Securities Industry Commentator by Bill Singer Esq

FINRA Can't Quite Put A Name On It: Perjury Or False Testimony Or Misleading Testimony (BrokeAndBroker.com Blog)
https://www.brokeandbroker.com/7131/finra-awc-testimony/
In today's blog we got a FINRA arbitration. We got JP Morgan as a Respondent. We got about $13 million in damages, or more than $10 million in damages, or not less than $8 million. We got allegations of lying and spoliating evidence. We got motions about an expert witness' expertise. We got motions about sanctions for alleged false testimony. We got that rare finding of perjury with the result of sanctions. We got an award of damages but as to how the arbitrators calculated it and for what, we don't got jack. And, just the other day, we got a FINRA AWC fining and suspending the rep who gave the allegedly false testimony at the arbitration.

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United States of America, v. Donald J. Trump, Defendant (Indictment, United States District Court for the District of Columbia, 23-CR-00257)
https://www.justice.gov/storage/US_v_Trump_23_cr_257.pdf

Count 1: 18 U.S.C. § 371 (Conspiracy to Defraud the United States)

Count 2: 18 U.S.C. § 1512(k) (Conspiracy to Obstruct an Official Proceeding)

Count 3: 18 U.S.C. §§ 1512(c)(2), 2 (Obstruction of and Attempt to Obstruct an Official Proceeding)

Count 4: 18 U.S.C. § 241 (Conspiracy Against Rights)

INTRODUCTION

1. The Defendant, DONALD J. TRUMP, was the forty-fifth President of the United States and a candidate for re-election in 2020. The Defendant lost the 2020 presidential election.

2. Despite having lost, the Defendant was determined to remain in power. So for more than two months following election day on November 3, 2020, the Defendant spread lies that there had been outcome-determinative fraud in the election and that he had actually won. These claims were false, and the Defendant knew that they were false. But the Defendant repeated and widely disseminated them anyway -- to make his knowingly false claims appear legitimate, create an intense national atmosphere of mistrust and anger, and erode public faith in the administration of the election.

3. The Defendant had a right, like every American, to speak publicly about the election and even to claim, falsely, that there had been outcome-determinative fraud during the election and that he had won. He was also entitled to formally challenge the results of the election through lawful and appropriate means, such as by seeking recounts or audits of the popular vote in states or filing lawsuits challenging ballots and procedures. Indeed, in many cases, the Defendant did pursue these methods of contesting the election results. His efforts to change the outcome in any state through recounts, audits, or legal challenges were uniformly unsuccessful.

4. Shortly after election day, the Defendant also pursued unlawful means of discounting legitimate votes and subverting the election results. In so doing, the Defendant perpetrated three criminal conspiracies:

a. A conspiracy to defraud the United States by using dishonesty, fraud, and deceit to impair, obstruct, and defeat the lawful federal government function by which the results of the presidential election are collected, counted, and certified by the federal government, in violation of 18 U.S.C. § 371;

b. A conspiracy to corruptly obstruct and impede the January 6 congressional proceeding at which the collected results of the presidential election are counted and certified ("the certification proceeding"), in violation of 18 U.S.C. § 1512(k);and

c. A conspiracy against the right to vote and to have one's vote counted, in violation of 18 U.S.C. § 241.

Each of these conspiracies—which built on the widespread mistrust the Defendant was creating through pervasive and destabilizing lies about election fraud—targeted a bedrock function of the United States federal government: the nation's process of collecting, counting, and certifying the results of the presidential election ("the federal government function").

DCCir Says the SEC did not adequately explain why SPIKES futures must be regulated as futures to promote competition with VIX futures.
CBOE Futures Exchange, Llc, Petitioner v. Securities and Exchange Commission, Respondent
-and-
Minneapolis Grain Exchange, Llc, Intervenor
(Opinion, United States Court Of Appeals For The District Of Columbia Circuit, No. 21-1038 / July 28, 2023)
https://brokeandbroker.com/PDF/CBOE2CirOp230728.pdf
As set forth in the DCCir's Syllabus:

SRINIVASAN, Chief Judge: A futures contract calls for the purchase or sale of an underlying asset on a specific future date at a specific price. When the underlying asset is a security (or a security index), the futures contract may constitute a “security future” under federal law. A security future is subject to more stringent regulatory treatment and less favorable tax treatment than other futures.

This case involves futures contracts based on the so-called SPIKES Index, which measures the volatility of the S&P 500 stock market index. In 2020, the Securities and Exchange Commission issued an order directing treatment of SPIKES futures as futures rather than security futures for purposes of the Securities Exchange Act. The SEC’s aim was to promote competition with futures that are based on another index that measures S&P 500 volatility, known as the VIX Index. For years, VIX futures have been regulated as futures, not security futures.

The petition in this case challenges the SEC’s 2020 order treating SPIKES futures as futures. We grant the petition. The SEC did not adequately explain why SPIKES futures must be regulated as futures to promote competition with VIX futures. While we thus vacate the Commission’s order, we will withhold issuance of our mandate for three calendar months to allow market participants sufficient time to wind down existing SPIKES futures transactions with offsetting transactions.

