The Wall Street Legal & Regulatory Feed
Securities Industry Commentator by Bill Singer Esq
September 11, 2020
SEC Charges Connecticut Investment Adviser with Defrauding Retired Couple (SEC Release)SEC Charges New Jersey-Based Investment Adviser and Its President with Defrauding Clients (SEC Release)SEC Obtains Final Judgment Against Investment Adviser for Defrauding Elderly Client (SEC Release)SEC Obtains Final Judgment Against Former VP of Telecommunications Expense Management Company (SEC Release)SEC Charges Two Former Petmed Executives with Insider Trading (SEC Release)
FINRA Imposes Fine and Suspension Over Deceased Second Cousin Once Removed (BrokeAndBroker.com Blog)
http://www.brokeandbroker.com/5424/finra-awc-cousins/
We got cousins. Second cousins. Once removed. Frankly, don't ask me because I never quite got that second cousin thing or all the removals. Making matter more complicated, one of the cousins is a stockbroker and the other cousin has some accounts with the second cousin once removed. There are powers of attorney. There are beneficiary designations. There are loans. Then the customer cousin dies and, as such, may still be a second cousin but becomes fully removed. Then the brokerage firm becomes unhappy. Then FINRA investigates.
Antitrust Division Announces Updates To Civil Investigative Demand Forms And Deposition Process (DOJ Release)
https://www.justice.gov/opa/pr/antitrust-division-announces-updates-civil-investigative-demand-forms-and-deposition-process
DOJ's Antitrust Division announced two uniform updates to its Civil Investigative Demand ("CID") forms and deposition process. As set forth in pertinent part in the DOJ Release:
First, all CIDs issued by the Antitrust Division - including CIDs for documentary material, written interrogatories, oral testimony, or any combination thereof - will now provide notice to all recipients that their documents, answers to interrogatories, and/or testimony may be used by the Department of Justice in other civil, criminal, administrative, or regulatory cases or proceedings. Specifically, CIDs issued by the division will now include the following notice:The information you provide may be used by the Department of Justice in other civil, criminal, administrative, or regulatory cases or proceedings. Individuals may refuse, in accordance with the rights guaranteed to them by the Fifth Amendment to the Constitution of the United States, to produce documents and/or answer any question that may tend to incriminate them.Second, division attorneys taking oral testimony pursuant to a CID will ask the deponent questions on the record at the outset of every deposition to confirm that the deponent understands the ways in which the information they provide can be used by the Department of Justice.
https://www.sec.gov/litigation/litreleases/2020/lr24890.htm
In a Complaint filed in the United States District Court for the District of Connecticut
https://www.sec.gov/litigation/complaints/2020/comp24890.pdf, the SEC alleges that Hai Koa Dang violated the antifraud provisions of Sections 206(1) and 206(2) of the Investment Advisers Act of 1940. As alleged in part in the SEC Release:
https://www.sec.gov/litigation/complaints/2020/comp24890.pdf, the SEC alleges that Hai Koa Dang violated the antifraud provisions of Sections 206(1) and 206(2) of the Investment Advisers Act of 1940. As alleged in part in the SEC Release:
[I]n 2018, Dang gained complete control over the couple's brokerage accounts and misled them about his risky trading strategies, hiding the fact that he had depleted virtually all of their retirement savings within ten months. As set forth in the complaint, Dang led the couple to believe that he would invest the majority of their investment portfolio conservatively and would retain a minimum of $250,000 in cash in their accounts. As alleged, Dang instead engaged in a risky and unauthorized options trading strategy, causing the value of the couple's accounts to plummet from more than $2.2 million to approximately $27,000 between February 2018 and November 2019. The complaint alleges that Dang lied to the clients about the losses, including misrepresenting that the value of the client's positions were not reflected in the brokerage account statements. As further alleged in the complaint, Dang misrepresented to the clients that he was associated with a registered broker-dealer, when, in fact, Dang's securities licenses had all lapsed and his last affiliation with any registered entity was in 2006.
