Securities Industry Commentator by Bill Singer Esq
April 25, 2023
In re: Facebook, Inc. Consumer Privacy User Profile Litigation
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DOJ RELEASES
Five Individuals Charged in $2M Virtual Asset and Securities Manipulation Scheme (DOJ Release)
IRB Brasil Agrees to Pay Shareholders $5M in Connection with Securities Fraud Scheme (DOJ Release)
SEC RELEASES
In the Matters of Warren A. Davis and Gibraltar Global Securities, Inc. (SEC Order)
CFTC RELEASES
FINRA RELEASES
FINRA Fines and Suspends Rep For Private Securities Transactions
In the Matter of Matthew J. Mangini, Respondent (FINRA AWC)
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4/25/2023
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Georgia Man Indicted for Scheme to Defraud Elderly Suffolk County Victim of More Than $5 Million / Defendant and his Co-Conspirators Falsely Told Victim to Send Millions of Dollars to Claim Certificate Needed for "Inheritance" (DOJ Release)
https://www.justice.gov/usao-edny/pr/georgia-man-indicted-scheme-defraud-elderly-suffolk-county-victim-more-5-million
In the United States District Court for Eastern District of New York, an Indictment was filed charging Odera Odabi a/k/a "Chief Odera Odabi"with conspiring to commit mail fraud, wire fraud and money laundering
https://www.justice.gov/d9/2023-04/filed_odabi.indictment.pdf As alleged in part in the DOJ Release:
[B]etween approximately April 2020 and December 2021, Odabi and his co-conspirators falsely informed an elderly Suffolk County resident (John Doe) that he needed to send around $5.3 million to various bank accounts in order to obtain a purported “Certificate of Origination” from the International Monetary Fund (IMF) and claim a purported inheritance in Singapore. In fact, the IMF does not issue such Certificates and has posted a warning on its website alerting the public to fraudulent schemes involving purported IMF certificates.
As a result of the false communications, John Doe sent Odabi and his co-conspirators approximately $5.3 million, including approximately $2 million to accounts held in the name of Oh-Dabi Properties, LLC and American Commodity Exchange, Inc., two Georgia-based companies that Odabi operated. Ultimately, Odabi and his co-conspirators stole nearly all of John Doe’s funds to benefit themselves, including through purchases at an Apple Store and Louis Vuitton, except for $197,000 that was frozen by bank officials on suspicion of fraud.
SEC Obtains Final Judgment from Former Executive for His Role in $100 Million Accounting Fraud (SEC Release)
https://www.sec.gov/litigation/litreleases/2023/lr25700.htm
In the United States District Court for the Southern District of New York, a Final Judgment was entered against former SAExploration Holdings Chief Executive Officer Jeffrey Hastings https://www.sec.gov/litigation/litreleases/2023/judg25700-hastings.pdf. As alleged in part in the SEC Release:
[H]astings, along with his co-defendants, caused SAE to enter into a series of seismic data acquisition contracts totaling approximately $140 million with a purportedly unrelated Alaska-based company that was in fact controlled by Hastings and co-defendant Brent Whiteley. The amended complaint alleges that SAE improperly recorded approximately $100 million in revenue in light of the Alaskan company's inability to pay and the SAE executives' control of the company. As also alleged, Hastings and his co-defendants misappropriated $12 million from SAE and routed approximately half of those funds back to SAE to create the false impression that the related Alaskan company was actually paying SAE for seismic data, and then kept the remainder of the misappropriated funds for themselves.
