The FINRA Crypto Hub-bub and William of Ockham (BrokeAndBroker.com Blog)
https://www.brokeandbroker.com/7127/finra-crypto-hub/
Recently, FINRA announced the launch of a regulatory Crypto Hub. After some four decades dealing with Wall Street regulations and regulators, I don't think that I've ever used a sentence in which I had referred to any regulatory effort as a "Hub." Of course, the fact that no one in our industry would think of using such a term is no impediment for FINRA when it comes to making the commonplace seem esoteric and oh-so edgy. Why do I poke fun at FINRA's arch prose and bureaucratic silliness? Because FINRA so generously presents me with the opportunity, and I have grown tired of the idiocy.

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The Financial Professionals Coalition, Ltd. is a diverse resource for over 1.2 million
registered representatives, associated persons, traders, bankers, back-office staff,
and owners of broker-dealers and registered investment advisors. The Coalition
provides courtesy consultations with industry experts. Membership is free.

The Financial Professionals Coalition was founded by former FINRA Small Firm Governor Stephen Kohn, a 39-year industry veteran, who worked as a registered representative and rose to open his own brokerage firm.

The Coalition is the result of several years of conversations and planning by its Chair Stephen Kohn and veteran industry lawyer Bill Singer, who is a leading advocate for Wall Street reform and the publisher of the “Securities Industry Commentator” anthe “BrokeAndBroker.com Blog.”

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SEC Rejects Advisor’s Attempt to Erase Finra Sanctions / Sandeep Varma was seeking expungement of a 2018 Finra consent agreement he said has caused “perpetual harm” to his career (Financial Advisor IQ / August 11, 2023 by Glenn Koch)
https://www.financialadvisoriq.com/c/4194014/540394
Financial Advisor IQ's Koch reports about a case of buyer's-remorse involving a 2018 FINRA AWC. An interesting regulatory journey that underscores the need to carefully weight the pros and cons of "settling" with FINRA versus having your day before the regulator's hearing panel.

Circle Game in Federal Courts Has Lawsuit Sent Back to FINRA's Barred Door
Daniel Callahan, et al., Plaintiffs, v. TD Ameritrade, Inc., et al., Defendants (Opinion United States District Court for the Western District of Michigan, 23-CV-129)
https://cases.justia.com/federal/district-courts/michigan/miwdce/1:2023cv00129/107226/20/0.pdf?ts=1691249594
In 2019, Plaintiffs opened a TDA investment account but allege that they encountered problems and malfunctions with the firm's trading platform resulting in almost $100,000 in losses. That set the stage for a FINRA Arbitration:

In August 2021, Plaintiffs and TDA arbitrated before FINRA about the alleged issues with Plaintiffs’ account. (See Compl., PageID.2.) During the arbitration, TDA allegedly introduced irrelevant evidence about a state court case involving Callahan, which Plaintiffs claim biased the arbitrator. (See id.) Plaintiffs sought removal of the arbitrator for this and other reasons, but their request and subsequent appeals were denied. (See id.; 5/25/2022 Recusal Request, ECF No. 11- 13; 6/23/2022 Recusal Denial, ECF No. 11-14; 7/19/2022 Recusal Request, ECF No. 11-15; 8/29/2022 Recusal Denial, ECF No. 11-16; 10/12/2022 Recusal Request, ECF No. 11-17; 10/27/2022 Recusal Denial, ECF No. 11-18.)

While the arbitration was ongoing, Plaintiffs filed several documents that contained irrelevant, personally insulting, and potentially threatening statements. For instance, Plaintiffs’ May 7, 2022, filing contained pictures of TDA’s counsel and multiple pages of personal attacks and insults. (See Pls.’ 5/7/2022 Filing, ECF No. 11-8, PageID.267-273.) Plaintiffs’ December 27, 2022, filing contained more personal insults directed towards TDA’s counsel, as well as information about her local shopping mall and her purchasing habits. (See Pls.’ 12/27/2022 Filing, ECF No. 11-20, PageID.352.) Plaintiffs’ December 20, 2022, filing contained pictures of judges and attorneys involved in prior cases Callahan had been a part of, with insults and accusations written over their faces. (See Pls.’ 12/20/2022 Filing, ECF No. 11-19, PageID.342-343, 345-346.) The filing also contained maps to their homes. (See id., PageID.344, 347.) 

