Did Your Broker Suddenly Leave and No One Told You?

Apr 17, 2019

FINRA Announces New Standard for Informing Customers about a Broker’s Move to a New Firm Have you ever called your broker only to be told that he or she is no longer with the firm? Have you been reassigned to another broker with no choice in the matter? FINRA has just released a Notice to Members (NTM 19-10) which gives brokerage customers the right to receive truthful information regarding where the departing broker has moved to as well as requiring disclosure to the customers of their rights to move their account to the departing broker’s new firm. https://www.finra.org/file/regulatory-notice-10-19 Additionally, FINRA has emphasized that “a member firm should communicate clearly, and without obfuscation, when asked questions by customers about the departing registered representative. “ Presumably, this could mean that if the broker was fired for a reportable reason, the firm might have an obligation to disclose this to the customers. Registered Representative Departures Registered representatives move with some frequency between member firms and across financial firms under various regulatory jurisdictions, such as investment advisory firms and insurance companies. In addition, registered representatives may leave the financial industry entirely. A registered representative’s departure may prompt customer questions about the departing representative and the status of their accounts following the departure. FINRA recognizes that member firms’ different business models give rise to different approaches to managing the customer relationship, and that the expectations regarding a member firm’s handling of a departing registered representative will vary accordingly. For instance, the departure of a registered representative who works closely with customers in a one-on-one relationship will likely be handled differently than the departure of a registered representative in a customer advisory center model or a group service model. While member firms have flexibility in reassigning customer accounts and communicating with customers about the reassignments, they should provide timely and complete answers, if known, to all customer questions resulting from a departing representative, so that customers may make informed decisions about their accounts. Communications with Customers Customers should not experience an interruption in service as a result of a registered representative’s departure. FINRA understands that decisions about the reassignment of customer accounts, if applicable, are typically made promptly following the departure ofa registered representative. In the event of a registered representative’s departure, FINRA expects that the member firm will have policies and procedures reasonably designed to assure that the customers serviced by that registered representative are aware of how the customers’ account will be serviced at the member firm, including how and to whom the customer may direct questions and trade instructions following the representative’s departure and, if and when assigned, the representative to whom the customer is now assigned at the member firm. In addition, a member firm should communicate clearly, and without obfuscation, when asked questions by customers about the departing registered representative. Consistent with privacy and other legal requirements, these communications may include, when asked by a customer: Clarifying that the customer has the choice to retain his or her assets at the current firm and be serviced by the newly assigned registered representative or a different registered representative or transfer the assets […]

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Signs You May Be A Ponzi Scheme Victim

Apr 11, 2019

The Securities and Exchange Commission (“SEC”) has set out the warning signs or red flags that should alert investors that an investment might be a Ponzi Scheme. Many Ponzi schemes share common characteristics. Look for these warning signs: High investment returns with little or no risk. Every investment carries some degree of risk, and investments yielding higher returns typically involve more risk. Be highly suspicious of any “guaranteed” investment opportunity. Overly consistent returns. Investment values tend to go up and down over time, especially those offering potentially high returns. Be suspect of an investment that continues to generate regular, positive returns regardless of overall market conditions. Unregistered investments. Ponzi schemes typically involve investments that have not been registered with the SEC or with state regulators. Registration is important because it provides investors with access to key information about the company’s management, products, services, and finances. Unlicensed sellers. Federal and state securities laws require investment professionals and their firms to be licensed or registered. Most Ponzi schemes involve unlicensed individuals or unregistered firms. Secretive and/or complex strategies. Avoiding investments you do not understand, or for which you cannot get complete information, is a good rule of thumb. Issues with paperwork. Do not accept excuses regarding why you cannot review information about an investment in writing. Also, account statement errors and inconsistencies may be signs that funds are not being invested as promised. Difficulty receiving payments. Be suspicious if you do not receive a payment or have difficulty cashing out your investment. Keep in mind that Ponzi scheme promoters routinely encourage participants to “roll over” investments and sometimes promise returns offering even higher returns on the amount rolled over. For more details, please visit the SEC website.  These are the SEC’s suggested steps to avoid Ponzi schemes and other investment frauds. Below are some basic questions you should always ask before you commit your hard-earned money to an investment. Is the seller licensed? Is the investment registered? How do the risks compare with the potential rewards? Do I understand the investment? Where do I turn for help? If you do not understand an investment, its features, risks and/or the seller or investment is not registered, these are reasons to not buy the investment. Sometimes, a multi-level marketing scheme is in actuality a Ponzi scheme. As explained by the SEC, Pyramid schemes masquerading as multi-level marketing (“MLM”) programs often violate the federal securities laws, such as laws prohibiting fraud and requiring the registration of securities offerings and broker-dealers. In a pyramid scheme, money from new participants is used to pay recruiting commissions (that may take any form, including the form of securities) to earlier participants just like how, in classic Ponzi schemes, money from new investors is used to pay fake “profits” to earlier investors. Recently, the SEC has sued the alleged operators of large-scale pyramid schemes for violating the federal securities laws through the guise of MLM programs. When considering joining an MLM program, the SEC has warned investors to beware of these hallmarks of a pyramid scheme: No genuine product or service. MLM programs involve selling a genuine product or service […]

