This Week In Securities Litigation (June 1, 2021)
Insider trading, climate change, ESG and more seem to be the topics de jure at the Commission these days. Insider trading in view new legislation pending on Capitol Hill; climate change in consideration of the continued talk among Commissioners on the subject; and ESG since there is an on going debate on the topic. As the new Chairman moves forward these and other topics such as gamification are sure to be at the top of the list for the summer reading.
Be careful, be safe this week
SEC
Remarks: Commissioner Allison Herren Lee delivered remarks titled Living in a Material World: Myths and Misconceptions about Materiality at the 2021 ESG Disclosure Priorities Event hosted by the AICPA the Chartered Institute of Management Accountants, Sustainability Accounting Standards Board and the Center for Audit Quality on May 24, 2021 (here). Her remarks focused on clearing up misconceptions regarding ESG.
Remarks: Commission Allison Herren Lee delivered remarks titled Leveraging Regulatory Cooperation to Protect America’s Investors at the 2021 Section 19(g) Conference on May 21, 2021 (here). Her remarks focused on Regulation BI, “gamification,” ESG and private markets (here).
Whistleblowers: The agency awarded over $4 million to one whistleblower last week and over $28 million to another.
SEC Enforcement – Filed and Settled Actions
Last week the Commission filed 2 civil injunctive actions and no administrative proceedings, exclusive of tag-along and other similar proceedings.
Insider trading: SEC v. Bari, Civil Action No. 21-cv-00999 (S.D.Cal.) names as a defendant Dr. Mohammed A. Bari as a defendant. The complaint alleges that Defendant traded in the securities of Karuna Therapeutics, Inc. after learning that a new drug under development by the firm was about to receive approval. Dr. Bari, the medical director for the company on the drug, netted trading profits from purchasing 1,600 shares of stock in 2019 of almost $120,000. To resolve the matter Defendant consented to the entry of a permanent injunction based on Exchange Act Section 10(b). He also agreed to pay a penalty of $238,434. See Lit. Rel. No. 25099 (May 27, 2021).
Binary options: SEC v. Peterson, Civil Action No. 2:19-cv-08334 (C.D.Cal.) is a previously filed action against Kai , Gil Beserglik and Raz Beserglik. The complaint centers on marketing a binary option firm through boiler room type call centers in Germany and Israel that pressured investors to participate. Those in the call centers were paid only if the investors lost money. Each defendant consented to the entry of final judgments against them. The final judgments prohibit future violations of Securities Act Section 5 and Exchange Act Sections 10(b) and 15(a). Conduct based injunctions were also entered. In addition, Mr. Peterson agreed to pay $200,296 in disgorgement and prejudgment interest and a $100,000 penalty; Gil Beserglik agreed to pay disgorgement and prejudgment interest of $2,347,224 and a penalty of $300,000; and Gi Beserglik will pay $2,086,421 in disgorgement and prejudgment interest and a civil penalty of $465,000. See Lit. Rel. No. 25098 (May 25, 2021).
Offering fraud: SEC v. The Legacy Group, Inc., Civil Action No. 1:21-cv-01404 (D. Col. Filed May 24, 2021) is a real estate based offering fraud case. Named as defendants are the firm, Colorado Ventures I, LLC, Radiant Holdings, LLC, Randy R. King, Matthew B. King and Adnrea S. Trout. Legacy Group is owned and controlled by Randy and Mathew King, father and son; Andrea Trout is a vice president of the firm. Defendant Colorado Ventures and Radiant Holdings are also controlled by Randy and Mathew King. Legacy is a privately owned Colorado based investment Group. The firm began in 2014 to solicit prospective investors to raise money for gap loans — the difference between what lenders for a property made available and what the purchaser had — tied to specific projects. Potential investors given folios that contained a short description of the property, a chart regarding the values and listed the terms of the deal. The deals were supposed to last for varying periods of time ranging from a few days to several months. Key representations made to investors about the use of their funds and the properties were false. By 2018 many of the Legacy projects failed. Father and son King raised additional funds through Colorado Ventures and Radiant. They misappropriated portions of the investor funds. Overall, about $29 million was raised from about 200 investors. The complaint alleges violations of Securities Act Sections 5(a), 5(c) and each subsection of 17(a) and Exchange Act Section 10(b). Each Defendant resolved the charges, consenting to the entry of a permanent injunction based on the Sections cited in the complaint. See Lit. Rel. No. 25097 (May 24, 2021). In addition, Randy King will pay $174,318 in disgorgement, $6,056 in prejudgment interest and a penalty of $195,000; Matthew King will pay disgorgement of $89,434 plus $9,097 in prejudgment interest and a penalty of $150,000; Ms. Trout will pay $23,509 in disgorgement, $1,637 in prejudgment interest and a civil penalty of $159,000; and Legacy will pay disgorgement of $416,859, prejudgment interest of $1,637 and a civil penalty of $125,000.
