The Wall Street Legal & Regulatory Feed
Securities Industry Commentator by Bill Singer Esq WEEK IN REVIEW
July 7, 2018
Credit Suisse's Investment Bank in Hong Kong Agrees to Pay $47 Million Criminal Penalty for Hiring Scheme That Violated the Foreign Corrupt Practices Act (DOJ Press Release)
Federal prosecutors alleged that between 2007 and 2013, several senior managers of in the Asia Pacific (APAC) region of Credit Suisse (Hong Kong) Limited (Credit Suisse Hong Kong or CSHK), a Hong Kong-based subsidiary of Credit Suisse Group AG (Credit Suisse or CSAG), a Swiss-based issuer of publicly traded securities in the United States engaged in a practice to hire, promote, and retain candidates referred by or related to Chinese government officials and executives of Chinese state-owned entities (SOE). The employment of these "relationship" or "referral hires" was part of a quid pro quo with the officials who referred the candidates for employment, whereby CSHK bankers sought and obtained business from the referral sources. Employees of other subsidiaries of CSAG were aware of the referral hires and facilitated the conduct. CSHK entered into a non-prosecution agreement and agreed to pay a criminal penalty of $47,029,916 to resolve the matter. In related proceedings, Credit Suisse Group AG also settled with the U.S. Securities and Exchange Commission (SEC). Under the terms of its resolution with the SEC, Credit Suisse Group AG agreed to a total of $24,989,843 in disgorgement of profits and $4,833,961 in prejudgment interest. READ the FULL TEXT Non Prosecution Agreement
SEC Charges Credit Suisse With FCPA Violations (SEC Press Release 2018-128)
An SEC Order alleges that several senior Credit Suisse Group AG managers in the Asia-Pacific region sought to win business by hiring and promoting individuals connected to government officials as part of a quid pro quo arrangement. Although the cited practices purportedly bypassed the firm's normal hiring process, employees in other Credit Suisse subsidiaries and affiliates were aware of at times approved these "relationship hires" or "referral hires." In settling the SEC's allegation, Credit Suisse Group agreed to pay about $30 million. Separately, the firm agreed to pay a $47 million criminal penalty to the United States Department of Justice..
READ the FULL TEXT SEC Order https://www.sec.gov/litigation/admin/2018/34-83593.pdf
Mentoring Wall Street Professionals About Determination And Persistence (BrokeAndBroker.com Blog)
http://www.brokeandbroker.com/4064/palumbo-mullooly--living-with-money/
As a mentor, few things are more frustrating than dealing with someone who doesn't return telephone calls, fails to timely reply to emails, and thinks it is professional to communicate with customers and managers via emoticons. There is no persistence. There is no determination. It's all lackadaisical. Nothing frustrates me more than having to send emails, instant messages, and phone calls asking someone I'm trying to help if they contacted a lead that I had arranged for them -- did you call her yet? As the "Not Yet" or "I'm too busy right now" or "I got your message and I promise to call her first chance" add up, I often see who's going to make it and who still doesn't get it. Time and tide wait for no one.
http://www.brokeandbroker.com/4064/palumbo-mullooly--living-with-money/
As a mentor, few things are more frustrating than dealing with someone who doesn't return telephone calls, fails to timely reply to emails, and thinks it is professional to communicate with customers and managers via emoticons. There is no persistence. There is no determination. It's all lackadaisical. Nothing frustrates me more than having to send emails, instant messages, and phone calls asking someone I'm trying to help if they contacted a lead that I had arranged for them -- did you call her yet? As the "Not Yet" or "I'm too busy right now" or "I got your message and I promise to call her first chance" add up, I often see who's going to make it and who still doesn't get it. Time and tide wait for no one.
