Securities Industry Commentator by Bill Singer Esq

November 14, 2018

In a Complaint filed in the United States District Court for the Central District of California, the SEC alleged that former Advanced Medical Optics, Inc. Chief Executive Officer James V. Mazzo executed a nondisclosure agreement with Abbott Laboratories, Inc. while that firm was exploring its  acquisition of AMO. The Complaint alleges that Mazzo provided nonpublic information about the contemplated acquisition to five of his friends, among which was former Baltimore Orioles baseball player Douglas V. DeCinces, who then tipped five of his friends, including former teammate David L. Parker. The Complaint alleges that DeCinces's insider trading yielded over $1.3 million in alleged profits, and that his tippees realized another $1 million in profits. Without admitting or denying the allegations, Mazzo agreed to a final judgment that includes a permanent injunction from violations of the antifraud and tender offer provisions of the Exchange Act, orders Mazzo to pay a civil penalty in the amount of $1.5 million, and imposes a five-year officer-and-director bar. DeCinces and four of his tippees already settled the Commission's insider trading claims against them. The SEC's litigation against Parker is continuing. READ the SEC Complaint
Okay, sure, I'll admit it: I look at the cover and judge the book. Hey, at least I'm being honest here. It's pretty much the same with a lot of FINRA Arbitration cases. I take a gander at the caption and if I know some of the parties, I pretty much know whether they're going to win or lose. Nah . . . it ain't always accurate but more so than you might think. In a recent public customer arbitration against four industry respondents, I immediately honed in on one: Legend Securities, Inc. Frankly, I didn't think that there was much point in reading the FINRA Arbitration Decision. No way that any public customer was going to lose almost any reasonable case involving Legend. Maybe I should have read the decision rather than merely judged the outcome by the caption?

USA, Plaintiff/Appellee, v. Douglas A. Dyer and James H. Brennan III, Defendants/Appellants (Opinion, United States Court of Appeals for the Sixth Circuit, 17-6174 and 17-6177  / November 13, 2018) As set forth in the Syllabus:

The Double Jeopardy Clause of the Fifth Amendment protects against multiple criminal prosecutions and punishments for the same offense. Recently, the Supreme Court held that "[d]isgorgement, as it is applied in SEC enforcement proceedings, operates as a penalty under [28 U.S.C.] § 2462." Kokesh v. SEC, 137 S. Ct. 1635, 1645 (2017). In this criminal sentencing appeal, we must consider whether SEC civil disgorgement is now a criminal punishment after Kokesh. It is not, so we AFFIRM Defendants' sentences.

By way of prelude, the 6Cir Opinion explains, in part, that:

The district court held a sentencing hearing in the Criminal Case on September 29, 2017 and adopted the recommendations from the PSR. The court denied each objection from Defendants. The court ruled that Kokesh did not apply to Defendants' Double Jeopardy claims, that the court was allowed to consider "relevant conduct" that could not be prosecuted separately because of the statute of limitations, and that Brennan did not qualify as a first offender given his previous censure by the Financial Industry Regulatory Authority ("FINRA"). The court then analyzed the 18 U.S.C. § 3553(a) factors and sentenced Brennan to 48 months and Dyer to 60 months. The court also ordered Brennan and Dyer to pay restitution in the full amount of loss, $4,942,070.18. Brennan and Dyer were ordered to pay additional amounts of $184,022.84 and $354,251.58, respectively, to the IRS for their tax evasion. 

. . . 

On January 30, 2018, the SEC moved for disgorgement in the Civil Case. Two weeks later, the court entered an order of disgorgement against Brennan and Dyer, jointly and severally, in the amount of $4,942,070.18, to be offset by the amount of restitution ordered to be paid in the Criminal Case.

In advancing its theory for affirmation of the lower court, 6Cir asserts in part on Page 7 of the Opinion that:

It is important to recognize what the Court did not say in Kokesh. The Court did not say that SEC civil disgorgement is a criminal punishment. Nor did it say anything about Double Jeopardy. Defendants ask us to read between the lines in the Kokesh opinion. They assert it should be read broadly to mean that every "penalty" is a "punishment," and in turn that every "punishment" necessarily implicates the Double Jeopardy Clause. This is based on the general language from Kokesh defining "penalty" as a "punishment, whether corporal or pecuniary, imposed and enforced by the State, for a crime or offen[s]e against its laws." Id. at 1642 (alteration in original) (quoting Huntington v. Attrill, 146 U.S. 657, 667 (1892)). But even if a civil penalty is a punishment, the Double Jeopardy Clause still allows the successive imposition of some "sanctions that could . . . be described as punishment." Hudson v. United States, 522 U.S. 93, 98-99 (1997) (citation omitted). Rather, only multiple criminal punishments are prohibited. Id. And apart from a single mention of the word "crime," nothing in Kokesh suggests that the Court considered SEC disgorgement to be a criminal punishment. Kokesh, 137 S. Ct. at 1642 (quoting Huntington, 146 U.S. at 667). Therefore, Defendants' broad reading seems improper, especially considering that just four years earlier the Supreme Court analyzed the exact same statute of limitations at issue in Kokesh -- 28 U.S.C. § 2462 -- as the "general statute of limitations for civil penalty actions." Gabelli v. SEC, 568 U.S. 442, 444 (2013).

