Securities Industry Commentator by Bill Singer Esq

FINRA Cites RBC Capital Market's Supervisory Review, Personnel Turnover, and Outdated Tech (BrokeAndBroker.com Blog)

DOJ RELEASES

Band Of Cybercriminals Responsible For Computer Intrusions Nationwide Indicted For Rico Conspiracy That Netted Millions (DOJ Release)

Burlington County Man Admits Bank Fraud (DOJ Release)

Former New Jersey Man Sentenced to Federal Prison for Role in Scheme to Defraud Elderly Oregonian (DOJ Release)

Rhode Island Man Pleads Guilty to Charges for Swindling Victims Who Thought They Were Investing in 'Magic Mike' Stage Show (DOJ Release)

SEC RELEASES

SEC Charges Incarcerated Felon and Five Friends in $2 Million Fraud Scheme (SEC Release)

SEC Order $10 Million Whistleblower Award to Claimant 

Order Determining Whistleblower Award Claims

CFTC RELEASES

FINRA RELEASES

FINRA Fines and Suspends Rep for Discretionary Trading 

In the Matter of M B Schreiber, Respondent (FINRA AWC)

FINRA Fines and Suspends Rep for Providing Letters of Credit to Raymond James' Customer

In the Matter of Scott G. Warnock, Respondent (FINRA AWC)

FINRA Fines and Suspends Rep for Cutting and Pasting Customer Signatures

In the Matter of Trent J. Davis, Respondent (FINRA AWC)

FINRA Fines and Suspends Rep for OBA

In the Matter of Penny S. Morgan, Respondent (FINRA AWC)

[F]rom 2015 through 2019, the defendants and numerous other conspirators-including a now-deceased conspirator who is referenced in the indictment as RICH4EVER4430-banded together to engage in a sophisticated cybercrime and tax fraud scheme. 

Jenkins, Michel, Propht-Francisque, Cherelus, and RICH4EVER4430 purchased on the dark web server credentials for the computer servers of Certified Public Accounting (CPA) and tax preparation firms across the country. They used those server credentials to remotely and covertly commit computer intrusions and exfiltrate the tax returns of thousands of taxpayers who were clients of those CPA and tax preparation firms. Those tax returns included the clients' names, dates of birth, Social Security numbers, and financial information.

Jenkins, Michel, Propht-Francisque, Cherelus, RICH4EVER4430, and other conspirators then partnered with Jacques, Elan, Poix, Jolteus, and others to form an enterprise through which they filed thousands of false tax returns in the names of more than 9,000 identity theft victims. 

Members of the enterprise created and operated at least six fraudulent tax preparation businesses in south Florida, and used those businesses to file many of these false tax returns. The conspirators directed the resulting tax refunds to debit cards and bank accounts that they controlled. Also, to make the businesses appear more legitimate, members of the enterprise opened bank accounts in the names of these fraudulent tax businesses to receive fake "tax preparer fees." Members of the enterprise also registered with the Internal Revenue Service (IRS) preparer tax identification numbers using the names and information of identity theft victims, to make it appear that those victims were the individuals who were filing false returns in bulk. 

In other iterations of the charged RICO conspiracy, members of the enterprise "hijacked" the IRS-issued identification numbers of CPA and tax preparation firms and used those identification numbers to file scores of additional false tax returns.  Members of the enterprise filed false self-prepared tax returns using stolen identities as well.

To obfuscate their cybercriminal conduct, the conspirators routinely used pseudonyms, opened business entities and bank accounts in the names of nominees and identity theft victims, and conducted their illicit business using dozens of different email addresses. Altogether, the enterprise claimed more than $36 million in false tax refunds over the course of approximately four years. The actual loss amount is still being calculated but is at least $4 million.

From August 2016 through August 2017, Hill-Birdsong conspired with Lamar Melhado, of the Bronx, New York, and others to defraud a Mount Laurel, New Jersey, bank. Hill-Birdsong worked inside the call center and recruited other call center employees to participate in the scheme by stealing the identities and account information of customers who called into the bank's call center. The conspirator bank employees would then take photographs or screenshots of the bank customer's account information and signatures and would send that information to Hill-Birdsong and Melhado. The conspirators then had phony identification documents made in the names of the bank customers, and used various runners to go into bank branches and make unauthorized cash withdrawals. The conspirators also used the stolen identity information to conduct unauthorized online transfers of moneys from the customer's accounts.

