Securities Industry Commentator by Bill Singer Esq

April 23, 2020

SEC Proposes to Modernize Framework for Fund Valuation Practices (SEC Release)

Settles Securities Fraud Charges Against Former Investment Adviser (SEC Release)

Sen. McConnell says he favors state bankruptcy over more federal aid / Municipal bond market professionals don't like the idea (Fox Business News)
As reported in part by Fox Business News:

McConnell said in a radio interview that Republicans would not support giving state and local governments more money in future coronavirus aid legislation, saying those funds could end up being used to bail out state pensions.

Speaking on Hugh Hewitt's syndicated conservative talk radio show, McConnell said he instead "would certainly be in favor of allowing states to use the bankruptcy route."

Bill Singer's Comment: The sound of gas escaping from an asshole. And that's my charitable view of the despicable Senator from Kentucky. It will be a cold day in Hell before I buy another bottle of Kentucky Bourbon! And I'm a Bourbon man. #BoycottKentuckyBourbon
As reported in part by CNBC's Higgins:

Kudlow, speaking on on CNBC's "Squawk Box," said that businesses, and particularly small businesses, should not have to face what he called "trial lawyers putting on false lawsuits."

"You've got to give the businesses some confidence here that if something happens, and it may not be their fault - the disease is an infectious disease - if something happens, you can't take them out of business," Kudlow said  "You can't throw big lawsuits at them. And I think liability reforms and safeguards are going to be a very important part of it."
For Wall Street pundit Aegis Frumento, old habits die hard. But new habits replace them. Already, while social distancing at home, Frumento has gotten used to meeting people as disembodied faces and voices on a screen. He misses going to a bar for a drink, to a restaurant for a good meal, seeing his friends, commuting to his office, and ambling around the crowded, noisy Manhattan of his memory. On the other hand, Frumento has finally mastered sourdough, and gotten to see birds do what birds do while they do it (but not bees, yet). There's something deadly in the air. We're living with that everyday. On the other hand, there's also a new "normal" in the air. We're going to live with that everyday too. 

SEC Proposes to Modernize Framework for Fund Valuation Practices (SEC Release)
The SEC announced a proposed new rule that would establish a framework for fund valuation practices As set forth under the "Summary" portion of the SEC Proposed Rule:

The Securities and Exchange Commission ("Commission") is proposing new rule 17 CFR 270.2a-5 ("rule 2a-5") under the Investment Company Act of 1940 (the "Investment Company Act" or the "Act") that would address valuation practices and the role of the board of directors with respect to the fair value of the investments of a registered investment company or business development company (a "fund"). The proposed rule would provide requirements for determining fair value in good faith with respect to a fund for purposes of section 2(a)(41) of the Act. This determination would involve assessing and managing material risks associated with fair value determinations; selecting, applying, and testing fair value methodologies; overseeing and evaluating any pricing services used; adopting and implementing policies and procedures; and maintaining certain records. The proposed rule would permit a fund's board of directors to assign the fair value determination to an investment adviser of the fund, who would then carry out these functions for some or all of the fund's investments. This assignment would be subject to board oversight and certain reporting, recordkeeping, and other requirements designed to facilitate the board's ability effectively to oversee the adviser's fair value determinations. The proposed rule would include a specific provision related to the determination of the fair value of investments held by unit investment trusts, which do not have boards of directors. The proposed 2 rule would also define when market quotations are readily available under section 2(a)(41) of the Act. If rule 2a-5 is adopted, the Commission would rescind previously issued guidance on the role of the board of directors in determining fair value and the accounting and auditing of fund investments.
In part, the DOJ Release offers this guidance:
  • Independently verify the identity of any company, charity, or individual that contacts you regarding COVID-19. 
  • Check the websites and email addresses offering information, products, or services related to COVID-19.  Be aware that scammers often employ addresses that differ only slightly from those belonging to the entities they are impersonating.  For example, they might use "" or "" instead of "" 
  • Be wary of unsolicited emails offering information, supplies, or treatment for COVID-19 or requesting your personal information for medical purposes.  Legitimate health authorities will not contact the public this way. 
  • Do not click on links or open email attachments from unknown or unverified sources. Doing so could download a virus onto your computer or device.
  • Make sure the anti-malware and anti-virus software on your computer is operating and up to date.  Keep your operating system up to date as well.  
  • Ignore offers for a COVID-19 vaccine, cure, or treatment.  Remember, if a vaccine becomes available, you will not hear about it for the first time through an email, online ad, or unsolicited sales pitch. 
  • Check online reviews of any company offering COVID-19 products or supplies.  Avoid companies whose customers have complained about not receiving items. 
  • Research any charities or crowdfunding sites soliciting donations in connection with COVID-19 before giving any donation. Remember, an organization may not be legitimate even if it uses words like "CDC" or "government" in its name or has reputable looking seals or logos on its materials.  For online resources on donating wisely, visit the Federal Trade Commission (FTC) website. 
  • Be wary of any business, charity, or individual requesting payments or donations in cash, by wire transfer, gift card, or through the mail.  Do not send money through any of these channels.
In response to a Complaint filed in the United States District Court for the Eastern District of Pennsylvannia, Defendant Barry R. Bekkedam settled the SEC's charges by agreeing to be permanently enjoined from violating the antifraud provisions of Section 10(b) of the Securities Exchange Act and Rule 10b-5 thereunder, Section 17(a) of the Securities Act, and Sections 206(1) and 206(2) of the Investment Advisers Act of 1940, and to pay disgorgement of $150,000 plus prejudgment interest in the amount of $70,969. Previously, Bekkedam was convicted in a related criminal case and sentenced to 11 months  in prison plus three years of supervised release and ordered to pay a $100,000 fine. The underlying fraud involved a Ponzi scheme orchestrated by attorney Scott Rothstein; and, as alleged in part in the SEC Release:

[F]rom April 2009 through October 2009, Bekkedam made material misrepresentations and omissions and failed to disclose conflicts of interest when soliciting his clients and others to invest in a fund that allegedly purchased lawsuit settlements from Rothstein. The complaint alleged, among other things, that Bekkedam misrepresented the level of due diligence that he had performed on the investment.
In a Complaint filed in the United States District Court for the Central District of California, the SEC charged Samuel Bailey; his companies Renew Spinal Care, Inc. and Laserscopic Medical Clinic, LLC; and telemarketers Barry Edward Mitchell, Laurence Grossnickle, and Charles Clement Goubert, Jr. with fraud in connection with unregistered offerings that bilked hundreds of investors out of nearly $15 million dollars.Without admitting or denying the allegations in the Complaint, the Defendants consented to be permanently enjoined from violating the antifraud provisions of Sections 17(a)(1) and 17(a)(3) of the Securities Act and Section 10(b) of the Securities and Exchange Act and Rules 10b-5(a) and 10b-5(c) thereunder, and to pay $189,427 each in civil penalties. Further, . Mitchell, Grossnickle, and Goubert consented to be permanently enjoined from violating the registration provisions of Sections 5(a) and 5(c) of the Securities Act and the antifraud provisions of Section 17(a)(2) of the Securities Act; to be enjoined from participating in the issuance, purchase, offer, or sale of any security, with exceptions for their personal accounts. Moreover, Mitchell, Grossnickle, and Goubert agreed to pay, respectively, disgorgement and prejudgment interest as follows: 
  • Mitchell ($634,123 in disgorgement plus prejudgment interest of $61,231);
  • Grossnickle ($210,031 in disgorgement plus prejudgment interest of $20,281); and
  • Goubert ($69,089 in disgorgement plus prejudgment interest of $6,671). 
Finally, Bailey, Renew, and Laserscopic consented to pay, on a joint and several basis with each other, disgorgement in the amount of $4,950,000 plus prejudgment interest of $410,476. As alleged in part in the SEC Release:

Bailey started Renew at a single location in Florida to provide minimally invasive spinal surgery. According to the SEC's complaint, Bailey sought to expand Renew's business by raising money from investors in a series of offerings to establish Renew-branded clinics throughout the country. Mitchell, Grossnickle, and Goubert, directly and through a commissioned sales staff, offered and sold the securities to investors using information obtained from Bailey through intermediaries. The offering documents represented to investors that their funds would be used to establish and market one or more designated Renew clinics, and provided the right to receive "success marketing fees" for each procedure performed at those clinics. The offerings raised approximately $15 million for 29 clinics. Although the offering documents stated that no sales commissions would be paid, Mitchell, Grossnickle, and Goubert allegedly misused approximately $7.6 million of the investor funds to take cash distributions, pay proscribed sales commissions, and for other unauthorized purposes. The complaint further alleges that Bailey, through Renew and a second company he controlled, Laserscopic, allegedly misused nearly $5 million of investor funds for expenses unrelated to the offerings. Bailey also used some investors' funds to pay "success fees" to other investors, despite the fact that Renew never established a single investor-funded, Renew-branded clinic.

She got a forgivable loan. Her employees hate her for it. (CNBC by Greg Iacurci)
The latest installment of the "law of unintended consequences" as told by CNBC's Greg Iacurci. In this latest episode, spa owner Jamie Black-Lewis recieved a $177,000 and a $43,800 Paycheck Protection Program loans, which was earmarked for payroll and other business expenses. She happily informed her 35 employees that was reopening her two spas. 

She'd halted pay for the 35 employees - including herself - at Oasis Medspa & Salon, in Woodinville, and Amai Day Spa, in Bothell, in mid-March, when nonessential businesses in Washington closed due to the coronavirus pandemic. As Iacurci relates:

When Black-Lewis convened a virtual employee meeting to explain her good fortune, she expected jubilation and relief that paychecks would resume in full even though the staff - primarily hourly employees - couldn't work.

She got a different reaction.  

"It was a firestorm of hatred about the situation," Black-Lewis said.