SEC Charges Former Executive for Insider Trading (SEC Litigation Release No. 24186)
In a Complaint filed by the SEC in the United States District Court for the Northern District of Texas, the federal regulator alleged that Nelson "Frank" Molina, the former Vice President of Investor Relations and Treasury at ClubCorp, had discovered that ClubCorp was exploring significant transactions involving the company and purchased shares of the company's publicly-traded stock, which yielded a 16% increase and $78,000 profit. After receiving an inquiry from the Financial Industry Regulatory Authority, ClubCorp contacted Molina, who acknowledged his unlawful trading and promptly resigned from the company. Through counsel, Molina reported his misconduct to the SEC staff and provided materials documenting his unlawful trading.In response to the allegations in the SEC Complaint but without admitting or denying the allegations, Molina agreed to the entry of a final judgment permanently enjoining him from future violations of Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder. Molina will disgorge his ill-gotten gains and pay a penalty of $39,230. READ the FULL TEXT Complaint SEC Obtains Asset Freeze, Shuts Down $5 Million Ponzi Scheme (SEC Litigation Release No. 24184)
The Securities and Exchange Commission filed a Complaint in the United States District Court for the Eastern District of Virginia charging Edward Lee Moody and his wholly-owned investment adviser firm CM Capital Management, LLC with violations of the anti-fraud provisions of Section 17(a) of the Securities Act of 1933, Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder, and Sections 206(1) and 206(2) of the Investment Advisers Act. The Court issued a temporary restraining order freezing assets in over 30 brokerage/bank accounts purportedly controlled by the Defendants, The SEC also seeks disgorgement from relief defendant, G.E. Holdings, a company that the SEC alleges is wholly controlled by Moody and was used to receive and transfer victim funds.a nearly $5 million Ponzi scheme.
The Securities and Exchange Commission filed a Complaint in the United States District Court for the Eastern District of Virginia charging Edward Lee Moody and his wholly-owned investment adviser firm CM Capital Management, LLC with violations of the anti-fraud provisions of Section 17(a) of the Securities Act of 1933, Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder, and Sections 206(1) and 206(2) of the Investment Advisers Act. The Court issued a temporary restraining order freezing assets in over 30 brokerage/bank accounts purportedly controlled by the Defendants, The SEC also seeks disgorgement from relief defendant, G.E. Holdings, a company that the SEC alleges is wholly controlled by Moody and was used to receive and transfer victim funds.a nearly $5 million Ponzi scheme.
SEC Charges Real Estate Investment Funds and Executives for Misleading Investors (SEC Litigation Release No. 24184)
Without admitting or denying the SEC's allegations in a Complaint filed in the United States District Court for the Northern District of Texas, Hollis M. Greenlaw, Benjamin L. Wissink, Theodore F. Etter, Cara D. Obert, and David A. Hanson agreed to pay $8.2 million in disgorgement, prejudgment interest, and civil penalties. Hanson agreed to pay a $75,000 civil penalty. The defendants consented to the entry of final judgments that order them to be permanently enjoined from violating Sections 17(a)(2) and (3) of the Securities Act of 1933, and the disclosure, books and records and internal accounting control provisions of Sections 13(a), 13(b)(2)(A), and 13(b)(2)(B) of the Securities Exchange Act of 1934 and Rules 12b-20, 13a-1, and 13a-13 thereunder. Greenlaw and Obert consented to also be enjoined from violating the certification provisions of Exchange Act Rule 13a-14. The SEC had alleged that United Development Funding (UDF) funds UDF III and UDF IV and four executives misled investors by failing to disclose that UDF could not pay its distributions and was using money from a newer fund to pay distributions to investors in the older fund. READ FULL TEXT Complaint
SEC Seeks To Reform Its Whistleblower Process (BrokeAndBroker.com Blog)
Those of us who represent whistleblowers frequently practice regulatory law and are often former regulators. We fully appreciate that there are certain response that would be improper (and at times illegal) for OWB to provide. That being said, it is frustrating and insulting to be treated as if we are representing criminal defendants or regulatory respondents when asking OWB for an update -- and we are incensed when the response is that "we are not permitted to share that with you." Both OWB staff and whistleblowers are victimized by the lack of deadlines on many steps from the filing of a WB-APP, to being considered for an award, to being notified of the granting or denial of an award, and the calculation of the percentage of the award.
Those of us who represent whistleblowers frequently practice regulatory law and are often former regulators. We fully appreciate that there are certain response that would be improper (and at times illegal) for OWB to provide. That being said, it is frustrating and insulting to be treated as if we are representing criminal defendants or regulatory respondents when asking OWB for an update -- and we are incensed when the response is that "we are not permitted to share that with you." Both OWB staff and whistleblowers are victimized by the lack of deadlines on many steps from the filing of a WB-APP, to being considered for an award, to being notified of the granting or denial of an award, and the calculation of the percentage of the award.
