Scottsdale and John Hurry Push Back – FINRA Assault on Small Broker Dealers

On December 17, 2018, John Hurry broker dealer, Scottsdale Capital Advisers Corporation sued the Financial Industry Regulatory Authority (“FINRA”), for breach of contract in the U.S. District Court for the District of Columbia.  Scottsdale and its sister company, Alpine Securities, Inc., are broker-dealers controlled by John J. Hurry and his wife Justine.  Both companies are FINRA members.  Both John and Justine Hurry are registered brokers regulated by FINRA.

The complaint alleges that FINRA has breached its agreement with and obligations to member firms by its “increasing and current failure to provide fair and meaningful representation” to them, and by taking “affirmative acts that have the effect if not the purpose of burdening competition, harming not only member firms but also issuers and customers.”  Broadly, Scottsdale is saying that rather than help small securities firms, it’s unfairly attacking and damaging them:

Through… improper enforcement efforts, FINRA has… engaged in “unfair discrimination” against certain of its members in violation of its governing statute and By-Laws.  It has aggressively targeted and sought to punish or even eliminate specific segments of the securities market.  Through its coercive actions against smaller member firms who are engaged in the microcap and low-priced securities business, FINRA has gotten to the point that it is gutting the ability of firms, issuers and investors to participate in that market. Read More

SEC Files Subpoena in Possible Market Manipulation Scheme

The SEC filed a subpoena enforcement action against three penny-stock companies and their CEO - Cherubim Interests, Inc., PDX Partners, Inc., Victura Construction Group, Inc., and Patrick Jevon Johnson - seeking an order directing them to comply with investigative subpoenas for documents.The SEC filed a subpoena enforcement action against three penny-stock companies and their CEO – Cherubim Interests, Inc., PDX Partners, Inc., Victura Construction Group, Inc., and Patrick Jevon Johnson – seeking an order directing them to comply with investigative subpoenas for documents.

According to the SEC’s application, filed on December 21, 2018 in U.S. District Court for the Central District of California, the SEC is investigating whether certain individuals or entities engaged in a potential pump-and-dump scheme in the stock of Cherubim Interests, PDX Partners, Inc, and Victura Construction Group, Inc. Because the SEC was concerned about the accuracy of the companies’ disclosures, the SEC suspended trading in their securities on February 15, 2018 for ten business days. Based on its ongoing investigation, the SEC has reason to believe that each company issued false public statements in January 2018 to “pump” their stock price, claiming that it had acquired hundreds of millions of dollars of “AAA-rated” assets, even though each company appeared to have little to no assets. After the stock price and trading volume for each company increased as a result of the news, an entity associated with the companies may have “dumped” their overvalued shares for significant profits. Read More

SEC Charges Taiwan-Based Insurance, China United with Fraudulent Market Manipulation Scheme

A Taiwan-based insurance company and one of its former managers have agreed to settle fraud charges brought by the SEC relating to a scheme to manipulate the company's trading volume.A Taiwan-based insurance company, China United Insurance Service, Inc. and one of its former managers have agreed to settle fraud charges brought by the SEC relating to a scheme to manipulate the company’s trading volume.

The complaint alleges that, from approximately December 2013 through March 2018, China United Insurance Service, Inc. and Cheng-Hsiung Huang schemed to deceive the investing public and Nasdaq, for the purpose of obtaining a listing on Nasdaq, that the trading volume in the company’s stock was derived from bona fide market activity. Cheng-Hsiung Huang, acting on the company’s behalf, used multiple brokerage accounts to engage in numerous transactions in the company’s stock. When Cheng-Hsiung Huang’s trading was flagged by a U.S.-based brokerage firm for high volume and possible prearranged trading and several of the accounts were frozen, Cheng-Hsiung Huang and two colleagues contacted the brokerage firm and lied about their identities, their relation to China United, and their reasons for trading. Read More

SEC Obtains Judgment Against Former CEO John Place

On November 9, 2018, the SEC obtained a judgment against John Place, a former CEO of a brokerage consulting business who was charged by the SEC in August for his role in a multimillion dollar transition management fraud.On November 9, 2018, the SEC obtained a judgment against John Place, a former CEO of a brokerage consulting business who was charged by the SEC in August for his role in a multimillion dollar transition management fraud.

