Securities Industry Commentator by Bill Singer Esq

The Nightmare of a Dream Job on Wall Street (BrokeAndBroker.com Blog)

Southampton Woman Pleads Guilty to Elder Fraud Scheme (DOJ Release)

Pair who went on the run after being found guilty of fraud at a now defunct precious metals firm, sentenced to prison / Defrauded 3,000 customers of more than $30 million (DOJ Release)

SEC CHARGES NEW JERSEY SOFTWARE COMPANY AND SENIOR EMPLOYEES WITH ACCOUNTING-RELATED MISCONDUCT / Synchronoss Technologies to Pay $12.5 Million to Settle Charges, Former CEO to Reimburse Company (SEC Release)

FINRA Fines and Suspends Rep for Personal Test Notes

In the Matter of Vanessa Koliver, Respondent (FINRA AWC)

FINRA Fines and Suspends Rep for Disk Jockeying

In the Matter of Letisha L. Clarke-Ekwunife, Respondent (FINRA AWC)

SEC Denies Award To Whistleblower Claimant

Order Determining Whistleblower Award Claims

SEC Denies Award To Whistleblower Claimant

Order Determining Whistleblower Award Claims

SEC Denies Award To Whistleblower Claimant

Order Determining Whistleblower Award Claims

J.P. Morgan Securities Demolished In FINRA Non-Solicitation Arbitration (BrokeAndBroker.com Blog)

[F]icarra and a co-conspirator owned, operated and held senior management positions in various companies, including Remington Biographies, Inc., Remington Bookkeepers, Inc., and Mentorship America1, Inc. (collectively, the "Remington Entities").  The Remington Entities purported to publish reference publications containing biographical information of individuals across the country.  Those publications included "Inspiring the Youth of America" and "The Remington Registry of Outstanding Professionals."

From 2013 to December 2018, Ficarra caused letters and pamphlets to be mailed to victims, primarily the elderly, indicating that the victim's biography would be published in one of the reference publications.  The letters, addressed "Dear Nominee," indicated, "Your 2 books and your plaque are paid for in full and ready for delivery.  Please send a check for $14.00 dollars for shipping and handling."  The pamphlet described the publication and stated in part, "The Remington Registry of Outstanding Professionals is more than a who's who.  It is the ultimate expression of achievements, hardships, and dedication that professionals have made in their lives and careers. . .. Sit back and be read for a wonderful experience."  The mailings induced hundreds of victims to send checks as payment for inclusion in the reference publications.  Ficarra then used the routing and bank account information on those checks to produce fraudulent checks for larger dollar amounts, which she then deposited into bank accounts she and a co-conspirator controlled at Citibank, Everbank, HSBC, JP Morgan Chase and Wells Fargo, among other financial institutions.  Ficarra then promptly withdrew cash from the accounts, stealing more than $1.5 million dollars from the victim subscribers and financial institutions.

Northwest Territorial Mint (NWTM) operated both a custom business that involved the manufacturing of medallions and other awards, and a bullion business that involved the selling, buying, exchanging, storing, and leasing of gold, silver, and other precious metals.  The company had offices in Federal Way and Auburn, Washington, but declared bankruptcy on April 1, 2016.

According to records in the case and testimony at trial, Hansen and Erdmann defrauded NWTM customers in a variety of ways. The evidence at trial showed that Hansen and Erdmann lied about shipping times for bullion, used customer money to expand the business to other states, and to pay their own personal expenses.  As a result, the company lacked enough assets to fulfill customer orders and used new customer money to pay off older customers in a Ponzi-like scheme.  In total, over 2500 customers paid for orders, or made bullion sales or exchanges, that were either never fulfilled or never refunded.  The total loss to these customers was more than $25,000,000.  

In addition to the bullion customer fraud, the evidence at trial demonstrated that Hansen and Erdmann defrauded customers who paid NWTM to safely and securely store bullion in the NWTM vaults.  Evidence and testimony at trial showed that Hansen and Erdmann used this bullion that was supposed to be in secure storage to fulfill other orders.  In April 2016, the NWTM vaults were inventoried and all or part of the stored bullion for more than 50 customers was missing.  The missing bullion was worth more than $4.9 million.  

Writing to the court, prosecutors pointed out the deception against the storage customers: "Mr. Hansen talked (the storage customers) into paying NWTM to steal from them-forking over fees, sometimes thousands of dollars' worth, to "securely" store their bullion at NWTM, only to have the defendants use the vault as a company piggy bank.  Mr. Hansen collected those fees and delivered phony storage account statements in return.  But unbeknownst to the storage customers, Mr. Hansen used the storage customers' bullion as his own - pulling it off the shelf to fulfill other orders, at times even melting down customers' property to makes something else to ship somewhere else."

"Company president Hansen apparently did not learn his lesson from his last trip to prison," said Donald M. Voiret, Special Agent in Charge of the FBI Seattle Field Office. "Together, Hansen and his co-conspirator Ms. Erdmann stole decades of savings and financial security from thousands of victims who thought they were making safe investments for themselves and their loved ones."

