Vancouver Man Pleads Guilty to Role in Penny Stock Fraud (DOJ Release)
https://www.justice.gov/usao-ma/pr/vancouver-man-pleads-guilty-role-penny-stock-fraud
In the United States District Court for the District of Massachusetts, Marco G. Babini pled guilty to one count of conspiracy to commit securities fraud and wire fraud. As alleged in part in the DOJ Release:

Between approximately July 2012 and March 2013, Babini agreed to participate in a securities fraud scheme involving the planned sale of stock under concealed control during a promotional campaign, a course of conduct commonly known as a “pump-and-dump.” Babini had trading authority over brokerage accounts in Switzerland in the names of nominee entities that held a significant portion of the purportedly unrestricted shares of Endeavor. To raise money to fund a promotional campaign to generate investor demand for the shares, Babini agreed to execute pre-arranged trades with an undercover federal agent. The undercover agent was posing as an individual who had a corrupt network of stockbrokers willing to purchase and hold shares on behalf of their clients in exchange for monetary kickbacks. Babini agreed to execute pre-arranged trades with the goal of raising at least $200,000, and, in December 2012, Babini attempted to execute an initial test trade valued at $20,000.

Babini’s co-conspirators Edward Withrow III and Samuel Brown were previously charged with and convicted of federal offenses. In May 2018, Withrow pleaded guilty to one count of making false statements to the U.S. Securities & Exchange Commission (SEC). Brown separately pleaded guilty in July 2015 to one count of conspiracy to commit securities fraud and wire fraud and one count of making false statements to the SEC. Withrow and Brown were sentenced in December 2018 and January 2019, respectively.

North Carolina Man Admits Role in International Market Manipulation Scheme Related to New Jersey Deli (DOJ Release)
https://www.justice.gov/usao-nj/pr/north-carolina-man-admits-role-international-market-manipulation-scheme-related-new
In the United States District Court for the District of New Jersey, James Patten pled guilty to securities fraud and conspiracy to commit securities fraud. As alleged in part in the DOJ Release:

From 2014 through September 2022, Patten, along with co-defendants Peter Coker Sr., and Peter Coker Jr., conspired to enrich themselves through a scheme to manipulate securities prices via a pattern of coordinated trading, which injected inaccurate information into the marketplace, creating false impressions of supply and demand for these securities.

 As part of the securities fraud scheme, the defendants targeted two publicly traded companies – Hometown International Inc. and E-Waste Corp. – which were both traded on the OTC Link Alternative Trading System, also known as the OTC Marketplace. The OTC Marketplace is an alternative trading system that contains three tiers of markets, which are largely based on the quality and quantity of the listed companies’ information and disclosures.

Patten, Coker Sr., and Coker Jr. took steps to gain control of both entities’ management and stock with the ultimate intention of entering reverse mergers, a transaction through which an existing public company merges with a private operating company. A successful reverse merger would allow the defendants to sell shares of each entity at a significant profit.

In or around 2014, two New Jersey residents began the process of opening a local deli in Paulsboro, New Jersey. One of the individuals discussed his interest in opening the deli with Patten, a long-time friend, who suggested the creation of Hometown International, an umbrella corporation, under which the deli would operate as a wholly owned subsidiary. Unbeknownst to the deli owners, after Hometown International was formed, Patten and his associates began positioning Hometown International as a vehicle for a reverse merger that would yield substantial profit to them.

Around October 2019, Hometown International began selling shares on the OTC Marketplace. Shortly thereafter, Patten, Coker Sr., and Coker Jr. undertook a calculated scheme to gain control of Hometown International’s management and its shares from the deli owners. Patten, Coker Sr., and Coker Jr. took similar actions to gain control of E-Waste Corporation’s stock and management.

Once the defendants gained control of Hometown International and E-Waste’s shares, they arranged for the transfer of millions of shares of stock to a number of nominee entities, including entities controlled by Coker Jr., in an effort to mask their control of the shares.

The defendants transferred shares to family members, friends, and associates and gained control over their trading accounts by obtaining their log-in information in order to conceal the defendants’ involvement. The defendants then used those accounts to commit a number of coordinated trading events, often referred to as match and wash trades, to trade in Hometown International and E-Waste Corp.’s stock on both sides of the transaction.

These tactics artificially inflated the price of Hometown International and E-Waste’s stock by giving the false impression that there was a genuine market interest in the stock. Their scheme had the ultimate impact of artificially inflating Hometown International’s stock by 939 percent and E-Waste’s stock by 19,900 percent.

Maryland Financial Advisor Pleads Guilty to Stealing an Elderly Client’s Life Savings / Defendant Stole Approximately $1 Million from the Victim and Used the Funds for His Personal Benefit; As a Result of the Fraud, Victim’s House Went Into Foreclosure (DOJ Release)
https://www.justice.gov/usao-md/pr/maryland-financial-advisor-pleads-guilty-stealing-elderly-clients-life-savings
In the United States District Court for the District of Maryland, Eddy Blizzard pled guilty today to bank fraud. as alleged in part in the DOJ Release:

[B]lizzard held several licenses that allowed him to operate as a registered broker and a registered investment adviser per the Financial Industry Regulatory Authority (“FINRA”).  From 2003 to 2014, Blizzard was employed by a bank securities company (Bank 1) and from 2014 to 2017 he was employed by a bank investment services company (Bank 2), both in Maryland. 

As detailed in the statement of facts, victim R.M. was a resident of Maryland and had attended school through the ninth grade.  R.M. was 75 years old in January 2020.  Beginning in 1963, R.M. went to work for a Baltimore based commercial air-conditioning company, where he enjoyed a successful career installing commercial grade air conditioning units around the country.  R.M.’s employer offered him supervisory positions at the company, but R.M. declined because he was not able to read or write.  R.M. was able to continue as an air conditioning technician by memorizing facts and figures and conceptualizing things visually.  R.M. routinely worked approximately 15 to 30 hours of overtime per week during his career to make extra money.  In 2003, after approximately 40 years of service with the air conditioning company, R.M. took a buyout and retired.  Six months later, R.M. decided to invest his retirement funds to provide an inheritance for his grandchildren.  R.M. sought investment advice from Bank 1, where he had his depository accounts.

Blizzard began working at Bank 1 shortly after R.M. began investing there and became R.M.’s financial adviser.  Blizzard admitted that in about 2005, he told R.M. that he “went out on his own” meaning that Blizzard began working as an independent financial advisor and asked R.M. if R.M. wanted to leave Bank 1 and use Blizzard as a full-time financial advisor.  Blizzard told R.M. that it would be a while before he had his own office, but he would continue to work out of the Bank 1 branch in Catonsville, Maryland. However, Blizzard never went to work as an independent financial advisor.

According to the plea agreement, approximately once a month, R.M. would drive from his new home in Chester, Maryland on the Eastern Shore to meet with Blizzard at Bank 1 in Catonsville, approximately one hour away; however, R.M. and Blizzard would meet in Blizzard’s car, not the office.  R.M. continued to meet with Blizzard in this way over several years.  These meetings lasted 30 to 45 minutes and R.M. was never told why they were meeting in Blizzard’s car.

Blizzard admitted that after he became R.M.’s financial advisor, he began asking R.M. for signed blank checks.  R.M. recalled giving Blizzard 15-20 signed blank checks.  Blizzard filled in the remaining information to include the payee, the amount, the date, and detailed memo section, but R.M. did not know what the checks were for.  When R.M. received the cancelled checks in the mail, he knew Blizzard had written them out because R.M. recognized Blizzard’s handwriting.  Blizzard used these checks for personal purposes, and not for any benefit of R.M.  On approximately 12 different instances, R.M. went to his local bank to withdraw cash and was told there was not enough money in the account.  R.M. would then call Blizzard to let him know about the deficiency. Blizzard then told R.M. to wait a day or two and there would be funds in the account to withdraw.  R.M. did not ask Blizzard why there were no funds in the account or how those funds were replenished.

During his years of investment with Blizzard, R.M. believed that his retirement funds were protected, meaning they would not lose value – a fact that Blizzard reiterated to R.M. many times.  R.M. also believed that Blizzard was handling payment of R.M.’s mortgage.

As detailed in the plea, in August 2019, R.M. realized there was a problem.  R.M. was preparing to go on a family vacation and attempted to withdraw $1,000 to $1,500 in cash from the local Bank 1 branch and was told there were not sufficient funds in the account.  R.M. attempted to contact Blizzard on his cell phone for a week with no response.  R.M. then went to Blizzard’s Perry Hall, Maryland residence to talk to Blizzard in person, knocking on the front and back doors of Blizzard’s residence.  No one came to the door, but R.M. received a voicemail from Blizzard, while he was still at Blizzard’s home.  In the voicemail, Blizzard stated that the neighbors had called him and were complaining about the banging on the door.  Blizzard further explained that all of R.M.’s money was gone, and that Blizzard had attempted suicide at his parent’s Myrtle Beach, South Carolina home, and was being hospitalized.

