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Securities Industry Commentator by Bill Singer Esq

March 15, 2021



The Grandfather FINRA OBA Paradox (BrokeAndBroker.com Blog)
http://www.brokeandbroker.com/5736/finra-grandfather-paradox/
In the "Grandfather Paradox" we are asked to wonder whether you could travel back in time to kill your grandfather before he conceived your father. If your time travel was successful, then how were you able to kill your grandfather and prevent your birth if, in fact, you were never born? In a variation on this theme, the "FINRA Paradox," we are asked whether you could backdate a document that was supposed to be submitted before you got approval to engage in an outside business activity. Which prompts the obvious question: If your backdating was successful, then would your grandfather have hired you to engage in outside business activity if a tree fell on Wall Street while you were clapping with one hand and no one heard the tree fall but, nonetheless, everyone bought GameStop shares on Robinhood in the face of naked shorting?

https://www.justice.gov/usao-sdny/pr/singapore-resident-charged-manhattan-federal-court-fraudulent-pre-ipo-stock-scheme
In a Complaint filed in the United States District Court for the Southern District of New York
https://www.justice.gov/usao-sdny/press-release/file/1375726/download, Shamoon Rafiq a/k/a "Shamoon Omer Rafiq" a/k/a "Omar Rafiq" a/k/a "Omer Rafiq" was charged with one count of securities fraud, one count of wire fraud, and one count of aggravated identity theft. As alleged in part in the DOJ Release, Fariq:

was born in the Netherlands in 1973 and presently resides in Singapore.  RAFIQ was convicted in 2004 in the United States District Court for the Eastern District of New York for carrying out a wire fraud scheme in which he purported to sell pre-IPO stock in a privately held company that had not yet conducted its initial public offering when, in fact, RAFIQ did not own or have access to such stock.  After serving a 41-month federal prison sentence for that crime, RAFIQ was deported from the United States and eventually relocated to Singapore.

Since at least July 2020, RAFIQ has been engaging in a new scheme from Singapore to defraud victims into paying him millions of dollars for alleged investment interests in various pre-IPO stocks that he does not actually own or control. 

In connection with his new fraud scheme, RAFIQ has fraudulently impersonated two senior officials ("Victim-1" and "Victim-2") of a prominent family office investment firm ("FamCap") that manages and invests assets of members of a prominent billionaire family (the "Family").  In July 2020, RAFIQ caused the creation of a fake FamCap website (the "Fake FamCap Website") that has automatically routed users to the official FamCap website, and the creation of fake FamCap email addresses for Victim-1 and Victim-2 that closely resemble, but are slightly different from, their official FamCap email addresses (the "Fake FamCap Email Addresses").  The Fake FamCap Website and Fake FamCap Email Addresses for Victim-1 and Victim-2 were created without their or FamCap's consent.  The Fake FamCap Email Addresses also included the names of Victim-1 and Victim-2 without their authorization.

In July 2020, RAFIQ began soliciting millions of dollars from investment firms in New York and elsewhere based on false claims that in exchange for their funds, he would sell them investment interests in a purported special purpose investment vehicle called "[Fam] Capital Technology Fund, LLC" that was supposedly managed by FamCap and allegedly owned pre-IPO stock in Airbnb, Inc., among other companies.  For example, as part of this fraudulent scheme, RAFIQ deceived an investment firm based in New York, New York (the "New York Firm"), and one of the firm's foreign institutional clients (the "Client") into making agreements under which the Client wired about $9 million in mid-August 2020 into an escrow account in New York for anticipated release to a bank account in Singapore to pay RAFIQ for his purported sale of investment interests in the LLC.

