The Wall Street Legal & Regulatory Feed

Securities Industry Commentator by Bill Singer Esq

March 23, 2020


Stocks can return to records early next year if the US can curb coronavirus spread, says JPMorgan (CNBC.com by Fred Imbert)

SEC Obtains Final Judgments Against Hologram USA Networks Inc. and CEO in Offering Fraud Scheme (SEC Release)

FINRA Censures and Fines MML Investors Services Over Third-Party System Access By Former Associated Persons.  In the Matter of MML Investors Services, LLC, Respondent (FINRA AWC)

FINRA Fines and Suspends Former Merrill Rep for Reimbursing Customer Losses and Text Messages. In the Matter of Sofia T. Gonzalez, Respondent (FINRA AWC)



https://www.justice.gov/opa/pr/justice-department-files-its-first-enforcement-action-against-covid-19-fraud
DOJ filed its first coronavirus (COVID-19) pandemic fraud action via a Complaint filed in the United States District Court for the Western District of Texas. As alleged in part in the DOJ Release;

[T]he operators of the website "coronavirusmedicalkit.com" are engaging in a wire fraud scheme seeking to profit from the confusion and widespread fear surrounding COVID-19.  Information published on the website claimed to offer consumers access to World Health Organization (WHO) vaccine kits in exchange for a shipping charge of $4.95, which consumers would pay by entering their credit card information on the website.  In fact, there are currently no legitimate COVID-19 vaccines and the WHO is not distributing any such vaccine.  In response to the department's request, U.S. District Judge Robert Pitman issued a temporary restraining order requiring that the registrar of the fraudulent website immediately take action to block public access to it.

https://www.justice.gov/opa/press-release/file/1260121/download

https://www.justice.gov/opa/press-release/file/1260126/download

https://www.justice.gov/opa/press-release/file/1260131/download

https://www.justice.gov/opa/press-release/file/1260136/download

https://www.justice.gov/opa/press-release/file/1260141/download

As set forth in the DOJ Release, American are urged to take the following actions in order to protect themselves from known and emerging scams related to COVID-19:

  • Independently verify the identity of any company, charity, or individual that contacts you regarding COVID-19.
  • Check the websites and email addresses offering information, products, or services related to COVID-19. Be aware that scammers often employ addresses that differ only slightly from those belonging to the entities they are impersonating.  For example, they might use "cdc.com" or "cdc.org" instead of "cdc.gov."
  • Be wary of unsolicited emails offering information, supplies, or treatment for COVID-19 or requesting your personal information for medical purposes. Legitimate health authorities will not contact the general public this way.
  • Do not click on links or open email attachments from unknown or unverified sources. Doing so could download a virus onto your computer or device.
  • Make sure the anti-malware and anti-virus software on your computer is operating and up to date.
  • Ignore offers for a COVID-19 vaccine, cure, or treatment. Remember, if a vaccine becomes available, you won't hear about it for the first time through an email, online ad, or unsolicited sales pitch.
  • Check online reviews of any company offering COVID-19 products or supplies. Avoid companies whose customers have complained about not receiving items.
  • Research any charities or crowdfunding sites soliciting donations in connection with COVID-19 before giving any donation. Remember, an organization may not be legitimate even if it uses words like "CDC" or "government" in its name or has reputable looking seals or logos on its materials.  For online resources on donating wisely, visit the Federal Trade Commission (FTC) website.
  • Be wary of any business, charity, or individual requesting payments or donations in cash, by wire transfer, gift card, or through the mail. Don't send money through any of these channels.
  • Be cautious of "investment opportunities" tied to COVID-19, especially those based on claims that a small company's products or services can help stop the virus. If you decide to invest, carefully research the investment beforehand.  For information on how to avoid investment fraud, visit the U.S. Securities and Exchange Commission (SEC) website
In a Complaint filed in the United States District Court for the Western District of Texas, the SEC alleged that Meta 1 Coin Trust, Robert Dunlap, Nicole Bowdler and David Schmidt violated the antifraud and securities registration provisions of the federal securities laws.  Pramana Capital Inc. and and Peter K. Shamoun were named as Relief Defendants. As set forth in part in the SEC Release:

[F]lorida residents Robert Dunlap and Nicole Bowdler worked with former Washington state senator David Schmidt to market and sell a purported digital asset called the "Meta 1 Coin" in an unregistered securities offering conducted through the Meta 1 Coin Trust.  The complaint alleges that the defendants made numerous false and misleading statements to potential and actual investors, including claims that the Meta 1 Coin was backed by a $1 billion art collection or $2 billion of gold, and that an accounting firm was auditing the gold assets.  The defendants also allegedly told investors that the Meta 1 Coin was risk-free, would never lose value and could return up to 224,923%.  According to the complaint, the defendants never distributed the Meta 1 Coins and instead used investor funds to pay personal expenses and funnel proceeds to two others, Pramana Capital Inc. and Peter K. Shamoun. The complaint alleges that some of the investor funds were used to buy luxury automobiles, including a $215,000 Ferrari.  In all, the complaint alleges the defendants raised more than $4.3 million from more than 150 investors in and outside the U.S.

