[I]n 2015, Stephens obtained control of a large portion of Loop's stock and engaged in deceptive conduct to evade disclosure and reporting requirements under U.S. securities laws and conceal the amount of stock he controlled. The complaint alleges that between 2015 and 2018, Stephens held his Loop stock in the names of various nominee entities to hide from market participants, such as transfer agents and brokerage firms, that he owned significant amounts of Loop stock. As alleged, Stephens dumped the stock into the public U.S. securities markets to investors who were unaware of his ownership of a significant amount of Loop stock. Stephens allegedly also worked with Danks, who at the time was a member of Loop's board of directors, and Destler, a consultant to Loop, to sell Loop stock in private transactions using a network of entities owned and controlled by Danks and Destler. As part of the scheme, Danks and Destler allegedly made material misrepresentations to brokerage firms to conceal their connections to Loop. The complaint also alleges that Lazerus facilitated the fraud by soliciting investors to buy Loop stock in the public U.S. securities markets, including soliciting an elderly investor who invested millions of dollars in Loop at the same time that Stephens, Danks, Destler, and Lazerus sold Loop stock.

[A]bout a week before the announcement, Holzer was approached by an investment adviser to discuss a pooled investment opportunity on a "no names" basis, pending execution of a non-disclosure agreement. The SEC alleges that, once the NDA was signed, the adviser sent Holzer and Moraes a 109-page investment presentation that described the proposed transaction, including identifying DNB as the acquisition target, $145 per share as the purchase price (a 15% premium to market), the anticipated date of the public announcement as on or before August 9, 2018, and other material nonpublic information.

According to the SEC's complaints, the NDA required Holzer and all employees of his family office to keep confidential all information about DNB and the proposed transaction and to use it solely for the purpose of evaluating the pooled investment opportunity. Instead, the SEC alleges, Holzer and Moraes used the information to trade in DNB options ahead of the announcement, realizing ill-gotten profits of $96,091 and $8,842, respectively. The SEC also alleges that Holzer tipped his cousin who realized $672,000 in trading profits, and Moraes tipped a business associate who realized $65,332 in trading profits.

[L]auer served as the outside general counsel for DC Solar. Lauer is alleged to have been an important participant in a massive Ponzi scheme that raised over $910 million from investors between 2011 and 2018. The complaint alleges that Lauer helped obtain investments in securities issued by DC Solar that purportedly delivered gains in the form of tax benefits, guaranteed lease payments, and additional profits from the leasing of mobile solar generators. In reality, the complaint alleges, thousands of the purportedly profitable generators were never even manufactured, let alone put into use, and the vast majority of revenue to existing investors came from funds from new investors.

Lauer is alleged to have created misleading transaction documents and provided false information about purported leases to investors, in order to hide the lack of legitimate lease revenue from them. According to the complaint, Lauer made millions of dollars from the scheme, while investors lost their money.

[J]onathan William Mikula, a recidivist securities law violator who resides in Georgia, promoted the securities of four issuers-Elegance Brands Inc. (now Sway Energy Corp.), Emerald Health Pharmaceuticals Inc., Hightimes Holding Corp., and Cloudastructure Inc.-without disclosing his receipt of compensation for the promotions. As alleged, Mikula promoted the securities through Palm Beach Venture, a newsletter for which he served as an author and chief analyst, and presented the recommendations as unbiased and not paid for, while he was secretly compensated in the form of cash and lavish expenses. The complaint also alleges that investors purchased approximately $80 million in the securities offered by these issuers following Mikula's promotion.  

The SEC's complaint further charges Christian Fernandez and Raj Beri, associates of Mikula's, who allegedly acted as middlemen for the promotional scheme. According to the complaint, Fernandez and Beri, CEO of Elegance Brands, arranged to receive a percentage of investor funds raised by the issuers, in exchange for arranging Mikula's promotion, under the guise of consulting agreements with the issuers. The complaint also alleges that Fernandez and Beri tried to disguise their receipt of payments from the issuers by submitting invoices for fake consulting services, and by funneling payments through offshore accounts for Mikula's benefit. 

The complaint states that two of the issuers promoted by Mikula, Elegance Brands and Emerald Health, as well as their respective CEOs, Beri and James DeMesa, participated in the scheme and made material misrepresentations and omissions in their respective filings with the SEC and other investor materials concerning the promotion and related payments. According to the complaint, Emerald Health's co-founder, Avtar Dhillon, played a key role in the scheme to promote Emerald Health. A separate administrative proceeding against Emerald Health's CFO, Lisa Sanford, finds that she negligently participated in the scheme. The complaint also charges Elegance and Beri with engaging in an offering that was unregistered and not covered by a valid registration exemption.   

