The Wall Street Legal & Regulatory Feed

Securities Industry Commentator by Bill Singer Esq

October 27, 2021




http://www.brokeandbroker.com/6133/finra-tod-arbitration/
Indeed, the dead tend to keep secrets. Among the more disquieting silences are those involving brokerage accounts that were supposed to have Transfer on Death ("TOD") beneficiaries but, for one reason or another, those designations didn't get made, or, if they did, the paperwork wasn't executed. Thus, we are left with the often-voiced promises by a now-deceased accountholder to transfer his holdings to Jane or Joe or Jack or Jill but, oh my, there's no executed authorization in place. Which often leads to charges that the deceased made it very, very clear to her stockbroker that the TODs were to be put in place, which prompts much finger-pointing and that leads to the blame game, which is often the last step before the lawsuit. 

https://riabiz.com/a/2021/10/26/rias-may-face-ticking-time-bomb-after-sec-slams-a-19-million-ria-for-shoddy-handling-of-orphan-fee-based-accounts-a-problem-that-may-be-industrywide
The headline says it all. Yet another excellent bit of industry reporting from RIABiz's Oisin Breen.

https://www.sec.gov/litigation/litreleases/2021/lr25249.htm
-and-

https://www.sec.gov/litigation/complaints/2021/comp25249.pdf, the SEC charged Swapnil J. Rege and SwapStar Capital, LLC with violating the antifraud provisions of Sections 206(1) and 206(2) of the Advisers Act; and further charges Rege with violating Section 203(f) of the Advisers Act; and seeks court enforcement of the 2019 SEC order pursuant to Section 209(d) of the Advisers Act. Named as a Relief Defendant is Rege's wife, Reema Rege. As alleged in part in the SEC Release:

[R]ege and his company SwapStar Capital, LLC solicited Rege's friends, neighbors, and other referrals to be the defendants' investment advisory clients. Rege and SwapStar allegedly misrepresented to their clients that client money would be invested in securities for guaranteed returns. According to the SEC's complaint, Rege and SwapStar instead used client money to pay fictitious gains to other clients, to return original investment amounts to other clients, and to pay for some of Rege's personal expenses.

The complaint alleges that Rege engaged in the alleged misconduct even after the SEC had barred him, in a 2019 SEC order, from associating with an investment adviser and ordered him to cease and desist from further violations of certain anti-fraud provisions in the Advisers Act. The complaint alleges that Rege acted as an investment adviser in violation of the bar against him. Further, according to the SEC's complaint, Rege failed to disclose to his advisory clients that he had been barred from associating with an investment adviser.

In a Complaint filed in the United States District Court for the District of New Jersey
https://www.cftc.gov/media/6696/enfswapnilcomplaint102621/download, the CFTC charged Rege and SwapStar with fraudulent solicitation and misappropriation, and Rege with violating a prior CFTC consent order that, among other things, barred him from trading commodity interests for at least three years. Reema Rege was named as a Relief Defendant. As alleged in part in the CFTC Release:

[D]efendants fraudulently solicited individuals to lend or invest money based on material misrepresentations, including that such funds would be invested in securities, that lenders and investors would receive a fixed monthly, quarterly, or annual return, in some cases as high as 40% to 60%, and that lenders and investors could redeem their funds immediately or on short notice. The complaint further alleges that the defendants then used a portion of the solicited funds to actively trade commodity interests through accounts the defendants owned, or accounts that were nominally owned by Rege's spouse but controlled by Rege. The complaint also alleges that the defendants misappropriated some of the solicited funds for their personal benefit, including to pay for personal expenses and to pay returns to other account holders in a manner akin to a Ponzi scheme. In addition, the complaint alleges that Rege failed to disclose that he was barred for at least three years from trading any commodity interests under the 2019 consent order.

In addition, the complaint alleges that Rege violated the 2019 consent order by continuing to trade commodity interests on or subject to the rules of any registered entity.   

SEC Obtains Asset Freeze and Other Relief in Halting Penny Stock Scheme on Twitter (SEC Release)
https://www.sec.gov/news/press-release/2021-214
In a Complaint filed in the United States District Court for the Southern District of New York
https://www.sec.gov/litigation/complaints/2021/comp-pr2021-214.pdf, ,the SEC charged Steven M. Gallagher with violating the antifraud provisions of the federal securities laws. The Court granted an injunction and asset freeze, against Gallagher. As alleged in part in the SEC Release:

The SEC's complaint alleges that, since at least December 2019, Gallagher used his Twitter handle, @AlexDelarge6553, to make thousands of tweets encouraging his numerous followers to buy stocks in which Gallagher had secretly amassed holdings. As alleged, Gallagher would then sell those stocks at inflated prices, while he continued to recommend others buy them -never disclosing that he was selling the stocks.

