by T. GormanPosted on Posted in SECActions

Offering fraud actions, long a key staple of the SEC Enforcement Division, the DOJ and others, continue to proliferate despite repeated efforts to alert and educate investors. For example, on November 1, 2019, the SEC and Fordham University School of Law will host a community- based conference on financial fraud. Key topics will include fraudulent schemes that target victims by race, ethnicity, religion, gender, age and other associations (here). Other regulators and law enforcement agencies continually conduct similar programs. Nevertheless, investors continued to be victimized by these frauds at an alarming rate.

One of the more recent cases is U.S. v. Robertson, No. 3:16-cr-133 (E.D. Va. Verdict Oct. 28, 2019). In that case a former football player at the University of Virginia and later in the NFL, Merrill Robertson, Jr., and his friend, Sherman Vaughn, were able to convince investors to entrust them with millions of dollars in investment funds based apparently on little more than football player Robertson’s representations that his firm was qualified to serve as an investment manager and that the funds were safe. Following trial, a jury convicted Mr. Robertson of conspiracy, mail fraud, wire fraud, bank fraud and money laundering.

The scheme traces to as early as 2008. Mr. Robertson and his firms, Cavalier Union Investments LLC and Black Bull Wealth Management LLC, began marketing their investment program. Defendant Robertson identified potential targets from his years as a football player at Fort Union Military Academy, the University of Virginia and in the NFL. Mr. Vaughn worked to raise funds for their claimed investments.

Investors were led to believe that Mr. Robertson was an experienced investment adviser and that his firm was a qualified custodian for retirement funds. Investment funds were supposedly deposited into individual tax-deferred retirement accounts. The investments were secured by tangible cash-producing assets owned by the company, according to the sale pitch.

In fact, the investor funds were not invested. The money was not secured. To the contrary, the money was diverted to the personal use of Mr. Robertson and his co-conspirator, Sherman Vaughn.

Despite having raised over $10 million over an eight-year period, by 2015 Mr. Robertson and his compatriot were out of cash. New capital could not be raised.

Mr. Robertson initiated a new scheme. He turned to raising money by assisting investors in Cavalier and other old friends with loan applications in return for a cut of the proceeds. To facilitate the loans false papers were created and submitted to the lenders. Mr. Robertson and his assistants were able to obtain about $500,000 through this scheme from five financial institutions. Mr. Robertson is scheduled for sentencing on January 3, 2020.

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by T. GormanPosted on Posted in SECActions

A look forward; a look back:

Data analytics continues to be a key theme of Commission enforcement actions. Last week the agency filed a huge international insider trading action which required the analysis of trading by at least 18 persons involving 3,000 securities and countless trades and accounts. This week the agency filed two additional international insider trading case. While these cases were far smaller, data analytics again was key in filing the complaints. This trend will undoubtedly continue in the future.

The other action brought last week involved an offering fraud. Those cases have become a key staple of the Enforcement Division.

SEC Enforcement – Filed and Settled Actions

The Commission filed 3 civil injunctive actions and no administrative proceedings last week, exclusive of 12j and tag-along actions.

Offering fraud: SEC v. Bayless, Civil Action No. 2:19-cv-02140 C.D. CA. Filed Oct. 22, 2019 is an action which names as defendants Joseph Bayliss and Ronald Roach. Mr. Bayliss is the owner of Bayliss Innovative Services, Inc. through which he is an electrical and general building contractor. Mr. Roach is a CPA and holds several securities licenses. The complaint alleges that each defendant assisted Individual 1 and Individual 2, beginning as early as 2011, with a fraudulent offering of securities which raised over $910 million in a seven year period. Specifically, the Company at the center of the fraud supposedly generated certain tax credits available to enterprises involve with alternative energy. Investors supposedly purchased generators that were leased to another company. In fact, most of the generators were never manufactured – the scheme was a sham. Mr. Bayliss falsely certified the acquisition of the generators. Mr. Roach assisted by falsifying the accounting. The complaint alleges violations of Exchange Act Section 10(b) and each subsection of Securities Act Section 17(a). The case is pending. The U.S. Attorney’s Office for the Eastern District of California filed a parallel criminal action. See Lit. Rel. No. 24651 (Oct. 22, 2019).

