SEC Charges Florida Penny Stock Operators With Defrauding Elderly Investors in Push to Crack Down on Repeat Offenders

The Securities and Exchange Commission today charged two individuals with defrauding elderly investors in a penny stock scheme involving Florida entertainment companies and their “Spongebuddy” product.  The charges are part of the Miami Regional Office’s Recidivist Initiative which has thus far resulted in enforcement actions against 23 individuals, nine of whom also have been charged by criminal authorities.

The SEC’s complaint, filed in U.S. District Court for the Southern District of Florida, charges Joseph A. Rubbo and Angela Beckcom Rubbo Monaco, both of Coral Springs, Florida, with defrauding investors through offerings by their companies VIP TV LLC, VIP Television Inc., and The Spongebuddy LLC.  Rubbo and Monaco are repeat offenders whose prior securities schemes resulted in criminal convictions against Rubbo and SEC injunctions against both Rubbo and Monaco.

The U.S. Attorney’s Office for the District of Colorado has filed parallel criminal charges against Rubbo, Monaco, Steven J. Dykes, and others relating to the scheme.

According to the SEC’s complaint, Rubbo and Monaco raised at least $5.4 million from 11 primarily elderly investors to fund the growth of their entertainment business and develop the Spongebuddy, a sponge-like glove purportedly to be sold in stores. 

The SEC’s complaint alleges that Rubbo and Monaco controlled the companies and hired Dykes to cold call investors and pitch investments in VIP.  For example, Dykes allegedly told an investor that the Starz cable channel and Pandora Radio were both interested in buying VIP and would “roll-up” VIP into these entities.  The investor also was allegedly told that the Spongebuddy would be featured on the television show “Shark Tank” and marketed on QVC.  Contrary to alleged representations that investor money would be used to benefit the VIP companies, Rubbo and Monaco misappropriated more than $2.6 million in investor funds to pay themselves and their relatives as well as undisclosed sales commissions to Dykes.  The complaint also alleges they paid for personal expenses such as the down payment on a luxury vehicle, credit card bills, unrelated construction work and to finance a business operation for a Monaco family member.

“As alleged in our complaint, Rubbo and Monaco defrauded investors by stealing millions of dollars from elderly investors which they spent on themselves and their family members instead of investing in their businesses,” said Steven Peikin, Co-Director of the SEC’s Enforcement Division.  “Both Rubbo and Monaco were caught through the efforts of the Miami Regional Office’s Recidivist Initiative, which is part of our ongoing focus to rid the markets of repeat securities law violators.”

During the time of the alleged scheme, neither Rubbo, Monaco, nor Dykes were registered with the Commission.  The SEC encourages all investors to check the background of people selling investments by using the search tool on Investor.gov to quickly identify whether the sellers are registered professionals.

The SEC’s complaint charges Rubbo and Monaco with violating the antifraud provisions of the federal securities laws.  The SEC also charged Dykes with violating the broker-dealer registration provisions, and Rubbo and Monaco with aiding and abetting violations by Dykes.  The SEC is seeking the return of the defendants’ allegedly ill-gotten gains with interest, monetary penalties, a permanent injunction, and other relief.

The SEC’s investigation, which is continuing, is being conducted by Linda S. Schmidt and Lina M. Fernandez in the Miami Regional Office.  The case is being supervised by Jason R. Berkowitz and the SEC’s litigation is being led by Christine Nestor.  The SEC appreciates the assistance of Florida’s Office of Financial Regulation.

SEC Press Release

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Division of Corporation Finance Chief Accountant Mark Kronforst to Leave SEC

The Securities and Exchange Commission today announced that Mark Kronforst, Chief Accountant of the SEC’s Division of Corporation Finance, plans to leave the SEC in early January after 13 years of public service with the investor protection agency.

Mr. Kronforst has served as Chief Accountant since October 2013.  He leads the Division’s Office of Chief Accountant in providing technical accounting and reporting support to the Division’s disclosure review program, and oversees the Division’s administration of the Commission’s reporting rules for public companies’ disclosure of financial information to investors. He also serves in a leading role in the Division’s ongoing efforts to make disclosure more effective for investors and encourage capital formation.  

“Mark has been a trusted advisor to multiple Directors during his distinguished career at the SEC. Through his leadership and boundless enthusiasm for the SEC’s mission and the Division’s work, he has made significant contributions to investor protection and capital formation,” said William Hinman, Director of the Division of Corporation Finance.

Mr. Kronforst said, “It has been a privilege to work in the Division for nearly 14 years alongside so many talented staff members and I am very proud of what we have accomplished together. I am confident that the office will continue providing high-quality expertise and support to the Division and will excel in their efforts to enhance capital formation and protect investors.”

Prior to his role as Chief Accountant, Mr. Kronforst served in other capacities within the Division, including Associate Director in Disclosure Operations and Deputy Chief Accountant. Before joining the SEC in 2004, Mr. Kronforst was the Director of Financial Reporting for Solectron Corporation and an audit senior manager at KPMG LLP. Mr. Kronforst received his Bachelor of Accounting degree from the University of Minnesota-Duluth and is a certified public accountant.

