An irreverent Wall Street Blog
by Bill Singer
 
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Written: April 18, 2015


On April 16, 2015, the United States Attorney for the Southern District of New York announced that Michael Oppenheim, 48, Livingston, NJ had been charged in a Criminal Complaint with one count each of wire fraud, embezzlement, securities fraud, and investment adviser fraud in connection with his alleged conversion of $20 million in client funds from March 2011 to March 2015. If convicted, in addition to a maximum fine of $5 million or twice the gross gain/loss, Oppenheim faces up to 30 years in prison on the embezzlement count; 20 years on the wire and securities fraud counts; and 5 years on the investment adviser fraud count. In a parallel action, the Securities and Exchange Commission filed a civil Complaint. The FULL-TEXT Complaints are online at BrokeAndBroker.com BlogREAD


In a Financial Industry Regulatory Authority (“FINRA”) Arbitration Statement of Claim filed in September 2013, Clamant Ishii Family Trust asserted breach of fiduciary duty; failure to supervise; negligent Misrepresentation; and respondeat superior in connection with Respondents Chan and Sagepoint Financial's alleged failure to purchase securities, among which were Apple, Goldman Sachs, Berkshire Hathaway, Kinder Morgan Energy, Ford and Lennar. In addition to fees, interest, and costs, Claimant sought compensatory and consequential damages for the loss of of opportunity and portfolio value. At the close of the hearing, Claimant sought damages in the range of $47,000 to $93,000. In the Matter of the FINRA Arbitration Between Ishii Family Trust dated 12/2/93,Claimant, vs. Jason Chan and SagePoInt Financial, Inc., Respondents(FINRA Arbitration 13-02750, April 9, 2015). READ


As readers of the BrokeAndBroker.com Blog know, I frequently take Wall Street's regulators to task when they fail to do their jobs. Frankly, I've been a busy boy the past few decades. That being said, I recently came across an example of why, at times, the Securities and Exchange Commission ("SEC") gets bogged down -- but this time, it's not the SEC's fault. Ironically, the SEC itself is the victim of federal bureaucracy and idiotic rules. READ


On April 14, 2015, Securities and Exchange Commissioner ("SEC") Kara Stein delivered a speech at the SIFMA Operations Conference.  As Commissioner Stein so aptly warns:

For hundreds of years, physical paper documents and human beings dominated our securities operations. Today, data dominates. Digital data is part of every aspect of our markets.  And this new reality is challenging all of us. The proliferation and reliance on data has disrupted our markets – oversight and regulation need to evolve to keep pace.  In this new world, we need new tools. 

Stein's remarks are by no means comprehensive or granular; rather, they present a snapshot of the emerging role of data and rightly suggest that human beings are barely keeping pace (if at all) with the explosion.  As she perfectly captures in her remarks:

This “Flash Crash” should have been a wake-up call to all of us. It demonstrated that our markets had, in some ways, outpaced their keepers.  This was the largest, but not the last flash crash. Other mini flash crashes continue to occur in our markets.

A recent example that demonstrates some of the potential pitfalls of over reliance on technical and algorithmic trading occurred on April Fools’ Day this year.  A Tesla press release jokingly announced a new “W” model for a watch.  It was clearly intended as a joke.  However, it was taken all too seriously by computers dutifully executing their algorithms in response to the press release.  The algorithms didn’t quite get the joke, trading hundreds of thousands of shares and spiking the stock price within one minute of the issuance of the release.

The BrokeAndBroker.com Blog reprints Commissioner Stein's SIFMA comments in full-text. READ


More often than not, a Securities and Exchange Commission's ("SEC's) Administrative Law Judge's ("ALJ's") Initial Decision flies through to finality untouched. If you are a respondent in an SEC matter, however, there may be aspects of an Initial Decision that you think are wrong -- be that the calculation of damages or references to dates and events. There is a sense that once the Initial Decision has left the station that there's not much point in complaining because that train's on its way and gone. As an ALJ's recent Order demonstrates, it may still pay to take a shot at moving for reconsideration. READ


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For many years I have warned about so-called Standby Letters of Credit, Bank Guarantees, and Trading Platform scams. These frauds are nothing than more than unadulterated bull-shit. Nonetheless, there are flocks of pigeons eagerly following the breadcrumbs into the arms of scam artists. Sadly, many victims of these frauds refuse to do their due diligence and abandon all logic and commonsense. Today’s BrokeAndBroker.com Blog is meant as a warning. As such, I am posting a Securities and Exchange Commission's ("SEC's") Administrative Law Judge's ("ALJ's")  “Findings of Fact” from her Initial Decision on Default. READ

 

Written: April 17, 2015

On April 16, 2015, the United States Attorney for the Southern District of New York announced that Michael Oppenheim, 48, Livingston, NJ had been charged in a Criminal Complaint with one count each of wire fraud, embezzlement, securities fraud, and investment adviser fraud in connection with his alleged conversion of $20 million in client funds from March 2011 to March 2015. If convicted, in addition to a maximum fine of $5 million or twice the gross gain/loss, Oppenheim faces up to 30 years in prison on the embezzlement count; 20 years on the wire and securities fraud counts; and 5 years on the investment adviser fraud count. United States of America, Plaintiff, v. Michael Oppenheim, Defendant (Criminal Complaint, SDNY, 15-MAG-1255, April 15, 2015).