SEC Charges New Jersey-Based Investment Adviser and Its President with Defrauding Clients (SEC Release)
https://www.sec.gov/litigation/litreleases/2020/lr24894.htm
In a Complaint filed in the United States District Court for the District of New Jersey
https://www.sec.gov/litigation/complaints/2020/comp24894.pdf, the SEC alleged that RRBB Asset Management, LLC and its President/Co-owner/Managing Member, Carl S. Schwartz with violating the antifraud provisions of Section 10(b) of the Securities Exchange Act and Rule 10b-5 thereunder, Sections 17(a)(1) and 17(a)(2) of the Securities Act, and Sections 206(1) and 206(2) of the Investment Advisers Act of 1940; and, in the alternative, that Schwartz aided and abetted RRBB's violations of Sections 206(1) and 206(2) of the Advisers Act. Additionally, the Complaint alleges that RRBB and Schwartz violated Section 207 of the Advisers Act and that RRBB violated, and Schwartz aided and abetted RRBB's violation of, Section 206(4) of the Advisers Act and Rule 206(4)-7 thereunder. The SEC Release alleges in part that:
https://www.sec.gov/litigation/complaints/2020/comp24894.pdf, the SEC alleged that RRBB Asset Management, LLC and its President/Co-owner/Managing Member, Carl S. Schwartz with violating the antifraud provisions of Section 10(b) of the Securities Exchange Act and Rule 10b-5 thereunder, Sections 17(a)(1) and 17(a)(2) of the Securities Act, and Sections 206(1) and 206(2) of the Investment Advisers Act of 1940; and, in the alternative, that Schwartz aided and abetted RRBB's violations of Sections 206(1) and 206(2) of the Advisers Act. Additionally, the Complaint alleges that RRBB and Schwartz violated Section 207 of the Advisers Act and that RRBB violated, and Schwartz aided and abetted RRBB's violation of, Section 206(4) of the Advisers Act and Rule 206(4)-7 thereunder. The SEC Release alleges in part that:
Schwartz traded securities in RRBB's omnibus account and delayed allocating the securities to specific client accounts until he had observed the securities' performance over the course of the day. He allegedly then allocated profitable trades to favored accounts and allocated less profitable trades and losing trades to RRBB's other clients. The complaint alleges that Schwartz disproportionally allocated unprofitable trades to six client accounts associated with two elderly widows, including a charitable foundation of which Schwartz is a trustee. The complaint further alleges that RRBB and Schwartz misrepresented to clients that all trades would be allocated in a fair and equitable manner.
SEC Obtains Final Judgment Against Investment Adviser for Defrauding Elderly Client (SEC Release)
https://www.sec.gov/litigation/litreleases/2020/lr24891.htm
https://www.sec.gov/litigation/litreleases/2020/lr24891.htm
In a Complaint filed in the United States District Court for the District of Colorado
https://www.sec.gov/litigation/complaints/2020/comp24891.pdf, the SEC alleged that investment adviser Steven D. Rodemer served as investment adviser to an elderly, widowed client and handled all of her finances, including advising her on her overall investment strategy and placing orders to execute this strategy. Allegedly, Rodemer used his power of attorney over the client's assets to write checks to himself, to his bank, and to cover various expenses associated with his vacation home; and, further, used the client's brokerage account-issued debit/credit card to cover personal expenses and make ATM withdrawals, and later used the client's bank account to pay his personal credit card bills online. Allegedly, none of these transactions were authorized by the client, and in total, Rodemer purportedly misappropriated $451,889 of her funds. Rodemer entered into a final judgment on consent whereby he will be enjoined from violating the antifraud provisions of Sections 206(1) and 206(2) of the Investment Advisers Act of 1940 and will pay a $385,536 civil penalty.
https://www.sec.gov/litigation/complaints/2020/comp24891.pdf, the SEC alleged that investment adviser Steven D. Rodemer served as investment adviser to an elderly, widowed client and handled all of her finances, including advising her on her overall investment strategy and placing orders to execute this strategy. Allegedly, Rodemer used his power of attorney over the client's assets to write checks to himself, to his bank, and to cover various expenses associated with his vacation home; and, further, used the client's brokerage account-issued debit/credit card to cover personal expenses and make ATM withdrawals, and later used the client's bank account to pay his personal credit card bills online. Allegedly, none of these transactions were authorized by the client, and in total, Rodemer purportedly misappropriated $451,889 of her funds. Rodemer entered into a final judgment on consent whereby he will be enjoined from violating the antifraud provisions of Sections 206(1) and 206(2) of the Investment Advisers Act of 1940 and will pay a $385,536 civil penalty.
