The Wall Street Legal & Regulatory Feed

Securities Industry Commentator by Bill Singer Esq

September 29, 2022

SEC Hides Disqualification Waiver Order In High Profile Recordkeeping Release (BrokeAndBroker.com Blog) SEE 9/29/2022 UPDATE

Former Financial Advisor Agrees to Plead Guilty to Aggravated Identity Theft (DOJ Release)

Rhode Island Man Convicted of Defrauding Investors and Tax Evasion / Diverted Millions to Fund His Lavish Lifestyle and Paid No Taxes (DOJ Release)

SEC Charges Man for Defrauding Investors out of Millions of Dollars by Posing as Hedge Fund Billionaire / Defendant presented himself as a special forces veteran and Harvard grad to gain investor trust (SEC Release)

SEC Charges Minneapolis Hedge Fund Manager in Alleged Market Manipulation Scheme (SEC Release)

Deloitte's Chinese Affiliate to Pay $20 Million Penalty for Asking Audit Clients to Conduct Their Own Audit Work / Clients selected their own samples and prepared workpapers (SEC Release)

SEC Charges Four Individuals in Microcap Fraud Scheme Targeting Retail Investors (SEC Release)

SEC Charges The Hydrogen Technology Corp. and its Former CEO for Market Manipulation of Crypto Asset Securities / CEO of Hydrogen's "Market Maker" also being charged for role in scheme (SEC Release)

SEC Obtains Injunction, Industry Bar and Penny Stock Bar Against Unregistered Broker Engaged in Fraudulent Scheme (SEC Release)

SEC Charges Former Florida Investment Adviser with Misappropriating Millions from Advisory Clients and Former Alabama Adviser with Breaching Fiduciary Duties (SEC Release)

SEC Obtains Final Judgment against IIG Co-Founder for Engaging in Fraud (SEC Release)

SEC Charges Issuer for Conducting Fraudulent and Unregistered Securities Offerings (SEC Release)

SEC Obtains Judgments and Bar Against Former Hedge Fund CEO Related to Hedge Fund Valuation Scheme (SEC Release)

SEC Charges Fourth Participant in Market Manipulation Scheme (SEC Release)

CFTC Orders tpSEF to Pay $850,000 for Violation of 15-Second Delay Rule for Execution of Cross Transactions on a SEF (CFTC Release)

CFTC Orders Futures Commission Merchant to Pay $500,000 for Supervision Failures Relating to Improper or Fictitious Trade Transfer Requests (CFTC Release)

Sanction Guidelines: The National Adjudicatory Council (NAC) Revises the Sanction Guidelines (FINRA Regulatory Notice 22-20 / September 29, 2022)

FINRA Censures and Fines Morgan Stanley for Reg M Violations
In the Matter of Morgan Stanley & Co. LLC., Respondent (FINRA AWC)

FINRA Fines and Suspends Former Paulson Investment Company Rep for OBA Involving Treatments For Degenerative Brain Disease
In the Matter of Nickolay V. Kukekov, Respondent (FINRA AWC)

Interactive Brokers Loses FINRA Arbitration Involving Disputed Put Options
In the Matter of the Arbitration Between Justin S. Fraser, Claimant, v. Interactive Brokers LLC, Respondent (FINRA Arbitration Award)

Whistleblower Angered by SEC's Split of $27 Million Award (BrokeAndBroker.com Blog)

SEC Charges 16 Wall Street Firms with Widespread Recordkeeping Failures / Firms admit to wrongdoing and agree to pay penalties totaling more than $1.1 billion (SEC Release)

CFTC Orders 11 Financial Institutions to Pay Over $710 Million for Recordkeeping and Supervision Failures for Widespread Use of Unapproved Communication Methods / Registered Swap Dealers and FCMs Admit Use of Texts, WhatsApp and Other Unapproved Methods to Conduct Business (CFTC Release)

Statement of CFTC Commissioner Christy Goldsmith Romero Regarding Holding Wall Street Accountable For Widespread Use of Unauthorized Communications Platforms, like Whatsapp and Signal, to Evade Regulatory Oversight

SEC Charges Purported Underwriter for His Role in Alleged Ponzi Scheme (SEC Release)

SEC Charges Former Executives At Moviepass and Its Parent Company for Making False Statements to Investors and Falsifying Books and Records (SEC Release)

CFTC Seeks to Revoke Registrations of Commodity Trading Advisor and Its Principal and Associated Person (CFTC Release)

FINRA Censures and Fines Garden State Securities for Solicitations During Distribution Period
In the Matter of Garden State Securities, Inc., Respondent (FINRA AWC)

FINRA Censures and Fines Wedbush Securities for Reg SHO Violations
In the Matter of Wedbush Securities, Inc., Respondent (FINRA AWC)

FINRA Fines and Suspends Centaurus Financial Supervisor for Rep's UIT Recommendations
In the Matter of Michael G. Seymour, Respondent (FINRA AWC)

SEC Settles Insider Trading Charges Against Former Investment Banking Analyst and Associate of Former NFL Player (SEC Release)

SEC Charges Oracle a Second Time for Violations of the Foreign Corrupt Practices Act / Company to Pay $23 Million to Settle Charges (SEC Releases)

Attorney General James Sues Cryptocurrency Platform for Operating Illegally and Defrauding Investors / Nexo Failed to Register as Required by New York Law and Lied to Investors about Their Registration (NYAG Release)

Dallas Man Charged In $26 Million Real Estate Scam (DOJ Release)

SEC Charges Fraud in Real Estate Investment Offering (SEC Release)

SEC Charges  Brothers in Fraudulent "Free-Riding" Scheme (SEC Release)

CFTC Orders Texas Commodity Trading Advisor to Pay $200,000 for Failing to Register as a Swap Execution Facility (CFTC Release)

CFTC Orders Wisconsin Resident and Company to Pay Over $190,000 for Failing to Register as an Introducing Broker and Other Violations (CFTC Release)


Sioux Falls Man Arrested for Role in Bank Fraud & Money Laundering Conspiracies (DOJ Release)

Former Securities Brokers Sentenced to Federal Prison Terms for Perpetrating Securities Fraud Scheme (DOJ Release)
















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9/29/2022

https://www.justice.gov/usao-edca/pr/former-financial-advisor-agrees-plead-guilty-aggravated-identity-theft
In response to an Information filed in the United States District Court for the Eastern District of California, Tyler Rigsbee pled guilty to one count of aggravated identity theft. As alleged in part in the DOJ Release:

[F]rom 2016 to 2021, Rigsbee worked as a financial advisor at a major bank in Sacramento. During his employment, Rigsbee stole over $158,000 from the accounts of two bank customers. Rigsbee stole this money by transferring it from customer accounts to brokerage accounts he created at E-Trade, a third-party financial institution. He then transferred the money from these brokerage accounts to his own personal bank account. Rigsbee also attempted to conceal his scheme by partially replacing some of what he stole from one of these bank customers with money he took from the account of a third bank customer.

After the death of one bank customer in August 2018, Rigsbee created a fraudulent request for distribution of eligible assets from a transfer-on-death account by falsely pretending that he was the deceased customer's beneficiary. On March 15, 2019, Rigsbee submitted this request for distribution of eligible assets to the bank's estate processing department, which caused the liquidation of the customer's account and transfer of these funds to a brokerage account Rigsbee created and controlled.

https://www.justice.gov/usao-ri/pr/rhode-island-man-convicted-defrauding-investors-and-tax-evasion
Thomas Huling pled guilty in the United States District Court for the District of Rhode Island to wire fraud and tax evasion. As alleged in part in the DOJ Release:

According to court documents, between 2008 and 2018, Thomas Huling, 58, orchestrated a scheme that raised approximately $14 million, and caused losses of more than $6 million to his victims.  Huling defrauded investors by promoting several investment projects, including high-yielding bond trading platforms; a car emissions reduction technology; and an online advertising and marketing company. He solicited funds for these investments by representing, among other things, that the money would be used for the particular project he was promoting, and that the investments would achieve substantial returns with little or no risk within a short period of time. To enhance his credibility and build trust, Huling incorporated religion, the possibility of charitable good works, and association with well-known individuals into his sales pitches.

In truth, and contrary to his promises, Huling diverted investor money to fund a lavish lifestyle that included high-end vehicles, membership and golf fees at multiple country clubs, gambling, clothing, restaurants, vacations and travel, as well as improvements to his residence. He created and used multiple shell companies; opened over 50 bank accounts; and he engaged in convoluted financial transactions between various accounts before ultimately using the funds personally. When investors contacted Huling with concern about the status of their investments, Huling lulled them with false excuses and promises, and at other times avoided their calls. To appease certain investors, Huling used money raised from new investors to pay off earlier investors.

According to court documents, at the same time that Huling was defrauding his investors, he was also committing tax evasion. Between 2009 and April 2018, Huling reported no taxable income, paid no income taxes, and for certain years filed false and fraudulent individual and corporate income tax returns. To further hide his income, Huling used nominee bank accounts, and paid for personal expenses using cash and corporate debit cards. He also manipulated the books and records of his companies to record sham loans, titled personal assets in the name of shell companies, and made false statements to IRS special agents as to his income, expenses, and business activities. 

https://www.sec.gov/news/press-release/2022-178
In a Complaint filed in the United States District Court for the Western District of Washington, https://www.sec.gov/litigation/complaints/2022/comp-pr2022-178.pdf, the SEC charged Justin Costello and David Ferraro with violating the anti-fraud provisions of the federal securities laws. As alleged in part in the SEC Release:

[C]ostello portrayed himself to the public as a seasoned, licensed investment professional who was building a conglomerate in the cannabis industry. His alleged false representations included credentials as a Harvard MBA, experience managing a $1.15 billion hedge fund, and years of experience on Wall Street. As alleged in the complaint, Costello used these fabricated accomplishments to secure approximately $900,000 of investments in two different companies from more than 30 investors. As further alleged in the complaint, while acting as an investment adviser to a married couple, Costello sold the couple $1.8 million of shares in a penny stock at a markup of 9,000 percent over the price paid by Costello and used their $4 million brokerage account to trade, at a significant loss, securities of microcap companies in which Costello had an undisclosed financial interest.

The complaint also alleges that Costello and Ferraro engaged in various stock promotion schemes in which Costello acquired shares of penny stocks and then directed Ferraro to promote those stocks to Ferraro's Twitter followers and the public. The complaint alleges that Ferraro posted hundreds of tweets to hype those stocks and did not disclose that Costello intended to sell his shares once the stock price increased or that Ferraro would receive a share of Costello's profits. Through these alleged schemes, Costello and Ferraro together made approximately $792,000 in illicit trading profits.

https://www.sec.gov/litigation/litreleases/2022/lr25535.htm
In a Complaint filed in the United States District Court for the District of Minnesota
https://www.sec.gov/litigation/complaints/2022/comp25535.pdf, the SEC charged Jason Nordlund with violating the antifraud provisions of Section 17(a) of the Securities Act, Section 10(b) the Securities Exchange Act and Rule 10b-5 thereunder, and Sections 206(1), 206(2), and 206(4) of the Investment Advisers Act of 1940 and Rule 206(4)-8 thereunder. As alleged in part in the SEC Release:

[O]ne of the first investments Nordlund made, after creating a "friends and family" fund in July 2020, was in the stock of Affinity Gold.  During the time of the alleged conduct, Affinity Gold represented 20% of the fund's holdings on average.  Volatility in Affinity Gold's stock price allegedly caused the net asset value of the fund to fluctuate significantly.  To prevent these fluctuations in the fund's value, Nordlund allegedly implemented a coordinated but undisclosed trading strategy to "stabilize the price" of Affinity Gold stock.  The complaint alleges, with the assistance of a friend, Nordlund placed dozens of strategically timed limit orders that caused a temporary uptick in the price of the stock, particularly toward the end of each month so that he could "mark the close" of the Affinity Gold stock price.  According to the complaint, this had the effect of artificially propping up the fund's value.

The SEC further alleges that, after manipulating the stock and inflating the fund's value, Nordlund continued to sell shares of the fund to new investors, but did not disclose to prospective investors that the fund's performance figures were artificially inflated as a result of his manipulation of Affinity Gold stock.  Because the value of the fund was inflated, the shares of the fund sold at this time were also allegedly inflated in value.  According to the complaint, Nordlund's compensation was similarly inflated because it was based on the fund's total asset value.

An SEC Order charged Deloitte Touche Tohmatsu Certified Public Accountants LLP ("Deloitte-China")
https://www.sec.gov/litigation/admin/2022/34-95938.pdf with asking clients to select their own samples for testing and to prepare audit documentation purporting to show that Deloitte-China had obtained and assessed the supporting evidence for certain clients' accounting entries. Deloitte-China agreed to pay a $20 million penalty to settle the charges in the SEC Order and to undertake remedial measures. As alleged in part in the SEC Release:

The order finds that the misconduct involved both junior and senior audit team members and reflected a lack of audit supervision by audit partners. The order also finds that Deloitte-China failed to adhere to numerous PCAOB auditing standards, including due professional care of audit evidence, sampling, documentation, internal control over financial reporting, audit supervision, and quality control.

