by T. GormanPosted on Posted in SECActions

A current staple of the Main Street investor focused Enforcement Division is the offering fraud. There the promoters typically offer the unsuspecting public deals that are too good to be true with guaranteed returns or other similar features that attract largely unsophisticated investors. A variation of these offerings is the multi-level pyramid scheme in which investors are recruited to market interests in the organization for “can’t miss” profits. Unfortunately, in each type of scheme the only person who “can’t miss” is the promoter who ends up with all the money. The Commission’s latest version of these schemes is SEC v. Millan, Civil Action No. 1:20-cv-06575 (S.D. Fla. Filed August 18,, 2020).

The action centers on a nationwide offering of investments in AirBit Club that rewarded those who recruited others with profits supposedly paid from high returns tied to an algorithmic digital asset day-trading program. Promoters targeted LatinX and Spanish-speaking communities. Named as defendants are Cicilia Millan and Margritra Cabrea. Each Defendant is an AirBit promoter and a member of its Master Council.

AirBit is an investment club controlled by Pablo Rodrigues and Gutemberg Santos. It has no formal legal existence. The firm operates as an international multi-level marketing operation and a cryptocurrency trading platform. Messrs. Rodrigues and Santos settled Commission charges of fraud and selling unregistered securities in connection with a pyramid scheme approximately 3 years ago. SEC v. Rodriguez, Civil Action No. 8:17-cv-00375 (C.D. Cal.). AirBit was then created.

AirBit offered seven investment options to investors based on the amount invested. The minimum was a $1,000 investment and the top was set at $126,000. Investors were promised daily returns of $7 to $13 for every $1,000 invested. Those returns could be paid in crypto currency or U.S. dollars. The returns supposedly came in part from investing 52% of investor funds in a digital asset trading program. Returns were also supposedly generated from the multi-level marketing compensation program funded by the remaining 48% of the investor funds.

The AirBit compensation plan actually paid investors bonuses for recruiting others, according to the complaint. The payments came from a variety of bonuses tied to the cost of the package sold.

Defendants Millan and Cabrea were each members of the AirBit Master Counsel, essentially a group of the top promoters. Defendants regularly promoted AirBit, took investment orders and were paid with investor cash. Since the interests sold were securities and neither Defendant is registered with the Commission, each was acting as an unregistered broker. The complaint alleges violations of Exchange Act Section 15(a). The case is pending. See Lit. Rel. No. 24870 (August 18, 2020).

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by T. GormanPosted on Posted in SECActions

The Department of Justice issued its first FCPA opinion in six year. Foreign Corrupt Practices Act Review, Opinion Procedure Release, No.: 20-01 (Aug. 14, 2020). The opinion process provides a mechanism by which a question regarding FCPA enforcement can be submitted to the Department requesting a no-action letter. While the mechanism has long been available and is mentioned in the Guide that was recently updated, the process has seldom been used. One reason is the time. The recently issued response took nine months, a point cited by FCPA Professor Mike Koehler in his FCPA Professor Blog (here) and on the FCPA Blog (here). Another is the lack of confidentiality.

The request

The question presented centered on a transaction between a multinational U.S. based firm called Requestor and the foreign subsidiary (Country A Office) of an investment bank that is majority owned by a foreign government. The transaction involved the purchase of a portfolio of assets from Country Office A.

Requestor sought and secured the assistance of another subsidiary of the foreign investment bank called Country B Office. There was no agreement between Requestor and Country B Office. There was, however, an unexecuted agreement which provided in part that Country B Office would be paid 0.5% of the face value of the assets by Requestor.

The transaction began in 2017 but stalled. About one year after the transaction began Requestor sought assistance from a local finance company. In February 2019 a transaction was finally consummated. Country B Office then requested a fee in accord with the unexecuted agreement which is $237,500. The fee would be paid to the foreign subsidiary, Country B Office.

Determination

The Department concluded that it “does not presently intend to take any enforcement action in response to the fee Requestor intends to pay the Country B Office. This is because there is no information evincing a corrupt intent to offer, promise, or pay anything of value to a ‘foreign official’ in connection with the contemplated payment . . .”

In reaching its conclusion, the Department assumed that Country B Office is an instrumentality of a foreign government. It also assumed that the employees of that instrumentality are “foreign officials” within the meaning of the FCPA. Based on the facts detailed above, and the two assumptions stated, three points support the Department’s conclusion:

First, the payment will be made by the Requestor to Country B Office, not an individual, according to the representations. See, e.g., U.S. v. Esquenazi, 752 F. 3d 912, 925 (11th Cir. 2014)(discussing term instrumentality in FCPA).

Second, there is no evidence that the payment is intended to corruptly influence a foreign official. To the contrary, representations which are confirmed and certified by the Chief Compliance Officer of the Country B Office, establish that the money will be put in Country B Office’s corporate bank account and “will only be used for the benefit of Country B Office . . . and will not be forwarded to any other entity.” See, e.g., U.S. v. Kozeny, 667 F. 3d 122, 135-36 (2nd Cir. 2011)(jury instructions re acting corruptly and intentionally with improper motive in context of FCPA).

Finally, Requestor sought and received specific, legitimate services from the Country B Office. The payment is for services the Country B Office provided during the two-year period in which the deal was pursued. This fact is certified by the Chief Compliance Officer of the Country B Office. See, e.g., U.S. Dept. of Justice, FCPA Op. Release 09-01 (Aug. 3, 2009)(declining enforcement action in part since value provided to foreign government and not government officials).

In view of these factors, the Department will not at this time recommend an enforcement action.

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