Securities Industry Commentator by Bill Singer Esq

January 8, 2021

Statement on Proposed 2011 Fraud-Detection Program and Related 2012 Opinion of the DOJ Office of Legal Counsel (SEC Release)

BREAKING NEWS: US Dominion, Inc. et al. v. Sidney Powell, et al. (Complaint, United States District Court for the District of Columbia)
As set forth in the preamble to the Complaint [Ed: footnotes and illustration omitted]:

1. This defamation action arises from statements made by Sidney Powell, who -- acting in concert with allies and media outlets determined to promote a false preconceived narrative about the 2020 election -- caused unprecedented harm. During a Washington, D.C. press conference, a Georgia political rally, and a media blitz, Powell falsely claimed that Dominion had rigged the election, that Dominion was created in Venezuela to rig elections for Hugo Chávez, and that Dominion bribed Georgia officials for a no-bid contract. 

2. Powell's wild accusations are demonstrably false. Far from being created in Venezuela to rig elections for a now-deceased Venezuelan dictator, Dominion was founded in Toronto for the purpose of creating a fully auditable paper-based vote system that would empower people with disabilities to vote independently on verifiable paper ballots. As it grew, Dominion developed technology to solve many of the technical and voter intent issues that came to light as a result of the 2000 Presidential Election. Its systems are certified under standards promulgated by the U.S. Election Assistance Commission ("EAC"), reviewed and tested by independent testing laboratories accredited by the EAC, and were designed to be auditable and include a paper ballot backup to verify results. Since its founding, Dominion has been chosen by thousands of election officials throughout the United States to provide the technology to effectively administer transparent and fully auditable elections. 

3. Because of these safeguards, there are mountains of direct evidence that conclusively disprove Powell's vote manipulation claims against Dominion-namely, the millions of paper ballots that were audited and recounted by bipartisan officials and volunteers in Georgia and other swing states, which confirmed that Dominion accurately counted votes on paper ballots.  

4. When respected Georgia Republicans disproved Powell's false accusations by announcing that Georgia's paper ballot recount had verified the accuracy of Dominion's vote counts, Powell sought to discredit them by falsely accusing Dominion of paying kickbacks to them and their families in return for a no-bid contract. The only "evidence" Powell ever put forward to support that false accusation was a doctored certificate from the Georgia Secretary of State. Powell has insinuated that the fact that the certificate is undated is suspicious. In reality, the authentic certificate is dated and is publicly available on the Georgia Secretary of State's website, along with public records showing there was a competitive bid process for the Georgia contract and that Dominion competed against Smartmatic and Election Systems & Software ("ES&S"). 

5. Although Powell assured the public during television and radio appearances that her claims were backed by "evidence," Powell's "evidence" included declarations from a motley crew of conspiracy theorists, con artists, armchair "experts," and anonymous sources who were judicially determined to be "wholly unreliable." One of Powell's wholly unreliable sources was a purported "military intelligence expert" who has now admitted that he never actually worked in military intelligence, that the declaration Powell's clerks wrote for him to sign is "misleading," and that he "was trying to backtrack" on it. After he was discredited, Powell pivoted by presenting his declaration as having been written by a different anonymous source. 

6. During some of her media appearances Powell also touted a shocking declaration from an "anonymous source" purporting to be a Venezuelan military officer alleging a decadesold conspiracy beginning with now-deceased Venezuelan dictator Hugo Chávez. 5 But the explanation in the "anonymous witness's" declaration for why he purportedly came forward was a near-verbatim recitation from another declaration put forward by Powell, proving that those witnesses did not write their declarations independently and raising serious questions about what role Powell and her team played in drafting the declaration. 

7. Powell deliberately lied about having a video of Dominion's founder saying he could "change a million votes, no problem at all." Powell has never produced that recording because it does not exist. 

8. As a result of the defamatory falsehoods peddled by Powell-in concert with likeminded allies and media outlets who were determined to promote a false preconceived narrative- Dominion's founder, Dominion's employees, Georgia's governor, and Georgia's secretary of state have been harassed and have received death threats, and Dominion has suffered enormous harm. 

9. After Dominion sent Powell a letter putting her on formal notice of the facts and the death threats and asking her to retract her false claims, Powell doubled down, tweeting to her 1.2 million Twitter followers that she heard that "#Dominion" had written to her and that, although she had not even seen Dominion's letter yet, she was "retracting nothing" because "[w]e have #evidence" and "They are #fraud masters!" To ensure that her tweet would be published to the largest possible audience and inflict maximum harm on Dominion, Powell tagged some of her allies with massive Twitter followings, including Donald Trump, Georgia-based defamation attorney L. Lin Wood, and Powell's client, Trump's former National Security Advisor Michael Flynn. 

