Securities Industry Commentator by Bill Singer Esq

SEC Slaps Generic, Non-Specific Whitewash Over Database Scandal (BrokeAndBroker.com Blog)

Commission Statement Relating to Certain Administrative Adjudications (SEC)

Senior Executive of Oil-Services Company Sentenced to Three Years for $886 Million Securities Fraud Scheme (DOJ Release)

Restraining Order Entered Against Florida Operators of Technical-Support Fraud Scheme Targeting Seniors (DOJ Release)

Two Men Sentenced to Combined 13 Years in $1.5 Million Apple Gift Card Scheme (DOJ Release)

Manvel man sent to prison for draining co-workers in investment scheme (DOJ Release)

SEC: Takeover Bid of Fortune 500 Company was a Sham (SEC Release)

SEC Obtains Final Judgments from Two Defendants for Their Roles in $45 Million Fraudulent Scheme (SEC Release)

SEC Charges Kansas Man with Insider Trading (SEC Release)

Statement on In the Matter of Lloyd D. Reed by SEC Commissioner Hester M. Peirce

FINRA Sued in the Wrong Place At the Wrong Time (BrokeAndBroker.com Blog)

3Cir Considers Absolute Privilege For Alleged Form U5 Defamation (BrokeAndBroker.com Blog)

The Commission has identified a control deficiency related to the separation of its enforcement and adjudicatory functions within its system for administrative adjudications.  When this deficiency was identified, the Chair immediately notified the other Commissioners and directed the staff to undertake remedial measures and commence a comprehensive internal review to assess the scope and potential impact of the issue.  We are now releasing the findings of that review as it relates to two adjudicatory matters currently in litigation in federal court.  In both matters, the review found that agency enforcement staff had access to certain adjudicatory memoranda, but that this access did not impact the actions taken by the staff investigating and prosecuting the cases or the Commission's decision-making in the matters.

Background

The Commission has statutory authority to enforce the federal securities laws.  It may exercise this authority by investigating wrongdoing and-where it deems it necessary or appropriate for the protection of investors-instituting an administrative proceeding to determine whether a violation of the securities laws has occurred.[1]  The Commission may itself preside over such a proceeding and issue a decision.[2]

While the law assigns the Commission both investigatory and adjudicatory responsibilities, the Administrative Procedure Act contemplates the separation of those functions among the agency staff who assist the Commission in each.[3]  That is, the agency employees who are investigating or prosecuting an adjudicatory matter before the Commission generally may not participate in the Commission's decision-making in that or a factually related matter.[4]  The Commission has promulgated rules intended to ensure that, in administrative proceedings, enforcement and adjudicatory functions are handled by different sets of agency employees.[5]  Staff members from the Commission's Division of Enforcement ("Enforcement") investigate and prosecute these actions, while staff within the Office of the General Counsel's Adjudication Group ("Adjudication") advise and assist the Commission in issuing adjudicatory opinions and orders.  In general, any party to an administrative enforcement proceeding, whether Enforcement or a respondent, files motions and briefs with the Office of the Secretary and does not communicate directly with the Commission about the proceeding.  Adjudication staff, by contrast, submit internal memoranda to the Commission to aid in the Commission's decision-making.

The Commission has determined that, for a period of time, certain databases maintained by the Commission's Office of the Secretary were not configured to restrict access by Enforcement personnel to memoranda drafted by Adjudication staff.  As a result, in a number of adjudicatory matters, administrative support personnel from Enforcement, who were responsible for maintaining Enforcement's case files, accessed Adjudication memoranda via the Office of the Secretary's databases.  Those individuals then emailed Adjudication memoranda to other administrative staff who in many cases uploaded the files into Enforcement databases.

Internal Review

When it was discovered that Enforcement staff had access to Adjudication memoranda, the Chair immediately directed the implementation of remedial measures, including enhanced access controls, to ensure that Enforcement staff would no longer be able to access these memoranda in the Office of the Secretary databases or through Enforcement databases.  The Chair also initiated an internal review to assess the scope and impact of the control deficiency.  That review is ongoing and is being conducted by experienced investigative staff from the Division of Examinations under the supervision of the Commission's General Counsel.