Disbarred Attorney Admits Defrauding Former Clients and Law Firm Investors (DOJ Press Release)
Clayton Marlow Anderson, Jr., disbarred from the practice of law in 2015, pled guilty in the United States District Court for the Southern District of California to defrauding investors and clients of over a million dollars; and to money laundering. Clayton created the "Clayton M. Anderson Monthly Income Plan", "Anderson Plan", or "A-Plan."to solicit loans from six individuals to finance the costs and fees related to construction defect lawsuits brought by his law firm. In 2010, owners of the Jefferson Pointe Professional Corporation ("JPPC") hired Anderson to represent them in a construction defect lawsuit, which he settled in October 2012 for $1.82 million Instead of paying his clients their rightful share of the legal settlement, however, Anderson sent them a letter on behalf of "A-Plan Investment Services, Inc." promising JPPC a 13% annual return on their $800,0000 "investment." Anderson fraudulently represented that A-Plan was the beneficiary of a $4.4 million insurance policy on his life. Anderson's fraud produced over $600,000 for the JPPC clients over $700,000 in losses for other A-Plan participants. As a part of his plea agreement, Anderson agreed to pay over $1.5 million in restitution to the victims of his crimes. Anderson faces up to 30 years in federal prison and a fine of up to $2,974,515.00
Ann Eleanor Ploetz, as Trustee for the Laudine L. Ploetz, 1985 Trust, Plaintiff/Appellant v. Morgan Stanley Smith Barney LLC, Defendant/Appellee (Opinion, July 2, 2018)f
Ploetz filed a FINRA Arbitration claim against Morgan Stanley Smith Barney LLC, alleging that Morgan Stanley had transferred funds from the account without authorization. Six days before the arbitration hearing was set to begin, Chair Olander discovered he had a scheduling conflict.The parties picked Barry Goldman as the new Chair. Goldman's disclosure report stated he was currently serving as an arbitrator in two other cases that had "Morgan Stanley" as a party; and, further, that he had served as an arbitrator in eight closed cases in which a member of the Morgan Stanley family (e.g., Morgan Stanley& Co. or Morgan StanleyDW, Inc.) or the Smith Barney family (e.g., Salomon Smith Barney, Inc., or Smith Barney Inc.) had been a party. In the case most recently closed, sole arbitrator Goldman dismissed as untimely the claims against a Morgan Stanley affiliate. Notwithstanding all of the aforementioned disclosures, Goldman's report did not disclose he had once served as a mediator in another case involving Morgan Stanley Smith Barney LLC. In that matter, the mediation was unsuccessful, and, thereafter, an arbitration panel (on which Goldman did not sit) found that Morgan Stanley owed the claimant $75,000 in damages. After the FINRA arbitration panel chaired by Goldman unanimously denied Ploetz's claim, she learned about a month later of Goldman's undisclosed service years earlier. Ploetz moved in district court to vacate the arbitration award under the Federal Arbitration Act citing Goldman's "evident partiality," and "misbehavior," which had allegedly prejudiced her. The District Court denied the motion, holding that Ploetz did not show Goldman had "evident partiality" since there was "no evidence" that the "mediation with [Morgan Stanley] had any effect on the resolution of [her] claim;" further, the District Court held that Ploetz did not establish that Goldman was guilty of "misbehavior" either, since she did not assert that she was "deprived of a fair hearing." On appeal the 8Cir affirmed but on somewhat different grounds.
