Securities Industry Commentator by Bill Singer Esq

FINRA Arbitrators Award Over $2 Million In Disputed Customer Transfer and Asset Purchase Agreement (BrokeAndBroker.com Blog)

Former Cantor Fitzgerald Trader Sues Over Wrongful Termination Involving Child Care Leave (BrokeAndBroker.com Blog)

John Barksdale Charged With Cryptocurrency Securities Fraud In Connection With Sale Of Ormeus Coin / Through False Representations, BARKSDALE's Company Ormeus Global Raised at Least $70 Million From More Than 8,000 Investors Around the World (DOJ Release)

SEC Charges Siblings in $124 Million Crypto Fraud Operation that included Misleading Roadshows, YouTube Videos (SEC Release)

New York Man Sentenced to Four Years in Prison for Role in Bank Fraud (DOJ Release)

North Carolina Man Charged with Wire Fraud, Securities Fraud, and Money Laundering in Connection with Ponzi Scheme (DOJ Release)

SEC Charges Previously-Barred Investment Adviser with Fraud (SEC Release)

FINRA Fines and Suspends Rep Over Joint Production Codes

In the Matter of Jazmin Gabriela Carpenter, Respondent (FINRA AWC)

SEC Orders Whistleblower Awards for Two Claimants

Order Determining Whistleblower Award Claims

SEC Charges Venture Capital Fund Adviser with Misleading Investors / Alumni Ventures Group, LLC Repays $4.7 Million (SEC Release)

Former Port Orchard, Washington attorney sentenced to prison for defrauding clients / Stole money intended for a children's hospital, then stole $500,000 from another client to hide previous theft (DOJ Release)

From in or about 2017 through at least in or about October 2021, BARKSDALE and his relative ("CC-1") perpetrated a scheme to sell Ormeus Coin, an ERC-20 compliant smart contract-based token on the Ethereum blockchain, through false representations.  Ormeus Coin was offered to investors throughout the world, including in the United States and the Southern District of New York, through enrollment packages sold by Ormeus Global, a multi-level marketing company controlled by BARKSDALE and CC-1, various digital currency exchanges, and directly from BARKSDALE and his associates.

Through a series of white papers, in-person roadshows, online webinars and videos, social media platforms, and other marketing materials approved by BARKSDALE and CC-1, BARKSDALE and CC-1 falsely represented, among other things, that Ormeus Coin was a digital money system secured by a $250 million cryptocurrency mining operation, which would have been one of the largest such operations in the world.  In order to backstop the false representations regarding the size and value of cryptocurrency mining assets that purportedly secured the value of Ormeus Coin, BARKSDALE, among other things: (i) approved marketing materials that falsely depicted photos of a purported Ormeus Coin mining facility; (ii) deceptively referenced an "Ormeus Reserve Vault" ("ORV") that stored over 3,000 Bitcoin purportedly derived from Ormeus Coin's mining operations, which was represented as securing the value of Ormeus Coin; and (iii) falsely stated that Ormeus Coin's mining revenues exceeded $5 million on a monthly basis.  For example, on or about February 9, 2018, Ormeus Coin ran an advertisement on a jumbotron in Times Square in Manhattan, New York, which proclaimed, in a caption above a giant ORME symbol, "$250 Million Cryptocurrency Mining Farm Revealed in Legal Audit by Ormeus Coin."  On or about February 12, 2018, a photograph of the Times Square advertisement was posted to Ormeus Global's Twitter account with the caption "Live from New York City, Ormeus Coin Advertising its $250 million Cryptocurrency Mining Farm in Times Square, Manhattan!"  In truth, Ormeus's mining operations never approached a value close to $250 million and never produced revenues exceeding one million dollars in any month, and the Bitcoin stored in the "Ormeus Reserve Vault" belonged to a third party.

Numerous investors purchased enrollment packages through Ormeus Global and purchased Ormeus Coin through digital currency exchanges or directly from BARKSDALE and his associates.  Investors made these purchases based at least in part on BARKSDALE's false representations regarding the size, value, and purported profitability of the cryptocurrency mining assets controlled by Ormeus Global and Ormeus Coin, as well as the purported security that the ORV provided to the value of Ormeus Coin.  Through this scheme, from in or about June 2017 through at least in or about April 2018, Ormeus Global raised at least approximately $70 million from the sale of enrollment packages to more than 8,000 investors around the world.  From in or about June 2017 through at least in or about October 2021, Ormeus Coin was sold to at least approximately 12,000 investors, including at least 200 U.S.-based investors.  At its peak, Ormeus Coin had a market capitalization of approximately $52 million in or about January 2018.

