December 2021
Raleigh Real Estate Developer Sentenced to Decade in Prison for Real Estate Ponzi Scheme and Firearm Possession Charges
Following an investigation by the NC Secretary of State’s Office and the FBI, G. Norman Acker, III, Acting U.S. Attorney for the Eastern District of North Carolina, announced that Joshua Matthew Houchins, 36, of Raleigh, was sentenced on November 15th to ten years in prison on charges of Wire Fraud and Possession of a Firearm by a Felon. The defendant was also ordered to serve three years of supervised release and to pay restitution to victims in the total amount of $1,771,382.25.

According to court documents and arguments made in court, Houchins, owner of various Raleigh real estate development companies, carried out a Ponzi scheme upon numerous local real estate investors. Houchins also possessed a rifle and several rounds of ammunition after having been convicted of a felony.

According to the superseding indictment, between 2014 and 2018, Houchins owned and operated Rossshire Development LLC, Greenstone Ventures LLC, and Modern South Development LLC, and used these entities to carry out a fraud upon his real estate development investors. Specifically, Houchins solicited investment monies by telling victims that their money would be “put to work” on a specific property, and further represented that the investments would be secured by deeds of trust filed with the county register of deeds. In fact, Houchins did not put all of the investor funds to work on the property on which the investor was solicited to invest, and instead, regularly used investor funds on other properties, or on personal expenses. Likewise, the investor promissory notes were not secured by a deed of trust as promised. In some instances, Houchins did not even own the property that was the subject of the investment, and, as such, could not truthfully grant a deed of trust to the investor. 

The indictment alleges that after Houchins diverted investor money away from the property on which the funds were supposed to be spent, Houchins failed to develop and sell the properties, as he represented he would. Houchins then defaulted on the notes by failing to pay investors their promised returns. The investors were unable to foreclose upon the investment properties because Houchins had not secured the promissory notes with a deed of trust filed, thereby resulting in losses to the investors. Houchins specifically pled guilty to Count Nine, which alleged one instance of the above-described fraud on January 6, 2017. As a part of the plea, Houchins agreed to make restitution to all victims for losses arising from the scheme and related schemes.

According to the second part of the superseding indictment, the grand jury began to investigate Houchins in 2018 concerning the aforementioned offenses. Following the issuance of subpoenas to his attorney and to his various real estate companies, Houchins only produced a small number of documents to the grand jury. Instead, the indictment alleges that Houchins admitted in February 2020 letter that he had “destroyed all of the evidence.”

The superseding indictment also alleges that Houchins, who had recently separated from his wife, began to send her harassing messages. The indictment alleges that Houchins’ wife obtained a Domestic Violence Order of Protection (DVPO) barring Houchins from contacting, threatening, or harassing his wife. While Houchins was already prohibited from possessing a firearm due to his status as a convicted felon, the DVPO further prohibited Houchins from possessing a firearm.

The superseding indictment then alleges that in March of 2020, Houchins communicated to friends of his wife that she had, “run to the police” and that Houchins has “no mercy on a lying rat.” Around one month later, the superseding indictment alleges that Houchins sent threatening communications to friends and family of his wife, including photographs of Houchins wearing a mask and tactical vest.
The superseding indictment then charges that, following his internet searches for “killing your wife over love,” Houchins was arrested. At the time of his arrest, Houchins was in possession of a Ruger AR-15, 4 magazines, a double canister magazine containing 100 rounds of ammunition, two boxes of .223 caliber ammunition, and a tactical vest. Houchins pled guilty to Count Fourteen, which alleged that he possessed the Ruger AR-15 despite being a convicted felon.

G. Norman Acker, III, Acting U.S. Attorney for the Eastern District of North Carolina made the announcement. The Federal Bureau of Investigation and the North Carolina Secretary of State investigated the case. The Wake County Sheriff’s Office, Apex Police Department, and Sanford Police Department also provided assistance. Assistant U.S. Attorney William M. Gilmore served as the prosecutor.