To support the internal review, the Office of the General Counsel retained the Berkeley Research Group, LLC ("BRG"), a consulting firm with staff that includes a team of experienced investigators and forensic analysts.  Together, the internal team and BRG staff are in the process of performing a comprehensive review of the facts surrounding the control deficiency and assessing its potential impact on administrative adjudicatory matters.  BRG is also conducting an independent forensic analysis to determine the scope and potential impact of the control deficiency.  That analysis includes a detailed review of the Office of the Secretary databases in which the Adjudication memoranda were stored and the Enforcement databases into which some of those memoranda were uploaded.  BRG is also conducting an analysis of access logs for the various systems.

As part of its ongoing investigation, the team has conducted dozens of interviews and collected documents from Enforcement and Adjudication staff, as well as the Office of the Secretary.  As discussed below, we find it appropriate at this time to publish the review team's findings regarding two matters, and we anticipate publishing additional findings in the near future.  With respect to the two matters discussed below, the interviews conducted by the review team and BRG included those of more than 20 Enforcement staff members, as well as Adjudication staff members handling these matters.

Findings

The review team has prioritized its assessment of the two cases arising from Commission administrative proceedings that are currently pending in the federal courts:  SEC v. Cochran, No. 21-1239 (S. Ct.), and Jarkesy v. SEC, No. 20-61007 (5th Cir.).  In each case, the team determined that Enforcement administrative personnel accessed one or more Adjudication memoranda via the Office of the Secretary databases and sent those materials to other administrative personnel who in a number of instances uploaded the memoranda into a database that is accessible to all Enforcement staff.  As a result, certain Adjudication memoranda were, for a period of time, accessible to all Enforcement staff, including attorneys investigating and prosecuting the enforcement matters discussed in those Adjudication memoranda.

However, as detailed below, while the Enforcement staff assigned to investigate and prosecute those two matters would have been able to access certain Adjudication memoranda that pertained to those matters, the review team has found no evidence that those Enforcement staff in fact reviewed the memoranda.  In addition, the timeline of filings and Commission actions in each matter shows that access to the Adjudication memoranda would not have affected any Enforcement filings.  Enforcement staff prosecuting the matters did not file any documents in the proceedings between the dates that the Adjudication memoranda were accessed by the Enforcement administrative personnel and the dates of the corresponding Commission orders.

1. David S. Hall, P.C. d/b/a The Hall Group CPAs, David S. Hall, CPA, Michelle L. Helterbran Cochran, CPA, and Susan A. Cisneros, Admin. Proc. 3-17228; SEC v. Cochran, No. 21-1239 (S. Ct.) (pet. for cert. filed Mar. 11, 2022).

An administrative staff member in Enforcement accessed and sent to other administrative personnel one Adjudication memorandum-dated November 29, 2017-relating to the Cochran matter then pending before the Commission.  One of those administrative staff members then uploaded the memorandum to the Cochran case file in the Enforcement database.  The memorandum concerned an Adjudication staff recommendation advising the Commission to take certain procedural actions in a number of pending administrative proceedings related to the Commission's ratification of the appointment of its administrative law judges.  The Commission issued its order related to the memorandum on November 30, 2017.

Emails reviewed by the internal review team showed that the Enforcement administrative staff member emailed the Adjudication memorandum to other administrative staff (to upload to the Enforcement database) the day after the Commission issued the November 30, 2017 order discussed in the memorandum.  Thus, the Enforcement staff responsible for investigating and prosecuting the matter would have had no opportunity to view or use the information in the memorandum prior to the order's issuance.  Further, interviews with Enforcement staff show no evidence that any of the individuals assigned to investigate and prosecute the Cochran matter accessed the Adjudication memorandum.

In sum, the internal review has found no evidence that the Enforcement staff investigating and prosecuting this matter accessed the Adjudication memorandum or took any action based on that memorandum.  Accordingly, the availability of the memorandum to Enforcement staff had no bearing on any actions taken by that staff or any effect on the Commission's adjudication of this proceeding.  Moreover, the internal review concluded that Enforcement staff did not participate or advise in the preparation or issuance of the order discussed in the memorandum or otherwise influence the Adjudication staff advising the Commission in its decision-making.

2. John Thomas Capital Mgmt. Grp. LLC d/b/a Patriot28 LLC, and George R. Jarkesy Jr., Admin. Proc. 3-15255; Jarkesy v. SEC, No. 20-61007 (5th Cir.) (pet. for rev. filed Nov. 2, 2020).

