Nicholas was the head trader of a purported hedge fund known as EmpiresX that was operated by co-defendants Emerson Sousa Pires and Flavio Mendes Goncalves. Since at least late 2020, EmpiresX sold investments touting daily profits of one percent earned by a trading "bot" or Nicholas' manual trading. The complaint alleges that, in reality, the bot was fake, Nicholas' trading resulted in significant losses, and the defendants only transferred a small portion of investors' funds to EmpiresX's brokerage account. Instead, the defendants allegedly misappropriated large sums of investors' money to lease a Lamborghini, shop at Tiffany & Co., make a payment on a second home, and more.

Nicholas, Pires, and Goncalves were also charged criminally for their alleged conduct in a parallel criminal proceeding, United States v. Joshua David Nicholas, et al., 22-CR-20296-JEM (S.D. Fla.). Nicholas pled guilty and was sentenced to 51 months' imprisonment, followed by three years of supervised release, and ordered to pay $3,379,527.18 in restitution. Pires and Goncalves are currently fugitives.

CFTC Orders HSBC Bank USA, N.A. to Pay a $45 Million Penalty for Manipulative and Deceptive Trading in Connection with Swaps Related to Bond Issuances, Spoofing, and Supervision and Mobile Device Recordkeeping Failures (CFTC Release)
https://www.cftc.gov/PressRoom/PressReleases/8702-23
As alleged in part in the CFTC Release:

Case Background

The order finds HSBC violated the CEA at various times from approximately March 2012 to July 2020. On multiple occasions between March 2012 and 2015, traders at HSBC engaged in and attempted to engage in manipulative and deceptive trading in interest rate swaps, basis swaps, and swap spreads in connection with interest rate swaps that HSBC entered into with bond issuers (issuer swaps). The issuer swaps were priced in part based on prices displayed on pricing screens controlled by interdealer broker firms. HSBC traders intentionally traded at the broker firms controlling the relevant screens during telephonic pricing calls in which the bond issuances, and the related issuer swaps, were priced, and HSBC traders structured their trading intentionally to move prices for the relevant swaps on these screens. HSBC traders engaged in this conduct to increase the profitability of issuer swaps for HSBC to the detriment of HSBC’s counterparties.  

As the order finds, by trading in such a way as to move market prices in a direction that was better for HSBC and worse for its counterparties during pricing calls, HSBC used its counterparties’ material confidential information about the timing and pricing of issuer swaps in a way that was materially adverse to the interests of its counterparties. HSBC also did not communicate with its counterparties in a fair and balanced manner based on principles of fair dealing and good faith. At times, supervisors and senior management at HSBC or its affiliates knew of, and even directed, HSBC traders to engage in this conduct. 

From September 2015 to April 2016, HSBC, through the trader who supervised HSBC’s U.S. dollar swap desk, engaged in spoofing in the voice-brokered swaps market on a number of occasions. The trader placed bids or offers for swaps on a swap execution facility, which is a registered entity, with intent to cancel those bids and offers before execution. The trader engaged in this conduct to control prices on the broker’s pricing screen by placing spoof orders intended to prevent the relevant price from moving in a direction unfavorable to HSBC and then immediately cancelling those orders.

HSBC failed to diligently supervise, or establish and maintain a system to supervise, the conduct of its traders with respect to the manipulative and deceptive trading and spoofing as described in the order.

In addition, since 2014, HSBC has recorded calls made on mobile devices by using the services of a vendor. From at least March 2020 to July 2020, due to a recording failure, HSBC failed to make and keep required recordings of mobile phone calls that contained oral communications that led to the execution of swaps and related cash and forward transactions.  

CFTC Orders HSBC to Pay a $30 Million Penalty for Recordkeeping and Supervision Failures for Widespread Use of Unapproved Communication Methods (CFTC Release)
https://www.cftc.gov/PressRoom/PressReleases/8701-23
As alleged in part in the CFTC Release:

Case Background

The order finds HSBC Affiliates for a period of years, failed to stop their employees, including those at senior levels, from communicating both internally and externally using unapproved communication methods, including messages sent via personal text and WhatsApp. The HSBC Affiliates were required to keep certain of these written communications because they related to the HSBC Affiliates’ businesses as CFTC registrants. These written communications generally were not maintained and preserved by the HSBC Affiliates, and the HSBC Affiliates generally would not have been able to furnish them promptly to the CFTC when requested.

The order further finds the widespread use of unapproved communication methods violated HSBC’s own policies and procedures, which generally prohibited business-related communication taking place via unapproved methods. Further, some of the very same supervisory personnel responsible for ensuring compliance with the firms’ policies and procedures themselves used non-approved methods of communication to engage in business-related communications, in violation of firm policy.

The order finds the Division of Enforcement became aware during investigations into certain of HSBC’s trading that the institutions’ traders had been using unapproved communication methods on their personal devices for business-related communications. Following a review, HSBC acknowledged to CFTC staff that it was aware of widespread and longstanding use by its employees of unapproved methods to engage in business-related communications.

As a result of each registrant’s failure to ensure that its employees—including supervisors and senior-level employees—complied with communications policies and procedures, each registrant failed to maintain hundreds if not thousands of business-related communications, including CFTC-required transaction records and pre-execution communications in connection with its commodities and swaps businesses. Each registrant thus failed diligently to supervise its business as a CFTC registrant or registrants, in violation of CFTC recordkeeping and supervision provisions.

