Securities Industry Commentator by Bill Singer Esq

[C]laimant's tip was the first information on the charged misconduct that the Commission received; Claimant expeditiously reported to the Commission and pointed Enforcement staff to an important witness; and without Claimant's tip, the violations at issue would have been difficult to identify and prove, in part because the misconduct occurred abroad. We also took into account that Claimant was not in a position to provide continuing assistance, and other witnesses provided the information to substantiate Claimant's tip.

Robert Codrut Dumitrescu: 7 years and 3 months

Teodor Laurentiu Costea:  8 years and 2 months

Cosmin Draghici: 4 years and 3 months 

[F]rom approximately October 2011 through February 2014, Robert Codrut Dumitrescu, Teodor Laurentiu Costea and Cosmin Draghici conducted a "vishing" and "smishing" scheme from Romania.  "Vishing" is a type of phishing scheme that communicates a phishing message, or a message that purports to be from a legitimate source, in this case the victims' banks, through a voice recording. "Smishing" is similar to "vishing," but communicates a phishing message through text messages.

As part of the scheme, the defendants compromised computer servers located in the Northern District of Georgia, and elsewhere, and installed both interactive voice response and bulk emailing software.  That software initiated thousands of telephone calls and text messages to victims in the Northern District of Georgia, and across the United States, tricking them into disclosing Personally Identifiable Information (PII) such as financial account numbers, PINs, and Social Security Numbers.  

When a victim received a telephone call, they would be greeted by a recorded message falsely claiming to be a bank. The interactive voice response software would then prompt the victim to enter their PII.

When a victim received a text message, the message purported to be from a bank and directed the recipient to call a telephone number hosted by a compromised Voice Over Internet Protocol server. When the victim called the telephone number, they were prompted by the interactive voice response software to enter their PII. The stolen PII was stored on the compromised computer servers and accessed by Dumitrescu and Costea, who then sold or used the fraudulently obtained information with the assistance of Draghici. 

At the time of their arrests in Romania, Dumitrescu possessed 3,278 financial account numbers, Costea possessed 36,050 financial account numbers, and Draghici possessed 3,465 financial account numbers - all fraudulently obtained through this scheme.  Based upon these numbers alone, the loss amount exceeded $21,000,000. 

The charity was in operation from May 2014 through 2016, and it received approximately $481,000 in donations during that time-period.  However, despite Simpson's claims that 100% of the donations would go to Marines and their families through the charity's programs, only about $90,000-or about 19% of the donations-were used for charitable purposes. Simpson diverted the remainder of the monies in the charitable accounts, approximately $391,000, for his personal use and enrichment.

The primary victim of Simpson's scheme was the mother of a United States Marine killed in the active shooter attack at a military center in Chattanooga, Tennessee, in July 2015. Simpson fraudulently induced the Gold Star mother and others to give Simpson's charity about $131,000, all in honor of the Gold Star mother's son, including $75,000 of the Gold Star mother's own money and $25,000 that the Community Foundation of Greater Chattanooga donated at the direction of the Gold Star mother.

The charity also held a fundraising benefit in New York to raise money for a Disney World trip for a Marine family whose minor daughter was terminally ill. The charity advertised all proceeds from the event would go to the minor daughter and her family for a Disney World trip, and to help pay for the family's needs.  Because the minor daughter died prior to the fundraiser, the trip intended for the minor daughter and her family, including her father who is an active duty U.S. Marine Corps Drill Sergeant, was donated to another family at the request of the minor daughter's family. However, the charity, after paying all of the expenses of the fundraiser and sending the other Marine family to Disney World, still had about $3,200 of donations left over.  Simpson kept that money for himself instead of giving it to the minor daughter's family.

Additionally, during 2015 and 2016, Simpson made unauthorized withdrawals from the bank accounts of at least seven active-duty Marines who had recently graduated from boot camp.  Simpson convinced them to allow him to make recurring withdrawals from their accounts in nominal amounts to support the charity.  Instead, he used their debit card numbers to make unauthorized withdrawals from their accounts in a combined total amount of more than $5,000.

[S]mith used his influence and status as an investment advisor to persuade multiple victims to "invest" approximately $3.5 million with Smith and co-defendant Kirbyjon H. Caldwell.  The victims' investments were purportedly in historical Chinese bonds, which are bonds issued by the former Republic of China prior to losing power to the communist government in 1949.  These bonds are not recognized by China's current government and, accordingly, have no investment value.

