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4/6/2023 

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State Securities Regulators Announce $10 Million Settlement with Robinhood for Failing Investors (NASAA Release)
https://www.nasaa.org/67820/state-securities-regulators-announce-10-million-settlement-with-robinhood-for-failing-investors/?qoid=current-headlines
In pertinent part, the NASAA Release states:

WASHINGTON, D.C. – (April 6, 2023) – The North American Securities Administrators Association (NASAA) today said Robinhood Financial LLC will pay up to $10.2 million in penalties for operational and technical failures that harmed main street investors.

The settlement stems from an investigation spearheaded by state securities regulators in Alabama, Colorado, California, Delaware, New Jersey, South Dakota and Texas regarding Robinhood’s operational failures with respect to the retail market.

The investigation was sparked by Robinhood platform outages in March 2020, a time when hundreds of thousands of investors were relying on the Robinhood app to make trades. In addition, prior to March 2021, there were deficiencies at Robinhood in its review and approval process for options and margin accounts, weaknesses in the firm’s monitoring and reporting tools, and insufficient customer service and escalation protocols that in some cases left Robinhood users unable to process trades even as the value of certain stocks was dropping.

“Today’s multistate agreement represents states at their best – working together for the benefit of Main Street investors,” said NASAA President Andrew Hartnett. “Robinhood repeatedly failed to serve its clients, but this settlement makes clear that Robinhood must take its customer care obligations seriously and correct these deficiencies.”

The order sets out the following violations:

• Negligent dissemination of inaccurate information to customers, including regarding margin and risk associated with multi-leg option spreads.
• Failure to have a reasonably designed customer identification program.
  Failure to supervise technology critical to providing customers with core broker-dealer services.
• Failure to have a reasonably designed system for dealing with customer inquiries.
• Failure to exercise due diligence before approving certain option accounts.
• Failure to report all customer complaints to FINRA and state securities regulators, as may be required

Robinhood neither admits nor denies the findings as set out in the States’ orders.

Robinhood will provide access to a FINRA-ordered compliance implementation report to settling states. Robinhood retained an independent compliance consultant who made recommendations for remediation, which Robinhood has generally implemented.

One year after the settlement date, Robinhood will attest to the lead state, Alabama, that it is in full compliance with the FINRA-ordered independent compliance consultant’s recommendations or has otherwise instituted measures that are more effective at addressing the recommendations.

“Today’s agreement reflects the ongoing efforts by state securities regulators to protect investors and make sure that they are treated fairly by financial services firms,” said Joseph P. Borg, Director of the Alabama Securities Commission.

Borg noted that state securities regulators found no evidence of willful or fraudulent conduct by Robinhood, and that Robinhood fully cooperated with the investigation.

See, for example: In the Matter of Robinhood Financial, LLC (Administrative Consent Order, State of Colorado, Case No. 2023-CDS-01)
https://drive.google.com/file/d/1sKEBdKLAeBxmCeRCvK1wjYEt5ZFnw8Pd/view

Cryptocurrency Founder “Bruno Block” Pleads Guilty To Tax Crimes (DOJ Release)
https://www.justice.gov/usao-sdny/pr/cryptocurrency-founder-bruno-block-pleads-guilty-tax-crimes
In the United States District Court for the Southern District of New York, Amir Bruno Elmaani a/k/a "Bruno Block," 31, (founder of the Oyster Pearl cryptocurrency) pled guilty to one count of subscribing to a false tax return for the year 2017 and one count of failure to file a tax return for the year 2018. Elmaani agreed to pay $5,523,794 in restitution. As alleged in part in the DOJ Release:

In September and October 2017, ELMAANI began promoting online a new cryptocurrency known as Pearl tokens.  Using a variation of his online pseudonym “Bruno Block,” ELMAANI stated that he planned to develop an online data-storage platform, known as Oyster Protocol, which would allow users to purchase online data storage with Pearl tokens. Instead of using his real name, ELMAANI operated almost exclusively online under the pseudonym “Bruno Block.”  ELMAANI concealed his true identity from his prospective employees and business associates and never met them in person.

