This Week In Securities Litigation (Week of April 1, 2024)
Last week the Commission filed two new enforcement actions. Each case centered on insider trading claims.
Be careful, be safe this week.
Rules: The Commission adopted certain reforms tied to investment advisers who operate exclusively through the internet on March 27, 2024 (here).
SEC Enforcement – Filed and Settled Actions
Statistics: This week the Commission filed 2 new civil injunctive actions and no new administrative proceedings, excluding tag-along actions and those that present a conflict for the author.
Market manipulation: SEC v. Nicosia, Civil Action No. 1:22-cv-05761 (E.D.N.Y.) is a previously filed action which names as defendants: Matthew Nocosia, William Reininger, Fabrizio Di Carol and Ronald Touchard. The complaint alleged that Defendants engaged in a scheme in which they pressured investors to purchase microcap securities. Following the purchases at times the shares were dumped. The court entered a judgment against Defendant Di Carol. The final judgment imposeed a permanent injunction based on Exchange Act Section 10(b). Defendant Di Carol was also directed to pay disgorgement and prejudgment interest of more than $43,970 and a civil penalty of $100,000. In addition, a penny stock bar was imposed. See Lit. Rel. No. 25959 (March 28, 2024).
Fraudulent offering: SEC v. Mikula, Civil Action No. 2:22-cv-07096 )(C.D.Cal.) is a previously filed action in which Defendant Christian Ferandez participated in a scheme to promote securities of issuers that were supposedly conducting an offering pursuant to Regulation A. That provision provides a limited exemption from registration. The offerings were conducted under the guise of consulting agreements. Mr. Fermandez resolved the matter by consenting to the entry of a permanent injunction based on Securities Act Sections 17(a)(1) & (3) and 17(b) and Exchange Act Section 10(b). He also agreed to pay disgorgement in the amount of $458,260 and prejudgment interest of $41,557.44. Based on cooperation he was not ordered to pay a penalty. See Lit. Rel. No. 25957 (March 27, 2024).
Insider trading: SEC v. Qsar, Civil Action No. 24CV0570 (S.D.Cal. Filed March 26, 2024) is an action which names as defendants: Jordan Qsar; Grant Whitherspoon; Austin Bernard; and Chase Lambert. Each Defendantis a minor league baseball player. Defendant Qsar returned home during a break in the season in October 2021. During that period he socialized with a close friend who was Finance Employee for Jack in the Box Inc. At the time Finance Employee was working on Jack in the Box’s acquisition of Del Taco, a fact he communicated to his friend Mr. Qsar. The information was supposed to be confidential. Nevertheless, Mr. Qsar traded in mid-October and late November while in possession of the inside information. In addition, he tipped Defendants Bernard, Witherspoon and Lambert. Each traded. After the deal was announced the share price increased 66%. The four men sold their shares and reaped $189,000 in profits. The complaint alleges violations of Exchange Act Section 10b. The case is in litigation. See Lit. Rel. No. 25956 (March 26, 2024).
Manipulation: SEC v. Cattlin, Civil Action No. 25958 (E.D.N.Y.) is a previously filed action in which defendant Daniel Cattlin participated in a microcap market manipulation scheme that generated over $5 million in illegal sales of stock in two microcap companies. On March 27, 2024 the court entered a default judgment against Mr. Cattlin. The judgement imposes a permanent injunction based Exchange Act Section 10(b) against Mr. Cattlin. In addition, the judgment orders him to pay disgorgement and prejudgment interest of $124,357.62 and a penalty of $230,464. The judgment also imposes a penny stock bar and prohibits him from serving as an officer or director of a public company. Previously, defendant William Shupe settled with the Commission. He paid a penalty of $100,000. See Lit. Rel. No. 25958 (March 27, 2024).
Insider trading: SEC v. Bechtolsheim, Civil Action No., 5:24-cv-01845 (N.D. Ca. Filed March 26, 2024). Andy Bechtolsheim is the founder of Arista Networks, Inc., a publicly traded firm. He was the chief architect of the firm and served as Chairman and Chief Development officer from October 2008 through December 2023. The company manufactured high-speed optical interconnect products. In early July 2019 a senior employee of Tech Company A contacted Mr. Bechtolsheim. The two men discussed the fact that the acquisition of Acacia Communications Inc. was imminent. At the time Tech Company A was determining if it should submit a bid to acquire Acacia. Immediately after the conversation, Mr. Bechtolsheim traded Acacia option contracts in the accounts of a close relative and associate. The trades were placed minutes before market close. On July 9, 2019, before the market open, Cisco Systems announced it had entered into a definitive agreement to acquire Acacia for $70 per share. The firm’s stock price increased over 35%. Mr. Bechtolsheim had trading profits of over $415,000 in the two accounts in which he traded. The complaint alleges violations of Exchange Act Section 10(b). Mr. Bechtolsheim settled the action, consenting to the entry of a permanent injunction and a bar from serving as a director or officer of a public company for five years. He also agreed to pay a penalty of $923,740.
FinCEN
Comment: The Financial Crimes Network stated in a recent request for information that it is seeking comments about having banks collect certain data from clients before they open an account. The requirement to actually collect the data for account holders has long been a requirement. The comment was made on March 28, 2022 (here).
