The Wall Street Legal & Regulatory Feed

Securities Industry Commentator by Bill Singer Esq

September 19, 2019

https://www.cnbc.com/2019/09/18/the-ftc-and-doj-are-squabbling-over-the-right-to-regulate-big-tech.html
Lately, I see a lot of well-meaning but woefully misguided folks suggesting that we need a federal Tech Czar or some new federal regulatory organization for the likes of Amazon and Google. Sure, it always seems like a great idea to pass more laws and increase the powers of government to regulate and enforce and prosecute. Unfortunately, more government rarely solves anything.Yes, I can think of some agencies that have done a commendable a job, and I can also think of some regulations that were well-drafted and proved enforceable. But it's never quite enough. In the end, we've all tried to contact a government agency only to be put on hold or told to wait on endless lines. And when you do finally speak to someone or get confirmation that something you sent was received, well, you know how that goes -- no one gets back to you or they can't find what you're talking about because the individual you were dealing with is no longer employed there. There is little, if any, accountability.. There is little, if any, effective management. There is, however, lots of high fallutin' titles and awards ceremonies. Sadly, government regulatory organizations tend to managed by cronies, by hacks, by folks who made large campaign contributions, by rejects from the private sector, by wunderkinds looking to burnish a resume and then convert the experience into defending miscreants for big bucks. The talented, dedicated, and competent examiners, investigators, and lawyers are frustrated by the unwanted and uninformed interference from the morons that have risen to positions of authority within their agencies. As underscored in the CNBC article, the Federal Trade Commission and the United States Department of Justice/Antitrust Division are "squabbling over who gets to probe Big Tech." It's all about squandered opportunities and public relations. Expand federal regulation? Like I said -- I don't question the sincerity of those who advocate for a larger federal role; however, I do know that bigger isn't always better when it comes to consumer and investor protection. I commend readers of the Securities Industry Commentator to CNBC's article. 


https://www.justice.gov/usao-edva/pr/man-sentenced-prison-scheme-defraud-elderly-man-157000
After pleading guilty in thye United States District Court for the Eastern District of Virginia to mail fraud,John Michael Gatchell was sentenced today to six years in prison. As set forth in jaw-dropping detail in the DOJ Release, Gatchell:

facilitated a marriage between the elderly man and a woman with whom Gatchell had a long-term relationship in order to gain access to the elderly man's money and property. Gatchell induced the elderly man to make a down payment on a Jaguar that Gatchell and a family member drove for about 10 months before it was repossessed by the lender when the loan went into default.

Gatchell also induced the elderly man to obtain two mortgage loans and then diverted most of the proceeds to the benefit of himself and others. He subsequently induced the elderly man to sell the property that secured the loans and again diverted most of the proceeds to himself and others. Gatchell used these monies that he fraudulently diverted to himself to purchase concert series tickets, pay delinquent bills, and make a security deposit for a house he leased, among other things.

In an Indictment filed in the United States District Court for the Southern District of New York https://www.justice.gov/usao-sdny/press-release/file/1203461/download, Romana Leyva and Ariful Haque were each charged with one count of wire fraud and one count of conspiracy to commit wire fraud. As set forth in part in the DOJ Release: 

From March 2015 through December 2018, LEYVA and HAQUE were members of a criminal fraud ring (the "Fraud Ring") based in the United States and India that committed a technical support fraud scheme targeting elderly victims located across the United States and Canada, including in the Southern District of New York.  The Fraud Ring's primary objective was to trick victims into believing that their computers were infected with malware, in order to deceive them into paying hundreds or thousands of dollars for phony computer repair services.  Over the course of the conspiracy, the Fraud Ring generated more than $10 million in proceeds from at least 7,500 victims.

The scheme generally worked as follows.  First, the Fraud Ring caused pop-up windows to appear on victims' computers.  The pop-up windows claimed, falsely, that a virus had infected the victim's computer.  The pop-up window directed the victim to call a particular telephone number to obtain technical support.  In at least some instances, the pop-up window threatened victims that, if they restarted or shut down their computer, it could "cause serious damage to the system," including "complete data loss."  In an attempt to give the false appearance of legitimacy, in some instances the pop-up window included, without authorization, the corporate logo of a well-known, legitimate technology company.  In fact, no virus had infected victims' computers, and the technical support phone numbers were not associated with the legitimate technology company.  Rather, these representations were false and were designed to trick victims into paying the Fraud Ring to "fix" a problem that did not exist.  In exchange for victims' payment of several hundred or thousand dollars (depending on the precise "service" victims purchased), the purported technician remotely accessed the victim's computer and ran an anti-virus tool, which is free and available on the Internet.  The Fraud Ring also re-victimized various victims again.

