Essex County Woman Admits Role in $25 Million Securities Fraud Scheme Involving Blockchain Technology Company (DOJ Release)
https://www.justice.gov/usao-nj/pr/essex-county-woman-admits-role-25-million-securities-fraud-scheme-involving-blockchain
In the United States District Court for the District of New Jersey, an Indictment was filed charging Edith Pardo, 70, with one count of conspiring to commit wire fraud, three counts of wire fraud, and one count of securities fraud in connection with a blockchain technology company.
https://www.justice.gov/d9/2023-03/pardo.indictment.pdf As alleged in part in the DOJ Release:

Through CG Blockchain Inc. and BCT Inc., Pardo and her co-defendant, Boaz Manor, touted a product called ComplianceGuard, which purportedly provided hedge funds with a blockchain-based auditing tool. Before starting these entities, Manor was convicted and served a prison sentence in Canada for crimes stemming from his previous role as a hedge fund manager. While raising money for these new entities, Pardo helped Manor – who changed his appearance and used aliases – hide his true identity and criminal past from investors.

Pardo acted as the face of the entities and, with Manor, told prospective investors that Pardo was independently wealthy and provided millions of dollars in seed money, when in fact, she was neither wealthy nor an investor. Pardo and Manor also falsely claimed that: Pardo was the sole owner of the entities; “Shaun MacDonald” (one of Manor’s aliases) was merely a consultant; a team of well-credentialed executives ran the entities; and multiple hedge funds were paying millions of dollars in fees to use ComplianceGuard. In reality, the entities had no real executives, collected no fees, and ComplianceGuard was barely distributed or used.

In 2017, Pardo and Manor relied on many of the same misrepresentations to raise over $25 million through an initial coin offering, or ICO, for a new product called Blockchain Terminal that purportedly allowed hedge funds and financial institutions to trade and manage cryptocurrency. But after investors began to learn about Manor’s true identity and criminal past, Manor admitted to hiding this information to avoid destroying his new companies.

Manor is currently a fugitive. 

New Jersey Man Pleads Guilty to Conspiring with Someone Posing as DEA Agent to Defraud Victim of Gold (DOJ Release)
https://www.justice.gov/usao-ma/pr/new-jersey-man-pleads-guilty-conspiring-someone-posing-dea-agent-defraud-victim-gold
In the United States District Court for the District of Massachusetts, Gaurang Contractor pled guilty to one count of conspiracy to commit wire fraud. As alleged in part in the DOJ Release:

A man posing as an agent for the U.S. Drug Enforcement Administration (DEA) who referred to himself as “Oscar White,” contacted a victim in early August 2022 and told the victim that her bank accounts had been “compromised” by drug dealers. “Oscar White” directed the victim to convert her life savings to gold. “Oscar White” provided the victim with the name of a jewelry store in Hadley, Mass. where the victim could purchase gold. “Oscar White” then directed the victim to leave the gold in her unlocked vehicle and promised to send a “court officer” to pick up the gold for safekeeping by the DEA.  The victim became suspicious and contacted law enforcement.  

On Aug. 8, 2022, Contractor, unaware that the victim had contacted law enforcement, drove from New Jersey to Hadley, Mass, and conducted surveillance at the jewelry store. Unbeknownst to Contractor, a law enforcement officer, posing as the victim, entered the jewelry store and completed a sham transaction for two buckets worth of gold. Contractor followed the victim’s vehicle containing fake gold to a nearby parking lot. Upon arriving at the meeting location in the parking lot, Contractor removed the two buckets he believed to contain gold from the victim’s vehicle and placed them in his own car. He was subsequently arrested.  

SEC Charges Private Fund Auditor and Audit Engagement Partner with Improper Professional Conduct (SEC Release)
https://www.sec.gov/news/press-release/2023-65
Without admitting or denying the findings in an SEC Order
https://www.sec.gov/litigation/admin/2023/34-97216.pdf , audit firm Spicer Jeffries LLP and audit engagement partner Sean P. Tafaro consented to the finding that they engaged in improper professional conduct; and, further, Spicer Jeffries agreed to be censured and to implement undertakings to retain an independent consultant to review and evaluate certain of its audit, review, and quality control policies and procedures; and Tafaro agreed to be suspended from appearing and practicing before the SEC as an accountant with the right to apply for reinstatement after one year. As alleged in part in the SEC Release:

[D]uring the audit planning stages, Spicer Jeffries and Tafaro assessed that valuation of investments was a significant fraud risk but did not implement the planned audit approach to respond to the risk. The order further finds that Spicer Jeffries and Tafaro failed to obtain sufficient audit evidence about the method of measuring fair value, the valuation models, and whether alternative valuation assumptions were considered. According to the order, due to these failures and others, Spicer Jeffries and Tafaro did not exercise due care, including professional skepticism. The order also finds that Spicer Jeffries’ deficient system of quality control led to failures to adhere to professional auditing standards.

SEC Charges Crypto Trading Platform Beaxy and its Executives for Operating an Unregistered Exchange, Broker, and Clearing Agency / Market makers separately charged as unregistered dealers (SEC Release)
https://www.sec.gov/news/press-release/2023-64
Without admitting or denying the allegations in an SEC Complaint filed in the United States District Court for the Northern District of Illinois
https://www.sec.gov/litigation/complaints/2023/comp-pr2023-64.pdf,

• Windy Inc., Randolph Bay Abbott, and Nicholas Murphy agreed to pay a total of $79,200 in civil penalties; Peterson agreed to pay a civil penalty of $6,600; 
• Braverock Investments LLC, Future Digital Markets Inc., Windy Financial LLC, Future Financial LLC (collectively "the Braverock Entities") agreed to jointly and severally pay a penalty of $80,000;
• Windy agreed to pay $10,779 in disgorgement plus prejudgment interest,
• the Braverock Entities agreed to jointly and severally pay $52,000 in disgorgement plus prejudgment interest; and 
• Windy, Murphy, Abbott, and Brian Peterson will undertake, in part, the ceasing all activities as an unregistered exchange, clearing agency, broker, and dealer; shutting down the Beaxy Platform; providing an accounting of assets and funds for the benefit of customers; transferring all customer assets and funds to each respective customer; and destroying any and all BXY in Windy’s possession. 

The SEC litigation continues against Artak Hamazaspyan for securities fraud; and against Hamazaspyan and Beaxy Digital, Ltd for the unregistered offering of the Beaxy token ("BXY"). As alleged in part in the SEC Release:

[S]ince October 2019, Nicholas Murphy and Randolph Bay Abbott, through the company they managed, Windy Inc., maintained and provided the Beaxy Platform as a web-based trading platform that facilitated buying and selling of crypto assets that were offered and sold as securities. The complaint alleges that Windy, through the Beaxy Platform, violated the Securities Exchange Act of 1934 because it:

• • Brought together the orders for securities of multiple buyers and sellers using established, non-discretionary methods under which such orders interacted, and the buyers and sellers entering such orders agreed to the terms of a trade, and thus should have registered as an exchange;
  • Acted as an intermediary in making payments and deliveries upon matching sell and buy orders and maintained custody of customer assets, and thus should have registered as a clearing agency; and
  • Was regularly engaged in the business of effecting transactions for the account of others in crypto assets that were offered and sold as securities, and thus should have registered as a broker.

