Securities Industry Commentator by Bill Singer Esq

February 13, 2020
Keith Orlean pled guilty in the United States District Court for the Southern District of New York to one count each of securities fraud and securities fraud conspiracy, and he was sentenced to 32 months in prison plus three years of supervised release; and he was ordered to pay $2,080,771 in restitution and  an $883,700 forfeiture. Co-Defendants Vladimir Ziskind and Kevin Weinzoff pled guilty and await sentencing. As alleged in part in the DOJ Release:

For several years, ORLEAN and his codefendants operated a fraudulent scheme in which a salesman named "Mike Palmer" would call elderly persons on the phone and offer them what he claimed was a time-sensitive opportunity to buy stock in certain companies.  In fact, there was no "Mike Palmer," and the salesman was actually Vladimir Ziskind or Kevin Weinzoff, co-conspirators of the defendant who were taking turns using the fake alias.  The purported time-sensitive investment opportunity was also fabricated by the defendants, as the company in which they solicited investments were actually companies under their control.  In one intercepted phone call conversation, Ziskind described to KEITH ORLEAN his strategy for a successful investor sales pitch as:  "You ram it down their fucking throat."  In another intercepted call between Ziskind and ORLEAN, upon learning that a particular victim investor died, Ziskind remarked:  "I knew I should have pulled the last $10,000 out of him."   

The most recent version of the defendants' phony sales pitch included false representations about an impending initial public offering, or "IPO," for their company, Digital Donations Technologies, Inc.  For example, in April 2018, one of the defendants assured a victim investor that "our company is doing great," that the company had an offer for an IPO valued at approximately $300 million, and that defendant KEITH ORLEAN was considering a private sale of the company for more than $1.5 billion. In truth, however, the defendants knew that the company had little or no actual commercial value and that no such IPO or sale was taking place.   

The Federal Bureau of Investigation ("FBI") estimates that since April 2014, the defendants have convinced more than approximately 57 persons, many of whom were elderly, to purchase stock in companies controlled by one or more of the defendants based on false representations. During the period of the conspiracy, the defendants successfully solicited more than $2 million in stock purchases from victims.
Martins Apskalns and Igors Pirins pled guilty in the United States District Court for the Southern District of New York to conspiracy to commit bank and wire fraud. Apskalns was sentenced to 108 months in prison plus three years of supervised release, and he was ordered to pay $4,952,172.37 in restitution and to forfeit $164,900.04. Pirins was sentenced to 66 months in prison plus three years of supervised release, and he was ordered to pay $3,095,000.94 in restitution and to forfeit $166,251.94. As alleged in part in the DOJ Release:

From at least January 2016 through December 2018, the defendants participated in a fraudulent scheme that most commonly operated as follows:  First, co-conspirators impersonated automotive dealers and collectors and claimed to be selling classic cars on various well-known internet auction and trading websites.  Victims responding to the ads were in fact corresponding with a fraud scheme participant.  After the victims and co-conspirators came to terms on a sale price, including down payment and shipping costs, victims were next directed to purported automotive transportation companies and were told that these companies would accept payment and transport the cars.  These companies were in fact shell corporations established by the conspiracy to help perpetrate the fraud, whose corporate bank accounts were established and controlled by the defendants and co-conspirators, awaiting wired funds from the fraud's victims.  After victims had wired payment, the defendants and co-conspirators went to the banks to drain the victim's funds, often starting the same day payment had been transmitted, withdrawing from different bank branches in numerous withdrawals on the same day, and withdrawing in denominations that were varied and often kept to an amount that they believed would prevent the financial institutions from recording and reporting the fraud.  The defendants and other co-conspirators then sent the fraud proceeds outside the United States to Eastern European countries, from where the defendants and many of their co-conspirators originated.  Some of the defendants maintained managerial roles, recruiting co-conspirators to participate and providing directions and victim information to scheme participants once the co-conspirators were inside the United States.  Victims never received the goods they believed they had purchased, and many were unable to recover their money or were left paying loans for cars that were never truly for sale. 

APSKALNS and PIRINS served as managers in this scheme, who, in addition to opening bank accounts of their own that received victim funds, directed and coordinated the activities of cells of co-conspirators in the United States.  APSKALNS and PIRINS continued their criminal activity and management role when they left the United States and returned to Latvia. 

