Tesla Loses a Senior Lawyer Just as SEC Tightens Grip

Bloomberg is reporting that an experienced securities lawyer has left Tesla Inc. just as the company needs one under its fraud settlement with U.S. regulators.

Phil Rothenberg, a vice president in Tesla’s legal department who joined the company in 2011, became general counsel at Sonder, a hospitality startup, on Nov. 5, writes Bloomberg reporter Dana Hull.

Before joining Tesla, Rothenberg was an attorney-adviser for the U.S. Securities and Exchange Commission and has extensive securities law experience.

Read the Bloomberg article.


Ex-JPMorgan Trader Pleads Guilty in Six-Year Spoofing Plot

A former precious-metals trader said to have worked at JPMorgan Chase & Co. admitted he engaged in a six-year spoofing scheme that defrauded investors in futures contracts with the help of his colleagues and bosses, Bloomberg Law reports.

Prosecutors said John Edmonds placed hundreds of orders he never intended to execute — orders designed to move the market, but were canceled before being matched. Edmonds and other traders sought to manipulate futures markets for gold, silver, platinum and palladium on the Nymex and Comex exchanges for their own benefit.

The Bloomberg article continues: “Edmonds, who lives in Brooklyn, New York, said he learned the spoofing strategy from more senior traders at the bank and said his immediate supervisors approved of it, according to the Justice Department.”

Read the Bloomberg Law article.



Forex-Rigging Settlements Yield $300M for Class Counsel

Bloomberg Law reports that class counsel will take home $300 million from settlements over an alleged conspiracy among banks to fix prices in the foreign exchange market.

The court issued the order on Thursday, Nov. 8.

The settlement, approved in August with banks that include Bank of America, JP Morgan and Citibank, is the third largest antitrust class action settlement in history, according to plaintiffs, writes Bloomberg reporter Perry Cooper.

Read the Bloomberg article.




CEO Allegedly Stole Millions From Low-Income Customers to Pay for a Ferrari, a Private Jet and a Florida Condo

An Ohio company faces a record fine of more than $63 million after allegedly bilking a government aid program out of millions of dollars, some of which went toward funding the lavish lifestyle of the firm’s chief executive, federal regulators said Tuesday.

The Washington Post reports that the the Federal Communications Commission is taking action against American Broadband, a provider of low-income phone service whose agents allegedly created fake or duplicate customer accounts to claim extra federal funding under a program that offers disadvantaged Americans a small monthly discount on phone and Internet service.

Post reporter Brian Fung explains:

American Broadband’s chief executive, Jeffrey Ansted, was also held personally liable for the alleged misconduct Tuesday as the FCC accused him of embezzling aid money and using it to pay for luxury goods such as an $8 million private Cessna jet, a $1.3 million Florida condominium and a $250,000 Ferrari convertible. He also used the funds to buy memberships to yacht and country clubs, the FCC said.

Read the Washington Post article.



‘Frack Master’ of Texas Oil Fame Pleads Guilty to Massive Fraud, Faces Up to 12 Years in Prison

The Dallas Morning News reports that Texas businessman Christopher Faulkner, better known by his now infamous moniker “Frack Master,” has admitted to securities fraud, tax evasion and money laundering and faces up to 12 years in prison, federal officials said Tuesday.

Reporter Jess Mosier writes that Faulkner, the former CEO of Dallas-based Breitling Energy, became a star in business circles for his high-profile media appearances defending hydraulic fracturing or fracking. He used fake college degrees and skimpy business experience to convince Dallas business elite and Texas political elite that he was an oil and gas expert.

“The SEC effectively shut down Breitling Energy and related businesses after suing Faulkner and 11 others in 2016 for misusing $23.8 million of the $80 million they raised for oil and gas investments,” according to Mosier. “Besides the prison time, Faulkner must pay back the nearly $24 million made from his schemes, under the terms of his settlement.”

Read the Dallas News article.