Related court documents and information can be found on the website of the U.S. District Court for the Eastern District of North Carolina or on PACER by searching for Case No. 5:20-CR-245-1D(2).
ATTENTION: All NC-registered Investment Advisers!

Don’t be a turkey and forget to pay your investment adviser renewal fees for 2022! The deadline for receipt of Preliminary Statement payments is Monday, December 13th. Check the balances in your IARD accounts now to ensure adequate funds to renew registrations for you, your firm and all investment adviser representatives.

Access your account through the FINRA Gateway, or call the Help Desk: (240) 386-4848. Do NOT call the Securities Division as we cannot assist in this process.

Also, SAVE A DATE! COVID continues to force us to conduct our IA compliance workshops virtually. We plan to offer identical single session workshops from 9:00 AM – Noon on both Tuesday, January 11th and Friday, January 14th. The sessions will be conducted via Webex. You need to attend only the one session that is most convenient for you. We are giving you advance notice so that you can go ahead and save your preferred date on your own personal calendar. DO NOT contact us now. We will be able to accommodate everyone’s preferred date. We will email you a Webex invitation during the first week of January, so be sure our email address is whitelisted. There will be no charge to attend.

The January webinar will include overviews of upcoming regulatory changes such as the SEC Marketing Rule. Unfortunately, it is cost prohibitive for the Division to apply for continuing education credits on your behalf, but we will provide Certificates of Participation to anyone who wishes to apply for education credits at their own expense.

Again, look in your mailbox after January 1 for more workshop information, and start the year with a compliance refresher!

Beware of Communications Falsely Appearing to Come from the SEC

The SEC’s Office of Investor Education and Advocacy issued this Investor Alert to warn of communications – including phone calls, voicemails, emails, and letters – that may falsely appear to be from the SEC. 

The SEC is aware that several individuals recently received phone calls or voicemail messages that appeared to be from an SEC phone number. The calls and messages raised purported concerns about unauthorized transactions or other suspicious activity in the recipients’ checking or cryptocurrency accounts.  These phone calls and voicemail messages are in no way connected to the SEC. If you receive a communication that appears to be from the SEC, do not provide any personal information unless you have verified that you are dealing with the SEC. The SEC does not seek money from any person or entity as a penalty or disgorgement for alleged wrongdoing outside of its formal Enforcement process.

How can I confirm that I am dealing with the SEC?  If you receive an unsolicited communication from someone claiming to be from the SEC, use the SEC’s personnel locator at (202) 551-6000 to reach the staff member directly and ask the person if the communication was from them. You can also call (800) SEC-0330 or email help@SEC.gov to check if a communication is from the SEC.

SEC staff do not make unsolicited communications – including phone calls, voicemail messages, or emails – asking for payments related to enforcement actions, offering to confirm trades, or seeking detailed personal and financial information. Be skeptical if you are contacted by someone claiming to be from the SEC and asking about your shareholdings, account numbers, PIN numbers, passwords, or other information that may be used to access your financial accounts.  Again, never provide information to someone claiming to be from the SEC until you have verified that the person actually works for the SEC.

Beware of government impersonator schemes.  Con artists have used the names of real SEC employees and email messages that falsely appear to be from the SEC to trick victims into sending the fraudsters money. Impersonation of U.S. Government agencies and employees (as well as of legitimate financial services entities) is one common feature of advance fee solicitations and other fraudulent schemes. Even where the fraudsters do not request that funds be sent directly to them, they may use personal information they obtain to steal an individual’s identity or misappropriate their financial assets.

If you receive a communication that falsely appears to be from the SEC, submit a complaint at www.sec.gov/oig to the SEC’s Office of Inspector General (“OIG”) or call the OIG’s toll-free hotline at (833) SEC-OIG1 (732-6441).
One Call Could Save Your Life Savings!
 
Is that individual offering you an investment opportunity licensed to sell securities in North Carolina? Is the investment opportunity itself registered? Know before you sign!
While registration in and of itself is no guarantee against fraud, not being registered is a very big red warning flag.

