Federal prosecutors allege U. S. Representative Chris Collins got busy with insider trading. Collins will go to court for some type of resolution, but in the meantime his indictment peels back the curtain on what a lousy job Congress has done to guard against such crimes.

Collins, a New York Republican, allegedly shared insider information about a publicly traded stock’s value. But that isn’t all which concerns others. Collins is also a director of Innate Immunotherapeutic, a pharmaceutical company also subject to oversight by the Congressional committee on which Collins sets.

Collins isn’t the first person to be suspected of insider trading — just the latest. Four others who have been busted include Jeff Skilling, R. Foster Williams, Martha Stewart, and Ivan Boesky.

“Tiptoeing on a narrow ledge past insider trading rules may be deft and clever,” says Arkady Bukh, a New York criminal defense attorney who has successfully defended dozens of accused insider traders. “But it doesn’t make it right.”

What Is Insider Trading?

An ‘insider’ is any person who holds:

1. Access to valuable non-public information about a corporation, or
2. Ownership of a stock equaling over 10 percent of a firm’s equity.

A common myth is all insider trading is illegal. There are two ways insider trading can happen. One is illegal, the other isn’t.

Legal Insider Trading

Insiders are legally allowed to trade shares of the firm that employment. The transactions must be registered with the Securities and Exchange Commission (SEC) are done with advance filings.

Illegal Insider Trading

The more notorious form of insider trading is the unlawful use of non-public material information for profit. This sort of trading can be done by anyone including company executives and their relatives and friends — or just an ordinary person on the street.

The SEC monitors illegal insider trading by watching the trading volumes of any particular stock. Volumes typically increase following new for the public, but when no news is issued to the public, it can be a warning flag. When that happens, the SEC investigates to find who is responsible and whether it was legal.

Proof

Proving a person has been responsible for insider trading can be difficult as traders often hide behind nominees, offshore companies and similar proxies. The SEC prosecutes more than a case a week and many are settled out of court.

Although the SEC does not have criminal enforcement powers, the agency does refer serious cases to the U.S. Attorney’s Office for possible prosecution.

Punishment

Several factors determine the punishment for insider trading. There are three criteria and depending on the jurisdiction, there may be civil or criminal penalties — or both. The three main criteria are:

• Scope
• Gain, and
• Evidence

Scope

How many people were impacted by the inside trading?

Gain

How much did the inside trade make from the transaction?

Evidence

Anyone charged is innocent until proven guilty. The burden of proof falls on the prosecution and if the case lacks a ‘smoking gun,’ the prosecutor finds it harder to prove guilt.

Rules and Regulations

Insider trading statutes are founded on American common law restrictions against fraud. The U.S. Supreme Court decided in 1909, that a company director who purchased a company’s stock when he knew the stock’s price would increase perpetrated a fraud by buying the stock but not revealing his privileged information.

The Securities Exchange Act of 1934

Prohibitions of fraud when it comes to stock and securities sales were strengthened the Securities Exchange Act of 1934. Section 16(b) prohibits short-swing profits made by company directors or officers and stockholders who own over 10% of a firm’s shares. Most of the development of insider trading prohibitions has come from court decisions.

The Takeaway

Once begun, insider trading doesn’t stop. The greed which nourishes the crime keeps growing until the branches become too heavy and the tree falls over. That’s when the SEC steps in and scrapes up the pieces. Anyone accused of insider trading should contact an experienced attorney immediately.

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A recurring and vexing issue has arisen again recently in my practice: can an (unlicensed) individual assist a public company in identifying sources of financing without the parties running afoul of the broker-dealer registration requirement under Section 3(a)(4) and 15(a)(1) of the Exchange Act?

The relevant authorities on the issue appear nothing short of schizophrenic. On the one hand, there seems to be a general acknowledgement that finders perform a positive function, providing access to capital for small cap companies that are not yet ready for (or attractive to) primetime players. As noted by the American Bar Association Task Force on Private Placement Broker-Dealers (Task Force), finders “fill a void created by the lack of interest on the part of licensed brokerage firms and venture capital funds in smaller equity transactions.” And courts that have confronted the issue head-on have unequivocally ruled that a finder—so long as his involvement is appropriately limited—may serve as an introducing party and receive percentage-based compensation without being considered a broker.

