Securities Industry Commentator by Bill Singer Esq

September 30, 2020


J.P. Morgan Securities Admits to Manipulative Trading in U.S. Treasuries (SEC Release)

CFTC Orders JPMorgan to Pay Record $920 Million for Spoofing and Manipulation (CFTC Release)

Joint Statement of Concurrence of Commissioners Dawn D. Stump and Rostin Behnam Regarding JPMorgan Chase & Co., et al. (CFTC Statement)

Supporting Statement of Commissioner Dan M. Berkovitz Regarding Historic Penalty against JPMorgan and Opposing "Bad Actor" Waiver (CFTC Statement)


SEC Charges Ratings Agency With Internal Controls Failures in Connection With Ratings of CMBS and CLO Combo Notes (SEC Release)

South Florida Lawyer Charged with Fraud Related to 1 Global Capital Investment Scheme (DOJ Release)

SEC Charges South Florida Lawyer with Securities Fraud (SEC Release)

SEC Charges Unregistered Brokers in Penny Stock Scheme Targeting Seniors (SEC Release)

SEC Charges Nebraska-Based Investment Adviser Representative for Conducting Fraudulent "Cherry-Picking" Scheme (SEC Release)

SEC Charges Swedish National with Global Scheme Defrauding Retail Investors, Including Deaf Community Members (SEC Release)

SEC Charges Manitex International and Three Former Senior Executives With Accounting Fraud (SEC Release)

CFTC Orders New Jersey Firm to Pay $300,000 for Supervision Violations (CFTC Release)


JPMorgan Chase & Co. Agrees To Pay $920 Million in Connection with Schemes to Defraud Precious Metals and U.S. Treasuries Markets (DOJ Release)
https://www.justice.gov/opa/pr/jpmorgan-chase-co-agrees-pay-920-million-connection-schemes-defraud-precious-metals-and-us
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https://www.sec.gov/news/press-release/2020-233
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CFTC Orders JPMorgan to Pay Record $920 Million for Spoofing and Manipulation (CFTC Release)
https://www.cftc.gov/PressRoom/PressReleases/8260-20

In connection with a criminal Information file in the United States District Court for the District of Connecticut
https://www.justice.gov/opa/press-release/file/1320581/download, JPMorgan Chase & Co. ("JPMorgan") entered into a Deferred Prosecution Agreement ("DPA")
https://www.justice.gov/opa/press-release/file/1320576/download whereby the company was charged with two counts of wire fraud. Under the terms of the DPA, JPMorgan will pay over $920 million in a criminal monetary penalty, criminal disgorgement, and victim compensation, with the criminal monetary penalty credited against payments made to the CFTC and with part of the criminal disgorgement credited against payments made to the SEC. As alleged in part in the DOJ Release:

[B]etween approximately March 2008 and August 2016, numerous traders and sales personnel on JPMorgan's precious metals desk located in New York, London, and Singapore engaged in a scheme to defraud in connection with the purchase and sale of gold, silver, platinum, and palladium futures contracts (collectively, precious metals futures contracts) that traded on the New York Mercantile Exchange Inc. and Commodity Exchange Inc., which are commodities exchanges operated by the CME Group Inc.  In tens of thousands of instances, traders on the precious metals desk placed orders to buy and sell precious metals futures contracts with the intent to cancel those orders before execution, including in an attempt to profit by deceiving other market participants through injecting false and misleading information concerning the existence of genuine supply and demand for precious metals futures contracts. In addition, on certain occasions, traders on the precious metals desk engaged in trading activity that was intended to deliberately trigger or defend barrier options held by JPMorgan and thereby avoid losses.

One of the traders on the precious metals desk, John Edmonds, 38, of Brooklyn, New York, pleaded guilty on Oct. 9, 2018, to one count of commodities fraud and one count of conspiracy to commit wire fraud, commodities fraud, commodities price manipulation, and spoofing, and his sentencing, at this time, has not been scheduled before U.S. District Judge Robert N. Chatigny of the District of Connecticut. Another one of the traders on the precious metals desk, Christian Trunz, 35, of New York, New York, pleaded guilty on Aug. 20, 2019, to one count of conspiracy to engage in spoofing and one count of spoofing in connection with his precious metals futures contracts trading at JPMorgan and another financial services firm, and his sentencing is scheduled for Jan. 28, 2021, before U.S. District Judge Sterling Johnson of the Eastern District of New York. 

Finally, as part of the investigation, the department obtained a superseding indictment on Nov. 15, 2019 against three former JPMorgan traders, Gregg Smith, Michael Nowak, and Christopher Jordan, and one former salesperson, Jeffrey Ruffo, in the Northern District of Illinois that charged them for their alleged participation in a racketeering conspiracy and other federal crimes in connection with the manipulation of the precious metals futures contracts markets.  An indictment is merely an allegation and all defendants are presumed innocent until proven guilty beyond a reasonable doubt in a court of law.

