The Wall Street Legal & Regulatory Feed
Securities Industry Commentator by Bill Singer Esq
August 23, 2019
Two Canadian Nationals Indicted for Bitcoin Fraud (DOJ Release)
https://www.justice.gov/usao-or/pr/two-canadian-nationals-indicted-bitcoin-fraud
https://www.justice.gov/usao-or/pr/two-canadian-nationals-indicted-bitcoin-fraud
In an Indictment filed in the United States District Court for the District of Oregon, Karanjit Singh Khatkar, 23, and Jagroop Singh Khatkar, 24, of Surrey, British Columbia, Canada, were each charged with one count of conspiracy to commit wire fraud and money laundering, five counts of wire fraud, three counts of aggravated identity theft and multiple counts of money laundering. Jagroop Singh Khatkar remains at large and is believed to be in Canada. As set forth in part in the DOJ Release:
[B]eginning in October 2017 and continuing until August 2018, the defendants used a Twitter account with the name @HitBTCAssist to trick victims into thinking they were communicating with a customer service representative from HitBTC, a Hong Kong-based online platform used to exchange virtual currency. HitBTC provides its customers with web-based "wallets" to store virtual currency and make transactions.Using the fraudulent Twitter account, the defendants responded to the Oregon victim's questions about withdrawing virtual currency from her HitBTC account. The defendants convinced the victim to send information they could use to log on and take over her email, HitBTC and Kraken accounts. Kraken is a U.S.-based online platform that offers services similar to HitBTC.The defendants initiated transfers of 23.2 bitcoins from the victim's HitBTC account to Karanjit Khatkar's Kraken account. Karanjit Khatkar in turn transferred approximately 11.6 in stolen bitcoins to Jagroop Khatkar's Kraken account. The stolen bitcoins have an estimated present value of approximately $233,220.
The FINRA Dissident Community: A History (BrokeAndBroker.com Blog)
http://www.brokeandbroker.com/4765/bill-singer-finra-dissident/
On August 19, 2019, FINRA announced the historic, upset victories of two Petition Candidates for its Large Member Firm and Small Member Firm Board of Governors elections. That result was a stunning rebuff of FINRA's Nominating Committee nominees, and an indication of the growing unrest among the organization's three-thousand-plus member firms. NASD and FINRA have a long history of promised reforms, which is matched by an equally long history of deflection, delay, and inaction. All of which has fostered a seething resentment among the regulator's Small Firm Member community, which sees its 91% majority marginalized. For the last 20 years, NASD/FINRA has largely fended off its dissidents. But we've learned from our mistakes. We've learned from FINRA's mistakes. We persist. FINRA resists. To FINRA's dismay, we're still here -- but now we're getting louder and stronger. For a sense of the Dissident agenda, see some of the reprinted articles below. Please, take note of the dates of the reform proposals (some of which have since come to pass but too few to truly matter).
In the Matter of David F. Bandimere and John O. Young (SEC Order Regarding Evidentiary
Motions and Objections; Admin. Proc. Rul. Rel. No. 6658; Admin. Proc. Fle No. 3-15124)
https://www.sec.gov/alj/aljorders/2019/ap-6658.pdf
https://www.sec.gov/alj/aljorders/2019/ap-6658.pdf
SEC Administrative Law Judge ("ALJ") James E. Grimes considers three evidentiary motions. In pertinent part, the SEC's Division of Enforcement seeks to use the 2013 hearing testimony of witnesses Deborah Pickering and Harley Hunter, instead of calling them to testify in person. Pursuant to SEC Rule of Practice 235(a), a non-party's prior sworn statement is precluded from being introduced unless the declarant is unavailable to testify as a witness or the interests of justice would otherwise warrant its admission. The Division asserts that Pickering has "serious medical issues and financial constraints that make traveling from southern California to Denver a significant hardship. Hunter has a pre-planned vacation for the time of the hearing." Respondent opposes the use of the witnesses prior testimony as prejudicial and would effectively deprive him of the benefits of a new trial to which he is entitled. ALJ Grimes gives considerable weight to the SEC's remand of the matter for a "new hearing" before "an ALJ who did not previously participate in the matter," and, accordingly, the ALJ finds that the interests of justice do not favor the admission of the prior testimony.
