Securities Industry Commentator by Bill Singer Esq

The Mother with an Edward Jones Account and Her Daughter the Edward Jones Branch Administrator (BrokeAndBroker.com Blog)

Maryland Financial Advisor Facing Federal Charges for Stealing a Client's Life Savings / Defendant Allegedly Stole Thousands of Dollars from the Victim and Used the Funds for His Personal Benefit; As a Result of the Fraud, Victim's House Went Into Foreclosure and He Owed the IRS $63,000 (DOJ Release)

High-Level Organizer of Notorious Hacking Group Sentenced to Prison for Scheme that Compromised Tens of Millions of Debit and Credit Cards / Overall Damage to Banks, Merchants, Card Companies, and Consumers Estimated at more than $1 Billion (DOJ Release)

SEC Denies Whistleblower Award

In an Order Determining Whistleblower Award Claim (SEC)

SEC Reopens Comment Period for Universal Proxy (SEC Release)

Second Managing Partner Of Investment Advisory Firm Pleads Guilty To Defrauding Clients And Investors In Over $100 Million Ponzi-Like Fraud Scheme (DOJ Release)

SEC Charges IIG Co-Founder Martin Silver With Fraud (SEC Release)

[B]lizzard held several licenses that allowed him to operate as a registered broker and a registered investment adviser per the Financial Industry Regulatory Authority ("FINRA").  From 2003 to 2014, Blizzard was employed by a bank securities company (Bank 1) and from 2014 to 2017 he was employed by a bank investment services company (Bank 2), both in Maryland.   

As detailed in the affidavit, victim R.M. was a resident of Maryland and was 75 years old in January 2020.  On December 12, 2019, R.M. was interviewed as part of this investigation.  R.M stated to investigators that beginning in 1963, R.M. went to work for a Baltimore based commercial air-conditioning company, where he enjoyed a successful career installing commercial grade air conditioning units around the country.  R.M. told investigators he routinely worked approximately 15 to 30 hours of overtime per week during his career to make extra money.  In 2003, after approximately 40 years of service with the air conditioning company, R.M. took a buyout and retired.  Six months later, R.M. decided to invest his retirement funds in order to provide an inheritance for his grandchildren.  R.M. sought investment advice from Bank 1, where he had his depository accounts.

Blizzard began working at Bank 1 shortly after R.M. began investing there and became R.M.'s financial adviser.  R.M. allegedly told investigators that in about 2005, Blizzard "went on his own" meaning that Blizzard began working as an independent financial advisor and asked R.M. if R.M. wanted to leave Bank 1 and use Blizzard as a full-time financial advisor.  Blizzard allegedly told R.M. that it would be a while before he had his own office, but he would continue to work out of the Bank 1 branch in Catonsville, Maryland.  A review of publicly available FINRA records shows that Blizzard never went to work as an independent financial advisor.  As detailed in the affidavit, approximately once a month, R.M. would drive from his new home in Chester, Maryland on the Eastern Shore to meet with Blizzard at Bank 1 in Catonsville, approximately one hour away; however, R.M. and Blizzard would meet in Blizzard's car, not the office.  These meetings lasted 30-45 minutes and R.M. was never told why they were meeting in Blizzard's car. 

In approximately 2010, the affidavit alleges that, at Blizzard's request, R.M. gave Blizzard 15-20 signed blank checks, which Blizzard used.  According to the affidavit, R.M. did not know what the checks were for, but recognized Blizzard's handwriting when he received the cancelled checks in the mail.   During the years of investment with Blizzard, R.M. stated that he believed his retirement funds were protected, meaning they would not lose value - a fact that was allegedly told to R.M. numerous times by Blizzard and Blizzard's wife.  R.M. also believed that his mortgage was being paid by Blizzard.   

The affidavit alleges that on approximately 12 different instances, R.M. went to his local bank to withdraw cash and was told there was not enough money in the account.  R.M. would then call Blizzard to let him know about the deficiency.  Blizzard allegedly would then tell R.M. to wait a day or two and there would be funds in the account to withdraw. 

In August 2019, R.M. was preparing to go on a family vacation and attempted to withdraw $1,000 to $1,500 in cash from the local Bank 1 branch and was told there were not sufficient funds in the account.  R.M. attempted to contact Blizzard on his cell phone for a week with no response.  R.M. then went to Blizzard's Perry Hall, Maryland residence to talk to Blizzard in person, knocking on the front and back doors of Blizzard's residence.  No one came to the door, but according to the affidavit R.M. received a voicemail from Blizzard, while he was still at Blizzard's home.  In the voicemail, Blizzard allegedly stated that the neighbors had called him and were complaining about the banging on the door.  As detailed in the affidavit, Blizzard further explained that all of R.M.'s money was gone. 

According to the affidavit, a review of R.M.'s depository and investment accounts showed that between January 2013 and August 2019 there were a total of 242 distributions totaling approximately $1.4 million from R.M.'s retirement accounts. Of those, 129 distributions totaling $1.2 million were specifically requested from R.M.'s retirement accounts instead of being regular systematic annuity payments. After taxes and fees were deducted from those requested payments, approximately $1 million was deposited into R.M.'s Bank 1 account.  This review allegedly also revealed that from April 2016 to April 2019 Blizzard deposited approximately 112 checks drawn on R.M.'s account into various bank accounts at Bank 1 and elsewhere that were held by Blizzard jointly with his wife or individually.  These checks totaled approximately $848,000 and were written to Blizzard or Blizzard's wife.  A review of these checks showed that almost all had comments written on the memo section indicating various purposes such as payment of property taxes, construction, boat payments, and down payments for a new house.  

