The Wall Street Legal & Regulatory Feed

Securities Industry Commentator by Bill Singer Esq

July 27, 2022













https://www.brokeandbroker.com/6577/loftus-finra-settlement/
After FINRA accepted his Offer of Settlement in 2017 and imposed a $5,000 fine and three-month suspension, Robert Loftus had the regulatory equivalent of buyer's remorse. To some extent, his bout with FINRA ended per a TKO but he wasn't done fighting. First, in 2020, Loftus tried to get his day in FINRA arbitration but was told he was ineligible. Then, Loftus tried to get his day in court but FINRA's Motion to Dismiss was granted. Not taking "no" for an answer, Loftus asked the federal court to reconsider. At first glance, frankly, it all seems a bit silly. You got a 2017 settlement but you're first trying to undo it three years later? Three years?? Why didn't you just contest FINRA's charges when they were filed in 2016? Ultimately, there was a lot of fight in Loftus, but it largely seemed to arise after the bell had rung for the last round at FINRA. 

Reporter Arvelund covers the SkyBridge/Scaramucci crypto mess and raises a number of troubling questions about regulation (or its absence). Wall Street's irrespressible bon vivant, Bill (that's really his first name -- it's on his birth certificate) Singer, that international man of mystery and securities lawyer, pops up in this article behind the disguise of William "Bill" Singer -- which is not what his mother named him but, then again, what lawyer really wants to have the initials of B.S. For now, Singer basks in the glow of his alter ego William.

Not exactly a punchy headline, but DO, the Consumer Financial Protection Bureau ("CFPB"), and the Attorneys General of Pennsylvania, New Jersey, and Delaware announced agreements to resolve allegations that Trident Mortgage Company (owned by Berkshire Hathaway Inc.) had engaged in a pattern or practice of lending discrimination by "redlining" in the Philadelphia metropolitan area. 
  • EDPA Consent Order https://www.justice.gov/opa/press-release/file/1522171/download
  • EDPA Complaint https://www.justice.gov/opa/press-release/file/1522166/download
As alleged in part in the Release:

Under the proposed consent order, which is subject to court approval and was filed in conjunction with a complaint today in the U.S. District Court for the Eastern District of Pennsylvania, Trident has agreed to invest over $20 million to increase credit opportunities in neighborhoods of color in the Philadelphia metropolitan area. Trident will invest at least: $18.4 million in a loan subsidy fund for residents of neighborhoods of color in the Philadelphia metropolitan area; $750,000 for development of community partnerships to provide services that increase access to residential mortgage credit; $875,000 for advertising and outreach; and $375,000 for consumer financial education. Because Trident no longer operates a lending business, it will contract with another lender to provide loan subsidies and services to the "redlined" communities. Trident will ensure that the lender employs at least four mortgage loan officers dedicated to serving neighborhoods of color in and around Philadelphia, Camden, and Wilmington; maintains at least four office locations in those neighborhoods; and employs a full-time manager of community lending who will oversee the continued development of lending in neighborhoods of color in the Philadelphia metropolitan area. Trident will also pay a civil money penalty of $4 million.

Trident has also entered into agreements with Pennsylvania, New Jersey, and Delaware. Those agreements resolve allegations against both Trident and Fox & Roach LP, a real estate affiliate of Trident. In addition to the settlement terms included in the federal consent order, under the agreements with Pennsylvania and New Jersey, Trident will reimburse the states for costs incurred in conducting the investigations. Fox & Roach will also invest $150,000 in marketing to communities of color in the Philadelphia metropolitan area.

