On February 1, 2017, Rosemary McGinley (CRD #2435216, Doylestown, Pennsylvania) submitted a Letter of Acceptance, Waiver and Consent (“AWC”) in which she was suspended from association with any FINRA member in any capacity for 10 business days.

In determining the sanction, FINRA considered the fact that Rosemary McGinley’s member firm separately suspended and fined her for the same conduct. Without admitting or denying the findings, McGinley consented to the sanction and to the entry of findings that she failed to follow her firm’s procedures when, in order to facilitate two separate wire transfer requests made by an individual posing as a firm customer, she accepted trade orders from an imposter via email and failed to obtain the customer’s verbal authorization to place the trades. The findings stated that a firm branch office received four email requests to transfer funds from the customer’s account to multiple outside bank accounts. Unbeknownst to the registered representative for the account, these requests did not come from the customer but from the imposter who had gained unlawful access to the customer’s email. Read More

On February 1, 2017, Legend Securities, Inc. (CRD #44952, New York, New York) was named a respondent in a FINRA complaint alleging various claims arising from failures in the firm’s compliance and supervisory systems and procedures.

The complaint alleges that Legend Securities failed to report to FINRA, or failed to timely report, 96 customer complaints sent primarily by electronic mail (some of which were reported more than two years late), and that the firm also failed to timely file amendments to Forms U4 or U5 to report arbitrations and complaints against Legend Securities and its associated persons asserting sales practice violations. The complaint also alleges that the firm failed to establish, maintain and enforce reasonable supervisory systems regarding these matters and for the review of electronic correspondence. The complaint further alleges that Legend Securities failed to establish, maintain and enforce a reasonable supervisory system for heightened supervision in light of the fact that on numerous occasions it failed to consider whether representatives with histories of customer complaints, disciplinary actions or other allegations of misconduct should be placed on heightened supervision. In addition, the complaint alleges that Legend Securities charged customers “handling fees”—which were identified on customer confirmations separate from commissions charged on the transaction—but failed to disclose that such fees, which totaled $870,000 for the relevant period, were in reality additional commissions retained by the firm and not per-ticket, transactional charges. For this conduct, the complaint alleges that the Firm willfully violated Section 10(b) of the Exchange Act and Rule 10b-10. Read More

On February 22, 2017, Albert Fried & Company, LLC (CRD #1914, New York, New York) submitted a Letter of Acceptance, Waiver and Consent (“AWC”) in which the firm was censured and fined $27,500.

Without admitting or denying the findings, Albert Fried & Company consented to the sanctions and to the entry of findings that it failed to report 28 short positions totaling 8,757,100 shares in foreign-listed securities that shared a common International Securities Identification Number (ISIN) with a U.S.-listed or traded security. The findings stated that Albert Fried & Company’s supervisory system did not provide for supervision reasonably designed to achieve compliance with respect to the applicable securities laws and regulations and FINRA rules. Albert Fried & Company’s WSPs failed to provide for one or more of the minimum requirements for adequate WSPs concerning short interest reporting, including the reporting of foreign-listed securities, under FINRA Rule 4560. Read More

On February 9, 2017, Alejandro Falla (CRD #5064828, Miami, Florida) submitted an AWC in which he was barred from association with any FINRA member in any capacity.

Without admitting or denying the findings, Falla consented to the sanction and to the entry of findings that he failed to disclose the use of non-market foreign exchange (FX) rates in connection with a series of bond swap transactions in retail customer accounts. The findings stated that Falla’s member firm, operating through Alejandro Falla, executed numerous retail customer transactions with inaccurate valuations when converted into U.S. dollars, which affected multiple customer accounts. Falla either manually or caused firm personnel to input non-market FX rates for bond swap transactions in his customer accounts. Read More

Jay Hatton (CRD #1725472, Edinburgh, Indiana) submitted an Offer of Settlement in which he was assessed a deferred fine of $10,000 and suspended from association with any FINRA member in any capacity for two years. Without admitting or denying the allegations, Jay Hatton consented to the sanctions and to the entry of findings that he willfully failed to timely amend his Uniform Application for Securities Industry Registration or Transfer (Form U4) to disclose criminal matters, a judgment and a lien.