In this dramatic -- some might say "historic" -- rebuke of the SEC's regulatory reach, DCCir declines to pull its punches:

We conclude that the Exemptive Order is arbitrary and capricious because the SEC failed adequately to explain its rationale and failed to consider an important aspect of the problem. Because those deficiencies require vacatur of the Order, we have no need to consider CFE’s additional contention that the SEC failed to consider the possibility that its grant of exemptive relief would lead to confusion among market participants.

at Page 9 - 10 of the DCCir Opinion

5Cir Affirms Criminal Convictions in United Development Funding Convictions
United States of America, Plaintiff/Appellee, v. Hollis Morrison Greenlaw; Benjamin Lee Wissink; Cara Delin Obert; Jeffrey Brandon Jester, Defendants/Appellants. (Opinion,United States Court of Appeals
for the Fifth Circuit, No. 22-10511 / July 31, 2023)
https://www.ca5.uscourts.gov/opinions/pub/22/22-10511-CR0.pdf
As set forth in the 5Cir's Syllabus:

In January 2022, a jury convicted United Development Funding (“UDF”) executives Hollis Greenlaw, Benjamin Wissink, Cara Obert, and Jeffrey Jester (collectively “Appellants”) of conspiracy to commit wire fraud affecting a financial institution, conspiracy to commit securities fraud, and eight counts of aiding and abetting securities fraud. 18 U.S.C. §§ 1343, 1348, 1349 & 2. Jurors heard evidence that Appellants were involved in what the Government deemed “a classic Ponzi-like scheme,” in which Appellants transferred money out of one fund to pay distributions to another fund’s investors, without disclosing this information to their investors or the Securities Exchange Commission (“SEC”). Appellants did not refute that they conducted these transactions. They instead pointed to evidence that their conduct did not constitute fraud because it amounted to routine business transactions that benefited all involved without causing harm to their investors. On appeal, they urge this court to view this evidence as proof that they did not intend to deprive their investors of money or property as a conviction under the fraud statutes requires.

Appellants each filed separate appeals, challenging their convictions on several grounds. Considered together, they argue that (1) the jury verdict should be vacated because the evidence at trial was insufficient to support their convictions or alternatively, (2) they are entitled to a new trial because the jury instructions were improper. As explained below, Appellants have demonstrated at least one error in the jury instructions—the intent to defraud instruction. Because this error was harmless, and thus, does not warrant a new trial, we also address Appellants’ remaining challenges on the merits.

Appellants also argue that the district court erred in (3) limiting cross-examination regarding a non-testifying government informant; (4) allowing the Government to constructively amend the indictment and include certain improper statements in its closing argument; (5) imposing a time limit during trial; and (6) failing to apply the cumulative-error doctrine. Because these arguments also do not warrant a new trial, we AFFIRM the jury verdict in its entirety

DOJ

Former Florida Attorney Pleads Guilty To Racketeering Relating To Operation Of His Tallahassee Law Firm And Investment Companies (DOJ Release)
https://www.justice.gov/usao-ndfl/pr/former-florida-attorney-pleads-guilty-racketeering-relating-operation-his-tallahassee
In the United States District Court for the Northern District of Florida, Phillip Timothy Howard pled guilty to racketeering (RICO). As alleged in part in the DOJ Release:

[B]etween in or about December 2015, and in or about January 2018, Howard, a Florida attorney, along with others, was associated with and employed by an Enterprise, that is, his Tallahassee law firm (Howard & Associates, P.A.), and several Tallahassee investment companies (Cambridge Capital Group, LLC; Cambridge Capital Wealth Advisors, LLC; Cambridge Capital Advisors, LLC; Cambridge Capital Funding, Inc., Cambridge Capital Group Equity Option Opportunities, L.P.; and Cambridge Capital Partners, L.P.). During this time, Howard, along with others, knowingly, willfully, and unlawfully conducted and participated in the conduct of the affairs of the Enterprise, through a pattern of racketeering activity, namely, wire fraud and money laundering. Howard engaged in such racketeering activity through multiple acts of wire fraud related to his representation of former NFL players in a class-action lawsuit. These clients were potentially eligible for settlement payouts from the NFL, and as part of his representation, Howard fraudulently enticed his clients to invest their retirement funds with his investment companies. However, Howard failed to disclose and misrepresented to these former NFL player investors the structure of the Enterprise, and the conflicts of interest and the criminal background of persons associated with or employed by the Enterprise.

Howard failed to disclose and misrepresented the true nature of investment companies’ funds and the actual investments made by the former NFL player investors. Despite reassuring investors that their money was secure, Howard never informed them that almost none of investment funds yielded a return and failed to disclose that the investment funds had been commingled with funds used to operate his law firm and to issue payroll for its staff, pay Howard’s personal mortgages, and otherwise personally enrich Howard. The former NFL player investors were provided quarterly and year-end investment statements which were inaccurate. These investment statements indicated that investor funds were allocated into two separate investment funds, including a fund designed specifically to invest in equities. In reality, there were no separated, dedicated investment funds, and the bank accounts for the Enterprise had little or no money. Howard and others fraudulently obtained over $4 million through such conduct.

Bitfinex Hacker and Wife Plead Guilty to Money Laundering Conspiracy Involving Billions in Cryptocurrency (DOJ Release)
https://www.justice.gov/opa/pr/bitfinex-hacker-and-wife-plead-guilty-money-laundering-conspiracy-involving-billions
In the United States District Court for the Southern District of New York, Ilya Lichtenstein pled guilty to conspiracy to commit money laundering, and Heather Morgan pled guilty to one count of money laundering conspiracy and one count of conspiracy to defraud the United States. As alleged in part in the DOJ Release:

[A]t the time of the seizure, the recovered funds were valued at approximately $3.6 billion. Since their arrests, the government has seized another approximately $475 million tied to the hack.

[L]ichtenstein used a number of advanced hacking tools and techniques to gain access to Bitfinex’s network. Once inside their systems, Lichtenstein fraudulently authorized more than 2,000 transactions in which 119,754 bitcoin was transferred from Bitfinex to a cryptocurrency wallet in Lichtenstein’s control. Lichtenstein then took steps to cover his tracks by going back into Bitfinex’s network and deleting access credentials and other log files that may have given him away to law enforcement. Following the hack, Lichtenstein enlisted the help of his wife, Morgan, in laundering the stolen funds.

