The Wall Street Legal & Regulatory Feed
Securities Industry Commentator by Bill Singer Esq
December 12, 2019
featured in today's Securities Industry Commentator:
SEC Charges Florida Resident and His Corporate Entity for Fraudulent Securities Offerings (SEC Release)SEC Obtains Final Judgment Against Former Online Marketing Company Executive (SEC Release)SEC Charges Founder, Digital-Asset Issuer With Fraudulent ICO (SEC Release)Pennsylvania Man Indicted In "SIM Swapping" Scheme To Steal Cryptocurrency (DOJ Release)FINRA NAC Piles on Fines on Out of Business Spencer Edwards, Inc. In the Matter of Department of Enforcement, Complainant, vs. Spencer Edwards, Inc., Respondent (FINRA National Adjudicatory Council Decision)FINRA Fines Aeon Capital and Its CCO over Taping Rule. In the Matter of Aeon Capital Inc. and Vincent Michael Bruno, Respondents (FINRA AWC)FINRA Fines and Suspends Rep For Not Properly Confirming Hacker's Identity and Unauthorized Trades. In the Matter of William Darby, Respondent (FINRA AWC)FINRA Fines and Suspends Rep For Providing Former Firm's Blotters to Another Firm. In the Matter of Brett David Levinson, Respondent (FINRA AWC)
[In]Securities Guest Blog: Lawyers, Guns and Money by Aegis Frumento Esq (BrokeAndBroker.com Blog)
http://www.brokeandbroker.com/4956/aegis-frumento-insecurities/
While standing on the White House lawn, former Congressman Chris Collins learned that a wonder drug had failed a key clinical trial. So he alerted his son, who in turn alerted his girlfriend and her family. They all dumped the stock and saved three quarters of a million when it tanked a few days later. Collins' good fortune was most unfortunate because he was a director and the major shareholder of the failed wonder drug's manufacturer, Innate Immunotherapies. The other day he pled guilty to insider trading.
Hackers allegedly emptied brokerage accounts with a simple email scam - here's how to protect yourself (CNBC.com by Kate Fazzini)
https://www.cnbc.com/2019/12/11/how-to-protect-your-brokerage-account-from-email-scams.html
https://www.cnbc.com/2019/12/11/how-to-protect-your-brokerage-account-from-email-scams.html
An absolutely superb article! A MUST READ.
SEC Charges Florida Resident and His Corporate Entity for Fraudulent Securities Offerings (SEC Release)
https://www.sec.gov/litigation/litreleases/2019/lr24689.htm
https://www.sec.gov/litigation/litreleases/2019/lr24689.htm
In a Complaint filed in the United States District Court for the Southern District of Florida https://www.sec.gov/litigation/complaints/2019/comp24689.pdf, the SEC charged Palm Beach Atlantic Financial Group LLC and its managing member/sole owner William A. Smith with 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 the registration provisions of Section 5(a) and 5(c) of the Securities Act. Without admitting or denying the allegations in the complaint, Palm Beach and Smith consented to the entry of a final judgment that permanently enjoins them from violations of the charged provisions and orders them to pay, joint and severally, a civil monetary penalty of $75,000. As alleged in part in the SEC Release:
[F]rom at least 2014 through early 2017, Smith engaged in the unregistered fraudulent offer and sale of over $1 million in securities to over thirty investors. According to the SEC's complaint, Smith made numerous oral and written misrepresentations about the use of investor funds, including stating that funds would be used to purchase, remodel, and operate specific properties. However, the SEC's complaint alleges that Smith shifted hundreds of thousands of dollars into and out of various bank accounts when he deemed it necessary to support whatever project needed funding at the time. In addition, Smith allegedly misled investors about Palm Beach's track record of real estate investments by falsely claiming to have vast experience and success with a proven strategy that protected the investment assets as well as the investor.