Without denying the SEC's allegations, Hastings consented to the entry of a final judgment permanently enjoining him from violating Section 17(a) of the Securities Act of 1933 and Sections 10(b), 13(a), 13(b)(2)(A), 13(b)(2)(B), and 13(b)(5) of the Securities Exchange Act of 1934, Rules 10b-5, 12b-20, 13a-1, 13a-11, 13a-13, 13b2-1, 13b2-2, and 13a-14 thereunder, and Section 304(a) of the Sarbanes-Oxley Act of 2002 ("SOX"). The final judgment also orders Hastings to pay $1,116,987.27 in disgorgement plus $194,835.52 in prejudgment interest, for a total of $1,311,822.79, which shall be deemed satisfied by the Order of Restitution entered against Hastings in the criminal case of United States v. Hastings, No. 1:20-cr-534-GHW-1 (S.D.N.Y.). Hastings was also ordered to reimburse SAE $1,206,626 pursuant to Section 304(a) of the SOX.
On December 17, 2020, the U.S. District Court for the Southern District of New York entered a final consent judgment against SAE.
In the Matters of Warren A. Davis and Gibraltar Global Securities, Inc. (SEC Order Consolidating Proceedings and Requesting Additional Briefing and Materials, '34 Act Rel. No. 97376; Admin Proc. File Nos. 3-19814 and -19815)
https://www.sec.gov/litigation/opinions/2023/34-97376.pdf
In May 2020, the SEC issued separate Orders Instituting Proceedings ("OIPs") against Respondent Davis https://www.sec.gov/litigation/admin/2020/34-88962.pdf and Respondent Gibralter https://www.sec.gov/litigation/admin/2020/34-88965.pdf Respondents did not respond to various motions or orders to show cause. The two proceedings were consolidated and the Division of Enforcement filed motions for the entry of default and the ensuing imposition of sanctions. In part, the SEC Order notes [Ed: footnotes omitted]:
[T]he Division supported its motion with the following materials from the civil action: the complaint; the district court’s order dated July 2, 2015, granting default judgment and enjoining Respondents; the report and recommendation dated October 15, 2016, from the magistrate judge concerning monetary sanctions; the district court’s memorandum decision and order dated January 12, 2016, adopting the report and recommendation; and the final judgment dated January 12, 2016.
When determining whether remedial action, such as broker-dealer and penny stock bars, is in the public interest under Exchange Act Section 15(b), the Commission must consider the When determining whether remedial action, such as broker-dealer and penny stock bars,is in the public interest under Exchange Act Section 15(b), the Commission must consider the question with reference to the underlying facts and circumstances of the case. The factors that the Commission considers are the egregiousness of the respondent’s actions, the isolated or recurrent nature of the infraction, the degree of scienter involved, the sincerity of the respondent’s assurances against future violations, the respondent’s recognition of the wrongful nature of his or her conduct, and the likelihood that the respondent’s occupation will present opportunities for future violations. Such analysis must do more than “recite[], in general terms, the reasons why [a respondent’s] conduct is illegal,” but rather “devote individual attention to the
unique facts and circumstances of th[e] case.”
The Division relies in part on the allegations of the OIPs with respect to the injunctive action against Respondents to support its request for sanctions. When a respondent defaults, the Commission may deem an OIP’s allegations to be true But the OIPs here recount the allegations of the Commission’s complaint; they do not independently allege that Respondents engaged in particular misconduct. Entering Respondents’ default would not appear to permit the Commission to deem true the allegations of the Commission’s complaint in the injunctive action.
The Division also relies on the district court’s orders noted above enjoining Respondents from certain violations of the securities laws and imposing other sanctions. But because those orders were based on the default judgment entered against Respondents, they do not appear to have preclusive effect as to facts alleged in the Commission’s complaint.