Consider, for example, Foundation Ventures LLC v. F2G Ltd., 2010 WL 3187294 (S.D.N.Y. 2010), in which plaintiff sued for breach of a contract that required it to “identify qualified institutional investor candidates to provide equity financing to F2G,” in exchange for a “success fee” equal to 6 percent of the investment amount. Defendant argued that the contract was void and unenforceable because plaintiff had agreed to act as a broker-dealer but had failed to comply with the registration requirement under Section 15(a)(1) of the Securities Exchange Act of 1934.

In rejecting that claim, the court carefully delineated the factors that bear on the issue, and expressly held that “neither the Contract nor FV’s performance pursuant to it is illegal as a matter of law.” The court noted that plaintiff did not conduct negotiations. It also stated that the fact that plaintiff was supposed to receive a commission rather than a salary was not sufficient for the court to conclude that it had acted as a broker. See also DeHuff v. Digital Ally, Inc., 2009 WL 4908581 (S.D. Miss. Dec. 11, 2009) (discussing “certain limited circumstances in which a person or entity – a finder – may perform a narrow scope of activities without triggering broker/dealer registration requirements” where the finder brings the parties together with no involvement on his part in negotiating the price or any of the other terms of the transaction”) (citing Cornhusker Energy Lexington LLC v. Prospect Street Ventures, 2006 WL 2620985 (D. Neb. Sept.12, 2006) & Mike Bantuveris, 1975 SEC No-act. LEXIS 2158 (Oct. 23, 1975)). See also SEC v. Kramer, 2011 WL 1230808 (M.D. Fla. Apr. 1, 2011) (where the defendant did “nothing more than bring[] parties together,” held that receipt of transaction-based compensation was not, alone, sufficient to require broker-dealer registration); Salamon v. Teleplus Enterprises Inc., 2008 WL 2277094 (D.N.J. June 2, 2008) (where consultant was to receive a finder’s fee of 10 percent of amounts funding received by Teleplus, court noted the “finders’ exception” to the broker-dealer registration requirement and denied defendant’s motion for summary judgment); Hazen & Markham, Broker Dealer Operations at § 3:5.

On the other hand, various commentators continue to suggest that anyone who receives transaction-based compensation based on the introduction of an investor will be considered a broker, and that the use of such an individual places the company and its financing in peril. See, e.g., Using Finders to Assist in Financings Can Impose Significant Risks, Insight, Volume 25, No. 6, June 2011. Those opinions are generally predicated on the SEC’s responses to No Action Letters as opposed to judicial decisions.

This dichotomy led the Task Force to acknowledge that “there exists a major disconnect between the various laws and regulations applicable to securities brokerage activities, and the methods and practices actually in daily use by which the vast majority of capital is raised to fund early stage businesses in the United States.” Report and Recommendation, ABA Task Force on Private Placement Broker Dealers, Business Lawyer, May 2005.

Cries for a clear resolution of the issue—perhaps a “broker-lite” kind of registration—have gone unheeded by the regulators, and there is no indication that the matter will be addressed any time soon, even as the current sluggish economy could plainly benefit from the availability of alternative financing. In the meantime, I am involved in a matter in which a company sorely in need of funding rejected the involvement of a finder because there “might” be a problem down the road. In my view, a kneejerk rejection of the involvement of a finder is simply unsupported by existing authority, and a more productive course would have been to carefully circumscribe the participation of the finder to comport with the holdings in Foundation Ventures and Kramer.

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Federal investigators are investigating an outbreak of debit card fraud in Northwest Georgia, according to a story by WCR tv in Chattanooga. Customers of the Bank of LaFayette, Cohutta Banking Company, and Tennessee Valley Federal Credit Union in Chickamauga, LaFayette, Rossville and Trion in Northwest Georgia have reported having their accounts drained.

Authorities believe that the thefts may be connected and may be the result of the theft of information from the company which handles the debit card transactions. The affected banks and credit unions have issued statements regarding the thefts.

