Securities Industry Commentator by Bill Singer Esq

Synapse Financial Technologies Sued For Harassment, Discrimination and Retaliation (BrokeAndBroker.com Blog)

Social Media Influencer Sentenced to 14 Years in Federal Prison after Plotting to Hijack Internet Domain / Planned an Armed Home Invasion after Owner of "doitforstate.com" Refused to Sell (DOJ Release)

Morgan Stanley is cutting jobs due to uncertain global environment, sources say (CNBC.com)

SEC Obtains Touting and Fraud Judgment Against Colorado Cannabis Stock (SEC Release)

San Diego Woman Sentenced to Nearly Six Years in Federal Prison for Ponzi Scheme Run Via Sham Commercial Real Estate Investments (DOJ Release)

Former Congressman and Two Others Settle Insider Trading Charges (SEC Release)

President And Chief Financial Officer Of New Jersey Company Charged With $17 Million Fraud Scheme (DOJ Release)

Jefferies to Pay Nearly $4 Million for Improper Handling of ADRs (SEC Release)

SEC Obtains Judgments Against Two Attorneys in Fraudulent Scheme to Issue False Legal Opinions (SEC Release)

FINRA Fines and Suspends Superivisor/CEO Over Unreasonable Suitability Supervision. In the Matter of Louis Ward, Respondent (FINRA AWC)

FINRA Fines and Suspends LPL Associated Person Over Customer Loan. In the Matter of Kathryn Renee Charpie, Respondent (FINRA AWC)

The evidence at trial showed that Adams founded the social media company "State Snaps" while a student at Iowa State University in 2015.  State Snaps operates on a variety of social media platforms, including Snapchat, Instagram, and Twitter.  At one time, Adams had over a million followers on his social media sites, which mostly contained images and videos of young adults engaged in crude behavior, drunkenness, and nudity.  In 2015, a Des Moines area television station aired a news segment in which Adams, who in the interview would only identify himself as "Polo," was continuing to operate his social media sites despite the objections of Iowa State University administrators and the policies of the social media platforms.

Adams' followers often used the slogan, "Do It For State!"  Adams tried to purchase the Internet domain "doitforstate.com" from a Cedar Rapids resident who had registered the domain with GoDaddy.com.  Between 2015 and 2017, Adams repeatedly tried to obtain "doitforstate.com", but the owner of the domain would not sell it.  Adams also threatened one of the domain owner's friends with "gun emojis" after the friend used the domain to promote concerts.

In June 2017, Adams enlisted his cousin, Sherman Hopkins, Jr., to break into the domain owner's home and force him at gunpoint to transfer doitforstate.com to Adams.  Hopkins was a convicted felon who lived in a homeless shelter at the time.

On June 21, 2017, Adams drove Hopkins to the domain owner's house and provided Hopkins with a demand note, which contained instructions for transferring the domain to Adams' GoDaddy account.  When Hopkins entered the victim's home in Cedar Rapids, he was carrying a cellular telephone, a stolen gun, a taser, and he was wearing a hat, pantyhose on his head, and dark sunglasses on his face.        

The victim was upstairs and heard Hopkins enter the home.  From the top of a staircase, the victim saw Hopkins with the gun on the first floor.  Hopkins shouted at the victim, who then ran into an upstairs bedroom and shut the door, leaning up against the door to stop Hopkins from entering. 

Hopkins went upstairs, kicked the door open, grabbed the victim by the arm and demanded to know where he kept his computer.  When the victim told Hopkins that he kept his computer in his home office, Hopkins forcibly moved the victim to the office.  Hopkins ordered the victim to turn on his computer and connect to the Internet.  Hopkins pulled out Adams' demand note, which contained a series of directions on how to change an Internet domain name from the domain owner's GoDaddy account to one of Adams' GoDaddy accounts.

Hopkins put the firearm against the victim's head and ordered him to follow the directions on the demand note.  Hopkins then pistol whipped the victim several times in the head.  Fearing for his life, the victim quickly turned to move the gun away from his head.  The victim then managed to gain control of the gun, but during the struggle, he was shot in the leg.  The victim shot Hopkins multiple times in the chest.  He then contacted law enforcement.

[J]effrey O. Friedland touted - or promoted - the stock of cannabis company OWC Pharmaceutical Research Corp., while misrepresenting his own investment in OWC and his professional relationship with the company. According to the complaint, Friedland promoted OWC to investors without disclosing his role as a paid promoter or the amount of his compensation. As alleged in the complaint, Friedland held millions of shares of OWC stock through two companies that he controlled, Intiva Pharma LLC and Global Corporate Strategies LLC, with the bulk of the shares received as compensation for promoting OWC to investors, including retail investors.  Additionally, according to the complaint, Friedland secretly sold his OWC shares into the market at the same time that he was touting OWC stock to the public as a long-term investment.

Werth and others working at her direction falsely promised victims that their investments were risk-free and 100 percent guaranteed by CES's "collateral account" at Wells Fargo. She lulled her victims by creating fictitious Wells Fargo bank statements to show that CES had an account with a balance of $7.2 million, as well as fabricating emails she claimed were from an employee of Wells Fargo Asset Management. Werth also falsely told investors that her companies were investing in properties that had been evaluated by the international valuation firm of Duff & Phelps.

