The Wall Street Legal & Regulatory Feed

Securities Industry Commentator by Bill Singer Esq

November 24, 2021









SEC Charges Oilfield Services Company and Former CEO With Failing to Disclose Executive Perks and Stock Pledges (SEC Release)

Israeli Securities Trader Sentenced To 30 Months In Prison For Role In International Insider Trading Scheme (DOJ Release)

SEC Obtains Final Judgment Against Trader in International Insider Trading Scheme (SEC Release)

Superseding Indictments Charge Three Bank Employees and Eight Others in Alleged Counterfeit Checks and Bank Fraud Schemes (DOJ Release)













http://www.brokeandbroker.com/6182/finra-arbitration-baseless/
Two Wall Street professionals were accused by two customers of having engaged in some seven years of account mismanagement. The two industry reps denied the customers' allegations, climbed into the old FINRA arbitration ring, went the distance, and emerged victorious -- a tad bloody and battered for their efforts but still standing.

https://www.federalreserve.gov/newsevents/pressreleases/enforcement20211123a.htm

In a Complaint filed in the United States District Court for the Northern District of California, former Silicon Valley Bank Vice President Mounir Gad was charged with document tampering, identity theft, and criminal contempt. As alleged in part in the DOJ Release:

The criminal complaint was filed on November 19, 2021, and unsealed today.  According to the complaint, on October 27, 2021, Gad, 35, of Los Gatos, submitted to the federal court 12 letters of support in advance of his sentencing for two counts of securities fraud.  The criminal complaint alleges that half of these letters were improperly altered or entirely fabricated.  Specifically, of the twelve letters submitted, Gad altered three of them without the authors' knowledge, adding additional language praising Gad.  Additionally, Gad submitted three more letters that were not written by the purported authors and without the purported authors' knowledge.  On November 3, 2021, before the alleged problems with the sentencing documents had come to light, the Honorable Lucy H. Koh, U.S. District Judge, sentenced Gad to two years of probation, a $500 fine, and a $200 assessment for each count of securities fraud.  Gad now faces criminal charges in connection with the documents he submitted for that sentencing.

This sentencing followed Gad's guilty plea to two counts of securities fraud, in violation of 15 U.S.C. § 78j(b) and 78ff, 17 C.F.R. §§ 240.10b-5, 240.10b5-1, and 240.10b5-2, 18 U.S.C. § 2.  In connection with the guilty plea, Gad admitted he was a trained investment banking professional who repeatedly received training and guidance about the proper use of material non-public and confidential information.  Gad also admitted he knew about the prohibitions against the improper use of such information including how the use of such information for personal gain may violate the insider trading laws.  Gad nevertheless violated the insider trading laws on two occasions.  Specifically, in April of 2015 and again in August of 2016, Gad obtained material non-public information through his employer when the bank advised clients about financial matters related to the acquisition of certain companies; Gad shared the non-public information with a codefendant who used the information to execute securities transactions.  

After accepting Gad's request to enter a plea of guilty, Judge Koh scheduled Gad's sentencing hearing for November 3, 2021.  According to the criminal complaint, one of Gad's references, identified as B.L., prepared a letter for the court in advance of the hearing and emailed the letter to Gad.  B.L. then attended the November 3 sentencing hearing.  The criminal complaint describes how B.L. heard at the sentencing hearing the court reference statements in a letter submitted in her name that she had not written and were not true.  B.L. contacted Gad's defense attorney who, in turn, notified the Court.  The criminal complaint further describes how the Court scheduled a subsequent hearing on November 10, 2021, at which Judge Koh stated, "What I considered and what I found to be very compelling about this letter, are lies that Mr. Gad put in the letter." 

In addition, the criminal complaint further describes how Gad allegedly altered the letters of two additional persons who submitted letters on Gad's behalf.  In each case, the alterations included praise of Gad's good character, including praise for having "the highest integrity and character," for being "productive in a moral and ethical way," and for how Gad "saved [B.L.'s] life with his story, with his accountability, and with his dignity."  Furthermore, the complaint describes how Gad allegedly submitted three letters to the Court without the purported authors' knowledge.  The bogus letters were from Gad's ex-fiancé, and two additional people who previously submitted letters on behalf of Gad in connection with other litigation.  

In sum, the criminal complaint charges Gad with document tampering, in violation of 18 U.S.C. § 1512(c)(1); identity theft, in violation of 18 U.S.C. § 1028(a)(7); and criminal contempt, in violation of 18 U.S.C. § 401(1).

https://www.justice.gov/usao-ndil/pr/joliet-financial-advisor-indicted-federal-fraud-charges-allegedly-swindling-clients-out
In an Indictment filed in the United States District Court for the Northern District of Illinois, Ronald T. Molo was charged with six counts of wire fraud. As alleged in part in the DOJ Release:

[M]olo worked as a licensed financial advisor in the Joliet branch of a national financial services firm.  From 2018 to earlier this year, Molo falsely represented to clients that their investments with him would be income-producing and tax-free, and that they would receive regular, periodic interest payments, the charges allege.  In reality, Molo did not intend to invest client funds and instead misappropriated their money to pay for personal expenses, including Cadillac XT5 and GMC Yukon sport-utility vehicles, mortgage payments for himself and family members, home remodeling and construction costs, lottery tickets, travel and shopping expenses, and cash payments to family members, the indictment states.

