Securities Industry Commentator by Bill Singer Esq

5Cir Issues Historic Rebuke Of SEC ALJ System (BrokeAndBroker.com Blog)

SEC Charges Wells Fargo Advisors With Anti-Money Laundering Related Violations (SEC Release)

Tequila Entrepreneur Sentenced To Prison For Securities Fraud (DOJ Release)

Brazilian National Pleads Guilty in Nationwide Fraud that Exploited App-Based Food Delivery Customers During Pandemic (DOJ Release)

Austin Man Sentenced for Hotel Investment Fraud Scheme (DOJ Release)

SEC Charges Charlotte, North Carolina Business Consultant and His Company with Operating $7 Million Ponzi Scheme (SEC Release)

SEC Obtains Final Judgments Against Defendants in Fraudulent ICO Scheme (SEC Release)

SEC Awards $16,000 to Whistleblower Claimant 

Order Determining Whistleblower Award Claims

CFTC Charges Oregon and Illinois Residents and Florida Company in $44 Million Misappropriation in Ongoing Digital Asset and Commodity Futures Fraud / Court Issues Restraining Order that Freezes Assets, Preserves Documents and Appoints Receiver (CFTC Release)

FINRA Fines and Suspends Rep for OBAs

In the Matter of William T. Hobdy, Respondent (FINRA AWC)

FINRA Fines and Suspends Former Morgan Stanley Rep For Putting Compliance Cart After the Horse (BrokeAndBroker.com Blog)

Edward Jones Sued for $15 Million Over Book of Business (BrokeAndBroker.com Blog)

[D]ue to Wells Fargo Advisors' deficient implementation and failure to test a new version of its internal anti-money laundering (AML) transaction monitoring and alert system adopted in January 2019, the system failed to reconcile the different country codes used to monitor foreign wire transfers. As a result, Wells Fargo Advisors did not timely file at least 25 SARs related to suspicious transactions in its customers' brokerage accounts involving wire transfers to or from foreign countries that it determined to be at a high or moderate risk for money laundering, terrorist financing, or other illegal money movements. The order also found that, beginning in April 2017, Wells Fargo Advisors failed to timely file at least nine additional SARs due to a failure to appropriately process wire transfer data into its AML transaction monitoring system in certain other situations.     

In or about 2016 to 2018, CIMINO raised approximately $615,000 from approximately 16 investors.  To attract investors, CIMINO falsely inflated the amount of capital that he had raised from prior investors, and fraudulently altered an investor list to include several individuals who, in fact, had not contributed any funds.  CIMINO also falsely inflated his company's sales.  For example, in July 2017, CIMINO claimed in an investor report that year-to-date sales totaled 3,410 cases of tequila, when the actual sales totaled only 350 cases.  Similarly, in October 2017, CIMINO falsely claimed that year-to-date sales totaled 6,035 cases, which was approximately five times the actual total.  CIMINO further claimed in October 2017 that his company would receive reimbursement for 800 cases of tequila supposedly destroyed at a Puerto Rican warehouse as a result of Hurricane Maria.  In reality, no inventory was destroyed in the hurricane, and the company lacked insurance.

CIMINO also misused a substantial portion of investor money that was intended to fund the operations of his tequila business for personal expenses, contrary to the company's operating agreement.  For example, CIMINO transferred investor money to his personal bank account in order to subsidize his food, entertainment, and other living expenses.

De Avila pleaded guilty before U.S. Magistrate Judge Jill Burkhardt to wire fraud conspiracy, money laundering and multiple aggravated identity theft charges.

In May 2021, five Brazilian nationals, including De Avila, were charged with engaging in a nationwide conspiracy to establish fraudulent driver accounts with multiple internet and app-based rideshare and food delivery companies, including by using identities stolen from the customers of those companies.

According to his plea agreement, De Avila admitted that between 2018 and May 2021, he and his co-conspirators, all of whom were Brazilian nationals living in the United States illegally, operated a scheme to defraud major app-based rideshare and food delivery companies.  In Spring 2020, with the COVID-19 pandemic in full swing, the conspirators shifted away from the rideshare companies, which saw a dramatic decrease in traffic, to food, grocery and other delivery companies, which saw a corresponding and significant increase in demand.  De Avila and his co-conspirators exploited the surge in demand by creating new driver accounts with stolen identities, collecting referral bonuses from the fraudulent accounts, and by using, renting, and selling the accounts to others on these platforms. 