In return for their short-term investments of 30 to 90 days, Werth promised victims a rate of return of at least 15 percent.

In reality, Werth knew the representations were false and fraudulent because she operated CES and ESC as a Ponzi scheme, in which the vast majority of its incoming revenue was comprised of victim-investor funds, which defendant Werth used to repay prior victim-investors, to pay her personal expenses, to withdraw cash, to repay investors' principal, and to make fictitious profit payments to some investors.

The total loss resulting from Werth's Ponzi scheme exceeded $6 million.

From late 2015 to early 2016, Lotus Exim International Inc. (LEI) obtained from the victim bank a $17 million line of credit to discharge a prior debt and gain working capital. The line of credit was to be secured by LEI's accounts receivable and assets. In reality, LEI's accounts receivable and assets were insufficient to serve as collateral for the line.

In order to conceal the lack of sufficient collateral, LEI and its employees, including Kankariya and Sethi, devised a scheme to create fake email addresses on behalf of LEI's customers so they could pose as those customers and answer the bank's and outside auditor's inquiries about the accounts receivables. The scheme involved numerous fraudulent accounts receivable where the outstanding balances were either inflated or entirely fabricated. The scheme caused the victim bank losses of approximately $17 million.

The SEC's order finds that Jefferies improperly borrowed pre-released ADRs from other brokers when Jefferies should have known that those brokers did not own the foreign shares needed to support those ADRs.  The order against Jefferies also finds that it failed reasonably to supervise its securities lending desk personnel concerning borrowing pre-released ADRs from these brokers.

This is the SEC's 14th enforcement action against a bank or broker resulting from its widespread investigation into abusive ADR pre-release practices, which has thus far resulted in monetary settlements exceeding $431 million.

The initial complaint alleged that Dalmy recruited a lawyer to facilitate her scheme to circumvent the consequences of being placed on the OTC Market Group Inc.'s list of prohibited attorneys. The OTC Market Group owns and operates the largest U.S. electronic quotation and trading system for microcap securities. The SEC's amended complaint charges Woodford as the lawyer who allegedly signed the legal opinion letters drafted by Dalmy and provided them to transfer agents and brokerage firms. According to the complaint, Woodford, a divorce attorney with no previous securities law experience, signed the opinion letters without performing due diligence or conducting any legal analysis, despite representations made in the letter that he had done so. The SEC alleges that legal opinion letters are a significant factor in transfer agents' and brokerage firms' decisions to deem certain securities eligible to be freely sold on the public market without SEC registration, and that transfer agents and brokerage firms often refuse to accept legal opinion letters from attorneys subject to OTC Markets prohibitions. The SEC's amended complaint further alleges that, in 2016, Dalmy was permanently suspended from appearing and practicing before the SEC as an attorney, which prohibited her from representing clients in SEC matters, including advising clients about SEC filing obligations or content. Despite this, the SEC alleges that Dalmy continued to prepare filings for publicly traded companies and directing Woodford to sign and file them with the SEC. 

The SEC's amended complaint, filed in U.S. District Court for the District of Colorado, charges Dalmy and Woodford with violating the antifraud provisions of Section 17(a) of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder, and seeks from both defendants permanent injunctions against violating these provisions, disgorgement of ill-gotten gains plus interest, penny stock bars, and seeking from Woodford civil penalties. In addition, the SEC seeks a conduct-based injunction prohibiting Dalmy from providing legal services pertaining to federal securities law exemptions from registration and requiring her to provide actual or potential clients seeking advice or representation in matters related to the federal securities laws with copies of the SEC's prior actions against her and an order pursuant to Section 21(e) of the Exchange Act requiring Dalmy to comply with the SEC's September 2016 order.

The court entered a final judgment against Dalmy by default. Dalmy was previously ordered to comply with the SEC's September 2016 order permanently suspending her from appearing and practicing before the SEC as an attorney. Woodford consented to the entry of a final judgment against him. The final judgments, which were both entered on December 6, 2019, enjoin Dalmy and Woodford from violating the antifraud provisions of Section 17(a) of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder, and impose penny stock bars. The judgment against Dalmy orders her to pay disgorgement and prejudgment interest of $30,236 and a civil penalty of $86,718, and prohibits her from providing legal services pertaining to federal securities law exemptions from registration. She is also required to provide clients or potential clients seeking advice or representation in matters related to the federal securities laws with copies of the SEC's and the court's prior orders against her. The judgment against Woodford orders him to pay disgorgement and prejudgment interest of $29,762, but waives payment based on his financial condition.

[W]ard failed to reasonably supervise three K. C. Ward registered representatives, each of whom recommended unsuitable trades in customer accounts. Ward, the responsible principal, was aware of multiple red flags in those accounts, but failed to take reasonable steps to address those red flags.

Between August 2015 and August 2017, Charpie borrowed a total of $10,100 from Customer A and repaid $5,640. Customer A was not a family member, and Charpie neither notified nor sought pre-approval from LPL before borrowing from Customer A. She further denied borrowing from anyone on annual compliance questionnaires in 2015, 2016, and 2017. 

• Securities Industry Commentator
• Bill Singer