On September 19, 2019, Blizzard sent an email to R.M.’s son in response to a message R.M.’s son had sent via social media to Blizzard’s wife inquiring about what happened to R.M.’s money. Blizzard told R.M.’s son that he had made some bad investments and felt terrible about failing R.M. and that is why Blizzard tried to end his life.  As explained in the plea, Blizzard admitted that, in fact, he was never hospitalized and did not attempt suicide in South Carolina and that the reason R.M.’s account lost value was almost entirely because Blizzard withdrew R.M.’s funds, and deposited those funds into his own bank account, to use for his own purposes.

A review of R.M.’s depository and investment accounts showed that between January 2013 and August 2019 there were a total of 242 distributions totaling approximately $1.4 million from R.M.’s retirement accounts.  Of those, 129 distributions totaling $1.2 million were specifically requested from R.M.’s retirement accounts instead of being regular systematic annuity payments.  After taxes and fees were deducted from those requested payments, approximately $1 million was deposited into R.M.’s Bank 1 account. This review also revealed that from April 2016 to April 2019 Blizzard deposited approximately 112 checks drawn on R.M.’s account into various bank accounts at Bank 1 and elsewhere that were held by Blizzard jointly with his wife or individually.  These checks totaled approximately $848,000 and were written to Blizzard or Blizzard’s wife.  A review of these checks showed that almost all had comments written on the memo section indicating various purposes such as payment of property taxes, construction, boat payments, and down payments for a new house.  

In addition, on at least three occasions Blizzard stole R.M.’s Social Security income, which was directly deposited into R.M.’s checking account.  On each occasion, once the payment was deposited into R.M.’s account, a check in the amount of $1,200 or more, signed by R.M. and made payable to Eddy Blizzard, was deposited in Blizzard’s personal account.  Also, in the fall of 2019, R.M.’s home was put into foreclosure because Blizzard failed to make the mortgage payments on R.M.’s home as he had promised.  R.M. died on March 20, 2020.

Blizzard faces a maximum sentence of 30 years in federal prison for bank fraud.  As outlined in the plea agreement, Blizzard will also be required to pay restitution in the full amount of the victims’ losses, which is at least $1,030,000 and to forfeit $848,000 in the form of a money judgment.  U.S. District Judge Stephanie A. Gallagher scheduled sentencing for Blizzard on April 30, 2024, at 11:30 a.m.

Arizona Man Charged With Defrauding at Least 150 Victims in Cryptocurrency Investment Scheme (DOJ Release)
https://www.justice.gov/usao-az/pr/arizona-man-charged-defrauding-least-150-victims-cryptocurrency-investment-scheme
In the United States District Court for the District of Nevada, and 50-count wire fraud and transactional money laundering Indictment was filed against Jeremie Sowerby. As alleged in part in the DOJ Release:.

[S]owerby scammed at least 150 victims out of millions of dollars in a cryptocurrency scheme known as Dunamis Global Technologies. Sowerby marketed Dunamis as a company that sold cryptocurrency mining machines to be hosted in Dunamis warehouse facilities in Lakeside and Tempe, which he falsely claimed to own. Sowerby informed victim-investors that they were purchasing cryptocurrency mining machines with unique serial numbers associated with each victim’s cryptocurrency wallet. In reality, Sowerby directed most of the victim funds to accounts under his control. Any “earnings” were directed to a Dunamis wallet controlled by Sowerby, and victims were never able to access their invested money or any purported profits. Instead, Sowerby stole the money and used it for himself, including purchasing Teslas, residential properties, cryptocurrency, and other expensive items.

Sowerby was previously charged, along with co-defendant Luis Ortega, in a 55-count indictment alleging that Sowerby and Ortega scammed hundreds of victims out of millions of dollars in a cryptocurrency investment scheme under the guise of three entities: Now Mining, VIP Mining, and Millennium Technologies. Sowerby was also previously charged for defrauding an Arizona physician through what he claimed to be an exclusive hedge fund investment opportunity called “Justice Capital.” Both cases remain pending.

From at least in or about November 2019 up through and including at least in or about September 2020, TREVOR MILTON engaged in a scheme to defraud investors by inducing them to purchase shares of Nikola Corporation, the electric- and hydrogen-powered vehicle and energy company that MILTON founded, through false and misleading statements regarding Nikola’s product and technology development.  MILTON’s scheme targeted individual, non-professional investors — so-called “retail investors” — by making false and misleading statements directly to the investing public through social media and television, print, and podcast interviews.

MILTON made these false and misleading statements regarding Nikola’s products and capabilities to induce retail investors to purchase Nikola stock.  MILTON took advantage of the fact that Nikola went public by merging with a Special Purpose Acquisition Company or “SPAC,” rather than through a traditional IPO, by making many of his false and misleading claims during a period where he would have not been allowed to make public statements under rules that govern IPOs.

MILTON made false claims regarding nearly all aspects of Nikola’s business, including: (i) false and misleading statements that the company had early success in creating a “fully functioning” semi-truck prototype known as the “Nikola One,” when MILTON knew the prototype was inoperable; (ii) false and misleading statements that Nikola had engineered and built an electric- and hydrogen-powered pickup truck known as “the Badger” from the “ground up” using Nikola’s parts and technology, when MILTON knew that was not true; (iii) false and misleading statements that Nikola was producing hydrogen and was doing so at a reduced cost, when MILTON knew that in fact no hydrogen was being produced at all by Nikola, at any cost; and (iv) false and misleading claims that reservations made for the future delivery of Nikola’s semi-trucks were binding orders representing billions in revenue, when the vast majority of those orders could be cancelled at any time. 

For example, when Nikola’s stock was publicly traded in 2020, MILTON claimed that Nikola had defied expectations as a young, disruptive company when it managed to build its prototype hydrogen-powered semi-truck, the Nikola One, which Nikola unveiled on or about December 1, 2016, at a large event that was filmed and broadcast on the internet.  During that event and later, MILTON claimed that the prototype Nikola One “fully functions and works, which is really incredible.”  In fact, the Nikola One prototype was never completed and never functioned.  Rather, the prototype was wholly missing significant parts, including gears and motors, and the control system (i.e., the system that communicates the driver’s directions to the vehicle) and other significant systems were missing or incomplete.  Later, in or about January 2018, and despite the fact that the Nikola One prototype was never completed or operational, MILTON published on Twitter and also published on his own Twitter account a video in which the Nikola One appeared to be driving on its own power down a road with no incline.  In fact, to film these clips, the Nikola One was towed to the top of a hill, at which point the “driver” released the brakes, and the truck rolled down the hill until being brought to a stop in front of the stop sign.

Also in 2020, at the same time he was spreading misinformation to investors generally to increase Nikola stock price, MILTON also made false and misleading statements about Nikola’s business and technology to a particular individual as part of an effort to use Nikola stock to make purchases, even when MILTON was subject to a lockup and so could not yet sell his stock.  Specifically, MILTON made misrepresentations about Nikola’s business to an individual in order to induce that individual to accept options to purchase Nikola stock (the value of which had already been inflated by MILTON’s scheme to defraud retail investors) in lieu of cash for the purchase of a substantial ranch in Utah. 

United Kingdom Citizen Extradited to Face Charges in $99 Million Wine Fraud (DOJ Release)
https://www.justice.gov/usao-edny/pr/united-kingdom-citizen-extradited-face-charges-99-million-wine-fraud
In the United States District Court for the Eastern District of New York an Indictment was filed charging Stephen Burton with wire fraud conspiracy, wire fraud and money laundering conspiracy. As alleged in part in the DOJ Release:

[F]rom at least June 2017 and continuing through February 2019, the investors posed as executives at a company called Bordeaux Cellars.  The defendants solicited investors, including residents of the Eastern District of New York, at, among other places, investor conferences held in the United States and overseas.  The defendants claimed to investors that Bordeaux Cellars brokered loans between investors and high-net-worth wine collectors that would be fully collateralized by high-value collections of wine.  The defendants promised that investors would receive regular interest payments from the borrowers, and that Bordeaux Cellars would keep custody of the wine securing the loans while the loans were outstanding.  As alleged, these representations were lies, the “high-net-worth wine collectors” did not actually exist and Bordeaux Cellars did not maintain custody of the wine purportedly securing the loans.  Instead, the defendants used incoming loan proceeds to make fraudulent interest payments to investors and for their own personal expenses. 