Upon Mr. Kronforst’s departure, Kyle Moffatt, Associate Director in Disclosure Operations, will become the Division’s acting Chief Accountant. Prior to his role as Associate Director, Mr. Moffatt served in several other Division positions, including Associate Director of the Disclosure Standards Office and as Associate Chief Accountant in the Division’s Office of Chief Accountant. Mr. Moffatt joined the SEC’s Division of Corporation Finance in 2000 as a Professional Accounting Fellow. Before joining the Division, Mr. Moffatt was an audit manager with Ernst & Young LLP. He is a graduate of the University of Maryland at College Park and is a certified public accountant.

SEC Press Release

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More Than $16 Million Awarded to Two Whistleblowers

The Securities and Exchange Commission today announced awards of more than $8 million each to two whistleblowers whose critical information and continuing assistance helped the agency bring the successful underlying enforcement action.

With this case, SEC enforcement actions involving whistleblower awards have now resulted in more than $1 billion in financial remedies ordered against wrongdoers.

The first whistleblower alerted SEC enforcement staff of the particular misconduct that would become the focus of the staff’s investigation and the cornerstone of the agency’s subsequent enforcement action.  The second whistleblower provided additional significant information and ongoing cooperation to the staff during the investigation that saved a substantial amount of time and agency resources.   

“Whistleblowers have played a crucial role in the progression of many investigations and the success of enforcement actions since the inception of the whistleblower program,” said Jane Norberg, Chief of the SEC’s Office of the Whistleblower.  “The value of whistleblowers can be seen in the more than $1 billion in financial remedies ordered against wrongdoers based on actionable information from whistleblowers, including more than $671 in disgorgement of ill-gotten gains, much of which has been or is scheduled to be returned to harmed investors.” 

The SEC’s whistleblower program has now awarded more than $175 million to 49 whistleblowers since issuing its first award in 2012.  All payments are made out of an investor protection fund established by Congress that is financed entirely through monetary sanctions paid to the SEC by securities law violators. No money has been taken or withheld from harmed investors to pay whistleblower awards. 

Whistleblowers may be eligible for an award when they voluntarily provide the SEC with original, timely, and credible information that leads to a successful enforcement action.  Whistleblower awards can range from 10 percent to 30 percent of the money collected when the monetary sanctions exceed $1 million. 

By law, the SEC protects the confidentiality of whistleblowers and does not disclose information that might directly or indirectly reveal a whistleblower’s identity.

For more information about the whistleblower program and how to report a tip, visit http://ift.tt/NFydSr.

SEC Press Release

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SEC Ratifies Appointment of Administrative Law Judges

The Securities and Exchange Commission today announced that it has ratified its prior appointment of Chief Administrative Law Judge Brenda Murray and Administrative Law Judges Carol Fox Foelak, Cameron Elliot, James E. Grimes, and Jason S. Patil.

On Nov. 29, 2017, the Office of Solicitor General submitted a brief in the Supreme Court in Raymond J. Lucia and Raymond J. Lucia Companies Inc. v. Securities and Exchange Commission (No. 17-130) asking the Court to decide whether the Commission’s ALJs are inferior officers who must be appointed consistent with the Appointments Clause of the Constitution. The Solicitor General’s brief takes the position that the Commission’s ALJs are inferior officers.   By ratifying the appointment of its ALJs, the Commission has resolved any concerns that administrative proceedings presided over by its ALJs violate the Appointments Clause. The Commission Order also directs the ALJs to review their actions in all open administrative proceedings to determine whether to ratify those actions.

SEC Order: http://ift.tt/2ipc699

SEC Press Release

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UBS Quits the Recruiting Protocol

It looks like the Protocol for Broker Recruiting,  the agreement which put an end to expensive suits between brokers and firms, is falling apart. Having represented firms and brokers in those injunctive actions, and in the ensuing arbitrators, I know first hand that those suits are expensive, and very often, a waste of time and money.

Which is part of the reason that the Broker Recruiting Protocol was created. A copy of the Protocol is available on line, but in essence, the wire houses agreed that subject to certain limitations, a broker could leave a firm and contact his clients. That agreement removed most litigation from the broker transition process, to the benefit of firms, brokers, and most importantly, clients. After its creation in

However, last month, Morgan Stanley announced it was withdrawing from the protocol. Today, just a few hours ago, UBS announced that it is withdrawing as well.

In the announcement, the firm claimed that its priority was for current advisers to increase productivity and not recruiting adviser from its competitors.

Morgan Stanley made a similar claim, but that response only tells part of the story. If UBS is to be believed, it is going to cut back on recruiting, and therefore is not as concerned about being sued for recruiting a broker from another firm. However, the reality is that by leaving the PRotocol, UBS and Morgan Stanley are making it harder for their brokers to leave. It has little to do with UBS cutting back on recruiting. Without the Protocol,  there is nothing to stop UBS or Morgan Stanley from suing a broker who leaves,  and tying him up in litigation while he tries to change firms.

It will be interesting to see how this shakes out down the road. It seems to me that a broker who moved to UBS or Morgan Stanley has an argument that he went there relying on the representation that the firm was part of the Protocol, knowing that he would not have a litigation issue should he decide to leave.

