The Expert's Examiner
HEARD THROUGH THE REGULATORY GRAPEVINE, COMMENT LETTERS, & SPEECHESApril 3, 2021
SEC UPDATES
- Statement re SPACs: Division of Corporation Staff issued a statement on select issues pertaining to Special Purpose Acquisition Companies (March 31, 2020). The statement focuses on key points that a private company should consider before engaging in a transaction with a SPAC. https://www.sec.gov/news/public-statement/division-cf-spac-2021-03-31
- Alert: The Division of Examinations issued an AML alert related to Suspicious Activities Monitoring and Reporting at Broker-Dealers (March 29, 2021). It recounts observations of the staff during examinations regarding AML issues. https://www.sec.gov/files/aml-risk-alert.pdf
- Whistleblower: The Commission awarded over $500,000 to a Whistleblower who raised concerns internally and then submitted a tip to the Commission. The whistleblower's information and assistance allowed the Commission and another agency to file actions, quickly shutting down an ongoing fraudulent scheme previously. https://www.sec.gov/news/press-release/2021-54
SEC ENFORCEMENT - FILED AND SETTLED ACTIONS
The Commission filed several civil actions and administrative proceedings keyed in on fraud prevention.
- Offering fraud: SEC v. Randolph, Civil Action No. 1:21-cv-01321 (N.D. Ga. Filed April 1, 2021) is an action alleging that Richard J. Randolph, III provided fraudulent information to his real estate venture and misappropriate client funds. The complaint alleged violations of each subsection of Securities Act Section 17(a) and Exchange Act Section 10(b). Defendant agreed to the entry of a permanent injunction, and barred from serving as an officer-director bar and or participating in the issuance, purchase, offer or sale of any security. https://www.sec.gov/litigation/litreleases/2021/lr25064.htm
- Offering fraud: SEC v. Blankenbaker, Civil Action No. 1:21-cv-790 (S.D. Ind. Filed March 31, 2021) Mr. Blankenbaker and his firms raised over $11 million from at least 109 investors, many of whom are elderly. Investors were told the funds would be used to make loans to food exporters in Asia, when most of their money was directed to a hemp investment and Blankenvaker’s personal use. The complaint alleges violations of Securities Act Sections 5(a), 5(c) and 17(a) and Exchange Act Section 10(b). Mr. Blankenbaker’s companies consented to the entry of permanent injunctions and agreed to pay disgorgement and prejudgment interest of $5,196,641 on a joint-and-several basis. https://www.sec.gov/litigation/litreleases/2021/lr25063.htm
- Fraudulent Fees: SEC v. Elstun, Civil Action No. 4:21-cv-00206 (W.D. MO. Filed March 29, 2021) The complaint alleges Defendant defraud certain high income athlete clients by charging a higher percentage fee than agreed. In addition, a number of clients were put into very high risk and unsuitable investments. The complaint alleges violations of Advisers Act Sections 206(1), 206(2), 206(4) and 204. The case is pending. https://www.sec.gov/litigation/litreleases/2021/lr25061.htm
- Fraudulent/Unregistered Crypto Assets: SEC v. LBRY, Inc., Civil Action No. 1:21-cv-00260 (D.N.H. Filed March 29, 2021). Defendant LBRY, Inc. is a privately owned firm created in 2015 to distribute digital content as a possible competitor for YouTube, Amazon and other video platforms. To support its efforts the firm proposed to sell LBC – LBRY Credits. Investors purchased LBC in return for U.S. currency, bitcoin or other consideration such as services. The LBC credits are not registered with the Commission. The complaint alleges violations of Securities Act Sections 5(a) and 5(c). The case is pending. https://www.sec.gov/litigation/litreleases/2021/lr25060.htm
FINRA UPDATES
- FINRA Rule 3241: The Regulation of Brokers as Beneficiaries & Holders of Trust Positions for Customers Regulatory Notice 20-38
FINRA Adopts Rule to Limit a Registered Person From Being Named a Customer’s Beneficiary or Holding a Position of Trust for or on Behalf of a Customer.
Summary: FINRA adopted a new rule to limit any associated person of a member firm who is registered with FINRA (each a “registered person”) from being named a beneficiary, executor or trustee, or to have a power of attorney or similar position of trust for or on behalf of a customer. New FINRA Rule 3241 (Registered Person Being Named a Customer’s Beneficiary or Holding a Position of Trust for a Customer) protects investors by requiring all member firms to affirmatively address registered persons being named beneficiaries or holding positions of trusts for customers. The rule requires the member firm with which the registered person is associated, upon receiving required written notice from the registered person, to review and approve or disapprove the registered person assuming such status or acting in such capacity. The rule does not apply where the customer is a member of the registered person’s “immediate family.” Rule 3241 becomes effective February 15, 2021.
- FINRA Announces Updates to the Interpretations of FINRA’s Margin Rule for Day Trading
Background & Discussion: FINRA Rule 4210 (Margin Requirements) specifies the margin requirements applicable to securities held in margin accounts, including both strategy-based margin accounts and portfolio margin accounts. FINRA maintains interpretations regarding FINRA Rule 4210, available on the Interpretations of FINRA’s Margin Rule webpage, in a portable digital format (PDF) document where the interpretations immediately follow the section of the rule to which they relate. This Notice clarifies and updates the interpretations as discussed below. https://www.finra.org/rules-guidance/notices/21-13
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