Securities Industry Commentator by Bill Singer Esq

Newborn Baby, Paternity Leave, Away Account, Loss of Job, and the FINRA Fine and Suspension (BrokeAndBroker.com Blog)

Edward D. Jones Fails To Timely Or Fully Produce Phone Records To FINRA (BrokeAndBroker.com Blog)

Intellivest Securities Hunts Down Raiders Who Allegedly Gutted The Brokerage Firm (BrokeAndBroker.com Blog)

In the SEC's suit against Bankman-Fried, what about the customers? (Bloomberg by Alison Frankel)

Defendant Sentenced for Role in Sophisticated International Scheme to Steal Money from American Consumers' Bank Accounts (DOJ Release)

Co-Founder Of Multi-Billion-Dollar Cryptocurrency Pyramid Scheme "OneCoin" Pleads Guilty / OneCoin Was a Fraudulent Cryptocurrency Marketed and Sold to Millions of Victims Around the World, Resulting in Billions of Dollars in Losses (DOJ Release)

Six Individuals Charged in Multimillion-Dollar Transnational Tech Support Scam Targeting Tens of Thousands of U.S. Victims (DOJ Release)

Eight Men Indicted for $114 Million Securities Fraud Scheme Orchestrated Through Social Media (DOJ Release)

Woman Pleads Guilty to $2.6 Million Commodity Futures Trading Scheme (DOJ Release)

Insider At Major Financial Services Organization And Retired Financial Professional Charged With Multimillion Dollar Front-Running Scheme / Lawrence Billimek and Alan Williams Made Tens of Millions of Dollars in Profits by Trading Based on Stolen Confidential Trade Information (DOJ Release)

U.S. Attorney Announces Fraud And Money Laundering Charges Against The Founders And Promoters Of Two Cryptocurrency Ponzi Schemes (DOJ Release)

CFTC Charges Commodity Pool Operators and Their Co-Chief Investment Officer with Deception and Manipulation in Connection with Swaps and Supervision Failures (CFTC Release)

Unauthorized debits against victim accounts, caused by the conspirators, resulted in returned transactions and high return rates that often generated scrutiny from the banks. To both conceal and continue making these unauthorized debits, members of the criminal enterprise made misrepresentations to the financial institutions about the transactions, claiming that they were authorized. In some cases, members of the criminal enterprise caused the accounts used by the criminal enterprise to also make "micro debits" against other bank accounts controlled and funded by or for the criminal enterprise. The "micro debits" were used to artificially lower the return rates to levels that conspirators believed would reduce bank scrutiny and thereby lessen the likelihood of closure of the accounts used by the criminal enterprise. The criminal enterprise also operated a call center that fielded complaints from victims of the unauthorized debits. The call center sought to dissuade victims from making reports to the victims' banks and to government agencies.

As part of the enterprise, Sobel opened bank accounts in the United States at the direction of a co-conspirator who organized and conducted the affairs of the enterprise from outside the United States. For example, on or about Oct. 16, 2019, Sobel opened four business deposit accounts at a bank branch in Las Vegas, Nevada. Sobel opened the accounts for a shell company called "Silver Safe Box" and listed himself as the sole member and authorized signer in the account opening documentation. The criminal enterprise then funded "micro debits," designed to lower return rates through the Silver Safe Box accounts. Between approximately December 2019 and January 2021, the Silver Safe Box accounts funded over 800,000 "micro debits" in amounts ranging from $0.99 to $1.85. Sobel also recruited at least two associates in the United States to help the foreign co-conspirator, among other things, open additional bank accounts and register shell companies.

Sobel's participation also involved providing support for the activities of the criminal enterprise's call center in Ukraine. Sobel devised a script to be used in response to complaints from victims by the call center's personnel to retain as much of the criminal enterprise's proceeds as possible and - only on those occasions where those efforts failed - to then issue full refunds, in order to dissuade victims from making reports to the victims' banks and government agencies. Sobel also devised a metric by which he and the foreign co-conspirator could evaluate the effectiveness of the call center's personnel. As part of his guilty plea, Sobel admitted that more than $1.5 million in victim debits were reasonably foreseeable to him.

In 2014, GREENWOOD and IGNATOVA co-founded OneCoin,[1] a company based in Sofia, Bulgaria, that marketed a purported cryptocurrency by the same name, which was in fact a fraudulent pyramid scheme.  OneCoin operated as a MLM network through which members received commissions for recruiting others to purchase cryptocurrency packages.  This MLM structure influenced rapid growth of the OneCoin member network.  Indeed, according to OneCoin's promotional materials, over three million people invested in fraudulent cryptocurrency packages.  OneCoin records show that, between the fourth quarter of 2014 and the fourth quarter of 2016 alone, OneCoin generated €4.037 billion in sales revenue and earned "profits" of €2.735 billion.

IGNATOVA served as OneCoin's top leader until her disappearance from public view, in October 2017.  GREENWOOD was OneCoin's "global master distributor" and the leader of the MLM network through which the fraudulent cryptocurrency was marketed and sold.  In a video posted online, IGNATOVA attributed to GREENWOOD the idea of marketing and selling OneCoin through an MLM network structure.  GREENWOOD earned approximately €20 million a month in his role as the top MLM distributor of OneCoin.