We will see how that plays out.

SEC Announces Agenda for December 7 Investor Advisory Committee Meeting

The Securities and Exchange Commission today announced the agenda for the December 7 meeting of its Investor Advisory Committee. The meeting will begin at 9:30 a.m. in the Multipurpose Room at SEC headquarters at 100 F Street, N.E., Washington, D.C. and is open to the public.  The meeting will be webcast live and archived on the committee’s website for later viewing.

The committee will hold two panel discussions with outside speakers:  a morning session on retail investor protections and transparency in municipal and corporate bond markets, and an afternoon session on retail investor disclosures and best practices.  In addition, the committee will discuss three other topics: cybersecurity risk disclosures, dual-class share structures, and an IAC subcommittee recommendation regarding electronic delivery of information to retail investors and development of a summary disclosure document of investment company shareholder reports.

The Investor Advisory Committee was established under Section 911 of the Dodd-Frank Act to advise the SEC on regulatory priorities, the regulation of securities products, trading strategies, fee structures, the effectiveness of disclosure, and on initiatives to protect investor interests and to promote investor confidence and the integrity of the securities marketplace.  The Dodd-Frank Act authorizes the committee to submit findings and recommendations to the Commission.

SEC Press Release

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Long Island Town and Former Top Official Charged With Defrauding Municipal Investors

The Securities and Exchange Commission today charged Oyster Bay, New York, and its former top elected official with defrauding investors in the town’s municipal securities offerings by hiding the existence and potential financial impact of side deals with a businessman who owned and operated restaurants and concession stands at several town facilities.

According to the SEC’s complaint filed in U.S. District Court for the Eastern District of New York, Oyster Bay agreed several years ago to indirectly guarantee four separate private loans to the vendor totaling more than $20 million.  The agreement to indirectly guarantee the debts allegedly stemmed from the concessionaire’s longstanding close relationship with then-town supervisor John Venditto and other officials that involved gifts, bribes, kickbacks, and political support. 

The SEC’s complaint alleges that Oyster Bay and Venditto deliberately concealed the indirect loan guarantees when they should have been disclosed in connection with the town’s 26 securities offerings from August 2010 to December 2015.  According to the complaint, this information was material to current and prospective investors due to the potential impact on the town’s finances.  For example, in one scenario outlined in the SEC’s complaint, the town could have been required to make a termination payment of approximately $16 million (approximately 16 percent of the town’s operating budget) within 60 days had the vendor defaulted on the loans. 

“As alleged in our complaint, Oyster Bay and its most senior elected official concealed from its municipal investors that the town had gone to great lengths and taken on financial risk in an unusual decision to assist a vendor.  Investors were deprived of information they needed to understand the town’s true financial condition as they made investment decisions,” said Sanjay Wadhwa, Senior Associate Director of the SEC’s New York Regional Office.

In a parallel action, the U.S. Attorney’s Office for the Eastern District of New York today filed a superseding indictment that included securities fraud charges against Venditto.

The SEC’s complaint charges Oyster Bay with violations of Section 17(a) of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5.  Venditto is charged with violations of Section 17(a)(1) and (a)(3) of the Securities Act and Section 10(b) of the Exchange Act and Rule 10b-5.  He also is charged with liability under Section 20(a) of the Exchange Act as a controlling person for the violations by the town, and with aiding and abetting violations.

The SEC’s continuing investigation is being conducted by the SEC’s New York office and the Enforcement Division’s Public Finance Abuse Unit, including Alison R. Levine, Ladan F. Stewart, Charles Riely, Creighton L. Papier, Joseph Chimienti, and Jonathan Wilcox.  The SEC’s litigation will be led by Alexander M. Vasilescu, Ms. Levine, and Ms. Stewart.  The case is being supervised by Mr. Wadhwa, LeeAnn Ghazil Gaunt, and Mark R. Zehner.  The SEC appreciates the assistance of the U.S. Attorney’s Office for the Eastern District of New York and the Federal Bureau of Investigation.

SEC Press Release

--- If you believe need help with a securities litigation, arbitration or litigation issue, email Mark Astarita or call 212-509-6544 to speak to a securities lawyer.

SEC Names Paul G. Cellupica as Deputy Director of the Division of Investment Management

The Securities and Exchange Commission announced today that Paul G. Cellupica has been named Deputy Director of the agency's Division of Investment Management.

Mr. Cellupica will oversee a number of the division's strategic, rulemaking, and industry engagement initiatives. He will also serve as a senior advisor to the Director, Dalia Blass.

"Paul's extensive experience and knowledge of investor needs, and understanding of how the Commission and its staff operate, will be tremendous assets to the agency during a critical period of change and evolution in the investment management industry," said Ms. Blass. "He is committed to advancing the SEC's regulatory priorities in a thoughtful and strategic way, in order to promote the long-term interests of investors."

"It's a privilege to return to the Commission at a time of great importance for the country's millions of investors who look to mutual funds and other investment products to help them prepare for retirement and other financial needs," said Mr. Cellupica. "I am honored and excited to have the opportunity to work with Dalia and all of the other dedicated and talented professionals in the Division of Investment Management and across the agency."