SEC Obtains Final Judgment Against Former VP of Telecommunications Expense Management Company (SEC Release)
https://www.sec.gov/litigation/litreleases/2020/lr24893.htm
https://www.sec.gov/litigation/litreleases/2020/lr24893.htm
In a Complaint filed in the United States District Court for the District of Connecticut
https://www.sec.gov/litigation/complaints/2018/comp24255.pdf, the SEC charged Tangoe, Inc., its former CEO Albert R. Subbloie, former CFO Gary R. Martino, former Vice President of Finance Thomas H. Beach, and former Senior Vice President of Expense Management Operations Donald J. Farias with violating provisions of the federal securities laws. Tangoe, Subbloie, Martino, and Beach settled the SEC's charges without admitting or denying the allegations, and to pay civil penalties in the amount of $1.5 million, $100,000, $50,000, and $20,000, respectively.
https://www.sec.gov/litigation/complaints/2018/comp24255.pdf, the SEC charged Tangoe, Inc., its former CEO Albert R. Subbloie, former CFO Gary R. Martino, former Vice President of Finance Thomas H. Beach, and former Senior Vice President of Expense Management Operations Donald J. Farias with violating provisions of the federal securities laws. Tangoe, Subbloie, Martino, and Beach settled the SEC's charges without admitting or denying the allegations, and to pay civil penalties in the amount of $1.5 million, $100,000, $50,000, and $20,000, respectively.
In a Final Judgment entered into in the United States District Court for the District of Connecticut
https://www.sec.gov/litigation/complaints/2020/judgment-24893-farias.pdf, Farias agreed to be permanently enjoined from violations of the antifraud provisions of Sections 17(a)(1) and 17(a)(3) of the Securities Act and Section 10(b) of the Securities Exchange Act and Rules 10b-5(a) and 10b-5(c) thereunder; the record-keeping and internal controls provisions of Section 13(b)(5) of the Exchange Act and Rules 13b2-1 and 13b2-2 thereunder; and aiding and abetting violations of Sections 13(a), 13(b)(2)(A), 13(b)(2)(B) of the Exchange Act and Rules 12b-20, 13a-1, 13a-11, and 13a-13 thereunder. The final judgment also bars Farias from serving as an officer or director of a public company for five years, and orders him to pay a $40,000 civil penalty. As alleged in part in the SEC Release, Tangoe had:
https://www.sec.gov/litigation/complaints/2020/judgment-24893-farias.pdf, Farias agreed to be permanently enjoined from violations of the antifraud provisions of Sections 17(a)(1) and 17(a)(3) of the Securities Act and Section 10(b) of the Securities Exchange Act and Rules 10b-5(a) and 10b-5(c) thereunder; the record-keeping and internal controls provisions of Section 13(b)(5) of the Exchange Act and Rules 13b2-1 and 13b2-2 thereunder; and aiding and abetting violations of Sections 13(a), 13(b)(2)(A), 13(b)(2)(B) of the Exchange Act and Rules 12b-20, 13a-1, 13a-11, and 13a-13 thereunder. The final judgment also bars Farias from serving as an officer or director of a public company for five years, and orders him to pay a $40,000 civil penalty. As alleged in part in the SEC Release, Tangoe had:
improperly recognized approximately $40 million of revenue out of a total of $566 million reported between 2013 and 2015. In some instances, Tangoe allegedly reported revenue prematurely for work that had not been performed and for transactions that did not produce any revenue at all. In other instances, the complaint alleges that Tangoe improperly recognized revenue that was unlikely to ever be collected. According to the complaint, Farias, who headed the operations group where many problematic transactions originated, provided false information to Tangoe's finance department. The complaint also alleges that Farias falsified business records, some of which were provided to Tangoe's external auditors to support revenue recognition decisions. At the time of the filing of the complaint, Tangoe, its former CEO, former CFO, and former Vice President of Finance, agreed to settle the SEC's charges and to pay civil penalties, leaving Farias as the only remaining defendant.
