The Wall Street Legal & Regulatory Feed
Securities Industry Commentator by Bill Singer Esq
June 25, 2021
FINRA Fines and Suspends Rep for Undisclosed Bankruptcy in PPM (BrokeAndBroker.com Blog)
http://www.brokeandbroker.com/5916/finra-awc-bankruptcy/
If you run afoul of FINRA, you may be given the opportunity to enter into a regulatory settlement without admitting or denying the facts. Frankly, that's a deal that most respondents should jump at. Perhaps acknowledging that some who settle would like to offer their side of things in the published Acceptance, Waiver and Consent document, FINRA allows respondents to attach a Corrective Action Statement, which is supposed to be a "statement of demonstrable corrective steps taken to prevent future misconduct. Respondent understands that he may not deny the charges or make any statement that is inconsistent with the AWC in this Statement." BrokeAndBroker.com publisher Bill Singer is no fan of the Corrective Action Statement. He almost never recommends the option. He regularly argues against it. In a recent FINRA AWC, Bill takes the opportunity to show why FINRA's policy is misguided and inconsistent.
Manhattan U.S. Attorney Announces Securities And Wire Fraud Charges Against Founder And Manager Of Mutual Fund (DOJ Release)
https://www.justice.gov/usao-sdny/pr/manhattan-us-attorney-announces-securities-and-wire-fraud-charges-against-founder-and
https://www.justice.gov/usao-sdny/pr/manhattan-us-attorney-announces-securities-and-wire-fraud-charges-against-founder-and
-and-
https://www.sec.gov/news/press-release/2021-107
In a Complaint filed in the United States District Court for the Southern District of New York, Ofer Abarbanel was charged with one count each of securities fraud and wire fraud. The SEC filed a separate civil Complaint. As alleged in part in the DOJ Release:
From at least in or about 2018 through the present, ABARBANEL engaged in a scheme to defraud investors in a mutual fund he founded and controlled (the "Fund"). ABARBANEL falsely represented to an investment adviser to a group of investors (the "Investor Group") that investments in the Fund would be placed "primarily" in short-term United States Treasury Securities having maturities less than or equal to three months. Contrary to these representations, the vast majority of the investors' funds were not invested in short-term treasuries. Instead, immediately after the Investor Group's investment was received by the Fund, ABARBANEL and his confederates transferred the investor funds to counterparties controlled by or otherwise closely associated with ABARBANEL, for use, among other things, in trading not authorized by the Fund's offering documents and for the benefit of ABARBANEL and the counterparties.ABARBANEL further represented that, in order to enhance income, the Fund intended to invest in securities lending transactions as well as repurchase and reverse repurchase agreements. ABARBANEL represented, as to these transactions, that the Fund would receive, in its possession and control, safe and secure collateral, in the form of treasury securities that could be quickly liquidated in the event a counterparty defaulted on its obligations. ABARBANEL, however, failed to obtain for the Fund the promised collateral to secure the investments. Nonetheless, ABARBANEL repeatedly represented, in substance, that the Fund had possession of the collateral.In or about May and June 2021, ABARBANEL failed to honor a redemption request by the Investor Group for all of its outstanding investment, totaling more than $100 million, instead placing conditions on the redemption that were contrary to the Fund's offering document and to the Fund's practices with respect to prior redemptions. On or about June 16, 2021, the Fund transferred more than $10 million in investor funds from the Fund to a personal brokerage account of an attorney working with the Fund.
In response to a Complaint filed in the United States District Court for the Southern District of New York, the SEC charged Abarbanel, Victor Chilelli, and the fund with violating the antifraud provisions of the federal securities laws, and named as Relief Defendants six companies that either acted as purported counterparties with the fund or received fund assets in furtherance of the scheme: Institutional Syndication LLC, North American Liquidity Resources LLC, Institutional Secured Credit LLC, Growth Income Holdings LLC, CLO Market Neutral LLC, and Global EMEA Holdings LLC. The Court granted the SEC an asset freeze to safeguard remaining investor funds at risk of immediate dissipation. As alleged in part in the SEC Release:
[F]rom at least 2018 to the present, Ofer Abarbanel of California and Victor Chilelli of Delaware and New York have engaged in a scheme to defraud investors in an offshore mutual fund they controlled, the Income Collecting 1-3 Months T-Bills Mutual Fund. According to the complaint, Abarbanel represented to investors that the fund would invest primarily in U.S. Treasury securities and also enter into certain types of reverse repurchase agreements with U.S. Treasury securities serving as collateral. As alleged, however, the fund invested only minimally in U.S. Treasuries, and did not enter into any reverse repurchase agreements along the lines described in offering documents. Instead, the complaint alleges, the fund routed nearly all investor funds to shell companies under the defendants' control as part of uncollateralized sham lending arrangements with the fund. According to the complaint, when investors sought to redeem $106 million in investments last month, the defendants refused and instead took steps to transfer funds to an account from which no redemptions could be drawn.
