The Wall Street Legal & Regulatory Feed
Securities Industry Commentator by Bill Singer Esq
January 4, 2021
SEC Charges Individuals with Fraud for Misappropriating Investor Funds (SEC Release)
FINRA Arbitrator Says It Wasn't UBS Fraud. It Was COVID (BrokeAndBroker.com Blog)
http://www.brokeandbroker.com/5616/finra-arbitration-covid/
If you believe that you've been defrauded by your stockbroker and/or brokerage firm, you're not alone. Moreover, such a nagging suspicion is not something of recent vintage but a pox that has plagued Wall Street's houses for generations. Where there's money, there's fraud. Plain and simple. On the other hand, not all losses sustained in a brokerage account are properly ascribed to fraud. After all, you put your money down, you take our chances -- some investments make money and some end in losses. Not every hunch plays out. Not every can't-lose investment proves as such. In a recent FINRA arbitration, we see an angry investor demanding compensation from UBS Financial and her stockbroker. The sole FINRA arbitrator didn't see fraud or mismanagement but did see the unexpected impact of COVID.
SEC Charges Equialt Managing Director of Investments for Unlawful Sales of Securities to Elderly Retail Investors (SEC Release)
https://www.sec.gov/litigation/litreleases/2020/lr25002.htm
In a Complaint filed in the United States District Court for the Middle District of Florida
https://www.sec.gov/litigation/complaints/2020/comp25002.pdf, the SEC charged DeAndre P. Sears and MASears LLC d/b/a Picasso Group with violating the securities registration provisions of Sections 5(a) and 5(c) of the Securities Act, and the broker-dealer registration provisions of Section 15(a)(1) of the Securities Exchange Act of 1934. Without admitting or denying the allegations in the Complaint, Sears and Picasso Group agreed to the entry of a judgment providing injunctive relief with disgorgement and civil penalties to be determined by a court at a later date; and, additionally, Sears also agreed to associational and penny stock bars as part of a settled follow-on administrative proceeding. As alleged in part in the SEC Release:
https://www.sec.gov/litigation/complaints/2020/comp25002.pdf, the SEC charged DeAndre P. Sears and MASears LLC d/b/a Picasso Group with violating the securities registration provisions of Sections 5(a) and 5(c) of the Securities Act, and the broker-dealer registration provisions of Section 15(a)(1) of the Securities Exchange Act of 1934. Without admitting or denying the allegations in the Complaint, Sears and Picasso Group agreed to the entry of a judgment providing injunctive relief with disgorgement and civil penalties to be determined by a court at a later date; and, additionally, Sears also agreed to associational and penny stock bars as part of a settled follow-on administrative proceeding. As alleged in part in the SEC Release:
[B]etween 2014 and 2020, Sears directly and indirectly, through the use of third-party agents, sold at least $25 million of EquiAlt's securities to more than 145 largely unaccredited, unsophisticated, and elderly retail investors located in 25 states. During that period, Sears was identified in EquiAlt private placement memoranda as Managing Director of Investments, President of Business Development and Marketing, or Vice President of Investor Relations. Sears, through Picasso Group, received approximately $3.5 million in transaction-based sales commissions from EquiAlt, despite neither being registered as broker dealers. The complaint alleges that beginning in approximately 2016, EquiAlt was actually operating a Ponzi scheme during which it raised more than $170 million from approximately 1,100 investors in 35 states.