FINRA Expels SW Financial
In the Matter of SW Financial, Respondent (FINRA AWC 2020065599101)
https://www.finra.org/sites/default/files/2023-05/SWFinancial-AWC-No-2020065599101.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 SW Financial submitted a Letter of Acceptance, Waiver and Consent ("AWC"), which FINRA accepted. The AWC asserts that SW Financial has been a FINRA member firm since 2008 with 38 registered representatives at four branches. In accordance with the terms of the AWC, FINRA expelled SW Financial from membership. The AWC discloses in part in the "Overview" section that [Ed: footnotes omitted]:

SW Financial engaged in two types of misconduct that harmed the customers discussed below.

First, between January 2018 and December 2021, SW Financial made material misrepresentations and omissions to investors in connection with the sale of private placement offerings of pre-initial public offering (pre-IPO) funds (the Offerings). SW Financial misrepresented to investors that it would receive only a ten percent sales commission from its sale of the Offerings when, in fact, SW Financial had entered into an agreement with the issuer to receive an additional five percent in selling compensation as well as half of any carried interest. SW Financial never disclosed this agreement or the additional compensation it would receive to investors. SW Financial also made misrepresentations to FINRA about the amount of compensation it would receive in connection with the Offerings. As a result, SW Financial violated FINRA Rule 2010, both independently and by virtue of violating Sections 17(a)(2) and (3) of the Securities Act of 1933. SW Financial, for its misconduct occurring on or after June 30, 2020, also; willfully violated the Disclosure Obligation of Regulation BI, set forth at Rule 15l1(a)(2)(i)(B) under the Exchange Act and violated FINRA Rule 2010. 

Moreover, prior to recommending and selling the Offerings, SW Financial failed to confirm that the issuer of the Offerings had possession of or access to the pre-IPO shares identified in the offering documents or that the issuer's markups were reasonable and not excessive. SW Financial therefore lacked a reasonable basis to believe that the Offerings were suitable for, or in the best interests of, at least some customers. As a result, SW Financial violated FINRA Rules 2111 and 2010, and willfully violated the Care Obligation of Regulation BI, set forth at Rule 15l-1(a)(2)(ii)(A) under the Exchange Act.

Second, between January 2016 and May 2019, SW Financial, acting through two former registered representatives, churned nine customer accounts, causing the customers to incur more than $350,000 in total trading costs and realized losses of more than $465,000. As a result, SW Financial willfully violated Section 10(b) of the Exchange Act and Rule 10b-5 thereunder, and also violated FINRA Rules 2020, 2111, and 2010.

In connection with both types of misconduct, SW Financial also violated FINRA Rule 3110. Specifically, from January 2018 through December 2021, SW Financial failed to establish, maintain, and enforce a reasonably designed supervisory system and procedures with respect to the firm's sale of private placement offerings. And, from January 2016 through November 2019, SW Financial failed to establish, maintain, and enforce a supervisory system and procedures reasonably designed to achieve compliance with the Exchange Act and FINRA rules relating to excessive trading and churning. Therefore, SW Financial violated FINRA Rules 3110 and 2010. 

FINRA Fines and Suspends  CEO of SW Financial
In the Matter of Thomas Diamante, Respondent (FINRA AWC 2020065599102)
https://www.finra.org/sites/default/files/fda_documents/2020065599102
%20Thomas%20Diamante%20CRD%201645257%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 Thomas Diamante submitted a Letter of Acceptance, Waiver and Consent ("AWC"), which FINRA accepted. The AWC asserts that Thomas Diamante was first registered in 1987 and by 2007, he had established SW Financial and served as the firm's majority owner/Chief Executive Officer. In accordance with the terms of the AWC, FINRA imposed upon Diamante a $50,000 fine, a three-month consecutive suspension in Principal-only capacities; a nine-month suspension from associating with any FINRA member in all capacities; and a requirement to requalify as a General Securities Principal or Investment Banking Representative. The AWC discloses in the "Overview" section that:

Between January 2018 and December 2021, Diamante engaged in a practice and course of business that deceived investors in connection with the sale of private placement offerings of pre-initial public offering (pre-IPO) funds (the Offerings). In the offering documents, SW Financial stated it would receive a ten percent sales commission from its sale of the Offerings. Diamante, however, had entered into an agreement with the issuer whereby SW Financial would receive an additional five percent in selling compensation, as well as half of any carried interest. Diamante then failed to disclose to others at SW Financial that the firm would earn additional compensation. As a result, SW Financial negligently misrepresented and omitted material facts to investors about the amount of compensation the firm would receive in connection with the Offerings. Through this conduct, including negligent omissions, Diamante violated FINRA Rule 2010, both independently and by acting in contravention of Sections 17(a)(2) and (3) of the Securities Act of 1933.

Additionally, between January 2018, and December 2021, Diamante failed to reasonably supervise the Offerings. Diamante failed to perform reasonable due diligence for the Offerings, failed to complete due diligence checklists, and failed to ensure that the
offering documents contained accurate information. As a result, Diamante violated FINRA Rules 3110 and 2010.  

