The Wall Street Legal & Regulatory Feed
Securities Industry Commentator by Bill Singer Esq
June 19, 2019
Startup that makes sex toys for women sues New York transit system for banning its ads (CNN.com)
https://www.cnn.com/2019/06/18/tech/dame-products-mta-nyc-lawsuit/index.html
https://www.cnn.com/2019/06/18/tech/dame-products-mta-nyc-lawsuit/index.html
Dame Products, a so-called "sexual-health startup," is suing New York's Metropolitan Transportation Authority for rejecting its ads that depict "female-focused sex toys." So, lemme see if I got this, the MTA had accepted ads from the Amazon television series The Man in the High Castle, which plastered Nazi symbols all over a New York City subway car but the MTA folks won't accept ads for sex toys?
The fact that MTA subsequently removed the ads with Nazi imagery doesn't undo the fact that they had previously accepted them. For me, the issue isn't simply one of First Amendment rights because I truly enjoy The Man in the High Castle and understand its multiverse premise; however, you can't plaster Nazi symbolism all over a subway car in (of all places!) New York City but then feign high dudgeon when it comes to posting ads promoting sex toys. That's my opinion and I'm sticking with it (at least on this plane of existence). Be that as it may, you draw your own conclusions but consider some of these lines from the article:
Dame says that prior to the rejection, it had collaborated with Outfront Media, the company that serves as the MTA's advertising contractor. After several months of back and forth, a representative for Outfront told Dame that it had "no objections" to two ads featuring its small, wearable vibrator called Fin, worn between the fingers, with two different text options: "Toys, for Sex" and "Get from Point A to Point O."
Point A to Point O? Dammit -- I would just settle for MTA getting me from Point A to Point B on time and without a rat running around the car.
(BrokeAndBroker.com Blog)
http://www.brokeandbroker.com/4651/FINRA-2030-GOP/
The United States District Court for the District of Columbia waded into the debate about whether the SEC may regulate political donations by investment advisers and placement agents through rules promulgated by the self-regulatory-organization FINRA. All of which falls under the financial reform rubric of Pay-to-Play. For those of us fed up with rampant political corruption, such rules and attendant enforcement are welcome relief. For those who see this as a nation of laws, such well-intentioned regulation and enforcement may be viewed as wrongly trampling on the Constitution. Indeed, the road to Hell is paved with good intentions -- as is the road to the courthouse.
CFTC Whistleblower Alert: Be on the Lookout for Insider Trading or Improper Use of Information (CFTC Alert) https://whistleblower.gov/sites/
whistleblower/files/2019-06/Insider%20Trading%20WBO%20Alert.pdf?utm_medium=email&utm_source=govdelivery
whistleblower/files/2019-06/Insider%20Trading%20WBO%20Alert.pdf?utm_medium=email&utm_source=govdelivery
The CFTC's Whistleblower Office is trying to prime the pump -- and that's great news for wannabe whistleblowers! The CFTC Alert seeks to inform the public about ways to become "eligible for both financial awards and certain protections while helping stop the improper use confidential information." In alerting the public to the signs of insider trading violations, CFTC offers the following bullet-points about MNPI (material non-public information):
- Trading on market moving information that the source had a duty to protect
- Brokers front running customer orders or taking the other side of any customer order without consent
- Tipping or trading using MNPI obtained by virtue of employment
- Trading on MNPI that was obtained by fraud or deception
- FCMs or brokers improperly disclosing customer orders or other MNPI
- Swap dealers or major swap participants improperly disclosing MNPI or using MNPI provided by a counterparty without the counterparty's consent
Bill Singer's Comment: The CFTC's approach to interacting with potential whistleblowers is nurturing and will likely yield excellent results. Notice how this CFTC webpage encourages folks to focus on certain frauds and encourages tipsters to contact the federal regulator: CFTC Whistleblower's Office's Alert webpage https://www.whistleblower.gov/
whistleblower-alerts?utm_medium=email&utm_source
=govdelivery#taxonomy-term-1 Unlike the SEC, the CFTC recognizes that whistleblowers are a valuable resource and not adversaries or annoyances. The SEC would do well do alter its tone and better model its Whistleblower policies along the lines of the CFTC.
