This Week In Securities Litigation (Week of May 28, 2024)
Welcome back to everyone from a very nice holiday weekend. Now everyone can move forward to the beginning of summer.
Prior to the holiday weekend the Commission continued to file a series of new actions. Those included one based on a fraudulent purchase offer, an offering fraud, insider trading, misappropriation and free riding.
Be careful, be safe this week.
SEC Enforcement – Filed and Settled Actions
Statistics: This week the Commission filed 5 new civil injunctive actions and no new administrative proceedings, excluding tag-along actions and those that present a conflict for the author.
Unregistered securities: SEC v. Balina, Civil Action No. 1:22-cv-00950 (W.D. Tex.) is an action which names as defendant Ian Balina, a crypto influencer. In May 2018 Defendant purchased SPPK tokens from the issuer for $5 million. An investment pool had been organized by issuer, Sparkster, Ltd. Defendant promoted the tokens on YouTube, Telegram and other social media, beginning in May 2018, and continuing until July of that year. The Commission moved for summary judgment as did Defendant. The Court granted the Commission’s motion, concluding that the offering of the unregistered coins violated Securities Act Sections 5(a) and (c). The Court relied on the Howey test. The claim based on Section 17(a) was not resolved. The Commission previously settled claims with the firm’s CEO, Sajj Daya, based on violations of the registration provisions. He agreed to pay $35 million into a fund for investors. See Lit. Rel. No. 26011 (May 23, 2024).
Unregistered securities: SEC v. Fierro, Civil Action No. 3:20-cv-02104 (D.N.J.) is a previously filed action in which Defendants John Fierro and JDF Capital, Inc. were charged with failure to register as securities dealers with the SEC or to associate with a registered dealer. Nevertheless, they purchased and sold billions of shares of penny stocks over a period of about two years, beginning in January 2015. Earlier the Court concluded that the two defendants had violated Exchange Act Section 15(a), the broker-dealer registration provisions. In its final judgment the court ordered the two defendants to pay, on a joint-and-several basis, disgorgement of $4,053,148, prejudgment interest of $1,326,440 and a penalty of $500,000. The court also entered a permanent injunction against Defendants and directed that each cancel certain stock and conversion rights. See Lit. Rel. No. 26010 (May 23, 2024).
Fraudulent offer: SEC v. Betamabhatia, Civil Action No. 8:24-cv-001984 (D. Neb. Filed May 22, 2024) is an action which names as defendants Ganesh H. Betamabhatia, who previously managed funds, and Ramas Capital Management, LLC. He agreed to resolve claims that he defrauded three issuers by committing to purchase $263.5 million of their securities on behalf of investment funds he managed when in fact he and the funds had no money. Defendant consented to the entry of a permanent injunction based on Exchange Act Section 10(b) and agreed to pay a penalty of $250,000. He also agreed to the imposition of a five-year officer-and-director bar. See Lit. Rel. No. 26009 (D. Neb. Filed May 22, 2024).
Offering fraud: SEC v. Pedram Abraham Mehrian, Cvil Action No. 2:23-cv-08009 (C.D. Cal.) is a previously filed action which names as defendants Pedram Abraham, Strategic Legacy Investment Group, Inc. and SLIG High-Interest Liquid Savings Company. The companies induced investors to put their money into what were supposed to be real estate investments though notes issued by SLIG and SLIG High. The notes were claimed to pay returns as high as 9%. In fact, there was one pool of funds that at one point equaled about $4.2 million. The pool did not generate sufficient capital to pay the promised returns. Many of the claims made about the operation were not correct. The court entered final judgments enjoining Defendants SLIG and SLIG High from violating Securities Act Sections 5(a), 5(c) and 17(a) and Exchange Act Section 10(b). SLIG was ordered to pay disgorgement of $4,897,210.08 and prejudgment interest of $487,378.56; SLIG was also ordered to pay a civil penalty in the amount of $1,152,314. SLIG High was ordered to pay disgorgement of $647,767.49, prejudgment interest of $64,466.50 and a penalty of $1,152,314. See Lit. Rel. No. 26008 (May 20, 2024).
