Securities Industry Commentator by Bill Singer Esq

PIABA Wants Live FINRA Arbitrations And Wants It Now (BrokeAndBroker.com Blog)

SEC Charges Previously-Barred Broker with Defrauding Investors in a Pre-Ipo Investment Scheme (SEC Release)

Santa Clarita Valley Man Sentenced to 7 Years in Prison for $4 Million Con Where Clients Were Falsely Promised Government Grants (DOJ Release)

FINRA Fines and Suspends Rep for OBA, Trading Discretion, and Mismarking Trades

In the Matter of Kevin D. Barton, Respondent (FINRA AWC)

Brokerage Firm's Third-Party Complaint Against Its Former CEO Remanded to FINRA Arbitration (BrokeAndBroker.com Blog)

140 Victims Lost Millions In Investment Using Nanotech to Turn Dirt Into Gold (BrokeAndBroker.com Blog)

[I]n the summer of 2019, Peter R. Quartararo of Hicksville, New York, a former broker who had previously been barred by FINRA, began soliciting investors to invest through him in shares of several "unicorn" companies, including Peloton Interactive, Inc. and Airbnb, Inc., which were expected to increase in value when those companies completed their IPOs. The complaint alleges that, over the next several months, Quartararo convinced at least four investors to invest a total of $436,000 in the purported pre-IPO shares. According to the complaint, Quartararo never purchased or held any pre-IPO shares in these companies on behalf of the investors. Instead, Quartararo stole the funds and used them for his own personal benefit, including for payments on a Maserati, and for the benefit of the four relief defendants: his father, Leonard Quartararo; his girlfriend, Lisa Eckert; his business associate, Paul Casella, a convicted felon and former broker who was also barred by FINRA; and Casella's company, Private Equity Solutions, Inc.

was sentenced by United States District Judge Stanley Blumenfeld Jr., who said Montalban "exploited human frailty" in conducting his fraud. Judge Blumenfeld said the criminal conduct in this case was "despicable, cruel and callous," and it caused "devastating effects on numerous victims." 

From 2013 to September 2020, Montalban, who held himself out as an accountant and tax preparer, asked some of his clients to invest in a federal grant program he called "Suppressed IRS Accounts." Montalban told his clients that if they paid him in cash, the federal government would issue them grants many times larger than what they paid. In reality, no such grant program existed.

In furtherance of the scheme, a co-conspirator made counterfeit Treasury checks payable to the victim clients for tens of millions of dollars, which Montalban used as props to entice the victims to pay him. Montalban explained to the victims that they had to pay him in cash to protect the federal grant program's secrecy.

After his victims paid him, Montalban made up excuses as to why the Treasury checks had been delayed, and tricked the victims into paying him more money, purportedly for expenses necessary to overcome the obstacles to their checks' issuance.

"[Montalban] would promise his victims a huge windfall from the government in exchange for a modest payment up front to [Montalban] in cash," prosecutors wrote in their sentencing memorandum. "Because the windfall was a fraud, each purported difficulty overcome by an additional cash payment had to lead to yet another difficulty, requiring yet another cash payment. [Montalban] repeated this process until he had bled his victims dry, or they realized they had been defrauded and stopped paying him."

In December 2016, Barton signed an employment agreement with "ZM," a California corporation, and was its sole employee. His duties included marketing of financial products and services. For tax years 2017 through 2019, Barton was paid $60,000 per year by ZM. Barton failed to timely disclose this outside business activity to the firm. He omitted it from a disclosure form he completed in December 2017, and only disclosed it to the firm in November 2018, approximately 22 months after his employment began. The firm later approved the activity.

. . . 

From June 2016 to May 2019, on approximately 15 days, Barton exercised discretion without prior written authorization in four fee-based accounts maintained by four customers, including two seniors. The customers conveyed oral authorization to Barton to exercise discretion in their accounts, and none complained about the trading. However, the customers did not provide written authorization for Barton to exercise discretion nor did they always speak with Barton on the days he effected trades in their accounts. The firm's policies prohibited discretionary trading without prior written approval from the client and firm. Barton never requested or obtained approval from the firm to exercise discretion in the customers' accounts. 

. . .

From June 2016 to May 2019, in the same four customer accounts, Barton marked approximately 80 order tickets as unsolicited when the trades were solicited as a result of his exercising discretion in these accounts. None of the customers complained about the trades. 

• Securities Industry Commentator
• Bill Singer