The Wall Street Legal & Regulatory Feed

Securities Industry Commentator by Bill Singer Esq

June 1, 2022










Letter from United States Senate Committee on Banking, Housing, and Urban Affairs Chairman Sherrod Brown to Wells Fargo & Company President/Chief Executive Officer Charles W. Scharf / May 31, 2022
https://www.banking.senate.gov/imo/media/doc/Brown
%20WF%20Scharf%20Letter%2005312022.pdf

Dear Mr. Scharf: 

Recent revelations of racial disparities in mortgage lending, fake job interviews for minority and female candidates, and anti-money laundering violations are troubling as Wells Fargo, unfortunately, continues to demonstrate its inability to address its longstanding risk management failures. These recent problems add to the laundry list of consumer abuses and compliance breakdowns that led to the imposition of a growth restriction on your bank in 2018 until your firm improves its governance and controls.1 Accordingly, I urge you to once and for all address Wells Fargo's governance, risk management, and hiring practices - weaknesses that have plagued the bank for almost a decade. 

First, Wells Fargo has said that it is committed to closing the wealth and income gaps in this country, but it appears instead that your actions and mismanagement help continue racial and economic disparities. In March, my colleagues and I raised concerns about whether Wells' mortgage refinance lending complied with fair lending and housing laws.2 Following our letter, your bank has proposed new programs to refinance mortgages of minority homeowners whose loans you currently service and to provide additional grants; however, I remain concerned that families of color will still - once again - get the short end of the stick. Today, 30-year fixed mortgage rates are 5.25%, up 2.6% from their low at the beginning of 2021. While you have committed $150 million to support the refinance program, it's difficult to see how that amount could pay for reducing interest rates to pandemic lows for the tens of thousands of families who were denied refinancing, let alone make up for the higher payments they've made over the past year or more. Even if borrowers' mortgage payments were reduced to where they would have been if they'd received a refinance loan months ago, this would simply be doing what Wells Fargo should have been doing all along - treating all borrowers equally, regardless of their skin color. 

Concerns about discrimination have also surfaced with respect to hiring. Last week, The New York Times reported your bank conducted fake interviews of Black and female applicants to give the false impression of improving diversity within its ranks.3 This is not the first time Wells Fargo employees have raised concerns about discriminatory treatment. In 2020, Wells Fargo settled a claim with the Department of Labor for discriminating against over 30,000 Black applicants for banking, sales, and support positions.4 In 2017, Wells Fargo settled a lawsuit brought by Black financial advisers for racial discrimination, paying $36 million to hundreds of aggrieved employees.5 

Wells Fargo's ongoing, failed efforts to combat lending discrimination and increase diversity within its ranks raise questions about your ability to fix the myriad internal controls, risk management, and general governance issues that have been a problem for nearly a decade. Last Friday, the Securities and Exchange Commission also fined Wells Fargo's broker-dealer business $7 million for anti-money laundering violations arising from the failure to properly implement and test a system designed to prevent suspicious activity related to money laundering, terrorist financing, and other illegal financial transactions.6 In September 2021, the Office of the Comptroller of the Currency fined Wells Fargo $250 million for failing to pay back wronged customers and take corrective actions to improve the execution, risk management, and oversight of its lending loss mitigation program.7 

Despite these failures, Wells Fargo made $21.5 billion in 2021 and announced a plan to double dividends and buyback $18 billion in stock between third quarter 2021 and second quarter 2022. You received $24.5 million last year in total compensation, which included a 20 percent increase from 2020. As noted in the 2022 Wells Fargo proxy statement, your total annualized compensation exceeded 290 times the median Wells Fargo employee estimated annual total compensation of $73,578. 

Wells Fargo's continued inability to manage the basic requirements of serving its customers means that consumers, investors, and employees continue to pay the price. It is clear that Wells Fargo still has a long way to go to fix its governance and risk management before it should be allowed to grow in size. It is unacceptable that after years of failed attempts, nothing seems to have improved. I expect you to have a plan to finally reform the firm's risk management, internal controls, and governance structures so that your firm rights past wrongs and lives up to the many promises that Wells Fargo has made to its customers and their communities.

