Securities Industry Commentator by Bill Singer Esq

$25,000 E*Trade Pattern Day Trading Minimum Deposit Requirement Challenged in Federal Lawsuit Against FINRA (BrokeAndBroker.com Blog)

Citi Pulls Back on Plans for Office Return in 13 States (Bloomberg by Jennifer Surane)

SEC Obtains Judgment Ordering Connecticut Investment Adviser and Its Former CEO to Pay Over $2 Million (SEC Release)

Bergen County Man Arrested in $1.5 Million Investment Fraud Scheme (DOJ Release)

SEC Charges New Jersey Man and His Private Company with Fraud (SEC Release)

U.S. Seeks to Recover Approximately $96 Million Traceable to Funds Allegedly Misappropriated from Malaysian Sovereign Wealth Fund (DOJ Release)

Carthage Couple Pleads Guilty to Embezzling From Joplin Businesses (DOJ Release)

FINRA Imposes Censure and Fine on Valmark for Email Retention Practices.

In the Matter of Valmark Securities, Inc., Respondent (FINRA AWC)

JPMorgan Chase & Co. corporate workers in the New York metropolitan area will be going back to offices this month, with no more than 20% returning before the second week of September, the bank said in a memo last week. The bank also has made plans to bring back workers in Columbus, Ohio.

Goldman Sachs Group Inc. brought back an initial group of employees to its major U.S. locations on June 22. In cities with large coronavirus outbreaks, Goldman is monitoring the situation as it begins to enact its office-return plan, a spokeswoman said. In the U.S., aside from its New York headquarters, the firm has large hubs in Utah and Texas.

Jefferies Financial Group Inc. Chief Executive Officer Richard Handler said earlier this week that his traders and bankers are under no pressure to return anytime soon.

From May 2017 through August 2019, Benjamin falsely represented to at least three families that his company, Clear Solutions Group LLC, had lucrative contracts to purchase closeout or excess cosmetic inventory from Company A, which he would then resell at a mark-up to Company B. Benjamin told the victims that he had access to these closeout goods through his contacts in the cosmetics and fragrance industry, which he purportedly made through his work at his family's cosmetic wholesale and distribution business prior to starting Clear Solutions Group. Benjamin induced the victims to provide him with money to purchase the inventory from Company A and promised significant profits in return. Instead of investing the money as he promised, Benjamin misappropriated the investor's money for his own use and benefit.

Benjamin provided the victims with falsified documents, including fake purchase orders, invoices, promissory notes and bank records showing inflated assets of Clear Solutions Group. To lull victims and induce them to continue investing, Benjamin provided them with documents that purported to detail the investors' profits.

Benjamin misrepresented to certain investors that portions of their profits on the investment contracts were being reinvested in additional deals to purchase and sell cosmetics, which in turn would generate more profits. From time to time, Benjamin made payments to the investors that were purportedly their profits on certain cosmetics contracts. 

In reality, Benjamin did not purchase or sell cosmetics with the money invested by the victims. Instead, Benjamin misappropriated the investors' money by making payments to other investors in Clear Solutions Group, which were characterized as those investors' profits from the nonexistent cosmetic contracts, thereby enabling Benjamin to continue to perpetuate his fraudulent scheme; and by funding Benjamin's and his family's lifestyle, including paying for car and house rental payments, food, international travel, legal fees, technology equipment, and summer camp tuition for his family members. The victims' losses from the fraud perpetrated by Benjamin collectively totaled approximately $1 million.

[B]etween 2017 and 2019, Benjamin and his purported cosmetics company, Clear Solutions Group, LLC, defrauded investors of approximately $900,000 by soliciting and selling securities to the investors using false and misleading statements. Specifically, the complaint alleges that Benjamin falsely told investors Clear Solutions was able to purchase cosmetics at wholesale prices and profitably resell them at a mark-up to a retailer. The complaint alleges that, in reality, Benjamin and Clear Solutions did not conduct any such business. Instead, Benjamin allegedly used investor funds for his own personal benefit. In August 2019, Benjamin confessed to several investors that his purported business was a sham designed to defraud them.

