Securities Industry Commentator by Bill Singer Esq

April 3, 2018

Federal Courts Wrestle With Opening Doors To US Courthouse To KOSPI Class Action (BrokeAndBroker.com Blog)
http://www.brokeandbroker.com/3901/kospi-tower-2cir/
When we talk about the globalization of Wall Street, we need look no further than a recent class action lawsuit filed in the United States District Court for the Southern District of New York ("SDNY") by five Korean citizens plaintiffs, who traded KOSPI 200 future contracts in the after-hours (the "night market") on the Korea Exchange ("KRX"). You might ask with some validity as to how such a case would have jurisdiction in the US courts. That's a fair question and, frankly, you're a pretty clever person to have raised the point. Then there's the whole mixing of the real and the digital worlds. Where does anything online occur anymore? If you enter a trade in Korea that is sent to a server based in the United States but routed back for settlement to Korea, how do we figure out just where "where" is? As more transactions move to the Cloud, the question of where something takes place may become more difficult. Read on and see how the US court system handled that very problem


SEC Halts Fraudulent Scheme Involving Unregistered ICO (SEC Press Release 2018-53
https://www.sec.gov/news/press-release/2018-53
The SEC charged Centra Tech, Inc. co-founders Sohrab "Sam" Sharma and Robert Farkas with raising over $32 million from thousands of investors pursuant to an allegedly fraudulent initial coin offering ("ICO") in which Centra purportedly offered and sold unregistered investments through a "CTR Token." Sharma and Farkas allegedly claimed that funds raised in the ICO would help build a suite of financial products including a debit card backed by Visa and MasterCard that would allow users to instantly convert cryptocurrencies into U.S. dollars or other legal tender. In a parallel action, the U.S. Attorney's Office for the Southern District of New York filed criminal charges against Sharma and Farkas.  READ the FULL TEXT SEC Complaint. 
https://www.sec.gov/litigation/complaints/2018/comp-pr2018-53.pdf

In the Matter of the Application of Lek Securities Corporation  for Review of Disciplinary Action Taken by FINRA (Opinion, SEC, '34 Act Rel. No. 82981; Admin. Proc. File No. 3-17677  / April 2, 2018 )
https://www.sec.gov/litigation/opinions/2018/34-82981.pdf
On appeal, the SEC sustained FINRA's finding that Lek Securities had violated NASD Rules 3011(a)
and 2110 and FINRA Rules 3310(a) and 2010 by failing to establish and implement Anti-Money-Laundering policies, procedures, and internal controls that could be reasonably expected to detect and cause the reporting of suspicious transactions and that were reasonably designed to achieve compliance with the Bank Secrecy Act. Further, the SEC sustained FINRA's imposition of a Censure and $100,000 fine.

Federal Appeals Court Reverses PCAOB and SEC over Denial of Ernst & Young Expert Witness (BrokeAndBroker.com Blog)
http://www.brokeandbroker.com/3903/laccetti-pcaob-sec/
You know when you read something that's "official" and, at first blush, it doesn't make sense? Of course, you figure you must have missed something, so you re-read it but, gee, it still doesn't make sense. Then you look at the heading of the document and it's from some governmental agency or court and you figure that they must know what they're talking about and, after all, I'm just an idiot. At this point, you often go back, re-read the thing a third time but now assume whatever is necessary to bring reason to the pages and you relinquish all sorts of objections that get in the way. Voila, it now all makes sense! Of course, you may also wind up walking away as did Galileo muttering "And yet it moves." Speaking of walking away and how things still move, I recently followed a mess involving the PCAOB, the SEC, and a Ernst & Young audit partner. The E&Y audit partner came within the cross-hairs of PCAOB and was suspended and fined, which the SEC affirmed. Frankly, I didn't feel much sympathy for the guy and felt and still feel that PCAOB had him dead to rights. On the other hand, when the PCAOB was investigating the audit partner, they scheduled an interview at which he was accompanied by a lawyer employed by E&Y. Not my preferred manner of representation given the potential for conflicts in such cases but it's common enough that it's not that big a deal. On the other hand, PCAOB denied the lawyer's request to be accompanied by an accounting expert, who was also an E&Y employee. As best I could understand PCAOB's position on denying the expert's attendance, the regulator kept saying that it didn't want an employee of the firm present at the individual's interview -- but, you know, I kept noticing that the lawyer representing the individual was an E&Y employee and, hey, what's up with that? How come it's okay to have one E&Y employee present at the interview but not another? Seemed to me that PCAOB was sort of making it up as it went along.

SEC Charges Fintech Company Founder With Scheme to Defraud Investors and Misappropriate Funds (SEC Press Release 2018-52) https://www.sec.gov/news/press-release/2018-52
The SEC charged Michael Liberty,founder of the fintech firm Mozido Inc., his wife Brittany Liberty, his attorney George Marcus, his cousin Richard Liberty, and his cousin's friend Paul Hess with fraudulently inducing investors to purchase unregistered interests in shell companies controlled by Michael Liberty. Although said shells were represented as having transferable interests in Mozido, they did not. The alleged scheme duped investors out of over $48 million, which was allegedly diverted to fund such private expenses as private jet flights, multi-million dollar residences, expensive cars, and movie production ventures. READ the FULL TEXT Complaint. https://www.sec.gov/litigation/complaints/2018/comp-pr2018-52.pdf 

http://www.brokeandbroker.com/3901/kospi-tower-2cir/
When we talk about the globalization of Wall Street, we need look no further than a recent class action lawsuit filed in the United States District Court for the Southern District of New York ("SDNY") by five Korean citizens plaintiffs, who traded KOSPI 200 future contracts in the after-hours (the "night market") on the Korea Exchange ("KRX"). You might ask with some validity as to how such a case would have jurisdiction in the US courts. That's a fair question and, frankly, you're a pretty clever person to have raised the point. Then there's the whole mixing of the real and the digital worlds. Where does anything online occur anymore? If you enter a trade in Korea that is sent to a server based in the United States but routed back for settlement to Korea, how do we figure out just where "where" is? As more transactions move to the Cloud, the question of where something takes place may become more difficult. Read on and see how the US court system handled that very problem

Brazilian Couple Charged in ATM Skimming Scheme (DOJ Press Release) 
https://www.justice.gov/usao-ma/pr/brazilian-couple-charged-atm-skimming-scheme
Brazilian couple Alexandre Kawamura and Karem Kawamura were charged in the United States District Court for the District of Massachusetts in connection with their roles in an alleged ATM skimming scheme. Alexandre Kawamura was caught on ATM security video placing and removing skimming devices on drive-up ATM, and on two occasions, Karen Kawamura was in the car with him.

Cambridge, Massachusetts, Man Sentenced In Manhattan Federal Court For Insider Trading (DOJ Press Release) https://www.justice.gov/usao-sdny/pr/cambridge-massachusetts-man-sentenced-manhattan-federal-court-insider-trading 
Fei Yan's spouse worked at a law firm, which in 2016 was retained by a mining company in connection with its negotiations to acquire publicly traded Stillwater Mining company ("SWC"). The spouse came into contact with material nonpublic information about the negotiations, which she shared with her husband, who bought hundreds of SWC options before the completion of the acquisition was made public. While engaging in such purchase, Fei Yan searched online for information about insider trading. On December 9, 2016, when the acquisition of SWC was announced, Yan sold his options for a profit of $109,420. In addition to being sentenced to 15 months in federal prison and three years supervised release and ordered to forfeit $119,428.50, representing the amount of proceeds obtained as a result of trading in Stillwater Mining and related relevant conduct involving trades in the Mattress Firm.