The Wall Street Legal & Regulatory Feed
Securities Industry Commentator by Bill Singer Esq
January 11, 2022
How Many FINRA Enforcement Lawyers Does It Take To Prosecute a Default Case?
(BrokeAndBroker.com Blog)
(BrokeAndBroker.com Blog)
http://www.brokeandbroker.com/6240/finra-default-weinrich/
Once, a long time ago, four bad guys chased one good-guy Deputy. At high noon, with only himself to serve as prosecutor, judge, and jury, Marshall Will Kane stood alone against Frank Miller, Ben Miller, Jack Colby, and Jim Pierce. By himself, Marshall Kane battled for truth, justice, and the FINRA way of life -- or something like that. In 2022 Covid America, everything is reversed. Four guys in white hats chasing one guy in a black hat, and the bad guy skedaddled outta town last year.
SEC Obtains Partial Judgment Against Wisconsin Investment Adviser Charged with Defrauding Clients (SEC Release)
https://www.sec.gov/litigation/litreleases/2022/lr25304.htm
The United States District Court for the Western District of Wisconsin entered a partial judgment against defendant Michael F. Shillin https://www.sec.gov/litigation/litreleases/2022/judgment25304.pdf. As alleged in part in the SEC Release:
[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 alleged 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 alleged that Shillin received hundreds of thousands of dollars in ill-gotten gains as a result of his fraudulent conduct.
The SEC's complaint charged Shillin with violating the antifraud provisions of Section 17(a) of the Securities Act of 1933, Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder, and Sections 206(1) and (2) of the Investment Advisers Act of 1940. Without admitting or denying the SEC's allegations, Shillin consented to the entry of a judgment permanently enjoining him from violating these provisions. In addition, the judgment bars Shillin from acting as an officer or director of a public company and orders him to pay disgorgement, prejudgment interest, and a civil penalty in amounts to be determined by the court at a later date.
In a separate proceeding, based on the entry of the consent judgment and an order previously issued by the Wisconsin Department of Financial Institutions - Division of Securities, on January 7, 2022, the SEC issued an order permanently barring Shillin from association with any broker, dealer, investment adviser, municipal securities dealer, municipal advisor, transfer agent, or nationally recognized statistical rating organization, and from participating in any offering of a penny stock.
Former Financial Controller Sentenced to Prison for Embezzling Almost Half a Million Dollars from Family-Owned San Diego Business (DOJ Release)
https://www.justice.gov/usao-sdca/pr/former-financial-controller-sentenced-prison-embezzling-almost-half-million-dollars
Derick Jonathan Cameron, the former Financial Controller for RAL Investment Corporation, pled guilty in the United States District Court for the Southern District of California to wire fraud, and he was sentenced to 20 months in prison plus three years of supervised release and fined $8,000 and ordered to pay $203,857 in restitution. As alleged in part in the DOJ Release, Cameron:
abused his access to the company's accounting software by issuing more than 200 unauthorized checks to himself using the electronic signature of the company's CFO and depositing them into his personal bank account. He then concealed the payments by manipulating the company's accounting records to make it appear that each check was issued to a legitimate third-party vendor for a business expense. The company discovered Cameron's fraudulent activity in April 2018, fired Cameron, and reported the conduct to law enforcement when Cameron was unable to make his promised repayments on schedule.
https://www.finra.org/sites/default/files/aao_documents/20-04057.pdf
In a FINRA Arbitration Statement of Claim filed in December 2020, FINRA member firm Claimant Intellivest Services asserted raiding; misappropriation of trade secrets; inducement of breach of fiduciary duty and duty of loyalty; tortious interference with economic advantage and business relations; conspiracy; unfair competition; and unjust enrichment. The FINRA Arbitration Award states that:
[T]he causes of action relate to Claimant's allegation that Respondent wrongfully raided Claimant, resulting in the abrupt resignation of all four of Claimant's registered representatives. Claimant further alleges that because of Respondent's raid and subsequent interference with its clients, it was forced to cease virtually all its business operations.