LEYVA's roles in the scheme included (1) creating several fraudulent corporate entities that were used to receive fraud proceeds from victims, (2) recruiting others (including through misrepresentations) to register fraudulent corporate entities that became part of and facilitated the activities of the Fraud Ring, and (3) assisting others in setting up fraudulent corporate entities and bank accounts, including coaching them to make misrepresentations to bank employees where necessary.  HAQUE registered a fraudulent corporate entity that was used to receive fraud proceeds from victims on behalf of the Fraud Ring.  HAQUE also provided guidance to a co-conspirator who registered a different fraudulent corporate entity that was part of the Fraud Ring, and deposited fraud proceeds into accounts associated with that entity.

http://www.brokeandbroker.com/4812/insecurities-aegis-frumento/
To trade securities (or anything else) you need two things. You need information and you need a market. You can't decide on a trading price or strategy without knowing something about the thing you want to trade. Only after you've made a trading decision do you need the machinery of a market to make it happen. More than a difference between East and West or the uncertain political future of Hong Kong, last week's short dialogue between the HKEX and the LSE was a debate whether in the future information will be more valuable than infrastructure.

https://www.sec.gov/news/press-release/2019-181
In a Complaint filed in the United States District Court for the Central District of California https://www.sec.gov/litigation/complaints/2019/comp-pr2019-181.pdf, the SEC charged ICOBox and its founder Nikolay Evdokimov with violating the registration requirements of the federal securities laws and seeks injunctive relief, disgorgement with prejudgment interest, and civil money penalties. As set forth in part in the SEC Release:

ICOBox raised funds in 2017 to develop a platform for initial coin offerings by selling, in an unregistered offering, roughly $14.6 million of "ICOS" tokens to over 2,000 investors. The complaint alleges that defendants claimed the tokens would increase in value upon trading and that ICOS token holders would be able to swap them at a discount for other tokens promoted on the ICOBox platform. According to the complaint, the ICOS tokens are virtually worthless.  The complaint further alleges that ICOBox failed to register as a broker but acted as one by facilitating initial coin offerings that raised more than $650 million for dozens of clients.

SEC Halts Alleged $125 Million Offering Fraud (SEC Release)
https://www.sec.gov/news/press-release/2019-180
In a Complaint filed in the United States District Court for the District of Colorado https://www.sec.gov/litigation/complaints/2019/comp-pr2019-180.pdf, the SEC charged all Mediatrix Capital Inc., Blue Isle Markets Inc. (St. Vincent & the Grenadines), Blue Isle Markets Ltd., Michael S. Young, Michael S. Stewart, and Bryant E. Sewall with violating the antifraud provisions of Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder, and Section 17(a) of the Securities Act, as well as with violating the registration provisions of Section 5(a) and 5(c) of the Securities Act. Further, the Complaint charges Mediatrix Capital Inc. and its three principals, Michael S. Young, Michael S. Stewart, and Bryant E. Sewall,with violations of the antifraud provisions of the Investment Advisers Act of 1940. Twenty relief defendants who allegedly received profits from the fraud were named. As set forth in part in the SEC Release;

[B]eginning in March 2016, Mediatrix Capital Inc. and its three principals, Michael S. Young, Michael S. Stewart, and Bryant E. Sewall, induced investors to invest by falsely representing that their money would be invested using a highly profitable algorithmic trading strategy that had never experienced an unprofitable month and had returned more than 1,600% since inception. In truth, the complaint alleges, the defendants' trading strategy consistently lost money-losing more than $18 million from its trading in 2018 alone. In addition to repeatedly misrepresenting the profitability of the trading, the complaint alleges defendants also misled investors by falsifying account statements and making Ponzi-like payments, all while misappropriating more than $35 million of investor money for defendants' personal use, including to purchase luxury properties and vehicles.

Broward County Resident Sentenced to 66 Months in Prison and Ordered to Pay Over $200K for Defrauding Investors in Public Impact Projects Throughout Africa (DOJ Release)
https://www.justice.gov/usao-sdfl/pr/broward-county-resident-sentenced-66-months-prison-and-ordered-pay-over-200k-defrauding
After pleading guilty in the United States District Court for the Southern District of Florida, Bernd Zalke Rind was sentenced to 66 months in prison and ordered to pay m$217,315 in restitution. As set forth in part in the DOJ Release:

[B]etween October 2017 and through May 2018, Rind utilized fraudulent EXIM Bank documents as part of an "advance fee" scheme.  As part of this scheme, Rind would obtain legitimate EXIM Bank documents through his company, B&T Trust, LLC.  Rind would then alter these documents to make it appear that he had obtained EXIM Bank financing for various public interest construction projects in Africa.  This included fake loans totaling hundreds of millions of dollars that, according to Rind, provided financing for a school in Botswana, a low-income housing project in Zimbabwe, a Solar Power plant, and a medical clinic in Zambia.  Using the lure of lucrative and socially impactful investments, along with the assurance of guaranteed EXIM Bank financing, Rind tricked investors into paying him hundreds of thousands of dollars in up front "retainer fees" in order to avoid losing the fake EXIM loans that he had supposedly obtained.  Rind received at least $217,315 in illegal proceeds as a result of his fraudulent scheme.  The victim investors are located throughout Africa and the United States.  This was Rind's second Federal felony conviction related to fraudulent business practices.   

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