The SEC’s complaint also alleges that, after Murphy and Abbott convinced Hamazaspyan to resign following the unregistered offering of BXY and the misappropriation of investor assets, the two continued the operation of the Beaxy Platform through Windy, and as such are also liable for operating an unregistered exchange, broker, and clearing agency.

Additionally, the complaint alleges that, in December 2019, Windy entered into an agreement with Brian Peterson and his companies — Braverock Investments LLC, Future Digital Markets Inc., Windy Financial LLC, Future Financial LLC (collectively, the Braverock Entities) — to provide market making services for BXY, and in May 2020, one of these companies entered into a similar market making agreement for another crypto asset security. By doing so, the complaint alleges that Peterson and the Braverock Entities acted as unregistered dealers.

Testimony at Hearing before the Subcommittee on Financial Services and General Government by SEC Chair Gary Gensler
https://www.sec.gov/news/testimony/gensler-testimony-subcommittee-financial-services-and-general-government-032923

Good afternoon, Chair Womack, Ranking Member Hoyer, and members of the Subcommittee. Thank you for inviting me to testify today on the Securities and Exchange Commission’s Fiscal Year (FY) 2024 budget request. As is customary, I’d like to note that my views are my own, and I am not speaking on behalf of my fellow Commissioners or the SEC staff.

Protecting the Public for 90 Years

The SEC is critical to the American public. For 90 years, the federal securities laws—and our work to oversee them—have played a crucial role in good times and in times of stress. These laws, the first of which was enacted in 1933, benefit investors, issuers ranging from startups to multinational corporations, and the markets in the middle. The core principles of U.S. securities markets regulation have contributed to America’s economic success and geopolitical standing around the globe.

This agency’s clients are the 330 million Americans, your constituents who invest in their 401(k)s and IRAs, trade through brokerage apps, take out mortgage or auto loans, or use robo-advisers. They’re also Americans accessing the capital markets to fund their businesses from small to large, their new ideas and innovations. We oversee broker-dealers, stock exchanges, clearinghouses, mutual funds, asset managers, and public company issuers, among other participants in our financial markets.

It’s for the investing public and issuers that our staff must continue to drive efficiencies, help protect for financial stability, and modernize our rulesets for today’s $100 trillion capital markets as well as today’s technologies, in a manner consistent with our Congressional authorities.

Growth and Change in the Markets

We’ve seen tremendous growth and change in our markets. More people than ever are participating—trading and using tools and technologies that were unavailable even a few years ago.

For example, from 2017 to 2022, the number of clients of registered investment advisers grew 60 percent from 34 million to 53 million. During that same period, average daily trading in the equity markets more than doubled from more than 30 million transactions to more than 77 million.

Technology is rapidly transforming our markets and business models. These changes range from electronic trading and the cloud to artificial intelligence and predictive data analytics, just to name a few. There has been dynamic change in communications to and among investors, from Reddit forums to celebrity influencers. Further, we’ve seen the Wild West of the crypto markets, rife with noncompliance, where investors have put hard-earned assets at risk in a highly speculative asset class.

Such growth and rapid change also means more possibility for wrongdoing. As the cop on the beat, we must be able to meet the match of bad actors. Thus, it makes sense for the SEC to grow along with the expansion and increased complexity in the capital markets.

I am proud of this agency. I am proud of our dedicated staff. It has done remarkable work with limited resources. With funding to meet the scale of our mission, we can be an even stronger advocate for the American public—investors and issuers alike.

Further, while recent market volatility raises many important issues for policymakers and the American public, it is also a reminder of the SEC’s need to be adequately resourced.

Budget Request

I am pleased to support the President’s FY 2024 request of $2.436 billion for the SEC, to put us on a better track for the future.

To put this in context, with this committee’s help, FY 2023 funding for the first time brought the agency’s staffing back above where we were seven years ago. The SEC now is approximately three percent larger than it was in FY 2016. Meanwhile, the demands on our talented staff have grown dramatically.

The agency’s oversight function is vast. In addition to the approximately 40,000 entities I mentioned above, we oversee credit rating agencies, the Public Company Accounting Oversight Board, the Financial Industry Regulatory Authority, the Municipal Securities Rulemaking Board, the Securities Investor Protection Corporation, and the Financial Accounting Standards Board.

In FY 2023, the number of positions funded by Congress was 5,303, a much-needed increase of 400. We’re now in the process of filling those positions. The FY 2024 request seeks funding for an additional 170 positions, as well as full-year funding for those staff hired in FY 2023. Considering full-time equivalents (FTEs)—or actual time worked—the FY 2024 request would support 5,139 FTEs.

As this committee considers its work, it’s worth noting the SEC’s funding is deficit-neutral; appropriations are offset by transaction fees.

The SEC has 30 Divisions and Offices across our 11 regional locations and Washington, D.C., headquarters. I’m summarizing below the budget requests for our six Divisions and will briefly touch on technology and real estate. For further details as well as a review of the other offices of the SEC, please reference the FY 2024 Congressional Budget Justification.[1] 

Full-time equivalents (FTEs) at the SEC and in individual Divisions. Overall SEC FTEs include all Offices and Divisions.

Enforcement and Examinations

The Divisions of Enforcement and Examinations account for about half of the SEC’s staff. Without examination of compliance with and enforcement of our rules and laws, we can’t instill the trust necessary for our markets to thrive. Stamping out fraud, manipulation, and abuse lowers risk in the system. It protects investors and reduces the cost of capital. The whole economy benefits from that.

Division of Enforcement

The SEC received more than 35,000 separate tips, complaints, and referrals from whistleblowers and others in FY 2022. To give context, this is more than double the number we received in FY 2016.

During the same period, the Division shrank five percent.

Even with limited resources, the Division brought more than 750 enforcement actions in FY 2022, a nine percent increase over the prior year. Our actions resulted in orders for $6.4 billion in penalties and disgorgement.

Meanwhile, rapid technological innovation in the financial markets has led to misconduct in emerging and new areas, not least in the crypto space. Addressing this requires new tools, expertise, and resources.

The additional staff will provide the Division with more capacity to meet these challenges, investigate misconduct on a larger scale, and accelerate the pace of enforcement investigations to resolution.

This year’s request would grow the team and get the Division to just four percent more than it was in FY 2016.

Division of Examinations

The Division of Examinations serves on the front lines to help ensure firms comply with the law.

In FY 2022, we conducted more than 3,000 examinations across our tens of thousands of registrants, from investment advisers to broker-dealers to exchanges, to ensure they are following their legal obligations to customers, including seniors and other vulnerable investors.

Importantly, the Division is the first line of defense for the investing public relying on investment advisers. Meanwhile, their numbers have grown significantly in the last five years. Registered investment advisers grew by 22 percent—to about 15,000, up from approximately 12,500 in 2017. During the same period, the number of private funds increased by 50 percent to approximately 50,000. This stretches thin the limited resources of the Division.

Further, we work in parallel with self-regulatory organizations to examine registered broker-dealers; in each of the last five years, we jointly examined nearly half of them—even as the number of daily transactions in the equity markets more than doubled.

Our FY 2024 request would help the Division grow to 1,144 FTEs, allowing it to keep pace with the market challenges of the last decade. The majority of this increase relates to full-year funding for those staff positions authorized and hired in FY 2023.

These additional resources would strengthen the Division’s ability to protect American families by addressing risks in the crypto markets, cyber and information security, and the resiliency of critical market infrastructure.