NOTE: Oppenheim is presumed innocent unless or until he is proven guilty beyond a reasonable doubt in a court of law.

In Paragraph 10(b) of the Criminal Complaint, it is alleged that

At all times relevant to this Complaint, MICHAEL OPPENHEIM, the defendant, held himself out as an investment adviser. From in or about 2002, until in or about February 2004, OPPENHEIM was employed by the Bank, and held the title of Personal Financial Advisor. OPPENHEIM briefly left the Bank, and then returned to his employment at the Bank from in or about May 2004 until on or about March 18, 2015, and held three titles during that time: Personal Financial Advisor, Financial Advisor, Senior Financial Advisor and, most recently, Private Client Advisor. At all times relevant to this Complaint, OPPENHEIM was a registered broker-dealer representative with the Sec urities and Exchange Commission (“SEC”) and, as of at least on or about October 7, 2002, OPPENHEIM was a registered investment adviser representative with the SEC. His duties and responsibilities during his employment with the Bank included assisting Bank clients with (i) the purchase and sale of securities, (ii) managed investment accounts and (iii) other fiduciary programs offered by the Bank.

The Criminal Complaint alleges that at the time of his termination by the Bank, Oppenheim had about 500 clients with some $89 million in assets under his management. Oppenheim allegedly induced his victims to withdraw hundreds of thousands and even millions of dollars from their Bank accounts based upon his false representations that he would invest the proceeds in low-risk municipal bonds. Those bonds would purportedly be held in a Bank account. Contrary to his representations, Oppenheim allegedly withdrew funds from the clients’ account and deposited the proceeds in at least three online brokerage accounts under his control at other financial institutions.

Once in control of the converted funds, Oppenheim used the money to pay personal expenses such as a home loan and other bills. In furtherance of his scheme, he attempted to cover his tracks by fabricating account statements showing the purchase of bonds and, in  some cases, the deposit of funds (but said funds were converted from other victims’ accounts). In March 2015, the Bank terminated Oppenheim.

SIDE BAR:Online FINRA BrokerCheck records as of April 17, 2015, disclose that Oppenheim was employed with Chase Investment Services Corp from May 2004 to October 2012 and then with J.P. Morgan Securities LLC.

SEC Complaint

On April 16, 2015, the Securities and Exchange Commission {"SEC") filed Securities and Exchange Commission, Plaintiff, v. Michael J. Oppenheim, Defendant – and – Alexandra Oppenheim, Relief Defendant (Complaint, SDNY, 15-CV- , April 16, 2015) . The SEC Complaint charges Defendant Oppenheim with violations of Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 as well as Sections 206(1) and 206(2) of the Investment Advisers Act of 1940; and seeks a permanent injunction plus disgorgement, interest and financial penalties The SEC also seeks against Relief Defendant Oppenheim (Defendant’s wife) the recovery of customer funds transferred to her.

The SEC Complaint alleges:

1. This case involves the theft by an investment adviser and broker of at least $20 million from his customers to fund his own brokerage accounts in a scheme that spanned more than three years. While employed as a "private client advisor" at a major New York financial institution (the "Bank"), Oppenheim used his position to persuade at least two customers to withdraw a total of over $12 million out oftheir accounts on the promise that he would use the withdrawals to purchase safe and secure municipal bonds for their accounts. Instead, Oppenheim bought himself cashier's checks and deposited them into his own brokerage account or an account he controlled in the name ofhis wife, Relief Defendant Alexandra Oppenheim. After each theft and deposit, and in short order, Oppenheim lost the bulk ofthe stolen funds in highly unprofitable options trading.

2. To cover up his fraud, and ensure that he could continue it, Oppenheim took steps to hide his theft from his customers, including creating fake account statements and transferring money from one customer's account to another's to replenish amounts he had stolen earlier. For example, in one instance, Oppenheim created false "account statements," to persuade one of these customers that he had bought the municipal bonds he had undertaken to buy for his account. Thus, when "Customer A" asked for a recent statement reflecting his municipal bond holdings, Oppenheim simply pasted Customer A's name onto an account statement reflecting the legitimate holdings of another customer, and forwarded it on to Customer A. In another instance, without authorization from Customer A, Oppenheim transferred money from Customer A to "Customer B" to make up for a shortfall created by his previous theft from Customer B.

3. In engaging in this scheme, Oppenheim has violated (and unless permanently enjoined and restrained, will continue to violate) Section 1 O(b) ofthe Securities Exchange Act of 1934 (the "Exchange Act"), 15 U.S.C. § 78j(b), and Rule lOb-S thereunder, 17 C.F.R. § 240.10bS, and Sections 206(1) and 206(2) ofthe Investment Advisers Act of 1940 (the "Advisers Act"), 15 U.S.C. §§ 80b-6(1) and 80b-6(2).

