“We find that Delphia and Global Predictions marketed to their clients and prospective clients that they were using AI in certain ways when, in fact, they were not,” said SEC Chair Gary Gensler. “We’ve seen time and again that when new technologies come along, they can create buzz from investors as well as false claims by those purporting to use those new technologies. Investment advisers should not mislead the public by saying they are using an AI model when they are not. Such AI washing hurts investors.”
“As more and more investors consider using AI tools in making their investment decisions or deciding to invest in companies claiming to harness its transformational power, we are committed to protecting them against those engaged in ‘AI washing,’” said Gurbir S. Grewal, Director of the SEC’s Division of Enforcement. “As today’s enforcement actions make clear to the investment industry – if you claim to use AI in your investment processes, you need to ensure that your representations are not false or misleading. And public issuers making claims about their AI adoption must also remain vigilant about similar misstatements that may be material to individuals’ investing decisions.”
According to the SEC’s order against Delphia, from 2019 to 2023, the Toronto-based firm made false and misleading statements in its SEC filings, in a press release, and on its website regarding its purported use of AI and machine learning that incorporated client data in its investment process. For example, according to the order, Delphia claimed that it “put[s] collective data to work to make our artificial intelligence smarter so it can predict which companies and trends are about to make it big and invest in them before everyone else.” The order finds that these statements were false and misleading because Delphia did not in fact have the AI and machine learning capabilities that it claimed. The firm was also charged with violating the Marketing Rule, which, among other things, prohibits a registered investment adviser from disseminating any advertisement that includes any untrue statement of material fact.
In the SEC’s order against Global Predictions, the SEC found that the San Francisco-based firm made false and misleading claims in 2023 on its website and on social media about its purported use of AI. For example, the firm falsely claimed to be the “first regulated AI financial advisor” and misrepresented that its platform provided “[e]xpert AI-driven forecasts.” Global Predictions also violated the Marketing Rule, falsely claiming that it offered tax-loss harvesting services, and included an impermissible liability hedge clause in its advisory contract, among other securities law violations.
Without admitting or denying the SEC’s findings, Delphia and Global Predictions consented to the entry of orders finding that they violated the Advisers Act and ordering them to be censured and to cease and desist from violating the charged provisions. Delphia agreed to pay a civil penalty of $225,000, and Global Predictions agreed to pay a civil penalty of $175,000.
The SEC’s Office of Investor Education and Advocacy has issued an Investor Alert about artificial intelligence and investment fraud.
The SEC’s investigations were conducted by Anne Hancock, HelenAnne Listerman, and John Mulhern under the supervision of Kimberly Frederick, Brent Wilner, Corey Schuster, and Andrew Dean with the Division of Enforcement’s Asset Management Unit. Ragni Walker, Thomas Grignol, and Peter J. Haggerty of the Division of Examinations and Roberto Grasso of the Division’s Office of Risk and Strategy assisted with the investigations.
]]>“We allege that CryptoFX was a $300 million Ponzi scheme that targeted Latino investors with promises of financial freedom and life-altering wealth from ‘risk free’ and ‘guaranteed’ crypto and foreign exchange investments,” said Gurbir S. Grewal, Director of the SEC’s Division of Enforcement. “In the end, the only thing that CryptoFX guaranteed was a trail of thousands upon thousands of victims stretching across ten states and two foreign countries. A scheme of that size requires lots of participants, and as today’s action demonstrates, we will pursue charges against not just the principal architects of these massive schemes, but all those who further their fraud by unlawfully soliciting victims.”
“After filing the initial charges in this case and obtaining emergency relief, we continued our investigation to identify additional individuals who allegedly played roles in this massive Ponzi scheme,” said Eric Werner, Director of the SEC’s Fort Worth Regional Office. “Our efforts bore significant fruit as the charges and allegations today demonstrate.”
According to the SEC’s complaint, CryptoFX purported to trade in crypto asset and foreign exchange markets for investors but was in reality a Ponzi scheme. The SEC’s complaint alleges that, from May 2020 to October 2022, the 17 charged individuals from Texas, California, Louisiana, Illinois, and Florida, acted as leaders of the CryptoFX network and solicited investors by variously promising that CryptoFX’s crypto asset and foreign exchange trading would generate returns of 15 to 100 percent. The complaint alleges that CryptoFX raised $300 million from investors but did not use most of the funds for its claimed trading purposes. Instead, the defendants allegedly used investor funds to pay supposed returns to other investors, to pay commissions and bonuses to themselves and investors, and to fund their own lifestyles. The complaint further alleges that two of the defendants, spouses Gabriel and Dulce Ochoa, continued to solicit investments after the court issued orders to halt the CryptoFX scheme in September 2022, and Gabriel Ochoa instructed two investors to rescind their complaints to the SEC for them to recover their investments. Another defendant, Maria Saravia, allegedly told investors that the SEC’s lawsuit was fake.
The SEC’s complaint, filed in U.S. District Court for the Southern District of Texas, charges Gabriel and Dulce Ochoa, Saravia, Gloria Castaneda, Ismael Zarco Sanchez, and Roberto Zavala with violating the antifraud, securities-registration, and broker-registration provisions of the federal securities laws. The complaint charges Gabriel Arguelles, Hector Aquino, Orlin Wilifredo Turcios Castro, Carmen De La Cruz, Elizabeth Escoto, Reyna Guiffaro, Marco Antonio Lemus, Juan Puac, Luis Serrano, Julio Taffinder, and Claudia Velazquez with violating the securities-registration and broker-registration provisions. In addition, the complaint charges Gabriel Ochoa with violating the whistleblower protection provisions. The SEC seeks permanent injunctions, disgorgement with prejudgment interest, and civil penalties against each defendant.
Without admitting or denying the allegations in the SEC’s complaint, Serrano and Taffinder consented to the entry of final judgments, subject to court approval, that permanently restrain and enjoin them from violating the securities-registration and broker-registration provisions of the federal securities laws. Serrano and Taffinder agreed to pay more than $68,000 combined in civil penalties, disgorgement, and interest.
The SEC’s investigation was conducted by Jillian Harris, Carol Hahn, and Jamie Haussecker of the Fort Worth Regional Office and was supervised by Jim Etri and B. David Fraser. The litigation is being conducted by Matthew Gulde and supervised by Keefe Bernstein.
If you are an investor in CryptoFX and/or have information related to the CryptoFX scheme and you wish to contact the SEC staff, please reach out to CFXvictims@sec.gov or contact the court-appointed receiver in the SEC’s ongoing action against CryptoFX, Chavez, and Benvenuto, at https://cryptofxreceiver.com, (713) 546-5653, or receivership@shb.com. The SEC encourages investors to check the backgrounds of anyone selling or offering them an investment using the free and simple search tool on Investor.gov. Investors also can learn more about the risks of investing in unregistered offerings by reading alerts issued by the SEC’s Office of Investor Education and Advocacy.
]]>According to the SEC’s complaint, Cook learned in late July 2019 that Blackstone, which had acquired 44 percent of Tallgrass’s public shares earlier that year, was planning to make an offer to acquire the remainder of Tallgrass’s publicly traded shares. Within weeks of learning that information, Cook allegedly tipped his friends, Jeffrey Natrop, Peter Renner, James Rudolph, and Peter Williams, who all purchased Tallgrass securities prior to an August 27, 2019, public announcement of Blackstone’s offer.
The complaint alleges that Natrop and Renner, who were friends and business associates of Cook’s, purchased Tallgrass call options on August 8 and 9, 2019, which resulted in illicit profits of $43,862 for Natrop and $13,520 for Renner. The complaint further alleges that Cook tipped Rudolph while the two were in the Bahamas celebrating Rudolph’s birthday on Rudolph’s yacht and that Rudolph purchased Tallgrass stock on August 6, 2019, which resulted in illicit profits of $31,035. The complaint also alleges that Cook tipped Williams, his long-time friend and personal accountant, and that Williams purchased call options on August 19 and 21, 2019, which resulted in illicit profits of $463,000.
Following the August 27 announcement, which saw Tallgrass shares increase by 36 percent, Cook served for several months as chair of a Tallgrass Conflicts Committee tasked with assessing Blackstone’s offer and negotiating the final terms of the transaction. In connection with this role, Cook allegedly learned material nonpublic information about the status of the negotiations that he communicated to Williams, who purchased Tallgrass stock in a Cook family trust account over which he had trading authority, resulting in $88,800 of illicit profits for Cook. The complaint further alleges that, on December 10, 2019, while on vacation in Chile, Cook tipped Williams more material nonpublic information about the status of the negotiations, and Williams purchased more call options in his personal account, resulting in additional illicit profits of $61,525.
“As our complaint alleges, Roy Cook took advantage of his position as a Tallgrass director to repeatedly enrich himself and his friends,” said Mark Cave, Associate Director of the SEC’s Division of Enforcement. “We will hold accountable board members and others who misuse inside information for their own benefit and violate the trust placed in them by shareholders.”
The SEC complaint, filed in U.S. District Court for the Eastern District of Wisconsin, charges the defendants with violating the antifraud provisions of the federal securities laws and charges Cook with failing to file required reports concerning Tallgrass securities transactions by family trusts. Without admitting or denying the allegations in the complaint, Cook agreed to pay a civil penalty of $801,742 and disgorge his illicit trading profits, with prejudgment interest. Cook also agreed to an officer-and-director bar.
Without admitting or denying the allegations, each of the other four defendants agreed to pay a civil penalty equal to the amount of their allegedly illicit trading profits and disgorge their illicit trading profits, with prejudgment interest.
The SEC’s investigation was conducted by David Frisof and Brian Vann, with assistance from Dean M. Conway, James Carlson, and Brian Shute. The case was supervised by Brian Quinn.
The SEC appreciates the assistance of the Financial Industry Regulatory Authority, the FBI, and the U.S. Attorney’s Office for the District of New Jersey.
]]>According to the SEC’s order, from 2019 through 2022, Skechers did not comply with related person transaction disclosure requirements when it failed to disclose its employment of two relatives of its executives and did not disclose a consulting relationship involving a person who shared a household with one of its executives. Furthermore, according to the SEC’s order, for multiple years, Skechers failed to disclose that two of its executives owed more than $120,000 to the company for personal expenses that had been paid for by Skechers but not yet reimbursed by the executives.
“Disclosure of related person transactions provides important information for investors to evaluate the overall relationship between a company and its officers and directors,” said Scott A. Thompson, Associate Director of Enforcement in the SEC’s Philadelphia Regional Office. “Today’s action is a reminder that companies should take appropriate measures to ensure proper disclosure of such transactions.”
The SEC’s order finds that Skechers violated reporting and proxy solicitation provisions of the Securities Exchange Act of 1934. Without admitting or denying the SEC’s findings, Skechers agreed to a cease-and-desist order and to pay the civil monetary penalty referenced above.
The SEC’s investigation was conducted by Oreste P. McClung and Brian R. Higgins and was supervised by Brendan P. McGlynn, Mr. Thompson, and Nicholas P. Grippo, all with the Philadelphia Regional Office.
]]>“In the 24 years since Rule 605 was adopted, our equity markets have been transformed by ever-evolving technologies and business models,” said SEC Chair Gary Gensler. “I am pleased to support this adoption because it will improve transparency for execution quality and facilitate investors’ ability to compare brokers, thereby enhancing competition in our markets.”
The final amendments expand the scope of entities subject to Rule 605, modify the categorization and content of order information required to be reported under the rule, and require reporting entities to produce a summary report of execution quality. The amendments expand the scope of entities that must produce monthly execution quality reports to include broker-dealers with a larger number of customer accounts and single dealer platforms. In addition, the amendments expand the definition of "covered order" to include certain orders submitted outside of regular trading hours, certain orders submitted with stop prices, and certain short sale orders. The amendments will capture more relevant execution quality information for certain order types by requiring statistics to be reported from the time such orders become “executable.”