Manipulation: SEC v. Nutra Pharma Corp., Civil Action No. 2:18-cv-5459 (E.D.N.Y.) is a previously filed action which named as defendants: Erik Deitsch, former CEO of microcap issuer Nutra Phama Corporation, and Sean McManus, a consultant for Nutra Phama. The firm purports to make pain relief drugs based on cobra venom. Press releases issued by the company and Defendant Deitsch implied that the company had engaged a firm to distribute its product internationally. The releases also suggested that the firm was expanding its cobra venom facilities. The claims were false. The press releases were published while Mr. Deitsch and Nutra Pharma were conducting an unregistered offering of company shares. Defendant Deitsch engaged in a manipulation of the firm’s shares while the press releases were being distributed, according to the claims. The complaint as to Mr. Deitsch alleged violations of Securities Act Sections 5(a), 5(c), and 17(a) and Exchange Act Sections 9(a)(2), 10(b), 13(a) and 16(a). Mr. McManus was charged with violations of Securities Act Section 17(a) and Exchange Act Sections 10(b) and 15(a). On August 31, 2022, the court granted summary judgement on claims that Mr. Deitsch violated Securities Act Sections 5(a) and 5(c) and Exchange Act Sections 9(a)(2), 13(a), 13(d) and 16(a). The Commission dropped the aiding and abetting claim tied to the company as to Mr. Deitsch. On March 19, 2024, the court entered partial consent judgments against each individual Defendant based on the charged Sections. Mr. Deitsch agreed to a three-year officer and director bar and penny stock bar. The action concluded on May 13, 2024. The court entered consent judgments as to each Defendant. Each agreed to be permanently enjoined based on the Sections charged. Mr. Deitsch was ordered to pay disgorgement in the amount of $44,046.28 and prejudgment interest of $5,013.49 as well as a penalty of $30,000. Mr. McManus was ordered to pay disgorgement of $5,500 and prejudgment interest of $625.03 and a penalty of $5,500. He also agreed to a two-year penny stock bar. See Lit. Rel. No. 26007 (May 15, 2024).
Offering fraud: SEC v. St. Julien, Civil Action No. 1:16-cv-2193 (E.D.N.Y.) is an action which named as defendant Jared Mitchel. Beginning in May 2014 defendant was part of a scheme to deceive investors intro purchasing shares of FreeField Energy, Inc. by paying bribes to brokers who then sold the shares to investors. Investors were not aware that the share sellers had been bribed. The complaint alleged violations of Securities Act Section 17(a) and Exchange Act Section 10(b). On August 16, 2017, the court entered a partial judgment against Defendant Michael who consented to the entry of a permanent injunction based on the Sections cited in the compliant. On May 10, 2024, the court entered a final judgment against Defendant by consent in which Defendant agreed to pay disgorgement of $82,220, the payment of which will be satisfied by the payments made in the parallel criminal case, U.S. v. Mitchel, No. 16-234 (E.D.N.Y.). See Lit. Rel. No. 26006 (May 14, 2024).
Offering fraud: SEC v. Guess, Civil Action No. 8:24-cv-00172 (D. Neb. Filed May 9, 2024).Defendants in the action are Jerry D. Guess and Guess & Co. Corporation, Inc. Defendant Guess is the founder and president of Guess & Co. He has a checkered history that includes a conviction on a misdemeanor check fraud action and being named as a defendant in an action tied to a a claimed real estate fraud where he failed to appear for a court hearing and subsequently fled to Canada in the wake of a criminal contempt order that was entered against him. He also pleaded guilty to charges of wire fraud and filing false tax returns in 2011. In that case Mr. Guess was sentenced to prison and was released in 2017. Defendant Guess controls Guess & Co. For nearly one year, beginning in June 2021, Mr. Guess conducted an offering of Guess shares to the public. Potential investors were told that the firm was a diversified energy, health care, technology and real estate entity. The company was reputed to have earned millions of dollars in revenue from its operations in recent years. A business plan was distributed that supposedly was designed to revitalize rural America. Yet the only revenue earned by the company recently is $14,654 from the sale of 19 computers to an electronic re-seller store. The plan was based on false statements. The complaint alleges violations of Securities Act Sections 17(a)(1) and 17(a)(3). The case is in litigation. See Lit. Rel. 26005 (May 14, 2024).
