Securities Industry Commentator by Bill Singer Esq

No Margin For Error With Options Expiration (BrokeAndBroker.com Blog)

New York Man Admits Defrauding Investors of More Than $3.5 Million through Securities Offering Scheme  (DOJ Release)

SEC Charges Attorney with Assisting Prime Bank Scheme (SEC Release)

California Attorney Pleads Guilty To Multimillion-Dollar Investment Fraud Scheme (DOJ Release)

Orange County Man Arrested for Alleged Ponzi Scheme that Raised Nearly $14 Million with False Promises of Profits from House Flipping (DOJ Release)

SEC Charges Newport Beach Company and its Principals with Operating a $13.5 Million Ponzi-Like Scheme (SEC Release)

Convicted Corporate Securities Fraudsters Sentenced To 22 And 12 Months In Prison / Defendants Illegally Transferred, or Used, Insider Information for the Purpose of Trading Infinera Securities (DOJ Release)

COLORADO MAN SENTENCED TO PRISON FOR INVESTMENT FRAUD AND SECURITIES FRAUD (DOJ Release)

Former Registered Securities Professional Entered a Plea to Securities Fraud and other Crimes (TSSB Release)

FINRA Fines and Suspends Former Merrill Lynch Rep for Conversion of Covid-19 Unemployment Funds

In the Matter of Daemon Johnson, Respondent (FINRA AWC)

Beginning in 2012, Milne founded Instaprin Pharmaceuticals Inc. (Instaprin), a purported pharmaceutical corporation that operated in New York, for the stated purpose of developing a fast-acting form of powdered aspirin that could instantly stop heart attacks and strokes. Instaprin was a successor entity to another New York corporation, SPI Acquisition Corp. (SPI), which Milne founded in 2010 for the stated purpose of acquiring assets for the development of the same fast-acting form of powdered aspirin. Milne was the founder, president, and chief executive officer of Instaprin and SPI, and exercised complete and exclusive control over them, including the offer, marketing, and sale of securities issued by those entities.

From as early as 2013 and through 2018, Milne executed a scheme to defraud dozens of investors in Instaprin and SPI securities through multiple and ongoing material misrepresentations concerning, among other things, how the victims' investment money would be used and how their past investments had performed, so that Milne could misappropriate substantial sums of the investors' money for his own personal gain and enrichment. Through at least four separate unregistered securities offerings that he caused Instaprin or SPI to issue between 2013 and 2016, Milne received more than $4 million in investment proceeds from victim investors across the country, and deposited the investment funds in one or more bank accounts that he controlled.

Milne misrepresented to victim investors the manner in which he and Instaprin/SPI would maintain and use the funds raised through Instaprin securities offerings. For example, Milne represented in written offering materials transmitted to investors that their investment funds would be used to pay the "normal day-to-day operating expenses" of Instaprin, as well as "the costs involved in developing and commercializing its products," including "Batch/stability testing," "Manufacturing," "Market/advertising consultant," and "Salaries/rent/insurance [and] General working capital." Milne also falsely represented in the offering materials that he had assembled "a very strong world renowned board of directors and medical advisory board" that included industry leaders in fields of science and finance. Milne also misrepresented to investors that specific individuals had joined Instaprin as directors, advisors, and/or shareholders of Instaprin, when in fact, those individuals were not involved with Instaprin. Milne made numerous false and misleading statements in investment updates distributed to investors between April 2014 and September 2018, including: Instaprin's product had been approved by the U.S. Food and Drug Administration (FDA); Instaprin was nearing a product launch and public stock offering; and Instaprin had contracted with a New Jersey research company for an FDA-approved clinical trial. Milne also represented that Instaprin was in negotiations with large pharmaceutical corporations for joint busines ventures, which Milne represented were imminent. Milne made these and other similar representations knowing that they were false and misleading.

Milne misappropriated a substantial majority of the investors' funds to pay out distributions to other investors in a Ponzi-scheme fashion; pay for Milne's personal expenses, including a Caribbean vacation, boating expenses, divorce payments, clothing, and spa treatments; and to sustain and operate Island Raceway & Hobby Inc., a toy race car business that Milne separately owned.

In May 2019, the Securities and Exchange Commission filed a civil complaint against Milne and Instaprin in New Jersey federal court regarding the fraudulent scheme to which Milne pleaded guilty today. That matter was resolved through the entry of final judgments permanently enjoining Milne and Instaprin from violating the charged provisions of the federal securities laws, ordering full disgorgement, prejudgment interest, and civil penalties.

[K]leyman served as "paymaster" in at least nine transactions in which investors paid over $1.22 million in advanced fees to purchase, lease, and/or monetize purported bank instruments such as standby letters of credit or bank guarantees. As alleged in the SEC's complaint, Kleyman disbursed investor funds, usually within days of receipt, without conducting any inquiry into whether the investors had received their promised instruments or funding. The complaint further alleges that Kleyman had no basis to believe that the purported bank instruments existed, or that they had any value. According to the complaint, Kleyman learned of many red flags suggesting that these transactions were fraudulent, which, in fact, they were. The complaint alleges that Kleyman collected $12,499 in fees from investors for the nine transactions for which he served as escrow agent.