Lichtenstein, at times with Morgan’s assistance, employed numerous sophisticated laundering techniques, including using fictitious identities to set up online accounts; utilizing computer programs to automate transactions; depositing the stolen funds into accounts at a variety of darknet markets and cryptocurrency exchanges and then withdrawing the funds, which obfuscates the trail of the transaction history by breaking up the fund flow; converting bitcoin to other forms of cryptocurrency, including anonymity-enhanced cryptocurrency (AEC), in a practice known as “chain hopping”; depositing a portion of the criminal proceeds into cryptocurrency mixing services, such as Bitcoin Fog, Helix, and ChipMixer; using U.S.-based business accounts to legitimize their banking activity; and exchanging a portion of the stolen funds into gold coins, which Morgan then concealed by burying them.

Charlotte Man Pleads Guilty To Wire Fraud For $5.3 Million Investment Fraud Scheme (DOJ Release)
https://www.justice.gov/usao-wdnc/pr/charlotte-man-pleads-guilty-wire-fraud-53-million-investment-fraud-scheme
In the United States District Court for the Western District of North Carolina, Wynn A.D. Charlebois pled guilty to wire fraud today. As alleged in part in the DOJ Release:

[F]rom 2015 through October 2022, Charlebois used companies he owned and controlled, including WC Private, Wilcox Hybrid, Damon Investments, and others, to perpetrate a multi-million dollar investment scheme that caused at least 39 victim investors and entities to lose more than $5.3 million. In furtherance of the scheme, Charlebois recruited victim investors including friends, family members, and social acquaintances, by falsely promising their money would be invested in risk-free investments, subscription agreements, and loans. Court documents show that Charlebois fraudulently asserted in the investment agreements presented to victim investors that he and his entities held stock options for particular companies, and that the investors could purchase the options and gain specified profits. Contrary to the defendant’s claims, instead of using the investors’ money as promised, Charlebois used the funds to make Ponzi-style payments to other investors, and on personal expenses including to pay private school tuition, make mortgage payments, and pay for luxury travel and meals at restaurants.

SEC

SEC Charges Massachusetts Resident with $1.2 Million Offering Fraud and Ponzi Scheme (SEC Release)
https://www.sec.gov/litigation/litreleases/lr-25800
In the United States District Court for the District of Massachusetts, the SEC filed a Complaint that charges Jose D. Rocha
https://www.sec.gov/files/litigation/complaints/2023/comp25800.pdf with violating the antifraud provisions of Section 17(a) of the Securities Act, Section 10(b) of the Securities Exchange Act and Rule 10b-5 thereunder, and Sections 206(1) and 206(2) of the Investment Advisers Act of 1940. Rocha consented to the entry of a judgment permanently enjoining him from violating the charged provisions of the federal securities laws and from participating in the offer or sale of any security to investors or potential investors, with the amounts of disgorgement, prejudgment interest, and civil monetary penalties to be determined by the Court. Parallel criminal charges were filed against Rocha. As alleged in part in the SEC Release, Rocha allegedly ran a:.

[P]onzi scheme in which he took approximately $1.2 million from 13 investors in the Cape Verdean community around the Boston area. Rocha promised investors he would invest their money in securities with guaranteed returns of 12% per month. Instead, Rocha used only a small percentage of the money to make highly leveraged, and highly unsuccessful, trades of stock and stock options. Rocha spent the balance of the funds, the vast majority, to feed his gambling habit and embark on a luxury lifestyle. Rocha also used money from later investments to pay out on earlier investments.

SEC Obtains Emergency Relief to Halt Utah-Based Company’s Crypto Asset Fraud Scheme Involving 18 Defendants (SEC Release)
https://www.sec.gov/news/press-release/2023-146
In the United States District Court for the District of Utah, the SEC filed a Complaint
https://www.sec.gov/files/litigation/complaints/2023/comp-pr2023-146.pdf charging 18 Defendants with engaging in unregistered securities offerings. The Court granted the SEC a temporary asset freeze, restraining order, and other emergency relief against Digital Licensing Inc. d/b/a “DEBT Box,” as well as the company’s four principals, Jason Anderson, his brother Jacob Anderson, Schad Brannon, and Roydon Nelson, and 13 other defendants. As alleged in part in the SEC Release, the SEC Complaint:

charges the defendants in an ongoing scheme that began in March 2021 to sell unregistered securities they call “node licenses.” In hundreds of online videos and social media posts, as well as at investor events, the defendants told investors that the node licenses would generate various crypto asset tokens through crypto mining activity and that revenue-generating businesses in a variety of sectors would drive the value of the various tokens DEBT Box mined, resulting in exorbitant gains for investors. In reality, as alleged, the node licenses were a sham intended to obscure the fact that the total supply of each token was created by DEBT Box instantaneously using code on a blockchain.

. . .

The SEC’s complaint further alleges that DEBT Box and its principals —along with defendants James Franklin, Western Oil Exploration Company Inc., and Ryan Bowen—lied to DEBT Box investors about the revenues of the businesses purportedly driving the value of the tokens.

In total, 18 defendants, including those mentioned above, have been charged with engaging in unregistered securities offerings. DEBT Box, Jason Anderson, Jacob Anderson, Brannon, Nelson, Franklin, Western Oil, and Bowen were also charged with violations of the antifraud provisions of the federal securities laws. Jason Anderson, Jacob Anderson, Brannon, Nelson, Bowen, Mark Schuler, Benjamin Daniels, Joseph Martinez, Travis Flaherty, Brendon Stangis, Matthew Fritzsche, B & B Investment Group, LLC, and iX Global, LLC were charged with acting as unregistered brokers.