As a result of the scheme, Molo caused at least three clients to suffer losses totaling $778,000, the indictment states.

https://www.sec.gov/litigation/litreleases/2021/lr25273.htm
The United States District Court for the Southern District of Indiana entered Final Judgments against:

  • Kevin Kuhnash https://www.sec.gov/litigation/litreleases/2021/judgment25273-kuhnash.pdf
  • Jason Jimerson https://www.sec.gov/litigation/litreleases/2021/judgment25273-jimerson.pdf 
Per their respective Final Judgments, Kuhnash and Jimerson were permanently enjoined from 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 barred from serving as officers or directors of a public company. Additionally, Kuhnash was ordered to pay disgorgement of $1,394,498, with prejudgment interest of $422,319; and Jimerson was ordered to pay disgorgement of $648,946, with prejudgment interest of $182,724. As alleged in part in the SEC Release:

The SEC's complaint, filed on February 12, 2019 in the United States District Court for the Southern District of Indiana, alleged that Kuhnash, the former Lucent CEO, and Jimerson the former Lucent COO, engaged in a scheme to conceal that the company's core business model was a sham in connection with the company's acquisition by another manufacturer in 2013. According to the SEC's complaint, Lucent routinely lied to its customers and falsified its certifications of test data to show that its products complied with customer specifications, including on important aspects such as fire-retardant measures. Kuhnash and Jimerson allegedly hid Lucent's fraudulent practices, made misrepresentations to the company that acquired Lucent, and continued the fraud even after the sale of the business to secure future payments.

In a parallel action with the United States Attorney's Office for the Southern District of Indiana, Kuhnash pleaded guilty to two counts of securities fraud and one count of money laundering and Jimerson pleaded guilty to two counts of securities fraud, one count of money laundering, and one count of making false statements to federal agents. On March 2, 2021, Kuhnash was sentenced to 36 months of imprisonment, followed by one year of supervised release, and ordered to pay a $10,000 fine. On March 25, 2021, Jimerson was sentenced to 24 months of imprisonment, followed by two years of supervised release, and ordered to pay a $10,000 fine.

The United States District Court for the Central District of California entered Final Judgments as to monetary relief against:

  • Guy Scott Griffithe for over $5.3 million in disgorgement, prejudgment interest, and civil penalties; and 
  • Robert William Russell, for over $698,000 in disgorgement, prejudgment interest, and civil penalties
As alleged in part in the SEC Release:

[G]riffithe used Renewable Technologies Solution, Inc., an entity he controlled, to sell investors purported ownership interests in SMRB, LLC, a Washington company owned by Russell that held a license to grow marijuana under the state's recreational cannabis laws. Griffithe and Russell led investors to believe their investments in Renewable would be used to operate SMRB. Instead, Griffithe allegedly spent investor funds on personal and unrelated business expenses, including payments toward several luxury cars for himself and a yacht for Russell, and deposited approximately $1.7 million into Russell's personal bank accounts. To create the illusion that the marijuana business was profitable and paying dividends as promised, Griffithe allegedly paid out purported profit distributions to some investors, which were partially funded in a Ponzi-like fashion using funds from other investors.

Griffithe and Russell previously agreed to a bifurcated settlement, whereby the Court would determine any monetary remedies against them. In its final judgments, the Court ordered Griffithe to pay $2,093,336 in disgorgement, $336,194 in prejudgment interest, and $2,882,539 in a civil penalty, for a total of approximately $5,312,071. Furthermore, the Court ordered Russell to pay $275,153 in disgorgement, $44,190 in prejudgment interest, and $378,888 in a civil penalty, for a total of approximately $698,232. The judgment permanently enjoins Griffithe and Russell from violating the anti-fraud provisions of Section 17(a) of the Securities Act of 1933 ("Securities Act") and Section 10(b) of the Securities Exchange Act of 1934 ("Securities Exchange Act") and Rule 10b-5 thereunder; and permanently enjoins Griffithe from violating the registration provisions of Section 5 of the Securities Act. The judgment also permanently bars Griffithe from participating in the issuance, purchase, offer, or sale of any security in an unregistered offering by an issuer, and from acting as an officer or director of any issuer that has a class of securities registered or that is required to file reports pursuant to the Securities Exchange Act.

By stipulation of the parties, the Court dismissed from the case Defendants Renewable Technologies Solution, LLC and Green Acres Pharms, LLC on March 18, 2021; Defendant SMRB, LLC on May 7, 2021; and Relief Defendant Sonja Marie Russell on July 13, 2021. Accordingly, the Court's final judgments resolve the litigation.

