The Wall Street Legal & Regulatory Feed

Securities Industry Commentator by Bill Singer Esq

January 29, 2019

READ the Huawei Indictment https://www.justice.gov/opa/press-release/file/1125021/download
As set forth in part in the DOJ Release:

A 13-count indictment was unsealed earlier today in federal court in Brooklyn, New York, charging four defendants,[1] including Huawei Technologies Co. Ltd. (Huawei), the world's largest telecommunications equipment manufacturer, with headquarters in the People's Republic of China (PRC) and operations around the world.  The indicted defendants include Huawei and two Huawei affiliates - Huawei Device USA Inc. (Huawei USA) and Skycom Tech Co. Ltd. (Skycom) - as well as Huawei's Chief Financial Officer (CFO) Wanzhou Meng (Meng).

The defendants Huawei and Skycom are charged with bank fraud and conspiracy to commit bank fraud, wire fraud and conspiracy to commit wire fraud, violations of the International Emergency Economic Powers Act (IEEPA) and conspiracy to violate IEEPA, and conspiracy to commit money laundering.  Huawei and Huawei USA are charged with conspiracy to obstruct justice related to the grand jury investigation in the Eastern District of New York.  Meng is charged with bank fraud, wire fraud, and conspiracies to commit bank and wire fraud.

https://www.sec.gov/news/press-release/2019-3
The United States District Court for the Southern District of Florida approved judgments against Woodbridge Woodbridge Group of Companies LLC and its 281 related companies for $892 million in disgorgement. Robert H. Shapiro, former owner and CEO, was ordered to pay a $100 million civil penalty and to disgorge $18.5 million in ill-gotten gains plus $2.1 million in prejudgment interest. The Court orders arose from the SEC's 2017 emergency action charging the company and other defendants with operating a massive $1.2 billion Ponzi scheme that defrauded 8,400 retail investors nationwide, many of them seniors who had invested retirement funds. All defendants and relief defendants, without admitting or denying the SEC's allegations, consented to the entry of final judgments which also permanently prohibit the defendants from violating the antifraud and other provisions of the federal securities laws. RS Protection Trust and several relief defendants were collectively ordered to pay $5.3 million in ill-gotten gains and interest. Shapiro also consented to the entry of an SEC administrative order, without admitting or denying the SEC's findings, permanently barring Shapiro from association with any broker, dealer, investment adviser, municipal securities dealer, municipal advisor, transfer agent, or nationally recognized statistical rating organization, and from participating in any offering of a penny stock.

https://www.justice.gov/usao-sdga/pr/federal-crackdown-financial-fraud-and-atm-skimming-continues-guilty-pleas
In response to a six-count Indictment filed in the United States District Court for the Southern District of Georgia Julio Lopez  Da Silva pled guilty to one count of conspiracy to commit bank fraud' and Anderson Santos pled guilty to one count of aggravated identity theft in connection with their alleged roles in placing card-reading devices on ATMs to capture customer information, and then using the information to encode blank cards to withdraw substantial amounts of money.

http://www.brokeandbroker.com/4403/FINRA-Expungement/
You know that thought-piece about whether a tree makes a sound when it falls in the woods but no hears it? For the Wall Street version of that puzzler, try this: What if a customer inquires about a goof in his account; and the brokerage firm apologizes promptly for its error and credits every penny that was inadvertently charged in the transactions at issue -- is that a settled customer complaint or simply "case closed?" Now, we have to wrestle with the nuance between a mere inquiry and a complaint. Next, we have to figure out whether a voluntary correction is a settlement. Further, we have to figure out if the benefit of hindsight allows a compliance officer to exercise common sense and amend what was reported to a regulator. No . . . I don't want to lessen any investor protections afforded by FINRA's robust expungement regime; however, fair-play for registered representatives should not be an alien concept within such a regime,