Thank you for your attention to this important matter, which has significant consequences for your customers and employees, and ensuring a fair and stable banking system. I look forward to your testimony at our annual Wall Street oversight hearing.

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4 Id. 
5 Id. 

https://www.justice.gov/usao-sdoh/pr/jury-finds-canal-winchester-man-guilty-all-counts-romance-scam-money-laundering
After a jury trial in the United States District Court for the Southern District of Ohio, Seth Nyameke, 39, was convicted on 35 counts of money laundering. As alleged in part in the DOJ Release: 

The perpetrators of the romance scams created several profiles on online dating sites and then contacted men and women throughout the United States and elsewhere. The scammers cultivated a sense of affection and, often, romance, with the victims they met online before requesting money for investment or need-based reasons. The romance scam perpetrators then provided victims with bank account information where the money should be sent. Nyamekye controlled one of these accounts and received more than $1.3 million in romance fraud proceeds from victims. 

The government proved beyond a reasonable doubt at trial that Nyamekye laundered the victims' money on behalf of the conspiracy. The defendant conspired with others from at least June 2016 until February 2018 to commit money laundering in multiple transactions of more than $10,000 with the purpose of concealing the fraudulent nature of the proceeds. 

At least eight victims sent their money directly to Nyamekye's bank account, which was in the name of Gloseth Ventures LLC. For example, one victim was defrauded by a purported member of the military and sent a $170,000 wire transfer to Nyamekye's bank account. Another victim fell in love with a man he met online who also claimed to be in the military overseas and sent two wire transfers to Nyamekye totaling $73,000. A separate victim believed she was engaged to the man who was scamming her and sent $50,000 to the defendant's bank account. 

After the funds were deposited into Nyamekye's bank account, Nyamekye took a cut of the victims' money and then conducted financial transactions to move the funds where the perpetrators of the romance fraud could enjoy the criminal proceeds. 

https://www.justice.gov/usao-sdny/pr/manhattan-man-pleads-guilty-defrauding-victims-millions-dollars-through-offering
Ephraim Joseph Ullmann pled guilty in the United States District Court for the Southern District of New York to one count of conspiracy to commit wire fraud. As alleged in part in the DOJ Release:

From at least in or about November 2014 through at least in or about 2020, ULLMANN participated in a scheme to defraud investors by falsely telling them that they could obtain letters of credit or loans if they provided initial funds as collateral for the loans. ULLMANN told one group of victims who had started a home building company that he had been hired by an American Indian tribe to use tribal bonds as collateral to obtain large loans for companies seeking financing. ULLMANN told these victims to send hundreds of thousands of dollars to a bank account he provided them, which he described as "seed capital" to obtain the tribal bond-backed loan. In reality, ULLMANN had not been hired by the tribe and there was no loan available for the victims. ULLMANN also sent multiple forged bank documents to the victims to deceive them into thinking that the promised financing was being provided.

In addition to the tribal bond scheme, ULLMANN told a separate group of victims who were involved with starting a new oil company that he could obtain a multi-million dollar letter of credit for the company if the victims provided initial funding. In reality, there was no letter of credit available, and the victims were fraudulently induced to wire millions of dollars to bank accounts identified by ULLMANN and his co-conspirators.

https://www.justice.gov/usao-nj/pr/former-ceo-indicted-misleading-investors-about-covid-19-rapid-test-kits
-and-
In an Indictment filed in the United States District Court for the District of New Jersey
https://www.justice.gov/usao-nj/press-release/file/1509496/download, Marc Schessel was charged with two counts of securities fraud. As alleged in part in the DOJ Release:

Schessel caused his company to issue multiple public statements claiming that it was buying and reselling at least 48 million COVID-19 test kits, despite knowing that such statements were false and misleading. In early April 2020, Schessel executed a supply agreement with an Australian company to obtain 2 million COVID-19 test kits per week for six months, beginning on April 24, 2020. The agreement was based on the Australian company's representations that it had the appropriate permissions from the U.S. Food and Drug Administration (FDA) and was already distributing COVID-19 tests. Contemporaneously, Schessel received a purchase order from a U.S.-based company that planned to purchase the weekly shipments of 2 million COVID-19 test kits from Schessel's health care company.

