Securities Industry Commentator by Bill Singer Esq

Suburban Chicago Man Pleads Guilty to Laundering Proceeds From Telemarketing Scheme That Defrauded Elderly Victims (DOJ Release)

SEC Obtains Emergency Relief Freezing Assets and Halting an Alleged Ongoing Fraud (DOJ Release)

Chairman Of Venture Capital Funds Sentenced To Six Years For Securities And Wire Fraud In Manhattan Federal Court (DOJ Release)

Bradbury Man Sentenced to 10 Years in Prison for Leading Role in $147 Million Mining and Digital Currency Fraud (DOJ Release)

Judge sentences former company Vice President/Chief Financial Officer for stealing nearly $800,000 in company funds

FINRA Censures and Fines VALIC Financial Advisors for VA Supervision

In the Matter of VALIC Financial Advisors, Inc., Respondent (FINRA AWC)

Voya Racial Discrimination Case Sheds Harsh Light On Wall Street Mandatory Arbitration (BrokeAndBroker.com Blog)

used a phony Indian passport, false name, and false address to open multiple bank accounts in the United States to receive money from victims of the telemarketing scheme.  The scheme involved phone calls from people falsely claiming to be associated with, among other agencies, the Social Security Administration and U.S. Department of Justice, stating that a victim's identity had been stolen and that it was necessary to transfer money to various bank accounts, including the accounts opened by Chaudhari.  One of the victims was an elderly woman from Massachusetts who transferred a total of more than $900,000 from her bank and retirement accounts to accounts controlled by Chaudhari or others. 

On April 19, 2018 - one day after Chaudhari opened an account and received a $7,000 transfer from the Massachusetts victim - Chaudhari entered a bank branch in Chicago and withdrew $6,500, the plea agreement states.  Chaudhari admitted in the plea agreement that he engaged in this financial transaction knowing that the money represented proceeds of unlawful activity.

raised about $7.4 million from investors since at least June 2019. The complaint alleges that King and Elevate were offering interests in the Elevate Investment Fund despite the fact that no such fund entity exists. The complaint further alleges that all investor money was held in brokerage and bank accounts in the name of King, his wife, and/or Elevate. As alleged, Elevate's website stated that, from June 2019 through June 2020, King's trading resulted in returns of 61% for all his clients' accounts. In fact, the complaint alleges, King's trading across all known accounts associated with him resulted in losses of $3.8 million during that period. The website also allegedly represented that King had historically generated profits for his clients year after year, but according to the complaint, King had consistently generated losses. Finally, the complaint alleges that Elevate's website made false statements about its affiliations with well-known securities industry participants when, in fact, certain purported affiliations had been terminated by the securities industry participant or had never existed. From September 2020 to December 1, 2020, King allegedly transferred almost $400,000 from the brokerage accounts to the bank account of his wife, who is named in the complaint as a relief defendant.

From at least in or about December 2013 through at least in or about 2017, WAGNER, the Chief Executive Officer of Downing, and co-defendant MARC LAWRENCE, the President of several Downing entities, solicited investments in Downing, a purported venture capital firm that would invest in healthcare start-ups referred to as "portfolio companies" and provide sales, operations, and management expertise to the portfolio companies in order to bring their products to market and generate returns for Downing investors, who also worked for Downing (the "employee-investors").  WAGNER and LAWRENCE, and others acting at their direction, solicited almost $10 million in investments in Downing from employee-investors located across the United States, including in the Southern District of New York, as a requirement of employment with Downing. 

After making the required investment of between $150,000 and $250,000 in Downing and starting their employment at Downing, employee-investors soon learned, among other things, that contrary to representations made by WAGNER and LAWRENCE, and others acting at their direction, Downing did not have access to millions of dollars in funding, often could not make payroll, had virtually no products to sell, and that employee-investments were the overwhelming source of funding.  Employee-investors also learned that WAGNER and LAWRENCE had misrepresented the companies in Downing's portfolio, their product readiness, and ability to generate revenue.  While the particular formulation of these misrepresentations shifted over time, WAGNER and LAWRENCE systematically sought and obtained employee-investor money through materially false and misleading statements.  WAGNER also misappropriated a significant portion of investor funds by using them for, among other things, personal expenses, including the purchase of a Porsche.

Beginning in or about May 2016, after several employee-investors had brought lawsuits against WAGNER and LAWRENCE, and several Downing entities, alleging claims based on, among other things, fraud, WAGNER and LAWRENCE continued the scheme by recruiting employee-investors into a new company called Cliniflow Technologies, LLC ("Cliniflow"), through materially false and misleading statements about Cliniflow's cash reserves, portfolio companies, and exposure to litigation.  In fact, Cliniflow purportedly held majority ownership in the same primary portfolio company as other Downing entities and was simply a new name used by WAGNER and LAWRENCE to solicit investments from new employee-investors that was not tainted by the lawsuits filed against Downing entities.  A majority of the over $1.5 million raised by WAGNER and LAWRENCE through Cliniflow was transferred to other Downing entities and used to pay for, among other things, WAGNER's personal expenses and the repayment of prior investors.

Finally, in or about January 2017, WAGNER obtained a $400,000 loan and $100,000 grant from the Connecticut Department of Economic and Community Development ("CTDECD") for Cliniflow on the basis of materially false statements made by WAGNER to the CTDECD.  WAGNER transferred a majority of the funds obtained from the State of Connecticut, which were required to be used for Cliniflow's purported relocation from New York to Connecticut, to other Downing entities and also used a portion of the funds to purchase a BMW for his daughter.