Programmatic Divisions

Next, I will turn to our three programmatic Divisions.

Corporation Finance

The Division of Corporation Finance oversees the disclosures of public companies so that investors can make informed investment decisions. It’s important for investors to receive useful, timely, and accurate disclosure.

During the last three years alone, the number of reporting companies the Division oversees has increased by 18 percent to 7,836, primarily due to initial public offerings. In addition, merger activity has more than tripled 2020 levels in the last two fiscal years. In contrast, the Division’s staff is still approximately 17 percent below FY 2016.

Today’s budget request would grow the team to 454 FTEs. With this increase, the Division still would be five percent smaller than it was in FY 2016. Nonetheless, additional resources would allow the Division to serve investors more ably as markets grow and evolve.

Investment Management

The Division of Investment Management oversees the funds and advisers that steward nest eggs for millions of American investors.

It oversees more than 30,000 registered entities, including approximately 16,000 registered funds and 15,000 investment advisers.

As discussed earlier, we’ve seen significant growth in the number of investment advisers and private funds. Further, the assets managed just by private funds, now at approximately $25 trillion in gross assets, have surpassed the size of the entire U.S. commercial banking industry of approximately $23 trillion.

Overall, the combined assets managed by registered investment companies, private funds, and separately managed accounts the Division oversees has surpassed $100 trillion. Given this growth in the markets, we’ve asked for funding to support 238 FTEs.

Trading and Markets

The Division of Trading and Markets serves on the front line for maintaining fair, orderly, and efficient markets. Market monitoring and supervision are essential parts of the Division’s activity—especially during times of market stress.

The markets and the market participants we oversee represent a significant and growing number of market transactions as well as volume of trades. The Division oversees more than 3,500 broker-dealers, 24 national securities exchanges, 99 alternative trading systems, 50 securities-based swap dealers, and seven active registered clearing agencies, among other entities. Further, the Division is responding to an increasing number of public inquiries, up by more than 67 percent since FY 2019 to approximately 20,000 inquiries in FY 2022.

In FY 2024, we’ve requested 309 FTEs to support this important function of the Commission.

Economic Risk and Analysis

Economic analysis is critical to all of the agency’s work. The Division of Economic and Risk Analysis supports the Commission in every role, whether it’s enforcement or examinations, monitoring the markets, or rulemaking.

In the Enforcement context, the Division’s staff is instrumental in identifying potential wrongdoing, assessing ill-gotten gains, and working to return funds to harmed investors.

The Division’s economists are involved in every aspect of the agency’s rulemaking.Proposing and adopting releases include economic analyses related to efficiency, competition, and capital formation. Those analyses are included in proposing releases that are put out for public comment, and staff throughout the agency actively engages with the public to receive input, including on the economic analyses.

FY 2023 has gotten us to modestly above where we were in 2016 for FTEs. Given the critical nature of the Division’s work, though, for FY 2024, we’ve asked for funding to support 198 FTEs.

Additional Matters

Technology

We live in transformational times. The amount of data analysis that the SEC processes in the Division of Enforcement alone has grown 20 percent year over year for the last three years. Cyber threats have placed our financial sector on high alert. As technologies evolve, it is important that the SEC’s information technologies follow suit.

Thus, we have requested $393 million to support the Commission’s data analysis, cybersecurity, and other IT needs. This request assumes full use of an additional $50 million from the SEC Reserve Fund for multi-year IT projects and programs. To put these figures in context, this spending is dwarfed by what some of the biggest market participants spend in a month on technology.

Real Estate

Another important part of our budget is for offices and leases. We have offices in Washington, D.C., and 11 other places. The total cost in FY 2023 was five percent of our budget.

Over the years, we’ve worked with the General Services Administration (GSA) to rightsize our leasing footprint. In the last nine years, we have shed 140,000 rentable square feet across our facilities. We are in the process of shedding another 30,000 rentable square feet in our San Francisco and Fort Worth regional offices.

Further, we are preparing to vacate one of our three headquarters buildings in Washington, D.C., by the end of this fiscal year, resulting in a reduction of 210,000 square feet of space and approximately $14 million per year in savings.

With the finalization of a new Collective Bargaining Agreement, we look forward to reassessing our facility needs and working with GSA on efforts to relinquish additional space it deems marketable in the coming years.

Conclusion

Nearly two years into this role, I am grateful to work alongside this remarkable staff and my fellow Commissioners to help maintain America’s capital markets—the best in the world. We can’t take our leadership in capital markets for granted, though.

The SEC is working hard day in and day out to keep pace with the dramatic growth and change in the markets. This FY 2024 budget request would give the agency resources to better protect the American public.

I thank the Committee for providing me the opportunity to summarize this budget request.

I am pleased to take your questions.

[1] See Securities and Exchange Commission, “Fiscal Year 2024 Congressional Budget Justification” (March 10, 2023), available at https://www.sec.gov/files/fy-2024-congressional-budget-justification_final-3-10.pdf.

Staff statement regarding the risk legend used by non-transparent exchange-traded funds operating in reliance of an exemptive order under the Investment Company Act of 1940 (Division of Investment Management Staff)
https://www.sec.gov/news/statement/im-staff-statement-etf-032923
Oh my!!! What a captivating headline!!!! Can't wait for HBO to make this into a spellbinding television series. Come to think of it, maybe I'll wait for the release of the drama and then stream it rather than plow through all the Staff's prose.

To date, the Commission has granted exemptive relief to a number of sponsors to operate actively managed ETFs that do not provide daily portfolio transparency (non-transparent ETFs).[1] Under the terms of its exemptive relief, each non-transparent ETF uses in its prospectus, fund website and any marketing materials a risk legend (“Risk Legend”) to highlight for investors the differences between the non-transparent ETF and fully transparent actively managed ETFs as well as certain costs and risks unique to non-transparent ETFs.

The exemptive orders state that “unless otherwise requested by the staff of the Commission,” each non-transparent ETF must use the specific Risk Legend.[2] The staff has become aware of potential space limitations in certain digital advertisements (e.g., small banner ads) that make it impracticable to use the legend as worded and formatted in the exemptive orders. Therefore, the staff, pursuant to the exemptive orders, requests that, in digital advertisements, non-transparent ETFs use either the text and formatting of the Risk Legend as set forth in their exemptive order or the following text and formatting (see bolding below without bullets):[3]

This ETF is different from traditional ETFs – traditional ETFs tell the public what assets they hold each day; this ETF will not. This may create additional risks. For example, since this ETF provides less information to traders, they may charge you more money to trade this ETF’s shares. Also, the price you pay to buy or sell ETF shares on an exchange may not match the value of the ETF’s portfolio. These risks may be even greater in bad or uncertain markets. See the ETF prospectus for more information.

