April 27, 2023
The Six-Year FINRA and SEC Regulatory Saga of Craig Scott Capital (BrokeAndBroker.com Blog)
FINRA Arbitrators Checkmate SunTrust With Punitive Damages for Misuse of Rep's Name and Picture (BrokeAndBroker.com Blog)
JPMorgan Seeks TRO Against Advisor Who Fled to Morgan Stanley / In a complaint filed last week, JPMorgan accused the advisor of criticizing its investment offerings and the advisor who replaced him, to induce clients to make the jump to Morgan Stanley. (Financial Advisor IQ by Glenn Koch)
In re: Facebook, Inc. Consumer Privacy User Profile Litigation
Financial Professionals Coalition, Ltd./ JOIN TODAY -- FREE MEMBERSHIP
CFPB Issues Guidance to Protect Homeowners from Illegal Collection Tactics on Zombie Mortgages / It is illegal for debt collectors to sue or threaten to sue to collect debts past the statute of limitations (CFPB Release)
DOJ RELEASES
Man Sentenced for Stealing Over 712 Bitcoin Subject to Forfeiture (DOJ Release)
Former Chief Financial Officer Of Two SPACs Sentenced To 36 Months In Prison For Fraud Scheme / Cooper Morgenthau Embezzled More Than $5 Million and Caused False Statements to be Made to Accountant and Auditor and in SEC Filings (DOJ Release)
Leader Of Miami Crew Pleads Guilty To Defrauding Banks And Cryptocurrency Exchange Of More Than $4 Million (DOJ Release)
Two Sentenced To Prison For ‘We Build The Wall’ Online Fundraising Fraud Scheme (DOJ Release)
Three Nevada Men Convicted In Multimillion Dollar Prize Notice Scheme (DOJ Release)
Georgia Man Indicted for Scheme to Defraud Elderly Suffolk County Victim of More Than $5 Million / Defendant and his Co-Conspirators Falsely Told Victim to Send Millions of Dollars to Claim Certificate Needed for "Inheritance" (DOJ Release)
Five Individuals Charged in $2M Virtual Asset and Securities Manipulation Scheme (DOJ Release)
IRB Brasil Agrees to Pay Shareholders $5M in Connection with Securities Fraud Scheme (DOJ Release)
SEC RELEASES
SEC Obtains Default Judgments Against Three Defendants in an Investment Fraud Scheme Involving Penny Stock Companies (SEC Release)
SEC Charges Frank's International with FCOPA Violations in Angola (SEC Release)
SEC Obtains Final Judgment from Former Executive for His Role in $100 Million Accounting Fraud (SEC Release)
In the Matters of Warren A. Davis and Gibraltar Global Securities, Inc. (SEC Order)
CFTC RELEASES
Federal Court Orders South African CEO to Pay Over $3.4 Billion for Forex Fraud CFTC’s Largest Fraud Scheme Case Involving Bitcoin / Highest Civil Monetary Penalty Ordered in a CFTC Case (CFTC Release)
CFTC Charges Precious Metals Dealers and Their Owner in Multimillion Dollar Fraud Targeting the Elderly (CFTC Release)
Swap Dealer Pays Over $6.8 Million for Violations of Swap Dealer Business Conduct Standards (CFTC Release)
FINRA RELEASES
FINRA Fines and Suspends Rep For Private Securities Transactions
In the Matter of Matthew J. Mangini, Respondent (FINRA AWC)
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4/27/2023
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Man Sentenced for Stealing Over 712 Bitcoin Subject to Forfeiture (DOJ Release)
https://www.justice.gov/opa/pr/man-sentenced-stealing-over-712-bitcoin-subject-forfeiture
In the United States District Court for the District of Columbia, Gary James Harmon, 31, pled guilty to wire fraud and obstruction of justice, and was sentenced to four years and three months in prison. As alleged in part in the DOJ Release, Harmon:
perpetrated a scheme to steal cryptocurrency that was the subject of pending criminal forfeiture proceedings in the case of Larry Dean Harmon, Gary Harmon’s brother. In February 2020, Larry Harmon was arrested for his operation of Helix, a darknet-based cryptocurrency money laundering service, known as a “mixer” or “tumbler.” Helix laundered over 350,000 bitcoin – valued at over $300 million at the time of the transactions – on behalf of customers, with the largest volume coming from darknet markets. Law enforcement seized various assets, including a cryptocurrency storage device containing Larry Harmon’s illegal proceeds generated through the operation of Helix, which were subject to forfeiture in the criminal case. However, law enforcement was initially unable to recover bitcoin stored on the device due to the device’s additional security features.
Knowing that the government was seeking to recover the bitcoin stored on the seized device for forfeiture in Larry Harmon’s criminal case, Gary Harmon used his brother’s credentials to recreate the bitcoin wallets stored on the device and covertly transfer more than 712 bitcoin, valued at approximately $4.8 million at the time, to his own wallets – stealing those funds and obstructing the pending criminal forfeiture proceeding. Gary Harmon further laundered the proceeds through two online bitcoin mixer services before using the laundered bitcoins to finance large purchases and other expenditures.
