September 20, 2018
The Texas State Securities Board entered separate emergency cease and desist orders against
- Coins Miner Investment Ltd., a cryptocurrency investment promoter operating in Russia;
- DGBK Ltd., an offshore digital "bank" that says it has developed hack-proof storage for virtual currencies; and
- Ultimate Assets LLC, a supposed cryptocurrency and foreign exchange trader.
According to the Emergency Cease and Desist Orders:
Coins Miner is manipulating its email solicitations to make them appear as if they came from San Francisco-based Coinbase, a company that operates an online platform for buying, selling, and storing digital currency. Ana Julia Lara, a person affiliated with Coins Miner, falsely claims to work at Coinbase as a cryptocurrency trader, and she is sending prospective investors a photograph of herself with the president of Ripple, a cryptocurrency and transaction company, but the person identified in the photo as "Lara" is actually a vice president of CoinTelegraph Media Group. Prospective investors are being directed to a website maintained by Coins Miner, where the company offers investments in programs tied to the mining of cryptocurrencies. On the site, Coins Miner claims to be based in the United Kingdom, but the Order asserts that the company operates in Volgograd, Russia. Further, the Order alleges that Coins Miner has misappropriated a video of a Fortune journalist discussing cryptocurrencies next to a superimposed Coins Miner logo; however, neither the journalist nor Fortune authorized the use of the video, which was filmed for Fortune as part of its coverage of cryptocurrencies.
DGBK Ltd., also known as DigitalBank, is a Belize-based company that says it is developing a hack-proof device to store and transfer cryptocurrencies, and is soliciting funds to develop the Photon Encrypted Ledger Key digital wallet for cryptocurrencies that can be opened using a person's biometric data, and will also permit the anonymous, untraceable transfer of both cryptocurrencies and fiat currency such as the U.S. dollar. The Order alleges that DigitalBank is offering prospective investors shares in the company and the opportunity to buy its own virtual currency, a digital token called DGBK, which is touted as offering a return of 1,900% once it is sold in an initial coin offering next year. In promoting itselg, DigitalBank uses a 33-second video of Barack Obama taken at the 2016 South by Southwest interactive festival in Austin, Texas at which President Obama generally discusses advances in technology and encryption that may allow the creation of impenetrable devices and systems.
Ultimate Assets LLC is allegedly informing potential investors that an initial investment of $1,000 will turn into $10,000 in three weeks. An initial investment in the company's trading program is touted as fully guaranteed. Although Ultimate Assets listes an address in Arlington, Massachusetts, the Order alleges that there is no such business at that location and the state has no corporate filings for the entity.and itself appears to be a phantom entity.
SEC Shuts Down $345 Million Fraud and Obtains Asset Freeze (SEC Release 2018-201)https://www.sec.gov/news/press-release/2018-201
SEC and DOJ File Charges In $345 Million Fraud:
Baltimore And Texas Men Indicted For Alleged $364 Million Ponzi Scheme-One Of The Largest Ever Charged In Maryland / Scheme Believed to Have Over 400 Victims Nationwide, Including Individual, Family Offices, and Investment Groups - FBI Seeking Information Regarding Additional Victims; SEC has Filed Related Civil Complaint (DOJ Release)
In a Complaint filed in the United States District Court for the District of Maryland, the SEC charges Kevin B. Merrill, Jay B. Ledford and Cameron Jezierski along with their entities, Global Credit Recovery, LLC, Delmarva Capital, LLC, Rhino Capital Holdings, LLC, Rhino Capital Group, LLC, DeVille Asset Management LTD, and Riverwalk Financial Corporation, with violations of the antifraud provisions of the federal securities laws. The Court granted the SEC's request for an asset freeze, temporary restraining order, and the appointment of a receiver. The SEC seeks disgorgement of allegedly ill-gotten gains and prejudgment interest, and financial penalties against the defendants. The Complaint alleges that Merrill, Ledford and Jezierski promised investors significant profits from the purchase and resale of consumer debt portfolios; however, the funds raised were used to make Ponzi-like payments to earlier investors; and Merrill and Ledford allegedly converted $85 million for their own personal use, which included diverting $10.2 million on at least 25 high-end cars, $330,000 for a 7-carat diamond ring, $168,000 for a 23-carat diamond bracelet, millions of dollars on luxury homes, and $100,000 to a private fitness club. In a parallel action, the U.S. Attorney's Office for the District of Maryland today announced criminal charges against Merrill, Ledford, and Jezierski.
