Securities Industry Commentator by Bill Singer Esq

November 29, 2018


Michael Cohen of New York, New York, pled guilty on Nov. 29, 2018, to making false statements to the U.S. Congress in violation of 18 U.S.C. 1001 (a)(2).  
U.S. v. Michael Cohen (1:18-cr-850, Southern District of New York)

Plea Agreement

Criminal Information

As set forth in part in the Information:

1. From in or around 2007 through in or around January 2017,MICHAEL COHEN, the defendant, was an attorney and employee of a Manhattan-based real estate company (the "Company"). COHEN held the title of "Executive Vice President" and "Special Counsel" to the owner of the Company ("Individual 1"). 

False Statements to the U.S. Congress

2. On or about January 13, 2017, the U.S. Senate Select Committee on Intelligence ("SSCI") announced that it would conduct an investigation into Russian election interference and possible links between Russia and individuals associated with political campaigns. On or about January 25, 2017, the House of Representatives Permanent Select Committee on Intelligence ("HPSCI") announced that it also was conducting an investigation into Russian election interference and possible links between Russia and individuals associated with political campaigns. 

3. On or about August 28, 2017, COHEN caused a two-page letter to be sent on his behalf to SSCI and HPSCI. The letter addressed his efforts at the Company to pursue a branded property in Moscow, Russia (the "Moscow Project"). COHEN stated the purpose of the letter was "to provide the Committee with additional information regarding the proposal," referring to the Moscow Project. 

4. In the letter to SSCI and HP SCI, COHEN knowingly and deliberately made the following false representations: 

a. The Moscow Project ended in January 2016 and was not discussed extensively with others in the Company.  . . .

b. COHEN never agreed to travel to Russia in connection with the Moscow Project and "never considered" asking Individual 1 to travel for the project.  . . .

c. COHEN did not recall any Russian government response or contact about the Moscow Project.  . . .

5. On or about September 19, 2017, COHEN was scheduled to appear before SSCI accompanied by counsel . In prepared remarks released to the public, COHEN stated, "I assume we will discuss the rejected proposal to build a [Company-branded] property in Moscow that was terminated in January of 2016; which occurred before the Iowa caucus and months before the very first primary. This was solely a real estate deal and nothing more. I was doing my job. I would ask that the two-page statement about the Moscow proposal that I sent to the Committee in August be incorporated into and attached to this transcript." 

6. On or about October 25, 2017, COHEN gave testimony to SSCI, which included testimony about the Moscow Project consistent with his prepared remarks and his two- page statement . 

7. In truth and in fact, and as COHEN well knew, COHEN's representations about the Moscow Project he made to SSCI and HPSCI were false and misleading. COHEN made the false statements to (1) minimize links between the Moscow Project and Individual 1 and (2) give the false impression that the Moscow Project ended before "the Iowa caucus and . the very first primary," in hopes of limiting the ongoing Russia investigations. COHEN attempted to conceal or minimize through his false statements the following facts : 

a. The Moscow Project was discussed multiple times within the Company and did not end in January 2016.  . . .

b. COHEN agreed to travel to Russia in connection with the Moscow Project and took steps in contemplation of Individual l's possible travel to Russia. . . .