Further, the amendments change how orders are categorized by order size as well as how they are categorized by order type. As part of the changes to the order size categories, the amendments modify Rule 605 to capture execution quality information for fractional share orders, odd-lot orders, and larger-sized orders. The amendments also modify the time-to-execution categories and require average time to execution to be measured in increments of a millisecond or finer and to be calculated for all orders. In addition, the amendments modify the information required to be reported under the rule, including adding realized spread time horizons and requiring new statistical measures of execution quality, such as average effective divided by quoted spread (a percentage-based metric that represents how much price improvement orders received) and size improvement statistics. Finally, the amendments require all entities subject to Rule 605 to make a summary report publicly available.
The adopting release is published on SEC.gov and will be published in the Federal Register. The amendments will become effective 60 days after the date of publication of the adopting release in the Federal Register. The amendments have a compliance date of 18 months after the effective date.
]]>“Our federal securities laws lay out a basic bargain. Investors get to decide which risks they want to take so long as companies raising money from the public make what President Franklin Roosevelt called ‘complete and truthful disclosure,’” said SEC Chair Gary Gensler. “Over the last 90 years, the SEC has updated, from time to time, the disclosure requirements underlying that basic bargain and, when necessary, provided guidance with respect to those disclosure requirements.”
Chair Gensler added, “These final rules build on past requirements by mandating material climate risk disclosures by public companies and in public offerings. The rules will provide investors with consistent, comparable, and decision-useful information, and issuers with clear reporting requirements. Further, they will provide specificity on what companies must disclose, which will produce more useful information than what investors see today. They will also require that climate risk disclosures be included in a company’s SEC filings, such as annual reports and registration statements rather than on company websites, which will help make them more reliable.”
Specifically, the final rules will require a registrant to disclose:
Before adopting the final rules, the Commission considered more than 24,000 comment letters, including more than 4,500 unique letters, submitted in response to the rules’ proposing release issued in March 2022.
The adopting release is published on SEC.gov and will be published in the Federal Register. The final rules will become effective 60 days following publication of the adopting release in the Federal Register, and compliance dates for the rules will be phased in for all registrants, with the compliance date dependent on the registrant’s filer status.
]]>Under the federal securities laws, a company that owns more than five percent of a public company’s stock must report its position and whether it has a control purpose, which is an intention to influence or control the company. According to the SEC’s order, on Feb. 14, 2022, HG Vora disclosed that it owned 5.6 percent of Ryder’s common stock as of Dec. 31, 2021, and certified that it did not have a control purpose. The order states that HG Vora then built up its position to 9.9 percent of Ryder's stock and formed a control purpose no later than April 26, 2022. The federal securities laws therefore required it to report its control purpose and its current ownership position by May 6, 2022, but it did not report this information until May 13. On that same day, HG Vora sent a letter to Ryder proposing to buy all Ryder shares for $86 a share, a sizeable premium over the trading price. Before the letter to Ryder and its filing, and after forming a control purpose, HG Vora purchased swap agreements that gave it economic exposure to the equivalent of 450,000 more shares of Ryder common stock. After HG Vora’s public announcement of its bid on May 13, 2022, Ryder’s stock price increased significantly.
“The federal laws and SEC rules covering ownership disclosure help keep investors fully informed about control – and potential changes in control – of publicly traded companies,” said Mark Cave, Associate Director of the SEC’s Division of Enforcement. “But, according to today’s order, HG Vora deprived Ryder shareholders of information about its significant stake in the company, while building a large swaps position from which it stood to profit after announcing the Ryder takeover bid.”
The SEC’s order finds that HG Vora violated the beneficial ownership provisions of the Securities Exchange Act of 1934. Without admitting or denying the findings, HG Vora agreed to cease and desist from future violations and to pay the civil penalty discussed above. On Oct. 10, 2023, the SEC adopted rules shortening the deadline for filing an initial Schedule 13D from 10 to five business days. HG Vora was found to have violated the rules in effect at the time of the conduct at issue in the SEC’s order by filing this report more than 10 days after forming a control purpose.
The SEC’s investigation was conducted by Jonathan Cowen with assistance from Robert Nesbitt of the Office of Market Intelligence and Nicholas Panos from the Office of Mergers & Acquisitions. The investigation was supervised by Assistant Director Jeffrey Weiss and Mr. Cave.
]]>According to the SEC’s settled order, Lordstown exaggerated the demand for the Endurance, claiming that the company had received more than 100,000 nonbinding “pre-orders” for the vehicle from commercial fleet customers when, in reality, most of the pre-orders came from companies that did not operate fleets or intend to buy the truck for their own use. The SEC’s order also found that Lordstown misrepresented the company’s timeline for delivering the Endurance by failing to account for production delays partially due to Lordstown’s inability to access many critical parts.
“We allege that, in a highly competitive race to deliver the first mass-produced electric pickup truck to the U.S. market, Lordstown oversold true demand for the Endurance,” said Mark Cave, Associate Director of the Division of Enforcement. “Exaggerations that misrepresent a public company’s competitive advantages distort the capital markets and foil investors’ ability to make informed decisions about where to put their money.”
The order finds that Lordstown violated certain antifraud, proxy, and reporting provisions of the federal securities laws. Without admitting or denying the SEC’s findings and subject to bankruptcy court approval, Lordstown agreed to a cease-and-desist order and disgorgement of $25.5 million, which will be deemed satisfied by payments of up to $25.5 million by Lordstown and other defendants to resolve certain pending class actions against them.
The SEC also instituted a related, settled administrative proceeding against Lordstown’s former auditor, Clark Schaefer Hackett and Co. (CSH). CSH provided certain non-audit services, including bookkeeping and financial statement services, to Lordstown during CSH’s audit of the company’s financial statements when it was a private entity. CSH then audited the same financial statements in connection with Lordstown’s merger with the SPAC and thus violated auditor independence standards of the SEC and the Public Company Accounting Oversight Board. Without admitting or denying the SEC’s findings, CSH agreed to a censure, a cease-and-desist order, the payment of more than $80,000 in civil penalties, disgorgement, and interest, and certain undertakings to improve its policies and procedures.
The SEC’s investigation, which is ongoing, was conducted by Carolyn Winters, Mark Oh, and John Higgins, with assistance from David Baddley, Suzanne Romajas, and Peter Lallas, and supervised by Jeff Leasure, Kristen Dieter, Alistaire Bambach, James Carlson, and Mr. Cave.
]]>The committee will host two panels:
Discussing the U.S. Securities and Exchange Commission’s Proposals to Improve Equity Market Structure; and
Examining the Use of Materiality as a Disclosure Standard – Can the Definition be Improved to Better Serve Investors?
The committee will also discuss a recommendation on Digital Engagement Practices.
The full agenda is available here.
The Investor Advisory Committee, which focuses on investor-related interests, advises the Commission on regulatory priorities and various initiatives to help protect investors and promote the integrity of the U.S. securities markets. Established by the Dodd-Frank Act, the Committee is authorized by Congress to submit findings and recommendations to the Commission.
Learn more about the Investor Advisory Committee here.
]]>“I am grateful to William for his service to the SEC and to the investing public,” said SEC Chair Gary Gensler. “William has overseen our work to strengthen oversight of investment companies and investment advisers – from data reporting to fund names to money market reforms. These reforms will help American investors save for homes, college, and retirement.”
Chair Gensler added, “I thank Natasha for taking on this new role as Division Director. Natasha brings deep and broad expertise to the Division, both having led the agency's Investment Adviser/Investment Company examination program and having served in other key leadership roles over her more than two decades at the SEC.”
Mr. Birdthistle joined the SEC in December 2021. In his time at the SEC, Mr. Birdthistle oversaw the adoption of major rulemakings related to private fund advisers and their reporting on Form PF, as well as to public funds, including money market fund reforms, tailored shareholder reports, and revisions to the fund Names Rule. He also inaugurated the SEC’s annual Conference on Emerging Trends in Asset Management.
Prior to joining the SEC, Mr. Birdthistle was on the faculty at Chicago-Kent College of Law, where he earned the school’s Excellence in Teaching Award in 2010. He also has served as a visiting professor of law at the University of Chicago Law School, where he won the Award for Teaching Excellence in 2019. Earlier in his career, he practiced law at Ropes & Gray in Boston for five years as a corporate associate in the firm’s investment management practice. Mr. Birdthistle received his J.D. from Harvard Law School, where he served as managing editor of the Harvard Law Review; a B.A. summa cum laude in English and psychology from Duke University in 1995; and an M.A. in history from the University of Chicago in 2021. Following his departure from the SEC, he will rejoin academia.
“Serving at the Securities and Exchange Commission has been the highest honor of my professional career, and I’m tremendously grateful for the inspiration and example set by my dedicated colleagues in the Division of Investment Management,” said Mr. Birdthistle. “I am particularly thankful to Chair Gensler for offering me this opportunity to join a cohort of exemplary public servants in their vigilant stewardship of America’s life savings.”
In addition to serving as Deputy Director of the Division of Examinations, Ms. Greiner is the National Associate Director of the Investment Adviser/Investment Company (IA/IC) examination program, which includes the Private Funds Unit, and is the Associate Director of the Home Office IA/IC examination program. She began her SEC career in the Division of Examinations (formerly OCIE) as a broker-dealer examiner and has served in a variety of roles across the agency for more than 22 years, including Acting Chief Counsel and Assistant Chief Counsel in the Division of Trading and Markets, where she provided legal and policy advice to the Commission on rules affecting market participants and the operation of the securities markets. Before that, Ms. Greiner worked in the Division of Enforcement, including in its Asset Management Unit, where she investigated possible violations of the federal securities laws and litigated matters in federal district court and administrative proceedings. Ms. Greiner received her J.D. from The Catholic University of America, Columbus School of Law and graduated cum laude with a B.S. degree from James Madison University.
“I am excited for the opportunity to lead the exceptional staff in the Division of Investment Management,” said Ms. Greiner. “I have been fortunate to work with dedicated and talented staff across the agency during my SEC tenure and have a great respect for the staff and the work of the Commission. I look forward to bringing my unique perspective and experience to this new role and continuing to support the SEC’s tripartite mission.”
]]>According to the SEC's complaint, while serving as the CEO of Alfi, a Florida-based advertising technology company, and under the pseudonym “Uptix12,” Pereira allegedly posted shortly after Alfi’s May 2021 initial public offering that he “wouldn’t doubt” that Alfi “has $10 mm to $20 mm in revenues already in their back pocket,” when, in reality, the company was set to report only $17,450 in revenue. Soon thereafter, in another alleged attempt to boost Alfi’s stock price, Pereira stated in a YouTube interview that the company was entering into a contract with the founder of a successful restaurant chain to deploy Alfi technology in the founder’s restaurants. In fact, as alleged, the restaurant chain founder never discussed such a contract with Pereira or any other Alfi personnel. The complaint further alleges that, on August 17, 2021, with the company’s stock price opening at its lowest level in nearly two months, Pereira made false and misleading statements on social media and in a company-issued press release about the company’s advertising inventory, including that “available advertising inventory by the end of 2021 is expected to be in excess of $100 million.” Contrary to Pereira’s statements, according to the complaint, the company had less than $5 million in advertising inventory at the time, and Pereira did not have a reasonable basis to believe that Alfi would achieve $100 million in advertising inventory by the end of 2021. The company filed for bankruptcy in October 2022.
"As alleged in our complaint, Pereira tried to boost the company’s stock price through his false and misleading statements,” said Eric I. Bustillo, Director of the SEC’s Miami Regional Office. "This case further demonstrates the SEC’s commitment to holding officers of public companies accountable when they violate their legal obligation of candor and fair and full disclosure to investors.”
The SEC's complaint, filed in the U.S. District Court for the Southern District of Florida, charges Pereira with violating the antifraud provisions of the federal securities laws. The SEC seeks a permanent injunction, an officer-and-director bar, and a civil penalty against Pereira.