GREENWOOD and IGNATOVA conceived of and built the OneCoin business fully intending to use it to defraud investors.  For example, in the summer of 2014, when GREENWOOD and IGNATOVA were developing the concept for OneCoin, they referred to the cryptocurrency in email correspondence as "trashy coin."  On June 11, 2014, IGNATOVA wrote to GREENWOOD concerning the OneCoin business plan, stating in part:

It might not be [something] really clean or that I normally work on or even can be proud of (except with you in private when we make the money) - but . . . I am especially good in this very borderline cases [sic], where the things become gray - and you as the magic sales machine - and me as someone who really can work with numbers, legal and back you up in a good and professional way - we could really make it big - like MLM meets bitch of wall street ;-)

In an August 9, 2014, email between GREENWOOD and IGNATOVA, IGNATOVA described her thoughts on the "exit strategy" for OneCoin.  The first option that IGNATOVA listed was, "Take the money and run and blame someone else for this . . . ."  And in a September 11, 2016, exchange with IGNATOVA's brother, Konstantin Ignatov, GREENWOOD referred to OneCoin investors stating, "These ppl are idiots," to which Ignatov responded, "as you told me, the network would not work with intelligent people ;)"

As a result of misrepresentations made by GREENWOOD, IGNATOVA, and other OneCoin representatives, victims throughout the world wired investment funds to OneCoin-controlled bank accounts in order to purchase OneCoin packages.  OneCoin falsely claimed that the value of OneCoin was based on market supply and demand, when in fact, the value of the cryptocurrency was simply set by OneCoin itself.  For example, on June 9, 2014, in an email sent by IGNATOVA to a representative of a blockchain development company, copying GREENWOOD, IGNATOVA stated, "we are building our own cryptocurrency - and would like to set up an internal exchange service for them.  We would like to be able to set the price manually and automatically and also control the traded volume."  On March 21, 2015, IGNATOVA wrote an email to GREENWOOD, in which IGNATOVA stated, "We can manipulate the exchange by simulating some volatility and intraday pricing."  (bold in original).  And in an August 1, 2015, email, IGNATOVA wrote to GREENWOOD, and included as part of a section of the email entitled "Goals": "6. Trading coin, stable exchange, always close on a high price end of day open day with high price, build confidence - better manipulation so they are happy."  The purported value of a OneCoin grew steadily from €0.50 to approximately €29.95 per coin.  The purported price of OneCoins never decreased in value.

GREENWOOD and other OneCoin leaders also claimed that the OneCoin cryptocurrency was "mined" using mining servers maintained and operated by the company.  In fact, OneCoins were never mined using computer resources.  For example, in an email to IGNATOVA dated August 11, 2014, GREENWOOD proposed, "Get members to think that they are mining their OneCoin via crunching (exchanging) tokens for OneCoin.  This storey [sic] is good as ppl will then not go super crazy and just try and sell tokens all the time."  GREENWOOD emailed IGNATOVA the following day, writing, "The concept of converting tokens into OneCoin is an important phase for validity and truth behind the OneCoin.  The so called ‘mining' of coins is a concept that is very familiar in the industry and a story we can sell to the members."  IGNATOVA then wrote to GREENWOOD, "We are not mining actually - but telling people shit," to which GREENWOOD responded, "how can this be investigated and found out?" and "Can any member (trying to be clever) find out that we actually are not investing in machines to mine but it is merely a piece of software doing this for us?"

GREENWOOD and other OneCoin leaders further claimed that OneCoin maintained a private "blockchain," or a digital ledger identifying OneCoins and recording historical transactions.  But OneCoin lacked a true blockchain, that is, a public and verifiable blockchain. Indeed, by approximately March 2015, IGNATOVA and GREENWOOD had started allocating to OneCoin members coins that did not even exist in OneCoin's purported private blockchain, referring to those coins as "fake coins."

GREENWOOD and IGNATOVA promoted OneCoin, including at official OneCoin events all over the globe.  One such event, called "Coin Rush," was held at Wembley Arena in London on June 11, 2016.  Thousands of OneCoin members attended Coin Rush.  During the event, GREENWOOD introduced IGNATOVA to the crowd, stating in part: "This is the creator, the mastermind, the founder of cryptocurrency, of OneCoin . . . Now, this will be the biggest welcoming on stage that we've ever done in history."  Then, to the tune of Alicia Keys's "Girl on Fire," and surrounded by actual onstage fireworks, IGNATOVA strode onto the Wembley Arena stage wearing a red ball gown.  She proceeded to repeatedly and favorably compare her fraudulent cryptocurrency to Bitcoin, stating, among other things, "OneCoin . . . is supposed to be the Bitcoin killer" and "In two years, nobody will speak about Bitcoin anymore."

On July 4, 2015, a federal holiday commemorating the independence of the United States, IGNATOVA announced the official opening of the United States market for OneCoin.  In early July 2015, GREENWOOD sent IGNATOVA an email stating in part, "I thought this could go out tonight, problem is I don't have the access to send out to the members," and attaching a document which announced a July 4, 2015, online webinar hosted by IGNATOVA and others to mark the official opening of the United States market for OneCoin.  Thereafter, on July 4, 2015, IGNATOVA participated in an online webinar, later posted to YouTube.com, in which IGNATOVA announced the official opening of the United States market for OneCoin.  During the webinar, IGNATOVA said, among other things, "[I]f we want to go and catch Bitcoin, we never can do this without being strong in the U.S. and without being part of the community.  So, um, this is actually why I am so excited about the U.S. as the market.  It's something that is about prestige.  It's a huge market.  And, um, it is, I think, a place of innovation, of Wall Street, a place where we have to be if we want to be big."  Many victims in the United States invested in fraudulent OneCoin cryptocurrency packages, including residents of the Southern District of New York.

GREENWOOD was arrested at his residence on the island of Koh Samui, Thailand, in July 2018, and was extradited to the United States to face fraud and money laundering charges in October 2018.  GREENWOOD has been detained since his arrest in July 2018.

On October 12, 2017, IGNATOVA was charged with OneCoin-related fraud and money laundering charges in the United States District Court for the Southern District of New York and a federal warrant was issued for her arrest.  On October 25, 2017, IGNATOVA traveled on a commercial flight from Sofia, Bulgaria, to Athens, Greece, and has not been seen publicly since.  IGNATOVA was added to the FBI's Top Ten Most Wanted List in June 2022.  The FBI is offering a $100,000 reward for information leading to IGNATOVA's arrest.

= = = 

[1] OneCoin has operated using several corporate entities and d/b/a names, including "OneCoin Ltd.," "OnePayments Ltd.," "OneNetwork Services Ltd.," "OneAcademy," and "OneLife." These entities and d/b/a names ar ereferred to collectively here as "OneCoin."

From 2012 through November 2022, the defendants and others were members of a criminal fraud ring that operated a technical support fraud scheme in the United States, India, and Canada. The scheme targeted victims across the United States and Canada, including New Jersey, many of whom were elderly. 

