Securities Industry Commentator by Bill Singer Esq

TM Staff Statement / SEC Division of Trading and Markets

Statement on Planned Departure from the Commission by SEC Commissioner Allison Herren Lee

Founder Of Cyberfraud Prevention Company Pleads Guilty To Defrauding Investors Of Over $100 Million / Adam Rogas Raised $123 Million From Investors Using Financial Statements That Showed Tens of Millions of Dollars of Revenue and Assets that Did Not Exist (DOJ Release)

Serial Fraudster Pleads Guilty in U.S. District Court in Maryland to Two New Fraud Schemes and to Violating His Supervised Release for a Previous Federal Fraud Conviction (DOJ Release)

Nevada Man Convicted by Federal Jury of Fraud and Money Laundering / Defendant Solicited Investments Money from Victims for Drug and Alcohol Rehab Centers in KS and AZ (DOJ Release)

Reporter Teri Buhl Wins Summary Judgment In High-Profile Harvey Kesner Defamation Case

Harvey J. Kesner, Plaintiff/Counter-Defendant v. Teri Buhl, Defendant/Counter-Claimant (Opinion, SDNY)

SEC Charges Texas School District and its Former CFO with Fraud in $20 Million Bond Sale (SEC Release)

SEC Charges Call Center Operators in $58 Million Penny Stock Scheme (SEC Release)

Union County Investment Advisor Arrested for Stealing Client Money (DOJ Release)

SEC Charges Former Financial Adviser Representative with Misappropriating Investor Funds (SEC Release)

SEC Obtains Preliminary Injunction Against Biotech Company and Executives Charged with Engaging in $10 Million Offering Fraud (SEC Release)

SEC Obtains Final Judgment Against Real Estate Fund Manager and Its Founder Who Fabricated Track Record and Misappropriated Millions from Investors (SEC Release)

SEC Charges Dental Ultrasound Start-Up and Its CEO with Fraudulently Raising $2 Million from Investors (SEC Release)

FINRA Fines and Sanctions Another Morgan Stanley Former Rep Over Disputed Joint Rep Codes

In the Matter of Michael Campopiano, Respondents (FINRA AWC 2021072169601)

SEC Claims Review Staff Tortures Whistleblower With Denial of Eventual $14 Million Award (BrokeAndBroker.com Blog)

[I]n 2015, Evans was sentenced to four years in federal prison, and began five years of supervised release on January 17, 2018.  Evans admitted that from June 29, 2019 through August 30, 2019, he fraudulently obtained and used a credit card in the name and identity of "JM" using JM's name, date of birth and social security number.  The bank approving the credit card application also opened a business account connected to that credit card.  Evans then obtained a counterfeit Pennsylvania driver's license bearing the name of JM and a photograph of Evans, with the date of birth altered to be consistent with Evans' age. 

On July 30, 2019, Evans presented the credit card and the counterfeit driver's license at a bank in the 7900 block of Ritchie Highway in Glen Burnie, Maryland, and requested a cash advance of $14,400, which the bank approved. The next day, Evan used the credit card and counterfeit Pennsylvania driver's license at a store in Annapolis, Maryland, to purchase Apple merchandise totaling $12,114.74, including nine iPhone XS Max cell phones. On August 6, 2019, Evans presented the credit card and counterfeit Pennsylvania driver's license in JM's name at a bank in the 1000 block of Washington Boulevard in Laurel, Maryland, and requested a cash advance of $14,400.  The cash advance was not immediately approved due to a problem with the bank's computer system, but before the system could be rebooted and the transaction identified as fraudulent, Evans left the bank, leaving the fraudulently obtained credit card and counterfeit license in JM's name behind.

Evans obtained or attempted to obtain at least $65,000 using accounts opened in the identities of JM and other victims.

On December 11, 2019, Evans was charged with bank fraud and aggravated identity theft in U.S. District Court in Maryland, as well as with violating his supervised release.  Evans was placed on 24/7 home detention with electronic monitoring.  On October 19, 2020, Evans was allowed out on a curfew, but still had electronic monitoring.  On April 21, 2021, Evans was released from electronic monitoring.

