This Week In Securities Litigation (Week of September 25, 2023)
As we near the end of the Government fiscal year, the Commission filed a variety of cases. The cases focused on offering frauds, cross trading, short sales, a breach of duty, SARs, insider trading, false statements, crypto assets and related party transactions.
Have a great and safe week.
SEC Enforcement – Filed and Settled Actions
Statistics: This week the Commission filed 14 civil injunctive actions and 6 administrative proceedings, excluding tag-along actions and those that present a conflict for the author.
Offering fraud: SEC v. Fernandez, Civil Action No. 0:23-cv-61816 (S.D.Fla. Filed September 22, 2023) is an action which names as defendants Steven A. Fernandez and Monica O’Mealia, husband and wife. The claim here – that defendants ran a Ponzi scheme – is tied to a series of cases brought based on related allegations. The original scheme collapsed when the Commission filed its case against those involved. SEC v. MJ Capital Funding, LLC., Civil Action No. 21-61644 (S.D. Fla.). Here Defendants are alleged to have acted as brokers without registering beginning in August 2020. Through this process they made $1.96 million paid out of investor assets. The complaint alleges violations of Securities Act Sections 5(a) and 5(c) and Exchange Act 15(a). Defendants resolved the action, consenting to the entry of permanent injunctions based on the Sections cited in the complaint. Each Defendant also agreed to pay, on a joint and several basis, disgorgement and prejudgment interest of $755,017 and each will pay a penalty of $75,000. See Lit. Rel. No. 25846 (September 22, 2023).
Cross trades: In the Matter of Elsa M. Doyle, Adm. Proc. File No. 3-21705 (September 22, 2023) is an action against a portfolio manager for six money market funds advised by Adviser A. Beginning in May 2020, and continuing through March 2022, Respondent engaged in 27 unlawful prearranged cross trades involving five money market funds. Four of those were registered investment companies for which Respondent severed as portfolio manager. For some of the cross trades, for example, Ms. Doyle directly engaged with a third party broker to sell the securities from one Fund and then to buy the same securities back through the same broker on behalf of another fund. The Order alleges violations of Investment Company Act Sections 17(a)(1) and (2). To resolve the proceedings Respondent consented to the entry of a cease-and-desist order based on the Sections cited in the Order. She also agreed to pay a penalty of $30,000.
Short sales: In the Matter of Citadel Securities, LLC, Adm. Proc. File No. 3-21703 (September 22, 2023). Over a five-year period, beginning in September 2015, Respondent, a registered broker-dealer, mismarked certain sell orders and failed to comply with Regulation SHO. The mismarking resulted from a coding error when handling riskless principal orders. In those orders the client and firm sought to pair long and short orders. The coding error did not impact the records of Citadel. It did cause inaccuracies on intra-day transactions. In resolving the matter, Respondent agreed to implement certain undertakings. The Order alleges violations Rule 200(g) of Regulation SHO. Respondent consented to the entry of a cease-and-desist order based on the Rule and Regulation cited in the Order. The firm also agreed to pay a penalty of $7 million.
Breach of duty: In the Matter of American Infrastructure Funds, LLC, Adm. Proc. Fie No. 3-21704 (September 22, 2023) is a proceeding which names as respondent the registered investment adviser. Respondent breached its fiduciary duty in three ways: 1) It entered into an arrangement to accelerate a portfolio company monitoring fee without disclosure; 2) it transferred an asset owned by advisor to a new entity without disclosing the conflicts of interest; and 3) the advised funds incurred expenses that should have been paid by a fund advised by an affiliated adviser. In resolving the matter, Respondent agreed to implement certain undertakings. The Order alleges violations of Advisers Act Sections 206(2), 206(4) and certain related rules. To resolve the proceedings Respondent consented to the entry of a cease-and-desist order based on the Sections and Rues cited in the Order. The firm also agreed to pay a penalty of $1,645,460.
SARs: SEC v. J.H.Darbie & Co., Civil Action No. 1:22-civ-10482 (S.D.N.Y) is a previously filed action that settled. The complaint alleged that defendant broker-dealer failed to file SARs regarding suspicious activity involving penny stocks. Defendant resolved the action by consenting to the entry of an injunction based on Exchange Act Section 17(a). In conjunction with the settlement Defendant will retain an anti-money laundering consultant and pay a penalty of $125,000. See Lit. Rel. No. 25844 (September 22, 2023).