De Avila and his co-conspirators also admitted that once they received payment from the rideshare and delivery companies, they laundered the money both to promote the conspiracy and to conceal the fact that the source of the funds were an elaborate fraudulent scheme.  While the fraudulent scheme targeted popular app-based rideshare and food delivery services, De Avila and his co-conspirators also stole and used the identities of close to 100 victims to create fraudulent driver accounts on the various platforms over the three-year conspiracy. 

devised a scheme to bilk hotel investors out of millions of dollars.  Schubert identified potential investors by conducting seminars on how to make money from investing in hotel properties, known as "Rich in Five" seminars, charging the participants substantial fees to attend.  Schubert then solicited money from the participants for investing in preexisting hotel properties that he would manage and operate while claiming that investors would profit with little effort on their part. 

However, many of the hotels were older and in substantial disrepair.  Although Schubert had no hotel management experience, he represented that investor funds would be used to renovate the hotels. Instead, he misappropriated the money by paying himself significant "management fees."  Schubert's fraudulent activities depleted investor funds, causing the hotel properties to go into foreclosure with a loss of over $5 million to investors.

[S]ince 2019, Charlebois has defrauded at least 75 investors, mostly residents of the Charlotte area, using multiple bogus investment opportunities. Most recently, through WC Private, Charlebois offered investors opportunities to share in the profits earned by participating in the exercise of fictitious options contracts. In reality, Charlebois used investor funds to pay his family's debts and personal expenses, including his mortgage payments, vacations, and private school education for his children.

According to the SEC's amended complaint, filed April 20, 2018, Sharma, Farkas, and Trapani made numerous material misrepresentations in marketing the CTR tokens, including touting Centra's claimed partnerships with Visa, MasterCard, and The Bancorp, when in fact, Centra did not have any "partnership" or any relationship with these institutions. The amended complaint further alleges that Defendants created fictitious executive bios, made misrepresentations about the viability of the company's core financial services products, and manipulated trading in the CTR Tokens to generate interest in the company and prop up the price of the tokens.

In April 2018, the United States Attorney's Office for the Southern District of New York brought criminal charges against Sharma, Trapani and Farkas for their roles in the fraudulent Centra ICO in United States v. Sharma et al, 18-Cr. 340 (S.D.N.Y.) (LGS). Sharma, Trapani, and Farkas have each pleaded guilty and have been sentenced to a term of imprisonment.

On May 17, 2022, the U.S. District Court for the Southern District of New York entered final judgments on consent against Sharma, Trapani, and Farkas. The judgments enjoin each from violating the antifraud provisions of Section 17(a) of the Securities Act of 1933 ("Securities Act") and Section 10(b) of the Securities Exchange Act of 1934, and Rule 10b-5 thereunder, and the registration provisions of Section 5 of the Securities Act. The judgments also order: (1) disgorgement, including prejudgment interest of $37,701,966, $2,608,869, and $394,908 against Sharma, Trapani and Farkas respectively, each of which was deemed satisfied by the orders of forfeiture entered in the parallel criminal proceeding against each of them; (2) officer-and-director bars; and (3) permanent injunctions from conducting any offering of digital asset securities or other securities.

[C]laimant helped alert Commission staff to the ongoing fraud and his/her tip was a principal motivating factor in the decision to open the investigation. Claimant also provided continuing assistance by supplying critical documents and participating in at least one subsequent communication with Commission staff that advanced the investigation. 

[S]ince at least January 2021, the defendants have used a website, YouTube videos, and other means to solicit more than $44 million from at least 170 participants to purchase, hold and trade digital assets, commodities, derivatives, swaps and commodity futures contracts. The complaint further alleges that instead of investing the pooled participant funds as represented, the defendants misappropriated participant funds by distributing them to other participants, in a manner akin to a Ponzi scheme. The complaint also alleges that the defendants transferred some participant funds to other accounts under their control and for their benefit. The defendants also transferred millions of dollars to an off-shore entity that, in turn, may have transferred funds to a foreign cryptocurrency exchange. None of these funds were returned to the pool.

At the time of his association with Hold Brothers, Hobdy controlled seven businesses that were active and in good standing with the New Mexico Secretary of State and constituted business activities beyond the scope of Hobdy's employment with Hold Brothers. These OBAs were created to pursue different business ventures outside of the securities industry, such as the management of short-term vacation rentals and music. However, at no point during his registration through Hold Brothers between September 9, 2020 through October 16, 2020 did Hobdy provide written disclosure of these OBAs to the firm. 

Therefore, Hobdy violated FINRA Rules 3270 and 2010. 

• Securities Industry Commentator
• Bill Singer