Securities Industry Commentator by Bill Singer Esq

May 21, 2019
Duke University School of Medicine assistant professor Dr. Danielle Seaman  filed a class action  alleging that Duke University and the University of North Carolina had agreed not to permit lateral hiring of faculty between the universities in alleged violation of Section 1 of the Sherman Act.  In 2018, the United States District Court for the Middle District of North Carolina certified a class comprised of faculty members with an academic appointment at the Duke or UNC Schools of Medicine. In March 2019, DOJ's Antitrust Division filed a Statement of Interest in the lawsuit.  In April 2019, the litigants announced an agreement to settle the case; and DOJ filed an unopposed motion to intervene in Seaman v. Duke University and Duke University Health System (United States District Court for the Middle District of North Carolina, 15-CV-00462) challenging alleged agreements between Duke University and the University of North Carolina not to compete for each other's medical faculty. Pursuant to its intervention, DOJ joined the parties' proposed settlement agreement for the limited purpose of obtaining the right to enforce an injunction designed to prevent the maintenance or recurrence of any unlawful no-poach agreements. The proposed settlement would prohibit Duke from entering, maintaining, or enforcing unlawful no-poach agreements for five years; and, further, requires Duke to implement rigorous notification and compliance measures to preclude its entry into these types of anticompetitive agreements in the future.
The SEC goes after an alleged Ponzi scheme involving a purported cryptocurrency business that was backed by fancy colored diamonds. Diamonds may be a girl's best friend but they sure as hell aren't an investor's. Yet another warning as to why investors must do due diligence. Yet another reason to remember that what seems too good to be true usually is.

In the Matter of Paul B. Powers, Esq., Respondent (SEC Order Instituting Public Administrative Proceedings, Making Findings, and Imposing Sanctions; '34 Act Release No. 85897; Admin. Proc. Filed No.. 3-19169 / May 20, 2019)  
In anticipation of the institution of proceedings, Respondent Powers submitted an Offer of Settlement, which the Commission has determined to accept. In accordance with the Order, the SEC suspended Powers from appearing or practicing before it as an attorney. In pertinent part the SEC Order states:

1. Powers, 60, lives in Winter Garden, FL. He is the former Associate General Counsel and Assistant Secretary of SeaWorld Entertainment, Inc. ("SeaWorld"). He was employed by SeaWorld from approximately October 2011 until October 19, 2018, when he was terminated for the conduct described herein. He has been licensed to practice law in Missouri since 1985. Powers has never held any securities licenses and is not registered with the Commission in any capacity. 

2. SeaWorld is a Delaware corporation with its principal place of business in Orlando, Florida. SeaWorld (ticker: SEAS) has had its common stock registered pursuant to Section 12(b) of the Securities Exchange Act of 1934 ("Exchange Act") since April 2013, and its shares are listed on the New York Stock Exchange. 

3. On April 9, 2019, the Commission filed a complaint against Powers in SEC v. Paul Bannon Powers (Civil Action No. 6:19-cv-00664), in the United States District Court for the Middle District of Florida. The Commission's complaint alleged that, among other things, between approximately August 2 and August 6, 2018, Powers knowingly and willfully breached a duty of trust and confidence he owed to both his employer, SeaWorld, and SeaWorld's shareholders, by trading in securities issued by SeaWorld while in possession of material and confidential information that he gained while working as a lawyer for SeaWorld. 

4. On May 13, 2019, the court entered an order permanently enjoining Powers from future violations of Section 10(b) of the Exchange Act and Rule 10b-5 thereunder.
In a Complaint filed in the United States District Court for the Central District of California, the SEC charged David N. Osegueda, Ishmail Calvin Ross, a/k/a Calvin Ross, Zachary R. Logan, and Jessica Snyder, f/k/a Jessica Gutierrez with violating the antifraud provisions of Sections 17(a)(1) and 17(a)(3) of the Securities Act and Section 10(b) of the Securities Exchange Act  and Rule 10b-5 thereunder; and further charges Osegueda, Ross, and Logan with violating the registration and antifraud provisions of Sections 5(a), 5(c), and 17(a)(2) of the Securities Act. The SEC seeks permanent injunctions, disgorgement with prejudgment interest (except as to Snyder), civil penalties, officer and director bars (except as to Logan), and penny stock bars. As set forth in part in the SEC Release:

[I]n 2015, Ishmail Calvin Ross of Canoga Park, California secured - but hid - his control of Green Cures behind a figurehead CEO and a front company created by Ross and Jessica Snyder of Avondale, Arizona. At the same time, David N. Osegueda of Sun Valley, California allegedly sold Ross portions of convertible promissory notes, which documented debts owed by Green Cures that could be repaid with the company's stock. Osegueda and Ross converted the debt into shares and hired Zachary R. Logan of La Jolla, California to provide stock promotion services in return for Green Cures shares. Osegueda, Ross, and Logan then deposited their shares into their brokerage accounts. In order to induce the brokerage firm to accept these shares, they made false and misleading statements, including that they were unaware of any promotional campaigns and that they were not working with anyone regarding the stock.

The SEC also alleges that in 2016, the defendants pumped up Green Cures's stock price and trading volume through a promotional campaign, including false and misleading press releases and thousands of emails, text messages, and posts on investor bulletin boards. Osegueda, Ross, and Logan then allegedly dumped their shares onto unsuspecting investors, generating approximately $1.9 million in illicit proceeds.

