Lexington Investment Advisor and Attorney Sentenced to 120 Months for Investment Fraud (DOJ Release)
https://www.justice.gov/usao-edky/pr/lexington-investment-advisor-and-attorney-sentenced-120-months-investment-fraud-0
After a jury trial in the United States District Court for the Eastern District of Kentucky, investment advisor/attorney Douglas Hawkins was found guilty of investment advisor fraud, securities fraud, and two counts of mail fraud; and he was sentenced to 120 months in prison plus three years of supervision, and ordered to pay $1,588,048.50 in restitution. As alleged in part in the DOJ Release:

[W]hile operating as an investment advisor, Hawkins encouraged his clients to invest in securities that were properties in Jackson, Mississippi.  Clients invested over $2 million in the properties. While encouraging these investments, Hawkins withheld vital information about the properties from his clients, including that many were uninhabitable, had burdensome rent collection, and were often subject to theft and vandalism.  He also failed to inform his clients that their investment money would be used for purposes other than their properties, including paying other investors and buying a Harley Davidson for an employee.

Former Coinbase Insider Sentenced In First Ever Cryptocurrency Insider Trading Case / Ishan Wahi Was Sentenced to Two Years in Prison for Tipping His Associates Regarding Crypto Assets That Were Going to be Listed on Coinbase Exchanges (DOJ Release)
https://www.justice.gov/usao-sdny/pr/former-coinbase-insider-sentenced-first-ever-cryptocurrency-insider-trading-case
In the United States District Court for the Southern District of New Yori, Ishan Wahi, 32, pled guilty to two counts of conspiracy to commit wire fraud ; and he was sentenced to two years in prison and ordered to forfeit various crypto assets that he received in connection with the scheme. As alleged in part in the DOJ Release:

Beginning in approximately October 2020, ISHAN WAHI worked at Coinbase as a product manager assigned to a Coinbase asset listing team.  In that role, WAHI was involved in the highly confidential process of listing crypto assets on Coinbase’s exchanges and had detailed and advanced knowledge of which crypto assets Coinbase was planning to list and the timing of public announcements about those crypto asset listings. 

On multiple occasions between June 2021 and April 2022, WAHI violated his duties of trust and confidence to Coinbase by providing confidential business information that he learned in connection with his employment at Coinbase to Nikhil Wahi and Sameer Ramani so that they could secretly engage in profitable trades around public announcements by Coinbase that it would be listing certain crypto assets on Coinbase’s exchanges.  Following Coinbase’s public listing announcements, on multiple occasions, Nikhil Wahi and Ramani sold the crypto assets for a profit. 

On April 12, 2022, a Twitter account that is well known in the crypto community tweeted regarding an Ethereum blockchain wallet “that bought hundreds of thousands of dollars of tokens exclusively featured in the Coinbase Asset Listing post about 24 hours before it was published.”  The trading activity referenced in the April 12 tweet was trading previously conducted by Ramani based on tips provided by WAHI.  Coinbase thereafter publicly replied on Twitter, noting that it had already begun investigating the matter and, a few weeks later, stated in a public blog post that any Coinbase employee who leaked confidential company information would be “immediately terminated and referred to relevant authorities (potentially for criminal prosecution).”  On May 11, 2022, Coinbase’s director of security operations emailed WAHI to inform him that he should appear for an in-person meeting relating to Coinbase’s asset listing process at Coinbase’s Seattle, Washington, office on May 16, 2022.  WAHI confirmed he would attend the meeting.

On the evening of May 15, 2022, WAHI purchased a one-way flight to India that was scheduled to depart the next day shortly before WAHI was supposed to be interviewed by Coinbase.  In the hours between booking the flight and his scheduled departure, WAHI called and texted Nikhil Wahi and Ramani about Coinbase’s investigation and sent both of them a photograph of the messages he had received on May 11, 2022, from Coinbase’s director of security operations.  Prior to boarding the May 16, 2022, flight to India, WAHI was stopped by law enforcement and prevented from leaving the country. 

SEC Obtains Default Judgments Against Operators of Investment Fraud Scheme Targeting Hmong-Americans (SEC Release)
https://www.sec.gov/litigation/litreleases/2023/lr25716.htm
The United States District Court for the Eastern District of Wisconsin entered Final Default Judgments against Defendants Kay X. Yang and Xapphire LLC; and against Relief Defendant Chao Yang
https://www.sec.gov/litigation/litreleases/2023/order25716.pdf. As alleged in part in the SEC Release:

[B]etween April 2017 and April 2021, Kay Yang engaged in the unregistered offer and sale of securities issued by two entities she owned, AK Equity Group LLC and Xapphire Fund LLC. Yang represented to prospective investors, many of whom were members of the Hmong-American community, that she would invest their money primarily through foreign exchange trading, they could expect annual returns ranging from 20% to 50%, and that her trading was consistently successful. In reality, Yang used less than half of the investors' contributions for foreign exchange trading and had many months with large net trading losses, resulting in negative returns. In addition, Yang misappropriated approximately $4,060,000 of the investors' money to fund her and her family's lifestyle, including spending on casinos, travel, homes, and cars, and to repay investors in a previous venture.

