UBI Blockchain Internet (UBIA): First the SEC trading suspension, now the settlement

Yesterday (July 2, 2018) the SEC filed suit against and then settled with “attorney T.J. Jesky and his law firm’s business affairs manager, Mark F. DeStefano,” for “violating the registration provisions of the federal securities laws” when they sold UBI Blockchain Internet (UBIA) stock. See the complaint (pdf).

The SEC had previously suspended trading (pdf) in UBIA from January 5th to January 23rd, 2018. The reason for the suspension at the time was:

(i) questions regarding the accuracy of assertions, since at least September 2017, by UBIA in filings with the Commission regarding the company’s business operations; and (ii) concerns about recent, unusual and unexplained market activity in the company’s Class A common stock since
at least November 2017

UBIA daily candlestick chart over last 8 months (click to enlarge):

Here are some details from the complaint:

1. This action seeks to enjoin further illegal conduct by, and obtain certain other relief from, Defendants Jesky and Destefano, who collectively illegally obtained approximately
$1.4 million in a ten-day period from their unlawful offers and sales of securities into the public market of UBI Blockchain Internet Ltd., which trades under the ticker symbol UBIA (“UBIA”). Even though the Defendants were required under the registration statement to sell their shares at a specific price that had been reported to the Commission and to the investing public, Defendants nonetheless sold their shares in the market for as much as thirteen times the required price.

2. From about 2010 through 2016, UBIA was a shell company that claimed to be in the business of designing climate controlled units for the distributed production of energy. In
early 2017, however, UBIA announced that it had entered a new business, to engage in “the research and application of blockchain technology with a focus on the Internet of things covering food, drugs and healthcare.” The Defendants have been associated with UBIA since at least 2011.

3. In October 2017, the Defendants arranged to receive UBIA shares in return for legal services rendered to UBIA by Jesky’s law firm, including the firm’s preparation of a
registration statement with the Commission. Pursuant to that registration statement, UBIA sought to register the public resale of certain shares, including the shares issued to Jesky and DeStefano. The registration statement prepared by the Jesky firm required that all Class A shares sold pursuant to the registration statement had to be sold at a fixed price of $3.70 per share.

4. Inexplicably, UBIA’s stock experienced a dramatic increase after the Defendants acquired their shares, rising from approximately $4.00 per share on November 20, 2017 to a high of approximately $115.00 on December 15, 2017, even though UBIA had not issued any news releases that would have explained such an increase. As soon as the registration statement was declared effective on December 22,
2017, the Defendants began to unlawfully sell their shares at prices far in excess of the $3.70 price required by the registration statement. Between December 26, 2017 and January 5, 2018,

Defendants sold more than 50,000 of their UBIA shares into the public over-the-counter market (“OTC”). Jesky sold 24,995 UBIA shares at prices between $21.12 and $48.13, for total proceeds of $766,036. DeStefano sold 26,000 UBIA shares at prices between $21.56 and $48.40, for total proceeds of $798,473.

6. The Defendants’ unlawful sales only stopped when the Commission suspended trading in UBIA stock on January 8, 2018, based on questions about the accuracy of assertions in
UBIA’s SEC filings and the recent, unusual market activity in the company’s stock.

7. Defendants’ offers and sales of UBIA securities between December 26, 2017 and January 5, 2018, none of which were made at the fixed price of $3.70 required by the registration
statement filed with the Commission, were in violation of Sections 5(a) and (c) of the Securities Act of 1933 [15 U.S.C. § 77e(a) & (c)].

The settlement is a typical SEC settlement:

Without admitting or denying the allegations in the SEC’s complaint, Jesky and DeStefano agreed to return approximately $1.4 million of allegedly ill-gotten gains, pay $188,682 in penalties, and be subject to permanent injunctions.  The settlement is subject to the court’s approval.

 

Disclaimer. No position in any stock mentioned and I have no relationship with anyone mentioned in this post. This blog has a terms of use that is incorporated by reference into this post; you can find all my disclaimers and disclosures there as well.

The Great Seadrill trade I missed and the OCC

First, because I cannot resist — just replace “OPP” with “OCC” when you sing along.


I’m not down with OPP. But I am down with The OCC (The Options Clearing Corporation). They are the ones who determine settlement and other important technical details of traded options. For most options traders, The OCC is unimportant — each option has a strike price and an expiry date and that is all that really matters. But when there are corporate events such as mergers, splits, bankruptcies, and the like, the OCC’s decisions become important.

Seadrill Inc (SDRL) just emerged today from its long trip through bankruptcy. From the company’s press release:

SDRL – Seadrill Announces Emergence from Chapter 11

Hamilton, Bermuda, July 2, 2018 – Seadrill Limited (“Seadrill” or the “Company“) announces today (the “Effective Date“) that it has emerged from chapter 11 after successfully completing its reorganization pursuant to its chapter 11 plan of reorganization (the “Plan“). All conditions precedent to the restructuring contemplated by the Plan have been satisfied or otherwise waived.

The Plan has equitized approximately $2.4 billion in unsecured bond obligations, more than $1 billion in contingent newbuild obligations, substantial unliquidated guaranty obligations, and c. $250 million in unsecured interest rate and currency swap claims, while extending near term debt maturities, providing the Company with over $1 billion in fresh capital and leaving employee, customer, and ordinary trade claims largely unimpaired.

The Plan has re-profiled the Company’s debt and provided substantial liquidity that puts the Company in a strong position to execute its business plan. The figures presented below highlight key financial metrics as of the Effective Date:

  • total cash of c.$2.1 billion;
  • secured bank debt of c.$5.7 billion with the first maturity in 2022;
  • new Secured Notes of c.$880 million maturing in 2025;
  • backlog of c.$2.3 billion for Seadrill Limited, excluding Seamex and Seadrill Partners; and
  • common shares issued of 100 million as described further below.

Issuance, Listing and Trading of New Common Stock

The Company has received approval to list its new common shares with the new CUSIP number G7998G 106 (the “New Common Shares“) on the New York Stock Exchange (the “NYSE“) under the same NYSE ticker symbol “SDRL” as the Company’s existing common shares (with the CUSIP G7945E 105) (the “Existing Shares“).  Subject to the relevant approvals, the Company also intends to have its equity listed on the Oslo Stock Exchange (ISIN BMG7998G1069).

On the Effective Date, the Company will have approximately 100 million New Common Shares outstanding.  The New Common Shares will be allocated as set forth below, in accordance with provisions of the Plan and issued on the Effective Date:

  • 14.25% of the New Common Shares issued to holders of unsecured claims against the Company and certain of its chapter 11 debtor affiliates;
  • 23.75% of the New Common Shares issued to participants in the $200 million equity investment under the Plan;
  • 54.625% of the New Common Shares issued to participants in the $880 million new secured notes investment under the Plan;
  • 1.9% of the New Common Shares issued to holders of existing common equity interest in the Company as of the Effective Date, an effective exchange ratio of approximately 0.0037345 New Common Shares per each Existing Share, and
  • 5.475% of the New Common Shares issued as a structuring fee to certain of the new money investors.

Trading in approximately 16 million New Common Shares issued to existing shareholders and holders of unsecured claims will commence on the NYSE one day after the Effective Date, on July 3, 2018, under the ticker symbol “SDRL”. Additional shares may commence trading in the coming weeks after a resale registration statement on Form F-1 with respect to additional shares issued on the Effective Date to certain investors is declared effective by the Securities and Exchange Commission. The Existing Shares will continue to trade on both the NYSE and Oslo Stock Exchanges under the same ticker symbol through the close of trading on the Effective Date but thereafter such trading will be suspended and the shares will be cancelled in due course.

Because the Company will continue to use the ticker symbol SDRL, holders of Existing Shares, brokers, dealers and agents effecting trades in the Existing Shares, and persons who expect to receive New Common Shares or effect trades in New Common Shares, should take note of the anticipated cancellation of the Existing Shares and issuance of New Common Shares, and the two different CUSIP numbers signifying the Existing Shares and the New Common Shares, in trading or taking any other actions in respect of shares of the Company that trade under the “SDRL” ticker.

Any questions regarding these distributions should be directed to the Company’s claims and noticing agent, Prime Clerk, on the numbers provided below.

Yesterday the OCC filed the preliminary notice (pdf) for how SDRL options would be treated. Below is the important part:

On April 17, 2018, United States Bankruptcy Court for the Southern District of Texas Victoria Division confirmed the Second Amended Joint Plan of Reorganization (“Plan”) for Seadrill Limited (SDRL). The Plan became effective on July 2, 2018, and SDRL shares were canceled. Under the Plan, SDRL shares will be converted into the right to receive approximately 0.0037345 (New) Seadrill Limited Common Share. Pursuant to the Plan, fractional shares will be rounded up or down to the nearest whole share with half shares being
rounded down.

Because fractional share amounts less than 0.5 will be rounded down, it is anticipated that SDRL1 options will not be adjusted to call for delivery of (New) SDRL Common Shares (100 x approximately 0.0037345 = approximately 0.37345). OCC will delay settlement until the final rate has been confirmed.

What this means is that the options will now be for zero shares of new SDRL. So one $0.50 put will pay out $50.00. So even if someone had bought $0.50 puts at $0.45 yesterday they will still make a nice 11% return. Do note that this OCC memo is preliminary and the final memo and settlement have not yet occurred. I will update this blog post once final settlement on the options has occurred.

Comparison to Ocean Rig (ORIG) bankruptcy emergence options adjustment

In September 2017 Ocean Rig UDW (ORIG) emerged from bankruptcy with old shareholders getting a tiny fraction of new shares. In that instance, the old options were cash-settled. See the preliminary OCC notice (dated 9/21/2017) and the final OCC notice (dated 9/27/2017).

From the preliminary OCC notice:

Ocean Rig UDW Inc. (ORIG) has announced a 1-for-9200 reverse stock split/Scheme of Arrangement. As a result of the reverse stock split/Scheme of Arrangement, each ORIG Common Share will be converted into the right to receive approximately 0.0001087 (New) Ocean Rig UDW Inc. Common Shares. The reverse stock split will become effective before the market open on September 22, 2017. Cash will be paid in lieu of fractional ORIG shares

The cash in lieu amount was then determined ( and announced in the final OCC memo:

Adjusted Ocean Rig UDW Inc. options were adjusted on September 22, 2017 (See OCC Information Memo #41867). The new deliverable became cash in lieu of approximately 0.01087 fractional ORIG Shares. The settlement of the ORIG1 options exercise/assignment activity was subject to delayed settlement.

OCC has been informed that a price of $23.50 per whole ORIG share will be used to determine the cash in lieu amount at a rate of 0.01087.

