Securities Industry Commentator by Bill Singer Esq

June 11, 2019

Famous New York City restaurateur says restaurant industry can't fill jobs (Fox Business News)
In part the article states:

"I've never experienced in my career a tougher time than finding people who want to join the restaurant industry," Danny Meyer, CEO of Union Square Hospitality Group, told FOX Business' Maria Bartiromo, adding that "we're finding them because people want to work but if the line of people used to be 50 people long, now it's shorter."

Bill Singer's Comment: An interesting dilemma! Some will say that the easy solution is for the restaurant industry to alter its dependency upon minimum-wage-plus-tips and pay a competitive, so-called "living wage" salary. Others would argue that if restaurants increase their labor costs that would result in closures and/or layoffs of employees. Another solution would be to increase immigration and allow restaurants to avail themselves of lower-cost labor -- but that would prompt a likely outcry about how the restaurant industry pays below-living-wage salaries to a vulnerable pool of employees, which ultimately forces taxpayers to subsidize the industry via the payment of government subsidies to the working poor. All of which makes you wonder if the restaurant industry remains viable in today's America with historically low unemployment, ever-restricted immigration (both legal and illegal), and indications that traffic is falling off as more folks opt to eat at home. Before you wag a finger at me and criticize my position, please re-read the above and note that I have NOT adopted any position. I have merely set out a number of dueling responses because I find the problem difficult to solve and requiring innovative solutions.
Joseph Falcone, who formerly operated a wine and liquor distribution business known as 3G'S VINO LLC (3G'S), pled guilty to an Information in the United States District Court for the Eastern District of New York fraud for his scheme to solicit investors.  As set forth in part in the DOJ Release:

[I]m December 2012, Falcone established 3G'S, based in Bethpage and Farmingdale, New York, which among other products, distributed a single-serving, wine in a sealed glass that was featured on the television program "Shark Tank."  Between September 2014 and November 2015, Falcone solicited investments and promised potential investors that he would use their money to fund 3G'S, such as by purchasing the single-serving wine product.  Relying on those promises, investors wired funds from bank accounts in New York to bank accounts in Florida controlled by Falcone.  Rather than invest the money as promised, Falcone used about $527,064 of the investors' money to purchase a residence in Florida and to support his online securities trading.
Two public customers complained about the conduct of their stockbroker. He denied the charges. A FINRA Arbitration Panel of three public arbitrators dismissed the claims. Thereafter, two of the arbitrators recommended expungement. The third didn't agree. To her credit, the Dissent sure as hell stood her ground -- although some might argue she was standing on legal quicksand.

Rhode Island-based operation with ties to India shut down by Newport Police
College intern Bishwajeet Kumar Jha, 21, and several other interns from the same college in India who were in the United States on hospitality industry internships defrauded individuals of their retirement savings. The nearly two dozen  victims ranged in age from 58 years-old to 93 years-old and were duped out of between $1,180 dollars and $174,300 dollars -- in total, the conspirators hauled in at least $937,280 over three months.  Over approximately three-months, the conspiracy defrauded individuals of at least $937,280. Jha was sentenced in the United States District Court for the District of Rhode Island to 60 months in prison and ordered to re-pay his victims. As set forth in part in the DOJ Release:

The victims, who believed that they had purchased technology support, were led to believe that money had been erroneously refunded to their bank accounts by the tech support company.  The victims were asked to return the erroneous refund and directed to send the money to the defendant and others. Some of the victims were told to send the money overseas.

The scheme was interrupted by Newport Police on November 20, 2018, when, as part of the investigation, detectives executed a court-authorized search of the residence of Jha and the other members of the conspiracy.

During the court-authorized search, Newport Police seized numerous items related to the operation of the telemarketing scheme. A subsequent investigation by members of the Newport Police Department and HSI agents determined that after the co-conspirators operating in Newport shared some of the proceeds of the scheme, large sums of money garnered from the scheme were transferred to a bank account in California. From there, the majority of funds were transferred internationally to India, China, and Singapore.

