by T. GormanPosted on Posted in SECActions

It appears that the Commission made a year-end effort to push the cases out the door. Last week the agency filed about 30 actions. On Friday and Monday the drive continued. Today’s post will revisit a portion of the cases filed over the last two days. The post tomorrow will review a number of other cases filed as the year end drive drew to a close.

Offering fraud: SEC v. Bluepoint Investment Counsel, LLC, Civil Action No. 19-cv-809 (W.D. Wis. Filed Sept. 30, 2019) is an action which names as defendants the fund, a registered investment adviser until earlier this year, Michael Hull, a principal and investment adviser to the firm, Christopher Nohl, the co-manager of a related fund, and two additional related entities. Over a five year period, beginning in April 2014, about $52.783 million was raised for the fund complex. Investors were told that they were investing in an “income” fund. In fact, most of the fund’s holdings were in hard assets. Investors were also told that the fund had increased in value by over $46 million as of December 31, 2015 which was incorrect. Investors were not told that Messrs. Hull , Nohl and their related entities were enriching themselves at the expense of the fund. The complaint alleges violations of Securities Act Section 17(a), Exchange Act Section 10(b) and Advisers Act Sections 206(1), 206(2) and 206(4)-8. The case is pending. See Lit. Rel. No. 24632 (Sept. 30, 2019).

Offering fraud: SEC v. Booth, Civil Action No. 3:19-cv-01535 (D. Conn. Filed Sept. 30, 2019) is an action which names James Booth as a defendant. Over a five year period Defendant defrauded about 40 investors out of almost $4 million. Investors were promised that their funds would be invested in securities. In fact, Mr. Booth simply stole the funds. To conceal the scheme he created elaborate account statements. The complaint alleges violations of Securities Act Section 17(a), Exchange Act Section 10(b) and Advisers Act Sections 206(1) and 206(2). The case is pending. See Lit. Rel. No. 24629 (Sept. 30, 2019).

Misappropriation: SEC v. Beam, Civil Action No. 1:19-cv-06458 (N.D. Ill. Filed Sept. 30, 2019) is an action against Marcus Beam. Over a two year period he solicited investors through his advisory. Mr. Beam promised potential clients that he would invest their funds and teach them how to trade. In fact he misappropriated about $207,000 from the clients. The complaint alleges violations of Securities Act Section 17(a), Exchange Act Section 10(b) and Advisers Act Section s 206(1), 206(2) and 206(4). The case is pending. See Lit. Rel. No. 24628 (Sept. 30, 2019).

Offering fraud: SEC v. Ray, Civil Action No. 1:19-cv-02789 (D. Colo. Filed Sept. 30, 2019) names as defendants Mark Ray, previously barred from the securities business by the State of Illinois, Ron Throgmartin, the CEO of a marijuana business, Reva Sachniw, a retired nurse, Custom Consulting and Product Services, a firm used to solicit investors, RM Farm and Livestoc, LLC, another firm used to solicit investors purportedly backed by cattle trading and the Marijuana operations, and other controlled entities. The case centers on a cattle Ponzi scheme. Since 2014 Defendants have raised millions of dollars trading inventories or cattle-trading opportunities that Mr. Ray had identified. In fact, the business did little cattle trading. To the contrary, it was a Ponzi scheme which offered unregistered securities sold largely by word of mouth. By mid-March 2019 Mr. Ray and his operations ran out of cash, and the scheme collapsed. The complaint alleges violations of Securities Act Sections 5(a), 5(c) and 17(a) and Exchange Act Section 10(b). While certain of the entity defendants consented to the entry of permanent injunctions, the defendants named above did not. The case is pending. See Lit. Rel. No. 24627 (Sept. 30, 2019).

Offering fraud: SEC v. Bradley, Civil Action No. 3:10-cv-00490 (W.D. N.C. Filed Sept. 30, 2019) is an action which names as defendants, Dana J. Bradley, Marlin S. Hershey, D. Bradley Inc., Bryant Boys, LLC, Distressed Lending Fund, LLC, Erndit LLC, Hershey Enterprises Inc., MW Enterprises, LLC, Performance Holdings, Inc. and Performance Retire on Rentals, LLC. The complaint alleges that Dana Bradley and Martin Hershey, through two entities, over a period of about eight years beginning in 2009, raised over $5 million from investors who were lead to believe their funds would be used to acquire and rehabilitate residences. In fact, much of the money was used to pay commissions and for other matters. In addition, Defendants knew that the third party entity for which the funds were to be used to acquire rehabilitation projects was in default and no longer accepting funds. The complaint alleges violations of Securities Act Section 17(a) and Exchange Act Sections 10(b) and 15(a). The case is pending. See Lit. Rel. No. 24624 (Sept. 30, 2019).

