The Wall Street Legal & Regulatory Feed

Securities Industry Commentator by Bill Singer Esq

December 9, 2021














http://www.brokeandbroker.com/6205/goldman-class-action/
The ongoing Goldman Sachs Group Class Action is the gift that keeps on giving -- at least that's how it would appear to any party's lawyer on a billable hour. For the rest of us, it's like a beast that will not die and continues to devour all in its path. Today, we seem to have come to an end that is not really an end but not quite a beginning but something caught in between. Regardless of my obvious bias, here's where things stand as of today. 

https://www.sec.gov/litigation/litreleases/2021/lr25285.htm
In a Complaint filed in the United States District Court for the Central District of California
https://www.sec.gov/litigation/complaints/2021/comp25285.pdf, the SEC charged former Snap Inc. engineer Mohammed Pithapurwala and his borther-in-law Ammar Kutiyanawalla with violating the antifraud provisions of Section 10(b) of the Securities and Exchange Act and Rule 10b-5 thereunder; and also charged Alifiya Kutiyanawalla with aiding and abetting their violations. As alleged in part in the SEC Release:

According to the SEC's complaint, after gaining access to pre-release earnings information in January 2018, Pithapurwala asked Ammar to purchase Snap securities because he was prohibited from doing so himself during a company-imposed trading blackout period. Pithapurwala and Ammar allegedly agreed to share the profits from Ammar's Snap trading. The complaint alleges that Pithapurwala and his wife, Alifiya Kutiyanawalla, who is Ammar's sister, funded the trading by transferring $20,000 to Ammar through intermediaries. Allegedly, on February 5 and 6, 2018, Ammar purchased more than $24,000 of risky Snap call options, despite having never previously purchased any Snap securities. According to the complaint, after markets closed on February 6, Snap announced results that beat expectations, and the price of its common stock closed up 48% the next day. The complaint alleges that Ammar sold all of the Snap options on February 7 and 8, realizing profits of more than $261,000.

https://www.sec.gov/news/speech/gensler-healthy-markets-association-conference-120921

Thank you for the kind introduction, Ty [Gellasch]. It's great to be with the Healthy Markets Association.

As is customary, I'd like to note that my views are my own, and I am not speaking on behalf of my fellow Commissioners or the staff.

I'd like to start by discussing an overarching principle I consider when thinking about public policy.

This principle has been around since at least antiquity. Aristotle captured it with his famous maxim: Treat like cases alike.[1]

This was as true two thousand years ago as it is in two thousand twenty-one.

Finance is constantly evolving in response to new technologies and new business models. Such innovation can bring greater access, competition, and growth to our capital markets and our economy.

Our central question is this, though: When new vehicles and technologies come along, how do we continue to achieve our core public policy goals?

How do we ensure that like activities are treated alike?

*

Today, I'd like to discuss one such innovation. It relates to a method by which companies go public: special purpose acquisition companies, or SPACs. While not new - the first SPAC was filed in 2003[2] - SPACs really have taken off in the last couple of years.

Last year, Ty, you were quoted as saying that SPACs are "fraught with peril for investors."[3]

I first testified about SPACs in May,[4] and this issue has been on the SEC's Agency Rule List since June.[5]

SPACs present an alternative method to go public from traditional IPOs. Unlike those conventional IPOs, however, there are two main stages in a SPAC. There also are more players competing for a piece of the pie than there are in traditional IPOs. There are a lot of moving parts, and a lot of novel aspects to these vehicles.

First, blank-check companies raise cash from the public through initial public offerings (IPOs). I call this step the "SPAC blank-check IPO."

The number of SPAC blank-check IPOs has ballooned by nearly 10 times between 2019 and 2021. Further, those SPAC blank-check IPOs now account for more than three-fifths of all U.S. IPOs.[6]

Typically, the blank-check company has up to two years to search for and merge with a target company.

Once SPAC sponsors find a target company, they often raise additional capital through transactions known as private investments in public equity, or "PIPEs."

These deals give new investors - mostly large institutions - an opportunity to put money into the SPAC target IPO.

Then, through the merger, the target company goes public. If a deal is approved, the initial shareholders are provided a redemption right to cash out - redeeming at the blank-check IPO price.