SEC Charges Promoter with Conducting Cryptocurrency Investment Scams (SEC Release)
https://www.sec.gov/litigation/litreleases/2021/lr25271.htm
In a Complaint filed in the United States District Court for the Central District of California
https://www.sec.gov/litigation/complaints/2021/comp-pr2021-237.pdf, the SEC charged Ryan Ginsgter with violating the antifraud provisions of Section 17(a) of the Securities Act and Section 10(b) of the Securities Exchange Act and Rule 10b-5 thereunder, and violating the registration provisions of Sections 5(a) and (c) of the Securities Act. As alleged in part in the SEC Release:

[F]rom 2018 to 2021, Ginster raised approximately $3.6 million in Bitcoin through two online platforms-MyMicroProfits.com and Social Profimatic-that promised astronomical rates of return by falsely claiming returns through, amongst other activities, purported "cryptocurrency trading and advertising arbitrage." The complaint also alleges that Ginster deceived investors in both offerings about, among other things, how their funds would be used, because Ginster misappropriated at least $1 million of the funds raised to pay personal expenses, including tax payments, housing expenses, and credit card bills.

https://www.sec.gov/litigation/litreleases/2021/lr25268.htm
In a Complaint filed in the United States District Court for the Southern District of New York
https://www.sec.gov/litigation/complaints/2021/comp25268.pdf, the SEC charged Carol E. Cohen and her son Austin Rotter with violating the antifraud provisions of Section 10(b) of the Securities Exchange Act and Rule 10b-5 thereunder. Without admitting or denying the allegations in the SEC Complaint, Cohen and Rotter agreed to the entry of a final judgment enjoining them from violations of the charged provisions and imposing civil penalties of $91,292.06 against Cohen, and of $45,646.03 against Rotter. As alleged in part in the SEC Release:

[C]ohen, a retired school teacher, purchased shares of The Trade Desk on the basis of material, non-public information she obtained from her son in advance of the company's positive second-quarter earnings report. Rotter allegedly obtained The Trade Desk's advance earnings information in the summer of 2018 through his job at an outside public relations firm for The Trade Desk. According to the complaint, Rotter violated confidentiality agreements that prohibited him from using or disclosing The Trade Desk's financial information and made a series of phone calls to his mother prior to the announcement. Cohen allegedly purchased $86,000 worth of shares of The Trade Desk following the phone calls with her son and sold them shortly after the company's share price increased 37% following the public announcement of the earnings results, netting $45,646.03 in illicit profits.

https://www.sec.gov/litigation/litreleases/2021/lr25267.htm
The United States District Court for the Southern District of New York issued a Final Judgment against John A. Paulsen (a former managing director and fixed income research analyst at a registered broker-dealer), who was charged with aiding and abetting a pay-to-play scheme involving the New York State Common Retirement Fund. The Final Judgment enjoins Paulsen from violating the antifraud provisions of Section 17(a) of the Securities Act and Section 10(b) of the Securities Exchange Act and Rule 10b-5 thereunder; and he is ordered to pay a $100,000 civil penalty. As alleged in part in the SEC Release:

After a virtual bench trial held in July 2020, Judge Paul G. Gardephe of the U.S. District Court for the Southern District of New York, found Paulsen liable on all counts. In an October 2020 order, the court found that, from early 2014 until February 2016, Navnoor S. Kang was the Fund's Director of Fixed Income, with investment responsibility for approximately $50 billion of the Fund's assets. Kang used his position at the Fund to solicit and receive improper entertainment from Paulsen and Deborah D. Kelley, a registered representative at the broker-dealer. In exchange, Kang directed a significant amount of state business to the broker-dealer, generating sizable commissions. The court found that although Kang told Paulsen and Kelley that the Fund had very strict rules that prohibited him from accepting anything from Paulsen, Paulsen and Kelley spent thousands of dollars entertaining Kang and his girlfriend. Paulsen and Kelley then sought reimbursement of those expenses from the broker-dealer, and submited false expense reports which concealed the fact they had entertained Kang on the trip. Later, when the broker-dealer discovered inconsistencies in the expense reports and began an internal investigation, Paulsen and Kelley conspired to lie, and did lie, to the broker-dealer's internal investigators. The court concluded that Paulsen lied because he understood that Kang and Kelley were engaged in an illegal quid pro quo relationship.

The SEC previously obtained final judgments against Kang, Kelley, and another individual in connection with this conduct.

https://www.sec.gov/news/press-release/2021-244
Oilfield services company ProPetro Holding Corp. and its founder/former Chief Executive Officer Dale Redman agreed to settle charges in an SEC Order 
https://www.sec.gov/litigation/admin/2021/33-11008.pdf that Redman caused ProPetro to incur $380,594 worth of personal and travel expenses unrelated to the performance of his duties as CEO; and, further, that he failed to disclose to company personnel that he had pledged all of his ProPetro stock in two private real estate transactions. Further, the SEC Order alleges that ProPetro failed to properly disclose $47,591 in additional, authorized perks it paid to Redman. In summary, the Order alleges that the company issued public filings that included material misstatements regarding executive perks and stock ownership, and failed to accurately record Redman's perks in its books and records. As alleged in part in the SEC Release:

The SEC's order finds that ProPetro violated reporting, books and records, internal accounting controls, and proxy provisions of the federal securities laws, and that Redman violated proxy provisions and negligence-based antifraud provisions. Redman also caused ProPetro's reporting and books and records violations. Without admitting or denying the SEC's findings, ProPetro and Redman agreed to cease-and-desist from further violations, and Redman agreed to pay a $195,046 penalty. The order notes ProPetro's significant cooperation with the agency's investigation as well as its extensive remedial efforts, which included hiring an entirely new management team with significant public company experience, hiring additional finance department personnel, installing several new directors, and developing new controls, policies, and procedures concerning perks.

https://www.justice.gov/usao-sdny/pr/israeli-securities-trader-sentenced-30-months-prison-role-international-insider-trading
-and-
https://www.sec.gov/litigation/litreleases/2021/lr25269.htm

Securities trader Dov Malnik pled guilty to one count of securities fraud in the United States District Court for the Southern District of New York, and he was sentenced to 30 months in prison and ordered to pay a fine of $50,000 and forfeiture of $1,594,779.. As alleged in part in the DOJ Release:

DOV MALNIK and his business partner and codefendant Tomer Feingold, both Israeli citizens, were securities traders who traded in their own names and managed various companies and investment funds.  From at least 2013 through 2017, MALNIK participated in a large-scale, international insider trading ring.  Through the scheme, MALNIK received material, nonpublic information ("MNPI") concerning acquisitions and potential acquisitions of publicly traded companies from a securities trader who resided in Switzerland ("CC-1").  MALNIK knew that this MNPI was obtained by CC-1 directly and indirectly from individuals who were insiders at publicly traded companies and investment banks.  These insiders breached their fiduciary duties and shared MNPI with others, including CC-1, in exchange for compensation, who in turn shared that information with MALNIK.  MALNIK used that information to place timely, profitable securities trades resulting in millions of dollars of profits.

Throughout the conspiracy, MALNIK, Feingold, the investment bank insiders, CC-1, and others involved in this scheme, took numerous steps to conceal their unlawful enterprise, including through the use of encrypted messaging applications and multiple unregistered "burner" cellphones to communicate with each other.  MALNIK also attempted to avoid detection by engaging in securities trading through numerous offshore corporate entities.  For example, in 2011, MALNIK incorporated a British Virgin Islands entity based in Geneva, Switzerland, and subsequently opened trading and/or bank accounts in that shell company's name.  During the insider trading scheme, MALNIK's offshore companies traded in the stocks of companies about which MALNIK had received MNPI - often with multiple of those companies trading in the same stock and on the same days.

MALNIK also used these entities to transfer a portion of the profits of his and Feingold's illegal insider trading to CC-1, as per MALNIK's agreement with CC-1.  At first, MALNIK instructed his bank to send the funds to an account at a financial institution in Switzerland that agreed to hold the funds for the benefit of CC-1.  After a short time, however, MALNIK's bank questioned the purpose of the transactions and requested justification for the transfer of funds.  Accordingly, in order to deceive the banks, MALNIK, Feingold, and CC-1 agreed that CC-1 would issue fake invoices for consulting services to MALNIK and Feingold's various offshore entities.  The offshore entities would then send the funds to CC-1's account pursuant to the fake invoices.

To date, this investigation has also resulted in the conviction of other individuals who were involved in this global insider trading scheme, including investment banker Bryan Cohen, who pled guilty on January 7, 2020, to illegally passing MNPI related to his bank's corporate clients, and entrepreneur and pharmaceutical company executive Telemaque Lavidas, who was convicted on January 15, 2020, of illegally passing MNPI related to Ariad Pharmaceuticals, Inc.

In response to a Complaint filed in the United States District Court for the Southern District of New York
https://www.sec.gov/litigation/litreleases/2020/lr24761.htm, Dov Malnik entered into a Final Consent Judgment and agreed to pay over $28 million in a civil penalty. As alleged in part in the SEC Release:

According to the SEC's complaint, filed in March 2020, Malnik generated millions of dollars in profits by trading in the securities of U.S. public companies in advance of news that these companies had been targeted for acquisition between 2013 and 2015. Malnik allegedly received the illicit tips through a network that included two London-based investment bankers, both of whom the SEC charged in October 2019. Malnik carried out the alleged scheme by trading in a variety of personal and corporate accounts including the accounts of hedge funds that he managed.

The final consent judgment against Malnik permanently enjoins him from violating Sections 10(b) and 14(e) of the Securities Exchange Act of 1934 and Rules 10b-5 and 14e-3 thereunder and orders him to pay a civil penalty in the amount of $2,828,699.

https://www.justice.gov/usao-ri/pr/superseding-indictments-charge-three-bank-employees-and-eight-others-alleged-counterfeit
In Superseding Indictments filed in the United States District Court for the District of Rhode Island, 11 individuals (including three bank employees) were charged with conspiracy to commit bank fraud; and, additionally, Defendants Junior Richards, Darren Maenza, and Godgift Rosler were charged with 12 counts of bank fraud; and, also, Defendant Richard Koboi was charged with 12 counts of bank fraud and one count each of aggravated identity theft and felon in possession of a firearm. As alleged in part in the DOJ Release:

[F]our defendants allegedly participated in one scheme that defrauded banks for approximately one year beginning in April 2020. Seven individuals allegedly participated in an unrelated scheme that defrauded banks for approximately 14 months beginning in January 2020.