SCOTUS:  Implying that the public has a right to a private person’s honest services whenever that private person’s clout exceeds some ill-defined threshold—is too vague. 2Cir reversed for error.
JOSEPH PERCOCO, PETITIONER v. UNITED STATES  (Opinion, United States Supreme Court, No. 21-1158, 598 U.S. ___ (2023)
https://www.supremecourt.gov/opinions/22pdf/21-1158_p8k0.pdf
As set forth in SCOTUS' "Syllabus":

Petitioner Joseph Percoco served as the Executive Deputy Secretary to New York Governor Andrew Cuomo from 2011 to 2016, a position that gave him a wide range of influence over state decision-making, with one brief hiatus. During an eight-month period in 2014, Percoco resigned from government service to manage the Governor’s reelection campaign. During this hiatus, Percoco accepted payments totaling $35,000 to assist a real-estate development company owned by Steven Aiello in its dealings with Empire State Development, a state agency. After Percoco urged a senior official at ESD to drop a requirement that Aiello’s company enter into a “Labor Peace Agreement” with local unions as a precondition to receiving state funding for a lucrative project, ESD informed Aiello the following day that the agreement was not necessary. When Percoco’s dealings came to the attention of the U. S. Department of Justice, he was indicted and charged with, among other things, conspiracy to commit honest-services wire fraud in relation to the labor-peace requirement (count 10). See 18 U. S. C. §§1343, 1346, 1349. Throughout the proceedings, Percoco argued unsuccessfully that a private citizen cannot commit or conspire to commit honest-services wire fraud based on his own duty of honest services to the public. Over Percoco’s objection, the trial court instructed the jury that Percoco could be found to have had a duty to provide honest services to the public during the time when he was not serving as a public official if the jury concluded, first, that “he dominated and controlled any governmental business” and, second, that “people working in the government actually relied on him because of a special relationship he had with the government.” As relevant here, the jury convicted Percoco on count 10. On appeal, the Second Circuit affirmed, explaining that the challenged jury instruction fit the Second Circuit’s understanding of honest-services fraud as adopted many years earlier in United States v. Margiotta, 688 F. 2d 108.

Held: Instructing the jury based on the Second Circuit’s 1982 decision in Margiotta on the legal standard for finding that a private citizen owes the government a duty of honest services was error. Pp. 5–12.

(a) Prior to this Court’s 1987 decision in McNally v. United States, 483 U. S. 350, “all Courts of Appeals had embraced” the view that the federal wire fraud and mail fraud statutes proscribe what came to be known as “honest-services fraud.” Skilling v. United States, 561 U. S. 358, 401. Most cases prosecuted under these statutes involved public employees accepting a bribe or kickback that did not necessarily result in a financial loss for the government employer but did deprive the government of the right to receive honest services. See id., at 400–401. The Second Circuit considered a different fact pattern in Margiotta, in which the government had charged an unelected individual with honest-services mail fraud for using his position as a political-party chair to exert substantial control over public officials. The court held that a private person could commit honest-services fraud if he or she “dominate[d] government.” 688 F. 2d, at 122. Shortly after Margiotta, however, this Court rejected the entire concept of honest-services fraud in McNally. But “Congress responded swiftly” to McNally, and enacted 18 U. S. C. §1346, which provides that “ ‘the term “scheme or artifice to defraud,” ’ ” which appears in both §1341 and §1343, “ ‘includes a scheme or artifice to deprive another of the intangible right of honest services.’ ” Skilling, 561 U. S., at 402 (quoting §1346). Decades later in Skilling, this Court rejected the broad argument that §1346 is unconstitutionally vague and clarified that “the intangible right of honest services” in §1346 relates to “fraudulent schemes to deprive another of honest services through bribes or kickbacks supplied by a third party who had not been deceived.” 561 U. S., at 404. 

Skilling’s approach informs the Court’s decision in this case. The Second Circuit concluded that “Congress effectively reinstated the Margiotta-theory cases by adopting statutory language that covered the theory.” 13 F. 4th 180, 196. But Skilling took care to avoid giving §1346 an indeterminate breadth that would sweep in any conception of “intangible rights of honest services” recognized by some courts prior to McNally. By rejecting the Government’s argument that §1346 should apply to cases involving “ ‘undisclosed self-dealing by a public official or private employee,’ ” 561 U. S., at 409, the Skilling Court made clear that “the intangible right of honest services” must be defined with the clarity typical of criminal statutes and should not be held to reach an ill-defined category of circumstances simply because of a few pre-McNally decisions. Pp. 5–8. 

(b) Percoco’s arguments challenging the honest-services conspiracy count against him—that he was out of public office during part of the time period within the indictment and that a private citizen cannot be convicted of depriving the public of honest services—sweep too broadly. The Court rejects the idea that a person nominally outside public employment can never have the necessary fiduciary duty to the public. Through principles of agency, an individual who is not a formal employee of a government may become an actual agent of the government by agreement, and thereby have a fiduciary duty to the government and thus to the public it serves. While the Court rejects the absolute rule, “the intangible duty of honest services” codified in §1346 plainly does not extend a duty to the public to all private persons, and the Court therefore addresses if Margiotta states the correct test. Pp. 8–9.

(c) The jury instructions based on the Margiotta theory in Percoco’s case were erroneous. Margiotta’s standard in the instructions—implying that the public has a right to a private person’s honest services whenever that private person’s clout exceeds some ill-defined threshold—is too vague. Without further constraint, the jury instructions did not define “the intangible right of honest services” “ ‘with sufficient definiteness that ordinary people can understand what conduct is prohibited’ ” or “ ‘in a manner that does not encourage arbitrary and discriminatory enforcement.’ ” McDonnell v. United States, 579 U. S. 550, 576. 

The Government does not defend the jury instructions as an accurate statement of the law, but instead claims that the imprecision in the jury instructions was harmless error. The Government argues that a private individual owes a duty of honest services in the discrete circumstances (1) “when the person has been selected to work for the government” in the future and (2) “when the person exercises the functions of a government position with the acquiescence of relevant government personnel.” Brief for United States 25. These theories, however, differ substantially from the instructions given the jury in this case, and the Second Circuit did not affirm on the basis of either of them. Pp. 9–12.

