Securities Industry Commentator by Bill Singer Esq

Stockbroker Wins Expungement of Two Edward Jones Customer Complaints (BrokeAndBroker.com Blog)

Loves Park Investment Advisor Sentenced to More Than Four Years in Prison for Financial Fraud (DOJ Release)

Nevada Man Admits Money Laundering and Tax Offenses Related to BitClub Network Fraud Scheme (DOJ Release)

SEC Obtains Final Judgment Ordering Individual to Pay Over $17 Million for Facilitating Multi-Million Dollar International Fraud Scheme (SEC Release)

FINRA Expels Alpine Securities and Orders Restitution and Imposes Cease-and-Desist

In the Matter of  FINRA Department of Enforcement, Complainant, v. Alpine Securities Corporation, Respondent (FINRA OHO Decision)

FINRA Fines and Suspends Aegis Capital Corp Rep for Excessive/Unsuitable Trading

In the Matter of Arkady Ginsburg, Respondent (FINRA AWC)

FINRA Censures and Fines Wolfe Research Securities Over Advertised Trading Volumes

In the Matter of Wolfe Research Securities, Respondent (FINRA AWC)

Ameriprise Loses Unsuitability Case in FINRA Customer Arbitration

In the Matter of the Arbitration Between Jeffrey Trosen and Susan Trosen, Claimants, v. Ameriprise Financial Services, LLC and Securities America, Inc., Respondents (FINRA Arbitration Award 20-03293)

Wells Fargo Promissory Note Case Enters Its Second Decade of Litigation (BrokeAndBroker.com Blog)

Motion to Vacate FINRA Arbitration Award Fails To Raise Federal Jurisdiction (BrokeAndBroker.com Blog)

FINRA Bars JP Morgan Securities Rep Over Chase Bank Credit Card Charges (BrokeAndBroker.com Blog)

fraudulently obtained a total of more than $968,000 from the accounts of three customers.  Salamah told the customers that he needed to move the money to diversify their assets, when, in fact, Salamah deposited the money into a bank account that he controlled.  Salamah then used the money for his own benefit and without the customers' knowledge or consent. 

From April 2014 through December 2019, the BitClub Network was a fraudulent scheme that solicited money from investors in exchange for shares of purported cryptocurrency mining pools and rewarded investors for recruiting new investors into the scheme. Matthew Brent Goettsche, BitClub Network's creator and operator, and Silviu Catalin Balaci, Russ Albert Medlin, Jobadiah Sinclair Weeks, and Joseph Frank Abel, were charged by indictment in December 2019 in connection with the BitClub Network scheme. 

Beckstead, a BitClub Network investor, admitted conspiring with Goettsche and others to launder funds earned by Goettsche through his operation of the BitClub Network. At the direction of Goettsche, Beckstead created and controlled various entities that were used by Beckstead, Goettsche, and others to shield Goettsche's association with the BitClub Network and to disguise income derived by Goettsche through his operation of the BitClub Network.

Beckstead further admitted to controlling bank accounts associated with the entities and directing transfers to and from the accounts exceeding $50 million. Beckstead acknowledged that the transfers were designed to conceal the source of Goettsche's income, disguise Goettsche's ownership of certain property and assets paid for with BitClub Network proceeds, and to help Goettsche evade tax reporting requirements. Beckstead also admitted that he and others provided false and misleading information to financial institutions to conceal the source of Goettsche's income. 

Beckstead, a former CPA, also admitted to aiding at least two different tax preparers in the preparation of Goettsche's false 2017 and 2018 federal tax returns. Beckstead provided the tax preparers with documents and records to assist in the preparation of the returns. Beckstead admitted that he and Goettsche knew the 2017 and 2018 tax returns were fraudulent in that they failed to report more than $60 million in total income earned by Goettsche through his operation of the BitClub Network. This allowed Goettsche to avoid paying more than $20 million in federal income taxes.

