There has never been a better time to be a Whistleblower
The Securities and Exchange Commission (the “SEC”) began its whistleblower program in August of 2011.
The concept was simple, to catch more bad guys and minimize the harm done to investors, the SEC created a program that would incentivize people with knowledge of possible securities law violations and other forms of fraud for sharing that information, allowing the SEC to more swiftly and efficiently hold accountable those responsible for unlawful conduct.
If the information proves to be original and leads to SEC action, the whistleblower is eligible for an award ranging between 10% and 30% of the money collected. Since the SEC would likely not have brought litigation without the information provided by the whistleblower, it is a win-win situation for all involved, especially the victims who otherwise may not have ever recouped any of their losses.
SEC Charges Broker-Dealer for Failures Related to Filing Suspicious Activity Reports
On May 12, 2021, the Securities and Exchange Commission (the “SEC”) announced settled charges against GWFS Equities Inc. (GWFS), a Colorado-based registered broker-dealer and affiliate of Great-West Life & Annuity Insurance Company, for violating the federal securities laws governing the filing of Suspicious Activity Reports (SARs).
Mark Lisser Pleads Guilty to Securities Fraud Conspiracy
Earlier today, in federal court in Central Islip, Mark Lisser pleaded guilty to securities fraud conspiracy for lying to customers about investments in shares of several companies prior to the initial public offering (IPO) of those companies.
SEC Charges Under Armour Inc With Disclosure Failures
On May 3, 2021, the Securities and Exchange Commission (“SEC”) charged sports apparel manufacturer Under Armour Inc (NYSE: UAA) with misleading investors as to the basis of its revenue growth and failing to disclose known uncertainties concerning its future revenue prospects. Under Armour has agreed to pay $9 million to settle the action.
Court Enters Judgments Against Promoters in Pump-And-Dump Scheme
On May 7, 2021, the Securities and Exchange Commission (“SEC”) announced that the U.S. District Court for the Central District of California entered final judgments against the remaining three defendants in a 2019 SEC action charging them for their alleged roles in a pump-and-dump scheme in the stock of southern California beverage and cannabis company Green Cures & Botanical Distribution, Inc (GRCU).
On May 20, 2019, the SEC charged Ishmail Calvin Ross, Zachary Logan, Jessica Snyder, and David N. Osegueda with deceiving a brokerage firm into allowing Ross, Logan, and Osegueda to deposit their GRCU stock into their accounts in advance of their pumping up the company’s stock price through a promotional campaign. Ross, Logan, and Osegueda then allegedly dumped their shares on unsuspecting investors, generating approximately $1.9 million in illicit proceeds. Read More
TD Ameritrade to restrict orders in Caveat Emptor designated OTC securities to liquidating trades only
According to a statement posted on the TD Ameritrade website, the popular trading platform will restrict orders in Caveat Emptor designated OTC securities to liquidating trades only starting May 25, 2021.
Robinhood Legal Battle Updates
On April 16, 2021, the Securities and Exchange Commission (“SEC”) case against Robinhood Financial moved one step closer to a payout when the SEC issued an Order appointing JND Legal Administration as the Fund Administrator of the Fair Fund established for the $65,000,000 that Robinhood Financial had agreed to pay on December 17, 2020.
The Fair Fund will be used to distribute the $65,000,000 among harmed investors.
SEC Charges Ubong Uboh and Tyler Crockett for Using a Call Room to Manipulate Stocks
On April 20, 2021, the Securities and Exchange Commission (the “SEC”) filed charges against Ubong Uboh and Tyler Crockett for soliciting investors to purchase shares of several microcap issuers from a call room in Miami, Florida.
Five Individuals Charged in Fraud Stock Offering, Stock Manipulation and Money Laundering Scheme
On Wednesday, April 14, 2021, five Individuals were indicted for a stock manipulation/money laundering scheme involving a private oil and gas company and two public Issuers, OrgHarvest Inc (“ORGH”) and ERF Wireless Inc (“ERFB”).
The five-count indictment filed in federal court in Brooklyn charged Richard Dale Sterritt, Jr (“Sterritt”), Michael Greer (“Greer”), Robert Magness (“Magness”), Mark Ross (“Ross”) and Robyn Straza (“Straza”) with conspiracy to commit securities fraud, wire fraud and money laundering, among other offenses.
Six Individuals Charged with a Multi-Million Dollar Scheme to Peddle Fraudulent Stocks
On Wednesday, April 7th, six South Florida residents were indicted by a federal grand jury on charges that they defrauded investors of approximately $21 million by falsely claiming that the investors’ money would go towards the development of a lucrative mobile gaming application that, in reality, never launched and generated no revenues. The fraud scheme operated out of Broward and Palm counties and target victim investors across the country using telephone sales rooms, also commonly known as “boiler rooms”.