On January 20, 2023, the FINRA Director denied the parties further use of the arbitration forum, citing FINRA Rule 12203(a). (Denial of Forum, ECF No. 11-1.) Rule 12203(a) states that “The Director may decline to permit the use of the FINRA arbitration forum if the Director determines that . . . the subject matter of the dispute is inappropriate, or that accepting the matter would pose a risk to the health or safety of arbitrators, staff, or parties or their representatives.” (FINRA Rule 12203(a), ECF No. 11-21, PageID.354.)3 Plaintiffs subsequently initiated this case in federal court.

at Pages 2 - 3 of the WDMI Opinion

The WDMI Magistrate recommended that the Court compel arbitration; however, FINRA declines to make its forum available as noted above. The Magistrate recommended a Stay of the federal case "so that the Court may sanction Plaintiffs with dismissal for any similar bad faith conduct in the next arbitration." at Page 4 of the WDMI Opinion. Although Plaintiffs do not object to the compulsion of arbitration, they object to the Stay for purposes of invoking possible future sanctions. The Court overruled Plaintiff's objections and adopted the Magistrate's recommendation to stay rather than dismiss the federal case. Further, the Court granted TDA's Motion to Compel Arbitration.

Ummm . . . okay . . . but, geez, how is this all gonna end if the Court compels FINRA arbitration and FINRA bars its doors and then the parties wind up back in federal court and arbitration is again compelled and, well, y'all see how this could go in circles, right?

Ontario County Man Pleads Guilty To Bilking Investors Out Of Hundreds Of Thousands Of Dollars (DOJ Release)
https://www.justice.gov/usao-wdny/pr/ontario-county-man-pleads-guilty-bilking-investors-out-hundreds-thousands-dollars
In the United States District Court for the Western District of New York, Thomas Corsaro pled guilty to wire fraud. As alleged in part in the DOJ Release:

[B]etween November 2020, and November 2022, Corsaro, acting as an investment adviser, executed a scheme to defraud eight individual investors who invested funds with him. Rather than invest the funds, as he represented he would do, Corsaro used the funds for his own personal use, depositing the funds into personal and business bank accounts. In total, Corsaro received $1,712,469.32 from the eight investors. He repaid $265,642.83 prior to the criminal investigation.

[F]rom at least March 2018 through this year, Slaga operated several companies, including JMC 4 Group LLC and Q4 Capital Group LLC, that purportedly trading businesses that implemented “different strategies for long-term and short-term gains” through “a bifurcated trading approach.” In addition to being the president and CEO of these companies, Slaga – using his “Keith Renko” alias – purportedly ran JMC 4 and Q4 Capital’s East Coast operations and trading desk before establishing a West Coast office and a trading desk in Newport Beach.

Using private placement memoranda (PPM) – securities disclosure forms issued by companies engaging in private securities offerings – as well as websites, emails and telephone calls, Slaga allegedly solicited individual investors to make capital commitments of at least $25,000 to his companies, falsely telling them that he was running a hedge fund for lay people.

Slaga promised victims he would use their money to invest in a broad range of securities by using a proprietary computer-based quantitative and statistical algorithm through brokerage accounts at JPMorgan and Goldman Sachs, the indictment alleges. His purported investment objective was to “maximize total return on capital by seeking capital appreciation,” according to the indictment.

In each of the PPMs, Slaga allegedly falsely claimed he personally made capital investments of at least $2 million into his companies, and that he was a “seasoned trader,” who previously worked at Merrill Lynch and who was a Dartmouth College graduate.

Slaga allegedly failed to disclose as required to investors that in 2003 he was convicted of wire fraud in the Southern District of Texas, was sentenced to four years in federal prison, and was ordered to pay $19,665,300 in restitution.

Slaga allegedly never invested the victim investors’ money in JMC 4 and Q4 Capital. Instead, he used it to repay other investors, pay commissions, and for his own personal expenses, such as rent, loan and credit card payments, personal stock trading, and private school payments, according to the indictment. He allegedly also produced bogus documentation purportedly from Deloitte, JPMorgan and Goldman Sachs to show investors false holdings and fabricated returns.

