Trends in SEC Enforcement – 4Q23: Part II
This is Part II of a four-part series analyzing trends in SEC Enforcement during the fourth quarter of 2023. Part I, published earlier this week, noted that during the quarter SEC Enforcement filed 43 new enforcement actions. The three largest areas of concentration during the period were offering fraud actions, insider trading cases and those involving false statements. Set forth below are examples of each of these types of actions filed during 4Q23
Offering fraud actions
SEC v. Pirello, Jr., Civil Action NO. 1:23 -cv-08953 (E.D.N.Y. Filed December 6, 2023) is an action which names as defendants: Raymond J. Pirrello who previously settled insider trading charges with SEC and has been barred from the securities business; Robert Cassino, co-owner of Pre-IPO Marketing, branch office of Prior 2 IPO; Anthony Ditucci, formerly a registered representative; Joseph Rivera, owner of JL Rivera Enterprises; Prior 2 IPO Inc.; Late Stage Asset Management, LLC; Pre IPO Marketing Inc.; and JL Rivera Enterprises Ltd., a branch of Prior 2 IPO. Defendants created a network of unregistered sales agents to conduct offerings of securities to investors that supposedly provided access to shares of pre IPO companies. Investors were told that the only fees were those charged post investment and IPO. In fact, this claim was false. Investors paid above market fees. Over a three-year period, beginning in March 2019 about $528 million was raised from investors. Defendants also concealed the identity of Mr. Pirello and violated the registration provisions of the federal securities laws. Mr. Pirello, in addition, acted as a broker despite being previously barred from the business. The complaint alleges violations of Securities Act Sections 5(a), 5(c) and 17(a), and Exchange Act Sections 10(b), 15(a) and 15(b)(6)(B)(i). The case is in litigation. See Lit. Rel. No. 25907 (December 7, 2023).
SEC v. Krishnan, Civil Action No. 4:23-cv-00885 (E.D. Tx. Filed October 5, 2023). The action names as defendants: Gopala Krishnan, Manivannan Shanmugam, Sakthivel Palani Gounder, Nanban Ventures LLC, GSM Eternal LLC, Himalayan Fintech LLC, and Centum Fintech LLC. Defendants Krishnan, Shanmugam and Gounder are known as the Founders. Through their controlled “Nanban” companies they are alleged to have raised funds from over 360 investors by targeting the Indian community in the DFW area. To maintain their enterprise, Defendants falsified their claimed profitability and made Ponzi type payments. The sales pitch revolved around a claim that the investor funds would be invested using “GK Strategies, named after Defendant Krishnan who goes by “GK.” This is supposedly an options trading method that never loses money and outperforms the market. Defendants used misrepresentations about the approach to enhance its attractiveness to investors. Investors were also told that their money would be used to invest in start-up technology companies and real estate. Defendant Nanban Ventures then provided investors with what was represented to be a statement of investments. The documents represented that most of the fund asserts were put into three “fintech” companies — those that use technology to improve financial services. The so-called “fintech” companies were actually Nanban entities controlled by the Founders. In fact, much of the investor money was not invested in fintech business. To the contrary, it was put into unsecured promissory notes issued by the related-party Founder Companies – those controlled by the Founders which have little or no assets. Finally, Nanban Ventures and the Founders acted as investment advisers to the fund at times. In this role they breached their fiduciary duty by putting the interest of the Founders and the funds before those of the investors as a result of undisclosed conflicts, missing assets and excessive compensation. The complaint alleges violations of Securities Act Section 17(a), Exchange Act Section 10(b), And Advisers Act Sections 206(1), 206(3), 206(3) and 206(4). The case is in litigation.
