On June 10, 2015, the Securities and Exchange Commission announced that it had charged Nicholas Lattanzio, the manager of Black Diamond Capital Appreciation Fund for falsely promising small businesses that he would arrange project financing for them and generate substantial returns on money they invested in his fund.  According to the SEC’s complaint, Lattanzio told small business owners that they could withdraw their money if the promised project financing didn’t materialize. Lattanzio also allegedly claimed his hedge fund had as much as $800 million under management and a proven track record of producing double-digit returns.

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The proposals require SEC reporting companies to disclose the relationship between compensation “actually paid” to their named executive officers and the company’s financial performance, measured as total shareholder return (TSR). The proposed disclosure would consist of a table reflecting compensation and TSR amounts including a discussion of the relationship between performance and the amounts paid to executive officers. Pay versus Performance Proposals.

Disclosure Table – Executive Compensation Amounts

The disclosure table would include:

• the applicable year for which the information is presented,
• the total compensation paid to the company’s principal executive officers as presented in the summary compensation table,
• the compensation actually paid to the principal executive officers,
• the average total compensation to the company’s other named executive officers as set forth in the summary compensation table,
• the average total compensation actually paid to the other named executive officers,
• the company’s TSR, and
• for other than smaller reporting companies, the issuer must provide peer group TSR.

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Both private and public companies seeking to raise capital by selling securities, do so by offering either debt or equity securities to investors. Companies can also offer a combination of debt and equity through the sale of units comprised of common stock and a convertible note.

What is an Equity Offering?

A company selling equity is most often accomplished through the sale of common stock or membership interest for a limited liability company. In return for the investment, the investor receives a form of equity ownership of the Company typically represented by shares of stock. Read More

The recent amendments to Regulation A (often called Regulation A+) provide a manageable exemption for raising capital. The exemption can be used by both private and non-reporting trading companies such as OTC Pink listed issuers. Regulation A provides two tiers of securities offerings, with the filing obligations determined by the size of the offering.  For offerings up to $20 million, “Tier 1” allows companies to raise capital without audited financials. Tier 2 offerings allow an issuer to raise up to $50 million and audited financial statements must be provided. Read More

For many, the American Dream is about having the opportunity to create and own a business. Small businesses, often described as the backbone of our economy, employ one out of two workers in the United States. Once established, small companies seeking to develop and expand their business often do so by going public. Unfortunately, there are few safeguards in place to protect mom-and-pop companies seeking access to the public markets. More often than not, small business owners are not familiar with the capital markets and the regulations that apply to capital raising activity and the going public process, making them easy prey for reverse merger purveyors given “licenses to swindle” at their expense. Read More

On June 4, 2015, the Securities and Exchange Commission (SEC) announced an emergency asset freeze of two U.S. brokerage accounts connected to schemes to manipulate the securities of Avon and other stocks, thwarting any ability for fraudsters to cash in on ill-gotten proceeds. According to the SEC complaint, it tracked a filing made on its EDGAR system about a false Avon tender offer to a foreign entity using an IP address located in Sofia, Bulgaria.

According to the SEC charges, a Bulgarian trader named Nedko Nedev controlled at least one of the two now-frozen brokerage accounts, and his account held a substantial position in Avon contracts-for-difference (CFDs) that had lost value in recent months.  The SEC charges allege that Nedko Nedev generated approximately $5,000 in excess profits by selling almost half of the account’s Avon CFDs at inflated prices after the EDGAR filing led to a 20-percent increase in the value of Avon stock on May 14. Read More

On June 1, 2015, the Financial Industry Regulatory Authority (FINRA) announced that it had launched a campaign promoting BrokerCheck (brokercheck.finra.org). BrokerCheck allows investors to access information about a broker’s employment history, certifications and licenses, as well as regulatory actions, violations or complaints made against them. BrokerCheck does not include information about all brokers registered with FINRA.  Additionally, some fraudster brokers have discovered they can avoid disclosure of negative information on BrokerCheck simply by changing their name. Read More

On June 3, 2015, the Securities and Exchange Commission announced insider trading charges against four individuals stealing confidential information from investment banks and their public company clients in order to trade in advance of secondary stock offerings.  The scheme allegedly involved at least 15 stocks and generated more than $4.4 million in illegal trading profits.

