Securities Industry Commentator by Bill Singer Esq

Aching Work-at-Home Backs Driving Demand for Ergonomic Chairs (Bloomberg.com by Matthew Boyle)

Joint Antitrust Statement Regarding COVID-19 (DOJ and FTC)

Defendants Hit with $5 Million Civil Penalties. 

Securities and Exchange Commission, Plaintiff, v. Lek Securities Corporation, Samuel Lek, Vali Management Partners d/b/a Avalon FA Ltd, Nathan Fayyer, and Sergey Pustelnik, Defendants (Opinion and Order, SDNY)

Pennsylvania Attorney Indicted for Role in $2.7 Million Ponzi Scheme (DOJ Release)

SEC Charges Pennsylvania Attorney and Swiss Resident in $1.4 Million Dollar Ponzi Scheme (SEC Release)

SEC Charges Unregistered Penny Stock Dealer (SEC Release)

SEC Awards Over $570,000 to Two Whistleblowers (SEC Release)

JPMorgan wins round in fight over client contacts with Merrill broker

Customer Wins $800,000 Award in FINRA Arbitration Against Stifel, Nicolaus. In the Matter of the Arbitration Between Merle L. Buzzotta, account titled Vito R. Buzzotta and Merle L. Buzzotta JTWROS, Claimant, v. Stifel, Nicolaus & Co., Inc. and John Hoff Russell, Respondents (FINRA Arbitration Decision)

Since joint ventures may be necessary for businesses to bring goods to communities in need, to expand existing capacity, or to develop new products or services, the Agencies will also work to expeditiously process filings under the National Cooperative Research and Production Act (as amended by the Standards Development Organization Advancement Act).  See Dep't of Justice, Filing a Notification Under NCRPA.  These statutes provide flexible treatment under the antitrust laws for certain standard development organizations and joint ventures. 

The Agencies recognize, however, that some individuals and businesses may need to act immediately in addressing this ongoing pandemic.  Many types of collaborative activities designed to improve the health and safety response to the pandemic would be consistent with the antitrust laws. . . .

. . .

The Agencies will also account for exigent circumstances in evaluating efforts to address the spread of COVID-19 and its aftermath.  For example, health care facilities may need to work together in providing resources and services to communities without immediate access to personal protective equipment, medical supplies, or health care.  Other businesses may need to temporarily combine production, distribution, or service networks to facilitate production and distribution of COVID-19-related supplies they may not have traditionally manufactured or distributed.  These sorts of joint efforts, limited in duration and necessary to assist patients, consumers, and communities affected by COVID-19 and its aftermath, may be a necessary response to exigent circumstances that provide Americans with products or services that might not be available otherwise. 

The evidence adduced at trial demonstrated Defendants' widespread and longstanding use of layering and the Cross-Market Strategy. Defendants employed these schemes for more than five years, from 2012 through 2016. During that time, they engaged in more than 675,000 instances of layering and 668 instances of Cross-Market trading. Both practices were also highly lucrative: Defendants generated over $21 million in revenue through layering, along with $8.1 million in revenue from the  Cross-Market scheme. Almost $4.5 million of this amount was retained by the three Defendants; approximately $25 million was distributed to Avalon's traders.

Following a jury verdict in its favor on November 12, 2019, plaintiff United States Securities and Exchange Commission ("SEC") seeks a permanent injunction, disgorgement jointly and severally in the amount of $4,495,564 plus prejudgment interest, and civil penalties in the amount of $13.8 million against each of the defendants Vali Management Partners dba Avalon FA Ltd ("Avalon"), Nathan Fayyer ("Fayyer") and Sergey Pustelnik ("Pustelnik") (collectively, the "Defendants"). The Defendants oppose the imposition of any obligation to disgorge their revenue and contend that civil penalties should be limited to $300,000 for Fayyer and Pustelnik and $1,450,000 for Avalon. For the following reasons, disgorgement is ordered, jointly and severally, in the amount requested by the SEC, with interest, and civil penalties are assessed in the amount of $5 million for each defendant, subject to an increase as described below.¹

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Footnote 1: The Defendants do not oppose an injunction permanently prohibiting them from violating Sections 9(a)(2) and 10(b) of the Securities Exchange Act of 1934, Rule 10b-5 thereunder, and Section 17(a) of the Securities Act of 1933. Accordingly, that relief is granted as well. 