[F]rom June 2017 through the present, the Barksdales offered and sold Ormeus Coin to investors on crypto trading platforms. In addition, from June 2017 to April 2018, through a multi-level marketing business called Ormeus Global, the Barksdales offered and sold subscription packages that included Ormeus Coin and an investment in a crypto trading program. As alleged, to promote the offerings, John Barksdale held roadshows around the world while he and his sister, Tina, led the production of social media posts, YouTube videos, press releases, and other promotional materials. The complaint alleges that at the events, in the produced materials, and currently on Ormeus Coin's website, the defendants falsely claimed that Ormeus Coin was supported by one of the largest crypto mining operations in the world, even though they abandoned their mining operations in 2019 after generating less than $3 million in total mining revenue.  As alleged, in many of these investor communications, the defendants falsely stated that Ormeus Coin had a $250 million crypto mining operation and was producing $5.4 million to $8 million per month in mining revenues.

According to the complaint, to preserve the fiction that Ormeus Coin was successfully mining crypto, the Barksdales arranged for a public website to display a wallet of an unrelated third party showing more than $190 million in assets as of November 2021, even though the Ormeus wallets were worth less than $500,000. The complaint also alleges that the Barksdales manipulated Ormeus Coin's price and misused millions of dollars of investor funds for personal expenses. 

From August 2016 through August 2017, Melhado conspired with Jamere Hill-Birdsong, of Camden, and others, to defraud a Mount Laurel, New Jersey, bank. Hill-Birdsong worked inside the banks's call center and recruited other call center employees to participate in the scheme by stealing the identities and account information of customers who called into the bank's call center.

The conspirator bank employees would then take photographs or screenshots of the bank customers' account information and signatures and would send that information to Hill-Birdsong and Melhado. The conspirators then had phony identification documents made in the names of the bank customers, and used various runners to go into bank branches and make unauthorized cash withdrawals. The conspirators also used the stolen identity information to conduct unauthorized online transfers of monies from the customer's accounts. Hill-Birdsong was indicted in March 2021 on conspiracy to commit bank fraud, bank fraud and aggravated identity theft; those charges remain pending. The charges and allegations contained in the indictment against Hill-Birdson are merely accusations, and the defendant is presumed innocent unless and until proven guilty.

Starting in 2014, Schamens fraudulently solicited investments in various entities he controlled, including TD Trading LLC, TFG Trading LLC, TradeStream Analytics LTD, Tradedesk Financial Group Inc. and others, under the promise of annual rates of return of 12 percent to 30 percent. In 2019, Schamens began to solicit investment in Tradestream Algo Fund, an algorithm-based trading pool that he claimed to have developed. In each instance, Schamens directed investors to wire funds directly or to transfer portions of their Individual Retirement Accounts (IRAs) to bank accounts he controlled.

Once invested, Schamens often moved victim funds through several different bank accounts before he ultimately used the funds for some non-investment related purpose.  Schamens took several steps to keep his customers' trust, including: sending false account statements; posting false monthly account statements to his companies' websites showing balances for trading accounts that did not exist; and sending false tax documents reporting earnings that did not exist.

Schamens allegedly misappropriated at least $6.8 million from at least 25 different individuals, using some of that money to repay earlier investors in the manner of a Ponzi scheme, and to pay for his personal expenses, including the purchase of a house, payments for a luxury car, and other personal expenses.

[S]tarting in approximately February 2019, David W. Schamens solicited investments in a purported pooled investment vehicle that would invest in pre-selected stocks, which would then be "auto-traded" by a proprietary algorithm. However, rather than using investor funds to engage in any type of trading, Schamens allegedly used the overwhelming majority of the money for personal expenses and to repay previous investors seeking redemptions.