Some call that second step, the merger process, the "de-SPAC." I like to call it the "SPAC target IPO."

In 2021, there were 181 such SPAC target IPOs, with a total deal value of $370 billion.[7] This is up from just 26 SPAC target IPOs as recently as 2019.

As the figures show, many private companies now consider SPAC target IPOs as a competitive method to access the public markets.

How should this competitive market innovation be treated under our public policy framework?

If Aristotle were around, I think he'd say you shouldn't be able to arbitrage the rules.

So, with regard to companies raising money from the public, which principles and tools do we use to ensure that like activities are treated alike?

Public Policy Principles

Let's go back in time again - this time, about a century.

In the early 1900s, a Kansas banking regulator named Joseph Norman Dolley laid out some basic tenets. Depositors in his state were taking money out of the bank accounts to buy securities from bad-faith actors in Kansas, and many of these investors were getting flimflammed.

Thus, Mr. Dolley helped advocate for the first blue-sky laws in 1911.[8] These laws required all securities to be registered with the state. Brokers who were selling these securities had to register, too.

A couple of decades later, in the depths of the Great Depression, the federal government decided it was time to provide investors with federal-level protections. Therefore, Congress and Franklin Delano Roosevelt crafted the Securities Act of 1933 and the Securities Exchange Act of 1934.

With these foundational laws, Mr. Dolley, Congress, and FDR addressed three core, interrelated principles.

First, leveling out information asymmetries.

Companies and managers have access to information that the buying public doesn't necessarily have. Thus, one of Congress's goals was to level out some of those information asymmetries.

Second, guarding against misleading information and fraud.

There's a reason President Roosevelt called the '33 Act the "Truth in Securities" law. To guard against fraud and abusive, high-pressure sales tactics, he thought it was important to have standards for how and when companies would provide important information to the public, and what the substance of that information would be.

Third, mitigating conflicts.

This is what economists might call "agency costs" - the idea that various parties to a deal, from management to brokers, may have different incentives than investors when it comes to buying and selling stock. These misaligned incentives and conflicts might enrich certain parties at the expense of others.

These principles addressed in the context of the 1930s all three parts of our mission: to protect investors, maintain fair, orderly, and efficient markets, and facilitate capital formation. Building trust in our capital markets is as important to those raising money as it is to those investing their money.

Policy Tools for Public Offerings


What tools did Congress and FDR come up with to mitigate these concerns?

First, companies raising money from the public should provide full and fair disclosure to investors at the time they're making their crucial decisions to invest.

This isn't just about quality, quantity, and substance of disclosure, but also the timing.

Second, and relatedly, is standards around marketing practices. The idea is that parties to the transaction shouldn't use sales tactics that would "condition the market" before the required disclosure reaches investors.

Third is gatekeeper obligations. The third parties involved in the sale of the securities - such as auditors, brokers, and underwriters - should have to stand behind and be responsible for basic aspects of their work. Thus, gatekeepers provide an essential function to police fraud and ensure the accuracy of disclosure to investors.

Fourth, of course, Congress also felt there needed to be a federal cop on the beat - the SEC - to help ensure that the rules are met.

SPACs

This brings me back to SPACs. SPACs raise a number of questions, in my view.

Are SPAC investors - both at the time of the initial SPAC blank-check IPO and during the SPAC target IPO - benefiting from the protections they would get in traditional IPOs, with respect to disclosure, marketing practices, and gatekeepers?

In other words, are like cases being treated alike?

Currently, I believe the investing public may not be getting like protections between traditional IPOs and SPACs.

Further, are we mitigating the information asymmetries, fraud, and conflicts as best we can?

Due to the various moving parts and SPACs' two-step structure, I believe these vehicles may have additional conflicts inherent to their structure.

There are conflicts between the investors who vote then cash out, and those who stay through the deal - what might be called "redeemers" and "remainers."

Thus, to reduce the potential for such information asymmetries, conflicts, and fraud, I've asked staff for proposals for the Commission's consideration around how to better align the legal treatment of SPACs and their participants with the investor protections provided in other IPOs, with respect to disclosure, marketing practices, and gatekeeper obligations.

Disclosure


There is inconsistent and differential disclosure among the various parties involved in SPACs transaction - both the SPAC blank-check IPO and the SPAC target IPO.