[D]efendants were responsible for recruiting traders to execute the fraudulent schemes and then took extensive steps to cover their trail. Defendants repeatedly concealed their participation in the layering scheme from the Lek Defendants during the investigation. The latter's settlement does not, therefore, limit the Court's discretion to assess harsher penalties on the Defendants. 

Weighing all of the factors discussed above, a third-tier civil penalty of $5 million is assessed against each of the three Defendants. Although this penalty is significant, it corresponds to the extent and brazenness of the Defendants' conduct and the need to deter those practices in the future. It is also a fraction of the maximum tier-three penalties available and substantially less than the penalty the SEC has requested. This figure is set based at least in part on the assumption that the amount already seized by the SEC, or at least most of that amount, will be used to satisfy Defendants' duty to disgorge their profits from their schemes.¹² 

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Footnote 12: This Order relies on the Defendants' commitment, expressed in their memorandum in opposition the SEC's motion and counsel's letter of March 13, 2020, that they largely consent to the application of the $5.5 million seized by the SEC to be used to satisfy their obligation to pay disgorgement. 

[F]rom 2012 through 2019, Lahr conspired with others to perpetrate a securities fraud scheme targeting his own law clients, which involved the fraudulent sale of the securities of two entities, THL Holdings LLC and Ferran Global Holdings Inc.  Lahr used investor funds to finance his own lifestyle, paying his home mortgage, his child's school tuition, utility bills and other personal debts.  He allegedly perpetuated the scheme by using money that he received from new investors to pay money owed to other investors in the scheme.  

[F]or the better part of three years ending 2017, Lahr and Megas targeted clients of Lahr's law practice to raise funds for several Megas-led business ventures, including mining operations in Papua New Guinea and real estate investments in Barcelona and London. Instead, Lahr and Megas allegedly used investor funds to pay earlier investors and for various personal expenses, including Lahr's mortgage payments and credit card bills and Megas' restaurant bills and ATM withdrawals.

[B]etween January 2015 and January 2018, Keener engaged in the business of purchasing convertible notes from penny stock issuers, converting the notes into shares of stock at a large discount from the market price, and selling those newly issued shares into the market at a significant profit. Keener allegedly purchased convertible notes from more than 100 separate issuers and sold more than 17.5 billion shares of newly issued penny stock into the market, generating over $21.5 million in profits. As alleged, Keener was not registered as a dealer with the SEC, in violation of the mandatory registration provisions of the federal securities laws.

would yield a likely payout to Claimant 1 of approximately $478,000 and a likely payout to Claimant 2 of approximately $94,000. Claimant 1 and Claimant 2 provided written notice of their decisions not to contest the Preliminary Determination.

Additionally, the CRS recommended that Claimant 2's claim for an award in connection with the Related Actions be denied in part because the original information submitted by Claimant 2 used by the Commission in connection with the Covered Action was not used in the Related Actions. Because Claimant 2 provided written notice of Claimant 2's decision not to contest the preliminary determination, the CRS's preliminarily determination as to the denial of the award in connection with the Related Actions became the final order of the Commission pursuant to Exchange Act Rule 21F-11(f); 17 C.F.R. § 240.21F-11(f).

[T] parties agreed to a preliminary injunction under which Berry would admit to no wrongdoing and accept no liability, but nonetheless agree to halt any solicitation of his former clients and to return to JPMorgan any documents and records relating to his old book of business.

[T]he causes of action relate to the allegation that Claimant's estranged, and now deceased, husband (the "Decedent") and Russell intentionally used subterfuge to obtain Claimant's consent to transactions that removed assets from accounts, in which Claimant had an interest, to benefit a third party. Claimant further alleges that as a result of Russell's actions, alone and in concert with the Decedent, and because of Russell's failure to provide Claimant or her attorney-in-fact with material information, Claimant and her children were left substantially disinherited from the majority of the Decedent's financial assets that had been provided for them under his and Claimant's estate plans.

• Securities Industry Commentator
• Bill Singer