Securities Industry Commentator by Bill Singer Esq

October 15, 2020

Coronavirus Impact on Arbitration Hearings (FINRA Website)

J&F Investimentos S.A. Pleads Guilty and Agrees to Pay Over $256 Million to Resolve Criminal Foreign Bribery Case (DOJ Release)

SEC Charges Brazilian Meat Producers With FCPA Violations (SEC Release)

Baton Rouge Man Sentenced to 144 Months in Federal Prison for Multi-Million Dollar Bank and Fraud Wire Schemes (DOJ Release)

Collin County Man Found Guilty of Financial Fraud and Money Laundering Scheme Victimizing Senior Citizens, School Districts, and Charities / Defendant Engaged in Identity Theft, Cyber Fraud, and Elder Fraud, Laundering Money for Nigerian Co-Conspirators (DOJ Release)

SEC Obtains Final Judgments Against Defendants in Offering Fraud Scheme (DOJ Release)

Hackers look to buy brokerage log-ins on the dark web with Robinhood fetching highest prices (CNBC by Kate Rooney and Yasmin Khorram)
You think those Zombie shows on television are scary? Hell -- read this! In part the CNBC article warns:

CNBC spoke to four Robinhood users who said they were recently locked out of their accounts, and some claimed their portfolios had been drained. The clients said they couldn't determine whether it was the result of their credentials being used from the dark web, or phishing. But they described frustration in their communication with Robinhood. 

Ballad of a FINRA Man ( Blog)
That great American jurist, Bob Dylan, once mused "But something is happening here and you don't know what it is. Do you, Mr. Jones?" Frankly, sage words for these pandemic times -- and equally appropriate for a FINRA AWC that wound up in state court and two federal courts. The respondent was barred by FINRA for failure to testify during a second on-the-record interview. Why did he refuse to appear? Ummm, that's not completely clear. Were there any mitigating factors? It appears so. Were they considered? Perhaps but ultimately the respondent entered into a settlement whereby he was barred for his conduct. So, you know, why did he settle for a Bar when he could have testified at the second hearing or pursued his administrative remedies? Again, I'm not quite sure what happened or what was going on. See for yourself.

Coronavirus Impact on Arbitration Hearings (FINRA Website)
As asserted on FINRA's website in pertinent part:

In response to the evolving coronavirus disease 2019 (COVID-19), FINRA has decided to administratively postpone all in-person arbitration and mediation proceedings scheduled through January 1, 2021 unless the parties stipulate to proceed telephonically or by Zoom or the panel orders that the hearings will take place telephonically or by Zoom. Note that if all parties and arbitrators agree to proceed in-person based on their own assessment of public health conditions, the case may proceed provided that the in-person hearing participants comply with all applicable state and local orders related to the COVID-19 pandemic. 

Bill Singer's Incredibly Snarky Comment: I told you so! This was a stupid-ass idea to start with and nothing good would come of this ill-conceived effort. For example, read: "FINRA Baseball Caps, Rice Krispies Treats, Hiring Spree, And ZOOM OTRs" ( Blog / May , 2020) 

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, Marcus A. Beasley submitted a Letter of Acceptance, Waiver and Consent ("AWC"), which FINRA accepted. The AWC alleges that Marcus A. Beasley was first registered in 1999, and was associated with five FINRA member firms through October 2019.  The AWC asserts that Marcus A. Beasley "does not have any relevant disciplinary history." In accordance with the terms of the AWC, FINRA found that Marcus A. Beasley had violated FINRA Rules 3040 and 2010; and the self regulator imposed upon her a $12,500 fine and a seven-month suspension in any capacity. The AWC alleges in the "Overview" that [Ed: footnotes omitted]:

Between July 2005 and July 2019, Beasley engaged in three outside business activities, two related to financial services, and the other a ministry, without providing prior written notice to his member firm employers in violation of NASD Rules 3030 and 2110 and FINRA Rules 3270 and 2010. 

Between September 2018 and July 2019, Beasley also operated an unapproved website to market the financial services company and to try to raise capital for his unapproved outside business. Beasley misrepresented on this website during June and July 2019 that the average annual income for the business partners was projected to be between $500 and $2,000, which was not true because the company had not generated any business revenue for any partners and did not have any investors. As a result, Beasley violated FINRA Rule 2010. 

The website further described the business as "[a] Brokerage, Financial Advisory and Consulting Firm" even though the business was not a broker-dealer, in violation of FINRA Rules 2210(d)(1)(B) and 2010. Additionally, in April 2019, Beasley solicited investors on a social media website to invest $250,000 in exchange for a 20% equity stake in the business. This solicitation failed to provide a sound basis for evaluating the investment and omitted significant, material information, causing the communication to be misleading in violation of FINRA Rules 2210(d)(1)(A) and 2010. Beasley further stated that the business had 25 partners across multiple states when in fact he did not have any. As a result, this statement was false and violated FINRA Rules 2210(d)(1)(B) and 2010.