Gary Harmon agreed to the forfeiture of cryptocurrencies and other properties derived from the fraudulently taken proceeds, including more than 647.41 Bitcoin (BTC), 2.14 Ethereum (ETH), and 17,404,400.64 Dogecoin (DOGE). Due to the increase in market prices, the total value of these forfeitable properties exceeds $20 million.
In August 2021, Larry Harmon pleaded guilty to money laundering conspiracy in connection with his case.
Former Chief Financial Officer Of Two SPACs Sentenced To 36 Months In Prison For Fraud Scheme / Cooper Morgenthau Embezzled More Than $5 Million and Caused False Statements to be Made to Accountant and Auditor and in SEC Filings (DOJ Release)
https://www.justice.gov/usao-sdny/pr/former-chief-financial-officer-two-spacs-sentenced-36-months-prison-fraud-scheme
In the United States District Court for the Southern District of New York, Cooper Morgenthau, 36, (former Chief Financial Officer of special purpose acquisition companies (“SPACs”): African Gold Acquisition Corp. (“AGAC”) and Strategic Metals Acquisition Corp. (“SMAC”)) pled guilty to one count of wire fraud; and he was sentenced to 36 months in prison, and ordered to forfeit $5,111,335 and to pay restitution of $5,111,335. As alleged in part in the DOJ Release::
Between approximately June 2021 and August 2022, MORGENTHAU, who was the CFO of AGAC and SMAC, embezzled more than $5 million from the two SPACs. AGAC had recently had its initial public offering (“IPO”), while SMAC was raising money from private investors in preparation for its anticipated IPO. MORGENTHAU used the embezzled funds to trade equities and options of so-called “meme stocks” and cryptocurrencies, losing almost all of the money that he stole. To conceal and facilitate his embezzlement from AGAC, MORGENTHAU fabricated bank statements, which he provided to AGAC’s accountant and auditor; made and caused to be made material misstatements in AGAC’s public filings with the Securities and Exchange Commission (“SEC”); and transferred some of SMAC’s funds to AGAC to cover up the funds he had misappropriated from AGAC.
SEC Obtains Default Judgments Against Three Defendants in an Investment Fraud Scheme Involving Penny Stock Companies (SEC Release)
https://www.sec.gov/litigation/litreleases/2023/lr25701.htm
The United States District Court for the District of Massachusetts entered Final Judgments against
As alleged in part in the SEC Release:
[L]eslie Greyling and Rossetti, on behalf of Trends, allegedly lied to investors about whether Trends owned and could deliver to investors the shares it claimed to be selling. The SEC alleged that Leslie Greyling and Rossetti made a variety of misrepresentations to investors in order to keep investor funds, obtain further investments, placate investor concerns, and avoid detection. Rossetti was also charged with acting as an unregistered broker-dealer by soliciting investors, receiving transaction-based compensation from Trends, and claiming to be a "broker" or "wealth manager." The SEC's complaint also alleged that Clinton Greyling, the son of Leslie Greyling, participated in the scheme. Additionally, according to the complaint, Roger Bendelac participated in the scheme by placing manipulative trades in one of the securities Trends was offering and selling to investors. His relative Thomas Capellini was charged with aiding and abetting Bendelac in connection with the manipulative trades.
The judgments, entered on the basis of default, enjoined Trends, Leslie Greyling and Rossetti from violating the anti-fraud provisions of Section 17(a) of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder, and imposed penny stock bars. Further, Rossetti was enjoined from acting as an unregistered broker-dealer. The judgments ordered Trends and Leslie Greyling to pay on a joint-and-several basis $1,774,747 in disgorgement and prejudgment interest in the amount of $361,798. Trends was ordered to pay a $2,232,280 penalty and Leslie Greying a $446,458 penalty. Rossetti was ordered to pay $797,750 in disgorgement, prejudgment interest in the amount of $172,676, and a $446,458 penalty.
On September 23, 2022, the court entered a judgment against Clinton Greyling, who without admitting or denying the allegations, consented to the entry of a judgment permanently enjoining him from future violations of Section 17(a) of the Securities Act and Section 10(b) of the Exchange Act and Rule 10b-5 thereunder and imposing a penny stock bar. The judgment left disgorgement, prejudgment interest, and civil penalties to be determined by the court at a later date. Litigation continues with respect to Bendelac and Capellini.
