Securities Industry Commentator by Bill Singer Esq

FINRA, Claptrap, Fraud, Mental Frames, and Subjective Construals (BrokeAndBroker.com Blog)

The 'Quad' is on the rise in Asia-Pacific: Game theory has a prediction about its future (CNBC by Ted Kemp)

SEC Awards About $36 Million to Whistleblower and Denies Award to Two Other Claimants 

Order Determining Whistleblower Award Claim

SEC Charges World's Largest Advertising Group with FCPA Violations (SEC Release)

SEC Charges New Yorker for Running Ponzi Scheme Targeting Haitian American Community (SEC Release)

SEC Charges Wisconsin Investment Advisor with Defrauding Clients (SEC Release)

SEC Charges Principals of Subprime Automobile Finance Company with Fraud (SEC Release)

SEC Charges Firm and Two Principals in First-Ever Actions Enforcing Rule on Duties of Municipal Advisors (SEC Release)

SEC Charges U.K.-Based Father and Son, and Two Others in Transatlantic Microcap Fraud Scheme (SEC Release)

Former Analyst Charged With $8 Million Insider Trading Scheme For Front-Running Employer's Pending Trades / Sergei Polevikov Misappropriated Information Regarding his Employer's Pending Trades to Make $8 Million in Illicit Profits on Personal Securities Trades (SEC Release)

SEC Charges Quant Analyst in Multimillion Dollar Front-Running Scheme (SEC Release)

American Ex-Pat Pleads Guilty To Panamanian Wire Fraud Conspiracy (DOJ Release)

Former Insurance Broker Going To Prison For Defrauding Insurance Companies And Individual Investors Out of More Than $1-Million (DOJ Release)

SEC Charges School District and Former Executive with Misleading Investors in Bond Offering (SEC Release)

CFTC Orders Michigan Man to Pay $150,000 for Registration Violation of Commodity Trading Advisor Regulation (CFTC Release)

FINRA Names Sarah Gill as Ombudsman, Cindy Foster as VP of MAP Program (FINRA Release)

FINRA, Crypto, Covid, and Outside Business Activities (BrokeAndBroker.com Blog)

[C]laimant 1's information significantly contributed to the success of the Covered Action and the Other Agency Actions. Claimant 1 met with Enforcement staff on multiple occasions, provided information that allowed Enforcement and Other Agency staff to identify and request key documents, and provided crucial information regarding the illegal scheme. The award percentage also recognizes that Claimant 1 unreasonably delayed reporting to the Commission for over five years and that Claimant 1 was culpable in the underlying scheme. Based upon a review of the facts and circumstances in the record, we have determined that Exchange Act Rule 21F-16 does not apply because Claimant 1 did not "direct[], plan[], or initiate[]" the misconduct. Accordingly, we believe that a *** percent award strikes the appropriate balance between Claimant 1's significant contributions to the success of the Covered Action and Claimant 1's unreasonable reporting delay and level of culpability.

[W]PP implemented an aggressive business growth strategy that included acquiring majority interests in many localized advertising agencies in high-risk markets. The order finds that WPP failed to ensure that these subsidiaries implemented WPP's internal accounting controls and compliance policies, instead allowing the founders and CEOs of the acquired entities to exercise wide autonomy and outsized influence. The order also finds that, because of structural deficiencies, WPP failed to promptly or adequately respond to repeated warning signs of corruption or control failures at certain subsidiaries. For example, according to the order, a subsidiary in India continued to bribe Indian government officials in return for advertising contracts even though WPP had received seven anonymous complaints touching on the conduct. The order also documents other schemes and internal accounting control deficiencies related to WPP's subsidiaries in China, Brazil, and Peru.