Insider trading
SEC v. Dupont, Civil Action No. 1:23-cv-05565 (S.D.N.Y.) named as defendants Joseph Dupont, previously a vice president of Alexion Pharmaceuticals, Inc., and Stanley Kaplan, a close friend. The complaint alleged that Defendant Dupont tipped his friend, Mr. Kaplan. Both men traded in the stock of Alexion and profited. Previously, Messrs. Dupont and Kaplan pleaded guilty to federal criminal charges for securities fraud in a parallel action. In the Commission’s action, each Defendant consented to the entry of permanent injunctions prohibiting future violations of Exchange Act Section 10(b) and 14(e). Each Defendant was also barred from serving as an officer or director. The court has entered the judgments. See Lit. Rel. No. 25903 (November 28, 2023).
SEC v. Rubin, Civil Action No. 23-cv-15013 (N.D. Ill. Filed October 17, 2023). Defendant Brian Marc Rubin was unemployed at the time of the events here. Previously, he had been employed as an options trader. This case centers on a tender offer by Pfizer Inc., a global biopharmaceutical firm for Array BioPharma Inc., a firm that developed certain cancer treatments. Mr. Rubin’s spouse worked at Array as an Access Account Director in the Midwest region. She was responsible for educating medical providers and insurers about her employer’s products prior to market launch. She also gathered market research regarding the firm’s drugs. The couple generally exchanged confidential information. In addition, they had brokerage accounts controlled by Mr. Rubin. During the period of late March – April 2019 Array and Pfizer entered into confidentiality agreements to exchange information regarding the Acquisition. During the same period Defendant’s spouse learned from her company colleagues that the firm would likely be acquired. She had long been concerned that Array would be acquired and she would lose her job. She told her husband before May 6, 2019, that her employer was likely an acquisition target and she would lose her job — it would be eliminated. On Monday, May 6, 2019, Defendant contacted his investment adviser to secure options trading authorization for his brokerage account. While both spouses were required to sign the forms, Mr. Rubin executed the document for himself and his wife. On May 9, 2019, the option trading approval was obtained. The same day Defendant began trading options involving Array stock using what is ordinarily viewed as an aggressive and risky strategy. Defendant first collected a premium by shorting put options in Array stock. The proceeds from the transaction were then used to buy out-of-the-money call options in Array. Subsequently, on June 3, 2019, Defendant used essentially the same high risk options trading strategy. When the trades were placed Mr. Rubin’s investment adviser asked if he had inside information – the adviser knew Mrs. Rubin worked at Array. Defendant denied having such information. Defendant had not previously traded options in the account. Before the market opened on June 17, 2019, Pfizer announced that it would acquire Array by tender offer at $48 per share. After the market open the share price for the stock increased nearly 57%. Mr. Rubin had profits of $90,458, a return of 688%. In contrast, Defendant realized losses on every other equity trade he opened and closed from October 2017 to January 2020. Defendant also lost money on his trades in other biotechnology stocks during the period. The complaint alleges violations of Exchange Act Sections 10(b) and 14(e). To resolve the case Defendant consented to the entry of a permanent injunction based on each of the Sections cited in the complaint. He also agreed to pay disgorgement in the amount of $90,458 and prejudgment interest in the amount of $16,914. In a parallel action the U.S. Attorney’s Office for the Northern District of Illinois announced criminal charges against Mr. Rubin. See Lit. Rel. No. 25882 (October 17, 2023).
False statements
SEC v. Ahmed, Civil Action No. 1:23-cv-10210 (S.D.N.Y. Filed November 21, 2023) is an action which names as defendants: Nadim Ahmed, Mehreen Shas, Mona Shah, Nuride Transportation Group, LLC, NYC Green Transportation Group, LLC, Med Trans EB-5 Fund, LLC, NYCEV Mobility LLC, Gravitas NYC Regional Center, LLC, and Mona Shah & Associates, PLLC. Defendant Ahmed is the Executive Chairman of NuRide while Defendant Shah is an attorney licensed in New York and the UK. The action centers on soliciting individuals to supposedly participate in the EB-5 program which grants a permanent green card to foreign nationals who create a certain number of jobs in the United States for individuals seeking permanent residence in this country. In this action Defendants have raised over $66 million from over 100 investors since 2014 based on representations that a permanent green card could be obtained permitting residence in the U.S. by investors. Misrepresentations were made to investors regarding the use of their funds which were supposed to be used for the program. To date none of the participants has received a green card. The stock offerings being made by Defendants were not registered with the Commission. The complaint alleges violations of Securities Act Sections 5(a), 5(c), 17(a) and 10(b). The case in in litigation. See Lit. Rel. No. 25897 (November 21, 2023).
