The Wall Street Legal & Regulatory Feed
Securities Industry Commentator by Bill Singer Esq
February 27, 2018
In the Matter of Steven Zoernack and Equitystar Capital Management, LLC, Respondents (SEC Order) https://www.sec.gov/litigation/admin/2018/33-10461.pdf
In anticipation of the institution of proceedings by the SEC but without admitting or denying the findings, Steven Zoernack and Equitystar Capital Management, LLC submitted an Offer of Settlement, which the federal regulator accepted. In the Matter of Steven Zoernack and Equitystar Capital Management, LLC, Respondents (Order Making Findings, and Imposing Remedial Sanctions and A Cease-And-Desist Order; '33 Act Rel. No. 10461; '34 Act Rel. No. 82773; Invest. Comp. Rel. Act 33034; Admin. Proc. File No. 3-17157 / February 26, 2018) (the "SEC Order"). Zoernack and his unregistered investment adviser EquityStar fraudulently offered and sold to over 40 investors at least $5.6 million of interests in Global Partners Fund, LLC and Momentum Growth Fund, LLC, unregistered investment funds created by Zoernack and managed through EquityStarThe Respondents were ordered to cease and desist from violations of federal securities laws; Zoernack was barred from association with any broker, dealer, investment adviser, municipal securities dealer, municipal advisor, transfer agent, or nationally recognized statistical rating organization; Zoernack and EquityStar were prohibited from serving or acting as an employee, officer, director, member of an advisory board, investment adviser or depositor of, or principal underwriter for, a registered investment company or affiliated person of such investment adviser, depositor, or principal underwriter; and Zoernack and EquityStar will pay, jointly and severally, a $2,890,518.54 disgorgement. The SEC did not impose a civil penalty and prejudgment interest against Respondents in light of Respondent Zoernack's 60 month prison sentence, which commenced on November 15, 2017, in United States v. Zoernack (United States District Court for the Middle District of Florida, 17-CR-13). As set forth in part under the "Summary" portion of the SEC Order:
In anticipation of the institution of proceedings by the SEC but without admitting or denying the findings, Steven Zoernack and Equitystar Capital Management, LLC submitted an Offer of Settlement, which the federal regulator accepted. In the Matter of Steven Zoernack and Equitystar Capital Management, LLC, Respondents (Order Making Findings, and Imposing Remedial Sanctions and A Cease-And-Desist Order; '33 Act Rel. No. 10461; '34 Act Rel. No. 82773; Invest. Comp. Rel. Act 33034; Admin. Proc. File No. 3-17157 / February 26, 2018) (the "SEC Order"). Zoernack and his unregistered investment adviser EquityStar fraudulently offered and sold to over 40 investors at least $5.6 million of interests in Global Partners Fund, LLC and Momentum Growth Fund, LLC, unregistered investment funds created by Zoernack and managed through EquityStarThe Respondents were ordered to cease and desist from violations of federal securities laws; Zoernack was barred from association with any broker, dealer, investment adviser, municipal securities dealer, municipal advisor, transfer agent, or nationally recognized statistical rating organization; Zoernack and EquityStar were prohibited from serving or acting as an employee, officer, director, member of an advisory board, investment adviser or depositor of, or principal underwriter for, a registered investment company or affiliated person of such investment adviser, depositor, or principal underwriter; and Zoernack and EquityStar will pay, jointly and severally, a $2,890,518.54 disgorgement. The SEC did not impose a civil penalty and prejudgment interest against Respondents in light of Respondent Zoernack's 60 month prison sentence, which commenced on November 15, 2017, in United States v. Zoernack (United States District Court for the Middle District of Florida, 17-CR-13). As set forth in part under the "Summary" portion of the SEC Order:
[F]rom at least May 2010 through at least March 2014, EquityStar and Zoernack-EquityStar's managing member and sole employee- made material misrepresentations and omissions and engaged in a fraudulent scheme involving this and other deceptive conduct including:
- taking extensive measures to hide Zoernack's identity as fund manager-while simultaneously advertising that the funds boasted a seasoned and reputable manager- and otherwise failing to disclose to investors and others, material facts about Zoernack's background, including two felony fraud convictions, a bankruptcy filing, and other money judgments and liens against Zoernack;
- providing false and misleading data about Momentum to Morningstar, Inc. (a company that provides independent investment research to individuals, financial advisers and institutions) in order to obtain for Momentum the title of "Morningstar Five Star Rated Fund," which Zoernack then used to market the fund. For example, Zoernack misrepresented to Morningstar that the Momentum fund had been in existence for years longer than it actually had, and that its assets were more than 40 times higher than they actually were;
- creating and distributing false and misleading investment marketing materials, which failed to adequately indicate that results were hypothetical and not based on actual fund performance;
- hiring a firm to manipulate Internet search results for Zoernack and populating the Internet with false and misleading information about him, including that he was a successful fund manager, investor, and philanthropist. This had the effect of making it harder for potential investors and others to discover information about Zoernack's criminal convictions and other negative information about him; and
- secretly withdrawing more than $1 million from about February 2012 to at least May 2014, without authorization, and without disclosing his withdrawals to investors, and falsely characterizing the withdrawals as assets of the funds.
