Securities Industry Commentator by Bill Singer Esq

New York Hedge Fund Founder Arrested And Charged With Fraud, Extortion, And Obstruction Of Justice In Connection With Neiman Marcus Bankruptcy / Daniel Kamensky Allegedly Extorted a Rival Bidder to Abandon a Higher Bid and Engaged in Obstruction of Justice by Asking the Rival Bidder to Cover Up the Crime (DOJ Release)

SEC Charges Fund Manager for Fraud in Securities Offering in Neiman Marcus Bankruptcy (SEC Release)

SEC Charges Investment Adviser with Fraud (SEC Release)

SEC Charges Unregistered Penny Stock Dealer (SEC Release)

SEC Charges IIIinois Resident for Unregistered Offerings (SEC Release)

Marina del Rey Man Agrees to Plead Guilty to Wire Fraud Charge that His Forex Trading Business Instead Was $3.3 Million Ponzi Scheme (DOJ Release)

SEC Charges Attorney with Assisting Fraudulent Microcap Scheme (SEC Release)

California Man Admits to Securities and Tax Offenses Related to $722 Million Bitclub Network Fraud Scheme (DOJ Release)

FINRA Imposes Fine, Suspension, and Continuing Ed Undertaking on Rep for Blank Account Forms and Mismarked Solicited Orders 

In the Matter of Kimberley Schkade-Hill, Respondent (FINRA AWC)

FINRA Imposes Fine and Suspension on Sales Assistant for Blank Account Forms 

In the Matter of Christina Jane Shepard, Respondent (FINRA AWC)

DANIEL KAMENSKY was the principal of Marble Ridge, a hedge fund with assets under management of more than $1 billion that invested in securities in distressed situations, including bankruptcies.  Prior to opening Marble Ridge, KAMENSKY worked for many years as a bankruptcy attorney at a well-known international law firm, and as a distressed debt investor at prominent financial institutions.

The Neiman Marcus Bankruptcy

Neiman Marcus, an American chain of luxury department stores with stores located across the United States, filed for Chapter 11 bankruptcy protection in the United States Bankruptcy Court for the Southern District of Texas (the "Bankruptcy Court") in May 2020.  At the outset of the bankruptcy, Marble Ridge, through KAMENSKY, applied to be on the Official Committee of Unsecured Creditors (the "Committee") and was thereafter appointed to be a member of the Committee.  As a member of the Committee, KAMENSKY had a fiduciary duty to represent the interests of all unsecured creditors as a group.

During the bankruptcy process, the Committee had negotiated with the owners of Neiman Marcus to obtain certain securities, known as MyTheresa Series B Shares (the "MYT Securities"), and ultimately, the Committee was successful in coming to a settlement to obtain 140 million shares of MYT Securities for the benefit of certain unsecured creditors of the bankruptcy estate.  In July 2020, KAMENSKY was negotiating with the Committee for Marble Ridge to offer 20 cents per share to purchase MYT Securities from any unsecured creditor who preferred to receive cash, rather than MYT Securities, as part of that settlement.

KAMENSKY's Fraudulent Scheme 

On July 31, 2020, KAMENSKY learned that a diversified financial services company headquartered in New York, New York (the "Investment Bank") had informed the Committee that it was interested in bidding a price between 30 and 40 cents per share - substantially higher than KAMENSKY's bid - to purchase the MYT Securities from any unsecured creditor who was interested in receiving cash.

That afternoon, KAMENSKY sent messages to a senior trader at the Investment Bank ("IB Employee-1") telling him not to place a bid, and followed those messages up with a phone call with IB Employee-1 and a senior analyst of the Investment Bank ("IB Employee-2," and collectively the "Employees").  During that call, KAMENSKY asserted that Marble Ridge should have the exclusive right to purchase MYT Securities, and threatened to use his official role as co-chair of the Committee to prevent the Investment Bank from acquiring the MYT Securities.  KAMENSKY also stated that Marble Ridge had been a client of the Investment Bank in the past but that if the Investment Bank moved forward with its bid, then Marble Ridge would cease doing business with the Investment Bank.

The Investment Bank thereafter decided to not make a bid to purchase MYT Securities, and informed the legal adviser to the Committee of its decision.  The Investment Bank further told the legal adviser they made that decision because KAMENSKY - a client of the Investment Bank - had asked them not to.