For example, PIPE investors may gain access to information the public hasn't seen yet, at different times, and can buy discounted shares based upon that information. That's among other benefits.

What's more, retail investors may not be getting adequate information about how their shares can be diluted throughout the various stages of a SPAC.

For instance, SPAC sponsors generally get to pocket 20 percent of the equity - but only if they actually complete a deal later. This dilution largely falls on the "remainers," not those who cash out after the vote.

Thus, I've asked staff to serve up recommendations about how investors might be better informed about the fees, projections, dilution, and conflicts that may exist during all stages of SPACs, and how investors can receive those disclosures at the time they're deciding whether to invest. I've also asked staff to consider clarifying disclosure obligations under existing rules.

Marketing Practices

Next, I'd like to turn to marketing practices. SPAC target IPOs often are announced with a slide deck, a press release, and even celebrity endorsements. The value of SPAC shares can move dramatically based on incomplete information, long before a full disclosure document or proxy is filed.

Thus, SPAC sponsors may be priming the market without providing robust disclosures to the public to back up their claims. Investors may be making decisions based on incomplete information or just plain old hype.

It is essential that investors receive the information they need, when they need it, without misleading hype.

Therefore, I've asked staff to make recommendations around how to guard against what effectively may be improper conditioning of the SPAC target IPO market. This could, for example, include providing more complete information at the time that a SPAC target IPO is announced.

Gatekeeper Obligations

Next, as SPAC target IPOs occur through a merger, who's performing the role of gatekeepers - potentially including directors, officers, SPAC sponsors, financial advisors, and accountants?

In traditional IPOs, issuers usually work with investment banks. Thus, a lot of people think the term "underwriters" solely refers to investment banks.

The law, though, takes a broader view of who constitutes an underwriter.

There may be some who attempt to use SPACs as a way to arbitrage liability regimes. Many gatekeepers carry out functionally the same role as they would in a traditional IPO but may not be performing the due diligence that we've come to expect.

Make no mistake: When it comes to liability, SPACs do not provide a "free pass" for gatekeepers.

As John Coates, then-Acting Director of the Division of Corporation Finance, said in March, "Any simple claim about reduced liability exposure for SPAC participants is overstated at best, and potentially seriously misleading at worst."[9]

Therefore, I've asked staff for recommendations about how we can better align incentives between gatekeepers and investors, and how we can address the status of gatekeepers' liability obligations.

Cop on the Beat

As we evaluate these policy areas, our Division of Enforcement continues to be the cop on the beat to ensure that investors are being protected in the SPAC space. For example, we recently charged a SPAC, its proposed merger target, and others ahead of the deal in a case that highlighted the risks inherent to SPAC transactions.[10] I've asked our Enforcement Division to continue to take all appropriate action, following the facts and the law, to protect investors in these vehicles.

*

Ultimately, I think it's important to consider the economic drivers of SPACs.

Functionally, the SPAC target IPO is akin to a traditional IPO. Thus, investors deserve the protections they receive from traditional IPOs, with respect to information asymmetries, fraud, and conflicts, and when it comes to disclosure, marketing practices, and gatekeepers.

In keeping with our three-part mission, we are always thinking about ways to promote efficiency in traditional IPOs. I think that these innovations around SPAC target IPOs remind us that there may be room for improvements in traditional IPOs as well. Broadly, though, the '33 Act protections have stood the test of time.

We're not in Kansas anymore. . . or for that matter, in Ancient Greece. And yet, as Aristotle might say, no matter when or where, like should be treated alike.

= = =

[1] See Benjamin Johnson and Richard Jordan, "Why Should Like Cases Be Decided Alike? A Formal Model of Aristotelian Justice" (March 1, 2017), available at https://scholar.princeton.edu/sites/default/files/benjohnson/files/like_cases.pdf.

[2] See Usha Rodrigues and Michael A. Stegemoller, "SPACs: Insider IPOs" (2021), available at SSRN:https://ssrn.com/abstract=3906196orhttp://dx.doi.org/10.2139/ssrn.3906196.

[3] See "SPAC IPOs Surge," available at https://www.gfmag.com/magazine/december-2020/spac-ipos-surge.

