Securities Industry Commentator by Bill Singer Esq

It's a somewhat dirty, little secret on Wall Street that virtually all disputes against FINRA member firms are subject to mandatory arbitration before FINRA's arbitration forum. There are some notable exceptions, but those carve-outs were imposed upon the industry amid much gnashing of teeth. Not only is the securities industry afforded the luxury of washing its dirty laundry in its own washing machine but many of the arbitration rules promulgated by FINRA resort to nebulous terms and invoke subjective factors. Making matters worse for defrauded investors or mistreated employees, FINRA's default protocol is to not provide explained decisions from its arbitration panels. Which means that trying to decipher some decisions is often a guessing game as to why a Claimant did or didn't win -- assuming that you can even figure out just what winning means.

Former Merrill Lynch Rep Stuck In FINRA Arbitration Expungement Turnstile (BrokeAndBroker.com Blog)
https://www.brokeandbroker.com/7213/finra-ingle-sec-expungement/
In a recent case on appeal to the SEC, it turns out that FINRA had accepted a former Merrill Lynch registered representative's Arbitration Statement of Claim and charged him for said filing. Then FINRA moved his case forward towards discovery and hearing dates. A FINRA arbitrator held an evidentiary hearing. About a week after the hearing, but before the arbitrator issued an award, a FINRA Case Administrator sent the Claimant-rep a letter denying use of the FINRA arbitration forum. The Claimant had entered FINRA's expungement turnstile but then was trapped inside it.

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DOJ

Serial Fraudster Sentenced for Role in Multiple Investment Fraud Schemes (DOJ Release)
https://www.justice.gov/opa/pr/serial-fraudster-sentenced-role-multiple-investment-fraud-schemes
In the United States District Court for the Northern District of Texas, Daniel Thomas Broyles Sr., a/k/a Dan Thomas, 66, pled guilty to one count of conspiracy to commit mail fraud and wire fraud, one count of mail fraud, and one count of money laundering involving Niyato Industries Inc.; and, additionally, he pled guilty to one count of conspiracy to commit mail fraud and wire fraud involving the EarthWater Limited; and he was sentenced to four years in prison. Previously, seven other defendants were convicted in connection with the Niyato scam, including Niyato’s Chief Executive Officer Robert Leslie Stencil, 66,, who was convicted following a three-week jury trial and sentenced to 12 years and three months in prison. Additionally, eleven other defendants previously pled guilty in connection with the EarthWater fraud, including EarthWater’s Chief Executive Officer Cengiz Jan Comu, 63, who was sentenced to 10 years in prison. As alleged in part in the DOJ Release:

[D]aniel Thomas Broyles Sr., aka Dan Thomas, 66, of Malibu, participated in a high-yield investment fraud scheme involving a sham company named Niyato Industries Inc. (Niyato). Broyles conspired with Niyato’s CEO, Robert Leslie Stencil, 66, of Charlotte, North Carolina, and others to defraud Niyato investors. Together, Broyles, Stencil, and others falsely portrayed Niyato as a leader in electric vehicle manufacturing and converting vehicles to run on compressed natural gas. In reality, Broyles knew, or intentionally avoided learning, that Niyato was merely a sham company that lacked any operational facilities or proprietary technology and virtually all investor funds were being disbursed among the co-conspirators and not used to promote Niyato’s business. In June 2016, after Broyles learned that federal law enforcement agents were investigating Niyato, he relocated to Mexico. When, in August 2016, he learned that he had been indicted, Broyles moved to a new address in Mexico and began using the alias “Daniel Cruz Torrez” to hide from federal law enforcement agents and obstruct the federal government’s prosecution of him.

Broyles also participated in a second high-yield investment fraud involving EarthWater Limited (EarthWater). Broyles conspired with EarthWater’s CEO, Cengiz Jan Comu, 63, of Dallas, and others to sell EarthWater stock. Broyles and others made numerous false and misleading representations, including that EarthWater used the money raised from victim investors to develop and operate the company’s business. In truth, Broyles, Comu, and their co-conspirators had agreed to use the invested victim funds largely for their personal benefit.

Two California Men Sentenced For Insider Trading Using Information Stolen From Lumentum / Srinivasa Kakkera was Sentenced to 18 Months in Prison, and Abbas Saeedi was Sentenced to 5 Months in Prison, for Trading on Material, Non-public Information About Impending Corporate Transactions by Lumentum (DOJ Release)
https://www.justice.gov/usao-sdny/pr/two-california-men-sentenced-insider-trading-using-information-stolen-lumentum
In the United States District Court for the Southern District of New York, after pleading guilty, Srinivasa Kakkera was sentenced to 18 months in prison and ordered to forfeit $2,453,687.99; and Abbas Saeedi was sentenced to five months in prison and ordered to forfeit $691,104.73 for their participation in a scheme to commit insider trading based on material, non-public information (“MNPI”) that a third co-defendant, Amit Bhardwaj (sentenced to 24 months in prison and a fine of $975,000), misappropriated from Bhardwaj’s employer, Lumentum Holdings Inc. (“Lumentum”). As alleged in part in the DOJ Release:

In approximately December 2020, Bhardwaj learned that Lumentum was considering acquiring Coherent, Inc (“Coherent”). Based on this information, Bhardwaj himself purchased Coherent stock and call options, and Bhardwaj tipped three associates, including SAEEDI, and these individuals all traded in Coherent securities as a result.

