This Week In Securities Litigation, Part II (Week of July 10, 2023)
Welcome to the continuation of This Week in Securities Litigation (Week of July 10, 2023). Part I was published on Monday July 10, 2023 for those who made it back from the July 4, 2023 holiday. (here). For those who returned a bit later you can catch up here and below is Part II.
Have a great and safe day.
SEC Enforcement – Filed and Settled Actions (continuation)
Offering fraud: SEC v. Ichioka, Civil Action No. 3:23-cv-03093 (N.D.Cal. Filed June 22, 2023) is an action which names as defendant William K. Ichioka. Neither he nor is his fund is registered with the Commission. Beginning in 2019, and continuing for three years, Defendant raised over $25 million from about 75 investors. Investors were told that Defendant was a successful stock and crypto asset trader who would pay returns of 10% every 30 days. Only a portion of the investor funds were put in the fund. By late 2021 Defendant could not meet investor withdrawals. The complaint alleges violations of Exchange Act Section 10(b), Securities Act Section 17(a) and Advisers Act Sections 206(1) and 206(2). The case is in litigation. The U.S. Attorney’s Office for the Northern District of California filed parallel criminal proceedings. See Lit. Rel. No. 25753 (June 22, 2023).
Audit failure: In the Matter of Marcum LLP, Adm. Proc. File No. 3-21500 (June 21, 2023). Since at least 2020 Marcum, a PCAOB registered accounting firm, has had systematic quality control and audit standard failures. At nearly every stage of its operation, the firm failed to have the proper quality control standards. This resulted in multiple quality control violations. The Order alleges violations of Regulation S-X, Rule 2-02(b)(1). To resolve the proceedings the firm agreed to implement certain undertakings, including appointing an independent consultant, and to implement the resulting recommendations. The proceedings were resolved with the firm consenting to the entry of a cease-and-desist order based on the Regulation and Rule cited in the Order and agreeing to pay a $10 million penalty.
Offering fraud: SEC v. Williams, Civil Action No. 1:23-cv-02774 (N.D. Ga. Filed June 21, 2023) is an action which names as defendants: Michael Williams, an investment adviser representative; Highguard Capital LP, a Georgia state registered investment adviser; and Guardian Opportunity Management, LP an investment adviser to the Guardian Opportunity Fund. Over a six-year period, beginning in February 2016, Defendants engaged in three offering frauds: 1) They sold over $1.8 million of securities interests in Guardian Management that were described as interests in a new private Fund called Guardian Opportunity Fund, LP. The funds were supposed to be used to grow the fund. In fact they were largely misappropriated. 2) While acting as the investment managers of the Fund they falsified its performance by underreporting the Fund’s assets to create an artificially high rate of return. The false return information was given to investors. While investors were told that the Fund would be profitable in fact the one investor who owned about 90% of the shares had given notice that he was withdrawing. The complaint alleges violations of Securities Act Section 17(a) and Exchange Act Section 10(b) as well as Advisers Act Section 206(4). See Lit. Rel. No. 25752 (June 23, 2023).
Offering fraud: SEC v. Royal Bengal Logistics, Inc., Civil Action No. 023-cv-61179 (S.D. Fla. Filed June 20, 2023) is an action which names as defendants the firm and its founder – Sanjay Singh. The firm owns a number of tractor trailer rigs. Over a four year period defendants have raised about $112 million from over 1,500 investors by conducting a Ponzi scheme and affinity fraud targeting the Haitian-American population of South Florida. Defendant solicited investments supposedly to acquire more trucks. Investors were told that the returns were guaranteed to range from 12.5% to 325%. Investors were also told that the firm generated $1 million per month, owned over 200 semi-trucks and was growing. The claims were false. Portions of the investor funds were misappropriated. The complaint alleges violations of Exchange Act Section 10(b) and each subsection of Securities Act Section 17(a). The case is in litigation. See Lit. Rel. No. 25755 (June 26, 2023).
