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 | Feb 26, 2018 | Fraud, Whistleblowing US
1802 Digital Realty Trust v Somers (download the case) One of the hopes of those who support whistleblowing as a remedy for fraud was that Dodd-Frank had plugged the holes in whistleblowing protection that existed under Sarbanes-Oxley. One common trap was the short deadlines of Sox. Originally the whistleblower had only 90 days to file a complaint with OSHA (increased to 180 days by Dodd-Frank). Often whistleblowers start out as team players and report internally only to be disappointed by the response after waiting many months for the company to address the problem. When they won’t let go of the issue after the company whitewashes it, the 180 days have elapsed, and they have no legal protection. Dodd-Frank seemed to fix this problem by giving six years to file in federal court and skip the OSHA step. Unfortunately, when congress defined “whistleblower” in Dodd-Frank it required a report to the SEC. On February 21, the U.S. Supreme Court confirmed that whistleblowers have 180 days to either file with OSHA or report to the SEC. Whistleblowers Lose...
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 Justin Tollefsen | Jun 9, 2015 | Attorneys, Blog, Business Law, Real Estate WA, Tollefsen Law, Washingon State
Merry v Nationstar –Wn App 324745-III Background to Deed of Trust In 2007, Sharon Weirich borrowed $205,440 from Countrywide Home Loans, Inc. and executed a Deed of Trust on her real property as security. The deed identified Countrywide as the lender, Landsafe Title of Washington as the Trustee, and the Mortgage Electronic Registration Systems, Inc. (MERS) as “a separate corporation that is acting solely as a nominee for Lender and Lender’s successors and assigns.” In Bain v. Metropolitan Mortgage Group, 175 Wn.2d 83, 93, 285 P.3d 34 (2012), the Supreme Court of Washington held that the MERS registry’s business practices in creating and transferring beneficial interests with regard to mortgages conflict with the requirements of Washington’s Deed of Trust Act. Beginning in 2011 MERS made a number of assignments and changes in ownership of the note, beneficiary, and trustee using the business practices found to conflict with the Deed of Trust Act. Following these changes, in October 2012, Northwest Trustee Services, Inc. served Mrs. Weirich with a notice of default on behalf of Bank of America. The same month Ms. Weirich executed a deed of trust to Thomas Merry. This deed of trust secured payment of a $68,000 promissory note. Ms. Weirich also executed a power of attorney and an assignment of legal claims to Mr. Merry. In December 2012, Ms. Weirich received a notice of trustee’s sale informing her that her property would be sold on April 19, 2013 to satisfy her promissory note she originally gave to Countrywide. However, property was not sold on April 19, 2013 and no sale was rescheduled within the 120-day window...
by John J. Tollefsen | Mar 5, 2015 | Blog, Business Law, Business Torts WA, Real Estate WA
McKown v Simon Property Group, Supreme Court of Washington, March 5, 2015 Decision: 050405-McKnown-v-Simon-Properties After 40 years of practicing U.S. law, I have grown to appreciate the gift we received from our colonizing parent, the common law. The civil law systems suffer from the same rigidity that all statutes impose: one size fits all. The legislature drafts a statute as a solution to a perceived problem not understanding how it might be unjust in a different fact situation. The common law can smooth out these injustices by providing court-made law which reacts to the facts and needs of justice in a particular case. The negatives of the common law system that has decisions made by juries include unpredictability and indefensible awards. The common law has invented tools to minimize the negatives. One of those tools is “foreseeability”. It allows a court to claim that no one could have foreseen the harm so the defendant is not liable. Foreseeability is often the only legal barrier protecting a business from liability. Unfortunately it has proven to be a two-edged sword. The limits of foreseeably was highlighted in McKown v Simon Property Group. On Sunday, November 20, 2005, Dominick S. Maldonado walked into the Tacoma Mall and opened fire on shoppers and mall employees, injuring seven people. Maldonado wore a dark trench coat concealing a MAK-90 rifle and an Intratec Tec-9 pistol, and carried a guitar case filled with ammunition. McKown, an employee at one of the retail stores, tried to stop Maldonado, but was shot and wounded. Simon Property Group owned the Tacoma Mall. Under Washington Law, the Tacoma Mall is liable to McKown...
