Securities Industry Commentator by Bill Singer Esq

April 23, 2021





https://www.sec.gov/litigation/litreleases/2021/lr25075.htm
In a Complaint filed in the United States District Court for the Eastern District of New York
https://www.sec.gov/litigation/complaints/2021/comp25075.pdf, the SEC charges Ubong Uboh and Tyler Crockett with violating the antifraud provisions of Section 17(a) of the Securities Act and Section 10(b) of the Securities Exchange Act and Rule 10b-5 thereunder. Crockett has agreed to permanent injunctive relief and a penny stock bar, with monetary relief.. In a parallel criminal action, Uboh and Crockett were charged, and Crockett pled guilty. As alleged in part in the SEC Release:

[B]etween 2016 and 2018, Ubong Uboh and Tyler Crockett cold-called investors and aggressively touted the prospects of several microcap issuers. Using fictitious names and backgrounds, Uboh and Crockett allegedly lied to investors about the issuers' relationships with well-known financial institutions and made baseless predictions about their businesses. In return, Uboh and Crockett were allegedly paid hundreds of thousands of dollars by Garrett O'Rourke and Michael Black, two individuals the SEC previously charged with engaging in a pump and dump scheme involving the same microcap issuers Uboh and Crockett touted. The complaint alleges that retail investors lost at least $1.2 million from purchasing shares of these issuers.

The SEC's complaint further alleges that Uboh and Crockett misappropriated $500,000 from an investor by convincing him to buy shares of a company in a fraudulent private offering, falsely claiming that the company had entered into a partnership with a well-known technology company and had significant growth potential. Instead of investing the money, Uboh and Crockett allegedly kept it for themselves.

https://www.sec.gov/litigation/litreleases/2021/lr25079.htm
In a Complaint filed in the United States District Court for the Western District of Missouri, the SEC charged attorney Corbyn W. Jones with violating the antifraud provisions of the federal securities laws, including Section 17(a) of the Securities Act and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder. Without admitting or denying the charges, Jones agreed to permanent injunctive relief, an order prohibiting him from acting as an officer or director of any public company, and to pay disgorgement of $82,733, prejudgment interest thereon of $3,950, and a civil penalty of $50,000. As alleged in part in the SEC Release:

[J]ones, the co-founder and chief executive officer of Strayne Holdings LLC and 1107 Property Management, LLC, raised more than $650,000 from five investors in two states from February 2019 through January 2020 and misrepresented the intended use of funds to investors. The complaint also alleges that Jones made oral misrepresentations to investors and provided written offering materials to the investors that claimed Strayne and 1107 Property Management would use investor funds for various operational expenses. Finally, the complaint alleges that Jones used at least $80,000 of investor funds for purely personal purposes.

U.S. Attorney Announces Extradition Of United Kingdom Citizen For His Role In An International Carbon Credit Fraud Scheme (DOJ Release)
https://www.justice.gov/usao-sdny/pr/us-attorney-announces-extradition-united-kingdom-citizen-his-role-international-carbon
In an Indictment filed in the United States District Court for the Southern District of New York, Christopher Wright is charged with conspiracy to commit mail and wire fraud, substantive mail fraud, and substantive wire fraud, with a penalty enhancement for telemarketing. As alleged in part in the DOJ Release:

From in or about 2009 up to and including in or about 2015, WRIGHT and other co-conspirators engaged in a scheme to defraud victims in the United Kingdom through the sale of false, fraudulent, and materially misleading investments, and to launder the proceeds of the fraud through bank accounts in the United States and foreign countries.  WRIGHT used the services of telemarketing call centers to identify and cold-call potential victims, who were primarily elderly or retired individuals residing in the United Kingdom.  Over a series of telephone calls, the telemarketers persuaded victims to invest money under various false and misleading pretenses, including the promise of short-term, high-yield, no-risk returns, when in fact the investments were high-risk, illiquid, and in some instances, entirely fictitious.  Many victims were persuaded to make additional investments under the false pretense that they would not be permitted to sell their holdings until they purchased more.  In reliance on the false representations and promises, the victims wired funds to various bank accounts in the United States, including in the Southern District of New York, in the names of corporate entities controlled by one of Wright's co-conspirators.  WRIGHT assisted in mailing and emailing of documents related to the fraudulent investments, including purchase contracts and investment certificates, to the victims.  Victims who tried to sell their investments found they were unable to do so.  The victims never received a refund on their principal or any return on their investments. 