Insider trading: SEC v. Poerio, Civil Action No. 2:24-cv-700 m(W.D. Pa. Filed May 10, 2024).Defendant Frank Poerio, Jr. is a resident of Gibsonia, Pennsylvania. Dick’s Sporting Goods, Inc., a relevant entity, is a sporting goods retailer incorporated in Delaware. Its principal place of business is in Coraopolis, Pennsylvania. The firm’s shares are registered under Exchange Act Section 12(b) and traded on the New York Stock Exchange. Its options are listed on several exchanges. Over a three-year period, beginning in 2019, Defendant traded shares of Dick’s Sporting Goods while in possession of material inside information about the company. He obtained the insider information by misappropriating it from Individual A. That person was employed by Dick’s Sporting Goods. His role at the firm included supporting internal operations and others. Individual A provided detailed analysis of in-store staffing and related business results. This person also used analytical tools and techniques to evaluate labor productivity to recommend the optimization of store labor investment. This position gave Individual A access to inside information. Defendant repeatedly misappropriated inside information from Individual A, a friend. Defendant and Individual A had repeated phone calls prior to quarterly announcements by the company. For example, before the August 26, 2020, earnings announcement the two had a series of telephone calls. Defendant increased his position in Dick’s Sporting Goods prior to the announcement by purchasing $637,450 worth of stock and options. This gave him 24,811 shares on August 26, 2020, the day of the earnings announcement. On that day Dick’s Sporting Goods announced earnings of $3.12 per share, an amount that significantly exceeded expectations. During the run up to the announcement Defendant repeatedly chatted with his friend, Individual A. The complaint alleges violations of Exchange Act Section 10(b). Defendant agreed to a settlement following the entry of a preliminary injunction against him. He agreed to the entry of a permanent injunction and to pay disgorgement, prejudgment interest and a civil penalty in amounts to be determined by the court. The U.S. Attorney’s Office for the Western District of Pennsylvania announced parallel criminal charges. See Lit. Rel. No. 26002 (May 10, 2024).
Misappropriation: SEC v. Fat Brands Inc., Civil Action No. 2:24-cv-03913 (C.D. Ca. Filed May 10, 2024). Named as defendants in the case are: the firm, a holding company that owns 17 restaurant brands, including Fatburger, Johnny Rockets and Twin Peaks; Andrew Wiederhorn, the chief executive officer of FAT and Fog Cutter Capital Group, Inc. (“FCCG”) which eventually merged with FAT; Ron Roe, CFO of FAT for a period; and Rebecca Hershinger, also a CFO of FAT for a time. Beginning in October 2017, and continuing for the next four years, Defendant Wiederhorn, the controlling shareholder of FAT, took almost $27 million of FAT’s cash. The funds were used for his personal expenses. Mr. Wiederhorn lied to the company board of directors and investors, repeatedly telling them that neither he nor his family had any direct or indirect interest in FAT cash. The impact on FAT was significant. Mr. Wiederhorn took about 40% of the firm’s cash during the period. This impaired the ability of the company to pay its creditors. To facilitate the scheme Mr. Wiederhorn enlisted the assistance of Ron Roe, the CFO of FAT. The complaint alleges violations of Securities Act Section 17(a)(2) and Exchange Act Sections 10(b), 13(a), 13(b)(2)(A), 13(b)(2)(B), 13(k) and 14(a). The U.S. Attorney’s Office for the Central District of California announced parallel criminal charges have been filed against Mr. Wiederhorn, FAT, Ms. Hershinger, and another individual. See Lit. Rel. No. 26001 (May 10, 2024).
