Trends in SEC Enforcement 3Q22 – Part II
This is the second part of a series analyzing trends in SEC enforcement during the third quarter of 2023. The first part of the series (here) focused on the number of cases filed during the period and the major categories of cases filed. This second segment of the series provides examples of cases in each of the four largest categories of cases brought during the period – offering fraud actions, insider trading cases and those based on manipulation and misrepresentations.
Offering frauds
This category of cases has typically been one of the largest groups of actions initiated in each period by the Commission in recent years. The variety of cases is virtually endless, seemingly limited only by the imagination of those involved. The examples below center on a claimed real estate enterprise and an investment adviser.
SEC v. Christensen, Civil Action No. 3:23-cv-00959 (D. Or. Filed June 30, 2023) is an action which names as defendants Robert Chrisensen, the founder of Foresee, Inc., and co-founder and partner of Commission PDX and Policy PDX and beneficial owner and controlling person of Innings 150; Anhony Matic, the co-founder and a partner of Commission PDX and Policy PDX and beneficial owner and controlling person of Innings 150; Foresee, Inc., a company that issued promissory notes during the period of the case; Commission PDX, LLC and Policy PDX LLC, beneficially owned and controlled by Messrs. Christensen and Matic; and Innings 150, LLC, beneficially owned and controlled by Defendants Christensen and Matic. Defendants Christensen and Maic initiated what appeared to be a simple business in the mid-west. They solicited investors to acquire promissory notes that paid interest at rates ranging from 9% to 15%. The idea was to invest the funds in real estate and pay returns to the investors. The business model was completely flawed. Defendant ended up using funds from other investor to make repayments on the notes which were securities. They also paid themselves from the investor funds. Essentially, Defendants were operating a Ponzi scheme. 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
SEC v. Legendary Partners, LLC, Civil Action No. 8:23-cv-01282 (C.D. Ca. Filed July 18, 2023). Named as defendants are the firm and Scott I. Snyder. The firm, now dissolved, had two bank accounts. Each was signed by its president, Mr. Snyder. He was subject to a cease-and-desist order issued by the California Business, Consumer Services and Housing Agency. Over about a three-year period, beginning in April 2018, Defendants conducted a nationwide offering that targeted mostly elderly investors. The idea was to solicit investors to acquire interests in a start-up company that promised to use the investor funds to refurbish damaged and exotic luxury vehicles. Those would, of course, be sold when ready to make a profit for all. The scheme was implemented through cold calls made by a man who called himself “Bill Miller” — Mr. Snyder — and used false statements to convince the largely elderly investors to put their money into the refurbishment scheme. Unlike many offering fraud schemes, the one used here had a second facet. The variation focused on investors who intended to put their funds into one of two ventures. One was a movie production company. The other was a pharmaceutical company named Biosynetics. Mr. Snyder knew that the investment choices made by this group of investors differed from the one he offered. Rather than convince each investor that refurbishing damaged and exotic luxury vehicles was a better choice, he “tricked” them in the words of the complaint, into putting their funds into his scheme. Stated differently, the investors did not understand that in fact their money had been diverted from the intended investment to the one Mr. Snyder had created for others. No matter. All the choices ended the same: the money was misappropriated by “Bill Miller” or, in reality, Defendant Snyder. The complaint alleges violations of Securities Act Section 17(a) and Exchange Act Section 10(b). Defendants resolved the matter. Each Defendant consented to the entry of a permanent injunction based on each of the Sections cited in the complaint. In addition, Mr. Snyder will be barred from offering or selling securities except for his own account. A director and officer bar will also be imposed. The final judgment will require Mr. Snyder to pay $42,636 in disgorgement, $9,956 in prejudgment interest and a $50,000 penalty. See Lit. Rel. No. 25781 (July 18, 2023).
Insider trading
Insider trading is of course one of the Commission’s long time focal points. The two examples here are typical cases. In the first an executive misappropriates the inside information from his romantic interest. In the second a wealthy executive distributes inside information to various employees who assist him as rewards.