10 Foreign Nationals Charged In Years-Long, Multimillion-Dollar Investment And Impersonation Scheme / The Defendants Operated Boiler Rooms in Multiple Countries to Defraud Victims Around the World of Millions of Dollars by Impersonating Prominent Investment Firms and Individuals (DOJ Release)
https://www.justice.gov/usao-sdny/pr/10-foreign-nationals-charged-years-long-multimillion-dollar-investment-and
In an Indictment filed in the United States District Court for the Southern District of New York
https://www.justice.gov/usao-sdny/press-release/file/1444641/download, Nicholas Russell James Gillie a/k/a "James William Carter," Neophytos Georgiou a/k/a "Nick," a/k/a "PT," a/k/a "The Boss," Urs Meisterhans, Scott Steven Neilson, Liam James Smout a/k/a "Pringle," Daniel Nielsen, Brenda Laverty, Andrew Georgiou a/k/a ""Andy," Thomas Andrew Kenney a/k/a "Irish," and Jake Mardell were each charged with one count of conspiracy to commit wire fraud; one count of conspiracy to commit money laundering; and one count of aggravated identity theft. As alleged in part in the DOJ Release:

Beginning in at least 2015, NICHOLAS RUSSELL JAMES GILLIE, NEOPHYTOS GEORGIOU, URS MEISTERHANS, SCOTT STEVEN NEILSON, LIAM JAMES SMOUT, DANIEL NIELSEN, BRENDA LAVERTY, ANDREW GEORGIOU, THOMAS ANDREW KENNY, and JAKE MARDELL participated in a sophisticated international mass-marketing investment fraud scheme to defraud English-speaking investors from around the world of millions of dollars, and to launder the fraud proceeds and distribute those proceeds among the conspirators.  NEOPHYTOS GEORGIOU, who owns bars and restaurants in Cyprus, financed the costs of the investment fraud scheme, which was orchestrated by GILLIE, his longstanding partner in Cyprus.  MEISTERHANS was a key "banker" - that is, money launderer - in the scheme, who laundered victim funds through bank accounts in the United States and several other countries. 

As part of the investment fraud scheme, conspirators purported to be employees of successful financial investment firms and took sophisticated steps to convince victims of the firms' existence and legitimacy.  Those steps commonly included impersonating real financial investment firms, creating fraudulent websites that appeared to be associated with the real firms, creating fraudulent email addresses that appeared to be associated with employees of the real firms, publishing fraudulent news articles relating to the fake firms and their supposed investments, utilizing a widely-used internet search engine to disseminate scheme-related online advertisements, creating fraudulent investment-related contracts and other financial and legal documents, and using the names, titles, signatures, email addresses, and likenesses of real individuals prominent in business and finance.  Employing those tactics, among others, and through hard-sell telemarketing calls and emails with victim-investors orchestrated from so-called "boiler rooms" located in Cyprus, Spain, Romania, and Cambodia, the conspirators convinced victims to transfer funds to one or more bank accounts under the conspirators' control (the "Victim Depository Accounts") for what the victims understood to be investments in various companies - that is, the purchase of company shares.  In reality, however, the conspirators' purported financial investment firms were fake, the purported share purchases were fraudulent, and the money sent by victims was never returned.  The combined losses of victims exceeded $6 million.

Rather than being used to make investments, the funds that victims transferred to the Victim Depository Accounts were sent back to the conspirators by individuals sometimes referred to by conspirators as "bankers" (the "Bankers"), who were in fact responsible for laundering the proceeds of the investment fraud scheme.  For example, fraud proceeds were at times transferred from a Banker to bank accounts held in the names of individuals who do not actually exist, such as "James William Carter" and "Jonathan Timothy Turner," but in whose names the conspirators had opened bank accounts using fake United Kingdom passports and other documents.  The fraud proceeds were then distributed among the conspirators, as salary or commission, for their participation in the investment fraud scheme. 

One component of the years-long investment fraud scheme involved the impersonation, in or about 2019, of a New York-based private investment fund (the "New York Fund") founded by an internationally renowned billionaire investor (the "Founder").  While impersonating the New York Fund, conspirators fraudulently induced victim-investors from Australia, Europe, and elsewhere to enter into various purported investments, including the supposed purchase of "pre-IPO" shares of a successful and relatively young international company that did not have its shares listed on a public stock exchange ("Company‑1").

