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Regulation and Compliance > Federal Regulation > FINRA

FINRA Bars Ex-Stifel Rep for Using Elderly Client's Funds for Camp, HOA Fees: Enforcement

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The Financial Industry Regulatory Authority barred Mitchell Toby Yanow, a former securities representative at Stifel, Nicolaus & Co., for taking money from an 87-year-old firm customer’s funds for his own personal gain.

Without admitting or denying the findings, Yanow consented to the sanction and to the entry of findings that he converted at least $205,586 of an 87-year-old customer’s funds by writing checks drawn on the customer’s brokerage account at Yanow’s member firm without the customer’s knowledge or authorization.

In or around July 2017, this firm customer gave Yanow blank checks drawn on the customer’s firm brokerage account so that Yanow could pay the customer’s caregivers in the event the customer was unable to do so.

However, from at least August 2017 through May 2018, Yanow used the customer’s blank checks to convert the customer’s funds, using the money to pay for his own personal expenses without the customer’s knowledge or consent.

According to FINRA, Yanow wrote approximately 33 checks from this customer’s firm account for expenses including Yanow’s overdue homeowner’s association fees, his children’s summer camp fees, and the purchase of a 1976 Corvette.

SeaWorld, ex-CEO Fined for Fraud Over Impact of Documentary

The Securities and Exchange Commission announced that SeaWorld Entertainment Inc. and its former CEO have agreed to pay more than $5 million to settle fraud charges for misleading investors about the impact the documentary film “Blackfish” had on the company’s reputation and business. 

“Blackfish” criticized SeaWorld’s treatment of its orcas (killer whales) and received significant media attention as the film became more widely distributed in the latter half of 2013. 

The SEC’s complaint alleges that from approximately December 2013 through August 2014, SeaWorld and former CEO James Atchison made untrue and misleading statements or omissions in SEC filings, earnings releases and calls, and other statements to the press regarding Blackfish’s impact on the company’s reputation and business. 

According to the SEC’s complaint, on Aug. 13, 2014, when SeaWorld for the first time acknowledged that its declining attendance was partially caused by negative publicity, SeaWorld’s stock price fell, causing significant losses to shareholders.

The SEC’s complaint charges SeaWorld and Atchison with violating antifraud provisions of the federal securities laws and charges SeaWorld with reporting violations. SeaWorld and Atchison have agreed to settle the SEC’s charges without admitting or denying the allegations, with SeaWorld paying a $4 million penalty and Atchison paying more than $1 million in fines and disgorgement.  

SeaWorld’s former vice president of communications also agreed to settle a fraud charge for his role in misleading SeaWorld’s investors.

SeaWorld’s former vice president of communications, Frederick Jacobs, agreed to settle a fraud charge and to pay disgorgement and prejudgment interest of approximately $100,000. He was not assessed a penalty, reflecting his substantial assistance in the SEC’s investigation. All of the settlements are subject to court approval.

Former Owner of Investment Education Franchise Charged with Misleading Investors

The SEC announced charges against the former owner of a Texas-based investment education franchise for lying to dozens of investors in connection with a multimillion-dollar offering fraud.

According to the SEC’s complaint, Thomas Caufield persuaded more than 40 investors to invest over $6 million in his high-yield promissory notes by promising investors significant returns generated from the revenues of what he claimed was a profitable franchise.

Caufield allegedly used a combination of false pitches and offering materials to lure investors, including both students of the franchise and clients of DAT Capital Advisors, a former state-registered investment adviser wholly owned and operated by Caufield.

According to the complaint, Caufield misled investors about the franchise’s bleak financial condition, used new investor money to repay earlier investors, and falsely claimed that investors’ notes were secured by assets.

Without admitting or denying the allegations in the SEC’s complaint, Caufield consented to the entry of a final judgment that permanently restrains and enjoins him from violating these provisions, and from engaging in certain future activities in connection with the purchase, offer and sale of securities.

The final judgment orders disgorgement of $614,815 plus prejudgment interest of $126,032, both of which will be deemed satisfied by proceeds repaid to certain investors from Caufield’s 2018 sale of the franchise. Caufield also agreed to a $160,000 civil penalty and will be barred from further association with certain regulated entities.