Accordingly, the cash in lieu amount is:
0.01087 x $23.50 = $0.26 per ORIG1 Contract

Now that the exact cash in lieu amount has been determined, OCC will require Put exercisers and Call assignees, during the period of September 22, 2017 through September 27, 2017, to deliver the appropriate cash amount

I was told by an experienced trader that I trust that how the OCC determines settlement in these cases of corporate events is determined by the company — so when a similar situation happens in the future both the cash in lieu of settlement and the rounding of shares (up or down) are both possible.

For the record: some final charts of Seadrill during the bankruptcy:

  

And here is a final chart of Seadrill affiliate North Atlantic Drilling (NADLQ), whose shareholders were completely wiped out in the bankruptcy:

I did not short NADLQ because of the high borrow rate and low price and uncertainty about when the stock would be deleted.

And here is the Ocean Rig UDW (ORIG) chart showing the time during which it emerged from bankruptcy — it appears that the two daily candlesticks in the $700 range are data errors — the stock closed at $0.075 on the last day of trading prior to emergence from bankruptcy and the 9200 for 1 reverse split. It opened around $40 the next day (it actually opened above $100 but those trades were busted)

Here are charts showing the actual prices (with no apparent data errors):

Disclaimer. I am short a tiny position of SDRL July 20th 2018 $0.50 calls. No position in any other stock mentioned and I have no relationship with anyone mentioned in this post. This blog has a terms of use that is incorporated by reference into this post; you can find all my disclaimers and disclosures there as well.

SEC Charges Joseph A. Fiore and his companies with market manipulation and scalping of Plandai Biotechnology (PLPL) stock

Plandai Biotechnology (PLPL) was a stock promotion that lasted for over a year from early 2013 through mid-2014. At the peak the stock went over $3 on volume of 10 million shares. On June 20th, 2018 the SEC filed suit against Joseph A. Fiore and two companies he allegedly controlled, Berkshire Capital Management Company, Inc. (“Berkshire”), and Eat at Joe’s, Ltd. (now known as SPYR, Inc., a public company that trades OTC as SPYR) (“Eat at Joe’s”).

Below is a chart of Plandai Biotechnology during the period in question.

See the SEC’s allegations in the following documents:

SEC Litigation Release
SEC complaint (pdf)

Case docket on CourtListener. The case is Securities and Exchange Commission v. Fiore (7:18-cv-05474) U.S. District Court, S.D. New York.

Excerpt from the complaint:

1. Defendant Fiore orchestrated a fraudulent scheme to promote and otherwise manipulate the market for the common stock of microcap company Plandai Biotechnology, Inc. (“Plandai”). Fiore engaged in a variety of deceptive conduct to affect the market for Plandai stock, while concealing that he controlled a large number of Plandai shares and intended to sell them. Fiore generated more than $11.5 million in illegal proceeds through his undisclosed sales of Plandai shares, through his own accounts and in accounts that he controlled in the names of Defendants Berkshire and Eat at Joe’s.
2. One facet of Fiore’s scheme was scalping, the illegal and deceptive practice of recommending that investors purchase a security while failing to disclose an intent to sell the same security. From at least April 2013 to March 2014 (the “Relevant Period”), Fiore, himself
and acting through his company Berkshire, organized, financed and directed a steady stream of stock alerts and research reports that promoted the purchase of Plandai stock. Fiore paid promoters directly to promote Plandai stock or, more commonly, paid third-party consultants to retain promoters to promote Plandai stock.
3. These promotions recommended that investors buy Plandai stock, while failing to disclose, as required by law, that Fiore, the organizer and funder of the promotional campaign, beneficially owned shares of Plandai stock, intended to sell shares, and was actively selling his
Plandai holdings into the public market. During the course of his scalping campaign, Fiore sold nearly 12 million shares of Plandai common stock through accounts he controlled.
4. Manipulative trading was another facet of Fiore’s fraudulent scheme. During the Relevant Period, Fiore, Berkshire, and Eat at Joe’s knowingly engaged in manipulative trading practices in order to induce investors to purchase Plandai stock, by artificially supporting and increasing the share price and creating the false appearance of market activity in the stock.

The complaint is quite detailed and gives details of Fiore’s alleged wash trading. According to the complaint:

During the Relevant Period, Fiore maintained and controlled six
brokerage accounts held in the name of Berkshire and six brokerage accounts held in the name of Eat at Joe’s. Fiore directed and controlled these accounts and used them, along with a brokerage account in his own name, to engage in the unlawful trading, as alleged herein.

The alleged stock promotions were not cheap:

24. Between April 2013 and March 2014, Fiore paid the promoters at least $2,137,000 to promote penny stocks, including Plandai, with approximately $675,000 going to the two intermediary consulting companies, who then retained third parties to promote Plandai
stock. Fiore personally selected the promoters, including the promoters that the consulting companies located and later retained on his behalf. He also paid the promoters for each promotional publication that they disseminated, and controlled the timing of their promotions.

One facet of promotions that I am familiar with is that they usually come at the same time as company press releases. And the alleged connection in the case of Plandai is quite explicit:

27. Throughout the promotional campaign, Fiore suggested topics for certain promotions and routinely provided the promoters with information about Plandai for use in their promotional materials. Fiore also frequently coordinated the dissemination of the promotional
materials to coincide with Plandai’s issuance of press releases, in order to generate additional positive news about Plandai.
28. On multiple occasions, Fiore received copies of Plandai press releases directly from Plandai before they had been publicly disseminated, and then forwarded the releases to third-party promoters for use in their promotional materials.

The SEC in its complaint also alleges the inadequacy of stock promoter disclaimers:

34. Fewer than half of the promotions contained generic disclaimers indicating that the promoter had been compensated for promoting the stock, and that Berkshire, or the unnamed entity paying for the promotions, “may own,” or “may sell” Plandai stock. But these disclaimers were incomplete, misleading, and materially inaccurate because Fiore and Berkshire were actively selling throughout the Relevant Period. Moreover, many promotions contained no such
disclaimer, and none of the promotions disclosed the true state of affairs: that Berkshire and Fiore beneficially owned, intended to sell and were actively selling shares of Plandai stock.

In addition to allegedly paying for promotion and liquidating stock, the SEC alleges that Fiore also at times supported the price of Plandai Biotechnology by buying stock:

54. Fiore first learned on or about June 25, 2013 that the Seattle Times was preparing an article suggesting that Plandai was a fraud. He began buying Plandai stock immediately thereafter for the purpose of manipulatively supporting the stock price and conditioning the
market in advance of the publication of the negative article.
55. On the eighteen trading days from June 25, 2013 to July 22, 2013, Fiore not only bought more Plandai shares than he sold, but his purchasing accounted for a significant portion of the market volume in Plandai stock. As discussed in paragraphs 63 to 77 below, Fiore’s purchases during this period were manipulative. Fiore’s trades set the closing price for Plandai stock on eleven of these eighteen trading days. On seven of those days, Fiore had also been responsible for the prior trade execution reported in the market, further indicating that his trades were an attempt to artificially inflate the stock price.

Who were the brokers?

The SEC complaint does not name the brokers and it is important to point out that Fiore is alleged to have lied to his brokers. The brokers have not been charged in the suit. For this reason, although I have identified “Broker B” with a high degree of certainty I will not identify the broker here. The complaint did not provide enough information for me to identify any of the other brokers allegedly used by Fiore or his companies.

Legal Threats against critic Alan Brochstein

On September 3rd, 2013 Alan Brochstein, CFA wrote a negative article on Plandai Biotechnology, Plandaí­ Biotechnology: Avoid This Green Tea Fantasy. Less than a month later he received a letter from Plandai’s outside counsel (Paula Colbath of Loeb & Loeb) accusing him of defaming the company. Ultimately the article stayed up (although behind SeekingAlpha’s paywall) and nothing came of the legal threats.

SPYR Inc (formerly known as Eat at Joe’s)

On August 3rd, 2016 Fuzzy Panda Shorts (follow him on Twitter) wrote on SeekingAlpha about SPYR Inc as a good stock to short and outlined many of the connections with Fiore and Berkshire Capital and many of the penny stocks that Fiore has financed. This is an excellent article that has lots of details on Fiore not easily found elsewhere.

 

Disclaimer. No position in any stock mentioned and I have no relationship with anyone mentioned in this post. This blog has a terms of use that is incorporated by reference into this post; you can find all my disclaimers and disclosures there as well.

SEC Suspends trading in yet another blockchain stock, Evolution Blockchain Group Inc (EVBC)

This morning the SEC issued a trading suspension for the shares of Evolution Blockchain Group Inc (EVBC).

SEC trading suspension release (PDF)
SEC trading suspension order (PDF)

The reasons given for the trading suspension (emphasis mine):

The Commission temporarily suspended trading in the securities of EVBC because of (1) questions about the accuracy and adequacy of information in the marketplace since at least May 17, 2018, including the accuracy of information contained in an Evolution Blockchain press release dated May 17, 2018, referencing a whitepaper, and (2) concerns since at least May 15, 2018, about recent unusual and unexplained market activity in the company’s common stock. Evolution Blockchain is a Nevada corporation whose stock is quoted on OTC Link LLC (previously Pink Sheets), operated by OTC Markets Group, Inc., under the ticker symbol EVBC.

The Commission acknowledges FINRA’s assistance in this matter.

The press release from May 17th, 2018 is copied below in full:

Evolution Blockchain Group – Announces Two Acquisitions and Corporate Updates

Las Vegas, Nevada (FSCwire) – Evolution Blockchain Group Inc. (OTC: EVBC) (“Evolution” or the “Company”) is pleased to announce that it has acquired two new blockchain technologies, Drive-coin and Gamebitcoin.

Drive-coin

Drive-coin is a peer-to-peer blockchain solution for the automotive and parts industry.  It is in development and when completed will allow for peer-to-peer vehicle and parts sales using a blockchain inventory management system designed with the use of smart contracts.  It will also have a social networking component with many features to localize sales of the vehicles and parts.  The technology will support automotive financing options integrated with traditional lenders to facilitate the purchasing or leasing of vehicles with Drive-Coin.

Gamebitcoin

Gamebitcoin is a game specific blockchain development solution tailored to gaming transactions across the globe.  Currently a prototype token, Gamebitcoin will be built out on our own unique blockchain with various unique features that will allow for multiple revenue streams.  Gamebitcoin will be an open platform where software and game developers can connect to API’s and integrate their game to the Gamebitcoin.  Fees are transaction based granting new developers easier access to revenue at a lower cost.

EBG Blockchain Prototype

Our whitepaper outlines a unique and proprietary blockchain technology system that improves on current blockchain methodology by improving the user experience, enhancing user asset protections, improving security methodologies and implementing unique and proprietary features. Extensive auditing of the blockchain will occur before release.

