This Week In Securities Litigation (Week of August 26, 2024)

Last week the Commission filed three new cases. One centered on an offering fraud; a second focused on a Ponzi scheme; and the third was based on false statements.

Be careful, be safe this week and stay cool.

SEC Enforcement – Filed and Settled Actions

Statistics: This week the Commission filed 3 new civil injunctive actions and no new administrative proceedings, excluding tag-along actions and those that present a conflict for the author.

Offering fraud: SEC v. McLean, Civil Action No. 26081 (E.D.N.Y.) is a previously filed action which named as defendants Wayne H. McLean and Joan E. Powell as defendants. The action focused on a scheme to sell shares of Easter Market Securities or EMS. Previously, Roger Nils-Karlson had been named in a complaint tied to a fraudulent scheme based on EMS interests. The complaint alleged that from 2012 to 2019 Defendants sold interests in the firm that were supposedly backed by “Pre Funded Reversed Pension Plan” interests. Those interests were claimed to be the first of a kind. Money from the sale of the interests was forwarded to an account controlled by Defendant Powell. In fact, investor funds were used for the personal interests of Mr. McLean and Ms. Powell. Defendants resolved the matter by each consenting to the entry of permanent injunctions based on Securities Act Section 17(a) and Exchange Act Section 10(b). Each Defendant will be excluded from serving as an officer or director of a public company. In addition, Mr. McLean will pay disgorgement of $199,179 plus prejudgment interest of $31,436.48 and a penalty of $40,000. Ms. Powell was ordered to pay disgorgement of $39,815 plus prejudgment interest of $6,284.02 and a penalty of $25,000. See Lit. Rel. No. 26081 (August 21, 2024).

False statements: SEC v. DeCaprio, Civil Action No. 1:24-cv-12144 (D.Mass. Filed August 21, 2024) is an action which names as defendants Peter DeCaprio and Flowpoint Partners, LLC. Mr. DeCaprio is the managing member and sole employee of Flowpoint. He also previously settled a cease-and-desist proceeding with the Commission based on a failure to disclose certain conflicts. The firm is registered as an exempt reporting adviser (meaning it is exempt from filing certain reports). Over a three year period, beginning in July 2020, Defendants misrepresented to investors that the four funds they managed were audited by independent auditors. In fact, they were not. In addition, Defendants did not comply with the express provisions of two of the funds that required such audits. Defendants also failed to comply with the obligation to establish and maintain appropriate policies and procedures. Rather, investors were led to believe that there was a safeguarded in place surrounding their investments in the form of a third-party audit – it did not exist. The complaint alleges violations of Securities Act Section 17(a)(2), Advisers Act Section 206(2), 206(4) and 204A. Defendants settled the proceedings by consenting to the entry of injunctions based on the Sections cited and, in addition, as to Mr. DeCaprio, from aiding and abetting future violations of Section 204A. Each defendant will also pay a civil penalty of $145,000. Flowpoint is also ordered to review and correct its disclosure documents while Mr. DeCaprio is precluded from serving as an officer or director for a period of three years. See Lit. Rel. No. 26080 (August 21, 2024).

Ponzi scheme: SEC v. Cambridge Real Estate Management, LLC, No. 9:24-cv-80980 (S.D. Fla. Filed August 13, 2024). Named as defendants are: Wells Real Estate Investment, LLC, a firm which supposedly acquires, sells, and manages commercial and residential real estate and which has multiple on-line brokerage accounts; Janalie C. Joseph a/k/a Janalie Bingham, the founder, CEO and controller of the Wells equity membership interests; and Jean Joseph who pleaded guilty in November 2019 to one count of wire fraud and was sentenced to serve 15 months in prison and pay about $3 million in restitution. In the action here Defendants used a network of agents to solicit investors to acquire interests in Well’s “Assets-to-Income Program.” Beginning in 2020 investors were offered the opportunity to purchase interests in the program. Investors were told that under the program the notes offered for sale paid interest ranging from about 12% annually for 18 or 28 month notes or more for those that end after 36 months. Potential investors were assured that their funds would be used to acquire, develop and revitalized residential and commercial properties in South Florida. Defendants also touted Ms. Bingham’s bona fides as an accomplished real estate investor who supposedly had a personal real estate portfolio valued at over $100 million. Defendants were able to raise about $56 million through their scheme. About $11 million was used to acquire real estate. Those properties were supposedly acquired and managed through twenty-three affiliated limited liability companies controlled by Relief Defendants. The claims were false – Defendants were operating a Ponzi scheme. Defendants misappropriated portions of the investor funds. The complaint alleges violations of Securities Act Sections 17(a) and Exchange Act Sections 10(b), 15(a) and 20(a). The Commission obtained emergency relief which includes an asset freeze. See Lit. Rel. No. 26079 (August 20, 2024).

FinCEN

Release: The Financial Crimes Enforcement Network, or FinCEN, issued a notice on August 23, 2024 (here). It states, as part of its efforts to educate small businesses and others about beneficial ownership reports, that it released a notice reporting on its outreach activities undertaken by the agency, along with a preview of upcoming events.

Hong Kong

Notice: The Securities and Futures Commission of Hong Kong and the Stock Exchange of Hong Kong Ltd. issued a joint announcement temporarily modifying the Listing Requirements and amendments thereto, with respect to the minimum initial capitalization of specialist technology companies and for independent third-party investment requirements for de-SPAC transactions conducted by special purpose acquisition companies on August 23, 2024 (here).

Singapore

Publications: The Monetary Authority of Singapore issued a notice on the publication of a consultation paper that seeks views on: 1) requiring authorized plans to prepare financial statement in accord with the applicable standards and 2) regarding the disclosures required by RAP 7 but not those in mandated by SFRS (1), on August 15, 2024 (here).