Securities Industry Commentator by Bill Singer Esq

April 17, 2018

SEC Unveils Public Service Announcement to Promote Background Checks on (SEC Press Release 2018-66)
The SEC is releasing a public service announcement ("PSA") to encourage investors to check the background of their investment professional by using a free search tool on before investing.
Blake Kantor a/k/a "Bill Gordon" was indicted in the United States District Court for the Eastern District of New York on conspiracy to commit wire fraud, obstruction of an official proceeding, and making false statements to Special Agents of the Federal Bureau of Investigation  READ the FULL TEXT INDICTMENT Federal prosecutors alleged that in March 2014, Kantor established Blue Bit Banc or Blue Bit Analytics, Ltd. ("BBB"), a company that purportedly sold binary options. From approximately 2014 to 2017, Kantor and others allegedly solicited from 713 investors about $2.1 million but did not disclose to those investors that BBB computer software allowed the company to fraudulently alter data so that the probability of investors earning a profit favored BBB.  Further, Kantor allegedly converted investors' funds into ATM Coin, a purportedly worthless cryptocurrency.

My Way Rules In Pro Se Expungement Case Against J.P. Morgan ( Blog)
Today's Blog considers the lawsuit of a registered rep who handled his own expungement arbitration against his former employer J.P. Morgan Securities. Sometimes these pro se cases go well. Sometimes they just go off the rails. Regardless of the outcome, the self-represented party often takes some satisfaction in knowing that he did it "My Way." He may not have won his case but he did get to end his lawsuit humming one helluva pop tune.
The United States District Court for the Western District of Washington entered a final judgment against Vincent Cassano for his role in a fraudulent stock promotion scheme. The SEC had alleged that Lidingo Holdings, LLC hired writers like Cassano to publish bullish articles on its clients that appeared to be independent research but were, in fact, paid advertisements. The SEC's litigation continues against Lidingo Holdings, Kamilla Bjorlin, Andrew Hodge and Brian Nichols. Also read: SEC: Payments for Bullish Articles on Stocks Must Be Disclosed to Investors / 27 Firms and Individuals Charged With Fraudulent Promotion of Stocks (SEC Press Release 

SEC Charges Virginia Investment Adviser with Fraud (SEC Litigation Release No. 24114)
In a Complaint filed in the United States District Court for the Eastern District of Virginia, the SEC alleged that from at least February 2015, Amrit J. S. Chahal used his company, Kane Capital Investment Group, LLC, to fraudulently solicit approximately $1.4 million from about 50 individuals by falsely claiming to be an experienced and successful trader who could generate above-market returns through a low-risk trading strategy. The Complaint alleges that contrary to his representatings, Chahal had substantially no financial/securities industry experience or trading securities on behalf of clients. After sustaining purporedly substantial losses, Chahal allegedly lied to his clients about their investments,and diverted funds for such personal use as to pay for his luxury car, rent, travel, dining, and other living expenses, and to make Ponzi-like payments to earlier investors. READ the FULL TEXT Complaint.

In anticipation of the institution of proceedings by the SEC but without admitting or denying the findings, Arlington Capital management, Inc. and Joseph F. LoPresit submitted an Offer of Settlement, which the federal regulator accepted. In the Matter of Arlington Capital management, Inc. and Joseph F. LoPresti, Respondents (Order Instituting Administrative And Cease-And-Desist Proceedings, Making Findings, And Imposing Remedial Sanctions And A Cease-And-Desist Order; Invest. Adv. Act Rel. No. 4885; Admin. Proc. File No. 3-18437 / April 16, 2018) (the "OIP").
In accordance with the terms of the settlement, the SEC Censured Respondents Arlington and LoPresti and ordered them to cease and desist from committing or causing any violations and any future violations of the Advisers Act and Rules thereunder. Respondent Arlington was ordered to pay a $125,000.00 civil penalty and Respondent LoPresti to pay a $75,000.00 civil penalty.
As set forth in pertinent part of the "Summary" portion of the OIP:

1. From at least 2012 to 2015, Arlington, a registered investment adviser, issued misleading advertisements about its investment performance in written communications to clients and prospective clients and in weekly radio broadcasts and video webcasts by Joseph F. LoPresti, Arlington's President, 80 percent owner, and Chief Compliance Officer ("CCO"). 

2. During the relevant period, Arlington invested its clients' assets in a variety of model portfolios that it designed from computer trading models developed at Arlington. These computer models, collectively known as the Proactive Asset Allocation Strategy ("PAAS"), used proprietary indicators and asset class rankings to trigger signals to buy or sell securities in clients' accounts. Arlington began implementing the PAAS models to manage client accounts in 2010. Over the years, Arlington made numerous adjustments or improvements to the PAAS models based on additional historical testing and/or consideration of recent market results. Each new iteration of the PAAS model was implemented in order to improve return or reduce volatility based on back-tested historical results. 

3. Arlington regularly advertised performance results using the PAAS models' backtested results running back to 1995. At times, after Arlington adjusted a model, the performance results under previous iterations of the model would be restated as if the new version of the model had been in effect during the entire period. In some instances, Arlington highlighted the performance of its models in advertisements without disclosing the represented returns were hypothetical, back-tested performance results. In other advertisements, this information was disclosed in small print or in ways that otherwise lacked prominence. And in all advertisements, Arlington failed to disclose that that the represented performance results were derived using models that had been adjusted over the years with the benefit of hindsight. 

4. During the relevant time period, Arlington also failed to adopt and implement written policies and procedures reasonably designed to prevent violations of the Advisers Act in connection with its advertisements. LoPresti was responsible for Arlington's advertising and, as CCO, its policies and procedures.