In late October 2018, although the number of Pearl tokens was purportedly fixed, ELMAANI used his access to the blockchain technology used to create Pearl tokens to mint new tokens, which he took for his own personal use (the “Exit Scheme”).  ELMAANI thereby increased the total volume of Pearl tokens. Shortly after creating the new tokens, ELMAANI converted the Pearl tokens he had obtained to other types of cryptocurrency on an online marketplace or exchange.  As a result of ELMAANI’s conduct, trading in Pearl tokens halted on that exchange and the price of Pearl tokens held by investors dropped substantially.  Pearl tokens were subsequently de-listed from the primary exchange where they were traded.  Subsequent to the Exit Scheme, ELMAANI used his friends and family to receive cryptocurrency and to transfer funds to a bank account in his name. 

While ELMAANI initially attempted to hide even “Bruno Block’s” involvement in the Exit Scheme, he later effectively admitted to the conduct online under his “Bruno Block” pseudonym.  In a recorded call with the then-chief executive officer (“CEO”) of Oyster Protocol Inc., after the Exit Scheme, the CEO asked ELMAANI why he had to take the additional new Pearl tokens if he had already cashed out millions of dollars’ worth of Pearl tokens in the past. ELMAANI responded, in part, that “taxes are pretty nasty.”  ELMAANI carried out the Exit Scheme only days before the exchange he had used to cash out his Pearl tokens was set to require “know your customer” personal identifying information from its users. 

In connection with his plea, ELMAANI admitted in the plea agreement that:

In or about 2017, using the alias “Bruno Block,” I began an online project called the “Oyster Protocol.”  In support of this project, an initial coin offering (“ICO”) was held in or about October 2017, in which a token named “Pearl” (“PRL”) was issued.  I stated in public forums that after the ICO, the supply of PRL would not increase, and that the smart contract that created PRL would be “locked.”  Contrary to these statements, on or about October 29, 2018, I used the smart contract to mint new PRL, without telling anyone, including others who worked on the Oyster Protocol project.  I then sold these newly minted PRL on a digital trading platform.  I was aware that the counterparties who were buying these newly minted PRL likely were not aware of my reopening of the smart contract, and did not know that I had just substantially increased the total supply of PRL.  After Oyster management learned of my reopening of the smart contract and alerted the public, the price of PRL plummeted.       

ELMAANI filed a false 2017 tax return stating that he had only approximately $15,000 of income from a “patent design” business, and he filed no return and reported no income to the Internal Revenue Service (“IRS”) in 2018. Nevertheless, ELMAANI spent, in 2018, over $10 million for the purchase of multiple yachts, $1.6 million at a carbon-fiber composite company, hundreds of thousands of dollars at a home improvement store, and over $700,000 for the purchase of two homes, one of which was titled in the name of a shell company and the other in the name of two of his associates.  The tax loss to the United States from ELMAANI’s conduct was approximately $5,523,794.

FINRA Bars Rep For Borrowing from Customers, Outside Business Activity, and Settling Away
In the Matter of William F. Winchester III, Respondent (FINRA AWC 2020065993801)
https://www.finra.org/sites/default/files/fda_documents/2020065993801
%20William%20F.%20Winchester%20III%20%2C%20CRD%20No.%204404327
%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 William F. Winchester III submitted a Letter of Acceptance, Waiver and Consent ("AWC"), which FINRA accepted. The AWC asserts that William F. Winchester III entered the industry in 2001, and by December 2007, he was registered with LPL Financial LLC, and, thereafter, in 2012, he was registered with Raymond James Financial Services, Inc. In accordance with the terms of the AWC, FINRA imposed upon Winchester a Bar from associating with any FINRA member in all capacities.  As alleged in part in the AWC:

In March 2009, while associated with LPL and registered with FINRA, Winchester borrowed $380,000 from Customer 1, one of his customers. Later in 2009, Winchester borrowed an additional $350,000 from Customer 2, another of his customers. Winchester repaid Customer 1 and Customer 2 the amounts that were borrowed.