In a 14-Count Indictment filed in the United States District Court for the District of Maryland, Kevin B. Merrill, Jay B. Ledford and Cameron Jezierski were charged with wire fraud conspiracy and for each of five counts of wire fraud. Additionally Merrill and Ledford were charged with an additional two counts of wire fraud, four counts of money laundering, and money laundering conspiracy and identity theft. The Indictment alleges that in furtherance of their fraud, the Defendants created imposter companies with names similar to actual consumer debt sellers or brokers and opened bank accounts in the names of those imposter companies. Additionally, the Defendants allegedly created false portfolio overviews, sales agreements which used the names and forged signatures of actual employees of the sellers, created false collections reports, and falsified bank wire transfer records and bank statements. The indictment seeks to forfeit nine properties, 26 luxury cars, one boat, interest in an aircraft, a life insurance policy, seven and nine carat diamond rings, and a 23 carat diamond bracelet, which were allegedly purchased with proceeds of the scheme to defraud.
In the ninth CFTC enforcement action involving manipulation of the U. S. Dollar International Swaps and Derivatives Association Fix benchmark ("USD ISDAFIX"), the CFTC issued an Order filing and settling charges against Bank of America, N.A. for attempted manipulation of the ISDAFIX benchmark and requiring Bank of America to pay a $30 million civil monetary penalty. In accepting the Bank's offer, the Commission recognizes Bank of America's cooperation during the investigation of this matter by the CFTC's Division of Enforcement (Division), which helped the Division undertake its investigation efficiently and effectively. The Order also states that Bank of America commenced significant remedial action to strengthen the internal controls and policies relating to all benchmarks, including ISDAFIX. READ the FULL TEXT Orde
The Order alleges that beginning in January 2007 and continuing through December 2012, certain Bank of America traders understood and employed two primary means in their attempts to manipulate USD ISDAFIX rates in order to favor Bank of America on specific trading positions at the expense of its counterparties by:
1) bidding, offering, or trading swap spreads and U.S. Treasuries at and around 11:00 a.m. to affect rates and thereby increase or decrease the Swaps Broker's reference rates and spreads and influence the final published USD ISDAFIX; and
2) making false, misleading, or knowingly inaccurate submissions to Swaps Broker concerning swap rates and spreads.
Presented in today's BrokeAndBroker.com Blog is a dispute in which two former Citigroup Global Markets customers sued the brokerage firm for trades that were recommended in 1999 when they had accounts at Merrill Lynch. In 2000, the customers transferred their accounts to Citigroup, when the stockbroker joined that firm -- he remained there until 2002. So . . . when do you think it's too late for the customers to sue Citigroup if they had complaints about the handling of their accounts?
