The Wall Street Legal & Regulatory Feed
Securities Industry Commentator by Bill Singer Esq
March 26, 2019
The Melissa Virus / An $80 Million Cyber Crime in 1999 Foreshadowed Modern Threats (FBI Release)
https://www.fbi.gov/news/stories/melissa-virus-20th-anniversary-032519
https://www.fbi.gov/news/stories/melissa-virus-20th-anniversary-032519
Happy 20th Anniversary! In late March 1999, programmer David Lee Smith hijacked an America Online (AOL) account and posted a file on an Internet newsgroup named "alt.sex" that promised free passwords to fee-based websites with adult content. For those who clicked, they got the "Melissa"virus, reportedly named by Smith for a stripper in Florida. Melissa hijacked Microsoft Outlook email systems and sent messages to the first 50 addresses, which then launched a cascade of upon email servers at more than 300 corporations and government agencies worldwide, which overwhelmed about one million email accounts and slowed Internet traffic. The FBI says that it cost about $80 million for the cleanup and repair of affected computer systems.
Benjamin Wey and NYG Capital, LLC, Plaintiffs, v. NASDAQ, Inc., the NASDAQ Stock Market LLC, Adena Friedman, Robert Greifeld, Michael Splinter, Nelson Griggs, Edward Knight, Arnold Golub, William Slattery, Michael Emen, Alan Rowland, Keely Moxley, Robert McCooey Jr, and Andrew Hall, Defendants (Opinion and Order, United States District Court for the Southern District of New York, 18-CIV-3405)
http://brokeandbroker.com/PDF/WeyvNASDAQ190325SDNYOpinion.pdf
http://brokeandbroker.com/PDF/WeyvNASDAQ190325SDNYOpinion.pdf
On April 9, 2018, Plaintiffs Wey and NYG filed claims against NASDAQ, the NASDAQ Stock Market, and various officers and employees of both entities for malicious prosecution, tortious interference with prospective economic advantage, and tortious interference with contract in New York State Supreme Court. On April 18, 2018, Defendants removed the case to the United States District Court for the Southern District of New York ("SDNY") citing jurisdiction based upon alleged violations of the Securities Exchange Act of 1934. On July 27, 2018, Plaintiffs moved SDNY to remand back to NYS Supreme Court. SDNY found that Defendants failed to show that Plaintiffs' claims raised a federal issue and granted Plaintiffs' Motion to Remand.
Former Vanguard Employee Terminated For "Work Avoidance" Fails To Show At His Expungement Hearing
(BrokeAndBroker.com Blog)
(BrokeAndBroker.com Blog)
http://www.brokeandbroker.com/4507/Vanguard-Work-Avoidance/
Often, I find myself admonishing a client that "if you drive over someone with your car and kill them, you can't undo the damage by backing up over the body." In a recent FINRA expungement arbitration, a terminated employee sued his former firm in an apparent effort to win the removal of some unflattering language on his industry record. After the arbitration decision was issued, the former employee likely wished he hadn't started the whole mess.