SEC Charges Attorney and Law Firm Business Manager With Illegal Sales of UBI Blockchain Internet Stock (DOJ Pres Release 2018-126) https://www.sec.gov/news/press-release/2018-126
In a Complaint filed in the United States District Court for the Southern District of New York, the SEC alleged that attorney T.J. Jesky and his law firm's business affairs manager, Mark F. DeStefano, made approximately $1.4 million by selling shares in UBI Blockchain Internet Ltd. over a 10-day period from Dec. 26, 2017 to Jan. 5, 2018. Jesky and DeStano allegedly received 72,000 restricted shares of UBI Blockchain stock, which they were permitted to sell at a fixed price of $3.70 per share under the registration statement' however, they allegedly sold the shares from $21.12 to $48.40. READ FULL TEXT Complaint
SEC Seeks To Reform Its Whistleblower Process (BrokeAndBroker.com Blog)
Those of us who represent whistleblowers frequently practice regulatory law and are often former regulators. We fully appreciate that there are certain response that would be improper (and at times illegal) for OWB to provide. That being said, it is frustrating and insulting to be treated as if we are representing criminal defendants or regulatory respondents when asking OWB for an update -- and we are incensed when the response is that "we are not permitted to share that with you." Both OWB staff and whistleblowers are victimized by the lack of deadlines on many steps from the filing of a WB-APP, to being considered for an award, to being notified of the granting or denial of an award, and the calculation of the percentage of the award.
Those of us who represent whistleblowers frequently practice regulatory law and are often former regulators. We fully appreciate that there are certain response that would be improper (and at times illegal) for OWB to provide. That being said, it is frustrating and insulting to be treated as if we are representing criminal defendants or regulatory respondents when asking OWB for an update -- and we are incensed when the response is that "we are not permitted to share that with you." Both OWB staff and whistleblowers are victimized by the lack of deadlines on many steps from the filing of a WB-APP, to being considered for an award, to being notified of the granting or denial of an award, and the calculation of the percentage of the award.
CFTC Charges Operator of Commodity Trading Fund with Defrauding Fund Participants (CFTC Rel. No. 7749-18)
The CFTC filed a Complaint in the United States District Court for the Eastern District of New York, charging Defendant Harris Bruce Landgarten with defrauding participants in a commodity pool that he operated, the Tradeanedge Members Fund (TMF), and with providing his pool participants false account statements and with commingling pool funds with non-pool funds. Separately, the U.S. Attorney's Office for the Eastern District of New York filed a related criminal action charging Landgarten with commodity fraud and wire fraud related to the same underlying fraudulent conduct alleged in the Complaint/ and with one count of obstructing the CFTC's investigation. READ the FULL TEXT CFTC COMPLAINT
SEC Charges KBR for Inflating Key Performance Metric (SEC Press Release 2018-127)
Without admitting or denying the allegations and in order to settle the SEC's charges, global engineering and construction company KBR Inc. consented to an SEC's order finding of books and records, internal accounting controls, financial reporting, and other securities law violations, and KBR agreed to pay a $2.5 million penalty. In part, the SEC found that in the second quarter of 2012, KBR included $459 million in its publicly disclosed backlog for one of seven contracts it had entered into to complete pipe fabrication and modular assembly contracts in Canada; however, the SEC alleged that KBR had not received any orders under the contract. Further, the SEC found that KBR failed to make accurate and reliable estimates of the completion costs for the Canadian contracts. READ the FULL TEXT SEC ORDER
(SEC Litigation Release No. 24182)
The United States District Court for the Southern District of Mississippi entered judgments against municipal advisor and MSRB member Malachi Financial Products, Inc., and its principal, Porter B. Bingham for defrauding the City of Rolling Fork, Mississippi and failing to disclose certain related-party payments in connection with a municipal bond offering. Bingham allegedly failed to disclose to the city that he had accepted payments totaling $2,500 from Anthony Stovall, an employee of a municipal underwriter, shortly before he and Malachi recommended that the city hire Stovall's firm to underwrite the bond offering. Without admitting or denying the allegations in the complaint, Malachi and Bingham consented to the entry of judgments permanently enjoining them from violating portions of the Securities Exchange Act of 1934 and MSRB Rule G-17. Malachi and Bingham are ordered to pay joint and several disgorgement of $33,000 plus prejudgment interest of $2,858; and Malachi to pay a civil penalty of $50,000 and Bingham to pay a civil penalty of $25,000. READ the FULL TEXT Complaint
Three Convicted In Manhattan Federal Court For The Fraudulent Issuance And Sale Of More Than $60 Million Of Tribal Bonds (DOJ Press Release)
Following a 5 1/2 week trial in the United States District court for the Southern District of New York, defendants John Galanis, a/k/a "Yanni," Devon Archer, and Bevan Cooney were each convicted today of conspiracy to commit securities fraud and securities fraud. , following a five and half week trial before U.S. District Judge Ronnie Abrams. Galanis, Archer, and Cooeny along with co-conspirators Jason Galanis, Hugh Dunkerley, Gary Hirst, and Michelle Morton fraudulently induced the Wakpamni Lake Community Corporation ("WLCC"), a Native American tribal entity, to issue a series of bonds (the "Tribal Bonds"); and, thereafter, the conspirators deceptively induced clients of asset management firms controlled by Morton and others to purchase the Tribal Bonds, which the clients were then unable to redeem or sell because the bonds were illiquid and lacked a ready secondary market. Although the Tribal Bonds were supposed to be invested in an annuity, Hugh Dunkerley, at the direction of Jason Galanis, transferred significant bond proceeds to support the defendants' business and personal interests. Jason Galanis, Michelle Morton, Gary Hirst, and Hugh Dunkerley each pled guilty.