Offering fraud: SEC v. Empirex Capital, LLC, Civil Action No. 1:23-cv-23627 (S.D. Fla. Filed September 21, 2023) is an action which names as defendants Rafael Alberto Vargas Gonzalez and his firm. Over a five-year period, beginning in July 2018, Defendants raised about $6.6 million from 162 invests. Defendants used a series of misrepresentations about his qualifications as an investment adviser to solicit investors along with claims about profitability. The complaint alleges violations of Securities Act Sections 5(a), 5(c) and 17(a) and Exchange Act Section 10(b). The case is in litigation. See Lit. Rel. No. 25846 (September 22, 2023).
Inside trading: SEC v. Backer, Civil Action No. 1:23-cv-08331 (S.D.N.Y. Filed September 20, 2023) is an action which names a defendant Jonathan Becker. The case is related to an earlier action, SEC v. Markin, Civil Action No. 1:22-cv-06276 (S.D.N.Y. Filed July 25, 2022). The case centers on the tender offer of Merk & Co. for Pandon. The initial complaint centered on the misappropriation by Seth Markin of material non-public information about the deal from his romantic partner. This action is based on the same misappropriated information. Mr. Marken tipped others, one of whom tipped Mr. Backer. This case was developed by the staff based on data analytics. The complaint alleges violations of Exchange Act Section 10(b). The case is in litigation. See Lit. Rel. No. 25843 (September 21, 2023).
False statements: In the Matter of Kandi Technologies Group, Inc., Adm. Proc. File No. 3-21697 (September 21, 2023) is a proceeding which names the firm as Respondent. The firm is a Delaware corporation based in the Jinhua Economic Development Zone, Zhejiang Province, People’s Republic of China. The Order centers on false statements made by the firm in 2019 and 2020. The statements focused on the vehicles the firm made which were largely go-karts, all-terrain vehicles and cars. The statements focused on the quality of the vehicles and the plans of the company. The agency ordered the firm, based on Securities Act Section 17(a)(3) and the related rules, to cease-and desist and to pay a penalty of $710,000.
Offering fraud: SEC v. Aras Investment Group S.A.P.I. de C.V., Civil Action No. 3:23-civ-353 (W.D. Tex. Filed September 21, 2023) is an action which names as defendants: Aras Investment Group, a Mexican entity controlled by Defendant Gutierrez; Armando Gutier, the CEO of Aras; Marria de Lourdes Tolentino Roque, also a Mexican citizen and the owner of Aras Business Group LLC or LLC; Diayanira Rendon Trejo, a Mexican citizen and the bookkeeper for LLC; Efren Norberto Quiroz Gardea, a Mexican citizen and a promoter of Aras; and Luis Rcardo Quiroz Garden, also a Mexican citizen and a promoter of Aras. The complaint centers on an offering fraud that began in March 2020 and continued through November 2021. During the period native Spanish speakers were solicited to invest a total of about $15 million based on a claim that the funds would be used to invest in real estate and Mexican mining operations. In fact, the firm was a Ponzi scheme. Ponzi type payments were made to certain investors. The complaint alleges violations of Securities Act Section 5(a), 5(c) and 17(a) and Exchange Act Sections 10(b), 20(a) and aiding and abetting. Defendants Efren and Luis Quiroz, Tolenino and Rendon Consented to the entry of judgments against them on all claims. Defendants Eren and Luis Quiroz also consented to settled Commission orders barring each from association with a registered entity or participation in a penny stock offering. See Lit. Rel. No. 25840 (September 21, 2023).
Crypto assets: In the Matter of James Michael Wines, Adm. Proc. File No. 3-21682 (September 20, 2023) is a proceeding against the person who formed the Gebo Group LLC. The firm assisted in raising about $1.5 million in May 2021 through the sale of crypto assets that were securities. Respondent cooperated in the investigation. The Order alleges violations of Securities Act Sections 17(a)(2) & (3). Respondent consented to the entry of a cease-and-desist order based on the Sections cited in the Order. No penalty was imposed based on cooperation.
Offering fraud: SEC v. Chowdhury, Civil Action No. 8-cv-01741 (C. D. Cal. Filed September 19, 2023) is an action which names as defendants: Faiz M. Chowdhury, a dual citizen of the U.S. and Bangladesh, and two entities he controls, DTI Holdings, Inc. and Quantum Age Corporation. Defendant began using his two firms to solicit investors, in what he claimed would be innovative graphene-based technologies. He told investors that he would search out creative firms and that their money would be put into a fund to develop the new companies. About $25 million was raised. Little of those funds were used as promised. 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. 25835 (September 19, 2023).