APSKALNS and PIRINS were arrested in Latvia in November 2018.  At the time of their arrest, evidence recovered from APSKALNS revealed that he was continuing to direct co-conspirators until the time of his arrest.  This information led to the arrest of four co-conspirators in the United States as they attempted to flee the United States from John F. Kennedy airport.  APSKALNS and PIRINS were extradited to the United States in December 2018.

Former Chief Operating Officer Pleads Guilty To Defrauding Asset Management Company And Its Clients (DOJ Release)
Richard Diver pled guilty in the United States District Court for the Southern District of New York to one count of investment adviser fraud and one count of wire fraud. As alleged in part in the DOJ Release:

DIVER was the chief operating officer ("COO") of a Manhattan-based asset management company ("Company-1") that offers its customers investment planning and wealth management services.  As COO, DIVER's responsibilities included overseeing the company's payroll and billing functions. 

Beginning in 2011 and continuing into December 2018, DIVER fraudulently caused Company-1's third-party payroll vendor to pay him salary significantly beyond his authorized salary and bonus.  Over that period, DIVER caused over $4.5 million to be routed to his personal checking account above and beyond his approved compensation.

In 2017, DIVER began to also defraud Company-1's clients.  Typically, Company-1 billed its clients quarterly, in most cases having been authorized by the clients to deduct its investment advisory fees directly from their custodial accounts.  DIVER began to cause an employee to run the billing process, which was based on a fixed percentage of the assets the clients had under the company's management, at off-cycle intervals as to certain clients in addition to the regular quarterly intervals at which it billed legitimately.  These billings were not accompanied by any notice.  The clients affected by this practice therefore had their accounts debited twice, but were only notified of the single legitimate billing in periodic reports and correspondence from the company.  DIVER routed the excess funds to his own personal bank accounts through the company's payroll system.  Through this mechanism, DIVER defrauded the clients of over $700,000.

In December 2018, certain clients noticed the overbilling and complained to Company-1's president, who confronted DIVER.  DIVER admitted to both fraudulent practices, stating that the funds he had stolen were consumed by his own "wild" spending.  More recently, law enforcement agents recorded a conversation in which DIVER acknowledged having defrauded the company of $4.5 million through the payroll fraud and certain clients of over $700,000 through the billing fraud.

Florida Man Sentenced To Federal Prison For An Investment Fraud Scheme Involving Baton Rouge Area Victims (DOJ Release)
Wallace Byers, 60, was convicted of wire fraud in the United States District Court for the Middle District of Louisiana, and he was sentenced to 121 months in prison plus three years of supervised release, and he was ordered to pay $6,880,000l in restitution. As alleged in part in the DOJ Release:

[B]etween October 2014 and November 2018, he solicited victims in the Baton Rouge area and elsewhere to invest with his company, WBI Associates, Inc., promising victims large returns in a short time frame.  Byers focused his solicitations on older individuals and those who had been victims of prior schemes.  He promised his victims that the money would be invested, variously, in gold production, a lottery company, foreign currency, or "dark pools" or "blind pools."  Whenever his victims pressed for returns or refunds of their money, Byers gave various excuses for delays - the money was invested overseas, other individuals had to "sign off," or more money needed to be invested before any was paid out.  In truth, instead of investing the money as promised, Byers spent the money on personal expenditures, including among others, approximately $10,000 per month in rent for his residence in a Miami hotel, the lease of luxury cars, and gambling in casinos.  Byers admitted that he received between $3,500,001 and $9,500,000 as a result of his scheme, $3,000,000 of which he sent to a Swiss bank account he controlled.  Byers also admitted that he had two prior federal felony convictions, one of which was for a similar wire fraud scheme.

As part of the investigation, the FBI seized several bank accounts controlled by Byers, including the funds in the Swiss bank account.  The FBI also seized $260,000 in cash, $230,000 of which was seized from one of his safe deposit boxes, and $30,000 of which was seized from a safe in his residence.  Byers' interest in these bank accounts, in the cash, and in other items has been forfeited.  All property forfeited to the United States, including the cash and the funds in the bank accounts, will be made available for distribution to all of the victims.