Also according to admissions and court documents, between approximately April 2008 and January 2016, traders on JPMorgan's U.S. Treasuries desk located in New York and London engaged in a scheme to defraud in connection with the purchase and sale of U.S. Treasury futures contracts that traded on the Chicago Board of Trade, which is a commodities exchange operated by the CME Group Inc., and of U.S. Treasury notes and bonds traded in the secondary cash market (the U.S. Treasury futures, notes, and bonds, collectively, U.S. Treasury Products).  In thousands of instances, traders on the U.S. Treasuries desk placed orders to buy and sell U.S. Treasury Products with the intent to cancel those orders before execution, including in an attempt to profit by deceiving other market participants through injecting false and misleading information concerning the existence of genuine supply and demand for U.S. Treasury Products.

As part of the DPA, JPMorgan, and its subsidiaries JPMorgan Chase Bank, N.A. (JPMC) and J.P. Morgan Securities LLC (JPMS) have agreed to, among other things, continue to cooperate with the Fraud Section and the U.S. Attorney's Office for the District of Connecticut in any ongoing or future investigations and prosecutions concerning JPMorgan, JPMC, JPMS, and their subsidiaries and affiliates, and their officers, directors, employees and agents.  As part of its cooperation,  JPMorgan, JPMC, and JPMS are required to report evidence or allegations of conduct which may constitute a violation of the wire fraud statute, the anti-fraud, anti-spoofing and/or anti-manipulation provisions of the Commodity Exchange Act, the securities and commodities fraud statute, and federal securities laws prohibiting manipulative and deceptive devices.  In addition, JPMorgan, JPMC, and JPMS have also agreed to enhance their compliance program where necessary and appropriate, and to report to the government regarding remediation and implementation of their enhanced compliance program.

The department reached this resolution with JPMorgan based on a number of factors, including the nature and seriousness of the offense conduct, which spanned eight years and involved tens of thousands of instances of unlawful trading activity; JPMorgan's failure to fully and voluntarily self disclose the offense conduct to the department; JPMorgan's prior criminal history, including a guilty plea on May 20, 2015, for similar misconduct involving manipulative and deceptive trading practices in the foreign currency exchange spot market (FX Guilty Plea); and the fact that substantially all of the offense conduct occurred prior to the FX Guilty Plea. 

JPMorgan received credit for its cooperation with the department's investigation and for the remedial measures taken by JPMorgan, JPMC, and JPMS, including suspending and ultimately terminating individuals involved in the offense conduct, adopting heightened internal controls, and substantially increasing the resources devoted to compliance.  Significantly, since the time of the offense conduct, and following the FX Guilty Plea, JPMorgan, JPMC, and JPMS engaged in a systematic effort to reassess and enhance their market conduct compliance program and internal controls.  These enhancements included hiring hundreds of new compliance officers, improving their anti-fraud and manipulation training and policies, revising their trade and electronic communications surveillance programs, implementing tools and processes to facilitate closer supervision of traders, taking into account employees' commitment to compliance in promotion and compensation decisions, and implementing independent quality assurance testing of non-escalated and escalated surveillance alerts.  Based on JPMorgan's, JPMC's and JPMS' remediation and the state of their compliance program, the department determined that an independent compliance monitor was unnecessary. 

J.P. Morgan Securities (a broker-dealer subsidiary of JPMorgan Chase & Co.) agreed to the entry of an SEC Order https://www.sec.gov/litigation/admin/2020/33-10858.pdf in which the firm 
  • admitted to the SEC's factual findings and that its conduct violated Section 17(a)(3) of the Securities Act; 
  • was ordered to cease and desist from future violations of Section 17(a);
  • was censured, and was ordered to pay disgorgement of $10 million and a civil penalty of $25 million (said civil penalty to be offset by amounts paid by JPMorgan Chase & Co. and its affiliates in the parallel proceedings announced by the DOJ and the CFTC).
As alleged in part in the SEC Release:

[B]etween April 2015 and January 2016, certain traders on J.P. Morgan Securities' Treasuries trading desk employed manipulative trading strategies involving Treasury cash securities. The order finds that the traders placed bona fide orders to buy or sell a particular Treasury security, while nearly simultaneously placing non-bona fide orders, which the traders did not intend to execute, for the same series of Treasury security on the opposite side of the market. The order finds that the non-bona fide orders were intended to create a false appearance of buy or sell interest, which would induce other market participants to trade against the bona fide orders at prices that were more favorable to J.P. Morgan Securities than J.P. Morgan Securities otherwise would have been able to obtain. According to the order, after the traders secured beneficially priced executions for the bona fide orders, they promptly cancelled the non-bona fide orders.

