Securities Industry Commentator by Bill Singer Esq

A Lack of Finality: The Trevor Saliba Saga at FINRA and the SEC and Again at FINRA 

(BrokeAndBroker.com Blog)

Wells Fargo suit against ex-lawyer 'unusual,' could have 'chilling effect' (Financial Planning by Victoria Zhuang)

OFAC Settles with Bittrex, Inc. for $24,280,829.20 Related to Apparent Violations of Multiple Sanctions Programs (Treasury Department Release)

US DEPARTMENT OF LABOR ANNOUNCES PROPOSED RULE ON CLASSIFYING EMPLOYEES, INDEPENDENT CONTRACTORS; SEEKS TO RETURN TO LONGSTANDING INTERPRETATION / Misclassification continues to deny workers' rightful wages; hurt businesses, economy

DOJ RELEASES

Former Comptroller Of Investment Adviser Firm Sentenced To 80 Months In Multimillion-Dollar Investment Fraud (DOJ Release)

SEC RELEASES

SEC Reopens Comment Periods for Several Rulemaking Releases Due to Technological Error in Receiving Certain Comments (SEC Release)

SEC Awards Claimant About $825,000 Whistleblower Award

Order Determining Whistleblower Award Claims

CFTC RELEASES

Federal Court Orders Texas Fraudulent Forex Trader and His Company to Pay Over $940,000 (CFTC Release)

FINRA RELEASES

Heightened Threat of Fraud: FINRA Alerts Firms to Recent Trend in Fraudulent Transfers of Accounts Through ACATS (FINRA Regulatory Notice)

FINRA Censures and Fines Rep for Willful Violation of Best Interest Obligation Under Regulation BI

In the Matter of Charles V. Malico, Respondent (FINRA AWC)

Bittrex, Inc. ("Bittrex"), a private company based in Bellevue, Washington, that provides an online virtual currency exchange and hosted wallet services, has agreed to remit $24,280,829.20 to settle its potential civil liability for 116,421 apparent violations of multiple sanctions programs. As a result of deficiencies related to Bittrex's sanctions compliance procedures, Bittrex failed to prevent persons apparently located in the Crimea region of Ukraine, Cuba, Iran, Sudan, and Syria from using its platform to engage in approximately $263,451,600.13 worth of virtual currency-related transactions. The applicable sanctions programs generally prohibited U.S. persons from engaging in transactions with these jurisdictions. Based on internet protocol ("IP") address information and physical address information collected about each customer at onboarding, Bittrex had reason to know that these users were in jurisdictions subject to sanctions. At the time of the transactions, however, Bittrex was not screening this customer information for terms associated with sanctioned jurisdictions. The settlement amount reflects OFAC's determination that Bittrex's apparent violations were not voluntarily self-disclosed and were not egregious.

Specifically, the proposed rule would do the following:

• Align the department's approach with courts' FLSA interpretation and the economic reality test.
• Restore the multifactor, totality-of-the-circumstances analysis to determine whether a worker is an employee or an independent contractor under the FLSA. 
• Ensure that all factors are analyzed without assigning a predetermined weight to a particular factor or set of factors.
• Revert to the longstanding interpretation of the economic reality factors. These factors include the investment, control and opportunity for profit or loss factors. The integral factor, which considers whether the work is integral to the employer's business, is also included.
• Assist with the proper classification of employees and independent contractors under the FLSA.
• Rescind the 2021 Independent Contractor Rule. 
  
  

Beginning in 1982, HECTOR MAY was the president of ECP and provided financial advisory services to numerous clients.  In 1993, BELL joined ECP, where she held various titles including comptroller and chief compliance officer.  ECP worked with a broker dealer ("Broker Dealer-1"), of which MAY became a registered representative in 1994. 

In order to obtain money from the Victims' securities accounts with Broker Dealer-1, MAY advised the Victims, among other things, that they should use money from those accounts to have ECP, rather than Broker Dealer-1, purchase bonds on their behalf.  With BELL's assistance, MAY guided the Victims, first, to withdraw their money from their Broker Dealer-1 accounts, and second, to send that money to the ECP Custodial Account by wire transfer or check.  At times, when ECP was running out of cash and desperately needed to make supposed bond interest payments to avoid exposing the Ponzi scheme, BELL reached out to Victims directly.  After the Victims sent their money to the ECP Custodial Account, MAY and BELL did not use the money to purchase bonds.  Instead, BELL and MAY transferred the money to ECP's "operating" account and spent it on business expenses, personal expenses, and to make payments to certain Victims in order to perpetuate the scheme and conceal the fraud.  In this way, from the late 1990's through March 9, 2018, BELL and MAY induced Victims to forward them more than $11,400,000.

To help perpetuate the fraud, BELL and MAY created phony "consolidated" account statements that they issued through ECP and sent to the Victims.  These "consolidated" account statements purported to reflect the Victims' total portfolio balances and included the names of bonds MAY falsely represented that he purchased for the Victims and the amounts of interest the Victims were supposedly earning on the bonds.  In order to create the phony consolidated account statements, MAY provided BELL with bond names and false interest earnings, and BELL created ECP computerized account statements and had them distributed to the Victims.  As part of the scheme, MAY personally drove to the home of a stroke victim he and BELL had been defrauding of millions of dollars in order to retrieve the legitimate statements being sent by Broker Dealer-1 and later replace them with BELL's fake consolidated statements purporting to show the victim's investments had been growing.

