This Week In Securities Litigation (Week of March 17, 2025)

Happy Saint Pactrick’s Day!!!

The Commission announced a series of enforcement actions last week. The cases were based on offering fraud transactions, insider trading and false statements.

Be careful, be safe this week.

SEC Enforcement – Filed and Settled Actions

Statistics: Last week the Commission filed 6 new civil injunctive actions and no new administrative proceedings. The agency also announced the resolution of two previously filed enforcement cases.

Offering fraud: SEC v. Webb, Civil Action No. 26267 (D. Mass. Filed March 14, 2025) is an action which names the Massachusetts resident as a defendant. Over a two year period, beginning in January 2021, Defendant solicited 34 individuals for his investment program. Under that program, for which about $1.7 million was raised, investors were told their money could be doubled within a year by trading overseas in Forex. Contrary to the claims, Defendant suffered heavy losses in the Forex markets. The complaint alleges violations of Securities Act Section 17(a) and Exchange Act Section 10(b) and Rule 10b-5. Defendant Webb resolved the case by consenting to the entry of permanent injunctions based on the provisions cited in the complaint. Defendant was directed to pay disgorgement of $250,753 plus prejudgment interest of $29,391 and a civil penalty of $118,225. See Lit. Rel. 26267 (March 14, 2025).

Insider trading: SEC v. Safi, Civil Action No. 1:25-cv-10516 (D. Mass. March 4, 2025) is an action which names as defendants Eamma Safi, a resident of the UAE and a German citizen and Zhi Ge, a Singapore citizen. Beginning in about 2017, and continuing through 2024, Defendants engaged in an insider trading scheme that netted them millions of dollars. Defendant Safi was able to obtain inside information from one or more sources that included public entities. He then tipped Defendant GE as well as Trader A. Each individual used the information to trade profitably. The complaint alleges violations of Exchange Act Section 10(b) and Rule 10b-5. A parallel action was filed by the U.S. Attorney’s Office for the district of Massachusetts, unsealed on March 4, 2025. It names Defendants in this action. See Lit. Rel. No. 26268 (March 14, 2025).

Offering fraud: SEC v. Gauntlet Holdings, LLC, Civil Action No. 8:25-cv-00492 (CD Ca. Filed March 13, 2025) is an action which names as Defendants: Gauntlet, a limited liability firm which claims to be a family office not registered with FINRA and exempt from SEC regulation, Rideaux, a resident of Placentia, California and the holder of certain securities licenses, and Derakhashanfar, a resident of Arcadia who is an accountant serves as President and CEO of a tax preparation firm. The first scheme is based on a fabricated relation with a member of the royal family. The scheme was based on representations by Defendants that if they were advanced $1 million the firm wanted for future operation, they could receive profits from transactions involving senior secured noted issued by Gauntlet. In reality, the claimed relation with the Royal family was a fraud. The second scheme offered a claimed investment opportunity that would generate a 200% return in 30 days. The claims were false. The complaint alleges violations of Securities Act Sections 17(a)(1) and (3) and Exchange Act Section 10(b) and Rule 10b-5. See Lit. Rel. No. 26266 (March 13, 2025).

False statements: SEC v. Carchedi, Civil Action No. 1:25-cv-10599 (D. Mass. Filed March 12, 2025). Named as defendants in this action are: Stefano R. Carchedi, CEO, president and a member of the board of directors of Allarity Therapeutics, Inc., a small biopharmaceutical company based in Boston, from September 2019 to June 2022; Marie L. Foegh Ramwell, chief medical officer of Allarity; and James G. Cullen, CEO of the company from June 2022 to December 2023. Over a two-year period, beginning in February 2020, Defendants Carchedi, Ramwell and Cullen concealed the impact of a new cancer drug of the firm, dovitinib. Specifically, beginning in February 2020 the firm did not submit a proposed drug application for dovitinib because the data to support such an application was insufficient. While the FDA had reviewed the drug, the agency recommended to the company that it not file a request for approval because the data was not sufficient. Despite the FDA’s statements, the three executives circulated false statements that the drug would likely be approved. During the period the company raised money from investors. For example, on December 21, 2021, the firm issued a press release announcing the submission of its drug application. The firm failed to state that the FDA had advised against the submission. No new tests had been done. The day of the press release Allarity announced it listed the firm’s stock for trading on NASDAQ. The same day the company also secured a $20 million investment from one investor. The investment was based in part on the assumption that a viable drug application for dovitinib had been made. Subsequently, on February 18, 2022, the firm disclosed for the first time that the FDA had previously refused to even review the application, a drastic measure. The firm’s shares dropped 31% on the next trading day. The complaint alleges violations of Securities Act Section 17(a) and Exchange Act Section 10(b) and Rule 10b-5. See Lit. Rel. No. 26265 (March 12, 2025).

