The Wall Street Legal & Regulatory Feed
Securities Industry Commentator by Bill Singer Esq
September 7, 2018
Managing Director of A Broker-Dealer Pleads Guilty to Participating in a $86 Million Market Manipulation Scheme / Defendant Helped Manipulate the Stock Price of CodeSmart Holdings, Inc.(DOJ Release)
https://www.justice.gov/usao-edny/pr/managing-director-broker-dealer-pleads-guilty-participating-86-million-market
https://www.justice.gov/usao-edny/pr/managing-director-broker-dealer-pleads-guilty-participating-86-million-market
Michael Morris, registered broker and managing director of Halcyon Cabot Partners, Ltd., pled guilty in the United States District Court for the Eastern District of New York to one count of conspiracy to commit securities fraud for his participation in an $86 million market manipulation scheme involving CodeSmart Holdings, Inc. (symbol: ITEN). In May 2013, Morris's co-conspirators engineered a reverse merger of CodeSmart; and, after they gained control of three million unrestricted shares, the conspirators used a pump and dump scheme to sell their shares. In one of two forays, CodeSmart's stock price was pumped from $1.77 to $6.94, before dropping to $2.19; and, thereafter, from $2.19 to $4.60, before dropping to $2.13. At its peak share price on July 12, 2013, CodeSmart's market capitalization was $86,347,800 -- on that day, the company filed a Form 10-K listing $6,000 in total assets, $7,600 in revenue, and a net loss of $103,141. By December 30, 2013, CodeSmart's stock was $0.66 per share and, on July 9, 2014, $0.01 per share.
SEC Charges Long Island Company and CEO with Stock Fraud (DOJ Litigation Release No. 24260)
https://www.sec.gov/litigation/litreleases/2018/lr24260.htm
https://www.sec.gov/litigation/litreleases/2018/lr24260.htm
In a Complaint filed in the United States District Court for the Eastern District of New Yor, the SEC charged Ovations Holdings, Inc. (symbol: INOH) and its Chief Executive Officer Mark Goldberg with violating Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5(b) thereunder. The Complaint alleges that Ovations and Goldberg issued false and misleading press releases as part of a scheme to fraudulently induce investors to buy Ovations stock in order to create purchasers for shares held by one or more stock promoters. Separately, the United States Attorney's Office for the Eastern District of New York filed criminal charges against Goldberg.
READ the FULL TEXT COMPLAINT
https://www.sec.gov/litigation/complaints/2018/comp24260.pdf
https://www.sec.gov/litigation/complaints/2018/comp24260.pdf
Oops I Did It Again, Again In FINRA Public Customer Arbitration (BrokeAndBroker.com Blog)
http://www.brokeandbroker.com/4171/finra-oops-arbitration/
http://www.brokeandbroker.com/4171/finra-oops-arbitration/
You got yer oops. You got your oops, I did it again. In a recent FINRA public customer arbitration, however, we have at least three oops, which, the way I see it, is at least an oops, I did it again, again. Sort of like deja vu all over again, again. On the receiving ends of all this oopsiness are two registered representatives, who, in response to what they must have viewed as a garbage case against them, sought to have their good names expunged. In the end, it looks like it all works out but not without some cost and aggravation.
SEC Awards More Than $54 Million to Two Whistleblowers (SEC Release 2018-179)
https://www.sec.gov/news/press-release/2018-179
https://www.sec.gov/news/press-release/2018-179
In the In the Matter of the Claims for Award in connection with REDACTED REDACTED (Notice of Covered Action REDACTED; '34 Act Rel. No. 84046; Whistleblower Award Proc. File No. 2018-11), the SEC denied one Claimant any award' and denied two other Claimants any Related-Claim awards but awarded $39 million to one and $15 million to the other. READ THE FULL TEXT ORDER https://www.sec.gov/rules/other/2018/34-84046.pdf In denying one Claimant's Related-Action claim, the Order explains, in part, that:
In denying a second Claimant's Related-Action claim, the Order explains, in part, that:Under the whistleblower rules, for a whistleblower to obtain an award in connection with a potential related action, the whistleblower must "demonstrate [that he or she] directly (or through the Commission) voluntarily provided the governmental agency, regulatory authority or self-regulatory organization the same original information that led to the Commission's successful covered action, and that this information led to the successful enforcement of the related action."10 Claimant 1's application fails to meet this standard in two respects.