Offering fraud: SEC v. Sumchal, Civil Action No. 2:23-cv-02027 (ED. Cal. Filed September 19, 2023) is an action which names as Respondent, Tilila Walker Sumchai, a Tougi national. Over a period of ten months, beginning in January 2021, Respondent targeted Tongan Americans in the U.S. to acquire shares in an entity she called Tong Tupe. The investment supposedly paid a return of over 1,433% to the targeted Tongan investors. The returns were alleged to have been generated by a secret algorithm and guaranteed. In fact, the firm and claimed transaction were shams. About $11.8 million was raised from over 1,000 retail investors. The complaint alleges violations of Securities Act Sections 5(a), 5(c) and 17(a) and Exchange Act Section 10(b). The case is in litigation.
Registration: SEC v. Concord Management LLC, Civil Action No. 23-cv-8253 (S.D.N.Y. Filed September 19, 2023). Despite the dictates of the Advisers Act, Defendants Concord Management LLC and Michael Martin have operated an advisory that has had billions of dollars under management for years. Defendant Concord Management is based in Tarrytown New York. Mr. Martin was born in Russia and emigrated to the United States in 1988. He now resides in New York state and is a U.S. citizen. He founded Concord in 1988. The firm has only one client, UBO. A, a Russian individual that is the ultimate beneficial owner (UBO) of all the assets under management by Concord. Mr. Martin has operated an advisory for the benefit of his one client since 1999. The advisory, which has a complex structure, provides supervisory and management services so that the client’s assets are continuously invested in a diverse portfolio of US private fund investments. Over time the size of the investments has increased. By 2012, for example, Respondents employed about a dozen investment professionals. As of January 2022, Concord managed a private fund portfolio with an estimated value of $7.2 billion. From 2012 through 2022 Respondents received about $85 million in total compensation from its client. The client owned the private fund investments through an interrelated group of entities. Concord, however, is one business. In March 2022 the client was designated as a sanctioned individual by the U.K. and the EU. The assets were frozen. Since the freeze Respondents have not actively engaged in investment activity. Nevertheless, many of the underlying investments remain active. The Order alleges violations of Advisers Act Section 209(d). The case is in litigation.
Related party transaction: In the Matter of Lyft, Inc., Adm. Proc. File No. 3-21-672 (September 18, 2023) is a proceeding which names as respondent the transportation network. The Order alleges that Respondent failed to disclose a related party transaction. The issue centered on a Director placed on the board by a large Shareholder. The Director arranged for the sale of a block of about 7.7 million company shares to an SPV. The vehicle was set up by an investment adviser affiliated with the Director. Respondent approved the transaction and participated in the deal. The Director was paid millions of dollars in connection with the deal. The Order alleges violations of Exchange Act Section 13(a). To resolve the proceedings Respondent consented to the entry of a cease-and-desist order based on the Section cited in the Order. Lyft also agreed to pay a penalty of $10 million.
Offering fraud: SEC v. Rapid Therapeutic Science Laboratories, Inc., Civil Action No. 3:23-cv-02081 (N.D. Tx. Filed September 18, 2023) is an action what names as defendants the firm which is controlled by attorney Donal R. Schmidt, Jr., also a named defendant. The firm manufactures and sells inhaler devices that contain cannabidiol, a substance derived from the hemp plant. When soliciting investors Defendant Schmidt made false statements that included: 1) a claim the company had obtained an industrywide certification relating to safety; 2) that Rapid had secured major contracts; 3) that the firm had a laboratory which was in compliance with international standards; 4) that its chief science officer was an engineer with advanced degrees; 5) that the inhalers were safe; and 6) that the firm’s stock listing on Nasdaq had been approved. Each claim was false. Nevertheless, about $2.1 million was raised from 51 investors over a period of about one year, beginning in February 2020. The complaint alleges violations of Securities Act Section 17(a) and Exchange Act Section 10(b) and 13(a) and related rules. The case is in litigation. See Lit. Rel. No. 25832 (September 18, 2023).
Insider trading: SEC v. Ferrie, Civil Action No. 23-1217 (D. Conn. Filed September 18, 2023) is an action which names as defendant Jonathan J. Ferrie, controller of Cigna Group, a large health care insurance company. During the course of his duties at the firm in the second quarter of 2021, Defendant learned that health care costs were climbing due to the pandemic and for routine care from the COVID injections. He purchased securities that would only appreciate if the stock price fell. When the quarterly results were announced the stock price dropped 13%. Defendants securities had a profit of about 236% or $16,039.78 on an investment of $6,782.05. The complaint alleges violations of Exchange Act Section 10(b). The case is in litigation. See Lit. Rel. No. 25830 (September 18, 2023).
