Securities Industry Commentator by Bill Singer Esq

September 25, 2018
In a Complaint filed in the United States District Court for the District of New Jersey, the SEC charged stock trader Adam Rentzer with violating Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder. Rentzer has pled guilty to parallel criminal charges. The Complaint alleges that Rentzer paid undisclosed cash kickbacks to his broker, Brian Hirsch, in exchange for preferential access to Initial Public Offerings. Hirsh worked Hirsch worked on the Wealth Syndicate Desk at two brokerage firms, where he circumvented his firms' IPO allocation policies and procedures. Previously, the SEC had charged Hirsch and another customer of his with engaging in a similar kickback scheme, which the customer settled. Hirsch pled guilty to parallel criminal charges. READ the Full Text Complaint

Colorado Supreme Court Reverses Court of Appeals Over Ponzi "Clawback" 
C. Randel Lewis, solely in his capacity as receiver, Petitioner, v. Steve Taylor, Respondent (Colorado Supreme Court, 2018 CO 76, No. 17SC241)
As set forth in the Syllabus to the Colorado Supreme Court Opinion:

The supreme court holds that under the Colorado Uniform Fraudulent Transfer Act ("CUFTA"), an innocent investor who profits from his investment in an equity-type Ponzi scheme, lacking any right to a return on investment, does not provide reasonably equivalent value based simply on the time value of his investment. In this case, an investor unwittingly invested in a Ponzi scheme. Before the scheme's collapse, he withdrew his entire investment, plus a profit. A court-appointed receiver sued to claw back the investor's profits under CUFTA section 38-8-105(1)(a), C.R.S. (2018), which provides that a "transfer made . . . by a debtor is fraudulent as to a creditor . . . if the debtor made the transfer . . . [w]ith actual intent to hinder, delay, or defraud any creditor of the debtor." The investor raised an affirmative defense, § 38-8-109(1), C.R.S. (2018), contending he could keep his profit because he "took in good faith and for a reasonably equivalent value." Because the time value of money is not a source of "value" under CUFTA and equity investors have no guarantee of any return on their investments, the supreme court concludes that the investor did not provide "reasonably  equivalent value" in exchange for his profit. Accordingly, the supreme court reverses the judgment of the court of appeals.
Most reasonable folks -- and, admittedly, that's becoming a rare population -- but, just the same, most reasonable folks would agree that if you are amenable to arbitrate your disputes with me, and I'm amenable to arbitrate my disputes with you, and we write down the terms of how we will conduct any arbitration, and we sign that written agreement, and then, just for good measure, we shake on it, well, you know, you should be able to hold me to what I signed and vice versa. Unfortunately, we got lots of money on Wall Street and we got lots of folks with too much time on their hands and, thankfully for me, we also got lots of lawyers. All of which might explain how Wall Street's version of so-called "Mandatory" arbitration came into being. According to the rules of the Financial Industry Regulatory Authority ("FINRA"), parties subject to a written agreement to arbitrate must arbitrate all covered disputes. Yeah, that much is okay.  In the absence of a written arbitration agreement, however, FINRA's rules provide for mandatory arbitration if "requested" by any customer and the subject dispute is between a customer and a FINRA member firm or an associated person of such a firm, and the dispute arises in connection with the firm's or person's business. Sure, you might think that this "request" form of mandatory arbitration is straightforward and fairly obvious. Trust me, it ain't. For starters, battles and wars have been waged over the definition of "customer," "member firm," "associated person," and "in connection with" a brokerage firm's or stockbroker's business. Strap on your helmet and meet me at today's front-lines for the most recent attack and counterattack in Wall Street's arbitration trenches.

In the Matter of TD Ameritrade, Inc. Respondent (Order Instituting Administrative and Cease-and-Desist Proceedings, Making Findings, and Imposing Sanctions;'34 Release No. 84269; Admin. Proc. File No. 3-18829) In anticipation of the institution of these proceedings but without admitting or denying the findings. Respondent TD Ameritrade, Inc. submitted an Offer of Settlement that the SEC accepted. In accordance with the terms of the settlement, Respondent TD Ameritrace will cease and desist from committing or causing any violations and any future violations of Section 17(a) of the Exchange Act and Rule 17a-8 thereunder.; is Censured; and will pay a $500,000 civil monetary penalty. As set forth in the "Summary" portion of the SEC Order:

1. This proceeding concerns Respondent's failure to file certain Suspicious Activity Reports ("SARs") as required by Section 17(a) of the Exchange Act and Rule 17a-8 thereunder. These provisions require broker-dealers, such as Respondent, to comply with the Bank Secrecy 2 Act ("BSA") requirement to file SARs. The BSA and implementing regulations require brokerdealers to file SARs with a federal governmental agency -- he Financial Crimes Enforcement Network ("FinCEN") -- to report certain suspicious transactions that are conducted or attempted by, at, or through the broker-dealer. See 31 C.F.R. §1023.320(a) (the "SAR Rule"). 

2. From 2013 to September 2015, Respondent terminated its business relationship with 111 independent investment advisers ("Advisers") that Respondent determined presented an unacceptable business, credit, operational, reputational, or regulatory risk to Respondent or its customers.1 Although it filed a number of SARs relating to suspicious transactions of certain terminated Advisers, Respondent failed to file SARs on the suspicious transactions of a number of other terminated Advisers. Respondent's failure to file the SARs resulted from its failure, at the time, to consistently and appropriately refer terminated Advisers and their possibly suspicious transactions to the firm's Anti-Money Laundering Department (the "AML Department"). As a result, Respondent willfully violated Section 17(a) of the Exchange Act and Rule 17a-8 thereunder. 

My Beef with Stakeholders: Remarks at the 17th Annual SEC Conference, Center for Corporate Reporting and Governance (Speech by SEC Commissioner Hester M. Peirce) Another provocative commentary from Commissioner Peirce in which she raises a number of worthwhile questions about balancing the needs of so called "stakeholders" with those of corporations and their shareholders. Among her comments is this excerpt:

Requiring a company to instead cater to other interests therefore risks compromising not only its shareholders' interests, but the public interest as well. It complicates boardroom decision-making and muddles the effectiveness of price as a signal of the company's value. Valuing a company that is dancing to the tune of multiple fiddlers is no easy task, so an uncertainty discount would inevitably be built into the price of the company's shares.

When an investor buys a piece of a company, the price she pays reflects certain understandings about the board's duty to the company, and by extension, to its shareholders.  Directing companies to give priority to stakeholders rather than shareholders would lower the value of existing shares and hence the price investors are willing to pay for an ownership interest in the company. . .

Former CFO Pleads Guilty in Multi-Million Dollar Embezzlement and Laundering Scheme (DOJ Release)
Edward J. Abell III, the former Chief Financial Officer of two Boston-area companies pled guilty in the United States District Court for the District of Massachusetts to five counts of wire fraud and three counts of money laundering. Federal prosecutors alleged that between 2006 and 2016, in his capacity as Vice President of Finance and later CFO of a global integrated marketing agency, Abell embezzled over $3.8 million from his employer by writing company checks to Pinehurst Tax Associates, which he owned, and, thereafter, transferred the funds from that shell company to his personal bank accounts. Following his termination in 2016, Abell was hired as CFO of a Boston-based consulting and investment banking firm, where he allegedly embezzled over $140,000. The SEC awarded nearly $4 million to an overseas whistleblower. READ the FULL TEXT SEC Order