SEC

Goldman to Pay SEC $6 Million in Penalties for Providing Deficient Blue Sheet Data (SEC Release)

SEC Charges Citadel Securities for Violating Order Marking Requirements of Short Sale Regulations (SEC Release)

SEC Charges Private Equity Fund Adviser American Infrastructure Funds for Breaching Its Duties (SEC Release)

SEC Charges Former Portfolio Manager with Engaging in IIIegal Cross Trades (SEC Release)

SEC Charges Mexico-based Company, its CEO, and Four Individuals in Ponzi Scheme Targeting Spanish-Speaking U.S. Investors (SEC Release)

SEC Obtains Emergency Relief to Halt Nebraska-Based Ponzi Scheme (SEC Release)

SEC Announces Additional Charges in Scheme to Trade Ahead of Pharma Tender Offer (SEC Release)

SEC Obtains Judgment Totaling More Than $50 Million Against Individual for Participating in Fraudulent Microcap Scheme (SEC Release)

SEC Approves Revised Privacy Act Rule (SEC Release)

SEC Adopts Rule Enhancements to Prevent Misleading or Deceptive Investment Fund Names (SEC Release)

SEC Statements On Names Rule Amendments

SEC Charges Lawyer for Violations in Connection with Crypto Asset Securities Offering (SEC Release)

SEC Charges Florida Investment Adviser and Its President with Fraud and Failing to Produce Records to SEC Examinations Staff (SEC Release)

SEC Charges California Resident with Multimillion Dollar Ponzi Scheme Targeting Tongan American Community (SEC Release)

SEC Charges New York Firm Concord Management and Owner with Acting as Unregistered Investment Advisers to Billionaire Former Russian Official / Firm and Owner’s failures to register prevented oversight of more than $7 billion in assets (SEC Release)

SEC Charges CBRE, Inc. with Violating Whistleblower Protection Rule (SEC Release)

SEC Charges Texas CBD-Inhaler Company and Its CEO in Fraudulent Securities Offerings (SEC Release)

SEC Charges Florida Resident and Resident's Two Companies for Operating as Unregistered Broker-Dealers (SEC Release)

SEC Charges Financial Professional with Insider Trading in His Company's Securities (SEC Release)

SEC Charges Lyft with Failure to Disclose Board Member’s Financial Interest in Private Shareholder’s Pre-IPO Stock Transaction (SEC Release)

SEC Charges Registered Representative with Causing Brokerage Firm's Failure to Timely File a SAR Concerning Suspicious Wires Surrounding an Acquisition Announcement (SEC Release)

Caught in a SAR Trap: Statement on In the Matter of Pierre Economacos by SEC Commissioner Hester M. Peirce and SEC Commissioner Mark T. Uyeda

CFTC

CFTC Orders Chicago-based Advantage Futures LLC to Pay $395,000 for Supervision Failures (CFTC Release)

CFTC Orders StoneX Markets LLC to Pay $650,000 for Violations of Swap Business Conduct Standards / Swap Dealer Admits It Failed to Disclose Pre-Trade Mid-Market Marks and Failed to Diligently Supervise its Compliance Process (CFTC Release)

CFTC Grants Two Whistleblower Awards Totaling Over $15 Million (CFTC Release)

FINRA

FINRA Censures and Fines Goldman Sachs for Blue Sheet Reports 
In the Matter of Goldman Sachs & Co. LLC, Respondent (FINRA AWC)

FINRA Bars Rep for Private Securities Transactions
In the Matter of Leslie D. Jackson, Respondent (FINRA AWC)

FINRA Fines and Suspends Rep for Recommendation of Non-Traded REIT
In the Matter of Elba M. Nogueras, Respondent (FINRA AWC)

 = = = 

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READ FULL-TEXT INDICTMENT: United States of America, v. Robert Menendez, Nadine Menedez a/k/a "Nadine Arslanian," Wael Hana a/k/a "Will Hana," Jose Uribe, and Fred Daibes, Defendants (Indictment, United States District Court for the Southern District of New York / 23-CR-490)
https://www.justice.gov/d9/2023-09/u.s._v._menendez_et_al_indictment.pdf
As set forth in part in "U.S. Senator Robert Menendez, His Wife, And Three New Jersey Businessmen Charged With Bribery Offenses (DOJ Release"
https://www.justice.gov/usao-sdny/pr/us-senator-robert-menendez-his-wife-and-three-new-jersey-businessmen-charged-bribery:

Damian Williams, the United States Attorney for the Southern District of New York, and James Smith, the Assistant Director in Charge of the New York Field Office of the Federal Bureau of Investigation (“FBI”), announced that an Indictment was unsealed this morning charging U.S. Senator ROBERT MENENDEZ, his wife NADINE MENENDEZ, a/k/a “Nadine Arslanian,” and three New Jersey businessmen, WAEL HANA, a/k/a “Will Hana,” JOSE URIBE, and FRED DAIBES, with participating in a years-long bribery scheme.  The Indictment alleges that MENENDEZ and his wife, NADINE MENENDEZ, accepted hundreds of thousands of dollars of bribes from HANA, URIBE, and DAIBES in exchange for MENENDEZ’s agreement to use his official position to protect and enrich them and to benefit the Government of Egypt.  Among other things, MENENDEZ agreed and sought to pressure a senior official at the U.S. Department of Agriculture in an effort to protect a business monopoly granted to HANA by Egypt, disrupt a criminal case undertaken by the New Jersey Attorney General’s Office related to associates of URIBE, and disrupt a federal criminal prosecution brought by the U.S. Attorney’s Office for the District of New Jersey against DAIBES.  MENENDEZ, NADINE MENENDEZ, HANA, URIBE, and DAIBES are expected to appear in federal court in Manhattan on Wednesday, September 27, 2023, at 10:30 a.m.  The case is assigned to U.S. District Judge Sidney H. Stein. 

DOJ

Woodbridge Man Sentenced for Defrauding the Elderly in Romance Fraud Scheme (DOJ Release)
https://www.justice.gov/usao-edva/pr/woodbridge-man-sentenced-defrauding-elderly-romance-fraud-scheme
In the United States District Court for the Eastern District of Virginia, Ishmael Kayede, 40, was sentenced to 15 months in prison. As alleged in part in the DOJ Release:

According to court documents, from 2014 to March 2019, Ishmael Kayede, 40, conspired and agreed with multiple co-conspirators to launder funds derived from mail or wire fraud schemes, including romance fraud, gold and diamond investment fraud, and other fraud scams. During his participation in this money laundering conspiracy, Kayede received funds in his bank accounts from victims of those romance and other fraud schemes while working with and at the direction of associates located in foreign jurisdictions, including Ghana.

Kayede’s co-conspirators largely targeted elderly victims in the United States, primarily using online dating websites such as match.com. They would befriend potential victims on the dating websites using false pretenses and would then exploit that trust to convince the victims to send money to Kayede’s bank accounts. Kayede would then transmit the funds to Ghana. If he had trouble moving the money, he would lie to bank officials about the source and nature of the funds. Some victims targeted by the scheme lost thousands of dollars; others lost more than a hundred thousand dollars to the defendant’s activities. In total, Kayede received and laundering approximately $1.3 million over the course of his involvement with the scheme.

Bill Singer's Comment: Truly, I detest these scamsters who prey on the elderly and have no pity for them whatsoever. That being said, it's no excuse for DOJ to publish such a relatively flippant press release that doesn't even bother to inform us whether Kayede was convicted after trial or pursuant to a plea -- and, on top of that, doesn't even specify the statutes or precise nature of the crimes for which he was convicted and sentenced. I care far more about prosecuting and incarcerating predators who defraud the elderly than insider traders or someone who is spoofing the markets. I urge DOJ to invest a tad more time in drafting these elder-scam releases so as to more fully document the basis for prosecution, conviction, and sentencing.

