Securities Industry Commentator by Bill Singer Esq

[P]erkins, Bobet, and co-defendant Celeste Nyleen Carmona, age 23, of New York, New York, conspired to obtain, charge, and finance the costs of upgraded Apple iPhones against true AT&T customers' accounts.  The defendants admitted that they used stolen account information, telephone upgrade eligibility, and personal identifying information of actual AT&T Mobility customers to obtain the iPhones, which Bobet then provided to her co-conspirators in New York City.

Specifically, in July 2015 and April 2016, respectively, Bobet recruited Carmona and Perkins into the scheme.  In May 2016, Bobet drove Perkins and Carmona from New York City to Apple Stores located in Maryland and elsewhere to obtain Apple iPhones for resale.  For example, on May 16, 2016, Bobet provided Perkins and Carmona with fraudulent identification cards that contained the stolen personal information of victim AT&T customers, but bore the photographs of Perkins and Carmona, as well as counterfeit credit and debit cards in the victim customers' names.  Bobet obtained the stolen identity information from her co-conspirators in New York City.  Bobet drove Perkins and Carmona to the Apple Store located at The Mall in Columbia, Maryland.  Perkins and Carmona entered the Apple stores while Bobet remained in the car.  Perkins and Carmona each posing as a victim customer, purchased an Apple iPhone on the victim customers' accounts.  Bobet then drove Perkins and Carmona to Westfield Montgomery Mall in Bethesda.  Carmona, posing as a victim customer purchased two more iPhones on the account of that customer.  Perkins attempted to purchase an iPhone on the account of a fourth victim customer, but that customer's account reflected a past due balance of $100, and Perkins was unable to upgrade any lines on that victim's account until the balance was paid.  Perkins abandoned the transaction and left the store, while Carmona completed her transaction. 

Police responded to the Westfield Mall and located Bobet's vehicle in the parking lot.   Bobet attempted to leave, but law enforcement stopped the vehicle.  Bobet, Perkins, and Carmona were taken into custody and transported to police headquarters.  A search of Bobet recovered two cellular phones which contained AT&T account information and personal identifying information of at least 20 individuals.  Bobet's vehicle was seized and a search warrant for the vehicle was obtained.  Law enforcement recovered a laptop, a tablet, counterfeit identification cards, credit and debit cards, and a black duffle bag containing the four fraudulently obtained Apple iPhones. 

AT&T records also showed that during the timeframe of the conspiracy, the name of Alonia Perkins was fraudulently added to four AT&T accounts in Florida and that three of these victims' accounts had their billing addresses changed to Perkins' address in Florida.  The records also showed that Perkins later financed at least six Apple iPhones against the four victim customers' accounts.  AT&T records further showed that the name Nyleen C. Carmona, or derivatives of that name, were added to 24 victims' accounts, and Carmona later financed at least 46 Apple iPhones against the victims' accounts.

Bobet and Carmona admitted that during the time of their participation in the conspiracy at least $95,001 and $40,001 in losses, respectively, were foreseeable to them.

In January 2017, Meli was charged by the SEC, arrested by the FBI, and charged criminally by the U.S. Attorney for the Southern District of New York. In the SEC case, Meli's wife and mother were named as relief defendants based on their alleged receipt of stolen investor funds. In September 2017, the SEC charged Meli in a second case also involving an alleged ticket resale scheme, along with New York-based sports radio personality Craig Carton and six of their companies. Meli pled guilty to securities fraud in the parallel criminal case in October 2018 and was sentenced in April 2018. In connection with his guilty plea, Meli admitted to raising millions of dollars from investors, including by providing some investors with fake agreements containing fraudulent signatures that claimed to show Meli's company had agreements with various production and management companies to purchase large blocks of tickets. Meli was sentenced to 78 months' imprisonment followed by three years' supervised release, and was ordered to pay restitution and forfeiture totaling more than $160 million. The criminal charge to which Meli pled guilty arose from the same conduct alleged by the SEC.

[N]aqvi and his firm raised money for the Abraaj Growth Markets Health Fund ("Health Fund"), collecting more than $100 million over three years from U.S.-based charitable organizations and other U.S. investors. According to the SEC's complaint, Naqvi misappropriated money from the Health Fund and commingled the assets with corporate funds of Abraaj Investment Management Limited and its parent company, and used it for purposes unrelated to the Health Fund. The SEC alleges that Naqvi and his firm made misrepresentations to investors and issued false and misleading financial statements to hide that they were spending investor money in unrelated 

[T]he owner of Woodbridge Group of Companies LLC (Woodbridge) Shapiro, and his former Directors of Investments, Acevedo and Roseman, orchestrated a massive Ponzi scheme through the business.  They ran their scheme through Woodbridge offices located throughout the United States, including Boca Raton, Florida and Sherman Oaks, California.  The conspiracy ran from July 2012 to December 2017, and involved material misrepresentations and material omissions to investors in the sale of Woodbridge investments.  Through telephone and in-person conversations, emails and website displays, Shapiro, Acevedo, Roseman and their co-conspirators promoted speculative and fraudulent securities to potential investors, targeting elderly investors who had Individual Retirement Accounts (IRAs).  Shapiro hired sales agents to solicit potential investors from the Woodbridge "phone room" that Roseman and Acevedo managed.  The phone room functioned as a "boiler room," and featured high-pressure sales tactics, deception, material misrepresentations, and investor manipulation. Through telemarketing, Woodbridge sales agents contacted potential investors located throughout the United States, and solicited, offered, and sold Woodbridge investments to them.  For the fraud-based investments, the defendants and their co-conspirators' main business model was to solicit money from investors and, in exchange, issue investors promissory notes reflecting purported loans to Woodbridge that paid monthly interest and matured in twelve to eighteen months.  The defendants claimed that the investments were tied to real property owned by third-party property owners.

