Securities Industry Commentator by Bill Singer Esq

Federal Court Confirms Merrill Lynch's Counterclaim Victory In Puerto Rico Bond Arbitration (BrokeAndBroker.com Blog)

John McAfee Indicted for Tax Evasion / Allegedly Hid Cryptocurrency, a Yacht, Real Estate and Other Properties in Nominee Names to Evade Taxes (DOJ Release)

SEC Charges John McAfee With Fraudulently Touting ICOs (SEC Release)

Former Investment Advisor Sentenced to 17 Years in Prison in Multi-Million Dollar Investment Fraud Scheme that Victimized Professional Hockey Players and Long Island Investors (DOJ Release)

SEC Staff Releases Report on U.S. Credit Market Interconnectedness and the Effects of the COVID-19 Economic Shock (SEC Release)

SEC Obtains Final Judgment Against, and Suspends, Accountant Formerly with Construction Management Consulting Company (SEC Release)

FINRA Fines and Suspends Rep Over Payroll Services OBA

In the Matter of Tracy M. Meade, Respondent (FINRA AWC)

[J]ohn McAfee earned millions in income from promoting cryptocurrencies, consulting work, speaking engagements, and selling the rights to his life story for a documentary. From 2014 to 2018, McAfee allegedly failed to file tax returns, despite receiving considerable income from these sources. The indictment does not allege that during these years McAfee received any income or had any connection with the anti-virus company bearing his name.

According to the indictment, McAfee allegedly evaded his tax liability by directing his income to be paid into bank accounts and cryptocurrency exchange accounts in the names of nominees. The indictment further alleges McAfee attempted to evade the IRS by concealing assets, including real property, a vehicle, and a yacht, in the names of others.

15. McAfee, age 74, previously a resident of Tennessee, currently resides in an unknown location. McAfee previously served as the Chairman and CEO of MGT Capital Investments, Inc., a publicly traded company, from November 2016 through 2017, and developed the popular anti-virus software that still bears his name. McAfee tweets from the verified Twitter account @officialmcafee, which had approximately 784,000 followers as of February 17, 2018.

16. Watson, age 39, resides in California. Watson began providing personal security for

McAfee in late 2017 and worked with McAfee to promote various ICOs during the relevant period. 

 

[McAfee] promoted multiple ICOs on Twitter, allegedly pretending to be impartial and independent even though he was paid more than $23 million in digital assets for the promotions. When certain investors asked whether he was paid to promote the ICOs, McAfee allegedly denied receiving any compensation from the issuers. The complaint alleges that McAfee made other false and misleading statements, such as claiming that he had personally invested in some of the ICOs and that he was advising certain issuers. The complaint alleges that Watson assisted McAfee by negotiating the promotion deals with the ICO issuers, helping McAfee cash out the digital asset payments for the promotions, and, for one of the ICOs McAfee was promoting, having his then-spouse tweet interest in the ICO. Watson was allegedly paid at least $316,000 for his role. According to the complaint, while McAfee and Watson profited, investors were left holding digital assets that are now essentially worthless.

McAfee and Watson also allegedly engaged in a separate scheme to profit from a digital asset security by secretly accumulating a large position in McAfee's accounts, touting that security on Twitter while intending to sell it, and then selling McAfee's holdings as the price rose.

The Hawaii Real Estate Investment Scheme

Beginning in 2003, Kenner convinced Peca, Berard and several others to invest $100,000 each for the development of land in Hawaii into luxury estates and to open personal lines of credit at a bank, collateralized by their personal stock, bond and savings accounts worth at least $10 million.  Kenner assured the investors that the lines of credit would be used only to pay for initial development costs associated with the Hawaii project, and would be fully replenished after Lehman Brothers Holdings, Inc. agreed to loan the project up to $105 million in August 2006.  In fact, Kenner borrowed nearly all of investors' lines of credit to acquire his personal interest in unrelated real estate projects in Hawaii and Mexico and to cover his own and Constantine's personal expenses. 

In an offshoot of the scheme, Constantine brokered a $3.5 million loan from an Arizona businessman ostensibly to close on a Hawaii parcel of land.  Constantine put up no money of his own, but walked away from the transaction - funded with assets diverted from Peca, Berard and others - with approximately $2 million. 