[T]he members of the conspiracy - which included officials at 1MDB, their relatives and other associates - diverted more than $4.5 billion in 1MDB funds.  Using fraudulent documents and representations, the co-conspirators allegedly laundered the funds through a series of complex transactions and shell companies with bank accounts located in the United States and abroad.  These transactions allegedly served to conceal the origin, source and ownership of the funds, and ultimately passed through U.S. financial institutions to then be used to acquire and invest in assets located in the United States and overseas.

As alleged in the earlier complaints, in 2009, 1MDB officials and their associates embezzled approximately $1 billion that was supposed to be invested to exploit energy concessions purportedly owned by a foreign partner.  Instead, the funds were allegedly transferred through shell companies and were used to acquire a number of assets, as set forth in the complaints.  The complaints also allege that the co-conspirators misappropriated close to $1.4 billion in funds raised through bond offerings in 2012, and more than $1.2 billion following another bond offering in 2013.  The complaints also allege that in 2014, the co-conspirators misappropriated approximately $850 million in 1MDB funds under the guise of repurchasing certain options that had been given in connection with a guarantee of the 2012 bonds.

SIDE BAR: 18 U.S. Code § 4: Misprision of felony

Whoever, having knowledge of the actual commission of a felony cognizable by a court of the United States, conceals and does not as soon as possible make known the same to some judge or other person in civil or military authority under the United States, shall be fined under this title or imprisoned not more than three years, or both.

Jeanine Poe was hired to manage two Doc Stop convenience stores in Joplin. The owner had little to do with the businesses, according to the plea agreements, except to invest his money into both to ensure their financial success. In 2015, Jeanine Poe told the owner the businesses weren't doing well financially and asked him to invest even more money. The owner invested much of his salary to financially support the businesses.

In October 2019, after the businesses continued to lose money, the owner asked a friend to review the financial affairs of the businesses and learned that Jeanine Poe was embezzling money from his businesses. She had obtained at least seven credit cards in the name of the businesses, conducted transactions on the credit cards, and paid for such transactions with funds from the businesses. All of the credit cards opened by Jeanine Poe had reached their maximum allowable credit limit, and many times were used by Jeanine and William Poe for expenses that were entirely unrelated to the operation of the businesses (such as trips and personal expenses). One of the credit cards was in William Poe's name. The owner also discovered that large amounts of cash were being fraudulently electronically transferred from his businesses' bank account to Jeanine Poe's personal bank account.

William Poe admitted that he was aware of his wife's embezzlement. He concealed these thefts by convincing the owner his wife was not embezzling, when he knew she was stealing from him. His concealment allowed Jeanine Poe to continue to conduct fraudulent credit card transactions and withdrawals from the business accounts.

Between June 2, 2016 and January 22, 2019 (the "Relevant Period"), Valmark did not properly preserve approximately 180,000 emails for 19 email users in 4 branch offices. 

Valmark relied on journaling rules at the affected branch offices to archive emails into its email system for retention. During the Relevant Period, changes in vendors, systems updates, or configuration changes made by the branch offices caused the journaling rules at those branches to stop working on June 2, 2016 (affecting 7 users), September 27, 2016 (6 users), November 27, 2016 (5 users), and December 14, 2017 (1 user), respectively. In each case, when a journaling rule stopped working, Valmark's email system generated a single email alert, three days later, stating simply that certain users had not archived emails for the past three days. Each email was sent to a general Valmark email distribution list for technical support and was not acted upon. At the time, Valmark's systems were not configured to provide any additional alerts or otherwise report that a journaling rule was not working. As a result, the journaling rule issues were not discovered until Valmark began a review of its overall system of email retention and review in December 2018. 

Upon discovery, Valmark identified the extent of the issue and took steps to recover emails potentially lost. Despite these efforts, approximately 180,000 emails from the Relevant Period could not be recovered. 

• Securities Industry Commentator
• Bill Singer