Ten Key Issues in Addressed Lease Agreements for Companies

Equipment leasing presents a company with an opportunity to acquire the use of equipment without using its own cash or its bank line of credit, according to a post on the website of Steptoe & Johnson.

“An understanding of the unique features of equipment lease contracts should help a company work with its bank to structure and document a mutually acceptable lease agreement,” writes Andrew J. Kalgreen.

His article discusses end-of-term purchase and return options, maintenance requirements, tax benefit protection, third-party liability protection, disclaimers of product warranties, and termination risks.

Read the article.



K&L Gates Under Fire from Texas Company in Malpractice Suit

Bloomberg Law reports that K&L Gates LLP is facing a $100 million legal malpractice suit from a Texas semiconductor company, Quantum Materials Corp., over an alleged conflict of interest.

Reporter Sam Skolnik explains that the plaintiff’s petition alleges that the law firm represented lenders in a legal action against the company while also representing Quantum. The petition filed Oct. 16 in District Court of Hays County, Texas, seeks punitive damages.

The complaint says that Quantum retained K&L Gates in 2016 as corporate counsel, and the representation was never ended. But when Quantum became involved in a dispute with two lenders, K&L Gates lawyers represented the lenders against Quantum, according to the complaint.

Read the Bloomberg Law article.



HSBC to Pay $765 Million in Settlement Over Pre-Crisis Mortgage Bonds

Housing Wire is reporting that HSBC will pay $765 million to the federal government as part of a settlement that covers the bank’s mortgage bond activities in the run-up to the housing crisis.

An announcement from the U.S. Department of Justice outlines the resolution of an investigation into the bank’s mortgage origination and securitization activities from 2005 to 2007, according to editor Ben Lane.

While previous HSBC statements on the case didn’t disclose the conduct in question, the DOJ’s announcement alleged the bank allegedly knew it was putting toxic loans into residential mortgage-backed securities and sold the bonds anyway, Lane explains.

Read the HousingWire article.



Contract Roulette: The Top Five Agreements That Get Businesspeople into Trouble

You can do a lot of damage with a signature, warns Jack Garson of Garson Law LLC in Bethesda, Maryland. You can go broke.

In an article on the website of Forbes, he discusses five types of contracts that have caused the most disasters.

First, he warns of the dangers of assuming that leases are standard, so there’s no reason to read every clause.

On the subject of loan agreements, Garson’s advice is to negotiate, consult advisors, and bargain. Most of all, he adds, get the right to prepay the loan.

He also covers construction contracts, partnership agreements, and personal guarantees.

Read the article.



Elon Musk’s SEC Settlement Could Have Gone So Much Worse

SECLegal experts say the penalties that the SEC doled out to Elon Musk for  “false and misleading” statements made on Twitter could have been much, much worse for Musk and his car company, reports Wired.

Reporter Aarian Marshall writes that “Musk and Tesla will have to each write $20 million checks for the misadventure, which will be disbursed to investors harmed during the wild market swings that occurred after Musk’s tweets.” Musk had tweeted that he planned to take Tesla private and funding had been secured.

“Not settling with the SEC could have led to a more dire outcome,” Marshall explains. “The SEC’s initial suit sought to bar the CEO from becoming an officer or director for any public company, perhaps for life.”

Read the Wired article.




Three Charged in $364M Scheme That Paid for Splurges on Diamonds, Bugattis and Mansions

A federal grand jury has indicted three men for what officials describe as a $364 million Ponzi scheme to defraud investors, reports The Dallas Morning News.

Jay B. Ledford and Cameron R. Jezierski of Texas, along with Kevin B. Merrill of Maryland, raised money from investors who thought they were buying into cheap portfolios of consumer debt on credit cards and student and auto loans, investigators from the Federal Bureau of Investigation and Securities and Exchange Commission said.

“The defendants lured investors through an elaborate web of lies, duping them into paying millions of dollars into this Ponzi scheme,” said U.S. Attorney Robert K. Hur in a statement.

