The Wall Street Legal & Regulatory Feed
Securities Industry Commentator by Bill Singer Esq
March 24, 2020
World's Back Office Scrambles to Stay Online as India Locks Down (Bloomberg.com by Saritha Rai and Anto Antony)
Potential wave of mortgage delinquencies could bankrupt the payment system (CNBC by Diana Olick)SEC Obtains Final Judgments Against NFL Player and Second Tippee Charged with Insider Trading (SEC Release)SEC Charges Lubbock, Texas Resident for Misleading Investors in Companies Providing Tricycles to Disabled Persons (SEC Release)SEC Awards Over $1.6 Million to Whistleblower (SEC Release)
Statement from Stephanie Avakian and Steven Peikin, Co-Directors of the SEC's Division of Enforcement, Regarding Market Integrity (SEC Release)
https://www.sec.gov/news/public-statement/statement-enforcement-co-directors-market-integrity
In part, the Co-Directors' statement warns that:
We wish to emphasize the importance of maintaining market integrity and following corporate controls and procedures. For example, in these dynamic circumstances, corporate insiders are regularly learning new material nonpublic information that may hold an even greater value than under normal circumstances. This may particularly be the case if earnings reports or required SEC disclosure filings are delayed due to COVID-19. Given these unique circumstances, a greater number of people may have access to material nonpublic information than in less challenging times. Those with such access - including, for example, directors, officers, employees, and consultants and other outside professionals - should be mindful of their obligations to keep this information confidential and to comply with the prohibitions on illegal securities trading. Trading in a company's securities on the basis of inside information may violate the antifraud provisions of the federal securities laws.We similarly urge public companies to be mindful of their established disclosure controls and procedures, insider trading prohibitions, codes of ethics, and Regulation FD and selective disclosure prohibitions to ensure to the greatest extent possible that they protect against the improper dissemination and use of material nonpublic information. Likewise, broker-dealers, investment advisers, and other registrants must comply with policies and procedures that are designed to prevent the misuse of material nonpublic information. . . .
World's Back Office Scrambles to Stay Online as India Locks Down (Bloomberg.com by Saritha Rai and Anto Antony)
https://www.bloomberg.com/news/articles/2020-03-23/world-s-back-office-scrambles-to-stay-online-as-india-locks-down
As the coronavirus pandemic spreads, India's lock-down has hit its outsourcing industry and raises challenges for the world's financial services community. As noted in part in the Bloomberg article:
Privacy is also an issue, with the prospect of millions of workers processing sensitive data from home. Outsourced work from the world's largest banks, insurers, airlines and retailers are governed by strict non-disclosure agreements. Many companies don't allow employees to even carry their phones in the workplace for fear of compromising clients' confidentiality clauses, and restrict access to certain areas to only those working on the project.
Potential wave of mortgage delinquencies could bankrupt the payment system (CNBC by Diana Olick)
https://www.cnbc.com/2020/03/23/coronavirus-us-potential-wave-of-mortgage-delinquencies-could-bankrupt-payment-system.html
https://www.cnbc.com/2020/03/23/coronavirus-us-potential-wave-of-mortgage-delinquencies-could-bankrupt-payment-system.html
In yet another example of the cascade effect of the coronavirus pandemic, CNBC reporter Diana Olick notes in part that the Mortgage Banker Association estimates:
[I]f approximately one-quarter of all borrowers request and are granted loan forbearance for six months or longer, demands on servicers could exceed $75 billion and could climb well above $100 billion. That would easily bankrupt the mortgage finance system.The majority of mortgages today are guaranteed by Fannie Mae and Freddie Mac, or are insured by the government through the FHA. While the mortgage servicers have to pay the bill to investors first, Fannie, Freddie and Ginnie Mae, which securitize FHA loans, would ultimately be on the hook.
SEC Obtains Final Judgments Against NFL Player and Second Tippee Charged with Insider Trading (SEC Release)
https://www.sec.gov/litigation/litreleases/2020/lr2477
In a Complaint filed in the United States District Court for the Eastern District of Pennsylvania
https://www.sec.gov/litigation/complaints/2020/comp24776.pdf, the SEC alleged that alleged that professional football player Mychal Kendricks received illegal tips about pending corporate mergers from Co-Defendant Damilare Sonoiki, an investment bank analyst; and, thereafter, Kendricks traded on this information for a profit of about $1.2 million. On November 2, 2018, the SEC filed a related Complaint against Hamed A. Ettu https://www.sec.gov/litigation/complaints/2018/comp-pr2018-251.pdf, a family friend of Sonoiki, alleging that he also traded based on information that he received from Sonoiki concerning two upcoming corporate acquisitions for a profit of approximately $93,000. Kendricks and Ettu entered into Consent Orders, which, as set forth in the SEC Release:
https://www.sec.gov/litigation/complaints/2020/comp24776.pdf, the SEC alleged that alleged that professional football player Mychal Kendricks received illegal tips about pending corporate mergers from Co-Defendant Damilare Sonoiki, an investment bank analyst; and, thereafter, Kendricks traded on this information for a profit of about $1.2 million. On November 2, 2018, the SEC filed a related Complaint against Hamed A. Ettu https://www.sec.gov/litigation/complaints/2018/comp-pr2018-251.pdf, a family friend of Sonoiki, alleging that he also traded based on information that he received from Sonoiki concerning two upcoming corporate acquisitions for a profit of approximately $93,000. Kendricks and Ettu entered into Consent Orders, which, as set forth in the SEC Release:
permanently enjoin them from violating Sections 10(b) and 14(e) of the Securities Exchange Act of 1934 and Rules 10b-5 and 14e-3 thereunder, and order Kendricks to pay disgorgement of $1,188,075 and order Ettu to pay disgorgement of $73,244, which accounts for a $20,000 debt Sonoiki owed to Ettu. The monetary relief was deemed satisfied by forfeiture orders entered against Kendricks and Ettu in a parallel criminal action brought by the U.S. Attorney's Office for the Eastern District of Pennsylvania. Kendricks previously pleaded guilty to securities fraud and conspiracy to commit securities fraud, and has not yet been sentenced. Ettu pleaded guilty to conspiracy to commit securities fraud, was sentenced to probation for a term of 3 years, including 9 months of home detention.