At the time Winchester borrowed these funds, LPL’s written supervisory procedures prohibited borrowing money from customers. Exceptions to this policy were granted only in limited circumstances not applicable here, such as when the customer was a family member.

Winchester never disclosed to LPL that he had borrowed money from his customers. In July 2009, June 2010, April 2011, and February 2012, Winchester completed an LPL Financial Branch Manager & Financial Advisor Questionnaire. Item 52 of the questionnaire asked, among other things, whether Winchester had borrowed money from any customer.

Winchester falsely responded “No” to this question on each of these Questionnaires. 

In late 2009, another Winchester customer, Customer 3, passed away. Winchester thereafter agreed to serve as a co-executor of Customer 3’s estate. Between 2010 and 2016, while registered with FINRA through associations with LPL and RJFS, Winchester borrowed money from the estate. In September 2016, Winchester signed promissory note to the beneficiary of the estate, Customer 4, who was also his customer at RJFS, to establish repayment terms for the funds he had borrowed from the estate. At the time Winchester entered into this promissory note, RJFS prohibited its registered representatives from borrowing from customers. At the time Winchester was terminated from RJFS, he was in the process of repaying Customer 4 the amounts borrowed pursuant to the terms of an agreement.

Therefore, Winchester violated NASD Rule 2370 and FINRA Rules 3240 and 2010. 

In October 2009, Winchester became co-executor to Customer 3’s estate. Winchester received $45,000 in compensation for his services as co-executor. At the time Winchester accepted the appointment as co-executor, LPL’s written supervisory procedures prohibited its registered representatives from engaging in an outside business activity that involved taking custody of, or authority over, the funds or property of others. Winchester did not disclose to LPL his appointment as co-executor of Customer 3’s estate.

Winchester also failed to disclose that he was serving as co-executor of Customer 3’s estate when he associated with RJFS. RJFS’s written supervisory procedures required its registered representatives to disclose their services as an executor as an outside business activity if they receive compensation for those services and prohibited its registered representatives from serving as an executor if the position involved signatory authority over funds or property of others. Winchester twice falsely represented on RJFS compliance questionnaires that he was not, among other things, acting as an executor of any individual’s estate.

Therefore, Winchester violated NASD Rule 3030 and FINRA Rules 3270 and 2010. 

. . .

In September 2016, Winchester signed a promissory note to Customer 4 to update repayment terms for the funds he had borrowed from Customer 3’s estate, of which Customer 4 was the beneficiary. Winchester did not disclose the promissory note to RJFS. 

In September 2017, Winchester entered into a settlement agreement with Customer 1, his former LPL and RJFS customer, relating to the $380,000 Winchester had borrowed from Customer 1. Winchester did not disclose this settlement to LPL or RJFS.

During this period, RJFS prohibited its registered representatives from making a private settlement of any claim with a customer without RJFS’s consent.

By entering into settlement agreements with two customers without notifying RJFS, Winchester violated FINRA Rule 2010.

Bill Singer's Comment: Damn!!! FINRA nailed it with this AWC. Well written, replete with sufficient content and context, and presents a very compelling case for FINRA's imposition of a Bar. Great job all around. One and only one quibble: I would have liked to have had some explanation as to why it's only in 2023 that FINRA is settling allegations of misconduct dating back to 2009 (borrowing and OBA) and 2016 (settling away). To be fair, it appears that Respondent's false/non-disclosures furthered the cover-up of his misconduct. That being said, were any lessons learned by the compliance departments or does FINRA have any advice?

FINRA Arbitration Panel Awards Customer Over $456,000 Against Merrill Lynch in Trust Asset Distribution Dispute
In the Matter of the Arbitration Between Estate of Robert G. Gard III, Claimant, v. Merrill Lynch Pierce Fenner & Smith Inc., Respondent (FINRA Arbitration Award 22-01292)
https://www.finra.org/sites/default/files/aao_documents/22-01292.pdf
In a FINRA Arbitration Statement of Claim filed in June 2022, public customer Claimant asserted breach of fiduciary duty; negligent misrepresentation; breach of contract; and violation of FINRA Rules and Merrill Lynch policies and procedures. The causes of action relate to "distribution of trust assets." Claimant sought $600,000 in compensatory damages, an Order restoring the disbursed assets, interest, costs, and fees. Respondent Merrill Lynch generally denied the allegations and asserted affirmative defenses. The FINRA Arbitration Panel found Respondent Merrill Lynch liable and ordered it to pay to Claimant $456,310 in compensatory damages. 