In one of the schemes, an indictment unsealed on Thursday alleges that Terrance Richardson, 30, of Providence, obtained and stole checks and bank account information belonging to businesses and individuals, and used the information to create counterfeit checks. The indictment alleges that Richardson gained the assistance of Machaela Farias, 26, of Providence, an employee at Santander Bank, to facilitate the deposit of the counterfeit checks.

It is further alleged that as part of the scheme, Richardson and others obtained debit card information of individuals who agreed to be compensated for allowing counterfeit checks to be deposited into their bank accounts. Once the checks were deposited, Richardson, Farias, Johanna Arias, 33, of Providence, Jordan Robertson, 24, of Providence, and others, quickly withdrew the funds from the accounts. The indictment alleges that members of the conspiracy deposited at least $165,154 in counterfeit checks and withdrew at least $89,453 in cash.

The indictment charges Richardson, Farias, Arias, and Robertson with conspiracy to commit bank fraud and 14 counts of bank fraud. Additionally, Richardson is charged with aggravated identity theft.

In an unrelated matter, an indictment unsealed on November 15, 2021, alleges that Richard Koboi, 26, of Providence, Maximillan Mwah, 38, and Godgift Rosler, 33, of Pawtucket, obtained and stole checks and bank account information belonging to small businesses and individuals. It is alleged that some of the account information and checks were accessed and provided by Savonnah Briggs, 26, and Isha-Lee Savage, 23, of Providence, while working at Citizens Bank and Santander Bank respectively. The information was allegedly used to create counterfeit checks that Koboi, Mwah, and others deposited into the bank accounts of individuals that were paid in exchange for their agreement to allow their bank accounts to be used. Nearly$70,000 in counterfeit checks was deposited into the accounts. The indictment alleges that Koboi, Mwah, Junior Richards, 24, of Pawtucket, Darren Maenza, 27, of Pawtucket, and others made rapid withdrawals, cash transfers, and debit card purchases from the accounts.

Former Memphis Attorney Sentenced in Scheme to Defraud Clients (DOJ Release)
https://www.justice.gov/usao-wdtn/pr/former-memphis-attorney-sentenced-scheme-defraud-clients
After a four-day jury trial in the United States District Court for the Western District of Tennessee, former attorney George E. Skouteris, Jr., 59, was found guilty of seven counts of bank fraud; and he was sentenced to 30 months in prison plus three years of supervised release. As alleged in part in the DOJ Release:

[B]etween 2007 and March 2013, Skouteris engaged in a scheme to defraud his clients by settling cases without notifying them and forging their endorsements on settlement checks made jointly payable to him and the client. Skouteris then deposited the checks to bank accounts he maintained at TrustOne Bank.

SEC Awards Over $6.3 Million and $1.3 Million To Whistleblower Claimants
Order Determining Whistleblower Award Claims ('34 Act Release No. 34-93636; Whistleblower Award Proc. File No. 2022-15)
https://www.sec.gov/rules/other/2021/34-93636.pdf
The SEC's Claims Review Staff ("CRS") issued Preliminary Determinations recommending a Whistleblower Award to a Claimant 1 in the amount of over $6.3 million; and to Claimant 2 of over $1.3 million. The Commission ordered that CRS' recommendations be approved. The Order asserts that [Ed: footnote omitted]:

[(i)] both Claimant 1 and Claimant 2 provided new information during an existing investigation, alerting Commission staff to alleged Redacted schemes occurring in different geographic areas; (ii) while both Claimants' information was important to the success of the Covered Action, Claimant 1's information was more significant as Commission staff was able to corroborate all of Claimant1's information and the majority of the relief ordered in the case was based on the conduct alleged by Claimant 1; (iii) both Claimants provided substantial, ongoing assistance that conserved significant Commission time and resources; (iv) Claimant 1 reported the concerns internally prior to reporting to the Commission; and (v) Claimant 1 reported to the Commission expeditiously while Claimant 2 waited a period of approximately 16 months before reporting to the Commission.

Further, as to the Related Action, we find that the proposed *** % award to Claimant 1 is appropriate. Claimant 1 provided the same information to the Other Agencies, which commenced an investigation based on Claimant 1's information and brought charges in the Related Action based on the same conduct alleged by Claimant 1 that formed the factual basis for part of the Covered Action. We find that the contributions made by Claimant 1 to the Covered Action are similar to Claimant 1's contributions to the success of the Related Action, and, therefore, it is appropriate that Claimant 1 receive a *** % award percentage in the Related Action. 

