Securities Industry Commentator by Bill Singer Esq

February 27, 2019
In a Complaint filed in the United States District Court for the Southern District of Florida, the SEC alleged that  Castleberry Financial Services Group, LLC's (f/k/a "Jon Barri Brothers") President T. Jonathon Turner and Chief Executive Officer Norman M. Strell misused investor funds to pay personal expenses and transferred other funds to businesses they controlled and to family members. Further, the Complaint alleges that Castleberry falsely stated on its website and in promotional materials that Turner has extensive finance industry experience, a MBA degree, and a law degree, while concealing that its President has been convicted of multiple fraud, theft, and forgery felonies and was imprisoned from 1998 until 2016. The Complaint asserts that Catleberry, Turner, and Strell had defrauded investors out of $3.6 million by falsely representing that the firm had hundreds of millions of dollars in capital invested in local businesses and a portfolio of hundreds of investment properties. Further, the Complaint alleges that investors were offered high yield investments that were purportedly "fully insured and bonded" by CNA Financial Corp. and Chubb Group, when, in fact, said insurance companies had no relationship with Castleberry and did not authorize it to use their logos in Castleberry's sales materials.The Court granted the SEC's request for a temporary restraining order and temporary asset freeze against the defendants, and issued an order directing the defendants to provide a sworn accounting. 
READ the SEC Complaint
Wall Street is legendary for sending messages. You try to bury your competition. You try to crush the other side of the deal. And when it comes to employment relations on the Street, it's more of that dog-eat-dog world. No holds barred. Two walk in but one walks out. Cut their heads off and hang 'em on a pole. The thing is, however, it only takes one sucker punch to make you look silly. If yer gonna send a message, ya better make sure it don't get returned to sender!
I mean, what can I say? Is it possible to be impressed by the audacity of a bunch of con artists -- even if their scam ultimately crashed down around them? As alleged in part in the DOJ Release, starting in December 2013 and running through February 2017, Shadeed Phillips,  Koreen Higgs,:and others:

entered home-improvement and other retail stores and gathered several high-value items like air conditioners or hardwood flooring. Phillips, Higgs and others then typically "purchased" the items either by handing a cashier a fraudulent check with a phony name but authentic account and routing numbers, or by pretending to be an authorized signatory on a store credit account that they had previously opened with a phony check.

During some of the transactions, Phillips, Higgs and others displayed fake driver's licenses that had been created by one of the other conspirators, which either duplicated the phony name imprinted on the fraudulent check they presented for payment or matched the name of an authorized signatory on a store credit account that they had previously opened.

In total, Phillips, Higgs and others stole over $2 million in merchandise from various retailers in New Jersey, New York, Pennsylvania, Delaware, North Carolina, Georgia, Virginia, Connecticut, Massachusetts, and South Carolina.

And to paraphrase that great poem, The best-laid schemes o' mice an' men an' Joisey contractors, Gang aft agley,An' lea'e us nought but grief an' pain. Phillips and Higss pled guilty to one count each of conspiracy to commit wire fraud as alleged in a criminal Information in the United States District Court for the District of New Jersey and were sentenced, respectively, to 12-months and 33-months in prison plus three-years of supervised release.

United States of America v. AT&T Inc., DirectTV Group Holdings, LLC, and Time Warner Inc. (Complaint, United States District Court for the District of Columbia, 17-CV-02511 / November 17, 2017)

As set forth in the preamble portion of the DOJ Complaint:

AT&T/DirecTV is the nation's largest distributor of traditional subscription television. Time Warner owns many of the country's top TV networks, including TNT, TBS, CNN, and HBO. In this proposed $108 billion transaction -- one of the largest in American history -- AT&T seeks to acquire control of Time Warner and its popular TV programming. As AT&T has expressly recognized, however, distributors that control popular programming "have the incentive and ability to use (and indeed have used whenever and wherever they can) that control as a weapon to hinder competition." Specifically, as DirecTV has explained, such vertically integrated programmers "can much more credibly threaten to withhold programming from rival [distributors]" and can "use such threats to demand higher prices and more favorable terms." Accordingly, were this merger allowed to proceed, the newly combined firm likely would -- just as AT&T/DirecTV has already predicted -- use its control of Time Warner's popular programming as a weapon to harm competition. AT&T/DirecTV would hinder its rivals by forcing them to pay hundreds of millions of dollars more per year for Time Warner's networks, and it would use its increased power to slow the industry's transition to new and exciting video distribution models that provide greater choice for consumers. The proposed merger would result in fewer innovative offerings and higher bills for American families.

