The Wall Street Legal & Regulatory Feed

Securities Industry Commentator by Bill Singer Esq

June 28, 2021




http://www.brokeandbroker.com/5928/guggenheim whistleblower agreement/
A decade ago, the Dodd-Frank Wall Street Reform and Consumer Protection Act launched Wall Street's federal whistleblower program. A keystone of the Act was that it prohibited efforts to impede communications by tipsters to the SEC. Confidentiality agreements that enabled employers to threaten reprisals against employees who contacted the SEC were deemed a prohibited practice. Some companies got the message. Others not quite so.

https://www.justice.gov/usao-sdny/pr/joseph-meli-sentenced-37-months-prison-participating-broadway-ticket-resale-investment
Joseph Meli, 46, pled guilty in the United States District Court for the Southern District of New York and was sentenced to 37 months in prison. 25 of the 37 months will be served concurrently with a 78-month sentence that was imposed upon him in September 2018. In addition, Meli will be subject to three years of supervised release of two will run concurrently with his previous sentence. Finally, Meli was ordered to forfeit $2,082,425 and pay $1,909,146 in restitution. As alleged in part in the DOJ Release:

Beginning in at least March 2017 through in or about June 2018, MELI falsely represented to partners in a business entity, Indio Entertainment, LLC ("Indio"), that MELI owned a large number of tickets to live events, or intended to purchase a large number of tickets to live events.  MELI further falsely represented that he would sell those tickets to Indio in exchange for investor money that Indio had solicited for the purpose of reselling the tickets on the secondary market for profit.  MELI, in turn, caused Indio principals to represent to investors that investor funds would be used to purchase bulk tickets to live shows without disclosing MELI's involvement, and promised investors a share of these profits.  In fact, MELI failed to invest the investor monies as promised, and failed to supply Indio with bulk tickets, but rather diverted investor monies to his own personal use, including sending $455,000 to a close relative of MELI's in part to pay off credit card debt incurred by MELI, $500,000 to an individual completely unrelated to the entertainment or ticket industry, and $220,000 to a residential management company that managed an apartment MELI was leasing.

This was not MELI's first involvement in such a scheme.  MELI is currently serving a 78-month sentence imposed by U.S. District Judge Kimba M. Wood in September 2018, resulting from MELI's involvement in a similar Broadway ticket investment scheme.  Indeed, MELI participated in the present scheme while on pretrial release in the case in front of Judge Wood.

https://www.justice.gov/usao-sdny/pr/us-attorney-announces-extradition-and-guilty-plea-israeli-securities-trader
https://www.justice.gov/usao-sdny/press-release/file/1406431/download, Dov Malnik
Tomer Feingold were charged for their alleged roles in an international insider trading ring. Malnik pled guilty to one count of securities fraud. Feingold was charged with conspiracy to commit securities fraud, conspiracy to commit securities fraud and wire fraud, securities fraud, tender offer fraud, wire fraud, securities fraud, and money laundering. As alleged in part in the DOJ Release:

DOV MALNIK, a citizen of Israel and Lithuania, and TOMER FEINGOLD, a citizen of Israel, were business partners and securities traders who traded in their own names and managed various companies and investment funds.  From at least 2013 through 2017, MALNIK and FEINGOLD participated in a large-scale, international insider trading ring.  Through the scheme, MALNIK and FEINGOLD received material, nonpublic information ("MNPI") concerning acquisitions and potential acquisitions of publicly traded companies from a securities trader who resided in Switzerland ("CC-1").  MALNIK and FEINGOLD both knew that this MNPI was obtained by CC-1 directly and indirectly from individuals who were insiders at publicly traded companies and investment banks.  These insiders breached their fiduciary duties and shared MNPI with others, including CC-1, in exchange for compensation, who in turn shared that information with MALNIK and FEINGOLD.  MALNIK and FEINGOLD used that information to place timely, profitable securities trades resulting in millions of dollars of profits.

MALNIK and FEINGOLD began obtaining MNPI from CC-1 in approximately 2013.  During that summer, CC-1 met MALNIK and FEINGOLD and explained to them that CC-1 had numerous sources of MNPI and CC-1 could share that MNPI with MALNIK and FEINGOLD.  In return, MALNIK and FEINGOLD agreed to compensate CC-1 by buying additional securities on CC-1's behalf and transmitting the profits from those trades to CC-1.  Soon after meeting MALNIK and FEINGOLD, CC-1 explained to them the importance of CC-1 being paid CC-1's share of the profits in cash because CC-1 needed cash to pay his sources of MNPI.  MALNIK and FEINGOLD agreed to this arrangement and obtained MNPI about numerous companies from CC-1.  Specifically, CC-1 obtained MNPI which was subsequently shared with MALNIK and FEINGOLD from numerous sources, including MNPI that was stolen by investment bank insiders from two different global investment banks.

