Chair Gary Gensler delivered remarks at the annual Financial Market Regulation conference as last week drew to a close. Mr. Gensler identified climate risk as one of the key agenda items for the agency in coming months. This should not come as a surprise to anyone who has followed the weeks of comments by various Commissioners on the topic.

Be careful, be safe this week


Whistleblowers: The Commission made three awards last week. One was for about $3.6 million; a second award was for $18 million; and the final award of the week was in the amount of about $4 million.

SEC Enforcement – Filed and Settled Actions

Last week the Commission filed 1 civil injunctive action and 2 administrative proceedings, exclusive of tag-along and other similar proceedings.

Misrepresentations: SEC v. Knight Nguyen Investments, Civil Action No. 4:21-cv-01586 (S.D. Tx. Filed May 13, 2021) is an action which names as defendants the firm, a registered investment adviser, its majority owner, Christopher Lopez, Forrest Jones and Jayson Lopez. The complaint alleges that over a two-year period, beginning in March 2016, the firm, Chris Lopez and Forrest Jones raised about $3.7 million from largely unsophisticated invertors through five offerings. Investors were told that the advisory would invest the capital conservatively, that good returns would result and that those at the advisory had expertise. Chris Lopez misapplied the funds received from investors and created false documents. Mr. Lopez assisted Defendant Lopez in those acts and also misused client funds. In addition, the firm assisted Mr. Lopez in an effort to register as an investment adviser. The complaint alleges violations of Advisers Act Sections 206(1), 206(2), 206(4), 204, 203A, Exchange Act Sections 10(b) and 15(a) and Securities Act Section 17(a). The case is pending. See Lit. Rel. No. 25089 (May 13, 2021).

AML: In the Matter of GWFS Equities, Inc., Adm. Proc. File No 3-20298 (May 12, 2021) is a proceeding which names as a respondent, the registered broker-dealer. The firm provides services to employee sponsored retirement plans. Over a three-year period, beginning in 2015, Respondent repeatedly detected efforts by bad actors to gain access to its processes through the use of improperly obtained personal identifying information. During the period the broker-dealer failed to file SARs in 130 instances where it had detected bad actors attempting to gain access. The firm also omitted information it had obtained about such efforts in 279 other instances where a SAR was filed but information was omitted. During the period the firm failed to consistently implement its AML program. The Order alleges violations of Exchange Act Section 17(a) and Rule 17a-8. To resolve the proceedings Respondent consented to the entry of a cease-and-desist order based on the Section and Rule cited in the Order. Respondent also agreed to pay a penalty in the amount of $1.5 million.

Manipulation: SEC v. Osegueda, Civil Action No. 2:19-cv-04348 (C.D. CA.) is a previously filed action which named as defendants four individuals in a complaint centered on a pump-and-dump market manipulation scheme. Two defendants – Jessica Snyder and Calvin Ross – settled and judgements were entered as to them by consent this week. The judgements permanently enjoin each of the settling defendants from future violations of Securities Act Sections 5 and 17(a) and Exchange Act Section 10(b). Defendants Ross and Snyder will pay, respectively, disgorgement and prejudgment interest in the amount of $781, 868 and $184,293. In addition, each will pay a civil penalty of, respectively, $400,000 and $100,000. The other defendants in the action settled previously. See Lit. Rel. No. 25087 (May 7, 2021).

Conflicts: In the Matter of Peter J. DeCaprio, Adm. Proc. File No. 3-20286 (May 10, 2021) is a proceeding which names as a respondent Mr. DeCaprio, the co-founder, president and CEO of Crow Point Partners, LLC a registered investment adviser until 2020. Over a period of about one year, beginning in April 2015, the advisory and Mr. DeCaprio invested client funds in a series of transactions into an unregistered fund through an investment adviser sponsored investment platform. Crow Point had several business arrangements with the fund and platform that constituted undisclosed conflicts of interest. The Order alleges violations of Advisers Act Section 206(2). To resolve the proceedings Respondent consented to the entry of a cease-and-desist order based on the Sections cited in the Order. In addition, he agreed to pay a penalty in the amount of $75,000.

