Securities Industry Commentator by Bill Singer Esq

SEC Charges Wells Fargo In Connection With Investment Recommendation Practices (SEC Release)

NJ Appellate Division Rules Scroll-Down-And-Click Constitutes Enforceable Electronic Signature to Bind Arbitration. Lee Stowell, Plaintiff/Respondent, v. Cantor Fitzgerald & Co., Riaz Haidri, and James Gorman, Defendants/Appellants (Opinion, Superior Court of New Jersey/Appellate Division)

Actor Steven Seagal Charged With Unlawfully Touting Digital Asset Offering (SEC Release)

Order Disapproving a Proposed Rule Change, as Modified by Amendment No. 1, to Amend NYSE Arca Rule 8.201-E (Commodity-Based Trust Shares) and to List and Trade Shares of the United States Bitcoin and Treasury Investment Trust Under NYSE Arca Rule 8.201-E (SEC Order)

Dissenting Statement of Hester M. Peirce in Response to Release No. 34-88284; File No. SR-NYSEArca-2019-39 (SEC Release)

Supreme Court Defines "Actual Knowledge" for ERISA Fraud Disclosure. Intel Corporation Investment Policy Committee, et al, Petitioners, v. Christopher M. Sulyma (US Supreme Court Opinion)

Berks County Accountant Pleads Guilty to Orchestrating One of the Largest Pennsylvania-Based Ponzi Schemes in History (DOJ Release)

Pershing must pay Stanford Ponzi scheme victims $5.6M as fallout grinds on (Financial Planning by By Kenneth Corbin)

SEC Obtains Final Judgment Against Hedge Fund Manager Charged with Defrauding Clients (SEC Release)

SEC Charges South Carolina Energy Companies, Former Executives With Defrauding Investors / Charges Spring From Failed $9 Billion Nuclear Power Plant Expansion (SEC Release)

Trucker sentenced for hauling 300 kilograms of marijuana disguised inside clear wrapping paper (DOJ Release)

[W]hen single-inverse ETFs are held for longer than a day, particularly in volatile markets, investors may experience large and unexpected losses. The SEC's order finds that from April 2012 through September 2019, Wells Fargo's policies and procedures were not reasonably designed to prevent and detect unsuitable recommendations of single-inverse ETFs. Further, Wells Fargo failed adequately to supervise its employees' recommendations regarding single-inverse ETFs, and did not adequately train them concerning those products. The order finds that some Wells Fargo brokers and advisers did not fully understand the risk of losses these complex products posed when held long term. As a result, certain Wells Fargo investment advisers and registered representatives made unsuitable recommendations to certain clients to buy and hold single-inverse ETFs for months or years. According to the order, a number of these clients were senior citizens and retirees who had limited incomes and net worth, and conservative or moderate risk tolerances.

. . .

The order finds that Wells Fargo failed to adopt written compliance policies and procedures reasonably designed to prevent unsuitable recommendations of single-inverse ETFs, and failed adequately to implement its existing written policies and procedures. The order also finds that Wells Fargo failed reasonably to supervise its financial professionals with a view to preventing their unsuitable recommendations. 

In this action arising out of employment-related claims based on alleged violations of the New Jersey Law Against Discrimination (LAD), we consider whether a dispute resolution policy and agreement (DRPA) sent by email and requiring an electronic signature was sufficient to compel plaintiff to litigate her claims in an arbitration forum, instead of before a judge and jury. 

Because plaintiff had to scroll through the DRPA before she could electronically sign it, and she confirmed in the click box that she had read and accepted the terms of the DRPA, we are convinced the DRPA satisfied the requirements of Leodori v. Cigna Corp., 175 N.J. 293 (2003). We therefore reverse the order denying defendants' motion to compel arbitration.

[S]eagal failed to disclose he was promised $250,000 in cash and $750,000 worth of B2G tokens in exchange for his promotions, which included posts on his public social media accounts encouraging the public not to "miss out" on Bitcoiin2Gen's ICO and a press release titled "Zen Master Steven Seagal Has Become the Brand Ambassador of Bitcoiin2Gen." A Bitcoiin2Gen press release also included a quotation from Seagal stating that he endorsed the ICO "wholeheartedly." These promotions came six months after the SEC's 2017 DAO Report warning that coins sold in ICOs may be securities. The SEC has also advised that, in accordance with the anti-touting provisions of the federal securities laws, any celebrity or other individual who promotes a virtual token or coin that is a security must disclose the nature, scope, and amount of compensation received in exchange for the promotion.

Today the Commission once again disapproved a proposed rule change that would give American investors access to bitcoin through a product listed and traded on a national securities exchange subject to the Commission's regulatory framework. This order is the latest in a long string of disapproval orders that the Commission has issued regarding bitcoin-related products. This line of disapprovals leads me to conclude that this Commission is unwilling to approve the listing of any product that would provide access to the market for bitcoin and that no filing will meet the ever-shifting standards that this Commission insists on applying to bitcoin-related products-and only to bitcoin-related products.

. . .

The Commission's approach to these bitcoin exchange-traded products is frustrating because it evinces a stubborn stodginess in the face of innovation. The irony is that, in taking this approach, the Commission wanders into the unbounded, dangerous territory of merit regulation for which the Commission is ill-equipped. Because the Commission's order applies an inappropriate standard under Section 6(b)(5) of the Exchange Act, I respectfully dissent.