https://www.sec.gov/litigation/litreleases/2019/lr24686.htm
In a Complaint filed in the United States District Court for the District of Massachussetss
https://www.sec.gov/litigation/complaints/2018/comp-pr2018-161.pdf, the SEC charged former Constant Contact, Inc. Chief Financial Officer Harpreet Grewal with hiding company's slowing customer growth from investors and inflating the company's publicly reported subscriber numbers. Without admitting or denying the SEC's allegations, Grewal consented to the entry of the final judgment, which enjoins him from future violations of the antifraud provisions of Sections 17(a)(2) and (3) of the Securities Act and aiding and abetting violations of the books and records and reporting provisions of Sections 13(a) and 13(b)(2)(A) of the Securities Exchange Act and Rules 12b-20, 13a-1, 13a-11, and 13a-13 thereunder; and he is ordered to pay disgorgement and prejudgment interest of $250,000 and a civil penalty of $100,000.
https://www.sec.gov/litigation/complaints/2018/comp-pr2018-161.pdf, the SEC charged former Constant Contact, Inc. Chief Financial Officer Harpreet Grewal with hiding company's slowing customer growth from investors and inflating the company's publicly reported subscriber numbers. Without admitting or denying the SEC's allegations, Grewal consented to the entry of the final judgment, which enjoins him from future violations of the antifraud provisions of Sections 17(a)(2) and (3) of the Securities Act and aiding and abetting violations of the books and records and reporting provisions of Sections 13(a) and 13(b)(2)(A) of the Securities Exchange Act and Rules 12b-20, 13a-1, 13a-11, and 13a-13 thereunder; and he is ordered to pay disgorgement and prejudgment interest of $250,000 and a civil penalty of $100,000.
SEC Charges Founder, Digital-Asset Issuer With Fraudulent ICO (SEC Release)
https://www.sec.gov/news/press-release/2019-259
https://www.sec.gov/news/press-release/2019-259
In a Complaint filed in the United States District Court for the Southern District of New York https://www.sec.gov/litigation/complaints/2019/comp-pr2019-259.pdf, the SEC charged UnitedData, Inc. d/b/a "Shopin" and its founder, Eran Eyal, with violating the antifraud and registration provisions of the federal securities laws, and seeks permanent injunctions, disgorgement with interest, and civil penalties, as well as an officer-and-director bar against Eyal and a bar against Eyal and Shopin prohibiting them from participating in any future offering of digital-asset securities. As alleged in part in the DOJ Release, as part of an Initial Coin Offering ("ICO") scheme that raised over $42 million, from August 2017 to April 2018, the Defendants:
conducted a fraudulent unregistered securities offering by selling Shopin Tokens in an ICO. Shopin aimed to use the funds from the sales of the Shopin Tokens to create universal shopper profiles, maintained on the blockchain, that would track customer purchase histories across online retailers and recommend products based on this information. As alleged in the SEC's complaint, Shopin never created a functional platform. The complaint further alleges that Eyal and Shopin repeatedly lied to investors in connection with its offering, including misrepresentations about purported partnerships with certain well-known retailers and about the involvement of a prominent entrepreneur in the digital-asset space. The SEC also alleges that Eyal misappropriated investor funds for his personal use, including at least $500,000 used for rent, shopping, entertainment expenses, and a dating service.
https://www.justice.gov/usao-ndca/pr/pennsylvania-man-indicted-sim-swapping-scheme-steal-cryptocurrency
In an Indictment filed in the United States District Court for the Northern District of California, Anthony Francis Faulk was charged with one count of conspiracy to commit wire fraud and one count of interstate communications with intent to extort. As alleged in part in the DOJ Release, Faulk:
engaged in a scheme to obtain cryptocurrencies and other money and property by fraud and extortion. According to the indictment, Faulk targeted assets owned and controlled by executives of cryptocurrency-related companies and cryptocurrency investors. The indictment alleges Faulk and others engaged in a "SIM swapping" scheme. A SIM card-short for Subscriber Identity Module or Subscriber Identification Module-is a technology used to identify and authenticate subscribers on mobile phone devices. According to the indictment, Faulk and others used fraud, deception, and social engineering techniques to induce representatives of cellphone service providers to transfer or port cellphone numbers from SIM cards in the devices possessed by victims to SIM cards in devices possessed by the conspirators, a practice known as SIM swapping. The indictment further alleges that after Faulk and his co-conspirators gained control of victims' cellphone numbers, the conspirators used additional deceptive techniques to gain access to email, electronic storage, and other accounts of victims and ultimately to cryptocurrency accounts of victims. Faulk and his co-conspirators also allegedly extorted victims of the SIM swapping scheme.