In or about October 2021, Bhardwaj learned that Lumentum was engaged in confidential discussions with Neophotonics Corporation (“Neophotonics”) about a potential acquisition. Bhardwaj provided this information to KAKKERA, SAEEDI, and Ramesh Chitor, and these individuals all traded in Neophotonics securities. KAKKERA also caused other friends and family to purchase Neophotonics securities. When Neophotonics’ stock price increased substantially following the announcement of the Lumentum acquisition in November 2021, KAKKERA, SAEEDI, and Chitor closed their positions in Neophotonics securities and made collectively approximately $4.3 million in realized and unrealized profits. In particular, KAKKERA made $2,453,687.99 and SAEEDI made $691,104.73.

After they were interviewed by the Federal Bureau of Investigation (“FBI”) and served with federal grand jury subpoenas on approximately March 29, 2022, Bhardwaj, KAKEKRA, and SAEEDI took steps to obstruct the federal investigation of their conduct. They met in person on multiple occasions and discussed, among other things, potential false stories that would conceal their insider trading scheme as well as creating false documents to buttress lies regarding payments that were, in reality, related to the insider trading scheme.

Founder And Former CEO Of Tingo Companies Charged With Securities Fraud (DOJ Release)
https://www.justice.gov/usao-sdny/pr/founder-and-former-ceo-tingo-companies-charged-securities-fraud
In the United States District Court for the Southern District of New York, an Indictment was filed https://www.justice.gov/usao-sdny/pr/founder-and-former-ceo-tingo-companies-charged-securities-fraud charging ODOGWU BANYE MMOBUOSI, a/k/a “Dozy Mmobuosi,” with one count of conspiracy, one count of securities fraud, and one count of making false filings with the SEC. As alleged in part in the DOJ Release:

From at least in or about 2019 through in or about 2023, ODOGWU BANYE MMOBUOSI orchestrated a scheme to enrich himself by falsely representing that Nigerian companies he founded, Tingo Mobile and Tingo Foods, were operational, profitable businesses generating hundreds of millions of dollars in revenue respectively. MMOBUOSI then sold Tingo Mobile and Tingo Foods to companies listed in the United States, including Tingo Group (listed on Nasdaq as “TIO”) and Agri-Fintech Holdings (traded in the Over-the-Counter Markets under symbol “TMNA”). As a result, MMOBUOSI caused Tingo Group and Agri-Fintech to issue financial statements that falsely portrayed Tingo Mobile and Tingo Foods to be cash-rich, revenue-generating companies when, in fact, they were not. MMOBUOSI then looted Tingo Group and Agri-Fintech by misappropriating cash from those companies and engaged in well-timed sales of their shares at inflated prices, generating millions of dollars of profits from his scheme.

SEC

SEC Revokes Transfer Agent Registration
In the Matter of THE EDWARD WALKER BENIFIELD TRUST (SEC Opinion, '34 Act Rel. No. 99271, Admin. Proc. File No. 3-20914)
https://www.sec.gov/files/litigation/opinions/2024/34-99271.pdf
As set forth in the SEC's Syllabus:

Registered transfer agent made inaccurate and untimely Commission filings and failed to furnish required records in response to Commission staff requests. Held, it is in the public interest to revoke transfer agent’s registration.

In pertinent part, the SEC Opinion asserts that:

The record further establishes that the Trust falsely stated in its 2021 TA-2 that it did not need to amend its Form TA-1, even though the address listed therein was incorrect as of at least April 2021. That false statement was material because it “significantly altered the ‘total mix’ of information made available” through the Trust’s regulatory filings. The omitted contact information was essential to the Commission’s ability to carry out important Exchange Act oversight functions by, for example, hindering the Staff’s ability to contact and obtain records from—and thus conduct an examination of—the Trust.

