Former local bakery owner arrested for stealing identity of deceased baby, $1.5M pandemic relief fraud (DOJ Release)In the Matter of the Application of Equitec Proprietary Markets, LLC for Review of Disciplinary Action Taken by CBOE Exchange, Inc. (SEC Opinion)SEC Charges New York-Based Investment Adviser and Its CEO and Former Chief Compliance Officer with Securities Violations (SEC Release)
[F]rom March 2015 through November 2018, Schwab's mandated disclosures for its robo-adviser product, Schwab Intelligent Portfolios, stated that the amount of cash in the robo-adviser portfolios was determined through a "disciplined portfolio construction methodology," and that the robo-adviser would seek "optimal return[s]." In reality, Schwab's own data showed that under most market conditions, the cash in the portfolios would cause clients to make less money even while taking on the same amount of risk. Schwab advertised the robo-adviser as having neither advisory nor hidden fees, but didn't tell clients about this cash drag on their investment.Schwab made money from the cash allocations in the robo-adviser portfolios by sweeping the cash to its affiliate bank, loaning it out, and then keeping the difference between the interest it earned on the loans and what it paid in interest to the robo-adviser clients.
[P]hillips befriended the victim, then took advantage of that friendship to steal over $50,718 over a 16-month period, January of 2020 to May of 2021. Phillips convinced the victim to loan him the money by claiming he needed to borrow money until his large inheritance came in. Yet, unbeknownst to the victim, at no point was Phillips expecting any inheritance.Even when Phillips left Baton Rouge and moved to Georgia, he continued his scheme, convincing the victim to send 43 wire transfers from Baton Rouge to Georgia to fund his lifestyle there. Throughout the course of the scheme, Phillips continued his fraudulent assertion that he was waiting on an inheritance, even at points claiming to need additional money from the victim to get the 'inheritance' out of the court system.
[M]isseldine stole the identity of a baby who died in 1979 and is buried in a Columbus cemetery.
In 2003, Misseldine allegedly applied for an Ohio ID and later a Social Security card and driver's license using the stolen identity.In 2007, Misseldine allegedly posed as the stolen identity to obtain a student pilot certificate and U.S. Passport. Misseldine submitted paperwork claiming she needed the passport to travel internationally in her occupation as a flight attendant for JetSelect. She was employed under the false identity.Over the next 13 years, Misseldine allegedly continued to obtain identity documents in both her real and fake names. An investigation was launched in 2021 when she tried to renew the fraudulent passport.Court documents allege Misseldine obtained approximately $1.5 million in fraudulent Paycheck Protection Program loans in 2020 using both her real and fake identities. Her loan applications list her businesses as various bakeries and catering companies, including her former bakeries Sugar Inc. Cupcakes & Tea Salon in Dublin and Koko Tea Salon & Bakery in New Albany and at Easton. She submitted forged documents to support her loan applications.Misseldine used the pandemic relief loan money to purchase a home for $647,500 adjacent to Zion National Park in Utah and a home for $327,500 in Michigan.In August and September 2021, Misseldine, after relocating to Utah, allegedly obtained driver's licenses in both names.
[W]hile serving time in the Autry State Prison (Autry) in Georgia in 2015, and continuing through July 2020, Reese participated in a scheme to defraud victims by telling them they had failed to appear for jury duty and a warrant had been issued for their arrest. To carry out this scheme, inmates used contraband cellular telephones from inside Autry to access internet websites to identify the names, addresses, and telephone numbers of potential fraud victims. Using the cellular telephones, inmates called the victims who name, and number had been obtained and made certain false misrepresentations to the victims. The inmates told the victims that they were law enforcement officials and that the victim had unlawfully failed to appear for jury duty. In addition, the victims were told that because they had failed to appear for jury duty, warrants had been issued for their arrest and the victim had a choice of being arrested on the warrant or pay a fine to have the arrest warrant dismissed.To make the calls seem real, Reese, along with other inmates, created fictitious voicemail greetings on their contraband cellular telephones used by the inmates, identifying themselves as members of legitimate law enforcement agencies, including the U.S. Marshal Service. For those victims who wanted to pay a fine, the inmates instructed them to purchase pre-paid cash cards and provide the account number of the cash card or the victim could wire money directly into a pre-paid debit card account held by the inmates or one of the co-conspirators. Based on these false representations, the victims electronically transferred money to the inmates because they believe that the funds would be used to pay the fine.After a victim provided an inmate with the account number of the pre-paid cash card, the inmates then used their contraband cellular telephones to contact co-conspirators, who were not incarcerated, to have those individuals transfer the money from the cash card purchased by the victims to a pre-paid debit card possessed by the co-conspirators. The co-conspirators would then withdraw the victim's money via an automated teller machine or at a retail store.In August of 2016, two individuals, ages 75 and 78, living in the Western District of Louisiana, became victims of Reese's scheme. The victims believed the callers, who were inmates posing as legitimate law enforcement officers, and followed their instructions to pay them to have the alleged warrants for their arrest for failing to appear for jury duty dismissed. The two victims $9,797.95 to Reese and his co-conspirators.
