The Commission filed four new cases last week primarily focused on insider trading. The agency also lost a decision in the Fifth Circuit which vacated the new private fund disclosure rule.
Be careful, be safe this week.
SEC
Rule: The Fifth Circuit Court of Appeals vacated the Commission’s new Private Fund rule (to be codified at 17 C.F.R. pt. 275) which was designed to enhance disclosure. National Association of Private Fund Managers v. SEC, No. 23-60471 (5th Cir. Decided June 5, 2024).
SEC Enforcement – Filed and Settled Actions
Statistics: This week the Commission filed 4 new civil injunctive actions and no new administrative proceedings, excluding tag-along actions and those that present a conflict for the author.
Insider trading: SEC v. Oscar, Civil Action No. 3:24-cv-00570 (S.D. Cal.) is a previously filed action which named as defendants Chase Lambert, former minor league baseball player who was charged with trading in advance of the December 6, 2021 announcement that Jack in the Box Inc., would acquire Del Taco Restaurants, Inc. Co-defendant Jordan Qsar learned about the deal from a friend working on the deal. He tipped Defendant Lambert and others who traded. Mr. Lambert made about $25,100 on the transaction. In illegal profits and tipped his cousin who purchased options. Mr. Lambert resolved the matter, consenting to the entry of a final judgment based on Exchange Act Section 10(b) and was ordered to pay disgorgement of $25,100 together prejudgment interest of $3,473.96 and a penalty in the amount of $29,775. See Lit. Rel. No. 26017 (June 6, 2024).
Insider trading: SEC v. Wong, Civil Action No. 1:24-cv-04231 (S.D.N.Y. Filed June 3, 2024).
Defendant Andre Wong has been employed by NeoPhotonics Corporation for years. His most recent position is vice president of product line management. The firm is a designer and manufacturer of photonics products – devices and systems that generate, manipulate or detect light. This action centers on an announcement on November 4, 2021, stating that Mr. Wong’s employer would be acquired by Lumentum Holdings Inc. Prior to the announcement date Mr. Wong learned about the plan to acquire NeoPhotonics from a close friend employed by Lumentum. After receiving the information Defendant purchased 10,0000 shares of NeoPhotonics stock. Mr. Wong had never traded in the firm’s securities or those of other companies engaged in the same line of business. Following the deal announcement, the share price of the stock increased by about 39%. This increased the value of Mr. Wong’s holdings to about $62,000. The next year the FBI met with Defendant and asked about the stock. Mr. Wong denied knowledge of the acquisition deal. He also created documents designed to conceal the meeting with his friend during which the then potential deal was discussed. The complaint alleges violations of Exchange Act Section 10(b). The case is in litigation. See Lit. Rel. No. 26016 (June 4, 2024).
Misappropriation: SEC v. Ni, Civil Action No. 34-cv-1632 (D.D.C. Filed June 3, 2024) is an action which names as defendants: Zhou Men NI and Jian Ming Ni, respectively, the co-founder of HF Group, the predecessor to HF Foods with his spouse, and a consultant to HF Group from 2003 to 2015 and a CPA. For many years the company was private; During that period Defendant Zhou Min Ni and his family made use of private company funds for person reasons. In 2017 under his direction the company embarked on a path to become public. In late 2017 and early 2018 as HF Group prepared to go public, Zhou Min Ni and Jonathan Ni participated in a scheme to cause HF Foods to undertake certain related party transactions for the benefit of Zhou Min Ni and his family while misleading the public about the deals. First, Zhou Min Ni and Jonathan Ni used company funds. Second, the two men concealed an internal investment program that benefited the family. Third in 2018 and 2019 Zhou Min Ni, working with Jonathan Ni, paid himself hundreds of thousands of dollars through a series of transactions involving another related party. Finally, the financial condition of HF Foods was concealed from the auditors. In 2023 HF Foods announced a restatement of financial statements for fiscal years 2019 and 2020. The complaint alleges violations of Exchange Act Section 10(b), each subsection of Securities Act Section 17(a) and the related rules. Defendant Zhou Min Ni agreed to the entry of a permanent statutory and a conduct injunction, the payment of disgorgement of $5,102,883.27, prejudgment interest of $1,368,361.52 and to reimburse $963,042 to HF Foods pursuant to SOX Section 304(a). All of those amounts are deemed satisfied by his payment of $9.25 million to settle a related shareholder derivative suit. As part of the settlement Zhou Min Ni also agreed to pay a $300,000 civil penalty and to be barred from serving as an officer or director of a public company. Jonathan Ni also settled, agreeing to the entry of a permanent injunction, and order to pay a penalty of $80,000 and a ten-year officer/director bar. See Lit. Rel. No. 26015 (June 4, 2024).