The findings stated that Jay Hatton made material misrepresentations and failed to disclose material information to his member firm on its 2010, 2011, 2012 and 2013 Advisor Questionnaires. Jay Hatton falsely answered “no” to the questions that asked, “Do you have any outstanding judgments/liens?” and “Is your current CRD U4 outdated, inaccurate or incomplete in any material respect?” The findings also stated that Jay Hatton failed to appear and provide FINRA with requested testimony in connection with an investigation regarding his failure to disclose certain material events on his Form U4. The suspension is in effect from February 21, 2017, through February 20, 2019. Read More

Lightspeed Trading, LLC (CRD #35519, New York, New York) was named a respondent in a FINRA complaint alleging that it failed to establish, document, and maintain an adequate system of risk management controls and supervisory procedures, including certain pre-trade and post-trade risk controls, to ensure compliance with applicable federal securities laws and regulations and FINRA rules.

The complaint alleges that Lightspeed Trading failed to establish a system of reasonable supervision, including adequate WSPs, by failing to have sufficient procedures for the review of orders entered by firm customers, and failed to maintain systems to surveil for potentially manipulative trading activity. As an introducing broker, Lightspeed Trading was responsible for monitoring and reviewing its customers’ order flow to detect and report suspicious and potentially manipulative trades, and to ensure that order flow entered by the firm’s customers complied with applicable federal securities laws and regulations and FINRA rules. Through multiple industry-wide notices published during the relevant period, the firm was on notice of its obligations and responsibilities to implement risk management controls and supervisory procedures reasonably designed to manage the financial, regulatory and other risks of its market access business. Despite the applicable rules and notices, the firm failed to adequately surveil for, and prevent, potentially manipulative trading activity by its customers. Read More

J.W. Korth & Company, Limited Partnership (CRD #26455, Lansing, Michigan) was ordered to pay the approximate amount of $29,268, plus interest, in restitution to customers and in lieu of a fine, is required to retain an independent consultant with experience in establishing pricing procedures for sales and purchases of debt securities to review the firm’s pricing procedures with a view towards ensuring that the firm does not charge prices in excess of what is fair and reasonable, taking into consideration all relevant factors.

Any restitution that J.W. Korth & Company is not able to pay to a customer must be paid to FINRA, without interest, as a fine. The sanctions were based on findings that J.W. Korth & Company charged excessive markups on sales of municipal bonds and corporate bonds, and excessive markdowns on purchases of corporate bonds. The findings stated that the various markups and markdowns were not fair and reasonable. OHO dismissed allegations that the firm charged excessive markups or markdowns relating to three sales of collateralized mortgage obligations, six sales of municipal bonds and two sales of corporate bonds. This matter has been appealed to the NAC and the sanctions are not in effect pending review. Read More

Fox Financial Management Corporation (CRD® #134277, Carrollton, Texas), Brian Murphy (CRD #4743164, Frisco, Texas) and James Rooney Jr. (CRD #1857754, Carrollton, Texas) were expelled from FINRA® membership and fined $100,000.

Murphy was fined $25,000, barred from association with any FINRA member in any principal or supervisory capacity, and suspended from association with any FINRA member in any capacity for three months. Rooney was fined $50,000, barred from association with any FINRA member in any principal or supervisory capacity, and suspended from association with any FINRA member in any capacity for six months. The National Adjudicatory Council (NAC) affirmed the findings and modified the sanctions following appeal of an Office of Hearing Officers (OHO) decision. Read More

On April 20, 2017, the Financial Industry Regulatory Authority (FINRA) announced that FINRA’s Securities Helpline for Seniors^®,  their senior helpline, marked its second anniversary with $4.3 million in voluntary reimbursements to callers since its launch on April 20, 2015.

Susan Axelrod, Executive Vice President, Regulatory Operations, said, “FINRA is committed to protecting senior investors, and our dedicated helpline staff has done a great job responding to callers’ questions, recognizing and addressing concerns around certain products and issues, and promptly escalating relevant matters. The helpline’s success is also due in large part to firms that are proactively assessing issues raised to them by senior helpline staff and making customers whole where appropriate.” Read More

On April 19, 2017, the Securities and Exchange Commission (“SEC”) charged Matthew Fox of Plano, Texas and his company, Wayne Energy, LLC, with securities fraud arising from a failed offering of interests in a joint venture formed to rework and recomplete an oil and gas well in Upshur County, Texas.

