Securities Industry Commentator by Bill Singer Esq

SEC Charges Additional Four Unregistered Brokers Who Sold $24 Million in 1 Global Securities to Retail Investors (SEC Release)

Birmingham Business Pleads Guilty to Wire Fraud (DOJ Release)

Acton Investment Advisor Sentenced for Stealing More Than $3.7 Million of Clients' Funds (DOJ Release)

Securities Commissioner Stops Another Online Forex and Cryptocurrency Scam (TSSB Release)

FINRA Fines and Suspends Rep for PST

In the Matter of Tonya Nicole Smoake, Respondent (FINRA AWC)

FINRA Fines and Suspends Associated Person Four Unauthorized Study Materials

In the Matter of Carlos Sosa, Respondent (FINRA AWC)

Every Vote Counts: The Importance of Fund Voting and Disclosure (SEC Speech by Acting Chair Lee)

CFTC Acting Chairman Behnam Establishes New Climate Risk Unit / Interdivisional Group Will Focus on Derivatives Markets' Role in Addressing Climate-Related Risk and Transitioning to Low-Carbon Economy (CFTC Release)

FINRA Charges Operations Professional $5,000 for Sushi (BrokeAndBroker.com Blog)

The Grandfather FINRA OBA Paradox (BrokeAndBroker.com Blog)

The Securities and Exchange Commission today announced charges against an additional four individuals for unlawfully selling securities of 1 Global Capital, LLC, a South Florida merchant cash advance company, to retail investors. The SEC previously charged 1 Global, its owner, and others with operating a fraudulent scheme to misappropriate millions of dollars from at least 3,600 investors. The SEC also previously charged 1 Global's largest sales agent and three other top revenue-producing sales agents for various registration violations.

The SEC's complaints allege that the four individual defendants were among 1 Global's top revenue producers, cumulatively selling more than $24 million of 1 Global's unregistered securities to numerous retail investors. According to the complaints, the defendants marketed 1 Global securities to investors as a safe and secure alternative to the stock market, baselessly claimed that the investments would achieve high single-digit or low double-digit annual returns, and earned hundreds of thousands of dollars in commissions on their sales, even though they were not registered as broker-dealers or associated with registered broker-dealers.

[I]n June 2016, Gjonaj believed he had discovered a guaranteed way to win huge jackpots in the Michigan Lottery Daily 3 and 4 games. To accomplish this he had to substantially increase the times he played and amounts he spent. In 2017, Gjonaj began losing more money than he won and more money than he could afford to lose. Rather than ending his gambling, Gjonaj devised a scheme to trick individuals into giving him money by falsely promising them he would invest it in lucrative real estate deals. In order to make the deals look legitimate, Gjonaj created a fake title company and instructed the victim-investors to wire transfer money into the bank account of the fake company. Gjonaj described the fraudulent real estate deals in great detail and encouraged victim-investors to continue giving him money by disbursing payments to them which he falsely claimed were profits on their "investment." By early 2019, Gjonaj was betting over $1 million a week on Michigan Lottery games using money fraudulently obtained from victims. In August 2019, Gjonaj's scheme to defraud unraveled resulting in over $19 million in losses to victims.  

As part of the plea agreement with the government Gjonaj acknowledges that his scheme to defraud and to obtain money by means of false and fraudulent pretenses and representations victimized numerous individuals and that their losses will be included as relevant conduct in calculating his sentencing guidelines, and by the court in ordering restitution.

Eaton was a certified financial planner, doing business under the name Heritage Financial Group, with an office in Acton. In that capacity, Eaton invested his clients' funds in securities and various insurance products, including life insurance policies and annuities. From at least 1999 through October 2019, Eaton stole millions of dollars from clients' accounts. He did so primarily by selling securities, insurance policies and annuities in clients' accounts, and causing the proceeds to be sent to accounts he owned or controlled.

As part of his scheme, Eaton forged clients' signatures on checks and documents, or caused clients to sign documents by falsely representing that the proceeds of transactions would be used for the clients' benefit. Eaton also falsely represented to the brokerage firm with which he was affiliated, and to insurance companies, that the transactions he requested on his clients' behalf were for the benefit of those clients. In fact, Eaton caused proceeds to be sent to his own credit card accounts to pay his personal and family expenses, and to his home equity line of credit. In order to avoid detection, Eaton defrauded clients he knew were unlikely to notice what he had done, either because they were elderly or in poor mental or physical condition.

[D]ailyForex247 and Wardag are not registered to sell securities in Texas, and the securities are not registered or permitted for sale in Texas. 