SEC v Meadow, Civil Action No. 1:23-cv-05573 (S.D.N.Y. Filed June 29, 2023) is an action which names as defendants Jordan Meadow and Steven Teixeira, respectively, an employee of a brokerage firm and an employee of an international payment processing firm which serves as its Chief Compliance Officer. The action centers on insider trading in several stocks based on information Mr. Teixeira misappropriated from his romantic partner’s laptop while both worked from home during the COVID-19 pandemic. The romantic partner was an executive assistant at a New York based investment bank. The inside information was misappropriated from late 2020 through May 2022. It related to M&A deals for Domtar Corporation, Proofpoint Inc., Score Media and Gaming Inc, and VMWare, Inc. The trading profits for Mr. Teixeira exceeded $28,000. Mr. Teixeira shared the information with several friends. Mr. Meadow was tipped by Individual 1 and Mr. Teixeria. His trading profits from two stocks totaled $730,000. The complaint alleges violations of Exchange Act Section 10(b). The case is in litigation. The U.S. Attorney’s Office filed parallel criminal charges against Messrs. Meadow and Teixeira. The cases are pending.
SEC v. Lewis, Civil Action No. 1:23-cv-06438 (Filed July 26, 2023). Named as defendants are: Joseph C. Lewis; Carolyn W. Carter, Mr. Carter’s romantic interest; Patrick J. O Connor, one of his private jet pilots; and Bryan L. Waugh, another private jet pilot who works for Mr. Lewis. The case centers on Mr. Lewis distributing inside information to each named defendant with the expectation that each person would trade and profit. Each did trade. The combined trading profits were $545,000. Mr. Lewis has served as a senior officer with The Fund for years. The Fund traded in biotechnology companies. The Officer has served as a senior official of the Fund since 2015. That Officer often entrusted inside information to Mr. Lewis. The Officer knew that the Fund had a substantial investment in Issuer A. He also learned that the Issuer would be raising capital through a PIPE offering. That type of transaction tends to raise the share price. Between July and October 2019 Mr. Lewis furnished inside information obtained from the Officer to Ms. Carter. Specifically, within three hours of a meeting with Mr. Lewis, Ms. Carter purchased over $700,000 of Issuer A’s common stock. Following the announcement about the capital raise the next day, the firm’s share price increased over 34%. Ms. Carter had profits of over $172,000. In September 2019, while staying aboard Mr. Lewis’ yacht, the Officer learned of positive results from a clinical trial related to a cancer drug being developed by Issuer B. The Officer also learned that the results might be presented at the end of October 2019 at a conference. The Officer told Mr. Lewis of the information. Subsequently, Mr. Lewis furnished the information to Ms. Carter and later to Defendants O’Connor and Waugh. Each traded. Collectively, they purchased over $3 million of Issuer B’s stock. Messrs. O’Connor and Waugh used the proceeds of a $500,000 loan extended by Mr. Lewis to execute the trades. The day of the announcement Issuer B’s share price increased over 16%. The three traders had profits of over $373,000. The complaint alleges violations of Exchange Act Section 10(b). The U.S. Attorney’s Office for the Southern District of New York announced the filing of parallel criminal charges.
Crypto
Crypto has become a key focus of the Commission recently. The example of a case based on crypto centers on a scheme involving what are called “node software licenses” that will allow the investor to “mine” crypto assets for a time. The second involves the distribution of tokens called Stoner Cats crypto assets.
SEC v. Digital Licensing Inc., Civil Action No. 2:23-cv-0482 (D. Utah unsealed on August 3, 2023, filed on July 26, 2023) names as defendants 18 individuals and entities including Digital Licensing, Jason Anderson, Jacob Anderson and others. The complaint centers on a scheme tied to a DEBT Box, promoted by Defendant Digital Licensing. The box, marketed on YouTube, websites, social media and at live events promises investors that what are called “node software licenses” will allow them to “mine” at least eleven separate crypto assets which are, in turn, tied to actual assets. Profits supposedly come from gold mining, oil drilling, satellite scanning and other so-called “commodity projects.” The projects, depicted by a photo in the complaint, are a series of small color dots labeled with titles such as debt, grow, and NATG. According to the complaint the representations are false. The complaint alleges violations of Securities Act Sections 5(a) and 5(c) and each subsection of 17(a) along with Exchange Act Sections 10(b) and 15(a)(1). The Court granted a request for emergency relief.
