The Divisions of Examinations and Enforcement took center stage this week with new announcements. Examinations announced its Exam Priorities for 2021 as it typically does each year. For 2021, however, a new focus will be climate.
Enforcement announced the formation of its new Task Force. It will be focused on Climate and ESG Issues. Each announcement seems to be following that of the Acting Chair who recently directed the Division of Corporation Finance to examine the disclosure requirements in these areas which date back to 2010. Seems like the entire agency has is refocusing on climate and ESG. Perhaps.
Be careful, be safe this week
Task Force: The Division of Enforcement announced the formation of a new Task Force focused on climate and ESG matters (https://www.sec.gov/news/press-release/2021-42).
Examinations: The Division of Examinations announced the 2021 Examinations Priorities. Many of the points announced are built on those from earlier years. While the press release emphasizes climate and ESG, the booklet published by the Division makes little mention of those topics (here).
Whistleblowers: Two whistleblowers were awarded over $500,000, according to a release dated March 1, 2021.
SEC Enforcement – Litigated Actions
Cherry-picking: SEC v World Tree Financial, LLC., Civil Action No. 6:18-cv-01229 (W.D. La. Verdict Jan. 15, 2021) is an action in which the Commission prevailed in a bench trial. A final judgment was entered against the investment advisory firm and its co-owners, Wesley Kyle Perkins and Priscilla Perkins. The complaint alleged a cherry-picking scheme and misrepresentations regarding the firm’s trading practices. Specifically, the court found that the firm and Mr. Perkins intentionally misallocated more profitable trades. The court also found that Mr. Perkins and Priscilla Perkins, along with the firm told clients that the advisory and Mr. Perkins were not trading in the same securities as clients. The claims were false. The Court entered permanent injunctions based on Securities Act Sections 17(a)(1) and (2), Advisers Act Sections 206(1) and (2) and Exchange Act Section 10(b). The Court also ordered the firm to pay a penalty of $300,000 and Mr. Perkins $160,000. Defendants were also directed to pay disgorgement of $347,947 and prejudgment interest. Ms. Perkins was found to have violated Securities Act Section 17(a)(2) and Exchange Act Section 10(b) and directed to pay a penalty of $80,000.
SEC Enforcement – Filed and Settled Actions
The Commission filed 3 new civil injunctive actions and no administrative proceedings last week, excluding 12j, tag-along proceedings and other similar matters.
Manipulation: SEC v. Airborne Wireless Network, Civil Action No. 1:21-cv-01772 (S.D.N.Y. Filed March 2, 2021) is an action which names as defendants the company, Kalistratos Kabilafkas, Timoleon Kabilafkas, Chrysiliou, Panagiotis Bolvis, Jack Daniels, and Moshe Rabin. In late 2015 K. Kabilafkas, purchased a controlling block of stock in a firm named Ample-Tee, Inc. which later became Airborne Wireless. A large block of shares was also supposedly owned by 30 residences of Thailand who in fact were nominees. Defendant Daniels was installed as president as recorded in filings made with the Commission. Those filings did not mention K. Kabilafkas or the fact that he controlled the shares. Subsequently, millions of shares were distributed with the assistance of the other Defendants. During the period false financial information was distributed regarding the firm. False representations were also made to induce brokers and the transfer agent to handle and process the shares; false publicity about the company created demand; and the price rose. Eventually Defendant K. Kabilafkas dumped his shares reaping profits of about $23 million. During the period the company also raised about $22 million from other investors. Collectively, Defendants netted over $45 million. The complaint alleges violations of each subsection of Securities Act Section 17(a) and Exchange Act Sections 10(b) and 20(a). The case is pending. See Lit. Rel. No. 25043 (March 2, 2021).
Offering fraud: SEC v. Renew Forestry Group, LLC, Civil Action No. 1:21-cv-00081 (W.D. Pa. Filed March 1, 2021) is an action which names as defendants the firm, Renew Development Group, LLLP, Renew Holdings, LLC and Brian A. Miller. Each company is indirectly owned by Defendant Miller. Over a three-year period, beginning in 2016, Mr. Miller in conjunction with his entities, directed an offering fraud which raised about $1.1 million from 36 investors based on misrepresentations. Key among the misrepresentations was a claim that the firm had land holdings of about 1.9 million acers of timberland in Liberia for harvesting. In fact, they had about 36,000 acers. Investors were also told that harvesting the timber was about to begin and they would receive returns of up to 172%. The claims were false. The complaint alleges violations of Securities Act Section 17(a) and Exchange Act Section 10(b). The case is pending. See Lit. Rel. No. 25041 (March 2, 2021).
Offering fraud: SEC v. Earthsource Minerals International, LLC, Civil Action No. 6:21-cv-06198 (W.D.N.Y.) is an action which names as defendants the firm, abundant Resource Development, LLLP, Jason Wendt, Armando Constabile, Premier Minerals International, LLC and Michael Palermo. The complaint centers on two offering frauds. The first raised about $5 million from 250 investors. Over a five-year period, beginning in 2014, Defendants Wendt and Costabille, through ESM and Abundant, convinced 234 investors to purchase over $4.7 million in securities. The funds were to be used in ESM’s mining business in Liberia. The scheme targeted Christian faith-based communities by claiming that a percentage of the profits would go to support humanitarian relief efforts in Liberia. The claims were false. The second began in 2015 and continued for about three years. Here Mr. Palermo and his firm, PMI with assistance from other Defendants, convinced 22 investors to buy over $500,0000 of PMI securities. The funds were to be invested in ESM’s mining business. The claims were false. The complaint alleges violations of Securities Act Section 17(a) and Exchange Act Section 10(b). Defendants resolved the matter, consenting to the entry of permanent injunctions based on the Sections cited in the complaint. In addition, Mr. Palermo will pay disgorgement of $340,005 along with prejudgment interest and a penalty of $125,000. Messrs. Wendt and Costabile agreed to each pay a penalty of $100,000. See Lit. Rel. No. 25040 (March 2, 2021).
False statement: SEC v. Starkweather, Civil Action No. 19-civ-05528 (E.D.N.Y.) is a previously filed action which names as defendants Michael J. Strarkweather and his firm, Andiamo Corporation. Mr. Starkweather, the CEO of the firm, had the firm issue a false press release announcing that the firm had developed a new cell phone. The announcement caused the stock price to increase significantly. In fact, there was no phone. In the time before the press release Mr. Starkweather took kickbacks from a stock promoter. The complaint alleged violations of Exchange Act Section 10(b). The final judgement entered against Mr. Starkweather permanently enjoined him from future violations of the Section cited in the complaint and imposed an officer and director bar. In the parallel criminal action brought by the U.S. Attorney’s Office for the Eastern District of New York, Mr. Starkweather pleaded guilty to one count of conspiracy to commit securities fraud. He was sentenced to three years of probation and 90 days of community service. He will also forfeit $15,900. See Lit. Rel. No. 25039 (March 1, 2021).
Remarks: Edward S. Robinson, Deputy Managing Director, Economic Policy, Monetary Authority of Singapore, participated in a Fireside Chat at the Nomura ASEAN Conference (March 4, 2021), and provided his observations on current economic developments (here).