In soliciting this $9 million investment, RAFIQ made a variety of false representations, including the following:
  • RAFIQ falsely claimed that the LLC was managed by FamCap.  In fact, the LLC never existed. 
  • RAFIQ falsely claimed that the LLC owned pre-IPO shares of Airbnb.  In fact, the LLC did not own and could not have owned such stock because the LLC never existed. 
  • RAFIQ falsely claimed that Victim-1 and Victim-2 had approved of his sale of his alleged interests in the LLC.  In fact, Victim-1 and Victim-2 do not know RAFIQ and have confirmed that FamCap was never involved in or approved of any such transaction.
During and to further the goals of this fraudulent scheme, RAFIQ also caused the creation and transmission of emails from the Fake FamCap Email Addresses and fake contracts and deal documents purporting to have been signed by Victim-1 or Victim-2 on behalf of FamCap that neither of them approved.  For example, in August 2020, during the course of email communications with the New York Firm and Client concerning RAFIQ's alleged sale to them of his purported interests in an alleged FamCap-managed LLC that supposedly held Airbnb shares, RAFIQ copied into the email chain the Fake FamCap Email Addresses to create the false impression that FamCap was involved in and approved of the alleged transaction.

In a separate parallel enforcement action, the United States Securities and Exchange Commission (the "SEC") has filed civil charges against RAFIQ.        

SEC Charges Texas Investment Adviser and Two Executives in Connection with $17 Million Energy Fund Fraud (SEC Release)
https://www.sec.gov/litigation/litreleases/2021/lr25051.htm
In a Complaint filed in the United States District Court for the Western District of New York
https://www.sec.gov/litigation/complaints/2021/comp25051.pdf, the SEC charged Patrick E. Duke, Paul W. Haarman, and APEG Energy GP with violating the antifraud provisions of Section 17(a) of the Securities Act  Section 10(b) of the Securities Exchange Act and Rule 10b-5 thereunder, and Sections 206(1) and 206(2) of the Investment Advisers Act of 1940. As alleged in part in the SEC Release:

[F]rom approximately December 2015 to October 2016, Duke and Haarman engaged in a fraudulent scheme involving the sale of limited partnership interests in the fund. The complaint alleges that the defendants made numerous false and misleading statements to investors about the risks of investing in the fund, Duke and Haarman's compensation for managing the fund, and their expertise in the oil and gas industry. As alleged in the complaint, for example, Haarman emailed investors that "[t]here is ZERO possibility of anyone losing their principle [sic] on account of all of the safety measures we have in place." In fact, as the complaint alleges there were no measures in place to prevent principal losses or otherwise guarantee production revenue. The Commission further alleges that, though Duke and Haarman told investors that their compensation was limited to a 2% fee for managing the fund, they improperly took an additional nearly $2.7 million in the form of purported "acquisition fees" linked to asset purchases for the fund. According to the complaint, the so-called "acquisition fees" were not disclosed to investors and violated the terms of the fund's governing documents and the fiduciary duties that Duke and Haarman owed to the fund.

Staff Statement on Investment Company Cross Trading (SEC Division of Investment Management Staff)
https://www.sec.gov/news/public-statement/investment-management-statement-investment-company-cross-trading-031121
The Staff is seeking guidance on the following issues:
  • Current cross trading practices. Under what circumstances do funds currently engage in cross trading? To what extent do funds' current cross trades not have readily available market quotations as defined in the Valuation Rule? What amount of cross trading occurs between two registered investment companies as compared to cross trading between a registered investment company and another type of affiliate? What types of securities do funds currently cross trade? What types of securities do advisers believe they could cross trade under current rule 17a-7, but choose not to rely on the rule and instead to trade in the market? What types of securities would advisers like to cross trade but believe they cannot do so under the current rule 17a-7?     

  • Securities Eligible to Cross Trade: Pricing and liquidity. What are the advantages and disadvantages of the threshold requirement in rule 17a-7 that a security have a "readily available market quotation"? What sources of independent current market prices are used to cross trade securities under rule 17a-7? What are the liquidity characteristics of securities that funds currently cross trade? Are cross traded securities valued in the same manner under rule 17a-7 as they are under section 2(a)(41) of the Act? What other criteria for the transactions would protect against conflicts of interest or other risks of cross trades?

