Securities Industry Commentator by Bill Singer Esq

March 15, 2019

In a Complaint filed in the United States District Court for the Northern District of California, the SEC today charged Volkswagen AG, its subsidiaries Volkswagen Group of America Finance, LLC and VW Credit, Inc., and former Chief Executive Officer Martin Winterkorn with violating the antifraud provisions of the federal securities laws.  The SEC complaint seeks permanent injunctions, disgorgement of ill-gotten gains with prejudgment interest, and civil penalties.  The complaint also seeks an officer and director bar against Winterkorn. As set forth in part in the SEC Release:

According to the SEC's complaint, from April 2014 to May 2015, Volkswagen issued more than $13 billion in bonds and asset-backed securities in the U.S. markets at a time when senior executives knew that more than 500,000 vehicles in the United States grossly exceeded legal vehicle emissions limits, exposing the company to massive financial and reputational harm.  The complaint alleges that Volkswagen made false and misleading statements to investors and underwriters about vehicle quality, environmental compliance, and VW's financial standing.  By concealing the emissions scheme, Volkswagen reaped hundreds of millions of dollars in benefit by issuing the securities at more attractive rates for the company, according to the complaint.

In the Matter of Allan Michael Roth (SEC Order Denying Respondent's Motion to Postpone Filing Answer Indefinitely; '34 Act Re. No. 85327; Admin. Proc. File No. 3-18792 / March 14, 2019)
Roth is the subject of a 2018 SEC Order Instituting Administrative Proceedings ("OIP") that alleges he had pled guilty to felonies involving the purchase or sale of a security; and, accordingly, the SEC will determine what remedial action, if any,  should be taken against Roth , who is representing himself pro se and is an inmate in a state correctional facility. After being granted an extension of time to file his Answer, Roth moved, in part,  to again postpone the deadline for filing his Answer based upon his filing in state court of a motion to vacate his criminal judgment. Roth asserts that if the SEC pursues the OIP without a "final conclusive order" from the the state court, that he will be substantially prejudiced.  In denying Roth's motion to postpone, the SEC explains, in part, that [Ed; footnotes omitted]:

The Commission has held repeatedly that a pending postconviction motion is not a basis to postpone an administrative proceeding. In Jon Edelman, the Commission denied a petition for an emergency stay of a follow-on proceeding while the respondent pursued postconviction relief from his underlying conviction, observing that "[t]he public interest demands prompt enforcement of the securities laws, even while other government proceedings are under way. Accordingly, indefinite stays for the purposes of pursuing other relief are inappropriate." So too here. If Roth's postconviction motion is successful, he may petition the Commission for reconsideration of any remedial action imposed in this proceeding.  Because Roth has not made any showing, let alone a "strong showing," of the "substantial[] prejudice" required to override the strong public interest in the prompt enforcement of the federal securities laws, we deny his request for a postponement to the extent it is based on his pending postconviction motion.
Two veteran, female Wall Street stockbrokers worked at UBS before joining Merrill Lynch. Maybe they knew each other at UBS, maybe not. In any event, at Merrill Lynch, one of the stockbrokers came up with the idea of pooling their clients and working a common book of business. The intention of forming a team seems to have been to foster a working relationship in contemplation of the retirement of one of the stockbrokers. As far as intentions go, that seems like a good one. The thing about good intentions, however, is that they are the paving stones for the road to hell -- or, as this mess would prove, a highway to hell.
Brothers Douglas Miller and Edward Miller pled guilty in the United States District Court for the District of Indiana, respectively, to one count of conspiracy to commit securities and wire fraud and one count of making a false statement; and one count of conspiracy to commit securities and wire fraud and one count of obstruction of justice. The pleas were in connection with the brothers role in a 2014 fraudulent scheme to trade in options ahead of SAP SE's (SAP) acquisition of Concur Technologies (Concur), which netted them and their co-conspirators hundreds of thousands of dollars in profits. Douglas Miller was sentenced to 24 months in prison plus two years of supervised release, and ordered to forfeit $209,915.88 in illegal proceeds.  Edward Miller was sentenced to six months in prison plus two years of supervised release, and  ordered to forfeit $222,628.17 in illegal proceeds. As set forth in part in the DOJ Release:

[D]ouglas and his brother, Edward Miller obtained material, nonpublic information from Christopher Salis, a global vice president at SAP, about SAP's September 2014 acquisition of Concur. Douglas and Edward Miller and others then purchased securities in Concur based on this information for the purposes of profiting from these transactions and returning a portion of the profits to Salis, the defendants admitted.  Following the acquisition, the Millers and their co-conspirators sold the securities and earned hundreds of thousands of dollars in profits. 

The Millers also admitted to taking further steps to conceal their scheme by structuring financial transactions and using "burner" phones to communicate with their co-conspirators. Upon learning of federal investigations into the insider trading scheme, Edward Miller took steps to hinder and impede the investigation, including by destroying electronic data found on the "burner" phones. Douglas Miller also admitted to lying to federal investigators about his involvement in the scheme.

In February 2017, Salis pleaded guilty to one count of conspiracy to commit securities fraud and wire fraud in connection with the scheme. Salis is scheduled to be sentenced on March 22.

