Securities Industry Commentator by Bill Singer Esq

June 3, 2019
Imagine that you're a stockbroker and a customer asks if you would watch her pet for a week while she's out of town. You agree to take the pet to work and leave it there overnight. The customer is happy with that arrangement and thanks you. So, you take the pet to work and leave it there overnight. Upon your return to the office the next morning, the dog is happy to see you but your manager, not so much. The manager tells you not to leave the customer's pet in the office overnight and to take the animal home when you leave work. Accordingly, for the balance of the week, you do as you're told and bring the dog to work but take it home after hours. The customer doesn't complain. Notwithstanding, your manager fires you at the end of the week. He tells you that it's against company policy to store any customer's property at your residence. But I never hid anything, you say; moreover,  you knew that I was bringing the pooch to work in the daytime and it was you who told me to take the dog home. The manager says rules is rules. He says you're still fired. Sound nuts? Well, maybe it's not as far fetched as you might think. Consider this recent FINRA arbitration.

SEC Denies Modification of Bars Imposed Via Settlement. In the Matter of Gregory Osborn (SEC Order Denying Request to Modify Settlement Order; '33 Act Rel. No. 10641; '34 Act Rel. No. 86001; Invest. Co. Act Rel No. 33498; Admin, Proc. File Nos. 3-16227 and 3-16229 / May 31 2019)
The SEC found that Petitioner Osborn failed to show compelling circumstances to modify or vacate Bars imposed upon him in the SEC's Order of October 31, 2014. Formerly the managing partner of broker-dealer Middlebury Securities, LLC., the SEC had previously found that Osborn willfully violated, and willfully aided, abetted, and caused violations of, Section 10(b) of the Securities Exchange Act and Rule 10b-5 thereunder, and Section 17(a) of the Securities Act.  In addition to ordering him to cease-and-desist from further violations and to pay a $150,000 disgorgement, the SEC barred Osborn from association with any broker, dealer, investment adviser, municipal securities dealer, municipal adviser, transfer agent, or nationally recognized statistical rating organization; prohibited him from serving or acting as an employee, officer, director, member of an advisory board, investment adviser or depositor of, or principal underwriter for, a registered investment company or affiliated person of such investment adviser, depositor, or principal underwriter; and barred him from participating in any offering of a penny stock. In his petition to modify/vacate the Bars, Osborn sought a reduction to time served or three years. In denying Osborn's petition, the SEC noted that he had opted to settle the matter in 2014, and that the federal regulator will not entertain a collateral attack by him on his free choice to settle. Additionally, the SEC admonished that less than five years had passed since the entry of the Order, which the regulator deemed a "relatively short period of time."  Further, the SEC characterized the nature of Osborn's misconduct as "serious and extensive." Pointedly, the SEC Order Denying offered in part the following rationale [Ed: footnotes omitted]:

Whether the petitioner has identified verifiable, unanticipated consequences of the bar: Osborn contends that because of the bar he is "struggling to find work," that he lost a job opportunity in September 2016, and that he has suffered financial and reputational damage. But these issues arise from the bar itself and are no more than the "natural and foreseeable consequences" of the Order. Osborn also contradicts his assertion that he is "struggling to find work" elsewhere in his filings because in an exhibit to his motion-emails from September 2016 with a firm that interviewed him-Osborn stated that he has a "good job" making "$150k base plus up to $300k additional in bonus" and that he has company stock. 

The position and persuasiveness of the Division of Enforcement: The Division opposes Osborn's request. We find persuasive the Division's argument that "Osborn cannot demonstrate . . . any compelling circumstances necessary to warrant a modification of the bars" and that "Osborn's conduct both during and after the fraud suggests that he refuses to accept responsibility for his actions and that a permanent bar continues to be in the public interest." This factor does not favor Osborn. 