The SEC's investigation was conducted by Alex Charap with assistance from Kathleen Strandell, and it was supervised by Jessica M. Weissman, Fernando Torres, and Glenn S. Gordon, all of the Miami Regional Office. The SEC's litigation is being led by Russell O’Brien and Mr. Charap and supervised by Teresa Verges.
]]>“I was pleased to support today’s adoption of rules to strengthen the SEC’s ethics requirements,” said SEC Chair Gary Gensler. “These amendments modernize our compliance program and will help ensure the SEC honors the trust the public has placed in our agency.”
For many years, SEC employees have been required to preclear securities transactions and comply with minimum holding periods. All employees are prohibited from, among other things, transacting in securities of companies the agency is investigating, engaging in short selling, transacting in derivatives, participating in initial public offerings for seven calendar days after the offerings, or purchasing or carrying securities on margin.
The amendments update the SEC’s Supplemental Ethics Rules, 5 CFR Part 4401.102, Supplemental Standards of Conduct for Members and Employees Securities and Exchange Commission.
Prohibitions Against Financial Industry Sector Funds
While the Commission has long prohibited employees from investing in stocks of entities directly regulated by the Commission, such as broker-dealers and investment advisers, the rule amendments expand the prohibited holdings restrictions to ban employees from investing in financial industry sector funds, as employee ownership of financial industry sector funds poses similar risks of conflicts of interest and appearance concerns.
Enhancements to Data Collection
The amendments permit employees to comply with existing reporting requirements by authorizing financial institutions to transmit data on their covered securities transactions and holdings directly to the SEC through an automated electronic system. This amendment is expected to enhance internal compliance controls by facilitating the detection and remediation of violations in real time, reducing burdensome manual processes for transaction confirmations and reporting, and providing an independently verifiable source for compliance monitoring and testing.
Optimizing Efficient and Effective Use of Agency Resources
Finally, the amendments facilitate the efficient and effective use of agency resources to monitor compliance of securities investments and transactions that involve significant ethics risks. Specifically, because diversified mutual funds generally pose a low risk of conflicts of interest, misuse of nonpublic information for personal gain, or appearance problems as compared to other types of securities, the rule amendments exempt diversified mutual funds from the Supplemental Ethics Rule’s requirements. However, mutual funds that concentrate investments in a particular sector, industry, business, state, or country other than the United States remain subject to the rules.
]]>According to the SEC’s complaint, Loudon allegedly misappropriated material, nonpublic information about the proposed acquisition from his wife, a BP mergers and acquisitions manager who worked on the planned deal. The SEC alleges that Loudon overheard several of his wife’s work-related conversations about the merger while she was working remotely. Without his wife’s knowledge, Loudon purchased 46,450 shares of TravelCenters stock before the merger was announced on February 16, 2023. As a result of the announcement, TravelCenters stock rose nearly 71 percent. Loudon allegedly immediately sold all of his TravelCenters shares for a profit of $1.76 million.
“We allege that Mr. Loudon took advantage of his remote working conditions and his wife’s trust to profit from information he knew was confidential,” said Eric Werner, Regional Director of the SEC’s Fort Worth Regional Office. “The SEC remains committed to prosecuting such malfeasance.”
The SEC’s complaint, filed in U.S. District Court for the Southern District of Texas, charges Loudon with violating the antifraud provisions of the federal securities laws. Without denying the allegations in the SEC’s complaint, Loudon consented to the entry of a partial judgment, subject to court approval, permanently enjoining him from violating the antifraud provisions of the federal securities laws, imposing an officer and director bar, and ordering that he pay disgorgement with prejudgment interest and a civil penalty in amounts to be determined by the Court.
In a parallel action, the U.S. Attorney's Office for the Southern District of Texas today announced criminal charges against Loudon.
The SEC’s ongoing investigation is being conducted by Julia Huseman and Jamie Haussecker of the SEC’s Fort Worth Regional Office, under the supervision of Jim Etri and B. David Fraser. The litigation will be led by Jason Rose and supervised by Keefe Bernstein. The SEC appreciates the assistance of the Financial Industry Regulatory Authority, the FBI, and the U.S. Attorney’s Office for the Southern District of Texas.
]]>The Committee, which provides advice and recommendations to the Commission on rules, regulations, and policy matters relating to small businesses, will start the morning session by hearing from its members about marketplace trends in small business capital raising.The SEC’s Office of the Advocate for Small Business Capital Formation will also provide an overview of its 2023 Annual Report, which includes in-depth data on the state of capital raising activity from startup to small cap along with the Office’s policy recommendations. The Committee will spend the rest of the morning considering potential recommendations regarding changes to the accredited investor definition, building upon ideas generated during a previous Committee meeting.
In the afternoon session, following remarks from the Acting Director of the SEC’s Office of Minority and Women Inclusion, the Committee will explore the state of the IPO market. Recognizing that IPO activity has fallen significantly in recent years and that there are a declining number of smaller public companies, invited speakers will share relevant IPO data and their views on contributory factors and trends in the marketplace. As part of the discussion, the Committee will consider how decreased IPO activity and market shifts are impacting smaller companies and related capital raising challenges.
The full agenda, meeting materials, and information on how to watch the meeting are available on the Committee webpage.
]]>According to the SEC order, the TIAA IRA allowed retail customers to invest in both a pre-selected “core menu” of affiliated investments, including affiliated mutual funds, and, through the TIAA IRA’s optional “brokerage window,” a broader array of securities, including a variety of mutual funds, ETFs, stocks, and bonds. During the relevant period, the brokerage window included the lowest-cost share classes of certain affiliated mutual funds offered in the core menu, but with the investment minimums waived. Due to the waivers, customers could have purchased substantially equivalent, lower-cost share classes of these mutual funds in the brokerage window. The SEC’s order finds that TC Services violated Reg BI by, among other things, failing to disclose both that substantially equivalent, lower-cost share classes of affiliated funds were available in the brokerage window and the conflicts that created.
According to the SEC’s order, more than 94 percent of TIAA IRA customers invested only through the core menu. As a result, nearly 6,000 TC Services retail customers paid more than $900,000 combined in expenses that they could have avoided by purchasing substantially equivalent funds through the brokerage window.
“Reg BI protects retail investors by requiring broker-dealers to act in the best interest of their customers when making recommendations, and today’s action demonstrates our commitment to ensuring compliance,” said Thomas P. Smith, Jr., Associate Regional Director in the New York Regional Office.
The SEC’s order finds that TC Services violated Reg BI’s General Obligation as well as Disclosure, Care, and Compliance Obligations. Without admitting or denying the findings, TC Services consented to the entry of an order that requires it to cease-and-desist from violating Reg BI, censures the firm, and orders it to pay disgorgement of $936,714 together with prejudgment interest of $103,424.91 as well as a civil monetary penalty of $1,250,000.
The SEC’s investigation was conducted by Rebecca Reilly and Alison Conn of the SEC’s New York Regional Office, under the supervision of Mr. Smith. The SEC examination that led to the investigation was conducted by Michael Altschuler, Sabrina Rubin, and Linda Lettieri.
]]>“The oversight of Nationally Recognized Statistical Rating Organizations is critical to the Commission's focus on investor protection,” said SEC Chair Gary Gensler. “The Office of Credit Ratings’ work and oversight benefits our efforts to protect investors as well as ensure the integrity of the rating process.”
“To protect investors, our examinations focus on specific activities of the credit rating agencies to assess whether or not they are compliant with applicable rules and regulations," said Lori Price, Director of the Office of Credit Ratings. “The staff’s work is summarized in a comprehensive annual report that discusses the findings of our examinations as well as market information about credit rating agencies and the credit rating industry.”
The staff’s NRSRO examinations during 2023 considered a number of factors, including:
The SEC’s Office of Credit Ratings examines credit rating agencies to promote compliance with applicable federal securities laws and rules by identifying potential instances of non-compliance by credit rating agencies. Information obtained during an examination can also inform SEC staff of noteworthy industry developments. It provides its findings to Congress and the public in its annual Staff Report.
Prior years’ reports from the Office of Credit Ratings are available here.
]]>According to the SEC’s order, in March 2021, Van Eck Associates launched the VanEck Social Sentiment ETF (NYSE:BUZZ) to track an index based on “positive insights” from social media and other data. The provider of that index informed Van Eck Associates that it planned to retain a well-known and controversial social media influencer to promote the index in connection with the launch of the ETF. To incentivize the influencer’s marketing and promotion efforts, the proposed licensing fee structure included a sliding scale linked to the size of the fund so, as the fund grew, the index provider would receive a greater percentage of the management fee the fund paid to Van Eck Associates. However, as the SEC’s order finds, Van Eck Associates failed to disclose the influencer’s planned involvement and the sliding scale fee structure to the ETF’s board in connection with its approval of the fund launch and of the management fee.
“Fund boards rely on advisers to provide accurate disclosures, especially when involving issues that can impact the advisory contract, known as the 15(c) process,” said Andrew Dean, Co-Chief of the Enforcement Division’s Asset Management Unit. “Van Eck Associates’ disclosure failures concerning this high-profile fund launch limited the board’s ability to consider the economic impact of the licensing arrangement and the involvement of a prominent social media influencer as it evaluated Van Eck Associates’ advisory contract for the fund.”
Van Eck Associates consented to the entry of the SEC’s order finding that it violated the Investment Company Act and Investment Advisers Act. Without admitting or denying the SEC’s findings, Van Eck Associates agreed to a cease-and-desist order and a censure in addition to the monetary penalty.
The SEC’s investigation was conducted by Salvatore Massa, Gregory Padgett, and John Farinacci under the supervision of Virginia Rosado Desilets, Mr. Dean, and Corey Schuster, all with the Enforcement Division’s Asset Management Unit.
]]>Qualifying venture capital funds are excluded from the Act’s definition of an “investment company.” The Economic Growth, Regulatory Relief, and Consumer Protection Act of 2018 requires the Commission to index the dollar figure for this threshold to inflation once every five years.
The proposed rule is designed to implement this statutory directive and would adjust the dollar amount to $12 million, based on the Personal Consumption Expenditures Chain-Type Price Index (PCE Index). The proposed rule also would establish a process for future inflation adjustments every five years.
The proposal will be published on SEC.gov and in the Federal Register. The comment period will remain open for 30 days after publication in the Federal Register.
]]>The firms admitted the facts set forth in their respective SEC orders, acknowledged that their conduct violated recordkeeping provisions of the federal securities laws, agreed to pay combined civil penalties of more than $81 million, as outlined below, and have begun implementing improvements to their compliance policies and procedures to address these violations.
“Today’s actions against these 16 firms result from our continuing efforts to ensure that all regulated entities comply with the recordkeeping requirements, which are essential to our ability to monitor and enforce compliance with the federal securities laws,” said Gurbir S. Grewal, Director of the SEC’s Division of Enforcement. “Once again, one of these orders is not like the others: Huntington’s penalty reflects its voluntary self-report and cooperation.”
The SEC’s investigations uncovered pervasive and longstanding uses of unapproved communication methods, known as off-channel communications, at all 16 firms. As described in the SEC’s orders, the broker-dealer firms admitted that, from at least 2019 or 2020, their employees communicated through personal text messages about the business of their employers. The investment adviser firms admitted that their employees sent and received off-channel communications related to recommendations made or proposed to be made and advice given or proposed to be given. The firms did not maintain or preserve the substantial majority of these off-channel communications, in violation of the federal securities laws. By failing to maintain and preserve required records, some of the firms likely deprived the SEC of these off-channel communications in various SEC investigations. The failures involved employees at multiple levels of authority, including supervisors and senior managers.
Guggenheim Securities, CIR, Huntington, Key, Lincoln, NMIS, Oppenheimer, and U.S. Bancorp were each charged with violating certain recordkeeping provisions of the Securities Exchange Act of 1934 and with failing to reasonably supervise with a view to preventing and detecting those violations. CIRA, GPIM, HIC, KIS, Lincoln, NMIM, and Mason Street were each charged with violating certain recordkeeping provisions of the Investment Advisers Act of 1940 and with failing to reasonably supervise with a view to preventing and detecting those violations.
