Securities Industry Commentator by Bill Singer Esq

August 26, 2020


Minority entrepreneurs at a tipping point as Black-owned banks dwindle in the U.S. (CNBC by Cameron Costa)


Acting Manhattan U.S. Attorney Announces Securities And Wire Fraud Charges Against Founder And Former CEO Of Pharmaceutical Company (DOJ Release)

SEC Charges California Investment Adviser with Fraud for Stealing More Than $2.2 Million from Retail Investors (SEC Release)

SEC Charges Super Micro and Former CFO in Connection with Widespread Accounting Violations (SEC Release)

SEC Obtains Partial Judgments Against Three Defendants in Unauthorized Trading Scheme (SEC Release)

http://www.brokeandbroker.com/5391/edde-millennium-covid/
Recently, BrokeAndBroker.com and Securities Industry Commentator publisher Bill Singer has been inundated with calls from industry associated persons worrying about the future of their firms, contemplating resignation, or troubled about potential post-employment litigation against them by their former employer. Bill raised some of the issues with prominent industry recruiter W. Ron Edde of Millennium Career Advisors.

https://www.cnbc.com/2020/08/25/jpmorgan-will-have-staff-cycle-between-office-and-remote-work-in-a-move-that-may-remake-wall-street.html
CNBC's Hugh Son reports about the impact of Wall Street's remote worksites and the anticipated transition to some form of in-office presence -- albeit in what may take on the hue of a hybrid. A fascinating consideration is the future of commercial real estate:

If roughly one-quarter of a company's employees are working remotely at all times, as JPMorgan estimates could be the case for its corporate and investment bank, firms could see less need to maintain their expensive real estate portfolios.

JPMorgan could even shutter backup trading floors located outside New York and London, as Pinto suggested might happen. Backup sites include offices in Iselin, New Jersey and Basingstoke, England.

Minority entrepreneurs at a tipping point as Black-owned banks dwindle in the U.S. (CNBC by Cameron Costa)
https://www.cnbc.com/2020/08/25/minority-entrepreneurs-at-tipping-point-as-black-owned-banks-dwindle.html
The aftermath of a recession leaves the bigger get bigger and the smaller vanish. Larger, more financially stable companies have more resources available by which to survive. In the end, the vulnerable are devastated. Yes, the likes of Lehman Brothers and Bear Stearns attest to that fact that bigger is not always immune to a recession; however, exceptions tend to prove the rule. As CNBC's Costa reports about the plight of minority-owned U.S. banks:

Black and brown business owners have faced a disproportionate share of Covid-19 failures: from February to April of this year, there was a 41% decline in Black-owned businesses and a 32% drop in Latinx business owners. White entrepreneurs experienced only a 17% decline. Among those who applied for Paycheck Protection Program support, a report from Color of Change and Unidosus found that only 12% received the assistance they had requested. Forty-one percent received none.

"The lack of access to capital is the single highest driver for business failure, and Black founders are less likely to gain it," said Melissa Bradley, Georgetown McDonough School of Business Professor. "Access to capital is limited not because of demand, but due to pattern recognition by investors, different social capital based on educational and social choices (e.g. golf clubs), and a limited number of sponsors ... who can vouch and validate the entrepreneurs."

https://www.reuters.com/article/us-crypto-currencies-lending-insight/boom-or-bust-welcome-to-the-freewheeling-world-of-crypto-lending-idUSKBN25M0GP
An intriguing yet sobering look into the emerging world of so-called  "DeFi", or decentralised finance. As Reuters' Wilson reports in part:

Loans on such platforms have risen more than seven-fold since March to $3.7 billion, according to industry site DeFi Pulse, as investors hunt returns at a time when central banks across the world have slashed interest rates to prop up economies battered by the pandemic.

Acting Manhattan U.S. Attorney Announces Securities And Wire Fraud Charges Against Founder And Former CEO Of Pharmaceutical Company (DOJ Release)
https://www.justice.gov/usao-sdny/pr/acting-manhattan-us-attorney-announces-securities-and-wire-fraud-charges-against
In a criminal Complaint filed in the United States District Court for the Southern District of New York
https://www.justice.gov/usao-sdny/press-release/file/1308686/download, Sepher Sarshar was charged with one count of securities fraud, one count of wire fraud, and one count of fraud in connection with a tender offer.  In part, the DOJ Release alleges that:

Between in or about January 2015 and March 2015, SARSHAR, a founder, former chief executive officer, and member of the board of directors of Auspex Pharmaceuticals, Inc. ("Auspex"), misappropriated material nonpublic information ("MNPI") from Auspex relating to an anticipated tender offer for Auspex by Teva Pharmaceutical Industries Ltd. ("Teva").  SARSHAR passed that MNPI on to friends and family - including a college friend, his then girlfriend, another long-time friend, and a close family relative  (collectively, the "Associates") - so they could execute profitable securities trades based on that MNPI, and otherwise caused the Associates to execute trades based on the MNPI he misappropriated.  In turn, the Associates' trading in the shares of Auspex generated an aggregate of more than approximately $700,000 in illicit profits.

