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In the midst of the COVID-19 pandemic, Ponzi schemes have continued to pose a serious threat to unsuspecting investors here in Florida and around the world. On August 9, 2021, the Securities and Exchange Commission (SEC) filed a complaint in federal court against Johanna Garcia, of Broward County, and two companies she owns, MJ Capital Funding, LLC and MJ Taxes and More, for an alleged Ponzi scheme. [1]

The complaint alleges that Garcia has been operating a Ponzi scheme in which she has taken upwards of $70 million from over 2,000 investors under the guise that the investments funded Merchant Cash Advances (MCAs) for small businesses in need. Instead, the complaint alleges, the investments are being used in a “classic Ponzi scheme fashion” not to fund MCAs, but to pay the “returns” of investors before them. [2]

While MJ Taxes has been in existence since 2016, MJ Capital Funding was formed in June 2020, after the COVID-19 pandemic had already taken hold. From June until October 2020, MJ Taxes solicited six-month investments which typically promised a 10% monthly return, extrapolated out to substantial 120% annual returns. MJ Capital took over in October 2020, continuing to advertise as a source for MCAs while promising investors large and consistent returns.

On the heels of the Financial Industry Regulatory Authority’s (“FINRA”) record-breaking financial penalty against app-based investing platform Robinhood, it’s a fitting time to consider recent trends within FINRA’s industry-wide arbitration process.

As an organization, FINRA’s main function is to protect investors by upholding the integrity of the market through careful oversight of brokers in the United States. In doing so, FINRA operates a dispute resolution forum for arbitration and/or mediation of both intra-industry and customer-industry disputes. FINRA is also authorized by the United States government to protect investor interests through diligent screening and analysis of the billions of market transactions that occur each day. [1]

Whether a dispute arises between industry actors or between customer(s) and an industry actor, FINRA facilitates a neutral dispute resolution process by providing unbiased, trained arbitrators or mediators to guide cases through to completion. While the FINRA dispute resolution process proceeds similarly to a case within the court system, FINRA cases typically resolve more quickly and efficiently than traditional cases do, and appeals on FINRA outcomes are generally not accepted.

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In light of the ever-expanding role of digital technology in daily life, along with a string of recent high-profile cyberattacks, it is fitting that the Securities and Exchange Commission (“SEC”) has included cybersecurity risks on their 2021 regulatory agenda. The SEC last provided cybersecurity guidance in 2018, though critics argue that the 2018 Guidance was insufficient and merely reiterated the SEC’s formal guidance from 2011. [1] However, given recent executive-branch interest in cybersecurity issues, it is predicted that cybersecurity rules set forth in 2021 will offer more actionable and concrete protective measures for investors.  [1]

As a vast swath of sensitive, personal data is shared in the digital space, and as businesses and the government rely increasingly on complex computing systems to maintain their operations, cyber risks have multiplied exponentially. Cyber attackers target sensitive personal data in an effort to compromise a business, a business’s clients, or the public at large, often while demanding a ransom.

So far in 2021, numerous cyberattacks have taken place. Most notably, the Colonial Pipeline was hacked in May, resulting in gasoline shortages across the Southern United States, and in June, a cyberattack on a large meat manufacturer halted a quarter of all beef operations in the United States for two days. [2] Countless other large- and small-scale cyberattacks occur regularly, amplifying the need for investor protection from such future occurrences.

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The Supreme Court of the United States dealt a blow – at least for now – to plaintiff shareholders as part of its long-awaited June 21, 2021 decision in Goldman Sachs Group, Inc. v. Arkansas Teacher Retirement System.

The Plaintiffs, all Goldman shareholders, filed this securities fraud class-action suit against Goldman in Federal court back in 2011. They alleged that Goldman had misrepresented itself in violation of Section 10(b) of the Securities Exchange Act of 1934, leading to an inflated stock price. [1] The Plaintiffs asserted that Goldman’s misrepresented itself by stating “[o]ur clients’ interests always come first” and touting their “extensive procedures and controls that are designed to identify and address conflicts of interest.” [2]

The Plaintiffs alleged that these statements were false or misleading to shareholders, since Goldman was engaged in conflicted transactions at the time the statements were made. [2] Once the public was made aware of these conflicts following a government enforcement action, Goldman’s price dropped, which the Plaintiffs allege caused them to lose a combined $13 billion. [3]

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Regulation of cryptocurrency remains broadly uncharted in the United States, even as its popularity has exploded. The uncertainty shrouding crypto regulation stems largely from complexities within the blockchain on which it is based and from difficulties with its classification – is it a commodity? Is it a security? Is it property? Experts, agencies, and blockchain companies all disagree.

