Securities Industry Commentator by Bill Singer Esq

Two of Three FINRA Arbitrators Ironically Disappear In Unexplained Expungement Award (BrokeAndBroker.com Blog)

Hudson Valley Tequila Producer Pleads Guilty To Securities Fraud Scheme (DOJ Release)

Manhattan Real Estate Fund Manager Charged With Securities Fraud Offenses (DOJ Release)

SEC Charges New York Fund Manager and His Company with Securities Fraud (SEC Release)

SEC Obtains Judgment Against Former Corporate Controller for Tipping Brother-In-Law Ahead of Merger Announcement (SEC Release)

DreamFunded Dream Faded At FINRA And SEC Declines to Stay Expulsions and Bars (BrokeAndBroker.com Blog)

[F]rom in or about 2014 to 2018, CIMINO raised approximately $935,000 from at least 25 investors based on fraudulent representations.  To attract investors, CIMINO falsely inflated the amount of capital that he had raised from prior investors, and falsely described as investors several individuals who, in fact, had not contributed any funds.  CIMINO also falsely inflated his company's sales.  For example, in July 2017, CIMINO claimed in an investor report that year-to-date sales totaled 3,410 cases of tequila, when the actual sales totaled only 350 cases.  Similarly, in October 2017, CIMINO falsely claimed that year-to-date sales totaled 6,035 cases, which was approximately five times the actual total.  CIMINO further claimed in October 2017 that his company would receive reimbursement for 800 cases of tequila supposedly destroyed at a Puerto Rican warehouse as a result of Hurricane Maria.  In reality, no inventory was destroyed in the hurricane, and the company lacked insurance.

CIMINO also misused a substantial portion of investor money that was intended to fund the operations of his tequila business for personal expenses.  For example, from 2014 to 2018, CIMINO transferred approximately $472,000 of investor money to his personal bank account in order to subsidize his food, entertainment, and other living expenses.

From in or about 2019 through in or about 2021, BURRELL sought to obtain tens of millions of dollars of investments for the Activated Tax Advantaged Opportunity Fund, LLC, and Activated Capital Opportunity Zone Fund II, LLC (collectively, the "Activated OZ Funds" or the "Funds") based on fraudulent representations.  BURRELL represented, in substance, that the money invested in the Activated OZ Funds would be used to purchase real estate properties in Opportunity Zones and that investors would receive distribution payments out of the Funds' net real estate investment income.  Contrary to those representations, BURRELL caused the Activated OZ Funds to pay putative distributions in amounts greater than the Funds' net income.  From the inception of the Funds in 2019 through approximately February 2021, BURRELL used investor money to help pay distributions totaling approximately $470,000 in a manner akin to a Ponzi scheme.  BURRELL also falsely inflated Activate Capital's assets under management in communications with prospective investors.

To attract additional investment capital for the Activated OZ Funds, BURRELL sought to establish a partnership with an investment bank headquartered in Manhattan ("Company-1").  As part of Company-1's diligence process, Company-1 asked BURRELL for "[b]acking to show current fund proceeds/acquisitions made."  In response to these requests, BURRELL fabricated documents to make it appear that the Activated OZ Funds were more successful, owned more properties, and were in better financial condition than was actually the case.  For example, BURRELL sent Company-1 fake bank statements making it appear that, for the period July 2019 through October 2019, one of the Activated OZ Funds had ending monthly account balances of between approximately $2,094,450 and $2,463,100 when the real account statements for that period showed ending monthly balances of between only $116,369 and $154,399.

BURRELL fabricated additional documents to make it appear to Company-1 that an Activated Capital affiliate had purchased nine properties in Detroit, Michigan, when none of the transactions had taken place.  The fabricated documents contained identifying information for two individuals that BURRELL used without lawful authority. 

[F]rom at least February 2019 through February 2021, Burrell, through Activated, raised approximately $6.3 million from investors to invest in Opportunity Zones, a community development program established by the Tax Cuts and Jobs Acts of 2017. The offering materials represented that the properties would be purchased in the name of the funds in which investors had invested and that distributions to investors would come from income from the real estate. The complaint alleges that instead Burrell misappropriated investor money by using it to purchase properties in the name of entities that were not owned by the investors or the funds, and to pay purported distributions to investors. The offering materials and marketing materials also misrepresented that the fund would have an outside custodian and that the Activated principals had made significant investments into the fund. Finally, Burrell also misappropriated approximately $100,000 of investor funds, including $56,000 which he falsely characterized as "property improvement" expenses.

The SEC's complaint, filed on December 11, 2020, alleged that Wright learned about an impending acquisition of his company. As alleged, Wright tipped non-public information concerning the acquisition to his brother-in-law, Christopher J. Clark of Arlington, VA. Based on the information tipped by Wright, Clark allegedly purchased highly speculative, out-of-the-money call options. The complaint further alleged that, after the public announcement of the acquisition of CEB for $2.6 billion, Clark liquidated his CEB options and made profits of over $240,000.

Without admitting or denying the allegations in the complaint, Wright consented to a final judgment ordering a permanent injunction against future violations of the anti-fraud provisions of Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder; ordering a civil monetary penalty of $240,934; and barring Wright from serving as an officer or director of a public company for two years.

In a related administrative proceeding based on the entry of the final consent judgment, on November 12, 2021, the SEC issued an order barring Wright from appearing or practicing before the SEC as an accountant pursuant to Commission Rule of Practice 102(e)(3)(i), with the right to reapply after two years.

• Securities Industry Commentator
• Bill Singer