Former Congressman Sentenced To 22 Months In Prison For Insider Trading / Stephen Buyer Misappropriated Material Non-Public Information from His Former Consulting Clients, T-Mobile Corporation and Guidehouse (SEC Release)
https://www.justice.gov/usao-sdny/pr/former-congressman-sentenced-22-months-prison-insider-trading
In the United States District Court for the Southern District of New York, former Indiana Congressman Stephen Buyer was convicted after trial on four counts of securities fraud; and he was sentenced to 22 month in prison. As alleged in part in the DOJ Release:

In 2018 and 2019, BUYER engaged in two separate, but interrelated insider trading schemes to steal material non-public information that he obtained through consulting work and to place timely, profitable securities trades based on that stolen information. First, in or about March and April 2018, BUYER purchased shares of Sprint Corporation (“Sprint”) ahead of the April 29, 2018, public announcement that T-Mobile US, Inc. (“T-Mobile”) and Sprint would merge in a deal valued at $26.5 billion.  Prior to the public announcement of the transaction by T-Mobile, executives at T-Mobile told a small, trusted group of consultants that they had retained to work on the deal, including BUYER, about the merger and directed them to keep the information confidential.  BUYER breached his duty of confidentiality to T-Mobile and misappropriated that information by purchasing shares of Sprint across several brokerage accounts, including his own accounts, an account held jointly with his cousin, and an account in the name of a close, personal friend.  Across these accounts, BUYER made more than $126,000 from the purchase and subsequent sale of Sprint stock after the merger was publicly announced. 

In or about June through August 2019, BUYER again engaged in insider trading, this time trading in shares of Navigant Consulting, Inc. (“Navigant”) ahead of Navigant’s acquisition by consulting and advisory firm Guidehouse.  As with his purchase of Sprint shares, BUYER learned through his consulting work for Guidehouse that Guidehouse intended to acquire Navigant and misappropriated that information by purchasing Navigant shares ahead of the public announcement of the acquisition.  BUYER purchased Navigant shares across several brokerage accounts, including accounts in his own name, joint accounts held with family members, and the account of the same close, personal friend whose account he used to trade Sprint shares.  In total, Buyer made more than $223,000 from his illegal Navigant trades.

BUYER testified at his March 2023 trial and provided false explanations for his Sprint and Navigant trading, which Judge Berman found at sentencing to constitute obstruction of justice.

South Carolina Man Admits Securities Fraud, Bank Fraud, and Wire Fraud Schemes (DOJ Release)
https://www.justice.gov/usao-nj/pr/south-carolina-man-admits-securities-fraud-bank-fraud-and-wire-fraud-schemes
In the United States District Court for the District of New Jersey, Sandy John Masselli pled guilty to nine counts of bank fraud, wire fraud, and securities fraud. Previously,  Masselli was charged in a civil complaint filed by the SEC based on the securities fraud conduct. As alleged in part in the DOJ Release:

From September 2011 through October 2017, Masselli solicited millions of dollars in investments from retail investors by fraudulently touting the prospect of his online gaming company, Carlyle Entertainment Ltd., formerly Carlyle Gaming & Entertainment Ltd. (Carlyle), to conduct a lucrative initial public offering (IPO) of its stock on either the NASDAQ or the New York Stock Exchange (NYSE). Masselli induced investors to purchase shares of Carlyle stock by promising them steeply discounted prices in advance of the purported IPO, assuring them that the stock price would increase significantly after the IPO. Masselli further represented that the IPO would occur within weeks or months of the investors’ stock purchases. 

However, as Masselli knew, Carlyle was neither poised nor prepared to conduct an IPO on either the NASDAQ or the NYSE, given that, among other deficiencies, neither Masselli nor anyone else on behalf of Carlyle ever filed an application with the NASDAQ or the NYSE to list Carlyle stock on either exchange, or filed with the Securities and Exchange Commission (SEC) a registration statement to list Carlyle shares on a national exchange. Masselli further misrepresented to the investors how he would use their investments, for example telling them that he would allocate investment funds toward improving Carlyle’s online platform and paying legal fees in connection with preparing Carlyle for a looming IPO. Masselli did not invest these funds in Carlyle, as he had promised investors he would, but instead misappropriated these funds to pay for his and his family’s own personal expenses.

Within weeks and often days of receiving investor funds, Masselli quickly deposited them into and throughout a web of bank accounts he controlled, many of which were opened under names of fictitious corporate entities in an effort to conceal the source of the funds. After disguising the provenance of the investor funds, Masselli typically went to work quickly misappropriating the funds.

Masselli also opened multiple credit card accounts, made purchases on those accounts until he had almost reached or exceeded the credit limit, and then purported to send payments from accounts that he knew did not have sufficient funds to cover those payments. Before the fraudulent payments were rejected for insufficient funds, the credit card companies temporarily credited the accounts based on those payments, providing Masselli access to additional credit and allowing him to continue to make purchases. Masselli ultimately failed to pay the balances and the credit card companies sustained a loss. On two occasions, Masselli contacted the victim credit card companies falsely claiming that the accounts had been opened fraudulently by others who had stolen his personal identifiable information. 

Two Individuals, Including A Former Pharmaceutical Executive, Plead Guilty To Participating In Insider Trading Scheme Surrounding Alexion Pharmaceuticals’ Acquisition Of Portola Pharmaceuticals / Joseph Dupont Misappropriated Deal Information from Alexion, Where He Was a Vice President, and Provided that Information to a Childhood Friend, Who, in Turn, Shared the Information with Slava Kaplan, Who Used It to Trade and to Tip Others (DOJ Release)
https://www.justice.gov/usao-sdny/pr/two-individuals-including-former-pharmaceutical-executive-plead-guilty-participating
In the United States District Court for the Southern District of New York, Joseph Dupont and  Slava Kaplan a/k/a “Stanley Kaplan”  each pled guilty to one count of securities fraud. As alleged in part in the DOJ Release:

In 2020, DUPONT, KAPLAN, and others engaged in an insider trading scheme surrounding the announcement of Alexion’s acquisition of Portola.  DUPONT was a vice president at Alexion and, on January 31, 2020, was informed of Alexion’s upcoming acquisition of Portola.  Before that acquisition was publicly announced, in April 2020, DUPONT provided material nonpublic information (“MNPI”) that he misappropriated from Alexion about the acquisition to a friend so that the friend could use the information to trade profitably in securities.

In turn, DUPONT’s friend provided KAPLAN, who was also known to DUPONT, the MNPI about Portola’s pending acquisition, both so that KAPLAN could trade in advance of the acquisition and so that KAPLAN would assist DUPONT’s friend in formulating trading strategies to maximize DUPONT’s friend’s own trading profits.  KAPLAN further shared MNPI about the upcoming acquisition with a family member and a friend and colleague.  After Alexion’s acquisition of Portola was publicly announced on the morning of May 5, 2020, causing Portola’s stock price to increase significantly, KAPLAN and others who had purchased shares and options based on DUPONT’s inside information sold their shares of Portola and call options for Portola stock, reaping millions of dollars of illegally obtained trading profits.

