Securities Industry Commentator by Bill Singer Esq

July 6, 2020

Nigerian National Brought to U.S. to Face Charges of Conspiring to Launder Hundreds of Millions of Dollars from Cybercrime Schemes (DOJ Release)

In a Complaint filed in the United States District Court for the Central District of California,, the SEC charged David Sims, Mario Procopio and the entities they controlled, ALC Holdings, LLC, El Cether-Elyown, and SIMS Equities, Inc., with 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; further, Ralph Craig Greaves (allegedly acting as a lawyer for the other defendants) was charged with aiding and abetting these violations. Without admitting or denying the allegations in the Complaint, the Defendants consented to the entry of final judgments that permanently enjoin each of 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. Further, Sims and Procopio will be subject to conduct-based injunctions that prohibit each of them from participating in any unregistered offering of securities. Sims consented to pay a civil penalty of $813,000 and, jointly and severally with SIMS Equities, Inc., to pay disgorgement of $813,000 and prejudgment interest of $123,028. Procopio consented to pay a civil penalty of $597,000 and, jointly and severally with ALC Holdings, LLC and El Cether-Elyown, to pay disgorgement of $597,000 and prejudgment interest of $90,249. Greaves consented to pay a civil penalty of $100,000. Separately, Greaves consented to the entry of an SEC Order permanently suspending him from appearing or practicing before the Commission as an attorney. As alleged in part in the SEC Release, Sims and Procopio, through their respective entities:

operated a fraudulent scheme that raised over $1.4 million from investors. To entice potential investors, Sims and Procopio falsely claimed investors' money would be invested in "prime bank" financial instruments that would generate astronomical returns of 1,200% to 40,000%. The complaint alleged that Sims and Procopio falsely told investors they had special access to trade platforms used by governments, corporations, and wealthy investors to buy vast sums of currency, usually $500 million or more, at a discounted price. Sims and Procopio allegedly told investors they could "piggyback" their money on these large trading platforms and reap huge returns with "absolutely no risk." However, neither the financial instruments nor the trading platforms existed. In actuality, Sims and Procopio allegedly used nearly all of the investor funds for their own personal expenses, including cars, jewelry, travel, and golf outings. The SEC's complaint further alleged that Geaves aided and abetted the scheme by, among other things, allowing investors to deposit money into his attorney trust account, which gave the scheme a cloak of legitimacy. Greaves then allegedly transferred most of these funds to Sims and Procopio despite knowing that they were misleading investors.

In a Complaint filed in the United States District Court for the Northern District of Illinois, the SEC charged Zvi Feiner and his company FNR Healthcare, LLC, and former FNR executive Erez Baver with having violated 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. Also, the Complaint named as  Relief Defendants, Baver's company Cedarbrook Management, Inc., and Feiner's company Netzach Investments LLC. Without admitting or denying the Complaint's allegations,  Baver and Cedarbrook agreed to settle the charges with Baver consenting to entry of a final judgment that permanently enjoins him from future violations of the securities laws, orders him to pay disgorgement and prejudgment interest of $360,776 and a civil penalty to be determined by the court upon motion of the SEC. Further, Baver and Cedarbrook agreed to jointly and severally pay $1,892,958 in disgorgement and prejudgment interest. Subsequently, the Court entered a judgment that permanently enjoins Feiner and FNR 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. Without admitting or denying the allegations in the complaint, Feiner, FNR, and Netzach consented to entry of the judgment ordering them to pay disgorgement and prejudgment interest. As alleged in part in the SEC Release:

[F]einer, FNR, and Feiner's partner, Erez Baver, raised more than $10 million from at least 62 investors to acquire nursing homes and assisted living facilities throughout the Midwest. According to the complaint, the defendants falsely told investors that the investments were low-risk and would generate high returns, and also misappropriated investor funds to pay distributions to earlier investors and for their personal use. The complaint also named Feiner's company Netzach Investments LLC and Baver's company Cedarbrook Management, Inc. as relief defendants for the purposes of recovering investor funds that those companies received from the fraud.
William P. Barr, Attorney General, et al., Petitioners, v. American Association of Political Consultants, Inc., et al. (Opinion, United States Supreme Court, 19-631, 591 U.S. __ (2020))
As set forth in the Supreme Court's Syllabus:

In response to consumer complaints, Congress passed the Telephone Consumer Protection Act of 1991 (TCPA) to prohibit, inter alia, almost all robocalls to cell phones. 47 U. S. C. §227(b)(1)(A)(iii). In 2015, Congress amended the robocall restriction, carving out a new government-debt exception that allows robocalls made solely to collect a debt owed to or guaranteed by the United States. 129 Stat. 588. The American Association of Political Consultants and three other organizations that participate in the political system filed a declaratory judgment action, claiming that §227(b)(1)(A)(iii) violated the First Amendment. The District Court determined that the robocall restriction with the government-debt exception was content-based but that it survived strict scrutiny because of the Government's compelling interest in collecting debt. The Fourth Circuit vacated the judgment, agreeing that the robocall restriction with the government-debt exception was a content-based speech restriction, but holding that the law could not withstand strict scrutiny. The court invalidated the government-debt exception and applied traditional severability principles to sever it from the robocall restriction. 

Held: The judgment is affirmed. 

923 F. 3d 159, affirmed. 

JUSTICE KAVANAUGH, joined by THE CHIEF JUSTICE, JUSTICE THOMAS, and JUSTICE ALITO, concluded in Part II that the 2015 government-debt exception violates the First Amendment. Pp. 6-9. 

(a) The Free Speech Clause provides that government generally "has no power to restrict expression because of its message, its ideas, its subject matter, or its content." Police Dept. of Chicago v. Mosley, 408 U. S. 92, 95. Under this Court's precedents, content-based laws are subject to strict scrutiny. See Reed v. Town of Gilbert, 576 U. S. 155, 165. Section 227(b)(1)(A)(iii)'s robocall restriction, with the government-debt exception, is content based because it favors speech made for the purpose of collecting government debt over political and other speech. Pp. 6-7. 

(b) The Government's arguments for deeming the statute content-neutral are unpersuasive. First, §227(b)(1)(A)(iii) does not draw distinctions based on speakers, and even if it did, that would not "automatically render the distinction content neutral." Reed, 576 U. S., at 170. Second, the law here focuses on whether the caller is speaking about a particular topic and not, as the Government contends, simply on whether the caller is engaged in a particular economic activity. See Sorrell v. IMS Health Inc., 564 U. S. 552, 563-564. Third, while "the First Amendment does not prevent restrictions directed at commerce or conduct from imposing incidental burdens on speech," this law "does not simply have an effect on speech, but is directed at certain content and is aimed at particular speakers." Id., at 567. 

(c) As the Government concedes, the robocall restriction with the government-debt exception cannot satisfy strict scrutiny. The Government has not sufficiently justified the differentiation between government-debt collection speech and other important categories of robocall speech, such as political speech, issue advocacy, and the like. Pp. 7-9. 

JUSTICE KAVANAUGH, joined by THE CHIEF JUSTICE and JUSTICE ALITO, concluded in Part III that the 2015 government-debt exception is severable from the underlying 1991 robocall restriction. The TCPA is part of the Communications Act, which has contained an express severability clause since 1934. Even if that clause did not apply to the exception, the presumption of severability would still apply. See, e.g., Free Enterprise Fund v. Public Company Accounting Oversight Bd., 561 U. S. 477. The remainder of the law is capable of functioning independently and would be fully operative as a law. Severing this relatively narrow exception to the broad robocall restriction fully cures the First Amendment unequal treatment problem and does not raise any other constitutional problems. Pp. 9-24. 

JUSTICE SOTOMAYOR concluded that the government-debt exception fails under intermediate scrutiny and is severable from the rest of the Act. Pp. 1-2. 

JUSTICE BREYER, joined by JUSTICE GINSBURG and JUSTICE KAGAN, would have upheld the government-debt exception, but given the contrary majority view, agreed that the provision is severable from the rest of the statute. Pp. 11-12. 

JUSTICE GORSUCH concluded that content-based restrictions on speech are subject to strict scrutiny, that the Telephone Consumer Protection Act's rule against cellphone robocalls is a content-based restriction, and that this rule fails strict scrutiny and therefore cannot be constitutionally enforced. Pp. 1-4. 