False statements: SEC v. Miller, Civil Action No. 23 Civ. 8261 (S.D.N.Y. Filed September 19, 2023) is an action against William Miller, who had a revenue sharing agreement with Woodstock Capital, a feeder fund that was managed by an unregistered investment adviser. It invested all of its funds into a master fund, Woodstock Master Capital. Between August and November 2019 Defendant made misstatements to a charter school in Minnesota and a real estate fund in Michigan regarding the investment strategy for the funds. The complaint alleges violations of Securities Act Section 17(a), Exchange Act Section 10(b) and Advisers Act Section 206(4)-b. The case is in litigation. See Lit. Rel. No. 25834 (September 19, 2023).
Offering fraud: SEC v. MFB 111 Investment, LLC, Civil Action No. 1:23-23583 (S.D. Fla. Filed September 19, 2023) is an action which names as defendants Monise Francois Bien Aime, a Haitian citizen residing in Florida and his firm, MFB 111. Over a period of less than two years, beginning in March 2021, Defendants raised over $1.8 million from about 170 investors. Those investors were told that the money would be invested in certain types of real estate and that they would receive weekly or monthly payment of up to 10% of principal and a full return of capital within 90 days. The representations were false. The complaint alleges violations of Securities Act Sections 5(a), 5(c) and 17(a) and Exchange Act Section 10(b). The case is in litigation. See Lit. Rel. No. 25833 (September 19, 2023).
Insider trading: SEC v. Prete, Civil Action No. 3:23-cv-20452 (D. N.J. Filed September 18, 2023). Robert Del Prete is a consultant regarding accounting services. This case centers on the merger of HighCape Capital Corp. with Quantum-Si Incorporated. Defendant, a consultant for HighCape, attended board meetings in January and February 2021 where the planned merger was discussed. In mid-February he purchased 5,789.65 securities of HighCap less than one hour after attending a board meeting. When the deal was announced he realized almost a 100% profit of $560,170. When quested about the transaction he falsely stated he was not aware of the proposed deal. The complaint alleges violations of Exchange Act Section 10(b). Defendant settled with the Commission, consenting to the entry of a permanent injunction based on the Section cited in the complaint and to an officer/director bar. In the settlement he also agreed to pay disgorgement and a penalty. The U.S. Attorney’s Office for the District of New Jersey announced parallel criminal charges. See 25836 (September 19, 2023).
Failure to register: SEC v. Rondini, Civil Action No. 9-cv-81285 (S.D. Fla. Filed September 18, 2023). Named as defendants in Rondini are: Wilson Rondini, III, Falcon Capital LLP and Falcon Capital Partners Limited. Mr. Rondini is the managing partner of Falcon LLP and indirectly owns Falcon Limited. Falcon Capital had been registered with the U.K.’s Financial Conduct Authority. It has never been registered with the Commission. Falcon Limited is a Hong Kong entity that is owned by Falcon Capital Partners Private Foundation which is registered in Curacao and is owned by Mr. Rondini. Falcon Capital has never been registered with the Commission. Each Defendant effected transactions in securities for others. Each of the entity Defendants entered into agreements with over a dozen entities (“issuers”), or their underwriters, agreeing to be paid commission-based compensation in exchange for their efforts too solicit investors to purchase issuers’ securities. Following the execution of the agreements Defendant Rondini distributed mass emails to prospective investors, touting the issuers’ stock and encouraging investors to purchase it. He engaged in similar conduct in one-on-one discussions with potential investors. Each of Defendants also purchased and sold securities for their account. These transactions were typically called “private transactions”. In some transactions Defendants would purchase the shares for their account and then resell them to an investor at a mark-up. The actions of Defendants violated Exchange Act Section 15(a)(1) since none were registered with the Commission as either a broker or a dealer. Those of Defendant Rondini also violated Exchange Act Section 20(a). The case is in litigation. See Lit. Rel. No. 25831 (September 18, 2023). See Lit. Rel. No. 25831 (September 18, 2023).
FinCEN
Publication: The regulator published a Compliance Guide to assist small business report beneficial ownership information, according to a September 18, 2023, release (here).
BaFin
Paper: The Federal Financial Supervisory Authority published a paper titled Regulatory Pressure Can Drive Forward the Digitalization of the Financial Sector by Dr. Sibel Korateps, an expert in the area of IT supervision at the agency (here).
Hong Kong
Publication: The Securities and Futures Commission of Hong Kong published an amended takeovers and share buy-back code on September 21, 2023 (here).