In the Matter of the Arbitration Between Theresa Irene Stone, et al., Claimants, v. Securities America, Inc., et al., Respondents (FINRA Arbitration Award 21-00097)
https://www.finra.org/sites/default/files/aao_documents/21-00097.pdf
A FINRA Arbitration Statement of Claim was filed by Claimants in January 2021. As set forth in part in the FINRA Arbitration Award:

In the Statement of Claim, Claimants asserted the following causes of action against Kerr, Rivera, and Terry: fraud/fraudulent inducement; negligent misrepresentation; breach of contract; breach of contract - intended third-party beneficiary; breach of the covenant of good faith and fair dealing; breach of duty of loyalty; and solicitation of clients. In addition, Claimants asserted the following causes of action against Respondents: misappropriation of trade secrets; interference with contractual relations; quantum meruit/unjust enrichment; civil conspiracy; and joint and several liability. The causes of action relate to the sale of a financial advisory practice in Santa Fe, New Mexico.

To fully appreciate the complex nature of this lawsuit, consider the caption:

Claimants
Theresa Irene Stone Shawn 
Jeremy Waked
Maestro Global

vs.

Respondents 
Securities America, Inc. 
Kathleen Alexandrea Kerr 
Timothy James Rivera 
Jane Terry 

Counter Claimants 
Kathleen Alexandrea Kerr 
Timothy James Rivera 
Jane Terry 

 vs. 

Counter Respondents 
Theresa Irene Stone 
Shawn Jeremy Waked 

Third Party Claimant
Jane Terry 

vs. 

Third Party Respondents
Raymond James Financial Services, Inc. 
Kirk Edward Bell 

Cutting to the chase, the FINRA Arbitration Panel rendered the following Award:

1. Terry is severally liable for and shall pay to Waked and Stone the sum of $1,589,570.00 in compensatory damages. 

2. Kerr, Rivera, and Terry are jointly and severally liable for and shall pay to Waked and Stone the additional sum of $2,872,473.00 in compensatory damages. 

3. Terry is severally liable for and shall pay to Waked and Stone interest on $1,589,570.00 at the rate of 15% per annum from the date of service of the Award until the Award is paid in full, pursuant to NM Stat § 56-8-4.A(2) (2019). 

4. Kerr, Rivera, and Terry are jointly and severally liable for and shall pay to Waked and Stone interest on $2,872,473.00 at the rate of 15% per annum from the date of service of the Award until the Award is paid in full, pursuant to N.M. Stat. § 56-8-4.A(2) (2019).

5. Securities America is liable for and shall pay to Waked and Stone the sum of $100,000.00 in compensatory damages. 

6. Securities America is liable for and shall pay to Waked and Stone interest on $100,000.00 at the rate of 15% per annum from the date of service of the Award until the Award is paid in full, pursuant to N.M. Stat. § 56-8-4.A(2) (2019). 

7. Terry is liable for and shall pay to Waked and Stone the sum of $1,000,000.00 in punitive damages pursuant to New Mexico law, Green Tree Acceptance, Inc. v. Layton, 108 N.M. 171, 769 P.2d 84 (1989), Sierra Blanca Sales Co. v. Newco Indus., Inc., 88 N.M. 472, 542 P.2d 52 (Ct. App. 1975), and 89 N.M. 187, 548 P.2d 865 (1976). 

8. Kerr, Rivera, and Terry are jointly and severally liable for and shall pay to Waked and Stone the sum of $723,558.90 in attorneys' fees pursuant to Paragraph V.6 of Claimants' Statement of Claim, see Safra Securities, LLC v. Gonzalez 18-2343 (764 Fed.Appx.125 (2019)). 

9. Kerr and Terry are jointly and severally liable for and shall pay to Waked the sum of $250,000.00 in emotional distress damages. 

10. Kerr and Terry are jointly and severally liable for and shall pay to Stone the sum of $250,000.00 in emotional distress damages. 

11. Respondents are jointly and severally liable for and shall pay to Claimants $600.00 to reimburse Claimants for the non-refundable portion of the filing fee previously paid to FINRA Dispute Resolution Services. 

12. The Panel hereby orders Respondents to return in no more than 14 calendar days from the date of service of the Award to Claimants, any and all information, materials, documents, files, or data, in whatever form, and any copies containing, reflecting, or referring to any of Claimants' confidential, proprietary, or trade secret data or information, not independently derived by Respondents. 