SEC Charges Owners of Broker-Dealer with Aiding and Abetting Violations of Net Capital Requirements (SEC Release)
https://www.sec.gov/litigation/litreleases/lr-25799
In the United States District Court for the Southern District of New York, the SEC filed a Complaint that charges Ustocktrade LLC and its owner Anthony Weeresinghe
https://www.sec.gov/files/litigation/complaints/2023/comp25799.pdf with aiding and abetting the broker-dealer's violations of the net capital provisions of Section 15(c)(3) of the Exchange Act and Rule 15c3-l thereunder. Without admitting or denying the allegations SEC Complaint, Weeresinghe and Ustocktrade LLC agreed to settle with the SEC and to the entry of a final judgment imposing permanent injunctions and penalties of $75,000 against Ustocktrade LLC and $10,000 against Weeresinghe. As alleged in part in the SEC Release:

[W]eeresinghe, through Ustocktrade LLC, owned and controlled an SEC-registered broker-dealer, Ustocktrade Securities, Inc., which operated an alternative trading system that was marketed to college students and other retail investors to engage in day trading. According to the SEC's complaint, Weeresinghe and Ustocktrade LLC were notified of 11 separate periods during 2021 when the broker-dealer's net capital fell below its minimum net capital requirement. The complaint alleges that Ustocktrade LLC and Weeresinghe substantially assisted the broker-dealer's net capital violations by continuing to operate the broker-dealer's customer trading platforms to conduct unlawful securities transactions during the deficiency periods. In addition, as alleged in the complaint, in November 2021, during the broker-dealer's final net capital deficiency, Weeresinghe directed the broker-dealer to transfer most of its remaining cash to Ustocktrade LLC, worsening the capital condition of an already capital deficient broker-dealer. In October 2022, the broker-dealer withdrew and terminated its registration with the SEC.

SEC Charges Florida Resident in Connection with Ponzi Scheme Targeting Religious Community (SEC Release)
https://www.sec.gov/litigation/litreleases/lr-25798
In the United States District Court for the Eastern District of New York, the SEC filed a Complaint that charges Mina Tadrus and Tadrus Capital LLC
https://www.sec.gov/files/litigation/complaints/2023/comp25798.pdf 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, and Sections 206(1), 206(2), and 206(4) of the Investment Advisers Act of 1940 and Rule 206(4)-8 thereunder. As alleged in part in the SEC Release:

[S]ince at least September 2020, Mina Tadrus and Tadrus Capital LLC have solicited and sold investments in Tadrus Capital Fund LP, a purported pooled investment vehicle that targeted members of the Egyptian Coptic Christian community. The defendants allegedly raised more than $5 million from at least 31 investors and falsely told them that their funds would be pooled and invested using algorithmic trading that would guarantee a steady monthly return on investment (ROI). However, the complaint alleges, the defendants did not actually invest the investors' funds. In reality, according to the complaint, the defendants used at least $1.4 million to make purported ROI payments to other investors in Ponzi fashion and otherwise misappropriated at least $380,000.

SEC Obtains Final Judgment Against Silicon Valley IT Administrator at the Center of Multimillion Dollar Insider Trading Ring (SEC Release)
https://www.sec.gov/litigation/litreleases/lr-25796
The United States District Court for the Northern District of California entered a Final Consent Judgment,against Janardhan Nellore
https://www.sec.gov/files/litigation/litreleases/2023/judg25796.pdf; also see Complaint https://www.sec.gov/files/litigation/complaints/2023/comp25796.pdf As alleged in part in the SEC Release:

[T]he Securities and Exchange Commission sued Nellore, a former IT administrator at Palo Alto Networks, Inc., alleging that he traded on confidential earnings information about Palo Alto Networks and tipped four of his friends to do the same, in violation of the federal securities laws. In settling the charges against him, Nellore agreed to pay $16,614 in disgorgement and prejudgment interest, and to be permanently enjoined from future violations of Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder.

The SEC’s complaint, filed on December 17, 2019, alleges that Nellore was at the center of an insider trading ring and used his IT credentials and work contacts to obtain highly confidential information about his employer’s quarterly earnings and financial performance. As alleged in the complaint, Nellore and his friends achieved more than $7 million in illegal profits. Three of Nellore’s co-defendants previously settled the SEC’s action against them. The SEC’s action against the final co-defendant, Sivannarayana Barama, is continuing.

SEC Charges Florida Investment Adviser a Second Time for Insider Trading / Wellington resident agrees to pay a penalty equal to three times his unlawful profits to settle charges (SEC Release)
https://www.sec.gov/news/press-release/2023-145
In the United States District Court for the Southern District of New York, the SEC filed a Complaint charging Charles Rustin Holzer
https://www.sec.gov/files/litigation/complaints/2023/comp-pr2023-145.pdf with violating the antifraud provisions of the federal securities laws. Named as Relief Defendants are Maglione International Ltd. and Frontenac Investments Ltd. Without admitting or denying the allegations in the SEC Complaint:

Holzer agreed to settle the charges by consenting to the entry of a final judgment permanently enjoining him from violating the charged provisions of the securities laws and ordering him to pay a civil penalty of $1,173,926; and
Maglione and Frontenac consented to the entry of final judgments ordering that they pay disgorgement of $331,389 and $59,920, respectively, representing the amount of profits from Holzer’s DNB trading in their respective accounts, plus prejudgment interest of $84,032 (for Maglione) and $15,194 (for Frontenac).

As alleged in part in the SEC Release:

[N]ine days before an August 8, 2018, acquisition announcement, Holzer, of Wellington, Florida, learned material nonpublic information about the prospective DNB acquisition from an investment adviser pursuant to a non-disclosure agreement that prohibited him from disclosing or trading on the information. The SEC alleges that Holzer used that information to purchase 23,000 shares of DNB stock in offshore accounts belonging to two Cayman Islands-based entities that Holzer directly or indirectly controlled, Maglione International Ltd. and Frontenac Investments Ltd., resulting in $391,308 in ill-gotten profits. Although those trades took place at roughly the same time as the options trades at issue in the prior lawsuit, according to the SEC’s complaint, Holzer did not disclose the offshore trading to the SEC.