Lebanese Citizen Charged with Operating $5 Million Ponzi Scheme Through His Foreign-Exchange Platform (DOJ Release)
https://www.justice.gov/usao-sdfl/pr/lebanese-citizen-charged-operating-5-million-ponzi-scheme-through-his-foreign-exchange
In the United States District Court for the Southern District of Florida, an Indictment was filed that charged Henry Abdo with wire fraud. As alleged in part in the DOJ Release:

[A]bdo, Titanium’s founder and manager, advertised Titanium as a successful investment fund that operated a proprietary multi-currency foreign-exchange platform and invested in other profitable projects.  Titanium solicited investors by guaranteeing a fixed rate of return of 15%, the indictment alleges.  In fact, according to the indictment, Abdo made material misrepresentations about the nature of the intended investment, and in fact diverted investor funds by paying existing investors using new investor funds.  Abdo also, the indictment alleges, misappropriated investor funds to pay his personal expenses, including food, hotels, travel, and clothing.

Also see: SEC Charges Titanium Capital and Founder Henry Abdo with Operating Ponzi Scheme (SEC Release)

Creator of International Digital-Asset Exit Schemes Pleads Guilty to Defrauding Investors / Ivars Auzins Conspired to Steal from Investors in a Series of Digital-Asset Exit Scams Through False Promises and Misrepresentations (DOJ Release)
https://www.justice.gov/usao-edny/pr/creator-international-digital-asset-exit-schemes-pleads-guilty-defrauding-investors
In the United States District Court for the Eastern District of New York, Ivars Auzins pled guilty to conspiring to commit securities fraud in connection with defrauding investors in a series of digital-asset exit scams; and, further, he agreed to pay $497,006 in forfeiture. As alleged in part in the DOJ Release:

[A]uzins and his co-conspirators fraudulently marketed multiple digital-asset offerings to investors worldwide by misrepresenting their products and services, the profits investors would earn and the qualifications of the individuals making the offerings.  Auzins and his co-conspirators intentionally failed to deliver on these promises, diverting millions of dollars’ worth of proceeds for their personal benefit while continuing to represent that the benefits would be forthcoming.  

Two Men Charged for Operating $25M Cryptocurrency Ponzi Scheme (DOJ Release)
https://www.justice.gov/opa/pr/two-men-charged-operating-25m-cryptocurrency-ponzi-scheme
In the United States District Court for the Central District of California, a Superseding Indictment was filed charging David Gilbert Saffron and Vincent Anthony Mazzotta Jr. with conspiracy to commit wire fraud, wire fraud, conspiracy to obstruct justice, conspiracy to commit money laundering, and money laundering; and, additionally, Saffron was charged with having committed felonies while on pre-trial release. As alleged in part in the DOJ Release:

[S]affron and Mazzotta promoted the investment programs under various names including Circle Society, Bitcoin Wealth Management, Omicron Trust, Mind Capital, and Cloud9Capital. Rather than investing victims’ funds in cryptocurrency, Saffron and Mazzotta allegedly misappropriated victims’ funds to pay for personal expenses including private chartered jet flights, luxury hotel accommodations, private mansion rentals, a personal chef, and private security guards.

To execute the scheme, Saffron and Mazzotta allegedly created a fictious entity called the Federal Crypto Reserve. The indictment alleges that, after inducing victims to invest in one of the cryptocurrency investment programs, Saffron and Mazzotta fraudulently solicited victims to pay the Federal Crypto Reserve to investigate and recover the victims’ losses. To conceal his identity, Saffron often allegedly solicited victims under various aliases, including David Gilbert and Dave Gabe, and under various online personas, including the Blue Wizard and Bitcoin Yoda.

Saffron and Mazzotta also allegedly conspired to obstruct official proceedings by concealing assets, concealing or destroying evidence, and falsifying records. The defendants also allegedly conspired to conceal the source and location of victims’ cryptocurrency investments through various means, including using methods known as “blockchain hopping” and through services known as “mixers” or “tumblers” that are designed to prevent cryptocurrency tracing.

Four Individuals Charged for Laundering Millions from Cryptocurrency Investment Scams (DOJ Release)
https://www.justice.gov/opa/pr/four-individuals-charged-laundering-millions-cryptocurrency-investment-scams
In the United States District Court for the Central District of California an Indictment was filed charging Lu Zhang, Justin Walker, Joseph Wong, and Hailong Zhu with conspiracy to commit money laundering, concealment money laundering, and international money laundering. As alleged in part in the DOJ Release:

[Z]hang, Walker, Wong, and Zhu allegedly conspired to open shell companies and bank accounts to launder victim proceeds of cryptocurrency investment scams, also known as “pig butchering,” and other fraudulent schemes. They transferred the funds to domestic and international financial institutions. The overall fraud scheme in the related pig-butchering syndicate involved at least 284 transactions and resulted in more than $80 million in victim losses. More than $20 million in victim funds were directly deposited into bank accounts associated with the defendants.

According to court documents, “pig butchering” fraud schemes (a term derived from a foreign-language phrase used to describe these crimes) consist of scammers encountering victims on dating services, social media, or through unsolicited messages or calls, often masquerading as a wrong number. Scammers initiate relationships with victims and slowly gain their trust, eventually introducing the idea of making a business investment using cryptocurrency. Victims are then directed to other members of the scheme operating fraudulent cryptocurrency investment platforms and applications, where victims are persuaded to make financial investments. Once funds are sent to scammer-controlled accounts, the investment platform often falsely shows significant gains on the purported investment, and the victims are thus induced to make additional investments. Ultimately, the victims are unable to withdraw or recover their money, often resulting in significant losses for the victims.

Virginia Man Sentenced for Securities Fraud Conspiracy (DOJ Release)
https://www.justice.gov/usao-ma/pr/virginia-man-sentenced-securities-fraud-conspiracy
In the United States District Court for the District of Massachusetts, Anthony Jay Pignatello, 53, pled guilt to one count of securities fraud; and he was sentenced to five months probation (the first six weeks in home detention), and ordered to pay a $41,547 forfeiture. As alleged in part in the DOJ Release:

Between 2012 and 2015, Pignatello and co-conspirator Christopher R. Esposito worked together to conceal their control over Cannabiz Mobile and to use backdated promissory notes and other false and misleading documents to fraudulently obtain free-trading shares in the company. Among other steps taken in furtherance of the scheme, Esposito caused another individual to be installed as the company’s chairman, president and CEO, and Pignatello then drafted numerous backdated and false documents for the executive to sign. In reality, the executive reported to Esposito. Pignatello and Esposito then arranged for a promotional campaign in October 2014 to artificially inflate the value and trading volume of Cannabiz Mobile, Inc’s stock so that they could secretly sell their shares. In total, Pignatello personally sold over 800,000 shares fraudulently obtained as part of the scheme.

On Nov. 14, 2023, Esposito was sentenced by U.S. District Court Judge Patti B. Saris to five years of probation, with three months to be served at a halfway house. Esposito was also ordered to pay $20,294 in forfeiture in connection with the pump-and-dump of Cannabiz Mobile. Additionally, he was ordered to pay $61,693.50 in restitution to investors who lost money in a separate purported business venture that Esposito pitched involving the company Code2Action, Inc. Between August 2019 and February 2020, Esposito represented to investors that he would take Code2Action, Inc. public via a reverse merger and he solicited investments in the company for that purpose. The reverse merger, however, never took place. 

Justice Department Announces Distribution of Over $158.9M to Nearly 25,000 Victims of Madoff Ponzi Scheme (DOJ Release)
https://www.justice.gov/opa/pr/justice-department-announces-distribution-over-1589m-nearly-25000-victims-madoff-ponzi
DOJ announced that the Madoff Victim Fund (MVF) began its ninth distribution of over $158.9 million in funds forfeited to the U.S. government in connection with the Bernard L. Madoff Investment Securities LLC (BLMIS) fraud scheme. As alleged in part in the cheery, holiday-themed DOJ Release:

In this distribution, payments will be sent to 24,875 victims across the globe, bringing their total recoveries to 91% of their fraud losses. Through its nine distributions, MVF has paid over $4.22 billion to 40,843 victims as compensation for losses they suffered from the collapse of BLMIS. 