In total, Slaga caused 13 investors to lose approximately $3.1 million, according to the indictment.

ALSO SEE: SEC Charges Recidivist and Others in Offering Fraud Scheme (SEC Release)

Colombian Conglomerate Grupo Aval and Its Bank Subsidiary to Pay $40 Million to Settle FCPA Violations (SEC Release)
https://www.sec.gov/news/press-release/2023-151
Grupo Aval Acciones y Valores S.A. a/k/a Grupo Aval S.A., and its bank subsidiary, Corporación Financiera Colombiana S.A. (Corficolombiana) consented to an SEC cease-and-desist order https://www.sec.gov/files/litigation/admin/2023/34-98103.pdf finding that they violated the accounting provisions and, in the case of Corficolombiana, the anti-bribery provisions of the Foreign Corrupt Practices Act (FCPA). Grupo Aval will pay disgorgement of $32,139,731 and prejudgment interest of $8,129,558; and, in determining to accept the offer, the SEC considered Grupo Aval’s cooperation and remediation. Additionally, Corficolombiana also entered into a Deferred Prosecution Agreement with DOJ and will pay over $20 million to settle criminal charges. As alleged in part in the SEC Release:

[C]orficolombiana and a joint venture partner won a contract from the Colombian government for a 328-mile highway infrastructure project in Colombia. The SEC alleges that Corficolombiana, through its former president and with the joint venture partner, bribed government officials in Colombia to win an extension to the contract. At least $28 million in illicit payments were paid with the knowledge, approval, and assistance of Corficolombiana’s former president. According to the SEC’s order, Corficolombiana caused Grupo Aval’s violations and provided Grupo Aval with an improper financial benefit totaling approximately $32 million.

Crypto Asset Trading Platform Bittrex and Former CEO to Settle SEC Charges for Operating an Unregistered Exchange, Broker, and Clearing Agency /Bittrex Global GmbH also settles charges for failing to register as a national securities exchange (SEC Release)
https://www.sec.gov/news/press-release/2023-150
In the United States District Court for the Western District of Washington, crypto asset trading platform Bittrex Inc. and its co-founder and former CEO, William Shihara consented to entry of Final Judgments that permanently enjoin Bittrex and Shihara from violating Sections 5, 15(a), and 17A of the Securities Exchange Act and enjoin Bittrex Global GmbH from violating Section 5 of the same Act. Further, Bittrex and Bittrex Global agreed to pay, on a joint and several basis, disgorgement of $14.4 million, prejudgment interest of $4 million, and a civil penalty of $5.6 million, for a total monetary payment of $24 million. As alleged in part in the SEC Release:

[B]ittrex acted as an unregistered broker, exchange, and clearing agency by providing services to U.S. investors in connection with crypto assets that the SEC’s complaint alleges were offered and sold as securities. The complaint further alleges that Bittrex and Shihara, who was the company’s CEO from 2014 to 2019, directed issuers who sought to have their crypto assets made available for trading on Bittrex’s platform to first delete from public channels certain “problematic statements” that Shihara believed would lead a regulator, such as the SEC, to investigate whether the crypto asset was offered and sold as a security. As part of the settlement, the defendants neither admit nor deny the SEC’s allegations.

SEC Charges Investment Advisory Firm and Firm's Owner for Breaching Fiduciary Duties to Clients (SEC Release)
https://www.sec.gov/litigation/litreleases/lr-25807
In the United States District Court for the Northern District of California, the SEC filed a Complaint  https://www.sec.gov/files/litigation/complaints/2023/comp25807.pdf
charging Sisu Capital, LLC and Timothy Overturf with violating the antifraud provisions of Sections 206(1) and 206(2) of the Investment Advisers Act of 1940 and charging Hansueli Overturf with aiding and abetting his son's and Sisu Capital's violations. As alleged in part in the SEC Release:

The SEC's action alleges that Sisu Capital and Timothy Overturf failed their clients on multiple occasions. First, the SEC's complaint alleges that from 2017 through 2021, Sisu Capital and Timothy Overturf allowed Hans Overturf to give investment advice to Sisu Capital clients while Hans had been suspended from providing investment advisory services by the State of California. Second, the SEC's complaint further alleges that Sisu Capital, Timothy, and Hans traded contrary to client instructions and to benefit their own interests by investing client funds in a thinly-traded bank stock. Sisu Capital and Timothy allegedly purchased the stock as part of an undisclosed plan to amass collectively enough shares among Sisu Capital's clients and themselves for Timothy to propose business partnership ideas to the bank. Third, as alleged in the SEC complaint, from 2017 to 2021, Hans recommended, and Timothy purchased on his clients' behalf, an unsuitable, complex financial instrument intended for short-term use, which Sisu Capital's clients then held for months. Throughout these courses of conduct, according to the SEC's complaint, Sisu Capital generated over $2 million in advisory fees and other compensation.

SEC Charges Former Hedge Fund Managing Director with Fraud (SEC Release)
https://www.sec.gov/litigation/litreleases/lr-25806
In the United States District Court for the District of Colorado, a Final Consent Judgment was entered against Chad Stickforth that would permanently enjoin him from violating the anti-fraud 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; impose a permanent officer-and-director bar; and order him to pay $1,546,197 in disgorgement, prejudgment interest, and a civil penalty of $223,229. As alleged in part in the SEC Release: 

[B]etween December 2016 and September 2021, Stickforth, through RSF, raised approximately $5.4 million from twenty investors after telling investors that RSF would use their money to trade futures contracts, commodity interests, and options on their behalf. In fact, the complaint alleges, Stickforth only used a small portion of the investors’ money to trade, and he misappropriated or otherwise misused most of the investors’ funds by using them for personal expenses, payments to his business partner, and Ponzi-like payments to investors to keep up the appearance of profitable trading. 

SEC Charges 11 Wall Street Firms with Widespread Recordkeeping Failures / Firms admit to wrongdoing and agree to pay penalties totaling $289 million (SEC Release)
https://www.sec.gov/news/press-release/2023-149
As asserted in pertinent parts in the SEC Release:

The Securities and Exchange Commission today announced charges against 10 firms in their capacity as broker-dealers and one dually registered broker-dealer and investment adviser for widespread and longstanding failures by the firms and their employees to maintain and preserve electronic communications. The firms admitted the facts set forth in their respective SEC orders. They acknowledged that their conduct violated recordkeeping provisions of the federal securities laws, agreed to pay combined penalties of $289 million as outlined below, and have begun implementing improvements to their compliance policies and procedures to address these violations.

• • Wells Fargo Securities, LLC together with Wells Fargo Clearing Services, LLC and Wells Fargo Advisors Financial Network, LLC agreed to pay a $125 million penalty;
  • BNP Paribas Securities Corp. and SG Americas Securities, LLC have each agreed to pay penalties of $35 million;
  • BMO Capital Markets Corp. and Mizuho Securities USA LLC have each agreed to pay penalties of $25 million;
  • Houlihan Lokey Capital, Inc. has agreed to pay a $15 million penalty;
  • Moelis & Company LLC and Wedbush Securities Inc. have each agreed to pay penalties of $10 million; and
  • SMBC Nikko Securities America, Inc. has agreed to pay a $9 million penalty.

. . .

The SEC’s investigation uncovered pervasive and longstanding “off-channel” communications at all 11 firms. As described in the SEC’s orders, the firms admitted that from at least 2019, their employees often communicated through various messaging platforms on their personal devices, including iMessage, WhatsApp, and Signal, about the business of their employers. The firms did not maintain or preserve the substantial majority of these off-channel communications, in violation of the federal securities laws. By failing to maintain and preserve required records, certain of the firms likely deprived the Commission of these off-channel communications in various SEC investigations. The failures involved employees at multiple levels of authority, including supervisors and senior executives.

Each of the broker-dealers was 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. Wedbush Securities Inc., a dually registered broker-dealer and investment adviser, was additionally charged with violating certain recordkeeping provisions of the Investment Advisers Act of 1940 and with failing to reasonably supervise with a view to preventing and detecting those violations.

In addition to the significant financial penalties, each of the firms was ordered to cease and desist from future violations of the relevant recordkeeping provisions and was censured. The firms also agreed to retain independent 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.

