Securities Industry Commentator by Bill Singer Esq

FINRA Arbitrators and Federal Courts Consider If A Terminable-At-Will Employee Can Be Wrongfully Terminated (BrokeAndBroker.com Blog)

SEC Charges Two Corporations, Four Individuals, and an Estate Over Allegedly Fraudulent Investment Offerings (SEC Release)

Jury Convicts Southern Illinois University-Carbondale Professor of Concealing Foreign Bank Account from the Internal Revenue Service (DOJ Release)

Salt Lake City Estate Planning Attorney Sentenced to 97 Months in Prison and Ordered to Pay over $12.7 Million Dollars to 26 Victims (DOJ Release)

CEO of Mining Capital Coin Indicted in $62 Million Cryptocurrency Fraud Scheme (DOJ Release)

SEC Halts Fraudulent Cryptomining and Trading Scheme / Founders allegedly promised big returns, instead used investments to fund lavish lifestyles (SEC Release)

SEC Obtains Judgment Requiring Disbarred Attorney to Pay Nearly $1 Million for Violating His Suspension from Appearing or Practicing as an Attorney Before the Commission (SEC Release)

SEC Charges NVIDIA Corporation with Inadequate Disclosures about Impact of Cryptomining (SEC Release)

United States Settles Suit Against VoIP Service Providers for Facilitating Millions of Illegal Telemarketing Calls about COVID-19 (DOJ Release)

Merrill Lynch Associated Person Hit With Over $11 Million in Damages/Fees in FINRA Customer Arbitration

In the Matter of the Arbitration Between Janice J. Compton, Claimant, v. Merrill Lynch Pierce Fenner & Smith Inc. and Thomas Joseph Buck, Respondents (FINRA Arbitration Award)

[B]etween May 2017 and March 2021, TKO Farms and Agravitae raised nearly $20 million from investors through offerings of their securities. The SEC alleges that Owen, who had a history of criminal convictions, regulatory actions, government liens, and a bankruptcy, possessed undisclosed de facto control over both companies and, acting on the two companies' behalf, directly or indirectly recruited and engaged Aguilar, Blaylock, Erskine, and Penhollow, none of whom were registered as a broker or dealer, to solicit investors for the securities offerings. As further alleged, defendants TKO Farms, Agravitae, and Owen misrepresented Owen's history and control over the two companies and the use of investor funds.

Dr. Xiao, a mathematics professor and researcher at Southern Illinois University-Carbondale, was convicted of three counts of Making a False or Fraudulent Statement to the Internal Revenue Service (IRS) on his tax returns and one count of Failure to File a report of a Foreign Bank Account (FBAR). Evidence presented at the trial established that Xiao opened a foreign bank account at Ping An Bank in China in 2016 and received monthly deposits into the account from Shenzhenalo University in Shenzhen, China, from 2016 to 2020. Some of the funds were linked to additional sources in China. By 2020, Xiao had accumulated more than $100,000 in the Chinese account.

U.S. taxpayers are required to report the existence of any foreign bank account on their federal income tax returns. In addition, individuals with funds in foreign accounts totaling more than $10,000 at any time during a given year are required to file an FBAR with the Treasury Department.

[C]urtis admitted that he is an attorney who specialized in special needs trusts and that beginning in January 2008, he began a fraudulent scheme to defraud a client known as "G.M." out of money. Curtis admitted that due to his role, he had access to millions of dollars in two different trust accounts belonging to victim G.M., and that he transferred at least $9,500,000 intended for the care of G.M. into his own accounts, and then used this money for his own personal use. Curtis admitted that he also created fake financial statements and submitted these to the court ordered conservator of G.M. to conceal the fraud.

 

In pleading guilty to the wire fraud charge, Curtis admitted that on January 25, 2018, that he caused a wire communication from a Schwab Investment Account to his own Wells Fargo account, resulting in a transfer of $1,485,000. Curtis admitted that he used the money for his own personal benefit to make mortgage payments on his combined home and office located on South Temple Street in Salt Lake City, Utah; to support a lavish lifestyle with frequent travel; to purchase tickets to basketball and football games; to give lavish gifts to others; and to support the operations of his law firm.  

In pleading guilty to the money laundering count, Curtis admitted that he fraudulently caused $135,000 to be transferred online from G.M. to his own Wells Fargo account, and that he used these funds to wire $95,000 to The Fechtel Company for the remodel of his home in Tampa, Florida. Curtis admitted that he knew these transactions were illegal at the time they occurred, and that the money was not used for the benefit of G.M.

misled investors about MCC's cryptocurrency mining and investment program, under which investors could invest in MCC by purchasing "Mining Packages." Under this program, Capuci and his co-conspirators touted MCC's purported international network of cryptocurrency mining machines as being able to generate substantial profits and guaranteed returns by using investors' money to mine new cryptocurrency. Capuci also touted MCC's own cryptocurrency, Capital Coin, as a purported decentralized autonomous organization that was "stabilized by revenue from the biggest cryptocurrency mining operation in the world." As alleged in the indictment, however, Capuci operated a fraudulent investment scheme and did not use investors' funds to mine new cryptocurrency, as promised, but instead diverted the funds to cryptocurrency wallets under his control.  

. . .