Federal Court Orders South African CEO to Pay Over $3.4 Billion for Forex Fraud / CFTC’s Largest Fraud Scheme Case Involving Bitcoin / Highest Civil Monetary Penalty Ordered in a CFTC Case (CFTC Release)
https://www.cftc.gov/PressRoom/PressReleases/8696-23
The United States District Court for the Western District of Texas entered an Order of Default Judgment and Permanent Injunction against Cornelius Johannes Steynberg (founder/Chief Executive Officer of Mirror Trading International Proprietary Limited (MTI), a company currently in liquidation in the Republic of South Africa)
https://www.cftc.gov/media/8506/enfsteynbergfinaldefaultjudgment042423/download. The Order requires Steynberg to pay $1,733,838,372 in restitution to defrauded victims and a $1,733,838,372 civil monetary penalty; and, further, permanently enjoins him from engaging in conduct that violates the Commodity Exchange Act (CEA), as charged, registering with the CFTC, and trading in any CFTC-regulated markets. As alleged in part in the CFTC Release:
The order, entered on April 24, stems from a CFTC complaint filed June 30, 2022. The order finds that, from approximately May 2018 through approximately March 2021, Steynberg, individually and as the controlling person of MTI, engaged in an international fraudulent multilevel marketing scheme to solicit Bitcoin from members of the public for participation in an unregistered commodity pool MTI operated. MTI and Stynberg controlled the commodity pool and purportedly traded off-exchange, retail forex through what they falsely claimed was a proprietary “bot” or software program. During this period, Steynberg, individually and as the principal and agent of MTI, accepted at least 29,421 Bitcoin—with a value of over $1,733,838,372 at the end of March 2021—from at least 23,000 individuals in the U.S., and even more throughout the world, to participate in the commodity pool without being registered as a CPO as required. Either directly or indirectly, the defendants misappropriated all of the Bitcoin they accepted from pool participants.
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4/26/2023
https://www.brokeandbroker.com/6998/craig-scott-capital-taddonio-beyn-finra-sec/
Six years ago, in 2017, FINRA expelled member firm Craig Scott Capital over allegations about about excessive trading in customer accounts. The self-regulatory-organization then turned its gaze upon the firm's President/Chief Executive Officer Craig Scott Taddonio, Chief Operating Officer Brent Morgan Porges, and registered representative Edward Beyn. In the ensuing years, this regulatory saga passed before FINRA's Office of Hearing Officers, then to its National Adjudicatory Council, and, by 2023, to the Securities and Exchange Commission. For those unfamiliar with FINRA's regulatory process and the attendant appellate route, these cases are the equivalent of a driver's manual.
Leader Of Miami Crew Pleads Guilty To Defrauding Banks And Cryptocurrency Exchange Of More Than $4 Million (DOJ Release)
https://www.justice.gov/usao-sdny/pr/leader-miami-crew-pleads-guilty-defrauding-banks-and-cryptocurrency-exchange-more-4
In the United States District Court for the Southern District of New York, Esteban Cabrera Da Corte a/k/a “Esteban Cabrera,” a/k/a “Esteban Da Corte,” a/k/a “Steban,” pled guilty to one count of conspiracy to commit wire fraud, and he agreed to pay restitution of $3,578,786.69 and forfeiture of $1,200,000. As alleged in part in the DOJ Release:
From at least in or about 2020 through at least in or about March 2020, CABRERA DA CORTE and his co-conspirators engaged in a scheme to deceive U.S. banks and a leading cryptocurrency exchange platform (the “Cryptocurrency Exchange”) by purchasing more than $4 million in cryptocurrency and then falsely claiming that the cryptocurrency purchase transactions were unauthorized, deceiving the U.S. banks and the Cryptocurrency Exchange into reversing those transactions and redepositing the money into the bank accounts that the Defendants controlled. The Defendants then withdrew the money from the bank accounts.
To carry out this scheme, the Defendants opened accounts with the Cryptocurrency Exchange, frequently using photos of fake U.S. passports, fake drivers’ licenses, and stolen personal identifying information. The Cryptocurrency Exchange accounts were linked to bank accounts that the Defendants controlled. The Defendants used money that had been deposited into the linked bank accounts, frequently through a series of cash deposits made using ATMs, to purchase cryptocurrency. That cryptocurrency was then quickly transferred to other cryptocurrency wallets outside of the Cryptocurrency Exchange that were controlled by the Defendants and their co-conspirators. After the cryptocurrency was transferred, the Defendants made telephone calls to the U.S. banks during which they falsely represented that the cryptocurrency purchases were unauthorized, leading the banks to reverse the transactions.
The operation of this scheme by the Defendants resulted in U.S. banks processing more than $4 million in fraudulent reversals and the Cryptocurrency Exchange losing more than $3.5 million worth of cryptocurrency.
