by T. GormanPosted on Posted in SECActions

As 2025 begins to move forward, the Commission continued to file new cases. Last week those included one a suspicious activity, two centered on offering frauds, another based on a trading scheme and an insider trading case.

Be careful, be safe this week

SEC Enforcement – Filed and Settled Actions

Statistics: Last week the Commission did not file any new civil injunctive action. The agency did file new administrative proceedings based largely on record keeping issues and excluding tag-along actions, those involving routine record filing matters, and any that present a conflict for the author.

Suspicious activity reports: In the Matter of SpeedRoute LLC, Adm. Proc. File No. 3-22396 (Jan. 10, 2025) is an action which names the registered broker-dealer as Respondent. The Order alleges that over a three-year period, beginning January 1, 2020 through the end of 2023, the firm, which specializes in routing U.S. equity orders for broker-dealer clients, failed to comply with the Bank Secrecy Act and file numerous suspicious trading activity reports as required. To resolve the proceedings the firm consented to the entry of a cease-and-desist order based on Exchange Act Section 17(a) and Rule 17a-8. The firm is censured and directed to pay a penalty of $600,000.

Offering fraud: SEC v. Cardi, Civil Action No. 1243 (D. Conn.) is a previously filed action which named as defendant Michael Caridi, chairman of board for TOKI or Tree of Knowledge International, Inc. At the end of March 2020, and at the outset of the Covid-19 pandemic, Defendant misled a third-party hospital into believing that the TOKI entities—unprofitable firms that operated three pain management clients and sold hemp-based cannabinoid products – had a vast international network of medical equipment supplies. A hospital paid the TOK entities about $13.7 million for about 3 million N-95 masks that were to be delivered within 2 days. As a result, the TOK entities had a huge liability. Defendant concealed his scheme regarding the masks, taking portions of the revenue but never delivering the masks. In part the scheme was concealed by issuing two false press releases that aided the TOK entities in their pivot for the transaction. The complaint alleges violations of Exchange Act Section 10(b) and Rule 10b-5. See Lit. Rel. No. 26213 (January 8, 2023)

Trading scheme: SEC v. Jaitley, Civil Action No. 1:21-0cv0832 (W.D. Tx.) is a previously filed action which names as defendant Leena Jaitley and two supposed entities, Managed Options Trading and Options by Pros. Since 2018 Defendant Jaitley has been trading under the two entity names. Using a series of misstatements regarding her expertise and that of the two supposed entities, investors were convinced to give her access to their trading accounts. The misstatements were enhanced through the use of false testimonials on the website. While initially trades were successful, over time the losses piled up. About 15 individuals invested approximately $800,00 which was ultimately lost. The clients paid about $525,000 in what were called “start-up” and other fees in addition to the investment funds. In total the clients lost about $1.48 million. The complaint alleges violations of Securities Act Section 17(a), Exchange Act Section 10(b) and Rule 10b-5 and Advisers Act Section 206(1) & (2). On December 12, 2024, the court entered a final judgment imposing permanent injunctions based on the Sections cited and ordering the payment of disgorgement in the amount of $672,833. A penalty of $672,833 was also imposed. See Lit. Rel. No. 26212 (January 7, 2025).

Offering fraud: SEC v. Kirchner, Civil Action No. 4:23-cv-00147 (N.D. Tx.) is a previously filed case which names as defendant Christopher Kirchner, a cofounder of Slyne, Inc. and a former CEO of the firm. Over a period of about one year, beginning in January 2020, Defendant raised approximately $67 million from investors primarily through an initial offering of shares tied to follow-up transactions. The funds were supposed to be used for product development. Instead, Defendant misappropriated about $28 million of the client funds. The complaint alleged violations of Securities Act Section 17(a) and Exchange Act Section 10(b). Defendant resolved the action, consenting to the entry of permanent injunctions based on the Sections. The action was resolved. Defendant consented to the entry of permanent injunctions based on the Sections cited and to an officer/director bar. In addition, he will pay disgorgement of $28,074,080 and. prejudgment interest of $6,770,535.02. The sums are deemed satisfied by the conviction in the parallel criminal. Mr. Kirchner was sentenced to serve 20 years in prison. U.S. v. Kirchner, No. 23-127 (N.D. Tx.).