Management Additions

Evolution would like to welcome two new officers to the company, Thom Richardson as Vice President of Technology and Dominic dos Santos as Head of Project Management for Gamebitcoin.  Mr. Richardson has over six years of experience as a software engineer focused in the area of agile development.  He comes from a strong data-driven background and got his start at Fidelity Investments.  After graduation, Thom Richardson obtained his degree in Economics from the University of Texas at Arlington.  Prior to Evolution, Mr. Richardson has spent the last 5 years managing software teams from all corners of the world building applications and APIs using the MEAN stack , an open-source JavaScript software stack for building dynamic websites and web related applications.  Mr. Santos is a young entrepreneur and business owner of a private web development and server hosting company.  Educated at Sheridan College and then Concordia University, Mr. Santos is an expert in Windows and Linux software.

New Website

In addition, Evolution has launched its new website: www.evolutionblockchain.com.

“Drive-Coin is an exciting blockchain technology that we are developing and looking to forward to launching,” says Lawrence Stephenson, President of Evolution, “This blockchain technology will eventually be coupled with a compliant initial coin offering (ICO).  Prior to launching the Drive-Coin or the Gamebitcoin ICOs, we will be consulting with the Securities and Exchange Commission (SEC), the CSE and our legal team to determine if our Drive-Coin tokens are considered securities as defined by the SEC or token assets and will take the necessary avenues to ICO,” adds Lawrence Stephenson, “It is very important to us that we adhere to the laws and approach this new and exciting financial technology within the guidelines of regulation.  We are very pleased to welcome Thom and Dominic to the team, as they will be instrumental in managing the development and launch of our technologies.”

About Evolution Blockchain Group

Evolution Blockchain Group is focused on acquiring, developing and launching globally scalable blockchain technology solutions, as well as building cryptocurrency mining operations.  Initial product launches will utilize smart contracts and showcase our products core features.  EBG is committed to becoming a significant contributor in the evolution of blockchain technology that yields long term value for its shareholders and the global community by providing engineering, development, capital and expertise to our own proprietary blockchain core projects – projects that we will license and generate royalties from.  Our unique technologies improve on various aspects of current blockchain developments and focus on producing revenue driven results.  Evolution has entered a new and exciting field of technology, a field that is changing the way businesses and people interact.

Contact Info

Lawrence Stephenson

[email protected]

Perhaps more interesting than the press release is the SEC mention of the trading of the stock, which doubled before losing almost all its gains and closing close to the opening price on May 15th (the date mentioned in the SEC press release). The volume on that day was only about 35,000 shares and I cannot remember the last time the SEC mentioned unusual trading activity in a suspension press release in a stock that was trading so little volume. The SEC also mentioned the assistance of FINRA so perhaps SARs (suspicious activity reports) filed by brokers found evidence of wash trading. The somewhat increased volume and fairly tight trading range after May 15th does lead me to believe that there may have been wash trading going on in the stock to prepare it for a stock promotion.

EVBC will resume trading on the grey market (no market makers) at the open on Wednesday, July 11th.

EVBC previously traded as Garmatex Technologies (GRMX) and was reported by Promotion Stock Secrets to be a boiler room / email pump by StockCallers. The ticker and name were changed on March 27, 2018. Promotion Stock Secrets also reported that there had been some phone calls promoting the stock over the last month.

Below is the chart from when GRMX was promoted from March through early May of 2017:

Disclaimer. No position in any stocks mentioned and I have no relationship with anyone mentioned in this post except that I have subscribed to Promotion Stock Secrets for the last few years. This blog has a terms of use that is incorporated by reference into this post; you can find all my disclaimers and disclosures there as well.

How Boiler Room pump and dumps end: Comerton Corp (COCM)

Of all the various kinds of pump and dumps, I like shorting boiler room pumps the best. The reason for that is once they end, they don’t bounce back. The boiler rooms these days use fake names and temporary phone numbers and mail drop boxes to pretend to be in a location when they are halfway around the world. They cold call people on their suckers list to get them to buy and once they sell all the stock or they can’t get anymore suckers, they disconnect the phones and move on. No re-pumps or big bounces for a short seller to worry about and utter account destruction for the people who bought. See for example the Tactical Services (LUADD then TTSI) pump and dump and the OneLife Technologies (OLMM) pump and dump.

LUADD/TTSI daily chart:

There was a SeekingAlpha Article on OLMM as well as tweets by some traders I respect saying that it was a boiler room pump:

 

OLMM daily chart:

Of note: OLMM received the caveat emptor designation (skull and crossbones) by OTCMarkets on Mary 8th and that likely caused the promoters to abandon it.

Disclaimer from an email or landing page promoting OLMM:

 

While I missed out on shorting Comerton Corp (COCM) because I did not find shares to short, OLMM and TTSI were both remunerative shorts for me.

Below is the chart of COCM. Once again, suckers got destroyed. OTCMarkets gets significant credit for stopping this promotion — they gave the stock the dreaded caveat emptor designation on June 5th. After that it had one more up day before falling drastically. One note to short sellers: Interactive Brokers now prohibits new positions in stocks with the caveat emptor designation (although they take a couple days to apply this after the stock gets the designation). See stocks that have received the caveat emptor designation.

 

I would like to thank Promotion Stock Secrets / Day Trading Buzz for mentioning this in their daily update back in early May. I don’t trade a lot of pump and dumps anymore but especially for the under-the-radar ones their service is very useful — if you aren’t on the sucker call list it is hard to find out which stocks are undergoing a boiler room promotion. I searched and searched for shares to short but ended up missing out on shorting Comerton Corp. Only a few people were able to short it.

From the Promotion Stock Secrets daily morning update in early May:

COCM – Comerton Corp – stock callers promotion style tape with bids and crosses – has lower level connections and was a poor promotion previously as HAGE – check our research for reference and monitor for awareness, updates, exponential volume increase, upticks

A search for posts on $COCM on Twitter lead to one person saying that he was called and told to buy the stock:

A quick call to the above phone number led to a voice-mailbox for “Stephen Harris” so it looks like that virtual phone number was already disconnected and reused by someone else (who likely has no connection to the boiler room).

Disclaimer. No position in any stock mentioned and I have no relationship with anyone mentioned in this post except that I am a subscriber to Promotion Stock Secrets and have been for a few years. This blog has a terms of use that is incorporated by reference into this post; you can find all my disclaimers and disclosures there as well.

Stock Promoter Alexander Kon settles with SEC

After almost two years of litigation and negotiation that started on November 14, 2016 with an SEC cease and desist administrative proceeding (pdf) before an SEC Administrative Law Judge (ALJ), Alexander Kon submitted an offer of settlement (pdf) that the SEC accepted on May 29th, 2018. This is a very simple case but it is important in that it addresses the legality of incorrectly listing the name of the party that paid for a stock promotion. Also, it addresses the legality of the SEC hearing cases before its own ALJs. The second issue is beyond my legal interest so I encourage the interested reader to read Brenda Hamilton’s blog post on the case.

The facts of the case as contained in the settlement (pdf) are as follows:

1. In early 2014, as part of an effort to increase his company’s (“Issuer A”) stock price, Issuer A’s former CEO (the “Former CEO”) retained Kon to disseminate information about Issuer A.

2. Kon possessed an email list and various websites through which he touted microcap stocks. Oftentimes, Kon hired other promoters to help distribute touts.

3. After various email exchanges and phone calls between the Former CEO and Kon, they agreed that for $25,000, Kon would run a marketing campaign on Issuer A stock on April 14, 2014 via four websites that Kon operated: 1)
007stockchat.com; 2) awesomestocktips.com; 3) otcfire.com; and 4) pennystockspy.com.

4. Kon and the Former CEO interacted with each other to both organize the promotional campaign and to make arrangements for payment for the campaign. The $25,000 payment to Kon was effected via wire transfer by the Former CEO and was in response to an invoice Kon sent directly to the Former CEO. However, despite Kon interacting exclusively with the Former CEO, sending the invoice directly to the Former CEO, and receiving payment from a transaction effected by the Former
CEO, Kon determined that the disclaimer for each of the touts on the four websites would note that Kon received money from “third party Casey Cummings.” Moreover,
Kon was aware that Casey Cummings was the Former CEO’s son, yet did not disclose this in the touts either.”

Brenda Hamilton identified the company (Issuer A) as CannaBusiness Group (CBGI) and the “Former CEO” (more appropriately referred to as the “then-CEO” in my opinion and referred to in that way by Brenda Hamilton), as Michael Cummings.

On the same day that the initial proceeding against Alexander Kon was announced, the SEC announced a settlement with Casey Cummings (pdf).

The violation listed in the SEC settlement with Kon is:

As a result of the conduct described above, Kon willfully violated Section 17(b) of the Securities Act, which prohibits the publication of any notice, circular, advertisement, newspaper, article, letter, investment service, or communication which, though not purporting to offer a security for sale, describes such security for a consideration to be received from an issuer, without fully disclosing the receipt of such consideration and the amount thereof.

The penalty agreed to by Kon and the SEC was a 12 month suspension “from participating in any offering of a penny stock, including: acting as a promoter, finder, consultant …”. Also, Kohn “shall pay disgorgement of $25,000, prejudgment interest of $332, and a civil money penalty of $20,000, for a total of $45,332”.

Getting back to the topic of the legality of incorrectly identifying the paying party in a stock promotion, see the ruling of the ALJ (pdf) in Kon’s case from early 2017 (shortly before the proceeding was stayed (pdf) because of questions about the legality of the SEC hearing cases in front of their ALJs).

From that ruling (emphasis added by me):

Respondent argues that the misconduct alleged in the OIP did not amount to a violation of the law because the websites at issue disclosed the fact and amount of consideration received. See Motion at 7-10. Respondent contends that Section 17(b) does not require disclosure of the source of the consideration, and that “misidentifying the source of the consideration” does not violate Section 17(b). Motion at 8.

A reading of the statutory text alone is sufficient to reject this contention. Section 17(b) contains two elements directly relevant here: (1) the consideration at issue must be “fully disclos[ed]”; and (2) the duty to disclose only arises when the consideration is from an issuer, dealer, or underwriter. 15 U.S.C. § 77q(b). Full disclosure means exactly that – disclosure that is fulsome rather than incomplete. If consideration is received from an issuer, but the only disclosed consideration is gratuitously (or misleadingly) reported to be from a third party, then the consideration from the issuer is not “fully disclos[ed]” within the meaning of Section 17(b). Such a disclosure constitutes an omission, not merely a misidentification of the source of the consideration. Here, drawing all reasonable inferences in the Division’s favor, Respondent allegedly omitted disclosure of consideration received from the issuer (via its CEO), and thereby failed to fully disclose that consideration under Section 17(b).

