The Wall Street Legal & Regulatory Feed

Securities Industry Commentator by Bill Singer Esq

February 4, 2022










http://www.brokeandbroker.com/6265/finra-wells-fargo-arbitration
You know those days when you just want to pull the covers over your head and not get out of bed? Well, FINRA had one of those days. As to what caused all of FINRA's anxiety, let's start with these words in a court's order about a FINRA public customer arbitration hearing: "The transcripts satisfy the Investors' burden of proving the fraud on the panel by clear and convincing evidence. The audio tapes, which were not available to the Investors until after the close of the hearing, confirm that Wells Fargo' s key witness used the delay caused by the medical emergency to materially change his testimony and offer perjured testimony in direct contravention of the earlier testimony. In addition, counsel for Wells Fargo inserted himself as a fact witness and purported to testify to the Panel himself to support the changed story."

https://www.cftc.gov/PressRoom/PressReleases/8490-22
https://www.cftc.gov/media/6951/enfmatthewclarkcomplaint020322/download, the SEC charged Matthew Clark with misappropriating confidential natural gas block trade order information from his employer and directing natural gas block trades to a brokerage firm in exchange for a share of the brokerage commissions charged to his employer for these trades; and, further, with making false statements to the CFTC. As alleged in part in the CFTC Release:

The complaint alleges that from August 6, 2015 to December 28, 2018, Clark disclosed his employer's confidential natural gas block trade order information-in breach of his duty of trust and confidence to that employer-to Peter Miller, an individual trader. Clark did so knowing that Miller, on the basis of this information, would execute non-competitive, fictitious block trades with Clark as well as other trades designed to profit from the information disclosed by Clark. Clark also disclosed the information anticipating that Miller would share with Clark his profits from trading on this information. Clark received payments from Miller in cash, representing Clark's share of Miller's profits. On December 10, 2021, the CFTC filed a complaint against Miller for his role in this scheme, also in the Southern District of Texas. [See CFTC Press Release No. 8468-21] CFTC v. Miller, No. 4:21-cv-04023 (S.D. Tex. 2021).

The complaint further alleges that from 2009 through 2019, Clark engaged in a fraudulent scheme in which he received kickbacks from the brokerage commissions paid by his employer to a voice broker. In exchange, Clark directed additional natural gas block trade business from his employer to this broker. According to the complaint, Clark disguised these kickback payments in numerous ways, including by directing the voice broker to hire sham employees and establish various shell companies in the name of family members. The complaint also charges Clark with lying to the CFTC in February 2019 in order to further conceal the fraudulent scheme.

https://www.justice.gov/opa/pr/former-president-energy-company-indicted-commodities-insider-trading-and-kickback-schemes
In an Indictment filed  in the United States District Court for the Southern District of Texas, Matthew Clark, a natural gas trader and president of an energy company, was charged with one count of conspiracy to commit honest services wire fraud, three counts of honest services wire fraud, one count of conspiracy to violate various provisions of the Commodity Exchange Act, two counts of prohibited commodities transactions and two counts of insider trading. As alleged in part in the DOJ Release:

[T]he indictment alleges that Clark conspired with others to receive kickbacks from commission fees paid by Clark's employer to Classic Energy LLC, a brokerage firm owned and operated by Matthew Webb. In exchange for these commission fee kickbacks, Clark agreed to direct his employer's trades to Webb's brokerage.

According to the indictment, Clark conspired with others to misappropriate his employer's material, nonpublic information and to engage in prohibited commodities transactions, including illegal prearranged trades, in natural gas futures contracts for his own, and his co-conspirators', personal gain. Clark and his co-conspirators caused prices to be reported, recorded and registered on designated commodities markets that were not true, bona fide prices. The profits from these fraudulent trades were split among Clark and his co-conspirators.
. . . 

In a related case, Peter Miller, 41, of Puerto Rico, pleaded guilty to conspiracy to commit commodities fraud today. Miller, who is alleged to be one of Clark's co-conspirators, is scheduled to be sentenced.

