(DOJ Press Release) Delaney Equity Group LLC was charged by a criminal information with one count of conspiracy to unlawfully sell unregistered securities. From October 2009 through at least June 2013, Delaney Equity Group LLC through certain employees including Ian C. Kass, participated in a conspiracy to sell shares of bogus microcap companies, knowing that the companies had been created using nominee officers and were secretly controlled by shell principals Steven Sanders, Daniel McKelvey, and Alvin S. Mirman.
FINRA Arbitrators Say Wells Fargo Bank Breached Duty Of Customer Care (BrokeAndBroker.com Blog) No one has ever called BrokeAndBroker.com Blog's publisher Bill Singer a snarky bastard when it comes to his shots against the Financial Industry Regulatory Authority. On second thought, to be fair, a lot of folks call Bill a snarky bastard when it comes to his shots against FINRA. You ask Bill, he's just doing his job as a gadfly trying to protect the investing public and the industry. You ask FINRA, they probably won't comment but behind closed doors they continue to throw darts at a board with Bill's handsome visage peering back at them. For those of you undecided about Bill's snarkiness, consider today's article about Wells Fargo, a disgruntled customer of that firm, and FINRA's seemingly hands-off approach to regulating the market in a fair and balanced fashion.
In anticipation of the institution of proceedings by the SEC but without admitting or denying the findings, Andy Z. Fan submitted an Offer of Settlement, which the federal regulator accepted. In the Matter of Andy Z. Fan, Respondent (Order Instituting Administrative And Cease-And-Desist Proceedings, Making Findings, Imposing And A Cease-And-Desist Order; and Revoking Registration of Securities; Findings, Imposing And A Cease-And-Desist Order; and Revoking Registration of Securities; ' 33 Act Rel. No. 10487; '34 Act Rel. No. 83107; Admin. Proc. File No. 3-18451/ April 25, 20180 (the "OIP"). The SEC ordered that Respondent Cease-and-Desist from further violations of the Securities Act and the Exchange Act, pay $140,000 civil money penalty, and is prohibited from acting as an officer or director of any issuer that has a class of securities registered pursuant to Section 12 of the Exchange Act or that is required to file reports pursuant to Section 15(d) of the Exchange Act; and barred from participating in any offering of a penny stock, including: acting as a promoter, finder, consultant, agent or other person who engages in activities with a broker, dealer or issuer for purposes of the issuance or trading in any penny stock, or inducing or attempting to induce the purchase or sale of any penny stock. The OIP references Fan's purchase of the securities of at least four undisclosed "blank check" companies with the intent to use the Blank Check Companies for future reverse mergers. Fan used nominees to conceal, and otherwise failed to disclose, his beneficial ownership of essentially all the issued securities of the Blank Check Companies.
In anticipation of the institution of proceedings by the SEC but without admitting or denying the findings, Chinamerica Andy Movie Entertainment Media, Company submitted an Offer of Settlement, which the federal regulator accepted. In the Matter of AF Ocean Investment Management Company, Respondent (Order Instituting Administrative And Cease-And-Desist Proceedings, Making Findings, Imposing And A Cease-And-Desist Order; and Revoking Registration of Securities; Findings, Imposing And A Cease-And-Desist Order; and Revoking Registration of Securities; ' 33 Act Rel. No. 10488; '34 Act Rel. No. 83108; Admin. Proc. File No. 3-18452/ April 25, 20180 (the "OIP"). The SEC ordered that Respondent Cease-and-Desist from further violations of the Securities Act and the Exchange Act, and revoked the company's registration. The OIP references AF Ocean's status as an undisclosed "blank check" company by which its principal, Andy Z. Fan, acquired virtually all of the shares of a public company for a future reverse merger.
In anticipation of the institution of proceedings by the SEC but without admitting or denying the findings, Chinamerica Andy Movie Entertainment Media, Company submitted an Offer of Settlement, which the federal regulator accepted. In the Matter of Chinamerica Andy Movie Entertainment Media, Company, Respondent (Order Instituting Administrative And Cease-And-Desist Proceedings, Making Findings, Imposing And A Cease-And-Desist Order; and Revoking Registration of Securities; Findings, Imposing And A Cease-And-Desist Order; and Revoking Registration of Securities; ' 33 Act Rel. No. 10489; '34 Act Rel. No. 83109; Admin. Proc. File No. 3-18453/ April 25, 20180 (the "OIP"). The SEC ordered that Respondent Cease-and-Desist from further violations of the Securities Act and the Exchange Act, and revoked the company's registration. The OIP references ChinAmerica's status as an undisclosed "blank check" company by which its principal, Andy Z. Fan, owned virtually all of the shares of a public company for a future reverse merger. ChinAmerica's periodic reports with the Commission failed to disclose the beneficial ownership of Fan over essentially all its issued securities.