In order to conceal the nature, location, source, ownership, and control of the proceeds of the fraudulent scheme, WRIGHT and his co-conspirators set up overseas bank accounts in Cyprus, Switzerland, and the United Kingdom, in the names of various shell companies, which were used to launder a substantial portion of the fraud proceeds.

The nature of the particular fraudulent investment vehicles being marketed to the victims changed over time.  From in or about 2009 until in or about 2011, WRIGHT and his co-conspirators sold the stock of Florida-based corporation DirectView Holdings, Inc. ("DirectView"), to the victims based on telemarketers' false representations and promises that the shares were a no-risk, short-term investment in a debt-free company, and that the shares were likely to increase over 100 percent in value in a short period of time.  In fact, DirectView's annual report filed with the United States Securities and Exchange Commission ("SEC") for the year ending December 31, 2010, contained dire warnings about the poor fiscal health of DirectView and the risk attendant in purchasing stock, including that the company "may be forced to cease operations" due to losses and cash flow problems, and purchasers "may find it extremely difficult or impossible to resell our shares."

From in or about 2011 until in or about 2015, WRIGHT and his co-conspirators engaged in the sale of fraudulent "carbon credits."  "Carbon credits," which are issued as part of governmental and voluntary regulatory regimes, are permits representing the right to emit a certain number of tons of carbon dioxide into the atmosphere.  "Carbon offsets," which are tied to particular carbon-dioxide emissions reducing projects, represent a reduction in carbon dioxide emissions, and can be purchased by individuals and companies to "offset" their or third parties' "carbon-footprints."  The victims were falsely promised that the carbon-related investments they purchased could be easily sold, carried no risk, and would yield a significant, short-term return.  In fact, the carbon credits and offsets that were sold to the victims were fake, and did not represent any actual carbon credits or offsets.

https://www.sec.gov/news/press-release/2021-69
Alex Oh was appointed Director of the SEC's Division of Enforcement. In part the SEC Release states that:

[O]h was most recently a partner at Paul, Weiss, Rifkind, Wharton & Garrison LLP and co-chair of the law firm's Anti-Corruption & FCPA Practice Group. She was previously an Assistant U.S. Attorney in the Criminal Division of the U.S. Attorney's Office for the Southern District of New York, where she was a member of the Securities & Commodities Fraud Task Force and the Major Crimes Unit.

. . .

Prior to private practice, Oh was the lead trial lawyer in numerous jury trials during her tenure as an Assistant U.S. Attorney. She is a member of the New York City Bar Association. She previously served as a Trustee for the Lawyers' Committee for Civil Rights Under Law and on the Board of Trustees of the Legal Aid Society of the District of Columbia. In addition, Oh served on the Criminal Justice Act Panel for the United States Court of Appeals for the District of Columbia Circuit and the United States District Court for the District of Columbia.

Oh has an extensive pro bono practice and has litigated voting rights cases and constitutional challenges to voter registration and identification laws. Oh earned a J.D. from Yale Law School and a B.A. from Williams College.

