The Wall Street Legal & Regulatory Feed
Securities Industry Commentator by Bill Singer Esq
November 30, 2018
Floyd Mayweather Jr. Takes One on the Chin From SEC
In the Matter of Floyd Mayweather Jr., Respondent (SEC Order Instituting Cease-and-Desist Proceedings, Making Findings, and Imposing a Cease-and-Desist Order; '33 Act Rel. No.10578; Admin. Proc. File No. 3-18906)https://www.sec.gov/litigation/admin/2018/33-10578.pdf
In anticipation of the institution of proceedings by the SEC but without admitting or denying the findings, Floyd Mayweather Jr. submitted an Offer of Settlement, which the federal regulator accepted. In settling the Order, the SEC ordered that Mayweather cease-and-desist from violations of cited securities laws and that he pay a $300,000 disgorgement with $14,775.67 prejudgment interest and a $300,000 civil money penalty. Also, Mayweather undertakes:
a. for a period of three (3) years from the date of this Order, forgo receiving or agreeing to receive any form of compensation or consideration, directly or indirectly, from any issuer, underwriter, or dealer, for directly or indirectly publishing, giving publicity to, or circulating any notice, circular, advertisement, newspaper, article, letter, investment service, or communication which, though not purporting to offer a security, digital or otherwise, for sale, describes such security; andb. to continue to cooperate with the Commission's investigation in this matter.
The SEC Order asserts in part the following [Ed: footnotes omitted]:
1. From approximately July 2017 through September 2017 (the "Relevant Period"), Mayweather - a well-known professional boxer - touted on social media three securities that were being offered and sold in Initial Coin Offerings ("ICOs") without disclosing that he was being compensated for giving such securities publicity by the entities offering the securities. Mayweather's failure to disclose this compensation violated Section 17(b) of the Securities Act, which makes it unlawful for any person to promote a security without fully disclosing the receipt and amount of such consideration.. . .3. During the Relevant Period, Mayweather had approximately 21 million Instagram followers, 7.8 million Twitter followers, and 13.4 million Facebook followers.4. During that same period, Mayweather promoted three ICOs on his Instagram, Twitter, and Facebook accounts, in exchange for financial payments from each of the ICO issuers. In total, Mayweather received approximately $300,000 for these promotions.5. Centra Tech, Inc. ("Centra"), a Miami-based company, conducted an ICO from approximately July through October 2017 in which it offered and sold digital Centra tokens ("CTR") to be issued on the Ethereum blockchain. CTR tokens are investment contracts and therefore securities pursuant to Section 2(a)(1) of the Securities Act. According to Centra's White Papers, the purpose of the Centra ICO was to raise capital to enable Centra to complete and operate what it termed the "world's first Multi-Blockchain Debit Card and Smart and Insured Wallet," a financial system that would, purportedly, allow holders of various hard-to-spend "cryptocurrencies" to easily convert their assets into legal tender, and spend these "cryptocurrencies" in "real time" using a Visa- or MasterCard-backed "Centra Card."6. Mayweather promoted Centra's ICO on social media by posting or allowing his agents to post the following:a. On September 14, 2017, Mayweather's Instagram and Facebook accounts posted a picture of Mayweather holding a Centra Card at a shoe store with the caption: "Spending bitcoins ethereum and other types of cryptocurrency in Beverly Hills with my Titanium Centra Card. Join Centra's ICO on Sept. 19th."b. On September 18, 2017, Mayweather's Twitter account posted a picture of Mayweather with his boxing title belts with the caption: "Centra's (CTR) ICO starts in a few hours. Get yours before they sell out, I got mine . . ."7. Centra paid Mayweather $100,000 for these promotions. Mayweather did not, however, disclose any information about the fact or amount of compensation he received from Centra for making these posts.8. On or about January 11, 2018, Mayweather recorded a video at a department store in Los Angeles, which purported to show him using the so-called "Centra Wallet" application on an iPhone and a "Centra Card" to buy several items at the checkout counter. Centra subsequently posted the video to YouTube under the headline "Centra Floyd Mayweather Jr Spending Bitcoin with Centra Card & Centra Wallet."9. Previously, Mayweather promoted two other ICOs without disclosing that he was being compensated for the posts by the ICO issuers, or the amount of the compensation. On July 27, 2017, Mayweather promoted one ICO by posting, or allowing his agents to post on his Instagram account: "floydmayweather Champion Predictions: I'm gonna make a $hit t$on of money on August 26th. I'm gonna make a $hit t$n of money on August 2nd on the [. . .] ICO." On August 23, 2017, Mayweather promoted a different ICO, by posting or allowing his agents to post on his Twitter account: "You can call me Floyd Crypto Mayweather from now on [. . .] #ICO starts tomorrow! Smart Contracts for sports?!" Mayweather received from the ICO issuers $100,000 for the July 27 post and $100,000 for the August 23 post. Both ICOs involved the offer and sale of investment contracts, which are securities.10. Each of Mayweather's ICO promotions occurred after the Commission warned in its July 25, 2017, DAO Report of Investigation that virtual tokens or coins sold in ICOs may be securities, and those who offer and sell securities in the United States must comply with the federal securities laws.