Direct Public Offering Attorneys, DPO, Go Public Direct
An Initial Public Offering or IPO is used by issuers seeking to go public using an underwriter. IPOs are typically conducted by issuers listing on the NYSE Stock Exchange (“NYSE”) or NASDAQ Stock Markets (“NASDAQ”). Issuers most often use a Direct Public Offering or DPO in a going public transaction seeking quotation on the OTC Markets. Direct Public Offerings provide a means for a company to go public and sell its shares directly to investors without the use of an underwriter. Even after a Direct Public Offering, the issuer can plan to use the services of an underwriter in the future and/or uplist to NASDAQ or the NYSE.
With a Direct Public Offering, the company files a Form S-1 registration statement with the Securities and Exchange Commission (“SEC”) under the Securities Act of 1933, as amended (the “Securities Act”), if it is a domestic issuer. If the company is a foreign issuer, it can use SEC Form S-1 or Form F-1 for its registration statement.
Both Form S-1 and Form F-1 registration statements offer flexibility, and each can be used to register securities on its own behalf in an initial public offering, to register securities on behalf of its selling security holders in a secondary offering, or register securities on both its own behalf and for selling security holders.
A significant advantage of a Direct Public Offering using a registration statement on Form S-1 or Form F-1 is that the issuer can avoid many of the risks and expenses associated with reverse merger transactions. These can include undisclosed liabilities, sketchy corporate records, DTC Chills, and SEC trading suspensions. Both the NASDAQ and NYSE impose one-year waiting periods for companies after engaging in a reverse merger transaction. Read More
SEC Cleans up OTC Markets – SEC Trading Suspension of 71 Penny Stocks
On February 14, 2021, we published an article alerting the public about what we calculated to be the start of a new initiative by the Securities and Exchange Commission (“SEC”) to reign in the market manipulation of no information stocks through Social Media.
Since that article, the SEC has suspended 70 more stocks, in addition to the SpectraScience Inc (SCIE) suspension that kicked off the string of activity.
SEC Says Unregistered Dealer Almagarby’s Convertible Notes Are Toast
On November 17, 2017, the Securities and Exchange Commission (“SEC”) filed an enforcement action against Ibrahim Almagarby and his company Microcap Equity Group LLC. Both defendants were charged with two counts: effecting transactions, or inducing or attempting to induce the purchase or sale of securities using the instrumentalities of interstate commerce while not registered with the Commission of a dealer; and, as to Almagarby only, violating the Securities and Exchange Act of 1934 (“Exchange Act”) through his control of Microcap Equity. The SEC Action was filed in the U.S. District Court for the Southern District of Florida.
At the time the SEC filed its enforcement action, Almagarby was only 27 years old. He’d formed Microcap Equity Group in Florida in January 2013 with the intention, the SEC says, of using it to buy and sell securities for the defendants’ own accounts, “as part of a regular business.” That business would be familiar to anyone who follows the OTC Marketplace: the defendants purchased convertible notes from small companies in need of cash for operations and then converted all or part of the notes into common stock and sold that stock on the open market. Read More
Is the SEC Sending a Big Hint With Its Latest Penny Stock Suspension?
At the open of the trading session on February 11th, The Securities and Exchange Commission (the “SEC”) suspended trading in SpectraScience Inc (SCIE).
On the surface, the suspension seems pretty typical — a penny stock that was suspended because of “questions regarding the accuracy and adequacy of information about the Company in the market place and potentially manipulative trading activity.”
It’s the exact verbiage that appears in nearly every suspension order against penny stocks (after all, the penny stock market is full of stocks with questionable business operations, spotty public disclosures, and manipulative trading activity). But if we dig a little deeper, this suspension might not be so typical after all. In fact, it could be a precursor for a significant change in focus for the SEC to try to clean up a marketplace that has gone off the rails lately with an unprecedented amount of manipulative trading activity through the influence of Social Media.
The SEC charges Giuliani Associates Lev Parnas and David Correia
On February 4, 2021, the U.S. Securities and Exchange Commission announced charges against two associates of Rudy Giuliani, the former New York City mayor and lawyer for Donald Trump, alleging they raised $2 million from investors by making false and misleading representations.
According to the Complaint, Lev Parnas and David Correia raised the money for their company, Fraud Guarantee, between January 2013 and mid-2019, but instead of using the money to get the company off the ground as promised, Parnas and Correia misappropriated the bulk of those funds to pay for personal expenses, including travel, jewelry, cars, and disbursements at a casino.
Two Recidivists That Met Behind Bars Busted for Securities Fraud
On January 8, 2021, the Securities and Exchange Commission (the “SEC”) announced settled charges against a Utah corporation, its principals, Mark W Wiseman and Clark J Madsen, and two securities fraud recidivists, Thomas J Robbins and Daniel J Merriman, for orchestrating two inter-related frauds resulting in approximately $11 million in investor losses to around 80 investors.