KAVANAUGH, J., announced the judgment of the Court and delivered an opinion, in which ROBERTS, C. J., and ALITO, J., joined, and in which THOMAS, J., joined as to Parts I and II. SOTOMAYOR, J., filed an opinion concurring in the judgment. BREYER, J., filed an opinion concurring in the judgment with respect to severability and dissenting in part, in which GINSBURG and KAGAN, JJ., joined. GORSUCH, J., filed an opinion concurring in the judgment in part and dissenting in part, in which THOMAS, J., joined as to Part II. 

As set forth in the Supreme Court's Syllabus:

When Americans cast ballots for presidential candidates, their votes actually go toward selecting members of the Electoral College, whom each State appoints based on the popular returns. The States have devised mechanisms to ensure that the electors they appoint vote for the presidential candidate their citizens have preferred. With two partial exceptions, every State appoints a slate of electors selected by the political party whose candidate has won the State's popular vote. Most States also compel electors to pledge to support the nominee of that party. Relevant here, 15 States back up their pledge laws with some kind of sanction. Almost all of these States immediately remove a so-called "faithless elector" from his position, substituting an alternate whose vote the State reports instead. A few States impose a monetary fine on any elector who flouts his pledge. 

Three Washington electors, Peter Chiafalo, Levi Guerra, and Esther John (the Electors), violated their pledges to support Hillary Clinton in the 2016 presidential election. In response, the State fined the Electors $1,000 apiece for breaking their pledges to support the same candidate its voters had. The Electors challenged their fines in state court, arguing that the Constitution gives members of the Electoral College the right to vote however they please. The Washington Superior Court rejected that claim, and the State Supreme Court affirmed, relying on Ray v. Blair, 343 U. S. 214. In Ray, this Court upheld a pledge requirement-though one without a penalty to back it up. Ray held that pledges were consistent with the Constitution's text and our Nation's history, id., at 225-230; but it reserved the question whether a State can enforce that requirement through legal sanctions. 

Held: A State may enforce an elector's pledge to support his party's nominee-and the state voters' choice-for President. Pp. 8-18. (a) Article II, §1 gives the States the authority to appoint electors "in such Manner as the Legislature thereof may direct." This Court has described that clause as "conveying the broadest power of determination" over who becomes an elector. McPherson v. Blacker, 146 U. S. 1, 27. And the power to appoint an elector (in any manner) includes power to condition his appointment, absent some other constitutional constraint. A State can require, for example, that an elector live in the State or qualify as a regular voter during the relevant time period. Or more substantively, a State can insist (as Ray allowed) that the elector pledge to cast his Electoral College ballot for his party's presidential nominee, thus tracking the State's popular vote. Or-so long as nothing else in the Constitution poses an obstacle-a State can add an associated condition of appointment: It can demand that the elector actually live up to his pledge, on pain of penalty. Which is to say that the State's appointment power, barring some outside constraint, enables the enforcement of a pledge like Washington's. 

Nothing in the Constitution expressly prohibits States from taking away presidential electors' voting discretion as Washington does. Article II includes only the instruction to each State to appoint electors, and the Twelfth Amendment only sets out the electors' voting procedures. And while two contemporaneous State Constitutions incorporated language calling for the exercise of elector discretion, no language of that kind made it into the Federal Constitution. Contrary to the Electors' argument, Article II's use of the term "electors" and the Twelfth Amendment's requirement that the electors "vote," and that they do so "by ballot," do not establish that electors must have discretion. The Electors and their amici object that the Framers using those words expected the Electors' votes to reflect their own judgments. But even assuming that outlook was widely shared, it would not be enough. Whether by choice or accident, the Framers did not reduce their thoughts about electors' discretion to the printed page. Pp. 8-13. 

(b) "Long settled and established practice" may have "great weight in a proper interpretation of constitutional provisions." The Pocket Veto Case, 279 U. S. 655, 689. The Electors make an appeal to that kind of practice in asserting their right to independence, but "our whole experience as a Nation" points in the opposite direction. NLRB v. Noel Canning, 573 U. S. 513, 557. From the first elections under the Constitution, States sent electors to the College to vote for pre-selected candidates, rather than to use their own judgment. The electors rapidly settled into that non-discretionary role. See Ray, 343 U. S., at 228-229. Ratified at the start of the 19th century, the Twelfth Amendment both acknowledged and facilitated the Electoral College's emergence as a mechanism not for deliberation but for party-line voting. Courts and commentators throughout that century recognized the presidential electors as merely acting on other people's preferences. And state election laws evolved to reinforce that development, ensuring that a State's electors would vote the same way as its citizens. Washington's law is only another in the same vein. It reflects a longstanding tradition in which electors are not free agents; they are to vote for the candidate whom the State's voters have chosen. Pp. 13- 17. 