Throughout the conspiracy, MALNIK and FEINGOLD, as well as the investment bank insiders, CC-1, and others involved in this scheme, took numerous steps to conceal their unlawful enterprise, including through the use of encrypted messaging applications and multiple unregistered "burner" cellphones to communicate with each other.  MALNIK and FEINGOLD also attempted to avoid detection by engaging in securities trading through numerous offshore corporate entities.  For example, in 2011, MALNIK incorporated a British Virgin Islands entity based in Geneva, Switzerland, and subsequently opened trading and/or bank accounts in that shell company's name.  During the insider trading scheme, MALNIK and FEINGOLD's offshore companies traded in the stocks of companies about which MALNIK and FEINGOLD had received MNPI - often with multiple of those companies trading in the same stock and on the same days.

MALNIK and FEINGOLD also used these entities to transfer a portion of the profits of their illegal insider trading to CC-1 as per MALNIK and FEINGOLD's agreement with CC-1.  At first, MALNIK and FEINGOLD instructed their banks to send the funds to an account at a financial institution in Switzerland that agreed to hold the funds for the benefit of CC-1.  After a short time, however, MALNIK and FEINGOLD's banks questioned the purpose of the transactions and requested justification for the transfer of funds.  Accordingly, in order to deceive the banks, MALNIK, FEINGOLD, and CC-1 agreed that CC-1 would issue fake invoices for consulting services to MALNIK and FEINGOLD's various offshore entities.  The offshore entities would then send the funds to CC-1's account pursuant to the fake invoices.

To date, the investigation has also resulted in the conviction of other individuals who were involved in this global insider trading scheme, including investment banker Bryan Cohen, who pled guilty on January 7, 2020, to illegally passing MNPI related to his bank's corporate clients, and entrepreneur and pharmaceutical company executive Telemaque Lavdias, who was convicted on January 15, 2020, of illegally passing MNPI related to Ariad Pharmaceuticals, Inc.

Litigation Release No. 25124 / June 25, 2021
In a Complaint filed in the United States District Court for the District of New Jersey, the SEC charged Princeton Alternative Funding LLC, Microbilt Corporation, Philip N. Burgess, Jr., Walter Wojciechowski, and John Cook, Jr. with violations of the antifraud provisions of the Securities Act and the Securities Exchange Act; and further charged Microbilt, Burgess, and Wojciechowski with aiding and abetting PAF's and Cook's violations. As alleged in part in the SEC Release:

[F]rom March 2015 through February 2017, Defendants solicited investors to buy limited partnership interests in Princeton Alternative Income Fund, LP (PAIF), by: (1) misrepresenting and actively concealing the role of Burgess, a convicted felon, in the management of PAF; (2) making materially false statements about the ability of PAF and Microbilt to monitor PAIF's investments in real time; (3) making materially false statements about the selection process for PAIF's investments; and (4) making materially false and misleading statements about PAIF's largest investor.

The SEC's complaint charges the defendants with violations of the antifraud provisions of the Securities Act of 1933 and the Securities Exchange Act of 1934. The complaint also charges Microbilt, Burgess, and Wojciechowski with aiding and abetting PAF's and Cook's violations. The SEC seeks permanent injunctions against all defendants, conduct-based injunctions against Burgess, Wojciechowski, and Cook, and civil money penalties against Microbilt, Burgess, Wojciechowski, and Cook.

Amec Foster Wheeler Limited, which is currently owned by John Wood Group PLC, consented to an SEC cease-and-desist Order https://www.sec.gov/litigation/admin/2021/34-92259.pdf finding that it violated the anti-bribery, books and records, and internal accounting controls provisions of the Foreign Corrupt Practices Act ("FCPA") and agreed to pay $22.7 million in disgorgement and prejudgment interest. The Order provides for offsets for up to $9.1 million of any disgorgement paid to the the Brazil Controladoria-General da Uniᾶo (CGU)/Advocacia-Geral da Uniᾶo (AGU) and the Ministério Publico Federal (MPF) in Brazil, and up to $3.5 million of any disgorgement paid to the Serious Fraud Office (SFO) in the United Kingdom. As alleged in part in the SEC Release:.

The SEC's order finds that Foster Wheeler, a company that provided project, engineering, and technical services to energy and industrial markets worldwide, engaged in a scheme to obtain an oil and gas engineering and design contract from the Brazilian state-owned oil company, Petroleo Brasileiro S.A. (Petrobras), known as the UFN-IV project. According to the order, from 2012 through 2014, Foster Wheeler's UK subsidiary, Foster Wheeler Energy Limited (FWEL), made improper payments to Brazilian officials in connection with its efforts to win the contract and establish a business presence in Brazil. The bribes were paid through third party agents, including one agent who failed Foster Wheeler's due diligence process, but was allowed to continue working "unofficially" on the UFN-IV project. According to the order, Foster Wheeler paid approximately $1.1 million in bribes in connection with obtaining the contract.

https://www.finra.org/sites/default/files/2021-06/UIT-AWC-062521.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, Merrill Lynch, Pierce, Fenner & Smith Incorporated submitted a Letter of Acceptance, Waiver and Consent ("AWC"), which FINRA accepted. The AWC asserts that:

Merrill Lynch has been a FINRA member since 1937. The firm is a full-service broker-dealer that is headquartered in New York, New York. Merrill Lynch employs approximately 30,500 registered representatives in approximately 4,200 branch offices.

