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Departments of Justice, Commerce and Treasury Issue Joint Compliance Note on Voluntary Self-Disclosure of Potential Violations
https://www.justice.gov/opa/pr/departments-justice-commerce-and-treasury-issue-joint-compliance-note-voluntary-self
READ the NOTE: https://www.justice.gov/media/1307601/dl?inline

Following Hearing, Senators Warren, Scott Call Out Conflicts of Interest at Federal Reserve, Reiterate Need For an Independent Inspector General / “We learned in that hearing about a troubling matter involving a clear conflict of interest related to your salary.” https://www.warren.senate.gov/oversight/letters/following-hearing-senators-warren-scott-call-out-conflicts-of-interest-at-federal-reserve-reiterate-need-for-an-independent-inspector-general
READ FULL-TEXT Letter from Senators to Mr. Mark Bialek, Inspector General, Board of Governors of the Federal Reserve System https://www.warren.senate.gov/imo/media/doc/2023.07.24%20Letter
%20to%20IG%20of%20the%20Fed%20Reserve%20re%20Conflicts
%20of%20Interest.pdf
Consider this extract from the Letter:

Sen. Warren: Your compensation is the average of the other people who you investigate. . . it’s their salaries plus their bonuses. So if your investigation finds they did really bad and stupid things that causes them not to get bonuses, what happens to your
compensation?

Mr. Bialek: If there is a reduction in one of those individual's bonuses -- 

Sen. Warren: So you make less money -- 

Mr. Bialek: That is correct.

Sen. Warren:  -- if you find wrongdoing in the people you oversee. Do you think that creates a conflict of interest?

Mr. Bialek: I do not, honestly. . . .

Bill Singer's Comment: BRAVO for this bipartisan effort! Also see: "SEC Buries The Lede About Stunning Misconduct In Its Office Of The Ombudsman" (BrokeAndBroker.com Blog / September 19, 2022)
https://www.brokeandbroker.com/6673/sec-owb-oig/

U.S. Justice Dept corporate crime policies survive challenge in Cognizant case (Bloomberg by Alison Frankel)
https://www.reuters.com/legal/transactional/column-us-justice-dept-corporate-crime-policies-survive-challenge-cognizant-case-2023-07-24/
A spot-on perfect bit of reporting by Bloomberg's Alison Frankel about a recent federal court decision considering whether DOJ policies that reward corporations for cooperating with the government incentivize companies to scapegoat individual executives. 

California Man Pleads Guilty To Securities Fraud For Orchestrating An Investment Scheme (DOJ Release)
https://www.justice.gov/usao-wdnc/pr/california-man-pleads-guilty-securities-fraud-orchestrating-investment-scheme
In the United States District Court for the Western District of North Carolina, Gustavo Guzman pled guilty to securities fraud. As alleged in part in the DOJ Release:

[F]rom April 2010 to August 2015, Guzman, through various entities he controlled, including G2 Asset Management and East Egg Private Equity, defrauded approximately 10 investors of at least $2 million, by falsely representing that he would use the investors’ money to trade in options and other similar investments. Instead of investing the funds as promised, Guzman stole a substantial portion of the investors’ money and used it to fund his personal lifestyle, including to make large credit card payments and cash withdrawals, and to pay for personal expenditures. Guzman suffered massive trading losses with the money that he did invest and used some of the victim’s money to make Ponzi-style payments to other investors. Guzman admitted that in order to conceal the trading losses and the fraudulent scheme, and to prevent his victims from redeeming their investments and complaining to authorities, he lied to his victims about the status of their investments, and provided them with fake documents, including sham IRS forms and fraudulent account statements.

• Joseph Lewis with 13 counts of securities fraud; three counts of securities fraud, and three counts of conspiracy,;
• Patrick O’Connor with four counts of securities fraud,  three counts of securities fraud, and one count of conspiracy; and
• Bryan "Marty" Waugh with four counts of securities fraud, three counts of securities fraud; and one count of conspiracy. 

As alleged in part in the DOJ Release:

JOSEPH LEWIS is a billionaire businessman and investor who is the principal owner of the Tavistock Group, an international private investment organization.  By virtue of LEWIS’s investments in certain companies, he has controlled one or more board of director seats at those companies and has deputized employees to serve on various company boards.  In turn, through these employees, LEWIS received material, non-public information about these companies, including, for example, information about upcoming favorable test results for biochemical companies.  LEWIS, on multiple occasions over the course of several years, then misused and misappropriated this confidential information to provide stock tips to various individuals in his life, including his employees, romantic partners, and friends, as a way to provide them with compensation and gifts.  These individuals, in turn, traded on the tips provided by LEWIS for vast personal gain.

In addition, LEWIS conspired with others to hide his ownership shares of a pharmaceutical company through a pattern of false filings and misleading statements.  More specifically, LEWIS was required to file schedules of share ownership with the Securities and Exchange Commission (“SEC”) because he was an owner of more than 10% of the stock of Mirati Therapeutics (“Mirati”).  LEWIS reported to the SEC that he owned between 16 and 19.99% of the stock, when, in reality, he beneficially owned more than 19.99% of Mirati stock through an elaborate array of shell companies and other entities, including an offshore trust purportedly for the benefit of his granddaughter.  As a result of the false disclosure of his ownership, LEWIS was able to exercise warrants in Mirati that he would otherwise not have been able to exercise, at vast financial gain.  At one point, when HSBC bank inquired about a transaction related to Mirati, LEWIS’s employee falsely told HSBC that the transaction was the repayment of a loan from LEWIS, a false explanation that LEWIS had told him he was “happy with,” despite knowing it was false. 