Despite learning new information on April 11, 2020, that called into question whether the Australian company had COVID-19 tests to sell to Schessel's company that could be distributed in the United States, Schessel caused his company to issue a press release on April 13, 2020, in which it announced the purchase order for 48 million COVID-19 rapid test kits. Following this press release, Schessel received additional information that further called into question his company's arrangements for the COVID-19 test kits. Despite learning facts that cast significant doubt on the status of the COVID-19 test kit deals, Schessel repeatedly confirmed the status and terms of those arrangements on numerous occasions between April 13, 2020, and April 17, 2020. In the wake of the April 13 announcement, the health care company's share price surged, rising by over 400 percent from approximately $2.25 per share to an intraday high of $14.88. per share. As a result of this scheme, investors lost at least $116 million.

In a Complaint filed in the United States District Court for the District of New Jersey
https://www.sec.gov/litigation/complaints/2022/comp-pr2022-94.pdf, the SEC charged SCWorx Corp. and its former Chief Executive Officer/Chairman of the Board Marc S. Schessel with violating the antifraud provisions of the federal securities laws. Without admitting or denying the allegations in the SEC Complaint, SCWorx agreed to a settlement, which includes permanent injunctions, the payment of a $125,000 penalty, and disgorgement of $471,000 with prejudgment interest of $32,761.56. SCWorx is expected to satisfy its obligation to pay the disgorgement and prejudgment interest by contributing stock, valued at $600,000 at the time of issuance, to harmed investors in a private class action settlement in Yannes v. SCWorx Corp., et al., 1:20-cv-03349 (S.D.N.Y.). As alleged in part in the SEC Release:

[W]ith SCWorx struggling financially, Schessel and SCWorx issued a press release on April 13, 2020, falsely stating that SCWorx had a "committed purchase order" from a purported buyer to purchase two million COVID-19 rapid test kits. The press release further stated that the purchase order included a "provision for additional weekly orders of 2 million units for 23 weeks, valued at $35M [million] per week." Following the issuance of the press release, SCWorx's stock price surged 425% from the prior trading day on volume of 96.2 million shares, which was more than 900 times the prior three-month average daily volume.

The SEC alleges that Schessel and SCWorx issued this press release despite having neither a legitimate supplier of COVID-19 test kits nor an executed purchase agreement with a buyer. The complaint further alleges that Schessel and SCWorx publicly repeated the false and misleading statements about the distribution of COVID-19 rapid test kits over the course of April 2020.

At the time, the SEC ordered that trading be suspended temporarily in the securities of SCWorx between April 21, 2020, and May 5, 2020, because of questions and concerns regarding the adequacy and accuracy of publicly available information in the marketplace concerning SCWorx.

https://www.justice.gov/usao-edca/pr/vacaville-man-sentenced-8-years-prison-billion-dollar-dc-solar-ponzi-scheme
Alan Hansen, 51, pled guilty in the United States District Court for the Eastern District of California to  conspiracy to commit an offense against the United States and aiding and abetting money laundering; and he was sentenced to eight years in prison and ordered to pay $619,415,950 million in restitution. As alleged in part in the DOJ Release:

[B]etween 2011 and 2018, DC Solar manufactured mobile solar generator units (MSG), solar generators that were mounted on trailers. The company touted the versatility and environmental sustainability of the mobile solar generators and claimed that they were used to provide emergency power to cellphone towers and lighting at sporting and other events. Jeff Carpoff, 51, Paulette Carpoff, 51, both of Martinez, and their co-conspirators solicited investors by claiming that there were favorable federal tax benefits associated with investments in alternative energy. They sold solar generators that did not exist to investors, making it appear that solar generators existed in locations that they did not, creating false financial statements, and obtaining false lease contracts, among other efforts to conceal the fraud. In reality, at least half of the approximately 17,000 solar generators claimed to have been manufactured by DC Solar did not exist and DC Solar paid early investors with funds contributed by later investors.

