Securities Industry Commentator by Bill Singer Esq

Munchee is a California business that created an iPhone application ("app") for people to review restaurant meals. In October and November 2017, Munchee offered and then sold digital tokens ("MUN" or "MUN token") to be issued on a blockchain or a distributed ledger. Munchee conducted the offering of MUN tokens to raise about $15 million in capital so that it could improve its existing app and recruit users to eventually buy advertisements, write reviews, sell food and conduct other transactions using MUN. In connection with the offering, Munchee described the way in which MUN tokens would increase in value as a result of Munchee's efforts and stated that MUN tokens would be traded on secondary markets. 

Based on the facts and circumstances set forth below, MUN tokens were securities pursuant to Section 2(a)(1) of the Securities Act. MUN tokens are "investment contracts" under SEC v. W. J. Howey Co., 328 U.S. 293 (1946), and its progeny, including the cases discussed by the Commission in its Report of Investigation Pursuant To Section 21(a) Of The Securities Exchange Act of 1934: The DAO (Exchange Act Rel. No. 81207) (July 25, 2017) (the "DAO Report"). Among other characteristics of an "investment contract," a purchaser of MUN tokens would have had a reasonable expectation of obtaining a future profit based upon Munchee's efforts, including Munchee revising its app and creating the MUN "ecosystem" using the proceeds from the sale of MUN tokens. Munchee violated Sections 5(a) and 5(c) of the Securities Act by offering and selling these securities without having a registration statement filed or in effect with the Commission or qualifying for exemption from registration with the Commission. On the second day of sales of MUN tokens, the company was contacted by Commission staff. The company determined within hours to shut down its offering, did not deliver any tokens to purchasers, and returned to purchasers the proceeds that it had received.  

Diaconu admitted that co-conspirators fraudulently listed vehicles for sale at online marketplaces such as eBay.  When victims expressed interest in purchasing the vehicles, co-conspirators responded with emails directing the victims to wire payments to specified bank accounts, which the victims believed were going to serve as escrow accounts until the victims received the vehicle they wished to purchase.  In reality, these bank accounts were opened by Diaconu and his co-conspirators, who used false identities and fraudulent documents, including counterfeit passports, when opening the accounts.  Twelve victims sent approximately $185,000 to accounts opened by Diaconu.  Another 35 victims sent approximately $688,000 to accounts opened by Diaconu's co-conspirators.  Diaconu and his co-conspirators subsequently sent the bulk of the money to co-conspirators located overseas.  The victims never received the vehicles they intended to purchase.

Between Jan. 1, 2005, and Dec. 31, 2014, IBERIABANK certified for FHA insurance mortgage loans that did not meet HUD underwriting and origination requirements and were, therefore, ineligible for FHA mortgage insurance under the DE program.  HUD paid FHA insurance claims on certain of these ineligible mortgages, and these included ones where IBERIABANK's loan files contained inadequate documentation of the borrower's income, unresolved appraisal discrepancies concerning declining home values in the relevant neighborhood, and inadequate verification related to the borrower's down payment. 

Between 2005 and 2014, IBERIABANK paid incentive payments to underwriters and others who performed underwriting activities.  After a HUD review of IBERIABANK in 2010 notified the Bank that it was not in compliance with the underwriter commission prohibition, IBERIABANK advised HUD that it was no longer paying underwriter commissions.  However, the Bank did not disclose to HUD that it was paying underwriters incentive payments and that it continued to do so through 2014.

Between 2005 and 2014, IBERIABANK did not timely self-report material violations of HUD requirements.  Internal IBERIABANK audits and reviews during this time period found that the Bank's quality reviews were not being performed in a timely manner and did not comply with other HUD requirements.

As a result of IBERIABANK's conduct and omissions, HUD insured loans approved by the Bank that were not eligible for FHA mortgage insurance under the DE Program and that HUD would not otherwise have insured.  HUD subsequently incurred losses when it paid insurance claims on those loans.

1. This case involves a serial insider trading scheme perpetrated by a group of stock traders that generated over $5.45 million in total profits for the group. Spera was one of the traders that profited unlawfully from the scheme, making a total of over $1 million in illegal insider trading profits. The primary component of the scheme was the systematic misappropriation of material non-public information from investment banks confidentially marketing secondary stock offerings by publicly traded issuers. The individuals who participated in this aspect of the scheme - including the leader Steven Fishoff ("Fishoff"), Paul Petrello ("Petrello"), Ronald Chernin ("Chernin"), Steven Costantin ("Costantin"), and Spera - together made a total of over $3.96 million by obtaining advance knowledge of the offerings from the investment banks and then, after tipping other members of the group, selling short the issuers' stock before the offerings were publicly announced. The confidential offering information obtained by these defendants was material because the offering shares were sold by the issuers at a discount to the market price and diluted the holdings of existing shareholders. As a result, the issuers' stock prices dropped substantially after the offerings were announced, thus enabling members of the group who shorted the stocks to cover their short sales at a hefty profit. 

• Securities Industry Commentator
• Bill Singer
• BrokeAndBroker
• RRBDLaw