The SEC charges allege that a former day trader living in California, Steven Fishoff, schemed with two friends and his brother-in-law to pose as legitimate portfolio managers and induce investment bankers to bring them “over the wall” and share confidential information about an upcoming secondary offering.  After promising they wouldn’t disclose the nonpublic information to others or trade an issuer’s stock before an offering was announced, they violated the agreements and tipped each other about the upcoming offerings expected to inherently depress the price of the issuer’s stock.  Read More

On June 1, 2014, the Securities and Exchange Commission (SEC) announced it had brought charges in a Ponzi Scheme. According to the SEC Charges, the scheme was orchestrated by an investment adviser who took siphoned money from his investment fund and defrauded investors, including several local teachers and law enforcement officers.  The SEC complaint alleges that Phil Donnahue Williamson conducted a Ponzi scheme with money he raised for the Sterling Investment Fund, which purportedly invested in mortgages and properties in Florida and Georgia.  Read More

Over the past few weeks, we have had multiple requests from investors to review information they received after calls from boiler room sales persons. No doubt the increase in phone rooms has resulted from Rule 506(c) which allows generals solicitation of unregistered offerings if certain conditions are met, including that the issuer verify that all purchasers are “accredited investors”. Everyone who’s seen the movie “Boiler Room” is familiar with how these operations work; for once, the film makers had no need to exaggerate.  Real-life boiler rooms are run by unscrupulous con artists who hire cold callers to sell stocks and other securities to their naïve and unwary victims, using extremely high-pressure sales tactics.  Because of the large number of retirees in South Florida, its investors are prime targets for boiler room solicitations.

The classic boiler room is run by a broker-dealer that claims to be independent, specializing in stocks chosen by their “analysts,” who, they say, have conducted extensive due diligence on the issues.  In reality, the boiler room usually colludes with company management and/or insiders.  Often they own large blocks of stock obtained at very low prices; sometimes they paid nothing at all.  They will sell into their own promotion. Read More

On May 28, 2014, the Securities and Exchange Commission released the agenda for its Advisory Committee on Small and Emerging Companies meeting which is scheduled for June 3. The SEC’s meeting will focus on public company disclosure effectiveness, intrastate crowdfunding, venture exchanges, and the treatment of “finders.” The SEC Advisory Committee also is expected to vote on a recommendation to the SEC with respect to the “Section 4(a)(1½) exemption,” which would allow shareholders to resell securities sold in private placements. The SEC meeting will be held at the SEC’s headquarters, and is open to the general public.

For further information about this securities law blog post, please contact Brenda Hamilton, Securities Attorney at 101 Plaza Real S, Suite 202 N, Boca Raton, Florida, (561) 416-8956, by email at [email protected] or visit www.securitieslawyer101.com.   This securities law blog post is provided as a general informational service to clients and friends of Hamilton & Associates Law Group and should not be construed as, and does not constitute, legal and compliance advice on any specific matter, nor does this message create an attorney-client relationship. Please note that the prior results discussed herein do not guarantee similar outcomes.

Hamilton & Associates | Securities Lawyers
Brenda Hamilton, Securities Attorney
101 Plaza Real South, Suite 202 North
Boca Raton, Florida 33432
Telephone: (561) 416-8956
Facsimile: (561) 416-2855
www.SecuritiesLawyer101.com

We’ve so far written twice about North Dakota Developments (“NDD”), a real estate Ponzi scheme operated by Daniel J. Hogan and Robert L. Gavin.  In the course of the scam, Gavin and Hogan, who are United Kingdom citizens, relieved investors of more than $62 million.  The pair persuaded their victims, many of them elderly and vulnerable, to purchase interests in “units” at what are called “man camps”–workers’ housing—in properties to be built in the Bakken oil fields of North Dakota and Montana.

The interests purchased were not actual real estate, but securities.  The Securities and Exchange Commission (“SEC”) therefore had jurisdiction of them and of NDD and its managers Gavin and Hogan.  On May 5, 2015, it acted, obtaining a temporary restraining order against the company and the perpetrators.  Judge Daniel Hovland also ordered an asset freeze of the defendants’ bank accounts and those of other companies they controlled.  Read More

On May 13, 2015, the Securities and Exchange Commission (SEC”) announced that Douglas Parigian pled guilty to criminal charges of conspiracy and securities fraud for his role in an insider trading ring involving trading in the stock of American Superconductor Corporation. The criminal charges against Parigian arose out of the same fraudulent conduct alleged in an SEC action for securities fraud filed against Parigian and others in July 2014.