Amendments to the Commission's Rules of Practice (SEC Final Rule, Rel. No. 34-90442A; File No. S7-19-15, RIN 3235-AL98)
https://www.sec.gov/rules/final/2020/34-90442.pdf
As set forth in the Final Rule's "Summary":

On September 24, 2015, the Commission proposed amendments to its Rules of Practice to automate and modernize aspects of the filing process in administrative proceedings through electronic filing and service in such proceedings.1 The proposed amendments sought to enhance the accessibility and transparency of administrative proceedings and to facilitate the prompt distribution of public information regarding these proceedings by enabling the Commission to more efficiently process filings and make them more readily available to the public. As discussed in the proposing release, the proposed amendments coincided with the Commission's development of an Internet-based electronic filing system for its administrative proceedings. 

The Electronic Filings in Administrative Proceedings ("eFAP") system will be accessible via the Commission's website beginning on the Compliance Date of these rules. A link on the website at www.sec.gov will route the user to login.gov (a General Services Administration service) for multifactor authentication; login.gov will then route the user back to the eFAP system. In addition, contemporaneously with the issuance of this release, the Commission's Office of the Secretary has posted on the Commission's website Instructions for Electronic Filing and Service of Documents in SEC Administrative Proceedings and Technical Specifications ("Instructions"), 2 as well as an eFAP User Manual ("User Manual") for participants using the eFAP system.3 The Instructions describe in "question and answer" format the technical requirements for electronic filing, including the mechanics of uploading documents,  acceptable file formats, file size limitations, and naming conventions, among other things. They also address electronic service of documents by the Office of the Secretary of the Commission upon the parties to the proceeding, which will occur through the eFAP system, and electronic service by the parties upon other participants in the proceeding, which will be effectuated by email outside of the eFAP system. The User Manual addresses the technical requirements of registration and login and includes various screenshots that users will encounter in navigating the eFAP system. 

The proposal involved three primary components. First, persons involved in administrative proceedings who currently are required to file documents under Rules 151 and 152 of the Commission's Rules of Practice would be required to file such documents electronically. Second, persons filing documents in the new eFAP system would be required to redact or omit sensitive personal information and could seek a protective order for any unredacted sensitive personal information that the person believes is necessary to the proceeding. As a corollary to these electronic filing requirements, the proposal also would require electronic filing and redaction of records under Rule 420 and Rule 440 in administrative proceedings involving determinations by self-regulatory organizations ("SROs") and the Public Company Accounting Oversight Board ("PCAOB"), respectively, and electronic submission and redaction of records under Rule 351 in proceedings before hearing officers. Third, parties would be required to serve each other electronically in the form and manner that is prescribed in the materials posted on the Commission's website. 

After carefully considering the comments we received on the proposal, we are adopting the proposal with certain modifications. Under the final rules, pleadings and pleading attachments filed with the Commission under Final Rules 151 and 152 must redact sensitive personal information, but, as discussed below, the redaction requirements are modified from the proposal to eliminate the redaction of records submitted after a hearing before a hearing officer under Final Rule 351(c), records certified and filed by an SRO under Final Rule 420(e), and records certified and filed by the PCAOB under Final Rule 440(d). We have decided to modify the redaction requirements for records submitted or filed under Rules 351, 420 and 440 because, as discussed below, the records received by the Commission under these rules are not posted to the Commission's website. Persons seeking access to such records in administrative proceedings may, consistent with current practice, submit a request to the Commission under the Freedom of Information Act ("FOIA") or under any other applicable law and, if disclosure is required, then any documents would be redacted by Commission staff as appropriate.
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1 Amendments to the Commission's Rules of Practice, Exchange Act Release No. 75977 (Sept. 24, 2015), 80 FR 60082 (Oct. 5, 2015), available at http://www.govinfo.gov/content/pkg/FR-2015-10-05/pdf/2015-24705.pdf (last visited Nov. 17, 2020).

2 See Instructions for Electronic Filing and Service of Documents in SEC Administrative Proceedings and Technical Specifications, available at https://www.sec.gov/efapdocs/
instructions.pdf.

