Securities Industry Commentator by Bill Singer Esq

SEC Proposes to Update Accredited Investor Definition to Increase Access to Investments (SEC Release)

MetLife to Pay $10 Million for Longstanding Internal Control Failures (SEC Release)

Five Defendants Arrested And Indicted For India-Based Telemarketing And Email Marketing Scheme Victimizing Seniors Throughout The United States / The Defendants Allegedly Obtained Over $2.4 Million from Victims (DOJ Release)

Federal Grand Jury in Austin Indicts Nigerian Citizen for Victimizing Previous Fraud Victims / Defendant Fraudulently Claimed to be a Representative of the Texas State Securities Board (DOJ Release)

Issuer Settles Unregistered ICO Charges, Agrees to Return Funds and Register Tokens (SEC Release)

[In]Securities Guest Blog: Not Dead Again Today? by Aegis Frumento Esq (BrokeAndBroker.com Blog)

Inland Empire Man Indicted on Bank Fraud Charges Alleging He Orchestrated $2.4 Million "Bust-Out" Scheme (DOJ Release)

SEC Charges Scheme Victimizing New Jersey Jewish Community (SEC Release)

SEC Charges CFO for Role in $910 Million Ponzi Scheme (SEC Release)

SEC Charges Broker-Dealers With Illicitly Profiting in Partial Tender Offer (SEC Release)

DECEMBER 18, 2019, SEC OPEN MEETING STATEMENTS BY CHAIR AND COMMISSIONERS

The Securities and Exchange Commission today proposed amendments to the definition of "accredited investor" in the Commission's rules and the definition of "qualified institutional buyer" in Rule 144A under the Securities Act of 1933. The proposed amendments to the accredited investor definition would add new categories of qualifying natural persons and entities and make certain other modifications to the existing definition. The proposed amendments to the qualified institutional buyer definition would expand the list of eligible entities under that definition.

The proposed amendments to the accredited investor definition would add new categories of natural persons based on professional knowledge, experience, or certifications.  The proposed amendments would also add new categories of entities, including a "catch-all" category for any entity owning in excess of $5 million in investments. In particular, the proposed amendments to the accredited investor definition would:

The proposed amendments to the qualified institutional buyer definition in Rule 144A would add limited liability companies and RBICs to the types of entities that are eligible for qualified institutional buyer status if they meet the $100 million in securities owned and investment threshold in the definition.  The proposed amendments would also add a "catch-all" category that would permit institutional accredited investors under Rule 501(a), of an entity type not already included in the qualified institutional buyer definition, to qualify as qualified institutional buyers when they satisfy the $100 million threshold.

[M]etLife improperly released reserves for annuity benefits associated with MetLife's Retirement and Income Solutions Business, which resulted in an increase in income.  For over 25 years, MetLife's practice was to presume annuitants had died or otherwise would never be found if they did not respond to only two mailing attempts made approximately five and half years apart.  MetLife later determined that its processes for locating and contacting unresponsive annuitants were insufficient to justify the release of reserves.  To correct this error, MetLife increased reserves by $510 million as of year-end 2017.

The SEC's order also finds that MetLife overstated reserves and understated income relating to variable annuity guarantees assumed by a MetLife subsidiary.  MetLife disclosed that this error was caused by data mistakes, including a failure to properly incorporate policyholder withdrawals into MetLife's valuation model.  To correct this error, MetLife reduced reserves by $896 million as of year-end 2017. 

[F]rom about June 2015 through about April 2017, Marcks, Boonlert, Hill, Maryniak, Bond, and others conspired to commit a telemarketing and email marketing scheme that targeted seniors. Callers located primarily in India allegedly contacted victims in the United States and falsely represented that the callers were agents or employees of the IRS, state or local government agencies, law firms, or loan companies. The callers falsely represented that the victims had outstanding taxes due, open collection accounts, or other financial, civil, or criminal liabilities requiring immediate action. The callers threatened the victims with arrest, lawsuits, or other adverse action if the victims did not immediately send money, including via wire transfers. In other instances, the callers falsely stated that the victim had qualified for a loan, which would be disbursed once the victim sent initial payment via wire transfer or gift card.