10. In the days and weeks that followed, Powell appeared for a number of media interviews and continued to double down on her false accusations about Dominion. 

11. Dominion brings this action to set the record straight, to vindicate the company's rights under civil law, to recover compensatory and punitive damages, to seek a narrowly tailored injunction, and to stand up for itself and its employees.
T. S. Eliot famously wondered in "The Journey of the Magi": were we led all that way for Birth or Death? In today's Guest Blog, Aegis Frumento takes us back to the Feast of the Epiphany and those three wise men -- the Magi. In his modern-day pilgrimage, however, Aegis does not come upon a manger but upon a Capitol under siege. Oddly, Aegis finds himself asking Eliot's question albeit in a far different context.
In resolving criminal charges in the United States District Court for the Northern District of Texas related to a conspiracy to defraud the Federal Aviation Administration's Aircraft Evaluation Group ("FAA AEG") in connection with the evaluation of Boeing's 737 MAX airplane, the Boeing Company entered into an:
The Information charges Boeing with one count of conspiracy to defraud the United States. Under the terms of the DPA, Boeing will pay a criminal monetary penalty of $243.6 million and compensation payments to Boeing's 737 MAX airline customers of $1.77 billion, and the company will establish a $500 million crash-victim beneficiaries fund to compensate the heirs, relatives, and legal beneficiaries of the 346 passengers who died in the Boeing 737 MAX crashes of Lion Air Flight 610 and Ethiopian Airlines Flight 302. In reaching said settlement, the DOJ Release notes in part that:

The department reached this resolution with Boeing based on a number of factors, including the nature and seriousness of the offense conduct; Boeing's failure to timely and voluntarily self‑disclose the offense conduct to the department; and Boeing's prior history, including a civil FAA settlement agreement from 2015 related to safety and quality issues concerning the Boeing's Commercial Airplanes (BCA) business unit. In addition, while Boeing's cooperation ultimately included voluntarily and proactively identifying to the Fraud Section potentially significant documents and Boeing witnesses, and voluntarily organizing voluminous evidence that Boeing was obligated to produce, such cooperation, however, was delayed and only began after the first six months of the Fraud Section's investigation, during which time Boeing's response frustrated the Fraud Section's investigation.

The department also considered that Boeing engaged in remedial measures after the offense conduct, including:  (i) creating a permanent aerospace safety committee of the Board of Directors to oversee Boeing's policies and procedures governing safety and its interactions with the FAA and other government agencies and regulators; (ii) creating a Product and Services Safety organization to strengthen and centralize the safety-related functions that were previously located across Boeing; (iii) reorganizing Boeing's engineering function to have all Boeing engineers, as well as Boeing's Flight Technical Team, report through Boeing's chief engineer rather than to the business units; and (iv) making structural changes to Boeing's Flight Technical Team to increase the supervision, effectiveness, and professionalism of Boeing's Flight Technical Pilots, including moving Boeing's Flight Technical Team under the same organizational umbrella as Boeing's Flight Test Team, and adopting new policies and procedures and conducting training to clarify expectations and requirements governing communications between Boeing's Flight Technical Pilots and regulatory authorities, including specifically the FAA AEG. Boeing also made significant changes to its top leadership since the offense occurred.

The department ultimately determined that an independent compliance monitor was unnecessary based on the following factors, among others: (i) the misconduct was neither pervasive across the organization, nor undertaken by a large number of employees, nor facilitated by senior management; (ii) although two of Boeing's 737 MAX Flight Technical Pilots deceived the FAA AEG about MCAS by way of misleading statements, half-truths, and omissions, others in Boeing disclosed MCAS's expanded operational scope to different FAA personnel who were responsible for determining whether the 737 MAX met U.S. federal airworthiness standards; (iii) the state of Boeing's remedial improvements to its compliance program and internal controls; and (iv) Boeing's agreement to enhanced compliance program reporting requirements, as described above.

Russian Hacker Sentenced To 12 Years In Prison For Involvement In Massive Network Intrusions At U.S. Financial Institutions, Brokerage Firms, A Major News Publication, And Other Companies (DOJ Release)
Andrei Tyurin a/k/a "Andrei Tiurin," 37, pled guilty in the United States District Court for the Southern District of New York to one count of conspiracy to commit computer hacking, one count of wire fraud, one count of conspiracy to violate the Unlawful Internet Gambling Enforcement Act, and one count of conspiracy to commit wire fraud and bank fraud. Additionally, as to charges transferred from the United States District Court for the Northern District of Georgia, Tyurin pled guilty to one count of conspiracy to commit wire fraud, and one count of conspiracy to commit computer hacking. Tyurin was charged with committing these crimes with Gery Shalon, a/k/a "Garri Shalelashvili," a/k/a "Gabriel," a/k/a "Gabi," a/k/a "Phillipe Mousset," a/k/a "Christopher Engeham," Joshua Samuel Aaron, a/k/a "Mike Shields," and Ziv Orenstein, a/k/a "Aviv Stein," a/k/a "John Avery." Tyurin was sentenced to 144 months in prison plus three years of supervised release, and ordered to pay $19,214,956 in forfeiture.  As alleged in part in the DOJ Release:

From approximately 2012 to mid-2015, TYURIN engaged in an extensive computer hacking campaign targeting financial institutions, brokerage firms, and financial news publishers in the U.S. (including but not limited to J.P. Morgan Chase Bank, E*Trade, Scottrade, and the Wall Street Journal), and was responsible for the theft of personal information of over 100 million customers of the victim companies.  TYURIN's hack of J.P. Morgan Chase Bank alone resulted in the theft of personal information of over 80 million customers.  TYURIN engaged in these crimes at the direction of his partner Gery Shalon, and in furtherance of other criminal schemes overseen and operated by Shalon and his co-conspirators, including securities fraud schemes in the United States.  For example, in an effort to artificially inflate the price of certain stocks publicly traded in the U.S., Shalon and his co-conspirators marketed the stocks in a deceptive and misleading manner to customers of the victim companies whose contact information TYURIN stole in the intrusions. 

In addition to the U.S. financial sector hacks, from approximately 2007 to mid-2015 TYURIN also conducted cyberattacks against numerous U.S. and foreign companies in furtherance of various criminal enterprises operated by Shalon and his co-conspirators, including unlawful internet gambling businesses and international payment processors.  Nearly all of these illegal businesses, like the securities market manipulation schemes, exploited the fruits of TYURIN's computer hacking campaigns.  TYURIN's hacking activity included the targeting of companies known to be used for email marketing campaigns, competitor online casinos, and a merchant risk intelligence firm based in the United States, in order for the co-conspirators to monitor the firm's efforts to audit potentially criminal online credit card transactions on behalf of major credit card networks, and thus avoid detection of their own criminal schemes.

In furtherance of his hacking activities, TYURIN used computer infrastructure located across five continents, which he controlled from his home in Moscow, and maintained persistent access over extended periods of time to the victims' networks, regularly refreshing the stolen data by repeatedly downloading information from these companies.  And once his hacking activities were detected, TYURIN worked with Shalon to destroy the evidence of their criminal activity and undermine U.S. law enforcement's efforts to identify and arrest them. 

Through these various criminal schemes, TYURIN, Shalon, and their co-conspirators obtained hundreds of millions of dollars in illicit proceeds, and TYURIN himself earned over $19 million in profits from his hacking activity.

Accountant Who Aided Worldwide Scam Charged with Small Business Administration Loan Fraud (DOJ Release)
Former accountant Daniel Gibson was charged in an Information filed in the United States District Court for the Southern District of Florida with one count of conspiracy to commit bank fraud. As alleged in part in the DOJ Release:

[1] Global Capital LLC was a commercial lending business based in Hallandale Beach, Florida, that made the equivalent of "pay day" loans to small businesses at high interest rates beginning in or around 2013.  Gibson was a certified public accountant licensed in the State of New York who served as the accountant for 1 Global, 1 Global's former chairman, and a number of businesses owend [sic] and operated by 1 Global's former chairman.

The Information alleges that in 2011, 1 Global's former chairman took out an approximately $3 million loan backed by the SBA, purportedly to be used as working capital for a nutraceutical business that he owned at the time. 1 Global's former chairman and his wife were required to personally guarantee the SBA loan in full. 

From about 2013 to 2018, Gibson and 1 Global's former chairmain [sic] misrepresented to the SBA that the nutraceutical company failed as a business and that 1 Global's former chairman had no other assets or income to make his payments on the SBA loan.  According to the Information, Gibson and 1 Global's former chairman concealed from the SBA certain assets and income that could have been used to repay the loan, including:  (a) money that 1 Global's former chairman received from 1 Global beginning in 2013, which totaled hundreds of thousands of dollars during the period in question; (b) valuable artwork that belonged to 1 Global's former chairman; and (c) an offshore Swiss bank account in the name of and controlled by 1 Global's former chairman, containing at one point over $1 million. Acccording [sic] to the Information, the SBA is currently owed $1,783,019.14 on this loan. 