Criminal cases

Misrepresentations: U.S. v. Lisser, No. 21-cr-210 (E.D.N.Y. guilty plea May 12, 2021) is an action which named as a defendant Mark Lisser, formerly of Knightsbridge Private Partners, LLC. The firm operated several websites to solicit investors for pre-IPO shares. Defendant repeatedly told interested investors that the firm was selling pre-IPO shares, that it was on the capitalization table, that the firm actually owned the shares it was selling and that there were no commissions on the sales until after investors made money. The claims were false. About $700,000 in investor money was raised. Mr. Lisser pleaded guilty to securities fraud conspiracy. The date for sentencing has not been set.

Hong Kong

Remarks: Ashley Alder, CEO of the Securities and Futures Commission of Hong Kong, delivered the Keynote address at the ISDA Annual General Meeting 2021 on May 10, 2021. His remarks focused on key issues in the derivative markets (here).


Remarks: Lim Tuang Lee, Assistant Managing Director (Capital Markets), Monetary Authority of Singapore, delivered the opening remarks at the ASEAN Corporate Governance Scorecard Briefing 2021 for SGX-Listed Companies (May 11, 2021(here). His remarks focused on evaluating corporate governance.


Business plan: The U.K. Serious Fraud Office published its Annual Business Plant 2021/22 on May 13, 2021(here). The plan details the manner in which the SFO expects to fight complex economic crime and protect the reputation of the country as a safe place for business.

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The Public Company Accounting Oversight Board published a proposed rule designed to create a framework for determinations to be made under the Holding Foreign Companies Accountable Act passed last year (HFCAA). That Act amends the Sarbanes-Oxley Act of 2002 or SOX which mandates that the PCAOB conduct inspections of registered accounting firms that audit companies whose shares are traded in the United States.

While the Board has conducted the required inspections for years, there is an exception – China. The PRC government and the China Securities Regulatory Commission or CSRC have steadfastly declined to permit the required inspections with few exceptions.

The HFCAA was designed to try and address the impasse. The statute requires that firms publicly traded in the U.S. disclose information to the SEC on foreign jurisdictions that prevent the PCAOB from conducting inspections. The Board’s proposed rule-making is designed to create a framework to guide decision making when a report of non-compliance with the inspection requirement is made to the SEC.

While the Board’s proposed rule-making appears to faithfully follow the dictates of Congress as reflected in HFCAA, the real question is to what end? The process here is being written on a slate tinged with decades of failure. In 2011 and 2012, for example, the SEC brought enforcement actions against foreign affiliates of the major accounting firms centered on this issue. Those actions, brought as Commission administrative proceedings, ultimately ended with an agreement between the PCAOB and CSRC under which the parties pledged the “fullest assistance permissible to secure compliance with the respective Laws and Regulations of the Authorities.” The MOU went on to detail procedures to facilitate the arrangement. Yet little in the way of tangible results can be found despite the fact that ultimately under SOX firms that are not in compliance can be delisted.

HFCAA may have passed Congress with rare bipartisan support. The Board’s new procedures may create a process for evaluating difficulties with or refusals to comply with the inspection process. There is nothing, however, to suggest that CSRC and the PRC are about to join the international community and help ensure that the Board can properly conduct the required inspections to safeguard public investment and trading markets which benefit everyone.

If there is no reason to expect that the new approach of Congress and the Board will yield positive results, then perhaps it is time to search for alternatives. One is to simply delist any issuer that refuses a SOX inspection, an approach nobody seems willing to pursue. A second may be to urge investors as the SEC Chair did last year to carefully evaluate the situation before investing in firms that have substantial operations in China or any other country that adopts its approach – that is, accept the risk of fraud or don’t invest, an equally unattractive approach.

An alternative may offer a solution. Consider fashioning auditing standards for use in recalcitrant jurisdictions like China in such a manner that sufficient information is available to the company outside of that country so that inspectors can assure themselves that the work has been done properly. While this is not the same as sending the inspectors into China to look at the work papers as envisioned by SOX, it may result in processes that achieve the desired result: reasonable assure of a proper audit.

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