In the Matter of Collaborative Financial Consulting LLC, Adm. Proc. File No. 3-21782 (October 11, 2023). Collaborative Financial is a limited liability company based in Beverly Hills, California. The firm is not registered with the Commission or any other agency. Jason Reynolds has been the sole member of Collaborative from January 7, 2016, to the present. Previously, he was a registered representative and investment adviser associated with registered entities. In June 2019 Respondent Reynolds resigned his positions as a registered representative and investment adviser. His registration was terminated. The next month Mr. Reynolds began using Collaborative to conduct business as an unregistered investment adviser and financial planner. He also provided services such as tax preparation and health insurance. For a fee, Mr. Reynolds and his firm met personally with clients. During the meetings advise was furnished on stocks traded on national exchanges. Typically, after the meeting the clients executed securities transactions. In some instances, Mr. Reynolds used the clients’ information to place and execute the transactions. Over a two-year period, beginning in 2019, Respondents received fees of at least $150,000 from eleven clients in several states. During the period Mr. Reynolds provided clients a document titled Client Agreement. It described the services being rendered. It also stated that Mr. Reynolds holds Series 7, 65, and 66 licenses in several states. He knew at the time the agreements were provided to the clients that those licenses had been terminated. The Order alleges violations of Advisers Act Section 206(2). To resolve the proceedings Respondents consented to the entry of cease-and-desist orders based on the Section cited in the Order. In addition, Mr. Reynolds was barred essentially from the securities business. He may apply for reentry after three years. The firm is censured. Mr. Reynolds will also pay a penalty of $20,000. That penalty is deemed satisfied by the amount paid in a parallel California state proceeding brought against each Respondent.
Next: Part III, Other noteworthy cases filed during the period
Trends in SEC Enforcement – 4Q23: Part II
This is Part II of a four-part series analyzing trends in SEC Enforcement during the fourth quarter of 2023. Part I, published earlier this week, noted that during the quarter SEC Enforcement filed 43 new enforcement actions. The three largest areas of concentration during the period were offering fraud actions, insider trading cases and those involving false statements. Set forth below are examples of each of these types of actions filed during 4Q23
Offering fraud actions
SEC v. Pirello, Jr., Civil Action NO. 1:23 -cv-08953 (E.D.N.Y. Filed December 6, 2023) is an action which names as defendants: Raymond J. Pirrello who previously settled insider trading charges with SEC and has been barred from the securities business; Robert Cassino, co-owner of Pre-IPO Marketing, branch office of Prior 2 IPO; Anthony Ditucci, formerly a registered representative; Joseph Rivera, owner of JL Rivera Enterprises; Prior 2 IPO Inc.; Late Stage Asset Management, LLC; Pre IPO Marketing Inc.; and JL Rivera Enterprises Ltd., a branch of Prior 2 IPO. Defendants created a network of unregistered sales agents to conduct offerings of securities to investors that supposedly provided access to shares of pre IPO companies. Investors were told that the only fees were those charged post investment and IPO. In fact, this claim was false. Investors paid above market fees. Over a three-year period, beginning in March 2019 about $528 million was raised from investors. Defendants also concealed the identity of Mr. Pirello and violated the registration provisions of the federal securities laws. Mr. Pirello, in addition, acted as a broker despite being previously barred from the business. The complaint alleges violations of Securities Act Sections 5(a), 5(c) and 17(a), and Exchange Act Sections 10(b), 15(a) and 15(b)(6)(B)(i). The case is in litigation. See Lit. Rel. No. 25907 (December 7, 2023).
