Blog) In the aftermath of Hurricane Maria, Puerto Rico was devastated. Long before that natural disaster hit the island, a man-made storm of equally epic proportion made landfall and hammered the Commonwealth's economy. Over three years ago, Puerto Rican government officials conceded that the public debt was not repayable and the local economy was headed into a death spiral. As the crisis grew and mushroomed, Wall Street just didn't seem to care. It was an opportunity. There were commissions and fees yet to be made. All of which increased the industry's appetite for even riskier debt, which would get sold in tranches or bundled into mutual funds, and, as such, dumped on an unwary and foolish public. As we still sort through the mess in 2018, yet another lawsuit emanating from that era of unsustainable financing pits four public customers against UBS.
(BrokeAndBroker.com Blog) In the aftermath of Hurricane Maria, Puerto Rico was devastated. Long before that natural disaster hit the island, a man-made storm of equally epic proportion made landfall and hammered the Commonwealth's economy. Over three years ago, Puerto Rican government officials conceded that the public debt was not repayable and the local economy was headed into a death spiral. As the crisis grew and mushroomed, Wall Street just didn't seem to care. It was an opportunity. There were commissions and fees yet to be made. All of which increased the industry's appetite for even riskier debt, which would get sold in tranches or bundled into mutual funds, and, as such, dumped on an unwary and foolish public. As we still sort through the mess in 2018, yet another lawsuit emanating from that era of unsustainable financing pits four public customers against UBS.
SEC Charges Two Kentucky Men in Oil-And-Gas Offering Fraud (SEC Litigation Release No. 24254) In a Complaint filed in the United States District Court for the Western District of Kentucky, the SEC alleged Scott Stacy Phelps and James Michael Harper raised about $611,000 through securities sales to nine investors by fraudulently representing that the proceeds would be used to drill for oil in Kentucky despite knowing that two wells drilled were not commercially viable. The Complaint alleges that Phelps and Harper spent the vast majority of the funds on themselves and their families, paying themselves generous six-figure salaries, and using the investor funds for rent, vacations, consumer goods, dating and adult websites, entertainment, golf, and hotels. READ FULL TEXT Complaint
Indiana Man Sentenced for Counterfeiting at Dayton Dragons Game (DOJ Release) In 2014, Kenneth Stopkotte was convicted of bank larceny, money laundering and access device fraud in the United States District Court for the Middle District of Tennessee for stealing over $66,000 by taking donation checks out of the mailboxes of multiple churches. Stopkotte was sentenced to 26 months in prison. After serving his time, Stopkotte apparently had a bit too much time on his hands during his supervised release because he purchased over 200 counterfeit $20 bills on the "dark web." In Arizona, Stopkotte used some of the fake $20s at a sporting event, and, afterwards, he attended a Dayton Dragons minor league baseball game, where he used 41 of the bogus 20s to make purchases, including his ticket, food and beverage.. As investigators approached him at the game, Stopkotte attempted to hide 54 other bills under a stadium refrigerator. Afterwards, it was discovered that Stopkotte hid $166 in genuine currency in the sole of his shoe, and had additional genuine currency elsewhere in his clothing. Also, an additional 136 fake $20 bills were found hidden in the cover of a boat at his residence in Indiana. After pleading guilty, Stopkotte was sentenced in the United States District Court for the Southern District of Ohio to 21 months in prison for using counterfeit money; and 9 additional months in prison, to be served consecutively, for violating his terms of previous supervised release. Also, Stopkotte will forfeit 231 fake $20 bills, an iPhone and the nearly $495 in cash he had in his possession at the time of his arrest.