The Wall Street Legal & Regulatory Feed
Securities Industry Commentator by Bill Singer Esq
January 14, 2021
Texas man and woman behind My Buddy Loans charged with filing hundreds of fraudulent applications for COVID relief (DOJ Release)
Wells Fargo Collects Underpants and Makes Profit But Can't Prove Phase 2 Arbitration Agreement (BrokeAndBroker.com Blog)
http://www.brokeandbroker.com/5641/wells-fargo-arbitration/
The South Park Gnomes had Phase 1: Collect Underpants. The Gnomes had Phase 3: Profit. What the Gnomes never had -- could never quite figure out -- was Phase 2: How do you manage to turn a profit from stolen underpants? In a recent lawsuit brought by a former Wells Fargo employee, the defendants wanted the court to find that there was an enforceable arbitration agreement. They had some Forms U4. They had FINRA's rulebook. They also had a former regulator called NASD and a former employer whose name had changed. Problem was, where the hell was Phase 2?
https://www.justice.gov/opa/pr/las-vegas-resident-sentenced-prison-elder-fraud-scheme
Andrea Burrow, 50, pled guilty in the United States District Court for the District of Nevada to conspiracy to commit mail fraud, and she was sentenced to 36 months in prison plus 36 months of supervised release, and ordered to forfeit $272,000. Previously, Patti Kern, Edgar Del Rio, and Sean O'Connor pled conspiracy to commit mail fraud; and in addition to Burrow, Co-Defendants Mario Castro, Jose Salud Castro, Salvador Castro, Miguel Castro, and Jose Luis Mende were also charged in connection with the alleged $9 million dollar fraudulent prize-notification scheme. As alleged in part in the DOJ Release:
Texas man and woman behind My Buddy Loans charged with filing hundreds of fraudulent applications for COVID relief (DOJ Release)The scheme operated from 2010 to February 2018, when postal inspectors executed multiple search warrants and the Department of Justice obtained a court order shutting down the fraudulent mail operation. The indictment and other court filings alleged that Mario Castro, Jose Salud Castro, Salvador Castro, Miguel Castro, Jose Luis Mendez, and Edgar Del Rio worked at the printing and mailing businesses that sent the fraudulent mail, and each shared the profits from the fraudulent prize notices with Patti Kern, who helped manage the scheme. Sean O' Connor provided laser printing and data processing services to the scheme. Burrow opened victim return mail, sorted cash and other payments, and entered data from the victims' responses into a database that the scheme used to target past victims with more fraudulent mail, according to the indictment.
https://www.justice.gov/usao-edtx/pr/texas-man-and-woman-behind-my-buddy-loans-charged-filing-hundreds-fraudulent
In a Complaint filed in the United States District Court for the Eastern District of Texas, Clifton Pape and Sally Jung were charged with major fraud against the United States in connection with allegations they had filed hundreds of false Economic Injury Disaster Loan ("EIDL") applications with the Small Business Administration under the Coronavirus Aid, Relief, and Economic Security ("CARES") Act. As alleged in the DOJ Release:
[P]ape and Jung operated under the name My Buddy Loans. In exchange for $1082.50, My Buddy Loans took personal identifying information from third parties and promised to file a federal application for a $10,000 agricultural grant. Instead, Pape and Jung actually filed EIDL applications with the SBA that contained false information. For example, in June and July 2020, Pape and Jung filed 222 EIDL applications, all of which purported to be for businesses with exactly ten employees-the minimum number of employees required to obtain the maximum EIDL advance of $10,000. From those 222 applications, the SBA issued 130 EIDL advances in the amount of $10,000-$1.3 million total.Pape and Jung used Square's credit and debit card processing service to charge third parties the fee of $1082.50. Pape and Jung completed 716 successful charges, obtaining at least $775,000 in fees from third parties. Pape and Jung then transferred the proceeds of the fraud scheme into a bank account they controlled. On one occasion, Pape used the fraud proceeds to pay a traffic ticket. On another occasion, Pape and Jung used more than $3600 from the fraud scheme to pay for a stay at La Cantera Resort in San Antonio, Texas. A picture from that stay shows Pape and Jung celebrating over sparkling wine and other beverages. Pursuant to a seizure warrant, agents seized the $505,535.04 in fraud proceeds remaining in the account.