The SEC’s complaint, filed in federal district court in Sherman, Texas, alleges that Matthew Fox raised approximately $950,000 for this joint venture between March 2015 and October 2016. The complaint alleges that Fox had previously operated another oil and gas company – Frisco Exploration Company – but formed Wayne Energy in March 2015, after Frisco Exploration failed. Wayne Energy was to be the manager of the joint venture. The SEC further alleges that, to raise funds for the joint venture, Fox simply recycled offering documents he had used at Frisco Exploration. But, according to the SEC’s complaint, other than occasionally changing the names of the entities, Matthew Fox did not customize the offering documents to the joint venture’s business or risks. And, according to the SEC, these offering documents falsely stated that Wayne Energy would not commingle its funds with those of the joint venture, and that Wayne Energy was an operator licensed with the Texas Railroad Commission, neither of which statements was true. Read More

In October of last year, the Securities and Exchange Commission (“SEC”), adopted final rules (1) amending Rule 147, also known as Intrastate Crowdfunding and Rule 504 under the Securities Act of 1933, as amended (the “Securities Act”),  and (2) establishing a new Securities Act exemption designated Rule 147A.  Amended Rule 147 and new Rule 147A took effect on April 20, 2017, and amended Rule 504 took effect on January 20, 2017. As amended, Rule 147 facilitates offerings relying on intrastate crowdfunding exemptions under state securities laws. Further, Rule 147A further accommodates offers accessible to out-of-state residents and companies that are incorporated out-of-state.

On April 19, 2017, the SEC issued a new compliance and disclosure interpretation addressing intrastate crowdfunded offerings under new Rule 147A under the Securities Act. The new Intrastate Crowdfunding compliance and disclosure interpretation provides that under Rule 147A(g)(1), offers and sales made in reliance on Rule 147A will not be integrated with prior offers and sales of securities. The issuer must still comply with all applicable state securities law requirements. Read More

On April 17, 2017, the Securities and Exchange Commission (“SEC”) charged a New York-based investment adviser, Hyaline Capital Management, LLC, and one of its founders, Justin Meadlin, with disseminating false information to prospective investors and clients in order to induce them to invest money with them.

The case arose from the SEC’s Aberrational Performance Inquiry, an initiative led by the Enforcement Division’s Asset Management Unit that uses proprietary risk analytics to identify hedge funds with suspicious returns. Read More

At 9:30 a.m. EDT on April 12, 2017, the Securities and Exchange Commission  announced the temporary suspension of trading in the securities of Sunshine Capital, Inc. (“SCNP”), of Hollywood, Florida, terminating at 11:59 p.m. EDT on April 26, 2017.

The Commission temporarily suspended trading in the securities of Sunshine Capital because of questions regarding the accuracy of assertions by Sunshine Capital in press releases to investors concerning, among other things, the liquidity and value of the company’s assets, namely DIBCOINS, a cryptocurrency. This order was entered pursuant to Section 12(k) of the Securities Exchange Act of 1934 (Exchange Act). The Commission cautions broker-dealers, shareholders, and prospective purchasers that they should carefully consider the foregoing information along with all other currently available information and any information subsequently issued by Sunshine Capital. Further, brokers and dealers should be alert to the fact that, pursuant to Rule 15c2-11 under the Exchange Act, at the termination of the trading suspension, no quotation may be entered unless and until they have strictly complied with all of the provisions of the rule. Read More

At 9:30 a.m. EDT on April 13, 2017, the Securities and Exchange Commission announced the temporary suspension of trading in the securities of Bingo Nation Inc. , of Las Vegas, Nevada and terminating at 11:59 p.m. EDT on April 27, 2017.

