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Securities Industry Commentator by Bill Singer Esq

November 1, 2019

featured in today's Securities Industry Commentator:





Pawtucket Man Sentenced in International Scam Targeting the Elderly (DOJ Release)
https://www.justice.gov/usao-ri/pr/pawtucket-man-sentenced-international-scam-targeting-elderly
Shawn Whitfield pled guilty in the United States District Court for the District of Rhode Island to conspiracy to commit wire fraud, wire fraud, and mail fraud; and he was sentenced to 30 months in prison plus 3 years supervised release; and he was ordered to pay restitution. As alleged in part in the DOJ Release, Whitfield:

admitted to receiving more than $109,000 in upfront payments from victims of the scam who were led to believe they had won cash or prizes in a lottery or sweepstakes. Some victims were told they had won as much as $82 million. Others were told they were in line to receive $5,000 a week for life. Mercedes Benz vehicles were among the valuable prizes some of the victims were told they had won.

In each instance, victims were told their winnings would not be released to them without upfront payment of taxes or fees. According to court documents, information presented to the Court by the Government, and by victims and family members who made or provided impact statements to the Court, individuals sent payments to Whitfield ranging between $212 and $50,000. Some individuals reported sending multiple payments after being instructed to do so by the scammers.

The majority of funds collected by Whitfield were transferred electronically to co-conspirators and others, most often to individuals in Jamaica.

http://www.brokeandbroker.com/4885/sec-talman-harris/
You got your obvious and you got your obvious. I mean, you know, there are some things in life where it just goes without saying. Take, for example, the case of a convicted felon who was sentenced to over three years in federal prison and ordered to pay over $1 million in assorted fines, disgorgement, interest, and costs for his role in conspiring to commit securities fraud. Without over-thinking it too much, you wouldn't likely argue against barring such a fellow from Wall Street, right? Well, go figure, the SEC is wrestling with that very issue. Our publisher Bill Singer is torn by the dilemma of not quite understanding why there's any hesitation but (because Bill's an attorney) also understanding why the federal regulator is striving for consistency with its decisions. None of which comforts Bill when it comes to why Whistleblower cases are languishing at the SEC without timely payment but, hey, bureaucrats got their priorities.

https://www.sec.gov/news/press-release/2019-226
An SEC Order alleges that XBT Corp. SARL d/b/a First Global Credit used a variety of marketing methods to target and solicit U.S. individuals https://www.sec.gov/litigation/admin/2019/33-10723.pdf to deposit and use bitcoins to buy and sell a variety of investment products. First Global Credit characterized some of the investments as "bitcoin Asset Linked Notes;" however, notwithstanding such nomenclature, investors participated in the price movements of securities, including those listed on U.S. securities exchanges, without owning them. As a result, the SEC deemed the cited investments as security-based swaps, which were offered to U.S. investors without complying with the registration and exchange requirements governing security-based swaps as promulgated under the Dodd-Frank Act. As alleged in part in the DOJ Release:

[F]irst Global Credit failed to register these security-based swap transactions and transacted with investors who did not meet the discretionary investment thresholds required by the federal securities laws. It also finds that First Global Credit failed to transact its security-based swaps on a registered national exchange, and failed to properly register as a security-based swaps dealer. Without admitting or denying the findings in the SEC's order, First Global Credit consented to a cease-and-desist order and agreed to pay disgorgement of $31,687 and a penalty of $100,000. The SEC's order notes First Global Credit's remedial actions, including its repayment of trading losses incurred by U.S. investors. In a parallel action, the Commodity Futures Trading Commission (CFTC) announced a settlement with First Global Credit arising from similar conduct.