According to court documents, Hansen was an employee of a telecom company with which DC Solar had done some limited business. In that role, Hansen accepted $1 million from co-conspirators at DC Solar to fraudulently sign a false contract reflecting a much greater amount of supposed business leasing MSGs.  Hansen's co‑conspirators used that false contract to induce substantial investments by victims in DC Solar. After signing the contract, Hansen took a job at DC Solar at a significant pay increase and left his former employment.  Later, as a DC Solar executive, Hansen and a co-conspirator agreed to share $20,000 cash from Jeff Carpoff to sign a false agreement related to the earlier contract by forging the signature of a former telecom company employee. Hansen's co-conspirators used the false contract and forged agreement to induce still further payments by victims for MSGs. Hansen was paid for signing the first false contract through a series of interstate wire transfers into an account he set up in the name of a consulting company. Hansen knew the money he received came from payments by DC Solar investors, and that DC Solar was deceiving them to induce those payments.

On Nov. 9, 2021, Jeff Carpoff was sentenced to 30 years in prison and ordered to pay $790.6 million in restitution for conspiracy to commit wire fraud and money laundering. His wife Paulette Carpoff has pleaded guilty to conspiracy to commit an offense against the United States and money laundering, and is scheduled to be sentenced on June 28, 2022.

On Nov. 16, 2021, Joseph W. Bayliss, 46, of Martinez, was sentenced to three years in prison and ordered to pay $481.3 million in restitution for securities fraud and conspiracy in connection with the DC Solar scheme. On April 12, 2022, DC Solar CFO Robert A. Karmann, 55, of Clayton, was sentenced to six years in prison and ordered to pay $624 million.

Other defendants have pleaded guilty to criminal offenses related to the fraud scheme and are scheduled for sentencing: Ronald J. Roach, 55, of Walnut Creek, is scheduled to be sentenced on June 28, 2022; and Ryan Guidry, 45, of Pleasant Hill, is scheduled to be sentenced on June 7, 2022.

https://www.sec.gov/litigation/litreleases/2022/lr25402.htm
https://www.sec.gov/litigation/complaints/2022/comp25402.pdf, the SEC charged Martin A. Sumichrast, No. 3:22-cv-00246 (W.D.N.C. filed May 31, 2022)
The Securities and Exchange Commission today charged North Carolina resident Martin A. Sumichrast with violating the antifraud provisions of Section 17(a)(1) and (3) of the Securities Act, Section 10(b) of the Securities Exchange Act and Rule 10b-5(a) and (c) thereunder, and Sections 206(1), 206(2), 206(3), and 206(4) of the Investment Advisers Act of 1940, and Rule 206(4)-8 thereunder. As alleged in part in the SEC Release:

[S]umichrast became Stone Street's sole manager following the death of the fund's co-manager in December 2016. Shortly thereafter, he began using his position to engage in undisclosed conflict-of-interest transactions that advanced his personal interests over those of Stone Street and its investors. In particular, the complaint states that Sumichrast misappropriated $300,000 from Stone Street by impermissibly doubling his annual salary between 2017 and 2019. The complaint also states that Sumichrast engaged in a series of self-dealing transactions with entities in which he personally had an interest, including several transactions with cbdMD, Inc., a now publicly traded company of which Sumichrast is CEO and Chairman of the Board of Directors. Finally, the complaint alleges that Sumichrast failed to disclose to, or obtain consent from, Stone Street or its investors prior to engaging in any of these conflict-of-interest transactions.

SEC Charges Former Astrazeneca Employee with Insider Trading (SEC Release)
https://www.sec.gov/litigation/litreleases/2022/lr25401.htm
In a Complaint filed in the United States District Court for the Southern District of New York
https://www.sec.gov/litigation/complaints/2022/comp25401.pdf, the SEC charged Hugues Pierre Joublin with violating the antifraud provisions of Section 10(b) of the Securities Exchange Act and Rule 10b-5 thereunder. Without admitting or denying the allegations in the SEC Complaint, Joublin agreed to the entry of a final judgment enjoining him from violations of the charged provisions, ordering disgorgement and prejudgment interest, and imposing a $10,601.37 civil penalty. As alleged in part in the SEC Release:

[T]wo weeks before the public announcement, Joublin, then Global Head of Corporate Affairs for Oncology for AstraZeneca, learned that the company was involved in confidential negotiations with Daiichi to enter into a global development and commercialization agreement for Daiichi's targeted antibody cancer-treating drug. On March 12, 2019, while in possession and on the basis of the material nonpublic information, and in breach of his duties to AstraZeneca and its shareholders, Joublin purchased 500 American Depository Shares of Daiichi. The day following the announcement, Daiichi shares closed at $49.97, an increase of $9.78 (24%) from the prior day's closing price. As alleged in the complaint, Joublin obtained illicit profits of approximately $4,995.