SEC Says DJ Khaled's the One they Want to Pay
In the Matter of Khaled Khaled, Respondent (SEC Order Instituting Cease-and-Desist Proceedings, Making Findings, and Imposing a Cease-and-Desist Order; '33 Act Rel. No.10579; Admin. Proc. File No. 3-18907)
https://www.sec.gov/litigation/admin/2018/33-10579.pdf
In anticipation of the institution of proceedings by the SEC but without admitting or denying the findings, Khaled Khaled submitted an Offer of Settlement, which the federal regulator accepted. In settling the Order, the SEC ordered that Khaled cease-and-desist from violations of cited securities laws and that he pay a $50,000 disgorgement with $2,725.72 prejudgment interest and a $100,000 civil money penalty. Also, Khaled undertakes:
[F]for a period of two (2) years from the date of this Order, forgo receiving or agreeing to receive any form of compensation or consideration, directly or indirectly, from any issuer, underwriter, or dealer, for directly or indirectly publishing, giving publicity to, or circulating any notice, circular, advertisement, newspaper, article, letter, investment service, or communication which, though not purporting to offer a security, digital or otherwise, for sale, describes such security
The SEC Order asserts in part the following [Ed: footnotes omitted]:
1. In September 2017, Khaled - a well-known celebrity music producer known as "DJ Khaled" - touted on social media a security that was being offered and sold in an Initial Coin Offering ("ICO") without disclosing that he was being compensated for giving such security publicity by the entity offering the security. Khaled's failure to disclose this consideration violated Section 17(b) of the Securities Act, which makes it unlawful for any person to promote a security without fully disclosing the receipt and amount of such consideration.. . .3. In September 2017, Khaled had approximately 12.4 million Instagram followers and 3.9 million Twitter followers.4. Centra Tech, Inc. ("Centra"), a Miami-based company, conducted an ICO from approximately July through October 2017 in which it offered and sold digital Centra tokens ("CTR") to be issued on the Ethereum blockchain. CTR tokens are investment contracts and therefore securities pursuant to Section 2(a)(1) of the Securities Act. According to Centra's White Papers, the purpose of the Centra ICO was to raise capital to enable Centra to complete and operate what it termed the "world's first Multi-Blockchain Debit Card and Smart and Insured Wallet," a financial system that would, purportedly, allow holders of various hard-to-spend "cryptocurrencies" to easily convert their assets into legal tender, and spend these "cryptocurrencies" in "real time" using a Visa or MasterCard backed "Centra Card."5. On or about September 27, 2017, Khaled promoted Centra's ICO on social media by posting to his Instagram and Twitter accounts a picture of himself holding a Centra Card with the caption: "I just received my titanium centra debit card. The Centra Card & Centra Wallet app is the ultimate winner in Cryptocurrency debit cards powered by CTR tokens! Use your bitcoins, ethereum, and more cryptocurrencies in real time across the globe. This is a Game changer here. Get your CTR tokens now!"6. Centra paid Khaled $50,000 for the September 27, 2017 social media post. Khaled did not, however, disclose the fact or amount of consideration he was receiving from Centra for making this post.7. Khaled's September 27, 2017 post giving publicity to Centra's ICO occurred after the Commission warned in its July 25, 2017, DAO Report of Investigation that virtual tokens or coins sold in ICOs may be securities, and those who offer and sell securities in the United States must comply with the federal securities laws.
Stockbroker Plays Hide And Seek With FINRA (BrokeAndBroker.com Blog)
http://www.brokeandbroker.com/4307/finra-undisclosed-settlements/
Today's featured FINRA regulatory settlement involves a stockbroker charged with multiple transgressions involving hidden electronic communications, a customer complaint, and a settlement. All of which becomes a game of stockbroker hides and FINRA seeks -- and then FINRA fines and suspends. I would not recommend the home version of this game to anyone. Be that as it may, when you're done digesting this matter, you're likely to figure that either FINRA went overboard in loading up the underlying fact pattern in a way that made the case seem far worse than it really was; or, in the alternative, the respondent was represented by a very savvy industry lawyer.