[S]imeon, through First Black Enterprises, fraudulently raised at least $335,000 from approximately 13 investors from at least April 2019 through at least February 2021, by falsely touting his purported business experience and track record. Simeon, who allegedly enticed investors by inviting them to First Black Enterprises's offices at the Empire State Building and showing them pictures of expensive houses, cars, and a yacht as evidence of his success as a businessman, falsely promised prospective and existing investors a risk-free, insured investment opportunity with guaranteed returns in the form of monthly "interest" payments of 10% of the principal invested, and falsely told prospective and existing investors that they could exit the investment at any time upon 30-days' notice for a full return of their principal. When investors asked Simeon for details about the investment strategy, Simeon allegedly refused to disclose such details because he did not want investors to mimic his strategy. In reality, as the complaint alleges, Simeon and First Black Enterprises conducted little-or-no actual business or investment activities with investor funds, and instead used funds from new investors to make monthly interest payments to them and earlier investors in Ponzi-like fashion, and misappropriated other investor funds for Simeon's personal benefit.

[S]hillin, while acting as an investment adviser, fabricated documents and made misrepresentations to clients, many of whom were elderly. As alleged, Shillin misrepresented that certain clients had successfully subscribed for IPO or pre-IPO shares in high-profile companies when they had not, and lied to clients about the true value of their investment portfolios. The complaint alleges that Shillin encouraged several advisory clients to roll over their existing life insurance policies into new policies, which caused certain clients to sell securities in order to pay premiums for policies that were non-existent or had far fewer benefits than Shillin claimed. Finally, the complaint alleges that Shillin received hundreds of thousands of dollars in ill-gotten gains as a result of his fraudulent conduct.

[J]ames Collins and Robert DiMeo, the former principals of Honor Finance LLC, were responsible for false and misleading statements about, and engaged in deceptive conduct regarding, Honor's servicing practices in connection with the Honor Automobile Trust Securitization 2016-1 (HATS). The complaint alleges that Honor packaged together several thousand automobile loans Honor funded to serve as collateral for the HATS offering, which raised $100 million through the sale of interest-bearing notes to investors. According to the SEC's complaint, Collins and DiMeo took various steps designed to artificially inflate the value of the collateral underlying HATS. Specifically, the complaint alleges that Collins and DiMeo were responsible for, among other things, including loans in the deal that were not eligible to be included in the securitization vehicle, extending loan repayment dates without borrower knowledge, and forgiving payments due from delinquent borrowers. The complaint claims that, because of these improper practices, the servicing and performance information Honor provided to investors at the time of the offering and in later monthly reports was false.

[I]n May 2018, O'Meara and Permenter left their employment at a national municipal underwriting firm to start Choice, a new municipal advisor focused on charter schools. According to the SEC's complaint and order, O'Meara and Permenter entered into an impermissible fee-splitting arrangement with their former employer. Such arrangements are prohibited in any offering where the municipal advisor will be providing advice to clients of the underwriter. Moreover, O'Meara and Permenter allegedly did not adequately disclose to their clients the conflicts of interest associated with the illicit arrangement or their relationship with the underwriting firm. The SEC also alleges that Choice, O'Meara, and Permenter unlawfully engaged in municipal advisory activities when they were not registered with the SEC or MSRB.

The SEC's complaint alleges additional misconduct by O'Meara. While still employed at the underwriting firm, O'Meara allegedly improperly operated in a dual capacity, simultaneously serving as a registered representative for the underwriting firm, and also as a municipal advisor where he purported to serve as two clients' fiduciary. As alleged in the complaint, O'Meara took steps to increase the overall fees paid by the clients in a way that would enrich himself and Choice, ultimately costing one school approximately $40,000 in additional fees.

According to the first of the two complaints, United Kingdom citizen Timothy Page, a recidivist, and his son, U.K. resident Trevor Page, schemed with associates to acquire millions of shares in U.S. publicly traded microcap companies, disguise their control over the companies, and then dump their shares into the public markets in violation of the securities laws. The Pages allegedly used nominee entities, including the five entity defendants, to conceal their holdings in the companies, and then engaged in manipulative trading and hired boiler rooms to generate artificial demand for their stock by making misleading statements to investors.

The SEC's second complaint alleges that two of the Pages' associates, Utah resident William R. Shupe and U.K. resident Daniel Cattlin, used their insider roles as officers or majority shareholders at several of the microcap companies to hide the Pages' control. At the same time, they helped the Pages secretly acquire and then sell millions of the companies' shares. Shupe allegedly enabled the Pages to disguise their control over the companies by, among other things, holding the Pages' securities through a company Shupe formed and by helping the Pages conceal their funding of the microcap companies. Cattlin is alleged to have coordinated with the Pages to provide false and misleading information in response to investigative subpoenas issued by the SEC staff, and during an interview conducted by SEC staff in June 2020.

