Securities Industry Commentator by Bill Singer Esq

FINRA Arbitration Combines Circular Logic With a Nested Loop and a Mobius Strip in Wage Dispute (BrokeAndBroker.com Blog)

Uber Commits To Changes And Pays Millions To Resolve Justice Department Lawsuit For Overcharging People With Disabilities (DOJ Release)

Oyster Bay Residents Charged with $27 Million Investment Fraud Scheme and Selling Foreign Nationals Access to Prominent U.S. Politicians  / Defendants Attended 2017 Campaign Fundraiser with Foreign Donors and Took Photographs with Then-President of The United States (DOJ Release)

Keller Man Sentenced to 14 Years in Prison and Ordered to Pay $14M in Restitution for Ponzi Scheme (DOJ Release)

SEC Obtains Final Judgment Against Individual in ICO Promotion Scheme; Files Notice of Death as to John McAfee, Resulting in Dismissal of Claims (SEC Release)

Federal Court Imposes Over $29 Million in Restitution and Penalties Against California and Colorado Residents for Binary Options and Forex Fraud, Registration Violations, and Failure to Comply with Commodity Pool Operator Regulations (CFTC Release)

In November 2021, the department filed a lawsuit alleging that Uber violated Title III of the ADA, which prohibits discrimination by private transportation companies like Uber. According to the complaint, in April 2016, Uber began charging passengers wait time fees in a number of cities, eventually expanding the policy nationwide. The wait time fees started two minutes after the Uber car arrived at the pickup location and were charged until the car began its trip. The department's complaint alleged that Uber violated the ADA by failing to reasonably modify its wait time fee policy for passengers who, because of disability, needed more than two minutes to get in an Uber car. Passengers with disabilities may need additional time to enter a car for various reasons. A passenger may, for example, use a wheelchair or walker that needs to be broken down and stored in the car. Or a passenger who is blind may need additional time to safely walk from the pickup location to the car itself. The department's lawsuit alleged that, even when Uber was aware that passengers' need for additional time was clearly disability-based, Uber started charging a wait time fee at the two-minute mark. 

Under the two-year agreement, Uber has committed to waive wait time fees for all Uber riders who certify that they (or someone they frequently travel with) need more time to get in an Uber car because of a disability. Uber also will ensure that refunds are easily available for anyone who does not have a waiver and is charged a wait time fee because of disability. Uber will advertise the wait time fee waiver program and train its customer service representatives on the waiver program and refund process to ensure that people with disabilities are not charged illegal fees. 

 

Additionally, Uber will credit the accounts of more than 65,000 eligible riders who signed up for the waiver program for double the amount of wait time fees they were ever charged, which could amount to potentially hundreds of thousands or millions of dollars in compensation. Uber will also pay $1,738,500 to more than one thousand riders who complained to Uber about being charged wait time fees because of disability, and $500,000 to other harmed individuals identified by the department.

[L]i and Wang orchestrated a nearly decade-long scheme to defraud investors in a fictitious project to develop, build and operate a private educational institution in Sullivan County, New York, called the "Thompson Education Center" (the TEC Project).  The defendants solicited victim-investors, many of them foreign nationals located outside of the United States, by falsely representing the progress they were making on the TEC Project and its support from government officials, including by sending investors and prospective investors promotional materials that included photographs of Li, the TEC Project's President, with prominent U.S. politicians.  Many foreign national victims were persuaded to invest in the TEC Project by, among other things, the defendants' false assurances that their $500,000 investments would guarantee them lawful permanent residence in the United States through the EB-5 investment visa program administered by the Department of Homeland Security, U.S. Citizenship and Immigration Services (USCIS). 

As alleged, instead Li, Wang and other members of the conspiracy siphoned off the money they fraudulently obtained from investors by transferring the funds through bank accounts held in the names of various companies that Li had created.  Once the funds were in those accounts, Li and Wang used the funds to pay for numerous personal expenses including clothing and accessories, jewelry, housing, vacation travel, upscale dining, and political contributions to prominent politicians.  The portion of the invested capital Li and Wang actually spent on the TEC Project was used merely to create and perpetuate the fiction that the TEC Project was a viable development project that was actually under construction.  For example, Li and Wang hired contractors, engineers and other professionals to create architectural drawings and plans and perform minor work on or around the development site, which Li and Wang showed to potential investors to mislead them into believing the TEC Project had a realistic probability of completion and of delivering the returns on investment that the conspirators promised their investors.

As of July 2022, more than 150 investors have invested at least $27 million in the TEC Project, including approximately $16.5 million from EB-5 investors who were promised a green card in return for their investment, and approximately $11 million from stock investors who were promised that an IPO would take place.  As of March 2022, Li, Wang, and their co-conspirators have misappropriated and laundered at least $2 million in TEC Project investor funds.  During this same period, Li, Wang and their co-conspirators spent at least an additional $2.5 million dollars in investor funds on various personal expenses with no clear business purpose, none of which was reported as income to the Internal Revenue Service by Li or Wang.  To date, no EB-5 investor in the TEC Project has received a temporary or permanent green card and the TEC Project has not made an IPO or been listed on any stock exchange.