Binary options: SEC Sechovicz, Civil Action No. 1:19-cv-12027 (D. Mass. Filed Sept. 27, 2019) is an action in which David Sechovicz and Peter Szatmari marketed binary options over a two year period beginning in 2014. The two men created and disseminated numerous internet marketing campaigns regarding binary options that were designed to induce investors to open accounts. The two men worked for overseas brokers that were not registered with the Commission. Each time a new investor referred by them made a desposit for trading binary options they were paid. Defendant worked with a Partner who was an affiliated marketer. Defendant and Partner solicited investors by sending or paying others to send millions of emails. They also distributed videos which supposedly showed people living a lavish life style and trading binary options in real time. In fact, the videos were made by actors. The complaint alleges violations of Securities Act Section 17(a) and Exchange Act Section 10(b). Defendant resolved the action, consenting to the entry of permanent injunctions based on the sections cited in the complaint. He was also ordered to pay disgorgement of $1,899,837, prejudgment interest of $83,571 and a penalty of $949,918. See Lit. Rel. No. 24631 (Sept 30, 2019); see also SEC v. Szatmari, Civil Action No. 1:19-cv-12028 (D. Mass. Filed Sept. 27, 2019)(same as above; matter is pending).

Unregistered securities: SEC v. Ajzenman, Civil Action No. 24623 (E.D.N.Y. Filed Sept. 26, 2019) is an action which names as defendants Michael Ajzenman and Cutting Edge Business Services, Inc. Beginning in January 2014, and continuing for about one and one half years, Mr. Azzenman, acting through his controlled firm, Cutting Edge, secured two notes that were fraudulent at a deep discount and sold them to investors. The notes were not registered. Defendant obtained profits of about $200, 000 on the sale of the notes. The complaint alleges violations of Securities Act Sections 5(a) and 5(c). The case is pending. See Lit. Rel. No. 24632 (Sept. 30, 2019).

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by T. GormanPosted on Posted in SECActions

A look forward; a look back:

The government fiscal year draws to a close today. Looming are the budget hearings for fiscal 2020. The Commission estimates that securities trading will increase by about 20%. At the same time it anticipated opening about the same number of enforcement actions as last year. A 5.3 % increase in the overall budget is being requested. Hearings are scheduled to start next month.

SEC

EFTs: The Commission adopted a new rule to modernize the regulations of exchange traded funds. The regulations, including a related exemptive order designed to harmonize relieve for broker-dealers, update regulations while creating a clear and transparent framework for investors (Sept. 26, 2019)(here).

Test the waters: The Commission adopted a rule extending the “test the water” experiment which permitted emerging growth companies to gauge market interest in an IPO. The rule has now been extended to all issuers (Jan. 2, 2019)(here).

Retail investors: The Commission proposed new rules to enhance retail investor protections.

SEC Enforcement – Filed and Settled Actions

The Commission filed 10 civil injunctive action and 20 administrative proceedings last week, exclusive of 12j and tag-along actions.

Binary options: SEC v. Peterson, Civil Action No. 19-cv-08334 (C.D. Ca. Filed Sept. 26, 2019) names as defendants Kai C. Peterson, Gil Beserglik and Raz Beserglik as defendants. From the fall of 2014 through August 2017 Defendants used two websites to sell over $100 million in binary options. The brokers marking the options used boiler room tactics. Call centers, for example, presented themselves as professional brokers to tout the options. Investors were told that they could win and make large sums of money. Investors were also frequently encouraged to make large deposits. In fact, much of the money was misappropriated. In addition, the brokers only got paid if the clients lost. Neither the securities nor the brokers were registered. The complaint alleges violations of Securities Act Sections 5 and 17(a) and Exchange Act Sections 10(b) and 20(a). The case is pending.

Unregistered broker: In the Matter of BrixInvest, LLC, Adm. Proc. File No. 3-19533 (Sept. 26 2019) names as a Respondent the adviser to three public registered real estate investment trusts that are not traded. Respondent embraced an internet approach to marketing the shares. Accordingly, they sold thousands of shares of the REITS over the internet without being registered. The Order alleges violations of Exchange Act Section 15(a). To resolve the proceedings Respondent agreed to implement certain undertakings and to the entry of a cease and desist order based on the section cited in the Order. The firm will also pay a penalty of $300,000.