Two Sentenced To Prison For ‘We Build The Wall’ Online Fundraising Fraud Scheme (DOJ Release)
https://www.justice.gov/usao-sdny/pr/two-sentenced-prison-we-build-wall-online-fundraising-fraud-scheme
In the United States District Court for the Southern District of New York, Brian Kolfage and Andrew Badolato pled guilty to one count of conspiracy to commit wire fraud; and, additionally, Kolfage pled guilty to tax and wire fraud charges originally filed by the United States Attorney’s Office for the Northern District of Florida.Kolfage, 41, was sentenced to 51 months in prison plus three years of supervised release and ordered to forfeit $17,872,106 and pay restitution in the amount of $2,877,414. Badolato, 58, was sentenced to 36 months in prison plus three years of supervised release and ordered to forfeit $1,414,368 and pay restitution in the amount of $1,414,368. Judge Torres also separately ordered forfeiture of $1,376,597.39 of funds held by We Build the Wall and real property located in Sunland Park, New Mexico, on which We Build the Wall had constructed a portion of a wall. After trial, Timothy Shea was convicted of conspiracy to commit wire fraud, conspiracy to commit money laundering, and obstruction of justice. As alleged in part in the DOJ Release:
Starting in approximately December 2018, BRIAN KOLFAGE, ANDREW BADOLATO, their co-defendant TIMOTHY SHEA, and others orchestrated a scheme to defraud hundreds of thousands of donors, including donors in the Southern District of New York, in connection with an online crowdfunding campaign ultimately known as “We Build The Wall” that raised more than $25,000,000 to build a wall along the southern border of the United States. In particular, to induce donors to donate to the campaign, KOLFAGE repeatedly and falsely assured the public that he would “not take a penny in salary or compensation” and that “100% of the funds raised…will be used in the execution of our mission and purpose.”
Those representations were lies. In truth, KOLFAGE, BADOLATO, SHEA, and others received hundreds of thousands of dollars in donor funds from We Build the Wall, which they each used in a manner inconsistent with the organization’s public representations. For example, KOLFAGE covertly took for his personal use more than $350,000 in funds that donors had given to We Build the Wall. To conceal the payments to KOLFAGE from We Build the Wall, KOLFAGE, BADOLATO, SHEA, and others devised a scheme to route those payments through entities and bank accounts that they controlled. They took various steps to obscure or conceal these payments, including by using fake invoices and sham contracts — conduct for which SHEA was convicted at trial of obstruction of justice.
In imposing today’s sentences on KOLFAGE and BADOLATO, Judge Torres noted that “this was no ordinary financial fraud,” because when victims donated to We Build the Wall, “they were expressing their views about a political issue that was important to them.” Noting that the offense cast doubt on the efficacy of political involvement and that the scheme would “undoubtedly have a chilling effect” on political donations, Judge Torres remarked that “the fraud perpetrated by Mr. Kolfage and Mr. Badolato went well beyond defrauding individual donors. They hurt us all.”
Three Nevada Men Convicted In Multimillion Dollar Prize Notice Scheme (DOJ Release)
https://www.justice.gov/usao-nv/pr/three-nevada-men-convicted-multimillion-dollar-prize-notice-scheme
in the United States District Court for the District of Nevada, a jury convicted Mario Castro, Miguel Castro, and Jose Luis Mendez for their roles in a prize-notification scheme. As alleged in part in the DOJ Release:
The defendants operated the scheme from 2010 to February 2018, when postal inspectors executed multiple search warrants and the Department of Justice obtained a court order shutting down the fraudulent mail operation. Mario Castro, Miguel Castro, and Jose Luis Mendez worked at the printing nd mailing businesses that sent the fraudulent mail and shared the profits from the fraudulent prize notices. The defendants and their co-conspirators ignored multiple cease and desist orders from the U.S. Postal Service that prohibited their companies from sending fraudulent mail.
The defendants responded by changing the names of their companies and using straw owners to hide their continuing fraud.
Mario Castro was convicted of conspiracy to commit mail fraud and seven counts of mail fraud. He was found not guilty of five counts of mail fraud.
Miguel Castro was convicted of conspiracy to commit mail fraud and five counts of mail fraud. He was found not guilty of seven counts of mail fraud.
Jose Luis Mendez was convicted of conspiracy to commit mail fraud and eleven counts of mail fraud. He was found not guilty of one count of mail fraud.
A fourth defendant, Salvador Castro, was acquitted by the jury on all charges.
The convicted defendants are scheduled to be sentenced on Aug. 23 and face a maximum penalty of 20 years in prison on each count of mail fraud and conspiracy to commit mail fraud. A federal district court judge will determine any sentence after considering the U.S. Sentencing Guidelines and other statutory factors.
Four other people previously pleaded guilty to conspiracy to commit mail fraud in connection with this prize notice scheme: Patti Kern, 65, of Henderson, Nevada; Andrea Burrow, 43, of Las Vegas; Edgar Del Rio, 45, of Las Vegas; and Sean O’Connor, 54, of Las Vegas.
SEC Charges Frank's International with FCOPA Violations in Angola (SEC Release)
https://www.sec.gov/enforce/34-97381-s
Without admitting or denying the findings in an SEC Order, Frank's International N.V. n/k/a "Expro Group Holdings N.V. agreed to cease and desist from committing or causing any future violations of the anti-bribery, books and records, and internal accounting controls provisions of Sections 30A, 13(b)(2)(A), and 13(b)(2)(B) of the Securities Exchange Act of 1934. .
https://www.sec.gov/litigation/admin/2023/34-97381.pdf Further, Frank's International agreed to pay $4,998,721 in disgorgement/interest and a $3,000,000 civil penalty. As alleged in part in the SEC Release:
[F]rom approximately January 2008 through October 2014, Frank's International's subsidiaries paid commissions to an Angolan sales agent when its subsidiary employees knew that there was a high probability that the agent would use the commissions to bribe Angolan government officials. The order further alleges that the agent diverted some of those funds to an Angolan government official to influence the award of contracts to Frank's International's subsidiaries. According to the order, Frank's International lacked adequate internal accounting controls related to the retention and payment of its agents that interacted with foreign government officials.