c. COHEN did recall that in or around January 2016, COHEN received a response from the office of Russian Official 1, the Press Secretary for the President of Russia, and spoke to a member of that office about the Moscow Project. . . .
AriseBank CEO Jared Rice, Sr. was indicted in the United States District Court for the Northern District of Texas on three counts of securities fraud and three counts of wire fraud. Federal prosecutors alleged that Rice touted AriseBank as the world's "first decentralized banking platform" based on a proprietary digital currency called AriseCoin and offering consumers FDIC-insured accounts and traditional banking services, including Visa-brand credit and debit cards, in addition to cryptocurrency services. Allegedly, AriseBank had not been authorized to conduct banking in Texas, was not FDIC insured, and did not have any Visa partnership. Further, the DOJ Release alleges that Rice "quietly converted investor funds for his own personal use, spending the money on hotels, food, clothing, a family law attorney, and even a guardian ad litem." Not to be too picky here but how the hell do you "noisily" convert funds? I'm as thrilled as the next lawyer when a DOJ wordsmith spins an enchanting tale in a press release but six assorted counts of securities and wire fraud doesn't exactly strike me as an invitation to create moving word pictures. My quibble with DOJ's copywriter aside, Rice allegedly claimed the the Initial Coin Offering had raised $600 million within just a few weeks but he left out of his various pitches that he had pled guilty to state felony charges in connection with a prior internet-related business scheme. In response to Rice's solicitations, investors allegedly purchased AriseCoin using digital currencies such as Bitcoin, Ethereum, Litecoin, and also via fiat currency.
READ the Indictment
Also READ the SEC's Complaint in a parallel action
Sure, coin exchanges have things that look like order books and price reporting mechanisms, and coin dealers provide a place where people can buy coins. But they aren't the same as stock exchanges or broker-dealers, because beyond their common interest in equity, stocks and cryptocoins work differently. To apply stock exchange logic to a coin exchange is like saying that an 18th-century flintlock and a modern semi-automatic assault rifle are the same because both shoot projectiles. Okay, maybe that's not a good analogy. But you get my point.
In an Emergency Cease and Desist Order filed by the Texas State Securities Board, it is alleged that Mark Steven Royer is fraudulently offering investments in a cryptocurrency trading and mining program operated by My Crypto Mine, of which Royer is a principal. Allegedly, has not been disclosing to investors that he was an alleged affiliate of BitQyck, a Dallas company controlled by Bruce Bise and Samuel J. Mendez. In 1997, Bise was sentenced to seven years in state prison in Arizona after his conviction on check forgery charges; and Mendez was disbarred as a California attorney in 1996 after misappropriating client funds. TSSB asserts that since May 2017, Royer has been selling bitqy, which he claims will rise to $3 but as of Nov. 11, 2018, bitqy had lost over 99% of its value. Royer is allegedly offering an ascending scale of commissions to individuals who recruit new investors. He is promising to pay a commission of 2% of a new principal investment of between $10,000 and $50,000, 3% of an investment between $50,000 and $100,000, and 4% if the investment is more than $100,000. The company and Royer have 31 days to contest the order at the State Office of Administrative Hearings. READ the TSSB Order
After a five-week jury trial in the United States District Court for the District of Nevada, former MRI International Inc. Chief Executive Officer and President Edwin Fujinaga was found guilty of eight counts of mail fraud, nine counts of wire fraud, and three counts of money laundering in connection with his Ponzi scheme. As set forth in pertinent part in the DOJ Release:

[F]rom 2000 until 2013, Fujinaga fraudulently solicited over $1 billion in investments in MRI from over 10,000 Japanese residents, who wired their funds from Japan to bank accounts in Las Vegas under Fujinaga's control.  Fujinaga approved and disseminated marketing materials that promised investors that their funds would only be used for purchasing medical claims and that an escrow agent would ensure that MRI used investor funds for only that purpose.  In truth, Fujinaga spent less than two percent of investor funds to purchase medical claims.  Instead, Fujinaga used the vast majority of new investors' funds to pay off old investors.  He used the balance of investors' funds for impermissible business and lavish personal expenses, such as a private jet; a mansion on a Las Vegas golf course; real estate in Beverly Hills, California wine country, and Hawaii; and luxury cars from Bentley, McLaren, and Bugatti. When the Japanese government revoked MRI's license to market securities in April 2013, MRI owed its investors more than $1.5 billion.
In an Indictment filed in the United States District Court for the District of New Jersey, Faramarz Shahi Savandi and Mohammad Mehdi Shah Mansouri  are charged with one count of conspiracy to commit wire fraud, one count of conspiracy to commit fraud and related activity in connection with computers, two substantive counts of intentional damage to a protected computer and two substantive counts of transmitting a demand in relation to damaging a protected computer. READ the Indictment
As set forth in part in the DOJ Release:

