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 John J. Tollefsen | Nov 29, 2013 | Blog, Federal Law, Fraud, Securities US
Understanding the Role of SIPC in Protecting Investors from Fraud The Securities Investor Protection Corporation (SIPC) is not a Federal Deposit Insurance Corporation (FDIC) for the securities brokerage industry. The Madoff and Stanford cases have highlighted the differences. The purpose of this article is to examine when, why, and how SIPC funds are used to assist fraud victims. The FDIC was established in 1933 during the Great Depression to maintain stability and public confidence in the nation’s financial system by insuring deposits and supervising financial institutions for safety and soundness. After thousands of bank failures in the 1920s and early 1930s, Congress decided that restoring confidence in the banking system required government action. As an independent agency of the federal government, the FDIC now insures approximately $9 trillion of deposits in U.S. banks and thrifts – almost every bank and thrift in the country. Since the agency began its coverage on January 1, 1934, no depositor has lost any money in a FDIC insured institution. If a bank is failing, the FDIC takes over at the close of business on a Friday and quickly restores depositors’ funds. In contrast, SIPC is small, having slightly more than $1 billion in reserves. This is miniscule in comparison to stock fraud losses. Microcap stock fraud alone is estimated to range between $1 and $3 billion per year. It covers only eligible investments 1Among the investments that are ineligible for SIPC protection are commodity futures contracts (unless defined as customer property under the Securities Investor Protection Act) and currency, as well as investment contracts (such as limited partnerships) and fixed annuity contracts that are...
by John J. Tollefsen | Sep 29, 2012 | Blog, Business Law, Fraud, International
The UK Bribery Act of 2011 How the Bribery Act Can Apply to US Businesses International bribery (payments to grease the wheels of business) is a major problem all over the world. The United States has limited its laws against bribery to primarily reach payments to public officials, allow facilitation payments, and rarely prohibits kickbacks and bribery in private industry. The federal Anti-Kickback Act of 1986 (41 U.S.C. § 8701 et seq) covers payments to government contractors. The Foreign Corrupt Practices Act of 1977 (FCPA) prohibits illicit payments to foreign officials. After the US led the way with the FCPA, the international community became involved through the 1997 Organization of Economic Co-operation and Development Convention on Combating Bribery of Foreign Public Officials in International Business Transactions (“OECD Convention”). The Convention became effective in 1999 and had been ratified by 38 countries including the US and the UK. More I. Jurisdiction under the Bribery Act Individual countries are beginning to enact their own versions of the FCPA. The UK’s version, the Bribery Act, became effective on July 1, 2011 and is commonly referred to as the “FCPA on steroids”. There are a number of provisions that greatly expand the transactions covered by the FCPA and its jurisdiction. US companies with international sales are potentially covered by the Bribery Act. Unlike the FCPA which limits its reach to issuers of securities of securities registered with the SEC, the Bribery Act’s jurisdiction is more expansive. It is divided into two parts. Part I of the Bribery Act applies to all businesses that have a “close connection” to the UK. The mostly likely...
by John J. Tollefsen | Jun 27, 2012 | Bankruptcy, Blog, Business Torts WA, Federal Law, Fraud, Fraud WA, Washingon State
Fraudulent Transfers in Washington State Transfers without adequate consideration or gifts can be overturned as fraudulent in certain circumstances. This article discusses breaking asset protection trusts and other devices to avoid creditors Briefly transferring house to wife to obtain loan is fraudulent transfer Most Asset Protection Schemes Do Not Work The Internet is replete with websites touting asset protection schemes. What they do not reveal is that they are unlikely to work. Most states have statutes that protect creditors from asset protection schemes through a variety of tools. Unless the trust does not benefit the debtor, it is unlikely to serve its purpose. This article discusses the various applicable statutes in Washington State. Understanding trusts An asset protection trust is an entity created by and recognized by court-made law (common law). “Asset protection” is a label applied to a common law trust specifying its purpose but not describing a unique entity. Some trusts, like Massachusetts Business Trusts, are entities chartered by Washington’s Secretary of State in a process similar to the creation of a corporation or limited liability company. Asset protection trusts generally rely on the non-chartered and therefore more secret trusts created under common law. Modern trust law is primarily the product of centuries of decisions starting from the 13th century in the courts of equity (Court of the Chancery) of England. Trusts are now internationally recognized by the Hague Convention on the Law Applicable to Trusts and on their Recognition effective January 1, 1992. An intentionally established trust (“express” trust) involves at least three persons: 1) the settlor(s) or trustor(s) who transfers property in trust to the...