In the Matter of Stoner Cats 2, LLC., Adm. Proc. File No. 321655 (September 13, 2023). Respondent managed and produced the Stoner Cats web series. It also offered and sold the Stoner Cats NFTs to the public. Beginning in late July 2021 Respondent conduced an offering of non-fungible tokens called Stoner Cats crypto assets. The coins sold for about $800 each. The offering sold out in 35 minutes. It generated about $8.2 million. The purpose of the Stoner Cats NFT offering was to fund the production of an animated web series called Stoner Cats. Investors were told that Respondent would develop the Stoner Cats web series using their money. SC2 promised investors that they would have exclusive access to the web series and an online community as well as future content. Each Stoner Cats NFT was associated with a unique still image of one of the characters in the web series. Purchasers could not select the character. To the contrary, purchasers had no control over which character was reflected. About 62% of the purchasers bought more than one coin. About 20% of purchasers resold the coin. Respondent offered and sold the Stoner Cats NFTs as “investment contracts and therefore securities, pursuant to . .” the Court’s decision in SEC v. W.J. Howey Co., 328 U.S. 293, 298-99 (1946). The Commission has also issued a Section 21(a) report, known as the DAO report, regarding the application of Howey to crypto assets. Under Howey and the DAO report Respondent was required to register the offering as securities. The failure to register, coupled with the sales, constituted a violation of Securities Act Section 5(a) and 5(c). To resolve the proceedings Respondent consented to the entry of a cease-and-desist order based on the Sections cited above. Respondent will also pay a penalty of $1 million which will be distributed through a fair fund.
Manipulation
Share price manipulation has long been a key focus of the agency. The first example of a case centered on manipulation involves the shares of the J.C. Penny Debentures Corporate-Backed Trust Securities Certificates. The second focuses on the traditional manipulation involved in pump-and-dump schemes.
SEC v. Koski, Civil Action No. 23-cic-07779 (S.D.N.Y. Filed September 1, 2023). Defendant created, and has now admitted that he created, a scheme to fraudulently increase the share price of COTRP. The shares are for J.C. Penney Debentures Corporate-Backed Trust Securities Certificates of Structured Products Corporation, a security issued by a trust. Defendant owns 300,000 CPTRPs. To implement the scheme, he created fake redemption notices claiming the securities could now be redeemed at full value. It also claimed the securities could be redeemed and exchanged for cryptocurrency. In fact, they could not. The complaint alleges violations of Securities Act Section 17(a) and Exchange Act Section 10(b). The case is pending. See Lit. Rel. No. 25820 (September 1, 2023).
SEC v. Verges, Civil Action No,. 3:23-cv-02146 (N.D.Tx. Filed September 26, 2023) is an action which names as defendants: Philip Verges who maintained control over the five stocks involved; James D. Tilton, Jr. who has a judgment against him from a Commission front running case; Robert F. Malin, a New York attorney; Linda Malin, sister of Robert; and Bule Citi, LLC, controlled by the Malin defendants. Over a five-year period, beginning in 2017, Defendants, lead by Mr. Verges, prepared and implemented pump and dump schemes involving five companies. The schemes generated over $112 million. Those schemes were generally implemented by obtaining control of each entity and then pushing up the price while the person controlling the company remained concealed. The complaint alleges violations of Securities Act Sections 17(a)(1) & (3) and Exchange Act Sections 10(b) and 20(a). The case is in litigation. See Lit. Rel. No. 25853 (September 26, 2023).
Misrepresentation
Misrepresentations made to investors is another longtime focus of the SEC. Here we have two examples of cases centered on misrepresentation. The first involves an action in which misrepresentations were made regarding the estimated cost to manufacture certain units. The second centers on misstatements used to implement capital raising events.