[4] See "Testimony Before the Subcommittee on Financial Services and General Government, U.S. House Appropriations Committee" (May 26, 2021), available at https://www.sec.gov/news/testimony/gensler-2021-05-26.

[5] See "Agency Rule List - Spring 2021," available at https://www.reginfo.gov/public/do/eAgendaMain?operation=OPERATION_GET_AGENCY_RULE_LISTĪtPub=true&agencyCode
=&showStage=active&agencyCd=3235&csrf_token=
7CE97CC2D49C9B6B70868F7B2752E582C86F1945A4A46F34426C18
AF1ABE101E611318F64B67159C3A36E7556BD0FB872C8F.

[6] See SPAC Analytics, available at https://spacanalytics.com/.

[7] See US SPACs Data Hub, available at https://www.whitecase.com/publications/insight/us-spacs-data-hub.

[8] See "Kansas Blue Sky Laws," available at https://www.kshs.org/kansapedia/kansas-blue-sky-laws/18618.

[9] See "SPACs, IPOs and Liability Risk under the Securities Laws," available at https://www.sec.gov/news/public-statement/spacs-ipos-liability-risk-under-securities-laws. Citations omitted. This staff statement, like all staff statements, has no legal force or effect; it does not alter or amend applicable law, and it creates no new or additional obligations for any person.

[10] See "SEC Charges SPAC, Sponsor, Merger Target, and CEOs for Misleading Disclosures Ahead of Proposed Business Combination" (July 13, 2021), available at https://www.sec.gov/news/press-release/2021-124.

Four Smarter Ways To Reach For High Yield (Forbes.com by William Baldwin)
https://www.forbes.com/sites/baldwin/2021/12/08/four-smarter-ways-to-reach-for-high-yield/?sh=4a48f54220cc
Veteran Forbes contributor William Baldwin's beat is taxes and money management costs. His recent post is a wonderful, nuanced report about the perils of reaching for high yields from today's investment landscape. Baldwin investigates esoteric bitcoin-related strategies, exotic ETFs, and Ginnie Mae funds. A fun read and, more importantly, you'll come away all the wiser for the time!

https://www.justice.gov/usao-edny/pr/former-finance-executive-sentenced-138-months-prison-orchestrating-massive-market
After a five-week trial in 2018, Abraxas J.  Discala a/k/a "AJ Discala" (the former Chief Executive Officer of OmniView Capital Advisors LLC) was convicted by a jury in the United States District Court for the Eastern District of New York on two counts of securities and wire fraud conspiracy, two counts of securities fraud, and four counts of wire fraud relating to his manipulation of stocks of multiple microcap or "penny" stocks, including the stock of CodeSmart Holding, Inc. ("CodeSmart"), Cubed, Inc. ("Cubed"), and others, (collectively the "Manipulated Public Companies"). Discala was sentenced to 138 months in prison and ordered to pay $2,484,873 in forfeiture. As alleged in part in the DOJ Release:

Discala purported to raise capital for start-up private companies and offered to take them public through reverse mergers with public shell companies in exchange for obtaining control of a large portion of the free trading or unrestricted stock.  Discala and his co-conspirators, including co-defendants Ira Shapiro, Marc Wexler, Matthew Bell, Craig Josephberg, Victor Azrak, Darren Goodrich, Darren Ofsink and Michael Morris, then artificially inflated the stock through manipulative trading and promotional campaigns, generating large profits for themselves at the expense of unwitting investors. 

As part of the fraud, Discala orchestrated a scheme to manipulate the stock price of CodeSmart and Cubed, two of the Manipulated Public Companies.

The CodeSmart Scheme

In early May 2013, Discala and his co-conspirators, including attorney Ofsink, engineered a reverse merger of CodeSmart, a private company, with a shell public company.  After gaining control of CodeSmart's unrestricted shares, Discala and his co-conspirators fraudulently inflated CodeSmart's share price and trading volume on two occasions and then sold the unrestricted CodeSmart stock at a profit when the share price reached desirable levels.   Shapiro, the Chief Executive Officer of CodeSmart, issued numerous press releases with false information to facilitate inflating CodeSmart's stock price.