The CFTC issued an Order filing and settling charges against JPMorgan Chase & Company ("JPMC & Co.") and its subsidiaries, JPMorgan Chase Bank, N.A., and J.P. Morgan Securities LLC ("JPMS")
https://www.cftc.gov/media/4826/enfjpmorganchaseorder092920/download whereby JPM will pay $920.2 million (the largest amount of monetary relief ever imposed by the CFTC) including the highest restitution ($311,737,008), disgorgement ($172,034,790), and civil monetary penalty ($436,431,811) amounts in any spoofing case. As alleged in part in the CFTC Release: 

[F]rom at least 2008 through 2016, JPM, through numerous traders on its precious metals and Treasuries trading desks, including the heads of both desks, placed hundreds of thousands of orders to buy or sell certain gold, silver, platinum, palladium, Treasury note, and Treasury bond futures contracts with the intent to cancel those orders prior to execution. Through these spoof orders, the traders intentionally sent false signals of supply or demand designed to deceive market participants into executing against other orders they wanted filled. According to the order, in many instances, JPM traders acted with the intent to manipulate market prices and ultimately did cause artificial prices.

The order also finds that JPMS, a registered futures commission merchant, failed to identify, investigate, and stop the misconduct. The order states that despite numerous red flags, including internal surveillance alerts, inquiries from CME and the CFTC, and internal allegations of misconduct from a JPM trader, JPMS failed to provide supervision to its employees sufficient to enable JPMS to identify, adequately investigate, and put a stop to the misconduct. 

The order notes that during the early stages of the Division of Enforcement's investigation, JPM responded to certain information requests in a manner that resulted in the Division being misled. The order recognizes, however, JPM's significant cooperation in the later stages of the investigation.

Joint Statement of Concurrence of Commissioners Dawn D. Stump and Rostin Behnam Regarding JPMorgan Chase & Co., et al. (CFTC Commissioners' Statement)
https://www.cftc.gov/PressRoom/SpeechesTestimony/stumpbehnamjointstatement092920
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Supporting Statement of Commissioner Dan M. Berkovitz Regarding Historic Penalty against JPMorgan and Opposing "Bad Actor" Waiver (CFTC Statement by Commissioner Dan M. Berkovtiz)
https://www.cftc.gov/PressRoom/SpeechesTestimony/berkovitzstatement092920

CFTC Commissioners Stump, Behnam, and Berkovitz supported the overall action against JPMorgan; however, they raised concerns about the process by which Respondents were not subjected to disqualification from certain SEC exemptions under Regulations A and D. 
In offering their comments, Commissioners Stump and Behnam noted in part in a joint statement that [Ed: footnotes omitted]:

Unfortunately, though, the Order also presents a troubling - and wholly collateral - issue.  Pursuant to rules adopted by the SEC, the findings of our Order will result in the disqualification of Respondents from certain exemptions relating to the registration of securities offerings under Regulations A and D of the SEC's regulations (a "Reg A/D disqualification"). However, the SEC's regulations also provide that such disqualification "shall not apply" if the CFTC "advises in writing" that disqualification "should not arise as a consequence of such order." The Order issued today includes this advice.

Although they may have been well-intentioned, these SEC rules (which were not mandated by statute) have put the CFTC in a difficult position in cases such as this one.  As often happens, the Respondents will not agree to settle the CFTC's enforcement action absent a waiver of the resulting Reg A/D disqualification.  SEC rules provide that the SEC may waive the disqualification upon a showing of good cause, but waiting for such an SEC waiver intolerably subjects the CFTC's enforcement program to the vagaries of when the SEC makes time to consider the Respondents' request.  In order to efficiently perform our responsibility to enforce the CEA and the Commission's regulations, therefore, we decide whether to advise, as set forth in the SEC's rules, that the Reg A/D disqualification provisions of the securities laws should not apply - a decision that is more appropriately one for securities regulators to make.

This is not a new issue; we have wrestled with this conundrum several times since we joined the Commission in September 2017 and September 2018.  Indeed, this is not the first time that CFTC Commissioners publicly have raised concerns regarding this issue. We are aware that CFTC and SEC representatives have been seeking a resolution that would permit the CFTC to effectively enforce the CEA and CFTC regulations while allowing the SEC to more appropriately determine whether a Reg A/D disqualification resulting from a CFTC enforcement action should be waived.  We appreciate these efforts and the progress that we understand has been made to date.  But the fact that this case has arisen and yet this issue still has not been resolved prompts us to write together to emphasize the urgency of finding a remedy from the SEC to avoid further hindering the CFTC's enforcement program and consuming valuable time of our Commission.

The CFTC and SEC have an admirable record of cooperative enforcement efforts that - as reflected in the resolution of our respective charges against the Respondents in this case - have served the public interest well.  But the public interest is not being well served by the current circumstances regarding Reg A/D disqualifications created by the SEC's rules.  Resolving this issue must be a top priority.

