Securities Industry Commentator by Bill Singer Esq

Three-Handed Dilemma Grabs NYAG, NYPPEX, Laurence Allen, and FINRA (BrokeAndBroker.com Blog)

Grand Jury Indicts New York Resident in Alleged Grandparent Scam (DOJ Release)

Florida Woman Pleads Guilty To Role In Wire Fraud Conspiracy Involving Panamanian Boiler Rooms (DOJ Release)

Texas Man Sentenced for $1.6 Million Investment Fraud Scheme / KC Brothers Also Pleaded Guilty to Fraud Scheme (DOJ Release)

Three Sentenced for Conspiracy to Commit Bank and Wire Fraud (DOJ Release)

Eastern Panhandle woman admits to bank fraud (DOJ Release)

SEC Obtains Final Judgment Against Former Pharmaceutical Company CEO Ordering a Permanent Officer and Director Bar and $1.3 Million in Penalties (SEC Release)

SEC Amends Complaint in Fraudulent Mutual Fund Case and Settles with Two Defendants (SEC Release)

Federal Courts and FINRA Arbitrators Consider If A Terminable-At-Will Employee Can Be Wrongfully Terminated (BrokeAndBroker.com Blog)

[A]udate and others participated in a conspiracy to defraud elderly victims by posing on the telephone as their grandchild or other family member, or an attorney representing a family member. The caller would convince victims that their family member had been arrested or incarcerated in another state or, was in financial and legal distress; and that cash payments were urgently needed to pay legal fees or related costs. Victims were instructed to send cash payments via FedEx or UPS to addresses provide by the conspirators.

According to information presented to the court, beginning in January 2021, the New Haven Police Department began to receive reports from several out-of-state police departments, including departments in Rhode Island, that elderly residents had been defrauded of large amounts of money through a grandparent scam. The victims were instructed to send cash payments to addresses in New Haven. New Haven Police determined that many of the addresses were in close proximity to one another, including the address of an Airbnb allegedly utilized by Audate. It is alleged that Audate visited many of the addresses and retrieved the packages, many of which New Haven Police and the FBI determined allegedly contained between as $7,900 and $150,000 in cash.

[J]edlicki and her co-conspirators operated international boiler rooms in Panama and elsewhere which used high-pressure sales techniques to defraud individuals who believed they were investing substantial amounts of money in regulated financial products or markets, such as options in commodities and stocks. The majority of the victims targeted by these boiler rooms were located in Canada, the United Kingdom, Australia, and New Zealand.

Jedlicki and her co-conspirators laundered the fraud proceeds generated by the boiler rooms through several money laundering rings to overseas accounts; the launderers received a percentage of the funds they had moved. Jedlicki's duties included, among other tasks, arranging travel for boiler room workers to the boiler room locations, calling victims while posing as an employee of a fake investment firm to set up loading calls for co-conspirators operating the boiler rooms, serving as a liaison between the boiler rooms and a money laundering organization, and reconciling payments between the boiler rooms and the money laundering organization. Jedlicki received a 2% referral fee for referring victims' funds to a money laundering ring and used the funds to perpetuate the conspiracy and for her own personal enrichment. Jedlicki and her co-conspirators wired or caused to be wired victims' funds in the approximate amount of $3,244,500 to money laundering accounts in furtherance of the wire fraud conspiracy.

[N]guyen admitted that he engaged in a fraud scheme from April 2018 to August 2019 in which he proposed an opportunity for high net worth individuals to invest in the purchase, refurbishing, and sale of used oil equipment. He told Phillip Hudnall of Lenexa, Kansas, and his brother, Brian Hudnall, of Kansas City, Missouri, that profit from these transactions would be three to five times the amount of the investment. Brian and Phillip Hudnall raised money from investors based upon these representations from Nguyen.

From April 2018 through June 2019, the Hudnall brothers wire transferred $1,641,000 in 29 separate transactions to two separate accounts controlled by Nguyen. Nguyen admitted that he did not use any of the monies for the purchase, refurbishment, and shipment of used oil equipment. The money from those accounts was traced to hundreds of thousands of dollars in transactions at Las Vegas casinos and for Nguyen's personal expenses.

Although Phillip and Brian Hudnall were victims of Nguyen's scheme, they made false representations and defrauded their investors of approximately $4.5 million. They pleaded guilty in June 2020, in separate but related cases, to their roles in the investment fraud scheme. Brian Hudnall was sentenced on Oct. 21, 2021, to three years in federal prison without parole and ordered to pay approximately $4.5 million in restitution. Phillip Hudnall is scheduled to be sentenced on April 26, 2022.

Phillip Hudnall told investors that his company, BirdDog Business Group, LLC, had completed two successful transactions - a $244,000 loan and a $490,000 loan, both of which had been repaid with an interest rate of 30 percent. In fact, no prior completed transactions occurred and no monies were received from the sale of any oil equipment including any principal or interest. To support the false claim, Phillip Hudnall requested that Brian Hudnall create documents as proof of the prior successfully completed transactions. Brian Hudnall wrote two checks on the bank account of his business, DonDon LLC, which was closed. Brian Hudnall also created a fraudulent memorandum to support the false claim.

Phillip Hudnall told investors their funds would be used to purchase specific pieces of oil equipment for refurbishment and resale. Persons invested approximately $3.6 million for the purpose of purchasing specific pieces of oil equipment. Phillip Hudnall and another person also obtained a loan from a bank in Pittsburgh, Pennsylvania, for approximately $1.3 million to finance the oil equipment scheme. Most of the money raised from investors, however, was spent on personal expenses.