Wedbush to Pay More Than $8.1 Million for Improper Handling of ADRs (SEC Release)
https://www.sec.gov/news/press-release/2019-99
https://www.sec.gov/news/press-release/2019-99
In an Order Instituting Administrative and Cease-and-Desist Proceedings, https://www.sec.gov/litigation/admin/2019/33-10650.pdfthe SEC charged Wedbush Securities Inc. with violating Section 17(a)(3) of the Securities Act and failing to reasonably to supervise its securities lending desk personnel. Without admitting or denying the SEC's findings, Wedbush agreed to be Censured and to pay over $4.8 million in disgorgement and over $800,000 in prejudgment interest, over $2.4 million in penalty. The SEC Order found that Wedbush improperly obtained pre-released American Depository Receipts from depositary banks when the firm should have known that neither it nor its customers owned the foreign shares needed to support those ADRs. Such practices inflated he total number of a foreign issuer's tradeable securities, which, in turn, resulted in abusive practices such as inappropriate short selling and dividend arbitrage.
https://www.sec.gov/news/press-release/2019-97
The SEC has asked for public comment on a Concept Release on Harmonization of Securities Offering Exemptions https://www.sec.gov/news/press-release/2019-97 As set forth in the Concept Release under the heading "Summary":
The Securities and Exchange Commission is publishing this release to solicit comment on several exemptions from registration under the Securities Act of 1933 that facilitate capital raising. Over the years, and particularly since the Jumpstart Our Business Startups Act of 2012, several exemptions from registration have been introduced, expanded, or otherwise revised. As a result, the overall framework for exempt offerings has changed significantly. We believe our capital markets would benefit from a comprehensive review of the design and scope of our framework for offerings that are exempt from registration. More specifically, we also believe that issuers and investors could benefit from a framework that is more consistent and addresses gaps and complexities. Therefore, we seek comment on possible ways to simplify, harmonize, and improve the exempt offering framework to promote capital formation and expand investment opportunities while maintaining appropriate investor protections.
Among the issue for which the SEC seeks comment:
- The limitations on who can invest in certain exempt offerings, or the amount they can invest, provide an appropriate level of investor protection or pose an undue obstacle to capital formation or investor access to investment opportunities
- The Commission should take steps to facilitate a company's ability to transition from one offering to another or to a registered offering
- The Commission should expand companies' ability to raise capital through pooled investment funds
- Retail investors should be allowed greater exposure to growth-stage companies through pooled investment funds such as interval funds and other closed-end funds
- The Commission should revise its exemptions governing the secondary trading of securities initially issued in exempt offerings
SEC Adopts Amendments to Improve the Application of the Auditor Independence Rules to Loan Provision (SEC Release)
https://www.sec.gov/news/press-release/2019-98
The SEC adopted amendments to the auditor independence rules relating to the analysis that must be conducted to determine whether an auditor is independent when the auditor has a lending relationship with certain shareholders of an audit client. As set forth in the "Summary" portion of the Final Rule ttps://www.sec.gov/rules/final/2019/33-10648.pdf
The Securities and Exchange Commission ("Commission") is adopting amendments to its auditor independence rules to refocus the analysis that must be conducted to determine whether an auditor is independent when the auditor has a lending relationship with certain shareholders of an audit client at any time during an audit or professional engagement period. The amendments focus the analysis on beneficial ownership rather than on both record and beneficial ownership; replace the existing 10 percent bright-line shareholder ownership test with a "significant influence" test; add a "known through reasonable inquiry" standard with respect to identifying beneficial owners of the audit client's equity securities; and exclude from the definition of "audit client," for a fund under audit, any other funds, that otherwise would be considered affiliates of the audit client under the rules for certain lending relationships. The amendments will more effectively identify debtor-creditor relationships that could impair an auditor's objectivity and impartiality, as opposed to certain more attenuated relationships that are unlikely to pose such threats, and thus will focus the analysis on those borrowing relationships that are important to investors.