Claimant Intellivest sought at least $1,787.654 in compensatory damages, no less than $893,827 in punitive damages, a Cease-and-Desist Order, return of client/business information, at least $$32,275 in attorneys' fees, at least $11,488 in costs, and interest. At the hearing, Claimant sought $12,516,856.
FINRA member firm Respondent Growth Capital Services generally denied the allegations and asserted affirmative defenses.
The FINRA Arbitration Panel found Respondents Growth Capital Services liable to and ordered it to pay to Claimant Intellivest $440,187.50 in compensatory damages, $150,000 in punitive damages, $21,742 in costs, $295,000 in attorneys' fees, and $2,000 reimbursement of filing fees.
SEC Awards About $2.6 Million to Whistleblower
Order Determining Whistleblower Award Claim ('34 Act Release No. 34-93935; Whistleblower Award Proc. File No. 2022-23)
https://www.sec.gov/rules/other/2021/34-93935.pdf
The SEC's Claims Review Staff ("CRS") issued Preliminary Determinations recommending a Whistleblower Award of about $2.6 million to Claimant. The Commission ordered that CRS' recommendations be approved. The Order asserts that:
[C]laimant initially reported his/her concerns internally before providing information to Commission staff that significantly contributed to an existing investigation. Claimant revealed misconduct of which Commission staff were not aware, and Claimant's information helped Commission staff develop an efficient investigative plan to discover the full extent of the wrongdoing. Claimant also communicated with the staff over the course of the investigation and identified potential witnesses. Claimant's information and assistance was particularly significant in that it helped Commission staff obtain evidence of wrongdoing that was occurring abroad, which would have been difficult to acquire in the absence of Claimant's information and cooperation.
Order Determining Whistleblower Award Claim ('34 Act Release No. 34-93936; Whistleblower Award Proc. File No. 2022-24)
https://www.sec.gov/rules/other/2021/34-93936.pdf
The SEC's Claims Review Staff ("CRS") issued Preliminary Determinations recommending a Whistleblower Award of about $1.5 million to Claimant 1 and Claimant 2 on a joint basis. The Commission ordered that CRS' recommendations be approved. The Order asserts that:
[C]laimants 1 and 2 voluntarily provided original information to the Commission that led to the successful enforcement of the Covered Action. . . . Claimants 1 and 2 provided substantial ongoing assistance throughout the course of the investigation, providing several interviews and consulting telephonically with staff via counsel on numerous occasions, including before and after witness testimony of key witnesses. . . .
https://www.finra.org/sites/default/files/fda_documents/2019060753503
%20John%20M.%20LoPinto%20CRD%204563735%20AWC%20sl.pdf
%20John%20M.%20LoPinto%20CRD%204563735%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, John M. LoPinto submitted a Letter of Acceptance, Waiver and Consent ("AWC"), which FINRA accepted. The AWC asserts that John M. LoPinto was first registered in 2002 and between November 2016 and November 2019, he was registered with Worden Capital Management LLC. The AWC asserts that LoPinto is no longer registered/associated with any FINRA member firm. In accordance with the terms of the AWC, FINRA found that LoPinto violated NASD Rule 2510(b) and FINRA Rules 3260(b), 2111, and 2010, and imposed upon him a $7,500 fine and a nine-month suspension from associating with any FINRA member in all capacities, and ordered that he pay $135,333 in restitution plus interest. As alleged in part in the AWC:
From November 2016 through September 2019, LoPinto engaged in quantitatively unsuitable trading in five customer accounts. LoPinto recommended high frequency trading in the five customer accounts. LoPinto's customers routinely followed his recommendations and, as a result, LoPinto exercised de facto control over the five customers' accounts.. . .LoPinto's trading in these five customers' accounts was excessive and unsuitable given the customers' investment profiles. As a result of LoPinto's excessive trading, the 4 customers suffered collective realized losses of $240,331 while paying total trading costs of $205,523, including commissions of $161,706.. . .From April 2018 through June 2019, LoPinto exercised discretion to effect 53 trades in Customer F's account without prior written authorization. LoPinto charged Customer F a total of $21,632 in commissions to place the trades. Customer F did not provide written authorization for LoPinto to exercise discretion in the account and WCM did not accept the account as a discretionary account. . . .