The Wall Street Legal & Regulatory Feed
Securities Industry Commentator by Bill Singer Esq
July 30, 2020
COVID Pandemic Raises SEC Service Concerns
https://www.sec.gov/litigation/litreleases/2020/lr24857.htm
In a Complaint filed in the United States District Court for the Central District of California, the SEC charged six individuals and their companies (the "Defendants") (with the exception of Lloyd Marketing) 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. Also, the Complaint charges all defendants with violating the registration provisions of Section 5 of the Securities Act and charges the Johnsons, Portillo, Lloyd, Heckele, Green Bud Initiatives, CIS Marketing, and Lloyd Marketing with violating the broker-dealer registration requirements of Section 15(a) of the Exchange Act. The SEC seeks permanent injunctions, disgorgement of ill-gotten gains plus prejudgment interest, and civil penalties.
As alleged in part in the SEC Release;
[B]etween September 2017 and February 2019, California residents Anthony Todd Johnson (a/k/a Todd Johnson), Jeremy T. Johnson, Richard A. Portillo, and Michael R. Gregory, and Arizona residents Charles Lloyd and Mark W. Heckele, raised funds from more than 400 individuals to invest in two separate cannabis-related businesses in California, a marijuana farm and a cannabidiol (CBD) extraction facility. As alleged in the complaint, the six individual defendants allegedly conducted the scheme through nine issuers and three marketing companies, Smart Initiatives, LLC, Valley View Enterprises LLC, Target Equity LLC, Zabala Farms Group, LLC, GPA Enterprises LLC, C-Quadrant LLC, Green Bud Initiatives LLC, RJ Holdings Group, LLC, CIS Marketing, LLC, Green Growth Ventures, LLC, Extraction Capital Tier 1, LLC, and Lloyd Marketing, LLC.According to the complaint, brothers Todd and Jeremy Johnson, Portillo, Lloyd, and Heckele led investors to believe they would receive a guaranteed annual return on their investments of 100% or more. The complaint alleges that the Johnsons misappropriated more than $2.7 million of investor money and, with Gregory, deceived investors about a purported "business loan" secured by real property to develop the CBD extraction facility that in fact was used to pay back investors in an unrelated entity. The complaint further alleges that certain defendants misrepresented the principals' backgrounds, their capital contributions, and a purported relationship with a California university.
https://www.sec.gov/litigation/litreleases/2020/lr24858.htm
In a Complaint filed in 2017 in the United States District Court for the Southern District of New York
https://www.sec.gov/litigation/litreleases/2017/lr23805.htm, the SEC charged lawyer Mustafa David Sayid with taking control of two microcap companies, Nouveau Holdings, Ltd. and Striper Energy, Inc., and causing them to issue convertible debt to himself that could be redeemed for company stock, purportedly as payment for legal fees owed to him. The Complaint further alleges that Sayid sold the convertible debt to a pair of stock manipulators for a profit. Further, the Complaint alleges that Sayid hired lawyer Norman Reynolds to issue false opinion letters that were based on fabricated documentation from Sayid, and ultimately persuaded Nouveau's transfer agent to remove restrictive legends from millions of shares. The Complaint alleged that Reynolds had drafted the letters while negotiating for payment from the anticipated proceeds of a Nouveau pump-and-dump by the stock manipulators who had purchased the stock from Sayid. SDNY granted Summary Judgment against Sayid and Reynolds in 2019. On July 23, 2020, SDNY entered final judgments enjoining Sayid and Reynolds from violating the registration provisions of Section 5 of the Securities Act and the antifraud provisions of Section 17 of the Securities Act and Section 10(b) of the Securities Exchange Act and Rule 10b-5 thereunder. The Sayid Judgment orders him to pay $25,000 in disgorgement, $6,899 in prejudgment interest, snd a $160,000 civil penalty. The Reynolds Judgment orders him to pay $700 in disgorgement, $193 in prejudment interest, and a $75,000 civil penalty. Finally, Sayid and Reynolds are both barred from participating in an offering of penny stocks, and from preparing or issuing opinion letters in connection with the offer or sale of securities; and, additionally, Sayid is also barred from acting as an officer or director of any issuer with a class of securities registered with the SEC.
https://www.sec.gov/litigation/litreleases/2017/lr23805.htm, the SEC charged lawyer Mustafa David Sayid with taking control of two microcap companies, Nouveau Holdings, Ltd. and Striper Energy, Inc., and causing them to issue convertible debt to himself that could be redeemed for company stock, purportedly as payment for legal fees owed to him. The Complaint further alleges that Sayid sold the convertible debt to a pair of stock manipulators for a profit. Further, the Complaint alleges that Sayid hired lawyer Norman Reynolds to issue false opinion letters that were based on fabricated documentation from Sayid, and ultimately persuaded Nouveau's transfer agent to remove restrictive legends from millions of shares. The Complaint alleged that Reynolds had drafted the letters while negotiating for payment from the anticipated proceeds of a Nouveau pump-and-dump by the stock manipulators who had purchased the stock from Sayid. SDNY granted Summary Judgment against Sayid and Reynolds in 2019. On July 23, 2020, SDNY entered final judgments enjoining Sayid and Reynolds from violating the registration provisions of Section 5 of the Securities Act and the antifraud provisions of Section 17 of the Securities Act and Section 10(b) of the Securities Exchange Act and Rule 10b-5 thereunder. The Sayid Judgment orders him to pay $25,000 in disgorgement, $6,899 in prejudgment interest, snd a $160,000 civil penalty. The Reynolds Judgment orders him to pay $700 in disgorgement, $193 in prejudment interest, and a $75,000 civil penalty. Finally, Sayid and Reynolds are both barred from participating in an offering of penny stocks, and from preparing or issuing opinion letters in connection with the offer or sale of securities; and, additionally, Sayid is also barred from acting as an officer or director of any issuer with a class of securities registered with the SEC.
