The Wall Street Legal & Regulatory Feed
Securities Industry Commentator by Bill Singer Esq
November 7, 2018
https://www.justice.gov/opa/pr/two-traders-plead-guilty-60-million-commodities-fraud-and-spoofing-conspiracy
Former commodities traders Krishna Mohan and Kamaldeep Gandhi pled guilty in the United States District Court for the Southern District of Texas to, respectively, one count of conspiracy to engage in wire fraud, commodities fraud and spoofing, and two counts of conspiracy to engage in wire fraud, commodities fraud and spoofing. Gandhi and Mohan conspired with Yuchun "Bruce" Mao and others to spoof orders resulting in over $60 million in market losses via trades in E-Mini S&P 500 and E‑Mini NASDAQ 100 futures contracts traded on the Chicago Mercantile Exchange and E-Mini Dow futures contracts traded on the Chicago Board of Trade. Additionally, Gandhi further conspired with others to spoof orders resulting in over $1.3 million in market losses via trades in E‑Mini S&P 500 futures. READ the Plea Agreement https://www.justice.gov/opa/press-release/file/1108436/download
Former Precious Metals Trader Pleads Guilty to Commodities Fraud and Spoofing Conspiracy (DOJ Release)
https://www.justice.gov/opa/pr/former-precious-metals-trader-pleads-guilty-commodities-fraud-and-spoofing-conspiracy
Former precious metals trader John Edmonds pled guilty to an Information filed in the United States District Court for the District of Connecticut to one count each of commodities fraud, and of conspiracy to commit wire fraud, commodities fraud, commodities price manipulation and spoofing. Per his plea, Edmonds admitted that from approximately 2009 through 2015, he conspired with other precious metals traders at an unnamed Bank to manipulate the markets for gold, silver, platinum and palladium futures contracts traded on the New York Mercantile Exchange Inc. (NYMEX) and Commodity Exchange Inc. (COMEX) by routinely placed spoofing orders for precious metals futures contracts for the purpose of falsely depicting liquidity and price information .Edmonds admitted that he learned this deceptive trading strategy from more senior traders at the Bank, and he personally deployed this strategy hundreds of times with the knowledge and consent of his immediate supervisors. READ:
Information https://www.justice.gov/opa/press-release/file/1108346/download
Plea Agreement https://www.justice.gov/opa/press-release/file/1108351/download
Buyer's Remorse Over Industry Bar Prompts Epic SEC Appeal (BrokeAndBroker.com Blog)
http://www.brokeandbroker.com/4271/graham-SEC-bar/
On Wall Street, many folks enter into regulatory settlements under duress. They don't think that they can afford the legal fees to fight the charges. They've been threatened by regulators with a Bar but offered a one-year-suspension as the so-called "settlement premium." They don't think that they're guilty but, you know, sure, I did make that one mistake and, okay, maybe I should just settle and move on. Regardless of what brings you to the dotted line, you're pretty much signing in blood and with very, very few exceptions, what you've agreed to will be an ironclad undertaking. That being said, buyer's remorse often crops up. Sometimes it's the next day when your simmering anger at being railroaded makes you wish that you could rip up the settlement agreement and fight it out at a hearing. Sometimes, it's an epiphany years in the making. In other situations, the allegations against you are online and causing consequences that you never anticipated. Consequently, before you sign that settlement agreement, think it over carefully. Before you agree to wording that you don't think is quite right or fair. Before you commit to paying dollars that you may not have. Before you head for the penalty box for months or years. Before you agree to the dreaded Bar. In today's Broke And Broker, we come across an individual who had buyer's remorse, hurdled the ropes around the ring, and found himself on the mat going toe-to-toe with the Securities and Exchange Commission.
https://www.sec.gov/enforce/ia-5061-s
In separate Orders, the SEC found that former registered investment adviser Pennant Management, Inc. willfully violated antifraud, compliance, and books-and-records provisions of the Investment Advisers Act of 1940, Sections 204(a), 206(2), 206(4), and 207 of the Advisers Act and Rules 204-2(a)(3) and 206(4)-7 thereunder. Without admitting or denying the findings, Pennant agreed to a cease-and-desist order, censure, and to pay a $400,000 civil penalty; and that the firm's former Chief Executive Officer Mark A Elste willfully aided and abetted and caused Pennant's compliance violations under Section 206(4) of the Advisers Act and Rule 206(4)-7 thereunder. Without admitting or denying the findings, Elste agreed to a cease-and-desist order, censure, and to pay a $45,000 civil penalty. The Orders alleged that firm had negligently failed to perform adequate due diligence and monitoring of certain investments (and that Elste had contributed to said failures) contrary to Pennant's representations to clients, which ultimately contributed to substantial client losses.