Solicitor rule: In the Matter of Cetera Investment Advisers LLC, Adm. Proc. File No. 3-1530 (Sept. 26, 2019) is a proceeding which names the registered investment adviser as a Respondent. Since at least 2007 the adviser has paid a number of banks to solicit advisory clients without complying with Rule 206(4)-3, the solicitor rule. That rule precludes solicitation unless the solicitor gives the client a written instrument stating the terms of the engagement. The Order alleges a violation of the rule cited in the Order and the related Section of the Advisors Act. To resolve the proceedings Respondent consented to the entry of a cease and desist order based on the section and rule and agreed to pay a penalty of $185,000.

Financial fraud: In the Matter of PPG Industries, Inc., Adm. Proc. File No. 3-19532 (Sept. 26, 2019). Respondent is a manufacturer of paint. From December 2016 through April 2018 the firm maintained inaccurate books and records and had inadequate internal controls. During the period an officer made improper accounting determinations and directed employees to not record certain expenses, contrary to GAAP. As a result, the income was falsely inflated for about a one year period beginning at the end of December 2016. Eventually a restatement was completed. The firm self-reported and cooperated with the staff. The Order alleges violations of Exchange Act Sections 10(b), 13(a), 13(b)(2)(A), and 13(b)(2)(B). A civil penalty was not imposed based on the substantial cooperation of Respondent.

Controls: In the Matter of Mahesh Agarwal, Adm. Proc. File No. 3-19529 (Sept. 26, 2019) is a proceeding centered on a violation of trading rules. Specifically, Respondent is employed on the Latin America Desk of a Wall Street Bank. For a period of about one year, beginning in May 2013, he took short positions in U.S. Treasury Bonds that exceeded his trading mandate. Large losses resulted. The firm discovered the trades, recognized the losses and corrected the records. The Order alleges aiding and abetting violations of Exchange Act Sections 13(b)(2)(A), 13(b)(2)(B) and 17(a)(1). To resolve the proceedings Respondent consented to the entry of a cease and desist order based on the sections cited in the Order. Respondent was also suspended from the securities business for a period of twelve months and directed to pay a penalty of $80,000. See also In the Matter of George Martin, Adm. Proc. File No. 3-19521 (Sept. 25, 2019)(based on same facts as above; resolved in the same manner); In the Matter of Harold Minsky, Adm. Proc. File No. 3-19520 (Sept. 25, 2019)(same as above).

Conflicts: In the Matter of Leonardo Cornide, Adm. Proc. File No. 3-19511 (Sept. 25, 2019) is a proceeding which names as Respondents Mr. Cornide and Jorge Falcon, each a 50% owner of an off-shore insurance firm. They advised a fund to invest in an entity they co-owned without disclosing that fact. That entity also made loans to Respondents. The Order alleges violations of Advisors Act Section 206(2). Respondents agreed to a series of undertakings. Each also consented to the entry of a cease and desist order based on the section cited in the Order and to the payment of disgorgement of $2,786,25 and prejudgment interest of $414,630.27. In addition, each Respondent will pay a penalty of $100,000.

Manipulation: In the Matter of Chip Hackley, Adm. Proc. File No. 3-19522 (Sept. 25, 2019) is a proceeding which names the former registered representative as a Respondent. Over a five month period beginning at the end of December 2016 Respondent and others planned the manipulation of the share price of Holy Grail Company, a microcap issuer. An agreement was worked out with an experienced trader to pay a 40% kickback. After a test run Respondent and others learned the trader was an under cover FBI agent. The Order alleges violations of Securities Act Section 17(a) and Exchange Act Sections 9(a)(1) and 10(b). To resolve the proceedings Respondent consented to the entry of a cease and desist order based on the sections cited in the Order and to an order barring him from the securities business.

Conflicts: In the Matter of Hefren-Tillotson, Inc., Adm. Proc. File No. 3-19514 (Sept. 25, 2019) is a proceeding which names as a Respondent the registered investment adviser. Over a period of three years, beginning in 2014, Respondent, who is also a registered broker-dealer, received undisclosed per client compensation from the broker-dealer based on the difference between certain fees. This constituted a breach of fiduciary duty. The Order alleges violations of Advises Act Section 206(2). To resolve the proceedings Respondent consented to the entry of a cease and desist order based on the section cited in the order and to a censure. The firm will also pay disgorgement of $254,060, prejudgment interest of $45,905.29 and a penalty of $80,000.

