Securities Industry Commentator by Bill Singer Esq

Remember The Story About The Bernie Sanders Coffee Cup Filled With Feces At Cantor Fitzgerald? (BrokeAndBroker.com Blog)

FINRA Arbitrator Awards Damages to Customer Against Charles Schwab & Co. for IRA Rollover Paperwork Delays

In the Matter of the FINRA Arbitration Between Cynthia Jo Gruchalski, Claimant, v. Charles Schwab & Co., Respondent (FINRA Arbitration Award)

Five Face Federal Charges for Alleged Nationwide Elder Fraud Scam / Group allegedly traveled the country collecting thousands in cash sent by elder victims who were led to believe their relatives were in serious trouble (DOJ Release)

German Attorney Pleads Guilty to Money Laundering / Defendant Laundered More Than $1.1 Million through a Hong Kong Shell Company (DOJ Release)

Popular Instagram Personality Known as "Jay Mazini" Charged with Wire Fraud / Defendant Allegedly Induced Victims to Sell Him Millions of Dollars Worth of Bitcoin Under False Pretenses (DOJ Release)

Jury Convicts Architects Of Scheme To Fraudulently Process Over $150 Million Through U.S. Financial Institutions (DOJ Release)

Coppell Man Pleads Guilty to $24 Million COVID-Relief Fraud Scheme (DOJ Release)

FINRA Fines and Suspends Rep for Using Another Rep's Name and Code

In the Matter of Christopher Nelson, Respondent (FINRA AWC)

FINRA Fines and Suspends Rep for Reviewing Prohibited Study Materials in Testing Center Restroom

In the Matter of Grace M. Casella, Respondent (FINRA AWC)

The FINRA Investor Education Foundation Is A Lonely Hunter (BrokeAndBroker.com Blog)

Schwab Sued Over Allegedly Malfunctioning Order System (BrokeAndBroker.com Blog)

11 Cir Sees No Breach of Contract by Ohio National in Variable Annuity Commissions Lawsuit  (BrokeAndBroker.com Blog)

failed to timely transmit the paperwork for her IRA rollover, resulting in an almost two-month delay in Claimant's ability to access the funds in her account and causing the majority of her account to remain in cash during a market run-up.

Schwab Sued Over Allegedly Malfunctioning Order System (BrokeAndBroker.com Blog / March 23, 2021)

http://www.brokeandbroker.com/5760/schwab-order-system/

It's not just Robinhood. It's not just GameStop. It's not all the fault of Reddit or social media. To the contrary, Wall Street expanded to a point where its operational capacity doesn't keep pace. In the rush to cut commissions, expand online trading, and cater to those eager to "play" the stock market, brokerage firms are frequently overwhelmed by surges in volume or computer outages. Sure, there are times when it's just the nature of technology. More recently, a finger might even be pointed at COVID. But where are the industry's regulators? Where are the consequences for a lack of planning or a lack of funding or a lack of management? In a recent lawsuit against Schwab, a customer raises many of these issues.

[S]ince at least April 2020, the defendants participated in a conspiracy to defraud seniors out of thousands of dollars in cash by convincing them that their relatives were in serious trouble and in dire need of money. The defendants would travel to a city, identify unoccupied residences where overnight packages could be sent, and relay those addresses to their co-conspirators. The co-conspirators would place calls to elderly victims and inform them that their grandchild or other relative had an urgent legal or medical problem and needed money immediately. The caller, who often claimed to be an attorney, police officer, or other authority figure, told the victim to send an overnight delivery of cash-typically between $5,000 and $15,000-to the address the defendants provided. The defendants tracked the overnight package of cash to the address, picked it up shortly after delivery, and then took their cut of the proceeds before sharing it with their co-conspirators. 

To date, investigators have identified numerous victims of the defendants' scheme, who in total have lost over $350,000.

The charges allege that since April 2020 the defendants traveled to at least ten cities in five different states to perpetrate their scheme. In mid-August 2020, they came to Indianapolis, Indiana. After the defendants identified addresses, scam calls were made to at least seven victims, each from different states, who ultimately sent money to Indianapolis.

According to the complaint, one of the victims, age 82, from Crawfordsville, Indiana, was told that her daughter had been in an accident and was in legal trouble because a gun was found in her vehicle. In addition to asking for money, the caller allegedly told the victim that there was a "gag order" in her daughter's case, to prevent the victim from sharing the story with others. In two shipments, the Crawfordsville victim sent a total of $12,500 in cash to the defendants.