CFPB Issues Guidance to Protect Homeowners from Illegal Collection Tactics on Zombie Mortgages / It is illegal for debt collectors to sue or threaten to sue to collect debts past the statute of limitations (CFPB Release)
https://www.consumerfinance.gov/about-us/newsroom/cfpb-issues-guidance-to-protect-homeowners-from-illegal-collection-tactics-on-zombie-mortgages/
In part the CFPB Release warns that:
[T]he advisory opinion clarifies that a covered debt collector who brings or threatens to bring a state court foreclosure action to collect a time-barred mortgage debt may violate the Fair Debt Collection Practices Act and its implementing regulation. A time-barred debt is one whose statute of limitations has expired. The CFPB is issuing today’s advisory opinion in light of a series of actions by debt collectors attempting to foreclose on silent second mortgages, also known as zombie mortgages, that consumers thought were satisfied long ago and that may be unenforceable in court.
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4/25/2023
Georgia Man Indicted for Scheme to Defraud Elderly Suffolk County Victim of More Than $5 Million / Defendant and his Co-Conspirators Falsely Told Victim to Send Millions of Dollars to Claim Certificate Needed for "Inheritance" (DOJ Release)
https://www.justice.gov/usao-edny/pr/georgia-man-indicted-scheme-defraud-elderly-suffolk-county-victim-more-5-million
In the United States District Court for Eastern District of New York, an Indictment was filed charging Odera Odabi a/k/a "Chief Odera Odabi"with conspiring to commit mail fraud, wire fraud and money laundering
https://www.justice.gov/d9/2023-04/filed_odabi.indictment.pdf As alleged in part in the DOJ Release:
[B]etween approximately April 2020 and December 2021, Odabi and his co-conspirators falsely informed an elderly Suffolk County resident (John Doe) that he needed to send around $5.3 million to various bank accounts in order to obtain a purported “Certificate of Origination” from the International Monetary Fund (IMF) and claim a purported inheritance in Singapore. In fact, the IMF does not issue such Certificates and has posted a warning on its website alerting the public to fraudulent schemes involving purported IMF certificates.
As a result of the false communications, John Doe sent Odabi and his co-conspirators approximately $5.3 million, including approximately $2 million to accounts held in the name of Oh-Dabi Properties, LLC and American Commodity Exchange, Inc., two Georgia-based companies that Odabi operated. Ultimately, Odabi and his co-conspirators stole nearly all of John Doe’s funds to benefit themselves, including through purchases at an Apple Store and Louis Vuitton, except for $197,000 that was frozen by bank officials on suspicion of fraud.
SEC Obtains Final Judgment from Former Executive for His Role in $100 Million Accounting Fraud (SEC Release)
https://www.sec.gov/litigation/litreleases/2023/lr25700.htm
In the United States District Court for the Southern District of New York, a Final Judgment was entered against former SAExploration Holdings Chief Executive Officer Jeffrey Hastings https://www.sec.gov/litigation/litreleases/2023/judg25700-hastings.pdf. As alleged in part in the SEC Release:
[H]astings, along with his co-defendants, caused SAE to enter into a series of seismic data acquisition contracts totaling approximately $140 million with a purportedly unrelated Alaska-based company that was in fact controlled by Hastings and co-defendant Brent Whiteley. The amended complaint alleges that SAE improperly recorded approximately $100 million in revenue in light of the Alaskan company's inability to pay and the SAE executives' control of the company. As also alleged, Hastings and his co-defendants misappropriated $12 million from SAE and routed approximately half of those funds back to SAE to create the false impression that the related Alaskan company was actually paying SAE for seismic data, and then kept the remainder of the misappropriated funds for themselves.
Without denying the SEC's allegations, Hastings consented to the entry of a final judgment permanently enjoining him from violating Section 17(a) of the Securities Act of 1933 and Sections 10(b), 13(a), 13(b)(2)(A), 13(b)(2)(B), and 13(b)(5) of the Securities Exchange Act of 1934, Rules 10b-5, 12b-20, 13a-1, 13a-11, 13a-13, 13b2-1, 13b2-2, and 13a-14 thereunder, and Section 304(a) of the Sarbanes-Oxley Act of 2002 ("SOX"). The final judgment also orders Hastings to pay $1,116,987.27 in disgorgement plus $194,835.52 in prejudgment interest, for a total of $1,311,822.79, which shall be deemed satisfied by the Order of Restitution entered against Hastings in the criminal case of United States v. Hastings, No. 1:20-cr-534-GHW-1 (S.D.N.Y.). Hastings was also ordered to reimburse SAE $1,206,626 pursuant to Section 304(a) of the SOX.