Third, we believe that permitting potential whistleblowers to recover under both our award program and a separate award scheme for the same action would produce the irrational result of encouraging multiple "bites at the apple" in adjudicating claims for the same action and could potentially allow multiple recoveries.29 In the adopting release that accompanied the original whistleblower rules, the Commission recognized the irrational result that would flow from allowing a whistleblower to have multiple separate opportunities to adjudicate his or her contributions to a case and to potentially obtain multiple separate rewards on that same enforcement action; the Commission foreclosed such an approach in the specific contexts that the Commission considered at the time that it adopted the whistleblower program rules. Specifically, the Commission adopted Rule 21F-3(b)(3), which provides that the Commission will not pay on a related action if the whistleblower program administered by the Commodity Futures Trading Commission ("CFTC") has issued an award for the same action, nor will the Commission allow a whistleblower to relitigate any issues decided against the whistleblower as part of the CFTC's award denial. In adopting that rule, the Commission made clear its view that a whistleblower should neither have two recoveries on the same action nor multiple bites at the adjudicatory apple.30 Relatedly, the Commission explained in the adopting release that it would for similar reasons not make an award to a whistleblower who was also a qui tam plaintiff under the False Claims Act.31 Although at the time of the original rulemaking for the whistleblower program the Commission did not expressly consider the potential for separate awards issued by Redacted whistleblower award program, the principles underlying Rule 21F-3(b)(3) are nonetheless relevant here and consistent with the Commission's views going back to the award program's founding.32The CRS also recommended denying Claimant 2's application for an award in connection with Agency 2's action on the separate ground that Claimant 2's whistleblower submission was not made voluntarily and a discretionary waiver of this requirement to permit an award would not be appropriate. . .
North Korean Regime-Backed Programmer Charged in Conspiracy to Conduct Multiple Cyberattacks and Intrusions / North Korean Hacking Team Allegedly Responsible for WannaCry Ransomware, Destructive Cyberattack on Sony Pictures, and Cybertheft from Bangladesh Bank (DOJ Release)
https://www.justice.gov/usao-cdca/pr/north-korean-regime-backed-programmer-charged-conspiracy-conduct-multiple-cyberattacks
https://www.justice.gov/usao-cdca/pr/north-korean-regime-backed-programmer-charged-conspiracy-conduct-multiple-cyberattacks
In a criminal Compaint filed in the United States District Court for the Central District of California, North Korean citizen Park Jin Hyok was charged with one count of conspiracy to commit computer fraud and abuse, and one count of conspiracy to commit wire fraud arising from his alleged role in a conspiracy to conduct a series of destructive cyberattacks around the world, which resulted in damage to massive amounts of computer hardware and extensive loss of data, money and other resources. The Complaint describes Hyok as a member of the "Lazarus Group," a hacking team sponsored by the Democratic People's Republic of Korea ("DPRK"). Also, Hyok allegedly worked for a North Korean government front company, Chosun Expo Joint Venture, which was also known as Korea Expo Joint Venture, or KEJV, to support the DPRK government's malicious cyber actions. Among the alleged criminal acts was the use of malware in the 2017 WannaCry ransomware attack; the 2016 theft of $81 million from Bangladesh Bank; the 2014 attack on Sony Pictures Entertainment; and numerous other attacks or intrusions on the entertainment, financial services, defense, technology and virtual currency industries, as well as academia and electric utilities. READ the FULL TEXT COMPLAINT. https://www.justice.gov/usao-cdca/press-release/file/1091951/download
SEC Charges Former Raymond James Branch Manager for Facilitating a Massive EB-5 Fraud (SEC Litigation Release No. 24259)
https://www.sec.gov/litigation/litreleases/2018/lr24259.htm
https://www.sec.gov/litigation/litreleases/2018/lr24259.htm
In a Complaint filed in the United States District Court for the Southern District of Florida, the SEC Securities and Exchange Commission filed charges against Joel N. Burstein, a former registered representative and branch manager with Raymond James & Associates, Inc. for helping facilitate an EB-5 offering fraud perpetrated by Jay Peak, Inc., a Vermont-based ski resort, its former principal, Ariel Quiros, and other related entities. Burstein, who is Quiros' former son-in-law, facilitated Quiros' misappropriation of over $21 million of investor funds to acquire the Jay Peak ski resort. In furtherance of that fraud, Burstein assisted Quiros in masking the significant shortfall in the Raymond James brokerage accounts from the misappropriation. Without admitting or denying the SEC's allegations, Burstein has consented to the entry of a final judgment permanently enjoining him from future violations of the antifraud 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 and ordering him to pay a civil penalty of $80,000. Burstein also settled, without admitting or denying the findings, to an SEC order that bars him from association with any broker, dealer, investment adviser, municipal securities dealer, transfer agent, or nationally recognized statistical rating organization, and from participating in an offering of penny stock, with the right to apply for reentry after 10 years.