This Week In Securities Litigation (Week of September 25, 2023)
As we near the end of the Government fiscal year, the Commission filed a variety of cases. The cases focused on offering frauds, cross trading, short sales, a breach of duty, SARs, insider trading, false statements, crypto assets and related party transactions.
Have a great and safe week.
SEC Enforcement – Filed and Settled Actions
Statistics: This week the Commission filed 14 civil injunctive actions and 6 administrative proceedings, excluding tag-along actions and those that present a conflict for the author.
Offering fraud: SEC v. Fernandez, Civil Action No. 0:23-cv-61816 (S.D.Fla. Filed September 22, 2023) is an action which names as defendants Steven A. Fernandez and Monica O’Mealia, husband and wife. The claim here – that defendants ran a Ponzi scheme – is tied to a series of cases brought based on related allegations. The original scheme collapsed when the Commission filed its case against those involved. SEC v. MJ Capital Funding, LLC., Civil Action No. 21-61644 (S.D. Fla.). Here Defendants are alleged to have acted as brokers without registering beginning in August 2020. Through this process they made $1.96 million paid out of investor assets. The complaint alleges violations of Securities Act Sections 5(a) and 5(c) and Exchange Act 15(a). Defendants resolved the action, consenting to the entry of permanent injunctions based on the Sections cited in the complaint. Each Defendant also agreed to pay, on a joint and several basis, disgorgement and prejudgment interest of $755,017 and each will pay a penalty of $75,000. See Lit. Rel. No. 25846 (September 22, 2023).
Cross trades: In the Matter of Elsa M. Doyle, Adm. Proc. File No. 3-21705 (September 22, 2023) is an action against a portfolio manager for six money market funds advised by Adviser A. Beginning in May 2020, and continuing through March 2022, Respondent engaged in 27 unlawful prearranged cross trades involving five money market funds. Four of those were registered investment companies for which Respondent severed as portfolio manager. For some of the cross trades, for example, Ms. Doyle directly engaged with a third party broker to sell the securities from one Fund and then to buy the same securities back through the same broker on behalf of another fund. The Order alleges violations of Investment Company Act Sections 17(a)(1) and (2). To resolve the proceedings Respondent consented to the entry of a cease-and-desist order based on the Sections cited in the Order. She also agreed to pay a penalty of $30,000.
Short sales: In the Matter of Citadel Securities, LLC, Adm. Proc. File No. 3-21703 (September 22, 2023). Over a five-year period, beginning in September 2015, Respondent, a registered broker-dealer, mismarked certain sell orders and failed to comply with Regulation SHO. The mismarking resulted from a coding error when handling riskless principal orders. In those orders the client and firm sought to pair long and short orders. The coding error did not impact the records of Citadel. It did cause inaccuracies on intra-day transactions. In resolving the matter, Respondent agreed to implement certain undertakings. The Order alleges violations Rule 200(g) of Regulation SHO. Respondent consented to the entry of a cease-and-desist order based on the Rule and Regulation cited in the Order. The firm also agreed to pay a penalty of $7 million.
Breach of duty: In the Matter of American Infrastructure Funds, LLC, Adm. Proc. Fie No. 3-21704 (September 22, 2023) is a proceeding which names as respondent the registered investment adviser. Respondent breached its fiduciary duty in three ways: 1) It entered into an arrangement to accelerate a portfolio company monitoring fee without disclosure; 2) it transferred an asset owned by advisor to a new entity without disclosing the conflicts of interest; and 3) the advised funds incurred expenses that should have been paid by a fund advised by an affiliated adviser. In resolving the matter, Respondent agreed to implement certain undertakings. The Order alleges violations of Advisers Act Sections 206(2), 206(4) and certain related rules. To resolve the proceedings Respondent consented to the entry of a cease-and-desist order based on the Sections and Rues cited in the Order. The firm also agreed to pay a penalty of $1,645,460.
SARs: SEC v. J.H.Darbie & Co., Civil Action No. 1:22-civ-10482 (S.D.N.Y) is a previously filed action that settled. The complaint alleged that defendant broker-dealer failed to file SARs regarding suspicious activity involving penny stocks. Defendant resolved the action by consenting to the entry of an injunction based on Exchange Act Section 17(a). In conjunction with the settlement Defendant will retain an anti-money laundering consultant and pay a penalty of $125,000. See Lit. Rel. No. 25844 (September 22, 2023).
