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September 19, 2018

Readers of the BrokeAndBroker.com Blog are invited to visit the daily Securities Industry Commentator feed published by Wall Street veteran lawyer Bill Singer. Below, find a sample of today's posted content:


https://www.justice.gov/usao-ak/pr/hackers-cooperation-fbi-leads-substantial-assistance-other-complex-cybercrime
Paras Jha, Josiah White, and Dalton Norman created the Mirai Botnet, which targeted the Internet of Things (IoT) devices such as wireless cameras, routers, and digital video recorders over which they gained control in order to conduct a denial-of-service, or "DDoS" attacks. In the fall of 2016, Jha posted the source code for Mirai on a criminal forum and other criminal actors have used Mirai variants in a variety of other attacks. Victims's devices were used primarily in advertising fraud, including "clickfraud."  Jha, White, and Norman pled guilty in the United States District Court for the District of Alaska to criminal Informations charging each with conspiracy to violate the Computer Fraud & Abuse Act in operating the Mirai Botnet; and Jha and Norman pled guilty to two counts each of the same charge, one in relation to the Mirai botnet and the other in relation to the Clickfraud botnet. Each Defendant was sentenced to serve a five-year period of probation, 2,500 hours of community service, ordered to pay $127,000 restitution, and have voluntarily abandoned significant amounts of cryptocurrency seized during the course of the investigation.  Jha, White, and Norman must continue to cooperate with the FBI on cybercrime and cybersecurity matters, as well as continued cooperation with and assistance to law enforcement and the broader research community.  To date, the Defendants have provided assistance that substantially contributed to active complex cybercrime investigations and defensive efforts.

The CFTC issued an Order filing and settling charges against ICAP Capital Markets LLC (n/k/a Intercapital Capital Markets LLC) for, by and through certain of its brokers, aiding and abetting numerous attempts by several of its bank clients to manipulate the International Swaps and Derivatives Association Fix (ISDAFIX) benchmark. The CFTC Order finds that beginning in at least January 2007 and continuing through December 2012, ICAP's swaps brokers were regularly enlisted by traders at bank clients to assist in attempting to manipulate the U.S. Dollar International Swaps and Derivatives Association Fix (USD ISDAFIX) for the benefit of their bank clients' derivatives positions, including positions involving cash-settled options on interest rate swaps. During the relevant period, ICAP initiated the setting of USD ISDAFIX each day by capturing and recording swap rates and spreads based on trading activity at or around 11:00 a.m.  Around 11:00 a.m., traders at several banks often attempted to manipulate USD ISDAFIX by bidding, offering, and executing transactions in targeted interest rate products, including swap spreads and U.S. Treasuries. ICAP brokers assisted traders in their manipulative attempts and often suggested ways to manipulate USD ISDAFIX more effectively. In 2014, ICAP ended its role in connection with the publication of reference rates and collection of data for the ISDAFIX benchmark rate setting process. As part of its offer of its CFTC settlement, ICAP represented that its voice broking business, including the swaps desks that were involved with the ISDAFIX rate setting process, was sold to another business in December 2016, and that prior to that sale, ICAP undertook steps intended to make reasonable efforts to ensure the integrity of USD interest rate swap spreads trading that would be published on benchmark screens and/or would be used in connection with a benchmark process. Pursuant to the CFTC settlement, ICAP will pay a $50 million civil monetary penalty that reflects the level of cooperation ICAP provided during the course of the investigation. READ the FULL TEXT CFTC ORDER https://www.cftc.gov/sites/default/files/2018-09/enficapcapitalmarketsorder091818.pdf

https://www.justice.gov/usao-sdny/pr/pennsylvania-man-arrested-passing-counterfeit-checks-and-conspiring-steal-33-million
In a Complaint filed in the United States District Court for the Southern District of New York, Stephen Sherak was charged with one count of bank fraud,and one count of conspiracy to commit theft of government funds, READ the FULL TEXT Complaint https://www.justice.gov/usao-sdny/press-release/file/1094961/download
As set forth in part in the DOJ Release:
 
From 2017 through June 2018, SHERAK deposited or attempted to deposit in several national banks approximately $270,000 worth of checks he knew to be counterfeit or that otherwise would not clear due to insufficient funds.