In urging a different result, Respondent cites SEC v. Recycle Tech, Inc., No. 12-21656-CV-LENARD, 2013 WL 12063952 (S.D. Fla. Sept. 26, 2013). See Motion at 10. In Recycle Tech, two defendants were charged with violating Section 17(b) based on disclaimers stating that they had “received from a third party non affiliate 2.325 million free trading shares of [Recycle Tech] for advertising and marketing,” or similar language. 2013 WL 12063952, at *8. According to the complaint, however, both defendants had received their shares indirectly from Recycle Tech, the issuer. See id. The district court held that “misidentifying the source of the consideration” did not violate Section 17(b) because the disclaimers “‘fully disclos[ed] the
receipt . . . of such consideration and the amount thereof.’” Id.

According to Respondent, the district court’s holding “clearly demonstrate[s] that the Respondent’s alleged actions are not in violation of Section 17(b).” Motion at 10. I respectfully disagree with the district court’s construction of Section 17(b), because that construction did not consider the entirety of the statutory text. The other cases upon which Respondent relies are either factually distinguishable or do not support his position. See Motion at 8-9; Reply at 13.

I previously blogged about the Recycle Tech suit.

Because the Recycle Tech ruling was from a district court judge while the ruling in this case was from an SEC ALJ, I believe that a future defendant could have a good case for arguing that the district court ruling is the correct precedent. However, by aggressively pursuing this case, the SEC has shown that it still believes that any false information in a stock promotion disclaimer violates Section 17(b). Expect this issue to be litigated more in the future.

 

Disclaimer. No position in any stock mentioned and I have no relationship with anyone mentioned in this post. This blog has a terms of use that is incorporated by reference into this post; you can find all my disclaimers and disclosures there as well.

Update on Eros International v. Short sellers litigation

It has now been eight months since Eros International (EROS) sued a large number of short sellers for defamation after they publicly criticized the company. Anyone can see the court docket and download files for free at the New York County Supreme Court website (the case is 653096/2017). So far a not much has been decided in the case, with the majority of the defendants having responded having filed motions to dismiss and Eros attempting to move to discovery. The plaintiffs and defendants (specifically,  the Mangrove Defendants, the GeoInvesting Defendants, and the ClaritySpring Defendants) wrote to the judge (read the letter) on May 4th, 2018 to argue whether it was proper to move to discovery prior to the judge considering the motion to dismiss. The judge has not yet decided those issues.

A number of subpoenas were served on third parties by Eros’ counsel to attempt to ascertain the identity of John Doe defendants and this has taken up a lot of time. On February 22nd the judge ruled that Eros had until June 1st to properly serve remaining John Doe defendants. See doc 161 (pdf) for ruling.

On February 14th, 2018 the judge granted Eros’ motion for default against Manuel Asensio and Mill Rock Advisors for failing to respond to the complaint. See doc 160 (pdf) for ruling.

A copy of the docket (direct-linking to documents at the court website) is below:

Page:  1 2 3 >> Last
To view details, click on the Doc # link
Doc # Document Type
Information
Status Received Date
Filing User
View
 1 SUMMONS WITH NOTICE 
Summons with Notice
Processed 06/06/2017
Bowe, M.
Confirmation Notice
 2 SUMMONS – SUPPLEMENTAL (PRE RJI) 
Supplemental Summons
Processed 09/29/2017
Bowe, M.
Confirmation Notice
 3 COMPLAINT 
Complaint
Processed 09/29/2017
Bowe, M.
Confirmation Notice
 4 EXPARTE ORDER (PROPOSED)  (Motion# 001) 
(Proposed) Ex Parte Order to Extend Time to Serve John Doe Defendants Nos. 1-20
Processed 09/29/2017
Bowe, M.
Confirmation Notice
 5 AFFIDAVIT OR AFFIRMATION IN SUPPORT OF PROPOSED OSC/EXPARTE APP  (Motion# 001) 
Affirmation in Support of Motion to Extend Time to Serve John Doe Defendants Nos. 1-20
Processed 09/29/2017
Bowe, M.
Confirmation Notice
 6 EXHIBIT(S)   – A  (Motion# 001) 
Original Summons with Notice
Processed 09/29/2017
Bowe, M.
Confirmation Notice
 7 EXHIBIT(S)   – B  (Motion# 001) 
Supplemental Summons with Notice
Processed 09/29/2017
Bowe, M.
Confirmation Notice
 8 RJI -RE: OTHER EX PARTE APPLICATION  (Motion# 001) Processed 09/29/2017
Bowe, M.
Confirmation Notice
 9 ADDENDUM – COMMERCIAL DIVISION (840C)  (Motion# 001) Processed 09/29/2017
Bowe, M.
Confirmation Notice
 10 AFFIRMATION/AFFIDAVIT OF SERVICE 
Affidavit of Service of the Supplemental Summons, Summons with Notice, Complaint, and Notice of Comm(..)
Processed 10/03/2017
Bowe, M.
Confirmation Notice
 11 AFFIRMATION/AFFIDAVIT OF SERVICE 
Affidavit of Service of the Supplemental Summons, Summons with Notice, Complaint, and Notice of Comm(..)
Processed 10/03/2017
Bowe, M.
Confirmation Notice
 12 AFFIRMATION/AFFIDAVIT OF SERVICE 
Affidavit of Service of the Supplemental Summons, Summons with Notice, Complaint, and Notice of Comm(..)
Processed 10/03/2017
Bowe, M.
Confirmation Notice
 13 AFFIRMATION/AFFIDAVIT OF SERVICE 
Affidavit of Service of the Supplemental Summons, Summons with Notice, Complaint, and Notice of Comm(..)
Processed 10/03/2017
Bowe, M.
Confirmation Notice
 14 AFFIRMATION/AFFIDAVIT OF SERVICE 
Affidavit of Service of the Supplemental Summons, Summons with Notice, Complaint, and Notice of Comm(..)
Processed 10/03/2017
Bowe, M.
Confirmation Notice
 15 AFFIRMATION/AFFIDAVIT OF SERVICE 
Affidavit of Service of the Supplemental Summons, Summons with Notice, Complaint, and Notice of Comm(..)
Processed 10/03/2017
Bowe, M.
Confirmation Notice
 16 DECISION + ORDER ON MOTION  (Motion# 001) Processed 10/06/2017
Court User
Confirmation Notice
 17 AFFIRMATION/AFFIDAVIT OF SERVICE 
Affidavit of Service of the Supplemental Summons, Summons with Notice, Complaint, and Notice of Comm(..)
Processed 10/10/2017
Bowe, M.
Confirmation Notice
 18 AFFIRMATION/AFFIDAVIT OF SERVICE 
Affidavit of Service of the Supplemental Summons, Summons with Notice, Complaint, and Notice of Comm(..)
Processed 10/10/2017
Bowe, M.
Confirmation Notice
 19 AFFIRMATION/AFFIDAVIT OF SERVICE 
Affidavit of Service of the Supplemental Summons, Summons with Notice, Complaint, and Notice of Comm(..)
Processed 10/10/2017
Bowe, M.
Confirmation Notice
 20 AFFIRMATION/AFFIDAVIT OF SERVICE 
Affidavit of Service of the Supplemental Summons, Summons with Notice, Complaint, and Notice of Comm(..)
Processed 10/10/2017
Bowe, M.
Confirmation Notice
 21 AFFIRMATION/AFFIDAVIT OF SERVICE 
Affidavit Of Service Of Notice Of Commencement, Summons With Notice, and Supplemental Summons And Co(..)
Processed 10/11/2017
Bowe, M.
Confirmation Notice
 22 AFFIRMATION/AFFIDAVIT OF SERVICE 
Affidavit Of Service Of Notice Of Commencement, Summons With Notice, and Supplemental Summons And Co(..)
Processed 10/11/2017
Bowe, M.
Confirmation Notice
 23 AFFIRMATION/AFFIDAVIT OF SERVICE 
