Securities Industry Commentator by Bill Singer Esq

Federal Court Orders Rare TRO In Favor of Terminated Rep Against Investacorp (BrokeAndBroker.com Blog)

Texas Woman Agrees to Plead Guilty to Defrauding Bank of America by Posing as Customers to Make Withdrawals at SoCal Branches (DOJ Release)

Emerging Market Economies Diverge as Lockdowns Persist (Bloomberg by Karl Lester M Yap)

SEC Provides Temporary, Conditional Relief to Allow Small Businesses to Pursue Expedited Crowdfunding Offerings (SEC Release)

Dirt-Cheap U.S. Mortgages Thwarted by $5 Billion in Margin Calls (Bloomberg by Shahien Nasiripour)

Executive At Investment Management Firm Pleads Guilty In Connection With Multimillion-Dollar Securities Fraud Scheme (DOJ Release)

Government Official and Contracting Executive Plead Guilty to Bribery Conspiracy (DOJ Release)

CFTC Awards More Than $2 Million to Four Whistleblowers (CFTC Release)

SEC Awards Almost $2 Million to Whistleblower (SEC Release)

FINRA Imposes Fine for Lien, Judgments, and Bankruptcies Supervisory Reporting Deficiencies

In the Matter of Western International Securities, Inc, Respondent (FINRA AWC)

Coronavirus will shrink US home prices by 2-3% nationally, Zillow forecasts, but deeper dive could be in store (CNBC by Diana Olick)

FreshDirect co-founder Jason Ackerman said surge in online grocery shopping has led to more venture capital deals (CNBC by Melissa Repko)

TD Ameritrade interim CEO Steve-Boyle delivers sparkling results, underscores quick 100% work-at-home transition-- and calls Schwab merger efforts 'critical' and on-schedule (RIABiz by Lisa Shidler)

The temporary rules are intended to expedite the offering process for smaller, previously established companies directly or indirectly affected by COVID-19 that are seeking to meet their funding needs through the offer and sale of securities pursuant to Regulation Crowdfunding. 

The temporary rules provide flexibility for issuers that meet certain eligibility criteria to assess interest in a Regulation Crowdfunding offering prior to preparation of full offering materials, and then once launched, to close such an offering and have access to funds sooner than would be possible in the absence of the temporary relief.  The temporary rules also provide an exemption from certain financial statement review requirements for issuers offering more than $107,000 but not more than $250,000 in securities in reliance on Regulation Crowdfunding within a 12-month period. 

"The Fed came in trying to help, but they overshot," said Phil Rasori, chief operating officer of Mortgage Capital Trading Inc., which says it handles hedging for about 20% of the mortgage market. He estimates margin calls initially drained as much as $5 billion from lenders before the Fed eased off, posing "an existential threat" to some nonbanks that operate on thin cash cushions, selling off loans as soon as they're made.

Mortgage lenders promise to lock in interest rates for borrowers weeks before loans are finalized, then hedge that risk by shorting mortgage-related securities. But the Fed's buying drove up prices for those assets, turning the safeguards into sudden demands for cash. Quicken, among the largest U.S. mortgage lenders, met its obligations during the period, spokesperson John Perich said.

From at least June 2013 through December 2014, Elm and NAQVI engaged in a scheme to defraud investors in funds that Elm and NAQVI created and controlled at ETIA, where Elm was the founder and manager, and NAQVI was the chief operating officer.  Elm and NAQVI raised more than $18 million from over 50 investors in four limited partnerships for which ETIA acted as the fund manager:  Elm Tree Investment Fund, LP; Elm Tree Emerging Growth Fund, LP; Elm Tree 'e'Conomy Fund, LP; and Elm Tree Motion Opportunity, LP (collectively the "Elm Tree Funds"). 

Elm and NAQVI falsely represented that the Elm Tree Funds used investor capital to purchase shares in privately held technology companies before their IPOs.  These companies included Twitter, Inc., Alibaba Group Holding Limited, Uber Technologies, Inc., Square, Inc., Pinterest, Inc., and GoDaddy Group, Inc.  Moreover, Elm and NAQVI falsely represented that they had access to these pre-IPO shares because of their relationships with leading venture capital firms, such as Kleiner Perkins Caufield & Byers, Benchmark Capital, and Silver Lake Management, L.L.C.  In truth and in fact, Elm and NAQVI did not invest in the pre-IPO shares of these companies and did not have relationships with these venture capital firms.

