Securities Industry Commentator by Bill Singer Esq

Asheville Man Is Indicted For $13.5 Million Ponzi Scheme / The Defendant Allegedly Defrauded More Than 23 Victims, Including Some at, or Near, Retirement Age (DOJ Release)

SEC Issues Statement on Market Structure Innovation for Thinly Traded Securities (SEC Release)

The SEC Empire Strikes Back After Reinjuring Its Groin On Planet Daspin (BrokeAndBroker.com Blog)

Commissioner Acts to Stop Two Cryptocurrency Offerings As Second Regulatory Sweep Concludes (TSSB Release)

Digital Advertising Business Owner And Operator Arrested For Defrauding Investors Of Over $5 Million (DOJ Release)

Former Chief Operating Officer of Davis Bio-Pesticide Company Pleads Guilty to Conspiracy to Commit Mail, Wire, and Securities Fraud (DOJ Release)

SEC Obtains Final Judgment Against Former Executive Charged with Lying to Auditors (SEC Release)

Jury Convicts Businessman of $1.4 Million Fraud Conspiracy (DOJ Release)

Organizer Of Complex Nigerian Fraud And Money Laundering Ring Sentenced (DOJ Release)

[F]rom at least 2012 through September 2019, Brown fraudulently obtained more than $13.5 million from at least 23 victims, some of whom were at, or near, retirement age, by engaging in an investment scheme through his company Oodles Inc. and its various affiliates (collectively "OODLES").  As alleged in the indictment, to induce victims to invest their money, Brown falsely represented that OODLES owned hundreds of millions of dollars in intellectual property, namely family entertainment shows and movies. As part of the scheme, Brown repeatedly lied to victims about the imminent sale of those intellectual properties to various well-known media companies. To perpetuate the fraud, the indictment alleges that Brown developed marketing material seeking investments or loans for OODLES that claimed large returns on funds invested or lent to the company.

As alleged in the indictment, to convince victims the scheme was legitimate and to appease investors who sought an explanation about delays in payouts, Brown provided victims with a number of fraudulent and misleading statements and fictitious information, including fake bank statements and falsified company agreements, among others.

Brown used a substantial part of victim money on personal expenses unrelated to purported OODLES transactions, and to perpetuate the fraud by making payments to existing investors from funds contributed by new investors, commonly referred to as "Ponzi" payments.

intended to facilitate the development of proposals that will improve secondary market trading for equity securities that trade in lower volume ("thinly traded securities"). The Commission's interest in considering proposals for improvement in this segment of the secondary market extends to proposals that could include the suspension or termination of unlisted trading privileges ("UTP") and/or exemptive relief from Regulation NMS and other rules under the Securities Exchange Act of 1934 ("Exchange Act"). 

Low trading volumes may drive higher transaction costs for investors, may present challenges for investors seeking to establish or unwind meaningful positions, and may negatively impact an issuer's cost of capital. The Commission is interested in proposals to address these issues by improving the secondary market structure for thinly traded securities. The Commission's statement lays out various considerations that may be helpful for a proposal to address, including whether and under what circumstances it would be appropriate to suspend unlisted trading privileges on multiple exchanges and whether exemptive relief from Regulation NMS and other rules under the Securities Exchange Act of 1934 would improve trading and liquidity.

Claims of legitimacy

PK Crypto claims it is a "private legal US registered asset-management investment company."  According to the order, the company is not registered either with Securities and Exchange Commission or the Texas State Securities Board and it is not registered with the Texas Secretary of State to do business in the state.

The company also claims the securities it issues trade on an over the counter market under the symbol GBTC. That ticker, however, belongs to an unrelated company. 

Cyp Miner claims it is a fully licensed company in the United Kingdom, but according to the order,  the registrar of companies in the UK has no record of the company.  A company promoter, Elizabeth Frazier,  is described as an "expert Bitcoin miner," but Cyp Miner provides no information on her qualifications or experience. 

Online marketing

Cyp Miner is advertising investments tied to cryptocurrency mining on DealStream, an online marketplace with more than 500,000 members in 100 countries. DealStream facilitates the buying and selling of businesses, real estate, oil and gas assets, and private investments. 

PK Crypto has a robust social media campaign. It is advertising cryptocurrency investment plans through Twitter, LinkedIn, Facebook, and YouTube videos. 

No physical location

 

Many promoters of suspect cryptocurrency offerings exist only on the internet.

PK Crypto lists offices in London, Vienna, Jakarta, and the Shanghai province of China. The company says its worldwide headquarters is in Waco, Texas.

According to the order, the street address in Waco does not exist.

Private offerings exempt from regulation 

Cyp Miner is attempting to deceive potential investors by claiming the investments are exempt from regulation, according to the order. Cyp Miner claims its investments are "private transactions" and exempt from federal securities laws and regulations.

The order, however, found that Cyp Miner was violating state registration laws, meaning the business was not exempt from state law.

The more you invest, the more you earn 

PK Crypto advertises that an initial investment of $2,500 to $4,999 can produce daily interest of 3.33% with a term of 30 days. Invest between $50,000 and $100,000 in the VIP Plan and earn daily interest of 14.28% with a term of seven days.

According to the order, PK Crypto is attempting to bolster its credibility by telling investors it works with legal counsel and an accounting firm that audits its annual financial statements.

However, the State Bar of Texas has no record of the named attorneys being licensed to practice law in Texas. PK Crypto's purported accounting firm does not have any affiliation with the company.  

Investors must pay for the investments with bitcoin, one of the most widely used cryptocurrencies.

Recruiting unlicensed sales agents 

According to the order, Cyp Miner is recruiting existing investors to act as sales agents in bringing in new investors. The company is paying commissions of between 1% and 10% of the principal deposited by new investors. 