What happened to the bulk of the stolen customer funds? Alas, the SEC Complaint offers this allegation:

23. Almost immediately after each deposit ofCustomer A's and Customer C's stolen funds into his brokerage accounts, Oppenheim embarked on sizeable trading of stocks and options, including Tesla, Apple, Google and Netflix. Soon after each deposit, Oppenheim typically lost the entire amount ofthe deposit, and his accounts at Broker 1 and Broker 2 currently show minimal cash balances.

24. In his account at Broker 1, Oppenheim's trading resulted in losses of approximately $13.5 million in 2014 alone.


 

Written: April 17, 2015

In a Financial Industry Regulatory Authority (“FINRA”) Arbitration Statement of Claim filed in September 2013, Clamant Ishii Family Trust asserted breach of fiduciary duty; failure to supervise; negligent misrepresentation; and respondeat superior in connection with Respondents Chan and Sagepoint Financial's alleged failure to purchase securities, among which were Apple, Goldman Sachs, Berkshire Hathaway, Kinder Morgan Energy, Ford and Lennar. In addition to fees, interest, and costs, Claimant sought compensatory and consequential damages for the loss of of opportunity and portfolio value. At the close of the hearing, Claimant sought damages in the range of $47,000 to $93,000. In the Matter of the FINRA Arbitration Between Ishii Family Trust dated 12/2/93, Claimant, vs. Jason Chan and SagePoInt Financial, Inc., Respondents (FINRA Arbitration 13-02750, April 9, 2015).

Respondents Chan and SagePoint generally denied the allegations and asserted various affirmative defenses.

Explained Decision

Although contested by Respondents, The FINRA Arbitration Panel granted the Claimant's request for an explained decision:

EXPLAINED DECISION

1. Claimant established the existence of a fiduciary relationship between the Respondents and Claimant.

2. Although Claimant established that Chan's performance as a financial advisor left considerable to be desired, Claimant failed to satisfy the burden of proof that Chan's conduct rose to the level of a breach of his fiduciary duties to Claimant.

3. Claimant failed to satisfy the burden of proof that SagePoInt negligently supervised Chan.

4. Moreover, even If Claimant had met Its burden of proof with respect to the matters referenced In paragraphs 2 and 3, above, the damages sought by Claimant were, In the opinion of the Panel, so speculative as to render It Inappropriate to make an award on the basis of the alleged damages.

5. The Panel further concluded that Chan was sufficiently Ineffective as an advisor and that It was Inappropriate for him to charge Claimant the fees charged for his services. The Panel further concluded, however, that Claimant's trustees are and were knowledgeable and sophisticated (as well as accredited) Investors, fully aware of their right to terminate the Respondents' services. Their failure to do so renders them partially responsible for the problems that they encountered In the continuing relationship.

6. Accordingly, the Panel has concluded that the Respondents should return 50% of all fees collected with respect to the Ishll Advisory Account that was the subject of this proceeding.

Pursuant to the above rationale, the FINRA Arbitration Panel found Respondents jointly and severally liable and ordered them to pay to Claimant $5,978.50 for fees collected 

Bill Singer's Comment

In an online BrokerCheck record as of April 17, 2015, Sagepoint characterized the May 22, 2013, initiating customer complaint as alleging:

THE CUSTOMERS, BY THEIR ATTORNEYS, ALLEGE THAT THEY WOULD HAVE MADE SUBSTANTIAL PROFITS IN THEIR ADIVSORY [sic] ACCOUNTS HAD THE ACCOUNTS BEEN INVESTED IN CERTAIN SECURITIES THAT MAY HAVE BEEN DISCUSSED WITH THEIR ADVISOR,BUT WHICH THEY NEVER GAVE ANY INSTRUCTION TO PURCHASE. 

The Explained Decision found that beyond the mere considerations of "suitability," a "fiduciary relationship" existed between the Respondents and Claimant. That finding imposed a far higher duty of care upon the Respondents than what would normally exist in a typical broker-dealer/client context. Having essentially lowered the bar of proof by raising the level of the relationship to that of a fiduciary/client, the FINRA Arbitration Panel nonetheless found that Claimant had not satisfied the burden of proof for either breach of fiduciary duty or negligent supervision.  Further, the Panel found the Claimant's damage claims to be "speculative" to the extent that it was an "inappropriate" basis upon which to render the requested award. 

In contrast to all those negative findings against Claimant, the Panel did find that because Respondent Chan was "sufficiently ineffective as an advisor," that it was "inappropriate for him to charge Claimant the fees . . ."

Ummm . . . lemme see here . . . the arbitrators found that Respondent Chan provided ineffective fiduciary services to Claimant. Consequently, the arbitrators ordered Respondent Chan to refund all the fees he had collected.

Okay . . . but . . . what's the difference between rendering ineffective fiduciary services and breaching fiduciary duty?  

I can think of some instances where the level of servicing might not be acceptable but not necessarily rise to the level of a breach. On the other hand, we must take into consideration that the FINRA Arbitrators found Respondent Chan's ineffectiveness to be of such a degree that it warranted an order to refund the fees collected from Claimant's account. Under those circumstances, the Panel might have offered us a bit more explanation as to the nuance of their differentiating between ineffective and breach. 


 

 
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