As set forth in the Syllabus of the NAC Decision:
Spencer Edwards: (1) sold unregistered and nonexempt microcap securities; (2) failed to establish and maintain a supervisory system, including written supervisory procedures, that was reasonably designed to prevent the sale of unregistered and nonexempt microcap securities; (3) failed to establish and maintain a supervisory system, including written supervisory procedures, related to the retention and review of its registered representatives' emails; (4) failed to adequately implement the firm's anti-money laundering policies and procedures to detect and cause the reporting of suspicious transactions related to its microcap securities liquidation business; and (5) failed to preserve its registered representatives' emails. Held, findings affirmed in relevant part and sanctions modified.
As set forth in the NAC Decision, it modified the Office of Hearing Officer's sanctions
https://www.finra.org/sites/default/files/fda_documents/2013035865303_FDA_VA701925
%20%282019-1563200360538%29.pdf of $707,000 by imposing the following fines upon Spencer Edwards:
%20%282019-1563200360538%29.pdf of $707,000 by imposing the following fines upon Spencer Edwards:
Additionally, the NAC assessed but did not impose a:(1) $1.7 million for the unregistered securities sales (cause one);(2) $1.7 million for the supervisory and anti-money laundering violations (causes two and three); and(3) $90,940, plus prejudgment interest, as disgorgement for the unregistered securities sales.
suspension on Spencer Edwards until the Firm engages an independent consultant who will monitor the Firm's acceptance and liquidation of microcap securities deposits and review the Firm's supervisory and anti-money laundering procedures related to its microcap securities liquidation business. Finally, we affirm the Hearing Panel's order that Spencer Edwards pays hearing costs of $16,813.43, and we assess appeal costs of $1,669.74.77
Ummm . . . sure . . . okay . . . the NAC comes off looking like the tough guy and the protector of the realm. On the other hand, before y'all get too carried away, howsabout you consider this statement in the NAC Decision:
Spencer Edwards became a FINRA member in 1988. The Firm was a small retail broker-dealer headquartered in Denver, Colorado. On December 17, 2018, Spencer Edwards filed a Form BDW to terminate its FINRA membership. The Firm is no longer a registered broker-dealer.
FINRA Fines Aeon Capital and Its CCO over Taping Rule. In the Matter of Aeon Capital Inc. and Vincent Michael Bruno, Respondents (FINRA AWC 2017052480101)
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, Aeon Capital Inc. and Vincent Michael Bruno submitted a Letter of Acceptance, Waiver and Consent ("AWC"), which FINRA accepted. The AWC asserts that Aeon Capital has been a FINRA member firm since 2013 with 21 registered representatives at four branches; and that Bruno was first registered in 1990, and he was first registered with Aeon in April 2018, and is that firm's Chief Compliance Officer (and since 2015 has been a CCO at another FINRA member firm). In accordance with the terms of the AWC, for violation of FINRA Rules 3170 and 2010, FINRA imposed upon:
Aeon Capital: A Censure; $45,000 fine ($10,000 joint/several with Bruno); and an undertaking to retain independent consultants to review, in part, the firm's Taping Rule policies.Vincent Michael Bruno: A $10,000 fine (joint/several with Aeon) and a 30-business-days Principal capacity suspension from association with any FINRA member firm.