Bill Singer's Incredibly Nice Comment: In contrast to my incredibly snarky comment immediately above the Beasley AWC, at this time I want to compliment FINRA for rendering an excellent AWC replete with sufficient content and context. The self-regulator presents a very compelling case over roughly two additional pages of facts that amplify the concise "Overview." Nice job!

J&F Investimentos S.A. Pleads Guilty and Agrees to Pay Over $256 Million to Resolve Criminal Foreign Bribery Case (DOJ Release)
SEC Charges Brazilian Meat Producers With FCPA Violations (SEC Release)

In connection with a criminal Information filed in the United States District Court for the Eastern District of New York
J&F Investimentos S.A. (J&F) entered into a cooperation plea agreement whereby the company pled guilty to one count of conspiracy to violate the anti-bribery provisions of the Foreign Corrupt Practices Act ("FCPA") and agreed to pay a $256,497,026 penalty. Previously, J&F had entered into a resolution with Brazil's Ministério Público Federal (Public Prosecutor's Office) relating to the same underlying conduct, whereby J&F agreed to pay a fine of BRL 8,000,000 (the approximate equivalent of $1,441,505,636) and to contribute BRL 2,300,000 (the approximate equivalent of $414,432,870) to social projects in Brazil.  Under the DOJ plea agreement, EDNY will credit up to 50 percent ($128,248,513) of the criminal penalty owed to the United States to payments J&F makes pursuant to the resolution with the Brazilian authorities.  As alleged in part in the DOJ Release:

[B[etween 2005 and 2017, the company conspired with others to violate the FCPA by paying bribes to government officials in Brazil in order to ensure that Brazilian state-owned and state-controlled banks would enter into debt and equity financing transactions with J&F and J&F-owned entities, as well as to obtain approval for a merger from a Brazilian state-owned and state-controlled pension fund. 

Specifically, between 2005 and 2014, J&F engaged in a bribery scheme involving more than $148 million in corrupt payments that were promised and made to and for the benefit of high-level Brazilian government officials, including a then-high-ranking executive at Banco Nacional de Desenvolvimento Econômico e Social (BNDES), a Brazilian state-owned and state-controlled bank.  In exchange for the bribe payments, J&F was able to obtain hundreds of millions of dollars in financing from BNDES.  In addition, J&F paid bribes worth more than $4.6 million to and for the benefit of a high-ranking executive of Fundação Petrobras de Seguridade Social (Petros), a Brazilian state-controlled pension fund in exchange for obtaining Petros's approval for a significant merger that benefited J&F.  J&F also paid approximately $25 million in bribes to a high-ranking official in the legislative branch of the Brazilian government in order to secure hundreds of millions of dollars of financing from Caixa Econômica Federal (Caixa), a Brazilian state-owned and state-controlled bank. 

In furtherance of the bribery scheme, among other things, J&F executives used New York-based bank accounts to facilitate the bribery scheme and to make corrupt payments, purchased and transferred a Manhattan apartment as a bribe, and met in the United States to discuss and further aspects of the illegal scheme.

As part of the plea agreement, for a three-year period, J&F agreed to continue to cooperate with the U.S. government in any ongoing or future criminal investigations concerning J&F, its executives, employees, or agents; enhance its compliance program; and report to the government on the implementation of its enhanced compliance program.

The department reached this resolution with J&F based on a number of factors, including the company's failure to voluntarily disclose the conduct to the department and the nature, seriousness, and pervasiveness of the offense, which included executives at the highest levels of the company and the payment of tens of millions of dollars in bribes to high-level government officials in Brazil over a period of years.  The criminal monetary penalty for J&F reflects a 10 percent reduction off the bottom of the U.S. Sentencing Guidelines fine range because J&F received partial credit for its remediation and cooperation with the department's investigation.

Joesley Batista, Wesley Batista, J&F, and JBS, S.A. consented to an SEC's Order finding that they caused Pilgrim's Pride Corporation's violations of the books and records and internal accounting controls provisions of the FCPA and agreed to cease-and-desist orders.  JBS agreed to pay about $27 million in disgorgement and the Batistas each agreed to pay a $550,000 civil penalty. Further, the parties must comply with a three-year undertaking to self-report on the status of certain remedial measures.  As alleged in part in the SEC Release:

[T]he Batistas engaged in a bribery scheme in part to facilitate JBS's 2009 acquisition of U.S. issuer Pilgrim's Pride Corporation.  According to the order, following that acquisition and while serving as board members of Pilgrim's, the Batistas made payments of approximately $150 million in bribes at the direction of a former Brazil Finance Minister using in part funds from intercompany transfers, dividend payments, and other means obtained from JBS operating accounts containing funds from Pilgrim's.  As set forth in the order, the Batistas exerted significant control over Pilgrim's, which shared office space, overlapping board members and executives, accounting and SAP systems, and certain internal accounting controls and policy documents with JBS and its U.S. affiliate JBS USA.  The order finds that as a result of that control, the Batistas caused the failure of Pilgrim's to maintain an adequate system of internal accounting controls and accurate books and records.  The order also finds that the Batistas, who signed Pilgrim's Pride's financial statements, did not disclose their conduct to Pilgrim's Pride's accountants and independent public accountants.
Michael Allen Worley pled guilty in the United States District Court for the Middle District of Louisiana to bank fraud and wire fraud. Worley was sentenced to 44 months in prison plus three years of supervised release, and he was ordered to pay $15,751,905.26 to his various victims. As alleged in part in the DOJ Release:

[W]orley executed schemes to defraud both banks and private equity firms by submitting multiple false and fraudulent loan applications on behalf of himself and businesses he owned, operated, or controlled.  Between 2014 and 2018, Worley obtained more than $27 million in new loans from federally-insured banks in Baton Rouge and around the country through materially false and fraudulent statements and representations.  Through a similar scheme, Worley obtained at least an additional $13 million from private equity firms in Louisiana and Texas, also through materially false and fraudulent statements and representations.  During the course of his bank and wire fraud schemes, Worley inflated his assets, understated and omitted his liabilities, misrepresented his income, and often misrepresented other things, including the intended use(s) of millions in loan proceeds.  In some instances, Worley and his businesses defaulted on the loans, causing the financial institutions and private equity funds to suffer financial losses of over $15 million. Worley filed for Chapter 11 bankruptcy in January 2018.

After a four-day jury trial in the United States District Court for the Eastern District of Texas, Babatope Joseph Aderinoye was convicted of conspiracy to commit bank fraud, wire fraud, and money laundering; wire fraud, aggravated identity theft, and mail fraud. As alleged in part in the DOJ Release:

[A]derinoye would obtain fake passports in the names of others.  He would then use those fraudulent passports and the identifying information of others to establish false business entities and fraudulent bank accounts.  To this date, 13 individual aliases and 12 business aliases have been tied to Aderinoye, and there is evidence to suggest more aliases exist.  Once Aderinoye would open the fraudulent bank accounts, co-conspirators would engage in various business email compromise scams and telephone compromise scams to defraud individuals and businesses out of money.  In these scams, co-conspirators would pose as a known individual and direct the targeted victims to wire or send funds to Aderinoye or the fraudulent accounts Aderinoye had set up.  Once the money hit Aderinoye's fraudulent accounts, he would immediately withdraw the funds, transfer them to other fraudulent accounts, or wire them internationally to a bank account he had set up in Nigeria.  The illicit proceeds were used to pay off co-conspirators and further fund their fraudulent schemes.  From June 2018 through September 2019, over $6.7 million was deposited into alias accounts of Aderinoye, with almost all of those funds being withdrawn or wired internationally.  The victims of the BEC scams included school districts such as Community ISD, Project 4031, a non-profit organization that helps families of the terminally ill, an individual whose identity was used to drain his retirement account, and an elderly man who had over $352,000 stolen from his investment account.  The investigation is ongoing, as co-conspirators and victims continue to be identified.

SEC Obtains Final Judgments Against Defendants in Offering Fraud Scheme (DOJ Release)
Without admitting or denying the allegations in an SEC Complaint filed in the United States District Court for the Western District of North Carolina
  • Dana J. Bradley, Marlin S. Hershey, Performance Retire on Rentals, LLC, and Distressed Lending Fund, LLC, consented to the entry of a final judgment enjoining them from 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; and
  • Dana J. Bradley, Marlin S. Hershey, D. Bradley, Inc., Bryant Boys, LLC, Erndit LLC, Hershey Enterprises, Inc., MW Enterprises, LLC, and Performance Holdings, Inc. consented to the entry of a final judgment enjoining them from violating the broker-dealer registration provisions of Section 15(a) of the Exchange Act. 
The Judgment orders:

Bradley to pay $19,849 in disgorgement and prejudgment interest and a $192,768 civil penalty, and
Hershey to pay $19,869 in disgorgement and prejudgment interest and a $192,768 civil penalty for the antifraud violations. 

As alleged in part in the SEC Release:

[B]radley and Hershey, along with entities under their control, told investors they would use investor funds to make loans to real estate developers who would then use the money to acquire and rehabilitate homes in Charlotte, North Carolina and other areas of the country. The complaint alleged that Bradley and Hershey used a large portion of the funds to pay themselves more than $1 million in commissions and repay principal and interest due to other investors. The complaint further alleged that Bradley and Hershey oversaw three securities offerings for a third-party real estate developer in Florida and, in connection with those offerings, operated as unregistered brokers and received approximately $2.1 million in commissions.