Securities Industry Commentator by Bill Singer Esq

January 30, 2020

[In]Securities Guest Blog: Rolled Up and Smoked by Aegis Frumento Esq ( Blog)

Court Grants CBOE Motion to Dismiss. In Re: Chicago Board Options Exchange Volatility Index Manipulation Antitrust Litigation (Opinion/Order)
Since 2015, the Blog has reported about developments in an ongoing lawsuit involving allegations of defamation by Plaintiff Brummer against Defendant Wey and others. The nature of the ongoing civil case was characterized in part in a March 1, 2016, Order by the New York State Supreme Court

Plaintiff commenced this action on April 22, 2015, asserting three causes of action for defamation, defamation per se, and intentional infliction of emotional distress (Mot. Wipper Aff., Exh. A). Plaintiff, is a professor of law at Georgetown University Law Center and the sole African-American on the National Adjudicatory Council (NAC). He was part of a panel that upheld a decision by the Financial Industry Regulatory Authority. Inc. ("FINRA"), issuing a lifetime ban from the security industry against two African-American stockbrokers: non-parties William Scholander and Talman Harris. NYG Capital LLC d/b/a New York Global Group (hereinafter referred to individually as "NYGG") is a U.S. and Asia based strategic market entry advisory, venture capital, and private equity investment group that services clients worldwide. FNL Media, LLC. is described in the Complaint as a division or subsidiary of NYGG, and the owner of TheBlot, a website and online digital magazine that claims to combine investigative journalism with reader-submitted opinions. According to the Complaint Benjamin Wey is the CEO of NYGG. a publisher and contributor to TheBlot (Mot. Wipper Aff., Exh. A). 

The Complaint alleges that almost a month after the NAC panel wrote the decision upholding the FINRA lifetime ban on non-parties William Scholander and Talman Harris. TheBlot. an on-line magazine. began publishing a series of articles defaming the plaintiff. The articles are described by plaintiff as falsely characterizing him as a "racist," an "Uncle Tom," as having an affair with a married woman, as being under investigation and implicated in fraud. Plaintiff also alleges that the defendants posted comments under a false identity and altered photographs of the plaintiff. Plaintiff claims that he is a private individual that had an excellent professional and personal reputation which has been damaged by the defendants' defamatory statements that resulted in the loss of work together with other damages (Mot. Wipper Aff .. Exh. A). 

Readers are urged to consider: "Setting The Record Straight By Bill Singer, Esq." ( Blog, April 9, 2018)

The Defendants in Brummer moved to compel production by non-party FINRA of 33 documents, which both Plaintiff and FINRA claim are protected per CPLR 3101(c) as attorney work product or per CPLR 3101(d)(2) as material prepared in anticipation of litigation. Further, FINRA characterizes eight of the withheld documents pertaining to "mitigation of litigation risks arising out of public statements concerning anticipated litigation."

SIDE BAR: New York State Civil Practice Law and Rules ("CPLR") Rule 3101: Scope of Disclosure:
. . .

(c) Attorney's work product. The work product of an attorney shall not be obtainable.

(d) Trial preparation.
. . .
2.  Materials. Subject to the provisions  of paragraph one of this subdivision, materials otherwise discoverable under subdivision (a) of  this  section and prepared in anticipation of litigation or for trial by or for another party, or by or for  that  other  party's  representative (including  an  attorney,  consultant,  surety,  indemnitor,  insurer or  agent), may be obtained only upon  a  showing  that  the  party  seeking  discovery  has  substantial  need of the materials in the preparation of  the case and is unable without undue hardship to obtain the  substantial  equivalent of the materials by other means. In ordering discovery of the  materials  when  the  required  showing  has  been made, the court shall protect against  disclosure of the mental impressions,  conclusions,  opinions  or  legal theories of an attorney or other representative of a  party concerning the litigation.

Pursuant to the Court's analysis in the January 2020 Decision/Order:

An in camera review of the documents reveals that they are first and foremost proposed strategies by a public relations firm APCO Worldwide and comments by plaintiff and FINRA on those strategies, for plaintiff and FINRA to counteract and thus mitigate damages from the defamatory statements concerning plaintiff on the internet, about which he sues. That defamation, not this litigation or its anticipated commencement, prompted this public relations campaign. Depending on defendants' future conduct, APCO Worldwide proposed as part of the campaign the creation of a new, readily searchable online text and images positively portraying plaintiff, unrelated to the litigation.

Page 2 of the January 2020 Decision/Order

The Court does not discern any attorney work product among FINRA's documents at issue because the materials were not "communications by attorneys that are the product of their legal training or skills or that reflect any legal research, analysis, theory, strategy, or conclusion." at page 3 of the January 2020 Decision/Order. Similarly, the Court declined to protect the documents under cover of materials primarily prepared for litigation. Accordingly, in part, the Court granted Defendants' Motion to Compel FINRA to produce the 33 documents listed on its privilege log. To some extent, FINRA and Plaintiff Brummer now find themselves hoisted with their own petard as the Court finds in part that:

[D]efendants are entitled to this relevant information regarding plaintiff's efforts to mitigate the past and future effects of the claimed defamation and any communications that might reveal the impact of the defamation on plaintiff's reputation and his mental and emotional condition, whether minimal or severe . . ." 

