Thursday, July 18, 2019

SEC Retail Strategy Task Force to Host Roundtable on Combating Elder Investor Fraud

The Securities and Exchange Commission today announced that its Retail Strategy Task Force will host a roundtable on October 3 on combating elder investor fraud. The roundtable will focus on the types of fraudulent and manipulative schemes currently targeting elder investors. The roundtable also will explore views from a broad range of regulators and industry experts on potential steps regulators, broker-dealers, investment advisers, and others can take to identify and combat elder investor fraud.

The roundtable will be held at the SEC's headquarters at 100 F Street, N.E., Washington, D.C. and will begin at 9:30 a.m. ET. The roundtable will be open to the public and webcast live on the SEC’s website. Information on the agenda and participants will be issued shortly.

Members of the public who wish to provide their views on the topic may submit comments electronically or on paper. Please submit comments using one method only. Information that is submitted will become part of the public record of the roundtable and posted on the SEC's website. All comments received will be posted without change. Persons submitting comments are cautioned that we do not redact or edit personal identifying information from comment submissions. You should submit only information that you wish to make publicly available.

Electronic Comments:

Use the SEC's Internet submission form or send an email to rule-comments@sec.gov.

Paper Comments:

Send paper comments to Vanessa Countryman, Secretary, Securities and Exchange Commission, 100 F Street, N.E., Washington, D.C. 20549-1090.

All submissions should refer to File Number 4-749 and the file number should be included on the subject line if email is used.



SEC Press Release

--- Looking for a securities lawyer for litigation, arbitration or an SEC or FINRA Investigation?, email Mark Astarita or call 212-509-6544 to speak to a securities lawyer.

Wednesday, July 17, 2019

Morgan Stanley Sanctioned THREE MILLION DOLLARS for Discovery Abuse

Finally, a FINRA Arbitration Panel who enforces their discovery award. In a customer arbitration, Morgan Stanley was ordered to produce documents related to the termination of one of its key employees. It did not do so. During the hearing, the Panel issued the same Order as was previously issued by the Chairperson for production of “all” related documents by midnight.

Morgan Stanley did not send the requested documents to Claimants’ counsel by midnight, nor did Respondent’s counsel provide opposing counsel with the courtesy of an email by midnight explaining why “all” the ordered documents were not being produced. The evidentiary hearing was delayed, for a second time, to permit both parties to provide oral argument on Morgan Stanley's claim of “settlement privilege” which, to my knowledge, does not exist, and apparently wasn't claimed prior to the hearing.

Morgan Stanley tried to get the Arbitrators to review the documents "in camera" which would be without the Claimant's counsel seeing the documents, so they can decide if the privilege applied. The Arbitrators refused, ordered the withheld documents to be handed to Claimants’ counsel, and not to the Panel for in camera review.

In its award, the Panel took note of the extreme prejudice Morgan Stanley’s failure of compliance caused Claimants’ counsel in preparing their case and asserting their claims without the withheld  documents which the Panel deemed were highly relevant to the dispute in question, the central figure of which was the terminated employee whose related documents were being withheld.

The Claimants alleged damages of  $2,739,792.00, and the Panel awarded $261,420.63, less than 10% of the amount of damages. We all know that a Claimant's damage claim is the absolute maximum that they can ask for, and probably not the amount they expect to win, but an award of 10%?

But then, The Panel noted that Rule 12506(b)(2) of the FINRA Code of Arbitration Procedure related to parties’ obligation to “act in good faith when complying with subparagraph (1) of this rule. ‘Good faith’ means that a party must use its best efforts to produce all documents required or agreed to be produced. If a document cannot be produced in the required time, a party must establish a reasonable timeframe to produce the document.” The Panel also took note of Rule 12212 of the Code related to sanctions: “(a) The panel may sanction a party for failure to comply with any provision in the Code, or any order of the panel or single arbitrator authorized to act on behalf of the panel. Unless prohibited by applicable law, sanctions may include, but are not limited to:

• Assessing monetary penalties payable to one or more parties; . . .”