FINRA Arbitration Panel Awards Wells Fargo Customer Over $475,000 in Dispute Over Options Trading And Sale of MCD Stock
In the Matter of the Arbitration Between Norman H. Williams, Claimant, v. Wells Fargo Clearing Services, LLC and Frederick Robert Hughes, Respondents (FINRA Arbitration Award 22-00794)
https://www.finra.org/sites/default/files/aao_documents/22-00794.pdf
In a FINRA Arbitration Statement of Claim filed in April 2022, public customer Claimant Williams asserted breach of fiduciary duty; breach of contract; negligence; fraud; constructive fraud; conversion; and respondeat superior. The causes of action relate to "Respondents’ alleged options trading which led to the sale of Claimant’s McDonald’s (“MCD”) common stock shares." At the hearing,Claimant sought $800,000 in compensatory damages. Respondents Wells Fargo and Hughes generally denied the allegations, asserted affirmative defenses, and sought the expungement of the arbitration from the Central Registration Depository record ("CRD") of Respondent Hughes. The FINRA Arbitration Panel found Respondent Merrill Lynch and Respondent Hughes jointly and severally liable and ordered them to pay to Claimant Williams  $450,000 in compensatory damages, $25,000 in costs, interest, and $625 in filing fees.

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4/5/2023

In 2023 FINRA Settles With Goldman Sachs Over Mismarked Short Sales Dating Back to 2015 (BrokeAndBroker.com Blog)
https://www.brokeandbroker.com/6974/goldman-sachs-finra/
There are times when Wall Street's regulators just don't seem in much of a rush. When of the industry's whales is involved, everything seems to slow down. If it were one of the small fry, we all suspect that things would have moved quicker and with more devastating sanctions. In a recent FINRA settlement, the regulator alleged that Goldman Sachs had engaged in short selling misconduct from October 2015 to April 2018 involving 60 million short sale orders. And here we are 2023. What took so long?

Goldman Sachs gets $3M FINRA fine for 60 million short sale errors (Financial Planning by Victoria Zhuang)
https://www.financial-planning.com/news/goldman-sachs-fined-3m-by-finra-for-short-sale-errors
Financial Planning's Victoria Zhuang reports on the too-little-too-late regulation of Wall Street. Apparently, when Goldman Sachs screws up 60 million short sales, the industry's regulators come up with a modest fine, Goldman writes out the check, and, hey, the cost to Goldman is like a day's worth of toilet paper.

Nonprofit owner charged with misappropriating funds as the fiduciary to a veteran (DOJ Release)
https://www.justice.gov/usao-nm/pr/nonprofit-owner-charged-misappropriating-funds-fiduciary-veteran
In the United States District Court for the District of New Mexico, an Indictment was filed charging Faye Janzad with two counts of fiduciary misappropriation and two counts of making false statements. As alleged in part in the DOJ Release:

[J[anzad was the owner and director of Veterans Independent Living of Albuquerque (VILA), a nonprofit company that provides housing and services to veterans at various levels of care. In January 2018, Janzad was appointed to serve as the fiduciary to a disabled veteran under VILAs care. At that time, two cashier’s checks in the amount of $20,360.26 and $143,002.77 were dispersed from the veteran’s prior fiduciary to Janzad. Rather than deposit the checks into the veteran’s beneficiary account, Janzad deposited both checks into VILA’s corporate bank account.