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Mark Andrew Moore, a former facilities manager at Hunter College, claimed he was the Chairman, President and CEO of eS-prit International, an online health resource. He told members of an investment club that his business could make lots of money and offered them a discounted rate on his stocks.

Nearly 50 members gave Moore $365,000 to purchase the stocks even though there was no such company, no such stocks. He created a dummy website and printed bogus certificates which he sent to the investors.  The company’s Board of Directors was also bogus and the people on the Board had no idea they were there or that the company even existed.

The entire operation was bogus and after duping these investors, Moore used their money to buy meals, purchase phones, go shopping and to pay off $38,000 to Hunter College which he had ripeed off from them years earlier.He also used the funds to pay his family’s cell phones and cell phone bills, Cable TV and gym memberships.

The victims of his fraud scheme were from six states including Virginia, Maryland, Massachusetts, California, Nevada and Georgia. eS-prit International Inc. did not exist at all. It was only on paper where its listed headquarters was in reality, a post office box Moore had rented.  even the company website was a skeleton site and none of the links were activated.

Moore was arrested and charged with grand larceny, tax fraud, securities fraud and the scheme to defraud. He was indicted on one count of Grand Larceny in the Second Degree punishable by up to 7½ to 15 years in prison, 5 counts of Grand Larceny in the third degree, one count of criminal tax fraud, punishable by 3½ to 7 years in prison; six counts of securities fraud and one count of scheme to defraud punishable by up to 2 to 4 year in prison; and one count of Failure to file a tax return punishable by up to one year in prison.

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Gregory Bartko, a securities lawyer and Atlanta resident, was sentenced last Wednesday in the U.S. District Court for the Eastern District of North Carolina to 23 years’ imprisonment for securities fraud, as reported in the Columbus, Indiana, Republic. Bartko was convicted in 2010 at the conclusion of a 13-day trial on six counts of securities fraud for engaging in a scheme to defraud investors. The scheme targeted approximately 200 investors in 21 states. Bartko converted approximately $3.3 million in investor funds to his personal use. Many of the investors targeted were church members who were told false statements regarding the safety of the investments and the returns.

The prosecution had requested that Bartko be sentenced to 90 years. John K. Colvin, a Tennessee businessman, was also convicted and sentenced to 25 years.

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Hi friends, Good Morning and welcome back. For the first post for today, i have to report an ‘Impending Scam’ alert against an immensely popular HYIP. Probably many thousand investors have joined it.

Investors friends who were tactical enough to leave Royalty7 at the right time are in profit. But for many of those investor friends who failed to leave the program in the right time, are not that lucky.

My Note : Well, i have never joined Royalty7 personally. But, primarily I consider the blog as a news resource and if any investor friend complains to me, I have to publish his/her complains.

Well, the complains of pending payouts and non-response to support tickets started to circulate since the last two days. I had asked investor friend who complained to give the Royalty7 administrator 48 hours time, to respond to his support ticket and process his withdrawal.

48 hours has been long over, still there has been no response from the Royalty7 administrator, neither his payout has been processed.

Just before publishing the post , I received another complain of pending withdrawal request from another investor friend. Her payout has been pending since 22nd June.

Below, you can check the screenshot provided by our first investor friend [Name withheld for protection of the investor]

The second complain of pending payout against Royalty7.

I am almost certain, there must be many more investors with much bigger investments who have pending withdrawals at Royalty7.

Well, its seems at present Royalty7 is on a downhill course and by all probability should be considered as an ‘Impending Scam‘

Lesson Learnt :

No matter , how professional a HYIP looks, still it’s a HYIP and should always be taken as that,nothing more, nothing less. A HYIP, being essentially dependent on the cash flow, is a ponzie game and should only be taken as something similar to gamble. Although there is a chance to make good profits in HYIPs, but always there will be investors who will not make profit. Being solely dependent on the cash flow, the final eventuality of any HYIP is scam. Therefore any investor, willing to take the risk of HYIP investment with the intention of making high profits, should always remember , the Golden rule – Do Not Ever Spend what you can not afford to lose.

The post R7 : Royalty Or Impending SCAM!! appeared first on New York Criminal Attorney: NY Criminal Defense - Bukh Law Firm.