Former Financial Advisor Sentenced to Two Years in Prison for Defrauding Client in Private Investment Scheme (DOJ Press Release) https://www.justice.gov/usao-cdil/pr/former-financial-advisor-sentenced-two-years-prison-defrauding-client-private Former bank-based financial advisor Paul Schuerger pled guity to wire fraud and money laundering in connection with his misrepresentation to a bank customer about a $100,000 investment opportunity providing a 10% rate of return. Schuerger was sentenced to 24 months in federal prison and ordered to pay $100,000 restitution for falsely representing a private investment scheme to a customer that resulted in the client losing money. Schuerger diverted the investment funds to pay off personal debts and towards others personal uses.
Employee of United States Department of Agriculture Office in Houston County Arrested After Being Charged with Crop Insurance Fraud (DOJ Press Release) https://www.justice.gov/usao-mdal/pr/employee-united-states-department-agriculture-office-houston-county-arrested-after
Former United States Department of Agriculture's Farm Service Agency employee Anna Marie Knowles was indicted in the Middle District of Alabama on charges of wire fraud, theft of government property, and using a false document.. As set forth in part in the DOJ Press Release:
[I]n 2016, Knowles obtained crop insurance through a federal program, the Noninsured Crop Disaster Assistance Program (NAP). NAP is a USDA program that provides financial assistance to producers of non-insurable crops when low yields, loss of inventory, or prevented planning occur due to a natural disaster. Knowles insured a crop of summer squash that she was planning to grow on land in Houston County, Alabama. Thereafter, Knowles filed a claim through the federal crop insurance program. In that claim, she falsely reported that a drought had caused her to lose the majority of her squash crop. She also submitted forged receipts to establish that she had spent money to purchase squash seed and fertilizer. After filing the claim, Knowles fraudulently obtained $116,500.00 through NAP. The indictment also states that, in her job at the USDA office, Knowles was responsible for administering federal crop insurance programs in Houston County.
Mandatory Arbitration: An Illusory Remedy for Public Company Shareholders (Speech at PLI's The SEC Speaks in 2018 by Rick A. Fleming, SEC Investor Advocate)
https://www.sec.gov/news/speech/fleming-sec-speaks-mandatory-arbitration
https://www.sec.gov/news/speech/fleming-sec-speaks-mandatory-arbitration
As a legal matter, I believe the Commission has been on solid footing when objecting to companies forcing shareholders into arbitration. Securities Act Section 8(a) allows the Commission to refuse to accelerate the effective date of an issuer's registration statement upon considering, among other things, the facility with which the rights of the issuer's securities holders can be understood, the public interest, and the protection of investors. If an issuer chooses to file a registration statement with a forced arbitration provision, I would urge the Commission and staff to make use of Section 8(a).
"Anticompetitive Mergers in Labor Markets" by Marinescu, Ioana and Hovenkamp, Herbert J., (Penn Law Legal Scholarship Repository, February 20, 2018). http://scholarship.law.upenn.edu/faculty_scholarship/1965
Here, we offer a first but reasonably comprehensive and empirically based assessment of the problem of mergers that facilitate anticompetitive wage and salary suppression. We analyze the empirics and consider the most likely problems that courts will encounter in such litigation, including market definition, assessment of market concentration, the role of non-compete and non-poaching agreements as aggravating factors for concentration, and application of the government's Merger Guidelines.6 Although many of the queries that this analysis requires might seem unique, the principles being applied are derived entirely from well established economic doctrine and traditional antitrust rules concerning competitive harm. We comprehensively apply these well-established principles to purchasing rather than selling, and to labor rather than products.