13. Kerr, Rivera, and Terry's Counterclaim is denied. 

14. Any and all claims for relief not specifically addressed herein are denied.

SEC Charges Florida Resident with Operating a Ponzi Scheme That Targeted Haitian-American Community (SEC Release)
https://www.sec.gov/litigation/litreleases/2022/lr25452.htm
In a Complaint filed in the United States District Court for the Southern District of Florida, the SEC charged charges Alexandra Robert, Chalala Academy LLC, and Lendvesting Academy Corp.
https://www.sec.gov/litigation/complaints/2022/comp25452.pdf with violating the registration provisions of Section 5 of the Securities Act, and with violating the antifraud provisions of Section 17(a) of the Securities Act and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder. As alleged in part in the SEC Release:

[F]rom at least 2020 to 2021, Robert, through Chalala Academy LLC and Lendvesting Academy Corp, two companies she owned and controlled, offered investment programs to investors and promised "risk-free" returns of 10% to 48%. As alleged, Robert and the two companies made statements on the company's website and via social media claiming they raised more than $4 million from more than 1,000 investors, paid out $2.6 million in profits to investors, and were going to pay "guaranteed" investment returns from underwriting loans to small businesses. In fact, the SEC alleges, Robert, who is of Haitian descent, and her two companies, raised only approximately $900,000 from 80 investors, including many members of the Haitian-American community. As alleged in the complaint, instead of executing an investment strategy designed to generate the promised returns, Robert misappropriated investor funds and used investor funds to make Ponzi-like distributions to investors.

https://www.justice.gov/usao-dc/pr/district-based-financial-services-professional-pleads-guilty-federal-charge-insider
George Haywood pled guilty in the United States District Court for the District of Columbia to one count of insider trading. As alleged in part in the DOJ Release:

[H]aywood is a District of Columbia-based financial services professional who managed investments on behalf of his family and friends. On Jan. 22, 2020, at approximately 9 a.m., Neurotrope, a clinical-stage biopharmaceutical company (now known as Synaptogenix) announced that it was being awarded a $2.7 million grant from the National Institutes of Health following positive clinical trial results for a medicine for the treatment of Alzheimer's disease. This resulted in an increase of its stock price to a high of $3.85 per share.

Later that day, at approximately 12:50 p.m., Haywood spoke to a representative of Neurotrope by telephone. The person offered to share material non-public information relating to Neurotrope with Haywood so long as Haywood agreed not to execute or attempt to execute any stock trades with the information. Haywood agreed to receive material non-public information, subject to these conditions. The representative then informed Haywood that Neurotrope would issue a registered direct offering later that day and invited him to participate in it. The offering was expected to cause Neurotrope's stock price to fall.

Immediately after receiving material non-public information, Haywood sold or attempted to sell shares of Neurotrope worth over $328,701.16, despite having agreed to receive the information, and not to execute or attempt to execute any stock trade with it. Based on the daily closing price of $1.42 per share, Haywood avoided a loss of at least $179,297.18 on the sale of those shares between the time he received the material non-public information, and the time the registered direct offering was announced to the public.

https://www.sec.gov/litigation/litreleases/2022/lr25453.htm
The United States District Court for the Eastern District of Pennsylvania entered a Final Default Judgment against Thomas Megas https://www.sec.gov/litigation/litreleases/2022/judg25453-megas.pdf that permanently enjoins him from violating the registration provisions of Section 5 of the Securities Act and the antifraud provisions of Section 17(a) of the Securities Act and Section 10(b) of the Securities Exchange Act and Rule 10b-5 thereunder; and, further, orders him to pay $526,974 in disgorgement, prejudgment interest, and civil penalties. As alleged in part in the SEC Release:

The SEC's complaint, filed on March 24, 2020, accused Megas, together with co-defendant Todd H. Lahr, of targeting Lahr's clients to raise funds for several Megas-led business ventures, including mining operations in Papua New Guinea and real estate investments in Barcelona and London. Instead, Megas and Lahr allegedly used investor funds to pay earlier investors and for various personal expenses, including Megas' vacation to the Caribbean, restaurant bills, and ATM withdrawals.