Syracuse Man Pleads Guilty to Sophisticated Investment Fraud Schemes / While on Federal Probation, Donald Geiss, Jr. Created False Identities to Defraud Investors (DOJ Release)
Donald M. Geiss, Jr. pled guilty in the United States District Court for the Northern District of New York to four counts of wire fraud and two counts of aggravated identity theft; and pursuant to his plea agreement, he will undertake to pay restitution and over $153,000 in money judgments. At the time of his plea, Geiss was on federal probation related to a prior conviction for which a separate petition charging him with probation violations has been filed by United States Probation and Pretrial Services. As set forth in part in the DOJ Release:

[B]etween approximately August 2016 through August 2017 he defrauded an individual ("Victim 1") out of a total of $141,000 after fraudulently convincing Victim 1 that he (Geiss) was a private equity investor seeking to make investments in Central New York. In doing so, Geiss used the alias, "Dom." In June 2017, Geiss defrauded another individual ("Victim 2") out of approximately $6,500 after fraudulently convincing Victim 2 to enter into a sales contract for heavy equipment belonging to Victim 1's company that Geiss purported to have the authority to sell (without Victim 1's knowledge). In August and September 2017, Geiss defrauded a third individual (Victim 3) out of $3,000 by convincing Victim 3 that he (Geiss) was in the final stages of negotiating the sale of a computer algorithm to a well-known multinational finance and insurance corporation in New York (the "Insurance Company"). As part of this fraud on Victim 3, Geiss forged e-mail messages and text messages from individuals (Victims 4 and 5) who actually worked for the Insurance Company but who had no knowledge of Geiss or his actions. These forged electronic communications formed the basis of the aggravated identity theft charges. Based on Geiss's assurances, including the forged electronic communications purportedly from Victims 4 and 5, Victim 3 sent $3,000 by wire to Victim 2 and $5,000 by wire to Victim 1, believing that paying them would facilitate the supposed transaction with the Insurance Company. In reality, Geiss had no pending deal with the Insurance Company and had Victim 3 make the payments in an attempt to keep Victim 1 and Victim 2 from realizing they had been defrauded.

Separate and apart from the schemes described above, Geiss also pled guilty today to defrauding people he met through the internet. As part of this guilty plea, Geiss admitted that he used the online alias, "Dominic LaRossa," to convince people that he was an airline pilot. Geiss, acting as the supposed "LaRossa," collected more than $5,000 from victims he met online in exchange for fake and fraudulent "discount" airline tickets, which did not exist. Geiss also defrauded several victims out of money in relation to an online video game platform, including convincing one individual (Victim 6) to purchase several online video game profiles from other people. Relying on Geiss's fraudulent assertions, Victim 6 paid a total of approximately $13,300 to purchase online video game profiles created by others, and Geiss never reimbursed, and never intended to reimburse, Victim 6.
The SEC updated its Public Alert: Unregistered Soliciting Entities ("PAUSE") list of unregistered entities that use misleading information to solicit primarily non-U.S. investors, adding 11 soliciting entities, four impersonators of genuine firms, and nine bogus regulators.
Connecticut Broker and Investment Adviser Convicted On 21 Counts of Fraud and Money Laundering (SEC Release)
A jury in the United States District Court for the District of Connecticuit found Leon Vaccarelli  guilty on 21 counts of fraud and money laundering charges. In a parallel matter, the SEC filed a Complaint
against Vaccarelli (d/b/a LUX Financial Services) and his company, LWLVACC, LLC in which the federal regulatory alleged that Vaccarelli defrauded at least nine investors, several of whom were elderly, of over $1,000,000. Instead of investing the customers' funds in investment accounts and other investment opportunities as promised, Vaccarelli allegeldy used the funds for his own living and business expenses and a la a Ponzi scheme wheregy earlier investors were paid. Allegedly, Vaccarelli asked one customer to sign an agreement that she would not provide certain information to FINRA or the SEC. The SEC obtained a temporary restraining order stopping the ongoing fraud and an asset freeze against Vaccarelli and LWLVACC, LLC.

SEC Seeks Emergency Relief to Halt Ponzi Scheme Run from College Fraternity House (SEC Release)
In a Complaint filed in the United States District Court for the Middle District of Georgia, the SEC charged Syed Arham Arbab, Artis Proficio Capital Investments LLC, and Artis Proficio Capital Management LLC, with violating Section 17(a) of the Securities Act,  Section 10(b) of the Securities Exchange Act and Rule 10b-5 thereunder, and Sections 206(1), (2) and (4) of the Investment Advisers Act of 1940, and Rule 206(4)-8 thereunder. The SEC seeks an order freezing certain assets of Arbab and his entities, as well as a temporary restraining order, preliminary and permanent injunctive relief, return of allegedly ill-gotten gains with prejudgment interest, and civil penalties. As set forth in part in the SEC Release:

[S]yed Arham Arbab, 22, conducted the fraud from a fraternity house near the University of Georgia campus in Athens, Georgia. Arbab allegedly offered investments in a purported hedge fund called "Artis Proficio Capital," which he claimed had generated returns of as much as 56% in the prior year and for which investor funds were guaranteed up to $15,000. Arbab also allegedly sold "bond agreements" which promised investors the return of their money along with a fixed rate of return. The SEC's complaint alleges that at least eight college students, recent graduates, or their family members invested more than $269,000 in these investments.