In a separate statement, Commissioner Berkovitz noted in part that [Ed: footnotes omitted]:

For eight years, a group of traders at JPMorgan systematically "spoofed" precious metals and Treasury futures markets by entering hundreds of thousands of orders with the intent to cancel them before execution.  The Commission's Order finds that JPMorgan manipulated these markets and failed to diligently supervise its traders.  The scope of misconduct and market harm described in the Order is unparalleled among prior spoofing cases brought by the Commission.  This enforcement action illustrates how vital it is for firms to maintain adequate surveillance systems and promptly investigate red flags.

These egregious violations warrant the historic level of monetary sanctions imposed by the CFTC.  However, it is the responsibility of the SEC, not the CFTC, to determine who is subject to registration requirements for the offer and sale of securities, and whether such misconduct warrants any disqualifications in the securities markets.

Various SEC regulations, including Regulations A and D, exempt companies from the requirement to register securities offerings with the SEC. "Bad actors" found to have committed certain violations of the securities laws are automatically disqualified from claiming such exemptions absent a determination by the SEC to provide a waiver.  SEC regulations also provide for automatic disqualification for certain violations of the Commodity Exchange Act ("CEA").  However, under those SEC regulations, the automatic disqualification does not apply if the CFTC "advises" the SEC that disqualification under Regulations A and D should not arise as a consequence of the CFTC's order.

This SEC-created process has complicated the CFTC's ability to settle its own enforcement cases without resource-intensive litigation.  Respondents in CFTC cases subject to automatic disqualification under the SEC's regulations often do not agree to settle their CFTC cases unless and until either the SEC grants a waiver of the disqualification, or the CFTC "advises" the SEC that the disqualification shall not apply.  In a number of instances, such as this one today, rather than indefinitely delay enforcement of the CEA in anticipation of a potential waiver by the SEC, CFTC enforcement staff will notify SEC staff of the request to waive the bad actor provisions.  Where SEC staff does not object or raise concerns, the Commission will then "advise" the SEC that the disqualification shall not apply.  Essentially, the SEC advises the CFTC on whether the CFTC should advise the SEC that the SEC's regulation shall not apply.  This circular consultation obscures public transparency and accountability and wastes scarce CFTC resources.

More fundamentally, the CFTC's advice on the application of the SEC's regulations has no legal effect.  Congress has not authorized the CFTC-the federal derivatives regulator-to determine whether companies should be required to register securities offerings with the SEC.  Nor did it authorize the SEC to delegate this responsibility to the CFTC.

Accordingly, any advice the CFTC offers about compliance with securities registration requirements is, as the term indicates, purely advisory and has no effect on JPMorgan's qualifications under the securities laws.  For this reason, although I disagree with the proffering of this advice, its inclusion does not affect my overall support of this enforcement action.

As I have said before, the CFTC and the SEC should develop a process in which the SEC exclusively will consider and decide whether a company subject to a CFTC enforcement order should be exempt from registration under the securities laws, within a timeframe that does not unreasonably delay the CFTC's issuance of the order.  I urge my colleagues at the SEC to continue to work with us to speedily resolve this issue.

Bill Singer's Comment: As Commissioner Berkovitz so aptly reminds us "These egregious violations warrant the historic level of monetary sanctions imposed by the CFTC." Sadly -- shamefully -- buried in the stilted prose of bureaucracy is the cynical relief from the Bad Boy provisions of the federal securities laws whereby the JPM Respondents are slammed as egregious violators but, well, you know, sure, what JPM did was pretty bad, frankly, pretty bad as in historically so, but, c'mon, can't we all just get along here and put this behind us, and, hey, what about second chances and not piling on when a guy is down, and, you know, we slammed JPM in our self-serving headlines, so,  wattayawant us to do now, you really want us to take JPM out to the woodshed -- you want us to treat JPM like those other lowlifes that we call "recidivists," wow, that would require us to impose consistent sanctions on the big guys and the small fry, and, whoa, let's not get all radical here, right? In the Matter of Morgan Stanley & Co. LLC (Waiver of disqualification pursuant to Rule 506(d)(2)(ii) of Regulation D Release No. 34-90046, September 30, 2020 Administrative Proceeding File No. 3-20103) https://www.sec.gov/divisions/corpfin/cf-noaction/2020/morgan-stanley-093020-506d.pdf
"Assuming that MS&Co. complies with the Order, we have determined that MS&Co. has
made a showing of good cause under Rule 506(d)(2)(ii) of Regulation D that it is not necessary
underthe circumstances to deny reliance on Regulation D by reason of the entry of the Order." 

https://www.justice.gov/usao-sdny/pr/former-wall-street-trader-sentenced-more-5-years-prison-running-ponzi-scheme
Paul A Rinfret pled guilty to one count of wire fraud and one count of securities fraud in the United States District Court for the Southern District of New York; and he was sentenced to 63 months in prison plus two years of supervised release, and he was ordered to pay $20,268,268 in forfeiture, and $12,290,803 in restitution. As alleged in part in the DOJ Release:           

From at least 2016 through 2019, RINFRET engaged in a scheme to defraud potential and actual investors in an entity called Plandome Partner s L.P. for his own personal gain and for the gain of his family members.  RINFRET offered potential investors the ability to invest in Plandome Partners through the purchase of limited partnership interests.  In soliciting investments, RINFRET falsely represented to potential and actual investors (the "Victims") that he would use all of their investment funds to trade futures contracts tied to the Standard & Poor's 500 index using a propriety trading algorithm he had developed, taking for himself a fee equivalent to 25% of the net profits on the trades. 