In addition, the affidavit alleges that R.M. received a letter from the IRS, which he turned over to Blizzard as Blizzard had instructed.  R.M.'s relatives later determined that R.M. owed approximately $63,000 in federal income tax due to disbursements from R.M.'s retirement accounts that were allegedly stolen by Blizzard.  In the fall of 2019, R.M.'s home was put into the foreclosure process because of lack of payment which R.M. allegedly thought was being handled by Blizzard.  R.M. died on March 20, 2020.

[S]ince at least 2015, members of FIN7 (also referred to as Carbanak Group and the Navigator Group, among other names) engaged in a highly sophisticated malware campaign to attack hundreds of U.S. companies, predominantly in the restaurant, gambling, and hospitality industries. FIN7 hacked into thousands of computer systems and stole millions of customer credit and debit card numbers that were then used or sold for profit. FIN7, through its dozens of members, launched waves of malicious cyberattacks on numerous businesses operating in the United States and abroad. To execute its scheme, FIN7 carefully crafted email messages that would appear legitimate to a business' employees, and accompanied emails with telephone calls intended to further legitimize the emails. Once a file attached to a fraudulent email was opened and activated, FIN7 would use an adapted version of the Carbanak malware, in addition to an arsenal of other tools, to access and steal payment card data for the business's customers. Since 2015, many of the stolen payment card numbers have been offered for sale through online underground marketplaces.

In the United States alone, FIN7 successfully breached the computer networks of businesses in all 50 states and the District of Columbia, stealing more than 20 million customer card records from over 6,500 individual point-of-sale terminals at more than 3,600 separate business locations.  According to court documents, victims incurred enormous costs that, according to some estimates, totaled billions of dollars. Additional intrusions occurred abroad, including in the United Kingdom, Australia, and France. Companies that have publicly disclosed hacks attributable to FIN7 include such chains as Chipotle Mexican Grill, Chili's, Arby's, Red Robin, and Jason's Deli.  

Hladyr originally joined FIN7 via a front company called Combi Security - a fake cyber security company that had a phony website and no legitimate customers. Hladyr admitted in his plea agreement that he soon realized that, rather than a legitimate company, Combi was part of a criminal enterprise. Hladyr served as FIN7's systems administrator who, among other things, played a central role in aggregating stolen payment card information, supervising FIN7's hackers, and maintaining the elaborate network of servers that FIN7 used to attack and control victims' computers. Hladyr also controlled the organization's encrypted channels of communication.

(1) Claimant did not qualify as a whistleblower under Exchange Act Rules 21F-2(a)(1)-(2) since Claimant did not submit information about a possible securities law violation in the form and manner required by Exchange Act Rules 21F-9(a)-(b);4 and (2) the information that Claimant later submitted to the Commission did not lead to the successful enforcement of the Covered Action under Exchange Act Rule 21F-4(c)(1)-(2).

[C]laimant did not submit *** tip to the Commission until Redacted after the Commission filed its complaint in the Covered Action, and more than two years after he Enforcement staff opened its investigation of the Company Redacted. Indeed, by the time Claimant filed * * * tip on Redacted, the staff had already completed its investigative work, and the tip did not provide the staff with any new or useful information that assisted the Commission in obtaining judgments in the Covered Redacted Action. Claimant does not dispute that Claimant's Redacted tip was not new information to the staff. Accordingly, Claimant did not provide information to the Commission that led to the success of the Covered Action and, therefore, Claimant is not eligible to receive a whistleblower award.

[F]rom October 2013 to at least July 2018, Silver, the co-founder and chief operating officer of IIG, a formerly registered investment adviser, defrauded IIG's investment advisory clients by, among other things, grossly overvaluing the assets in IIG's flagship hedge fund. As alleged, the overvaluation of these assets resulted in the fund paying inflated fees to IIG, some of which went to Silver.  The complaint further alleges that Silver falsely reported to investors that certain fake and overvalued loan assets that IIG sold between funds it advised were legitimate assets and were fairly valued.

The complaint, filed in the U.S. District Court for the Southern District of New York, charges Silver with violating the antifraud provisions of Section 17(a) of the Securities Act of 1933, Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder, and Sections 206(1) and 206(2) of the Investment Advisers Act of 1940. Silver, who is cooperating with the SEC, consented to a bifurcated settlement, agreeing to be permanently enjoined from violations of the charged provisions, with monetary relief in an amount to be determined by the court at a later date upon motion of the Commission.

On March 30, 2020, the SEC obtained a final judgment on consent enjoining IIG from violating the antifraud provisions of the federal securities laws and requiring IIG to pay more than $35 million in disgorgement and prejudgment interest. The SEC also previously charged other individuals for their roles in IIG's fraud. On July 17, 2020, the SEC charged IIG co-founder David Hu with violations of the antifraud provisions of the federal securities laws. On February 1, 2021, the court entered a partial judgment against Hu enjoining him from violating the charged provisions, and on February 4, 2021, the SEC imposed an associational bar on Hu. The SEC instituted settled administrative proceedings on July 22, 2020, against Carlos Cano, a former IIG employee, for aiding and abetting IIG and Hu's violations. The settled order against Cano imposed a cease-and-desist order, an associational bar, and a $300,000 civil penalty. On December 22, 2020, the SEC charged Charles Samel, a former IIG consultant with aiding and abetting IIG's violations.

• Securities Industry Commentator
• Bill Singer