PATRICK O’CONNOR and BRYAN WAUGH are two pilots employed by LEWIS to fly his private aircraft.  LEWIS tipped both O’CONNOR and WAUGH and encouraged them to trade based on material, non-public information.  In one instance, LEWIS gave O’CONNOR and WAUGH loans, each worth $500,000, so they could buy a company’s stock before the public release of favorable clinical results.  In connection with that loan, O’CONNOR texted a friend to buy the stock, told the friend the “Boss is helping us out and told us to get ASAP,” and assured the friend that “All conversations on app is encrypted so all good.  No one can ever see.”  O’CONNOR also texted the friend that “Boss mentioned around 6 to 8 weeks for [Mirati] to take profit” and that he thought “the Boss has inside info” and “knows the outcome” of not-yet-public clinical testing.  O’CONNOR and WAUGH later sold the stock they had purchased on the basis of these tips for a profit, as did LEWIS’s assistant and friends. 

Also see: SEC Charges Investor Joseph C. Lewis and Associates with Insider Trading / Lewis tipped his then-girlfriend and private jet pilots with material nonpublic information (SEC Release)

Orange County Businessman Pleads Guilty to Fraudulently Obtaining Over $5.2 Million by Bogus Promises of His Company’s Purported IPO (DOJ Release)
https://www.justice.gov/usao-cdca/pr/orange-county-businessman-pleads-guilty-fraudulently-obtaining-over-52-million-bogus
In the United States District Court for the Central District of California, Jacques Poujade pled guilty one count of securities fraud. As alleged in part in the DOJ Release:

[P]oujade is the owner and chief financial officer of Tri-Emerald Financial Group, a Lake Forest-based realty services company that operated as a residential mortgage lender. Tri-Emerald funded loans as a mortgage banker, with the intent to hold the funded loans for immediate resale to financial institutions that purchased the loans for investments. Neither Tri-Emerald nor its securities were ever registered with the United States Securities and Exchange Commission.

From February 2015 to May 2020, Poujade sold unregistered securities to a victim investor by telling the victim a series of lies, including about the timing and likelihood of Tri-Emerald’s initial public offering (IPO) and the resulting share price. The victim purchased shares in Tri-Emerald at $10 per share, after Poujade represented they were “securities” under federal law and would exceed the price of $100 per share once the company went public.

Poujade falsely promised the victim that Tri-Emerald was a pre-IPO opportunity that would provide high returns when the company soon went public on Nasdaq. In fact, Tri-Emerald had not completed the necessary steps to undertake an IPO, including filling out the required SEC paperwork or formally engaging the investment banks Poujade falsely told the victim he had engaged as underwriters.

Poujade admitted that he further lied to the victim by saying one investment bank “was super excited about moving forward” and estimated that Tri-Emerald would “be a billion dollar company in under 16 months,” according to the plea agreement.

He also said Tri-Emerald was using the victim’s investment to cover IPO costs when, in fact, Poujade used a substantial portion of the funds for general Tri-Emerald operating expenses and to make lulling payments and litigation settlement payments to previous Tri-Emerald investors. Poujade also used a portion of the funds for personal expenditures in lieu of taking a salary.

In total, Poujade fraudulently obtained approximately $5,255,600 from the victim.

In his plea agreement, Poujade further admitted to defrauding another victim and that victim’s investment group in July 2016 by convincing them to purchase 30-day promissory notes issued by LendPlus Holdings, another one of Poujade’s companies. These notes purportedly were to be used to increase Tri-Emerald’s warehouse line of credit, which would allow Tri-Emerald to fund a larger volume of mortgages.

At the end of the term of the 30-day promissory notes, instead of repaying victim investors, Poujade continuously rolled victim investors’ funds over into the next month. On numerous occasions, Poujade lulled the victims by falsely claiming their money was safe in a reserve account and LendPlus was using their funds to improve Tri-Emerald’s loan production and line of credit.

In reality, Poujade used a substantial portion of these funds to make lulling payments to previous Tri-Emerald investors, to pay Tri-Emerald’s operating expenses, and for his own personal use, including paying rent on his residence.

Poujade admitted to defrauding these investors out of approximately $915,000.

Long Island Investment Advisers Indicted for Defrauding Clients of Millions of Dollars / Defendants Misappropriated Funds of Dozens of Clients, Some of Whom Are Elderly and Disabled (DOJ Release)
https://www.justice.gov/usao-edny/pr/long-island-investment-advisers-indicted-defrauding-clients-millions-dollars
In the United States District Court for the Eastern District of New York, an Indictment was filed charing Adam Kaplan and his brother, Daniel Kaplan, with conspiracy to commit wire fraud, wire fraud, investment advisor fraud, and money laundering. As alleged in part in the DOJ Release:

[B]etween May 2018 and November 2022, Adam and Daniel Kaplan acted as investment advisors for hundreds of clients.  The defendants used their positions of trust to misappropriate millions of dollars from their clients, some of whom were elderly and disabled.  The defendants used various schemes to misappropriate the victims’ funds, including overbilling for advisory fees, siphoning money from bank accounts through fraudulent advisory fee charges and through purported “investments” defendants never intended to make.  The defendants lied to their clients about the fraudulent charges, forged their clients’ signatures on documents, and made misrepresentations to financial institutions.   In total, the defendants misappropriated at least $5 million, using the funds for personal expenses and to purchase luxury goods.

Woman Facing Federal Charges for Swindling More Than $300,000 From Her Grandmother (DOJ Release)
https://www.justice.gov/usao-sdil/pr/woman-facing-federal-charges-swindling-more-300000-her-grandmother
In the United States District Court for the Southern District of Illinois, an Indictment was filed charging Tanya M. Aboseada with 12 counts of wire fraud. As alleged in part in the DOJ Release:

[A]boseada convinced her grandmother to wire money into her bank account under false pretenses on at least 12 occasions between November 2021 and August 2022. Aboseada lied about needing money in order to transfer a truck title into her name, pay money she owed to the IRS, pay attorney fees and fines for a vehicular accident she was in, and to pay the family of a child she killed in a vehicular accident to avoid going to jail.

