Securities Industry Commentator by Bill Singer Esq

Chase Investment Services Says Former Employee Raised Inadmissible Settlement Communication (BrokeAndBroker.com Blog)

SEC Charges Company and Two Executives for Misleading COVID-19 Disclosures (SEC Release)

Court Enters Judgments Against Investment Adviser Firm and Owner for Undisclosed Compensation Practices (SEC Release)

Securities and Exchange Commission, Plaintiff, v. Westport Capital Markets, LLC and Christopher McClure, Defendants (Order Granting/Denying in Part Motion for Entry of Final Judgments)

Former CEO And COO Of JHL Biotech Charged With Conspiracy To Steal Trade Secrets And Commit Wire Fraud Exceeding $101 Million (DOJ Release)

Prepared Remarks Before the Asset Management Advisory Committee by SEC Chair Gary Gensler

Remarks at Asset Management Advisory Committee Meeting by SEC Commissioner Hester Peirce

FINRA Sanctions Rep and Sanctuary Securities Over NT-ETFs (BrokeAndBroker.com Blog)

Angry Variable Annuity Customer Vexatiously Pursues His Legal Rights (BrokeAndBroker.com Blog)

[P]arallax issued a series of press releases in March and April 2020 falsely claiming that its purported COVID-19 screening test would be "available soon" and that it had medical and personal protective equipment (PPE) for "immediate sale."  The complaint alleges that Parallax's insolvency prevented it from developing the screening test, and that the company's projections showed that even if the company had the funds, it would take more than a year to develop the test.  The complaint also alleges that Parallax never had the medical equipment or PPE it offered for sale and that several factors prevented the company from acquiring the equipment, including that it did not have enough money to purchase the equipment and that it lacked the Food and Drug Administration registrations required to import and sell the equipment.  Additionally, the complaint alleges that Arena drafted the misleading press releases to boost Parallax's declining stock price, and that the company's stock price increased after they were disseminated.   

On July 6, 2021, a federal district court in Connecticut entered final judgments against investment adviser Westport Capital Markets, LLC and its sole owner, Christopher E. McClure. The judgments order that Westport Capital and McClure are jointly and severally liable for disgorgement of $632,954, along with $187,807 in prejudgment interest, for a total disgorgement and prejudgment interest amount of $820,761. In addition, Westport is ordered to pay a civil penalty of $500,000, and McClure is ordered to pay a civil penalty of $200,000.

The judgments follow a March 16, 2020 jury verdict finding that Westport Capital and McClure defrauded their advisory clients by repeatedly purchasing securities that generated significant undisclosed compensation, thereby enriching themselves at their clients' expense. The jury found that defendants acted intentionally, knowingly, or recklessly under Section 206(1) of the Investment Advisers Act, and that defendants willfully violated Section 207 of the Advisers Act. The court previously granted the SEC partial summary judgment, holding that, in violation of Sections 206(2) and 206(3) of the Advisers Act, Westport Capital and McClure acted at least negligently in failing to disclose these conflicts of interest.

are alleged to have co-founded JHL Biotech, Inc., a biopharmaceutical start-up headquartered in Zhubei, Taiwan, with offices in Wuhan, China, and Rancho Santa Fe, Calif.  JHL Biotech is now known as Eden Biologics, Inc. and Chime Biologics (Wuhan), Ltd.  The indictment alleges that Jordanov and Lin, beginning as early as 2008, engaged in a fraudulent scheme to steal thousands of confidential and proprietary documents from Genentech that eventually helped JHL Biotech secretly accelerate its development and production of "biosimilars," or generic versions of Genentech biologics.  Some of the confidential documents stolen from Genentech and obtained by Jordanov and Lin allegedly contained trade secrets.

The indictment alleges that, starting in 2009, Lin recruited an experienced and accomplished scientist then working at Genentech and her husband to work as a team to purloin confidential information from within Genentech.  Beginning in 2013, Lin and Jordanov allegedly used confidential information from the husband and wife team and other sources to help JHL Biotech cut corners, reduce costs, solve problems, save time, and otherwise accelerate product development timelines, secretly using Genentech's high-quality, confidential, intellectual property.

