Securities Industry Commentator by Bill Singer Esq

Not Enough Bull In Stairway to Heaven (BrokeAndBroker.com Blog)

SEC employee tested for coronavirus, forcing all DC headquarters staff to telework (Federal News Network by Jason Miller)

Federal Court Issues Order in Morgan Stanley Work-Related Expenses Class Action Settlement. Brandon Harvey, Plaintiff, v. Morgan Stanley Smith Barney LLC, Defendant (Final Approval Order, United States District Court for the Northern District of California)

Justice Department Wins Historic Arbitration of a Merger Dispute / Novelis Inc. Must Divest Assets to Consummate Transaction with Aleris Corporation (DOJ Release)

Federal Judge Sentences Defendant in Fraudulent "Sweepstakes" Scheme (DOJ Release)

Canadian National Who Conned U.S. Senior Citizens out of Money via 'Grandparent Scam' Sentenced to 41 months in Federal Prison (DOJ Release)

Before me is a proposed $10.2 million class action settlement between plaintiff Brandon Harvey and defendant Morgan Stanley Smith Barney LLC ("MSSB") (Harvey and MSSB are collectively the "Parties") to resolve allegations that MSSB routinely refused to cover work-related expenses for California Financial Advisors ("FAs"). The only two objectors to this settlement are plaintiffs in a similar suit filed in the Orange County Superior Court, Chen v. Morgan Stanley Smith Barney, Case No. 30-2014-00724866-CU-OE-CXC. Outten & Golden LLP, Haber Polk Kabat LLP, and Law Office of Laura Sullivan ("Chen counsel") represent Tracy Chen and Matthew Lucadano ("Chen plaintiffs") (Chen counsel and plaintiffs are collectively "Proposed Intervenors"). Proposed Intervenors were not able to bring their case to resolution after more than four years of litigating and now object to this settlement. 

I have provided Proposed Intervenors with ample ability to participate in this class settlement approval process and analyzed each of their various objections, including objections that were not properly briefed but argued at the final approval hearing. I agree that heightened scrutiny applies, and I have applied it here. I overrule every other objection. This settlement is fair, adequate, and reasonable. I award attorneys' fees, costs and service awards to both Harvey and the Proposed Intervenors and find that Harvey deserves a greater portion for its success in reaching a settlement with MSSB. IT IS HEREBY ORDERED THAT: Harvey's motion to strike Tracy Chen's objections is DENIED [Dkt. No. 104]; the objections of Matthew Lucadano and Tracy Chen are OVERRULED [Dkt. Nos. 92, 93]; Harvey's motion for final approval is GRANTED [Dkt. No. 105]; Harvey's motion for attorneys' fees, costs, and service awards is GRANTED in part [Dkt. No. 84]; Proposed Intervenors' motion to intervene for purposes of seeking attorneys' fees, costs and service awards is GRANTED [Dkt. No. 85]; Proposed Intervenors' motion for attorneys' fees, costs and service awards is GRANTED in part [Dkt. No. 86]; and Proposed Intervenors' motions to seal are GRANTED [Dkt. Nos. 91, 111]. 

Class Members: All individuals employed by MSSB within the State of California from May 14, 2014, through the date of Preliminary Approval, September 5, 2019, who worked as Financial Advisors and/or Private Wealth Advisors. 

Aggrieved Employees: All current and former Financial Advisors who were employed by MSSB within the State of California at any time during April 23, 2013 through the date of Preliminary Approval, September 5, 2019. 

According to the indictment, the defendants carried out their sweepstakes scheme from 2012 to 2016.  Charging $1 per name, Lundy collected over $700,000 by selling lists of elderly potential victims and their addresses to Cole in Canada.  Cole and other conspirators based in the Toronto, Ontario Canada metropolitan area sent packages containing fraudulent sweepstakes information to conspirators residing in the U.S.  The packages contained thousands of mailers, which U.S.-based conspirators sent to victims notifying them that they had won a sweepstakes.  Each mailer included a fraudulent check issued in the name of the victim, usually in the amount of $8,000, and a pre-addressed envelope.  Victims were instructed to deposit the check into their bank account, immediately withdraw between $5,000 and $7,000 dollars in cash or money orders and send the money to a "sweepstakes representative" to facilitate the victim collecting his or her prize. By the time the victim was notified by the bank that the deposited check was fraudulent, the cash or money order had been sent by the victim and received by the defendants or conspirators.  The intended loss from this scheme was in excess of $250 million, with an actual loss of more than $900,000.

The indictment also alleges that from June 2015 through June 2016, Emmanuel Ajayi led a SIRF scheme in which over 1,200 fraudulent Income Tax Returns were filed using stolen Personal Identifying Information (PII) requesting $25 million in tax refunds.  Ajayi used bank accounts involved in the sweepstakes scheme to receive refunds and funnel the money to conspirators in the U.S.  An IRS analysis determined that this scheme resulted in the actual loss of approximately $3.4 million paid from the U.S. Treasury.

In order to acquire the money generated by the Sweepstakes and SIRF schemes, the conspirators operated a money laundering conspiracy in the U.S. That conspiracy employed knowing and unknowing participants to conduct financial transactions with the goals of moving the proceeds from both fraudulent schemes outside of the U.S. without detection by law enforcement.

[K]irstein admitted in court that he and his co-conspirators contacted their elderly U.S. victims by telephone and fraudulently induced victims to send money by pretending to be a grandchild or some other relative who was in distress in a foreign nation.

As a result, frightened victims wired money as instructed to help their loved ones. The victims were directed to wire money via Western Union or MoneyGram, listing the grandchild, other relative or the name of the purported lawyer as the intended recipient.

When the victims wired the money, Kirstein and his co-conspirators converted the funds to cash as quickly as possible before the victims could discover that they had been fooled. On some occasions, Kirstein or his co-schemers called the victims again to solicit more money, falsely claiming that additional funds were needed by the grandchild or other relative to fully resolve the problem.

Canadian law enforcement executed a search warrant in 2012 at a Montreal apartment, where they found a fully operating telemarketing boiler room, a large amount of cash and a money counting machine. The individual rooms of the apartment were strewn with lead sheets, burner phones and calling cards, and the bathroom had been set up as an office with a chair in front of the sink.

• Securities Industry Commentator
• Bill Singer