[S]avandi and Mansouri, acting from inside Iran, authored malware, known as "SamSam Ransomware," capable of forcibly encrypting data on the computers of victims.  According to the indictment, beginning in December 2015, Savandi and Mansouri would then allegedly access the computers of victim entities without authorization through security vulnerabilities, and install and execute the SamSam Ransomware on the computers, resulting in the encryption of data on the victims' computers.  These more than 200 victims included hospitals, municipalities, and public institutions, according to the indictment, including the City of Atlanta, Georgia; the City of Newark, New Jersey; the Port of San Diego, California; the Colorado Department of Transportation; the University of Calgary in Calgary, Alberta, Canada; and six health care-related entities: Hollywood Presbyterian Medical Center in Los Angeles, California; Kansas Heart Hospital in Wichita, Kansas; Laboratory Corporation of America Holdings, more commonly known as LabCorp, headquartered in Burlington, North Carolina; MedStar Health, headquartered in Columbia, Maryland; Nebraska Orthopedic Hospital now known as OrthoNebraska Hospital, in Omaha, Nebraska and Allscripts Healthcare Solutions Inc., headquartered in Chicago, Illinois.

According to the indictment, Savandi and Mansouri would then extort victim entities by demanding a ransom paid in the virtual currency Bitcoin in exchange for decryption keys for the encrypted data, collecting ransom payments from victim entities that paid the ransom, and exchanging the Bitcoin proceeds into Iranian rial using Iran-based Bitcoin exchangers.  The indictment alleges that, as a result of their conduct, Savandi and Mansouri have collected over $6 million USD in ransom payments to date, and caused over $30 million USD in losses to victims.
In a Complaint filed in the United States District court for the District of Massachusetts, the SEC charged Morrie Tobin, Milan Patel, Matthew Ledvina, and Daniel Lacher with violating various federal securities laws, including the antifraud provisions of Sections 17(a)(1) and (3) of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934 and Rules 10b-5(a) and (c) thereunder, and the securities registration provisions of Sections 5(a) and (c) of the Securities Act. The Complaint alleges Patel and Ledvina, attorneys at an international tax law firm, and Lacher, hid Tobin's ownership and control over publicly traded Environmental Packaging Technologies Holdings, Inc. and CURE Pharmaceutical Holding Corp.the companies by using offshore entitites to hold his stock and by establishing accounts to sell that stock at Wintercap SA, a Swiss-based company run by U.K. citizen Roger Knox. On October 2, 2018, the SEC filed an emergency action and obtained an asset freeze against Knox and Wintercap, charging them with a scheme that generated more than $165 million of illegal sales of stock in at least 50 microcap companies. The Defendants allegedly paid a stock promoter to tout Environmental Packaging while creating the impression that the recommendation came from a neutral third party; and, the shares purportedly more than doubled, from approximately $1.05 per share to $2.21 per share, during the promotional campaign. The SEC halted trading in Environmental Packaging on June 27, 2017. It is further alleged that the Defendants took steps to obstruct the SEC's investigation and conceal their involvement by arranging to change the names listed on Wintercap account records.. READ the Complaint
This case is scary as hell because there is likely very little in the way of a warning that would alert many victims that they are going to be ripped of by their own lawyer. By way of spoiler alert, former New Jersey lawyer Michael W. Kwasnik pled guilty in the United States District Court for the District of New Jersey to money launderingREAD the Superseding Indictment
As set forth in part in the DOJ Release:

Kwasnik was previously associated with a law firm, Kwasnik, Rodio, Kanowitz and Buckley P.C.  -- and its successor firm, Kwasnik, Kanowitz and Associates P.C. -- with offices in Cherry Hill, New Jersey, and Philadelphia. His father, and co-defendant, William M. Kwasnik, of Marlton, New Jersey, owned and operated an insurance company, Abby Grant, with offices in Cherry Hill and Lakewood, New Jersey.

