pptx - R/Finance

Bagging the Wolves of
Wall Street:
Crowd Sourcing
Suspicious Activity Reporting
Penny Stocks
William Casey King, Ben Johnson
Phronesis, LLC
Yale University
Suspicious activity reporting forms the cornerstone of
the BSA reporting system. It is critical to the United
States’ ability to utilize financial information to combat
terrorism, terrorist financing, money laundering, and
other financial crimes.
Thinking Outside the
Banking Box:
Along with banking and insurance, the securities
industry is one of the core industries through which
persons and entities can access the financial system.
This access provides opportunities for criminals to
misuse the financial system to engage in money
laundering (ML) and terrorist financing (TF).
A Gap in ML/TF Surveillance?
In comparison to several other sectors
and financial products, there is
significantly less documentation on the
ML and TF risks and vulnerabilities
related to the securities industry.
Securities: A Growing Threat for Money
Laundering and Terrorist Financing
“As defences in areas more traditionally associated with
ML/TF, such as banking, are tightened, the use of the
securities industry may become a greater temptation to
those seeking to disguise illicit proceeds, or indeed to
generate them.”
 -Source: Financial Action Task Force Report (FATF): Money Laundering and Terrorist
Financing in the Securities Sector, 2009
FATF: Identified Vulnerabilities in the
Securities Industry
1. Physical Securities (Including Bearer Securities and
Bills of Exchange)
2. Insurance Products
3. Low Priced Securities and Private Issuers: Penny
Stocks, micro-cap, nano-cap
FATF: Identified Vulnerabilities in the
Securities Industry
4. Options
5. Over-the-Counter Markets
6. Alternative Trading Platforms (ATPs), Electronic
Communications Networks (ECNs) and Internet-Based
Trading Accounts
Traditional means for suspicious activity
reporting require the cooperation and
active participation of bank officers,
compliance officers, brokers, broker
dealers through the required filing of a
suspicious activity report (SAR).
SARs and STRs: Under-Reported
in Securities Industry
Money Service 530,518
Securities and
18, 385
Some Reasons for Under-Reporting:
1. Financial incentives outweigh perceived risks: quota driven
2. Due to the fast pace of securities markets, transaction
times are of critical importance. Intermediaries are required
to act quickly on a client’s behalf, thus potentially affecting an
intermediary’s ability (and perhaps inclination) to scrutinize
and submit STRs
3. Lack of awareness of securities as a vehicle for ML/TF.
Looking for insider trading, but not necessarily ML
--------------------------------4. Many vulnerabilities can be located in the OTC
market and through electronic intermediaries where
there is no one to report.
Problem: How to Get at
Suspicious Activity without
What are the data signals for
“suspicious activity”
1. Unusual Volume
2. Order executed above market rate
3. Order executed below market rate
4. Sharp Price Spikes and Falls
5. The anger and suspicion of the “crowd”
Crowd Sourcing Surveillance
Investors have an interest in monitoring
suspicious activity. Let’s let them help us do
our due diligence.
Message Boards
1. Create a lexicon of suspicious activity “keywords” from
a study of precious SEC action against stocks, and the
message board activity that occurred at that time.
2. Expand the lexicon to include any words in the
English language that suggest “suspicious activity.”
Shameless plug for my book:
Code for counting number of keyword hits and
then calculating the raw and adjusted
Does it work?
Spikes in both volume and suspicious activity index
attributed to:
Accredited Business Consolidation Corp.
Accredited Business
Consolidation Corp. (ACDU)
What precipitated the volume spike and price increase?
A couple of newsworthy items:
1. A takeover by Abraham Blauvelt, Ltd.
2. The purchase of 300 acres of land in Bluefields,
3. The departure of their President, Joanne Chmielewska
Are these suspicious activities?
1Who or What is Abraham
According to filings with the SEC, Abraham Blauvelt,
Ltd. is an “Asian, American, and Latin American
investment firm comprised of over forty individuals and
entities” who choose to remain anonymous.
But…Abraham Blauvelt is also….
The Other Abraham Blauvelt:
An infamous Dutch Pirate that was active during the
middle 1600’s in New Amsterdam (New York) and
But just because an anonymous investment company is
named for an infamous thief and pirate, doesn’t
necessarily make the principals thieves and pirates.
Let’s consider the change in director reported in their
SEC filing
SEC Filing: Accredited Business
Consolidators Corp. November
5, 2013: Form 8K
“The Company announced the departure of Joanna
Chmielewska as officer and director pursuant to a
directive of Abraham Blauvelt Ltd., preferred
shareholder. ”
ACDU: Form 8K (continued)
“All compensation owed to Ms. Chmielewska will be
paid by Abraham Blauvelt Ltd.. . . Abraham Blauvelt
Ltd. agreed to pay Ms. Chmielewska, who never
received a salary, a termination fee of $1,350,000. The
payment will be paid by Abraham Blauvelt Ltd. The
Company thanks Ms. Chmielewska for her services
which included lucrative land projects.”
Who is Joanna Chmielewska?
a. A Polish crime novelist and screenwriter who died in
October of 2013.
b. The former president of ACDU known for her
lucrative land deals.
c. The sole director of My Pleasure, Inc. a company that
sells sex toys over the internet.
d. All of the above.