In the Matter of Department of Enforcement, Complainant, vs.Wilson-Davis & Co., Inc., James C. Snow, and Byron B. Barkley, Respondents (FINRA National Adjudicatory Council Decision, Complaint No. 2012032731802 / December 19, 2019)
https://www.finra.org/sites/default/files/fda_documents/2012032731802
%20Wilson-Davis%20%26%20Co.%2C%20Inc.%20CRD%203777
%20James%20C.%20Snow%20CRD%202761102%20Byron
%20B.%20Barkley%20CRD%2012469%20NAC%20Decision%20%20va.pdf
As alleged in part in the NAC Decision [Ed: footnote omitted]:

Wilson-Davis & Co., Inc., ("Wilson-Davis"), James C. Snow, and Byron B. Barkley (collectively the "Respondents") appeal a February 7, 2018 Hearing Panel decision pursuant to FINRA Rule 9311. The Hearing Panel found that from July 9, 2012, to April 29, 2013 (the "relevant short-selling period"), Wilson-Davis engaged in short selling in violation of Rule 203(b)(1) of Regulation SHO of the Securities Exchange Act of 1934 ("Reg SHO") and FINRA Rule 2010 because the firm failed to find locates for 122 short transactions effected in four low-priced stocks. The Hearing Panel also found that Wilson-Davis, Snow, and Barkley failed to reasonably supervise the short sales during the relevant short-selling period to ensure compliance with Reg SHO, in violation of NASD Rule 3010 and FINRA Rule 2010. In addition, and separate from the Reg SHO-related supervisory violations, the Hearing Panel found that from January 1, 2011, through April 30, 2014 (the "relevant period"), Wilson-Davis and Snow failed
to supervise generally registered representatives and principals, failed to supervise whether registered representatives should be subject to heightened supervision, and failed to supervise instant message ("IM") communications, in violation of NASD Rule 3010 and FINRA Rule 2010. Finally, the Hearing Panel found that Wilson-Davis and Snow failed to establish and implement anti-money laundering ("AML") policies and procedures and conduct adequate AML training in violation of FINRA Rules 3310(a), (e) and 2010. After an independent review of the record, we affirm the Hearing Panel's findings and modify the sanctions. 

In the Hearing Panel's earlier Decision, In the Matter of Department of Enforcement, Complainant, vs. Wilson-Davis & Co., Inc., James C. Snow,and Byron B. Barkley, Respondents (FINRA National Adjudicatory Council Decision, Complaint No. 2012032731802 / February 27, 2018)
https://www.finra.org/sites/default/files/fda_documents/2012032731802
%20WILSON-DAVIS%20%26%20CO.%2C%20INC.%20BD%203777
%20JAMES%20C.%20SNOW%202761102%20BYRON%20B.%20BARKLEY
%2012469%20OHO%20DECISION%20jm%20%282019-1563358757656%29.pdf, the Syllabus states:

Respondent Wilson-Davis & Co. is fined $1,170,000 and ordered to disgorge $51,624 for improper short sales. For its failure to supervise and implement adequate AML procedures, Wilson-Davis is fined an additional $300,000, while Respondents James Snow and Byron Barkley are fined $140,000 and $115,000, respectively, and both are suspended for one year and ordered to requalify before re-entering the industry

Note that the NAC Decision asserts that the OHO Decision was dated February 7, 2018, but the OHO Decision reflects a February 27, 2018, date. In modifying the OHO's sanctions, the NAC ordered as follows:

For its unlawful short sales in violation of Rule 203 of Reg SHO, Wilson-Davis is fined $350,000 and ordered to disgorge $51,624, plus prejudgment interest.49For its failures to supervise and implement adequate AML procedures in violation of NASD Rule 3010 and FINRA Rules 3310 and 2010, Wilson-Davis is fined an additional $750,000 and directed to retain an independent consultant as detailed above. 

For his failures to supervise and implement adequate AML procedures in violation of NASD Rule 3010 and FINRA Rules 3310 and 2010, Snow is fined $77,000, suspended in all capacities for three months and in his principal and supervisory capacities for one year, to be served concurrently, and ordered to requalify as a principal by examination before acting in that capacity again. 

For his failure to supervise the short sales in violation of NASD Rule 3010 and FINRA Rule 2010, Barkley is fined $52,000, suspended in all capacities for three months and in his principal and supervisory capacities for one year, to be served concurrently, and ordered to requalify as a principal by examination before acting in that capacity again. We affirm the joint and several imposition of $13,443.39 in hearing costs. . .

In reducing the OHO's fines on Wilson-Davis, the NAC explains, in part, that [Ed; footnotes omitted]:

We agree with the Hearing Panel that there are several aggravating factors reflected in Wilson-Davis's misconduct that render the violations egregious. Wilson-Davis acted recklessly. The firm's misconduct involved 122 trades over a period of close to a year. The short sales also resulted in monetary gain for the firm and affected other market participants.

However, we disagree that the misconduct at issue here was so egregious as to warrant the fine imposed by the Hearing Panel. The Hearing Panel provides no basis, nor does the record support, a fine so far in excess of the Guidelines. See ACAP Fin., Inc. v. SEC, 783 F.3d 763,769 (10th Cir. 2015) (noting several balancing factors that are considered when "fashioning a remedial sanction," including the seriousness of the offense); Dep't of Mkt. Regulation v. Kresge, Complaint No. CMS030182, 2008 FINRA Discip. LEXIS 46, at *35 n.32 (FINRA NAC Oct. 9, 2008) ("Whether a sanction is punitive or remedial . . . depends on the facts and circumstances of the case."); see generally Guidelines, at 7 (listing factors that should be considered in determining appropriate sanctions with respect to all violations). Both the Hearing Panel and Enforcement state that Wilson-Davis made tens of millions of dollars in profits from Kerrigone's short selling, but this contention is not supported by record. In fact, Wilson-Davis made just in excess of $50,000 on three of the four stocks-profits we are ordering be disgorged -and suffered losses in excess of $4.2 million on Kerrigone's LOTE trading. 

Finally, while we decline to calculate the fine on a "per trade" basis as the Hearing Panel did, we do agree that a significant fine is warranted in excess of the recommended ranges. Thus, we believe, on balance, that a fine of $350,000 for the firm's violation of Reg SHO is appropriately remedial. 

SEC Charges Self-Styled Entrepreneur with Offering Fraud (SEC Release)
https://www.sec.gov/litigation/litreleases/lr-25918
In the United States District Court for the Northern District of West Virginia, the SEC filed a Complaint https://www.sec.gov/files/litigation/complaints/2023/comp25918.pdf that charges Diana May Fernandez with violations of 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. Fernandez is currently under arrest in Serbia and awaiting extradition to the United States. As alleged in part in the SEC Release:

[B]etween 2018 and 2020, Fernandez induced investors to participate in the fraudulent securities offering by claiming that she would use their money to invest in, among other things, private and publicly traded companies, crypto assets, and luxury real estate properties, and guaranteeing returns as high as 63 percent. Instead of investing investor funds as promised, Fernandez allegedly used them to pay for her day-to-day living expenses and lavish hotel stays, fund numerous cash withdrawals, and make Ponzi-like payments to earlier investors.

SEC Charges Investment Adviser for Policies and Procedures Failures (SEC Release)
https://www.sec.gov/enforce/ia-6514-s
Without admitting or denying the findings in an SEC Order https://www.sec.gov/files/litigation/admin/2023/ia-6514.pdf that it had violated Sections 204A and 206(4) of the Investment Advisers Act of 1940 and Rule 206(4)-7 thereunder., OEP Capital Advisors, L.P consented to a cease-and-desist order, censure, and the payment of a civil penalty of $4,000,000. As alleged in part in the SEC Release [Ed: "Material Nonpublic Information" is "MNPI"]:

[S]ince at least 2019, OEP made numerous statements to current investors, potential investors and industry contacts that violated OEP’s policies and procedures concerning disclosure of merger-related MNPI and communication of OEP fund performance claims. Further, the order finds, in various business contexts, OEP violated its written policies and procedures on when it was appropriate to disclose MNPI. 

SEC Denies Whistleblower Award to Claimants 1, 2, 3, and 4
Order Determining Whistleblower Award Claim ('34 Act Release No. 34-99230; Whistleblower Award Proc. File No. 2024-6)
https://www.sec.gov/files/rules/other/2023/34-99230.pdf
The Claims Review Staff ("CRS") issued a Preliminary Determination recommending the denials of Whistleblower Awards to Claimants 1 and 2, and Joint Claimants 3 and 4. The Commission ordered that CRS's recommendations be approved. In part the SEC Release alleges that: 

[A]lso extraneous to the determination of Joint Claimants’ award claim is the volume of information and documents and the amount of effort, assistance, and hardship that Joint Claimants alleged to have exerted, extended, and experienced in coming forward with their information. Because the substance and subject matter of Joint Claimants’ information and assistance had no bearing on the charges brought forth in the Covered Action, Joint Claimants did not provide the Commission with original information that led to the successful enforcement of a covered action. Joint Claimants’ allegation that a Commission attorney purportedly made statements extolling the significance of Joint Claimants’ information during the Investigation does not alter this conclusion. An alleged statement made by a Commission attorney does not constitute a legal conclusion regarding a claimant’s eligibility for a whistleblower award. According to the Declaration, ultimately, none of Joint Claimants’ information was used in, nor had any impact on, the charges brought in the Covered Action. Instead, as confirmed by the Declaration, the Covered Action’s charges were based on information obtained from sources other than Joint Claimants and the individuals they identified as witnesses. 