Days after the entry of the final judgment on July 30, 2021, Megas filed a motion to vacate the Court's decision. On July 20, 2022, the Court denied Megas' action, concluding that Megas failed to present a meritorious defense or any evidence in support of his request to vacate the judgment against him. It also found that Megas willfully avoided timely action in this matter with his own testimony confirming that he knew about the SEC's litigation for one year before entry of the judgment.

Previously, the SEC obtained a final judgment against Lahr, and Lahr was sentenced to 78 months in prison in a parallel criminal action brought by the U.S. Attorney's Office for the Eastern District of Pennsylvania and the Fraud Section of the Department of Justice.
The CFTC announced the creation of the Office of Technology Innovation (formerly LabCFTC) and naming Jorge Herrada as its Director. Also, the Office of Customer Education and Outreach was realigned within the Office of Public Affairs under Interim Director Steve Adamske.

https://www.finra.org/sites/default/files/fda_documents/2019064715701
%20Richard%20A.%20Hogan%20CRD%201754577%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, Richard A. Hogan submitted a Letter of Acceptance, Waiver and Consent ("AWC"), which FINRA accepted. The AWC asserts that Richard A. Hogan was first registered in 1988, and from February 2002 to July 2020, he was registered with Merrill Lynch, Pierce, Fenner & Smith Inc. In accordance with the terms of the AWC, FINRA imposed upon Hogan a $10,000 fine and a 12-month suspension from associating with any FINRA member in all capacities. As alleged in part in the AWC [Ed: footnotes omitted]:

From October 2017 to August 2018, Hogan participated in five private securities transactions in Asia-based funds by three Merrill Lynch customers, who invested a total of $630,000 in the funds. Hogan participated in the transactions by soliciting the investments from the customers and directing his assistants to process the investment documentation. Specifically, in October 2017, Hogan solicited Customer A to invest approximately $220,000 in a Hong Kong equity fund and solicited Customer B to invest approximately $110,000 in the same fund. Between June and August 2018, Hogan solicited Customer C to invest a total of $300,000, in three separate transactions, in a Vietnam equity fund. Merrill Lynch did not offer these funds for investment by customers, and the customers' investments were not custodied with the firm. 

In December 2018, Hogan disclosed, on the firm's AIM system, that he had personally invested in the Hong Kong equity fund but attested that he had not co-invested with customers or solicited others in connection with the investment. Contrary to this representation, Customers A and B had invested in the same fund, based upon Hogan's recommendation, prior to Hogan's AIM disclosure. Hogan did not provide written notice to Merrill Lynch prior to participating in private securities transactions by Customers A and B in the Hong Kong equity fund or by Customer C in the Vietnam equity fund. 

Therefore, Hogan violated FINRA Rules 3280 and 2010.
https://www.finra.org/sites/default/files/fda_documents/2021072262901
%20Brian%20Harold%20Young%20CRD%204725953%20AWC%20va.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, Brian Harold Young submitted a Letter of Acceptance, Waiver and Consent ("AWC"), which FINRA accepted. The AWC asserts that Brian Harold Young was first registered in 2004, and from July 2009 through July 2021, he was registered with Charles Schwab & Co. As alleged in part in the AWC [Ed: footnotes omitted]:

On January 7, 2020, while associated with Charles Schwab, Young was indicted by a Maricopa County, Arizona grand jury for three felonies: one count of aggravated assault and two counts of endangerment. Young received written notice of the indictment on March 17, 2020. Young willfully failed to amend his Form U4 to disclose the felony charges against him within 30 days as required. On July 12, 2021, Young pled guilty to a felony charge, which rendered him statutorily disqualified from associating with a member firm. Young was required, but willfully failed to amend his Form U4 to disclose the felony guilty plea against him within 10 days, or by July 22, 2021. In fact, Young amended his Form U4 to disclose the felony conviction and the previous three felony charges when he resigned from Charles Schwab on July 26, 2021, four days after the deadline for disclosing the felony conviction and over a year after the deadline for disclosing the felony charges. The felony charges and guilty plea were material facts that an employer or customer would want to know about a representative. Additionally, Young falsely stated on two annual compliance questionnaires that he had not been charged with any felonies. By virtue of the foregoing, Young violated Article V, Section 2(c) of FINRA's By-Laws and FINRA Rules 1122 and 2010.