These violations were also willful. The OIP, deemed true, alleges that the Trust willfully violated the Exchange Act and its rules by failing to amend its Form TA-1, timely file its Forms TA-2, or respond to the Staff’s document requests. And, indeed, the record shows that Benifield acted with scienter. Because Benifield admitted to the Staff that he knew the Trust’s address had changed, the Trust must have known that it was false to represent that its TA-1 did not need to be amended. Similarly, the Trust knew that the Staff sought records at least by April 2, 2021, when the Staff discussed its document requests with Benifield via telephone and emailed those requests to the email address listed on its Form TA-1. But the Trust did not respond. It also did not respond to the Staff’s subsequent phone calls to the number Benifield had used in contacting the Staff. Nor did the Trust respond to the Staff’s multiple subsequent emails to its listed email address. By contrast, Benifield promptly responded when the Division sent the Trust
a Wells notice (yet still never responded to the Staff’s document requests).

at pages 8 - 10 of the SEC Opinion

SEC Charges Florida Real Estate Developer Rishi Kapoor with Perpetuating $93 Million Fraud Scheme and Obtains Emergency Relief (SEC Release)
https://www.sec.gov/news/press-release/2024-2
In the United States District Court for the Southern District of Florida, the SEC filed a Complaint https://www.sec.gov/files/litigation/complaints/2024/comp-pr2024-2.pdf that charges charges Rishi Kapoor, Location Ventures LLC, Urbin LLC, and the 20 related entities with violating provisions of the Securities Act and the Securities Exchange Act. As alleged in part in the SEC Release:

[F]rom approximately January 2018, until at least March 2023, Kapoor and certain of the defendant entities solicited investors by, among other things, making several material misrepresentations and omissions regarding Kapoor, Location Ventures, Urbin, and their real estate developments. The false statements allegedly included misrepresenting Kapoor’s compensation; his cash contribution to the capitalization of Location Ventures; the corporate governance of Location Ventures and Urbin; the use of investor funds; and Kapoor’s background. The SEC’s investigation uncovered that Kapoor allegedly misappropriated at least $4.3 million of investor funds and improperly commingled approximately $60 million of investor capital between Location Ventures, Urbin, and some of the other charged entities. The complaint also alleges that Kapoor caused some entities to pay excessive fees and to represent higher returns to investors by significantly understating cost estimates.

SEC Obtains Judgment Against Individual for Participating in Fraudulent Microcap Scheme (SEC Release)
https://www.sec.gov/litigation/litreleases/lr-25919
The United States District Court for the District Massachusetts entered a Final Consent Judgment https://www.sec.gov/files/litigation/litreleases/2024/judg25919.pdf against Vincenzo Carnovale that permanently enjoins him from violating the antifraud provisions of Section 17(a) of the Securities Act and Section 10(b) of the Securities Exchange Act and Rules 10b-5(a) and (c) thereunder, and the registration provisions of Section 5 of the Securities Act; and, further, imposed a penny stock bar on Carnovale and a conduct-based injunction prohibiting Carnovale from participating in the issuance, purchase, offer, or sale of any security except for a security on a national securities exchange for his own account, and orders him to pay disgorgement of ill-gotten gains of $364,683, $79,741 in prejudgment interest thereon, and a civil penalty of $223,229. As alleged in part in the SEC Release:

[F]rom 2016 through at least October 2020, Carnovale and Canadian resident Amar Bahadoorsingh secretly gained control of thinly traded microcap companies, hired stock promoters to create demand for their stock, and generated substantial illicit profits by selling the stock to unsuspecting investors. Carnovale and Bahadoorsingh allegedly hid the fact that they controlled the securities of publicly traded companies. They allegedly misled investors, brokers, and transfer agents (companies that maintain records of stock ownership) to convince these parties that the defendants' stock shares were eligible for trading in the public markets, when in fact their stock was not appropriately registered for sale with the SEC. They also allegedly caused the microcap companies to make materially false and misleading statements in their publicly filed financial statements and reports.

SEC Obtains Final Judgment Against California Man for Insider Trading (SEC Release)
https://www.sec.gov/litigation/litreleases/lr-25920
Without admitting or denying the allegations in a SEC Complaint filed in the United States District Court for the Southern District of New York, Gannon Giguiere consented to entry of a Final Judgment permanently enjoining him from violations of the antifraud provisions of Section 10(b) of the Securities Exchange Act and Rule 10b-5 thereunder and ordering him to pay a civil monetary penalty of $325,000. In part, the SEC Release alleged that:

[G]iguiere purchased 35,000 shares of Long Blockchain stock within hours of receiving confidential information about Long Blockchain from his friend and co-defendant Oliver-Barret Lindsay, who had been tipped by co-defendant Eric Watson, who had signed a confidentiality agreement not to disclose Long Blockchain’s business plans. According to the complaint, the company’s stock price skyrocketed after a press release was issued announcing its shift to blockchain technology. The complaint further alleged that within two hours of the announcement, Giguiere sold his shares for over $160,000 in illicit profits.