SEC Charges Green Energy Company and Two Senior Officers with Offering Fraud Charges (SEC Release) https://www.sec.gov/litigation/
litreleases/2019/lr24504.htm
litreleases/2019/lr24504.htm
In a Complaint filed in the United States District Court for the Southern District of California https://www.sec.gov/litigation/
complaints/2019/comp24504.pdf, the SEC charged Equal Earth, Inc. and its Chief Executive Officer Andrew J. Duggan, and its Chief Operating Officer Ghassan "Mark" Hamade with with violations of the antifraud provisions of Section 10(b) and Rule 10b-5(b) of the Securities Exchange Act. Further, the Complaint charged, Equal Earth and Duggan with violations of the antifraud provisions of Sections 17(a) of the Securities Act and Exchange Act Rules 10b-5(a) and (c), and all defendants with violations of the registration provisions of Sections 5(a) and (c) of the Securities Act. Without admitting or denying the allegations, the defendants consented to the entry of final judgments permanently enjoining them from violating the antifraud and registration provisions of the federal securities laws. Equal Earth greed to pay $6.8 million in disgorgement and prejudgment interest, as well as an $855,000 penalty. Duggan agreed to pay over $800,000 in disgorgement and interest and a penalty of $167,500, and to a permanent director-and-officer bar. Hamade agreed to pay a penalty of $167,500 and to a permanent director-and-officer bar. In part, the SEC Release states that Defendants had:
complaints/2019/comp24504.pdf, the SEC charged Equal Earth, Inc. and its Chief Executive Officer Andrew J. Duggan, and its Chief Operating Officer Ghassan "Mark" Hamade with with violations of the antifraud provisions of Section 10(b) and Rule 10b-5(b) of the Securities Exchange Act. Further, the Complaint charged, Equal Earth and Duggan with violations of the antifraud provisions of Sections 17(a) of the Securities Act and Exchange Act Rules 10b-5(a) and (c), and all defendants with violations of the registration provisions of Sections 5(a) and (c) of the Securities Act. Without admitting or denying the allegations, the defendants consented to the entry of final judgments permanently enjoining them from violating the antifraud and registration provisions of the federal securities laws. Equal Earth greed to pay $6.8 million in disgorgement and prejudgment interest, as well as an $855,000 penalty. Duggan agreed to pay over $800,000 in disgorgement and interest and a penalty of $167,500, and to a permanent director-and-officer bar. Hamade agreed to pay a penalty of $167,500 and to a permanent director-and-officer bar. In part, the SEC Release states that Defendants had:
fraudulently induced investments in Equal Earth, raising approximately $5.6 million from at least 266 investors. As alleged in the complaint, Duggan and Hamade made materially false and misleading representations to investors concerning Equal Earth's financial health and suggested, incorrectly, that Equal Earth was a fast-growing company that would soon go public by telling investors that the company had significant historical revenues, had acquired multiple companies that could generate future revenue, and had projects with significant power generation capacity. In fact, as alleged in the complaint, none of these representations were true. The complaint further alleges that, during the time that the defendants were making these false and misleading statements, Duggan sold some of his own Equal Earth stock holdings and misappropriated at least $40,000 in investor money.
SEC Charges New Jersey Investor with Insider Trading (SEC Release)
https://www.sec.gov/litigation/litreleases/2019/
lr24503.htm
https://www.sec.gov/litigation/litreleases/2019/
lr24503.htm
In a Complaint filed in the United States District Court for the District of New Jersey, the SEC alleged that Raymond Starker a relationship with an Energy Focus Inc. director, a company executive, and an individual affiliated with an investment bank that sought to participate in a secondary offering of Energy Focus shares. The Complaint alleged that Starker received confidential information about the offering and as a result of his trading he avoid about $46,342 in losses (about 28%) on 9,400 shares. Without admitting or denying the allegations in the complaint, Starker consented to a final judgment permanently enjoining him from violating the antifraud provisions of Section 10(b) of the Securities Exchange Act4 and Rule 10b-5 thereunder, and Section 17(a) of the Securities Act; and he agreed to pay $46,342 in disgorgement, $7,047 in prejudgment interest, and a $46,342 civil penalty.
Schwab Sues Customer Over Bounced Check. In the Matter of the Arbitration Between Charles Schwab & Co., Inc, Claimant, v. Syed Ali, Respondent (FINRA Arbitration Decision 18-02763)
http://www.finra.org/sites/default/files/
aao_documents/18-02763.pdf
http://www.finra.org/sites/default/files/
aao_documents/18-02763.pdf
In a FINRA Arbitration Statement of Claim filed in August 2019, Claimant Schwab asserted breach of contract as a result of Respondent Ali's payment by a bounced check of a debit balance in a self-directed margin account. Claimant Schwab sought $97,272.91 plus interest, costs, and fees. Respondent Ali generally denied the allegations and asserted affirmative defenses. The sole FINRA Arbitrator found Respondent Ali liable and ordered him to pay to Claimant Schwab $97,272.91 in compensatory damages plus interest and $1,000 in reimbursed filing fees.