The Panel continued and said "[i]n accordance with the above, after due deliberation and upon consideration of the negative effect that Respondent’s noncompliance with the Panel’s Orders had on its efforts to achieve a fair arbitration hearing, the Panel hereby orders Respondent to pay monetary sanctions to Claimants in the amount of $3,000,000.00."

$261,000 in damages, and THREE MILLION in sanctions for discovery violations.


Tuesday, July 16, 2019

Recover GPB Capital Losses

After inquiries by the SEC, FINRA and the FBI, GPB Capital has announced significant losses in the value of its investment funds. Two of its funds, GPB Holdings II and GPB Automotive Portfolio, have reported losses of 25.4% and 39%, respectively according to InvestmentNews.com

GPB Capital Holdings is a New York based alternative asset management firm with approximately $1.5 billion in investor capital, invested through a variety of different private placements. Investors in these funds who have suffered losses should contact Sallah Astarita & Cox, LLC for a review of their investments and to determine if the losses are recoverable.

Use the contact form in the right column and an attorney will contact you.

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If you have any questions or concerns regarding your investment in GPB Capital, or any other private placement, contact Sallah Astarita & Cox, by telephone at 212-509-6544. The attorneys in the firm have experience as SEC Prosecutors, criminal prosecutors and defense counsel, in house counsel to brokerage firms and investor advocates, with over 30 years of experience and over 700 securities arbitrations. 

Attention Investors in AR Capital - It Settled SEC Charges for more than $60 Million.

The SEC charged AR Capital LLC, its founder Nicholas S. Schorsch, and its former CFO Brian Block with wrongfully obtaining millions of dollars in connection with two separate mergers between real estate investment trusts (REITs) that were sponsored and externally managed by AR Capital. The defendants agreed to settle the matter by, among other things, cumulatively agreeing to over $60 million in disgorgement, prejudgment interest and civil penalties.

The SEC's complaint, filed in federal district court in Manhattan, charges AR Capital and Block with violating the anti-fraud provisions of Section 17(a) of the Securities Act of 1933 and Section 10(b) of the Exchange Act and Rule 10b-5(b) thereunder, and falsifying books and records of ARCP. The complaint charges Schorsch with negligently violating the anti-fraud provisions of Sections 17(a)(2) and (3) of the Securities Act of 1933, as well as books and records violations.

Without admitting or denying the allegations in the complaint, AR Capital, Schorsch, and Block have consented to entry of a final judgment that imposes permanent injunctions from violations of the charged provisions; orders combined disgorgement and prejudgment interest on a joint-and-several basis of over $39 million, which includes cash and the return of the wrongfully obtained ARCP operating partnership units; and imposes civil penalties of $14 million against AR Capital, $7 million against Schorsch, and $750,000 against Block. The settlements are subject to court approval.

If you invested in these REITS, you may be entitled to compensation. Email Mark Astarita or call 212-509-6544 to speak to a securities lawyer.

Monday, July 15, 2019

SEC and NASAA Explain Application of Securities Laws to Opportunity Zone Investments

The Securities and Exchange Commission and the North American Securities Administrators Association (NASAA) have issued a summary that explains the application of the federal and state securities laws to opportunity zone investments. The "opportunity zone" program was established by the Tax Cuts and Jobs Act in December 2017 to provide tax incentives for long-term investing in designated economically distressed communities.

The summary is intended to help participants in the opportunity zone program understand the compliance implications for qualified opportunity funds under federal and state securities laws.

"The opportunity zone program has the potential to encourage investment and economic development in many areas across the country that are in need of capital. The staff statement released today will help market participants understand securities laws implications when seeking to raise capital for opportunity zones," said SEC Chairman Jay Clayton. "In addition, today the SEC is issuing staff guidance regarding the ability of Main Street investors to participate in these offerings."

