This Week In Securities Litigation (Week of December 2, 2024)
Last week as many celebrated Thanksgiving the Commission filed three new enforcement actions. One focused on Rule 105 compliance, a second on muni registration and a third on an offering fraud.
Be careful, be safe this week
SEC Enforcement – Filed and Settled Actions
Statistics: Last week the Commission filed 1 new civil injunctive action and 2 new administrative proceedings, excluding tag-along actions and those that present a conflict for the author.
Rule 105: In the Matter of Fivet Capital AG, Adm. Proc. File No. 3-22334 (Nov. 26, 2024) is a proceeding which names as Respondent Fivet Capital AG, a Swiss Limited Liability firm based in Pfaffikon, Switzerland, which alleges multiple violations of Rule 105. That rule prohibits purchasing an equity security from and underwriter, broker or dealer in a public offering if the would-be purchaser sold short the security that is the subject of the offering during a restricted time period. Here Respondent made purchases in violation of the prohibition 16 times during the restricted period. To resolve the proceedings Respondent consented to the entry of a cease-and-desist order based on the rule. In addition, Respondent agreed to pay disgorgement of $1,583, 294.73, prejudgment interest of $357,199.05 and a penalty of $805.000.
Muni registration: In the Matter of Level Field Charter Partners, LLC, Adm. Proc. File No. 3-22333 (Nov. 26, 2024) is a proceeding which names as respondents: Level Field Charter, a limited liability firm which provides consulting services to charter schools with a specialization in school facilities and project financing, and David Endom, a partner with the firm. From 2019 to 2022 Level Field provided services which included advice on six municipal bond offerings for the benefit of charter schools. Respondent was not registered with the Commission. The Order alleges violations of Exchange Act Section 15B(a)(1)(B), 15B(c)(1) and MSRB Rule G-17. To resolve the proceedings, each Respondent consented to the entry of a cease-and-desist order based on the provisions cited in the order. Respondent Level Field will pay disgorgement of $2,798.94 and a penalty of $75,000. Respondent Endom will pay a penalty of $40,000.
False statements: SEC v. Walczk, Civil Action No. 20-civ-076 ((W.D. Wisc.) is a previously filed action which names as defendant Edward S. Walczak, a former portfolio manager for Catalyst Hedge Futures Strategy Fund. A jury returned a verdict against him, finding violations of Securities Act Sections 17(a)(2) & (3) and Advisers Act Sections 206(2), 206(3) and 206(4)-8 but rejected others. The judgment entered by the court directed Defendant to pay $11.2 million and restricted him from advising others on investments. The complaint alleged that Defendant had made misrepresentations to potential investors regarding the safeguards surrounding potential investments in 2016 and 2017. Yet the fund tied to the investments lost over $700 million or about 20% of its value during the period. The order directs the payment of $7,765,105 in disgorgement, $1,868,158.50 and a $1.6 million civil penalty. See Lit. Rel. No. 26179 (Nov. 22, 2024).
Offering fraud: SEC v. Hare, Civil Action No. 1:24-cv-12134 (N.D. Ill.) is a previously filed action which names a defendant Brad Hare and Mammoth West Corp. In the settlement each Defendant agreed to the entry of a final judgment prohibiting future violations of Exchange Act Sections 15(a)(1). The company will pay disgorgement of $2,734,810 and prejudgment interest of $409,825 along with $276,700 as a penalty. Mr. Hare will pay disgorgement of $438,932, disgorgement and $70,006 in prejudgment interest and a penalty of $43,890. The company also agreed to surrender its remaining shares and notes. The complaint alleged that Defendants failed to register as market participants when they acquired convertible notes of microcap issuers as part of its regular business. Over a six-year period, beginning in 2018, the firm, through Mr. Hare, bought at least 47 convertible notes and converted nearly 100 notes of 19 different issuers into over 11 billion new shares. About $2.5 million was raised. See Lit. Rel. No. 26181 (Nov. 25, 20240.
Offering fraud: SEC v. Taing, Civil Action No. 24-cv-2179 (S.D. Cal. Filed Nov. 20, 2024) is an action which names as defendants Eng Taing and Touzi Capital, LLC., respectively, a member of Respondent firm and a California limited liability firm. The case centers on a $115 million offering conducted by Defendant Eng. In the offering, conducted from 2020 to 2023, funds were raised to finance debt rehabilitation businesses or for crypto asset mining businesses operated through Touzi Capital. While the funds obtained were used for the stated purposes, portions of the offering funds raised were diverted to other uses. Misrepresentations were also made about the ability to profitably raise funds for the operation of the bitcoin mine and the stability of certain operations. The complaint alleges violations of Securities Act Sections 5 and 17(a) as well as Exchange Act Section 10(b) and Rule 10b-5. See Lit. Rel. No. 26182 (Nov. 20, 2024).
False statements: In the Matter of Fair Invest, LLC, Adm. Proc. File No. 3-22331 (Nov. 25, 2025). Named as respondents in the Order are Fair Invest, LLC and Khalid Parekh. The former became a Commission registered investment adviser on July 12, 2021, and began operations the following September. By year-end the next year, the advisor withdrew its registration statement. Mr. Parekh was the managing member and CFO of the advisory, controlling its operations and signing the firm’s Form ADV. During its short term of operation, Fair Invest raised about $18.5 million for 373 investors in 40 states. The funds were raised in an unregistered offering of an investment product called Wealth Building Account. Respondents targeted the Muslin community. Potential investors were promised annual dividends of up to 4%. The returns would come by investing client funds in equities, ETFs, mutual funds and tangible commodities. Client funds would be held in a SIPC-insured account that would be custom tailored to the financial needs and objectives of each client. The promises to investors were false. They were not honored. The investor funds were pooled and controlled by Respondent Parekh who received a share of the earnings generated, a fact not disclosed to investors. The Order alleges violations of Securities Act Sections 5(a), 5(c) and 17(a)(2) & (3) as well as Advisers Act Sections 206(2) and 206(4) along with Rule 206(4)-2. To resolve the proceedings the Commission acknowledged the remedial acts of Respondents which were promptly undertaken and included the repayment of all clients with the promised investment returns and the withdrawal of the firm’s registration statement. Respondents also cooperated with the staff investigation. Each Respondent consented to the entry of a cease-and desist order based on the provisions cited above. Each was censured. The Respondents also agreed to pay, on a joint and several basis, a penalty of $100,000.00
BaFin
Influence: A recent study by the Federal Financial Supervisory Authority or BaFin presents a question focused on weather influencers are the new financial advisers. A recent study by the regulator found that people aged 18-45 are turning to social media to “find out where to invest, with crypto assets an increasingly popular choice,” according to an article published on October 16, 2024 (here).
Hong Kong
Remarks: Chief Executive Officer Julia Leung promoted a voluntary code for conduct tied to ESG ratings and product development at and recent industry event held on November 29, 2024. Earlier, on October 3, 2024, Hong King’s voluntary code of conduct or VCoC for ESG was launched. Ms. Leung noted at the recent event that the Code, coupled with related guidance to assent managers, should “bring us a step closer to making more creditable ESG information available in the financial markets” (here).
Singapore
Family office; The Monetary Authority of Singapore presented a consultation paper that Proposed a Framework for Single Family Offices, dated November 6, 2024 (here).