The Wall Street Legal & Regulatory Feed
Securities Industry Commentator by Bill Singer Esq
June 4, 2021
Former Senior FinCEN Employee Sentenced To Six Months In Prison For Unlawfully Disclosing Suspicious Activity Reports / Natalie Mayflower Sours Edwards Repeatedly Transmitted SARs and Other Sensitive Government Information to A Reporter (DOJ Release)
https://www.justice.gov/usao-sdny/pr/former-senior-fincen-employee-sentenced-six-months-prison-unlawfully-disclosing
Former Senior Advisor at the Treasury Department's Financial Crimes Enforcement Network ("FinCEN") Natalie Mayflower Sours Edwards a/k/a "Natalie Sours," a/k/a "Natalie May Edwards," a/k/a "May Edwards," pled guilty in the United States District Court for the Southern District of New York to conspiracy to disclose Suspicious Activity Reports ("SARs"), and she was sentenced to six months in prison plus three years of supervised release. As alleged in part in the DOJ Release:
Beginning in approximately October 2017, and lasting until her arrest in October 2018, EDWARDS agreed to and did unlawfully disclose numerous SARs to a reporter ("Reporter-1"), the substance of which were published over the course of approximately 12 articles by a news organization for which Reporter-1 worked. The illegally disclosed SARs pertained to, among other things, Paul Manafort, Richard Gates, the Russian Embassy, Maria Butina, and Prevezon Alexander. EDWARDS had access to each of the pertinent SARs and saved them-along with thousands of other files containing sensitive government information-to a flash drive provided to her by FinCEN. She transmitted the SARs to Reporter-1 by means that included taking photographs or images of them and texting the photographs or images to Reporter-1 over an encrypted application. In addition to disseminating SARs to Reporter-1, EDWARDS sent or described to Reporter-1 internal FinCEN emails or correspondence appearing to relate to SARs or other information protected by the BSA, and FinCEN non-public memoranda, including Investigative Memos and Intelligence Assessments published by the FinCEN Intelligence Division, which contained confidential personal information, business information, and/or security threat assessments.
https://www.justice.gov/usao-wdtx/pr/swindler-sentenced-federal-prison-68m-securities-fraud-scheme
Christopher Matthew Meredith, 45,pled guilty in the United States District Court for the Western District of Texas to one count of securities fraud, and he was sentenced to 14 years in prison plus three years of supervised release, and ordered to pay $6,820,510.50 in restitution. As alleged in part in the DOJ Relese:
[M]eredith solicited investors for his company, Strategic Pharma, Inc. (SPI), under false pretenses from January 2015 to March 2017. Meredith told investors that SPI had agreements, business operations, money and assets, knowing this was false. For example, Meredith intentionally told investors that SPI had entered into agreements with the Department of Veterans Affairs (VA) and Biopharma Services, Inc. that would result in substantial revenue for SPI. Meredith created a counterfeit VA contract and showed it to investors to prop up his lie. Meredith also failed to disclose to his investors that he was under investigation for a similar investment fraud scheme in Florida where he eventually pleaded guilty to felony grand theft. Meredith persuaded investors to give him money in return for shares of SPI stock. Then he used investor funds for his own personal benefit, including the purchase of a home, and for the benefit of his relatives and associates.
Federal Court Orders Florida Man to Pay More than $500,000 for Attempting to Fraudulently Profit From COVID-19 / CFTC Wins Its First Enforcement Action Targeting Misconduct Directly Tied to COVID-19 (CFTC Release)
https://www.cftc.gov/PressRoom/PressReleases/8393-21
The United States District Court for the Western District of Texas entered an order granting the CFTC's motion for default judgment against James Frederick Walsh. The Order requires Walsh to pay a civil monetary penalty of $555,726 and permanently enjoins him from engaging in conduct that violates the Commodity Exchange Act, from registering with the CFTC, and from trading in any CFTC-regulated markets.
- Complaint: https://www.cftc.gov/media/5961/enfjameswalshcomplaint070720/download
- Order: https://www.cftc.gov/media/5946/enfjameswalshorder052421/download
- Default Judgement
https://www.cftc.gov/media/5956/enfjameswalshjdefaultjudgement052421/download
[F]rom at least September 2019 to the July 2020, Walsh fraudulently solicited members of the public for the purported purpose of trading retail foreign currency (forex) on their behalves. Using primarily social-media platforms, Walsh fraudulently marketed himself to the public as a highly successfully forex trader who earned "average monthly returns of 8% - 11%" or "a flat 3% guaranteed profit each month" for his clients. To achieve these fictitious results, Walsh falsely claimed to have access to "legal, inside information" about the direction in which forex markets will move. As alleged, Walsh had no U.S.-based forex trading accounts.The complaint further alleged that, after he received a cease and desist letter from the Texas State Securities Board related to his fraudulent solicitations, Walsh falsely represented that he was earning even greater trading profits now that the COVID-19 pandemic had impacted the financial markets, claiming that "the returns in forex continue to grow as the rest of the financial world continues to suffer."
