Securities Industry Commentator by Bill Singer Esq

October 31, 2019

featured in today's Securities Industry Commentator:
Former Wells Fargo banker Benjamin Rafael pled guilty in the United States District Court for the Southern District of Florida to one count of conspiracy to commit wire fraud. Co-Defendant Benjamin McConley previously pled guilty and awaits sentencing; the case against Co-Defendant Jason Van Eman proceeds. As alleged in part in the DOJ Release:

[B]enjamin McConley and Jason Van Eman held themselves out as film producers and financiers.  In those roles, McConley and Van Eman offered to provide financing to investors and producers seeking funds to produce motion pictures, theater performances, and other projects. The indictment charges that McConley and Van Eman promised the victims that, in exchange for the victims' cash contribution, McConley would match the contribution and use the combined funds to secure financing from financial institutions in South Florida and elsewhere. 

According to the indictment, victims sent tens of millions of dollars to accounts controlled by McConley and Van Eman based on these false representation and promises. In truth, McConley never "matched" the victims' contributions as promised in the funding agreements. 

Instead of fulfilling their promises to victims, McConley and Van Eman allegedly stole the victims' money by transferring the funds to their personal and corporate bank accounts, often within days of the victims' contributions or loans.

In furtherance of the scheme, McConley and Van Eman convinced Rafael, a then-Wells Fargo Bank employee, to deceive victims about the security of their funds.   During the course of the scheme, McConley and Van Eman repeatedly directed Rafael to falsely assure victims that their contributions or loans had been "matched" as promised in the funding agreements.

Following Rafael's termination from Wells Fargo Bank in June 2015, Rafael, McConley, and Van Eman repeatedly lied to victims by assuring them that Rafael was still a bank employee. 

During the course of the scheme, Rafael and his co-defendants also created and transmitted via e-mail, and through other means, false and fraudulent bank documents, including purported bank letters, including forged "proof-of-funds" letters, account signature cards, and deposit account balance summaries. 

Federal Jury Convicts Former Video Store Owner of Selling Counterfeit DVDs (DOJ Release)
After a seven-day jury trial in the United States District Court for the District of Maine, Dougls Gordon, the former owner of a chain of Maine-based video rental stores and the operator of three websites, was convicted of mail fraud and two counts of copyright infringement. As alleged in part in the DOJ Release, Gordon made over $640,000 via:

Based on undercover purchases made from the three websites, execution of search warrants and forensic analysis of computers, investigators from U.S. Immigration and Customs Enforcement's Homeland Security Investigations (HSI) identified Gordon as the operator of the online businesses.  A series of customers testified at trial that they expected based on website advertisements to receive authorized DVD movies with cover art and a plastic case, but instead received a paper envelope with nothing more than a burned disc with a laser-etched movie title. Several of Gordon's former video store employees also provided evidence of his unlawful reproduction.

Bill Singer's Comment: Among the many benefits of being a "Securities Industry Commentator" reader is that you are kept informed of such international, high-stakes crimes as that committed by the heinous Douglas Gordon, or whoever he really is and who knows if he's an operative from SPECTRE. Not explained is whether Gordon's burned discs contained the films for which the laser-etched movie title indicated, and whether the quality of said films was professional or, you know, like the films made by Kramer in that wonderful Seinfeld episode.
Arguments about economic inequality are inevitably couched in moral terms. The rich are "greedy," but they object to having their "hard-earned" wealth "stolen" from them and given to the "undeserving." Liberals have no monopoly on this. Last week I passed a pro-Trump demonstrator with a placard "Jail the Banksters." Jailing the banksters requires the very same moral judgment you would hear from a Bernie Bro.

Obama Will Kill the Stock Market. No, Trump Will. No, Warren Will ( by Sarah Ponczek and Vildana Hajric)
I absolutely LOVE this article -- about time someone reminded the so-called pundits how wrong they were!  As noted in the Bloomberg article:

Strategists at RBC Capital Markets LLC said prior to Election Day that a Trump victory would send the S&P 500 down 10 to 12%. Barclays had predicted a drop of as much as 13%. The team at JPMorgan advised investors to sell the rebound that materialized just a few hours after Trump won.

