Securities Industry Commentator by Bill Singer Esq

November 18, 2019

as featured in today's Securities Industry Commentator:

Statement on Whistleblower Program 2019 Annual Report to Congress (SEC Chairman Jay Clayton)

San Diego Real Estate Agent Arrested in Latvia and Extradited to Face Charges on $12 Million Fraud Scheme (DOJ Release)

Former Football Player Found Guilty of $10 Million Fraud in Second Criminal Trial (SEC Release)
Fourteen-year veteran New York Life employee Ketler Bosse was the company's first African-American District Agent. Following his 2016 termination, he filed a federal Complaint against various New York Life entities asserting discrimination, retaliation, and civil rights violations. NY Life moved to force the case into FINRA arbitration.
As set forth in part in the Annual Report:

In FY 2019, the Commission received its second largest number of whistleblower tips in a fiscal year and made its third largest award to date-a $37 million award to a whistleblower who provided significant evidence and assistance that enabled the agency to bring the matter to an efficient and successful resolution. This award followed a $50 million award to joint claimants in March 2018 and a $39 million award to a whistleblower in September 2018. While all awards are important to the Commission and to whistleblowers, these larger awards reflect the significance of the information that whistleblowers are providing to the Commission and are testaments to the whistleblower program's success.

Statement on Whistleblower Program 2019 Annual Report to Congress (SEC Chairman Jay Clayton)
In part, SEC Chair Clayton observed [Ed: footnotes omitted]:

In 2018, building upon our years of experience administering the program, and also to address the Supreme Court ruling in Digital Realty Trust, Inc. v. Somers, we proposed amendments designed to improve the efficiency and effectiveness of our whistleblower program. The amendments were largely designed to allow us to get money into the hands of more whistleblowers faster.  One aspect of that proposal has received significant attention: a proposed framework to guide the exercise of discretion by the Commission in the case of awards over $30 million.  This proposal was mischaracterized by some as a "cap."  The proposed provision was not a "cap," it could not and was not intended to operate as a "cap," and I do not support a cap.  Congress vested in the Commission the authority and responsibility to use our good judgment and experience to determine award amounts within the range of 10-30% prescribed by Congress, and we should do just that.    

This mischaracterization did have a salutary effect. The whistleblower bar, members of Congress and other commentators brought to my attention the fact that the mischaracterization raised uncertainty about the agency's commitment to the program. They explained that uncertainty, including even uncertainty regarding the award process for very large awards, could deter potential whistleblowers from coming forward. This reality of human emotion and decision-making under uncertainty is not lost on me.  While all cases are different and award processes that incorporate the exercise of discretion have an inherent level of imprecision, it is my aim that, as we gain greater experience with the whistleblower program, the award process will be more transparent.  Importantly, such a dynamic should lead to a greater number of actionable TCRs, resulting in awards to meritorious whistleblowers in a more efficient manner. . .
Real estate agent Alexander Avergoon was indicted in the United States District Court for the Southern District of California on wire fraud, aggravated identity theft, and money laundering. As alleged in part in the DOJ Release:

From as early as 2010, Avergoon invited his victims to partner with him to purchase multi-unit apartment buildings or commercial office space, promising that the rental income would generate monthly dividends and that the investors would share in the appreciation when the properties were eventually sold. After collecting the money from investors, Avergoon told them he had purchased the buildings, and promised to service the rentals and distribute the rental income. In reality, Avergoon never actually bought these buildings; instead, he diverted the investors' money to his own use. In order to sustain the illusion that the investment was legitimate, Avergoon made years' worth of regular monthly payments to the investors, telling them the money came from rent payments.

In another scheme, the indictment charges that Avergoon offered additional victim investors the "opportunity" to earn approximately 8 to 20 percent interest on short-term loans to homeowners, and pretended to act as a broker between investors and homeowners. In reality, the homeowners were not working with Avergoon, did not agree to borrow money from the investors, and never signed the loan agreements Avergoon presented to his investor clients. Avergoon forged the loan documents-and the signatures on deeds of trust.  He then simply diverted the investors' money to his own use. 

Former Football Player Found Guilty of $10 Million Fraud in Second Criminal Trial (SEC Release)
Following the vacatur of his prior conviction and pursuant to a remand to the United States District Court for the Eastern District of Virginia ("EDVA"), an EDVA jusry found Merrill Robertson, Jr., guilty of defrauding investors. As alleged in part in the SEC Release:

[O]n October 28, 2019, a federal jury in Richmond, Virginia again returned a guilty verdict against Merrill Robertson, Jr., a former football player charged with defrauding investors, including coaches he knew from his time playing football for the Fork Union Military Academy and the University of Virginia. Robertson was convicted on these charges for the first time in August 2017 and was sentenced to forty years in prison in December 2017. 

The criminal charges against Robertson arose from the same conduct alleged in a complaint filed by the Securities and Exchange Commission. According to the SEC's complaint, Robertson, Sherman C. Vaughn Jr., and the company they co-owned, Cavalier Union Investments LLC, promised to invest in diversified holdings but stole nearly $6 million of the more than $10 million they raised from investors. They spent the stolen money on personal expenses such as cars, family vacations, repayment of mortgage and credit-card debt, luxury goods, clothing, entertainment, educational expenses for family members, and a luxury suite at a football stadium. Vaughn previously pled guilty in the criminal case.

In the SEC case, the Court previously entered final judgments against Robertson and Vaughn, ordering them to pay over $8 million in disgorgement and permanently enjoining them from violating the registration and antifraud provisions of Sections 5(a), 5(c), and 17(a) of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder.

At the time of the alleged misconduct, Robertson was not registered as a broker, and Vaughn never was registered with the SEC. The SEC encourages investors to check the backgrounds of people selling investments by using the SEC's website to quickly identify whether they are registered professionals and confirm their identity.

SIDE BAR: READ the SEC Complaint