Securities Industry Commentator by Bill Singer Esq
May 1, 2023
Financial Professionals Coalition, Ltd. JOIN TODAY -- FREE MEMBERSHIP
DOJ RELEASES
Military impersonation scheme lands local man in prison (DOJ Release)
SEC RELEASES
SEC Denies Whistleblower Award to Claimant
Order Determining Whistleblower Award Claim
CFTC RELEASES
FINRA RELEASES
= = =
5/1/2023
Financial Professionals Coalition, Ltd.
JOIN TODAY -- FREE MEMBERSHIP
https://www.finprocoalition.com/
A Clearinghouse of Solutions
for
Financial Professionals
The Financial Professionals Coalition, Ltd. is a diverse resource for over 1.2 million registered representatives, associated persons, traders, bankers, back-office staff, and owners of broker-dealers and registered investment advisors. The Coalition provides courtesy consultations with industry experts. Membership is free.
Former Financial Advisor Sentenced for Scheme to Steal Funds from Elderly Bank Customers (DOJ Release)
https://www.justice.gov/usao-edca/pr/former-financial-advisor-sentenced-scheme-steal-funds-elderly-bank-customers
In the United States District Court for the Eastern District of California, Tyler Rigsbee, 33, pled guilty to one count of aggravated identity theft; and he was sentenced to two years in prison and ordered to pay $158,960 in restitution. As alleged in part in the DOJ Release:
[F]rom 2016 to 2021, Rigsbee worked as a FINRA-registered financial advisor at a major bank in Sacramento. During his employment, Rigsbee targeted elderly bank customers and stole $158,960 from these victims’ accounts.
Rigsbee stole $113,160 from one elderly victim’s account by using the name and identity of the account beneficiary to fraudulently transfer the funds into another account that Rigsbee had set up and controlled in the beneficiary’s name. Rigsbee next stole $45,800 from the account of a second elderly victim by transferring funds in incremental amounts into a separate account that Rigsbee had set up and controlled in the victim’s name. Rigsbee then pocketed the money by transferring these funds into his own personal bank account.
Toward the end of his scheme, Rigsbee attempted to conceal his theft by stealing $16,700 from a third elderly customer’s account and attempting to funnel that money into the second victim’s account to partially replace what he previously stole. However, this transaction was flagged, and the funds were reverted.
Californian convicted of fraudulently passing over $1M in counterfeit savings bonds at South Texas banks (DOJ Release)
https://www.justice.gov/usao-sdtx/pr/californian-convicted-fraudulently-passing-over-1m-counterfeit-savings-bonds-south
In the United States Southern District of Texas, Daniel Alan Lewis pled guilty to passing counterfeit U.S. savings bonds. As alleged in part in the DOJ Release:
Daniel Alan Lewis and others conspired to create counterfeit U.S. Series I savings bonds. They then passed them at financial institutions using other people’s identities and split the proceeds.
As part of his plea, Lewis further admitted that in November and December 2021, he passed numerous counterfeit savings bonds at banks in both the Houston and Brownsville areas.
U.S. District Judge Fernando Rodriguez Jr. accepted the plea and set sentencing for Aug. 10. At that time, Lewis faces up to 20 years in federal prison and a possible $250,000 maximum fine.
Military impersonation scheme lands local man in prison (DOJ Release)
https://www.justice.gov/usao-sdtx/pr/military-impersonation-scheme-lands-local-man-prison
In the United States District Court for the Southern District of Texas, Ganiyu Abayomi Jimoh, 30, pled guilty to conspiracy to commit mail fraud; and he was sentenced to 36 months in prison plus three years of supervised release, and ordered to pay $405,427.80 in restitution. As alleged in part in the DOJ Release:
[A]t the hearing, the court heard additional evidence including that at least one of the victims was an 84-year-old man who was defrauded of money by an online “girlfriend” and how $13,500 of his losses were deposited into accounts Jimoh opened.