Similarly, another of the victims, age 81, from Orleans, Massachusetts, was allegedly told that her grandniece was involved in a vehicle collision that badly injured children in the other vehicle. The caller said he needed $9,000 in cash to be sent immediately to an address in Indianapolis for medical bills and legal fees. The next day, after sending the money, the victim received another call asking for another $9,000. The victim agreed to send the money but happened to speak with her grandniece later that day and learned the caller's story was a scam. The victim contacted law enforcement, which led to the investigation that resulted in today's charges.

[A]n undercover agent ("Undercover Agent") was introduced to Schwarzkopf in October 2019 as someone who would launder money for the Undercover Agent.  In subsequent encrypted communications and in two face-to-face meetings in Monaco and Germany, the Undercover Agent told Schwarzkopf that he was a stock promoter who operated pump-and-dump schemes in which he manipulated the price and trading volume of shares of publicly-traded companies.  Furthermore, the Undercover Agent explained that as part of those schemes, he paid illegal kickbacks to stockbrokers who purchased the shares.  The Undercover Agent advised Schwarzkopf that he wanted him to "create a fog" around those illegal kickbacks in order to disguise the source of the funds before they reached the brokers.  Schwarzkopf agreed to transfer the funds and to falsely characterize the payments as "invoices" or "loan agreements."  Schwarzkopf retained a five percent fee from each transfer, even though he provided no services except to receive funds from the Undercover Agent in the bank account of a Hong Kong-based shell company that he controlled, and then forward those funds to bank accounts in New York.

Between December 29, 2019 and August 2020, Schwarzkopf sent 30 transfers totaling approximately $1,100,784 that he believed were the proceeds of securities fraud from the Hong Kong bank account of his shell company to bank accounts in the United States, earning approximately $57,936 in fees. 

[U]p until March 2021, Igbara, under the name "Jay Mazini," maintained a popular Instagram account with nearly one million followers where he would post videos depicting himself handing out large amounts of cash to individuals as gifts.  Beginning in or around January 2021, Igbara began posting videos to his Instagram account offering to buy Bitcoin from other Instagram users at prices 3.5% to 5% over market value.  Igbara claimed that he was willing to pay above-market prices because the traditional Bitcoin exchanges were limiting how much Bitcoin he could purchase.  When victims agreed to transact in Bitcoin with Igbara, he sent them documents that included images of purported wire transfer confirmation pages that falsely confirmed Igbara had sent a wire transfer for the promised amounts.  In response, the victims supplied Igbara with the Bitcoin, but the promised wire transfers never arrived.  Bank records showed that, as to at least one victim, Igbara did not have funds in the account identified in the wire transfer receipt that were sufficient to cover the wire transfer he had promised to make. 

From in or around 2016 through in or around 2019, AKHAVAN and WEIGAND, working with others, including principals from one of the leading on-demand marijuana delivery companies in the United States (the "Company") planned and executed a scheme to deceive United States banks and other financial institutions into processing over $150 million in credit and debit card payments for the purchase and delivery of marijuana products (the "Scheme").

The Scheme involved the deception of virtually all of the participants in the payment processing network, including issuing banks in the United States (the "Issuing Banks") and Visa and MasterCard.  The primary method used by AKHAVAN, WEIGAND, and other coconspirators to deceive the Issuing Banks involved the purchase and use of shell companies that were used to disguise the marijuana transactions through the use of phony merchants (the "Phony Merchants").  The shell companies were used to open offshore bank accounts with merchant acquiring banks and to initiate credit card charges for marijuana purchases made through the Company.  AKHAVAN and WEIGAND worked with other co-conspirators to create these phony merchant accounts - including phony online merchants purportedly selling dog products, diving gear, carbonated drinks, green tea, and face creams - and established Visa and MasterCard merchant processing accounts with one or more offshore acquiring banks.  They then arranged for more than a dozen Phony Merchants to be used by the Company to process debit and credit card purchases of marijuana products.  Many of the Phony Merchants purported to be based in the United Kingdom, but, despite being based outside the United States, claimed to maintain U.S.-based customer service numbers.

