Securities Industry Commentator by Bill Singer Esq

to engage in or facilitate cold-call solicitations of hundreds of prospective investors throughout the United States and Canada from at least February 2014 through December 2016. The complaints allege that, as a result of the defendants' conduct, Intertech Solutions raised over $7 million from retail investors. According to the complaints, Intertech Solutions paid the defendants exorbitant commissions ranging from 35% to 50% of the funds provided by each investor. The complaints allege that the defendants did not disclose their commission rates to investors and instead distributed private placement memoranda that indicated that only 10% of investor proceeds would be used as commissions. The SEC previously charged Intertech Solutions and its control persons with orchestrating the fraudulent and unregistered offerings.

FBI and Department of Justice officials today announced the disruption of one of the largest Medicare fraud schemes in U.S. history. An international fraud ring allegedly bilked Medicare out of more than $1 billion by billing it for unnecessary medical equipment-mainly back, shoulder, wrist, and knee braces.

The FBI and partner investigative agencies announced charges against 24 people -- three were prescribing medical professionals, and the rest were owners or high-ranking officials in medical equipment or telemedicine companies. The indictment alleges the scheme has gone on for about five years.

Medical equipment companies often charge Medicare directly for providing equipment to Medicare patients. While this practice alone is not illegal, the alleged illegal activity in this scheme occurred when the medical equipment companies paid a firm in the Philippines to recruit individuals, through advertising on television or online, who were Medicare patients and may or may not have had a medical need for the braces.

[O]ur rules currently provide that no-action requests and the staff's written responses as a general matter are to be made available to the public "as soon as practicable after the response has been sent or given to the person requesting it."

Requiring these letters to be published has produced several benefits. It enhances consistency in staff-level guidance across time and across similarly-situated market participants. It creates an informal process that sheds public light on areas where our rules may be clunky or ambiguous or where they are producing unintended results (perhaps because they are being applied to novel technologies or business models). It allows for the provision of expressly tailored relief that preserves the integrity of our regulatory framework. It also keeps the staff accountable to the Commission and to the public by ensuring that the no-action process, although it is intrinsically informal, is also-at least at its end point-transparent. Finally, it helps to ensure that the views of the staff as articulated in these letters do not, over time, fall out of sync with the views of the Commission and the realities of the market.

. . .

The problems are a bit different, but no less troubling, when firms have to have access to novel interpretations or non-published or draft staff guidance to get credit for complying with our rules. Market participants begin wondering whether they are subject to the same requirements and standards as their competitors. Firms without access to the high-priced lawyers who have gained a sight into the secret garden may indeed be at a fatal competitive disadvantage. Even more problematically, market participants may be unable to effectively push back when, for example, an examiner insists that a regulation means something that may be doubtful under any reasonable reading of the Commission's rules or policy as spelled out in publicly available materials. Finally, when a patchwork of public and non-public guidance has become so comprehensive that market participants can say, only half-jokingly, that entire sections of our rulebook are irrelevant, similar questions about fairness and transparency arise: Are all similarly situated firms aware of the non-public guidance? Does the staff's guidance reflect a thorough consideration of the likely benefits and costs of that guidance? Does access to our markets depend on hiring counsel that has access to the non-public views of the staff? Will market participants change their behavior in ways that may not make sense under our rules as written to comply with the vast body of guidance, much of which may not be publicly available?

All of these issues point, in turn, to a much larger question, which is this: Is the Commission regulating the markets and market participants in a way that is designed to cultivate and maintain the public trust over the long term?

Florida Executive Sentenced To 20 Years In Prison For Orchestrating $150 Million International Ponzi Scheme (DOJ Release)
https://www.justice.gov/usao-mn/pr/florida-executive-sentenced-20-years-prison-orchestrating-150-million-international-ponzi
In the United States District Court for the District of Minnesota, Antonio Carlos de Godoy Buzaneli pled guilty to conspiracy to commit mail fraud, and he was sentenced to 240 months in prison plus three years of supervised release and ordered to pay $51,353,861.45 in restitution. Buzaneli and co-conspirators Jose Manuel Ordonez, Jr. and Julio Enrique Rivera were the principals of Providence Holdings International, Inc.; and Buzaneli and Ordonez became principals of Providence Financial Investments, Inc. and Providence Fixed Income Fund LLC (collectively, along with Providence Holdings International, Inc., "Providence") in order to raise money from investors. Ordonez was previously sentenced for his role to 120 months in prison, and Rivera is awaiting sentencing. As set forth in part in the DOJ Release