Through his fraudulent scheme, RINFRET obtained approximately $19 million in total from approximately six Victims on the false claim that he would utilize their investment funds for trading.  RINFRET's lies and misrepresentations were varied and many.  For example, RINFRET claimed that Plandome Partners traded through certain brokerage accounts, one of which simply did not exist, and two of which were not open at a time when RINFRET claimed to be trading in those accounts. 

Further, RINFRET used only a small portion of the Victims' invested funds to engage in actual trading.  Instead, RINFRET used most of the Victims' money to purchase luxury goods and high-end vacation rentals for himself and family members.  For example, RINFRET used the Plandome Partners account to spend almost $50,000 on a luxury Hamptons vacation rental, more than $40,000 on jewelry, and tens of thousands of dollars on the event venue where his son held his engagement party. 

When RINFRET did actually engage in trading with Victims' funds, he generated losses.  But, to prevent his Victims from seeking a return of their money, and to induce additional investments, RINFRET falsely reported excellent investment performance results to the Victims through false and fraudulent monthly account statements that RINFRET typically emailed to the Victims.  RINFRET also sent fabricated brokerage account statements to the Victims.  

Former Global Arena Capital Corp. registered broker Joshua Turney pled guilty to conspiracy to commit securities fraud in an Information in the United States District Court for the Eastern District of New York https://www.justice.gov/usao-edny/press-release/file/1321656/download. As alleged in part in the DOJ Release:

[B]etween April 2015 and June 2015, shortly before Global ceased operations, Turney and his co-conspirators engaged in a scheme to defraud Global customers by purchasing and selling securities without the customers' prior authorization or knowledge.  Approximately 4,500 trades were executed in approximately 360 customer accounts during this time period, most of which were unauthorized.  The principal value of these transactions was approximately $106 million, and the trades generated over $2.44 million in commissions and fees for Global. 

SEC Charges Former Real Estate Executive With Misappropriating $26 Million in Ponzi Scheme
(SEC Release)
https://www.sec.gov/news/press-release/2020-236
In a Complaint filed in the United States District Court for the Northern District of California
https://www.sec.gov/litigation/complaints/2020/comp-pr2020-236.pdf, the SEC charged Lewis Wallach with violating the antifraud provisions of the federal securities laws; and he consented to entry of a judgment ordering a permanent injunction and an officer-and-director bar, with civil penalties, disgorgement, and prejudgment interest to be determined by the court at a later date upon motion by the SEC. In a parallel action, federal criminal charges were filed against Wallach. As alleged in part in the SEC Release:

[F]rom September 2015 through May 2020, Lewis I. Wallach and the now deceased founder of Professional Financial Investors, Inc. (PFI) raised approximately $330 million by falsely telling investors that their money would be used primarily to invest in multi-unit residential and commercial real estate managed by PFI. As alleged in the complaint, many of the defrauded investors were elderly, retired and relying on their investment income for daily living expenses. The complaint alleges that Wallach knew that a significant portion of investor funds was being used in a Ponzi-like fashion to pay existing investors. The complaint further alleges that he personally misappropriated more than $26 million of investor money, including to purchase a vacation home and to invest in a failed land development deal. As cash levels at the company declined and incoming investor money slowed, Wallach allegedly claimed to investors that the company was in a financially strong position.

https://www.sec.gov/news/press-release/2020-235
In connection with rating Commercial Mortgage-Backed Securities ("CMBS"), an SEC Order
https://www.sec.gov/litigation/admin/2020/34-90036.pdf alleged that Kroll Bond Rating Agency ("KBRA") violated Section 15E(c)(3)(A) of the Securities Exchange Act;  and, in connection with rating Collateralized Loan Obligation Combination Notes ("CLO Combo Notes"), an SEC Order found that KBRA violated Rule 17g-8(b)(1) of the Exchange Act. Without admitting or denying the SEC's findings, KBRA agreed in the CMBS case to pay a civil penalty of $1.25 million, and in the CLO Combo Notes case to pay a $600,000 civil penalty and more than $160,000 in disgorgement and prejudgment interest, and to establish a Fair Fund for the benefit of victims. KBRA also agreed in both actions to review and correct its internal policies and procedures relating to the charged violations. As alleged in part in the SEC Release:

According to the order pertaining to CMBS ratings, KBRA permitted analysts to make adjustments that had material effects on the final ratings but did not require any analytical method for determining when and how those adjustments should be made. Further, the order finds that there was no requirement for recording the rationale for those adjustments. The order finds that KBRA's internal control structure failed to prevent or detect the ambiguity in KBRA's record of its methodology for determining the CMBS ratings, such as a comparison of the methodology to the analysis used for specific transactions.