After he was taken off 24/7 lockdown, Evans resumed his criminal conduct with an entirely new fraud scheme.  From on or about January 12, 2021, through on or about August 2, 2021, Evans used counterfeit credit cards bearing real numbers of accounts from two separate, federally insured, banks to purchase gift cards and other items from food stores in Delaware, Pennsylvania and Maryland, ultimately obtaining at least $59,837.79 in gift cards.  The counterfeit credit cards were embossed with the number to be used, but were not properly encoded, so that they did not "swipe" and had to be hand entered by the clerks. 

Evans used two separate counterfeit credit cards to purchase a $450 Visa gift card, plus a $5.59 fee, at a food store in Lusby, Maryland on June 21, 2021, and to purchase a $480 Visa gift card, plus a $5.59 fee and a $1.00 donation to charity, at a food store located at Bel Air, Maryland on July 9, 2021.

On July 25, 2021, Evans was arrested in Delaware as a result of attempting a fraudulent transaction and was found to have counterfeit credit cards and identifications, an embosser, and drugs in his possession.

[B]ondonno, age 66, created and distributed investment materials to potential investors containing materially false statements and omissions regarding investment opportunities in the Wichita Project LLC and BHD International, Inc., also referred to as the Phoenix Project.  He and co-defendants contacted would-be investors and made false representations about returns on investment and how the investment funds would be used.  The materials purported to fund the rehabilitation for drug and alcohol in Wichita, Kansas and Phoenix, Arizona.  Between 2017 to 2019, Bondonno, John Ainsworth, Gregory Dawkins, and Courtland Van Oden, contacted investors to solicit investment funds, and they split the proceeds between themselves and Bondonno, with no money going toward the stated purpose of the investment.  Oden, Dawkins, and Ainsworth all previously pleaded guilty to felony offenses associated with the fraud. 

Court records showed that Bondonno controlled the incoming investment funds through bank accounts he created and controlled. Bondonno and co-conspirators used false names, fraudulent and misleading investment materials, and made false oral representations to investors in Kentucky, Maryland, and California.  Bondonno brought in more than $519,000 in connection with the investment and spent seventy percent of the funds on himself, with the remaining funds being used to pay co-conspirators through nominee entities and false names.  Bondonno used information associated with actual rehab centers operating in Kansas and Arizona to defraud investors.  No money was ever provided to those facilities or paid back to investors.

One of the investor victims was over 95 years old and resided in Kentucky.  Bondonno and co-conspirators convinced the investor and another investor to transfer their individual retirement accounts to his control to invest in the Wichita Project LLC.  Court records show that Bondonno and co-defendants split proceeds and used the remaining funds for personal use with, no money going to an investment.

This case involves libel claims arising out of blog posts about plaintiff Harvey J. Kesner ("Kesner") by defendant Teri Buhl ("Buhl"). Kesner is an attorney who represented public companies embroiled in an alleged pump~and-dump stock-selling scheme that became the subject of an investigation by the Securities and Exchange Commission ("SEC"). Kesner's role in his clients' misdeeds was the subject of various unflattering media reports. These led Kesner to bring this libel suit against Buhl, a frequent blogger and investigative journalist focused on financial reporting, Dow Jones & Company, Inc. ("Dow Jones"), and William Alpert ("Alpert"). Kesner's claims against the latter two were based on an October 2018 article Alpert wrote for the Dow Jones magazine Barron's. 

The Court previously dismissed in its entirety Kesner's libel claims against Dow Jones and Alpert, and in principal part Kesner's libel claims against Buhl, for failure to state a claim. See Kesner v. Dow Jones & Co., Inc., 515 F.Supp.3d 149, 158 (S.D.N.Y. 2021), appeal dismissed (2d Cir. Apr. 16, 2021). The Court left standing Kesner's claims only to the extent that Buhl, in three of her many blogs and tweets on the subject, had accused Kesner of criminal activity. Before the Court now is Buhl's motion for summary judgment as to the three surviving claims against her. Also before the Court is Kesner's motion to dismiss a counterclaim that Buhl brought during discovery, asserting a violation of New York Civil Rights Law § 70-a.