  • Controls. What kinds of controls do advisers have in place to govern cross trading? What controls do advisers have in place to assess whether a cross trade is consistent with the adviser's fiduciary obligation to its clients and is in the best interest of both the buying and selling fund? What controls do funds have in place to assess whether a cross trade is consistent with the investment policy of both the buying fund and the selling fund?

  • Market transparency. How does cross trading affect market transparency? How might transparency be enhanced for all market participants? To what extent might cross-trades affect market efficiency because they are not publicly reported?
If you would like to let the staff know your views regarding these issues, we are providing an email box as a convenient method for you to communicate with us: we recommend that you send an email to "IM-Rules@sec.gov" and insert "Cross Trading" in the subject line. Feedback would be most helpful if provided within 30 days after publication of this statement on the Commission's website.

Remarks at Investor Advisory Committee Meeting (SEC Commissioner Hester M. Peirce)
https://www.sec.gov/news/public-statement/peirce-statement-investor-advisory-committee-meeting-031121
Trump. Biden. SEC Chair Clayton. Acting SEC Chair Lee. Incoming SEC Chair Gensler. Apparently, none of that matters. When SEC Commissioner Peirce wants to speak her mind, she does. No wetting a finger to find the prevailing wind. She just lets loose with her thoughts on whatever comes her way. In her recent musings, Peirce notes in part that [Ed: footnotes omitted]:

A knee-jerk reaction to events like those surrounding the meme stocks or problems associated with two of today's discussion topics-self-directed IRAs and SPACs-is to try to dissuade retail investors from participating at all. As we have seen with the wealth-based accredited investor thresholds, telling investors they cannot make decisions for themselves only supports their suspicions that the capital markets are for the wealthy. A better approach is to keep open different avenues for investors to access the markets, but ensure that disclosures are good, warn investors of the risks associated with investing, and urge them to ask questions and proceed with caution. Overly prescriptive regulations to protect self-directed IRA investors could serve to close this option to them altogether. Likewise, well-intentioned increased regulatory obligations around SPACs could make them less cost-effective.

SPACs are clearly having a moment as they outpace traditional IPOs in the number and size of deals so far in 2021. Looking past the hype-and there is a lot of that as our staff highlighted in an investor bulletin yesterday -- I am encouraged that SPACs may be vehicles through which retail investors can gain early exposure to high-growth companies that otherwise would not be available to them. We should welcome the addition of startup public companies that historically would have experienced their growth stage in the private markets, where retail investors are not permitted to participate. Of course, many startups fail, and assessing opportunities and risks associated with SPACs can be particularly difficult given the two-staged SPAC process, which involves both an IPO and a subsequent business combination transaction. We should ensure SPACs are providing sufficient disclosures to enable informed investment decision-making at each stage. A question for the panel is whether the disclosure guidance issued by the Division of Corporation Finance in December 2020 is helpful and sufficient.

Warren Law Group is a boutique securities and commercial litigation firm based in New York City. We represent clients across the country in FINRA investigation and enforcement matters, SEC regulatory matters, arbitration, corporate regulatory and compliance matters, as well as corporate securities matters and private capital raises

We are seeking a junior to mid-level litigation associate who is currently admitted in any U.S. jurisdiction with 2+ years of relevant experience. Candidates must have strong writing skills, experience drafting pleadings as well as dispositive motion practice and discovery items, and a willingness to collaborate remotely. Compensation is commensurate with the number of years of credited experience and will increase each subsequent year.

Our litigation practice is varied and interesting. We work reasonable hours while maintaining the highest standards for our work product. We take pride in being a collaborative work environment with a sense of community among our staff.

Benefits:
  • Health insurance
  • 401k Contributions
  • Paid time off
  • Professional development assistance
  • Bonus Incentives based on productive time, not total time.
  • Flexible work schedule and full-time remote available.
If interested, please submit a copy of your resume and a writing sample, preferably a
memorandum of law from a dispositive motion or an appellate brief you drafted and filed, to

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