The indictment further alleges that Capuci touted and fraudulently marketed MCC's purported "Trading Bots" as an additional investment mechanism for investors to invest in the cryptocurrency market. Capuci claimed that MCC joined with "top software developers in Asia, Russia, and the U.S.A. to create an improved version of Trading Bot[s] that [were] tested with new technology never seen before." Capuci further represented that MCC's Trading Bots operated in "very high frequency, being able to do thousands of trades per second," and that each of MCC's Trading Bots would generate daily returns for investors. As he did with the Mining Packages, however, Capuci allegedly operated an investment fraud scheme with the Trading Bots and was not, as he promised, using MCC Trading Bots to generate income for investors, but instead was diverting the funds to himself and co-conspirators.  

. . .

Capuci is also alleged to have recruited promoters and affiliates to promote MCC and its various investment programs through a multi-level marketing scheme, commonly known as a pyramid scheme. For successfully luring investors to invest, Capuci promised MCC's network of promoters and affiliates a range of gifts, from Apple watches and iPads to luxury vehicles such as a Lamborghini, Porsche, and even Capuci's personal Ferrari. Capuci further concealed the location and control of the fraud proceeds obtained from investors by laundering the funds internationally through various foreign-based cryptocurrency exchanges. 

[S]ince at least January 2018, MCC, Capuci, and Pires sold mining packages to 65,535 investors worldwide and promised daily returns of 1 percent, paid weekly, for a period of up to 52 weeks. MCC also allegedly represented that the weekly profits were a result of "profit sharing" and that MCC earned profits from its operations involving cryptocurrency mining, trading stocks and foreign exchange, and trading cryptocurrency on digital asset trading platforms through the use of arbitrage trading and semi-automatic robotic trading. The complaint also alleges that, in its early days, MCC investors were promised returns in Bitcoin, but later, defendants required investors to withdraw their investments in tokens called Capital Coin (CPTL), which was MCC's own token. In addition, the complaint alleges that MCC investors were required to redeem their CPTL on Bitchain, a fake crypto asset trading platform Capuci created and managed. However, when investors tried to liquidate their CPTL on Bitchain before their one-year memberships expired, they encountered purported errors that stymied their efforts and were required to either buy another mining package or forfeit their investments.

On April 29, 2022, the Securities and Exchange Commission obtained a judgment against Shawn Hackman, who was previously disbarred by the State of Nevada and suspended by the SEC, ordering him to comply with the SEC's suspension order and to pay nearly $1 million in disgorgement and prejudgment interest for money he earned in violation of the suspension order.

In 2002, the Commission barred Hackman from appearing or practicing before the Commission as an attorney. On June 30, 2021, the SEC filed an application, pursuant to Section 21(e)(1) of the Securities Exchange Act of 1934, alleging that Hackman violated the suspension by (1) drafting and providing legal advice on SEC filings made by scores of companies, and (2) directly communicating with SEC staff on substantive legal issues concerning SEC filings. The application sought an order requiring Hackman to comply with his suspension and disgorgement of money earned in violation of the suspension.

The Court's April 29 judgment found that Hackman violated his SEC suspension by practicing as an attorney before the Commission while employed as a purported paralegal by Nevada attorneys Elaine A. Dowling, Esq. and Harold P. Gewerter, Esq. It also ordered Hackman to comply with the SEC suspension order and to make the nearly $1 million payment noted above.

In 2021, the Commission issued orders denying Dowling and Gewerter the privilege of appearing or practicing as attorneys before the Commission, finding that they engaged in improper professional conduct by allowing and enabling Hackman to appear and practice before the SEC in violation of his suspension (and his Nevada disbarment) while they employed him as a purported paralegal.

[D]uring consecutive quarters in NVIDIA's fiscal year 2018, the company failed to disclose that cryptomining was a significant element of its material revenue growth from the sale of its graphics processing units (GPUs) designed and marketed for gaming. Cryptomining is the process of obtaining crypto rewards in exchange for verifying crypto transactions on distributed ledgers. As demand for and interest in crypto rose in 2017, NVIDIA customers increasingly used its gaming GPUs for cryptomining.

In two of its Forms 10-Q for its fiscal year 2018, NVIDIA reported material growth in revenue within its gaming business. NVIDIA had information, however, that this increase in gaming sales was driven in significant part by cryptomining. Despite this, NVIDIA did not disclose in its Forms 10-Q, as it was required to do, these significant earnings and cash flow fluctuations related to a volatile business for investors to ascertain the likelihood that past performance was indicative of future performance. The SEC's order also finds that NVIDIA's omissions of material information about the growth of its gaming business were misleading given that NVIDIA did make statements about how other parts of the company's business were driven by demand for crypto, creating the impression that the company's gaming business was not significantly affected by cryptomining.

[F]lorida-based VoIP Terminator, Virginia-based BLMarketing and Pakistan resident and citizen Khan violated the FTC Act and the FTC's Telemarketing Sales Rule (TSR). The defendants violated the TSR by assisting and facilitating the transmission of illegal calls for their customers, continuing to do so even after learning that their services were being used to initiate calls to numbers on the Do Not Call Registry and to place spoofed robocalls. The complaint alleges that the illegal calls transmitted by defendants included recorded messages about air duct cleaning services that purportedly filtered out COVID-19, preying on consumers' fears of the virus, as well as messages involving credit card interest rate reduction and tech support scams.

The stipulated order bars the defendants from similar misconduct in the future, requires them to screen and monitor customers, terminate customers if they are engaged in improper telemarketing activity and imposes a $3.2 million civil penalty, payment of which is suspended due to defendants' inability to pay. This is the FTC's third case against VoIP services providers.

• Securities Industry Commentator
• Bill Singer