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FINRA Files Action Against Success Trade, Just2Trade, Faud Ahmad

Apr 26, 2013

The Financial Industry Regulatory Authority (FINRA) announced that it has filed a Temporary Cease-and-Desist Order (TCDO) to halt further fraudulent activities by Washington, D.C.-based Success Trade Securities, Inc. and its CEO & President, Fuad Ahmed, as well as the misuse of investors’ funds and assets. FINRA also issued a complaint against Success Trade Securities and Ahmed charging fraud in the sales of promissory notes issued by the firm’s parent company, Success Trade, Inc., in which Ahmed holds a majority ownership interest. FINRA filed the TCDO, to which Ahmed and the company agreed, thus immediately freezing their activities, based on the belief that ongoing customer harm and depletion of investor assets are likely to continue before a formal disciplinary proceeding against Success Trade Securities and Ahmed will be completed. Success Trade Securities is an online broker-dealer that operates through Just2Trade and LowTrades. In its complaint, FINRA alleges that Success Trade Securities, Ahmed and other registered representatives at the firm sold more than $18 million in Success Trade promissory notes to 58 investors, many of whom are current or former NFL and NBA players, while misrepresenting or omitting material facts. Specifically, FINRA’s complaint alleges that Ahmed and Success Trade Securities misrepresented that they were raising $5 million through the sale of promissory notes and continued to make this representation, even as the sales exceeded the original offering by more than 300 percent. Most of the notes promised to pay an annual interest rate of 12.5 percent on a monthly basis over three years, with some notes promising to pay interest as high as 26 percent. FINRA also alleges that Ahmed and Success Trade Securities failed to disclose the amount of the company’s existing debt to investors and that it was unable to make future interest payments without raising money from new investors. In addition, FINRA charges that Ahmed and Success Trade Securities misrepresented how the proceeds would be used, instead improperly using the funds to make unsecured loans to Ahmed and to make interest payments to existing noteholders. FINRA further alleges that Ahmed and Success Trade Securities misrepresented the rate of return and exempt status of the private placement offering through which the notes were sold. TO VIEW THE COMPLAINT GO TO http://disciplinaryactions.finra.org/viewdocument.aspx?DocNB=31831 OUR LAW FIRM HAS EXPERIENCE REPRESENTING PROFESSIONAL ATHLETES AGAINST THEIR BROKERS. IF YOU HAVE BEEN THE VICTIM OF THIS SCAM, CONTACT US AT WWW.INVESTORFRAUDLAW.COM.

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Private equity firms investigated for tax strategy

Sep 1, 2012

Financial Firms Face Subpoenas on Tax Strategy The New York attorney general is investigating whether some of the nation’s biggest private equity firms have abused a tax strategy in order to slice hundreds of millions of dollars from their tax bills, according to executives with direct knowledge of the inquiry. The attorney general, Eric T. Schneiderman, has subpoenaed more than a dozen firms seeking documents that would reveal whether they converted certain management fees into fund investments, which are taxed at a far lower rate than ordinary income. Among the firms to receive subpoenas are Kohlberg Kravis Roberts & Company, TPG Capital, Sun Capital Partners, Apollo Global Management, Silver Lake Partners and Bain Capital, which was founded by Mitt Romney, the Republican nominee for president. Executives at some firms said they feared that Mr. Schneiderman, a Democrat with ties to the Obama administration, was seeking to embarrass the industry because of Mr. Romney’s roots at Bain. Others suggested the subpoenas might be part of an effort to recover more tax revenue for New York. Read More: http://www.nytimes.com/2012/09/02/business/inquiry-on-tax-strategy-adds-to-scrutiny-of-finance-firms.html?emc=na

