This Week In Securities Litigation (Week of January 6, 2025)
The Commission announced settlements in two insider trading cases, an offering fraud action and a municipal action last week. It also settled several actions centered on a failure to file Form D in a timely manner.
Be careful, be safe this week
SEC
Broker-dealers: The Commission adopted certain rule amendments to the broker-dealer customer protection rule, December 20, 2024 (here).
Filings: The agency settled charges with several entities for failing to timely file Form D in connection with securities offerings, December 20, 2024 (here).
Remarks: Chairman Gary Gensler issued a statement on the PCAOB rule on withdrawal from registration, January 2, 2025 (here),
SEC Enforcement – Filed and Settled Actions
Statistics: Last week the Commission filed 1 new civil injunctive action and no new administrative proceedings (discussed above), excluding tag-along actions and those that present a conflict for the author.
Insider trading: SEC v. Dupont, Civil Action No. 1:23-cv-05565 (S.D.N.Y.) is a previously filed action which named as defendants Joseph M. Dupont, Shawn P. Cronin, Stanley Kaplan, Paul Feldman and Jarett G. Mendoza. The complaint claimed that Defendant Dupont, then a v.p. at Alexion Pharmaceuticals, Inc. tipped his close friend Defendant Cronin to inside information about the acquisition of Portola Pharmaceuticals, Inc. They in turn provided the information to Defendants Mendoza and Kaplan. The latter provided the information to Defendant Feldman. Defendants Cronin, Mendoza, Kaplan and Feldman traded in the shares of Portola. Defendants Kaplan and Feldman also passed the information to other family members and friends who profitably traded. The complaint alleged violations of Exchange Act Sections 10(b) and 14(e). Each Defendant previously pleaded guilty to criminal charges brought by the U.S. Attorney’s Office for S.D.N.Y. See U.S. v. Dupont, No. 1:23-cr-00320 (S.D.N.Y.) and U.S. v. Mendoza, No. 1:23-cr-00316 (S.D.N.Y.). Defendant Cronin was sentenced to three months in prison and ordered to pay disgorgement of $71,996.06 and fined $5,000; Feldman was also sentenced to serve three months in prison and ordered to pay disgorgement of $1,730,827.54 and fined $25,000; Defendant Mendoza was ordered to pay disgorgement of $38,648.58; and Defendant Dupont was fined $75,000. In the SEC’s action each defendant consented to the entry of a permanent injunction based on the Sections cited in the complaint. The court entered the final judgments on December 23, 2024. In addition, Defendant Dupont was ordered to pay a penalty of $36,000. See Lit. Rel. No. 26209 (Jan. 3, 2025).
Offering fraud: SEC v. Farnsworth, Civil Action No. 1:24-civ – 09911 (S.D.N.Y. Filed Dec. 23, 2024) is an action in which Defendant J. Farnsworth consented to the entry of a permanent injunction based on Securities Act Section 17(a) and Exchange Act Section 10(b) for defrauding investors in Vinco Ventures, Inc., a purported digital media and content technologies company tied to misconduct that took place between January 2021 and April 2023. Defendant sought to conceal his control at Vinco because of SEC and DOJ investigations of his actions in connection with MoviePass, Inc. Defendant intended to merge a private entity he controlled – Zash Global Media and Entertainment Corporation — into Vinco and issue press releases and prepare filings with the Commission regarding the state-of-the-art analytics and distribution technology involved. The clams were false. Defendant Farnsworth is alleged to have extracted millions of dollars from Vinco through his undisclosed control of the company. Monetary sanctions will be assessed at a later date. See Lit. Rel. No. 26208 (Jan. 2, 2025). See also SEC v. Farnsworth, Civil Action No. 22-civ-08226 (S.D.N.Y.)(Farnsworth consents to entry of permanent injunction based on Securities Act Section 17(a) and Exchange Act Sections 10(b), 13(b)(5) and 13(b)(2)(A) and the related rules based on misstatements in the filings and press releases of Helios & Matheson Analytics Inc. made between August 2017 and March 2919 regarding key aspects of the operations for MoviePass’s operations; resolved as to Farnsworth with a consent injunction based on the Sections cited and the related rules and as conduct based injunction coupled with and officer and director bar). See Lit. Rel. No. 26207 (Jan. 2, 2025).
Insider trading: SEC v. Chappell, Civil Action No. 23-civ- 03769 (D. N.J.) is a previously filed action which names as defendants Cameron Durrant and Dale B. Chappell, CEO and Chief Scientific Officer, respectively, of New Jersey based biopharmaceutical company Humaningen, Inc. Between June 2021 and August of the same year, Defendant Chappell sold, through entities he controls, over $68 million of Hummanigen stock for over $1 million. Defendant Durant sold over 81 million shares of the same stock. At the time of the transactions each Defendant knew that the FDA would reject the company application for a COVID related drug. By trading prior to the release of that information Defendants avoided the 50% price drop in the shares that followed the issuance of the press release. Mr. Chappell thus avoided over $38 million in loses while Mr. Durrant avoided about $1 million in losses. A parallel criminal action has been filed by DOJ. See Lit. Rel. No. 26206 (Dec. 30, 2024).
