Securities Industry Commentator by Bill Singer Esq

GUEST BLOG: [In]Securities: A Hard Rain's A-Gonna Fall: A Whistleblower Retaliation Case Washes Out by Aegis Frumento Esq (BrokeAndBroker.com Blog)

Barred Stockbroker Charged With Five Counts of Wire and Mail Fraud. Did Any Victim Do Any Due Diligence? (BrokeAndBroker.com Blog)

Claimant Wins $57 Million in FINRA Arbitration Award and Once More Around The Loop with Bill Singer (BrokeAndBroker.com Blog)

How Regulatory Sandbox Programs Can Promote Technological Innovation and Consumer Welfare / Insights from Federal and State Experience (OnPoint, Competitive Enterprise Institute by Ryan Nabil)

California Man Receives 10 Year Sentence Following Guilty Plea in South Carolina to Fraud Conspiracy / Masterminded $300 Million Ponzi Scheme Targeting Retirees and Military Pension Holders (DOJ Release)

Investment Scam Ringleader Pleads Guilty After Being Recorded Paying Cash Kickbacks at Boca Raton Starbucks (DOJ Release)

Former Member of Congress Charged with Multiple Fraud Schemes (DOJ Release)

SEC Awards $1.5 Million and $800,,000 To Two Whistleblower Claimants

Order Determining Whistleblower Award Claims

SEC Obtains Final Judgment Against Defendant for Role in $45 Million Fraudulent Scheme (SEC Release)

FINRA Censures and Fines Morgan Stanley for Missing Short-Sale Indicator

In the Matter of Morgan Stanley & Co., LLC, Respondent (FINRA AWC)

FINRA Fines and Suspends Former Wells Fargo Rep for Text Messaging

In the Matter of Yan Binder, Respondent (FINRA AWC)

FSC Securities Loses FINRA Arbitration Seeking About $364,000 in Damages Against Former Contractor

In the Matter of the Arbitration Between FSC Securities Corporation, Claimant, v. Roger Bedillion, Respondent (FINRA Arbitration Award)

FINRA Arbitration Panel Finds TD Ameritrade Grossly Negligent With Form U5  (BrokeAndBroker.com Blog)

Around the world, leading financial centers seek to attract companies capable of developing innovative financial products and services. From blockchain-based payments to alternative credit scoring systems, technological innovation is critical to maintaining a globally competitive financial sector that benefits consumers, investors, and entrepreneurs. However, the financial services industry, especially in the United States, remains heavily regulated. Such cumbersome regulations can deter both established companies and startups from offering innovative financial products and services. Governments can use various policy tools to address this challenge and promote innovation. 

Among the options gaining popularity are "regulatory sandbox" programs, which allow companies to test innovative products and services under a modified and frequently lightened regulatory framework for a limited period. These programs allow companies to test new financial products and enable regulators to become more familiar with technological innovation and its impact on businesses. By allowing regulators to evaluate how different rules impact businesses, sandbox programs can provide crucial information to help regulators craft business- and innovation-friendly rules. 

ran a corporation called Future Income Payments LLC (FIP), formerly known as Pensions, Annuities, and Settlements LLC. From April 2011 until April 2018, Kohn and his co-conspirators used FIP as a vehicle for a nationwide Ponzi scheme.   

Kohn and his co-conspirators solicited pensioners experiencing financial distress, most of whom were military veterans, by offering an upfront lump-sum payment in exchange for an assignment of the rights to their monthly pensions and disability payments. Even though the assignment transactions were characterized as "sales," they were, in fact, usurious loans with annual interest rates of as much as 240%. 

Kohn and his co-conspirators - working through a network of hundreds of financial advisors and insurance agents nationwide - then solicited thousands of seniors to purchase FIP's "structured cash flows," which were the pensioners' monthly pension payments. Kohn and his co-conspirators induced these seniors to invest their retirement savings with FIP by making false assurances of a significant rate of return on their investment, concealing the usurious nature of FIP's transactions with the pensioners and lying about the financial health of the corporation.

During the seven years the scheme operated, Kohn drew upon FIP funds to live a lavish lifestyle. When the Ponzi scheme ultimately collapsed, Kohn and his co-conspirators had caused more than $310 million in losses to more than 2,500 retirees and had placed more than 13,000 veterans into exploitative loans.

Michael Assenza, a/k/a "Michael Grimaldi", 44, of Boca Raton, Florida, the former Director of Technology at Social Voucher pleaded guilty and was sentenced to 52 months' imprisonment on August 11, 2022;

Ted Romeo, a/k/a "Ted Lamar", 62, of Pompano Beach, Florida, an employee of Geraci's boiler room who solicited Social Voucher investors, pleaded guilty and is scheduled to be sentenced on August 26, 2022;

Paul Vandivier a/k/a "Doug Wright", 61, of West Palm Beach, Florida, who operated a boiler room that solicited Social Voucher investors, pleaded guilty and is scheduled to be sentenced on October 7, 2022;

Cindy Vandivier a/k/a "Madison Brooke" a/k/a "Madison Brookes", 64, of West Palm Beach, Florida, who helped her husband operate a boiler room that solicited Social Voucher investors, pleaded guilty and is scheduled to be sentenced on October 7, 2022.