[R]espondents compared the SMART Yield bonds to asset-backed securities and marketed them broadly to the public. Investors could purchase “Senior” or “Junior” SMART Yield bonds through BarnBridge’s website application. SMART Yield pooled crypto assets deposited by the investors and used those assets to generate fixed or variable returns to pay investors. A BarnBridge white paper, published by Ward, claimed that SMART Yield bonds would “mirror the safety and security of highly-rated debt instruments offered by traditional finance…while still providing the outsized return” through its smart contract protocols. According to the orders, SMART Yield attracted more than $509 million in investments from investors, and BarnBridge was paid fees by the investors based on the size of their investment and their choice of yield.

• Claimant 1 of over $13 million;
• Claimants 2, 3, 4, and 5 of over $13 million jointly; and
• Claimants 6 and 7 of about $2 million.

The Commission ordered that CRS's recommendations be approved. 

SEC Charges Former CEO of Medical Device Startup Stimwave with $41 Million Fraud / Scheme included creating and selling a fake medical device that was implanted into patients’ bodies (SEC Release)
https://www.sec.gov/news/press-release/2023-255
In the United States District Court for the Southern District of New York, the SEC filed a Complaint https://www.sec.gov/files/litigation/complaints/2023/comp-pr2023-255.pdf  that charges Stimwave Technologies, Inc.'s former CEO/Co-Founder Laura Tyler Perryman with violating the antifraud provisions of the federal securities laws. A parallel criminal action was filed against Perryman. The SEC Release alleges in part that: 

[D]uring capital fundraising events from 2018 through 2019, Perryman made material misrepresentations about Stimwave’s peripheral nerve stimulation device, or PNS Device, which purported to treat chronic nerve pain by delivering electrical signals to targeted nerves. The device consisted of three key components: (1) a transmitter; (2) a receiver; and (3) an electrode array. The transmitter was worn by patients in a pouch outside the body and sent a wireless signal into the body. A receiver and electrode array were implanted inside patients’ bodies and were together supposed to receive the signal and convert it into electrical currents that stimulated target nerves. As alleged, Stimwave included two receivers of different sizes with the PNS Device, the smaller of which was designed to be used when the larger receiver was too big to implant. The SEC’s complaint alleges that Perryman knew, or was reckless in not knowing, that the smaller receiver was, in reality, fake and nothing more than a piece of plastic. According to the complaint, Perryman misrepresented to investors that the PNS Device was approved by the U.S. Food and Drug Administration and was the only effective device of its kind on the market. The complaint also alleges that Perryman made false and misleading statements to investors about Stimwave’s historical revenues, revenue projections, and business model. After Perryman’s fraud unraveled in the fall of 2019, Stimwave voluntarily recalled the PNS Devices and eventually filed for bankruptcy.

SEC Charges Tingo Mobile Founder, Three Companies with Massive Fraud and Seeks Emergency Relief (SEC Release)
https://www.sec.gov/litigation/litreleases/lr-25913
In the United States District Court for the Southern District of New York, the SEC filed a Complaint that charges Mmobuosi Odogwu Banye a/k/a Dozy Mmobuosi, Tingo Group Inc., Agri-Fintech Holdings Inc., and Tingo International Holdings Inc. with violating the anti-fraud provisions of the federal securities laws. Additionally, the Complaint charges Nasdaq-listed Tingo Group, OTC-traded Agri-Fintech, and Mmobuosi with reporting, books and records, and internal controls violations. It also charges Mmobuosi with lying to auditors, insider trading, and failing to file Forms 4 disclosing the sales of millions of Agri-Fintech common stock for which he was the ultimate beneficial owner. Pursuant to the SEC's emergency application, the federal regulator seeks an Order to Show Cause and other temporary and preliminary relief against Defendants, including a temporary restraining order: (1) freezing Mmobuosi’s assets; (2) prohibiting TIH, Agri-Fintech and Tingo Group from transferring money or property or issuing shares to Mmobuosi; (3) enjoining Defendants from selling or otherwise disposing of their respective holding in Agri-Fintech and/or Tingo Group stock; (4) prohibiting Defendants and their agents from destroying, altering, or concealing records and documents; and (5) ordering Defendants to show cause why a preliminary injunction continuing the relief set forth in any temporary restraining order as well as ordering repatriation of proceeds and a sworn accounting should not be entered. As alleged in part in the SEC Release:

[S]ince at least 2019, Mmobuosi spearheaded a scheme to fabricate financial statements and other documents of the three entities and their Nigerian operating subsidiaries, Tingo Mobile Limited and Tingo Foods PLC. The complaint further alleges that Mmobuosi made and caused the entities to make material misrepresentations about their business operations and financial success in press releases, periodic SEC filings, and other public statements. For instance, Tingo Group’s fiscal year 2022 Form 10-K filed in March 2023 reported a cash and cash equivalent balance of $461.7 million in its subsidiary Tingo Mobile’s Nigerian bank accounts. In reality, those same bank accounts allegedly had a combined balance of less than $50 as of the end of fiscal year 2022. According to the SEC’s complaint, Defendants also fabricated the customer relationships that formed the basis of their purported businesses. The complaint alleges that Mmobuosi and the entities he controls have fraudulently obtained hundreds of millions in money or property through these schemes, and that Mmobuosi has siphoned off funds for his personal benefit, including purchases of luxury cars and travel on private jets, as well as an unsuccessful attempt to acquire an English Football Club Premier League team, among other things.  

Statement on the Denial of a Rulemaking Petition Submitted on behalf of Coinbase Global, Inc. by SEC Chair Gary Gensler
https://www.sec.gov/news/statement/gensler-coinbase-petition-121523

Today, the Commission denied a Petition for Rulemaking[1] filed on behalf of Coinbase Global, Inc. I was pleased to support the Commission’s decision for three reasons. First, existing laws and regulations apply to the crypto securities markets. Second, the SEC addresses the crypto securities markets through rulemaking as well. Third, it is important to maintain Commission discretion in setting its own rulemaking priorities.

SEC Charges Titanium Capital and Founder Henry Abdo with Operating Ponzi Scheme (SEC Release)
https://www.sec.gov/files/litigation/complaints/2023/comp-pr2023-251.pdf
In the United States District Court for the Southern District of Florida, the SEC filed a Complaint https://www.sec.gov/files/litigation/complaints/2023/comp-pr2023-251.pdf that charges Titanium Capital LLC and Henry Abdo with violating federal antifraud provisions and, along with Carol Ann Barsh, the registration provisions of the federal securities laws. Abdo’s relative, Elias Halim Abdo, and Abdo’s wife, Ganna Migulina are named as Relief Defendants. A parallel criminal action was filed againt Abdo. As alleged in part in the SEC Release:

[S]ince 2014, Abdo and Titanium falsely claimed that Titanium invested investor funds in a “Multi Currency Investment Fund” backed by a proprietary currency exchange and that the investment had never had a monthly loss and generated large returns for investors, including up to 102 percent compounded interest for a five-year investment. In recruiting investors, Titanium and Abdo allegedly claimed that Titanium was registered with and closely examined by the SEC. However, according to the SEC’s complaint, neither Titanium nor the offer or sale of its securities is registered with the SEC, and there is no evidence that a proprietary currency exchange exists. According to the complaint, Abdo and Titanium used virtually all investor funds to make Ponzi-style payments to earlier investors, pay related parties, and divert funds for Abdo’s personal use on items such as jewelry and casino visits. The SEC also alleges that Barsh promoted and sold Titanium’s securities to investors without proper registration or pursuant to an exemption from registration. 

Also see: Lebanese Citizen Charged with Operating $5 Million Ponzi Scheme Through His Foreign-Exchange Platform (DOJ Release)

SEC Charges Investment Adviser for Misappropriation of Investor Money (SEC Release)
https://www.sec.gov/litigation/litreleases/lr-25911
In the United States District Court for the District of Connecticut, the SEC filed a Complaint https://www.sec.gov/files/litigation/complaints/2023/comp25911.pdf that charges Justin Murphy and Mara Investments, LLC with violating the antifraud provisions of Section 17(a) of the Securities Act, Section 10(b) of the Securities Exchange Act and Rule 10b-5 thereunder, and Sections 206(1), 206(2), and 206(4) of the Investment Advisers Act of 1940 and Rules 206(4)-8 thereunder.  A parallel criminal action was brought against Murphy. As alleged in part in the SEC Release:

[M]urphy induced multiple individuals to invest approximately $6.6 million in a private investment fund, Mara Investment Management LP (“the Fund”) controlled by Mara Investments.  Murphy told prospective investors that he was trading conservative stocks in the Fund’s brokerage accounts, and generating consistent profits. The complaint alleges that contrary to his representations, Murphy ultimately used almost all of the investors’ money for unauthorized business and personal expenses and to fund a company owned by a relative.  The complaint further alleges that when the depleted assets in the Fund’s brokerage account failed to generate consistent profits, Murphy concealed and furthered the fraud by providing his investors with falsified account statements and inaccurate tax documents that showed profitable trading. 

