Securities Industry Commentator by Bill Singer Esq

July 9, 2021
In the most general of terms, lies told in order to injure others are bad, are never justified, whatever may be said of other kinds of lies. Put that way, it seems clear how lawyers Alex Oh and Rudy Giuliani went astray. They lied -- she in a petty way and he in a grand way -- not to keep the peace but to inflict harm. Oh lied to attack her adversary. Giuliani lied to promote a false narrative that helped incite an insurrectionist mob.
Pursuant to a Plea Agreement
download, disbarred attorney Richard Rubin pled guilty in  the United States District Court for the Southern District of New York to one count of securities fraud. Charges against attorney Co-Defendant Thomas Craft are pending. As alleged in part in the DOJ Release:

Securities Registration Requirements and SEC Rule 144

Under the Securities Act of 1933 (the "Securities Act"), anyone seeking to sell a security must first register that security unless an exemption applies.  See 15 U.S.C. § 77e.  This registration requirement protects investors by promoting disclosure of information pertinent to informed investment decisions. 

A company registering new securities must complete a registration statement known as U.S. Securities and Exchange Commission ("SEC") Form S-1 before the securities can be listed on a national exchange and publicly traded.  SEC Form S-1 contains information pertinent to informed investment decisions, including, among other things, information on the company's business operations, the company's financial condition, and a description of the company's management.  In connection with SEC Form S-1, the company is required to file an opinion letter (the "Form S-1 Opinion Letter") from a licensed attorney attesting that the statements in the SEC Form S-1 are true and correct.  A company's SEC Form S-1 and the Form S-1 Opinion Letter are available to the public on the SEC's Electronic Data Gathering, Analysis, and Retrieval System ("EDGAR").

"Restricted securities" refers to securities acquired in unregistered, private sales from the issuing company or from an affiliate of the issuer, with "affiliate" meaning a person who directly or indirectly controls, or is controlled by, or is under common control with, an issuer.  Affiliates can also include an executive officer or a director or large shareholder who is in a relationship of control with respect to the issuing company.  Restricted securities bear a legend indicating that the securities may not be resold in the marketplace unless they are registered with the SEC or are exempt from such registration requirements.

Securities Act Rule 144 ("Rule 144"), codified at 17 C.F.R. § 230.144, provides a registration exemption for restricted securities.  Specifically, it permits the public resale of restricted securities if a number of conditions are met, including conditions relating to how long the securities are held, the way in which they are sold, the public information available to investors about the securities, and the amount that can be sold at any one time.  Pursuant to Rule 144, however, even if these conditions are met, the sale of restricted securities to the public is still not permitted until a transfer agent removes the "restricted" legend from the security. 

The term "transfer agent" refers to a company that keeps track of individuals and entities that own the stocks and bonds of a given company that has publicly traded securities.  Among other things, transfer agents issue and cancel certificates to reflect changes in ownership, serve as the company's intermediary for payouts, exchanges, or mailings, and handle lost, destroyed, or stolen certificates.  Transfer agents also, when appropriate, remove the "restricted" legend from securities. 

A Rule 144 Seller's Representation Letter, or "Seller's Representation Letter," is a letter from an affiliate seller (that is, a seller in a relationship of control with the issuer, such as an executive officer, a director, or a large shareholder) of restricted securities to a transfer agent to establish certain facts underlying a legal opinion that the securities at issue can be sold publicly pursuant to Rule 144.  The issuer's consent to the removal of a legend typically comes in the form of an opinion letter from the issuing company's attorney, the Seller's Representation Letter, indicating that the securities at issue satisfy the conditions of Rule 144.  Seller's Representation Letters contain multiple attestations that are required by law prior to the restricted legend being removed.  The transfer agent relies on the Seller's Representation Letter in determining whether to remove the restricted legend from a security.

Over-the-Counter Securities and OTC Markets Group

Over-the-counter ("OTC") securities are securities that are traded between two counterparties outside of a formal securities exchange.  OTC Markets Group ("OTC Markets") is a securities market headquartered in New York, New York, that provides price and liquidity information for OTC securities.

OTC Markets requires issuers seeking to be listed on OTC Markets to hire a licensed attorney to review company records and submit a letter to OTC Markets (an "OTC Markets Attorney Letter") regarding whether information publicly disclosed by the issuer is in compliance with the condition in SEC Rule 144 governing the public information available to investors about the issuer.  OTC Markets relies on the OTC Markets Attorney Letter to determine whether an issuer's security may be listed on OTC Markets.  OTC Markets Attorney Letters are available to the public on the OTC Markets website. 