READ the SEC Orders:

• SEC Order - Wedbush Securities Inc
• SEC Order - Houlihan Lokey Capital Inc.
• SEC Order - SMBC Nikko Securities America Inc.
• SEC Order - SG Americas Securities LLC
• Moelis & Company LLC
• Wells Fargo Securities LLC, Wells Fargo Clearing Services LLC, and Wells Fargo …
• Mizuho Securities USA LLC
• BMO Capital Markets Corp.
• BNP Paribas Securities Corp.

Final Judgment Entered Against Florida Investment Adviser Charged a Second Time for Insider Trading (SEC Release)
https://www.sec.gov/litigation/litreleases/lr-25805
The United States District Court for the Southern District of New York entered a Final Judgment against

• Charles Rustin Holzer that permanently enjoined him from violating the antifraud provisions of the Securities Exchange Act and ordering him to pay a civil penalty of $1,173,926;
• Maglione International Ltd., Frontenac Investments Ltd.that ordered them to 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 alleged 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 trades in DNB options that were the subject of a prior investigation and settled lawsuit against Holzer, according to the SEC's complaint filed August 2, 2023, Holzer did not disclose the offshore trading to the SEC in connection with that earlier lawsuit.

SEC Obtains Consent Judgment Against Celebrity Charged with Illegally Touting Crypto Asset Securities for Crypto Entrepreneur Justin Sun (SEC Release)
https://www.sec.gov/litigation/litreleases/lr-25803
In the United States District Court for the Southern District of New York, a Final Consent Judgment was entered against Austin Mahone https://www.sec.gov/files/litigation/litreleases/2023/judg25803.pdf
that permanently enjoins him from violating the anti-touting provisions of Section 17(b) of the Securities Act of 1933, imposes a three-year conduct-based injunction precluding any compensated touting of crypto asset securities, and orders him to pay $7,507 disgorgement plus $682 prejudgment interest and a civil penalty of $37,535. As alleged in part in the SEC Release:

[C]rypto entrepreneur Justin Sun and three of his wholly-owned companies—Tron Foundation Limited, BitTorrent Foundation Ltd., and Rainberry Inc. (formerly BitTorrent)—engaged in the unregistered offer and sale of TRX and BTT, and fraudulently manipulated the secondary market for these securities through extensive wash trading.  The SEC also alleged that Sun and his companies orchestrated a campaign to pay influential celebrities—including Mahone and codefendant DeAndre Cortez Way (a/k/a Soulja Boy)—to promote TRX and BTT on social media without disclosing the fact that they were being paid to do so.

SEC Charges Recidivist and Others in Offering Fraud Scheme (SEC Release)
https://www.sec.gov/litigation/litreleases/lr-25804
In the United States District Court for the Central District of California, the SEC filed a Complaint charging Christopher Slaga, Q4 Capital, LLC, and J4 Capital Advisors LLC  https://www.sec.gov/files/litigation/complaints/2023/comp25804.pdf with violating the antifraud provisions of Section 10(b) of the Securities Exchange Act and Rule 10b-5 thereunder and Section 17(a) of the Securities Act, and the securities-registration provisions of Sections 5(a) and 5(c) of the Securities Act. Further, the SEC Complaint charges Hayden F. Greene with violating the broker-registration provisions of Section 15(a) of the Exchange Act for acting as an unregistered broker. Greene consented to the entry of a final judgment against him that addresses all of the charges and relief sought by the SEC, and his settlement is subject to court approval. As alleged in part in the SEC Release:

[S]laga, a recidivist, operated his fraudulent scheme under the alias "Keith Renko." According to the complaint, Slaga, through the entities he controlled and posing as Renko, marketed and sold interests in three private investment funds that he managed. Slaga represented to investors that he would use their funds to execute certain securities trading strategies. The SEC alleges that, in reality, Slaga never formed the investment funds, did not trade securities on behalf of the investment funds, and misused the vast majority of investor money for personal expenses. Moreover, as alleged in the complaint, to conceal his fraud, Slaga forged documents that purported to reflect that the investment funds had brokerage accounts at a major firm, were audited by a Big Four auditor, and were profitable. The complaint alleges, however, that the funds did not have brokerage accounts, were not audited by any firm, and were not profitable.