In addition, from February 2018 through May 2018, SHERAK caused the filing of a fraudulent corporate tax return for an entity SHERAK incorporated and controlled, Gavnet, Inc., by falsely claiming that his company had prepaid millions of dollars in taxes and was therefore owed a tax refund.  Upon receiving a tax refund check in the amount of approximately $3.3 million, SHERAK worked with others to open new bank accounts at a number of different financial institutions in order to deposit the refund check, before the fraud was ultimately detected.

FINRA Deparment of Enforcement, Complainant, v. James Randall Clay, Respondent (Hearing Panel Decision, Office of Hearing Officers, Disc. Proc. No. 2014039775501) 
http://www.finra.org/sites/default/files/fda_documents/2014039775501%20James
%20Randall%20Clay%20CRD%205748560%20OHO%20Decision%20jm.pdf
Compliments to FINRA on a compelling case and OHO Decision barring Clay. The OHO Panel found that Respondent Clay engaged in outside business activities without providing prior written notice to U.S. Bancorp, provided false information to U.S. Bancorp during its investigation, and provided false information to Enforcement in response to Rule 8210 requests for information and documents, in violation of FINRA Rules 2010, 3270, and 8210. The OHO Panel barred Clay from associating with any FINRA member firm in any capacity. As set forth under the "Introduction" in the OHO Decision:

Respondent James Randall Clay ("Clay") used his relationship with an elderly customer to buy real estate from the customer under terms that benefitted only himself. Clay drafted and signed a hand-written agreement to purchase the customer's rental property for $1 million, with the customer financing the entire amount. Under the agreement, Clay also borrowed $500,000 from the customer to fund Clay's down payment on the property and improvements to it. Clay established a limited liability company to manage the rental property and began collecting rent. Clay never provided written notice of this outside business to the FINRA member firm that employed him, U.S. Bancorp Investments, Inc. ("U.S. Bancorp"). After the customer's family complained to U.S. Bancorp, Clay falsely told the firm his sister purchased the rental property, and he was not personally involved in the purchase or subsequent management of the property. Clay repeated this falsehood to FINRA during its investigation of this matter.

In a Complaint filed in the United States District Court for the Southern District of New York, the SEC charged SeaWorld Entertainment Inc with violating Section 17(a)(3) of the Securities Act of 1933 (Securities Act) and Section 13(a) of the Securities Exchange Act of 1934 (Exchange Act) and Rules 12b-20, 13a-1, 13a-11, and 13a-13 thereunder, and charged the company's former Chief Executive Officer James Atchison with violating Sections 17(a)(2) and (3) of the Securities Act and with control person liability for SeaWorld's Exchange Act reporting violations. The Complaint alleged that the movie "Blackfish," had criticized SeaWorld's treatment of its orcas and the allegations received significant media attention as the film became more widely distributed in the latter half of 2013.  From approximately December 2013 through August 2014, SeaWorld and former Atchison allegedly made untrue and misleading statements or omissions about the film's impact on the company's reputation and business, which was suffering declining attendance and a hit to its stock price from the negative publicity. Without admitting or denying the allegations, SeaWorld and Atchison agreed to settle the SEC's charges by payment, respectively, of a $4 million penalty and $850,183 in disgorgement and prejudgment interest and a $150,000 civil penalty. SeaWorld's former vice president of communications, Frederick D. Jacobs, agreed to settle to a Securities Act Section 17(a)(2) charge and to pay disgorgement and prejudgment interest of $99,155. He was not assessed a penalty, reflecting his substantial assistance in the SEC's investigation. 
READ the 
SeaWorld Complaint https://www.sec.gov/litigation/complaints/2018/comp24272-seaworld.pdf 
Jacobs Complaint https://www.sec.gov/litigation/complaints/2018/comp24272-jacobs.pdf