The Scheme to Defraud

From at least in or about 2011 through at least in or about September 2018, RUBIN and Craft participated in a fraudulent scheme in which Craft falsely represented that he had undertaken certain legal work in connection with Seller's Representation Letters, OTC Markets Attorney Letters, and S-1 Opinion Letters, all of which enabled the relevant securities to be sold to the investing public.  In addition, in connection with the securities of certain issuers, Rubin, the defendant, falsely represented that he was an attorney in Seller's Representation Letters and OTC Markets Attorney Letters, all of which enabled the relevant securities to be sold to the investing public.  The false representations were in letters pertaining to over a dozen companies.
Roger Nils-Jonas Karlsson, 47, pled guilty in the United States District Court for the Northern District of California to securities fraud, wire fraud and money laundering; and he was sentenced to 15 years in prison and ordered to forfeit a Thai resort and other properties/accounts, and to pay a $16,263,820 money judgment. A restitution order is in process. As alleged in part in the DOJ Release:

[K]arlsson ran an investment fraud scheme from 2011 until his arrest in Thailand in June 2019. Karlsson induced victims to purchase shares in the scheme called "Eastern Metal Securities" using cryptocurrency such as Bitcoin and other online payment platforms. Karlsson promised victims astronomical returns tied to the price of gold. Instead, the funds provided by victims were transferred to Karlsson's personal bank accounts, and he then used proceeds to purchase expensive homes, a racehorse and a resort in Thailand. Karlsson's fraud targeted financially insecure investors, causing severe financial hardship for many of them. Meanwhile, Karlsson went to great lengths to prolong his scheme, including rebranding, offering updates and account statements that provided assurances to the victims of the states of their assets, and offering explanations for the payout delays - including falsely claiming to be working with the Securities and Exchange Commission (SEC).

Odessa Businessman Sentenced to Federal Prison for Defrauding Family and Friends out of $18 Million (DOJ Release)
James Clinton Fletcher, 45, pled guilty in the United States District Court for the Western District of Texas to one count of conspiracy to commit wire fraud and one count of willful failure to pay employee tax withholdings to the IRS; and he was sentenced to 15 years in prison plus three years of supervised release and ordered to pay $18,279,111 in restitution to his victims and $1,177,231 in restitution to the IRS. As alleged in part in the DOJ Release:

Fletcher admitted that from March 2015 to January 2018, he schemed to defraud more than two dozen family members, friends and business associates out of more than $18 million.  Fletcher used those fraudulently obtained funds to purchase a home in Odessa valued at over $1 million; a vacation home in an upscale central Texas resort location; and expensive vehicles to include a Range Rover, Mercedes-Benz and a GMC Yukon Denali.  Fletcher also gambled extensively and took frequent trips to Las Vegas using a private plane.  He went on extravagant hunting trips using fraudulently obtained funds.
. . .

Fletcher also admitted that for the third quarter in 2016, he failed to report and turn over to the IRS approximately $378,437.54 in employee withholdings.
The United States District Court for the Northern District of Texas entered an a Default Judgment against Kenzley Ramos and the Court's Order requires him to pay $27,556 in restitution, a $82,668 civil monetary penalty; and permanently enjoins Ramos from engaging in conduct that violates the Commodity Exchange Act and CFTC regulations, registering with the CFTC, and trading in any CFTC-regulated markets. In a pending, parallel criminal case, Ramos was charged with one count of commodities fraud. Further, the Texas State Securities Board issued an emergency cease and desist order against Ramos on April 17, 2020, alleging securities fraud, misappropriation, and registration violations. As alleged in part in the CFTC Release:

The court's order stems from a 2020 enforcement action that charged Ramos with fraudulent solicitation, misappropriation, operation of an unlawful commodity pool, and failure to register with the CFTC. [See CFTC Press Release No. 8258-20]. The order finds that from at least December 2015 until the present, Ramos fraudulently solicited individuals across the country by using online advertisements and various aliases to further his ongoing scheme. He falsely represented himself as a highly successful and experienced binary options and foreign currency (forex) trader who could profit off market changes related to COVID-19. Ramos offered to pool money investors sent him to trade binary options and forex; rather than trade, however, he  misappropriated the money. Contrary to his solicitations, Ramos had no binary options or forex trading accounts.
In the world of employment litigation, courts often cite the time-honored legal doctrine of "woulda, coulda, shoulda" when dismissing a disgruntled employee's claims. In some cases, the hiring of a lawyer woulda, coulda, shoulda avoided the belated filing or the inarticulate pleading, but, then again, many a pro se litigant will explain that they woulda hired a lawyer if they coulda afforded the fees and shoulda done so but for the fact that they lacked the means. A recent employment lawsuit against JP Morgan / Chase brings all of this into focus.
Once upon a time in Wall Street Regulationland we had so-called "leveraged and inverse" ETFs; now, we have Non-Traditional Exchange Trade Funds (NT-ETFs), which have become FINRA's unloved stepchild. Because of the risks and the complexity of these exotic ETFs, FINRA deems them unsuitable for most retail investors when the investment is held beyond one trading day. Somewhat lost in FINRA's hostility seems to be a recognition, grudging as it might be, that NT-ETFs are legal, approved, and regularly traded. If I want to hold an NT-ETF for two or more trading days, what's it to you? Sometimes I even drink what's in a container of milk beyond the printed expiration date.
Sometime in 2012, Houston Byrd Jr. engaged Wayne Farnsworth, Jr., Brad D. Farnsworth, and Valmark Securities, Inc. to provide him with financial advice and investment services; and in furtherance of that relationship, Byrd wound up purchasing an AIG variable annuity in his Individual Retirement Account. Sadly, the relationship among the parties became contentious and on April 28, 2017, Byrd was informed that no further investments services would be rendered to him and, in essence: Take your business elsewhere. That elsewhere was FINRA's Ombudsman's Office and federal court.