The judgments, entered on the basis of default, enjoined Kay Yang and Xapphire LLC from violating the anti-fraud provisions of Section 17(a) of the Securities Act of 1933, Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder, and Sections 206(1) and (2) of the Investment Advisers Act of 1940. In addition, Kay Yang was barred from acting as an officer or director of a public company. The judgments ordered Kay Yang and Xapphire LLC to pay, on a joint-and-several basis, $4,060,212 in disgorgement, prejudgment interest in the amount of $188,787.16, and a civil penalty in the amount of $4,060,212. Chao Yang was ordered to pay up to $830,502 in disgorgement and $38,615.75 in prejudgment interest.

Court Enters Final Judgment Against Former Broker for Stealing from Elderly Investors (SEC Release)
https://www.sec.gov/litigation/litreleases/2023/lr25714.htm
The United States District Court for the Eastern District of New York entered a Final Judgment against Joseph Orazio DeGregorio. As alleged in part in the SEC Release.

[B]etween October 2015 and March 2021, DeGregorio solicited just under $1 million from one 80-year old investor and approximately $205,000 from three additional elderly investors for various fictitious investments. DeGregorio allegedly told investors that their funds would be used to purchase promissory notes guaranteeing a 13% annual return and falsely claimed he would invest the funds in two private companies. According to the complaint, the purported promissory notes never existed, and the funds raised in connection with the note were funneled to a companies owned by DeGregorio, that were created by for the sole purpose of facilitating his fraud and did not carry out any actual business activities. The complaint further alleged that DeGregorio did not use any of the investor money for legitimate investments, but instead misappropriated the vast majority of the funds for personal expenses and gambling.

The SEC's complaint charged DeGregorio with violating the antifraud 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. On March 18, 2022, the Court entered a bifurcated consent judgment against DeGregorio enjoining him from violating the charged provisions. On May 5, 2023, the Court entered a final judgment against DeGregorio by consent in which he agreed to be permanently enjoined from violations of the charged provisions. He agreed to disgorge $1,084,500 in ill-gotten gains and prejudgment interest thereon, the payment of which was deemed satisfied by the restitution and forfeiture orders in the parallel criminal proceeding, United States v. DeGregorio, 22 Cr. 030 (E.D.N.Y.).

SEC Charges Two Individuals for Facilitating Multi-Million Dollar Offering Fraud (SEC Release)
https://www.sec.gov/litigation/litreleases/2023/lr25713.htm
In a Complaint filed in the United States District Court for the Eastern District of New York https://www.sec.gov/litigation/complaints/2023/comp25713.pdf, the SEC charged Wayne McLean with violations of Section 17(a) of the Securities Act and Section 10(b) of the Securities Exchange Act and Rule 10b-5 thereunder;; and Joan Powell with violations of Sections 17(a)(1) and 17(a)(3) of the Securities Act and Section 10(b) of the Exchange Act and Rule 10b-5(a) and (c) thereunder. Without admitting or denying the allegations in the SEC Complaint, McLean and Powell consented to bifurcated settlements, agreeing to be permanently enjoined from violations of the charged provisions and to the imposition of an officer-and-director bar, with monetary relief in an amount to be determined by the court at a later date upon motion of the Commission. Previously, the SEC charged Roger Nils-Karlsson in connection with the scheme. As alleged in part in the SEC Release:.

[F]rom on or about November 2012 to June 2019, Karlsson, using various aliases, orchestrated a fraudulent scheme in which he offered and sold EMS shares, purportedly backed by a "Pre Funded Reversed Pension Plan" that Karlsson claimed to be the world's first online investment of its kind. Karlsson's scheme was allegedly facilitated by McLean and Powell. McLean allegedly offered and sold EMS securities to investors, including by making solicitations through podcasts that made materially false and misleading statements. As alleged, Powell collected and forwarded investor money to accounts controlled by Karlsson, and McLean and Powell retained a portion of the investment funds for their own personal use despite claiming that they were performing these functions without remuneration.