Offering fraud: SEC v. Empirex Capital, LLC, Civil Action No. 1:23-cv-23627 (S.D. Fla. Filed September 21, 2023) is an action which names as defendants Rafael Alberto Vargas Gonzalez and his firm. Over a five-year period, beginning in July 2018, Defendants raised about $6.6 million from 162 invests. Defendants used a series of misrepresentations about his qualifications as an investment adviser to solicit investors along with claims about profitability. The complaint alleges violations of Securities Act Sections 5(a), 5(c) and 17(a) and Exchange Act Section 10(b). The case is in litigation. See Lit. Rel. No. 25846 (September 22, 2023).
Inside trading: SEC v. Backer, Civil Action No. 1:23-cv-08331 (S.D.N.Y. Filed September 20, 2023) is an action which names a defendant Jonathan Becker. The case is related to an earlier action, SEC v. Markin, Civil Action No. 1:22-cv-06276 (S.D.N.Y. Filed July 25, 2022). The case centers on the tender offer of Merk & Co. for Pandon. The initial complaint centered on the misappropriation by Seth Markin of material non-public information about the deal from his romantic partner. This action is based on the same misappropriated information. Mr. Marken tipped others, one of whom tipped Mr. Backer. This case was developed by the staff based on data analytics. The complaint alleges violations of Exchange Act Section 10(b). The case is in litigation. See Lit. Rel. No. 25843 (September 21, 2023).
False statements: In the Matter of Kandi Technologies Group, Inc., Adm. Proc. File No. 3-21697 (September 21, 2023) is a proceeding which names the firm as Respondent. The firm is a Delaware corporation based in the Jinhua Economic Development Zone, Zhejiang Province, People’s Republic of China. The Order centers on false statements made by the firm in 2019 and 2020. The statements focused on the vehicles the firm made which were largely go-karts, all-terrain vehicles and cars. The statements focused on the quality of the vehicles and the plans of the company. The agency ordered the firm, based on Securities Act Section 17(a)(3) and the related rules, to cease-and desist and to pay a penalty of $710,000.
Offering fraud: SEC v. Aras Investment Group S.A.P.I. de C.V., Civil Action No. 3:23-civ-353 (W.D. Tex. Filed September 21, 2023) is an action which names as defendants: Aras Investment Group, a Mexican entity controlled by Defendant Gutierrez; Armando Gutier, the CEO of Aras; Marria de Lourdes Tolentino Roque, also a Mexican citizen and the owner of Aras Business Group LLC or LLC; Diayanira Rendon Trejo, a Mexican citizen and the bookkeeper for LLC; Efren Norberto Quiroz Gardea, a Mexican citizen and a promoter of Aras; and Luis Rcardo Quiroz Garden, also a Mexican citizen and a promoter of Aras. The complaint centers on an offering fraud that began in March 2020 and continued through November 2021. During the period native Spanish speakers were solicited to invest a total of about $15 million based on a claim that the funds would be used to invest in real estate and Mexican mining operations. In fact, the firm was a Ponzi scheme. Ponzi type payments were made to certain investors. The complaint alleges violations of Securities Act Section 5(a), 5(c) and 17(a) and Exchange Act Sections 10(b), 20(a) and aiding and abetting. Defendants Efren and Luis Quiroz, Tolenino and Rendon Consented to the entry of judgments against them on all claims. Defendants Eren and Luis Quiroz also consented to settled Commission orders barring each from association with a registered entity or participation in a penny stock offering. See Lit. Rel. No. 25840 (September 21, 2023).
Crypto assets: In the Matter of James Michael Wines, Adm. Proc. File No. 3-21682 (September 20, 2023) is a proceeding against the person who formed the Gebo Group LLC. The firm assisted in raising about $1.5 million in May 2021 through the sale of crypto assets that were securities. Respondent cooperated in the investigation. The Order alleges violations of Securities Act Sections 17(a)(2) & (3). Respondent consented to the entry of a cease-and-desist order based on the Sections cited in the Order. No penalty was imposed based on cooperation.
Offering fraud: SEC v. Chowdhury, Civil Action No. 8-cv-01741 (C. D. Cal. Filed September 19, 2023) is an action which names as defendants: Faiz M. Chowdhury, a dual citizen of the U.S. and Bangladesh, and two entities he controls, DTI Holdings, Inc. and Quantum Age Corporation. Defendant began using his two firms to solicit investors, in what he claimed would be innovative graphene-based technologies. He told investors that he would search out creative firms and that their money would be put into a fund to develop the new companies. About $25 million was raised. Little of those funds were used as promised. 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. 25835 (September 19, 2023).