Order Determining Whistleblower Award Claims ('34 Act Release No. 34-93637; Whistleblower Award Proc. File No. 2022-16)
https://www.sec.gov/rules/other/2021/34-93637.pdf
The SEC's Claims Review Staff ("CRS") issued Preliminary Determinations recommending a Whistleblower Award to a Claimant 1 in an unstated percentage, and that Claimant 1 and Claimant 2 receive a Whistleblower Award on a collective basis in an unstated percentage. The anticipated total payments are asserted in the Order to be about $2.4 million. The Commission ordered that CRS' recommendations be approved. The Order asserts that [Ed: footnote omitted]:

The record demonstrates that Claimant 1 voluntarily provided original information to the Commission that led to the successful enforcement of the Covered Action. Accordingly, Claimant 1 qualifies for a whistleblower award. Applying the award criteria as specified in Rule 21F-6 of the Exchange Act based on the specific facts and circumstances here, as well as our review of Claimant 1's response to the Preliminary Determinations, we find that an award of Redacted percent ( *** %) is appropriate. Claimant 1's information caused the staff to open the investigation that led to the Covered Action, and Claimant 1 provided significant assistance to Commission staff during the investigation by providing documents and making himself/herself available for interviews. Claimant 1 also provided additional assistance as the investigation progressed, including key pieces of evidence that allowed the staff to complete the investigation more quickly. 

We decline to accept the contentions raised in Claimant 1's response to the Preliminary Determinations. As discussed below, the record demonstrates that Claimant 2 is eligible for an award, and a *** % award to Claimant 1 is appropriate given the relative value of each of the Claimants' contributions.

. . .

[B]ecause Claimant 2's information was of substantially less value than that of Claimant 1, whose information alerted staff to the violations, we believe that a significantly lower award of ** % is warranted here. 

Order Determining Whistleblower Award Claims ('34 Act Release No. 34-93635; Whistleblower Award Proc. File No. 2022-17)
https://www.sec.gov/rules/other/2021/34-93635.pdf
The SEC's Claims Review Staff ("CRS") issued Preliminary Determinations recommending a Whistleblower Award to a Claimant 1 in the amount of about $240,000; and to Claimant 2 of about $195,000. The Commission ordered that CRS' recommendations be approved. The Order asserts that [Ed: footnote omitted]:

[C]laimant 1 alerted Commission staff to alleged fraudulent conduct that, in part, prompted staff to open an investigation. Claimant 1 met in person with Commission staff, as well as representatives from the Other Agency, and provided additional information following that meeting. Claimant 2 also met with Commission staff, along with representatives from the Other Agency, and provided new, detailed and highly valuable information early in the investigation that was instrumental in assisting the staff to develop its theory of liability. Redacted 

Further, we find that it is appropriate that Claimant 1 and Claimant 2 receive an equal percentage in connection with the Covered Action because of their comparable contributions to the success of the Covered Action. With respect to the Related Action, we agree with the CRS's recommendation that Claimant 1 receive a higher award, as Claimant 1's information and assistance played a more significant role in the success of the Related Action as compared to the information and assistance provided by Claimant 2. 

Order Determining Whistleblower Award Claims ('34 Act Release No. 34-93648; Whistleblower Award Proc. File No. 2022-18)
https://www.sec.gov/rules/other/2021/34-93648.pdf
The SEC's Claims Review Staff ("CRS") issued Preliminary Determinations recommending a Whistleblower Award to a Claimant 1 in the amount of about $40,000. The Commission ordered that CRS' recommendations be approved. The Order asserts that [Ed: footnote omitted]:

[(1)] Claimant's information alerted Enforcement staff to the potential wrongdoing, which, in part, prompted Enforcement staff to open the investigation; (2) Claimant provided significant ongoing assistance to Enforcement staff during the investigation that saved Commission time and resources; (3) there are high law enforcement interests here as money was returned to harmed investors; (4) Claimant's information and cooperation helped the Commission to shut down an ongoing Ponzilike scheme preying on retail investors and obtain emergency relief in the action. 

Against these positive factors, we also believe that Claimant's award percentage should be reduced for culpability. While Claimant was not charged in the matter, the record reflects that Claimant became aware of  Redacted

We also recognize there are several mitigating factors, including that Claimant  Redacted were harmed investors, that Claimant was unaware of certain fraudulent aspects of the investment scheme, and took some steps to help remediate the harm, including Redacted

Redacted Accordingly, we believe that a award strikes the appropriate balance between Claimant's significant contributions to the success of the Covered Action and Redacted Redacted Redacted Redacted Redacted Claimant's level of culpability.

Order Determining Whistleblower Award Claims (CFTC Whistleblower Award Determination No. 22-WB-01))
https://www.whistleblower.gov/sites/whistleblower/files/2021-11/No.%2022-WB-01.pdf
The CFTC's Claims Review Staff ("CRS") issued Preliminary Determinations recommending a Whistleblower Award to a Claimant 1 and Claimant 2, and denying an Award to Claimant 3 and Claimant 4. The Commission ordered that CRS' recommendations be approved. The Order asserts in part that:

[A]llocating a higher award percentage to Claimant 1 is appropriate because of the key role that Claimant 1's information played in causing the Division to open the investigation that led to the Covered Action and focusing the Division's efforts during the investigation's earliest stages. . . 

