Securities Industry Commentator by Bill Singer Esq

December 31, 2020

Jewelry Wholesaler Pleads Guilty in $200 Million Ponzi Scheme / Defendant Falsely Promised High Rates of Return for Investments in Wholesale Jewelry Purchases (DOJ Release)

SEC Charges Jewelry Wholesaler with Fraudulent Securities Offering Targeting Current and Retired Police Officers and Firefighters (SEC Release)

SEC Obtains Final Judgment Against Orchestrator of Market Manipulation Scheme (SEC Release)

Coronavirus Impact on Arbitration Hearings FINRA Release)

In response to the evolving coronavirus disease 2019 (COVID-19), FINRA has decided to administratively postpone all in-person arbitration and mediation proceedings scheduled through February 28, 2021 unless the parties stipulate to proceed telephonically or by Zoom or the panel orders that the hearings will take place telephonically or by Zoom. Note that if all parties and arbitrators agree to proceed in-person based on their own assessment of public health conditions, the case may proceed provided that the in-person hearing participants comply with all applicable state and local orders related to the COVID-19 pandemic.
Purusant to a Deferred Prosecution Agreement ("DPA") entered into at the United States District Court for the Eastern District of New York,, Ticketmaster L.L.C. agreed to pay a $10 million fine, which will resolve a five-count criminal Information charging computer intrusion and fraud offenses.  In October 2019, Zeeshan Zaidi, the former head of Ticketmaster's Artist Services division, pled guilty in a related case to conspiring to commit computer intrusions and wire fraud based on his participation in the same scheme. As alleged in part in the DOJ Release:

The Scheme to "Choke Off" the Victim Company

According to Ticketmaster's admissions and publicly filed court documents, Ticketmaster, a wholly owned subsidiary of Live Nation Entertainment, Inc. (Live Nation), was primarily engaged in the business of selling and distributing tickets to events and concerts.  The victim company offered artists the ability to sell presale tickets - sold in advance of general ticket sales - on an online ticketing platform.  It also offered artists an Artist Toolbox (the Toolbox), which was a password-protected app that provided real-time data about tickets sold through the victim company. 

Instrumental to the criminal scheme was Coconspirator-1, a former senior employee of the victim company, who worked in the company's Brooklyn, New York offices from approximately May 2010 to July 2012.  In approximately July 2012, Coconspirator-1 signed a separation agreement with the victim company, in which he agreed to maintain the confidentiality of that company's confidential information.  He then joined Live Nation in approximately August 2013.

In November 2013, while employed by Live Nation, Coconspirator-1 shared with Zaidi and another Ticketmaster employee the URLs for draft ticketing web pages that the victim company had built for an artist, but had not disseminated to the public.  In response to a Ticketmaster executive explaining that the goal was to "choke off [victim company]" and "steal back one of [victim company]'s signature clients," Coconspirator-1 offered that Ticketmaster could "cut [victim company] off at the knees" if they could win back presale ticketing business for a second major artist that was a client of the victim company.

Ticketmaster's Intrusions Into the Victim Company's Password-Protected Artist Toolboxes

In January 2014, Coconspirator-1 emailed Zaidi and a second Ticketmaster executive multiple sets of usernames and passwords for Toolboxes.  Coconspirator-1 encouraged the executives to "screen-grab the hell out of the system," but also warned, "I must stress that as this is access to a live [victim company] tool I would be careful in what you click on as it would be best not [to] giveaway that we are snooping around."  (Emphasis in original.)  The information from the Toolboxes was then used to prepare a presentation for other senior executives that was intended to "benchmark" Ticketmaster's offerings against those of the victim company. 

In early May 2014, a senior executive of Live Nation (Corporate Officer-1) asked Zaidi and others how Ticketmaster's presale online offering compared with the Toolbox.  Coconspirator-1 was then asked to "do a screenshare/demo" at an upcoming "Artist Services Summit."  Coconspirator-1 agreed to "pull together a list of the log-ins and URL's that I still have access to for this so I can give the team as much insight as possible."  At least 14 Live Nation and Ticketmaster employees attended the Artist Services Summit, in San Francisco.  There, in front of those employees, Coconspirator-1 used a username and password he had retained from his employment at the victim company to log in to a Toolbox, and provided a demonstration.  Coconspirator-1 later also provided Zaidi and other Ticketmaster executives with internal and confidential financial documents he had retained from his employment at the victim company.