According to the SEC's complaint, no hedge fund existed, Arbab's claimed performance returns were fictitious, and he never invested the funds as represented. Instead, as money was raised, Arbab allegedly placed substantial portions of investor funds in his personal bank and brokerage accounts, which he used for his own benefit, including trips to Las Vegas, shopping, travel, and entertainment. Arbab also allegedly used portions of new investor money to pay earlier investors who had asked for their money back, the hallmark of a Ponzi scheme. Arbab even instructed some new investors to send their money - unwittingly - to existing investors through payment applications such as Venmo, Zelle, and Cash App, and misleadingly told them that the existing investors were either a "partner" or "manager" in the fund.

Former Investment Bank Employee Sentenced For Insider Trading Scheme (DOJ Release)
Former investment bank vice president Woojae Jung a/k/a "Steve Jung" was sentenced in the United States District Court for the Southern District of New York to three months in prison plus two years of supervised release for insider trading involving at least 10 companies; and, he was further ordered to pay a $30,000 fine and forfeit $130,000. As set forth in part in the DOJ Release, Jung: 

[I]n his role as a vice president at the Investment Bank, JUNG had access to, among other materials, electronic files maintained on the Investment Bank's computer server, including files containing material nonpublic information ("MNPI") relating to various clients.

JUNG used his position at the Investment Bank to obtain MNPI about a number of the Investment Bank's clients and then, in multiple instances, JUNG used that MNPI to execute profitable securities trades.  In an effort to conceal this illicit trading, JUNG conducted these illegal trades through a brokerage account held in the name of another person (the "Brokerage Account").  In contravention of his employer's rules about outside investment accounts, including that such accounts be disclosed to the Investment Bank, JUNG secretly accessed, used, and traded in the Brokerage Account repeatedly between in or about 2015 and in or about 2017, including on hundreds of occasions when the account was accessed through IP addresses subscribed in JUNG's name.
Following a one-week trial, a jury in the United States District Court for the Southern District of New York convicted James Moore of one count of wire fraud and one count of wire fraud conspiracy to commit wire fraud for engaging in a scheme to defraud investors by making material misrepresentations about the management and operations of a company called Bar Works Inc. and related entities ("Bar Works").  In connection with the same scheme, a  Superseding Indictment charged Savraj Gata-Aura with one count of wire fraud and one count of wire fraud conspiracy.  Also, Renwick Haddow pled guilty to one count each of wire fraud and wire fraud conspiracy relating to the Bar Works scheme, and one count each of wire fraud and wire fraud conspiracy relating to a separate Bitcoin Store scheme.  Further, Gata-Aura also allegedly partnered with Haddow in soliciting investments into workspace leases through material misrepresentations similar to Moore's by affirmatively misrepresenting that "Jonathan Black" ran the company. As set forth in part in the DOJ Release:

From 2015 to 2016, MOORE and others partnered with Renwick Haddow, who is also a British citizen, in soliciting investments into workspace leases in a co-working business called Bar Works through material misrepresentations concerning, among other things, the identity of Bar Works' management.  Previously, Haddow had been disqualified as a director of any United Kingdom company for eight years, and was sued by the Financial Conduct Authority, a British regulator, for operating investment schemes that lost investors substantially all of their money.  These sanctions and lawsuit were publicized extensively online.

In order to conceal his role at Bar Works because of the negative publicity on the internet related to past investment schemes and government sanctions in the U.K., Haddow adopted the alias "Jonathan Black."  Notwithstanding Haddow's control over Bar Works, MOORE and others knowingly distributed the Bar Works offering materials listing Black as the Chief Executive Officer of Bar Works and claiming that Black had an extensive background in finance and past success with start-up companies.  As MOORE well knew, "Jonathan Black," was an entirely fictitious person, created to mask Haddow's control of Bar Works.  Among other things, MOORE helped devise pitch materials that contained the misrepresentation, coordinated a substantial sales force to recruit investors knowing that the materials contained the falsehood, advised Haddow as to how to continue to conceal the truth concerning the identity of "Jonathan Black," and affirmatively represented to agents for investors that he was communicating with CEO "Jonathan Black."  MOORE also received in excess of $1.6 million in commissions for his participation in the scheme.

Last month, U.S. Attorney Berman announced the unsealing of a guilty plea, on May 8, 2019, by Haddow in which he admitted to his own involvement in the fraudulent scheme related to Bar Works, as well as to making material misrepresentations and misappropriating investment funds in another company created by Haddow called Bitcoin Store Inc. ("Bitcoin Store"), and agreed to cooperate with the Government. . . 

