The Wall Street Legal & Regulatory Feed
Securities Industry Commentator by Bill Singer, Esq
February 14, 2019
Request for rulemaking to address how digital assets are regulated once a trade occurs (Public Petition to SEC for Rulemaking)
https://www.sec.gov/rules/petitions/2018/petn4-736.pdf
Submitted by Vincent R. Molinari and Christopher J. Pallotta, co-founders of Templum, Inc. (parent company of Templum Markets, LLC), this proposal recommends that the SEC should:
- define when a blockchain technology platform must register as a clearing corporation and define how blockchain technology may be used by such firms;
- provide clear guidance to the industry as to when a blockchain technology platform must register as a transfer agent and provide guidance to issuers of digital assets as to when they must use a transfer agent; and
- modernize the Custody Rule and the Customer Protection Rule to take into account and encourage the use of blockchain technology's ability to track securities transactions
Request for rulemaking to clarify, improve and strengthen certain aspects of the SEC Whistleblower Program (Public Petition to SEC for Rulemaking)
https://www.sec.gov/rules/petitions/2018/petn4-735.pdf
https://www.sec.gov/rules/petitions/2018/petn4-735.pdf
Submitted by Taylor Scott Amarel, this proposal calls for the SEC to "increase
transparency, provide additional guidance to whistleblowers, implement policies to prevent delays, set deadlines
for whistleblower claim processing, engage in appropriate rulemaking and issue a policy statement outlining the
initiatives and efforts the SEC will undertake to support current and would-be-whistleblowers." The petitioner argues that "the SEC Whistleblower Program provides little guidance or
support to whistleblowers and has been documented and publicly reported to be understaffed, non-transparent,
painfully slow, poor at communication, and extremely inefficient at utilizing their current resources."
https://www.sec.gov/news/press-release/2019-10
-and-
Former Director Of Corporate Law At Global Technology Company Charged With Insider Trading (DOJ Release)
https://www.justice.gov/usao-nj/pr/former-director-corporate-law-global-technology-company-charged-insider-trading
https://www.justice.gov/usao-nj/pr/former-director-corporate-law-global-technology-company-charged-insider-trading
In a Complaint filed in the United States District Court for the District of New Jersey, the SEC alleged that Gene Daniel Levoff, an attorney who previously served as Apple's global head of corporate law and corporate secretary, received confidential information about Apple's quarterly earnings announcements in his role on a committee of senior executives who reviewed the company's draft earnings materials prior to their public dissemination. Allegedly, Levoff traded Apple securities ahead of three quarterly earnings announcements in 2015 and 2016 and made approximately $382,000 in combined profits and losses avoided. Ironically, Levoff was responsible for securities laws compliance at Apple, including compliance with insider trading laws; and, accordingly, he reviewed and approved the company's insider trading policy and notified employees of their obligations thereunder. The SEC seeks the return of his ill-gotten trading profits plus interest, penalties, a permanent injunction, and an officer-and-director bar.
In a criminal Complaint filed in the United States District Court for the District of New Jersey, Levoff was charged with one count of securities fraud. Apple is not named in the criminal Complaint but referred to as "Company-1." The DOJ Release alleges that:
The scheme allowed Levoff to realize profits of approximately $227,000 and to avoid losses of approximately $377,000.. . .Levoff's trades on other occasions resulted in profits of approximately $227,000; he also avoided additional losses of approximately $32,000.
READ the:
SEC Complaint https://www.sec.gov/litigation/complaints/2019/comp-pr2019-10.pdfDOJ Criminal Complaint https://www.justice.gov/usao-nj/press-release/file/1131786/download
Bill Singer's Comment: Can you come up with a really sensible explanation as to why the United States Securities and Exchange Commission names "Apple" in its press release and its civil Complaint, but the United States Department of Justice won't name "Apple" in its press release or criminal Complaint and only references that entity as "Company-1" ? As a veteran defense lawyer and a tireless pundit of all things Wall Street, I understand the motivation behind not naming the name of an "innocent" party; however, there are times when the manifestation of that policy results in idiocy. Consider this extract from the Criminal Complaint:
Background Information1. At all times relevant to this Complaint:a. Company-I was a global technology company headquartered in Cupertino, California that designed, developed, and sold consumer electronics, computer software, and online services. Company-I was a publicly traded company whose securities were listed on the NASDAQ Stock Market. In terms of market capitalization, Company-I was consistently among the most valuable companies in the world.b. Defendant GENE LEVOFF ("LEVOFF") was employed by Company-I at its headquarters in Cupertino. From in or around 2008 through in or around 2013, LEVOFF, an attorney, was the Director of Corporate Law at Company-I. From in or around 2013 through his termination in or around September 2018, LEVOFF was the Senior Director of Corporate Law at Company-I. In that role, LEVOFF functioned as the top corporate attorney at Company-1, reporting directly to Company-1 's General Counsel. . . .