The Commission temporarily suspended trading in the securities of Bingo Nation because of concerns regarding the accuracy and adequacy of publicly available information in the marketplace and potentially manipulative transactions in Bingo Nation’s common stock. This order was entered pursuant to Section 12(k) of the Securities Exchange Act of 1934 (Exchange Act). The Commission cautions broker-dealers, shareholders, and prospective purchasers that they should carefully consider the foregoing information along with all other currently available information and any information subsequently issued by the company. Further, brokers and dealers should be alert to the fact that, pursuant to Rule 15c2-11 under the Exchange Act, at the termination of the trading suspension, no quotation may be entered unless and until they have strictly complied with all of the provisions of the rule. Read More

The SEC’s complaint, filed in federal court in the Northern District of Illinois, alleges that Lucita Zamoras solicited investors for a promissory note program and subsequently misappropriated the investors’ funds. From at least October 2009 through December 2013, Zamoras engaged in a fraudulent scheme in which she raised approximately $727,049 from at least six investors by encouraging them to transfer their retirement accounts to self-directed individual retirement accounts and purchase promissory notes issued by her. Lucita Zamoras, originally from the Philippines, preyed on other Filipino investors by convincing the investors to purchase the notes, which offered them 3.5% to 5% annual interest. The SEC complaint alleges that Zamoras never invested her clients’ funds; instead she used the money to support her gambling habit and pay other personal expenses. Read More

On April 8, 2017,  the Securities and Exchange Commission (SEC) announced securities fraud charges against Michael Shumway, a former corporate secretary and treasurer of two Utah water companies for misappropriating and fraudulently selling corporate shares.

The SEC’s complaint, filed in federal court in the District of Utah, alleges that Michael D. Shumway misappropriated unauthorized shares of stock in American Fork Irrigation Company (AFIC) and Lehi Irrigation Company (LIC) and sold them to unwitting investors for at least $435,500. Michael Shumway also allegedly misappropriated at least $633,396 from AFIC and LIC. From at least 2003 through May 2015, Shumway allegedly engaged in a fraudulent scheme of falsifying AFIC and LIC books and records and issuing unauthorized shares in those companies and fraudulently selling the shares to investors. The complaint alleges that shares in AFIC and LIC convey the right to an appropriation of water from each company. The allegedly unauthorized shares Shumway sold did not have such water rights. Shumway also allegedly established secret bank accounts that he used to misappropriate AFIC and LIC funds for his personal use. Michael Shumway allegedly misled the companies’ officers and directors in carrying out his fraud. The total value of Shumway’s alleged misappropriation of shares and funds from AFIC and LIC is at least $1,068,896. Read More

On April 13, 2017, the Securities and Exchange Commission (SEC) announced a preliminary injunction against Daniel Glick and his unregistered investment advisory firm Financial Management Strategies (FMS), continued the asset freeze in the name of the Defendants, and repeated its order that the Defendants repatriate foreign assets. The court also continued the freeze of assets held in the name of relief defendant Glick Accounting Services, Daniel Glicks company. The preliminary injunction order extended the terms of a temporary restraining order and asset freeze order that the court entered on March 23, 2017.

In the complaint filed on March 23, 2017, the Commission alleged that Daniel Glick and FMS raised more than $6 million from investors, and that Glick and FMS misappropriated a significant portion of the investor funds to, among other things, pay personal expenses, purchase a Mercedes-Benz, pay other investors, and pay off loans and debts. The complaint further alleged that Glick and FMS provided investors with false account statements to conceal the misappropriation. The complaint also named Glick’s business partner David B. Slagter, and Glick’s business acquaintance, Edward H. Forte, as relief defendants for the purposes of recovering client funds that Daniel Glick transferred or paid them in the form of advances or loans. Read More

On March 22, 2017, Ryan Gilbertson, a Minnesota man previously accused by the SEC of orchestrating an elaborate scheme to siphon millions of dollars from Dakota Plains Holdings, Inc., was indicted on 13 counts of wire fraud. Also charged in the indictment were Douglas Hoskins and Nick Shermeta.

The charges in the indictment arise from the same conduct alleged by the SEC. According to the SEC’s complaint, filed in federal court in Minnesota on October 31, 2016, Ryan Gilbertson and another company co-founder, installed their fathers as figurehead executives in order to secretly wield control of the company and issue millions of shares of stock to themselves, family, and friends. They allegedly later hired one of their friends as CEO. They allegedly caused the company to enter into an agreement to borrow money from them under generous terms that included extra bonus payments to Gilbertson, and other lenders based on the price of Dakota Plains stock after 20 days of trading following a reverse merger into a company with publicly-traded shares. Read More

On April 12, 2017, the Securities and Exchange Commission (SEC) filed fraud charges against, Mustafa Sayid, a New York City-based securities lawyer for orchestrating taking control of two publicly traded shell companies and rigging them and their securities for use in market manipulation schemes for his personal profit. Another lawyer and a paralegal are also charged for their roles in furthering the schemes.

