This Week In Securities Litigation (Week of January 27, 2025)

Last week the Commission filed a series of new enforcement actions. They centered on insider trading, the sale of unregistered securities, offering frauds, selling away and improper accounting.

Be careful, be safe this week and be warm

SEC

Appointment: Mark T. Uyeda was designated by the President as Acting Chairman of the Commission. Mr. Uyeda has previously served as a Commissioner and as a member of the staff since 2006.

SEC Enforcement – Filed and Settled Actions

Statistics: Last week the Commission filed 7 new civil injunctive actions and 2 new administrative proceedings.

Insider trading: In the Matter of Kenneth G. Miccio, Adm. Proc. File No. 3-22443 (Jan. 24, 2025 is an action in which Kenneth Miccio, a long time friend of Mathew Forlano, Jr.. was charged with insider trading in the securities of Maxar Technologies, Inc. The Order alleges that Anthony Viggiano, an employee at a global investment bank, was notified about the deal by at least November 15, 2022, and tipped Defendant who then purchased shares. Following the deal announcement on December 16, 2022, Defendant had profits of about $10,000. The Order alleges violations of Exchange Act Section 10(b) and Rule 10b-5. Respondent consented to the entry of a cease-and-desist order based on the Section cited in the Order. In addition, he agreed to pay disgorgement of $10,023.00, prejudgment interest of $1,179.55 and a penalty of $10,023.00.

Insider trading: SEC v. Rebeiz, Civil Action No. 25-cv-0124 (S.D. Cal. Filed Jan. 21, 2025). Named as defendant is Gabriel Rebeiz, an electrical engineering professor at the University of California, San Diego. He has been a consultant to several public companies that produced radio frequency filters. He also co-founded Extreme Waves, LLC, a private entity in the radio frequency industry. At the center of this action was Resonant Inc., a Delaware company based in Goleta, California until March 2022 when it was acquired by a Murata Manufacturing Inc. subsidiary. The firm designed radio frequency filters used by mobile handset and wireless devices. In 2014 the firm became a Commission reporting entity. Its shares and ADRs traded on OTC Markets Group. Defendant Rebeiz was a technology consultant. He served on the Technical Advisory Committee of Resonant Inc. As a result of his role at Resonant, Defendant has access to proprietary information relating to the quality of the firm’s technology. This led Defendant to encourage management to sell the company. A few weeks before the announcement of a deal, Defendant was told by a senior firm executive that there was an impending acquisition transaction. The next day Mr. Rebeiz began acquiring shares of the company. Following the deal announcement in February 2022, the share price increased by 257%. Mr. Rebeiz had profits of $360,673. The complaint alleges violations of Exchange Act Section 10(b) and Rule 10b-5. Defendant resolved the matter, consenting to the entry of a permanent injunction and an officer/director bar. In addition, Mr. Rebeiz agreed to pay disgorgement of $360,673, prejudgment interest of $65,560 and a penalty of $360,673. See Lit. Rel. No. 26231 (Jan. 22, 2025).

Unregistered securities: SEC v. Old South Trading Co., LLC, Civil Action No. 6:25-cv-00334 (D.S.Car. Filed Jan. 17, 2025) is an action which names as defendants: The firm which was dissolved in September 2023, Brendan Church, the former President of the firm and Chuck Church, the father of Brendan Church. Beginning in March 2020, and continuing for about two years, the private limited liability firm solicited investors to put their funds into the company. About $25.8 million was raised through the offerings from about 100 investors. The investments were solicited to raise funds to acquire personal protective equipment during the coronavirus pandemic. By June 2022 the firm was no longer able to honor its financial commitments to investors. The complaint alleges violations of Securities Act Sections 5(a) and 5(c) as well as Exchange Act Section 15(a). See Lit. Rel. No. 26230 (Jan. 21, 2025).

Offering fraud: SEC v. Nova Labs, Inc., Civil Action No. 1:25-cv-00539 (S.D.N.Y. Filed Jan. 17, 2025) is an action which names the privately held entity as defendant. The complaint is based on a scheme that since April 2019 involved the sale of millions of dollars of different types of tokens. Those tokens supposedly were involved with the sale of investment contracts involving electronic devices and a rewards program linked to the sale of various types of crypto assets. Those assets were also supposedly purchased by three large and well known entities. The claims were false. The complaint alleges violations of Securities Act Sections 5(a), 5(c) and 17(a)(2) and Exchange Act Section 10(b) and Rule 10b-5. See Lit. Rel. No. 26229 (Jan. 18, 2025).