As alleged in part in the "Overview" of the AWC:

From January 2011 through December 2015, Merrill Lynch failed to establish and maintain a supervisory system that was reasonably designed to achieve compliance with FINRA's suitability rule as it pertains to early rollovers of UITs. Merrill Lynch therefore violated NASD Rule 3010 (for conduct before December 1, 2014), FINRA Rule 3110 (for conduct on or after December 1, 2014), and FINRA Rule 2010.

In accordance with the terms of the AWC, FINRA imposed upon Merrill Lynch a Censure, $3,250,000 fine, and $8,437,223.38 in restitution plus interest. 

https://www.finra.org/sites/default/files/fda_documents/2018060356501
%20Kelly%20Wayne%20Feehrer%20CRD%201470328%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, Kelly Wayne Feehrer submitted a Letter of Acceptance, Waiver and Consent ("AWC"), which FINRA accepted. The AWC asserts that Kelly Wayne Feehrer was first registered in in 1986, and by 2009, he was registered wth Merrill Lynch, Pierce, Fenner & Smith Inc. As alleged in part in the AWC for the relevant period between January 1, 2011, and December 31, 2015:

During the Relevant Period, Feehrer recommended that more than 200 of his customers roll over UITs more than 100 days prior to their maturity on nearly 3,000 occasions. Indeed, although his customers' UITs typically had a 15- or 24-month maturity period, Feehrer recommended that his customers sell their UITs after holding them for, on average, only 215 days and use the proceeds to purchase a new UIT. 

Of the nearly 3,000 early rollovers recommended by Feehrer, approximately 190 were "series-to-series" rollovers. In other words, on approximately 190 occasions, Feehrer recommended that his customers roll over a UIT before its maturity date in order to purchase a subsequent series of the same UIT, which, as noted above, generally had the same or similar investment objectives and strategies as the prior series. 

As one example of a recommended "series-to-series" rollover, Feehrer recommended in December 2012 that a customer purchase a UIT that had an investment objective and strategy of "above-average total return through a combination of capital appreciation and dividend income." Although that UIT had a two-year maturity period, Feehrer recommended that his customer sell it after only 241 days and use the proceeds to purchase a later series of the same UIT. The subsequent series of the UIT had the identical investment objective and strategy as the prior UIT. 

Feehrer's recommendation that his customer rollover this UIT more than 440 days prior to its maturity caused his customer to incur increased sales charges to purchase what was, essentially, the same investment. Feehrer's recommendations caused his customers to incur unnecessary sales charges and were unsuitable in view of the frequency and cost of the transactions.4 

Therefore, Feehrer violated NASD Rule 2310 (for conduct before July 9, 2012), FINRA Rule 2111 (for conduct on or after July 9, 2012), and FINRA Rule 2010.5
=====
Footnote 4: Feehrer's customers will receive reimbursement of these excess sales charges from Merrill Lynch in connection with F1NRA's separate settlement with the firm. See Merrill Lynch, Pierce, Fenner & Smith Inc., 2017053437701 (AWC 2021). 

Footnote 5: FINRA Rule 2111 superseded NASD Rule 2310 on July 9, 2012. 

In accordance with the terms of the AWC, FINRA imposed upon Feehrer a $5,000 fine and three-month suspension from associating with any FINRA member in all capacities.  

https://www.finra.org/sites/default/files/fda_documents/2019061155401
%20Sidoti%20%26%20Company%2C%20LLC%20CRD%20102860%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, Sidoti & Company, LLC submitted a Letter of Acceptance, Waiver and Consent ("AWC"), which FINRA accepted. The AWC asserts that:

Sidoti has been a FINRA member since April 2000 and has its principal place of business in New York, New York. The firm has approximately 35 registered representatives and provides small-cap and micro-cap equity research to institutional investors. In addition, the firm generates revenue through institutional equity sales, the arrangement of non-deal roadshows, and investment banking activities 

As alleged in part in the "Overview" of the AWC:

From March 31, 2018 through December 11, 2020, Sidoti published 2,202 research reports in which the firm failed to accurately disclose certain information required by FINRA Rule 2241(c). Specifically, Sidoti failed to disclose accurately: (1) investment banking and other compensation it received from companies in research reports covering those same companies; (2) it had acted as a co-manager for public offerings of securities issued by companies in research reports covering those same companies; and (3) the percentage of companies within each of the "buy," "hold," and "sell" rating categories for which the firm provided investment banking services. These disclosure issues resulted  from Sidoti's failure to establish and maintain a supervisory system, including written supervisory procedures (WSPs), reasonably designed to achieve compliance with its research disclosure obligations. By virtue of the foregoing, Sidoti violated FINRA Rules 2241(c), 3110(a), 3110(b). and 2010.  

In accordance with the terms of the AWC, FINRA imposed upon Sidoti a Censure, $105,000 fine, and an undertaking to review in part its systems and written procedures regarding research report disclosures. 

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