The SEC's order relating to CLO Combo Notes finds that KBRA's policies and procedures were not reasonably designed to ensure that it rated CLO Combo Notes in accordance with the terms of those securities. The CLO Combo Notes included a defined "Rated Balance" amount and also directed that noteholders were entitled to receive cash flows from the underlying components of the CLO Combo Note after the Rated Balance was reduced to zero. KBRA's ratings of CLO Combo Notes were limited to repayment of the Rated Balance amount of each CLO Combo Note and did not reflect the risk associated with any cash flows payable to holders of the CLO Combo Note over and above the Rated Balance, even though such amounts could materialize, and would be payable to the holders of the CLO Combo Note.

https://www.justice.gov/opa/pr/south-florida-lawyer-charged-fraud-related-1-global-capital-investment-scheme
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https://www.sec.gov/litigation/litreleases/2020/lr24926.htm

Florida attorney and former outside counsel for 1 Global Capital LLC ("1 Global"), Andrew Dale Ledbetter, 78, was charged in an Information filed in the United States District Court for the Southern District of Florida
https://www.justice.gov/opa/press-release/file/1320541/download with conspiring to commit both wire fraud and securities fraud. In connection with what DOJ Release characterizes as the "1 Global fraud scheme," 
  • Alan G. Heide, the former 1 Global chief financial officer, was charged via information and sentenced to 60 months, in Case No. 19-60231-CR-RKA.  
  • Douglas Atlas, former outside counsel for 1 Global, was charged via information, pleaded guilty, and is awaiting sentencing in Case No. 19-60258-RKA, currently scheduled for Nov. 17, 2020.  
  • Steven Schwartz, a former director of 1 Global, was charged via information, pleaded guilty, and is awaiting sentencing in Case No. 20-60003-RKA, currently scheduled for Nov. 13, 2020.  
  • Information about the related cases can be found here:  https://www.justice.gov/criminal-vns/case/1Global-Capital.
In a parallel civil SEC enforcement action, civil fraud charges were filed against Ledbetter; and in related cases, the SEC filed civil fraud actions:
  • SEC v. 1 Global Capital LLC and Carl C. Ruderman, Case No. 18-61991-CV-BB (Sothern District of Florida) 
  • SEC v. Alan G. Heide, Case No. 19-62047-CV-FAM (Southern District of Florida), and SEC v. Jan Atlas, Case No. 19-62303-WPD (Southern District of Florida).  
The bankruptcy case, In re: 1 Global Capital LLC, et al., No. 18-19121-RBR (Southern District of Florida), remains pending. As alleged in part in the DOJ Release:

According to the allegations in the information, 1 Global was a commercial lending business based in Hallandale Beach, Florida, that made the equivalent of "pay day" loans with high interest rates to small businesses, termed merchant cash advance loans (MCAs).  To fund these loans, 1 Global obtained funds from investors nationwide, offering short-term investment contracts that promised to "place" the investors' money onto MCAs.  The investors would supposedly receive a proportionate share of the principal and interest payments as the loans were repaid.  1 Global raised money using investment advisors and other intermediaries, with promises to these advisors of significant commissions.  In many cases, according to court documents, the commissions were not fully disclosed to investors.  Ledbetter was an attorney licensed in the State of Florida who worked at Law Firm #1 and acted in a fundraising capacity at 1 Global beginning in or around 2015.

Substantial questions arose during the operation of the business as to whether 1 Global was offering or selling a security and whether the investment offering was required to be registered with the U.S. Securities and Exchange Commission.  These questions were raised by investors, investment advisors, and regulators.  Ledbetter and Jan Douglas Atlas, a partner at Law Firm #1 who also acted as outside counsel for 1 Global, knew that if 1 Global's investment offering were determined to be a security, it would undermine the ability of 1 Global to raise funds from retail investors and to continue to operate without substantial additional expenses and reporting requirements.  Such a classification would undermine the profits and fees that Ledbetter and other principals at 1 Global would be able to obtain from 1 Global's operations.

The information alleges that at the request of 1 Global's principals, Atlas authored two opinion letters in 2016 containing false information that Atlas knew would be used by 1 Global to operate the business unlawfully.  The opinion letters falsely described the duration of the investment, among other things, omitting the automatic renewal aspect and that the investment was being targeted toward retail, non-sophisticated investors (such as IRA account holders).   According to the information, Ledbetter used and relied on Atlas's opinion letters to continue to raise money illegally, knowing that the opinion letters falsely described the investment opportunity and were thus misleading.  Ledbetter cited and used the false letters in numerous pitches and communications to investment advisors and investors.