Valuation: In the Matter of Insight Venture Management, LLC, Adm. Proc. File No. 3-21499 (June 20, 2023) is an action which names the registered investment adviser as a respondent. The firm advises a number of private equity funds that focus on growth-stage software, software-enabled services and internet businesses. Over a three-year period, beginning in 2017 fees in the post-commitment period were to be each firm’s pro rata share of funds invested in the capital. If there is a permanent investment Insight agreed to remove an amount equal to the difference between the acquisition costs and the impaired value of the portfolio investment from the fund’s invested capital. Insight applied the criteria at the portfolio company level rather than the portfolio investment level as required. The firm also did not disclose a conflict stemming from the failure to disclose the permanent impairment criteria leaving investors unaware of how narrow and subjective the criteria were. The firm also did not adopt or implement policies and procedures designed to avoid the conflict. The Order alleges violations of Advisers Act Sections 206(2) and 206(4) and the related rules. To resolve the proceedings, Respondent consented to the entry of a cease-and-desist order based on the Sections cited above and to a censure. The firm agreed to pay disgorgement in the amount of $773,754.41, prejudgment interest of $91,203,76 and a penalty of $1.5 million.
Perks: In the Matter of Stanley Black & Decker, Inc., Adm. Proc. File No. 3-21497 (June 20, 2023) is a proceeding which names as respondent the provider of hand tools, power tools and other products and services. The Order alleges that over a three-year period, beginning in 2017 Respondent failed to disclose in its definitive proxy statements at least $1.3 million in perquisites and personal benefits paid to or on behalf of four of its named executive officers and directors. The Order alleges violations of Exchange Act Sections 13(a), 14(a) and the related rules. To resolve the proceedings Respondent consented to the entry of a cease-and-desist order based on the Sections cited in the Order. Respondent acknowledged that the Commission did not impose a penalty based on cooperation which included self-reporting, conducting an internal investigation and implementing remedial measures. See also In the Matter of Jeffery D. Ansell, Adm. Proc. File No. 3-21498 (June 20, 2023)(Respondent is EVP of the company and had a role in the failure to disclose perks; resolved with cease-and-desist order based on Exchange Act Sections 13(b)(2)(A) and 14(a) and the imposition of a penalty of $75,000).
Offering fraud: SEC v. Native American Energy Group, Inc., Civil Action No. 1:23-cv-04455 (E.D.N.Y. Filed June 16, 2023). Named as defendants are: the company, a firm reputed to have had operations in the Fort Peck Indian Reservation in Montana; later the company sold five wells it had operated to Shell Trading (US) Company but now has no business; Joseph D’Arrigo, the long-time president of the firm who had been sanctioned by the Connecticut Banking Commission; and David Hudzik, at one-time a consultant to the company and also a former registered representative. Over a six year period, beginning in October 2014, Defendants solicited investors to invest in what was called a subscription agreement, described as an “investment in the company” by Defendant D’Arrigo. Defendant Hudzik aided with the sale of the subscriptions. He told investors that commissions were not charged on the interests acquired. About $3.43 million was raised from the solicitations. In fact, the representations were false. The funds were not an investment in Native American. Rather, much of the money went to Mr. D’Arrigo who diverted it to his personal use. He also misappropriated about $958, 500. The claims about no commissions were also false. In fact, Mr. Hudzik was paid a commission of 20% and 30%. In the end, the sale of the interests was also prohibited — none were registered. The complaint alleges violations of Securities Act Sections 5(a), 5(c) and 17(a) and Exchange Act Sections 10(b) and 15(a). The case is in litigation. See Lit. Rel. No. 23-civ-4455 (June 16, 2023).
Unregistered dealer: SEC v. BHP Capital, NY, Inc., Civil Action No. 1:23-cv-22233 (S.D. Fla. Filed June 16, 2023) is an action which names as defendants BH Capital and its founder Bryan Pantofel. Over a five-year period, beginning in 2017, Defendants acted as security dealers despite the fact that they never registered. Defendants funded 47 issuers in exchange for more than 100 convertible notes and associated warrant agreements. When the notes were converted and the warrants exercised Defendants obtained billions of shares of stock. This permitted Defendants to sell about four billion new shares into the markets. The complaint alleges violations of Exchange Act Section 15(a)(1). Defendants resolved the matter, consenting to the entry of permanent injunctions based on the Section cited in the complaint. They also agreed to pay disgorgement and prejudgment interest of $2,353,073 and a penalty in the amount of $200,000. In addition, Defendants agreed to the entry of a five-year penny stock bar. The company will surrender all conversion rights it holds. See Lit Rel. No. 25749 (June 16, 2023).
