Securities Industry Commentator by Bill Singer Esq

October 7, 2020

CFTC Posts Record-Breaking Enforcement Year / Filed More Enforcement Actions Than Any Other Year In Agency's 45-Year History (CFTC Release)

Supporting Statement from Commissioner Brian Quintenz on Final Rule to Amend Compliance Requirements for Commodity Pool Operators on Form CPO-PQR

Concurring Statement of Commissioner Rostin Behnam Regarding the Amendments to Compliance Requirements for Commodity Pool Operators and Form CPO-PQR

Statement of Commissioner Dawn D. Stump Regarding Final Rule: Amendments to Compliance Requirements for Commodity Pool Operators on Form CPO-PQR

Statement of Commissioner Dan M. Berkovitz Regarding Form CPO-PQR Reporting Requirements for Commodity Pool Operators: Final Rule

Not Enough Bull In Stairway to Heaven ( Blog)
I've listened to Spirit's "Taurus." I didn't need to listen to Led Zeppelin's "Stairway to Heaven" because it's carved into my soul. Taurus ain't Stairway to Heaven. Not even close.Sure, you can hear something in Taurus that sounds like a fragment of Page's famous guitar lead in Stairway to Heaven, but, hell, you can often hear faint traces of parts of so many songs in so many other songs. You got plagiarism and you got inspiration. Two different things. Thankfully, a federal jury concurred with my keen ear and dismissed the copyright infringement claim in Skidmore v. Led Zeppelin. The United States Court of Appeals for the Ninth Circuit affirmed the trial court's findings and yesterday the United States Supreme Court declined to grant certiorari.
Strachans SA in Liquidation plead guilty in the United States District Court for the Central District of California to one count of conspiracy to defraud the United States; and was ordered to pay a $500,000 fine.As alleged in part in the DOJ Release:

[S]trachans was an independent firm providing administration to offshore structures for clients residing in a range of countries, including citizens and residents of the United States (U.S.-based clients).  This included the formation of trusts and offshore companies, administration, bookkeeping, and accounting.  Strachans additionally, however, helped U.S.-based clients hide assets from the IRS and evade taxes through the following:
  • Managing undeclared assets for U.S.-based clients that were held by nominee sham entities belonging to the U.S.-based clients.
  • Facilitating frequent cash collections by U.S.-based clients knowing that they had no intention of declaring the funds to the IRS.
  • Providing mechanisms for U.S.-based clients to access their undeclared offshore funds in a secret manner, including fake loans, fake consultancy agreements, and dummy invoicing.
  • For a limited number of U.S.-based clients, who sought an extraordinary level of confidentiality, holding funds in the personal accounts of Strachans' shareholders to conceal the true beneficial ownership of funds from the IRS.
Strachans accepted responsibility for its conduct by pleading guilty, stipulating to the accuracy of an extensive Statements of Facts, and paying a fine of $500,000.  Yesterday's guilty plea is the direct result of Strachans' voluntary disclosure of its criminal conduct in May 2014, and its full and ongoing cooperation with the Department of Justice in connection with its criminal investigations.  Strachans conducted an internal review in order to identify and collect data and information regarding its U.S.-taxpayer accounts.  Strachans reported its findings to the department, and provided documentation supporting its findings.  Strachans also assisted the department in preparing treaty requests for information regarding undeclared account holders.

For the fiscal year closed September 30, 2020, the CFTC announced in its Release that the regulator had:
  • Filed more enforcement actions (113) than any other year in the agency's history;
  • Approved a case imposing the largest monetary relief in the agency's history, with a $920 million resolution for violations relating to manipulation and spoofing;
  • Filed an action in coordination with more state authorities - 30 states in total - than ever, alleging more than $180 million defrauded from elderly victims;
  • Aggressively pursued fraud occurring during the COVID-19 pandemic, at a time when victims may be particularly vulnerable, filing 29 associated cases since a national emergency was declared on March 13, 2020; and
  • Continued its emphasis on coordination and parallel actions with criminal authorities and its regulatory partners.
Thomas D. Renison pled guilty in the United States District Court for the District of Massachusetts
to one count of conspiracy to commit wire fraud and two counts of filing false tax returns. As alleged in part in the DOJ Release:

[B]etween 2015 and 2018, Renison and his co-conspirator, Timothy J. Allcott, fraudulently raised and solicited funds from victims to invest in ARO Equity LLC - a privately-held investment company that purportedly pooled money from investors and then invested it in various New England-based businesses. In order to raise these funds, Renison and Allcott misrepresented to victims how their money would be invested, ARO's investment track record and the safety of the investments. Allcott and Renison also concealed Renison's ownership interest and affiliation with ARO because Renison had previously been barred by the Securities and Exchange Commission (SEC) and regulators in Maine from working in the securities industry. 

Over the course of the scheme, ARO took in over $5 million from investors; however, only about half of the funds were actually invested. Of the investments that were actually made, the substantial majority yielded significant losses. Despite these losses, none of the victims were informed of the poor performance of prior investments. Instead, the victims were told on many occasions that the investments were doing well and remained safe. When victims invested with ARO, they signed promissory notes, agreeing to receive monthly interest payments on their investments. ARO generally made these scheduled monthly payments; however, because ARO's actual investments earned little to no returns, the monthly payments to existing investors were made using funds raised from more recent investors.