An administrative staff member in Enforcement accessed and sent to other administrative personnel ten Adjudication memoranda relating to the Jarkesy matter then pending before the Commission.  In many instances, the administrative personnel then uploaded the memoranda to the Jarkesy case file in the Enforcement database.  One of the memoranda concerned an Adjudication staff recommendation regarding respondents' request for Commission review of the administrative law judge's initial decision; Enforcement did not file an opposition, and the Commission subsequently granted respondents' request.  Seven memoranda concerned Adjudication staff recommendations regarding a potential extension of time to issue an opinion, all of which the Commission approved.  One memorandum concerned an Adjudication staff recommendation regarding adoption of an opinion and order in the case; the Commission subsequently approved the recommendation and issued its final opinion and order in the matter without further briefing from the parties.  In addition, the same November 29, 2017 memorandum recommending procedural actions related to the Commission's ratification of the appointment of its administrative law judges (discussed above in connection with the Cochran matter) also applied to the Jarkesy proceeding.  That memorandum was available to Enforcement staff in the Enforcement database, but it was not uploaded to the Jarkesy case file.  The review team's interviews revealed no evidence that any of the individuals assigned to investigate and prosecute the Jarkesy matter accessed any of these Adjudication memoranda.

The timeline of relevant events further confirms these findings.  Eight of the nine Adjudication memoranda uploaded to the Jarkesy case file in the Enforcement database were emailed by the Enforcement administrative staff member to other administrative staff (to then upload to the Enforcement database) on or after the date the Commission issued the order discussed in the memoranda.  Thus, as to those materials, the Enforcement staff responsible for investigating and prosecuting the matter would have had little to no opportunity to view or use the information in the memoranda.  The one remaining memorandum-which made recommendations regarding a potential extension of time to issue an opinion-was emailed by the Enforcement administrative staff member to other administrative personnel only one day before the Commission issued the corresponding order.  The internal review has found that the Enforcement team investigating and prosecuting the matter did not file any documents in the administrative proceeding between the time the Enforcement administrative staff member accessed that memorandum and the time the Commission issued its corresponding order.

In sum, the internal review has found no evidence that the Enforcement staff investigating and prosecuting this matter accessed the Adjudication memoranda or took any action based on those memoranda.  Accordingly, the availability of the memoranda to Enforcement staff had no bearing on any actions taken by the staff or any effect on the Commission's adjudication of this proceeding.  Moreover, the internal review concluded that Enforcement staff did not participate or advise in the preparation or issuance of the orders discussed in the memoranda or otherwise influence the Adjudication staff advising the Commission in its decision-making.

*          *          *

We deeply regret that the Commission's systems lacked sufficient safeguards surrounding access to Adjudication memoranda.  We have great faith in the professionalism of all of our staff and will work to ensure that, going forward, we better protect the separation of adjudicatory work-product within our system for administrative adjudications, including by enhancing our systems for controlling access to Adjudication memoranda.  We take this lapse in controls very seriously and are working hard to make sure nothing like it happens again.  The review team will continue to assess the remaining affected adjudicatory matters, and we will release those findings as soon as we are able to do so.

[1] See, e.g., 15 U.S.C. § 78u(a)(1) (authorizing the Commission to "make such investigations as it deems necessary"); id. § 78u-3 (authorizing the Commission to issue cease-and-desist orders if it "finds, after notice and opportunity for hearing, that any person is violating, has violated, or is about to violate" the federal securities laws).

[2] 17 C.F.R. 201.110; see also 5 U.S.C. § 556(b).

[3] 5 U.S.C. § 554(d); see also id. § 557(d)(1) (prohibiting ex parte communications in formal agency adjudications).

[4] Id. § 554(d).

[5] See 17 C.F.R. 201.121 (requiring the separation of personnel involved in prosecutorial and investigative functions from adjudicative decision-making in those cases); id. 201.120 (prohibiting ex parte communications in Commission adjudications).

[K]ostelecky, 61, of Dickinson, engaged in a scheme to defraud while serving as the highest-ranking U.S. executive of Poseidon Concepts Corporation (Poseidon) from approximately November 2011 to December 2012. Kostelecky previously pleaded guilty on Oct. 13, 2021, admitting that, in his role, he caused Poseidon to falsely report approximately $100 million in revenue from purported long-term contracts with oil and natural gas companies that were Poseidon's customers.

