FINRA Creates COVID Task Force - The Industry Spread

Michael Volpe

After spending a decade in finance, Michael Volpe has been a freelance investigative journalist since 2009. His work has been published locally in the Chicago Reader, Chicago Crusader, Chicago Heights Patch, and New City. Nationally, Volpe's work has appeared in a wide variety of publications including the Washington Examiner, the Daily Caller, Crime Magazine, the Southern Christian Leadership Conference Newsletter, and Counter Punch. Volpe has been recognized by whistleblowers as leading the charge in getting their stories out. His first book Prosecutors Gone Wild was published in October 2012, his second book The Definitive Dossier of PTSD in Whistleblowers was published in February 2013 and his third book Bullied to Death was published in August 2015.

Finra

FINRA Creates COVID Task Force

June 12, 2020

FINRAFINRA - COVID, the Financial Industry Regulatory Authority, has formed a task force for COVID related crimes.

Greg Ruppert is the new head of the National Cause and Financial Crimes Detection Programs (NCFC) at FINRA and he is a former Federal Bureau of Investigation (FBI) agent.

He was the most recent guest on FINRA’s podcast, Unscripted.

He was a returning guest, and it looks like he was a hit because Ruppert had previously been on just a couple weeks prior on May 26, 2020.

This time Ruppert talked about the new task force he formed to fight back against COVID related crimes.

“I think as I mentioned last time we chatted, I actually started at FINRA at the onset of the pandemic in the very stay at home workers. So, I onboarded from my house and quickly sought out to try to engage the teams under the NCFC umbrella and, one, find out how they were doing,” Ruppert said on the podcast, “what they needed for me, but also really wanted to learn what work they did. And part of that focus was a significant uptick in work that was related specifically to the COVID-19 related fraud activity that we were seeing,”

Ruppert continued, “So, as I learned more about what they were doing, and their work with the SEC in this area, as well as what other groups under the NCFC umbrella were doing, I saw an opportunity to increase collaboration, increase intelligence sharing and really kind of bring those groups together, so that we were making sure that we were addressing everything that we were seeing, we were leveraging all of the expertise that we had across the organization to address the threats that were coming in. But then with that I saw an opportunity to really reach out and bring in more groups at FINRA that we thought might have an additional role to play or additional intelligence that would make us stronger in this area. So, that was the reason for the idea on a task force.”

The task force draws from thirty teams at FINRA from: Member Supervision, Enforcement, Market Regulation, and Office of General Counsel, Ruppert said.

Ruppert also described the most common types of frauds he’s seen.

“So right now, I’d say the bulk of what we’re investigating and the referrals we’re seeing are coming out of issuer related to fraud or manipulation. So, the focus is primarily on microcap issuers. And then we’re also seeing, based on the market volatility, areas that would potentially lean towards investigations for our insider trading teams. And then even moving on to the Market Regulation teams looking for any attempts to manipulate the market through a variety of schemes.

“We’re closely tracking investor complaints that are coming in potentially around their investments. We are keenly looking for any initial red flags or potential indication of Ponzi or pyramid schemes or other fraud schemes. We’re targeting areas in education around our senior or vulnerable investors that are out there, but we’re also looking to educate and inform broker-dealers on a large variety of cyber-related crimes and cybersecurity activity given a large number of the workforce is now working from home.”

He also said besides doing its own investigation, FINRA has been referring out cases to the Securities and Exchange Commission (SEC), the FBI, and others.

He said that FINRA has made more than one hundred referrals, and the SEC has already issued twenty-five trading suspensions from those referrals.

On June 9, the SEC took action against a California trader involved in COVID related manipulation. Here is part of their press release.

“The Securities and Exchange Commission today charged a penny stock trader in Santa Cruz, California, with conducting a fraudulent pump-and-dump scheme in the stock of a biotechnology company by making hundreds of misleading statements in an online investment forum, including a false assertion that the company had developed an ‘approved’ COVID-19 blood test.

“According to the SEC’s complaint, beginning around March 2, 2020, Jason C. Nielsen attempted to drive the stock price of Arrayit Corporation securities higher using online posts encouraging investors to purchase shares, including numerous messages repeating the false assertion regarding an approved COVID-19 test, without telling them about his large position in Arrayit stock or his plans to sell the shares while others were buying. Nielsen also allegedly created the false impression of high demand for Arrayit stock by placing and subsequently canceling several large orders to purchase shares in a tactic known as ‘spoofing.’ According to the SEC’s complaint, Nielsen made approximately $137,000 in six weeks, but based on questions regarding the accuracy and adequacy of publicly available information concerning Arrayit, the SEC temporarily suspended trading in Arrayit securities on April 13, 2020, before Nielsen was able to profit further from the scheme.”

Ruppert noted that FINRA has recently released Regulatory Notice 20-13, “specifically related to what we’re seeing that would impact firms related to the COVID-19 activity.”

Find Regulatory Notice 20-13 here.

He continued, “For investors, if you go to FINRA’s web site under Investor Insights, there’s a number of fraud alerts that we put out there. So, the latest one that went out in early May was fraud in your investment accounts during COVID-19. The one thing I also point out with these Investor Insights is that at the bottom of the document, we also provide a specific action items that, from investors wanting to report fraudulent activity with the ability to use either FINRA’s website, the SEC’s website, the FBI’s website or other state regulators, state securities or the FTC. But we also list in our fraud and COVID-19 update specific websites where you could go for more information.

“So FINRA has set up a COVID-19 web page specifically for updates, but the SEC, the CFTC, the Federal Trade Commission, the CFPB, as well as the Better Business Bureau, the North American Securities Administrator, the FBI, the Secret Service, DHS and the CDC have websites, of which we provide links to most of those from our website. We’ll serve as a hub that will allow you to keep track of the number of schemes that are proliferating during this time, but also specific examples and specific tips for what you as a broker-dealer, as a compliance or risk professional in a member firm, or even what an investor can do to avoid particular scams and really kind of check what they’re seeing.”

FINRA is a self-regulatory organization which was formed in 2007 when the regulatory arms of NASD and NYSE merged.

Ruppert noted that when he was an FBI agent, he had previously dealt with NASD.

“So, back when I was a young FBI agent in the 90s, it wasn’t FINRA it was the NASD that since merged into FINRA, but there’s always been a very close working relationship in terms of either getting referrals or facilitating investigations with documentation, follow up basis between law enforcement and the securities regulators and what we do,” Ruppert said.

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