This Week In Securities Litigation (Week of August 21, 2023)
The pace of filing new enforcement cases slowed to a drizzle last week. Only two new actions were filed. Perhaps it was the approach the end of summer/back-to-school period or the hurricane moving into LA at the same time the area had earthquake rumblings.
Have a great and safe week.
SEC Enforcement – Filed and Settled Actions
Statistics: This week the Commission filed 1 civil injunctive actions and 1 administrative proceedings, excluding 12j, tag-along proceedings and those presenting a conflict for the author.
Auditing: In the Matter of Crowe U.K. LLP, Adm. Proc. File No. 3-21560 (August 14, 2023) is a proceeding which names as respondents: Crowe U.K., a PCAOB registered audit firm; Nigel D. Bostock, FCA, the engagement partner; and Matthew C. Stallabrass, FCA, the engagement quality review partner. The Order centers on the audit of Akazoo Limited’s financial statements for 2018 which focuses on its business combination with a special purpose acquisition vehicle or SPAC. The audit firm had audited the Akazoo’s financial statements since 2016. The audit report for 2018 was part of a “deSPAC” transaction. The financial statements reported that Old Akazoo had earned over $120 million in revenue and had over four million paying subscribers. In fact, revenue was negligible as was the number of subscribers. The company told the auditors that it had netted out the revenues and expenses from companies it called “aggregators.” The audit firm was furnished with fabricated papers in support of the story. While the audit firm should have crafted procedures to address the issues it faced, it did not. In addition, the controls were deficient. Accordingly, none of the red flags were addressed. The Order alleges violations of Rule 2-02(b)(1) of Regulation S-X as well as Exchange Act Sections 4C(a)(2), 13(a) and 14(a). The Respondents were ordered to cease-and-desist committing or causing violations of the Sections and Rules cited in the Order. The firm was also censured and directed to comply with certain undertakings. It will, in addition, pay disgorgement of $187,740 and prejudgment interest of $28,104 all of which is deemed paid by Crowe U.K.’s remittance of $11,500,000 to Akazoo’s defrauded investors pursuant to settlements approved in private litigation. The engagement and quality review partners are both denied the privilege of appearing or practicing before the Commission as an accountant. The engagement partner may apply for readmission after five years while the quality review partner can apply after two years. The firm will also pay a penalty of $750,000 to the U.S. Treasury.
Offering fraud: SEC v. Iakkovou, Civil Action No. 4:22-cv-00194 (M.D. Ga.) is a previously filed action which named as defendant: George Lakovou, Vika Ventures LLC and Pernelope Zbravos. The complaint alleged that Vika and co-founder George Lakovou, had fraudulently sold what were supposed to be pre-IPO shares. About 46 investors put over $6 million into the project. The court entered a final judgment against Mr. Zbravos by consent, enjoining him from future violations of Securities Act Section 17(a)(3). On June 30, default judgments were entered against defendants Iakovou and Vika. Each judgment enjoined the defendant from future violations of the antifraud provisions and includes a conduct-based injunction. On August 9, 2023 the Commission obtained a final judgment against Defendant Vika, enjoining it from future violations of Securities Act Section 17(a) and Exchange Act Section 10(b). The order also directed the payment of $8,929,120. See Lit. Rel. No. 25808 (August 11, 2023).
Offering fraud: SEC v. Mafareh, Civil Action No. 6:23-01539 (M.D. Fla. Filed August 11, 2023) is an action which names as defendants: Ashraf Mufareh and his multi-level marketing firm, ONPASSIVE LLC. Beginning in July 2018 Defendant Mufareh claimed to be developing a suite of computer applications using artificial intelligence. To finance development Defendants sough investors. Those who got in early – called Funders – were assured a higher placement in the pyramid and higher returns. Investors were also incentivized to recruit others to participate in the scheme. In addition, once the initial payment was made an investor would be placed in the pyramid structure and eligible to receive a commission based on monthly subscription fees paid. The scheme was promoted as an opportunity for passive income. After June 22, 2022, further Founder registrations were not accepted. By March 2023, over $108 million had been received for 1.12 Founders positions from over 800,000 investors who had paid $97 for each position in the pyramid scheme in advance of the supposed product launch which had not occurred as of June 2023. Funds raised have been used to the scheme and personal use. The complaint alleges violations of Securities Act Sections 5(a), 5(c) and 17(a)(1) and (3) and Exchange Act Section 10(b). The case is in litigation. See Lit. Re. No. 25809 (August 11, 2023).
Germany
Update of requirements: BaFin, the Federal Financial Supervisory Authority updated its requirements for, and added to, the risk management requirements for banks, according to a release dated August 11, 2023 (here).
Singapore
Framework: The Monetary Authority of Singapore announced that it has finalized a Regulatory Framework for Stablecoin, according to a release dated August 15, 2023 (here).