[M]oser helped FTE's former CEO, Michael Palleschi, CFO, David Lethem, and Chief Administrative Officer and President, Anthony Sirotka, inflate FTE's revenue by directing FTE to improperly recognize revenue and related accounts receivable for nonexistent construction projects. The complaint also alleges that Moser, together with Palleschi, Lethem, and Sirotka, misled FTE's auditor about approximately $12.5 million in fictitious revenue and related accounts receivable, by, among other things, providing false and misleading materials to the auditor.

[L]indell failed to appropriately discharge his responsibilities in the face of multiple red flags regarding Infinity Q's valuations. The SEC alleges that, from at least February 2017 through February 2021, James Velissaris, Infinity Q's founder and former Chief Investment Officer, actively manipulated the valuation models available from a certain third-party pricing service and altered inputs to mask the poor performance of the mutual fund and hedge fund that Infinity Q advised. As alleged, Lindell negligently misrepresented to investors and potential investors, representatives of the mutual fund's board, and others that the pricing service was "independent" of Infinity Q when, in fact, Velissaris exercised control over the pricing service. As further alleged, Lindell, at Velissaris's direction, helped Velissaris submit misleading documents to the SEC staff in response to the SEC's initial inquiries in this matter and, on one occasion, helped Velissaris mislead the mutual fund's auditor. As set forth in the complaint, Lindell also made misstatements on various Infinity Q filings with the Commission.

[F]rom 2016 to early 2020, De Bastos and Fonseca conducted a fraudulent, unregistered securities offering, raising more than $40 million from hundreds of investors in connection with the sale and management of investment properties in Detroit, Michigan. According to the SEC's complaint, De Bastos, Fonseca, RBF Trust LLC, and other companies owned and controlled by De Bastos and Fonseca sold more than 900 properties to investors without actually owning the properties they were selling in a majority of the transactions. The SEC's complaint alleges De Bastos and D3 Gestion Immobiliere LLC misrepresented they would manage completely the properties and guarantee the properties had paying tenants.

[B]etween May 2018 and January 2019, Arbitrade and Cryptobontix, through Hogg, Goldberg, Braverman, and Barber, issued announcements falsely claiming that Arbitrade had acquired and received title to $10 billion in gold bullion, that the company intended to back each DIG token issued and sold to investors with $1.00 worth of this gold, and that independent accounting firms had performed an "audit" of the gold and verified its existence. As alleged, Arbitrade claimed to have acquired the gold through a purchase transaction with Barber and his company, SION Trading FZE. In reality, according to the complaint, the gold acquisition transaction was merely a sham to boost demand for DIG, thereby allowing Hogg and Goldberg, with Braverman's assistance, to sell at least $36.8 million of DIG, including to U.S. investors, at prices fraudulently inflated by the public misstatements about the supposed gold acquisition.

[F]rom May 2018 until June 2020, Vivera raised money from investors through private placements of Vivera stock. As alleged, Vivera claimed to hold an "exclusive global license" to a sublingual drug-delivery technology for the pharmaceutical use of CBD and THC. The SEC further alleges that, among other things, Vivera failed to disclose that Edalat was the controlling shareholder of both Vivera and the ostensible licensor, Sentar, and that there was an ongoing dispute around the validity of Vivera's license due to Sentar's prior conveyance of the same license to a third party. According to the complaint, in December 2018, Vivera filed a lawsuit challenging the third party's claim to the relevant license rights and lost that action in May 2020. The SEC further alleges that Sentar received $4,510,000 in purported licensing fees from Vivera and then transferred significant sums into various accounts controlled by Edalat, from which Edalat made lavish purchases, including down payments on two homes and a $425,000 luxury car.

The order specifically finds that from January 2017 to March 2022, as a result of 11 separate reporting systems issues, BGCD failed to report or accurately report nearly 12,500 swap transactions to the CFTC and/or to the public on its public website. As a result of three other reporting systems issues during this same time period, BGCD failed to report real-time transaction and pricing data for over 3,500 transactions to an SDR and further failed to timely submit corrected data to the SDR for a subset of those transactions. In aggregate, these 14 issues led to BGCD's failure to report or accurately report (including both under and over reporting) over 16,000 swap transactions in various products (interest rate, FX, credit, and equities), on hundreds of trading dates.

