Securities Industry Commentator by Bill Singer Esq

FINRA Orders National Securities Corp. to Pay $9 Million for Attempting to Artificially Influence the Aftermarket in 10 Offerings, and Other Violations / NSC Ordered to Pay Over $625,000 in Restitution to Customers Who Bought GPB Capital Private Placements After NSC Failed to Inform Them of Material Information (FINRA Press Release)

OTC Options Reporting / FINRA Requests Comment on Proposed Trade Reporting Requirements for Over-The-Counter Options Transaction (FINRA Regulatory Notice 22-14)

FINRA Fines and Suspends Rep for Role with Marina

In the Matter of Kenneth Lawrence Spielman, Respondent (FINRA AWC)

FINRA Fines and Suspends Rep for Mortgage Loans to Two Customers

In the Matter of James Patrick Norris, Respondent (FINRA AWC)

Suspension of Disbelief: The Louis Ottimo FINRA to SEC Back to FINRA Back to SEC Regulatory Saga (BrokeAndBroker.com Blog)

JP Morgan Securities Sued for Over $10 Million in Team Dissolution FINRA Arbitration (BrokeAndBroker.com Blog)

122 Days And Counting For FINRA's Independent Review Of Its Arbitration Selection Process (BrokeAndBroker.com Blog)

The Constitution does not confer a right to abortion; Roe and Casey are overruled; and the authority to regulate abortion is returned to the people and their elected representatives. 

was a financial advisor working at a branch office of UBS Financial Services Inc. in Miami.  Nino oversaw and managed UBS investment accounts for various customers.  From about 2014 to 2020, Nino made 62 unauthorized transfers (totaling close to $6 million) from UBS accounts belonging to three clients.  To accomplish the fraud, Nino concealed important facts from the victims, lied to them, and committed other fraudulent acts.  For example, Nino misrepresenting the true performance, balance, and rate of return of the accounts he managed.  He also forged the signature of his clients on documents purporting to authorize transfers out of the accounts, prepared a fraudulent land purchase contract on which he forged a victim's signature, removed one of the victim's e-mail addresses from the UBS client account profile so that the victim would not receive email notifications about unauthorized transfers, and prepared fraudulent UBS account statements that falsely inflated the balance and value of the victims' accounts.

As set out in court records, Nino spent most of the money he stole from the accounts on funding his own extramarital affairs.  Nino agreed to forfeit his interest in a home in Ave Marie, Florida as part of his sentence.   

From at least in or about March 2011 through in or about the present, RUIZ induced multiple individual investment advisery clients of Carter Bain Wealth Management ("CBWM"), many of whom are elderly, to retain RUIZ and CBWM to advise them on how they should invest their retirement savings.  While ostensibly acting in his fiduciary capacity as their investment adviser, RUIZ instead induced more than a dozen such clients to invest more than $10 million in an investment fund called RAM Fund through the purchase of limited partnership interests.  RUIZ did not disclose to those clients that RUIZ controlled RAM Fund and that he planned to misappropriate their funds.  

In fact, rather than invest the funds in legitimate investment projects and real estate, as he falsely represented to clients, RUIZ misappropriated more than $8 million of client funds from the RAM Fund, transferred those funds through a series of entities RUIZ also controlled, and spent the vast majority of the funds on personal expenses, including the purchase of a home, rent payments on several apartments, and the payment of his personal credit card bills.  In so doing, he violated his fiduciary duty to act in his clients' best interest and avoid self-dealing.  RUIZ also made multiple false statements to the U.S. Securities and Exchange Commission about his companies and investments in order to hide his fraudulent scheme.

[F]rom December 2018 to April 2020, Kerns owned and operated Home Care Coordinators, LLC, a business that provided home health care in Buncombe and Madison Counties. Beginning in December 2018, Kerns arranged to provide home health care services to two elderly clients, identified in court documents as S.A. and P.R., who were 86 and 90 years old, respectively. The two elderly clients lived in Asheville and were close friends. P.R. also suffered from dementia and was not capable of handling his affairs. S.A. served as P.R.'s power of attorney and managed and controlled P.R.'s finances.

According to court documents, Kerns provided home health care services to S.A. and P.R. all of 2019 and into 2020. During that time, Kerns did not provide S.A. or P.R. with detailed invoices of her home health care services. Instead, Kerns orally informed S.A. on a weekly basis how much money Kerns claimed she was owed for services rendered, and S.A. wrote checks in those amounts from P.R.'s bank accounts. Over the course of the scheme, Kerns defrauded the elderly victims in a number of ways, including by overbilling them for services that were inflated or never provided; double-billing them for other services such as cleaning and moving that were either not provided or were provided by caregivers during hours already billed; and by billing at a higher rate than what Kerns and the victims had agreed upon.

