Securities Industry Commentator by Bill Singer Esq

Intellectual Siren Song (Remarks at the 7th Annual Conference on Financial Market Regulation by SEC Commissioner Hester Peirce)

'FinCEN' documents reportedly show banks moved illicit funds - BuzzFeed, ICIJ (Reuters Release)

9Cir Affirms Dismissal of Class Action Against Credit Suisse Securities

Christopher Laver, Plaintiff/Appellant, v. Credit Suisse Securities (USA), LLC, Defendant/Appellee (Opinion, 9Cir)

Georgia Woman Who Allegedly Preyed on Vulnerable South Florida Seniors to Steal More than $1 Million Charged in Federal Court West Palm Beach (DOJ Release)

Six indicted in connection with multi-million dollar scheme to bribe Amazon employees and contractors / Consultants to Amazon Marketplace merchants paid over $100,000 in bribes to secure an unfair competitive advantage worth more than $100 million (DOJ Release)

As I have made clear elsewhere, I oppose the Commission's Consolidated Audit Trail initiative, or CAT.  For those who are unfamiliar with this program, which was prompted by the 2010 "Flash Crash," when the CAT is fully implemented, the self-regulatory organizations, which include securities exchanges and the Financial Industry Regulatory Authority, will collect and store every equity and option trade and quote, from every account at every broker, by every investor.  As even people who support the CAT acknowledge, that is a lot of data.

Now many of you might be thinking that the CAT, though unquestionably ambitious, is an understandable reaction to such a significant market event.  After all, the Commission is charged with, among other things, maintaining orderly markets, and understanding of the causes of market disruptions, such as the "Flash Crash," fits within that ambit.  Admirable intentions and earnest efforts to protect the CAT data are not enough, however, to outweigh the CAT's costs.    

Regardless of the initial (or at least stated) rationale underlying mandated information collections like the CAT, I am always concerned about the follow-on exploitation of information that can occur to the detriment of individual liberty.  As the CAT takes concrete shape, I note with alarm, though not surprise, the increasing emphasis that is being placed on the database's ultimate utility as an enforcement tool.  Staff at the Commission and at the exchanges will wade through the data pool to troll for securities violations.  Seeing that Constitution Day coincided with the start of this conference, I cannot help but ask once again how the CAT, which will track unsuspected and unsuspecting Americans' every move in the hopes of catching them in some wrongdoing, is consistent with the principles undergirding the Constitution.

Others do not share my concerns about the implications of mass data collection for liberty and privacy, but rather look at all of this information in increasingly exploitable databases as a source of hope for a brighter future.  The sheer volume of data available enables, according to some people, successful central economic planning, something that has never worked in the past. . . .

The panel affirmed the district court's dismissal of a putative class action suit against Credit Suisse Securities, USA in favor of arbitration. 

Plaintiff worked as a financial advisor at Credit Suisse Securities, USA ("CSSU"), and brought this putative class action alleging he was owed deferred compensation. CSSU moved to dismiss based on an arbitration clause and general class waiver set forth in an Employee Dispute Resolution Program. The Financial Industry Regulatory Authority ("FINRA") is a securities industry self-regulatory organization that imposes rules regulating the conduct of its broker-dealer members. CSSU is a FINRA member. Plaintiff argued that FINRA Rule 13204(a)(4) barred CSSU from compelling arbitration of his claims. 

The panel rejected plaintiff's contention that Rule 13204 invalidated the Employee Dispute Resolution Program's class waiver. Because the class waiver survived, the panel held that plaintiff relinquished his right to bring class claims in any forum. Because plaintiff was left with only individual claims, Rule 13204(a)(4)'s prohibition on enforcing arbitration agreements directed at putative or certified claims had no application here. In accord with the Second Circuit's decision in Cohen v. UBS Fin. Servs., Inc., 799 F.3d 174 (2d Cir. 2015), the panel held that the district court correctly ordered the parties to arbitrate plaintiff's remaining individual claims.

[O]ver approximately four years starting in 2016, Edtronda Simon, of Fayette County, Georgia, ran an elder fraud scheme that generally operated as follows: Simon would cold-call elderly victims in South Florida, pretend to be from the fraud department of each senior's bank, and convince the seniors that their accounts had been compromised, which was false. Once a senior seemed convinced, Simon would offer to send a "bank representative" to the elderly victim's home to exchange any compromised credit or debit card with a new one, says the complaint. Usually with Simon still on the call trying to persuade the senior to verify a PIN number, a co-conspirator would arrive at the victim's home, take the victim's credit or debit card, and promise to return with a new one (which, of course, never happened), according to the complaint affidavit. The co-conspirators allegedly would use the seniors' credit cards, debit cards, and PINs to withdraw cash from ATMs, purchase money orders, and otherwise drain money from the accounts as quickly as possible - before real bank fraud representatives caught on to the illegal activity.

