Corporate whistleblowers can make millions, and a select few are turning it into a business model (CNBC video)Former Park Avenue Bank Director Mendel Zilberberg And Co-Conspirator Charged In $1.4 Million Bank Fraud (DOJ Release)SEC Wins Jury Trial in Layering, Manipulative Trading Case (SEC Release)SEC Obtains Final Judgments Against Broker and Two Principals Found Liable for Fraud (SEC Release)Serial Con Artist Sentenced to More Than 9 Years in Federal Prison for $6.7 Million Swindle of Investors, Family and Friends (DOJ Release)FINRA Arbitration Panel Denies ADA and FMLA Claims. In the Matter of the Arbitration Between Nicole M. Muir, Claimant, v. RBC Capital Markets, LLC, Respondent (FINRA Arbitration Decision)FINRA Bars Rep for Participation in 27 PSTs. In the Matter of Aurora Capital LLC, Respondent (FINRA AWC)FINRA Fines and Suspends Rep Over Unauthorized Trades. In the Matter of John G. Hoagland, Respondent (FINRA AWC)FINRA Fines and Suspends Rep Over a 2012 PST. In the Matter of Brian J. Lockett, Respondent (FINRA AWC)
In or about 2009, ARON FRIED and a co-conspirator not named in the Indictment ("CC-1") sought to obtain a fraudulent loan from the Bank in Manhattan in order to finance an investment in a home health care business. However, knowing that CC-1 would not be credit-worthy and had a criminal record, FRIED and CC-1 used a straw borrower (the "Straw Borrower") for the loan application who was recruited by CC-1. To effectuate the scheme, FRIED and CC-1 partnered with MENDEL ZILBERBERG, then a director of the Bank, who had the power to personally shepherd the fraudulent loan through the Bank's approval process and guard it from scrutiny. Together, the defendants concocted a false premise for the loan, supported the loan application with false representations, and set up pass-through bank accounts to funnel the proceeds of the fraudulent loan to themselves. Specifically, the defendants made or otherwise caused false statements to be made to the Bank regarding, among other things, (a) that the borrower on the loan was the Straw Borrower, when in fact the actual borrowers and beneficiaries of the loan were ZILBERBERG, FRIED, and CC-1; and (b) that the purpose of the loan was for business investments by the Straw Borrower, when in fact the actual purpose of the loan was to benefit ZILBERBERG, FRIED, and CC-1.Based on the false representations made to the Bank and ZILBERBERG's involvement in the loan approval process, the Bank issued a $1.4 million loan to the Straw Borrower, which was quickly disbursed to the defendants through multiple bank accounts and transfers. In total, ZILBERBERG received at least approximately $466,000 of the loan proceeds, FRIED received at least approximately $434,000 of the loan proceeds, and CC-1 received the remainder of the loan proceeds. The loan ultimately defaulted, resulting in a loss of over $1 million.
[N]athan Fayyer and Sergey Pustelnik used their trading firm, Avalon FA Ltd., to illegally profit from two manipulative trading schemes. First, the defendants engaged in a layering scheme, a trading practice which involved placing and canceling orders to trick others into buying or selling stocks at artificial prices. Second, they engaged in cross-market manipulation, which involved buying or selling stocks to artificially impact options prices. These schemes generated more than $25 million in ill-gotten profit for Avalon. Fayyer was Avalon's named owner, and Pustelnik kept his controlling interest in Avalon undisclosed while embedding himself as a registered representative at Lek Securities Corp., a New-York based brokerage firm, in order to facilitate Avalon's trading. Lek Securities and its Chief Executive Officer, Sam Lek, who settled with the SEC prior to trial last month, admitted that the trading occurred and was manipulative.
The first case, which resulted in a guilty plea in February 2018, involved more than $6 million in real estate loans and investments that supposedly would be used to purchase and rehabilitate properties in the Hollywood Hills and New York City. Yohai defaulted on the loans and the properties went into foreclosure - which Yohai tried to delay with bankruptcy filings.
While free on bond and awaiting sentencing in the first federal case, Yohai committed additional crimes. The second case, which resulted in a guilty plea in June 2019, involved a loan fraud scheme related to two of the properties at issue in the original federal case. Here, Yohai submitted a loan request that contained inflated appraisals. He also attempted to defraud another lender as he attempted to refinance the two properties, and Yohai contacted yet another lender with dramatically inflated appraisals to obtain refinancing - an effort that was rebuffed when that third lender learned of Yohai's guilty plea earlier this year.
Also in the second case, Yohai defrauded the owner of a rental property and attempted to lull the owner by showing him a $60,000 check he falsely claimed had been remitted from his ex-wife's account. There are additional fraudulent acts outlined in the complaint which, including a scam in which he sold non-existent artist passes to the music festival in Coachella.
Between April 2017 and June 2018, Zhou, both individually and through a small real estate company she wholly owned and controlled, participated in the sale of $9,050,000 in membership interests in private real estate funds managed by a third party and $5,000,000 in a promissory note with that third-party fund manager. The fund membership interests and the promissory note were securities. The sales involved 15 transactions with seven investors, one of which was an entity owned by two Firm customers. Zhou's real estate company received $179,000 in compensation from the third-party fund manager.In addition, on June 4, 2018, Zhou formed Zhou Fund I LLC ("Zhou Fund"), a private real estate fund managed by Zhou's real estate company. Zhou subsequently filed, on behalf of Zhou Fund, a notice of exempt offering of securities with the Securities and Exchange Commission related to twelve transactions in June and July 2018 through which Zhou and her real estate company sold $2,000,000 in membership interests in Zhou Fund to twelve investors, including three Firm customers. In connection with these transactions, Zhou's real estate company received from Zhou Fund a sourcing fee of $20,000 and, beginning the first quarter of 2019, a quarterly asset management fee.Zhou did not disclose her participation in these private securities transactions in writing or otherwise to Leaders Group and did not receive approval from her Firm to participate in the transactions.
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In September and October 2017, Hoagland executed nine unauthorized trades totaling $99,171 in the account of an elderly customer, EB. On June 20, 2014, Hoagland also executed an unauthorized trade for $34,451 in the account of customer SP. In addition, from September 1, 2017 through November 30, 2017, Hoagland exercised discretion without written authorization, effecting 96 trades in the accounts of five other customers. As a result, Hoagland violated FINRA Rule 2010 for unauthorized trading and NASD Rule 2510(b) and FINRA Rule 2010 for exercising discretion without written authorization. . .
In July 2012, one of Lockett's customers (the "Customer") invested a total of $50,000 in a private placement offering. Lockett participated in the transaction by introducing the transaction to the Customer; summarizing the reasons he liked the investment; meeting with the Customer to review and sign the paperwork; and, causing the paperwork to be submitted. Lockett did not receive compensation for his participation in the transaction.Prior to his participation, Lockett did not provide the Firm with written notice of the transaction. In addition, in March 2013, Lockett attempted to conceal his role in the transaction by suggesting to the Customer that the Customer communicate about the transaction with Lockett in the future via Lockett's personal email address.After the Customer complained to the Firm, the Firm entered into a settlement to resolve the complaint.