Advisers to the Committee informed counsel for Marble Ridge of their call with the Employees, and after speaking with KAMENSKY, counsel for Marble Ridge falsely informed the advisers that KAMENSKY had not asked the Employees not to bid, but instead had told them to place a bid only if they were serious.  Later that evening, KAMENSKY contacted IB Employee-1 and attempted to influence what IB Employee-1 would tell others, including the Committee and law enforcement, about KAMENSKY's attempt to block the Investment Bank's bid for the MYT Securities.  KAMENSKY said at the outset of the call, in substance, "this conversation never happened."  During the call, KAMENSKY asked IB Employee-1 to falsely say that IB Employee-1 had been mistaken and that KAMENSKY had actually suggested that the Investment Bank bid only if it were serious, and made comments including the following:  "Do you understand. . . I can go to jail?"  "I pray you tell them that it was a huge misunderstanding, okay, and I'm going to invite you to bid and be part of the process."  "But I'm telling you. . . this is going to the U.S. Attorney's Office.  This is going to go to the court."  "[I]f you're going to continue to tell them what you just told me, I'm going to jail, okay? Because they're going to say that I abused my position as a fiduciary, which I probably did, right? Maybe I should go to jail. But I'm asking you not to put me in jail."

During a subsequent interview with the Office of the United States Trustee, which was conducted under oath and in the presence of counsel, KAMENSKY stated that his calls to IB Employee-1 were a "terrible mistake" and "profound errors in lapses of judgment."

After this series of events, Marble Ridge resigned from the Committee and has advised its investors that it intended to begin winding down operations and returning investor capital.

As co-chair of the unsecured creditors committee, Kamensky acted as a fiduciary to all unsecured creditors. The SEC's complaint alleges that Kamensky sought to take advantage of his role on the committee to manipulate a bidding process to the benefit the portfolio he managed, and at the expense of the unsecured creditors. According to the complaint, in his role as fund manager, Kamensky sought to purchase securities being distributed as part of the Neiman Marcus bankruptcy proceedings. As alleged, on July 31, 2020, Kamensky coerced a competing bidder for the securities into withdrawing its bid, which was higher than Kamensky's own bid and would have led to a larger distribution to the unsecured creditors. Kamensky allegedly indicated that, in his positon as co-chair of the committee, he would not allow the competing bidder to successfully buy the securities. When his actions came to light, Kamensky allegedly attempted to cover-up his misconduct by trying to persuade the other bidder not to describe Kamensky's conduct as a threat.

[B]rown controlled and operated Alpha Trade Analytics, Inc., a financial consulting and investment company he largely ran out of his home. Neither Brown nor Alpha Trade was a registered broker or dealer in securities. Brown also served as the accountant for a non-profit organization providing dance and theater arts education to children and young adults in Los Angeles, and had access to its bank accounts.

From April 2014 to May 2018, Brown solicited investments in Alpha Trade, including from people he encountered through his position with his employer, and through his relationship with its executives and employees, which afforded him access to high-net-worth individuals.

To encourage those individuals to invest with Alpha Trade, Brown falsely promised that their investments would only be used for foreign exchange (Forex) currency trading and that they would receive guaranteed monthly payouts of around 10%. He also falsely represented that he had extensive experience in Forex investing, regularly made profitable trades, and achieved substantial and growing rates of return that exceeded the industry average.

Contrary to his representations to investors, Brown only used a small portion of the total amount invested in Alpha Trade for Forex trading, mostly in 2015. Instead, he routinely used investor funds for other purposes, including his rent, car payments, restaurant and retail expenses, and lulling payments to other investors, the plea agreement states.

In order to induce investors to maintain or supplement their investments with Alpha Trade and to conceal his scheme, Brown periodically provided investors with account statements that reflected fabricated investment returns that often showed steady, significant gains.

Brown admitted he made some of the promised recurring payouts and provided demanded refunds, not based on any Forex investment returns, but instead from money stolen from new investors and through funds he embezzled from the dance academy through unauthorized wire transfers, credit card advances, and cash withdrawals he was able to make by virtue of his position as the dance academy's accountant.

In total, Brown caused losses of approximately $3,313,346 to more than 10 victims, including nearly $700,000 in losses to his former employer based on the money he embezzled from it, according to the plea agreement.

engaged in a Ponzi-like scheme using Alpha Trade's investment fund. The complaint alleges that Brown, as investment adviser to the fund, raised approximately $7.5 million from more than 75 investors, claiming that the fund would invest in the financial markets, including by trading securities. The complaint further alleges that Brown guaranteed investors a fixed-rate payout ranging from 8-12% per month, falsely promised that the investments were safe and risk-free, and claimed that all losses would be borne by the fund. According to the complaint, in reality, Brown operated the fund as a Ponzi-like scheme, investing less than 3% of investors' money in financial markets, and using new investor funds to pay existing investors their promised returns and the return of their principal. Brown also allegedly misappropriated or misused investor funds for his own benefit.

regularly engaged in the business of purchasing convertible notes from penny stock issuers, converting those notes into shares of stock at a large discount from the market price, and selling the newly issued shares into the market at a significant profit. The SEC alleges that Fife and his companies engaged in more than 250 convertible transactions with approximately 135 issuers, sold more than 21 billion newly-issued penny stock shares into the market, and obtained more than $61 million in profits. The complaint also alleges that, at the time of the conduct, the Defendants were not registered with the SEC as dealers, in violation of the mandatory registration provisions of the federal securities laws. It further alleges that by failing to register, the Defendants avoided certain regulatory obligations for dealers that govern their conduct in the marketplace, including regulatory inspections and oversight, financial reporting requirements, and maintaining books and records.