Offering fraud: SEC v. Fernandez, Civil Action No. 6:19-cv-01843 (M.D. Fla. Sept. 25, 2019) is an action which names as defendants Andres Fernandez and Edison Denizard, respectively, a principal of Kadaae, LLC, an entertainment firm, and the principal of Ahead of the Game, LLC. Over a two year period, beginning in 2015, Mr. Ferandez raised about $20.7 million from at least 56 investors in a fraudulent offering while Mr. Denizard raised about $10.4 million in an offering. In each instance Defendants falsely represented that the money would be used to produce and promote concerts at major venues by prominent musicians. In fact, a portion of the investor funds was misappropriated. Previously, Mr. Ferandez pleaded guilty in a fraudulent offering scheme action. The complaint alleges violations of Securities Act Sections 17(a)(1) and (3) and Exchange Act Section 10(b). The case is pending. See Lit. Rel. No. 24619 (Sept. 25, 2019).

Offering fraud: In the Matter of Scott Huish, Adm. Proc. File No. 3-1509 (Sept. 24, 2019) is a proceeding which names as a Respondent the manager of a pooled investment fund. Over a two year period beginning in October 2014 Mr. Huish induced 19 investors to put up about $2.5 million to invest in a fund that was to be part of a series. In seeking investors Respondent informed them about large investors that were about to come into the funds. In fact, none did. The Order alleges violations of Securities Act Section 17(a), Exchange Act Section 10(b) and advisers Act Sections 203A, 206(4) and 207.To resolve the proceedings Respondent consented to the entry of a cease and desist order based on the sections cited in the Order. He is also barred from the securities business and directed to pay a penalty of $160,000.

Insider trading: SEC v. Irvin, Civil Action No. 9:19-cv-8134 (S.D. Fla. Filed Sept. 24, 2019) is an action which names as a defendant James Irvin, a former executive of PetMed Express. As a member of the firm’s management committee Mr. Irvin had access to inside information regarding the firm’s performance. In six instances from October 1, 2014 through January 24, 2017 he purchased shares and options of the firm. He also tipped a good friend who traded. Defendant had trading profits and avoided losses of $227,795 while his friend made $24,475 in profits. The complaint alleges violations of Exchange Act Section 10(b). To resolve the action Defendant consented to the entry of a permanent injunction based on the section cited in the complaint. He also agreed to pay disgorgement of $227,795, prejudgment interest of $34,494 and a penalty of $252,795. In addition, he agreed to the entry of a five year officer and director bar. See Lit. Rel. No. 24618 (Sept. 25, 2019).

Offering fraud: SEC v. Apostetos, Civil Action No. 1:15-cv-00699 (S.D. Ohio) is a previously filed action which names as a defendant William Apostetos. The Court entered a final judgment this week after granting summary judgment in favor of the Commission. The judgement permanently enjoined the Defendant from future violations of Securities Act Sections 5(a), 5(c) and 17(a), Exchange Act Sections 10(b) and (15(a) and Advisers Act Sections 206(1) and 206(2). The judgment also directs him to pay disgorgement of $11,194,472 and prejudgment interest of $587,371 with the amounts deemed satisfied by the over $32 million in restitution ordered in a parallel criminal case. The underlining action involved an offering fraud in which much of the money was used to make Ponzi type payments. See Lit. Rel. No. 24617 (Sept. 25, 2019).

False statements: SEC v. Gibson, Civil Action No. 15-cv-00363 (D. Del.) is a previously filed action which names as defendants David Gibson, the former CFO, and Kevyn Rakowski, the former Controller of Wilmington Trust. Both men were convicted in a parallel criminal action. The actions centered on misrepresentations each made regarding past due loans. The Court entered judgments against Mr. Gibson based on Securities Act Section 17(a) and Exchange Act Sections 10(b), 13(a), 13(b)(2)(A) and 13(b)(2)(b). He was also directed to pay disgorgement of $50,000 and prejudgment interest of $20,367. Mr. Rakowski’s judgement was based on the same sections and, in addition, Section 13(b)(5) and the books, records and internal control provisions. He was ordered to pay disgorgement of $37,316 and prejudgment interest of $6,1719. The litigation as to the other defendants continues. See Lit. Rel. No. 24616 (Sept. 25, 2019).