SEC Suspends Colorado Public Accountant for Improper Professional Conduct (SEC Release)
https://www.sec.gov/enforce/34-98030-s
Without admitting or denying the findings in an SEC Order
https://www.sec.gov/files/litigation/admin/2023/34-98030.pdf that he had engaged in improper professional conduct within the meaning of Section 4C(a)(2) of the Securities Exchange Act of 1934 and Rule 102(e) of the SEC's Rules of Practice, and that he caused a violation of Rule 2-02(b)(1) of Regulation S-X, certified public accountant John R. Browne consented to cease and desist from committing or causing any violations and any future violations of Rule 2-02(b) of Regulation S-X and to pay a civil penalty of $11,162; and, further, Browne agreed to be suspended from appearing and practicing before the SEC as an accountant, but can apply for reinstatement after eighteen months. As alleged in part in the SEC Release:

[B]rowne failed to comply with PCAOB standards in connection with the audit of MusclePharm's financial statements for its fiscal year ended December 31, 2017, and the quarterly reviews for the first three quarters of 2018. Specifically, the SEC's order finds that MusclePharm prematurely recognized revenue on certain sales where delivery had not yet occurred and improperly classified certain marketing-related customer credits as operating expenses rather than reductions to revenue, and that Browne, the engagement partner on the audit and reviews, failed to appropriately audit these areas. The SEC's order finds that Browne's conduct departed from multiple PCAOB standards, including failing to: (1) exercise due professional care; (2) properly supervise the audit engagement; (3) gain an understanding of key aspects of MusclePharm's business; (4) plan the audit based on assessed risks; (5) obtain sufficient appropriate audit evidence; (6) properly evaluate audit results; (7) adequately document the audit work; and (8) adhere to the professional standards for the review of interim financial information. The SEC's order further finds that Browne approved and signed an audit report stating that MusclePharm's fiscal year 2017 audit was conducted in accordance with PCAOB standards, when it was not.

SEC Charges New Jersey-Based ETF Manager for Fraudulent Conduct and Bars Founder (SEC Release)
https://www.sec.gov/news/press-release/2023-144
The SEC filed an Order https://www.sec.gov/files/litigation/admin/2023/34-98034.pdf that found that Samuel Masucci and ETF Managers Group LLC (ETFMG) violated Sections 206(1) and 206(2) of the Investment Advisers Act of 1940 and that Masucci, ETFMG, and its parent company, Exchange Traded Managers Group LLC, violated Section 17(d) of the Investment Company Act of 1940 and Rule 17d-1 thereunder. Without admitting or denying the findings in the SEC Order, Masucci agreed to a cease-and-desist order, to pay a $400,000 penalty, and to an associational bar under the Advisers Act and a prohibition under the Investment Company Act with a right to reapply after three years; and, additionally, ETFMG and the parent company agreed to censures, to a cease-and-desist order, and to pay, jointly and severally, a civil penalty of $4 million. As alleged in part in the SEC Release:

[I]n 2019, in exchange for $20 million in financing and other services, Masucci agreed to keep the ETF’s lucrative securities-lending business at the broker-dealer that provided the massive influx of financing despite offers with better terms from other securities lenders that could have benefited investors. Masucci then knowingly failed to disclose this joint arrangement between him and his firm, the fund, and the broker-dealer to the fund’s Independent Trustees, instead telling them that the fund had no other viable options.

SEC Charges Unregistered Broker for Unlawful Sales of Securities to Retail Investor (SEC Release)
https://www.sec.gov/litigation/litreleases/lr-25795
In a Complaint filed in the United States District Court for the Southern District of Florida, the SEC charged Blake Cathey with violating the securities registration provisions of Sections 5(a) and 5(c) of the Securities Act, and the broker-dealer registration provisions of Section 15(a)(1) of the Securities Exchange Act of 1934. Without admitting or denying the allegations in the SEC Complaint, Cathey agreed to the entry of a judgment providing injunctive relief with disgorgement and civil penalties; and he agreed to associational and penny stock bars with a right to reapply after 5 years as part of a settled follow-on administrative proceeding. As alleged in part in the SEC Release:

[F]rom approximately June 2019 until September 2022, Cathey sold at least $4.655 million of Accanito LLCs' securities to 15 retail investors located in 5 states. During that period, Cathey received approximately $760,729 in transaction-based sales commissions from Accanito, even though he was not registered as a broker-dealer or permitted to sell securities.

SEC Charges Hex Founder Richard Heart with Misappropriating Millions of Dollars of Investor Funds from Unregistered Crypto Asset Securities Offerings that Raised more than $1 Billion (SEC Release)
https://www.sec.gov/news/press-release/2023-143
In the United States District Court for the Eastern District of New York, the SEC filed a Complaint that alleges that Richard Heart a/k/a "Richard Schueler"), Hex, PulseChain, and PulseX violated the registration provisions of Section 5 of the Securities Act; and, further, that Heart and PulseChain violated the antifraud provisions of the federal securities laws. As alleged in part in the SEC Release:

[H]eart began marketing Hex in 2018, claiming it was the first high-yield “blockchain certificate of deposit,” and began promoting Hex tokens as an investment designed to make people “rich.” From at least December 2019 through November 2020, Heart and Hex allegedly offered and sold Hex tokens in an unregistered offering, collecting more than 2.3 million Ethereum (ETH), including through so-called “recycling” transactions that enabled Heart to surreptitiously gain control of more Hex tokens. The complaint also alleges that, between at least July 2021 and March 2022, Heart orchestrated two additional unregistered crypto asset security offerings that each raised hundreds of millions of dollars more in crypto assets. As alleged, those funds were intended to support development of a supposed crypto asset network, PulseChain, and a claimed crypto asset trading platform, PulseX, through the offerings of their native tokens, respectively, PLS and PLSX. Heart also allegedly designed and marketed a so-called “staking” feature for Hex tokens, which he claimed would deliver returns as high as 38 percent. The complaint further alleges that Heart attempted to evade securities laws by calling on investors to “sacrifice” (instead of “invest”) their crypto assets in exchange for PLS and PLSX tokens.

