by T. GormanPosted on Posted in SECActions

The Commission filed two new enforcement actions last week. One focused on AML compliance. The other centered on an offering fraud action.

Be careful, be safe this week.

SEC Enforcement – Filed and Settled Actions

Statistics: Last week the Commission filed one new civil injunctive action and one new administrative proceeding.

Compliance: In the Matter of Velox Clearing, LLC, Adm. Proc. File No. 3-22469 (April 4, 2025) is a proceeding with names the firm as a Respondent, a Commission registered broker-dealer. During the period July 2019 through December 2022. Respondent maintained omnibus accounts for four Hong Kong based foreign correspondents. Those firms were registered with the Hong Kong securities regulator but not the Commission. One of those firms was an affiliate of Respondent. During the period Velox did not maintain adequate money laundering policies and procedures. This failure resulted in the firm not investigating at least 218 red flags for possible money laundering. Those instances involved situations where: a) there was reason to suspect that there may have been money laundering; b) where a firm may have had reason to believe that the evasion of detection of such activities may have occurred; c) situations in which the business being conducted had no reasonable basis; or d) in which there may have been broker-dealer assisted criminal activity. The Order alleges violations of Exchange Act Section 17(a) and Rule 17a-8. Respondent has agreed to retain an acceptable compliance expert and adopt the recommendations made. To resolve the proceedings Respondent consented to the entry of a cease-and-desist order based on the Section and Rule cited above. In addition, Respondent agreed to pay a penalty of $500,000

Offering fraud: SEC v. Miller, Civil Action No. 1:25-cv-02702 (S.D.N.Y. Filed April 1, 2025).

Named as defendants are: Randall J. Miller, founder, Chairman and Managing Member of Sports USA and the founder of Legacy Cares; Chad J. Miller, son of Randy Miller and CEO of Sports USA; and Jeffrey De Laveaga, COO of Sports USA. Related entities include Legacy Cares, Inc, a firm organized by Randy Miller to develop and own sports and family entertainment facilities based in Mesa Arizona; Legacy Sports USA, LLC, the manager of the Sports Complex; and Arizona Industrial Development Authority, a political subdivision of Arizona that served as a conduit issuer for the bonds issued in 2020 and 2021. The action centers on the issuance of about $284 million in municipal bonds by Legacy Cares through an Arizona agency known as a “conduit issuer” that manages municipal bonds. Here those bonds were for a Sports Complex. The bonds for the Sports Complex were issued in 2020 and 2021. The cash to repay the bonds was supposed to be generated by revenue from the Sports Complex, opened in 2022 using the revenue from the sale of the bonds. The memorandum used in connection with the bond offering was based on projected revenue. Those projections represented that the revenue to repay bond purchasers would be generated by the operations of the complex. The projections were based, according to the offering memoranda, on “letters of intent” attached to the Memoranda which were supposedly written by various sports clubs, leagues an others. The majority of the 50 letters attached to the Memorandum were either fabricated or materially altered in some fashion such as forged signatures. The Memo also included what were called “pre-contracts.” These items, similar to the “letters of intent,” were supposedly binding contracts evidencing arrangements with Sports USA to use the venue being built. These items were listed in the Offering Memorandum and available in a data room. The letters were fraudulent. When the complex opened it generated far less than the amount of revenue projected necessary to actually finance the operations of the venue. By May 2023, the venue filed for bankruptcy. According to the filings, less than $2.5 million of the $284 million invested was recouped from operations. The Commission’s complaint alleges violations of Exchange Act Section 10(b) and Rule 10b-5 and Securities Act Section 17(a). The U.S. Attorney’s Office for the Southern District of New York filed a parallel action.

FinCEN

Advisory: The Financial Crimes Enforcement Network or FinCEN, issued an advisory on the financing of ISIS, dated April. 1, 2025 (here).

BaFin

Remarks: Jens Obermoller, Director General of IT Supervision spoke about the manner in which companies and supervisors have been preparing for the new rules for DORA and what will happen on issuance, on February 28, 2025 (here).

Singapore

Remarks: The Monetary Authority of Singapore issued remarks on market conditions dated April 3, 2025 (here).


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by T. GormanPosted on Posted in SECActions

Building a new sports venue is typically a well-known and very expensive undertaking. Frequently, the undertaking is a years long project that often involves funds from government and the private sector. A case filed by the Commission on April Fools day (April 1, 2025) is a good example. While it may have been filed on a day known for jokes, in fact it was no joke. SEC v. Miller, Civil Action No. 1:25-cv-02702 (S.D.N.Y. Filed April 1, 2025).

Named as defendants are: Randall J. Miller, founder, Chairman and Managing Member of Sports USA and the founder of Legacy Cares; Chad J. Miller, son of Randy Miller and CEO of Sports USA; and Jeffrey De Laveaga, COO of Sports USA. Related entities include Legacy Cares, Inc, a firm organized by Randy Miller to develop and own sports and family entertainment facilities based in Mesa Arizona; Legacy Sports USA, LLC, the manager of the Sports Complex; and Arizona Industrial Development Authority, a political subdivision of Arizona that served as a conduit issuer for the bonds issued in 2020 and 2021.

The action centers on the issuance of about $284 million in municipal bonds issued by Legacy Cares through an Arizona agency known as a “conduit issuer” that manages municipal bonds. Here those bonds were for a Sports Complex.

The bonds for the Sports Complex were issued in 2020 and 2021. The cash to repay the bonds was supposed to be generated by revenue from the Sports Complex, opened in 2022 using the revenue from the sale of the bonds. The memorandum used in connection with the bond offering was based on projected revenue. Those projections represented that the revenue to repay bond purchasers would be generated by the operations of the complex. The projections were based, according to the offering memoranda, on “letters of intent” attached to the Memoranda which were supposedly written by various sports clubs, leagues an others.

The majority of the 50 letters attached to the Memorandum were either fabricated or materially altered in some fashion such as forged signatures. The Memo also included what were called “pre-contracts.” These items, similar to the “letters of intent,” were supposedly binding contracts evidencing arrangements with Sports USA to use the venue being built. These items were listed in the Offering Memorandum and available in a data room. The letters were fraudulent.

When the complex opened it generated far less than the amount of revenue projected necessary to actually finance the operations of the venue. By May 2023, the venue filed for bankruptcy. According to the filings, less than $2.5 million of the $284 million invested was recouped from operations. The Commission’s complaint alleges violations of Exchange Act Section 10(b) and Rule 10b-5 and Securities Act Section 17(a). The U.S. Attorney’s Office for the Southern District of New York filed a parallel action.

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