The defendants' scheme also involved misrepresentations to the victims regarding how their investments would be used. Victims were generally told that their investments were to be used by ARO to fund investments in one of three different businesses. Despite this, the investment funds were often used for purposes other than what was represented to the investors - including using the funds to pay Renison and Allcott exorbitant commission fees, satisfy monthly interest obligations to other investors and to invest in different undisclosed businesses.  As part of the scheme, Allcott and Renison disguised commissions paid to Renison as loans to Renison's wife, which allowed them to continue concealing Renison's ownership stake in the company. In addition, Renison failed to declare more than half a million dollars of commission income and failed to pay over $150,000 in taxes. 

Allcott previously pleaded guilty to one count of conspiracy to commit wire fraud. In January 2020, the SEC charged Allcott and Renison with fraudulently misleading investors in connection with the same conduct. 

In the Matter of Steven Michael Gribben, Respondent (FINRA AWC 2018059776401)
For the purpose of proposing a settlement of rule violations alleged by the Financial Industry Regulatory Authority ("FINRA"), without admitting or denying the findings, prior to a regulatory hearing, and without an adjudication of any issue, Steven Michael Gribben submitted a Letter of Acceptance, Waiver and Consent ("AWC"), which FINRA accepted. The AWC alleges that Steven Michael Gribben was first registered in 2014, and from September 2017 to September 2018, he was registered with Alpine Securities Corporation. The AWC alleges that Steven Michael Gribben "does not have any disciplinary history with the Securities and Exchange Commission, any state securities regulators, FINRA, or any other self-regulatory organization." In accordance with the terms of the AWC, FINRA found that Steven Michael Gribben had violated FINRA Rule 2010; and the self regulator imposed upon him an $7,500 fine and a three-month suspension in all capacities. As alleged in part in  "Overview" of the AWC: 

From November 2017 to February 2018, Gribben negligently signed several transaction documents containing false statements. Gribben negligently signed those documents knowing that they would be submitted to courts to obtain judicial confirmation that securities issued in exchange for the satisfaction of claims against ten companies would be deemed exempted securities under Section 3(a)(10) of the Securities Act of 1933 ("Securities Act") and thus generally not subject to the registration requirements of Section 5 of the Securities Act. By virtue of these negligent misrepresentations, Gribben violated FINRA Rule 2010. 

CFTC Unanimously Approves a Final Rule Amending Form CPO-PQR (CFTC Release)
The CFTC approved a final rule adopting amendments to Form CPO-PQR for commodity pool operators ("CPOs"). As set forth in part in the CFTC Release:

The amendments to Form CPO-PQR (1) eliminate existing Schedules B and C of the form, except for the Pool Schedule of Investments; (2) amend the information requirements and instructions to request Legal Entity Identifiers (LEIs) for commodity pool operators and their operated pools that have them, and to delete questions regarding pool auditors and marketers; and (3) make certain other changes due to the rescission of Schedules B and C, including the elimination of all existing reporting thresholds.

The final rule also amends CFTC Regulation 4.27 to permit reporting CPOs to file NFA Form PQR, a comparable form required by the National Futures Association, in lieu of filing the CFTC's revised form. [See voting draft for effective and compliance dates.]

Statement of Chairman Heath P. Tarbert in Support of Revising Form CPO-PQR

[A]s revised, Form CPO-PQR will focus on the collection of data elements that can be used with other CFTC data streams and regulatory initiatives to facilitate oversight of CPOs and their operated pools.  This will primarily reduce current data collection requirements, but also mandate disclosure of LEIs by CPOs and their operated pools.  Focusing on enhancing data collection by the agency is no doubt tedious.  Nonetheless, I am convinced it leads to smarter regulation that helps promote the integrity, resilience, and vibrancy of U.S. derivatives markets.
[I]n my opinion, since its adoption, the detailed information requested on Form CPO-PQR has not significantly enhanced the Commission's oversight over CPOs and has never been fully utilized by staff.  I have long questioned the Commission's need to know the litany of data requested on the Form.
[T]o be sure, keeping pace with regulatory change and shifting priorities while exercising appropriate discipline in collecting, handling, and managing data is an endless endeavor.  Nevertheless, I am pleased with today's outcome, and I am confident that as we continue moving forward, the tremendous abilities of the dedicated staff whose direct insight and experience informed our decisions will ensure we continue to act decisively in furthering our goals and supporting our mission critical duties.
[T]oday's final rule simplifies reporting requirements, reduces reporting burdens, and more closely aligns data collection with use-cases.  I plan to vote to approve the improvements we have made here, but we can no longer hold market participants hostage to supplying data we are not utilizing.  I hope to revisit the Schedule of Investments in a timely manner, maybe even sooner than the period of review in the rule. . . .

Eight years ago, the Commission began collecting information from CPOs on Form CPO-PQR.  During that period, the Commission has come to learn that certain information in Form CPO-PQR has not materially improved the Commission's understanding of CPOs' participation in commodity interest markets, or its ability to assess the risks their pools may pose.  The Final Rule eliminates information that has not proven to be of value to the Commission.