In addition to the significant financial penalties, each of the firms was ordered to cease and desist from future violations of the relevant recordkeeping provisions and was censured. The firms also agreed to retain independent compliance consultants to, among other things, conduct comprehensive reviews of their policies and procedures relating to the retention of electronic communications found on personal devices and their respective frameworks for addressing non-compliance by their employees with those policies and procedures.
The SEC’s investigations into Guggenheim, Oppenheimer and U.S. Bancorp were conducted by Karolina Klyuchnikova, Austin Thompson, and Alison R. Levine and supervised by Thomas P. Smith Jr. of the New York Regional Office. The SEC’s investigations into Northwestern Mutual, Cambridge, Key, Lincoln, and Huntington were conducted by Som P. Dalal, Ruta G. Dudenas, Regina LaMonica, Amy S. Cotter, and Anne C. McKinley and supervised by Paul A. Montoya and Kathryn A. Pyszka of the Chicago Regional Office.
]]>“Since Form PF first was adopted, the SEC, CFTC, and FSOC have identified gaps in the information we receive from private fund advisers,” said SEC Chair Gary Gensler. “These amendments to Form PF will enhance the Commissions’ and FSOC’s understanding of the private fund industry as well the potential systemic risk posed by the industry and its individual participants. In addition, the adoption also furthers investor protection efforts.”
Among other things, the amendments to Form PF will enhance how large hedge fund advisers report investment exposures, borrowing and counterparty exposure, market factor effects, currency exposure, turnover, country and industry exposure, central clearing counterparty reporting, risk metrics, investment performance by strategy, portfolio liquidity, and financing and investor liquidity to provide better insight into the operations and strategies of these funds and their advisers and improve data quality and comparability.
Further, the amendments will require additional basic information about advisers and the private funds they advise, including identifying information, assets under management, withdrawal and redemption rights, gross asset value and net asset value, inflows and outflows, base currency, borrowings and types of creditors, fair value hierarchy, beneficial ownership, and fund performance to provide greater insight into private funds’ operations and strategies, to assist in identifying trends, including those that could create systemic risk, to improve data quality and comparability, and to reduce reporting errors. The amendments will also require more detailed information about the investment strategies, counterparty exposures, and trading and clearing mechanisms employed by hedge funds, while also removing duplicative questions, to provide greater insight into hedge funds’ operations and strategies, to assist in identifying trends, and to improve data quality and comparability.
The amendments will become effective one year after publication in the Federal Register. The compliance date for the amendments is the same as the effective date.
]]>According to the SEC’s order, TradeStation began to offer and sell the crypto lending product with the interest feature around August 2020. TradeStation marketed the interest feature as a way for investors to earn interest and “Put your crypto assets to work for you,” and TradeStation had complete discretion over how to deploy the assets to generate revenue to pay interest to investors. The order finds TradeStation offered and sold the crypto lending product with the interest feature as a security, and, since it did not qualify for a registration exemption, TradeStation was required to register its offer and sale but failed to do so.
According to the SEC’s order, on June 30, 2022, TradeStation voluntarily stopped offering and selling the interest feature to investors. TradeStation announced earlier this year that it intends to terminate all its crypto-related products and services in the U.S. market on February 22, 2024.
“The SEC charged TradeStation with failure to register its crypto lending product before offering it to investors. This case highlights the importance of ensuring that investors benefit from the disclosure requirements provided by the federal securities laws, regardless of the label applied to the offering,” said Stacy Bogert, Associate Director of the SEC’s Division of Enforcement.
Without admitting or denying the SEC’s findings, in addition to the civil penalty, TradeStation agreed to a cease-and-desist order prohibiting it from violating the registration provisions of the Securities Act of 1933. In parallel actions announced today, TradeStation agreed to pay an additional $1.5 million in fines to settle similar charges by state regulatory authorities.
The SEC’s investigation was conducted by Kevin Hayne and Ashley Sprague, under the supervision of Pei Y. Chung and Ms. Bogert. The SEC appreciates the assistance of members of the North American Securities Administrators Association.
The SEC’s Office of Investor Education and Advocacy has previously issued an Investor Bulletin on Crypto Asset Interest-bearing Accounts. Investors can find additional information about crypto assets at Investor.gov.
]]>According to the SEC’s order, two senior managers who led Cloopen’s strategic customer contracts and key accounts department orchestrated a fraudulent scheme from May 2021 through February 2022 to prematurely recognize revenue on service contracts. The order finds that, facing pressure to meet strict quarterly sales targets, the two senior managers directed their employees to improperly recognize revenue on numerous contracts for which Cloopen had either not completed work or, in some instances, not even started work. As a result of this misconduct and other accounting errors, Cloopen overstated its unaudited financial results for the second and third quarters of 2021 and its announced revenue guidance for the fourth quarter of 2021.
Within a few days of starting an internal investigation, Cloopen self-reported the accounting violations to the SEC and subsequently provided substantial cooperation to the staff, including summarizing interviews of witnesses located in China and identifying and translating key documents originally written in Chinese. Cloopen also implemented prompt remedial measures, which included firing or disciplining the people involved in the fraudulent scheme, reorganizing the departments engaged in the misconduct, strengthening its accounting controls, and recruiting new finance and accounting staff with expertise in U.S. generally accepted accounting principles.
“This enforcement action demonstrates what we have said repeatedly: there are real benefits to companies that self-report their potential securities law violations, assist during our investigations, and undertake remedial measures,” said Gurbir S. Grewal, Director of the SEC’s Division of Enforcement. “As detailed in our order, Cloopen, a foreign issuer, promptly self-reported accounting errors to Commission staff, provided detailed explanations of the transactions at issue, and cooperated in other ways that substantially advanced the investigation. Cloopen also promptly undertook significant remedial measures, including terminating and disciplining employees involved in the misconduct, strengthening its internal accounting controls, and clawing back compensation from its CEO and CFO. In consideration of Cloopen’s significant cooperation, the Commission determined not to impose a civil penalty against Cloopen.”
The SEC’s order finds that Cloopen violated the antifraud provisions of the Securities Exchange Act of 1934 as well as certain reporting, recordkeeping, and internal controls provisions of the federal securities laws. Without admitting or denying the SEC’s findings, Cloopen agreed to cease and desist from further violations of the charged securities laws.
The SEC’s investigation was conducted by Duncan C. Simpson LaGoy and Ellen Chen and supervised by David Zhou and Jason H. Lee of the San Francisco Regional Office.
]]>“I am pleased to support this adoption because it requires that firms that act like dealers register with the Commission as dealers, thereby protecting investors as well as promoting market integrity, resiliency, and transparency,” said SEC Chair Gary Gensler. “These measures are common sense. Congress did not intend for registration and regulatory requirements to apply to some dealers and not to others. Absent an exemption or exception, if anyone trades in a manner consistent with de facto market making, it must register with us as a dealer – consistent with Congress’s intent.”
The final rules, Exchange Act Rules 3a5-4 and 3a44-2, further define the phrase “as a part of a regular business” in Sections 3(a)(5) and 3(a)(44) of the Securities Exchange Act of 1934 to identify certain activities that would cause persons engaging in such activities to be “dealers” or “government securities dealers” and be subject to the registration requirements of Sections 15 and 15C of the Act, respectively, in connection with certain liquidity-providing roles.
Under the final rules, any person that engages in activities as described in the rules is a “dealer” or “government securities dealer” and, absent an exception or exemption, required to: register with the Commission under Section 15(a) or Section 15C, as applicable; become a member of an SRO; and comply with federal securities laws and regulatory obligations and applicable SRO and Treasury rules and requirements.
The adopting release for the final rules will be published in the Federal Register. The final rules will become effective 60 days after publication of the adopting release in the Federal Register. The compliance date for the final rules will be one year after the effective date of the final rules.
]]>According to the SEC’s complaint, from at least early 2018 to mid-2019, Sewell encouraged hundreds of his online students to invest in the Rockwell Fund, a hedge fund that he claimed he would launch, and which would use cutting-edge technologies like artificial intelligence and trading strategies involving crypto assets to generate returns for investors. The complaint alleges that Sewell, who resided in Hurricane, Utah, before relocating to Puerto Rico, received approximately $1.2 million from 15 students but never launched the fund nor executed the trading strategies he advertised to investors, instead holding on to the invested money in bitcoin. The complaint further alleges that the bitcoin was eventually stolen when Sewell’s digital wallet was hacked and looted.
“We allege that Sewell defrauded students in his online American Bitcoin Academy of over a million dollars through a series of lies about investment opportunities in his purported crypto hedge fund. Among other things, he falsely claimed that his investment strategies would be guided by his own ‘artificial intelligence’ and ‘machine learning’ technology which, like the fund itself, never existed,” said Gurbir S. Grewal, Director of the SEC’s Division of Enforcement. “Whether it’s AI, crypto, DeFi or some other buzzword, the SEC will continue to hold accountable those who claim to use attention-grabbing technologies to attract and defraud investors.”
The SEC's complaint, filed in U.S. District Court for the District of Delaware, charges the defendants with violating antifraud provisions of the federal securities laws. The defendants have agreed to settle the charges. Without admitting or denying the allegations in the complaint, the defendants have consented to injunctive relief. Defendant Rockwell Capital Management also agreed to pay disgorgement and prejudgment interest totaling $1,602,089 and Defendant Sewell agreed to a civil penalty of $223,229. The settlement is subject to court approval.
The SEC's investigation was conducted by Matthew S. Raalf and Jacquelyn D. King with assistance from Gregory Bockin and Karen M. Klotz, all of the Philadelphia Regional Office. It was supervised by Assunta Vivolo, Scott A. Thompson, and Nicholas P. Grippo.
The SEC's Office of Investor Education and Advocacy cautions investors to check the background of anyone selling them an investment and to always independently research investment opportunities and has issued Investor Alerts on investment frauds touting new technologies. Additional information is available on Investor.gov and SEC.gov.
]]>The event, hosted by the SEC's Office of the Ombuds, will be held at SEC Headquarters in Washington, D.C., and livestreamed at https://www.sec.gov/ on Friday, March 1, from 11 a.m. to 4 p.m. ET.
For the first time, the list of Summit invitees includes law schools without investor advocacy clinics, many of which are located in areas of the U.S. where free legal services for investors are scarce.
“Investors who cannot afford private counsel are significantly disadvantaged in arbitration or litigation with their financial professionals,” said SEC Ombuds Stacy Puente. “The clinics help level that playing field, advocating for the personal interests of these investors.”
The program will address the impact of the students’ legal work on their clients, their law schools, their communities, and on the students themselves. Students will also participate in panel discussions with SEC staff about investor outreach, and the role of diversity, equity, inclusion, and accessibility in their clinic work. The Summit’s co-hosts, the SEC’s Office of Investor Education and Advocacy (OIEA) and Office of Minority and Women Inclusion (OMWI), will have staff available at the event to discuss the SEC’s investor resources and career paths at the agency.
“Through its outreach efforts and Investor.gov, the Office of Investor Education and Advocacy provides tools and information to help investors make better informed investment decisions and avoid fraud,” said Lori Schock, OIEA Director. “Investor advocacy clinics and law students can play a vital role in helping us promote these important resources.”
“OMWI is eager to engage with law students from across the country and spark transformative conversations aimed to broaden their work as student attorneys through a diversity, equity, inclusion, and accessibility lens,” said Allison Wise, Acting Director of OMWI.
The Summit will feature remarks from the SEC Chair, SEC Commissioners, Division Directors, the Investor Advocate, and the Director of FINRA Dispute Resolution Services. Keynote remarks will be delivered by Nicole Iannarone, Chair of FINRA’s National Arbitration and Mediation Committee and Professor of the Drexel University Kline School of Law.
Participating law school clinics include Benjamin N. Cardozo School of Law, Cornell University Law School, Fordham University School of Law, Howard University School of Law, Northwestern University Pritzker School of Law, Elizabeth Haub School of Law at Pace University, St. John’s University School of Law, Seton Hall University School of Law, University of Miami School of Law, and the University of Pittsburgh School of Law.