Go ahead and fashion any number of silly-ass online searches. You could try "Gene Levoff AND Cupertino" or "Cupertino AND NASDAQ AND Global Technology Company" and all search roads lead to 1 Infinite Loop, Cupertino, CA. It's also not that daunting a task to come upon any number of SEC filings that disclose under the heading "Signature" the reference to "Apple Inc. by Gene D. Levoff, Secretary."
Where is the consistency in the respective approaches of DOJ and SEC? If you think it is inappropriate to name Apple in any pleading, which, after all, consists merely of allegations, then why would that policy apply only to DOJ but not the SEC? Moreover, what's the point of DOJ's no-name policy when its own press release states: "The U.S. Securities and Exchange Commission (SEC) also filed a civil complaint against Levoff today based on the same conduct" -- and the very headline of the SEC's press release states "SEC Charges Former Senior Attorney at Apple With Insider Trading"? [Emphasis added]. Moreover, this is the first paragraph of that SEC Press Release:
The Securities and Exchange Commission today filed insider trading charges against a former senior attorney at Apple whose duties included executing the company's insider trading compliance efforts.
Not that anyone would ever accuse me of being unfair, but, I freely acknowledge my recent harangue of FINRA for playing the same hide-and-seek: Lord Voldemort, Bank Of America, Merrill Lynch, FINRA, And Childcare Expenses (BrokeAndBroker.com Blog / February 13, 2019)
http://www.brokeandbroker.com/4435/finra-voldemort/
And now, the curtain doth rise and players doth perform:
Juliet: O Gene, Gene! wherefore art thou Gene?Deny thy father and refuse thy name;Or, if thou wilt not, be but sworn my love,And I'll no longer be a CapuletGene: [Aside] Shall I hear more, or shall I speak at this?Juliet: 'Tis but thy name that is my enemy;Thou art thyself, though not an Apple lawyer.What's an Apple? It is nor hand, nor foot,Nor arm, nor face, nor any other partBelonging to a man. O, be some other name!What's in a name? That which we call a AppleBy any other word would smell as sweet;So Gene would, were he not Gene call'd,Retain that dear perfection which he owesWithout that title. Gene, doff thy name,And for that name which is no part of theeTake all myself.
GUEST BLOG: To Hold and Have Not by Aegis Frumento Esq
(BrokeAndBroker.com Blog)
(BrokeAndBroker.com Blog)
http://www.brokeandbroker.com/4438/Aegis-Frumento-QuadrigaCX/
A few weeks ago, I wrote about The DAO, and the Ethereum Hard Fork needed to prevent a smart-aleck coder from diverting a third of The DAO's assets to himself. The Hard Fork required ether holders to go through some software hoops to properly implement it. Back then, in 2017, QuadrigaCX goofed up the coding, resulting in $14 million of ether being locked up in the Ethereum blockchain with no way to access it. To fix it, QuadrigaCX took $14 million out of its profits to make its members whole. As far as fixes go, that one sort of looked okay until last December, when QuadrigaCX's founder and CEO, Gerald Cotten died. On top of that tragedy, critical passwords may literally have gone to the grave with Cotten.
Deloitte Japan Charged With Violating Auditor Independence Rules (SEC Release)
https://www.sec.gov/news/press-release/2019-9
https://www.sec.gov/news/press-release/2019-9
Without admitting or denying the findings, Deloitte Touche Tohmatsu LLC (Deloitte Japan), its former Chief Executive Officer Futomichi Amano, and its former Reputation and Risk Leader/Director of Independence Yuji Itagaki consented to the finding that Deloitte Japan violated the auditor independence provisions of the federal securities laws and that Amano and Itagaki caused those violations; and that Deloitte Japan, Amano, and Itagaki caused the audit client to violate its reporting obligations, and that all respondents engaged in improper professional conduct within the meaning of Rule 102(e) of the SEC's Rules of Practice by virtue of their violations of the auditor independence requirements.