https://www.sec.gov/litigation/litreleases/2019/lr24383.htm
In a Complaint filed in the United States District Court for the Northern District of Georgia, the SEC charged investment adviser Joseph A. Meyer, Jr. and Statim Holdings, Inc. (which he controls) with defrauding a private fund they managed and its investors. The Complaint alleges that beginning in August 2009 and continuing until at least June 2018, Meyer and Statim offered and sold four classes of limited partnership interests in Arjun, L.P., a private fund. Allegedly, Meyer promised investors that, in return for giving up substantial portions of their profits, investors in one class would be protected from losses, a feature he called "No Loss Protection."  Separately, investors in two other classes were allegedly guaranteed fixed returns. The relinquished profits were purportedly earmarked to fund the No Loss Protection and guaranteed returns when Arjun had insufficient profits. The Complaint alleges that, in fact, Meyer withdrew most of the relinquished profits and used the funds to pay his living expenses' and that in furtherance of this deceit, Meyer recorded on Arjun's books a receivable due from Statim, which Meyer then claimed to have paid down. The Complaint characterizes the purported pay-down as a ruse because Meyer alleged raised the funds by directly or indirectly borrowing money from the fund, therefore making the guarantees and No Loss Protection illusory because they were backed by nothing other than the receivable that sometimes grew to $2.9 million, or 11.5% of Arjun's net asset value. 
READ the Complaint https://www.sec.gov/litigation/complaints/2019/comp24383.pdf

https://www.justice.gov/usao-mdfl/pr/xdedic-marketplace-website-involved-illicit-sale-compromised-computer-credentials-and
The United States Attorney for the Middle District of Florida announced the seizure of the xDedic Marketplace, which operated across a widely distributed network and utilized bitcoin in order to hide the locations of its underlying servers and the identities of its administrators, buyers, and sellers.  xDedic's site sold compromised computer credentials via searchable criteria such as price, geographic location, and operating system; and facilitated over $68 million in fraud. Among the victims were local, state, and federal government infrastructure, hospitals, 911 and emergency services, call centers, major metropolitan transit authorities, accounting and law firms, pension funds, and universities. 

Check Kiting by Stockbroker Ends With Career Crash
Joshua Zev Miller Respondent (FINRA AWC  2017055772801 / January 28, 2019)
http://www.finra.org/sites/default/files/fda_documents/2017055772801
%20Joshua%20Zev%20Miller%20CRD%205446289%20AWC%20jlg.pdf
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, Joshua Zev Miller submitted a Letter of Acceptance, Waiver and Consent ("AWC"), which FINRA accepted. In accordance with the terms of the AWC, FINRA imposed upon Gonzalez a $7,500 fine and a 12-month-suspension from association with any FINRA-regulated broker-dealer in any capacity.  As set forth in part under the heading "FACTS AND VIOLATIVE CONDUCT," during the relevant period of October 2015 through August 2017, Miller allegedly FINRA Rule 2010 when he:

deposited 35 checks totaling approximately $37,249 in three personal bank accounts he held with the Bank. Each of the checks had previously been cashed by Miller. Miller knew that each of these checks had been previously cashed and thus would be rejected by the Bank. Following each of the deposits, which the Bank initially credited, Miller used the available funds to make cash withdrawals or purchases, pay bills, or for transfers between his Bank accounts. After the Bank rejected the deposits, Miller repaid the amounts he owed the Bank as a result of his check-kiting activity. . .

http://www.finra.org/sites/default/files/notice_doc_file_ref/Regulatory-Notice-19-04.pdf
529 Plans are tax-advantaged municipal securities designed to encourage saving for educational expenses/ As with many well-intentioned programs, 529 Plans are offered with a wide range of fees and expenses, which may raise conflicts when financial professionals recommend such products. As set forth in part the "Summary" of FINRA NTM 19-04 [Ed: footnotes omitted]:

Over the past several years, FINRA has found that some firms have failed to reasonably supervise brokers' recommendations of multi-share class products. FINRA has raised concerns specifically regarding firms' supervision of share-class recommendations to customers of 529 savings plans ("529 plans").

FINRA is launching a 529 Plan Share Class Initiative to promote firms' compliance with the rules governing 529 plan recommendations, to promptly remedy potential supervisory and suitability violations related to recommendations that customers of 529 plans buy share classes that are inconsistent with the accounts' investment objectives, and to return money to harmed investors as quickly and efficiently as possible. As described in this Notice, to encourage voluntary reporting under this initiative, FINRA's Department of Enforcement (Enforcement) will recommend that FINRA accept favorable settlement terms for firms that self-report these potential violations and provide FINRA with a detailed remediation plan.

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