Offering fraud: SEC v. Sumchal, Civil Action No. 2:23-cv-02027 (ED. Cal. Filed September 19, 2023) is an action which names as Respondent, Tilila Walker Sumchai, a Tougi national. Over a period of ten months, beginning in January 2021, Respondent targeted Tongan Americans in the U.S. to acquire shares in an entity she called Tong Tupe. The investment supposedly paid a return of over 1,433% to the targeted Tongan investors. The returns were alleged to have been generated by a secret algorithm and guaranteed. In fact, the firm and claimed transaction were shams. About $11.8 million was raised from over 1,000 retail investors. The complaint alleges violations of Securities Act Sections 5(a), 5(c) and 17(a) and Exchange Act Section 10(b). The case is in litigation.
Registration: SEC v. Concord Management LLC, Civil Action No. 23-cv-8253 (S.D.N.Y. Filed September 19, 2023). Despite the dictates of the Advisers Act, Defendants Concord Management LLC and Michael Martin have operated an advisory that has had billions of dollars under management for years. Defendant Concord Management is based in Tarrytown New York. Mr. Martin was born in Russia and emigrated to the United States in 1988. He now resides in New York state and is a U.S. citizen. He founded Concord in 1988. The firm has only one client, UBO. A, a Russian individual that is the ultimate beneficial owner (UBO) of all the assets under management by Concord. Mr. Martin has operated an advisory for the benefit of his one client since 1999. The advisory, which has a complex structure, provides supervisory and management services so that the client’s assets are continuously invested in a diverse portfolio of US private fund investments. Over time the size of the investments has increased. By 2012, for example, Respondents employed about a dozen investment professionals. As of January 2022, Concord managed a private fund portfolio with an estimated value of $7.2 billion. From 2012 through 2022 Respondents received about $85 million in total compensation from its client. The client owned the private fund investments through an interrelated group of entities. Concord, however, is one business. In March 2022 the client was designated as a sanctioned individual by the U.K. and the EU. The assets were frozen. Since the freeze Respondents have not actively engaged in investment activity. Nevertheless, many of the underlying investments remain active. The Order alleges violations of Advisers Act Section 209(d). The case is in litigation.
Related party transaction: In the Matter of Lyft, Inc., Adm. Proc. File No. 3-21-672 (September 18, 2023) is a proceeding which names as respondent the transportation network. The Order alleges that Respondent failed to disclose a related party transaction. The issue centered on a Director placed on the board by a large Shareholder. The Director arranged for the sale of a block of about 7.7 million company shares to an SPV. The vehicle was set up by an investment adviser affiliated with the Director. Respondent approved the transaction and participated in the deal. The Director was paid millions of dollars in connection with the deal. The Order alleges violations of Exchange Act Section 13(a). To resolve the proceedings Respondent consented to the entry of a cease-and-desist order based on the Section cited in the Order. Lyft also agreed to pay a penalty of $10 million.
Offering fraud: SEC v. Rapid Therapeutic Science Laboratories, Inc., Civil Action No. 3:23-cv-02081 (N.D. Tx. Filed September 18, 2023) is an action what names as defendants the firm which is controlled by attorney Donal R. Schmidt, Jr., also a named defendant. The firm manufactures and sells inhaler devices that contain cannabidiol, a substance derived from the hemp plant. When soliciting investors Defendant Schmidt made false statements that included: 1) a claim the company had obtained an industrywide certification relating to safety; 2) that Rapid had secured major contracts; 3) that the firm had a laboratory which was in compliance with international standards; 4) that its chief science officer was an engineer with advanced degrees; 5) that the inhalers were safe; and 6) that the firm’s stock listing on Nasdaq had been approved. Each claim was false. Nevertheless, about $2.1 million was raised from 51 investors over a period of about one year, beginning in February 2020. The complaint alleges violations of Securities Act Section 17(a) and Exchange Act Section 10(b) and 13(a) and related rules. The case is in litigation. See Lit. Rel. No. 25832 (September 18, 2023).
Insider trading: SEC v. Ferrie, Civil Action No. 23-1217 (D. Conn. Filed September 18, 2023) is an action which names as defendant Jonathan J. Ferrie, controller of Cigna Group, a large health care insurance company. During the course of his duties at the firm in the second quarter of 2021, Defendant learned that health care costs were climbing due to the pandemic and for routine care from the COVID injections. He purchased securities that would only appreciate if the stock price fell. When the quarterly results were announced the stock price dropped 13%. Defendants securities had a profit of about 236% or $16,039.78 on an investment of $6,782.05. The complaint alleges violations of Exchange Act Section 10(b). The case is in litigation. See Lit. Rel. No. 25830 (September 18, 2023).