Affidavit of Service of Notice of Commencement of Action Subject to Mandatory Electronic Filing, Sum(..)
Processed 10/13/2017
Bowe, M.
Confirmation Notice
 24 AFFIRMATION/AFFIDAVIT OF SERVICE 
Affidavit of Service of Notice of Commencement of Action Subject to Mandatory Electronic Filing, Sum(..)
Processed 10/13/2017
Bowe, M.
Confirmation Notice
 25 AFFIRMATION/AFFIDAVIT OF SERVICE 
Supplemental Affidavit of Service of the Supplemental Summons, Summons with Notice, Complaint, and N(..)
Processed 10/13/2017
Bowe, M.
Confirmation Notice
 26 STIPULATION – OTHER – ( REQUEST TO SO ORDER ) 
Stipulation Extending the Time to Respond to the Complaint
Processed 10/23/2017
Asaro, M.
Confirmation Notice
 27 NOTICE OF APPEARANCE (POST RJI) 
Patrick L. Rocco for ClaritySpring, Inc., ClaritySpring Securities LLC and Nathan Z. Anderson
Processed 10/27/2017
Rocco, P.
Confirmation Notice
 28 NOTICE OF APPEARANCE (POST RJI) 
Susan M. Davies for Defendants ClaritySpring, Inc., ClaritySpring Securities LLC and Nathan Z. Ander(..)
Processed 10/27/2017
Davies, S.
Confirmation Notice
 29 STIPULATION – SO ORDERED Processed 10/30/2017
Court User
Confirmation Notice
 30 STIPULATION – OTHER – ( REQUEST TO SO ORDER ) 
Stipulation Extending Time to Respond to Complaint
Processed 10/30/2017
Davies, S.
Confirmation Notice
 31 STIPULATION – SO ORDERED Processed 11/06/2017
Court User
Confirmation Notice
 32 ORDER TO SHOW CAUSE ( PROPOSED )  (Motion# 002) 
For pro hac vice admission of Stephen Ryan, Jr.
Processed 11/16/2017
Davies, S.
Confirmation Notice
 33 Deleted
 34 AFFIRMATION 
Affirmation of Susan M. Davies
Processed 11/16/2017
Davies, S.
Confirmation Notice
 35 STIPULATION – OTHER 
Stipulation to Admission Pro Hac Vice
Processed 11/16/2017
Davies, S.
Confirmation Notice
 36 AFFIDAVIT OR AFFIRMATION IN SUPPORT  (Motion# 002) 
Affidavit of Stephen Ryan, Jr.
Processed 11/16/2017
Davies, S.
Confirmation Notice
 37 AFFIDAVIT OR AFFIRMATION IN SUPPORT  (Motion# 002) 
Affirmation of Susan M. Davies
Processed 11/16/2017
Davies, S.
Confirmation Notice
 38 STIPULATION – OTHER  (Motion# 002) 
Stipulation to Pro Hac Vice Admission
Processed 11/16/2017
Davies, S.
Confirmation Notice
 39 ORDER TO SHOW CAUSE ( PROPOSED )  (Motion# 003) 
Proposed Order to Show Cause for Pro Hac Vice Admission of Bryan A. Wood
Processed 11/16/2017
Davies, S.
Confirmation Notice
 40 AFFIDAVIT OR AFFIRMATION IN SUPPORT  (Motion# 003) 
Affidavit of Bryan A. Wood
Processed 11/16/2017
Davies, S.
Confirmation Notice
 41 AFFIDAVIT OR AFFIRMATION IN SUPPORT  (Motion# 003) 
Affirmation of Susan M. Davies
Processed 11/16/2017
Davies, S.
Confirmation Notice
 42 STIPULATION – OTHER  (Motion# 003) 
Stipulation to Pro Hac Vice Admission
Processed 11/16/2017
Davies, S.
Confirmation Notice
 43 AFFIRMATION/AFFIDAVIT OF SERVICE 
Affidavits of Service re: ClaritySpring Securities LLC
Processed 11/17/2017
Bowe, M.
Confirmation Notice
 44 DECISION + ORDER ON MOTION  (Motion# 002) Processed 11/27/2017
Court User
Confirmation Notice
 45 DECISION + ORDER ON MOTION  (Motion# 003) Processed 11/27/2017
Court User
Confirmation Notice
 46 LETTER / CORRESPONDENCE TO JUDGE 
Letter requesting page limit enlargement
Processed 11/28/2017
Wise, T.
Confirmation Notice
 47 ORDER TO SHOW CAUSE ( PROPOSED )  (Motion# 005) Processed 11/30/2017
Asaro, M.
Confirmation Notice
 48 MEMORANDUM OF LAW IN SUPPORT  (Motion# 005) Processed 11/30/2017
Asaro, M.
Confirmation Notice
 49 AFFIDAVIT OR AFFIRMATION IN SUPPORT OF PROPOSED OSC/EXPARTE APP  (Motion# 005) 
Affirmation of Jessica A. Fitts in Support of Defendants Mangrove Partners’ and Nathaniel H. August'(..)
Processed 11/30/2017
Asaro, M.
Confirmation Notice
 50 EXHIBIT(S)   – 1  (Motion# 005) 
October 30, 2015 report
Processed 11/30/2017
Asaro, M.
Confirmation Notice
 51 EXHIBIT(S)   – 2  (Motion# 005) 
November 10, 2015 report
Processed 11/30/2017
Asaro, M.
Confirmation Notice
 52 EXHIBIT(S)   – 3  (Motion# 005) 
November 13, 2015 report
Processed 11/30/2017
Asaro, M.
Confirmation Notice
 53 EXHIBIT(S)   – 4  (Motion# 005) 
November 20, 2015 report
Processed 11/30/2017
Asaro, M.
Confirmation Notice
 54 EXHIBIT(S)   – 5  (Motion# 005) 
October 23, 2015 report
Processed 11/30/2017
Asaro, M.
Confirmation Notice
 55 EXHIBIT(S)   – 6  (Motion# 005) 
October 26, 2015 report
Processed 11/30/2017
Asaro, M.
Confirmation Notice
 56 EXHIBIT(S)   – 7  (Motion# 005) 
October 23, 2015 article
Processed 11/30/2017
Asaro, M.
Confirmation Notice
 57 EXHIBIT(S)   – 8  (Motion# 005) 
“Alpha Exposure” tweets through September 29, 2017
Processed 11/30/2017
Asaro, M.
Confirmation Notice
 58 EXHIBIT(S)   – 9  (Motion# 005) 
August 14, 2017 report
Processed 11/30/2017
Asaro, M.
Confirmation Notice
 59 EXHIBIT(S)   – 10  (Motion# 005) 
Complaint
Processed 11/30/2017
Asaro, M.
Confirmation Notice
 60 ORDER TO SHOW CAUSE ( PROPOSED )  (Motion# 004) 
Proposed Order to Show Cause to Dismiss the Complaint Pursuant to CPLR 3211(a)(1),(7)
Processed 11/30/2017
Deleeuw, M.
Confirmation Notice
 61 AFFIDAVIT OR AFFIRMATION IN SUPPORT OF PROPOSED OSC/EXPARTE APP  (Motion# 004) 
Affirmation of Michael de Leeuw In Support Of Order To Show Cause To Dismiss The Complaint Pursuant (..)
Processed 11/30/2017
Deleeuw, M.
Confirmation Notice
 62 EXHIBIT(S)   – 1  (Motion# 004) 
Exhibit 1 to de Leeuw Affirmation
Processed 11/30/2017
Deleeuw, M.
Confirmation Notice
 63 EXHIBIT(S)   – 2  (Motion# 004) 
Exhibit 2 to de Leeuw Affirmation
Processed 11/30/2017
Deleeuw, M.
Confirmation Notice
 64 EXHIBIT(S)   – 3  (Motion# 004) 
Exhibit 3 to de Leeuw Affirmation
Processed 11/30/2017
Deleeuw, M.
Confirmation Notice
 65 EXHIBIT(S)   – 4  (Motion# 004) 
Exhibit 4 to de Leeuw Affirmation
Processed 11/30/2017
Deleeuw, M.
Confirmation Notice
 66 EXHIBIT(S)   – 5  (Motion# 004) 
Exhibit 5 to de Leeuw Affirmation
Processed 11/30/2017
Deleeuw, M.
Confirmation Notice
 67 EXHIBIT(S)   – 6  (Motion# 004) 
Exhibit 6 to de Leeuw Affirmation
Processed 11/30/2017
Deleeuw, M.
Confirmation Notice
 68 EXHIBIT(S)   – 7  (Motion# 004) 
Exhibit 7 to de Leeuw Affirmation
Processed 11/30/2017
Deleeuw, M.
Confirmation Notice
 69 EXHIBIT(S)   – 8  (Motion# 004) 
Exhibit 8 to de Leeuw Affirmation
Processed 11/30/2017
Deleeuw, M.
Confirmation Notice
 70 EXHIBIT(S)   – 9  (Motion# 004) 
Exhibit 9 to de Leeuw Affirmation
Processed 11/30/2017
Deleeuw, M.
Confirmation Notice
 71 EXHIBIT(S)   – 10  (Motion# 004) 
Exhibit 10 to de Leeuw Affirmation
Processed 11/30/2017
Deleeuw, M.
Confirmation Notice
 72 MEMORANDUM OF LAW IN SUPPORT  (Motion# 004) 
Memorandum of Law in Support of Order to Show Cause to Dismiss the Complaint Pursuant to CPLR 3211(a(..)
Processed 11/30/2017
Deleeuw, M.
Confirmation Notice
 73 ORDER TO SHOW CAUSE ( PROPOSED )  (Motion# 006) 
for Dismissal of All Causes of Action Against ClaritySprings, Inc., ClaritySprings Securities LLC an(..)
Processed 11/30/2017
Rocco, P.
Confirmation Notice
 74 AFFIRMATION  (Motion# 006) 
Affirmation of Susan M. Davies re Briefing Schedule
Processed 11/30/2017
Rocco, P.
Confirmation Notice
 75 EXHIBIT(S)   – 1  (Motion# 006) 
Davies Exhibit 1 (Order Entered 11/6/2017 NYSCEF 31)
Processed 11/30/2017
Rocco, P.
Confirmation Notice