ALSO SEE: Barbados Resident Who Allegedly Posed as Ivy Leaguer with Wall Street Experience Charged with Running $3.1 Million Stock Scam (DOJ Release)

SEC Charges Recidivist New Jersey Investment Adviser with Improper Use of Investor Funds (SEC Release)
https://www.sec.gov/enforce/33-11220-s
Without admitting or denying the findings in an SEC Order
https://www.sec.gov/files/litigation/admin/2023/33-11220.pdf,

• Jeffrey Sica, CS Manager, LLC, Sica Wealth Management LLC, Circle Squared Alternative Investments, LLC,  and Cheryl Costa consented to an order finding that they violated or caused violations of Section 17(a)(2) of the Securities Act, Section 17(a)(3) of the Securities Act, and/or Section 206(2) of the Investment Advisers Act of 1940;
• Sica, Sica Wealth, and Circle Squared agreed to pay a civil penalty of $175,000 as well as disgorgement of their ill-gotten gains, plus prejudgment interest, totaling approximately $410,000; 
• Costa agreed to pay a penalty of $35,000; and
• Sica, Sica Wealth, Circle Squared, and Costa agreed to be censured. 

In part the SEC Release alleges that: 

[S]ica raised the $1.65 million from investors in CS Manager, LLC, which he controlled and which managed private funds that invested in real estate projects.  According to the order, Sica provided investors with offering materials stating that investor funds could be transferred to Sica Wealth, Sica, and a second Sica-owned investment adviser firm, Circle Squared Alternative Investments, LLC, to pay them for operational support they provided to CS Manager.  The order further finds that Sica then transferred most investor funds to the two firms and himself, but those transfers were inconsistent with the offering materials because they were not matched to specific costs of supporting CS Manager.  According to the order, more than $375,000 in investor money was used for purposes unrelated to CS Manager’s business. 

The order also charges Cheryl Costa, who was chief operating officer of both Sica Wealth and Circle Squared.  Under Sica’s direction, the order finds, Costa distributed the offering materials to some investors, executed the transfers of investor funds, and used transferred investor funds to pay operating expenses of Sica Wealth and Circle Squared that were unrelated to CS Manager.

Fund Administrator Charged For Missing Red Flags (SEC Release)
https://www.sec.gov/news/press-release/2023-148
Without admitting or denying the findings in an SEC Order
https://www.sec.gov/files/litigation/admin/2023/33-11218.pdf that it was the cause of certain violations of the Securities Act of 1933 and of the Investment Advisers Act of 1940 and Rule 206(4)-8(a)(1) thereunder, Theorem Fund Services LLC ("TFS") agreed to a Cease-and-Desist Order and to pay a civil penalty of $100,000 and disgorgement of $18,000 and prejudgment interest of $4,271. As alleged in part in the SEC Release:

[TFS] provided administration services to a fund managed by EIA All Weather Alpha Fund Partners and Andrew M. Middlebrooks, both of whom the SEC charged in May 2022 with fraud for allegedly engaging in a scheme that included the misappropriation and misuse of investors’ funds over a five-year period. According to the order, during TFS’s engagement, the fund suffered significant losses as a result of trading by EIA and Middlebrooks; however, TFS, at the direction of EIA and Middlebrooks, calculated the Net Asset Value, which did not recognize the losses, and sent investors account statements that materially overstated the value of their investments.

SEC Charges Accountant for Role in Mobile Home Investment Scheme (SEC Release)
https://www.sec.gov/enforce/33-11219-s
The SEC settled administrative and cease-and-desist proceedings against Lawrence White, CPA, the former part-time Chief Financial Officer for Outstanding Real Estate Solutions, Inc. ("ORES"), for preparing false and misleading correspondence to investors in a fraudulent mobile home investment scheme. As alleged in part in the SEC Release:

[ORES] is a Texas-based company that claimed to specialize in the fixing and flipping of mobile homes through investor funding. The Order finds that ORES did not own the vast majority of mobile homes that it represented to investors that it would fix and flip. Instead, ORES paid investor returns from the funds raised from other investors. According to the Order, between May and July 2021, White, at the request of ORES's CEO, drafted and signed letters to investors that contained false and misleading information. The Order finds that White signed these letters as ORES's part-time CFO, or using his CPA designation, but did not verify whether the statements were accurate.