We urge you to take five minutes to call our NC Investor Hotline at 1-800-688-4507 to see if the person you have been dealing with – perhaps even for years – is properly registered and/or has a disciplinary history. You can also check to see if the actual investment itself is properly registered.

Pick up the phone and call us. You owe it to yourself and your family to check. And please also consider sharing the information in this newsletter with YOUR contacts or your social networks. Doing so will help keep your friends and loved ones safe, too. More information can be found at https://www.sosnc.gov/divisions/securities/for_investors.
Where Do Stocks Trade?

When you enter an order to buy or sell a stock, what happens next? Simply put, your broker must make a decision on where to go to find someone who wants to sell their stock (if you want to buy) or buy your stock (if you want to sell). This decision is referred to as "routing" your order, and where the trade actually takes place is called the "execution venue."

The most familiar type of execution venue is a traditional exchange, such as the New York Stock Exchange or the Nasdaq Stock Market. However, other execution venues, including alternative trading systems (ATSs), single-dealer platforms (SDPs) and wholesalers, have risen in popularity in recent years. So, what's the difference between these venues? Click here to read more.

FINRA Foundation Military Spouse Fellowship Program: Assisting Service Members and Their Families

For service members, a missed credit card payment might do more than just ding their credit report, it could also jeopardize a hard-fought promotion. And for their spouses, move after move might be more than just a financial or logistical hardship; it might also be the biggest hurdle in their own career growth. These challenges are two sides of the same coin. The FINRA Foundation Military Spouse Fellowship Program is just one program that is aiming to address both sides.

In this episode, host Kaitlyn Kiernan speaks with FINRA Military Spouse Fellows Heather Baker, Shay Cook and Andia Dinesen to discuss their work with this vital program.

(Click the image below to listen to the podcast.)

The 2021 NASAA Fintech and Cybersecurity Symposium is a half-day event that will gather professionals from the fintech and cybersecurity industries, regulation, and higher education to discuss issues related to fintech and cybersecurity. Attendees will hear presentations and panel discussions pertaining to Decentralized Finance (DeFi) protocols and the concept of a central mover for regulatory enforcement. Experts will also discuss the potential for conflict, and the need to assess responsibility, when firms employ third-party services and products for cybersecurity compliance programs.

See the complete agenda below, and register now for this important day of learning!
Agenda
Tuesday, December 14, 2021 (all times are EST)

12:00 p.m. –12:10 p.m.
Introductory and Opening Remarks
  • Jillian Lazar, Chair, NASAA FinTech Committee and Director of Investor Protection, Delaware Investor Protection Unit
  • Melanie Senter Lubin, NASAA President and Securities Commissioner Maryland Division of Securities

12:10 p.m. – 12:30 p.m.
Keynote Address
  • Jonathan Rajewski, Managing Director of Digital Forensics and Incident Response, Stroz Friedberg

12:30 p.m. – 12:40 p.m.
Break

12:40 p.m. – 1:55 p.m.
The Future of Decentralized Finance (DeFi): What if there is no center to hold?

DeFi, or decentralized finance, refers to financial services offered on the blockchain through automated computer codes. It is more than just crypto coins: unlike traditional finance that has a central company or group of companies responsible for transferring funds, matching counterparties, setting terms, and settling, DeFi protocols are created to eliminate the "central" human middleman, thereby removing the financial institutions with which regulators would typically interact.  DeFi promises faster transactions and lower costs (labor, fees), which are catnip to companies and investors. But what about investor protection and fair market principles? If there is no center, to whom should regulators look to hold responsible for investor protection? And is there really no center for regulatory purposes? This panel will look to unpack what "decentralization" means to the industry, what it means to regulators and whether there needs to be a new idea of a central mover that regulators can use to enforce investor protection.

