Securities Industry Commentator by Bill Singer Esq
January 20, 2023
Calling All Unreasonable Wall Street Professionals (BrokeAndBroker.com Blog)
Disbarred California Attorney Sentenced To Five And A Half Years In Prison For Long-Running Multi-Million-Dollar Investment Fraud Scheme / Defendant Sold Interests in Real Estate that He Did Not Own (DOJ Release)
El Paso Man Pleads Guilty to Operating Ponzi Scheme Disguised as Crypto Investment Firm (DOJ Release)
Hawaii Couple Charged With Fraud And Money Laundering For Selling Counterfeit Art (DOJ Release)
FINRA Censures and Fines Paulson Investment Company for Variable Interest Rate Structured Products
In the Matter of Paulson Investment Company, LLC, Respondent (FINRA AWC)FINRA Fines and Suspends Rep For Forging Customers' Initials
In the Matter of David B. Test, Respondent (FINRA AWC 2021072263801)FINRA Censures and Fines Wedbush Securities for MPID Supervision
In the Wedbush Securities Inc., Respondent (FINRA AWC)FINRA Arbitration Claimant Alleges That Brother Misused Mother's Investment Funds to Buy Home
In the Matter of the Arbitration Between David L. Smith, Individually and as Executor of the Estate of Clara M. Bell, Claimant, v. Provident Private Capital Partners, Inc. and Donald L. Smith, Respondents (FINRA Arbitration Award)
1/20/2023
Surprise Man Convicted of Numerous Crimes, Including False Claims to the IRS (DOJ Release)
https://www.justice.gov/usao-az/pr/surprise-man-convicted-numerous-crimes-including-false-claims-irs
In the United States District Court for the District of Arizona, Anthony Henry Williams, 52, was found guilty by a jury of one count of Conspiracy, seven counts of False Claims to the IRS, eight counts of Money Laundering, and one count of Mail Fraud. As alleged in part in the DOJ Release:
Evidence introduced at trial established that, in 2018 and 2019, Williams submitted seven false tax returns to the Internal Revenue Service (IRS) claiming over $3 million in owed refunds. The IRS processed one of these returns that resulted in an unwarranted $600,000 refund to Williams. The IRS advised him that the return was fraudulent, and that Williams needed to return the money. Williams failed to do so; instead, he purchased two luxury vehicles and a home, among other expenditures.
Bill Singer's Comment: Ummm . . . okay . . . but . . . y'know . . . I only read this DOJ Release because of the headline. I mean, like, what the hell is a surprise man? Was it someone masquerading as a woman or child and, who knew? -- turned out to be a man? Was it some guy who was paid to hide behind things and jump out and scream "Surprise!"? And then, as anticlimactic as one could imagine, the Release states that Defendant Williams is "of Surprise, Arizona." Okay, fine, someone at DOJ has some copywriter chops and likely smirked as the headline took shape and got posted. On the other hand, that's not nice. When the inside joke was revealed, it was a joke on me. Ha, ha. Okay, but don't do that again.
Three Additional Individuals Sentenced for Participating in $10 Million Multi-State Bank Fraud Conspiracy (DOJ Release)
https://www.justice.gov/usao-nj/pr/three-additional-individuals-sentenced-participating-10-million-multi-state-bank-fraud
In the United States District Court for the District of New Jersey:
- Syed Abbas, 33, was sentenced to 16 months in prison plus three years of supervised release, and ordered to pay $530,523 restitution;
- Rana Sharif, 39, and Awaise Dar, 35, were each sentenced to 20 months in prison plus three years of supervised release, and ordered to pay, respectively, $2.38 and $2.42 million restitution.
As alleged in part in the DOJ Release:
From 2018 through April 2020, Abbas, Sharif, Dar, and others conspired to defraud several major banks and electronic merchant processors. The defendants established bank accounts associated with sham entities that had no legitimate purpose and then issued checks payable to other shell companies associated with the criminal organization, knowing that the payor accounts had insufficient funds. The conspirators also conducted numerous fraudulent credit card and debit card transactions between shell companies to credit payee accounts and fraudulently overdraw payor accounts. Members of the conspiracy also used these shell companies to execute temporary refund credits, commonly referred to as “charge-backs,” to checking accounts associated with the criminal organization, where no prior legitimate transaction had occurred.
The conspirators withdrew the “existing” funds (through ATMs or bank tellers) that banks and or merchant processors had credited to the payee bank accounts at the time of the fraudulent transaction. Because the conspirators withdrew the credited funds from the payee accounts before the banks could recognize the fraudulent transactions, the banks and merchant processors were left with substantial losses.
Law enforcement officials identified approximately 200 bank accounts and 75 merchant credit card processing accounts used to facilitate the conspiracy’s fraudulent schemes. The conspirators’ unlawful activities attempted to cause a $10 million loss on financial institutions and did in fact cause a loss of approximately $3.5 million.
