Securities Industry Commentator by Bill Singer Esq

DreamFunded Dream Faded At FINRA And SEC Declines to Stay Expulsions and Bars (BrokeAndBroker.com Blog)

Hudson Valley Tequila Producer Pleads Guilty To Securities Fraud Scheme (DOJ Release)

Justice Department Requires Substantial Divestitures and Waiver of a Non-Compete for S&P to Proceed with its Merger with IHS Markit / Divestitures Will Preserve Competition Among Commodity Price Reporting Agencies and Waiver of Non-Compete Will Promote Competition for the Sale of Retail Gas Price Data (DOJ Release)

Chandler Man Sentenced to 30 Months for Securities Fraud and Embezzlement (DOJ Release)

Ottawa County Man Pleads Guilty To Securities Fraud (DOJ Release)

SEC Files Subpoena Enforcement Action Against Terraform Labs and Its CEO (SEC Release)

SEC Denies Award to Whistleblower Claimant

Order Determining Whistleblower Award Claims

FINRA Suspends Rep for Alleged SBA Loan Misrepresentations

In the Matter of Kenny Mejia, Respondent (FINRA AWC)

[F]rom in or about 2014 to 2018, CIMINO raised approximately $935,000 from at least 25 investors based on fraudulent representations.  To attract investors, CIMINO falsely inflated the amount of capital that he had raised from prior investors, and falsely described as investors several individuals who, in fact, had not contributed any funds.  CIMINO also falsely inflated his company's sales.  For example, in July 2017, CIMINO claimed in an investor report that year-to-date sales totaled 3,410 cases of tequila, when the actual sales totaled only 350 cases.  Similarly, in October 2017, CIMINO falsely claimed that year-to-date sales totaled 6,035 cases, which was approximately five times the actual total.  CIMINO further claimed in October 2017 that his company would receive reimbursement for 800 cases of tequila supposedly destroyed at a Puerto Rican warehouse as a result of Hurricane Maria.  In reality, no inventory was destroyed in the hurricane, and the company lacked insurance.

CIMINO also misused a substantial portion of investor money that was intended to fund the operations of his tequila business for personal expenses.  For example, from 2014 to 2018, CIMINO transferred approximately $472,000 of investor money to his personal bank account in order to subsidize his food, entertainment, and other living expenses.

The Department of Justice announced today that it will require S&P Global Inc. (S&P) to divest three of IHS Markit Ltd.'s (IHSM) price reporting agency (PRA) businesses to resolve antitrust concerns arising from their proposed $44 billion merger. PRAs provide critical price discovery for numerous commodity markets, including markets where trades are done off-exchange in private transactions that are not subject to reporting obligations.  The divestitures of Oil Price Information Services (OPIS), Coals, Metals, and Mining (CMM), and PetrochemWire (PCW) will maintain competition in PRA services and protect customer access to essential pricing information. In addition, the department will require OPIS to end a 20-year non-compete with GasBuddy, a popular crowd-sourced retail gas price information app that has long provided OPIS with pricing data for resale to commercial customers. This non-compete has effectively prevented GasBuddy - a company well positioned to enter the retail gas price data market - from launching a data service that would compete with OPIS.

The Justice Department's Antitrust Division filed a civil antitrust lawsuit in the U.S. District Court for the District of Columbia to block the proposed merger and to prevent OPIS from enforcing its non-compete with GasBuddy. At the same time, the department filed a proposed settlement that, if approved by the court, would resolve the competitive harms alleged in the complaint.

. . .

According to the complaint, as originally proposed, the merger would eliminate significant head-to-head competition between S&P's Platts division and IHSM's OPIS, CMM, and PCW businesses in providing PRA services for refined petroleum products, coal and petrochemicals. In these markets, PRA price assessments are often used as a price term in supply agreements and as the basis for settling hedging instruments like futures contracts. In the United States, S&P and IHSM are two of the three largest competitors in PRA services for refined petroleum products and coal; similarly, S&P and IHSM are two of the four largest competitors in PRA services for petrochemicals.

The complaint also alleges that the 20-year non-compete contained in OPIS's exclusive data license with GasBuddy has effectively prevented GasBuddy from launching a data service that would compete with OPIS. The waiver of this horizontal restraint will remove a barrier that has prevented healthy competition in the sale of retail gas price data.

Under the terms of the proposed settlement, S&P and IHSM must divest OPIS, CMM, and PCW to Dow Jones. Dow Jones is a provider of business and financial news and related data products and services. The proposed settlement also requires S&P and IHSM to waive the exclusivity and non-compete provisions contained in the data license agreement between OPIS and GasBuddy.

Nguyen previously pleaded guilty to orchestrating two fraudulent schemes. In the first, Nguyen committed a type of securities fraud known as "free riding," consisting of making transfers of funds into stock trading accounts from bank accounts that Nguyen knew were insufficiently funded. Nguyen traded with the transferred funds during the two or three days it took for the insufficiency in funds to be processed, resulting in losses to the trading entities of nearly $650,000. 

In the second, Nguyen embezzled from his then-employer, Amazon.com. During the short time he was employed by Amazon, Nguyen used his employee access to issue $96,000 worth of refunds to several buyer accounts that he owned or controlled. Amazon discovered, investigated, and reported the fraud to the FBI. 