The report by Lison Joseph says the trio spent more than $73 million of investors’ money at casinos and to buy diamond jewelry and luxury cars including Lamborghinis, Ferraris, Bentleys and Bugattis.

Read the Dallas News article.



Former Locke Lord Partner Indicted on Charges Related to Alleged Cryptocurrency Ponzi Scheme

Above the Law reports that a former partner at Locke Lord and founder/CEO of MSS International Consultants Ltd., a private equity fund headquartered in the British Virgin Islands, was arrested on a charge of conspiracy to commit money laundering.

According to the indictment, Mark S. Scott was part of a conspiracy to conceal the source of $400 million in process from an alleged pyramid scheme involving a purported cryptocurrency, OneCoin. Prosecutors allege he transferred money in and out of the country in order to hide the origins of the money, reports Above the Law editor Kathryn Rubino.

A judge set Scott’s bail at $1 million, secured by $200,000 cash, and placed Scott on home detention with an electronic monitoring device.

Read the Above the Law article.



Citigroup Pays $12 Million to Settle Dark Pool Probe

Image by Mike Mozart

Reuters is reporting that Citigroup Inc. on Friday was ordered to pay more than $12 million by U.S. regulators after it was found that the bank’s investment banking and financial advisory unit misled users of a “dark pool” operated by one of its affiliates.

The article explains:

The bank will pay a penalty of $6.5 million and disgorgement and prejudgment interest totaling $5.4 million, while its affiliate, Citi Order Routing and Execution (CORE), will pay a penalty of $1 million, the U.S. Securities and Exchange Commission (SEC) said in a statement.

Read the Reuters article.




SEC Says Biotech Billionaire CEO Took Part in Pump-and-Dump Schemes

Economy - stock exchangeA biotechnology billionaire faces charges from the Securities and Exchange Commission of being part of pump-and-dump schemes that netted $27 million and left retail investors holding the bag, reports MedCity News.

In a lawsuit filed in federal court in New York, the SEC alleged OPKO Health chairman and CEO Phillip Frost took part in three pump-and-dump schemes between 2013 and 2018.

Reporter Alaric Dearment explains that the complaint alleges that Frost was involved in schemes to promote the stock of some companies on the crowd-sourced investment content site Seeking Alpha, on which articles would appear promoting their shares and touting Frost’s involvement in the companies. After the stock prices were pumped up, the defendants would sell it off, the SEC alleges.

Read the MedCity article.




JPMorgan Chase Will Pay $24 Million to End Lawsuit From Black Advisers

JPMorgan Chase has reached a settlement with financial advisers who say they were treated poorly because they’re black, reports Bloomberg News via the Chicago Tribune.

Reporter Max Abelson explains: “Six current and former employees at the largest U.S. bank filed what they asked to be a class action, alleging discrimination that’s ‘uniform and national in scope.’ Instead of fighting it in court, the bank agreed to pay $19.5 million to the members of the class, according to Friday filings. It will also put $4.5 million into a fund that will back recruitment, bias training, a review of branch assignments and a coaching program for black advisers.”

In the settlement, the bank denied any “wrongdoing of any kind whatsoever.”

Read the Bloomberg article.



Judge Rejects Ex-Bank Executives’ Bids for Acquittals, New Trials

A federal judge on Thursday refused to overturn the fraud and conspiracy convictions of four former executives for the only financial institution to be criminally charged in connection with the federal bank bailout program, the Associated Press reports.

Judge Richard Andrews refused to enter judgments of acquittal or set new trials for the former Wilmington Trust executives.

“Former bank president Robert Harra Jr., former chief credit officer William North, former chief financial officer David Gibson and former controller Kevyn Rakowski were convicted in May on charges of fraud, conspiracy and making false statements to federal regulators,” writes reporter Randall Chase

Read the AP article.




