by John J. Tollefsen | Apr 17, 2018 | Fraud, Fraud, Fraud WA, SEC, Securities US
Regulating ICOs The regulators of money and securities are facing a new challenge with the emergence of crypto-currencies like Bitcoin. Not only do crypto-currencies live in cyberland computers usually outside the jurisdiction of the regulators, their mere existence is a challenge to the modern notion that only nation-states have the right to issue fiat currencies. Recently the Securities and Exchange Commission has entered the fray. It used to be said the securities regulators could be divided between the philosophy of the states and the philosophy of feds. The states were adherents to the central government control view (called “merit review”) believing that the staff of the Department of Financial Institutions (DFI) in Olympia knew what was good for investors and would be the appropriate gate-keepers for the investing public. For example, when Apple Computer went public, DFI would not approve its IPO stock for sale in Washington (it was too risky) so Washington investors had to purchase post-IPO stock at a substantial premium on the national public markets. The SEC was said to hold to a view that anything could be sold if there was full disclosure. Over time, the positions modified. The SEC is now known to make it difficult or impossible to register an offering its employees do not like. Recently the SEC insisted on applying traditional stock trading and Investment Company Act of 1940 rules to registration of crypto-currency ETF-like funds which were designed to allow investor speculation in a basket of crypto-currencies1Staff Letter: Engaging on Fund Innovation and Cryptocurrency-related Holdings, January 18, 2018. In a typical government “catch-22”, now that the SEC had held...
by John J. Tollefsen | Apr 10, 2017 | Blog, SEC, Whistleblowing US
U.K. Begins to Advance Protection of Whistleblowers Jes Staley, the American CEO of Barclays went after whistleblowers the American way – “get that rat!” This time the U.K.’s Prudential Regulation Authority and Financial Conduct did something about it. They called it an ethical breach and put pressure on Barclays to do something. Barclays issued a statement stating it reprimanded Mr. Staley and will make a “significant” cut to his bonus. How does this balance out? The whistleblower loses his or her career and the executive who cause that damage may lose some part of their future bonus. In the U.S., the SEC insists on revealing the name of the whistleblower if there is a settlement. The SEC justifies its policy by claiming it is merely trying to buttress internal reporting. In my experience, corporations circle the wagons when there is credible whistleblowing. Corporate counsel interrogates and human resources attempts to find legal grounds to terminate. Investigators comb the whistleblower’s computer and office looking for something negative. Usually whistleblowing is a career ending exercise in the U.S. The U.K. does not give rewards to whistleblowers. The SEC does but refuses to allow anonymous filings. It allows temporary anonymity if the whistleblower uses an attorney to file the claim. Like many CEOs, Mr. Staley apparently thinks whistleblowers are disloyal and he felt in this case it was “an unfair personal attack.” After he was told it was not appropriate to inquire into the identity of the whistleblower, he continued to pressure his internal security investigator for the information. A U.S. law-enforcement agency was asked to help. Consider Wells Fargo Bank. It...
by John J. Tollefsen | Jan 9, 2017 | Blog, Federal Law, Fraud, Fraud, International, Securities US
Local EB-5 VISA Fraud SEC Complaint: 15-sec-v-dargey-complaint Recent Seattle newspaper headlines have informed us that Lobsang Dargey, a local real-estate developer, has agreed to plead guilty to EB-5 fraud allegedly involving at least $125 million from 250 Chinese investors. This type of fraud is a form of securities and immigration fraud and has become more common on both sides of the transaction: investors make fraudulent claims regarding their eligibility for the program and promoters misappropriate their investments. EB-5 was enacted by Congress in 1990 to stimulate the U.S. economy through job creation and capital investment by foreign investors. Under a pilot program enacted in 1992, and regularly reauthorized since then, investors may also qualify for EB-5 visas by investing through regional centers designated by U.S. Citizenship and Immigration Services (USCIS) based on proposals for promoting economic growth. On September 29, 2016, President Obama signed Public Law 114-223 extending the regional center program through December 9, 2016. Ten thousand visas are allocated each year and processing times can be two years. Not only does the investor and family need to be vetted for the visa (e.g. where did the money come from?). There are two investment amounts $500,000 and $1,000,0000. Both require creation of ten full time (35 hours per week) permanent jobs. The $500,000 is by far the most popular and is only available in rural and high unemployment area. This is where the developers get involved. They package a deal, arrange for USCIS processing, and arrange permanent management. Teams of well-paid sales agents sell the package in China and elsewhere. Since the package involves an investment with an expectation...
