Securities Industry Commentator by Bill Singer Esq

Statement of the Department of Justice Antitrust Division on the Closing of Its Investigation of London Stock Exchange Group and Refinitiv (DOJ Release)

Six Charged in Transnational Money Laundering Operation Involving Elder Fraud (DOJ Release)

Pharmaceutical Company and Former Executives Charged With Misleading Financial Disclosures (SEC Release)

SEC v. Complete Business Solutions Group Inc. d/b/a/ Par Funding et al. (SEC Release)

Statistical Voodoo in the 2020 FINRA Industry Snapshot Report (BrokeAndBroker.com Blog)

In conducting its analysis, the Division considered the vertical relationships between LSEG and Refinitiv where one firm serves as a supplier to the other of needed inputs, as well as the horizontal aspects of the transaction where LSEG and Refinitiv offer competing products. In analyzing these different aspects to the transaction, the Division used both the recently released Vertical Merger Guidelines and the Horizontal Merger Guidelines, issued by the Antitrust Division and the Federal Trade Commission.

When analyzing the vertical aspects of the transaction, the division considered how the proposed transaction could affect the ability and incentives of LSEG and Refinitiv to change the licensing terms for proprietary data feeds used by their rivals to supply products that compete against similar products from LSEG and Refinitiv.  Examples of such data feeds include pricing data for financial instruments, currency benchmark rates, and securities identifiers.

The division's analysis considered how changes in the licensing of LSEG's and Refinitiv's proprietary data feeds could affect competition for financial indexes and financial data products, and found that the proposed transaction is unlikely to significantly lessen competition for those products where rivals rely on LSEG and Refinitiv for inputs.  In many instances, for example, the rivals who purchase products and services from LSEG or Refinitiv also sell products and services back to LSEG and Refinitiv.  The division's analysis took into account the competitive significance in the United States of LSEG's and Refinitiv's products compared to their rivals' products, and the bargaining relationships these rivals have with LSEG and Refinitiv.  The division's analysis also considered the possible competitive effects of the proposed transaction on customers in the United States of LSEG, Refinitiv, and their rivals. Because LSEG and Refinitiv's rivals would maintain significant bargaining leverage that would make post-transaction price increases unlikely, and because any potential increase in the fees of the combined firm would not likely be passed on to customers, the division concluded the vertical aspects of the transaction would not cause a significant lessening of competition.

With respect to the horizontal aspects of the transaction, the division found that in areas where LSEG and Refinitiv offer similar products, such as financial indexes, that the combination of the companies' products are unlikely to significantly lessen competition.  This analysis was based on a review of LSEG's and Refinitiv's products that are similar to each other, an analysis of whether these products actually compete against each other in the United States, and the small changes the transaction would likely cause in post-transaction market concentration for these products based on the companies' market shares in the United States.

The division considered several theories of harm in its review of the proposed transaction, and concluded that these theories were not supported by the available evidence.  For these and other reasons, the division determined that the proposed transaction is unlikely to substantially harm consumers in the United States and therefore closed its investigation.

[T]he defendants engaged in a money laundering conspiracy from July 2012 to September 2019.  As part of the operation, co-conspirators allegedly employed by call centers fraudulently induced victims, some of whom were located in the Eastern District of Texas, to transfer funds to the defendants and other co-conspirators.  These callers allegedly made unsolicited calls to individuals in the United States and employed various schemes that directly targeted or predominantly affected elder victims. 

The indictment alleges that the schemes included impersonation of Social Security Administration and IRS/Department of Treasury officials.  Callers allegedly claimed that the victim's Social Security number had been suspended because of suspicious activity and could be reactivated by payment of some amount.  Other callers allegedly claimed that victims owed back taxes and were required to satisfy the fictional debt to avoid threatened legal action.  Some callers allegedly posed as employees of mortgage companies.  Victims, who included borrowers with mortgages backed by the U.S. Department of Housing and Urban Development Federal Housing Administration, were promised lower rates through fictitious loan modifications and, in some instances, threatened with foreclosure if they did not agree to pay for the loan modification.

The indictment further alleges that victims wired funds through money services businesses to locations in the Eastern District of Texas and elsewhere.  The indictment charges that the defendants' money laundering conspiracy involved more than 4,000 victim wire transfers that totaled over $3.2 million.  The defendants and co-conspirators receiving these illicit proceeds are alleged to have retained a percentage of the victim funds for their services. 

The indictment also charges that the defendants created fictitious companies and then deposited victim funds into bank accounts opened in the names of these fictitious companies.  The defendants are alleged to have made cash withdrawals of the fraudulently-obtained money and transferred some of the proceeds to other accounts, some of which were located outside of the United States.

Jvones, Beaman, Booth, and Brookshier were separately charged with operation of an unlicensed money transmitting business in the State of Texas.

[W]hen announcing certain GAAP and non-GAAP financial measures, Valeant among other things, misstated revenue transactions and included erroneous revenue allocations. For example, the order finds that, for five consecutive quarters, Valeant, former CEO J. Michael Pearson, former CFO Howard B. Schiller, and former controller Tanya R. Carro, touted double-digit same store organic growth, a non-GAAP financial measure that represented growth rates for businesses owned for one year or more.  Much of that growth came from sales to Philidor, a mail order pharmacy Valeant helped establish, fund and subsidize. The orders find that Valeant improperly recognized revenue relating to Philidor sales and did not disclose its unique relationship with or risks related to Philidor in SEC filings and earnings and investor presentations. Valeant ended its ties to Philidor in October 2015 and restated its 2014 financial statements in April 2016, reducing the revenue that was improperly recognized.

The SEC orders also find that Valeant failed to disclose the material impact of certain revenue it received from drug wholesalers following a 500% increase of the price of a single drug that Valeant acquired in April 2015. Valeant erroneously attributed the resulting revenue to more than 100 unrelated products and did not record any as attributable to that drug. Additionally, in its SEC filings and earnings presentations for the second and third quarters of 2015 and its 2015 year-end report, Valeant failed to disclose the impact of that allocation on its GAAP and non-GAAP financial measures.

orchestrated a scheme to raise investor funds through unregistered securities offerings for the cash advance company they control, Complete Business Solutions Group Inc., doing business as Par Funding. According to the complaint, McElhone and LaForte made opportunistic loans, some of which charged more than 400% interest, to small businesses across America. The complaint alleges that, to fuel the loans, McElhone and LaForte, with the assistance of other Par Funding personnel, allegedly used a network of unregistered sales agents and affiliated entities to sell promissory notes to the public while lying to or misleading investors about Par Funding's business, how investor funds would be used, and LaForte's role and criminal history.

• Securities Industry Commentator
• Bill Singer