Bill Singer's Comment: "CFTC Awards Approximately $1 Million to Two Whistleblowers  (CFTC Release / November 22, 2021) https://www.cftc.gov/PressRoom/PressReleases/8463-21 asserts that the above Awards to Claimant 1 and 2 totaled "nearly $1 million." I'll be damned if I can find that number in the actual CFTC Order but I'm getting old, it's nearly Thanksgiving, and maybe it's there and my eyes just don't see it. 

https://www.finra.org/sites/default/files/fda_documents/2018058820103
%20McNally%20Financial%20Services%20Corporation
%20CRD%20121196%20AWC%20sl.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, McNally Financial Services Corporation submitted a Letter of Acceptance, Waiver and Consent ("AWC"), which FINRA accepted. The AWC asserts that McNally Financial Services Corporation has been a FINRA member firm since 2002 with about 27 registered representatives at 10 branches.  In accordance with the terms of the AWC, FINRA imposed upon McNally Financial Services a Censure, $35,000 fine, and an undertaking to revise its policies and procedures attendant to the cited violations. The AWC asserts under "Overview" that [Ed: footnote omitted]:

From March 2014 through March 2019, MFS failed to establish and maintain a supervisory system and enforce written supervisory procedures (WSPs) reasonably designed to achieve compliance with FINRA Rule 2111 in relation to the sale of nontraditional exchange traded products (NT-ETPs).2 

MFS also failed to reasonably supervise a registered representative who recommended complex options trading strategies to customers. MFS was aware of red flags in the options trading that indicated the trading and strategy may be inconsistent with the customers' investment profiles but failed to take reasonable action to investigate these red flags.  

As a result, MFS violated FINRA Rules 3110, 2360(b)(20)(C), and 2010, and NASD Rule 3010.

https://www.finra.org/sites/default/files/fda_documents/2019064823601
%20William%20W.%20LeBoeuf%20CRD%202464080%20AWC%20sl.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, Willam W. LeBoeuf submitted a Letter of Acceptance, Waiver and Consent ("AWC"), which FINRA accepted. The AWC asserts that LeBoeuf entered the industry in 1993, was first registered in 1994, was registered in 2009 with FINRA member firm Merrill Lynch, Pierce, Fenner & Smith, where he remained until he associated with Cetera Advisor Networks LLC in March 2019 through December 2019. In accordance with the terms of the AWC, FINRA imposed upon LeBoeuf a $12,500 fine and 12-month suspension from associating with any FINRA member in all capacities. The AWC asserts under "Overview" that [Ed: footnote omitted]:

In 2017, while associated with Merrill Lynch, Respondent participated in a private securities transaction by soliciting a firm client, a family member of the Respondent, to invest in a pooled real estate investment fund. Additionally, in 2019, while associated with Cetera, Respondent participated in a private securities transaction by facilitating investments of three Cetera customers in a convertible promissory note issued by Company B, a software company. Respondent's customers at Merrill Lynch and Cetera invested a total of $1 million in the two securities that he recommended. Respondent participated in these private securities transactions without notifying and receiving prior written approval from Merrill Lynch or Cetera. As a result of this conduct, Respondent violated FINRA Rules 3280 and 2010. 

In 2019, Respondent formed and became the sole manager of a limited liability company that he created for the purpose of pooling and making investments in the convertible promissory note issued by Company B. Respondent did not provide Cetera with notice or obtain prior approval before engaging in this outside business activity. As a result, he violated FINRA Rules 3270 and 2010. 

Additionally, in the course of facilitating investments in Company B, Respondent emailed a presentation to potential investors which did not clearly explain the applicable risks of the investment to investors. As a result, Respondent violated FINRA Rules 2210(d)(1)(A) and 2010. 

https://www.finra.org/sites/default/files/fda_documents/2018059344901
%20StoneX%20Financial%20Inc.%20fka%20INTL
%20FCStone%20Financial%20Inc.%20CRD%2045993%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, StoneX Financial Inc., f/k/a INTL FCStone Financial Inc. submitted a Letter of Acceptance, Waiver and Consent ("AWC"), which FINRA accepted. The AWC asserts that StoneX Financial has been a FINRA member firm since 1999 with about 400 registered representatives at 14 branches. The AWC asserts under "Background" that [Ed: footnote omitted]:

On February 1, 2017, FINRA accepted an AWC in which StoneX consented to findings that between July 1, 2015 and September 31, 2015, it failed to immediately display customer limit orders in violation of FINRA Rule 6460, violated FINRA Rules 5320 and 2010, and failed to establish written supervisory procedures (WSPs) reasonably designed to achieve compliance with FINRA Rules 6460 and 5320, in violation of FINRA Rule 3110 and 2010. In that matter, StoneX also consented to a sanction consisting of a censure, a fine of $42,500, and undertaking to revise its WSPs. INTL FCStone Financial Inc., No. 20150475920-01 (AWC Feb. 1, 2017). 