Whether there exists any other circumstance that would cause the requested relief from the administrative bar to be inconsistent with the public interest or the protection of investors: This factor weighs against Osborn. It appears that Osborn still fails to understand the seriousness of his misconduct. In the email attached as an exhibit to his motion, Osborn misrepresented the Commission proceeding that led to the Order by stating that it was "not a legal process" with "a judge" and that "[o]nly things that are criminal, theft, fraud etc go to DOJ." 

Anthony Gignac, a/k/a "Khaled Al-Saud," a/k/a "Khalid Al-Saud," a/k/a "Khalid Bin Al-Saud," a/k/a "Khalid Bin Sultan Al-Saud," a/k/a "Sultan Bin Khalid Al Saud," was sentenced in the United States District Court for the Southern District of Florida to 224 months in prison for  impersonating a foreign diplomat or foreign government official, wire fraud, and conspiracy to commit wire fraud. As set forth in part in the DOJ Release:

Beginning as early as May of 2015, Gignac claimed to be a Saudi Arabian Prince by the name Khalid Bin Al-Saud.  To support his fraudulent persona, Gignac purchased fake diplomatic license plates, a fake Diplomatic Security Service badge for his bodyguards, traditional Saudi garb, luxury goods consistent with the lavish lifestyle of a Saudi Royal, and business cards referring to himself as "Prince," "His Royal Highness," and/or "Sultan."  He ran an Instagram account depicting himself as a prince, with pictures posted of Saudi Royal family members, including the king, with captions such as "my dad." Gignac referred to himself as a prince when meeting with investors, in emails, and over the phone.  He travelled with security, and demanded that certain royal protocol (i.e., gift giving) be followed when individuals met him to engage in business deals.

Gignac used his assumed persona to con investors by claiming that he had access to lucrative business deals by virtue of his royal status.  To aid in that scheme, Gignac and a co-conspirator formed a fraudulent investment company called Marden Williams International LLC ("MWI").  Using MWI, Gignac falsely claimed access to exclusive business ventures throughout the world, including a pharmaceutical company in Ireland, a casino in Malta, luxury hotels, and a jet-fuel trading platform in the Middle East.  In addition, Gignac offered investors the chance to purchase his alleged stake in Saudi Arabia's state-owned oil company - Saudi Aramco.  Gignac supported his fraudulent scheme by forging documents from high-ranking Saudi officials purporting to verify his status as a royal, his access to great wealth, and his stake in Saudi Aramco.

Investors from all over the world were scammed into investing with Gignac and MWI.  In all, investors from the United States, Canada, the United Kingdom, Switzerland and Hong Kong sent Gignac close to $8 million.  Those funds were not put into business opportunities, legitimate investments, or any interest-yielding source.  Instead, Gignac used the money to finance his lavish lifestyle, including Ferraris, Rolls-Royces, yachts, expensive jewelry, designer clothing, travel on private jets, and a two-bedroom property on Fisher Island.  Investors were also tricked into giving Gignac extravagant gifts like paintings, jewelry, and memorabilia.        

In addition, on November 19, 2017, Gignac flew into John F. Kennedy International Airport in New York, from London, using a passport in the name of another individual. 

According to the court record, Gignac has executed similar schemes in the past.  Between 1988 and the present, the Defendant has been arrested or convicted eleven different times for prince-related schemes.
Jamie Frieri pled guilty in the United States District Court for the Middle District of Florida to conspiracy to commit wire fraud. As set forth in part in the DOJ Release:

[F]rom 2014 through at least 2018, Frieri conspired with another individual to take money from largely Spanish-speaking victims throughout the United States who wanted to sell their timeshare properties or other land parcels. The conspirators obtained the personal information of the potential victims through multiple sources, including wrongfully acquiring the lists from legitimate timeshare advertising telemarketing companies.

The conspirators called the timeshare owners and falsely told them that they had buyers for the victims' timeshares and that the sales could be consummated if the victims made one or more payments to the conspirators for various fees purportedly associated with the sales. Once the victims agreed to pay the bogus fees, the conspirators directed them to send money to the conspirators in a variety of ways, including by sending payment in the name of the conspirators' fraudulent company, Imperial Getaways. The conspirators often repeatedly re-contacted their victims and fraudulently advised them that additional fees were needed in order to complete the sales, and they continued to dupe the victims into sending bogus advance fees until the victims either ran out of money or became aware of the scam.

