Close Close
Popular Financial Topics Discover relevant content from across the suite of ALM legal publications From the Industry More content from ThinkAdvisor and select sponsors Investment Advisor Issue Gallery Read digital editions of Investment Advisor Magazine Tax Facts Get clear, current, and reliable answers to pressing tax questions
Luminaries Awards

Regulation and Compliance > Federal Regulation > FINRA

SEC, FINRA Enforcement: Compliance Director Charged With Bilking Clients

Your article was successfully shared with the contacts you provided.

The compliance director of a brokerage firm was charged by the Securities and Exchange Commission with fraud and theft of assets by the SEC, while a New York securities lawyer and two Canadian promoters were charged by the SEC with manipulating stock prices.

FINRA, for its part, went after AXA Advisors for arbitration failures and World Equity Group for anti-money laundering failures.

Compliance Director Charged by SEC with Fraud, Theft

William Quigley of Long Island was charged by the SEC with fleecing investors and stealing the assets of Trident Partners Ltd., the brokerage firm where he worked as the director of compliance.

According to the agency, Quigley schemed to solicit investors to buy stock in well-known companies or supposed startups on the verge of going public. However, once investors wired him the money, Quigley never bought the securities. Instead, he moved the money from the bank and brokerage accounts he himself had set up and controlled into a bank account in the Philippines, or else he withdrew it in small increments from ATMs near where he lived and worked.

Quigley opened three brokerage accounts to misappropriate investor funds, including a secret account at his then-employer. It was Quigley’s job as compliance director to open and properly route all incoming mail, as well as to monitor all wires and report any suspicious transfers — so he was in an ideal position to keep Trident Partners from finding out about the secret account and its corresponding wires. He also stole commission checks to Trident Partners and deposited them in outside accounts he used in the scheme.

Quigley allegedly worked in concert with two brothers who live in the Philippines and handled the solicitation aspects of the scheme while he funneled investor money out of the accounts to his brothers and himself.

The SEC’s investigation is continuing. In a parallel action, the U.S. Attorney’s Office for the Eastern District of New York has announced criminal charges against Quigley.

SEC: NY Securities Lawyer Ran Pump-and-Dump Schemes Out of His Office

Securities lawyer Adam Gottbetter was charged by the SEC for using his New York law office as the headquarters for planning and implementing market manipulation schemes. Two Canadian stock promoters who assisted in the scheme, Mitchell Adam and K. David Stevenson, were also charged, as were two other penny stock promoters in Canada, Mike Taxon and Itamar Cohen, who were involved in one of Gottbetter’s schemes and in addition ran their own.

According to the agency, Gottbetter put together promotional campaigns touting the prospects of microcap companies to entice investors to buy their stock at inflated prices, so that he and his cohorts could sell their own shares at massive profits.

For the last of three schemes he conducted over a six-year period, Gottbetter enlisted Adam and Stevenson to help him. The three constantly warned one another to keep Adam’s and Stevenson’s identities a secret, and not to otherwise mess up and thus draw the attention of law enforcement. They also concocted stories to tell in such an eventuality, and even rehearsed them.

During one meeting in New York City, Gottbetter complained about the difficulties of stock manipulation but conceded that robbing a bank was the only other way to make so much money so quickly.

Before involving Adam and Stevenson, Gottbetter was involved in the manipulation of the stocks of Kentucky USA Energy Inc. (KYUS) and Dynastar Holdings Inc. (DYNA). Taxon and Cohen were involved with Gottbetter in manipulating the price of Kentucky USA stocks, but also pushed a purported gold and silver exploration company, Raven Gold Corp. (RVNG).

Taxon and Cohen distributed promotional mailings of glossy “newsletters” with fake publication names like “Stock Trend Report” and “Global Investor Watch” that touted Kentucky USA and Raven Gold, giving phony positive price and volume trends for these stocks and other fake information about the promoters’ identity, compensation and control of the stock. In reality, most of the touted market activity was generated by Taxon, Cohen and their associates, who controlled large blocks of the companies’ stocks.

In July of 2013, Gottbetter recruited Adam and Stevenson so that he could use their offshore ties for a new and potentially more lucrative scheme. Together they schemed to drive up the stock price for purported oil and gas exploration company HBP Energy Corp. (HBPE) through fraudulent trades generated by a trading algorithm.

The three intended to launch an extensive promotional campaign featuring multiple call centers, roadshows, and a listing on the Frankfurt Stock Exchange. Once these activities had created the appearance of liquidity and investor interest, they intended to dump their shares of the stock on unsuspecting investors around the world. While Stevenson and Adam managed to do some small coordinated trades, Stevenson was arrested by the FBI, which made the scheme grind to a halt before the planned manipulation and promotion could be launched.

Gottbetter has agreed to pay $4.6 million to settle the SEC’s charges. Stevenson also agreed to settle with the SEC, while a case against Adam will be litigated in federal court in Newark, New Jersey. Both settlements are subject to court approval. In a parallel action, the U.S. Attorney’s Office for the District of New Jersey has announced criminal charges against Gottbetter, Adam and Stevenson.

In addition, Taxon and Cohen have agreed to partial settlements of the SEC’s charges, with monetary sanctions to be determined later by a court. The settlements are subject to court approval. And in another parallel action, the U.S. Attorney’s Office for the District of New Jersey has announced criminal charges against Taxon and Cohen.

FINRA Censures, Fines AXA for Using Court Instead of Arbitration

AXA Advisors LLC was censured by FINRA and fined $150,000 after the agency found the firm failed to arbitrate 102 disputes as required under FINRA’s Code of Arbitration Procedure that arose between the firm and some of its registered representatives.

According to the agency, while FINRA’s rule requires that disputes between member firms and associated persons be arbitrated if they arise out of the business activities of the member or associated person, instead the firm filed actions in state courts to recover prepaid securities commissions from former firm registered representatives who had received those commissions from the firm’s affiliated subsidiary, acting as paymaster.

Court filings were inappropriate, according to FINRA, because the very nature of the transactions classified them as disputes between the firm and the registered representatives relating to the business activities of both. And although the firm’s affiliated subsidiary served as paymaster, the firm alone determined the amount of securities commissions to be paid to its registered representatives.

When the affiliate failed to collect commission-related debt directly from former registered representatives, it often sent the matters to third-party collection agencies, which in most cases successfully recovered the money without resorting to court proceedings. However, when the collection agencies were unable to collect, they filed lawsuits in state courts to do so.

The firm neither admitted nor denied the findings, but consented to the sanctions. FINRA Fines, Censures Firm on AML Failures

World Equity Group Inc. was censured by FINRA and fined $225,000 after the agency found that its AML program failed to detect, investigate and report potentially suspicious activities.

According to the agency, while the firm’s written supervisory procedures gave specific examples of red flags that should warn of potentially suspicious activities, those red flags did not trigger additional due diligence, as they should have done. The firm failed to investigate such instances related to the deposit and liquidation of low-priced securities, relying on its clearing firm to point out potential problems. Even when the clearing firm reported red flags, the firm did not adequately investigate the circumstances.

The firm was also cited for numerous other failures, including those surrounding the tradability of securities — the attorney who said they were tradable was the same attorney who provided legal opinions to support the transactions that later occurred — and its failure to investigate transactions from a frequent transfer agent who had been the target of an SEC cease-and-desist order for improperly removing restrictive legends.

The firm neither admitted nor denied the findings but consented to the sanctions.


© 2024 ALM Global, LLC, All Rights Reserved. Request academic re-use from All other uses, submit a request to [email protected]. For more information visit Asset & Logo Licensing.