Currently, the United States has neither comprehensive legislation nor a comprehensive regulatory scheme to govern the classification, usage, and taxation of cryptocurrency. As it stands, the sale of crypto is regulated by the U.S. Securities and Exchange Commission only if the crypto in question is considered a security.[1]

This can present some thorny issues, particularly when tokens represent themselves as “utility tokens” with value beyond equity or a share in a company. Such tokens do not fall under the purview of the SEC and can thus result in a lack of investor protections. [1]

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In light of the recent market volatility brought on by social media and the meme stock frenzy, the Securities and Exchange Commission (SEC) is beginning to investigate whether rule changes are in order for the market structures which foster these situations. During a speech on June 9th, 2021, newly appointed SEC chairman Gary Gensler spoke of the SEC’s role in protecting individual investors who trade securities via brokerages like Robinhood, which utilize high-speed trading platforms called wholesalers to execute these trades.

In the wake of chairman Gensler’s remarks, shares of Virtu Financial, Inc., the second largest wholesaler by volume in the United States, fell 7.7% on the heels of a surge in share price during the meme stock craze of 2021. [1]

One system which the SEC has pointed to as in need of review is that of payment for order flow. Payment for order flow has ushered in market volatility in meme stocks like GameStop and AMC, because this system powers a good deal of app-based securities trading. It allows individual investors to trade at the current market price without paying commission on their orders. A familiar example exists within the app-based platform, Robinhood.

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With the recent rise of meme stocks– both in the market and in the media – there has been plenty of talk about short squeezes and their impact. While short squeezes themselves are not a new concept, the unique market characteristics of 2021 have ushered them into the mainstream. Given the current market landscape, a sound understanding of short squeezes is critical in making informed investment decisions.

The COVID-19 pandemic lockdowns resulted in working from home and the distribution of stimulus checks, which when mixed with Reddit as a communications platform for retail investors, helped to fuel the meme stock phenomenon. A meme stock the term being used to describe any publicly traded company whose popularity stems from the use of social media platforms which draw everyday investors to purchase shares. [1] Classic examples from this year include GameStop and AMC, both of which have showed tremendous and at times ludicrous growth fueled by retail investors.

A short squeeze occurs when a stock’s price is rapidly driven up not because of any fundamental addition of value, but instead because of an excess of short selling. A short sale occurs when an investor makes an investment betting that the price of a stock will fall. This can take many forms, but commonly occurs when an institutional investor like a hedge fund believes a stock is overvalued and will soon fall, allowing them to turn a profit. The hedge fund will sell stock it ‘borrowed’ hoping that when they have to deliver the stock, its price will have fallen and they can purchase the stock that they have to deliver at a lower price.

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Once your Chapter 7 eligibility has been determined, it’s important to consider whether the unique benefits and drawbacks of bankruptcy make filing an optimal path forward for you. Savage Villoch Law can work with you directly to understand your specific circumstances and balance these factors to help determine whether you should file.

First and foremost, Chapter 7 can grant you quick and complete relief from your unsecured debts – it’s the fastest and most common form of bankruptcy, and the vast majority of those who file will get relief. Any of your financial obligations that are not backed by collateral can be discharged – think your credit card debt, medical bills, and personal loans. In a typical Chapter 7 case, these debts will be discharged within three to six months of filing, and your creditors must stop attempting to collect as soon as your petition is filed.

Forcing your creditors to stop calling you is really a two-fold benefit of bankruptcy. First, you can rest easy knowing that collectors won’t be calling you or otherwise bother you while the bankruptcy court is considering your case since collections are paused until the court determines whether you’ll receive Chapter 7 relief.  Second, the quick turnaround for Chapter 7 cases offers you a jump start on rebuilding your financial future, especially when compared with the years-long repayment plans generally used in a Chapter 13 reorganization bankruptcy.

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Joseph Taub, who was indicted by a grand jury in New Jersey based on allegations of tax fraud and operating a scheme to manipulate stock prices entered a plea deal where he admitted to orchestrating a market manipulation scheme and defrauding the government of taxes.

According to case documents and statements, between 2014 and 2016 Taub, with co-conspirators, set up dozens of brokerage accounts in order to manipulate the prices of publicly traded companies.  These dozens of brokerage accounts were controlled by Taub because he funded the accounts and directed the trading in the accounts.  The brokerage accounts controlled by Taub but in the name of someone other than Taub, is a type of account known as ‘straw accounts.’  Straw accounts were used to hide trading activity and market manipulation schemes since these accounts were not in Taub’s name. Taub wrongly believed that the government would not notice his nefarious actions.

According to the indictment, Taub used multiple accounts to carry out his market manipulation scheme.  He would use one account to purchase a large number of shares of a particular publicly traded company whose share price he wanted to manipulate.  In coordination with co-conspirators whose names were on various other ‘straw’ brokerage accounts, Taub would direct the placement of numerous smaller buy orders in those straw accounts.   The multiple small buy orders caused upward pressure on the stock price.  After the stock price had increased, Taub would sell the large number of shares he had purchased in his account, taking a profit.  Next, Taub would direct that the shares in the straw accounts be sold, or, if an order had not been executed, to cancel the order. According to the indictment, the co-conspirators expected to lose on their trades in the expectation that the losses would be made up on the large trade made by Taub.

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