Statement on Proposed 2011 Fraud-Detection Program and Related 2012 Opinion of the DOJ Office of Legal Counsel (SEC Release)
I've been on the Street for some four decades, and during that time, I've seen a lot of press releases. The one below, which I reprint in full, certainly manages to rise to the top of a somewhat oddball heap. What the hell???:

Investor protection is a paramount component of the Commission's core mission, and vigorous enforcement of our securities laws is essential to investor protection. The Commission has statutory authority to refer potential criminal securities violations to the Department of Justice (DOJ), and cooperation with DOJ and other governmental authorities is an important facet of the Commission's enforcement program.

In 2012, with the Commission's approval, the Commission's staff sought advice from DOJ's Office of Legal Counsel (OLC) on a potential program, conceived in 2011, in which designated, trained Commission staff members would pose as interested investors in responding (by telephone, mail, or electronically) to individuals suspected of engaging in conduct that could constitute criminal violations of the federal securities laws. In 2012, OLC issued an unpublished legal opinion confirming that, as proposed, the program would qualify for an exemption from the Privacy Act of 1974, meaning that the Commission's staff members posing as investors could communicate with suspect individuals without disclosing their affiliation with the Commission. OLC has now made the 2012 opinion public, and the Commission would like to clarify that the program was not implemented.

If the Commission were to put into place a program such as the one contemplated by OLC's 2012 opinion, any such program would have to be approved in advance by the Commission pursuant to an appropriate process and with appropriate safeguards. Members of the public who wish to submit views on this matter may send an email to The Commission anticipates making submissions public.

SEC Order Denies Joint Whistleblower Award Claim (SEC Order Determining Whistleblower Award Claim, 34-90872, File No.: 2020-23 / January 7, 2021)
The SEC Claims Review Staff ("CRS") issued a Preliminary Determination recommending the denial of a joint whistleblower award to Claimant 1 and Claimant 2; and, following Claimants' contest of the denial, the SEC ordered the claim denied. In pertinent parts, the SEC Order explains that [Ed: footnotes omitted]:

On REDACTED, the CRS issued a Preliminary Determination recommending that Claimants' joint award claim be denied because the information provided by Claimants did not lead to the successful enforcement of the Covered Action under Exchange Act Rule 21F4(c)(1)-(2). The record supporting the Preliminary Determination included the declaration (the "First Declaration") of one of the attorneys in the REDACTED in the Commission's Division of Enforcement who was responsible for the Covered Action. The First Declaration stated under penalty of perjury that the staff responsible for the Covered Action reviewed Claimants' REDACTED tip on Form TCR (the "Tip") in REDACTED and determined that the tip did not concern, or even mention, REDACTED By REDACTED the First Declaration continued, the investigation with regard to REDACTED was already complete and the staff was primarily concerned with preparing for the administrative proceeding and conducting settlement discussions. The First Declaration further attested that the staff responsible for the Covered Action did not meet with Claimants, did not request any information from them or otherwise communicate with them, and did not use any of the information received from them.  

at Page 2 of the SEC Order

As noted above, Claimants also argue that the staff mishandled their information and that they should be entitled to discovery to ascertain why it was not handled differently. In essence, Claimants argue that their information would have led to the success of the Covered Action had it been handled differently. But the standard for award eligibility is not what the staff would have, or could have done in hypothetical circumstances but, rather, what impact the whistleblower's information actually had on the investigation. Here, the First and Second Declarations are clear that Claimants' information neither caused the staff to open its investigation nor significantly contributed to the success of the Covered Action, and thus we need not consider Claimants' request for discovery of additional information. We therefore conclude that Claimants' information did not lead to the successful enforcement of the Covered Action and that, as a result, Claimants are ineligible for an award with respect to the Covered Action.

at Page 4 of the SEC Order

SEC Issues Over $1.1 Million to Multiple Whistleblowers (SEC Release)
The SEC issued three orders:
Order 1
Order 2
Order 3

The SEC Release noted, in part, the following:

In the first order, the SEC awarded three whistleblowers almost $500,000 in connection with two related enforcement actions. The first whistleblower provided information that prompted the opening of an investigation. The second and third whistleblowers provided information that significantly contributed to the success of the actions, and contributed additional, helpful assistance to the investigative staff.

In the second order, the SEC awarded nearly $600,000 to a whistleblower whose information caused the opening of an investigation. The whistleblower continued to provide helpful assistance by meeting with investigative staff in-person, providing documents, and identifying witnesses. The whistleblower also repeatedly reported the concerns internally in an effort to remedy the violations.

In the third order, the SEC awarded more than $100,000 to a whistleblower whose independent analysis led to a successful enforcement action. Among other things, the whistleblower conducted an analysis using information from publicly available documents to calculate an estimate of an important metric for a company, and then showed that the company's disclosures regarding that metric were implausible. This is the fifth individual in FY21 who received an award based on independent analysis.