Middleboro Financial Advisor Charged in Superseding Indictment with Investment Adviser Fraud and Money Laundering (DOJ Release)
https://www.justice.gov/usao-ma/pr/middleboro-financial-advisor-charged-superseding-indictment-investment-adviser-fraud-and
In a Superseding Indictment filed in the United States District Court for the District of Massachusetts, Paul R. McGonigle was charged with one count of investment adviser fraud and two counts of money laundering; previously, in June 2021, he had been charged with three counts of wire fraud, one count of mail fraud and one count of aggravated identity theft. As alleged in part in the DOJ Release:

[M]cGonigle served as a financial advisor for the elderly victims. Beginning no later than February 2015, McGonigle allegedly caused unauthorized withdrawals from victims' annuities and induced victims to give him money to invest on their behalf, which he then used for personal and business expenses. To carry out his scheme, McGonigle allegedly posed as clients on calls with their annuity companies and signed their names on forms requesting withdrawals from their annuities. 

https://www.justice.gov/usao-sdny/pr/british-citizen-sentenced-over-11-years-prison-helping-design-and-operate-fraudulent
After a week-long jury trial in the United States District Court for the Southern District of New York, James Moore was found guilty of wire fraud and conspiracy to commit wire fraud; and he was sentenced to 140 months in prison.  As alleged in part in the DOJ Release:

In late 2009, MOORE partnered with Renwick Haddow, who is also a British citizen, to sell investments in a hotel scheme in which investors lost money.  Haddow had been disqualified as a director of any U.K. company for eight years, and later sued by the Financial Conduct Authority, a British regulator, for operating investment schemes through misrepresentations that lost investors substantially all of their money.  These sanctions and lawsuit were publicized extensively online.

Beginning in 2015, MOORE chose to partner with Haddow again, this time to solicit investments into Bar Works through material misrepresentations concerning, among other things, the identity of Bar Works' management and the financial condition of that company. 

In order to conceal his role at Bar Works because of the negative publicity on the internet related to past investment schemes and government sanctions in the United Kingdom, Haddow adopted the alias "Jonathan Black."  Notwithstanding Haddow's control over Bar Works, Moore and others knowingly distributed the Bar Works offering materials listing Black as the chief executive officer of Bar Works and claiming that Black had an extensive background in finance and past success with start-up companies.  As MOORE well knew, "Jonathan Black," was an entirely fictitious person, created to mask Haddow's control of Bar Works. 

Among other things, MOORE helped devise and distribute pitch materials that contained the misrepresentations.  MOORE and an affiliated Spanish-based company, United Property Group, coordinated a substantial sales force to recruit investors knowing that the materials contained the falsehood.  MOORE advised Haddow as to how to continue to conceal the truth concerning the identity of "Jonathan Black," and affirmatively represented to potential sales partners that he was communicating with CEO "Jonathan Black."  MOORE also advised Haddow how to evade foreign law enforcement authorities.  MOORE personally received approximately $1.6 million from Bar Works before helping to launch a competing co-working space investment project. 

MOORE repeatedly lied to the United States Securities Exchange Commission (SEC) and federal law enforcement agents to cover up his role in the Bar Works scheme. On August 11, 2016 - while the Bar Works scheme was still operating - MOORE participated in a recorded phone interview with the SEC and reiterated that Jonathan Black was a real person who he understood to be the CEO of Bar Works, notwithstanding knowing that Black was fake. MOORE claimed that he never asked to speak to Jonathan Black, even though in the prior months, MOORE had been misrepresented to multiple agents that he was working closely with Black.

On February 15, 2017, MOORE was interviewed by Internal Revenue Service (IRS) agents following his arrest for a separate investment scheme in connection with a development project he was promoting in Florida. In a videotaped interview, MOORE lied and told agents he had not done anything for money since 2010, even though he had gotten approximately $1.6 million from Bar Works alone.

Moore's conviction is his second federal felony conviction related to property investments.  He was previously convicted in 2018 of misprision of a felony for his role in a property investment fraud in Florida, for which he was sentenced to 18 months in prison.

In addition to the prison term, MOORE, 60, was sentenced to 3 years of supervised release.  MOORE was also ordered to pay restitution of $57,579,790.00, forfeiture of $1,599,257.46, and a fine of $50,000.

Renwick Haddow, 53, pled guilty on May 23, 2019, to one count each of wire fraud and wire fraud conspiracy relating to the Bar Works scheme, and one count each of wire fraud and wire fraud conspiracy relating to a separate investment scheme involving Bitcoins.  Haddow's sentencing is scheduled for April 8, 2022.

Savraj Gata-Aura, 35, pled guilty on November 18, 2019, to one count of wire fraud conspiracy for his participation in the scheme, and was sentenced to 48 months in prison on July 27, 2020, by Judge Jed. S. Rakoff.