Insider trading: SEC v. Taylor, Civil Action No. 1:19-cv-09744 (S.D.N.Y. Filed Oct. 22, 2019) is an action which centers on a years long insider trading scheme. Defendant Benjamin Taylor, a resident of France, worked in the London office of International Investment Bank 1. Defendant Darina Windsor, a native of Thailand, worked from 2010 to 2016 for the same firm and later at Investment Bank 2. Defendant Abdul Noor El-Khouri, a resident of Monaco and London, had securities accounts at firms in London. Over a two year period, beginning in 2013, Defendants Taylor and Windsor repeatedly furnished inside information to others who used it to trade profitably. Specifically, beginning in 2013 Mr. Taylor obtained information about corporate transactions from his employer and directly or indirectly furnished it to Trader A who resided in Switzerland. Beginning about the same time he also furnished information obtained from his girlfriend, Defendant Windsor. Beginning in March 2015 Mr. Taylor directly or indirectly furnished inside information regarding corporate transactions to Defendant El-Khouri who realized over $2 million in trading profits based on trading in the securities of five firms based on the information. Defendants Taylor and Windsor expected to, and in fact did, receive cash and other benefits from Defendant El-Khouri and Trader A. The complaint alleges violations of Exchange Act Sections 10(b) and 14(e). The staff used data analytics to analyze the trading. The case is pending. A parallel criminal action was filed by the U.S. Attorney’s Office for the Southern District of New York. See Lit. Rel. No. 24650 (Oct. 22, 2019).

Insider trading: SEC v. Cohen, Civil Action No. 19 CV 9645 (S.D.N.Y. Filed Oct. 22, 2019) names as defendants Bryan Cohen, an employee in the London office of an international investment bank and George Nikas, a Greek citizen resident in New York City. Over a two-year period, beginning in 2015, Defendants participated in an international insider trading scheme. Specifically, Mr. Cohen furnished inside information to Trader A who tipped his friend, Defendant Nikas, who traded. Based on trading in two deals, Mr. Nikas obtained at least $2.6 million in illegal trading profits. The complaint alleges violations of Exchange Act Sections 10(b) and 14(e). The staff used data analytics to analyze the trading in this action. The case is pending. The U.S. Attorney’s Office filed a parallel criminal action. See Lit. Rel. No. 24649 (Oct. 22, 2019).

Criminal Cases

Offering fraud: U.S. v. Booth, No, 1:19-cr-00699 (S.D.N.Y. Plea Oct. 22, 2019) is an action in which James Booth of Booth Financial, pleaded guilty to one count of securities fraud. Mr. Booth raised about $4.9 million from over 40 investors. He convinced those investors to send funds to Insurance Trends, Inc., a firm he controlled, supposedly for investment. In fact, he misappropriated the funds. To conceal the fraud investors were furnished with fraudulent account statements. Sentencing is scheduled for February 21, 2021.

Australia

Remarks: Commissioner Cathie Amour, Australian Securities and Investment Commission, delivered remarks at the China Financial Summit 2019 (Beijing). Her remarks focused an Australian regulator’s view of financial technology (here).

Hong Kong

Insider dealing: The SFC commenced insider dealing charges against Ken Yiu Ka Lun, a former senior regulatory affairs manager of Hong Kong Television Network Ltd. with regard to the firm’s shares. The charges are based on trading in advance of HKTV’s announcement that it had obtained a mobile television license on December 20, 2013 (Oct. 24, 2019).

Remarks: Julia Leung, Deputy Chief Executive Officer and Executive Director, Intermediaries, delivered remarks at the Hong Kong Conference 2019 titled IPO Sponsors and Regulations (Oct. 21, 2019). Her remarks focused on the role of IPO sponsors (here).

Singapore

Agreement: The Monetary Authority of Singapore and the China Banking and Insurance Regulatory Commission reaffirmed their commitment to deepen supervision cooperation. The two agencies will enhance supervisory cooperation and exchange information in the areas of banking and insurance supervision and crisis management (here).