Still, DailyForex247 has allegedly been misleading investors with claims of licensure.  For example, DailyForex247 is accused of falsely claiming it is registered with the United States Securities and Exchange Commission. DailyForex247 is also allegedly representing its brokerage firm is registered with the International Financial Market Relations Regulation Center - but this organization is not a regulatory agency for any government and does not provide licensure for parties offering or selling securities in Texas. 

"This action reflects the importance of conducting thorough due diligence and independently verifying the registration of online promoters," said Commissioner Iles.  "Bad actors often try to add legitimacy to their schemes by misrepresenting their licensure.  Investors should check and corroborate any claims that online investment platforms are registered to deal in securities."

The order also accuses DailyForex247 of publishing phony testimonials of satisfied clients - a tactic online investment platforms may also use to falsely bolster their legitimacy.

From April to September 2017, Respondent facilitated approximately $850,000 in investments from four investors in a registered investment advisor (the RIA), which raised capital through a securities offering pursuant to Regulation D of the Securities Act of 1933. In addition, from September 2018 to January 2019, Respondent facilitated approximately $780,000 in investments from eight investors in the RIA's holding company, which also raised capital through a securities offering pursuant to Regulation D of the Securities Act of 1933. Respondent was the chief operations officer of the RIA at the time of these offerings. She was involved in the RIA and the offerings by the RIA's chief executive officer. To facilitate the investments, Respondent distributed offering documents to the investors, gathered signed documents from investors, answered investor questions, and coordinated investor payments. Respondent did not receive any commissions from the sale of the securities. None of the investors were firm customers. 

In March 2017, Respondent disclosed her role at the RIA to the firm. However, she did not provide prior written notice to the firm of her participation in the securities offerings described above. 

In addition, in November 2017 and November 2018, Respondent inaccurately certified on the firm's annual compliance questionnaires that she was not involved in any private securities transaction that had not been previously disclosed to the firm. 

On November 13, 2019, Sosa took the Series 7 General Securities Representative exam at a testing center. Prior to beginning the exam, Sosa agreed to the FINRA Qualification Examinations Rules of Conduct, which among other things, prohibits the use or attempted use of personal notes and study materials during the exam. The Rules of Conduct also require candidates to "store all personal items in the locker provided by the test vendor prior to entering the test room." Upon Sosa's return from an unscheduled break, he was found in possession of unauthorized study materials. By possessing unauthorized materials during a qualification exam, Sosa violated FINRA Rules 1210.05 and 2010

[C]ongress empowered the SEC in 1934 to engage in rulemaking on the solicitation of proxies, and as you all know, the Commission and its staff have revisited this and other related proxy voting issues a number of times since. Today, I want to explain why proxy voting deserves our continued focus.

A New Reality Regarding Proxy Voting

There are two key trends that have brought us to our current posture and which necessitate updates to our rules and guidance to reflect a new reality regarding proxy voting and corporate governance. First, is the growth in households invested in funds.  It is estimated that in 2020, nearly 47% of US households owned funds, up from 6% in 1980. So retail investors today are increasingly relying on index funds to vote in annual corporate elections - making funds' proxy voting practices more important than ever to our collective economic future.

A second key trend is the soaring demand for opportunities to invest in vehicles with ESG strategies.  Millennials, in particular, are increasingly attuned to the specific ways in which funds and companies utilize their money, and their influence will only grow.  We will soon see the largest wealth transfer in history as some $24 trillion makes its way from baby boomers to millennials. ESG funds are attracting investors at a record pace, and this appears to have only accelerated during the Covid-19 pandemic.  Global sustainable funds saw inflows of approximately $45.7 billion, while the larger fund universe had outflows of $384.7 billion in the first quarter of 2020. What has become clear is that a growing pool of investors, including smaller retail investors, are interested in the implications of their investments, in addition to, or as part and parcel of their financial returns. Those investor interests vary widely from a focus on the safety conditions of company employees, to prioritization of investment choices around a company's carbon footprint. 

But a new landscape emerges as we consider these two trends together. That is, the rise of passive index funds, which has benefited retail investors in so many ways, may operate to the detriment of corporate accountability - and on ESG matters in particular - especially given that our rules have not kept up with these developments.[9] We know investors are demanding ESG investment strategies and opportunities, but funds may not always reflect those investor preferences in their voting. Addressing this agency cost is at the heart of corporate governance today, and that is why it is critical that we at the SEC - along with all of you in this virtual room -- focus more attention on fund and adviser voting duties and disclosure.

[T]he CRU represents the agency's next step in response to what has become a global call to action on tackling climate change. The CRU is intended to accelerate early CFTC engagement in support of industry-led and market-driven processes in the climate-and the larger ESG-space critical to ensuring that new products and markets fairly facilitate hedging, price discovery, market transparency, and capital allocation.

• Securities Industry Commentator
• Bill Singer