Securities Industry Commentator by Bill Singer Esq

January 26, 2018

Nevada Attorney Penalized for Role in Unregistered Securities Offerings (SEC Litigation Release No. 24034) In Securities and Exchange Commission v. Robert L. Sonfield, Jason Landess, et al. (United States District Court for the Southern District of Texas, 08-CV-2351) final judgment was entered against attorney Jason Landess and  Robert Sonfeld for their role in unregistered securities offerings. Without admitting or denying the allegations in the SEC's Complaint, Landess and Sonfeld consented to the entry of a final judgment imposing a $25,000 and $6,500 penalty, respectively. A default judgment was entered against Roger Brewer and Marc Lane, holding them jointly and severally liable for $2,761,953.01 in disgorgement and $3,643,648.17 in prejudgment interest plus a $100,000 penalty against each. Brewer and Lane were enjoined from participating in the offering of penny stocks. READ the FULL TEXT SEC Complaint

Statement by SEC Chairman Jay Clayton and CFTC Chairman J. Christopher Giancarlo: Regulators are Looking at Cryptocurrency (Public Statements by SEC Chairman Jay Clayton and CFTC Chairman J. Christopher Giancarlo) SEC and CFTC Chairs published an Op-Ed in the "Wall Street Journal" in which they discussed Distributed Ledger Technology ("DLT") as the "next great driver of economic efficiency." READ the FULL TEXT WSJ Op-Ed. 
As noted in part in the Op-Ed:

A key issue before market regulators is whether our historic approach to the regulation of currency transactions is appropriate for the cryptocurrency markets. Check-cashing and money-transmission services that operate in the U.S. are primarily state-regulated. Many of the internet-based cryptocurrency trading platforms have registered as payment services and are not subject to direct oversight by the SEC or the CFTC. We would support policy efforts to revisit these frameworks and ensure they are effective and efficient for the digital era.

The CFTC and SEC, along with other federal and state regulators and criminal authorities, will continue to work together to bring transparency and integrity to these markets and, importantly, to deter and prosecute fraud and abuse. These markets are new, evolving and international. As such they require us to be nimble and forward-looking; coordinated with our state, federal and international colleagues; and engaged with important stakeholders, including Congress.

SEC Charges Transfer Agent and Its Principal with Fraud for Misappropriating Client Funds (SEC Litigation Release No. 24033) In Securities and Exchange Commission v. Quicksilver Stock Transfer and Alan Shinderman (United States District Court for the District of Nevada; 18-CV-00131) the SEC alleged that Quicksilver Stock Transfer, LLC and its President and sole owner, Alan Shinderman  misappropriated approximately $630,000 of client funds. READ FULL TEXT SEC Complaint.
As set forth in part in the SEC Litigation Release:

The SEC alleged that, in August 2013, Quicksilver received wire transfers totaling $1.45 million for the benefit of China Energy Corporation. The funds were destined for certain of China Energy's shareholders by way of Depository Trust & Clearing Corporation (DTCC). The complaint alleges that Shinderman diverted approximately $630,000 of this money for his and Quicksilver's own use and benefit, including $500,000 to make a four-day loan to a Nevada real estate company.  According to the complaint, the borrower failed to repay the principal or interest as planned. Consequently, Quicksilver and Shinderman did not timely forward China Energy's funds to DTCC, despite repeated requests. Quicksilver and Shinderman also made a series of misrepresentations in response China Energy's and DTCC's requests for the funds.  Quicksilver ultimately paid DTCC approximately six weeks later, after recovering the loan principal from the real estate company. The complaint also alleges that Quicksilver untimely filed an independent accountant's report with the SEC on January 13, 2015, for the period ending December 31, 2013.

FINRA Fines Firm Over Research Reports Practices ( Blog)
Today's Blog presents a concise regulatory settlement from FINRA about research reports violations. Research reports? Yeah, you're right, we haven't seen a lot in recent years about research violations. The Europeans have been rolling out some new disclosure rules about research via their Markets in Financial Instruments Directive or MiFID, but that's them and not us. Seems only yesterday that the newspapers were filled with headlines about the horrors of bought-and-sold research and front-running. These days -- what's a newspaper? On the other hand, maybe Wall Street's regulators don't have enough to do and are looking for a new target of opportunity and, go figure, what's old is new and research practices may be under scrutiny again. 