Misappropriation: SEC v. Craffy, Civil Action No. 25770 (D.N.J. Filed July 7, 2023) is an action which names as defendant Cax L. Craffy, a former U.S. Army financial counselor alleged to have defrauded Gold Star Families. Defendant Craffy was permitted to provide a general financial education to service members’ families through his job as a U.S. Army financial advisor. Defendant used the opportunity not to educate but to manipulate and misappropriate. He would advise service members to transfer their benefits to brokerage accounts outside of his official duties. The funds were then used for unauthorized trading that did not match the customer’s risk profile. Over a 54 month span Craffy’s customers paid over $1.64 million in commissions and fees most of which was pocketed by Defendant. The accounts he managed suffered losses of about $1.79 million. Those accounts also face an additional $1.8 million in losses. In one instance Defendant misappropriated $50,000 from the IRA account of a minor child whose parent had died on active duty. The complaint alleges violations of Securities Act Section 17(a), Exchange Act Section 10(b) and Rule 151-1(a)(1), Regulation Best Interest. The case is in litigation. See Lit. Rel. No. 25770 (July 7, 2023).
See also U.S. v. Crafty (D.N.J)(criminal action charging Craffy with six counts of wire fraud and one count each of securities fraud, making false statements in a loan application, committing acts furthering a personal financial interest, and making false statements to a federal agency. The case is pending).
Sham transactions: SEC v. Empires Consulting Corp., Civil Action No. 22-cv-21995 (S.D. Fla.) is a previously filed action which named as defendant the firm and its founders, Emerson Sousa Pires and Flavio Mendes Goncalves. EmpiresX supposedly used a trading bot. In reality there was no bot; the investor funds were traded, resulting in large losses. Defendants also misappropriated large sums of investor capital. Defendants here have been charged in a parallel criminal action. Final judgments were entered in this case against Defendants by default. Each was enjoined from future violations of Securities Act Sections 5 and 17(a) and Exchange Act Section 10(b). The judgment directs Defendants to pay disgorgement of $32,175, 070, prejudgment interest of $2,661, 610 and imposes a penalty of $6 million on Mr. Pires and $ 5 million on Mr. Goncalves. The company consented to the entry of a final judgment earlier; it orders the company to pay, jointly and severally with Messrs. Pires and Goncalves, disgorgement in the amount of $32,178,397 plus prejudgment interest of $2,661,554. The obligation to pay is deemed satisfied by the amounts collected by a state-court appointed receiver. See Lit. Rel. No. 25769 (July 6, 2023).
Sham transactions: SEC v. Spartan Trading Company, LLC., Civil Action No. 0:23-cv-01997 (D. Minn. Filed June 29, 2023) is an action which names as defendants the company and the estate of Richard Myre. The action centers on a solicitation that was initiated in 2019 by Richard Myre, Dale Dahmen and Dominick Dahmen, the founders of Spartan. Investors were told that their funds would be pooled and invested. In addition, potential investors were told that no more than half of their funds would be used to pay commissions. In fact, much of the time the investor money just sat around while small portions were used by Defendants. Defendants took commissions that were contrary to their agreements with investors. Investors were furnished with account statements that were false. Over a four-year period, beginning in 2019, over $3.7 million was raised. The investment fund was a sham. The scheme ended when, on February 1, 2023, Messrs. Myre and Dahmens were found dead by police who reported the matter as a murder suicide. This action was filed to freeze the remaining investor funds. The complaint alleges violations of Securities Act Section 17(a), Exchange Act Section 10(b) and Advisers Act Sections 206(1), 206(2) and 206(4). The case is pending. See Lit. Rel. No. 25767 (July 5, 2023).