SEC v. Nano-X Imaging Ltd., Civil Action No. 1:23-cv-8611 (S.D.N.Y. Filed September 29, 2023) is an action which names as defendants the firm, a medical imaging company, and Ran Poliakine, the founder and CEO of the company. Over a period of less than one-year Defendants negligently made a series of false and misleading statements to investors about the estimated cost to manufacturer at least 15,000 units of its flagship product – a device that was supposed to make diagnostic imaging substantially more affordable. In the prospectus Defendants stated the cost would be $8,000 to $12,000. This estimate continued to be used after the firm’s IPO. Several firm executives expressed doubts about the estimates. The complaint alleges violations of Securities Act Section 17(a)(2) and Exchange Act Section 13(a). Defendants resolved the action, consenting to the entry of permanent injunctions based on the Sections cited in the complaint. In addition, the firm will pay a penalty of $650,000 while Mr. Poliakine will pay $150,000. See Lit. Rel. No. 25876 (September 29, 2023).
SEC v. Hyzon Motors, Inc., Civil Action No. 23-6553 (W.D. N.Y. Filed September 26, 2023) is an action which names as defendants: The firm, an assembler of hydrogen fuel cell electric vehicles or FCEVs; Craig Knight, an Austrian citizen who is CEO of the firm; and Max Holthausen, a resident of the Netherlands and the founder of a firm that is in a joint venture with Hyzon. The action centers on the time period January through July 2021. During that period, and in advance of two key-capital-raising events, the firm exaggerated the status of its business dealings with potential customers, suppliers and others. The false statements contributed to creating the incorrect impression that significant sales transactions were imminent. In another false statement the firm claimed it had delivered its first FCEV that was a milk truck. In addition, in documents filed with the Commission from November 2021 through March 2022 the firm reported sales through its European and Chinese subsidiaries of vehicles it did not have or own. The complaint alleges violations of each subsection of Securities Act Section 17(a), Exchange Act Sections 10(b), 13(a), 13(b)(2)(A), 13(b)(2)(B), Section 13(b)(5) and 14(a) and Rule 13a-15(a). Defendants resolved the matter with each consenting to the entry of a permanent injunction based on the Sections and Rule cited. The company also agreed to pay a penalty of $25 million while Messrs. Knight and Holthausen will pay, respectively, $100,000 and $200,000. Messrs. Knight and Holthausen also agreed to the entry of five year officer/director bars. Those two Defendants will also reimburse the firm in the amount, respectively, of $252,000 and $122, 500.
Next: Part III – Other significant cases
Trends in SEC Enforcement 3Q22 – Part II
This is the second part of a series analyzing trends in SEC enforcement during the third quarter of 2023. The first part of the series (here) focused on the number of cases filed during the period and the major categories of cases filed. This second segment of the series provides examples of cases in each of the four largest categories of cases brought during the period – offering fraud actions, insider trading cases and those based on manipulation and misrepresentations.
Offering frauds
This category of cases has typically been one of the largest groups of actions initiated in each period by the Commission in recent years. The variety of cases is virtually endless, seemingly limited only by the imagination of those involved. The examples below center on a claimed real estate enterprise and an investment adviser.
SEC v. Christensen, Civil Action No. 3:23-cv-00959 (D. Or. Filed June 30, 2023) is an action which names as defendants Robert Chrisensen, the founder of Foresee, Inc., and co-founder and partner of Commission PDX and Policy PDX and beneficial owner and controlling person of Innings 150; Anhony Matic, the co-founder and a partner of Commission PDX and Policy PDX and beneficial owner and controlling person of Innings 150; Foresee, Inc., a company that issued promissory notes during the period of the case; Commission PDX, LLC and Policy PDX LLC, beneficially owned and controlled by Messrs. Christensen and Matic; and Innings 150, LLC, beneficially owned and controlled by Defendants Christensen and Matic. Defendants Christensen and Maic initiated what appeared to be a simple business in the mid-west. They solicited investors to acquire promissory notes that paid interest at rates ranging from 9% to 15%. The idea was to invest the funds in real estate and pay returns to the investors. The business model was completely flawed. Defendant ended up using funds from other investor to make repayments on the notes which were securities. They also paid themselves from the investor funds. Essentially, Defendants were operating a Ponzi scheme. 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