Between September 2017 and September 2021, Schreiber exercised discretionary trading authority when he executed at least 295 securities transactions in 27 Aegis customer accounts. The 27 customers did not provide Schreiber with prior written authorization for his use of discretion, and Aegis did not approve the accounts as discretionary accounts. 

Therefore, Schreiber violated NASD Rule 2510(b) and FINRA Rules 3260(b) and 2010. 

. . .

Between September 2017 and September 2021, Schreiber improperly marked 181 order tickets as "unsolicited" when in fact Schreiber had solicited them because he had recommended the transactions to the customers, causing Aegis to maintain inaccurate books and records with respect to these trades. 

Additionally, between July 2019 and June 2020, Schreiber used his personal e-mail address to communicate with two firm customers about securities transactions in their Aegis accounts. Schreiber did not disclose his use of his personal e-mail to Aegis, or provide the firm with copies of his electronic correspondence with the customers, causing the firm to maintain incomplete records of his business-related communications. 

Schreiber falsely stated on the Finn's 2017, 2018, 2019, 2020 and 2021 annual compliance questionnaires that he did not exercise discretionary authority in any customer accounts. Schreiber also falsely stated on the Firm's 2019, 2020 and 2021 annual compliance questionnaires that he did not use a personal e-mail address for business-related communications. 

Therefore, Schreiber violated FINRA Rules 4511 and 2010. 

Beginning in July 2017, while Warnock was employed in Raymond James' Corporate & Executive Services group, Customer A asked Warnock to prepare letters of credit to obtain financing for Customer A's business activities. Warnock's job responsibilities at the time included providing brokerage account-related services to corporate and executive customers like Customer A. However, Raymond James did not provide letters of credit to firm customers, and Warnock never sought authorization from Raymond James to sign letters of credit on behalf of the firm. 

Between December 2017 and October 2018, Warnock prepared and signed six documents that purported to be letters of credit issued by Raymond James, totaling approximately $6 million in credit, without his firm's knowledge or authorization. Warnock did not receive remuneration or otherwise profit from this conduct. Customer A provided these letters of credit to two lenders. When Raymond James discovered the unauthorized letters of credit in September 2020, it advised Customer A that the letters of credit he had provided to the lenders were not valid. Customer A then provided alternative letters of credit to the lenders. 

By executing and issuing the purported letters of credit without authorization from Raymond James, Warnock violated FINRA Rule 2010. 

[M]autone was one of five individuals who together perpetrated a scheme to convince an elderly man to invest $1 million in a fraudulent high-yield international investment scam. In July 2015, one of Mautone's co-defendants, Jared Mack, 46, of Utah, made initial contact with the victim to pitch an investment opportunity claiming to produce weekly returns of 20%. Once the victim expressed interest in the purported investment opportunity - and produced evidence he had $1 million to invest - Mack introduced him to Mautone, the supposed connection to investment "platform partner," and codefendant Olabode Olukanni, 39, of New York.

For several months, Mautone and his co-defendants maintained frequent contact with the victim and repeatedly attempted to assure him, via a series of increasingly intimidating and pressure-laden communications, of the investment opportunity's legitimacy, low risk, and promised returns. Mautone made these false representations despite knowing that others had their money stolen by his supposed Hong Kong investment partner, and despite being convicted only two years earlier of wire fraud for pitching a similar high-yield investment scam in South Carolina. 

In December 2015, following this months-long pressure campaign, the victim wired $1 million to a bank account in Dubai, United Arab Emirates, which was controlled by codefendant Rovshan Bahader Oglu Qasimov, 38, of Azerbaijan. Qasimov immediately withdrew the money and used it to purchase gold from a jewelry store in Dubai. The victim never saw his money again, nor did he receive the promised investment returns.

Santilli managed and partly owned Aloris Entertainment, LLC, which acquired an interest - through securities called "Class A Units" - in Mike's Mobile Detailing, LLC, the company that operates the "Magic Mike Live" stage show, which is based on two "Magic Mike" movies that chronicle the life of a male stripper.