This Week In Securities Litigation (Week of August 21, 2023)
The pace of filing new enforcement cases slowed to a drizzle last week. Only two new actions were filed. Perhaps it was the approach the end of summer/back-to-school period or the hurricane moving into LA at the same time the area had earthquake rumblings.
Have a great and safe week.
SEC Enforcement – Filed and Settled Actions
Statistics: This week the Commission filed 1 civil injunctive actions and 1 administrative proceedings, excluding 12j, tag-along proceedings and those presenting a conflict for the author.
Auditing: In the Matter of Crowe U.K. LLP, Adm. Proc. File No. 3-21560 (August 14, 2023) is a proceeding which names as respondents: Crowe U.K., a PCAOB registered audit firm; Nigel D. Bostock, FCA, the engagement partner; and Matthew C. Stallabrass, FCA, the engagement quality review partner. The Order centers on the audit of Akazoo Limited’s financial statements for 2018 which focuses on its business combination with a special purpose acquisition vehicle or SPAC. The audit firm had audited the Akazoo’s financial statements since 2016. The audit report for 2018 was part of a “deSPAC” transaction. The financial statements reported that Old Akazoo had earned over $120 million in revenue and had over four million paying subscribers. In fact, revenue was negligible as was the number of subscribers. The company told the auditors that it had netted out the revenues and expenses from companies it called “aggregators.” The audit firm was furnished with fabricated papers in support of the story. While the audit firm should have crafted procedures to address the issues it faced, it did not. In addition, the controls were deficient. Accordingly, none of the red flags were addressed. The Order alleges violations of Rule 2-02(b)(1) of Regulation S-X as well as Exchange Act Sections 4C(a)(2), 13(a) and 14(a). The Respondents were ordered to cease-and-desist committing or causing violations of the Sections and Rules cited in the Order. The firm was also censured and directed to comply with certain undertakings. It will, in addition, pay disgorgement of $187,740 and prejudgment interest of $28,104 all of which is deemed paid by Crowe U.K.’s remittance of $11,500,000 to Akazoo’s defrauded investors pursuant to settlements approved in private litigation. The engagement and quality review partners are both denied the privilege of appearing or practicing before the Commission as an accountant. The engagement partner may apply for readmission after five years while the quality review partner can apply after two years. The firm will also pay a penalty of $750,000 to the U.S. Treasury.
Offering fraud: SEC v. Iakkovou, Civil Action No. 4:22-cv-00194 (M.D. Ga.) is a previously filed action which named as defendant: George Lakovou, Vika Ventures LLC and Pernelope Zbravos. The complaint alleged that Vika and co-founder George Lakovou, had fraudulently sold what were supposed to be pre-IPO shares. About 46 investors put over $6 million into the project. The court entered a final judgment against Mr. Zbravos by consent, enjoining him from future violations of Securities Act Section 17(a)(3). On June 30, default judgments were entered against defendants Iakovou and Vika. Each judgment enjoined the defendant from future violations of the antifraud provisions and includes a conduct-based injunction. On August 9, 2023 the Commission obtained a final judgment against Defendant Vika, enjoining it from future violations of Securities Act Section 17(a) and Exchange Act Section 10(b). The order also directed the payment of $8,929,120. See Lit. Rel. No. 25808 (August 11, 2023).
Offering fraud: SEC v. Mafareh, Civil Action No. 6:23-01539 (M.D. Fla. Filed August 11, 2023) is an action which names as defendants: Ashraf Mufareh and his multi-level marketing firm, ONPASSIVE LLC. Beginning in July 2018 Defendant Mufareh claimed to be developing a suite of computer applications using artificial intelligence. To finance development Defendants sough investors. Those who got in early – called Funders – were assured a higher placement in the pyramid and higher returns. Investors were also incentivized to recruit others to participate in the scheme. In addition, once the initial payment was made an investor would be placed in the pyramid structure and eligible to receive a commission based on monthly subscription fees paid. The scheme was promoted as an opportunity for passive income. After June 22, 2022, further Founder registrations were not accepted. By March 2023, over $108 million had been received for 1.12 Founders positions from over 800,000 investors who had paid $97 for each position in the pyramid scheme in advance of the supposed product launch which had not occurred as of June 2023. Funds raised have been used to the scheme and personal use. The complaint alleges violations of Securities Act Sections 5(a), 5(c) and 17(a)(1) and (3) and Exchange Act Section 10(b). The case is in litigation. See Lit. Re. No. 25809 (August 11, 2023).
Germany
Update of requirements: BaFin, the Federal Financial Supervisory Authority updated its requirements for, and added to, the risk management requirements for banks, according to a release dated August 11, 2023 (here).
Singapore
Framework: The Monetary Authority of Singapore announced that it has finalized a Regulatory Framework for Stablecoin, according to a release dated August 15, 2023 (here).