Cherry picking: SEC v. Strong Investment Management, Civil Action No. 8:18-cv-00293 (C.D. Cal.) is a previously filed action against the advisory and its owner, Joseph Bronson. The action was based on a cherry picking scheme. The Court entered a final judgment and permanent injunctions as to each Defendant based on Securities Act Sections 17(a)(1) and (2), Exchange Act Section 10(b) and Advisers Act Sections 206(1), 206(2), 206(4) and 207. The Defendants were ordered to pay, on a joint and several basis, disgorgement of $960,656 and prejudgment interest of $100,501. In addition, Mr. Bronson will pay a penalty of $187,767. A fund will be established to distribute payments to victims. See Lit. Rel. No. 24615 (Sept. 25, 2019).

Offering fraud: SEC v. Miller, Civil Action No. 8:19-cv-02810 (D. Md. Filed Sept. 24, 2019) is an action against Robert Miller, Chairman and CEO of Abakan, Inc., a Florida based penny stock company. In Commission filings Mr. Miller represented that he held about 38% of the firm’s stock. In fact, he had an additional 11% secretly held offshore. He sold the offshore shares with out making any disclosures, reaping about $1.39 million in profits. The firm had not had any substantial revenues since 2009. The complaint alleges violations of Securities Act Section 17(a) and Exchange Act Sections 10(b), 13(a), 13(d) and 17(a). The case is pending. See Lit. Rel. No. 24614 (Sept. 24, 2019).

Financial fraud: SEC v. Efuel Efn Corp., Civil Action No. 5:19-cv-482 (Sept. 24, 2019) is an action which names as defendants the firm, Slavoljub Stefanovic and Ljubica Stefanovic, each of whom acquired an interest in the firm. The firm entered into an agreement to lease land that supposedly had gold mines with an option to purchase it for $750,000. Defendants recorded the land as a $500 million asset and began issuing a series of press releases to tout it. The complaint alleges violations of Exchange Act Section 10(b). The case is pending. See Lit. Rel. No. 24610 (Sept. 24, 2019).

Confidentiality: In the Matter of TMC Bonds LLC, Adm. Proc. File No. 3-19501 (Sept. 24, 2019) is a proceeding which names the broker dealer as a Respondent. The firm operates an ATS for trading fixed income products. It often acted as a counterparty for several million trades with its subscribers. The TMC marketed itself as an anonymous secondary trading platform. The subscribers transacting on the platform did not know with whom they are trading. From at least January 2016 through June 2018 the firm’s bond desk disclosed to other ATS subscribers the identities of certain traders. Those subscribers were typically large brokers that traded bonds and were responsible for retail order flow. Although the firm had policies and procedures which addressed the issue, employees were not provided adequate training. The order alleged violations of Rules 301(b)(2) and 301(b)(10) of Regulation ATS. To resolve the proceedings Respondent consented to the entry of a cease and desist order based on the rules cited in the Order. The firm also agreed to pay a penalty of $2,100,000.

Financial fraud: In the Matter of Comscore, Inc., Adm. Proc. File No. 3-19499 (Sept. 24, 2019) is a proceeding which names the global information and analytics firm as a Respondent. Over a two year period the firm falsely inflated its revenue by three primary methods. First the firm entered into certain nonmonetary transactions for the purpose of improper revenue recognition. The firm valued the transactions which involved an exchange of data with a counterparty. It did not disclose to the counterparty that portions of the data included was neither requested or wanted. This falsely inflated the value of the transactions by over $34.5 million. Second, the firm falsely inflated certain monetary transactions. In two instances the Comscore knew that contracts were linked but failed to disclose those facts to the accounting department. In other instances future data delivery obligations were put into undisclosed side agreement requiring delivery after the quarter close. This permitted premature recognition. The firm also made false disclosures regarding two key performance metrics. In 2016 the Audit Committee received a tip about the scheme and conducted an investigation that lead to a restatement of the financial statements. The Order alleges violations of Securities Act Section 17(a) and Exchange Act Sections 10(b), 13(a), 13(b)(2)(A) and 13(b)(2)(B). To resolve the proceedings Respondents agreed to certain undertakings centered on future cooperation. In addition, the firm consented to the entry of a cease and desist order and agreed to pay a civil penalty of $5 million. See also In the Matter of Serge Matta, Adm. Proc. File No. 3-19500 (Sept. 24, 2019)(CEO of firm who participated in the fraud detailed above; resolved with a consent to the entry of a cease and desist order based on the same sections as the firm with the addition of Exchange Act Section 13(b)(5) and SOX Section 304(a). In addition, Respondent will pay a penalty of $700,000.

