Securities Industry Commentator by Bill Singer Esq

July 18, 2018

Indictment: Man Behind Cyberattacks Was Working for Wichita Lawyer (DOJ Press Release)
Wichita Attorney Bradley A. Pistotnik and the co-founder of VIRAL Artificial Intelligence David Dorsett were charged in an Indictment in the United States District Court for the District of Kansas with five counts of computer fraud and two counts of conspiracy; additionally, Pistotnik is charged with three counts of making false statements to the FBI. The charges arose in connection with allegations that Pistotnik and Dorsett were responsible for cyberattacks on, and The Indictment alleges that Dorsett sent threatening emails to the sites threatening to targe advertisers unless negative postings about Pistotnik were removed. When questioned by the FBI, Pistotnik purportedly claimed that:
  • Dorsett told him about a negative posting on and offered to remove it. The Indictment alleges that Pistotnik told Dorsett about the negative posting and said to Dorsett, "tell me how to get rid of it;" 
  • a week after Dorsett told him the negative posting had been removed that an attorney for contacted him. The Indictment alleges that the company's attorney contacted Pistotnik during the attack and before Pistotnik paid Dorsett for his services; and 
  • he received two emails from Dorsett relating to the attack on Ripoffreport. The Indictment alleges that he received four such emails, including an invoice for the attack and one referencing the invoice as well as the method used to make the attack.
In anticipation of the institution of proceedings by the SEC but without admitting or denying the findings, BGC Financial, L.P. submitted an Offer of Settlement, which the federal regulator accepted. In the Matter of BGC Financial, L.P., Respondent (Order Instituting Administrative and Cease-and-Desist Proceedings, Making Findings, and Imposing Remedial Sanctions and a Cease-and-Desist Order, '34 Act Rel. No. 83650; Admin. Proc. File No. 3+-18598 / July 18, 2018) (the "Order"). BGC agreed to a cease-and-desist order, a censure, and a $1.25 million penalty. READ the FULL TEXT OIP 
As set forth in part in the SEC Press Release:

The SEC's order finds that after receiving document requests in 2014 from the SEC's Division of Enforcement, BGC deleted audio files for the recorded telephone lines of eight brokers that were responsive to the document requests.  According to the order, the department responsible for maintaining voice recordings was unaware of the SEC's request and deleted the files in keeping with the firm's policy of not maintaining them after one year. 

The SEC order also finds that BGC failed to maintain books and records that accurately recorded compensation, travel, entertainment, and gifts.  BGC provided a high performing broker with season tickets for a New York-area sports team that cost more than $600,000 per year, and failed to record the payments for the tickets as compensation in its general ledger.  BGC also reimbursed this same broker for more than $100,000 of expenses associated with an international trip for his birthday and other foreign travel that lacked a sufficiently documented business purpose.  BGC inaccurately recorded these items in its books and records as selling and promotion.  BGC also reimbursed a different broker for thousands of dollars of personal expenses spent on his birthday party, his bachelor party, and two separate trips to Las Vegas for his friends' bachelor parties.  

In the Matter of the Application of Mark E. Laccetti, CPA For Review of Disciplinary Action Taken by the PCAOB  (Order Vacating Disciplinary Action and Cancelling Sanction, '34 Act Rel. No.83659, Admin Proc. File No. 3-16430) Following the decision to the United States Court of Appeals for the District of Columbia Circuit vacating the SEC's decision and remanding with orders to vacate the PCAOB's underlying orders and sanctions, the SEC ordered same. For details of the underlying PCAOB case, SEC review, and DCCir appeal read: "UPDATE: SEC Vacates PCAOB Action In Laccetti And Cancels Sanctions" ( Blog)
The SEC filed a Complaint in the United States District Court for the Southern District of New York charging John Geraci with violating the antifraud provisions of the federal securities laws. The SEC seeks permanent injunctions, an officer and director bar, and disgorgement of ill-gotten gains plus penalties. READ the FULL TEXT SEC Complaint
A parallel criminal action was filed against Geraci in the same court. Fund Portfolio Manager Nicholas Mitsakos pled guilty in a parallel criminal action. As set forth in part in the SEC Litigation Release:

The SEC alleges that John Geraci formed the Meridian Matrix Long Short Equity Fund in 2015, and hired Nicholas Mitsakos and his company, Matrix Capital Markets, as the fund's portfolio manager. Mitsakos had no assets under management, but falsely claimed that he managed millions of dollars of assets and that he had generated returns of up to 66 percent in preceding years. Rather than verifying these claims, the complaint alleges that Geraci used Mitsakos' false and unsubstantiated claims to market his fund, and eventually obtained $2 million from investors. Geraci later learned of Mitsakos' deception, and that he had misappropriated approximately $800,000 of the investors' money, but continued to market the fund and to let Mitsakos trade the clients' assets. Mitsakos returned approximately $1 million of the funds to Geraci, which Geraci then misappropriated for his own use, telling his clients that Mitsakos had lost all of it.
Michael Yin a/k/a/Shaohua Yin, who remains at large, was indicted in the United States District Court for the Southern District of New York on one count of conspiring to commit securities fraud and 13 counts of securities fraud in connection with his alleged insider trading in the securities of Lattice Semiconductor Corporation. Federal prosecutors allege from about March 2016 to February 2017, Yin obtained from a friend and business associate, Benjamin Chow, material nonpublic information relating to a potential merger between Lattice and successive private equity firms managed by Chow, and thereafter, Yin used such information to make over $5 million in trading profits. Chow was found guilty in a jury trial of several offenses for his role in the scheme and is awaiting sentencing. READ the FULL TEXT Indictment