Securities Industry Commentator by Bill Singer Esq

July 2, 2019
Few Wall Street issues anger me more than when workplaces become toxic and management engages in tortious misconduct. The forced sale of a producer's book of business to a younger rep or to one of the guys or to the nephew of the new manager. The weaponization of regulatory filings to hamstring former employees and send a message to those left behind. FINRA is oh-so-quick to step in and assist its members' collection efforts of unpaid promissory note balances, or the debits arising from NSF checks or kited funds. In those cases, it's always about conduct inconsistent with just and equitable principles of trade. When the employees are the victims, however, FINRA's prism bends the light and its member firms' conduct just never seems to appear as "misconduct." FINRA the regulator is nowhere to be found when its members' workplace abuses devastate the lives of associated persons and their families. The substitute offered to the industry's victimized workers is FINRA the arbitration forum, which has nothing to do with regulation but everything to do with costly and protracted litigation.  

The Texas State Securities Board entered three emergency cease and desist orders against promoters of allegedly fraudulent cryptocurrency-related investments who are soliciting through Facebook "work from home" forums. The orders stem from an initiative by the Enforcement Division of the State Securities Board, which last week started an investigative sweep of suspect cryptocurrency offerings after the price of bitcoin nearly tripled in the past three months.

Defendant Sentenced to 86 Months in Prison for Defrauding Investors in Binary Options and Cryptocurrency Scheme (DOJ Release)
Blake Kantor a/k/a "Bill Gordon" pled guilty in the United States District Court for the Eastern District of New York to conspiracy to commit wire fraud and he was sentenced tos 86 months in prison plus three years of supervised release, and ordered to pay $806,405 restitution, to forfeit $1.5 million, and to forfeit about $153,000 of stolen proceeds. Kantor had operated the Blue Bit Banc and Blue Bit Anlytics ("BBB") binary options company, and as set forth in part in the DOJ Release: 

In March 2014, Kantor established BBB, and from approximately 2014 to 2017, he and others solicited and received approximately $1.5 million from more than 700 investors in BBB's binary options.  Kantor told investors that they could place binary option trades, or a BBB representative could do so for them, and that the predetermined profits promised them would be based on the actual prices of securities, currencies and other investments at particular points in time.  However, Kantor did not inform the investors that a BBB computer software program fraudulently altered data associated with binary options investments, so that the probability of investors earning a profit favored BBB and disadvantaged investors.  Kantor also fraudulently persuaded several BBB investors' to convert their BBB investments into "ATM Coin," a worthless cryptocurrency that he told investors was worth as much as $600,000. 

In October 2017, after FBI agents informed Kantor that they were investigating his involvement in binary options, Kantor directed a co-conspirator to alter BBB customer lists.  Around the same time, Kantor deleted emails related to his scheme.  When interviewed by the FBI, Kantor falsely stated that he had not been involved in binary options since August 2013.
The CFTC issued a Whistleblower Award
of about $2 million to two whistleblowers. As noted in part in the CFTC Release:

[T]he multiple interviews and numerous documents the whistleblowers provided were highly informative and formed the basis of the CFTC's investigation. The whistleblowers also reported the same information to another organization, which conducted a separate investigation and shared its findings with the CFTC. Those findings significantly assisted the CFTC in building its case. The award will be divided evenly between the whistleblowers because they jointly submitted the tip and award application to the CFTC.
In a Complaint filed in the United States District Court for the Northern District of Illinois , the SEC charged Thomas V. Conwell  and Kerry L. Hoffman with violating the antifraud provisions of Section 17(a) of the Securities Act and Section 10(b) of the Securities Exchange Act and Rule 10b-5 thereunder, and the broker-dealer registration provisions of Section 15(a) of the Exchange Act. Further, the Complaint charges Conwell with violating the registration provisions of Sections 5(a) and 5(c) of the Securities Act and Hoffman with violating the antifraud provisions of Sections 206(1) and 206(2) of the Investment Advisers Act of 1940. The SEC seeks permanent injunctions and monetary relief. READ the SEC Order: GT Media
As set forth in part in the SEC Release:

The SEC's complaint alleges that between July 2015 and July 2018, Conwell and Hoffman raised over $3.3 million from approximately 46 investors through the sale of unregistered GT Media, Inc. securities. According to the complaint, Conwell, who was previously enjoined by the SEC and criminally convicted for stealing money from investors, made numerous false representations to investors, including that two Fortune 500 companies were seeking to acquire GT Media and that GT Media would soon conduct an initial public offering. The complaint also alleges that Conwell misappropriated $161,500 from investors, which he used to pay his personal expenses. According to the complaint, Hoffman, a registered representative and investment advisory representative at a large nationwide financial firm, solicited certain of his advisory clients to invest in GT Media securities without disclosing his financial conflicts of interest, including his compensation from GT Media and his short-term loans to GT Media that were repaid using investor funds.