. . .

In addition to the financial penalty, the order censures Deloitte-China and requires the firm to complete a review and assessment of its policies and procedures by an independent consultant retained by Deloitte Touche Tohmatsu Limited ("Deloitte-Global"), a U.K. entity with which it is indirectly affiliated. The order further requires Deloitte-China to implement a plan to address deficiencies identified by the independent consultant that is approved and overseen by Deloitte-Global, and to subsequently undergo several additional annual reviews. The order also requires Deloitte-China to require additional training over three years for all of its audit professionals who serve U.S. public company audit clients.

https://www.sec.gov/litigation/litreleases/2022/lr25529.htm
In a Complaint filed in the United States District Court for the Eastern District of New York
https://www.sec.gov/litigation/complaints/2022/comp25529.pdf, the SEC charged Matthew Nicosia, William ("Rocky") Reninger, Fabrizio Di Carlo, and Ronald Touchard with violating 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. Additionally, Nicosia and Reininger were charged with violating the registration provisions of Section 5(a) and 5(c) of the Securities Act. As alleged in part in the SEC Release:

[F]rom August 2019 to at least September 2020, defendants Matthew Nicosia, William ("Rocky") Reninger, Fabrizio Di Carlo, and Ronald Touchard worked with others to fraudulently sell stock in microcap companies by making misleading statements during high pressure sales calls and/or email promotions. The SEC alleges that, as part of the scheme, Touchard introduced the other defendants to Di Carlo, who ran a boiler room that identified potential investors and pressured them to purchase stock in Odyssey Group International Inc. According to the complaint, Nicosia and Reininger were Odyssey insiders working with an individual previously charged by the SEC, Charlie Abujudeh, to dump Odyssey shares during the promotional campaigns they were funding. The SEC alleges that the promotions were deceptive and failed to disclose that Nicosia and Reininger were Odyssey insiders, controlled nearly all of the stock that was deposited and available for public trading, and were selling their Odyssey stock into the increased demand created by the promotions they were funding and controlling. According to the complaint, the defendants shared the profits from over $2.6 million in illicit stock sales. The SEC alleges that Nicosia and Reininger similarly funded the promotion of Scepter Holdings, Inc. stock and failed to make key disclosures to investors to whom they sold Scepter stock, making approximately $3.5 million in illicit proceeds. The SEC alleges that Nicosia perpetuated the same scheme with CannaPharmaRx, Inc. stock and made approximately $3.3 million in illicit stock sale proceeds.

https://www.sec.gov/news/press-release/2022-175
In a Complaint filed in the United States District Court for the Southern District of New York
https://www.sec.gov/litigation/complaints/2022/comp-pr2022-175.pdf, the SEC charged Hydrogen Technology Corporation and its former Chief Executive Officer Michael Ross Kane, and Moonwalkers Trading Limited's Chief Executive Officer Tyler Ostern with violating the registration, antifraud, and market manipulation provisions of the securities laws and seeks permanent injunctive relief, conduct-based injunctions, disgorgement with prejudgment interest, civil penalties, and, as to Kane, an officer and director bar.  Without admitting or denying the allegations, Ostern consented to a judgment permanently enjoining him from violating these provisions and participating in future securities offerings and ordering him to pay $36,750 in disgorgement and prejudgment interest of $5,118, with civil monetary penalties to be determined at a later date by the court; and, further, he agreed to an administrative order imposing a collateral industry bar and penny stock bar. As alleged in part in the SEC Release:

[S]tarting in January 2018, Kane and Hydrogen, a New York-based financial technology company, created its Hydro token and then publicly distributed the token through various methods:  an "airdrop," which is essentially giving away Hydro to the public; bounty programs, which paid the token to individuals in exchange for promoting it; employee compensation; and direct sales on crypto asset trading platforms.  The complaint further alleges that, after distributing the token in those ways, Kane and Hydrogen hired Moonwalkers, a South Africa-based firm, in October 2018, to create the false appearance of robust market activity for Hydro through the use of its customized trading software or "bot" and then selling Hydro into that artificially inflated market for profit on Hydrogen's behalf.  Hydrogen allegedly reaped profits of more than $2 million as a result of the defendants' conduct.

Without admitting or denying the allegations in an SEC Complaint filed in the United States District Court for the Western District of Michigan, Joshua Rupp consented to the entry of the final judgment permanently enjoining him from violating the antifraud provisions of Section 17(a) of the Securities Act, Section 10(b) of the Securities Exchange Act, and Rule 10b-5 thereunder, as well as the broker-dealer registration requirements of Section 15(a) of the Exchange Act; and ordering him to pay $603,671 in disgorgement and prejudgment interest (satisfied by an order of restitution entered in a parallel criminal case). Further, Rupp consented to entry of an SEC Order barring him from association with any broker, dealer, investment adviser, municipal securities dealer, municipal advisor, transfer agent, or national recognized statistical rating organization; and from participating in any offering of a penny stock. As alleged in part in the SEC Release:

Rupp engaged in a fraudulent investment scheme that raised over $2 million dollars from approximately 20 investors. The complaint alleged that Rupp made misstatements to investors and used fake documents purporting to show he was associated with a licensed broker dealer when he was not. The complaint also alleged that Rupp misappropriated investor funds.

In a Complaint filed in the United States District Court for the Middle District of Florida, the SEC charged Jared D. Eakes with violating the antifraud provisions of Sections 17(a)(1) and (3) of the Securities Act, Section 10(b) of the Securities Exchange Act and Rules 10b-5(a) and (c) thereunder, and Sections 206(1) and 206(2) of the Investment Advisers Act of 1940; and, further charged James Blake Daughtry with violating Section 206(2) of the Advisers Act. As alleged in part in the SEC Release:

According to the SEC's complaint, Eakes formed GraySail in 2018 to purchase Daughtry's Dothan, Alabama-based advisory business and to acquire additional clients from an Arkansas-based broker-dealer. Those acquisitions gave GraySail approximately 47 clients and $8.6 million in assets under management. The complaint states that Eakes misappropriated approximately $2.6 million from those clients and used the proceeds to, among other things, engage in unprofitable trading in his personal brokerage accounts, pay off business and personal loans, including his own student loans, and pay $116,000 to a Las Vegas casino. The complaint also alleges that, although Daughtry was unaware of Eakes' fraud, he breached the fiduciary duties he owed to his clients by failing to disclose that he had sold all of his client accounts to GraySail in exchange for substantial compensation, and by failing to act in his clients' best interests when he was presented with client complaints and other red flags regarding Eakes' conduct.
https://www.sec.gov/litigation/litreleases/2022/lr25530.htm
The United States District Court for the Southern District of New York entered a Final Consent Judgment against International Investment Group's  ("IIG's") Co-Founder/Chief Investment Officer David Hu enjoining Hu from violating the antifraud provisions of the federal securities laws; and ordering him to pay  in disgorgement plus prejudgment interest of $461,477 (disgorgement shall be satisfied by the restitution order entered against Hu in the parallel criminal proceeding, where Hu pled guilty). As alleged in part in the SEC Release:

[F]rom October 2013, Hu orchestrated multiple frauds on IIG's investment advisory clients. As alleged, Hu grossly overvalued the assets in IIG's flagship hedge fund, resulting in the fund paying inflated fees to IIG, some of which went to Hu personally.  In addition, through IIG, Hu allegedly sold at least $60 million in fake trade finance loans to other investors and used the proceeds to pay the redemption requests of earlier investors and other liabilities. The complaint alleges that Hu deceived IIG clients into purchasing the purported trade finance loans by directing others at IIG to create and provide to the clients fake loan documentation to substantiate the non-existent loans, including fake promissory notes and a forged credit agreement.

SEC Charges Issuer for Conducting Fraudulent and Unregistered Securities Offerings (SEC Release)
https://www.sec.gov/litigation/litreleases/2022/lr25531.htm
https://www.sec.gov/litigation/complaints/2022/comp25531.pdf, the SEC charged Pebblekick, Inc. and its Founder/former Chief Executive Officer Donald Shiroishi with violating the registration and antifraud provisions of Sections 5 and 17(a) of the Securities Act and Section 10(b) of the Securities Exchange Act and Rule 10b-5 thereunder. Also, Nancy Williams was charged with violating Section 5 of the Securities Act and Section 15(a)(1) of the Exchange Act. As alleged in part in the SEC Release:

[F]rom at least January 2018 through March 2021, Pebblekick, which is in the business of providing streaming entertainment to residents of institutions, including prisons, raised over $17 million from equity and promissory note investors. The complaint alleges that Shiroishi represented that the purpose of the notes was to finance the acquisition of intellectual property that Pebblekick would use in its business. Instead, according to the complaint, Shiroishi misappropriated a substantial amount of investor funds to pay putative returns and principal on earlier investments. The SEC also alleges that Pebblekick did not register its offers or sales of securities with the Commission. In addition, the SEC's complaint alleges that Nancy Williams illegally acted as an unregistered broker in selling Pebblekick securities to investors.

SEC Obtains Judgments and Bar Against Former Hedge Fund CEO Related to Hedge Fund Valuation Scheme (SEC Release)
https://www.sec.gov/litigation/litreleases/2022/lr25532.htm
The United States District Court for the Southern District of New York entered a Final Judgment on Consent against Premium Point Investments LP and its Chief Executive Officer/Chief Investment Officer Anilesh Ahuja https://www.sec.gov/litigation/litreleases/2022/lr25532.htm permanently enjoining them from violating the antifraud provisions of Section 10(b) of the Securities Exchange Act and Rules 10b-5(a) and (c) thereunder, Sections 17(a)(1) and (3) of the Securities Act, and Sections 206(1), (2), and (4) of the Investment Advisers Act of 1940, Rule 206(4)-8(a)(2) thereunder; and, further, permanently enjoining Premium Point from violating Advisers Act Section 206(4) and Rule 206(4)-2 thereunder; and, finally, ordering Ahuja to pay a civil penalty of $450,000. The SEC barred Ahuja from association with any investment adviser, broker, dealer, municipal securities dealer, municipal advisor, transfer agent, or nationally recognized statistical rating organization. As alleged in part in the SEC Release:

[T]he fraudulent valuation scheme ran from at least September 2015 through March 2016 and relied on a secret deal where in exchange for sending trades to a broker-dealer, Premium Point received inflated broker quotes for mortgage-backed securities. In addition, the defendants used "imputed" mid-point valuations, which were applied in a manner that further inflated the value of securities. This practice boosted the value of many of Premium Point's holdings and further exaggerated returns in order to conceal poor fund performance and attract and retain investors.

SEC Charges Fourth Participant in Market Manipulation Scheme (SEC Release)
https://www.sec.gov/litigation/litreleases/2022/lr25528.htm
In a Complaint filed in the United States District Court for the Northern District of
https://www.sec.gov/litigation/complaints/2022/comp25528.pdf, the SEC charged Charles Parrino with violating 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. Parrino consented to the entry of a judgment permanently enjoining him from violating the charged provisions and requiring him to pay disgorgement of $982,690, plus prejudgment interest, and a civil penalty. Parrino pled guilty in a parallel criminal proceeding. As alleged in part in the SEC Release [Ed: Barton Ross, Mark Melnick, and Anthony Salandra]:

[P]arrino, Ross, and Salandra created false rumors about purported market-moving events, such as corporate mergers or acquisitions, involving publicly-traded companies. As alleged, the false rumors were then shared with Melnick and another individual who disseminated the false rumors through real-time financial news services, financial chat rooms, and message boards, causing the prices of the subject companies' securities to rise temporarily. Between December 2017 and January 2020, Parrino allegedly was involved in the creation of and traded around at least 138 false rumors, generating over $982,000 in illicit profits. The other scheme participants also allegedly traded around the false rumors, generating significant profits.

https://www.cftc.gov/PressRoom/PressReleases/8601-22
A CFTC Order filed and settled charges against registered swap execution facility ("SEF") tpSEF, Inc. for its failure to comply with the CFTC 15-second delay requirement for certain required transactions on a SEF order book. https://www.cftc.gov/media/7786/enftpseforder092922/download  The CFTC Order requires tpSEF to cease and desist from violating the CFTC time delay regulation, pay a $850,000 civil monetary penalty, and to comply with various remedial undertakings. As alleged in part in the CFTC Release:

The order finds that tpSEF provides execution services across a full range of asset classes, including interest rate swaps and credit default swaps. The majority of swaps executed on tpSEF involve transactions in which a broker or dealer executes two customers' orders against each other.  According to the order, from October 2016 to July 2020, tpSEF permitted execution of 301 swap transactions that did not comply with the requirement of a 15-second delay between the entry of each side of the transaction as required under CFTC regulations and tpSEF's rulebook. As a self-regulatory organization, tpSEF has oversight obligations for conduct on the SEF and is required to enforce its rules. tpSEF, however, failed to enforce compliance with the CFTC's regulation as well as its own rule in connection with the requirement that orders for these required transactions be subject to at least a 15-second delay. 
The order finds that from December 1, 2016 to September 1, 2019, ADMIS, a registered FCM, failed to diligently supervise the handling by its employees and agents of commodity interest accounts carried by ADMIS and introduced by ADMIS' Guaranteed Introducing Brokers (GIBs), as well as the activities of its employees and agents relating to its business as a registered FCM. The order finds that prior to Spring 2018, ADMIS' account review policies and procedures were inadequate because they failed to provide adequate guidance regarding account changes requests submitted by individual brokers. The order further finds that ADMIS failed to perform its supervisory duties diligently because it failed to detect repeated incidents in which brokers employed by ADMIS or ADMIS' GIBs executed improper or fictitious trade transfer requests that violated the CEA and CFTC regulations. Through these transfers, which collectively persisted for several years, the brokers executed trades and then submitted improper or fictitious trade transfer requests to allocate winning trades to preferred customers or to accounts that they controlled or managed, while allocating losing trades to other accounts they controlled or managed.  

https://www.finra.org/sites/default/files/2022-09/Regulatory-Notice-22-20.pdf
Effective immediately, the NAC revised FINRA's Sanction Guidelines as set forth in part in the Notice:
  • split each current guideline into separate guidelines for individuals and firms; 
  • create separate fine ranges for small and mid-size or large-size firms; 
  • remove the upper limit of the fine ranges for mid-size and large-size firms for select guidelines; 
  • create Anti-Money Laundering guidelines; 
  • add additional discussion of non-monetary sanctions for firms; 
  • introduce single fine ranges for all actions in the Quality of Markets guidelines and other select guidelines; 
  • establish $5,000 as the minimum low end for all firm fine ranges; and 
  • delete select guidelines. 
https://www.finra.org/sites/default/files/fda_documents/2018056929901
%20Morgan%20Stanley%20%26%20Co.%2C%20LLC%2C%20CRD%208209
%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, Morgan Stanley & Co. LLC submitted a Letter of Acceptance, Waiver and Consent ("AWC"), which FINRA accepted. The AWC asserts that Morgan Stanley & Co. LLC has been a FINRA Member Firm since 1970 with about 4,400 registered representatives at 37 branches. In accordance with the terms of the AWC, FINRA imposed upon Morgan Stanley a Censure and $120,298 fine (resolved with other matters for a total fine of $500,000) As asserted in the "Overview" portion of the AWC:

Between July 2017 and March 2021, Morgan Stanley & Co. LLC violated FINRA Rules 5190 and 2010 by filing inaccurate, filing untimely, or failing to file approximately 205 required notifications to FINRA in connection with its participation in distributions of securities. Morgan Stanley & Co. LLC also violated FINRA Rules 3110 and 2010 by failing to establish and maintain a system to supervise, including written supervisory procedures, reasonably designed to achieve compliance with FINRA's Regulation M related notification rules. Morgan Stanley & Co. LLC consents to a censure, and a fine of $120,298 (resolved simultaneously with similar matters for a total fine of $500,000).1
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Footnote 1:  Those matters were brought by New York Stock Exchange LLC, NYSE Arca, Inc., NYSE American LLC, NYSE National, Inc., NYSE Chicago, Inc., and The Nasdaq Stock Market LLC. 

https://www.finra.org/sites/default/files/fda_documents/2021071205501
%20Nickolay%20V.%20Kukekov%20CRD%204981423%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, Nickolay V. Kukekov submitted a Letter of Acceptance, Waiver and Consent ("AWC"), which FINRA accepted. The AWC asserts that Nickolay V. Kukekov was first registered in 2006 with Paulson Investment Company LLC. In accordance with the terms of the AWC, FINRA imposed upon Kukekov a $5,000 fine and a 30-calendar-day suspension from associating with any FINRA member in all capacities.. As alleged in part in the AWC:

First, while registered through Paulson, Kukekov engaged in business activities that were outside the scope of his relationship with Paulson through a publicly traded company that develops stem cell therapies. In particular, Kukekov, who holds a Ph.D. in neuroscience, began serving as a director of Company A in March 2021. Kukekov did not provide prior written notice to Paulson that he would be serving as a director of Company A and, in fact, Kukekov did not provide any notice until Paulson discovered that he was serving as a director of Company A through a review of Kukekov's email in April 2021. Thereafter, Kukekov requested approval of the outside business activity, which Paulson granted in April 2021. 

Kukekov engaged in an outside business activity through a company developing treatments for a degenerative brain disease (Company B). Specifically, beginning in April 2021, Kukekov informed prospective investors of Company B that he had accepted a transitional role as Company B's chief executive officer, a position that Company B later formalized. Kukekov did not provide Paulson with prior written notice of his participation in business activities through Company B. In late April 2021, Paulson discovered Kukekov's participation in outside business activities through Company B and discharged him. 

Therefore, Kukekov violated FINRA Rules 3270 and 2010. 

https://www.finra.org/sites/default/files/aao_documents/21-01193.pdf
In a FINRA Arbitration Statement of Claim filed in May 2021, public customer  Claimant Fraser asserted breach of fiduciary duty; constructive fraud; fraud by misrepresentation and omission; negligent misrepresentation; breach of written contract; failure to supervise and control; and violation of state and federal securities laws, FINRA rules of fair practice and NYSE rules. Claimant Fraser sought at least $3,604,00 in compensatory, punitive damages, interest, fees, and costs. Respondent Interactive Brokers generally denied the allegations and asserted affirmative defenses. As characterized in the FINRA Arbitration Award: "The causes of action relate to Claimant's purchase of January 15, 2021, OILD 45 put options in Claimant's account on Respondent's electronic trading platform." The FINRA Arbitration Panel found Respondent Interactive Brokers liable and ordered it to pay to Claimant Fraser $180,076.67 in compensatory damages plus interest on the sum of $200,084.96; $72,030.58 in attorneys' fees; and $625 in filing fees. 

= = =
9/28/2022

https://www.brokeandbroker.com/6685/sec-disqualification-waiver/
Shamefully, the SEC Release fails to disclose that all Respondents were granted a Disqualification Waiver -- and even more despicably, that term is never used in the public disclosure. Even more disgraceful is how the SEC sanitized the waiver by citing it in the release as a "SEC Order - Certain Broker Dealer Practices." Certain Broker Dealer Practices? That's how the SEC describes an Order granting a Disqualification Waiver? UPDATE: September 29, 2022 In apparent response to the criticism in this article, the SEC deleted the reference at the very bottom of the extensive column on the right side of the SEC Release https://www.sec.gov/news/press-release/2022-174. The deleted reference was to "SEC Order - Certain Broker Dealer Practices" [which had the embedded link to: https://www.sec.gov/rules/other/2022/33-11109.pdf]. The link remains as a standalone under the sec.gov page heading "Other Commission Orders, Notices, and Information'' https://www.sec.gov/rules/other.htm; however, the document's title has been revised to "33-11109  Sep. 27, 2022 Certain Broker-Dealer Practices (Waiver Order)."

-and-

The SEC charged 15 broker-dealers with violating certain recordkeeping provisions of the Securities Exchange Act  and with failing reasonably to supervise with a view to preventing and detecting those violations. Additionally, the SEC charged affiliated advisor DWS Investment Management Americas, Inc. with violating certain recordkeeping provisions of the Investment Advisers of 1940 and with failing reasonably to supervise with a view to preventing and detecting those violations.

As alleged in part in the SEC Release:

The SEC staff's investigation uncovered pervasive off-channel communications. The firms cooperated with the investigation by gathering communications from the personal devices of a sample of the firms' personnel. These personnel included senior and junior investment bankers and debt and equity traders.

From January 2018 through September 2021, the firms' employees routinely communicated about business matters using text messaging applications on their personal devices. The firms did not maintain or preserve the substantial majority of these off-channel communications, in violation of the federal securities laws. By failing to maintain and preserve required records relating to their businesses, the firms' actions likely deprived the Commission of these off-channel communications in various Commission investigations. The failings occurred across all of the 16 firms and involved employees at multiple levels of authority, including supervisors and senior executives. 

The following eight firms (and five affiliates) have agreed to pay penalties of $125 million each:
  • Barclays Capital Inc.;
  • BofA Securities Inc. together with Merrill Lynch, Pierce, Fenner & Smith Inc.;
  • Citigroup Global Markets Inc.;
  • Credit Suisse Securities (USA) LLC;
  • Deutsche Bank Securities Inc. together with DWS Distributors Inc. and DWS Investment Management Americas, Inc.;
  • Goldman Sachs & Co. LLC;
  • Morgan Stanley & Co. LLC together with Morgan Stanley Smith Barney LLC; and
  • UBS Securities LLC together with UBS Financial Services Inc.
Two firms agreed to pay penalties of $50 million each:
  • Jefferies LLC; and
  • Nomura Securities International, Inc.
Cantor Fitzgerald & Co. has agreed to pay a $10 million penalty.

READ the SEC Orders: 

At the very bottom of an extensive column on the right side of the SEC Release is this last item: 

Somewhat of an odd, stilted title, no? If you click on the link, this is how the SEC Order is actually described:

UNITED STATES OF AMERICA 
Before the
SECURITIES AND EXCHANGE COMMISSION


SECURITIES ACT OF 1933
Release No. 11109 / September 27, 2022

In the Matter of
Certain Broker-Dealer Practices, Respondents.

ORDER UNDER RULES 262(b)(2), 506(d)(2)(ii), AND 602(e) OF THE SECURITIES ACT OF 1933 AND RULE 503(b)(2) OF REGULATION CROWDFUNDING GRANTING WAIVERS OF THE DISQUALIFICATION PROVISIONS OF RULES 262(a)(4), 506(d)(1)(iv), AND 602(c)(3) OF THE SECURITIES ACT OF 1933 AND RULE 503(a)(4)(ii) OF REGULATION CROWDFUNDING

As such, what the SEC Release tried to sanitize as SEC Order - Certain Broker Dealer Practices is, in fact, a Disqualification Waiver Order, which in pertinent part states:

The Commission has the authority to waive the disqualifications of Regulations A, D, E, and Crowdfunding upon a showing of good cause and without prejudice to any other action by the Commission, if the Commission determines that it is not necessary under the circumstances that an exemption be denied. See 17 CFR. §§ 230.262(b)(2), 230.506(d)(2)(ii), 230.602(e), and 227.503(b)(2).  

In light of the Firms' participation in the Broker-Dealer Off-Channel Communications Initiative, assuming the Firms comply with the terms of the Record-Keeping Orders, and in light of the benefits of the Broker-Dealer Off-Channel Communications Initiative, the Commission has determined that, pursuant to Rules 262(b)(2), 506(d)(2)(ii), and 602(e) of the Securities Act and Rule 503(b)(2) of Regulation Crowdfunding good cause exists for not denying the various exemptions from registration discussed herein.

IV.

Accordingly, IT IS ORDERED, pursuant to Rules 262(b)(2), 506(d)(2)(ii), and 602(e) of the Securities Act and Rule 503(b)(2) of Regulation Crowdfunding, that waivers from the application of the disqualification provisions of Rules 262(a)(4)(ii), 506(d)(1)(iv)(B), and 602(c)(3) of the Securities Act and Rule 503(a)(4)(ii) of Regulation Crowdfunding, resulting from the entry of the Record-Keeping Orders against the Firms are hereby granted to the Firms as reflected in the attached appendix. Nothing in this Order shall effect any pre-existing disqualification under the above provisions and nothing in this Order shall be interpreted to waive or limit any conditions or undertakings which are in place as a result of any prior waiver granted to any Firm. Failure to comply with terms of a Record-Keeping Order would require us to revisit our determination that good cause has been shown and could constitute grounds to revoke or further condition the waiver. The Commission reserves the right, in its sole discretion, to revoke or further condition the waiver under these circumstances.

