Securities Industry Commentator by Bill Singer Esq

June 20, 2019
In a Complaint filed in the United States District Court for the Northern District of California, Roger Nils-Jonas Karlsson and his company, Eastern Metal Securities ("EMS") were charged with securities fraud, wire fraud and money laundering in a scheme to defraud potential investors. The Court granted the seizure of three subject websites allegedly involved in the purported fraud in which Karlsson directed at least 3,575 victims his victims to make investments of over $11 million using virtual currencies. As set forth in part in the DOJ Complaint:

[S]ince September 2006, Karlsson allegedly used websites to communicate false representations to victims in a scheme to defraud potential investors.  For example, one website,, allegedly was registered to a fictitious person and advertised shares in a product called a "Pre Funded Reversed Pension Plan" (PFRPP).  The complaint alleges Karlsson used the website to invite potential investors to purchase shares of the plan for $98 per share in exchange for an eventual payout of 1.15 kilograms of gold per share, even though as of Jan. 2, 2019, 1.15 kilograms of gold was worth more than $45,000.  Karlsson also allegedly advised investors that, in the unlikely event that the gold payout did not happen, he guaranteed to return to them 97 percent of the amount they invested.  According to the complaint, the government found no evidence of any accounts held by Karlsson that would allow him to pay off the investors.  Instead, the complaint alleges, the funds provided by victims were transferred to Karlsson's personal bank accounts and now appear to be tied up in real estate in Thailand.

The complaint further describes how Karlsson allegedly used a second website,, to make multiple false communications to potential investors.  Karlsson allegedly brought the investors in HCI25 together with the investors in the PFRPP and posted multiple communications to delay the moment investors would realize there would be no payout.  For example, on one occasion, Karlsson allegedly explained that a payout had not occurred because releasing so much money all at once could cause a negative effect on financial systems throughout the world.  Karlsson also allegedly falsely represented that EMS was working with the U.S. Securities and Exchange Commission to prepare the way for a payout.
Reg BI may have no practical relevance to customer protection, but it will certainly will make a difference to securities lawyers and compliance professionals. They now have a whole new set of rules to parse and policies and procedures to create. Reg BI should impel firms to document their compliance with 14 data points whenever they make a recommendation, all to ensure that they have a robust defense to injured customers by trying to prove that they did everything Reg BI required. Reg BI could well be yet another legal and compliance full-employment act.

Former CEO Of Alaska-Based Fiber Optic Cable Company Sentenced To 5 Years In Prison For Defrauding Investors Of More Than $270 Million (DOJ Release)
Former Quntillion Chief Executive Officer Elizabeth Ann Pierce pled guilty in the United States District Court for the Southern District of New York to one count of wire fraud and eight counts of aggravated identity theft; and was sentenced to  60 months in prison plus three years of supervised release; and ordered to forfeit $896,698.00 and all of her interests in Quintillion and a property in Texas.  A restitution order will be entered at a later date. As set forth in part in the DOJ Release:

Until July 2017, PIERCE was the chief executive officer of Quintillion, a telecommunications company based in Anchorage, Alaska, that built, operates, and markets a high-speed fiber optic cable system (the "Quintillion System").  The Quintillion System consists of three segments: a subsea segment that spans the Alaskan Arctic, a terrestrial segment that runs north to south along the Dalton Highway, and a land-based network of fibers that connects the subsea and terrestrial segments.  The Quintillion System is connected to the lower 48 states through other existing networks.

Between May 2015 and July 2017, PIERCE engaged in a scheme to induce two New York-based investment companies to provide more than $270 million to construct the Quintillion System by providing them with eight forged broadband capacity sales contracts and related order forms under which Quintillion would obtain guaranteed revenue once the Quintillion System was built (the "Fake Revenue Agreements").  Under the Fake Revenue Agreements, four telecommunications services companies appeared to have made binding commitments to purchase specific wholesale quantities of capacity from Quintillion at specified prices.  The cumulative value of the Fake Revenue Agreements was approximately $1 billion over the life of the Fake Revenue Agreements.  In reality, the Fake Revenue Agreements were completely worthless because PIERCE had forged the counterparties' signatures.

