by T. GormanPosted on Posted in SECActions

Last week the commission filed three new enforcement actions. Those cases were based on claimed offering frauds, manipulation, a Ponzi scheme and making false statements.

Be careful, be safe this week and be warm

SEC Enforcement – Filed and Settled Actions

Statistics: Last week the Commission filed 6 new civil injunctive action and no new administrative proceedings.

Offering fraud: SEC v. Schwartz, Civil Action No. 1:25-cv-00716 (D.Ga. Filed Feb. 12, 2025) is an action which names as defendants: Elchonon Schwartz, resident of New York City and founder of the co-defendant in this action; and Nightingale Properties, LLC, a commercial real estate firm founded in November 2021 by co-defendant Schwartz. Beginning in May 2022 and continuing through March of 2023, Defendants raised about $60 million from at least 700 accredited investors. Potential investors were told that their funds would be segregated and reserved for the specific property and its development, either the Atlanta Financial Center offering or the Miami Beach Offering. The statements were false. Defendants co-mingled the funds and diverted them to Defendant Schwartz’s personal interests. Indeed, the funds raised for the Miami Beach Offering were largely diverted to other projects. The complaint alleges violations of Securities Act Section 17(a) and Exchange Act Section 10(b). The Department of Justice and the U.S. Attorney’s Office for the Northern District of Georgia filed parallel criminal actions. See Lit. Rel. No. 26254 (Feb. 21, 2025).

Manipulation: SEC v. Villena, Civil Action No. 18-cv-4307 (S.D.N.Y.) is a previously filed action which named as defendants: Francisco Abellan Villena, an Argentine national residing in Spain; Guillermo Ciupiak, a resident of California and Ecuador; James B. Panther, Jr.; and Faiyaz Dean, a citizen of British Columbia, Canada. The complaint centers on a scheme involving each of the defendants in the manipulation of the market for the unregistered shares of Biozoom, Inc. Initially the scheme generated about $34 million profits from manipulating the shares. Each of the Defendants played a different role in the scheme master mined by Defendants Abellan and Ciupiak. Attorney Dean, for example furthered the scheme by acquiring stock for Defendants Abellan and Ciupiak in a manner designed to conceal their identity and control of the stock as well as the fact that the shares should not have been immediately available for re-sale to the public. By May 2013 – prior to the transactions noted above – Defendants Abellan, Ciupiak and Panther had laddered up the share prices using a number of nominees, brokers and traders. Prior to the manipulation the shares had not been traded. Indeed, the Commission suspended trading in June 2013. The complaint alleged violations of Securities Act Sections 5 and 17(a) and Exchange Act Section 10(b). The court granted summary judgment in favor of the Commission in January 2025 and entered judgment against Defendant Panther. That judgement permanently enjoined him from future violations of the Sections cited in the complaint, ordered him to pay a penalty of $100,000 and barred him from participating in penny stock offerings for 10 years. In November 2019 the court entered default judgments against Defendants Abellan, and Guillermo Ciupak. See Lit. Rel. No. 26253 (Feb. 21, 2025).

Ponzi scheme: SEC v. Bryant, Civil Action No. 4:17-cv-00336 (E.D. Tex.). Named as defendants in the action were Thurman P. Bryant, III; Bryant United Capital Funding, Inc.; Arthur F. Wammel; and Wammel Group LLC. In May 2017 Mr. Bryant and Bryant United raised about $22.7 million from investors. Investors were told that if they acquired interests, they would have guaranteed investment returns in the mortgage industry. A related operation wasconducted by Defendant Wammel and his firm, Wammel Group. It was a Ponzi scheme that raised about $44.7 million. The complaint alleged violations of Securities Act Section 17(a) and Exchange Act Section 10(b). Respondents resolved the matters, consenting to the entry of permanent injunctions based on the Sections cited in the complaint. Specifically, the court enjoined Mr. Bryan and Bryant United from future violations of the two Sections cited in the complaint. In addition, Mr. Bryant and his firm were directed to pay disgorgement of $5,989,605.50 along with prejudgment interest of $227,392.17. The final judgments deem those amounts paid from the sums collected by a court-appointed receiver, and distributions to investors and by the restitution of $9,103,088.12 ordered against Mr. Bryant, in U.S. v. Bryant, No. 4:17-cr-00213 (E.D. Tx.) and against Mr. Wammel in U.S. v. Wammel, No. 4:17-cr-00213 (E.D. Tx.). See Lit. Rel. 26252 (Feb. 20, 2025).