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Elder Investor Fraud: The Crime Of The 21st Century

Jun 29, 2012

A Task Force has revealed that one out of five citizens over the age of 65 has been the victim of financial fraud. To detect the early signs of fraud and protect the older population from fallling prey to fraudulent schemes, the Elder Investment Fraud and Financial Exploitation Prevention Program (EIFFE Prevention Program) has teamed up the North American Securities Administrators Assocation (NASAA) and various medical associations to create safeguards. According to NASAA, there are common investment scenarios which elders and their families should be on the lookout for: Common Investment Scam Scenarios UNSUITABLE INVESTMENTS — What might be suitable for one investor might not be right for another. Securities professionals must not recommend investments that are inappropriate for a customer’s age, risk tolerance and need for access to the money. PONZI SCHEMES — Ponzi schemes amount to robbing an army of Peters to pay a handful of Pauls. As the number of initial investors grows and the supply of potential new investors dwindles, the Ponzi bubble bursts with the vast majority of investors losing all or most of their money. AFFINITY FRAUD — In affinity fraud, the senior makes an investment because of a recommendation by a “trusted” friend based on similar backgrounds. UNREGISTERED INVESTMENTS — The senior is sold a stake in a new company or enterprise and is told that the investment “does not need to be registered” with the state or federal government. UNLICENSED SALESPEOPLE — Those who sell securities or provide investment advice must be appropriately licensed. If not, chances are they aren’t qualified to offer investments or advice. FREE LUNCH/DINNER SEMINARS — Regulators find the majority of these seminars are actually sales pitches. SENIOR DESIGNATIONS — Individuals may call themselves “senior specialists” to create a false level of comfort among seniors and then get them to invest. ANY SALES PITCH ACCOMPANIED BY PRESSURE OR COERCION   If you or a loved one has been the victim of elder investment fraud or elder securities fraud, you may have rights to recover your money back. The attorneys at InvestorFraudLaw.com are here to help. Contact us at 800-806-1614 for a free consultation or visit us at www.investorfraudlaw.com.

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South Florida Is A Hotbed For Investment Fraud

Jun 16, 2012

As reported by the miami herald below, florida is a haven for securities fraud. The sec can prosecute the criminals, but often the only way you can recover your lost investment funds is to hire a private attorney. Our securities arbitration group, headed by a former in house brokerage firm lawyer, can help you recover your losses. Find out more at www.Investorfraudlaw.Com. A federal task force has produced 85 prosecutions, including 15 new cases, since late 2010. Authorities say the region ranks No. 2 in the nation for investment probes. BY JAY WEAVER JWEAVER@MIAMIHERALD.COM South Florida may not be as fertile ground as Wall Street on the securities-fraud front, but federal authorities said the region is giving the nation’s investment capital a run for its money. Standing side by side, South Florida’s U.S. attorney and top FBI agent said the region ranks No. 2 for securities and investment fraud investigations in the country, leading to prosecutions of 85 defendants over the past year and a half — including 15 announced Monday. In late 2010, U.S. Attorney Wifredo Ferrer launched a federal securities fraud task force to operate like other law enforcement partnerships targeting South Florida’s No. 1 scourges — runaway healthcare and mortgage rackets. Ferrer, in a press conference at the U.S. attorney’s office, said the main goal of the latest fraud task force is “try to restore the integrity of the securities market.” He said that an ever-rising number of investors, from the savvy to the elderly, have lost millions of dollars in penny-stock, market-manipulation and Ponzi schemes since the economy’s boom-bust cycle of the past decade. “Prevention is the key,” he said, urging investors to educate themselves and contact the FBI or the Securities and Exchange Commission if they suspect fraud. FBI special agent in charge John Gillies said the majority of the new securities fraud cases resulted from undercover operations targeting penny-stock companies headed by executives who allegedly conspired to carry out traditional “pump and dump” schemes. Such scams artificially inflate, or pump, the price of the penny stocks so that the perpetrators can sell, or dump, their shares for a profit. Among those recently charged: Scott Haire, 42, of Coral Springs, who was president of a Texas corporation called Wound Management Technologies, Inc., which purportedly developed advanced wound-care products. Haire, who is expected to surrender to authorities on Wednesday, was charged with scheming to manipulate the publicly quoted share price and trading volume of WNDM common stock. “The fraud from these stock market manipulation schemes could have defrauded numerous innocent investors out of millions of dollars,” Gillies said. But “there were no victims” because the FBI’s sting operations disrupted the scams early on, he said. Eric Bustillo, a former Miami federal prosecutor who heads the SEC’s regional office, said he has tried to be more aggressive in civil prosecutions and in sharing information with the U.S. attorney’s office for parallel criminal cases. “When we say we’re determined to stamp out microcap fraud, that’s not a slogan,” Bustillo said. “That’s a pledge.” Both the SEC and U.S. attorney’s office have also worked closely in cracking down on […]

