Securities Industry Commentator by Bill Singer Esq

The Unsecured Convertible Note, The FINRA CMA, The Pro Se Plaintiff, The Federal Complaint, and the Legal Clinic (BrokeAndBroker.com Blog)

SEC Charges Pearson plc for Misleading Investors About Cyber Breach (SEC Release)

SEC Charges Penny Stock Company, CEO and Others with Multi-Million Dollar Fraud (SEC Release)

Former CEO Of Publicly Traded Houston Company Pleads Guilty To Accounting Fraud Scheme / Defendant Also Misappropriated More Than $5 Million From the Company (DOJ Release)

Financial Adviser Sentenced to Three and a Half Years in Prison for Swindling Millions From Clients (DOJ Release)

New York Investment Adviser Charged With Defrauding Clients And Misappropriating Their Money / Martin Ruiz Targeted Elderly Clients in New Mexico in Long-Running Scheme (DOJ Release)

SEC Obtains Court Order to Stop Investment Adviser's Alleged Ongoing Offering Fraud (SEC Release)

SEC Obtains Emergency Relief, Charges Two Florida Companies and their Principal Officer with Operating a Ponzi Scheme (SEC Release)

SEC Charges Stock Promoter with Market Manipulation (SEC Release)

SEC Charges Florida Film Production Company and Its CEO with Fraud (SEC Release)

FINRA Alerts Firms to a Phishing Email Campaign Using Multiple Imposter FINRA Domain Names (FINRA Regulatory)

New FINRA Report: Diversity of Cloud Computing Models Among Broker-Dealers Raises Opportunities and Challenges for the Securities Industry / FINRA Requests Comments on Report (FINRA News Release)

[P]earson made misleading statements and omissions about the 2018 data breach involving the theft of student data and administrator log-in credentials of 13,000 school, district and university customer accounts. In its semi-annual report, filed in July 2019, Pearson referred to a data privacy incident as a hypothetical risk, when, in fact, the 2018 cyber intrusion had already occurred. And in a July 2019 media statement, Pearson stated that the breach may include dates of births and email addresses, when, in fact, it knew that such records were stolen, and that Pearson had "strict protections" in place, when, in fact, it failed to patch the critical vulnerability for six months after it was notified. The media statement also omitted that millions of rows of student data and usernames and hashed passwords were stolen. The order also finds that Pearson's disclosure controls and procedures were not designed to ensure that those responsible for making disclosure determinations were informed of certain information about the circumstances surrounding the breach.

[S]ince at least July 2017, more than 1.5 billion shares of HempAmericana, Inc. stock through a Regulation A offering, with the understanding that HempAmericana would use a portion of the offering proceeds to secretly finance stock promotions that would enable GPL Ventures to sell its HempAmericana shares at a profit. The complaint alleges that HempAmericana misled investors regarding its use of the offering proceeds, and that co-defendants Seaside Advisors and Lawrence Adams paid a stock promoter who, in turn, funded promotions of HempAmericana's stock that failed to disclose HempAmericana's role in financing the promotions and that GPL Ventures intended to unload its shares into the promotion. GPL Ventures and certain of the defendants allegedly reaped about $11 million in illegal profits from this fraudulent scheme.

The complaint further alleges that GPL Ventures' owners, co-defendants Alexander Dillon and Cosmin Panait, falsely represented to their brokers that GPL Ventures was not involved in any stock promotions with respect to the shares GPL Ventures was depositing and selling into the market. Finally, the complaint alleges that GPL Ventures, affiliate GPL Management LLC, Dillon and Panait are operating as unregistered securities dealers, having privately obtained discounted stock in more than 140 microcap issuers and subsequently generated gross proceeds of at least $81 million by publicly reselling such stock to the investing public at a substantial profit.

At all times relevant to the Information until August 2016, HASTINGS was the executive chairman of the board of directors of SAEX (the "Board").  After August 2016, HASTINGS served as both the chairman of the Board and the chief executive officer ("CEO") of SAEX until he separated from the company in August 2019.  SAEX was a publicly traded seismic data acquisition company headquartered in Houston, Texas, that traded under the symbol "SAEX" on the NASDAQ.  In May 2020, SAEX was delisted from the NASDAQ and, in December 2020, was taken private.  SAEX provided land- and marine-based seismic acquisition services, including program design, planning and permitting, camp services, survey, drilling, recording, and processing.  Seismic data is used by oil and gas companies to identify and analyze drilling prospects and maximize successful drilling.

From February 2015 through May 2019, HASTINGS, together with Brent Whiteley, the then chief financial officer and general counsel of SAEX, Michael Scott, the then executive vice president of operations at SAEX, and "CC-1," the founder and at various times president, CEO, and chief operating officer of SAEX, devised and carried out a scheme to defraud SAEX's shareholders, bondholders, and the investing public by artificially and materially inflating SAEX's reported revenue by making it appear that Alaskan Seismic Ventures, LLC ("ASV") was an independent and reliable source of tens of millions of dollars of revenue.

In February 2015, HASTINGS and Whiteley discussed finding a way for SAEX to take advantage of certain tax credits offered by the State of Alaska to seismic data library companies, to offset the costs of exploring for oil and gas in Alaska (the "Alaska Tax Credits").  The Board of SAEX was opposed to operating its own data library company because of concerns about the ability to ensure payment to SAEX, including through the monetization of Alaska Tax Credits, among other reasons.  To avoid the appearance that SAEX was operating a data library company that licensed data to third parties, HASTINGS and Whiteley set up ASV, to purport to operate as an independent customer purchasing seismic data from SAEX and licensing it to third parties.  HASTINGS recruited an acquaintance to serve as the owner and sole employee of ASV.  In truth and in fact, and as hidden from investors, ASV was not independent and could not pay SAEX for its seismic data.