In 2014, as alleged in the indictment, Jordanov and Lin supervised and managed a so-called "conversion" project whereby JHL employees converted confidential Genentech standard operating procedures or "SOPs" into JHL Biotech SOPs.  For example, JHL employees engaged in the wholesale cutting and pasting of logos from the confidential documents by simply cutting out Genentech logos and pasting in JHL Biotech logos to make the Genentech SOPs appear, falsely, to be JHL Biotech SOPs.  JHL Biotech employees allegedly drafted approximately ninety (90) different SOPs using Genentech documents, many of which were confidential and proprietary.  JHL Biotech employees maintained a spreadsheet in which they identified Genentech SOPs that JHL Biotech possessed and tracked the progress to convert these into JHL Biotech SOPs.  The widespread use of the stolen Genentech SOPs allegedly saved JHL Biotech thousands of dollars.

To profit from the trove of stolen confidential, proprietary, and trade secret information, Jordanov and Lin, according to the indictment, then carried out a scheme to defraud JHL Biotech's potential investors and strategic partners.  To induce investment, and obtain money for JHL Biotech and themselves, Jordanov and Lin allegedly defrauded investors by concealing the extent to which JHL Biotech used stolen intellectual property to start, accelerate, and conduct its business.  The indictment alleges that, in late 2016, JHL Biotech entered a strategic partnership with Sanofi S.A., a French multinational pharmaceutical company headquartered in Paris, France, to manufacture and distribute biosimilars in China.  As part of the agreement, in December 2016, Sanofi allegedly paid $101 million to JHL Biotech, using foreign and interstate wires to carry out the corporate transaction.  This cash payment allegedly was part of a strategic relationship worth potentially $337 million to JHL Biotech.  To induce Sanofi's payment of $101 million in cash, Jordanov allegedly signed representations and warranties that falsely stated that JHL Biotech's knowledge, research, development, use, and manufacture, of certain biosimilars had been conducted without infringing or misappropriating intellectual property from any third party.  Jordanov also allegedly made false and misleading statements about consultants used by JHL Biotech and otherwise concealed from Sanofi the secret work of the Genentech insider for JHL Biotech.  In 2019, following the public disclosure of some of the alleged criminal conduct, the value of JHL Biotech, once as high as approximately $916 million, allegedly crashed. 

Which data and criteria are asset managers using to ensure they're meeting investors' targets - the people to whom they've marketed themselves as "sustainable" or "green"?

I think investors should be able to drill down to see what's under the hood of these funds.

As there's not a standardized meaning of these sustainability-related terms, I've asked staff to consider recommendations about whether fund managers should disclose the criteria and underlying data they use.  

This work takes place in concert with the agency's ongoing efforts to update the public company disclosure regimes on climate risk and human capital.

I also ask the Committee to work through some of the practical issues that would arise were we to adopt such mandates. How should the SEC define diversity, a point that is not clear in the proposed recommendation? How would the American with Chinese, Ethiopian, Finnish, Irish, and Mexican roots be categorized? What should an asset manager do if an employee or board member prefers not to identify her ethnicity or gender? How, if at all, can the Commission verify the accuracy of firms' statements regarding the racial, ethnic, and gender make-up of the firm? What are the consequences if the firms' statements prove to be incorrect? What are the implications for the SEC in setting disclosure mandates based on the draft's determinations that materiality and public interest have evolved? If we require the recommended disclosures, what principle limits other disclosures the Commission can mandate? How would the Commission go about deciding whether an asset manager, in the words of the draft recommendation, was "discriminat[ing] under the 'guise' of fulfilling one's fiduciary duty"?

Finally, I urge the Committee to think carefully about the wording of the recommendations and accompanying discussion, some of which seems to foreclose debate. I urge the Committee to seek out diverse ideas about how to make the asset management industry work better and be a better place to work for all Americans. Men and women of good conscience should be able to come to this discussion with a multitude of ideas and impressions, without fear of recrimination. Unfortunately, the document as submitted largely shuts down such a free sharing of ideas with statements declaring that those with differing views are "on the wrong side of history," or that asset managers' diligence checklists are motivated by discriminatory, rather than fiduciary, intent. Again, good intentions animate the production of this report, but an opportunity has been missed to elicit the full range of approaches for the fantastic opportunity we have to expand the talent pool from which the asset management industry draws. I hope that AMAC will continue to be open to further exploration of possible solutions and points of view. Thank you, and I look forward to the discussions today.

• Securities Industry Commentator
• Bill Singer