The complaint also alleges that Schamens provided investors with fictitious monthly statements showing returns at times exceeding 80 percent and that he sought to conceal his actions by presenting investors with a phony audit letter verifying transactions and balances in the fund.  The complaint, filed in the U.S. District Court for the District of New Jersey, charges Schamens with violating antifraud provisions of the federal securities laws. The SEC seeks a permanent injunction, disgorgement, and penalties against Schamens.

"This is not the first time that David Schamens has been charged by the SEC for misconduct and serves as a good reminder for investors to research potential advisers," said Richard R. Best, Director of the SEC's New York Regional Office. "Before entrusting someone with managing your money, investors should visit Investor.gov where they can vet potential advisers."

In 1992, the SEC charged Schamens for, among other things, misappropriating investor funds. As part of the settled charges, he was barred from association with any broker, dealer, municipal securities dealer, investment adviser, or investment company.

In approximately February 2017, Carpenter entered into an agreement through which she agreed to service certain customer accounts, including executing trades for those accounts, under joint representative codes (also known as joint production numbers) that she shared with a retired representative, who was a close personal friend of Carpenter. The agreement set forth what percentages of the commissions each representative would earn on trades placed using the joint representative codes. 

From March 2017 through February 2020, Carpenter placed a total of 388 trades in accounts that were covered by the agreement using her own personal representative code. Specifically, although the firm's system correctly prepopulated the trades with the applicable joint representative codes, Carpenter changed the codes for the 388 trades to her personal representative code. Prior to Carpenter changing the codes on the trades, she discussed doing so with the retired representative, who agreed that Carpenter could do so. The firm's trade confirmations for the 388 trades inaccurately reflected Carpenter's personal representative code. 

Carpenter's actions resulted in her receiving higher commissions from the 388 trades than what she was entitled to receive pursuant to the agreement. In December 2020, Morgan Stanley reimbursed the retired representative. 

By causing Morgan Stanley to maintain inaccurate trade confirmations, Carpenter violated FINRA Rules 4511 and 2010.

[W]e find that an award of 20% for Claimant 1 and 10% for Claimant 2 is appropriate. In reaching that determination, we considered that: (1) Claimant 1's information caused the staff to open the investigation; (2) Claimant 1 provided ongoing assistance by participating in interviews and providing documents, which saved the staff time and resources; and (3) while Claimant 2 provided information that assisted the staff's investigation and saved the staff time and resources, Claimant 2 submitted the information several weeks after the staff's investigation had commenced as a result of Claimant 1's information and after Claimant 2 became aware of the investigation. 

[AVG's] website and other marketing communications represented that its management fee for the venture capital funds that it managed was the "industry standard '2 and 20.' " The order found that these representations were misleading because they led some investors to believe that AVG would collect a two-percent management fee during each year of its funds' 10-year term, and separately collect a 20-percent performance fee. According to the order, AVG's typical practice was instead to assess management fees totaling 20 percent of an investor's fund investment (representing ten years' of two-percent annual management fees) upon the investor's initial fund investment.

The order found that Collins approved of AVG employees using the "industry standard '2 and 20' " language and personally used it with fund investors and prospective investors. The order also included findings that AVG made inter-fund loans and cash transfers between funds and made loans to certain funds in violation of the funds' respective operating agreements.

[P]iper practiced law in Port Orchard, handling wills, trusts and probate of estates.  In 2011, she prepared a will for a client who left his entire estate to St. Jude's Children's Hospital.  However, when that client died in 2014, Piper as executor of the estate, stole $500,000 from the estate and invested it in Paraguay.  When the children's hospital inquired about the funds it was owed, Piper stole from a friend to repay the hospital.  She told the friend that she had invested the money in Paraguay.  The victim had just sold a home, and the money was for her retirement.  The victim sued Piper and won.  Piper has not paid the victim any of the money awarded through the litigation.

In sentencing documents prosecutors described how Piper continues to falsify her finances.  She failed to list homes she owns in Cabo San Lucas and property on the coast of Mexico as assets that could be liquidated to pay her victims.

Judge Bryan ordered Piper to sell the waterfront property within 6 months to compensate her victims. He ordered her to pay restitution of $500,000.

Piper had already given up her law license and bar membership, after the Washington State Bar Association was poised to sanction her for stealing $42,000 from two other clients.

• Securities Industry Commentator
• Bill Singer