The primary objective was to trick victims into believing that their personal computers were infected with a virus or malware and then convince the victims to pay hundreds or thousands of dollars to the fraud ring for phony computer repair services. Over the course of the conspiracy, the fraud ring generated more than $10 million in proceeds from at least 20,000 victims.

The fraud ring caused fraudulent pop-up windows to appear on victims' personal computers. The pop-ups were designed, at times, to "freeze" the victims' computers, which prevented the victims from using or accessing files on their computers. The pop-ups also claimed, falsely, that the victims' computers were infected with a virus, or otherwise compromised, and directed the victims to call a telephone number to receive technical support.  Sometimes the pop-ups warned victims to not shut down their computers. The pop-ups also included, without authorization, the names of well-known, legitimate technology and antivirus companies. In reality, the pop-ups were a hoax, designed to trick the victims into believing that their computers were infected with viruses that did not actually exist.

Victims who called the technical support phone numbers appearing on the pop-ups were connected to one or more call centers in India associated with the fraud ring. Fraud ring members at the call centers falsely repeated that the victims' computers were infected with viruses and offered to fix the purported issue for a fee. The fraud ring members would then request permission to remotely access the victims' computers. Once granted access, fraud ring members would, at times, download and run a freely available adblocker tool, advise the victim that the "issue" had been resolved, and then leave a text file on the desktop of the computer with payment instructions.

Victims were instructed to pay the fraud ring in amounts ranging from hundreds to thousands of dollars by: (a) electronically scanning checks made payable to one of several shell companies set up by the fraud ring and (b) sending, via FedEx, physical checks to addresses maintained by Singh and Kumar in New Jersey. The fraud ring often contacted certain victims again to offer additional services or lengthier service agreements that required victims to pay even more money to the fraud ring.

In April 2018, Gheith entered into a Letter of Acceptance, Waiver, and Consent with FINRA to resolve allegations that he failed to disclose his participation in private securities transactions to his member firm, in violation ofNASD Rule 3040 and FINRA Rules 3280 and 2010. Specifically, with respect to conduct at his former firm, Gheith contacted four firm customers and referred them to other representatives at the firm to discuss making an investment in a private offering. After the four customers agreed to invest in the offering, Gheith was compensated for his involvement in these transactions. Gheith was suspended from associating with any member firm in any capacity for 12 months, fined $10,000 and ordered to pay $31,055 in disgorgement. 

Gheith's primary business was offering and selling private placements. In order to identify prospective customers, Gheith generally used publicly available sources such as accessing the Securities and Exchange Commission's EDGAR filing system and locating stockholder lists. Gheith would then use a third-party service to obtain contact information for investors on the lists and attempt to reach them by telephone. Gheith then cold called the potential customers and, during the initial calls, discussed various private placement offerings with them. After speaking with prospective customers, Gheith sent emails to them that contained information about Noble Capital and the private placements he discussed during the telephone calls. Gheith also frequently sent the offering documents and/or the subscription agreements for the private placements to the prospective customers. 

Between September 2019 and January 2020, Gheith solicited 40 prospective investors to purchase two different private placement offerings, both of which claimed exemption from registration pursuant to Rule 506(b) of Regulation D. Noble Capital began participating in each offering before Gheith created a substantive relationship with any of the prospective investors. None of the 40 prospective investors had previously invested in securities offered by Noble Capital nor did Gheith obtain investor questionnaires from the prospective investors prior to the time they agreed to invest in an offering. During this period, four of the 40 investors Gheith solicited invested a total of $175,000 in one of the private placement offerings. Gheith solicited all 40 investors before having a substantive relationship with any of them. 

Gheith thus engaged in general solicitation. The offers and resulting sales of the private placement offerings therefore did not qualify for an exemption from registration under Rule 506(b ). Based on the above, Gheith acted in contravention of Section 5 of the Securities Act and therefore violated FINRA Rule 2010. 

The complaint alleges that the option contracts at issue, which are swaps under the CEA, were tied to the U.S. dollar (USD) to South African rand (ZAR) exchange rate. Under their terms, if the USD/ZAR exchange rate fell below certain levels at any point during the life of the contracts, the contracts would pay out predetermined amounts totaling $30 million to two commodity pools under the joint management of Glen Point Capital. 

On two occasions, in late December 2017, during a period of low market liquidity (around Christmas time), Phillips engaged in a scheme to intentionally and artificially drive down the USD/ZAR exchange rate to levels that would trigger payouts on the option contracts. At that time, Phillips knew that only a few days remained for the USD/ZAR exchange rate to hit the predetermined amounts or else the contracts would expire, rendering them worthless. Rather than allowing free market forces to determine whether the USD/ZAR exchange rate would breach the predetermined amounts set by the contracts before they expired, Phillips orchestrated the trading of massive amounts of the USD/ZAR currency pair in the foreign exchange spot market for the express purpose of pushing the exchange rate down to the exact levels he needed to trigger the contracts. Phillips' scheme was successful and directly resulted in $30 million in payouts for the pools under Glen Point Capital's management.

As further alleged, Phillips expressed his manipulative intent in messages he sent to the bank that executed the spot trades. For example, during the first set of trades at issue, Phillips explicitly told a salesperson at the bank his objective was to trade through the rate of 12.50 rand per dollar - the barrier level that would trigger one of the option contracts - and Phillips repeatedly asked the salesperson how much he needed to sell in order to move the market below that level. As soon as Phillips caused the USD/ZAR rate to move below that level, he immediately stopped trading and asked the salesperson to send him a system printout of the final transaction as proof that the USD/ZAR rate had breached the 12.50 rand per dollar barrier level.

The complaint also alleges that while Glen Point Capital purported to have a compliance and supervision program in effect during the relevant period, and while Phillips' trading activity consisted of concentrated transactions that were executed in short time spans and led to changes in the USD/ZAR currency pair spot price that should have drawn the firm's attention, the firm's program either failed to detect or ignored this activity.

Related Criminal Action

On September 1, the U.S. Attorney's Office for the Southern District of New York announced the unsealing of an indictment against Phillips in the same court alleging conduct similar to that alleged in the CFTC's complaint. . . .

