Securities Industry Commentator by Bill Singer Esq

May 24, 2019

How Do You Like Them Tomatoes? 

[T]he lawsuit alleged shoppers were being deceived and taken advantage of because they were purchasing Cento's cans of San Marzano tomatoes "instead of other tomatoes, because, rightly or wrongly, consumers believe San Marzano tomatoes have a superior look and taste." It acknowledged that Cento "may sell some 'San Marzano' tomatoes that are grown in the Agro Sarnese Nocerino," but the company does not disclose its lack of DOP certification. . . .

[A]fter our new crop was approved and certified authentic in 2010, a new organization was appointed in Italy to govern our labels. After months of delay in their response, we were notified that our label no longer conformed to their requirements. Due to the unreasonable nature of the new label requirements, Cento decided to remove the DOP seals from our label: however, they remain certified San Marzano tomatoes and continue to follow the high-quality standards.

Our Cento Certified San Marzano Tomatoes are certified by the largest third party certifying body in the European Union, Agri-Cert. This certification is to ensure we comply with all harvesting, growing and processing procedures that make true San Marzano tomatoes so special. We assure you, in no way has this product's certifications and quality standards changed. . . .

The SEC, FINRA, and the North American Securities Administrators Association ("NASAA") issued a fact sheet to help raise awareness among broker-dealers, investment advisers, and transfer agents about the 2018 Senior Safe Act, which immunizes financial institutions, certain eligible employee, and affiliated /associated persons from liability in any civil or administrative proceeding for reporting potential exploitation of a senior citizen.  The Senior Safe Act Fact Sheet is available on the SEC's website, NASAA's website, NASAA's Serve Our Seniors website, and FINRA's website.
In a recent FINRA public customer arbitration against Merrill Lynch, the FINRA Arbitration Panel dismissed the claims as being filed too late. Spoiler Alert: The odds are 2:1 that you won't guess the twist in this story until you come upon it.

Josh Brown: The power of compounding can help you double your money, again and again (
In an Indictment filed in the United States District Court for the Southern District of New York, Stephen M. Calk is charged with one count of financial institution bribery. Chalk is the Chairman and Chief Executive Officer of the Chicago-based The Federal Savings Bank and he owns 67% of the bank's holding company. As set forth in part in the DOJ Release:

The "Borrower" was, at all relevant times, a lobbyist and political consultant.  Beginning in or about March 2016, the Borrower held a senior role with a presidential campaign (the "Presidential Campaign"), and from June 2016 through August 2016, he served as chairman of the Presidential Campaign.  After the Borrower's formal role with the Presidential Campaign concluded in or about August 2016, the Borrower continued to be informally involved in the campaign.  Beginning in or about November 2016, when the candidate for whom the Borrower had been working was elected President of the United States, the Borrower provided informal input to the presidential transition team (the "Presidential Transition Team").

The Corrupt Scheme

Between in or about July 2016 and January 2017, CALK engaged in a corrupt scheme to exploit his position as the head of the Bank and the Holding Company in an effort to secure a valuable personal benefit for himself, namely, the Borrower's assistance in obtaining for CALK a senior position in the presidential administration.  During this time period, the Borrower sought millions of dollars in loans from the Bank.  CALK understood that the Borrower urgently needed these loans in order to terminate or avoid foreclosure proceedings on multiple properties owned by the Borrower and the Borrower's family.  Further, CALK believed that the Borrower could use his influence with the Presidential Transition Team to assist CALK in obtaining a senior administration position.

CALK thus sought to leverage his control over the Bank and the loans sought by the Borrower to his personal advantage.  Specifically, CALK offered to, and did, cause the Bank and Holding Company to extend $16 million in loans to the Borrower in exchange for the Borrower's requested assistance in obtaining a high-level position in the presidential administration.  For example, and while the Borrower's loans were pending approval, CALK provided the Borrower with a ranked list of the governmental positions he desired, which started with Secretary of the Treasury, and was followed by Deputy Secretary of the Treasury, Secretary of Commerce, and Secretary of Defense, as well as 19 ambassadorships similarly ranked and starting with the United Kingdom, France, Germany, and Italy.

In approving these loans to the Borrower, CALK was aware of significant red flags regarding the Borrower's ability to repay the loans, such as his history of defaulting on prior loans.  Moreover, given the size of the loans, the Borrower's debt became the single largest lending relationship at the Bank.  In order to enable the Bank to issue these loans without violating the Bank's legal limit on loans to a single borrower, CALK authorized a maneuver never before performed by the Bank, in which the Holding Company - which CALK also controlled - acquired a portion of the loans from the Bank.

During the same time period, the Borrower provided CALK with valuable personal benefits.  First, in or about the summer of 2016, during the Presidential Campaign - and just days after CALK and the rest of the Bank's credit committee conditionally approved a proposed $9.5 million loan to the Borrower - the Borrower appointed CALK to a prestigious economic advisory committee affiliated with the campaign.  And second, in or about late November and early December 2016 - after the presidential candidate had been elected president, after the Borrower's first loan from the Bank had been issued, and while a second set of loans worth more than $6 million sought by the Borrower was pending approval by the Bank - the Borrower used his influence with the Presidential Transition Team to assist Calk, recommending CALK for an administration position.  Due to the Borrower's efforts, CALK was formally interviewed for the position of Under Secretary of the Army in or about early January 2017 at the Presidential Transition Team's principal offices in New York, New York.  CALK was not ultimately hired.