CFTC Charges Precious Metals Dealers and Their Owner in Multimillion Dollar Fraud Targeting the Elderly (CFTC Release)
https://www.cftc.gov/PressRoom/PressReleases/8694-23
In the United States District Court for the Eastern District of New York, the CFTC filed a Complaing charging Fisher Capital LLC and AMS Consulting Solutions LLC d/b/a Fisher Capital (collectively Fisher Capital), and Fisher Capital’s principal, Alexander Spellane a/k/a Alexander Overlie with elderly investors.
https://www.cftc.gov/media/8496/enffishercapitalcomplaint042535/download
As alleged in part in the CFTC Release:
The complaint alleges that from approximately June 2020 and continuing to the present, the defendants fraudulently persuaded hundreds of elderly persons throughout the U.S. to invest more than $30 million in precious metals, primarily using funds from customers’ retirement savings. As alleged, Fisher Capital solicited customers via high-pressure telephonic sales pitches that were permeated with material misrepresentations, misleading half-truths, and deceptive omissions designed to build trust with elderly customers; instill fear about the safety of traditional retirement and savings accounts; and deceive victims into purchasing grossly overpriced precious metals from Fisher Capital.
According to the complaint, the defendants deceptively marketed Fisher Capital as a wealth protection firm whose mission was to safeguard investors’ retirement savings, and led customers to believe that Fisher Capital would offer safe and secure investments that were in its customers’ best interest. In reality, Fisher Capital was a boiler room-type operation orchestrated by Spellane to bilk elderly customers out of their retirement savings. As alleged, defendants fraudulently induced investors to liquidate existing retirement accounts, transfer the proceeds into self-directed Individual Retirement Accounts (SDIRAs), and invest the proceeds into gold and silver coins. The defendants directed the vast majority of customers’ investments into supposedly exclusive, collectible, or “semi-numismatic” coins at grossly inflated prices that frequently were double or even triple the prevailing market value of those coins.
The defendants also allegedly used false and misleading statements designed to stoke customers’ fear of economic collapse and scare customers into erroneously believing their retirement accounts could be frozen or seized in the event of a stock market decline. Due to the exorbitant and fraudulent markups charged by Fisher Capital, customers routinely lost the majority of the value of their investment immediately upon entering into transactions with Fisher Capital.
As the complaint alleges, when questioned by customers about the value of the precious metals they purchased, the defendants misleadingly reassured customers the gold and silver coins were rare or collectible and carried a premium far above the base melt value. In fact, the coins were significantly less valuable than the defendants claimed.
Swap Dealer Pays Over $6.8 Million for Violations of Swap Dealer Business Conduct Standards (CFTC Release)
https://www.cftc.gov/PressRoom/PressReleases/8695-23
The CFTC issued an Order against Mizuho Capital Markets LLC
https://www.cftc.gov/media/8501/enfmizuhocapitalorder042523/download for trade practice violations of the Swap Dealer Business Conduct Standards in the Commodity Exchange Act (CEA) and CFTC regulations; and requiring Mizuho to cease and desist from further violations of these standards, pay $1,847,182.90 in restitution, and pay a $5 million civil monetary penalty. As alleged in part in the CFTC Release:
When executing certain foreign exchange forward transactions known as “deal-contingent FX forwards,” Mizuho failed to adequately disclose to certain customers that it was trading in the minutes or seconds before Mizuho provided the spot exchange rate to, and executed the forward transaction with, the customer. This activity occurred from June 2018 to December 2020. This trading by Mizuho, at times, likely contributed to moving the spot exchange rate, in the relevant currency pair, against the customer. As a result of these actions, the customer may have obtained the currency it sought to acquire via the foreign exchange forward at a rate less favorable than may otherwise have been available. Mizuho may also have been able to hedge its exposure, vis-à-vis its customers, at a rate more favorable than may otherwise have been available. By failing to adequately disclose to its customers that it traded in this manner at times, Mizuho violated the Swap Dealer Business Conduct Standards.
