Securities Industry Commentator by Bill Singer Esq

July 12, 2021


Order on Promoting Competition in the American Economy (White House Press Release)

Federal Court Permanently Bans and Imposes an over $300,000 Penalty Against Foreign Trading Platform for Offering Illegal Leveraged Transactions in Ether, Litecoin, Bitcoin and Precious Metals (CFTC Release)

SEC Charges TheBull with Selling "Insider Trading Tips" on the Dark Web (SEC Release)

Wasted Time By FINRA Regulatory Notice (BrokeAndBroker.com Blog)
http://www.brokeandbroker.com/5944/finra-regulatory-notice/
FINRA's lackluster Board of Governors demonstrates no interest in prompting a more aggressive and effective regulatory protocol. By design or default, FINRA's Board is socially engineering an industry dominated by fewer, large firms and endangered by too many shady, smaller ones. It is the worst of both worlds where power is unchecked and fraud tolerated. Instead of formulating an effective regulatory agenda that combines more timely retroactive enforcement with proactive antifraud efforts, FINRA persists in offering a simulacrum of regulation. Among FINRA's worst sins is that it is an organization for which everything, no matter how inconsequential or half-assed, prompts a press release or formal notice. Worse, the endless stream of useless communications are routed to compliance professionals, whose time is wasted by being forced to read about nothing of value.

https://www.whitehouse.gov/briefing-room/presidential-actions/2021/07/09/executive-order-on-promoting-competition-in-the-american-economy/
In part, the Executive Order states:

The problem of economic consolidation now spans these sectors and many others, endangering our ability to rebuild and emerge from the coronavirus disease 2019 (COVID-19) pandemic with a vibrant, innovative, and growing economy.  Meanwhile, the United States faces new challenges to its economic standing in the world, including unfair competitive pressures from foreign monopolies and firms that are state-owned or state-sponsored, or whose market power is directly supported by foreign governments.

We must act now to reverse these dangerous trends, which constrain the growth and dynamism of our economy, impair the creation of high-quality jobs, and threaten America's economic standing in the world. 

This order affirms that it is the policy of my Administration to enforce the antitrust laws to combat the excessive concentration of industry, the abuses of market power, and the harmful effects of monopoly and monopsony - especially as these issues arise in labor markets, agricultural markets, Internet platform industries, healthcare markets (including insurance, hospital, and prescription drug markets), repair markets, and United States markets directly affected by foreign cartel activity.

It is also the policy of my Administration to enforce the antitrust laws to meet the challenges posed by new industries and technologies, including the rise of the dominant Internet platforms, especially as they stem from serial mergers, the acquisition of nascent competitors, the aggregation of data, unfair competition in attention markets, the surveillance of users, and the presence of network effects.

https://www.cftc.gov/PressRoom/PressReleases/8408-21
The United States District Court for the Southern District of Texas entered a Default Order against Laino Group Limited d/b/a PaxForex  https://www.cftc.gov/media/6166/enfpaxforexorder070921/download
that imposes permanent trading, solicitation, and registration bans against PaxForex entering into transactions involving commodity interests and prohibits it from violating cited provisions of the Commodity Exchange Act; and, further, requires the defendant to pay a civil monetary penalty of $374,864. As alleged in part in the CFTC Release:

The order, entered on June 30, 2021, stems from a CFTC complaint filed on September 24, 2020, that charged PaxForex with engaging in illegal, off-exchange transactions in Ether, Litecoin and Bitcoin, in addition to precious metals and foreign currency, with retail customers on a leveraged, margined, or financed basis and acting as a futures commission merchant (FCM) without CFTC registration as required. [See CFTC Press Release No. 8256-20] 

The order finds that from at least March 2018 through the present, PaxForex offered or engaged in unlawful retail commodity transactions in Ether, Litecoin, Bitcoin, gold, and silver. The defendant violated the CEA by failing to conduct these transactions subject to the rules of a board of trade that had been designated or registered with the CFTC as a contract market.

