Securities Industry Commentator by Bill Singer Esq

April 27, 2020

Former Executives and Investment Group Settle Fraud Action (SEC Release)

SEC Charges Founders and Issuer for Conducting Fraudulent and Unregistered ICO (SEC Release)

Jeff Concepcion and Howard Milstein combine to take dead aim at COVID-distressed RIA market -- putting youthful executive energies and a billionaire's capital on a bold path (RIABiz by Oisin Breen)

Wall Street Tries to Figure Out How to Get Back to the Office (Bloomberg by Jennifer Surane and Michelle F Davis)

BREAKING NEWS: Supreme Court Finds that the Patient Protection and Affordable Care Act ("Obamacare") Created a Government Obligation to Pay Insurers the Full Amount of "Risk Corridors" Formula
Maine Community Health Options, Petitioner v. United States (18-1023)
Moda Health Plan, Inc., Petitioner v. United States (18-1028)
Blue Cross and Blue Shield of North Carolina, Petitioner v. United States 
Land of Lincoln Mutual Health Insurance Company, Petitioner v. United States (18-1038)

We may have lost our independence during this pandemic.
We should not have lost our humanity.
Watch the heartbreaking interview between CNN's Anderson Cooper and Katie Coelho, who found a goodbye note on her husband's phone after he died from coronavirus.

You can donate to the Coelho family's GoFundMe account here:
A public customer filed a FINRA arbitration case against Merrill Lynch. According to the customer, Merrill Lynch didn't exactly comply with Discovery rules. Then the customer filed a class action in federal court. Then we wind up with something involving the United Nations . . . yeah, that's not a typo: the UN. Movin' along here, things don't go well at FINRA and the customer appeals. It all comes down to the issue of whether the customer's resort to the federal courts was an improper effort to re-litigate claims that had already been submitted to FINRA arbitration. Ah yes, the old second bite of the lawsuit apple. NOTE: Coming to Blog on April 28 - 29, 2020, an analysis of a significant new case for industry registered and associated persons.
In a Complaint filed in the United States District Court for the District of Oregon, the SEC alleged that Aequitas Management LLC, four affiliates, Chief Executive Officer Robert J. Jesenik, Executive Vice President Brian A. Oliver, Chief Financial Officer Scott Gillis participated in the defrauding of over 1,500 investors, who believed they were making health care, education, and transportation-related investments, when, in fact, their funds were used a la Ponzi to cover operating losses and to pay earlier investors. The Complaint alleged that Jesenik and Oliver were aware of Aequitas's financial condition but still solicited millions of dollars from investors to pay the firm's ever-increasing expense; and that Gillis allegedly concealed the firm's insolvency from investors, and he was aware that Jesenik and Oliver were continuing their solicitation and misapplication of funds. As alleged in the SEC Release:

The defendants each consented to the entry of a final judgment imposing conduct-based injunctions prohibiting them from soliciting anyone to purchase or sell a security and prohibiting them from participating in the issuance, offer, or sale of any security of an entity they control. The final judgments also enjoin the defendants from violating the antifraud provisions of Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder, Section 17(a) of the Securities Act of 1933, and Sections 206(1), 206(2), and 206(4) of the Investment Advisers Act of 1940 and Rule 206(4)-8 thereunder. The Aequitas entities, Jesenik, and Gillis consented to the entry of final judgment without admitting or denying the SEC's allegations. The final judgment against the Aequitas entities, which were placed into a receivership, requires them to pay $453,000,000 in disgorgement with $87,048,072 prejudgment interest to be deemed satisfied by the amounts collected by the receiver. The final judgments also require Jesenik to pay $759,502 in disgorgement with $181,304 prejudgment interest, and a $625,000 civil penalty, Oliver to pay $190,502 in disgorgement with $45,426 prejudgment interest, and Gillis to pay a $300,000 civil penalty. The final judgments prohibit Jesenik, Oliver, and Gillis from serving as officers or directors of any public company. Oliver was also charged criminally for his conduct. He pled guilty but has not yet been sentenced.

In a settled administrative proceeding, Jesenik, Oliver, and Gillis were barred from association with any broker, dealer, investment adviser, municipal securities dealer, municipal advisor, transfer agent, or nationally recognized statistical ratings organization. Gillis agreed to be permanently suspended from appearing and practicing before the SEC as an accountant, which includes not participating in the financial reporting or audits of public companies.