193 Wash. 2d 380, 441 P. 3d 807, affirmed. 

KAGAN, J., delivered the opinion of the Court, in which ROBERTS, C. J., and GINSBURG, BREYER, ALITO, SOTOMAYOR, GORSUCH, and KAVANAUGH, JJ., joined. THOMAS, J., filed an opinion concurring in the judgment, in which GORSUCH, J., joined as to Part II.
The CFTC issued Orders resolving charges against against; and
its principal/associated person Mark Miller

As alleged in part in the CFTC Release:

The orders require Miller to pay a $250,000 civil monetary penalty, Foremost to pay a $200,000 civil monetary penalty, and Miller and Foremost to pay, jointly and severally, $723,013 in restitution. Pursuant to the order against Miller, he is suspended from trading on or subject to the rules of any CFTC-designated exchange and all other CFTC-registered entities, as well as all commodity interests for a period of two years. Miller is also permanently prohibited from applying for registration, claiming exemption from registration, and from engaging in any activity requiring registration with the CFTC.

According to the orders, starting in February 2014 and lasting through at least August 2016, Miller orchestrated at least 45 round-turn unauthorized, fictitious trades between proprietary accounts he owned with family members and a customer's accounts over which he had trading authority. These round-turn trades moved money out of the customer's accounts and into the proprietary accounts. Miller also engaged in almost 500 other unauthorized, fictitious trades for this customer that allowed him to establish a futures or options position in the proprietary accounts without competitive execution, and in many cases for a much better price than would have otherwise been obtainable. Finally, Miller misappropriated funds from the customer by reporting phony errors to their futures commission merchant and by requesting that winning trades be moved into the proprietary accounts.
From 2018 through April 2020, the defendants conspired with each other and others to defraud several major banks and electronic merchant processors. To accomplish the conspiracy's unlawful objective, the defendants established bank accounts associated with sham entities that had no legitimate purpose, and thereafter would issue checks payable to other sham entities associated with the criminal organization, knowing that the accounts on which the checks were drawn contained insufficient funds. The defendants would also conduct numerous fraudulent credit card and debit card transactions between shell companies to fraudulently credit payee accounts and fraudulently overdraw payor accounts. Alternatively, the defendants would use these shell companies to execute temporary refund credits, commonly referred to as "charge-backs," to checking accounts associated with the criminal organization, where no prior legitimate transaction had occurred. 

In each one of these instances, members of the criminal organization withdrew the funds (through ATMs or bank tellers) that banks and/or merchant processors had credited to the payee bank accounts at the time of the fraudulent transaction. Because the defendants withdrew the credited funds from the payee accounts before the banks could recognize the fraudulent transactions, the banks and merchant processors were left with substantial losses.

The investigation has identified approximately 200 bank accounts and 75 merchant credit card processing accounts used to facilitate the schemes. The defendants' unlawful activities have caused an aggregate loss to banks and merchant processing companies of at least $3.5 million.
After a one-week trial in the United States District Court for the Southern District of New York Telemaque Lavidas was convicted of one count of conspiracy to commit securities fraud, one count of conspiracy to commit wire fraud and securities fraud, three counts of substantive securities fraud, one count of substantive wire fraud, and one count of substantive securities fraud. Lavidas was sentenced to one year and one day in prison and ordered to pay restitution of $186,430.99 and a fine of $50,000. As alleged in part in the DOJ Release:

By 2013, Athanase Lavidas, the father of TELEMAQUE LAVIDAS, was a prominent Greek businessman and was a member of the board of directors of Ariad Pharmaceuticals, Inc. ("Ariad"), a pharmaceutical company headquartered in Cambridge, Massachusetts, that developed and marketed a leukemia medication named Iclusig.  In violation of his duties of confidentiality to Ariad, Athanase Lavidas provided TELEMAQUE LAVIDAS with tips about three major corporate developments at Ariad.  On each of those occasions, TELEMAQUE LAVIDAS provided that inside information to his close friend Georgios Nikas so that Nikas could make timely, profitable trades ahead of Ariad's public announcements.

