Securities Industry Commentator by Bill Singer Esq

Time To Overhaul SEC Whistleblower Program (BrokeAndBroker.com Blog)

Nigerian National Sentenced To More Than Six Years In Federal Prison For International Tax Fraud Scheme (DOJ Release)

Four Men Arrested In Transnational Wire Fraud And Identity Theft Conspiracy (DOJ Release)

ABB Agrees to Pay Over $315 Million to Resolve Coordinated Global Foreign Bribery Case/ ABB Subsidiaries in Switzerland and South Africa plead guilty to bribery conspiracy (DOJ Release)

SEC Charges Seven Parties in a Combination Pump-And-Dump and Securities Offering Scheme (SEC Release)

AT&T Settles SEC Charge of Selectively Disclosing Material Information to Wall St. Analysts / Company Agrees to Pay a Record Penalty in Regulation FD Cases of $6.25 Million (SEC Release)

ABB Settles SEC Charges that it Engaged in Bribery Scheme in South Africa / Global technology company ordered to pay $460 million total to U.S. authorities to settle criminal and civil charges (SEC Release)

FINRA Fines and Suspends Rep for Discretion But Offers No Helpful Guidance

In the Matter of Patrick A. Perugino, Respondent (FINRA AWC)

[L]evinson was the leader of a scheme that attempted to defraud the United States government of more than $63 million through the filing of false and fraudulent tax returns in the names of hundreds of identity theft victims. The scheme operated from summer 2014 through 2019. Out of the $63 million claimed in tax refunds, the IRS paid over $5.5 million, the majority of which went to Levinson.

Levinson recruited coconspirators T'Andre McNeely, Brandon Williams, Michael Carr, and others-through job placement ads and word of mouth-to collect the proceeds of the tax fraud and send it to Levinson.

Levinson used sophisticated cyber means to obtain the personal data used to file the returns. He also hired other foreign nationals-including individuals located in a boiler room in Vietnam-to prepare and file the returns quickly and in large batches. The returns were filed from real certified accounting firms across the United States, all of whom had been hacked by third parties and often had their information sold on darkweb marketplaces, including a website formerly known as the xDedic Marketplace. The xDedic Marketplace was a website that operated for years and was used to sell access to compromised computers worldwide and personally identifiable information of U.S. residents.

U.S. District Judge Kathryn Kimball Mizelle previously sentenced three of Levinson's money laundering affiliates in a related indictment. McNeely and Carr were each sentenced to six years and six months' imprisonment. Williams was sentenced to one year and one day in prison.

[T]aylor and Runsewe obtained unauthorized access to United States businesses' computer servers, participated in stealing from those servers the personally identifying information of United States residents and used that information to file false and fraudulent Internal Revenue Service (IRS) Form 1040, United States Individual Income Tax Returns ("Form(s) 1040") seeking income tax refunds with the IRS. Adafin and Oyebanjo assisted in the collection fraud proceeds directed to prepaid debit cards in their possession or to addresses or bank accounts they controlled or to which they had access and transferred a share of the fraud proceeds to other conspirators.

One of the places that Taylor and Runsewe had obtained unauthorized access to computer servers was the xDedic Marketplace, a website that operated for years and was used to sell access to compromised computers worldwide and personally identifiable information of U.S. residents. The xDedic administrators strategically maintained servers all over the world to facilitate the operation of the website. 

The xDedic Marketplace was taken down as part of coordinated, global enforcement operations led by the FBI (Tampa Division) the IRS-CI (Tampa Field Office) and the U.S. Attorney's Office for the Middle District of Florida.

[T]he penalty that AT&T agreed to pay is the largest ever in a Regulation FD case.

According to the SEC's complaint, AT&T learned in March 2016 that a steeper-than-expected decline in its first quarter smartphone sales would cause AT&T's revenue to fall short of analysts' estimates for the quarter. The complaint alleges that, to avoid falling short of consensus revenue expectations for the third consecutive quarter, AT&T investor relations executives Christopher Womack, Michael Black, and Kent Evans made private, one-on-one phone calls to analysts at approximately 20 separate firms. On these calls, the AT&T executives allegedly disclosed AT&T's internal smartphone sales data and the impact of that data on internal revenue metrics, even though, among other things, internal documents specifically informed investor relations personnel that AT&T's revenue and sales of smartphones were types of information generally considered "material" to AT&T investors, and therefore prohibited from selective disclosure under Regulation FD. The complaint further alleges that the nonpublic information provided on these private calls caused analysts to substantially reduce their revenue forecasts, allowing AT&T ultimately to beat the overall consensus revenue estimate when AT&T reported its results to the public on April 26, 2016. 

