Securities Industry Commentator by Bill Singer Esq

July 25, 2018

Atlanta businessmen sentenced to 10 years in prison for securities fraud schemes (DOJ Press Release)
Marc E. Bercoon and William A. Goldstein were convicted by a jury in the United States District Court for the Northern District of Georgia of 12 counts of conspiracy, mail fraud, wire fraud, and securities fraud; and, thereafter, they were sentenced to 10 years in prison,  3 years of supervised release, and payment of $1,496,733 restitution, and a forfeiture order of $1,953,974. The charges were developed during a securities fraud investigation conducted by the FBI, in which court-authorized wiretaps were used to intercept telephone conversations. In 2010, the SEC had sued Bercoon and Goldstein in connection with a separate investment fraud scheme concerning LADP Acquisition, Inc.  A judgment of over $3 million was entered against both men in that case.  The Court applied a sentencing enhancement for violation of a prior judicial order, finding that the defendants violated a preliminary injunction in the LADP case. As set forth in part in the DOJ Press Release:

The conspiracy culminated in two "pump and dump" schemes carried out in March and May 2010.  To carry out these schemes, Bercoon and Goldstein arranged for MedCareers Group, Inc. to issue a series of misleading press releases and SEC filings, at the same time as co-conspirators sent out mass emails touting the stock.  While the price of MCGI and the demand for the stock were both artificially high because of these efforts, the defendants orchestrated a sell-off of their stock, coordinating activity in multiple "nominee" accounts, which were titled in the names of other people and entities to hide the defendants' involvement.

From May 2009 through June 2010, Bercoon and Goldstein also carried out a second investment fraud concerning a privately held company.  Specifically, Bercoon and Goldstein organized a private corporation, Acquisition, Inc., and then solicited investments from dozens of individuals.  Bercoon and Goldstein told investors, and induced brokers working for them to tell investors, that their funds would be used to develop an internet search engine named  Bercoon and Goldstein used the bulk of the over $1.5 million raised from investors for unrelated purposes, such as subsidizing their other business ventures and making payments to themselves and their family members.  In fact, over $550,000 of the $1.5 million invested in Acquisition, Inc. was simply withdrawn from the bank in cash shortly after being invested.

As part of the scheme, investors were provided with written offering materials.  In addition to stating that the investments would be used to develop the internet search engine business, the written materials stated that investors were being offered the opportunity to buy stock at a price of $1.00 per share, and that no more than 12.5% of investments would go toward commissions.  Despite these representations, Bercoon and Goldstein sold stock to some investors at heavily discounted prices, without informing other investors, and paid commissions of 30% to 40% to brokers on some investments.
In a Complaint filed in the United States District Court for the Southern District of New York, the SEC alleges that William Z. (Billy) McFarland. Grant H. Margolin, Daniel Simon.Fyre Media, 0nc., Fyre Festiveal LLC, and Magnises, Inc. with violating the antifraud provisions of the federal securities laws. The Defendants participated in McFarland's failed venture to host a "once-in-a-lifetime" music festival in the Bahamas. McFarland has admitted the SEC's allegations against him, agreed to a permanent officer-and-director bar, and agreed to disgorgement of $27.4 million, to be deemed satisfied by the forfeiture order entered in McFarland's sentencing in a related criminal case.  Margolin, Simon, Fyre Media, and Magnises agreed to the settlement without admitting or denying the charges.  Margolin has agreed to a 7-year director-and-officer bar and must pay a $35,000 penalty, and Simon has agreed to a 3-year director-and-officer bar and must pay over $15,000 in disgorgement and penalty.  READ the FULL TEXT Complaint

FINRA Arbitrators Slam Wells Fargo With $8.5 Million Puerto Rico Bond Award ( Blog)
Today, we got a FINRA arbitration panel awarding public customers nearly $8.5 million in damages, costs, and fees. Including punitive damages. Including discovery abuse sanctions. And the Respondent is Wells Fargo Advisors. Blog publisher Bill Singer wonders if the industry self-regulatory-organization, the Financial Industry Regulatory Authority, will take any regulatory action against its large member firm. Then again, Bill is a fellow with such an active imagination.

SEC Detects Silicon Valley Executive's Insider Trading (SEC Press Release 2018-142)
Yao Li, as Vice President of Technology at Alliance Fiber Optic Products, Inc. (AFOP), settled SEC charges alleging that he had made nearly $200,000 in illicit profits by trading on inside information in advance of three disappointing earnings reports.Without admitting or denying the SEC's findings, Li agreed to cease and desist from further violations of Section 17(a) of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5, and he must pay disgorgement of $196,203, prejudgment interest of $23,062, and a $196,203 penalty for a total of $415,468.  Li also agreed to be prohibited from acting as an officer or director of a public company for a period of five years. READ the FULL TEXT ORDER

SEC Charges Former Stericycle Financial Analyst and His Mother with Insider Trading (SEC Litigation Release No. 24212)
In a Complaint filed in the United States District Court for the Northern District of Illinois, the SEC charged former Stericycle, Inc. financial analyst Matthew Brunstrum, with insider trading in advance of financial results and with tipping his mother, who was also charged with insider trading. The Complaint asserts that Stericycle's stock fell by $26.18 the day after Stericycle announced its first quarter financial results, losing almost 22 percent of its value. The SEC's complaint alleges that as a result of their illegal trading, Matthew Brunstrum avoided losses and earned profits in the amount of $159,904, and Susan Brunstrum avoided losses and earned profits in the amount of $170,252. Without admitting or denying the allegations, the defendants each agreed to be permanently enjoined from future violations of anti-fraud provisions of the securities laws and agreed to pay disgorgement equal to each of their ill-gotten gains plus prejudgment interest. The court will determine the civil penalty amounts. The settlements are subject to court approval. READ the FULL TEXT Complaint