In 2019, Jimoh began working with co-conspirators pretending to be U.S. military soldiers deployed to Afghanistan. They would solicit victims wishing to assist soldiers stationed overseas and persuaded them to contribute monies toward non-existent real estate deals.
As part of his plea, Jimoh admitted to using counterfeit passports to open bank accounts to receive funds from the victims for his personal benefit.
SEC Charges Florida Trader with Microcap Stock Manipulation Scheme and Obtains Final Judgment (SEC Release)
https://www.sec.gov/litigation/litreleases/2023/lr25703.htm
Without admitting or denying the charges in an SEC Complaint filed in the United States District Court for the Southern District of New York
https://www.sec.gov/litigation/complaints/2023/comp25703.pdf, Carlos Eduardo, Reyes Alvarez consented to the entry of a Final Judgment that permanently enjoins him from future violations of Section 17(a) of the Securities Act and Sections 9(a)(1), 9(a)(2), and 10(b) of the Securities Exchange Act and Rule 10b-5 thereunder. The Final Judgment orders Reyes to pay disgorgement of $368,045, prejudgment interest of $76,843, and a civil penalty of $160,000; and, further, prohibits Reyes from acting as an officer or director of a public company, and prohibits Reyes from participating in any offering of penny stocks; and, additionally, enjoins him from engaging in, or deriving compensation from, specified activities related to inducing the purchase or sale of securities, unless those securities are listed on a national securities exchange and satisfy specified capitalization requirements.As alleged in part in the SEC Release:
[F]rom about November 2017 and through at least April 2019, Reyes acquired large positions in thinly-traded over-the-counter stocks and then generated investor interest in these stocks through fraudulent means, most often by causing the issuance of press releases that had not been authorized by the companies. In connection with at least four companies, Reyes also allegedly engaged in wash trading to create the appearance of an active market and raise the company's stock price. The complaint further alleges that Reyes's fraudulent activity increased the prices of the securities he targeted and that he profited from these schemes by selling the securities at the inflated prices. As a result of these schemes, Reyes profited by $368,045.
SEC Denies Whistleblower Award to Claimant
Order Determining Whistleblower Award Claim ('34 Act Release No. 34-97408; Whistleblower Award Proc. File No. 2023-54)
https://www.sec.gov/rules/other/2023/34-97408.pdf
The Claims Review Staff ("CRS") issued a Preliminary Determination recommending the denial of a Whistleblower Award to Claimant. The Commission ordered that CRS's recommendations be approved. The Order asserts in part that [Ed: footnotes omitted]:
The Response contends that the Commission launched and went forward with its investigation based on Claimant alerting the Commission staff via the Newspaper article of the Company’s continued violations. Furthermore, Claimant contends that it was not necessary to provide the same document that formed the basis for the Newspaper article to the Commission because the SEC launched and went forward with its investigation based on Claimant alerting the Commission staff of Company’s continued violations and not due to any particular document. As discussed above, Claimant’s argument that he/she prompted the opening of the investigation by being the source of the information published in the Newspaper article is without merit because the Commission staff was aware of the information in the Newspaper article from other sources. The declaration from the Enforcement staff, which we credit, explains that Enforcement staff did not open the investigation based on specific information contained in the Newspaper article or any other press article; rather it was news media attention following the Redacted Speech concerning Redacted that caused the opening of the investigation. Accordingly, Claimant’s information did not cause the opening of the investigation.
FINRA Censure and Fines Madison Avenue Securities Over Mutual Fund Sales Charges.