Without admitting or denying the findings, White consented to the SEC's Order finding that he willfully violated Section 17(a)(3) of the Securities Act of 1933 (Securities Act), and he agreed to pay a $60,000 civil penalty. White is denied the privilege of appearing or practicing before the Commission as an accountant, with the right to apply for reinstatement after three years.

In a separate proceeding filed in district court on May 31, 2023, the SEC charged, among others, ORES and its CEO and founder Chimene Van Gundy with violating Sections 5(a), 5(c), and 17(a) of the Securities Act and Section 10(b) of the Securities Exchange Act of 1934 (Exchange Act) and Rule 10b-5 thereunder. SEC v. Chimene Van Gundy, et al., No. 5:23-cv-700 (W.D. Tex. Filed May 31, 2023). The SEC seeks permanent injunctions, disgorgement with pre-judgment interest, civil penalties, against ORES and Van Gundy, and an officer-and-director bar against Van Gundy in that litigation.

CFTC

CFTC Orders Four Financial Institutions to Pay Total of $260 Million for Recordkeeping and Supervision Failures for Widespread Use of Unapproved Communication Methods (CFTC Release)
https://www.cftc.gov/PressRoom/PressReleases/8762-23
The CFTC settled charges against swap dealer and futures commission merchant (FCM) affiliates for failing to maintain, preserve, or produce records that were required to be kept under CFTC recordkeeping requirements, and failing to diligently supervise matters related to their businesses as CFTC registrants. As alleged in pertinent part in the CFTC Release:

The settling registrants admit the facts detailed in the orders, are ordered to cease and desist from further violations of recordkeeping and supervision requirements, and are ordered to engage in specified remedial undertakings.

The settling bank-affiliated swap dealers and/or FCMs are:

• • BNP Paribas (BNP Paribas S.A. and BNP Paribas Securities Corp.) $75 million
  • Société Générale (Société Générale SA and SG Americas Securities, LLC) $75 million
  • Wells Fargo (Wells Fargo Bank NA and Wells Fargo Securities LLC) $75 million
  • Bank of Montreal (Bank of Montreal) $35 million

. . .

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

Each order further finds the widespread use of unapproved communication methods violated the swap dealers’ and/or FCMs’ internal policies and procedures, which generally prohibited business-related communication taking place via unapproved methods. Further, some of the 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.

Case Background

The orders find, 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 communications in connection with its commodities and swaps businesses, and thus failed diligently to supervise its business as a CFTC registrant or registrants, in violation of CFTC recordkeeping and supervision provisions.

READ the CFTC Orders:

• Order: BNP Paribas S.A., et al
• Order: Société Générale SA, et al
• Order: Wells Fargo Bank et, al
• Order: Bank of Montreal 

CFTC Orders a Los Angeles Futures Commission Merchant to Pay $6 Million for Recordkeeping and Supervision Failures for Widespread Use of Unapproved Communication Methods (CFTC Release)
https://www.cftc.gov/PressRoom/PressReleases/8763-23
A CFTC Order settled charges against swap dealer and futures commission merchant Wedbush Securities Inc. 
https://www.cftc.gov/media/9126/enfwedbushsecuritiesorder080823/download for failing to maintain, preserve, or produce records required to be kept under CFTC recordkeeping requirements, and failing to diligently supervise matters related to its business as a CFTC registrant. Wedbush admits the facts in the order and acknowledges the conduct violated the Commodity Exchange Act and CFTC regulations.The CFTC ordered Wedbush to pay a $6 million civil monetary penalty, to cease and desist from further violations of recordkeeping and supervision requirements, and to take specific remedial actions as written in the order. In part the CFTC Release states that:

The order finds that from approximately 2018 to the present, Wedbush employees, including those at senior levels, communicated both internally and externally on unapproved channels, including via personal text messages. Wedbush employees sent and received the written communications, which included messages related to Wedbush’s business as a CFTC registrant. These messages were required to be maintained under CFTC-mandated recordkeeping requirements. The order finds Wedbush did not maintain or preserve thousands of communications, including communications related to its commodities business. Additionally, Wedbush generally would not have been able to provide the communications promptly to a CFTC representative when requested. 

The order finds that as a result of these actions, Wedbush failed diligently to supervise its business as a CFTC registrant, in violation of CFTC recordkeeping and supervision provisions.