Securities Industry Commentator by Bill Singer Esq

March 31, 2020

SEC Awards $450,000 to Whistleblower (SEC Release)

Georgia Man Arrested for Orchestrating Scheme to Defraud Health Care Benefit Programs Related to COVID-19 and Genetic Cancer Testing (DOJ Release)

China's Divorce Spike Is a Warning to Rest of Locked-Down World /  Filings started rising in March as couples emerged from quarantine (Bloomberg by Sheridan Prasso)
Imagine Thanksgiving Day -- but now imagine that day is extended for two months, and they've locked the doors, and no one can leave, and you have that uncle who won't stop talking about when he was a kid, and you have that cousin who insists that Hilary Clinton is a secret Russian Agent and destroyed all her tapes in an effort to overthrow the government and have Joe Biden installed as King, and then there's only one donut left but 12 people are all eyeing it and everyone has a knife in their hand. As reported in part by Sheridan Prasso:

Shanghai divorce lawyer Steve Li at Gentle & Trust Law Firm says his caseload has increased 25% since the city's lockdown eased in mid-March. Infidelity used to be the No. 1 reason clients showed up at his office door, he says, adding that "people have time to have love affairs when they're not at home." Like Christmas in the West, China's multiday Lunar New Year holiday can strain familial bonds. When the virus hit in late January, on the eve of the festivities, couples in many cities had to endure an additional two months trapped under the same roof, sometimes with extended family. For many it was too much. "The more time they spent together, the more they hate each other," Li says of his new cases. "People need space. Not just for couples-this applies to everybody."
The United States District Court for the Southern District of New York entered a final consent judgment against Bryan Cohen in which he was enjoined from violating the antifraud provisions of Section 10(b) and Section 14(e) of the Securities Exchange Act and Rule 10b-5 and Rule 14e-3 thereunder. Additionally Cohen was ordered to disgorge his  ill-gotten gains subject to an offset by the Order of Forfeiture to be imposed in the parallel criminal case. Finally, Cohen consent to an SEC Order barring him from the securities industry and from participating in any offering of a penny stock. In a parallel criminal action, Cohen agreed to plead guilty to one count of conspiring to commit securities fraud. As set forth in part in the SEC Release:

On October 18, 2019, the Commission charged Cohen with securities fraud for his participation in an international insider trading scheme. The complaint alleged that Cohen obtained nonpublic information about potential corporate acquisitions of Syngenta AG and Buffalo Wild Wings, Inc., each of whom had engaged his then-employer to provide related advisory services. According to the complaint, Cohen misappropriated this highly confidential information by tipping a trader based in Switzerland, who further tipped defendant George Nikas. Both the Switzerland-based trader and Nikas traded in the securities of Syngenta, and Nikas also traded in the securities of Buffalo Wild Wings, prior to market-moving public disclosures about the acquisitions of these companies, and as a result generated millions of dollars of illegal profits.
The SEC issued an Order awarding $450,000 to a whistleblower As set forth in pertinent part in the SEC Order [Ed: footnotes omitted]:

[H]ere, the record reflects that Claimant became aware of the potential securities law violations in connection with Claimant's compliance-related responsibilities. However, an exception applies if [a]t least 120 days have elapsed since you provided the information to the relevant entity's audit committee, chief legal officer, chief compliance officer (or their equivalents), or your supervisor, or since you received the information, if you received it under circumstances indicating that the entity's audit committee, chief legal officer, chief compliance officer (or their equivalents), or your supervisor
was already aware of the information.

Here, Claimant first reported certain of the information to the firm's [Redacted], who was also Claimant's supervisor, and then waited more than 120 days to report the same information to the Commission. The rest of the information that led to the successful action that Claimant reported to the Commission would have been known to Claimant's supervisor at the time. Because Claimant satisfies the 120-day exception, the compliance officer exclusion does not apply here to disqualify Claimant's information from treatment as original information. 

Applying the award criteria in Rule 21F-6 of the Securities Exchange Act of 1934 to the specific facts and circumstances here, we find the proposed award amount is appropriate. In reaching that determination, we positively assessed the following facts: (i) although not the source of the investigation, Claimant's information was significant in that it refocused the investigation on the violations that were ultimately charged; (ii) Claimant assisted Commission staff early in the investigation including by meeting with them in-person; (iii) Claimant suffered unique hardships as a result of Claimant's internal reporting, including [Redacted]; and (iv) Claimant participated in Claimant's employer's internal compliance program.
A FINRA Arbitration Panel awarded a public customer $286,000 against the husband and wife registered representatives who had serviced his account; however, the arbitrators did not render an award against the couple's employers. On appeal, the customer argued that under the doctrine of respondeat superior, the misconduct of the the husband and wife should also be attributable to their employers. In contrast, the employer firms argued that they did not, in fact, know that their employees had engaged in misconduct, and that any alleged misconduct had taken place outside the "scope of employment."
In a Complaint filed in the United States District Court for the District of New Jersey, Erik Santos is charged with one count of conspiring to violate the Anti-Kickback Statute and one count of conspiring to commit health care fraud. As set forth in part in the DOJ Release:

As the COVID-19 crisis began to escalate, Santos used the pandemic as an opportunity to expand his pre-existing kickback schemes and to capitalize on a national emergency for his own financial gain. Santos agreed with others to be paid kickbacks on a per-test basis for COVID-19 tests, provided that those tests were bundled with a much more expensive respiratory pathogen panel (RPP) test, which does not identify or treat COVID-19. Santos sought to maximize his kickback profits and to bleed federal health care resources at a time when Medicare beneficiaries across the United States were in dire need of coverage for medical treatment and services.

On March 19, 2020, Santos made the following statements in a telephone call explaining that he viewed the pandemic as a money-making opportunity:
  • "[W]hile there are people going through what they are going through, you can either go bankrupt or you can prosper." 
  • "[T]he good thing is we're opening a lot of doors through this coronavirus testing." 
  • Santos noted that his other work was on hold because "everybody has been chasing the Covid dollar bird."