https://www.sec.gov/litigation/litreleases/2022/lr25400.htm
In a Complaint filed in the United States District Court for the Southern District of California
https://www.sec.gov/litigation/complaints/2022/comp25400.pdf, the SEC charged:

(i) Cornerstone Acquisition & Management Company LLC, its chief Executive Officer/Portfolio Manager/Chief Compliance Offier Derren Lee Geiger, and its Chief Financial Officer She Hwea Ngo with violations of the antifraud provisions of Securities Act Section 17(a) and Exchange Act Section 10(b) and Rule 10b-5 thereunder; 
(ii) Cornerstone and Geiger with violations of Advisers Act Sections 206(4) and Rule 206(4)-8 thereunder and 207; 
(iii) Cornerstone with violations of Advisers Act Sections 204 and Rule 204-2 thereunder and 206(4) and Rule 206(4)-7 thereunder; 
(iv) Geiger with aiding and abetting Cornerstone's violations of Advisers Act Section 206(4) and Rule 206(4)-7 thereunder; and 
(v) Ngo with aiding and abetting Cornerstone's and Geiger's Advisers Act violations except for Advisers Act Section 206 and Rule 206(4)-7 thereunder. 

As alleged in part in the SEC Release:

[C]ornerstone, Geiger, and Ngo engaged in a scheme to deceive investors in Cornerstone's private funds, including the Caritas Royalties Fund (Bermuda) Ltd. (the "Bermuda Fund"), which had U.S. tax-exempt and non-U.S. investors. The complaint alleges that their deceptive conduct included misstatements concerning the ownership of Cornerstone, the existence of collateral, and other material issues. The complaint also alleges that Cornerstone and Geiger failed to adopt and implement written compliance policies and procedures reasonably designed to prevent violations of the Advisers Act and that Cornerstone and Ngo created inaccurate books and records.

In the Matter of the Application of Lek Securities Corporation for Review of Action Taken by National Securities Clearing Corporation and The Depository Trust Company (Order Denying Motion for Stay and Scheduling Briefs, '34 Act Rel. No. 95014, Admin. Proc. File No. 3-20808 / May 31, 2022)
https://www.sec.gov/litigation/opinions/2022/34-95014.pdf
As set forth in the SEC Order's Syllabus:

Lek Securities Corporation seeks a stay, pending review pursuant to Rule 19d-3 under the Securities Exchange Act of 1934 and Commission Rule of Practice 420,1 of action taken against it by the National Securities Clearing Corporation ("NSCC") and Depository Trust Company ("DTC"). NSCC and DTC (collectively, the "Clearing Agencies") are each wholly owned subsidiaries of the Depository Trust & Clearing Corporation ("DTCC"), a non-regulated holding company. On March 10, 2022, a hearing panel composed of members of DTCC's Board of Directors, who are also members of NSCC's and DTC's boards, issued a decision affirming the Clearing Agencies' determinations to (i) cease to act for Lek; (ii) impose an activity cap on Lek's trading activity; and (iii) impose fines and sanctions for Lek's violation of that activity cap. 

Lek is a registered broker-dealer and FINRA member firm, and has been a member firm of NSCC and DTC since 1999. Lek states that it is an agency-only, self-clearing broker that provides execution services directly to its customers and provides clearing brokerage services to other brokerage firms. NSCC provides clearing, settlement, risk management, central counterparty services, and a guarantee of completion for virtually all broker-to-broker trades involving equity securities, corporate and municipal debt securities, and certain other securities.2 DTC provides clearance, settlement, custodial, underwriting, registration, dividend, and proxy services for a substantial portion of all equities, corporate and municipal debt, exchange-traded funds, and money market instruments available for trading in the United States.3 

With its application for review, Lek requested a stay of the hearing panel's decision affirming the cease to act determinations (the "Decision").4 The effect of the cease to act determinations would be that Lek could no longer operate as a self-clearing broker. The Clearing Agencies would no longer do business with Lek. The Clearing Agencies oppose Lek's stay request. Because Lek has not met its burden for granting a stay, the motion is denied.

