This Week In Securities Litigation (Week of September 9, 2024)
This Week In Securities Litigation (Week of September 9, 2024)
The Commission filed three new actions in the first days of September. Two of those cases were offering frauds while a third focused on an unregistered investment adviser. Typically, this is the time of year when the agency files a large number of cases in anticipation of the end of the government fiscal year. If the agency plans to continue this traditional trend it should begin shortly.
Be careful, be safe this week
SEC Enforcement – Filed and Settled Actions
Statistics: This week the Commission filed 3 new civil injunctive actions and no new administrative proceedings, excluding tag-along actions and those that present a conflict for the author.
Offering fraud: SEC v. Miller, Civil Action No. 2:24-cv-00479 (S.D.W.Va. Filed September 4, 2024) is an action which names as defendants: Theodore Miller and two of his firms, Bear Industries, LLC and Bear Investment and Business Consulting, LLC. Beginning in 2022 Defendant engaged in the offer and sale of two real estate-related investment programs. Mr. Miller solicited investors through social media and various websites to take part in the offerings from Bear Industries and Bear Investments. Investors were told that Mr. Miller was a millionaire, that the investments were safe and that the funds would only be used for real estate. The claims raised about $370,000 from investors. In fact, the claims were false. Much of the investor money was diverted to Defendant. The complaint alleges violations of Securities Act Sections 5(a), 5(c) and 17(a) and Exchange Act Section 10(b) and Rule 10(b)(5). The U.S. Attorneys Office for the Southern District of West Virginia filed parallel criminal charges against Mr. Miller. See Lit. Rel. No. 26096 (September 5, 2024).
Unregistered investment adviser: SEC v. Black Dragon Capital, LLC, Civil Action No. 9:24-cv-81067 (S.D. Fla. Filed September 3, 2024) is an action which names as defendants: Louis Hernandez, Jr., and his firms, Black Dragon Capital, LLC, Black Dragon Capital Investment Management LLC and Capital Investment Management, Inc. Since 2014 Defendants have acted as investment advisers. During the period they have continuously and regularly provided management services to private fund clients. Clients paid a 2% management fee for the services. Since 2021 the funds under management had a total value of over $188,221. Despite the fact that the total value of the assets under management previously exceeded the statutory $150 million point at which registration is generally required, they did not file until recently. Defendants also failed to comply with other obligations such as filing Form PF, complying with the applicable marketing rules obligations, providing marketing information to clients and maintaining the appropriate books and records. The complaint alleges violations of Advisers Act Sections 203(a), 204, 204(a), 204A, 206(4), 204(a), 204A, 206(4)-8 and the related rules. To resolve the matter Defendants consented to the entry of permanent injunctions based on the Sections and Rules cited. Each Defendant has also agreed to pay civil penalties. See Lit. Rel. No. 26095 (September 3, 2024).
Offering fraud: SEC v. Toller Stern Financial, LLC, Civil Action No. 1:24-cv-23370 (S.D. Fla. Filed Sept. 3, 2024). Named as defendants in the action are: the company, Toller Stern Financial, LLC, which claims that it is an investment adviser; Francisco Javier Malave Hernandez, a Venezuelan citizen residing in Florida; and Richard Javier Guerra Farias, also a Venezuelan citizen residing in Florida who, during the offerings involved here, was a manager, member and key executive controlling JDVP Financial Services LLC. Beginning in April 2019, and continuing for the next several years, Defendant Malave, through JDVP Financial Services Group, LLC, and Defendant Toller Stern, marketed about $5 million in promissory notes. Most of the investors were members of the Venezuelan-American community. To market the notes Defendants used a combination of sales approaches. Those include an in-person pitch, e-mails, text messages and written marketing materials, as well as a website. Potential investors were assured that their funds would be used solely for the day-to-day operations of the company and for working capital. Potential investors were also told that their funds would be invested in notes that would pay them annual returns of 24% to 72%. The securities purchased by investors were represented to be safe — Defendants Malave and Guerra supposedly had other companies with substantial assets. Those investments and assets were claimed to have a value of more than $20 million other than the investment funds contributed by the solicited investors. In fact, the representations made to investors were false. The complaint alleges violations of Securities Act Sections 5(a), 5(c) and 17(a), Exchange Act Section 10(b) and Rule 10b-5 and Advisors Act Sections 206(1) and 206(2). Defendants Malave, Guerra and Toller Stern each resolved the action, consenting to the entry of permanent injunctions based on the Sections cited in the complaint and to the entry of an officer/director bar as to Defendants Malave and Guerra. Mr. Malave will also pay disgorgement of $558,900, prejudgment interest of $158,078 and a penalty of $200,000. Mr. Guerra will pay disgorgement of $147, 152, prejudgment interest of $29,223 and a penalty of $200,000. Defendant Toller Stern will pay disgorgement of $748,300, prejudgment interest of $211,660 and a penalty of $1 million. See Lit. Rel. No. 26094 (Sept. 3, 2024).
FinCEN
Meeting: Treasury officials assembled a group composed of public and private interests in New York City on September 5, 2024, to discuss combating Fentany (here).
Hong Kong
Remarks: Christopher Wilson delivered the Keynote speech at GIR Live Asian Pacific Investigations Summit on September 3, 2024 (here).
MAS
Announcement: The Equity Market Review Group convened its Inaugural Meeting on August 24, 2024. At the meeting it announced priorities and identified members of workstreams, according to a release issued on the date of the meeting (here).