[1] See, e.g., T. Rowe Price Associates, Inc. and T. Rowe Price Equity Series, Inc., Investment Company Act Release Nos. 33685 (Nov. 14, 2019) (notice) (“T.Rowe Notice”) and 33713 (Dec. 10, 2019) (order); Fidelity Beach Street Trust, et al., Investment Company Act Release Nos. 33683 (Nov. 14, 2019) (notice) and 33712 (Dec. 10, 2019) (order); Natixis ETF Trust II, et al., Investment Company Act Release Nos. 33684 (Nov. 14, 2019) (notice) and 33711 (Dec. 10, 2019) (order); Blue Tractor ETF Trust and Blue Tractor Group, LLC, Investment Company Act Release Nos. 33682 (Nov. 14, 2019) (notice) and 33710 (Dec. 10, 2019) (order); Invesco Capital Management LLC, et al., Investment Company Act Release Nos. 34087 (Nov. 6, 2020) (notice) and 34127 (Dec. 2, 2020) (order). See also, e.g., Precidian ETFs Trust, et al., Investment Company Act Release Nos. 33440 (Apr. 8, 2019) (notice) and 33477 (May 20, 2019) (order). This IM staff statement also applies to future non-transparent ETF orders that include the same Risk Legend (as defined below) requirement.

[2] See, e.g., T.Rowe Notice at 12.

[3] The exemptive orders also contain certain requirements regarding the placement of the Risk Legend. See, e.g., id at 12. Nothing herein is intended to alter these requirements.

FINRA Censures and Fines Firm for Material Changes to Private Placements
In the Matter of Baker Tilly Capital, LLC, Respondent (FINRA AWC 2019063881901)
https://www.finra.org/sites/default/files/fda_documents/2019063881901
%20Baker%20Tilly%20Capital%2C%20LLC%20CRD%20No.%20115333%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 Baker Tilly Capital, LLC submitted a Letter of Acceptance, Waiver and Consent ("AWC"), which FINRA accepted. The AWC asserts that Baker Tilly Capital, LLC has been a FINRA member firm since 2001 with about 40 registered representatives at eight branches. In accordance with the terms of the AWC, FINRA imposed upon Baker Tilly Capital, LLC a Censure and $90,000 fine.  As alleged in part in the AWC [Ed: footnote omitted]:

FINRA Fines and Suspends Rep For Private Securities Transaction
In the Matter of Olivier Robert Gillier, Respondent (FINRA AWC 2020068113401)
https://www.finra.org/sites/default/files/fda_documents/2020068113401
%20Andrew%20J.%20Grant%20CRD%202709882%20AWC%20vr.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 Olivier Robert Gillier submitted a Letter of Acceptance, Waiver and Consent ("AWC"), which FINRA accepted. The AWC asserts that Olivier Robert Gillier was first registered in 1999, and from August 2013 to April 2021, he was registered with Tigress Financial Partners, LLC. In accordance with the terms of the AWC, FINRA imposed upon Gillier a $15,000 fine and a 12-month suspension from associating with any FINRA member in all capacities.  As alleged in part in the AWC:

In July 2015, Gillier made a capital contribution of $300,000 in exchange for Class A membership interests in an LLC formed for the purpose of purchasing and managing a building in New York. Gillier also facilitated the investments of three individuals, one of  whom was a Tigress customer, who invested a total of more than $2 million in Class B  membership interests in the LLC. The right to manage and control the business of the  LLC was vested exclusively in a managing member. Neither Gillier nor the Class B  investors had any role in the operation or management of the building. Class A and Class  B members expected to share in the potential profits of the LLC according to their membership percentages as defined in the LLC's operating agreement. These Class A  and Class B membership interests in the LLC were investment contracts that were  securities. During the relevant period, Tigress's Written Supervisory Procedures stated  that employees were "not permitted to engage in private securities transactions. . . without  prior approval" 

Gillier's involvement in the LLC was outside the scope of his employment with Tigress.  Gillier did not provide prior written notice to Tigress before investing in the LLC or  facilitating the investments of the Class B investors. Gillier also falsely certified on the firm's 2016 and 2017 annual compliance attestations that he had not engaged in any  private securities transactions that had not been previously disclosed to the firm.  

Therefore, Gillier violated FINRA Rules 3280 and 2010.

FINRA Fines and Suspends Rep For Discretionary Trades
In the Matter of Andrew J. Grant, Respondent (FINRA AWC 2020068113401)
https://www.finra.org/sites/default/files/fda_documents/2020068113401
%20Andrew%20J.%20Grant%20CRD%202709882%20AWC%20vr.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 Andrew J. Grant submitted a Letter of Acceptance, Waiver and Consent ("AWC"), which FINRA accepted. The AWC asserts that Andrew J. Grant was first registered in 1997, and by 2012, he was registered with Laidlaw & Company (UK) LTC. The AWC asserts in part under "Background" that [Ed: footnote omitted]:

On January 17, 2020, FINRA accepted an AWC in which Grant consented to the entry of findings that he violated NASO Rule 2510(b) and FINRA Rule 2010 by effecting transactions in 13 customer accounts, using discretion without the customers' prior written authorization and without his firm accepting the accounts as discretionary in writing. The A WC suspended Grant from associating with any FINRA member in all capacities for 15 business days and imposed a $5,000 fine.  

In accordance with the terms of the AWC, FINRA imposed upon Grant a $10,000 fine and a one-month suspension from associating with any FINRA member in all capacities.  As alleged in part in the AWC:

From October 22, 2021 through April 19, 2022, Grant exercised discretionary authority for at least 102 trades in four customers' brokerage accounts. These four customers did not provide prior written authorization for Grant to exercise discretion in their accounts. Additionally, Laidlaw did not accept any of the customer accounts as discretionary accounts.

Therefore, Grant violated FINRA Rules 3260(b) and 2010. 

Recidivist Fraudster Pleads Guilty To $40 Million Ponzi Scheme / Franklin Ray Also Pled Guilty to SBA Loan Fraud and Another Fraud Scheme (DOJ Release)
https://www.justice.gov/usao-sdny/pr/recidivist-fraudster-pleads-guilty-40-million-ponzi-scheme
In the United States District Court for the Southern District of New York, Franklin Ray pled guilty to four counts of wire fraud, including one count of wire fraud while released under conditions of bail and two counts of wire fraud affecting a financial institution, and one count of aggravated identity theft. Also, Ray agreed to forfeit $42,128,912 and pay restitution. Previously, Ray was convicted in the United States District Court for the Eastern District of Michigan of wire fraud and bank fraud, and was released from prison in 2010. As alleged in part in the DOJ Release:

Beginning in at least June 2021, FRANKLIN RAY began to offer investors an opportunity to invest in his trucking and logistics company, CSA Business Solutions LLC (the “Truck Investment Scheme”).  Specifically, RAY and the investors entered into contracts pursuant to which CSA Business Solutions LLC would procure and operate a truck in its trucking business for each $20,000 contributed by the investor. RAY told investors that the trucks would perform delivery services for a multinational e-commerce company and/or a multinational shipping company and that the investors would be entitled to 77% of the net income of the trucks.  In reality, CSA Business Solutions LLC operated few trucks and had minimal revenues from trucking activities. Instead, investors in the Truck Investment Scheme received payments from new investments into the scheme or from other sources.  After the investors purchased the rights to trucks from CSA Business Solutions LLC, RAY sent them falsified spreadsheets at regular intervals, purporting to show the performance of their trucks during the relevant period.  RAY ultimately induced approximately 275 investors to invest at least $40 million and fraudulently claimed to have purchased over 2,000 trucks with the investments.

RAY also pled guilty to carrying out fraudulent schemes to obtain over $1.9 million in government-guaranteed loans designed to provide relief to small businesses during the COVID-19 pandemic on behalf of CSA Business Solutions LLC and another Michigan-based trucking company (the “SBA Loan Fraud Schemes”).  In connection with the SBA Loan Fraud Schemes, RAY submitted false information and forged documents to the Small Business Administration and commercial lenders.  RAY claimed that these businesses engaged in significant trucking business, but they had minimal revenues and trucking activity.