As a result of its independent review of the Bank's loans to the Borrower, in or around July 2017, the bank's primary regulator, the Office of the Comptroller of the Currency ("OCC"), downgraded the credit quality of those loans to "substandard," concluding that the Bank's classification of them as satisfactory had been inappropriate.  Moreover, to conceal the unlawful nature of his scheme, CALK made false and misleading statements to the OCC regarding the loans to the Borrower.  Among other things, CALK falsely stated to the OCC regulators that he had never desired a position in the presidential administration. 

In or about October 2017, the Borrower was charged with federal crimes and the U.S. Government sought the forfeiture of the Borrower's interests in properties securing the loans he had received from the Bank.  The Borrower subsequently ceased making loan payments to the Bank, and the Bank and the Holding Company foreclosed on the cash collateral securing the loans and have currently written off the remaining principal balance - totaling over $12 million - as a loss.

In a Complaint filed in the United States District Court for the Central District of California,, the SEC charged Daniel Pacheco with violating Sections 5(a), 5(c), 17(a)(1) and 17(a)(3) of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act and Rules 10b-5(a) and (c) thereunder.  The complaint also names seven relief defendants for the purpose of recovering investor proceeds in their possession that must be returned. The DOJ Release states in part that:

[F]rom January 2017 through March 2018, Pacheco conducted a fraudulent, unregistered offering of securities through two California-based companies he controls, IPro Solutions LLC and IPro Network LLC (collectively, "IPro"). IPro raised more than $26 million from investors by selling instructional packages that provided lessons on e-commerce. Investors also received "points" that could be converted into a digital asset known as PRO Currency. Investors who contributed additional funds could earn a mixture of cash commissions and additional convertible points by recruiting new investors into the IPro network. As alleged in the complaint, however, IPro was a fraudulent pyramid scheme. IPro's inevitable collapse was hastened by Pacheco's fraudulent use of investor funds, which included, among other things, the all-cash purchase of a $2.5 million home and a Rolls Royce. Pacheco's misappropriation accelerated the rate at which IPro became unable to pay the commissions and bonuses due its investors.

The complaint further alleged that Pacheco's offer and sale of IPro instructional packages constituted an unregistered sale of securities because the IPro instructional packages involve (i) an investment in a pyramid scheme; and/or (ii) an investment in the PRO Currency digital assets, and therefore must be registered with the SEC unless an exemption applies. No registration exemption applies to Pacheco's offer and sale of IPro instructional packages.

SEC Charges Additional Parties in Fraudulent Investment Scheme (SEC Release)
In a Complaint filed in the United States District Court for the Southern District of New York, the SEC charged Savraj Gata-Aura a/k/a Samule Aura a/k/a Sam Aura, and Core Agents Ltd  d/b/a Core Agents International, Ltd.(a company purportedly controlled by Gata-Aura) with aiding and abetting Haddow's and the Bar Works companies' violations of the antifraud provisions of Section 17(a) of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder. The SEC previously charged Haddow and the Bar Works companies with violating the antifraud provisions of the federal securities laws. In a parallel action, criminal charges were filed against Gata-Aura. As set forth in part in the SEC Release, Gata-Aura allegedly:

recruited a network of sales agents to sell fraudulent investments in co-working spaces Bar Works, Inc. and Bar Works 7th Avenue, Inc. using false and misleading offering materials. The materials touted the background of Bar Works' purported CEO, "Jonathan Black," and omitted any mention of Renwick Haddow, the actual individual controlling the entities. According to the SEC's complaint, Gata-Aura knew that "Black" was a fictitious name for a person who did not exist, that Haddow secretly ran the Bar Works companies, and that Haddow had previously been sued in the United Kingdom by the U.K. Financial Conduct Authority for an unrelated investment scheme. The complaint further alleges that from September 2015 to June 2017, Gata-Aura and Core Agents raised over $10 million from at least 100 investors for the fraudulent investments. As alleged, in return for their role in selling the fraudulent investments, Gata-Aura and Core Agents received commissions that totaled at least $2.9 million from Haddow and the Bar Works companies.

Serial Fraudster Convicted of Participating in Lottery Scam (DOJ Release)
Nena Kerny Kochuga pled guilty in the United States District Court for the Eastern District of Virginia to fraud charges related to her role in a recent Jamaican lottery scam. As set forth in part in the DOJ Release, Kochuga had

received tens of thousands of dollars from victims around the United States. These victims had been contacted over the phone and told by conspirators that they had won a multi-million dollar lottery. The conspirators would then tell the victims that, in order to receive their winnings, they had to mail or wire money for taxes to Kochuga in Virginia Beach. Kochuga would keep a portion of the money for herself, and wire the rest of the money to conspirators in Jamaica and other countries. Prior to this criminal conduct, Kochuga had been convicted for the same exact scheme in Virginia Beach Circuit Court.
In a Complaint filed in the United States District Court for the Western District of New York,, the SEC charged real-estate developer Robert C. Morgan and his two entities (Morgan Mezzanine Fund Manger LLC and Morgan Acquisitions, LLC) with violating the antifraud provisions of the federal securities laws. The SEC requested an Order freezing Robert C. Morgan's assets and appointing a temporary receiver over the funds; and further seeks permanent injunctions, disgorgement of ill-gotten gains with prejudgment interest, civil penalties, and a permanent receiver over the entities.  As set forth in part in the SEC Release:

[M]organ financed his development projects in different ways, including through sales of securities directly to more than 200 retail investors, many of whom invested through their retirement accounts. Morgan represented to investors that their money would be used to improve multifamily properties, and based on these representations, raised more than $80 million. Instead, as alleged in the complaint, Morgan and his entities diverted investor funds to facilitate Ponzi scheme-like payments to earlier investors. In addition, the complaint alleges Morgan's improper use of more than $11 million in investor funds to repay an inflated, fraudulently-obtained loan for an unrelated apartment complex.