The Employee Retirement Income Security Act of 1974 (ERISA) requires plaintiffs with "actual knowledge" of an alleged fiduciary breach to file suit within three years of gaining that knowledge, 29 U. S. C. §1113(2), rather than within the 6-year period that would otherwise apply. Respondent Sulyma worked at Intel Corporation from 2010 to 2012 and participated in two Intel retirement plans. In October 2015, he sued petitioners-administrators of those plans-alleging that they had managed the plans imprudently. Petitioners countered that the suit was untimely under §1113(2) because Sulyma filed it more than three years after they had disclosed their investment decisions to him. Although Sulyma had visited the website that hosted many of these disclosures many times, he testified that he did not remember reviewing the relevant disclosures and that he had been unaware of the allegedly imprudent investments while working at Intel. The District Court granted summary judgment to petitioners under §1113(2). The Ninth Circuit reversed. That court agreed with petitioners that Sulyma could have known about the investments from the disclosures, but held that his testimony created a dispute as to when he gained "actual knowledge" for purposes of §1113(2). 

Held: A plaintiff does not necessarily have "actual knowledge" under §1113(2) of the information contained in disclosures that he receives but does not read or cannot recall reading. To meet §1113(2)'s "actual knowledge" requirement, the plaintiff must in fact have become aware of that information. Pp. 5-12. 

(a) ERISA's "plain and unambiguous statutory language" must be enforced "according to its terms." Hardt v. Reliance Standard Life Ins. Co., 560 U. S. 242, 251. Although ERISA does not define the phrase "actual knowledge," its meaning is plain. Dictionaries confirm that, to have "actual knowledge" of a piece of information, one must in fact be aware of it. Legal dictionaries give "actual knowledge" the same meaning. The law will sometimes impute knowledge-often called "constructive" knowledge-to a person who fails to learn something that a reasonably diligent person would have learned. The addition of "actual" in §1113(2) signals that the plaintiff's knowledge must be more than hypothetical. Congress has repeatedly drawn the same "linguistic distinction," Merck & Co. v. Reynolds, 559 U. S. 633, 647, elsewhere in ERISA. When Congress has included both actual and constructive knowledge in ERISA limitations provisions, Congress has done so explicitly. But Congress has never added to §1113(2) the language it has used in those other provisions to encompass both forms of knowledge. Pp. 5-8. 

(b) Petitioners' arguments for a broader reading of §1113(2) based on text, context, purpose, and statutory history all founder on Congress's choice of the word "actual." Petitioners may well be correct that heeding the plain meaning of §1113(2) substantially diminishes the protection that it provides for ERISA fiduciaries. But if policy considerations suggest that the current scheme should be altered, Congress must be the one to do it. Pp. 8-11. 

(c) This opinion does not foreclose any of the "usual ways" to prove actual knowledge at any stage in the litigation. Farmer v. Brennan, 511 U. S. 825, 842. Plaintiffs who recall reading particular disclosures will be bound by oath to say so in their depositions. Actual knowledge can also be proved through "inference from circumstantial evidence." Ibid. And this opinion does not preclude defendants from contending that evidence of "willful blindness" supports a finding of "actual knowledge." Cf. Global-Tech Appliances, Inc. v. SEB S. A., 563 U. S. 754, 769. Pp. 11-12. 

909 F. 3d 1069, affirmed.
ALITO, J., delivered the opinion for a unanimous Court.

Riehl then diverted funds from the program to Trickling Springs Creamery, LLC, a Franklin County-based creamery of which he was the majority owner. Riehl also fraudulently solicited direct investments in Trickling Springs Creamery. The defendant made material misrepresentations about the safety and security of these investments in his program and about the performance of the program, as well as misrepresentations and omissions about the creamery's business and financial condition. Trickling Springs Creamery announced it was ceasing operations in September 2019 and filed a bankruptcy petition in December 2019. Investor losses are estimated to be around $60 million, making this one of the largest Pennsylvania-based Ponzi schemes ever.

[L]attanzio posed as a hedge fund manager and falsely promised small businesses that he would arrange project financing for them in exchange for an investment in his Black Diamond Capital Appreciation Fund (BD Fund). Lattanzio falsely represented that the BD Fund had as much as $800 million under management and a proven track record of producing double-digit returns. In reality, the fund never had more than approximately $5 million in assets and Lattanzio simply stole funds to finance lavish personal expenses for himself and his family, including a luxury automobile, expensive jewelry, a home in an affluent neighborhood, and private school tuition.

[S]CANA, its former CEO Kevin Marsh, former Executive Vice President Stephen Byrne, and subsidiary SCE&G misled investors about a project to build two nuclear units that would qualify the company for more than $1 billion in tax credits. According to the complaint, the defendants claimed that the project was on track even though they knew it was far behind schedule, making it unlikely to qualify for the tax credits. The complaint further alleges one SCANA executive said that officers of the company "flew around the country showing the same . . . construction pictures from different angles and played our fiddles" while the project itself "was going up in flames." SCANA abandoned the project in mid-2017 with neither nuclear unit completed. The complaint alleges that the false statements and omissions enabled SCANA to boost its stock price, sell more than $1 billion in bonds, and obtain regulatory approval to raise customers' rates to finance the project.

• Securities Industry Commentator
• Bill Singer