Finally, RAY pled guilty to fraudulently inducing a New York City-based real estate company (the “Company”) to pay $175,000 in startup costs for a joint venture (the “Join Venture”) between the Company and CSA Business Solutions LLC.  RAY misrepresented CSA Business Solutions LLC and his own personal business experience to the Company.  Rather than pay for startup costs, RAY spent the funds on personal expenses, including private airplane trips.  The Joint Venture was never formed.

RAY was arrested in early March 2022, and a CSA Business Solutions LLC bank account was seized at that time.  After his arrest, up until his Indictment in April 2022, RAY continued to operate the Truck Investment Scheme.  RAY hid the fact of his arrest and the seizure of the bank account and lied to investors about why he did not make expected payments after his arrest. During the period after his arrest, RAY opened new bank accounts on behalf of CSA Business Solutions LLC and continued to solicit and accept investor funds for trucks that did not exist.  In the post-arrest period alone, RAY defrauded investors into paying at least $1.9 million into his scheme.

Former Law Firm Partner Arrested For Bankruptcy Fraud / Defendant Submitted Fake Bank Record to Court (DOJ Release)
https://www.justice.gov/usao-sdny/pr/former-law-firm-partner-arrested-bankruptcy-fraud
In the United States District Court for the Southern District of New York, an Indictment was filed charging former attorney John Roesser with one count of falsification of records in bankruptcy and one count of false oaths and claims in bankruptcy.
https://www.justice.gov/usao-sdny/press-release/file/1576611/download
As alleged in part in the DOJ Release:

From in or about March 2013 through in or about January 2018, ROESSER was a partner at three multinational law firms.  During his time as a partner at these law firms, ROESSER earned substantial income — and incurred substantial income tax liability. ROESSER resigned from the New York bar in or about June 2020 after admitting to misappropriating client funds.

By 2022, ROESSER owed the IRS, and others, over three million dollars.  He also owned a house that he estimated was worth millions of dollars and an Aston Martin Rapide, a luxury sports car. Instead of paying his debts, in February 2022, ROESSER filed for Chapter 11 bankruptcy in the United States Bankruptcy Court for the Southern District of New York.  See In re John Roesser, No. 22 Bk. 22049 (Bankr. S.D.N.Y.) (the “Bankruptcy”).  In a Chapter 11 bankruptcy, a debtor may remain “in possession,” meaning that the debtor keeps possession and control of his assets during the bankruptcy.  But a debtor-in-possession must propose a viable plan of reorganization, which creditors then vote on.  If a debtor fails to comply with the requirements of Chapter 11, a Chapter 11 bankruptcy can be converted to a Chapter 7 bankruptcy or dismissed.  In a Chapter 7 bankruptcy, an appointed trustee usually converts a debtor’s assets into cash for distribution among creditors.  If a bankruptcy is dismissed, the debtor loses the protections of bankruptcy; for example, creditors can take steps to seize a debtor’s assets.

ROESSER told the Bankruptcy Court and the IRS that he would soon receive millions of dollars and be able to pay his debts while keeping his house.  Then, ROESSER filed a false declaration and submitted falsified records in the Bankruptcy indicating that he had received millions of dollars.  This was false.  ROESSER was concealing that he had not received millions of dollars after all, in a fraudulent effort to retain control of his assets while avoiding payment of his debts.

On or about March 3, 2023, after some of the above false statements were withdrawn by ROESSER’s attorney in the Bankruptcy, ROESSER’s Chapter 11 bankruptcy was dismissed. Without the protections of bankruptcy, creditors can now take steps to seize ROESSER’s assets to pay his debts.

Defense Company CEO Pleads Guilty To Conspiracy To Defraud Investors And Creditors (DOJ Release)
https://www.justice.gov/usao-sdny/pr/defense-company-ceo-pleads-guilty-conspiracy-defraud-investors-and-creditors
In the United States District Court for the Southern District of New York, the former Chief Executive Officer of a defense technology start-up Barend Oberholzer a/k/a "Barry Oberholzer" pled guilty to one count of conspiracy to commit wire fraud. Previously, co-conspirator Jaromy Pittario, a/k/a “Jaromy Jannard-Pittario pled guilty and awaits sentencing. 

As alleged in part in the DOJ Release:

Beginning in or around 2018, OBERHOLZER began soliciting investments in Start-Up-1 and a purported security device it had developed (“Security Device-1”) from at least two venture capital firms on false pretenses.  OBERHOLZER sent multiple emails to the firms, posing as a retired, four-star General in the United States Army (“Retired General-1”), who was employed by a prominent private equity firm based in New York, New York (“Private Equity Firm-1”).  Therein, OBERHOLZER, posing as Retired General-1, endorsed and solicited investment in Start-Up-1 and Security Device-1, a smartphone case that purportedly permitted its users to detect at a distance weapons or other dangerous items concealed on another person.

OBERHOLZER and his co-conspirator, JAROMY PITTARIO, a/k/a “Jaromy Jannard-Pittario,” also solicited investments in and loans to Start-Up-1 and Security Device-1 by falsely representing, among other things, their financial solvency, access to cash, and use of investor funds.  For instance, the pair repeatedly provided falsified financial statements to potential creditors to secure funding. 

North Carolina Man Charged with $7 Million Ponzi Scheme (DOJ Release)
https://www.justice.gov/usao-nj/pr/north-carolina-man-charged-7-million-ponzi-scheme
In the United States District Court for the District of New Jersey, an Indictment was filed charging David Schamens with seven counts of wire fraud, one count of securities fraud, and seven counts of money laundering. As alleged in part in the DOJ Release:

Starting in 2014, Schamens fraudulently solicited investments in various entities he controlled, including TD Trading LLC, TFG Trading Fund LLC, Tradestream Analytics LTD, Tradedesk Financial Group Inc., and others, under the promise of annual rates of return of 12 to 30 percent. In 2019, Schamens began to solicit investment in Tradestream Algo Fund, an algorithm-based trading pool that he claimed to have developed. In each instance, Schamens directed investors to wire funds directly or to transfer portions of their Individual Retirement Accounts (IRAs) to bank accounts he controlled.

Schamens often moved victim funds through several different bank accounts before he ultimately used the funds for some non-investment related purpose. Schamens took several steps to keep his customers’ trust, including sending false account statements; posting false monthly account statements to his companies’ websites showing balances for trading accounts that did not exist; and sending false tax documents reporting earnings that did not exist.

Schamens allegedly misappropriated $7 million from at least 25 different individuals, using some of that money to repay earlier investors in the manner of a Ponzi scheme, and to pay personal expenses.

Queens Man Pleads Guilty to Real Estate Fraud Scheme (DOJ Release)
https://www.justice.gov/usao-edny/pr/queens-man-pleads-guilty-real-estate-fraud-scheme
In the United States District Court for the Eastern District of New York, Rashidun Bokhari pled guilty to wire fraud. As alleged in part in the DOJ Release:

[B]etween September 2015 and April 2018, Bokhari induced the victim to invest approximately $935,000 in four different real estate properties located in Long Island City and Astoria in Queens.  Bokhari falsely claimed that in exchange for his investment in the purported real estate transactions, the victim investor would receive a 50 percent ownership in the properties.  Bokhari fabricated real estate transaction documents which he provided to the victim investor.  After receiving almost $1 million, the defendant misappropriated the money for his own personal use, including transferring funds overseas, making mortgage and life insurance payments, and withdrawing cash from ATMs.  As part of his plea agreement, Bokhari has agreed to pay restitution in the amount of $935,000 to the victim.