SEC Charges Advisor, Senior Officers in Cherry-Picking Scheme

The SEC filed a complaint against World Tree Financial and its majority owner and co-founder, Wesley Kyle Perkins, for operating a cherry-picking scheme that defrauded World Tree clients.

The complaint alleges that for more than four years Perkins reaped substantial profits at his clients’ expense by cherry-picking trades.

Perkins allegedly traded securities in World Tree’s omnibus account and delayed allocating the securities to specific client accounts until he had observed the securities’ performance over the course of the day. He then allocated profitable trades to favored accounts, like his own, while allocating unprofitable trades to two accounts with substantial assets controlled by one person.

The complaint also alleges that World Tree and Perkins misrepresented to clients that all trades would be allocated fairly and equitably. In addition, it is alleged that World Tree, Perkins and Priscilla Gilmore Perkins, Perkins’ wife and the firm’s co-founder and co-owner, falsely represented that they were not trading in the same securities as World Tree’s clients.

This is the sixth action arising out of an enforcement initiative to combat cherry-picking led by the SEC’s Los Angeles Regional Office and supported by the agency’s Division of Economic and Risk Analysis.

Connecticut-Based Bitcoin Mining Fraudster Sentenced to Prison

Homero Joshua Garza was sentenced to 21 months of imprisonment in connection with a wire fraud charge brought by the U.S. Attorney for the District of Connecticut.

His prison term will be followed by three years of supervised release, the first six months of which Garza must spend in home confinement.

Garza, a defendant in a now-concluded, parallel SEC civil fraud action, admitted to running a virtual currency scam in which investors lost millions of dollars.

The SEC’s case was resolved last year when the court entered final judgments, respectively, against Connecticut-based GAW Miners and ZenMiner and their principal, Garza, for bilking investors.

According to the SEC’s complaint, at Garza’s direction, GAW Miners and ZenMiner sold shares in a purported Bitcoin mining operation; however, neither company had the capability to engage in large-scale mining. As a result, most investors paid for a share of computing power that never existed. Returns paid to some investors came, not from successful mining activity, but from proceeds generated by sales to other investors.

Citigroup Fined for Dark Pool Misrepresentations

The SEC entered an order finding that Citigroup Global Markets Inc. misled users of a dark pool operated by one of its affiliates. 

The SEC’s order found that Citigroup misled users with assurances that high-frequency traders were not allowed to trade in Citi Match, a premium-priced dark pool operated by Citi Order Routing and Execution (CORE), when two of Citi Match’s most active users reasonably qualified as high-frequency traders and executed more than $9 billion of orders through the pool.

The SEC order also found that Citigroup failed to disclose that over a period of more than two years, close to half of Citi Match orders were routed to and executed in other trading venues, including other dark pools and exchanges, that did not offer the same premium features as Citi Match. Citigroup also sent trade confirmation messages to certain users that indicated their orders had been executed on Citi Match when in fact those orders had been executed on an outside venue.

The SEC also found that CORE failed to register as a national securities exchange in connection with its operation of Citi Match.   

The SEC’s order found that Citigroup violated an antifraud provision of the federal securities laws and that CORE violated a registration provision.

Without admitting or denying the findings in the SEC’s order, Citigroup and CORE have agreed to be censured. Citigroup will pay disgorgement and prejudgment interest totaling $5.4 million and a penalty of $6.5 million. CORE will pay a penalty of $1 million.

Whistleblower Receives Award of Approximately $1.5 Million

The SEC announced that a whistleblower has earned an award of more than $1.5 million.  

The whistleblower provided the SEC with vital information and ongoing assistance that proved important to the overall success of an enforcement action. 

However, the SEC’s order notes that the award was reduced because the whistleblower did not promptly report the misconduct and benefited financially during the delay.

“This award reflects the value of the information while underscoring the need for individuals to come forward without delay so that our enforcement staff may quickly leverage the information and prevent further investor harm,” said Jane Norberg, chief of the SEC’s Office of the Whistleblower. “This is especially critical and, as is the case here, may result in an award reduction where an individual provided valuable information but it came after receiving a benefit from the wrongdoing.”

The SEC’s whistleblower program has now awarded approximately $322 million to 58 individuals since issuing its first award in 2012. In that time, more than $1.6 billion in monetary sanctions have been ordered against wrongdoers based on actionable information received by whistleblowers.

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