This Week In Securities Litigation (Week of June 16, 2024)
As summer kicked off, the Commission filed four new actions and resolved others. The new cases centered on a fraudulent scheme, an offering fraud, misappropriation and a financial fraud case.
Be careful, be safe this week.
SEC
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.
Fraudulent scheme: SEC v. McLellan, Civil Action No. 16-cv-10874 (D. Mass.) is a previously filed action which named as defendant Ross McLellan, formerly an executive at State Street Corporation employed in the firm’s transition management business. That section is involved with large, and often illiquid transactions, that are in flux with other institutional investors. During the period February 2010 to September 2011 Defendant participated in, and encouraged others, to personally profit from these transactions by adding inappropriate and in some instances hidden charges. Clients were overcharged about $20 million as a result of the scheme. The complaint alleges violations of Securities Act Sections 17(a) and Exchange Act Section 10(b). The court entered a final judgment against Mr. McLellan based on the Sections cited in the complaint. The judgement enjoins Mr. McLellan from future violations of the Sections cited in the complaint. In a parallel criminal action Defendant was found guilty by a jury and sentenced to serve 18 months in prison. See Lit. Rel. No. 26034 (June 20, 2024).
False financial claims: SEC v. Western Sierra Resources Corp., Civil Action No. 24-cv-01705 (D. Col. Filed June 18, 2024) is an action which names as defendants the company, Roger Johnson and Dennis Atkins, respectively a firm engaged in natural resource development and mining and the CEO and CFO of the company. Defendants are alleged to have repeatedly made claims that the company held interests in a gold mine worth millions of dollars. In fact, the claims were false. The complaint alleges violations of Exchange Act Section 10(b). The case is in litigation. See Lit. Rel. No. 26032 (June 18, 2024).
Offering fraud: SEC v. Brown, Civil Action No. 4:24-cv-00558 (N.D. Tx. Filed June 17, 2024). This offering fraud action is tied to space. Named as defendants in the action are: Matthew Brown and Mathew Brown Companies, LLC. Mr. Brown is believed to reside in the Dallas-Fort Worth area, although it is not clear. Defendant Matthew Brown Companies is a Delaware limited liability company based in Fort Worth, that was created in April 2020 and operated by Defendant Matthew Brown. This action centers on Virgin Group which spun off newly formed Virgin Orbit from Virgin Galactic Holdings, Inc. (“Virgin Galactic”) in 2017. The former was involved primarily with space tourism services. The latter provided commercial satellite launch services. Virgin Orbit began trading publicly on the Nasdaq after it the spinoff. In March 2023 Mr. Brown sent an unsolicited message to Virgin Orbit executives. It offered to invest $200 million in Virgin Orbit. At the time Virgin Orbit was on the verge of bankruptcy. Defendant Brown offered a series of statements regarding his investment experience and personal financial situation. For example, he claimed to have invested “hundreds of millions of dollars” of his “personal capital” primarily in space companies. He also sent the executives what appeared to be a screen shot of his personal bank account showing a balance of over $182 million. The claims were false; the bank account balance was less than $1. The media began publishing the claims. The share price for Virgin Orbit rose over 30%; Mr. Brown was asked to, and did, appear on CNBC. During his appearance Mr. Brown discussed his so-called investment experience and over 13 space companies as well as the legitimacy of his $200 million offer. Subsequently, Defendant Brown demanded a “break-up fee” from Virgin Orbit when the firm made inquiries. The deal never moved forward. The complaint alleges violations of Exchange Act Section 10(b). The case is in litigation. See Lit. Rel. No. 26031 (June 17, 2024).
Misappropriation: SEC v. Goltry, Civil Action No. 3:24-cv-06976 (D. N.J. Filed June 12, 2024). Named as defendants in this action are: Joshua Goltry and JAG Capital Advisors, LLC. Mr. Goltry is the founder and investment manager of JAG Capital. The firm’s principal place of business was Miramar, Florida; JAG is a Florida limited liability company. It purported to be a long/short equity fund and pooled investment vehicle. The firm invested in e-commerce, software, cybersecurity, semiconductor, fintech, gaming and alternative energy industries. Over a three-year period, beginning in 2020, Defendants raised at least $3 million from about nine investors. In doing so, Defendants “lied about nearly every aspect of JAG Fund’s operations, including its performance, investment activity and its risk protocols,” according to the complaint. Defendants lost over $1.7 million of the investor funds through high-risk trading and speculative investments. Defendants also misappropriated over $1.1 million of the investor funds, diverting them to personal use. And, Defendants concealed the losses from the fund administrator, as well as the clients, by falsely inflating the value of other assets. By August 2023 the Fund was depleted; now it is defunct. The complaint alleges violations of Securities Act Section 17(a), Exchange Act Section 10(b), and Advisers Act Sections 206(1), 206(2) and 206(3). Defendants agreed to settle the action, consenting to the entry of permanent injunctions based on the Sections cited in the complaint. The court will determine monetary penalties at a later date. The U.S. Attorney’s Office for the District of New Jersey announced criminal charges against Mr. Goltry.
Financial fraud: SEC v. Rosenberger, Civil Action No. 1:22-cv-4736 (S.D.N.Y.) is a previously filed action which names a defendant Karen Rosenberger. The complaint alleges that Defendant engaged in accounting misconduct that caused Snchronoss Technologies, Inc., to materially overstate revenue. Subsequently, Defendant sought to conceal her wrongful conduct. The complaint alleged violations of Exchange Act Sections 10(b), 13(a), 13(b)(2)(A), 13(b)(2)(B) and the related rules. Earlier in the case the court granted the Commission’s motion for partial summary judgment. Subsequently, Defendant settled with the agency, consenting to the entry of permanent injunctions based on each of the sections cited in the complaint. The court entered judgments based on each of the sections. It also barred Defendant from serving as an officer or director. The final judgment, in addition, directed that Defendant pay a penalty of $125,000 and reimburse the company over $430,000 under SOX Section 304 in an order dated June 14, 2024. See Lit. Rel. No. 26030 (June 14, 224).
Fraudulent offering: SEC v. Tassey, Civil Action No. 2:24-cv-01120 (D. Nev. Filed June 1, 2024) is an action which names as defendant Yanni Tassev, currently believed to be a resident of Bulgaria. The complaint alleges that between April 2022 and January 2023 Defendant, though an entity named Sigmas Power, and while employed at Boxable Inc., raised about $1.595 million from seven investors. The shares were of a company named Boxable, Inc. Yet Defendant did not have the ability to offer the shares for sale. The complaint alleges violations of each subsection Securities Act Section 17(a) and Exchange Act Section 10(b). The case is pending. See Lit. Rel. No. 26033 (June 18, 2024).
Australia
Remarks: ASIC Commissioner Alan Kirkland, addressed the Professional Planner Licensee Summit on June 18, 2024. The Australian Securities and Futures Executive delivered remarks focused on the current priorities of the regulatory agency (here).
BaFin
Remarks: “Now is the time to prepare” is the title of remarks published by the regulator. The publication is designed to urge investors that while the economy is doing well as now, the risk of defaults is rising. Accordingly, now, June 20, 2024, is the time to prepare. (here).
Hong Kong
Release: The Securities and Futures Commission of Hong Kong issued a release on June 19, 2024 (here) titled “SFC’s 35th year and beyond: guiding Hong Kong’s capital markets with mission and vision” (here).
Singapore
Release: The Monetary Authority of Singapore issued a release titled “8th Bilateral MAS-CSRC Roundtable Fosters Greater Cooperation in Capital Markets Activities, June 18, 2024 (here).