"This new program provides an opportunity to strengthen investments in low-income communities and rural areas that traditionally struggled to attract the capital necessary to spur economic growth and job creation," said Michael Pieciak, NASAA President and Vermont's Commissioner of Financial Regulation. "This joint summary is a good example of state and federal regulators working collaboratively to address new compliance issues raised by an innovative program and thereby promoting our dual mission of protecting investors and helping facilitate capital formation."

The summary discusses the opportunity zone program and when interests in qualified opportunity funds would be securities under federal and state securities laws. It also provides an overview of the SEC and state requirements relating to qualified opportunity funds and their securities offerings, broker-dealer registration, and considerations for advisers to a qualified opportunity fund.

The Opportunity Zones summary is available on the SEC's website and NASAA's website.

About the SEC:

The mission of the SEC is to protect investors; maintain fair, orderly, and efficient markets; and facilitate capital formation.

About NASAA:

Formed in 1919, NASAA is the non-profit association of state, provincial, and territorial securities regulators in the United States, Canada and Mexico. NASAA has 67 members, including the securities regulators in all 50 states, the District of Columbia, Puerto Rico, and the U.S. Virgin Islands. NASAA's U.S. members protect investors through the enforcement of state securities laws, commonly known as "Blue Sky Laws." For more information, visit: www.nasaa.org.

Contacts:

SEC

Office of Public Affairs

202-551-4120 

news@sec.gov

NASAA

Bob Webster, Director of Communications

202-737-0900

bw@nassa.org



SEC Press Release

--- Looking for a securities lawyer for litigation, arbitration or an SEC or FINRA Investigation?, email Mark Astarita or call 212-509-6544 to speak to a securities lawyer.

Nomura to Pay Misled Bond Customers $25 Million to Settle SEC Charges

The Securities and Exchange Commission today instituted two related enforcement actions against Nomura Securities International Inc., which has agreed to repay approximately $25 million to customers for its failure to adequately supervise traders in mortgage-backed securities.   

The SEC orders find that Nomura bond traders made false and misleading statements to customers while negotiating sales of commercial and residential mortgage-backed securities (CMBS and RMBS).  According to the SEC’s orders, several Nomura traders misled customers about the prices at which Nomura had bought securities, the amount of profit Nomura would receive on the customers’ potential trades, and who currently owned the securities, with traders often pretending that they were still negotiating with a third-party seller when Nomura had, in fact, already bought a security.  The SEC’s orders further find that Nomura lacked compliance and surveillance procedures that were reasonably designed to prevent and detect this misconduct, which inflated the firm’s profits on CMBS and RMBS transactions at its customers’ expense.  The SEC previously filed charges against two CMBS and three RMBS traders at Nomura, whose misrepresentations are described in the SEC’s orders.

“Firms acting as dealers in opaque markets like those for CMBS and RMBS must take steps to prevent misleading communications with their customers,” said Daniel Michael, Chief of the SEC Enforcement Division’s Complex Financial Instruments Unit. 

“These orders underscore that firms must have adequate supervisory procedures, particularly surrounding the sale of complex instruments,” said Sanjay Wadhwa, Senior Associate Director of the SEC’s New York Regional Office.  “Weak procedures, such as those found here, may enable employee misconduct to go undetected.”

To settle the charges that it failed to reasonably supervise its traders, Nomura agreed in the two orders to be censured and to reimburse customers the full amount of firm profits earned on any RMBS or CMBS trades in which a misrepresentation was identified, paying over $20.7 million to RMBS customers and over $4.2 million to CMBS customers.  Nomura also agreed to pay a $1 million penalty in the RMBS-related case and a $500,000 penalty in the CMBS-related case.  Both orders note that the penalty amounts reflect substantial cooperation by Nomura during the SEC’s investigation, including remedial efforts by the firm to improve its surveillance procedures and other internal controls.