Conflicts: In the Matter of Strategic Planning Group, Inc., Adm. Proc. File No. 3-19498 (Sept. 24, 2019) names as Respondents the registered investment adviser and its two principles, David Rourke and Jarrod Sherman. In 2016 the firm principals invested client funds in the shares of Ecoark Holdings, Inc. Although they had the discretion to do so, neither informed the clients that they had been retained by Ecoark to solicit investors. The Order alleges violations of Advisers Act Section 206(2). To resolve the matter Respondents agreed to implement certain undertakings. Each consented to the entry of a cease and desist order. The firm also consented to the entry of a censure. The firm will pay a penalty of $200,000 while each individual will pay $75,000.

Supervision: In the Matter of HCR Wealth Advisors, Adm. Proc. File No. 3-19494 (Sept. 23, 2019) is a proceeding stemming from the failure to supervise an investment adviser representative who was formerly at the advisory. During his term the representative defraud a married couple client out of $1.2 million in management fees, about $900,000 of which he took as compensation. He also misappropriated about $200,000 from the couple. Respondent agreed to implement certain undertakings as part of the resolution of the matter. The Order allege violations of Advisers Act Section 206(4). To resolve the proceedings Respondent consented to the entry of a cease and desist order based on the section cited in the order and to a censure as well as a $200,000 penalty.

Insider trading: SEC v. Nall, Civil Action No. 19-702 (D. Ala. Filed Sept. 23, 2019) names as defendants James Nall, Michael H. Smith, Michael D. Smith and Walter Tutt. The action centers on the announcement on July 19, 2016 that Golden Enterprises, Inc. a potato chip manufacturer, would merge with Utz Quality Foods, LLC. James Nall misappropriated inside information about the deal from his father, a director of Golden Enterprises. While he did not trade, he tipped his close friend and business partner, Michael H. Smith who tipped his father, Michael D. Smith and boss, Walter Vice Tutt. Michael Smith Sr. then tipped his son Robert W. Smith. Michael H. Smith, Michael Smith Sr. Robert Smith and Walter Tutt each purchased shares prior to the merger announcement and collectively had profits of $37,000. The complaint alleges violations of Exchange Act Section 10(b). Each Defendant settled, consenting to the entry of a permanent injunction based on the section cited in the complaint. In addition, each will pay disgorgement, prejudgment interest in the amount of: Michal Smith — $139,774.17, $19,920.655 and $139,774.17; Hale Smith: $330,625.84, $31,443.51 and $220,625.84; Robert Smith: $32,733.84, $31,442.51 and $220,773.98; and Walter Tutt: $43,995.98, $6,264.50 and $43,995.32. See Lit. Rel. No. 24623 (Sept. 24, 2019).

Offering fraud: SEC v. Parker, Civil Action No. 1:19-cv-23943 (S.D. Fla. Sept. 23, 2019) is an action which names as a defendant Gerald Parker, the president and CEO of Social Voucher.com, Inc. Over a five year period beginning in June 2013 Mr. Parker raised about $20.5 million from 400 investors through the unregistered sale of securities in the form of Social Voucher common stock. The firm, which is now defunct, claimed to be a mobile coupon solutions provider that promised businesses to show them how to promote themselves directly through social media. In fact, much of the offering proceeds went to commission. Investors were also not told that Mr. Parker and his business had cease and desist orders entered against them in three states. The complaint alleges violations of Securities Act Sections 5(a), 5(c) and each subsection of 17(a) and Exchange Act Sections 10(b) and 15(a). See Lit. Rel. No. 24612 (Sept. 23, 2019).