The order further finds BGCD had inadequate processes and procedures for reporting swap transactions and identifying reporting issues as they arose. As a result, BGCD did not timely identify the majority of these reporting issues. Specifically, over half of BGCD's reporting issues were unknown to BGCD for eight months or more, with two of them being undetected (and uncorrected) for over four years. Moreover, these persistent and recurring issues, according to the order, show BGCD's capacity to capture and transmit accurate and complete trade information to the public and to the CFTC was deficient. Further, the order finds BGCD was aware it lacked a process for reconciling its reports with the SEF's trading activity, but failed to timely implement a reconciliation process or other policies and procedures to significantly reduce, if not eliminate, these reporting and publication errors. 

Swap reporting is fundamental to post-crisis financial regulation - a critical tool for promoting transparency and market integrity in swap markets that used to be opaque.  It has been a decade since the Commodity Futures Trading Commission ("CFTC") implemented Dodd-Frank Act requirements for swap reporting.  However, in my six months of serving as a CFTC Commissioner, I have seen multiple enforcement cases involving swap reporting failures, which is troubling. 

As a market regulator, we must send a strong message that systemic swap reporting failures are unacceptable.  Swap Execution Facilities ("SEFs") should have a culture of compliance.  I support the Commission's enforcement action against BGC Derivative Markets, L.P., an affiliate of Cantor Fitzgerald, L.P. ("BGCD") based on its systemic failure to report, or misreporting of, swap transactions.  But I do not support the provisions of the settlement.  I do not agree that the $1.9 million penalty combined with no admissions by BGCD in settlement is sufficient to deter future violations or provide accountability and transparency.  Therefore, I vote to concur, rather than fully support.

A higher penalty and defendant admissions to wrongdoing would serve as a stronger deterrent for BGCD and other SEFs.  Further, this case warrants the heightened accountability and transparency that comes with requiring the defendant to admit to its wrongdoing.[1] 

The CFTC should have required BGCD admissions because BGCD's violations were egregious.  BGCD had systemic reporting problems for five years.  Because BGCD had inadequate processes and procedures for reporting swap transactions and identifying reporting issues as they arose, BGCD failed to report, or accurately report, over 16,000 swap transactions under CFTC rules intended to enhance transparency in swap markets.  BGCD took more than a year to implement a reconciliation process identified by its compliance department in March 2020 that would ensure that all transactions on the SEF were being reported. 

As the Commission's proposed order states, "Reporting is at the heart of the Commission's market and financial surveillance programs, which are critical to the Commission's mission to protect market participants and promote market integrity.  Accurate swap data is essential to the effective fulfillment of the regulatory functions of the Commission, including meaningful surveillance and enforcement programs." 

If reporting is at the heart of the Commission's market surveillance and enforcement programs, we should take a hard stance when we find violations of our swap reporting rules. 

[1] I recently called for more defendant admissions in CFTC settlements.  See Statement of Commissioner Christy Goldsmith Romero: Proposal for Heightened Enforcement Accountability and Transparency (HEAT) Test to Require More Defendants to Admit Wrongdoing in Settlements (Sept. 19, 2022), available at https://www.cftc.gov/PressRoom/SpeechesTestimony/romerostatement091922.

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.

In May 2021, FINRA's Department of Enforcement filed a nine-cause complaint against NYPPEX, Allen, and Schunk alleging a pattern of misconduct that followed a temporary restraining order issued against Allen and others in December 2018 by a New York state court. That order-issued after the New York Attorney General (NYAG) alleged that Allen was engaging in "fraudulent and deceptive practices arising out of [Allen's and others'] management and operation" of a private equity fund-preliminarily enjoined Allen from engaging in securities fraud and converting investor funds, among other activities.

Following an 11-day hearing, the panel ruled in favor of Enforcement on all nine causes of action of the complaint. Specifically, the panel found that, shortly after the December 2018 court order, NYPPEX and Allen launched an aggressive sales campaign to raise $10 million by selling interests in NYPPEX Holdings (NYPPEX's parent company). The panel concluded that during the campaign, NYPPEX and Allen committed securities fraud when they "intentionally or, at a minimum, recklessly" made material misstatements and omissions to prospective investors about NYPPEX Holdings' valuation and financial condition, the New York court's order against Allen, and the ongoing investigation by the NYAG into Allen and NYPPEX-affiliated entities, among other matters.