The SEC’s CMBS investigation and ensuing litigation was conducted by staff in the New York Regional Office, including Ladan Stewart, Chevon Walker, Richard Hong, and George Stepaniuk.  The case is being supervised by Mr. Wadhwa.  The RMBS investigation and ensuing litigation was conducted by staff in the Complex Financial Instruments Unit and the Boston Regional Office, including Susan Curtin, Kerry Dakin, Rua Kelly, Al Day and Celia Moore. The case is being supervised by Mr. Michael.



SEC Press Release

--- Looking for a securities lawyer for litigation, arbitration or an SEC or FINRA Investigation?, email Mark Astarita or call 212-509-6544 to speak to a securities lawyer.

Saturday, July 13, 2019

CEO of BitFunder Exchange Gets 14 Months in Prison for Fraud, Obstruction

Jon Montrol, the operator of defunct bitcoin-denominated trading platform BitFunder and WeExchange deposit service, was sentenced for securities fraud and obstruction of justice, according to a statement from the Southern District of New York.


https://www.coindesk.com/ceo-of-bitfunder-exchange-gets-14-months-in-prison-for-fraud-obstruction

Friday, July 12, 2019

SEC Charges Securities Lawyer and Microcap Agent with Fraud

The Securities and Exchange Commission today charged an Arizona-based attorney and a Missouri-based agent of microcap shell companies with securities fraud and registration violations.

According to the SEC's complaint, from February 2015 to April 2017, attorney William Scott Lawler engaged in schemes to fraudulently transfer control over the shares of two publicly-traded shell companies to his client. The SEC alleges that Lawler represented his client on the purchase of Broke Out Inc. (BRKO) and the predecessor to Immage Biotherapeutics Corp. (IMMG). Microcap agent Natalie Bannister participated in the BRKO scheme by arranging the sale of BRKO to the client. Among other deceptive conduct, the complaint alleges that Lawler directed and Bannister engaged in sham transactions. Lawler also drafted false attorney-opinion letters, one of which Bannister submitted to a broker, to falsely represent that the stock of BRKO and IMMG could be immediately sold publicly once his client took control of the companies. Further, Lawler and Bannister ensured a market for the BRKO stock when Bannister placed phony bids and offers for the stock at Lawler's direction. After Lawler's client gained control of the shares of BRKO and IMMG, the stocks were subject to promotional campaigns with drastic increases in volume and price.  Brokerage accounts associated with Lawler's client profited over $3 million before the Commission suspended trading.

"We allege that through deception and fraud Lawler and Bannister prevented broker-dealers from performing critical gatekeeping functions, which here resulted in public stock sales that never should have occurred," said Marc P. Berger, Director of the SEC's New York Regional Office. "Attorneys must not misuse their specialized skills and knowledge of the securities laws to engage in fraud at the expense of unwitting investors." 

The SEC has charged Lawler and Bannister with violating the antifraud provisions of Section 17(a) of the Securities Act of 1933 (Securities Act) and Section 10(b) Securities Exchange Act of 1934 (Exchange Act) and Rule 10b-5 thereunder, and the registration provisions of Section 5(a) and 5(c) of the Securities Act; and, as to Lawler, market manipulation provision of Section 9(a) of the Exchange Act.

The SEC's investigation has been conducted by Hane L. Kim, Jennifer K. Vakiener, Joseph Darragh, and Steven G. Rawlings in the New York Office. The litigation will be led by Kevin McGrath, Ms. Kim, and Ms. Vakiener. The case is being supervised by Lara S. Mehraban. The SEC appreciates the assistance of the Financial Industry Regulatory Authority, the Alberta Securities Commission, the Cyprus Securities and Exchange Commission, the Financial Conduct Authority of the United Kingdom, the Monetary Authority of Singapore, the Ontario Securities Commission, the Securities and Commodities Authority of the United Arab Emirates, the Securities and Futures Commission of Hong Kong, and the Securities Commission of Malaysia.



