Securities Industry Commentator by Bill Singer Esq

Dramatic Lawsuit Filed Against Robinhood by Family of Deceased Young Adult Trader

Dan Kearns; Dorothy Kearns; and Sydney Kearns, Plaintiffs, v. Robinhood Financial LLC; Robinhood Securities LLC; Robinhood Markets, Inc.; and Does 1-10, Defendants (Complaint) FULL TEXT

South Korean boy investor with 43% gains is new retail trading icon (Reuters.com by Cynthia Kim)

Schottenstein Family Affair Yields About $20 Million FINRA Arbitration Award (BrokeAndBroker.com Blog)

SEC Initial Decision Sanctions Improper Professional Conduct by CPAs

In the Matter of Anton & Chia, LLP, Gregory A. Wahl, CPA, Michael Deutchman, CPA, Georgia Chung, CPA, and Tommy Shek, CPA (SEC ALJ Initial Decision)

Maple Grove Investment Advisor Charged With Defrauding Clients Out Of More Than $2.2 Million (DOJ Release)

Former Phone Company Employee Charged For Role in Sim Swap Scam That Targeted At Least 19 Customers, Including New Orleans Resident (DOJ Release)

1. "How was a 20-year-old with no income able to get assigned almost $1 million worth of leverage?" These were the last known written words of 20-year-old Alex Kearns before he rode his bicycle to a railroad crossing and ran in front of an oncoming train. The only ones with the answer to Alex's question are Defendants . . . that offers a mobile app and website where virtually anyone who knows how to fill out a form asking about their name, age, and source of income (regardless of what that income may be) can invest in stocks, ETFS, and options, regardless of their proficiency, experience, or the amount of money in their bank account.

. . .

12. As Robinhood would have it, it could lure unsuspecting individuals to use its trading platform and "play with" hundreds of thousands of dollars in leveraged money, regardless of the suitability of such trades, all the while ignoring its obligation to provide a safety net of any sort, or even a customer support services where actual humans answer the phone or respond to emails.

13. But this is not a game. Defendants' reckless conduct directly and proximately caused the death of one of its victims. The distress, and the suicide, of this victim was foreseeable. Indeed, it was almost inevitable that an event like this would occur as a result of such reckless behavior. Defendants cannot escape the consequences of their actions; they must be held accountable, not only to satisfy the demands of justice, but to discourage such flagrantly irresponsible actions by themselves. and others.

In 2020, we should consider the explosion in daytrading that has been fueled by Zero Commission app-based trading amid the COVID pandemic. There are too many inexperienced traders sitting at home "playing" the market and sliding down the slippery slope of financial suicide. Will the unlearned lessons of the past and some of the more lurid headlines of recent weeks prompt sensible, effective regulation? Likely not because such efforts tend to be eviscerated by powerful and influential Wall Street participants. It's not a new story or a surprising outcome. It is, however, a sad turn of events and a dispiriting way to regulate. 

Watching the business news first thing is a new routine for 12-year-old South Korean Kwon Joon, as he dreams of becoming the next Warren Buffett after earning stellar returns of 43% from a hobby picked up just last year: buying stocks.

This case involves multiple violations of the federal securities laws and improper professional conduct by accountants associated with Anton & Chia, LLP, an audit firm registered with the Public Company Accounting Oversight Board (PCAOB). The misconduct relates to audit or interim review engagements for three companies: Accelera Innovations, Inc., Premier Holding Corporation, and CannaVEST Corp. 

Respondent Gregory A. Wahl, CPA, was majority owner and managing partner of Anton & Chia, and served as the engagement partner for Accelera's 2013 and 2014 year-end audits and five interim reviews from the first quarter of 2014 through the third quarter of 2015 (with the exception of the third quarter 2014 review, in which he was not involved), Premier's 2013 year-end audit, and CannaVEST's 2013 interim reviews. Respondent Michael Deutchman, CPA, was an audit partner at Anton & Chia and served as the engagement partner during the interim review of Accelera for the third quarter of 2014 and engagement quality reviewer for Accelera's 2014 year-end audit and the interim reviews for 2015.2 Respondent Georgia Chung, CPA, co-owned Anton & Chia with Wahl and served as the engagement quality reviewer for CannaVEST's first quarter of 2013 interim review. 

Accelera vastly inflated its financial position and results by treating another company's revenues, assets, and liabilities as its own. Premier inflated and provided an unsupported valuation of an otherwise worthless promissory note and further improperly allocated the entire purported value of an acquired company to goodwill. CannaVEST greatly overstated its assets due to its improper valuation of an acquired company. In performing the audits or interim reviews of these companies, Respondents egregiously deviated from multiple PCAOB standards3 and ignored numerous red flags indicating the companies' financial statements and public filings contained material misstatements. Moreover, Wahl and Deutchman were reckless in not knowing that the statements in Anton & Chia's reports for Accelera and Premier were false and misleading. In its audit reports, the firm egregiously misrepresented that it had conducted its work in accordance with PCAOB standards and that the companies' financial statements fairly presented their financial positions according to generally accepted accounting principles (GAAP). 