FINRA Fines and Suspends Rep For Private Securities Transactions
In the Matter of Matthew J. Mangini, Respondent (FINRA AWC 2022075017201)
https://www.finra.org/sites/default/files/fda_documents/2022075017201
%20Matthew%20J.%20Mangini%20CRD%206527545%20AWC%20lp.pdf
For the purpose of proposing a settlement of rule violations alleged by the Financial Industry Regulatory Authority ("FINRA"), without admitting or denying the findings, prior to a regulatory hearing, and without an adjudication of any issue,Matthew J. Mangini submitted a Letter of Acceptance, Waiver and Consent ("AWC"), which FINRA accepted. The AWC asserts that in 2015, Matthew J. Mangini was a non-registered-fingerprint customer service assistant at Crown Capital Securities, L.P., and also served as an investment advisor representative at a registered investment advisory firm. In accordance with the terms of the AWC, FINRA imposed upon Anderson a $10,000 fine and six-month suspension from associating with any FINRA member in all capacities. As alleged in part in the AWC:
In addition to serving as an associated person of Crown Capital, Mangini also provided asset management services as an IAR. From January to July 2021, Mangini, in his capacity as an IAR, recommended and facilitated investments in two private securities
offerings of alternative investments through the RIA. Mangini participated in 11 securities transactions through the RIA that raised $644,000 from nine investors, all of whom were Crown Capital customers. Mangini participated in the transactions by reco=ending and facilitating the investments, including by meeting with the investors to solicit and discuss the investments, providing them with marketing materials, and assisting them with completing subscription agreements and other documentation. Mangini' s RIA clients paid advisory fees to the RIA on the assets held in their advisory accounts, including the alternative investments that Mangini recommended and facilitated.
Mangini did not provide Crown Capital with prior written notice of his participation in the sale of alternative investments through the RIA or obtain the firm's written approval to sell those investments. Moreover, Crown Capital's written supervisory procedures required the firm's advance written permission for proposed outside transactions, including advisory transactions, based upon written disclosure of the details of the proposed transaction, the individual's role therein, and an explanation concerning any selling compensation that may be received.
Therefore, Mangini violated FINRA Rules 3280 and 2010
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4/24/2023
JPMorgan Seeks TRO Against Advisor Who Fled to Morgan Stanley / In a complaint filed last week, JPMorgan accused the advisor of criticizing its investment offerings and the advisor who replaced him, to induce clients to make the jump to Morgan Stanley. (Financial Advisor IQ by Glenn Koch)
https://www.financialadvisoriq.com/c/4032594/517354
Industry reporter Glenn Koch catches our attention with his coverage of the developing story involving a 23-year industry veteran, who resigned from J.P. Morgan Securities and joined Morgan Stanley. Before the Court is the issue of whether the Defendant rep wrongfully solicited about 13 JPMorgan clients ($20 million in assets) to relocate their accounts to his new shop.
In re: Facebook, Inc. Consumer Privacy User Profile Litigation
Case No. 3:18-md-02843-VC
United States District Court for the Northern District of California
https://facebookuserprivacysettlement.com/
If you were a Facebook user in the United States between May 24, 2007, and December 22, 2022, inclusive, you may be eligible for a cash payment from a Class Action Settlement.
Online CLAIM FORM https://facebookuserprivacysettlement.com/#submit-claim
Five Individuals Charged in $2M Virtual Asset and Securities Manipulation Scheme (DOJ Release)
https://www.justice.gov/opa/pr/five-individuals-charged-2m-virtual-asset-and-securities-manipulation-scheme
In the United States District Court for the Southern District of Florida, an Indictment was filed against Michael Kane, Shane Hampton, and George Wolvaardt charging them one count of conspiracy to commit securities price manipulation, one count of conspiracy to commit wire fraud, and two counts of wire fraud. Tyler Ostern (former Chief Executive Officer of Moonwalkers Trading Limited) and Andrew Chorlian (blockchain engineer at Hydrogen Technology) were each charged with one count of conspiracy to commit securities price manipulation and wire fraud. As alleged in part in the DOJ Release:
[F]rom around June 2018 through April 2019, Michael Kane, 38, of Miami; Shane Hampton, 31, of Philadelphia; and George Wolvaardt, 38, of Johannesburg, South Africa, allegedly conspired to manipulate the market for HYDRO, a token on the Ethereum blockchain platform, and defraud market participants by creating the false appearance of supply and demand for HYDRO to induce other market participants to trade at prices, quantities, and times that they otherwise would not have traded. The defendants allegedly used a trading bot to place thousands of orders that they did not intend to execute, or “spoof orders,” and thousands of orders where the bot bought and sold tokens to itself through the same account, or “wash trades.” The co-conspirators allegedly reaped $2 million in profit through their sales of HYDRO at artificially inflated prices.