https://www.sec.gov/litigation/litreleases/2020/lr24892.htm
In a Complaint filed in the United States District Court for the Southern District of Florida
https://www.sec.gov/litigation/complaints/2020/comp24892.pdf, the SEC alleged that Richard M. Kirsch, former Director of Information Systems for PetMed Express Inc., and Adam Terris, PetMed's former Director of Call Center and Pharmaceutical Operations violated the antifraud provisions of Section 10(b) of the Securities Exchange Act and Rule 10b-5 thereunder. Without admitting or denying the allegations, Kirsch and Terris consented to permanent injunctions prohibiting them from violating these provisions and to five-year officer-and-director bars; and, further, Kirsch agreed to pay a $1,057,392 penalty and Terris agreed to pay a $1,454,800 penalty. As alleged in part in the SEC Release, Kirsch and Terris:
https://www.sec.gov/litigation/complaints/2020/comp24892.pdf, the SEC alleged that Richard M. Kirsch, former Director of Information Systems for PetMed Express Inc., and Adam Terris, PetMed's former Director of Call Center and Pharmaceutical Operations violated the antifraud provisions of Section 10(b) of the Securities Exchange Act and Rule 10b-5 thereunder. Without admitting or denying the allegations, Kirsch and Terris consented to permanent injunctions prohibiting them from violating these provisions and to five-year officer-and-director bars; and, further, Kirsch agreed to pay a $1,057,392 penalty and Terris agreed to pay a $1,454,800 penalty. As alleged in part in the SEC Release, Kirsch and Terris:
profited from trading in the securities of PetMed on the basis of confidential information obtained in their senior roles with the company. As alleged in the SEC's complaint, from December 29, 2014 to January 18, 2018, Kirsch traded common stock and call options in advance of seven PetMed market-moving earnings announcements after learning information concerning the company's quarterly and year-end financial results, for realized profits and avoided losses of $164,966. According to the SEC's complaint, Kirsch also routinely purchased PetMed securities during blackout periods when PetMed's internal policies prohibited all trading in the company's securities. The SEC further alleges that in March 2017, Kirsch purchased PetMed call options using money Terris provided for trading while both were in possession of information concerning PetMed's quarterly and year-end financial results. As further alleged, Kirsch sold the call options days after the company's earnings announcement, and gave Terris all of the realized profits of $727,400.
In a FINRA Arbitration Statement of Claim filed in August 2018, FINRA member firm Auto Aftermarket Securities asserted breach of contract
and gross negligence against associated person Respondent Schaible, who appeared pro se. Claimant sought $34,800 in actual damages; $175,000 in "other damages," and costs. At the hearing, Claimant sought $63,800 in compensatory damages plus interest. As asserted in the FINRA Award:
[T]he causes of action relate to Claimant's allegation that Respondent breached the terms of an Independent Contractor Agreement, dated October 27, 2016, by failing to perform his core duties as Supervisory Principal, Chief Compliance Officer, Anti-Money Laundering Compliance Officer, and Financial Operations Principal.
As we all know, s#!t happens, and in this case, that was certainly the case as demonstrated by this bit of idiocy:
And so the withdrawn but not withdrawn case went forward and, not surprisingly, Respondent did not appear at the hearing but remained subject to any award. Accordingly, the FINRA Arbitration Panel found Respondent Schaible liable and ordered him to pay to Claimant $49,300 in compensatory damages plus $1,000 in FINRA filing fees.On November 13, 2018, Claimant filed correspondence stating that it was withdrawing its claims. On November 15, 2018, Claimant filed correspondence stating that the withdrawal of claims was submitted in error. On December 3, 2018, Respondent filed correspondence asserting that Claimant's claims had been withdrawn and the Panel was required to uphold the withdrawal. In an Order dated January 7, 2019, the Panel ruled that the case had not been withdrawn by Claimant and could proceed.
Bill Singer's Comment: Not everyday that a brokerage firm sues a combination Principal/CCO/AMLCO/FINOP for what comes off as some kind of dereliction of duty -- except, I'm not quite sure just what was alleged here beyond breach of contract and gross negligence. Breach of what contract and what terms? Gross negligence involving what? What are the damages related to? All that being said, the Respondent didn't do himself that much of a service by blowing off the hearings.