Securities Industry Commentator by Bill Singer Esq

Angry Variable Annuity Customer Vexatiously Pursues His Legal Rights (BrokeAndBroker.com Blog)

SEC Obtains Final Judgment Against Financial Advisor Who Misappropriated Over $6 Million from Elderly and Other Investors (SEC Release)

SEC Obtains Settlement in Fraudulent and Unregistered ICO Case (SEC Release)

FINRA Fines and Suspends Rep for Using Pre-Signed Customer LOAs

In the Matter of Fernando Luis Monllor Arzola, Respondent (FINRA AWC)

FINRA Fines and Suspends Rep for Outside Business Activities

In the Matter of Lawrence Moskowitz, Respondent (FINRA AWC)

FINRA Fines and Suspends Rep for UIT Short-Term Trading

In the Matter of Gary M. Bowman, Respondent (FINRA AWC)

[C]arter, while employed at a major financial institution, misappropriated more than $6 million from elderly and other investors, primarily by making unauthorized cash wire transfers from their accounts. Carter allegedly used the money to support his lifestyle, including payments for a large home mortgage and a luxury car, and to fund cash withdrawal requests made by customers whose accounts Carter had previously depleted.

In a parallel criminal action, the U.S. Attorney's Office for the District of Maryland filed criminal charges against Carter. Carter pled guilty to those charges and was sentenced to a prison term of 60 months and ordered to pay forfeiture and restitution.

The final judgment enjoins Carter from violating the antifraud provisions of 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. The final judgment further finds Carter liable for disgorgement in the amount of $4,010,568.39 and prejudgment interest in the amount of $225,393.52, for a total amount of $4,235,961.91. These amounts were deemed satisfied by the restitution ordered against him in the parallel criminal action.

Carter also consented to a Commission order, issued today, permanently barring him from association with any broker, dealer, investment adviser, municipal securities dealer, municipal advisor, transfer agent, or nationally recognized statistical rating organization, as well as permanently barring him from participating in any offering of penny stock.

[F]rom at least January to March 2018, Dropil sold DROP tokens, claiming that investor funds would be pooled to trade various digital assets by a "trading bot," called Dex, using an algorithm designed and tested by Dropil. Dropil allegedly claimed the trading would generate profits that would be distributed as additional DROP tokens every 15 days.  Instead of using investor money to trade with Dex, Dropil allegedly diverted the funds raised to other projects and to the founders' personal digital asset and bank accounts. Dropil allegedly manufactured fake Dex profitability reports and made payments in the form of DROPs to Dex users, giving the false appearance that Dex was operational and profitable. The complaint further alleges that Dropil misrepresented the volume and dollar amount of DROPs sold both during and after the ICO, ultimately claiming that it had successfully raised $54 million from 34,000 investors in the United States and around the world. According to the complaint, however, Dropil raised less than $1.9 million from fewer than 2,500 investors. The complaint also alleges that during the SEC's investigation, Dropil produced falsified evidence and testimony.

On September 5, 2012, Moskowitz entered into a consulting agreement with an art company to provide general business and financial services, for which he received $15,000 monthly for seven years. On November 28, 2012, Moskowitz expanded his work for the company, and requested approval from the firm to work as a property and casualty insurance claims adjuster. Moskowitz's request made no mention of the earlier general consulting arrangement. The firm denied Moskowitz's request due to potential conflicts of interest. Nevertheless, Moskowitz continued his undisclosed consulting work, and prohibited insurance work for the company for several years. In December 2018, Moskowitz's company, Lawrence Moskowitz CLU, received approximately $4.8 million as payment for his insurance work on behalf of the art company. Three months before receiving the $4.8 million payment in September 2018, Moskowitz disclosed and requested approval for his consulting arrangement, but made no mention of his insurance work. The firm approved the consulting business. 

During the above period from 2012 through 2018, Moskowitz also falsely attested in annual firm compliance questionnaires that he understood and was in compliance with the firm's outside business activity requirements. 

By engaging in one outside business prohibited by the firm, and failing to disclose another outside business for six years, Moskowitz violated FINRA Rule 3270. A violation of FINRA Rule 3270 also is a violation of FINRA Rule 2010, which requires that registered representatives, in the conduct of their business, shall "observe high standards of commercial honor and just and equitable principles of trade." 

Therefore, Respondent violated FINRA Rules 3270 and 2010.

From February 2013 through December 2017, Bowman recommended that his customers roll over UITs more than 100 days prior to maturity on approximately 4,200 occasions. Although his customers' UITs typically had a 24-month maturity period, Bowman recommended that they sell their UITs after holding them for, on average, just over one year and use the proceeds to purchase a new UIT. 

Of the approximately 4,200 early rollovers recommended by Bowman, more than 600 were "series-to-series" rollovers. In other words, on more than 600 occasions, Bowman recommended that his customers roll over a UIT before its maturity date to purchase a subsequent series of the same UIT, which generally had the same or similar investment objectives and strategies as the prior series. 

As one example of a recommended "series-to-series" rollover, Bowman recommended that a customer purchase a UIT issued in the second quarter of 2016 that had an investment objective of an "above-average total return" and an investment strategy of "investing in dividend-paying companies in the technology sector" (the 2016 Q2 Series). Although the 2016 Q2 Series UIT had a 24-month maturity period, Bowman recommended that his customer sell it after holding it for approximately 12 months and use the proceeds to purchase a later series of the same UIT issued in the second quarter of 2017 (the 2017 Q2 Series). The 2017 Q2 Series had the same or a similar investment objective and strategy as the 2016 Q2 Series. Bowman's recommendation that his customer sell the 2016 Q2 Series approximately 12 months prior to its maturity and use the proceeds to purchase the 2017 Q2 Series caused his customer to incur increased sales charges to purchase what was, essentially, the same investment. 

Bowman's recommendations caused his customers to incur unnecessary sales charges³ and were unsuitable in view of the frequency and cost of the transactions. 

By virtue of the foregoing, Bowman violated FINRA Rules 2111 and 2010. 

• Securities Industry Commentator
• Bill Singer