SEC v. Genovese

Facts

Mirman joined John Thomas Financial (JTF) as its head of investment banking. JTF, a broker-dealer registered with P, was controlled and owned by Thomas Belesis (Belesis) through a holding company, ATB Holding Co., LLC (ATB). Mirman contacted D, a wealthy investor, regarding a potential investment in JTF. Mirman and De began discussing the possibility of D's investing in ATB, and of Mirman becoming involved in Liberty, a silver mining company in which D was an investor. D emailed Mirman marketing materials regarding Liberty. Mirman and Belesis obtained D's commitment to invest $2 million in ATB. D expressed an interest in investing up to $10 million in ATB, and the participants discussed a potential investment relationship between JTF and Liberty. From August 22 to 23, 2012, Mirman traveled to Liberty's silver mine in Nevada to conduct due diligence. Mirman invited William Tafuri (Tafuri), Liberty's president and chief operating officer, to give a promotional presentation. Tafuri and D each gave a brief presentation to JTF brokers, describing Liberty as undervalued and encouraging the traders to sell Liberty stock to customers. Mirman introduced D and Tafuri at that presentation. A one-page summary and marketing materials for Liberty were disseminated to JTF's brokers. Mirman validated the representations in the one-page summary with the help of an analyst and had copies made for dissemination to JTF's traders. JTF's brokers sold Liberty stock to their customers. D sold a block of 6.6 million Liberty shares through a JTF account he had opened for his offshore entity BG Capital Group Limited (BGC). Mirman collected a $300,000 commission related to his work with D. Belesis solicited the purchasers for the BGC Sale without Mirman's involvement. The BGC Sale was not registered with P. Mirman was listed as the registered representative for D's BGC account at JTF. Shortly thereafter, Mirman, D, and Belesis discussed the possibility that D would reinvest some of the proceeds of the BGC Sale in JTF. A sales assistant forwarded Mirman an email from D's assistant stating that D was interested in selling an additional 6.5 million shares of Liberty stock through the JTF account of Look Back Investments (Look Back), an offshore entity owned by D. Liberty issued the relevant stock to Look Back on December 14, 2011. No registration statement was in effect. Mirman was the representative identified on the relevant accounts at JTF, and he signed a document titled 'New Account Application' for use in the Look Back Offering. Mirman signed a document titled 'Sample Brokers Representation Letter For Sales by Non-Affiliates.' It read: 'After reasonable inquiry, the undersigned [Mirman] is not aware of any circumstances indicating that the seller [Look Back] is an underwriter with respect to the transaction or that the sale is part of a distribution of securities of the issuer.' Liberty's counsel attached that document to a legal opinion letter which authorized Liberty's stock transfer agent to remove any restriction on the sale of the Look Back shares because the transfer could be consummated without a registration statement under a registration exemption. That letter stated it was in reliance on the representations of a Broker Rep Letter signed by Mirman. The shares were never sold after P suspended trading in Liberty stock.

Issues

Rule of Law

Holding and Decision

Legal Analysis

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