by T. GormanPosted on Posted in SECActions

One of the staples of SEC Enforcement over the years has been insider trading. The agency has always maintained that insider trading violates the statutes – at its core it represents a misuse of information. In the basic insider trading case the information about a transaction which constitutes the “inside information” is facts and data typically about a corporate transaction that a) belongs to the company and b) was either given to the person who traded for a corporate or business purpose – the information does not belong to the trader. Using the information as the basis for personal trading, as in “insider trading,” is thus a miss use of information. While the offense seems straight forward, at times the court’s have struggled to define the elements of the charge since they are not set forth in Exchange Action 10(b) or Rule 10b-5. To the contrary, the actual elements of the claim have evolved over the years in a series of court decisions.

Although the Commission’s latest case in this area is a straight forward, the basic elements of the charge were developed through a series of court decisions. 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. It 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).

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by T. GormanPosted on Posted in SECActions

Some of the Commission’s cases have at their center celebrities, note worthy events and other matters which make the underlying facts of interest aside from those tied to the wrongful conduct. One of the Commission’s most recent cases is like that. It is based Historical Bonds that were issued by the German Weimar Republic, certain German utilities and pre-revolutionary Russia and China. 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).

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