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JP Morgan Was On Both Sides Of Transaction With $2 Billion Loss

May 16, 2012

BY AZAM AHMED Robert Lisak Mary Callahan Erdoes runs the asset management unit. For hedge funds that could smell blood in the water, it seemed to be an opportunity to take on JPMorgan Chase and win. It was, in fact, such a sweet trade that even another part of the bank couldn’t pass it up. Even as a trader for JPMorgan in London was selling piles of insurance on corporate debt, figuring that the economy was on the upswing, a mutual fund elsewhere at the bank was taking the other side of the bet.  F.B.I. Inquiry Adds to JPMorgan’s Woes  Video: Ignoring Red Flags at JPMorgan  Graphic: A Complex Strategy That Backfired The trade contributed to more than $2 billion in losses for JPMorgan, which disclosed the loss last week. The hedge funds, including Blue Mountain Capital and Blue Crest, have profited handsomely thus far, as the markets move against JPMorgan. But perhaps one of the most surprising takers of the JPMorgan trade was a mutual fund run out of a completely different part of the bank. The bank’s Strategic Income Opportunities Fund, which holds about $13 billion in client money, owns about $380 million worth of insurance identical to the kind the “London whale” was selling, according to regulatory filings and people with knowledge of the trade. It is unclear how much the fund made. That one hand of the bank was selling while another was buying is not uncommon in the dog-eat-dog world of Wall Street. Yet that trading is typically done on behalf of clients, not in a way that, inadvertently or not, undermines what the bank is doing for itself. In that way, it is different from the example of Goldman Sachs in 2007, when it sold subprime mortgage securities while betting against them. In the case of JPMorgan, it was the reverse: the bank took risk with its own money to sell the insurance contracts that have cost the company money. The asset management division, meanwhile, invested on behalf of its clients when it bought the contracts. In this case, it may turn out to be a silver lining. If nothing else, it indicates that the asset management division, run by Mary Callahan Erdoes, acted independently from the bank, as is required. “You’ve got so many different businesses, they are not coordinated and they are not telling each other things and that turns out in this case to have been a virtue,” said Robert Litan, vice president for research and policy at the Ewing Marion Kauffman Foundation. “But that also feeds into another concern, and that is that JPMorgan is not only too big to fail but too big to manage.” JPMorgan declined to comment. The trading losses have been a major source of embarrassment for the company and its chief executive, Jamie Dimon. They have also reinvigorated the debate over risk-taking at banks. Analysts familiar with the Strategic Income Opportunities Fund say it is typical for money managers there to seize on lucrative trades. The fund, which is run by William Eigen, began to buy the insurance contracts roughly a year ago. By last May, the mutual fund had built a […]

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Suitability Of Leveraged And Inverse ETF (Exchange Traded Funds)