Free riding: SEC v. Lacy, Civil Action No. 24-cv-1145 (M.D. Fla. Filed May 13, 2024). Named as a defendant in this case is Tyrone Johnny Lacy, Jr., a 25 year-old resident of Seffner, Florida. He was employed as a warehouse and backroom employee for several retailers and a consumer electronics distributor. Over a short period in October 2022 Mr. Lacy engaged in what was essentially a free riding scheme with two brokers. With each broker Mr. Lacy first initiated electronic deposits from his bank accounts into the two brokerage firms where he had established accounts. For example, with one broker Mr. Lacy falsely represented his profession, salary and the amount of cash he had. He then made a $270,000 unfunded deposit with the broker. Based on the so-called deposit, he purchased $330,000 of equity, exchange-traded securities. The trade was a loss – the firm had a loss of over $1,500 on the unfunded trade. Mr. Lacy, however, withdrew $1,600 before the phony unfunded money transfer was reversed. Similar conduct was undertaken with the other broker. One broker had a loss of about $1,500. The complaint alleges violations of Exchange Act Section 10(b). The case is in litigation. See Lit. Rel. No. 26004 (May 13, 2024).
ESMA
Paper: The European Securities and Markets Authority published a paper with recommendations for more efficient and attractive capital markets in the EU, dated May 22, 2024 (here).
BaFin
Paper: The Federal Financial Supervisory Authority published a paper titled Outsourcing in the Financial Sector: Greater transparency means greater security, dated May 24, 2024 (here).
Hong Kong
Article: The Hong Kong Securities & Futures Commission published a paper titled SFC welcomes industry-led public consultation on a voluntary code of conduct for ESG ratings and data products, dated May 17, 2024 (here).
Singapore
Paper: The Monetary Authority of Singapore published its Monetary Policy Statement for April 2024 (here).
Remarks: Chia Der Jiun, Managing Director, Monetary Authority of Singapore, delivered the opening remarks at the Asia Transition Conference, April 17, 2024 (here).
Tagged with: Insider trading, manipulation, offering fraud Misappropriation, SEC, unregistered securities
This Week In Securities Litigation (Week of May 28, 2024)
Welcome back to everyone from a very nice holiday weekend. Now everyone can move forward to the beginning of summer.
Prior to the holiday weekend the Commission continued to file a series of new actions. Those included one based on a fraudulent purchase offer, an offering fraud, insider trading, misappropriation and free riding.
Be careful, be safe this week.
SEC Enforcement – Filed and Settled Actions
Statistics: This week the Commission filed 5 new civil injunctive actions and no new administrative proceedings, excluding tag-along actions and those that present a conflict for the author.
Unregistered securities: SEC v. Balina, Civil Action No. 1:22-cv-00950 (W.D. Tex.) is an action which names as defendant Ian Balina, a crypto influencer. In May 2018 Defendant purchased SPPK tokens from the issuer for $5 million. An investment pool had been organized by issuer, Sparkster, Ltd. Defendant promoted the tokens on YouTube, Telegram and other social media, beginning in May 2018, and continuing until July of that year. The Commission moved for summary judgment as did Defendant. The Court granted the Commission’s motion, concluding that the offering of the unregistered coins violated Securities Act Sections 5(a) and (c). The Court relied on the Howey test. The claim based on Section 17(a) was not resolved. The Commission previously settled claims with the firm’s CEO, Sajj Daya, based on violations of the registration provisions. He agreed to pay $35 million into a fund for investors. See Lit. Rel. No. 26011 (May 23, 2024).
Unregistered securities: SEC v. Fierro, Civil Action No. 3:20-cv-02104 (D.N.J.) is a previously filed action in which Defendants John Fierro and JDF Capital, Inc. were charged with failure to register as securities dealers with the SEC or to associate with a registered dealer. Nevertheless, they purchased and sold billions of shares of penny stocks over a period of about two years, beginning in January 2015. Earlier the Court concluded that the two defendants had violated Exchange Act Section 15(a), the broker-dealer registration provisions. In its final judgment the court ordered the two defendants to pay, on a joint-and-several basis, disgorgement of $4,053,148, prejudgment interest of $1,326,440 and a penalty of $500,000. The court also entered a permanent injunction against Defendants and directed that each cancel certain stock and conversion rights. See Lit. Rel. No. 26010 (May 23, 2024).