My point is that the SEC's pleading strategy in Tuesday's lawsuit shows that crypto remains a big challenge for U.S. regulators. An alleged fraudster is accused of misappropriating billions of dollars from customers who wanted to buy and sell crypto, yet the foremost investor protection agency in the United States is not claiming securities fraud on behalf of those customers.

[T]he defendants collectively had over 1.5 million followers on Twitter to whom they allegedly disseminated false and misleading information about the securities that they pumped and dumped as part of the charged scheme. In addition to their Twitter presence, the defendants also allegedly ran an online community for individual stock traders called Atlas Trading, which defendants promoted as one of the largest, free online communities in the world for individual stock traders and which had a chatroom called Atlas Trading Discord. The defendants also allegedly used Atlas Trading Discord to disseminate false and misleading information about securities that they pumped and dumped as part of the charged scheme.

defrauded at least 28 investors by falsely representing that she would invest their money in commodity futures and options contracts. In actuality, McDowell did not trade with the investors' money and instead misappropriated the funds for her personal use. McDowell also provided investors with fabricated trade confirmations and account statements to falsely indicate that their investments were generating returns. In addition, McDowell used money provided by new investors to repay earlier investors - a tactic often used to conceal and prolong Ponzi and other investment fraud schemes. McDowell had a history of defrauding investors and committed this fraud in violation of a prior judicial order.

LAWRENCE BILLIMEK has been employed at the Employer since approximately 2012.  The Employer is a major financial services organization that provides asset management services with over $200 billion in assets.  ALAN WILLIAMS spent years working as a trader in the financial services industry.  WILLIAMS is currently retired but is an active day-trader. 

The Front Running Scheme

Based on his position as a trader at the Employer, BILLIMEK had access to the trade information and trade orders of the Employer.  Like most large asset managers, the Employer had rules and regulations concerning employees' personal trading, including requirements about the confidentiality of client information and prohibitions against insider trading and personal trading in the same securities as the Employer.  Because of the size of the Employer's trade orders, trades by the Employer often caused temporary movements in the price of the securities they traded.  For example, if the Employer engaged in a large purchase of stock, the increased demand could cause a rise in the stock price, and if the Employer engaged in a large sale of stock, the increased supply could cause a drop in the stock price.  Because BILLIMEK had access to the Employer's trade orders, he knew in advance when a particular stock price would move up or down based on that trading.

WILLIAMS was an active day trader through at least two retail brokerage accounts.  From at least 2016 through 2022, after obtaining information about the Employer's upcoming trading activity from BILLIMEK, WILLIAMS bought or sold the same securities that the Employer would be buying or selling in order to profit through the subsequent movement of the stock that would occur along with the Employer's trading.  WILLIAMS would then exit those positions once the Employer's trading was underway or complete, often within minutes.  For example, if WILLIAMS learned from BILLIMEK that the Employer would be buying a particular stock, WILLIAMS purchased that stock beforehand.  Then, as the Employer made relatively large purchases, the stock price would increase and WILLIAMS would sell those same stock, on the same day, at a profit. 

BILLIMEK and WILLIAMS engaged in these front-running trades on at least over a thousand occasions between 2016 and 2022.  In order to hide their communication throughout the scheme, BILLIMEK used prepaid, unregistered "burner" phones to provide confidential information as well as trading instructions to WILLIAMS.  In total, WILLIAMS' trading based on the confidential trade information from BILLIMEK generated tens of millions of dollars in profits, and WILLIAMS shared millions of dollars of those profits with BILLIMEK through checks and wire transfers.  At times, BILLIMEK also provided false and misleading information to financial institutions about the purpose and nature of those transfers, including referring to them as gifts.

IcomTech and Forcount were both purported cryptocurrency mining and trading companies that promised to earn their respective victim-investors ("Victims") profits in exchange for their purchase of purported cryptocurrency-related investment products.  The founders and promoters of each scheme falsely promised their respective Victims, among other things, that profits from the companies' cryptocurrency trading and mining would result in guaranteed daily returns on Victims' investments and the doubling of those investments within six months.  In reality, neither company was engaging in cryptocurrency trading or mining, and the founders and promoters of both schemes were using Victim funds to pay other Victims, to further promote the schemes, and to enrich themselves.

Both the IcomTech and Forcount defendants fraudulently induced their victims to invest in sham cryptocurrency activities using similar methods.  The founders and promoters of the two schemes traveled throughout the United States and internationally where they hosted lavish expos and small community presentations aimed at luring Victims to invest in the schemes, including in the Southern District of New York.  During larger-scale events, the schemes' promoters would present the schemes' investment products and compensation plan, encourage Victims to invest as a means of achieving financial freedom, and boast about the amount of money they were earning.  The schemes' promoters often showed up at larger-scale events in expensive cars and wearing luxury clothing as a way of exhibiting their purportedly legitimate success from the schemes.  The atmosphere of these events was festive and designed to generate excitement about the schemes.

Victims invested in the IcomTech and Forcount schemes by purchasing investment products from promoters using cash, checks, wire transfers, and actual cryptocurrency. Following a Victim's investment, they would be provided with access to an online portal where they could monitor their purported returns.  While Victims saw "profits" accumulate on the schemes' respective online portals, most Victims were unable to withdraw any of these so-called profits and ultimately lost their entire investments.  By contrast, IcomTech and Forcount's promoters siphoned off, in some cases, hundreds of thousands of dollars in Victim funds, which they withdrew as cash, spent on promotional expenses for the schemes, and used for personal expenditures such as luxury goods and real estate.

At least as early as August 2018 with respect to the IcomTech scheme, and in or about April 2018 with respect to the Forcount scheme, Victims who attempted to withdraw money from their online portal accounts had difficulty doing so and, when they complained to promoters, they were met with excuses, delays, and hidden fees, if they were able to make any withdrawals at all.  Despite these complaints, IcomTech and Forcount's promoters, including the defendants, continued to promote their respective fraudulent schemes and accept Victims' investments.  As complaints mounted in both schemes, IcomTech and Forcount both began offering proprietary crypto-tokens for sale as a means of injecting liquidity into the schemes.  Promoters of the schemes claimed that these tokens, known as "Icoms" in the IcomTech scheme and "Mindexcoin" in the Forcount scheme, would eventually be worth a significant amount of money when they were accepted by companies for payment for goods and services.  This was false.  In reality, they were essentially worthless and resulted in further financial loss to Victims.  By in or about the end of 2019 with respect to IcomTech, and in or about 2021 with respect to Forcount, the schemes had stopped making payments to Victims and their chief promoters, including the defendants, stopped promoting the schemes, and, in some instances, stopped responding to Victims' complaints altogether.