Moderator:
Tung Chan, Colorado Division of Securities

Panelists:
  • Jason P. Gottlieb, Morrison Cohen, LLP
  • Gary DeWaal, Katten 
  • Chris Brummer, Georgetown University Law Center
  • Mark Boiron, General Counsel, dYdX

1:55 p.m. – 2:05 p.m.
Break

2:05 p.m. – 3:20 p.m.
Regulation Along the Continuum: Self-serving or Self-defeating?

Cybersecurity rules and regulations enhance the protection of consumer data and provide firms a level of confidence and assurance when properly in compliance. Many firms, however, must rely on third parties and other outside products in an effort to meet these compliance standards, but what if the third-party services and products, which were once part of a robust compliance program are no longer supportive, but rather, conflictive? Where is the line drawn on responsibility and what factors should influence its placement?

Moderator:
Matthew Vatter, Minnesota Department of Commerce

Panelists:
  • Salvatore Montemarano, U.S. Securities and Exchange Commission
  • FINRA
  • Catherine Rudow, Nationwide
  • Dan Sanderson, CyberAdvisor

3:20 p.m. - 3:30 p.m.
Closing Remarks  



News from the Regulators






NASAA Report Finds that Many Broker-Dealer Firms Still Place Their Financial Interests Ahead of Their Customers Despite Implementation of Regulation Best Interest

The North American Securities Administrators Association (NASAA) in November announced the results of a nationwide survey conducted by state securities regulators that provides the first comprehensive look at broker-dealer industry policies and practices following the implementation of Regulation Best Interest (Reg BI) by the Securities and Exchange Commission. This report, 2021 Reg BI Phase Two Report, follows NASAA’s 2020 Reg BI Phase One Report that analyzed financial services industry policies and practices prior to the implementation of Reg BI.

“NASAA’s member states did not see the tide-turning reforms they had expected to see in the broker-dealer industry after Regulation Best Interest took effect,” said Melanie Senter Lubin, NASAA President and Maryland Securities Commissioner. “This examination reveals that while there were some improvements, most firms are operating in the same manner as they were under the suitability rule, especially when it comes to harmful compensation conflicts.”

Notable findings from NASAA’s Regulation Best Interest Phase Two Report include:

  • The percentage of broker-dealer firms surveyed that were offering complex, costly, and risky products increased by 11% after Reg BI took effect.
  • 65% of broker-dealer firms surveyed are not discussing lower-cost or lower-risk products with their customers when they recommend these products.
  • No more than 4% of broker-dealer firms surveyed had enhanced their investor profile forms (in any key metric measured) to more carefully match investors with products after Reg BI took effect.
  • 3% of broker-dealer firms surveyed took a step backward from their prior suitability procedures by dropping customer education, longevity risk, and tolerance for alternative products from their investor profile forms.
  • 24-30% of broker-dealer firms surveyed were still utilizing product-agnostic sales contests, differential compensation, and extra forms of compensation. These compensation conflicts are rarely seen in fiduciary firms, observed in only 0.5-3% of investment advisers examined in Phase I.

Compensation conflicts were concentrated in firms that recommended complex, costly, and risky products after Reg BI took effect.

  • 40% of broker-dealer firms surveyed that recommended leveraged or inverse exchange-traded funds had compensation conflicts, as did 41% of firms that recommended private securities, 44% of firms that recommended variable annuities; and 52% of firms that recommended non-traded real estate investment trusts.
  • Only 35% of broker-dealer firms surveyed that recommended complex, costly, and risky products after Reg BI took effect reduced the financial reward associated with these products by capping agent sales credits.

“Some firms are headed in the right direction, but Reg BI has a long way to go to close the investor protection gap separating broker-dealers from investment advisers when it comes to conflicted advice,” said Andrea Seidt, Chair of NASAA’s Regulation Best Interest Implementation Committee and Ohio Securities Commissioner.
SEC Adopts Amendments to Finalize Rules Relating to the Holding Foreign Companies Accountable Act

On Dec. 2, the Securities and Exchange Commission adopted amendments to finalize rules implementing the submission and disclosure requirements in the Holding Foreign Companies Accountable Act (HFCAA). The rules apply to registrants the SEC identifies as having filed an annual report with an audit report issued by a registered public accounting firm that is located in a foreign jurisdiction and that the Public Company Accounting Oversight Board (PCAOB) is unable to inspect or investigate (Commission-Identified Issuers).

