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Familiar Names Resurface In SEC Unauthorized Trading Scheme
April 8, 2020
https://www.sec.gov/litigation/complaints/2020/comp24788.pdf, the SEC charged Jonah Engler, Joshua W. Turney and Hector Perez with violating the antifraud provisions of Section 17(a)(1) and (3) of the Securities Act and Section 10(b) of the Securities Exchange Act and Rule 10b-5(a) and (c) thereunder, and the Complaint also charges Barbara Desiderio with aiding and abetting Engler's, Turney's and Perez's violations. As alleged in part in SEC Charges Four Individuals in Unauthorized Trading Scheme (SEC Release)
https://www.sec.gov/litigation/litreleases/2020/lr24788.htm, the four Defendants:
https://www.sec.gov/litigation/litreleases/2020/lr24788.htm, the four Defendants:
engaged in a scheme to conduct voluminous unauthorized trading in over 360 retail customer accounts as Global Arena Capital Corp., the New York broker dealer they were associated with at the time, was going out of business. This unauthorized trading allegedly generated over $2.4 million in unlawful markups, markdowns, and commissions for their firm and resulted in over $4 million in net losses for their customers. The complaint alleges that Engler, who indirectly owned and controlled Global, orchestrated the scheme, and Turney and Perez, who were registered representatives at Global, carried it out with the assistance of Desiderio, Global's President, CCO and supervisor.
Engler? Desiderio? Hmmm . . . those names sound familiar. When did we last hear about those folks?
As previously reported in "Abandoned Car Wreck of Public Customer FINRA Arbitration" (BrokeAndBroker.com Blog, February 5, 2019)
http://www.brokeandbroker.com/4424/finra-arbitration-abandoned/
In today's featured public customer FINRA Arbitration, the public customer Claimant named 10, count 'em, 10 respondents but after some 6 respondents were removed from the case, well, the case looked like an abandoned car wreck on the side of the road. Most of the useful parts got stripped. No one came to claim it. And so it just sat there and rusted away.
Case In Point
In a FINRA Arbitration Statement of Claim filed in July 2015, public customer, trust account Claimant asserted causes of action for suitability, unauthorized trading, negligence, breach of fiduciary duty, breach of contract, misrepresentation, elder abuse and failure to supervise. The claims alleged arose in connection with various investments including a Momentive Performance Materials 11.50% 12/01/16 Senior Subordinated Note, a Caesars Entertainment Operating Co. 12.75% 4/15/18 Note, Global Geophysical Services Inc. Sr Note 10.50% 05/15/18, stock in Cliffs Natural Resources, Inc. and Renesola Ltd., and unspecified equities, junk bonds, and closed-end mutual funds. Claimant sought $77,296.83 inclusive of disgorgement of commission and $4,545.98 in fees, treble damages, punitive damages, lost-opportunity damages, interest, and fees.
In the Matter of the Arbitration Between Dolan Family Trust Account v. David Christopher Awad, Geoffrey Marc Byruch. Barbara Lucille Desiderio, Jonah Engler, Joseph Gentile, Global Arena Capital Corp., Brian Joseph Hagerman, HFP Capital Markets LLC, Michael David Tannen, and John Joseph Vaughan, Respondents (FINRA Arbitration Decision 15-01927 / February 4, 2019)
http://www.finra.org/sites/default/files/aao_documents/15-01927.pdf
Respondents Awad, Gentile, Global Arena, HFP Capital, Byruch, and Engler did not file a Statement of Answer.
Respondents Desiderio, Hagerman, Tannen and Vaughan generally denied the allegations and asserted various affirmative defenses; notwithstanding, the FINRA Arbitration Decisions asserts that:
Awad, Gentile, Global Arena, HFP Capital, Byruch, Desiderio, Engler, Hagerman and Vaughan did not file with FINRA Office of Dispute Resolution properly executed Submission Agreements but are required to submit to arbitration pursuant to the Code of Arbitration Procedure ("Code") and are bound by the determination of the Panel on all issues submitted.
Cast of Characters
The FINRA Arbitration Decision asserts the following representation of the parties:
For Claimant Dolan Family Trust Account ("Claimant"): Hilton Wiener, Esq., Law Office of Hilton Wiener, New York, New York.For Respondent David Christopher Awad ("Awad"): Nathan W. Lamb, Esq., Ulmer & Berne LLP, Chicago, Illinois.For Respondent Joseph Gentile ("Gentile"): Harry Delagrammatikas, Esq., McCormick & O'Brien LLP, New York, New York.Respondent Global Arena Capital Corp. ("Global Arena") did not enter an appearance.Respondent HFP Capital Markets LLC ("HFP Capital") did not enter an appearance.Respondents Barbara Lucille Desiderio ("Desiderio"), Geoffrey Byruch ("Byruch"), Jonah Engler ("Engler"), Brian Joseph Hagerman ("Hagerman"), Michael David Tannen ("Tannen") and John Joseph Vaughan ("Vaughan") appeared pro se.