SEC Charges Former Reinsurance and Investment Adviser Executives With Defrauding Clients (SEC Release)
https://www.sec.gov/enforce/ia-6358-s
The SEC published Orders settling charges against Murray Huberfeld
https://www.sec.gov/files/rules/ia/2023/ia-6358.pdf; and against Moshe “Mark” Feuer and Scott A. Taylor
https://www.sec.gov/files/rules/ia/2023/ia-6359.pdf. As alleged in part in the SEC Release:

[F]rom late 2013 through at least 2016 Beechwood entered into investment advisory relationships with various insurance company clients and invested a substantial portion of those assets in private funds managed by Platinum and in certain portfolio companies of those funds. However, at the time Huberfeld and two other individuals had ownership interests in Platinum while also having ownership interests in several Beechwood entities, through various family trusts. Huberfeld also exercised significant sway over Beechwood’s investment process and caused Beechwood’s clients to invest additional assets in non-Platinum investments in which he had personal interests. The SEC’s orders find that Huberfeld, Feuer and Taylor all failed to disclose to Beechwood clients the conflicts created by those transactions, as well as the fact that Huberfeld and another individual had a significant role at Beechwood while having a criminal and regulatory history.

In addition, according to the SEC’s orders, Huberfeld, Feuer and Taylor all helped Beechwood invest client money in Platinum funds and portfolio companies in order to help Platinum make interest payments and avoid default on existing investments, without disclosing the purpose of those investments, which at times resulted in Beechwood clients’ own funds being used to service debt already owed to them.

According to the SEC order, Huberfeld failed to ensure that Platinum disclosed to its investors that the Beechwood investments that provided much needed liquidity to Platinum had been obtained through disclosure failures to Beechwood clients.

According to the SEC order, Feuer and Taylor also failed to reasonably supervise Beechwood’s initial chief investment officer, who participated in a fraudulent bondholder consent solicitation and caused Beechwood to vote its clients’ bonds in favor of that solicitation.

The order as to Huberfeld finds that as result of his conduct Huberfeld willfully violated Advisers Act Sections 206(1), (2), and (3) and willfully aided and abetted and caused Platinum’s violations of Advisers Act Sections 206(1), (2) and 206(4) and Rule 206(4)-8 thereunder. Without admitting or denying the findings in the order, Huberfeld consented to a cease-and-desist order and agreed to a collateral industry bar and to pay $1,464,242.21 in disgorgement, $224,065.21 in prejudgment interest, and a civil money penalty of $180,000.

The order as to Feuer and Taylor finds that as a result of their conduct, Feuer and Taylor willfully violated Section 206(2) of the Advisers Act, and they failed reasonably to supervise Beechwood’s former CIO within the meaning of Section 203(e)(6) of the Advisers Act. Without admitting or denying the findings in the order, Feuer and Taylor consented to cease-and-desist orders and agreed to collateral industry bars with a right to reapply after two years, and monetary relief as follows: Feuer shall pay $389,707.21 in disgorgement, $44,037.99 in prejudgment interest, and a civil money penalty of $125,000. Taylor shall pay disgorgement of $344,586, prejudgment interest of $42,658.63, and a civil money penalty of $100,000.

SEC Awards to Two Claimants Over $104 Million to Seven Whistleblowers
Order Determining Whistleblower Award Claim ('34 Act Release No. 34-98054; Whistleblower Award Proc. File No. 2023-75)
https://www.sec.gov/rules/other/2023/34-98054.pdf
The Claims Review Staff ("CRS") issued a Preliminary Determination:

recommending the Award of $104 million in the aggregate to Claimant 1 and Claimant 2 (joint claimants),Claimant 3, Claimant 4, Claimants 5 and 6 (joint claimants), and Claimant 7
denying an award to Claimant 8 and Claimant 10.

The Commission ordered that CRS's recommendations be approved.

CFTC

CFTC Orders UK Trader to Pay $150,000 and Imposes a One-Year Trading Ban for Spoofing in WTI Futures (CFTC Release)
https://www.cftc.gov/PressRoom/PressReleases/8760-23
The CFTC filed an Order
https://www.cftc.gov/media/9091/enfadamcobbwebborder080123/download settling charges with trader Adam Cobb-Webb for engaging in multiple instances of spoofing in West Texas Intermediate (WTI) light sweet crude oil futures contracts traded on New York Mercantile Exchange, Inc. (NYMEX). The CFTC Order requires Cobb-Webb to pay a $150,000 civil monetary penalty and imposes a one-year ban from trading on or subject to the rules of any CFTC-designated exchange and all other CFTC-registered entities and in all commodity interests. Cobb-Webb is also ordered to cease and desist from violating the spoofing prohibition in the Commodity Exchange Act (CEA). As alleged in part in the CFTC Release:

[D]uring an approximately one-month period, Cobb-Webb placed bids and offers for WTI futures with the intent to cancel his bids or offers before execution—i.e., spoofing. Cobb-Webb’s spoofing was characterized by a pattern of trading in which he placed an iceberg order on one side of the order book (whose order quantity was only partially visible in the order book) that he intended to execute and a series of fully-displayed orders on the opposite side of the order book at the first few price levels that he intended to cancel before execution (spoof orders). After Cobb-Webb’s iceberg order received fills, Cobb-Webb would cancel his fully-displayed spoof orders. Cobb-Webb engaged in this pattern of trading on a daily basis during the relevant period.