In total, the fraudulent transactions exceeded $300,000.  

California Man Sentenced To More Than Four And A Half Years In Prison For Directing $2.6 Million Fraud Scheme From Prison / Defendant admitted using personal information of at least 136 people to submit fraudulent unemployment insurance claims on behalf of others (DOJ Release)
https://www.justice.gov/usao-ndca/pr/california-man-sentenced-more-four-and-half-years-prison-directing-26-million-fraud
In the United States District Court for the Northern District of California, Ratha Yin, 36, pled guilty to conspiracy to commit mail and wire fraud; and he was sentenced to 55 months in prison plus  five years of supervised release. Previously, co-conspirator Amanda Yin was sentenced to five years’ probation, including eight months of home detention; and co-conspirator Steven Mavromatis was sentenced to time served (6 days) plus five years of supervised release. As alleged in part in the DOJ Release:

[F]rom June of 2020 to at least September of 2021, Yin conspired with Steven Mavromatis, 28, of San Leandro, Calif., and others, including his wife, Amanda Yin, 33, of Indio, Calif., to submit fraudulent claims to the California Employment Development Department (EDD) for unemployment insurance. Ratha Yin admitted that he was an inmate housed in the California State Prison at Centinela in Imperial, Calif., when he devised the scheme. He used the identities of people from whom he did not obtain permission to fraudulently obtain funds being administered as part of the federal Coronavirus Aid, Relief, and Economic Security Act of 2020 (the CARES Act) -- a program he has acknowledged was meant to provide unemployment insurance to people who had lost their jobs due to the economic slow-down resulting from the coronavirus pandemic.

CARES Act funds were administered in relation to the presidentially declared national emergency related to the COVID-19 pandemic. Under the program, people were permitted to submit claims for unemployment to EDD online and qualified applicants were able to receive benefits by mail on pre-loaded debit cards. Ratha Yin admitted in his plea agreement that he used at least 136 different individuals’ personally identifiable information to claim EDD funds in their names.

Yin described the scheme in his plea agreement. For example, Yin admitted most of the people whose identities he used were incarcerated at prisons and other facilities throughout the country. Yin admitted he directed Mavromatis to create email addresses for people whose identities he had obtained and then used the email addresses to submit claims to the EDD online system. After receiving acknowledgements from EDD, Yin certified many of the fraudulent unemployment insurance claims and directed Mavromatis to certify other claims, as well. In addition, Yin further directed Marvomatis to rent mailboxes at, among other places, a UPS Store in San Leandro, Calif., to receive the debit cards on which the unemployment benefits were pre-loaded. Mavromatis and at least four other individuals then used the debit cards to withdraw the fraudulently obtained unemployment insurance funds in cash from ATMs. A portion of the fraudulently obtained funds were provided to Yin’ wife who, at Yin’s direction, deposited the cash into various financial accounts, including cryptocurrency wallets, controlled by her or others.

Ratha Yin admitted that he and the others involved in the scheme obtained at least $2,646,221 through the fraud.

On November 2, 2022, a federal grand jury indicted Ratha Yin, Amanda Yin, and Mavromatis, charging each with conspiracy to commit mail and wire fraud, in violation of 18 U.S.C. § 1349 and conspiracy to launder proceeds of fraud, in violation of 18 U.S.C. § 1956(h). In addition, Ratha Yin and Mavromatis were charged with an additional three counts of aggravated identity theft, in violation of 18 U.S.C. § 1028(A)(a)(1). On November 10, 2022, Amanda Yin pled guilty to conspiracy to launder proceeds of fraud and Steven Mavromatis pled guilty to conspiracy to commit mail and wire fraud.

Bill Singer's Comment: Don't you just love this part: "Yin admitted most of the people whose identities he used were incarcerated at prisons and other facilities throughout the country." Could it really be that easy, you wonder. Apparently, yes, it's that easy to defraud a government agency.

Real Estate Investor Sentenced in $3 million Wire and Bankruptcy Fraud Scheme (DOJ Release)
https://www.justice.gov/usao-edmi/pr/real-estate-investor-sentenced-3-million-wire-and-bankruptcy-fraud-scheme
In the United States District Court for the Eastern District of Michigan, Sean Tissue a/k/a "Sean Ryan" pled guilty to one count of Wire Fraud and one count of Withholding Information in a Bankruptcy Proceeding; and hew was sentenced to 78 months in prison plus three years of supervised release. As alleged in part in the DOJ Release:

[T]issue orchestrated a substantial real estate investment fraud scheme from approximately 2015 through 2021. Tissue and those working with him made numerous fraudulent representations to potential investors from Israel, India, South Africa, and other countries, trying to convince them to invest in supposed real estate in Michigan, Texas, and other locations. Many victims did invest funds with Tissue and lost those funds in the process.  To further the scheme and keep investor money flowing into it, Tissue caused false documents to be provided to investors, including fake deeds, fake wiring instructions, fake bank statements, fake leases, and fake inspection reports. Tissue even provided a fake name to investors (“Sean Ryan”). Tissue converted the $3 million in fraudulently obtained funds to his own personal use.

Tissue also engaged in bankruptcy fraud by knowingly and fraudulently withholding recorded information pertaining to his assets and financial affairs from the Bankruptcy Trustee after filing for Chapter 7 bankruptcy in 2017.

[SC Development Fund] - formerly known as SC Development Fund V, LLC - was a real estate investment fund managed by Tseng and Zhang through Summitcrest, which they co-owned. As alleged, SC Development Fund sought investors for its unregistered offering from Chinese-speaking communities in the United States and China. According to the SEC's complaint, SC Development Fund represented that it would use investor funds to make real-estate related loans "to the general public" and utilize income from these loans to make promised interest payments and return of capital to investors. The SEC alleges that contrary to these representations, SC Development Fund used investor funds exclusively for loans to Zhang's real estate development and contracting business, and at least twelve other real estate development entities under Zhang's control. In addition, the complaint alleges that Tseng and Zhang misled investors by using investor funds to pay purported finder's fees to two entities that were supposed to be independent third parties, but were in fact controlled by Tseng or Zhang.