On December 17, 2020, the U.S. District Court for the Southern District of New York entered a final consent judgment against SAE.
In the Matters of Warren A. Davis and Gibraltar Global Securities, Inc. (SEC Order Consolidating Proceedings and Requesting Additional Briefing and Materials, '34 Act Rel. No. 97376; Admin Proc. File Nos. 3-19814 and -19815)
https://www.sec.gov/litigation/opinions/2023/34-97376.pdf
In May 2020, the SEC issued separate Orders Instituting Proceedings ("OIPs") against Respondent Davis https://www.sec.gov/litigation/admin/2020/34-88962.pdf and Respondent Gibralter https://www.sec.gov/litigation/admin/2020/34-88965.pdf Respondents did not respond to various motions or orders to show cause. The two proceedings were consolidated and the Division of Enforcement filed motions for the entry of default and the ensuing imposition of sanctions. In part, the SEC Order notes [Ed: footnotes omitted]:
[T]he Division supported its motion with the following materials from the civil action: the complaint; the district court’s order dated July 2, 2015, granting default judgment and enjoining Respondents; the report and recommendation dated October 15, 2016, from the magistrate judge concerning monetary sanctions; the district court’s memorandum decision and order dated January 12, 2016, adopting the report and recommendation; and the final judgment dated January 12, 2016.
When determining whether remedial action, such as broker-dealer and penny stock bars, is in the public interest under Exchange Act Section 15(b), the Commission must consider the When determining whether remedial action, such as broker-dealer and penny stock bars,is in the public interest under Exchange Act Section 15(b), the Commission must consider the question with reference to the underlying facts and circumstances of the case. The factors that the Commission considers are the egregiousness of the respondent’s actions, the isolated or recurrent nature of the infraction, the degree of scienter involved, the sincerity of the respondent’s assurances against future violations, the respondent’s recognition of the wrongful nature of his or her conduct, and the likelihood that the respondent’s occupation will present opportunities for future violations. Such analysis must do more than “recite[], in general terms, the reasons why [a respondent’s] conduct is illegal,” but rather “devote individual attention to the
unique facts and circumstances of th[e] case.”
The Division relies in part on the allegations of the OIPs with respect to the injunctive action against Respondents to support its request for sanctions. When a respondent defaults, the Commission may deem an OIP’s allegations to be true But the OIPs here recount the allegations of the Commission’s complaint; they do not independently allege that Respondents engaged in particular misconduct. Entering Respondents’ default would not appear to permit the Commission to deem true the allegations of the Commission’s complaint in the injunctive action.
The Division also relies on the district court’s orders noted above enjoining Respondents from certain violations of the securities laws and imposing other sanctions. But because those orders were based on the default judgment entered against Respondents, they do not appear to have preclusive effect as to facts alleged in the Commission’s complaint.
CFTC Charges Precious Metals Dealers and Their Owner in Multimillion Dollar Fraud Targeting the Elderly (CFTC Release)
https://www.cftc.gov/PressRoom/PressReleases/8694-23
In the United States District Court for the Eastern District of New York, the CFTC filed a Complaing charging Fisher Capital LLC and AMS Consulting Solutions LLC d/b/a Fisher Capital (collectively Fisher Capital), and Fisher Capital’s principal, Alexander Spellane a/k/a Alexander Overlie with elderly investors.
https://www.cftc.gov/media/8496/enffishercapitalcomplaint042535/download
As alleged in part in the CFTC Release:
The complaint alleges that from approximately June 2020 and continuing to the present, the defendants fraudulently persuaded hundreds of elderly persons throughout the U.S. to invest more than $30 million in precious metals, primarily using funds from customers’ retirement savings. As alleged, Fisher Capital solicited customers via high-pressure telephonic sales pitches that were permeated with material misrepresentations, misleading half-truths, and deceptive omissions designed to build trust with elderly customers; instill fear about the safety of traditional retirement and savings accounts; and deceive victims into purchasing grossly overpriced precious metals from Fisher Capital.
According to the complaint, the defendants deceptively marketed Fisher Capital as a wealth protection firm whose mission was to safeguard investors’ retirement savings, and led customers to believe that Fisher Capital would offer safe and secure investments that were in its customers’ best interest. In reality, Fisher Capital was a boiler room-type operation orchestrated by Spellane to bilk elderly customers out of their retirement savings. As alleged, defendants fraudulently induced investors to liquidate existing retirement accounts, transfer the proceeds into self-directed Individual Retirement Accounts (SDIRAs), and invest the proceeds into gold and silver coins. The defendants directed the vast majority of customers’ investments into supposedly exclusive, collectible, or “semi-numismatic” coins at grossly inflated prices that frequently were double or even triple the prevailing market value of those coins.