This Week In Securities Litigation (Week of April 1, 2024)
Last week the Commission filed two new enforcement actions. Each case centered on insider trading claims.
Be careful, be safe this week.
Rules: The Commission adopted certain reforms tied to investment advisers who operate exclusively through the internet on March 27, 2024 (here).
SEC Enforcement – Filed and Settled Actions
Statistics: This week the Commission filed 2 new civil injunctive actions and no new administrative proceedings, excluding tag-along actions and those that present a conflict for the author.
Market manipulation: SEC v. Nicosia, Civil Action No. 1:22-cv-05761 (E.D.N.Y.) is a previously filed action which names as defendants: Matthew Nocosia, William Reininger, Fabrizio Di Carol and Ronald Touchard. The complaint alleged that Defendants engaged in a scheme in which they pressured investors to purchase microcap securities. Following the purchases at times the shares were dumped. The court entered a judgment against Defendant Di Carol. The final judgment imposeed a permanent injunction based on Exchange Act Section 10(b). Defendant Di Carol was also directed to pay disgorgement and prejudgment interest of more than $43,970 and a civil penalty of $100,000. In addition, a penny stock bar was imposed. See Lit. Rel. No. 25959 (March 28, 2024).
Fraudulent offering: SEC v. Mikula, Civil Action No. 2:22-cv-07096 )(C.D.Cal.) is a previously filed action in which Defendant Christian Ferandez participated in a scheme to promote securities of issuers that were supposedly conducting an offering pursuant to Regulation A. That provision provides a limited exemption from registration. The offerings were conducted under the guise of consulting agreements. Mr. Fermandez resolved the matter by consenting to the entry of a permanent injunction based on Securities Act Sections 17(a)(1) & (3) and 17(b) and Exchange Act Section 10(b). He also agreed to pay disgorgement in the amount of $458,260 and prejudgment interest of $41,557.44. Based on cooperation he was not ordered to pay a penalty. See Lit. Rel. No. 25957 (March 27, 2024).
Insider trading: SEC v. Qsar, Civil Action No. 24CV0570 (S.D.Cal. Filed March 26, 2024) is an action which names as defendants: Jordan Qsar; Grant Whitherspoon; Austin Bernard; and Chase Lambert. Each Defendantis a minor league baseball player. Defendant Qsar returned home during a break in the season in October 2021. During that period he socialized with a close friend who was Finance Employee for Jack in the Box Inc. At the time Finance Employee was working on Jack in the Box’s acquisition of Del Taco, a fact he communicated to his friend Mr. Qsar. The information was supposed to be confidential. Nevertheless, Mr. Qsar traded in mid-October and late November while in possession of the inside information. In addition, he tipped Defendants Bernard, Witherspoon and Lambert. Each traded. After the deal was announced the share price increased 66%. The four men sold their shares and reaped $189,000 in profits. The complaint alleges violations of Exchange Act Section 10b. The case is in litigation. See Lit. Rel. No. 25956 (March 26, 2024).
Manipulation: SEC v. Cattlin, Civil Action No. 25958 (E.D.N.Y.) is a previously filed action in which defendant Daniel Cattlin participated in a microcap market manipulation scheme that generated over $5 million in illegal sales of stock in two microcap companies. On March 27, 2024 the court entered a default judgment against Mr. Cattlin. The judgement imposes a permanent injunction based Exchange Act Section 10(b) against Mr. Cattlin. In addition, the judgment orders him to pay disgorgement and prejudgment interest of $124,357.62 and a penalty of $230,464. The judgment also imposes a penny stock bar and prohibits him from serving as an officer or director of a public company. Previously, defendant William Shupe settled with the Commission. He paid a penalty of $100,000. See Lit. Rel. No. 25958 (March 27, 2024).
Insider trading: SEC v. Bechtolsheim, Civil Action No., 5:24-cv-01845 (N.D. Ca. Filed March 26, 2024). Andy Bechtolsheim is the founder of Arista Networks, Inc., a publicly traded firm. He was the chief architect of the firm and served as Chairman and Chief Development officer from October 2008 through December 2023. The company manufactured high-speed optical interconnect products. In early July 2019 a senior employee of Tech Company A contacted Mr. Bechtolsheim. The two men discussed the fact that the acquisition of Acacia Communications Inc. was imminent. At the time Tech Company A was determining if it should submit a bid to acquire Acacia. Immediately after the conversation, Mr. Bechtolsheim traded Acacia option contracts in the accounts of a close relative and associate. The trades were placed minutes before market close. On July 9, 2019, before the market open, Cisco Systems announced it had entered into a definitive agreement to acquire Acacia for $70 per share. The firm’s stock price increased over 35%. Mr. Bechtolsheim had trading profits of over $415,000 in the two accounts in which he traded. The complaint alleges violations of Exchange Act Section 10(b). Mr. Bechtolsheim settled the action, consenting to the entry of a permanent injunction and a bar from serving as a director or officer of a public company for five years. He also agreed to pay a penalty of $923,740.
FinCEN
Comment: The Financial Crimes Network stated in a recent request for information that it is seeking comments about having banks collect certain data from clients before they open an account. The requirement to actually collect the data for account holders has long been a requirement. The comment was made on March 28, 2022 (here).