Securities Industry Commentator by Bill Singer Esq
April 17, 2023
2Cir Remands to EDNY Disparate Sentence In Boiler Room Pumping (BrokeAndBroker.com Blog)
Financial Professionals Coalition, Ltd.
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Texas Securities Board Enters Final Order Against Crypto Firm Nexo Capital, Inc. (TSSB Release)
DOJ RELEASES
SEC RELEASES
CFTC RELEASES
FINRA RELEASES
FINRA Fines and Suspends Rep For Removing Customer Information
In the Matter of Randell J. Ogden, Respondent (FINRA AWC)
FINRA Censure and Fines Regal Securities for Supervision
In the Matter of Regal Securities, Inc., Respondent (FINRA AWC)
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4/17/2023
2Cir Remands to EDNY Disparate Sentence in Boiler Room Pumping (BrokeAndBroker.com Blog)
https://www.brokeandbroker.com/6988/edny-2cir-disparate-sentence/
There's crime and then there's punishment. On Wall Street, there seems to be an abundance of the former and a dearth of the latter -- then again, that's a view of society at large these days, so, who knows, maybe it's just the zeitgeist. Be that as it may, after a federal jury convicted Defendants of a number of crimes, the District Court may have gone a tad light on some prison sentences in order to facilitate the payment of restitution to the victims. The theory being that if you put someone in prison for a number of years, that's detracting from their ability to get a job and start repayment. That may be an enlightened bit of adjudication but did it come at too high a cost for deterrence?
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Former broker accused of duping friends, classmates and colleagues out of $1M in crypto-fueled fraud (Financial Planning by Justin L. Mack)
https://www.financial-planning.com/news/former-broker-accused-of-1-million-crypto-fraud
Financial Planning's Justin L. Mack nails it with his spot-on coverage of the likely-upcoming trials and ongoing tribulations of former Deutsche BAnk investment banker Rashawn Russell, who, at the young age of 27, faces both DOJ criminal and CFTC civil charges for what looks like a crypto scam.
Florida Woman Pleads Guilty To Defrauding Holocaust Survivor Of $2.8 Million In Connection With Romance Scam (DOJ Release)
https://www.justice.gov/usao-sdny/pr/florida-woman-pleads-guilty-defrauding-holocaust-survivor-28-million-connection-romance
BILL SINGER's COMMENT: This bit of depravity sort of got buried with a late-Friday release on April 14, 2023, so, in the spirit of shedding light on horror, I'm running this today just to make sure it's not lost.
In the United States District Court for the Southern District of New York,Peaches Stergo, 36, pled guilty to one count of wire fraud; and she agreed to pay $2,830,775 in restitution and to forfeit the same amount, along with over 100 luxury items she purchased with fraud proceeds, including Rolex watches, designer purses and clothing, and large amounts of gold and jewelry.As alleged in part in the DOJ Release:
From at least in or about May 2017, up to and including at least October 2021, STERGO engaged in a scheme to defraud an 87-year-old Holocaust survivor (the “Victim”) of over $2.8 million, which was his life savings.
STERGO met the Victim on a dating website approximately six or seven years ago. In or about early 2017, STERGO asked the Victim to borrow money to pay her lawyer, who she claimed was refusing to release funds from an injury settlement. After the Victim gave her the money, STERGO said the settlement funds had been deposited into her TD Bank account. In reality, bank records show STERGO never received any money from an injury settlement.
Over the next four and a half years, STERGO continued her lies. She repeatedly demanded that the Victim deposit money into her bank accounts. She claimed that if he did not, her accounts would be frozen and he would never be paid back. In total, the Victim wrote 62 checks — totaling over $2.8 million — that were deposited into one of two of STERGO’s bank accounts.
In furtherance of the fraud, STERGO created a fake email account, intended to appear as if it belonged to a TD Bank employee. She also created fake letters from a TD Bank employee and fake invoices.
While the Victim lost his life savings and was forced to give up his apartment, STERGO lived a life of luxury with the millions she received from the fraud: she bought a home in a gated community, a condominium, a boat, and numerous cars, including a Corvette and a Suburban. During the course of the fraud, STERGO also took expensive trips, staying at places like the Ritz Carlton, and spent many tens of thousands of dollars on expensive meals, gold coins and bars, jewelry, Rolex watches, and designer clothing from stores like Tiffany, Ralph Lauren, Neiman Marcus, Louis Vuitton, and Hermes.
SEC Charges Crypto Asset Trading Platform Bittrex and its Former CEO for Operating an Unregistered Exchange, Broker, and Clearing Agency / Bittrex Global GmbH also charged for failing to register as a national securities exchange (SEC Release)
https://www.sec.gov/news/press-release/2023-78
In the United States District Court for the Western District of Washington, the SEC filed a Complaint charging crypto asset trading platform Bittrex, Inc. and its Co-founder/Former Chief Executive Officer William Shihara for operating an unregistered national securities exchange, broker, and clearing agency; and further charged foreign affiliate, Bittrex Global GmbH, for failing to register as a national securities exchange in connection with its operation of a single shared order book along with Bittrex.
https://www.sec.gov/litigation/complaints/2023/comp-pr2023-78.pdf As alleged in part in the SEC Release:
Since at least 2014, Bittrex has held itself out as a platform that facilitated buying and selling of crypto assets that the SEC’s complaint alleges were offered and sold as securities. From 2017 through 2022, Bittrex earned at least $1.3 billion in revenues from, among other things, transaction fees from investors, including U.S. investors, while servicing them as a broker, exchange, and clearing agency without registering any of these activities with the Commission.
