This Week In Securities Litigation (Week of September 3, 2024)

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As August and hopefully the summer heat concluded the Commission filed a series of new cases. Those actions were focused on false statements, an offering fraud and an investment adviser selling unregistered securities without having a board of directors.

Be careful, be safe this week

SEC Enforcement – Filed and Settled Actions

Statistics: This week the Commission filed 6 new civil injunctive actions and no new administrative proceedings, excluding tag-along actions and those that present a conflict for the author.

Insider trading: SEC v. Yin, Civil Action No. 1:17-cv-00972 (S.D.N.Y.) is a previously filed action against Shaohus (Michael) Yin in which a final judgment imposing a permanent injunction based on insider trading in two matters. The amended complaint alleged two instances of insider trading by Defendant, a partner in an equity firm. One took place prior to the April 2016 acquisition of DreamWorks Animation SKG, Inc. by Large Cable Firm. There Defendant built a huge position in DreamWorks stock prior to the deal announcement. Following that announcement the value of the positions increased by 47.3%. Later the same year Mr. Yin used the same accounts to acquire over $44 million in Lattice stock. Following a deal announcement regarding an acquisition of the firm, the stock increased in value by over 18%. The inside information in each instance was obtained by Defendant from Benjamin Bin Chow. The final judgment against Defendant included a penalty of $39.5 million paid from funds frozen in the action. See Lit. Rel. No. 26093 (August 30, 2024).

Unregistered brokers: SEC v. Gel Direct Trust, Civil Action No. 1:22-cv-09803 (S.D.N.Y.) is a previously filed action in which final judgements were entered on August 30, 2024) by the Court against defendants GEL Direct LLC, GEL Direct Trust, Jeffrey Galvani, and Stuart Jeffery. The initial complaint alleged that each Defendant operated as an unregistered broker. The complaint claims that from 2019 through at least May 2022 Defendants Galvani and Jeffery, through the GEL entities, provided brokerage services involving at lest 19,000 securities to about 60 customers. Defendants consented to the entry of final judgments precluding future violations of Exchange Act Section 15(a). Penalties of $750,000 were imposed against GEL Direct LLC and $98,0000 against Mr. Galvani and Jeffery. See Lit. Rel. No. 26092 (August 30, 2024).

False statements: SEC v. Smith, Civil Action No. 2:24-cv-06004 (E.D.N.Y. Filed April 27, 2024) is an action which named as defendants Justin Smith and Joshua Constantin. Mr. Smith is alleged to have formed several of the entities involved. Mr. Cosstantin previously acted as a broker and has been barred from the securities business by FINRA. Here, over a six-year period, beginning in 2017, the two men fabricated over $75 million in assets along with forged assets and documents while operating a public company, Healthcare Solutions Holdings, Inc. During the period Defendants engaged in a scheme to falsely inflate the overall value of the company by in excess of $75 million. The scheme included using a fictitious document to raise the value of the firm and the use of false documents when the company went public. Defendants also lied to company auditors and included false statements in filings made with the Commission. The complaint alleges violations of Securities Act Section 17(a), Exchange Act Sections 10(b), 13(b)(5), 13(b)(2)(A), 13(b)(2)(B), 15(d) and the related rules. Defendant Constantin resolved the matter as to him, consenting to the entry of permanent injunctions based on Sections cited in the complaint. He will also be barred from serving as an officer or director of a reporting company. Monetary relief will be determined at a later date by the court. See Lit. Rel. No. 26091 (August 30, 2024).

Ponzi scheme: SEC v. Adam, Civil Action No. 1:24-cv-03774 (N.D. Ga. Filed August 27, 2024) is an action which names as defendants Tanner Adam, Jonathan Adam, Triten Financial Group, LLC and GCZ Global LLC. The complaint alleges that the two Adams brothers and their entities raised over $61 million from about 80 investors. While investors were told that by participating in the offering they would receive interests in a crypto asset lending pool that operated in a decentralized finance or DeFI space, in fact the scheme centered on a Ponzi scheme. The complaint alleges violations of Securities Act Section 17(a) and Exchange Act Section 10(b). See Lit. Rel. No. 1:24-cv-03774 (August 27, 2024).

