Legal

Regulation A’s Destiny a Big Unknown

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SEC Silent on Promise of Expanded Size and Broadened Investor Eligibility
Some six months after the JOBS Act became law, the Securities and Exchange Commission has primarily focused on providing guidance for emerging growth company initial public offerings and on proposing rules to lift the ban on general solicitations for Rule 506 offerings under Regulation D. Rules specific to crowdfunding are expected to surface early next year. Yet nothing but silence surrounds rulemaking or guidance that would clear the way for issuers to sell up to $50 million in unregistered securities under Regulation A – up from $5 million today – to any investor regardless of income or net worth criteria. Unlike its mandates on other provisions in the JOBS Act, Congress didn’t give the SEC a deadline to address the exemption, which has been informally dubbed “Regulation A+.”

So even though the commission has sought comments on it, it’s unknown when the agency might take up the matter. SEC officials could not be reached. Yet how the commission crafts rules could determine whether companies actually use the financing option, observers say.

Legal

SEC, FINRA Bust Algo Busters

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While computerized and algorithmic trading specialists have often been eyed as trading troublemakers, the tables were turned in a FINRA settlement with market manipulators accused of using illegal tactics to take advantage of buy and sell algorithms. FINRA teamed up with several exchanges to levy a $3.4 million penalty on Hold Brothers On-Line Investment Services, which also reached a $2.5 million settlement with the Securities and Exchange Commission. FINRA and the SEC both alleged that two entities controlled by Hold principals engaged in illegal trading and lacked money laundering controls from 2009 through 2011. Hold did not dispute accusations that some of the traders associated with the two entities, Demostrate and Trade Alpha, indulged in trading activity that was illegal in itself and at the same time directed at using misinformation to thwart trading algorithms used by other firms.

The allegedly illegal trading involved layering and spoofing, which occur when bogus trades are placed and then canceled. Spoofing involves bogus orders placed inside the legitimate national best bid or offer and then canceled after spread or market depth has changed to suit the spoofer’s plans. Layering takes place when numerous trades are placed on one side of the market to distort supply and demand and, resulting in what FINRA calls “artificially moving the price of the security.” The layering trader takes the other side of the manipulated bid or offer, and the layering trades are canceled after they have caused a change in the bid/ask spread or triggered trades.

Legal
NIR Group

JP Morgan Reporting Snafu Shows Ribotsky Still Acting as NIR Group Valuation Manager

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Investors in N.I.R. Group funds received fund valuation reports in late August prepared by the ousted manager Corey Ribotsky that were sharply at odds with reports sent to them from the funds' court-appointed receiver, PricewaterhouseCoopers (PwC), just days before, according to reports and documents obtained by Growth Capitalist. Ribotsky's valuation report was distributed by JP Morgan Clearing, the custodian for N.I.R.'s limited partner IRA accounts. Morgan told NIR's domestic fund investors that Ribotsky sent it a year-end valuation report, dated January 18, 2012, in late August. This report showed only a 30% loss for 2011 compared to the 97% loss investors had received just days before in their Schedule K-1 statements prepared by PwC's Cayman office. The SEC's investor fraud suit against Ribotsky and his removal as manager of the AJW Funds was widely reported earlier this year so it's odd that JP Morgan Clearing was still accepting valuation reports from Ribotsky.

Legal

SpongeTech Inquiry Leads to Another Sanction

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Former SpongeTech Delivery Systems CFO Steven Moskowitz has been sanctioned by the Securities and Exchange Commission, which barred him from practicing before the commission as an accountant. The bar came as a result of a stock manipulation scam in which Moskowitz earlier pleaded guilty to a criminal charge of securities fraud. Another associate, Myron Weiner previously agreed to disgorge $1.3 million in a civil suit. The commission alleged “that from at least April 2007, Moskowitz and others engaged in a scheme to increase demand illegally for, and profit from, the unregistered sale of publicly-traded stock in SpongeTech by, among other things, ‘pumping’ up demand for SpongeTech stock through false public statements about non-existent SpongeTech customers, fictitious sales orders, and phony revenue.”

The SEC halted trading of SpongeTech shares in October 2009, at which time regulators cited a variety of issues with the company’s financials. It had not filed anything with the commission since February 2009.