Securities Industry Commentator by Bill Singer Esq

September 12, 2018

CEO of "Penny Stock" Company Sentenced for Stock Manipulation Scheme (DOJ Release)
Federal prosecutors alleged that brothers Learned Jeremiah Hand, Jehu Hand, and Adam Hand concealed their control over the majority of Crown Marketing's free-trading stock and conspired in a pump-and-dump scheme. Jehu Hand filed false registration statements with the SEC; Crown CEO Learned Hand,orchestrated a press campaign containing misleading statements regarding a drug delivery technology purportedly owned by Crown.  Learned Hand pled guilty to conspiracy to commit securities fraud and was sentenced in the United States District Court for the District of Massachusetts to nine months in prison plus one year of supervised release and restitution. Adam Hand pled guilty to one count of conspiracy to commit securities fraud.and was sentenced to 30 months in prison and three years of supervised release. Jehu Hand was convicted by a federal jury of conspiracy, securities fraud and wire fraud and is awaiting scheduling. 

SEC Charges ICO Superstore and Owners With Operating As Unregistered Broker-Dealers (SEC Release 2018-185)
In the SEC's first case charging unregistered broker-dealers for selling digital tokens after the issuance of the 2017 DAO Report, which admonished those who offer and sell digital securities must comply with the federal securities laws, the SEC issued an Order in which TokenLot LLC, (a self-described "ICO Superstore" ) and its owners, Lenny Kugel, and Eli L. Lewitt  will settle charges that they acted as unregistered broker-dealers.  Without admitting or denying the SEC's findings, TokenLot, Kugel, and Lewitt consented to the Order and agreed to pay $471,000 in disgorgement plus $7,929 in interest, and they will retain an independent third party to destroy TokenLot's remaining inventory of digital assets. Also,  Kugel and Lewitt  agreed to pay penalties of $45,000 each, and agreed to industry and penny stock bars and an investment company prohibition with the right to reapply after three years. The Order alleged that TokenLot received orders from over 6,100 retail investors and handled in excess of 200 different digital tokens, which the SEC found included securities. In response to the SEC's investigation, TokenLot voluntarily began winding down and refunding investors' payments for unfilled orders. READ the FULL TEXT Order

SEC Charges Digital Asset Hedge Fund Manager With Misrepresentations and Registration Failures (SEC Release 2018-186)
In the SEC's first enforcement action finding an investment company registration violation by a hedge fund manager based on its investments in digital assets, without admitting or denying the findings, Crypto Asset Management LP (CAM) and its sole principal Timothy Enneking agreed to a cease-and-desist order and Censure, and to pay a $200,000 penalty. The Order alleged that pursuant to raising over $3.6 million, CAM offered a fund that operated as an unregistered investment company while falsely marketing it as the "first regulated crypto asset fund in the United States."  Crypto and Enneking falsely claimed that the fund was SEC regulated and registered..  By engaging in an unregistered non-exempt public offering and investing more than 40 percent of the fund's assets in digital asset securities, CAM caused the fund to operate as an unregistered investment company.  After being contacted by the SEC staff, CAM ceased its public offering and offered buy backs to affected investors. READ the FULL TEXT Order