In a Complaint filed in the United States District Court for the Northern District of Illinois
https://www.sec.gov/litigation/complaints/2018/comp24136.pdf, the SEC charged Bovorn Rungruangnavarat and his brother, Badin Rungruangnavarat with insider trading in connection with the acquisition of Smithfield Foods, Inc. by Shuanghui Holding's International.   from a close, personal friend who worked as an investment banker. Previously, in 2013, the SEC sued Badin and setteled with him for disgorgement of $3.2 million and a $2 million civil penalty. In Bovorn's case, the Court entered a final consent judgment in which he neither admitted nor denied the SEC's allegations and was enjoined from future violations of the antifraud provisions of Section 10(b) of the Securities Exchange Act and Rule 10b-5 thereunder; and ordered to disgorge $274,339.

https://www.finra.org/sites/default/files/fda_documents/2016050137503
%20Kim%20K.%20Kopacka%20CRD%203153396
%20Beth%20A.%20Debouvre%20CRD%203176483
%20Order%20Accepting%20Offer%20of%20Settlement%20va.pdf
In response to the filing of a Complaint on March 25, 2019, by the Financial Industry Regulatory Authority's ("FINRA's") Department of Enforcement, Respondents Kim K. Kopacka and Beth A. DeBouvre submitted an Offer of Settlement in October 2019, which the regulator accepted.  Under the terms of the Offer of Settlement, without admitting or denying the allegations in the Complaint, Respondents consented to the entry of findings and violations and to the imposition of the sanctions. 
The FINRA Settlement Order asserts that Respondent Kopacka was first registered in 1998 with FINRA member firm First Financial United Investments, Ltd LLP, and, thereafter, from 2003 until March 2017 with FINRA member firm IMS Secuties, Inc. The FINRA Settlement Order asserts that Respondent DeBouvre was first registered in 1998, and from 2001 through 2003 with FINRA member firm First Financial United Investments, Ltd LLP, and, thereafter, from 2003 until March 2017 with FINRA member firm IMS Secuties, Inc.  In accordance with the terms of the FINRA Settlement Order, FINRA imposed upon Respondent:
  • Kopacka: $10,000 fine; two-year suspension with any FINRA member firm in any capacity; and she was ordered to disgorge $350,000 in commissions;
  • DeBouvre:  $10,000 fine; 15-month suspension with any FINRA member firm in any capacity; and she was ordered to disgorge $350,000 in commissions
As alleged under the "Summary" portion of the FINRA Settlement Order:

From at least 2002 through 2016, Respondents Kim K. Kopacka and Beth A. DeBouvre enabled Ms. Kopacka's husband, Timothy Kopacka ("Mr. Kopacka"), to associate with and conduct securities business through member firms and engage in activities requiring registration, despite the fact that he was barred from associating with member firms and therefore statutorily disqualified. During this period, Ms. Kopacka and DeBouvre allowed Mr. Kopacka to meet with new and existing firm customers and recommend the purchase and sales of securities to them, resulting in securities transactions of more than $40 million and commissions of more than $6 million. Ms. Kopacka and DeBouvre facilitated Mr. Kopacka's securities business and helped him circumvent his statutory disqualification by, among other things, falsifying the documents  supporting the transactions he recommended, approving the transactions, and concealing his statutory disqualification. 

As a result of the foregoing and additional misconduct that continued through February 2017, Ms. Kopacka and DeBouvre violated NASD Rule 2110 (for conduct occurring before December 15, 2008) and FINRA Rule 2010 (for conduct occurring on or after December 15, 2008) by permitting and enabling a statutorily disqualified and barred person to conduct a securities business through member firms and otherwise engaging in an unethical course of conduct. 

Ms. Kopacka and DeBouvre also violated Article III, Section 3(b) of NASD's By-Laws (for conduct occurring before July 30, 2007); Article III, Section 3(b) of FINRA's By-Laws (for conduct occurring on or after July 30, 2007); NASD IM-8310-1 and Rule 2110 (for conduct occurring before December 15, 2008); and FINRA Rules 8311 and 2010 (for conduct occurring on or after December 15, 2008) by permitting and enabling a statutorily disqualified and barred person to associate with member firms. 

And Ms. Kopacka and DeBouvre violated NASD Rules 1031 and 2110 (for conduct before December 15, 2008) and FINRA Rule 2010 (for conduct on or after December 15, 2008) by permitting and enabling an unregistered person to solicit investments to firm customers and otherwise function in a registered capacity.

