FINRA Lawyer Blog

SEC Suit Targets Fintech Startup Scam

April 7, 2018 | Herskovits, PLLC

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The SEC has filed a complaint accusing Mozido’s founder, Michael Liberty, and four of his associates of defrauding investors out of over $48 million. The mobile payments startup allegedly used funds from investor accounts to sustain its managers’ luxurious lifestyles.

The company’s CEO and his co-defendants allegedly advertised lucrative investments in shell companies possessing interests in Austin-based Mozido, a venture-backed company with an estimated value of at least $1 billion. This type of company is commonly known as a “unicorn.” According to the SEC, investors were lured by the prospect of making seminal investments in a promising financial technology startup.

The SEC alleges that instead of using investments to grow Mozido, the defendants used them to settle another SEC lawsuit against Liberty, to purchase luxury real estate and vehicles, produce a motion picture, and hire private jets.

Brooklyn Prosecutors Say ICOs are Securities in Alleged Fraud Case

March 24, 2018 | Herskovits, PLLC

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On March 19, 2018, federal prosecutors once again reinforced the notion that cryptocurrencies can be securities, as they upheld their certainty that ICOs offered by Maksim Zaslavskiy through his companies REcoin and Diamond Reserve Club, were in fact, securities, and thus, under the SEC’s jurisdiction.

As a criminal case relating to securities fraud in the ICO sphere, the complaint against Zaslavskiy and his companies has few precedents, but it may likely have many successors.

The defendant’s original response to his accusers, back in February, was that his ICOs were not securities, and thus he could not be charged with securities fraud.

SEC’s Lawsuit Against Woodbridge´s Robert Shapiro Over a 1.2 Billion Ponzi Scheme Has Many Ramifications

February 26, 2018 | Herskovits, PLLC

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On January 16th, a settlement was reached to create new fiduciary committees to handle a complex transition at the bankrupt Woodbridge firm, following a SEC lawsuit over a billion-dollar Ponzi scheme run by Woodbridge founder Robert Shapiro, who will now be totally excluded from the restructuring process.

Upon approval of the settlement, Judge Kevin Carey said, “As a condition for approval I require that that if any services beyond transition services are to be desired by the debtor, you need court approval with or without SEC consent.”

After Woodbridge filed for bankruptcy, Shapiro allegedly continued having access to company offices, and was paid a monthly $175,000 consulting fee. By designing a new team with no links to Shapiro to facilitate the transition, the settlement ensures decisions will now be made in the defrauded investors’ best interest.

FINRA Fined Citigroup $11.5 Million and J.P. Morgan $2.8 Million

February 24, 2018 | Herskovits, PLLC

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FINRA recently sanctioned Citigroup Global Markets Inc. $11.5 million over inaccurate research rating displays. The sanction includes a $5.5 million in fines and $6 million in compensation for wronged retail customers.

According to the SRO’s findings, over at least five years, Citigroup displayed inaccurate research ratings for a large number of equity securities, also incurring several related violations.

Firms communicate their equity research ratings to share their opinion about the projected performance of public securities. The ratings are included in emails to customers, account statements, and official websites. They are also disseminated internally, to inform brokers’ recommendations to customers.

FINRA Issues Warning About Cryptocurrency Stock Scams

February 23, 2018 | Herskovits, PLLC

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Recently, several cryptocurrency scams have come to light: dishonest individuals advertising their newly concocted crypto-coin as the next big thing, with a potential to make millions for investors willing to take the risk.

FINRA recently issued an Investor Alert to warn investors about purchasing shares in companies advertising new cryptocurrencies.

The document focused on recent experiences of companies marketing shares through, “unrealistic predictions of exponential returns and unsubstantiated claims,” which can often be signs of “a classic ‘pump and dump’ scam.”

FINRA Proposes New Rules, Releases Budget for the First Time

February 21, 2018 | Herskovits, PLLC

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Last December, FINRA made public its 2018 budget and updated Financial Guiding Principles, after approval by the SRO’s Board of Governors. In a new information release, the SRO also detailed several rule proposals for the year and planned improvements to its registration technology.

As part of one of its five annual meetings, the Board also met with SEC Chairman Jay Clayton to align priorities, especially relating to both FINRA and the SEC’s focus on protecting retail investors.

Several of the proposed changes are a response to concerns raised during FINRA’s CEO’s “listening tour” and other industry engagement programs.

SEC and CFTC Say Cryptocurrency and ICO Trading No Longer Off Their Radars

February 17, 2018 | Herskovits, PLLC

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In a commentary that appeared in the Wall Street Journal, Jay Clayton, chairman of the Securities and Exchange Commission, and J. Christopher Giancarlo, chairman of the Commodity Futures Trading Commission, referred to the new regulation scenario for cryptocurrency trading.

In fact, they expanded the concept to ”distributed ledger technology (DLT)” defined as “an array of new financial products, including cryptocurrencies and digital payment services.”

Emphasizing the potential of DLT as the “next great driver of economic efficiency,” the regulators made it clear that the SEC and the CFTC will focus on enforcing rules and ensuring market integrity to protect retail investors looking to invest in cryptocurrencies and initial coin offerings (ICOs).

CFTC Targets Multi-Million Dollar Cryptocurrency Fraud with Multiple Suits

February 16, 2018 | Herskovits, PLLC

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In line with its expressed intent to increase its oversight over the cryptocurrency market, the Commodity Futures Trading Commission has filed three related fraud suits in a single week.

The third lawsuit targets the creators of “My Big Coin,” who allegedly used $6 million dollars received from buyers to pay off early investors and shop for luxury items. The allegations caused the freezing of all assets belonging to the creators of the supposed next-big-cryptocurrency.

The Nevada-based company, My Big Coin Pay Inc.; was founded by Randall Crater. The suit, filed in January, also named one of its salesmen, Mark Gillespie. According to the allegations, between 2014 and mid-2017, the defendants defrauded 28 investors out of six million dollars.

FINRA Plans to Crack Down on High-Risk Brokers, Are You at Risk?

January 11, 2018 | Herskovits, PLLC

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In conversation with Chip Jones, FINRA’s Senior Vice President of Member Relations and Education, Mike Rufino, Executive Vice President and Head of FINRA Member Regulation—Sales Practice expanded on Robert Cook’s 2018 Priorities Letter, which was released during the first days of the year.

Rufino explained how FINRA plans to examine brokers to determine whether they should be included in the High-Risk Registered Representatives Program, and made some key recommendations to firms for identifying high-risk brokers within their ranks.

In his 2018 Regulatory and Examination Priorities Letter, FINRA CEO Robert Cook signaled “identifying high-risk firms and individual brokers and mitigating the potential risks that they can pose to investors,” as a “top priority” for the self-regulatory organization in the New Year.

FINRA Rules 2165 & 4512 – Elder Abuse in the Securities Industry

December 14, 2017 | Herskovits, PLLC

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Based on research conducted by the National Center on Elder Abuse, 16% of elder abuse was caused by financial exploitation, which ranked third followed right after self-neglect and neglect by others. This percentage had increased from 12.3% since 2001; however, elder abuse is vastly under reported. According to one study, only 1 in 44 cases of financial abuse is ever reported. In many cases, cognitive impairment and the need for help with activities of daily living make elderly victims particularly vulnerable to financial abuse.

With baby boomers turning into senior citizens, financial exploitation of seniors has become an increasingly serious issue for securities industry regulators.

No financial product is per se unsuitable for senior investors; however, a senior’s investment time span and other factors may impact whether certain products or strategies are suitable.

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