Under stated liabilities: In the Matter of View, Inc., Adm. Proc. File No. 3-21505 (July 3, 2023) is a proceeding which names as respondent the manufacturer of “smart” windows. The firm was a private entity until it was acquired by a SPAC, CF Finance Acquisition Corp. II. In a series of reports filed with the Commission, Respondent stated that the firm estimated warranty liability of $22 to $25 million. The reports were published from December 2020 to May 2021. View, however, also decided to pay to ship and install the replacement windows. When those expenses were included, the cost was $48 million to $53 million. GAAP required under these circumstances that the firm recognize a warranty liability of $48 to $53 million. Thus, the firm misstated its warranty liability for fiscal years 2019 and 2020 and the first quarter of 2012. View also had inadequate internal controls. The Order alleges violations of Securities Act Sections 17(a)(2) and (3) and Exchange Act Sections 13(a), 13(b)(2)(A), 13(b)(2)(B) and 14(a). No penalty was imposed in view of the firm’s cooperation. See also SEC v. Preakash, Civil Action No. 3: 23-cv-03300 (N.D. Ca. Filed July 3, 2023)(Vidual Prakash was the CFO of the firm; the action is based on the same facts as above; it alleges violations of Securities Act Section 17(a)(3) and Exchange Act Section 14(a); the case is in litigation).
FinCEN
AML: The Financial Action Task Force identifies jurisdictions with Anti-Money Laundering and Combatting the financing of terrorism and counter-proliferation deficiencies, according to a statement released by the regulator dated June 29, 2023.
Hong Kong
Remarks: Julia Leung delivered remarks at the HKSI Institute Regulatory Luncheon, July 7, 2023 titled “Sustainable and Healthy Ecosystem for Small Cap Stock Segment of Hong Kong Market (here)
Singapore
Report: The Monetary Authority of Singapore released a Sustainability Report 2022/2023 on July 5, 2023 (here).
Report: MAS released its Annual Report 2022/2023, July 5, 2023 (here).
This Week In Securities Litigation, Part II (Week of July 10, 2023)
Welcome to the continuation of This Week in Securities Litigation (Week of July 10, 2023). Part I was published on Monday July 10, 2023 for those who made it back from the July 4, 2023 holiday. (here). For those who returned a bit later you can catch up here and below is Part II.
Have a great and safe day.
SEC Enforcement – Filed and Settled Actions (continuation)
Offering fraud: SEC v. Ichioka, Civil Action No. 3:23-cv-03093 (N.D.Cal. Filed June 22, 2023) is an action which names as defendant William K. Ichioka. Neither he nor is his fund is registered with the Commission. Beginning in 2019, and continuing for three years, Defendant raised over $25 million from about 75 investors. Investors were told that Defendant was a successful stock and crypto asset trader who would pay returns of 10% every 30 days. Only a portion of the investor funds were put in the fund. By late 2021 Defendant could not meet investor withdrawals. The complaint alleges violations of Exchange Act Section 10(b), Securities Act Section 17(a) and Advisers Act Sections 206(1) and 206(2). The case is in litigation. The U.S. Attorney’s Office for the Northern District of California filed parallel criminal proceedings. See Lit. Rel. No. 25753 (June 22, 2023).
Audit failure: In the Matter of Marcum LLP, Adm. Proc. File No. 3-21500 (June 21, 2023). Since at least 2020 Marcum, a PCAOB registered accounting firm, has had systematic quality control and audit standard failures. At nearly every stage of its operation, the firm failed to have the proper quality control standards. This resulted in multiple quality control violations. The Order alleges violations of Regulation S-X, Rule 2-02(b)(1). To resolve the proceedings the firm agreed to implement certain undertakings, including appointing an independent consultant, and to implement the resulting recommendations. The proceedings were resolved with the firm consenting to the entry of a cease-and-desist order based on the Regulation and Rule cited in the Order and agreeing to pay a $10 million penalty.