Mr. Cellupica most recently was Managing Director and General Counsel for Securities Law at Teachers Insurance and Annuity Association of America (TIAA), where his responsibilities included legal support for the TIAA-CREF mutual fund complex. Prior to that he was Chief Counsel for the Americas at MetLife, Inc., where he had responsibility for legal support of MetLife's financial services businesses in the U.S. and Latin America.

Mr. Cellupica served with the SEC between 1996 and 2004 in a number of capacities in the Division of Investment Management and the Division of Enforcement, including as Assistant Director in the Division of Investment Management from 2001 to 2004. He received the SEC's Martha Platt Award in 2002 in recognition of his exceptional dedication, excellence and integrity, and the Law and Policy Award in 2003.

Mr. Cellupica received a B.A. magna cum laude from Harvard College and a J.D. cum laude from Harvard Law School. He served as a law clerk for Judge David Nelson of the U.S. Court of Appeals for the Sixth Circuit.

SEC Press Release

--- If you believe need help with a securities litigation, arbitration or litigation issue, email Mark Astarita or call 212-509-6544 to speak to a securities lawyer.

SEC Announces Agenda and Panelists for the 36th Annual Small Business Forum

The Securities and Exchange Commission today announced the agenda and panelists for the 36th Annual Government-Business Forum on Small Business Capital Formation.

The November 30 event will begin at 9 a.m. Central Standard Time (10 a.m. Eastern Standard Time) with opening remarks from the SEC Chairman and Commissioners followed by a morning panel discussion that will explore how capital formation options are working for small businesses.  Panelists will include representatives of Texas-based small businesses and advisors to the small business community.

Following the morning panel discussion, attendees will work in groups to formulate specific policy recommendations.  These breakout groups will develop recommendations on a variety of issues related to small business capital formation, including exempt securities offerings and smaller registered offerings.

As the Commission previously announced, this year’s annual small business forum is being hosted in partnership with the Herb Kelleher Center for Entrepreneurship, Growth, and Renewal at the McCombs School of Business at The University of Texas at Austin.  It will be held in the AT&T Executive Education and Conference Center on the campus of The University of Texas at Austin at 1900 University Avenue.  The forum will be open to the public and the opening remarks and morning panel discussion will be webcast live at www.sec.gov.  The webcast will not include the breakout group sessions, but those sessions will be open to the public and accessible by phone to anyone who pre-registers online by November 27, 2017.  More information, including forum materials, will be made available on the small business forum webpage.

2017 SEC Government-Business Forum on Small Business Capital Formation

AT&T Executive Education and Conference Center

On the campus of The University of Texas at Austin

1900 University Avenue

Austin, TX  78705

November 30, 2017

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Agenda

9:00 a.m.	Call to Order Sebastian Gomez Abero, Chief, Office of Small Business Policy, SEC Division of Corporation Finance Opening Remarks Jay Hartzell, Dean, McCombs School of Business, The University of Texas at Austin Introductions of Chairman and Commissioners William H. Hinman, Director, SEC Division of Corporation Finance Remarks Chairman Jay Clayton Commissioner Kara M. Stein Commissioner Michael S. Piwowar
9:30 a.m.	How Capital Formation Options Are Working for Small Businesses, Including Small Businesses in Texas Moderators: William H. Hinman, Director, SEC Division of Corporation Finance Sebastian Gomez Abero, Chief, Office of Small Business Policy, SEC Division of Corporation Finance Panelists: Mark Elenowitz, Founder and CEO, TriPoint Global Equities Jan Goetgeluk, CEO, Virtuix Youngro Lee, CEO, NextSeed Antonio Madrid, Co-Founder, The Native Catherine V. Mott, CEO, BlueTree Capital Group Michael S. Pieciak, Commissioner of the Vermont Department of Financial Regulation Annemarie Tierney, Vice President and Head of Strategy and New Markets, NASDAQ Private Market Paul R. Tobias, Partner, Vinson & Elkins, L.L.P.
11:00 a.m.	Break
11:10 a.m.	Breakout Groups Assemble to Develop Recommendations Exempt Securities Offerings (including Micro-Offerings) Smaller Registered and Regulation A Securities Offerings
12:30 pm.	Lunch Break
2:00 p.m.	Breakout Groups Assemble to Develop Recommendations
3:30 p.m.	Break
3:45 p.m.	Plenary Session to Develop Next Steps
4:30 p.m.	Networking Reception

SEC Press Release

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SEC Enforcement Division Issues Report on Priorities and FY 2017 Results

In its ongoing efforts to protect Main Street investors, the Securities and Exchange Commission’s Enforcement Division today issued a report highlighting its priorities for the coming year as well as a review of enforcement actions that took place during FY 2017. 

In the report, Co-Directors Stephanie Avakian and Steven Peikin stated their overall enforcement approach: “Vigorous enforcement of the federal securities laws is critical to combat wrongdoing, compensate harmed investors, and maintain confidence in the integrity and fairness of our markets.”