The panel also found that NYPPEX and Allen failed to cooperate with FINRA's investigation into their misconduct and that their "failure to comply completely was intentional, and part of a lengthy pattern throughout the investigation of flouting FINRA 8210 requests." (FINRA Rule 8210 requires registered firms and their associated persons to provide information orally, in writing, or electronically and to testify under oath on any matter involved in a FINRA investigation, complaint, examination, or proceeding.) In addition, the panel found that NYPPEX, Allen, and Schunk submitted a false and misleading response letter to FINRA in which they "attempted to deceive [FINRA] into mistakenly believing, among other things, that they had complied with regulatory requirements" when they had not.

The panel also found that:

• Although the December 2018 New York court order statutorily disqualified Allen, he improperly remained associated with NYPPEX, and during that time engaged in securities fraud;
  
  
• NYPPEX and Allen made false and misleading statements to investors during a March 2019 "webinar" and on NYPPEX's website. Allen repeated the false and misleading statements in an affidavit submitted to the New York court and to FINRA; and
   
• Schunk failed to reasonably supervise Allen, when he, "abdicated his supervisory responsibilities and rubber-stamped Allen's misconduct." This "lax approach to supervision. . . allowed Allen to act with impunity, leading to serious infractions of the federal securities laws."

NYPPEX, LLC is expelled from FINRA membership and Laurence Allen is barred from associating with any FINRA member firm in any capacity for responding untimely and incompletely to FINRA requests for information and documents. 

In light of the expulsion, no further sanctions are imposed against NYPPEX for its other violations: permitting Allen, a statutorily disqualified person, to remain associated with NYPPEX; making misrepresentations and omissions of material fact to prospective investors in connection with a securities offering; violating FINRA's advertising standards in communications to prospective investors and in material posted on NYPPEX's website; violating just and equitable principles of trade by making false or misleading statements on NYPPEX's website; failing to reasonably supervise Allen; and making false or misleading statements in response to FINRA information requests. 

In light of the bar, no further sanctions are imposed against Allen for his other violations: remaining associated with NYPPEX after he became statutorily disqualified; making misrepresentations and omissions of material fact to prospective investors in connection with a securities offering; violating FINRA's advertising standards in communications to prospective investors and in material posted on NYPPEX's website; violating just and equitable principles of trade by making false or misleading statements on NYPPEX's website, to a court, and to FINRA; and making false or misleading statements in response to FINRA information requests.

Michael Schunk is fined $70,000 and suspended in all capacities from associating with any FINRA member firm for 18 months for permitting a statutorily disqualified person to remain associated with NYPPEX; barred from acting in any principal or supervisory capacity with any FINRA member firm for failing to supervise Allen; and fined $50,000 and suspended in all capacities from associating with any FINRA member firm for two years for making false or misleading statements in response to FINRA information requests. Schunk's all-capacities suspensions are imposed concurrently.

From July 1, 2018 through May 14, 2019, Respondent submitted to one of the third-party broker-dealers with which it had contracted options orders for two customer accounts that had incorrect origin codes. Specifically, Respondent submitted for execution 28,959 options orders, totaling 90,657 contracts, that incorrectly stated that the orders originated from Customers, even though the customers were in fact Professional Customers at the time of the orders. The inaccurate origin codes were caused by a computer coding error in the firm's order routing system. Respondent fixed the error on May 15, 2019, after FINRA contacted it about the error. 

Therefore, Respondent violated Exchange Act § 17(a) and Exchange Act Rule l 7a3(a)(6)(i), and FINRA Rules 4511 and 2010. 

. . .

From July 1, 2018 through May 14, 2019, Respondent's supervisory system, including written procedures, was not reasonably designed to ensure that the options orders the firm submitted included correct origin codes. Respondent maintained written procedures requiring it to conduct quarterly reviews to determine whether the firm was using accurate origin codes on its options orders. Respondent's origin code reviews were, however, limited to determining whether customers who qualified as Professional Customers were properly categorized in the firm's systems. Respondent's origin code reviews did not encompass its order routing system or a review of executed trades to ensure that orders the firm submitted to other broker-dealers for execution contained accurate origin codes. After FINRA contacted it about the matter in May 2019, Respondent revised its relevant supervisory procedures. 

Therefore, Respondent violated FINRA Rules 3110 and 2010. 