Separately, the CFTC filed its own actions citing the same underlying unapproved communications. The CFTC Release asserts in part that: 

The settling swap dealers and FCMs and their civil monetary penalties are:

  • Bank of America (Bank of America, N.A.; BofA Securities, Inc.; and Merrill Lynch, Pierce, Fenner & Smith Incorporated (which was registered as an FCM until May 2019 and is currently registered as an introducing broker)), $100 million
  • Barclays (Barclays Bank, PLC and Barclays Capital Inc.), $75 million
  • Cantor Fitzgerald (Cantor Fitzgerald & Co.), $6 million
  • Citi (Citibank, N.A.; Citigroup Energy Inc.; and Citigroup Global Markets Inc.), $75 million
  • Credit Suisse (Credit Suisse International and Credit Suisse Securities (USA) LLC), $75 million
  • Deutsche Bank (Deutsche Bank AG and Deutsche Bank Securities Inc.), $75 million
  • Goldman Sachs (Goldman Sachs & Co. LLC f/k/a Goldman Sachs & Co.), $75 million
  • Jefferies (Jefferies Financial Services, Inc. and Jefferies LLC), $30 million
  • Morgan Stanley (Morgan Stanley & Co. LLC; Morgan Stanley Capital Services LLC; Morgan Stanley Capital Group Inc.; and Morgan Stanley Bank, N.A.), $75 million
  • Nomura (Nomura Global Financial Products Inc.; Nomura Securities International, Inc.; and Nomura International PLC), $50 million
  • UBS (UBS AG; UBS Financial Services, Inc.; and UBS Securities LLC), $75 million
I vote to approve the Commodity Futures Trading Commission's ("CFTC") enforcement actions that hold 11 Wall Street banks and other financial institutions accountable for senior executives, traders, and other employees' widespread use of unauthorized communications methods - like encrypted messaging apps and private emails and texts - to avoid creating records and evade regulatory and bank oversight.[1]  These cases shut down and bring transparency and public accountability to Wall Street's pervasive and evasive bank practices that jeopardize market integrity and violate the law.  The CFTC is requiring all defendants to admit wrongdoing,[2] pay historically high penalties for recordkeeping violations of the law (a combined $1.8 billion between CFTC and parallel Securities and Exchange Commission ("SEC") cases), and fix internal policies and practices to ensure that both U.S. regulators and bank executives can prevent, detect, and correct unauthorized illegal communications.[3]

By bringing these cases at the same time, and in parallel with the SEC, the Commission is sending a strong message to all that we regulate that we will not tolerate efforts to evade our regulatory oversight - oversight that these entities signed up for when they registered with the Commission.

Wall Street institutions do not get to keep regulators in the dark while enjoying all of the benefits of being a regulated entity in U.S. financial markets.  Those choosing to participate in U.S. financial markets are on notice - The era of evasive communications practices is over.  The CFTC will hold you accountable.

It's time for Wall Street to stop waiting for an enforcement action before it changes its practices.  Tone at the top must change on Wall Street.  Change can only happen if the banks' C-suite establishes a culture of compliance over evasion."

 - Commissioner Christy Goldsmith Romero

The illegal conduct impeded the CFTC's ability to oversee markets and ensure compliance with laws that protect investors, promote market integrity, and serve other public interests.  The illegal conduct also impeded the banks' ability to supervise their employees and ensure that bank practices matched internal bank policies prohibiting these communication methods.  The CFTC found significant unauthorized communication practices at the direction of senior executives, who knew they were violating bank policies but wanted to obfuscate communications surrounding trading.[4]  The conduct found serves as a red flag about Wall Street's culture.

I.                The widespread evasive use of unauthorized communications undermines law enforcement.

The CFTC is sending a zero-tolerance message that we will not allow Wall Street to undermine our law enforcement by obfuscating or deleting communications surrounding trading.  As the CFTC was conducting important investigations related to market integrity, we found evidence that communications were moved offline to unauthorized communication methods going years back.

In one example, Bank of America employees used WhatsApp, with one trader writing, "We use WhatsApp all the time but we delete convos regularly." The head of a trading desk routinely directed traders to delete messages on personal devices and to use Signal, including during the CFTC's investigation.  In another example, the CFTC found evidence of offline communications at Nomura, and Nomura traders then took efforts to obstruct the investigation.  A trader deleted messages including WhatsApp after the CFTC sent a request to preserve documents.  The deleted messages included incriminating statements about trading. 

Disturbingly, in several instances, when the CFTC brought this illegal conduct to the bank's attention, it was not taken seriously, and there were efforts to obstruct CFTC law enforcement.

II.              Wall Street serves as the first line of defense against insider trading, market manipulation and other illegal behavior that undermines market integrity, which they cannot fulfill when they don't have a "tone at the top" to stop the practice of using self-deleting, self-managed encrypted messaging apps that violate their own policies that implemented the law. 

Wall Street financial institutions serve as the first line of defense for market integrity through policies and supervision designed to follow the law.  When this breaks down, market integrity is on the line.  A common theme among the cases is that tens of thousands of communications were intentionally meant to keep the bank's internal compliance and regulators in the dark.  Many private communications channels are encrypted end-to-end and leave no recoverable record for the bank's supervision. 

Another common theme is that the CFTC found senior executives - the very people responsible for keeping a bank's house in order - who directed employees to use unauthorized communications channels and delete messages.  Some executives even lied to the CFTC and SEC. 

III.            A broader message

It's time for Wall Street to stop waiting for an enforcement action before they change their practices.  The illegality that the CFTC found was disturbingly widespread, evasive, directed or sanctioned by senior bank executives, and a clear violation of the law and internal bank policies.  It was well known within these banks that their internal policies were being flagrantly violated in practice.  But no one stopped it.  In the future as more time passes from these enforcement actions, and as there is adoption of new technologies and evolving means of private communication, I am concerned that there again will be a temptation for some to evade regulatory requirements and keep the CFTC in the dark.

Tone at the top dictates a bank's culture and that tone must change on Wall Street.  The tone at the top the CFTC found was one of evasion and obfuscation, to keep bank compliance and regulators in the dark.  Change can only happen if the bank's C-suite establishes a culture of compliance over evasion.  It is far past time for the C-suite to step up.

[1] The 11 defendants are commonly known as Bank of America, Barclays, Cantor Fitzgerald, Credit Suisse, Deutsche Bank, Goldman Sachs, Jefferies, Morgan Stanley, Nomura, UBS, and Citibank.

[2] I recently called for more defendant admissions in CFTC settlements.  See Statement by Commissioner Christy Goldsmith Romero: Proposal for Heightened Enforcement Accountability and Transparency in Settlements (Sept. 19, 2022), available at https://www.cftc.gov/PressRoom/SpeechesTestimony/romerostatement091922.

[3] The CFTC's penalties are substantial-$711 million across the 11 banks-and supplement SEC penalties of similar magnitude, bringing total penalties to more than $1.8 billion.  The fines individually dwarf the next largest penalties assessed for records-related violations.

[4] It is important to distinguish that the illegal conduct was not the occasional use of texting for convenience in the post-pandemic world.  In fact, much of the illegal conduct occurred pre-pandemic.

Bill Singer's Comment: The SEC took a victory lap by trumpeting its sanctions, for example:

In addition to the significant financial penalties, each of the firms was ordered to cease and desist from future violations of the relevant recordkeeping provisions and were censured. The firms also agreed to retain compliance consultants to, among other things, conduct comprehensive reviews of their policies and procedures relating to the retention of electronic communications found on personal devices and their respective frameworks for addressing non-compliance by their employees with those policies and procedures.

Shamefully, the SEC Release fails to disclose that all Respondents were granted a Disqualification Waiver -- and even more despicably, that term is never used in the public disclosure because the SEC sanitized the waiver by citing it in the release as an "SEC Order - Certain Broker Dealer Practices." Certain Broker Dealer Practices? That's how the SEC describes an Order granting a Disqualification Waiver? 

SIDE BAR: For a towering statement by a former SEC Commissioner on the SEC's history of routinely granting disqualification waivers, read: 

I dissent from the Commission's Orders, issued on May 20, 2015, that granted the following waivers from an array of disqualifications required by federal securities regulations:

1) UBS AG, Barclays Plc, Citigroup Inc., JPMorgan Chase & Co. ("JPMC"), and the Royal Bank of Scotland Group Plc ("RBSG"), waivers from the provisions under Commission rules that automatically make them ineligible for well-known seasoned issuer ("WKSI") status;

2) UBS AG, Barclays, and JPMC waivers from automatic disqualification provisions related to the safe harbor for forward-looking statements under Section 27A of the Securities Act and Section 21E of the Securities Exchange Act of 1934; and

3) UBS AG and three Barclays entities waivers from the automatic Bad Actor disqualification provided under Rule 506.
. . .

Allowing these institutions to continue business as usual, after multiple and serious regulatory and criminal violations, poses risks to investors and the American public that are being ignored.  It is not sufficient to look at each waiver request in a vacuum. 

. . .

It is troubling enough to consistently grant waivers for criminal misconduct.  It is an order of magnitude more troubling to refuse to enforce our own explicit requirements for such waivers.   This type of recidivism and repeated criminal misconduct should lead to revocations of prior waivers, not the granting of a whole new set of waivers.  We have the tools, and with the tools the responsibility, to empower those at the top of these institutions to create meaningful cultural shifts, yet we refuse to use them.

In conclusion, I am troubled by repeated instances of noncompliance at these global financial institutions, which may be indicative of a continuing culture that does not adequately support legal and ethical behavior.  Further, I am concerned that the latest series of actions has effectively rendered criminal convictions of financial institutions largely symbolic.  Firms and institutions increasingly rely on the Commission's repeated issuance of waivers to remove the consequences of a criminal conviction, consequences that may actually positively contribute to a firm's compliance and conduct going forward. . . .


I applaud CFTC Commissioner Romero's compelling statement. Unfortunately, absent from the her remarks is an acknowledgement that the SEC granted all of its Respondents a Disqualification Waiver in the very same breath that it rang up its regulatory cash register. To the extent the CFTC did not move in lock step with the SEC in granting waivers, bravo! That the fines imposed by CFTC "dwarf the next largest penalties," as the CFTC Commissioner notes in Footnote 3 ought not be taken for more than it is -- an admission that regulation has become somewhat sterile and tends to confuse fining miscreants for reforming their behavior. In reality, the fines will likely come out of the pockets of the shareholders of the public companies at issue rather than from those in the C-Suites or those responsible. As Commissioner Stein so aptly lamented, it's business as usual on Wall Street and at the industry's federal regulator. UPDATE: September 29, 2022 In apparent response to the criticism in this article, the SEC deleted the reference at the very bottom of the extensive column on the right side of the SEC Release https://www.sec.gov/news/press-release/2022-174. The deleted reference was to "SEC Order - Certain Broker Dealer Practices" [which had the embedded link to: https://www.sec.gov/rules/other/2022/33-11109.pdf]. The link remains as a standalone under the sec.gov page heading "Other Commission Orders, Notices, and Information'' https://www.sec.gov/rules/other.htm; however, the document's title has been revised to "33-11109  Sep. 27, 2022 Certain Broker-Dealer Practices (Waiver Order)."

https://www.sec.gov/litigation/litreleases/2022/lr25527.htm
https://www.sec.gov/litigation/complaints/2022/comp25527-gonzalez.pdf
https://www.sec.gov/litigation/complaints/2022/comp25527-mjfunding-taxes-garcia.pdf
As alleged in part in the SEC Release:

According to the SEC's complaint against Gonzalez, which was filed in the federal district court in the Southern District of Florida, from at least February 2021 until August 2021, Gonzalez acted as MJ Capital's loan "underwriter" and the person responsible for its merchant cash advance "Funding Department." The complaint alleges that Gonzalez made material misstatements and omissions to MJ Capital sales agents during a presentation on a video conference call. Specifically, as alleged, Gonzalez told the sales agents that MJ Capital made 30 to 50 merchant cash advance loans per month, the company had funded "hundreds" of loans to date, and almost all of the investor funds raised so far had been lent out to merchants. In reality, according to the complaint, of the $196 million raised from investors, MJ Capital only used about $895,000 of investor funds to make 13 cash advance loans to merchants, and during the entire time Gonzalez worked at MJ Capital, the company only made seven loans to merchants. The complaint alleges that Gonzalez knew his misstatements would be communicated to investors and, in fact, the video of the call was posted on YouTube for public viewing. The SEC's complaint also alleges that Gonzalez misused $200,000 in investor funds, which was earmarked to build a platform for underwriting MJ Capital's purported merchant cash advance loans, by failing to use this money to create the platform.

In a Complaint filed  in the United States District Court for Southern District of New York
https://www.sec.gov/litigation/complaints/2022/comp25525.pdf, the SEC charged former Helios & Matheson Analytics, Inc. ("HMNY") Chief Executive Officer Theodore J. Farnsworth and former MoviePass, Inc. Chief Executive Officer Mitchell Lowe with violating Section 17(a) of the Securities Act and Section 10(b) of the Securities Exchange Act  and Rule 10b-5 thereunder, and, further, charged, Lowe with aiding and abetting Farnsworth's and HMNY's violations of Section 17(a) of the Securities Act and Section 10(b) of the Exchange Act and Rule 10b-5 thereunder. Also, the Complaint charged Farnsworth, Lowe, and former MoviePass executive Khalid Itum with violating Section 13(b)(5) of the Exchange Act and Rules 13b2-1 and 13b2-2 thereunder and aiding and abetting HMNY's violations of Section 13(b)(2)(A) of the Exchange Act. As alleged in part in the SEC Release:

[B]etween August 2017 and at least March 2019, Farnsworth and Lowe intentionally and repeatedly made misstatements in HMNY Commission filings, press releases, and in the press that MoviePass could be profitable at its new, $9.95 per month subscription price; about HMNY's purported data analytics capabilities; and concerning HMNY's ability to fund MoviePass's operations. As further alleged in the complaint, Farnsworth and Lowe also devised fraudulent tactics to prevent MoviePass's subscribers from using the service. In addition, the complaint alleges that, between January and April 2018, Farnsworth and Lowe knowingly approved false invoices that Itum submitted to HMNY and MoviePass, disguising bonus payments as services purportedly provided by an entity Itum controlled.
The CFTC's notice alleges that Fintech and Friedland are subject to statutory disqualification from CFTC registration based on an order and permanent injunction entered by the U.S. District Court for the Middle District of Florida on March 24 (final order). [See CFTC Press Release No. 8510-22] The final order, as consented to by the respondents in a proposed consent order, permanently enjoined each respondent from acting as a CTA or AP thereof and in any other capacity requiring registration or exemption. 