May 7, 2012

There has been much press lately about the sales practices of Exchange Traded Funds (“ETFs”) to the individual investor. FINRA has  published the following frequently asked questions concerning leveraged and inverse ETFs. Q. What are leveraged or inverse ETFs? A. The shares of an ETF commonly represent an interest in a portfolio of securities that track an underlying benchmark or index. A leveraged ETF generally seeks to deliver multiples of the daily performance of the index or benchmark that it tracks. An inverse ETF generally seeks to deliver the opposite of the daily performance of the index or benchmark that it tracks. Inverse ETFs often are marketed as a way for investors to profit from, or at least hedge their exposure to, downward-moving markets. Some ETFs are both inverse and leveraged, meaning that they seek a return that is a multiple of the inverse performance of the underlying index. To accomplish their objectives, leveraged and inverse ETFs use a range of investment strategies, including swaps, futures contracts and other derivative instruments. Q. How can the “reset” feature of a leveraged or inverse ETF affect suitability? A. Most leveraged and inverse ETFs reset each day, which means they are designed to achieve their stated objective on a daily basis. With the effects of compounding, over longer timeframes the results can differ significantly from their objective. Please see Regulatory Notice 09-31 and the SEC/FINRA Investor Alert for illustrations of how these discrepancies can occur. Because they reset each day, leveraged and inverse ETFs typically are inappropriate as an intermediate or long-term investment. They may be appropriate, however, if recommended as part of a sophisticated trading or hedging strategy that will be closely monitored by a financial professional. At times, these strategies might justify a decision to hold a leveraged or inverse ETF longer than one day. However, a registered representative must carefully address the question of how to engage in these strategies in a manner consistent with the suitability rule. Q. What does the suitability analysis require? A. NASD Rule 2310 (Recommendations to Customers) requires that, before recommending the purchase, sale or exchange of a security, a firm must have a reasonable basis for believing that the transaction is suitable for the customer to whom it is recommended. This is a two-step determination. First, the firm must determine if the product is suitable for anycustomer. To do this, a firm and its associated persons must fully understand the products and transactions that it recommends. This requires an understanding of all terms and features. In the case of a leveraged or inverse ETF, these questions include consideration of how the fund is designed to perform, how it achieves that objective, the impact on performance from market volatility, the use of leverage and the appropriate holding period. Once a product is determined to be generally suitable for at least some investors, a customer suitability analysis must be performed. With it, a firm must determine if the product is suitable for a specific customer that it may be recommended to. This analysis includes making reasonable efforts to get information on the customer’s financial and tax status, investment objectives and other information deemed reasonable to make the determination. Q. […]

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FINRA Fines Wells Fargo, Morgan Stanley, UBS And Citigroup Over EFT Sales

May 2, 2012

By Christopher Condon and Joshua Gallu – May 1, 2012 4:47 PM ET Citigroup Inc. (C), Morgan Stanley, UBS AG (UBSN) and Wells Fargo & Co. (WFC) agreed to pay a combined $9.1 million to settle regulatory claims they failed to adequately supervise the sale of leveraged and inverse exchange-traded funds in 2008 and 2009. The firms also didn’t have a reasonable basis for recommending the securities to their clients, the Financial Industry Regulatory Authority said today in a statement. They will pay fines of about $7.3 million and reimburse $1.8 million to customers. Wells Fargo , based in San Francisco, was assessed the higest fine by Finra at $2.1 million and must pay $641,489 in restitution. Photographer: David Paul Morris/Bloomberg “The added complexity of leveraged and inverse exchange- traded products makes it essential that brokerage firms have an adequate understanding of the products and sufficiently train their sales force before the products are offered to retail customers,” Brad Bennett, Finra’s chief of enforcement, said in the statement. Finra warned brokers in June 2009 that leveraged and inverse ETFs were difficult to understand and not a good fit for long-term investors. ETFs typically track indexes and trade throughout the day on an exchange like stocks. Leveraged versions use swaps or derivatives to amplify daily index returns, while the inverse funds are designed to move in the opposite direction of their benchmark. Because gains or losses in the funds are compounded daily, returns over more than one day can differ from returns implied by the underlying index. Sales Cease UBS suspended its sales of leveraged and inverse ETFs following the Finra warning, the company said in a July 2009 statement. It has resumed selling them and no longer recommends them to clients, Karina Byrne, a spokeswoman, said. Morgan Stanley (MS) said the following month it would restrict its sales. Wells Fargo continues to sell leveraged and inverse ETFs. Tony Mattera, a company spokesman, said the firm had “enhanced its policies and procedures” to meet regulatory responsibilities. Citigroup spokeswoman Liz Fogarty said the firm has since 2009 enhanced training, policies and procedures in connection with the sale of the products to incorporate Finra’s guidance. Wells Fargo, based in San Francisco, was assessed the highest fine at $2.1 million and must pay $641,489 in restitution. Citigroup, based in New York, received a $2 million fine and must pay $146,431 in restitution; New York-based Morgan Stanley will pay a $1.75 million fine and $604,584 in restitution; and Zurich-based UBS will pay a $1.5 million fine and $431,488 in restitution. In settling the claims, the firms neither admitted nor denied the charges, said Washington-based Finra, the brokerage industry’s self-funded regulator. Full Cooperation “Wells Fargo Advisors cooperated fully with Finra throughout this matter and is pleased to have reached this settlement,” Mattera said in an e-mailed statement. “Wells Fargo Advisors has enhanced its policies and procedures and is confident that it has appropriate supervisory processes and training to meet our regulatory responsibilities and clients’ investment needs.” “UBS is pleased to have resolved this Finra matter,” Byrne said in an e-mailed statement. “More than two years ago, UBS developed and implemented enhanced training, suitability and supervisory […]