SEC 

Goldman to Pay SEC $6 Million in Penalties for Providing Deficient Blue Sheet Data (SEC Release)
https://www.sec.gov/news/press-release/2023-191
Pursuant to an SEC Order https://www.sec.gov/files/litigation/admin/2023/34-98479.pdf alleging that Goldman Sachs & Co. LLC failed to provide complete and accurate securities trading information ("Blue Sheet data") to the SEC, Goldman agreed to pay a $6 million penalty. As alleged in part in the SEC Release:

[O]ver a period of approximately ten years, Goldman made more than 22,000 deficient blue sheet submissions to the SEC. The order finds that, as a result of 43 different types of errors, these submissions contained missing or inaccurate trade data for at least 163 million transactions. The order further finds that Goldman lacked adequate processes to verify the accuracy of its electronic blue sheet submissions.

. . .

The SEC's order finds that Goldman willfully violated the broker-dealer recordkeeping and reporting provisions of the federal securities laws. Goldman admitted the findings in the SEC's order and agreed to be censured and to pay the $6 million penalty. The SEC's order also finds that Goldman engaged in remedial efforts to correct and improve its blue sheet reporting systems and controls, including conducting a full-scale review of its reporting program that resulted in the self-reporting of 29 of the 43 types of errors underlying the order and significant supervisory control enhancements.

Separately, the Financial Industry Regulatory Authority (FINRA) reached a settlement with Goldman for related conduct.

Bill Singer's Comment: Just the latest installment of garbage regulation on Wall Street. Yet another example of how regulators bend over backwards when it comes to the Big Boys. My, how stunning that the SEC Order slams Goldman Sachs for:

From at least November 2012 through October 2022 (the “Relevant Period”), Respondent submitted EBS in response to 52,147 requests from the Commission, at least 22,192 of which included inaccurate information or omissions, resulting in the misreporting of certain trade data for at least 163 million transactions. As a result, Respondent violated the recordkeeping and reporting requirements of Section 17(a)(1) of the Exchange Act and Rules 17a-4(j) and 17a-25 thereunder.

Did you catch that? Goldman submitted 22,192 inaccurate trade-data reports involving 163 million transactions during 2012, 2013, 2014, 2015, 2016, 2017, 2018, 2019, 2020, 2021, and 2022 (yeah, it looks much worse when you actually set out the years like that, no?). Equally stunning . . . as in, shocking . . . as in are you kiddin' me . . .  the SEC Order asserts that:

Goldman’s Remedial Efforts

In determining whether to accept the Offer, the Commission considered remedial acts undertaken by Respondent and cooperation afforded the Commission staff.

Why am I so angry with the settlement? Because it's bull-shit and represents the worst of biased Wall Street regulation in favor of large firms versus smaller firms and the industry's individual men and women. Also see, FINRA Censures and Fines Goldman Sachs for Blue Sheet Reports 
In the Matter of Goldman Sachs & Co. LLC, Respondent (FINRA AWC) For a sense of the proportion of this disparate treatment, consider:

• Lackluster FINRA Board Mishandled 2023 Election and Refuses to Disclose Vote Tally (BrokeAndBroker.com Blog / September 18, 2023)
  
  
• 2023 FINRA Election Boycott: Awaiting the Tally (BrokeAndBroker.com Blog /September 6, 2023) 
  
  
• Two Towering Dissents Against CFTC Order Involving Goldman Sachs (BrokeAndBroker.com Blog /September 1, 2023) 
  
  
• UPDATE: Bill Singer, Esq. Files Form TCR with SEC Seeking Investigation of FINRA Election Interference (BrokeAndBroker.com Blog /August 29, 2023) 
  
  
• FINRA Board of Governors Confronted with Troubling Jeffrey Epstein Developments (BrokeAndBroker.com Blog /August 16, 2023)
  
  
• Bill Singer Renews Call to Boycott FINRA 2023 Elections (BrokeAndBroker.com Blog /August 11, 2023) 
  
  
• Bill Singer Calls for Boycott of 2023 FINRA Elections (BrokeAndBroker.com Blog /June 16, 2023)
  
  
• FINRA Board of Governors Fails to Confront Goldman Sachs $215 Million Gender Discrimination Settlement (BrokeAndBroker.com Blog /May 10, 2023

SEC Charges Citadel Securities for Violating Order Marking Requirements of Short Sale Regulations (SEC Release)
https://www.sec.gov/news/press-release/2023-192
Without admitting or denying the findings in an SEC Order https://www.sec.gov/files/litigation/admin/2023/34-98482.pdf that it had violated Rule 200(g) of Reg SHO, Citadel Securities consented to a cease-and-desist order imposing a Censure, a $7 million penalty, and a set of undertakings, including a written certification that the coding error has been remediated and a review of the firm’s computer programming and coding logic involved in processing relevant transactions. As alleged in part in the SEC Release:

[F] or a five-year period, it is estimated that Citadel Securities incorrectly marked millions of orders, inaccurately denoting that certain short sales were long sales and vice versa. The SEC’s order finds that the inaccurate marks resulted from a coding error in Citadel Securities’s automated trading system and that the firm provided the inaccurate data to regulators, including the SEC during this period.

SEC Charges Private Equity Fund Adviser American Infrastructure Funds for Breaching Its Duties (SEC Release)
https://www.sec.gov/news/press-release/2023-193
Without admitting or denying the findings in an SEC Order https://www.sec.gov/files/litigation/admin/2023/ia-6428.pdf that it had violated antifraud and compliance provisions of the Advisers Act, American Infrastructure Funds LLC ("AIM") agreed to a cease-and-desist order and censure and to pay a $1.2 million penalty as well as $445,460 in disgorgement and prejudgment interest to investors. As alleged in part in the SEC Release:

[AIM] breached its fiduciary duty to private funds that it advised by failing to adequately disclose its conflict of interest in receiving accelerated monitoring fees paid by a portfolio company when that portfolio company was sold. The SEC’s order also finds that AIM violated its duty of care by failing to consider whether the fee acceleration was in its clients’ best interest. Additionally, according to the SEC’s order, AIM breached its fiduciary duty by transferring certain expiring funds’ assets to a new private fund it also advised and, by doing so, locked up investor money for at least an additional decade without obtaining investor consent, without providing existing investors an option to exit, and without disclosing AIM’s conflicts of interest in the transaction. The SEC’s order finds that AIM also breached its fiduciary duty by not adequately disclosing its conflict of interest when it loaned money from one private fund it managed to a new private fund managed by an affiliated adviser and by failing to undertake a process to determine if the loan was in its clients’ best interest.

SEC Charges Former Portfolio Manager with Engaging in IIIegal Cross Trades (SEC Release)
https://www.sec.gov/enforce/ia-6429-s
Without admitting or denying the findings in an SEC Order https://www.sec.gov/files/litigation/admin/2023/ia-6429.pdf that she did not effect cross trades in accordance with Rule 17a-7 under the Investment Company Act and in violation of Sections 17(a)(1) and 17(a)(2) of the Investment Company Act, Elisa M. Doyle consented to a cease-and-desist order and agreed to pay a civil money penalty of $30,000 to settle the charges. As alleged in part in the SEC Release:

[F]rom May 2020 until March 30, 2022, Doyle engaged in 27 cross trades. The order finds that, for some of these cross trades, Doyle directly engaged with a third-party broker-dealer to sell the securities from one fund and then to buy the same securities back through the same broker-dealer on behalf of another fund. The order further finds that Doyle showed a trader she worked with at a large financial institution how she effected cross trades by interpositioning a broker-dealer, and then directed the trader to conduct additional cross trades between funds in the same manner. In total, Doyle's cross trades cost the funds approximately $39,000, according to the order. Prior to and throughout the time she and the trader conducted the cross trades, the order finds, Doyle attended annual trainings that advised employees that such transactions were prohibited.