One Down
On January 6, 2016, Claimant and Gentile filed a Stipulation Regarding Dismissal of Claims against Joseph Gentile and Expungement of CRD Records ("Stipulation"). As Gentile did not pursue his request for expungement further, the Panel did not make any determination regarding that issue.
Two Down
On or about March 7, 2016, Respondent Global Arena filed for bankruptcy, and, accordingly, all claims against Respondent Global Arena are indefinitely stayed and the Panel made no determinations regarding claims against Respondent Global Arena.
Three Down
On March 24, 2016, Claimant filed a notice of dismissal without prejudice as to Respondent Awad.
Four Down
On November 2, 2017, Claimant filed a notice of dismissal with prejudice as to Respondent Tannen.
Five Down
On April 17, 2018, Claimant filed a notice of dismissal of claims against HFP Capital.
Six Down
On January 18, 2019, Claimant filed a notice that the case had been settled and withdrawn against Respondent Desiderio.
Not Now . . . or now . . . or now . . . or . . .
Although the evidentiary hearings were scheduled for February 14 - 17, 2017, on January 26, 2017, Claimant filed an unopposed Motion to Postpone. On February 2, 2017, Claimant filed a so-called "follow-on" Motion to Postpone, which was unopposed. The Panel postponed the hearings on February 9, 2017, and rescheduled them for October 24 - 27, 2017. On July 10, 2017, Claimant filed another unopposed Motion to Postpone, which the Panel granted on September 6, 2017, and rescheduled for February 6 - 9, 2018.
On January 16, 2018, Respondent Tannen filed a Motion to Compel, Request to Postpone and
Request for Sanctions, of which the Request to Postpone was unopposed and granted by the Panel on January 30, 2018.
On April 17, 2018, Claimant filed a Motion to Postpone the hearings that were now scheduled to run from April 24 - April 25, 2018. The Panel granted the postponenment.
Hello? Hello?? Anyone there???
The FINRA Arbitration Decision then asserts in part this bit of idiocy:
On November 2, 2018, the Panel requested that FINRA Office of Dispute Resolution schedule a telephonic pre-hearing conference call with the parties on December 5, 2018. FINRA sent a letter to the parties on November 2, 2018, confirming the conference set for December 5, 2018. On November 28, 2018, FINRA sent a courtesy reminder to the parties that the pre-hearing conference would be taking place on December 5, 2018.On December 5, 2018, the Panel held the pre-hearing conference with the parties to discuss the status of the case, as well as the scheduling of evidentiary hearing dates. No one appeared at the hearing on behalf of Claimant. Pursuant to the Chair's request, FINRA staff dialed out to Claimant's counsel twice, left a voicemail and sent an email, reminding Claimant's counsel to join the conference call. Claimant's counsel never returned the calls or email sent from FINRA staff and did not appear on the call. The Panel noted Claimant's lack of responsiveness and multiple postponements of the case. The Panel also noted that Claimant, despite numerous notifications of the December 5, 2018 pre-hearing conference, failed to appear for the pre-hearing conference.
Disappearing Act
Under the somewhat curiously chosen title of "Award," the FINRA Arbitration Decision states:
After considering the pleadings, the testimony and evidence presented, the Panel has decided in full and final resolution of the issues submitted for determination as follows:The hearings in this case have been postponed several times and Claimant, despite numerous notifications, failed to appear for the December 5, 2018 prehearing conference. Accordingly, pursuant to Rule 12601(c) of the Code, this case is hereby dismissed without prejudice.
FINRA Fees
The FINRA Arbitration Decision asserts that FINRA and/or the Panel assessed the following:
Claimant: $1,425 in FINRA Initial Claim Filing Fee; $3,937.50 in Postponement Fees; $1,800 in Last Minute Cancellation Fees;$300 in Discovery-Related Motion Fees; $9,000 in Hearing Sessions Fees
Respondent HFP Capital: $1,700 FINRA Member Surcharge; $3,250 FINRA Member Process Fee
Respondent Tannen: $281.25 in Postponement Fees; $100 Discovery-Related Motion Fee
Bill Singer's Comment
Howsabout some fun facts?
Online FINRA BrokerCheck reports as of February 5, 2019, disclose that:
- HFP Capital was "expelled" from the securities industry by FINRA in June 2014.
- Global Arena Capital Corp. was "expelled" from the securities industry by FINRA in January 2016.