According to court documents, from December 2018 through April 2020, Kerns directed S.A. to pay, and did receive, $1,465,546.99 for home health care and other services allegedly rendered by Kerns to the victims. The actual fair market value of the services provided to the victims by Kerns was $376,992. Kerns thereby overcharged S.A. and P.R. $1,088,554.99 for services that were never provided.

Kerns used the money she swindled from the victims to purchase vehicles and ATVs, to buy luxury retail items, and to pay for hotel stays and vacation rentals.

According to court records, when Kerns learned she was being investigated by the FBI and IRS, she made a number of false statements to federal agents related to her business activities. For example, Kerns lied about issuing IRS Form 1099s to her employees, lied about purchases she made using the victims' money, and lied about additional income she received from another client. In addition, after Kerns was served with a grand jury subpoena requiring her to produce certain business records, Kerns fabricated such records and generated false invoices based on the amounts she believed she had received from S.A. and P.R. rather than providing invoices for actual services rendered.

[D]efendants conducted a fraudulent $410 million offering in violation of the securities and broker-dealer registration provisions identified above. Among other things, Defendants allegedly sold pre-Initial Public Offering (IPO) shares they did not own, pocketed undisclosed fees, and commingled investor funds, resulting in Ponzi scheme-like payments.

The order specifically finds that from February 28, 2020 through March 17, 2020, while not registered in any capacity, Starberry accepted more than $400 million from a foreign customer and deposited that money in Starberry's proprietary trading account. Starberry then executed more than 12,500 NYMEX WTI trades in March 2020, which resulted in more than $86 million in profits for the foreign customer and $1,376,206.81 in commission and fees for Starberry.

The order recognizes respondent's substantial cooperation in the form of a substantially reduced penalty.

FINRA found that between June 2016 and December 2018, NSC, while acting as an underwriter for three initial public offerings and seven follow-on offerings, violated Rule 101 of Regulation M under the Securities Exchange Act of 1934 by unlawfully inducing or attempting to induce certain customers to purchase stock in the aftermarket of the offerings prior to their completion.

Rule 101 prohibits underwriters, during a restricted period, from attempting to induce any person to bid for or purchase any offered security in the aftermarket.

FINRA found that NSC violated Regulation M in connection with 10 offerings by engaging in some combination of the following misconduct during each offering's restricted period:

• Expressly conditioning allocations on a branch manager's or representative's agreement to buy a specific number of shares in the aftermarket for the branch's or representative's customers (known as "tie-in agreements");
• Agreeing to solicit customers who received allocations to purchase additional shares in the immediate aftermarket; and
• Threatening to reduce allocations to representatives who would not agree to solicit their customers to participate in the aftermarket.

NSC's conduct was aimed at artificially stimulating demand and supporting the price of the offered securities, which tended to be thinly traded, in the immediate aftermarket. The aftermarket performance of NSC's underwritten offerings was important to the firm's reputation and ability to generate future investment banking revenue.

The settlement resolves multiple other charges against NSC, including that the firm:

• Between April 2018 and July 2018, negligently omitted to tell investors in two offerings related to GPB Capital about delays in the issuer's required public filings, including audited financial statements-for which FINRA has ordered the firm to pay restitution of more than $625,000 to those customers;
• Between January 2005 and April 2020, failed to obtain locates for over 33,000 short sale transactions as required by Rule 203(b)(1) of Regulation SHO under the Exchange Act;
• Between September 2013 and May 2017, failed to reasonably supervise one of its representatives by failing to respond to multiple red flags that he was falsifying information about customers' assets and suitability information in order to avoid NSC's limits on concentration levels that applied to his non-traded real estate investment trust recommendations; and
• Made inaccurate representations to FINRA concerning the sales of stock warrants it received in connection with an October 2019 public offering.

FINRA is soliciting comment on a proposal to establish a new trade reporting requirement for transactions in over-the-counter options on securities with terms that are identical or substantially similar to listed options. FINRA is proposing to require firms to report this information to FINRA on a daily basis (end-of-day) for regulatory purposes only.

In May 2018, Spielman incorporated a company in New York for the purpose of purchasing a marina. He acted as the company's Secretary and Treasurer; In those capacities, Spielman assisted with the company's operations. 

In June 2018, Spielman, along with several other individuals, purchased a marina in New York through the company. After purchasing the marina, Spielman, participated in operating the marina. Spielman expected compensation as a result of sharing the profits from operating the marina and, eventually, selling it. 

In June 2018, after forming the company and purchasing the marina, Spielman requested approval from LPL to participate in these outside business activities. LPL did not initially approve Spielman's outside business activities and requested that Spielman provide additional information. Spielman did not provide the information requested until November 2018 but continued to participate in his unapproved outside business activities prior to submitting the information. LPL ultimately approved Spielman's outside business activities involving the marina. 

Therefore, Spielman violated FINRA Rules 3270 and 2010. 

• Securities Industry Commentator
• Bill Singer