To facilitate the Scheme, webpages were created and deployed to lend legitimacy to the Phony Merchants.  The Phony Merchants typically had web pages suggesting that they were involved in selling legitimate goods, such as carbonated drinks, face cream, dog products, and diving gear.  Yet these companies were actually being used to facilitate the approval and processing of marijuana transactions.  The defendants' scheme even involved fake visits to those websites to make it appear as though the websites had real customers and were operating legitimate online businesses.

The defendants' scheme also involved the use of online tracking pixels.  Because the descriptors listed on Company customers' credit card statements often were the URLs for the Phony Merchant websites, Company customers were sometimes confused and did not recognize the transactions on their credit card statements.  The defendants and their coconspirators were concerned that confused customers would call their Issuing Banks and inadvertently reveal the Scheme by indicating that they had purchased marijuana products and/or that they had made a purchase through the Company.  To lessen the risk that customers would be confused, the defendants used a number of techniques, including online tracking pixels to track which users had visited the Company's website.  If a Company customer had visited the Company's website and went to the URL listed on their credit card statement, they would automatically be re-routed to a webpage connected to the Company so that the customer would understand what the real purchase had been for (i.e., from the Company).  However, in order to hide the Scheme, the defendants ensured that if a third party such as a bank or credit card company investigator visited a URL of a Phony Merchant, they would not be re-routed, and would therefore be unable to discern any connection between the Phony Merchant website and the Company and/or the sale of marijuana products. 

Over $150 million in marijuana credit and debit card transactions were processed using the Phony Merchants.  Some of the merchant websites listed for those transactions included: diverkingdom.com, desirescent.com, outdoormaxx.com, and happypuppybox.com.  Moreover, none of the Phony Merchant website names listed for those transactions referred to the Company or to marijuana.  AKHAVAN, WEIGAND, and others also worked with and directed others to apply incorrect merchant category codes ("MCCs") to the marijuana transactions in order to disguise the nature of those transactions and create the false appearance that the transactions were completely unrelated to marijuana.  Some of the MCCs/categories listed for the transactions included freight carrier, trucking; clock, jewelry, watch, and silverware; stenographic services; department stores; music stores/pianos; and cosmetic stores.            

AKHAVAN was the leader of the transaction laundering scheme and WEIGAND was responsible for overseeing the acquiring bank accounts used by the Phony Merchants and sending the proceeds from the marijuana transactions back to bank accounts in the United States.

admitted that he submitted 15 fraudulent applications, filed under the names of various purported businesses that he owned or controlled, to eight different lenders seeking approximately $24.8 million in PPP loans.

Sah claimed that these businesses had numerous employees and hundreds of thousands of dollars in payroll expenses when, in fact, no business had employees or paid wages consistent with the amounts claimed in the PPP applications.

Sah further admitted that he submitted fraudulent documentation in support of his applications, including fabricated federal tax filings and bank statements for the purported businesses, and falsely listed other persons as the authorized representatives of certain of these businesses without the authority to use their identifying information on the applications.

From February 2019 through May 2019, Nelson entered hundreds of orders for securities transactions, using his name and representative code, in two customer accounts when, in fact, he was not the representative who was responsible for the accounts or who recommended the transactions. As Nelson knew, two other registered representatives of Wynston Hill - Representative A and Representative B - were responsible for those accounts, spoke with the customers, and recommended the securities transactions in question. As Nelson also knew, Representatives A and B had not obtained the relevant state securities registrations in the states where the two customers resided. Nelson entered the orders for the securities transactions recommended by Representatives A and B under his name and representative code in order to conceal the fact that Representatives A and B were conducting securities business on behalf of a customer residing in a state where they were not registered. Nelson and representatives A and B shared commissions earned from the transactions recommended in the accounts in question.  

On August 28, 2020, while associated with Securian, Casella took the Series 7 exam. Prior to beginning the examination, Casella attested that she had read and would abide by the FINRA Test Center Rules of Conduct (the Test Center Rules). The Test Center Rules prohibited the use or possession of certain items, including study materials, in the examination room or during a restroom break and required all such materials to be stored in a locker. During her examination, Casella took an unscheduled break and went to the restroom, where she reviewed her personal notebook containing study materials. Testing center personnel discovered Casella with her notebook but allowed her to submit her responses without changing any answers.  

• Securities Industry Commentator
• Bill Singer