SEC Charges Avraham Eisenberg with Manipulating Mango Markets’ “Governance Token” to Steal $116 Million of Crypto Assets / Defendant, who was arrested and jailed in a federal prison in Puerto Rico, is awaiting transport to NYC on parallel criminal charges (SEC Release)
https://www.sec.gov/news/press-release/2023-13
In the United States District Court for the Southern District of New York, the SEC filed a Complaint charging Avraham Eisenberg with violating anti-fraud and market manipulation provisions of the securities laws. As alleged in part in the SEC Release"
[B]eginning on October 11, 2022, Eisenberg engaged in a scheme to steal approximately $116 million worth of crypto assets from the Mango Markets platform. The complaint alleges that Eisenberg, who perpetrated the scheme while living in Puerto Rico, used an account that he controlled on Mango Markets to sell a large amount of perpetual futures for MNGO tokens and used a separate account on Mango Markets to purchase those same perpetual futures. The complaint further alleges that Eisenberg then engaged in a series of large purchases of the thinly traded MNGO token for the purpose of artificially raising the price of MNGO token relative to the crypto asset USD Coin.
The complaint also alleges that, as a result of these transactions, the price of MNGO perpetual futures on Mango Markets, including those held by Eisenberg, increased. According to the complaint, Eisenberg used the increased value of his MNGO perpetual futures position to borrow and withdraw approximately $116 million worth of various crypto assets from Mango Markets, effectively draining all available assets from the Mango Markets platform.
FINRA Censures and Fines Paulson Investment Company for Variable Interest Rate Structured Products
In the Matter of Paulson Investment Company, LLC, Respondent (FINRA AWC 2021071994802)
https://www.finra.org/sites/default/files/fda_documents/2021071994802
%20Paulson%20Investment%20Company%2C%20LLC
%20CRD%205670%20AWC%20va.pdf
For the purpose of proposing a settlement of rule violations alleged by the Financial Industry Regulatory Authority ("FINRA"), without admitting or denying the findings, prior to a regulatory hearing, and without an adjudication of any issue, Paulson Investment Company, LLC (submitted a Letter of Acceptance, Waiver and Consent ("AWC"), which FINRA accepted. The AWC asserts that Paulson Investment Company, LLC has been a FINRA member firms since 1988 with three registered representatives at one office. In accordance with the terms of the AWC, FINRA imposed upon Paulson Investment Company, LLC a Censure, a $150,000 fine, and $185,215.35 in restitution. As alleged in part in the AWC's "Overview":
From January 2016 through May 2019, Paulson failed to reasonably supervise unsuitable recommendations to purchase variable interest rate structured products that three firm representatives made to approximately 70 customers. As a result, the firm violated FINRA Rules 3110 and 2020.
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1/19/2023
Calling All Unreasonable Wall Street Professionals (BrokeAndBroker.com Blog)
https://www.brokeandbroker.com/6833/unreasonable-wall-street-professionals/
Maybe this year, finally, someone launches a trade group for the industry's hundreds of thousands of professionals. Yeah, I know, wishful thinking. But there are rumblings. I hear them. I feel them. The industry's grunts are getting fed up. They aspire to more than the glorified role of a teleservice operator working out of a soul-crushing call center masquerading as a branch office. The Covid pandemic showed them that they could work from home, work remote. The purported support services provided by the erstwhile wirehouses have been revealed as illusory - and not worth the hit to gross commissions or fees. In 2023, if pressed, many Wall Street professionals would admit that they now realize that they can deliver better customer service if they weren't shackled to a large industry employer by anti-consumer laws and rules enforced by co-opted industry regulators.
Nexo Agrees to Pay $45 Million in Penalties and Cease Unregistered Offering of Crypto Asset Lending Product (SEC Release)
https://www.sec.gov/news/press-release/2023-11
Without admitting or denying the findings in an SEC Order, Nexo Capital Inc. agreed to a cease-and-desist order prohibiting it from violating the registration provisions of the Securities Act of 1933.
https://www.sec.gov/litigation/admin/2023/33-11149.pdf. The SEC Order charged Nexo with failing to register the offer and sale of its retail crypto asset lending product, the Earn Interest Product ("EIP"); and the company agreed to pay a $22.5 million penalty and cease its unregistered offer and sale of the EIP to U.S. investors. In parallel state regulatory actions, Nexo agreed to pay an additional $22.5 million in fines. As alleged in part in the SEC Release:
[I]n or around June 2020, Nexo began to offer and sell the EIP in the United States. The EIP allowed U.S. investors to tender their crypto assets to Nexo in exchange for Nexo’s promise to pay interest. The order states that Nexo marketed the EIP as a means for investors to earn interest on their crypto assets, and Nexo exercised its discretion to use investors’ crypto assets in various ways to generate income for its own business and to fund interest payments to EIP investors. The order finds that the EIP is a security and that the offer and sale of the EIP did not qualify for an exemption from SEC registration. Therefore, Nexo was required to register its offer and sale of the EIP, which it failed to do.
In agreeing to settle with Nexo, the Commission considered remedial acts promptly undertaken by the company and the company’s cooperation with Commission staff. Specifically, the SEC’s order notes that, after the Commission announced charges involving a similar crypto investment product in February 2022, Nexo voluntarily ceased offering the EIP to new U.S. investors and ceased paying interest on new funds added to existing EIP accounts of U.S. investors. Further, the order states that Nexo announced in December that it was ceasing the EIP in certain states and phasing out all of its products and services in the United States, including permanently ceasing to offer the EIP to all U.S. investors.