For the reasons that follow, the Court grants both Buhl's summary judgment motion and Kesner's motion to dismiss. 

The SEC's complaint alleges that Crosby ISD, which serves approximately 6,400 students outside of Houston, failed to report $11.7 million in payroll and construction liabilities and falsely reported having $5.4 million in general fund reserves in its audited 2017 fiscal year financial statements. According to the complaint, Crosby ISD and Merka, who was responsible for Crosby ISD's accounting and was the primary contact during the bond financing process, were aware that the financial statements significantly underreported the payroll and construction liabilities. Crosby ISD and Merka knowingly included the false and misleading financial statements in the offering documents used to raise $20 million through the sale of municipal bonds in January 2018. In August of 2018, seven months after the offering, Crosby ISD disclosed that it was experiencing significant financial issues, including that it had a negative general fund balance. The following month, ratings agencies downgraded Crosby ISD's bonds. 

Lackey, who audited Crosby ISD's financial statements, authorized the issuance of the fiscal year 2017 audit report. Lackey was charged by the SEC with failure to perform critical audit procedures necessary to verify the accuracy of Crosby's payroll and construction liabilities. She also violated Generally Accepted Auditing Standards (GAAS) by failing to obtain sufficient appropriate audit evidence to support the audit opinion, failing to properly supervise the audit, and by failing to exercise professional judgment and maintain professional skepticism.

The Securities and Exchange Commission today announced fraud charges against five individuals for allegedly operating a call center in Medellin, Colombia, which used high pressure sales tactics and made false and misleading statements to retail investors to convince them to buy the stocks of small companies trading in the U.S. markets.

According to the SEC's complaint, filed on March 14, 2022, U.S. citizen Chester Alvarez, Canadian citizens Francis Biller, Raymond Dove, and Troy Gran-Brooks, and Dutch citizen Justin Plaizier operated call centers, set up as phony investment management firms, with fake names, websites, and phone numbers. The SEC's complaint alleges that, using the false personas, the defendants orchestrated a pump-and-dump scheme and made false and misleading statements when they promoted the stock of at least 18 issuers, and that they generated more than $58 million in trading from this scheme. The complaint also alleges that the defendants were paid approximately $10 million for promoting thinly traded stocks, which they misled investors to believe had high prospects for success.

From April 2018 through November 2020, Rivero, while serving in his capacity as an investment advisor employed by a large brokerage firm, misappropriated at least $529,870 from four clients. Rivero, who had been entrusted to manage client funds responsibly, instead perpetrated a scheme to defraud multiple clients. He obtained his clients' money under the fraudulent pretense that he would invest the funds, but instead, Rivero unlawfully diverted the funds to enrich himself and others.

The U.S. Securities and Exchange Commission yesterday charged a former New Jersey broker and investment adviser representative with misappropriating at least $680,000 from his advisory clients and brokerage customers, some of whom were elderly or suffering from memory loss.

The SEC's complaint alleges that, between at least July 2018 and November 2020, Mario E. Rivero Jr., a former financial adviser at a large financial institution, convinced at least five of his clients and customers to transfer funds from their investment accounts to their personal bank accounts and then, from their bank accounts, to entities with which Rivero was secretly associated. As alleged, Rivero falsely told his victims that the purpose of these fund transfers was to make various investments on their behalf. According to the complaint, in reality, Rivero siphoned hundreds of thousands of dollars from the entities that received the investor funds, for his own benefit.

On November 24, 2021, the SEC filed a motion for preliminary injunction and other relief, alleging the defendants continued to engage in fraudulent conduct after the SEC initiated the enforcement action in June 2021. In support of its motion, among other things, the SEC alleged that the defendants continued to solicit Cell>Point investors with false and misleading statements about how the investors' money would be used, and claims of purported imminent investment financing for an alleged initial public offering.