The SEC's complaint, which was filed in the Central District of California, charges Summitcrest, Tseng, and Zhang with violating the antifraud provisions of Section 17(a) of the Securities Act of 1933 ("Securities Act") and Section 10(b) of the Securities Exchange Act of 1934 ("Exchange Act") and Rule 10b-5 thereunder, and the registration provisions of Sections 5(a) and 5(c) of the Securities Act. The complaint seeks permanent injunctions, conduct-based injunctions, disgorgement with prejudgment interest, and civil penalties against Summitcrest, Tseng, and Zhang, and officer and director bars against Tseng and Zhang.

Summitcrest and Tseng, without admitting or denying the allegations in the SEC's complaint, consented, pre-filing, to the entry of final judgments permanently enjoining each of them from violating the antifraud provisions of Section 17(a) of the Securities Act and Section 10(b) of the Exchange Act and Rule 10b-5 thereunder, and the registration provisions of Section 5 of the Securities Act; prohibiting each of them from participating in the issuance, purchase, offer, or sale of any security (provided, however, that such injunction would not prevent Tseng from purchasing or selling securities for his own personal account); ordering Summitcrest to pay disgorgement of $16,600,000.00, plus prejudgment interest of $4,349,481.52, on a joint and several basis with Tseng and Zhang, and to pay a $2,232,280.00 civil penalty; ordering Tseng to pay disgorgement of $16,600,000.00, plus prejudgment interest of $4,349,481.52, on a joint and several basis with Summitcrest and Zhang, as well as disgorgement of $60,000.00, plus prejudgment interest of $15,721.03, on an individual basis, and to pay a $414,366.00 civil penalty; and imposing an officer and director bar against Tseng.

SEC Obtains Judgments Against Principals of Investment Firm Charged with Fraudulently Misleading Investors (SEC Release)
https://www.sec.gov/litigation/litreleases/lr-25790
In the United States District Court for the District of Massachusetts Thomas D. Renison and Timothy J. Allcott consented to final judgments. As alleged in part in the SEC Release:

[I]n July 2014, Renison, a Connecticut resident, was barred by the SEC from, among other things, associating with any investment adviser or broker-dealer. Nevertheless, the complaint alleges that, from at least July 2015 through June 2018, Renison violated this bar when he, along with Allcott, a Massachusetts resident, formed ARO Equity as an investment adviser firm and raised approximately $6 million from at least 15 investors. The SEC's complaint alleges that Renison and Allcott falsely touted ARO Equity's success to encourage potential investors to cash out of their retirement products and invest with them in ARO Equity. The complaint alleges that soon after the defendants launched the firm, ARO Equity's investments began to fail. Rather than inform their clients of the losses, Renison and Allcott continued to falsely promote ARO Equity's success and the security of investing with them. Among other false statements, Renison and Allcott allegedly told investors that ARO Equity had double-digit returns, that there was no downside to investing with the firm, and that the investors' money was as safe as being in a bank. In reality, ARO Equity had experienced significant losses and had to use new investor funds to pay interest to older investors.

Allcott and Renison were also charged criminally for their alleged conduct in parallel criminal proceedings on June 8, 2020. Allcott entered a guilty plea in his criminal case on July 27, 2020, and was sentenced on May 8, 2023. Renison entered a guilty plea in his criminal case on October 6, 2020, and was sentenced on May 8, 2023. Allcott received a sentence of 30 months incarceration and was ordered to pay restitution of $6,098,198.30. Renison received a sentence of 48 months incarceration and was ordered to pay restitution of 6,249,983.30.

Allcott and Renison consented to final judgments, which was entered on July 27, 2023 by the U.S. District Court for the District of Massachusetts. The judgment permanently enjoins Allcott and Renison from violating Sections 206(1) and 206(2) of the Investment Advisers Act of 1940 ("Advisers Act"), Sections 5(a), 5(c), and 17(a) of the Securities Act of 1933; and Section 10(b) of the Securities Exchange Act of 1934 ("Exchange Act") and Rule 10b-5 thereunder. The judgment also permanently enjoins them from, directly or indirectly, including but not limited to, through an entity owned or controlled by them, participating in the issuance, purchase, offer, or sale of any security, provided, however, that such injunction shall not prevent them from purchasing or selling securities for their own personal accounts. Renison was separately enjoined from violating Section 15(a) of the Exchange Act and Ordered pursuant to Section 209(d) of the Advisers Act to comply with the investment adviser and broker dealer bars reflected in the final administrative order that the Commission entered against him on July 3, 2014. The final judgments also order Allcott and Renison to pay disgorgement plus prejudgment interest of $6,098,198.30 and $6,249,983.30, respectively, with those amounts deemed satisfied by the forfeiture and restitution ordered in the parallel criminal cases. Because the defendants were sentenced to prison sentences, the Commission did not ask the court to impose civil monetary penalties against them.

The action against defendant ARO Equity remains pending.