Equitec Proprietary Markets, LLC ("Equitec" or "the Firm"), a registered broker-dealer, appeals disciplinary action taken against it by the Cboe Exchange, Inc., f/k/a Chicago Board Options Exchange, Inc. ("Cboe"). Cboe found that Equitec violated Rule 15c3-5 under the Securities Exchange Act of 1934 (the "Market Access Rule" or the "Rule") and Cboe Rule 4.2 (which requires adherence to applicable laws) by failing to implement and maintain risk-management controls reasonably designed to prevent the entry of orders that exceeded its capital threshold and by failing to implement written supervisory procedures reasonably designed to ensure compliance with all regulatory requirements. For these violations, Cboe imposed a censure and $50,000 fine. We sustain Cboe's findings of violations and imposition of sanctions.
In considering potential aggravating or mitigating factors, we find no mitigating factors. We find that aggravating that Equitec's violations were serious and extensive. The Market Access Rule was specifically designed to protect against "systemic risk" that "could potentially expose a broker or dealer to enormous financial burdens and disrupt the markets." Equitec's numerous deficiencies in its WSPs and its complete exclusion of executed trades for purposes of its capital threshold exposed itself and potentially the market to just such systemic risks.Further aggravating is Equitec's disciplinary history with respect to WSPs. In 2005, Equitec settled with the Pacific Stock Exchange by paying a $2,000 fine after that exchange alleged that Equitec failing to have adequate WSPs. In 2007, Equitec settled with the American Stock Exchange by paying a $90,000 fine after the exchange alleged that Equitec failed to maintain adequate supervisory systems and WSPs. And in 2012, Cboe issued a letter of caution against Equitec based on deficiencies in the Firm's WSPs similar to those at issue here, such as failing to specify how Equitec determined credit and capital thresholds, failing to specify the manner by which Equitec would prevent the entry of orders for securities from traders who were restricted from trading those securities, and failing to specify that Equitec's financial and riskmanagement controls were under Equitec's direct and exclusive control. Under these circumstances, we find that the $50,000 fine is remedial and not excessive or oppressive.
[T]he defendants raised more than $75 million from more than 200 investors in connection with Par Funding's unregistered securities offering from at least August 2017 through July 2020, and received compensation of more than $7 million for doing so. The SEC alleges that the defendants offered and sold securities to investors without approval from the registered broker-dealer with whom they were associated. The complaint also alleges that in 2017, AGM and Camarda failed to inform advisory clients that AGM had borrowed, and had not fully repaid, approximately $750,000 from Par Funding.
Respondent Megurditch Patatian recommended that 59 of his customers invest $7.86 million in non-traded real estate investments trusts ("REITs"). FINRA's Department of Enforcement alleges that Patatian committed several FINRA Rule violations in making those recommendations. Enforcement also alleges that Patatian made unsuitable recommendations for variable annuity surrenders and exchanges and impersonated a customer.The Complaint contains five causes of action. First, Enforcement contends that Patatian's recommendations to his customers to purchase non-traded REITs were unsuitable, violating FINRA Rules 2111 and 2010. Second, Enforcement asserts that Patatian made five unsuitable recommendations to customers to surrender their variable annuities to invest in non-traded REITs, in violation of FINRA Rules 2111 and 2010. Third, Enforcement contends that Patatian made six unsuitable recommendations to customers to exchange their variable annuities, violating FINRA Rules 2330(b) and 2010. Fourth, Enforcement alleges that Patatian impersonated a customer in a telephone call with an insurance company, violating FINRA Rule 2010. Fifth, Enforcement asserts that Patatian created inaccurate forms to facilitate his sale of non-traded REITs, causing his firm to create and maintain inaccurate books and records, in violation of FINRA Rules 4511 and 2010.After a seven-day hearing, we find that Enforcement proved each cause of action. Because Patatian's actions were egregious, we impose a bar. We order Patatian to provide restitution of $262,958.73 plus interest to his 20 customers who sold their REITs at a loss, and to offer rescission to the customers who still hold their REITs. We also order that Patatian disgorge $458,418.07 in commissions he earned from his unsuitable non-traded REIT recommendations.