In accordance with the terms of the AWC, FINRA found that StoneX violated FINRA Rules 6460 and 2010; and that, further, from July 2017 through June 2018, StoneX failed to establish and maintain a supervisory system, including WSPs, that was reasonably designed to achieve compliance with Rule 6460 in violation of FINRA Rules 3110(a), 3110(b), and 2010. Accordingly, FINRA imposed upon the firm a Censure and $60,000 fine. As alleged in part in the AWC:

During 3Q2017 and 2Q2018, StoneX operated a trading desk where traders were required to handle some order flow manually, outside of automated systems, resulting in delays in the handling of certain OTC orders. As a result, StoneX failed to fully and immediately display, route, execute, or cancel 27 out of 35 (77%) of sampled customer limit orders, 14 of which were cancel/replace orders. These 14 cancel/replace orders were 100% of the cancel/replace orders in the sample. Therefore, Respondent violated FINRA Rules 6460 and 2010.
. . . 
From July 2017 through June 2018, StoneX failed to reasonably supervise for compliance with FINRA Rule 6460. Although the firm utilized exception reports to identify limit orders that were displayed more than 30 seconds after the order became eligible, the exception reports failed to capture cancel/replace orders. Therefore, Respondent violated FINRA Rules 3110(a) and 2010. 
. . .
From July 2017 through June 2018, StoneX failed to establish written procedures reasonably designed to achieve compliance with FINRA Rule 6460. While the firm's procedures required a supervisory review of orders for compliance with FINRA Rule 6460, the firm's written procedures failed to provide reasonable guidance and instructions to supervisors as to how to conduct such reviews. Therefore, Respondent violated FINRA Rules 3110(b) and 2010. 

https://www.finra.org/sites/default/files/fda_documents/2017054381603
%20WestPark%20Capital%2C%20Inc.%20CRD%2039914%2C
%20Richard%20A.%20Rappaport%20CRD%201885122%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, WestPark Capital, Inc. and Richard A. Rappaport submitted a Letter of Acceptance, Waiver and Consent ("AWC"), which FINRA accepted. The AWC asserts that WestPark has been a FINRA member firm since 1969 with about 60 registered representatives at 8 branches; and that Rappaport has been registered since 1989, and is WestPark's Chief Executive Officer and former majority owner until 2018.  The AWC asserts under "Overview" that [Ed: footnote omitted]:

Between January 2012 and January 2018, WestPark sold 33 promissory notes issued by WestPark's parent company, WPCFS, to 21 customers, raising a total of $3.9 million (the "WPCFS Offerings"). WestPark made negligent misrepresentations and omissions of material facts to the customers in connection with the sale of the WPCFS Offerings. As a result, WestPark violated FINRA Rule 2010, both independently and by acting in contravention of Section 17(a)(2) and (3) of the Securities Act of 1933. Further, in connection with the sale of four of the WPCFS notes, Rappaport made negligent misrepresentations and omissions concerning the WPCFS Offerings. Thus, Rappaport violated FINRA Rule 2010. 

WestPark and Rappaport also failed to reasonably supervise the registered representatives soliciting investments in the WPCFS Offerings. Rappaport was responsible for the final approval of the offering documents and was the designated supervisor with respect to WestPark's private placement business. As a result, Westpark and Rappaport violated NASD Rule 30103and FINRA Rules 3110 and 2010. 

Further, in July 2019, WestPark became subject to the requirements of FINRA Rule 3170 (the "Taping Rule"), which requires firms, among other things, to establish, maintain, and enforce special written procedures to record "all telephone conversations between [its] registered persons and both existing and potential customers and [to review] the tape recordings to ensure compliance with applicable securities laws and regulations and applicable FINRA rules." The firm's special written procedures in effect from July 2019 were not reasonably designed to comply with the Taping Rule, and the firm failed to record all conversations as required under the Taping Rule. As a result, WestPark violated FINRA Rules 3170 and 2010. 

In accordance with the terms of the AWC, FINRA FINRA imposed upon:

  • WestPark: Censure, $25,000 fine, rescission to the holders of the 19 notes at issue, and undertakings to review/revise the Rule 3170 issues cited; and
  • Rappaport: Four-month suspension in all capacities, a 15-month suspension in Principal-only capacities, and a $30,000 fine. 
http://www.brokeandbroker.com/6181/finra-arbitration-ubs/
In a stunning FINRA intra-industry arbitration victory in 2019, a former UBS registered representative was awarded over $11.5 million for Form U5 defamation and attendant harm. Then came the appeal. Two state courts affirmed the Award. Notably, the appellate court refused to bite on UBS's bait that so-called public policy gave it broad license when it came to posting disclosures about an associated person's conduct.

http://www.brokeandbroker.com/6180/finra-arbitration-whistleblower/
There are times when you read something and you think it says something. Then you re-read that same document and realize that you inferred quite a bit that was not stated or implied. Then your re-read that document, yet again, and realize that it doesn't actually say anything and, in truth, is pointless. All of which brings us to today's featured FINRA Arbitration Award.

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