In an application filed in the United States District Court for the Southern District of California, the SEC seeks an order directing Tacson McLeod to comply with an investigative subpoena for documents and testimony. As set forth in part in the SEC Release:

[T]he SEC is investigating whether certain individuals or entities violated the antifraud and registration provisions of the federal securities laws through the unregistered offer and sale of securities. Based on its ongoing investigation, the SEC has reason to believe that McLeod was receiving compensation for work performed on behalf of one or more of the parties engaging in these securities transactions, including an individual who has been the subject of prior SEC enforcement actions and who, as a result of those prior actions, has been permanently barred from participating in offerings of penny stock and from association with any broker-dealer.

In December 2018, the SEC issued a subpoena to McLeod seeking the production of documents, including documents related to offers of or transactions in certain penny stocks. The subpoena also required McLeod to appear for investigative testimony. According to the SEC's application, the SEC has made multiple attempts to contact McLeod, including by personally serving the subpoena and sending follow-up correspondence. However, McLeod has not responded to the SEC.

Ex-Credit Union Manager Pleads Guilty to Bank Fraud in $40 Million Embezzlement that Rendered Institution Insolvent (DOJ Release)
CBS Employees Federal Credit Union former manager  Edward Martin Rostohar pled guilty in the United States District Court for the Central District of California to one felony count of bank fraud for embezzling $40 million from his employer over the course of 20 years - spending the money on gambling; homes in California, Nevada and Mexico; and travel by private jet. - in a scheme that ultimately led to the credit union becoming insolvent. Additionally, Rostohar agreed to forfeit his ill-gotten gains, including bank accounts in his name and the names of his shell companies, four automobiles, including a Porsche, a Tesla and a Lexus, homes in Studio City, Reno, and Mexico, expensive watches, and Tiffany jewelry. As set forth in part in the DOJ Release:

[R]ostohar used his position as a manager at the credit union, a federally insured financial institution, to make online payments from the credit union to himself or by forging the signature of another credit union employee on checks made payable to himself. Prior to his three decades of employment at the credit union, Rostohar was a trained accountant and an examiner at the National Credit Union Administration (NCUA), a federal agency that regulates credit unions. During his approximately 20 years of embezzling from CBS Employees FCU, he used his senior position at the institution to falsify its records to hide his fraud and make credit union appear to be profitable despite it suffering more than $40 million in losses as a direct result of his scheme, the plea agreement states.

Rostohar sometimes disguised his unauthorized payments, and hid the proceeds of the fraud, by directing the stolen funds to shell companies he controlled, court papers state. Rostohar also admitted to submitting credit union checks to make personal credit card payments.

The scheme was exposed in March when a credit union employee, after discovering a $35,000 check payable to Rostohar, conducted an audit and discovered $3.8 million in checks made payable to Rostohar between January 2018 and March 2019. Rostohar told law enforcement he gambled away much of the money and spent the rest on traveling by private jet, buying expensive watches, and giving his wife a weekly allowance of $5,000, according to an affidavit filed with a criminal complaint in the case. Rostohar also started a coffee business in Reno, Nevada in December 2018, and he wrote tens of thousands of dollars' worth of checks to himself to cover the business's costs as well as to pay a $5,000 monthly mortgage on a home in Reno he recently purchased, according to court documents.

Ex-Mirae Bank Executive Sentenced to More than 5 Years in Prison for Loan Fraud that Caused Large Losses to the Bank (DOJ Release)
The defunct Mirae Bank's former chief market officer, Ataollah Aminpour a/k/a John Aminpour a/k/a Johnny Aminpour pled guilty in the United States District Court for the Central District of California to one felony count of making a false statement to a financial institution and was sentenced to 70 months in prison and ordered to pay $7,519,084 restitution. As set forth in part in the DOJ Release:

Aminpour held himself out as a successful businessman who could help people obtain financing for gas station and car wash businesses with little or no down payment. In some instances, Aminpour would identify a business for the borrower to purchase, and would negotiate the sales price. On the commercial loan applications that Aminpour would submit to the bank on behalf of the borrower, however, Aminpour would overstate the actual purchase price of the business, thereby causing the bank to issue inflated loan amounts that were not fully secured.          

From 2005 to 2007, Aminpour, along with other participants, submitted fraudulent commercial loan applications to Mirae Bank, a federally insured financial institution. In his role as a senior bank executive, Aminpour submitted and knowingly caused others to submit false information not only about the true purchase price of the business but also about the assets of the borrowers and the finances of the businesses being purchased. Aminpour also allowed borrowers to circumvent the bank's down payment requirements by arranging for money to be transferred into escrow accounts so it would falsely appear to Mirae Bank that the borrowers were making large down payments. As a result, borrowers were able to acquire businesses with little to no money down, with Aminpour earning commissions as a result and, in some instances, with Aminpour misappropriating the excess loan proceeds for himself.          

For example, Aminpour made false statements to Mirae Bank in an application for a $4.2 million loan in connection with the purchase a car wash in Maywood. When he pleaded guilty, Aminpour admitted that, on the application, he falsely stated that the purchase price of the car wash was $6.65 million when the real purchase price was $3.25 million.          

In his plea agreement, Aminpour further admitted that his scheme involved false statements in six loan applications submitted between November 2005 and February 2007 for loans totaling $16.7 million, and that losses on those loans exceeded $7.5 million.          

In addition to the loans charged as part of the fraud in this case, Aminpour referred approximately $150 million in loans to Mirae Bank, and the losses on those loans played a significant role in the bank's collapse in 2009, according to court documents.          

After the bank's failure, the FDIC took over Mirae Bank as its receiver. FDIC and Wilshire Bank, which acquired Mirae Bank's assets from FDIC, together suffered more than $33 million in losses on the Aminpour-referred loans. Wilshire Bank was subsequently acquired by, and now does business as, Bank of Hope.