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Footnote 1: 17 C.F.R. § 240.19d-3; 17 C.F.R. § 201.420. 

Footnote 2: Order Approving A Proposed Rule Change to Enhance the Calculation of the FamilyIssued Sec. Charge, Exchange Act Release No. 88494, 2020 WL 1659286, at *1 (Mar. 27, 2020). 

Footnote 3: Atlantis Internet Group Corp., Exchange Act Release No. 70620, 2013 WL 5519826, at *1 & n.1 (Oct. 7, 2013). 

Footnote 4: Although Lek focuses on the Decision's cease to act determinations, Lek contends in a footnote that, '[b]ecause the Decision's bases for upholding the imposition of the Activity Cap and fines are the same as the rationale for upholding the 'cease to act' determinations, the censure and fine should also be stayed pending the SEC appeal." Based on the same reasons, Lek also seeks a stay of a separate decision that the hearing panel issued on April 6, 2022, ordering Lek to pay $383,449.14 in hearing costs. Because we deny a stay with respect to the Decision's cease to act determinations, finding that Lek has not established that serious legal questions exist, we also deny a stay as to the imposition of the Activity Cap, fines, and hearing costs.

In a Complaint filed in the United States District Court for the Southern District of Florida
https://www.cftc.gov/media/7296/enfricocoxcomplaint053122/download, the CFTC 
alleges that Rico Cox fraudulently solicited and accepted funds. As alleged in part in the CFTC Release:

[B]eginning in approximately December 2019 and continuing through the present, Cox persuaded at least 14 individuals to transfer at least $842,900 to him for the purported purpose of trading commodity futures. In reality, Cox misappropriated at least $367,979 of the participant funds for direct personal benefit.

The complaint alleges that Cox knowingly made fraudulent and material misrepresentations and omitted material facts in soliciting participants, including making false claims he was a successful trader with years of experience trading futures contracts.      

According to the complaint, Cox represented that he was profitably trading participants' funds and sent participants false statements including account statements, emails, and screen shots falsely showing profitable trading. In fact, according to the complaint, Cox lost most of the participant funds that he did trade.

Cox also failed to disclose that he was the subject of a previous CFTC enforcement action in the Southern District of Florida which resulted in a $940,000 judgment against him for fraudulently soliciting funds to trade in a managed commodity futures account. [See CFTC Press Release No. 7383-16] 

%20David%20Charles%20Levine%20CRD%202569418%20AWC%20gg.pdf
For the purpose of proposing a settlement of rule violations alleged by the Financial Industry Regulatory Authority ("FINRA"), without admitting or denying the findings, prior to a regulatory hearing, and without an adjudication of any issue, David Charles Levine submitted a Letter of Acceptance, Waiver and Consent ("AWC"), which FINRA accepted. The AWC asserts that David Charles Levine was first registered in 1995 and by 2015, he was registered with National Securities Corporation, where he became the firm's Chief Executive Officer and National Sales Manager. In accordance with the terms of the AWC, FINRA imposed upon Smith a $10,000 fine and a one-month suspension from associating with any FINRA member in all capacities. As alleged in part in the AWC [Ed: footnotes omitted]:

Between August 2016 and October 2017, National acted as the lead underwriter or comanager for three IPOs. Prior to each offering, National or another co-manager filed a trading notification form with FINRA, disclosing that it did not intend to apply a penalty bid to the syndicate. 

Levine served as National's CEO during one of the IPOs and as National's Sales Manager during the other two IPOs. In connection with the three IPOs, Levine participated in the announcement of the terms of the offerings to National's sales force. Levine also directed members of National's syndicate department to send launch emails to the firm's sales force in connection with the three IPOs, which included flipper policies. Despite the absence of a syndicate penalty bid, in connection with each of the IPOs, Levine directed National's branch managers and sales representatives that the firm would be implementing a "flipper policy," pursuant to which the firm would track sales of the new issue for 30 days following each offering and recoup selling concessions from representatives whose customers flipped shares during that time frame. 

Therefore, Levine violated FIN RA Rules 513 l(c) and 2010. 