As alleged in the indictment, Kane was the co-founder and CEO of Hydrogen Technology and Hampton was the Chief of Financial Engineering for the company. Wolvaardt was the Chief Technology Officer for Moonwalkers Trading Limited, a self-described “market-making” firm that purportedly designed the trading bot and was hired by Kane and Hampton to manipulate the market for HYDRO.
Relatedly, Tyler Ostern, 29, of Coos Bay, Oregon, the former CEO of Moonwalkers, and Andrew Chorlian, 29, of New York, New York, a blockchain engineer at Hydrogen Technology, were also charged for their participation in the scheme.
IRB Brasil Agrees to Pay Shareholders $5M in Connection with Securities Fraud Scheme (DOJ Release)
https://www.justice.gov/opa/pr/irb-brasil-agrees-pay-shareholders-5m-connection-securities-fraud-scheme
IRB Brasil Resseguros SA, aka IRB Brasil RE (IRB) entered into a Non-Prosecution Agreement ("NPA") with DOJ, and agreed to pay $5 million in victim compensation. As alleged in part in the DOJ Release:
[IRB], through its former CFO, Fernando Passos, executed the fraud scheme beginning in February 2020 after an investment company published a report questioning the accuracy of IRB’s financial statements and announcing that the investment company had taken a short position against IRB’s stock. IRB’s stock price dropped in the wake of the report. In response, Passos developed and executed a scheme to mislead shareholders and the investing public by disseminating and causing to be disseminated materially false information that Berkshire Hathaway had invested in IRB, despite knowing that Berkshire Hathaway had not made any such investment. Passos circulated, and caused subordinate IRB investor relations employees to circulate, false materials to members of the press, analysts, and members of IRB’s board of directors to spread the false information regarding Berkshire Hathaway’s purported investment.
News outlets in both Brazil and the United States began incorrectly reporting that Berkshire Hathaway had invested in IRB. Following the news coverage, on the evening of March 3, 2020, Berkshire Hathaway issued a press release stating that it was not currently, had never been, and had no intention of becoming a shareholder in IRB. On March 4, 2020, after Berkshire Hathaway’s press release, IRB’s stock price dropped precipitously, causing significant shareholder losses.
As part of the NPA, IRB admitted that the facts described in the NPA constitute securities fraud. Under the terms of the NPA, IRB has agreed to continue cooperating with the Justice Department in other related investigations, to continue to implement a compliance and ethics program as set forth in the NPA, and to report to the department regarding the company’s remediation and implementation of the compliance measures as described in the NPA. Further, IRB has agreed to pay victim compensation of $5 million to shareholders who sold IRB stock on March 4, 2020.
The department reached this resolution with IRB based on a number of factors, including, among others, the nature and seriousness of the offense conduct involving IRB’s former CFO, as well IRB’s cooperation and implementation of remedial measures. In addition, IRB and the department agreed that the total amount of losses to all shareholders who sold IRB stock on March 4, 2020, was significantly more than $5 million. However, despite agreeing that a larger amount otherwise would be appropriate based on the law and the facts, IRB made representations to the department that the company had an inability to pay a criminal monetary penalty and to cover the full loss to shareholders. Based on those representations, the department, with the assistance of a forensic accounting expert, conducted an independent inability-to-pay analysis, which determined that the payment of more than $5 million was reasonably likely to threaten the continued viability of IRB, which in turn may expose the company’s shareholders to a further risk of loss.
Passos has been indicted and is presumed innocent until proven guilty beyond a reasonable doubt in a court of law.