In the Matter of Madison Avenue Securities, LLC, Respondent (FINRA AWC 2019061187802)
https://www.finra.org/sites/default/files/fda_documents/2019061187802
%20Madison%20Avenue%20Securities%2C%20LLC
%20CRD%2023224%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, Madison Avenue Securities, LLC submitted a Letter of Acceptance, Waiver and Consent ("AWC"), which FINRA accepted. The AWC asserts that Madison Avenue Securities, LLC, has been a FINRA member firm since 1988 with over 240 registered representatives at 98 branches. As asserted in part in the "Background" portion of the AWC [Ed: footnotes omitted]:
In May 2022, Madison Avenue agreed to a settlement with the Securities and Exchange Commission regarding allegations that the firm (1) breached its fiduciary duty by failing to provide full and fair disclosures regarding conflicts of interest associated with its receipt of third-party compensation based on advisory client investments; (2) breached its duty to seek best execution by causing advisory clients to invest in share classes of mutual funds when share classes of the same funds were available to clients that
presented a more favorable value for these clients; (3) breached its duty of care by failing to undertake an analysis to determine whether the particular mutual fund share classes and money market funds it recommended were in the best interests of its advisory clients; and (4) failed to adopt and implement written compliance policies and procedures reasonably designed to prevent these breaches of the firm’s duties. The firm agreed to pay a $150,000 fine, disgorgement of $579,523.76 and prejudgment interest of $73,649.93, and to an undertaking.
In accordance with the terms of the AWC, FINRA imposed upon Madison Avenue a Censure, $50,000 fine, and $63,296 in restitution. and an undertaking to certify compliance with the cited issues. As alleged in part in the "Overview" portion of the AWC:
From January 2016 through December 2018, Madison Avenue's registered representatives had two options for the purchase of mutual funds: they could buy via direct application to the mutual fund company, or they could purchase the mutual funds for the customer's brokerage account at Madison Avenue through an electronic order entry system offered by Madison Avenue's clearing firm. For direct application business, the firm required its representatives to prepare and submit a customer-signed application, which included a "breakpoint worksheet." The reviewing principal then used these documents to assess whether there were any available sales charge discounts.
For mutual fund purchases made through the electronic order entry system, the firm relied on its representatives to ensure that customers received the appropriate breakpoints and received annual certifications from its representatives acknowledging their responsibility in this regard. The firm did not require use of the application form and breakpoint worksheet, and representatives did not otherwise memorialize the customer information needed to assess potential sales charge discounts. Instead, from January 2016 to February 2018, principals manually reviewed mutual fund transactions submitted through the electronic order entry system the day after the transaction. This process was called a "T-plus-1" review. From February 2018 through December 2018, the firm used an electronic trade monitoring program for the firm' suitability review of transactions entered into the electronic order entry system, along with a principal's review of the trade monitoring program's surveillance alerts, including for "Fund Family Diversification."
Neither the T-plus-1 or surveillance alert review process allowed for reasonable review of the suitability of customers' purchases of mutual funds in multiple different mutual fund families, either simultaneously or sequentially, resulting in missed sales charge discounts. Neither process included a review of customers' mutual funds holdings purchased away from the firm that could have been used to achieve sales charge discounts through a right of accumulation.
From January 1, 2016 through December 2018, 12 firm customer households, identified in Attachment A, purchased mutual funds in multiple different mutual fund families, either simultaneously or sequentially, in transactions submitted through the electronic order entry system. These customers' sales charges would have been reduced had they purchased mutual funds all within one mutual fund family, rather than among several fund families.
In addition to the customers identified in Attachment A, in June 2018 another firm customer simultaneously purchased six mutual funds in five different mutual fund families at the recommendation of a firm registered representative in transactions submitted via the firm's electronic order entry system. At the time, the customer already held mutual funds away from the firm. Although the strategy involved highly-rated funds, the customer's sales charges would have been reduced if he had purchased mutual funds in one mutual fund family, and reduced even further if he had invested in the mutual fund family of the funds he held away from the firm.4
Since December 2018, the firm has revised its supervisory system, including WSPs, regarding mutual fund supervision, including further describing the T-plus-1 and surveillance alert review processes for mutual fund transactions.
Therefore, Respondent violated FINRA Rules 3110 and 2010 by failing to establish, maintain, and enforce a supervisory system, including WSPs, reasonably designed to supervise mutual fund transactions that the firm’s representatives effected through the electronic order entry system to confirm the suitability of the transactions regarding potential available sales charge discounts.