The court also found and concluded that both respondents violated multiple antifraud provisions of the Commodity Exchange Act and CFTC regulations by adopting the parties' agreed findings of fact and conclusions of law in the parties' proposed consent order. 

The court's permanent injunction and findings constitute grounds for revoking the respondents' registrations.

https://www.finra.org/sites/default/files/fda_documents/2018058892501
%20Garden%20State%20Securities%2C%20Inc.%20CRD%2010083%20AWC%20lp.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, Garden State Securities, Inc. submitted a Letter of Acceptance, Waiver and Consent ("AWC"), which FINRA accepted. The AWC asserts that Garden State Securities, Inc. has been a FINRA Member Firm since 1981 with about 54 registered representatives at 11 branches. In accordance with the terms of the AWC, FINRA imposed upon Garden State Securities a Censure and $20,00 fine. As alleged in part in the AWC:

Garden State acted as the exclusive placement agent for an offering of securities in August and September 2017. The Rule 101 restricted period for that offering began on August 25, 2017, and continued until Garden State's distribution of the security completed on September 14, 2017. Garden State provided a private placement memorandum to prospective customers in connection with that offering on August 30, 2017, and informed such customers that they were restricted from trading in the issuer's securities in their Garden State accounts. Garden State also placed the issuer on the firm's restricted list, which prohibited the firm's registered representatives from soliciting purchases of the issuer's publicly traded shares. 

Garden State conducted two closings of the offering, on August 31, 2017 and September 7, 2017. After the second closing, the firm removed the issuer from the firm's restricted list. On September 11 and 12, 2017, a Garden State registered representative solicited a firm customer to purchase the issuer's stock in the open market. That customer purchased 5,000 shares of the issuer's stock on September 11, 2017, and an additional 5,000 shares on September 12, 2017, which were within the restricted period. 

On September 14, 2017, Garden State conducted a final closing of the private placement, which completed its participation in the distribution of the issuer's securities.

As a result of the foregoing, Garden State violated Rule IOI and FINRA Rule 2010. 

. . .

Garden State's WSPs specified that a restricted period lasted until the firm's "completion of participation in [a] distribution," and the firm maintained a restricted list of securities for which the firm's registered representatives were prohibited from soliciting purchases during restricted periods. However, Garden State did not have a system for tracking when a restricted period ended for offerings in which the firm participated. The firm also did not have a system for verifying whether it was appropriate to remove a security from the firm's restricted list. 

As a result of the foregoing, Garden State violated FINRA Rules 3110 and 2010. 

Bill Singer's Comment: The AWC amounts to nothing more than garbage regulation that looks more like a toll-booth on Wall Street than a sincere effort to protect the investing public. Pointedly, over five years ago in 2017, Garden State appears to have screwed up. I'm not going to spin that or excuse the firm's misconduct. The FINRA member firm failed to comply with the applicable rules and regulations; on the other hand, FINRA sure as hell seems asleep at the old regulatory switch -- I mean, seriously, the self-regulatory-organization is censuring and fining a member firm for something that happened half-a-decade ago? Sure, FINRA has the power to impose sanctions and, notably, Garden State was happy to settle the charges via an AWC. So, no, I ain't gonna second guess the member firm's decision. I respect the business decision to settle, and to do so for what is a relative pittance. That being said, c'mon FINRA, get your act together. This settlement accomplishes nothing other than putting a few bucks in the till. You could have imposed just a Censure (as meaningless as that is) for all the good your too-late bit of regulating accomplished.

https://www.finra.org/sites/default/files/fda_documents/2019061872201
%20Wedbush%20Securities%2C%20Inc.%20CRD%20877%20AWC%20lp.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, Wedbush Securities, Inc. submitted a Letter of Acceptance, Waiver and Consent ("AWC"), which FINRA accepted. The AWC asserts that Wedbush Securities, Inc. has been a FINRA Member Firm since 1955 with about 530 registered representatives at 69 branches. As asserted in the AWC:

In September 2017, FINRA entered into an AWC with the firm (No. 2011030598001) imposing a fine of $470,000, including for certain violations similar to those under review in this matter. The 2017 AWC stated that during various review periods between April 1, 2010 and June 28, 2013, the firm failed to timely close out 171 fail-to-deliver positions, in violation of Regulation SHO Rule 204, and it violated NASD Rule 3010 and FINRA Rule 2010 by failing to establish and maintain a supervisory system reasonably designed to achieve compliance with Rule 204(a)

In accordance with the terms of the AWC, FINRA imposed upon Wedbush a Censure, a $900,00 fine ($450,000 to FINRA) and an undertaking to certify compliance with the cited rule/regulation. As alleged in part in the AWC under the heading "Overview":

During the periods of January 1, 2016 through July 31, 2020 and December 9, 2020 through April 7, 2021, Wedbush Securities, Inc. violated Regulation SHO Rules 204(a), (b), and (c) and FINRA Rule 2010 by failing to timely close out approximately 2,056 fail-to-deliver positions as required by Rule 204(a), and, on approximately 390 occasions failing to place securities in the "penalty box" as required by Rule 204(b) and failing to comply with the notice requirement of Rule 204(c). During the relevant periods, the firm further violated FINRA Rules 3110 and 2010 by failing to establish and maintain a supervisory system, including written supervisory procedures, reasonably designed to achieve compliance with Regulation SHO Rules 204(a) and (c). 

Bill Singer's Comment: Another AWC that amounts to nothing more than garbage regulation that looks more like a toll-booth on Wall Street than a sincere effort to protect the investing public. Pointedly, over five years ago in 2016, Wedbush appears to have screwed up. And the firm's non-compliance apparently persisted through 2020, and then the firm seems to have become compliant between August 1, 2020, and December 8, 2020, but, alas, things again went awry from December 9, 2020 through April 7, 2021. I'm not going to spin that or excuse the firm's misconduct. The FINRA member firm failed to comply with the applicable rules and regulations; on the other hand, FINRA sure as hell seems asleep at the old regulatory switch -- I mean, seriously, the self-regulatory-organization is censuring and fining a member firm for something that happened as far back as six years ago? Sure, FINRA has the power to impose sanctions and, notably, Wedbush was happy to settle the charges via an AWC. So, no, I ain't gonna second guess the member firm's decision. I respect the business decision to settle. That being said, c'mon FINRA, get your act together. This settlement accomplishes nothing other than putting a few bucks in the till. You could have just imposed a Censure (as meaningless as that is) for all the good your too-late bit of regulating accomplished.

https://www.finra.org/sites/default/files/fda_documents/2018057298702
%20Michael%20G.%20Seymour%20CRD%206726842%20AWC%20lp.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, Michael G. Seymour submitted a Letter of Acceptance, Waiver and Consent ("AWC"), which FINRA accepted. The AWC asserts that Michael G. Seymour has registered since 1987 and by July 2016, he was registered with Centaurus Financial, Inc.. In accordance with the terms of the AWC, FINRA imposed upon Michael G. Seymour a $10,000 fine, a one-month suspension from associating with any FINRA member in all Principal-Only capacities; and an undertaking to complete 20 hours of continuing education concerning supervisory responsibilities. As alleged in part in the AWC under the heading "Overview":

Between September 2016 and September 2018, Seymour failed to reasonably supervise a registered representative's (RR 1) recommendations and sales of Unit Investment Trusts (UITs) and alternative investments. Seymour, who was a branch manager and RR 1's direct supervisor, failed to review whether the UIT and alternative investment recommendations RR 1 made were suitable for RR l's customers. Seymour thereby violated FINRA Rules 3110 (a) and (b) and 2010.

Bill Singer's Comment: Another AWC that amounts to nothing more than garbage regulation that looks more like a toll-booth on Wall Street than a sincere effort to protect the investing public. Pointedly, over six years ago in 2016, Seymour appears to have screwed up. And his non-compliance apparently persisted through September 2018, which was over four years ago. I'm not going to spin that or excuse his misconduct. Seymour failed to comply with the applicable rules and regulations; on the other hand, FINRA sure as hell seems asleep at the old regulatory switch -- I mean, seriously, the self-regulatory-organization is fining and suspending a supervisor for something that happened as far back as six years ago? Sure, FINRA has the power to impose sanctions and, notably, Seymour was happy to settle the charges via an AWC. So, no, I ain't gonna second guess his decision. I respect the business decision to settle. That being said, c'mon FINRA, get your act together. This settlement accomplishes nothing other than putting a few bucks in the till. You could have just imposed a fine or just imposed a suspension for all the good your too-late bit of regulating accomplished..

= = =
9/27/2022

https://www.brokeandbroker.com/6684/johnston-mittman-citi-whistleblower/
Presented in today's blog is a mess that started with a 2010 FINRA Arbitration Award, then moved on to the filing of an SEC whistleblower claim, then got embroiled in a dispute over whether the ensuing $27 million SEC Whistleblower Award should be divided two ways, and then prompted a Petition against the SEC's rendering of the Award. On appeal, the federal circuit court's Opinion stated that the whistleblower presented "an argument so obtuse as to be insulting." Ouch! 

The United States District Court for the Eastern District of Pennsylvania entered Final Judgments  former investment banking analyst against Damilare Sonoiki and, and Mark Wayne Ramsey (a friend, roommate, and business partner of former professional football player Mychal Kendricks). As alleged in part in the SEC Release:

According to the SEC's complaint filed on August 29, 2018, Sonoiki tipped Kendricks confidential, nonpublic information about several upcoming corporate mergers. The complaint alleges that, by trading on this information in advance of the merger announcements, Kendricks made approximately $1.2 million in illegal profits. According to the SEC's complaint filed on May 21, 2019, Ramsey also participated in the insider trading scheme by obtaining material nonpublic information from Sonoiki concerning the corporate acquisition targets and placing illegal trades in Kendricks's trading account.

Sonoiki and Ramsey were both charged criminally by the U.S. Attorney's Office for the Eastern District of Pennsylvania. Sonoiki pleaded guilty to securities fraud and conspiracy to commit securities fraud and was sentenced to one month in prison, three years of supervised release, a fine of $5,000, and forfeiture of $10,000. Ramsey was convicted at trial of securities fraud and conspiracy to commit securities fraud. Ramsey was sentenced to 60 days in prison, three years of supervised release, and a fine of $5,000.

Sonoiki and Ramsey both consented to the entry of final judgments permanently enjoining them from violating the antifraud provisions of Sections 10(b) and 14(e) of the Securities Exchange Act of 1934 and Rules 10b-5 and 14e-3 thereunder and ordering Sonoiki to pay a civil penalty of $15,000.

Additionally, on September 19, 2022, the Commission entered an administrative order, upon consent, barring Sonoiki from association with any broker, dealer, investment adviser, municipal securities dealer, municipal advisor, transfer agent, or nationally recognized statistical rating organization, or from participating in any offering of a penny stock.


https://www.sec.gov/news/press-release/2022-173
Without admitting or denying the findings in an SEC Order
https://www.sec.gov/litigation/admin/2022/34-95913.pdf that it had violated provisions of the Foreign Corrupt Practices Act ("FCPA") when subsidiaries in Turkey, the United Arab Emirates ("UAE"), and India created and used slush funds to bribe foreign officials in return for business between 2016 and 2019, Oracle Corporation agreed to cease and desist from committing violations of the anti-bribery, books and records, and internal accounting controls provisions of the FCPA and to pay about an $8 million disgorgement and $15 million penalty. As alleged in part in the SEC Release:

[O]racle subsidiaries in Turkey and UAE also used the slush funds to pay for foreign officials to attend technology conferences in violation of Oracle policies and procedures. The order found that in some instances, employees of the Turkey subsidiary used these funds for the officials' families to accompany them on international conferences or take side trips to California.