SEC Charges Founders and Issuer for Conducting Fraudulent and Unregistered ICO (SEC Release)
In a Complaint filed in the United States District Court for the Central District of California,, the SEC charged Dropil, Inc., Jeremy McAlpine, Zachary Matar, and Patrick O'Hara with violating the registration provisions of Section 5 of the Securities Act and 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. As alleged in part in the SEC Release:

[F]rom at least January to March 2018, Dropil sold DROP tokens, claiming that investor funds would be pooled to trade various digital assets by a "trading bot," called Dex, using an algorithm designed and tested by Dropil. Dropil allegedly claimed the trading would generate profits that would be distributed as additional DROP tokens every 15 days.  Instead of using investor money to trade with Dex, Dropil allegedly diverted the funds raised to other projects and to the founders' personal digital asset and bank accounts. Dropil allegedly manufactured fake Dex profitability reports and made payments in the form of DROPs to Dex users, giving the false appearance that Dex was operational and profitable. The complaint further alleges that Dropil misrepresented the volume and dollar amount of DROPs sold both during and after the ICO, ultimately claiming that it had successfully raised $54 million from 34,000 investors in the United States and around the world. According to the complaint, however, Dropil raised less than $1.9 million from fewer than 2,500 investors. The complaint also alleges that during the SEC's investigation, Dropil produced falsified evidence and testimony.

SEC Forms Cross-Divisional COVID-19 Market Monitoring Group (SEC Release)
The SEC formed an internal, cross-divisional COVID-19 Market Monitoring Group, which the SEC Release states will 

assist the Commission and its various divisions and offices in (1) Commission and staff actions and analysis related to the effects of COVID-19 on markets, issuers, and investors-including our Main Street investors, and (2) responding to requests for information, analysis and assistance from fellow regulators and other public sector partners. 

Jeff Concepcion and Howard Milstein combine to take dead aim at COVID-distressed RIA market -- putting youthful executive energies and a billionaire's capital on a bold path (RIABiz by Oisin Breen)
As RIABiz's Oisin Breen reports in part:

Jeffrey Concepcion just sold a chunk of Stratos Wealth Network in an act of arbitrage that will -- because of COVID-19 timing -- fuel a buying spree that includes raising target AUM at RIA firms from $250 million to nearer to $750 million.

The Stratos CEO of LPL OSJ fame was able to tap into a giant pool of capital created for such deals by billionaire real estate tycoon Howard Milstein, the backer of NYC bank Emigrant Partners.

Wall Street Tries to Figure Out How to Get Back to the Office (Bloomberg by Jennifer Surane and Michelle F Davis)
In part, the Bloomberg article notes that:

Citigroup, Goldman Sachs Group Inc. and JPMorgan Chase & Co. are all trying to figure out how to reorganize their lobbies and elevators to prevent contagion. JPMorgan might station attendants outside elevators to help push buttons, so fewer workers need to touch keypads. Goldman is exploring ways to open doors without contact, possibly setting out towelettes that can be used to touch handles and then discarded on the other side.

More broadly, big banks are exploring taking an active role in monitoring the health of their employees -- checking temperatures on arrival, requiring masks be worn, possibly even at desks, and providing on-site virus testing to catch outbreaks quickly. Firms are planning to reorganize office seating and shared spaces like coffee stations and cafeterias. Some are debating whether to help staff commute without public transit. Even then, many older employees and those with medical conditions will likely have to work from home indefinitely for their safety.
SOTOMAYOR, J., delivered the opinion of the Court, in which ROBERTS, C. J., and GINSBURG, BREYER, KAGAN, and KAVANAUGH, JJ., joined, and in which THOMAS and GORSUCH, JJ., joined as to all but Part III-C. ALITO, J., filed a dissenting opinion. As set forth in the "Syllabus":

The Patient Protection and Affordable Care Act established online exchanges where insurers could sell their healthcare plans. The now expired "Risk Corridors" program aimed to limit the plans' profits and losses during the exchanges' first three years (2014 through 2016). See §1342, 124 Stat. 211. Section 1342 set out a formula for computing a plan's gains or losses at the end of each year, providing that eligible profitable plans "shall pay" the Secretary of the Department of Health and Human Services (HHS), while the Secretary "shall pay" eligible unprofitable plans. The Act neither appropriated funds for these yearly payments nor limited the amounts that the Government might pay. Nor was the program required to be budget neutral. Each year, the Government owed more money to unprofitable insurers than profitable insurers owed to the Government, resulting in a total deficit of more than $12 billion. And at the end of each year, the appropriations bills for the Centers for Medicare and Medicaid Services (CMS) included a rider preventing CMS from using the funds for Risk Corridors payments. Petitioners-four health-insurance companies that claim losses under the program-sued the Federal Government for damages in the Court of Federal Claims. Invoking the Tucker Act, they alleged that §1342 obligated the Government to pay the full amount of their losses as calculated by the statutory formula and sought a money judgment for the unpaid sums owed. Only one petitioner prevailed in the trial courts, and the Federal Circuit ruled for the Government in each appeal, holding that §1342 had initially created a Government obligation to pay the full amounts, but that the subsequent appropriations riders impliedly "repealed or suspended" that obligation.


1. The Risk Corridors statute created a Government obligation to pay insurers the full amount set out in §1342's formula. Pp. 9-16. 

(a) The Government may incur an obligation directly through statutory language, without also providing details about how the obligation must be satisfied. See United States v. Langston, 118 U. S. 389. Pp. 9-11. 