In connection with work related to Accelera, Deutchman aided and abetted Anton & Chia's violation of Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5(b)'s antifraud provisions; Wahl and Deutchman aided and abetted and were a cause of Accelera's violation of Exchange Act Section 13(a) and Rules 13a-1 and 13a-13's requirement that an issuer file accurate reports; Wahl and Deutchman aided and abetted and were a cause of Anton & Chia's violation of Rule 2-02(b) of Regulation S-X due to the misrepresentations in the firm's reports; and Wahl and Deutchman willfully violated or willfully aided and abetted violations of the federal securities laws or rules within the meaning of Exchange Act Section 4C(a)(3) and Rule 102(e)(1)(iii) of the Commission's Rules of Practice, and engaged in improper professional conduct within the meaning of Section 4C(a)(2) and Rule 102(e)(1)(ii).

In connection with his work related to Premier, Wahl violated Exchange Act Section 10(b) and Rule 10b-5(b), aided and abetted Anton & Chia's violations of Section 10(b) and Rule 10b-5(b), aided and abetted and was a cause of Premier's violation of Exchange Act Section 13(a) and Rule 13a-1, aided and abetted and was a cause of Anton & Chia's violation of Rule 2-02(b) of Regulation S-X, willfully violated or willfully aided and abetted violations of the federal securities laws or rules within the meaning of Section 4C(a)(3) and Rule 102(e)(1)(iii), and engaged in improper professional conduct within the meaning of Section 4C(a)(2) and Rule 102(e)(1)(ii). 

In connection with their work related to CannaVEST, Wahl and Chung engaged in improper professional conduct within the meaning of Section 4C(a)(2) and Rule 102(e)(1)(ii). 

The following sanctions are warranted in the public interest: cease-and-desist orders against Wahl and Deutchman; $160,000 in civil penalties against Wahl and $40,000 against Deutchman; Wahl and Deutchman are permanently denied the privilege of appearing or practicing before the Commission as accountants, and Chung is denied the privilege of appearing or practicing before the Commission as an accountant with the right to reapply after one year.

[G]OODMAN was a registered investment advisor and broker who owned Becoming Financial Group, Inc., and Becoming Financial Advisory Services L.L.C. GOODMAN also owned and operated MoneyVerbs, a business that claimed to provide customers with financial guidance through an internet-based app. Through Becoming Financial Group, Inc., and Becoming Financial Advisory Services L.L.C., GOODMAN represented that he would provide his clients with financial planning and investment advice, including purporting to place his clients' savings and retirement funds into financial accounts that GOODMAN claimed were safe, secure, and profitable.

According to the allegations in the information, from at least 2017 through November 2020, GOODMAN defrauded at least 23 of his investor clients out of approximately $2,250,123. As part of his scheme to defraud, GOODMAN lied to prospective and existing clients about his use of their money, the security and profitability of the financial accounts he claimed to administer on their behalf, and the status and performance of their funds. During in-person sales pitches or through email messages and phone calls, GOODMAN provided clients with materially false and fraudulent information, including investment proposals and bogus online account information. GOODMAN also misrepresented to clients that their funds would be returned to them upon request, when, in fact, GOODMAN either kept all of the money or provided investors with refunded payments that were late, incomplete, or both, or that were refunds actually funded by other clients' money.

According to the allegations in the information, instead of placing his clients' money into safe and secure investment accounts, GOODMAN deposited client funds into bank accounts he controlled. GOODMAN misappropriated his clients' funds for his own use and benefit by, among other things, purchasing and remodeling his home in Maple Grove, using funds for the purchase and construction of a $1.69 million home in Plymouth, buying a 2019 Ford Expedition and a 2020 Ford Explorer, funneling approximately $700,000 toward his other business, MoneyVerbs, and paying for personal expenditures, including a hot tub, a cruise, fitness club memberships, jewelry, and credit card payments.

From August 2017 until November 2018, DEFIORE worked as a sales representative for Phone Company A.  In that capacity, DEFIORE had access to the accounts of Phone Company A's customers, including the ability to switch the subscriber identification module (SIM) card linked to a customer's phone number to a different phone number.  Between October 20, 2018, and November 9, 2018, DEFIORE accepted multiple bribes, typically in the amount of approximately $500 per day, to perform SIM swaps of Phone Company A customers identified by a co-conspirator.  For each SIM swap, a co-conspirator sent DEFIORE a customer's phone number, a four-digit PIN, and a SIM card number to which the phone number was to be swapped.  In total, DEFIORE received approximately $2,325 in a series of twelve payments.  Among the individuals whose accounts DEFIORE accessed was Victim A, a New Orleans resident, who phone number was swapped on November 10, 2018, to a SIM card contained in an Apple iPhone 8 that was in the possession of Richard Li.  Li was charged with his role in the offense in June 2020.

• Securities Industry Commentator
• Bill Singer