On October 2, 2018, the SEC charged Gastauer and six U.S.-based entities that he controlled, Silverton SA Inc., Wintercap SA Inc., WB21 US Inc., WB21 NA Inc., C Capital Corp., and B2 Cap Inc., with aiding and abetting a microcap fraud orchestrated by U.K. citizen Roger Knox and his Swiss entity, Wintercap SA. The SEC's complaint alleged that Knox and Wintercap SA helped sellers of large volumes of microcap securities evade U.S. securities laws that restrict sales by controlling shareholders. According to the complaint, Knox used Wintercap SA to conceal sellers' stock ownership by providing them access to offshore brokerage accounts, and Gastauer used his six entities' U.S. bank accounts to disburse the proceeds of those illegal stock sales. On October 26, 2018, the court entered a preliminary injunction and continued an asset freeze against Knox, Gastauer, and the entities they used in the scheme. On November 15, 2018, the SEC amended the complaint to add two additional relief defendants to the three relief defendants that were originally charged. On October 31, 2019, the court entered judgment by consent against relief defendant Simone Gastauer Foehr, who as a result of the final judgment against Michael Gastauer, is now required to pay $736,000.

In a parallel criminal action brought by the U.S. Attorney for the District of Massachusetts, on October 23, 2018, a federal grand jury in Massachusetts indicted Knox on one count of securities fraud and one count of conspiracy to commit securities fraud. Knox pled guilty on January 13, 2020. His sentencing remains pending.

At issue in this case is whether Respondent Alpine Securities Corporation acted properly in response to the firm's mounting financial challenges. The firm asserts that, because of an increase in clearing-related expenses, regulatory compliance costs, and legal expenses, its profits declined precipitously in 2018, making it difficult to continue its retail securities business. As a result, Alpine Securities contends, in August 2018, it advised customers that it would stop carrying retail accounts and impose additional fees, including a $5,000 monthly account fee, on retail customers who did not close their accounts. FINRA's Department of Enforcement alleges that the firm's many new charges were excessive and imposed in a discriminatory manner. 

Enforcement also alleges that, by declaring customer accounts abandoned and customers' securities worthless, and by moving customer funds and securities out of customer accounts without authorization and into firm proprietary accounts, Alpine Securities engaged in unauthorized trading, conversion, and misuse of customer funds and securities. Additionally, Enforcement alleges that seven of the firm's payments to an affiliated lender and one payment to an affiliated landlord were, in effect, unauthorized capital withdrawals. Alpine Securities denies all allegations and argues that increased regulatory scrutiny on the microcap market is to blame for many of the firm's woes. It argues that, in order to stay profitable, it was forced to amend its business plan and charge higher fees. 

After considering all of the evidence, we find that (1) Alpine Securities' $5,000 monthly account fee, 1% per day illiquidity and volatility fee, and $1,500 certificate withdrawal fee were unreasonable and the $5,000 fee was applied in a discriminatory manner (cause five); (2) the firm's appropriation of customer positions valued at $1,500 or less for one penny per position and 2.5% market-making/execution fee resulted in unfair prices and commissions (cause four); (3) the firm converted and misused customer funds and securities by removing customer securities it improperly deemed "abandoned" and "worthless" and seizing customer securities to cover debits related to excessive and unreasonable fees (causes one and two); (4) the firm engaged in unauthorized trading by moving customers' securities from customer accounts to firm proprietary accounts without customer authorization purportedly to cover outstanding debits and because the firm improperly identified the securities as "worthless," and by moving customers' securities from customer accounts to the firm's abandoned securities accounts without customer authorization because the firm improperly identified the accounts as "abandoned" (cause three); and (5) the firm executed one unauthorized capital withdrawal (cause six). We dismiss Enforcement's allegations in cause six that Alpine Securities executed an additional seven unauthorized capital withdrawals. 

As discussed below, for these violations, we expel the firm, order restitution, and impose a permanent cease and desist order.

Several former members of Alpine Securities' management team appear to have acrimonious relationships with John Hurry. This is particularly so with respect to Frankel, Jones, and Doubek. We rely on Frankel's and Jones's testimony with respect to pivotal issues in this case only when there is other corroborating evidence. Overall, however, we found Frankel's and Jones's testimony to be credible in that it was consistent with the documentary evidence and other testimony about the state of affairs at Alpine Securities during the period at issue. 

Doubek was Alpine Securities' chief executive officer and a board member when the hearing commenced in 2020. His tenure as a board member began in late 2018 and he became chief executive officer and chief compliance officer in the first half of 2019. As such, he has knowledge particular to the events at issue in this case. 