SEC Charges Four Individuals for Their Roles in a Prime Bank Fraud (SEC Release)
https://www.sec.gov/litigation/litreleases/2023/lr25618.htm
In the United States District Court for the Central District of California, the SEC filed a Complaint
https://www.sec.gov/litigation/complaints/2023/comp25618.pdf charging disbarred attorney/convicted felon Johm Mark Marino and Jason "Jai" Johnson with violating the antifraud provisions of Section 17(a) of the Securities Act and Section 10(b) of the Securities Exchange Act and Rule 10b-5 thereunder; and. in the alternative, charges Johnson with aiding and abetting Marino's antifraud violations. Further, the SEC Complaint charges Anthony Brown and Abraham Borenstein with aiding and abetting Marino's antifraud violations under Section 15(b) of the Securities Act and Section 20(e) of the Exchange Act. As alleged in part in the SEC Release:
[M]arino and Johnson told the investors their funds would be used to pay fees for the "monetization" of a €1.5 billion medium-term note ("MTN") issued by an international bank. According to the SEC's complaint, Marino and Johnson promised exorbitant returns and made various other misrepresentations to the investors; in reality, the MTN documentation was an elaborate forgery, and Marino simply used the investor funds himself and transferred some to the other defendants. As alleged, in exchange for a $15,000 fee, Borenstein, a licensed attorney, facilitated the fraud by serving as what he called a "paymaster" and allowing the investor money to flow through his attorney trust account and dissipating it at Marino's direction. According to the complaint, Brown knowingly or recklessly assisted Marino by connecting Marino with Johnson and the investors in return for a share of the misappropriated proceeds. The SEC's complaint further alleges that after the investment, the defendants lulled the investors with promises of imminent repayment and other misrepresentations.
SEC Charges Samuel Bankman-Fried with Defrauding Investors in Crypto Asset Trading Platform FTX / Defendant Concealed His Diversion of FTX Customers' Funds to Crypto Trading Firm Alameda Research While Raising More Than $1.8 Billion from Investors (SEC Release)
https://www.sec.gov/litigation/litreleases/2023/lr25616.htm
Litigation Release No. 25616 / January 19, 2023
Securities and Exchange Commission v. Samuel Bankman-Fried, No. 1:22-cv-10501 (S.D.N.Y. filed Dec. 13, 2022)
In the United States District Court for the Southern District of New York, the SEC filed a Complaint charging Samuel Bankman-Fried with violating Section 17(a) of the Securities Act and Section 10(b) of the Securities Exchange Act and Rule 10b-5 thereunder. https://www.sec.gov/litigation/complaints/2023/comp25616.pdf. As alleged in part in the SEC Release:
[S]ince at least May 2019, FTX, based in The Bahamas, raised more than $1.8 billion from equity investors, including approximately $1.1 billion from approximately 90 U.S.-based investors. In his representations to investors, Bankman-Fried promoted FTX as a safe, responsible crypto asset trading platform, specifically touting FTX's sophisticated, automated risk measures to protect customer assets. The complaint alleges that, in reality, Bankman-Fried orchestrated a years-long fraud to conceal from FTX's investors (1) the undisclosed diversion of FTX customers' funds to Alameda Research LLC, his privately-held crypto hedge fund; (2) the undisclosed special treatment afforded to Alameda on the FTX platform, including providing Alameda with a virtually unlimited "line of credit" funded by the platform's customers and exempting Alameda from certain key FTX risk mitigation measures; and (3) undisclosed risk stemming from FTX's exposure to Alameda's significant holdings of overvalued, illiquid assets such as FTX-affiliated tokens. The complaint further alleges that Bankman-Fried used commingled FTX customers' funds at Alameda to make undisclosed venture investments, lavish real estate purchases, and large political donations.
SEC Charges Caroline Ellison and Gary Wang with Defrauding Investors in Crypto Asset Trading Platform FTX (SEC Release)
https://www.sec.gov/litigation/litreleases/2023/lr25617.htm
In the United States District Court for the Southern District of New York, the SEC filed a Complaint charging Caroline Ellison (the former Chief Executive Officer of Alameda Research) and Zixiao "Gary" Wang (the former Chief Technology Officer of FTX Trading Ltd.) with violating Section 17(a)(1) and (3) of the Securities Act and Section 10(b) of the Securities Exchange Act and Rule 10b-5(a) and (c) thereunder.
https://www.sec.gov/litigation/complaints/2023/comp25617.pdf Ellison and Wang have consented to bifurcated settlements. As alleged in part in the SEC Release:
[B]etween 2019 and 2022, Ellison, at the direction of Bankman-Fried, furthered the scheme by manipulating the price of FTT, an FTX-issued exchange crypto security token, by purchasing large quantities on the open market to prop up its price. FTT served as collateral for undisclosed loans by FTX of its customers' assets to Alameda, a crypto hedge fund owned by Wang and Bankman-Fried and run by Ellison. The complaint alleges that, by manipulating the price of FTT, Bankman-Fried and Ellison caused the valuation of Alameda's FTT holdings to be inflated, which in turn caused the value of collateral on Alameda's balance sheet to be overstated, and misled investors about FTX's risk exposure.
In addition, the complaint alleges that, from at least May 2019 until November 2022, Bankman-Fried raised billions of dollars from investors by falsely touting FTX as a safe crypto asset trading platform with sophisticated risk mitigation measures to protect customer assets and by telling investors that Alameda was just another customer with no special privileges; meanwhile, Bankman-Fried and Wang improperly diverted FTX customer assets to Alameda. The complaint alleges that Ellison and Wang knew or should have known that such statements were false and misleading.