As alleged in part in the FINRA AWC:
By letter dated April 22, 2016, FINRA notified Aeon that it had triggered the Taping Rule, and that the Firm therefore was required to "establish, maintain, and enforce special written procedures for supervising the telemarketing activities of its registered persons within 60 days after [Aeon's] receipt of this letter." FINRA further advised the Firm that, under the Taping Rule, it must "record all conversations between all of [its] registered persons and both existing and potential customers," and that Aeon's Taping Rule procedures must "remain in effect for at least three years."Aeon certified to FINRA that effective June 1, 2016, it had "implemented the required [Taping Rule] procedures, including the installation of a taping system," and that the taping system "record[s] all means of telecommunications at the firm." FINRA staff investigated Aeon's compliance with the Taping Rule in connection with 2017, 2018, and 2019 examinations of the Finn. Those examinations determined that, notwithstanding its certifications to FINRA, Aeon did not comply with the Taping Rule throughout the Relevant Period, and Bruno failed to enforce the Firm's Taping Rule procedures from when he became registered through the Finn in May 2018 through June 2019.
FINRA Fines and Suspends Rep For Not Properly Confirming Hacker's Identity and Unauthorized Trades. In the Matter of William Darby, Respondent (FINRA AWC 2018060504601)
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, William Darby submitted a Letter of Acceptance, Waiver and Consent ("AWC"), which FINRA accepted. In accordance with the terms of the AWC, for violation of FINRA Rules 4511 and 2010, FINRA imposed upon William Darby a $7,500 fine and a 45-calendar-days suspension from associating with any FINRA member firm in any capacity. The AWC asserts that William Darby entered the industry in 1999; and by November 2008, he was registered with FINRA member firm UBS Financial Services, Inc.. UBS terminated Darby's registration on November 6, 2018. The AWC asserts that Darby "does not have any disciplinary history with the Securities and Exchange Commission, any state securities regulators, FINRA, or any other self-regulatory organization." As set forth in part in the AWC:
In October 2018, a hacker who had gained access to a Firm customer's account sent two emails to Respondent, the customer's representative, requesting that Respondent effectuate three wire transfers totaling $511,870 from the customer's account to outside bank accounts. Respondent was unaware that the emails were sent by an imposter. Respondent complied with the requests and directed that the wires be transmitted. On two separate occasions Respondent falsely advised his sales assistant that he had received verbal confirmation for the wires from the customer. The sales assistant entered that false information into the Firm's wire request attestation forms, thereby causing the Firm to have inaccurate books and records. By virtue of the foregoing, Respondent violated FINRA Rules 4511 and 2010.In addition, to fund the wire transfer requests Respondent executed two sales of securities in the customer's account, in a total amount of $525,896, without the customer's knowledge or authorization. . . .
FINRA Fines and Suspends Rep For Providing Former Firm's Blotters to Another Firm. In the Matter of Brett David Levinson, Respondent (FINRA AWC 2015047496101)
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, Brett David Levinson submitted a Letter of Acceptance, Waiver and Consent ("AWC"), which FINRA accepted. In accordance with the terms of the AWC, for violation of FINRA Rule 2010 (by causing Hilltop to violate Regulation S-P), FINRA imposed upon Brett David Levinson a $5,000 fine and a "suspension of 30 calendar days." The AWC asserts that Brett David Levinson entered the industry in 1995; and by December 2008, he was registered with FINRA member firm Hilltop Securities, Inc. Hilltop terminated Levinson's registration in October 23, 2015.. The AWC asserts that Brett David Levinson "does not have any disciplinary history with the Securities and Exchange Commission, any state securities regulators, FINRA, or any other self-regulatory organization." As set forth in part in the AWC:
On or about August 27, 2015, in the course of negotiating his move to a new firm and while still employed at Hilltop, Respondent provided an individual at another FINRA-regulated broker-dealer with excerpts of two "Daily Person Trade and Commission Blotter[s]," one of which included the name of a Hilltop customer, as well as her account number, and trade information. In addition, Respondent retained several binders of his customers' account statements, including customers' account numbers, for several days after the termination of his registration with Hilltop, during which interval he was not entitled to possess them.