In April 2011, Michael Kwasnik induced a client to establish an irrevocable family trust to settle his mother's estate, with promises that any money deposited in the trust would not be invested, but rather held for the client's benefit. With the client's consent, Michael Kwasnik established the trust and named himself as the trustee. Based on Michael Kwasnik's promises, the client gave Michael Kwasnik $125,774, which the client received after his mother's death, to deposit in the trust account. Michael Kwasnik deposited the money into the trust account and the next day, transferred $125,000 to Abby Grant's bank account, and then to the Kwasnik, Rodio, Kanowitz and Buckley P.C. bank account, without the client's knowledge or permission. Michael Kwasnik admitted that he did so to conceal and disguise the source of the money and that it was the proceeds of a mail fraud or wire fraud scheme.
The now bankrupt Myrtle Beach Direct Air and Tours' former Vice President Kay Ellison and former Chief Executive Officer Judy Tull were each convicted after a seven-day jury trial in the United States District Court for the District of New Jersey on one count of conspiracy to commit wire fraud affecting financial institutions and to commit bank fraud, four substantive counts of wire fraud affecting financial institutions and three substantive counts of bank fraud. READ the Indictment Ellison was sentenced to 94 months in prison and ordered the defendant to pay $19.6 million in restitution.  Former Chief Financial Officer Robert Keilman pled guilty and he and Tull are awaiting sentencing.  As set forth in part in the DOJ Release:

[F]rom October 2007 through March 2012, Ellison and Tull engaged in a scheme to steal passengers' money for future travel from an escrow account by artificially inflating the amount of money that the defendants claimed they were entitled to receive, and by sending this falsified amount in a letter to the escrow bank telling the escrow bank to release the money.  The evidence further established that to cover up their fraud, the defendants falsified profit and loss statements to make the company look like it was making money rather than losing money, and sent these falsified documents to credit card companies and banks to trick them into continuing to do business with the company.

Testimony at trial established that two financial institutions incurred losses of nearly $30 million for having to refund thousands of passengers their money that should have been held for them in escrow, but was actually stolen by the defendants as part of their fraud.

FINRA filed with the SEC a proposed rule change to amend paragraph (a)(3) of FINRA Rule 4512(a)(3) to permit the use of electronic signatures and to clarify the scope of the rule. FINRA believes that the requirement under Rule 4512(a)(3) that members obtain an associated person's wet signature has become obsolete as a result of technological advances relating to electronic signatures, including with
respect to authentication and security,. Therefore, FINRA is proposing to amend the rule to permit the use of electronic signatures, consistent with the Electronic Signatures in Global and National Commerce Act ("E-Sign Act") and SEA Rule 17a-3(a)(17)(ii),  which does not prescribe the type of
signature that must be obtained from an authorized individual. READ the Proposed Rule Change

Ever wonder what the penalty would be if you cut corners by marking a "solicited" trade as "unsolicited"? For the purpose of proposing a settlement of rule violations alleged by the Financial Industry Regulatory Authority ("FINRA"), without admitting or denying the findings, prior to a regulatory hearing, and without an adjudication of any issue, Alan Tolene submitted a Letter of Acceptance, Waiver and Consent ("AWC"), which FINRA accepted. In the Matter of  Alan Tolene, Respondent (AWC 2016051834101, November 27, 2018).
The AWC asserts that Tolene was first registered in 2010 and by 2013, was registered with FINRA member firm LPL Financial LLC, until his September 27, 2016, discharge for "[v]iolation of Firm policy regarding solicitation of unlisted or low priced securities and failure to timely respond to inquiries from the Firm's compliance department." The AWC asserts in part that between April and November 2015, Tolene misrepresented on order tickets 6 trades in 5 customer accounts as "unsolicited," causing LPL's books and records to be inaccurate. Additionally, the AWC alleges that Tolene misrepresented on a annual compliance certification that he had not solicited customers to purchase low-priced and/or unlisted securities. In accordance with the terms of the AWC, FINRA imposed upon Tolene a $4,000 fine and a 45-calendar-day suspension in all capacities.