Pennant Order https://www.sec.gov/litigation/admin/2018/ia-5061.pdf
Pennant Order https://www.sec.gov/litigation/admin/2018/ia-5061.pdf
Elste Order https://www.sec.gov/litigation/admin/2018/ia-5062.pdf
As set forth in pertinent part in the SEC Release:
[F]rom May 2013 to September 2014, Pennant advised clients to purchase interests in facilities and other investments containing repurchase, or "repo," agreements for portions of loans guaranteed by various government entities. First Farmers Financial sought to use Pennant to finance what it claimed would be loans guaranteed by the U.S. Department of Agriculture. Pennant's initial due diligence of First Farmers identified concerning information about First Farmers' CEO, which was never escalated. The order found that Pennant continued to offer the First Farmers repos to clients despite growing concerns about the legitimacy of the investments, including questions about whether First Farmers lied about the existence of its auditor. By the end of September 2014, Pennant determined that First Farmers had forged paperwork and that all of the First Farmers repo agreements were fraudulent. According to the SEC's order, Pennant's compliance program also lacked sufficient resources, and Pennant failed to reasonably design and implement certain compliance policies and procedures, including policies and procedures regarding initial and ongoing due diligence and monitoring of repurchase agreement counterparties
Only in America? Apparently not.UK Man Admits Role In Overseas Investment Scam (DOJ Release)
https://www.justice.gov/usao-wdny/pr/uk-man-admits-role-overseas-investment-scam
David Cole of England pled guilty in the United States District Court for the Western District of New York to conspiracy to commit wire fraud in connection with his role in Barcelona-Spain based "boiler room" scam, which targeted over 250 United Kingdom and Canada investors who lost over $2,9 million after buying nearly worthless shares of restricted stock at inflated prices after being told that the investments were more valuable freely traded shares of stock. Some proceeds were funneled through a Western New York bank account before being forwarded overseas. To date, 11 defendants have been convicted with charges pending against one other defendant.
Tampa Man Sentenced To Twenty-Seven Months' Imprisonment For Lying To Avoid Restitution (DOJ Release)
https://www.justice.gov/usao-mdfl/pr/tampa-man-sentenced-twenty-seven-months-imprisonment-lying-avoid-restitution
Jason Anthony Martinez pled guilty in the United States District Court for the Middle District of Florida in a mortgage-fraud case and was sentenced to 24 months in prison plus three years of supervised release, and ordered to pay $3,008,551.01 in restitution. In furtherance of his restitution obligation, Martinez signed and submitted a Financial Disclosure Form, upon which he falsely claimed a net income that was approximately half his actual net income and, further, he failed to disclose a number of credit accounts. That false information materially and adversely affected the resulting restitution-related payment calculations. As a result of Martinez's lying to the U.S. Attorney's Office's Financial Litigation Unit and U.S. Probation, and following an additional plea of making false statements to the U.S. Attorney's Office's Financial Litigation Unit, the Court imposed upon him an additional 3 month in prison and an additional 2 years of supervised release which resulted in extended sentences of 27 months in prison plus 5 years of supervised release.
https://www.justice.gov/usao-nh/pr/shrewsbury-woman-arrested-securities-fraud-and-money-laundering
In an Indictment filed in the United States District Court for the District of New Hampshire, Jessica M. Teixeira was charged with securities fraud and money laundering in connection with allegations that she defrauded two New Hampshire investors out of $296,250 by selling them securities that were supposedly guaranteed and would generate high rates of return. Allegedly, Teixeira falsely claimed to be connected to high-level investment groups, and the investment contracts and notes she sold were purportedly worthless and generated no returns. The Indicment alleges that Teixeira converted the funds to her own personal use and benefit, without returning any of the invested funds.