FINRA Fines and Suspends Rep for Inaccurate Trade Confirmations
In the Matter of Michael R. Neill, Respondent (FINRA AWC 2021071288701)
https://www.finra.org/sites/default/files/fda_documents/2021071288701
%20Michael%20R.%20Neill%20CRD%204700490%20AWC%20vr.pdf
For the purpose of proposing a settlement of rule violations alleged by the Financial Industry Regulatory Authority ("FINRA"), without admitting or denying the findings, prior to a regulatory hearing, and without an adjudication of any issue, Michael R. Neill submitted a Letter of Acceptance, Waiver and Consent ("AWC"), which FINRA accepted. The AWC asserts that Michael R. Neill was first registered in 2003, and from 2009 through April 2021 with Morgan Stanley. In accordance with the terms of the AWC, FINRA imposed upon Neill a $5,000 fine and a one-month suspension from associating with any FINRA member in all capacities. As alleged in part in the AWC:

In approximately March 2013, Neill entered into an agreement through which he agreed to service certain customer accounts, including executing trades for those accounts, under a joint representative code (also known as a joint production number) that he shared with the estate of a retired representative. The  agreement set forth what percentages of the commissions the estate of the retired representative and Neill would earn on trades placed using the joint representative code. 

From January 2014 through March 2018, Neill placed a total of 219 trades in accounts that were covered by the agreement using his own personal representative code. Although the firm’s system correctly prepopulated the trades with the applicable joint representative code, Neill changed the code for the 219 trades to his personal representative code. Neill did so because he mistakenly believed that his agreement with the estate of the retired representative did not apply to new assets added to accounts subject to the agreement and that he therefore was authorized to enter the 219 trades using his personal representative code. The firm’s trade confirmations for the 219 trades inaccurately reflected Neill’s personal representative code. 

Neill’s actions resulted in his receiving higher commissions from the 219 trades than what he was entitled to receive pursuant to the agreement. In August 2022, Morgan Stanley reimbursed the estate of the retired representative.

By causing Morgan Stanley to maintain inaccurate trade confirmations, Neill violated FINRA Rules 4511 and 2010. 

FINRA Fines and Suspends Rep for Inaccurate Trade Confirmations
In the Matter of Jacob Harrison Leddy, Respondent (FINRA AWC 2021071288701)
https://www.finra.org/sites/default/files/fda_documents/2021071288701
%20Michael%20R.%20Neill%20CRD%204700490%20AWC%20vr.pdf
For the purpose of proposing a settlement of rule violations alleged by the Financial Industry Regulatory Authority ("FINRA"), without admitting or denying the findings, prior to a regulatory hearing, and without an adjudication of any issue, Jacob Harrison Leddy submitted a Letter of Acceptance, Waiver and Consent ("AWC"), which FINRA accepted. The AWC asserts that Jacob Harrison Leddy was registered in 2014 with Merrill Lynch, Pierce, Fenner & Smith Inc. In accordance with the terms of the AWC, FINRA imposed upon Neill a $5,000 fine and a ten-business-day suspension from associating with any FINRA member in all capacities. As alleged in part in the AWC:

In May 2021, in anticipation of joining another FINRA member firm, Leddy improperly removed his customers’ nonpublic personal information from Merrill Lynch, without the firm’s or the customers’ consent. Specifically, between May 29 and May 31, while associated with Merrill Lynch, Leddy took photographs of account information for 104 customers contained within Merrill Lynch’s electronic systems, including customer names, dates of birth, customer account numbers at Merrill Lynch and customer social security numbers.

Following Leddy’s resignation from Merrill Lynch on June 3, 2021, he improperly retained the customers’ nonpublic personal information. That information was secured by the FINRA member firm through which Leddy had become registered, and Leddy returned the customers’ nonpublic personal information to Merrill Lynch prior to its use.

By improperly removing and retaining customer nonpublic personal information without the firm’s or the customers’ consent, Leddy violated FINRA Rule 2010. 

Private Placements / FINRA Reminds Members of Their Obligations
When Selling Private Placements (FINRA Regulatory Notice 23-08)
https://www.finra.org/sites/default/files/2023-05/regulatory-notice-23-08.pdf
As set forth in part in the FINRA Regulatory Notice [Ed: footnotes omitted]:

In this Notice, FINRA reminds members of their obligations when selling private placements (i.e., unregistered offerings sold pursuant to the Regulation D safe harbors under Sections 3 and 4 of the Securities Act of 1933 (Securities Act)). In Regulatory Notice 10-22 (Obligation of Broker-Dealers to Conduct Reasonable Investigations in Regulation D Offerings), FINRA reminded members of their obligations to conduct reasonable investigations of the issuers and the securities they recommend in private offerings made under Regulation D. In the years since FINRA
published Regulatory Notice 10-22, the unregistered offering market and the related regulatory landscape have evolved, and FINRA has observed both areas of concern and effective practices in the sales of private placements by members. This Notice updates and supplements the prior guidance in light of those developments and observations. It is not intended to alter the principles or the guidance FINRA provided in prior Regulatory Notices.