Offering fraud: SEC v. Williams, Civil Action No. 1:23-cv-02774 (N.D. Ga. Filed June 21, 2023) is an action which names as defendants: Michael Williams, an investment adviser representative; Highguard Capital LP, a Georgia state registered investment adviser; and Guardian Opportunity Management, LP an investment adviser to the Guardian Opportunity Fund. Over a six-year period, beginning in February 2016, Defendants engaged in three offering frauds: 1) They sold over $1.8 million of securities interests in Guardian Management that were described as interests in a new private Fund called Guardian Opportunity Fund, LP. The funds were supposed to be used to grow the fund. In fact they were largely misappropriated. 2) While acting as the investment managers of the Fund they falsified its performance by underreporting the Fund’s assets to create an artificially high rate of return. The false return information was given to investors. While investors were told that the Fund would be profitable in fact the one investor who owned about 90% of the shares had given notice that he was withdrawing. The complaint alleges violations of Securities Act Section 17(a) and Exchange Act Section 10(b) as well as Advisers Act Section 206(4). See Lit. Rel. No. 25752 (June 23, 2023).
Offering fraud: SEC v. Royal Bengal Logistics, Inc., Civil Action No. 023-cv-61179 (S.D. Fla. Filed June 20, 2023) is an action which names as defendants the firm and its founder – Sanjay Singh. The firm owns a number of tractor trailer rigs. Over a four year period defendants have raised about $112 million from over 1,500 investors by conducting a Ponzi scheme and affinity fraud targeting the Haitian-American population of South Florida. Defendant solicited investments supposedly to acquire more trucks. Investors were told that the returns were guaranteed to range from 12.5% to 325%. Investors were also told that the firm generated $1 million per month, owned over 200 semi-trucks and was growing. The claims were false. Portions of the investor funds were misappropriated. The complaint alleges violations of Exchange Act Section 10(b) and each subsection of Securities Act Section 17(a). The case is in litigation. See Lit. Rel. No. 25755 (June 26, 2023).
Valuation: In the Matter of Insight Venture Management, LLC, Adm. Proc. File No. 3-21499 (June 20, 2023) is an action which names the registered investment adviser as a respondent. The firm advises a number of private equity funds that focus on growth-stage software, software-enabled services and internet businesses. Over a three-year period, beginning in 2017 fees in the post-commitment period were to be each firm’s pro rata share of funds invested in the capital. If there is a permanent investment Insight agreed to remove an amount equal to the difference between the acquisition costs and the impaired value of the portfolio investment from the fund’s invested capital. Insight applied the criteria at the portfolio company level rather than the portfolio investment level as required. The firm also did not disclose a conflict stemming from the failure to disclose the permanent impairment criteria leaving investors unaware of how narrow and subjective the criteria were. The firm also did not adopt or implement policies and procedures designed to avoid the conflict. The Order alleges violations of Advisers Act Sections 206(2) and 206(4) and the related rules. To resolve the proceedings, Respondent consented to the entry of a cease-and-desist order based on the Sections cited above and to a censure. The firm agreed to pay disgorgement in the amount of $773,754.41, prejudgment interest of $91,203,76 and a penalty of $1.5 million.
Perks: In the Matter of Stanley Black & Decker, Inc., Adm. Proc. File No. 3-21497 (June 20, 2023) is a proceeding which names as respondent the provider of hand tools, power tools and other products and services. The Order alleges that over a three-year period, beginning in 2017 Respondent failed to disclose in its definitive proxy statements at least $1.3 million in perquisites and personal benefits paid to or on behalf of four of its named executive officers and directors. The Order alleges violations of Exchange Act Sections 13(a), 14(a) and the related rules. To resolve the proceedings Respondent consented to the entry of a cease-and-desist order based on the Sections cited in the Order. Respondent acknowledged that the Commission did not impose a penalty based on cooperation which included self-reporting, conducting an internal investigation and implementing remedial measures. See also In the Matter of Jeffery D. Ansell, Adm. Proc. File No. 3-21498 (June 20, 2023)(Respondent is EVP of the company and had a role in the failure to disclose perks; resolved with cease-and-desist order based on Exchange Act Sections 13(b)(2)(A) and 14(a) and the imposition of a penalty of $75,000).