SEC Charges Mexico-based Company, its CEO, and Four Individuals in Ponzi Scheme Targeting Spanish-Speaking U.S. Investors (SEC Release)
https://www.sec.gov/news/press-release/2023-190
Without admitting or denying the allegations in an SEC Complaint
https://www.sec.gov/files/litigation/complaints/2023/comp-pr2023-190_0.pdf filed in the United States District court for the Western District of Texas, Efren Quiroz, Luis Quiroz, Maria Tolentino, and Diayanira Rendon consented to the entry of judgments against them as to all claims, including full injunctive relief against future violations, with disgorgement and penalties to be determined by the court upon motion by the Commission; and, additionally, Efren and Luis Quiroz consented to settled Commission orders barring each of them from association with a registered entity or participation in a penny stock offering. As alleged in part in the SEC Release:

The Securities and Exchange Commission today announced charges against Mexico-based company Aras Investment Business Group S.A.P.I. de C.V., its CEO Armando Gutierrez Rosas, and four individuals for fraudulently raising at least $15 million from more than 450 retail investors in the U.S., most of whom were members of the Mexican American community.

The SEC’s complaint, filed in U.S. District Court for the Western District of Texas, alleges that, from about March 2020 through November 2021, Gutierrez raised money from retail investors in the U.S. for the purported purpose of investing in U.S. real estate and mining operations in Mexico, promising investors monthly returns as high as 10 percent. According to the complaint, no U.S. investor funds were used for investment purposes; instead, Gutierrez was operating a Ponzi scheme and affinity fraud and used investor funds to pay for his personal expenses including a $2.5 million mansion in Texas. Along with Gutierrez, the SEC also charged Efren Quiroz, Luis Quiroz, Maria Tolentino, and Diayanira Rendon for their roles in the alleged fraud.

SEC Obtains Emergency Relief to Halt Nebraska-Based Ponzi Scheme (SEC Release)
https://www.sec.gov/litigation/litreleases/lr-25842
The United States District Court for the District of Nebraska issued a temporary asset freeze, restraining order, and other emergency relief against Jon P. Kubler and several Nebraska-based entities that he controls--Kubler Consulting, Aksarben Evolution, AV Bhill, CFH Texas, and Green Saddle. https://www.sec.gov/files/litigation/complaints/2023/comp25842.pdf. As alleged in part in the SEC Release:

According to the SEC's complaint, unsealed today in the U.S. District Court in the District of Nebraska, since at least 2016, Kubler and his companies raised approximately $5.6 million from investors to purportedly invest in commercial real estate companies but only used 4% of what was raised to make actual investments. The SEC's complaint alleges that Kubler and his companies fraudulently used new investor money to make Ponzi-like payments to earlier investors in order to deceive investors into believing that the Kubler companies were profitable. The complaint also alleges that Kubler misappropriated investor funds for personal use, including payments for rent on his home, a payment to a winery, payments to purchase antiques, and payments for online dating services.

The SEC's complaint charges Kubler and his companies 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. The SEC seeks injunctions, disgorgement of ill-gotten gains with prejudgment interest, and financial penalties against Kubler and his companies. The SEC also charged two entities as relief defendants, which the SEC alleges were controlled by Kubler and received investor funds from the alleged scheme. On September 15, 2023, the Honorable Robert F. Rossiter, Jr., Chief Judge for the District of Nebraska, entered a temporary restraining order against Kubler and his companies, an order freezing the defendants' and relief defendants' assets, and an order prohibiting Kubler and his companies from raising additional investor funds.

SEC Announces Additional Charges in Scheme to Trade Ahead of Pharma Tender Offer (SEC Release)
https://www.sec.gov/litigation/litreleases/lr-25843
In the United States District Court for the Southern District of New York, the SEC field a Complaint https://www.sec.gov/files/litigation/complaints/2023/comp25843.pdf charging Jonathan Becker with violations of the antifraud provisions of Sections 10(b) and 14(e) of the Securities Exchange Act and of Exchange Act Rules 10b-5 and 14e-3. Becker consented to the entry of injunctive relief, with monetary remedies to be determined at a later date, upon a motion by the SEC. As alleged in part in the SEC Release:

[B]ecker made approximately $266,000 from illegally trading in advance of the February 2021 announcement of a tender offer by Merck & Co., Inc. to acquire Pandion Therapeutics, Inc. The SEC's complaint alleges that Becker's then friend and roommate unlawfully communicated material nonpublic information about the impending acquisition to Becker after receiving a tip about the deal from his cousin, Seth Markin. As previously alleged in the SEC's July 25, 2022 complaint against Seth Markin and his friend Brandon Wong, Markin misappropriated confidential information about the planned tender offer from his then-romantic partner, who worked as an associate for a law firm representing Merck on the deal, and then traded on the material nonpublic information and tipped multiple other individuals. The SEC also previously charged Brandon Wong's brother and tippee Brian Wong in connection with the same scheme.

SEC Obtains Judgment Totaling More Than $50 Million Against Individual for Participating in Fraudulent Microcap Scheme (SEC Release)
https://www.sec.gov/litigation/litreleases/lr-25841
The United States District Court for the District of Massachusetts entered a Final Default Judgment against Luis Jimenez Carrillo permanently enjoining him from 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 registration provisions of Section 5 of the Securities Act, and the ownership reporting provisions of Section 13(d) of the Exchange Act. The Judgment ordered Carrillo to pay disgorgement of $39,334,544 and prejudgment interest of $7,782,751, and a civil penalty of $5,803,954. Previously, the Court entered Judgments against Justin Wall, Jamie Wilson, and Amar Bahadoorsingh; and Relief Defendants the Martha Y. Jimenez Trust and the Charles A. Carrillo Trust. As alleged in part in the SEC Release:

[F]rom at least 2013 through May 2019, Mexican resident Carrillo concealed the fact that he and others controlled the securities of numerous microcap companies whose stock was publicly traded in the U.S. securities markets. According to the complaint, Carrillo secretly sold millions of the companies’ shares in violation of the securities laws, often after organizing promotional campaigns to encourage investors to buy the stock. Justin Wall, Jamie Wilson, and Amar Bahadoorsingh allegedly worked with Carrillo to gain control of at least one company’s securities and fraudulently sell them. The complaint alleges that, as a result of these actions, what appeared to be ordinary trading by unaffiliated investors was actually a massive selling of shares orchestrated by Carrillo, Bahadoorsingh, Wall, and Wilson, who were seeking to profit at the expense of defrauded investors.

SEC Approves Revised Privacy Act Rule (SEC Release)
https://www.sec.gov/news/press-release/2023-189
The SEC approved a rule to revise the Privacy Act
https://www.sec.gov/files/rules/proposed/2023/34-96906.pdf. As asserted in part in the SEC Release:

The Commission last updated its Privacy Act rules in 2011. The revisions approved today will codify current practices for processing requests made by the public under the Privacy Act. This provides greater clarity regarding the Commission’s process for how individuals can access information pertaining to themselves.

Due to the scope of the revisions, the final rule replaces the Commission’s current Privacy Act regulations in their entirety.

SEC Adopts Rule Enhancements to Prevent Misleading or Deceptive Investment Fund Names (SEC Release)
https://www.sec.gov/news/press-release/2023-188
The SEC adopted amendments to the Investment Company Act “Names Rule” https://www.sec.gov/files/rules/final/2023/33-11238.pdf that will require more funds to adopt an 80 percent investment policy. As asserted in part in the SEC Release:

The amendments will include enhanced prospectus disclosure requirements for terminology used in fund names, including a requirement that any terms used in the fund’s name that suggest an investment focus must be consistent with those terms’ plain English meaning or established industry use. The amendments will also include additional reporting and recordkeeping requirements for funds regarding compliance with the names-related regulatory requirements.