The SEC previously sanctioned Oracle in connection with the creation of slush funds. In 2012, Oracle resolved charges relating to the creation of millions of dollars of side funds by Oracle India, which created the risk that those funds could be used for illicit purposes.

https://ag.ny.gov/press-release/2022/attorney-general-james-sues-cryptocurrency-platform-operating-illegally-and
After  a working group of state securities regulators conducted an investigation, state securities regulators of California, Kentucky, Maryland, New York, Oklahoma, South Carolina, Washington, and Vermont all filed their own administrative actions against Nexo Inc./Nexo Capital Inc. In a Complaint filed in the Supreme Court of the State of New York (New York County)|
https://ag.ny.gov/sites/default/files/2022.09.26_nexo_complaint_final.pdf, New York State Attorney General Letitia James charged Nexo with violating New York's Martin Act and New York Executive Law § 63(12). As alleged in part in the NYAG Release:

[N]exo promoted and sold securities in the form of an interest-bearing virtual currency account called the Earn Interest Product with promises of high returns for participating investors, while failing to register as a securities broker or dealer as required by state law. In addition, the lawsuit alleges that Nexo engaged in the unregistered purchase and sale of securities and commodities through its virtual currency trading platform called the Nexo Exchange, and misled investors by falsely representing that it was in compliance with applicable laws and regulations. Roughly 10,000 New Yorkers have accounts with Nexo.



https://www.justice.gov/usao-ndtx/pr/dallas-man-charged-26-million-real-estate-scam
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https://www.sec.gov/litigation/litreleases/2022/lr25523.htm

In an Indictment filed in the United States District Court for the Northern District of Texas, Timothy Lynch Barton, President of the real estate development firm JMJ and Chief Executive Officer of the real estate development firm Carnegie Development was charged with seven counts of wire fraud, one count of conspiracy to commit wire fraud, and one count of securities fraud. As alleged in part in the DOJ Release:

[B]arton allegedly traveled to Hangzhou, China to market real estate investment opportunities in Texas to Chinese investors.

During his presentations - which highlighted his supposed ties to U.S. politicians - Mr. Barton allegedly claimed that the properties in question were located in sought-after neighborhoods in the Dallas Fort Worth Metroplex. He introduced a builder, identified in court documents as S.W., who he claimed would purchase lots to build on to sell to future home buyers.

Mr. Barton allegedly promised investors annual interest payments for two years, followed by the return of their initial investment at the end of the second year. He allegedly claimed that the investors would contribute 80 percent of the funds necessary for the project, and he and others would contribute the remaining 20 percent.  Mr. Barton also allegedly represented that no commissions would be paid out of investor funds.

In loan agreements signed by the investors, Mr. Barton allegedly inflated the cost of each property by as much as 195 percent, and in some instances, never actually purchased the property.  Mr. Barton also allegedly paid interest payments to early investors with investor funds from later projects. 

Contrary to his loan agreements, Mr. Barton allegedly paid commissions out of investors' funds, and even funneled investors' money into unrelated projects. Still other funds were used to pay consultants or even to pay an unrelated company's AmEx bill.  According to the indictment, investors lost more than $26,000,000 to the scheme.

In a Complaint filed in the United States District Court for the Northern District of Texas
https://www.sec.gov/litigation/complaints/2022/comp25523.pdf, the SEC charged Barton and several companies he allegedly controls with violating the antifraud provisions of Section 17(a) of the Securities Act and Section 10(b) of the Securities Exchange Act and Rule 10b-5(b) thereunder. Additionally, the SEC charged Stephen T. Wall and Haoqian Fu a/k/a MIchael Fu with fraud under Sections 17(a)(1) and (3) of the Securities Act and Section 10(b) of the Exchange Act and Rules 10b-5(a) and (c); and, further, Fu was charged with violating the broker registration provision of Section 15(a) of the Exchange Act. As alleged in part in the SEC Release:

[B]arton partnered with home builder Stephen T. Wall and Haoqiang Fu a/k/a Michael Fu to entice investors - mostly Chinese nationals - into purchasing securities issued by limited liability companies the defendants controlled. Barton and Fu gave investors offering documents representing that their investments would only be used to purchase specific real estate parcels for residential development and would be fully repaid, with interest, in two years. But according to the complaint, none of this was true. Instead, the SEC alleges that the defendants misrepresented to investors that they were purchasing real estate at particular prices that were in fact as much as three times higher than what the defendants had already contracted to pay for the properties. The defendants also allegedly misappropriated nearly all investor funds for such undisclosed purposes as making Ponzi payments to other investors, purchasing real estate in the names of other Barton companies, paying sales commissions to Fu, and funding Barton's personal lifestyle, including a private aircraft purchase. According to the SEC, the properties were never developed and investors have not been repaid.

https://www.sec.gov/litigation/litreleases/2022/lr25522.htm
In a Complaint filed in the United States District Court for the Middle District of
https://www.sec.gov/litigation/complaints/2022/comp25522.pdf, the SEC charged brothers  Sang N. Phan and Rich N. Phan with violating Section 10(b) of the Securities Exchange Act and Rule 10b-5 thereunder. As alleged in part in the SEC Release:

[F]rom at least February 2021 to May 2021, the Phans used falsified brokerage account applications and bank accounts with minimal funds to induce two broker-dealers to provide instant deposit credits of more than $222,000 into four brokerage accounts controlled by one or both of them. The complaint also states that after deceiving the broker-dealers into providing credit in anticipation of the incoming deposits, the Phans made a series of online securities purchases with plans to withdraw their profits before their bogus bank deposits reversed. None of the Phans' trading was actually profitable, according to the complaint, as Sang Phan's trading resulted in losses of approximately $13,000, while all of Rich Phan's trading was cancelled by a broker-dealer that linked his trades to those of his brother.

https://www.cftc.gov/PressRoom/PressReleases/8596-22
https://www.cftc.gov/media/7706/enfassetriskorder092622/download and requiring ARM to pay a $200,000 civil monetary penalty and to cease and desist from any further violations of the Commodity Exchange Act and CFTC regulations, as charged. As alleged in part in the CFTC Release [Ed: Swap Execution Facility ("SEF"):

[F]rom approximately September 2017, ARM operated an unregistered SEF that provided clients the ability to execute swaps by accepting bids and offers made by multiple participants on a trading system or platform in various swap tenors and volumes. To communicate with clients and counterparties and execute the swaps, ARM used various means of interstate commerce including phone, instant messaging, and email.

During the relevant period, ARM often recommended that clients execute swap transactions in which the underlying commodity was natural gas, natural gas liquids, or crude oil. In a typical swap transaction, ARM received a request for swap pricing from a client and then submitted the pricing request (and sometimes other terms) to counterparties with whom the relevant client had an ISDA agreement. After potential swap counterparties responded to ARM with a proposed price, ARM, if authorized by the client, would approve or reject a price based on the client's pre-approved threshold, including by communicating "done" via chat or email. ARM would then separately confirm the swap execution with the client. If ARM did not have authority to execute the swap on behalf of the client, ARM would typically join the client on a phone call with the relevant counterparty, during which ARM's client would agree to the terms.

The CFTC issued an Order filing and settling charges against Quantum Financial Network, LLC and its Principal/Only-Employee Jason Gospodarek for their failure to register as an introducing broker, and against Gospodarek for his failure to register as an associated person of a commodity trading advisor. The CFTC Order requires Gospodarek and Quantum Financial to pay a $100,000 civil monetary penalty and $92,894.85 in disgorgement;  and further requires them to cease and desist from further CEA violations. As alleged in part in the CFTC Release

[F]rom July 2017 to January 2019, without being registered with the CFTC, Quantum Financial acted as an introducing broker on behalf of two overseas, leveraged foreign currency (forex) and leveraged precious metals trading platforms. The company introduced eight commodity pools comprised of more than 150 U.S. retail customers to the trading platforms, and received compensation from them. As its controlling person, Gospodarek is liable for those violations.

Additionally, the order finds that from July 2017 to January 2019, without being registered with the CFTC, Gospodarek acted as an associated person of a commodity trading advisor (CTA) by assisting the CTA in soliciting customers and engaging in the business of advising customers as to the advisability of trading in leveraged forex and leveraged precious metals through webinar appearances, videos, and responses to individual customer questions on behalf of the CTA. Gospodarek also identified and formulated leveraged forex and leveraged precious metals trading strategies that he promoted to customers using the same means.

In accepting the settlement offer from Gospodarek and Quantum Financial, the CFTC recognizes their substantial cooperation during the Division of Enforcement's investigation of this matter. 

https://www.finra.org/sites/default/files/aao_documents/21-00141.pdf
In a FINRA Arbitration Statement of Claim filed in January 2021, associated person Claimant Menou asserted gender-based discrimination in violation of the New York State and New York City Human Rights Laws; hostile work environment in violation of the New York State and New York City Human Rights Laws; retaliation in violation of the New York State and New York City Human Rights Laws; and intentional infliction of emotional distress. Claimant Menou sought $2.5 million in compensatory and punitive damages, interest, fees, and costs. Respondents generally denied the allegations and asserted affirmative defenses. The FINRA Arbitration Panel found Respondent Barclays Capital liable and ordered it to pay to Claimant Menou $65,000 in compensatory damages and $70,000 in attorneys' fees. The Panel denied Claimant's claims against Respondents Chaku and Huang.

= = =
9/26/2022

Sioux Falls Man Arrested for Role in Bank Fraud & Money Laundering Conspiracies (DOJ Release)
https://www.justice.gov/usao-sd/pr/sioux-falls-man-arrested-role-bank-fraud-money-laundering-conspiracies
In an Indictment filed in the United States District Court for the District of South Dakota, Cameron Terrill Hardiman was charged with conspiracy to commit bank fraud and conspiracy to launder monetary instruments. As alleged in part in the DOJ Release:

[I]n 2020 and continuing until April 2022, Hardiman and others conspired and agreed to knowingly conduct and attempt to conduct bank fraud and financial transactions affecting interstate commerce. Specifically, Hardiman and others knowingly conspired to defraud multiple financial institutions throughout the Sioux Falls area and elsewhere and to obtain funds by means of false or fraudulent pretenses, representations, and promises. 

After obtaining funds through fraud, it is alleged that Hardiman and others engaged in depositing, transferring, wiring, and withdrawing the funds at financial institutions.  It is alleged they knew the transactions were designed in whole or in part to conceal and disguise the nature, location, source, ownership, or control of the proceeds of the fraud scheme and that the funds involved represented the proceeds of unlawful activity.

Former Securities Brokers Sentenced to Federal Prison Terms for Perpetrating Securities Fraud Scheme (DOJ Release)
https://www.justice.gov/usao-sdfl/pr/former-securities-brokers-sentenced-federal-prison-terms-perpetrating-securities-fraud
A jury in the United States District court for the Southern District of Florida found Jeffrey Alan Horn, 47, and Omar Leon Plummer, 54, guilty of conspiring to commit securities fraud; and additionally found Horn guilty of conspiracy to commit mail fraud and wire fraud, and four counts of securities fraud. Horn was sentenced to 100 months in prison and Plummer to 36 months in prison. As alleged in part in the DOJ Release:

Between October 2014 and April 2016, Horn and Plummer contacted prospective investors and made materially false statements and omissions about the private placement offering of restricted common shares of Sunset Capital Assets (formerly known as Sunset Brands). Horn and Plummer failed to disclose to prospective investors that that the brokers would receive exorbitant commissions from the sale of Sunset stock. In addition, Plummer failed to disclose his real name to prospective investors, using the alias "Al Goldstein" to conceal his extensive disciplinary history in the securities industry. This discipline history included cease-and-desist orders issued by state regulators in Colorado and Arkansas that prohibited Plummer from engaging in certain securities activities in those states. 

Horn and Plummer misled prospective Sunset investors in other ways. For example, Horn sent Private Placement Memoranda and other written offering materials to investors that misrepresented both Sunset's assets and the company's intended use for the funds. Horn, Plummer, and others funneled nearly all $1.5 million of Sunrise investor money into their own pockets. Neither Horn nor Plummer held an active securities license with the Financial Industry Regulation Authority (FINRA) when they contacted investors about the Sunset offering.  

Craig Josephberg, 49, pled guilty in the United States District Court for the Eastern District of New York to: 

"charges set forth in a superseding indictment in March 2018, including two counts of securities and wire fraud conspiracy, two counts of securities fraud, and one count of wire fraud relating to his manipulation of stocks of multiple microcap or "penny" stocks . . ." 

Josephberg was sentenced to 36 months in prison plus three years of supervised release and ordered to pay over $16 million in restitution and a $706,052 forfeiture. As alleged in part in the DOJ Release;

The evidence at the trial of his co-conspirator Abraxas Discala established that Josephberg and his co-defendants participated in two schemes to manipulate the stock price of CodeSmart and Cubed as part of an overarching conspiracy to commit securities, mail and wire fraud with respect to the Manipulated Public Companies.

Josephberg's co-defendant Abraxas Discala purported to raise capital for private start-up companies and offered to take them public through reverse mergers with public shell companies in exchange for obtaining control of a large portion of the free trading or unrestricted stock.  Josephberg, Discala and their co-conspirators, including co-defendants Ira Shapiro, Marc Wexler, Matthew Bell, Victor Azrak, Darren Goodrich, Darren Ofsink and Michael Morris, then artificially inflated that stock through manipulative trading and promotional campaigns, generating large profits for themselves at the expense of unwitting investors.  Josephberg, a registered investment advisor, sold inflated shares in the Manipulated Public Companies to his clients, ultimately leaving them with worthless shares while he made approximately $700,000 in trading profits, as well as additional commission income.