SEC Obtains Emergency Relief to Halt $191 Million Cattle Ponzi Scheme (SEC Release)
https://www.sec.gov/news/press-release/2023-250
The United States District Court for the Northern District of Texas issued temporary restraining order, asset freeze, and appointed a receiver, and other emergency relief to halt an ongoing $191 million cattle Ponzi scheme being perpetrated by Agridime LLC, which claims to specialize in meat sales, distribution, and animal supply chain management, and its owners, Josh Link of Gilbert, Arizona, and Jed Wood of Fort Worth. Read the SEC Complaint https://www.sec.gov/files/litigation/complaints/2023/comp-pr2023-250.pdf As alleged in part in the SEC Release:

[D]efendants have raised at least $191 million from more than 2,100 investors in at least 15 states by offering and selling investments related to the supposed purchase and sale of cattle. The defendants told investors that Agridime would use their funds to acquire, feed, and raise cattle on its network of ranches, and investors would help provide “fellow Americans with the highest quality farm fresh beef available.” However, as alleged in the complaint, the defendants did not purchase nearly enough cattle or generate sufficient revenues from cattle operations to deliver the promised returns. Instead, the complaint alleges that, since December 2022, the defendants have used at least $58 million of new investor funds to make Ponzi payments to prior investors and more than $11 million to pay undisclosed sales commissions to Wood, Link, Link’s wife, and other Agridime sales representatives. 

Credit Suisse Entities to Pay $10 Million for Providing Prohibited Mutual Fund Services / New Jersey court order caused disqualification of certain Credit Suisse entities (SEC Release)
https://www.sec.gov/news/press-release/2023-249
In October 2022, the Superior Court of New Jersey entered a Consent Order against Credit Suisse Securities (USA) LLC involving allegations of violations of the antifraud provisions of the New Jersey Securities laws in connection with its role as underwriter to residential mortgage-backed securities. Without admitting or denying the findings in an SEC Order https://www.sec.gov/files/litigation/admin/2023/34-99158.pdf, Credit Suisse Securities (USA) LLC and two affiliated Credit Suisse entities (collectively, the Credit Suisse Entities) agreed to pay over $6.7 million in disgorgement and prejudgment interest and $3.3 million in civil penalties to settle SEC charges that they provided prohibited underwriting and advising services to mutual funds. As alleged in part in the SEC Release:

[B]ecause the New Jersey court ordered that Credit Suisse Securities shall not violate New Jersey securities laws, Credit Suisse Securities and its affiliates were prohibited from serving as principal underwriter or investment adviser to mutual funds and employees’ securities companies pursuant to the Investment Company Act of 1940. The SEC order finds, however, that the Credit Suisse Entities continued serving in these prohibited roles until the Commission granted them time-limited exemptions on June 7, 2023. Credit Suisse was acquired by UBS Group AG on June 12, 2023.  

[T]he amendments require that covered clearing agencies in the U.S. Treasury market adopt policies and procedures designed to require their members to submit for clearing certain specified secondary market transactions. These transactions include: all repurchase and reverse repurchase agreements collateralized by U.S. Treasury securities entered into by a member of the covered clearing agency, unless the counterparty is a state or local government or another clearing organization or the repurchase agreement is an inter-affiliate transaction; all purchase and sale transactions entered into by a member of the clearing agency that is an interdealer broker; and all purchase and sale transactions entered into between a clearing agency member and either a registered broker dealer, a government securities broker, a government securities dealer.

Further, the amendments permit broker-dealers to include customer margin required and on deposit at a clearing agency in the U.S. Treasury market as a debit in the customer reserve formula, subject to certain conditions. In addition, the amendments require covered clearing agencies in this market to collect and calculate margin for house and customer transactions separately. Finally, the amendments require policies and procedures designed to ensure that the covered clearing agency has appropriate means to facilitate access to clearing, including for indirect participants. The amendments also include an exemption for transactions in which the counterparty is a central bank, sovereign entity, international financial institution, or natural person.

SEC Statements by Chair and Commissioners
on PCAOB Budget and Treasury Market Clearing

Court Grants SEC Request for Receiver Over GPB Capital Holdings (SEC Release)
https://www.sec.gov/litigation/litreleases/lr-25909
The United States District Court for the Eastern District of New York converted the ongoing monitorship over GPB Capital Holdings, LLC (“GPB Capital”) and multiple affiliated entities into a receivership. As alleged in part in the SEC Release:

According to the SEC’s complaint, David Gentile, the owner and CEO of GPB Capital, and Jeffry Schneider, the owner of GPB Capital’s placement agent Ascendant Capital, lied to investors about the source of money used to make an annualized distribution payment to investors. Investors were allegedly told that the distribution payments were paid exclusively with monies generated by GPB Capital’s portfolio companies, but GPB Capital actually used investor money to pay portions of the annualized distribution payments.  To perpetuate the deception, GPB Capital allegedly manipulated the financial statements to give the false appearance that the funds’ income was closer to generating sufficient income to cover the distribution payments than it actually was. GPB Capital also allegedly violated the whistleblower provisions of the securities laws by including language in termination and separation agreements that impeded individuals from coming forward to the SEC, and by retaliating against a known whistleblower.

The SEC’s complaint, filed in federal court for the Eastern District of New York, charged Gentile, Schneider, GPB Capital, Ascendant Alternative Strategies, and Ascendant Capital with violating the antifraud provisions of the Securities Act of 1933 and the Securities Exchange Act of 1934 (“Exchange Act”), and Jeffrey Lash with aiding and abetting certain of those violations.  The complaint also charged GPB Capital and Gentile with violating the antifraud provisions of the Investment Advisers Act of 1940 (“Advisers Act”) and charged GPB Capital with violating the registration and whistleblower provisions of the Exchange Act and the Advisers Act’s custody and compliance rules.  The complaint sought disgorgement of ill-gotten gains plus prejudgment interest and penalties.

On February 12, 2021, the Court appointed a monitor, Joseph T. Gardemal III, to oversee GPB Capital.  On June 13, 2022, the SEC moved to convert the monitorship into a receivership because of GPB’s alleged breach of the monitor order.  On June 7, 2023, the Court entered a partial judgment against Lash by consent in which he agreed to be permanently enjoined from violations of the charged provisions.  On December 7, 2023, the Court granted the SEC’s motion, and on December 8, 2023, the Court appointed Mr. Gardemal as receiver over GPB Capital and numerous affiliated entities.  Pursuant to the terms of the order, within 45 days, the receiver shall provide the Court an accounting of receivership assets and propose a plan to distribute assets to investors. 

CFTC Orders Freepoint Commodities LLC to Pay $91 million for Fraudulent Scheme to Misappropriate Material Non-Public Information (CFTC Release)
https://www.cftc.gov/PressRoom/PressReleases/8834-23
A CFTC Order https://www.cftc.gov/media/9906/enffreepointcommoditiesorder120423/download found that Freepoint Commodities LLC engaged in fraudulent conduct from 2012 to 2018, by which it improperly obtained and then traded on the South American state-owned enterprise’s (SOE's) material non-public information, undermined the integrity of U.S. and global oil markets. In settling the CFTC Order, Freepoint will pay over $91 million in civil monetary penalties and disgorgement. A parallel criminal matter resulted in the entry of a deferred prosecution agreement (DPA) with Freepoint, deferring criminal prosecution on a charge of conspiracy to violate the Foreign Corrupt Practices Act. As alleged in part in the CFTC Release:

[F]reepoint, through one or more traders, committed fraud by paying bribes to employees and agents of a South American SOE to obtain material non-public information related to the purchase and sale of fuel oil, primarily for delivery to or from the United States. According to the order, one or more Freepoint traders in Connecticut improperly obtained highly confidential market intelligence, including an SOE’s oil production and shipping plans, as well as certain bids submitted by Freepoint’s competitors for oil cargoes, by paying millions of dollars in improper payments to and through an intermediary. Freepoint used this information to purchase fuel oil bound for the United States, among other places. One or more members of Freepoint’s oil trading team knew this information was obtained by the payment of bribes, and they took steps to conceal the fraud, including by using code words, fake names, and private email addresses in connection with the scheme. Freepoint engaged in this scheme to secure unlawful competitive advantages in trading physical oil products, including more than $30 million in improper gains.

Statement Before the Subcommittee on Capital Markets of the U.S. House of Representatives’ Financial Services Committee by Robert W. Cook, President and Chief Executive Officer, FINRA / December 12, 2023
https://www.finra.org/media-center/speeches-testimony/statement-financial-services-committee-us-house-representatives-121223

Chairman Wagner, Ranking Member Sherman and Members of the Subcommittee:

Thank you for the opportunity to appear today to discuss the important work that the Financial Industry Regulatory Authority, or FINRA, is doing to fulfill our mission under the federal securities laws to protect investors and safeguard market integrity while facilitating vibrant capital markets.

