Securities Industry Commentator by Bill Singer Esq

Makin' It Rain At The Strip Club -- FINRA Goes After Adult Entertainment Charges (BrokeAndBroker.com Blog)

United States Sells Unique Wu-Tang Clan Album Forfeited by Convicted Hedge Fund Manager Martin Shkreli / Defendant Forfeited His Interest in the Album, "Once Upon a Time in Shaolin," Following Conviction for Engaging in Securities Fraud Schemes / Proceeds from the Sale Will be Applied to Forfeiture Money Judgment Against Shkreli / United States Sells Unique Wu-Tang Clan Album Forfeited by Convicted Hedge Fund Manager Martin Shkreli (DOJ Release)

SEC Charges 27 Financial Firms for Form CRS Filing and Delivery Failures (SEC Release)

Testimony Before the Subcommittee on Financial Services and General Government, U.S. House Appropriations Committee (SEC Chair Gary Gensler)

NYS Court Finds No Employment Status at AXA

In the Matter of the Claim of Dennis Lee, Appellant. AXA Advisors LLC, Respondent. Commissioner of Labor, Respondent) (NYS Appellate Division)

Earlier today, the United States sold the sole copy of the Wu-Tang Clan album "Once Upon a Time in Shaolin" (the "Album") which had previously been ordered to be forfeited as a substitute asset in connection with the approximately $7.4 million forfeiture money judgment (Forfeiture Money Judgment) entered against Shkreli at his March 2018 sentencing.  Proceeds from the sale of the Album will be applied to satisfy the outstanding balance owed on the Forfeiture Money Judgment.  The contract of sale contains a confidentiality provision that protects information relating to the buyer and price.

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Shkreli was the founder and managing member of hedge funds MSMB Capital Management LP and MSMB Healthcare Management LP and the former Chief Executive Officer of Retrophin Inc. ("Retrophin"), a publicly traded biopharmaceutical company.  Following a six-week trial in federal court in Brooklyn, Shkreli was convicted in August 2017 of two counts of securities fraud and one count of securities fraud conspiracy for orchestrating a series of schemes to defraud investors in the hedge funds and to manipulate the price and trading volume of Retrophin's stock.  United States District Judge Kiyo A. Matsumoto sentenced Shkreli to seven years' imprisonment, to be followed by three years' supervised release, and ordered him to pay the Forfeiture Money Judgment, approximately $388,000 in restitution and a $75,000 fine.  Judge Matsumoto also ordered Shkreli to forfeit the Album and other substitute assets to satisfy the Forfeiture Judgment. 

Shkreli's conviction and sentence, including the imposition of the Forfeiture Money Judgment, were affirmed by the U.S. Court of Appeals for the Second Circuit in July 2019.  Following the U.S. Supreme Court's denial of Shkreli's request for further review of his conviction and sentence, the government seized the Album and other assets owed by Shkreli.   

At the time Shkreli purchased the Album in 2015, it was marketed as "both a work of art and an audio artifact."  The Album includes a hand-carved nickel-silver box as well as a leather-bound manuscript containing lyrics and a certificate of authenticity.  The Album is subject to various restrictions, including those relating to the duplication of its sound recordings. In September 2017, just weeks after his conviction but before the district court-imposed forfeiture, Shkreli attempted to sell the Album through an on-line auction.

The SEC's orders find that the investment advisers violated Section 204 of the Investment Advisers Act of 1940 and Advisers Act Rules 204-1 and 204-5, and that the broker-dealers violated Section 17(a)(1) of the Securities Exchange Act of 1934 and Exchange Act Rule 17a-14.  Without admitting or denying the findings, the firms agreed to be censured, to cease and desist from violating the charged provisions, and to pay the following civil penalties:

[C]laimant did not have a set work schedule or work location, he was not assigned a sales territory and did not have to turn in any reports. Claimant was not supervised, could work from home and could use his own computer. Claimant had to pay for the cost of his liability insurance and was not paid for any expenses. AXA required reimbursement from claimant for the cost of business cards and stationery and claimant had to pay for the use of AXA's clerical staff and office space. Claimant was responsible for developing his own client base and, although AXA would sometimes provide a sales lead, claimant testified that he did not have to pursue it. Claimant determined what products best suited his clients' needs and he could sell the products of AXA's competitors. AXA did provide claimant with promotional materials, and claimant was paid by commission, with the commission rate set by AXA or whichever company offered the product that he sold to the client.

In light of the foregoing, substantial evidence supports the Board's finding that AXA did not exercise sufficient control over claimant under the 1996 agreement to establish an employment relationship with claimant and those similarly situated (see Matter of Spielberger [Commissioner of Labor], 122 AD3d 998, 999 [2014]; Matter of Jarzabek [Carey Limousine, N.Y.-Commissioner of Labor], 292 AD2d 668, 669 [2002], lv denied 98 NY2d 606 [2002]). To the extent that the record demonstrates that some indicia of control by AXA was mandated by Financial Industry Regulatory Authority rules, such evidence alone is not dispositive of an employer-employee relationship (see Matter of Crystal [Medical Delivery Servs.-Commissioner of Labor], 150 AD3d 1595, 1596 [2017]; Matter of Bogart [LaValle Transp., Inc.-Commissioner of Labor], 140 AD3d 1217, 1218-1219 [2016]). Claimant's remaining arguments concerning the circumstances surrounding his termination and his claim that AXA owes him compensation for unpaid commissions are not properly before this Court.

• Securities Industry Commentator
• Bill Singer