- David Christopher Awad was barred by FINRA on September 14, 2015. As set forth in the "Summary" of Awad's FINRA AWC https://www.finra.org/sites/default/files/fda_documents/
2014043542408_FDA_JG41692.pdf:
During the period November 2013 to June 2015 (the "relevant period"), Awad made material misrepresentations and omitted material facts in connection with securities transactions, churned and excessively traded customer accounts, and made unsuitable recommendations of securities. He thereby willfully violated Section 10(b) of the - - Securities Exchange Act of 1934 and SEC Rule 10b-5 promulgated thereunder, and violated FINRA Rules 2020, 211 1, and 2010.
- Barbara Lucille Desiderio was barred by FINRA on September 11, 2015. As set forth in the "Summary" of Desiderio's FINRA AWC
https://www.finra.org/sites/default/files/fda_documents/
2014043542410_FDA_JG41696.pdf :
From November 2013 to June 2015 (the "relevant period"), Desiderio participated in a scheme to defraud customers in order to generate commissions and markups. instead of supervising brokers in the Sixth Avenue Branch, she allowed them to churn customer accounts. She provided instructions to inexperienced supervisors that caused the alerts generated by the firm's electronic compliance systems-which were purportedly designed to detect and prevent excessive trading-to be ignored and automatically approved. To allow the fraudulent scheme to continue, she made misstatements to customers and failed to provide documents and facts to FINRA Examination staff. She also made and permitted to be made false statements in response to FINRA's requests for documents and information. She also refused to appear for her scheduled testimony. Desiderio thereby willfully violated Section 10(b) ofthe Securities Exchange Act of 1 934 and SEC Rule 10b-5 promulgated thereunder, and violated F?NRA Rules 2020, 2010, 31 10, and 8210.
- Jonah Engler was barred by FINRA on July 1, 2015. As set forth in the "Summary" of Engler's FINRA Order Accepting Offer of Settlement https://www.finra.org/sites/default/files/fda_documents/
2010024522103_FDA_JMX1655.pdf
6. Between December 2009 and February 2011, Respondent and five other individuals fraudulently sold a total of nearly $3 million worth of Senior Secured Zero Coupon Notes (the "Notes" or the "MMM Notes") issued by Metals, Milling and Mining LLC ("MMM") in a private placement offering to 59 customers. Specifically, Respondent misrepresented material facts about the offering, which promised to pay a return of 100 percent in one year by purportedly extracting precious metals from materials left over from mining operations (known as "ore concentrate"). The investors lost all of the money that they invested in the MMM Notes, with the exception of three investors who were repaid with funds from new investors.7. Respondent recklessly failed to conduct a reasonable investigation of the viability and legitimacy of MMM in the face of numerous red flags that MMM was a fraud.8. In connection with his sales of MMM Notes, Respondent recklessly misrepresented that: (a) the MMM Notes were collateralized by certain barrels of ore concentrate; and (b) the ore concentrate that supposedly served as the collateral was of sufficient value to secure an investment in the MMM Notes. In fact, there was no collateral for the MMM Notes, because MMM did not own any ore concentrate, despite a misrepresentation in the MMM Notes that ownership of ore concentrate had been transferred to investors. Further, the ore concentrate that was supposed to serve as the collateral was nearly worthless. Respondent, having failed to confirm that the collateral existed and that the supposed collateral had any value, recklessly misrepresented to prospective purchasers that their investments would be adequately secured by collateral.9. Respondent recklessly misrepresented material facts regarding the MMM Notes to his customers, in willful violation of Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder and in violation of FINRA Rules 2020 and 2010.10. Further, Respondent failed to obtain basic information about MMM that was necessary to the due diligence process in order to understand an investment in the company. Without such information, Respondent lacked a reasonable basis to recommend the MMM Notes to investors, in violation of NASD Conduct Rule 2310 and FINRA Rule 2010.
- Michael David Tannen was barred by FINRA on September 14, 2015. As set forth in the "Overview" of Tannen's FINRA AWC https://www.finra.org/sites/default/files/fda_documents/
2014043542411_FDA_JG41686.pdf:
During the period November 2013 to June 5,2015 (the "relevant period"), Tannen made material misrepresentations and omitted material facts in connection with certain securities transactions, churned and excessively traded customer accounts, and made unsuitable recommendations of securities. He thereby willfully violated Section 10(b) of the Securities Exchange Act of 1934 and SEC Rule 10b-5 promulgated thereunder, and violated FINRA Rules 2020,2111, and 2010.
- John Joseph Vaughan was barred by FINRA on June 29, 2015. As set forth in the Syllabus of Vaughan's FINRA Office of Hearing Officers Default Decision
https://www.finra.org/sites/default/files/fda_documents/
2012031877501_FDA_JMX1635.pdf
Respondent is barred from associating with any FINRA member firm in any capacity for failing to appear and provide on-the-record testimony, in violation of FINRA Rules 8210 and 2010.