Stock In Trade

The New York Appellate Division for the First Judicial Department imposed a suspension of one year and until further order

In November 2022, the Attorney Grievance Committee (AGC) commenced this disciplinary proceeding with a petition of charges, alleging professional misconduct in violation of the Rules of Professional Conduct (22 NYCRR 1200.0) based on respondent’s knowing engagement in a fraudulent scheme to effect illegal sales of stock.

By order entered June 23, 2023, this Court granted the petition to the extent of appointing a referee to hear and report. In August 2023, the AGC and respondent jointly moved, under the Rules for Attorney Disciplinary Matters (22 NYCRR) 1240.8 (a) (5), for discipline by consent, and requested the imposition of a six-month suspension. By order entered November 1, 2023, this Court denied the motion and directed the parties to proceed with the petition of charges.

The AGC and respondent now jointly move pursuant to 22 NYCRR 1240.8 (a) (5) for discipline by consent, this time requesting the imposition of a one-year suspension.

Misconduct

The parties stipulate to a number of facts, including the following. A Nevada corporation (Nevada corporation) owed respondent’s law firm $50,000. Beginning in March or April 2012, respondent negotiated a securities transaction for the sale of the $50,000 debt to various foreign entities. Respondent negotiated the terms of sale in accordance with a three-way Debt Settlement Agreement (DSA) in which he would assign the debt to the foreign entities, the foreign entities would pay respondent $50,000 in exchange for the assignment, and the Nevada corporation would repay the outstanding assigned debt by issuing 50 million shares of stock to the foreign entities upon conversion of the note.  Relying on two SEC Rule 144 opinion letters respondent procured from a Nevada attorney based on false information, the Nevada Corporation’s transfer agent issued two rounds of shares to the foreign entities in 2013 for a total of eight million unrestricted shares. Respondent provided stock promoters with conversion notices for the foreign entities to execute to convert the debt they had purchased from respondent into Nevada corporation shares.

In April 2017, the SEC filed a complaint against respondent in the United States District Court for the Southern District of New York alleging that respondent and other defendants engaged in a fraudulent scheme to effect illegal, unregistered sales of certain Nevada corporation shares. In November 2019, the Southern District granted the SEC’s motion for summary judgment against respondent, finding that he had violated section 10(b) of the Securities Exchange Act and section 17(a) of the Securities Act, which prohibit fraud in the purchase or sale of a security, by providing false statements regarding the date of the DSA to acquire Rule 144 letters that were provided to the transfer agent. The court further found that respondent violated section 5 of the Securities Act by offering and selling restricted shares of the Nevada corporation common stock.

On July 22, 2020, the Southern District entered final judgment against respondent permanently enjoining him from violating sections 5 and 17(a) of the Securities Act and section 10(b) of the Exchange Act and rule 10(b-5) thereunder. The Court also permanently barred respondent from, among other things, issuing Rule 144 opinion letters and participating in any aspect of the offering of penny stock. Respondent was ordered to pay disgorgement of $25,000, prejudgment interest of $6,899, and a civil penalty of $160,000.

Mitigation

The parties stipulate to the following mitigating factors: (1) respondent accepts the SEC’s findings that he violated sections 5 and 17(a) of the Securities Act and section 10(b) of the Exchange Act; (2) the SEC began its investigation in and around January 2015 while respondent was going through a contentious divorce and later custody dispute. The divorce proceedings financially devastated respondent. When the SEC first issued its press release in April 2017, respondent’s financial troubles exponentially increased. Respondent lost over $250,000 in income while having to pay, among other things, legal fees, accounting fees, and consulting fees, for himself and in some instances for his ex-spouse; (3) as a result of the adverse publicity following the publication of the SEC’s complaint, respondent lost clients, friends, and many business opportunities. Additional publicity continued to negatively affect respondent after the decision granting summary judgment to the SEC and continues to adversely affect his livelihood; (4) respondent is currently unemployed. Since December 2017, he has worked with attorney head-hunters and has completed more than 400 job applications and has been unable to secure a law firm position. He has worked at several retail firms per diem, sometimes two or three jobs, in most cases, earning minimum wage; (5) in March 2023, respondent began paying the government back at the rate of $400 per month, which is being deducted automatically from his Social Security payments; (6) respondent has kept up with his CLE courses; and (7) respondent has helped numerous former clients and neighbors from 2017 to the present, all on a pro bono basis, in FINRA arbitrations, general contract matters, and a Taxi and Limousine Commission matter.

Sanction

the court finds a one-year suspension appropriate and the joint motion for discipline by consent should be granted pursuant to 22 NYCRR § 1240.8(a)(5) and respondent is suspended from the practice of law in the State of New York for a period of one year effective the date of this Court’s order and until further order of this Court, and the AGC’s petition of charges is denied as moot. All concur.

(Mike Frisch)