From at least 2012 through at least 2019, JONES solicited and obtained investments into various companies and investment funds he controlled, including purported real estate development and investment firms using variations of the names "BlueRidge," "Living City," and "Atiswin," and the purported venture capital firm Realize Holdings ("Realize").  

In fraudulently inducing victims to invest in his funds, JONES routinely made materially false oral and written statements, including in glossy brochures and legal documents that contained lies about real estate purportedly owned or otherwise controlled by BlueRidge, Living City, and Atiswin. For example, JONES falsely told investors and prospective investors that BlueRidge was developing a "resort village" on land it controlled in Washington State, and separately that BlueRidge had purchased an existing hotel in that same location, when in fact neither BlueRidge nor JONES owned or controlled any of that property. In other cases, JONES falsely claimed that his companies were under contract to purchase a ranch in Colorado, and that his companies had leased various pieces of property slated for development. Instead, JONES misappropriated investors' money, using much of it to make Ponzi-like payments to other investors to whom he owed money in connection with earlier transactions, and for personal and family expenses, including the private-school tuition of his children.

In executing his scheme, JONES also sent investors and others falsified and counterfeit documents. For example, on repeated occasions JONES provided doctored bank statements stating that he had millions of dollars in various corporate accounts, when in fact he had little or no money in such accounts. On other occasions, he provided counterfeit financial statements that falsely purported to be based on internal audits of companies that he controlled.

JONES defrauded investors-at least three of whom lived and/or transacted their banking in Manhattan-out of at least approximately $5.8 million. To prolong and conceal the fraud scheme, JONES regularly told lies designed to avoid meetings with or inquiries from victims. For example, in explaining his failure to respond promptly to questions or his reason for postponing meetings, JONES falsely told different investors, on different occasions, that one of his relatives was hospitalized and undergoing surgery. JONES also used the names of other individuals-without those individuals' authorization or knowledge-to communicate via email with investors and thus foster the illusion that JONES's businesses were viable operations with real employees.

[S]ince the spring of 2019, BNZ Capital, its principals and several marketers raised money by falsely representing that the firm bought and sold real estate projects and "flipped" real estate. Barber, Zimmerle and the marketers falsely promised investors a "guaranteed" return of between 8 percent and 10 percent, as well as potential bonuses based on successful deals. According to the indictment, Barber told investors that their funds were "safe" and "FDIC insured."

In fact, while BNZ Capital did purchase some real estate, it did not take any substantial steps to develop parcels, nor did BNZ flip real estate for a profit, according to court documents. Rather, BNZ primarily used investor funds to pay Barber, Zimmerle and others associated with the scheme, including purchasing residences where Barber and Zimmerle lived. Some of the investors' money was used to repay earlier investors.

Additionally, the indictment alleges that Barber failed to disclose to investors that he previously was barred from acting as or associating with a broker-dealer by the Financial Industry Regulatory Authority (FINRA).

During the scheme, Barber, Zimmerle, and the marketers solicited or caused to be transferred to BNZ Capital approximately $13.8 million from victim investors. Because several million dollars were paid to earlier investors, investigators estimate that actual losses resulting from this alleged scheme are more than $9 million. In his plea agreement, Zimmerle admits that he received and kept approximately $582,815 of investor money.

[S]ince June 2019, BNZ, Barber, and Zimmerle have raised $13.5 million from retail investors by telling them BNZ was in the business of making investments in real estate and alternative investments and promising to pay investors significant returns, generally 10% per year. The complaint alleges that the defendants used only $6.4 million of the $13.5 million raised from investors to invest in real estate and alternative investments, and those investments generated just $300,000 in profits. According to the complaint, despite generating minimal profits, the defendants paid investors returns of at least $1.7 million using funds raised from other investors in Ponzi-like fashion, and transferred over $1.6 million to Barber through his company, Guaranteed Income Solutions Inc., and over $700,000 to Zimmerle. According to the complaint, the defendants made false and misleading statements to investors regarding, among other things, the source of the payment of the investor returns.  In addition, Barber allegedly misled investors by touting his education in finance and his investment experience without also disclosing that he had been barred by the Financial Industry Regulatory Authority from affiliating with any member firm.

[B]rown admitted that, between 2011 and 2017, he was employed as a Senior Revenue Manager at Infinera.  The technology company's common shares were registered pursuant to Section 12(b) of Securities Exchange Act of 1934 and publicly traded on the NASDAQ Stock Market under the ticker symbol INFN. During Brown's employment at Infinera, he was regularly privy to material nonpublic information about Infinera's financial performance and financial projections. Beginning in or about April 2016 and continuing until the termination of his employment from Infinera in November 2017, Brown admitted that he regularly shared material nonpublic information that he obtained during his employment with Wylam. Brown admitted he knew Wylam intended to, and did, use the material nonpublic information to purchase Infinera securities in advance of Infinera's quarterly public earnings announcements.