For these reasons and those set forth below, the United States of America brings this civil action to prevent AT&T from acquiring Time Warner in a transaction whose effect "may be substantially to lessen competition" in violation of Section 7 of the Clayton Act, 15 U.S.C. § 18. 

Read the FULL TEXT of All Pleadings in the DOJ Archive

DDC Opinion 2018

Senior Judge Richard J. Leon of the United States District Court for the District of Columbia ("DDC") denied DOJ's request to enjoin the proposed merger, declined to impose any conditions, and denied any stay. Leon concluded that the government has failed to meet its burden of proof, and characterized the Antitrust Division's arguments against the deal as "fatally anemic" and  "gossamer thin." United States of America v. AT&T Inc., DirectTV Group Holdings, LLC, and Time Warner Inc. (Opinion, United States District Court for the District of Columbia, 17-CV-02511 / June 12, 2018).
Barely constraining his contempt for the government's case, Leon noted that:

[T]o use a stay to accomplish indirectly what could not be done directly -- especially when it would cause certain irreparable harm to the defendants -- simply would be unjust. I hope and trust that the Government will have the good judgment, wisdom, and courage to avoid such a manifest injustice. To do otherwise, I fear, would undermine the faith in our system of justice of not only the defendants, but their millions of shareholders and the business community at large.

Page 171 - 172 of the DDC Opinion

DC Circuit Opinion 2019

In United States of America, Appellant, v. AT&T, Inc., et al., Appellees (Opinion, United States Court of Appeals for the District of Columbia Circuit / 18-5214 / February 26, 2019), the DC Circuit Court affirmed the DDC's denial of a permanent injunction of the merger. The DC Circuit found that DDC had not abused its discretion when denying the sought relief. The DDC Opinion explains the narrowed bases for the government's appeal:

On appeal, the government contends that the district court court (1) misapplied economic principles, (2) used internally inconsistent logic when evaluating industry evidence, and (3) clearly erred in rejecting Professor Shapiro's quantitative model. Undoubtedly the district court made some problematic statements, which the government identifies and this court cannot ignore. And in the probabilistic Section 7 world, uncertainty exists about the future real-world impact of the proposed merger on Turner Broadcasting's post-merger leverage. See Brown Shoe, 370 U.S. at 323. At this point, however, the issue is whether the district court clearly erred in finding that the government failed to clear the first hurdle in meeting its burden of showing that the proposed merger is likely to increase Turner Broadcasting's bargaining leverage.

Pages 17 - 18 of the DC Cir Opinion

As set forth in DC Cir Opinion's "Syllabus:" 

On October 22, 2016, AT&T Inc. announced a proposed merger with Time Warner Inc. The government sued to enjoin this vertical merger under Section 7 of the Clayton Act, 15 U.S.C. § 18, and now appeals the denial of its request for a permanent injunction. United States v. AT&T Inc., 310 F. Supp. 3d 161, 254 (D.D.C. 2018). Although it pursued three theories of antitrust violation in the district court, the government on appeal challenges only the district court's findings on its increased leverage theory whereby costs for Turner Broadcasting System's content would increase after the merger, principally through threats of long-term "blackouts" during affiliate negotiations. 

At trial, the government presented expert opinion on the likely anticompetitive effects of the proposed merger on the video programming and distribution industry as forecast by economic principles and a quantitative model. It also presented statements by the defendants in administrative proceedings about the anticompetitive effects of a proposed vertical merger in the industry seven years earlier. The defendants responded with an expert's analysis of real-world data for prior vertical mergers in the industry that showed "no statistically significant effect on content prices." The government offered no comparable analysis of data and its expert opinion and modeling predicting such increases failed to take into account Turner Broadcasting System's post-litigation irrevocable offers of no-blackout arbitration agreements, which a government expert acknowledged would require a new model. Evidence also indicated that the industry had become dynamic in recent years with the emergence, for example, of Netflix and Hulu. In this evidentiary context, the government's objections that the district court misunderstood and misapplied economic principles and clearly erred in rejecting the quantitative model are unpersuasive. Accordingly, we affirm.