According to the SEC’s complaint, filed in federal court in New York City, Mustafa Sayid used his position as a securities lawyer to gain control of two microcap companies, Nouveau Holdings, Ltd. and Striper Energy, Inc. According to the SEC’s complaint, from 2012 to 2015, Sayid caused the two companies to issue convertible debt to him that could be redeemed for company stock for purported legal fees owed to him. The complaint charges that Mustafa Sayid profited by selling the convertible debt to a pair of stock manipulators, setting them up to dump large blocks of the company’s stock in the over-the-counter markets. Mustafa Sayid allegedly made multiple false statements to investors and other third parties, while he coordinated with the pump-and-dump operators who were responsible for pumping each company’s share price and then dumping the stock. Read More

On April 14, 2017, the Securities and Exchange Commission announced charges against two Fort Worth residents and their company, 4D Circle, for defrauding investors in a commercial real estate investment scheme. At the SEC’s request, U.S. District Judge Terry R. Means has entered an asset freeze and appointed a receiver over the company.

The SEC’s complaint, filed on April 13, 2017 in Fort Worth federal court, alleges that, since early 2014, Mantford C. Hawkins and David E. Bell – the CEO and COO, respectively, of 4D Circle LLC – raised at least $9 million from 50 investors in seven states and Canada. The complaint alleges that 4D Circle purported to be “a wealth creation company” focused on acquiring apartment and office buildings, to which it would then apply supposedly proprietary technology and managerial practices to generate “greater profitability [with] less risk for our investors.” The company’s website and written offering materials allegedly elaborated on these claims, asserting for instance that investors could earn returns of 30% within a 9-month time frame; investments were “bonded”; and investor funds were protected through the use of escrow accounts and third-party oversight. The offering materials also allegedly included “case studies” of particular properties the company had acquired, which purported to demonstrate the profitability of its model. Read More

On April 14, 2017, a federal court in Boston, Massachusetts, entered a final default judgment in an ongoing SEC enforcement action against Lionshare Ventures, LLC, a Massachusetts-based privately-held corporation that the SEC alleges was a business incubator for microcap companies and involved in fraudulent scheme.

The SEC’s complaint, filed in federal court in Boston, Massachusetts on May 26, 2016, charges Lionshare and its owner, Christopher Esposito, of Topsfield, Massachusetts, with allegedly raising more than $550,000 in investor funds in an unregistered offering of Lionshare securities and misappropriating $375,000 for his personal benefit. According to the SEC’s complaint, Esposito and Lionshare raised the funds from investors between June 2011 and June 2012, spending almost $300,000 of investor funds for personal expenses, and using $75,000 of investor funds to acquire control of a Massachusetts-based publicly-traded company, Cannabiz Mobile, Inc., by purchasing all of its convertible debt. The SEC’s complaint further alleged that, between May 2012 and August 2015, Esposito and Lionshare, together with Anthony Jay Pignatello of Manhattan Beach, California, concealed Esposito and Lionshare’s de facto control of Cannabiz and a large percentage of Cannabiz’s securities in order to profit by evading SEC Rule 144, which limits securities sales by affiliates, such as control persons. Esposito and Lionshare allegedly did this by, among other things, installing James Gondolfe as the sole officer and director of Cannabiz – even though Esposito secretly controlled the company – to make false statements in Cannabiz’s public filings and other documents. Esposito paid third-party stock promoters to tout Cannabiz stock in order to increase its stock price and trading volume; he sold significant amounts of Cannabiz convertible debt to others for almost $304,000; and with Pignatello and Renee Galizio of Loxahatchee, Florida, sold millions of shares of Cannabiz stock directly into the public market. Read More

On April 10, 2017, the SEC announced enforcement actions against 27 individuals and entities behind various alleged stock promotion schemes that left investors with the impression they were reading independent, unbiased analyses on investing websites while writers were being secretly compensated for touting company stocks.