[F]rom about 2010 until June 2016, Providence raised approximately $150 million from investors worldwide by representing that Providence would invest the money in Brazilian factoring. "Factoring" is a financial transaction in which accounts receivable are purchased at a discount. Providence's marketing materials explained that in Brazil consumers write ten separate post-dated checks for $100 - one per month - to pay for $1,000 in retail items such as consumer electronics or groceries. The retailer then sells the post-dated checks to Providence for approximately $820, and Providence earns $180 over ten months as the checks mature. As a result, Providence claimed to make a 48 percent annual return on money invested in Brazil.

According to BUZANELI's guilty plea and documents filed in court, Providence raised more than $64 million from U.S. investors by employing a network of brokers who sold promissory notes bearing annual interest rates between 12 percent and 24 percent. Investors were told their money would be used to factor accounts receivable in Brazil. BUZANELI, ORDONEZ and RIVERA provided the brokers with an Executive Memorandum to show investors that their money would be used to factor accounts receivable in Brazil. The Executive Memorandum falsely stated that funds would be used "for the sole purpose" of making loans to a Brazilian subsidiary of Providence "which will use the proceeds of the loan to acquire receivables or financial instruments such a post-dated checks and/or Duplicatas in the Brazilian Factoring Market."

According to the defendant's guilty plea and documents filed in court, BUZANELI and ORDONEZ instead used a significant amount of the investors' funds to make Ponzi-style payments to other investors and to make commission payments to Providence's nationwide network of brokers. BUZANELI and ORDONEZ also diverted investor funds to other companies they controlled, including an import/export company, a travel company, a realty company, a credit rehabilitation company, and a catering company and food truck operated by BUZANELI'S wife.

According to the defendant's guilty plea and documents filed in court, BUZANELI and ORDONEZ also opened Providence offices and affiliates in locations around the world, including London, Taipei, Shanghai, Singapore, Vancouver, and Panama. For example, in 2011 and 2012, BUZANELI and ORDONEZ opened Providence affiliates in the Bailiwick of Guernsey and in Hong Kong, through which they raised approximately $85 million from offshore investors based on the same lies they told investors in the United States - that their money would be used to invest in Brazilian factoring. Instead, much of the investors' money was transferred to other Providence-controlled entities around the world as well as to bank accounts controlled by BUZANELI and ORDONEZ, where the money was used for payments unrelated to Brazilian factoring, including to pay commissions to U.S. brokers and to make interest payments to American investors in Providence's U.S.-based entities. As a result of the fraud scheme, Providence investors worldwide - including more than 500 victims in the United States alone - lost a total of more than $100 million.

SEC Charges Former SeaWorld Associate General Counsel With Insider Trading (SEC Release)
https://www.sec.gov/news/press-release/2019-53
In a Complaint filed in the United States District Court for the Middle District of Florida, https://www.sec.gov/litigation/complaints/2019/comp-pr2019-53.pdf, former senior lawyer at SeaWorld Entertainment Inc. Paul B. Powers was charged with with fraud, and he consented to a permanent injunction with the amounts of disgorgement and penalties, if any, to be decided by the court.  In a parallel action, the U.S. Department of Justice today announced criminal charges against Powers arising out of the same conduct. In pertinent part the SEC Release alleges that Powers had

early access to key revenue information as the company's associate general counsel and assistant secretary, and he purchased 18,000 shares of SeaWorld stock the day after he received a confidential draft of the 2018 second quarter earnings release that detailed a strong financial performance by the company after a lengthy period of decline.  According to the SEC's complaint, Powers immediately sold his SeaWorld shares for approximately $65,000 in illicit profits after the company announced its positive earnings and the company's stock price increased by 17 percent.

• Securities Industry Commentator
• Bill Singer