President of Florida-Based Financial Firm Sentenced to 10 Years in Prison for Role in $179 Million Sham Loan Scheme Timothy G. Fisher, former President and Chief Operating Oficer of First Farmers Financial LLC was sentenced in the United States District Court for the Northern District of Illinois to ten years in prison and Nikesh A. Patel, former Chief Executive Office was sentenced to 25 years in prison for their role in a fraud involving the sale of 26 non-existent loans to a Milwaukee investment firm through the deception of creating the appearance that the loans were issued to borrowers in Florida and Georgia and had been guaranteed, in part, by the federal government. The Milwaukee investment firm, had purchased the loans as an investment vehicle for its clients, including community banks, retirement plans, municipalities, and subdivisions in Illinois.
(SEC, Final Rule; 33-10486;
SUMMARY: We are adopting revisions to forms filed under the Securities Exchange Act of 1934 ("Exchange Act") to eliminate the portion of those forms that requests filers to furnish certain personally identifiable information ("PII") of natural persons, including Social Security numbers.
. . .
Commission rules and regulations require the filing of information by natural persons, as well as by corporate and other entities. We are amending certain forms that request filers to provide certain sensitive PII of natural persons, including Social Security numbers.8 The amended forms will no longer include any reference to such PII and will no longer request such PII. We have determined that the Commission can achieve its regulatory objectives without the sensitive PII that will no longer be requested on these forms.
You Hear The One About The FINRA Arbitration Involving The Stockbroker With 36 BrokerCheck Disclosures? (BrokeAndBroker.com Blog) You're an angry public customer. You think that your stockbroker stole $50,000 of your retirement funds. No . . . that jerk didn't lose it in the market or playin' the ponies. From what you heard, he simply deposited your hard-earned money into a bank account under his control. Frankly, you sort of wish it were more exotic but, what's that line about the banality of evil? In any event, you've also heard that the stockbroker likely blew all your cash and probably all his too -- regardless of what you're hearing, the guy worked at a broker-dealer and their sign is still lit and their doors still open. So, why waste time and play games going after the employee when the employer may have the deep pockets?
Department of Justice Announces Initiative to Terminate "Legacy" Antitrust Judgments (DOJ Press Release) Assistant Attorney General for the Justice Department's Antitrust Division Makan Delrahim, announced that the Division will terminate outdated judgments that "presently do little more than clog court dockets, create unnecessary uncertainty for businesses or, in some cases, may actually elicit anticompetitive market conditions." Delrahim asserts that in 1979, the Division adopted the general practice of including sunset provisions that automatically terminate judgments, usually 10 years from entry. Notwithstanding that policy, nearly 1300 "legacy" judgments remain on the Division's books and on the dockets of courts around the country. It is Delrahim's position that such judgments no longer protect competition because of changes in industry conditions, economics, and law. Accordingly, the Division will review its legacy judgments and determine whether the continuation of a given judgment serves competition. Candidates for termination will be posted on the public website so as to elicit comments before any termination is finalized.
Statement on Public Engagement Regarding Standards of Conduct for Investment Professionals Rulemaking (SEC Public Statement by Chair Jay Clayton) SEC Chair Clayton stated:
Last week, the Commission proposed for public comment a significant rulemaking package that would (1) require broker-dealers to act in the best interest of their retail customers; (2) reaffirm and in some cases clarify the fiduciary duty owed by investment advisers to their clients; and (3) require both broker-dealers and investment advisers to clarify for all retail investors the type of investment professional they are, and key facts about their relationship, as well as prohibit the use of "adviser" and "advisor" in certain circumstances, as such titles may mislead retail investors.
This rulemaking is designed to serve our Main Street investors. In particular, it is intended to bring legal requirements and mandated disclosure in line with investor expectations. I found engagement directly with retail investors and the financial professionals who serve them during the pre-rulemaking period, including a roundtable in St. Louis, to be tremendously useful. I believe we need to continue that effort by reaching out directly to investors and other market participants across the country.
I have asked the SEC staff to put together a series of roundtables, focused on the retail investor, to be held in different cities around the country - including in Atlanta, Denver, Houston, and Miami. These roundtables are intended to help us gather much-needed information straight from those who will be most directly impacted by our rulemaking. I intend to participate personally in many of these roundtables.
These efforts are one component of a broad engagement effort on this issue. For example, we invite investors to provide their views on key questions that will help us shape the disclosure designed for them. Investors may respond to these key questions using a short, fillable form. Moreover, the SEC's Investor Advocate is in the process of performing investor testing, and we anticipate making the results of that investor testing available in the public comment file.