For more information about the Summit or to RSVP, please contact Summit2024@sec.gov.
]]>According to the SEC’s complaint, from June 2020 through early 2022, Lee and Chunga promoted HyperFund “membership” packages, which they claimed guaranteed investors high returns, including from HyperFund’s supposed crypto asset mining operations and associations with a Fortune 500 company. As the complaint alleges, however, Lee and Chunga knew or were reckless in not knowing that HyperFund was a pyramid scheme and had no real source of revenue other than funds received from investors. In 2022, the HyperFund scheme collapsed and investors were no longer able to make withdrawals.
“As alleged in our complaint, Lee and Chunga attracted investors with the allure of profits from crypto asset mining, but the only thing that HyperFund mined was its investors’ pockets,” said Gurbir S. Grewal, Director of the SEC’s Division of Enforcement. “This case illustrates yet again how noncompliance in the crypto space facilitates schemes where promoters capitalize on the promise of easy money, without providing the detailed investor protection disclosures required by the registration provisions of the federal securities laws.”
The SEC’s complaint, filed in federal district court in the District of Maryland, charges Lee and Chunga with violating the anti-fraud and registration provisions of the federal securities laws. The complaint seeks permanent injunctive relief, conduct-based injunctions preventing the defendants from participating in multi-level marketing or crypto asset offerings, disgorgement of ill-gotten gains, prejudgment interest, and civil penalties. Chunga agreed to settle the charges, to be permanently enjoined from future violations of the charged provisions and certain other activity, and to pay disgorgement and civil penalties in amounts to be determined by the court at a future date. The settlement is subject to court approval. The charges against Lee will be litigated.
In a parallel action, the U.S. Attorney’s Office for the District of Maryland today announced criminal charges against Lee and Chunga. Chunga pleaded guilty to conspiracy to commit securities fraud and wire fraud.
The SEC’s ongoing investigation is being conducted by David Snyder and Assunta Vivolo, assisted by Tom Bedkowski, of the SEC’s Crypto Assets & Cyber Unit (CACU). It is being supervised by David Hirsch and Jorge Tenreiro of the CACU and Nicholas Grippo and Scott Thompson of the Philadelphia Regional Office. The litigation will be conducted by Judson Mihok and Gregory Bockin of the Philadelphia Regional Office. The Commission appreciates the assistance of the U.S. Attorney’s Office for the District of Maryland; the Department of Justice, Fraud Section; Homeland Security Investigations New York; and the IRS.
The SEC’s Office of Investor Education and Advocacy directs investors to resources on detecting and avoiding pyramid schemes. Investors can find additional information about pyramid schemes at Investor.gov.
]]>According to the SEC’s order, Northern Star stated in its SEC filings that neither the company, nor anyone acting on its behalf, had initiated any substantive discussions with any potential target companies prior to the IPO. However, the SEC’s order finds that Northern Star had engaged in discussions with a target company and that company’s controlling shareholder in connection with a potential SPAC business combination dating back to December 2020 and continuing for several weeks. Furthermore, according to the SEC’s order, after announcing a merger agreement with the target company, Northern Star did not adequately disclose its interactions with the target company in its Form S-4 filings.
“Northern Star’s failure to disclose discussions with its merger target kept investors in the dark about its future plans, information that would have been important in deciding whether to invest in this SPAC,” said Nicholas P. Grippo, Director of the SEC’s Philadelphia Regional Office. “Given that the purpose of a SPAC is to identify and acquire an operating business, SPACs should be transparent about any pre-IPO discussions with potential acquisition targets.”
The SEC’s order finds that Northern Star violated an antifraud provision of the Securities Act of 1933. Without admitting or denying the SEC’s findings, Northern Star agreed to a cease-and-desist order and to pay a $1.5 million penalty in the event it closes a merger transaction.
The SEC’s investigation was conducted by Oreste P. McClung and Brian R. Higgins and was supervised by Brendan P. McGlynn, Scott A. Thompson, and Mr. Grippo, all with the Philadelphia Regional Office.
]]>The SEC’s orders find that Aon was responsible for calculating PSERS’s investment returns for “risk share,” a provision under Pennsylvania law that requires public school employees to contribute more to their pensions if the retirement fund does not meet certain investment return rates. If PSERS’s investment return rate for the nine-year period ending June 30, 2020 was lower than 6.36 percent, it would trigger risk share, requiring an increase in public-school employees’ contributions.
According to the SEC’s orders, in June 2020, Aon provided PSERS its quarterly returns for the purpose of estimating PSERS’s investment return rate. The orders find that some of the quarterly returns Aon provided to PSERS in 2020 did not match the historical returns that Aon previously provided PSERS for the same periods. According to the SEC’s orders, PSERS repeatedly questioned Aon’s calculations of the investment returns and asked Aon to investigate a discrepancy between the returns. The SEC finds that, in response to these inquiries, Aon and Shaughnessy, who led the PSERS engagement, failed to adequately investigate that discrepancy, instead providing PSERS with two reasons for the discrepancy that Aon had previously ruled out. The orders further find that Shaughnessy misrepresented to PSERS that the discrepancy was not due to errors when, in fact, she did not know the reason for the discrepancy. According to the orders, in December 2020, Aon and Shaughnessy reported to PSERS that the risk share return rate for that period was 6.38 percent – just high enough to avoid triggering risk share. Ultimately, the discrepancy turned out to be due to errors in the underlying data, and, when the rate was recalculated, the corrected return rate was 6.34 percent – triggering risk share and requiring additional employee contributions.
“Investment advisers must be scrupulously honest with their clients,” said LeeAnn G. Gaunt, Chief of the Public Finance Abuse Unit. “Pension funds and other municipal entities should be able to trust that their investment advisers are telling them the truth.”
Without admitting or denying the SEC’s findings, Aon consented to a settled order finding that it violated Section 206(2) of the Advisers Act, censuring it, and ordering it to pay a civil penalty of $1 million and disgorgement and prejudgment interest of $542,187. Without admitting or denying the SEC’s findings, Shaughnessy consented to a settled order finding that she also violated Section 206(2) of the Advisers Act, censuring her, and ordering her to pay a civil penalty of $30,000.
The SEC's investigation was conducted by Heidi M. Mitza, Joseph O. Chimienti, and Creighton Papier of the Public Finance Abuse Unit and was supervised by Kevin B. Currid. Trial counsel Susan Cooke of the Boston Regional Office also assisted in the investigation.
]]>SPAC IPOs and de-SPAC transactions can be used as a means for private companies to enter the public markets. Given the complexity of these transactions, the Commission seeks to enhance investor protection in SPAC IPOs and de-SPAC transactions with respect to the adequacy of disclosure and the responsible use of projections. The rules also address investor protection concerns more broadly with respect to shell companies and blank check companies, including SPACs.
“Just because a company uses an alternative method to go public does not mean that its investors are any less deserving of time-tested investor protections,” said SEC Chair Gary Gensler. “Today’s adoption will help ensure that the rules for SPACs are substantially aligned with those of traditional IPOs, enhancing investor protection through three areas: disclosure, use of projections, and issuer obligations. Taken together, these steps will help protect investors by addressing information asymmetries, misleading information, and conflicts of interest in SPAC and de-SPAC transactions.”
The new rules and amendments require, among other things, enhanced disclosures about conflicts of interest, SPAC sponsor compensation, dilution, and other information that is important to investors in SPAC IPOs and de-SPAC transactions. The rules also require registrants to provide additional information about the target company to investors that will help investors make more informed voting and investment decisions in connection with a de-SPAC transaction.
The rules more closely align the required disclosures and legal liabilities that may be incurred in de-SPAC transactions with those in traditional IPOs. For example, in certain situations, the rules require the target company to sign a registration statement filed by a SPAC (or another shell company) in connection with a de-SPAC transaction. This would make the target company a “co-registrant” and assume responsibility for disclosures in that registration statement. In addition, the rules make the Private Securities Litigation Reform Act of 1995 safe harbor from liability for forward-looking statements unavailable to certain blank check companies, including SPACs.
In connection with de-SPAC transactions, the rules include disclosure requirements related to projections, including disclosure of all material bases of the projections and all material assumptions underlying the projections. The rules also update and expand guidance on the use of projections in all SEC filings.
The adopting release is published on SEC.gov and will be published in the Federal Register. The rules will become effective 125 days after publication in the Federal Register. Compliance with the structured data requirements, which require tagging of information disclosed pursuant to new subpart 1600 of Regulation S-K in Inline XBRL, will be required 490 days after publication of the rules in the Federal Register.
]]>According to the SEC’s order, from March 2020 through July 2023, JPMS regularly asked retail clients to sign confidential release agreements if they had been issued a credit or settlement from the firm of more than $1,000. The agreements required the clients to keep confidential the settlement, all underlying facts relating to the settlement, and all information relating to the account at issue. In addition, even though the agreements permitted clients to respond to SEC inquiries, they did not permit clients to voluntarily contact the SEC.
“Whether it’s in your employment contracts, settlement agreements or elsewhere, you simply cannot include provisions that prevent individuals from contacting the SEC with evidence of wrongdoing,” said Gurbir S. Grewal, Director of the SEC’s Division of Enforcement. “But that’s exactly what we allege J.P. Morgan did here. For several years, it forced certain clients into the untenable position of choosing between receiving settlements or credits from the firm and reporting potential securities law violations to the SEC. This either-or proposition not only undermined critical investor protections and placed investors at risk, but was also illegal.”
“Investors, whether retail or otherwise, must be free to report complaints to the SEC without any interference,” said Corey Schuster, Co-Chief of the Enforcement Division’s Asset Management Unit. “Those drafting or using confidentiality agreements need to ensure that they do not include provisions that impede potential whistleblowers.”
The SEC’s order finds that JPMS violated Rule 21F-17(a) under the Securities Exchange Act of 1934, a whistleblower protection rule that prohibits taking any action to impede an individual from communicating directly with the SEC staff about possible securities law violations. Without admitting or denying the SEC’s findings, JPMS agreed to be censured, to cease and desist from violating the whistleblower protection rule, and to pay the $18 million civil penalty.
The SEC’s investigation was conducted by Marie DeBonis and Jessica Neiterman, with assistance from John Farinacci, and supervised by Virginia Rosado Desilets, Brianna Ripa, Mr. Schuster, and Andrew Dean, all of the SEC’s Asset Management Unit. Rua Kelly of the Trial Unit also assisted in the investigation.
The SEC strongly encourages the public to submit any tips, complaints, and referrals via https://www.sec.gov/tcr.
]]>“Sellers entrusted Morgan Stanley and Passi with material non-public information concerning upcoming block trades with the full expectation and understanding that they would keep it confidential,” said SEC Chair Gary Gensler. “Instead, Morgan Stanley and Passi abused that trust by leaking that same information and using it to position themselves ahead of those trades. While their conduct may have earned them tens of millions of dollars on low-risk trades, it violated the federal securities laws. Thanks to the hard work of the SEC staff, they are being held accountable.”
“Despite assuring selling shareholders that they would keep their efforts to sell large blocks of stock confidential, Morgan Stanley and Pawan Passi instead leaked that material non-public information to mitigate their own risk, win more block trade business, and generate over a hundred million dollars in illicit profits,” said Gurbir S. Grewal, Director of the SEC’s Division of Enforcement. “When market participants game the system for personal gain in this way, it erodes investor confidence and undermines market integrity. Today’s fraud charges underscore our commitment to holding wrongdoers accountable, no matter how complicated the fraud or sophisticated the perpetrators.”