Offering fraud: SEC v. Pallek, Civil Action No. 2:25-cv-00364 (E.D. Wis. Filed March 10, 2025). Named as defendant is Ronald Pallek, a resident of Lakemoor, Illinois. He is the sole member of RAP Enterprises LLC and an investment adviser. Between February 2021 and September 2023, he raised about $1.54 million from 87 investors. His sales pitch was keyed to an option trading strategy which he claimed had been highly successful. Specifically, Defendant Pallek said he used an “Iron Condor” options trading strategy, which is highly risky, to earn profits for them. That strategy uses two put options – one short and one long – that have four strike prices and the same expiration date. The strategy earns maximum profits when the underlying asset price closes between the two middle strike prices at expiration. Stated differently, the strategy profits largely from low volatility and suffer losses in volatile markets. Defendant also claimed that he had sufficient funds to cover any potential loses for inventors.

In reality, the scheme was a lie. While Mr. Pallek did invest the funds in trading, he did not invest as promised. In addition, he did not have sufficient funds to cover investor losses. The losses mounted quickly to about $991,000 from options plus others generated from trading securities. To cover his tracks, Mr. Pallek sent investors false account statements showing profits. See Lit. Rel. No. 26264 (March 11, 2025). On March 10, 2025, Mr. Pallek was criminally charged for the scheme. U.S. v. Pallek, No. 25-CR-43. The Commission filed a complaint alleging violations of Securities Act Section 17(a), Exchange Act Section 10(b) and Rule 10b-5, and Advisers Act Sections 206(4) and Rule 206(4)-8. See Lit. Rel. No. 26264 (March 11, 2025).

Offering fraud: SEC v. Stuart, Civil Action No. 26263 (March 10, 2025) is an action which named as defendant Peter Stuart and twenty-seven real estate companies he collectively operated as Outlier Realty Capital. Beginning in 2018, and continuing through at least May 2023, Defendants raised at least $34.4 million from about 100 outside investors by selling securities in companies created to invest in real estate. Each company was marketed as a separate entity investing in a particular property or properties located in Washington DC, Maryland, or Virginia. Those representations were made in marketing materials for the properties which were not managed separately as represented. To the contrary, the investor funds were pooled and co-mingled. By 2020 Defendants had formed at least thirty related entities. Collectively the firms operated as Outlier Realty Capital. The complaint alleges violations of Securities Act Sections 17(a)(2) & (3). To resolve the action Defendants have consented to the entry of a permanent injunction based on the Sections cited in the complaint. In addition, the corporate Defendants have agreed to pay $1,471,440 as disgorgement along with prejudgment interest of $159,936. The same defendants also agreed to pay a penalty equal to the amount of the disgorgement. Defendant Stuart agreed to pay a penalty of $240,464 and to the entry of a five-year officer/director bar and to a five-year bar from being involved with the issuance, purchase, offer or sale of any security except for his own account. See Lit. Rel. No. 26263 (March 10, 2025).

Australia

Orders: The Australian Securities and Futures Commission is targeting financial advisers that provide poor superannuation advice through the Financial Services and Credit Panel, according to a release dated March 14, 2025 (here).

Hong Kong

Remarks: Kelvin Wong, delivered the key note speech at the CFA Society Hong Kong Annual Dinner 2025, on March 14, 2025 (here).

Singapore

Collaboration: The Monetary Authority of Singapore and Viet Nam enhanced collaboration in capital markets regulation, according to a release dated March 12, 2025 (here).