This Week In Securities Litigation (Week of July 29, 2024)

Last week the Commission filed four new actions. Two centered on offering frauds while the third was basedon false statements. And one on an unregistered broker charge.

Be careful, be safe this week and stay cool.

SEC Enforcement – Filed and Settled Actions

Statistics: This week the Commission filed 4 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. Ramaraj, Civil Action No. 24-cv-1282 (E.D.Va. Filed July 25, 2024) is an action which names as defendant Babu Ramaraz. He controls DAB Inspection and Consulting Services, LLC, a Virginia limited liability company. Beginning in early 2019, and continuing through May 2024, Defendant Ramaraj raised over $31 million from over 70 investors through the sale of interests in DAB. To induce investors to purchase shares, Defendant Ramaraz fabricated a series of documents to support his sales pitch. Investors were told the funds would be used for the bonds necessary to secure the performance of DAB for certain government contracts on infrastructure projects. In reality, there were no contracts. The complaint alleges violations of Securities Act Section 17(a) and Exchange Act Section 10(b). The case is pending. See, Lit. Rel. No. 26055 (July 25, 2024).

Fraudulent valuations: SEC v. Premium Point Investments LLP, Civil Action No. 1:180 cv 004145 (S.D.N.Y.) is a previously filed action which names as defendants the investment adviser, broker Frank Dinucci Jr., formerly registered with AOC Securities LLC. He was enjoined from violating the antifraud provisions and other provisions of the federal securities laws by consent. The complaint alleged that Mr. Dinucci provided inflated broker quotes to New York based investment adviser Premium Point in exchange for that firm sending trades to AOC. This practice in part facilitated a fraudulent valuation scheme. Defendant Dinucci was charged with violations of Exchange Act Section 10(b), Securities Act Section 17(a) and Advisers Act Sections 206(1), (2) and (4). The Court entered permanent injunctions as to Defendant Dinucci based on these sections. Previously, Premium Point and others resolved charges with the Commission. See Lit. Rel. No. 26054 (July 24, 2024).

Offering fraud: SEC v. Newell, Civil Action No. 5:24-cv-01524 (C.D.Ca. Filed July 22, 2024).

Named as defendants in the case are Robert Newell and Black Hawk Funding, Inc. Mr. Newell is the founder of Black Hawk and served as its CEO during the time period here. The company had a dual headquarters in Coeur d’Alene, Idaho and La Quinta, California. The firm managed various private funds and assets. Defendants began business operations in 2011. They made loans for real estate transactions. Black Hawk, controlled by Mr. Newell, managed, or had an ownership interest in, dozens of affiliated entities. The firm served as an investment adviser. The business struggled. In 2016 Mr. Newell decided to shift the business approach for Black Hawk. Moving forward the firm and some of its entities would invest in cannabis and sell shares to investors. Over the next three years, investors were offered interests in three private funds invested in the cannabis industry. There was a potential for 10% returns. During the period over $37 million was raised from over 200 investors who understood their money would be used for the benefit of the funds. Not so. Much of the money was diverted to the personal use of Mr. Newell. Portions were diverted to make Ponzi type payments. Mr. Newell misappropriated part of the investor funds; portions of the funds were comingled. The complaint alleges violations of Securities Act Section 17(a) and Exchange Act Section 10(b) as well as Advisers Act Sections 206(1), 206(2) and 206(4). Black Hawk settled with the Commission. The firm consented to the entry of permanent injunctions based on the Sections cited in the complaint. The firm also agreed not to participate in the issuance, purchase, offer, or sale of any security. See Lit. Rel. No. 26053 (July 23, 2024).

Affinity fraud: SEC v. Engel, Civil Action No. 2:23-cv-00213 (C.D. Ca.) is a previously filed action which names as defendant Yossi Engel. He was charged with perpetrating a $47 million affinity fraud that began in December 2018 and continued until January 2020. The scheme targeted 29 members of the Orthodox Jewish community. Defendant initially promised to use investor funds to install security equipment. Later he promised to purchase, develop and sell property in Israel. Both clams were false. To resolve the action Defendant consented to the entry of permanent injunctions precluding future violations of Securities Act Section 17(a) and Exchange Action Section 10(b). In addition, Defendant agreed to pay disgorgement of $5,099,826 and prejudgment interest of $381,731.80. The sums due were satisfied by the restitution ordered in the parallel criminal case. U.S. v. Engle, No. 23-00213 (C.D. Cal.) in which Defendant is required to pay $11,758,030.58. See Lit. Rel. No. 26052 (July 19, 2024).

False statements: SEC v. Orlando, Civil Action No. 1:24-cv-2097 (D.D.C. filed July 17, 2024). In February 2021, Patrick Orlando, on behalf of SPAC A, had discussions with Trump Media and Technology Group Corp. regarding a merger. During the Spring of 2021 Mr. Orlando planned, and eventually completed, a deal with Trump Media for Digital World Acquisition Corp. or DWAC, an entity of which he controlled and for which he served as CEO. Later in the year Mr. Orlando executed Forms S-1 which represented that DWAC had not selected any merger target or engaged in any substantive discussions with a merger target. The Forms S-1 were filed with the Commission. In early September of the same year, DWAC completed an IPO. The company raised over $287 million from investors. An amended Form S-1 was filed on August 31, 2021, signed by Mr. Orland. The Forms represented that neither DWAC nor its officers and directors had any discussions or contacts with any potential target companies prior to the IPO. The Forms also represented that DWAC had not selected any specific business combination target. The next month – October 2021 – DWAC announced an agreement to merge with Trump Media. Following the announcement, the share price of DWAC’s stock increased over 400%. Mr. Orlando signed the filings made with the SEC. Those Forms failed to include material facts regarding the discussions that proceeded the execution of the merger agreement. The Commission then instituted settled cease-and-desist proceedings which named as Respondent DWAC. The Order alleged violations of Securities Act Section 17(a)(2) and Exchange Act Section 10(b). The remedies include a penalty of $18 million. The merger of DWAC and Trump Media closed on March 25, 2024. The surviving entity renamed itself Trump Media & Technology Group Corp. Prior to that filing, DWAC filed an amended Form S-4. It made disclosures consistent with the findings in the Commission’s published order instituting settled cease-and-desist proceedings. The complaint alleges violations of Securities Act Section 17(a) and Exchange Act Section 10(b). The complaint is pending. See Lit. Rel. No. 26051 (July 19, 2024).

Unregistered broker: SEC v. Clicourt, Civil Action No. 0:24-cv-61275 (S.D. Fla. July 18, 2024) is an action which names as defendants Ricardi Clicourt and Brisly Guillaum. Each Defendant previously held a position with Royal Bengal Logistics, Inc., a trucking and logistics company that is the subject of a related Commission enforcement action tied to an affinity fraud. Here over a two-year period, beginning in 2021, over $112 million was raised as part of the scheme. Most of the funds were raised by Defendants in this action. The complaint here alleges violations of Securities Act Sections 5(a) and 5(c) and Exchange Act Section 15(a). See also SEC v. Royal Bengal Longistics, Civil Action No. 23-civ – 61179 (S.D.Fla. Filed June 20, 2023).

FinCEN

Notice: The Financial Crimes Enforcement Network issued a notice to customers of financial institutions about reporting beneficial ownership information on July 26, 2024 (here).

Australia

Notice: The Australian Securities and Investment Commission announced that the New Financial Reporting and Audit Obligations for Superannuation Funds commence as of July 25, 2024, the date of the notice (here).

Singapore

Statement: The Monetary Authority issued a Monetary Policy Statement, dated July 26, 2024 (here).