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Virginia Jury Finds Man Guilty In $485 Million Life Settlement Scheme

May 1, 2012

Published April 30, 2012 Associated Press RICHMOND, Va. –  A federal jury in Virginia convicted a former Costa Rican insurance executive on Monday of all counts in a $485 million fraud scheme in which he was accused of lying to clients and investors about the financial stability of his company. Minor Vargas Calvo, 60, was president of Provident Capital Indemnity Ltd. Provident sold bonds guaranteeing funding for life settlement companies, which buy life insurance policies from insured people at less than face value and collect the benefits when those people die. The government originally claimed Provident sold $670 million in bonds based on fraudulent financial statements, but an accounting done by an Internal Revenue Service investigator verified only $485 million. According to prosecutors, Vargas not only misrepresented the company’s assets but also lied when he told clients, investors and regulators that Provident was protected by reinsurance agreements with major companies. After a five-day trial, the jury deliberated about three hours before finding Vargas guilty of one count of conspiracy and three counts each of mail fraud, wire fraud and money laundering. Vargas, who stood stoically as the verdict was read, is scheduled for sentencing Oct. 23 and could face a maximum of 170 years in prison. “We’re disappointed, obviously,” defense attorney Jeffrey Everhart said outside the courtroom. “It was a pretty complex case, and there was a lot of evidence that obviously wasn’t good for us.” He said he was unsure about an appeal. U.S. Attorney Neil MacBride said in a written statement that the fraud affected thousands of victims worldwide, including some who lost their life savings by investing in life settlements based on Provident’s worthless guarantees. “Mr. Vargas may have thought he was safe operating his scheme from overseas, but his conviction is yet another example to global fraudsters: You can run but you can’t hide,” MacBride said. In closing arguments, U.S. Justice Department lawyer Albert Stieglitz Jr. said witness testimony and a mountain of emails and other documents proved that Vargas deliberately and repeatedly lied to clients and investors about Provident’s financial stability and credit rating. He also said Vargas, who has a doctorate in economics, also improperly spent Provident funds on himself, his family and a professional soccer team that he owned. “The bottom line is you can’t lie to get people’s money,” Stieglitz said. “That’s what Dr. Vargas did over and over and over again.” Everhart acknowledged in his closing that Vargas made mistakes but argued that prosecutors failed to prove their case beyond a reasonable doubt. Everhart said an accountant first falsified the financial statements before Vargas took over the company. “Mr. Vargas inherited a mess and did the best he could to try to make it right,” Everhart said. The accountant, Jorge Luis Castillo of Hackettstown, N.J., testified last week against Vargas. Castillo, who testified that the Provident financial statements were fabricated, pleaded guilty last year to conspiring to commit mail and wire fraud and faces up to 20 years in prison at his sentencing, set for Sept. 5. The government’s evidence against Vargas included several email exchanges between Castillo and Vargas. In […]

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