Elm and NAQVI comingled the approximately $18 million that was invested in the Elm Tree Funds in a single investment account and then invested only a portion of the money, approximately $7.1 million.  At no point did any of the Elm Tree Funds return a profit.  Instead, for example, between January 2014 and November 2014, the Elm Tree Funds lost approximately $3.9 million in trading.

Moreover, of the investor funds that Elm and NAQVI did not lose in securities trading, Elm routinely converted investor funds to his own use in the form of cash withdrawals and to pay personal expenses, including to purchase a multimillion-dollar home, high-end furnishings, and other personal items, such as jewelry, daily living expenses, and luxury automobiles, including a Bentley, a Maserati, and a Range Rover.

The conversion of investors' funds was contrary to the representations that Elm and NAQVI made to investors concerning their and ETIA's fees.  Elm and NAQVI falsely represented that they and ETIA would take a two percent annual management fee plus a performance fee of 20 percent of any profits that the Elm Tree Funds earned.  In truth and in fact, Elm converted investor money that far exceeded the two percent management fee.  Moreover, because the Elm Tree Funds never returned a profit, Elm, NAQVI, and ETIA were not entitled to a percentage of any profits.

Elm and NAQVI also used approximately $5.2 million of new investor funds to make payments to earlier investors in a Ponzi-like fashion.  To prevent or forestall redemptions, and continue to raise money to fund their scheme, Elm and NAQVI also generated fictitious account statements and made oral and written misrepresentations that their trading strategies were generating consistently positive returns. 

[D]onahue served as a Supervisory Contract Administrator with PBGC and then as Director of the Procurement Department from March 2014 to February 2020. From at least 2015 through August 2017, Donahue solicited and received cash payments and other things of value, including the promise of a job valued at $1 million, from Ansari and Ansari's company. In exchange, Donahue agreed to steer PBGC contracts to Ansari's company.   

In 2015, Donahue approached Ansari and offered to help Ansari's new company win a PBGC contract, worth approximately $55 million, in exchange for a future job with the company. Among other things, Donahue provided Ansari with sample bid proposals; helped draft, review, and edit the company's bid proposal; and disclosed labor pricing estimates. When the company did not win the contract, Donahue helped Ansari draft the company's bid protest. Ansari admitted that his business partners were aware of his arrangement with Donahue.

In 2016, Donahue proposed a second arrangement with Ansari in which Donahue would receive up to $125,000 from Ansari and his company in exchange for steering a contract to Ansari's company. PBGC awarded the contract to Ansari's company, which resulted in payments to the company totaling approximately $3.29 million. Donahue steered the contract by, among other things, providing sensitive, non-public information and work product to Ansari; providing guidance for contract pricing; and adjusting the terms of the contract to align with the qualifications of the company's personnel. Donahue received at least $48,000 in cash, plus additional gifts.  Donahue and Ansari also took steps to conceal the scheme and their communications with each other, including using separate, dedicated cellular telephones and e-mail accounts and communicating through encrypted software.

[I]n reaching that determination, we positively assessed the following facts: (i) although Claimant did not submit the tip that led to opening the investigation, Claimant did provide new information regarding an ongoing fraud that the Commission was not aware of at the time; (ii) Claimant's information about the ongoing fraudulent scheme informed the staff's need to expeditiously seek a temporary restraining order and asset freeze to prevent further investor losses; (iii) Claimant provided Commission staff with specific, timely and credible information, significant ongoing assistance and supporting documents, including answering detailed follow-up inquiries from the staff; (iv) in major part due to Claimant's information and assistance, investors recovered much of their investments; and (v) Claimant suffered hardship.

[P]reliminarily determined to recommend that the Commission deny a related-action award to Claimant with respect to certain actions of another agency. Claimant has not contested that Preliminary Determination. As a result, the CRS's Preliminary Determination of Claimant's related action award claims became the final determination of the Commission pursuant to Exchange Act Rule 21F-11(f). See Order Determining Whistleblower Award Claim, Release No. 34-82996, at 3 n.3 (Apr. 5, 2018).

• Securities Industry Commentator
• Bill Singer