Securities Industry Commentator by Bill Singer Esq

May 13, 2019

In the Matter of the Application of Long Term Stock Exchange, Inc.for Registration as a National Securities Exchange (Findings, Opinion, and Order of the SEC; Rel. No. 34-85828; File No. 10-234 / May 10, 2019)
In response to the Form 1 application of the Long-Term Stock Exchange, Inc. seeking registration as a national securities exchange, the SEC has granted the application.
It's a rare thing when our publisher Bill Singer, Esq. is left speechless. Mark your calendar. Today, Bill is left in a state of stunned silence by a phenomenal FINRA Arbitration Decision, which found that a former JP Morgan representative had been defamed by her former employer. This is what mandatory FINRA intra-industry arbitration should look like. This is the appropriate extent of content and context that should be found in a Decision adjudicating such a complex and nuanced dispute.
In an Indictment filed in the United States District Court for the Southern District of Florida, T. Jonathan Turner, a/k/a "Jon Barri Brothers," Norman M. Strell, and Scott P. Strochak,were charged with conspiracy to commit wire fraud and 15 substantive wire fraud counts. The Indictment asserts taht 15 victims lost over $3.6 million. A parallel civil enforcement action against Turner related to this scheme was filed byt the SEC. As set forth in part in the DOJ Release:

[T]urner was the Vice Chairman, President and Chief Operations Officer of Castleberry Financial Services Group.   Castleberry falsely promoted itself to investors as "a leading Alternative Investments Manager" with a history of "deploying almost $800 million in capital across the balance sheets of leading local businesses."  In addition, contrary to its representation that it managed separate funds, Castleberry pooled investor funds in one bank account that was controlled by Turner and co-conspirator Strell.  Turner, Strell and Strochak promoted the sale of Castleberry's securities through materials and solicitations that falsely represented that the company's investor proceeds were fully bonded and insured and would be invested in real estate and distressed businesses to generate profits from which investor returns would be paid.  In addition, they lured individuals to invest money in Castleberry's securities offerings by falsely touting Turner's prior financial industry experience and educational achievements, while failing to disclose his prior felony convictions for fraud related offenses.  In fact, Castleberry did not make any significant income generating investments.  Instead, Turner and his co-conspirators misused and misappropriated investor funds to pay for their own personal expenses, transfer money into their own bank accounts, accounts of entities they controlled and those of family members.

Florida Man Pleads Guilty To Securities Fraud (DOJ Release)
Brian Roberson pled guilty in the United States District Court for the Southern District of New York to one count of securities fraud. As set forth in part in the DOJ Release:

Starting in late 2010, ROBERSON, an investor (the "Investor"), and another partner (the "Partner") met in New York, New York, and agreed to jointly develop and implement a high-frequency trading algorithm.  Among other things, ROBERSON falsely represented to the Investor and Partner that he was able to secure favorable terms at a securities clearing firm (the "Clearing Firm") because he and his company, Savant Capital Management LLC ("Savant"), already held significant funds in an account there.  ROBERSON suggested that the Investor wire funds to Savant, which would be placed into an account at the Clearing Firm and could thereafter be used for trading based on the algorithm. 

In January 2011, at the direction of ROBERSON, and in reliance upon ROBERSON's representations, the Investor wired more than $250,000 to an account controlled by ROBERSON.  Unbeknownst to the Investor, ROBERSON transferred only approximately $233,000 of the Investor's funds to the Clearing Firm.  The remaining funds were withdrawn in cash or transferred to other bank accounts controlled by ROBERSON and misappropriated for his personal benefit.

By April 2011, ROBERSON ceased making payments to the vendor responsible for development of the trading algorithm, and the Investor contacted ROBERSON and requested the return of his remaining investment funds, which the Investor understood, based on ROBERSON's previous representations, were intact.  ROBERSON returned a portion of the Investor's funds, totaling approximately $50,000.  Unbeknownst to the Investor, however, ROBERSON misappropriated the remainder of the Investor's funds to cover trading losses and fees in ROBERSON's accounts at the Clearing Firm, and by transferring a portion of the Investor's funds to bank accounts belonging to ROBERSON and his family members up through and including in October 2011, when ROBERSON's account at the Clearing Firm was closed.  ROBERSON ultimately used the Investor's funds for his and his family's personal benefit, including the purchase of expensive jewelry.
Former South Florida attorney  Mark E. Fisher pled guilty to one count of conspiracy to commit securities fraud in the United States District Court for the Southern District of Florida to 28 months in prison plus three years of supervised release, and ordered to forfeit $8.4 million. in relation to a pump and dump securities fraud scheme involving the shares of Valentine Beauty, Inc. ("VLBI").  three years of supervised release.  Fisher also was ordered to forfeit $8.4 million.  Also, co-defendant Joseph F. Capuozzo pled guilty to the same offense and was sentenced to 5 years' probation. Previously, Eddy Ubaldo Marin and Shane R. Spierdowis were charged with securities fraud offenses in connection with the same VLBI scheme.  Marin pled guilty and was sentenced to 210 months in prison; and Spierdowis pled guilty and was sentenced to 5 years' probation. Marin remains a fugitive. The SEC had filed parallel civil enforcement actions against Fisher, Capuozzo, Marin and Spierdowis. As set forth in part in the DOJ Relase:

[V]LBI was a beauty products supply company with operations in Sunrise, Florida, that marketed its products on television infomercials and elsewhere.  Shares of VLBI stock were publicly traded and quoted over the counter on OTC Link.  In approximately November 2013, Marin and other accomplices arranged to secretly obtain a controlling interest in VLBI stock by issuing shares to certain third parties, including Green Tree Capital, Inc., a company controlled by Marin and Capuozzo, based in Ft. Lauderdale, Florida. 

Fisher, formerly a practicing lawyer licensed to practice in Florida and New York, was a securities lawyer based in Boca Raton who allegedly became involved with the manipulation of VLBI shares at the invitation of Marin.  Fisher allegedly executed various false and fraudulent documents to facilitate the scheme, including certain legal opinion letters that falsely indicated that shares controlled by Marin and other conspirators, were not in fact owned or controlled by "affiliates" of the companies.  Such letters allowed shares of VLBI to be falsely classified as "free trading" and thus sold to the public, when in reality they were restricted.  In March and April, 2014, Marin, Fisher, Capuozzo, Spierdowis, and other conspirators arranged to transfer a substantial number of shares into brokerage accounts in the name of fictitious entities, but in reality controlled by the conspirators.  In addition, according to court documents, Fisher, Capuozzo and other conspirators knew that Marin was a convicted felon and attempted to conceal his role in the scheme by keeping his name off of corporate documents.   To facilitate the concealment of Marin's role, Capuozzo became the listed owner of an entity that held Marin's VLBI shares and traded the shares at the direction of Marin.  Capuozzo also served as the nominee Chief Executive Officer of VLBI, while acting at the direction of Marin and the conspirators.

Thereafter, beginning in approximately May 2014 and continuing through in or around September 2014, Marin, Fisher, Capuozzo, Spierdowis, and others arranged for VLBI to issue rosy press releases, while also using internet marketing and penny stock newsletters to tout VLBI stock.  These efforts were intended to artificially increase the trading volume and price of VLBI shares, so that Marin, Fisher, Capuozzo, Spierdowis and their co-conspirators could secretly sell shares at a profit.   During the conspiracy period, the conspirators sold approximately $1 million worth of VLBI shares to the investing public.

In approximately June 2014, Marin began a term of federal imprisonment due to a different federal offense, and was ultimately incarcerated at FCI Miami.  While Marin was at FCI Miami, Fisher, Capuozzo, Spierdowis, and others continued the stock manipulation scheme, while keeping a larger portion of the trading profits for themselves.  The conspirators continued to sell shares of VLBI, while continuing the same pattern of issuing press releases and engaging in coordinated sales of shares, until approximately April 26, 2016, when trading in VLBI shares was suspended by the U.S. Securities and Exchange Commission (SEC).

In the Matter of Laurie Bebo and John Buono, CPA (SEC Order, Admin. Proc. Rul. Rel. No. 6571; Admin. Proc. File No. 3-16293 / May 10, 2019)
On October 2, 2015, the SEC issued an Initial Decision in this matter imposing sanctions on Respondent Bebo, and she filed a Petition for Review, which SEC ALJ Carol Fox Foelak denied. As set forth in part in the SEC Order [Ed: footnotes omitted]:

Bebo argues that Section 929P(a) is facially unconstitutional as violating respondents' rights to equal protection and due process as it deprives them of the right to a jury trial3 and other substantive and procedural protections afforded by the Federal Rules of Civil Procedure and Federal Rules of Evidence. In the alternative, she challenges it as applied to her in this proceeding. Bebo maintains that in her case the Commission presumably concluded that it would be advantageous to deprive her of these things, while in other cases the Commission will decide to bring cases against non-registrants in federal court, having concluded that the defendant will be unsympathetic to a jury or that the Commission would be advantaged by the federal rules. Bebo also argues that the proceeding is unconstitutional in that the statutory tenure protection for ALJs violates Article II of the Constitution and, also, that, post-Lucia, the Commission was required to initiate a new proceeding, which would be time-barred by the applicable statute of limitations. 
. . .
Insofar as Bebo argues that a respondent is disadvantaged because the Commission does not use the federal rules in its administrative proceedings, "[c]ourts have consistently held that agencies need not observe all the rules and formalities applicable to courtroom proceedings, and that agencies should be free to fashion their own rules of procedure." Id. at 13 (internal quotation marks omitted); see also Opp Cotton Mills, Inc. v. Adm'r of Wage & Hour Div. of Dep't of Labor, 312 U.S. 126, 155 (1941) ("[I]t has long been settled that the technical rules for the exclusion of evidence applicable in jury trials do not apply to proceedings before federal administrative agencies in the absence of a statutory requirement that such rules are to be observed."). . . .

Proposed Rule Amendments and Guidance Addressing Cross-Border Application of Certain Security-Based Swap Requirements (SEC Rel. No. 34-85823; File No. S7-07-19; RIN 3235-AM13)
As set forth in the "Summary" to the SEC Rule Proposal:

The Securities and Exchange Commission ("SEC" or "Commission") is proposing a number of actions to address the cross-border application of certain security-based swap requirements under the Securities Exchange Act of 1934 ("Exchange Act") that were added by Title VII of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the "DoddFrank Act"). First, the Commission is proposing supplemental guidance to address how certain requirements under Title VII - related to security-based swap transactions that have been "arranged" or "negotiated" by personnel located in the United States - apply to transactions involving limited activities by those U.S. personnel. Separately, the Commission is requesting comment on two alternative proposals to amend Rule 3a71-3 under the Exchange Act to modify a provision addressing the cross-border application of the "security-based swap dealer" de minimis exception. Both of the alternative proposals for the amendment would add an exception to the rule's existing requirement that, for purposes of determining whether an entity must register as a security-based swap dealer, non-U.S. persons must count, as part of their de minimis calculations, security-based swap dealing transactions that have been "arranged, negotiated, or executed" by personnel located in a U.S. branch or office. The Commission also is proposing corresponding technical revisions to Exchange Act Rule 0-13 in conjunction with the proposed amendment. The Commission further is requesting comment on whether to provide other conditional exceptions for certain other requirements that apply to such "arranged, negotiated, or executed" transactions, including regulatory reporting and public dissemination requirements and security-based swap dealer business conduct requirements. Separately, the Commission is proposing to provide guidance regarding the certification and opinion of counsel requirements in Exchange Act Rule 15Fb2-4. The Commission is proposing to amend Exchange Act Rule 15Fb2-1 to provide additional time for a security-based swap dealer or major security-based swap participant (collectively defined as "SBS Entity") to submit the certification and opinion of counsel required under Rule 15Fb2-4(c)(1). In addition, the Commission is proposing to amend Rule of Practice 194 to exclude an SBS Entity, subject to certain limitations, from the prohibition in Exchange Act Section 15F(b)(6) with respect to an associated person who is a natural person who (i) is not a U.S. person and (ii) does not effect and is not involved in effecting security-based swap transactions with or for counterparties that are U.S. persons, other than a security-based swap transaction conducted through a foreign branch of a counterparty that is a U.S. person. Finally, the Commission is proposing certain modifications to proposed Exchange Act Rule 18a-5 to address the questionnaire or application for employment that an SBS Entity is required to make and keep current with respect to certain foreign associated persons.

"Reasonableness Pants" (Speech by SEC Commissioner Hester M. Peirce, Rutgers Law School)
SEC Commissioner Peirce responds to an anonymous source's comments about earnings releases and quarterly reports:

I would also like to thank Hester Peirce for her hard work towards dismantling the SEC. . . . Peirce is doing a splendid job of neutering @SEC-Enforcement as much as possible, and turning the SEC into the perfect tool for businesses to "hunt for profits" in pretty much any way that they see fit-especially those selling dreams that will come true in 3 months maybe, 6 months definitely. . . .

In response to the above-comment, Peirce launches into a wide ranging discussion, which, in part, launches from her observation that:

[I]n other words, the SEC ought to take care in how it exercises its authority. The goal should not be for us to stretch our authority to its limits and beyond but instead to act carefully and cautiously. An example that I am watching now is how the SEC reacts to the recent decision by the U.S. Supreme Court, Lorenzo v. Securities and Exchange Commission. . .