SEC Press Release

--- Looking for a securities lawyer for litigation, arbitration or an SEC or FINRA Investigation?, email Mark Astarita or call 212-509-6544 to speak to a securities lawyer.

SEC Staff Publishes Statement Highlighting Risks for Market Participants to Consider As They Transition Away from LIBOR

The Securities and Exchange Commission today announced that SEC staff have published a statement that encourages market participants to proactively manage their transition away from LIBOR and outlines several potential areas that may warrant increased attention during that time. It is expected that parties reporting information used to set LIBOR will stop doing so after 2021.

"The transition away from LIBOR is gaining some much needed traction, but, as the staff's statement makes clear, significant work remains," said Chairman Jay Clayton. "The risks the statement highlights deserve careful attention and I draw particular attention to the staff’s observation: 'For many market participants, waiting until all open questions have been answered to begin this important work likely could prove to be too late to accomplish the challenging task required.' The SEC will continue to monitor disclosure and risk management efforts related to the LIBOR transition, and we welcome engagement from market participants on these important matters."

As LIBOR is used extensively in the U.S. and globally as a benchmark rate to set interest rates for various commercial and financial contracts, the discontinuation of LIBOR could have a significant impact on financial markets and may present a material risk for market participants, including public companies, investment advisers, investment companies, and broker-dealers. These risks will be exacerbated if the work necessary to effect an orderly transition to an alternative reference rate is not completed in a timely manner.  

The staff statement encourages market participants to identify existing contracts that extend past 2021 to determine their exposure to LIBOR and to consider whether contracts entered into in the future should reference an alternative rate to LIBOR or include effective fallback language. The statement also contains specific guidance for how registrants might respond to risks associated with the discontinuation of LIBOR.

The staff will continue to actively monitor the extent to which market participants are identifying and addressing risks associated with the expected discontinuation of LIBOR. Further, the staff welcomes discussion on the transition and encourages members of the public to share information about the potential impact of the expected discontinuation of LIBOR. Information may be shared by e-mail to LIBOR@sec.gov or directly to the staff of the Division of Corporation Finance at CFORS@sec.gov, the Division of Investment Management at IMDRAO@sec.gov, the Division of Trading and Markets at TRADINGANDMARKETS@sec.gov, or the Office of the Chief Accountant at OCA@sec.gov.



SEC Press Release

--- Looking for a securities lawyer for litigation, arbitration or an SEC or FINRA Investigation?, email Mark Astarita or call 212-509-6544 to speak to a securities lawyer.

SEC Monitoring Impact of Tropical Storm Barry on Capital Markets

The Securities and Exchange Commission is closely monitoring the impact of Tropical Storm Barry on investors and capital markets. 

“If you are in the path of Tropical Storm Barry, please listen carefully to directions from local officials before, during, and after the storm. Your safety and that of your friends and family should be your top priority during this time,” said Chairman Jay Clayton. “You can be assured that the dedicated staff of the SEC is monitoring the situation and is fully prepared to provide the support needed by affected investors and market participants.”

The SEC divisions and offices that oversee companies, accountants, investment advisers, mutual funds, brokerage firms, transfer agents, and other regulated entities and investment professionals will continue to closely track developments. They will evaluate the possibility of granting relief from filing deadlines and other regulatory requirements for those affected by the storm. Entities and investment professionals affected by Tropical Storm Barry are encouraged to contact Commission staff with questions and concerns:

  • Office of Compliance Inspections and Examinations staff in the Commission's Miami Regional Office can be reached by phone at 305-982-6300 or email at miami@sec.gov
  • Office of Compliance Inspections and Examinations staff in the Commission's Atlanta Regional Office can be reached by phone at 404-842-7600 or email at atlanta@sec.gov
  • Office of Compliance Inspections and Examinations staff in the Commission's Fort Worth Regional Office can be reached by phone at 817-978-3821 or email at dfw@sec.gov
  • Division of Corporation Finance staff can be reached by phone at 202-551-3500 or via online submission at www.sec.gov/forms/corp_fin_interpretive
  • Division of Investment Management staff can be reached by phone at 202-551-6825 or email at imocc@sec.gov
  • Division of Trading and Markets staff can be reached by phone at 202-551-5777 or email at tradingandmarkets@sec.gov
  • Office of Municipal Securities staff can be reached by phone at 202-551-5680 or email at munis@sec.gov