Offering fraud: SEC v. Native American Energy Group, Inc., Civil Action No. 1:23-cv-04455 (E.D.N.Y. Filed June 16, 2023). Named as defendants are: the company, a firm reputed to have had operations in the Fort Peck Indian Reservation in Montana; later the company sold five wells it had operated to Shell Trading (US) Company but now has no business; Joseph D’Arrigo, the long-time president of the firm who had been sanctioned by the Connecticut Banking Commission; and David Hudzik, at one-time a consultant to the company and also a former registered representative. Over a six year period, beginning in October 2014, Defendants solicited investors to invest in what was called a subscription agreement, described as an “investment in the company” by Defendant D’Arrigo. Defendant Hudzik aided with the sale of the subscriptions. He told investors that commissions were not charged on the interests acquired. About $3.43 million was raised from the solicitations. In fact, the representations were false. The funds were not an investment in Native American. Rather, much of the money went to Mr. D’Arrigo who diverted it to his personal use. He also misappropriated about $958, 500. The claims about no commissions were also false. In fact, Mr. Hudzik was paid a commission of 20% and 30%. In the end, the sale of the interests was also prohibited — none were registered. The complaint alleges violations of Securities Act Sections 5(a), 5(c) and 17(a) and Exchange Act Sections 10(b) and 15(a). The case is in litigation. See Lit. Rel. No. 23-civ-4455 (June 16, 2023).
Unregistered dealer: SEC v. BHP Capital, NY, Inc., Civil Action No. 1:23-cv-22233 (S.D. Fla. Filed June 16, 2023) is an action which names as defendants BH Capital and its founder Bryan Pantofel. Over a five-year period, beginning in 2017, Defendants acted as security dealers despite the fact that they never registered. Defendants funded 47 issuers in exchange for more than 100 convertible notes and associated warrant agreements. When the notes were converted and the warrants exercised Defendants obtained billions of shares of stock. This permitted Defendants to sell about four billion new shares into the markets. The complaint alleges violations of Exchange Act Section 15(a)(1). Defendants resolved the matter, consenting to the entry of permanent injunctions based on the Section cited in the complaint. They also agreed to pay disgorgement and prejudgment interest of $2,353,073 and a penalty in the amount of $200,000. In addition, Defendants agreed to the entry of a five-year penny stock bar. The company will surrender all conversion rights it holds. See Lit Rel. No. 25749 (June 16, 2023).
Misappropriation: SEC v. Craffy, Civil Action No. 25770 (D.N.J. Filed July 7, 2023) is an action which names as defendant Cax L. Craffy, a former U.S. Army financial counselor alleged to have defrauded Gold Star Families. Defendant Craffy was permitted to provide a general financial education to service members’ families through his job as a U.S. Army financial advisor. Defendant used the opportunity not to educate but to manipulate and misappropriate. He would advise service members to transfer their benefits to brokerage accounts outside of his official duties. The funds were then used for unauthorized trading that did not match the customer’s risk profile. Over a 54 month span Craffy’s customers paid over $1.64 million in commissions and fees most of which was pocketed by Defendant. The accounts he managed suffered losses of about $1.79 million. Those accounts also face an additional $1.8 million in losses. In one instance Defendant misappropriated $50,000 from the IRA account of a minor child whose parent had died on active duty. The complaint alleges violations of Securities Act Section 17(a), Exchange Act Section 10(b) and Rule 151-1(a)(1), Regulation Best Interest. The case is in litigation. See Lit. Rel. No. 25770 (July 7, 2023).
See also U.S. v. Crafty (D.N.J)(criminal action charging Craffy with six counts of wire fraud and one count each of securities fraud, making false statements in a loan application, committing acts furthering a personal financial interest, and making false statements to a federal agency. The case is pending).