The government’s investigation also revealed that between December 20, 2020 and May 2022, Bokhari engaged in a separate scheme to defraud two additional victims in Queens.  As part of his plea agreement, Bohkari has agreed to pay these two victims restitution in the amount of $191,100. 

Bokhari’s victims are of Bengali descent and he exploited their shared ethnic background in furtherance of his schemes.  

Brazilian Mining Company to Pay $55.9 Million to Settle Charges Related to Misleading Disclosures Prior to Deadly Dam Collapse (SEC Release)
https://www.sec.gov/news/press-release/2023-63
In response to a Complaint filed by the SEC in the United States District Court for the Eastern District of New York, Brazilian mining company Vale S.A. agreed to pay a $25 million civil penalty and $30.9 million in disgorgement and pre-judgment interest; and to be permanently restrained and enjoined from violations of the Securities Act and of the Securities Exchange Act. As alleged in part in the SEC Release, the settlement stemmed from 

[T] company’s allegedly false and misleading disclosures about the safety of its dams prior to the January 2019 collapse of the Brumadinho dam that killed 270 people. The SEC’s complaint alleged that, for years, the dam did not meet internationally-recognized safety standards even as Vale’s public sustainability reports assured investors that all of its dams were certified as stable. 

Securities and Exchange Commission Obtains Final Judgment Against Massachusetts Investment Adviser Who Misappropriated Funds from Clients (SEC Release)
https://www.sec.gov/litigation/litreleases/2023/lr25678.htm
The United States District Court for the District of Massachusetts entered a Final Judgment against investment adviser James K. Couture whereby he was permanently enjoined from future violations of the antifraud provisions of Section 10(b) of the Securities Exchange Act and Rule 10b-5 thereunder, and Sections 206(1) and 206(2) of the Investment Advisers Act of 1940. In a parallel criminal action, Couture pled guilty to ten criminal counts including one count of investment adviser fraud; and he was sentenced to 100 months in prison plus three years of supervised release, and ordered to pay $1,924,585 in restitution and $2,874,585 in forfeiture. As alleged in part in the SEC Release:

FINRA Doesn't Bank On It When It Comes To Wife Of Former UBS Employee (BrokeAndBroker.com Blog)
https://www.brokeandbroker.com/6961/finra-ubs-motherway/
A former UBS rep sued his former UBS investment adviser brokerage firm. Also, the former rep sued UBS Bank. The Bank didn't file an Answer or appear in the proceedings, and the arbitrators declined to make any determination against the Bank. When it came time for the former UBS rep to pay the arbitration Award rendered against him, FINRA pointed a finger at his wife's finances when he argued that he had an inability to pay the arbitration award. Depending on your view, that's an odd consistency or inconsistency.

Foreign National Sentenced for Victimizing U.S. Persons Through Cyber-Enabled Fraud Schemes (DOJ Release)
https://www.justice.gov/opa/pr/foreign-national-sentenced-victimizing-us-persons-through-cyber-enabled-fraud-schemes
In the United States District Court for the District of Arizona Solomon Ekunke Okpe, 31, was sentenced to four years and one month in prison after pleading guilty to pleaded guilty to conspiracy to commit wire, bank, and mail fraud. Previously, co-conspirator Johnson Uke Obogo was sentenced to one year and one day in prison. As alleged in part in the DOJ Release:

[B]etween December 2011 and January 2017, Solomon Ekunke Okpe, 31, of Lagos, and his co-conspirators devised and executed business email compromise (BEC), work-from-home, check-cashing, romance, and credit card scams that targeted unsuspecting individuals, banks, and businesses in the United States and elsewhere, and were intended to cause more than a million dollars in losses to U.S. victims. Among the victims of the scheme were First American Holding Company and MidFirst Bank. 

To execute the scheme, Okpe and his co-conspirators launched email phishing attacks to steal victim login credentials and other sensitive information, hacked into victim online accounts, impersonated people, and assumed fake identities to defraud individuals, banks, and businesses, and trafficked, possessed, and used stolen credit cards in furtherance of the scheme. For instance, in BEC scams, Okpe and his co-conspirators posed as trusted individuals in order to deceive banks and companies into making unauthorized wire transfers to bank accounts specified by the co-conspirators. The co-conspirators also falsely posed as online employers on job websites and forums and purported to “hire” individuals in Arizona and elsewhere to positions that were marketed as legitimate. In reality, these work-from-home “employees” were often unwittingly directed to perform tasks that would facilitate the co-conspirators’ fraud schemes. Some of these tasks included creating bank and payment processing accounts, transferring/withdrawing money from these accounts, or cashing/depositing counterfeit checks. 

Okpe and his co-conspirators additionally conducted romance scams by creating accounts on dating websites, feigning interest in romantic relationships with individuals under fictitious identities, and causing these victims to transfer their moneys overseas and/or receive money from wire-transfer scams. Okpe caused and intended to cause individual romance scam victims to suffer tens of thousands of dollars of losses.

Okpe was previously arrested in Malaysia at the request of the United States and detained for over two years as he contested extradition to the United States. 

Queens Investment Advisor Indicted for Multi-Million Dollar Securities Fraud Scheme / Victim Gave the Defendant More than $4 Million to Purchase Securities Which He Used to Pay Personal Expenses and for Day Trading (DOJ Release)
https://www.justice.gov/usao-edny/pr/queens-investment-advisor-indicted-multi-million-dollar-securities-fraud-scheme
-and-
SEC Obtains Emergency Relief Against Long Island Investment Adviser and Firm Charged with Fraud (SEC Release)
https://www.sec.gov/news/press-release/2023-62

In the United States District Court for the Eastern District of New York, a 16-count Indictment was filed charing Janues Capital, Inc.'s Founder/Executive Director Surage Roshan Perera was charged with securities fraud, investment advisor fraud, wire fraud, and money laundering. https://www.justice.gov/d9/2023-03/perera.indictment.pdf. As alleged in part in the DOJ Release:

[B]etween February 2022 and March 2023, Perera contacted Jane Doe via telephone calls, emails and text messages to solicit her to purchase stock in companies that traded on the NASDAQ and NYSE, in exchange for a fee.  Perera falsely told Jane Doe that he had relationships with large institutions, and could purchase shares of those publicly-traded companies at discounted prices.  The defendant also told Jane Doe that her investment was a low risk venture and he would use her investment capital to purchase shares in those public-traded companies.  As a result, Jane Doe gave Perera more than $4.2 million.  However, instead of investing Jane Doe’s money in those securities, Perera misappropriated those funds by, among other things: (1) paying redemptions to Jane Doe, (2) paying personal expenses, and (3) funding his day trading.  To conceal his fraudulent scheme, Perera sent fraudulent confirmation notices and account statements to Jane Doe.

