Securities Industry Commentator by Bill Singer Esq

March 27, 2020

SEC Provides Additional Temporary Regulatory Relief and Assistance to Market Participants Affected by COVID-19 / SEC continues to closely monitor the impact of COVID-19 on investors and capital markets (SEC Release)

Customer Advisory: Be on Alert for Frauds Seeking to Profit from Market Volatility Related to COVID-19 (CFTC Release)

Wall Street traders adapt to working from home as business booms (CNBC by Bob Pisani)

U.S. Mortgage Rates Slip While Home Sales Head for Deep Freeze ( by Prashant Gopal)
Simply the best, most comprehensive article that I've read on the topic. Excellent reporting by Berekley Lovelace Jr. If you're only interested in real facts and science, take the time to learn about where the Coronavirus stacks up compared to the 1918 Flu, MERS, SARS, and other viral epidemics/pandemics. A sobering analysis but one that answers many questions. A MUST READ.
As of 9:30 a.m. EDT on March 26, 2020, the SEC suspended trading in the securiteis of Zoom Technologies, Inc. (stock symbol "ZOOM") until 11:59 p.m. EDT on April 8, 2020. As set forth in part in the SEC Release:

The Commission temporarily suspended trading in the securities of ZOOM because of concerns about the adequacy and accuracy of publicly available information concerning ZOOM, including its financial condition and its operations, if any, in light of the absence of any public disclosure by the company since 2015; and concerns about investors confusing this issuer with a similarly named NASDAQ-listed issuer, providing communications services, which has seen a rise in share price during the ongoing COVID-19 pandemic. 

Bill Singer's Comment: Mind you, I don't necessarily disagree with the federal regulator's action and fully appreciate the legitimate concern; however, the ramifications of this suspension are a bit unsettling. Consider that Zoom Technologies (stock symbol: "ZOOM") hasn't actually done anything wrong. The sole issue upon which the SEC acted (and again, I am not criticizing the regulator's conduct) was that ZOOM is not Zoom Video Communications, Inc. (stock symbol: "ZM"). ZM is trading around $141 per share; whereas ZOOM is trading around $10 per share. ZM offers videoconferencing software and during these COVID-19 telecommuting times, the company's sales and share price are purportedly benefiting from the pandemic. Acting in what it deems the public's interest, the SEC suspended ZOOM's trading because . . . well, because investors could confuse (and perhaps have) the $10-share ZOOM with the $141-share ZM. The SEC's suspension of ZOOM trading appears to be needed in order to protect uninformed investors from their own lack of due diligence. Like I said, I get it. On the other hand, what happens if investors in ZOOM get hammered upon the resumption of trading on April 8th? You can hear the gears grinding in the heads of securities litigators.

Consensual Sex and An Employer's Loss of Faith. Matthew Fine, Plaintiff, v. The Guardian Life Insurance Company of America and Park Avenue Securities, LLC (Memorandum and Order Regarding Defendants' Motion to Dismiss, United States District Court for the District of Massachusetts ("DMA"), 19-CV-30067)
It's not so much the legal issues in this case that will likely catch your eye as it is the underlying event that gave rise to the lawsuit. By way of spoiler alert, the procedural issue before DMA was Defendants Motion to Dismiss, which the court denied. 
By way of setting the scene, Plaintiff Matthew Fine sold insurance as an agent for The Guardian Life Insurance Company of America and Park Avenue Securities, LLC -- Guardian had hired Plaintiff in 1997 as a Field Representative and Park Avenue Securities ("PAS") had hired Plaintiff in 2000 as a Registered Representative. So much for the mundane, and now for the seemingly lurid:

On May 1, 2018, Plaintiff traveled to Washington, D.C. to attend a required Guardian conference that was scheduled to begin on May 3, 2018 (Dkt. No. 1 ¶ 27). Plaintiff arrived two days early to play golf (Dkt. No. 1 ¶ 28). Before the conference began, Plaintiff engaged in "consensual sexual activity" with a woman who was attending an unrelated conference at Plaintiff's hotel (Dkt. No. 1 ¶ 29). The hotel staff awakened Plaintiff at 3:00 A.M. and informed him that the woman's male co-worker had accused Plaintiff of sexual misconduct (Dkt. No. 1 ¶¶ 30, 31). The hotel's policy required its staff to notify the police (Dkt. No. 1 ¶ 32). After the police investigated the complaint, Plaintiff was not charged with a crime (Dkt. No. 1 ¶¶ 2, 32, 33). Guardian prevented Plaintiff from attending the conference (Dkt. No. 1 ¶ 34). 

