Securities Industry Commentator by Bill Singer Esq

November 6, 2020

New York man sentenced to prison in $1.6 million investment fraud (DOJ Release)

SEC Awards More Than $3.6 Million and $750,000 in Separate Whistleblower Awards (SEC Release)

The $68 trillion transfer of wealth in America is evaporating amid crisis (CNBC by Ellen Sheng)
A wonderful bit of reporting by CNBC's Sheng that is a very, very sobering analysis of how COVID has slammed Baby Boomers. Truly, I can't recommend this piece enough! In addition to the anticipated impact of the pandemic, Sheng delves into this angle:

The pandemic has hit small businesses hard, including countless boomer-owned businesses. According to a survey by the Center for New Middle Class, there was a 25% drop in the number of baby boomers who said they are self-employed or own their own business in the second quarter. In addition, the largest jump in unemployment has been in nonprime households, or those with credit ratings under 700, ages 55 to 64, the center found. 

That impact could have significant repercussions for the economy at large considering that baby boomers, born between 1946 and 1964, own nearly half of privately-held businesses with employees in the U.S., according to Project Equity. That's 2.34 million businesses with 24.7 million employees and $5.1 trillion in sales, according to the U.S. Census Bureau. 

In a Complaint filed in the United States District Court for the Northern District of California, DOJ filed a civil antitrust lawsuit to stop Visa Inc.'s $5.3 billion acquisition of Plaid Inc. The DOJ Release characterizes Visa a a "monopolist in online debit services, charging consumers and merchants billions of dollars in fees each year to process online payments.  Plaid, a successful fintech firm, is developing a payments platform that would challenge Visa's monopoly." As alleged in part in the DOJ Release: 

[P]laid powers some of the most innovative fintech apps.  Plaid's technology allows developers to plug into consumers' various financial accounts, with consumer permission, to aggregate spending data, look up balances, and verify other personal financial data.  Plaid connects to 200 million consumer bank accounts and 11,000 U.S. banks.  Because it accesses data on behalf of so many fintech app customers, Plaid has become the leading financial data aggregation company in the United States.  Plaid is planning to leverage its connections to build a bank-linked payments network that would compete with Visa.  Plaid's money movement platform would allow consumers to pay merchants directly from their bank accounts using bank credentials rather than a debit card.  Plaid's established connections and technology uniquely positions it to enter the payments market and disrupt Visa's monopoly. 

The complaint alleges that Visa's CEO viewed the acquisition as an "insurance policy" to protect against a "threat to our important US debit business."  This acquisition is the second-largest in Visa's history, with an extraordinary price tag of $5.3 billion.  Visa's CEO justified the deal to Visa's Board of Directors as a "strategic, not financial" move, and noted that in part because "our US debit business i[s] critical and we must always do what it takes to protect this business."  Unless acquired, Visa feared that Plaid "on their own or owned by a competitor [was] going to create some threat" with a "potential downside risk of $300-500M in our US debit business" by 2024.  If Plaid remained free to develop its competing payment platform, then "Visa may be forced to accept lower margins or not have a competitive offering."

Millions of American consumers and merchants depend on debit services to transact business online.  The complaint alleges that Visa has dominated online debit for years and has protected its monopoly with exclusionary tactics that have prevented rivals, including Mastercard, from expanding or entering. The lawsuit alleges that Visa's proposed acquisition of Plaid is a violation of both Section 2 of the Sherman Act and Section 7 of the Clayton Act.  The Department filed its lawsuit in the U.S. District Court for the Northern District of California.

Visa Inc. is a Delaware corporation headquartered in Foster City, California.  Visa is a global payments company that operates the largest debit network in the United States.  Visa's 2019 revenues were approximately $23 billion. 

Plaid Inc. is a Delaware corporation headquartered in San Francisco, California.  Plaid is a financial services company that operates the leading financial data aggregation platform in the United States.  In 2019, Plaid earned approximately $100 million in revenues.
Kent Maerki pled guilty in the United States District Court for the Eastern District of Virginia to conspiracy to commit mail and wire fraud. As alleged in part in the DOJ Release:

[K]ent Maerki, 78, of Scottsdale, the founder of Dental Support Plus Franchise, LLC, and Janus Spectrum, LLC, made a multitude of misrepresentations about those businesses in materials used to solicit investments, including during appearances on radio shows and in a presentation about investments in wireless spectrum he called "Money From Thin Air."