False statements: SEC v. Wisdom Capital Management, Civil Action No. 1:24-cv-02501 (D.D.C. Filed August 30, 2024) is an action which names as defendant a firm which claims it is a registered investment adviser, has $10 million under management and operates out of offices in New York City. The Commission has been able to substantiate those claims or the assertion that the firm has two operating funds. The complaint alleges violations of Advisers Act Sections 204(a) and 207. See Lit. Rel. No. 26089 (August 30, 2024).

False statements: SEC v. Nutra Pharma Corp., Civil Action No. 2:18-cv-5459 (E.D.N.Y.) is an action in which the court entered a final judgment on August 28, 2024. The firm supposedly makes pain relief drugs with cobra venom. The firm has issued presses releases which contain false statement suggesting it was about to distribute products internationally, upgraded its cobra farm and had made other improvements. The statements were false. The complaint alleges violations of Securities Act Sections 5(a), 5(c), and 17(a) and Exchange Act Sections 10(b) and 13(a) and the related rules thereunder. On August 31, 2022, the court granted summary judgment in favor of the Commission on its Section 5(a) claims. Many of the false statements were distributed while an offering of shares was conducted. A partial consent judgment was then entered. On August 28, 2024, the court entered an order directing Defendant to pay disgorgement of $520,940, prejudgment interest of $520,940 and $100,000 in civil penalties. See Lit. Rel. No. 26088 (August 30, 2024).

Pump-and-dump scheme: SEC v. Ciccarelli, Civil Action No. 1:20-cv-11789 (D. Mass.) is a previously filed action which named as defendant Drew Ciccarelli. The complaint alleges that Defendant was secretly paid $150,000 by a shareholder of Rarus Technologies Inc. to manipulate the firm’s shares. Defendant received the payment and manipulated the stock. Subsequently, he resolved the action by consenting to the entry of permanent injunctions enjoining him from future violations of Securities Act Sections 5(a), 5(c) and 17(a)(1) and (3) as well as Exchange Act Section 10(b) and Rule 10b-5. A penny stock bar was also imposed. In addition, Defendant was directed to pay disgorgement of $35,000 plus prejudgment interest of $13,364.41 all of which was deemed satisfied by an Order of Forfeiture entered in a parallel criminal action in which he entered a guilty plea. See Lit. Rel. No. 26087 (August 30, 2024).

Offering fraud: SEC v. Banye, Civil Action No. 1:23-10928 (S.D.N.Y.) is a previously filed action which names as defendants: MMobousi Odogwu Banye, a resident of London, England and co-CEO of Tingo Group, CEO of Agri-Fintech, founder of Tingo Mobile and Tingo Foods; Tingo Group, Inc; Agri-Fintech Holdings, Inc.; and Tingo International Holdings. Beginning in 2019 Defendants falsely booked billions of dollars of fictitious transactions through two Nigerian subsidiaries primarily tied to Tingo Mobile which acted as a conduit. While the entity was presented as successful, in fact through 2019 it had no meaningful operations or customers and only about $15 in its bank account. The falsified financial statements were used to implement other transactions. In August 2021, for example, Defendant Mmobuosi fraudulently induced the sale of Tingo Mobile from TIH, a U.S. based holding company, to OTC traded Agri-Fintech though an all stock reverse merger. In December 2022 he arranged for the sale of Tingo Mobile to Nasdaq-listed Ting Group, also through an all stock merger. Each deal valued Tingo Mobile at over $1 billion. The deals were fraudulent but created access to the U.S. capital markets for Mr. Banye. Defendant Mmobuosi Banye defrauded the investing public after the merger by causing the fraudulent deal to be recorded in the firm books and records. In addition, false bank statements, general ledgers and other, similar documents, were submitted to the auditors and others. In early 2023 Defendant MMmobuosi Banye essentially duplicated the fraudulent Tingo Mobile deal with Tingo Foods PLC. In June 2023 a research analyst reported that Tingo Group was a fraud. The firm has issued multiple denials. The Commission’s complaint alleges violations of Securities Act Section 17(a), Exchange Act Sections 10(b), 13(a), 13(b)(2)(A), 13(b)(2)(B), 13(b)(5) and 16(a) and certain related rules as well as SOX Section 304. The Commission obtained judgements by default. Those judgments enjoin Defendant Mmobuosi Banye, Tingo Group, Agri-Fintech Holdings and Tingo International from violating the antifraud provisions as well as the others cited above as appropriate. Certain monetary relief is included in the judgements which included the cancelation of a $204,000,000 promissory note tied to one transaction. See Lit. Rel. No. 26086 (August 29, 2024).

