Securities Industry Commentator by Bill Singer Esq

April 24, 2018

In the Matter of Martin Shkreli, Respondent (Order Making Findings and Imposing Remedial Sanctions, SEC, Invest. Adv. Act Rel,. 4895; Admin. Proc. File 3-18127)
Martin Shkreli was the Managing Partner and the portfolio manager for hedge funds MSMB Capital Management LP and MSMB Healthcare LP and he also incorporated Retrophin LLC, a pharmaceuticals company that went public, by way of a reverse merger, at which time he served as the firm's President and CEO. Shkreli was charged, in part, with defrauding potential and actual investors in the hedge funds and potential investors in Regtrophin. Following a federal jury trial he was convicted and sentenced to a seven-year prison term. In response to Respondent Shkreli's Offer of Settlement, which the SEC accepted, he was barred from association with any broker, dealer, investment adviser, municipal securities dealer, municipal advisor, transfer agent, or nationally recognized statistical rating organization. Any reapplication for association may be conditioned upon such factors as satisfying outstanding orders of disgorgement, arbitration awards, and restitution.

FINRA Arbitrators Dissolve RIA / BD Lacking Operating Agreement ( Blog)
I often urge clients contemplating a new business to first consider what I call the "Dreaded Ds," which are Death, Disability, Disqualification and Divorce. Those are uncomfortable issues to contemplate but you would be foolish to sign any agreement, enter into any lease, purchase any product or service without first asking yourself some very tough questions. What if you or your business partner drops dead? Did you arrange for Key Man or life insurance? Supposing that your partner is hospitalized and won't be able to get back to work for a month . . . or for several months . . . or will be rendered permanently disabled.  Do you have to continue to pay your partner a full draw or salary -- and what if the tables are turned? What happens if the continuation of the business is solely or largely dependent upon you? If you work on Wall Street and you are suspended or barred, what happens with the biz if you are temporarily or permanently disqualified? Even if the regulators allow you to retain some passive ownership interest, what if your partner says you have to cash out? Finally, if your marriage falls apart, will your spouse be entitled to a share of the business pursuant to a divorce decree? How's that gonna work out if the former spouse wants to come into the office but that prompts open warfare on the premises? Did you draw up a Shareholder Agreement / Buy-Sell Agreement? If not, how the hell do you think you're going to deal with the Dreaded Ds?

Today's Blog presents a fabulous FINRA arbitration that wrestles with the fallout when business associates shake hands and launch a new venture. The walls are painted. The signs hung. The furniture arranged. Everything goes wells until it doesn't. Sadly, you and your best pal (at the time you opened the doors) didn't think you had to put stuff in writing. What's the point? We've known each other for years. We're like brothers. We'll make it all up on the fly. You know that feeling when you hear the door lock behind you and realize that you left your keys inside? Imagine that moment and then, think about how relieved you are when you reach for your cellphone to call the locksmith. And, then, hold that thought because you also left the cellphone on the hallway table next to the keys. Hmmm . . . did you turn off the oven? Did you leave the water running in the sink?
The SEC alleged in Securities and Exchange Commission v. Steven H. Davis, et. al,( 14-CV-01528, United States District Court for the Southern District of New York) that in 2008 and 2009, former Dewey & LeBoeuf, LLP law firm executives Stephen DiCarmine, former Dewey & LeBoeuf LLP Executive Director;  Joel Sanders, former Dewey & LeBoeuf LLP Chief Financial Officer; and others materially falsified the firm's financial statements in order to meet lender covenants. In 2010, Dewey & LeBoeuf raised  $150 million in a private placement through the use of allegedly fraudulent financial statements to investors in the private placement. In response to the SEC's Complaint, Sanders consented to the entry of a judgment permanently enjoining him from violating Section 17(a) of the Securities Act and the Securities Exchange Act, and prohibiting him from acting as an officer or director of a public company. Sanders is also ordered to pay disgorgement with interest and a civil monetary penalty. Also, DiCarmine consented to the entry of a final judgment permanently enjoining him from violating the Securities Act; and is ordered to pay a $35,000 civil monetary penalty. READ the FULL TEXT SEC Complaint

The United States District Court for the Northern District of Illinois entered judgments providing for permanent injunctive relief, repatriation of assets, disgorgement, and civil penalties against Chicago-based investment adviser Daniel H. Glick, his unregistered investment advisory firm Financial Management Strategies Inc, and his accounting firm, relief defendant Glick Accounting Services Inc. Glick and FMS had been charged with misappropriating millions of dollars in retirement savings from elderly investors. In a related criminal case, Glick was sentenced to 151 months imprisonment, and ordered to pay $5.2 million in restitution.
SEC v. Daniel H. Glick, et al., No. 17-CV-2251 (N.D. Ill.) READ the FULL TEXT SEC Complaint.
United States v. Daniel Glick, No. 17-CR-739 (N.D. Ill.)
The United States District Court for New Jersey entered judgment on consent against tax preparer/investment adviser Scott Newsholme for defrauding his clients of more than $1 million to support his lifestyle and gambling habit.Newsholme was permanently enjoined from violation the Securities Act and the Investment Advisers Act, and ordered to pay disgorgement, interest, and a civil penalty. Newsholme also pled guilty to wire fraud, aggravated identity theft, and aiding and abetting the filing of false tax returns in a parallel criminal case The SEC Complaint had alleged that as part of his scheme, Newsholme had fabricated account statements, doctored stock certificates, and forged promissory notes. Thereafter, Newsholme allegedly diverted investors' funds for Ponzi-like payments to other investors, for gambling, and personal expenses. READ the FULL TEXT SEC Complaint.