In the Matter of Philip Norris Smith, Respondent (FINRA AWC 2019064218701)
https://www.finra.org/sites/default/files/fda_documents/2019064218701
%20Philip%20Norris%20Smith%20CRD%20%202833891%20AWC%20gg.pdf
For the purpose of proposing a settlement of rule violations alleged by the Financial Industry Regulatory Authority ("FINRA"), without admitting or denying the findings, prior to a regulatory hearing, and without an adjudication of any issue, Philip Norris Smith submitted a Letter of Acceptance, Waiver and Consent ("AWC"), which FINRA accepted. The AWC asserts that Philip Norris Smith was first registered in 1996 with Equitable Advisors, LLC. In accordance with the terms of the AWC, FINRA imposed upon Smith a $5,000 fine and a three-month suspension from associating with any FINRA member in all capacities. As alleged in part in the AWC [Ed: footnotes omitted]:

In approximately April 2018, Smith and Broker A recommended that a customer, a family trust formed by a senior married couple to aid in the distribution of their assets (the Trust), purchase a deferred variable annuity for approximately $540,000 and fund that purchase through two withdrawals from an indexed annuity owned by the Trust. 

Smith and Broker A were aware that funding the purchase of the variable annuity with withdrawals from the Trust's existing indexed annuity could result in negative tax consequences for the Trust. Smith and Broker A were also aware that their recommendation to purchase the variable annuity would not be suitable if it caused negative tax consequences for the Trust. However, neither Smith nor Broker A researched how the Trust might be able to purchase the variable annuity without negative tax consequences. 

Instead, Smith recommended that the Trust withdraw funds from the indexed annuity via two checks payable to the Trust and immediately endorse the checks as payable to Equitable Advisors in order to fund the purchase of the variable annuity. The Trust, through its trustee, followed Smith's recommendations. Smith mistakenly believed that having the Trust immediately endorse the checks as payable to Equitable Advisors would avoid any adverse tax consequences, but he did not confirm that belief. The withdrawal of the funds from the indexed annuity were, in fact, taxable events that resulted in negative tax consequences to the Trust. The adverse tax consequences could have been avoided if Smith or Broker A had recommended the new variable annuity be purchased as a tax-free 1035 exchange, but Smith and Broker A also failed to research that option. 

Smith's recommendation was unsuitable because he did not take into account the Trust's tax status and the tax consequences of his recommendation, which caused the Trust to incur an unnecessary tax liability in connection with its purchase of the variable annuity.

Therefore, Smith violated FINRA Rules 2111 and 2010.

https://www.finra.org/sites/default/files/fda_documents/2019064218702
%20Camille%20Cordova%20CRD%206734084%20AWC%20gg.pdf
For the purpose of proposing a settlement of rule violations alleged by the Financial Industry Regulatory Authority ("FINRA"), without admitting or denying the findings, prior to a regulatory hearing, and without an adjudication of any issue, Camille Cordova submitted a Letter of Acceptance, Waiver and Consent ("AWC"), which FINRA accepted. The AWC asserts that Camille Cordova was registered in 2017 to June 2019 with Equitable Advisors, LLC. In accordance with the terms of the AWC, FINRA imposed upon  Cordova a $5,000 fine and a three-month suspension from associating with any FINRA member in all capacities. As alleged in part in the AWC [Ed: footnotes omitted]:

In approximately April 2018, Cordova and Broker A recommended that a customer, a family trust formed by a senior married couple to aid in the distribution of their assets (the Trust), purchase a deferred variable annuity for approximately $540,000 and fund that purchase through two withdrawals from an indexed annuity owned by the Trust. Cordova completed and signed the application for the variable annuity as the primary financial professional. 

Cordova and Broker A were aware that funding the purchase of the variable annuity with withdrawals from the Trust's existing indexed annuity could result in negative tax consequences for the Trust. Cordova and Broker A were also aware that their recommendation to purchase the variable annuity would not be suitable if it caused negative tax consequences for the Trust. However, neither Cordova nor Broker A researched how the Trust might be able to purchase the variable annuity without negative tax consequences. 