The first tip was in October 2013, when Athanase Lavidas learned that the U.S. Food and Drug Administration ("FDA") was concerned about adverse health issues for patients using a newly approved cancer drug called Iclusig.  Athanase Lavidas contacted TELEMAQUE LAVIDAS to pass this secret information, and TELEMAQUE LAVIDAS passed that tip to Georgios Nikas, who had previously amassed a large long position in Ariad securities.  After receiving the inside information from TELEMAQUE LAVIDAS, Nikas sold his Ariad securities and took a substantial short position.  When Ariad publicly announced the patient safety issues, its stock declined by over 65% and Nikas made over $3.2 million in profits and avoided almost $800,000 in losses.  Ariad discontinued sales of Iclusig later in October.

The second tip was in November and December 2013, when Athanase Lavidas learned that Ariad and the FDA were making significant progress toward returning Iclusig to the market.  Athanase Lavidas passed this secret information to TELEMAQUE LAVIDAS, who in turn passed the tips to Georgios Nikas.  Nikas bought Ariad securities based on these tips, and when Ariad publicly announced at the end of December that Iclusig was returning to the market, its stock rose and Nikas made over $1.3 million in profits.

The third tip was in July and August 2015, when Ariad received an unsolicited takeover offer from another pharmaceutical company.  Again, Athanase Lavidas learned of the offer in his capacity as a board member, and informed TELEMAQUE LAVIDAS, who in turn passed the tip to Georgios Nikas.  Nikas again bought Ariad securities based on this tip, and when a news article was published in late August reporting on the takeover offer, Ariad's stock rose and Nikas made over $2 million in profits.

Nikas also passed the tips he received from TELEMAQUE LAVIDAS to a series of stock traders.  In total, Nikas and the traders he tipped earned over $15 million in profits from the inside information that TELEMAQUE LAVIDAS provided.

Nigerian National Brought to U.S. to Face Charges of Conspiring to Launder Hundreds of Millions of Dollars from Cybercrime Schemes (DOJ Release)
In a criminal Complaint filed in the United States District Court for the Central District of California, Ramon Olorunwa Abbas a/k/a "Ray Hushpuppi" and "Hush" was charged with conspiracy to engage in money laundering in connection with alleged business email compromise fraud ("BEC"). As alleged in part in the DOJ Release:

The affidavit alleges that Abbas and others committed a BEC scheme that defrauded a client of a New York-based law firm out of approximately $922,857 in October 2019. Abbas and co-conspirators allegedly tricked one of the law firm's paralegals into wiring money intended for the client's real estate refinancing to a bank account that was controlled by Abbas and the co-conspirators.

The affidavit also alleges that Abbas conspired to launder funds stolen in a $14.7 million cyber-heist from a foreign financial institution in February 2019, in which the stolen money was sent to bank accounts around the world. Abbas allegedly provided a co-conspirator with two bank accounts in Europe that Abbas anticipated each would receive €5 million (about $5.6 million) of the fraudulently obtained funds. 

Abbas and others further conspired to launder hundreds of millions of dollars from other fraudulent schemes and computer intrusions, including one scheme to steal £100 million (approximately $124 million) from an English Premier League soccer club, the complaint alleges.
Veteran market strategist Jeff Saut sees a 'rocket ship' rally that sends stocks up nearly 30% (CNBC by Kevin Stankiewicz)
Goldman lowers economic outlook as U.S. copes with rising coronavirus cases (CNBC by Jeff Cox)

How do you reconcile "Stalemate" with "Rocket Ship Rally" with "Lowers Economic Outlook"? You don't. It's called placing a bet. You got red. You got black. Money down. Hands off the table. And the wheel spins . . . and the ball drops into . . . 
You work directly for a subsidiary but enter into an Employment/Non-Solicit Agreement with the parent. Things are fine until they're not. You leave. There is an allegation that you violated the non-solicit agreement. You get sued by the parent with whom you executed the agreement. What happens if the subsidiary lacks diversity jurisdiction in order to obtain a TRO in federal court? That's an interesting question. If you need to retain a lawyer to argue the point for you, it's also an expensive question. In a recent case, that interesting and expensive question gets answered in what proves to be a painful manner.