Discala and his co-conspirators, including Wexler, profited by selling CodeSmart stock, issued to them for pennies, to clients and customers of  Bell, an investment advisor, and  Josephberg, a registered broker.  On some occasions, the CodeSmart shares were sold to Bell's clients and Josephberg's customers without their clients' and customers' knowledge and consent. Additionally, Bell and Josephberg sold CodeSmart shares in their personal trading accounts at the same time that they purchased CodeSmart stock in their clients' and customers' accounts.

Discala, Wexler, Bell, Josephberg, Ofsink and Morris made more than $6 million in illicit trading profits from the CodeSmart scheme, and the co-conspirators caused more than $12 million in losses to approximately 800 CodeSmart investors who purchased the publicly traded stock.

The Cubed Scheme

In March 2014, Discala and his co-conspirators took Cubed public through an asset purchase agreement by a shell public company.  After gaining control of all of Cubed's unrestricted shares, between April 22, 2014 and April 30, 2014, Discala and his co-defendants, including Wexler, Bell, Josephberg, Goodrich and Azrak, concocted trading volume in the stock and were able to successfully control the price and volume of Cubed's stock.  On June 23, 2014, Cubed reached its highest closing price of $6.75 per share, resulting in a market capitalization of approximately $200 million.  Investors who bought publicly traded Cubed stock lost over $400,000.  In addition, Cubed was able to raise over $2 million in a private offering of stock to investors who were deceived by how Cubed stock was performing in the market.  Discala and Wexler also made over $1 million worth of illegal private sales of Cubed stock to over three dozen investors.  Discala and his co-conspirators caused more than $4 million in total losses to approximately 100 Cubed investors.

Goodrich, a broker who participated in the scheme to manipulate the stock of Cubed, was previously sentenced to 41-months after pleading guilty to securities fraud conspiracy.  Shapiro, Wexler, Bell, Josephberg, Azrak, Ofsink and Morris also pleaded guilty and are awaiting sentencing.

https://www.justice.gov/usao-md/pr/essex-man-sentenced-four-years-federal-prison-his-role-bank-fraud-conspiracy
Babatunde Ajibawo, 55, pled guilty in the United States District Court for the District of Maryland to conspiracy to commit bank fraud, and he was sentenced to four years in prison plus four years of supervised release, and ordered to pay $262,653.87 in restitution. Co-defendant Oyekanmi Oworu pled guilty to conspiracy to commit bank fraud and aggravated identity theft and awaits sentencing. As alleged in part in the DOJ Release:

[F]rom February 2017 to February 2020, Ajibawo, Oyekanmi Oworu, age 35, of Hyattsville, Maryland and others conspired to fraudulently obtain checks made out to legitimate businesses, then fraudulently register shell companies to obtain state business certificates in the identical or similar name of the legitimate businesses to which the checks were made payable. The conspiracy also used the Internal Revenue Service's (IRS) Modernized Internet Employer Identification Number (EIN) and the fraudulently obtained social security numbers of real individuals to obtain an EIN for the fraudulent business.

In the effort to defraud, Ajibawo personally opened fraudulent bank accounts, deposited stolen checks into the fraudulent accounts, and withdrew the stolen funds on numerous occasions.

Specifically, in October 2018 Ajibawo opened a fraudulent account in the name of a real business, Business 1, using the identifying information of a real person, C.B. After opening the account, Ajibawo deposited a stolen check made payable to Business 1 in the amount of $18,150.66 into the fraudulent account.

Additionally, from November 2018 to April 2019, Ajibawo opened and accessed a fraudulent account in the name of another real business, Business 2, using the identifying information of a real person, B.R. After opening the account, Ajibawo deposited a stolen check made payable to Business 2 in the amount of $168,500. Surveillance footage captured Ajibawo opening and accessing the fraudulent account on numerous occasions.

Throughout the scheme to defraud, Ajibawo sent personally identifying information of victims to co-conspirators, directed that co-conspirators withdraw money from fraudulent accounts in which stolen checks had been deposited, and facilitated the distribution of stolen funds obtained from the scheme.

Additionally, in an effort to conceal their criminal activity and evade detection from law enforcement, Ajibawo and his co-conspirators attempted to relocate the fraud scheme to other jurisdictions. A substantial part of a fraudulent scheme was committed from outside the United States, specifically Nigeria.