Kostelecky's misconduct included fraudulently directing Poseidon's accounting staff at the U.S. corporate headquarters in Denver, Colorado, as well as its field office in Dickinson, to record revenue from such contracts and then assuring management that the associated revenue was collectable, when he knew that the contracts either did not exist or that the associated revenue was not collectable. After Poseidon reported a partial write-down of uncollectable accounts in its financial statements, resulting in a drop in the company's stock price, Kostelecky fraudulently caused the issuance of a public filing falsely reporting that he had purchased a substantial number of shares of the company when, in fact, he had made no such purchase. Kostelecky admitted that when the inflated revenue came to light at the end of 2012, Poseidon's stock price plunged and the company was forced into bankruptcy, causing over $886 million in shareholder losses. Kostelecky further admitted that he perpetrated the scheme to inflate the value of the company's stock price in order to enrich himself through the continued receipt of compensation and appreciation of his own stock and stock options.

In a complaint filed on March 30, the United States alleges that Herson operated a scheme through Windows Service Center, as well as through her prior company USEL Support LLC, in which she contacted individuals over the phone and convinced them to purchase overpriced and unnecessary technical support services and anti-virus software by falsely claiming that their computers were infected with viruses or malware or were accessed by hackers. The complaint alleges that, in reality, Herson had no specific knowledge of the security of the victims' computers prior to making the calls.

The complaint also alleges that Herson charged victims thousands of dollars for the installation of software that is available online for free or for a low cost. In addition, the complaint alleges that once a victim had made a purchase from USEL Support, Herson and USEL Support contacted that same victim repeatedly to try to obtain further payments by falsely claiming that the victim's computer had additional security problems. The complaint alleges that Herson is continuing the same technical support fraud scheme through her new company, Windows Service Center.

[M]r. Tout-Puissant admitted that he stole multiple Apple point-of-sale devices - nicknamed "Isaacs" - from an Apple store in Southlake, Texas, then sat outside the store, logged onto the store's wifi network, and loaded thousands of dollars of fraudulent store credits onto gift cards.

He then loaded the giftcards onto Apple Passbook, an application that generates QR codes for the value of gift cards, and sent screenshots of those codes to Mr. Ali.

In his plea papers, Mr. Ali admitted that he and an unindicted coconspirator used those QR codes to purchase thousands of dollars' worth of Apple products from brick-and-mortar retail stores in New York.

According to the indictment, the conspiracy involved more than $1.5 million in fraudulently obtained Apple gift cards.

[I]n handing down the sentence, the court noted the blatant, fraudulent scheme and the fact that Tran preyed on his friends and co-workers. Several of the victims testified about the hardships his theft had caused for them and their families. After hearing from several of the victims, Judge Hughes noted the Tran's "treachery" by stealing from friends and co-workers.

At the time of his plea, Tran admitted that in 2017 he used a fake investment account to convince a local businessman to sell him a media outlet. Tran showed the businessman funds in the account, but they had been altered. They fraudulently displayed $7 million when, in fact, he never had over $100,000 at any one time. Tran subsequently bankrupted the business and defaulted on the payments.   

Tran also admitted to using the same scheme to persuade several co-workers to invest in his company from 2015 through 2017. Some victims invested their life savings and never saw any return.

In total, investors lost over $705,000 as a result of Tran's scheme.  

[O]n November 9, 2020, ten Cate and Xcalibur Aerospace, Ltd., a now-defunct private company ten Cate controlled, placed an advertisement in The New York Times announcing a proposed purchase of all existing stock of Textron for $60.50 a share, a 56 percent premium over the stock's previous closing price. As alleged, the advertisement led to a spike in Textron trading and a subsequent trading halt. The SEC has charged ten Cate with violating the antifraud provisions of the federal securities laws.

According to the complaint, the announcement was false and misleading because ten Cate and Xcalibur lacked the financial resources to complete the transaction, which would have required more than $14 billion. The tender offer announcement allegedly described Xcalibur's corporate parent as a 'diversified global investment company,' when it had no operations or assets and had been deactivated for failure to pay taxes. The complaint alleges that the announcement failed to disclose that ten Cate and entities he controlled had been the subject of multiple bankruptcy and default judgments and that Textron had previously rejected Xcalibur's overtures. The SEC's investigation also allegedly confirmed that the defendant attempted to access the Commission's online Electronic Data Gathering and Retrieval (EDGAR) system in order to complete the required process for a public filing but was thwarted by SEC officials.