Pages 4 - 5 of the January 2020 Decision/Order
Tommy Chong spent some time in a federal joint for selling, in more benighted days, bongs and water pipes. It is a fun fact that Tommy's cellmate was -- I kid you not - Wolf of Wall Street Jordan Belfort, who was in for securities fraud (duh!). That odd jailhouse pairing had the seeds of one stoner of a sit-com. But the moment may have passed. Today, the sort of high finance comedy that might have won an Emmy instead gets us an SEC enforcement case.

Court Grants CBOE Motion to Dismiss. In Re: Chicago Board Options Exchange  - Volatility Index Manipulation - Antitrust Litigation (Opinion/Order, United States District Court for the Northern District of Illinois, 18-CV-4171)
As set forth in the Syllabus:

Plaintiffs traded in options and futures contracts tied to the Chicago Board Options Exchange Volatility Index (VIX). VIX options and futures are cash-settled on designated dates. The price at which such an instrument settles is determined by a formula that Cboe designed. Plaintiffs allege that a group of anonymous traders used certain trading strategies to manipulate the process behind that formula, and, as a result, plaintiffs paid more or accepted less for their positions than they otherwise would have. They allege that Cboe knew that this manipulation was occurring, but allowed it to continue to increase profitability. Plaintiffs bring claims against Cboe and the unknown alleged manipulators (as Doe Defendants) under the Securities Exchange Act and Commodity Exchange Act. They also bring a negligence claim. Cboe moved to dismiss the complaint for failure to state a claim. I granted that motion and dismissed the complaint without prejudice as to all counts but the negligence count, which I dismissed with prejudice. Plaintiffs amended their complaint, and Cboe again moves to dismiss all counts against it. For the reasons discussed below, Cboe's motion is granted.
CPA Steven L. Henning pled guilty to two counts of wire fraud in an Information in the United States District Court for the Southern District of New York, and he was sentenced to 51 months in prison plus three years of supervised release, and he was ordered to pay $938,246 in restitution, and to forfeit $938,246. As alleged in part in the DOJ Release, Henning had:

established his own firm called OpportunIP, which he allegedly told victims was a company specializing in assisting other entities in taking intellectual property to the market.  HENNING induced victims to invest in OpportunIP by providing them with fraudulent documents showing OpportunIP's involvement in multimillion-dollar transactions that would reap millions of dollars in future profits.  Ultimately, the victims learned that the deals did not exist, the documents were false and forged, and they were victims of an alleged scheme to defraud them out of millions of dollars.

As further alleged in the information, after leaving the Manhattan accounting firm, HENNING sought employment with a firm in Chicago, Illinois (the "Chicago Firm").  He induced the Chicago Firm to hire him and provide him with $240,000 in draw payments based on false and fraudulent statements about business he would bring to the Chicago Firm, including by sending the Chicago Firm fraudulent contracts.
A succinct yet scary article by Alessandra Mailto in which she notes the recent history of data breaches that provided scammers with credit card information and billing addresses. Pointedly, she notes that the 2019 hack of Capital One yielded dates of birth, income and payment history, and Social Security numbers. A great article for industry professionals to circulate among their customers, and for Baby Boomers to carefully consider.
Athanasios Vouloukos pled guilty in in the United States District Court for the Northern District of California to conspiracy to commit mail fraud. As alleged in part in the DOJ Release:

[V]ouloukos, 47, of Ville St. Laurent, Quebec, Canada, admitted that he conspired with others in a telemarketing scheme to defraud small businesses in the United States.  Vouloukos and others deceived thousands of small businesses into paying for a phony service to improve and enhance their online profile and presence.  The phony service was variously described as, for example, "business listing optimization," "business profile optimization," or "online business listing optimization," when in fact no such services were ever performed.  Business were charged approximately $500 for the phony service.

As stated in the plea agreement, Vouloukos operated a calling center in Canada with his co-conspirator Nicholaos Menis.  U.S. victims were cold-called from Canada and sent bogus invoices.  According to the plea agreement, the telemarketing scheme involved calling businesses regarding the fraudulent invoices and falsely stating that the businesses had ordered "business listing optimization" or similar services and owed the amount on the invoice.  Victims were directed to mail checks to addresses in the United States, which were actually United Parcel Service (UPS) mailboxes or virtual offices, including one mailbox at a UPS store in San Francisco.  In pleading guilty, Vouloukos admitted that he and a co-conspirator used a firm called GreenGate to launder the proceeds of the fraudulent scheme.    

According to the indictment, from about May 2009 to about June 2014, Vouloukos and others collected approximately $3.2 million from thousands of victims.

Menis, 47, of Dollard-des-Ormeaux, Quebec, Canada, was charged in a separate indictment and arrested on August 11, 2014.  He pleaded guilty on December 5, 2014, and is awaiting sentencing.