Securities Industry Commentator by Bill Singer Esq

GUEST BLOG: [In]Securities: Watching You: The SEC Walks the Beat by Aegis Frumento Esq (BrokeAndBroker.com Blog)

5Cir Sustains SEC's No-Deny Precondition for Settlements

Securities and Exchange Commission, Plaintiff/Appellee, v. Christopher A. Novinger; ICAN Investment Group, L..L.C., Defendants/Appellants (Opinion, United States Court of Appeals for the Fifth Circuit, No. 21-10985 / July 12, 2022)

Felony Lane Gang Member Sentenced to Federal Prison for Role in Bank Fraud Scheme (DOJ Release)

SEC Charges Four Unregistered Brokers Who Sold Sky Group Securities (SEC Release)

SEC Denies Award To Whistleblower Claimant

Order Determining Whistleblower Award Claims

SEC Denies Award To Whistleblower Claimant

Order Determining Whistleblower Award Claims

SEC Denies Award To Whistleblower Claimant

Order Determining Whistleblower Award Claims

SEC Awards Over $3 Million To Whistleblower Claimant

Order Determining Whistleblower Award Claims

SEC Awards Over $3 Million To Whistleblower Claimant

Order Determining Whistleblower Award Claims

FINRA Arbitration Panel Cuts Promissory Note Baby in Half in Edgy Award

Gregory Samuel Manto, Claimant, v. Andrew Harris Lindenberg, Respondent (FINRA Arbitration Award)

Boustead Securities Survives Motion to Dismiss in Success Fee Dispute (BrokeAndBroker.com Blog)

Guest Blog: Fair Credit Reporting Act (FCRA) and Regulation S-P by Regulated or Aggrieved (BrokeAndBroker.com Blog)

The defendants settled a civil enforcement action that the Securities and Exchange Commission ("SEC") brought against them for alleged securities violations. Following its standard policy, the SEC barred the defendants from denying that they engaged in the charged conduct as a condition of settlement (the "no-deny policy"). The parties executed consent agreements containing provisions to that effect and submitted them to the district court, which entered final judgments. Five years later, the defendants filed a motion under Rule 60(b)(4) and 60(b)(5) seeking relief from the final judgments to the extent that they incorporated the no-deny policy. They argued that the no-deny policy violates their First Amendment and due process rights. The district court denied the motion, and the defendants appealed. For the reasons that follow, we AFFIRM.

Edith H. Jones, Circuit Judge, joined by Duncan, Circuit Judge, concurring: 

I am pleased to concur in my colleague's opinion denying relief on these defendants' post-judgment motions. I write to note that nothing in the opinion (or in the district court opinion, for that matter) approves of or acquiesces in the SEC's longstanding policy that conditions settlement of any enforcement action on parties' giving up First Amendment rights. 17 C.F.R. § 202.5(e). If you want to settle, SEC's policy says, "Hold your tongue, and don't say anything truthful--ever"-or get bankrupted by having to continue litigating with the SEC. A more effective prior restraint is hard to imagine. The defendants' brief informed us that a petition to review and revoke this SEC policy was filed nearly four years ago. New Civil Liberties Alliance, Petition to Amend (Oct. 30, 2018), available at http://bit.ly/2xfFD3Z. However, SEC never responded to the petition. Given the agency's current activism, I think it will not be long before the courts are called on to fully consider this policy

[M]ills was a member of the Felony Lane Gang, an interstate criminal organization based in Florida that traveled to locations throughout the U.S. to commit vehicle break-in and fraud sprees. The organization targeted female victims who would leave their purses, wallets, and valuables in parked cars. After victims exited their vehicles-often to drop off children, run errands, or visit a gym-Felony Lane Gang members would break into the vehicles to steal targeted items. After the theft, the gang members quickly deployed associates to conduct fraudulent bank or merchant transactions using their victims' stolen identification, checks, and credit or debit cards.

In the fall of 2019, Mills led a group of individuals who traveled to Portland to target local victims. Once Mills and his accomplices stole items from a vehicle, they checked to see if one of several female co-conspirators resembled the victim. If one of their female co-conspirators could impersonate the victim, they would attempt to cash fraudulent checks written in the impersonated victim's name. The co-conspirators would cash checks at various local banks, using the outer-most lane of each bank's drive-up teller window to avoid detection.

Investigators identified 32 vehicle thefts and 22 instances of bank fraud committed during Mills' most recent known Oregon crime spree. In total, this spree resulted in a financial loss of more than $98,000. After Mills left Portland, he and a co-conspirator-Damian Fletcher, 27, of Fort Lauderdale, Florida-travelled to Denver, Colorado where they continued breaking into cars and stealing identities.

The Securities and Exchange Commission today announced charges against four individuals for unlawfully selling securities of Sky Group USA, LLC, a payday loan company based in Miami, Florida. The SEC previously charged Sky Group and its owner and CEO with fraudulently raising at least $66 million through the sale of securities in the form of promissory notes to more than 500 retail investors, including many members of the South Florida Venezuelan-American community.