The complaint further alleges that Bittrex and Shihara, who was the company’s CEO from 2014 to 2019, coordinated with issuers who sought to have their crypto asset made available for trading on Bittrex’s platform to first delete from public channels certain “problematic statements” that Shihara believed would lead a regulator, such as the SEC, to investigate the crypto asset as the offering of a security. For example, in an effort to avoid regulatory scrutiny, before Bittrex would make an asset available on its platform, Bittrex and Shihara instructed issuer-applicants to delete statements related to “price prediction[s],” “expectation of profit,” and other “investment related terms.”
. . .
The SEC’s complaint, filed in the U.S. District Court for the Western District of Washington, alleges that Bittrex and Bittrex Global should have registered as an exchange because they brought together, using a shared order book, 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.
The complaint further alleges that Bittrex should have registered as a clearing agency because it acted as an intermediary in making payments and deliveries upon matching sell and buy orders and maintained custody of customer assets. Finally, the complaint alleges that Bittrex should have registered as a broker because it regularly engaged in the business of effecting transactions for the accounts of others in crypto assets that were offered and sold as securities.
SEC Obtains More Than $5 Million in Final Judgments Against Two Defendants in IIIicit Trading Scheme (SEC Release)
https://www.sec.gov/litigation/litreleases/2023/lr25693.htm
In the United States District Court for the Eastern District of New York, Final Consent Judgments were entered against defendants Jonah Engler and Barbara Desiderio. Engler (who allegedly controlled Global Arena Capital Corp)was ordered to disgorge $1,440,683.51 in ill-gotten gains plus prejudgment interest of $420,561.71, and to pay a civil penalty of $2,295,977.90; and Desiderio was ordered to pay $391,000 in disgorgement, $114,140 in prejudgment interest, and a civil penalty of $391,000. As alleged in part in the SEC Release:
The SEC's complaint, filed on March 31, 2020 against Engler, Desiderio, Joshua Turney, and Hector Perez, alleged that the defendants engaged in illicit trading in over 360 retail customer accounts as Global Arena was going out of business, which resulted in over $4 million in net losses for their customers and generated over $2.4 million in unlawful markups, markdowns, and commissions for their firm. The SEC's complaint charged Engler with violating the antifraud provisions of Section 17(a)(1) and (3) of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5(a) and (c) thereunder, and charged Desiderio with aiding and abetting her co-defendants' violations.
The Court previously entered partial consent judgments against Engler and Desiderio, permanently enjoining them from violating Section 17(a) of the Securities Act and Section 10(b) of the Exchange Act and Rule 10b-5 thereunder. Based on the entry of those judgments, the SEC also previously issued orders barring Engler and Desiderio from association with any broker, dealer, investment adviser, municipal securities dealer, municipal advisor, transfer agent, or nationally recognized statistical rating organization, and from participating in any offering of a penny stock. For further information, see Litigation Releases No. 24874 (Aug. 25, 2020) and No. 25221 (Sept. 24, 2021).
Texas Securities Board Enters Final Order Against Crypto Firm Nexo Capital, Inc. (TSSB Release)
https://www.ssb.texas.gov/news-publications/texas-securities-board-enters-final-order-against-crypto-firm-nexo-capital-inc
The Texas State Securities Board entered a Final Order against Nexo Capital Inc. (“Nexo”).
https://www.ssb.texas.gov/sites/default/files/2023-04/ENF_23_CDO_1871.pdf As alleged in part in the TSSB Release:
[N]exo was organized as a Cayman Islands corporation and dealt in interest-bearing digital asset accounts. Clients invested in the accounts by lending digital assets to Nexo, and Nexo afforded complete discretion in using their digital assets to generate revenue. In exchange, Nexo promised to pay lucrative returns to investors – in at least one instance, the returns may have been as much as 36%.
The settlement requires the firm to cease and desist from offering or selling securities that are not registered, qualified or exempt to Texans. Nexo also agreed to pay a fine of approximately $212,000 to the Texas State Securities Board and, in a separate action, a fine of approximately $212,000 to the Texas Department of Banking.
The order was the product of an investigation conducted by state securities regulators in Washington, California, Kentucky, New York, Oklahoma, Indiana, Maryland, South Carolina and Wisconsin. The investigation was coordinated by the North American Securities Administrators Association (“NASAA”), and assisted by regulators from Alabama, Montana and Texas that lead the NASAA Enforcement Section Committee. Earlier this year, the state regulators negotiated a settlement in principle that contained the key terms of today’s order and requires Nexo to pay $22.5 million in fines to state securities regulators.