Ex-Biglaw Partner Gets 18 Months in Prison for Role in Shkreli Fraud

The New York Post reports that the former lawyer who helped “Pharma Bro” Martin Shkreli defraud investors landed just one and a half years in prison Friday — but will have to fork over more than $10 million in restitution and forfeitures.

Brooklyn federal court Judge Kiyo Matsumoto said Evan Greebel’s conduct was “egregious” and he played a “crucial role” in Shkreli’s scheme to defraud his hedge-fund investors after he lost all their money in a bad trade.

In addition to the prison time, the disbarred attorney will have to pay $10,447,979 in restitution to Retrophin and forfeit $116,464.03 in ill-gotten gains to the government, writes reporter Emily Saul.

Greebel is a former partner at Kaye Scholer and Katten Muchin Rosenman.

Read the NY Post article.



Circuit Split – Allowing Receiverships by Contract

There is a circuit split on the weight courts should give contractual provisions allowing the appointment of a receiver in loan documents, points out William Easley in a post for Bryan Cave Leighton Paisner. While some courts treat the provision as granting a contractual right to a receiver, others treat it merely as a factor to be considered.

He writes that “many district courts recognize that allowing the appointment of a receiver upon a contractual provision is imperative to give the creditor the benefit of its bargain.”

“A creditor’s contractual right to appoint a receiver under the loan documents will differ drastically between the circuits. Potential creditors need to consider the likelihood of succeeding on a motion to appoint a receiver to determine whether these provisions should be included in their loan,” he adds.

Read the article.



Special Receiver Appointed in Federal Lawsuit Against Wells Fargo in Texas Case

Micah Dortch, managing partner of the Dallas office of the Potts Law Firm, has been appointed a special receiver in litigation originally brought by the Securities and Exchange Commission against a group of Texas businessmen, the firm announced. That lawsuit seeks to recover funds from what was characterized as a fraudulent investment scheme directed by Thurman P. Bryant III of Frisco and Arthur E. Wammel of Pearland, along with affiliated companies and individuals.

The firm says that evidence in the case revealed that, in less than three years, the defendants were able to withdraw or transfer more than $20 million in cash from Wells Fargo Bank accounts in violation of industry standards and the bank’s own policies. Despite numerous five-figure and six-figure cash withdrawals, Wells Fargo management never verified, questioned or restricted any of the activities, according to allegations.

According to the SEC complaint, originally filed in 2017, the defendants raised more than $22 million from more than 100 investors to purportedly fund short-term mortgage loans for later sale to long-term lenders. The SEC says that no such program existed, and that Bryant and Wammel were operating a Ponzi scheme, with limited returns paid to investors from monies raised from other investors.

Dortch has been appointed by the court to investigate the role of Wells Fargo in the matter and to seek financial compensation on behalf of the defrauded investors, filing a complaint alleging that Wells Fargo failed to follow its fiduciary role.

“As stated in the complaint, Wells Fargo either knew about the scheme or willfully ignored the questionable actions being made in violation of its own internal rules,” said Dortch. “I’m honored to take on this role and gain a just resolution for these innocent victims.”

The case is Ecklund v. Wells Fargo Bank, N.A., No. 4:18-cv-00452-ALM, filed in U.S. District Court for the Eastern District of Texas in Sherman.



Automatic Renewals of Consumer Contracts: Everything You Ever Wanted to Know But Were Afraid to Ask

Automatic renewals of consumer contracts should be used with care, particularly in light of recent changes to state automatic renewal laws and increased scrutiny from government officials and class action lawyers, warns a recent post on the website of Drinker Biddle & Reath.

The post consists of questions and answers discussed by members of Drinker Biddle’s Class Actions Team and Consumer Contracts Team provide an overview of the laws governing automatic renewals, with a particular focus on California’s ARL.

The questions include such topics as FTC Act requirements, state requirements, how to comply with every ARL, consents, cancellation rights, and more.

Read the article.