[F]rom  2015 to 2019, Rupp recruited investors by posing as a licensed broker or trader who worked at one of two different brokerage firms.  Rupp told investors that he worked under the supervision of fictitious persons at those firms, one of whom he claimed was his uncle.  Rupp also told investors that the principal of the investments could not be lost for various reasons, including his choice of investments, trading strategy, and insurance.  Rupp fabricated documents as part of the scheme, including false account statements, a fraudulent securities license, and business documents bearing the logos of the companies for which he claimed to work.  Some of the documents stated that he had passed a securities trader qualification examination or that he was registered with the State of Michigan.  These claims, and others he made to induce and retain investments, were false.  In total, Rupp obtained more than $2.7 million from at least 19 investors, misappropriated more than $500,000 of investors' funds, and lost most of the remaining funds trading securities.

has reason to believe that Terraform Labs and Kwon participated in the creation, promotion, and offer to sell mAssets and MIR tokens to U.S. investors. As stated in the filing, SEC staff served both Terraform Labs and Kwon with investigative subpoenas requiring the production of certain documents and compelling Kwon's testimony. According to the filing, however, despite numerous attempts to negotiate with counsel, Terraform Labs and Kwon have refused to produce any documents and Kwon has failed to comply with the testimonial obligations.

[A]s relevant here, to be considered original information the submission must be provided to the Commission for the first time after July 21, 2010. Additionally, original information will be deemed to lead to a successful enforcement action if either: (i) the original information caused the staff to open an investigation "or to inquire concerning different conduct as part of a current . . . investigation" and the Commission brought a successful action based in whole or in part on conduct that was the subject of the original information; or (ii) the conduct was already under examination or investigation, and the original information "significantly contributed to the success of the action." 

Claimant does not dispute that the information Claimant provided to the staff in his/her Redacted email and the Redacted telephonic meeting with the staff and an official from another agency pre-dated the enactment of the Dodd-Frank Act and therefore does not qualify as original information under Exchange Act Rule 21F-4(b)(iv), and thus cannot form the basis of a whistleblower award.

With regard to the information Claimant provided after the enactment of the Dodd-Frank Act, we find that Claimant's information did not cause the Commission to inquire concerning different conduct as part of its existing investigation nor did it significantly contribute to the success of the Covered Action. As noted, the First Declaration stated that Claimant did not  provide the staff with any new and useful information about the Company's Redacted activities beyond what Claimant had already provided in his/her Redacted email and the Redacted telephonic interview and that none of the other allegations and information he/she provided at Redacted Redacted and after the Redacted meeting became a part of the Redacted case ultimately brought by the Commission against the Company.

In response to Claimant's letter contesting the Preliminary Determination, the attorney who wrote the First Declaration wrote two supplemental declarations (the "Second Declaration" and the "Third Declaration"). The Second and Third Declarations reconfirmed under penalty of perjury that Claimant did not provide the staff with any new and useful information about potential  Redacted after July 21, 2010 beyond what he/she had already provided in his/her Redacted email and Redacted telephonic interview. As noted, pursuant to the subpoena and preservation letter the staff sent the Company in Redactred, the Company provided responsive materials to the staff over the next several weeks and months. The Second and Third Declarations affirmed that the evidence produced by the Redacted Redacted Redacted Redacted Company was the primary source of information which led to the success of the Covered Action, including the scheme involving Redcted and Redacted involving 15 Redacted 

Claimant presents no reason to believe that any information he/she submitted after July 21, 2010 was used by the staff responsible for the Covered Action. We therefore credit the three staff declarations and find that Claimant's information did not significantly contribute to the success of the Covered Action. 

In 2020, as a result of the COVID-19 pandemic, the federal government initiated several programs to assist small businesses, including the COVID-19 Economic Injury Disaster Loan Program, which was administered by the SBA. In June 2020, after receiving advice from a friend about the Economic Injury Disaster Loan Program, Mejia submitted an application to the SBA for an Economic Injury Disaster Loan. Before submitting the application, Mejia did not review the Economic Injury Disaster Loan program requirements to determine his eligibility, nor did he review any instructions concerning the application. Mejia completed and submitted the application using his cell phone and without referring to any documentation. 

In the application, Mejia recklessly misrepresented that: (i) he was the owner of a gardening business, which he operated as a sole proprietorship; (ii) he had founded the business in 2019; (iii) he operated the business out of his home, using his personal telephone number and email address; and (iv) the business had earned revenue and incurred costs in the 12 months prior to January 31, 2020. Mejia, then a registered representative of J.P. Morgan with no disclosed outside business activities, did not then own a gardening business or any other business eligible for an Economic Injury Disaster Loan from the SBA. 

Based on Mejia's misrepresentations, the SBA provided him with a $1,000 Economic Injury Disaster Loan advance. Mejia did not complete a loan agreement for an Economic Injury Disaster Loan, and the SBA ultimately withdrew Mejia's loan application from consideration due to inactivity. 

As a result of this conduct, J.P. Morgan terminated Mejia. Prior to his termination, when questioned by J.P. Morgan investigators, Mejia made additional misrepresentations, including that he had filed the Economic Injury Disaster Loan application on the advice of his tax preparer. To date, Mejia has not repaid the $1,000 to the SBA. 

• Securities Industry Commentator
• Bill Singer