The amendments will become effective 60 days after publication in the Federal Register. Fund groups with net assets of $1 billion or more will have 24 months to comply with the amendments, and fund groups with net assets of less than $1 billion will have 30 months to comply.

SEC Statements On Names Rule Amendments

SEC Charges Lawyer for Violations in Connection with Crypto Asset Securities Offering (SEC Release)
https://www.sec.gov/enforce/33-11239-s
Without admitting or denying the findings in an SEC Order https://www.sec.gov/files/litigation/admin/2023/33-11239.pdf that he violated Sections 17(a)(2) and (3) of the Securities Act, James Michael Wines consented to a cease-and-desist order and additional proceedings to determine what, if any, disgorgement and prejudgment interest or civil penalties are appropriate. As alleged in part in the SEC Release:

[T]he April 2021 press release stated that the offering had secured commitments for over $50 million, when in fact $50 million had not been committed or transferred from investors. The order further finds that the offering agreements included use of proceeds provisions that described the recipient of proceeds from the offering as a "contractor," rather than a creditor who had obtained a substantial judgment against one of the offering entities. According to the SEC's order, Wines participated in the drafting, review, and approval of these documents without exercising reasonable care to determine the accuracy of these statements. The order acknowledges Wines's cooperation and that he has returned to investors the offering proceeds under his control.

SEC Charges Florida Investment Adviser and Its President with Fraud and Failing to Produce Records to SEC Examinations Staff (SEC Release)
https://www.sec.gov/litigation/litreleases/lr-25839
In the United States District Court for the Southern District of Florida, the SEC filed a Complaint charging Lufkin Advisors, LLC, and its President/Chief Compliance Officer/majority owner Chauncey Forbush Lufkin II
https://www.sec.gov/files/litigation/complaints/2023/comp25839.pdf with violating the antifraud provisions of Section 206(1) and 206(2) of the Investment Advisers Act of 1940 ("Advisers Act"), as well as violations of Section 206(4) and Rule 206(4)-8 thereunder, which prohibit fraud against investors in pooled investment vehicles; and, further charging Defendants with making material misrepresentations in Lufkin Advisors' Forms ADV in violation of Advisers Act Section 207. Additionally, Lufkin Advisors is charged with violating Advisers Act Section 206(4) and Rule 206(4)-2 (failure to comply with asset custody requirements); Rule 206(4)-7 (failure to create, implement, and review adviser policies and procedures); Section 204A and Rule 204A-1 (failure to adopt an adviser code of ethics); Section 204(a) and Rule 204-2(a) (failure to keep required books and records); and Section 204(a) (failure to produce books and records). Finally, Chauncey Lufkin is charged with aiding and abetting each of those violations by Lufkin Advisors. As alleged in part in the SEC Release:

[L]ufkin Advisors and Chauncey Lufkin have for years engaged in a fraudulent course of conduct that included a loss of control of crypto assets entrusted to them for at least one year without disclosure of that fact to advisory clients, multiple investments with Mr. Lufkin's spouse's company without proper disclosure to private fund investors, failure to properly account for withdrawals from the private funds, failure to monitor the value of the investments made by the private funds, and a general derogation of their duty to manage the assets entrusted to them. The complaint also alleges that defendants did not adhere to many of the statutes and rules applicable to registered investment advisers, including rules concerning the custody of assets, the accuracy of reports filed with the SEC, and the maintenance of required adviser records.

SEC Charges California Resident with Multimillion Dollar Ponzi Scheme Targeting Tongan American Community (SEC Release)
https://www.sec.gov/news/press-release/2023-187
In the United States District Court for the Eastern District of California, the SEC filed a Complaint charging Tilila Walker Sumchai https://www.sec.gov/files/litigation/complaints/2023/comp-pr2023-187.pdf with violating the antifraud provisions of the federal securities laws. As alleged in part in the SEC Release:

[F]rom approximately January 2021 through October 2021, Sumchai convinced retail investors to acquire shares of an investment she created called “Tongi Tupe” by falsely claiming that she would use a secret algorithm to generate guaranteed high returns. The complaint alleges that Sumchai first targeted respected Tongan American leaders, who were paid substantial returns on their investments, which convinced many of the leaders to believe that Tongi Tupe was legitimate. Sumchai then organized meetings hosted by these leaders at which Sumchai promoted Tongi Tupe to other members of the Tongan American community. As alleged, Sumchai promised exceedingly high returns, including a $146,000 return in 16 weeks on a $3,000 investment. In reality, the complaint alleges, Tongi Tupe did not generate any returns; instead, Sumchai operated a Ponzi scheme that relied on new investor money to pay earlier investors. Additionally, as alleged in the complaint, Sumchai used investor money for unauthorized and undisclosed purposes, including to pay for casino trips, travel, and shopping.

SEC Charges New York Firm Concord Management and Owner with Acting as Unregistered Investment Advisers to Billionaire Former Russian Official / Firm and Owner’s failures to register prevented oversight of more than $7 billion in assets (SEC Release)
https://www.sec.gov/news/press-release/2023-186
In the United States District Court for the Southern District of New York, the SEC filed a Complaint charging Concord Management LLC and its owner/principal Michael Matlin https://www.sec.gov/files/litigation/complaints/2023/comp-pr2023-186.pdf with violating Section 203(a) of the Investment Advisers Act of 1940 by failing to register as investment advisers with the Commission. As alleged in part in the SEC Release:

[M[atlin founded Concord in 1999 to provide investment advice for compensation and to supervise and manage the client’s investments in United States-based private funds. The SEC’s complaint alleges that, from at least 2012 through March 2022, Concord and Matlin sourced, arranged, and monitored hundreds of investments, worth billions of dollars, in private equity funds and hedge funds on behalf of the client. According to the SEC’s complaint, both Concord and Matlin were required to register as investment advisers with the Commission based on their activities, but neither did. By failing to register, Matlin and Concord avoided certain legal obligations for investment advisers that protect the investing public, such as various reporting requirements and examination by the SEC. As of January 2022, Concord and Matlin allegedly managed investments for their sole client with an estimated total value of $7.2 billion in 112 different private funds.

According to the complaint, in March 2022, the United Kingdom and the European Union designated Matlin and Concord’s client a sanctioned individual and the client’s assets were subsequently frozen. The SEC's complaint alleges that, a month prior, in February 2022, Concord and Matlin assisted the client in his attempts to redeem investments and/or sell his securities portfolio.

SEC Charges CBRE, Inc. with Violating Whistleblower Protection Rule (SEC Release)
https://www.sec.gov/news/press-release/2023-184
Without admitting or denying findings in an SEC Order https://www.sec.gov/litigation/admin/2023/34-98429.pdf, CBRE Group, Inc. consented to cease and desist from committing or causing any violations of the whistleblower protection rule, and agreed to pay a civil penalty of $375,000. In determining to accept CBRE’s offer of settlement, the SEC considered CBRE’s cooperation and remedial actions. As alleged in part in the SEC Release:

[B]etween 2011 and 2022, as a condition of receiving separation pay, CBRE required its employees to sign a release in which employees attested that they had not filed a complaint against CBRE with any federal agency. The SEC’s order finds that by conditioning separation pay on employees’ signing the release, CBRE took action to impede potential whistleblowers from reporting complaints to the Commission.