The order further finds that PaxForex, through its employees and agents, acted as an FCM by soliciting or accepting orders for retail commodity and foreign currency transactions and acting as a counterparty for these transactions; and in connection with these activities, it accepted money, securities, or property (or extended credit in lieu thereof) in the form of Bitcoin and other assets to margin trades or contracts that resulted or may have resulted.

SEC Charges TheBull with Selling "Insider Trading Tips" on the Dark Web (SEC Release)
https://www.sec.gov/news/press-release/sec-charges-thebull-selling-insider-trading-tips-dark-web
https://www.sec.gov/litigation/complaints/2021/comp-pr2021-122.pdf
In a Complaint filed in the United States District Court for the Southern District of New York
the SEC charged Apostolos Trovias with violating the antifraud provisions of the federal securities laws. A parallel criminal case was filed against Trovias. As alleged in part in the SEC Release:

[F]rom at least December 2016 through early 2021, Trovias-operating under the pseudonym "TheBull"-engaged in a deceptive scheme to offer and sell so-called "insider trading tips" on Dark Web marketplaces to purchasers whom Trovias offered an unfair advantage for trading securities in the public markets. As alleged in the complaint, Trovias claimed that the information he was selling consisted of order-book data from a securities trading firm that was provided to Trovias by an employee of the firm. Trovias allegedly sold those "tips" through one-off sales, as well as weekly and monthly subscriptions. Trovias allegedly sold over 100 subscriptions to investors via the Dark Web over the course of the scheme. The complaint alleges that, in addition to order-book information, Trovias sold the pre-release earnings reports of publicly traded companies. The complaint further alleges that Trovias acknowledged to federal authorities that this information was "sensitive and more importantly illegal to use or share."

SEC Charges Three Individuals with Insider Trading (SEC Release)
https://www.sec.gov/news/press-release/2021-121
In a Complaint filed in the United States District Court for the Southern District of New York
https://www.sec.gov/litigation/complaints/2021/comp-pr2021-121.pdf, the SEC charged
The SEC's complaint charges Watson, Barret-Lindsay, and Giguiere with violating Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder, and seeks permanent injunctions and civil penalties as to all defendants, and, additionally, an officer and director bar as to Eric Watson, Oliver Barret-Lindsay and Gannon Giguiere for their role in a stock manipulation scheme. Lindsay and Giguiere pled guilty to criminal charges in a related matter.  Additionally, on Feb. 19, 2021, pursuant to Section 12(j) of the Exchange Act, the SEC revoked the registration of the securities of Long Blockchain Company f/k/a "Long Island Iced Tea Co." As alleged in part in the SEC Release:

[E]ric Watson, an undisclosed control person of Long Blockchain who helped drive this business change within the company and signed a confidentiality agreement not to disclose the company's business plans, tipped his friend and broker, Oliver Barret-Lindsay, of such plans, including by sharing with him a draft of the company's press release. Barret-Lindsay, in turn, allegedly passed the material nonpublic information on to his friend, Gannon Giguiere. Within hours of receiving this confidential information, Giguiere purchased 35,000 shares of Long Blockchain stock. According to the complaint, the company's stock price skyrocketed after the press release was issued, spiking more than 380% intraday.  Within two hours of the announcement, Giguiere sold his shares for over $160,000 in illicit profits.

I. SEC Denies Award to Whistleblower
Order Determining Whistleblower Award Claim ('34 Act Release No. 34-92355; Whistleblower Award Proc. File No. 2021-67)
https://www.sec.gov/rules/other/2021/34-92355.pdf
The SEC's Claims Review Staff ("CRS") issued a Preliminary Determination recommending the denial of a Whistleblower Award to Claimant, who contested the denial. The Commission ordered that Claimant's application be denied. The Order asserts in part that [Ed: footnotes omitted]:

To qualify for an award under Section 21F of the Exchange Act, a whistleblower must voluntarily provide the Commission with original information that leads to the successful enforcement of a covered action. We find that Claimant's information was (i) not provided "voluntarily," (ii) not "original information" to the extent it was first provided to the Commission prior to July 21, 2010, and (iii) did not lead to the successful enforcement of the Covered Action to the extent it was provided on or after July 21, 2010.