Prosecutors increased their sentencing recommendations for both Hansen and Erdmann to reflect the 11-day manhunt that followed their failure to appear.  When arrested in the small town of Port Hadlock on the Olympic Peninsula, they had three loaded firearms in a box behind the drivers' seat of their car.  In supplemental sentencing memos, prosecutors urged the court to increase both defendants' prison time due to their flight to avoid prison. "Ms. Erdmann and Mr. Hansen acquired a new vehicle, armed themselves with three loaded guns, and evaded supervision. Ms. Erdmann's conduct shows a lack of respect for the Court and the law enforcement authorities that she knew would attempt to find her." And of Hansen they wrote, "Recent events have shown that Mr. Hansen also presents a danger of violence. When he was apprehended by law enforcement in Port Hadlock, he was traveling with three loaded firearms in reaching distance of the front seat of his vehicle."

The Securities and Exchange Commission today charged Bridgewater, NJ-based Synchronoss Technologies, Inc. and seven senior employees, including the former CFO, in connection with their roles related to long-running accounting improprieties that ran from 2013 to 2017. In addition, the company's founder and former CEO, Stephen Waldis, while not charged with misconduct, agreed to reimburse the company for more than $1.3 million in stock sale profits and bonuses as well as to return previously granted shares of company stock pursuant to Section 304 of the Sarbanes-Oxley Act (SOX).

The SEC filed a complaint in federal district court in Manhattan against former CFO Karen Rosenberger and former Controller Joanna Lanni. Among other things, the SEC's complaint alleges that Rosenberger engaged in fraud through her role in improperly recognizing revenue on multiple transactions and that she also misled Synchronoss's auditor about multiple transactions. The SEC alleges Lanni was involved in improper accounting for one transaction.
. . .

In a July 2018 SEC filing, Synchronoss, a technology company that primarily provides products, software, and services to telecommunications companies, announced a restatement of its audited financial statements for the fiscal years ended December 31, 2015 and 2016 and restated selected financial data for the fiscal years ended 2013 and 2014 totaling approximately $190 million in revenues. Synchronoss acknowledged that during this period it had accounted for numerous transactions improperly and thus filed with the Commission materially misleading financial statements along with having material weaknesses in its internal controls over financial reporting.

As alleged in the various charging documents filed today, Synchronoss's improper accounting primarily concerned three categories of transactions: (1) transactions for which there was not persuasive evidence of an arrangement; (2) acquisitions/divestitures in which Synchronoss recognized revenue on license agreements rather than netting those purported amounts against the purchase prices; and (3) license/hosting transactions, in which it improperly recognized revenue upfront, instead of ratably over the term of the multi-year arrangement. In addition, the SEC alleged that certain Synchronoss employees entered into "side letter" arrangements, concealing facts indicating that the revenue that Synchronoss recognized upfront was in fact contingent on future events. The impact of the improper accounting was material and in many instances allowed the company to meet earnings targets.

Without admitting or denying the SEC's findings, Synchronoss agreed to cease and desist from violating Section 10(b) of the Securities Exchange Act of 1934 and other provisions of the securities laws, and to pay a civil penalty of $12.5 million. The following parties also agreed to settle:

• Ronald Prague, the company's former general counsel, settled charges stemming from his involvement, along with others, in misleading the company's auditors regarding two transactions and to pay a civil penalty of $25,000 and to be suspended from appearing and practicing before the SEC as an attorney for 18 months; and
  
  
• Clayton "Charlie" Thomas, Marc Bandini, Daniel Ives, former senior employees of the company, along with current employee, John Murdock, settled charges from their participation in at least one side letter agreement that concealed the revenue that Synchronoss recognized upfront was in fact contingent on future events and to pay civil penalties ranging from $15,000 to $90,000.

On July 29, 2020, Koliver took the Series 7 General Securities Representative examination. Prior to the examination, Koliver attested that she had read and would abide by the FINRA Qualification Examination Rules of Conduct, which among other things, prohibits the use or attempted use of "personal notes and study materials" during the exam. The Rules of Conduct also require candidates to "store all personal items in the locker provided by the test vendor prior to entering the test room." During the exam, Koliver possessed personal notes containing test-related material in violation of the Rules of Conduct. . . .

Between March 2018 and October 2020, Clarke-Ekwunife engaged in business activities that were outside the scope of her relationship with J.P. Morgan. In particular, Clarke-Ekwunife formed and co-managed a photography and disc jockey business. During that time, Clarke-Ekwunife filed tax returns and corporate documents on behalf of the business. Moreover, the business generated revenue, which Clarke-Ekwunife reinvested into its operations. 

Clarke-Ekwunife did not provide prior notice to J.P. Morgan, written or otherwise, of her involvement in an outside business activity. On the contrary, she falsely attested in two annual compliance questionnaires provided to J.P. Morgan that she had not engaged in any undisclosed outside business activities.

[B]ased on evidence in the record, that Claimant's information did not cause the Commission staff to commence an examination, as Commission staff had already begun examinations of the Company prior to the submission of Claimant's tip. Further, Claimant's information did not cause Enforcement staff to inquire into different conduct and did not make a substantial and important contribution to the success of the Covered Action, including by allowing the Commission to bring the action in significantly less time or with significantly fewer resources, or to bring additional successful claims or successful claims against additional individuals or entities. The Second Declaration confirms that Enforcement staff did not recall receiving Claimant's Redacted email. The record also reflects that Claimant's submission Redacted did not advance the Investigation. 