SEC Charges Florida Resident with Operating $35 Million Ponzi Scheme that Targeted Church Members (SEC Release)
https://www.sec.gov/news/press-release/2023-142
In the United States District Court for the Southern District of Florida, the SEC file a Complaint
https://www.sec.gov/files/litigation/complaints/2023/comp-pr2023-142.pdf charging Brent Seaman, Accanito Holdings, LLC, Accanito Equity, LLC, Accanito Equity II, LLC, Accanito Equity III, LLC, and Accanito Equity IV, LLC with violating the registration provisions of Section 5 of the Securities Act; and further charging Seaman, the Accanito LLCs, and two related entities, Accanito Capital Group and Surge LLC, with violating the antifraud provisions of the Securities Exchange Act. Finally, the Complaint charges Seaman with violating the broker-dealer registration provisions of Section 15(a) of the Exchange Act. Named as Relief Defendants are Seaman’s wife, Jana Seaman, and two affiliated entities, Valo Holdings Group, LLC and Surge Capital Ventures, LLC. As alleged in part in the SEC Release:

[F]rom approximately June 2019 until September 2022, Seaman told investors he would use their money to invest in technology companies and to trade currencies and commodities. Seaman falsely promised annual returns ranging between 18 and 48 percent and described the investments as “safe” and the returns as “guaranteed.” The complaint further alleges that Seaman solicited investors by touting his proven success investing in currencies when, in reality, he was losing millions of dollars of investors’ money and his currency trading was always unprofitable. Seaman also allegedly misappropriated millions of dollars for himself, in part to purchase luxury automobiles and to pay for trips on private planes. Finally, Seaman allegedly made Ponzi-like payments to investors because he did not generate profits in connection with his trading sufficient to pay investors their required monthly distributions.

. . .

All fraud defendants have consented to a bifurcated settlement, without admitting or denying the Commission’s allegations and subject to court approval, under which they will be enjoined from violating the charged provisions of the federal securities laws and Seaman will be barred from serving as an officer or director of any SEC-reporting company. Seaman also agreed to settle follow-on administrative proceedings pursuant to Section 15(b) of the Exchange Act based on the anticipated entry of a permanent injunction against him. Additionally, the defendants agree that the court will determine whether it is appropriate to order them to pay disgorgement with prejudgment interest and a civil penalty. Relief defendant Jana Seaman has agreed to pay $757,154 in disgorgement and interest. Relief defendant Valo Holdings Group has agreed to pay $668,240 in disgorgement and interest.

SEC Charges Former Pfizer Statistician with Insider Trading Ahead of Covid-19 Announcement / Employee and Friend Traded Ahead of Pfizer's "Game-Changer" Announcement On the Success of Its Paxlovid Trial (SEC Release)
https://www.sec.gov/litigation/litreleases/2023/lr25787.htm
In the United States District Court for the Southern District of New York, the SEC filed a Complaint charging Amit Dagar and Atul Bhiwapurkar
http://www.sec.gov/litigation/complaints/2023/comp-pr2023-123.pdf with violating the antifraud provisions of Section 10(b) of the Securities Exchange Act and Exchange Act Rule 10b-5 thereunder. A parallel criminal action was filed against Dagar and Bhiwapurkar. AS alleged in part in the SEC Release:

On June 29, 2023, the Securities and Exchange Commission filed insider trading charges against Amit Dagar, a former Pfizer Inc. employee, and his close friend and business partner, Atul Bhiwapurkar, for trading in advance of the company's November 5, 2021, announcement that a randomized, double-blind study of its COVID-19 antiviral treatment, Paxlovid, was successful. Following that announcement in which Pfizer's CEO referred to the news as a "game-changer" in the global efforts to "halt the devastation" of the pandemic, the company's stock price increased by nearly 11 percent, the largest single-day price move in the stock since 2009.

According to the SEC's complaint, Dagar was a senior statistical program lead for the Paxlovid drug trial, which began in July 2021 as part of the company's efforts to address the global health pandemic. On the day before the Paxlovid announcement, the complaint alleges, Dagar learned material, nonpublic information about the success of the trial. Specifically, the SEC alleges that Dagar's supervisor informed him via chat that "we got the outcome," there was a "lot of work lined up," and that there would be a "press release tomorrow," to which Dagar responded with "oh really" and "kind of exciting." Several hours after that exchange, Dagar allegedly purchased short term, out-of-the-money Pfizer call options, including options that expired the very next day, and then tipped Bhiwapurkar, who also purchased similar call options in Pfizer stock. The complaint alleges that Dagar's and Bhiwapurkar's trading generated approximately $214,395 and $60,300 respectively in illicit profits, which amounted to one-day investment returns of 2,458 percent and 791 percent.

SEC Proposes Reforms Relating to Investment Advisers Operating Exclusively Through the Internet (SEC Release)
https://www.sec.gov/news/press-release/2023-141
The SEC proposed amendments to the rule
https://www.sec.gov/rules/proposed/2023/ia-6354.pdf permitting certain investment advisers that provide investment advisory services through the internet to register with the Commission. As set forth in part in the SEC Release:

[T]he proposed amendments generally would require an investment adviser relying on the internet adviser registration rule to have at all times an operational interactive website through which the adviser provides digital investment advisory services on an ongoing basis to more than one client. The proposed amendments would also eliminate the de minimis exception from the current rule by proposing to require that an internet investment adviser provide advice to all of its clients exclusively through an operational interactive website, and make certain corresponding changes to Form ADV.

SEC Proposes New Requirements to Address Risks to Investors From Conflicts of Interest Associated With the Use of Predictive Data Analytics by Broker-Dealers and Investment Advisers (SEC Release)
https://www.sec.gov/news/press-release/2023-140
The SEC proposed new rules requiring broker-dealers and investment advisers to address conflicts of interest
https://www.sec.gov/rules/proposed/2023/34-97990.pdf associated with their use of predictive data analytics and similar technologies. As asserted in part in the SEC Release:

The use by broker-dealers and investment advisers of technologies to optimize for, predict, guide, forecast, or direct investment-related behaviors or outcomes has accelerated. Use of such technologies can be beneficial to investors in providing greater market access, efficiency, and returns. To the extent that firms are using certain technologies in a manner that places their own interests ahead of investors’ interests, however, investors can suffer financial harm. Given the scalability of these technologies and the potential for firms to reach a broad audience at a rapid speed, any resulting conflicts of interest could cause harm to investors in a more pronounced fashion and on a broader scale than previously possible.