Selling Access to U.S. Politicians

In furtherance of their scheme, Li and Wang also acted as "straw donors" for foreign nationals to unlawfully contribute to campaigns supporting U.S. politicians and political committees.  Among other things, Li and Wang promised foreign nationals access to U.S. political events and politicians in exchange for a fee.  Li and Wang used the money they received from foreign nationals to fund political contributions, and falsely identified themselves and other U.S. citizens as the contributors of the funds, in violation of the Federal Election Campaign Act (FECA) and FEC regulations.  In some cases, Li and Wang used TEC investors' investment funds to make the political contributions which they used to gain access to the political events, where Li and Wang took photographs with elected officials.  Li and Wang would then use the photographs as a marketing tool in soliciting investments from foreign nationals in the TEC Project.   

For example, as alleged in the complaint, Li and Wang charged twelve foreign nationals $93,000 per person for admission to a June 28, 2017 fundraising event (the June 28, 2017 Fundraiser) with the then-President of the United States.  Li and Wang used the funds that they collected from the foreign nationals to unlawfully make $600,000 in political contributions in their own names-$270,500 from Li and $329,500 from Wang-to the joint fundraising committee hosting the June 28, 2017 Fundraiser.  Li, Wang and their foreign national guests attended the June 28, 2017 Fundraiser and took photographs with the then-President of the United States.  Li and Wang later used a photograph of Li and the President taken at the fundraiser to solicit investment in the TEC Project.

[P]ermian Basin Proppants, Inc. (PBP), a company headquartered in Midland that claims to sell proppants such as sand for fracking operations, i.e., "frac sand." Between 2017 and 2022, Perez used PBP to perpetuate a Ponzi scheme by soliciting investor money based on misrepresentations. During this time, Perez received over $14 million from the scheme. He used most of the funds for his own personal benefit, buying property, vacations, a lavish wedding, and luxury vehicles including a Lamborghini, a Rolls-Royce, a BMW, and a Cadillac Escalade.  Perez also purchased a helicopter.

Perez enticed victims to fund or invest in PBP transactions, promising substantial guaranteed returns on their investment. However, the representations Perez made were based on false and misleading promises, such as promising victims that their investments would be used to purchase frac sand at a discount and that frac sand would then be resold at a profit to fracking operations in and around the Permian Basin. Investors were promised they would receive back their entire investment plus an additional return, often within a relatively short time period. Perez rarely used the investment money to purchase frac sand or complete promised transactions. Instead, he diverted significant amounts of investor money to fund his lifestyle and keep the scheme running, such as by making payments to prior PBP investors.

On October 5, 2020, the SEC filed a complaint alleging that McAfee, with Watson's assistance, promoted investments in ICOs to McAfee's Twitter followers without disclosing that they were paid to do so. The complaint alleged that Watson assisted McAfee by negotiating the promotion deals with the ICO issuers and helping McAfee cash out the crypto payments for the promotions, among other things. McAfee and Watson also allegedly engaged in a separate scheme to profit from a crypto asset security by secretly accumulating a large position in McAfee's accounts, touting that security on Twitter while intending to sell it, and then selling McAfee's holdings as the price rose.

The final judgment against Watson permanently enjoins him from violating Sections 17(a) and (b) and of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder, and orders him to pay disgorgement of $316,401.48 and prejudgment interest of $59,533.38. The final judgment also permanently enjoins him from participating, directly or indirectly, in the issuance, purchase, offer, or sale of any digital asset security, provided, however, that such injunction shall not prevent Watson from purchasing or selling securities for his own personal accounts.

The order imposes [sic] Black, Financial Tree, Financial Solution, New Money, Mancuso, Glenn, and Glenn's law firm obligations to pay nearly $10.5 million in restitution jointly and severally; and Tufo to pay over $4.5 million of that restitution jointly and severally with the other defendants. The order further imposes civil monetary penalties of approximately $5.4 million on Black, Financial Tree, Financial Solution, and New Money; $12.1 million on Mancuso; $680,000 on Tufo; and $850,000 on Glenn and his law firm. Additionally, under the order, the defendants are permanently enjoined from engaging in conduct that violates the Commodity Exchange Act (CEA), registering with the CFTC, and trading in any CFTC-regulated markets. Finally, the order requires seven relief defendants to disgorge over $2.6 million they received from the scheme to which they have no lawful entitlement. The order resolves a CFTC enforcement case filed June 15, 2020. [See CFTC Press Release No. 8197-20]

Case Background

In the order, U.S. District Judge Troy L. Nunley found that from approximately June 15, 2015 to June 15, 2020 the defendants fraudulently solicited members of the public (pool participants) to contribute funds to fraudulent binary options and forex commodity pools; misappropriated millions of dollars of those funds for personal use; made Ponzi payments to existing pool participants with new pool participants' funds; and made false statements to explain their failure to return funds and deliver promised profits. The order further finds the defendants failed to register as CPOs and APs of CPOs, as appropriate, and certain defendants violated multiple requirements applicable to CPOs relating to acceptance and commingling of funds, operation of CPOs as separate entities, and required disclosures to pool participants.

• Securities Industry Commentator
• Bill Singer