Damian Williams, United States Attorney for the Southern District of New York, today announced that THOMAS CRAFT, a licensed attorney, has pleaded guilty in Manhattan Federal Court to securities fraud. CRAFT’s guilty plea arises from his involvement in a fraudulent scheme in which he falsely stated that he undertook certain legal work in connection with opinion letters from lawyers, when in truth and in fact he contented himself with automatically approving the opinion letters that had been prepared by his co-accused, Richard Rubin, who was a barred lawyer.
CRAFT was arrested on December 2, 2020 and pleaded guilty today before U.S. District Judge Paul A. Engelmayer. As part of its plea agreement, CRAFT agreed to relinquish its attorney license in Florida.
US attorney Damian Williams said: âAs a lawyer, Craft was supposed to act as a guard against fraud in the securities markets. Instead, as he admitted today, Craft falsely stated that he did some work in solicitor opinion letters, giving false reassurance to the investing public that the relevant securities rules furniture had been respected. Now he is guilty of securities fraud and awaits his conviction for his crime. “
As alleged in the indictment filed against CRAFT, as well as its co-conspirator Rubin, and other statements made in open court:
Securities Registration Requirements and SEC Rule 144
Under the Securities Act of 1933 (the âSecurities Actâ), anyone seeking to sell a security must first register that security unless an exemption applies. This registration requirement protects investors by promoting the disclosure of information relevant to informed investment decisions.
A company that registers new securities must complete a registration statement known as Form S-1 from the United States Securities and Exchange Commission (“SEC”) before the securities can be listed on a national stock exchange and listed on the stock exchange. The SEC S-1 form contains information relevant to informed investment decisions, including, among other things, information on the business operations of the company, the financial position of the company and a description of the management of the company. As part of the SEC Form S-1, the company is required to file an opinion letter (the âForm S-1 Opinion Letterâ) from a licensed attorney certifying that the SEC Form S-1 statements are true and correct. A company’s Form SEC S-1 and Form S-1 Opinion Letter are publicly available on the SEC’s Electronic Data Collection, Analysis and Retrieval (âEDGARâ) system.
“Restricted securities” means securities acquired through unregistered private sales of the issuing company or an affiliate of the issuer, “affiliate” meaning a person who directly or indirectly controls, or is controlled by , or is under common control with, an issuer. Affiliates may also include an executive or director or significant shareholder who is in a controlling relationship with the issuing company. Restricted securities are marked with a legend indicating that the securities cannot be resold in the market unless they are registered with the SEC or are exempt from these registration requirements.
The Securities Act Rule 144 (âRule 144â), codified in 17 CFR Â§ 230.144, provides an exemption from registration for restricted securities. More specifically, it authorizes the public resale of securities subject to restrictions if a certain number of conditions are met, in particular conditions relating to the length of time the securities are held, the way in which they are sold, and the public information made available to them. investors in the securities and in the amount that can be sold at any time. Under Rule 144, however, even if these conditions are met, the sale of restricted securities to the public is still not permitted until a transfer agent removes the ârestrictedâ statement from the security.
The term “transfer agent” refers to a company that keeps track of the individuals and entities that own the stocks and bonds of a particular company that has publicly traded securities. Among other things, transfer agents issue and cancel certificates to reflect changes in ownership, serve as the business intermediary for payments, exchanges or shipments, and handle lost, destroyed or stolen certificates. Transfer agents also remove the ârestrictedâ caption from titles, where applicable.
A Rule 144 seller’s declaration letter, or “seller’s declaration letter”, is a letter from an affiliate seller (that is, a seller in a controlling relationship with the issuer, such as (a senior officer, director or significant shareholder) of restricted securities to a transfer agent to establish certain facts underlying a legal opinion that the securities in question may be sold publicly in accordance with Rule 144. The consent of the The issuer at the deletion of a mention usually takes the form of an opinion letter from the issuer the solicitor of the company, the letter of representation of the seller, stating that the securities in question meet the conditions of the rule 144. The seller’s representation letters contain several certifications required by law before the restricted caption is removed. The transfer agent relies on the seller’s representation letter in determining whether to remove the restricted caption from a security.
Over-the-counter securities and over-the-counter markets group
Over-the-counter (âOTCâ) securities are securities that are traded between two counterparties outside of a formal stock exchange. OTC Markets Group (âOTC Marketsâ) is a stock exchange headquartered in New York, New York, which provides information on the prices and liquidity of OTC securities.
OTC Markets requires issuers wishing to be listed on OTC Markets to engage a licensed attorney to review company records and submit a letter to OTC Markets (an “OTC Markets attorney letter”) indicating whether the information publicly disclosed by the transmitter comply with the condition. in SEC Rule 144 governing public information made available to investors about the issuer. OTC Markets relies on the OTC Markets attorney’s letter to determine whether an issuer’s security may be listed on OTC Markets. OTC Markets lawyer letters are publicly available on the OTC Markets website.
The fraud scheme
From at least in or around 2011 until at least in or around September 2018, CRAFT and Rubin participated in a fraudulent scheme in which CRAFT falsely stated that it had undertaken certain legal work in connection with the Seller’s Letters of Representation , OTC Markets lawyer letters and S -1 Opinion Letters, all of which made it possible to sell the securities concerned to the investing public. The false statements were found in letters belonging to more than a dozen companies.
CRAFT, 56, of Tequesta, Fla., Pleaded guilty to one count of securities fraud in violation of 15 USC Â§Â§ 78j (b) and 78ff, 17 CFR Â§ 240.10b-5 and 18 USC Â§ 2 , which carries a maximum sentence of 20 years in prison. The potential maximum sentence in this case is prescribed by Congress and is provided here for informational purposes only, as any conviction of the defendant will be determined by the judge.
CRAFT will be sentenced on February 24, 2022 at 10:30 a.m. CRAFT co-accused Richard Rubin was sentenced on November 2, 2021 to one year probation, 200 hours of community service and a fine of $ 1,000. Rubin was also ordered to confiscate $ 117,068.15 in proceeds of crime.
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Mr Williams praised the investigative work of the SEC’s Office of the Inspector General and also thanked the SEC’s Division of Enforcement for its assistance.
This case is being handled by the Bureau’s Securities and Commodities Fraud Working Group. US Assistant Prosecutor Jordan Estes is in charge of the prosecution.
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