New York Man Admits Role in Bank Fraud (DOJ Release)
https://www.justice.gov/usao-nj/pr/new-york-man-admits-role-bank-fraud
Lamar Melhado pled guilty to conspiracy to commit bank fraud as alleged in an Indictment filed in the United States District Court for the District of New Jersey
https://www.justice.gov/usao-nj/press-release/file/1444601/download. As alleged in part in the DOJ Release:

From August 2016 through August 2017, Melhado conspired with Jamere Hill-Birdsong, of Camden, and others, to defraud a Mount Laurel, New Jersey, bank. Hill-Birdsong worked inside the call center and recruited other call center employees to participate in the scheme by stealing the identities and account information of customers who called into the bank's call center. The conspirator bank employees would then take photographs or screenshots of the bank customers' account information and signatures and would send that information to Hill-Birdsong and Melhado. The conspirators then had phony identification documents made in the names of the bank customers, and used various runners to go into bank branches and make unauthorized cash withdrawals. The conspirators also used the stolen identity information to conduct unauthorized online transfers of monies from the customer's accounts.

SEC Charges Colorado Investment Adviser with Fraud (SEC Release)
https://www.sec.gov/litigation/litreleases/2021/lr25246.htm
In a Complaint filed in the United States District Court for the District of Colorado
https://www.sec.gov/litigation/complaints/2021/comp25246.pdf, the SEC charged Ann M. Vick, sole owner of the pooled investment fund AMV Investments LLC, with violating the antifraud provisions of Section 17(a) of the Securities Act, Section 10(b) of the Securities Exchange Act and Rule 10b-5 thereunder, and Sections 206(1), 206(2), and 206(4) of the Investment Advisers Act of 1940 and Rule 206(4)-8 thereunder. Without admitting or denying the allegations in the SEC Complaint, Vick  consented to the entry of a judgment that permanently enjoins her from future violations of the charged provisions and from participating in the offer or sale of any securities, and requires her to pay disgorgement of $570,150 together with prejudgment interest thereon in the amount of $27,929, and to pay a civil penalty of $570,150. Further, Vick  agreed to be prohibited from acting as an officer or director of any public company. As alleged in part in the SEC Release:

[F]rom August 2018 through January 2021, Vick represented herself to investors as a consistently successful options trader and promised investors exorbitant investment returns. As alleged, however, Vick's options trading resulted in a volatile mix of gains and losses, and she had never generated the consistent profits necessary to pay investors the returns she promised. According to the complaint, after suffering significant trading losses in early 2020, Vick began making Ponzi-like payments to investors and misappropriated approximately $570,150 of investor funds.

SEC Obtains Default Judgment Against Russian National for Defrauding Investors Out of Millions of Dollars in Phony Certificates of Deposit Scam (SEC Release)
https://www.sec.gov/litigation/litreleases/2021/lr25247.htm
The United States District Court for the District of New Jersey entered a final judgment against Denis Georgiyevich Sotnikov, Adaptive Technology LLC, AGQ Business Group LLC, ATL Business Group LLC, BO&SA Corporation, DN Industrial LLC, and Expert Digital LLC, finding that they had violated the anti-fraud provisions of Section 17(a) of the Securities Act, Section 10(b) of the Securities Exchange Act and Rule 10b-5 thereunder. The judgment permanently enjoins the Defendants from further violations; requires Sotnikov and the entities he controlled to collectively pay $2,628,260 in disgorgement, plus prejudgment interest; also requires Sotnikov to pay a civil penalty of $2,535,611 and requires each entity that he controlled to pay a separate $975,230 civil penalty; and, finally, requires his wife, Natalia Mazitova and the other relief defendants to collectively pay $1,277,900 in disgorgement, plus prejudgment interest. As alleged in part in the SEC Release:

[T]he scheme involved purchasing internet ads that targeted investors who were searching for CDs with above-market rates. The ads allegedly included links to phony websites, which falsely claimed that the firms offering the CDs were members of FINRA and the FDIC, and that deposits were FDIC-insured.  The complaint alleged that, when investors called the phone number on the websites, an "account executive" impersonating a real registered representative directed investors to wire funds to so-called "clearing" partners.  These purported clearing partners were allegedly entities used by Sotnikov and other participants in the scheme to launder and misappropriate millions of dollars in investor funds.  The complaint also alleged that several relief defendants received misappropriated investor funds, including Sotnikov's wife, Natalia Aleksandrovna Mazitova, and several entities they controlled.