Individual Who Compromised Over 1,000 Email Accounts At A New York City University Sentenced To 6 Months In Prison (DOJ Press Release 18-025)
On August 9, 2017, Jonathan Powell  pled guilty and was subsequently sentenced to six months in prison and two years of supervised release and ordered to pay $278,855 in restitution for computer fraud in connection with his scheme to obtain unauthorized access to more than 1,000 email accounts maintained by a New York City-area university in order to download sexually explicit photos and videos. Also, Powell admitted to compromising email accounts at several other educational institutions located in Pennsylvania, Arizona, Florida, Ohio, and Texas. As set forth in part in the DOJ Press Release

From October 2015 up to September 2016, POWELL obtained unauthorized access to email accounts hosted by a U.S.-based university, which has its primary campus in New York, New York ("University-1").  POWELL obtained unauthorized access to these accounts by accessing the password reset utility maintained by the email servers at Univeristy-1 [sic], which was designed to allow authorized users to reset forgotten passwords to accounts.  POWELL utilized the password reset utility to change the email account passwords of students and others affiliated with University-1.  Once POWELL gained access to the compromised email accounts (the "Compromised Accounts"), he obtained unauthorized access to other password-protected email, social media, and online accounts to which the Compromised Accounts were registered, including, but not limited to, Apple iCloud, Facebook, Google, LinkedIn, and Yahoo! accounts. 

Specifically, using the Compromised Accounts, POWELL requested password resets for linked accounts hosted by those websites (the "Linked Accounts"), resulting in password reset emails being sent to the Compromised Accounts, which allowed POWELL to change the passwords for the Linked Accounts.  POWELL then logged into the Linked Accounts and searched within the Linked Accounts, gaining access to private and confidential content stored in the Linked Accounts.  In one instance, POWELL searched a University-1 student's linked Gmail account for digital photographs and for various lewd terms.  The Government's investigation ultimately revealed that POWELL accessed the Compromised and Linked Accounts in order to download sexually explicit photographs and videos of college-aged women. 

An analysis of University-1 password reset utility logs and other data revealed that POWELL accessed the University-1 password reset utility approximately 18,640 different times between October 2015 and September 2016.  During that time, POWELL attempted approximately 18,600 password changes in connection with approximately 2,054 unique University-1 email accounts, and succeeded in making approximately 1,378 password changes in connection with approximately 1,035 unique University-1 email accounts, in some cases compromising the same email account multiple times.

Founder And CEO Of Wright Time Capital Group Sentenced To 21 Months In Prison For Commodities Fraud (DOJ Press Release 18-026)
On October 13, 2017, Geoffrey S. Berman pled guilty to commodities fraud in  in connection with his operation of Wright Time Capital Group ("WTCG"). Wright  misrepresented the historical trading performance of WTCG, and misappropriated a large amount of investor funds, most of which were lost in forex trading. Wright was sentenced to 21 months in prison and three years of supervised release and ordered to pay $358,000 in restitution. As set forth in part in the DOJ Press Release:

WRIGHT started WTCG in January 2011, and ultimately obtained close to $400,000 in investments from victims (the "Victims").  While WRIGHT did initially execute some forex trades on behalf of the Victims, he then began to steal their money, using investor funds for personal expenses, including hotel stays, travel, and tattoos.  From the outset of WTCG, WRIGHT misrepresented to WTCG's investors the gains he had achieved.  WRIGHT claimed in statements to Victims that he had achieved double-digit gains through forex trading in WTCG's first six months of existence.  In reality, WRIGHT earned little to no money through his forex trading.  In fact, after losing Victim funds in bad forex trades, WRIGHT sent them falsified account statements hiding these losses.  Ultimately, WRIGHT operated WTCG as a Ponzi scheme, using Victim funds to make payments to other Victims who were demanding the return of their investments.