Muni filings – false statements: SEC v. City of Rochester, Civil Action No. 22-cv-6273 (W.D.N.Y.) is a previously filed action which named as defendants the City of Rochester, its former finance director, Rosiland Brooks-Harris, New York based municipal advisor, Capital Markets Advisors, LLC and two of its principals, Richard Tortora and Richard Ganci (CMA Defendants). The complaint claims that in 2019 the City and Defendants Brook-Harris, CMA and Ganci mislead investors with bond offering documents that included out-dated financial statements for the City and failed to disclose the fact that the District was under financial distress. The complaint, in addition, alleges that the CMA defendant failed to disclose nearly 200 municipal clients that had material conflicts of interest tied to its compensation arrangements. Earlier the court entered final judgments by consent as to the City and Defendant Brooks-Harris. Each agreed to the entry of permanent injunctions based on Securities Act Section 17(a) and Exchange Act Section 10(b). The court also entered a conduct-based injunction against Defendant Brooks-Harris. On December 26, 2024, the court entered by consent a final judgment as to the CMA Defendants enjoining future violations of Exchange Act Section 15B(c)(1) and MSRB Rules G-17, G-42 and G-44. It also ordered the payment of $175,000 in penalties as to CMA, $30,000 as to Defendant Ganci and $30,000 as to Defendant Ganci. The Commission previously settled charges with District CFO Everton Sewell who agreed to the entry of a permanent injunction based on Securities Act Section 17(a) and Exchange Act Section 10(b) and an order precluding participation in any issuance, purchase, offer or sale of municipal securities tied to the preparation of the materials and the payment of a $25,000 penalty. See Lit. Rel. No. 26250 (Dec. 30, 2024).
Insider trading: SEC v. Dewitz, Civil Action No. 3:24-cv-631 (N.D. Fla. Filed Dec. 18, 2024). Named as defendant is Curt Ludwig Dewitz, a resident of Inlet Beach, Florida. He is charged with trading on inside information in two stocks, the shares of Immune Therapeutics, Inc. and those of Cleveland Biolabs, Inc. The former is a biopharmaceutical company that developed related products. The latter was originally a subsidiary of Immune Therapeutics. Its ownership varied over time; its name was later changed. Its shares were traded under the symbol CYTO. Prior to the October 20, 2020, announcement that Cytocom, Inc., would acquire Cleveland Biolabs in a reverse merger, Defendant traded in the shares of Cleveland BioLabs, the target company. Defendant also traded in the shares of Immune Therapeutics, a publicly traded shareholder of Cleveland BioLabs, an issuer that stood to benefit from the transaction. Defendant Dewitz purchased shares of Cleveland BioLabs in the fall and summer of 2020 in several accounts. He purchased shares of Immune Therapeutics stock on the day before the deal announcement. The complaint alleges that the transactions constituted insider trading in violation of Exchange Act Section 10(b) and Rule 10b-5. To resolve the matter Defendant settled the action, consenting to the relief sought. That includes a permanent injunction based on the Section cited in the complaint, disgorgement of trading profits of $70,382.96 and prejudgment interest of $14,382.96 along with a penalty equal to the amount of the disgorgement and an officer-director bar. See, Lit. Rel. No. 26200 (Dec. 18, 2024).
Offering fraud: SEC v. Historic Asset Placement Services Global, LLC, Civil Action No. 2:24-cv-10745 (C.D. Ca. Filed Dec. 13, 2024). Named as defendants in the action are the firm; Christopher W. Abshier; Billy Abshier; Frederic Gladle; Ronald Pendley; Kevin Scannell; Sovereign Debt Solutions, LP and Ocean Park Partners. The case centers on the unregistered offer and sale of notes and interests that are tied to a supposed redemption process for Historical Bonds issued by the German Weimar Republic, certain German utilities and the pre-revolutionary governments of Russia and China. The scheme unfolded over a six year period beginning in 2017. In part Defendants promoted a fictional redemption process for the Historical Bonds which claimed that investors would receive proceeds of up to $15 million for their bonds with an advance payment of $250,000. The process was a sham. No Historical Bonds were ever redeemed. In one facet of the scheme Historical Asset Placement Services, its managing member Christopher Abshier, and his father, along with Billy Abshier, the day-to-day manager of Historical Bonds were involved. The firm offered custodial serves in which it would hold and safeguard the bonds. It also offered redemption services which would monetize the bonds. Commissions were supposed to be available. The process was a sham. In another branch of the scheme Defendants Fred Gladle, Pendley and Scannell referenced the firm’s custodianship of the bonds and repeated false claims about the redemption process to others. A related part of the scheme involved Defendants Pendley and Scannell, through Sovereign Debt Solutions and its general partner, Ocean Park. Offered for sale were unregistered interests in promissory notes and limited partnership interests, the value of which is tied to the Historical Bonds. The notes supposedly paid 10% interest. Representations made about the redemption process were false. The complaint alleges violations of Exchange Act Sections 10(b) and Rule 10b-5, and 15(a) and Securities Act Sections 5(a) and 5(c) along 17(a). See Lit. Rel. No. 26196 (Dec. 17, 2024).
ESMA
Policy documents: The European Securities and Market Authority released the last policy documents containing regulatory technical standards and guidelines in advance of the full entry into application of markets in Crypto Asset Regulation. Over the past 18 months the regulator and released materials tied to 30 technical standards and guidelines on the topic, according to the December 17, 2024 release (here).
Hong Kong
Consultation: The Securities and Futures Commission of Hong Kong, through Chairman Dr. Kelvin Wong and Chief Executive Officer Julia Leung, held a high level meeting with Deputy Governor of the People’s Bank of China and Administrator of State Administration of Foreign Exchange, Mr. Zhu Hexin in Beijing on December 20, 2024. The parties exchanged views on recent financial market situations and consolidations, according to the December 20, 2024 release (here).
Singapore
Remarks: Gan Kim Yong, Deputy Prime Minister and Minister for Trade and Industry and Chairman of the Monetary Authority of Singapore delivered remarks at the SGX Group 25th Anniversary Securities Market Open on January 2, 2025 (here).