To conceal his illegal scheme, SARSHAR later lied to the Financial Industry Regulatory Authority ("FINRA") in an investigation conducted by FINRA into insider trading in Auspex securities during the period preceding Teva's tender offer for Auspex.  Among other things, SARSHAR falsely stated that he could recall no contact with two of the Associates during the period preceding the tender offer whereas, in truth and in fact, SARSHAR had substantial communications with those individuals, including regarding the forthcoming tender offer.  
https://www.sec.gov/litigation/litreleases/2020/lr24875.htm
In a Complaint filed in the United States District Court for Southern California
https://www.sec.gov/litigation/complaints/2020/comp24875.pdf, the SEC alleged that Mark J. Boucher and his company Strategic Wealth Advisor Group Services Inc. ("SWAG") 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, and Sections 206(1) and (2) of the Investment Advisers Act of 1940. As alleged in part in the SEC Release:

[F]rom 2010 to 2020, Boucher made unauthorized transfers from client accounts to his own accounts, used client funds to pay his credit card bills, and forged a client's signature on checks. As set forth in the complaint, Boucher used a significant portion of the misappropriated funds to pay for his extravagant personal expenses, including vacations and travel. In one instance, Boucher allegedly misappropriated funds from a client to purchase a Chevrolet Camaro, and then, over a year later, sold the car to the client. According to the complaint, Boucher also attempted to conceal his misappropriations, including forging a letter, purportedly from a client from whom Boucher misappropriated over $1.5 million in trust funds, in an attempt to convince SEC staff that the client had gifted him the funds a few days before she died.

https://www.sec.gov/news/press-release/2020-190
The SEC charged Super Micro Computer, Inc., a producer of computer servers, and its former CFO, Howard Hideshima, with prematurely recognizing revenue and understating expenses over a period of at least three years. Super Micro's Chief Executive Officer Charles Liang was not charged with misconduct but was required to reimburse the company $2.1 million in stock profits that he received while the accounting errors were occurring, pursuant to the clawback provision of the Sarbanes-Oxley Act. Without admitting or denying the SEC's findings:
  • Super Micro agreed to cease and desist from violating Sections 17(a)(2) and (3) of the Securities Act and the reporting, books and records and internal accounting controls provisions of the Securities Exchange Act and pay a $17.5 million penalty
    Super Micro Order https://www.sec.gov/litigation/admin/2020/33-10822.pdf; 

  • Hideshima agreed to cease and desist from committing or causing violations of the reporting, books and records, and internal accounting controls provisions and pay disgorgement and prejudgment interest totaling more than $300,000 and a $50,000 penalty
    Hideshima Order https://www.sec.gov/litigation/admin/2020/34-89657.pdf; and 

  • Liang consented, without admitting or denying the findings, to reimburse Super Micro $2.1 million in stock sale profits
  • Liang Order https://www.sec.gov/litigation/admin/2020/34-89658.pdf
As alleged in part in the SEC Release:

Super Micro executives, including Hideshima, pushed employees to maximize end-of-quarter revenue, yet failed to devise and maintain sufficient internal accounting controls to accurately record revenue. As a result, the orders find, Super Micro improperly and prematurely recognized revenue, including by recognizing revenue on goods sent to warehouses but not yet delivered to customers, shipping goods to customers prior to customer authorization, and shipping misassembled goods to customers. The orders also find that Super Micro misused its cooperative marketing program, which entitles customers to reimbursement for a portion of cooperative marketing costs. According to the orders, Super Micro improperly reduced the liabilities accrued for the program in order to avoid recognizing a variety of expenses unrelated to marketing, including for Christmas gifts and to store goods.

According to the SEC's order against Hideshima, he was on notice of these and other similar practices, yet failed to properly address them. The order also finds that Hideshima, who signed or approved filings with the Commission that contained materially misstated financial statements, knowingly circumvented certain of Super Micro's internal accounting controls. . . .

SEC Obtains Partial Judgments Against Three Defendants in Unauthorized Trading Scheme (SEC Release)
https://www.sec.gov/litigation/litreleases/2020/lr24874.htm
In a Complaint filed in the United States District Court for the Eastern District of New York
https://www.sec.gov/litigation/complaints/2020/comp24874.pdf, the SEC alleged that 
Jonah Engler, Joshua Turney, and Hector Perez violated the antifraud provisions of Section 17(a)(1) and (3) of the Securities Act  and Section 10(b) of the Securities Exchange Act and Rule 10b-5(a) and (c) thereunder, and Barbara Desiderio with aided and abetted  Engler's, Turney's, and Perez's violations. Without admitting or denying the SEC's allegations, Turney, Perez, and Desiderio consented to the entry of judgments permanently enjoining them from violating these provisions.The SEC permanently barred Turney, Perez, and Desiderio from association with any broker, dealer, investment adviser, municipal securities dealer, municipal advisor, transfer agent, or nationally recognized statistical rating organization, and from participating in any offering of a penny stock. The SEC's claims against Engler are pending. As alleged in part in the SEC Release:

The SEC's complaint, filed on March 31, 2020 in the Eastern District of New York against Turney, Perez, Desiderio, and a fourth defendant, Jonah Engler, alleges that the defendants engaged in a scheme to conduct voluminous unauthorized trading in over 360 retail customer accounts as Global Arena was going out of business. The unauthorized trading allegedly resulted in over $4 million in net losses for their customers and generated over $2.4 million in unlawful markups, markdowns, and commissions for their firm.