13 F. 4th 180, reversed and remanded. 

ALITO, J., delivered the opinion of the Court, in which ROBERTS, C. J., and SOTOMAYOR, KAGAN, KAVANAUGH, and BARRETT, JJ., joined, and in which JACKSON, J., joined as to all but Part II–C–2. GORSUCH, J., filed an opinion concurring in the judgment, in which THOMAS, J., joined.

Former Commodities Trader Charged with Multimillion-Dollar Investment Scheme (DOJ Release)
https://www.justice.gov/usao-nj/pr/former-commodities-trader-charged-multimillion-dollar-investment-scheme
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CFTC Charges Commodity Pool Operator Tyche Asset Management LLC and its Controlling Principal in a $6 Million Commodity Pool Ponzi Scheme / Charges Include Fraud, Co-Mingling Commodity Pool Funds, and Lying to the National Futures Association (CFTC Release)
https://www.cftc.gov/PressRoom/PressReleases/8700-23

In the United States District Court for the District of New Jersey, a Complaint was filed charging Phillip Galles with one count of wire fraud https://www.justice.gov/d9/2023-05/galles.complaint.pdf. As alleged in part in the DOJ Release:

Galles, a former commodities trader, defrauded his victims by falsely claiming that he would invest their money in commodity futures through his purported investment company called Tyche Asset Management, based in Chicago. Galles and those working for him falsely told prospective investors that Tyche had a history of success using proprietary trading strategies, with extraordinary annual rates of return exceeding 100 percent.

Tyche made virtually no legitimate investments in commodity futures or otherwise.  Galles instead ran Tyche like a Ponzi scheme and used investor money to pay back other investors and for his own personal expenses.

Galles met in New Jersey with an undercover agent purporting to be an investment manager looking to make a large investment. Galles falsely claimed that Tyche had annual returns of 336 percent, raised over $2 billion within 60 days of starting the fund, and had prominent investors, including a Kuwaiti sovereign fund and a well-known owner of a professional sports team. Galles also falsely claimed that he graduated from a prominent university in the Midwest.  

Galles defrauded more than a dozen victims out of more than $2 million. 

In the United States District Court for the District Court for the Northern District of Illinois, the CFTC filed a Complaint
https://www.cftc.gov/media/8586/enftychecomplaint051123/download
charging Tyche Asset Management, LLC (a registered commodity pool operator) and its principal/registered associated person Phillip Galles with violating CFTC regulations governing the proper operation of commodity pools, and with making false and misleading statements to the National Futures Association (NFA), a registered futures association acting in furtherance of its official duties under the Commodity Exchange Act (CEA).  Additionally, the Complaint charges Galles and eight other Tyche entities Galles controlled with a commodity pool fraud. As alleged in part in the CFTC Release:

[G]alles falsely promoted himself as a managed futures hedge-fund magnate with billions of dollars under management at Tyche Asset Management LLC and its affiliated entities. Galles claimed Tyche had achieved extraordinary rates of return of up to more than 200% annually in recent years, trading commodity futures and options on CFTC-regulated markets while employing sophisticated technology and strategies to generate these returns.

However, as further alleged in the complaint, Galles in fact misappropriated participant funds and operated a Ponzi scheme. Galles and Tyche used almost none of the funds received from participants to place any trades. Instead, Galles has used the money to fund his lavish lifestyle, and to promote his fabricated image of a hedge fund tycoon.

As alleged in the complaint, Galles and Tyche also lied to the NFA in filings certifying that it was not actively soliciting or accepting funds from customers, and Galles repeated the same lie to NFA examiners when they asked him in April 2023 directly about Tyche’s operations. 

SEC Charges Operators of Dozens of Websites with Offering Fraud Involving Crypto Assets (SEC Release)
sec.gov/litigation/litreleases/2023/lr25721.htm
In the United States District Court for the District of Massachusetts, the SEC filed a Complaint charging GA Investors and John Does 1-4 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
https://www.sec.gov/litigation/complaints/2023/comp25721.pdf. The SEC Release alleges in part that:

[D]efendants have offered investments through dozens of fraudulent websites including GA-Investors.org. According to the complaint, the websites offered exorbitant returns -- in some cases as high as 61.9% in 24 hours -- for investments in various securities. The complaint alleges that some of the websites also impersonated legitimate companies, including a registered broker-dealer. As alleged in the complaint, defendants solicited investors across the world, including investors in the United States, who invested approximately $85,000 in GA Investors' fraudulent securities offering. The complaint alleges that the GA Investors website offered guaranteed daily returns ranging from 2% to 4.5%. As alleged in the complaint, investors were directed to purchase crypto assets from a separate crypto asset trading platform and transfer those crypto assets to a GA Investors wallet address. The complaint alleges that, although some investors were able to make small withdrawals from their accounts, when the investors sought to recoup larger portions of their investments, the defendants froze investor accounts and misappropriated the investor funds.

SEC Charges Connecticut Man with Defrauding Investors of $4.8 Million and Obtains Emergency Relief (SEC Release)
https://www.sec.gov/litigation/litreleases/2023/lr25720.htm
In the United States District Court for the Eastern District of Wisconsin, the SEC filed a Complaint charging Charles T. Lawrence
https://www.sec.gov/litigation/complaints/2023/comp25720.pdf with violating Section 17(a) of the Securities Act and Section 10(b) of the Securities Exchange Act and Rule 10b-5 thereunder. The Complaint names as Relief Defendants: Justin D. Smith, Brenda M. Bisner, Landes Prive, LLC, Landes and Compagnie Trust Prive a/k/a Landes and Compagnie Trst [sic] Prive KB; and HekYeah, LLC, and seeks disgorgement with prejudgment interest from each relief defendant. The Court entered an ex parte temporary restraining order against Lawrence, prohibiting him from violating the antifraud provisions of Securities Act and Exchange Act, and from soliciting, accepting, or depositing any monies obtained from actual or prospective investors pending the final outcome of the action, as well as other ancillary relief; and, further, froze Lawrence's assets, and the assets of five named relief defendants. As alleged in part in the SEC Release:

[L]awrence schemed to defraud investors and misappropriated at least $4.8 million of investor funds for personal benefit. As alleged, Lawrence misrepresented that he was the managing director of a defunct Swedish entity and that, among other things, the investment contracts he offered guaranteed no losses and generated weekly investment returns that ranged from 25 to 100%. However, these no-risk investments were fictitious, the complaint alleges. Lawrence allegedly directed money instead to an entity he controls, Landes Prive, LLC. As further alleged, Lawrence misappropriated almost all of the investor funds to make lavish personal purchases, including spending at least $1.2 at Cartier and at least $522,000 for charter jets and international travel. In addition, Lawrence is alleged to have sent at least $689,000 to the named relief defendants. Finally, the complaint alleges that Lawrence attempted to hide his scheme when he created a fake web-portal purporting to show investments and returns, gave various excuses for failure to return investor funds, and made Ponzi-like payments to certain investors.

Dutch Medical Supplier Philips to Pay More Than $62 Million to Settle FCPA Charges (SEC Release)
https://www.sec.gov/news/press-release/2023-92
Without admitting or denying the findings in an SEC Order
https://www.sec.gov/litigation/admin/2023/34-97479.pdf, Koninklijke Philips N.V. agreed to pay $15 million in civil penalties and over $47 million in disgorgement and prejudgment interest. As alleged in part in the SEC Release:

[P]hilips’ subsidiaries in China, cumulatively referred to in the order as Philips China, used special price discounts with distributors that created a risk that excessive distributor margins could be used to fund improper payments to government employees. The SEC’s order also found that employees, distributors, or sub-dealers of Philips’ subsidiaries in China engaged in improper conduct to influence hospital officials to draft technical specifications in public tenders to favor Philips’ products. For example, the order found that, in one instance, a district sales manager at Philips China provided funds to a hospital director in return for the director’s assistance in the procurement process, and, in another instance, Philips China employees discussed tailoring technical specifications for a public tender with hospital directors so that only Philips China and two other manufacturers would qualify for the bid.

The order further found that the employees, distributors, or sub-dealers engaged in improper bidding practices by preparing additional bids with other manufacturers’ products to create the appearance of legitimate public tenders and to meet the minimum bids requirement under Chinese public tender laws.

. . .

In April 2013 the Commission charged Philips in connection with similar misconduct in Poland that had occurred between 1999 and 2007.

SEC Announces Entry of Final Judgment Against President of Maplewood, New Jersey-Based Investment Adviser for Operating a Cherry-Picking Scheme (SEC Release)
https://www.sec.gov/litigation/litreleases/2023/lr25719.htm
In the United States District Court for the District of New Jersey, without admitting or denying the allegations in an SEC Complaint, Carl S. Schwartz (President/co-owner/managing member of RRBB Asset Management, LLC.) agreed to the entry of a Final Consent Judgment
https://www.sec.gov/litigation/litreleases/2023/judg25719.pdf that permanently enjoined him from violating Section 10(b) of the Securities Exchange Act and Rule 10b-5 thereunder, Sections 17(a) of the Securities Act, and Sections 206(1), 206(2) and 207 of the Investment Advisers Act of 1940, and aiding and abetting violations of Section 206(4) of the Advisers Act and Rule 206(4)-7 thereunder. The Final Judgment ordered Schwartz to pay disgorgement of $50,000.00, prejudgment interest of 13,754.13, and a civil penalty of $100,000.00. Pursuant to the stipulation of the parties, RRBBAM was dismissed from the action as it has ceased operations, has no assets, and has withdrawn its registration with the Commission as an investment adviser. As alleged in part in the SEC Release:

[F]rom at least August 2016 through April 2017, RRBBAM and Schwartz engaged in a fraudulent trade allocation or "cherry-picking" scheme in breach of their fiduciary duties to their advisory clients. According to the complaint, Schwartz traded securities in RRBBAM's omnibus trading account and delayed allocating the securities to specific client accounts until he had observed the securities' performance over the course of the day. He allegedly then allocated favorable trades (i.e., trades that had a positive first day return) to accounts held by a new client, who was one of RRBBAM's largest and most lucrative clients in terms of assets under management, while disproportionately allocating a number of unfavorable trades (i.e., trades that had negative first day returns) to six accounts associated with two elderly widows, including a charitable foundation of which Schwartz was a trustee. The complaint alleged that through this scheme, RRBBAM and Schwartz earned substantial management fees and made misrepresentations in RRBBAM's brochures and other disclosures in which they claimed trades would be fairly and equitably allocated among all client accounts. 

SEC Charges HSBC and Scotia Capital with Widespread Recordkeeping Failures / Firms admit to wrongdoing and agree to pay penalties in SEC’s ongoing recordkeeping initiative (SEC Release)
https://www.sec.gov/news/press-release/2023-91
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CFTC Orders The Bank of Nova Scotia to Pay a $15 Million Penalty for Recordkeeping and Supervision Failures for Widespread Use of Unapproved Communication Methods (CFTC Release)
https://www.cftc.gov/PressRoom/PressReleases/8699-23

In response to charges by the SEC, HSBC Securities (USA) Inc. and Scotia Capital (USA) Inc. acknowledged that their conduct violated recordkeeping provisions of the federal securities laws and agreed to pay penalties of $15 million and $7.5 million, respectively.