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, Aurora Capital LLC submitted a Letter of Acceptance, Waiver and Consent ("AWC"), which FINRA accepted. In accordance with the terms of the AWC, FINRA imposed upon Aurora Capital LLC a Censure, $15,000 fine (reflects the firm's revenues and financial resources as a sanction consideration), and undertakings to review and certify cited policies/procedures, with an emphasis on electronic communications.  The AWC asserts that Aurora Capital has been a FINRA member since 1995 and employs five registered representatives; and that the firm has no prior relevant disciplinary history. As set forth in part in the AWC under the heading "Overview":

This matter involves three violations by Aurora Capital. First, from June 26, 2013 through September 2, 2015, the Firm failed to meet its obligations to evaluate and document various aspects of the outside business activity ("OBA") of one of its registered representatives ("RR 1"). Second from July 18, 2014 through August 31, 2018 (the "Email Violation Period"), the Firm failed to reasonably supervise electronic communications that its registered representatives sent and received. Third, from January 1, 2016 through December 31, 2018 (the "Inspection Violation Period"), the Firm failed to conduct inspections of any of its office.

As a result, Aurora Capital violated NASD Rule 3010 and FINRA Rules 3270, 3110, and 2010 . . .

FINRA Censures and Fines Firm, and Fines and Suspends FINOP Over FOCUS Violations. In the Matter of Alexander Capital. L.P. and Thomas Sullivan, Respondents (FINRA AWC 2016047616401) 
https://www.finra.org/sites/default/files/fda_documents/2016047616401
%20Alexander%20Capital%2C%20L.P.%20CRD%2040077
%20Thomas%20Sullivan%20CRD%201145000%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, Alexander Capital. L.P. and Thomas Sullivan submitted a Letter of Acceptance, Waiver and Consent ("AWC"), which FINRA accepted. In accordance with the terms of the AWC, FINRA imposed upon Alexander Capital a Censure and $45,000 fine, and upon Sullivan a $5,000 fine, one-month suspension only in his FINOP capacity, and a requirement to requalify as a FINOP. The AWC asserts that Alexander Capital has been a member firm since 1996 and employs about 58 registered representatives at three branches. The AWC also asserts that Sullivan has been registered since 1986, was first associated with the firm in 2014 as a Financial and Operations Principal and in other capacities. Further, the AWC asserts that neither the firm nor Sullivan have any prior relevant disciplinary history. As set forth in part in the AWC under the heading "Overview":

At various points between 2016 and 2018, Alexander Capital conducted a securities business while below its net capital requirement. Also during this time period, the Firm did not prepare accurate net capital computations, filed inaccurate Financial and Operational Combined Uniform Single ("FOCUS") reports, and maintained inaccurate books and records. As a result of the foregoing, Alexander Capital violated Sections I 5(c) and I7(a) of the Securities Exchange Act of 1934 ("Exchange Act"), Rules 15c3-1, I 7a-3, and I7a-5 promulgated thereunder, and FINRA Rules 4110(b)(1), 4511 and 2010. Additionally, in 2016, the Firm made a material change in its business operations by participating in firm commitment offerings without receiving approval from FINRA to do so in violation of NASD Rule 1017 and FINRA Rule 2010. 

During the time period of the violations discussed herein, Sullivan was the FINOP for the Firm. As FINOP, Sullivan was responsible for, among other things, calculating Alexander Capital's net capital and maintaining the accuracy of the Firm's general ledger, trial balance, and balance sheet. He was also responsible for the accuracy of the Firm's FOCUS reports. Sullivan violated FINRA Rule 2010 by causing Alexander Capital to violate Sections 15 and 17 of the Exchange Act. Additionally, by permitting the Firm to continue its securities business during the time period the Firm was below its net capital requirement and causing its books and records to be inaccurate, Sullivan violated FINRA Rules 41 I 0(b)(1), 4511 and 2010. 

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