The SEC obtained monetary relief that will fully reimburse retail investors for losses on a leveraged oil-linked exchange-traded note that registered representatives of broker-dealer/investment adviser Cadaret, Grant & Co. Inc. recommended without a reasonable basis.Without admitting or denying the SEC's findings, Cadaret Grant agreed to be Censured and pay a $500,000 penalty plus $13,194 in disgorgement and interest. Further, Cadaret Grant's President, Arthur Grant and its Senior Vice President Beda Lee Johnson each agreed to a 12-month supervisory suspension and will pay penalties of $100,000 and $75,000 respectively.  Also, Cadaret Grant broker Eugene Long agreed to be Censured and pay a $250,000 penalty. The Order found that the firm, Grant, and Johnson had failed reasonably to supervise the firm's registered representatives who recommended that customers buy and hold the leveraged oil-linked ETN without a reasonable basis. The firm's brokers mistakenly believed the ETN's value would increase over time as oil prices increased even though the ETN offered no direct exposure to spot oil prices, and recommended that retail customers buy and hold the ETN indefinitely. READ the FULL TEXT SEC Order
Yet again, FINRA has the opportunity to do right by the hundreds of thousands of registered men and women. Yet again, the plight of the little guy is barely a concern for Wall Street's self-regulatory-organization. In today's installment of yet another rant by Blog's publisher Bill Singer, we come across one of the few remaining drips and drabs of the last decade's auction rate securities meltdown. By now, the autopsy results have long been known. The auction market locked and froze amid the loss of liquidity. What was sold as "good as cash in the bank" was not. The "never happen" event of no bids happened. Long after the finger pointing ceased, the conclusion was that the blame for customers' losses was on the originators of this flawed product and not the stockbrokers. Faced with those facts, FINRA still requires stockbrokers to run the gauntlet of filing an arbitration Statement of Claim and incurring all the attendant filing fees and litigation costs. ARS expungement arbitration? Why hasn't the ARS expungement application been placed squarely within the regulatory pipeline where it truly belongs? Why isn't FINRA-the-self-regulator reviewing ARS expungement applications on an expedited basis, at no cost to the stockbroker (charge the responsible broker-dealer for all I care)? Why does the concept of "justice" seem so elusive at FINRA when it comes to doing right by the industry's men and women?

Romanian National Pleads Guilty in Multi-State ATM Card Skimming Scheme / Caused over $868,000 in Losses from over 530 Individual Accounts in Three States (DOJ Release)
Bogdan Viorel Rusu pled guilty in the United States District Court for the District of New Jersey to an Information that charged him with one count each of conspiracy to commit bank, bank fraud, and aggravated identity theft.  Rusu engaged in a conspiracy that targeted banks in Massachusetts, New York, and New Jersey via the installation of electronic skimming devices that surreptitiously recorded customers' bank account information on the banks' card-readers at the vestibule door, the ATM machine, or both.  Also, the conspirators installed other devices such as pinhole cameras or keypad overlays to record the keystrokes of bank customers as they entered their personal identification numbers to access their bank accounts.  Using cards that they had counterfeited with the stolen information, the conspirators obtain cash from the skimmed bank accounts before the bank or the customers became aware of their illicit conduct. Rusu admitted that he and his co-conspirators caused losses of $364,419 in Massachusetts and $75,715 in New York (totaling $440,134 from 531 individual accounts), in addition to losses in New Jersey of $428,581.

Nigerian Man Sentenced To 5 Years In Prison For Participating In Business Email Compromise Scams (DOJ Release)
Onyekachi Emmanuel Opara pled guilty to conspiracy to commit wire fraud and to wire fraud and was sentenced in the United States District Court for the Southern District of New York to 60 months in prison plus two years of supervised release, and ordered to pay $2.5 million in restitution. . Opara and co-defendant David Chukwuneke Adindu sent bogus emails purporting to be from supervisors at targeted companies or from third party vendors with whom the companies did business. The emails directed the companies' employees to transfer funds to specified bank accounts, which resulted in the theft of over $25 million. Opara created accounts on dating websites and entered into online romantic relationships with individuals in the United States by portraying himself as a young attractive woman named "Barbara," who instructed victims to send money overseas and/or prepare them to receive money from the ongoing fraud and forward the proceeds to other participants located overseas. Adindu pled guilty to one count of conspiracy to commit wire fraud and one count of conspiracy to commit identity theft, and was sentenced to 41 months in prison and ordered  to pay about $1.4 million in restitution.

Elad Roisman Sworn In As SEC Commissioner (SEC Release 2018-187)
Elad L. Roisman has been sworn into office as an SEC Commissioner by SEC Chairman Jay Clayton. Commissioner Roisman served as Chief Counsel to the Senate Banking Committee, and previously served as Counsel to SEC Commissioner Daniel Gallagher and, prior to that, as a Chief Counsel at NYSE Euronext.