The defendants also allegedly used false and misleading statements designed to stoke customers’ fear of economic collapse and scare customers into erroneously believing their retirement accounts could be frozen or seized in the event of a stock market decline. Due to the exorbitant and fraudulent markups charged by Fisher Capital, customers routinely lost the majority of the value of their investment immediately upon entering into transactions with Fisher Capital.
As the complaint alleges, when questioned by customers about the value of the precious metals they purchased, the defendants misleadingly reassured customers the gold and silver coins were rare or collectible and carried a premium far above the base melt value. In fact, the coins were significantly less valuable than the defendants claimed.
Swap Dealer Pays Over $6.8 Million for Violations of Swap Dealer Business Conduct Standards (CFTC Release)
https://www.cftc.gov/PressRoom/PressReleases/8695-23
The CFTC issued an Order against Mizuho Capital Markets LLC
https://www.cftc.gov/media/8501/enfmizuhocapitalorder042523/download for trade practice violations of the Swap Dealer Business Conduct Standards in the Commodity Exchange Act (CEA) and CFTC regulations; and requiring Mizuho to cease and desist from further violations of these standards, pay $1,847,182.90 in restitution, and pay a $5 million civil monetary penalty. As alleged in part in the CFTC Release:
When executing certain foreign exchange forward transactions known as “deal-contingent FX forwards,” Mizuho failed to adequately disclose to certain customers that it was trading in the minutes or seconds before Mizuho provided the spot exchange rate to, and executed the forward transaction with, the customer. This activity occurred from June 2018 to December 2020. This trading by Mizuho, at times, likely contributed to moving the spot exchange rate, in the relevant currency pair, against the customer. As a result of these actions, the customer may have obtained the currency it sought to acquire via the foreign exchange forward at a rate less favorable than may otherwise have been available. Mizuho may also have been able to hedge its exposure, vis-à-vis its customers, at a rate more favorable than may otherwise have been available. By failing to adequately disclose to its customers that it traded in this manner at times, Mizuho violated the Swap Dealer Business Conduct Standards.
FINRA Fines and Suspends Rep For Private Securities Transactions
In the Matter of Matthew J. Mangini, Respondent (FINRA AWC 2022075017201)
https://www.finra.org/sites/default/files/fda_documents/2022075017201
%20Matthew%20J.%20Mangini%20CRD%206527545%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,Matthew J. Mangini submitted a Letter of Acceptance, Waiver and Consent ("AWC"), which FINRA accepted. The AWC asserts that in 2015, Matthew J. Mangini was a non-registered-fingerprint customer service assistant at Crown Capital Securities, L.P., and also served as an investment advisor representative at a registered investment advisory firm. In accordance with the terms of the AWC, FINRA imposed upon Anderson a $10,000 fine and six-month suspension from associating with any FINRA member in all capacities. As alleged in part in the AWC:
In addition to serving as an associated person of Crown Capital, Mangini also provided asset management services as an IAR. From January to July 2021, Mangini, in his capacity as an IAR, recommended and facilitated investments in two private securities
offerings of alternative investments through the RIA. Mangini participated in 11 securities transactions through the RIA that raised $644,000 from nine investors, all of whom were Crown Capital customers. Mangini participated in the transactions by reco=ending and facilitating the investments, including by meeting with the investors to solicit and discuss the investments, providing them with marketing materials, and assisting them with completing subscription agreements and other documentation. Mangini' s RIA clients paid advisory fees to the RIA on the assets held in their advisory accounts, including the alternative investments that Mangini recommended and facilitated.
Mangini did not provide Crown Capital with prior written notice of his participation in the sale of alternative investments through the RIA or obtain the firm's written approval to sell those investments. Moreover, Crown Capital's written supervisory procedures required the firm's advance written permission for proposed outside transactions, including advisory transactions, based upon written disclosure of the details of the proposed transaction, the individual's role therein, and an explanation concerning any selling compensation that may be received.
Therefore, Mangini violated FINRA Rules 3280 and 2010
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4/24/2023
https://www.brokeandbroker.com/7009/truist-hodgins-finra-arbitration/
The infamous "Touch Move" rule of chess prompts many arguments about whether you touched a piece or took your finger off that piece. In a recent FINRA arbitration, after SunTrust filed a Statement of Claim against a former employee, the employer metaphorically took its finger off the chess piece. In retrospect, SunTrust probably should not have touched the piece. That opening move paved the way for a disastrous endgame when arbitrators awarded the former employee over $207,500 in compensatory and punitive damages.
In re: Facebook, Inc. Consumer Privacy User Profile Litigation
Case No. 3:18-md-02843-VC
United States District Court for the Northern District of California
https://facebookuserprivacysettlement.com/
If you were a Facebook user in the United States between May 24, 2007, and December 22, 2022, inclusive, you may be eligible for a cash payment from a Class Action Settlement.