Once the SEC informed CBRE that it had launched an investigation, the company cooperated with Commission staff and began taking extensive remedial action, including revising all versions of its domestic releases and similar agreements for compliance with the whistleblower protection rule. CBRE also communicated with more than 800 of its employees who had signed the release, clarifying the protections afforded to them by the rule, including their right to communicate directly with SEC staff regarding any potential violation of federal securities laws.

SEC Charges Texas CBD-Inhaler Company and Its CEO in Fraudulent Securities Offerings (SEC Release)
https://www.sec.gov/litigation/litreleases/lr-25832
In the United States District Court for the Northern District of Texas, the SEC filed a Complaint https://www.sec.gov/files/litigation/complaints/2023/comp25832.pdf
charging Rapid Therapeutic Science Laboratories, Inc. and its CEO, Donal R. Schmidt, Jr. with violating the securities-registration provisions of Sections 5(a) and 5(c) of the Securities Act, the anti-fraud provisions of Section 17(a) of the Securities Act and Section 10(b) of the Securities Exchange Act and Rule 10b-5 thereunder, and the issuer-reporting and certification provisions of Section 13(a) of the Exchange Act and Rules 12b-20, 13a-1, 13a-13, and 13a-14 thereunder. As alleged in part in the SEC Release:

[R]apid and Schmidt made statements in a Rapid press release and in numerous Rapid SEC filings conveying the false impression that an industry-standards board, the Cannabinoid Multi Dose Inhaler Certification Board (“CMDICB”), certified Rapid’s compliance with manufacturing standards relating to public health and safety.  In reality, a Schmidt business associate who owned Rapid shares simply invented the CMDICB and unilaterally conferred the so-called certification upon Rapid.  The complaint further alleges that Rapid and Schmidt falsely claimed in Rapid press releases that the company had secured major sales contracts, that Rapid had completed a new laboratory that met international standard “ISO 13485,” and that Schmidt exaggerated the academic and professional credentials of Rapid’s Chief Science Officer.  The complaint also alleges that, in investor communications, Rapid and Schmidt claimed that Rapid’s CBD inhalers “focus on safe, legal, and effective active pharmaceutical ingredients” and serve as “safe replacements for vape pens,” despite an FDA warning letter concerning the safety and the legality of Rapid’s inhalers.  Finally, the complaint alleges that Rapid and Schmidt claimed in investor communications that the Nasdaq had approved Rapid’s listing application “pending pricing requirements being met.”  In reality, the Nasdaq never granted any such approval.

SEC Charges Florida Resident and Resident's Two Companies for Operating as Unregistered Broker-Dealers (SEC Release)
https://www.sec.gov/litigation/litreleases/lr-25831
In a Complaint filed in the United States District Court for the Southern District of Florida https://www.sec.gov/files/litigation/complaints/2023/comp25831.pdf, the SEC charged Wilson J. Rondini, III, Falcon Capital LLP, and Falcon Capital Partners Limited with violating Section 15(a) of the Securities Exchange Act. As alleged in part in the SEC Release, the Defendants:

acted as brokers and dealers, engaged in the business of both effecting transactions in securities for the accounts of others and buying and selling securities for their own accounts. The SEC alleges that, from at least 2018 through the end of 2022, Rondini and his two companies raised tens of millions of dollars on behalf of over a dozen companies that were issuers of securities by selling those companies' securities to investors. The defendants also allegedly bought and sold millions of dollars' worth of securities for their own accounts. However, at no time during the relevant period were Rondini, Falcon Capital LLP, or Falcon Capital Partners Limited registered as broker-dealers with the Commission or associated with a broker-dealer registered with the Commission, as required by the securities laws under these circumstances.

SEC Charges Financial Professional with Insider Trading in His Company's Securities (SEC Release)
https://www.sec.gov/litigation/litreleases/lr-25830
Without admitting or denying the insider-trading allegations in an SEC Complaint, https://www.sec.gov/files/litigation/complaints/2023/comp25830.pdf, Jonathan J. Ferrie consented to the entry of a judgment ordering a permanent injunction prohibiting him from violating the antifraud provisions of Section 10(b) of the Securities Exchange Act and Rule 10b-5 thereunder; and, further, Ferrie agreed to pay $16,039.78 in disgorgement, $1,497.17 in prejudgment interest, and a civil money penalty of $16,039.78; and he agreed to be barred from acting as an officer or director of a public company for a period of three years. As alleged in part in the SEC Release:

[J]onathan J. Ferrie, of Prospect, Connecticut, traded in the securities of his former employer, Cigna, on the basis of material non-public information that he obtained as the financial controller of a division of Cigna's health insurance business. According to the SEC's complaint, in June 2021, Ferrie learned that his division's profitability during the second quarter of 2021 was below expectations due to unexpected increases in health insurance costs related to the Covid-19 pandemic. The SEC alleges that Ferrie immediately purchased Cigna stock options that would be profitable to Ferrie only if Cigna's stock fell substantially in price by mid-August 2021, and Ferrie allegedly knew that Cigna would announce its quarterly financial performance by early August 2021. The SEC further alleges that, on August 5, 2021, Cigna announced higher-than-expected increases in medical costs that Cigna had to cover as its health insurance customers emerged from pandemic lockdowns -- the same metric that Ferrie had seen within his own division. The SEC alleges that Cigna's stock price immediately dropped by 13 percent following the announcement. According to the SEC's complaint, Ferrie sold his options on the morning of the public announcement, making a profit of approximately $16,000, an approximately 236% return on the amount he had invested. The SEC alleges that Ferrie's trades violated Cigna's written policy expressly forbidding both insider trading and trading by employees in options on Cigna stock.

SEC Charges Lyft with Failure to Disclose Board Member’s Financial Interest in Private Shareholder’s Pre-IPO Stock Transaction (SEC Release)
https://www.sec.gov/news/press-release/2023-18
Without admitting or denying the findings in an SEC Order
https://www.sec.gov/files/litigation/admin/2023/34-98413.pdf that it violated Section 13(a) of the Exchange Act and Rule 13a-1 thereunder, Lyft Inc. agreed to a cease-and-desist order and to pay a $10 million civil penalty. As alleged in part in the SEC Release:

[P]rior to Lyft’s IPO in March 2019, a Lyft board director arranged for a shareholder to sell its shares to a special purpose vehicle (“SPV”) set up by an investment adviser affiliated with the same director. The director then contacted an investor interested in purchasing the shares through the SPV. According to the SEC’s order, Lyft, which approved the sale and secured a number of terms in the contract, was a participant in the transaction, and the director was a related person by virtue of his position and because he received millions of dollars in compensation from the investment adviser for his role in structuring and negotiating the deal. Lyft failed to disclose this information regarding the sale in its Form 10-K for 2019. The SEC’s order finds that the director left the Board at the time of the transaction. 