Answer: All of the Above, but…
The President of ACDU is not the crime novelist, though
she shares her name (or perhaps the same people/person
that chose Abraham Blauvelt has an ironic sense of
There is a Joanna Chmiewleska who manages to
negotiate lucrative land deals WHILE directing an
internet sex toy company that reports 50-100 million
USD in sales a year.
How do we know it’s the same
Joanna Chmielewska?
Because ACDU is partially owned by My Pleasure, Inc. as
reported in their publically available SEC filing of form
10 Q of 11/20/2012:
Note 9:
“In 2008, The Company issued 5,000,000 shares to My
Pleasure Ltd. For 0.03 per share. This result in the new
share being listed with the previously issued and
outstanding common stock.”
But what is their Business Sector and What
are their Other Holdings? Is this Consistent?
Accredited Business Consolidators Corp. (the "Company" or "accredited")
was organized in 1990 under the name Fornello USA, Inc. Accredited
changed its name to The Italian Oven, Inc., to reflect the operation of
various Italian restaurants. However, in October 1996, the company had
no funds to sustain itself, and filed for protection under Chapter 11 of the
United States Bankruptcy Code, presented a plan with the Bankruptcy
Court, which stripped it of most assets, including intellectual property.
The plan provided no payment to shareholders, but it did not cancel or
terminate the common shares of the company. The Bankruptcy Court of
the United States for the Western District of Pennsylvania approved the
bankruptcy plan and on July 17, 1998, the Company emerged from
After the company emerged from bankruptcy, and until
December 31, 2007, the company did not conduct any
business. It had no operations or assets. Instead, it simply
remained dormant while the administration sought an
opportunity for its shareholders. The Company has no
restaurants and is not affiliated with the restaurants that bear
his name.
In late 2008, My Pleasure Ltd. bought the controlling interest
of the Company with the intent to locate business
opportunities. Since then, the company has been exploring
diversified business ventures in the fields of marketing
hospitality, travel, among other things.
Other “Investments”
“We own 1,000,000 shares of James Monroe Capital
Corp., an entity that trades on the over the counter
market as JMCP. We paid $200.00 for the shares. We
revalued the shares base on market value as of December
31, 2011, at $100.00, or $.0001 per share. We know little
about JMCP except that our investigation demonstrated
that it appears to be part of a stock fraud scheme that
issues shares pursuant to fraudulent and inflated debt.”
Lucrative Land Deal that Joanna was
Rewarded for with 1.8 million?
“We purchased 43,639,950 common shares and
1,000,000 preferred shares of Hiland Terrace Corp., an
entity that owned the Hiland Terrace Hotel and Office
Center in North Huntingdon, Pennsylvania.”
Hiland Hotel and Office Center
From Trip Advisor: “Funny hodgepodge of rooms”
Reviewed September 10, 2009
“We were looking for somewhere cheap to stay near Kennywood, and this
place looked okay. The owner showed me one room, but then decided
we'd have more privacy in another. Apparently he rents by the hour. At
least he was up front about that. . .We ended up in a carport room. It was
small, and looked clean. Unfortunately, there was a lot of hair on the
sheets. I was able to brush it off before my wife saw it. I'm praying that it
just didn't come out in the dryer. I also hid the ashtray with gum in it
behind one of the lamps. . . The bed was decently comfortable, and it was
quiet at night. It looked like he didn't get any hourly clients, there were
only two other cars there when we got back. All in all, it wasn't terrible,
but I'd just as soon try one of the other nearby motels next time.”
ACDU: Would an SAR Have Been
Filed by a Compliance Officer?
Based on the FINRA requirements
for SARs the likely answer is “yes.”
This is not to say that Accredited Biz
has done anything wrong, but
simply that it merits a closer look.
ML/TF in the Securities Industry
1. Surveillance is possible even without a SAR or STR
2. This “case study” was made through publicly available
3. Volume and price irregularities in conjunction with
suspicious “sentiment” to crowd source surveillance can
fill the gap left by SARs.
4. Investors have an interest in monitoring suspicious
Why does this matter?
FINRA Fines Brown Brothers Harriman a Record
$8 Million for Substantial Anti-Money
Laundering Compliance Failures
Highest Fine Levied by FINRA for AML-Related
Violations; Former AML Compliance Officer Also Fined
and Suspended
 WASHINGTON — The Financial Industry Regulatory
Authority (FINRA) announced today that it has fined New
York-based Brown Brothers Harriman & Co. (BBH) $8
million for substantial anti-money laundering compliance
failures including, among other related violations, its
failure to have an adequate anti-money laundering
program in place to monitor and detect suspicious penny
stock transactions.
Red Flags Involving
Penny Stock Companies
1. Company has no business, no revenues and no product.
2. Company has experienced frequent or continuous
changes in its business structure.
3. Officers or insiders of the issuer are associated with
multiple penny stock issuers.
4. Company undergoes frequent material changes in
business strategy or its line of business.
5. Officers or insiders of the issuer have a history of
securities violations.
6. Company has not made disclosures in SEC or other
regulatory filings.
7. Company has been the subject of a prior trading

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