Gerald Parker, 78, of Juno Beach, Florida, the former Chief Executive Officer of Social Voucher, is still awaiting trial, currently scheduled for September 27, 2022.  The case is assigned to United States District Judge Rodney Smith in Fort Lauderdale, Florida. 

Geraci admitted in plea documents that, from the fall of 2016 until December 2018, he used Pinnacle Atlantic to fraudulently sell stock in a Florida company called Social Voucher.com, Inc. ("Social Voucher") that was later referred to as Stocket, Inc. ("Stocket").  Geraci admitted that he and others at Pinnacle Atlantic took commissions as large as 50 percent of the investment, a fact that was not disclosed to investors.  According to Geraci's plea documents, he paid co-defendant Ted Romeo in cash to pitch Social Voucher stock even though Ted Romeo had a civil judgment against him (a fact that was, again, not disclosed to investors).  Geraci also admitted that he knew the Social Voucher stock offering was not registered with the Securities and Exchange Commission or state regulators.  According to Geraci's plea agreement, he caused between $1.5 and $3.5 million in loss to the investors. 

According to court filings by the Government, Geraci was recorded several times during the scheme.  For example, Geraci was recorded pitching Social Voucher stock to an undercover FBI agent posing as an investor, telling the FBI agent on the recording that his investment money was "all for programming and software and so and so." In reality, the FBI agent invested $50,000 in undercover funds and half the money went into Geraci's pocket.  Geraci was also recorded paying cash kickbacks at a Boca Raton Starbucks to a man he knew was under a federal fraud indictment in Detroit, in exchange for securing investors.  Geraci was recorded explaining to this Detroit fraudster that he wouldn't disclose the kickbacks to the fraudster on tax returns and that is what he did for his employees "with these special backgrounds."

[C]ox perpetrated multiple fraud schemes targeting companies he was affiliated with and their clients and vendors. Cox created unauthorized off-the-books bank accounts and diverted client and company money into those accounts through false representations, pretenses and promises. From 2013 to 2018, across two different fraud schemes, Cox illicitly obtained over $1.7 million in diverted client payments and company loans and investments he solicited and then stole.

In addition, Cox allegedly received mortgage loan funds from a lender for a property purchase by submitting multiple false representations to the lender, including fabricated bank statements and false statements that Cox intended to live in the property as his primary residence. However, the indictment alleges Cox intended to and did buy the property to rent it to someone else.

According to allegations in the indictment, Cox also fraudulently obtained a $1.5 million construction loan to develop the recreation area in Fresno known as Granite Park. Cox and his business partner's nonprofit could not qualify for the construction loan without a financially viable party guaranteeing the loan. Cox falsely represented that one of his affiliated companies would guarantee the loan, and submitted a fabricated board resolution which falsely stated that at a meeting on a given date all company owners agreed to guarantee the Granite Park loan. No meeting took place, and the other owners did not agree to back the loan. The loan later went into default causing a loss of more than $1.28 million.

According to allegations in the indictment, when Cox was a candidate for the U.S. House of Representatives in the 2018 election, he perpetrated a scheme to fund and reimburse family members and associates for donations to his campaign. Cox arranged for over $25,000 in illegal straw or conduit donations to his campaign in 2017.

We find the award allocation is appropriate. While both Claimant 1 and Claimant 2 provided information that, in part, caused the opening of the investigation, Claimant 1 provided more ongoing helpful information and assistance to the Enforcement staff as compared to Claimant 2. 

[K]alistratos "Kelly" Kabilafkas secretly purchased essentially all of the outstanding stock of a shell company now known as Airborne, which he secretly controlled, and then distributed millions of shares among himself and his associates, including Scheffey. As alleged, Scheffey participated in Kabilafkas' scheme by deceiving broker-dealers in order to have the shares deposited in his brokerage accounts and cleared for sale to the public. The complaint alleges that Scheffey then sold these shares into the public market while an Airborne promotional campaign was underway.

Between August 2017 and May 2019, Morgan Stanley reported approximately 9.6 million transactions in National Market System (NMS) securities without a required short sale indicator in violation of FINRA Rules 6182 and 2010. Between November 2014 and June 2019, the firm reported 2,240 transactions in Over the Counter (OTC) equity securities without the required short sale indicator in violation of FINRA Rules 6624 and 2010. Additionally, between November 2014 and June 2019, Morgan Stanley failed to establish and maintain a supervisory system, including written supervisory procedures, reasonably designed to achieve compliance with FINRA Rules 6182 and 6624 in violation of NASD Rule 3010 and FINRA Rules 3110 and 2010.

At all times during the relevant period, Wells Fargo's written supervisory procedures provided that electronic business communications could only be transmitted through firm sponsored and authorized systems in order to facilitate the firm's preservation and supervision of such communications. In addition, the firm's written supervisory procedures prohibited registered representatives from sending or responding to business communications by text message. Further, during 2017, Respondent received a reminder from the firm about the need to refrain from communicating with customers about securities business via text message. However, from at least August 2018 through May 2019, Respondent used unapproved channels to exchange numerous text messages with a firm customer about securities-related business. Therefore, the firm did not prese1ve those messages. 

Through this conduct, Binder violated FINRA Rules 4511 and 2010. 

since terminating his relationship with Claimant as an independent contractor, Respondent inappropriately saddled it with customer commission chargebacks and litigation expenses related to insurance product sales by Respondent, which were subsequently disputed by Respondent's customers.

• Securities Industry Commentator
• Bill Singer