Building off existing legal standards, the proposed rules generally would require a firm to evaluate and determine whether its use of certain technologies in investor interactions involves a conflict of interest that results in the firm’s interests being placed ahead of investors’ interests. Firms would be required to eliminate, or neutralize the effect of, any such conflicts, but firms would be permitted to employ tools that they believe would address these risks and that are specific to the particular technology they use, consistent with the proposal. The proposed rules would also require a firm to have written policies and procedures reasonably designed to achieve compliance with the proposed rules and to make and keep books and records related to these requirements.

SEC Adopts Rules on Cybersecurity Risk Management, Strategy, Governance, and Incident Disclosure by Public Companies (SEC Release)
https://www.sec.gov/news/press-release/2023-139
As set forth in part in the SEC Release, the SEC adopted new rules https://www.sec.gov/rules/final/2023/33-11216.pdf that:

require registrants to disclose on the new Item 1.05 of Form 8-K any cybersecurity incident they determine to be material and to describe the material aspects of the incident's nature, scope, and timing, as well as its material impact or reasonably likely material impact on the registrant. An Item 1.05 Form 8-K will generally be due four business days after a registrant determines that a cybersecurity incident is material. The disclosure may be delayed if the United States Attorney General determines that immediate disclosure would pose a substantial risk to national security or public safety and notifies the Commission of such determination in writing.

The new rules also add Regulation S-K Item 106, which will require registrants to describe their processes, if any, for assessing, identifying, and managing material risks from cybersecurity threats, as well as the material effects or reasonably likely material effects of risks from cybersecurity threats and previous cybersecurity incidents. Item 106 will also require registrants to describe the board of directors’ oversight of risks from cybersecurity threats and management’s role and expertise in assessing and managing material risks from cybersecurity threats. These disclosures will be required in a registrant's annual report on Form 10-K.

The rules require comparable disclosures by foreign private issuers on Form 6-K for material cybersecurity incidents and on Form 20-F for cybersecurity risk management, strategy, and governance.

And now a word from the SEC Chair and Commissioners - - 

The Potential Pitfalls of Purported Crypto “Assurance” Work by SEC Chief Accountant Paul Munter
https://www.sec.gov/news/statement/munter-statement-crypto-072723

Introduction[1]

Following the recent waves of scandal and insolvency in the crypto industry, there has been a renewed focus on the firms, including accounting firms, that have been retained by companies in the crypto-asset space—in particular, crypto asset trading platforms. Certain crypto asset trading platforms, with others in the crypto industry, have marketed to investors their retention of third parties, sometimes accounting firms, to perform some sort of review of certain parts of their business, often presented as a purported “audit.” As accounting firms increasingly engage in this sort of non-audit work, their clients’ marketing and terminology risks misleadingly suggesting that these alternative, non-audit arrangements are at parity with, or even more “precise” than, a financial statement audit. Such suggestions are false. Non-audit arrangements are neither as rigorous nor as comprehensive as a financial statement audit, and may not provide any reasonable assurance to investors.

The hazards to investors associated with such characterizations have been publicized by the Commission staff,[2] PCAOB staff,[3] and others. This statement is directed primarily to the accounting profession, including new entrants into non-audit service work for crypto asset clients. Accounting firms that choose to perform work in this space must keep several obligations and hazards front of mind.
= = =

[1] This statement is provided by the staff of the Office of the Chief Accountant (OCA) in their official capacity and does not necessarily reflect the views of the Commission, the Commissioners, or other members of the staff. “Our” and “we” are used throughout this statement to refer to OCA staff.

Bill Singer's Comment: To be VERY clear, I have no issue with the concerns set out in whatever the hell this published bit of prose actually is. As the archive of my years of commentary will confirm, I am no fan of crypto and fear that there is far too much fraud in the area. No -- that doesn't mean that crypto in and of itself is a scam, nor does it mean that the digital concept is invalid. What it does mean is that too many folks who have no idea what crypto is and should not be investing in crypto are, in fact, putting their life savings into this product. It means that intelligent regulation of the sector is long overdue but, sadly, that effort is hobbled by turf wars between the CFTC and SEC, and further addled by too much posturing and musing. The time for action is long overdue.

As a libertarian, I don't welcome government intervention into the boardroom or the bedroom; and, keeping with that distrust, I believe that there is a social benefit when those who make foolish investments lose money. It's not the role of government to fix stupid, and it's not the role of government to inject it's concept of reasonable risk into our decisions.

SEC Chief Accountant Munter's published "statement" is more of a moral dilemma than a help because it sort of comes off as an unelected official threatening the investing public and the investment industry with "consequences" if some well-intentioned but likely unattainable aspirations fail to materialize. Note that Footnote 1 acknowledges that Chief Accountant Munter's statement "does not necessarily reflect the views of the Commission, the Commissioners, or other members of the staff." If that's the case (and it is) then why did the Commission permit the publication of such a dubious "statement" ? What the hell is the point of the statement other than for the Chief Accountant to express opinions that may be his, and his alone? Why should anyone care as to what a particular regulator thinks about anything if that regulator's agency doesn't concur? 

As I often note, there is a cost when the SEC issues endless numbers of concept releases, proposals, statements, and the like. Folks who work on Wall Street are required to read this stuff. That takes time. In some cases, that's time away from more important regulatory and compliance tasks. Finally, there's the more valid and pressing concern as to why SEC Staff has time and the authorization to publish these statements when investigative and enforcement staff should be making better use of their time going after some truly pernicious and predatory fraudsters. 

