Securities Industry Commentator by Bill Singer Esq

E-brokers report outages as Dow jumps 1,000 points in vaccine rally (CNBC by Maggie Fitzgerald)

How to Preserve the Privacy of Your Genomic Data / A technology called "fully homomorphic encryption" is so secure that even future quantum computers won't be able to crack it (Scientific American by Dario Gil)

Former CFO of Long Island Pharmaceutical Company Pleads Guilty to Insider Trading / Defendant Avoided Losses by Selling Company Stock Prior to Announcement of Negative Financial News (DOJ Release)

SEC Charges Former CFO of Now-Bankrupt Company with Insider Trading (SEC Release)

SEC Charges Three Individuals with Unregistered Brokerage Activity in the Sale of Microcap Securities (SEC Release)

Former Microsoft software engineer sentenced to nine years in prison for stealing more than $10 million in digital value such as gift cards / Used accounts and passwords of other employees - sold value online to pay for exotic car, waterfront home (DOJ Release)

New York Developer Robert Morgan Agrees to Settle Fraud Charges for Ponzi-Like Real Estate Investment Scheme (SEC Release)

Notice to Potential Victims Regarding Microcap Securities Fraud Scheme / Individuals who believe they may be potential victims are encouraged to notify the U.S. Attorney's Office (DOJ Release)

FINRA Bars Rep for Unsuitable Investment Strategy

In the Matter of Richard Michael Wesselt, Respondent (FINRA AWC)

FINRA Bars Rep for Insurance Premium Conversion

In the Matter of Lucas Mandon King, Respondent (FINRA AWC)

FINRA Imposes Censure and Fine on Member Firm for Failed Supervision

In the Matter of Coastal Equities, Inc., Respondent (FINRA AWC) 

The Saad Saga Returns to Federal Court (BrokeAndBroker.com Blog)

Retail investors from Robinhood, Fidelity and Schwab have been excluded from big market days several times this year. In March during the record market volatility, the stock-trading sites and apps experienced day-long outages. Clients are taking to twitter on Monday to express their frustration with the outages.

Last year, a Brazilian bank, Banco Bradesco, partnered with IBM for a trial of the FHE technology on real financial data. The researchers showed that it was possible to perform predictions on encrypted data, hiding the data during processing. First, they encrypted the existing machine learning-based prediction model and ran predictions with the same accuracy as without encryption. Then they retrained the model using new encrypted data and showed that it was possible to use homomorphic encryption to preserve the privacy of the data, never exposing any client information.

[B]etween January and March 2018, Roth was aware of non-public information that Aceto's financial performance had worsened substantially as compared to its most-recent publicly-released financial statements, including that Aceto was likely to breach certain financial covenants it owed to its bank lenders, and that Aceto might need to write down more than $100 million in goodwill assets.  While in possession of that non-public information, Roth sold approximately 69,549 shares of Aceto stock.  Shortly thereafter, Aceto issued a press release publicly announcing that its financial condition had worsened, that it had breached certain financial covenants and that it would need to write down significant goodwill assets, after which Aceto's share price dropped significantly.  By selling his shares before the press release was issued, Roth avoided more than $145,000 in losses. 

[W]hile working as Aceto's CFO, Roth obtained non-public information concerning several negative developments at Aceto, including poor sales and earnings for the quarter ending March 31, 2018, a pending impairment charge, consideration of discontinuing Aceto's dividend, and Aceto's negotiations with its creditors seeking an amendment or waiver of financial covenants that had been amended only months earlier. The complaint alleges that while in possession of this confidential information, and within days of his March 31, 2018 retirement, Roth sold all of the Aceto shares that vested upon his retirement, avoiding losses of more than $305,000.

[F]rom at least October 2017 through at least May 2019, Graham, Howard and Matyas solicited investments in US Lighting Group by cold calling and emailing prospective investors, sending the investors subscription agreements, and instructing investors as to how to make their investment. The complaint alleges that they received commission payments of approximately 40% of investor proceeds from sales of US Lighting Group securities. According to the complaint, none of the defendants were registered as a broker-deal or associated with a registered broker-dealer at the time.