SEC Charges Lubbock, Texas Resident for Misleading Investors in Companies Providing Tricycles to Disabled Persons (SEC Release)
https://www.sec.gov/litigation/litreleases/2020/lr24777.htm
https://www.sec.gov/litigation/litreleases/2020/lr24777.htm
In a Complaint filed in the United States District Court for the Northern District of Texas
https://www.sec.gov/litigation/complaints/2020/comp24777.pdf, the SEC alleged that Joe Leland Tarver, Rock and Roll Cycles, LLC ("RRC"), and Cycle for Life, Inc ("CFL"). raised about $491,000 from the sale of promissory notes promising 6% to 9.6% annual returns at least 18 investors; however, instead of using the investments to manufacture and sell custom tricycles for disabled children and adults, Tarver diverted a significant amount of the proceeds to his personal expenses and to repay prior investors a la a Ponzi scheme. Additionally, the Complaint alleged that Tarver had failed to disclose lawsuits brought by earlier investors for failing to repay their promissory notes.Without admitting or denying the allegations in the Complaint, Tarver, RRC, and CFL entered into Consent Orders enjoining them from violating the antifraud provisions of Section 17(a) of the Securities Act and Section 10(b) of the Securities Exchange Act and Rule 10b-5 thereunder, and from, directly or indirectly, participating in the issuance, offer, or sale of promissory notes. The Defendants agreed to jointly/severally pay $158,652 in disgorgement and $12,662 prejudgment interest; and Tarver agreed to pay a $65,000 civil monetary penalty.
https://www.sec.gov/litigation/complaints/2020/comp24777.pdf, the SEC alleged that Joe Leland Tarver, Rock and Roll Cycles, LLC ("RRC"), and Cycle for Life, Inc ("CFL"). raised about $491,000 from the sale of promissory notes promising 6% to 9.6% annual returns at least 18 investors; however, instead of using the investments to manufacture and sell custom tricycles for disabled children and adults, Tarver diverted a significant amount of the proceeds to his personal expenses and to repay prior investors a la a Ponzi scheme. Additionally, the Complaint alleged that Tarver had failed to disclose lawsuits brought by earlier investors for failing to repay their promissory notes.Without admitting or denying the allegations in the Complaint, Tarver, RRC, and CFL entered into Consent Orders enjoining them from violating the antifraud provisions of Section 17(a) of the Securities Act and Section 10(b) of the Securities Exchange Act and Rule 10b-5 thereunder, and from, directly or indirectly, participating in the issuance, offer, or sale of promissory notes. The Defendants agreed to jointly/severally pay $158,652 in disgorgement and $12,662 prejudgment interest; and Tarver agreed to pay a $65,000 civil monetary penalty.
SEC Awards Over $1.6 Million to Whistleblower (SEC Release)
https://www.sec.gov/news/press-release/2020-69
https://www.sec.gov/news/press-release/2020-69
In an Order filed on March 23, 2020, https://www.sec.gov/rules/other/2020/34-88449.pdf, the SEC awarded over $1.6 million to a whistleblower Claimant. As set forth in part in the SEC Order:
Applying the award criteria in Rule 21F-6 of the Securities Exchange Act of 1934 to the specific facts and circumstances here, we find the proposed award amount is appropriate.2 In reaching this determination, we took particular note of the following: (i) Claimant's original information caused staff in the Division of Enforcement to open the investigation and supported some of the charges in the Covered Action, while other charges were unrelated to the Claimant's information; (ii) the allegations reported by Claimant would have been hard to detect; (iii) Claimant's information and assistance saved the staff time and resources early in its investigation; and (iv) Claimant unreasonably delayed in reporting to the Commission. With respect to the unreasonable delay, we have not applied this factor as severely here as we otherwise might have done had the delay occurred entirely after the whistleblower award program was established by the Dodd-Frank Wall Street Reform and Consumer Protection Act. . . .= = = = =Footnote 2: In assessing the appropriate award amount, Exchange Act Rule 21F-6 provides that the Commission consider: (1) the significance of information provided to the Commission; (2) the assistance provided in the Commission action; (3) law enforcement interest in deterring violations by granting awards; (4) participation in internal compliance systems; (5) culpability; (6) unreasonable reporting delay; and (7) interference with internal compliance and reporting systems. Exchange Act Rule 21F-6, 17 C.F.R. § 240.21F-6.