CFTC

CFTC Charges Tennessee Husband and Wife Realtors for Operating a $6 Million Digital Assets Commodity Pool Scheme (CFTC Release)
https://www.cftc.gov/PressRoom/PressReleases/8757-23
In the United States District Court for the Middle District of Tennessee, the CFTC filed a Complaint against Michael and Amanda Griffis
https://www.cftc.gov/media/8996/enfmichaelgriffiscomplaint072423/download . As alleged in part in the CFTC Release:

[D]efendants, owners of a Clarksville, Tennessee real estate company, contacted colleagues and customers of their real estate business and offered them the opportunity to pool funds with others to trade digital asset commodity futures contracts. Despite having no trading or other relevant experience, the defendants successfully convinced over 100 people to send them over $6 million to participate in a commodity pool called “Blessings of God Thru Crypto.” The defendants falsely represented that pool funds would be safe and under their control, that pool participants could expect high gains, and that the defendants would use pool funds to trade “crypto futures” on the “Apex Trading Platform” with the advice of a person identified only as “Coach Wendy.” As further alleged in the complaint, the defendants leveraged their personal and professional relationships, developed through their real estate business, to convince victims the pool scheme was legitimate.

Over $4 million in pool funds purportedly sent to the “Apex Trading Platform” were instead quickly transferred to a variety of digital wallets outside the control of the defendants and are now beyond recovery. Further, the defendants misappropriated approximately $1 million of pool funds to pay their debts and purchase various items including expensive jewelry and an all-terrain vehicle. In an effort to perpetuate the scheme as long as possible, the remainder of pool funds were misappropriated by the defendants to issue Ponzi-like payments.

FINRA

FINRA Correspondence With Next Bridge Hydrocarbons, April-June 2023
https://www.finra.org/media-center/newsreleases/2023/finra-correspondence-next-bridge-hydrocarbons-april-june-2023
FINRA posted the correspondence below with Next Bridge Hydrocarbons:

• April 18, 2023: Letter from Next Bridge Hydrocarbons, Inc. to FINRA
• May 19, 2023: Letter from FINRA to Next Bridge Hydrocarbons, Inc.
• June 7, 2023: Letter from FINRA to Next Bridge Hydrocarbons, Inc. 

FINRA Censures and Fines Concorde Investments Services for Private Placements
In the Matter of Concorde Investment Services, LLC, Respondent (FINRA AWC 2021070487501)
https://www.finra.org/sites/default/files/fda_documents/2021070487501
%20Concorde%20Investment%20Services%2C%20LLC%20CRD
%20151604%20AWC%20gg.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, Concorde Investment Services, LLC submitted a Letter of Acceptance, Waiver and Consent ("AWC"), which FINRA accepted. The AWC asserts that Concorde Investment Services, LLC has been a FINRA member firm since 2010 with about 150 registered representatives at about 60 branches. In accordance with the terms of the AWC, FINRA imposed upon Concorde Investment Services, LLC a Censure, $175,000 fine, $58,278 plus interest in restitution, and an undertakings to certify compliance with the cited issues. As alleged in part in the "Overview" portion of the AWC:

From December 2020 to December 2021, Concorde sold three private placement offerings claiming exemption from registration under Rule 506(b) of Regulation D, without having established substantive relationships with 45 of the prospective investors prior to the firm's participation in those offerings. As a result, each of those sales constituted an unregistered distribution of securities in contravention of Section 5 of the Securities Act of 1933, and thereby violated FINRA Rule 2010.

During the same period, Concorde's supervisory system, including its written supervisory procedures (WSPs ), was not reasonably designed to achieve compliance with the Securities Act and FINRA rules related to general solicitation of private placement offerings. Accordingly, the firm violated FINRA Rules 3110 and 2010.

FINRA Fines and Suspends Rep for Providing Misleading Arbitration Testimony
In the Matter of Howard Stuart Rothman, Respondent (FINRA AWC 2022075401701)
https://www.finra.org/sites/default/files/fda_documents/2022075401701
%20Howard%20Rothman%20CRD%205685224%20AWC%20gg.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, Howard Stuart Rothman submitted a Letter of Acceptance, Waiver and Consent ("AWC"), which FINRA accepted. The AWC asserts that Howard Stuart Rothman entered the industry in 2009 and was first registered in 2011 with UBS Financial Services Inc. In accordance with the terms of the AWC, FINRA imposed upon Howard Stuart Rothman a $5,000 fine and a six-month suspension from associating with any FINRA member in all capacities. As alleged in part in the the AWC:

In September 2019, Rothman left UBS along with five other members of his group to join J.P. Morgan. One member of Rothman’s team at UBS, who did not move to J.P. Morgan, filed an employment-related arbitration claim with FINRA against Rothman and the others stemming from their departure from UBS. During the FINRA arbitration hearing,in May 2022, Rothman testified misleadingly about the creation of certain exhibits at the hearing.

Therefore, Rothman violated FINRA Rule 2010. 

Bill Singer's Comment: Okay, fine, whatever the hell Rothman testified misleadingly about (never quite stated in the AWC), if that allegation is true, then the conduct was wrong. On the other hand, let's talk about FINRA's inconsistent regulatory approach when addressing allegations of misleading arbitration testimony: 

"JPMorgan's Chase Private Client group used false evidence to get rid of an advisor. This is how the firm tried to make sure no one knew. (Financial Planning by Ann Marsh)
https://www.financial-planning.com/news/jpmorgan-let-false-evidence-stand-in-finra-whistleblower-arbitration

The arbitrators agreed. They dismissed Burris’ case, denying his claim for $7 million in damages, among details that have been reported previously. But Financial Planning has obtained additional documents not disclosed previously that demonstrate JPMorgan was aware Kazmi provided arbitrators with false evidence. Moreover, they show the bank knew this before the arbitrators returned their decision.

These documents show that, days after the arbitration wrapped up but a week before the panel released its decision, the certainty Kazmi displayed about the authenticity of the letters from clients had evaporated.