The indictment further alleges that victims were also contacted via email. The emails falsely purported to be from law firms, lawyers, judges, and public officials, and claimed that the victims had outstanding taxes, personal debts, or other financial or legal obligations. The emails threatened imminent adverse action, such as arrest. Once a victim responded telephonically, the callers demanded that payments be sent to the defendants via wire transfer.

The defendants are alleged to have fraudulently obtained approximately $2,455,547 in payments from victims residing throughout the United States.

The Texas State Securities Board (TSSB) is a state agency whose mission is to protect Texas investors, including by regulating securities and enforcing the Texas Securities Act.  In early 2018, an England-based cryptocurrency exchange called BitConnect shut down following a cease and desist order from the TSSB.  According to the indictment, from November 2018 through April 2019, fictitious websites similar to that of TSSB including "ssb-texas.us" and "ssb-tesax.us" were created to falsely claim that TSSB controlled BitConnect and that TSSB was going to return a portion of the losses incurred by BitConnect victims and encouraged them to sign up.  Onyeukwu, subsequently, sent emails to Texas residents falsely presenting himself as a TSSB representative who could provide clients with refunds of 35% of money invested in BitConnect in exchange for a $300 "consent fee."  Onyeukwu led investors to believe that their $300 fee was going to TSSB, but in reality, Onyeukwu was pocketing the cash.

[B]COT conducted the ICO starting in December 2017 after the Commission had warned in its DAO Report of Investigation that ICOs can be securities offerings.  BCOT raised nearly $13 million to develop and implement its business plans, including developing its blockchain-based technology and platform.  As noted in the SEC's order, BCOT explained that its platform was intended to allow third-party developers to build applications for message transmission and logging, digital asset generation, and digital asset transfer.  The SEC's order found that BCOT sold its digital tokens to U.S. investors and engaged four "resellers" to serve as the exclusive sellers of BCOT's digital tokens in certain foreign countries without restrictions on resale of those tokens to U.S. investors.  The order further found that BCOT did not register its ICO pursuant to the federal securities laws, nor did it qualify for an exemption from the registration requirements.

[R]obert A. Karmann, the CFO for one of the two companies, was an integral participant in a massive Ponzi scheme that raised approximately $910 million from 17 investors between 2011 and 2018. Investors allegedly were induced by others involved in the scheme to invest in tax credit investment contracts and sale leaseback investments through promises of gains in the form of tax credits, guaranteed lease payments, and profits from the operation of mobile service generators. In reality, the complaint alleges, thousands of the purportedly profitable generators were never even manufactured, let alone put into use, and the vast majority of revenue to investors came from Ponzi-like payments, where funds from new investors were used to pay off old investors, not from actual lease payments.

The SEC's complaint alleges that, beginning in late 2014, Karmann advanced the scheme by transferring or coordinating the transfer of funds among the bank accounts of the two California-based companies to hide the lack of legitimate lease revenue. He also provided brokers, investors and prospective investors reports and financial statements that he knew contained false information.

[A]s part of a 2016 partial tender offer for the common stock of Lockheed Martin Corp., Bluefin and Critical each independently tendered more Lockheed shares than their net long positions in that security in violation of the short tender rule.  Because partial tender offers are for less than all of the outstanding shares of a security, if the tender offer is oversubscribed, the company accepts shares pro rata.  Here, Lockheed's partial tender offer was oversubscribed, and the orders finds that, by tendering excess shares, Bluefin and Critical caused Lockheed to accept more shares from them and fewer shares from other participants.  The orders further find that Bluefin's excess tender produced $223,836 in unlawful profits, while Critical's produced $149,224.  

DECEMBER 18, 2019, SEC OPEN MEETING
STATEMENTS BY CHAIR AND COMMISSIONERS 

• Securities Industry Commentator
• Bill Singer