Insider trading: SEC v. Dagar, Civil Action No. 1:23-cv-5564 (S.D.N.Y.) is a previously filed action in which the court entered final judgments against defendant Amit Dagar, a former Pfizer Inc., employee, and his friend and business associate, Atul Bhiwapurkar. The judgments were entered following a jury conviction of Defendant Dagar and the entry of a criminal guilty plea by Mr. Bhiwapurkar. Each precludes violations of the Exchange Act Section 10(b). The resolutions are based on a complaint which alleges that Mr. Dagar, a former Pfizer employee and his friend traded in advance of a November 5, 2021, announcement that a study of a COVID-19 drug by Pfizer had successful tests. The announcement was followed by an 11% stock price impact. The announcement is false. The court judgments directing the payment of disgorgement of $214,395 plus prejudgment interest of $41,908 as to Mr. Dagar. Mr. Bhiwapurkar was ordered to pay disgorgement of $60,300 and a penalty in the same amount. The obligations to pay are deemed satisfied by an order in the parallel criminal case. See Lit. Rel. No. 26210 (January 6, 2025).

Insider trading: SEC v. Dupont, Civil Action No. 1:23-cv-05565 (S.D.N.Y.) is a previously filed action in which final judgments were entered as to four defendants named in the action: Joseph Dupont, Shawn Cronin, Paul Feldman and Jarett Mendoza. The complaint alleges an insider trading scheme in which Joseph Dupont, then a vice president of at Alexion Pharmaceuticals, Inc., tipped his close friend, Defendant Cronin, to inside information regarding the acquisition of Portola Pharmaceuticals, Inc. Defendant Cronin then tipped Messrs. Mendoza and Kaplan. The latter tipped Defendant Feldman. Each traded successfully. Messrs. Kaplan and Feldman also passed the information on to family members. Each Defendant previously pleaded guilty to criminal actions filed in New York, U.S. v. Dupont, No. 1:23-00320 and U.S. v. Mendoza, No. 1:23-cr-00316. Mr. Cronin was sentenced to serve 3 months in prison and forfeit profits of $71996.06 and pay a fine of $5,000. Mr. Kaplan was sentenced to serve 5 months in prison and forfeit profits of $472,053.61; Mr. Feldman was ordered to serve three months in prison and forfeit trading profits of $1,730,827.54. Mr. Mendoza was ordered to forfeit profits of $38,648.58; Mr. Dupont was fined $75,000. See Lit. Rel. No. 26209 (January 3, 2025)

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by T. GormanPosted on Posted in SECActions

Many enterprises spend significant amounts of time and resources looking for the next great thing. In some instances the firm is able to create a new approach, a new way to do the same old thing or some other new and exciting wrinkle to a long standing convention. When the new way, thing or gizmo is invented the question is “How does the consumer know?” The best knew gizmo could also be the latest version of a fraudulent enterprise. So, the question becomes “How do investors know?” A recent case settled by the Commission presents this question – SEC v. Farnsworth, Civil Action No. 22-civ-08226 (S.D.N.Y).

The case is a previously filed action which named as defendant: Theodore J. Farnsworth, the former CEO of Helios & Matheson Analytics Inc. along with others. The complaint focuses on a two-year period beginning in August 2017. It alleges that during the period Defendant Farnsworth repeatedly issued false press releases regarding the business model for MoviePass. The statements were alleged to have misstated the key aspects of the business model for the firm.

At the center of the controversy was a claim that MoviePass could be profitable with a new $9.95 per month subscription price. In addition to creating the idea behind the offering, Defendant Farnsworth is also alleged to have a tactic which precluded the subscribers of MoviePass form using the service. In addition, Defendant had the company recognize revenue from false invoices. The complaint alleged violations of Securities Act Sections 17(a) and Exchange Act Sections 10(b), and 13(b)(5) and aiding and abetting violations of 13(b)(2)(A).

To resolve the action Defendant Farnsworth consented to the entry of a permanent injunction based on the Sections cited in the complaint. He also agreed to the entry of a conduct based injunction and an officer and director bar. Monetary remedies will be considered at a later date. See Lit. Rel. No. 26207 (Jan. 2, 2025).

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