• HSBC Order: https://www.sec.gov/litigation/admin/2023/34-97476.pdf
• Scotia Capital Order: https://www.sec.gov/litigation/admin/2023/34-97477.pdf
  

As alleged in the SEC Release:

Both firms were charged with violating certain recordkeeping provisions of the Securities Exchange Act of 1934 and with failing to reasonably supervise with a view to preventing and detecting those violations. In addition to the financial penalties, each firm was ordered to cease and desist from committing violations of the relevant recordkeeping provisions and was censured. The firms also agreed to retain compliance consultants to, among other things, conduct comprehensive reviews of their policies and procedures relating to the retention of electronic communications found on personal devices and their respective frameworks for addressing non-compliance by their employees with those policies and procedures.

In response to charges by the CFTC, The Bank of Nova Scotia, a provisionally registered swap dealer and Scotia Capital USA Inc., a futures commission merchant, (collectively "BNS" Affiliates) admit the facts detailed in the order, are ordered to cease and desist from further violations of recordkeeping and supervision requirements, and are ordered to engage in specified remedial undertakings. In accordance with a CFTC Order https://www.cftc.gov/media/8546/enfbankofnovascotiaorder051123/download the BNS Affiliates are ordered to cease and desist from further violations of recordkeeping and supervision requirements, and are ordered to engage in specified remedial undertakings. As alleged in part in the CFTC Release, it was alleged that for years, the BNS Affiliates had

failed to stop their employees, including those at senior levels, from communicating both internally and externally using unapproved communication methods, including messages sent via personal text and WhatsApp. BNS Affiliates were required to keep certain of these written communications because they related to BNS Affiliates’ businesses as CFTC registrants. These written communications generally were not maintained and preserved by the BNS Affiliates, and the BNS Affiliates generally would not have been able to furnish them promptly to the CFTC when requested.

The order further finds the widespread use of unapproved communication methods violated BNS’s own policies and procedures, which generally prohibited business-related communication taking place via unapproved methods. Further, some of the very same supervisory personnel responsible for ensuring compliance with the firms’ policies and procedures themselves used non-approved methods of communication to engage in business-related communications, in violation of firm policy.

The order finds the Division of Enforcement became aware of information regarding multiple BNS employees’ use of unapproved communication methods for business conversations, and that documents produced and information disclosed by BNS indicated the use of non-BNS-approved methods to communicate business internally and externally. Following a review, BNS acknowledged to CFTC staff that it was aware of widespread and longstanding use by its employees of unapproved methods to engage in business-related communications.

As a result of each registrant’s failure to ensure that its employees—including supervisors and senior-level employees—complied with communications policies and procedures, the BNS Affiliates failed to maintain thousands of business-related communications, including records in connection with their commodities and swaps businesses that were required to be kept pursuant to Commission recordkeeping requirements.  The BNS Affiliates thus failed diligently to supervise their business as CFTC registrants. 

Congressman George Santos Charged with Fraud, Money Laundering, Theft of Public Funds, and False Statements / Santos Allegedly Embezzled Contributions from Supporters, Fraudulently Obtained Unemployment Benefits, and Lied in Disclosures to the House of Representatives (DOJ Release)
https://www.justice.gov/usao-edny/pr/congressman-george-santos-charged-fraud-money-laundering-theft-public-funds-and-false
In the United States District Court for the Eastern District of New York, an Indictment was filed charging Congressman George Anthony Devolder Santos, 34, with seven counts of wire fraud, three counts of money laundering, one count of theft of public funds, and two counts of making materially false statements to the House of Representatives
https://www.justice.gov/d9/2023-05/santos.indictment.pdf . As alleged in part in the DOJ Release:

Fraudulent Political Contribution Solicitation Scheme

Beginning in September 2022, during his successful campaign for Congress, Santos operated a limited liability company (Company #1) through which he allegedly defrauded prospective political supporters.  Santos enlisted a Queens-based political consultant (Person #1) to communicate with prospective donors on Santos’s behalf.  Santos allegedly directed Person #1 to falsely tell donors that, among other things, their money would be used to help elect Santos to the House, including by purchasing television advertisements. In reliance on these false statements, two donors (Contributor #1 and Contributor #2) each transferred $25,000 to Company #1’s bank account, which Santos controlled.

As alleged in the indictment, shortly after the funds were received into Company #1’s bank account, the money was transferred into Santos’s personal bank accounts—in one instance laundered through two of Santos’s personal accounts.  Santos allegedly then used much of that money for personal expenses.  Among other things, Santos allegedly used the funds to make personal purchases (including of designer clothing), to withdraw cash, to discharge personal debts, and to transfer money to his associates. 

Unemployment Insurance Fraud Scheme

Beginning in approximately February 2020, Santos was employed as a Regional Director of a Florida-based investment firm (Investment Firm #1), where he earned an annual salary of approximately $120,000.  By late-March 2020, in response to the outbreak of COVID-19 in the United States, new legislation was signed into law that provided additional federal funding to assist out-of-work Americans during the pandemic.

In mid-June 2020, although he was employed and was not eligible for unemployment benefits, Santos applied for government assistance through the New York State Department of Labor, allegedly claiming falsely to have been unemployed since March 2020.  From that point until April 2021—when Santos was working and receiving a salary on a near-continuous basis and during his unsuccessful run for Congress—he falsely affirmed each week that he was eligible for unemployment benefits when he was not.  As a result, Santos allegedly fraudulently received more than $24,000 in unemployment insurance benefits.

False Statements to the House of Representatives

Finally, the indictment describes Santos’s alleged efforts to mislead the House of Representatives and the public about his financial condition in connection with each of his two Congressional campaigns.