In Oct. and Nov. of 2018, the VA asked Janzad to provide bank statements showing the disposition of the veteran’s money. Instead, Janzad led the VA to believe that she had invested the veteran’s money in a mortgage on a VILA property, earning 5% interest. In Dec. 2018, Janzad recorded a mortgage with Bernalillo County which purported to grant the veteran an interest in a property, though the mortgage erroneously referred to a property that was not owned by VILA but had been owned by one of VILA’s other clients. Shortly after, the VA removed Janzad as fiduciary for the veteran and demanded that she forward all monies to the successor fiduciary. Janzad never fixed the faulty mortgage, never made any payments on the mortgage, and never forwarded the veteran’s funds to his successor fiduciary.

During the investigation, Janzad provided the Department of Veterans Affairs with a Fiduciary Statement of Account that omitted any mention of the veteran’s $163,363, and she knowingly made false, fictitious, and fraudulent statements to VA personnel.

Final Defendant Sentenced for Million-Dollar Credit Card Fraud Scheme Involving Arlington Coffee Shop (DOJ Release)
https://www.justice.gov/usao-edva/pr/final-defendant-sentenced-million-dollar-credit-card-fraud-scheme-involving-arlington
In the United States District Court for the Eastern District of Virginia
Adiam Berhane, 50, was sentenced to 10 years in prison for her role in the conspiracy;  Keith Lemons, 56,  was sentenced to time served and six months of home confinement for his role; and Tiffany Younger, 51,  was sentenced to 2 years of probation. As to what prompted those sentences, well, this is one of those case that I'm not sure I can offer much embellishment upon the DOJ Release's prose:

[F]rom at least May 2016 until Oct. 2016, Adiam Berhane, 50, conspired to carry out a fraud scheme with Tiffany Younger, 51, and Keith Lemons, 56, involving stolen credit card information that was used to purchase gift cards, expensive luxury goods, and other items from local retail stores. Berhane would obtain stolen identities of residents of the Washington, D.C. metropolitan area and elsewhere for the creation of fraudulent credit cards. The fraud caused over hundreds of thousands of dollars in losses to area retailers and financial institutions.

Younger and Lemons were recruited by Berhane to make purchases using fraudulent credit cards. As part of the scheme, items purchased with victims’ credit card information would sometimes be returned for refunds to bank accounts that Berhane controlled. In addition to fraudulently purchasing items and receiving fraudulent refund proceeds to her bank accounts, Berhane used fraudulent payment cards to purchase gift cards at retail stores which were then redeemed at her business, Caffe Aficionado, in Arlington. More than a third of Caffe Aficionado’s income from June 2013 to July 2016 came from a pattern of highly unusual redemptions of American Express gift cards, with the pattern beginning several months before Caffe Aficionado opened in approximately October 2013.

Following a December 2022 jury trial, Berhane was convicted of multiple charges of conspiracy to commit bank fraud, bank fraud, trafficking in unauthorized access devices, aggravated identity theft, unlawful possession of 15 or more access devices, and possession of access device-making equipment with intent to defraud. 

Criminal Marketplace Disrupted in International Cyber Operation / Genesis Market Offered Access to Data Stolen From Over 1.5M Compromised Computers Worldwide and Was a Key Enabler of Ransomware (DOJ Release)
https://www.justice.gov/opa/pr/criminal-marketplace-disrupted-international-cyber-operation
In part, the DOJ Release asserts that:

Since its inception in March 2018, Genesis Market has offered access to data stolen from over 1.5 million compromised computers around the world containing over 80 million account access credentials. Account access credentials advertised for sale on Genesis Market included those connected to the financial sector, critical infrastructure, and federal, state, and local government agencies. Genesis Market was also one of the most prolific initial access brokers (IABs) in the cybercrime world. IABs attract criminals looking to easily infiltrate a victim’s computer system. Genesis Market offered for sale the type of access sought by ransomware actors to attack computer networks in the United States and around the world, and published private-sector reports indicate that they indeed were used by ransomware actors to attack such systems.

Genesis Market was user-friendly, providing users with the ability to search for stolen access credentials based on location and/or account type (e.g., banking, social media, email, etc.). In addition to access credentials, Genesis Market obtained and sold device “fingerprints,” which are unique combinations of device identifiers and browser cookies that circumvent anti-fraud detection systems used by many websites. The combination of stolen access credentials, fingerprints, and cookies allowed purchasers to assume the identity of the victim by tricking third party websites into thinking the Genesis Market user was the actual owner of the account.