False statements: SEC v Shah, Civil Action No. 5:25-cv-01666 (N.D. Ca. Filed Feb. 18, 2025). Named as defendants in the case are Harshad Shah, Virendra Parekh and Namah Wealth Creation & Preservation, L.P. The firm, a California limited partnership formed in 2020, is owned by the two individual defendants. Defendant Harshad Shah is a general partner and co-owner of Namah Wealth. He is a broker and holds two licenses issued by FINRA. Defendant Virendra Parkh is a partner and co-owner of Namah Wealth. He is also a licensed California insurance agent. In February 2020 Defendants encountered an investment opportunity, called a “funding note,” issued by Hamah Wealth to a California investor. The note required an investment of $1.5 million. The individual Defendants marketed the Funding Note to an existing insurance client. Part of the pitch falsely claimed that Defendants would purchase insurance to guarantee returns. They did not. Subsequently, Defendants became interested in a second opportunity – a Cyprus firm, Xiperias Ltd. According to the agents of that firm, if Defendants put a minimum of $1.3 million with Xiperias, they would obtain guaranteed returns of 100% every three months. Xiperias provided no information about the mechanics of the investment – how could a 100% return be generated so quickly? When asked the firm stated that the process was confidential. Defendants Shah and Parekh made the investment. As of December 2024, no returns were paid by Xiperias. Defendants did not obtain the promised insurance to guarantee the returns on the note. The investor’s funds were not repaid with the exception of about $45,000. The complaint alleges violations of Exchange Act Section 10(b) and Rule 10b-5, as well as Securities Act Section 17(a). See Lit. Rel. No. 26248 (Feb. 18, 2025).

Offering fraud scheme: SEC v. Slaga, Civil Action No. 26251 (Feb. 20, 2025) is an action in which the court entered final judgments against three defendants. The underlying complaint alleged that three defendants – Christopher Slaga, Q4 Capital Group, LLC and J4 Capital Advisors LLC – raised about $3.5 million between 2018 and 2022 through an unregistered offering of interests in three purported private investment funds in violation of Securities Act Sections 5(a), 5(c) and 17(a) and Exchange Act Sections 10(b) and Rule 10b-5. The judgments ordered: Defendants, on a joint and several basis, to pay disgorgement of $2,808,934.32, prejudgment interest of $262,495.31 and permanently enjoined each from future violations of the Sections cited in the complaint and from participating in any securities offering. In addition, Defendant Slaga was directed to pay a penalty of $2,808,934.32 and imposed an officer-director bar. See Lit. Rel. No. 26251 (Feb. 20, 2025).

Manipulation: SEC v. American Renal Holdings, Inc., Civil Action No. 1:22-cv-10651 (D. Mass.) is a previously filed action in which the court entered final judgments as to the remaining three defendants, ARA’s former Chief Financial Officers, Jonathan Wilcox and Jason Boucher and the firm’s former controller and vice president of finance, Karen Smith. The underlying complaint alleged a scheme to manipulate the revenue of American Renal Associates Holdings, Inc., a provider of dialysis services through clinics across the country through a scheme initiated in 2017 that continued until at least November 2018. The complaint alleged violations of Securities Act Sections 17(a)(2) & (3) and Exchange Act Section 13(b)(5) and Rues 13b2-1 and 13a-14. The judgment as to Mr. Wilcox, entered on January 14, 2025, permanently enjoins him from each of the Sections and Rules cited in the complaint and directs him to pay $45,000 under Section 304 of SOX and a penalty in the same amount. The judgment as to Defendant Boucher contains the same provisions. In addition, it directs him to reimburse the firm in the amount of $18,926 under SOX Section 304(a) and pay disgorgement of $20,102, prejudgment interest of $8,924 and a penalty of $60,000. The final judgment as to Defendant Smith contains an injunction based on the same provisions as the others, and directs him to pay disgorgement of $43,348.59, prejudgment interest of $17,106 and a civil penalty of $35,000. See Lit Rel. No. 26250 (Feb. 19, 2025).