Order Determining Whistleblower Award Claim ('34 Act Release No. 34-92247; Whistleblower Award Proc. File No. 2021-64)
https://www.sec.gov/rules/other/2021/34-92247.pdf
The SEC's Claims Review Staff ("CRS") issued a Preliminary Determination recommending a Whistleblower Award to Claimant in the amount of over $! million based upon anticipated collections. The Commission ordered that Claimant's application be approved. The Order asserts in part that:
(i) Claimant's tip caused the opening of the Commission's investigation and was the underlying source that formed Redacted Redacted the basis for the charges in the Covered Action; (ii) Claimant provided ongoing assistance to Commission staff, including by participating in two interviews with Commission staff, helping staff to understand the key players in the investigation, and providing information that was not otherwise accessible to staff, which conserved significant staff time and resources; (iii) there was substantial law enforcement interest in the information; and (iv) Claimant suffered personal and professional hardships.
Order Determining Whistleblower Award Claim ('34 Act Release No. 34-92248; Whistleblower Award Proc. File No. 2021-66)
https://www.sec.gov/rules/other/2021/34-92248.pdf
The SEC's Claims Review Staff ("CRS") issued a Preliminary Determination recommending a Whistleblower Award to Claimant of 30% of anticipated collections. The Commission ordered that Claimant's application be approved. The Order asserts in part that:
(i) Claimant's tip assisted the Commission's investigation and was one of the underlying sources that formed the basis for the charges in the Covered Action; (ii) Claimant provided helpful assistance related to the Covered Action; and (iii) there was substantial law enforcement interest in the information provided, as it related to detecting an ongoing fraud that was harming investors. There also have been no collections to date.
Order Determining Whistleblower Award Claim ('34 Act Release No. 34-92251; Whistleblower Award Proc. File No. 2021-65)
https://www.sec.gov/rules/other/2021/34-92251.pdf
The SEC's Claims Review Staff ("CRS") issued a Preliminary Determination recommending a Whistleblower Award to Claimant of 30% of anticipated collections. The Commission ordered that Claimant's application be approved. The Order asserts in part that:
[C]laimant alerted the Commission to the on-going fraud, prompting the opening of the investigation, communicated with Commission staff dozens of times, and provided documents that assisted the staff in its investigation, saving Commission time and resources. Further, there have been no collections to date.
(BrokeAndBroker.com Blog)
http://www.brokeandbroker.com/5917/susan-antilla-racism/
The thing about Glenn Capel's story is that it's not all that uncommon. It is part of the fabric of Wall Street. It is something that makes those in power in the biz uncomfortable to talk about, so they either pretend it doesn't exist, or, if you confront them, their eyes glaze over and their lips press tightly together. Some will say that there's been progress. Sure, you can say that. Talk's cheap. But too often the progress is diluted. Compromised. And more often than not, the road on that highway of progress is littered with the wrecks of careers such as Glenn Capel. The thing with victims such as Capel is that they tend to be deemed unfortunate but acceptable collateral damage. He got a few bucks from settlements of his lawsuits. Hey, good for him but let's not get all tied up with the unfortunate stories of the likes of Glenn Capel. It's sad. Too bad. But we've made progress. Let's just move on, okay?Ummm, no, it's not okay. Never was. Still isn't. This isn't a cost-benefits analysis. This is a man's life.
Attorney Convicted of 28 Counts in FusionPharm Fraud Case Loses Federal Appeal
(BrokeAndBroker.com Blog)
(BrokeAndBroker.com Blog)
http://www.brokeandbroker.com/5907/jean-pierre-10cir-fusionpharm/
After a 12-day jury trial in the United States District Court for the District of Colorado, attorney Guy M. Jean-Pierre, 60, was found guilty on 28 of 29 counts of conspiracy to commit securities fraud, wire fraud and aiding and abetting, mail fraud and aiding and abetting, securities fraud and aiding and abetting, money laundering and aiding and abetting. Jean-Pierre, was sentenced to 84 months in prison plus three years of supervised release. He appealed. He lost.