THIS WEEK IN SECURITIES LITIGATION (Week of March 27, 2023)
Last week the Commission filed a series of cases tied to crypto assets and touting. A pending civil injunctive action was brought against Chinese national Justine Tron who is alleged to have marketed two crypto coins world wide. A series of cases were also filed against celebrities Mr. Tron and/or his firms retained to tout the coins.
Be careful; be safe
Release: The Commission issued a proposal to modernize certain forms on March 22, 2023 (here). This is the latest in a line of such proposals.
FAQ: The Office of Municipal Securities released an FAQ on the registration of Municipal securities on March 20, 2022 (here).
SEC Enforcement – Filed and Settled Actions
Statistics: Last week the SEC filed 5 civil injunctive cases and 7 administrative proceedings, excluding 12j, tag-along proceedings and those raising conflicts for author (which are counted in totals).
Manipulation – crypto: SEC v. Sun, Civil Action No. 1:23-cv-02433 (S.D.N.Y. Filed March 22,2023) is an action which names as defendants Justin Sun, a Chinese national who is an entrepreneur acting through the entity Defendants, Tron Foundation Ltd., a Singapore entity that conducted the offerings of TRX and BTT assets involved here; BitTorrent Foundation Ltd., also a Singapore entity; Rainberry, Inc., a California entity; Austin Mahone, a singer; and Deandre Cortez Way, also a singer. Beginning in August 2017, and continuing, Defendant Sun, working through the entity Defendants, engaged in the offer and sale of crypto assets TRX and BTT while creating an active market for the assets. The crypto assets were sold under a claim that they were exempt from registration; they were not. Mr. Sun also engaged in wash trading the assets, again using the entity Defendants. The transactions were touted by the two singer Defendants. Mr. Sun falsely claimed the fees paid the two singers to tout the crypto assets were disclosed; they were not. The complaint alleges violations of Securities Act Sections 5(a), 5(c) and 17(a)(1) & (3) and Exchange Act Sections 9(a)(1) &(2) and 10(b). The case is pending. See Lit. Rel. No. 25676 (March 24, 2023); See also. In the Matter of Lindsay Dee Lohan, Adm. Proc. File No. 3-21349 (March 22, 2023)(one of a series of actions against celebrities based on Securities Act Section 17(b); resolved with the entry into a cooperation agreement, a cease-and-desist order based on the Section and the payment of disgorgement in the amount of $10,000, prejudgment interest of $670 and a penalty of $30,000). Similar actions were filed against Michele Anne Mason; Miles Parks McCollum; Jake Joseph Paul; Shaffer Chimere Smith; and Allaune Danala Badara Akon Thiam. See Lit. Rel. No. 25676 (March 24, 2023).
SEC v. Cohen, Civil Action No. 1:23-cv-2453 (S.D.N.Y. Filed March 23, 2023) is an action which names as defendant Darryl Matthew Cohen, an investment adviser representative at NYC based Investment Adviser Firm. From October 2017 through April 2020 Defendant misappropriated at least $1 million form advisory clients who were, or are, NBA players. The transactions took place without the authorization of the clients or their understanding. Defendant used the funds for personal purposes. The complaint alleges violations of Advisers Act Sections 206(1) and 206(2). The action is pending. See Lit. Rel. No. 25672 (March 23, 2023).
Unregistered broker: SEC v. Hollender, Civil Action No. 1:23-cv-02456 (S.D.N.Y. Filed March 23, 2023) is an action which names as defendants, Scott Hollender, Gabriel Migliano, Jr., and Frank Vecchio. Each of the named Defendants has not been associated with a Commission registered broker for at least several years. Beginning in November 2017, and continuing for about fouryears, Defendants solicited investors to purchase interests in the SP Funds, each of which was a firm managed by registered investment adviser. The Fund supposedly held shares of pre-IPO stocks. Investors were told that the only charge for the investment would be a fee after the companies conducted an IPO. In fact, each Defendant received fees of about 10% of the investments solicited. The complaint alleges violations of Securities Act Section 17(a) and Exchange Act Sections 10(b) and 15(a). The case is pending. See Lit. Rel. No. 25674 (March
Financial fraud: SEC v. Jacoby, Jr., Civil Action No. 17-cv-03230 (D. Md.) is a previously filed action in which the Court entered a final judgment. The case centered on claims that Philip Jacoby, former CFO of biotech company Osiris Therapeutics, Inc., routinely overstated company performance for nearly two years and provided false information to the auditors. In an order dated February 2, 2021, the Court found that Mr. Jacoby had violated the securities laws by committing fraud in connection with the offer and sale of a security, aiding and abetted making false filings and lying to the auditors. On March 21, 2023 Mr. Jacoby consented to the entry of a judgment then entered by the Court. It precludes him from future violations of Securities Act Section 17(a) and Exchange Act Sections 10(b) and 13(a) and the related books and records rules. The judgment also prohibits Mr. Jacoby from serving as an officer or director of a public company. The Court concluded that Defendant should reimburse the company for $223,965.88 of company stock under SOX Section 304. Payment of all but $45,000 is waived and no penalty was imposed based on financial condition. Previously, the chief business officer of the company resolved tied to his role in the scheme. See Lit. Rel. No. 25671 (March 21, 2023).
Offering fraud: SEC v. Ozy Media, Inc., Civil Action No. 23-cv-01424 (E.D.N.Y.) is a previously filed action which named as defendants the company, Samir Rao, former COO, and Suzee Han, former Chief of Staff. The revenue in the financial statements for the firm had been overstated by 100% at the time investors were solicited. The case is discussed in detail here (Feb 27, 2023 review). See Lit. Rel. No. 25670 (March 17, 2023).
Offering fraud: SEC v. American Patriot Brands, Inc., Civil Action No. 3:23-cv-01124 (D. Puerto Rico Filed March 16, 2023) is an action which names as defendants: American Patriot, a Nevada company that owns subsidiaries raising and selling cannabis; Urban Pharms, LLC, a cannabis farm; DJ&S Property # 1, LLC, a firm that operates a cannabis farm; TSL Distribution, LLC which sells cannabis from APB; Robert Y. Lee, CEO of APB; Brian L. Pallas, COO of APB, Urban Pharms and TSL; and J. Bernard Rice, CFO of APB. APB and the individual defendants have raised about $30 million from investors who have acquired shares of APB. During the offering the Commission revoked the registration statement. Although APB was only a small firm, investors were led to believe that it was a huge operation. Millions of dollars were siphoned off from the investor funds and diverted to personal use. The complaint alleges violations of Securities Act Section 17(a) and Exchange Act Section 10(b). The case is pending. See Lit. Rel. No. 25675 (March 24, 2023).
Guidance: The Financial Crimes Enforcement Network issued information on reporting beneficial ownership in a release dated March 24, 2023 (here).
Consultation: The regulator announced the conclusion of its consultation on the regulation of new activity for depositaries of public funds, according to a release dated March 24, 2023 (here).
Report: The Monetary Authority of Singapore published a report on consumer prices in February 2023, dated March 23, 2023 (here).