SEC Charges Registered Representative with Causing Brokerage Firm's Failure to Timely File a SAR Concerning Suspicious Wires Surrounding an Acquisition Announcement (SEC Release)
https://www.sec.gov/enforce/34-98418-s
Without admitting or denying the findings in an SEC Order 
https://www.sec.gov/files/litigation/admin/2023/34-98418.pdf that he failed to report suspicious and unusual transactions to his firm's anti-money laundering ("AML") group, which caused the firm to fail to timely file a Suspicious Activity Report ("SAR"), Pierre Economacos agreed to cease and desist from committing or causing any violations and any future violations of Section 17(a) of the Exchange Act and Rule 17a-8 thereunder and to pay a civil penalty of $20,000. As alleged in part in the SEC Release:

[E]conomacos complied with a request from the Customer to make a $50,000 wire transfer from the Customer's account to the brokerage account of the Customer's close relative (the Relative) at another brokerage firm, in order to loan the Relative money. Three days after the $50,000 wire, the company where a close relative of the Customer and Relative was a senior employee (the Executive) announced that it would be acquired, and its stock price increased by approximately 30%. Economacos knew that the Executive was a senior employee at the acquired company, and Economacos learned of the acquisition on the date the acquisition was announced. Within a week after the acquisition announcement, the Relative sent four wires totaling $280,000 back to the Customer's account from accounts of the Relative and two immediate family members, which the Relative controlled, at the other brokerage firm. These wire transactions were unusual in the context of the Customer's account history. For example, while the Customer had sent funds to the Relative's bank account in the past, the Customer had never sent funds to a brokerage account owned by the Relative and the Relative had never paid back to the Customer any of the several hundred thousand dollars that the Relative had borrowed from the Customer's brokerage accounts. The order finds that Economacos's failure to inform his firm's AML group about the suspicious nature of the transactions caused the firm to fail to timely file a SAR regarding the transactions in violation of Section 17(a) of the Exchange Act and Rule 17a-8 thereunder.

Caught in a SAR Trap: Statement on In the Matter of Pierre Economacos by SEC Commissioner Hester M. Peirce and SEC Commissioner Mark T. Uyeda
https://www.sec.gov/news/statement/peirce-uyeda-statement-pierre-economacos-091823

The Commission’s Order Instituting Proceedings[1] finds that Respondent Pierre Economacos, a registered representative with 34 years of experience as a broker and an unblemished record, caused the Firm with which he is associated to violate Securities Exchange Act Section 17(a) and Exchange Act Rule 17a-8.[2] In essence, the Order faults Respondent for lacking a sufficiently suspicious mind because—in the Order’s telling—certain transactions in a longstanding customer’s account triggered one or more “red flags” in the Firm’s anti-money laundering policies. We disagree that the Respondent acted unreasonably.

More than ten years ago, a long-time friend of the Respondent—identified as “Relative” in the Order, but we will refer to the individual as Riley—introduced Respondent to two “close relative[s].” The Order calls these close relatives the “Customer” and the “Executive”, but we will refer to them as Casey and Emerson, respectively. Riley was never one of Respondent’s customers, but Respondent served as a broker for both Casey and Emerson for ten years—from 2011 to 2021. During that ten-year period, Casey made “several hundred thousand dollars of loans” to Riley’s bank accounts from Casey’s brokerage and margin accounts.

Emerson, a “close family member” of Riley and Casey, was a “senior employee” at a Company that announced it would be acquired. Respondent knew that Emerson worked for the Company, and he learned of the acquisition the day it was announced. Four days before the Company’s announcement, Riley and Casey spoke with the Respondent about a planned $50,000 loan from Casey to Riley. Riley told the Respondent that there was some urgency because the funds were for a real estate transaction and asked Respondent to send the funds to Riley’s brokerage account at a different firm. Casey completed the necessary paperwork to authorize the loan, and the funds were sent to Riley’s brokerage account the next day.

Five days after receiving the loan—the day after Emerson’s Company announced the acquisition—Respondent told his team that Riley would be sending funds “to repay the money that [Casey] had loaned [Riley] from [Casey’s] brokerage and margin accounts.” Over the next seven days, Riley caused $280,000 to be wired to Casey’s accounts at the Firm from various accounts at the other brokerage firm. Specifically, $100,000 came from brokerage accounts held in Riley’s name and $180,000 from two separate brokerage accounts “in the names of two immediate family members” but under Riley’s control. Casey told Respondent to use the $280,000 to pay down Casey’s margin account, which reduced its balance by about 60%. The Order states that these payments were the first that “reduce[d] the loan balance” that Riley owed to Casey.

The Order finds this sequence of events suspicious because “the amount of the incoming wire activity was a sudden and abnormal change for [Casey’s] account, occurred within a short period of time in multiple large, round dollar amounts, and occurred in close proximity to the announcement of the acquisition of the Company where [Emerson] worked, triggering a large increase in the Company’s stock price.” To bolster this conclusion, the Order points to some of the “dozens of scenarios involving potentially suspicious activities” included on the “red flags” list in the Firm’s anti-money laundering policy. Yet the Firm’s anti-money laundering policy also acknowledged that the listed “red flags” were not themselves reportable suspicious activities, but were only “indications that a [c]lient may be seeking to engage in a . . . [t]ransaction for an unlawful purpose.” In other words, the “red flags” are not a checklist of transactions that require filing a suspicious activity report (SAR), but rather are a list of factors to consider when assessing whether a particular transaction or set of transactions reaches the reporting threshold set out in the relevant Treasury regulations.

The Treasury regulation at issue requires brokers to report “any suspicious transaction relevant to a possible violation of law or regulation.”[3] The regulation further explains that a transaction should be reported as suspicious if it involves amounts greater than $5,000 and

(i) Involves funds derived from illegal activity or is intended or conducted in order to hide or disguise funds or assets derived from illegal activity (including, without limitation, the ownership, nature, source, location, or control of such funds or assets) as part of a plan to violate or evade any Federal law or regulation or to avoid any transaction reporting requirement under Federal law or regulation;

(ii) Is designed, whether through structuring or other means, to evade any requirements of this chapter or of any other regulations promulgated under the Bank Secrecy Act;

(iii) Has no business or apparent lawful purpose or is not the sort in which the particular customer would normally be expected to engage, and the broker-dealer knows of no reasonable explanation for the transaction after examining the available facts, including the background and possible purpose of the transaction; or

(iv) Involves use of the broker-dealer to facilitate criminal activity.[4]

The Order fails to explain adequately how and why a loan, and subsequent repayment, between close family members amounts to suspicious activity under the Treasury rule. That a substantial repayment took the form of round numbers in a relatively short time period after a long period of non-payment is not itself inherently suspicious, especially given the nature of the loan itself. It is not suspicious to us that a close family member would offer loans on generous pay-when-you-are-able terms. Nor is it suspicious that the loan would eventually get repaid. Similarly, it is unclear to us why Respondent should have viewed the facts that the most recent loan went to Riley’s brokerage (as opposed to bank) account, and that the repayments came from Riley’s brokerage accounts, as making the transactions suspect. Riley was not Respondent’s customer, and the Order contains no facts indicating that Respondent knew or should have known anything about Riley’s finances, beyond the facts surrounding Casey’s loans to Riley. Liquidating securities holdings to pay debts is not inherently suspicious, and the Order does not indicate that Respondent had any knowledge of Riley’s securities holdings in accounts at other firms.[5]

The closest the Order comes to casting a shadow of suspicion over the transactions is the assertion that the repayments took place shortly after the announcement of the acquisition of the Company where Emerson worked, which resulted in a substantial increase in the Company’s stock price. In other words, a suspicious mind would find the transactions suspect because Riley’s close family member—Emerson—worked at the Company, and Riley made a substantial loan repayment to another close family member—Casey—shortly after the acquisition announcement. Was Respondent legally obligated to have suspected that Riley’s sudden ability to make substantial repayments to Casey from various brokerage accounts was somehow connected to trading that took place in those accounts at or around the acquisition announcement? Was Respondent legally obligated to have suspected that the repayment transactions were connected to unlawful trading in Riley’s accounts? All the relevant brokerage accounts were at other firms, and the Order recites no facts indicating the Respondent had any knowledge of the trading that took place in those accounts.