More information about these events will be announced in the upcoming weeks. If you are interested in participating in one of these events, staff contact information will be made available in a forthcoming press release; we urge you to reach out, and we will seek to accommodate you.
On May 1, 2017, the Securities and Exchange Commission ("SEC") filed an Order Instituting Administrative Proceedings, Making Findings, and Imposing a Cease-and-Desist Order (the "OIPs") against Respondent Altaba Inc. f/d/b/a Yahoo! Inc.. In anticipation of the institution of proceedings by the SEC but without admitting or denying the findings, Yahoo Inc. oubmitted an Offer of Settlement, which the federal regulator accepted. Pursuant to the Order, Respondent shall cease and desist from committing or causing any violations and any future violations of the Securities Act and the Exchange Act and will pay a $35 million civil money penalty. In the Matter of Yahoo! Inc., Respondent (OIP; '33 Act Rel. No. 10485; '34 Act Rel. No. 83096 ; Acct. and Aud. Enf. Rel. No. 3937; Admin. Proc. File No. 3-18448 / April 24, 2018). As set forth in the "Summary" section of the OIP:
1. This matter concerns material misstatements and omissions by Yahoo, one of the world's largest Internet media companies, regarding a 2014 data breach affecting more than 500 million of its user accounts. In late 2014, Yahoo learned of a massive breach of its user database that resulted in the theft, unauthorized access, and acquisition of hundreds of millions of its users' data, including usernames, birthdates, and telephone numbers. At that time, the breach was the largest known theft of user data.
2. Despite its knowledge of the 2014 data breach, Yahoo did not disclose the data breach in its public filings for nearly two years. To the contrary, Yahoo's risk factor disclosures in its annual and quarterly reports from 2014 through 2016 were materially misleading in that they claimed the company only faced the risk of potential future data breaches that might expose the company to loss of its users' personal information stored in its information systems, as well as potential future litigation, remediation, increased costs for security measures, loss of revenue, damage to its reputation, and liability, without disclosing that a massive data breach had in fact already occurred. Yahoo management's discussion and analysis of financial condition and results of operations ("MD&A") in those reports was also misleading to the extent it omitted known trends or uncertainties with regard to liquidity or net revenue presented by the 2014 data breach.
3. Yahoo's disclosure violations continued in connection with a proposed sale of its operating business to Verizon Communications, Inc. ("Verizon") in July 2016. Although Yahoo was aware of additional evidence in the first half of 2016 indicating that its user database had been stolen, Yahoo made affirmative representations denying the existence of any significant data breaches in a July 23, 2016 stock purchase agreement with Verizon, by which Verizon was to acquire Yahoo's operating business for $4.825 billion. The stock purchase agreement was attached to a Form 8-K filed with the Commission on July 25, 2016.
4. In September 2016, Yahoo disclosed the 2014 data breach in a press release filed as an attachment to a Form 8-K and also disclosed the 2014 data breach to Verizon. The day after Yahoo publicly disclosed the breach, Yahoo's market capitalization fell nearly $1.3 billion by virtue of a 3% decrease in its stock price. After Yahoo disclosed the 2014 data breach, Verizon renegotiated the stock purchase agreement to reduce the price paid for Yahoo's operating business by $350 million, representing a 7.25% reduction in price.
5. Based on the foregoing conduct, and the conduct described herein below, Yahoo violated Sections 17(a)(2) and 17(a)(3) of the Securities Act and Section 13(a) of the Exchange Act and Rules 12b-20, 13a-1, 13a-11, 13a-13, and 13a-15 thereunder.
Biotech Company CEO and Two Associates Charged with Securities Fraud (DOJ Press Release) Frank Reynolds, M. Jay Herod, and Kenneth Stromsland were charged in the United States District Court for the District of Massachusetts securities fraud in connection with their alleged scheme to defraud biothech firm PixarBio Corp.'s investors through false and misleading statements and by manipulative trading in the company's shares.
Former Ameriprise Rep Wins Split Decision In FINRA
(BrokeAndBroker.com Blog) You ever start reading a decision in a lawsuit and once you get past the introduction, you're pretty sure that you know how the matter will be decided? Today's two-for-one FINRA Arbitration was just such a case. To be candid, I had placed my money on Claimant Ameriprise and against its former employee. No . . . I'm not a saying that I agreed with the firm's claims. I'm simply saying that how the assertions and allegations set up in the FINRA Arbitration Decision suggested that the former employee was going to lose. Boy, was I wrong!