False statements: SEC v. Miller, Civil Action No. 23 Civ. 8261 (S.D.N.Y. Filed September 19, 2023) is an action against William Miller, who had a revenue sharing agreement with Woodstock Capital, a feeder fund that was managed by an unregistered investment adviser. It invested all of its funds into a master fund, Woodstock Master Capital. Between August and November 2019 Defendant made misstatements to a charter school in Minnesota and a real estate fund in Michigan regarding the investment strategy for the funds. The complaint alleges violations of Securities Act Section 17(a), Exchange Act Section 10(b) and Advisers Act Section 206(4)-b. The case is in litigation. See Lit. Rel. No. 25834 (September 19, 2023).
Offering fraud: SEC v. MFB 111 Investment, LLC, Civil Action No. 1:23-23583 (S.D. Fla. Filed September 19, 2023) is an action which names as defendants Monise Francois Bien Aime, a Haitian citizen residing in Florida and his firm, MFB 111. Over a period of less than two years, beginning in March 2021, Defendants raised over $1.8 million from about 170 investors. Those investors were told that the money would be invested in certain types of real estate and that they would receive weekly or monthly payment of up to 10% of principal and a full return of capital within 90 days. The representations were false. The complaint alleges violations of Securities Act Sections 5(a), 5(c) and 17(a) and Exchange Act Section 10(b). The case is in litigation. See Lit. Rel. No. 25833 (September 19, 2023).
Insider trading: SEC v. Prete, Civil Action No. 3:23-cv-20452 (D. N.J. Filed September 18, 2023). Robert Del Prete is a consultant regarding accounting services. This case centers on the merger of HighCape Capital Corp. with Quantum-Si Incorporated. Defendant, a consultant for HighCape, attended board meetings in January and February 2021 where the planned merger was discussed. In mid-February he purchased 5,789.65 securities of HighCap less than one hour after attending a board meeting. When the deal was announced he realized almost a 100% profit of $560,170. When quested about the transaction he falsely stated he was not aware of the proposed deal. The complaint alleges violations of Exchange Act Section 10(b). Defendant settled with the Commission, consenting to the entry of a permanent injunction based on the Section cited in the complaint and to an officer/director bar. In the settlement he also agreed to pay disgorgement and a penalty. The U.S. Attorney’s Office for the District of New Jersey announced parallel criminal charges. See 25836 (September 19, 2023).
Failure to register: SEC v. Rondini, Civil Action No. 9-cv-81285 (S.D. Fla. Filed September 18, 2023). Named as defendants in Rondini are: Wilson Rondini, III, Falcon Capital LLP and Falcon Capital Partners Limited. Mr. Rondini is the managing partner of Falcon LLP and indirectly owns Falcon Limited. Falcon Capital had been registered with the U.K.’s Financial Conduct Authority. It has never been registered with the Commission. Falcon Limited is a Hong Kong entity that is owned by Falcon Capital Partners Private Foundation which is registered in Curacao and is owned by Mr. Rondini. Falcon Capital has never been registered with the Commission. Each Defendant effected transactions in securities for others. Each of the entity Defendants entered into agreements with over a dozen entities (“issuers”), or their underwriters, agreeing to be paid commission-based compensation in exchange for their efforts too solicit investors to purchase issuers’ securities. Following the execution of the agreements Defendant Rondini distributed mass emails to prospective investors, touting the issuers’ stock and encouraging investors to purchase it. He engaged in similar conduct in one-on-one discussions with potential investors. Each of Defendants also purchased and sold securities for their account. These transactions were typically called “private transactions”. In some transactions Defendants would purchase the shares for their account and then resell them to an investor at a mark-up. The actions of Defendants violated Exchange Act Section 15(a)(1) since none were registered with the Commission as either a broker or a dealer. Those of Defendant Rondini also violated Exchange Act Section 20(a). The case is in litigation. See Lit. Rel. No. 25831 (September 18, 2023). See Lit. Rel. No. 25831 (September 18, 2023).
FinCEN
Publication: The regulator published a Compliance Guide to assist small business report beneficial ownership information, according to a September 18, 2023, release (here).
BaFin
Paper: The Federal Financial Supervisory Authority published a paper titled Regulatory Pressure Can Drive Forward the Digitalization of the Financial Sector by Dr. Sibel Korateps, an expert in the area of IT supervision at the agency (here).
Hong Kong
Publication: The Securities and Futures Commission of Hong Kong published an amended takeovers and share buy-back code on September 21, 2023 (here).