[F]ranklin, age 48, Branch, age 39, and Maryland, age 49, used synthetic identities to apply for credit and financing.  Branch and Maryland used their real names coupled with nine-digit-numbers that were not issued to them by the social security administration on credit and loan applications.  Franklin also used his real name, variations of his name or his ex-wife's name coupled with nine-digit-numbers that were never issued or issued to others by the social security administration. To build the creditworthiness, these illegal synthetic identities, often referred to as "CPNs" or "credit privacy numbers," were added as authorized users to credit cards belonging to other individuals who have positive credit scores.   

In addition to using synthetic identities in his name or variations of his name to obtain credit, Franklin used the real names and social security numbers of 10 NC Medicaid recipients to obtain credit cards, consumer loans and vehicle financing.  Franklin previously had access to this personal information when he operated Wayne County Day Treatment, a NC Medicaid mental health provider.   Franklin also rented an apartment in Raleigh in the name of one of the Medicaid recipients without permission.  Maryland resided in the apartment. To rent the apartment and obtain the loans, Franklin provided fictitious NC driver's licenses in these individuals' names that bore his image.      

Franklin maximized the fraud proceeds on the credit cards by making bogus payments, often by telephone or online.  This caused the banks to reinstate the credit limits.  Before the credit issuer received notification that the payments were bogus, additional charges were incurred, resulting in significant losses. 

Franklin used the cards to pay many personal expenditures for himself and his family, including his stepdaughter's tuition to Spelman College and associated living expenses, his other adult daughters' orthodontist bill and his ex-wife's dental and plastic surgery procedures. 

To generate cash, Franklin conspired with Branch to charge more than $600,000 on fraudulently obtained credit cards through Branch's various merchant accounts associated with her retail store in Wilmington's Independence Mall.  Franklin and Wiggins split the proceeds: 85% to Franklin and 15% to Branch.  After the merchant account processor deposited the illegal proceeds into a Branch's bank account, she withdrew Franklin's share in cash.  Branch kept her withdrawals under $10,000 to avoid the filing of a currency transaction report.      

Amesquita was the head teller at the Inwood branch of City National Bank. In June 2019, Amesquita began a scheme to process ATM deposits without the supervision of a second bank employee, violating the bank's policy. She would then take some of the cash for her own personal use and misrepresent the facts in the general ledger.

As a part of the plea agreement, Amesquita agreed to pay $144,661 in restitution to the bank.

On February 23, 2022, the United States District Court for the Eastern District of New York entered a final judgment against Martin Shkreli, the former CEO of Retrophin, Inc., a publicly traded pharmaceutical company. The Court granted in its entirety the SEC's motion for a permanent officer and director bar and $1.392 million in civil penalties. Shkreli previously consented to a partial judgment ordering injunctions against future violations of the securities laws.

The SEC's complaint, filed on December 17, 2015, charged Shkreli with committing widespread fraud during a 5-year period while CEO at Retrophin and when he managed hedge funds. The complaint alleged that Shkreli misappropriated money from two hedge funds he founded and made material misrepresentations to investors among other misconduct.

Shkreli was convicted in a related criminal case.

The SEC's initial complaint in this matter, filed in June 2021, alleged that Ofer Abarbanel and Victor Chilelli engaged in a scheme to defraud investors in an offshore fund, the Income Collecting 1-3 Months T-Bills Mutual Fund, beginning in March 2018. As described in the complaint, after promising to invest in U.S. Treasury securities and reverse repurchase agreements, the defendants instead routed fund assets to shell companies under their control as part of uncollateralized sham lending arrangements. The SEC charged Abarbanel, Chilelli, and the Income Collecting Fund with violating the antifraud provisions of the federal securities laws, named as relief defendants six companies that received investor assets in furtherance of the scheme, and obtained an asset freeze to safeguard the remaining investor funds.

On January 27, 2022, the SEC amended its complaint, alleging that the course of conduct relating to the Income Collecting Fund was part of a broader fraudulent scheme. As alleged, beginning in approximately March 2017, Abarbanel and others under his direction also employed a scheme to deceive and defraud investors in an SEC-registered mutual fund, State Funds - Enhanced Ultra-Short Duration Mutual Fund, by entering into uncollateralized loan transactions with shell companies that the defendants controlled and misappropriating investor funds for high-risk trading and other unauthorized purposes. The amended complaint adds New York Alaska ETF Management LLC, the previously registered investment adviser to State Funds, as a defendant.

The amended complaint, filed in federal court in the Southern District of New York, charges Abarbanel, Chilelli, New York Alaska, and the Income Collecting Fund with violating the antifraud provisions of Section 17(a) of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder, charges Abarbanel and New York Alaska with violating the antifraud provisions of Sections 206(1), (2), and (4) of the Investment Advisers Act of 1940 and Rule 206(4)-8 thereunder and Section 34(b) of the Investment Company Act of 1940, and seeks injunctive relief, disgorgement with prejudgment interest, and civil penalties.

On January 31, 2022, the district court entered a final consent judgment enjoining the Income Collecting Fund from future violations of Section 17(a) of the Securities Act and Section 10(b) of the Exchange Act and Rule 10b-5 thereunder and ordering it to pay disgorgement and prejudgment interest of $111,591,312, which shall be deemed satisfied by the distribution of no less than $76,944,775 to harmed investors.

On February 25, 2022, the district court entered a consent judgment enjoining Chilelli from future violations of Section 17(a) of the Securities Act and Section 10(b) of the Exchange Act and Rule 10b-5 thereunder, imposing a permanent bar against participating in future securities offerings, and ordering him to pay disgorgement and prejudgment interest of $4,939,733, which shall be deemed satisfied by the distribution of all funds in the accounts of certain relief defendants to harmed investors.

• Securities Industry Commentator
• Bill Singer