Securities Law Prof Blog

Editor: Eric C. Chaffee
Univ. of Toledo College of Law

Thursday, January 31, 2013

Ex-Peregrine CEO Sentenced to 50 Years for Stealing Customers' Money

Russell Wasendorf Sr., the disgraced CEO of collapsed commodities firm Peregrine Financial Group, was sentenced to 50 years in prison for embezzling more than $215 million from his customers.  Wasendorf attempted suicide and left a note confessing his crime last summer.  The judge ignored requests for leniency and followed the government's recommendation.

NYTimes Dealbook, Ex-Peregrine Chief Sentenced to 50 Years in Prison

January 31, 2013 in News Stories | Permalink | Comments (0) | TrackBack (0)

SEC Announces Panelists for Roundtable on Decimalization

The SEC has released the agenda and list of speakers for its February 5 Roundtable on Decimalization.  The Roundtable will evaluate the impact of tick sizes on the securities markets.

January 31, 2013 in SEC Action | Permalink | Comments (0) | TrackBack (0)

Fordham Securities Moot Court Seeks Judges

The Irving R. Kaufman Memorial Securities Law Moot Court Competition at Fordham Law School is looking for competition judges.  Here are the details:

Each spring, Fordham University School of Law hosts the Irving R. Kaufman Memorial Securities Law Moot Court Competition. Held in honor of Chief Judge Kaufman, a Fordham Alumnus who served on the United States Court of Appeals for the Second Circuit, the Kaufman Competition has a rich tradition of bringing together complex securities law issues, talented student advocates, and top legal minds.

This year’s Kaufman Competition will take place on March 22-24, 2013. The esteemed final round panel includes Judge Paul J. Kelly, Jr., of the Tenth Circuit; Judge Boyce F. Martin, Jr., of the Sixth Circuit; Judge Jane Richards Roth, of the Third Circuit; and Commissioner Troy A. Paredes, of the United States Securities and Exchange Commission. The competition will focus on two issues that arise in the fallout of Ponzi schemes: whether the “stockbroker safe harbor” of the Bankruptcy Code applies to Ponzi scheme operators, and the application of SLUSA, which was recently granted cert by the Supreme Court.

We are currently soliciting practitioners and academics to judge oral argument rounds and grade competition briefs. No securities law experience is required to participate and CLE credit is available.

Information about the Kaufman Competition and an online Judge Registration Form is available on our website, Please contact Michael N. Fresco, Kaufman Editor, at or (561) 707-8328 with any questions.

January 31, 2013 in Professional Announcements | Permalink | Comments (0) | TrackBack (0)

Wednesday, January 30, 2013

SEC Charges Five with Florida Resort Ponzi Scheme

The SEC charged five former real estate executives who defrauded investors into believing they were funding the development of five-star destination resorts in Florida and Las Vegas when they were actually buying into a Ponzi scheme.  According to the SEC, Cay Clubs Resorts and Marinas raised more than $300 million from nearly 1,400 investors nationwide through a network of hundreds of sales agents, marketing seminars, and podcasts that touted the profitability of purchasing units at Cay Clubs resort locations.  Investors were promised immediate income from a guaranteed 15 percent return and a future income stream through a rental program that Cay Clubs managed.  Alas, according to the SEC, the venture was a classic Ponzi scheme.  

The SEC’s complaint filed in U.S. District Court for the Southern District of Florida charges the following former Cay Clubs executives:

Fred Davis Clark, Jr. – president and CEO
David W. Schwarz – chief accounting officer
Cristal R. Coleman – manager and sales agent
Barry J. Graham – sales director
Ricky Lynn Stokes – sales director

The SEC’s complaint seeks financial penalties from Clark, Coleman, and Stokes and the disgorgement of ill-gotten gains plus prejudgment interest by all five executives.  The complaint also seeks injunctive relief to enjoin them from future violations of the federal securities laws as well as an accounting and an order to repatriate investor assets.

