This Week In Securities Litigation (Week of May 5, 2025)

Last week the Commission filed 10 new actions based on a variety of claims. Those ranged from crypto asset actions to Ponzi schemes and similar matters. Two of the cases filed were dismissed with prejudice as part of the Commission’s apparent new approach to crypto assets. Be careful, be safe this week.

SEC Enforcement – Filed and Settled Actions

Statistics: Last week the Commission filed 10 new civil injunctive actions and no new administrative proceedings.

Crypto assets: SEC v. Balina, Civil Action No. 1:22-cv-950 (W.D. Tx. Filed May 1, 2025) is an enforcement action which names as Defendant Ian Balina. Following the court’s ruling on a motion for summary judgment in favor of the agency in part, the parties entered into a joint stipulation to dismiss the action with prejudice. The underlying action ties to a crypto trading platform for coins. The court entered an order dismissing the action with prejudice. This is the most recent crypto based action resolved by dismissal filed by the Commission. The agency states it is taking this approach not as a reflection on the merits but as part of its ongoing “efforts to reform and renew its regulatory approach to the crypto industry.” What precisely this means is not defined.

Ponzi scheme: SEC v. Alexander, Civil Action No. 4:25-cv-446 (E.D. Tx. Filed April 29, 2025) is an action which names as defendants: Kennerth Alexander, H. Robert D. Welsh and Caedryn Conner. Defendants Alexander and Welsh operate the Vanguard JV Cash Program. Defendant Conner is a control person. Over a two-year period, beginning in May 2021, Defendants Alexander and Welsh operated a Ponzi scheme. Defendant Connor participated. It raised over $91 million from 200 or more investors. The scheme was called the Vanguard Holdings Group Irrevocable Trust, a Texas entity. The program was to have a 14 month life span during which investors were guaranteed 12 monthly payments of 3% to 6%. Principle would be returned in 14 months. Investor funds were pooled. If promised payments were missed, the Fiduciary was to step in and pay investors and take necessary action. No such action was ever taken. In July all three defendants agreed to create an investment program to pool funds to invest in the Vanguard JV Program. This program was created to provide investors higher monthly payments. About half of the funds were funneled to the VHG Ponzi scheme. Defendant Connor also misappropriated a portion of the funds. Defendants continued to solicit new investors and encourage them to roll over their investment. The complaint alleges violations of Securities Act Section 5(a), 5(c) and 17(a) and Exchange Act Section 10(b) and Rule10b-5. See Lit. Rel. No. 26301 (May 2, 2025).

Self-dealing: SEC v. Taller, Civil Action No. 1:25-cv-03537 (S.D.N.Y. Filed April 29, 2025).

Named as defendants are Derek Taller and two investment funds he managed over a six-year period, beginning in 2018, StHealth Capital Investment Corporation and Vision BioBanc Holdings, LLC. At the time StHealth Capital operated as a business development company. He also served as an external investment adviser to each of the funds. In 2020 Defendant Teller, while serving as CEO of Vision Holdings, disseminated offering documents to prospective investors. Those materials stated that Vision Holdings operated a board of directors and would be audited by one of the “Big Four” accounting firms. The materials also stated that the auditor’s work would be reviewed by Vision Holdings Audit Committee. The representations were false. In fact, the firm had little supervision. As investment adviser to both Vision Holdings and StHealth, Defendant Teller owed them fiduciary duties to act in the best interests of each firm. Mr. Teller repeatedly violated those duties, however. While serving in those positions he misappropriated at least $300,000 from Vision Holdings. Later he misappropriated an additional $200,000. In addition, Defendant Teller engaged in a course of conduct that involved both firms. He at one point, for example, directed both firms to make loans to Company A and its affiliates, a firm in which Mr. Teller had just acquired an interest. Mr. Teller continued to direct Vision Holdings to make loans until the total exceeded $21 million. The Commission’s complaint alleges violations of Securities Act Section 17(a), Exchange Act Section 10(b), Rule 10b-5 and Advisers Act Sections 206(1) and 206(2) and Section 57(a)(4) of the Investment Company Act. See Lit. Rel. No. 265300 (May 1, 2025).

Crypto SEC v. Dragonchain, Inc., Civil Action No. 2:22-cv-011145 (W.D. Wash.) is a previously filed action which named as defendants Dragonchain, Dragonchain Foundation, The Dragon Company and John Joseph Roets. The parties entered into a stipulation of dismiss on similar terms to those in the first case listed above. See Lit. Rel. No. 26299 (April 30, 2025).