SEC v. Legendary Partners, LLC, Civil Action No. 8:23-cv-01282 (C.D. Ca. Filed July 18, 2023). Named as defendants are the firm and Scott I. Snyder. The firm, now dissolved, had two bank accounts. Each was signed by its president, Mr. Snyder. He was subject to a cease-and-desist order issued by the California Business, Consumer Services and Housing Agency. Over about a three-year period, beginning in April 2018, Defendants conducted a nationwide offering that targeted mostly elderly investors. The idea was to solicit investors to acquire interests in a start-up company that promised to use the investor funds to refurbish damaged and exotic luxury vehicles. Those would, of course, be sold when ready to make a profit for all. The scheme was implemented through cold calls made by a man who called himself “Bill Miller” — Mr. Snyder — and used false statements to convince the largely elderly investors to put their money into the refurbishment scheme. Unlike many offering fraud schemes, the one used here had a second facet. The variation focused on investors who intended to put their funds into one of two ventures. One was a movie production company. The other was a pharmaceutical company named Biosynetics. Mr. Snyder knew that the investment choices made by this group of investors differed from the one he offered. Rather than convince each investor that refurbishing damaged and exotic luxury vehicles was a better choice, he “tricked” them in the words of the complaint, into putting their funds into his scheme. Stated differently, the investors did not understand that in fact their money had been diverted from the intended investment to the one Mr. Snyder had created for others. No matter. All the choices ended the same: the money was misappropriated by “Bill Miller” or, in reality, Defendant Snyder. The complaint alleges violations of Securities Act Section 17(a) and Exchange Act Section 10(b). Defendants resolved the matter. Each Defendant consented to the entry of a permanent injunction based on each of the Sections cited in the complaint. In addition, Mr. Snyder will be barred from offering or selling securities except for his own account. A director and officer bar will also be imposed. The final judgment will require Mr. Snyder to pay $42,636 in disgorgement, $9,956 in prejudgment interest and a $50,000 penalty. See Lit. Rel. No. 25781 (July 18, 2023).
Insider trading
Insider trading is of course one of the Commission’s long time focal points. The two examples here are typical cases. In the first an executive misappropriates the inside information from his romantic interest. In the second a wealthy executive distributes inside information to various employees who assist him as rewards.
SEC v Meadow, Civil Action No. 1:23-cv-05573 (S.D.N.Y. Filed June 29, 2023) is an action which names as defendants Jordan Meadow and Steven Teixeira, respectively, an employee of a brokerage firm and an employee of an international payment processing firm which serves as its Chief Compliance Officer. The action centers on insider trading in several stocks based on information Mr. Teixeira misappropriated from his romantic partner’s laptop while both worked from home during the COVID-19 pandemic. The romantic partner was an executive assistant at a New York based investment bank. The inside information was misappropriated from late 2020 through May 2022. It related to M&A deals for Domtar Corporation, Proofpoint Inc., Score Media and Gaming Inc, and VMWare, Inc. The trading profits for Mr. Teixeira exceeded $28,000. Mr. Teixeira shared the information with several friends. Mr. Meadow was tipped by Individual 1 and Mr. Teixeria. His trading profits from two stocks totaled $730,000. The complaint alleges violations of Exchange Act Section 10(b). The case is in litigation. The U.S. Attorney’s Office filed parallel criminal charges against Messrs. Meadow and Teixeira. The cases are pending.
SEC v. Lewis, Civil Action No. 1:23-cv-06438 (Filed July 26, 2023). Named as defendants are: Joseph C. Lewis; Carolyn W. Carter, Mr. Carter’s romantic interest; Patrick J. O Connor, one of his private jet pilots; and Bryan L. Waugh, another private jet pilot who works for Mr. Lewis. The case centers on Mr. Lewis distributing inside information to each named defendant with the expectation that each person would trade and profit. Each did trade. The combined trading profits were $545,000. Mr. Lewis has served as a senior officer with The Fund for years. The Fund traded in biotechnology companies. The Officer has served as a senior official of the Fund since 2015. That Officer often entrusted inside information to Mr. Lewis. The Officer knew that the Fund had a substantial investment in Issuer A. He also learned that the Issuer would be raising capital through a PIPE offering. That type of transaction tends to raise the share price. Between July and October 2019 Mr. Lewis furnished inside information obtained from the Officer to Ms. Carter. Specifically, within three hours of a meeting with Mr. Lewis, Ms. Carter purchased over $700,000 of Issuer A’s common stock. Following the announcement about the capital raise the next day, the firm’s share price increased over 34%. Ms. Carter had profits of over $172,000. In September 2019, while staying aboard Mr. Lewis’ yacht, the Officer learned of positive results from a clinical trial related to a cancer drug being developed by Issuer B. The Officer also learned that the results might be presented at the end of October 2019 at a conference. The Officer told Mr. Lewis of the information. Subsequently, Mr. Lewis furnished the information to Ms. Carter and later to Defendants O’Connor and Waugh. Each traded. Collectively, they purchased over $3 million of Issuer B’s stock. Messrs. O’Connor and Waugh used the proceeds of a $500,000 loan extended by Mr. Lewis to execute the trades. The day of the announcement Issuer B’s share price increased over 16%. The three traders had profits of over $373,000. The complaint alleges violations of Exchange Act Section 10(b). The U.S. Attorney’s Office for the Southern District of New York announced the filing of parallel criminal charges.