https://www.sec.gov/litigation/litreleases/2020/lr25003.htm
In a Complaint filed in the United States District Court for the District of Utah
https://www.sec.gov/litigation/complaints/2020/comp25003.pdf, the SEC Commission charged William "Bill" Bowser with violating the antifraud provisions of Sections 17(a)(1) and 17(a)(3) of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act and Rules 10b-5(a) and (c) thereunder. Also, the Complaint charged Christopher Ashby, Scott Beynon, and Jordan Nelson with violating the antifraud provisions of Sections 17(a)(2) and 17(a)(3) of the Securities Act and the registration provisions of Section 15(a) of the Exchange Act. Without admitting or denying the allegations of the complaint, the Defendants have consented to judgments enjoining them from violating the charged provisions, ordering:
https://www.sec.gov/litigation/complaints/2020/comp25003.pdf, the SEC Commission charged William "Bill" Bowser with violating the antifraud provisions of Sections 17(a)(1) and 17(a)(3) of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act and Rules 10b-5(a) and (c) thereunder. Also, the Complaint charged Christopher Ashby, Scott Beynon, and Jordan Nelson with violating the antifraud provisions of Sections 17(a)(2) and 17(a)(3) of the Securities Act and the registration provisions of Section 15(a) of the Exchange Act. Without admitting or denying the allegations of the complaint, the Defendants have consented to judgments enjoining them from violating the charged provisions, ordering:
- Bowser to pay disgorgement of $47,796 with prejudgment interest of $6,402 and a $192,768 penalty;
- Ashby to pay disgorgement of $551,161 with prejudgment interest of $43,994 and a $96,384 penalty,
- Beynon to pay disgorgement of $585,426 with prejudgment interest of $46,729 and a $96,384 penalty, and
- Nelson to pay disgorgement of $281,273 with prejudgment interest of $22,451 and a $96,384 penalty.
[F]rom approximately January 2017 to February 2019, Ashby, Beynon, and Nelson, through entities they controlled, sold investors interests in for-profit event centers purportedly being developed by Noah Corporation, an entity Bowser controlled. As alleged, Bowser diverted investor funds earmarked for specific properties and instead used them for Noah Corporation's and Bowser's operational and other expenses and to pay prior investors, rather than for construction of event centers as represented to investors. The complaint further alleges that contrary to their representations to investors, Ashby, Beynon, and Nelson failed to escrow investor funds and disbursed them to an entity Bowser controlled without having any controls in place to ensure that the disbursements were for legitimate expenses.
FINRA Orders Worden Capital Management LLC to Pay More than $1.2 Million in Restitution to Customers Whose Accounts Were Excessively Traded / Firm Also Fined $350,000 for Failing to Reasonably Supervise Recommended Securities Transactions and Other Violations (FINRA Release)
https://www.finra.org/media-center/newsreleases/2020/finra-orders-worden-capital-management-llc-pay-more-12-million
https://www.finra.org/media-center/newsreleases/2020/finra-orders-worden-capital-management-llc-pay-more-12-million
The FINRA Release alleges in part that:
FINRA announced today that it sanctioned Worden Capital Management LLC (WCM) more than $1.5 million, including approximately $1.2 million in restitution to customers whose accounts were excessively traded by the firm's representatives, and a $350,000 fine for supervisory and other violations. As part of the settlement, WCM must also retain an independent consultant to conduct a comprehensive review of the relevant portions of the firm's supervisory systems and procedures.FINRA found that from January 2015 to October 2019, WCM and the firm's owner and CEO, Jamie Worden, failed to establish and enforce a supervisory system reasonably designed to achieve compliance with FINRA's rules relating to excessive trading. As a result, WCM's registered representatives made unsuitable recommendations and excessively traded customers' accounts, causing customers to incur more than $1.2 million in commissions. In one instance, a WCM customer whose account was traded for approximately one year had a cost-to-equity ratio (or breakeven point) of more than 100 percent and incurred realized losses of $118,490, inclusive of the $205,557 the customer paid in commissions. WCM did not take action to investigate or stop the trading in this customer's account, and others like it, even though WCM received a monthly active account report that routinely flagged dozens of customer accounts indicative of excessive trading.. . .FINRA also found that WCM and Worden interfered with customers' requests to transfer their accounts to another member firm. In addition, as a result of supervisory failures, WCM failed to timely file amendments to registered representatives' Form U4s and Form U5s to disclose the filing or resolution of customer arbitrations.For Worden's supervisory violation and his interference with customer account transfers, he agreed to a 15-day suspension in all capacities, a three-month supervisory suspension, a $15,000 fine and must complete 20 hours of continuing education.In settling this matter, WCM and Worden neither admitted nor denied the charges, but consented to the entry of FINRA's findings.