READ the FULL TEXT COMPLAINT https://www.sec.gov/litigation/complaints/2018/comp24259.pdf
New York Attorney Pleads Guilty to Tax Fraud Related to Multimillion-Dollar Embezzlement From Deceased Client's Estate (DOJ Release)
https://www.justice.gov/opa/pr/new-york-attorney-pleads-guilty-tax-fraud-related-multimillion-dollar-embezzlement-deceased
https://www.justice.gov/opa/pr/new-york-attorney-pleads-guilty-tax-fraud-related-multimillion-dollar-embezzlement-deceased
Former law firm partner Steven M. Etkind, a partner at a New York law firm's tax, trusts and estates group and a Certified Public Accountant, pled guilty in the United States District Court for the Southern District of New York to conspiracy to defraud the United States and tax evasion arising from a scheme to embezzle millions of dollars from a deceased client's estate. Federal prosecutors alleged that Etkind had performed legal work for a client, who passed away in 2008, naming Etkind as the co-executor of his $35 million estate. The client's will funded the creation of two charitable trust private foundations (Etkind was named the co-trustee) for the sole purpose of donating to 501(c)(3) charitable organizations, including those aimed at assisting Jewish-sponsored organizations. Beginning in 2009, Etkind and his co-conspirator set up a phony charitable organization in order to steal over $3.5 million from these charitable trusts. $327,500 in checks were written to a bank account for a nominee corporate entity controlled by Etkind; and over $3 million was used to purchase a 6,300 square-foot home with a swimming pool in Southampton, New York for Etkind and his family -- Etkind later transferred title of the property to a nominee trust he controlled.
SEC Obtains Judgments Against Former Chairman and Two Other Executives of Defunct Law Firm Dewey & Leboeuf (SEC Litigation Release No. 24258)
https://www.sec.gov/litigation/litreleases/2018/lr24258.htm
https://www.sec.gov/litigation/litreleases/2018/lr24258.htm
The United States District Court for the Southern District of New York entered judgments on consent against Francis Canellas, Thomas Mullikin, and Steven H. Davis, the respective former executives of the defunct law firm of Dewey & LeBoeuf, LLP, The SEC had alleged in its Complaint that Dewey's 2010 bond offering fraudulently relied on the firm's materially misstated financial results for 2008 and 2009, which were incorporated into the private placement memorandum. Canellas, Dewey's then director of finance, along with Dewey's former chief financial officer, orchestrated a scheme to falsify Dewey's financial statements and provide same to investors; and, further, they instructed Mullikin, Dewey's then controller, and others in the finance department, to carry out the scheme. Davis, the firm's then chairman, who was aware of the fraudulent adjustments, made key decisions concerning the offering, including approving the offering and signing off on the private placement memorandum. Canellas consented to the entry of a judgment permanently enjoining him from violating the antifraud provisions of Section 17(a) of the Securities Act of 1933 ("Securities Act") and Section 10(b) of the Securities Exchange Act of 1934 ("Exchange Act") and Rule 10b-5 thereunder, and ordering him to pay $43,178.82 in disgorgement and prejudgment interest. Mullikin consented to the entry of a judgment permanently enjoining him from violating the antifraud provisions of Section 17(a) of the Securities Act and Section 10(b) of the Exchange Act and Rule 10b-5 thereunder, and ordering him to pay $8,635.78 in disgorgement and prejudgment interest. Davis consented to the entry of a judgment permanently enjoining him from violating the antifraud provisions of Section 17(a) of the Securities Act and Section 10(b) of the Exchange Act and Rule 10b-5 thereunder and prohibiting Davis from acting as an officer or director of a public company. The judgement against Davis also orders him to pay a $130,000 civil penalty. The settlements resolve completely the cases against Canellas, Mullikin, and Davis.
https://www.justice.gov/usao-edny/pr/former-cfo-long-island-real-estate-company-arrested-multi-million-dollar-embezzlement
Former The Mulholland Group Chief Executive Officer Kwesi T. Bovell was charged in a criminal Complaint filed in the United States District Court for the Eastern District of New York with wire fraud. Bovell allegedly fraudulently transferred over $3.5 million from Mulholland bank accounts to his own corporate entity, Southgate Holding L.L.C. ; and, thereafter, he used the stolen funds to purchase two homes, including an apartment in Manhattan, and luxury goods. Federal prosecutors asserts that their investigation was triggered by complaints from Mulholland that between January 2018 and August 2018, Bovell spent approximately $145,000 on unauthorized personal expenditures using Mulholland's Platinum American Express Card.