According to the information, Ledbetter was personally involved in raising more than $100 million in investor funds that went to 1 Global, through his own pitches as well as through investment advisors he attracted to 1 Global.  Over the years, Ledbetter received approximately $3 million from 1 Global, the majority of which was for commissions.  Ledbetter routinely held himself out to investors and investment advisers as outside counsel to 1 Global, and also personally vouched for 1 Global in pitches and marketing materials.  However, Ledbetter did not disclose the commissions that he received from 1 Global to investors, according to the information.  Ledbetter also made misrepresentations to investors regarding the involvement of an outside auditing firm. 

In a Complaint filed in the United States District Court for the Southern District of Florida
https://www.sec.gov/litigation/complaints/2020/comp24926.pdf, the SEC charged Ledbetter with violating the antifraud provisions of Section 17(a) of the Securities Act and Section 10(b) of the Securities Exchange Act  and Rule 10b-5 thereunder, the securities registration provisions of Sections 5(a) and 5(c) of the Securities Act, and the broker-dealer registration provisions of Section 15(a) of the Exchange Act. As alleged in part in the SEC Release:

Ledbetter, while an attorney at a Fort Lauderdale law firm that was counsel to 1 Global, falsely told investors and the network of sales agents he recruited to offer and sell 1 Global's notes nationwide that 1 Global's notes were not securities despite knowing that they were securities and that the offering violated the securities laws. In the process, he reaped approximately $2.9 million in commissions from the sale of 1 Global's notes.

SEC Charges Unregistered Brokers in Penny Stock Scheme Targeting Seniors (SEC Release)
https://www.sec.gov/news/press-release/2020-234
In Complaints filed in the United States District Court for the Southern District of Florida, the SEC charged:
with violating the antifraud and registration provisions of the federal securities laws. Without admitting or denying the SEC's allegations, Baquerizo and Cardenas agreed to be enjoined from future violations of the charged provisions while leaving the resolution of monetary relief to a later date; and they consented to industry and penny stock bars. In part the SEC Release alleges that:

[M]ason Newman, Christian Baquerizo, and Kevin Cardenas raised approximately $1.4 million selling unregistered NIT stock to retail investors, most of whom were seniors, and received nearly $500,000 in undisclosed commissions. According to the complaints, the defendants cold-called investors, making baseless promises about NIT's future profitability and imminent public offering and leading investors to believe that NIT would use their funds primarily for research and development, while concealing that 30% or more of the funds invested would be used to pay commissions to the defendants. The SEC also alleges that Newman used an alias to conceal that the SEC had previously barred him from acting as a broker and offering penny stocks to investors.

https://www.sec.gov/litigation/litreleases/2020/lr24925.htm
In a Complaint filed in the United States District Court for the Districtt of Nebraska
https://www.sec.gov/litigation/complaints/2020/comp24925.pdf, the SEC charged former Continuum Financial, LLC Chief Executive Officer Corbin L. Lambert with violating the antifraud provisions of Section 10(b) of the Securities Exchange Act and Rule 10b-5 thereunder, Sections 17(a)(1) and 17(a)(2) of the Securities Act, and Sections 206(1) and 206(2) of the Investment Advisers Act of 1940. As alleged in part in the SEC Release:

[F]rom at least January 2017 through March 2018, Lambert placed options trades using Continuum Financial's omnibus account, which is intended to facilitate purchases of securities for multiple client accounts, and delayed allocating the securities to specific client accounts until he had observed the securities' performance over the course of the day. The complaint alleges that he then disproportionately cherry-picked the profitable trades to be allocated to his personal account and allocated the unprofitable trades to his clients' accounts. As alleged in the complaint, Lambert misrepresented to clients that all trades would be allocated in a fair and equitable manner. According to the complaint, Lambert concealed his misconduct from the other principals of Continuum Financial.

SEC Charges Swedish National with Global Scheme Defrauding Retail Investors, Including Deaf Community Members (SEC Release)
https://www.sec.gov/news/press-release/2020-232
In a  Complaint filed in the United States District Court for the Eastern District of New York
https://www.sec.gov/litigation/complaints/2020/comp-pr2020-232.pdf, the SEC alleges that Roger Nils-Jonas Karlsson a/k/a "Euclid Diodorus" a/k/a "Steve Heyden" a/k/a "Josuha Millard" and a/k/a "Lars Georgsson" violated the registration provisions of Sections 5(a) and 5(c) of the Securities Act of 1933 and the antifraud provisions of 17(a)(1) and 17(a)(3) of the Securities Act and Section 10(b) of the Securities Exchange Act  and Rules 10b-5(a) and 10b-5(c) thereunder. As alleged in part in the SEC Release:

[F]rom November 2012 to June 2019, Roger Nils-Jonas Karlsson, through his entity, Eastern Metal Securities, defrauded over 2,000 retail investors in nearly every state in the United States, as well as in over 45 countries around the world.  According to the complaint, Karlsson solicited investors for what he described as a "Pre Funded Reversed Pension Plan," falsely claiming that the investment platform was run by award-winning economists and promising a payout based on the value of gold.  Karlsson allegedly claimed that the investment had no risk of loss.  At least 847 of the investors were members of a community for the Deaf that invested more than $2 million in Eastern Metal Securities since 2015 as their retirement investment.  The SEC alleges that Karlsson raised $3.5 million from December 2017 through June 2019, and misappropriated at least $1.5 million to purchase real estate in Thailand and for other personal expenses.