Fraudulent offer: SEC v. Betamabhatia, Civil Action No. 8:24-cv-001984 (D. Neb. Filed May 22, 2024) is an action which names as defendants Ganesh H. Betamabhatia, who previously managed funds, and Ramas Capital Management, LLC. He agreed to resolve claims that he defrauded three issuers by committing to purchase $263.5 million of their securities on behalf of investment funds he managed when in fact he and the funds had no money. Defendant consented to the entry of a permanent injunction based on Exchange Act Section 10(b) and agreed to pay a penalty of $250,000. He also agreed to the imposition of a five-year officer-and-director bar. See Lit. Rel. No. 26009 (D. Neb. Filed May 22, 2024).
Offering fraud: SEC v. Pedram Abraham Mehrian, Cvil Action No. 2:23-cv-08009 (C.D. Cal.) is a previously filed action which names as defendants Pedram Abraham, Strategic Legacy Investment Group, Inc. and SLIG High-Interest Liquid Savings Company. The companies induced investors to put their money into what were supposed to be real estate investments though notes issued by SLIG and SLIG High. The notes were claimed to pay returns as high as 9%. In fact, there was one pool of funds that at one point equaled about $4.2 million. The pool did not generate sufficient capital to pay the promised returns. Many of the claims made about the operation were not correct. The court entered final judgments enjoining Defendants SLIG and SLIG High from violating Securities Act Sections 5(a), 5(c) and 17(a) and Exchange Act Section 10(b). SLIG was ordered to pay disgorgement of $4,897,210.08 and prejudgment interest of $487,378.56; SLIG was also ordered to pay a civil penalty in the amount of $1,152,314. SLIG High was ordered to pay disgorgement of $647,767.49, prejudgment interest of $64,466.50 and a penalty of $1,152,314. See Lit. Rel. No. 26008 (May 20, 2024).
Manipulation: SEC v. Nutra Pharma Corp., Civil Action No. 2:18-cv-5459 (E.D.N.Y.) is a previously filed action which named as defendants: Erik Deitsch, former CEO of microcap issuer Nutra Phama Corporation, and Sean McManus, a consultant for Nutra Phama. The firm purports to make pain relief drugs based on cobra venom. Press releases issued by the company and Defendant Deitsch implied that the company had engaged a firm to distribute its product internationally. The releases also suggested that the firm was expanding its cobra venom facilities. The claims were false. The press releases were published while Mr. Deitsch and Nutra Pharma were conducting an unregistered offering of company shares. Defendant Deitsch engaged in a manipulation of the firm’s shares while the press releases were being distributed, according to the claims. The complaint as to Mr. Deitsch alleged violations of Securities Act Sections 5(a), 5(c), and 17(a) and Exchange Act Sections 9(a)(2), 10(b), 13(a) and 16(a). Mr. McManus was charged with violations of Securities Act Section 17(a) and Exchange Act Sections 10(b) and 15(a). On August 31, 2022, the court granted summary judgement on claims that Mr. Deitsch violated Securities Act Sections 5(a) and 5(c) and Exchange Act Sections 9(a)(2), 13(a), 13(d) and 16(a). The Commission dropped the aiding and abetting claim tied to the company as to Mr. Deitsch. On March 19, 2024, the court entered partial consent judgments against each individual Defendant based on the charged Sections. Mr. Deitsch agreed to a three-year officer and director bar and penny stock bar. The action concluded on May 13, 2024. The court entered consent judgments as to each Defendant. Each agreed to be permanently enjoined based on the Sections charged. Mr. Deitsch was ordered to pay disgorgement in the amount of $44,046.28 and prejudgment interest of $5,013.49 as well as a penalty of $30,000. Mr. McManus was ordered to pay disgorgement of $5,500 and prejudgment interest of $625.03 and a penalty of $5,500. He also agreed to a two-year penny stock bar. See Lit. Rel. No. 26007 (May 15, 2024).