Genesis Market users were located all over the world. Federal law enforcement has worked to identify prolific users of Genesis Market who purchased and used stolen access credentials to commit fraud and other cybercrimes. This effort resulted in hundreds of leads being sent to FBI field offices throughout the United States, as well as to foreign law enforcement partners. Further, as part of this operation, dubbed Operation Cookie Monster, law enforcement seized 11 domain names used to support Genesis Market’s infrastructure pursuant to a warrant authorized by the U.S. District Court for the Eastern District of Wisconsin.

SEC Obtains Over $1 Million Final Judgment Against Three Individuals in Microcap Fraud Scheme Targeting Retail Investors (SEC Release)
https://www.sec.gov/litigation/litreleases/2023/lr25689.htm
Without admitting or denying the allegations in an SEC Complaint filed in the United States District Court for the Eastern District of New York, Matthew Nicosia, William Reininger, and Ronald Touchard consented to the entry of Final Judgments permanently enjoining them from 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 imposing five-year penny stock bars; and, as to Nicosia and Reininger only, further enjoining them from violating the registration provisions of Section 5 of the Securities Act and imposed five-year officer-and-director bars.

• Nicosia was ordered to pay disgorgement of $526,050, prejudgment interest of $46,311, and a civil penalty of $223,229.
• Reininger was ordered to pay disgorgement of $272,000, prejudgment interest of $23,940, and a civil penalty of $80,000 and
• Touchard was ordered to pay disgorgement of $7,400, prejudgment interest of $830, and a civil penalty of $50,000.

As alleged in part in the SEC Release:

[F]rom August 2019 to at least September 2020, defendants Nicosia, Reininger, and Touchard worked with others to fraudulently sell stock in microcap companies by making misleading statements during high pressure sales calls and/or email promotions. The SEC alleges that, as part of the scheme, Touchard introduced Nicosia and Reininger to a fourth defendant, Fabrizio Di Carlo, who ran a boiler room that identified potential investors and pressured them to purchase stock in Odyssey Group International Inc. According to the complaint, Nicosia and Reininger were Odyssey insiders working with an individual previously charged by the SEC, Charlie Abujudeh, to dump Odyssey shares during the promotional campaigns they were funding. The SEC alleges that the promotions were deceptive and failed to disclose that Nicosia and Reininger were Odyssey insiders, controlled nearly all of the stock that was deposited and available for public trading, and were selling their Odyssey stock into the increased demand created by the promotions they were funding and controlling. According to the complaint, the defendants shared the profits from over $2.6 million in illicit stock sales. The SEC alleges that Reininger and/or Nicosia similarly funded the promotion of Scepter Holdings, Inc. stock and CannaPharmaRx, Inc. stock and failed to make key disclosures to investors to whom they sold that stock.

In the Matter of the CONSOLIDATED ARBITRATION APPLICATIONS For Review of Actions Taken by FINRA (SEC Opinion; '34 Act Rel. No. 97248)
https://www.sec.gov/litigation/opinions/2023/34-97248.pdf
As set forth in part in the SEC Opinion:

This proceeding concerns currently or formerly associated persons of FINRA member firms who attempted to access FINRA’s arbitration forum to seek expungement of customer dispute information concerning final adverse arbitration awards from FINRA’s Central Registration Depository (“CRD”). FINRA prohibited each applicant from accessing its arbitration forum for this purpose. Each applicant now seeks review of FINRA’s action. We sustain seventeen of FINRA’s actions, finding that FINRA acted in accordance with its rules when it denied use of its arbitration forum for collateral attacks on final adverse arbitration awards. But we remand six proceedings for further action because we cannot determine whether FINRA’s actions in those proceedings were in accordance with its rule that only the Director of FINRA Dispute Resolution Services may deny use of the FINRA arbitration forum.