They also stated five core principles that will guide their enforcement decision-making:  focus on the Main Street investor; focus on individual accountability; keep pace with technological change; impose sanctions that most effectively further enforcement goals; and constantly assess the allocation of resources.

“I applaud the excellent work of the men and women of our Enforcement Division. Through their tireless efforts to uncover wrongdoing and hold bad actors accountable, they defend our Main Street investors and support the integrity of our capital markets,” said SEC Chairman Jay Clayton.

“As Enforcement Directors our goal is to continue to protect investors, deter misconduct, punish wrongdoers and keep our markets the safest and strongest in the world,” said Stephanie Avakian, Co-Director of the SEC’s Enforcement Division. 

“The Enforcement Report clearly shows the broad range of the significant enforcement actions, penalties and money returned to investors,” said Steven Peikin, Co-Director of the SEC’s Enforcement Division. “We will continue to bring enforcement actions involving misconduct that directly harms investors and our markets.”

According to the report, fiscal year 2017 was a successful and impactful year for the Enforcement Division. The Commission brought a diverse mix of 754 enforcement actions, including 446 standalone actions and returned a record $1.07 billion to harmed investors. A significant number of the Commission’s 446 standalone cases concerned investment advisory issues, securities offerings, and issuer reporting/accounting and auditing, each comprising approximately 20 percent of the overall number of standalone actions. The Commission also continued to bring actions relating to market manipulation, insider trading, and broker-dealers, with each comprising approximately 10 percent of the overall number of standalone actions, as well as other areas.

And, it obtained judgments and orders totaling more than $3.789 billion in disgorgement and penalties.

SEC Press Release

--- If you believe need help with a securities litigation, arbitration or litigation issue, email Mark Astarita or call 212-509-6544 to speak to a securities lawyer.

SEC Announces the Formation and First Members of Fixed Income Market Structure Advisory Committee

The Securities and Exchange Commission today announced the formation and first members of its Fixed Income Market Structure Advisory Committee.

The committee, whose initial focus will be on the corporate bond and municipal securities markets, will provide advice to the Commission on the efficiency and resiliency of these markets and identify opportunities for regulatory improvements.  The committee is comprised of a diverse group of outside experts, including individuals representing the views of retail and institutional investors, small and large issuers, trading venues, dealers, and self-regulatory organizations, among others. 

“Individual investors are highly active in fixed income markets, both directly as retail investors and indirectly through various types of funds,” said SEC Chairman Jay Clayton. “This committee will help the Commission ensure that our regulatory approach to these markets meets the needs of retail investors, as well as companies and state and local governments.  I appreciate the committee members’ willingness to participate, and I would like to thank Commissioners Stein and Piwowar for their highly collaborative efforts in establishing the committee.”

“During the past several years, the fixed income markets have changed significantly," said Commissioner Kara Stein. "The Fixed Income Market Structure Advisory Committee should provide the Commission with new ideas about how to enhance the efficiency and resiliency of these evolving markets.”

“I commend Chairman Clayton for making fixed income markets a priority at the Commission,” said Commissioner Michael Piwowar. “I look forward to benefitting from the insights of this talented group of fixed-income experts.”

Chairman Clayton has appointed Michael Heaney, Non-Executive Director, Legal and General Investment Management Americas, as the initial Committee Chairman.  Other committee members include:

• Carole Brown, CFO, City of Chicago
• Amy McGarrity, CIO, Colorado Public Employees’ Retirement Association
• Rachel Wilson, SVP, Finance, Iron Mountain
• Scott Krohn, SVP and Treasurer, Verizon
• Elisse Walter, Former Chairman of the U.S. Securities and Exchange Commission
• Mihir Worah, Managing Director and CIO Asset Allocation and Real Return, PIMCO
• Dan Allen, President, Anchorage Capital Group
• Matthew Andresen, Co-Chief Executive Officer, Headlands Technologies LLC
• Brian Archer, Head, Global Credit Trading, Citigroup
• Horace Carter, Managing Director and Head of Trading, Fixed Income Capital Markets, Raymond James
• Gilbert Garcia, Managing Partner, Garcia Hamilton & Associates
• Amar Kuchinad, Chief Strategy Officer, Trumid Financial 
• Ananth Madhavan, Managing Director, Global Head of Research for ETFs and Index Investing, BlackRock
• Lynn Martin, President and COO, ICE Data Services
• Richard McVey, CEO, MarketAxess
• Suzanne Shank, Chair and CEO, Siebert Cisneros Shank
• Larry Tabb, Founder and Research Chairman, TABB Group
• Tom Thees, Head of Fixed Income, Head of DirectPool, CastleOak Securities
• Kumar Venkataraman, James M. Collins Chair in Finance, SMU
• Larry Harris, Fred V. Keenan Chair in Finance, Professor of Finance and Business Economics, USC Marshall School of Business
• Tom Gira, Executive Vice President of Market Regulation and Transparency Services, FINRA
• John Bagley, Chief Market Structure Officer, Municipal Securities Rulemaking Board

The committee will be formally established on November 15 for an initial two-year term, which can be renewed by the Commission.  The Commission will announce further details about the committee in the near future.  