Offering fraud: SEC v. St. Julien, Civil Action No. 1:16-cv-2193 (E.D.N.Y.) is an action which named as defendant Jared Mitchel. Beginning in May 2014 defendant was part of a scheme to deceive investors intro purchasing shares of FreeField Energy, Inc. by paying bribes to brokers who then sold the shares to investors. Investors were not aware that the share sellers had been bribed. The complaint alleged violations of Securities Act Section 17(a) and Exchange Act Section 10(b). On August 16, 2017, the court entered a partial judgment against Defendant Michael who consented to the entry of a permanent injunction based on the Sections cited in the compliant. On May 10, 2024, the court entered a final judgment against Defendant by consent in which Defendant agreed to pay disgorgement of $82,220, the payment of which will be satisfied by the payments made in the parallel criminal case, U.S. v. Mitchel, No. 16-234 (E.D.N.Y.). See Lit. Rel. No. 26006 (May 14, 2024).
Offering fraud: SEC v. Guess, Civil Action No. 8:24-cv-00172 (D. Neb. Filed May 9, 2024).Defendants in the action are Jerry D. Guess and Guess & Co. Corporation, Inc. Defendant Guess is the founder and president of Guess & Co. He has a checkered history that includes a conviction on a misdemeanor check fraud action and being named as a defendant in an action tied to a a claimed real estate fraud where he failed to appear for a court hearing and subsequently fled to Canada in the wake of a criminal contempt order that was entered against him. He also pleaded guilty to charges of wire fraud and filing false tax returns in 2011. In that case Mr. Guess was sentenced to prison and was released in 2017. Defendant Guess controls Guess & Co. For nearly one year, beginning in June 2021, Mr. Guess conducted an offering of Guess shares to the public. Potential investors were told that the firm was a diversified energy, health care, technology and real estate entity. The company was reputed to have earned millions of dollars in revenue from its operations in recent years. A business plan was distributed that supposedly was designed to revitalize rural America. Yet the only revenue earned by the company recently is $14,654 from the sale of 19 computers to an electronic re-seller store. The plan was based on false statements. The complaint alleges violations of Securities Act Sections 17(a)(1) and 17(a)(3). The case is in litigation. See Lit. Rel. 26005 (May 14, 2024).
Insider trading: SEC v. Poerio, Civil Action No. 2:24-cv-700 m(W.D. Pa. Filed May 10, 2024).Defendant Frank Poerio, Jr. is a resident of Gibsonia, Pennsylvania. Dick’s Sporting Goods, Inc., a relevant entity, is a sporting goods retailer incorporated in Delaware. Its principal place of business is in Coraopolis, Pennsylvania. The firm’s shares are registered under Exchange Act Section 12(b) and traded on the New York Stock Exchange. Its options are listed on several exchanges. Over a three-year period, beginning in 2019, Defendant traded shares of Dick’s Sporting Goods while in possession of material inside information about the company. He obtained the insider information by misappropriating it from Individual A. That person was employed by Dick’s Sporting Goods. His role at the firm included supporting internal operations and others. Individual A provided detailed analysis of in-store staffing and related business results. This person also used analytical tools and techniques to evaluate labor productivity to recommend the optimization of store labor investment. This position gave Individual A access to inside information. Defendant repeatedly misappropriated inside information from Individual A, a friend. Defendant and Individual A had repeated phone calls prior to quarterly announcements by the company. For example, before the August 26, 2020, earnings announcement the two had a series of telephone calls. Defendant increased his position in Dick’s Sporting Goods prior to the announcement by purchasing $637,450 worth of stock and options. This gave him 24,811 shares on August 26, 2020, the day of the earnings announcement. On that day Dick’s Sporting Goods announced earnings of $3.12 per share, an amount that significantly exceeded expectations. During the run up to the announcement Defendant repeatedly chatted with his friend, Individual A. The complaint alleges violations of Exchange Act Section 10(b). Defendant agreed to a settlement following the entry of a preliminary injunction against him. He agreed to the entry of a permanent injunction and to pay disgorgement, prejudgment interest and a civil penalty in amounts to be determined by the court. The U.S. Attorney’s Office for the Western District of Pennsylvania announced parallel criminal charges. See Lit. Rel. No. 26002 (May 10, 2024).