II. SEC Denies Award to Whistleblower
Order Determining Whistleblower Award Claim ('34 Act Release No. 34-92356; Whistleblower Award Proc. File No. 2021-68)
https://www.sec.gov/rules/other/2021/34-92356.pdf
The SEC's Claims Review Staff ("CRS") issued a Preliminary Determination recommending the denial of a Whistleblower Award to Claimant, who contested the denial. The Commission ordered that Claimant's application be denied. The Order asserts in part that [Ed: footnotes omitted]:

Claimant's information regarding Company B does not satisfy Exchange Act Rule 21F4(c)(1), because the information did not cause staff in the Division of Enforcement to open the Underlying Investigation. The staff responsible for the Underlying Investigation has confirmed that neither the investigation, nor Redacted analysis, which prompted the investigation, were opened based on any information provided by Claimant. Rather, the Redacted analysis was opened based on Redacted.

Claimant's information also did not contribute to the success of the Covered Action under Exchange Act Rule 21F-4(c)(2). Claimant's Company B tip was assigned to Enforcement staff in a Regional Office in connection with their investigation into Company B. Enforcement staff in the Regional Office attested in a declaration, which we credit, that they did not find evidence to substantiate the Claimant's allegations, closed the Company B investigation without recommending that the Commission bring an enforcement action, and did not forward Claimant's information to the Enforcement staff responsible for the Underlying Investigation and had no communications with them about Claimant's information. 

There is no nexus between Claimant's information and the Covered Action. Claimant's tip contained no allegations about Company A. The Enforcement staff responsible for the Covered Action and the Underlying Investigation did not receive Claimant's information directly or indirectly. Claimant's allegations about Company B do not entitled *** to award eligibility for an enforcement action involving Company A's Redacted 

As for the news article's mention of three "overlapping investigations," even if the subject matter of the Company B investigation and the Underlying Investigation "overlapped," Claimant would not be entitled to an award unless the information provided was used by the staff involved in the Underlying Investigation and Covered Action. Here, it was not.

III. SEC Denies Award to Whistleblower
Order Determining Whistleblower Award Claim ('34 Act Release No. 34-92357; Whistleblower Award Proc. File No. 2021-69)
https://www.sec.gov/rules/other/2021/34-92357.pdf
The SEC's Claims Review Staff ("CRS") issued a Preliminary Determination recommending the denial of a Whistleblower Award to Claimant, who contested the denial. The Commission ordered that Claimant's application be denied. The Order asserts in part that [Ed: footnotes omitted]:

Claimant, as noted, submitted a tip to the Commission approximately two and a half years after the Investigation was opened; thus it did not cause the staff to open the Investigation that resulted in the Covered Action. Claimant does not dispute this.

Since the Investigation had already been opened by the time Claimant submitted a tip, the submission can only be deemed to have led to the success of the Covered Action if it "significantly contributed to the success of the action." We find, based on the evidence in the record, including a declaration from the responsible investigative staff, which we credit, that Claimant's information did not make a substantial and important contribution to the success of the Covered Action by, for example, allowing the Commission to bring the Covered Action in significantly less time or with significantly fewer resources, or to bring additional successful claims or successful claims against additional individuals or entities. Rather, the responsible investigative staff determined, based not only on Claimant's submission, but also on communications with other law enforcement agencies with whom Claimant was cooperating, that Claimant's information primarily related to Redacted, which was unrelated to what was being investigated by the staff (* * * ). As the Investigation staf stated, "[w]hile [Claimant] provided limited information regarding the Redacted under investigation, the information was vague and non-specific and it did not contribute to the . . . Investigation." This limited information, the staff noted, 'basically stated that [Claimant]  heard Redacted , without providing any other detail or context." 

Moreover, by the time the staff received Claimant's tip, it was already aware of this information from other sources. The Investigation staff concluded that "[n]one of the information provided by [Claimant] helped advance the . . . Investigation and [n]one of [Claimant]'s information was used in, or had any impact, on the charges brought by the Commission" in the Covered Action. Accordingly, Claimant did not provide information to the Commission that led to the success of the Covered Action and, therefore, Claimant is not eligible to receive a whistleblower award.