On July 9, 2014, the U.S. Attorney’s Office for the District of Massachusetts indicted Parigian and another defendant, Eric McPhail, for conspiracy and securities fraud and, for Parigian only, lying to FBI agents. The U.S. Attorney charged that McPhail had a history, pattern and practice of sharing confidences with a senior executive at American Superconductor. Between 2009 and 2011, the senior executive provided McPhail with material, nonpublic information concerning the company’s quarterly earnings and other business activities (the “Inside Information”) with the understanding that it would be kept confidential. Read More

On May 5, 2015, the Securities and Exchange Commission (“SEC”) obtained a temporary restraining order against North Dakota Developments, LLC (“NDD”), Robert L. Gavin and Daniel J. Hogan in connection with an elaborate real estate development Ponzi scheme that defrauded vulnerable investors of millions of dollars.  In addition, Judge Daniel Hovland ordered a freeze order of the assets held by the defendants and a number of other companies controlled by them.

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On May 3, 2015, The Financial Industry Regulatory Authority (FINRA) announced it has fined Morgan Stanley & Co. $2 million for short sale and short interest reporting and rule violations that spanned a period of more than six years, and for failing to implement a supervisory system reasonably designed to detect and prevent such violations.

Thomas Gira, Executive Vice President, FINRA Market Regulation, said, “Short interest reporting continues to provide investors with important transparency into the level of short selling in a particular issue. Accordingly, it is imperative that this information be timely and accurately reported. Similarly, a fundamental requirement for compliance with the short sale rule is that firms properly track their short positions.” Read More

On May 15, 2015, the Securities and Exchange Commission (SEC) announced charges and an emergency asset freeze in an alleged advance fee scam involving bogus prime bank instruments. The SEC complaint was filed on  May 11, 2015, in the U.S. District Court for the District of Maryland.  Advance fee scams solicit investors to make upfront payments before purported deals can go through, and perpetrators fool investors with official-sounding terminology to add an air of legitimacy to the investment programs.

According to the SEC’s complaint, which the Court unsealed yesterday at the SEC’s request, Thomas G. Ellis and Yasuo Oda, through their company, North Star Finance LLC, and Michael K. Martin and Sharon L. Salinas, through their companies, Capital Source Lending LLC and Capital Source Funding LLC, have collected approximately $5 million from defrauded investors since at least January 2013. Read More

On May 14, 2015, the Securities and Exchange Commission (SEC) announced that, Steven Palladino pled guilty to 25 counts of criminal contempt charged by the United States Attorney’s Office for the District of Massachusetts based on his repeated violations of court orders obtained by the Commission in its civil action filed in 2013 against Palladino and his Massachusetts-based company, Viking Financial Group, Inc. (collectively, “Defendants”). The SEC action charged that Defendants were operating a fraudulent Ponzi scheme. The court in the SEC action entered orders with certain preliminary relief beginning in April 2013, including an asset freeze against Defendants. The U.S. Attorney alleged in April 2014 that Palladino knowingly and willfully disobeyed court orders in the Commission’s action that froze all of Defendants’ assets and required that Defendants deposit all funds in their possession into a court-ordered escrow account. Based on his guilty plea to these contempt charges, Palladino, who is currently serving a prison sentence based on convictions in state court for the same conduct alleged in the SEC charges in its case, could face additional incarceration. Read More

Moving with unusual speed, the Financial Industry Regulatory Authority (FINRA) halted trading in Riviera Tool Company (RIVT) after the closing bell on May 7, 2015.  The action was a U3 Extraordinary Event halt.  In a U3, “trading is halted because FINRA has determined that an extraordinary event has occurred or is ongoing that has had a material effect on the market for the OTC Equity Security or the security underlying an OTC ADR or has caused or has the potential to cause major disruption to the marketplace or significant uncertainty in the settlement and clearance process.”  The halt may remain in place for up to 10 days, and can be extended beyond that should FINRA find reason to do so.
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The walls are closing in on former securities attorney John Briner.  In the past two months, he’s been criminally charged in the Provincial Court of British Columbia, sued by the U.S. Commodity Futures Trading Commission (“CFTC”), and disciplined by the Law Society of British Columbia.  Briner’s new problems follow on a series of enforcement actions brought against him by the Securities and Exchange Commission (“SEC”) in the United States.

John Briner’s troubles began in March 2006, when OTC Markets Group (then the Pink Sheets) added him to its Prohibited Attorney List.  The ban appears to have had to do with Briner’s role in a penny stock scam involving a company called Golden Apple Oil and Gas, Inc.  In September 2009, the SEC charged Golden Apple; Briner; Jay Budd, the company’s president; and Ethos Investments, Inc., a company controlled by Budd, with a number of securities violations.  Much earlier, in April 2006, the agency had issued a trading suspension of Golden Apple’s stock. Read More