This Week In Securities Litigation (Week of June 5, 2023)

The Commission settled its first insider trading case based on crypto assets last week. The agency also filed new actions centered on offering frauds and insider trading.

Be careful; be safe this week.

SEC Enforcement – Filed and Settled Actions

Statistics: Last week the SEC filed 4 civil injunctive action and no administrative proceedings, excluding 12j and tag-along proceedings as well as those presenting conflicts for the author.

Unregistered brokers: SEC v. Actus Fund Management, LLC, Civil Action No. 1:23-cv-11233 (D. Mass. Filed June 1, 2023) is an action which names as defendants the Fund, Luis Posner and Alfred Sollami. The Fund is controlled by the individual defendants. Over an eight-year period, beginning in 2013, Defendants acquired and sold over 60 billion shares of microcap stock, generating in excess of $100 million in gross stock sale profits from 2017 to 2021. Over the years the individual Defendants funded over 150 public companies with convertible promissory notes that equaled over 90% of the Fund assets. Later the notes were converted and sold into the markets. Defendants were not registered brokers. The complaint alleges violations of Exchange Act Sections 15(a)(1) and 20(b) (prohibits use of a fund to commit an unlawful act). The case is in litigation. See Lit. Rel. No. 25741 (June 1, 2023).

Offering fraud: SEC v. Melton, Civil Action No. 25740 M.D.N.C. Filed May 30, 2023) is an action that names as defendants: Marshall Melton, a licensed insurance agent and his firm and Integrated Consulting & Management, LLC. Defendant Melton was previously enjoined in a Commission enforcement action. Over a five-year period, beginning in March 2016, Defendants defrauded seven elderly investors of approximately $1.03 million to $1.49 million in a real estate deal. Specifically, investors were told their funds would be used to acquire real estate in Laurinburg, North Carolina that would be improved and sold at a profit. While some real estate was acquired, the majority of the money was misappropriated. In 2021 complaints from two investors induced Defendant Melton to transfer ownership of five properties to them in exchange for a release. To facilitate the transfers Defendant Melton induced two other investors to transfer their property interests based on the promise that they would receive something better, a fact that Defendant knew was false. The complaint alleges violations of Securities Act Section 17(a) and Exchange Act Section 10(b). The case is in litigation. See Lit. Rel. No. 25740 (June 1, 2023).

Offering fraud: SEC v. Gundy, Civil Action No. 5:23-cv-00700 (W.D. Tx. Filed May 31, 2023). Named as defendants in the action are: Chimene Van Gundy, the Queen of Mobile Homes; Outstanding Real Estate Solutions, Inc., a real estate firm that specialized in mobile homes which is now in receivership; Michael Trofimoff, the founder of a firm doing business as Georgia Mobile Home Investing; Santos Kidd, the CEO of Kinda’ole Financial Services, LLC, a firm that claimed to help home owners achieve their financial goals; and Maria Tosta, the former VP of Outstanding Real Estate responsible for bringing in clients. Beginning in 2018, and continuing for the next three years, the Queen of Mobile Homes and her firm, Outstanding Real Estate, solicited investors to acquire interests in the company. Defendants Trofimoff, Kidd and Tosta participated in the solicitations as commissioned salespeople. Investors were not told that the salespeople participating in the solicitations were paid. Potential investors were told that their funds would be used to purchase, refurbish and sell mobile homes, a false statement. They were also told that returns of 15% to 20% would be paid on the investments, another false statement. The investors were, in addition, told that there was a key-man insurance policy on Ms. Van Gundy’s life in recognition of her critical role for investors, another false staatement. About $18.5 million was raised from 600 investors. The securities sold were not registered with the Commission. The salespeople were not registered as brokers despite their role in the sales process. The complaint alleges violations of Securities Act Sections 5(a) and (c), and 17(a) of the Securities Act and Exchange Act Section 10(b), Defendant Tosta has agreed to settle the charges, consenting to the entry of permanent injunctions and agreeing to pay disgorgement and pre-judgment interest of $117,917.57 and a civil penalty of $60,000. See Lit. Rel. No. 25739 (May 31, 2023).

Insider trading-crypto: SEC v. Wahi, Civil Action No. 2:22-cv-01009 (W.D. Was.) is a previously filed action which named as defendants Ishan Wahi, a citizen of India employed as a Manager in Coinbase’s Asset and Investing Products group; Nikhil Wahi, a citizen of India and the brother of Defendant Ishan Wahi, who was employed as a senior manager at Salesforce; and Sameer Ramani, a U.S. citizen who is believed to be in India. Ishan Wahi invoked the 5th Amendment in testimony while Nikhil Wahi did not appear. Mr. Ramani is a close friend of Defendant Wahi. Beginning in June 2021, and continuing through April 2022, Defendant Ishan Washi repeatedly tipped his brother and Defendant Ramani to pending announcements that Coinbase, a large crypto platform, was about to announce on its blog or through Twitter, the listing of another crypto asset. The communication of that information violated the internal policies and procedures of Coinbase. The communications sparked repeated trading prior to the announcements. The suspicious trading of Nikhil and Ramani drew the attention of the Director of Security Operations at Coinbase who launched an investigation. On May 11, 2022, the Director scheduled an interview with Ishan who then sent a screen shot of it to Ishan using a phone with a foreign number. By trading in advance of Coinbase announcements while in possession of material non-public information about the pending announcements brother and Defendant Ramani amassed insider trading profits of over $1.1 million. The night before he was scheduled to testify Defendant Nikhil Wahi flew to India. The complaint alleges violations of Exchange Act Section 10(b). The two Wahi brothers settled with the Commission, consenting to the entry of permanent injunctions prohibiting future violations of Exchange Act Section 10(b). They also agreed to pay disgorgement and prejudgment interest which will be satisfied by the order in the parallel criminal case requiring the payment of forfeiture. In that action two brothers have been sentenced to prison. This is the Commission’s first insider trading case tied to crypto assets. See SEC Press Release, May 30, 2023.

ESMA

Statement: The European Supervisory Authorities published a statement putting forth a common understanding of greenwashing. It also warns about the risks involved. The statement was issued on June 1, 2023 (here).

Singapore

Consultation: The Monetary Authority of Singapore announced that artificial intelligence will take “center state” at the Singapore FinTech Festival 2023. Specifically, the conference will feature applications of artificial intelligence in the financial sectors, according to a June 1, 2023 release (here).