Crypto
Crypto has become a key focus of the Commission recently. The example of a case based on crypto centers on a scheme involving what are called “node software licenses” that will allow the investor to “mine” crypto assets for a time. The second involves the distribution of tokens called Stoner Cats crypto assets.
SEC v. Digital Licensing Inc., Civil Action No. 2:23-cv-0482 (D. Utah unsealed on August 3, 2023, filed on July 26, 2023) names as defendants 18 individuals and entities including Digital Licensing, Jason Anderson, Jacob Anderson and others. The complaint centers on a scheme tied to a DEBT Box, promoted by Defendant Digital Licensing. The box, marketed on YouTube, websites, social media and at live events promises investors that what are called “node software licenses” will allow them to “mine” at least eleven separate crypto assets which are, in turn, tied to actual assets. Profits supposedly come from gold mining, oil drilling, satellite scanning and other so-called “commodity projects.” The projects, depicted by a photo in the complaint, are a series of small color dots labeled with titles such as debt, grow, and NATG. According to the complaint the representations are false. The complaint alleges violations of Securities Act Sections 5(a) and 5(c) and each subsection of 17(a) along with Exchange Act Sections 10(b) and 15(a)(1). The Court granted a request for emergency relief.
In the Matter of Stoner Cats 2, LLC., Adm. Proc. File No. 321655 (September 13, 2023). Respondent managed and produced the Stoner Cats web series. It also offered and sold the Stoner Cats NFTs to the public. Beginning in late July 2021 Respondent conduced an offering of non-fungible tokens called Stoner Cats crypto assets. The coins sold for about $800 each. The offering sold out in 35 minutes. It generated about $8.2 million. The purpose of the Stoner Cats NFT offering was to fund the production of an animated web series called Stoner Cats. Investors were told that Respondent would develop the Stoner Cats web series using their money. SC2 promised investors that they would have exclusive access to the web series and an online community as well as future content. Each Stoner Cats NFT was associated with a unique still image of one of the characters in the web series. Purchasers could not select the character. To the contrary, purchasers had no control over which character was reflected. About 62% of the purchasers bought more than one coin. About 20% of purchasers resold the coin. Respondent offered and sold the Stoner Cats NFTs as “investment contracts and therefore securities, pursuant to . .” the Court’s decision in SEC v. W.J. Howey Co., 328 U.S. 293, 298-99 (1946). The Commission has also issued a Section 21(a) report, known as the DAO report, regarding the application of Howey to crypto assets. Under Howey and the DAO report Respondent was required to register the offering as securities. The failure to register, coupled with the sales, constituted a violation of Securities Act Section 5(a) and 5(c). To resolve the proceedings Respondent consented to the entry of a cease-and-desist order based on the Sections cited above. Respondent will also pay a penalty of $1 million which will be distributed through a fair fund.
Manipulation
Share price manipulation has long been a key focus of the agency. The first example of a case centered on manipulation involves the shares of the J.C. Penny Debentures Corporate-Backed Trust Securities Certificates. The second focuses on the traditional manipulation involved in pump-and-dump schemes.