Five Texas Men Sentenced to Federal Prison for their Roles in Scheme to Launder Millions from Business Email Compromise Fraud (DOJ Release)
Several Defendants involved in a Business Email Compromise ("BEC") scam have been charged in the United States District Court for the Western District of Texas. Bameyi Kelvin Omale pled guilty to one count of conspiracy to launder monetary instruments, and he was sentenced to 135 months in prison and ordered to pay $5,378,292.03 in restitution. Co-Defendants Chinonso Agbaji, Igho Calaba, and Chibuzor Stanley Uba also pled guilty to the same charge. Agbaji was sentenced to 78 months in  prison; Uba to 36 months; and, Calaba to 30 months. Co-Defendant Nnamdi Nwosu, was indicted on one count of conspiracy to launder money instruments and one count of passport fraud in furtherance of the money laundering conspiracy but he remains a fugitive. Defendant Joseph Odibobhahemen pled guilty to one count of conspiracy to launder monetary instruments, and he was sentenced to 78 months prison and ordered to pay $1,639,419.57 in restitution.  Defendant Nosa Onaghise pled guilty to one count of passport fraud in furtherance of the money laundering conspiracy, and he awaits sentencing. As alleged in part in the DOJ Release:

[O]ver $10 million was allegedly sent by victims to accounts controlled by the defendants, who were able to take in excess of $3 million before law enforcement or financial institutions stopped the fraudulent transfers.  In a BEC scheme, scammers target businesses and individuals making wire transfer payments, often targeting employees with access to company finances. The scammers trick the employees into making wire transfer payments to bank accounts thought to belong to trusted partners-except the money ends up in accounts controlled by the fraudsters. Sometimes the scammers use computer intrusion techniques to alter legitimate payment request emails, changing the recipient bank accounts. Sometimes they send spoofed emails from email addresses similar to trusted partners.

Whatever the BEC method used, the scammers need bank accounts controlled by coconspirators to collect the stolen money. The indictment alleges that the conspirators acquired or controlled dozens of bank accounts opened in the U.S., including in Austin, TX, utilizing fraudulent identification documents, including fraudulent foreign passports in fake names.  The indictment alleges that once the funds were fraudulently procured and deposited into these bogus accounts, the defendants worked quickly to withdraw or transfer the funds.

The indictment further alleges that some of the conspirators also received funds sent by the victims of romance fraud.

"Opportunities (Let's Make Lots of Money)": The Role of Venture Capital in a Competitive Economy (Assistant Attorney General Makan Delrahim Delivers Opening Remarks at Public Workshop on Venture Capital and Antitrust)
Among AAG Delrahim's observations and comments:

As we engage in our discussions today, I am hoping to learn answers to several questions

First, What does the VC community know about the likelihood of future disruptive innovation that could challenge today's technology giants?

Second, Are any of today's digital platforms so dominant, with such a capability to restrict access to inputs or to distribution of products, that investors are not willing to develop products that rely on those platforms

Third, Where are we in the life cycle of the market for data about how people interact with websites, and with their phones or wearables?  We are engaged in a national debate about the value of keeping that information private, but do we have a sense of what that information might be worth in different markets and how consumers may be served by rules that allow the collection and use of that data

Fourth, What tools does the VC community use to evaluate the strategic value of a transaction, that we as antitrust enforcers can utilize to think about whether a transaction is premised on creating value for consumers, versus preventing competition?

One of the best bets I have ever made on Wall Street (Video by Josh Brown, Chief Executive Officer of Ritholtz Wealth Management)
Ritholtz CEO Josh Brown talks about the gamble his firm made when hiring newbie Alexander Palumbo. It's a heart-warming tale about how hard work pays off. How integrity matters. How a new generation takes its place on Wall Street, and we're all better off for the passing of the baton. If you know of a young man or woman seeking a career in the biz, show them this video. If you're thinking about hiring a fresh face for your broker-dealer or RIA, this is how it turns out when everything falls into place. It's a nice change of pace for these cynical times.
Perhaps bothered by the recent presidential impeachment proceedings, Aegis Frumento has about had it with those who insist that you can't have a trial without witnesses. It just ain't so, he says -- and he wags a knowing finger at the fairly mundane motion for summary judgment, also known as a trial on papers. You take your depositions and your documents, you package them all nice and neat, and you argue that there's no facts left to try because you've proved them all. If you've done a good job, it's over. No live witnesses needed. It happens all the time.