The department reached this resolution with ABB based on a number of factors, including: 1) the nature and seriousness of the misconduct; 2) ABB's demonstrated intent to disclose the misconduct promptly to the department; 3) ABB's extraordinary cooperation with the department's investigation; 4) ABB's extensive remediation, including carrying out a root-cause analysis of the misconduct and making significant investments in compliance personnel, compliance testing, and monitoring through the organization; 5) ABB's commitment to further enhance its compliance program and internal controls, including enhanced reporting provisions that require ABB, during the pendency of the DPA, to meet with the department at least quarterly and to submit yearly reports regarding the status of its remediation efforts, the results of its testing of its compliance program, and its proposals to ensure that its compliance program is reasonably designed, implemented, and enforced, so that it is effective in deterring and detecting violations of the FCPA and other applicable anti-corruption laws; 6) ABB's decade-old criminal history, which includes two prior criminal resolutions by ABB entities with the department for FCPA violations in 2004 and 2010, as well as a guilty plea by an ABB entity for bid rigging in 2001; 7) ABB's agreement to concurrently resolve separate investigations by authorities in South Africa and Switzerland, as well as the SEC, and its anticipated resolution of a related investigation by German authorities; and 8) ABB's agreement to continue to cooperate with the department in ongoing investigations. In light of these considerations, the criminal monetary penalty reflects a 25% discount off the mid-point between the middle and high end of the otherwise applicable U.S. Sentencing Guidelines fine range.

Pursuant to the DPA, ABB's total criminal penalty is $315 million. The department has agreed to credit up to one-half of the criminal penalty against amounts the company pays to authorities in South Africa in related proceedings, along with other credits for amounts ABB pays to resolve investigations conducted by the SEC and authorities in Switzerland and Germany, so long as payments underlying an anticipated resolution with German authorities are made within 12 months of today's date. 

. . .

According to ABB's admissions and court documents, between 2014 and 2017, ABB, through certain of its subsidiaries, paid bribes to a South African government official who was a high-ranking employee at the state-owned and controlled energy company, Eskom Holdings Limited (Eskom) to obtain business advantages in connection with the award of multiple contracts. ABB engaged multiple subcontractors associated with the South African government official and made payments to those subcontractors that were intended, at least in part, as bribes. ABB worked with these subcontractors despite their poor qualifications and lack of experience. In return, ABB received improper advantages in its efforts to obtain work with Eskom, including, among other benefits, confidential and internal Eskom information. 

As part of the scheme, ABB conducted sham negotiations to obtain contracts at inflated prices that ABB had pre-arranged with the South African government official, all on the condition that ABB employ a particular subcontractor associated with that official. ABB also falsely recorded payments to the subcontractors as legitimate business expenses when, in fact, a portion of the payments were intended as bribes for the South African government official.

[F]rom 2015 through 2017, ABB executives in Switzerland and South Africa colluded with a high-ranking government official at Eskom, an electricity provider owned by the South African government, to funnel bribes to the official through complicit third-party service providers with whom the government official had close personal relationships. ABB paid the service providers more than $37 million to bribe the government official. In return ABB obtained a $160 million contract to provide cabling and installation work at Eskom's Kusile Power Station.

. . .

ABB consented to the SEC's cease-and-desist order that it violated the anti-bribery, books and records, and internal accounting controls provisions of the FCPA and agreed to pay a civil monetary penalty of $75 million. The SEC also ordered ABB to pay more than $72 million in disgorgement; however, the Commission deemed the payment satisfied by ABB's reimbursement of its ill-gotten gains to the South African government as part of an earlier civil settlement based largely on the same underlying facts as the SEC's action. In addition, ABB agreed to regularly report to the SEC for a three-year period the status of its ongoing remediation of its internal accounting controls and compliance program. ABB was the subject of two prior FCPA cases by the SEC in 2004 and 2010.

[B]etween 2018 and 2019, Joseph R. Earle, Jr. and Barry D. Reagh designed and executed a campaign to pump up Upper Street's stock price and trading volume so they could dump their shares into the market for a profit. As alleged, before the campaign began, Reagh and William Clayton deceived a brokerage firm to accept their Upper Street shares by giving the impression that Clayton and others controlled the shares and decided whether the sell Upper Street stock. According to the complaint, however, it was Reagh who was in control of the shares.

As alleged, Earle and Reagh conducted a promotional campaign, including hiring Dudley to hype Upper Street stock in research reports distributed through the internet and social media, as well as re-releasing Upper Street press releases. According to the complaint, however, Dudley falsely stated that one of his company's paid for research reports when in reality Reagh and Upper Street did. As alleged, once Upper Street's stock price and trading volume increased, Reagh dumped his shares.

According to the complaint, to help pay for the promotional campaign, Upper Street, Earle, Steven E. Bryant, and Project Growth International, Inc. also offered and sold new Upper Street's stock shares through what they claimed was a private offering. As alleged, this private offering was never registered with the SEC nor were Bryant and Project Growth registered as brokers

Between December 2016 and August 2021 , Perugino exercised discretion to effect 183 trades in four customers' accounts. For one customer, Perugino exercised discretion in placing one trade in the customer's account in January 2017 while Perugino was associated with DLA. With respect to the other three customers, Perugino engaged in discretionary trading by placing numerous trades in their accounts while these accounts were at DLA, Spartan and Craft. None of the four customers provided prior written authorization for Perugino to exercise discretion in their accounts at any of these firms. The written supervisory procedures (WSPs) for DLA and Spartan prohibited registered representatives from exercising discretion in a customer's account. Although Craft's WSPs permitted discretionary accounts, Perugino did not follow the firm's procedures to obtain written authorization from the customers or seek approval from Craft to maintain any discretionary accounts at Craft. Instead, Perugino failed to disclose the discretionary trading, incorrectly marking on two Craft annual attestations that he did not handle any customer accounts on a discretionary basis. 

Therefore, Perugino violated NASO Rule 2510(b) and FINRA Rules 3260(b) and 2010.

• Securities Industry Commentator
• Bill Singer