Cyp Miner is not verifying that the affiliates are registered to offer or sell securities, according to the order. Selling securities without being registered generally violates the Texas Securities Act.

[B]etween approximately January 2014 and April 2015, Marshall owned and operated R.B.J. Generational Weatlth Management LLC d/b/a Adz on Wheelz. Marshall devised a scheme to defraud victims by inducing them to invest in Adz on Wheelz based on false representations and omissions, such as claims that Adz on Wheelz owned and operated a fleet of luxury vehicles that could be customized for digital advertising, that investors would receive a guaranteed weekly royalty payment, and that Adz on Wheelz had earned millions of dollars of commitments from advertisers. Instead, Marshall operated Adz on Wheelz almost entirely as a Ponzi scheme, using money solicited from new investors to make the "royalty payments" owed to prior investors. Marshall also transferred investor funds to other accounts under his control and used investor money for his own personal expenses. Through this scheme, Marshall defrauded more than 200 investors who invested a total of more than $5 million in Adz on Wheelz.

Absi is the former head of the sales department of Marrone Bio Innovations Inc. (MBI), a company headquartered in Davis, California that produces "bio-based" pesticides. Absi also served as MBI's Chief Operating Officer from January 2014 until his resignation in August 2014. MBI is a publicly traded company; its stock trades on the NASDAQ exchange under the ticker symbol "MBII." As a publicly traded company, it is required to file quarterly and annual reports with the Securities and Exchange Commission (SEC). In its reports, MBI stated that it recorded revenue in accordance with generally accepted accounting principles (GAAP).

According to Absi's plea agreement, in order to increase sales, Absi sold MBI products to customers with side agreements that offered "inventory protection" under which MBI agreed to either repurchase the product from the customer or continue the date by which the customer would need to make full payment for the product. Under GAAP, revenue from sales that include such agreements cannot be recognized on the company's books at the time of the sales. Between March 2013 and July 2014, Absi conspired with at least one other MBI employee to misrepresent to MBI's accounting department, its external auditors, and the investing public that MBI had made sales under such terms. By concealing the practice, Absi caused MBI to report a doubling of its revenue in 2013 in comparison to 2012. Absi also conspired to backdate the delivery of certain shipments of MBI's products to enhance MBI's reported revenues for the quarter. Absi received a performance-based bonus and exercised stock options during a time when MBI's inflated revenue figures were being reported.

routinely overstating company performance and issuing fraudulent financial statements for a period of nearly two years, and charged several of its former officers for related misconduct. The SEC alleged that Montgomery, Osiris's former chief business officer, caused Osiris to book fictitious revenue and provided false information to Osiris's auditors.

Montgomery consented to a judgment enjoining him from future violations of the provisions of the federal securities laws that prohibit falsifying books and records and lying to auditors, and ordering him to pay a civil penalty of $40,000.

promised their clients that they could help obtain funding for a host of business purposes, such as real estate transactions and television projects. Instead, Mitchell and Almirall spent large portions of their clients' funds on personal expenses, including trips to casinos, concert tickets, stays at beach resorts, cash withdrawals and wire transfers.

In order to induce the victims to provide AURA with money, Mitchell and Almirall made a host of fraudulent misrepresentations, including representing to clients that they were guaranteed to receive their initial equity deposits back when, in fact, none of the victims ever received any money from AURA. Mitchell and Almirall claimed that AURA had offices in Zurich, London, and New York when no such offices existed. Mitchell also claimed to victims and their associates that AURA was a widely-successful global company that was backed by the assets of billionaires when, in reality, AURA had never closed a deal for a single client.

Mitchell and Almirall also maintained a website for AURA that contained a number of misrepresentations, including claims that AURA was an industry leader in a number of fields, that AURA was an international business with access to hundreds of financiers, and that AURA could turn around funding to its clients in as little as 24 hours. AURA never made any money for any of its clients, and in fact, victims of the fraud suffered losses of at least $1.6 million. 

Mitchell's business partner and co-conspirator, Armando Almirall, previously pleaded guilty to conspiracy to commit wire fraud and was sentenced to 63 months in prison in February.

[A]madi, a dual citizen of Nigeria and Canada, worked with an international criminal organization based in Nigeria that defrauded dozens of victims across the United States and then laundered the funds through a complex network of bank accounts. The organization, known as the Black Axe Group, or Neo Black Movement of Africa, coordinated fraud and money laundering activity throughout the globe via cells or "zones" in Nigeria, Canada, the United States, and elsewhere.

The fraud schemes took several forms. Conspirators posed as suitors on dating websites, where they befriended widowed or divorced elderly women and then convinced their victims to wire money, often consisting of the victim's entire retirement savings and cash taken out from home equity, to bank accounts in the United States as part of a purported investment opportunity. The conspirators also defrauded title companies with fake cashier's checks in phony real estate transactions, leaving the companies on the hook for the losses once the checks bounced. And they targeted businesses using email spoofing and hacking schemes, as well as law firms that they solicited online to perform legal work and then provided fake cashier's checks for deposit into the firms' trust accounts.

Victims were instructed to wire their money into numerous funnel accounts held by conspirators in the United States, known as "money mules," and the funds were then quickly moved to other accounts in the United States and around the world before the victims could discover the fraud. From 2012 to 2015, Amadi was accountable for at least $16.4 million in fraud proceeds that were traceable to the different schemes. Amadi himself recruited more than a dozen individuals in the United States to act as money mules for him and oversaw their activities. He then instructed those individuals to wire most of the victims' funds overseas, including to Hong Kong, China, Canada and Nigeria, to promote the conspiracy and to conceal the source of the funds.

• Securities Industry Commentator
• Bill Singer