Page: 1 2 3 >> Last

Page:  << 1 2 3 >> Last
To view details, click on the Doc # link
Doc # Document Type
Information
Status Received Date
Filing User
View
 76 EXHIBIT(S)   – 2  (Motion# 006) 
Davies Exhibit 2 (Order Entered 10/30/2017 NYSCEF 29)
Processed 11/30/2017
Rocco, P.
Confirmation Notice
 77 AFFIDAVIT  (Motion# 006) 
Affidavit of Stephen Ryan, Jr.
Processed 11/30/2017
Rocco, P.
Confirmation Notice
 78 EXHIBIT(S)   – 1  (Motion# 006) 
Ryan Exhibit 1 (ClaritySpring Inc. Twitter Page)
Processed 11/30/2017
Rocco, P.
Confirmation Notice
 79 EXHIBIT(S)   – 2  (Motion# 006) 
Ryan Exhibit 2 (ClaritySpring Inc. Tweet 3/9/2017)
Processed 11/30/2017
Rocco, P.
Confirmation Notice
 80 EXHIBIT(S)   – 3  (Motion# 006) 
Ryan Exhibit 3 (ClaritySpring Inc. Tweet 3/17/2017)
Processed 11/30/2017
Rocco, P.
Confirmation Notice
 81 EXHIBIT(S)   – 3A  (Motion# 006) 
Ryan Exhibit 3A (ValueWalk Article “GeoInvesting Now Says Eros Facing ‘Very Real Liquidity Crisis'”)
Processed 11/30/2017
Rocco, P.
Confirmation Notice
 82 EXHIBIT(S)   – 4  (Motion# 006) 
Ryan Exhibit 4 (ClaritySpring Inc. Tweet 3/31/2017)
Processed 11/30/2017
Rocco, P.
Confirmation Notice
 83 EXHIBIT(S)   – 4A  (Motion# 006) 
Ryan Exhibit 4A (“Quoth the Raven” Tweet)
Processed 11/30/2017
Rocco, P.
Confirmation Notice
 84 EXHIBIT(S)   – 5  (Motion# 006) 
Ryan Exhibit 5 (ClaritySpring Inc. Tweet 6/26/2017)
Processed 11/30/2017
Rocco, P.
Confirmation Notice
 85 EXHIBIT(S)   – 6  (Motion# 006) 
Ryan Exhibit 6 (ClaritySpring Inc. Tweet 7/21/2017)
Processed 11/30/2017
Rocco, P.
Confirmation Notice
 86 EXHIBIT(S)   – 7  (Motion# 006) 
Ryan Exhibit 7 (ClaritySpring Inc. Tweet 7/27/2017)
Processed 11/30/2017
Rocco, P.
Confirmation Notice
 87 EXHIBIT(S)   – 8  (Motion# 006) 
Ryan Exhibit 8 (Hindenburg Research Article “Eros Earning Review: An Abundance of Red Flags”
Processed 11/30/2017
Rocco, P.
Confirmation Notice
 88 EXHIBIT(S)   – 9  (Motion# 006) 
Ryan Exhibit 9 (Hindenburg Research Article “Eros’s Latest Buyout Rumors Seem Suspect”
Processed 11/30/2017
Rocco, P.
Confirmation Notice
 89 EXHIBIT(S)   – 10  (Motion# 006) 
Ryan Exhibit 10 (Hindenburg Research Article “Eros International: New Receivables Accounting Red Fl(..)
Processed 11/30/2017
Rocco, P.
Confirmation Notice
 90 EXHIBIT(S)   – 11  (Motion# 006) 
Ryan Exhibit 11 (Hindenburg Research Tweets 8/1/2017)
Processed 11/30/2017
Rocco, P.
Confirmation Notice
 91 EXHIBIT(S)   – 12  (Motion# 006) 
Ryan Exhibit 12 (Hindenburg Research Tweet 8/4/2017 at 10:32 am)
Processed 11/30/2017
Rocco, P.
Confirmation Notice
 92 EXHIBIT(S)   – 12A  (Motion# 006) 
Ryan Exhibit 12A (Article “Film Artists Working Abroad Shown as Exports to Evade Tax: CAG”)
Processed 11/30/2017
Rocco, P.
Confirmation Notice
 93 EXHIBIT(S)   – 13  (Motion# 006) 
Ryan Exhibit 13 (Hindenburg Research Tweet 8/4/2017 at 10:18 am)
Processed 11/30/2017
Rocco, P.
Confirmation Notice
 94 EXHIBIT(S)   – 13A  (Motion# 006) 
Ryan Exhibit 13A (Document from Indian Ministry of Corporate Affairs)
Processed 11/30/2017
Rocco, P.
Confirmation Notice
 95 MEMORANDUM OF LAW IN SUPPORT  (Motion# 006) 
Memorandum of Law in Support of Motion To Dismiss All Causes of Action Against ClaritySpring Inc., C(..)
Processed 11/30/2017
Rocco, P.
Confirmation Notice
 96 ORDER TO SHOW CAUSE  (Motion# 004) Processed 12/01/2017
Court User
Confirmation Notice
 97 ORDER TO SHOW CAUSE  (Motion# 005) Processed 12/01/2017
Court User
Confirmation Notice
 98 ORDER TO SHOW CAUSE ( PROPOSED )  (Motion# 007) 
(Proposed)Order To Show Cause
Processed 12/01/2017
Bowe, M.
Confirmation Notice
 99 MEMORANDUM OF LAW IN SUPPORT  (Motion# 007) 
Memorandum Of Law In Support Of Plaintiffs Motion For Default Judgments Against Defendants Manuel P.(..)
Processed 12/01/2017
Bowe, M.
Confirmation Notice
 100 AFFIDAVIT OR AFFIRMATION IN SUPPORT OF PROPOSED OSC/EXPARTE APP  (Motion# 007) 
Affirmation Of Michael J. Bowe In Support Of Plaintiffs Motion For Default Judgments Against Defenda(..)
Processed 12/01/2017
Bowe, M.
Confirmation Notice
 101 EXHIBIT(S)   – A  (Motion# 007) 
Asensio Nail and Mail Affidavit of Service
Processed 12/01/2017
Bowe, M.
Confirmation Notice
 102 EXHIBIT(S)   – B  (Motion# 007) 
Asensio Doorman Affidavit of Service
Processed 12/01/2017
Bowe, M.
Confirmation Notice
 103 EXHIBIT(S)   – C  (Motion# 007) 
Asensio & Co SOS Affidavit of Service
Processed 12/01/2017
Bowe, M.
Confirmation Notice
 104 EXHIBIT(S)   – D  (Motion# 007) 
Mill Rock SOS Affidavit of Service
Processed 12/01/2017
Bowe, M.
Confirmation Notice
 105 EXHIBIT(S)   – E  (Motion# 007) 
CPLR_3215(g) Aff.
Processed 12/01/2017
Bowe, M.
Confirmation Notice
 106 EXHIBIT(S)   – F  (Motion# 007) 
2017.11.20 Asensio Email
Processed 12/01/2017
Bowe, M.
Confirmation Notice
 107 EXHIBIT(S)   – G  (Motion# 007) 
2017.11.22 Tountas Email
Processed 12/01/2017
Bowe, M.
Confirmation Notice
 108 EXHIBIT(S)   – H  (Motion# 007) 
2017.11.22 Asensio Email
Processed 12/01/2017
Bowe, M.
Confirmation Notice
 109 EXHIBIT(S)   – I  (Motion# 007) 
2017.11.24 Bowe Email
Processed 12/01/2017
Bowe, M.
Confirmation Notice
 110 EXHIBIT(S)   – J  (Motion# 007) 
2017.11.24 Tountas Email
Processed 12/01/2017
Bowe, M.
Confirmation Notice
 111 EXHIBIT(S)   – K  (Motion# 007) 
2017.11.25 Asensio Email
Processed 12/01/2017
Bowe, M.
Confirmation Notice
 112 EXHIBIT(S)   – L  (Motion# 007) 
2017.11.28 Asensio Email
Processed 12/01/2017
Bowe, M.
Confirmation Notice
 113 EXHIBIT(S)   – M  (Motion# 007) 
2017.11.29 Cantor Email
Processed 12/01/2017
Bowe, M.
Confirmation Notice
 114 EXHIBIT(S)   – N  (Motion# 007) 
2017.10.20 Sorkin Email
Processed 12/01/2017
Bowe, M.
Confirmation Notice
 115 EXHIBIT(S)   – O  (Motion# 007) 
2017.10.05 Alpha Exposure Tweets
Processed 12/01/2017
Bowe, M.
Confirmation Notice
 116 EXHIBIT(S)   – P  (Motion# 007) 
2017.10.05 Asensio Tweet
Processed 12/01/2017
Bowe, M.
Confirmation Notice
 117 NOTICE OF APPEARANCE (POST RJI) Processed 12/03/2017
Cantor, M.
Confirmation Notice
 118 AFFIDAVIT OR AFFIRMATION IN OPPOSITION TO ORDER TO SHOW CAUSE  (Motion# 007) 
Affidavit in Opposition to Proposed OSC
Processed 12/03/2017
Cantor, M.
Confirmation Notice
 119 EXHIBIT(S)   – 1  (Motion# 007) 
November 20, 2017 email
Processed 12/03/2017
Cantor, M.
Confirmation Notice
 120 EXHIBIT(S)   – 2  (Motion# 007) 
June 12, 2016 Letter
Processed 12/03/2017
Cantor, M.
Confirmation Notice
 121 ORDER TO SHOW CAUSE  (Motion# 006) Processed 12/04/2017
Court User
Confirmation Notice
 122 ORDER TO SHOW CAUSE  (Motion# 007) Processed 12/06/2017
Court User
Confirmation Notice
 123 AFFIRMATION/AFFIDAVIT OF SERVICE  (Motion# 007) Processed 12/08/2017
Bowe, M.
Confirmation Notice
 124 STIPULATION – ADJOURNMENT OF MOTION – BEFORE JUDGE  (Motion# 007) Processed 01/12/2018
Cantor, M.
Confirmation Notice
 125 LETTER / CORRESPONDENCE TO JUDGE 
Letter to Justice Bransten requesting leave to file an omnibus opposition that does not exceed 60 pa(..)
Processed 01/16/2018
Tountas, S.
Confirmation Notice
 126 LETTER/CORRESPONDENCE – SO ORDERED Processed 01/17/2018
Court User
Confirmation Notice
 127 STIPULATION – ADJOURNMENT OF MOTION -IN SUBMISSIONS PART -RM 130  (Motion# 007) Processed 01/22/2018
Cantor, M.
Confirmation Notice
 128 MEMORANDUM OF LAW IN OPPOSITION  (Motion# 005) 
Plaintiff’s Memorandum of Law in Opposition to The Mangrove Defendants’ Order to Show Cause
Processed 01/23/2018
Bowe, M.
Confirmation Notice
 129 AFFIDAVIT OR AFFIRMATION IN OPPOSITION TO ORDER TO SHOW CAUSE  (Motion# 005) 
Affirmation of Michael J. Bowe in Opposition to The Mangrove Defendants’ Order to Show Cause
Processed 01/23/2018
Bowe, M.
Confirmation Notice
 130 EXHIBIT(S)   – A  (Motion# 005) 
Bloomberg News Feed
Processed 01/23/2018
Bowe, M.
Confirmation Notice
 131 MEMORANDUM OF LAW IN OPPOSITION  (Motion# 004) 
Plaintiff’s Memorandum of Law in Opposition to The GeoInvesting Defendants’ Order to Show Cause
Processed 01/23/2018
Bowe, M.
Confirmation Notice
 132 AFFIDAVIT OR AFFIRMATION IN OPPOSITION TO ORDER TO SHOW CAUSE  (Motion# 004) 
Affirmation of Michael J. Bowe in Opposition to The GeoInvesting Defendants’ Order to Show Cause
Processed 01/23/2018
Bowe, M.
Confirmation Notice
 133 EXHIBIT(S)   – A  (Motion# 004) 
Letter from Tountas to Anderson
Processed 01/23/2018
Bowe, M.
Confirmation Notice
 134 EXHIBIT(S)   – B  (Motion# 004) 
Bloomberg News Feed
Processed 01/23/2018
Bowe, M.
Confirmation Notice
 135 EXHIBIT(S)   – C  (Motion# 004) 
GeoInvesting Mar. 8, 2017 Article
Processed 01/23/2018
Bowe, M.
Confirmation Notice
 136 MEMORANDUM OF LAW IN OPPOSITION  (Motion# 006) 
Plaintiff’s Memorandum of Law in Opposition to The ClaritySpring Defendants’ Motion to Dismiss the C(..)
Processed 01/23/2018
Bowe, M.
Confirmation Notice
 137 AFFIDAVIT OR AFFIRMATION IN OPPOSITION TO ORDER TO SHOW CAUSE  (Motion# 006) 
Affirmation of Michael J. Bowe in Opposition to The Clarity Spring Defendants’ Order to Show Cause
Processed 01/23/2018
Bowe, M.
Confirmation Notice
 138 EXHIBIT(S)   – A  (Motion# 006) 
Letter from Tountas to Anderson
Processed 01/23/2018
Bowe, M.
Confirmation Notice
 139 EXHIBIT(S)   – B  (Motion# 006) 
Hindenburg SA Profile
Processed 01/23/2018
Bowe, M.
Confirmation Notice
 140 EXHIBIT(S)   – C  (Motion# 006) 
Bloomberg News Feed
Processed 01/23/2018
Bowe, M.
Confirmation Notice
 141 AFFIRMATION/AFFIDAVIT OF SERVICE Processed 02/01/2018
Tountas, S.
Confirmation Notice
 142 ORDER TO SHOW CAUSE ( PROPOSED )  (Motion# 008) 
Plaintiff Eros International PLC’s Order to Show Cause to Extend Time
Processed 02/01/2018
Bowe, M.
Confirmation Notice
 143 AFFIDAVIT OR AFFIRMATION IN SUPPORT OF PROPOSED OSC/EXPARTE APP  (Motion# 008) 
Affirmation In Support Of Eros Second Motion To Extend Time To Serve John Doe Defendants Nos. 1-5 & (..)
Processed 02/01/2018
Bowe, M.
Confirmation Notice
 144 EXHIBIT(S)   – A  (Motion# 008) 
Summons with Notice
Processed 02/01/2018
Bowe, M.
Confirmation Notice
 145 EXHIBIT(S)   – B  (Motion# 008) 
Supplemental Summons
Processed 02/01/2018
Bowe, M.
Confirmation Notice
 146 EXHIBIT(S)   – C  (Motion# 008) 
Decision and Order
Processed 02/01/2018
Bowe, M.
Confirmation Notice
 147 EXHIBIT(S)   – D  (Motion# 008) 
Part 1
Processed 02/01/2018
Bowe, M.
Confirmation Notice
 148 EXHIBIT(S)   – D  (Motion# 008) 
Part 2
Processed 02/01/2018
Bowe, M.
Confirmation Notice
 149 EXHIBIT(S)   – E  (Motion# 008) 
StockTwits Subpoena Duces Tecum
Processed 02/01/2018
Bowe, M.
Confirmation Notice
 150 EXHIBIT(S)   – F  (Motion# 008) 
Scribd Subpoena Duces Tecum
Processed 02/01/2018
Bowe, M.
Confirmation Notice