SEC v. Krishnan, Civil Action No. 4:23-cv-00885 (E.D. Tx. Filed October 5, 2023). The action names as defendants: Gopala Krishnan, Manivannan Shanmugam, Sakthivel Palani Gounder, Nanban Ventures LLC, GSM Eternal LLC, Himalayan Fintech LLC, and Centum Fintech LLC. Defendants Krishnan, Shanmugam and Gounder are known as the Founders. Through their controlled “Nanban” companies they are alleged to have raised funds from over 360 investors by targeting the Indian community in the DFW area. To maintain their enterprise, Defendants falsified their claimed profitability and made Ponzi type payments. The sales pitch revolved around a claim that the investor funds would be invested using “GK Strategies, named after Defendant Krishnan who goes by “GK.” This is supposedly an options trading method that never loses money and outperforms the market. Defendants used misrepresentations about the approach to enhance its attractiveness to investors. Investors were also told that their money would be used to invest in start-up technology companies and real estate. Defendant Nanban Ventures then provided investors with what was represented to be a statement of investments. The documents represented that most of the fund asserts were put into three “fintech” companies — those that use technology to improve financial services. The so-called “fintech” companies were actually Nanban entities controlled by the Founders. In fact, much of the investor money was not invested in fintech business. To the contrary, it was put into unsecured promissory notes issued by the related-party Founder Companies – those controlled by the Founders which have little or no assets. Finally, Nanban Ventures and the Founders acted as investment advisers to the fund at times. In this role they breached their fiduciary duty by putting the interest of the Founders and the funds before those of the investors as a result of undisclosed conflicts, missing assets and excessive compensation. The complaint alleges violations of Securities Act Section 17(a), Exchange Act Section 10(b), And Advisers Act Sections 206(1), 206(3), 206(3) and 206(4). The case is in litigation.
Insider trading
SEC v. Dupont, Civil Action No. 1:23-cv-05565 (S.D.N.Y.) named as defendants Joseph Dupont, previously a vice president of Alexion Pharmaceuticals, Inc., and Stanley Kaplan, a close friend. The complaint alleged that Defendant Dupont tipped his friend, Mr. Kaplan. Both men traded in the stock of Alexion and profited. Previously, Messrs. Dupont and Kaplan pleaded guilty to federal criminal charges for securities fraud in a parallel action. In the Commission’s action, each Defendant consented to the entry of permanent injunctions prohibiting future violations of Exchange Act Section 10(b) and 14(e). Each Defendant was also barred from serving as an officer or director. The court has entered the judgments. See Lit. Rel. No. 25903 (November 28, 2023).
SEC v. Rubin, Civil Action No. 23-cv-15013 (N.D. Ill. Filed October 17, 2023). Defendant Brian Marc Rubin was unemployed at the time of the events here. Previously, he had been employed as an options trader. This case centers on a tender offer by Pfizer Inc., a global biopharmaceutical firm for Array BioPharma Inc., a firm that developed certain cancer treatments. Mr. Rubin’s spouse worked at Array as an Access Account Director in the Midwest region. She was responsible for educating medical providers and insurers about her employer’s products prior to market launch. She also gathered market research regarding the firm’s drugs. The couple generally exchanged confidential information. In addition, they had brokerage accounts controlled by Mr. Rubin. During the period of late March – April 2019 Array and Pfizer entered into confidentiality agreements to exchange information regarding the Acquisition. During the same period Defendant’s spouse learned from her company colleagues that the firm would likely be acquired. She had long been concerned that Array would be acquired and she would lose her job. She told her husband before May 6, 2019, that her employer was likely an acquisition target and she would lose her job — it would be eliminated. On Monday, May 6, 2019, Defendant contacted his investment adviser to secure options trading authorization for his brokerage account. While both spouses were required to sign the forms, Mr. Rubin executed the document for himself and his wife. On May 9, 2019, the option trading approval was obtained. The same day Defendant began trading options involving Array stock using what is ordinarily viewed as an aggressive and risky strategy. Defendant first collected a premium by shorting put options in Array stock. The proceeds from the transaction were then used to buy out-of-the-money call options in Array. Subsequently, on June 3, 2019, Defendant used essentially the same high risk options trading strategy. When the trades were placed Mr. Rubin’s investment adviser asked if he had inside information – the adviser knew Mrs. Rubin worked at Array. Defendant denied having such information. Defendant had not previously traded options in the account. Before the market opened on June 17, 2019, Pfizer announced that it would acquire Array by tender offer at $48 per share. After the market open the share price for the stock increased nearly 57%. Mr. Rubin had profits of $90,458, a return of 688%. In contrast, Defendant realized losses on every other equity trade he opened and closed from October 2017 to January 2020. Defendant also lost money on his trades in other biotechnology stocks during the period. The complaint alleges violations of Exchange Act Sections 10(b) and 14(e). To resolve the case Defendant consented to the entry of a permanent injunction based on each of the Sections cited in the complaint. He also agreed to pay disgorgement in the amount of $90,458 and prejudgment interest in the amount of $16,914. In a parallel action the U.S. Attorney’s Office for the Northern District of Illinois announced criminal charges against Mr. Rubin. See Lit. Rel. No. 25882 (October 17, 2023).