According to details in the Complaint, Robbins and Merriman met while behind bars serving out sentences from prior securities fraud convictions, sharing stories of their past schemes, and plotting for the future.
Executive Order 13959 Sees Its First Casualties
On November 12, 2020, President Donald Trump signed Executive Order 13959. The Order’s goal is “Addressing the Treat From Securities Investments That Finance Communist Chinese Military Companies”.
The executive order prohibits all U.S. Investors (institutional and retail alike) from purchasing or investing in securities of companies identified by the U.S. government as “Communist Chinese military companies.” The prohibition went into effect on January 11, 2021, and immediately resulted in its first casualties, with 3 listed stocks being delisted and several OTC stocks having their symbols deleted.
SEC Amends Rule 144 for Convertible Notes and Unregistered Dealers
On December 22, 2020, the Securities and Exchange Commission (“SEC”) voted to propose amendments to Rule 144 to eliminate tacking for shares acquired upon exercise or conversion of market-adjustable securities. We have previously discussed the pattern of unregistered dealer activity associated with toxic convertible notes sold to issuers on the OTC Markets. Market adjustable securities are most often promissory notes, warrants, or preferred stock convertible into common or other shares at a dramatic discount to the issuer’s trading price. These types of market adjustable securities are known as “toxic financings” or “death spirals” for a reason. These financings are typically provided by persons acting as unregistered dealers, and they have crippling effects on small businesses and investors.
The SEC’s proposal is consistent with its recent enforcement actions targeting unregistered dealers involved in the business of toxic convertible note lending.
The proposed amendment the treatment of convertible notes under Rule 144 would not apply to securities issued by listed companies, the theory being that exchange listing standards requiring shareholder approval for substantial issuances would largely prevent these dilutive issuances. Read More
Nine Individuals Indicted in Global Resource Energy Inc (GBEN) “Pump and Dump” Scheme
On December 17, 2020, the United States Department of Justice unsealed an Indictment against nine individuals charged in a “pump and dump” stock manipulation scheme involving Global Resource Energy Inc (GBEN) filed in the Northern District of Ohio, Eastern Division.
Charged and arrested in the case were:
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- Thomas Collins, a relative of the GBEN executive officer, Cathy Collins, described as owning a substantial number of GBEN shares through his family members, co-conspirators, and associates over which he had influence and control.
- Patrick Thomas, a substantial GBEN shareholder and convertible note holder (through View Point Health Investments LLC, Sims Investment Holdings, Gulf Coast M&A Ltd, and Avila P&H LLC).
- Tyler Paulson, a substantial GBEN shareholder and convertible note holder (through Super Boat Marine Inc).
- Hughe Duwayne Graham, an unlicensed stockbroker (through HDG Global Marketing LLC), solicited potential investors using the alias “Michael Strong” to purchase GBEN stock.
- Brian Kingsfield, an unlicensed stockbroker that solicited potential investors to purchase GBEN stock.
- Dale Pearlman, an unlicensed stockbroker that solicited potential investors to purchase GBEN stock.
- Gary Kouletas, an unregistered broker-dealer (through PAG Group LLC) that liquidated shares in GBEN for the benefit of Collins, Thomas, and Paulson, receiving compensation in the form of kickbacks or commissions.
- Paul Giarmoleo, an unregistered broker-dealer that worked with Kouletas at PAG Group LLC and through Private Resources LLC, liquidating shares in GBEN for the benefit of Collins, Thomas, and Paulson, receiving compensation in the form of kickbacks or commissions.
- Damon Durante, a substantial GBEN shareholder through his personal companies (including Verde Asset Management LLC), co-conspirators, and associates over which he had influence and control that received kickbacks and undisclosed commissions for the sale of GBEN stock and paid other unlicensed stockbrokers for soliciting and selling GBEN stock.
SEC Approves NYSE Plan for Direct Listings
On Tuesday, the US Securities and Exchange Commission (SEC) approved a proposed plan by the New York Stock Exchange (NYSE) to let companies raise capital through direction listing.
The plan will allow companies that opt for a direct list to save on bank underwriting fees and raise capital by issuing new shares and selling them to public investors on the first day of trading.
SEC Charges The Cheesecake Factory For Misleading COVID-19 Disclosures
On Friday, the Securities and Exchange Commission (the “SEC”) announced that it had settled charges against The Cheesecake Factory Incorporated (CAKE) for making misleading disclosures about the impact of the COVID-19 pandemic on its business operations and financial condition.
As part of the settlement, Cheesecake Factory agreed to pay $125,000 to the SEC within 15 days.