Instead, Broker A recommended that the Trust withdraw funds from the indexed annuity via two checks payable to the Trust and immediate endorse the checks as payable to Equitable Advisors in order to fund the purchase of the variable annuity. Broker A mistakenly believed that having the Trust immediately endorse the checks as payable to Equitable Advisors would avoid any adverse tax consequences, but Broker A did not confirm that belief. Cordova knew of, and acquiesced to, Broker A's funding recommendation without doing any of her own additional research. The withdrawal of the funds from the indexed annuity were, in fact, taxable events that resulted in negative tax consequences to the Trust. The adverse tax consequences could have been avoided if Cordova or Broker A had recommended the new variable annuity be purchased as a tax-free 1035 exchange, but Cordova and Broker A also failed to research that option. 

Cordova's recommendation was unsuitable because she did not take into account the Trust's tax status and the tax consequences of her recommendation, which caused the Trust to incur an unnecessary tax liability in connection with its purchase of the variable annuity. 

Therefore, Cordova violated FINRA Rules 2111 and 2010.

In a FINRA Arbitration Statement of Claim filed in October 2021, associated person Claimant Kimura sought the expungement of a customer disputes involving two occurrences involving a Customer designated as "Ms.P" and a Customer designated as "Mr. O" from his Central Registration Depository record ("CRD"). Respondent FINRA member firm LPL did not oppose the requested relief. Prior to the expungement hearing, one of Mr. O's daughters (a Ms. K) advised that Mr. O had died after being served with notice of the expungement hearing, and the daughter submitted a statement in opposition to the requested expungement; subsequently, two other daughters of Mr. O, Ms. I.O. and Ms. J.O. submitted statements in opposition. Mr. P did not participate in the expungement hearing.   Ms. K, Ms. I.O., Ms. J.O. and a grandson of Mr. O (Mr. S) participated in the expungement hearing and opposed the requested relief.
  The sole FINRA Arbitrator denied expungement of Mr. O's occurrence but recommended expungement of Ms. P's occurrence. In recommending the expungement of Ms. P's occurrence, the Arbitrator found a FINRA Rule 2080 finding that her claim, allegation, or information was factually impossible or clearly erroneous, and false. As alleged in part in the FINRA Arbitration Award:

On March 7, 2007, Ms. P became a client of Claimant. Claimant made various investment recommendations based on Ms. P's investor profile and investment objectives, including a John Hancock Mutual Life Variable Annuity ("Hancock Annuity"). Claimant explained to Ms. P in detail the terms, risks, costs, fees, features and benefits of the Hancock Annuity. Ms. P received and reviewed the prospectus associated with the Hancock Annuity, which further explained its terms, risks, and costs, as well as the terms of its "free look" period.

In late March 2007, Ms. P purchased the Hancock Annuity, wherein she affirmed her understanding of the risks, costs, fees and features of the Hancock Annuity. On April 6, 2007, Ms. P decided to exercise the free look provision of the Hancock Annuity and withdrew from her policy. The early withdrawal resulted in minor taxable capital gains. 

Ms. P then filed a formal complaint stating Claimant failed to inform her as to the possible tax consequences associated with her purchase and early withdrawal of the Hancock Annuity. 

On September 27, 2008, as a business decision, Respondent settled with Ms. P. Claimant did not contribute to the settlement nor did he review or sign the settlement agreement. Respondent does not oppose expungement in this matter. 

The claim that Claimant failed to inform her as to possible tax consequences associated with her purchase and early withdrawal is clearly erroneous and false and meets both Rule 2080(b)(1)(A) and 2080(b)(1)(C). Claimant is not a tax professional and was therefore unable to provide any tax advice to Ms. P. This dispute did not arise out of any alleged misrepresentation by Claimant. 

AML Update: The Latest Trends and Effective Practices (FINRA Unscripted)
https://www.finra.org/media-center/finra-unscripted/2022-aml-update
As set forth in the "Episode Notes":

Money laundering looks different in the securities industry and that poses its own challenges. But add to that a landscape of constantly evolving threats and it is a lot to keep up with. 

On this episode, Jason Foye, Senior Director of the National Cause and Finance Crimes Detection Program's Special Investigative Unit joins us once again to tell us about the latest trends, emerging threats and how firms can ensure their AML program remains strong and effective. 

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