SEC v. Koski, Civil Action No. 23-cic-07779 (S.D.N.Y. Filed September 1, 2023). Defendant created, and has now admitted that he created, a scheme to fraudulently increase the share price of COTRP. The shares are for J.C. Penney Debentures Corporate-Backed Trust Securities Certificates of Structured Products Corporation, a security issued by a trust. Defendant owns 300,000 CPTRPs. To implement the scheme, he created fake redemption notices claiming the securities could now be redeemed at full value. It also claimed the securities could be redeemed and exchanged for cryptocurrency. In fact, they could not. The complaint alleges violations of Securities Act Section 17(a) and Exchange Act Section 10(b). The case is pending. See Lit. Rel. No. 25820 (September 1, 2023).
SEC v. Verges, Civil Action No,. 3:23-cv-02146 (N.D.Tx. Filed September 26, 2023) is an action which names as defendants: Philip Verges who maintained control over the five stocks involved; James D. Tilton, Jr. who has a judgment against him from a Commission front running case; Robert F. Malin, a New York attorney; Linda Malin, sister of Robert; and Bule Citi, LLC, controlled by the Malin defendants. Over a five-year period, beginning in 2017, Defendants, lead by Mr. Verges, prepared and implemented pump and dump schemes involving five companies. The schemes generated over $112 million. Those schemes were generally implemented by obtaining control of each entity and then pushing up the price while the person controlling the company remained concealed. The complaint alleges violations of Securities Act Sections 17(a)(1) & (3) and Exchange Act Sections 10(b) and 20(a). The case is in litigation. See Lit. Rel. No. 25853 (September 26, 2023).
Misrepresentation
Misrepresentations made to investors is another longtime focus of the SEC. Here we have two examples of cases centered on misrepresentation. The first involves an action in which misrepresentations were made regarding the estimated cost to manufacture certain units. The second centers on misstatements used to implement capital raising events.
SEC v. Nano-X Imaging Ltd., Civil Action No. 1:23-cv-8611 (S.D.N.Y. Filed September 29, 2023) is an action which names as defendants the firm, a medical imaging company, and Ran Poliakine, the founder and CEO of the company. Over a period of less than one-year Defendants negligently made a series of false and misleading statements to investors about the estimated cost to manufacturer at least 15,000 units of its flagship product – a device that was supposed to make diagnostic imaging substantially more affordable. In the prospectus Defendants stated the cost would be $8,000 to $12,000. This estimate continued to be used after the firm’s IPO. Several firm executives expressed doubts about the estimates. The complaint alleges violations of Securities Act Section 17(a)(2) and Exchange Act Section 13(a). Defendants resolved the action, consenting to the entry of permanent injunctions based on the Sections cited in the complaint. In addition, the firm will pay a penalty of $650,000 while Mr. Poliakine will pay $150,000. See Lit. Rel. No. 25876 (September 29, 2023).
SEC v. Hyzon Motors, Inc., Civil Action No. 23-6553 (W.D. N.Y. Filed September 26, 2023) is an action which names as defendants: The firm, an assembler of hydrogen fuel cell electric vehicles or FCEVs; Craig Knight, an Austrian citizen who is CEO of the firm; and Max Holthausen, a resident of the Netherlands and the founder of a firm that is in a joint venture with Hyzon. The action centers on the time period January through July 2021. During that period, and in advance of two key-capital-raising events, the firm exaggerated the status of its business dealings with potential customers, suppliers and others. The false statements contributed to creating the incorrect impression that significant sales transactions were imminent. In another false statement the firm claimed it had delivered its first FCEV that was a milk truck. In addition, in documents filed with the Commission from November 2021 through March 2022 the firm reported sales through its European and Chinese subsidiaries of vehicles it did not have or own. The complaint alleges violations of each subsection of Securities Act Section 17(a), Exchange Act Sections 10(b), 13(a), 13(b)(2)(A), 13(b)(2)(B), Section 13(b)(5) and 14(a) and Rule 13a-15(a). Defendants resolved the matter with each consenting to the entry of a permanent injunction based on the Sections and Rule cited. The company also agreed to pay a penalty of $25 million while Messrs. Knight and Holthausen will pay, respectively, $100,000 and $200,000. Messrs. Knight and Holthausen also agreed to the entry of five year officer/director bars. Those two Defendants will also reimburse the firm in the amount, respectively, of $252,000 and $122, 500.
Next: Part III – Other significant cases