The SEC separately instituted a settled cease-and-desist proceeding against GT Media. According to the SEC's order, between at least February 2013 and July 2018, GT Media raised approximately $4 million by offering and selling unregistered GT Media common stock to 55 investors. Without admitting or denying the SEC's findings, GT Media consented to the SEC's order, which finds that the company violated the registration provisions of Sections 5(a) and 5(c) of the Securities Act and imposes a cease-and-desist order and a $173,436 civil penalty.
Without admitting or denying the findings in the SEC's Order, Fieldstone Management Group LLC and its principal Kristofor R. Behn consented to findings that they violated the antifraud provisions of the federal securities laws, censures Fieldstone, orders them to cease and desist from future violations, and orders them to pay, on a joint-and-several basis, disgorgement and prejudgment interest of $1,047,971 and a penalty of $275,000, all of which will be distributed to harmed investors; and Behn will be permanently barred from association with any broker, dealer, investment adviser, municipal securities dealer, municipal advisor, transfer agent, or nationally recognized statistical rating organization. As set forth in part in the SEC Release:

[F]rom 2014 to early 2016, approximately 40 retail clients of Behn and Fieldstone invested more than $7 million in Aequitas securities, which were the subject of a previous Commission enforcement action.  The order finds that Behn and Fieldstone failed to disclose to their clients that Aequitas had provided Fieldstone with a $1.5 million loan and access to a $2 million line of credit, both of which had terms that created a significant financial incentive for Behn and Fieldstone to recommend Aequitas securities to their clients.  The order further finds that Behn and Fieldstone made material misstatements and omissions in reports filed with the Commission, including false representations that the repayment terms of the loan from Aequitas were not contingent on Fieldstone clients investing in Aequitas. 

In addition, the order finds that Behn and Fieldstone fraudulently induced a client to invest $1 million in Fieldstone.  Within days of Fieldstone receiving the $1 million, Behn used approximately $500,000 to pay his personal taxes and make other payments to himself or for his personal benefit. 

SEC Obtains Final Judgment Against Chicago-Area Tech Company (SEC Release)
In final judgment entered on consent in the the United States District Court for the Northern District of Illinois without admitting or denying the allegations in the Complaint filed by the SEC , InfrAegis Inc. was enjoined from violating the registration provision of Section 5 and antifraud provisions of Section 17(a) of the Securities Act , and Section 10(b) of the Securities Exchange Act and Rule 10b-5 thereunder; and the company is ordered to pay a $50,000 civil penalty. InfrAegis consented to the final judgment without admitting or denying the allegations of the complaint. As set forth in part in the SEC Release:

In October 2011, the SEC charged Gregory E. Webb, the Chairman and CEO of InfrAegis, Inc., and InfrAegis, with conducting a fraudulent, unregistered offering that raised over $20 million from at least 395 investors nationwide. According to the SEC's complaint, Webb and InfrAegis made false and misleading claims about the company's commercial success and the existence of contracts for the installation of InfrAegis' products.

On February 28, 2014, a federal grand jury in Chicago returned an 11-count indictment against Webb for substantially similar conduct as alleged in the SEC's complaint. On July 11, 2016, a jury found Webb guilty on nine of the eleven counts and, on March 1, 2017, the court sentenced Webb to nine years' imprisonment and ordered Webb to pay $9 million in restitution. On December 11, 2018, the SEC obtained final judgment by consent against Webb, which included permanent injunctions and disgorgement with prejudgment interest totaling $682,409 that was deemed satisfied by the criminal restitution order.

Petition for Rulemaking to Revise Rule 10b-18 (Submitted to the SEC by 19 organizations)
In part, this 13-page Petition asserts that:

[D]espite Rule 10b-18's ostensible limits on the scope of the safe harbor, the history of stock repurchases-exacerbated by the recent effects of the Tax Cuts and Jobs Act-shows that the Rule has failed to meet the purpose behind its promulgation: limiting the ability of the firm to manipulate its stock price and volume. Specifically, firms retain the ability to artificially inflate stock prices or meet performance goals through repurchases that benefit executives without corresponding improvements to the real value of the firm. This manipulative redirection of capital comes in part at the expense of American workers.