Order Determining Whistleblower Award Claim (Release No. 34-92102; File No. 2021-58)
https://www.sec.gov/rules/other/2021/34-92102.pdf
The SEC's Claims Review Staff ("CRS") issued a Preliminary Determination recommending a Whistleblower Award to Claimant in the amount of $180,000. The Commission ordered that Claimant's application be approved. The Order asserts in part that:
[(i)] Claimant alerted the Commission to fraudulent conduct in a new geographic area the Commission was previously unaware of, (ii) Claimant participated in a voluntary interview with Commission staff and provided documents that assisted the Commission in its investigation, saving Commission time and resources, (iii) Claimant provided a declaration in support of Redacted and (iv) there was substantial law enforcement interest in the information provided, as it related to RedactedThe Commission shared Claimant's information with the Other Agency, which commenced a Related Action concerning the same fraudulent conduct that formed the factual basis for the Covered Action. We find that the contributions made by Claimant to the Covered Action are similar to Claimant's contributions to the success of the Related Action, and, therefore, it is appropriate that Claimant receive the same award percentage for both actions.
Bill Singer's Comment: Sometimes I am confused -- ask my wife and she will tell you that's not "sometimes" but "often." On the other hand, there are times when I am beyond confused and left in a state of inexplicable befuddlement. Y'all wanna explain to me how the SEC was alerted by a whistleblower of "fraudulent conduct in a new geographic area the Commission was previously unaware of?" [Ed: my snotty highlighting added]. I have no idea what that statement means and, frankly, I can't even hazard a very wild guess. We got maps. The maps have pretty much plotted our planet, which, during my last visit here we were calling "Earth." As to this planet Earth, the SEC apparently has large sections marked off as "monsters be here" and lacking in any name or topographical markings. Then again, who knows -- perhaps the whistleblower dropped a tip on the SEC about fraud in the state of Wyoming and an employee in the Office of the Whistleblower was unfamiliar with that State, and, you know, sort of figured it was one of those squarish states east of California but west of the Mississippi River, and, lemme see here, ya got, what?, ummm, Utah, and then there's Colorado and New Mexico (not sure which is north of the other), and I think that there's another one, gee, maybe that's this WhyOweMe thing the tipster is talking about? I dunno, maybe I'll just call it "Never Never Land" and let Enforcement figure it out.
Order Determining Whistleblower Award Claim (Release No. 34-92101; File No. 2021-57)
https://www.sec.gov/rules/other/2021/34-92101.pdf
The SEC's Claims Review Staff ("CRS") issued a Preliminary Determination recommending a Whistleblower Award to Claimant in the amount of over $10,000 per a Related Action. The Order asserts that previously, claimant had received a Whistleblower Award in connection with the Covered Action. The Commission ordered that Claimant's application be approved. The Order asserts in part that:
[(1)] Claimant's information was significant in that it revealed an ongoing fraudulent scheme that had harmed investors; (2) Claimant provided substantial assistance during the Covered Action investigation, including several interviews, which resulted in important information being conveyed by the Commission to the; and (3) the close nexus between the Claimant's information and the charges in the Related Action.The Commission shared Claimant's information with the Other Agency, which commenced a Related Action concerning the same fraudulent conduct that formed the factual basis for the Covered Action. We find that the contributions made by Claimant to the Covered Action are similar to Claimant's contributions to the success of the Related Action, and, therefore, it is appropriate that Claimant receive the same award percentage for both actions.
Order Determining Whistleblower Award Claim (Release No. 34-92100; File No. 2021-56)
https://www.sec.gov/rules/other/2021/34-92100.pdf
The SEC's Claims Review Staff ("CRS") issued a Preliminary Determination recommending a Whistleblower Award to Claimant in the amount of 30% of the sanctions collected/to be collected. In approving the statutory maximum 30% award, the Order asserts in part that:
[C]laimant provided more than limited assistance, as Claimant spoke with and provided
documents to Commission staff, and application of the presumption would not be inconsistent with the public interest, the promotion of investor protection, or the objectives of the whistleblower program. Rather, Claimant was a Redacted who alerted the Commission of the alleged violations, prompting the initiation of an examination. Based on the lack of collections, a 30% award would not result in any payment to Claimant.
Order Determining Whistleblower Award Claim (Release No. 34-92099; File No. 2021-55)
https://www.sec.gov/rules/other/2021/34-92099.pdf
The SEC's Claims Review Staff ("CRS") issued a Preliminary Determination recommending a Whistleblower Award to Claimant in the amount of about $200,000. Notwithstanding that Claimant was untimely in filing the Form TCR, the Order asserts that:
[H]ere, although Claimant did not file a Form TCR within 30 days of first contacting the Commission, Claimant satisfies Exchange Act Rule 21F-9(e) and is entitled to a waiver of this procedural requirement because the record reflects that Claimant submitted a Form TCR within 30 days of learning of the TCR filing requirement and Claimant otherwise unambiguously qualifies for an award.