In addition to promoting the Forcount scheme, SILVA and TACURI also sought to conceal their fraud by laundering Victim funds through shell companies and making large personal expenditures on things like real estate and bulk cellphone purchases.  On or about June 27, 2022, law enforcement officers with HSI stopped and interviewed HERNANDEZ as she was returning to the United States from Mexico.  During the interview, HERNANDEZ falsely denied, among other things, being a Forcount promoter, recruiting investors, and taking money from them.

On November 8, 2022, United States v. David Carmona, et al., 22 Cr. 551 (JLR), was unsealed.  As alleged in the Carmona indictment, CARMONA was the founder of IcomTech; OCHOA, VALDEZ, ARELLANO, and BREND were promoters of the scheme; and RODRIGUEZ was hired by CARMONA to build and maintain IcomTech's website and online portal.  On November 8, 2022, CARMONA was arrested in Queens, New York, and presented before United States Magistrate Judge Sarah L. Cave of the Southern District of New York; OCHOA was arrested in the District of New Hampshire; VALDEZ, ARELLANO, and RODRIGUEZ were arrested in the Central District of California; and BREND was arrested in the Middle District of Florida.  The Carmona matter has been assigned to United States District Judge Jennifer L. Rochon.

On December 14, 2022, United States v. Francisley da Silva, et al., S1 Cr. 622 (AT), was unsealed.  As alleged in the Silva indictment, SILVA was the founder of Forcount and TACURI and HERNANDEZ were promoters of the scheme.  On December 14, 2022, TACURI was arrested in the Southern District of Florida.  SILVA, a Brazilian national, has been in custody in Brazil since on or about November 3, 2022.  HERNANDEZ remains at large.  The Silva matter has been assigned to United States District Judge Analisa Torres.

[F]rom approximately July 2017 to November 2020, Brazilian national Da Silva and U.S.-based promoters Tacuri, Perez, and Coronado enticed and defrauded investors out of millions of dollars with the promise of guaranteed returns resulting from investments in "memberships" in Forcount Trader Systems. These memberships purportedly gave investors an interest in profits from Forcount's supposed crypto asset trading and mining operations. Investors could also participate in Forcount's referral program, which, as the complaint alleges, incentivized recruiting new victims. The complaint alleges that the defendants knew or were reckless in not knowing that Forcount had no crypto asset trading and mining operations and that the only way the scheme could continue was by increasing the investor base. The defendants allegedly accelerated Forcount's inevitable collapse by misappropriating investor funds to buy themselves homes, cars, and luxury goods.

amend Rule 612 of Regulation NMS to establish variable minimum pricing increments for quotations and orders in NMS stocks that are priced at, or greater than, $1.00 per share based on objective and measurable criteria and make such minimum pricing increments applicable to the trading of all NMS stocks regardless of price, subject to certain specified exceptions.  Under the proposal, the primary listing exchanges would measure and calculate the Time Weighted Average Quoted Spread for the relevant NMS stock and determine the applicable minimum pricing increment.

To reflect the lower variable minimum pricing increments proposed under Rule 612, the Commission also proposed to amend Rule 610 of Regulation NMS to reduce the access fee caps for protected quotations in NMS stocks priced $1.00 or more to $0.0005 per share for those NMS stocks that have a minimum pricing increment of $0.001, and to $0.001 per share for those NMS stocks that have a minimum pricing increment greater than $0.001 per share. For protected quotations in NMS stocks priced less than $1.00 per share, the proposal would cap access fees at 0.05 percent of the quotation price. In addition, the Commission proposed to amend Rule 610 to require exchanges to make the amounts of all fees and rebates determinable at the time of execution. 

Finally, the Commission proposed to accelerate the implementation of previously-adopted round lot and odd-lot information definitions to expedite the transparency benefits of these definitions by making information about better priced interest available in the market more widely available on a faster timetable. Moreover, the Commission proposed to amend the definition of odd-lot information to require the identification of the best priced odd-lot orders available in the market. 

expand the scope of entities subject to Rule 605, modify the information required to be reported under the rule, and change how orders are categorized for the purposes of the rule. Among other things, the proposal would expand the scope of entities that must produce monthly execution quality reports to include broker-dealers with a larger number of customers. In addition, the proposal would modify the definition of "covered order" to include certain orders submitted outside of regular trading hours and certain orders submitted with stop prices. The proposed amendments would capture more relevant execution quality information for these orders by requiring statistics to be reported from the time such orders become "executable."

The proposed amendments to how orders are categorized would require the reporting of execution quality information for fractional share orders, odd-lot orders, and larger-sized orders. Further, the proposal would require that the time of order receipt and time of order execution be measured in increments of a millisecond or finer and that realized spread be calculated at both 15 seconds and one minute. The proposal would also require new statistical measures of execution quality, such as average effective over quoted spread (a percentage-based metric that represents how much price improvement orders received) and a size improvement benchmark. Finally, the proposal would enhance the accessibility of the required reports by requiring all entities subject to the rule to make a summary report available to the public.

The changes to the rule update the conditions that must be met for the 10b5-1 affirmative defense. Specifically, the amendments adopt cooling-off periods for persons other than issuers before trading can commence under a Rule 10b5-1 plan. They also add a condition that all persons entering into a Rule 10b5-1 plan must act in good faith with respect to the plan. The amendments further provide that directors and officers must include representations in their plans certifying at the time of the adoption of a new or modified Rule 10b5-1 plan that: (1) they are not aware of any material nonpublic information about the issuer or its securities; and (2) they are adopting the plan in good faith and not as part of a plan or scheme to evade the prohibitions of Rule 10b-5.

The amendments restrict the use of multiple overlapping trading plans and limit the ability to rely on the affirmative defense for a single-trade plan to one single-trade plan per twelve-month period for all persons other than issuers. 