BELL was instrumental to the scheme in multiple ways.  BELL processed and spent client money from ECP's custodial and operating accounts, watching the money dwindling and helping her father achieve more thefts at many months' ends; BELL faked account statements that made people believe that they held millions, even when she knew that their money was gone; and BELL wielded her role as Chief Compliance Officer and Comptroller to help conceal the fraud from Broker Dealer-1.

In an audio recording made in 2016, after more than sixteen years in the scheme, BELL said the following about MAY:  "I am his daughter, I am his confidante, I am the backbone that saves his butt in every promise he makes out of there. . . . The virtue of my knowledge is just by the presence of time here.  There is nothing in this office that I don't know, haven't touched, haven't seen, haven't done, haven't taught.  Everyone is always intimidated by the time I come in or the things I get to do personally that I've earned over time based on my life circumstances. It's what we call the perk of being the boss's daughter."  At the end of that year, MAY thanked BELL in a handwritten note: "My Dearest Vania: you have always been there for me.  You always watch my back.  I couldn't do it without you[.] Love, Daddy".

[C]laimant, Redacted expeditiously provided detailed information that prompted the opening of the investigation and thereafter met with Commission staff in person and provided additional information after submitting the initial TCR. Redacted

The order finds that from approximately October 2019 to June 2021, the defendants used various websites and social media platforms to fraudulently market their forex trading pool as a version of a savings account that offered a greater yield with similarly low or no risk. The defendants called this forex trading pool "The Black Club" and "The Forex Savings Club," which their website claimed had received over $460,000 from 411 participants.

The order further finds the defendants induced participation in their forex trading pool by falsely claiming to "guarantee" to repay participants the funds they contributed to their individual "Forex Savings Accounts" and falsely offered participants "with a 100% certainty" portions of the "substantial profit[s]" to be generated using participants' pooled funds to trade forex. In truth, the defendants knew or recklessly failed to appreciate that no forex trader can guarantee profitable trading, or the avoidance of losses required to guarantee all participants' contributions, and knew, but failed to inform participants, they had no U.S.-based forex trading accounts. 

Finally, the order finds the defendants illegally operated their commodity pool by failing to register as commodity pool operators, in violation of the CEA and CFTC regulations. 

Respondent understands that this settlement includes a finding that he willfully violated Rule 15l-1 of the Securities Exchange Act of 1934 and that under Article III, Section 4 of FINRA's By-Laws, this makes him subject to a statutory disqualification with respect to association with a member.

From July 2020 through November 2021, Malico recommended to one of his retail customers (Customer A) at Network 1 a series of transactions that was excessive in light of that customer's investment profile. In so doing, Malico placed his and Network 1's interests ahead of the interests of the customer. Customer A was a 63-year-old tax preparer with an annual income of approximately $100,000 and a liquid net worth of approximately $50,000. Although Customer A's average account balance during the relevant period was less than $30,000, Malico recommended that he make more than 350 trades in his account, which caused Customer A to pay more than $54,000 in commissions and other trading costs. 

Malico frequently recommended that Customer A buy and then sell a security, only to repurchase the same security weeks or even days later. For example, between January and July 2021, Malico recommended that Customer A buy and then sell shares of the same biotechnology company on six separate occasions. On four of those occasions, Malico recommended that Customer A buy shares of the company only to sell them on the same day or the next day. Such in-and-out trading caused Customer A to lose more than $6,000, while generating more than $3,200 in commissions and trading costs to Malico and Network 1. 

Collectively, the trades that Malico recommended in Customer A's account resulted in an annualized cost-to-equity ratio exceeding 158 percent-meaning that Customer A's account would have had to grow by more than 158 percent annually just to break even. As a result, Malico's recommendations made it virtually impossible for Customer A to realize a profit and, in fact, Customer A lost more than $17,500 during the relevant period.² 

Therefore, Malico willfully violated Exchange Act Rule 15l-1 and violated FINRA Rule 2010. 

= = = = =

Footnote 2: This AWC does not require that Malico pay restitution to Customer A because Network 1 has already compensated Customer A in connection with the settlement of an arbitration claim filed by the customer.

[D]ue to a technological error that resulted in a number of public comments submitted through the Commission's internet comment form not being received by the Commission. The majority of the affected comments were submitted in August 2022; however, the technological error is known to have occurred as early as June 2021.

To ensure that interested persons, including any affected commenters, have the opportunity to comment on the affected releases or to resubmit comments, the Commission is reopening the comment periods for the affected releases until 14 days following publication of the reopening release in the Federal Register.

As further described in the reopening release, all commenters who submitted a public comment to one of the affected comment files through the internet comment form between June 2021 and August 2022 are advised to check the relevant comment file on SEC.gov to determine whether their comment was received and posted. If a comment has not been posted, commenters should resubmit that comment.

. . .

Affected Releases:

• Securities Industry Commentator
• Bill Singer