The indictment alleges that Shapiro, Acevedo, Roseman and their co-conspirators, made and caused others to make materially false and fraudulent statements to induce investors to provide money, such as, that Woodbridge investments were "low risk," "simpler," "safe" and "conservative;" that Woodbridge was profitable, but in reality new Woodbridge investor money was used to pay prior Woodbridge investors, and that third-party affiliates were property owners, when in fact Shapiro owned nearly all of the real property at the center of every investment product offered by Woodbridge. 

According to the indictment, Shapiro took approximately $35 million in investor money for his benefit, spending millions on personal expenditures, such as $3.1 million for chartering private planes and travel, $6.7 million on a personal home, $2.6 million on home improvements, $1.8 million on personal income taxes, $1.4 million to his ex-wife, and over $672,000 on luxury automobiles. 

The indictment further alleges that Shapiro caused most of the Woodbridge companies to file Chapter 11 bankruptcy, which caused investors to suffer substantial losses, as they were owed close to $1 billion in principal. 

At least 2,600 of these investor victims invested their retirement savings, totaling approximately $400 million.

For purposes of Section 5(b)(2) of the Securities Act, the Division is of the view that a broker-dealer may satisfy its obligations under Section 5(b)(2) to deliver a prospectus to a client of an investment adviser purchasing shares of a Mutual Fund by delivering the Mutual Fund prospectus to the investment adviser so long as the broker-dealer has actual knowledge that the client has authorized the investment adviser, consistent with its fiduciary duties, to manage the client's account on a discretionary basis and to accept delivery of Mutual Fund prospectuses on behalf of the client.

In 1992, two of Cutshall's customers at his broker-dealer employer, retired school teachers JB and LB, created separate trusts governing the disposition of their assets. Cutshall served as trustee for the separate trusts until both LB and JB died in 2005 and 2006. The JB Trust and the LB Trust remained as legal entities after their deaths, but the funds from the two trusts were combined in an account known as the "[LB] Residuary Trust" held at his brokerdealer employer, and Cutshall administered the account as trustee on behalf of JB and LB's intellectually disabled daughter MB until she died in 2012. 

Within weeks of MB's death in January 2012 and continuing through June 2013, Cutshall used his position as trustee to write 34 checks from the account of the LB Residuary Trust totaling approximately $400,000 that he deposited into his own bank account. 

In 2013, Cutshall made public for the first time an unwitnessed handwritten note purportedly signed by JB in 2002 that named Cutshall as a beneficiary of 50% of the assets in the JB Trust as the basis for his taking those funds. LB did not sign the note, and she did not execute any similar document naming Cutshall as beneficiary to her trust. After having already taken approximately $400,000 in 2012 and 2013 from the account of the LB Residuary Trust, Cutshall then hired a Maryland law firm in August 2013 to give him an opinion about the validity of the handwritten note. The Maryland law firm, among other things, advised Cutshall to return all of the money that he had already taken. Cutshall only repaid $229,100 to the account of the LB Residuary Trust, keeping the difference of $170,900.

In 2014, the Maryland law firm conducted an accounting to determine the funds available for distribution to the beneficiaries of each trust, but Cutshall did not tell the law firm that he had not returned all of the money that he had already taken. The law firm determined that the distribution to Cutshall of 50% of the assets of the JB Trust was approximately $292,100. With the approximately $170,900 that he previously kept, Cutshall took approximately $463,000, significantly more than he was purportedly entitled to under the handwritten note. By taking more funds from the JB Trust than he was entitled to receive, Cutshall converted funds from the account of the LB Residuary Trust in violation of FINRA Rules 2150(a) and 2010. 

In April 2014, Cutshall used a check from the brokerage account of his firm customer the HSR Marital Trust, another trust for which Cutshall served as trustee, to engage in an automated clearing house ("ACI I") transaction for $2,000 at Charlestown Gaming in West Virginia to gamble. Although he was notified of the disbursement from the trust that day, Cutshall did not repay the trust until a firm compliance employee questioned him about the transaction more than a week later. Cutshall's unauthorized use of trust funds to gamble constitutes an improper use of customer funds, in violation of FINRA Rules 2150(a) and 2010. 

While employed at two different member firms, Cutshall failed to disclose that he had been named as a beneficiary in 2002 of the JB Trust despite being required to do under each of those firm's written supervisory procedures. Moreover, when each firm asked him to provide copies of the trust documents related to the account of the LB Residuary Trust in connection with his request to continue acting as trustee, Cutshall failed to provide a copy of the handwritten note that materially altered the terms of the JB Trust and made Cutshall a beneficiary. Cutshall further actively thwarted his member firm's ability to supervise his activities as trustee by writing checks from the trust as being payable to his bank, rather than to himself, prior to depositing the checks into his personal account at that bank. Cutshall's actions constitute a violation of FINRA Rule 2010. 

In February 2014, Cutshall completed an annual firm questionnaire and falsely claimed that he was not named as beneficiary of any non-family member account. Cutshall's false statement in a firm compliance questionnaire constitutes a violation of FINRA Rule 2010.

• Securities Industry Commentator
• Bill Singer