Offering fraud: SEC v. Mendia–Alcaraz, Civil Action No. 4:24-cv-05823 (N.D. Cal. Aug. 23, 2024) is an action which names as defendants: Bernardo Mendia-Alcaraz and Toltec Capital LLC. Beginning in December 2019, and continuing for about 4 years, Defendant made misrepresentations to induce at lease 41 investors to place] funds totaling about $3.3 million with the advisory. The inducements offered included guarantees of select returns, a representation that investor capital would only be used for specifically identified purposes, a claim that Mr. Mendia-Alcaraz had academic credentials from the Goldman School of Public Policy at the University of California, Berkley and claims that the firm was a successful money manager. Each claim was false. The complaint alleges violations of Securities Act Sections 5(a), 5(c) and 17(a), Exchange Act Section 10(b) and Advisers Act Sections 206(1), 206(2) and 206(4). See Lit. Rel. No. 26085 (August 28, 2024).

Offering fraud: SEC v. Austal Ltd., Civil Action No. 24-cv-00307 (S.D. Ala. Filed August 26, 2024) is an action which names as defendants Austal Limited and Austal USA, LLC. Each Defendant is an Australian Company engaged in the building of ships for the U.S. Navy. Over a three year period, beginning in January 2013, Defendants falsified the estimates for the building of certain Littoral Combat Ships for the Navy. Essentially, revenues were falsified, improving the apparent results of the company. This had a substantial impact on the returns for company stock. The complaint alleges violations of Exchange Act Section 10(b). See Lit. Rel. No. 26084 (August 27, 2024).

False statements: SEC v. QZ Global Ltd., Civil Action No. 4:24-cv-04153 (D.S.D. Filed August 16, 2024) is an action which names as defendants China based investment adviser QZ Asset Management Limited, its South Dakota based holding company, QZ Global Limited, and the CEO of each entity, Blake Yeung Pu Lei. Defendants represented to clients that they would obtain exceptional returns and that their investments were fully protected. They were also told that QZ Global had taken steps to go public and that certain well-known investors were involved. Each claim was false. The complaint alleges violations of Securities Act Sections 17(a)(1) and (3), Exchange Act Section 10(b) and Advisers Act Sections 206(1) and (2). See Lit. Rel. No. 26083 (August 27, 2024).

Unregistered sales: SEC v. Plutus Lending, LLC, Civil Action No. 1:24-cv-02457 (D.D.C. Filed August 26, 2024) is an action which names the firm as defendant. The complaint alleges that Defendant engaged in the distribution of crypto assets without first registering them as securities. The company also acted as an investment company without having a board of directors, contrary to the Investment Company Act. The complaint alleges violations of Securities Act Sections 5(a) and 5(c) and Investment Company Section 7(b). See Lit. Rel. No. 26082 (August 26, 2024). Defendant resolved the matter, consenting to the entry of permanent injunctions based on the Sections cited in the complaint. Monetary penalties will be considered by the court. See Lit. Rel. No. 26082 (August 26, 2024).

FinCEN

Remarks: Andrea Gacki, Director of FinCEN, delivered remarks titled Beneficial Ownership Information Reporting Event, Chicago, Illinois on August 28, 2024 (here).

BaFin

Disclosure: Rupert Schaefer, Chief Executive Director of Strategy, Policy and Control at the agency published remarks titled Time to Make Things Simpler and More Effective, August 26, 2024 (here).

ESMA

Remarks: The European Securities and Market Authority or ESMA, published remarks on August 29, 2024, titled Markets Increasingly Sensitive After Strong Performance in Early 2024. This is the second risks monitoring report of 2024. In it the regulator discusses key risk drivers facing EU financial markets (here).

Hong Kong

Publication: The Hong Kong Securities and Futures Commission published its Quarterly Report discussing the broad market growth and firmer regulatory progress made to date. The Report is dated August 22, 2024 (here).

MAS

Remarks: The Monetary Authority of Singapore published remarks titled Equities Market Review Group Convenes Inaugural Meeting, Identifies Priority Areas, and Announces Members of Workstreams, on August 27, 2024 (here).