- Merriman Curhan Ford and Officers Aid, Abet Frauds by Rogue RR. [WWW, 12/2]
- Another SEC Settlement Goes Under the Judicial Knife. [WWW, 12/1]
_________________________________________________
1. Merriman Curhan Ford and Officers Aid, Abet Frauds by Rogue RR
SF broker-dealer Merriman Curhan Ford & Co., its founder and CEO Jonathan Merriman, and its General Counsel and Chief Compliance Officer Christopher Aguilar, agreed to fines, suspensions and other undertakings, to settle SEC charges they: (i) failed reasonably to supervise an RR under heightened supervision; (ii) allowed that RR to supervise others without the requisite qualifications; and, (iii) violated Regulation S-P as a result of that RR's conduct.
The registered rep, Scott Cacchione, served as the former Managing Director of Client Services at the Merriman Firm, and during his employment Cacchione perpetrated two distinct fraudulent schemes.
- From at least August 2007 through May 2008, Cacchione provided account statements of firm customers to his customer and friend, William “Boots” Del Biaggio III, so that Del Biaggio could fraudulently pledge the securities held in the innocent customers’ accounts to obtain more than $45 million in personal loans.
- From at least March 2006 through October 2007, Cacchione engaged in fraudulent unauthorized trading in several customer accounts in which he purchased risky microcap securities without his customers’ permission, and then was paid the commissions generated from the unauthorized trades.
Cacchione, who was barred from the industry for his actions, had been recruited by his friend and former co-worker Jonathan Merriman, primarily to promote corporate business for Merriman. He also brought over a hundred retail accounts - which didn't fit Merriman's business model, which focused on investment banking and offered retail accounts to employees and corporate officers who "came with the firm's investment banking deals.
Heightened Supervision by Thin Compliance Staff. Knowing Cacchione's checkered past, Merriman and Aguilar put Cacchione on a heightened supervisory plan. Aguilar took responsibility for implementing the plan and delegated the review function of Cacchione's trading and email to a Compliance Manager. The Compliance Manager, however, was responsible for most of the day-to-day compliance functions at the firm, and despite the extra burden of having to review Cacchione’s emails and trading, no new staff was added to the Merriman Firm’s thinly-staffed compliance department to assist with Cacchione’s heightened review and the expansion of the retail business line and addition of the Client Services Group to the Merriman Firm.
Cacchione Served as Unlicensed Managing Director. Though he had not attained his Series 24 license, Cacchione was put in charge of setting up a new Client Services Group, with the expectation he'd successfully complete the Series 24 exam within his first 30 days with the firm. Despite the fact that Cacchione never passed the Series 24 during his more than 2-year tenure at the firm, Merriman and Aguilar allowed Cacchione to remain the managing director and to supervise at least 5 RRs.
Prohibition of Promissory Notes. The firm's WSP prohibited the sale of promissory notes in a private securities transaction, whether compensation is involved or not. Cacchione violated firm policy by recommending that certain of his customers purchase or renew promissory notes that were offered by Cacchione's friend and customer, William "Boots" Del Biaggio III. The SEC brought a securities fraud action against Del Biaggio for operating a Ponzi shcme with the funds he received as part of the promissory note offering.
Fraudulent Pledging and Reg S-P Violations. Cacchione was personnally indebted to Del Biaggio, having borrowed up to $2mn to save his home from foreclosure. Later on, when Del Biaggio needed cash or sufficient collateral to secure a $25mn loan - in order to purchase the Nashville Predators NHL hockey team - he got Cacchione to send him account statements belonging to 2 unknowing firm customers. Del Biaggio forged his name and information onto the statements, then emailed at least 2 sets of the doctored statements back to Cacchione at Cacchione's Merriman email account. For 6 months, Del Biaggio doctored statements and provided them to at least 7 banks and private lenders. Del Biaggio obtained about $45mn in loans based on his and Cacchione's representations that hte accounts belonged to Del Biaggio.
Cacchione's Unauthorized Trading. Between March 2006 and October 207, Cacchione engaged in a pattern of unauthorized trading in certain of his customers' accounts. Often he chose risky, thinly-traded stocks, and Merriman - as Cacchione's direct supervisor - encouraged Cacchione to recommend these stocks to his customers. Despite not having discretionary authority, Cacchione traded in certain of his customers' accounts without obtaining their permission. Cacchione took down large positions in the IPO's the firm managed or participated in - and would place unwanted and unallocated shares into those customers' accounts that had excess cash.
Unreasonably Delegated Supervisory Responsibilities. Merriamn delegated his responsibilities to supervise Cacchione to Aguilar, but never followed up, even, for example, after Merriman became aware of a customer complaint and other red flags related to Cacchione's work. Further, Merriman was unaware that Aguilar had place Cacchione on a heightened supervisory plan.
_________________________________________________
2. Another SEC Settlement Goes Under the Judicial Knife
A U.S. District Judge reversed his earlier approval of a proposed settlement between the SEC and accused trader Khaled Mohammed Sharif Al Sayed Al Hashemi. Judge Harold Baer ordered each side to provide more information about the settlement, as well as facts underlying the case. He notes that the information will help him better "determine whether a final judgment on consent is appropriate."In the settlement ... Mr. Hashemi agreed to pay a total of $875K, including allegedly improper gains he made on shares of Nova Chemicals Corp., plus a civil penalty.
It's not clear why the Judge changed his mind. We do know he had precedence - over 2 months ago Judge Jed Rakoff blocked the proposed settlement between the SEC and Bank of America. and ordered each to provide more, and more, and more information. The 2 sides are scheduled to go to trial on 3/1/10. In that case, the Judge objected to the SEC's proposed $33mn fine - the fine would be paid with monies received by BofA from the government, and the SEC didn't bring charges against any individuals.The SEC said ... it didn't have the evidence to pursue bank executives and sought to properly balance the harm to shareholders with the need to deter wrongdoers.
In C-I's Words ... yes, BofA would pay a drastically-reduced fine, but it's large enough to make those BofA wrongdoers think twice before they commit violations again. They know the SEC means business, and it's ready to pillage and plunder BofA's shareholders, again and again, if need be. [WSJ, 12/1]