Insider trading: SEC v. Bechtoisheim, Civil Action No. 26014 (N.D. Cal.) is a previously filed action in which Andreas Bechtolsheim, the chair of Astra Networks, Inc., traded in the shares of that firm after learning that another multinational technology company was considering acquiring Acacia. The next day Acacia, his company and another, announced a bid for Astra. Defendant settled the charges, consenting to the entry of a permanent injunction based on Exchange Act Section 10(b) and agreed to the entry of a five-year officer director bar and to pay a penalty of $923,740. The judgment was entered on May 30, 2024. See Lit. Rel. No. 26014 (June 3, 3024).
Insider trading: SEC v. Loudon, Civil Action No. 4:24-cv-622 (S.D. Tex.). Named as defendant in this action is Tylor Loudon, a resident of Huston, Texas. The case centered on the acquisition of TravelCenters of America, Inc. in a deal announced on February 16, 2023. The acquiring company was International Oil Company. Mrs. Loudon was an employee of International Oil Company. In the time leading up to the deal announcement, Defendant Loudon misappropriated inside information about the potential transaction from his spouse. Over time he acquired 46,000 shares of TravelCenters stock. Following the deal announcement, Defendant had illicit profits of $1,760,000. permanently enjoined from violating the antifraud provisions of the federal securities laws. The court also imposed an officer/director bar. The judgement deferred the resolution of monetary remedies until a future date. Subsequently, Defendant consented to the entry of an order directing him to pay disgorgement of $1,760,0000 plus prejudgment interest of $85,600. Those obligations were deemed satisfied by an order of forfeiture entered on May 28, 2024. A penalty was not imposed in view of the term of imprisonment ordered in U.S. v. Loudon, No. 4:24-cr-57 (S.D. Tx.), the parallel criminal case. See Lit. Rel. No. 26013 (May 31, 2024).
Fraudulent scheme: SEC v. Murray, Civil Action No. 24-cv- 11432 (D. Mass. Filed May 31, 2024) is an action which names as defendants Robert Scott Murray and Trillium Capital, LLC. Defendant Murray is a chartered professional accountant (Canadian) and is the founder, managing member and managing partner of Trillium Capital LLC; he has held similar positions with other public companies. Trillium Capital is a Delaware firm based in Massachusetts. Its sole member is Mr. Murray. Beginning in October 2022 and continuing until April 2023, Defendants built a large position in the shares of Getty Images Inc., investing about $1.6 million in a stock selling at about $10 per share to accumulate just under 300,000 shares. Four press releases were also issued, touting the Defendants’ credentials. All of this had little impact on the shares of Getty whose executives were skeptical that Defendant Murray’s activism would succeeded given that almost 95% of the firms stock was owned by a handful of affiliated entities. By mid-April Mr. Murray was facing continuing losses. Those spawned a new plan, announced on April 24. A a pre-market press release was issued which claimed that Defendants would take over Getty. That, of course, would require about $4 billion dollars at a time when Trillium’s brokerage account had a balance of $17.32. In December 2023 when federal investigators reached out to a friend of Mr. Murray she called Mr. Murray. On a recorded line he encouraged her to lie about the plan. He also asked her to delete certain text messages. The complaint alleges violations of Securities Act Section 17(a) and Exchange Act Section 10(b). The case is in litigation.
FinCEN
Year in review: The regulator announced the publication of its Year in Review of Fiscal 2023 on June 7, 2024 (here).
Hong Kong
Remarks: Julia Leung: Speech at Greenwich Economic Forum Hong Kong, June 5, 2024 (here).
Singapore
Release: The Monetary Authority of Singapore Announced the Expansion of Fair Dealing Guidelines to All Financial Institutions and Products and Services, in a release issued on May 30, 2024 (here).
