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PIPEs: Yet Another Federal Case

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Mar 19, 2010 10:28 am
 An irreverent Wall Street Blog  
by Bill Singer   Yet Another PIPEs Hosing: Lawyer Facing 20-year Sentence Written: March 17, 2010

On March 15, 2010, the United States Attorney for the Southern District of New York, Preet Bahrara, announced that Florida-based attorney Louis W. Zehil pleaded guilty to a criminal Information charging one count of Securities Fraud and one count of Conspiracy to Commit Securities Fraud arising out of a fraudulent scheme in which Zehil obtained unregistered, restricted securities that he subsequently falsely sold as registered and freely tradable.  As part of his guilty plea, Zehil forfeited $17 million and to agreed to pay restitution to his victims.  


Acting as counsel for the issuers in the Charged Transactions, Zehil sent opinion letters to the issuers' stock transfer agents directing the issuance of restricted shares to the PIPE investors. Zehil's letters instructed that all of the issued shares should bear restrictive legends except the shares issued to Zehil’s Entities. Zehil's letters stated, falsely, that the shares issued to Zehil’s Entities satisfied legal criteria permitting them to be issued without a restrictive legend. As a result, Zehil was able to receive shares without restrictive legends.


Almost immediately after Zehil obtained these free trading shares of the issuers' stock, he deposited them in securities trading accounts and sold them before the issuers had filed any registration statements with the SEC. By obtaining stock free of the restrictive legends, Zehil was able to sell these shares immediately in the open market at a profit, in advance of the other PIPE investors. Zehil reaped approximately $17 million dollars in profit through these illegal sales.



======================================================================= New FINRA Cases Analyzed by Bill Singer

Regulatory lawyer Bill Singer has analyzed and posted the latest crop of FINRA disciplinary cases.  Frankly, it's not a pretty sight. 

How simple is it to steal a quarter of a million in insurance premiums?  How about you just submit a change of address form. CLICK HERE TO READ CASE Why accuse a broker of "forgery," when you can engage in prosaic pyrotechnics along the lines of "Davis falsified the customer’s signature on the application and submitted it to his member firm as authentic, causing the firm’s books and records to be false and inaccurate." CLICK HERE TO READ CASE The elderly have become attractive victims for many securities scams -- now we have a case where a supervisor is nailed for failing to properly supervise a miscreant who was ripping off the aged.  CLICK HERE TO READ CASE You tell me.  Was a six-month suspension enough given FINRA's recitation of the facts?  CLICK HERE TO READ CASE And when you're done with that -- read this one.  CLICK HERE TO READ CASE



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