Further, Ajibawo and his co-conspirators attempted to conceal their criminal actions and evade law enforcement by relocating the fraud scheme to other jurisdictions. A substantial part of a fraudulent scheme was committed from outside the United States, specifically Nigeria.

In total, Ajibawo and his co-conspirators created 50 fraudulent shell entities, caused an actual loss of at least $606,598.08, and compromised the identifying information of more than 50 individual victims.

https://www.sec.gov/litigation/litreleases/2021/lr25284.htm
In a Complaint filed in the United States District Court for the Northern District of Texas
https://www.sec.gov/litigation/complaints/2021/comp25284.pdf, the SEC charged the Defendants for their roles in five allegedly fraudulent, unregistered oil and gas offerings. The Court issued a temporary restraining order against all of the defendants and relief defendants, an order freezing assets of certain defendants and relief defendants, and an order appointing a receiver over the assets of the entity defendants and certain relief defendants. As alleged in part in the SEC Release:

[S]ince at least October 2018, the Heartland-affiliated Defendants have fraudulently raised approximately $122 million from more than 700 investors nationwide, purportedly for working over existing wells or drilling new wells in Texas, through five unregistered securities offerings-three debt funds and two equity funds. The complaint alleges that the Heartland-affiliated Defendants spent only about half of the investor funds they raised on oil and gas projects, which collectively generated less than $500,000 in revenue. The complaint also alleges that beginning in at least 2019, the Heartland-affiliated Defendants used investor monies to make more than $26 million in Ponzi payments to debt fund investors, and made material misrepresentations and omissions to investors regarding the oil and gas projects.

As further alleged in the complaint, the Heartland-affiliated Defendants sent a total of more than $54 million of Heartland investors' money to Defendants Sahota, ArcoOil, and Barron Petroleum and a third Sahota entity, Relief Defendant Dallas Resources Inc., for oil and gas projects. The Sahota-related Defendants made material misrepresentations about the existing and potential production of wells, and used millions of dollars in Heartland investor funds to purchase a private jet, a helicopter, real estate in the Bahamas, and on other non-oil and gas expenditures for themselves, according to the complaint.

The SEC's complaint charges The Heartland Group Ventures, LLC, Heartland Production and Recovery LLC, as well as Heartland Production and Recovery Fund LLC, Heartland Production and Recovery Fund II LLC, The Heartland Group Fund III, LLC, Heartland Drilling Fund I, LP, Carson Oil Field Development Fund II, LP, and Alternative Office Solutions, LLC (collectively "the Heartland-Affiliated Entities"); ArcoOil Corp. and Barron Petroleum LLC; and Ikey, Muratore, Pearsey, and Sahota with violating the antifraud provisions of Section 17(a) of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder and aiding and abetting violations of these provisions. The complaint charges Brunson with violating the antifraud provisions of Sections 17(a)(2) and 17(a)(3) of the Securities Act. The complaint also charges the Heartland-Affiliated Entities, Ikey, Muratore, Pearsey, and Brunson with violating the registration provisions of Sections 5(a) and 5(c) of the Securities Act and aiding and abetting violations of these provisions. The SEC's complaint seeks injunctions against future securities law violations, disgorgement of the defendants' ill-gotten gains, civil penalties, and officer and director bars against Ikey, Muratore, Pearsey, and Sahota. The SEC's complaint names the following entities and individuals as relief defendants from which it seeks disgorgement: Dodson Prairie Oil & Gas LLC; Panther City Energy LLC; Muratore Financial Services, Inc.; Bridy Ikey; Encypher Bastion, LLC; IGroup Enterprises, LLC; Harprit Sahota; Monrose Sahota; Sunny Sahota; Barron Energy Corporation; Dallas Resources, Inc.; Leading Edge Energy, LLC; Sahota Capital LLC; and 1178137 BC LTD.