January 30, 2013 in SEC Action | Permalink | Comments (0) | TrackBack (0)

District Court Addresses "Unique Question" of Stock Manipulation by Corporate Officer

A federal district court addressed what it called "the unique question" of whether a Rule 10b-5 violation can be committed by corporate officers by a scheme centered around manipulating the restricted nature of the company's shares under Rule 144 in order to gain control over the stock's "float" and enrich themselves at the detriment of the corporation.  Advanced Multilevel Concepts, Inc. v. Bukstel (E.D. Pa. Jan. 25, 2013) (Download Advanced Multilevel Concepts Inc. v. Bukstel[1]).  The court concludes that the Supreme Court's precedents extend to this manipulative scheme. 

The allegations involve a company that went public via a reverse merger and the issuance of over seven million shares of company stock by the CEO to his confederates to dilute the other shareholders' holdings.  The CEO, in turn, counterclaims that the plaintiffs and the former inhouse counsel committed securities fraud when the attorney gained control of a substantial part of the stock's float to make trades that enriched himself.  (Although not at all relevant to the holding, one of the peripheral players in this drama is named Learned Hand!)

January 30, 2013 in Judicial Opinions | Permalink | Comments (0) | TrackBack (0)

Tuesday, January 29, 2013

Brooklyn Law Hosts Compliance Symposium on Feb. 8

Brooklyn Law School hosts a symposium on Feb. 8 on The Growth and Importance of Compliance in Financial Firms: Meaning and Implications.  Here is the description:

Over the past decade, the compliance function in financial firms, in particular broker-dealers and investment advisers, has grown in size and importance. While this phenomenon is an integral part of life for compliance officers and legal practitioners who advise these firms, compliance has received relatively little attention from legal scholars. This symposium will provide the opportunity for financial and securities law scholars to evaluate and criticize, from their respective theoretical perspectives, the growing importance of compliance in financial firms, as well as comment upon particular compliance duties and issues. The conference includes noted legal practitioners, compliance specialists and regulators, who can assist the scholars in their reflection and offer their own perspectives and insights on the compliance phenomenon.

CLE credit is available.  More information, including the agenda, is at the Brooklyn Law website.

January 29, 2013 in Professional Announcements | Permalink | Comments (0) | TrackBack (0)

SEC Charges Texas Trader with Affinity Fraud Aimed at Lebanese-Druze Communities

The SEC charged Firas Hamdan, a day trader in Sugar Land, Texas, with "affinity fraud."  According to the SEC, Hamdan targeted fellow members of the Houston-area Lebanese and Druze communities in his supposed high-frequency trading program and provided them falsified brokerage records that drastically overstated assets and hid his massive trading losses.

The SEC alleges that Hamdan raised more than $6 million during a five-year period from at least 33 investors. Hamdan told prospective investors that he would pool their investments with his own money and conduct high-frequency trading using a supposed proprietary trading algorithm. Hamdan promised annual returns of 30 percent and assured investors that his program was safe and proven when in reality it generated $1.5 million in losses. The SEC is seeking an emergency court order to halt the scheme and freeze Hamdan’s assets and those of his firm, FAH Capital Partners.

The complaint seeks various relief including a temporary restraining order, preliminary and permanent injunctions, disgorgement of ill-gotten gains with prejudgment interest, and financial penalties.

January 29, 2013 in SEC Action | Permalink | Comments (0) | TrackBack (0)

SEC Approves Changes to FINRA Rule on Information & Testimony Requests

The SEC recently approved amendments to FINRA Rule 8210 to:

clarify the scope of FINRA’s authority under Rule 8210 to inspect and  copy the books, records and accounts of member firms, associated persons and persons subject to FINRA’s jurisdiction;
specify the method of service for certain unregistered persons under  the rule; and
authorize service of requests under the rule on attorneys who are representing firms, associated persons or persons subject to FINRA’s jurisdiction.

The text of the amended rule, including Supplementary Material, is available at the FINRA website.  The amendments are effective on February 25, 2013.