https://www.justice.gov/usao-ct/pr/suffield-man-involved-stock-pump-and-dump-scheme-sentenced
Federal prosecutors alleged in the United States District Court for the District of Connecticut that between roughly 2009 and July 2016, Christian Meissenn a/k/a "Christian Nigohossian" and others conspired to defraud investors through a "pump and dump" scheme involving issuers that were essentially shell companies controlled by Meissenn's associates. Among the issuers were Terra Energy Resources Ltd. (stock symbol "TRRE"); Mammoth Energy Group, Inc. (stock symbol "MMTE"), a company that later became Strategic Asset Leasing Inc. (stock symbol "LEAS"); Trilliant Exploration Corporation (stock symbol "TTXP"); Electric Motors Corporation (stock symbol "EMCO"); Hermes Jets, Inc. (stock symbol "HRMJ"), which later became Continental Beverage Brands Corporation (stock symbol "CBBB"); and Fox Petroleum, Inc. (stock symbol "FXPT"). Attorneys furthered the scheme by signing false and misleading opinion letters that were designed to provide assurances to securities transfer agents and prospective investors. As a result of the fraud, over 12,000 victim investors collectively lost nearly $19 million when their shares became worthless; however, Meissenn earned approximately $4.4 million through this scheme. He failed to report this income to the Internal Revenue Service, resulting in a tax loss to the government of $1,527,834. In connection with a Connecticut Department of Banking investigation in 2013, Meissenn signed and filed a notarized affidavit falsely stating that he had a negative net worth and had not filed taxes due to lack of income.
Meissenn pled guilty to one count of conspiracy to commit mail and wire fraud, and one count of tax evasion, and was sentenced to three months in prison (apparently reflecting what the DOJ Release states is his "serious health condition") plus three years of supervised release, and ordered to pay restitution of $5,301,694 to victims, and $1,527,834 to the IRS. As to the other conspirators, the following prison terms were handed down:
- Damian Delgado and William Lieberman: 84 months;
- Brian Ferraioli and Thomas Heaphy, Jr.: 72 months for their roles in this and an unrelated scheme;
- Attorneys Corey Brinson and Diane Dalmy: 36 months (Dalmy faces a resentencing because she misled the court about her financial assets, and hid approximately $47,000 in cash to avoid paying restitution to victims).
https://www.justice.gov/usao-mdpa/pr/new-jersey-man-sentenced-46-months-imprisonment-bank-fraud
This one is so moronic that it hardly merits much space here; however, it is surprising that such a stupid ruse worked to the extent that it did. From December 2014 through August 2016, 29-year-old Patrick Sutherland was involved in a scheme during which $1 postal money orders were purchased from post offices and altered to reflect $1,000. Yeah, that's the extent of this criminal enterprise: adding three zeros! The altered money orders were deposited into conspirators' bank account and the cash withdrawn before the banks could identify the fraud. I'm not exactly sure as to Sutherland's role here -- maybe he added the first, second, or third zero? Could be that this was a very rigid delineation of forgers, each with a specialty for the zero that would be placed in the tens, hundreds, or thousands slot. You could see that, right? In any event, Sutherland was convicted of bank fraud and sentenced to 46 months in prison plus three years supervised release, and ordered to pay $282,779 in restitution and a $100 special assessment. For want of a nail a kingdom was eventually lost. For the addition of three zeros, a young guy gets nearly four years in federal prison. What was his defense? I didn't do nuthin'. Your honor, really, all I did was add a lousy zero, which, you know, is nuthin', right?
https://www.sec.gov/litigation/litreleases/2018/lr24362.htm
In a Complaint filed in the United States District Court for the District of Massachusetts, the SEC charged Eric Landis and his company Ridgeview Capital Parnters LLC with violating Sections 17(a) of the Securities Act of 1933 and Sections 9(a) and 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder. The Complaint alleges that Landis falsely claimed to third-party media buyers for microcap companies that he would distribute promotional materials for the stocks via email lists with tens of thousands of subscribers. In reality, his distribution lists were a sham. In order to give the impression that he had prompted investor interest, Landis allegedly traded thousands of microcap shares (including 1,300 matched trades) using brokerage accounts in his own name, in Ridgeview Capital Partners's name, and in the names of several third parties. Notably, Landis was previously found liable in an SEC lawsuit and also convicted of related criminal charges based on his role in a prior market manipulation scheme.
Father and Son Charged with Multi-Million Dollar Investment Fraud and Bank Fraud Scheme (DOJ Release)
https://www.justice.gov/usao-ndal/pr/father-and-son-charged-multi-million-dollar-investment-fraud-and-bank-fraud-scheme
An Indictment filed in the United States District Court for the Northern District of Alabama, charges Donald V. Watkins Sr., and his son Donald V. Watkins Jr., with seven counts of wire fraud, two counts of bank fraud and one count of conspiracy to commit wire fraud and bank fraud. The Indictment alleges that the Defendants induced investors to pay millions of dollars into a bank account controlled by Donald Watkins Sr.; and that the deposited funds were earmarked for the international growth of two companies associated with Defendants; however, the Watkins purportedly redirected the funds for other uses, including the payment of personal tax obligations, personal loan payments, alimony, and clothing, the indictment alleges. Further, the Defendants allegedly conspired to fraudulently obtain loans from Alamerica Bank through a third party.