Bill Singer's Comment: FINRA AWCs permit the attachment of a Corrective Action Statement to demonstrate the steps taken by a respondent to prevent future misconduct subject to the understanding that such an attachment may not deny the charges or make any statement that is inconsistent with the AWC. Further the Corrective Action Statement does not constitute factual or legal findings by FINRA, nor does it reflect the views of FINRA or its staff.Insight Securities' written procedures prohibited the use of instant messages for business purposes unless the firm granted an individual permission to use them. If permission were granted to any individual, the firm's procedures would have obligated it to capture that individual's instant messages and review and retain them, consistent with the firm's procedures related to the review and retention of email communications. However, the firm never granted anyone permission to send or receive instant messages for business purposes.Nonetheless, the firm had no procedures to ensure that its representatives were complying with this prohibition and no procedures for capturing, reviewing, or retaining business-related communications sent or received via instant message. In fact, Insight Securities was aware that multiple representatives were communicating with their customers via WhatsApp and that these communications were often business-related. Yet, the firm failed to take any action to either stop this practice or capture, review, and retain business-related communications sent or received in this manner.As a result, between 2016 and 2019, Insight Securities failed to capture, review, or retain more than 10,000 business-related WhatsApp instant messages sent or received by twenty different Insight Securities representatives. The messages were business-related in that they included information about customers' accounts, investments, or other aspects of the firm's securities business.Therefore, Insight Securities violated Section 17(a) of the Exchange Act, Rule 17a-4 of the Exchange Act, and FINRA Rules 4511, 3110, and 2010.
Corrective Action StatementBeginning in 2019, Insight enlisted the third-party provider TeleMessage to assist monitoring WhatsApp communications. TeleMessage places software on an individual's cell phone that captures any instant messages, including those sent via WhatsApp, sending the instant message to an email address specified by Insight. The instant messages, now in email form, are achieved and then reviewed using the same criteria as that used for standard email review through the use of a lexicon of keywords to identify communications. Tagged messages are then exported to Outlook where rules inputted to Outlook filter out spam messages. The remaining messages are then manually reviewed by compliance to determine if any tagged communication violate Insight's communications policy or reveal possible customer complaints, employee misconduct or malfeasance, or a violation of FINRA rules. Insight also reviews the messages captured by the TeleMessage software on a real-time, random basis. When further investigation is required regarding a flagged message, a questionable transaction, or some other triggering event, compliance can recall all instant messages for an individual representative for a given time period.This Corrective Action Statement is submitted by the
Respondent. It does not constitute factual or legal findings by
FINRA, nor does it reflect the views of FINRA, or its staff.
From Stephen A. Kohn, Candidate for 2022 FINRA Small Firm Governor:THE BULLIES ARE OUT TO GET US . . . And they're doing a good job of it!I've been in this business for a long, long time; just under four decades. With the exception of a few months at a wire-house, I've always been a small firm guy. And, in all that time, one would think things would change, get better, or at least, stay the same. But the mantra has NEVER changed, "GET RID OF THE SMALL FIRMS."And, between the large firms, FINRA and the SEC, the bullies are unrelenting and keep whittling away at our sisters and brothers.So, where are we? The small firm community is on its death bed. Biased regulators are trying to engineer us out of existence through overblown rulebooks and biased regulation. Given that FINRA is a membership organization, one would have hoped for some energetic opposition to the inevitable decline of some of the 90% of FINRA's membership -- look it up, the so-called FINRA Small Firms account for 90%-plus, and dwindling of the total number of member firms. Where is the voice of the FINRA Board of Governors? Sadly, it is a whisper if anything at all. The Board seems beholding to the anti-Small Firm agenda of large firms, FINRA and the SEC. Almost no Governor appears to have the inclination or the guts to take a stand that offers some relief to the little guys.I have served you before and now, I need to get back on the Board of Governors, to again be your voice and to finish my work.I am asking for your petition. Get me on the ballot in this upcoming BOG election.I make no promises to change what's been done.My goal is to stop things from getting worse!Please click the PandaDoc link below and sign my petition, get me on the ballot and back on the BOG to work for our common survival.Let me be your voice.Stephen Kohn(303) 880-4304 Cell PhoneStephen Kohn has been employed in the financial services industry since 1984. In 1996, he founded FINRA member firm Stephen A. Kohn & Associates, Ltd. ("SAKL") On January 2, 2020, he passed ownership of SAKL to DMK Advisor Group, Inc. ("DMK"), still a small, Independent broker/dealer, catering to the needs of forty-one independent representatives and their clients, with office locations in five states, registered in forty-one and Puerto Rico.Stephen holds Series 7, 24, 53, 63, 72, 73, 79 and 99 registrations. He has the honor of having been elected to the FINRA Board of Governors in 2017, representing the Small Broker/Dealer Community. He was also twice elected to the National Adjudicatory Council ("NAC") in 2009 and 2014. He serves as an Industry Arbitrator and has been elected to the District 3 Committee.Stephen graduated from C.W. Post College in 1964 with a BA degree. He has the distinction of having served in the United States Coast Guard.Well known to those in the NASD and now FINRA small-firm community as a passionate and persistent advocate for small broker/dealers, who comprise more than 90% of FINRA membership, Stephen continues to speak out on behalf of his industry constituents and colleagues. He intends to remain active in the FINRA reform movement and urges all like-minded industry participants to reach out to him in full confidence concerning any and all matters.