Thursday, December 13, 2018

Can a pricey bar mitzvah gift break FINRA’s compliance rules?

FINRA Rule 3220 (Influencing or Rewarding Employees of Others)4 (the Gifts Rule) prohibits any member or person associated with a member, directly or indirectly, from giving anything of value in excess of $100 per year to any person where such payment is in relation to the business of the recipient's employer.Be careful when giving gifts over $100 in value, but you can do it. 

Wednesday, December 12, 2018

The 2018 Judicial Hellholes Report On The Worst Jurisdictions For Defendants

As a trial attorney, I am always interested in any study of which courts are good or bad for plaintiffs and defendants. While the methodology is not always disclosed, the results can sometimes be helpful, and serve as a starting point for further research.

The LexBlog article provides a summary, and ATRA’s 2018 Report is available here and the executive summary is here.

Tuesday, December 11, 2018

SEC Halts Alleged Insider Trading Ring Spanning Three Countries

The SEC has filed insider trading charges against an IT contractor and two others he illegally tipped with confidential client information he stole while working in the Singapore branch of an investment bank.

The SEC obtained a court-ordered freeze of assets in three U.S. brokerage accounts and one U.S. bank account connected to the alleged trading. The SEC's complaint alleges that Rajeshwar Gannamaneni provided nonpublic information about impending mergers, acquisitions, and tender offers to his wife, Deepthi Gandra, and his father, Linga Rao Gannamaneni, who lives in India. Gannamaneni also allegedly traded in an account that he controlled that was opened in the name of a family member, who was living in the U.S. at the time. According to the allegations in the SEC's complaint, the three collectively reaped approximately $600,000 in profits by trading while in possession of inside information in advance of at least 40 corporate events.

The SEC press release and the federal court complaint are online.

------

The attorneys at Sallah Astarita & Cox include veteran securities litigators and former SEC Enforcement Attorneys. We have decades of experience in securities litigation matters, including the defense of enforcement actions. We represent investors, financial professionals and investment firms, nationwide. For more information call 212-509-6544 or send an email to mja@sallahlaw.com.

Monday, December 10, 2018

Disqualification of Felons and Other "Bad Actors" from Rule 506 Offerings and Related Disclosure Requirements

Rule 506 of Regulation D of the Securities Act of 1933 is one of the most commonly used registration exemptions to raise investments for a private placement.

In July 2013, the SEC adopted a new provision for Rule 506, known as the "bad actor disqualification provision." The disqualification and related disclosure provisions appear as paragraphs (d) and (e) of Rule 506 of Regulation D.

As a result of Rule 506(d) an offering is disqualified from relying on Rule 506(b) and 506(c) of Regulation D if the issuer or any other person covered by Rule 506(d) has a relevant criminal conviction, regulatory or court order or other disqualifying event that occurred on or after September 23, 2013. Under Rule 506(e), for disqualifying events that occurred before September 23, 2013, issuers may still rely on Rule 506, but will have to comply with the disclosure provisions of Rule 506(e) discussed in part 6 of this guide.

Fortunately, Rule 506(d) does not apply to everyone associated with an issuer or its placement agent. The rule relates to "covered persons" which include:

  • the issuer, including its predecessors and affiliated issuers
  • directors, general partners, and managing members of the issuer
  • executive officers of the issuer, and other officers of the issuers that participate in the offering
  • 20 percent beneficial owners of the issuer, calculated on the basis of total voting power
  • promoters connected to the issuer
  • for pooled investment fund issuers, the fund’s investment manager and its principals
  • persons compensated for soliciting investors, including their directors, general partners and managing members
And not every criminal conviction, regulatory event or court order are disqualifying. Disqualifying events include

  • Certain criminal convictions involving the purchase or sale of a security; making a false filing with the SEC; the conduct of the business of an underwriter, broker, dealer, municipal securities dealer, investment adviser or paid solicitor of purchasers of securities. The criminal conviction must have occurred within ten years of the proposed sale of securities, or five years in the case of the issuer and its predecessors and affiliated issuers.
  • Certain court injunctions and restraining orders,  also involving the purchase or sale of a security, making a false filing with the SEC or the conduct of the business of an underwriter, broker, dealer, municipal securities dealer, investment adviser or paid solicitor of purchasers of securities. Disqualification only applies for injunctions and restraining orders that are in effect at the time of the proposed sale of securities and were entered within the preceding five years.  Injunctions and court orders that have expired or are otherwise no longer in effect are not disqualifying, even if they were issued within the five-year look-back period.  For example, an injunction that was issued four years before the proposed offering but lifted before the offering occurred would not be disqualifying.
  • Final orders of certain state and federal regulators which bar the covered person from associating with a regulated entity, engaging in the business of securities, insurance or banking, or engaging in savings association or credit union activities or are based on fraudulent, manipulative, or deceptive conduct and were issued within 10 years of the proposed sale of securities
  • Certain SEC disciplinary orders ommission disciplinary orders relating to brokers, dealers, municipal securities dealers, investment companies, and investment advisers and their associated persons under Section 15(b) or 15B(c) of the Securities Exchange Act, or Section 203(e) or (f) of the Investment Advisers Act that:
    • suspend or revoke the person’s registration as a broker, dealer, municipal securities dealer or investment adviser
    • place limitations on the person’s activities, functions or operations
    • bar the person from being associated with any entity or from participating in the offering of any penny stock
    • Disqualification continues only for as long as some act is prohibited or required to be performed pursuant to the order.  As a result, censures and orders to pay civil money penalties, assuming the penalties are paid in accordance with the order, are not disqualifying, and a disqualification based on a suspension or limitation of activities expires when the suspension or limitation expires
  • Certain SEC cease-and-desist orders where the Commission orders to cease and desist from violations and future violations of the scienter-based anti-fraud provisions of the federal securities laws, including, for example Section 17(a)(1) of the Securities Act, Section 10(b) of the Securities Exchange Act and Rule 10b-5, Section 15(c)(1) of the Securities Exchange Act, Section 206(1) of the Investment Advisers Act, Section 5 of the Securities Act. Disqualification applies to cease-and-desist orders that were issued within five years before the proposed sale of securities and remain in effect.
  • SEC stop orders and orders suspending the Regulation A exemption applies if any covered person (as a registrant or issuer) has filed a registration statement or Regulation A offering statement that was the subject of a Commission refusal order, stop order or order suspending the Regulation A exemption within the last five years, or is the subject of a pending proceeding to determine whether such an order should be issued.
  • Suspension or expulsion from membership in a self-regulatory organization (SRO), such as FINRA, or from association with an SRO member - if any covered person is suspended or expelled from membership in, or suspended or barred from association with a member of, a securities self-regulatory organization or “SRO” (i.e., a registered national securities exchange or national securities association, such as FINRA) for any act or omission to act constituting conduct inconsistent with just and equitable principles of trade.
  • U.S. Postal Service false representation orders
Many disqualifying events include a look-back period (for example, a court injunction that was issued within the last five years or a regulatory order that was issued within the last ten years).  The look-back period is measured from the date of the disqualifying event—in the example, the issuance of the injunction or regulatory order—and not the date of the underlying conduct that led to the disqualifying event.
The SEC has published a complete guide to the Rule at https://www.sec.gov/info/smallbus/secg/bad-actor-small-entity-compliance-guide.htm
---
Mark Astarita has 30 years of experience representing investors, brokers and issuers in their securities regulatory and litigation matters, including SEC and FINRA proceedings, arbitrations, and due diligence in connection with public and private offerings and investments. For more information call Mark at 212-509-6544 or send an email to mja@sallahlaw.com