According to the SEC's complaint, filed on March 2, 2021, Kalistratos "Kelly" Kabilafkas secretly purchased essentially all the outstanding stock of a shell company now known as Airborne, then distributed millions of shares among himself and his associates, including Chrysiliou and Bolovis. As alleged, Chrysiliou and Bolovis participated in Kabilafkas's scheme by deceiving Airborne's transfer agent and their broker dealers in order to have the shares transferred into their names, deposited in their brokerage accounts, and cleared for sale to the public. The complaint alleges that Chrysiliou and Bolovis then sold these shares into the public market while an Airborne promotional campaign was underway, generating proceeds of approximately $1.3 million and $3.8 million, respectively. The complaint also alleges that Bolovis kicked-back all but approximately $4,000 of his proceeds to benefit Kabilafkas and his family.

The SEC's order states that Reed, a resident of Lawrence, Kansas, purchased Torotel stock in July and August 2019 during the same period that Torotel was engaged in discussions with potential strategic partners. The order finds that Reed purchased his Torotel stock on the basis of material, nonpublic information he learned from his business partner, and Reed's use of such information was in breach of a duty of trust and confidence he owed to his business partner. According to the order, following a December 2019 announcement that Torotel would be acquired for a premium of more than 400 percent, Reed sold all of his shares and realized a profit of more than $116,000.

The Commission's Order finds that Lloyd D. Reed violated Exchange Act Section 10(b) and its accompanying Rule 10b-5 "by trading on material, non-public information [of Torotel, Inc.] in breach of his duty of trust and confidence owed to his business partner ("Business Partner"), who was also a Torotel director and family member."[1] In other words, the case is based on the misappropriation theory of insider trading: Reed's Business Partner shared with him material, non-public information about Torotel with the expectation that Reed would keep that information confidential, and Reed misappropriated that information by trading on it in breach of his duty to his Business Partner to keep the information confidential. The Order's next line, however, states: "Reed purchased Torotel stock in July and August 2019 based on information Business Partner gave him about Torotel's plans to seek a business combination and after observing Business Partner's increased activities with Torotel." (emphasis added). Undoubtedly, that a company is considering a business combination generally would constitute material, non-public information about that company. But when and how one's observations of what someone else is doing for a company constitute material, non-public information about the company is considerably less clear.

The Order explicitly identifies two instances when Reed's Business Partner passed Torotel's material, non-public information to him. First, in February 2015, his Business Partner, who at that time had been hired by Torotel to analyze its business, gave Reed a copy of the resulting thirteen-page report and recommendations. In the Order's telling, the 2015 Report included an "analysis . . . [of] additional investments to prepare the company for sale in the future" and "recommendations about preparation for a possible sale of Torotel." Second, "on August 5, 2019, Business Partner sent Reed an email . . . about a potential Torotel merger [which] referenced the internal pseudonym for Torotel's search for bidders and identified a document summarizing the bids Torotel had received." A gap of four years and six months separated the date his Business Partner shared a report that recommended, among a number of other options, the possibility of a merger from the date his Business Partner sent him an e-mail that indicated Torotel was in fact pursuing a merger.

Granted, the Order recites many other facts that likely are material, nonpublic information related to Torotel's plans. For example, it notes that in December 2018, Torotel's board decided to pursue a strategic transaction, and in April 2019 set up an ad-hoc committee-later converted to a formal Special Committee-to oversee the process. The Order also states that Torotel in July 2019 started discussions in earnest with "potential strategic partners and financial sponsors," and that it had "financial offers to purchase Torotel" by August 1, 2019. The Order does not state that his Business Partner-or anyone else-shared any of these specific facts with Reed.

Reed was aware of his Business Partner's involvement with Torotel. Reed knew that his Business Partner joined Torotel's board in February 2018, that he performed work for Torotel after joining the board, and that his compensation from Torotel "was ultimately payable" to an entity that he and Reed co-owned[2]. Additionally, "Reed knew that Business Partner focused his business activities on potential growth and other strategic transactions." His Business Partner's appointment to the board in February 2018 and that his consulting work focused, among other things, on mergers and acquisitions were not material, non-public pieces of information because Torotel filed a Form 8-K in February 2018 disclosing both these facts. Specifically, the Form 8-K stated that his Business Partner was the "founder and principal of [an entity] which provides strategic planning and implementation, operational execution, and M&A support."[3] The remaining fact-that Reed knew his "Business Partner had become unusually busy on Torotel-related matters" in June 2019-appears to be the key "observation" that bridges the temporal chasm between the February 2015 report and Reed's purchases of Torotel stock in July 2019.