SEC Press Release

--- If you believe need help with a securities litigation, arbitration or litigation issue, email Mark Astarita or call 212-509-6544 to speak to a securities lawyer.

SEC Warns Investors About Paid-to-Click Scams

The Securities and Exchange Commission is warning investors to beware online “paid-to-click” scams that promise an easy payday by merely purchasing a membership or an advertising product up front and then clicking on a certain number of online ads each day.

The SEC’s investor alert explains that these online advertising programs may have little to no revenues besides membership fees or sales of “ad packs” and may be nothing more than a Ponzi scheme.  The SEC filed an enforcement case that was unsealed last week in federal court in Florida, alleging that roughly 99 percent of the purported “profits” paid to earlier investors came directly from the buy-in fees collected from newer investors.  Meanwhile, according to the SEC’s complaint, the alleged perpetrator siphoned several million dollars out of investor funds to purchase a luxury home, automobiles, and private plane charters while also using the money to fund his other businesses.

According to the SEC’s investor alert, online advertising programs also can target those with something to advertise, promising to display a company’s ads on their network or guaranteeing traffic to a website by simply paying a membership fee or buying ad packs.

“Be skeptical if you are offered high returns for buying advertising products or clicking on online ads,” said Lori Schock, Director of the SEC’s Office of Investor Education and Advocacy.  “Some paid-to-click programs are actually Ponzi schemes.”

According to the SEC’s complaint filed against Miami-based Pedro Fort Berbel and his company Fort Marketing Group, they operated fraudulent internet advertising businesses under such names as Fort Ad Pays, The Business Shop, and MLM Shop.  They allegedly solicited investors through online posts and videos claiming they could share in the companies’ profits and earn investment returns as high as 120 percent by purchasing an ad pack for as little as a dollar and clicking on four banner ads per day.  The SEC alleges that Berbel and Fort Marketing Group raised more than $38 million from at least 150,000 investors.

“As alleged in our complaint, these companies had no viable source of revenue besides income from investor membership fees and the sale of ad packs, so this boiled down to an ad packs Ponzi scheme in which the promised investment returns to earlier investors were not possible without using funds from new investors,” said Eric I. Bustillo, Director of the SEC’s Miami Regional Office.

The SEC’s complaint charges Berbel and Fort Marketing Group with violating Sections 5(a), 5(c), and 17(a) of the Securities Act and Section 10(b) and Rule 10b-5 of the Securities Exchange Act.  They’re also charged with selling investments that are not registered with the SEC as required under the federal securities laws.  The SEC encourages investors to check the backgrounds of people selling them investments.  A quick search on the SEC’s investor.gov website shows that Berbel and Fort Marketing Group are not registered to sell investments.

The SEC obtained a court-ordered asset freeze against Berbel and his companies.

The SEC’s investigation was conducted by Sajjad Matin, Cecilia Danger, and Margaret Vizzi of the Miami Regional Office and supervised by Jessica Weissman.  The SEC's litigation will be led by Wilfredo Fernandez and Andrew Schiff.  The SEC appreciates the assistance of the Florida Office of Financial Regulation, Bureau of Financial Investigations.  The investor alert was prepared by M. Owen Donley III and Holly Pal in the SEC’s Office of Investor Education and Advocacy.

SEC Press Release

--- If you believe need help with a securities litigation, arbitration or litigation issue, email Mark Astarita or call 212-509-6544 to speak to a securities lawyer.

SEC Charges Biotech Company, Executives With Accounting Fraud

The Securities and Exchange Commission today charged a Maryland-based biotech company and four former top executives with prioritizing revenue growth over lawful accounting and misleading investors in the process.

The SEC alleges that Osiris Therapeutics routinely overstated company performance and issued fraudulent financial statements for a period of nearly two years.  According to the SEC’s complaint, the company improperly recognized revenue using artificially inflated prices, backdated documents to recognize revenue in earlier periods, and prematurely recognized revenue upon delivery of products to be held on consignment.  Osiris Therapeutics and its executives also allegedly used pricing data that they knew was false and attempted to book revenue on a fictitious transaction, among other accounting improprieties.

“As alleged in our complaint, Osiris Therapeutics falsely portrayed to investors that its revenue was growing so rapidly that its performance was consistently exceeding expectations,” said Julie Lutz, Director of the SEC’s Denver Regional Office.  “Corporate cultures cannot be so fixated on higher revenues that they use illegal accounting gimmicks to meet the financial numbers they desire.”

Osiris Therapeutics agreed to settle the charges without admitting or denying the allegations and must pay a $1.5 million penalty.

The litigation continues against four executives who led Osiris during the alleged period of accounting fraud from 2014 to 2015: chief executive officer Lode B. Debrabandere, chief financial officers Philip R. Jacoby Jr. and Gregory I. Law, and chief business officer Bobby Dwayne Montgomery.  The SEC’s complaint seeks disgorgement of ill-gotten gains plus interest and penalties along with officer-and-director bars. 