Plaintiff received a termination letter on May 8, 2018, which stated that "his termination will be effective May 22, 2017" (Dkt. No. 1 ¶¶ 35, 36).4 After Plaintiff repeatedly pressed Guardian to state a reason for his termination, its employees stated that they had "'lost faith'" in him (Dkt. No. 1 ¶¶ 2, 40). Plaintiff had not received a complaint or bad review during his twenty year tenure with Defendants (Dkt. No. 1 ¶ 1). On the Financial Industry Regulatory Authority ("FINRA") Form U5, which notified FINRA that a registered representative's license to sell securities was terminated, Defendants did not indicate that Plaintiff had engaged in wrongdoing (Dkt. No. 1 ¶¶ 45, 46). 

Pages 3 - 4 of the DMA Memorandum

In the ensuing federal lawsuit, Plaintiff Fine asserted that:

[D]efendants breached the implied covenant of good faith and fair dealing by terminating his employment without good cause and with the purpose of retaining his earned renewal commissions (Dkt. No. 1 ¶¶ 55, 56). In the alternative, Plaintiff claims that Defendants terminated him in good faith but without good cause, which resulted in him losing "reasonably ascertainable future compensation based on his past services" (Dkt. No. 1 ¶ 57). Although the FRA and RRA contain choice-of-law provisions stating that New York law applies to disputes "arising under the agreement[s]" and although Defendants contend that those provisions control, Plaintiff disputes the application of New York's substantive law (Dkt. No. 11- 1 at 5 ¶ 16 and at 16 ¶ 63). Plaintiff contends that the court should apply Massachusetts law because the application of New York law will violate Massachusetts' policy (Dkt. No. 17 at 7-8 & n.2). Plaintiff's contention is persuasive. 

at Page 5 of the DMA Memorandum
A 10-count Superseding Indictment filed in the United States District Court for the District of Utah, named Defendants Frank Gene Powell, Gloria Jean Powell, Angela McDuffie, Frank Renteria, Bubby Mern Shepherd,, Terrence Quincy Powell, Rocky James Powell Mott, and Martell Taz Powell with having conspired to obtain money and assets from 80-year-old-widow "L.N." in exchange for false promises to perform work on her property. The Indictment includes one count of wire fraud conspiracy, five counts of money laundering conspiracy - spending, two counts of destruction or concealment of records and tangible objects in a federal investigation, one count of concealment of a document or object, and one count of tampering with a witness or victim. One of the defendants engaged in romance fraud by enticing the victim to enter into a romantic relationship whereby he manipulated her into giving him money and assets.

Lead Defendant Frank Gene Powell pled guilty to six counts in a Superseding Indictment, including conspiracy to commit wire fraud, money laundering, two counts of destruction of records in a federal investigation, concealment of a document or object in an attempt to impair the object's integrity or availability for use in an official proceeding, and tampering with a witness. After serving nearly 30 years in state prison for murder (where he received a 1-15 year sentence for sexually assaulting an inmate), Powell committed his federal crimes while on parole. Powell's Plea Agreement provides for a stipulated 120 months in federal prison, and Powell will pay almost $274,000 in restitution to "L.N."; and Powell will forfeit two vehicles and faces a money judgment of $273,849.20.  

As set forth in part in the DOJ Release:

[P]owell admitted that from around March 2019 and continuing until about Feb. 6, 2020, he conspired with others to devise a fraud scheme with the specific intent to obtain money or property by means of fraudulent representations or promises.  He agreed with his codefendants to engage in a scheme to defraud L.N. by soliciting money and assets in exchange for false promises to perform work for L.N. He also admitted he engaged a fake romantic relationship with L.N. as a part of his scheme to defraud her.

He admitted that he purchased a 2019 GMC Sierra using money he received as a part of his scheme to defraud L.N.   Using money derived from criminal conduct is money laundering.  Several of the counts he pleaded guilty to relate to efforts he took to impede and obstruct the investigation of the case, including concealing cellular phones and money.

Powell also pleaded guilty to witness tampering admitting that in November 2019, he engaged in misleading conduct toward L.N. in an attempt to persuade her from communicating with law enforcement officers investigating the case. Through written correspondence and phone calls, Powell and his codefendant, Faye Renteria, age 42, of Hurricane, made misleading statements and attempted to persuade L.N. in an effort to help them avoid prosecution.  

Frank Powell's mother and codefendant, Gloria Jean Powell, age 74, of St. George, also has reached a plea agreement in the case.  She pleaded guilty to one count of concealment of a document or object, admitting she concealed or attempted to conceal U.S. currency with the intent to impair an FBI investigation.  She admitted she aided and abetted her son, Frank Powell, and her daughter, Angela McDuffie, age 53, of Lehi, in the conduct.