by Justin Tollefsen | Apr 5, 2016 | Administrative US, Administrative WA, Attorneys, Blog, Business Law, Corporate Law DL, Entrepreneurship, Regulatory Compliance, SEC, Securities Law WA, Securities US, Tollefsen Law
At some point, nearly every regulatory client has asked me, in a tone of incredulity, why “such a little thing” mattered to a regulating agency. Often the client also asks why a government regulator focuses on the “little guy” when big business appears to skate through regulatory compliance with no issues. The second answer is far simpler but answering it first leads us to part of the answer for the first question. How Big Businesses Treat Regulatory Compliance Big businesses appear to skate through regulatory matters without issues, in a sense, because they are big. Being big, they hire regulatory compliance experts to eliminate issues and quickly correct any problems that do come up. They have support personnel to do the actual work. The proactively address most problems before they get to the point of administrative sanctions or lawsuits. This is not to say big businesses don’t have regulatory problems: many do. Some businesses simply don’t bother to comply and have problems as a result. But most big businesses place an emphasis on regulatory compliance. They recognize that compliance failure can be a business-ending proposition. They place a priority on regulatory compliance. Simply making regulatory errors can put a company under heightened scrutiny, causing more frequent examinations and other disruptive and costly consequences. A series of errors, or repeated errors, may also raise questions that lead to more serious investigations or prosecutions. Each situation drags at a company’s bottom line and pulls focus from the company’s mission and vision. As a result, most big businesses solve their regulatory issues quickly. They hire staff to address compliance. They include it...
by John J. Tollefsen | Mar 29, 2015 | Blog, Securities US
Putting Omnicare v Laborers District Counsel in Historical Perspective Omnicare, Inc., et al. v. Laborers District Council Construction Industry Pension Fund et al. Argued November 3, 2014—Decided March 24, 2015 Copy of Decision: 1503-Omnicare Overview The author is a Certified Fraud Examiner and is critical of the common law involving fraud and deceit. Too often the common law allows the taking of money from victims through hyper-technical defenses and faulty logic. Most of this comes from the lack of sympathy the judges have shown for the fraud victim through the history of the development of the law of misrepresentation. One example is the liability for opinions expressed in contrast to facts expressed. The general common law allows the person who takes money through a false expression of opinion to keep the money if speaker believed her opinion. Omnicare, in the context of a registration statement, moves the law in a positive direction by creating liability for a factual omission imbedded in the opinion that would be necessary to correct a false impression. Even though the Supreme Court did not delve in the history of the law, the 2015 Omnicare decision moved the court in a positive direction. The law on opinion testimony as fraudulent may be traced to the 1889 House of Lords decision of Derry v. Peek.1Derry v. Peek, (1889) L.R. 14 App. Cas. 337 (House of Lords) which limited liability for misrepresentation to fact patterns involving scienter. Derry excluded from the definition of “scienter” misrepresentation made with an honest belief that the fact represented was true. Although Derry was seemingly accepted be most United States courts and was adopted by the...
by John J. Tollefsen | Aug 26, 2014 | Administrative US, Blog, Qui Tam US, Securities US, Whistleblowing US
The False Claims Act provides that ¨Any employee who is discharged; or demoted; or suspended; or threatened; or harassed; or in any manner discriminated against is entitled to bring an action for reinstatement with same seniority; 2 times back pay with interest; special damages; emotional distress; attorneys’ fees and costs. No punitive damages are available. An “employee” includes: temporary worker; and demoted worker; and discharged worker. An independent contractor is not an employee. A false claims act whistleblower should expect harassment in the form of counterclaims filed in the retaliation action; industry blackballing; unprovable but real retaliation; reassignment for ostensibly unrelated reasons; other non-compensatable harassment; possible losing the case; and paying attorney fees and costs if the retaliation case is deemed frivolous. More on False Claims Act Whistleblower Protection Washington State False Claims Act Qui Tam (False Claims Act) procedure False Claims Act...