This Notice highlights a member’s obligation, when recommending a security, to conduct a reasonable investigation of the security. This duty has long been rooted in the antifraud provisions of the federal securities laws and is a core component of a broker-dealer’s obligations under Securities and Exchange Commission (SEC) Regulation Best Interest (Reg BI) and FINRA Rule 2111 (Suitability), the fundamental standards that members must meet when recommending securities. This Notice also addresses certain additional obligations for members when selling private placements, including FINRA’s filing requirements and its
communications with the public and supervision rules. 

Bill Singer's Comment: Okay, sure, thanks for the "reminder." On the other hand, you do realize that the reminder a la Regulatory Notice is 25 pages long with 79 footnotes, right? I can only imagine what the substantive underlying guidance would come in at -- you'd probably need a large wheelbarrow and a massive magnifying glass for the thousands of footnotes. Ya gotta love what passes for modern-day regulation!

= = =

Defendant extradited from the United Kingdom (DOJ Release)
https://www.justice.gov/usao-ma/pr/nigerian-man-sentenced-online-fraud-schemes
In the United States District Court for the District of Massachusetts, Happy Chukwuma, 30, pled guilty to one count of wire fraud conspiracy; and he was sentenced to eight months in prison (time served). As alleged in part in the DOJ Release:

Between November 2015 and January 2019, Chukwuma and his co-conspirators participated in a variety of online fraud schemes, including “phishing” and romance scams. They exchanged victims’ personally identifiable information, including identification and financial documents, and engaged in financial transactions with that information. Several of the victims whose information was compromised were from Massachusetts.  

SEC Halts $155 Million Fraudulent Oil and Gas Offering Scheme (SEC Release)
https://www.sec.gov/litigation/litreleases/2023/lr25712.htm
In the United States District Court for the Western District of Texas, the SEC filed a Complaint https://www.sec.gov/litigation/complaints/2023/comp25712.pdf
charging Roy W. Hill, Eric N. Shelly, Clean Energy Technology Association, Inc. ("CETA"), and Freedom Impact Consulting, LLC ("FIC") with 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. The Court issued Orders temporarily restraining the defendants' ongoing offerings, temporarily freezing the defendants' assets, appointing a receiver, and granting other emergency relief. As alleged in part in the SEC Release:

[H]ill and Shelly offered investments in funds sponsored by FIC. The Defendants represented that these funds will use investor money to purchase devices that CETA refers to as carbon capture units (CCUs). CETA represented that it builds CCUs and leases them to oil and gas producers to purportedly enhance the recovery and marketability of oil and gas. The complaint also alleges that Defendants represented that FIC and CETA will pay investors returns representing a share of revenues earned from operating the CCUs. The SEC alleges that Hill and Shelly lured investors with false claims that the CCUs are patented, that one of the largest oil and gas companies in the world is a customer, and that the funds sponsored by FIC consistently have generated a ten percent quarterly return.

According to the complaint, however, the investment is a sham, because CETA has not received material revenues from CCU operations, and the quarterly distributions made to investors are sourced from other investors' capital. The complaint alleges that, to conceal and perpetuate the scheme, Shelly and FIC have provided investors with false financial statements that reflect economic activity and investment returns that do not exist. 

SEC Denies Whistleblower Award to Claimant 
Order Determining Whistleblower Award Claim ('34 Act Release No. 34-97450; Whistleblower Award Proc. File No. 2023-57)
https://www.sec.gov/rules/other/2023/34-97450.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]:

Based on this factual record, Claimant’s information submission was not made voluntarily as required by Exchange Act Section 21F and Rules 21F-3 and 21F-4(a)(1).8 For a claimant’s submission to be made voluntarily, it must be  provided to the Commission “before a request, inquiry, or demand that relates to the subject matter of your submission is directed to you or anyone representing you (such as an attorney)” by the Commission.

Here, Claimant only submitted information to the Commission Staff requested to schedule testimony with the Claimant and after Staff subpoenaed Claimant to provide documents and testimony. Claimant submitted his/her TCR on REDACTED —four years after REDACTED —which was also the same date that Claimant testified before the Commission. Claimant’s TCR related to the same subject matter as the subpoena that Staff issued Claimant

SEC Denies Whistleblower Award to Claimant 
Order Determining Whistleblower Award Claim ('34 Act Release No. 34-97449; Whistleblower Award Proc. File No. 2023-56)
https://www.sec.gov/rules/other/2023/34-97449.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]:

Claimant asserts that he/she was unaware that the Commission’s whistleblower program existed and that no one from the government notified him/her about it. Claimant also states that he/she worked with Agency 2 as a confidential informant without representation by counsel for  ***  REDACTED However, none of these purported reasons excuse Claimant’s failure to file a timely TCR. As we have previously stated, a lack of awareness of the Commission’s whistleblower program does not rise to the level of an extraordinary circumstance.