The amendments will require more comprehensive disclosure about issuers' policies and procedures related to insider trading, including quarterly disclosure by issuers regarding the use of Rule 10b5-1 plans and certain other trading arrangements by its directors and officers for the trading of its securities.

The final rules require disclosure of issuers' policies and practices around the timing of options grants and the release of material nonpublic information. The rules will require that issuers report on a new table any option awards beginning four business days before the filing of a periodic report or the filing or furnishing of a current report on Form 8-K that discloses material nonpublic information, including earnings information, other than a Form 8-K that discloses a material new option award grant under Item 5.02(e), and ending one business day after a triggering event. Insiders that report on Forms 4 or 5 will be required to indicate by checkbox that a reported transaction was intended to satisfy the affirmative defense conditions of Rule 10b5-1(c) and to disclose the date of adoption of the trading plan. Finally, bona fide gifts of securities that were previously permitted to be reported on Form 5 will be required to be reported on Form 4.

The final rules will become effective 60 days following publication of the adopting release in the Federal Register. Section 16 reporting persons will be required to comply with the amendments to Forms 4 and 5 for beneficial ownership reports filed on or after April 1, 2023. Issuers will be required to comply with the new disclosure requirements in Exchange Act periodic reports on Forms 10-Q, 10-K and 20-F and in any proxy or information statements in the first filing that covers the first full fiscal period that begins on or after April 1, 2023. The final amendments defer by six months the date of compliance with the additional disclosure requirements for smaller reporting companies.

The order, entered on December 13, stems from a CFTC complaint filed on August 17, 2021. [See CFTC Press Release 8415-21] The order finds that starting in approximately March 2018, Welther Oaks and its owner and controlling person, Ali Bazzi, fraudulently solicited at least $540,047 from at least 35 participants for a commodity pool that would purportedly trade leveraged or margined forex. According to the order, to entice participants, Bazzi and Welther Oaks falsely represented that they had made large profits trading forex; the solicited money would be used to trade forex; pool participants would realize guaranteed profits as high as 15 percent per month on their funds without losses; and participants could withdraw their funds at any time.

The order further finds that Bazzi and Welther Oaks used only a small fraction of the funds they collected to trade forex and concealed their fraud by issuing false account statements to participants that purported to show trading profits. The order additionally finds that the defendants misappropriated at least $439,644 of participants' funds to spend on automobiles, jewelry, retail purchases, meals, entertainment, and travel for Bazzi.

Parallel Criminal Action

Bazzi entered a guilty plea in a related criminal case in the U.S. District Court for the Eastern District of Michigan on August 17, 2021. On May 4, 2022, he was sentenced to thirty-three months in prison and ordered to pay $441,231.53 in restitution. (See United States v. Bazzi, 2:21-cr-20348-DML-DRG). . . .

In approximately October 2012, Brendza entered into an agreement through which he agreed to service certain customer accounts, including executing trades for those accounts, under a joint representative code (also known as a joint production number) that he shared with a representative who was planning on retiring in several years (Representative 1) and an active representative who was part of Brendza's team and who is an immediate family member ofBrendza (Representative 2). The agreement set forth what percentages of the commissions each representative would earn on trades placed using the applicable joint representative code. In February 2014, the parties amended the agreement in writing to provide Brendza and Representative 2 with higher percentages of commissions earned for trades placed using the joint representative code than what was set forth in the original agreement. 

From March 2015 through February 2018, Brendza placed 762 trades in accounts that were covered by the amended agreement using a representative code other than the one he should have used pursuant to the amended agreement.² Specifically, although the firm's system correctly prepopulated the trades with the applicable joint representative code, Brendza changed the code for the trades to a different joint representative code that he shared only with Representative 2. As a result of Brendza's actions, Brendza and Representative 2 received higher commissions from the 762 trades than what they were entitled to receive pursuant to the amended agreement with Representative 1. 

Brendza did not ask Representative 1 whether he could change the code on the 762 trades at issue and did not otherwise indicate to him that he was doing so. Brendza mistakenly believed that Representative 1 had agreed that he could change the representative code so that Brendza and Representative 2 would receive even higher percentages of commissions than what was set forth in the amended agreement. In fact, Representative 1 had not agreed that Brendza could change the representative code. The firm's trade confirmations for the 762 trades inaccurately reflected the representative code that Brendza shared with Representative 2 alone. 

In September 2018, Morgan Stanley paid restitution to Representative 1. Brendza, together with Representative 2, reimbursed the firm a total of approximately $275,000, which is the approximate amount of additional commissions that they received from the 1, I 42 trades as a result of Brendza and Representative 2 falsifying the representative code on the trades. 

By falsifying the representative code on the 762 trades, Brendza violated FINRA Rule 2010. In addition, Brendza violated FINRA Rules 4511 and 2010 by causing Morgan Stanley to maintain inaccurate trade confirmations. 

= = =

Footnote 2: Representative 2 separately placed 380 trades in accounts that were covered by the amended agreement using a representative code other than the one he should have used pursuant to the amended agreement. Representative 2 entered into an AWC with FINRA in April 2022.

From November 2017 to November 2022, the firm's WSPs concerning review of its registered representatives' electronic communications were not reasonable. The firm's WSPs did not identify the personnel responsible for searching or reviewing emails, state how frequently reviews should occur, or provide any information about the sample size for email review. In addition, the WSPs did not specify any keywords or process for identifying keywords to flag emails for review. Nor did the WSPs describe any parameters for conducting random sampling. Further, the WSPs did not describe any types of red flags or issues that would require follow up steps from reviewers or any steps for escalating issues identified during email review. 

The firm's email review was also unreasonable in practice during this period. The keywords the firm used to flag emails for review included the firm's own name, which appeared in virtually all its emails. In addition, the firm only reviewed a small fraction of the emails contained in the random sampling identified for review. As a result, the firm reviewed only 0.26% of the emails that its registered representatives sent or received from November 2017 to December 2021. 

Therefore, Respondent violated FINRA Rules 3110 and 2010. 