Dallas Adviser to Pay $52,569 in Fines and Reimbursed Fees (TSSB Release)
https://www.ssb.texas.gov/news-publications/dallas-adviser-pay-52569-fines-and-reimbursed-fees
The Texas State Securities Board entered a Disciplinary Order that sanctions Brazos Securities Inc. for not having supervisory procedures in place governing fees for clients who are moved from brokerage accounts (which charge transactional commissions) to investment advisory accounts (which charge fees based on assets under management ("AUM")). TSSB alleged that in 2014, a Brazos Securities investment adviser began recommending that his clients convert their brokerage accounts to investment advisory accounts. Although the firm charged a reduced fee of 0.5% of AUM to some clients, TSSB alleged that one client paid fees ranging from 1% to 2% of AUM in addition to other investment costs. From 2014 to 2017, that client paid average annual fees of $16,774 per year, even though Brazos Securities made no changes in the trading strategy or recommended investments. From 2010 to 2013, when the client was in a brokerage account at the firm, the client paid annual average fees of $8,632. Brazos Securitieswill pay a $20,000 fine to the State of Texas and pay $32,569 in excessive fees to the cited client. READ the TSSB Disciplinary Order
https://www.ssb.texas.gov/sites/default/files/Brazos_Securities_Order%20IC18-CAF-04.pdf
SEC Charges Businessman and Lawyer in Fraudulent EB-5 Scheme (SEC Litigation Release No. 24336)
https://www.sec.gov/litigation/litreleases/2018/lr24336.htm
In a Complaint filed in 2016 in the United States District Court for the Central District of California, the SEC charged Emilio Francisco, PDC Capital, and 20 other Francisco-controlled businesses with 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. The Complaint alleged that Francisco raised $72 million from investors in China solicited through his marketing firm PDC Capital to invest in EB-5 projects that included opening Caffe Primo restaurants, developing assisted living facilities, and renovating a production facility for environmentally friendly agriculture and cleaning products. Unfortunately,
Francisco and PDC Capital diverted investor funds and at least $9.6 million was used to finance Francisco's own businesses and luxury lifestyle. READ the Francisco Complaint https://www.sec.gov/litigation/complaints/2016/comp-pr2016-281.pdf
In a Complaint filed in September 2018 in the United States District Court for the Central District of California, the SEC alleged that Robert A. Ferrante and attorney Marilyn R. Thomassen participated in a fraudulent scheme with PDC Capital Group and its principal, Emilio Francisco, to defraud at least 135 investors out of $9.5 million using 19 different EB-5 offerings made primarily to investors in China. Thomassen, who had been Francisco's law partner, allegedly served as the escrow agent for the19 offerings and contrary to representations to investors, allowed Francisco and Ferrante to divert at least $19.2 million of investors' funds deposited into escrow accounts to accounts controlled by PDC Capital. Prior to engaging in the fraud, Over $900,000 of the stolen investor money was used to pay Ferrante's personal expenses.The 2018 Complaint charges Ferrante and Thomassen with violating the antifraud provisions of the federal securities laws, Section 17(a)(1) and (3) of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5(a) and (c). The SEC seeks disgorgement of ill-gotten gains, interest, penalties and permanent injunctions from Ferrante. Without admitting or denying the SEC's allegations, Thomassen agreed to the entry of permanent injunctions against further violations of the charged provisions of the federal securities laws, a court order prohibiting her from participating in EB-5 offerings and from issuing or selling any security, and to pay a monetary penalty of $187,767. READ the Ferrante/Thomassen Complaint
https://www.sec.gov/litigation/complaints/2018/comp24336.pdf
SEC Obtains Final Judgment Against Two Nevada Companies for Their Role in a Pyramid Scheme (SEC Litigation Release No. 24335)
https://www.sec.gov/litigation/litreleases/2018/lr24335.htm
The SEC obtained default judgments in the United States District Court for the District of Massachusetts against Relief Defendants TelexElectric, LLLP and Telex Mobile Holdings, Inc., in connection with the TelexFree pyramid scheme. TelexElectric was ordered to pay $2,0222,239, and Telex Mobile Holdings was ordered to pay $500,870. The SEC also voluntarily dismissed its claims for unjust enrichment against a third relief defendant, TelexFree Financial, Inc. Previously, the SEC obtained consent final judgments against TelexFree, TelexFree's co-owner and president and its CFO, its international sales director, a promoter of the pyramid scheme, another promoter of the pyramid scheme, and a third promoter, who also was ordered to serve prison time for civil contempt arising from his repeated violations of court orders. The SEC's litigation continues against TelexFree's other co-owner, and the remaining promoter of the alleged TelexFree pyramid scheme.