Maerki, who has been barred since 1984 from working in the securities industry, acknowledged that he and his conspirators used a team of salesmen to solicit investments in extremely risky businesses that ultimately failed; made numerous material misrepresentations about the claimed investment opportunities; and continued to sell the investments without disclosing that the Securities and Exchange Commission, the Virginia State Corporation Commission, and the Arizona State Corporation Commission were investigating the conspirators for fraud. Many of the victims in this scheme were elderly and losses exceeded $23 million, over $4 million of which went to Maerki.
Kraig Gier, 59, pled guilty in the United States District Court for the Western District of Missouri to two counts of wire fraud and he was sentenced to five years and three months without parole in prison. As alleged in part in the DOJ Release:

[G]ier, who operated a business called Security Planning Corporation, admitted that he stole a total of $1,087,964 from a 96-year-old client and an 84-year-old client. Through his scheme to defraud, Gier caused losses to one victim client of $879,602 and to another victim client of $208,362. According to court documents, Gier depleted the life savings of his victims, which resulted in one of his victims having to move out of the family home which she and her husband shared with her children for many years.

Gier began making fraudulent withdrawals from the various investment accounts of these clients in February 2015, and had the money deposited into either his personal checking account or his business account. This fraud scheme continued until July 2018.

Gier sometimes forged the signature of the client victims on the paperwork associated with a particular withdraw request. At other times, Gier would contain with the withdrawal paperwork a fraudulent voided check with the victim's name on it but with his personal or business account number as the intended recipient of the requested funds.

In order to cover up his fraudulent scheme, Gier prepared false and fictitious documentation purportedly from the financial company holding the victim clients' investment. This documentation would fraudulently represent they were making a significant profit even though he had often significantly depleted their account.
In an Indictment filed in the United States District  Court for the District of Maryland, Damilola Lawal, a/k/a DML, D Baba, and Dami; Idowu Ademola Raji, a/k/a ID, King Soso, and James; and Akolade Ojo, a/k/a Kola and Boogz were charged with 12 counts of federal wire fraud conspiracy, wire fraud, passport fraud, and aggravated identity theft.  As alleged in part in the DOJ Release:

[F]rom August 2018 and continuing until October 26, 2020, the defendants conspired with Adewumi Abioye, Hameed Adesokan, Lukman Salam, and another person to defraud victim businesses and victim financial institutions.  Specifically, the indictment alleges that the defendants and their co-conspirators used false, forged, and counterfeited passports and other identification documents that contained the facial images of co-conspirators but not their real names.  They used the forged documents to create limited liability companies, and to open fraudulent bank accounts, often where the only authorized signatory was an alias or stolen identity used by the defendants and their co-conspirators.  The defendants and their co-conspirators used a messaging app to communicate the timing of financial transactions, including directing members of the conspiracy regarding the deposit, withdrawal, transfer, and conversion of fraudulently obtained funds.

For example, as detailed in the indictment, on September 17, 2019, a co-conspirator sent a victim a fraudulent e-mail purporting to be from the victim's attorney, advising the victim to send a $65,000 wire transfer to an account controlled by Salam as part of a real estate purchase.  Lawal used the messaging app to send photographs and messages to Salam to show that the victim was making the wire transfer and listed a reference number.  Once the funds had arrived in the account, Lawal instructed Salam to obtain a cashier's check and make cash withdrawals so Salam could pay some of the cash to Lawal.  Similarly, the indictment alleges that between October 5, 2018 and October 9, 2018, Salam engaged in numerous financial transactions at Raji's direction, after a co-conspirator fraudulently obtained $390,000 from a victim business by sending the victim business e-mails purporting to come from an employee of one of the victim business' service providers and requesting that payment be wired to an account in the name of Salam's alias, Matthew John.  Salam then allegedly purchased checks, made cash withdrawals, and engaged in ATM and point of sale transactions using a debit card, in order to obtain access to the fraudulently obtained funds and to conceal their further use.

According to the indictment, on June 11, 2019, Lawal alerted Abioye that fraud proceeds from another victim business were being sent to a bank account that Abioye had opened using a fraudulent passport in the name of Andrew Ali.  The account was registered to Geotric Global LLC, and listed Andrew Ali as the only signatory.  That same day, the victim business sent a $339,680.63 ACH transfer to the account, believing it was paying a legitimate services vendor after receiving fraudulent e-mails purporting to be from the vendor, and providing payment instructions.  On December 30, 2019, Ojo received a $33,729 cashier's check purchased by a co-conspirator using part of the $66,278.81 fraudulently obtained from a victim business.  Ojo provided the check to Salam for deposit.  Between December 2019 and January 2019, Salam engaged in multiple withdrawals from the account where the fraudulent funds were deposited and provided Ojo with a portion of the proceeds from the fraud of the victim business.
Viky Bohra pled guilty in the United States District Court for the Western District of Washington to securities fraud. As alleged in part in the DOJ Release:

According to the plea agreement, BORHA's relative worked in the Amazon Finance Department and had access to confidential information regarding Amazon revenue and expenses.  Because of that work, the relative was subject to blackout periods during which no stock could be traded by the employee or her immediate relatives.  The employee also was advised of insider trading policies making it clear the responsibility to safeguard confidential financial information.  Despite those warnings, BOHRA obtained confidential information from the relative and traded in Amazon stock in accounts tied to him and his father.  Trades occurred during blackout periods and, from 2015 to 2018, relied in part on information from his relative to make successful trades in advance of Amazon earnings announcements.