In January 2015, Coconspirator-1 was transferred to the Artist Services division, promoted to Director of Client Relations, and given a raise.  Following the promotion, Coconspirator-1 emailed another Artist Services employee, "Now we can really start to bring down the hammer on [Victim Company]."  Ticketmaster employees continued to access password-protected victim company Toolboxes through December 2015.

Ticketmaster's Surveillance of the Victim Company's Draft Ticketing Web Pages

Between approximately July 2014 and June 2015, Coconspirator-1 and others monitored draft ticketing web pages created by the victim company.  Although these pages were not password-protected, they were not indexed in search engines, and therefore could not be located without determining the exact URLs, which included a series of numbers.  Until the victim company or artist publicly disseminated a URL, the victim company intended to restrict access to itself and the artist.

After joining Live Nation, Coconspirator-1 explained to Zaidi and others how the "store ID" numbers in the URLs were numbered sequentially, enabling Ticketmaster employees to monitor new pages and to learn which artists planned to use the victim company to sell tickets.  Coconspirator-1 used this information to search for new victim company ticketing web pages, and sent the URLs to Ticketmaster executives.  In or about January 2015, a Ticketmaster employee was assigned to learn about this system from Coconspirator-1, and maintained a spreadsheet listing every victim company ticketing web page that could be located, so that Ticketmaster could identify the victim company's clients and attempt to dissuade them from selling tickets through the victim company.  Zaidi explained that "we're not supposed to tip anyone off that we have this view into [the victim company's] activities." 

Jewelry Wholesaler Pleads Guilty in $200 Million Ponzi Scheme / Defendant Falsely Promised High Rates of Return for Investments in Wholesale Jewelry Purchases (DOJ Release)

Gregory Altieri pled guilty in the United States District Court for the Eastern District of New York ("EDNY") to wire fraud. As alleged in part in the DOJ Release:

Beginning in August 2017, Altieri solicited between $75 million to $85 million in investments in his entity, LNA Associates, from over 80 investors located in Queens, Staten Island, Long Island and elsewhere.  Altieri told investors that their money would be used to purchase jewelry at "closeout" prices, which would then be resold at a high profit yielding returns on those investments of between 30 and 70 percent in a matter of months.  While Altieri initially purchased some jewelry with investors' money, since approximately May 2018, he used money from new investors to pay earlier investors, representing to the latter group that they were receiving returns on their investments.  These purported "returns" were used by Altieri to convince the earlier investors to keep their money with LNA Associates by "rolling over" their funds into new investments based on false promises to use this money to purchase additional jewelry.  By January 2020, when Altieri stopped making payments to investors, he owed them approximately $200 million based on the falsely inflated promised returns.   

The SEC Release asserts that in a Complaint filed in EDNY, the SEC alleged that:

[F]rom at least 2017 through early 2020, Altieri, through LNA Associates, an entity he owned and controlled, raised over $69 million from at least 80 investors by falsely claiming that the investments would be used to acquire jewelry for a business operated by LNA. Altieri allegedly guaranteed investors that they would quickly receive a return on their investment ranging from approximately 30% of their initial investment to, in some instances, over 100%. However, as the complaint alleges, Altieri used the vast majority of the funds to perpetuate and conceal his fraudulent scheme, using funds from new investors to pay earlier investors their anticipated returns. The complaint further alleges that Altieri also misappropriated at least $3.8 million in investor funds. , alleges that Joseph Taub:

engaged in a fraudulent market manipulation scheme, utilizing dozens of securities accounts at several brokerage firms to create the false appearance of trading interest and activity in particular exchange-traded securities, thereby enabling him to purchase stocks at artificially low prices and then quickly sell them at artificially high prices for substantial profits. The complaint further alleged that Taub took steps to conceal the trading scheme and supervised the manipulative trading of a co-defendant. In a parallel criminal action, the U.S. Attorney's Office for the District of New Jersey filed criminal charges against Taub. Taub pled guilty to securities fraud and conspiracy to defraud the United States on July 28, 2020. Taub was sentenced on December 22, 2020 to 18 months imprisonment, ordered to pay forfeiture of $17.1 million, and ordered to pay restitution of $394,424 to the Internal Revenue Service.

