Securities Industry Commentator by Bill Singer Esq

March 16, 2020

Dozens charged in Atlanta-based money laundering operation that funneled $30 million in proceeds from computer fraud schemes, romance scams, and retirement account fraud (DOJ Release)

List Broker Indicted for Facilitating Elder Fraud Schemes (DOJ Release)

SEC Charges Three Individuals for Falsifying Records in Connection with Investment Adviser Ponzi Scheme Investigation (SEC Release)

In addressing concerns about the spread of the Coronavirus, the SEC published a Staff Guidance, pertaining to upcoming annual shareholder meetings in order to assist public companies, investment companies, shareholder and other market participants. As set forth in part in the SEC Release:

Under the guidance, the affected parties can announce in filings made with the SEC the changes in the meeting date or location or the use of "virtual" meetings without incurring the cost of additional physical mailing of proxy materials.  The guidance also encourages companies to provide shareholder proponents with alternative means, such as by telephone, to present their proposals at the annual meetings in light of the difficulties that shareholder proponents face due to COVID-19.

As set forth in part in the SEC Release:

Cboe announced that it will temporarily close its options trading floor effective Monday, March 16, as a precautionary measure to prevent the potential spread of COVID-19. The Cboe rule filing modifies three trading rules with respect to Cboe's exclusively listed index options to more fully replicate in an electronic trading environment the trading that occurs on the Cboe's physical trading floor.

Subject to their conditions, the orders provide the following temporary exemptive relief:

Relief Related to the Investment Company Act of 1940

  • Registered management investment companies, business development companies, and any investment adviser or principal underwriter of such companies from Investment Company Act sections and rules requiring certain agreements, plans or arrangements be approved by the company's board of directors by an in-person vote due to circumstances related to the current or potential effects of coronavirus;
  • Registered management investment companies and unit investment trusts affected by coronavirus from Form N-CEN and Form N-PORT filing deadlines;
  • Registered management investment companies and unit investment trusts affected by coronavirus from annual and semi-annual report transmittal deadlines; and
  • Registered closed-end investment companies and business development companies from the requirement to file Form N-23C-2 at least 30 days prior to calling or redeeming securities.
Relief Related to the Investment Advisers Act of 1940
  • Registered investment advisers and exempt reporting advisers affected by coronavirus to file an amendment to Form ADV or file reports on Form ADV part 1A, respectively;
  • Registered investment advisers affected by coronavirus from requirements to deliver amended brochures, brochure supplements or summary of material changes to clients where the disclosures are not able to be timely delivered because of circumstances related to coronavirus; and
  • Private fund advisers affected by coronavirus from Form PF filing requirements.
Commission Statement of Delivery of Fund Prospectuses

The Commission also takes the position, as described in the orders, that it would not provide a basis for a Commission enforcement action if a registered fund does not deliver to investors the current prospectus of the registered fund where the prospectus is not able to be timely delivered because of circumstances related to coronavirus, subject to the conditions described in the orders.

READ the following SEC Relief Orders:
Among the more common questions asked of me by my law firm's clients is what can I do (or not do) after I've quit my current brokerage firm and join a new one. Pointedly, employees on the move are concerned about violating various non-solicit, non-compete, and confidentiality agreements. At what point does a mere communication to clients become a solicitation? At what point am I going to be deemed to be in competition with my former firm. If I get too cute and run afoul of something, exactly what should I expect will be my former firm's response. In a recent federal matter, we get to see how some of those concerns play out, even if only on a temporary basis.
In a Complaint filed in the United States District Court for the District of New Jersey, the SEC charged charges Denis Georgiyevich Sotnikov, and entities that he allegedly controls: Adaptive Technology LLC, AGQ Business Group LLC, ATL Business Group LLC, BO&SA Corp., DN Industrial LLC, and Expert Digital LLC with violating the antifraud provisions of the federal securities laws, and Sotnikov with aiding and abetting those violations.  Also, the Complaint names Sotnikov's wife, Natalia Mazitova, as well as Great Imperial LLC, HRC Clearing House LLC, and Inteko Cargo LLC as Relief Defendants. As set forth in part in the SEC Release:

[T]he scheme involved purchasing internet ads that targeted investors who were searching for CDs with high rates.  The ads allegedly included links to phony websites, which falsely claimed that the firms offering the CDs were members of FINRA and the FDIC, and that deposits were FDIC-insured.  When investors called the phone number on the websites, an "account executive" impersonating a real registered representative directed investors to wire funds to so-called "clearing" partners.  These alleged clearing partners were entities used by Sotnikov to launder and misappropriate investor funds.  Since November 2014, the alleged scheme involved spoofing the websites of at least 24 actual financial firms or using at least 8 fictitious entities, resulting in over $26 million in known investor losses - with many of those losses from older investors who used their retirement savings.