The Eufora LLC Scheme

In 2002, Constantine founded Eufora LLC, a prepaid debit card business.  Between February 2008 and May 2009, Eufora was operating in the red, and as Constantine testified in civil depositions, the company was nearly worthless.  Notwithstanding, Kenner persuaded clients to invest in Eufora.  While representing that he was investing his clients' funds in Eufora, Kenner instead wired $725,000 of his clients' funds to Constantine's personal account.  Kenner also directed the wiring of an additional $700,000 of his clients' funds to Eufora's account, and promptly re-wired those funds to a co-conspirator's personal account.  The diverted funds were used to cover the costs of Kenner's and Constantine's home mortgages, credit card bills and other debts. 

The Global Settlement Fund Scheme

In early 2009, Kenner's clients who had opened lines of credit for the Hawaii venture received notices that their credit lines were in default.  For years, Kenner concealed that he had wiped out most of his clients' funds by borrowing against one line of credit to pay monthly interest charges for other another account.  By late 2008, the concealment scheme collapsed.  Notwithstanding, Kenner and Constantine persuaded their clients to invest additional funds to a "Global Settlement Fund."  The clients contributed  more than $2.9 million toward the fund, but the vast majority of the money was diverted to the defendants' personal use, which included Constantine buying his personal home out of foreclosure, Kenner and Constantine paying legal bills related to Kenner's personal investment in a tequila company in Mexico, defending Constantine in Florida litigation over his race car sponsorship activities, and an exploratory and unsuccessful effort by Constantine to buy Playboy Enterprises.

focuses on the origination, distribution and secondary market flow of credit across U.S. credit markets. The staff report also addresses how the related interconnections in our credit markets operated as the effects of the COVID-19 pandemic took hold. In addition, staff will host a Roundtable on Interconnectedness and Risk in U.S. Credit Markets to discuss the issues raised in the report on the afternoon of Oct.14. 

. . .

The report identifies approximately $54 trillion of credit issued and outstanding in the U.S. financial system at the end of 2019 and broadly traces the flow of that credit through various intermediaries and prior holders to the ultimate holders of the credit at that time. It then takes a deeper look at interconnections across six key U.S. credit markets with a focus on their function during and after the COVID-19 shock. These six markets-short-term funding, corporate bonds, leveraged loans/CLO, residential and commercial real estate, and municipal securities-account for more than $40 trillion in outstanding credit.

Key takeaways from the report are:

• The U.S credit markets, in size, structure and function have changed significantly since the 2008 global financial crisis.
• The credit markets are highly interconnected, which can both accelerate risk transmission and facilitate risk absorption.
• The ability of intermediaries (e.g., "market makers") to absorb significant, rapid shifts in investor sentiment (e.g., a "dash for cash") is limited in absolute terms and may become more limited as spreads widen and volatility increases during periods of stress and uncertainty.
• Due to the interconnected nature of our credit markets and the size and scope of the COVID-19 shock, it was insightful, prudent and, perhaps, essential that the actions of the Federal Reserve and the CARES Act were multi-faceted and immediate.  Those actions were instrumental in ameliorating stress in the credit markets, particularly the short-term funding markets.
• The combination of the Federal Reserve's intervention and the CARES Act also was extremely important in stabilizing prices (e.g., housing prices) and sustaining economic activity (e.g., consumer spending), which in turn added stability to the credit markets.
• Banks and the banking system have been resilient to the COVID-19 shock to date notwithstanding their exposure to several trillions of dollars of residential and commercial mortgages and leveraged loans to corporations.

In February 2016, using a d/b/a-Tracy Meade and Associates (TMA)-Meade started a business providing payroll services to realtors for which Meade received compensation. She continued engaging in this activity upon associating with LPL in March 2019 but did not provide written notice to the firm seeking approval of TMA as an outside business activity until August 2019.

Meade provided services, through TMA, to four of her LPL brokerage customers but had established and maintained TMA-based business relationships with each of these customers prior to her association with LPL. Additionally, Meade provided a false and misleading compliance attestation to LPL, where she did not disclose TMA as an outside business activity.

• Securities Industry Commentator
• Bill Singer