From June 2016 to February 2020, Santilli raised funds from victims by soliciting investments in "Aloris Magic Mike LP," a different business that he falsely told investors owned the Class A Units. Santilli lied to investors, telling them that, in return for their investment, they would receive "shares" in Aloris Magic Mike LP that corresponded to a particular number of Class A Units and entitled them to a percentage of the profits from "Magic Mike Live." To bolster his false claims, Santilli used a doctored legal document that made it appear that Aloris Magic Mike LP was a shareholder of Mike's Mobile Detailing

Santilli misappropriated a significant portion of his victims' investments, including by withdrawing more than $1 million at casinos across the United States, where he used investors' money for gambling. To raise more funds, Santilli falsely told his victims that new investment opportunities had arisen, resulting in Santilli selling shares in his businesses that corresponded to nearly double the number of Class A Units of Mike's Mobile Detailing that his company actually owned.

In total, Santilli caused approximately $4,258,679 in losses to his victims.

[F]rom May 2019 to early January 2021, Syed Arham Arbab, 25, and five others made more than $2 million in bogus deposits from empty or underfunded bank accounts into various brokerage accounts to deceive broker-dealers into providing instant deposit credit for online securities trading. The complaint alleges that Arbab and his fellow participants, which included his high school and college friends and a relative, received more than $1.5 million in instant deposit credit that they used to make unfunded online trades, which caused affected broker-dealers to lose at least $146,660. The complaint alleges that, in some instances, Arbab's co-defendants gave Arbab their brokerage account log-in credentials so that he could personally engage in freeriding using their accounts, while, in other instances, Arbab coached such individuals in real time through text messages about how to freeride using their own accounts. Arbab allegedly conducted this scheme just before starting his prison sentence for another securities related scheme. The SEC previously charged Arbab in 2019 for running a Ponzi scheme from his fraternity house near the University of Georgia campus-for which he began serving a five-year sentence in January 2021, after he pleaded guilty in a parallel criminal case by the U.S. Attorney's Office for the Middle District of Georgia.

[(1)] Claimant's information was of great significance to the investigation, and there is a close nexus between Claimant's allegations about certain Redacted and those charges in the Covered Action; (2) Claimant provided substantial assistance by providing important documents and meeting twice with Enforcement staff; and (3) the law enforcement interests here are high, as Claimant's information led to the return of a significant amount of money to harmed investors. 

From October 2019 through February 2020, Davis forged 181 firm documents by cutting and pasting customers' signatures from previously executed documents. These documents included, among others, Broker/Dealer Change Requests, Client Information and Suitability profiles, IRA Rollover Disclosures and Acknowledgements, Change of Beneficiary forms, and IRA/ESA Distribution Requests. Although Davis' customers did not give prior permission for the use of their signatures, they authorized the activity set forth on the forms in question. 

Therefore, Davis violated FINRA Rule 2010. 

Moreover, by forging the documents identified above, Davis caused Cambridge to maintain inaccurate books and records. 

Therefore, Davis also violated FINRA Rules 4511 and 2010. 

Morgan engaged in two business activities that were outside the scope of her relationship with Royal Alliance without providing prior written notice to the firm. First, from February to April 2017, Morgan provided services to two senior Royal Alliance customers in connection with the preparation of their house for sale and their transitioning to an independent-living facility. Morgan sent the customers an invoice for her services, which the customers paid. Second, in July 2021, Morgan provided services to another Royal Alliance customer in connection with the removal of a customer's property from a duplex the customer owned and rented out to others. Morgan also sent that customer an invoice for her services, which the customer paid. 

Morgan did not disclose either of these business activities, both of which were outside of the scope of her relationship with Royal Alliance, to the firm. On the contrary, between 2017 and 2020, Morgan also completed annual compliance questionnaires for Royal Alliance in which she attested that she had disclosed all of her disclosed outside business activities when, in fact, she had not disclosed to the firm the two business activities described above. 

Therefore, Morgan violated FINRA Rules 3270 and 2010.

• Securities Industry Commentator
• Bill Singer