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4/4/2023

FULL TEXT:THE PEOPLE OF THE STATE OF NEW YORK
-against- DONALD J. TRUMP, Defendant (Indictment, SUPREME COURT OF THE STATE OF NEW YORK/ COUNTY OF NEW YORK
https://s3.documentcloud.org/documents/23741577/read-trump-indictment-related-to-hush-money-payment.pdf

Industry Group Calls on Finra to Drop Series 7 Sponsorship Requirement / To take the Series 7 exam, a person must be sponsored by a Finra member firm, which a recently formed industry group argues is creating unnecessary barriers to entry for young and diverse candidates. (Financial IQ by Sam Rowe/ April 3, 2023)

In the United States District Court for the Southern District of New York, the SEC filed a Complaint charging Charlie Javice (founder of the defunct student loan assistance company Frank) with violating the antifraud provisions of the Securities Act and Securities Exchange Act; and further charging as Relief Defendants trusts held by Javice.
https://www.sec.gov/litigation/complaints/2023/comp-pr2023-74.pdf As alleged in part in the SEC Release [Ed: JPMorgan Chase Bank "JPMC"):

[J]avice orchestrated a scheme to deceive JPMC into believing that Frank had access to valuable data on 4.25 million students who used Frank’s service when in reality the number was less than 300,000.

The SEC’s complaint alleges that Javice made numerous misrepresentations about Frank’s purported millions of users to entice JPMC. As negotiations progressed, JPMC pressed the Frank executives for the data associated with its customers, and Javice allegedly sought the help of Frank’s director of engineering to generate synthetic data to make it appear as if Frank had 4.25 million customers. When the director refused to comply, Javice allegedly paid a data science professor to manufacture the data required to close the deal with JPMC.

The SEC’s investigation shows that, as a result of the eventual $175 million acquisition of Frank, Javice received $9.7 million directly in stock proceeds, millions more indirectly through trusts, and a contract entitling her to a $20 million retention bonus as a new employee of JPMC.

SEC Charges South Carolina Resident with Operating $20 Million Ponzi Scheme (SEC Release)
https://www.sec.gov/litigation/litreleases/2023/lr25688.htm
In the United States District Court for the Northern District of Georgia, the SEC filed a Complaint that charges Michael J. French and MJF Holdings https://www.sec.gov/litigation/complaints/2023/comp25688.pdf
with violations of the registration provisions of Section 5 of the Securities Act and the antifraud provisions of Section 17(a) of the Securities Act, and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder; and, further charges MJF Capital with aiding and abetting French's and MJF Holdings' alleged fraud. 

[F]rench, through MJF Holdings, sold more than $20 million in high-yield promissory notes to over 400 investors throughout the country. The complaint alleges that French falsely told investors that the notes - promising 12% returns for a one-year investment - were backed by a low-risk investment program, under which the note proceeds would be loaned to small businesses and/or invested in commercial loans on a fractional basis to produce returns. The complaint also states that French claimed that the loans selected for investment to back the promissory notes were strictly underwritten and thus posed little risk to investors. According to the SEC's complaint, the lending program was a sham, and French spent the money he raised to repay earlier investors and to fund a lavish lifestyle. The complaint also states that French ultimately defaulted on the notes and ceased communicating with investors..

SEC’s OMWI FY 2022 Annual Report Highlights the Agency’s Diversity, Equity, and Inclusion Initiatives and Progress (SEC Release)
https://www.sec.gov/news/press-release/2023-75
Oh my!!! the SEC's 2022 Annual Report https://www.sec.gov/files/omwi_annual_report_fy2022.pdf
is out and for Baby Boomers, it's about as exciting as when they published the new phone book. For those of you dying to know, here's the SEC's own prose: 

The Securities and Exchange Commission’s Office of Minority and Women Inclusion (OMWI) today released its Fiscal Year (FY) 2022 Annual Report to Congress. The report summarizes the SEC’s actions and achievements towards promoting diversity, equity, inclusion, and accessibility (DEIA) in the SEC’s workforce, increasing opportunities for minority-owned and women-owned businesses, and leveraging DEIA for mission effectiveness.