In Complaints filed in the United States District Court for the Southern District of New York, the SEC charges Emil Botvinnik and Jovannie Aquino with violations of antifraud provisions of Section 17(a) of the Securities Act of 1933, Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5. The Complaints allege that the Defendants recommended frequent, short-term trades that generated for them large commissions notwithstanding that the trades were allegedly guaranteed to lose money for their customers, many of whom were at or near retirement and who lost about $3.6 million versus the $4.6 million in commissions generated. READ the FULL TEXT Aquino Complaint
https://www.sec.gov/litigation/complaints/2018/comp-pr2018-183-aqino.pdf and the Botvinnik Complaint
In a Complaint filed in the United States District Court for the Southern District of Indiana, the SEC charges advisory firm Steele Financial Inc. and its sole owner Tamara Steele with violating Sections 206(1), 206(2), and 206(3) of the Investment Advisers Act of 1940, Section 17(a) of the Securities Act of 1933, and Sections 10(b) and 15(a) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder. The SEC is seeking disgorgement of ill-gotten gains with interest, penalties, and permanent injunctions. The Complaint alleges that from December 2012 to October 2016, the Defendants sold to advisory clients and other investors more than $15 million of the securities of Behavioral Recognition Systems Inc. (BRS), a private company previously charged by the SEC with fraud. The Complaint asserts that the Defendants received commissions BRS cash and warrants worth over $2.5 million that the Defendants did not disclose to over 120 clients to whom they purportedly sold some $13 million in BRS securities. READ the FULL TEXT Complaint
In a Complaint filed in the United States District Court for the Central District of California, the SEC
charged medical aesthetics company Sientra, Inc. and its former CEO, Hani Zeini, with concealing damaging news about the company's sole-source manufacturer before it closed a $60 million stock offering in 2015. Sientra sells silicone breast implants in the United States, and at the time of the offering, all of the implants it sold were made by a company in Brazi, whose CEO allegedly informed Zeini days before the offering was to close that its Brazilian manufacturer's regulatory compliance certificate required to sell products in the European Union, had been suspended. Zeini allegedly concealed this information, and Sientra's stock price fell 52.6% from $20.58 to $9.70 per share after it issued a release disclosing the suspension. Without admitting or denying the findings, Sientra, consented to the entry of the SEC's order, which finds Sientra violated Section 17(a) of the Securities Act of 1933 and section 10(b) of the Securities and Exchange Act of 1934 and Rule 10b-5 thereunder, and orders Sientra to cease and desist from future violations of these statutes. In considering whether to accept Sientra's settlement the SEC considered Sientra's prompt action upon discovering the alleged fraud, self-reporting to the SEC, and extensive cooperation with the agency's investigation. The Complaint also charges Hani Zeini with violating Section 17(a) of the Securities Act of 1933 and Section 10(b) of the Securities and Exchange Act of 1934 and Rule 10b-5 thereunder; and seeks a penalty, an officer and director bar, and a permanent injunction.
Commissioner Jackson observes that America's stock exchanges were once collectively owned not-for-profits, overseeing and organizing trading in America's best-known companies; however, about a decade ago, exchanges became private corporations. Notwithstanding that shift, Jackson laments that the SEC tends to treat the exchanges with the same kid gloves we applied to their not-for-profit ancestors and, accordingly, the SEC remains on the sidelines while enormous market power has become concentrated in just a few players -- resulting in 12 of our 13 public stock exchanges being owned by just three corporations. Troubled by the exchange landscape, Jackson asserts:
[T]hat's it's time to put the "exchange" back in the Securities and Exchange Commission. I want to highlight four puzzling practices in today's markets -- the two-tiered system for stock-price information, legal limits on exchange liability when they harm investors, the structure of stock exchanges themselves, and payments exchanges make to brokers who send orders their way -- that don't look like the kind of competition that American investors deserve. And I want to highlight the way forward for us at the SEC.
I urge all serious market participants to invest the time to read Commissioner Jackson's comments, which are both provocative and overdue. In part, he offers this vision:
So our stock markets -- a symbol of American capitalism around the world -- are taxing American investors with hidden fees and conflicts of interests. What does it say to mom-and-pop investors when our stock markets are full of abuses like these? The good news is that I'm not the only one concerned about these issues. I believe the Commission is finally ready to take off the kid gloves we've been using on our stock exchanges -- and start to ask hard questions about our country's stock market structure.
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Finally, we should take a hard look at whether it makes sense to allow for-profit exchanges to write the rules of the game for their customers and competitors while also enjoying immunity from civil liability. The exchanges cannot have it both ways -- both claiming that business considerations limit the degree to which they can regulate public companies while making broad claims to regulatory immunity. And rulebooks that impose low liability limits even when exchanges are found liable for investor harm also deserve closer scrutiny. We should make sure that our stock exchanges -- like all American businesses -- are held accountable when they cause harm to the investing public.