Stockbroker Barred for Undisclosed Loans from Customers and Conversion. In the Matter of David John Strnad, Respondent (FINRA AWC 2015047560501)
Respondent Strnad was first registewred in 1989 by by September 2005, he was associated with the Smith Barney division of Citigroup Global Markets Inc. and, thereafter, his registration was transferred in 2009 to Morgan Stanley Smith Barney, where he remained until February 2016. 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 John Strnad submitted a Letter of Acceptance, Waiver and Consent ("AWC"), which FINRA accepted. In accordance with the terms of the AWC, FINRA imposed upon David John Strnad a Censure, $10,000 fine, $4,268.73 plus interest in disgorgement, and an 18-month suspension from association with any FINRA member firm in any capacity. As set forth in part in the AWC:

Beginning in approximately 2007, KW sought to invest his assets at the Firm exclusively in CDs; "laddered" to mature at different intervals. KW gave Strnad verbal authorization to buy new CD issuances upon maturity of prior CD issuances.. KW did not authorize Strnad to sell CDs prior to maturity or to use the proceeds of such sales to purchase new CD issuances. 

During the relevant period, Strand exceeded the scope of authority granted by KW by selling CDs owned by KW prior to maturity, nearly always at a loss, and using the proceeds of those sales to purchase new CD issuances. Because KW purchased his CDs through the Firm, rather than a bank, KW could sell the CDs in the secondary market without incurring a penalty. Strnad generally sold KW's CDs at a loss, however, because the CDs were priced below par in the secondary market due to factors such as interest rate fluctuations. 

Strnad executed approximately 273 such transactions in KW's accounts-- 138 sales prior to maturity and 135 purchases -- causing KW to incur losses of approximately $100,572, net of interest.1 Strnad inaccurately marked some of these transactions as "unsolicited.' Strnad's trading caused KW to pay $4,268.73 in unnecessary commission. . . .


Footnote 1: After KW's daughter complained on KW's behalf, Morgan Stanley provided compensation to KW.

SEC Obtains Final Judgment Against Radio Host Charged in Ticket Resale Investment Scheme (SEC Release)
The United States District Court for the Southern District of New York entered a final judgment against sports radio personality Craig H. Carton and his entities (AdvanceM Ltd., Misoluki, Inc., Misoluki, LLC, Ticket Jones, LLC and Tier One Tickets, LLC) that permanently enjoins them from violating 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, and orders them to pay over $4.7 million in disgorgement and prejudgment interest (said payment obligation is deemed satisfied by entry of the restitution order entered against Carton in the parallel criminal case). As set forth in part in the SEC Release:

In September 2017, Carton was charged by the SEC, arrested by the FBI, and charged criminally by the U.S. Attorney for the Southern District of New York. In the SEC case, Carton and another New York City man, Joseph Meli, along with six of their companies, were charged with stealing millions of dollars from investors who were allegedly promised their funds would be used for the purchase and resale of concert tickets. Carton was convicted of securities and wire fraud and conspiracy in the parallel criminal case following a federal jury trial in November 2018 and was sentenced in April 2019 to 42 months' imprisonment. He was ordered to pay $4.8 million in restitution and to forfeit $4,590,000. Meli, who was also separately charged by the SEC in January 2017 with fraud for running a Ponzi scheme, settled with the SEC in April 2019 in both its cases against him. He and his companies agreed to pay more than $58 million in disgorgement and prejudgment interest, and to be permanently enjoined from violating antifraud provisions of the federal securities laws. Meli previously pled guilty in the parallel criminal cases and was sentenced to more than six years' imprisonment. He was also ordered to forfeit over $104 million and pay over $56 million in restitution.