Cobb-Webb’s fully-displayed spoof orders typically constituted a large percentage of orders resting at the top price levels at the time they were placed. The quantity of Cobb-Webb’s spoof orders also was often several times larger than the visible quantity of Cobb-Webb’s iceberg orders. Cobb-Webb entered the spoof orders with intent to cancel, and to create a false impression of buying or selling interest that would induce other market participants to cross the bid-ask spread and fill his iceberg orders. Cobb-Webb knew or recklessly disregarded that the spoof orders would create the false appearance of market depth and result in misinformation about supply and demand that could affect market activity.

FINRA

FINRA Bars Rep For Falsifying Bank Statements/Check Produced to FINRA and Making False Statements During OTR
In the Matter of Timothy James Breslin, Respondent (FINRA AWC 2022076523201)
https://www.finra.org/sites/default/files/fda_documents/2022076523201
%20Timothy%20James%20Breslin%20CRD%202981153%20AWC%20gg.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, Timothy James Breslin submitted a Letter of Acceptance, Waiver and Consent ("AWC"), which FINRA accepted. The AWC asserts that Timothy James Breslin was first registered in 1998. and by December 2015, he was registered with Raymond James & Associates, Inc. and in October 2022, with B. Riley Wealth Management In accordance with the terms of the AWC, FINRA imposed upon Timothy James Breslin a Bar from associating with any FINRA member in all capacities. As alleged in part in the AWC:

In December 2022, FINRA sent Breslin a letter, pursuant to FINRA Rule 8210, requesting information concerning the allegations in the Form U5 filed by Raymond James in October 2022. In his response, Breslin stated that he had traveled with his brother and a friend and each of these individuals wrote him a check for $5,000 to reimburse him for expenses on the trip. He claimed he deposited both checks into his bank account, but both checks bounced when he deposited them. Breslin’s statements to FINRA were false because he did not receive or deposit a $5,000 check from his brother or friend during the relevant period of the request.

In January 2023, FINRA sent Breslin another letter, pursuant to FINRA Rule 8210, requesting that Breslin provide copies of the checks he referenced in his earlier response and that he identify the corresponding check deposits on his bank account statements. In response, Breslin provided three falsified checks: (i) a $5,000 check from his brother; (ii) a $5,000 check from his friend, dated July 14, 2022; and (iii) another $5,000 check from his friend, dated July 28, 2022, which purportedly replaced the prior $5,000 from his friend that bounced. On the check from Breslin’s brother, Breslin altered the date and amount of the check and removed any identifiable information related to the check’s deposit. For the checks from Breslin’s friend, Breslin altered the amount and date of the check dated July 14, 2022 and altered the amount, date, and deposit number of the check dated July 28, 2022. Breslin also provided a falsified copy of his bank account statement, listing deposits of the falsified checks. Specifically, Breslin inserted the three $5,000 deposits into the account statements, but the balance in Breslin’s account did not change.

In June 2023, Enforcement requested and took Breslin’s testimony pursuant to FINRA Rule 8210. The morning of his testimony, Breslin provided FINRA another falsified version of his bank account statements. This time, Breslin altered his account statements to inflate the running balances listed on the statements to falsely reflect deposits of the $5,000 checks he purportedly received from his brother and friend. Breslin also provided false testimony by claiming he had received and deposited checks from his brother and friend and that he had submitted genuine bank account statements and checks to FINRA.

Therefore, Breslin violated FINRA Rules 8210 and 2010.

FINRA Fines and Suspends Rep For Permitting His Business Partner to Falsify Customer Signatures
In the Matter of Robert Vincent Judge, Respondent (FINRA AWC 2020065297002)
https://www.finra.org/sites/default/files/fda_documents/2021072406602
%20Robert%20Vincent%20Judge%20CRD%201147009%20AWC%20gg.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, Robert Vincent Judge submitted a Letter of Acceptance, Waiver and Consent ("AWC"), which FINRA accepted. The AWC asserts that Robert Vincent Judge was first registered in 1987, and by 2018, he was registered with LPL Financial LLC. In accordance with the terms of the AWC, FINRA imposed upon Robert Vincent Judge a $5,000 fine and a four-month suspension from associating with any FINRA member in all capacities. As alleged in part in the AWC:

From March 13, 2020 through March 1, 2021, Judge permitted his business partner to falsify the signatures of at least 11 customers on 14 account documents. In each of these instances, Judge signed his own name on each of the documents after his business partner signed for the customer. Judge also permitted his business partner to sign Judge’s name on dozens of other account documents. The account documents, which included new account applications, money transfer forms, and IRA contribution and distribution forms, were required books and records of the firm. None of the customers complained.

By permitting his business partner to falsify his own signature and the customer signatures, Judge violated FINRA Rule 2010.

In addition, by causing LPL to maintain inaccurate books and records, Judge violated FINRA Rules 4511 and 2010.

FINRA Fines and Suspends Rep For Forging/Falsifying Customer Signatures
In the Matter of Bradley Thomas Wastler, Respondent (FINRA AWC 2021072406601)
https://www.finra.org/sites/default/files/fda_documents/2021072406601
%20Bradley%20Thomas%20Wastler%20CRD%20%20868378%20AWC%20gg.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, Bradley Thomas Wastler submitted a Letter of Acceptance, Waiver and Consent ("AWC"), which FINRA accepted. The AWC asserts that Bradley Thomas Wastler was first registered in 1979, and by 2018, he was registered with LPL Financial LLC. In accordance with the terms of the AWC, FINRA imposed upon Bradley Thomas Wastler a $7,500 fine and a 10-month suspension from associating with any FINRA member in all capacities. As alleged in part in the AWC:

From March 13, 2020 through March 1, 2021, Wastler electronically signed the names of at least 99 customers on a total of 159 account documents, at least 9 of whose names were signed on 18 documents without the customers’ permission. Wastler also electronically signed the name of his business partner on 57 account documents, at least some of which were without his business partner’s permission. The account documents, which included new account applications, money transfer forms, and IRA contribution and distribution forms, were required books and records of the firm. None of the customers complained. Wastler also falsely attested in a September 2020 compliance questionnaire that he had not signed or affixed another person’s signature on a document.