In a FINRA Arbitration Statement of Claim filed in August 2019 and as amended, associated person Claimant Bernardini asserted breach of contract; breach of implied covenant of good faith and fair dealing; violation of Article 6 of the New York Labor Law; defamation and defamation per se. Respondent GFI Securities generally denied the allegations and asserted affirmative defenses. In a detailed "Relief Requested" portion of the FINRA Arbitration Award, the following stated:

In the Amended Statement of Claim, Claimant requested compensatory damages on each of the contract claims in an amount no less than $6,197,628.20; compensatory and double damages as a result of Respondent's violations of Article 6 of the New York Labor Law in an amount no less than $12,395,256.40; presumed/ assumed damages on the claim for defamation per se in an amount no less than $5,000,000.00; compensatory damages on the claim for defamation per se in an amount no less than $5,000,000.00; punitive/exemplary damages on the claims for defamation and defamation per se in an amount no less than $5,000,000.00; a declaration that Respondent terminated Claimant on May 22, 2019 without "Cause,"; a declaration that Respondent materially breached the Employment Agreement when it terminated Claimant on May 22, 2019; alternatively, a declaration that Respondent breached the Employment Agreement when it terminated Claimant on May 22, 2019; alternatively, a declaration that Respondent breached the Employment Agreement's implied covenants of good faith and fairing dealing when it terminated Claimant on May 22, 2019 and failed to employ and compensate Claimant pursuant to the Employment Agreement through March 16, 2022; an order expunging in its entirety the Form 8T that Respondent filed with the National Futures Association ("NFA") on June 25, 2019; alternatively, an order expunging the false information that is contained in the Form 8T filed with the NFA on June 25, 2019, and requiring that (1) the "Internal Review Disclosure" response (i.e., Response B) on page 6 of the Form 8T be changed to "NO,"; (2) the first two "Termination Disclosure" responses (i.e., Responses F(1) and F(2)) on page 9 of the Form 8T be changed to "NO,"; (3) all of the information and disclosures on page 11 of the Form 8T be stricken, deleted, and expunged in their entirety, and (4) the response to "Matter Information Page will be completed" on page 9 of the Form 8T be changed to "NO"; attorneys' fees, pre-judgement, and post-judgement interest on all amounts awarded, costs, disbursements, and expenses; and such other or further relief as the Panel deems just and proper

The FINRA Arbitration Panel found Respondent GFI Securities liable to and ordered it to pay to Claimant Bernardini $550,000 in compensatory damages, and the Panel ordered that Form 8T be amended as follows:

In the FINRA arbitration captioned Ryan Bernardini vs. GFI Securities LLC (FINRA No. 19- 02513) the Panel determined that there was insufficient evidence to prove that Claimant Bernardini provided false information to mislead market participants or mislead GFI's investigators. 

Bill Singer's Comment: Compliments to this FINRA Arbitration Panel for discharging their role in a comprehensive manner replete with sufficient content and context so as to render the Award both intelligible and compelling. 

https://www.finra.org/sites/default/files/aao_documents/18-03460.pdf
In a FINRA Arbitration Statement of Claim filed in October 2018, customer Claimants David and Ethan Epstein asserted negligence; gross negligence; breach of fiduciary duty; omission and misrepresentation of material facts; fraud; fraudulent concealment; fraudulent misrepresentation. The FINRA Arbitration Award characterizes the causes of action as relation "to a lump sum annuity distribution Claimants allege they should have received when their father passed away in 2017." Respondent Signature Securities generally denied the allegations and asserted various affirmative defenses. On January 24, 2022, the FINRA Arbitration Panel granted a proposed Stipulated Award presented by the parties:

The parties entered into an agreement to present to the Panel a Stipulated Award. Now, in lieu of a hearing and upon motion of both parties for entry of a Stipulated Award, and the written stipulation thereto, the Panel grants the motion and enters this Stipulated Award granting the following relief: 

1. After reviewing the pleadings and other documents submitted before this Panel (including a June 15, 2021 correspondence sent directly from Allstate to Claimants in this Action requiring an Order from this Panel) as well the oral arguments presented by the parties, we determine that Allstate (which includes Prudential Financial, Inc. or any other institution currently servicing or administering the products at issue) shall promptly surrender and immediately distribute all funds pertaining to the annuity contracts AC3100007A and ALL0138250 to the beneficiaries of record of said policies, David Epstein and Ethan Epstein. This arbitration award may be confirmed by a court of competent jurisdiction if needed or required. Each Party shall bear their own attorneys' fees and costs related to this arbitration. This award in no way constitutes any finding of fault or liability on the part of either Claimants or Respondent.