Following an evidentiary hearing held on January 25, 2022, the court ordered that, pending further action of the court, the defendants are enjoined from 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, as well as Rule 10b-5 thereunder. In particular, the court ruled that the SEC had proved that the "defendants made material misrepresentations and omissions with scienter," in violation of the Securities Act and Exchange Act, and that the SEC "ha[d] successfully made a substantial showing of a likelihood of future violations." The court further held there was "no necessity for an asset freeze in this case," stating, "defendants do not currently have any significant assets that could be frozen."

The SEC's complaint, filed on January 12, 2021 in the Southern District of New York, alleged that beginning in 2014, Malley - a licensed real estate broker with no investment management experience - and MG Capital solicited investments in two real estate funds, MG Capital Management Residential Funds III and IV, respectively, raising a total of $58 million primarily on the strength of a fabricated investment track record. The complaint alleged that, in marketing Funds III and IV, Malley and MG Capital falsely claimed that they had previously managed two highly-successful real estate funds with a combined portfolio value of $1.18 billion that had significantly outperformed the S&P 500 Index over a ten-year period when, in fact, those prior funds never existed. As alleged, Malley and MG Capital made numerous other misrepresentations in their marketing materials and offering documents, including claiming that investors' capital was "100% protected from loss" and secured by a non-existent $250 million balance sheet and that they had partnerships with hundreds of prospective tenants with pre-signed, multi-year lease agreements. Further, the complaint alleged that Malley and MG Capital misappropriated millions in investor assets while using falsified financial reports to conceal huge losses that ultimately forced the two funds into wind-down. Finally, as alleged in the complaint, some of the misappropriated assets were paid to two related entities controlled by Malley, MG Capital Realty Management LLC and MG GP III LP, both of which were named as Relief Defendants.

According to the SEC's complaint, Baird founded S-Ray in 2010 to develop ultrasound technology for use in dentistry. By 2018, the company allegedly had only developed a couple of prototypes but had not sold any products, and by 2019, the company's last remaining employee, aside from Baird, left the company. The SEC's complaint alleges that Baird nonetheless continuously sold S-Ray shares to investors, many of whom are dentists and orthodontists, by misrepresenting that the company had booked $1 million worth of orders from customers and that it would soon be earning tens of millions of dollars in annual revenue.

The SEC's complaint further alleges that Baird told investors that additional investments in S-Ray would be used for revenue-generating purposes and he would forgo his salary and bonus, giving the false impression that he was not benefiting from S-Ray's securities offering. However, from May 2019 through May 2021, Baird allegedly used almost half of the proceeds from S-Ray's securities offering to pay himself and his wife back for loans that Defendant Baird purportedly had made to S-Ray.

In approximately March 2015, Campopiano entered into an agreement through which he agreed to service certain customer accounts, including executing trades for those accounts, under a joint representative code (also known as a joint production number) that he shared with a retired representative. The agreement set forth what percentages of the commissions each representative would earn on trades placed using the joint representative code. 

From April 2015 through December 2019, Campopiano placed a total of 178 trades in accounts that were covered by the agreement using different representative codes. Specifically, although the firm's system correctly prepopulated the trades with the applicable joint representative code, Campopiano changed the code for the 178 trades to representative codes under which he received a higher commission percentage than he would have received had he used the joint representative code he shared with the retired representative. Campopiano mistakenly believed that he was permitted to change the code on the 178 trades because throughout the relevant period, the firm had transferred certain accounts that were subject to Campopiano's agreement with the retired representative to other registered representatives of the firm, who were not part of the agreement with the retired representative. The firm's trade confirmations for the 178 trades inaccurately reflected the other representative codes instead of the joint representative code that Campopiano shared with the retired representative. 

In September 2021, Morgan Stanley reimbursed the retired representative. 

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

• Securities Industry Commentator
• Bill Singer