A block trade generally involves the sale of a large quantity of shares of an issuer’s stock, privately arranged and executed outside of the public markets. According to the SEC’s orders, from at least June 2018 through August 2021, Passi and a subordinate on Morgan Stanley’s equity syndicate desk disclosed non-public, potentially market-moving information concerning impending block trades to select buy-side investors despite the sellers’ confidentiality requests and Morgan Stanley’s own policies regarding the treatment of confidential information. The SEC’s orders find that Morgan Stanley and Passi disclosed the block trade information with the understanding that those buy-side investors would use the information to “pre-position” by taking a significant short position in the stock that was the subject of the upcoming block trade. According to the SEC orders, if Morgan Stanley eventually purchased the block trade, the buy-side investors would then request and receive allocations from the block trade from Morgan Stanley to cover their short positions. This pre-positioning reduced Morgan Stanley’s risk in purchasing block trades.
The SEC’s order further finds that Morgan Stanley failed to enforce information barriers to prevent material non-public information involving certain block trades from being conveyed by the equity syndicate desk, which sits on the private side of Morgan Stanley, to a trading division on the public side of the firm. As a result, the firm was unable to sufficiently scrutinize whether trades by that division, placed while the equity syndicate desk was in discussions with selling shareholders regarding potential block trades, were based on such confidential discussions.
The SEC’s order concerning Morgan Stanley finds that the firm willfully violated Sections 10(b) and 15(g) of the Securities Exchange Act of 1934 and Rule 10b-5(b) thereunder, censures the firm, and orders it to pay approximately $138 million in disgorgement, approximately $28 million in prejudgment interest, and an $83 million civil penalty. The SEC’s order concerning Passi finds that he willfully violated Section 10(b) of the Exchange Act and Rule 10b-5 thereunder, orders him to pay a $250,000 civil penalty, and imposes associational, penny stock, and supervisory bars.
In a parallel action, the U.S. Attorney’s Office for the Southern District of New York today announced criminal resolutions with Morgan Stanley and Passi. The SEC’s ordered disgorgement and prejudgment interest for Morgan Stanley will be deemed partially satisfied by the forfeiture and restitution paid by the firm, which totals $136,531,223, pursuant to its criminal resolution.
The SEC’s investigation was conducted by David Bennett and Colby Steele in the Enforcement Division’s Market Abuse Unit with the assistance of John Marino, Darren Boerner, and Matthew Koop of the Market Abuse Unit’s Analysis and Detection Center and trial counsel Suzanne Romajas and James Connor, and Carmen Taveras, Frank Brown, and Adam Yonce in the Division of Economic and Risk Analysis. The case was supervised by Paul Kim and Joseph Sansone.
The SEC appreciates the assistance of the U.S. Attorney’s Office for the Southern District of New York, the FBI, and the Financial Industry Regulatory Authority.
]]>According to the SEC’s complaint, in late 2019 or early 2020, Huang was approached by Future FinTech’s founder and former CEO about the possibility of Huang becoming CEO of Future FinTech. Huang allegedly used an account in Hong Kong to place trades in Future FinTech stock beginning in January 2020, at a time when Future FinTech was at risk of being delisted from NASDAQ because its stock price had fallen below NASDAQ’s minimum bid price requirement of $1.00 per share. Huang allegedly bought more than 530,000 shares of Future FinTech over a two-month period and repeatedly traded at a volume so large that his trades constituted a high percentage of the daily volume of Future FinTech stock transactions. Huang also allegedly placed multiple buy orders in short timeframes, placed limit buy orders with escalating limit prices from one order to the next, and made trades that generally would not make economic sense for an investor seeking to buy the stock at the lowest available price. The SEC’s complaint alleges that Huang’s trades were intended to, and at times did, push the Future FinTech stock price up. For example, on February 6, 2020, when Huang’s trading constituted 60 percent of the daily trading volume, he placed multiple buy orders within nine minutes, driving the price up from $0.89 to $1.05, at which point his trading stopped.
Huang was named Future FinTech’s CEO in March 2020. Upon becoming CEO of Future FinTech, Huang was required to file initial, annual, and change of ownership forms about his holdings of Future FinTech stock, but he failed to do so for the year after he became CEO. As alleged in the complaint, in March 2021, after he no longer owned any Future FinTech stock, Huang belatedly filed a misleading initial form representing that he owned no Future FinTech stock.
“Timely disclosure of insider stock transactions is a fundamental component of the federal securities laws that ensures the fair operation of our securities markets,” said Sheldon L. Pollock, Associate Regional Director of the SEC’s New York Regional Office. “CEOs should assume that the use of an offshore account will not prevent the staff of the SEC from identifying manipulative trading.”
The SEC’s complaint, filed in the U.S. District Court for the Southern District of New York, charges Huang with violating the antifraud and beneficial ownership disclosure provisions of the Securities Exchange Act of 1934 and seeks permanent injunctive relief, a civil penalty, and an officer-and-director bar.
The SEC’s investigation has been conducted by Yitzchok Klug, Howard Kim, and Adam S. Grace, and supervised by Mr. Pollock. The SEC’s litigation will be led by Travis Hill.
]]>The SEC’s order finds that SAP, whose American Depositary Shares are listed on the New York Stock Exchange, violated the FCPA by employing third-party intermediaries and consultants from at least December 2014 through January 2022 to pay bribes to government officials to obtain business with public sector customers in the seven countries mentioned above. According to the SEC’s order, SAP inaccurately recorded the bribes as legitimate business expenses in its books and records, despite the fact that certain of the third-party intermediaries could not show that they provided the services for which they had been contracted. The SEC’s order finds that SAP failed to implement sufficient internal accounting controls over the third parties and lacked sufficient entity-level controls over its wholly owned subsidiaries.
“Our order holds SAP accountable for misconduct that spanned seven jurisdictions and persisted for several years and serves as a stark reminder of the need for global companies to be attuned to both the risks of their business and the need to maintain adequate entity-level controls over all their subsidiaries,” said Charles E. Cain, Chief of the SEC Division of Enforcement’s FCPA Unit.
In 2016, the SEC charged SAP with books and records and internal accounting controls violations in connection with a bribery scheme in Panama.
SAP consented to the SEC’s order finding that it violated the anti-bribery, recordkeeping, and internal accounting controls provisions of the Securities Exchange Act of 1934. SAP agreed to cease and desist from committing or causing any violations of these provisions and to pay disgorgement of $85 million plus prejudgment interest of more than $13.4 million, totaling more than $98 million, which will be offset by up to $59 million paid by SAP to the South African government in connection with its parallel investigations into the same conduct.
The SEC’s action is part of a coordinated global settlement that includes the United States Department of Justice (DOJ) and criminal and civil authorities in South Africa. In its parallel case, SAP agreed to pay the DOJ a $118.8 million criminal fine and to a forfeiture of approximately $103 million, of which $85 million will be satisfied by the company’s payment of disgorgement pursuant to the SEC’s order.
The SEC’s investigation was conducted by Sana Muttalib and Sonali Singh and was supervised by Ansu N. Banerjee of the SEC’s FCPA unit.
]]>“Stacey will bring deep experience to the role of Director of the Office of the Advocate for Small Business Capital Formation,” said SEC Chair Gary Gensler. “I look forward to working with her to advance the SEC’s important work on behalf of small businesses and their investors. I’d also like to thank Amy Reischauer for helping carry out the Office’s work in her capacity as Acting Deputy Director.”
Ms. Bowers said, “The capital formation process is both rewarding and challenging, and the SEC’s Small Business Advocate can help make it a little less daunting for entrepreneurs to succeed in raising the capital they need for their businesses and their investors to thrive. I’ve thoroughly enjoyed serving on the SEC’s Small Business Capital Formation Advisory Committee this past year and look forward to returning to work at the agency where my legal career began, working alongside such talented SEC staff, particularly within OASB, who are so devoted to ensuring our capital markets work fairly and efficiently for everyone.”
OASB is an independent office established in January 2019 to advance the interests of small businesses and their investors in the capital formation process. The office proactively works to identify and address unique capital formation challenges faced by small businesses, particularly those that are minority-owned or women-owned or located in rural or natural disaster areas.
Since 2018, Ms. Bowers has served as Director of the Corporate and Commercial Law Program at the University of Denver’s Sturm College of Law, where she earned her own law degree in 1992. She joined the Sturm faculty in 2007 and has taught many courses on corporate and securities law, including capital raising. As a practitioner, Ms. Bowers has represented business owners from startups to more established companies as they navigated the capital formation process.
Ms. Bowers earned her bachelor's degree in business/accounting (cum laude) from the University of Pittsburgh. In addition to her law degree, Ms. Bowers also earned a master’s degree in library and information science and a Ph.D. in curriculum and instruction studies at the University of Denver.
]]>According to the SEC’s complaint, from approximately January 2018, until at least March 2023, Kapoor and certain of the defendant entities solicited investors by, among other things, making several material misrepresentations and omissions regarding Kapoor, Location Ventures, Urbin, and their real estate developments. The false statements allegedly included misrepresenting Kapoor’s compensation; his cash contribution to the capitalization of Location Ventures; the corporate governance of Location Ventures and Urbin; the use of investor funds; and Kapoor’s background. The SEC’s investigation uncovered that Kapoor allegedly misappropriated at least $4.3 million of investor funds and improperly commingled approximately $60 million of investor capital between Location Ventures, Urbin, and some of the other charged entities. The complaint also alleges that Kapoor caused some entities to pay excessive fees and to represent higher returns to investors by significantly understating cost estimates.
“As alleged in our complaint, Kapoor was the architect of a multi-pronged real estate offering fraud that misappropriated millions from more than 50 investors,” said Eric I. Bustillo, Director of the SEC’s Miami Regional Office. “This emergency action reflects our commitment to protecting investors and holding those who defraud them accountable for their actions.”
The SEC’s complaint, filed in the U.S. District Court for the Southern District of Florida, charges Kapoor, Location Ventures, Urbin, and the 20 related entities with violating provisions of the Securities Act of 1933 and the Securities Exchange Act of 1934. The SEC seeks permanent injunctions, civil monetary penalties, an officer-and-director bar against Kapoor, and disgorgement of ill-gotten gains with prejudgment interest against Kapoor and certain of the charged entities.
The SEC’s continuing investigation is being conducted by Jordan A. Cortez, John T. Houchin, Fernando Torres, and Mark Dee, and supervised by Eric R. Busto and Glenn Gordon, with the assistance of Russell R. O’Brien and Regional Trial Counsel Teresa Verges. The litigation will be led by Mr. O’Brien and will be supervised by Ms. Verges.
]]>“Commissioner Uyeda is a dedicated public servant who cares deeply about our capital markets,” said SEC Chair Gary Gensler. “I’m looking forward to our continued work together in furtherance of the SEC’s mission to protect investors, maintain fair, orderly, and efficient markets, and facilitate capital formation.”
Commissioner Uyeda said, “I am grateful to have the privilege of continuing to serve the American public alongside my fellow colleagues at the Commission.”
In addition to his service as a Commissioner, Commissioner Uyeda served on the SEC staff in several roles from 2006 to 2022, including as Senior Advisor to Chairman Jay Clayton, Senior Advisor to Acting Chairman Michael S. Piwowar, and Counsel to Commissioner Paul S. Atkins. He also served in various staff positions in the Division of Investment Management and on detail from the SEC to the Senate Committee on Banking, Housing, and Urban Affairs as a securities counsel to the committee's minority staff.
Prior to joining the SEC, Commissioner Uyeda served as Chief Advisor to the California Corporations Commissioner, the state’s securities regulator. He also worked as an attorney at the law firms of K&L Gates (formerly known as Kirkpatrick & Lockhart LLP) in Washington, D.C. and O’Melveny & Myers LLP in Los Angeles.
Commissioner Uyeda earned his bachelor's degree in business administration at Georgetown University and his law degree with honors at the Duke University School of Law.
]]>Judge Metry will lead the SEC’s impartial Office of Administrative Law Judges that conducts hearings and issues initial decisions in administrative proceedings before the agency. Judge Metry succeeds James E. Grimes, who served for eight years with the agency, including his last as the SEC’s Chief Administrative Law Judge.