Oisin's Bits: LPL hacked through Capital Forensics' breach, leaks personal info, account numbers (

LPL Financial's database has been hacked, causing a major breach of investor names, addresses, social security numbers and account numbers, according to an unpublicized memo sent to all LPL reps last week by LPL CEO Dan Arnold. Other firms were likely hit as well. Palatine, Ill.-based Capital Forensics, Inc. (CFI) was the apparent source of the so-called "data security incident," according to Arnold's Nov. 9 memo, a copy of which has been obtained by RIABiz. Firms with CFI document protection and data analysis agreements were the likely targets.
In the first criminal prosecution in Chicago involving the cryptocurrency trading industry, former Consolidated Trading LLC assistant trader Joseph Kim  pled guilty to one count of wire fraud and was sentenced in the United States District Court for the Northern District of Illinois to 15 months in prison for misappropriating $1.1 million in Bitcoin and Litecoin. Allegedly, Kim transferred large sums of Consolidated's Bitcoin and Litecoin to personal accounts to cover his losses trading cryptocurrency futures on foreign exchanges. After Consolidated's management team discovered the misappropriation of at least $600,000 and terminated him, Kim then incurred $545,000 in crypto trading losses on behalf of at least five investors, some of whom had invested their retirement savings. Kim told those victimized investors that he had voluntarily left Consolidated, concealed his misappropriations, and fabricated false account statements showing profitable trading. 

FINRA Settles Business Expense Case
For the purpose of proposing a settlement of rule violations alleged by the Financial Industry Regulatory Authority ("FINRA"), without admitting or denying the findings, prior to a regulatory hearing, and without an adjudication of any issue, John J. Baldeck submitted a Letter of Acceptance, Waiver and Consent ("AWC"), which FINRA accepted. In the Matter of John J. Baldeck, Respondent  (AWC 2016050321501, November 12, 2018).
In accordance with the terms of the AWC, FINRA imposed upon Baldeck a Bar from association with any F1NRA member in any capacity. As set forth in the AWC's "Facts and Violative Conduct": 

Morgan Stanley permitted Baldeck to resign after it found that Baldeck "requested and received reimbursement from the Firm for expenses described as client meal expense[s], when the meals were actually personal in nature." Subsequently, FINRA staff sent a request dated August 9, 2018 to Baldeck to appear and provide on-the-record testimony pursuant to FINRA Rule 8210 on September 14, 2018. Baldeck and FINRA staff subsequently agreed to reschedule the testimony for October 23, 2018. Baldeck appeared for testimony pursuant to Rule 8210 on that date and provided a partial day of testimony. However, before the testimony was complete, Baldeck informed staff that he would not complete his on-the-record testimony that day or at any time. By refusing to complete his on-the-record testimony as requested pursuant to FINRA Rule 8210, Baldeck violates FINRA Rules 8210 and 2010. 

Nigerian National Indicted for Internet Fraud Scheme (DOJ Release)
In a 12-count Indictment filed in the United States District Court for the Western District of Missouri, Segun Prosper Otaru was charged with one count of wire fraud conspiracy, four counts of wire fraud, four counts of bank fraud, one count of theft of public money, and two counts of fraud and misuse of visas, permits and other documents. Otaru is charged with participating in a wire fraud conspiracy whereby victims responded to internet advertisements on sites such as, for goods, services and rental accommodations for which the conspirators had no intention of providing. In one scam, the conspirators used existing pictures and descriptions of properties from legitimate websites to create fraudulent Craigslist postings under properties for rent, for which they secured deposits via MoneyGram or Western Union. In another scam, the conspirators used a stolen credit card number to purchase items from the victim businesses, which were instructed to ship the purchased goods to a foreign country through a shipper controlled by the conspiracy. Additionally, the conspirators used stolen identities to file at least 167 false and fraudulent federal income tax returns that listed false employers, wages, and employment taxes paid.