The SEC’s investigation was conducted by Laura Ordaz and Anne Romero with assistance from Judy Bizu of the Denver office.  The case was supervised by Laura Metcalfe and Kurt Gottschall.  The litigation will be led by Danielle Voorhees and supervised by Gregory Kasper.  The SEC appreciates the cooperation of the U.S. Attorney’s Office for the Southern District of New York, which filed criminal charges against Jacoby.

SEC Press Release

--- If you believe need help with a securities litigation, arbitration or litigation issue, email Mark Astarita or call 212-509-6544 to speak to a securities lawyer.

Charles Cain Named Chief of Foreign Corrupt Practices Unit

The Securities and Exchange Commission today announced that Charles E. Cain has been named chief of the Enforcement Division's national specialized Foreign Corrupt Practices Act (FCPA) Unit that focuses on violations of the anti-bribery provisions of the federal securities laws.

Since April 2017, Mr. Cain has served as Acting Chief of the FCPA Unit leading all aspects of the Enforcement Division's national enforcement of the FCPA. Prior to being appointed Acting Chief of the FCPA Unit, Mr. Cain served as the Deputy Chief of the Unit since 2011. In 2013, Mr. Cain received the Irving R. Pollack Award recognizing his scholarship and professional expertise in co-authoring the Resource Guide to the U.S. Foreign Corrupt Practices Act setting forth a detailed analysis of the FCPA and providing insight into SEC and U.S. Department of Justice (DOJ) enforcement practices.

"Charles's deep experience in FCPA matters is reflected in his outstanding efforts and results over the years as part of the Commission’s efforts to combat foreign bribery," said Stephanie Avakian, Co-Director of the SEC's Enforcement Division.

"Our anti-corruption program under our Foreign Corrupt Practices Unit remains a top priority for the Enforcement Division," said Steven Peikin, Co-Director of the SEC's Enforcement Division. "Charles 'wrote the book' on the Foreign Corrupt Practices Act and his strong leadership ensures that the great work of the FCPA Unit continues."

Mr. Cain said, "It's an honor and privilege to be selected to lead the enormously talented and dedicated people in the FCPA Unit. I look forward to building upon the important work the unit has done to combat corruption and level the playing field globally."

With over 15 years of experience investigating FCPA matters, Mr. Cain has spearheaded numerous significant and complex FCPA investigations during his tenure. In addition to his broader oversight roles in past six years, he also directly supervised several matters such as the investigations that led to charges against:

• Sweden-based telecommunications provider Telia Company AB, which agreed to pay $965 million in a global settlement, along with the DOJ and Dutch and Swedish law enforcement, to resolve FCPA charges to win business in Uzbekistan;
• Dutch telecommunications provider VimpelCom Ltd., which agreed to pay more than $795 million in a global settlement, along with DOJ and Dutch regulators, to resolve FCPA violations to win business in Uzbekistan; and
• Hungary telecommunications provider Magyar Telecom, PLC and three of its former top executives with bribing government and political party officials in Macedonia and Montenegro to win business and shut out competition in the telecommunications industry. 
• Magyar and its parent company, Deutsche Telekom, AG, agreed to settle the charges in a global resolution with DOJ under which Magyar paid $90.8 million and Deutsche Telkom paid $4.36 million. 
• After significant litigation, earlier this year, Magyar's former executives agreed to pay penalties and accept officer-and-director bars to settle the SEC's charges.

Mr. Cain joined the SEC in 1999 following private practice in Washington, D.C.  He began supervising investigations in 2004, and was promoted to Assistant Director in 2007. When the Enforcement Division created the national specialized units in 2010, he joined the FCPA Unit as an Assistant Director.

Following his service in the U.S. Navy, Mr. Cain earned his bachelor’s degree from the State University of New York at Stony Brook, graduating with high honors in 1993, and his law degree with honors from The George Washington University Law School in 1997.

SEC Press Release

--- If you believe need help with a securities litigation, arbitration or litigation issue, email Mark Astarita or call 212-509-6544 to speak to a securities lawyer.

David Glockner, Regional Director of Chicago Office, to Leave SEC

The Securities and Exchange Commission today announced that David Glockner, Director of the Chicago Regional Office, is planning to leave the agency later this month.

Since late 2013, Mr. Glockner has led a staff of approximately 270 enforcement attorneys, accountants, investigators, and compliance examiners involved in the investigation and prosecution of enforcement actions and the performance of compliance inspections in the nine-state Chicago region that is home to roughly 20 percent of the nation’s population. Mr. Glockner also has served as chair of the SEC’s Cybersecurity Working Group and is generally recognized as one of the agency’s experts on cybersecurity matters related to examinations and enforcement.

“David has been a trusted advisor and a real visionary in heightening public awareness of the important intersection between enforcement and cybersecurity,” said Stephanie Avakian, Co-Director of the SEC’s Enforcement Division.

“David helped grow the Chicago office’s expertise, spearheaded significant initiatives, and led the office to having a tremendous impact in the Chicago region,” said Steven Peikin, Co-Director of the SEC’s Enforcement Division.

“David has been a tireless advocate for investors during his time in the Chicago Regional Office,” said Pete Driscoll, Director of the SEC’s Office of Compliance Inspections and Examinations (OCIE).  “His thoughtfulness and leadership on examination issues has greatly contributed to the advancement of OCIE’s mission.”

