Securities Industry Commentator by Bill Singer Esq

March 19, 2021

SEC Charges Owner of Real Estate Investment Company with Defrauding Investors (SEC Release)

California Man Charged with Conspiring to Launder Proceeds of Fraud Schemes Targeting New Jersey Law Firm and SBA Loans (DOJ Release)
Right off the bat -- gotta tell ya -- I got a problem with FINRA Regulatory Notice 21-12. Frankly, it's symptomatic of just about everything that's wrong with FINRA and with Wall Street's lame version of self-regulation. We're in the midst of a horrible pandemic. Wall Street employees are working from home. Hardly a day goes by when we are not regaled with unsettling stories about the so-called "gamification" of the stock market. Daily, we read about the industry's lack of operational capacity in the face of surging volumes. And just how does FINRA respond to all of this? Why, of course, it does what any bureaucracy does, which is a combination of nothing and doing something that makes doing nothing look like you're doing something when you're not.
In a Complaint filed in the United States District Court for the Southern District of Indiana, the SEC charged James Roland Jones with violating the antifraud provisions of the federal securities laws. Jones agreed to a bifurcated settlement enjoining him from further violating these provisions. A parallel criminal action was filed against Jones. In part the SEC Release alleges that:

[I]n late 2016 and 2017, Jones accessed various dark web marketplaces, including a website claiming to be an insider trading forum, in search of material, nonpublic information to use for his own securities trading.  According to the complaint, in order to gain access to the insider trading forum, Jones lied about possessing material, nonpublic information.  By doing so, Jones allegedly gained access to the insider trading forum for a short period, but was unsuccessful in obtaining valuable material, nonpublic information.  The complaint further alleges that Jones subsequently devised a scheme to sell purported insider tips to others on the dark web.  The SEC alleges that, in the spring of 2017, Jones offered and sold on one of the dark web marketplaces various purported "insider tips" that he falsely described as material, nonpublic information from the insider trading forum or corporate insiders.   According to the complaint, several users paying in bitcoin purchased these tips and ultimately traded based on the information Jones provided., the SEC charged Chatfield PCS Ltd., GO ECO Manufacturing, Inc., and Tra Jay Scarlett with violating federal antifraud provisions. The Court granted an asset freeze and other emergency relief. As alleged in part in the SEC Release:

[S]ince approximately March 2016, Scarlett, through Chatfield, has raised at least $3.2 million from investors in two securities offerings by GO ECO, which was billed as an environmentally-friendly drink bottling and manufacturing company. The complaint alleges that Scarlett and Chatfield told investors that GO ECO made or bottled "the number one protein shot beverage in the world," that investments in GO ECO would be used to expand the company's existing business, and that the investments were expected to generate annual returns of 20% to 25%. In fact, according to the complaint, GO ECO never manufactured or bottled any beverages, never opened a bank account, and never operated in any way at all. Instead, the complaint alleges, Scarlett misappropriated hundreds of thousands of dollars of investor funds to buy, among other things, jewelry and precious metals, and to make a down payment and mortgage payments on his home. The complaint also alleges that the defendants made other false and misleading statements to GO ECO investors about GO ECO's business operations, management team, and relationship with its supposed key customer.
In a Complaint filed in the United States District Court for the Northern District of California, the SEC charged UBiome Inc.'s co-founders, Jessica Richman and Zachary Apta, with violations of the antifraud provisions of the federal securities laws. Parallel criminal charges were filed against Richman and Apta. As alleged in part in the SEC Release:

[R]ichman, uBiome's CEO, and Apte, its Chief Scientific Officer, raised funds from investors - millions of dollars of which went to Richman and Apte - by painting a false picture of uBiome as a rapidly growing company, which Richman told investors was "inventing the microbiome industry" and making "products that improve people's lives." According to the complaint, Richman and Apte portrayed the company as having a strong track record of receiving health insurance reimbursement for its clinical tests, which purportedly could detect microorganisms and assist in diagnosing disease. The complaint alleges that these claims were false and misleading because uBiome's purported success in generating revenue depended on duping doctors into ordering unnecessary tests and other improper practices that Richman and Apte directed, which, if discovered, would have led to insurers refusing to reimburse uBiome. According to the complaint, Richman and Apte acted to conceal the improper practices from investors and insurers, including directing uBiome employees to provide insurers with backdated and misleading medical records to substantiate the company's prior claims for reimbursement. Ultimately, the complaint alleges, Richman and Apte's efforts to conceal the practices unraveled, which led to uBiome suspending its medical test business and entering bankruptcy. According to the complaint, Richman and Apte were each enriched by millions through selling their own uBiome shares during the fraudulent fundraising round.
In a Complaint filed in the United States District Court for the District of New Jersey, the SEC charged Seth P. Levine with violating the antifraud provisions of the federal securities laws.  Levine has agreed to settle the charges against him. In a parallel action, criminal charges were filed against Levine. The SEC Release alleges in part that:

[L]evine, the president and owner of Norse Holdings, LLC, a real estate investment and management company, sold membership interests in limited liability companies that purchased and owned apartment complexes.  According to the complaint, from at least February 2015 through August 2019, Levine raised millions of dollars from more than 60 investors, including family, friends, and other investors, many of whom belonged to the Orthodox Jewish community.  In offering the interests, Levine allegedly used misleading and false representations that masked Norse Holdings' underlying financial problems and its inability to pay promised returns without using new investor monies or proceeds from a related mortgage fraud.  Specifically, the complaint alleges that Levine provided investors with documents reflecting false and inaccurate information concerning the profitability of the apartment complexes; sold overlapping ownership interests to investors using false operating agreements and, at times, forged signatures; frequently commingled investor funds to prop up real estate holdings that were struggling; and paid investors with fake profits generated by the mortgage fraud Levine conducted using the same properties.
In a Complaint filed in the United States District Court for the District of New Jersey, Eric Bullard was charged with one count of money laundering conspiracy. As alleged in part in the DOJ Release:

In June 2020, Victim 1 communicated via email with a law firm in New Jersey that was helping Victim 1, a resident of Bergen County, New Jersey, with a real estate transaction.  One of the law firm's email accounts was compromised and someone purporting to be emailing on behalf of the law firm sent instructions to Victim 1 to wire approximately $560,000 into an escrow account under the name "Eric's Commercial LLC."  Victim 1 wired approximately $560,000 into a business bank account controlled by Bullard. Victim 1 did not intend for the money to be transferred to Bullard and sent the wire transfer to Bullard's account under the belief that the wire instructions had come from the New Jersey law firm.            

Prior to receiving the $560,000 wire transfer, the Eric's Commercial LLC bank account had a beginning statement period balance of approximately $40. Shortly after the $560,000 was transferred into the Eric's Commercial LLC bank account, on the same day the wire transfer posted to his account, approximately 10 cash withdrawals were made from the account totaling $96,275. Surveillance footage obtained from the bank shows Bullard entering the bank to make withdrawals from the account. The same day, three large wire transfers sourced from the transfer from Victim 1 were executed from the Eric's Commercial LLC bank account to other bank accounts, including an account controlled by a conspirator.     

In addition to laundering of the proceeds from the business email compromise, Bullard also obtained and laundered funds from the U.S. Small Business Administration's (SBA) Economic Injury Disaster Loan (EDIL) program.  In July 2020, Bullard received into a business bank account that he controlled $51,395 from an SBA EDIL loan intended for a pharmacy company with a listed location in Idaho and $143,100 from an SBA EDIL loan intended for a pharmacy company with a listed location in Colorado.
The price of sushi -- and I'm talking about the really good stuff -- can be astronomical. We're talking hundreds, even thousands of dollars, for a meal or what may amount to a few bites. In a recent case, a Wall Street executive wound up paying $5,000. To be clear, that tab was not presented by a restaurant but in the form of a fine by FINRA, and the mandatory gratuity was a nine-month suspension. To add insult to injury, I'm wondering if the soy sauce packet ripped apart upon opening and splattered the diner. 

The Grandfather FINRA OBA Paradox ( Blog)
In the "Grandfather Paradox" we are asked to wonder whether you could travel back in time to kill your grandfather before he conceived your father. If your time travel was successful, then how were you able to kill your grandfather and prevent your birth if, in fact, you were never born? In a variation on this theme, the "FINRA Paradox," we are asked whether you could backdate a document that was supposed to be submitted before you got approval to engage in an outside business activity. Which prompts the obvious question: If your backdating was successful, then would your grandfather have hired you to engage in outside business activity if a tree fell on Wall Street while you were clapping with one hand and no one heard the tree fall but, nonetheless, everyone bought GameStop shares on Robinhood in the face of naked shorting?