READ the SEC Order https://www.sec.gov/litigation/admin/2019/34-85115.pdf
Deloitte Japan, Amano, and Itagaki were ordered to cease-and-desist from future violations; Deloitte Japan agreed to pay $2 million in monetary sanctions and be censured; and Amano and Itagaki agreed to be suspended from appearing and practicing before the SEC as accountants, which includes not participating in the financial reporting or audits of public companies. Amano and Itagaki will be permitted to apply for reinstatement, however, after two years and one year, respectively. As set forth in part in the SEC Release:
READ the SEC Order https://www.sec.gov/litigation/admin/2019/34-85115.pdf
Deloitte Japan, Amano, and Itagaki were ordered to cease-and-desist from future violations; Deloitte Japan agreed to pay $2 million in monetary sanctions and be censured; and Amano and Itagaki agreed to be suspended from appearing and practicing before the SEC as accountants, which includes not participating in the financial reporting or audits of public companies. Amano and Itagaki will be permitted to apply for reinstatement, however, after two years and one year, respectively. As set forth in part in the SEC Release:
Under the SEC's rules, accountants are not considered to be independent if they maintain bank accounts with an audit client with balances greater than FDIC or similar depositary insurance limits. According to the SEC's order, Deloitte Japan knew but failed to adequately disclose that Amano maintained bank account balances with the audit client's subsidiary bank that compromised his independence. A subsequent investigation by the firm revealed that 88 other Deloitte Japan employees had financial relationships with the audit client that compromised their independence as well. The SEC's order also found that Deloitte Japan's system of quality controls did not provide reasonable assurances that the firm and its auditors were independent from audit clients. For example, the SEC's order found that Deloitte Japan failed to adequately staff and supervise its Office of Independence and caused certain independence violations by making deposits to partners' bank accounts that exceeded the deposit insurance limits.
Owner Of New York Investment Fund Pleads Guilty To Committing $22 Million Scheme To Defraud Investors (DOJ Release)
https://www.justice.gov/usao-sdny/pr/owner-new-york-investment-fund-pleads-guilty-committing-22-million-scheme-defraud
https://www.justice.gov/usao-sdny/pr/owner-new-york-investment-fund-pleads-guilty-committing-22-million-scheme-defraud
In a criminal Complaint and Indictment filed in the the United States District Court for the Southern District of New York, Brent Borland and others were charged with soliciting and receiving from about 40 investors about $21.9 million through the Belize Infrastructure Fund I LLC, which was owned by Borland, who represented that he would use the funds as "bridge financing" to construct an airport in Belize. Investors were promised high rates of return on their investments, which would purportedly be fully secured by real property in Belize that was unencumbered by any liens or obligations. The collateral property was improperly pledged to multiple investors and, in some cases, did not even exist. In reality, Borland diverted at least 30% of the funds to pay for a variety of personal expenses, including his mortgage payments, credit card bills, luxury automobiles, a beach club membership, and private school tuition for his children. Borland pled guilty to one count of conspiracy to commit securities fraud and wire fraud; one count of securities fraud; and one count of wire fraud.
Man Pleads Guilty to $20 Million Fraud and Ponzi Scheme (DOJ Release)
https://www.justice.gov/usao-edva/pr/man-pleads-guilty-20-million-fraud-and-ponzi-scheme
Todd Elliott Hitt pled guilty in the United States District Court for the Eastern District of Virginia to a charge of securities fraud in connection with his solicitation of about $30 million from investors for a variety of real estate and venture capital investments. In part, Hitt solicited about $17 million to purchase a five-story office building pursuant to false statements and material omissions that failed to disclose that a significant portion of the monies raised were commingled with other unrelated investment projects, used for personal spending to support an extravagant lifestyle and new investor's funds used to pay off old investors in a Ponzi-like scheme. Hitt's fraudulent conduct resulted in investor losses of approximately $20 million.