This Week In Securities Litigation (Week of October 16, 2023)
Last week the Commission filed two new enforcement actions. The agency also adopted certain new rules and/or amendments regarding short selling and beneficial ownership.
SEC
Rules: The Commission adopted a Rule focused on increasing the transparency regarding short selling. Amendments to certain rules regarding short selling were also adopted. Those provisions centered on collecting data about short sales. The provisions were announced in an October 13, 2023 (here) release.
Rules: The Commission adopted rules regarding beneficial ownership in a released dated October 13, 2023 (here).
Have a great and safe week.
SEC Enforcement – Filed and Settled Actions
Statistics: This week the Commission filed no civil injunctive actions and 2 administrative proceedings, excluding tag-along actions and those that present a conflict for the author.
Manipulation: SEC v. Sharp, Civil Action No. 1:21-cv-11276 (D. Mass.) is a previously filed action which named as defendant Canadian citizen Frederick Sharp, and others for their role in pump-and-dump manipulations involving four microcap issuers during the period 2011 to 2019. Defendant Sharp was the mastermind of the schemes which typically concealed the identity of the controlling shareholder and then manipulated the share price of the issuer. The schemes created millions of dollars in profits. Defendant Avtar Dhillon of California was one of the Defendants who participated in the manipulations run by Defendant Sharp. Mr. Dhillon resolved the charges involving him, consenting to the entry of permanent injunctions based on Securities Act Sections 5 and 17(a) and Exchange Act Sections 10(b), 13(d) and 16(a). He also agreed to the entry of a penny stock bar and to pay disgorgement of $9,143,548 and prejudgment interest of $1,303,236. There is an offset of $1,493,500 tied to the parallel criminal case initiated by the U.S. Attorney’s Office for the District of Massachusetts. See Lit. Rel. No. 25881 (October 13, 2023).
Misrepresentations: In the Matter of Collaborative Financial Consulting LLC, Adm. Proc. File No. 3-21782 (October 11, 2023). Collaborative Financial is a limited liability company based in Beverly Hills, California. The firm is not registered with the Commission or any other agency. Jason Reynolds has been the sole member of Collaborative from January 7, 2016, to the present. Previously, he was a registered representative and investment adviser associated with registered entities. In June 2019 Respondent Reynolds resigned his positions as a registered representative and investment adviser. His registration was terminated. The next month Mr. Reynolds began using Collaborative to conduct business as an unregistered investment adviser and financial planner. He also provided services such as tax preparation and health insurance. For a fee, Mr. Reynolds and his firm met personally with clients. During the meetings advise was furnished on stocks traded on national exchanges. Typically, after the meeting the clients executed securities transactions. In some instances, Mr. Reynolds used the clients’ information to place and execute the transactions. Over a two-year period, beginning in 2019, Respondents received fees of at least $150,000 from eleven clients in several states. During the period Mr. Reynolds provided clients a document titled Client Agreement. It described the services being rendered. It also stated that Mr. Reynolds holds Series 7, 65, and 66 licenses in several states. He knew at the time the agreements were provided to the clients that those licenses had been terminated. The Order alleges violations of Advisers Act Section 206(2). To resolve the proceedings Respondents consented to the entry of cease-and-desist orders based on the Section cited in the Order. In addition, Mr. Reynolds was barred essentially from the securities business. He may apply for reentry after three years. The firm is censured. Mr. Reynolds will also pay a penalty of $20,000. That penalty is deemed satisfied by the amount paid in a parallel California state proceeding brought against each Respondent.
Conflicts: In the Matter of Wilmington Investment Management, LLC, Adm. Proc. File No. 3-21780 (October 10, 2023). Respondent Wilmington has been a registered investment adviser since 1992. The firm has about $599 million in regulatory assets under management. As of June 2021, the firm no longer served as the manager and investment adviser to the Wrap Program which is at the center of this case. Beginning in February 2020, and continuing until August of that year, the firm offered a wrap program option for advisory clients. In conjunction with the program Respondent was responsible for paying client trading costs. The firm avoided incurring transaction fees for wrap program clients by investing client funds in higher cost mutual fund shares from no-cost share classes of the same funds that were available at a higher cost but which did not charge a fee. Clients thus incurred a higher cost for the same shares. The adviser failed to fully disclose to clients the manner in which shares were selected for investment with their funds. The firm also breached its duty of care and to seek best execution as a result of the manner in which shares were selected for investment by clients in the wrap fund program. In addition, the advisor failed to implement written compliance policies and procedures to prevent the violations of the Advisors Act incurred here. The Order alleges violations of Advisers Act Sections 206(2) and 206(4). In connection with resolving the charges, the adviser reimbursed the clients involved. The firm also agreed to implement certain undertakings. To resolve the proceedings Respondent consented to the entry of a cease-and-desist order based on the Sections cited in the Order. The firm also agreed to pay disgorgement in the amount of $999,559, prejudgment interest of $77,588 and a penalty of $250,000.
Australia
Annual report: The Australian Securities and Investment Commission published its Annual Report for 2022 and 2023, according to a release dated October 13, 2023 (here). The Report states that during the period, the ASIC continued its “strong focus on enforcement actions in the last financial year, driving positive outcomes for consumers and small businesses, and maintaining trust and integrity, in Australia’s financial system.”
Singapore
Statement: The Monetary Authority of Singapore published its Policy Statement – October 2023, on October 13, 2023 (here). The statement details the economic views of the Authority.