According to Wylam's plea agreement, Wylam admitted that between April 2016 and November 2017, he obtained material nonpublic information about Infinera, and then engaged in transactions in Infinera securities. Wylam admitted that he obtained this material nonpublic information directly from Brown. As with Brown, Wylam admitted Infinera's common shares were registered pursuant to section 12(b) of Securities Exchange Act of 1934 and publicly traded on the NASDAQ Stock Market under the ticker symbol INFN. Wylam acknowledged the gross gains he made from trading based on material nonpublic information belonging to Infinera that he received from Brown amounted to approximately $999,959.

The plea agreements further revealed the steps Brown and Wylam took to conceal their actions and relationship. Both men admitted to having begun using the messaging application WhatsApp to communicate with each other because of its encrypted communications and as an extra measure to conceal the facts that Brown was providing Wylam with material nonpublic information and that the two were friends. Both men admitted that Wylam also "unfriended" Brown on Facebook to achieve these ends.

According to Sood's plea agreement, Sood admitted he used his own and another person's brokerage accounts to execute trades based upon material nonpublic information and that he acquired no less than $215,000 in criminal proceeds from violations of the law that are described in his plea agreement.          

Mitchell previously pleaded guilty to mail fraud in connection with a scheme to defraud investors in a Wyoming natural gas production venture. According to court records, Mitchell solicited investments he claimed would be used to create a publicly traded, natural gas production company in Wyoming. Instead of developing any company or safeguarding the investors' money as promised, Mitchell used the money to pay his personal expenses and to finance the scheme. Mitchell stole over $1.3 million dollars from about three dozen investors, most of whom lived in and around Gillette, Wyoming. For this crime, Mitchell was sentenced to 65 months in prison.

Mitchell also previously pleaded guilty to conspiracy to commit securities fraud in relation to the common stock of NuTech Energy Resources Inc. Specifically, Mitchell conspired to pump and dump NuTech stock. A "pump and dump" is a form of securities fraud where the conspirators manipulate demand for a stock and the stock's price, and then sell their worthless shares of the stock to the public at the artificially high price. In this case, the conspirators bought control of a publicly traded shell company called EcoEmissions Solutions Inc. and changed the company's name to NuTech Energy Resources, and the company's stock was sold under the ticker symbol NERG. The conspirators released information online to create a false image for NuTech as a company located in Gillette that was operating gas wells in Wyoming using a patented technology. In reality, NuTech had no business, no revenue, and no paid employees in Wyoming or elsewhere. The conspirators used altered, backdated and forged documents to acquire 13 billion free-trading shares of NuTech common stock. The conspirators then artificially inflated the market price of NuTech common stock by manipulative trading and by releasing to the public false and misleading information about NuTech's business prospects. When the market price increased based on this false information, the conspirators then sold their worthless NuTech shares to unwitting investors in the public market, including investors in Wyoming and around the world. For his part in this crime, Mitchell was sentenced to 60 months in prison. This sentence is to be served concurrent to the 65-month sentence for mail fraud.

Two of Mitchell's co-conspirators, Justin Herman and Charles "Chuck" Winters Jr., were convicted on October 8, 2021, following a jury trial in Cheyenne of crimes arising from the NuTech pump-and-dump conspiracy. A third man, Florida attorney Ian Horn, was acquitted of charged fraud crimes but convicted of making a false statement to the grand jury during the investigation of the NuTech pump and dump. Herman, Winters, and Horn are scheduled to be sentenced by Judge Johnson in Cheyenne on January 5, 2022.

[T]russell, a co-defendant of Tommie "Tom" Carter Jr., sold investments issued by the Tom Carter Trust, the Tom Carter Foundation, and other issuers without disclosing he was not authorized by his firm to deal in the products. He also concealed his sales relationship with Tom Carter and did not disclose that money provided by investors would actually be invested in the Tom Carter Investment Program. Carter was arrested earlier this year and is being prosecuted for securities fraud, theft, misapplication of fiduciary property and money laundering. 

 

As part of the plea bargain, Trussell agreed to the entry of an agreed cease and desist order. The agreed cease and desist order finds that Trussell illegally and fraudulently offered securities in Texas and bars further violations.

 

Trussell was previously registered to sell securities in Texas. In 2018, however, he was barred from the industry.

ADES is an Arizona government agency that provides unemployment and other assistance for Arizona residents. During the relevant period, ADES administered Arizona's COVID-19 unemployment assistance program. Benefits under this program were available to those who certified that they were unemployed, partially unemployed, or unable to work as a result of COVID-19. 

On June 18, 2020, Johnson received a deposit of $9,720 from ADES into his personal bank account. Johnson neither lived nor worked in Arizona. He was not entitled to any funds from ADES or to the $9,720. After the $9,720 was transferred into his account, Johnson's bank account statement showed that the funds originated from ADES and were intended for another individual. Johnson was aware that he was not entitled to funds from ADES. Rather than returning the funds, however, Johnson used $5,220 of the funds for personal expenses and transferred the remaining $4,500 of the funds to a friend. As a result, Johnson converted $9,720 from the state of Arizona. 

Therefore, Johnson violated FINRA Rule 2010. 

• Securities Industry Commentator
• Bill Singer