The complaint charges that through this scheme, Simon and her co-conspirators duped over 250 seniors from Broward, Palm Beach, St. Lucie, Indian River and other South Florida counties into turning over debit cards, credit cards, and related information.  They defrauded banks of over $1 million, says the complaint affidavit.   

In a separate case filed earlier this year in the Southern District of Florida (case no. 20-cr-80037), prosecutors charged six of Simon's co-conspirators for their involvement in this elder fraud scheme: Shaumbrica Stubbs, Luclesse Vernesse, Samuel Charles, Ian Felder, Diedre Dixon, and Shaquille Robinson, all Florida residents.  Stubbs and Charles have pleaded guilty.  

[S]ince at least 2017, the defendants have used bribery and fraud to benefit merchant accounts on the Amazon Marketplace, resulting in more than $100 million of competitive benefits to those accounts, harm to competitors, and harm to consumers.  More specifically, the Indictment alleges that the defendants served as consultants to so-called third-party ("3P") sellers on the Amazon Marketplace.  Those 3P sellers consisted of individuals and entities who sold a wide range of goods, including household goods, consumer electronics, and dietary supplements on Amazon's multi-billion-dollar electronic commerce platform.  In addition to providing consulting services to these 3P sellers, some of the defendants, including NILSEN, LECCESE, and NUHANOVIC, made their own sales on the Amazon Marketplace through 3P accounts they operated. 

In the course of the conspiracy described in the Indictment, the defendants paid bribes to at least ten different Amazon employees and contractors, including KUNJU, who accepted bribes as a seller-support associate in Hyderabad, India, before becoming an outside consultant who recruited and paid bribes to his former colleagues.  In exchange for those bribes, the corrupted employees and contractors took the following illicit steps:

• Reinstating suspended merchant accounts and product listings on the Amazon Marketplace:  The corrupted employees and contractors helped reinstate products and merchant accounts that Amazon had suspended or blocked entirely from doing business on the Amazon Marketplace.  The fraudulently reinstated products included dietary supplements that had been suspended because of customer-safety complaints, household electronics that had been flagged as flammable, consumer goods that had been flagged for intellectual-property violations, and other goods.  The fraudulently reinstated accounts included accounts that Amazon had suspended for manipulating product reviews to deceive consumers, making improper contact with consumers, and other violations of Amazon's seller policies and codes of conduct.  The Indictment describes a variety of ways in which corrupted employees and contractors misused their positions to reinstate these accounts, including by manually reinstating product listings, and approving baseless and fraudulent merchant appeals that they themselves helped draft.  In total, after their fraudulent reinstatement, the products and merchants earned in excess of $100 million in sales revenue.
• Facilitating attacks against competitors:  The corrupted employees and contractors facilitated attacks against competitors' 3P accounts and product listings, by (a) sharing competitive intelligence about competitors' revenues, customers, advertising campaigns, and suppliers; (b) using their inside access to Amazon's network to suspend competitors' 3P accounts; and (c) providing consultants with information about Amazon's internal algorithms, which allowed the consultants to flood competitors' product listings with fictitious negative product reviews. 
• Misappropriating Amazon's highly confidential business information:  The corrupted employees and contractors also provided consultants and 3P sellers with unauthorized access to Amazon's highly confidential standard operating procedures and algorithms.  These materials provided an obvious, unfair, competitive benefit to 3P sellers, by giving them coveted insight into the systems that power Amazon's search engine, Amazon's product reviews, and Amazon's enforcement processes.  The misappropriated data also included the contact information for Amazon employees and consumers, which the members of the conspiracy misused and shared widely.
• Circumventing Amazon's internal limits on 3P accounts:  The corrupted employees and contractors conveyed exclusive benefits that circumvented Amazon's rules and regulations.  In exchange for bribes, they increased 3P sellers' storage limits in Amazon's warehouses, facilitated 3P sellers' otherwise meritless requests to sell products in restricted categories, and provided 3P sellers with inside knowledge about the most successful advertising campaigns and most profitable product listings.

• Securities Industry Commentator
• Bill Singer