Traders Dread Getting Sent Home as Markets Move Faster Than WiFi (Bloomberg.com by Liz McCormick, Lananh Nguyen, and Stefania Spezzati)
https://www.bloomberg.com/news/articles/2020-03-20/traders-dread-getting-sent-home-as-markets-move-faster-than-wifi?srnd=premium
The Bloomberg article reports about the technological and regulatory challenges presented by the edict for many of the industry's traders to trade from home:

Traders on both sides of the Atlantic fret that at-home systems would be too slow to refresh prices during busy times, particularly around events such as surprise actions taken by the Federal Reserve and other central banks. Emerging-market currencies can be especially difficult to handle, with forwards sometimes out of control, said a trader at Commerzbank AG pointing to the Turkish lira and the Israeli shekel.

The situations of those at home vary: Junior traders typically have lower risk limits and less authority to make decisions while dealing remotely with clients. More senior traders might have higher limits, but be constrained in their ability to process large transactions from home setups. That can mean having to relay business back to colleagues in the office.

One complication is the need to record phone calls. In the office, they're documented for regulatory requirements and closely monitored with software to detect unusual activity. The Financial Industry Regulatory Authority, a watchdog for brokerages, said it would give firms more flexibility in supervising employees working remotely and in relocating personnel to temporary locations.

Stocks can return to records early next year if the US can curb coronavirus spread, says JPMorgan (CNBC.com by Fred Imbert)
https://www.cnbc.com/2020/03/21/stocks-can-return-to-records-early-next-year-if-the-us-can-curb-coronavirus-spread-says-jpmorgan.html
In yet another bit of lame-ass crap that is foisted upon us during these plague times as ersatz news, CNBC reports, in part, that

The S&P 500 could return to record highs by early next year if U.S. efforts to contain the coronavirus outbreak work and the government can quickly move forward with fiscal stimulus to cushion the impending economic blow, JPMorgan's chief U.S. equity strategist [Ed: "Dubravko Lakos-Bujas"] said Friday.  
. . .
"Acknowledging that equity markets globally are now down 30-50% from their recent highs, and that investor positioning has become increasingly favorable, we see an asymmetrical return profile for equities with upside significantly higher than downside over the next year," Lakos-Bujas wrote.

For his scenario to play out, though, the U.S. government must pass a "comprehensive fiscal package promptly." . . .

Bill Singer's Comment: What's next from the esteemed Lakos-Bujas? Perhaps JPMorgan will issue a research note asserting that "if my aunt were a man, she'd be my uncle." Of course, we might soon be regaled with another JPMorgan advisory that "General Francisco Franco is still dead but if he wasn't, he would be 127 years old and fighting the current spread of coronavirus in Spain." In the event that JPMorgan is running out of what-ifs upon which to speculate and offer useless advice, perhaps the company might want to tackle some of these provocative questions raised in Saturday Night Live's "What If?" episodes:

January 21, 1978: "What if Napoleon Had a B-52 Bomber?"

November 4, 1978: "What if Eleanor Roosevelt Could Fly?"

January 27, 1979: "What if Superman Had Landed in Nazi Germany?"

February 23, 1980: "What if Spartacus Had a Piper Cub?"



SEC Obtains Final Judgments Against Hologram USA Networks Inc. and CEO in Offering Fraud Scheme (SEC Release)
https://www.sec.gov/litigation/litreleases/2020/lr24774.htm
In an Amended Complaint filed in December 2019 in the United States District Court for the Southern District of New York , the SEC alleged that from Novembrer 2017 until Mach 2018, Hologram USA Networks Inc. and its founder/Chairman/Chief Executive Officer, Alkiviades David made materially false and misleading representations to investors and potential investors about Hologram's business; and that Hologram USA and David obtained over $100,000 from investors, many of whom were not accredited, from the sale of securities of Hologram USA and its subsidiary in offerings that were not registered with the SEC. Hologram USA's business plan allegedly referenced "resurrection" performances in which the holograms of famous deceased artists would be used to create "live" concerts with the deceased. 
 