The complaint also alleges that Ellison and Wang were active participants in the scheme to deceive FTX's investors and engaged in conduct that was critical to its success. The complaint alleges that Wang created FTX's software code that allowed Alameda to divert FTX customer funds, and Ellison used misappropriated FTX customer funds for Alameda's trading activity. The complaint further alleges that, even as it became clear that Alameda and FTX could not make customers whole, Bankman-Fried, with the knowledge of Ellison and Wang, directed hundreds of millions of dollars more in FTX customer funds to Alameda.
SEC Denies Whistleblower Award to Attorney Claimant
Order Determining Whistleblower Award Claim ('34 Act Release No. 34-96708; Whistleblower Award Proc. File No. 2023-31)
https://www.sec.gov/rules/other/2023/34-96708.pdf
The SEC's Claims Review Staff ("CRS") issued a Preliminary Determination recommending denial of a Whistleblower Awards to Claimant. The Commission ordered that CRS's recommendations be approved. The Order asserts in part that [Ed: footnotes omitted]:
Because Claimant obtained the information he/she submitted to the Commission in connection with his/her legal representation of the Employer, in order to be eligible for a whistleblower award, Claimant must qualify for an exception under the Attorney Conduct Rule, or under the applicable state attorney conduct rules. The Attorney Conduct Rule provides that “[a]n attorney appearing and practicing before the Commission in the representation of an issuer may reveal to the Commission, without the issuer’s consent, confidential information related to the representation to the extent the attorney reasonably believes necessary: (i) [t]o prevent the issuer from committing a material violation that is likely to cause substantial injury to the financial interest or property of the issuer or investors….” Claimant contends that he/she meets the requirements under this rule because Claimant worked on the Limited Partnership’s REDACTED and he/she intended to prevent the Limited Partnership from committing or abetting the commission of a material violation (misappropriation) that would cause significant financial injury to its investors. However, for the exception to be applicable,the attorney must be “appearing and practicing” before the Commission which requires that legal services be provided “to an issuer with whom the attorney has an attorney-client relationship….”
Order Determining Whistleblower Award Claim ('34 Act Release No. 34-96705; Whistleblower Award Proc. File No. 2023-30)
https://www.sec.gov/rules/other/2023/34-96705.pdf
The SEC's Claims Review Staff ("CRS") issued a Preliminary Determination recommending a Whistleblower Awards totalling about $18 million to Claimant 1, Claimant 2, Claimant 3; and that an Award be denied to Claimant 4. The Commission ordered that CRS's recommendations be approved. The Order asserts in part that [Ed: footnotes omitted]:
%20David%20B.%20Test%20CRD%202341570%20AWC%20geg.pdf
By forging and falsifying the documents described above, Test caused Northwestern Mutual to maintain inaccurate books and records, in violation of Exchange Act § 17(a) and Rule 17a--3(a)(17) thereunder, and therefore violated FINRA Rules 4511 and 2010.
%20Wedbush%20Securities%20Inc.%20CRD%20877%20AWC%20gg.pdf
For the purpose of proposing a settlement of rule violations alleged by the Financial Industry Regulatory Authority ("FINRA"), without admitting or denying the findings, prior to a regulatory hearing, and without an adjudication of any issue, Wedbush Securities Inc. (submitted a Letter of Acceptance, Waiver and Consent ("AWC"), which FINRA accepted. The AWC asserts that Wedbush Securities Inc. has been a FINRA member firms since 1955 with about 510 registered representatives at 70 branches. In accordance with the terms of the AWC, FINRA imposed upon Wedbush Securities Inc. a Censure and a total fine of $975,000 ($82,142.85 payable to FINRA). As alleged in part in the AWC'a "Overview":
customers’ trading activity for any type of potentially manipulative trading, including layering, spoofing, wash sales, or marking the close or open. Instead, the firm relied upon the third-party broker-dealers to conduct such reviews.
Therefore, the firm violated FINRA Rules 3110 and 2010.
https://www.finra.org/sites/default/files/fda_documents/2021069289401
%20Hunnicutt%20%26%20Co.%20LLC%20CRD%2020576%20AWC%20va.pdf
For the purpose of proposing a settlement of rule violations alleged by the Financial Industry Regulatory Authority ("FINRA"), without admitting or denying the findings, prior to a regulatory hearing, and without an adjudication of any issue, Hunnicutt & Co. LLC (submitted a Letter of Acceptance, Waiver and Consent ("AWC"), which FINRA accepted. The AWC asserts that Hunnicutt & Co. LLC has been a FINRA member firms since 1988 with three registered representatives at one office. In accordance with the terms of the AWC, FINRA imposed upon Hunnicutt & Co. LLC a Censure and a $10,000 fine. As alleged in part in the AWC:
Hunnicutt & Co.’s written AML program requires the firm to “perform an independent test every two calendar years.” Nonetheless, the firm failed to conduct an independent test of its AML program from July 2017 to November 2022. In approximately September 2022, after FINRA’s 2021 cycle examination of the firm, Hunnicutt & Co. conducted testing of its AML program. However, the testing was not independent because it was conducted by a person who reported to the firm’s designated AML compliance person. The firm completed an independent test of its AML program on November 30, 2022.
Therefore, Hunnicutt & Co. violated FINRA Rules 3310(c) and 2010.