https://www.finra.org/sites/default/files/fda_documents/2020065102101
%20Teresa%20L.%20Holwerda%20CRD%203029797%20AWC%20jlg.pdf
%20Teresa%20L.%20Holwerda%20CRD%203029797%20AWC%20jlg.pdf
For the purpose of proposing a settlement of rule violations alleged by the Financial Industry Regulatory Authority ("FINRA"), without admitting or denying the findings, prior to a regulatory hearing, and without an adjudication of any issue, Teresa L. Holwerda submitted a Letter of Acceptance, Waiver and Consent ("AWC"), which FINRA accepted. The AWC alleges that Teresa L. Holwerda was registered from June 1998 to January 2020 with FINRA member firm State Farm VP Management Corp. The AWC alleges that Shaun C. Simmons "does not have any relevant disciplinary history." In accordance with the terms of the AWC, FINRA found that Simmons had violated FINRA Rule 2010; and the self regulator imposed upon her a $5,000 fine and an two-month suspension from association with any FINRA member in any capacity. As alleged in part in the AWC:
Customer A and his wife were Holwerda's clients at State Farm's affiliated life insurance company. Customer A was the policy owner and the first named insured on a term life insurance policy that provided coverage for Customer A and his wife. In 2018, Customer A and his wife divorced. In November 2018, Customer A requested that the life insurance policy be cancelled. However, Holwerda understood that Customer A only wanted to be removed from the policy. Holwerda thereafter forged Customer A's signature on a change of ownership form that she submitted to the life insurance company. Customer A eventually discovered the forgery and complained to the life insurance company.
https://www.finra.org/sites/default/files/fda_documents/2016051704303
%20Steven%20Robert%20Luftschein%20CRD%202690117
%20Order%20Accepting%20Offer%20of%20Settlement%20va.pdf
%20Steven%20Robert%20Luftschein%20CRD%202690117
%20Order%20Accepting%20Offer%20of%20Settlement%20va.pdf
In response to the filing of a Complaint on May 13, 2020, by the Financial Industry Regulatory Authority's ("FINRA's") Department of Enforcement, Respondent Steven Robert Luftschein submitted an Offer of Settlement in January 2021, which the regulator accepted. Under the terms of the Offer of Settlement, without admitting or denying the allegations in the Complaint, Respondent Luftschein consented to the entry of findings and violations and to the imposition of the sanctions. The FINRA Settlement Order asserts that Respondent Luftschein entered in the industry in 1995, and from June 2013 through early October 2016, he was associated with FINRA member firm Aegis Capital Corp. In accordance with the terms of the FINRA Settlement Order, FINRA found that Luftschein violated willfully violated Section 10(b) of the Securities Exchange Act and Rule 10b-5 promulgated thereunder and further violated FINRA Rules 2020, 2111, and 2010 barred Luftschein from associating with any FINRA member in any capacity. As alleged under the "Summary" portion of the FINRA Settlement Order:
Respondent Steven Robert Luftschein, while associated with Aegis Capital Corp. (Aegis or the Firm), a FINRA-regulated broker-dealer, churned and excessively traded the accounts of three of his Firm customers, Customers A, B and C (collectively, the Customers), from July 2014 through June 2016 (the Relevant Period). During this period, Luftschein executed approximately 430 trades in the Customers' accounts - resulting in annualized turnover rates ranging from 12.5 to 96.3 and annualized cost-to-equity ratios (or break even points) ranging from 35.6% to 123.8%. Luftschein's churning and excessive trading was unsuitable and caused combined losses of more than $261,000 in the Customers' accounts. At the same time, Luftschein's trading in the Customers' accounts generated gross sales credits and commissions of approximately $136,200, with Luftschein receiving a substantial percentage of this amount. By churning and excessively trading the Customers' accounts, Luftschein willfully violated Section 10(b) of the Securities Exchange Act of 1934 (the Exchange Act) and Rule 10b-5 thereunder, and also violated FINRA Rules 2111, 2020 and 2010.Also during the Relevant Period, Luftschein executed 88 trades with a total principal value of approximately $3 1 million in the three Customers' accounts without the Customers' prior authorization. By engaging in unauthorized trading in the Customers' accounts, Luftschein violated FINRA Rule 2010.