The last several years have witnessed a period of continued evolution for the securities markets and those who participate in them. Innovations in technology and financial products and services have created many benefits and opportunities for investors, but in some cases have also introduced new risks or challenges that merit thoughtful regulatory responses.

Throughout this time, FINRA has continued to serve an essential role on the front lines of protecting investors and safeguarding markets, supporting the work of the Securities and Exchange Commission (SEC) and operating under its close supervision. Drawing on an industry self-regulatory model that pre-dates the federal securities laws, FINRA has been well positioned to adapt nimbly to change, leveraging innovative technology and deep market expertise to ensure oversight keeps pace with the industry. Today, we continue to enhance our firm and market oversight programs, bring targeted, significant enforcement cases to address misconduct, improve our engagement with member firms and investors and develop new approaches to help investors make informed investment decisions. And we continue our efforts to look over the horizon, engaging with market participants in new ways that support our mission and making investments in human and technology resources to address emerging risks.

FINRA as a Self-Regulatory Organization

FINRA’s ability to adapt our oversight to rapidly changing markets is made possible by the American model of self-regulation. Self-regulatory organizations (SROs) like FINRA and the national securities exchanges and clearing agencies have been a cornerstone of American securities markets going back to the earliest days of the nation, well before the adoption of a federal regime for securities regulation. In its current form, FINRA (through its predecessor organizations) has existed since 1939, just after Congress first made the policy choice under the Securities Exchange Act of 1934 (Exchange Act) and the Maloney Act of 1938 to create the SEC but maintain and enhance the existing SRO structure in support of its work. Since this deliberate choice to build upon the SRO structure rather than rely exclusively on federal agency supervision, Congress and the courts have periodically examined and reaffirmed the system of self-regulation of brokers and dealers to supplement the SEC’s regulation of the securities industry.

Organization, Regulatory Programs and Funding

FINRA is organized as a not-for-profit Delaware corporation and serves as an SRO for broker- dealers, working to protect investors and ensure the fair and honest operation of the securities markets. While FINRA is registered with the SEC as a “national securities association” pursuant to the Exchange Act¹ and is subject to extensive SEC oversight, it is not a federal agency, it was not created by the federal government, and no FINRA Board members, officers or employees are appointed by the federal government. FINRA’s Board of Governors is composed of both representatives from member firms (including several who are elected to represent different segments of the broker-dealer industry) and non-industry public governors (who comprise the majority of the Board).² In this way, FINRA benefits from diverse perspectives and expertise regarding a range of market, industry, regulatory, operational and governance matters critical to effective policymaking and oversight.³

As the front-line self-regulatory body for broker-dealers, FINRA administers comprehensive regulatory programs that are designed to complement the SEC’s broader oversight of the securities markets. Among other things, FINRA adopts rules that supplement those of the SEC, monitors its member firms to assess risks that exist within the firm and industry, examines its member firms for compliance with FINRA and SEC rules applicable to broker-dealers, surveils trading in the securities markets and enforces member firm compliance where necessary.

FINRA also administers programs and facilities that further promote investor protection and education and provide market transparency, including those that:

• • screen the proposed business activities of potential new member firms to ensure the firms have proper financial, operational, supervisory and compliance resources and systems;
  • register and test securities industry personnel and provide them with continuing education;
  • review specified broker-dealers’ communications with the investing public to ensure they are fair, balanced and not misleading;
  • review public offerings for the fairness and reasonableness of underwriting terms and private placements involving our member firms for potential investor harm;
  • provide investors a free tool — BrokerCheck^® — to research the professional backgrounds of broker-dealers, investment adviser firms and their investment professionals, including disciplinary histories, along with an array of other free resources and educational content for both novice and experienced investors;
  • operate the largest securities arbitration forum in the United States to assist in the fair and efficient resolution of monetary and business disputes involving investors, broker- dealers and individual brokers; and
  • collect and disseminate real-time and historical market information for over-the- counter (OTC) trading in the equity and fixed income markets including the Trade Reporting and Compliance Engine^® (TRACE^®).

FINRA conducts its oversight of broker-dealers in support of the SEC in coordination with the national securities exchanges, which are for-profit SROs that operate and regulate their own markets, and clearing agencies, which are SROs responsible for the clearance and settlement of securities transactions. FINRA does not operate a market or clearing service. FINRA also does not regulate affiliates of broker-dealers or any other financial entities that are not registered broker-dealers, such as investment advisers, mutual funds and other investment companies, insurance companies or banks. Those financial entities are regulated separately by federal and state regulators, without a layer of SRO oversight.

FINRA carries out all its responsibilities at no taxpayer expense. FINRA’s activities are funded by a combination of regulatory fees assessed on members, as well as use-based fees for specific services and data we provide to member firms and the public in support of our regulatory mission. All new fees or changes to existing fees must be filed with the SEC. FINRA’s Board has adopted Financial Guiding Principles, available on FINRA’s website, that govern how we fund our mission, manage expenses, maintain reasonable fees, and sustain appropriate reserves.⁴ FINRA also publishes on its website its annual budget, annual audited financial report and annual report on the use of fine monies.⁵ Like other SROs, FINRA may assess fines on its members or their registered persons. Such fines are accounted for separately, and their use — which must be approved by FINRA’s Board — is limited to certain purposes set forth in the Financial Guiding Principles, which generally include initiatives to promote more effective and efficient regulatory oversight or to promote investor education or improved compliance by member firms.

We also recently filed with the SEC proposed amendments to our communications with the public rule to permit projections of performance in communications to institutional investors and specified private placement-related communications to qualified purchasers.⁴⁵ This proposal would allow more investment information to be communicated to an appropriate audience to improve investor decision making and capital allocation, while facilitating greater use of registered broker-dealers in the sales process.

In addition to these rule changes seeking to improve the efficiency of capital formation, we also seek to support compliance by our member firms in their capital raising activities. For example, we conducted a review of member firms’ offering of and services provided to Special Purpose Acquisition Companies (SPACs) and their affiliates. That review focused on areas such as reasonable investigation, best interests, disclosure of outside business activities or potential conflicts, net capital and supervision, and we shared information from the review so that firms could strengthen their processes around using SPACs as a capital raising vehicle.⁴⁶

Conclusion

As the markets continue to change and retail investors are presented with both new opportunities and risks, FINRA remains firmly focused on its statutory mission of working in support of the SEC to protect investors and promote vibrant capital markets. FINRA will continue to learn, evolve and improve, seeking to become the best self-regulatory organization we can be, and we look forward to maintaining our ongoing engagement with Congress, other regulators, market participants and the public as we pursue our mission.

1 See 15 U.S.C. 78o-3.

2 See FINRA By-Laws, Article VII, Sec. 4.

3 FINRA’s governance structure is described in detail on FINRA’s public website and includes the biographies and committee assignments of its Board members. See https://www.finra.org/about/governance.

4 See https://www.finra.org/sites/default/files/finra_financial_guiding_principles_0.pdf.

5 See https://www.finra.org/about/annual-reports.

6 See https://www.finra.org/about/finra-360/progress-report/retrospective-rule-review.

7 The GAO triennially engages in a comprehensive review of FSIO’s oversight of FINRA per Section 964 of the Dodd-Frank Act.

8 See Regulatory Notice 23-17 (October 2023).

9 See 2023 Report on FINRA’s Examination and Risk Monitoring Program, available at https://www.finra.org/rules-guidance/guidance/reports/2023-finras-examination-and-risk-monitoring- program

10 As of November, FINRA had issued settlements with 21 firms or individuals for Reg BI or Form CRS violations and filed disciplinary complaints against three individuals that include Reg BI violations. FINRA has expelled two firms whose misconduct included Reg BI violations.

11 Earlier this year, we published Regulatory Notice 23-08 (May 2023), which provided guidance on the application of Reg BI to recommendations of private placements to retail investors.

12 See Regulatory Notice 23-20 (December 2023).

13 See https://www.finra.org/rules-guidance/key-topics/regulation-best-interest.

14 See Regulatory Notices 22-21 (October 2022) and 23-06 (March 2023).

15 See The Administration for Community Living, U.S. Department of Health and Human Services, 2021 Profile of Older Americans (November 2022).

16 See, e.g., U.S. Department of the Treasury’s Financial Crimes Enforcement Network (FinCEN), Advisory on Elder Financial Exploitation (June 15, 2022).

17 See Regulatory Notice 19-27 (August 2019).

18 See Protecting Senior Investors 2015-2020: An Update on the FINRA Securities Helpline for Seniors, Other FINRA Initiatives and Member Firm Practices, available at https://www.finra.org/rules-guidance/key- topics/senior-investors/protecting-senior-investors-2015-2020.