Smith began approaching existing clients and acquaintances in the spring of 2013 about what he described as an opportunity to invest in Chinese historical bonds.  His usual sales pitch to investors was that Caldwell, the senior pastor at Windsor Village United Methodist Church in Houston, Texas, was: (1) putting the bond deal together on behalf of investors, (2) had the bonds in his possession or was obtaining them and (3) was brokering a deal to sell the bonds.  Smith also promised that by investing money with him and Caldwell, the victims would obtain a partial ownership of the bonds and would quickly receive exponential returns on their investments.  The victims were not told of the true nature of the bonds nor were they informed that no previous investor had ever obtained the promised return on investment.  The victims were encouraged to cash out any other investments they might have if they could not otherwise afford to participate.

After Smith made the fraudulent pitch, the victims were instructed to wire funds to various bank accounts under Caldwell's control.  The funds were then divided between Smith, Caldwell and others.  Smith received $1.08 million of the total $3.5 million.  He used it to pay down loans, purchase two luxury sport utility vehicles, place a down payment on a vacation property and maintain his lifestyle.  After time passed and investors began to question why they had not received the promised returns, Smith and Caldwell offered excuses, defended the legitimacy of the deals and assured victim-investors that they would receive the promised returns.

Caldwell's trial is scheduled for December 2, 2019.

admitted that from 2009 to 2013, they submitted dozens of bogus expense reports to FHLB, claiming they'd attended professional conferences they never visited -- prompting FHLB to foot the bill for what was actually personal travel to Florida, California, and Nevada.  They also admitted to repeatedly falsely reporting their number of unused vacation hours.

Their pleas come on the heels of a pre-trial plea by former FHLB-Dallas Chief Financial Officer Michael Sims, who pleaded guilty to misprision of a felony, or concealing knowledge of the actual commission of a felony, on June 27.

According to the Indictment filed in 2017, the scheme cost FHLB more than $1.2 million -- $780,000 in travel expenses, including airfare, limousine rides, concerts, vineyard tours, luxury hotel rooms, and lavish meals for Mr. Smith, Ms. Parker, Mr. Sims and several colleagues, and $450,000 in unused vacation time reimbursements. 

Mr. Smith and Ms. Parker each face up to five years  in federal prison, and will both be required to pay restitution. In addition, as part of their plea agreements, both agreed to repay FHLB - Dallas for attorneys' fees incurred by the bank and its insurance carrier; Mr. Smith will pay $4.2 million and Ms. Parker will pay just over $227,900.

Mr. Sims, meanwhile, faces three years  in federal prison, and will also be required to pay restitution.

[F]rom around 2000 until about March 2010, there was an agreement between two or more persons to carry out a fraudulent timeshare ownership scheme. In about 2004, Kroger joined the conspiracy to fraudulently obtain money from victim timeshare owners. In furtherance of the scheme, Kroger and co-conspirator Michele Paonessa created fictitious companies and false contracts to lure in victims seeking to sell their timeshare ownerships. The fictitious contracts obligated victim timeshare owners to pay a monetary fee to process fictitious documents relating to the sales and to cover the closing costs. In reality, Kroger and Paonessa used the victims' money for personal benefits and to further the scheme. Before victims would contact law enforcement or the Better Business Bureau, Kroger and Paonessa would abandon that business and create a new business which they continued to use to perpetrate the fraud. In all, approximately 29 fictitious companies were used in the scheme. Not a single timeshare ownership was actually sold during the course of the 10 year scheme. In total, approximately $782,090 was stolen from approximately 1,000 victims residing in Nevada, other states, and outside of the United States in places such as Canada.

Paonessa pleaded guilty and is scheduled to be sentenced on August 20, 2019. Paonessa faces the maximum penalty of 20 years of imprisonment and a fine of $250,000. 

he asked me to provide him with a redacted copy of my notes from the hearing as a substitute for a copy of the hearing transcript. Construing the email as a motion, Daspin's request is DENIED. I cannot provide one party my informal perspective on events.

In prior rulings I have indicated what is necessary to receive a free hearing transcript. . .

How many Americans participate in the gig economy? Do you regret paying what you did for college? Would you avoid a medical service due to its cost? The new FINRA Foundation Financial Capability Study asked these questions and more to get a pulse on recent changes to American financial capability and well-being.

• Securities Industry Commentator
• Bill Singer