Misappropriation: SEC v. Offill, Jr., Civil Action No. 3:22-cv-00121 (N.D. Tx.) is a previously filed action which named as defendants Phillip Offill, Jr. and Justin W. Herman. The underlying complaint alleged that Defendants implemented a scheme to misappropriate millions of shares of stock of a microcap company. The firm belonged to the former controlling shareholder. The scheme was designed to take control of the firm and then sell the shares. The complaint alleged violations of Securities Act Sections 17(a) and Exchange Act Section 10(b) and Rule 10b-5. Previously, the Commission obtained final judgments as to each defendant. While previously a final judgment was entered as to Defendant Offill, the agency moved to dismiss it following his death. A final judgment was entered as to Defendant Herman, enjoining him from future violations of the provisions cited in the complaint. In addition, he was ordered to pay disgorgement of $1,117,325 which is satisfied by the criminal restitution ordered in the parallel criminal case. See Lit, Rel. No. 26249 (Feb. 19, 2025).

Australia

Regulation: The Australian Securities and Investment Commission proposed on February 1, 2025, to consider further relief for licensees under the reportable situations regime. The proposal is to further assist Australian financial services and credit licensees comply with the reportable situations regime. The release was issued on February 18, 2025 (here).

BaFin

Cryto assets: The German regulator announced that the rules for crypto-asset serve providers, governed by MiCAR – the European Markets in Crypto-Assets Regulation – have simplified oversight and regulation (here).

Hong Kong

Regulation: The SFC forged a consensus with regional counterparts on the regulatory roadmap for sustainability, technology and investor protection in an arrangement announced on February 21, 2025 (here).

Singapore

Regulation: The Equities Market Review Group announced on Friday, February 21, 2025, its first set of measures to strengthen the competitiveness of Singapore’s equity market. The initiative included three tax incentives (here).


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by T. GormanPosted on Posted in SECActions

Ponzi schemes have been a key focus for SEC enforcement at least since the days of Bernie Madoff. The typical Ponzi scheme is, in reality, nothing but a lie or sham transaction – the operator sells shares of a company that does not actually exist. In the Commission’s most recently settled such action, the Ponzi scheme was only one facet of the fraud. The other was a scheme that supposedly provided guaranteed returns for investors, an offering fraud. There were no returns. SEC v. Bryant, Civil Action No. 4:17-cv-00336 (E.D. Tex.).

Named as defendants in the action were Thurman P. Bryant, III; Bryant United Capital Funding, Inc.; Arthur F. Wammel; and Wammel Group LLC.

In May 2017 Mr. Bryant and Bryant United raised about $22.7 million from investors. Investors were told that if they acquired interests, they would have guaranteed investment returns in the mortgage industry. A related operation conducted by Defendant Wammel and his firm, Wammel Group. It was a Ponzi scheme that raised about $44.7 million. The complaint alleged violations of Securities Act Section 17(a) and Exchange Act Section 10(b).

Respondents resolved the matters, consenting to the entry of permanent injunctions based on the Sections cited in the complaint. Specifically, the court enjoined Mr. Bryan and Bryant United from future violations of the two Sections cited in the complaint. In addition, Mr. Bryant and his firm were directed to pay disgorgement of $5,989,605.50 along with prejudgment interest of $227,392.17. The final judgments deem those amounts paid by the sums collected by a court-appointed receiver, and distributions to investors and by the restitution of $9,103,088.12 ordered against Mr. Bryant, in U.S. v. Bryant, No. 4:17-cr-00213 (E.D. Tx.) and against Mr. Wammel in U.S. v. Wammel, No. 4:17-cr-00213 (E.D. Tx.). See Lit. Rel. 26252 (Feb. 20, 2025).

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