Securities Industry Commentator by Bill Singer Esq

Frail, Ineffective OCIE Statement About Complex Financial Products (BrokeAndBroker.com Blog)

Ponzi Schemer Who Bilked Investors out of Millions of Dollars is Sentenced to more than Six Years in Prison (DOJ Release)

Florida Man Charged with Manipulating Publicly Traded Stocks in Multiyear "Pump and Dump" Securities Fraud Scheme Worth Over $19 Million (DOJ Release)

Commissioner Stops Local Firm from Fraudulently Marketing Forex Investments, Making False Claims of Registration and Legitimacy (TSSB Release)

SEC Obtains Final Judgment in Offering Fraud (SEC Release)

FINRA Sanctions Firm and Former CCO/AMLCO/President Over AML Program Deficiencies

In the Matter of Southern Trust Securities, Inc. and Susan Molina Escobio, Respondents (FINRA AWC)

FINRA Arbitrator Awards Rare Attorneys' Fees to Defamed Former Wells Fargo Rep in Expungement Case

In the Matter of the Arbitration Between Amy K. Webster, Claimant, v. Wells Fargo Clearing Services, LLC, Respondent (FINRA Arbitration Award 20-01054)

[N]go induced his victims to invest funds in various short-term investment contracts by making false representations, including that: (a) Investor money would be used to fund wholesale purchase orders of smartphone screens and other electronic goods; (b) NL Technology was a regular supplier of smartphone screens to a number of buyers, including two buyers who each ordered approximately $2 million of product from NL Technology; (c) All wholesale orders funded by investor money was pre-purchased by NL Technology clients; and (d) The quality of the products and safety of investor funds used to purchase the products were guaranteed by a third-party escrow company. 

In his plea agreement, Ngo admitted he created counterfeit invoices falsely indicating that NL Technology had substantial purchase orders from alleged wholesale companies. Ngo also provided false financial statements purportedly certified by an accountant showing NL Technology earned income from its wholesale business totaling $12.5 million in 2015 and $15.4 million in 2016.  Moreover, Ngo admitted he fabricated bank statements or screenshots from bank statements held in the name of NL Technology with individual line items altered to appear as legitimate wholesale business transactions.  Lastly, Ngo created false checks from wholesale companies allegedly doing business with NL Technology.   

According to court documents, Ngo told investors that they could roll over their investments into future investment contracts with NL Technology, when in fact no such future investments were possible.  Also, Ngo lulled investors about the continued viability of NL Technology through materially false representations, including that NL Technology had an outstanding purchase order from a smartphone repair company for approximately $300,000, when in fact, no such order existed. 

Instead of investing the funds in the business, Ngo admitted that he converted investor funds to his own personal use and benefit by spending the money on a home, luxury cars and gambling.  As a result of his investment fraud, Ngo caused more than $20 million in losses to investors in his Ponzi scheme.

[F]rom about April 2012 until December 2019, Martin and others allegedly manipulated the stock of Mainstream Entertainment, Inc., now known as Volt Solar Systems, Inc., Resort Savers, Inc., Axiom Corp., Virtual Medical International, Inc., and Union Bridge Holdings, Ltd. The alleged manipulation involved fraudulent press releases, fraudulent securities disclosures filed with the U.S. Securities and Exchange Commission, and other fraudulent communications, as well as manipulative stock trading. The defendant and others were thus allegedly able to fraudulently inflate the price of the stock, and then sell their own shares at inflated prices and reap illicit proceeds-a classic "pump and dump" scheme. Through this conspiracy, Martin and his co-conspirators allegedly defrauded investors to enrich themselves; Martin himself received more than $989,000 in illicit proceeds from the sale of over-inflated stock of just one of the companies.

The order names KP Financials, LLC, from Austin, Texas.  The firm was incorporated in June 2020, but it is allegedly telling potential clients it has been incorporated for years.  According to the order, KP Financials is touting the growth of its operations, claiming it now employs more than 40 account specialists and 20 traders - and is growing day-by-day. 

Kevin Vu Pham is the founder and manager of KP Financials, and the company now maintains an office in the Domain, in North Austin.  Gerald Johnson, an account specialist, and Daniel Ajwani, a co-founder and account executive, are also named in the order. 