The festive season is here. Are you looking for the perfect gift for the compliance professional in your life? Look no further. On this episode, Kayte Toczylowski, FINRA's vice president of Member Relations and Education, joins us to share the top five FINRA tools and resources, or gifts, if you will, that you will want to make sure you are aware of and be sure to share with all of your colleagues.

Earlier this evening, Bahamian authorities arrested Samuel Bankman-Fried at the request of the U.S. Government, based on a sealed indictment filed by the SDNY.  We expect to move to unseal the indictment in the morning and will have more to say at that time.

Samuel Bankman-Fried ("Bankman-Fried") co-founded Alameda Research LLC ("Alameda"), a digital asset trading and investment firm, in Berkeley, California in 2017. In May 2019, he and others launched FTX Trading Ltd. b/d/a FTX.com ("FTX Trading") and various subsidiaries, affiliates, and related entities, collectively doing business as "FTX.com" or simply "FTX," a centralized digital asset exchange. (These parties are collectively referred to as "Defendants"). Alameda and FTX were large and well-known players in the digital asset industry, and Bankman-Fried was their young, high-profile leader. 

2. At its peak, the daily trading volume on FTX.com was over $20 billion, and it had garnered a $32 billion valuation. FTX had prominent paid sponsorships, including the naming rights to a professional sports arena in Miami, celebrity endorsements, and a 2022 Super Bowl commercial that touted FTX as "the safest and easiest way to buy and sell crypto." 

3. On November 11, 2022, Bankman-Fried's empire abruptly collapsed. FTX customers and the world at large discovered that FTX, through its sister-company Alameda, had been surreptitiously siphoning off customer funds for its own use-and over $8 billion in customer deposits were now missing. 

4. Beginning no later than May 2019 and continuing through at least November 11, 2022 (the "Relevant Period"), Bankman-Fried owned, operated, and/or controlled FTX Trading, along with its numerous subsidiaries and related entities around the world, all doing business as FTX.com. He also owned, operated, and/or controlled Alameda and its various subsidiaries and related entities, as well as numerous other related entities in the digital asset industry. Throughout the Relevant Period, Alameda operated as a primary "market maker" on FTX.com, providing liquidity to its various digital asset markets, and also performed a number of other key functions for the exchange. Bankman-Fried operated Defendant entities as a common enterprise. 

5. Throughout the Relevant Period, and unbeknownst to all but a small circle of insiders, FTX customers deposits, including fiat currency and digital assets such as bitcoin (BTC) and ether (ETH), that were intended to be used for trading or custodies on FTX, were regularly accepted, held by, and/or appropriated by Alameda for its own use. 

6. At Bankman-Fried's direction, FTX executives created features in the underlying code for FTX that allowed Alameda to maintain an essentially unlimited line of credit on FTX. FTX Trading executives also created other exceptions to FTX's standard processes that allowed Alameda to have an unfair advantage when transacting on the platform, including quicker execution times and an exemption from the platform's distinctive auto-liquidation risk management process. 

7. Throughout the Relevant Period, at the direction of Bankman-Fried and at least one Alameda executive, Alameda used FTX funds, including customer funds, to trade on other digital asset exchanges and to fund a variety of high-risk digital asset industry investments. 

8. Bankman-Fried and other FTX executives also took hundreds of millions of dollars in poorly-documented "loans" from Alameda that they used to purchase luxury real estate and property, make political donations, and for other unauthorized uses. 

9. Throughout the Relevant Period, Defendants, through a web of subsidiaries, affiliates, and other related entities (collectively the "FTX Enterprise") misappropriated customer funds for their own use and benefit. 

10. Despite this, FTX Trading represented, in its Terms of Service and elsewhere, that customers were the "owner[s]" of all assets in their accounts, had "control" over the assets at all times, and that those assets were "appropriately safeguarded and segregated" from FTX's own funds. 

11. Through this conduct and the conduct further described herein, Defendants violated Section 6(c)(1) of the Commodity Exchange Act (the "Act" or "CEA"), 7 U.S.C. § 9(1), and Commission Regulation ("Regulation") 180.1(a), 17 C.F.R. §180.1(a) (2021). Unless restrained and enjoined by this Court, Defendants are likely to continue to engage in the acts and practices alleged in this complaint and similar acts and practices, as more fully described below. 

12. Accordingly, the CFTC brings this action pursuant to Section 6c of the Act, 7 U.S.C. § 13a-l, to enjoin Defendants' unlawful acts and practices and to compel their compliance with the Act. In addition, the CFTC seeks civil monetary penalties and remedial ancillary relief, including, but not limited to, trading and registration bans, disgorgement, restitution, pre- and post-judgment interest, and such other relief as the Court may deem necessary and appropriate,

1. From at least May 2019 through November 2022, Bankman-Fried engaged in a scheme to defraud equity investors in FTX Trading Ltd. ("FTX"), the crypto asset trading platform of which he was CEO and co-founder, at the same time that he was also defrauding the platform's customers. Bankman-Fried raised more than $1.8 billion from investors, including U.S. investors, who bought an equity stake in FTX believing that FTX had appropriate controls and risk management measures. Unbeknownst to those investors (and to FTX's trading customers), Bankman-Fried was orchestrating a massive, years-long fraud, diverting billions of dollars of the trading platform's customer funds for his own personal benefit and to help grow his crypto empire. 

2. Throughout this period, Bankman-Fried portrayed himself as a responsible leader of the crypto community. He touted the importance of regulation and accountability. He told the public, including investors, that FTX was both innovative and responsible. Customers around the world believed his lies, and sent billions of dollars to FTX, believing their assets were secure on the FTX trading platform. But from the start, Bankman-Fried improperly diverted customer assets to his privately-held crypto hedge fund, Alameda Research LLC ("Alameda"), and then used those customer funds to make undisclosed venture investments, lavish real estate purchases, and large political donations. 

3. Bankman-Fried hid all of this from FTX's equity investors, including U.S. investors, from whom he sought to raise billions of dollars in additional funds. He repeatedly cast FTX as an innovative and conservative trailblazer in the crypto markets. He told investors and prospective investors that FTX had top-notch, sophisticated automated risk measures in place to protect customer assets, that those assets were safe and secure, and that Alameda was just another platform customer with no special privileges. These statements were false and misleading. In truth, Bankman-Fried had exempted Alameda from the risk mitigation measures and had provided Alameda with significant special treatment on the FTX platform, including a virtually unlimited "line of credit" funded by the platform's customers. 

