The Wall Street Legal & Regulatory Feed
Securities Industry Commentator by Bill Singer Esq
November 14, 2022
DOJ RELEASES
SEC RELEASES
SEC Charges S&P Global Ratings with Conflict of Interest Violations (SEC Release)
CFTC RELEASES
= = =
11/14/2022
To Err Is Human. To Forgive Is A FINRA Fine. (BrokeAndBroker.com Blog)
https://www.brokeandbroker.com/6756/finra-mistake-awc/
When a government prosecutes criminal misconduct, the Defendant is protected by constitutional and due process rights. When a non-governmental actor like FINRA pursues industry misconduct, however, a Respondent is often deprived of constitutional and due process rights. That distinction explains why courts generally allow for the imposition of penalties in criminal cases but only the imposition of sanctions in civil and regulatory cases. All of which explains why alarms go off when FINRA imposes what it calls a sanction but what others might view as a penalty, as demonstrated in a recent FINRA regulatory settlement.
Watertown Man Arrested in Connection with African Sports Investment Fraud Scheme (DOJ Release)
https://www.justice.gov/usao-ma/pr/watertown-man-arrested-connection-african-sports-investment-fraud-scheme
https://www.justice.gov/usao-ma/pr/watertown-man-arrested-connection-african-sports-investment-fraud-scheme
-and-
SEC Charges Massachusetts Resident with Conducting $2 Million Fraudulent Investment Offering (SEC Release)
https://www.sec.gov/litigation/litreleases/2022/lr25577.htm
https://www.sec.gov/litigation/litreleases/2022/lr25577.htm
In the United States District Court for the District of Massachusetts, Adrian J. Kawuba was charged with one count of wire fraud. As alleged in part in the DOJ Release:
[K]awuba told his investors that he would invest their money in short-term financing of sports ventures in Africa and elsewhere overseas and that he would personally guarantee their investments. It is alleged however, that Kawuba did not invest any of the funds he received from victim investors. Instead, Kawuba allegedly used the money to pay for luxury goods and to pay purported returns to his investors - in some instances paying back an investor's earlier investment with money that investors had just sent Kawuba for a new investment.
In the United States District Court for the District of Massachusetts, the SEC filed a Complaint charging Adrian J. Kawuba
https://www.sec.gov/litigation/complaints/2022/comp25577.pdf
https://www.sec.gov/litigation/complaints/2022/comp25577.pdf
with violating the antifraud provisions of Section 17(a) of the Securities Act and Section 10(b) of the Securities Exchange Act and Rule 10b-5 thereunder; and, the District Court entered an Order granting a temporary restraining order, asset freeze, and other emergency relief. Parallel criminal charges alleging wire fraud were filed against Kawuba. As alleged in part in the SEC Release:
Kawuba allegedly raised approximately $2 million from investors in a Ponzi scheme. According to the SEC's complaint, unsealed today, Kawuba promised investors they would receive returns of 25% to 50% in as little as twelve days to seven months and told investors he would use their money to finance lucrative short-term projects related to youth sports, entertainment events, and private soccer clubs. In fact, as alleged in the complaint, Kawuba used money from later investments to pay out on earlier investments, and he misappropriated investor money to pay for personal travel to the Greek islands and other destinations, to purchase a luxury automobile, and to buy tens of thousands of dollars' worth of designer goods at fashion and jewelry stores.
https://www.sec.gov/news/press-release/2022-205
https://www.sec.gov/litigation/admin/2022/34-96308.pdf, with issuing and maintaining credit ratings in violation of rules promulgated under the Securities Exchange Act. Without admitting or denying the findings in the SEC Order, S&P agreed to settle this matter by paying a $2.5 million penalty and agreeing to the entry of a cease-and-desist order, a censure, and compliance with certain undertakings. registered with the Commission, with violating conflict of interest rules designed to prevent sales and marketing considerations from influencing credit ratings. As alleged in part in the SEC Release:
The SEC's order finds that an issuer engaged S&P to rate a jumbo residential mortgage backed security transaction in July 2017. Over a five-day period in August 2017, S&P commercial employees-employees responsible for managing the relationship with the issuer-on several occasions attempted to pressure the S&P analytical employees-employees responsible for evaluating and assigning the rating-to rate the transaction consistent with preliminary feedback the analytical employees had given the customer that turned out to include a calculation error. Despite sending the communications through the compliance department as required by S&P's policies and procedures at that time, some emails sent by the S&P commercial employees to the S&P analytical team contained statements reflecting sales and marketing considerations. The order finds that, as a result of the content, urgent nature, high volume, and compressed timing of the communications, the S&P commercial employees became participants in the rating process during a time when they were influenced by sales and marketing considerations.. . .After discovering the circumstances surrounding the rating of the transaction, S&P self-reported the conduct at issue to the SEC, cooperated with the SEC's investigation, and took remedial steps to enhance its conflicts of interest policies and procedures.
LedgerX Withdraws Clearing Application (CFTC Release)
https://www.cftc.gov/PressRoom/PressReleases/8626-22
Washington, D.C. - On Friday, November 11, 2022, counsel for LedgerX LLC, d/b/a FTX US Derivatives (FTX), submitted to the Commodity Futures Trading Commission's Division of Clearing and Risk a formal withdrawal of FTX's request, originally submitted on December 6, 2021, to amend FTX's Amended Order of Registration as a derivatives clearing organization to allow FTX to offer products that are not fully collateralized. The application was not approved.