The parties are allegedly marketing investments in managed forex accounts.  They claim KP Financials has been using investor funds to trade in the accounts, and it has been earning 3% per month for investors. The investments in the managed forex accounts are supposedly safe and secure, and according to testimonials on the firm's website, the investments provide "minimal risk and maximum reward." 

The offering is a fraud, according to the order.  KP Financials is accused of concealing important information and misleading investors with deceptive statements. 

For example, the order accuses KP Financials of falsely touting registration to add legitimacy to the forex trading investments.  It is allegedly advertising itself as "Registering with the Texas SEC and Series 34 [sic]."  According to the order, the statement is simply false.  KP Financials is not registered with the State Securities Board and the named parties have not sat for the Series 34 - an examination and license required for persons engaging in off-exchange forex transaction with retail customers.  

Also, the parties require investors to execute a management agreement.  The management agreement allegedly authorizes KP Financials to trade forex.  However, the management agreement also authorizes KP Financials to render services as an investment adviser by using principal to buy, sell or trade securities. Notably, KP Financials is not registered or notice-filed as an investment adviser, and Pham, Ajwani and Johnson are not registered or notice-filed as investment adviser representatives. 

The firm is also accused of leveraging changes from COVID-19 in its sales pitch.  It allegedly claims it has been able to "take advantage of that chaos," referring to disruptions in the securities markets due to COVID-19.  According to the order, KP Financials further claims to be working with clients using their 401K accounts to fund forex trading - and paying significant taxes as a consequence of withdrawing early - because they are attracted to the purported lucrative profits associated with the managed forex accounts.

As the firm develops its platform, Respondent KP Financials allegedly plans to add "partnerships" with other businesses that will benefit investors.  It is also telling investors that it will soon provide investors with access to the firm's private plane, according to the order.   

From July 23, 2015, through June 4, 2018, the Respondents failed to develop and implement an anti-money laundering (AML) program that was reasonably designed to achieve and monitor the firm's compliance with the Bank Secrecy Act and the implementing regulations thereunder. In particular, the Respondents did not establish and implement policies and procedures tailored to the firm's business, which could be reasonably expected to detect and cause the reporting of suspicious activity arising from wire transfers to customer accounts. Additionally, from July 23, 2015, through June 4, 2018, the Respondents failed to provide reasonable ongoing AML training to its associated persons. Also, from March 2016 to June 2018, the Respondents failed to conduct periodic reviews of account activity and enhanced due diligence with respect to a foreign financial institution (FFI) account, as required by the United States Department of the Treasury (Treasury) Regulation, 31 CFR §1010.610. As a result of the foregoing, Respondents violated FINRA Rules 3310(a), (b), and (e), and 2010.

From July 2017 to June 2018, the Respondents failed to establish, maintain, and enforce a supervisory system, including written supervisory procedures, reasonably designed to prevent a terminated representative from continuing to access STS email, which contained customer records. During this period, Escobio was responsible for reviewing all emails sent from or received by a terminated, statutorily disqualified individual's firm email address on a daily basis. Escobio failed to perform such reviews. Respondents also failed to recognize and investigate red flags indicating the terminated individual may have continued to access his firm email address containing customer records. As a result of the foregoing, STS violated Rule 30 of Regulation S-P and FINRA Rule 2010. Escobio caused STS to violate Rule 30 of Regulation S-P, and by virtue of the foregoing, Escobio violated FINRA Rule 2010. Further, Respondents' email supervision failures violated FINRA Rules 3110 and 2010.

From July 2015 to July 2017, on two occasions, Escobio, in the course of STS purchasing Rule 144A restricted securities, negligently misrepresented to corporate bond dealers, through written, signed certifications, that STS was a qualified institutional buyer (Q1B), or was a dealer acting in a riskless-principal capacity on behalf of a Q1B. These certifications were inaccurate since STS was not a Q1B, and it purchased such restricted securities from the dealers on behalf of a non-Q1B customer. As a result, Escobio violated F1NRA Rule 2010.

Respondent is liable for and shall pay to Claimant the sum of $30,000.00 in attorneys' fees pursuant to Akintobi v. Phoneix Fire Restoration Co., 513 S.E.2d 507 (1999).

• Securities Industry Commentator
• Bill Singer