https://www.sec.gov/litigation/litreleases/2019/lr24573.htm
In a Complaint filed in the United States District Court for the Southern District of Mississippi https://www.sec.gov/litigation/complaints/2019/comp24573.pdf, the SEC charged Terry Wayne Kelly and Kelly Management, LLC with violating the antifraud provisions of Section 17(a) of the Securities Act and Section 10(b) of the Securities Exchange Act and Rule 10b-5 thereunder; and with violating the registration provisions of Sections 5(a) and (c) of the Securities Act and Section 15(a) of the Securities Exchange Act. The Defendants Defendants have agreed to settle the charges and have consented to the entry of permanent injunctions. As set forth in part in the SEC Release, Kelly through his wholly-owned entity, Kelly Management, LLC:
provided false information to investors by telling them that their money would be used by Madison Timber to secure and harvest timber and promising annual returns of 12 to 15 percent. In truth, the complaint alleges, Madison Timber never obtained any harvesting rights; instead, Madison Timber's principal, Arthur Lamar Adams, forged deeds and cutting agreements and used investors' money for personal expenses and to develop an unrelated real estate project. According to the complaint, Kelly continued to provide the false information to investors, even after a financial institution confronted Kelly and Adam with questions about Madison Timber's business practices.
LPL Rep Fined and Suspended by FINRA for Sales of Nutritional Supplements. In the Matter of Justin B. Mitchell, Respondent (FINRA AWC 2016052655301)
http://www.finra.org/sites/default/files/fda_documents/2017054549301
%20Justin%20B.%20Mitchell%20CRD%205177794%20AWC%20va.pdf
%20Justin%20B.%20Mitchell%20CRD%205177794%20AWC%20va.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, Justin B. Mitchell, submitted a Letter of Acceptance, Waiver and Consent ("AWC"), which FINRA accepted. In accordance with the terms of the AWC, FINRA imposed upon Justin B. Mitchell, a $2,500 fine, and a one-month suspension from association with any FINRA member in any capacity. The AWC alleged that during the relevant period from September 2012 through April 2016, in violation of FINRA Rules 3270 and 2010, Respondent Mitchell:
engaged in an outside business activity now known as Avie Nutraceuticals, L.L.C. ("Avie"). Avie manufactures and sells nutritional supplements. Mitchell participated in organizing and forming the company, owned a percentage interest in the company, executed its operating agreement, participated in board meetings, and made management decisions for Avie.Mitchell knew that he was required to disclose any outside business activities to the Firm. However, he did not seek approval from LPL for his Avie-related activities or otherwise disclose these activities to the Firm. Mitchell also made false statements to the Firm on three annual compliance questionnaires concerning his outside business activities.
FINRA Arbitrators Recommend Expungement Citing "Economic Downturn" In the Matter of the Arbitration Between Stanley Wojciechowski and Mary Wojciechowski, Claimants, v. Equity Services, Inc., Kenneth Ray Ehinger, Robert Hood Sloan, and Gregory Dwight Teese, Respondents (FINRA Arbitration Decision 16-03017)
http://www.finra.org/sites/default/files/aao_documents/16-03017.pdf
In a FINRA Arbitration Statement of Claim filed in October 2016, public customers Claimants asserted the following claims attendant to their investments in Direct Private Placement/Tenant in Common securities: violation of standards of reasonable
basis suitability and just and equitable principles of trade; fraud misleading statements,
misleading omissions of material information; breach of fiduciary duty; negligent
misrepresentation; breach of contract and warranty; third party beneficiary breach of
contract; breach of covenant of good faith and fair dealing; and failure to supervise. Respondents generally denied the allegations and asserted various affirmative defenses. The FINRA Arbitration Panel granted Respondents' Motion to Dismiss on the grounds that over six years had elapsed between the events at issue and the filing of Claimants' claims. Claimants then filed a lawsuit against the Respondents in state court, and, thereafter, the matter settled without contribution from the individual Respondents. The FINRA Arbitration Panel was then moved to expunge the matter from the Central Registration Depository records ("CRD") of Respondentws Sloan, Teese, and Ehinger. In recommending expungement, the Panel made a FINRA Rule 2080 finding that Claimants claim, allegation, or information is factually impossible or clearly erroneous, and false; and that the registered persons were not involved in the alleged investment-related sales
practice violation, forgery, theft, misappropriation, or conversion of funds. The Panel offered the following rationale:
The Claimants suffered losses as a result of the economic downturn of 2008. They were experienced real estate investors and wished to engage in a 1031 Exchange for tax purposes. Claimants chose the underlying investment as a suitable purchase for their purposes. They knew and understood the risks of the investment and visited the property in question. Respondents Gregory Teese and Kenneth Ehinger were in no way associated with the account, had no responsibility for due diligence, and had no knowledge or supervisory obligations with respect to the Claimants' accounts. Respondent Robert Sloan made no misrepresentations and recommended a suitable product to fulfill the Claimants' investment objectives. Initially, Claimants were pleased with the product, and it was only after the economic downturn that they became dissatisfied.