Dozens charged in Atlanta-based money laundering operation that funneled $30 million in proceeds from computer fraud schemes, romance scams, and retirement account fraud (DOJ Release)
As alleged in part in the DOJ Release:

Federal agents have arrested twenty-four individuals for their involvement in a large-scale fraud and money laundering operation that targeted citizens, corporations, and financial institutions throughout the United States. Business email compromise schemes, romance fraud scams, and retirement account scams, among other frauds, duped numerous victims into losing more than $30 million.
. . .
[T]he defendants created multiple sham companies that did not have physical premises, earn legitimate income, or pay wages to employees. In turn, the defendants opened business bank accounts at multiple financial institutions to facilitate receipt of the fraudulent money. The defendants also opened personal bank accounts to receive fraudulent funds, often using false identities and victims' identities. After funds were deposited into the defendants' bank accounts, the money was quickly withdrawn from the accounts and circulated among the defendants.

List Broker Indicted for Facilitating Elder Fraud Schemes (DOJ Release)
In an Indictment filed in the United States District Court for the District of Connecticut, Norman Newman was charged with conspiracy to commit mail and wire fraud, and multiple counts of wire fraud. As alleged in part in the DOJ Release:

The indictment alleges that Newman provided list-brokerage services for more than 11 years to individuals running mass-mailing fraud schemes.  Newman allegedly furnished consumers' names and addresses to fraudster clients, knowing that the clients were mailing hundreds of thousands of deceptive prize notifications that misled victims into believing that they would receive a cash prize or personalized services upon payment of a fee.  Many of the victims were elderly and vulnerable. 
. . .
According to the indictment, Newman worked in the offices of a list-brokerage company from 2005 until September 2016, when agents of the United States Postal Inspection Service searched the company's offices and the Civil Division's Consumer Protection Branch obtained a federal court order enjoining the company from list brokerage related to sweepstakes- and astrology-themed notifications.
In a Complaint filed in the United States District Court for the Eastern District of North Carolina, the SEC charged Stacy Beane, Justin Deckert, and Travis Laska with aiding and abetting VisionQuest Wealth Management, LLC's violations of the books and records provisions of Section 204(a) of the Investment Advisers Act of 1940, and Rule 204-2 thereunder. Without admitting or denying the allegations in the SEC Complaint, Deckert consented to a judgment that enjoins him from aiding and abetting violations of these provisions, and orders him to pay a $30,000 penalty; and he also consented to an SEC Order that bars him from association with any broker, dealer, investment adviser, municipal securities dealer, municipal advisor, transfer agent, or nationally recognized statistical rating organization, with the right to apply for reentry after five years. As alleged in part in the SEC Release, Beane, Deckert, and Laska allegedly:

helped conceal a fraudulent offering of more than $10 million in promissory notes by Stephen C. Peters, the owner and principle of VisionQuest Wealth Management, LLC, to Peters's advisory clients. The SEC previously charged Peters and his companies based on the fraudulent offering, and the U.S. Attorney's Office for the Eastern District of North Carolina filed criminal proceedings against Peters based on the same misconduct, as well as Peters' providing false information to Commission staff. On June 6, 2019, following a trial by jury, Peters was convicted in the criminal case of twenty counts, including counts alleging investment adviser fraud, fraudulent sale of unregistered securities, mail and wire fraud, and falsification of documents provided to the Commission.

Beane, Deckert, and Laska allegedly fabricated documents to suggest that Peters had disclosed potential conflicts of interest to VisionQuest's compliance officer, altered other documents to make certain clients appear to be accredited investors, and forged or backdated client signatures on various agreements, all of which Beane, Deckert, and Laska knew would eventually be provided to the SEC. In addition, in response to SEC staff requests for emails sent to and from Peters, the complaint alleges that Beane and Laska used keyword searches provided by Peters to identify certain responsive emails that should be withheld from the production to the SEC.
In a Complaint filed in the United States District for the District of Nevada, the SEC charged the founder/Chief Executive Officer of several financial services firms, Bradley C. Reifler, with 
The Securities and Exchange Commission yesterday charged Bradley C. Reifler, founder and chief executive officer of multiple New York-based financial services firms, with violating the antifraud provisions of Sections 206(1) and 206(2) of the Investment Advisers Act of 1940, Section 17(a) of the Securities Act, and Section 10(b) of the Securities Exchange Act, and Rule 10b-5 thereunder. Also, the Complaint names three entities as relief defendants, which the SEC alleges were controlled by Reifler and received investor funds from the alleged scheme. As alleged in part in the SEC Release:

[R]eifler's fraudulent conduct began in November 2014, when he raised $6 million from an investor by representing that the money would be used to invest in a telecom receivables business. Instead, the SEC's complaint alleges, Reifler diverted the $6 million to support real-estate development projects in which he had an interest and to acquire a $34 million portfolio of reinsurance trust assets in North Carolina. Beginning in April 2015, Reifler, as the investment adviser to the trust, allegedly defrauded the trust by investing its funds in various struggling entities in which he had an interest.  The SEC's complaint alleges that in June 2015, to cover up his improper allocation of the trust assets, Reifler created fictitious documents and forged counter-party signatures to make it appear as if the assets had been reallocated into permissible investments.