Between March 2020 and March 2021, while associated with the firm, Mora engaged in an outside business activity by becoming an insurance agent with Company A. In March 2020, Mora obtained insurance illustrations from Company A and sent them to an Intercam customer. In April 2020, Mora sold a life insurance policy to the customer through Company A, and in June 2020, Mora received $5,785 in compensation from Company A for that sale. Mora continued to work as an insurance agent for Company A with the authorization to sell insurance products with Company A's affiliated insurance carriers until March of 2021. Intercam did not give approval to Respondent to sell any life insurance or any products offered by Company A. 

Respondent did not provide prior written notice of these outside business activities involving Company A to Intercam, or seek approval from the firm prior to engaging in them. Additionally, Respondent falsely attested on Intercam's December 2020 annual compliance questionnaire that his previous Form U4 OBA disclosures, were accurate and complete, even though he did not include his outside business activities with Company A. As a result, the December 2020 attestation was false. 

By engaging in an outside business activity without providing prior written notice to Intercam, Respondent violated FINRA Rules 3270 and 2010. 

In 2020, as a result of the COVID-19 pandemic, the federal government initiated several programs to assist small businesses, including the COVID-19 Economic Injury Disaster Loan Program, which was administered by the SBA. In July 2020, Horn submitted an application to the SBA for an Economic Injury Disaster Loan. Prior to submitting the application, Horn did not sufficiently review the Economic Injury Disaster Loan program requirements to determine his eligibility. In addition, Hom did not review the instructions for completing the application, which contained additional information about program eligibility. 

In the application, Horn recklessly misrepresented that he owned a sole proprietorship under the business name Steven Hom, using a Tax ID number that was identical to his personal social security number. Hom further misrepresented that the primary email address for this business was his personal email address and that the revenues and costs associated with his Citigroup business were those of the sole proprietorship. In actuality, Horn was providing financial services only in his capacity as a registered representative with Citigroup. Horn did not have any outside business activities, including any sole proprietorship or other financial services business bearing his name and personal social security number. Additionally, Hom was using only his Citigroup-issued email address to conduct his financial services business, not his personal email address. Hom's Citigroup business was not eligible for an Economic Injury Disaster Loan, and he did not have any other business eligible for an Economic Injury Disaster Loan from the SBA. 

Based on Horn's misrepresentations, the SBA approved Horn's application. On August 8, 2020, Horn signed the loan agreement, which contained an affim1ation that the representations made in Horn's application were correct. Horn did not review the loan agreement before signing it. On August 11, 2020, the SBA provided Hom with a $150,000 loan. 

In October 2020, Citigroup commenced an investigation of Hom's activity. In early November 2020, prior to his resignation from Citigroup, Horn repaid the loan in full, with interest to the SBA. 

Based on the foregoing, Horn violated FINRA Rule 2010. 

In June 2016, before associating with Lincoln, Plumb submitted an outside business activity disclosure form to Lincoln disclosing his role as a board member of a mutual fund company (Fund Company). Lincoln approved Plumb's disclosed role. In August 2017, Plumb's role with the Fund Company expanded, and he began working for the company as chief financial officer and treasurer. Plumb did not disclose his new role with the Fund Company to Lincoln. 

Additionally, in January 2017, Plumb began providing consulting services to a registered investment advisory firm and the investment advisor to the Fund Company pursuant to a consulting agreement. Plumb provided economic research, marketing support, and financial analysis to the investment advisory firm. Plumb did not disclose to Lincoln his role with the investment advisory firm until December 2018. In March 2019, Lincoln denied Plumb's request to work for the investment advisory firm. Notwithstanding this, Plumb continued to work for, and receive compensation from, the investment advisory firm throughout his association with Lincoln. 

Between November 2017 and December 2019, Plumb incorrectly attested on three annual compliance questionnaires submitted to Lincoln that he had disclosed all outside business activities. 

Therefore, Plumb violated FINRA Rules 3270 and 2010. 

. . .

While associated with Lincoln, Plumb was approached by and assisted four individuals in purchasing mutual fund shares directly from the Fund Company. These individuals purchased approximately $387,000 of mutual fund shares directly from the Fund Company. Plumb assisted these individuals with their purchases by meeting with them to discuss their investments, completing the paperwork required to purchase the mutual fund shares, and advising them on how to send payment to the Fund Company for the mutual fund share purchases. Plumb did not receive any commissions or other payments for his role in the transactions, though he was affiliated with the Fund Company as a member of the board and the chief financial officer and treasurer. Plumb did not provide written notice to Lincoln prior to participating in those individuals' transactions. 

Therefore, Plumb violated FINRA Rules 3280 and 2010.