Alpine Securities terminated Doubek during a break in the hearing on June 24, 2021. Doubek's Form U5 states that an internal investigation by the firm indicated that Doubek "colluded with a customer to misappropriate in excess of $1.3 million in firm funds" and that he engaged in other actions contrary to the firm's business interests and regulatory responsibilities. Subsequent to Doubek's departure from Alpine Securities, the firm filed a law suit against him related to his approval of the firm's payment of an invoice to outside consultant Jim Kelly, who worked for the firm at John Hurry's request.

We acknowledge that Doubek has an incentive to testify negatively about Alpine Securities. We find, however, that his remarks were measured and consistent with documentary evidence and the testimony of other members of the firm's management team. His testimony appeared forthright and honest and generally was well-corroborated. Overall, we credit his testimony, which included some statements that were against his own personal interests.

[G]insburg engaged in excessive and unsuitable trading in the accounts of three of his customers at Aegis, Customer A, Customer B, and Customer C. Ginsburg's trading in these customers' accounts, two of which were heavily margined, generated high cost-to-equity ratios and turnover rates, as well as significant losses and trading costs. Because Ginsburg recommended the trading in the customers' accounts and the customers routinely followed his recommendations, Ginsburg controlled the volume and frequency of trading in the accounts and therefore exercised de facto control over the accounts of Customer A, Customer B, and Customer C. During the relevant period, Ginsburg earned a total of $113,591 in commissions from the accounts. 

• Customer A opened an account with Ginsburg at Aegis in August 2014 and funded his account with an initial deposit of approximately $202,000 and subsequently deposited approximately $66,000. From August 2014 to December 2015, Ginsburg executed 252 trades in Customer A's account, which was heavily margined. During this period, Ginsburg's trading generated an annualized cost-toequity ratio of 48.68 percent and an annualized turnover rate of 50.7. As a result of Ginsburg's trading, Customer A suffered market losses of $157,539, while Ginsburg earned $32,255 in commissions. 
  
  
• Customer B opened an account with Ginsburg at Aegis in March 2018, after receiving a cold call from Ginsburg, and funded the account with a deposit of approximately $1,600,000. From March 2018 to June 2020, Ginsburg executed 384 trades in Customer B's account, which was heavily margined. During this period, Ginsburg's trading generated an annualized cost-to-equity ratio of 34.55 percent and an annualized turnover rate of 17.78. As a result of Ginsburg's trading, Customer B suffered market losses of $509,863, while Ginsburg earned $76,303 in commissions. 
  
  
• Customer C, a senior customer, opened an account with Ginsburg at Aegis in February 2018 and funded the account with a deposit of $100,000. After a planned IPO in which he was going to participate did not proceed, Customer C withdrew approximately $90,000 from the account but, in January 2019, deposited an additional $30,000 into the account at Ginsburg's suggestion. From January 2019 to May 2020, Ginsburg's trading in Customer C's account generated an annualized cost-to-equity ratio of 30.82 percent and an annualized turnover rate of 8.88. As a result of Ginsburg's trading, Customer C suffered losses of $19,238.39, while Ginsburg earned $5,033 in commissions.
  

Wolfe Research Securities has been a FINRA member firm since May 2010. The firm has approximately 150 registered representatives and six branch offices, with its principal place of business in New York, New York. It distributes affiliate research, acts as an underwriter or selling group participant, and arranges corporate access and guest speaker events for clients. During the time period relevant to this AWC (between September 2017 and October 2020), Wolfe Research also provided execution services for clients, but it stopped doing so as of January 1, 2021.

On 32 occasions between September 2017 and October 2020, Wolfe Research overstated its executed daily trading volume advertised through Bloomberg, L.P., a private subscription-based provider of market data, in violation of FINRA Rules 5210 and 2010. 

Additionally, during the same time period, Wolfe Research's supervisory system, including its written supervisory procedures (WSPs), was not reasonably designed to achieve compliance with FINRA Rule 5210, which governs the accuracy of advertised trading volume. By virtue of the foregoing, the firm violated FINRA Rules 3110 and 2010.  

[T]he causes of action relate to allegations that Securities America recommended that Jeffrey Trosen sell his Microsoft stock to purchase Franklin Square Capital Corporation II (FSKR), an unsuitable, risky and speculative alternative investment, for the sole purpose of generating commissions.

• Securities Industry Commentator
• Bill Singer