Audrey
Strauss, the United States Attorney for the Southern District of New
York, announced today that RICHARD RUBIN, a disbarred attorney, pled
guilty in Manhattan federal court to securities fraud. RUBIN’s guilty
plea results from his involvement in a fraudulent scheme in which he
falsely represented that he was a licensed attorney in signing certain
attorney opinion letters, which enabled the relevant securities to be
sold to the investing public. In addition, RUBIN engaged in the
fraudulent scheme with Thomas Craft, a licensed attorney, who falsely
represented that he had undertaken certain legal work in connection with
other attorney opinion letters, when in truth and in fact, RUBIN,
despite his disbarment, had undertaken all of the legal work attested to
in the letters.
RUBIN was arrested on December 2, 2020, and pled guilty today before U.S. District Judge Paul A. Engelmayer.
Manhattan U.S. Attorney Audrey Strauss said: “As he admitted today,
Richard Rubin falsely represented in attorney opinion letters that he
was a licensed attorney, giving false comfort to the investing public
that an attorney, acting as a gatekeeper, had performed certain work in
connection with securities. Now he stands guilty of securities fraud
and awaits sentencing for his crime.”
As alleged in the Indictment filed against RUBIN, as well as his co-conspirator Craft,[1] and other statements made in open court:
Securities Registration Requirements and SEC Rule 144
Under the Securities Act of 1933 (the “Securities Act”), anyone
seeking to sell a security must first register that security unless an
exemption applies. See 15 U.S.C. § 77e. This registration
requirement protects investors by promoting disclosure of information
pertinent to informed investment decisions.
A company registering new securities must complete a registration
statement known as U.S. Securities and Exchange Commission (“SEC”) Form
S-1 before the securities can be listed on a national exchange and
publicly traded. SEC Form S-1 contains information pertinent to
informed investment decisions, including, among other things,
information on the company’s business operations, the company’s
financial condition, and a description of the company’s management. In
connection with SEC Form S-1, the company is required to file an opinion
letter (the “Form S-1 Opinion Letter”) from a licensed attorney
attesting that the statements in the SEC Form S-1 are true and correct.
A company’s SEC Form S-1 and the Form S-1 Opinion Letter are available
to the public on the SEC’s Electronic Data Gathering, Analysis, and
Retrieval System (“EDGAR”).
“Restricted securities” refers to securities acquired in
unregistered, private sales from the issuing company or from an
affiliate of the issuer, with “affiliate” meaning a person who directly
or indirectly controls, or is controlled by, or is under common control
with, an issuer. Affiliates can also include an executive officer or a
director or large shareholder who is in a relationship of control with
respect to the issuing company. Restricted securities bear a legend
indicating that the securities may not be resold in the marketplace
unless they are registered with the SEC or are exempt from such
registration requirements.
Securities Act Rule 144 (“Rule 144”), codified at 17 C.F.R. §
230.144, provides a registration exemption for restricted securities.
Specifically, it permits the public resale of restricted securities if a
number of conditions are met, including conditions relating to how long
the securities are held, the way in which they are sold, the public
information available to investors about the securities, and the amount
that can be sold at any one time. Pursuant to 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
“restricted” legend from the security.
The term “transfer agent” refers to a company that keeps track of
individuals and entities that own the stocks and bonds of a given
company that has publicly traded securities. Among other things,
transfer agents issue and cancel certificates to reflect changes in
ownership, serve as the company’s intermediary for payouts, exchanges,
or mailings, and handle lost, destroyed, or stolen certificates.
Transfer agents also, when appropriate, remove the “restricted” legend
from securities.
A Rule 144 Seller’s Representation Letter, or “Seller’s
Representation Letter,” is a letter from an affiliate seller (that is, a
seller in a relationship of control with the issuer, such as an
executive officer, a director, or a large shareholder) of restricted
securities to a transfer agent to establish certain facts underlying a
legal opinion that the securities at issue can be sold publicly pursuant
to Rule 144. The issuer’s consent to the removal of a legend typically
comes in the form of an opinion letter from the issuing company’s
attorney, the Seller’s Representation Letter, indicating that the
securities at issue satisfy the conditions of Rule 144. Seller’s
Representation Letters contain multiple attestations that are required
by law prior to the restricted legend being removed. The transfer agent
relies on the Seller’s Representation Letter in determining whether to
remove the restricted legend from a security.
Over-the-Counter Securities and OTC Markets Group
Over-the-counter (“OTC”) securities are securities that are traded
between two counterparties outside of a formal securities exchange. OTC
Markets Group (“OTC Markets”) is a securities market headquartered in
New York, New York, that provides price and liquidity information for
OTC securities.
OTC Markets requires issuers seeking to be listed on OTC Markets to
hire a licensed attorney to review company records and submit a letter
to OTC Markets (an “OTC Markets Attorney Letter”) regarding whether
information publicly disclosed by the issuer is in compliance with the
condition in SEC Rule 144 governing the public information available to
investors about the issuer. OTC Markets relies on the OTC Markets
Attorney Letter to determine whether an issuer’s security may be listed
on OTC Markets. OTC Markets Attorney Letters are available to the
public on the OTC Markets website.
The Scheme to Defraud
From at least in or about 2011 through at least in or about September
2018, RUBIN and Craft participated in a fraudulent scheme in which
Craft falsely represented that he had undertaken certain legal work in
connection with Seller’s Representation Letters, OTC Markets Attorney
Letters, and S-1 Opinion Letters, all of which enabled the relevant
securities to be sold to the investing public. In addition, in
connection with the securities of certain issuers, Rubin, the defendant,
falsely represented that he was an attorney in Seller’s Representation
Letters and OTC Markets Attorney Letters, all of which enabled the
relevant securities to be sold to the investing public. The false
representations were in letters pertaining to over a dozen companies.
RUBIN, 79, of Brooklyn, New York, pled guilty to one count of
securities fraud in violation of 15 U.S.C. §§ 78j(b) and 78ff, 17 C.F.R.
§ 240.10b-5, and 18 U.S.C. § 2, which carries a maximum sentence of 20
years in prison. The maximum potential sentence in this case is
prescribed by Congress and is provided here for informational purposes
only, as any sentencing of the defendant will be determined by the
judge.
RUBIN will be sentenced on November 2, 2021.
* * *
Ms. Strauss praised the investigative work of the Office of Inspector
General of the SEC and also thanked the SEC Division of Enforcement for
its assistance.
This case is being handled by the Office’s Securities and Commodities
Fraud Task Force. Assistant U.S. Attorney Jordan Estes is in charge of
the prosecution.
The charges against Craft are pending, and he is presumed innocent unless and until proven guilty.
[1]
As the introductory phrase signifies, the entirety of the text of the
Indictment, and the description of the Indictment set forth herein,
constitute only allegations, and every fact described should be treated
as an allegation.
