Securities Industry Commentator by Bill Singer Esq

UPDATE: FINRA Says Brokerage Fee An Undisclosed Commission (BrokeAndBroker.com Blog)

Owner of Investment Firm That Managed Over $1 Billion in Assets Arrested in Federal Case Alleging He Defrauded Investors (DOJ Release)

SEC Charges Former Principal of Investment Adviser with Data Manipulation and Valuation Fraud (SEC Release)

Convicted Impersonator Arrested for Defrauding Elderly Victims, Impersonating Federal and Territorial Officials, and Obstruction of Justice (DOJ Release)

Former Aequitas CEO and Senior Executives Indicted in Fraud and Money Laundering Conspiracy (DOJ Release)

SEC Sues Three Arizona Residents for Defrauding Broker-Dealers in a Free-Riding Scheme (SEC Release)

FINRA Imposes Fine and Suspension for Rep's Impersonation of Two Customers and Supervisor.

In the Matter of Michael Edward Feeley, Respondent (FINRA AWC)

Six Things You're Doing Wrong When Buying Stocks on Your Own / Avoid these amateur mistakes before you sink all your money into the market (Bloomberg by Edward Robinson)

Robinhood to Add Hundreds of Representatives After Trading Surge (Bloomberg by Sophie Alexander)

By the summer of 2017, only five years after Ross founded DLI, the firm had over $1 billion in assets under management. According to the indictment, Ross allegedly directed DLI to invest the funds' assets in, among other things, a company that loaned money to small businesses and retailers. The DLI funds made money when the loans performed, meaning that the borrowers made timely payments. The indictment alleges that, rather than disclose some of the loans were not performing, Ross falsified monthly reports to make it appear borrowers were making payments. The "payments" actually came from fee rebates given by the company originating the loans.

By lying about the true status of the loans, Ross caused DLI to overstate the value of these loans on the funds' books and fraudulently inflate the funds' value, according to the indictment. Specifically, Ross allegedly caused the monthly asset values of the funds to be cumulatively inflated by over $300 million over the course of about four years. By fraudulently inflating the value of the funds, Ross was able to collect millions of dollars in fees he otherwise would not have been able to charge to clients, according to the indictment.

To further his scheme and help conceal it, Ross allegedly arranged for the sale of approximately $55 million of the loans to a third-party buyer in the summer of 2017. Ross once again inflated the value of these loans by lying about their status, falsely telling the buyer that borrowers had been making payments on many of these loans, according to the indictment.

[F]rom early 2014 through late 2017, Ross manipulated payment data for the funds' investment in loans made by QuarterSpot, Inc., an online small business lender. Ross allegedly directed QuarterSpot to make payments to the funds, which gave the false impression that underlying borrowers were making principal payments on what were actually delinquent loans. As alleged, under DLI's valuation policy, many of these non-performing loans should have been fully marked down but were not because of the payments Ross engineered. According to the complaint, as a result of the scheme, DLI's monthly returns reported to investors were materially inflated. DLI allegedly collected at least $5-6 million in extra management and performance fees from the funds, and Ross personally received millions of dollars from DLI. The SEC previously charged DLI in 2019, which resulted in DLI and its affiliates being placed in receivership.

[B]etween May 2019 and July 2020, Potter received over $100,000 from the victims, at least one of whom is elderly, for purported legal fees associated with a lawsuit filed against the United States. Potter claimed he could assist the victims with a lawsuit to obtain a money judgment and return of one of the victim's medical licenses. Investigators located no such lawsuit anywhere in the United States. Potter is not a licensed attorney in any jurisdiction in the United States.

Initially, Potter claimed to be the son of former Lt. Governor Osbert Potter. According to court documents, Yamini Potter is not Osbert Potter's son. The affidavit alleges that Potter used this supposed familial connection to influence his victims to pay money for the alleged lawsuit and claimed that the victims could expect to recover millions of dollars. The affidavit further alleges that, Potter also impersonated Osbert Potter, former federal District Judge Curtis Gomez, federal Magistrate Judge Ruth Miller, and Virgin Islands Attorney General Denise George for fraudulent purposes. According to the affidavit, Potter telephoned his victims pretending to be various people, including himself, while he was detained in the Virgin Islands Bureau of Corrections, pending charges in the Virgin Islands Superior Court. All of his calls were recorded. Potter also allegedly sent text messages to the victims as part of his fraudulent scheme, and in at least one case, tried to persuade the victims to destroy text messages he sent to them.