The SEC previously charged a brokerage consulting business known as GTS along with three of its former officers, including former CEO John Place, for misleading current and prospective customers about the fees the business charged in connection with securities transactions. According to the SEC’s complaint, John Place and other GTS officers told many of their customers that GTS would receive only clearly disclosed commissions charged on customers’ trades. In reality, GTS also received additional revenue from mark-ups and mark-downs charged by other brokers. Read More

SEC Obtains Asset Freeze Against Former CEO Charged with Misappropriating Investor Funds

The SEC announced on December 14, 2018 charges against Thomas Laws, the former CEO of Santa Fe Gold Corporation, for the misappropriation of investor funds. The SEC also obtained an asset freeze against Thomas Laws.The SEC announced on December 14, 2018 charges against Thomas Laws, the former CEO of Santa Fe Gold Corporation, for the misappropriation of investor funds. The SEC also obtained an asset freeze against Thomas Laws.

The SEC’s complaint, unsealed on December 6, 2018, alleges that, from at least August 2016 through February 2018, Santa Fe Gold, a public mining company based in Albuquerque, New Mexico, transferred approximately $1.1 million in investor funds to Thomas Laws and THL Financial Services Corporation, an entity controlled by Thomas Laws, for various corporate purposes, including the purchase of a silver mine and mining equipment and for third party services. According to the complaint, Thomas Laws misappropriated the funds and attempted to hide his theft from the company and its independent auditor by fabricating documents, including vendor invoices, agreements, bank records, and communications. Read More

SEC Sues Orange County Investment Adviser, Craig Arsenault for Defrauding Clients

On December 14, 2018 the SEC charged Craig Arsenault, a California investment adviser with misappropriating client funds and misleading his clients about how their money was invested and how their investments were performing. The SEC is seeking an asset freeze and the appointment of a receiver to prevent any ongoing misappropriation or dissipation of assets.On December 14, 2018 the SEC charged Craig Arsenault, a California investment adviser with misappropriating client funds and misleading his clients about how their money was invested and how their investments were performing. The SEC is seeking an asset freeze and the appointment of a receiver to prevent any ongoing misappropriation or dissipation of assets.

The SEC’s complaint alleges that Craig Arsenault defrauded clients of his advisory firm, Atlas Capital Management, Inc., who had invested $5.7 million in a company he controlled, ACT Global Investments. According to the complaint, Craig Arsenault solicited investments in Atlas Capital Management, telling his advisory clients that their funds would be used to make secured loans to doctors for the purpose of acquiring medical equipment. The complaint alleges that Craig Arsenault and ACT used client funds instead to make unsecured loans to, for example, a used car dealership, and to acquire undeveloped real estate. As alleged in to the complaint, Craig Arsenault then provided clients with deceptive account statements that made it appear as if these investments were generating substantial income when they were not. The SEC also alleges that he misappropriated and misused over $1 million of the client money invested in Atlas Capital Management. Read More

SEC Obtains Final Judgment Against Gregory Webb, a Chicago Tech Executive

The SEC has obtained a final judgment against Gregory Webb, the former Chairman and CEO of a company purportedly in the homeland security business.  In October 2011, the SEC charged  Gregory E. Webb, the Chairman and CEO of InfrAegis, Inc., and InfrAegis, with conducting a fraudulent, unregistered offering that raised over $20 million from at least 395 investors nationwide. According to the SEC's complaint, Gregory Webb and InfrAegis made false and misleading claims about the company's commercial success and the existence of contracts for the installation of InfrAegis' products.The SEC has obtained a final judgment against Gregory Webb, the former Chairman and CEO of a company purportedly in the homeland security business.