Moreover, Respondent’s knowledge of Casey’s pattern of loaning money to a family member was longstanding, which goes directly to a determination of suspiciousness and how well the Respondent knew his customer. Respondent had a “friendly and social relationship” with Riley; Riley introduced him to Casey and Emerson and both subsequently became long-time customers. Respondent’s relationships with the various individuals, and his knowledge of their relationship to each other,[6] are factors to consider when assessing whether various transactions among them are suspicious. To the extent the Order might be read to suggest that the closeness of the family relationship among Riley, Casey, and Emerson enhances the suspicious nature of the transactions, one could also reasonably argue the opposite.

In the end, Respondent’s purported transgression was a failure to report internally transactions that may have tripped one or more red flags listed in the Firm’s policies. By failing to report the red flags, Respondent in turn caused the Firm to fail in its obligation to file a timely SAR, or so the theory goes. This reasoning, of course, presumes that the transactions at issue in fact presented red flags that merited a SAR, a presumption with which, as explained above, we disagree. It also presumes that it is prudent for the Commission to determine after the fact that a particular set of facts required filing a SAR; however, the law leaves to firms’ judgment whether to file a SAR. Hindsight is always 20/20 and evaluating these cases with the benefit of having new information sets an impossibly high standard and could result in the Commission’s review and institution of future cases second-guessing decisions made by registered representatives based on information they knew at the time the transactions occurred. Additionally, we are concerned that this Order may be detrimental to a well-functioning SAR regime. By levying punishment on a registered representative for failing to red-flag a transaction and consequently failing to make an internal report, we are encouraging registered representatives to view all flags as various shades of red that require internal reporting. That, in turn, may prompt a firm’s compliance department to similarly see red in every flag and file unnecessary SARs. Such defensive filing serves no one—it imposes extra costs on firms, and adds unhelpful clutter to the reporting data, making it less useful in the end.

For all these reasons, we respectfully dissent.

[1] In the Matter of Pierre Economacos, Rel. No 34-98418 (Sept. 18, 2023).

[2] See 15 U.S.C. § 78q(a) and 17 C.F.R. § 240.17a-8. Section 17(a) requires registered brokers to make and keep such records as required by Commission rules, and Rule 17a-8, in turn, requires registered brokers to comply with certain reporting, recordkeeping, and record retention requirements set out in regulations adopted by the Department of the Treasury.

[3] 31 C.F.R. § 1023.320(a)(1).

[4] 31 C.F.R. § 1023.320(a)(2)(i)-(iv).

[5] Similarly, we do not find it suspicious that the repayments came both from Riley’s brokerage account and from brokerage accounts held “in the names of two immediate family members” but under Riley’s control. Again, the Order includes no facts indicating that Respondent had any knowledge of Riley’s finances or those of the immediate family members.

[6] Due to the requirements of the Bank Secrecy Act, the Order does not disclose the precise nature of the “close family” relationship among Riley, Casey, and Emerson. The nature of the relationship could be relevant because transactions might be assessed differently based on the relationship, e.g. transactions between spouses might be assessed differently than those between a parent and a child, which might be assessed differently than those between siblings, cousins of varying degrees, in-laws, etc.. This observation does not suggest anything regarding the relationships at issue in this proceeding.

CFTC

CFTC Orders Chicago-based Advantage Futures LLC to Pay $395,000 for Supervision Failures (CFTC Release)
https://www.cftc.gov/PressRoom/PressReleases/8779-23
The CFTC filed an Order settling charges against registered futures commission merchant Advantage Futures LLC for failing to diligently supervise the handling of commodity interest accounts, which resulted in incomplete and inadequate oversight of its surveillance of customers’ trading activity for disruptive trading over a four-year period, in violation of CFTC regulations. Advantage will pay a $395,000 civil monetary penalty and will cease and desist from any further violations of its supervisory requirements, as charged. As alleged in part in the CFTC Release:

[A]dvantage’s policies and procedures specified that customer trades it cleared would be surveilled for disorderly trading using complex trade analysis software. However, during the relevant period, Advantage did not fully comply with its policies and procedures and failed to process and surveil three separate sets of customer order and execution data over three distinct periods.

According to the order, Advantage’s surveillance vendor failed to process data for one exchange’s futures contracts between July 2018 and December 2020. This lapse occurred because Advantage’s vendor dropped one of the data feeds after testing was complete and surveillance went live. Advantage did not ensure its vendor was receiving and processing all customer trade data, which resulted in certain of its customers’ products trading not being surveilled for nearly two and a half years.

The order also finds Advantage’s surveillance vendor did not receive data from another exchange between June 2019 and June 2022. When Advantage switched to a new clearing broker in June 2019, Advantage, through its surveillance vendor, failed to switch the data feed connections from its prior clearing broker to its new clearing broker.

In addition, the order finds Advantage failed to send its surveillance vendor the order and trade data for a some of its customers’ total trading on two other exchanges between July 2018 and June 2022, which prevented surveillance on that trading activity.    

In total, the order finds Advantage’s failures caused over 12.8 million cleared contracts to not be processed or surveilled between July 2018 and June 2022.  This represents nearly 1.5% of Advantage’s customers’ trading volume during that four-year period. Advantage represents it has taken steps to ensure that, going forward, it receives and surveils trade and order data for exchanges it clears. Those steps include retaining a new surveillance vendor, reprocessing and reviewing data that was not reviewed in real time, hiring additional staff focused on trade surveillance, and implementing controls to ensure connectivity to exchange data feeds. 

CFTC Orders StoneX Markets LLC to Pay $650,000 for Violations of Swap Business Conduct Standards / Swap Dealer Admits It Failed to Disclose Pre-Trade Mid-Market Marks and Failed to Diligently Supervise its Compliance Process (CFTC Release)
https://www.cftc.gov/PressRoom/PressReleases/8778-23
The CFTC filed an Order settling charges against registered swap dealer StoneX Markets LLC
https://www.cftc.gov/media/9261/enfstonexmarketsorder092023/download, for failing to:

• disclose thousands of Pre-Trade Mid-Market Marks ("PTMMM"), in violation of CFTC Regulation 23.431: and 
• diligently supervise its PTMMM compliance process, in violation of CFTC Regulation 23.602.

The Order imposes a $650,000 civil monetary penalty and requires StoneX to complete its remediation and submit reports to the Division of Enforcement on its compliance. As alleged in part in the CFTC Release:

StoneX admits and the order finds that for numerous transactions between 2016 and 2022, StoneX failed to diligently supervise its PTMMM disclosure process, resulting in StoneX’s failure to comply with PTMMM disclosure requirements for thousands of swap transactions. Specifically, StoneX failed to implement procedures to ensure that its PTMMMs were accurate (i.e., consistent with StoneX’s internal pricing methodologies), failed to adequately train and monitor its associated persons regarding PTMMM disclosure requirements, and failed to timely provide PTMMMs to counterparties. 

CFTC Grants Two Whistleblower Awards Totaling Over $15 Million (CFTC Release)
https://www.cftc.gov/PressRoom/PressReleases/8777-23
The CFTC awarded over $15 million to two whistleblowers:

• WB Award No. 23-WB-05
• WB Award No. 23-WB-06

As alleged in part in the CFTC Release:

The recipient of one whistleblower award interpreted key evidence and helped the Division of Enforcement (DOE) staff identify new and productive lines of inquiry. This whistleblower pointed staff to the misconduct at issue in the resulting enforcement action and provided information that conserved CFTC resources.

The other award recipient, after providing the initial information that led to the opening of the investigation, provided a high degree of additional support to DOE staff; including interpreting key evidence for staff; facilitating the appearance of another witness to corroborate the violations; and providing a declaration in support of the matter. Notably, the whistleblower’s information led DOE staff to expand its analysis of the harm customers suffered as a result of the violations.