Judge Metry has been a federal Administrative Law Judge for over 22 years, most recently as Associate Chief Judge of the Office of Medicare Hearings and Appeals for the United States Department of Health and Human Services, a position he held since August 2020. Prior to that, Judge Metry served as an Administrative Law Judge for the Department of Homeland Security and the Social Security Administration.
He began his career with the Navy Judge Advocate General (JAG) Corps, where he served from 1980-1984 as trial counsel and summary courts martial officer for various commands including Naval Air Station Corpus Christi, Naval Station Seattle, and the USS Cape Cod.
Judge Metry graduated cum laude with honors in 1977 from Central Michigan University, and he graduated with honors from Wayne State University Law School in 1979.
]]>“The use of blockchain technology for the unregistered offer and sale of structured finance products to retail investors runs afoul of the securities laws," said Gurbir S. Grewal, Director of the SEC’s Division of Enforcement. "This case serves as an important reminder that those laws apply to all who wish to access our capital markets, regardless of whether they are, or purport to be, incorporated, decentralized or autonomous.”
According to the SEC’s orders, the respondents compared the SMART Yield bonds to asset-backed securities and marketed them broadly to the public. Investors could purchase “Senior” or “Junior” SMART Yield bonds through BarnBridge’s website application. SMART Yield pooled crypto assets deposited by the investors and used those assets to generate fixed or variable returns to pay investors. A BarnBridge white paper, published by Ward, claimed that SMART Yield bonds would “mirror the safety and security of highly-rated debt instruments offered by traditional finance…while still providing the outsized return” through its smart contract protocols. According to the orders, SMART Yield attracted more than $509 million in investments from investors, and BarnBridge was paid fees by the investors based on the size of their investment and their choice of yield.
Without admitting or denying the SEC’s findings, BarnBridge, Ward, and Murray agreed to cease-and-desist orders prohibiting them from violating and causing violations of the registration provisions of the Securities Act of 1933 and the Investment Company Act of 1940. The SEC orders reference remedial actions initiated by Ward and Murray.
The SEC’s investigation was conducted by Lawrence Renbaum and Gregory Smolar of the Division of Enforcement’s Complex Financial Instruments Unit, under the supervision of Armita Cohen and Osman Nawaz, and with the assistance of the Crypto Assets and Cyber Unit.
]]>The seven whistleblowers were composed of a single claimant and two sets of joint claimants. Each of the claimants provided information that significantly contributed to an SEC investigation. The single claimant and first set of joint claimants provided significant and detailed information early in the investigation that saved staff considerable time and resources. The second set of joint claimants provided new, but more limited, information later in the investigation.
“These whistleblowers provided valuable information and substantial assistance that played a critical role in the SEC returning millions of dollars to harmed investors,” said Creola Kelly, Chief of the SEC’s Office of the Whistleblower.
Payments to whistleblowers are made out of an investor protection fund, established by Congress, which is financed entirely through monetary sanctions paid to the SEC by securities law violators. No money has been taken or withheld from harmed investors to pay whistleblower awards. Whistleblowers may be eligible for an award when they voluntarily provide the SEC with original, timely, and credible information that leads to a successful enforcement action. Whistleblower awards can range from 10 to 30 percent of the money collected when the monetary sanctions exceed $1 million.
As set forth in the Dodd-Frank Act, the SEC protects the confidentiality of whistleblowers and does not disclose any information that could reveal a whistleblower’s identity.
For more information about the whistleblower program and how to report a tip, visit www.sec.gov/whistleblower.
]]>According to the SEC order, before and after going public through a special purpose acquisition transaction, Brooge, whose securities trade on NASDAQ, misstated between 30 and 80 percent of its revenues from 2018 through early 2021 in SEC filings related to the offer and sale of up to $500 million of securities. The order finds that Brooge created false invoices to support inflating revenues from its oil facilities in Fujairah, UAE by over $70 million over three years, and that Paardenkooper and Saheb knew, or were reckless in not knowing, of the fraud. The SEC order also finds that Brooge provided these false invoices to its auditors to conceal the inflated revenue. According to the order, Brooge agreed during the SEC’s investigation not to issue the $500 million in securities. In April 2023, the company announced a restatement of its audited financial statements from 2018 through 2020.
“Thanks to the diligent work of SEC staff, we were able to stop this accounting and offering fraud in its tracks before domestic investors suffered significant harm,” said Osman Nawaz, Chief of the Complex Financial Instruments Unit.
Brooge agreed to settle the SEC’s charges that found the company violated the antifraud, proxy statement, reporting, and books and records provisions of the federal securities laws and to pay a $5 million penalty. Paardenkooper and Saheb also agreed to settle the charges, to each pay $100,000 civil penalties, and to permanent officer and director bars.
The SEC investigation was conducted by Jonathan Shapiro and Sean Whittington of the Complex Financial Instruments Unit. They were assisted by David Miller and Timothy Halloran and supervised by Reid Muoio and Osman Nawaz.
]]>The SEC’s complaint alleges that, during capital fundraising events from 2018 through 2019, Perryman made material misrepresentations about Stimwave’s peripheral nerve stimulation device, or PNS Device, which purported to treat chronic nerve pain by delivering electrical signals to targeted nerves. The device consisted of three key components: (1) a transmitter; (2) a receiver; and (3) an electrode array. The transmitter was worn by patients in a pouch outside the body and sent a wireless signal into the body. A receiver and electrode array were implanted inside patients’ bodies and were together supposed to receive the signal and convert it into electrical currents that stimulated target nerves. As alleged, Stimwave included two receivers of different sizes with the PNS Device, the smaller of which was designed to be used when the larger receiver was too big to implant. The SEC’s complaint alleges that Perryman knew, or was reckless in not knowing, that the smaller receiver was, in reality, fake and nothing more than a piece of plastic. According to the complaint, Perryman misrepresented to investors that the PNS Device was approved by the U.S. Food and Drug Administration and was the only effective device of its kind on the market. The complaint also alleges that Perryman made false and misleading statements to investors about Stimwave’s historical revenues, revenue projections, and business model. After Perryman’s fraud unraveled in the fall of 2019, Stimwave voluntarily recalled the PNS Devices and eventually filed for bankruptcy.
“We allege that Perryman touted a supposedly innovative medical pain-relief device while concealing that a primary component of the device was fake and that patients were unwittingly undergoing unnecessary surgeries to implant the non-functional component into their bodies,” said Monique C. Winkler, Director of the SEC’s San Francisco Regional Office. “Investors are entitled to know material information about the products of the companies in which they invest. The SEC is committed to holding bad actors accountable.”
The SEC's complaint, filed in the U.S. District Court for the Southern District of New York, charges Perryman with violating the antifraud provisions of the federal securities laws. The SEC seeks permanent injunctions, including a conduct-based injunction, disgorgement plus prejudgment interest, a civil penalty, and an officer and director bar.
In a parallel action, the U.S. Attorney’s Office for the Southern District of New York today filed a superseding indictment against Perryman that added criminal securities fraud charges.
The SEC’s investigation was conducted by Yoona Kim and supervised by David Zhou and Jason H. Lee of the San Francisco Regional Office. The SEC’s litigation will be led by Marc D. Katz and Ms. Kim. The SEC appreciates the assistance of the U.S. Attorney’s Office for the Southern District of New York and the FBI.
]]>The SEC’s complaint, filed on Dec. 18, 2023, alleges that, since at least 2019, Mmobuosi spearheaded a scheme to fabricate financial statements and other documents of the three entities, Tingo Group Inc., Agri-Fintech Holdings Inc., and Tingo International Holdings Inc. and their Nigerian operating subsidiaries, Tingo Mobile Limited and Tingo Foods PLC. The complaint further alleges that Mmobuosi made and caused the entities to make material misrepresentations about their business operations and financial success in press releases, periodic SEC filings, and other public statements. For instance, Tingo Group’s fiscal year 2022 Form 10-K filed in March 2023 reported a cash and cash equivalent balance of $461.7 million in its subsidiary Tingo Mobile’s Nigerian bank accounts. In reality, those same bank accounts allegedly had a combined balance of less than $50 as of the end of fiscal year 2022. According to the SEC’s complaint, Defendants also fabricated the customer relationships that formed the basis of their purported businesses. The complaint alleges that Mmobuosi and the entities he controls have fraudulently obtained hundreds of millions in money or property through these schemes, and that Mmobuosi has siphoned off funds for his personal benefit, including purchases of luxury cars and travel on private jets, as well as an unsuccessful attempt to acquire an English Football Club Premier League team, among other things.
“As alleged, Mmobuosi spearheaded a brazen scheme using phony records and fictitious entities to make the Tingo companies he controlled appear highly profitable, so that he could hoodwink investors and reap massive benefits at their expense,” said Antonia M. Apps, Regional Director of the SEC’s New York Regional Office. “We filed this emergency action to expose Mmobuosi’s fraud and hold him accountable, while protecting investors from further harm.”
The SEC’s complaint, filed in U.S. District Court for the Southern District of New York, charges all four Defendants with violating the anti-fraud provisions of the federal securities laws and additionally charges Nasdaq-listed Tingo Group, OTC-traded Agri-Fintech, and Mmobuosi with reporting, books and records, and internal controls violations. It also charges Mmobuosi with lying to auditors, insider trading, and failing to file Forms 4 disclosing the sales of millions of Agri-Fintech common stock for which he was the ultimate beneficial owner. The complaint seeks permanent injunctive relief, disgorgement of ill-gotten gains and prejudgment interest, civil penalties, and the return, pursuant to Section 304 of the Sarbanes-Oxley Act, of bonuses and profits obtained by Mmobuosi from sales of Tingo Group or Agri-Fintech stock. The complaint also seeks an order prohibiting Mmobuosi from acting as an officer or director of a public company or from participating in the offering of any penny stock.
The SEC’s ongoing investigation is being conducted by Michael DiBattista, Christopher Mele, David Zetlin-Jones, Jeremy Brandt, Stephen Johnson, Elizabeth Baier, Gerald Gross, and Rebecca Reilly under the supervision of Tejal D. Shah, all of the SEC’s New York Regional Office. The litigation is being led by Mr. Zetlin-Jones, Mr. DiBattista, and Mr. Brandt. The SEC appreciates the assistance of Nasdaq’s Enforcement Department, the U.K. Financial Conduct Authority, and the Israel Securities Authority.
]]>The report examines the current status of the accredited investor pool and concludes with a review of frequently suggested revisions to the accredited investor definition received from a variety of sources, including public commenters, the Investor Advisory Committee, and the Small Business Capital Formation Advisory Committee.
]]>The report is a comprehensive resource on the dynamics of capital raising in communities across the country. Its contents include:
The independent advocacy Office works to help advance the interests of small businesses and their investors. Based on feedback received through the team’s continuous public outreach, the Office has developed educational resources to help equip small businesses and their investors with tools to navigate capital raising. Throughout its activities, the Office proactively works to identify and address unique challenges faced by diverse founders and their investors.
On Jan. 30, 2024, the Office will host its fifth annual Capital Call event, during which the public can ask questions about the report and share perspectives on capital raising. Registration for the Capital Call will open in January.
]]>According to the SEC’s complaint, since 2014, Abdo and Titanium falsely claimed that Titanium invested investor funds in a “Multi Currency Investment Fund” backed by a proprietary currency exchange and that the investment had never had a monthly loss and generated large returns for investors, including up to 102 percent compounded interest for a five-year investment. In recruiting investors, Titanium and Abdo allegedly claimed that Titanium was registered with and closely examined by the SEC. However, according to the SEC’s complaint, neither Titanium nor the offer or sale of its securities is registered with the SEC, and there is no evidence that a proprietary currency exchange exists. According to the complaint, Abdo and Titanium used virtually all investor funds to make Ponzi-style payments to earlier investors, pay related parties, and divert funds for Abdo’s personal use on items such as jewelry and casino visits. The SEC also alleges that Barsh promoted and sold Titanium’s securities to investors without proper registration or pursuant to an exemption from registration.