"We have a basic bargain in our securities regime, which came out of Congress on a bipartisan basis under the Sarbanes-Oxley Act of 2002. If you want to issue public securities in the U.S., the firms that audit your books have to be subject to inspection by the PCAOB," said SEC Chair Gary Gensler. "This final rule furthers the mandate that Congress laid out and gets to the heart of the SEC's mission to protect investors. The Commission and the PCAOB will continue to work together to ensure that the auditors of foreign companies accessing U.S. capital markets play by our rules. We hope foreign governments will, working with the PCAOB, take action to make that possible."

The final amendments require Commission-Identified Issuers to submit documentation to the SEC establishing that, if true, it is not owned or controlled by a governmental entity in the public accounting firm’s foreign jurisdiction. The amendments also require that a Commission-Identified Issuer that is a "foreign issuer," as defined in Exchange Act Rule 3b-4, provide certain additional disclosures in its annual report for itself and any of its consolidated foreign operating entities. Further, the release provides notice regarding the procedures the SEC has established to identify issuers and to impose trading prohibitions on the securities of certain Commission-Identified Issuers, as required by the HFCAA.

The SEC will identify Commission-Identified Issuers for fiscal years beginning after Dec. 18, 2020. A Commission-Identified Issuer will be required to comply with the submission and disclosure requirements in the annual report for each year in which it was identified. If a registrant is identified as a Commission-Identified Issuer based on its annual report for the fiscal year ended Dec. 31, 2021, the registrant will be required to comply with the submission or disclosure requirements in its annual report filing covering the fiscal year ended Dec. 31, 2022.

The adopting release will be published on SEC.gov and in the Federal Register. 
SEC Updates List of Firms Using Inaccurate Information to Solicit Investors

On Dec. 1st, the Securities and Exchange Commission (SEC) announced that it updated its list of unregistered entities that use misleading information to solicit primarily non-U.S. investors, adding 82 soliciting entities, eight (8) impersonators of genuine firms, and one (1) bogus regulator.

The SEC’s list of soliciting entities that have been the subject of investor complaints, known as the Public Alert: Unregistered Soliciting Entities (PAUSE) list, enables investors to better inform themselves and avoid being a victim of fraud. The latest additions are firms that SEC staff found were providing inaccurate information about their affiliation, location, or registration. Under U.S. securities laws, firms that solicit investors generally are required to register with the SEC and meet minimum financial standards and disclosure, reporting, and recordkeeping requirements.

"This latest update to the PAUSE list reflects the Commission’s ongoing effort to protect retail investors," said Jose M. Rodriguez, Deputy Chief of the SEC’s Office of Market Intelligence. "The PAUSE list provides valuable information to aid investors in making informed investment decisions."

In addition to alerting investors to firms falsely claiming to be registered, the PAUSE list flags those impersonating registered securities firms and bogus “regulators” who falsely claim to be government agencies or affiliates. Inclusion on the PAUSE list does not mean the SEC has found violations of U.S. federal securities laws or made a judgment about the merits of any securities being offered.

The PAUSE list is periodically updated by the SEC’s Office of Market Intelligence, in coordination with the Office of Investor Education and Advocacy and the Office of International Affairs.

How to protect yourself:


Enforcement News

The NC Department of the Secretary of State Securities Division is responsible for administering and enforcing the state’s securities laws. To read our latest enforcement actions, please visit https://www.sosnc.gov/divisions/securities/admin_action.
  • On November 15, 2021Joshua Matthew Houchins, 36, of Raleigh, NC, was sentenced to ten years in prison on charges of Wire Fraud, in violation of Title 18, United States Code, Section 1343, and Possession of a Firearm by a Felon, in violation of Title 18, United States Code, Section 922(g). The defendant was also ordered to serve three years of supervised release and to pay restitution to victims in the total amount of $1,771,382.25. According to court documents and arguments made in court, Houchins, owner of various Raleigh real estate development companies, carried out a Ponzi scheme upon numerous local real estate investors. Houchins also possessed a rifle and several rounds of ammunition after having been convicted of a felony. For more details, see the related story in this newsletter and this press release.