3 See eFAP User Manual - Registered User and eFAP User Manual - SEC Filer, available at https://www.sec.gov/efapdocs/registered-user-manual.pdf and https://www.sec.gov/efapdocs/sec-filer-manual.pdf.

https://www.finra.org/sites/default/files/fda_documents/2018060906101
%20Ronald%20Patrick%20Cameron%20CRD%202551641%20AWC%20va.pdf
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, Ronald Patrick Cameron submitted a Letter of Acceptance, Waiver and Consent ("AWC"), which FINRA accepted. The AWC alleges that Ronald Patrick Cameron entered the industry in 1994 and from December 2013 until November 2018, he was associated with Raymond James Financial Services, Inc. and was also dually registered with the firm as an investment advisor. Thereafter, during the relevant times from April 2019 to the present, Cameron was registered with International Assets Advisory, LLC. The AWC asserts that Cameron "does not have any relevant disciplinary history." In accordance with the terms of the AWC, FINRA found that Cameron violated FINRA Rules 3270 and 2010, and the self regulator imposed upon him a $5,000 fine and a five-week suspension from associating with any FINRA member in all capacities. The AWC alleges in part that:

In May 2018, while associated with RJFS Cameron filed articles of incorporation with the State of Arkansas for VRV Distribution, LLC, a company he formed to sell recreational vehicles. He was the company's sole owner and manager. In 2018 and 2019, the company had gross sales of $29,090 and $88,669. Cameron did not seek prior approval from RJFS and did not disclose his outside business activity in this company to RJFS until July 2018. In April 2019, Cameron became associated with International Assets but did not provide prior written notice to or receive approval from the firm for his participation in VRV Distribution, Inc. until December 2020. On his annual compliance questionnaire in December 2019, Cameron falsely stated that all of his outside business activities had been approved by International Assets.

Bill Singer's Comment: Let's give FINRA credit for some bespoke regulation here, as evident by the appropriate five-week suspension.

http://www.brokeandbroker.com/5811/finra-reminders-believes/
FINRA just published another unnecessary Regulatory Notice in which the regulator reminds us about what it believes could constitute a violation of its rules. To which many veteran industry regulatory/compliance lawyers and staff would respond: Who gives a crap what FINRA merely believes? If it's a rule, enforce it. If it's an interpretation, publish it. Say what you mean and mean what you say. We can't run Wall Street compliance departments by attempting to read FINRA's mind and divine its beliefs. 

http://www.brokeandbroker.com/5810/finra-awc-summers/
Regulators and prosecutors like to exaggerate the nature and extent of their allegations; but let's not pretend that defense lawyers don't participate in similar subterfuge through their own fanciful pleadings. Such is the stuff of our adversary system of justice. When regulators/prosecutors have a settlement to work with, however, things really get blown out of proportion -- such unbridled excess produces settlements in which the sanctions imposed don't appear to fit what is presented to us as another crime of the century. In a recent FINRA AWC, we are left somewhat breathless by a series of seemingly outrageous allegations by the regulator only to be asked to accept what comes off as tepid sanctions. 

http://www.brokeandbroker.com/5809/finra-melen-awc/
There are times when FINRA gets it right. The self-regulatory-organization conducts a diligent investigation and finds a violation of its rules. Thereafter, FINRA presents its compelling case to a respondent, but also accepts a fair settlement. That's how it should work. But for the fact that it doesn't always work like that and but for the fact that it doesn't work like that as often as it should. But, okay, let's just stand back for a moment and offer a round of applause to encourage FINRA to do more of the same as demonstrated in a recent settlement involving loans from customers and outside business activities.

http://www.brokeandbroker.com/5798/nrf-finra-awc/
With surprising regularity, we have reported about families with a stockbroker, and how such a relationship proves fertile ground for over-reaching or fraud. In a recent FINRA regulatory settlement, we come across the scenario of a mother with an Edward Jones account and her daughter who is not a stockbroker but who is an Edward Jones Branch Office Administrator. Astute readers will likely infer that since this blog is about a "FINRA regulatory settlement" that the daughter took improper advantage of the mother.