In accordance with the terms of the AWC, FINRA imposed upon Young a $5,000 fine and a six-month suspension from associating with any FINRA member in all capacities. Notably, the AWC admonishes that:

Respondent understands that this settlement includes a finding that he willfully misrepresented a material fact on a Form U4, and that under Section 3(a)(39)(F) of the Securities Exchange Act of 1934 and Article III, Section 4 of FINRA's By-Laws, this misrepresentation makes him subject to a statutory disqualification with respect to association with a member.


https://www.finra.org/rules-guidance/notices/election-notice-072022
FINRA will conduct its Annual Meeting of firms on Friday, August 19, 2022, and the purpose of the meeting is to elect an individual to fill one small firm seat on the FINRA Board of Governors. All eligible small firms should submit a proxy, which must be signed by the executive representative of the firm eligible to vote in the election.

Time to clean house at the FINRA Board of Governors

The "BrokeAndBroker.com Blog" and
the "Securities Industry Commentator" 
urge all FINRA Small Firms to vote for:

Stephen A. Kohn, President
DMK Advisors Group, Inc.

Stephen Kohn has been employed in the financial services industry since 1984, to
which he has devoted most of his working life.

Mr. Kohn founded, owned and operated a FINRA small member firm, Stephen A.
Kohn & Associates, Ltd. (SAKL) located in Lakewood, Colorado since 1996. On January 1, 2020 ownership of SAKL was turned over to DMK Advisor Group, Inc. (DMK). He has assumed the role of president of DMK and, will continue as such well into the future.

In 2017, Mr. Kohn was elected by the Small Firm Membership to the FINRA Board
of Governors to represent Small Firm interests and issues at the highest levels. He
served on the Regulatory Policy and Audit Committees.

He has been twice elected to the National Adjudicatory Council (NAC) by FINRA's
small firms, first in 2009 and again in 2014. The NAC is FINRA's appellate division,
hearing appeals to enforcement decisions and other issues.

While on the NAC, Mr. Kohn served on the Sanction Guideline Review and Revision
Sub-Committee. This sub-committee was convened to review the Sanction
Guidelines to ensure that sanctions in appeals that are upheld by the NAC are fair
and appropriate and to recommend revisions as needed. He is also an industry
arbitrator and has served on the District 3 Committee.

Mr. Kohn holds the following securities licenses: Series, 7, 14, 24, 53, 63, 72, 73, 79
and 99. He graduated from C.W. Post College of Long Island University in 1964 with a
BA degree. He has served in the U.S. Coast Guard.

https://www.brokeandbroker.com/6567/stephen-kohn-finra-board/
FINRA Small Firm advocate Stephen Kohn is running for the FINRA 2022 Small Firm Governor. Stephen is supported by many reform voices in the FINRA Small Firm community and is endorsed by Bill Singer, Esq., an outspoken critic of regulatory incompetency and the publisher of the "Securities Industry Commentator" and the "BrokeAndBroker.com Blog." VOTE FOR STEPHEN KOHN

(BrokeAndBroker.com Blog)
https://www.brokeandbroker.com/6566/fidelity-finra-ndil/
Fidelity Brokerage Services LLC filed a FINRA Arbitration Statement of Claim against a former employee citing her alleged misuse of confidential customer information. Then, on a second track, Fidelity chugs into federal court with another lawsuit, which prompted amended complaints and counterclaims, and the addition of a non-FINRA-member-firm. On top of that, the former employee filed her own claims involving alleged age and sex discrimination. What's arbitrable? What's not? Where should all of this get decided? Should one of the litigation trains get stopped in its tracks? 

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