Arbitration Claimant Alleges That Brother Misused Mother's Investment Funds to Buy Home
In the Matter of the Arbitration Between David L. Smith, Individually and as Executor of the Estate of Clara M. Bell, Claimant, v. Provident Private Capital Partners, Inc. and Donald L. Smith, Respondents (FINRA Arbitration Award 20-01072)
https://www.finra.org/sites/default/files/aao_documents/20-01072.pdf
In a FINRA Arbitration Statement of Claim filed in DATE, Claimants asserted violation of The Pennsylvania Unfair Trade Practices and Consumer Protection Law, negligence/unsuitability, fraud, violations of FINRA Rules 2010 and 2020, violation of the Pennsylvania Securities Act of 1972, fraudulent concealment, and breach of contract. As asserted in the FINRA Arbitration Award, the causes of action relate to
[C]laimant’s allegations that their mother provided his brother DLS with funds to invest prudently and conservatively, and upon her death, to divide the principal and interest equally among her three sons, but DLS, who is the president and sole owner of Provident, instead used the funds to purchase a home in his own name, which he subsequently lost in foreclosure.
At the hearing, Claimants requested compensatory damages in the amount of $31,666.00 in compensatory damages; interest; costs; attorneys’ fees in the amount of $15,400.00 and $181,460.00.
Respondents generally denied the allegations and asserted affirmative defenses.
The FINRA Arbitration Panel found Respondents jointly and severally liable and ordered them to pay to Claimant $32,666 in compensatory damages plus interest and attorneys' fees of $12,000 and $50,000.
[B]itzlato has marketed itself as requiring minimal identification from its users, specifying that “neither selfies nor passports [are] required.” On occasions when Bitzlato did direct users to submit identifying information, it repeatedly allowed them to provide information belonging to “straw man” registrants.
As a result of these deficient know-your-customer (KYC) procedures, Bitzlato allegedly became a haven for criminal proceeds and funds intended for use in criminal activity. Bitzlato’s largest counterparty in cryptocurrency transactions was Hydra Market, an anonymous, illicit online marketplace for narcotics, stolen financial information, fraudulent identification documents, and money laundering services that was the largest and longest running darknet market in the world. Hydra Market users exchanged more than $700 million in cryptocurrency with Bitzlato, either directly or through intermediaries, until Hydra Market was shuttered by U.S. and German law enforcement in April 2022. Bitzlato also received more than $15 million in ransomware proceeds.
As alleged in the complaint, Bitzlato’s customers routinely used the company’s customer service portal to request support for transactions with Hydra, which Bitzlato often provided, and admitted in chats with Bitzlato personnel that they were trading under assumed identities. Moreover, Legkodymov and Bitzlato’s other managers were aware that Bitzlato’s accounts were rife with illicit activity and that many of its users were registered under others’ identities. For instance, on May 29, 2019, Legkodymov used Bitzlato’s internal chat system to write to a colleague that Bitzlato’s users were “known to be crooks,” using others’ identity documents to register their accounts. Legkodymov was repeatedly warned by colleagues that Bitzlato’s customer base consisted of “addicts who buy drugs at [] Hydra” and “drug traffickers,” with one senior executive even stressing that Bitzlato should combat drug dealers only “nominally,” to avoid hurting the company’s bottom line. An internal spreadsheet saved in Bitzlato’s shared management folder encapsulated the company’s view of itself: “Positives: No KYC. . . . Negatives: Dirty money. . . .”
As alleged in the complaint, although Bitzlato claimed not to accept users from the United States, it did substantial business with U.S.-based customers, and its customer service representatives repeatedly advised users that they could transfer funds from U.S. financial institutions. Moreover, Legkodymov – who himself administered Bitzlato from Miami in 2022 and 2023 – received reports reflecting substantial traffic to Bitzlato's website from U.S.-based Internet Protocol addresses, including over 250 million such visits in July 2022.
https://www.finra.org/sites/default/files/fda_documents/2021072617401
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On January 10, 2019, Moore entered into a final order of settlement with the Michigan State Department of Insurance and Financial Services that found Moore had engaged in deceptive practices and made false statements on life insurance applications. Although Moore was required to disclose this final order of settlement via filing an amended Form U4 within 30 days of the settlement agreement becoming final, Moore willfully failed to amend his Form U4 to disclose the regulatory settlement.
By failing to disclose the existence of the settlement agreement with the Michigan State Department of lnsurance and Financial Services, Moore violated Article V, Section 2(c) of FINRA's By-Laws and FINRA Rules 1122 and 2010.
Disbarred California Attorney Sentenced To Five And A Half Years In Prison For Long-Running Multi-Million-Dollar Investment Fraud Scheme / Defendant Sold Interests in Real Estate that He Did Not Own (DOJ Release)
https://www.justice.gov/usao-sdny/pr/disbarred-california-attorney-sentenced-five-and-half-years-prison-long-running-multi
In the United States District Court for the Southern District of New York, disbarred attorney Derek Jones, 48, pled guilty on one count of wire fraud; and he was sentenced to 5 1/2 years in prison plus three years of supervised released, and ordered to pay a forfeiture of $8,679,787.66, and restitution to his victims in an amount to be determined within the next 90 days. As alleged in part in the DOJ Release:
From at least 2012 through at least 2019, JONES deceived his victims into investing in various companies and investment funds that he controlled, including purported real-estate development and investment firms using variations of the names “BlueRidge,” “Living City,” and “Atiswin,” and the purported venture capital firm Realize Holdings (“Realize”).