Claimant's attorney's argument based on the attorney's own pre-2010 conversations with one Commission staff member is unavailing and unhelpful to Claimant's award application. Anecdotes about conversations with a single Commission staff member do not constitute persuasive evidence of what an entire government agency may or may not have been investigating.

Markopolos tells NPR's Steve Inskeep that one of the problems with the SEC was "regional turf rivalries" between the Boston and New York offices that resulted in a lack of communication between the two: "They got along about as well as the Yankees and Red Sox did, unfortunately."

He also says the SEC is staffed by lawyers who don't understand the mathematically complex financial products that are traded on the markets these days.

Finally, Markopolos describes poor investigative ability at the SEC. One staffer at the agency wouldn't follow up on his tips because he wasn't an employee of Madoff's, and she therefore didn't consider Markopolos an insider.

[C]laimant argues that he/she provided information to a foreign regulator "as early as 2010," and that foreign regulator gave the information to the Commission, which in turn began the investigation that led to the Covered Action. A staff declaration establishes that Enforcement staff opened the investigation that led to the Covered Action on based upon a referral from the same foreign regulator. However, Claimant offers no evidence showing what information, if any, he/she provided to the foreign regulator before that date. Claimant's email exchange with the foreign regulator on Redacted after the Commission's investigation was already open, does not support his/her contention. Based upon the record before us, including the material provided in Claimant's Response, we find that there is insufficient evidence to conclude that Claimant's information caused the staff to open the Redacted investigation that led to the Covered Action. 

Second, because the evidence does not establish Claimant's information caused the staff to open the investigation, Claimant's information can only be deemed to have led to the success of the Covered Action if it caused the staff to inquire concerning different conduct as part of a current investigation or "significantly contributed to the success of the action." We find, based on evidence in the record, that although Claimant submitted multiple TCRs to the Commission from Redacted none of Claimant's information caused the staff to inquire into different conduct or made a substantial and important contribution to the success of the Covered Action. According to the staff declaration considered by the CRS, which we credit, Claimant's TCRs provided staff with very limited information relevant to the investigation. This information consisted of a Redacted Claimant received from a relevant entity. These Redacted were widely disseminated and publicly available. Claimant's other submissions included Redacted

about companies that later became defendants in the Covered Action, along with very limited information about some of the other defendants and their associates. The staff declaration reflects that Claimant's information was not helpful because the staff was already familiar with the material facts based on detailed information the staff had previously obtained during the investigation. Claimant's information was duplicative of information the staff had already received and did not advance the investigation that led to the Covered Action. Nothing in Claimant's Response demonstrates otherwise. Accordingly, based upon the record before us, we find that Claimant did not provide information to the Commission that led to the success of the Covered Action and, therefore, Claimant is not eligible to receive a whistleblower award.

Claimant also states that Commission staff did not provide Claimant with information about the NoCAs. To the extent that Claimant argues that the Commission should exercise its discretion to waive the ninety-day filing requirement because the Commission failed to alert Claimant to the NoCAs, we note that the Commission is not obligated to notify a claimant of the posting of a NoCA or the deadline for submitting an award application. As we have explained, our whistleblower rules provide "for constructive, not actual, notice of the posting of a covered action and of the deadline for submitting a claim. The NoCAs for the Covered Actions were clearly posted on the Commission's website, along with the requisite deadlines. Under our rules, that is all the notice that Claimant was due. Further, "a lack of awareness about the [whistleblower award] program does not . . . rise to the level of an extraordinary circumstance as a general matter [since] potential claimants bear the ultimate responsibility to learn about the program and to take the appropriate steps to perfect their award applications." "A potential claimant's responsibility includes the obligation to regularly monitor the Commission's web page for NoCA postings." Claimant's failure to regularly monitor the Commission's web page for NoCA postings is not an "extraordinary circumstance" that might trigger our discretion to excuse the fact that Claimant submitted the award applications months and years late.

Finally, Claimant states that the Commission failed to provide the materials on which the Preliminary Determinations were decided, harming Claimant's due process to obtain awards on the Covered Actions. Rule 21F-12 identifies the materials that may form the basis of an award determination and that may comprise the record on appeal, and the rule specifies that OWB may request an executed Confidentiality Agreement ("CA") as a precondition to providing these materials to a claimant. On Redacted, Claimant wrote to OWB, objecting to the request that Claimant execute the CA and informing OWB that Claimant would not execute the CA. OWB's request that Claimant sign a CA is consistent with OWB's practice. Moreover, Rule 21F-12(b), providing that OWB may require the execution of a CA, is reasonably designed to protect whistleblower confidentiality and the Commission's law enforcement interests. Accordingly, OWB's decision not to provide the materials to Claimant - because Claimant would not sign the CA - was warranted and consistent with Commission practice.

• Securities Industry Commentator
• Bill Singer