  • On July 29, 2021, the North Carolina Department of the Secretary of State, Securities Division entered into a Final Consent Order ("Order") with Tannin Capital, LLC. The Order states that Tannin Capital was ineligible for an exemption from state registration as an investment adviser from October 2019 through on or about April 2020. Pursuant to the Order, Tannin Capital agreed to immediately cease and desist from violating any provision of the North Carolina Investment Advisers Act and any related administrative rules, to pay a civil penalty and reimbursement of the costs of investigation. The North Carolina Department of the Secretary of State thanks the U.S. Securities and Exchange Commission, Atlanta Regional Office for their assistance in this matter. For more information on this Order, click here.

  • On May 21, 2021, the North Carolina Department of the Secretary of State, Securities Division entered into a Final Consent Order (“Order”) with Roy Neil Carlson. The Order states that Carlson violated North Carolina law during the last two years by transacting business in North Carolina as an investment adviser representative without a valid registration pursuant to the North Carolina Investment Advisers Act. Pursuant to the Order, Carlson agreed to immediately cease and desist from violating any provisions of the North Carolina Investment Advisers Act and any related administrative rules, to pay a civil penalty, and cost of investigation. For more information, click here.

  • On April 5, 2021Anthony Wayne March, 49, of Wake Forest, NC, was sentenced to 135 months imprisonment for wire fraud and ordered to pay $6,040,965.00 in restitution. (See the full story above.) The Internal Revenue Service Criminal Investigation Division (IRS-CI), and the North Carolina Secretary of State, Securities Division conducted the investigation in this matter. The Office of the U.S. Bankruptcy Administrator for the Eastern District of North Carolina provided substantial assistance. Assistant United States Attorney Ethan Ontjes, Special Assistant United States Attorney Brian Behr, and Special Assistant United States Attorney Kevin Harrington represent the United States.

  • On March 26, 2021, the Securities Division of the North Carolina Department of the Secretary of State issued a Temporary Cease and Desist Order to Respondents, Roy Neil Carlson and Carlson Financial Services, LLC. The order found Respondents were transacting business in the State of North Carolina in violation of the North Carolina Investment Advisers Act. The Temporary Order to Cease and Desist ordered each Respondent and any person, employee, officer, director, entity or independent contractor under the direction or control of Respondents, to immediately cease and desist from violating the anti-fraud provisions of the Investment Advisers Act, soliciting or providing investment advice to any prospective or current advisory clients, making or causing to be made any misleading filing to the Administrator and otherwise holding itself out to be or engaged in the business of an investment adviser or investment adviser representative. The Temporary Order to Cease and Desist gives Respondents 30 days in which to request a hearing. If no such request is made during that time, the Temporary Order to Cease and Desist shall become final. For more information, click here.

  • On March 15, 2021, Charles Gilbert Murphy, a serial fraudster from Apex, NC, was sent back to federal prison to serve 75 months for an investment scam involving impersonation of a mayor, professor, and a government agency. The investigation was conducted by the Federal Bureau of Investigation, the Internal Revenue Service Criminal Investigation, and the North Carolina Secretary of State's Securities Division. For more information, see this press release.

  • On January 7, 2021, the Temporary Cease and Desist Order entered on November 9, 2020 (below) against Claybourne Glenn Bass and Claybourne Glenn Bass, LLC (the "Bass Respondents") became final, permanently barring the Bass Respondents from among other things, soliciting for purchase, offering or selling securities in North Carolina until such time as they become fully compliant with North Carolina's securities laws. For more information, click here.