In the United States District Court for the Eastern District of New York, the SEC filed a Complaint charging Janues Capital, Inc. and the firm's former broker Surage Roshan Perera with violating antifraud provisions of the federal securities laws; and, further, charging Perera with aiding and abetting Janues’ alleged violations.
https://www.sec.gov/litigation/complaints/2023/comp-pr2023-62.pdf The Complaint names Relief Defendant Nishani Alahakoon. The Court granted emergency relief including a temporary restraining order and an asset freeze. As alleged in part in the DOJ Release:

[F]rom February 2022 until March 2023, Perera, a Long Island, NY resident, falsely told an investor, not named in the complaint, that Janues had access to specific restricted securities at discounted prices though connections with large, institutional investors. He allegedly claimed to also exercise a trading strategy, which he referred to as ‘Options Straddles,’ that would not only prevent any trading losses but also guarantee returns on some of the investments of up to 9 percent with the potential for returns of 50 percent. According to the complaint, Perera and Janues misappropriated at least $3.5 million of the investor’s funds to engage in highly speculative and leveraged trading. In total, Perera engaged in more than $2.5 billion in securities transactions, with nearly $3 million in trading losses. Perera then allegedly concealed the misappropriation and losses by providing the investor with phony confirmations and account statements that falsely showed the expected returns. The complaint also alleges that Perera further attempted to hide the losses by using funds received from other sources to make Ponzi-like payments to the investor.

SEC Charges Texas Resident with Orchestrating Three Separate Schemes Defrauding Investors Out of Over $8.4 Million (SEC Release)
https://www.sec.gov/litigation/litreleases/2023/lr25677.htm
In the United States District Court for the Northern District of Texas, the SEC fled a Complaint charging Aaron Cain McKnight and others with allegedly orchestrating investment schemes that defrauded at least 28 investors. As alleged in part in the SEC Release:

[B]etween March 2018 and September 2021, McKnight ran three schemes that, while separate, followed a similar pattern. In each scheme, McKnight allegedly portrayed himself as an experienced professional controlling financial services firms, through which he offered investment opportunities that promised extraordinary returns but that, in reality, did not exist. Using his fabricated credentials, he allegedly raised funds from numerous investors only to then use the investors' money for non-investment purposes, including personal expenses, operation of his outside business, and/or Ponzi-like payments to earlier investors.

The SEC further alleges that lawyer Kenneth Miller and his law firm, Frost & Miller, LLP ("F&M"), substantially assisted McKnight's first scheme by receiving and immediately distributing over $2 million of investor funds at McKnight's direction. According to the SEC, Miller and F&M provided this assistance despite not having a clear understanding of why the funds were sent to F&M, who the funds had come from or were going to, or what function the investors expected F&M to serve.

The SEC's complaint, filed in Texas federal court, charges McKnight and two entities he employed in one of the schemes, BPM Global Investments, LLC ("BPM Global") and BPM Asset Management, LLC ("BPMAM"), with violating various antifraud provisions of Section 17(a) of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934 (the "Exchange Act") and Rule 10b-5 thereunder. The complaint also charges Sherry Rebekka Sims, Harmony Brooke McKnight, Miller, and F&M with aiding and abetting certain of these violations, and names Timothy Neher and his company, Accelerated Venture Partners, LLC, as relief defendants. Additionally, the complaint charges McKnight and Harmony McKnight as control persons under Section 20(a) of the Exchange Act for the violations of BPM Global and BPMAM. The SEC's complaint seeks permanent injunctions, including conduct-based injunctions, disgorgement of ill-gotten gains, civil penalties, and officer and director bars.

Without admitting or denying the SEC's allegations, Sims consented to a bifurcated settlement, agreeing to the entry of a final judgment that, among other things, permanently enjoins her from violating the antifraud provisions of Section 17(a) of the Securities Act and Section 10(b) of the Exchange Act and Rule 10b-5 thereunder, and from soliciting, or issuing guarantees in connection with, the purchase or sale of securities. Civil penalties will be determined by the court at a later date upon motion of the Commission.

SEC Denies Whistleblower Award to Claimant
Order Determining Whistleblower Award Claim ('34 Act Release No. 34-97205; Whistleblower Award Proc. File No. 2023-43)
https://www.sec.gov/rules/other/2023/34-97205.pdf
The Office of the Whistleblower ("OWB") issued a Preliminary Determination Disposition recommending the denial of a Whistleblower Award to Claimant 2. The Commission ordered that OWBs recommendations be approved. The Order asserts in part that [Ed: footnotes omitted]:

First, the record shows that Claimant 2 did not provide the Commission with information that caused the staff to open an examination or investigation or caused the staff to inquire into different conduct. According to a supplemental staff declaration, the Investigation was opened by Enforcement staff in REDACTED based upon an REDACTED referral (the “Referral”) from the Commission’s Office of Compliance Inspections and Examinations, now the Division of Examinations, and not based upon any information from Claimant 2. Commission staff have confirmed, in a supplemental declaration, which we credit, that the Referral was based on an examination (the “Exam”) begun in REDACTED approximately five months before Claimant 2 contacted the Other Organization. The supplemental declaration also confirms that the Exam was initiated based on information from sources within the Commission. And while the Referral indicates that staff assigned to the Exam communicated with Other Organization staff prior to commencing the Exam REDACTED in those communications occurred at least five months before Claimant 2 contacted Other Organization with his/her information. Accordingly, the record demonstrates that Claimant 2’s information did not cause Commission staff to commence an examination or open the Investigation. 

SEC Awards Whistleblower Award to Claimants 1, 2 and 4 But Denies Award to Claimant 3
Order Determining Whistleblower Award Claim ('34 Act Release No. 34-97202; Whistleblower Award Proc. File No. 2023-42)
https://www.sec.gov/rules/other/2023/34-97202.pdf
The SEC's Claims Review Staff ("CRS") issued a Preliminary Determination recommending a Whistleblower Award to Claimant 1 and Claimant 2, and the denial of an Award to Claimant 3 and Claimant 4. The Commission found Claimant 4 eligible for an Award (reversing CMS), reallocated the 30% among Claimants 1, 2, and 4; and denied an Award to Claimant 3. The Order asserts in part that [Ed: footnotes omitted]:

We also disagree with Claimant 1’s argument that the award should be based on any amounts collected in the Bankruptcy Action. As we noted in connection with the adoption of several rule amendments, “our statutory authority does not extend to paying whistleblower awards for recoveries in bankruptcy proceedings or other proceedings that may in some way ‘result from’ the Commission’s enforcement action and the activities of the whistleblower.” Under Section 21F of the Exchange Act, the Commission is authorized to pay whistleblower awards only on the basis of monetary sanctions that are imposed in a covered judicial or administrative action or related action. A covered judicial or administrative action means an “action brought by the Commission under the securities laws that results in monetary sanctions
exceeding $1,000,000.”  A related action must be brought by one of the authorities specified in the statute.Bankruptcy proceedings are not brought by either the Commission acting under the securities laws or by one of the designated related-action authorities, and orders to pay money that result from bankruptcy proceedings are not imposed in Commission covered actions or related actions. 

. . .

Claimant 3’s lack of awareness of the NoCA posting or of the 90-day deadline is not an “extraordinary circumstance” that would excuse his/her failure to submit a timely Form WBAPP. Nothing interfered with his/her ability to monitor the Commission’s web page or submit an application by the 90-day deadline. Furthermore, there are no unique circumstances here that might support the Commission’s exercise of its separate, discretionary authority under Section 36(a) of the Exchange Act to exempt Claimant 3 from the 90-day filing deadline.

