The Wall Street Legal & Regulatory Feed

Securities Industry Commentator by Bill Singer Esq

April 13, 2021





http://www.brokeandbroker.com/5797/nyse-nft/
BrokeAndBroker.com publisher Bill Singer was the third generation of his family in the wine and liquor business. Mounted on a wall in Bill's home is the framed First Dollar that his father got when he opened his liquor store in the 1950s. It's a "Silver Certificate" with its own unique serial number -- almost like cryptocurrency but for the fact that it is a legacy, paper currency with a physical manifestation but, hey, if my aunt were a man she'd be my uncle.  Also, someone (whose name is now lost to history) wrote on the First Dollar: "Best of Luck!" Imagine if Bill's father had transformed his First Dollar into an NFT way back in the 1950s. Why that First Dollar would be worth -- what? -- something like $2 or even $3? You would have doubled or tripled your investment.

Former Nike Marketing Manager Pleads Guilty to Wire Fraud, Money Laundering, and Making False Statements (DOJ Release)
https://www.justice.gov/usao-or/pr/former-nike-marketing-manager-pleads-guilty-wire-fraud-money-laundering-and-making-false 
Errol Andam, a former Nike, Inc. marketing manager, was charged by an Information filed in the United States District Court for the District of Oregon with wire fraud, money laundering, and making false statements on a loan application; and in response to his Plea Agreement, the U.S. Attorney will recommend a sentence of 37 months in prison and Andam has agreed to pay over $1.6 million in restitution and forfeit $212,838 in criminally-derived proceeds.  As alleged in part in the DOJ Release:

[F]rom 2001 until his termination in 2018, Andam was employed by Nike at its headquarters in Beaverton. Most recently, Andam worked as a manager in the company's North American Retail Brand Marketing division wherein he managed the design, build-out, and operation of "pop-up" retail venues, temporary Nike shops situated near and tailored to sports competitions and other special events around the U.S.

In the summer of 2016, Andam recruited a childhood friend to establish a company to design and build the pop-up venues as an independent contractor for Nike. Andam used his authority as a manager at Nike to ensure that his friend's company was consistently awarded the contracts for these jobs. Though he had no formal role in his friend's company, Andam assumed control of much of the company's financial operations, managing financial accounts and issuing invoices to Nike.

To conceal his role in the scheme, Andam used an alter ego, "Frank Little," to invoice Nike and manage the contract company's account with Square, Inc., a California-based provider of mobile credit-card-processing services. In 2016, Andam also renewed the lapsed registration of an Oregon-based limited liability corporation (LLC) he owned so that he could use the defunct entity as a shell company to funnel the proceeds diverted from Nike and his friend's company to accounts under his personal control.

Beginning in September 2016, Andam caused credit-card sales at various pop-up venues around the U.S. to be run through card readers associated with a Square account owned by his friend's company. These proceeds were transferred to Square in California and then to Andam's LLC bank account in Oregon. Andam represented to both Nike and his friend that the proceeds of these sales were credited against the total amount Nike owed to his friend's company. In truth, Andam simply pocketed the proceeds and, as "Frank Little," invoiced Nike for the full cost of the contracted services.

From September 2016 through December 2018, Andam diverted and embezzled nearly $1.5 million in Nike proceeds for his own use. In July 2018, Andam submitted a fake financial statement from his LLC in support of a residential mortgage loan application. The financial statement falsely reflected as revenue checks for $194,000 drawn on a bank account owned by his friend's business. Andam forged his friend's signature on one of the checks and withdrew much of that money without his friend's knowledge.

https://www.sec.gov/news/public-statement/peirce-statement-staff-esg-risk-alert
SEC Commissioner Peirce notes in part that [Ed: footnotes omitted]:

On Friday, the SEC's Division of Examinations published a risk alert, describing the areas on which the staff is focusing in examinations of registered investment advisers' and funds' ESG offerings. This alert comes as many financial firms are finding gold in the green -- they are offering ESG products because it is lucrative to do so. Therefore, as I have noted previously, asset manager accountability in the ESG space is important. Firms claiming to be conducting ESG investing need to explain to investors what they mean by ESG and they need to do what they say they are doing. This same rule applies no matter what label an adviser puts on its products and services. I commend the staff for seeking, through this alert, to aid firms and their compliance officers in assessing their ESG claims and practices preemptively in their own organizations.

. . .

Another question raised by the risk alert is do firms need a special set of policies and procedures for ESG? The answer to this question is no. Firms need not have a separate set of policies and procedures for any investment strategy. Rather, firms' policies and procedures should be designed around the investment strategies the firm employs, whatever those strategies are. The risk alert identifies as an example of a good practice at firms with "multiple ESG investing approaches" "separate specialized [portfolio management] personnel." Neither this risk alert nor other staff documents can impose new obligations on registrants. However, a firm's disclosures about its personnel should match the reality. Likewise, as is the case with any investment strategy, compliance personnel in an ESG firm should be familiar with the firm's business so that they can build and operate an effective compliance program for the firm, but they need not be experts in ESG, whatever that may be.

Staff Statement on Accounting and Reporting Considerations for Warrants Issued by Special Purpose Acquisition Companies ("SPACs") (SEC Statement by John Coates, Acting Director, Division of Corporation Finance and Paul Munter, Acting Chief Accountant)
https://www.sec.gov/news/public-statement/accounting-reporting-warrants-issued-spacs
The Staff Statement asserts in part that:

We recently evaluated fact patterns relating to the accounting for warrants issued in connection with a SPAC's formation and initial registered offering. While the specific terms of such warrants can vary, we understand that certain features of warrants issued in SPAC transactions may be common across many entities. We are issuing this statement to highlight the potential accounting implications of certain terms that may be common in warrants included in SPAC transactions and to discuss the financial reporting considerations that apply if a registrant and its auditors determine there is an error in any previously-filed financial statements.

Federal Circuit Court Says Head Scratchin' Act Not Proof of Securities Fraud Scienter
(BrokeAndBroker.com Blog)
http://www.brokeandbroker.com/5796/scienter-mannkind-9cir-cdca/
If you file a securities fraud claim under Section 10(b) of the Securities Exchange Act of 1934, a basic element of your proof must be to show that the defendant had acted with "scienter." What's scienter? Ahh, that's as easy as explaining what's cryptocurrency -- or what's "enough" or "a lot" or "frequently." In legalese, courts refer to "scienter" as a mental state embracing intent to deceive, manipulate, or defraud. Yeah, sure, that's helpful (not). Complicating things, in 1995, the Private Securities Litigation Reform Act imposed a further threshold upon plaintiffs in that they must plead a "strong inference" of scienter; and, as held in 2007 by the United States Supreme Court in Tellabs, Inc. v. Makor Issues & Rights, LTD, a securities fraud complaint must allege facts establishing that the strong inference of scienter is "cogent and at least as compelling as any opposing inference of nonfraudulent intent." Confused? Welcome to the club. See how all of this plays out in a recent Class Action.

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