. . .

The SEC's complaints charge each of the nine defendants with violating the antifraud provisions of the federal securities laws. Timothy and Trevor Page and three of the entity defendants also are charged with violating the securities laws' registration provisions, and Timothy and Trevor Page and one entity are charged with violating the securities laws' reporting provisions. Timothy Page and Trevor Page also are charged with violating the market manipulation provisions of the federal securities laws. Cattlin and Shupe are charged with aiding and abetting the Pages' violations of the antifraud provisions of the securities laws. Timothy Page's wife, Janan Page, is named as a relief defendant for her alleged receipt of illicit proceeds from the Pages' fraudulent scheme. In addition to seeking an order freezing the assets of Timothy, Trevor, and Janan Page and the five entity defendants, the SEC seeks permanent injunctions, disgorgement of ill-gotten gains plus interest, and civil penalties against all the defendants. The SEC also seeks penny stock bars against Trevor Page, Cattlin, and Shupe, conduct-based injunctions against the Pages, and officer and director bars against Cattlin and Shupe.

From at least in or about 2014 through in or about October 2019, SERGEI POLEVIKOV was employed as a quantitative analyst at an asset management firm with headquarters in New York, New York (the "Employer Firm").  In his role at the Employer Firm, POLEVIKOV had regular access to information regarding contemplated securities trades on behalf of the Employer Firm's clients, which included investment companies.  During the period charged in the Complaint, POLEVIKOV engaged in a front-running scheme to misappropriate confidential, material, nonpublic information about the securities trade orders of the Employer Firm on behalf of its clients in order to engage in short-term personal securities trading in a brokerage account opened in his wife's name.  POLEVIKOV's scheme was designed to profit by executing trades that take advantage of relatively small price movements in a company's stock that follow from large securities orders executed by the Employer Firm on behalf of its clients.  In total, POLEVIKOV's scheme yielded more than $8.5 million in illicit profits.     

To conceal his front-running scheme, and notwithstanding policies of the Employer Firm to prevent insider trading, POLEVIKOV lied to the Employer Firm about his personal trading accounts and securities trades conducted therein in violation of the Investment Company Act.   

[F]rom at least January 2014 through October 2019, Polevikov had access to real-time, non-public information about the size and timing of his employers' securities orders and trades, and used that information to secretly trade on, and ahead of, his employers' trades. As alleged, Polevikov, on nearly 3,000 occasions, bought or sold a stock on the same side of the market as his employers before his employers executed trades in the same stock for their fund clients. Polevikov typically would close his positions the same day as he opened them, capitalizing on the price movement caused by his employers' large trades. The SEC alleges that Polevikov concealed his fraudulent scheme by executing the trades in the account of his wife, Maryna Arystava, who uses a different last name.

[J]edlicki and his co-conspirators operated international boiler rooms in Panama and elsewhere that used high-pressure sales techniques to defraud individuals who invested substantial amounts of money in what they believed were regulated financial products or markets, such as options in commodities and stocks. The majority of the victims that the boiler rooms targeted were located in Canada, the United Kingdom, Australia, and New Zealand.

Jedlicki and his co-conspirators then transferred fraud proceeds generated by the boiler rooms through several money laundering rings, and then on to overseas accounts, with the launderers receiving a percentage of the funds they had moved. Jedlicki himself received a 2% referral fee for referring victims' funds to a money laundering ring.  Jedlicki used the funds to perpetuate the conspiracy, and for his own personal enrichment. In total, Jedlicki and his co-conspirators wired or caused to be wired approximately $3,244,592 (U.S. Dollars) in victims' funds to money laundering accounts in furtherance of the wire fraud conspiracy.