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To view details, click on the Doc # link
Doc # Document Type
Information
Status Received Date
Filing User
View
 151 EXHIBIT(S)   – G  (Motion# 008) 
Twitter Subpoena
Processed 02/01/2018
Bowe, M.
Confirmation Notice
 152 EXHIBIT(S)   – H  (Motion# 008) 
LinkedIn Subpoena
Processed 02/01/2018
Bowe, M.
Confirmation Notice
 153 ORDER TO SHOW CAUSE  (Motion# 008) Processed 02/05/2018
Court User
Confirmation Notice
 154 MEMORANDUM OF LAW IN REPLY  (Motion# 006) Processed 02/07/2018
Rocco, P.
Confirmation Notice
 155 MEMORANDUM OF LAW IN REPLY  (Motion# 004) 
Reply In Further Support of Order to Show Cause By Defendants GeoInvesting, LLC, Christopher Irons, (..)
Processed 02/07/2018
Deleeuw, M.
Confirmation Notice
 156 MEMORANDUM OF LAW IN REPLY  (Motion# 005) 
Reply Memorandum of Law in Further Support of Defendants Mangrove Partners’ and Nathaniel H. August'(..)
Processed 02/07/2018
Asaro, M.
Confirmation Notice
 157 STIPULATION – ADJOURNMENT OF MOTION – BEFORE JUDGE  (Motion# 007) Processed 02/14/2018
Cantor, M.
Confirmation Notice
 158 LETTER / CORRESPONDENCE TO JUDGE  (Motion# 005) 
Letter to the Honorable Eileen Bransten from Joseph L. Sorkin dated 2/15/2018
Processed 02/15/2018
Sorkin, J.
Confirmation Notice
 159 LETTER / CORRESPONDENCE TO JUDGE 
Letter to Justice Bransten, dated February 16, 2018, from Michael J. Bowe, in response to Defendant(..)
Processed 02/16/2018
Bowe, M.
Confirmation Notice
 160 DECISION + ORDER ON MOTION  (Motion# 007) Processed 02/26/2018
Court User
Confirmation Notice
 161 DECISION + ORDER ON MOTION  (Motion# 008) Processed 02/26/2018
Court User
Confirmation Notice
 162 LETTER / CORRESPONDENCE TO JUDGE 
Joint Letter to Justice Bransten dated May 4, 2018 requesting Preliminary Conference
Processed 05/04/2018
Bowe, M.
Confirmation Notice

 

Disclaimer. I have no position in any stock mentioned above. I have no relationship with any parties mentioned above. This blog has a terms of use that is incorporated by reference into this post; you can find all my disclaimers and disclosures there as well.

Penny Stock attorney Diane Dalmy sentenced to 3 years in prison

Yesterday attorney Diane Dalmy was sentenced to three years in prison for her work on behalf of penny stock companies and insiders.

From the DoJ press release:

According to court documents and statements made in court, DALMY, an attorney, performed securities-related legal work on behalf of several public companies, including Mammoth Energy Group, Inc., a company that later became known as Strategic Asset Leasing Inc.; and Fox Petroleum, Inc. (the “Subject Companies”).  Between approximately January 2009 and July 2016, DALMY conspired with others, including William Lieberman, of Boca Raton, Florida, and Christian Meissenn, of Suffield, Connecticut, to defraud investors through a stock “pump and dump” scheme.  During the course of the conspiracy, DALMY acted largely at Lieberman’s direction.

Finally, between February 2015 and July 2016, DALMY laundered a portion of the proceeds of the scheme on behalf of the co-conspirators.  DALMY helped Lieberman to incorporate and open bank accounts for a private company, Queen Asia Pacific Ltd. (“Queen Asia”), which was controlled by Lieberman.  These bank accounts were used to receive proceeds of the scheme from a brokerage account in Queen Asia’s name. DALMY periodically received money in Queen Asia’s bank accounts, transferred those funds to her IOLTA, and then transferred the funds again to Lieberman, Meissenn, and their network of stock promoters.  In total, DALMY laundered approximately $825,000 on behalf of the co-conspirators through Queen Asia’s bank accounts and her IOLTA.

Dalmy has been prohibited from representing companies trading on OTCMarkets since September 2009:

Compared to how much money she made, Dalmy is being fined a lot:

DALMY’s total gain from her participation in this conspiracy, and related legal work for the Subject Companies, was approximately $30,000.

Judge Meyer ordered DALMY to pay $2 million in restitution.

On February 6, 2018, DALMY pleaded guilty to one count of conspiracy.

The lesson we can learn from this: don’t commit serious crimes for small amounts of money, especially if you are an attorney.

Dalmy has less than one more month of freedom. She has been ordered to report to prison on June 14, 2018.

Disclaimer. I have no position in any stock mentioned above. I have no relationship with any parties mentioned above. This blog has a terms of use that is incorporated by reference into this post; you can find all my disclaimers and disclosures there as well.

USA v. Delaney Equity Group LLC

I just saw that Delaney Equity Group LLC (a small broker and OTC market maker) has been criminally charged in an ongoing ‘shell factory’ investigation. See the Palm Beach Post story. Below I have downloaded the court docket and linked all the documents currently available. I intend to post updates to this occasionally (at least for important filings). Read the complaint. The SEC had filed civil charges against Delaney back in 2015.

Excerpt from the complaint:

7. DELANEY EQUITY GROUP LLC, lndividual A, and Ian C. Kass would prepare Forms 211 on behalf of the issuers and submit them to the Financial Industry Regulatory Authority (“FINRA”) so that shares of the issuers could be quoted and traded over-the-counter. These forms falsely and fraudulently represented that the companies were executing their business plans and were operating under the direction of the straw CEO.

The allegations go on, but the fact that the forms 211 are mentioned is a big deal for OTC Markets in my opinion– this could scare off market makers from filing these forms for any sketchy company in the future.

U.S. District Court
Southern District of Florida (Miami)
CRIMINAL DOCKET FOR CASE #: 1:18-cr-20336-CMA All Defendants

Case title: USA v. Delaney Equity Group LLC Date Filed: 04/26/2018

Assigned to: Judge Cecilia M. Altonaga
Defendant (1)
Delaney Equity Group LLC represented by Ryan Dwight O’Quinn 
DLA Piper LLP (US)
200 South Biscayne Boulevard
Suite 2500
Miami, FL 33131
305-423-8553
Fax: 305-675-0807
Email: [email protected]
LEAD ATTORNEY
ATTORNEY TO BE NOTICEDElan Abraham Gershoni 
DLA Piper LLP (US)
200 S. Biscayne Boulevard
Suite 2500
Miami, FL 33131
305.423.8500
Fax: 305.675.0527
Email: [email protected]
ATTORNEY TO BE NOTICED
Pending Counts Disposition
18:371.F CONSPIRACY TO UNLAWFULLY SELL UNREGISTERED SECURITIES
(1)
Highest Offense Level (Opening)
Felony
Terminated Counts Disposition
None
Highest Offense Level (Terminated)
None
Complaints Disposition
None

Plaintiff
USA represented by Jerrob Duffy 
United States Attorney’s Office
99 N.E. Fourth Street
4th Floor
Miami, FL 33132
305-961-9273
Fax: 305-536-5321
Email: [email protected]
LEAD ATTORNEY
ATTORNEY TO BE NOTICED
Designation: Retained

 

Date Filed # Docket Text
04/26/2018 1 INFORMATION as to Delaney Equity Group LLC (1) count 1 and FORFEITURE COUNT. (wc) (Entered: 04/26/2018)
04/26/2018 2 NOTICE of Similar Action by USA as to Delaney Equity Group LLC (Duffy, Jerrob) (Entered: 04/26/2018)
04/26/2018 3 NOTICE OF ATTORNEY APPEARANCE: Ryan Dwight O’Quinn appearing for Delaney Equity Group LLC . Attorney Ryan Dwight O’Quinn added to party Delaney Equity Group LLC(pty:dft). (O’Quinn, Ryan) (Entered: 04/26/2018)
04/26/2018 4 NOTICE OF ATTORNEY APPEARANCE: Elan Abraham Gershoni appearing for Delaney Equity Group LLC . Attorney Elan Abraham Gershoni added to party Delaney Equity Group LLC(pty:dft). (Gershoni, Elan) (Entered: 04/26/2018)
05/09/2018 5 PAPERLESS NOTICE OF HEARING as to Delaney Equity Group LLC: Change of Plea Hearing set for 5/21/2018 08:30 AM in Miami Division before Judge Cecilia M. Altonaga. (ps1) (Entered: 05/09/2018)
05/09/2018 6 PAPERLESS NOTICE OF HEARING as to Delaney Equity Group LLC: Initial Appearance and Arraignment set for 5/21/2018 08:30 AM in Miami Division before Judge Cecilia M. Altonaga. (ps1) (Entered: 05/09/2018)
05/21/2018 7 WAIVER OF INDICTMENT by Delaney Equity Group LLC (ps1) (Entered: 05/21/2018)
05/21/2018 8 PAPERLESS Minute Entry for proceedings held before Judge Cecilia M. Altonaga: Initial Appearance and ARRAIGNMENT as to Delaney Equity Group LLC (1) Count 1 held on 5/21/2018. Date of Arrest or Surrender: 5/21/18. Total time in court: 1 minutes. Attorney Appearance(s): Jerrob Duffy, Ryan Dwight O’Quinn, Elan Abraham Gershoni, Court Reporter: Stephanie McCarn, 305-523-5518 / [email protected] (ps1) (Entered: 05/21/2018)
05/21/2018 9 PAPERLESS Minute Entry for proceedings held before Judge Cecilia M. Altonaga: Change of Plea Hearing held on 5/21/2018. Delaney Equity Group LLC (1) Guilty Count 1. Total time in court: 25 minutes. Attorney Appearance(s): Jerrob Duffy, Ryan Dwight O’Quinn, Elan Abraham Gershoni, Court Reporter: Stephanie McCarn, 305-523-5518 / [email protected] (ps1) (Entered: 05/21/2018)
05/21/2018 10 PLEA AGREEMENT as to Delaney Equity Group LLC (ps1) (Entered: 05/21/2018)
05/21/2018 11 PAPERLESS NOTICE OF SENTENCING HEARING as to Delaney Equity Group LLC. Sentencing set for 7/26/2018 09:00 AM in Miami Division before Judge Cecilia M. Altonaga. If more than 30 minutes will be required, please contact the courtroom deputy to arrange. Defense counsel shall report immediately to the United States Probation Office for further instructions. (ps1) (Entered: 05/21/2018)
05/22/2018 12 Notice of Presentence Investigation Assignment of Delaney Equity Group LLC to US Probation Officer Vanessa Pulido in the Miami Wilkie D. Ferguson, Jr. U.S. Courthouse and she can be contacted at (305)523-5454 or [email protected] (lrn) (Entered: 05/22/2018)

Updated 6/27/2018.

