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Securities Industry Commentator by Bill Singer Esq

October 28, 2021

Stipulated Arbitration Award Ends TD Ameritrade Solicitation Dispute (BrokeAndBroker.com Blog)

Bergen County Investment Advisor Arrested for Stealing Millions from Clients (DOJ Release)

SEC Charges Financial Adviser With Stealing Investor Funds to Pay Off Credit Cards, Buy Gold Coins (SEC Release)

SEC Awards About $24,000 to Whistleblower
Order Determining Whistleblower Award Claims

SEC Awards About $750,000 to Whistleblower
Order Determining Whistleblower Award Claims

Post-SPAC Music Streaming Company Reaches $38.8 Million Settlement in Ongoing Fraud Action (SEC Release)






http://www.brokeandbroker.com/6134/td-solicitation-arbitration/
Another day and another dispute on Wall Street between a former employer and a former employee. As TD Ameritrade saw it, scorched earth was the way to go. The firm asked for every damn form of damages you can imagine plus injunctions up the wazoo. In the end, we got the smell of napalm in the morning, but by night, the parties reached a settlement and stipulated to a FINRA Arbitration Award. All of which may explain why the FINRA broker-dealer model is a smokin' mess when it comes to employment disputes.

https://www.justice.gov/usao-nj/pr/bergen-county-investment-advisor-arrested-stealing-millions-clients
-and-
https://www.sec.gov/news/press-release/2021-217

In a Complaint filed in the United States District Court for the District of New Jersey
https://www.justice.gov/usao-nj/press-release/file/1445176/download, Kenneth A. Welsh was charged with four counts of wire fraud and one count of investment advisor fraud. As alleged in part in the DOJ Release:

From July 2017 through March 2021, Welsh, while serving in his capacity as an investment advisor employed by a large brokerage firm, misappropriated at least $2.86 million from five clients. Welsh, who had been entrusted to manage client funds responsibly, instead perpetrated a scheme to defraud the five clients by diverting money from their brokerage accounts to accounts under his control. Welsh then used the unlawfully obtained money to fund his gambling and to purchase high-end, luxury items for himself.

https://www.sec.gov/litigation/complaints/2021/comp-pr2021-217.pdf, the SEC charged Welsh with violations of the antifraud provisions of the federal securities laws.  As alleged in part in the SEC Release:

[W]elsh, a former financial adviser at a large financial institution's branch in Fairfield, New Jersey, misappropriated at least $2.86 million from the accounts of multiple clients and customers, some of whom were senior citizens.

Specifically, the complaint alleges that from January 2016 to January 2021, Welsh transferred funds from his clients' and customers' accounts to pay off balances in credit card accounts held in the names of his wife and parents. Welsh also allegedly caused checks to be fraudulently drawn on his clients' and customers' accounts. The complaint alleges that Welsh made at least 137 fraudulent transactions and used the stolen funds to purchase gold coins and other precious metals, buy luxury goods, and make electronic fund transfers to himself.

SEC Awards About $24,000 to Whistleblower
Order Determining Whistleblower Award Claims ('34 Act Release No. 34-93440; Whistleblower Award Proc. File No. 2022-9)
https://www.sec.gov/rules/other/2021/34-93440.pdf
The SEC's Claims Review Staff ("CRS") issued a Preliminary Determination recommending a Whistleblower Award of about $24,000 to Claimant. The Commission ordered that CRS' recommendations be approved. The Order asserts that:

[C]laimant provided substantial assistance to an investigation by meeting in person with Commission staff, providing documents, and identifying potential witnesses, which enabled the Commission to bring an emergency action and significantly contributed to the success of the Covered Action. 

SEC Awards About $750,000 to Whistleblower
Order Determining Whistleblower Award Claims ('34 Act Release No. 34-93441; Whistleblower Award Proc. File No. 2022-10)
https://www.sec.gov/rules/other/2021/34-93441.pdf
The SEC's Claims Review Staff ("CRS") issued a Preliminary Determination recommending a Whistleblower Award of about $750,000 to Claimant. The Commission ordered that CRS' recommendations be approved. The Order asserts that:

[C]laimant alerted the Commission to the on-going conduct, prompting the opening of the investigation, and thereafter provided substantial, ongoing assistance, including participating in multiple voluntary interviews with Commission staff, identifying key witnesses, providing helpful documents, and explaining complex issues, which saved significant Commission staff time and resources.

https://www.sec.gov/news/press-release/2021-216
As set forth in the SEC Release:

The Securities and Exchange Commission today announced a $38.8 million settlement of charges against Akazoo S.A., a purported music streaming business based in Greece, for allegedly defrauding investors out of tens of millions of dollars in connection with a 2019 special purpose acquisition company (SPAC) business combination. Akazoo's assets were previously frozen as the result of an emergency action filed by the SEC in September 2020.

According to the SEC's complaint, Akazoo represented to investors that it was a rapidly growing music streaming company focused on emerging markets with more than 38.2 million registered users, 4.6 million paying subscribers, and over $120 million in annual revenue. In actuality, the complaint alleged that the company had no paying users and, at most, negligible revenue. Akazoo allegedly leveraged these misrepresentations to enter into a SPAC business combination in 2019, in which the company received nearly $55 million from the SPAC and other investors. According to the complaint, after the business combination, Akazoo became listed on Nasdaq and proceeded to defraud retail investors by misrepresenting, among other things, that it had earned tens of millions of dollars in revenue during 2019 and increased its paying subscriber base by 28% year-over-year. In reality, the company allegedly continued to have limited operations, no subscribers, and marginal revenue, all while depleting more than $20 million of investor funds.

The SEC filed its emergency action to, among other things, preserve the company's remaining $31.5 million in cash and other assets. In October 2020, the court signed and entered an agreed stipulation whereby Akazoo agreed to an asset freeze. In April 2021, without admitting or denying the allegations, Akazoo agreed to a bifurcated judgment that permanently enjoined the company from violating, among other things, the antifraud and reporting provisions of the federal securities laws. The settlement announced today fully resolves the litigation by ordering Akazoo to pay $38.8 million in disgorgement, an amount that will be deemed satisfied by the company's payment of $35 million to the investors victims and settlements in connection with several private class action lawsuits.

https://www.sec.gov/litigation/litreleases/2021/lr25249.htm
-and-
https://www.cftc.gov/PressRoom/PressReleases/8454-21

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.   

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. 

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's 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.

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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