By forging and/or falsifying customer and registered representative signatures, Wastler violated FINRA Rule 2010.

In addition, by causing LPL to maintain inaccurate books and records, Wastler violated FINRA Rules 4511 and 2010.

FINRA Bars Rep For Breaching Fiduciary Duties Owed to a Community Bank
In the Matter of William Henry Weisbrod, Respondent (FINRA AWC 202006529)
https://www.finra.org/sites/default/files/fda_documents/2020065297001
%20William%20Henry%20Weisbrod%20CRD%20812664%20AWC%20gg.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, William Henry Weisbrod submitted a Letter of Acceptance, Waiver and Consent ("AWC"), which FINRA accepted. The AWC asserts that William Henry Weisbrod was entered the industry in 1980 and by 2009, he was registered with FINRA member firm Purshe Kaplan Sterling Investments, Inc. Weisbrod was the subject of prior 2009 FINRA disciplinary action imposing a two-month suspension, $33,500 fine, and $23,500 in disgorgement for alleged unsuitable transactions; and a 2021 Order by the Federal Deposit Insurance Corporation prohibiting him from participating in the affairs of any federally insured depository institution based upon findings that he "participated in a rapid asset-growth strategy for [a bank], without effective planning, adequate risk-repo1ting, and policy guidelines in place." In accordance with the terms of the AWC, FINRA imposed upon William Henry Weisbrod a Bar from associating with any FINRA member in all capacities. As alleged in part in the "Background" portion of the AWC:

From August 2013 through October 2017, Weisbrod breached fiduciary duties owed to a community bank for which Weisbrod served as an advisory director and consultant. The bank was a PKS customer and relied upon Weisbrod's investment knowledge and experience to determine its investment strategy. As such, Weisbrod owed the bank fiduciary duties of care and loyalty. Weisbrod breached his fiduciary duties to the bank by directing it to engage in an investment strategy that generated revenue for Weisbrod but exposed the bank to excessive risk and unnecessary trading costs.

At Weisbrod's recommendation, the bank opened brokerage accounts at PKS with a registered representative who worked in the same office as Weisbrod. Although Weisbrod represented to PKS that he would not be involved with the bank's investments through PKS, Weisbrod directed the trading in the bank's accounts. Weisbrod recommended that the bank engage in a risky trading strategy involving hundreds of fixed-income securities purchased through PKS. Weisbrod's trading generated over $1 million in commissions for the PKS registered representative assigned to the bank's accounts, who directed more than $370,000 of these commissions to Weisbrod, through a series of payments that Weisbrod did not disclose to the bank.

Weisbrod recommended that the bank trade through PKS even though PKS lacked a fixed-income trading desk. Because PKS lacked a fixed-income trading desk, it had to use a third-party "broker's broker" to acquire fixed-income securities for the bank, which caused the bank to pay approximately $1.25 million in additional markups to the broker's broker. Weisbrod did not disclose these markups to the bank. As a result of Weisbrod's trading strategy, the bank spent more than $600,000 to remediate the risk of its investment portfolio.

By breaching his fiduciary duties to the bank, Weisbrod violated FINRA Rule 2010.

In addition, Weisbrod violated FINRA Rule 2010 by falsely representing to PKS that he was not involved with the bank's investments through PKS in connection with the firm's inquiry into his outside business activities involving the bank.

FINRA Fines and Suspends Rep For Unauthorized Trading in Community Bank Account
In the Matter of Lilia Nia, Respondent (FINRA AWC 2020065297002)
https://www.finra.org/sites/default/files/fda_documents/2020065297002
%20Lilia%20Nia%20CRD%206018019%20AWC%20geg.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, Lilia Nia submitted a Letter of Acceptance, Waiver and Consent ("AWC"), which FINRA accepted. The AWC asserts that Lilia Nia was first registered in 2012 and by 2013, she was registered with Purshe Kaplan Sterling Investments, Inc. In accordance with the terms of the AWC, FINRA imposed upon Lilia Nia a $ 5,000 fine, $150,000 disgorgement, and a one-year suspension from associating with any FINRA member in all capacities. As alleged in part in the AWC:

In September 2013, a community bank opened non-discretionary brokerage accounts with Nia at PKS. Another PKS registered representative, who worked in the same branch office as Nia, served as an advisory board member for the bank but was not authorized to accept or place securities orders for the bank’s PKS accounts due to the conflict of interest posed by his affiliations with the bank and PKS. From September 2013 through October 2017, 430 trades were carried out in the bank’s PKS accounts. In hundreds of instances during this period, Nia accepted orders for securities trading in the bank’s PKS accounts from the other PKS registered representative and permitted him to place the orders for the bank.

The trading effected by Nia, based upon instructions from the other PKS registered representative, caused the bank to take excessive risk. The trading for this customer generated approximately $1 million in commissions for Nia, more than $370,000 of which she transmitted to the other PKS registered representative through a series of separate business and financial transactions. Because PKS lacked its own fixed-income trading desk, PKS was frequently required to use a “broker’s broker” to acquire fixed-income securities for the bank, which resulted in the bank paying approximately $1.25 million in markups to the broker’s broker, in addition to commissions to PKS. Also, as a result of this trading, the bank spent more than $600,000 to remediate the risk of its investment portfolio.

Therefore, Nia violated FINRA Rule 2010.

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Securities Industry Commentator by Bill Singer Esq

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