The SEC's complaints allege that Manuel Alvis, Joseph Boulos, Carlos Pingarron, and Carlos Sorondo, four of Sky Group's top-selling sales agents, collectively offered and sold more than $25 million in Sky Group's unregistered promissory notes to at least 346 investors. According to the complaints, the defendants marketed the promissory notes to investors. The defendants collectively earned millions of dollars in commissions on their sales, even though they were not registered as broker-dealers or associated with registered broker-dealers.

[T]he CRS concluded that Enforcement staff had already opened the investigation that led to the Covered Action approximately four years before Claimant submitted his/her information, and that Claimant's information was otherwise vague, insubstantial, and did not warrant any further investigative efforts by the staff. The CRS also determined that the staff did not use any information from Claimant's submission. 

[T]he CRS concluded that Claimant's information did not either (1) cause the Commission to (a) commence an examination, open or reopen an investigation, or inquire into different conduct as part of a current Commission examination or investigation, and (b) thereafter bring an action based, in whole or in part, on conduct that was the subject of claimant's information, pursuant to Rule 21F-4(c)(1); or (2) significantly contribute to the success of a Commission judicial or administrative enforcement action under Rule 21F-4(c)(2) of the Exchange Act. The CRS determined that the investigation that led to the Covered Action was opened and pursued as a result of referrals from another regulatory agency (the "Other Agency"). The CRS also determined that Claimant's information did not significantly contribute to the Covered Action and consisted primarily of publicly available information, information already known to the staff, or information that was otherwise vague and unsubstantiated. 

The CRS also concluded that Claimant did not qualify for an award because Claimant's information was provided before July 21, 2010, the date of the enactment of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the "Dodd-Frank Act"), and thus did not constitute original information within the meaning of Section 21F(b)(l) of the Exchange Act and Rules 21F-3(a)(2) and 21F-4(b)(1)(iv) thereunder. The CRS determined that Claimant's whistleblower application was based on emails sent to the Commission and other agencies beginning in Redacted The record before the CRS demonstrated that Claimant's information provided to the Commission after July 21, 2010 was already known to the staff, publicly available, or contained general or vague allegations of wrongdoing that were unsubstantiated and did not lead to the success of the Covered Action under Rule 21F-4(c)(2) of the Exchange Act.

[R]ule 21F-9(a) requires a whistleblower to submit information through the Commission's online Tips, Complaint, or Referral ("TCR") portal, or by mailing or faxing a Form TCR to the Commission's Office of the Whistleblower. Claimant's whistleblower application stated that Claimant submitted information to the Commission by email on or about Redacted but Claimant did not cite to any specific TCR submission. The CRS concluded that Claimant did not submit any information pursuant to these procedures until Redacted 

The CRS also concluded that Claimant did not qualify for an award because Claimant did not provide information to the Commission that led to the successful enforcement of the Covered Action. The CRS concluded that none of the information submitted by Claimant either (1) caused the Commission to (a) commence an examination, open or reopen an investigation, or inquire into different conduct as part of a current Commission examination or investigation, and (b) thereafter bring an action based, in whole or in part, on conduct that was the subject of claimant's information, pursuant to Rule 21F-4(c)(1); or (2) significantly contributed to the success of a Commission judicial or administrative enforcement action under Rule 21F-4(c)(2) of the Exchange Act. The record demonstrated that Enforcement staff opened the investigation that led to the Covered Action (the "Investigation") on Redacted based upon a source other than the Claimant, that Claimant submitted his/her Form TCR almost three years after the Investigation was opened, and that staff responsible for the Investigation confirmed that Claimant's information was not used in the Investigation or the resulting litigated enforcement action in any way.

[C]laimant, an outside professional, was solicited to invest in a product that Claimant believed was being misrepresented. Claimant expeditiously contacted Commission staff to alert them of the conduct. Claimant's information prompted the opening of an investigation, and thereafter, Claimant communicated with Commission staff concerning Claimant's allegations.

[C]laimant, an insider, raised concerns internally, and thereafter submitted a detailed tip that prompted the opening of the investigation, met with the Enforcement staff multiple times, identified key witnesses and documents, and provided supplemental information during the investigation.

Respondent brought certain clients from his previous position at AXA Advisors, LLC to Iron Birch Advisors. Upon Respondent's written request, Claimant must promptly supply

Respondent with the current contact information for all clients Respondent brought with him from AXA Advisors, LLC to Iron Birch Advisors. No later than 60 days from the date Respondent receives the contact information from Claimant, Respondent may inform those clients of his new firm. Respondent may not solicit any of those clients but may only inform them of the name of his new firm and his contact information. Any clients who wish to follow Respondent to his new firm may do so without Respondent or the clients incurring any liability to Claimant, Iron Birch Advisors, or Ameriprise Financial Services, Inc. so long as Respondent has limited his communication to the clients as herein circumscribed.

Respondent may not contact any clients who are in any book of business he purchased in whole or in part from Iron Birch Advisors or any advisors of Iron Birch. The Panel has awarded Respondent $19,700.00 on his Counterclaim in item 3, which is the amount he paid to purchase his portions of two books of business at Iron Birch Advisors.

• Securities Industry Commentator
• Bill Singer