Selling away: SEC v. Arete Wealth Management LLC, Civil Action No. 1:25-cv-00616 (N.D. Ill. Filed Jan. 17, 2025) names as defendants: The firm, a registered broker-dealer that has been sanctioned by the NASD and FINRA; Arete Wealth Advisors, LLC, a registered investment adviser; Joey Miller; two brothers, Jeffrey and Randall Larson; and Umbo Chung, the general counsel of both firms and the person who supervised the Arete representative; he was also previously, a senior regional counsel for FINRA. From October 2018 to about May 2020 Defendants Miller and the Larson brothers – sales representatives at broker-dealer Arete Wealth — solicited dozens of their customers and clients to purchase shares of Zona Energy, Inc. without obtaining permission from Arete — they engaged in selling away. During the process Defendants Miller and Jeff Larson defrauded investors. Later each of those Defendants, along with Randy Larson and Defendant Chung obtained liability waivers that contained material misrepresentations and omissions, as they knew. Subsequently, Defendants Miller and Jeff Larson agreed with Richard Sterritt, Jr., to raise money for Zona from investors in exchange for discounted shares of Zona. Randy Larson joined the arrangement. Defendants Miller and Jeff Larson did not disclose this to customers. In January 2020 Arete Representatives received a notice stating that Richard Richman was in fact Richard Sterritt, a convicted felon. Nevertheless, some clients who had previously invested in Zona continued. By May 2020 the clients had invested over $8.5 million in Zona. By April 2021, the US. Attorney’s Office for the Eastern District of New York and the Commission had filed, respectively, criminal and civil charges alleging that Zona was a sham. FINRA also began to investigate. Over time Arete Representatives customers and clients, and others, lost nearly all of their investments. The complaint alleges violations of Securities Act Section 17(a), Exchange Act Section 10(b) and Advisers Act Sections 206(1), (2) & 204(4) and related rules. See Lit. Rel. No. 26228 (Jan. 17, 2025).

False statements: SEC v. Sanaullah, Civil Action No. 2:25 -cv-10165 (E.D. Mich. Filed Jan. 16, 2025) is an action that names as defendant the Chief Macro Strategist and Chief Risk Officer of EIA, a private fund that has been named in a prior Commission action. In this case Defendant is alleged to have told investors, beginning in mid-2017 and continuing through May 2022, that EIA All Weather Alpha Fund I Partners had proper controls in place. It did not. Thus, while raising about $39 million from over 100 investors, Defendant made false statements regarding the Fund’s risk management practices and his background. Defendant knew, during the period, that the Fund was not following the practices he represented to clients and investors. The complaint alleges violations of Securities Act Section 17(a) and Exchange Act Sections 10(b) and 21(d)(2). See Lit. Rel. No. 26227 (Jan. 17, 2025).

Unregistered securities: SEC v. Quest Education LLC, Civil Action No. 2:25-cv-00105 (D. Nev. Filed Jan. 17, 2025) is an action which defendants are: The firm, Daniel Blue, its operator, David White and Keitoh Spears, both employees. Over a four-year period, beginning in late 2019, Defendants raised about $2.5 million from commissions tied to the sale of at least eight issuers. While Quest touted itself as an investor education firm neither it nor the firm’s employees were registered with the Commission. The complaint alleges violations of Securities Act Sections 5(a) and 5(c) and Exchange Act Section 15(a)(1) and 20(a). See Lit. Rel. No. 26226 (Jan. 17, 2025).

Misappropriation: SEC v. Mason, Civil Action No. 2:225-cv-00292 (E.D. Pa. Filed Jan. 17, 2025) is an action which names as defendants: Scott Mason, an investment adviser; Rubicon Wealth Management, LLC; and Orchard Park Real Estate holdings LLC. The entities were controlled by Mr. Mason. The complaint alleges that Defendant Mason misappropriated investor funds from his two firms by at times forging signatures and concealing his actions. The complaint alleges violations of Exchange Act Section 10(b) and Rule 10b-5 as well as Sections 206(1) and 206(2) of the Advisers Act. Defendants partially settled the action by consenting to the entry of permanent injunctions based on the Sections cited in the complaint. The court will consider monetary sanctions and relief in the future. The U.S. Attorney’s Office for the Eastern District of Pennsylvania filed parallel criminal charges. See Lit. Rel. No. 26224 (Jan. 17, 2025).

Improper accounting: In the Matter of Celsius Holdings, Inc., Adm. Proc. File No. 3-22429 (Jan. 17, 2025) is an action which names as Respondent the developer and seller of fitness energy drinks whose shares trade on NASDQ. In the second and third quarters of 2021 the firm make an exception to its normal stock award vesting procedures for six departing employees and board members. The firm accelerated the vesting periods or allowed vesting to continue for previously awarded shares so that certain individuals would not forfeit shares. Those changes are modifications to the award. If a modification is made firm’s are required under GAAP to re-value the respective stock awards as of the date of the modification. Any additional value of the modified award must be made at the fair market value of the original award as incremental compensation costs over the remaining period which was not done here. In addition, the firm did not have adequate disclosure controls to properly disclose the transactions here. The transactions violated Exchange Act Sections 13(a), 13(b)(2)(A) and 13(b)(2)(B) along with the related rules. To resolve the proceeding the firm consented to the entry of an Order based on the Sections and Rules cited and to pay a penalty of $3 million.

Australia

Key issues: The Australian Securities and Futures Commission released a publication identifying what it calls the “Key issues outlook 2025” on January 24, 2025 (here).

Hong Kong

Release: The Securities and Futures Commission of Hong Kong concluded a consultation on proposed amendments to cease permitting mixed media offers to facilitate a fully electronic subscription process, according to a release dated January 24, 2025 (here).

Singapore

Consultation: The Securities and Futures Commission of Singapore published a paper titled “Recent Economic Developments in Singapore, January 2025 on January 24, 2025 (here).

Paper: The regulator issued a paper titled “Recent Economic Developments in Singapore 2025, dated January 24, 2025 (here).