CFTC Charges Binance and Its Founder, Changpeng Zhao, with Willful Evasion of Federal Law and Operating an Illegal Digital Asset Derivatives Exchange (CFTC Release)
https://www.cftc.gov/PressRoom/PressReleases/8680-23
March 27, 2023
In the United States District Court for the Northern District of Illinois, the CFTC filed a Complaint charging Changpeng Zhao and Binance Holdings Limited, Binance Holdings (IE) Limited, and Binance (Services) Holdings Limited (together, "Binance") with numerous violations of the Commodity Exchange Act (CEA) and CFTC regulations; and also charging Binance's former Chief Compliance Officer Samuel Lim with aiding and abetting Binance’s violations. In part the CFTC Release alleges that:

According to the complaint, Binance has offered and executed commodity derivatives transactions to and for U.S. persons from July 2019 through the present. As alleged, Binance’s compliance program has been ineffective and, at Zhao’s direction, Binance has instructed its employees and customers to circumvent compliance controls in order to maximize corporate profits.

The complaint charges that for much of the relevant period, Binance did not require its customers to provide any identity-verifying information before trading on the platform, despite the legal duty that entities like Binance functioning as futures commission merchants (FCMs) collect such information, and failed to implement basic compliance procedures designed to prevent and detect terrorist financing and money laundering.

The complaint further alleges that even after Binance purported to restrict U.S. customers from trading on its platform, Binance instructed its customers – in particular its commercially valuable U.S.-based VIP customers – on the best methods for evading Binance’s compliance controls. In addition, the complaint charges Binance with acting as a designated contract market or swap execution facility based on its role in facilitating derivatives transactions without registering with the CFTC, as required.

The complaint also charges the entity defendants with failing to diligently supervise Binance’s activities as an FCM. Among the numerous supervisory failures detailed in the complaint is Binance’s instruction to employees to communicate with U.S.-based customers concerning control evasion through a messaging application that was set to automatically delete written communications. According to the complaint, the reason Binance used that communication method was to avoid leaving any evidence of their efforts to retain U.S.-based customers. 

The complaint further charges the Binance, Zhao and Lim with willful evasion of the requirements of the CEA. As alleged, the defendants conducted certain activities outside the U.S. designed to avoid CFTC regulation, such as intentionally structuring their entities and transactions to avoid registration requirements and instructing U.S. customers as well as other customers as to how to evade Binance’s compliance controls.

As alleged, Zhao is liable for Binance’s violations based on his control over Binance and his long-running failure to act in good faith concerning Binance’s misconduct. According to the complaint, Zhao owned and controlled dozens of entities that operate the Binance platform as a common enterprise. Zhao is alleged to have been responsible for all major strategic decisions at Binance, including devising the secret plot to instruct U.S.-based VIP customers to evade Binance’s compliance controls and instructing Binance employees to ensure all communications about their control subversion took place over applications that facilitated the automatic destruction of evidence. 

Lim, Binance’s CCO from 2018 through 2022, is charged with willfully aiding and abetting Binance’s violations through intentional conduct that undermined Binance’s compliance program. Lim is also charged with conducting activities to willfully evade or attempt to evade applicable provisions of the CEA, including promoting the use of “creative means” to assist customers in circumventing Binance’s compliance controls and implementing a corporate policy that instructed Binance’s U.S. customers to access the trading facility through a virtual private network to avoid Binance’s IP address-based controls or create “new” accounts through off-shore shell companies to evade Binance’s KYC-based controls.

FINRA Sanction Newbridge Securities Corporation for Alternative Mutual Fund Supervision
In the Matter of Newbridge Securities Corporation, Respondent (FINRA AWC 2019061764901)
https://www.finra.org/sites/default/files/fda_documents/2019061764901
%20Newbridge%20Securities%20Corporation%20CRD%20104065%20AWC%20lp.pdf
%20Jason%20Adams%20CRD%202690575%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, Newbridge Securities Corporation submitted a Letter of Acceptance, Waiver and Consent ("AWC"), which FINRA accepted. The AWC asserts that Newbridge Securities Corporation has been a FINRA member firm since 2000 with 195 registered representatives at 49 branches. In accordance with the terms of the AWC, FINRA imposed upon Newbridge Securities Corporation a Censure, $50,000 fine, $114,025.24 in restitution plus interest, and an undertaking to certify compliance with the cited issues. As alleged in the "Overview" of the AWC [Ed: footnote omitted]:

Between October 25, 2016 and February 8, 2018, Newbridge failed to reasonably supervise representatives’ recommendations of an alternative mutual fund—the LJM Preservation & Growth Fund (LJM). Newbridge permitted the sale of LJM on its platform without conducting reasonable due diligence and without a sufficient
understanding of its risks and features, including the fact that the fund pursued a risky strategy that relied, in part, on purchasing uncovered options. Newbridge also lacked a reasonable supervisory system to review representatives’ LJM recommendations. Newbridge representatives sold approximately $323,000 in LJM to customers. LJM’s value dropped 80% during an extreme volatility event in February 2018 and the fund ultimately liquidated and closed, resulting in thousands of dollars in losses for
Newbridge’s customers. By virtue of the foregoing, Newbridge violated FINRA Rules 3110 and 2010. 

FINRA Sanction NatAlliance Securities and Supervisor for Traders' Bond Marks
In the Matter of NatAlliance Securities, LLC and Jason Adams, Respondents (FINRA AWC  2020068495402)
https://www.finra.org/sites/default/files/fda_documents/2020068495402
%20NatAlliance%20Securities%2C%20LLC%20CRD%2039455%20and
%20Jason%20Adams%20CRD%202690575%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, NatAlliance Securities, LLC and Jason Adams submitted a Letter of Acceptance, Waiver and Consent ("AWC"), which FINRA accepted. The AWC asserts that NatAlliance Securities, LLC has been a FINRA member firm since 1997 with 66 registered representatives at 13 branches; and Jason Adams was first registered in 1996 and by 2019, he was registered with NatAlliance. In accordance with the terms of the AWC, FINRA imposed upon 

• NatAlliance Securities, LLC Censure, a $40,000 fine, and an undertaking to certify compliance with the issues cited; and

• Jason Adams a $5,000 fine, two-month suspension from associating with any FINRA member in Principal-only capacities, and an undertaking to complete 20 hours of continuing education concerning supervisory responsibilities.

 As alleged in the "Overview" of the AWC [Ed: footnote omitted]:

From January 2019 through the present, NatAlliance failed to establish and maintain a supervisory system, including written supervisory procedures, reasonably designed to review its traders’ bond marks to ensure accurate books and records, in violation of FINRA Rules 3110 and 2010. From April 2020 through September 2020, Trader A, a former NatAlliance proprietary corporate bond trader, inaccurately marked the value of numerous bonds in his trading book. Due to Trader A’s mismarking, NatAlliance failed to make and keep accurate books and records of the firm’s net capital, thereby filing four inaccurate monthly FOCUS reports between April 2020 and July 2020, in violation of Section 17(a) of the Exchange Act, Exchange Act Rules 17a-3 and 17a-5, and FINRA Rules 4511 and 2010. From April 2020 through September 2020, Adams failed to reasonably supervise Trader A, in violation of FINRA Rules 3110 and 2010.

= = =

Footnote 3: In October 2022, Trader A entered into an AWC for violating FINRA Rules 4511 and 2010, for which he was suspended for four months in all capacities and fined $5,000.