Online CLAIM FORM https://facebookuserprivacysettlement.com/#submit-claim
Five Individuals Charged in $2M Virtual Asset and Securities Manipulation Scheme (DOJ Release)
https://www.justice.gov/opa/pr/five-individuals-charged-2m-virtual-asset-and-securities-manipulation-scheme
In the United States District Court for the Southern District of Florida, an Indictment was filed against Michael Kane, Shane Hampton, and George Wolvaardt charging them one count of conspiracy to commit securities price manipulation, one count of conspiracy to commit wire fraud, and two counts of wire fraud. Tyler Ostern (former Chief Executive Officer of Moonwalkers Trading Limited) and Andrew Chorlian (blockchain engineer at Hydrogen Technology) were each charged with one count of conspiracy to commit securities price manipulation and wire fraud. As alleged in part in the DOJ Release:
[F]rom around June 2018 through April 2019, Michael Kane, 38, of Miami; Shane Hampton, 31, of Philadelphia; and George Wolvaardt, 38, of Johannesburg, South Africa, allegedly conspired to manipulate the market for HYDRO, a token on the Ethereum blockchain platform, and defraud market participants by creating the false appearance of supply and demand for HYDRO to induce other market participants to trade at prices, quantities, and times that they otherwise would not have traded. The defendants allegedly used a trading bot to place thousands of orders that they did not intend to execute, or “spoof orders,” and thousands of orders where the bot bought and sold tokens to itself through the same account, or “wash trades.” The co-conspirators allegedly reaped $2 million in profit through their sales of HYDRO at artificially inflated prices.
As alleged in the indictment, Kane was the co-founder and CEO of Hydrogen Technology and Hampton was the Chief of Financial Engineering for the company. Wolvaardt was the Chief Technology Officer for Moonwalkers Trading Limited, a self-described “market-making” firm that purportedly designed the trading bot and was hired by Kane and Hampton to manipulate the market for HYDRO.
Relatedly, Tyler Ostern, 29, of Coos Bay, Oregon, the former CEO of Moonwalkers, and Andrew Chorlian, 29, of New York, New York, a blockchain engineer at Hydrogen Technology, were also charged for their participation in the scheme.
IRB Brasil Agrees to Pay Shareholders $5M in Connection with Securities Fraud Scheme (DOJ Release)
https://www.justice.gov/opa/pr/irb-brasil-agrees-pay-shareholders-5m-connection-securities-fraud-scheme
IRB Brasil Resseguros SA, aka IRB Brasil RE (IRB) entered into a Non-Prosecution Agreement ("NPA") with DOJ, and agreed to pay $5 million in victim compensation. As alleged in part in the DOJ Release:
[IRB], through its former CFO, Fernando Passos, executed the fraud scheme beginning in February 2020 after an investment company published a report questioning the accuracy of IRB’s financial statements and announcing that the investment company had taken a short position against IRB’s stock. IRB’s stock price dropped in the wake of the report. In response, Passos developed and executed a scheme to mislead shareholders and the investing public by disseminating and causing to be disseminated materially false information that Berkshire Hathaway had invested in IRB, despite knowing that Berkshire Hathaway had not made any such investment. Passos circulated, and caused subordinate IRB investor relations employees to circulate, false materials to members of the press, analysts, and members of IRB’s board of directors to spread the false information regarding Berkshire Hathaway’s purported investment.
News outlets in both Brazil and the United States began incorrectly reporting that Berkshire Hathaway had invested in IRB. Following the news coverage, on the evening of March 3, 2020, Berkshire Hathaway issued a press release stating that it was not currently, had never been, and had no intention of becoming a shareholder in IRB. On March 4, 2020, after Berkshire Hathaway’s press release, IRB’s stock price dropped precipitously, causing significant shareholder losses.
As part of the NPA, IRB admitted that the facts described in the NPA constitute securities fraud. Under the terms of the NPA, IRB has agreed to continue cooperating with the Justice Department in other related investigations, to continue to implement a compliance and ethics program as set forth in the NPA, and to report to the department regarding the company’s remediation and implementation of the compliance measures as described in the NPA. Further, IRB has agreed to pay victim compensation of $5 million to shareholders who sold IRB stock on March 4, 2020.
The department reached this resolution with IRB based on a number of factors, including, among others, the nature and seriousness of the offense conduct involving IRB’s former CFO, as well IRB’s cooperation and implementation of remedial measures. In addition, IRB and the department agreed that the total amount of losses to all shareholders who sold IRB stock on March 4, 2020, was significantly more than $5 million. However, despite agreeing that a larger amount otherwise would be appropriate based on the law and the facts, IRB made representations to the department that the company had an inability to pay a criminal monetary penalty and to cover the full loss to shareholders. Based on those representations, the department, with the assistance of a forensic accounting expert, conducted an independent inability-to-pay analysis, which determined that the payment of more than $5 million was reasonably likely to threaten the continued viability of IRB, which in turn may expose the company’s shareholders to a further risk of loss.
Passos has been indicted and is presumed innocent until proven guilty beyond a reasonable doubt in a court of law.