As part of the plea agreement, BOHRA agrees to forfeit the proceeds of his trades, $1,428,264 to the United States.  On September 28, 2020, BOHRA was charged by the Securities and Exchange Commission (SEC) in a civil insider trading case.  The recoveries in that case will be credited toward the forfeiture owed to the United States.

As part of the plea agreement, BOHRA's relative will not face criminal charges.  The relative is no longer employed at Amazon.

Colorado Man Admits Securities and Tax Offenses Related to $722 Million Fraud Scheme (DOJ Release)
Jobadiah Sinclair Weeks pled guilty in the United States District Court for the District of New Jersey to Count Two of an Indictment charging him with conspiracy to offer and sell unregistered securities; and he pled guilty to a separate Information charging him with tax evasion for the tax years 2015 through 2018. As alleged in part in the DOJ Release:

From April 2014 through December 2019, the BitClub Network was a fraudulent scheme that solicited money from investors in exchange for shares of purported cryptocurrency mining pools and rewarded investors for recruiting new investors into the scheme. Weeks operated as a large-scale promoter of the BitClub Network, and sold shares despite knowing that the BitClub Network and its operators did not file a registration statement with the U.S. Securities and Exchange Commission.

Weeks admitted taking money from investors in exchange for shares of the BitClub Network's purported mining pools. He admitted that in order to promote shares, he created and posted videos to the internet and gave presentations and speeches about the BitClub Network throughout the United States and in numerous countries throughout the world. Weeks instructed investors in the United States to use a virtual private network, or "VPN," to hide their U.S.-based IP addresses and evade detection and regulation by U.S. law enforcement.

Weeks also admitted not filing tax returns and failing to report at least $10 million in income, including cryptocurrency income earned from his association with the BitClub Network, for the tax years 2015 through 2018.

New York man sentenced to prison in $1.6 million investment fraud (DOJ Release)
Christopher Fulco a/k/a "Christian Anthony" pled builty in the United States District Court for the District of Montana to mail fraud, money laundering, and securities fraud, and he was sentenced to three years in prison plus tree years of supervised release and ordered to pay $1,643,073 restitution. As alleged in part in the DOJ Release:

[F]ulco, operating as JM Capital in New York, took money from 11 victims in a scheme that ran from 2014 to 2019. Fulco solicited funds in exchange for shares of stock in two companies, identified as Company 1 and Company 2. Fulco failed to obtain any shares of stock, and instead, spent the money on himself. One of Fulco's victims is a Montana resident. When Fulco's victims agreed to buy stock from him, Fulco deposited their money into his JM Capital Citibank account. He was the only signor on the account. Bank records indicated that Fulco spent the money on himself, including making large cash deposits and debit card transactions at casinos in Atlantic City.

At sentencing, Judge Molloy noted that Fulco was responsible for defrauding the Montana investor of more than $350,000.
Sungjin Cho, Ivan Olefir, and Capyield Systems, Ltd., an entity controlled by Olefir, consented to the entry of final judgments in the United States District Court for the District of New Jersey that would permanently enjoin them from violating the antifraud provisions of Section 10(b) of the Securities Exchange Act and Rule 10b-5 thereunder and Section 17(a) of the Securities Act; and, further, Cho and Olefir agreed to conduct-based injunctions limiting their ability to trade U.S.-listed securities and derivatives. Also, Cho agreed to pay a $175,000 civil penalty, and Olefir and Capyield agreed to pay a joint and several $250,000 penalty. The SEC will move to dismiss its case against Relief Defendant Kyungja Cho, whose trading in the scheme was directed by Sungjin Cho. As alleged in part in the SEC Release:

[C]ho, Olefir, Capyield, and six other defendants participated in a scheme to hack into EDGAR and extract material nonpublic information to use for illegal trading. The complaint alleged that a Ukrainian hacker gained access in 2016 and extracted EDGAR files containing nonpublic earnings results. From July to October 2016, Cho, Olefir, and Capyield allegedly traded on the basis of this hacked information in the narrow window of time between when the files were extracted from EDGAR and when the information was released to the public. They also allegedly previously traded based on material nonpublic information obtained through the hack of at least two newswire services.