“Maybe there was some assistance" from the bank in writing the complaints, Kazmi conceded, without explaining what had led her to doubt the account she gave to arbitrators days before, according to a transcript of a deposition she later gave to a FINRA enforcement officer.

From her office in the Chase Tower in downtown Phoenix, a short walk from Chase Field, home of the Arizona Diamondbacks, Kazmi decided to reach out to another of Burris' former managers, Laya Gavin.

"I called Laya and I asked her because the framework … ," Kazmi told FINRA attorney Margery Shanoff, repeating herself, "the framework seemed to be that this was not created or generated or originated by somebody." Kazmi didn't explain what she meant by "framework," so Shanoff got to the point: "She told you that she did, in fact, type it up?"

"Laya said she typed it," Kazmi said.

"JPMorgan Wrote Complaints After Firing a Whistle-Blower" (DealBook, New York Times / December 3, 2015)
https://www.nytimes.com/2015/12/04/business/dealbook/bank-wrote-grievances-after-firing-a-broker.html?_r=0:

The more serious criticisms of Mr. Burris began to show up on his disciplinary record soon after he went public with his grievances against JPMorgan. In the course of two weeks, three client complaints showed up on his regulatory records.

During his arbitration case, Mr. Burris's lawyer asked a JPMorgan supervisor at his old branch in Arizona whether the client complaints were "written by someone at JPMorgan" or if any JPMorgan employee had "helped" draft them.

"Absolutely not," the JPMorgan employee, Umbreen Kazmi, responded to both questions.

It was only after the arbitration case was over that Mr. Burris tracked down the clients and learned that the letters had, in fact, been drafted by one of his old colleagues at JPMorgan, Ms. Gavin, a close associate of Ms. Kazmi.

FINRA Fines and Suspends Rep for Unauthorized Signatures
In the Matter of James Floyd Garraway, Respondent (FINRA AWC 2022073844901)
https://www.finra.org/sites/default/files/fda_documents/2022073783401
%20James%20Floyd%20Garraway%20CRD%207132872%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, James Floyd Garraway submitted a Letter of Acceptance, Waiver and Consent ("AWC"), which FINRA accepted. The AWC asserts that James Floyd Garraway was first registered in 2019 with Thrivent Investment Management Inc. In accordance with the terms of the AWC, FINRA imposed upon James Floyd Garraway a $5,000 deferred fine and a six-month suspension from associating with any FINRA member in all capacities. As alleged in part in the the AWC:

Between September 2020 and November 2021, Garraway electronically signed approximately 102 forms for approximately 57 customers. One customer gave Garraway permission to sign one of the forms. Garraway signed the remaining 101 forms without customer permission. Garraway knew that Thrivent's policies and procedures prohibited signing a customer's name regardless of the customer's knowledge or consent. Although the majority of the forms pertained to insurance products, some of the forms involved securities products, including mutual funds, variable annuities, and variable universal life policies and, accordingly, were required books and records of the firm. None of the customers complained.

By forging and/or falsifying customer signatures, Garraway violated FINRA Rule 2010.

In addition, by causing Thrivent to maintain inaccurate books and records, Garraway violated FINRA Rules 4511 and 2010. 

FINRA Censures and Fines LPL Financial for Supervision of Wires and Checks
In the Matter of LPL Financial LLC, Respondent (FINRA AWC 2020067897601)
https://www.finra.org/sites/default/files/fda_documents/2020067897601
%20LPL%20Financial%20LLC%20%20CRD%206413%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, LPL Financial LLC submitted a Letter of Acceptance, Waiver and Consent ("AWC"), which FINRA accepted. The AWC asserts that LPL Financial LLC has been a FINRA member firm since 1973 with over 26,000 registered representatives at over 17,000 branches. In accordance with the terms of the AWC, FINRA imposed upon LPL Financial LLC a Censure, $3,000,000 fine, $100,000 plus interest in restitution, and an undertakings to certify compliance with the cited issues. As alleged in part in the "Overview" portion of the AWC:

From May 2018 to August 2020, LPL failed to establish and maintain a system reasonably designed to supervise the transmittal of customer funds by wire or check to third parties and to respond reasonably to red flags of potential conversion. During this period, two LPL representatives, acting independently of each other, converted approximately $2.4 million from 13 LPL customers through third-party transfers. As a result, LPL violated FINRA Rules 3110(a) and 2010. 

In addition, from January 2018 through January 2022, LPL failed to have a supervisory system reasonably designed to detect possible instances of signature forgery or falsification. During this period, at least 50 LPL registered representatives electronically signed another person’s name on over 1,000 LPL documents, including on documents which were required books and records of the firm. One was an electronic forgery on a wire transfer request form in August 2020, which was part of the conversion described above. As a result, LPL violated FINRA Rules 3110(a) and 2010, as well as Section 17(a) of the Securities Exchange Act of 1934 (“Exchange Act”), Exchange Act Rule 17a-3, and FINRA Rules 4511 and 2010.

Bill Singer's Comment: I think it fair to say that I am often viewed as a "critic" of FINRA -- some may say a leading critic, others may say a pain-in-the-ass-gadfly. Be that as it may, I often note that I criticize FINRA not because of what it is but because of what I know it is capable of achieving and too often comes up short. Not with this AWC. As a 41 year industry veteran and former NASD attorney (now FINRA), I have a discerning eye when it comes to regulatory sleepwalking versus doing the job. This LPL AWC reflects well on FINRA Staff and redounds to the self-regulatory-organization's credit. I note that the AWC is signed by "Mark S. Geiger, Principal Counsel / Julie A. Lenaghan, Principal Counsel." My compliments to both of them and the full investigative team. What makes this AWC special and compelling is that it sets out in thoughtful detail exactly what went wrong and offers some observations that should prove helpful to the industry in terms of enhancing supervision.