Without admitting or denying the findings in four separate SEC Orders, Manitex International, Inc.; its former Chief Operating Officer Andrew Rooke; former subsidiary General Manager Stephen Harrison, and former Controller/Chief Financial Officer Michael Schneider agreed cease and desist from future violations of the charged provisions of the securities laws and agreed to pay $485,000 in civil penalties, and Rooke Schneider, and Harrison agreed to Bars from serving as officers/directors of public companies with Rooke and Schneider further agreeing to suspensions from appearing/practicing as accountants before the SEC. The SEC Orders find that the four respondents violated certain antifraud, reporting, books and records, and internal accounting control provisions of the federal securities laws. 

As alleged in part in the SEC Release:

According to the SEC's orders, Manitex improperly accounted for and misled its outside auditor about nonexistent inventory.  The orders find that in 2014, Andrew Rooke, the company's former Chief Operating Officer, and Stephen Harrison, the former general manager of a Manitex subsidiary, created false inventory lists and shipping documents to cover up a $1.39 million inventory shortfall at another of Manitex's subsidiaries.  The orders further find that Manitex later provided the fabricated documents to its outside auditor, contributed the nonexistent inventory to a joint venture, and recorded the nonexistent inventory on its books.  As a result, the orders find, Manitex materially overstated its 2014 operating and pre-tax income. 

According to the orders, Manitex also improperly recognized revenue from and misled its outside auditor about approximately $12 million in purported "bill and hold" crane sales.  According to the orders, during a downturn in the oil and gas services industry, Manitex entered into an agreement to sell cranes to a dormant company with no operations.  The orders find that, because the company had no ability to obtain financing, Harrison, at Rooke's direction, secured and, on behalf of Manitex, guaranteed the financing for the purchases.  The orders further find that in consultation with Rooke, Harrison also created a purported financing subsidiary for the company and prepared fraudulent invoices to conceal Manitex's role.  As set forth in the orders, Michael Schneider, Manitex's former Controller and Chief Financial Officer, approved the fraudulent invoices despite knowing they were not genuine.  As a result, according to the order, Manitex materially overstated its 2016 net revenues and gross profits. 

CFTC Orders New Jersey Firm to Pay $300,000 for Supervision Violations (CFTC Release)
https://www.cftc.gov/PressRoom/PressReleases/8263-20
The CFTC issued an Order filing and settling charges against registered futures commission merchant Gain Capital Group, LLC https://www.cftc.gov/media/4836/enfgaincapitalorder092920/download whereby the FCM will pay a $300,000 civil monetary penalty and cease and desist from violating CFTC Regulation 166.3. As alleged in part in the CFTC Release:

The order finds that Gain failed to ensure that its employees followed company policies for the processing of trade move requests between accounts owned by different persons. Specifically, Foremost made hundreds of suspicious trade move requests to Gain in connection with Foremost's proprietary accounts and the injured customer's accounts. Miller had discretion to trade this customer's accounts and also traded the proprietary accounts. At least some of these trade move requests transferred winning trades out of the customer's accounts and into Foremost's proprietary accounts based on purported trade errors. Gain employees did not consistently seek additional information on these trade move requests, as was provided in Gain's policies and procedures.  

Additionally, as detailed in the order, Gain missed red flags-Foremost's suspicious trade move requests and Miller's trading of both the proprietary and the injured customer's accounts in the same markets-and did not appropriately surveil these accounts. While Gain had a general policy that it would review activity in customer accounts for irregularities or concerns, the policy was inadequate because it did not define what reviews involved and, prior to 2016, did not include follow-on policies or procedures for doing such reviews. 

CFTC Awards Whistleblower $250,000 (CFTC Release)
https://www.cftc.gov/PressRoom/PressReleases/8262-20?utm_medium=email&utm_source=govdelivery
The CFTC awarded about $250,000 to a whistleblower who provided significant information that caused the CFTC to open an investigation, and also provided substantial assistance to staff throughout the investigation. The award was reduced, however, because the whistleblower did not promptly report the violations. CFTC Order Determining Whistleblower Claim
https://whistleblower.gov/sites/whistleblower/files/2020-09/No.%2020-WB-11.pdf