January 29, 2013 in Other Regulatory Action, SEC Action | Permalink | Comments (0) | TrackBack (0)

Monday, January 28, 2013

Treasury Again Approves Excessive Pay for Execs at Bailed-Out Companies

The Special Inspector General for the TARP Program released a report, Treasury Continues Approving Excessive Pay for Top Executives at Bailed-Out Companies (Download 2013_SIGTARP_Bailout_Pay_Report[1]).  The title essentially says it all, but here are some snippets offering more detail:

SIGTARP found that once again, in 2012, Treasury failed to rein in excessive pay. In 2012, OSM approved pay packages of $3 million or more for 54% of the 69 Top 25 employees at American International Group, Inc. (“AIG”), General Motors Corporation (“GM”), and Ally Financial Inc. (“Ally,” formerly General Motors Acceptance Corporation, Inc.) – 23% of these top executives (16 of 69) received Treasury-approved pay packages of $5 million or more, and 30% (21 of 69) received pay ranging from $3 million to $4.9 million. Treasury seemingly set a floor, awarding 2012 total pay of at least $1 million for all but one person. Even though OSM set guidelines aimed at curbing excessive pay, SIGTARP previously warned that Treasury lacked robust criteria, policies, and procedures to ensure those guidelines are met. Treasury made no meaningful reform to its processes. Absent robust criteria, policies, and procedures to ensure its guidelines were met, OSM’s decisions were largely driven by the pay proposals of the same companies that historically, and again in 2012, proposed excessive pay. With the companies exercising significant leverage, the Acting Special Master rolled back OSM’s application of guidelines aimed at curbing excessive pay.

*    *    *

There are two lessons to be learned from OSM’s 2012 pay-setting process and decisions:

First, guidelines aimed at curbing excessive pay are not effective, absent robust policies, procedures, or criteria to ensure that the guidelines are met. This is the second report by SIGTARP to warn that the Office of the Special Master, after four years, still does not have robust policies, procedures, or criteria to ensure that pay for executives at TARP exceptional assistance companies stays within OSM’s guidelines. ...

*    *    *

Second, while historically the Government has not been involved in pay decisions at private companies, one lesson of this financial crisis is that regulators should take an active role in monitoring and regulating factors that could contribute to another financial crisis, including executive compensation that encourages excessive risk taking....



January 28, 2013 in News Stories, Other Regulatory Action | Permalink | Comments (0) | TrackBack (0)

SEC Announces Agenda for Advisory Committee on Small & Emerging Companies

The SEC announced the agenda for a February 1 meeting of its Advisory Committee on Small and Emerging Companies.  The Committee will consider recommendations about trading spreads for smaller exchange-listed companies, creation of a separate U.S. equity market limited to sophisticated investors for small and emerging companies, and disclosure rules for smaller reporting companies.

January 28, 2013 in SEC Action | Permalink | Comments (0) | TrackBack (0)

SEC Charges Former Jefferies Trader with Defrauding Purchasers of MBS

The SEC charged Jesse Litvak, a former broker at Jefferies & Co., with defrauding investors while selling mortgage-backed securities (MBS) in the wake of the financial crisis so he could generate additional revenue for his firm.  The U.S. Attorney’s Office for the District of Connecticut also announced criminal charges against Litvak.

According to the SEC’s complaint, in the course of his job performance as a managing director on the MBS desk at Jefferies,  Litvak would buy a MBS from one customer and sell it to another customer.  On many occasions he would lie about the price at which his firm had bought the MBS so he could re-sell it to the other customer at a higher price; on other occasions, he would mislead purchasers by creating a fictional seller to purport that he was arranging a MBS trade between customers.  The SEC alleges that Litvak generated more than $2.7 million in additional revenue for Jefferies through his deceit. 

According to the SEC’s complaint, Litvak worked in the Stamford, Conn., office at Jefferies, and his misconduct lasted from 2009 to 2011.  Litvak’s customers included some funds created by the U.S. government under a program designed to help strengthen the markets for MBS during the financial crisis. 

January 28, 2013 in SEC Action | Permalink | Comments (0) | TrackBack (0)

Columbia Law School Launches Blog on Corporations and Capital Markets

Congratulations to Columbia Law School, which has launched its CLS Blue Sky Blog, focusing on Corporations and the Capital Markets, which, according to its press release

offers analysis of noteworthy developments in the worlds of financial reform, securities regulation, corporate governance, and more. It also collects in a special column—called the “Filter”—each business day’s five most interesting news items or blog posts.

According to Professor John Coffee, “We are hoping for an interactive dialogue among the bar, academia, and regulators that can range from technical issues to broader theoretical issues that may rise up into the blue sky.” 

January 28, 2013 in Professional Announcements | Permalink | Comments (0) | TrackBack (0)