CFTC Charges New York Resident Kevin Scott Antonovich with Commodity Pool Fraud (CFTC Release 7716-18) CFTC filed a Complaint against Kevin Scott Antonovich in the United States District Court for the Eastern District of New York. The Complaint alleges that from September 2015 through August 2016, Antonovich fraudulently solicited and received approximately $284,000 from at least 154 pool participants in connection with pooled investments in off-exchange binary options. Further, the Complaint alleges that Antonovich misappropriated about $124,000 for business expenses and his personal use, made false and misleading representations to pool participants, and fabricated documents purporting to show funds available for return to pool participants. CFTC seeks restitution, disgorgement , civil monetary penalties, permanent registration and trading bans, and a permanent injunction against further violations of the Commodity Exchange Act./ READ THE FULL TEXT Complaint.
CFTC Asks Innovators for Competition Ideas to Advance FinTech Solutions / LabCFTC looking to "crowdsource" ideas for using the Science Prize Competition Act (CFTC Press Release) LabCFTC seeks to facilitate market-enhancing fintech innovation by making the CFTC more accessible to innovators and to provide the CFTC with a conduit for emerging technologies. Accordingly LabCFTC announced it is requesting public input to gather ideas and topics for innovation competitions to advance the agency's FinTech goals. A Request for Input (RFI) in the Federal Register seeks feedback on: (1) focus areas for potential innovation competitions, as well as (2) how competitions could best be structured and administered to maximize their impact. While the RFI raises the possibility of competitions focused on data visualization tools, machine-readable regulatory rulebooks, and "smart" notice and comment systems, it seeks to crowd source what may be the most promising topics directly from the innovator community.
(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 (BrokeAndBroker.com 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 BrokeAndBroker.com 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?
SEC Obtains Judgments against Stephen DiCarmine and Joel Sanders (SEC Litigation Release No. 24119) 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 a cting 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
Chicago-based Investment Adviser Settles SEC Charges for Fraudulent Scheme and Is Sentenced to 151 Months in Prison in Related Criminal Case (SEC Litigation Release No. 24118) 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. . READ the FULL TEXT SEC Complaint.
SEC Obtains Judgment Against Investment Adviser for Defrauding Clients (SEC Litigation Release No. 24120) 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.
(FINRA Arbitration Decision, Majority Public Panel,
17-01958 / April 19, 2018)
In a FINRA Arbitration Statement of Claim filed in July 2017, Claimant Morgan Stanley asserted conversion, fraud, and breach of fiduciary duty. Claimant sought $6 million compensatory damages, punitive damages, interest, expenses, and fees. Respondent represented himself pro se. The Panel found Respondent liable to and ordered him to pay to Claimant $6 million in compensatory damages and a $2,500 filing fee reimbursement.
FINRA Death Cab For An Un-Fare Email Cutie (BrokeAndBroker.com Blog) Much of life is unfair. Sometimes life can also be un-fare -- as when you stiff the cab driver. Then again, sometimes those drivers are over-charging you and figure you wouldn't see that they were taking a really, really, long detour. None of which has much if anything to do with today's BrokeAndBroker.com Blog, which is about a respondent who settled with FINRA over a batch of disputed emails. On the other hand, the cab thing does have something to do with the respondent's past, except maybe not anything to do with FINRA's case. Then again, maybe this is all nothing but a clever diversion in the form of a long-winded detour designed to suck y'all into reading today's blog. Did I mention that there are three music videos embedded in the article?
Wedbush Securities, Inc. and Edward William Wedbush,
Petitioners, v. Securities and Exchange Commission, Respondent (Memorandum, United States Court of Appeals for the
Ninth Circuit, 16-73284)
The 9Cir denied Wedbush's Petition for Review finding that substantial evidence supported the SEC's finding that he had failed to reasonably supervise the regulatory filings of Wedbush Securities.
SEC Charges Additional Defendant in Fraudulent ICO
Litigation Release 2018-70)
The SEC filed an Amended Complaint in the United States District Court for the Southern District of New York in its investigation of Centra Tech Inc.'s $32 million initial coin offering. The SEC charged Raymond Trapani, a co-founder of Centra, in connection with the alleged fraudulent scheme related to Centra's 2017 ICO, in which the company issued "CTR Tokens" to investors. Previously, the SEC and criminal authorities charged Centra's two other co-founders, Sohrab "Sam" Sharma and Robert Farkas, for their roles in the scheme. In part the SEC's amended complaint alleges that Trapani was a mastermind of Centra's fraudulent ICO, which Centra marketed with claims about nonexistent business relationships with major credit card companies, fictional executive bios, and misrepresentations about the viability of the company's core financial services products. Federal criminal charges were filed against Trapani in a parallel action.