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, Michael G. King, Jr. submitted a Letter of Acceptance, Waiver and Consent ("AWC"), which FINRA accepted. In accordance with the terms of the AWC, FINRA imposed upon Michael G. King, Jr. a $20,000 fine, a 14-month suspension in all capacities, and a requirement to requalify  as a research analyst by passing the Series 86/87 prior to associating with any member firm acting in that capacity. The AWC asserts that KING entered the industry in 1988 and by December 2012, he was associated with JMP Securities LLC as the a Managing Director  in the firm's research department, where he covered about 38 biotech companies. The AWC alleges that in March and April 2018, King co-authored five research reports about Issuer X without disclosing material conflicts in violation of FINRA Rules 2241(c)(4)(I), 2241(e) and 2010. As set forth in part in the AWC:

[B]eginning in late February 2018, King had advanced employment discussions with the Chairman, President and CEO of Issuer X. On March 13, 2018, King sent his curriculum vitae to Issuer X's CEO to obtain final approval by its Board of Directors to hire King. On March 20, 2018, King received an offer letter from Issuer X outlining the terms and conditions of his proposed employment. On April 11, 2018, King formally accepted the employment offer from Issuer X. Between March 16 and April 23, 2018, King coauthored five research reports on Issuer X without disclosing in any of the reports the material conflict of interest arising from his employment discussions with the subject company of those reports. 

On March 16, 2018, the Firm published a research report co-authored by King regarding Issuer X's 2017 fourth quarter earnings results. The report reiterated a market outperform rating (i.e., the expectation that the stock price will outperform relevant market indices over the next twelve months) and an $11.00 price target. King did not inform anyone at the Firm or disclose in his March 16 report that he was in advanced employment discussions with Issuer X. By this point, the discussions had reached a level of seriousness, with mutual expressions of interest and King's candidacy clearly viable, such that he should have known that his employment discussions presented a material conflict of interest that required disclosure. 

During the two weeks after King received the employment offer from Issuer X, the Firm published three more reports co-authored by King regarding developments in Issuer X drugs. The three research reports all reiterated the market outperform rating and $11.00 price target. King did not disclose that he had received an offer of employment from Issuer X in any of the three reports he co-authored on March 21, March 27, and April 2, 2018. 

On April 2, 2018, the same day that the Firm published a research report on Issuer X, King received his "Quarterly Research Analyst Certification." JMP's certification, sent by email, stated that by clicking the link, "[y]ou agree as a research analyst, if you are pursuing employment or have accepted a job with a covered company, FINRA rules require that information concerning such a clear conflict of interest must be disclosed in research reports. Analyst must also disclose this event to Compliance immediately." King completed the certification on April 3, 2018, but failed to disclose to Compliance that he had received an employment offer from Issuer X. The following day, April 4, 2018, King wrote to Issuer X's CEO, "I'd like to figure this out soon because I think I should disclose it to JMP and give notice." 

On April 23, 2018, after King had accepted the position with Issuer X, the Firm published another research report co-authored by King detailing an announcement regarding one of Issuer X's drugs. The report reiterated the market outperform rating and the $11.00 price target. King did not disclose in his April 23 report that he had accepted an employment offer from Issuer X.
Frederick Brown (a former civilian medical records administrator for the U.S. Army at the 65th Medical Brigade, Yongsan Garrison, South Korea) pled guilty in the United States District Court for the Western District of Texas to one count of conspiracy to commit wire fraud and one count of conspiracy to launder monetary instruments. As alleged in part in the DOJ Release:

[B]oling (U.S. citizen), together with his Philippines-based co-defendants Allan Albert Kerr (Australian citizen) and Jongmin Seok (South Korean citizen), specifically used the stolen information to compromise a Department of Defense portal designed to enable military members to access benefits information online. Once through the portal, the defendants are alleged to have accessed benefits information.  Access to these detailed records enabled the defendants to steal or attempt to steal millions of dollars from military members' bank accounts. The defendants also stole veterans' benefits payments. After the defendants had compromised military members' bank accounts and veterans' benefits payments, Boling allegedly worked with co-defendant Trorice Crawford to recruit individuals who would accept the deposit of stolen funds into their bank accounts and then send the funds through international wire remittance services to the defendants and others. Evidence of the defendants' scheme was detected earlier this year, advancing the investigation that led to the indictment.

The Departments of Defense and Veterans Affairs are coordinating with the Department of Justice to notify and provide resources to the thousands of identified victims. Announcements also will follow regarding steps taken to secure military members' information and benefits from theft and fraud.