Misappropriation: SEC v. Fat Brands Inc., Civil Action No. 2:24-cv-03913 (C.D. Ca. Filed May 10, 2024). Named as defendants in the case are: the firm, a holding company that owns 17 restaurant brands, including Fatburger, Johnny Rockets and Twin Peaks; Andrew Wiederhorn, the chief executive officer of FAT and Fog Cutter Capital Group, Inc. (“FCCG”) which eventually merged with FAT; Ron Roe, CFO of FAT for a period; and Rebecca Hershinger, also a CFO of FAT for a time. Beginning in October 2017, and continuing for the next four years, Defendant Wiederhorn, the controlling shareholder of FAT, took almost $27 million of FAT’s cash. The funds were used for his personal expenses. Mr. Wiederhorn lied to the company board of directors and investors, repeatedly telling them that neither he nor his family had any direct or indirect interest in FAT cash. The impact on FAT was significant. Mr. Wiederhorn took about 40% of the firm’s cash during the period. This impaired the ability of the company to pay its creditors. To facilitate the scheme Mr. Wiederhorn enlisted the assistance of Ron Roe, the CFO of FAT. The complaint alleges violations of Securities Act Section 17(a)(2) and Exchange Act Sections 10(b), 13(a), 13(b)(2)(A), 13(b)(2)(B), 13(k) and 14(a). The U.S. Attorney’s Office for the Central District of California announced parallel criminal charges have been filed against Mr. Wiederhorn, FAT, Ms. Hershinger, and another individual. See Lit. Rel. No. 26001 (May 10, 2024).
Free riding: SEC v. Lacy, Civil Action No. 24-cv-1145 (M.D. Fla. Filed May 13, 2024). Named as a defendant in this case is Tyrone Johnny Lacy, Jr., a 25 year-old resident of Seffner, Florida. He was employed as a warehouse and backroom employee for several retailers and a consumer electronics distributor. Over a short period in October 2022 Mr. Lacy engaged in what was essentially a free riding scheme with two brokers. With each broker Mr. Lacy first initiated electronic deposits from his bank accounts into the two brokerage firms where he had established accounts. For example, with one broker Mr. Lacy falsely represented his profession, salary and the amount of cash he had. He then made a $270,000 unfunded deposit with the broker. Based on the so-called deposit, he purchased $330,000 of equity, exchange-traded securities. The trade was a loss – the firm had a loss of over $1,500 on the unfunded trade. Mr. Lacy, however, withdrew $1,600 before the phony unfunded money transfer was reversed. Similar conduct was undertaken with the other broker. One broker had a loss of about $1,500. The complaint alleges violations of Exchange Act Section 10(b). The case is in litigation. See Lit. Rel. No. 26004 (May 13, 2024).
ESMA
Paper: The European Securities and Markets Authority published a paper with recommendations for more efficient and attractive capital markets in the EU, dated May 22, 2024 (here).
BaFin
Paper: The Federal Financial Supervisory Authority published a paper titled Outsourcing in the Financial Sector: Greater transparency means greater security, dated May 24, 2024 (here).
Hong Kong
Article: The Hong Kong Securities & Futures Commission published a paper titled SFC welcomes industry-led public consultation on a voluntary code of conduct for ESG ratings and data products, dated May 17, 2024 (here).
Singapore
Paper: The Monetary Authority of Singapore published its Monetary Policy Statement for April 2024 (here).
Remarks: Chia Der Jiun, Managing Director, Monetary Authority of Singapore, delivered the opening remarks at the Asia Transition Conference, April 17, 2024 (here).