In approving award, the Order asserts in part that:
[C]laimant Redacted saved Enforcement staff time and resources in conducting the investigation. Claimant provided meaningful information that advanced the investigation and assisted in establishing the underlying misconduct. Claimant provided continuing assistance throughout the investigation, including providing documents and meeting with the staff. Redacted Claimant also acted quickly Redacted
Putting the Electric Cart before the Horse:[1] Addressing Inevitable Costs of a New ESG Disclosure Regime (Speech by SEC Commissioner Elad L. Roisman)
https://www.sec.gov/news/speech/roisman-esg-2021-06-03
ESG is, indeed, in the air, but what some folks smell is not completely pleasant -- to each his and her own, right? In summing up his concerns about some aspects of the ESG fervor, SEC Commissioner Roisman notes in part that:
In summary, any new ESG disclosure rules will inevitably come with costs. Especially since such disclosure would involve information that is based on uncertain underlying assumptions, or is difficult to calculate, the Commission should be particularly careful to ensure that (1) investors understand the limitations of the information disclosed and (2) companies can actually provide such information without incurring undue costs and burdens. I hope the Commission can predict these costs clearly enough to mitigate them in our rulemaking process. From my perspective, this can only help meet the stated objectives of any potential ESG disclosure proposal-that is getting this new information to investors.
SR-FINRA-2021-015 / Proposed Rule Change to Amend FINRA Rules 1210 (Registration Requirements) and 1240 (Continuing Education Requirements) (FINRA Release)
https://www.finra.org/rules-guidance/rule-filings/sr-finra-2021-015
In proposing a Rule change https://www.finra.org/sites/default/files/2021-06/sr-finra-2021-015.pdf, FINRA asserts that:
Financial Industry Regulatory Authority, Inc. ("FINRA") is filing with the Securities and Exchange Commission ("SEC" or "Commission") a proposed rule change to amend FINRA Rule 1240 (Continuing Education Requirements). The proposed rule change also makes conforming amendments to FINRA Rule 1210 (Registration Requirements). Among other changes, the proposed rule change requires that the Regulatory Element of continuing education be completed annually rather than every three years and provides a path through continuing education for individuals to maintain their qualification following the termination of a registration.
Now You See It, Now You Don't -- FINRA Rule 2010 Applied by OHO But Rejected by NAC (BrokeAndBroker.com Blog)
http://www.brokeandbroker.com/5882/finra-2010-potter/
FINRA Rule 2010 is applied in a disparate fashion against smaller member firms and the industry's associated persons in contrast to larger FINRA firms and powerful industry interests. For me, Rule 2010 is an overly elastic, rubbery bit of nonsense that gets stretched to fit the misconduct of the little guys but just never seems to get pulled around the big boys. As such, Rule 2010 is a lovely bit of aspirational regulation, but, in truth, it's a joke. As things tend to work out under Rule 2010's shadow, the small fry get expelled and barred for their transgressions of the industry's purported standards and principles; however, when the big boys screw up, FINRA tends to find mitigation and cooperation and explanations, and, well, you know, self-regulation looks quite different depending upon whether you're looking through the prism of the powerful versus the powerless.
GUEST BLOG: FINRA Withdraws Proposed Expungement Rule by Nancy L. Hendrickson Esq (BrokeAndBroker.com Blog)
http://www.brokeandbroker.com/5884/nancy-hendrickson-guest-blog/
Veteran litigator Nancy Hendrickson has fought it out in the trenches when it comes to employment disputes. As Nancy sees it, FINRA's expungement process isn't exactly a square deal for the men and women trapped within that system -- pointedly, it is costly and time-consuming. So, when FINRA proposed some dubious revisions to its expungement rules and PIABA hectored for more of the same, Nancy felt the need to champion the industry's hundreds of thousands of employees.
Three FINRA AWCs and One Mess of an Arbitration Raise Unanswered Questions About Supervision (BrokeAndBroker.com Blog)
http://www.brokeandbroker.com/5880/finra-reynolds-spartan/
A recent FINRA regulatory settlement sanctioned a supervisor's alleged failure to "restrict" a trader's "market access." But as the facts emerged, that trader didn't exactly follow compliance policies and engaged in subterfuge to hide his tracks and cover up his trades. All of which raises questions as to whether the supervisor was victimized by the trader and an over zealous regulator. Unfortunately, there just doesn't seem to be a satisfactory answer to that seminal question, which leaves the supervisor in an uncomfortable posture.