Notable highlights from the report include:

• The representation of minorities among Senior Officers (Senior Officers are equivalent to Senior Executive Service at other federal agencies) increased from FY 2021 to FY 2022;
• 37.6 percent of the SEC contract payments made in FY 2022 were to minority- and women-owned businesses;
• The SEC increased the number of paid internship programs from FY 2021 to FY 2022; and
• 35.9 percent of the workforce identify as minorities.

OMWI provides leadership and guidance for the SEC’s DEIA efforts and works in close collaboration with all SEC divisions and offices. This year’s annual report highlights the steps OMWI took to cultivate strategic relationships, as well as share its knowledge and resources to facilitate and support the SEC’s collective DEIA efforts.

State Regulators Stop Fraudulent Artificial Intelligence Investment Scheme (TSSB Release)
https://www.ssb.texas.gov/news-publications/state-regulators-stop-fraudulent-artificial-intelligence-investment-scheme
The Texas State Securities Board, Alabama Securities Commission, and Montana Securities Commission filed enforcement actions charging YieldTrust.ai and Stefan Ciopraga with illegally soliciting investments tied to a decentralized application ("dApp") that purportedly uses quantum artificial intelligence to trade digital assets. As alleged in part in the TSSB Release:

[Y]ieldTrust.ai is illegally marketing its dApp, known as the YieldBot, through an internet website, its social media channels and various online influencers. YieldTrust.ai is allegedly claiming the YieldBot is powered by cutting-edge artificial intelligence designed to interact with the market for digital assets.  It is purportedly touting the sophistication of the artificial intelligence, claiming it is “capable of executing 70 times more trades with 25 times higher profits than any human trader could.”  YieldTrust.ai is also allegedly claiming the artificial intelligence continuously evolves, as the YieldBot “continually improves itself. . . becoming more effective with each trade made.”

The YieldBot was purportedly developed for Binance’s BNB Smart Chain and YieldTrust.ai allegedly permits clients to stake Binance USD, USD Coin and Tether.  According to the orders, YieldTrust.ai is claiming the YieldBot interfaces with the staking programs, and that it “picks up on the money deposited” and then “uses… funds on various centralized exchanges to generate profits with every withdrawal.”  The promised profits are highly lucrative – YieldTrust.ai is allegedly claiming the YieldBot generated returns of 2.6% per day for four months and new investors can expect to earn up to returns of up to 2.2% per day.

. . .

According to the orders, an independent firm recently published an audit of the smart contract tied to the YieldBot.  The audit showed the smart contract is dangerous and the deploying team retained sufficient control to block users from withdrawing their assets.  After the publication of the smart contract audit, YieldTrust.ai allegedly announced it would cease operations.  Instead, the orders accuse YieldTrust.ai of raising capital from the public to cover withdrawals from prior investors.  Alabama, Montana and Texas filed today’s actions to stop this illegal and fraudulent scheme.   

FINRA Censures and Fines SpeedRoute for New Issues Market Orders 
In the Matter of SpeedRoute LLC , Respondent (FINRA AWC 2018060520901)
https://www.finra.org/sites/default/files/fda_documents/2018060520901
%20SpeedRoute%20LLC%20CRD%20104138%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 SpeedRoute LLC submitted a Letter of Acceptance, Waiver and Consent ("AWC"), which FINRA accepted. The AWC asserts that SpeedRoute LLC has been a FINRA member firm since 2009 with 12 registered representatives. In accordance with the terms of the AWC, FINRA imposed upon SpeedRoute LLC a Censure and $45,000 fine.  As alleged in part in the "Overview" of the AWC:

From September 2016 through February 2019, SpeedRoute accepted market orders for the purchase of shares of new issues in the secondary market prior to the commencement of trading of those shares in the secondary market. As a result, SpeedRoute violated FINRA Rules 5131(d)(4) and 2010.

Additionally, from September 2016 through June 2019, SpeedRoute failed to establish and maintain a supervisory system, including written supervisory procedures, reasonably designed to achieve compliance with FINRA Rule 5131(d)(4). As a result, SpeedRoute violated FINRA Rules 3110 and 2010.

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4/3/2023