Customer And Brokerage Firm Agree: I Wuz Robbed! (BrokeAndBroker.com Blog)
In today's featured arbitration, we got an unhappy public customer complaining that he was duped by his stockbroker into an investment that was beset by fraud. Frankly, the customer seems to have had a point. Turns out that the broker-dealer filed its own claim against the stockbroker "for his acts of theft." When your best defense admits that the complaining customer was the victim of theft and you file your own claim seeking to be made whole from by the same thief, there's not that much to do beyond write out a settlement check to the customer.
(SEC Press Release 2018-124)
In anticipation of the institution of proceedings by the SEC but without admitting or denying the findings, Morgan Stanley Smith Barney submitted an Offer of Settlement, which the federal regulator accepted. The SEC issued an order finding that MSSB failed to have reasonably designed policies and procedures in place to prevent its advisory representatives from misusing or misappropriating funds from client accounts. Although MSSB's policies provided for certain reviews of disbursement requests,the order found that the reviews were not reasonably designed to detect or prevent such potential misconduct. Pointedly, the order found that the cited lapses contributed to MSSB's failure to detect or prevent advisory representative Barry F. Connell, from misusing or misappropriating approximately $7 million out of four advisory clients' accounts in approximately 110 unauthorized transactions occurring over a period of nearly a year. MSSB is required to pay a $3.6 million penalty, and will be censured and subject a to cease-and-desist order, and has agreed to undertakings related to the firm's policies and procedures. The SEC previously filed fraud charges against Barry Connell, who was also criminally charged. READ the FULL TEXT SEC Order
I mean, seriously? First the SEC goes out and whacks these firms to the extent that technically they would be deemed "ineligible issuers," and then, wink, wink, nudge, nudge, say no more, the magical wand of forgiveness is passed thrice over the heads of the miscreants and all is good and at peace in the realm? Yeah, sure, I know, Wall Street would grind to a stop if the nuclear option of ineligibility were imposed. Odd though -- when it comes to pennystock hustlers, felons, market manipulators, and the like, no such mercy is shown. How is that?
SEC Charges New York-Based Firm and Supervisors for Failing to Supervise Brokers Who Defrauded Customers (SEC Press Release 2018-123)
In anticipation of the institution of proceedings by the SEC but without admitting or denying the findings, broker-dealer Alexander Capital L.P. and two of its managers Philip A. Noto II and Barry T. Eisenberg each submitted an Offer of Settlement, which the federal regulator accepted. The SEC issued orders finding that Alexander Capital failed to reasonably supervise brokers William C. Gennity, Rocco Roveccio, and Laurence M. Torres; and, that the firm lacked reasonable supervisory policies and procedures and systems to implement them. Further, the SEC found that Noto and Eisenberg ignored red flags indicating excessive trading and failed to supervise brokers. In addition to hiring an independent compliance consultant, Alexander Capital agreed to be censured and pay $193,775 of allegedly ill-gotten gains, $23,437 in interest, and a $193,775 penalty. Noto agreed to a permanent supervisory bar and to pay a $20,000 penalty; and Eisenberg agreed to a five-year supervisory bar and to pay a $15,000 penalty. These penalties will be paid to harmed retail customers. READ the FULL TEXT SEC ORDERS: Alexander; Noto; and Eisenberg