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On April 14, 2017, the Securities and Exchange Commission (“SEC”) announced an emergency court order to freeze assets for Insider Trading. According to the SEC, the assets were in two brokerage accounts used last week to reap more than $1 million in alleged insider trading profits in connection with a merger announcement by telecommunications companies.

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On April 4, 2017,  a final judgment was entered against Safety Technologies LLC (“Safety Technologies”) and Thomas Connerton for defrauding investors by misleading them to invest in a purported glove manufacturing company and then diverting their money for Connerton’s personal use. Connerton’s victims include several women he met through an online dating website and their friends and family.

The SEC’s complaint against Thomas Connerton and Safety Technologies, filed on June 8, 2016, alleged that Connerton told investors that his company was developing a material to make surgical gloves better resistant to cuts or punctures. Connerton claimed that several major glove manufacturers wanted the technology and Safety Technologies was on the brink of imminent deals that would result in large payouts for investors in his company. But, the SEC alleged, no deals were ever anywhere close to materializing, and Connerton emptied the company’s bank account by writing a series of checks to himself and using investor funds for his own expenses. According to court documents filed by the SEC, among Connerton’s improper spending of investor funds was $20,000 for an engagement ring for his latest online date turned investor. On June 9, 2016, the SEC obtained an asset freeze against Thomas Connerton and, on September 12, 2016, the court issued an order continuing the asset freeze and imposing a preliminary injunction. Read More

On March 22, 2017, the Securities and Exchange Commission (“SEC”) adopted the T+2  amendment which shortens the standard settlement cycle for most broker-dealer securities transactions.  Currently, the standard settlement cycle for these transactions is three business days, known as T+3.  The SEC’s amended rule shortens the settlement cycle to two business days, T+2.

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On March 13, 2017, the Securities and Exchange Commission charged Jerry Miller in connection with Petrotech Oil and Gas, Inc.. According to the SEC allegations, Miller is the principal of a Florida-based consulting firm to several microcap issuers. Miller has been charged with fraud for falsely claiming that  one of his microcap issuer clients, had obtained a marijuana license in connection with its purported marijuana business.

The SEC’s complaint, filed in federal court in Miami, Florida, alleges that on February 26, 2014, Petrotech falsely announced in a press release that it had secured a medical and recreational marijuana license from Colorado in conjunction with Petrotech’s newly-founded marijuana business. The release also included marijuana production capacity projections based, in part, on Petrotech purportedly having secured the license. In reality, as alleged in the SEC’s complaint, Petrotech had not received a license to conduct a marijuana business in Colorado. Miller allegedly wrote the press release and was responsible for publishing it. Read More

The Depository Trust Company (“DTC”) offers a service to transfer agents known as the Direct Registration System (“DRS”).  DRS allows transfer agents to provide shareholders with the ability to hold their shares in book-entry form with the transfer agent instead of a physical stock certificate. A DRS Statement evidences ownership of the security and replaces the physical stock certificate.  DRS shares are represented by a DRS Statement in the name of the shareholder. The shareholder has full ownership of the shares and has all rights and privileges of share ownership. The Direct Registration Statement serves as evidence of ownership of the shares as opposed to a physical certificate.

Shares held in DRS are transferred between the issuer’s Transfer Agent and holder’s broker-dealer electronically. Read More

On March 10, 2013, the Securities and Exchange Commission (“SEC”) announced fraud charges against Lek Securities and Avalon FA, a Ukraine-based trading firm in connection with a layering scheme. According to the SEC, Avalon FA, Fayyer and Pustelnik manipulated the U.S. markets hundreds of thousands of times in the scheme.

The SEC’s complaint alleges that Avalon FA Ltd touted itself to traders as a destination to engage in layering, a scheme in which orders are placed but later canceled after tricking others into buying or selling stocks at artificial prices, resulting in illicit profits.  Avalon allegedly made more than $21 million in the layering scheme involving U.S. stocks during a five-year period.  According to the SEC’s complaint, Avalon also made more than $7 million in illicit profits through a cross-market manipulation scheme in which the firm bought and sold U.S. stocks at a loss in order to manipulate the prices of the stock and its corresponding options so that it could then profitably trade at artificial prices.  Avalon allegedly used traders in Eastern Europe and Asia to conduct its trading, and the firm kept a portion of the profits and collected commissions from the traders. Read More