Cheryl Broussard, 63, pled guilty in the United States District Court for the Eastern District of Tennessee to one count of wire fraud and she was sentenced to 24 months in prison, and also ordered to pay $106,000 in restitution and $106,000 in forfeiture.  As alleged in part in the DOJ Release:

Broussard, the author of multiple books on women and finance, advertised herself as a financial professional with over two decades of experience in investment management and fiscal independence for women.  As part of her plea, Broussard admitted to entering into an investment agreement with a professional women's sorority pursuant to which she would manage $100,000 of the sorority's funds in February 2015.  Beginning in June 2015, Broussard sent regular investment portfolio reports to the sorority purporting to detail investments in securities.  Unbeknownst to the sorority, Broussard had used its funds for personal expenses, and the periodic reports were fake.  Broussard admitted that, when the sorority noticed inconsistencies in the periodic reports and sought to terminate the agreement, she fabricated a termination penalty that appeared to be part of the original agreement to prevent the sorority from going forward with the termination.  When the sorority eventually terminated the agreement, Broussard failed to remit any funds to the sorority.
In the SEC's Order Determining Whistleblower Award Claim ('34 Act Rel. No. 90350; Whistleblower Award Proc. File No. 2021-5 / November 5, 2020), the Claims Review Staff ("CRS") issued a Preliminary Determination, which the Claimant contested as to the recommended award percentage. In response to said contest, CRS increased its award percentage recommendation to about $3.6 million, which the Commission adopted based upon the following factors:

(1) Claimant's information was significant in that it alerted Enforcement Staff to the violative conduct, and there is a close nexus between Claimant's tip and the resulting charges; (2) Claimant provided substantial and ongoing assistance to Enforcement Staff, which included traveling to another country at Claimant's own expense to
meet with staff in person and providing an extensive supporting documentation; (3) the law enforcement interests are high where, as here, the whistleblower provided critical information about violative conduct that occurred abroad and that otherwise would have been difficult to detect; and (4) the Claimant suffered hardships due to Claimant's whistleblowing.

While we considered Claimant's ministerial role in the underlying misconduct, the Commission declines to reduce the award for culpability as Claimant took exceptional steps to report the misconduct from abroad and provided extraordinary assistance.

In the SEC's Order Determining Whistleblower Award Claim ('34 Act Rel. No. 90351; Whistleblower Award Proc. File No. 2021-6 / November 5, 2020), CRS issued a Preliminary Determination to award about $750,000, which the Commission adopted. In its rationale for the Award, the SEC noted in part that [Ed: footnotes omitted]:

The record demonstrates that Claimant voluntarily provided original information to the Commission that led to the successful enforcement of the Covered Action. Although the investigation that gave rise to the Covered Action was already open at the time Claimant provided original information, Claimant provided information that caused Enforcement staff "to inquire concerning different conduct" that ultimately formed the basis for the Covered Action. 

[(1)] Claimant provided significant information that led the Commission to uncover an ongoing fraud; (2) Claimant provided assistance to Commission staff by meeting with them in person and helping them understand the likely mechanics of the fraudulent scheme; and (3) the law enforcement interest is high, as it is unlikely the fraud would have been detected but for Claimant's information and assistance.

Bill Singer's Comment: Compliments to the SEC for issuing two fairly articulate Whistleblower Orders. In the first Order, we have the successful contest by a Whistleblower of a CRS recommended Award percentage. It's worth noting that in some case such a contest will prove successful. Moreover, that Order titillates us with its admonition that the SEC "considered Claimant's ministerial role in the underlying misconduct . . .," which means that the whistleblower did not come to the SEC with entirely clean hands. From my perspective, that's an indication that the SEC Whistleblower program is attracting worthwhile tipsters including those who may know of misconduct despite being part of same. The goal here is not to invoke a Purity Test but to further the public interest by rooting our misconduct. Similarly, the second Whistleblower Order should be seen as encouraging folks to come forward with information even if it involves an SEC investigation already in progress. The result of such tips may be to enhance the Staff's investigation through the introduction of information that they may have missed or been unaware of, or, in the specific situation of the second SEC Order, to prompt Staff into inquiring about conduct different from that already under scrutiny.
As Aegis Frumento wrote his guest blog, no victor had been called by any of the media sites that typically anoint the winners. At the time of publication, Aegis was guessing that Joe Biden will end up being the next President. Not because of the polls, which he notes were wrong this time as last -- except more so. Nor even because most analysts think Biden will ultimately win Arizona, Nevada, Pennsylvania and even Georgia. No, Aegis has given up on pundits and pollsters. This time, he's following gamblers.