4. While he spent lavishly on office space and condominiums in The Bahamas, and sank billions of dollars of customer funds into speculative venture investments, Bankman-Fried's house of cards began to crumble. When prices of crypto assets plummeted in May 2022, Alameda's lenders demanded repayment on billions of dollars of loans. Despite the fact that Alameda had, by this point, already taken billions of dollars of FTX customer assets, it was unable to satisfy its loan obligations. Bankman-Fried directed FTX to divert billions more in customer assets to Alameda to ensure that Alameda maintained its lending relationships, and that money could continue to flow in from lenders and other investors. 

5. But Bankman-Fried did not stop there. Even as it was increasingly clear that Alameda and FTX could not make customers whole, Bankman-Fried continued to misappropriate FTX customer funds. Through the summer of 2022, he directed hundreds of millions more in FTX customer funds to Alameda, which he then used for additional venture investments and for "loans" to himself and other FTX executives. All the while, he continued to make misleading statements to investors about FTX's financial condition and risk management. Even in November 2022, faced with billions of dollars in customer withdrawal demands that FTX could not fulfill, Bankman-Fried misled investors from whom he needed money to plug a multi-billion-dollar hole. His brazen, multi-year scheme finally came to an end when FTX, Alameda, and their tangled web of affiliated entities filed for bankruptcy on November 11, 2022. 

Between 2008 and 2016, Danske Bank offered banking services through its branch in Estonia, Danske Bank Estonia.  Danske Bank Estonia had a lucrative business line serving non-resident customers known as the NRP.  Danske Bank Estonia attracted NRP customers by ensuring that they could transfer large amounts of money through Danske Bank Estonia with little, if any, oversight.  Danske Bank Estonia employees conspired with NRP customers to shield the true nature of their transactions, including by using shell companies that obscured actual ownership of the funds.  Access to the U.S. financial system via the U.S. banks was critical to Danske Bank and its NRP customers, who relied on access to U.S. banks to process U.S. dollar transactions.  Danske Bank Estonia processed $160 billion through U.S. banks on behalf of the NRP.

U.S. banks required Danske Bank and Danske Bank Estonia to provide information to open and maintain accounts, including information related to anti-money laundering ("AML") controls, transaction monitoring, and customers.  Danske Bank knew that the U.S. banks expected honest, complete, and accurate responses and that the U.S. banks would not maintain, or open, U.S. dollar accounts for Danske Bank Estonia without the required information. 

By at least February 2014, as a result of internal audits, information from regulators, and an internal whistleblower, Danske Bank knew that some NRP customers were engaged in highly suspicious and potentially criminal transactions, including transactions through U.S. banks. Danske Bank also knew that Danske Bank Estonia's anti-money laundering program and procedures did not meet Danske Bank's standards and were not appropriate to meet the risks associated with the NRP.  Instead of providing the U.S. banks with truthful information, Danske Bank lied about the state of Danske Bank Estonia's AML compliance program, transaction monitoring capabilities, and information regarding Danske Bank Estonia's customers and their risk profile.

To resolve the investigation, Danske Bank pled guilty to one count of conspiracy to commit bank fraud.  Under the terms of the plea agreement, the company has agreed to criminal forfeiture of $2.059 billion.  Danske Bank will also enter into separate criminal or civil resolutions with domestic and foreign authorities, and the Department will credit approximately $850 million in payments the bank makes to the Securities and Exchange Commission ("SEC") and the Danish authorities.

The Department reached its resolution with Danske Bank based on a number of factors, including the nature, seriousness, and pervasiveness of the offense conduct.  This included a bank fraud conspiracy in which Danske Bank misled U.S. banks in order to maintain, and in one case open, U.S. dollar accounts through which Danske Bank processed $160 billion for its non-resident customers; the bank's failure to voluntarily and timely disclose the conduct to the Department; the state of Danske Bank's compliance program and the progress of its remediation; the bank's resolutions with other domestic and foreign authorities; and the bank's continued cooperation with the Department's ongoing investigation.  Danske Bank received full credit for cooperation and remediation because it provided full cooperation with the investigation and demonstrated recognition and affirmative acceptance of responsibility for its criminal conduct, including by, among other things, providing substantial information from its internal investigation, voluntarily and expediently producing a significant amount of documents located outside the United States in ways that did not implicate foreign data privacy laws, making foreign witnesses available for interviews, collecting and producing voluminous evidence and information, including with translations where necessary, and providing detailed analysis of complex, cross-border transactions.  Danske Bank has also enhanced and committed to continue improving its compliance programs and has agreed to the appointment of an independent expert selected by its regulator.

[W]hen Danske Bank acquired its Estonian branch in 2007, it knew or should have known that a substantial portion of the branch's customers were engaging in transactions that had a high risk of involving money laundering; that its internal risk management procedures were inadequate to prevent such activity; and that its AML and Know-Your-Customer procedures were not being followed and did not comply with applicable laws and rules. The SEC alleges that, from 2009 to 2016, these high-risk customers, none of whom were residents of Estonia, utilized Danske Bank's services to transact billions of dollars in suspicious transactions through the U.S. and other countries, generating as much as 99 percent of the Estonian branch's profits. The complaint further alleges that, although Danske Bank knew of these high-risk transactions, it made materially misleading statements and omissions in its publicly available reports stating that it complied with its AML obligations and that it had effectively managed its AML risks. As the full extent of Danske Bank's AML failures became apparent, its share price dropped precipitously.

To help detect potential securities law and money-laundering violations, broker-dealers are required to file Suspicious Activity Reports (SARs) describing suspicious transactions taking place through their firms. According to the SEC's complaint, from at least January 2018 to January 2020, J.H. Darbie failed to investigate and file SARs for numerous suspicious transactions, even when the transactions raised red flags recognized in J.H Darbie's written anti-money laundering policies and procedures and in regulatory guidance.

• Securities Industry Commentator
• Bill Singer