Kris Bortnovsky, a/k/a "Kris Bort" and Ryan Shapiro were charged in the United States District Court for the Southern District of Florida with one count each of conspiracy to commit securities fraud. As alleged in part in the DOJ Release:

[F]rom at least August 2017 to November 2021, Bortnovsky, a financial services professional for more than 20 years, and Shapiro, an entrepreneur and founder of two privately held companies, conspired to trade in the stocks of certain publicly traded companies, including At Home Group, Inc., Aphria, Inc., DSW, Inc., and Rite Aid Corp., among others, based on material nonpublic information (MNPI) regarding the earnings results and merger-and-acquisition activity of those companies. In many instances, Bortnovsky and Shapiro allegedly obtained the information from a co-conspirator who was a relative of one or more officers or directors of these companies, or of companies involved in proposed acquisitions of the companies. In other instances, Bortnovsky shared MNPI that he had obtained with Shapiro and their co-conspirator. 

https://www.justice.gov/usao-ndok/pr/three-coconspirators-paycheck-protection-program-loan-scheme-plead-guilty
Aleta Necole Thomas pled guilty in the United States District court for the District of Oklahoma to two counts of making false statements to a financial institution. Co-Defendants Katrina West and Pepper Jones pled guilty to false statement. The Court ordered the defendants to pay restitution in the amount of $795, 158.50. The three Defendants allegedly applied for and received almost $800,000 in Paycheck Protection Program ("PPP") loans guaranteed by the Small Business Administration ("SBA") under the CARES Act. As alleged in part in the DOJ Release:

In her plea agreement, Thomas stated that on May 27, 2020, she submitted false statements and reports to Cross River Bank when she applied for a Paycheck Protection Program loan. Thomas submitted a borrower application form falsely stating "Coming Correct Community Ministry" had an average monthly payroll of $35,000 and was in operation since Feb. 15, 2020. Thomas further claimed that she had 26 employees for whom she paid payroll taxes or independent contractors as reports in IRS Form 1099-MISC. Thomas also falsely certified that all information in the application and supporting documents was correct and submitted documentation that included forged bank statements and false 2019 IRS Schedule C (Form 1040).

Thomas further stated that on June 16, 2020, she submitted a false statements and reports to First Electronic Bank when she applied for another Paycheck Protection Program loan where she made similar claims.

West admitted that on March 25, 2021, she knowingly made false statements and affirmed their truthfulness when applying for a Paycheck Protection Program loan from Fountainhead Commercial Capital, a matter within the jurisdiction of the U.S. Small Business Administration. In her application and supporting documents, she claimed she owned a small business that was in operation on Feb. 15, 2020, with a gross annual income of $100,000.

Jones admitted that on March 16, 2021, she knowingly made false statements and affirmed their truthfulness when applying for a Paycheck Protection Program loan from Harvest Small Finance, LLC, a matter within the jurisdiction of the U.S. Small Business Administration. In her application and supporting documents, Jones claimed that in 2019, she owned a small business that had been in operation since Feb. 15, 2020, with an annual gross income of $100,000.

https://www.justice.gov/usao-sdny/pr/recidivist-fraudster-and-co-conspirator-charged-covid-19-relief-loan-identity-theft-and
In an Indictment filed in the United States District Courtfor the Southern District of New York
https://www.justice.gov/usao-sdny/press-release/file/1454126/download, Adedayo Ilori and Chris Recamier were charged with (1) major fraud against the United States; (2) conspiracy to commit wire and bank fraud; (3) wire fraud; (4) bank fraud; (5) aggravated identity theft; and (6) conspiracy to commit money laundering. As alleged in part in the DOJ Release [Ed: references below to Paycheck Protection Program ("PPP"), the Economic Injury Disaster Loan ("EIDL") Program, and the Small Business Administration ("SBA"):

The Coronavirus Aid, Relief, and Economic Security ("CARES") Act is a federal law enacted on March 29, 2020, designed to provide emergency financial assistance to the millions of Americans who are suffering the economic effects caused by the COVID-19 pandemic.  One source of relief provided by the CARES Act was the authorization of hundreds of billions of dollars in forgivable loans to small businesses for job retention and certain other expenses through the SBA's PPP.  Pursuant to the CARES Act, the amount of PPP funds a business is eligible to receive is determined by the number of employees employed by the business and its average payroll costs.  Businesses applying for a PPP loan must provide documentation to confirm that they have previously paid employees the compensation represented in the loan application.  The CARES Act also expanded the separate EIDL Program, which provides small businesses with low-interest loans of up to $2 million that can provide vital economic support to help overcome the temporary loss of revenue they are experiencing due to COVID-19.  To qualify for an EIDL loan under the CARES Act, the applicant must have suffered "substantial economic injury" from COVID-19.