19 See Expedited Proceedings for Senior or Seriously Ill Parties, available at https://www.finra.org/arbitration-mediation/rules-case-resources/special-procedures/expedited- proceedings-seniors-seriously-ill.

20 See SW Financial, Case No. 2020065599101 (May 11, 2023) (FINRA AWC) and Monmouth Capital Management LLC, Case No. 2022076459303 (August 6, 2023) (FINRA AWC).

21 For more information, see https://finrafoundation.org/people-we-help/protecting-consumers and https://finrafoundation.org/networks-we-strengthen/fighting-fraud.

22 See New Investors 2022: Entering the Market in Novel and Traditional Ways, available at https://www.finrafoundation.org/sites/finrafoundation/files/New-Investors-2022-Entering-The-Market- In-Novel-and-Traditional-Ways.pdf.

23 Ibid. See also Investing 2020: New Accounts and the People Who Opened Them, available at https://www.finrafoundation.org/sites/finrafoundation/files/investing-2020-new-accounts-and-the- people-who-opened-them_1_0.pdf.

24 See Investors in the United States: The Changing Landscape, available at https://www.finrafoundation.org/sites/finrafoundation/files/NFCS-Investor-Report-Changing- Landscape.pdf.

25 For example, nearly half of Gen Z investors reported using social media to learn about investing and financial topics, compared to less than one-third who said they rely on financial professionals. See Gen Z and Investing: Social Media, Crypto, FOMO, and Family, available at https://www.finrafoundation.org/sites/finrafoundation/files/Gen-Z-and-Investing.pdf .

26 On a 10-question investing knowledge quiz, investors with less than two years of investing experience could, on average, answer 3.6 questions correctly, compared to 5.3 for those with 10 or more years of investing experience. See Investors in the United States: The Changing Landscape, available at https://www.finrafoundation.org/sites/finrafoundation/files/NFCS-Investor-Report-Changing- Landscape.pdf.

27 See Investing 2020: New Accounts and the People Who Opened Them, available at https://www.finrafoundation.org/sites/finrafoundation/files/investing-2020-new-accounts-and-the- people-who-opened-them_1_0.pdf.

28 See https://www.finra.org/investors/insights/how-avoid-bad-financial-luck-friday-13th.

29 See https://www.finra.org/rules-guidance/guidance/targeted-examination-letters/sweep-update- feb2023.

30 See Securities Exchange Act Release No. 92766 (August 27, 2021), 86 FR 49067 (September 1, 2021).

31 See Securities Exchange Act Release No. 97990 (July 26, 2023), 88 FR 53960 (August 9, 2023).

32 See Options Clearing Corporation Annual Volume and Open Interest Statistics at https://www.theocc.com/market-data/market-data-reports/volume-and-open-interest/historical- volume-statistics.

33 See Regulatory Notice 21-15 (April 2021).

34 See https://www.finra.org/rules-guidance/guidance/targeted-examination-letters/sweep-update.

35 See https://www.finra.org/investors/investing/investment-products/options#overview.

36 See https://www.finra.org/investors/insights/zeroing-in-options-trading-strategy.

37 See Regulatory Notice 22-08 (March 2022).

38 Three of the 29 approved firms have since withdrawn their membership.

39 See https://www.finra.org/media-center/blog/trace-at-20-reflecting-advances-transparency-fixed- income.

40 See, e.g., Guidance related to Cybersecurity at https://www.finra.org/rules-guidance/guidance/by- topic?term=3686.

41 See Regulatory Notice 23-11 (June 2023).

42 See Securities Exchange Act Release No. 99075 (December 4, 2023) (Notice of Filing and Immediate Effectiveness of File No. SR-FINRA-2023-017).

43 See, e.g., Regulatory Notice 23-15 (September 2023).

44 See Regulatory Notice 23-09 (May 2023).

45 See Securities Exchange Act Release No. 98977 (November 17, 2023), 88 FR 82482 (November 24, 2023) (Notice of Filing of File No. SR-FINRA-2023-016).

46 See https://www.finra.org/rules-guidance/guidance/targeted-examination-letters/sweep-update-oct2023.

FINRA Suspends Operations Professional for Backdating Documents Produced to Self-Regulatory-Organization
In the Matter of John A. Ordonez, Respondent (FINRA AWC 2015044336602)
https://www.finra.org/sites/default/files/fda_documents/2015044336602
%20John%20Ordonez%20CRD%204308539%20AWC%20gg.pdf
For the purpose of proposing a settlement of rule violations alleged by the Financial Industry Regulatory Authority ("FINRA"), without admitting or denying the findings, prior to a regulatory hearing, and without an adjudication of any issue, John A. Ordonez submitted a Letter of Acceptance, Waiver and Consent ("AWC"), which FINRA accepted The AWC asserts that John A. Ordonez was first registered in 2006, and by 2014, he was registered with BGC Financial, L.P. In accordance with the terms of the AWC, FINRA imposed upon Ordonez a $10,000 fine and a 13-month suspension from associating with any FINRA member in all capacities. As alleged in part in the AWC:

FINRA Suspends Rep for Willful Untimely Disclosure of Felony Charges
In the Matter of Joseph Neil Savasta, Respondent (FINRA AWC 2022077233201)
https://www.finra.org/sites/default/files/fda_documents/2022077233201
%20Joseph%20Neil%20Savasta%20CRD%201284685%20AWC%20lp.pdf
For the purpose of proposing a settlement of rule violations alleged by the Financial Industry Regulatory Authority ("FINRA"), without admitting or denying the findings, prior to a regulatory hearing, and without an adjudication of any issue, Joseph Neil Savasta submitted a Letter of Acceptance, Waiver and Consent ("AWC"), which FINRA accepted The AWC asserts that Joseph Neil Savasta was first registered in 1999, and by 2015, he was registered with Quint Capital Corporation. In accordance with the terms of the AWC, FINRA imposed upon Savasta a $5,000 fine and a six-month suspension from associating with any FINRA member in all capacities. The AWC asserts that:

Respondent understands that this settlement includes a finding that he willfully violated Rule 15l-1 of the Securities Exchange Act of 1934 and that under Article III, Section 4 of FINRA’s By-Laws, this makes him subject to statutory disqualification with respect to association with a member.

As alleged in part in the AWC:

On July 7, 2021, while associated with Quint Capital, Savasta was arrested in Suffolk County, New York, and charged with Aggravated Vehicular Assault, a Class C Felony; Assault in the Second Degree, a Class D Felony; Vehicular Assault in the Second Degree, a Class E Felony; and two counts of Driving While Intoxicated, a Class E Felony. Although Savasta was aware that he had been charged with multiple felonies, he did not amend his Form U4 to disclose that fact within 30 days, as he was required to do. Savasta did not amend his Form U4 to disclose his felony charges until November 2, 2022, approximately 16 months after his initial arrest.

Savasta ultimately pled guilty to three of the felonies on October 6, 2022, and the remaining charges were dismissed. However, Savasta did not include information about his felony guilty pleas in the amended Form U-4 filed on November 2, 2022. It was not until a further amended Form U4 was filed on December 12, 2022, more than 30 days after he pled guilty to the three felonies, that his guilty pleas were disclosed.

By willfully failing to timely disclose the felony charges and guilty pleas on his Form U4, Savasta violated Article V, Section 2(c) of FINRA's By-Laws and FINRA Rules 1122 and 2010. 

Potential Phishing Attacks Related to Okta Customer Support System
(FINRA Guidance)
https://www.finra.org/rules-guidance/guidance/cybersecurity-alert-potential-phishing-attacks-okta-cutomer-service-121123
In part the FINRA Guidance alerts the industry as follows:

IMPACT: Firms using Okta Security products: Okta Workforce Identity Cloud and Customer Identity Solution 

Firms should review this information with their information technology personnel and any vendors or 3rd parties to assess the risk associated with the Okta data breach.

FINRA’s Cyber and Analytics Unit (CAU) is highlighting an Okta data breach spanning from September 28 to October 17, 2023 that impacts Okta customer support system users.  Okta reported that threat actors downloaded names and email addresses, along with other relevant metadata, of their customer support system users. The information could be leveraged in phishing or other social engineering attacks and potentially lead to the targeting of firm personnel in an Okta administrator or customer support role. 

In Okta’s initial reporting, the threat actor leveraged session tokens and hijacked the service account, which potentially allowed actors to view and update Okta customer support cases. New analysis by Okta revealed an impact to nearly all Okta customer support system users, some of which are also administrators. However, Okta was not aware of the compromised data being actively exploited as of late November.

Credentials and other identifying information exposed in the Okta breach may be leveraged by threat actors to conduct social engineering attacks. For example, a recent FINRA alert described an ongoing phishing and social engineering campaign exploiting leaked credentials targeting IT help desk personnel.