https://www.finra.org/sites/default/files/aao_documents/20-03416.pdf
In a FINRA Arbitration Statement of Claim filed in October 2020, customer Claimant Whitman asserted breach of fiduciary duty; violation of FINRA Rule 2111 - suitability, FINRA Rule 2010 - high standards of commercial honor, FINRA Rule 3110 - failure to supervise, and M.G.L. c. 93A, s. 9 - unfair and deceptive business practices; common law fraud; negligent misrepresentation; common law negligent supervision; respondeat superior; and vicarious liability. At the FINRA Arbitration hearing, Claimant Whitman sought $1,716,211.48 in compensatory damages. Respondents generally denied the allegations and asserted affirmative defenses. In November 2020, Claimant Whitman withdrew without prejudice her claims against Respondent Morgan Stanley Bank, N.A. The FINRA Arbitration Panel found Respondents Morgan Stanley and Swaylik jointly and severally liable to and ordered them to pay to Claimant Whitman $150,000 in compensatory damages. The Panel denied the requested expungement of Respondent Swaylik's industry record.

In a FINRA Arbitration Statement of claim filed by customer Claimants in February 2020, they asserted fraud, misrepresentation, unsuitability, unsuitable product, breach of fiduciary duty, negligence and breach of contract, under the federal securities laws, FINRA regulations, Florida securities statutes and applicable common law, respondeat superior, control person liability, and failure to supervise. The FINRA Arbitration Award characterizes the causes of action as relating to "Claimants' investment in the Yield Enhancement Strategy ("YES") offering with Respondent." Claimants sought about $2.2 million in compensatory damages, interest, fees, costs, and expenses. Respondent UBS requested the dismissal of the Claim and expungement of the matter from the Central Registration Depository records of unnamed parties Monty Cerf and Matthew Buchsbaum. In November 2021, the parties agreed to the withdrawal of the Florida Securities Statute claims. The FINRA Arbitration panel found Respondent UBS liable to and ordered it to pay to 
  • Claimant GST: $517,020.80 in compensatory damages plus $49,118.52 in pre-judgment interest
  • Claimant QTIP: $1,171,124.80 in compensatory damages plus $111,260.36 in pre-judgment interest
  • Claimants GST and QTIP: $600 in reimbursed filing fees and $26,512.50 in expert witness fees.
The Panel denied the requested expungements.

http://www.brokeandbroker.com/6277/joint-production-finra/
In yet another industry regulatory settlement, FINRA seems in a haste to collect a fine and, well, hey, let's just rush through the statement of facts so as to justify our sanctions and move on. All of which looks more like a speed trap on the Wall Street highway than fair regulation. Now, to be fair to FINRA, the stockbroker entered into the settlement and is apparently happy to do the time and pay the fine. All of which leaves it to me to act as the industry gadfly and grouse about something that no one else will bother to note.

http://www.brokeandbroker.com/6276/vungarala-pks-confirm/
The Wall Street career of Gopi Krishna Vungarala is a smoldering train wreck. Without question, Vungarala and his family had their personal struggles, which makes this story more poignant and tragic. That backstory notwithstanding, it's hard to argue against FINRA's imposition on Vungarala of a Bar and the SEC's ratification of same; and it's equally difficult to dispute a FINRA arbitration panel's imposition of compensatory and punitive damages against him. In the most recent update of this saga, a federal court grants a motion to confirm the arbitration award.

http://www.brokeandbroker.com/6256/robinhood-finra-arbitration/
By now, you'd think that Wall Street's regulatory community would want something akin to full disclosure to the investing public about successful public customer lawsuits against Robinhood. Certainly, you'd think that FINRA Dispute Resolution Services is mindful of the clamor surrounding Robinhood: meme stocks, gamification, payment for order flow, systems outages. Going by the lack of a fact pattern and rationale in a recent public customer arbitration against Robinhood, FINRA seems to think that disclosing nothing is sound public advocacy. Ah yes, FINRA, the Sheriff of Nothing-ham, and a modern-day Robinhood!

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