[In]Securities Guest Blog: Out of Touch, Out of Luck by Aegis Frumento Esq (BrokeAndBroker.com Blog)
http://www.brokeandbroker.com/5352/aegis-frumento-insecurities-lawyers/
Guest blogger Aegis Frumento considers the future of the legal profession. Aegis notes the increasing alarms about robots coming for the lawyers' jobs. As Aegis sees it, technology will pressure professional fees as the legal mystique, which justified hundreds of dollars an hour in billing rates, vanishes under the onslaught of artificial intelligence. It's not so much that the first thing we do, let's kill all the lawyers. As Aegis muses, the first thing we do, let's program all the law.
https://www.sec.gov/litigation/litreleases/2020/lr24859.htm
In a Complaint filed in the United States District Court for the Southern District of Indiana
https://www.sec.gov/litigation/complaints/2020/comp24859.pdf, the SEC charged Kevin R. Kuhnash, former Chief Executive Officer of Lucent Polymers Inc. and Jason P. Jimerson, former Chief Operating Officer of Lucent for their roles in an alleged scheme to conceal that Lucent's core business model was a sham in connection with the company's 2013 acquisition. The Complaint alleged that Lucent routinely lied to its customers and falsified its certifications of test data to show that its products complied with customer specifications, including on important aspects such as fire-retardant measures. Additionally, the Complaint alleged that Kuhnash and Jimerson hid Lucent's fraudulent practices, made misrepresentations to the company that acquired Lucent, and continued the fraud even after the sale of the business to secure future payments. In a parallel criminal case, Jimerson pled guilty to two counts of securities fraud, one count of money laundering, and one count of making false statements to federal agents; and Kuhnash pled guilty to two counts of securities fraud and one count of money laundering.
https://www.sec.gov/litigation/complaints/2020/comp24859.pdf, the SEC charged Kevin R. Kuhnash, former Chief Executive Officer of Lucent Polymers Inc. and Jason P. Jimerson, former Chief Operating Officer of Lucent for their roles in an alleged scheme to conceal that Lucent's core business model was a sham in connection with the company's 2013 acquisition. The Complaint alleged that Lucent routinely lied to its customers and falsified its certifications of test data to show that its products complied with customer specifications, including on important aspects such as fire-retardant measures. Additionally, the Complaint alleged that Kuhnash and Jimerson hid Lucent's fraudulent practices, made misrepresentations to the company that acquired Lucent, and continued the fraud even after the sale of the business to secure future payments. In a parallel criminal case, Jimerson pled guilty to two counts of securities fraud, one count of money laundering, and one count of making false statements to federal agents; and Kuhnash pled guilty to two counts of securities fraud and one count of money laundering.
Trade Secret Theft / Investigation Into Theft of Intellectual Property from GE Leads to Two Guilty Pleas (FBI Release)
https://www.fbi.gov/news/stories/two-guilty-in-theft-of-trade-secrets-from-ge-072920
https://www.fbi.gov/news/stories/two-guilty-in-theft-of-trade-secrets-from-ge-072920
As the FBI Release teases us with its first paragraph:
"He thought he was the smartest guy in the room." That's how FBI Albany Special Agent Vin Manglavil described Jean Patrice Delia, who pleaded guilty to conspiring to steal trade secrets from General Electric Company (GE). According to Manglavil, Delia was so confident that he believed he could download thousands of proprietary files-including a valuable trade secret-and launch a company to compete against his employer without anyone figuring out what he was up to.
In the Matter of
William J. Sears (SEC Order Extending
Briefing Schedule
and Requesting
Supplemental Briefing, Admin. Proc. Rul. Rel. No. 6781, Admin. Proc. File No. 3-17547)
https://www.sec.gov/alj/aljorders/2020/ap-6781.pdf
https://www.sec.gov/alj/aljorders/2020/ap-6781.pdf
In a matter pending before SEC Administrative Law Judge Joseph E. Grimes found good cause to extend a briefing schedule and he offered this context in part:
My office recently learned that, due to disruptions caused by the global pandemic, copies of some orders I issued may not have been served by mail on Respondent William J. Sears, who is pro se and incarcerated. This may explain Sears's failure to file his opposition to the Division of Enforcement's motion for summary disposition. . .
In a Statement of Claim filed in February 2020, FINRA member firm Clamant Bancwest asserted breach of contract and fraud; and sought at least $205,421.08 in compensatory damages plus interest, costs, expenses, and fees. Public customer Respondent Ballard, did not file an Answer or Submission Agreement, and did not appear at the hearing. In considering the allegations about Respondent's debit balance attendant to his options trading, the FINRA arbitrators noted in part that:
Claimant's evidence included prior examples of Respondent dealing similarly with other financial firms. The Panel found for Claimant both on its claim for breach of contract and on the basis of fraud.
The FINRA Arbitration Panel found Respondent Ballard liable and ordered him to pay to Claimant Bancwest $205,421.08 in compensatory plus interest and $1,000 in reimbursable filing fees.