FINRA Fines and Suspends Rep For Removing Customer Information
In the Matter of Randell J. Ogden, Respondent (FINRA AWC 2021070656001)
https://www.finra.org/sites/default/files/fda_documents/2021070656001
%20Randell%20J.%20Ogden%20CRD%202019815%20AWC%20lp.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, Randell J. Ogden submitted a Letter of Acceptance, Waiver and Consent ("AWC"), which FINRA accepted. The AWC asserts that Randell J. Ogden was first registered in 1990, and by October 1997, he was registered with Sage, Rutty & Co., Inc.. In accordance with the terms of the AWC, FINRA imposed upon Ogden a $7,500 fine and a 15-business-day suspension from associating with any FINRA member in all capacities. As alleged in part in the AWC:
In anticipation of joining another FINRA member firm, and while associated with Sage Rutty, Ogden directed another Sage Rutty representative who reported to Ogden (Representative A) to remove nonpublic personal customer information from Sage Rutty, without Sage Rutty's or the customers' knowledge or consent. In January and early February 202 l, while associated with Sage Rutty, Representative A then sent to his personal email address and to a drive external to Sage Rutty unencrypted documents containing nonpublic information of over 200 Sage Rutty customers.2 This information included dates of birth, driver's license numbers, and social security numbers. Ogden and Representative A resigned from Sage Rutty on February 11, 2021 and joined a new firm that same day. The nonpublic personal information removed from Sage Rutty was used to populate a separate customer information database for use at the new firm.In January 2021, prior to resigning from Sage Rutty, Ogden also directed Representative A and another employee working in an administrative capacity to obtain pre-filled new account packets to be sent to existing Sage Rutty customers to transition the customers to the new firm. These packets included customer nonpublic personal information, including dates of birth, account numbers, social security numbers, and driver's license numbers. At Ogden's direction, Representative A then caused these pre-filled forms to be saved on the drive external to Sage Rutty in January 2021. Ogden then distributed the pre-filled forms to customers using email and physical mail once he registered with the new firm.
By improperly directing the removal of customers' nonpublic personal information from Sage Rutty, Ogden failed to observe high standards of just and equitable principles of trade in violation of FINRA Rule 2010.
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Footnote 2: Representative A has been subject to discipline in a separate AWC finding a violation of Rule 2010 for his improper removal of customers' nonpublic personal information.
FINRA Censure and Fines Regal Securities for Supervision
In the Matter of Regal Securities, Inc., Respondent (FINRA AWC 2021070656001)
https://www.finra.org/sites/default/files/fda_documents/2021070656001
%20Randell%20J.%20Ogden%20CRD%202019815%20AWC%20lp.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, Regal Securities, Inc. submitted a Letter of Acceptance, Waiver and Consent ("AWC"), which FINRA accepted. The AWC asserts that Regal Securities, Inc. has been a FINRA member firm since 1976 with about 65 registered representatives at 11 branches. In accordance with the terms of the AWC, FINRA imposed upon Regal Securities, Inc. a Censure and $50,000 fine (resolved with an additional Nasdaq Stock Market LLC. matter for a total fine of $100,000). As alleged in part in the AWC:
In July 2017, a Regal branch manager sought the business of a customer who once maintained an account with the firm. Regal’s compliance department initially recommended that the customer not be allowed to open a new account with the firm due to previous issues regarding margin calls and his trading activity. The branch manager then escalated the on-boarding of this customer to the trading desk, which, in response,also raised a concern. Nonetheless, the firm opened a new account for the customer on August 10, 2017. The firm delegated responsibility for supervision of this customer’s trading, including review of surveillance alerts, to the branch manager and another registered representative responsible for the account, both of whom were registered with FINRA as General Securities Principals. Both registered representatives provided the firm with assurances that they would monitor the customer’s account activity.
The customer began trading in the new account on August 22, 2017. Initially, some of the customer’s trading generated firm surveillance alerts indicating potential marking the close activity on August 23, 24, 28, and 29, 2017. Then, on August 31, a Regal executive informed the account representative that the account may need to be closed due to this trading activity. While surveillance alerts were being generated, the firm did not reasonably review them or take any action regarding the customer at that time.
The customer’s trading continued until January 31, 2019, when Regal terminated his ability to trade for failing to meet margin calls. During that period, the customer’s trading activity generated approximately 1,600 firm surveillance alerts indicating potential marking the close activity. Further, between November 2017 and June 2018, the customer’s trading activity generated approximately 40 surveillance alerts indicating potential wash trading.
The firm forwarded these surveillance alerts to the designated representatives for review, however, Regal’s WSPs did not describe how alerts were to be reviewed, or how those reviews were to be documented. Moreover, the firm did not evidence that reviews were in fact conducted to determine whether the activity was manipulative, except for in a small number of instances. In addition, neither representative on the account escalated any concerns about the customer’s trading to the compliance department, and the compliance department did not otherwise follow up with the representatives after forwarding the alerts for review.
Regal also failed to establish a supervisory system reasonably designed to detect other potentially manipulative trading. The firm had no surveillance to detect layering for similar activity until January 2019.
Therefore, Respondent violated FINRA Rules 3110(a) and (b) and 2010.