1. The CodeSmart Scheme

In early May 2013, Discala and his co-conspirators engineered a reverse merger of CodeSmart, a private company, with a shell public company.  After gaining control of CodeSmart's unrestricted shares, Discala and his co-conspirators on two occasions, fraudulently inflated CodeSmart's share price and trading volume and then sold the unrestricted CodeSmart stock at a profit when the share price reached desirable levels.  Shapiro, the Chief Executive Officer of CodeSmart, issued numerous press releases, including press releases with false information to facilitate inflating CodeSmart's stock price.  The defendants fraudulently manipulated CodeSmart's stock price from $1.77 to a high of $6.94 on July 12, 2013, leading to an inflated market capitalization of over $85 million. 

The co-conspirators, including Josephberg, profited by selling CodeSmart stock, issued to them at pennies, to their clients and customers.  On some occasions, Josephberg had his customers buy CodeSmart shares without his customers' knowledge and consent.  Additionally, Josephberg sold CodeSmart shares in his personal trading accounts at the same time that he purchased CodeSmart stock in his customers' accounts.

Josephberg, Discala, Wexler, Bell, Ofsink and Morris made more than $6 million in illicit trading profits from the CodeSmart scheme, and the co-conspirators caused more than $12.5 million in losses to approximately 900 CodeSmart investors who purchased the publicly traded stock.

2. The Cubed Scheme

In March 2014, Discala and his co-conspirators took Cubed public through an asset purchase agreement by a shell public company.  After gaining control of all of Cubed's unrestricted shares, between April 22, 2014 and April 30, 2014, Discala and his co-defendants, including Josephberg, Wexler, Bell, Goodrich and Azrak, fraudulently created trading volume in Cubed stock by purchasing more than 50% of the total number of Cubed shares purchased during this period.   The defendants also were able to successfully control the price and volume of Cubed's stock.  Josephberg both purchased and placed bids on Cubed stock at specific prices to help manipulate the stock price and create the appearance of false demand.  On June 23, 2014, Cubed reached its highest closing price of $6.75 per share, resulting in a market capitalization of approximately $200 million.  Investors who bought publicly traded Cubed stock lost over $400,000.  In addition, Cubed was able to raise over $2 million in a private offering of stock to investors who were deceived by how Cubed stock was performing in the market.  Discala and Wexler also made over $1 million worth of illegal private sales of Cubed stock to over three dozen investors.  Discala and his co-conspirators caused more than $4 million in total losses to approximately 100 Cubed investors.

***

Discala, who was convicted after a trial, was previously sentenced to 138 months imprisonment and ordered to pay $16,346,023 in restitution.  The remaining convicted defendants entered guilty pleas.  Shapiro was previously sentenced to 21 months imprisonment and ordered to pay $12,557,553 in restitution, Goodrich was previously sentenced to 41-months imprisonment and ordered to pay $479,007.05 in restitution, and Morris was sentenced 6 months imprisonment and ordered to pay $112,575. 35 in resitution.  Wexler, Bell, Azrak, and Ofsink are awaiting sentencing.

Bill Singer's Comment: Let me note a pet peeve here. US Attorney ("USA") Peace managed to put Josephberg away for 36 months -- and with apparent good cause. Bravo!  On the other hand, having resorted to a two-layered headline and setting out a somewhat extensive fact pattern replete with compliments about USA Peace, it would have been nice -- would have been appropriate -- for the DOJ Release to specify the charges to which Josephberg pled. Oddly, the DOJ Release references the March 2018 Superseding Indictment and then only sets out some of the charges included therein (see the "including . . ." quote in the first paragraph above). That's not acceptable when reporting about a Defendant going away for 36 months plus three years of supervision and required to pay over $16 million restitution/forfeiture.

Business Partner Of Art Dealer Inigo Philbrick Pleads Guilty To Defrauding Art Buyers And Financers (DOJ Release)
https://www.justice.gov/usao-sdny/pr/business-partner-art-dealer-inigo-philbrick-pleads-guilty-defrauding-art-buyers-and
Robert Newland 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 approximately 2016 through 2019, to finance his art business, PHILBRICK engaged in a scheme to defraud multiple individuals and entities in the art market located in the New York metropolitan area and abroad (the "Fraud Scheme").  NEWLAND was PHILBRICK's business partner and financial adviser and conspired with PHILBRICK to perpetrate the Fraud Scheme.  NEWLAND and PHILBRICK made material misrepresentations and omissions to art collectors, investors, and lenders to access valuable art and obtain sales proceeds, funding, and loans.  NEWLAND and PHILBRICK knowingly misrepresented the ownership of certain artworks, for example, by selling a total of more than 100%ownership in an artwork to multiple individuals and entities without their knowledge and by selling artworks and/or using artworks as collateral on loans without the knowledge of co-owners and without disclosing the ownership interests of third parties to buyers and lenders.

Over the years, PHILBRICK obtained over $86 million in loans and sale proceeds in connection with the Fraud Scheme.  Artworks about which NEWLAND and PHILBRICK made these fraudulent misrepresentations in furtherance of the Fraud Scheme include, among others, a 1982 painting by the artist Jean-Michel Basquiat titled "Humidity," a 2010 untitled painting by the artist Christopher Wool, and an untitled 2012 painting by the artist Rudolf Stingel depicting the artist Pablo Picasso.  

In the fall of 2019, NEWLAND and PHILBRICK's Fraud Scheme collapsed as various investors and lenders learned about the material misrepresentations and omissions PHILBRICK and NEWLAND had made.

Idaho I.T. Professional Pleads Guilty To Misappropriating Pre-Publication Investment Recommendations For Insider Trading Scheme / David Stone Electronically Accessed an Investment Advice Service's Unannounced Stock Picks and Used That Information to Generate Millions in Trading Profits and to Provide Inside Tips to Another (DOJ Release)
https://www.justice.gov/usao-sdny/pr/idaho-it-professional-pleads-guilty-misappropriating-pre-publication-investment
David Stone pled guilty in the United States District Court for the Southern District of New York to one count of securities fraud. As alleged in part in the DOJ Release:

From 2020 up to at least March 2022, DAVID STONE exploited market-moving stock recommendations made by an investment recommendation service ("Advisor-1") before those recommendations were released to paying subscribers.  STONE, an I.T. professional, accessed Advisor-1's computing system using log-in credentials he obtained without authorization and used his improperly obtained access to view information relating to Advisor-1's recommendations before they were announced to Advisor-1's paying subscribers.

Advisor-1's stock recommendations typically, but not always, lead to higher closing prices for the recommended stock as compared to the prior day's closing price.  By trading on those recommendations before they were announced, STONE was able to obtain significant profits unavailable to other market participants.  In fact, across all the brokerage accounts he traded in, STONE realized gains of at least $3.5 million.

In addition to his own trading, STONE supplied trading tips to at least one other person ("Tipee-1").  Between in or about January 2021 up to and including in or about March 2022, on approximately 45 different days, STONE sent emails to Tipee-1 providing stock names and/or ticker symbols ahead of Advisor-1 announcements of stock recommendations to its paying subscribers.  A brokerage account associated with Tipee-1 traded ahead of Advisor-1 recommendations on more than a dozen occasions.  As a result of that trading, Tipee-1 profited more than approximately $2.7 million.

Before providing tips to Tipee-1, STONE summarized the terms by which STONE would provide information to Tipee-1, including steps they would take to hide their scheme. Among other things, STONE acknowledged that "what we are doing could be considered insider trading," and accordingly, he recommended that Tipee-1 "[d]o other trades besides just what I tell you," explaining, "[i]f all your trades are up 5x and you never make a loosing [sic] trade it may call attention of regulators.

Three Men Charged with International Market Manipulation Scheme (DOJ Release)
https://www.justice.gov/usao-nj/pr/three-men-charged-international-market-manipulation-scheme
-and-
https://www.sec.gov/news/press-release/2022-172


In a 12-count Indictment filed  in the United States District Court for the District of New Jersey
https://www.justice.gov/usao-nj/press-release/file/1538031/download, James Patten, Peter Coker Sr., and Peter Coker Jr. were each charged with conspiracy to commit securities fraud, securities fraud, and conspiracy to manipulate securities prices; and, additionally, Patten was charged with four counts of manipulation of securities, four counts of wire fraud, and one count of money laundering. As alleged in part in the DOJ Release;

From 2014 through September 2022, Patten, Coker Sr., and Coker Jr. conspired to enrich themselves through a scheme to manipulate securities prices via a pattern of coordinated trading, which injected inaccurate information into the marketplace, creating false impressions of supply and demand for these securities.

As part of the securities fraud scheme, the defendants targeted two publicly traded companies - Hometown International Inc. and E-Waste Corp. - which were both traded on the OTC Link Alternative Trading System, also known as the OTC Marketplace. The OTC Marketplace is an alternative trading system that contains three tiers of markets, which are largely based on the quality and quantity of the listed companies' information and disclosures.

Patten, Coker Sr., and Coker Jr. took steps to gain control of both entities' management and stock with the ultimate intention of entering reverse mergers, a transaction through which an existing public company merges with a private operating company. A successful reverse merger  would allow the defendants to sell shares of each entity at a significant profit.

In or around 2014, two New Jersey residents began the process of opening a local deli in Paulsboro, New Jersey. One of the individuals discussed his interest in opening the deli with Patten, a long-time friend, who suggested the creation of Hometown International, an umbrella corporation, under which the deli would operate as a wholly owned subsidiary. Unbeknownst to the deli owners, almost immediately after Hometown International was formed, Patten and his associates began positioning Hometown International as a vehicle for a reverse merger that would yield substantial profit to them.

Around October 2019, Hometown International began selling shares on the OTC Marketplace. Shortly thereafter, Patten, Coker Sr., And Coker Jr. undertook a calculated scheme to gain control of Hometown International's management and its shares from the deli owners. Patten, Coker Sr., and Coker Jr. took similar actions to gain control of E-Waste Corporation's stock and management.

Once the defendants gained control of Hometown International and E-Waste's shares, they arranged for the transfer of millions of shares of stock to a number of nominee entities, including entities controlled by Coker Jr., in an effort to mask their control of the shares.

In addition, the defendants transferred shares to family members, friends, and associates and gained control over their trading accounts by obtaining their log-in information in order to conceal the defendants' involvement. The defendants then used those accounts to commit a number of coordinated trading events, often referred to as match and wash trades, to trade in Hometown International and E-Waste Corp.'s stock on both sides of the transaction.

These tactics artificially inflated the price of Hometown International and E-Waste's stock by giving the false impression that there was a genuine market interest in the stock. Their scheme had the ultimate impact of artificially inflating Hometown International's stock by approximately 939 percent and E-Waste's stock by approximately 19,900 percent.

In a Complaint filed in the United States District Court for the District of New Jersey
https://www.sec.gov/litigation/complaints/2022/comp-pr2022-172.pdf charged Peter L. Coker Sr., Peter L. Coker Jr., and James T. Patten with violations of  the antifraud provisions of the federal securities laws; and further charges Patten with violating market manipulation provisions of the securities laws; and charges Coker Sr. and Coker Jr. with aiding and abetting those violations.  A parallel criminal action was filed against Patten, Coker Sr., and Coker Jr. As alleged in part in the SEC Release:

[T]hese schemes included artificially inflating the share price of Hometown International, which operated a New Jersey deli producing less than $40,000 in annual revenue, from approximately $1 per share in October 2019 to nearly $14 per share by April 2021, leading to a grossly inflated market capitalization of $100 million.

According to the SEC's complaint, Patten, Coker Sr., and Coker Jr., who was the former Chairman of the Board of Hometown International, took control of the outstanding shares of Hometown International and a separate shell company, E-Waste Corp., artificially inflated the price of both issuers' stock through manipulative trading, and used the entities to acquire privately-held companies in reverse mergers, with the intent to thereafter dump their shares at grossly inflated prices. Before the defendants were able to reap the intended profits of the schemes, as alleged, numerous news articles were published discussing the issuers' inflated stock prices.


https://www.sec.gov/litigation/litreleases/2022/lr25521.htm, the SEC charged Judity Paris-Pinder 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. Pinder consented to a bifurcated settlement enjoining her from violating the charged provisions of the federal securities laws and barring her from serving as an officer or director of any SEC-reporting company. Parallel criminal charges were filed against Pinder. As alleged in part in the SEC Release:

[F]rom at least 2019 to 2021, Pinder offered loan agreements to investors promising returns of up to 50%, within 30 to 90 days. As alleged, Pinder made statements to investors claiming the investment was safe and that investor funds would be used to make advance loans to personal injury clients of a prominent Miami-based attorney. In fact, as the SEC alleges, Pinder, misappropriated investor funds and used investor funds to make Ponzi-like distributions to investors.
Without admitting to the findings in an SEC Order https://www.sec.gov/litigation/admin/2022/33-11107.pdf, Compass Minerals was found to have violated the antifraud, reporting, and internal controls provisions of the Securities Act and the Exchange Act and various related rules; and the company agreed to pay a $12 million civil penalty and retain an independent compliance consultant to review and make recommendations concerning its disclosure controls and procedures. As alleged in part in the SEC Release:

[C]ompass repeatedly assured investors in 2017 that a technology upgrade at its Goderich mine - the world's largest underground salt mine which is located near Ontario, Canada and hailed by the company as its crown jewel - was on track to materially reduce costs and boost its operating results starting in 2018. Compass's statements were misleading because they failed to tell investors that costs at the mine were increasing rather than decreasing, which substantially undermined the projected savings. The SEC also found that Compass misled investors by overstating the amount of salt it was able to produce at Goderich.