According to court documents, Potter pled guilty in 2015 to impersonating an FBI agent in violation of federal law. He was sentenced to one year in prison.

and others used the Lake Oswego company to solicit investments in a variety of notes and funds, many of which were purportedly backed by trade receivables in education, health care, transportation, and other consumer credit areas.

From June 2014 through February 2016, the former executives solicited investors by misrepresenting the company's use of investor money, the financial health and strength of Aequitas and its related companies, and the risks associated with its investments and investment strategies. Collectively, the defendants also failed to disclose other critical facts about the company, including its near-constant liquidity and cash-flow crises, the use of investor money to repay other investors and to defray operating expenses, and the lack of collateral to secure funds.

Jesenik founded the Aequitas group of companies, and, as chief executive officer, controlled the organization's structure and had ultimate decision-making authority over company activities.      

Gillis, who was previously indicted for conspiring to submit false statements to a federally insured creditor, was the company's chief operating officer and chief financial officer. In these roles, he was responsible for directing Aequitas's overall financial policies and accounting functions. He established and maintained the company's accounting principles, practices, procedures and initiatives, prepared financial reports and presented findings and recommendations to the executive teams, and oversaw all financial functions.

MacRitchie was the company's executive vice president and chief compliance officer. As such, he was responsible for the development and implementation of risk management and compliance processes and procedures. MacRitchie oversaw all Aequitas accounting, legal, and audit functions, and participated in fundraising. He also established Aequitas's New York Office and directed Aequitas's "Lux Fund," a Luxembourg-based fund used to solicit international investors.

Rice served as Aequitas's executive vice president and president of wealth management. Among his responsibilities, Rice oversaw the solicitation of investments through registered investment advisors (RIA) and managed Aequitas's affiliated RIAs.

If convicted on all charges, each of the defendants could face decades in prison and millions of dollars in fines and restitution, as well as five years' supervised release following their prison terms.

Former Aequitas executives and co-conspirators Brian A. Oliver and Olaf Janke previously pleaded guilty to conspiring to commit mail and wire fraud and money laundering on April 19, 2019, and June 10, 2019, respectively. As part of their plea agreements, they have both agreed to pay restitution in full to their victims as determined and ordered by the court.

[I]n 2018 and 2019, Nguyen opened brokerage accounts and requested electronic fund transfers from bank accounts, knowing that the accounts had insufficient funds to cover the transfers. The complaint alleges that Nguyen immediately began trading securities in the accounts. According to the complaint, Nguyen was able to transfer $61,888 out of the accounts before the accounts were frozen by the brokerage firms, reaping the benefits of profits earned due to trading, while leaving the brokerage firms to settle the trades at a significant loss. The complaint further alleges that Reed and Moya provided Nguyen access to brokerage accounts they opened, knowing that Nguyen was going to use the accounts to further this fraudulent scheme. In total, Nguyen allegedly engaged in free-riding in 26 accounts at eight brokerage firms, making $4.7 million in bogus transfers and purchasing over $16 million in securities.

From March to May 2019, Feeley impersonated two customers of the firm's insurance affiliate on 10 telephone calls with the Carrier. Feeley posed as the customers on calls to the Carrier's customer service department in order to obtain information about the customers' insurance contracts. Although the policy information was requested, neither of the customers authorized Feeley to impersonate them. 

During the same period, Feeley impersonated his firm supervisor during 20 telephone calls with the Carrier. Feeley posed as his firm supervisor when the supervisor was the only servicing representative of record with the Carrier and Feeley had an urgent need for information about the terms or status of a customer's policy. Feeley's firm supervisor did not authorize Feeley to impersonate him. 

Robinhood Financial, the online brokerage that has attracted millions of novice investors since the pandemic began, said it plans to hire hundreds of registered representatives this year for new offices in Texas and Arizona.

"We've more than doubled our support team since January and we'll continue to grow our teams to provide timely, helpful responses to our customers," Alex Mesa, Robinhood's head of customer experience, said Tuesday in a blog post.

• Securities Industry Commentator
• Bill Singer