In fraudulently inducing victims to invest in his funds, JONES routinely lied to investors, including in glossy brochures and legal documents that contained misrepresentations about real estate that JONES falsely claimed was owned or otherwise controlled by BlueRidge, Living City, and Atiswin. For example, JONES falsely told investors and prospective investors that BlueRidge was developing a “resort village” on land it controlled on Semiahmoo Spit in Washington State and, separately, that BlueRidge had purchased an existing hotel in that same location, when in fact neither BlueRidge nor JONES owned or controlled any of that property. In other cases, JONES falsely claimed that his companies were under contract to purchase a ranch in Colorado and that his companies had secured long-term leases for various pieces of property slated for development, including California properties in Santa Monica, Hermosa Beach, and Los Angeles. Instead of using investors’ money as he promised, JONES misappropriated investors’ money, using much of it to make Ponzi-style payments to other investors to whom he owed money in connection with earlier transactions and for personal and family expenses, including the private-school tuition of his children.
In executing his scheme, JONES also sent falsified and counterfeit documents to investors and others. For example, on repeated occasions, JONES provided doctored bank statements showing that he had millions of dollars in various corporate accounts, when in fact he had little or no money in such accounts. On other occasions, he provided counterfeit financial statements that falsely purported to be based on internal audits of companies that he controlled. He also sent investors and others falsified contracts with key pages removed, forged land-leases, and fictional statements of asset allocation. JONES also used the names of other individuals — without those individuals’ authorization or knowledge — to communicate via email with investors and thus foster the illusion that JONES’s businesses were viable operations with real employees.
In total, JONES defrauded investors out of more than $8.6 million.
During the commission of the fraud charged in this case, JONES was suspended from the practice of law by the State Bar Court of California for earlier fraudulent conduct. JONES was ultimately disbarred in July 2022 based on findings by the State Bar Court that he had intentionally misappropriated money belonging to a client in 2011 and that he had made misrepresentations to the client, to the court, and to others.
El Paso Man Pleads Guilty to Operating Ponzi Scheme Disguised as Crypto Investment Firm (DOJ Release)
https://www.justice.gov/usao-wdtx/pr/el-paso-man-pleads-guilty-operating-ponzi-scheme-disguised-crypto-investment-firm
In the United States District Court for the Western District of Texas, Abner Tinoco pled guilty to five counts of wire fraud. As alleged in part in the DOJ Release, Tinoco:
operated a Ponzi scheme through his business by soliciting millions of dollars of investments from clients and claiming he would invest their money into funds dealing with cryptocurrency and foreign exchange markets. Out of approximately $9 million worth of investments deposited into his business accounts, Tinoco spent more than half on personal expenses to include luxury cars, private jets, real estate and jewelry. Tinoco furthered the deception by providing some of the misappropriated funds as profits to his clients.
In a separate civil case stemming from the above scheme, the Commodities Futures Trading Commission (CFTC) secured a civil consent decree against Tinoco and his business, imposing a ban relating to trading activities. The Department of Justice will work to achieve restitution for any additional victims of Tinoco’s scheme.
Hawaii Couple Charged With Fraud And Money Laundering For Selling Counterfeit Art (DOJ Release)
https://www.justice.gov/usao-mdpa/pr/hawaii-couple-charged-fraud-and-money-laundering-selling-counterfeit-art
In the United States District Court for the Middle District of Pennsylvania, an Indictment was filed charging Earl Marshawn Washington and his wife, Zsanett Nagy, with conspiracy to commit wire fraud, mail fraud, and money laundering; and additionally charging Washington with bank fraud and conspiracy to commit bank fraud. As alleged in part in the DOJ Release:
[F]rom 2018 to 2021, Washington and Nagy sold counterfeit artistic goods known as “woodblocks” or “woodcuts” to various buyers and then laundered the proceeds from the sale of those goods. According to the indictment, xylography is the art of making “woodcuts,” or engravings made from wooden blocks, especially for printing using historical techniques. In traditional xylography, an artist uses a sharpened tool to carve a design into the surface of a woodblock. The raised areas that remain after the block has been cut are inked and printed, while the recessed areas that are cut away do not retain ink and will remain blank in the final print. Woodblock images can be printed onto paper, fabrics, textiles, or other materials. The technique has been used in different geographic regions at different times. One woodblock tradition stems from Germany starting around the 14th century and continuing for several hundred years thereafter.
The indictment also alleges that Washington and Nagy sold inauthentic woodblocks and prints made from woodblocks that they advertised as being from between the 15th and early 20th centuries. The buyers included a pair of woodblock collectors residing in France, as well as a buyer of a woodblock print who then resided in Hummelstown, PA. The buyers of the woodblocks in France allegedly made $84,350.91in PayPal payments to Nagy before learning that the woodblocks they purchased were not from the 15th and 16th centuries, as advertised. According to the indictment, Nagy received these payments through PayPal, moved the proceeds to a bank account in her name, and then quickly converted the proceeds to cash through withdrawals of several thousand dollars at a time. It is alleged that Washington admitted to one of the French buyers as being the creator of the woodblocks sold to the French buyers.
Washington is also charged with defrauding a collector of woodblocks from York, PA. The indictment alleges that this collector paid Washington, who used the alias “River Seine,” and his then girlfriend, $118,810 from 2013 to 2016 in exchange for approximately 130 woodblocks, again advertised as being several centuries old. The indictment alleges that at least some of these woodblocks were, in fact, made in the second half of the twentieth century.