Trading: SEC v. Botvinnik, Civil Action No. 25096 (S.D.N.Y.) is a previously filed action against Emil Botvinnik, formerly associated with broker-dealer Windsor Street Capital, L.P. The complaint alleged that the Defendant generated large commissions by giving five retail customers bad advice, telling them to invest in short term quick turn-over investments that lost money. Defendant resolved the action, consenting to a final judgment that prohibits future violations of Securities Act Section 17(a) and Exchange Act Section 10(b). He was also ordered to pay disgorgement of $1,140,996.48, prejudgment interest and a penalty of $160,000. The judgment provides for the development of a plan of distribution. Mr. Botvinnik also agreed to the entry of an administrative order that bars him from the securities business. See also Lit. Rel. No. 25096 (May 21, 2021).
Criminal Cases
AML: U.S. v. Murillo, No. 1:12-mj-0313 (S.D.Fla. May 27, 2021) is an action in which Arturo Carlos Murillo Prijie, Sergio Rodrigo Mendez Mendizabal, Luis Berkman, Mryan Berkman and Philip Lichtenfeld were charged with one count of conspiracy to commit money lanudering. The charges are based on the payment of bribes in the amount of $62,000 by Defendants Luis Berkman, Bryan Berkman and Mr. Lichtenfeld to Mr. Murillo, a former Minister of Government of Bolivia, to obtain a tear gas contract valued at about $5.6 million. The case is pending.
Offering fraud: U.S. v. Rosenfeld, No. 21-cr-236 (E.D.N.Y. Guilty plea May 20, 2021). Defendant Shimon Rosenfeld is an attorney licensed to practice in New York. The charges against him alleged that he defrauded investors out of at least $6 million. Over a four-year period, beginning in 2014, attorney Rosenfeld solicited investors to purchase real estate. Potential investors were told that their money would be used to buy parcels of real estate. The properties would then be “flipped” or sold. The profits would be split. In fact, Mr. Rosenfeld misappropriated the investor funds. Mr. Rosenfeld pleaded guilty to defrauding the investors. The date for sentencing has not been set.
Offering fraud: Defendant Eric Malley is the founder and former CEO of real estate private equity investment firm MG Capital Management L.P. He pleaded guilty to securities fraud. Mr. Malley operated MG Capital, founded in 2013. He also formed two real estate investment funds, one in 2014 and the other three years later. Potential investors were told that by investing in the funds they would have the opportunity to own interests in luxury properties in Manhattan. The properties supposedly were leased by various corporations, including well know technology firms, and debt free. The claims were false. The properties were mortgaged and there were fewer held by the funds than claimed. Nevertheless, about 335 investors put in about $58 million. In fact, the funds had losses and Defendant took large sums for himself. Mr. Malley pleaded guilty to one count of securities fraud. He is scheduled to be sentenced on September 16, 2021.
ESMA
Digital finance: The European Securities and Markets Authority issued a call for evidence on digital finance on May 25, 2021. The focus is on evidence and information regarding particular issues which include value chains, platforms and groups’ provision of financial and non-financial services (here).
Singapore
Remarks: Ten Keng Heng, Executive Director, Monetary Authority of Singapore, delivered remarks at the Investment Management Association of Singapore’s 7th Regulatory Legal Round Up, titled Building Resilience and Navigating Risks for Fund Managers, May 28, 202 (here). His remarks focused on building portfolio resilience to environmental risk and liquidity risk.
Remarks: Ravi Menon, Managing Director, MAS delivered remarks at the Asian Monetary Policy Forum on May 26, 2021, titled The Quest for an Integrated Marco Policy Framework (here). His remarks focused on capital flow and questions regarding an integrated policy framework (here).