[K]VASHUK was involved in the testing of Microsoft's online retail sales platform and used that testing access to steal "currency stored value" (CSV) such as digital gift cards.  KVASHUK resold the value on the internet, using the proceeds to purchase a $1.6 million dollar lakefront home and a $160,000 Tesla vehicle.  Initially, KVASHUK stole smaller amounts totaling about $12,000 in value using his own account access.  As the thefts escalated into millions of dollars of value, KVASHUK used test email accounts associated with other employees. KVASHUK, a knowledgeable software developer, attempted to mask digital evidence that would trace the fraud and the internet sales back to him.  He used a bitcoin "mixing" service in an attempt to hide the source of the funds ultimately passing into his bank account.  In all, over the seven months of KVASHUK's illegal activity, approximately $2.8 million in bitcoin were transferred to his bank and investment accounts.  KVASHUK then filed fake tax return forms, claiming the bitcoin had been a gift from a relative.

In their sentencing memo, prosecutors noted that KVASHUK's scheme cast other Microsoft employees under the glare of suspicion.  "Kvashuk used the proceeds to live the life of a millionaire, driving a $160,000 car and living in a $1.6 million waterfront home.  Kvashuk's scheme involved lies and deception at every step.  He put his colleagues in the line of fire by using their test accounts to steal CSV.  Rather than taking responsibility, he testified and told a series of outrageous lies.  There is no sign that Kvashuk feels any remorse or regret for his crimes," prosecutors wrote to the Court.

The SEC's complaint, filed on May 22, 2019, alleges that Morgan sold securities to more than 200 retail investors, many of whom invested through their retirement accounts.  According to the complaint, although Morgan represented to investors that their money would be used to improve multifamily properties, Morgan and two entities he controlled instead diverted investor funds to facilitate payments to earlier investors, and made misrepresentations to later investors about prior fund performance.  Upon filing this action, the SEC obtained emergency relief including the imposition of a temporary restraining order and the appointment of a receiver responsible for maximizing the monetary recovery for investors. Earlier this year, the receiver returned the more than $63 million in principal owed to the investors the SEC alleges were harmed by Morgan's fraud. The receiver's application to return an additional $3.3 million to these investors was granted on November 6, 2020.

BOSTON - Roger Knox, the founder and operator of a Swiss asset management firm, and Richard Targett-Adams, who assisted in the firm's operation, participated in a massive global securities fraud scheme that the government believes generated up to approximately $165 million in fraudulent stock sale proceeds. Individuals who believe they may be potential victims are encouraged to notify the U.S. Attorney's Office in the District of Massachusetts.

The defendants were previously charged in federal court in Boston. Knox pleaded guilty to securities fraud and conspiracy to commit securities fraud in January 2020, and he is currently scheduled to be sentenced on Jan. 28, 2021. Targett-Adams pleaded guilty to securities fraud, conspiracy to commit securities fraud and money laundering in June 2019, and he is currently scheduled to be sentenced on April 2, 2021.

Knox and Targett-Adams participated in a conspiracy to commit securities fraud in which ownership and control of dozens of publicly traded companies was disguised so that, among other things, criminal control groups could engage in pump-and-dump schemes and other forms of market manipulation in the companies' microcap securities. These microcap securities, also known as "penny stocks," primarily traded on the over-the-counter market.

Individuals who traded in one or more of the securities listed here during the time period indicated, and believe that they may be potential victims of this fraud, should contact the U.S. Attorney's Office at USAMA.VictimAssistance@usdoj.gov. In the email, please indicate the security traded and the transaction details for the trade(s): date(s), number of shares, price, whether it was bought or sold, and an assessment of gains or losses. Please also indicate whether there is supporting documentation, and a victim assistance specialist will assist you in transferring it in a secure manner.

Email submissions are due by Nov. 30, 2020. For more information, visit the U.S. Attorney's Office website.

In connection with his unsuitable recommendations, Wesselt had customers sign incomplete or blank pages of various documents, including new account documents, variable annuity disclosure forms, and documents authorizing the withdrawal of funds from variable annuities, in violation of FINRA Rule 2010; this conduct also caused his firm to have inaccurate books and records in violation of FINRA Rules 4511 and 2010. 

From October 2016 to July 2018, Coastal failed to reasonably supervise a registered representative, SA, who recommended excessive and unsuitable trades in the accounts of four customers. Coastal became aware of numerous red flags that SA was making unsuitable recommendations, but failed to take reasonable action to investigate them. 

• Securities Industry Commentator
• Bill Singer