Texas Man Admits Role in Scamming Seniors in Rhode Island and Elsewhere in Online Romance Scams (DOJ Release)
https://www.justice.gov/usao-ri/pr/texas-man-admits-role-scamming-seniors-rhode-island-and-elsewhere-online-romance-scams
In the United States District Court for the District of Rhode Island Fola Alabi, a/k/a Folayemi Alabi pled guilty to charges of conspiracy and money laundering. As alleged in part in the DOJ Release:
To carry out these schemes, a member of the conspiracy befriended unsuspecting seniors online, often posing as a General in the U.S. military serving overseas. The conspirator feigned a personal, and sometimes romantic, interest in his victims, and convinced them to send substantial sums of money, usually in the form of bank checks or cash, to addresses and companies in Texas that were controlled by Alabi. Alabi received the money and either deposited or directed that it be deposited into one of several bank accounts that he controlled. He then quickly withdrew or transferred the funds to other accounts.
Among Alabi’s victims is a Rhode Island widow who was contacted by a member of the conspiracy claiming to be a “General Miller,” purportedly a four-star General, who convinced the victim to provide $60,000 to finance shipment of his personal belongings to the United States. At the purported “General Miller’s” direction, a check was made payable to Full Circle Import Exports, a company created by Alabi, and mailed to Alabi’s residence in Texas. The victim was prepared to send an additional significant sum of money to the purported “General Miller,” when it was determined by her bank and the Westerly Police Department that she was likely the victim of fraud.
According to court documents, in a cellphone seized from Alabi at the time of his arrest in May 2022, federal agents discovered photographs and videos of packages containing cash and checks received by Alabi from victims of the scam.
According to a plea agreement filed in this matter, for purposes of sentencing, the loss attributed to the romance scams perpetrated by Alabi and members of the conspiracy is $1,640,421. Under the terms of the plea agreement, Alabi will forfeit assets derived from his criminal conduct, to include his Texas residence and $31,773.22 contained in a bank account.
Statement Regarding National Trust and Fiduciary Services Company, Inc., et al. by SEC Commissioner Hester M. Peirce and SEC Commissioner Mark T. Uyeda
https://www.sec.gov/news/statement/peirce-uyeda-statement-regarding-national-trust-and-fiduciary-services-company-011723
We write separately to clarify our view that this Order should not be read to suggest that a statement that one fee is waived is not necessarily rendered misleading by the receipt of another fee. The Commission’s Order finds that National Trust and Fiduciary Services Company, Inc. (“NTFS”), a non-depository trust company, violated Sections 17(a)(2) and (3) of the Securities Act of 1933 when it stated that there were “no annual fees” for one of its product offerings, including by stating in trust instruments that the annual trustee fee was “waived.”[1] According to the Order, these statements were misleading because NTFS failed to disclose that: (1) trust assets were invested in mutual fund share classes that charged recurring Rule 12b-1 fees, and (2) these Rule 12b-1 fees were paid to a broker-dealer subsidiary of NTFS that routed the fees to NTFS after deducting its expenses and satisfying its net capital requirements.[2]
We are concerned that the public reading the Order will incorrectly assume that the Rule 12b-1 fee revenue received by NTFS was a substitute for payments of an annual trustee fee, resulting in violations of Sections 17(a)(2) and (3).[3] However, the Order does not provide factual support for this theory. Instead, the facts here are consistent with the facts underlying prior Commission enforcement actions for inadequate disclosure of Rule 12b-1 fees. In particular, the Order establishes that: (1) NTFS failed to adequately disclose in its marketing materials its receipt of Rule 12b-1 fees, and (2) monthly statements available to trust beneficiaries stated only that NTFS “may” receive Rule 12b-1 fees when, in fact, NTFS in all instances did receive Rule 12b-1 fees with respect to the product at issue.[4] NTFS’s failure to accurately disclose its receipt of Rule 12b-1 fees was itself a misrepresentation that should have formed the basis for the Section 17(a)(2) and (3) violations.
The attempt to tie these violations to NTFS’s seemingly accurate statements regarding its annual trustee fee has the potential to create confusion as to whether this enforcement action is intended to adopt a novel legal theory regarding the receipt of Rule 12b-1 fees. In our view, this Order should not be read to indicate that an entity is presumed to make a misstatement when it advertises the waiver of one type of fee but separately receives Rule 12b-1 fee revenue. Rather, we believe that this Order should be read to reaffirm the Commission’s long-standing position that – when an entity receives Rule 12b-1 fees – the receipt of those fees must be accurately disclosed.
[1] In the Matter of National Trust and Fiduciary Services Company, Inc., et al., Release No. 33-11146 (Jan. 17, 2023), at paragraphs 18-19, available at https://www.sec.gov/litigation/admin/2023/33-11146.pdf.[2] Id.[3] The Order also outlines other conduct that forms the basis for Section 17(a)(2) and (3) violations. This statement relates only to the findings in the Order regarding NTFS’s annual trustee fee.[4] In the Matter of National Trust and Fiduciary Services Company, Inc., et al., supra note 1, at paragraph 20.