Biopharmaceutical Company, Executives Charged With Misleading Investors About Cancer Drug (SEC Release 2018-199)
https://www.sec.gov/news/press-release/2018-199
In a Complaint filed in the United States District Court for the District of Colorado, the SEC alleges that Clovis Oncology Inc. and Chief Executive Officer Patrick Mahaffy misled investors about how well the company's flagship lung cancer drug rociletinib, or Roci worked compared to another drug. Clovis raised approximately $298 million in a public stock offering in July 2015, and saw its stock price collapse in November 2015 after disclosing that the effectiveness rate was actually 28% rather than the 60% touted.. The company stopped development on the drug in May 2016. The Complaint charges Clovis with violating Section 17(a)(2) of the Securities Act of 1933 and Section 13(a) of the Securities Exchange Act of 1934. The Complaint charges Mahaffy with violating Section 17(a)(2) and aiding and abetting Clovis' violations of Section 13(a). Also, the Complaint charges former Chief Financial Officer Erie Mast with aiding and abetting Clovis' federal securities laws violations. Without admitting or denying the allegations, Clovis agreed to a $20 million penalty; Mahaffy agreed to a $250,000 penalty; and Mast agreed to pay a $100,000 penalty and to provide disgorgement and prejudgment interest of $454,145, attributable to selling Clovis stock during the relevant period at inflated prices. The SEC plans to seek the creation of a Fair Fund for distribution of the penalties to harmed investors.
READ the FULL TEXT Complaint https://www.sec.gov/litigation/complaints/2018/comp-pr2018-199.pdf

SEC Charges Michigan Registered Representative with Misappropriating Brokerage Customer Funds (SEC Litigation Release No. 24274)
https://www.sec.gov/litigation/litreleases/2018/lr24274.htm
In a Complaint filed in the United States District Court for the Eastern District of Michigan, the SEC charged former registered representative  Ernest J. Romer, III with violating the antifraud provisions of Section 17(a) of the Securities Act of 1933, Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder. The SEC is seeking a judgment ordering Romer to disgorge his ill-gotten gains with prejudgment interest, and to pay civil penalties. The Complaint alleged that Romer persuaded at least 30 of his brokerage customers to sell securities in their brokerage accounts and transfer the proceeds to either P&R Capital, LLC or CoreCap Solutions, LLC. (both undisclosed as Romer's personal businesses)  from which Romer said he would invest their funds in the stock market and earn them a better return than their current investments. The Complaint alleges that Romer stole the money and used it to benefit himself and his family, to conduct trading in his own brokerage account, to make Ponzi-like payments to other customers, and to repay customers from his prior brokerage firm who had suffered losses on an investment Romer had recommended. READ the FULL TEXT Complaint https://www.sec.gov/litigation/complaints/2018/comp24274.pdfa

SEC Files Subpoena Enforcement Action Against John Paul Waymack (SEC Litigation Release No. 24271)
https://www.sec.gov/litigation/litreleases/2018/lr24271.htm 
The SEC filed a subpoena enforcement action in the  United States District Court for the District of Columbia against John Paul Waymack, Chairman and Chief Medical Officer of Kitov Pharmaceuticals Holdings, Ltd..The Israel Securities Authority is investigating possible violations of Israeli law arising from potential insider trading and potential misstatements in the public disclosures of Kitov, which is foreign private issuer filing with the SEC. On June 15, 2017, the SEC issued a subpoena for documents and testimony from Waymack, who refused to produce any documents and to appear for testimony.READ the FULL TEXT Show Cause Application https://www.sec.gov/litigation/litreleases/2018/lr24271-application.pdf

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