FINRA Fines and Suspends Rep for Misrepresentations in SBA Loan Applications and for Willful Failure to Timely Disclose Tax Lies and Creditor Compromises
In the Matter of Latonya L. Anderson, Respondent (FINRA AWC 2020068453201)
https://www.finra.org/sites/default/files/fda_documents/2020068453201
%20Latonya%20L.%20Anderson%20CRD%206466679%20AWC%20jlg.pdf
For the purpose of proposing a settlement of rule violations alleged by the Financial Industry Regulatory Authority ("FINRA"), without admitting or denying the findings, prior to a regulatory hearing, and without an adjudication of any issue, Latonya L. Anderson submitted a Letter of Acceptance, Waiver and Consent ("AWC"), which FINRA accepted. The AWC asserts that Latonya L. Anderson was first registered in 2015, and by August 2018, she was registered with J.P. Morgan Securities LLC until October 2020. In accordance with the terms of the AWC, FINRA imposed upon Anderson a $12,500 fine and a nine-month suspension from associating with any FINRA member in all capacities. The AWC includes this acknowledgment:

Respondent understands that this settlement includes a finding that she willfully omitted to state a material fact on a Form U4, and that under Section 3(a)(39)(F) of the Securities Exchange Act of 1934 and Article III, Section 4 of FINRA's By-Laws, this omission makes her subject to a statutory disqualification with respect to association with a member.

As alleged in part in the AWC:

In 2020, as a result of the COVID-19 pandemic, the federal government initiated several programs to assist small businesses, including the COVID-19 Economic Injury Disaster Loan Program, which was administered by the SBA. In approximately June 2020, Anderson submitted an application to the SBA for an Economic Injury Disaster Loan. Before submitting the application, Anderson did not review the Economic Injury Disaster Loan program requirements to determine her eligibility, nor did she review any instructions concerning the application. Anderson completed and submitted the application using her cell phone and without referring to any documentation. 

In the application, Anderson recklessly misrepresented that: (i) she was the owner of a real estate business; (ii) the business had earned revenue and incurred costs in the 12 months prior to January 31, 2020; and (iii) the real estate business had ten employees. Anderson, then a registered representative of J.P. Morgan with no disclosed outside business activities, did not then own any such real estate business or have any other business eligible for an Economic Injury Disaster Loan from the SBA. 

Based on Anderson's misrepresentations, the SBA provided her with a $10,000 Economic Injury Disaster Loan advance but denied the loan application. Anderson legally formed a real estate business on July 21, 2020 and used some of the $10,000 she received from the SBA to pay for expenses relating to the business. To date, Anderson has not repaid the $10,000 to the SBA

Based on the foregoing, Anderson violated FINRA Rule 2010.

. . .

On April 28, 2016, the State of Louisiana filed a tax lien against Anderson for approximately $3,000. Anderson was aware of the lien at or around the time it was filed, but did not amend her Form U4 to disclose the lien until October 17, 2017, approximately 18 months after she first learned of the lien. 

In addition, between September 2015 and February 1, 2017, Anderson reached seven compromises with creditors totaling approximately $9,000. Anderson was aware of each of these compromises with creditors but did not disclose them on her Form U4 at any time when she was registered with J.P. Morgan Securities between July 2015 and March 2018. Anderson disclosed them on her Form U4 when she again registered through J.P. Morgan Securities in August 2018. 

By willfully failing to timely amend her Form U4, Anderson violated Article V, Section 2(c) of FINRA's By-Laws and FINRA Rules 1122 and 2010.

FINRA Arbitrators Find No Evidence For Customers' $10 Million UBS YES Claims (BrokeAndBroker.com Blog)
http://www.brokeandbroker.com/6132/finra-ubs-yes/
In poker and arbitration there is the game within the game. There's the bluff. There's misdirection. There's tactical betting. There's strategic betting. There knowing when to hold. And when to fold. All of which may not make much of a difference if you're dealt a crapola hand. In a recent FINRA arbitration, former UBS customers sought $10 million in damages based upon allegations about the firm's options program. Ante up.

Equitable Inadvertence Earns Inequitable FINRA Sanctions (BrokeAndBroker.com Blog)
http://www.brokeandbroker.com/6122/finra-equitable-awc/
FINRA censured and fined Equitable Advisors, LLC after the firm had settled a customer arbitration via an agreement in which the customer agreed to "not oppose, object to, or otherwise interfere with" any expungement motion. Although such a pre-conditioned settlement runs afoul of FINRA's rules, the regulator conceded that the offensive language was not inserted by Equitable and had inadvertently slipped by the firm's oversight. Which begs lots of questions for which there are no answers provided by FINRA.

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