Santos, like all candidates for the House, had a legal duty to file with the Clerk of the House of Representatives a Financial Disclosure Statement (House Disclosures) before each election.  In each of his House Disclosures, Santos was personally required to give a full and complete accounting of his assets, income, and liabilities, among other things.  He certified that his House Disclosures were true, complete, and correct.

In May 2020, in connection with his first campaign for election to the House, Santos filed two House Disclosures in which he allegedly falsely certified that, during the reporting period, his only earned income consisted of salary, commission, and bonuses totaling $55,000 from another company (Company #2), and that the only compensation exceeding $5,000 he received from a single source was an unspecified commission bonus from Company #2.  In actuality, Santos allegedly overstated the income he received from Company #2 and altogether failed to disclose the salary he received from Investment Firm #1.

In September 2022, in connection with his second campaign for election to the House, Santos filed another House Disclosure, in which he allegedly overstated his income and assets.  In this House Disclosure, he falsely certified that during the reporting period:

• • He had earned $750,000 in salary from the Devolder Organization LLC, a Florida‑based entity of which Santos was the sole beneficial owner;
  • He had received between $1,000,001 and $5,000,000 in dividends from the Devolder Organization LLC;
  • He had a checking account with deposits of between $100,001 and $250,000; and
  • He had a savings account with deposits of between $1,000,001 and $5,000,000. 

As alleged in the indictment, these assertions were false: Santos had not received from the Devolder Organization LLC the reported amounts of salary or dividends and did not maintain checking or savings accounts with deposits in the reported amounts.  Further, Santos allegedly failed to disclose that, in 2021, he received approximately $28,000 in income from Investment Firm #1 and more than $20,000 in unemployment insurance benefits from the NYS DOL.

Former Employee Of Technology Company Sentenced To Six Years In Prison For Stealing Confidential Data And Extorting Company For Ransom (DOJ Release)
https://www.justice.gov/usao-sdny/pr/former-employee-technology-company-sentenced-six-years-prison-stealing-confidential
In the United States District Court for the Southern District of New York, Nickolas Sharp,  37, pled guilty to one count of transmitting a program to a protected computer that intentionally caused damage, one count of wire fraud, and one count of making false statements to the FBI; and he was sentenced to six years in prison plus three years of supervised release, and ordered to pay restitution of $1,590,487 and to forfeit personal property used or intended to be used in connection with these offenses. As alleged in part in the DOJ Release:

At all times relevant to the Indictment, Company-1 was a technology company headquartered in New York that manufactured and sold wireless communications products and whose shares were traded on the New York Stock Exchange.  SHARP was employed by Company-1 from in or about August 2018 through on or about April 1, 2021.  SHARP was a senior developer who had access to credentials for Company-1’s Amazon Web Services (“AWS”) and GitHub Inc. (“GitHub”) servers.

In about December 2020, while interviewing for a position at another company, SHARP repeatedly misused his administrative access to download gigabytes of confidential data from his employer.    During the course of this cybersecurity incident (the “Incident”), SHARP caused damage to Company-1’s computer systems by altering log retention policies and other files in order to conceal his unauthorized activity on the network.  SHARP modified session file names to attempt to make it appear as if other coworkers were responsible for his malicious sessions. 

In or about January 2021, while working on a team remediating the effects of the Incident, SHARP sent a ransom note to Company-1, posing as an anonymous attacker who claimed to have obtained unauthorized access to Company-1’s computer networks.  The ransom note sought 50 Bitcoin — which was the equivalent of approximately $1.9 million, based on the prevailing exchange rate at the time — in exchange for the return of the stolen data and the identification of a purported “backdoor,” or vulnerability, to Company-1’s computer systems.  After Company-1 refused the demand, SHARP published a portion of the stolen files on a publicly accessible online platform.

On or about March 24, 2021, FBI agents executed a search warrant at SHARP’s residence in Portland, Oregon, and seized certain electronic devices belonging to SHARP, including a laptop SHARP had used to steal Company-1’s data.  During the execution of that search, SHARP made numerous false statements to FBI agents.

Several days after the FBI executed the search warrant at SHARP’s residence, SHARP caused false news stories to be published about the Incident and Company-1’s response to the Incident.  In those stories, SHARP identified himself as an anonymous whistleblower within Company-1 who had worked on remediating the Incident and falsely claimed that Company-1 had been hacked by an unidentified perpetrator who maliciously acquired root administrator access to Company-1’s AWS accounts.  In fact, as SHARP well knew, SHARP himself had taken Company-1’s data using credentials to which he had access, and SHARP had used that data in a failed attempt to extort Company-1 for millions of dollars.

Following the publication of these articles, between approximately March 30, 2021, and March 31, 2021, Company-1’s stock price fell approximately 20%, losing over $4 billion in market capitalization.  SHARP also attempted to cause domestic and foreign regulators to investigate Company-1 based on his false allegations about the security breach he secretly caused.

