The Wall Street Legal & Regulatory Feed
Securities Industry Commentator by Bill Singer Esq
January 28, 2019
Statement Regarding Recommencement of Normal Operations (SEC Statement by SEC Chairman Jay Clayton / January 26, 2019) https://www.sec.gov/news/public-statement/statement-regarding-recommencement-normal-operations
The Securities and Exchange Commission has resumed normal staffing levels and is returning to normal operations.Over the past 30 days, with a limited staff, we followed our Operations Plan Under a Lapse in Appropriations and Government Shutdown. This plan focused on monitoring the functioning of our markets and, as necessary to prevent imminent threats to property, taking action. I commend our staff for their dedication to this task. They performed admirably and, as always, with a keen focus on the interests of our Main Street investors.Our approximately 4,500 employees are now returning to their posts in our Washington, D.C. home office and our 11 regional offices. The leaders of our Divisions and Offices, in consultation with various members of our staff, are continuing to assess how to most effectively transition to normal operations. Certain of these Divisions and Offices, including our Divisions of Corporation Finance, Trading and Markets, Investment Management and our Office of Compliance Inspections and Examinations, will be publishing statements in the coming days regarding their transition plans.These statements regarding our transition to normal operations will be available at www.sec.gov.In closing, a personal note: I have noted in the past that our people are our greatest asset. They bring experience, expertise and commitment to work every day for the benefit of our economy, our markets and, most importantly, our investors. The past 30 days have underscored just how true that is. It is my privilege to welcome back the full team.
SEC Emergency Action Charges Texas Real Estate Developer for Multi-Million Dollar Offering Fraud (SEC Release)
https://www.sec.gov/news/press-release/2019-2
In a Complaint filed in the United States District Court for the Northern District of Texas, the SEC alleged that real estate developer Phillip Michael Carter, Bobby Eugene Guess, and Richard Tilford,, and several related entities raised almost $45 million from over 270 investors via sales of short-term, high-yield promissory notes issued by a number of shell companies intentionally named to confuse investors. Carter, Guess, and Tilford allegedly claimed to offer investments in Carter's legitimate real estate development companies, which were purportedly backed by hard assets from actual real estate development projects. In reality, the individual defendants allegedly sold securities issued by unrelated, but closely-named, entities that had no assets. Allegedly, Carter then misappropriated investor funds to pay $1.2 million towards a personal IRS tax lien, operate a luxury hunting ranch, fund his lifestyle, and make over $3 million in Ponzi payments to investors. Also, the Complaint charges four entities as relief defendants, seeking disgorgement and prejudgment interest. Finally, the SEC's complaint seeks an asset freeze, accounting, and document preservation order over Carter and several entities to protect and preserve assets for the benefit of investors. In related criminal proceedings pursued by the Texas State Securities Board, Carter and Tilford were indicted on November 6, 2018, for, among other things, securities fraud, sales of unregistered securities, and sales of securities by an unregistered agent or dealer. Those charges remain pending. READ the SEC Complaint https://www.sec.gov/litigation/complaints/2019/comp-pr2019-2.pdf
SEC Obtains Judgments Against American Growth Funding II, LLC and Ralph C. Johnson (SEC Release)
https://www.sec.gov/litigation/litreleases/2019/lr24382.htm
https://www.sec.gov/litigation/litreleases/2019/lr24382.htm
In a Complaint filed in the United States District Court for the Southern District of New York, the SEC alleged that
American Growth Funding II, LLC ("AGF II"), and its owner Ralph C. Johnson falsely claimed that AGF II's financial statements were being audited each year. The complaint also alleged that AGF II made misrepresentations in its offering documents about its management and concealed details about deteriorating loan values that could imperil full payment of the promised returns to investors. Without admitting or denying the allegations in the SEC's complaint, AGF II and Johnson consented to the entry of judgments permanently enjoining them from violating the antifraud provisions of Section 17(a) of the Securities Act of 1933 and Section 10(b) and Rule 10b-5 thereunder of the Securities Exchange Act of 1934. In addition, the judgment against Johnson requires that he pay a penalty in the amount of $75,000 and disgorgement of his ill-gotten gains and prejudgment interest. The SEC's action against the non-settling defendants continues. READ the
AGF Final Judgment https://www.sec.gov/litigation/complaints/2019/final-judgment24382-agfii.pdfJohnson Final Judgment https://www.sec.gov/litigation/complaints/2019/final-judgment24382-johnson.pdf
SEC is accused of mishandling a whistleblower tip about financial crisis-era misconduct /
When a Deutsche Bank whistleblower approached the agency multiple times, giving them plenty of evidence about misconduct, he says the SEC slow-walked its response and then "blamed him" for their blunders.SEC is accused of mishandling a whistleblower tip about financial crisis-era misconduct (FastCompany.com)
https://www.fastcompany.com/90295002/sec-is-accused-of-mishandling-a-whistleblower-tip-about-financial-crisis-era-misconduct
https://www.fastcompany.com/90295002/sec-is-accused-of-mishandling-a-whistleblower-tip-about-financial-crisis-era-misconduct
Innocent Stockbroker Lost in Never-Neverland Wins FINRA Expungement (BrokeAndBroker.com Blog)
http://www.brokeandbroker.com/4413/FINRA-QA3-Expungement/
In today's featured FINRA expungement case, we are asked to consider the plight of a stockbroker, who seems a Wall Street Peter Pan seeking elusive justice in Never-Neverland. As best I understand, the Lost Boys invested in hedge funds but got wiped out during the Great Recession when it turned out that Captain Cook was a Ponzi hustler.
False Customer Complaint About Hedge Funds Pave Way for Stockbroker's Expungements
In the Matter of the Arbitration Between Jeffrey Fratarcangeli, Claimant, v. Merrill Lynch, Pierce Fenner & Smith, Inc., Respondent (FINRA Arbitration Decision 18-01523, January 24, 2019)
In a FINRA Arbitration Statement of Claim filed in April 2018, associated person Claimant Fratarcangeli sought the expungement of settled customer
complaints (to which Claimant did not contribute financially), which are referenced in the FINRA Arbitration Decision as Occurrence Numbers 1519054 and 1517905. Respondent Merrill Lynch took no position regarding the requested expungement but asserted various affirmative defenses. Although the customers were notified of the expungement proceedings, they did no participate in the hearing. The FINRA Arbitration Panel recommended expungement of both occurrences after making a FINRA Rule 2080 finding that the customers' claims, allegations, or information is factually impossible or clearly erroneous; and false. The Panel offered the following rationale:
The evidence showed the claim is false. The two hedge fund products at issue were never sold through Respondent or transferred to Respondent. Respondent chose to settle the matter strictly for business purposes. Claimant was never a named Respondent in the underlying arbitration.
Bill Singer's Comment: FINRA BrokerCheck records as of January 28, 2019, disclose that Fratarcangeli was first registered in 1996, and was registered with Merrill Lynch from October 2008 to March 2014. The only two matters presently listed on BrokerCheck under the heading "Customer Dispute -- Settled" reference 2013 and 2014 complaints seeking $527,724.60 and $125,000 in damages, and which settled, in 2015, respectively, for $197,500 and $33,000 without contribution from Fratarcangeli.