The SEC Release further asserts that Taub entered into a final Consent Judgment in the SEC's case that permanently enjoins him from violating the antifraud provisions of Section 10(b) of the Securities Exchange Act and Rule 10b-5 thereunder and Section 17(a) of the Securities Act and the market manipulation provision of Section 9(a)(2) of the Exchange Act, and imposes a conduct-based injunction permanently prohibiting Taub from participating in certain securities transactions. Further, the judgment also orders Taub to pay disgorgement of $17.1 million, which will be deemed satisfied by the forfeiture ordered in the parallel criminal case. The SEC's case remains pending against Defendant Shaun Greenwald.
Final judgments were entered by the United States District Court for the Southern District of New York Against Anthony Thompson, Jr., and Jay Fung, both of whom were previously convicted in a parallel state criminal case. The Final Judgments enjoin Thompson and Fung from future violations of the anti-touting provisions of Section 17(b) of the Securities Act; Thompson further consented to pay disgorgement of $624,882 plus prejudgment interest of $137,381, and Fung consented to pay disgorgement of $1,766,083 plus prejudgment interest of $244,308. Further, Fung's obligation to pay disgorgement and prejudgment interest will be deemed satisfied by the $2,800,000 he was ordered to pay pursuant to an order of restitution entered in a related criminal action filed by the Manhattan District Attorney's Office. The SEC's litigation continues with respect to Defendant Eric Van Nguyen. As alleged in part in the SEC Release:

[A]nthony Thompson, Jr., Jay Fung, and a third defendant, Eric Van Nguyen, worked in concert to gain control of a large portion of shares in the stock of microcap companies, then hyped those stocks in newsletters they distributed to prospective investors.  According to the complaint, the newsletters published by Thompson, Fung, and Van Nguyen misleadingly stated that they "may" or "might" sell shares they owned when in reality they always intended to sell -- and in some instances already were selling - the stocks they were promoting.  As alleged, they also failed to fully disclose in their newsletters the amounts of compensation they were receiving for promoting the stocks.
We're in a high-stakes football game. It's coming down to crunch time. It's the fourth quarter. There are only seconds left for the last play. It was supposed to be fourth down and two yards. The refs huddle. They walk over to your opponent's sideline. They talk to the other team's coach. There's more huddling. Then the whistle blows and you're told that it's not fourth and two but fourth and, ummm, let's see here, sure, fourth and 22. A recent FINRA arbitration seems to have moved the goal line in the midst of an expungement hearing. Then again, maybe the refs called a foul but forgot to blow the whistle. Or maybe they blew the whistle but no one heard it. Or maybe they changed a rule in the middle of the game and it was enforced as time was about to run out.
Today's blog is less a legal analysis of a case than it is a somewhat pathetic rendering of all that is wrong with Wall Street regulation. Unfolded before us is a tortured tale of miscues and missteps by regulators involving what truly appears to be a record of misconduct by the respondents. So, no . . . it's not as if FINRA's Complaints lacked justification. Frankly, it seems that there was misconduct, some of which was, indeed, serious. On the other hand, the more you read about this mess, you wonder how much of what drove the prosecutions and appeals was fueled by institutional bias against small firms and their management: Would FINRA and the SEC have gone after a large member firm or one of its C-suiters with the same hammer-and-tong approach? I'd like to think that the answer is "yes." On the other hand, history tends to offer us too many examples where the regulation of Wall Street is one of disparate treatment that comes down in a heavy-handed fashion against the industry's small fry. Looking down on the proceedings, and looking back over time, FINRA seems to be pulling wings off of flies, and doing so with disproportionate zeal and joy.