False statements
SEC v. Ahmed, Civil Action No. 1:23-cv-10210 (S.D.N.Y. Filed November 21, 2023) is an action which names as defendants: Nadim Ahmed, Mehreen Shas, Mona Shah, Nuride Transportation Group, LLC, NYC Green Transportation Group, LLC, Med Trans EB-5 Fund, LLC, NYCEV Mobility LLC, Gravitas NYC Regional Center, LLC, and Mona Shah & Associates, PLLC. Defendant Ahmed is the Executive Chairman of NuRide while Defendant Shah is an attorney licensed in New York and the UK. The action centers on soliciting individuals to supposedly participate in the EB-5 program which grants a permanent green card to foreign nationals who create a certain number of jobs in the United States for individuals seeking permanent residence in this country. In this action Defendants have raised over $66 million from over 100 investors since 2014 based on representations that a permanent green card could be obtained permitting residence in the U.S. by investors. Misrepresentations were made to investors regarding the use of their funds which were supposed to be used for the program. To date none of the participants has received a green card. The stock offerings being made by Defendants were not registered with the Commission. The complaint alleges violations of Securities Act Sections 5(a), 5(c), 17(a) and 10(b). The case in in litigation. See Lit. Rel. No. 25897 (November 21, 2023).
In the Matter of Collaborative Financial Consulting LLC, Adm. Proc. File No. 3-21782 (October 11, 2023). Collaborative Financial is a limited liability company based in Beverly Hills, California. The firm is not registered with the Commission or any other agency. Jason Reynolds has been the sole member of Collaborative from January 7, 2016, to the present. Previously, he was a registered representative and investment adviser associated with registered entities. In June 2019 Respondent Reynolds resigned his positions as a registered representative and investment adviser. His registration was terminated. The next month Mr. Reynolds began using Collaborative to conduct business as an unregistered investment adviser and financial planner. He also provided services such as tax preparation and health insurance. For a fee, Mr. Reynolds and his firm met personally with clients. During the meetings advise was furnished on stocks traded on national exchanges. Typically, after the meeting the clients executed securities transactions. In some instances, Mr. Reynolds used the clients’ information to place and execute the transactions. Over a two-year period, beginning in 2019, Respondents received fees of at least $150,000 from eleven clients in several states. During the period Mr. Reynolds provided clients a document titled Client Agreement. It described the services being rendered. It also stated that Mr. Reynolds holds Series 7, 65, and 66 licenses in several states. He knew at the time the agreements were provided to the clients that those licenses had been terminated. The Order alleges violations of Advisers Act Section 206(2). To resolve the proceedings Respondents consented to the entry of cease-and-desist orders based on the Section cited in the Order. In addition, Mr. Reynolds was barred essentially from the securities business. He may apply for reentry after three years. The firm is censured. Mr. Reynolds will also pay a penalty of $20,000. That penalty is deemed satisfied by the amount paid in a parallel California state proceeding brought against each Respondent.
Next: Part III, Other noteworthy cases filed during the period