(b) Section 1342 imposed a legal duty of the United States that could mature into a legal liability through the insurers' participation in the exchanges. This conclusion flows from the express terms and context of §1342, which imposed an obligation by using the mandatory term "shall." The section's mandatory nature is underscored by the adjacent provisions, which differentiate between when the HHS Secretary "shall" take certain actions and when she "may" exercise discretion. See §§1341(b)(2), 1343(b). Section 1342 neither requires the Risk Corridors program to be budget-neutral nor suggests that the Secretary's payments to unprofitable plans pivoted on profitable plans' payments to the Secretary or that a partial payment would satisfy the Government's whole obligation. It thus must be given its plain meaning: The Government "shall pay" the sum prescribed by §1342. Pp. 11- 13. 

(c) Contrary to the Government's contention, neither the Appropriations Clause nor the Anti-Deficiency Act addresses whether Congress itself can create or incur an obligation directly by statute. Nor does §1342's obligation-creating language turn on whether Congress expressly provided budget authority before appropriating funds. The Government's arguments also conflict with well-settled principles of statutory interpretation. That §1342 contains no language limiting the obligation to the availability of appropriations, while Congress expressly used such limiting language in other Affordable Care Act provisions, indicates that Congress intended a different meaning in §1342. Pp. 13-16. 

2. Congress did not impliedly repeal the obligation through its appropriations riders. Pp. 16-23. 

(a) Because " 'repeals by implication are not favored,' " Morton v. Mancari, 417 U. S. 535, 549, this Court will regard each of two statutes effective unless Congress' intention to repeal is " 'clear and manifest,' " or the laws are "irreconcilable," id., at 550-551. In the appropriations Cite as: 590 U. S. ____ (2020) 3 Syllabus context, this requires the Government to show "something more than the mere omission to appropriate a sufficient sum." United States v. Vulte, 233 U. S. 509, 515. As Langston and Vulte confirm, the appropriations riders here did not manifestly repeal or discharge the Government's uncapped obligation, see Langston, 118 U. S., at 394, and do not indicate "any other purpose than the disbursement of a sum of money for the particular fiscal years," Vulte, 233 U. S., at 514. Nor is there any indication that HHS and CMS thought that the riders clearly expressed an intent to repeal. Pp. 16-19. 

 (b) Appropriations measures have been found irreconcilable with statutory obligations to pay, but the riders here did not use the kind of "shall not take effect" language decisive in United States v. Will, 449 U. S. 200, 222-223, or purport to "suspen[d]" §1342 prospectively or to foreclose funds from "any other Act" "notwithstanding" §1342's money mandating text, United States v. Dickerson, 310 U. S. 554, 556-557. They also did not reference §1342's payment formula, let alone "irreconcilabl[y]" change it, United States v. Mitchell, 109 U. S. 146, 150, or provide that payments from profitable plans would be " 'in full compensation' " of the Government's obligation to unprofitable plans, United States v. Fisher, 109 U. S. 143, 150. Pp. 19-21.

(c) The legislative history cited by the Federal Circuit is also unpersuasive. Pp. 22-23. 

3. Petitioners properly relied on the Tucker Act to sue for damages in the Court of Federal Claims. Pp. 23-30. 

(a) The United States has waived its immunity for certain damages suits in the Court of Federal Claims through the Tucker Act. Because that Act does not create "substantive rights," United States v. Navajo Nation, 556 U. S. 287, 290, a plaintiff must premise her damages action on "other sources of law," like "statutes or contracts," ibid., provided those statutes " 'can fairly be interpreted as mandating compensation by the Federal Government for the damage sustained,' " United States v. White Mountain Apache Tribe, 537 U. S. 465, 472. The Act does, however, yield when the obligation-creating statute provides its own detailed remedies or when the Administrative Procedure Act provides an avenue for relief. Pp. 23-26. 

(b) Petitioners clear each hurdle: The Risk Corridors statute is fairly interpreted as mandating compensation for damages, and neither exception to the Tucker Act applies. Section 1342's mandatory " 'shall pay' language" falls comfortably within the class of statutes that permit recovery of money damages in the Court of Federal Claims. This finding is bolstered by §1342's focus on compensating insurers for past conduct. And there is no separate remedial scheme supplanting the Court of Federal Claims' power to adjudicate petitioners' claims See United States v. Bormes, 568 U. S. 6, 12. Nor does the Administrative Procedure Act bar petitioners' Tucker Act suit. In contrast to Bowen v. Massachusetts, 487 U. S. 879, a Medicaid case where the State sued the HHS Secretary under the Administrative Procedure Act in district court, petitioners here seek not prospective, nonmonetary relief to clarify future obligations but specific sums already calculated, past due, and designed to compensate for completed labors. The Risk Corridors statute and Tucker Act allow them that remedy. And because the Risk Corridors program expired years ago, this litigation presents no special concern, as Bowen did, about managing a complex ongoing relationship or tracking ever-changing accounting sheets. Pp. 26-30. 

No. 18-1023 and No. 18-1028 (second judgment), 729 Fed. Appx. 939; No. 18-1028 (first judgment), 892  F. 3d 1311; No. 18-1038, 892 F. 3d 1184, reversed and remanded.