SEC Settles Fraud Charges Against Brazilian Reinsurance Company (SEC Release)
https://www.sec.gov/litigation/litreleases/2023/lr25718.htm
In the United States District Court for the Southern District of New York, 
IRB Brasil Resseguros S.A consented to the entry of a Final Judgment that would permanently enjoin it from violating the antifraud provisions of Section 10(b) of the Securities Exchange Act and Rule 10b-5 thereunder. Due in part to the company's significant cooperation and remediation in this matter, the SEC did not impose a penalty as part of its settlement with the company. As alleged in part in the SEC Release:

]I]n February 2020 after a significant decline in IRB's stock price following a short seller's report questioning IRB's financial results, IRB and its former executive vice president of finance and investor relations, Fernando Passos, spread a fabricated story that Berkshire Hathaway Inc. had recently invested in IRB. The complaint alleges that IRB, through Passos, created and shared a fake shareholder list that showed Berkshire had made substantial purchases of IRB stock. The complaint further alleges that IRB communicated the false information to analysts and investors during meetings in both the United Kingdom and the United States. According to the complaint, IRB's stock price rose by more than 6 percent following the Brazilian and U.S. media reports that Berkshire had invested in IRB and subsequently dropped by more than 40 percent after Berkshire denied that it was an investor. Following Berkshire's denial, IRB conducted an internal investigation; shared the results with SEC staff; and fully cooperated with the SEC's investigation. IRB also took extensive remedial measures, including replacing senior management; replacing and expanding its Board of Directors; and implementing processes and procedures designed to prevent this type of misconduct from occurring in the future.

SEC Charges Tennessee Resident and Company with Selling Fraudulent Promissory Notes (SEC Release)
https://www.sec.gov/litigation/litreleases/2023/lr25717.htm
In the United States District Court for the Middle District of Tennessee, the SEC filed a Complaint https://www.sec.gov/litigation/complaints/2023/comp25717.pdf charging Clayton R. Thomas and the now-defunct Personalized Healthcare Solution, LLC with violating Section 17(a) of the Securities Act, and Section 10(b) of the Securities Exchange Act of and Rule 10b-5 thereunder. Without admitting or denying the allegations in the Complaint, Thomas and Personalized Healthcare Solution each consented to the entry of an order permanently enjoining them from violating the charged provisions, and authorizing the court to determine at a later date the amount of disgorgement, prejudgment interest, and civil money penalties that Thomas will pay. As alleged in part in the SEC Release:

[F]rom February until June 2019, Thomas and Personalized Healthcare Solution raised approximately $730,000 from a single investor, telling that investor that they would purchase certain medical devices and place the devices in medical offices to generate an investment return from usage fees. In reality, according to the complaint, Thomas and Personalized Healthcare Solution overstated the purchase price of the medical devices and fraudulently inflated the medical devices' anticipated returns. The complaint also states that Thomas knew that the investment would likely be far less profitable than what he told the investor based on prior experience with a different investor in which the medical devices produced little to no return. Finally, the SEC alleges that the investor lost substantially all of its original investments, and that Thomas misappropriated investor funds for his personal use by pocketing the difference between the actual cost of the medical devices and the amount that he represented to the investor that they would cost. 

FINRA Sanctions Firm and CEO for Net Capital, U4 Amendments, and Payroll Taxes
In the Matter of Arque Capital, Ltd., and Michael C. Ning, Respondents (FINRA AWC 2020065125701)
https://www.finra.org/sites/default/files/fda_documents/2020065125701
%20Arque%20Capital%2C%20Ltd%20%20CRD%20121192
%20and%20Michael%20C.%20Ning%20CRD%201229733
%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, Arque Capital, Ltd. submitted a Letter of Acceptance, Waiver and Consent ("AWC"), which FINRA accepted. The AWC asserts that Arque Capital, Ltd. has been a FINRA member firm since 2002 with 16 registered representatives at seven branches; and that Michael C. Ning entered the industry in 1987 and since 2005 he has been the owner of Arque Capital and since 2010 the firm's Chief Executive Officer. In accordance with the terms of the AWC, FINRA imposed upon Arque Capital a Censure and $50,000 fine; and upon Ning a $15,000 fine and a seven-month suspension from associating with any FINRA member in all capacities. The AWC discloses in that:

Respondent Ning understands that this settlement includes a finding that he willfully omitted to state a material fact on a Form U4, and that under Section 3(a)(39)(F) of the Securities Exchange Act of 1934 and Article III, Section 4 of FINRA’s By-Laws, this
omission makes him subject to a statutory disqualification with respect to association with a member. 

As alleged in part in the "Overview" portion of the AWC:

Between March 2019 and May 2020, Arque Capital failed to comply with four interrelated financial compliance requirements. First, the firm conducted a securities business on 67 days while it failed to maintain the required minimum net capital, in violation of Section 15(c) of the Securities Exchange Act of 1934, Exchange Act Rule 15c3-1, and FINRA Rules 4110(b)(1) and 2010. Second, the firm failed to provide timely required notifications to FINRA and the SEC regarding its net capital deficiencies and provided one notification that contained a material inaccuracy, in violation of Section 17(a) of the Exchange Act, Exchange Act Rule 17a-11, and FINRA Rule 2010. Third, the firm made and preserved inaccurate balance sheets, trial balances, general ledgers, and net capital computations, in violation of Section 17(a) of the Exchange Act, Exchange Act Rule 17a-3, and FINRA Rules 4511 and 2010. Fourth, the firm filed inaccurate Financial and Operational Combined Uniform Single (FOCUS) reports and filed one late FOCUS report, in violation of Section 17(a) of the Exchange Act, Exchange Act Rule 17a-5, and FINRA Rule 2010.

Between March 2017 and August 2018, Ning willfully failed to timely amend his Uniform Application for Securities Industry Registration or Transfer (Form U4) to disclose two unsatisfied tax liens totaling $298,194. As a result, Ning violated Article V, Section 2(c) of FINRA’s By-Laws and FINRA Rules 1122 and 2010.

Between January 2016 and March 2019, Arque Capital and Ning failed to remit withheld employee payroll taxes, totaling approximately $125,000, to the U.S. Treasury as they became due, and instead used the funds to pay for other firm business expenses. As a result, Arque Capital and Ning violated FINRA Rule 2010. 

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.