Securities Industry Commentator by Bill Singer Esq

SEC Publishes Annual Reports on Credit Rating Agencies (SEC Release)

Two Men Sentenced to Prison for Their Roles in an Investment Fraud Scheme Targeting Elderly Victims (DOJ Release)

Top Executives Plead Guilty to Participating in a Billion Dollar Ponzi Scheme-the Biggest Criminal Fraud Scheme in the History of the Eastern District of California (DOJ Release)

SEC Charges Husband and Wife with Nearly $1 Billion Ponzi Scheme (SEC Release)

FINRA Imposes Fine, Restitution, and Suspension for Rep's Alleged Excessive Trading in Customer's Account. In the Matter of Robert F. Spiegel, Respondent FINRA AWC)

FINRA Arbitrator Says It's Too Late To Turn Back Now (BrokeAndBroker.com Blog)

Report on Findings of Examinations of NRSROs

https://www.sec.gov/files/nrsro-summary-report-2019.pdf

Report to Congress on NRSROs

https://www.sec.gov/files/2019-annual-report-on-nrsros.pdf

[F]rom 2012 through 2016, Stencil, Duke and their co-conspirators sold millions of dollars of worthless stock in a sham company named Niyato Industries Inc. (Niyato).  Stencil played the role of Niyato's chief executive officer.  Duke was Stencil's top salesperson.  Together with their co-conspirators, Stencil and Duke portrayed Niyato as a leader in its field, manufacturing electric vehicles and converting gasoline vehicles to run on compressed natural gas.  Stencil, Duke and their co-conspirators told victims that Niyato was run by a team of high-profile executives, and that Niyato had patented technology, state-of-the-art facilities and valuable contracts.  They also told victims that Niyato would use 97 percent of the money it raised selling stock to grow its business and expand operations.  Stencil, Duke and their co-conspirators used high-pressure tactics when pitching Niyato stock to victims, the evidence showed.  Among other things, they sold victims on the opportunity to "get in on the ground floor," offering them a portion of a supposedly limited supply of pre-IPO stock at $.50 per share and promising them a 10- to 16-fold return when Niyato went public.  From 2012 to 2016, Stencil, Duke and their co-conspirators repeatedly told victims that an IPO was imminent, the evidence showed.

In reality, Niyato had no patents, facilities, products or plans to commence an IPO.  Niyato's true business was the sale of worthless stock.  Stencil, Duke and their co-conspirators used nearly all of the money raised by selling Niyato stock for their own personal benefit, with Stencil paying salespeople - like Duke - half or nearly half of the money they solicited from each investor on behalf of Niyato.  Moreover, Stencil used Niyato's bank account as his own personal piggybank, the evidence showed. 

The evidence showed that, together, Stencil, Duke and their co-conspirators sold approximately $2.8 million in stock to approximately 140 victims, many of whom were elderly or vulnerable for other reasons.   

Jeff Carpoff https://www.justice.gov/usao-edca/press-release/file/1238796/download, and

Paulette Carpoff (Jeff's wife) https://www.justice.gov/usao-edca/press-release/file/1238801/download

[A]ccording to court documents, between 2011 and 2018, DC Solar manufactured mobile solar generator units (MSG), solar generators that were mounted on trailers that were promoted as able to provide emergency power to cellphone towers and lighting at sporting events. A significant incentive for investors were generous federal tax credits due to the solar nature of the MSGs.

The conspirators pulled off their scheme by selling solar generators that did not exist to investors, making it appear that solar generators existed in locations that they did not, creating false financial statements, and obtaining false lease contracts, among other efforts to conceal the fraud. In reality, at least half of the approximately 17,000 solar generators claimed to have been manufactured by DC Solar did not exist.

[T]he Carpoffs allegedly promised investors tax credits, lease payments, and profits from the operation of mobile solar generators. In reality, the complaint alleges, most of the generators were never manufactured, and the vast majority of the purported lease revenue paid to investors in fact came from new investor funds. As part of the scheme, the Carpoffs arranged for investors to receive false documents, including financial statements, lease arrangements, and generator certifications. Throughout the scheme, the Carpoffs allegedly siphoned off investor funds and used at least $140 million of investor money to fund their lavish lifestyle, which included 150 luxury and sports cars, dozens of properties, and a share in a private jet service.

[S]piegel engaged in quantitatively unsuitable trading in the account of customer JM, a 70-year old farmer. Spiegel recommended all of the trading in JM's account, including executing a significant number of trades using margin, and JM followed his recommendations. As a result, Spiegel exercised de facto control over JM's account. 

Spiegel's trading of JM's account resulted in a high turnover rate and cost-to-equity ratio, as well as significant losses. In particular, JM's account exhibited an annualized turnover rate of 34 and an annualized cost-to-equity ratio of 113%. JM's account incurred losses of $77,334 and IM paid $18,047 in commissions and fees. Spiegel's trading in JM's account was excessive and unsuitable given the customer's investment profile. 

• Securities Industry Commentator
• Bill Singer