Mark Uyeda Sworn in for Second Term as SEC Commissioner (SEC Release)
https://www.sec.gov/news/press-release/2024-1
SEC Commissioner Mark T. Uyeda was sworn in for his second term (expiring in 2028),

CFTC

FINRA

FINRA Fines and Suspends Rep for Associating with Sequoia Investments While Statutorily Disqualified
In the Matter of David A. Elgart, Respondent (FINRA AWC 2021069347101)
https://www.finra.org/sites/default/files/fda_documents/2021069347101
%20David%20A.%20Elgart%20CRD%20825759%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, David A. Elgart submitted a Letter of Acceptance, Waiver and Consent ("AWC"), which FINRA accepted The AWC asserts that David A. Elgart was first registered in 1976, and by 1998, he was registered with Sequoia Investments, Inc., where he served as the firm's President and Chief Compliance Officer. In accordance with the terms of the AWC, FINRA imposed upon Elgart a $20,000 fine and a 18-month suspension from associating with any FINRA member in all capacities. As alleged in part in the AWC [Ed: footnotes omitted]:

On June 3, 2016, the Office of Hearing Officers (OHO) issued a decision finding that Elgart willfully failed to timely update his Form U4 to disclose five tax liens. OHO noted that “[b]ecause [Elgart’s] conduct was willful, and the information he failed to disclose was material, he is subject to statutory disqualification.” Elgart thereafter timely appealed this decision to the National Adjudicatory Counsel (NAC), which stayed the imposition of his statutory disqualification. Elgart became statutorily disqualified under Section 3(a)(39) of the Securities Exchange Act of 1934 on March 16, 2017, after the NAC issued its decision affirming OHO’s findings concerning Elgart’s willful failure to disclose material information on his Form U4.

On November 30, 2018, Sequoia Investments filed a Form U5, terminating Elgart’s registration. In September 2019, the firm filed a Membership Continuance Application (MC-400 Application) seeking to permit Elgart to reassociate with the firm. Elgart knew that he was not permitted to associate with the firm or effect any transaction in—or induce or attempt to induce the purchase or sale of—any municipal security while the MC-400 Application was pending.

Nonetheless, from May 2020 through May 2021, while the MC-400 Application was pending, Elgart associated with the firm when he was not registered with FINRA in any capacity. Elgart, while unregistered and statutorily disqualified, used the login credentials and email addresses of other registered representatives to conduct municipal securities business. Elgart’s activities included discussing and recommending transactions to customers, communicating with firm vendors about trade corrections, and logging on to the firm’s systems to effect trades on behalf of customers. On June 2, 2021, FINRA approved the MC-400 Application.

Elgart associated with Sequoia Investments while unregistered and statutorily disqualified and engaged in activities requiring registration with FINRA. Therefore, Elgart violated Article III, Section 3 of FINRA’s By-Laws, MSRB Rules G-2 and G-4, and FINRA Rules 1210 and 2010.

For more background on Elgart's underlying willful non-disclosures, read: "UPDATE: 11Cir Sustains SEC And FINRA On Willful Failure To Disclose Tax Liens" (BrokeAndBroker.com Blog / September 21, 2018)
https://www.brokeandbroker.com/4198/elgart-tax-liens/

FINRA Fines and Suspends Rep for Inaccurate Rep Code
In the Matter of Jimmy J. Galindo Respondent (FINRA AWC 2020068810001)
https://www.finra.org/sites/default/files/fda_documents/2020068810001
%20Jimmy%20J.%20Galindo%20CRD%202922619%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, Jimmy J. Galindo submitted a Letter of Acceptance, Waiver and Consent ("AWC"), which FINRA accepted The AWC asserts that Jimmy J. Galindo was first registered in 1998, and by 2009 to November 2020, he was registered with Morgan Stanley. In accordance with the terms of the AWC, FINRA imposed upon Galindo a $5,000 fine and a one-month suspension from associating with any FINRA member in all capacities. As alleged in part in the "Overview" of the AWC:

From May 2013 through April 2018, Galindo changed the representative code for 248 trades, causing the trade confirmations to show an inaccurate representative code. As a result, Galindo caused Morgan Stanley to maintain inaccurate books and records in violation of FINRA Rules 4511 and 2010.

Bill Singer's Comment: Of for godsakes, really? It's 2024 and FINRA is only now getting around to fining and suspending Galindo for rep codes that he allegedly changed in 2013 through 2018? As in 11 years ago and six years ago. Not a testament to the effectiveness of Morgan Stanley's in-house compliance or to FINRA's dubious oversight of the industry. In light of the fact that the AWC states that in "December 2020, Morgan Stanley paid restitution to the retired representative and Galindo reimbursed the firm $38,216 . . ." someone, anyone, explain to me what took over three years to bring to FINRA's attention and for that regulator to reduce to a settlement. THREE YEARS!!!

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