Separately, the order finds that Compass's deficient disclosure controls resulted in the company failing to properly assess the financial risks of mercury contamination by one of its former facilities near the Botafogo River, in Pernambuco, Brazil, and that facility's cover-up of the misconduct by submitting inaccurate test reports to Brazilian environmental authorities. Compass was required to assess whether it must disclose the financial uncertainties of that misconduct to investors, but failed to do so.

SEC Charges Executives and Director with Lying to Auditors (SEC Release)
https://www.sec.gov/litigation/litreleases/2022/lr25517.htm
Without admitting or denying the allegations in an SEC Complaint filed in the United States District Court for the District of Nevada
https://www.sec.gov/litigation/complaints/2022/comp25517.pdf, Spyr, Inc.'s former Chief Executive Officer James R. Thompson, the company's former Chief Financial Officer Barry D. Loveless, and former Director James A. Mylock, Jr. consented to the entry of final judgments permanently enjoining them from violating the charged provisions; requiring Thompson, Loveless, and Mylock to pay civil penalties of $50,000, $75,000, and $10,000, respectively; and barring Thompson and Loveless from acting as an officer or director of any public company for three years. The SEC Complaint charged each Defendant with lying to auditors and thereby violating Rule 13b2-2 of the Securities Exchange Act; and, additionally charged Thompson and Loveless with violating the antifraud provisions of Section 17(a)(2) and (3) of the Securities Act, and aiding and abetting Spyr's violations of the reporting provisions of Exchange Act Section 13(a) and Rules 12b-20, 13a-1, and 13a-13 thereunder. As alleged in part in the SEC Release:

[T]hompson, Loveless, and Mylock provided Spyr's auditors with false and misleading information about an SEC investigation into Spyr's investment in a biotechnology company. The SEC alleges that the defendants told Spyr's auditors that they were not aware of "any situations where the company may not be in compliance with any federal or state laws or government or other regulatory body regulations," even after Spyr had received a Wells notice, settlement discussions with SEC staff had broken down, and management believed that an SEC action would be filed soon. The complaint also alleges that Thompson and Loveless signed Spyr's 2017 Form 10-K and 2018 first quarter Form 10-Q, neither of which disclosed the potential SEC enforcement action. According to the complaint, Spyr was required by generally accepted accounting principles to disclose the potential SEC enforcement action because it was reasonably possible that it could lead to a material loss for the company.

In a Complaint filed in the United States District Court for the Central District of California
https://www.sec.gov/litigation/complaints/2022/comp25518.pdf, the SEC charged Brian Lam and NineSquare  Capital Parnters LLC with fraud in violation of Section 17(a) of the Securities Act, Section 10(b) of the Securities Exchange Act and Rule 10b-5 thereunder, and Section 206(4) of the Investment Advisers Act of 1940 and Rule 206(4)-8 thereunder; and the SEC Complaint further charged Lam, NineSquare, Nathan Nguyen, and Nguyen Group LLC with violating the securities offering registration provisions of Sections 5(a) and 5(c) of the Securities Act; and, separately charged Nguyen and Nguyen Group with violating the broker-dealer registration provisions of the Securities Exchange Act. As alleged in party in the SEC Release:

[L]am and NineSquare told investors that they would use their money to trade securities and reported monthly returns ranging from 1.24% to 100%. The complaint alleges that undisclosed to investors, Lam used less than 60% of the investors' money to trade securities, lost almost all of that money through losing trades, and misappropriated the rest to benefit himself and make Ponzi-like payments to certain investors, among other things. The complaint also alleges that Nguyen and the Nguyen Group were principally responsible for raising money from investors through his Money Smarts classes that they promoted on Nguyen's website. The complaint named as relief defendants Yi Ping Lu, Lam's wife, and Thy Stacy Nguyen, Nguyen's wife. According to the complaint, Lam used proceeds from the fraud to partially pay for luxury homes purchased in their names.

SEC Charges Company President in Fraudulent Microcap Scheme (SEC Release)
https://www.sec.gov/litigation/litreleases/2022/lr25519.htm
https://www.sec.gov/litigation/complaints/2022/comp25519.pdf , the SEC charged Christopher P. Vallos with with violating 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. Vallos consented to the entry of a final judgment permanently enjoining him from further violations of the charged provisions, permanently barring him from participating in an offering of penny stock, and imposing an officer and director bar. As alleged in part in the SEC Release:

[A]s President and CEO of the company, Ohio-based Gold Lakes Corp., Vallos had the ability to direct its management and policies, and through a series of sham transactions and misleading statements to market intermediaries concealed his identity in order to appear to be just an ordinary investor seeking to sell his shares. The complaint alleges that the federal securities laws require that, before selling stock, a person with the ability to control a company must comply with certain registration requirements, sale restrictions, and disclosure obligations. According to the complaint, during the course of the scheme Vallos made false and misleading statements to a lawyer, transfer agent, and broker-dealer all designed to conceal the fact that the true owner of the Gold Lakes shares was also its President and CEO. The complaint further alleges that Vallos sold his shares for a profit and that his scheme deprived investors of the benefit of the disclosures required by federal securities laws.

Vallos was charged criminally by the U.S. Attorney's Office for the Northern District of Ohio for his involvement in the scheme and his attempt at a similar scheme with a second microcap company. On August 19, 2022, after pleading guilty to one count of securities fraud in United States v. Vallos, No. 22-CR-00010-SL (N.D. Ohio), Vallos was sentenced to a term of incarceration of 24 months, three years of supervised release, and a $25,000 punitive fine.

SEC Charges Convertible Note Firm and Its Managing Member with Acting as Unregistered Securities Dealers (SEC Release)
https://www.sec.gov/litigation/litreleases/2022/lr25520.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/comp25520.pdf, the SEC charged Morningview Financial LLC and its Managing Member Miles M. Riccio with violating the registration provision of Section 15(a)(1) of the Securities Exchange Act, and, further charged Riccio with violating Section 20(a) of the Securities Exchange Act. Joseph M. Riccio Jr., was named as a Relief Defendant. As alleged in part in the SEC Release:

[B]etween at least July 2017 and December 2021, Morningview Financial engaged in the business of purchasing convertible notes and warrants from penny stock issuers, converting the notes into stock at a large discount from the market price, and selling those newly issued shares into the market at a significant profit. Morningview Financial allegedly purchased at least 68 convertible notes and 4 warrant agreements from 35 separate issuers and sold more than 3 billion shares of newly issued penny stock into the market, generating over $14.8 million in trading profits. As alleged, neither Morningview Financial nor Riccio was registered as a dealer with the SEC or associated with a registered dealer, in violation of the mandatory registration provisions of the federal securities laws. By failing to register, Morningview Financial and Riccio avoided certain regulatory obligations for dealers that govern their conduct in the marketplace, including regulatory inspections and oversight, financial responsibility requirements, and maintaining books and records.

CFTC Orders California Trader and Prop Firm to Pay $750,000 for Spoofing in Treasury Futures (CFTC Release)
https://www.cftc.gov/PressRoom/PressReleases/8595-22
The CFTC issued Orders filing and settling charges against 
The CFTC Order against Chen requires him to pay a $150,000 civil monetary penalty; suspends him for six months from trading on or subject to the rules of any CFTC-designated exchange and all other CFTC-registered entities and in all commodity interests; and orders him to cease and desist from violating the Commodity Exchange Act's spoofing prohibition. The CFTC Order against Tanius requires the comapny to pay a $600,000 civil monetary penalty. The CME Group announced disciplinary actions against Chen and Tanius. As alleged in part in the CFTC Release:

The order against Chen, who was a Tanius employee at the time, finds that he engaged in spoofing (bidding or offering with the intent to cancel the bid or offer before execution) on over 1,000 separate occasions from October 1, 2020 to June 30, 2021 in 12 CME futures contracts-primarily Treasury futures contracts. The order against Tanius finds the firm vicariously liable for Chen's spoofing, which Chen engaged in while trading for Tanius.

https://www.finra.org/sites/default/files/fda_documents/2020068648601
%20Miche%20D.%20Jean%20CRD%205918186%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, Miche D. Jean, submitted a Letter of Acceptance, Waiver and Consent ("AWC"), which FINRA accepted. The AWC asserts that Miche D. Jean was first registered in 2015 with Morgan Stanley. In accordance with the terms of the AWC, FINRA imposed Jean a $10,000 fine and two-month suspension from associating with any FINRA member in all capacities. As alleged in part in the FINRA AWC:



https://www.finra.org/sites/default/files/fda_documents/2017055977301
%20H.C.%20Wainwright%20%26%20Co.%2C%20LLC%20CRD%20375
%20John%20Wesley%20Chambers%20CRD%201863864
%20Robert%20Eugene%20Kristal%20CRD%204269940%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, H. C. Wainwright & Co., LLC, John Wesley Chambers, and Robert Eugene Kristal, submitted a Letter of Acceptance, Waiver and Consent ("AWC"), which FINRA accepted. The AWC asserts that H.C. Wainwright & Co. has been a FINRA Member Firm since 1936 with 100 registered representatives at one branch; Chambers entered the industry in 1988 and since January 2017, he has been the firm's President/Head of Investment; and Kristal entered the industry in 2000. In accordance with the terms of the AWC, FINRA imposed the following sanctions upon:

H. C. Wainwright: Censure; $1.5 million fine, and undertaking to certify its remediation effort as required

Chambers: $15,000 fine and 30-calendar-day suspension from associating with any FINRA member firm in all capacities

Kristal:  $15,000 fine and 30-calendar-day suspension from associating with any FINRA member firm in all capacities.

As set forth in the "Overview" portion of the AWC:

Between September 2017 and September 2020, H.C. Wainwright failed to preserve and reasonably supervise its employees' business-related text messages. 

During that period, at least 24 firm employees communicated about firm business in text messages outside of the firm's approved communications platforms on their personal cellphones. The firm did not obtain, and thus did not preserve, these communications at the times they were exchanged; the firm first obtained certain of these communications in the course of, and as a consequence of, the investigations that led to this AWC. The failure to preserve these communications prevented FINRA from fully investigating matters in two FINRA investigations. As a result of the firm's failure to preserve business-related communications, the firm violated § 17(a) of the Securities Exchange Act of 1934, Exchange Act Rule 17a-4, and FINRA Rules 4511 and 2010. 

Senior members of the firm's management were among the employees who communicated about firm business in text messages on their personal cellphones. Chambers (the firm's president and head of its investment banking department) and Kristal (the firm's director of research) routinely exchanged text messages about firm business with each other on their personal cellphones outside of the firm's approved communications platforms. Chambers and Kristal exchanged these text messages despite the firm's prohibition on business-related written communication between investment banking and research personnel. The firm did not obtain, and thus did not preserve, any of these text messages at the times they were exchanged. Nearly all of these text messages were deleted before FINRA requested them and thus could not be provided to FINRA staff in connection with an investigation into whether the firm's investment banking personnel improperly influenced the firm's research coverage. By communicating about firm business in text messages that the firm did not preserve, Chambers and Kristal violated FINRA Rules 4511 and 2010. 

While the firm's written supervisory procedures (WSPs) prohibited employees from using text messaging for business-related communications, and the firm's compliance department discussed this prohibition with employees several times each year, the firm's management knew that firm employees were using text messaging for business-related communications, because they themselves were texting each other and others about firm business. But the firm did not take reasonable steps to prevent those communications. The firm therefore failed to enforce its WSPs prohibiting the use of text messaging for business-related communications. In addition, the firm took no steps to preserve or review its employees' text messages so it could reasonably supervise them. Therefore, the firm violated FINRA Rules 3110(a), (b)(1), and (b)(4) and 2010. 

Between March 2019 and September 2020, the firm also failed to reasonably supervise its employees' email communications. The firm's WSPs, for example, did not reasonably describe or address the type or scope of reviews to be conducted, who at the firm was responsible for conducting the reviews, and how and under what circumstances any concerning email should be escalated. As a result, the scope and substance of the firm's email review was unreasonable and, in many instances, the review did not occur for more than a year after an email was sent or received. Therefore, the firm violated FINRA Rules 3110(a), (b)(1), and (b)(4) and 2010. 

Between September 2017 and January 2020, the firm failed to enforce written policies and procedures designed to achieve compliance with provisions of FINRA Rule 2241 relating to the firm's obligation to manage conflicts of interest related to the interaction between research analysts and those outside of the research department. Specifically, H.C. Wainwright prohibited business-related written communications between the firm's research and investment banking personnel and prohibited business-related phone calls between research and investment banking personnel unless chaperoned by compliance department personnel. Nevertheless, Chambers and Kristal often communicated with each other about firm business in text messages and on unchaperoned phone calls using their personal cell phones. Therefore, the firm violated FINRA Rules 2241(b)(1), 2241(b)(2)(G), and 2010.

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