See full docket at CourtListener.

Sentencing for Delaney Equity Group is set for 7/26/2018.

Excerpt from the plea agreement:

15. The Defendant hereby (i) confirms that it has reviewed the following facts with legal counsel, (ii) adopts the following factual summary as his own statement, (iii) agrees that the following facts are true and correct, and (iv) stipulates that the following facts provide a sufficient factual basis for the plea of guilty in this case, in accordance with Rule 11(b)(3) of the Federal Rules of Criminal Procedure:

Disclaimer. I have no position in any stock mentioned above. I have no relationship with any parties mentioned above. This blog has a terms of use that is incorporated by reference into this post; you can find all my disclaimers and disclosures there as well.

SEC fines Aegis Capital Corporation after it admits to failing to file SARs

On March 28, 2018 the SEC announced in a press release that Aegis Capital Corporation (a broker and investment bank) had settled with the SEC following accusations of failing to file suspicious activity reports (SARs) that brokers are required to file.

From the press release:

Broker-dealers are required to file SARs for certain transactions suspected to involve fraudulent activity or have no business or apparent lawful purpose.  The SEC’s order found that Aegis failed to file SARs on suspicious transactions that raised red flags indicating the transactions were potentially related to the market manipulation of low-priced securities.

“Aegis failed to meet its AML obligations to report suspicious activity, including when it was faced with specific information alerting the firm to suspicious transactions,” said Antonia Chion, Associate Director and head of the Broker-Dealer Task Force of the SEC’s Enforcement Division.  “Given the critical importance of SARs to the regulatory and law enforcement community, brokerage firms must comply with their SAR reporting obligations.”

The SEC’s order found that Aegis willfully violated an SEC financial recordkeeping and reporting rule.  Aegis agreed to pay a $750,000 penalty and retain a compliance expert.  FINRA also announced a settlement with Aegis today that includes an additional $550,000 penalty. 

In addition to the fines against the company, two Aegis employees settled with the SEC and agreed to fines and a third is defending himself against the SEC’s charges:

In a separate settled order, Aegis’ former anti-money laundering (AML) compliance officer Kevin McKenna was found to have aided and abetted the firm’s violations.  Aegis CEO Robert Eide was found to have caused them.  Without admitting or denying the SEC’s findings, Eide and McKenna agreed to pay penalties of $40,000 and $20,000, respectively.  McKenna also agreed to a prohibition from serving in a compliance or AML capacity in the securities industry with a right to reapply.     

In a litigated order, the Enforcement Division alleges that another former Aegis AML compliance officer, Eugene Terracciano, failed to file SARs on behalf of Aegis.  Terracciano is alleged to have aided and abetted and caused Aegis’ violations.  The matter pertaining to Terracciano will be scheduled for a public hearing before an administrative law judge, who will prepare an initial decision stating whether the Enforcement Division has proven the allegations in the order and what, if any, remedial actions are appropriate. 

 

SEC Press Release
FINRA Press Release
SEC Order on Aegis Capital (PDF)
SEC Order on Kevin McKenna and Robert Eide (PDF)
SEC Order on Eugene Terracciano (PDF)

 

The SEC orders have lots of great details, some of which I have excerpted below. While firms and clients and stocks are not named, I was able to determine two of the stocks given as examples in the orders (Issuers A and F).

First, some details about Aegis’ business from the SEC order on Aegis (emphasis mine):

RESPONDENT
Aegis is a dually-registered investment adviser and broker-dealer with multiple branches and is headquartered in New York, NY. For its fiscal year 2014, Aegis had revenues of approximately $123 million and, for its fiscal year 2015, revenues of approximately $98 million. During those fiscal years, Aegis had revenues of approximately $250,000 and $270,000 from its low-priced securities business. Aegis’ business consists of investment banking, venture capital,
and debt market services as well as full-service retail and institutional advisory and brokerage services. Aegis’ CEO is also the firm’s founder and 100% owner.

FACTS
A. Aegis’ Low Priced Securities Business
1. During the relevant period, Aegis had various brokerage customers who transacted in low-priced securities. Several of these customers did so through DVP/RVP accounts. In
DVP/RVP accounts held at Aegis, the customer deposited their shares at another firm in a custodial account, and the sale transactions were effected through Aegis. During the
relevant period, Aegis had relationships with various clearing firms that assisted in effecting low-priced securities transactions.

2. Aegis had customers at their branch offices who transacted in low-priced securities.
Several of these customers were foreign financial institutions that effected transactions on
behalf of their underlying customers, all of whom were unknown to Aegis.

So Aegis penny stock business was very small relative to the size of its business overall and it appears that much of the low-priced securities (penny stock) business was with foreign financial firms. One such client (“customer A”) is described as well as its trading in “Issuer A” (quote from the Order on Aegis; emphasis mine):

Illustrative Examples of Transactions in which Aegis Failed to File SARs
i. Customer A
23. Between October 17 and December 27, 2012, an Aegis customer – Customer A – sold approximately 2.1 million shares of Issuer A, which traded on OTC Link (previously
“Pink Sheets”) operated by OTC Markets Group Inc. (“OTC Link”). Customer A held a DVP/RVP account at Aegis and is a private Swiss bank that traded significant volumes of low-priced securities through an omnibus arrangement with Aegis on behalf of the Swiss bank’s underlying clients who were unknown to Aegis.

24. At the same time Customer A was selling shares of Issuer A, a stock promotion touting the company’s prospects was underway. Coinciding with the promotional campaign,
Issuer A’s share price fluctuated from a low of $0.51 to a high of $0.93 on average daily volume of 558,792 shares. In the two months prior to October 17, 2012, no shares of
Issuer A traded at all. Thus, Customer A’s trading in Issuer A occurred during a period of a sudden spike in price and volume – which were specific AML red flags identified in
Aegis’ written supervisory procedures.

25. Prior to Customer A’s trading in Issuer A, Issuer A had undergone several name changes – again a specific AML red flag identified in Aegis’ written supervisory procedures. Moreover, contrary to the rosy picture of Issuer A painted by the above described promotional campaign, Issuer A’s Form 10-Q for the period ending September 30, 2012 reported that Issuer A had no revenues, a net loss of $143,345, and a “going concern” statement from its management.

 

After doing a search on Edgar Pro I discovered that the only company with a net loss of $143,345 in that quarter was Graphite Corp (GRPH at the time) that was a pump and dump at the time (and multiple times since). Therefore Graphite Corp is Issuer A. Here is a screenshot of the results of my search:

And a screenshot of the 10-Q in question:

 

 

Another stock traded by Customer A was also a purported graphite company undergoing a pump and dump campaign (Issuer B). From the order on Aegis:

In addition to the suspicious trading noted above, there were other indicia that Issuer B likely was the subject of market manipulation. For example, Issuer B reported in 2013 that it was a world-class graphite company, yet two years earlier it had been a Malaysian publishing company that operated under a different name. Recent changes in an issuer’s name and business was one of the specific AML red flags identified in Aegis’ written supervisory procedures.

“Customer B” is also interesting:

37. Customer B is a British Virgin Islands company based in China that offers consulting and advisory services.
38. In an approximately one month period beginning in April 2013, Customer B sold approximately 200,000 shares of Issuer C through Aegis for proceeds of $2.3 million, or
over $10 per share. Issuer C was listed on NASDAQ.

“Customer D” was yet another foreign company:

55. Another Aegis customer – Customer D – engaged in suspicious low-priced securities transactions for which Aegis did not file a SAR. Customer D was a foreign financial
institution with a DVP/RVP account at the firm and traded on behalf of underlying customers who were unknown to Aegis.
56. Over an approximately six-month period beginning in late May 2013, Customer D sold approximately 457,000 shares of Issuer F for proceeds of approximately $2.8 million. Issuer F traded on OTC Link. Just prior to the trading – and coinciding with a promotional campaign – Issuer F’s share price climbed from $3.90 to $9.39 on
substantially increased volume.
57. Customer D was not the only Aegis customer who traded suspiciously in Issuer F. Starting approximately two months before Customer D’s trading, Customers A and E sold a substantial amount of Issuer F shares for substantial proceeds. Customer E was yet another foreign financial institution with a DVP/RVP account at the firm and traded on behalf of underlying customers who were unknown to Aegis; it was incorporated in New Zealand and operated from Switzerland

Based solely on the description of the stock price and volume, I believe that “Issuer F” is Octagon Resources (OCTX), about which I wrote a blog post. In addition to “Customer D” selling shares of “Issuer F”, “Customer A” and “Customer E” also sold many shares:

Starting approximately two months before Customer D’s trading, Customers A and E sold a substantial amount of Issuer F shares for substantial proceeds. Customer E was yet another foreign financial institution with a DVP/RVP  account at the firm and traded on behalf of underlying customers who were unknown to Aegis; it was incorporated in New Zealand and operated from Switzerland.
58. In particular, Customer A sold approximately 638,000 shares of Issuer F for proceeds of approximately $3.7 million while Customer E sold approximately 494,000 shares of Issuer F for proceeds of approximately $3.3 million. Thus, together Customers A and E sold over one million shares of Issuer F for proceeds of approximately $7 million.

 

I am late to reporting this and I apologize for that (I did previously tweet about it on the day it was announced).

 

Disclaimer. I have no position in any stock mentioned above. I have no relationship with any parties mentioned above. This blog has a terms of use that is incorporated by reference into this post; you can find all my disclaimers and disclosures there as well.