The Access or Gatekeeper Theory
The access or gatekeeper theory is a stable of SEC Enforcement. Tracing to the earliest days of the Division of Enforcement, the theory posits that market professionals have an obligation to help protect the markets and investors by properly carrying out their professional obligations. A good example of this theory is the Commission’s action in SEC v. Sidoti, Civil Action No. 5:20-cv-02178 (C.D. Cal. Filed Oct. 19, 2020. There attorney Jillian Sidot, a partner in a California law firm, used her law degree and license not to protect the markets but to facilitate manipulative stock transactions which fleeced shareholders.
The Commission’s recent action in SEC v. Rubin, Civil Action No. 20 Civ 10084 (S.D.N.Y. Filed Dec. 2, 2020) is another example of wrongful conduct keyed to a disregard of professional obligations that turned the access or gatekeeper theory upside down. Rather than protecting the markets, the two defendants injected fraud into them, according to the complaint, injuring investors.
The Defendants in the action are Richard J. Rubin and Thomas J. Craft. Each has a law degree. Defendant Rubin was admitted to practice in New York in 1968. Later he was disbarred under an order from the Appellate Division of the Supreme Court of New York. Mr. Rubin also settled an administrative proceeding with the Commission, consenting to the entry of an order which denied him the privilege of appearing and practicing before the Commission. Richard Jeffrey Rubin, Exchange Act Rel. No. 88258 (Feb. 21, 2020).
Defendant Craft is also an attorney, admitted to practice in Florida. On February 25, 2020 he resolved a Commission administrative proceeding by consenting to the entry of an order suspending him from appearing and practicing before the Commission. Thomas J. Craft Jr., Exchange Act Rel. No. 88280 (Feb. 25, 2020).
Over a three year period, beginning in December 2015, Mr. Rubin submitted at least 128 attorney opinion letters to the Commission for the purpose of registering securities for public sale. The letters were also submitted to transfer agents and OTC Markets Group, Inc. for the purpose of removing restrictive legends on share certificates or issuing share certificates without restrictive legends for over 85 million shares of microcap issuers. Mr. Rubin personally singed at least 98 of the letter. Each was fraudulent.
During the period Defendant Craft joined with Mr. Rubin in issuing at least 29 of the fraudulent attorney opinion letters. Specifically, Mr. Rubin drafted the letters for the signature of Mr. Craft. He also executed one letter forwarded to OTC Markets that had been drafted by a third party. All were fraudulent.
Attorney opinion letters are relied on by the Commission and market participants to lift restriction on the sale of securities. The Commission requires the letter before allowing the publi offer and sale of securities. Market participants rely on attorney opinion letters to help ensure that they are not participating in an illegal sale of securities.
Messrs. Rubin and Craft repeatedly participated in a process which relied on them to protect the markets and investors. Messrs. Rubin and Craft repeatedly acted to the detriment of the markets and investors by failing to comply with their ethical obligations which were designed in part to protect those markets and investors. The complaint alleges violations of Securities Act Section 17(a) and Exchange Act Section 10(b). The case is pending.