Securities Industry Commentator by Bill Singer Esq

July 24, 2018

In the Matter of the Claim for Award In Connection With [REDACTED] Notice of Covered Action (Order Determining Whistleblower Award Claim; '34 Act Rel. No. 83689; Whistleblower Award Proceeding File No. 2018-10 / July 23, 2018)
The SEC denied a whistleblower's application for an Award. In part, the SEC Order states that:

The Claimant's application suffers from a fatal defect, however. At no point prior to the issuance of any of the final orders in the Covered Action did the Claimant qualify as a "whistleblower" in connection with any submission for which Claimant is now seeking an award. The Commission's whistleblower rules provide that, to qualify as a whistleblower for purposes of the Commission's award program, an individual must submit his or her information through the Commission's website, or mail or fax a completed Form TCR to the Commission. See Exchange Act Rule 21F-2(a) & 21F-9(a).

In anticipation of the institution of proceedings by the SEC but without admitting or denying the findings, Mizuho Securities USA LLC submitted an Offer of Settlement, which the federal regulator accepted. In the Matter of Mizuho Securities USA LLC, Respondent (Order Instituting Administrative And Cease-And-Desist Proceedings, Making Findings, And Imposing Remedial Sanctions And A Cease-And-Desist Order; '34 Act Release No. 83685; Admin. Proc. File No. 18609 / July 23, 2018) (the "OIP").  In accordance with the OIP, Mizuho Securities was censured, ordered to cease-and-desist, and shall pay a $1,250,000 civil money penalty As set forth under the "Summary" portion of the OIP:

1. This matter concerns Mizuho's failure to maintain and enforce policies and procedures reasonably designed to prevent the misuse of material nonpublic customer order information concerning the repurchase of shares by issuers ("customer buyback order information"), in violation of Section 15(g) of the Exchange Act. In particular, although Mizuho had established certain policies and procedures to prevent the misuse of material nonpublic information, from approximately December 2012 through December 2014 (the "Relevant Period"), Mizuho failed to maintain and enforce its policies and procedures aimed at preventing Mizuho execution and sales traders from disclosing material nonpublic customer buyback order information internally to other Mizuho traders and externally to customers. These policies and procedures required, among other things, effective information barriers between Mizuho equity trading desks and measures to protect confidential Mizuho customer order information, including the identities of buyback customers that had placed trade orders with Mizuho. Mizuho's failures created a risk that Mizuho execution and sales traders could misuse material nonpublic customer buyback order information, including by disclosing the order information to Mizuho customers. 

2. As a result of these failures, during the Relevant Period, Mizuho's execution and sales traders received confidential issuer buyback trade information on nearly every day that Mizuho executed buyback trades. Moreover, the head execution trader on Mizuho's U.S. Equity Trading Desk was given direct access to Mizuho's International Trading Desk's order management system, which included buyback purchase trade orders, and he also routinely disseminated such information to traders on his desk. 

3. In addition, on several occasions, Mizuho execution and sales traders disclosed to certain firm customers nonpublic customer buyback order information. The information often included the order size, the limit price, and key terms that indicated to the recipients that the orders were issuer buyback orders. This trade information was valuable to other market participants, particularly given that the party placing the trade was the issuer. Moreover, many of the issuer buyback orders that Mizuho handled during the Relevant Period comprised a significant portion of the daily trading volume in the stocks being bought back, which increased the potential impact of the buyback orders on the prices of those stocks. Blog publisher Bill Singer is often tough (if not impossible) to please when it comes to the decisions, opinions, orders, memoranda, and what-not that endlessly spews from Wall Street's regulatory community and from those who adjudicate its disputes. As Bill often laments, in the apparent haste to churn the crap out, those tasked with  drafting the necessary documents tend to do so without much concern about the adequacy of the content and context. Consequently, we often find ourselves reading published materials from courts, regulators, and arbitrators that fail to intelligibly explain who did what to whom, and why a finding was made or a sanction imposed.  To Bill's surprise and immense satisfaction, today's featured FINRA Arbitration Decision is perfection. Perfection? Seriously?? Bill Singer is using the word "perfection" when it comes to something emanating from the dark recesses of FINRA? Yeah . . . he said it: Perfection!

Operator Of Bitcoin Investment Platform Pleads Guilty To Securities Fraud And Obstruction Of Justice (DOJ Press Release)
Jon E. Montroll a/k/a "Ukyo," pled guilty in the United States District Court for the Southern District to one count of securities fraud and one count of obstruction of justice in connection with his issuance and sales of securities related to a bitcoin investment platform, and his false sworn testimony to the SEC. Montroll operated the bitcoin depository and currency exchange service WeExchange Australia, Pty. Ltd.and platform, which facilitated the purchase and trading of virtual shares. Montroll converted without authorization a portion of WeExchange users' bitcoins to his personal use. Further, he promoted Ukyo Loan as a so-called round-about investment in BitFunder and WeExchange and, at the same time, described Ukyo.Loan as "a personal loan" and "for private investment purposes."  During the summer of 2013, hackers exploited a weakness in the BitFunder programming code to cause BitFunder to credit them with unearned profits that resulted in their wrongful withdrawal from WeExchange approximately 6,000 bitcoin.  During an ensuing SEC investigation, Montroll provided the SEC with a falsified screenshot purportedly documenting, among other things, the total number of bitcoins available to BitFunder users in the WeExchange Wallet. READ the FULL TEXT Information

Federal Court Orders Commodity Pool Operator and Its Principal to Pay More Than $1.9 Million for Bitcoin and Binary Options Fraud Scheme (CFTC Release 7760-18)
In an Order and Default Judgment (Order) filed in the United States. District Court for the Eastern District of New York, Dillon Michael Dean and The Entrepreneurs Headquarters Limited (TEH) were ordered to pay over $1.9 million in civil monetary penalties and restitution in connection with a CFTC lawsuit. The Court found that the Defendants, who never registered with the CFTC, fraudulently solicited at least $499,264.04 worth of Bitcoin from at least 127 members of the public. Defendants promised to convert this Bitcoin into fiat currency to invest on their customers' behalf in a pooled investment vehicle for trading commodity interests, including trading binary options on an online exchange designated as a contract market by the CFTC.  Following Defendants misappropriation of their funds, at least 120 customers suffered total losses of at least $432,184.79.  In addition to requiring Defendants, jointly and severally, to pay $432,184.79 in restitution and a $1,497,792.12 civil monetary penalty, the Order imposed permanent trading and registration bans on Defendants, and permanently enjoined them from further violations of the Commodity Exchange Act and CFTC Regulations, as charged. READ the FULL TEXT Order and Default Judgment