From at least in or about August 2020 through at least in or about October 2021, ILORI and RECAMIER, prepared to apply, and applied for numerous PPP and EIDL loans.  In applying for these loans, ILORI and RECAMIER claimed stolen identities of third parties.  In the role of these assumed identities, ILORI and RECAMIER claimed full control of a number of companies, which they purported, cumulatively, employed more than 200 people and paid more than $3.2 million in monthly wages.  In reality, they did not operate these companies.  In submitting these applications ILORI and RECAMIER, among other things, submitted falsified tax documents that were never actually filed with the Internal Revenue Service.

ILORI and RECAMIER attempted to obtain over approximately $7.5 million in PPP and EIDL program funds, and successfully obtained more than $1 million as a result of their scheme.  ILORI and RECAMIER transferred the majority of these funds toward (1) cryptocurrency investments, (2) the purchase of stocks, (3) cash withdrawals, and (4) personal expenses.  The investment accounts were also opened by ILORI and RECAMIER in the stolen identities of third parties.

ILORI committed these offenses while facing charges in a separate case filed in the Southern District of New York involving fraud, identity theft, and money laundering in United States v. Ilori, 20 Cr 378 (LJL).  As part of that case, ILORI pled guilty on April 8, 2021, to conspiracy to commit mail and wire fraud and conspiracy to commit money laundering, and is currently awaiting sentencing.              

https://www.cftc.gov/PressRoom/PressReleases/8467-21
The United States District  Court for the Northern District of Illinois entered a Consent Order
https://www.cftc.gov/media/6796/enfromanconsentorder120721/download resolving CFTC charges that Roman Banoczay Jr., as an agent of Roman Banoczay Sr. and their company, BAZUR Spol. S.R.O., engaged in spoofing and in a manipulative and deceptive scheme to defraud in the Chicago Mercantile Exchange ("CME") crude oil futures market in violation of the Commodity Exchange Act and CFTC regulations. The Consent Order imposes a $750,000 civil monetary penalty against Banoczay Jr., prohibits all three defendants from trading in commodity interests and registering with the CFTC in any capacity for two years, and requires them to cease and desist from violating the CEA's prohibitions on spoofing and manipulative and deceptive schemes to defraud. As alleged in part in the CFTC Release:

[D]uring a four-week period in early 2018, Banoczay Jr., on his own behalf and on behalf of Banoczay Sr. and BAZUR, repeatedly engaged in manipulative or deceptive acts and practices by spoofing (bidding or offering with the intent to cancel the bid or offer before execution) while placing orders for and trading crude oil futures contracts on the CME's exchanges. Banoczay Jr. placed thousands of orders with the intent to cancel them in order to send false signals of increased buying or selling interest designed to trick market participants into executing the orders that he wanted filled. Although Banoczay Jr. was the only individual who placed and canceled these spoof orders, the court found that Banoczay Sr. and BAZUR are vicariously liable for Banoczay Jr.'s violations because Banoczay Jr. served as their agent and committed these violations within the scope of his agency. Banoczay Jr. was previously the subject of a disciplinary action brought by the CME Group, Inc. for the same underlying conduct (see Notice of Disciplinary Action NYMEX 18-0877-BC (eff. Mar. 23, 2020)).

http://www.brokeandbroker.com/6204/btig-mcleod-arbitration/
The allegations in Matthew McLeod's lawsuit against his former employer BTIG are lurid, and whether damages should be awarded will be determined by a trier of fact -- but will that trier be a FINRA arbitration panel or a court? McLeod sued in state court, but BTIG argued that the proper forum for the dispute was before a FINRA arbitration panel. BTIG lost its motion to compel arbitration, and, as such, McLeod's lawsuit moves forward in the California court system.

No Show Respondent in FINRA  Arbitration Prompts No Explanation in Award (BrokeAndBroker.com Blog)
http://www.brokeandbroker.com/6194/finra-no-show-arbitration/
When the best that you can say about a FINRA Arbitration Award is that you don't know where to begin, that's not a good thing. Sadly, when it comes to a recent public customer's arbitration against a no-show Respondent, I don't know where to begin.

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