Securities Industry Commentator by Bill Singer Esq

charged with two counts of forgery, two counts of identity theft, and two counts of falsifying business records, that Carvallo had pled not guilty, and that the "d]isposition[s] [were] subject to negotiation with District Attorney of New York County." The Form U5 also disclosed that the Firm had initiated an internal review of Carvallo's conduct on August 16, 2016 in connection with a grand jury subpoena it had received from the New York County District Attorney's Office. On January 25, 2018, the Firm filed an amended Form U5 to reflect a date of disposition of December 20, 2017 for the criminal matter. The Firm also disclosed that, "[a]fter meeting certain conditions set by the Court, Mr. Carvallo's case was closed with entry of a plea of guilty to a violation of 'disorderly conduct.'" 

By 2009, several auction houses had prohibited Carvallo from participating in their auctions, because on multiple occasions, he had bid for and won items at auction and then failed to pay for and collect the items. From approximately November 2011 through June 2015 (the "Relevant Period"), Carvallo had access to the Firm's confidential personnel records in his role as the Firm's President and Chief Compliance Officer ("CCO"). In order to circumvent the auction houses' bans and continue to bid in auctions as he desired, Carvallo impersonated ten current and former Firm employees (the "employees") during the Relevant Period. 

Carvallo obtained the employees' personal information from the Firm's personnel files to create approximately 20 false online bidding accounts at three auction houses (collectively, the "Auction Houses") that were purportedly opened for these employees and to which these employees did not consent. To create the false accounts, Carvallo input the employees' names into the Auction Houses' online account opening systems to create the false impression that these individuals were opening the accounts. In addition, Carvallo invented fictional email addresses, physical addresses, and dates of birth for each employee and submitted that false information electronically to the Auction Houses in order to open the false accounts. 

In or about March 2012, Carvallo also falsified his own telephone bill to create a fictitious proof of address for one of the false accounts. He removed his own name from the bill, inserted the name of one of the employees and changed the address on the bill to match the fictitious address associated with the false account. Carvallo submitted that falsified bill to Auction House A in response to its request for proof of address for the false account. 

After opening these false accounts, Carvallo used them to participate in 26 online or telephone auctions during the Relevant Period. To do so, Carvallo registered each account with the relevant Auction House conducting the auction. As part of the registration process, the Auction Houses asked account-holders for proof of identification. In response to those requests, Carvallo obtained copies of the employees' driver's licenses and passports from Firm personnel files, and provided them to the Auction Houses via email from fictitious email accounts he created using the employees' names, without authorization from the employees. Carvallo then used the false accounts to bid on items during auctions that the Auction Houses conducted online via the Internet or via telephone. 

Carvallo participated in the auctions during Firm business hours, at the Firm's office, using the Firm's computer equipment. 

By bidding on these items, Carvallo purported to bind the employees to the Auction Houses' conditions of sale, which governed their respective auctions. Pursuant to these conditions of sale, a successful bid in an auction created a sales contract between the seller and successful bidder, and successful bidders could be held legally responsible for the winning bid price of the item won. 

On 26 occasions, Carvallo used the false accounts he created to win bids at the Auction Houses for items totaling over $500,000 in value. In all but one of these instances, Carvallo did not pay for or collect these items. 

On one occasion in June 2015, Carvallo won an online auction at Auction House B using a false account under the name of Employee B - a then-current Firm employee. Carvallo forged Employee B's signature on Auction House B's documents relating to the items won at the auction. Carvallo also forged Employee B's initials on a form authorizing Auction House B to collect tax on the items. In addition, Carvallo submitted a credit card authorization form containing his own credit card number, authorizing payment of $9,526.56, which included the tax. Carvallo used his own credit card to pay for the items. However, he forged Employee B's name on the credit card authorization form. . .

Todd B. Wyche appeals a February 2, 2018 Hearing Panel decision. The Hearing Panel

found that Wyche failed to timely amend his Uniform Application for Securities Industry

Registration or Transfer ("Form U4") to disclose a federal tax lien, in willful violation of Article V, Section 2(c) of FINRA By-Laws and FINRA Rules 1122 and 2010. For his misconduct, the Hearing Panel suspended Wyche from associating with any FINRA member firm in any capacity for six months and fined him $10,000.

The primary issue on appeal is when Wyche learned of the federal tax lien. Wyche

contends, as he did before the Hearing Panel, that he did not learn about the lien until FINRA staff questioned him about it six months after it was filed. After an independent review of the record, we reject Wyche's contention and affirm the Hearing Panel's findings. For the reasons explained herein, we modify the sanctions the Hearing Panel imposed. 

We note, however, Wyche failed to disclose a single lien, the short duration of the delinquency, and the fact that he had paid down, and had otherwise worked with the IRS to reduce, the amount of lien significantly during the delinquency.

Wyche argues that the Hearing Panel failed to consider several other factors that support mitigation. First, Wyche maintains that he did not engage in numerous acts or a pattern of misconduct. While we agree that Wyche failed to disclose only one lien, we reject the characterization that his misconduct was isolated. Despite being aware of the lien, he falsely answered FINRA staff's personal activity questionnaire and filed two Forms U4 amendments during the five-month span in which he falsely answered question 14M that he did not have any outstanding liens. Even after he disclosed the lien on his Form U4, Wyche falsely stated on his Form U4 and testified that he learned about the lien on August 7, 2014. We do not find Wyche's misconduct consistent with an aberrant lapse in judgment.

• Securities Industry Commentator
• Bill Singer