Boling, Crawford, Kerr and Seok are charged with multiple counts of conspiracy, wire fraud, and aggravated identity theft.  Crawford remains in federal custody pending resolution of this litigation.  Boling, Kerr and Seok are in custody in the Philippines awaiting transfer to the Western District of Texas.
The United States District Court for the Middle District of Florida entered an 
Pursuant to the Orders, Allied Markets will pay about a $1.2 million civil monetary penalty and $1.2 million in restitution to defrauded clients; and the firm, Gilliland, and Wongkhiao are permanently  banned from engaging in any commodity-related activity and violating provisions of the Commodity Exchange Act and CFTC regulations as charged. Gilliland and Wongkhiao are permanently banned from engaging in any commodity-related activity and violating provisions of the CEA and CFTC regulations as charged.  As alleged in part in the CFTC Release:

The orders against Allied Markets, Gilliland, and Wongkhiao stem from a CFTC complaint filed on January 5, 2015, charging the defendants with fraudulent solicitation and misappropriation of commodity pool participant funds. [See CFTC Press Release 7100-15] The orders find that the defendants violated the anti-fraud provisions and registration requirements of the CEA and CFTC regulations in connection with their operation of an illegal commodity pool trading in forex. 

According to the orders, defendants committed numerous misrepresentations and misappropriated their customers' funds, using them to pay lavish personal expenses, including gym memberships and luxury car rentals. 

In a parallel criminal case filed in the same district court, Gilliland and Wongkhiao pleaded guilty to conspiracy to commit wire fraud, based in part on the CFTC's complaint. On February 1, 2016, the court sentenced Wongkhiao and Gilliland to 55 months and 15 months in prison, respectively. In addition, the court entered a money judgment against Wongkhiao and Gilliland in the amount of $1,120,831, which is equivalent to the proceeds of the fraud. [See United States v. Gilliland et al, No. 3:15-cr-00035-MMH-PDB]

United States Reaches Settlement to Recover More Than $700 Million in Assets Allegedly Traceable to Corruption Involving Malaysian Sovereign Wealth Fund (DOJ Release)
DOJ settled its civil forfeiture cases against assets acquired by Low Taek Jho, a/k/a Jho Low, and his family, who allegedly used funds they had misappropriated from 1Malaysia Development Berhad ("1MDB"), Malaysia's investment development fund, and laundered through financial institutions in several jurisdictions. To date, the United States will have recovered or assisted in the recovery of more than $1 billion in assets associated with the 1MDB international money laundering and bribery scheme, which is the largest recovery to date under the Department's Kleptocracy Asset Recovery Initiative and the largest civil forfeiture ever concluded by the Justice Department. READ: the Proposed Consent Judgment; and the Stipulation As alleged in part in the DOJ Release:

[F]rom 2009 through 2015, more than $4.5 billion in funds belonging to 1MDB were allegedly misappropriated by high-level officials of 1MDB and their associates, including Low, through a criminal conspiracy involving international money laundering and bribery.  1MDB was created by the government of Malaysia to promote economic development in Malaysia through global partnerships and foreign direct investment, and its funds were intended to be used for improving the well-being of the Malaysian people. 

Under the terms of the settlement, Low, his family members, and FFP, a Cayman Islands entity serving as the trustees overseeing the assets at issue in these forfeiture actions, agreed to forfeit all assets subject to pending forfeiture complaints in which they have a potential interest.  The trustees are also required to cooperate and assist the Justice Department in the orderly transfer, management and disposition of the relevant assets.  From the assets formerly managed by FFP, the United States will release $15 million to Low's counsel to pay for legal fees and costs. Under the agreement, none of those fees may be returned to Low or his family members.  The assets subject to the settlement agreement include high-end real estate in Beverly Hills, New York and London; a luxury boutique hotel in Beverly Hills; and tens of millions of dollars in business investments that Low allegedly made with funds traceable to misappropriated 1MDB monies.   

Low separately faces charges in the Eastern District of New York for conspiring to launder billions of dollars embezzled from 1MDB and for conspiring to violate the Foreign Corrupt Practices Act (FCPA) by paying bribes to various Malaysian and Emirati officials, and in the District of Columbia for conspiring to make and conceal foreign and conduit campaign contributions during the United States presidential election in 2012.  The charges in the indictments are merely allegations, and defendants are presumed innocent until proven guilty beyond a reasonable doubt in a court of law.  This agreement does not release any entity or individual from filed or potential criminal charges.