FINRA Fines Firm for Undisclosed Job Offer by Issuer. In the Matter of Robert W. Baird & Co. Incorporated, Respondent (FINRA AWC 2017052842901)
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, Robert W. Baird & Co. Incorporated submitted a Letter of Acceptance, Waiver and Consent ("AWC"), which FINRA accepted. In accordance with the terms of the AWC, FINRA imposed upon Robert W. Baird & Co. Incorporated a Censure, $150,000 fine failing to disclose an actual, material conflict of interest in seven research reports, in violation of NASD Rule 2711(h)(1)(C); which further caused the seven research reports to be misleading, in violation of NASD Rule 2711(h)(9); and, additionally violated FINRA Rule 2010. As set forth in part in the AWC:

In 2013, RA was a senior equity research analyst at Baird who covered around two dozen companies, including Issuer A. In early April 2013, Issuer A's Chief Executive Officer ("CEO") asked RA if he would be interested in visiting Issuer A's headquarters to discuss potential employment at Issuer A. Shortly thereafter, RA travelled to Issuer A's headquarters and discussed potential employment with Issuer A's CEO and Chief Financial Officer. Following those discussions, the CEO and RA expressed a mutual interest in continuing discussions and agreed that the CEO would speak with Baird senior management before they engaged in any further employment discussions. 

Pursuant to the agreement between Issuer A and RA described above, Issuer A's CEO called Baird senior management in late April 2013 to inform the Firm that he had met with RA to discuss potential employment and that Issuer A intended to engage in further employment discussions with RA. Issuer A's CEO also sought assurance that Baird did not object to Issuer A hiring RA and an assessment of RA as a candidate for a position at Issuer A. Through that call, the Firm was made aware that the employment discussions involved a high level of seriousness, RA's candidacy for employment at Issuer A was clearly viable, and Issuer A and RA had expressed mutual interest and taken concrete steps in furtherance of their employment discussions. Accordingly, the employment discussions constituted an actual, material conflict of interest for RA. 

RA also spoke to Baird senior management about his intent to continue employment discussions with Issuer A. During that discussion, RA was advised that he could continue writing research about Issuer A, but that he should avoid coming into contact with material nonpublic information about Issuer A during the employment discussions. A few days later, RA was told that this advice had been confirmed by the Firm's compliance department. RA's employment discussions with Issuer A continued through early July 2013. In early July 2013, after multiple rounds of negotiations, RA declined a written employment offer from Issuer A. Between late April 2013, when Issuer A's CEO called Baird senior management, and early July 2013, when RA declined the employment offer, RA authored and Baird published seven research reports on Issuer A without disclosing that RA was engaged in the employment discussions with Issuer A described above. 

FINRA Fines Firm for Inaccurate Valuations in Consolidated Reports. In the Matter of U.S. Boston Capital Corporation, Respondent (FINRA AWC 2017054478001)
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, U.S. Boston Capital Corporation submitted a Letter of Acceptance, Waiver and Consent ("AWC"), which FINRA accepted. In accordance with the terms of the AWC, FINRA imposed upon U.S. Boston Capital Corporation a Censure, $125,000 fine, and an obligation to provide a certification that the firm has reviewed/revised its systems, policies, and procedures as needed. As set forth in part in the "Overview" section of the AWC:

From at least January 2015 through December 2017 (the "Relevant Period"), the
Firm failed to establish and maintain a supervisory system, and failed to establish,
maintain, and enforce written supervisory procedures ("WSPs"), reasonably
designed to achieve compliance with applicable securities laws, regulations, and
FINRA rules regarding registered representatives' creation and use of
consolidated reports. In addition, the Firm sent numerous consolidated reports 
with inaccurate investment valuations to customers during the Relevant Period.

In the Matter of the Application of Metatron Inc. For Review of Action Taken by FINRA (SEC Order Requesting Additional Briefing; '34 Act Rel. No. 86069; Admin. Proc. File No. 3-18567)
As set forth in the Syllabus to the SEC Order [Ed: footnotes omitted]:

Metatron, Inc. appeals from FINRA's denial of its request that FINRA process and announce a reverse stock split on FINRA's website.  FINRA found that Metatron's request was "deficient" under FINRA Rule 6490(d)(3)(2) because, in FINRA's view, Metatron was "not current in its reporting requirements, if applicable, to the [Commission]." To this point, the parties' briefs have focused on whether Metatron had, at the time of FINRA's action, reporting requirements as a result of filing a Form 10-SB in 2002 to register a class of its common stock notwithstanding its subsequent filing of a Form 15 to terminate that registration. However, it appears that Metatron may have had reporting requirements as a result of filing a Form S-8 registration statement in 2004 to register 3,000,000 shares of its common stock. We therefore request that the parties provide additional briefing to address this latter issue.