In the Matter of the Arbitration Between Jeffrey Ridgway and Rayma Ridgway, Claimants, v. Money Concepts Capital Corp, Respondent (FINRA Arbitration Decision 18-00575 / March 13, 2019)
In a FINRA Arbitration Statement of Claim filed in February 2018, public customer Claimants asserted violations of the Ohio Securities Act, negligence, suitability, failure to supervise, failure to conduct due diligence, violations of industry rules, breach of contract, breach of fiduciary duty, fraud, and respondeat superior. Claimants alleged that their broker:

[C]raig A. Sutherland, ("Sutherland") had discretionary authority over their accounts and misrepresented the risks associated with investments in Tanzanian Royalty Exploration Corporation ("TRX"), a publicly-traded mineral resources company; a private placement called NGAS Partners 2009-A; and various gold funds, resulting in significant losses to Claimants. Claimants further allege that Sutherland sold them six variable annuities, which were allocated in cash without Claimants' knowledge, and that the cash allocation and annuities' expenses have resulted in loss to the annuities' value in a time when markets have risen.

Claimants sought $260,00 disgorgement of commissions and advisory fees plus punitive damages, interest, fees, and costs. Respondent Money Concepts generally denied the allegations; asserted various affirmative defenses; and sought the expungment of the mattter from non-party Sutherland's Central Registration Depository records ("CRD"). The FINRA Arbitration Panel found Respondent Money Concepts liable and ordered it to pay to the Claimants $698,979.00 in compensatory damages plus interest, $27,920.00 in costs; and $244,642.00 in attorneys' fees. The Panel denied the requested expungement of Sutherland's CRD.

In the Matter of the Arbitration Between Jennifer Goldstein and Kevin O'Malley, Claimants, v. 
BGC Financial, L.P. and Louis Scotto, Respondents (FINRA Arbitration Decision 15-00142 / March 13, 2019)
In a FINRA Statement of Claim filed in January 2015, associated person Claimants asserted breach of contract, violation of New York Labor Law, defamation, slander, hostile work environment, discrimination, and retaliation. At the hearing, Claimant Goldstein requested compensatory damages in the range of $2,800,000.00 to $9,888,818.00 and Claimant O'Malley requested compensatory
damages in the range of $2,800,000.00 to $8,447,000.00. Respondents BGC Financial and Scotto generally  denied the allegations and asserted various affirmative defenses. The FINRA Arbitration Decision states that:

Before and during hearings, Respondents asserted that any claims regarding deferred
compensation must be brought against BGC Holdings, L.P., an entity that was not
named and is not a FINRA registered entity that was subject to jurisdiction in this
arbitration. Accordingly, the Panel has made no decision regarding deferred
compensation claims against BGC Holdings, L.P.

The FINRA Arbitration Panel denied Claimants' claims against Respondent Scotto.

The FINRA Arbitration Panel found Respondent BGC liable and order the firm to pay to:

Claimant Goldstein: $475,000.00 in compensatory damages representing $175,000.00 for the
claim of hostile work environment and $300,000.00 on the claim of retaliation.

Claimant O'Malley: $300,000.00 in compensatory damages on the claim of retaliation.

Claimants Goldstein and O'Malley: $8,008.03 in costs; $475,194.50 in attorneys' fees; and $750.00 reimbursement for FINRA filing fee. 

In the Matter of the Arbitration Between Stephen Brice, John Drake, Elizabeth Drake, and Cathy MenneIla, Claimants, v. American Capital Partners, LLC, Trident Partners Ltd., and Timothy Vincent Longo,Respondents
Trident Partners Ltd., Crossclaim-Claimant / Crossclaim-Respondent v. Timothy Vincent Longo, Crossclaim-Respondent / Crossclaim-Claimant
(FINRA Arbitration Decision 17-01370 / March 13, 2019)
We got four public customer Claimants suing two FINRA member firms and an associated person. Then we got one of the member firms crossclaiming against the associated persons. And then we got the associated person crossclaiming against the member firm. This is the living embodiment of the Lawyers' Full-Time Employment Act!
The customer Claimants asserted  breach of fiduciary duty, negligence supervision, and breach of contract. The FINRA Arbitration Decision provides us with the useless explanation that: "The causes of action relate to various securities." Wow, that sure as hell clears up nuthin'. Claimants sought $150,000 in compensatory damages plus punitive damages, interest, and costs. 
Respondent Trident crossclaimed against Respondent Longo, and  sought contribution and indemnification in its favor. On his crossclaim against Trident, ultimately Longo sought $55,652.98 in compensatory damages; $111,305.96 in liquidated/treble damages; and $36,525.5 in attorneys' fees. 
In April 2018, the Claimants settled with Respondents American Capital and Longo, and dismissed their claims against those two parties. And now for the envelope . . . and the Award says:

After considering the pleadings, the testimony and evidence presented at the hearing, and the post-hearing submissions, the Panel has decided in full and final resolution of the issues submitted for determination as follows: 

1. Respondent Longo is liable for and shall pay to Respondent Trident compensatory damages in the amount of $10,000.00 for settlement claims paid by Trident. 
2. Respondent Longo is liable for and shall pay to Respondent Trident compensatory damages in the amount of $21,680.03 for a debit balance. 
3. Respondent Trident is liable for and shall pay to Longo compensatory damages in the amount of $55,652.98. 
4. Respondent Trident's award of compensatory damages in the amount of $10,000.00 in item 1 above and $21,680.03 in item 2 above is an offset to Longo's award in item 3 above. As such, Respondent Trident is liable for and shall pay to Longo $55,652.98 minus $31,680.03 awarded to Trident in items 1 and 2 above for a net amount due Longo of $23,972.95. 
5. Respondent Trident is liable for and shall pay to Longo interest on the award of $23,972.95 at the rate of 9% per annum beginning 30 days from the date of the award until the award is paid in full. 
6. Respondent Longo's request for attorneys' fees is denied. 
7. Respondent Longo's request for liquidated/treble damages is denied. 
8. Respondent Trident's request for attorneys' fees is denied. 
9. Any and all claims for relief not specifically addressed herein are denied.