Sunday, December 9, 2018

SEC News - Insider Trading, Fraud, and Misleading Subscribers

SEC Charges Family Friend of Former Investment Banker With Insider Trading
These charges involve an IT professional in Texas who allegedly participated in an insider trading scheme perpetrated by a former Wall Street investment banking analyst.

Investment Adviser Charged With Running $3.9 Million Fraud
A former registered representative and investment adviser in Altoona, Pennsylvania has been charged with operating a long-running offering fraud.

Citibank to Pay for Improper Handling of ADRs
Citibank N.A. has agreed to pay $38.7 million to settle charges of improper handling of “pre-released” American Depositary Receipts (ADRs).

SEC Charges ITG With Misleading Dark Pool Subscribers
ITG Inc. and its affiliate AlterNet Securities Inc. have agreed to pay $12 million to settle charges arising from ITG’s misstatements and omissions about the operation of the firm’s dark pool, POSIT, and ITG’s failure to establish adequate safeguards and procedures to protect POSIT subscribers’ confidential trading information.

---
The attorneys at Sallah Astarita & Cox include veteran securities litigators and former SEC Enforcement Attorneys. We have decades of experience in securities litigation matters, including the defense of enforcement actions. We represent investors, financial professionals and investment firms, nationwide. For more information call 212-509-6544 or send an email to mja@sallahlaw.comThe Securities Law Blog.

SEC charges Floyd Mayweather, DJ Khaled for promoting ICOs without disclosing payments

Athletes need legal representation.  One call to my office could have avoided all of this.

---

---
Mark Astarita represented investors, brokers and issuers in their securities regulatory and litigation matters, including SEC and FINRA proceedings, arbitrations, and due diligence in connection with public and private offerings and investments for over 30 years. For more information call Mark at 212-509-6544 or send an email to mja@sallahlaw.com

Tuesday, November 27, 2018

TweetStock Research Firm and Co-Founders Charged With Deceiving Investors

The SEC has charged a stock research firm and its co-founders with defrauding investors by issuing reports purportedly based on "unbiased" information and analysis.

https://twitter.com/SECLaw/status/1060610535543201794?s=17

Monday, November 5, 2018

SEC Proposes Disclosure Improvements for Variable ...

There have always been issues, and arbitrations regarding the disclosures made to investors when selling variable annuities. The SEC has announced that it has voted to propose rule changes designed to improve those disclosures.

The proposal is intended to help investors better understand these contracts' features, fees, and risks, and to more easily find the information that they need to make an informed investment decision.
"This proposal is another important step in the Commission's efforts to provide Main Street investors with better information to make informed investment decisions. I have participated in many roundtables with retail investors over the last several months, and investors have emphasized their preference for clear and concise disclosure," said SEC Chairman Jay Clayton. "Providing key summary information about variable annuities and variable life insurance contracts to investors is particularly important in light of the long‑term nature of these contracts and their potential complexity."
Securities Lawyer Blog: SEC Proposes Disclosure Improvements for Variable ...

GE's Debt Problems.

GE's debt-riddled balance sheet already forced out its CEO, led the storied company to slash its cherished dividend to a penny and prompted the sale of century-old businesses.

Now, GE's mountain of debt, caused by years of poorly-timed acquisitions and bad decisions, is forcing the company to wean itself off the $1.1 trillion commercial paper market in favor of more expensive bank financing.

It's an abrupt shift because GE (GE) was long one of the biggest issuers of commercial paper, a form of cheap short-term borrowing that businesses rely on to pay employees and finance inventories. Recall that GE was severely hurt when the commercial paper market froze during the 2008 financial crisis. Eventually the Federal Reserve stepped in with a rescue.

Read the full article at CNN Business.