The action is the SEC’s first charging a public company for misleading investors about the financial effects of the pandemic.
House Passes Marijuana Decriminalization Bill
On Friday, the U.S. House of Representatives passed a historic bill that would end the federal prohibition of marijuana.
The Marijuana Opportunity, Reinvestment and Expungement (MORE) Act passed by a 228 to 164 margin. Nearly all Democrats supported the bill, with only six Democrats voting against it. In contrast, only five Republicans voted for it.
It was the first time that such a bill has gone before Congress.
Nasdaq Announces New Proposed Listing Requirements to Advance Diversity
On December 1, 2020, the Nasdaq Stock Market LLC filed a proposal with the U.S. Securities and Exchange Commission (“SEC”) to adopt new listing rules related to board diversity and disclosure.
If approved by the SEC, the new listing rules would require all companies listed on the Nasdaq exchange to publicly disclose “consistent, transparent diversity statistics regarding their board of directors.” Additionally, the new rules would require most Nasdaq-listed companies to have, or explain why they don’t have, at least two diverse directors, including one who self-identifies as female and one who self-identifies as either an underrepresented minority or LGBTQ+.
Congress passes a Bill that forces Chinese stocks to meet US accounting standards
The U.S. House of Representatives unanimously passed legislation on Wednesday that would kick Chinese companies off U.S. stock exchanges if they do not fully comply with the U.S. auditing rules.
The Holding Foreign Companies Accountable Act, which was first introduced in May of 2019, passed the Senate by unanimous vote in May. Next, it will go to President Donald Trump’s desk, where it is expected to be signed into law.
Though the legislation applies to all countries, the bill’s sponsors intended it to target Chinese companies listed in the United States.
Securities Lawyer, Thomas Craft And Disbarred Attorney, Richard Rubin Charged by SEC for Fraudulent Legal Opinions
On December 2, 2020, the Securities and Exchange Commission (the “SEC”) charged disbarred attorney Richard J. Rubin and licensed attorney Thomas J. Craft with fraud for their roles in a legal opinion letter scheme to fraudulently facilitate the sale of millions of shares of microcap securities to retail investors.
The SEC’s complaint alleges that from December 2015 to July 2018, Rubin, who was disbarred in 1995, continued to fraudulently practice securities law by submitting at least 128 attorney opinion letters that allowed microcap stock issuers’ securities to be purchased by and sold to the investing public. The complaint alleges that Rubin signed certain letters, falsely claiming to be an attorney, and drafted other letters for Craft’s signature.
The complaint further alleges that From December 2015 to August 2018, Craft signed himself, instructed his mother to sign on his behalf, or consented to Rubin using Craft’s electronic signature, 30 attorney opinion letters that Craft did not draft, and for which he did not conduct any underlying due diligence. Read More
OTCQX Listing and Eligibility – OTC Markets Lawyer
OTC Markets Group Inc. operates the OTCQX® Best Market, the OTCQB® Venture Market, and the Pink® Open Market for 11,606 U.S. and global securities. Securities are placed into one of these three tiers based on the level of disclosure provided and the listing fees paid by the issuer.
What is a SPAC?
SPAC stands for Special Purpose Acquisition Company.
They are similar to blank check companies. The SPAC does an Initial Public Offering (an “IPO”) as a shell company with no commercial operations to raise money from the public for the purpose of acquiring an existing private company with real operations.
Possible replacements for Jay Clayton as SEC Chair
With Jay Clayton stepping down as the Chairman of the Securities and Exchange Commission at the end of the year, president-elect Joe Biden will have an opportunity to pick his replacement.
It is expected that senior Democratic SEC commissioner Allison Herren Lee would be named as the acting chairwoman by Biden until a permanent SEC chief is nominated and confirmed.
But who are some of the top candidates as a full-time replacement for SEC chief?
Jay Clayton won’t be sitting on his hands during his last month as the SEC Chair
On November 16, 2020, Jay Clayton, Chairman of the Securities and Exchange Commission, announced that he would be stepping down at the end of the year after 3 years and 238 days on the job.
The announcement did not say where Clayton is headed next. But his departure was expected.
Jeffrey D. Martin Charged with Manipulating Publicly Traded Stocks in Multiyear “Pump and Dump” Securities Fraud Scheme Worth Over $19 Million
On November 19, 2020, the United States Attorney William M. McSwain filed a superseded Indictment against Jeffrey D Martin, 61, of Orlando, FL. Martin was charged with conspiracy and multiple counts of securities fraud and wire fraud, related to his manipulation of several publicly-traded securities in a “pump and dump” scheme in which Martin and his co-schemers allegedly defrauded investors out of over $19 million. The charges were announced in a press release issued by the United States Attorney’s Office Eastern District of Pennsylvania on November 20, 2020.