Disclosure: SEC v. Ghosn, Civil Action No. 1:19-cv-08798 (S.D.N.Y. Filed Sept. 23, 2019). Nissan is a Japanese auto manufacturer whose securities are traded on the Tokyo Stock Exchange and has sponsored ADRs that trade in the U.S. in the OTC markets and through brokerage firms. The company published its annual reports in accord with these requirements as well as those of Japan’s securities regular. That report includes a corporate governance section disclosing director compensation. After 2009 firms were required to include in the corporate governance section of the report individual director compensation where it exceeded 100 million yen. Carlos Ghosn, Chairman of the Board, became concerned about possible criticism in the Japanese and French media if his total compensation was disclosed. To avoid this result, the Chairman and his subordinates executed a scheme to defer portions of the compensation he awarded himself each year. Thus, for example, the company annual report for fiscal 2009 stated that Mr. Ghosn’s compensation was $$13 million. The additional $2 million he was awarded was not disclosed. In 2010 the firm’s annual report stated that Mr. Ghosn’s compensation was $11 million. The additional $9 million he was awarded was not disclosed. Messrs. Kelly and Ghosn both approved the filing of the reports. This pattern continued through fiscal 2017. Over the period from 2009 through 2017 Mr. Ghosn had total fixed compensation of $186 million of which $94 million was deferred. The complaint alleges violations of Exchange Act Section 10(b). The case is pending. See also In the Matter of Nissan Motor Co., Ltd., Adm. Proc. File No. 4086 (Sept. 23, 2019)(failed to disclose compensation; settled with cease and desist order based on Exchange Act Section 10(b) and the payment of a $15 million).

Reserves: In the Matter of Donald F. McGraw, Jr., Adm. Proc. File No. 3-19479 (Sept. 20, 2019) names as Respondent the chief credit officer of Bancorp. During a two year period beginning in April 2012 Bancorp materially understated it Allowance for Loan and Lease Losses and its Provision for Loan and Lease Loses. During the period Bancorp repeatedly overlooked indicators of borrowers’ and guarantors’ financial distress and failed to assign proper risk ratings to certain loans. Eventually this resulted in a restatement. The Order alleges violations of Exchange Act Sections 13(b)(2)(A) and 13(b)(2)(B). Respondent resolved the proceedings by consenting to the entry of a cease and desist order based on the sections cited in the order. He also agreed to pay a penalty of $50,000. See also In the Matter of James David Hilty, Adm. Proc. File No. 3-19478 (Sept. 20, 2019)(Respondent is chief risk officer; proceeding is based on the same facts as above; resolved on same terms); In the Matter of The Bancorp, Inc., Adm. Proc. File No. 3-19477 (Sept. 20, 2019)(same as above; resolved with cease and desist order based on same sections and the payment of a $1.4 million penalty).

Unregistered advisor: In the Matter of Marcos Tamayo, Adm. Proc. File No. 3-19474 (Sept. 20, 2019) is a proceeding which names the baggage handler for a major airline as a Respondent. Beginning in 2003, and continuing through 2017, Respondent acted as an investment adviser for his co-workers, charging them a fee to invest their retirement funds. His business, called Bored at Work, began to take off from adds on Facebook. He was not registered and apparently puffed his claims about his personal investment success. The Order alleges violations of Advisers Act Sections 203(a), 204, 206(1), 206(2), 206(4) and 207. To resolve the matter Respondent consented to the entry of a cease and desist order based on the sections cited in the Order. He is also suspended from the securities business for 12 months and will pay a penalty of $50,000.

Unprofessional conduct: In the Matter of Anton & Chia, LLP, Adm. Proc. File No. 3-18292 (Sept. 20, 2019) is a proceeding which names as Respondents the PCAOB registered audit firm. This matter focused on the audit of four microcap issuers. In conducting those audits the firm failed to properly apply PCAOB standards while missing repeated red flags indicating that the financial statements of the issuers contained material misstatements. The order alleges violations of Exchange Act Sections 10(b) and 13(a). To resolve the matter the firm consented to the entry of a cease and desist order based on the Sections cited. It is also denied the privilege of appearing and practicing before the Commission as an accountant.

ICO offering fraud: SEC v. Lucas, Civil Action No. 1:19 -cv-08771 (S.D.N.Y. Filed Sept. 20, 2019). Defendant Jonathan Lucas is the founder and CEO of Fantasy Market, an unincorporated now defunct entity which was an online market place. In August 2017 Mr. Lucas created and launched the market and tied it to social media. Subsequently, he created the FM Whitepaper to generate investor interest in the Fantasy Market platform and an ICO. The offering was to be in two stages, a two week presale followed by a four week public token sale. The FMT tokens were issued on the ERC-20 blockchain with a conversion ratio of 5 for $1.00. The sales were advertised in the U.S. and abroad. The Whitepaper used for the sales urged investors to purchase early at discount prices. It also stated that there would be an aggressive repurchase program through which investors could profit. The price was expected to increase over 600%, according to the paper. Investor funds would be pooled in digital asset wallets through which the investor could profit. Investors were induced to purchase the securities with a series of misrepresentations. Those include representations about the development of the Fantasy Market’s platform, the use and amount of the proceeds, the staff at the firm and the early investors. The complaint alleges violations of Securities Act Sections 5(a), 5(c) and each subsection of 17(a) and Exchange Act Section 10(b). To resolve the case Defendant consented to the entry of a permanent injunction based on the sections cited in the complaint. He also agreed to the entry of a five year officer director bar and a five year conduct based injunction prohibiting any offering of securities except for personal use. Mr. Lucas will pay a penalty of $15,000. See Lit. Rel. No. 24607 (Sept. 23, 2019).

