by T. GormanPosted on Posted in SECActions

Following the blitz of cases last week for the end of the Government fiscal year, the wave of new cases subsided. This week there were only three new enforcement actions. One centered on an investment fraud, a second on crypto assets and a third on a pump-and-dump scheme.

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.

Investment fraud. SEC v. Meier, Civil Action No. 124-cv-12602 (D. Mass. Filed Oct. 11, 2024) is an action which names as defendant Norman Meier, a Massachusetts resident, who conducted a years long stock solicitation scheme that began in 2015. During the scheme, which continued until 2023, over 180 investors were solicited, largely from Germany but also from the United States. About $7.9 million was raised by cold calls placed from operations directed by Defendant. Investor funds were wired to the U.S. and then misappropriated by Defendant rather than invested as promised during the phone calls. One of the accounts was named “Treuhand” or “trust” or “escrow” in German. The complaint alleges violations of Securities Act Section 17(a) and Exchange Act Section 10(b). See Lit. Rel. No. 26152 (Oct. 11, 2024).

Crypto securities: SEC v. Cumberland DRW LLC, Civil Action No 24-CV-9842 (N.D. Ill. Oct. 10, 2024) is an action which names as defendant, Cumberland DRW, a privately owned entity based in Chicago. The firm at one time operated under the name of Cumberland Mining & Minerals, LLC. It is a subsidiary of DRW Holdings, LLC which also owns several registered broker-dealers. Cumberland calls itself “one of the world’s leading liquidity providers” in crypto assets – it operates 24 hours a day, seven days a week. Since 2018 the firm has, for its own accounts, offered and sold at least $2 billion worth of crypto security assets. The firm is not registered as a securities dealer. The complaint alleges violations of Exchange Act Section 15(a). See Lit. Rel. No. 26151 (Oct. 10, 2024).

Pump-and-dump: SEC v. Minerco Inc., Civil Action No. 1:24-cv-02870 (D.D.C. Filed October 9, 2024). Named as defendants in this action are: the company, essentially a Nevada shell entity; Bobby Schumake Japhia, a Dallas resident who has previously been named as a defendant in a Commission initiated action; and Julius Makiri Jenge, a Maryland resident who was the subject of an earlier Commission subpoena enforcement action. The action centers on the sale of Minerco stock which ultimately netted Defendants about $8 million. That firm was pared with psilocybin mushrooms, a plant-based hallucinogen popularly known as “magic mushrooms.”

The scheme began with personal friends of Mr. Shumake serving as nominees used to gain undisclosed control of the company. Control of Minerco was quickly obtained through devices such as the acquisition of a note that converted into millions of Minerco shares. Once control of Minerco was obtained, Defendants began to push-up the share price. This was done by using press releases hyping the fact that they partnered with a Jamaican firm that would lend expertise in growing a unique strain of psilocybin. The firm also transfered to Minerco its Jamaican cannabis licenses. Collectively these assets were valued at $1 billion by an independent third party. Additional false statements about Minerco and its operations were made despite the fact that its charter had been revoked. The public was told that Minerco was a thriving, growing business. A celebrity concert was used to promote the products and sell one million concert tickets. The scheme came to a conclusion with a dump of Minerco shares into the market that had been pumped through Defendants’ promotion efforts. Ultimately about $3.4 million was dumped back into the company by a Shumake controlled entity named Shubox LLC. Those funds were used to pay Mr. Shumake along with Defendant Jeng to defray the costs of the scheme. The complaint alleges violations of Securities Act Sections 17(a)(1) & (3) and Exchange Act Section 10(b). See Lit. Rel. No. 26150 (Oct. 9, 2024).

Australia

Release: The Australian Securities Investment Commission issued a report, dated October 1, 2024 (here) to update its licensing and professional activities for the period 2023-2024.

ESMA

Sanctions report: The regulator published its first consolidated report on sanctions. In 2023 over 270 administrative sanctions and measures were imposed across EU member states in financial sectors under ESMA’s remit, according to a release dated Oct. 1, 2024 (here).

Hong Kong

Release: The Hong Kong Securities and Futures Commission issued a release on the conclusion of its consultation proposals to enhance REIT regimes and SFO market conduct regimes for listed CIS on October 8, 2024 (here).

Singapore

Regulation: The Monetary Authority of Singapore issued a release which sets out the requirements for licensing, representative notification and conduct of business and for exemptions from licensing on October 8, 2024 (here).


 

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by T. GormanPosted on Posted in SECActions

The Commission’s most recent manipulation case is a classic “pump-and-dump” action, in contrast to the almost continuous stream of offering fraud cases. This case also has a key to attract the attention of investors – magic mushrooms. SEC v. Minerco Inc., Civil Action No. 1:24-cv-02870 (D.D.C. Filed October 9, 2024).

Named as defendants in this action are: the company, essentially a Nevada shell entity; Bobby Schumake Japhia, a Dallas resident who has previously been named as a defendant in a Commission initiated action; and Julius Makiri Jenge, a Maryland resident who was the subject of an earlier Commission subpoena enforcement action.

The action centers on the sale of Minerco stock which ultimately netted Defendants about $8 million. That firm was pared with psilocybin mushrooms, a plant-based hallucinogen popularly known as “magic mushrooms.”

The scheme began with personal friends of Mr. Shumake serving as nominees who were used to gain undisclosed control of the company. The nominees quickly gained control of Minerco through devices such as the acquisition of a note that converted into millions of Minerco shares.

Once control of Minerco was obtained, Defendants began to push-up the share price. This was done by using press releases hyping the fact that they partnered with a Jamaican firm that would lend expertise in growing a unique strain of psilocybin. The firm would also transfer to Minerco its Jamaican cannabis licenses. Collectively these assets were supposedly valued at $1 billion by an independent third party. Additional false statements about Minerco and its operations were made despite the fact that its charter had been revoked. The public was told that Minerco was a thriving, growing business. A celebrity concert was used to promote the products and sell one million concert tickets.

The scheme came to a conclusion with a dump of Minerco shares into the market that had been pumped through Defendants’ promotion efforts. Ultimately about $3.4 million was dumped back into the company by a Shumake controlled entity named Shubox LLC. Those funds were used to pay Mr. Shumake along with Defendant Jeng to defray the costs of the scheme. The complaint alleges violations of Securities Act Sections 17(a)(1) & 3 and Exchange Act Section 10(b). See Lit. Rel. No. 26150 (Oct. 9, 2024).

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