                
Hologram and David entered into final judgments by consent, and as set forth in the SEC Release:

The final judgments permanently enjoin Hologram USA and David 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 the registration provisions of Sections 5(a) and 5(c) of the Securities Act. The judgments further impose a five year officer-and-director bar against David, order David to pay a civil penalty of $100,000, and order Hologram to pay disgorgement and prejudgment interest totaling $22,419. The defendants consented to entry of the judgments without admitting or denying the SEC's allegations.

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, MML Investors Services, LLC. submitted a Letter of Acceptance, Waiver and Consent ("AWC"), which FINRA accepted. The AWC asserts that MML Investors Services, LLC. has been a FINRA member firm since 1982 with 1,500 branch offices and over 8,400 registered persons. In accordance with the terms of the AWC, FINRA found that MML Investors Services, LLC. had violated Regulation S-P and FINRA Rule 2010, and the self-regulatory-organization imposed upon a Censure and a $75,000 fine. As set forth in part in the AWC:

On July 1, 2016, MML's parent company entered into an agreement and acquired MetLife Securities, Inc. ("MSI"), a FINRA member firm, from its parent insurance company. Subsequently in March 2017, MSI was merged into MML, and its associated persons became associated with MML. The parties to the acquisition agreed that certain former representatives of MSI would continue to have access to the insurance company's proprietary system for storing customer information, which stored nonpublic personal information about MML customers who held insurance and annuity products through the insurance company (the "Third-Party System"). The parties agreed to allow certain registered representatives of MSI to maintain access to the Third-Party System through September 2017 so that they could continue to service their customer accounts after becoming registered through MML. 

During the Relevant Period, MML had written policies and procedures that required the Firm to immediately disable system access for all associated persons when they ceased to be associated with the Firm. However, MML failed to implement those policies and procedures during the Relevant Period. Specifically, MML failed to ensure that access to the Third-Party System was limited to only those former registered representatives of MSI for whom access was agreed to be given. As a result, additional former MSI registered representatives and associated persons had access to the Third-Party System after the acquisition. Because MML was unaware that these additional registered representatives and associated persons had access to the Third-Party System after the acquisition, MML did not notify the insurance company when those registered representatives and associated persons ceased to be associated with MML. As a result, the insurance company did not timely shut off these former MML registered representatives' and associated persons' access to the Third-Party System. 

Indeed, during the Relevant Period, at least five such registered representatives and associated persons accessed the Third-Party System after they ceased to be associated with MML. At least one former MML registered representative downloaded and printed nonpublic personal information about an MML customer after he left MML. 

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, Sofia T. Gonzalez submitted a Letter of Acceptance, Waiver and Consent ("AWC"), which FINRA accepted. The AWC asserts that Gonzalez entered the industry in 2012 and by June 2014, she was registered with FINRA member firm Merrill Lynch, Pierce, Fenner & Smith Incorporated, until her February 2019 termination for "fail[ing] to adhere to Firm standards related to client complaints and business communications.". In accordance with the terms of the AWC, FINRA imposed upon Sofia T. Gonzalez, a $5,000 fine and a two-month suspension from associating with any FINRA member firm in any capacity. As set forth in the AWC's "Overview":

In January 2019, Gonzalez sent Firm customers JP and EC cashier's checks in the amounts of $511 and $722, respectively, in order to reimburse them for losses sustained in connection with their purchase and sale of certificates of deposit ("CDs"). By sending JP and EC a total of $1,234 of her personal funds, Gonzalez shared in losses sustained by Firm customers, in violation of FINRA Rules 2150(c) and 2010. 

In January and February 2019 (the "Relevant Period"), Gonzalez communicated with customers JP and EC regarding activity in their Firm accounts by text message sent from her personal cellular device. These communications related to the Firm's business but were not preserved as required by Section 17(a) of the Securities Exchange Act of 1934 ("SEA" or the "Exchange Act") and Rule 17a4-(b)(4) thereunder. By causing the Firm to maintain incomplete books and records, Gonzalez also violated FINRA Rules 4511 and 2010. 

http://www.brokeandbroker.com/5133/finra-waiver-arbitration/
In today's blog, we have the fascinating legal question of whether public customers had waived their right to pursue a FINRA arbitration. Things started off fairly mundane when the customers filed their FINRA Arbitration Statement of Claim. And then the customers entered into a stipulated dismissal of their FINRA claims. No longer parties in an arbitration, the customers hastened to the local courthouse and filed their claims in a civil Complaint. And then the customers had what comes off as a colossal second thought when they attempted to stop the state-court litigation and return to FINRA arbitration. It's as oddball a start-and-stop-and-start-and-lets-try-to-stop mess as it sounds.

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