This bridge is a rickety structure at best, and one that we should not hazard to cross. That Reed knew that his Business Partner was unavailable "to meet or discuss shared business interests" is significant only inasmuch as Reed also knew the reason for the unavailability-that his Business Partner was "unusually busy on Torotel-related matters." The crux of the case is this question: What material, non-public information informed Reed in July 2019 that his Business Partner's unavailability was due to his work on a strategic transaction for Torotel? Recall that the Order cites no evidence that Reed knew in July 2019 that Torotel had decided in December 2018 to pursue such a transaction, had set up a Special Committee to oversee the efforts, had started discussions with potential partners in July 2019, or had received offers. Also recall that Torotel's Form 8-K disclosed both his Business Partner's appointment to the board and that he did work in mergers and acquisitions. The only piece of material, non-public information available to Reed in July 2019 was the February 2015 report. Even if one were to view his Business Partner's June-July 2019 Torotel workload through the lens of February 2015 report, it does not follow that the Business Partner must have been working to complete a strategic transaction. His Business Partner's "analysis of a potential sale" was but one of the "recommendations" in the four-year old report. That Torotel was actively pursuing a strategic transaction, while a possible inference from his Business Partner's busy schedule during the summer of 2019, was not the only possible inference. Moreover, the materiality of an analyst's recommendations from February 2015 to an assessment of the probability of Torotel's business decisions in July 2019 is dubious at best.

An August 5, 2019 email from his Business Partner revealed material, non-public information that a business combination was underway. Accordingly, while I do not support the charge that Reed engaged in unlawful insider trading when he purchased Torotel shares before receiving the August 5 e-mail, I support the charge that he engaged in unlawful insider trading when he purchased 6,800 Torotel shares after receiving the e-mail and before Torotel announced its acquisition.

The Order gives me pause. First, the Order appears to assess whether particular information is material and non-public information about a company based on the relationship between the individuals sharing it. Assume, for example, that the Business Partner was a volunteer Little League coach, and told the assistant coach that he was unavailable for games in June and July because of his Torotel workload. Surely, we would not contend that the Business Partner thereby passed material, non-public information about Torotel to the assistant coach. Why do we make that contention with respect to Reed, who knew precisely the same fact, but for a different reason-his Business Partner's unavailability to discuss matters related to their co-owned businesses and their familial relationship? Whether a fact is material and non-public information about a company is determined by the nature of the fact itself, not by the nature of the relationship in which it is conveyed. At bottom, as I read it, the Order conflates distinct aspects of the misappropriation theory-the requirement for material, non-public information about a company and the requirement that the tipper and tippee have a relationship of trust and confidence-by presuming that the existence of a relationship of trust and confidence somehow transmogrifies non-material, public information into material, non-public information. Reed's trading on public information should not be illegal simply because Reed had a different relationship with his Business Partner.

This leads to my second concern: that a reasonable inference drawn from pieces of information that are either non-material, public, or both can itself be material, non-public information. The kind of securities analysis that is central to making markets work-gathering pieces of information (none of which are both material and non-public) and putting these pieces together to make reasonable assumptions about a company's prospects-will be at risk. Will an investor who makes money based on the inferences she draws from information she has worked hard to assemble face insider trading charges if those inferences prove to be accurate?

If this Order forms the basis of a new tenet of our insider-trading canon, it will undermine the efficiency of our markets. For these reasons, I respectfully dissent.

[1] In the Matter of Lloyd D. Reed, Rel. No. 34-94591 (April 4, 2022), available at https://www.sec.gov/litigation/admin/2022/34-94591.pdf.

[2] This entity "provided consulting and other services in the aerospace industry" and was one of "multiple businesses" co-owned by Reed and his Business Partner. The Order has no additional information that might shed light on the significance of the fact that Reed knew his Business Partner's compensation was "ultimately payable" to the co-owned business.

[3] See Torotel Inc., Form 8-K, https://www.sec.gov/Archives/edgar/data/98752/000110465918010324/a18-6301_18k.htm.

• Securities Industry Commentator
• Bill Singer