The SEC's complaint, filed in federal court in Boston, alleges that DiChiara, working as an attorney, helped MorrieTobin and others arrange a reverse merger between a public shell company, which Tobin secretly controlled, and a private-bulk packaging company. The reverse merger allegedly left Tobin with control of nearly all of the purportedly unrestricted shares of Environmental Packaging. According to the complaint, DiChiara helped Tobin transfer his shares though a network of nominee entities to evade legal restrictions on stock sales. This enabled Tobin to sell his shares in bulk during a stock promotion, as Environmental Packaging shares more than doubled in price. The complaint also alleges that DiChiara authored false attorney opinion letters to remove restrictive legends from stock certificates held by Tobin's nominees and drafted misleading SEC filings.

[T]hompson, a recidivist securities laws violator, and his company, Covalent Collective, Inc., directed numerous offerings of unregistered securities from 2014 to 2019, ultimately raising more than $19 million from approximately 500 investors. As alleged in the complaint, Thompson used numerous mechanisms to solicit investors, including providing investors video and audio recordings in which Thompson encouraged investors to spread the word about the company's securities to friends and family. The complaint further alleges that despite raising nearly $20 million, Covalent never commenced any revenue-generating operations. According to the complaint, Thompson diverted more than $2.7 million of investor funds for his own benefit.

From April 2014 through December 2019, the BitClub Network was a fraudulent scheme that solicited money from investors in exchange for shares of purported cryptocurrency mining pools and rewarded investors for recruiting new investors into the scheme. Abel operated as a large-scale promoter of the BitClub Network. He promoted and sold shares of BitClub Network despite knowing that the network and its operators did not file a registration statement to register shares with the U.S. Securities and Exchange Commission.

Abel admitted taking money from investors in exchange for shares of the BitClub Network's purported mining pools. In order to promote shares in the BitClub Network's mining pools, he created and posted videos to the internet and gave presentations and speeches about the BitClub Network throughout the United States and numerous other countries, including in Asia, Africa, and Europe. As part of the conspiracy, Abel instructed investors in the United States to use a virtual private network, or "VPN," to hide their U.S.-based IP addresses and evade detection and regulation by U.S. law enforcement.

Abel admitted failing to report on a Form 1040 United States Individual Income Tax Return for the tax year 2017 approximately $1 million in cryptocurrency as income he earned from his promotion of the BitClub Network.

In May 2018, Hill associated with LSF and, upon her association, LSF began transitioning her customers' accounts from her prior firm to LSF. In order to facilitate these account transfers, Hill met with clients to obtain relevant information, but rather than filling in that information on account forms, Hill recorded information for each client on one or more customer profile documents. During these client meetings, Hill asked her clients to sign blank account forms, which she would sign while blank as well. After Hill met with the customers, a registered sales assistant at LSF would enter all of the information from the profiles into LSF's electronic record system, and used the data to fill in the blanks on the pre-signed account forms. Hill did not review the completed documents nor did she provide them to her customers to review. Between May 2018 and March 2019, Hill obtained signatures from at least 49 different customers on at least 79 blank account forms. Hill's practice of asking her customers to sign blank forms violated FINRA Rule 2010 and caused LSF to maintain inaccurate books and records in violation of FINRA Rules 4511 and 2010. 

Separately, from May 2018 through December 2018, Hill mismarked order tickets as unsolicited when the trades were, in fact, solicited. Specifically, in instances where a customer sought to invest new or additional funds, Hill would mark orders as unsolicited if she recommended that the customer invest those new or additional funds into securities that they already held in their accounts. As a result, Hill marked at least 100 order tickets unsolicited. Hill's actions violated FINRA Rule 2010. By mismarking the transactions, Hill also caused LSF to make and maintain inaccurate books and records in violation of FINRA Rules 4511 and 2010.

At various times during the period from May 2018 through March 2019, Shepard, acting as a sales assistant, assisted another registered representative at LSF by processing new account openings and transfers for the representative's customers. The registered representative Shepard assisted frequently requested customers to sign and date blank account forms. The representative asked at least 49 different customers to sign at least 79 blank account forms. Shepard later filled in blanks on these pre-signed account forms- including adding information about the customers' investment objectives, net worth, investing history, and other background information-before processing the forms. 

In addition, in one instance, Shepard cut and pasted a customer's signature onto a new set of account transfer forms after discovering an error on the previously-signed blank set of forms. Shepard did not obtain authorization from the customer or the customer's updated signature.

Finally, in at least five instances, as a result of delays in the filling out and processing of documents that customers had signed and dated in blank, the forms became outdated. Instead of requesting that customers sign and date new forms, Shepard used Wite-Out to alter and falsify the dates on the forms. 

• Securities Industry Commentator
• Bill Singer