Sentencing for Gloria Jean Powell is set for May 6, 2020, at 4 p.m. in St. George before  Judge Nuffer.  Her plea agreement includes a stipulated sentence of three months in prison or credit for time served at the date of sentencing, whichever is further from her Feb. 4, 2020, arrest date.  She also will forfeit a 2010 Toyota Venza as a part of the case resolution.
In a Complaint filed in the United States District Court for the Middle District of Pennsylvania, the SEC charged Rite Aid employee David M. Mahn with violating the antifraud provisions of Section 17(a) of the Securities Act, Section 10(b) of the Securities Exchange Act, and Rule 10b-5 thereunder. Without admitting or denying the allegations in the Complaint, Mahan consented to the entry of a final judgment permanently enjoining him from violating the charged provisions of the federal securities laws and ordering him to pay $87,277 in disgorgement, $12,107 interest, and an $87,277 civil penalty. As alleged in part in the SEC Release:

[O]n January 18, 2017, Mahan learned through his employment that the publicly-announced merger between Rite Aid and Walgreens likely would not close by January 27, 2017 as expected. The complaint alleges that, the next morning, Mahan sold all of his Rite Aid stock and exercised and sold all of his available Rite Aid employee stock options. On January 20, 2017, a news article citing multiple sources reported that Federal Trade Commission (FTC) officials likely would not approve the merger by the deadline. Rite Aid's stock price fell, closing approximately 13% lower than the prior day's closing price. The complaint alleges that, by selling his Rite Aid stock and exercising and selling his Rite Aid stock options before the FTC's concerns became public, Mahan avoided a loss of over $87,000.
In a Complaint filed in the United States District Court for the Northern District of Texas, the SEC alleged that Adam Matthew Root violated antifraud provisions Section 17(a)(1) and 17(a)(3) of the Securities Act. Without admitting or denying the charges, Root agreed to permanent injunctive relief, a 10-year officer-and-director bar, a 10-year conduct-based injunction, and a $10,000 penalty. As alleged in part in the SEC Release, Root was a founder of Tricent Capital LLC and Tricent Capital I, LLC and he:

misled potential investors in soliciting them to invest in at least two of Tricent's investment funds. According to the complaint, between at least February 2016 and January 2017, Root made material misstatements and omissions related to several issues, including the amount and nature of investments that had been "committed" by others to the funds, the number of startup companies that Tricent had invested in or deployed capital to, the nature of the returns obtained from the sale of a company, and the "patent pending" status of Tricent's investment model. Ultimately Root was never successful in raising any money for Tricent's investment funds.

As set forth in part in the SEC Release:

Today, the Securities and Exchange Commission announced that it is providing additional temporary regulatory relief to market participants in response to the effects of the Coronavirus Disease 2019 (COVID-19). The actions announced today involve (1) parties needing to gain access to make filings on the EDGAR system, (2) certain company filing obligations under Regulation A and Regulation Crowdfunding, and (3) a filing requirement for municipal advisors.

  • Temporary Final Rule
  • Order 
In pertinent part, the CFTC Release warns that:

Fraudsters commonly use major news events, such as the spread of COVID-19, to add credibility to their cons or manipulate emotions. You can better protect yourself by learning to recognize common mental biases that everyone has, as well as common fraud tactics-and by taking a few preventative steps. Reporting frauds you encounter can also help protect others during these challenging times. 

Wall Street traders adapt to working from home as business booms (CNBC by Bob Pisani)
In part, CNBC's Bob Pisani notes that:

Like many floor traders, Corpina believes that some combination of testing and splitting up the trading teams will likely enable the NYSE floor to start up and still provide the health safeguards everyone wants. 

The NYSE was already doing temperature tests of everyone going into the building.  Corpina said it would make sense to combine that with immediate on-site coronavirus testing that would likely be available in the next few weeks. 

As for staffing, he noted he has a staff of 16 people on the floor.  "Maybe we could bring four back" initially to get the floor up and running, and keep the others off-site," he said.

U.S. Mortgage Rates Slip While Home Sales Head for Deep Freeze ( by Prashant Gopal)
As noted in Prashant Gopal's article:

The average rate for a 30-year fixed loan was 3.5%, down from 3.65% last week, Freddie Mac said in a statement Thursday.

Americans hunkering down in coronavirus quarantine are in no mood to shop for homes. Even if they can buy, many worry about how bad the coming recession will be, and how long it will last.