[B]between January 2015 and January 2020, the defendant was employed as an insurance broker at several different life insurance companies, selling and servicing policies and receiving commissions and bonuses for selling such policies. In connection with his employment, Bartz submitted approximately 105 fraudulent policy applications in various individuals' names without their knowledge, utilizing actual names, social security numbers, and dates of birth. As a result, life insurance policies were issued, and the defendant was paid a total of $382,740.63 in commissions and bonuses to which he was not entitled. Bartz also used approximately $70,579.83 that he fraudulently withdrew from various bank accounts of unsuspecting clients in order to pay policy premiums on the fraudulent life insurance policies he obtained.

In addition, Bartz defrauded his insurance clients and potential clients by falsely claiming to also be an investment advisor, persuading individuals to invest funds that he never invested nor intended to invest. Rather than investing such funds on behalf of his clients, Bartz used them to gamble or to pay back prior investors. To prevent victims from inquiring about their investments, Bartz issued fake account statements. The victims included a widow who "invested" a $332,500 payout from her deceased husband's life insurance policy with the defendant. Bratz stole all but $10,000 of that widow's investment. 

In total, the loss amount for Bartz's schemes is approximately $1,026,668.46

[I]n April 2018, Sweetwater and Michel provided investors with misleading budget projections that indicated the district could cover its costs and would end the fiscal year with a general fund balance of approximately $19.5 million, when in reality the district was engaged in significant deficit spending and on track to a negative $7.2 million ending fund balance. The order finds that Michel managed the bond offering for the district and was aware of reports showing that the projections were untenable and contradicted by known actual expenses. Nevertheless, as stated in the order, Sweetwater and Michel included the projections in the April 2018 bonds' offering documents and also provided them to a credit rating agency that rated the district, while omitting that the projections were contradicted by internal reports and did not account for actual expenses. Additionally, the complaint alleges that Michel signed multiple certifications falsely attesting to the accuracy and completeness of the information included in the offering documents.

Between January 2018 and January 2019, Mitchell, who was subject to a temporary membership ban from the National Futures Association (NFA), held himself out to friends and acquaintances as an experienced and licensed commodities trader and helped over 20 clients to establish their own commodity trading accounts. Mitchell engaged in the business of directing client commodity trading accounts as a registered futures commission merchant (FCM) while hiding his identity from the FCM in order to avoid registering as a CTA. Although Mitchell's name did not appear on the client's account documentation, Mitchell handled all communications with the clients and directed their trading. During this time, Mitchell was not registered as a CTA.

Since 2018, Gill has served as FINRA's Senior Director for State Government Affairs, providing strategic advice on policy issues and fostering FINRA's relationships and collaboration with the North American Securities Administrators Association (NASAA) and state securities regulators. Prior to joining FINRA, she was a Senior Vice President at LPL Financial, with roles including Head of Regulatory Policy and Associate General Counsel. Gill also served as an Assistant General Counsel in FINRA's Office of General Counsel before joining LPL Financial. She began her legal career as an officer in the U.S. Navy JAG Corps, with assignments as a military prosecutor at Naval Station Pearl Harbor, legal advisor to the NCIS Hawaii Field Office, and a Special Assistant U.S. Attorney at the U.S. Attorney's Office in Honolulu. Gill obtained a Juris Doctor from the UCLA School of Law and a Bachelor of Arts in biomedical ethics from the University of Pennsylvania. 

As FINRA's Ombudsman, Foster worked with a cross-section of securities industry stakeholders, including firms, issuers, registered representatives, investors and FINRA staff to review and resolve concerns and complaints arising from examinations, investigations, arbitrations and FINRA's disciplinary process. Prior to that role, Foster served in various capacities at FINRA, including as a Market Regulation senior analyst responsible for investigating manipulation and fraud in the over-the-counter securities markets; Associate Director and Lead for the Order Audit Trail System Member Firm Coordination Project; and Senior Director in Member Relations. Before rejoining FINRA, Foster worked for financial services software company SunGard Trading Systems/BRASS, serving in senior capacities, including Chief Compliance Officer and Executive Vice President. Foster has Master of Business Administration and Master of Science degrees from the University of Maryland University College. She received her Bachelor of Arts in political science from Virginia Commonwealth University.  

• Securities Industry Commentator
• Bill Singer