In October 2011, the SEC charged  Gregory E. Webb, the Chairman and CEO of InfrAegis, Inc., and InfrAegis, with conducting a fraudulent, unregistered offering that raised over $20 million from at least 395 investors nationwide. According to the SEC’s complaint, Gregory Webb and InfrAegis made false and misleading claims about the company’s commercial success and the existence of contracts for the installation of InfrAegis’ products. Read More

2018 Regulation A+ Q&A

Since Regulation A+ was adopted in 2015, it has gained notable market acceptance. Regulation A+ provides an offering that can be used in combination with direct public offerings and initial public offerings as part of a Going Public Transaction allowing the issuer to avoid the risks of reverse merger transactions. Regulation A+ simplifies the process of obtaining the seed stockholders required by the Financial Industry Regulatory Authority (“FINRA”) while allowing the issuer to raise initial capital. This blog post addresses the most common questions we receive about Regulation A+.Since Regulation A+ was adopted in 2015, it has gained notable market acceptance.  Regulation A+  provides an  offering that can be used in combination with direct public offerings and initial public offerings as part of a Going Public Transaction allowing the issuer to avoid the risks of reverse merger transactions. Regulation A+ simplifies the process of obtaining the seed stockholders required by the Financial Industry Regulatory Authority (“FINRA”) while allowing the issuer to raise initial capital. This blog post addresses the most common questions we receive about Regulation A+.

How much can I raise with Regulation A+?

Tier 1 of Regulation A+ is available for offerings of securities of up to $20 million in a 12- month period, with no more than $6 million in offers by selling security- holders that are affiliates of the issuer. Tier 2 is available, for offerings of securities of up to $50 million in a 12-month period, with no more than $15 million in offers by selling security-holders that are affiliates of the issuer. Read More

Regulation A + and Secondary Trading

The Securities & Exchange Commission’s amendments to Regulation A went into effect on June 19, 2015 and are now over three years old. The amendments known as Regulation A+ continue to gain market acceptance not only by the OTC Markets but also by the New York Stock Exchange and NASDAQ Stock Market as an effective means of going public. A sometimes overlooked aspect of Regulation A+ is the impact of blue sky laws on secondary trading and liquidity.

The Securities & Exchange Commission’s amendments to Regulation A went into effect on June 19, 2015 and are now over three years old.  The amendments known as Regulation A+ have gained market acceptance not only by the OTC Markets but also by the New York Stock Exchange (“NYSE”) and NASDAQ Stock Market as an effective means of going public.

A sometimes overlooked aspect of Regulation A+ is the impact of Blue Sky laws on secondary trading and liquidity. State Blue Sky laws are applicable to secondary trading and vary from state to state. From a practical perspective, it is important for a company looking to raise capital to offer liquidity to investors and facilitate secondary trading. Read More

Form S-1 Filing in 2018 – Securities Lawyers – Going Public

 

Form S-1 Filing - All companies qualify to register securities on a Form S-1 Registration Statement, while only certain issuers qualify to use Regulation A+. This blog post focuses on Forms S-1.

The Form S-1 filing remains widely used by companies seeking to raise capital and go public even after the enactment of Regulation A+.  The Form S-1 filing is the most commonly used registration statement form.  The flexibility of the Form S-1 filing allows for a variety of structures in securities offerings and going public transactions.  All companies qualify to register securities on a Form S-1 registration statement. Private companies going public should be aware of the expansive disclosure required in registration statements filed with the SEC prior to making the decision to go public. A Form S-1 registration statement on Form S-1 has two principal parts which require line item disclosures.  Part I of the registration statement is the prospectus, which requires that the company provide to Investors certain disclosures about its business operations, financial condition, and management. Part II contains information that doesn’t have to be delivered to investors.

This blog post provides a summary of the disclosures required in Form S-1 filings. Read More