Sham transactions: SEC v. Empires Consulting Corp., Civil Action No. 22-cv-21995 (S.D. Fla.) is a previously filed action which named as defendant the firm and its founders, Emerson Sousa Pires and Flavio Mendes Goncalves. EmpiresX supposedly used a trading bot. In reality there was no bot; the investor funds were traded, resulting in large losses. Defendants also misappropriated large sums of investor capital. Defendants here have been charged in a parallel criminal action. Final judgments were entered in this case against Defendants by default. Each was enjoined from future violations of Securities Act Sections 5 and 17(a) and Exchange Act Section 10(b). The judgment directs Defendants to pay disgorgement of $32,175, 070, prejudgment interest of $2,661, 610 and imposes a penalty of $6 million on Mr. Pires and $ 5 million on Mr. Goncalves. The company consented to the entry of a final judgment earlier; it orders the company to pay, jointly and severally with Messrs. Pires and Goncalves, disgorgement in the amount of $32,178,397 plus prejudgment interest of $2,661,554. The obligation to pay is deemed satisfied by the amounts collected by a state-court appointed receiver. See Lit. Rel. No. 25769 (July 6, 2023).
Sham transactions: SEC v. Spartan Trading Company, LLC., Civil Action No. 0:23-cv-01997 (D. Minn. Filed June 29, 2023) is an action which names as defendants the company and the estate of Richard Myre. The action centers on a solicitation that was initiated in 2019 by Richard Myre, Dale Dahmen and Dominick Dahmen, the founders of Spartan. Investors were told that their funds would be pooled and invested. In addition, potential investors were told that no more than half of their funds would be used to pay commissions. In fact, much of the time the investor money just sat around while small portions were used by Defendants. Defendants took commissions that were contrary to their agreements with investors. Investors were furnished with account statements that were false. Over a four-year period, beginning in 2019, over $3.7 million was raised. The investment fund was a sham. The scheme ended when, on February 1, 2023, Messrs. Myre and Dahmens were found dead by police who reported the matter as a murder suicide. This action was filed to freeze the remaining investor funds. The complaint alleges violations of Securities Act Section 17(a), Exchange Act Section 10(b) and Advisers Act Sections 206(1), 206(2) and 206(4). The case is pending. See Lit. Rel. No. 25767 (July 5, 2023).
Under stated liabilities: In the Matter of View, Inc., Adm. Proc. File No. 3-21505 (July 3, 2023) is a proceeding which names as respondent the manufacturer of “smart” windows. The firm was a private entity until it was acquired by a SPAC, CF Finance Acquisition Corp. II. In a series of reports filed with the Commission, Respondent stated that the firm estimated warranty liability of $22 to $25 million. The reports were published from December 2020 to May 2021. View, however, also decided to pay to ship and install the replacement windows. When those expenses were included, the cost was $48 million to $53 million. GAAP required under these circumstances that the firm recognize a warranty liability of $48 to $53 million. Thus, the firm misstated its warranty liability for fiscal years 2019 and 2020 and the first quarter of 2012. View also had inadequate internal controls. The Order alleges violations of Securities Act Sections 17(a)(2) and (3) and Exchange Act Sections 13(a), 13(b)(2)(A), 13(b)(2)(B) and 14(a). No penalty was imposed in view of the firm’s cooperation. See also SEC v. Preakash, Civil Action No. 3: 23-cv-03300 (N.D. Ca. Filed July 3, 2023)(Vidual Prakash was the CFO of the firm; the action is based on the same facts as above; it alleges violations of Securities Act Section 17(a)(3) and Exchange Act Section 14(a); the case is in litigation).
FinCEN
AML: The Financial Action Task Force identifies jurisdictions with Anti-Money Laundering and Combatting the financing of terrorism and counter-proliferation deficiencies, according to a statement released by the regulator dated June 29, 2023.
Hong Kong
Remarks: Julia Leung delivered remarks at the HKSI Institute Regulatory Luncheon, July 7, 2023 titled “Sustainable and Healthy Ecosystem for Small Cap Stock Segment of Hong Kong Market (here)
Singapore
Report: The Monetary Authority of Singapore released a Sustainability Report 2022/2023 on July 5, 2023 (here).
Report: MAS released its Annual Report 2022/2023, July 5, 2023 (here).