Mr. Glockner said, “I am proud of the work that the SEC’s examiners and enforcement staff in Chicago do every day to protect investors. The SEC’s Chicago staff has built a culture that is thoughtful and innovative in its approach to a range of important issues, and it has been a privilege to work alongside these talented and dedicated public servants.”

During Mr. Glockner’s tenure as Regional Director, the Chicago office has brought many significant enforcement actions, including charges against:

• State Street Bank and Trust Company, which agreed to pay $12 million to settle charges that it conducted a pay-to-play scheme through its then-senior vice president and a hired lobbyist to win contracts to service Ohio pension funds
• National audit firm Grant Thornton LLP and two of its partners for improper professional conduct arising from ignoring red flags and fraud risks while conducting deficient audits of two publicly traded companies – Broadwind Energy Inc. and Assisted Living Concepts Inc.
• Navistar International Corp. and its former CEO for misleading investors about its development of an advanced technology truck engine that could be certified to meet U.S. emission standards
• The City of Harvey, Ill. and its comptroller for a fraudulent bond offering that the city marketed to investors
• A former official of the nation’s third largest public pension fund and two brokers for orchestrating a pay-to-play scheme to steer billions of dollars to certain firms in exchange for luxury gifts, lavish vacations, and tens of thousands of dollars spent on cocaine and prostitutes
• Two exchanges formerly owned by Direct Edge Holdings and since acquired by BATS Global Markets for failing to accurately describe the order types being used on the exchanges
• Robert W. Baird & Co. for compliance failures within its wrap fee programs
• R.T. Jones Capital Equities Management for failing to establish required cybersecurity policies and procedures in advance of a breach that compromised the personally identifiable information of approximately 100,000 individuals, including thousands of the firm’s clients
• Several alleged perpetrators behind a $78 million pump-and-dump scheme involving the stock of Jammin’ Java

During Mr. Glockner’s tenure, the National Examination Program staff in Chicago significantly increased its examinations of investment advisers and broker-dealers, and expanded its use of data analytics and its risk-based approach to examinations. Mr. Glockner also enhanced coordination between examination and enforcement teams, deepened relationships with law enforcement authorities, and assisted the Commission’s expanded examination and enforcement efforts relating to public finance.

Before Mr. Glockner joined the SEC in December 2013 as the Chicago office’s Regional Director, he was a managing director and head of the Chicago office of a digital risk management and investigations firm. Mr. Glockner also spent nearly 25 years as a criminal prosecutor in the U.S. Attorney’s Office for the Northern District of Illinois, including 11 years as chief of the office’s criminal division. Prior to joining the U.S. Attorney’s Office, Mr. Glockner began his legal career as a law clerk to the Honorable Brian Duff of the U.S. District Court for the Northern District of Illinois. He earned his bachelor’s degree from the University of Chicago in 1982 and his J.D. from Stanford Law School in 1985.

SEC Press Release

--- If you believe need help with a securities litigation, arbitration or litigation issue, email Mark Astarita or call 212-509-6544 to speak to a securities lawyer.

Petroleum Engineer Settles Charges of Insider Trading Ahead of Oil Discovery Announcement

A petroleum engineer who worked at Texas-based energy company Apache Corporation has agreed to settle SEC charges that he conducted insider trading ahead of a market-moving announcement about the company’s discovery of a significant new oil source.

The SEC alleges that Christopher J. Lollar traded on nonpublic information while working in the company’s San Antonio office that was performing the geologic and geophysical work to explore and develop the newly discovered resource play called Alpine High.  Lollar allegedly conducted trades in Apache shares and call options in the days and weeks leading up to the company’s Alpine High announcement on Sept. 7, 2016.  The value of Lollar’s brokerage account skyrocketed approximately 2,700 percent after the announcement, and his alleged profits from insider trading totaled $214,295.07.

“As detailed in our complaint, a telling piece of evidence we gathered was a recorded phone call to his brokerage firm during which a concerned Lollar found a faster way to get money into his account after learning the funds in his initial deposit request wouldn’t have been available for trading until September 8, too late for the Alpine High announcement,” said Jessica B. Magee, Associate Director for Enforcement in the SEC’s Fort Worth Regional Office.

Shamoil T. Shipchandler, Director of the SEC’s Fort Worth Regional Office, added, “Insider trading is an attack on the integrity of our markets, and Lollar allegedly exploited confidential information from his employer to do it.  Consequently, he was fired from his job and now must pay back more than double the amount of his ill-gotten gains.”

Lollar agreed to pay disgorgement of $214,295.07 plus $7,219.36 in interest and a $214,295.07 penalty for a total of $435,809.50.  Lollar agreed to the settlement without admitting or denying the allegations, and the settlement is subject to court approval.

The SEC’s investigation was conducted in the Fort Worth office by Tamara F. McCreary and Ty S. Martinez with assistance from Christopher Davis.  The case was supervised by Ms. Magee.  

SEC Press Release

--- If you believe need help with a securities litigation, arbitration or litigation issue, email Mark Astarita or call 212-509-6544 to speak to a securities lawyer.