SEC Obtains Judgment Against Florida Man in Microcap Fraud (SEC Release)
https://www.sec.gov/litigation/litreleases/2023/lr25615.htm
The United States District Court for the District of Massachusetts entered a Final Consent Judgment against Todd Zinkwich
https://www.sec.gov/litigation/litreleases/2023/judg25615.pdf that permanently enjoins him from violating the antifraud provisions of Section 17(a) of the Securities Act and the market manipulation and antifraud provisions of Sections 9(a) and 10(b) of the Securities Exchange Act oand Rule 10b-5 thereunder, and from participating in any offering of penny stock; and order Zinkwich to pay over $300,000 in disgorgement and prejudgment interest, and based on Zinkwich's financial condition waives payment except $12,000. As alleged in part in the SEC Release:
[F]rom at least June 2017 to March 2018, individuals and groups who held large quantities of microcap stocks paid Zinkwich hundreds of thousands of dollars to facilitate a scheme to drive up demand for the stocks of certain issuers. As alleged in the complaint, Zinkwich arranged for his associate Eric Landis to generate an appearance of increased demand for the stocks by placing thousands of trades between numerous accounts under Landis's control, including accounts that Zinkwich controlled and gave Landis access to. The Commission separately charged and obtained a final judgment against Landis for his role in the fraud. In the complaints against Zinkwich and Landis, the SEC alleged that the manipulative trading scheme generated the false appearance of an upsurge of trading in the companies' stock and allowed Zinkwich's clients to sell millions of shares of stock into the public market at inflated prices.
SEC Denies Whistleblower Award to Claimant
Order Determining Whistleblower Award Claim ('34 Act Release No. 34-96669; Whistleblower Award Proc. File No. 2023-29)
https://www.sec.gov/rules/other/2023/34-96669.pdf
The SEC's Claims Review Staff ("CRS") issued a Preliminary Determination recommending the denial of a Whistleblower Award to Claimant 1, Claimant 3, and Claimant 4. The Commission ordered that CRS's recommendations be approved. The Order asserts in part that [Ed: footnotes omitted]:
[T]he CRS stated that Claimants’ information did not either (1) cause the Commission to (a) commence an examination, open or reopen an investigation, or inquire into different conduct as part of a current Commission examination or investigation, and (b) thereafter bring an action based, in whole or in part, on conduct that was the subject of claimant’s information, pursuant to Rule 21F-4(c)(1); or (2) significantly contribute to the success of a Commission judicial or administrative enforcement action under Rule 21F-4(c)(2) of the Exchange Act. The CRS preliminarily determined that the investigation which led to the Covered Action (the “Investigation”) was opened based upon information reported in the news media and not in response to any information provided by any of the Claimants. The CRS also preliminarily determined that none of the Claimants’ information significantly contributed to the success of the Covered Action. Enforcement staff assigned to the Investigation received Claimant 1’s information approximately four months after the Investigation was opened, and the staff was already aware of the underlying conduct alleged in Claimant 1’s complaint. In addition, while Claimant 1 provided certain information to the Commission about Claimant 1’s family experiences, none of the information advanced the Investigation or otherwise impacted the charges brought by the Commission in the Covered Action. The CRS stated that staff assigned to the Investigation did not receive or review any information from Claimant 3 or Claimant 4 and that none of their information advanced or contributed to the Investigation or the Covered Action.
FINRA Bars Rep For Providing False Information
In the Matter of Suzanne Therese Charrin, Respondent (FINRA AWC 2021071665401)
https://www.finra.org/sites/default/files/fda_documents/2021071665401
%20Suzanne%20Therese%20Charrin%20CRD%204487222%20AWC%20gg.pdf
For the purpose of proposing a settlement of rule violations alleged by the Financial Industry Regulatory Authority ("FINRA"), without admitting or denying the findings, prior to a regulatory hearing, and without an adjudication of any issue, Suzanne Therese Charrin submitted a Letter of Acceptance, Waiver and Consent ("AWC"), which FINRA accepted. The AWC asserts that Suzanne Therese Charrin was first registered in 2003 and eventually became registered with Woodbury Financial Services, Inc. In accordance with the terms of the AWC, FINRA imposed upon Suzanne Therese Charrin a Bar from associating with any FINRA member in all capacities. As alleged in part in the AWC:
On July 14, 2021, in connection with its investigation that Charrin was engaged in an undisclosed outside business activity, FINRA staff issued Woodbury a request for documents and information. Among other things, FINRA staff requested the firm provide a statement from Charrin describing the activities conducted by two of her outside business activities. Charrin provided her statement for submission to FINRA on July 22, 2021. Charrin was aware at the time that her statement would be submitted to FINRA in response to a request for information issued to Woodbury. In her statement, Charrin falsely stated that her outside business activities involved the extraction of lavender oil and manufacture of lavender oil products, when in fact, both businesses were involved in the cannabidiol (CBD) oil industry. During her on-the-record testimony on December 14, 2022, Charrin admitted that she had provided false information to FINRA in response to this request.
Therefore, Charrin violated FINRA Rule 2010.On November 4, 2021, in connection with its investigation, FINRA staff issued Charrin a request for documents and information pursuant to FINRA Rule 8210. Among other items, FINRA staff requested that Charrin provide details regarding the status of one of her outside business activities. On November 15, 2021, Charrin provided a false response to FINRA staff, stating that the outside business activity had not manufactured or tested any products when, in fact, the outside business activity involved the manufacturing and selling of CBD products since at least late 2020.On August 8, 2022, FINRA staff issued another request to Charrin pursuant to FINRA Rule 8210, including a request for a copy of Charrin’s 2021 income tax returns. On September 3, 2022, Charrin produced her tax returns, but falsely represented to FINRA staff that her accountant had incorrectly described the nature of one of her outside business activities on her federal tax return as involving CBD oil business, rather than lavender oil business.During her on-the-record testimony on December 14, 2022, Charrin admitted that she had provided false information to FINRA in response to these two requests.Therefore, Charrin violated FINRA Rules 8210 and 2010.