Securities Industry Commentator by Bill Singer Esq

July 28, 2021
You ever read something and you think that you understand what happened but when you go back and re-read the same document, you realize that you assumed a lot of stuff that wasn't in there and, geez, the more I read this thing, the less confidence that I have with what I'm being told happened because I don't think that what they meant is what they said, but if that's the case, then I don't think that they said what they meant, but if they did, I'm not quite sure that it makes sense but for the fact that I still think that I intuit what went on here even if I can't actually explain it. And thus we begin the tale of a recent public customer's FINRA Arbitration.
As alleged in part in the DOJ Release (ya know, the part that doesn't include the DOJ Release Title and the three sub-headings):

Earlier today, the United States sold the sole copy of the Wu-Tang Clan album "Once Upon a Time in Shaolin" (the "Album") which had previously been ordered to be forfeited as a substitute asset in connection with the approximately $7.4 million forfeiture money judgment (Forfeiture Money Judgment) entered against Shkreli at his March 2018 sentencing.  Proceeds from the sale of the Album will be applied to satisfy the outstanding balance owed on the Forfeiture Money Judgment.  The contract of sale contains a confidentiality provision that protects information relating to the buyer and price.
. . .

Shkreli was the founder and managing member of hedge funds MSMB Capital Management LP and MSMB Healthcare Management LP and the former Chief Executive Officer of Retrophin Inc. ("Retrophin"), a publicly traded biopharmaceutical company.  Following a six-week trial in federal court in Brooklyn, Shkreli was convicted in August 2017 of two counts of securities fraud and one count of securities fraud conspiracy for orchestrating a series of schemes to defraud investors in the hedge funds and to manipulate the price and trading volume of Retrophin's stock.  United States District Judge Kiyo A. Matsumoto sentenced Shkreli to seven years' imprisonment, to be followed by three years' supervised release, and ordered him to pay the Forfeiture Money Judgment, approximately $388,000 in restitution and a $75,000 fine.  Judge Matsumoto also ordered Shkreli to forfeit the Album and other substitute assets to satisfy the Forfeiture Judgment. 

Shkreli's conviction and sentence, including the imposition of the Forfeiture Money Judgment, were affirmed by the U.S. Court of Appeals for the Second Circuit in July 2019.  Following the U.S. Supreme Court's denial of Shkreli's request for further review of his conviction and sentence, the government seized the Album and other assets owed by Shkreli.   

At the time Shkreli purchased the Album in 2015, it was marketed as "both a work of art and an audio artifact."  The Album includes a hand-carved nickel-silver box as well as a leather-bound manuscript containing lyrics and a certificate of authenticity.  The Album is subject to various restrictions, including those relating to the duplication of its sound recordings. In September 2017, just weeks after his conviction but before the district court-imposed forfeiture, Shkreli attempted to sell the Album through an on-line auction.
As readers of the "Securities Industry Commentator" and the " Blog" know, I am often a critic of many FINRA online postings, which tend to border on asinine and seem designed for no purpose other than generating undeserved publicity. In a rare sighting, I just read an excellent FINRA posting, which focuses on an issue of importance to public investors: imposters posing as stockbrokers or brokerage firms. The FINRA Staff Release offers useful guidance that, in part, warns about:

The fraudsters behind broker imposter websites take the name and other publicly available professional details about a registered investment professional and use this information to establish a fraudulent website. The fraudsters then call and direct potential customers to the imposter websites. Their likely goal is to mimic a legitimate website to obtain existing or potential clients' personal information or login credentials.

. . .

Another type of broker imposter scheme involved an unregistered individual impersonating a registered investment professional to lure in potential investors. In this instance, the scammer created a fake version of a public FINRA BrokerCheck® report of a legitimate broker-picking an experienced broker with a spotless regulatory record.
In a Complaint filed in the United States District Court for the District of Utah, the SEC charged Mine Shaft Brewery, Timothy Andrew Nemeckay, John Allen Logan, and Charles Vernon Whittington with violating the antifraud provisions of Section 17(a) of the Securities Act, Section 10(b) of the Securities Exchange Act, and Rule 10b‒5 thereunder, and the registration provisions of Securities Act Sections 5(a) and 5(c); further, Nemeckay was charged with violating Section 15(b)(6)(B)(i) of the Exchange Act. A parallel federal criminal investigation resulted in the indictment of Nemeckay on securities fraud, among other criminal charges; and a parallel investigation by the Utah Department of Commerce‒Division of Securities resulted in the filing of a civil action against Mine Shaft Brewing, Nemeckay, Logan, and Whittington for violating the antifraud and licensing and registration provisions of Utah law. As alleged in part in the SEC Release:

[R]ecidivist Timothy Andrew Nemeckay, John Allen Logan, and Charles Vernon Whittington told investors that their funds would be used to develop the Mine Shaft Brewery, which included building a brewery, restaurant, and retail store. Investors were allegedly told that approximately 70% of invested funds would be used to acquire brewery and restaurant equipment and to purchase a building or make improvements to an existing building, with the remaining 30% of invested funds used for inventory and other Mine Shaft business expenses. Instead, as alleged, Nemeckay used his personal LLC as a pass through to pay his personal expenses, including restitution obligations to victims from his prior securities fraud scheme. The complaint alleges that in all, Nemeckay used approximately $1.7 million (63%) of investor funds for his own personal use. The complaint further alleges that, of the remaining investor funds, approximately 10% were used to make Ponzi payments to investors and 10% were used to compensate Whittington and Logan, with less than 17%, used consistently with disclosures to investors.
In part, SEC Chair Gensler observes that:

When it comes to sustainability-related investing, though, there's currently a huge range of what asset managers might mean by certain terms or what criteria they use.

Some of these funds screen out certain industries. Others make assertions about the greenhouse gas emissions or water sustainability of their underlying assets.

Some funds involve human judgments. Others might track an outside index.

Labels like "green" or "sustainable" say a lot to investors. Which data and criteria are asset managers using to ensure they're meeting investors' targets - the people to whom they've marketed themselves as "green" or "sustainable"?

I think investors should be able to drill down to see what's under the hood of these funds.

Thus, I've directed staff to consider recommendations about whether fund managers should disclose the criteria and underlying data they use. I've also asked staff to consider whether we might take a holistic look at the Names Rule. adult entertainment/ 
BofA/Merrill Lynch alleged that it discharged an analyst for using his corporate credit card at a so-called adult entertainment venue. They also sold steak there, in case you were wondering. The thing about FINRA's regulator case is that it sure as hell didn't have much proof. What it did have was four FINRA lawyers going after some poor shlub who must have wished the floor would open up and swallow him.