“As alleged in our complaint, Abdo and Titanium falsely told investors that Titanium was registered with and closely examined by the SEC. Abdo and Titanium allegedly used these and other fraudulent means to provide false comfort to investors while Abdo used investor funds for his globetrotting and personal enjoyment,” said Carolyn M. Welshhans, Associate Director in the SEC’s Division of Enforcement. “Today’s action unveils Abdo’s and Titanium’s alleged duplicity and seeks to hold them accountable for deceiving investors.”
The SEC’s complaint, filed in U.S. District Court for the Southern District of Florida, charges Titanium and Abdo with violating the antifraud provisions and, along with Barsh, the registration provisions of the federal securities laws. The complaint seeks injunctive relief, disgorgement, and civil penalties against Titanium, Abdo, and Barsh and a permanent bar against participating in future securities offerings and an officer and director bar against Abdo. The complaint also names as relief defendants, and seeks disgorgement from, Abdo’s relative, Elias Halim Abdo, and Abdo’s wife, Ganna Migulina.
In a parallel action, the U.S. Attorney’s Office for the Southern District of Florida today announced criminal charges against Abdo.
The SEC’s ongoing investigation is being conducted by Adrienne L. Adkins, Brook Jackling DeVeas, and Deborah Russell and supervised by Ms. Welshhans and Amy Friedman. The litigation is being conducted by Daniel Maher and Rebecca Dunnan and supervised by James Carlson. The SEC appreciates the assistance of the U.S. Attorney’s Office for the Southern District of Florida, the FBI, and the Florida Office of Financial Regulation.
If you are an investor in Titanium, or if you have information related to this investigation and you wish to contact the SEC staff, please reach out to ENF-TitaniumVictims@sec.gov. The SEC encourages investors to check the backgrounds of anyone selling or offering them an investment using the free and simple search tool on Investor.gov. Investors also can learn more about the risks of investing in unregistered offerings by reading an alert issued by the SEC’s Office of Investor Education and Advocacy.
]]>“The defendants enticed investors with guarantees that they could ‘make money raising cattle without having to do all the work,’ but as we allege in our complaint, their promises of annual returns of 15‑32 percent were, in the defendants’ own words, ‘too good to be true,’” said Eric Werner, Director of the SEC’s Fort Worth Regional Office.
According to the SEC’s complaint, filed on Dec. 11, 2023, in the U.S. District Court for the Northern District of Texas and unsealed on Dec. 13, the defendants have raised at least $191 million from more than 2,100 investors in at least 15 states by offering and selling investments related to the supposed purchase and sale of cattle. The defendants told investors that Agridime would use their funds to acquire, feed, and raise cattle on its network of ranches, and investors would help provide “fellow Americans with the highest quality farm fresh beef available.” However, as alleged in the complaint, the defendants did not purchase nearly enough cattle or generate sufficient revenues from cattle operations to deliver the promised returns. Instead, the complaint alleges that, since December 2022, the defendants have used at least $58 million of new investor funds to make Ponzi payments to prior investors and more than $11 million to pay undisclosed sales commissions to Wood, Link, Link’s wife, and other Agridime sales representatives.
The SEC’s complaint charges the defendants with violating the antifraud and registration provisions of the federal securities laws. In addition to the emergency relief granted by the Court, the SEC is seeking preliminary and permanent injunctions, disgorgement, prejudgment interest, civil penalties, and officer and-director bars against Link and Wood. The court has scheduled a hearing for Dec. 20, 2023 on the SEC’s motion for a preliminary injunction.
The SEC’s ongoing investigation is being conducted by enforcement staff in the SEC’s Fort Worth and Atlanta regional offices, including D. Thomas Keltner, Jonathan Scott, Carol Stumbaugh, and Cody Turley, under the supervision of Timothy McCole and B. David Fraser. The SEC’s litigation will be led by Matthew Gulde and Tyson Lies. The Commission appreciates the assistance of the Arizona Corporation Commission, the North Dakota Securities Department, the Oklahoma Department of Securities, and the Texas State Securities Board.
]]>In October 2022, the Superior Court of New Jersey entered a consent order that resolved a case alleging that Credit Suisse Securities violated the antifraud provisions of the New Jersey Securities laws in connection with its role as underwriter to residential mortgage-backed securities. According to the SEC’s order, because the New Jersey court ordered that Credit Suisse Securities shall not violate New Jersey securities laws, Credit Suisse Securities and its affiliates were prohibited from serving as principal underwriter or investment adviser to mutual funds and employees’ securities companies pursuant to the Investment Company Act of 1940. The SEC order finds, however, that the Credit Suisse Entities continued serving in these prohibited roles until the Commission granted them time-limited exemptions on June 7, 2023. Credit Suisse was acquired by UBS Group AG on June 12, 2023.
“Today’s action holds the Credit Suisse Entities accountable for not complying with eligibility requirements,” said Corey Schuster, Asset Management Unit Co-Chief. “This action reinforces the need for entities to properly monitor for events that may cause disqualification and proactively seek and obtain waivers from the Commission before becoming disqualified, or refrain from performing prohibited services.”
Without admitting or denying the SEC’s findings, the Credit Suisse Entities agreed to pay more than $6.7 million in disgorgement and prejudgment interest and civil penalties totaling $3.3 million.
The SEC’s investigation was conducted by Cynthia Storer Baran and Bradley Lewis and was supervised by Jeffrey Shank, Mr. Schuster, and Andrew Dean, all of the Division of Enforcement’s Asset Management Unit.
]]>“A critical feature of our capital markets is that investors rely on public company disclosures, including their financial results. Essential to investors’ trust in the reliability of such financial information is an independent audit of issuers’ financial statements,” said SEC Chair Gary Gensler. “Congress understood this when they passed the Sarbanes-Oxley Act of 2002 in response to some of the largest accounting frauds and bankruptcies in the history of our country. I support this $385 million budget — supporting a modest two percent increase in headcount — because of the important role the PCAOB plays in protecting investors and facilitating capital formation.”
The Sarbanes-Oxley Act of 2002, which established the PCAOB, provides the Commission with oversight responsibility over the PCAOB. This includes reviewing and approving the PCAOB’s budget and accounting support fee annually.
]]>“The $26 trillion Treasury market — the deepest, most liquid market in the world — is the base upon which so much of our capital markets are built,” said SEC Chair Gary Gensler. “Having such a significant portion of the Treasury markets uncleared — 70 to 80 percent of the Treasury funding market and at least 80 percent of the cash markets — increases system-wide risk. Today’s adopting release addresses clearing of Treasury securities in two important ways. First, the final rules make changes to enhance customer clearing. Second, the final rules broaden the scope of which transactions clearinghouse members must clear. I am pleased to support these rules because they will help to make the Treasury market more efficient, competitive, and resilient.”
Specifically, the amendments require that covered clearing agencies in the U.S. Treasury market adopt policies and procedures designed to require their members to submit for clearing certain specified secondary market transactions. These transactions include: all repurchase and reverse repurchase agreements collateralized by U.S. Treasury securities entered into by a member of the covered clearing agency, unless the counterparty is a state or local government or another clearing organization or the repurchase agreement is an inter-affiliate transaction; all purchase and sale transactions entered into by a member of the clearing agency that is an interdealer broker; and all purchase and sale transactions entered into between a clearing agency member and either a registered broker dealer, a government securities broker, a government securities dealer.
Further, the amendments permit broker-dealers to include customer margin required and on deposit at a clearing agency in the U.S. Treasury market as a debit in the customer reserve formula, subject to certain conditions. In addition, the amendments require covered clearing agencies in this market to collect and calculate margin for house and customer transactions separately. Finally, the amendments require policies and procedures designed to ensure that the covered clearing agency has appropriate means to facilitate access to clearing, including for indirect participants. The amendments also include an exemption for transactions in which the counterparty is a central bank, sovereign entity, international financial institution, or natural person.
The amendments will go into effect in two phases, with the changes regarding the separation of house and customer margin, the broker-dealer customer protection rule, and access to central clearing required to be completed first, by March 31, 2025. After that time, the requirement to clear specific transactions would go into effect in two phases, with cash transactions being required to be cleared before repurchase transactions are required to be cleared. Compliance by the direct participants of a U.S. Treasury securities central clearing agencies with the requirement to clear eligible secondary market transactions would not be required until December 31, 2025, and June 30, 2026, respectively, for cash and repurchase transactions.
The adopting release is published on SEC.gov and will be published in the Federal Register.
]]>Mr. Gregus has led the Chicago office since November 2021. Under his leadership, the Chicago office has developed expertise in broker-dealer sales practices, market structure issues and municipal securities, brought significant and impactful enforcement actions, and conducted hundreds of examinations of SEC-registered broker-dealers, advisers, swap dealers, and transfer agents.
“I thank Dan for his long dedication to public service here at the SEC, most recently by leading the Chicago Regional Office,” said SEC Chair Gary Gensler. “For three decades, Dan performed important work protecting investors and promoting confidence in our markets. I also would like to thank Vanessa Horton and Kathryn Pyszka for taking on the roles of Acting Co-Directors.”
“From leading investigations to leading various programs and initiatives, culminating with his role as Director of the Chicago office, the investing public has benefited immeasurably from Dan’s more than 30-year career at the SEC,” said Gurbir S. Grewal, Director of the SEC’s Enforcement Division. “It is hard to imagine the Chicago Regional Office, not to mention the agency at large, without his leadership and counsel.”
“Dan has made a lasting impact at the Commission. He started his career as an enforcement staff attorney and later moved to the Division of Examinations where he held senior positions in the division, including leading the Chicago Regional Office’s Broker-Dealer Program and the division’s National Clearance and Settlement Program,” said Richard R. Best, Director of the SEC’s Division of Examinations. “Throughout this time, Dan remained committed to protecting investors and has been an outstanding leader, especially during a period of marked growth across the division. We have all benefited from Dan’s wisdom, dedication, and passion.”
Mr. Gregus said, “It has been a privilege to have worked at the SEC for three decades, all in the Chicago office, and, for the last two years, an honor to lead such a talented and dedicated group of public servants committed to the Commission’s mission and the Chicago office’s efforts to protect retail investors, which has been at the core of our work in the region.”
Mr. Gregus has led the SEC’s second-largest regional office, with approximately 300 enforcement attorneys, accountants, analysts, economists, and compliance examiners conducting investigations, litigating enforcement actions and performing compliance examinations in the nine-state Chicago region. Prior to becoming Regional Director, Mr. Gregus led the Examinations Division’s Office of Clearance and Settlement Examinations and earlier the Chicago office’s Broker Dealer Examinations Group. He joined the Broker Dealer Exam Program as an Assistant Regional Director in 2007, where he led some of the Commission’s largest and most complex sales practice and market structure exams of regulated entities.
Before joining the SEC’s EXAMS program, Mr. Gregus spent 14 years in the Division of Enforcement, where he served as an Assistant Regional Director directing notable investigations and prosecutions of complex fraud and regulatory matters.
Mr. Gregus received his Bachelor of Science in Business Administration, with highest honors, for which he was also named to the Bronze Tablet, and his Juris Doctor, magna cum laude, from the University of Illinois.
Ms. Horton has been an Associate Regional Director of the Investment Adviser/Investment Company (IA/IC) examination program in the Chicago Regional Office since 2020. She joined the SEC's Chicago office in 2004 as an accountant and was later an Exam Manager and an Assistant Regional Director in the Chicago IA/IC examination program. She earned her bachelor's degree from the University of Illinois at Urbana-Champaign and master's degree from DePaul University.
Ms. Pyszka has served as an Associate Regional Director for Enforcement in the Chicago office since 2017. She began her SEC service in 1997 as a staff attorney and later served in the positions of branch chief, senior trial counsel, and as an Assistant Director in the Chicago office and the Enforcement Division’s Market Abuse Unit. Ms. Pyszka earned her bachelor’s degree from the University of Wisconsin-Madison and her law degree from the University of Illinois College of Law.
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