Chen was the owner and chief executive officer of U.S. Fine Investment Arts, Inc. (USFIA), and six other companies that used the same Arcadia address. From July 2013 until September 2015, Chen fraudulently promoted and solicited USFIA investments, and he ultimately obtained approximately $147 million from 72,000 victims, in one of the largest pyramid schemes ever prosecuted in this district.

He falsely promoted USFIA as a successful multi-level marketing company that extracted amber and other gemstones from non-existent mines it "owned" in the United States, the Dominican Republic, Argentina and Mexico.

Chen "promoted his Pyramid/Ponzi scam using a multi-level marketing program in which compensation for recruiting other investors primarily came from new USFIA investors' payments," prosecutors wrote in their sentencing memorandum. "Because the primary focus was on recruiting other investors, rather than selling USFIA products to retail customers, the vast majority of investors were destined to lose money - while making [Chen] very wealthy."

Investors were duped into buying USFIA investments in amounts ranging between $1,000 and $30,000 each. These "packages" purportedly comprised amber and other gemstones, as well USFIA "points," which could be converted to USFIA shares when the company had its IPO. But Chen never intended for USFIA to go public.

USFIA offered other bonuses - including cash, travel, luxury cars, homes in the Los Angeles area, and EB-5 visas for immigrant investors - to investors who recruited other people to purchase these "packages."

Beginning in September 2014, Chen and others altered the promotion by substituting quantities of "Gem Coins" instead of points. They falsely promoted these "coins" as a legitimate digital currency backed by the company's gemstone holdings. Chen also falsely represented that these "coins" already were in wide circulation in the jewelry and finance industries.

The company did not generate any significant revenue from its business operations, apart from sales of investment packages to victim-investors. The amber and other gemstones provided in the investment packages - including those displayed at USFIA's Arcadia headquarters - were obtained from domestic and foreign commercial suppliers, assigned grossly inflated prices, and worth much less than what investors paid USFIA for them. "Gem Coins" had no circulation in any industry, were not accepted by any merchants, and had no economic value.

Chen also committed tax evasion when he reported that his gross income for 2014 was $138,015, when in fact his income for that year was approximately $4,816,193, upon which Chen owed $1,885,094 - before interest and penalties.

Cargill issued 80 unauthorized bank checks to herself written on Common Ground's bank account totaling $198,980.23. In order to conceal this aspect of her fraudulent scheme, Cargill made false and misleading entries in the internal financial and accounting records of Common Ground, purporting to make these unauthorized bank checks appear to be legitimate when, in fact, she knew they were not.

Cargill was issued both a Citibank MasterCard credit card and an American Express credit card by Common Ground to be used to pay for legitimate company expenses, such as necessary travel and other business expenses. Cargill used both of her company issued credit cards to make personal purchases, unrelated to the legitimate business and operations of Common Ground.  Cargill's unauthorized credit card charges were for such personal expenses as airfare, hotels, automobiles, clothing, cosmetics, medi-spas, restaurants and miscellaneous retail purchases.  These company issued credit card purchases were done by Cargill without the knowledge and authority of Common Ground. During the period of her fraudulent scheme, Cargill made approximately 2,841 unauthorized company issued MasterCard credit card purchases for personal use items and expenses, totaling approximately $351,748.42, and an additional approximately 1,166 unauthorized company issued American Express credit card purchases for personal use items and expenses, totaling approximately $190,200.66.     

Cargill applied for and obtained two different $1,000,000 life insurance policies, but instead of naming Common Ground as the sole beneficiary, as required under the shareholder agreement, Cargill named her then husband, B.H., as the sole beneficiary on both policies. Cargill then made premium payments on both policies, totaling $5,244.00, with funds from Common Ground's bank accounts.

Cargill also used Common Ground bank funds to pay for charges on three of her personal credit cards totaling approximately $38,516.94. None of these charges which was paid for with Common Ground funds was authorized by Common Ground, and was not for the legitimate business or operations of Common Ground.          

In order to conceal her fraudulent scheme, Cargill moved funds between Common Ground bank accounts to falsely inflate the balance of the firm's operating account when she provided financial updates to the president and chief executive officer of the firm. In furtherance of her scheme, Cargill caused unauthorized wire transfers to be made from Common Ground's bank account to make payments on her personal credit card charges.

On November 28, 2016, FINRA accepted AWC No. 2014042360001 in which VFA consented to a censure, a $1,750,000 fine, and the entry of findings that: (i) from October 2011 through December 2014, VFA failed to establish, maintain and enforce a system reasonably designed to supervise the sale of variable annuity contracts, and (ii) from October 2011 through December 2014, VFA failed to establish, maintain and enforce a system reasonably designed to comply with FINRA Rule 4530. 

during FINRA's investigation, starting in May 2018, VALIC took substantial remedial measures to address the deficiencies described above. The firm hired additional personnel to staff a dedicated customer complaint department, retained independent consultants, and implemented system and procedural enhancements based on the consultants' recommendations. The firms' new processes and procedures related to the deficiencies described above were completed by January 2020. 

From January 1, 2017 through October 31, 2018, VFA failed to establish a reasonably designed system and written supervisory procedures for the surveillance of rates of VA exchanges and for corrective action in the case of inappropriate exchanges, in violation of FINRA Rules 2330(d), 3110, and 2010. During this time, VFA also failed to establish a reasonably designed system and supervisory procedures for the review of transactions where a registered representative recommended that a customer invest additional funds into an existing VA, in violation of FINRA Rules 3110 and 2010. Finally, VFA failed to timely report statistical and summary information for 174 written customer complaints received by the firm between June 26, 2017 and March 20, 2018, in violation of FINRA Rules 4530(d) and 2010.

• Securities Industry Commentator
• Bill Singer