Offering fraud: SEC v. Miller, Civil Action No. 3:15-cv-519 (N.D. Ind.) is a previously filed action which named as a defendant Earl Miller. The Court entered a final judgment against Mr. Miller this week, permanently enjoining him from future violations of Exchange Act Section 10(b) and Securities Act Section 17(a). The Court also ordered Mr. Miller to pay disgorgement of $4,141,133, prejudgment interest of $799,597 and a penalty of $320,000. The judgement is based on an offering fraud in which Mr. Miller promised he would not be paid for managing investor funds and that certain safeguards would be installed. Each claim was false. See Lit. Rel. No. 24604 (Sept. 20, 2019).

Offering fraud: SEC v. Feiner, Civil Action No. 19-cv-6269 (N.D. Ill. Filed Sept. 18, 2019) is an action which names as defendants Zvi Feiner, a well regarded rabbi in Chicago, his firm FNR Healthcare, LLC and Erez Baver. Over a three-year period beginning in 2014, Defendants raised at least $10 million from 62 investors who purchased interests in the firm. The funds were supposed to be invested in one of four related limited liability firms. Defendants targeted those in the Orthodox Jewish community. While portions of the funds were invested as suggested, other portions were misappropriated. The complaint alleges violations of Securities Act Section 17(a) and Exchange Act Section 10(b). The case is pending. See Lit. Rel. No. 24605 (Sept. 20, 2019).

Offering fraud: SEC v. Fulco, Civil Action No. 19-cv-5318 (E.D.N.Y. Filed Sept. 18, 2019) is an action which named as defendants Christopher Fulco, who has been barred from associating with any broker dealer by FINRA and his firm, JM Capital. Over a three-year period, beginning in April 2016, Defendants solicited at least 10 investors who were generally elderly and invested about $1.6 million in their firm. Rather than invest the funds, much of the capital was misappropriated. The complaint alleges violations of Securities Act Sections 5(a), 5(c) and 17(a) and Exchange Act Section 17(a). The case is pending. See Lit. Rel. No. 24608 (Sept 23, 2018).

FCPA

In the Matter of Quad/Graphics, Inc., Adm. Proc. File No. 3-19531 Sept. 26, 2019) is a proceeding which names as a Respondent the marketing solutions and printing services provider. Over a five year period its subsidiaries in Peru and China engaged in multiple bribery schemes in violation of the FCPA. In Peru, for example, the firm paid or promised government officials from the National Institute of Statistics and Information and other government municipalities bribes to win sales. At the Ministry of Education bribes were paid to avoid penalties. The firm also paid bribes in an effort to influence the out come of an excise tax dispute with government authorities. Over $200,000 bribes were paid in the effort to influence the litigation. About $12 million in VAT taxes had been imposed. In Shanghai the firm paid or promised about $182,000 in bribes to employees of private and government customers through sham entities to secure business. Quad/Graphis also violated U.S. sanctions and export control laws by engaging in commercial transactions with a state controlled Cuban telecommunications firm. In connection with that deal the firm also violated the books and records provisions. The firm made about $7 million from its schemes. The Order alleges violations of Exchange Act Sections 30A,13b(2)(A) and 13(b)(2)(B). To resolve the matter the firm agreed to implement a series of undertakings focused on reporting to the staff regarding its remedial efforts. It also consented to the entry of a cease and desist order based on the sections cited in the Order and agreed to pay disgorgement of $6,936,174, prejudgment interest of $959,160 and a penalty of $2 million.

FinCEN

Remarks: Kenneth A. Blanco, Director, delivered remarks to the Federal Identity Forum and Exposition, Tampa, Florida (Sept. 24, 2019)(here). His remarks focused on managing identity and identity information.

Singapore

Remarks: Vincent Loy, Assistant Managing Director (Technology) delivered remarks at the Third Cyber Security Advisory Panel Meeting (Sept. 30, 2019). His remarks focused on cyber threats in the financial sector (here)

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