After setting up ASV, HASTINGS and Whiteley created and caused to be created a number of shell companies (the "Shell Companies") for the purpose of secretly transferring funds from SAEX into ASV.  One of the Shell Companies, Global Equipment Solutions ("Global Equipment"), was purportedly an equipment rental company from which SAEX rented seismic acquisition equipment.  In truth and in fact, and as HASTINGS and his co-conspirators well knew, SAEX did not rent any equipment from Global Equipment and did not owe Global Equipment any money.  The co-conspirators took steps to make the payments from SAEX to Global Equipment appear legitimate to others at SAEX.  For example, Whiteley drafted a lease agreement between SAEX and Global Equipment, and Scott caused fake purchase orders to be created that purported to show expenses incurred by SAEX as a result of renting equipment from Global Equipment.

By the end of 2015, SAEX had recorded on its books approximately $12 million in payables to Global Equipment.  HASTINGS and his co-conspirators ultimately routed approximately $5.8 million of SAEX's funds through Global Equipment and the other Shell Companies to ASV.  That money then went from ASV back to SAEX to pay outstanding receivables.  The fact that these funds belonged to and originated with SAEX was not disclosed to investors.  HASTINGS and his co-conspirators referred to this portion of the scheme as "round-tripping."  In addition, HASTINGS and Whiteley then misappropriated more than $5 million of the funds that SAEX transferred to Global Equipment for their own use, including making payments to Scott and CC-1, among others.   

The Securities and Exchange Commission today announced that it filed an emergency action and obtained a temporary restraining order, an asset freeze, and the appointment of a receiver to stop an alleged Ponzi scheme and misappropriation of investor proceeds perpetrated by Coral Springs, Florida resident Johanna M. Garcia and two entities she controls.

According to the SEC's complaint, which was filed in federal court in the Southern District of Florida, since about June 2020, Garcia and her companies raised at least $70 million from more than 2,150 investors in a fraudulent securities offering. The complaint alleges that Garcia, and her companies MJ Capital Funding LLC and MJ Taxes and More Inc. told investors that offering proceeds would be used to fund small business loans called "merchant cash advances," and promised investors annual returns of 120-180%. In fact, according to the complaint, the defendants only made, at most, $2.9 million in merchant cash advance loans and earned very little in revenue. Instead, the defendants allegedly used at least $20 million of new investor money to pay purported returns to existing investors in a classic Ponzi scheme fashion. In addition, the complaint alleges that the defendants misused another $27.4 million of investor money by making payments to various other entities, a substantial portion of which represented payments to sales agents for promoting these investments.

[F]rom February through November 2017, Tajyar engaged in manipulative trading in the stock of Atlas Technology International, Inc. ("Atlas"), including wash sales, matched orders, and marking the close. From September through November 2017, Tajyar allegedly engaged in a fraudulent campaign to promote Atlas stock in order to manipulate the price and trading volume of the stock. During his promotional campaign, Tajyar allegedly made materially false and misleading statements and omissions designed to give the impression that neutral third parties were interested in Atlas and that he was neither buying nor selling Atlas stock. Tajyar's alleged scheme allowed him to profitably sell Atlas shares he controlled in the open market.

[F]rom approximately August 2016 to March 2021, The Movie Studio and Venters issued materially misleading press releases regarding The Movie Studio's ownership, production, distribution, and licensing of films. The Movie Studio also allegedly hired sales agents, trained and supervised by Venters, to solicit investors using scripts provided by Venters. The complaint alleges that The Movie Studio falsely made itself appear more successful than it really was. Among other misrepresentations, the complaint alleges The Movie Studio and Venters:

• exaggerated the number of films The Movie Studio owned;
  
  
• made it appear that films would be released soon when, in fact, The Movie Studio had filmed only enough content to make a trailer;
   
• falsely claimed to own a production studio; and
  
  
• represented, without any basis, that The Movie Studio utilized blockchain technology in the distribution and licensing of films.

The complaint further alleges that The Movie Studio and Venters dumped shares of The Movie Studio stock on the public markets after issuing at least one misleading press release. As alleged, only a fraction of investor funds went towards The Movie Studio's film production business.  The complaint further alleges that Venters misappropriated investor funds for his personal use and to pay commissions to sales agents for recruiting investors.

FINRA warns member firms of an ongoing phishing campaign that involves fraudulent emails (see sample in Appendix) purporting to be from FINRA and using one of at least three imposter FINRA domain names:

• "@finrar-reporting.org"
• "@Finpro-finrar.org"
• "@gateway2-finra.org"

The email asks the recipient to click a link to "view request" and provide information to "complete" that request, noting that "late submission may attract penalties."

FINRA recommends that anyone who clicked on any link or image in the email immediately notify the appropriate individuals in their firm of the incident.

None of these domain names are connected to FINRA and firms should delete all emails originating from any of these domain names.

FINRA reminds firms to verify the legitimacy of any suspicious email prior to responding, opening any attachments or clicking on any embedded links.

FINRA has requested that the relevant Internet domain registrars suspend services for all three domain names. . . .

During discussions with market participants, several common themes emerged:

• Securities Industry Commentator
• Bill Singer