Certain of the Fake Revenue Agreements never existed at all, while others were falsified versions of genuine revenue agreements.  PIERCE fabricated the terms of the false versions of the agreements to make them more favorable to Quintillion and, therefore, more appealing to investors than the genuine agreements.  For example, under one of the Fake Revenue Agreements, the customer purportedly agreed to buy from Quintillion increasing quantities of gigabits per second of capacity over a period of 20 years.  That agreement, if genuine, would have assured Quintillion hundreds of millions of dollars in future revenue.  In reality, negotiations over that deal had ended unsuccessfully, a fact that PIERCE never disclosed to the investors.  Under another Fake Revenue Agreement, the customer purportedly agreed to buy a fixed, predetermined amount of capacity from Quintillion regardless of subsequent market conditions.  In truth, that customer was not obligated to buy any capacity.

Over the course of the scheme, PIERCE tried to cover up her fraud, by continuing to negotiate with the telecommunications companies in hopes of reaching agreements identical to the ones she forged.  Her efforts were mostly unsuccessful.  PIERCE completely failed to secure any revenue contract with one of those telecommunications companies, and the agreements she reached with the other three companies contained less favorable terms for Quintillion than the Fake Revenue Agreements, such as a smaller mandatory capacity purchase commitment, or no commitment at all.  PIERCE hid these genuine, but inferior, contracts from the investment companies and her own staff.  When Quintillion and the investment companies ultimately discovered the fraud in mid-2017, they learned that the real contracts PIERCE actually negotiated would generate only a fraction of the anticipated guaranteed revenue of the Fake Revenue Agreements she forged.

As part of PIERCE's overall scheme, she also swindled two individual investors (together, the "Individual Victims") out of a total of $365,000.  PIERCE led these individuals to believe that they would acquire ownership interests in Quintillion when, in fact, she used half of one victim's money and all of the other victim's investment for her own personal benefit.  These individuals have received no shares and none of their money back from PIERCE.

After the terrestrial system was built, PIERCE attempted to prevent the discovery of the Fake Revenue Agreements by accelerating the timing of incoming payments under certain genuine agreements to make those payments appear to be based on the Fake Revenue Agreements.  PIERCE also sought to prevent Quintillion from invoicing one of the customers that had no real contract with Quintillion by fabricating email correspondence that gave the impression she was terminating a contractual relationship, when in fact no such relationship existed.  PIERCE's scheme started to unravel when another customer disputed invoices that it received from Quintillion pursuant to one of the Fake Revenue Agreements.  Shortly thereafter, in the midst of Quintillion's internal investigation, PIERCE abruptly resigned.  Quintillion self-reported PIERCE's conduct to the Department of Justice.

Florida Men Indicted For Wire Fraud Conspiracy (DOJ Release)
In an Indictment filed in the United States District Court for the District of Massachusetts, Fred Alcius and Lucson Appolon were each charged with on one count of conspiracy to commit wire fraud; additionally, Alcius was charged with two counts and Appolon with one count of aggravated identity theft.  Previously, Alcius, Appolon, and co-conspirators, Peter Belony (who pled guilty to conspiracy to commit wire fraud) and Kevens Louis were charged in a Complaint. As set forth in part in the DOJ Release:

Informed Delivery is a free electronic notification service provided by the USPS that gives residential and P.O. Box customers the ability to digitally preview their incoming mail and manage their packages. 

[T]he defendants accessed victims' personal identifying information, including names, Social Security numbers, dates of birth, and addresses on the "dark web" and then used the information to open credit cards in the victims' names. The defendants then subscribed to Informed Delivery using the victims' personal identifying information and a fraudulent email address created to track the delivery of credit cards to the victims' residential mailboxes. The defendants subsequently intercepted the credit cards at the victims' mailboxes before the victims could receive them and used those credit cards at ATMs and to purchase gift cards and other items for resale at Apple and Walmart, among other retail establishments. The defendants traveled to states across the East Coast in furtherance of the fraud, including Maine and Massachusetts.