SEC Charges Investment Adviser with Long-Running Fraud and Obtains Consent to Appoint Receiver to Preserve Investor Assets (SEC Release)
https://www.sec.gov/litigation/litreleases/2019/lr24432.htm
In a Complaint filed in the United States District Court for the Central District of California,
https://www.sec.gov/litigation/complaints/2019/comp24432.pdf, the SEC charged registered investment adviser Direct Lending Investments, LLC with violating the antifraud provisions of Section 10(b) of the Securities Exchange Act and Rule 10b-5 thereunder, Section 17(a) of the Securities Act, and Sections 206(1), 206(2), and 207 of the Investment Advisers Act of 1940. The stipulated order is subject to court approval. The complaint also seeks disgorgement of allegedly ill-gotten gains along with interest, monetary penalties, and permanent injunctions.Without admitting to any violations of federal law alleged in the SEC's action, Direct Lending agreed be preliminarily enjoined from violating these provisions and to the appointment of a receiver to marshal and preserve the assets of Direct Lending and the funds. As set forth in part in the SEC Release:
https://www.sec.gov/litigation/complaints/2019/comp24432.pdf, the SEC charged registered investment adviser Direct Lending Investments, LLC with violating the antifraud provisions of Section 10(b) of the Securities Exchange Act and Rule 10b-5 thereunder, Section 17(a) of the Securities Act, and Sections 206(1), 206(2), and 207 of the Investment Advisers Act of 1940. The stipulated order is subject to court approval. The complaint also seeks disgorgement of allegedly ill-gotten gains along with interest, monetary penalties, and permanent injunctions.Without admitting to any violations of federal law alleged in the SEC's action, Direct Lending agreed be preliminarily enjoined from violating these provisions and to the appointment of a receiver to marshal and preserve the assets of Direct Lending and the funds. As set forth in part in the SEC Release:
[D]irect Lending advises a combination of private funds that invest in various lending platforms, including QuarterSpot, Inc., an online small business lender. The SEC alleges that for years, Brendan Ross, DLI's owner and then-chief executive officer, arranged with QuarterSpot to falsify borrower payment information for QuarterSpot's loans and to falsely report to Direct Lending that borrowers made hundreds of monthly payments when, in fact, they had not. The SEC alleges that many of these loans should have been valued at zero, but instead were improperly valued at their full value, because of the false payments Ross helped engineer. As a result, between 2014 and 2017, Direct Lending cumulatively overstated the valuation of its QuarterSpot position by approximately $53 million and misrepresented the Funds' performance by approximately two to three percent annually. The SEC alleges that Direct Lending collected approximately $11 million in excess management and performance fees from the Funds that it would not have otherwise collected, had the QuarterSpot position been accurately valued.
In the Matter of Gregory Reyftmann (Initial Decision of Default; SEC; Initial Dec. Rel. No. 1370; Admin. Proc. File No. 3-17959)
https://www.sec.gov/alj/aljdec/2019/id1370ce.pdf
https://www.sec.gov/alj/aljdec/2019/id1370ce.pdf
As set forth in the SEC Initial Decision's "Summary":
Gregory Reyftmann, who worked for a broker-dealer, led two schemes that defrauded investors by falsifying trade execution prices and the number of shares transacted. A district court imposed an injunction against Reyftmann as a result of his misconduct. This initial decision bars him from associating with any broker or dealer and from participating in an offering of penny stock.
https://www.justice.gov/usao-sdny/pr/us-attorney-announces-arrest-michael-avenatti-engaging-scheme-extort-public-company
In a criminal Complaint filed in the United States Distriuct Court for the Southern District of New York
https://www.justice.gov/usao-sdny/press-release/file/1147511/download, attorney Michael Avenatti was charged with one count each of conspiracy to transmit interstate communications with intent to extort; conspiracy to commit extortion; transmission of interstate communications with intent to extort; and extortion. Also, Avenatti was arrested on separate charges brought by the U.S. Attorney's Office for the Central District of California. As set forth in part in the DOJ Release:
https://www.justice.gov/usao-sdny/press-release/file/1147511/download, attorney Michael Avenatti was charged with one count each of conspiracy to transmit interstate communications with intent to extort; conspiracy to commit extortion; transmission of interstate communications with intent to extort; and extortion. Also, Avenatti was arrested on separate charges brought by the U.S. Attorney's Office for the Central District of California. As set forth in part in the DOJ Release:
In a scheme that unfolded in less than a week, AVENATTI and a co-conspirator not named as a defendant in the Complaint ("CC-1") used threats of economic and reputational harm to extort NIKE, Inc. ("Nike"), a multinational corporation engaged in, among other things, the marketing and sale of athletic apparel, footwear, and equipment. Specifically, AVENATTI threatened to hold a press conference on the eve of Nike's quarterly earnings call and the start of the annual National Collegiate Athletic Association ("NCAA") men's basketball tournament at which he would announce allegations of misconduct by employees of Nike. AVENATTI stated that he would refrain from holding the press conference and harming Nike only if Nike made a payment of $1.5 million to a client of AVENATTI's in possession of information damaging to Nike ("Client-1), and further agreed to "retain" AVENATTI and CC-1 to conduct an "internal investigation" - an investigation that Nike did not request - for which AVENATTI and CC-1 demanded to be paid, at a minimum, between $15 and $25 million. Alternatively, and in lieu of such a retainer agreement, AVENATTI and CC-1 demanded a total payment of $22.5 million from Nike to resolve any claims Client-1 might have and additionally to buy AVENATTI's silence.