Individuals experiencing problems accessing their securities accounts or with similar questions or concerns relating to the hurricane are encouraged to contact the SEC’s Office of Investor Education and Advocacy by phone at 1-800-SEC-0330 or email at help@sec.gov.

Investors should be vigilant for Tropical Storm Barry-related securities scams and check the background of anyone offering them an investment by using the free and simple search tool on Investor.gov. The Division of Enforcement will vigorously prosecute those who attempt to defraud victims of the storm. The SEC is asking investors to report any suspicious solicitations at www.sec.gov/complaint/tipscomplaint.shtml.



SEC Press Release

--- Looking for a securities lawyer for litigation, arbitration or an SEC or FINRA Investigation?, email Mark Astarita or call 212-509-6544 to speak to a securities lawyer.

Wednesday, July 10, 2019

SEC Charges Accountant and Friend in $6.2 Million Insider Trading Scheme

The Securities and Exchange Commission today filed insider trading charges against an accountant and her friend, whom she illegally tipped with confidential information in advance of her company’s quarterly performance announcements in exchange for all-expense paid travel and other expensive gifts.  The alleged insider trading scheme generated profits of more than $6.2 million and was uncovered by the SEC through analysis and technology that it uses to detect suspicious trading activity.

The SEC’s complaint, filed in federal court in Manhattan, alleges that Martha Patricia Bustos, formerly an accountant at Illumina Inc. and a certified public accountant, and her close friend Donald Blakstad engaged in a scheme to trade in advance of Illumina’s release of confidential revenue information.  In exchange for extravagant gifts, Bustos allegedly tipped Blakstad in advance of four quarterly Illumina financial performance announcements from April 2016 to July 2018.  Based on those tips of inside information, Blakstad allegedly purchased Illumina securities using accounts held by business associates and acquaintances to conceal his involvement. According to the SEC’s complaint, Blakstad personally realized approximately $4 million from the illicit trading and tipped at least four other friends and business associates who made $2.2 million in profits from Illumina trading.

“We used some of our latest advanced software to analyze trading data, as well as traditional investigative techniques, to piece together and expose the betrayal of trust alleged in our complaint.  We allege that Bustos had an obligation to keep her company’s information confidential until announced to our markets, yet she repeatedly tipped Blakstad and allowed him to take advantage of her position in return for expensive travel and luxury merchandise,” said Kelly L. Gibson, Associate Director of the SEC’s Philadelphia Regional Office.

In a parallel action, the U.S. Attorney’s Office for the Southern District of New York today filed criminal charges against Bustos and Blakstad. 

The SEC’s complaint charges Bustos and Blakstad with knowingly or recklessly violating the antifraud provisions of the federal securities laws, and seeks permanent injunctions, disgorgement with prejudgment interest, and penalties. 

The SEC’s continuing investigation is being conducted by Patricia A. Paw and Brian R. Higgins of the Philadelphia Regional Office and John S. Rymas of the Market Abuse Unit’s Analysis and Detection Center.  The case is being supervised by Ms. Gibson and Brendan P. McGlynn.  The litigation will be led by Christopher R. Kelly and supervised by Jennifer Chun Barry.  The SEC appreciates the assistance of the U.S. Attorney’s Office for the Southern District of New York, the Federal Bureau of Investigation, and the Financial Industry Regulatory Authority.



SEC Press Release

--- Looking for a securities lawyer for litigation, arbitration or an SEC or FINRA Investigation?, email Mark Astarita or call 212-509-6544 to speak to a securities lawyer.