Investment fund fraud: SEC v. Lee, Civil Action No. 2:25-cv-00793 (W.D. Wash. Filed April 30, 2025) is an action which names as defendants Jenni Yoon Jeong Lee and Evergreen Property Developments LLC. The complaint alleges that beginning in May 2015, and continuing for about nine years, defendants, through Evergreen and other similar entities, solicited about $2.7 million from over 33 investors. The funds were to be used by her family and affiliates as part of the Korean-American community to gain trust and confidence. Defendant Lee falsely held herself out an as investment adviser. She also falsely stated investor funds would be used to invest in legitimate firms. Evergreen was used to cover-up the fact that there was no legitimate business entity involved. Ms. Lee also encouraged investors to open self-directed investment accounts which she then used to obtained the funds. The complaint alleges violations of Securities Act Section 17(a), Exchange Act Section 10(b) and Rule 10b-5 and Advisers Act Sections 206(1) and (2). See Lit. Rel. No. 26298 (April 30, 2025).

Misappropriation: SEC v. Spargo, Civil Action No. 2:25-CV-01043 (D. Ariz. Filed March 28, 2025). Named as defendants in this action are David A. Spargo, a resident of Mesa, Arizona and his two firms, CannaCloud, Inc. and D.A. Spargo & Co., LLC. The complaint alleged that Defendants defrauded about 33 investors out of approximately $1.65 million. The investment in this case took place beginning in February 2021 and ended in December of the same year. Defendants represented to potential investors that their funds would be used for the development of CannaCloud’s business. Specifically, Defendants claimed that they were working on the development of an application that would permit those interested in marijuana access to obtain it from a dispensary. A 20% return was promised on the investment. In fact, the investor funds were not put to use as promised. To the contrary, Defendant Spargo used the funds to play in casinos. The Commission’s complaint alleged violations of Exchange Act Section 10(b) and Rule 10b-5. Defendants resolved the matter with the Commission. Defendants Spargo and CannaCloud consented to the entry of permanent injunctions based on the provisions cited in the complaint. Mr. Spargo is also barred from serving as an officer or director. In addition, a conduct based injunction was imposed as to Mr. Spargo which barres him from participating in any solicitation in the future except for his own account. The judgment against Mr. Spargo and CannaCloud directs them to pay disgorgement of $1,504,559 plus prejudgment interest of $313,449 on a joint and several basis. See Lit. Rel. No. 2025 (April 29, 2025).

Manipulation: SEC v. Golusin, Civil Action No. 25-2379 (E.D.N.Y. Filed April 29, 2025) is an action which names as defendants Albert Golusin, Peter Jacobs, and John Scuderi. Defendants Golusin and Jacobs were formerly affiliated with predecessors of American Green, Inc. Mr. Jacobs was formerly affiliated with a broker-dealer. Over a five-year period, beginning in January 2017 Defendants operated a scheme to sell shares of American Green to investors and the public. Defendants Jacobs and Golusin, individually, arranged to obtain convertible debentures of American Green to ultimately obtain shares. Defendants Jacobs and Scuderi arranged to attract interest to the shares of American Green through manipulative trading which pushed up the price. The shares were then sold after the price hit a certain point. The complaint alleges violations of Securities Act Section 17(a) and Exchange Act Section 10(b) and Rule 10b-5. See Lit. Rel. No. 25-2379 (April 29, 2025). See Lit. Rel. No. 26296 (April 29, 2025).

Offering fraud: SEC v. Biogenic, Inc., Civil Action No. 5:21-12236 (E.D. Mich.) is a previously filed action which names a defendants: Zachari Cargnino, Susann Cargnino, and Julie Ann Youssef along with 10 related companies. The complaint alleges that over a period of three years Defendants defrauded at least 55 investors out of over $7 million. The complaint claims that Defendants Youssefs and Carnininos used six Michigan based firms to acquire what were claimed to be world class life-saving devices. After the devices were sold but not used Defendants Youssef and Cargnino sent investors fake usage reports as part of the scheme. Defendant Cargninos also used millions of dollars to buy vacation rentals, jet skis and a trailer along with residential properties. The complaint alleges violations of Securities Act Sections 5 and 17(a) and 17(a)(3) and Exchange Act Sections 10(b), Rule 10b-5 and Section 20(a). Defendants resolved the matter, consenting to the entry of permanent injunctions based on the provisions cited. In addition, the court ordered the payment of disgorgement of $8.7 and a penalty of about $8.3 million. See Lit. Rel. No. 26294 (April 29, 2024).

Offering fraud: SEC v. Palafox, Civil Action No. 1:25-cv-0061 (E.D.Va. Filed April 22, 2025) is an action which names as defendants: Rami Ventura Palafox, BBMR Threshold LLC, Darvie Mendoza, Marissa Mendoza Palafox and Linda Ventura as a relief defendant. Over a period of about 18 months, RV Palafox orchestrated an international securities fraud scheme that misappropriated millions of dollars through Praetorian Group, International. PGI Global is a crypto asset and foreign exchange trading firm. RV Palafox and PGI associates working under him promised investors large passive returns from “member packages” tied to the trading operation. RV Palafox obtained over $198 million in Bitcoin and fiat currency investments from PGI Global and then misappropriated over $57 million. The funds were used not to trade but for his own purposes. Most of the remaining funds were paid to certain investors. Ultimately the scheme collapsed. The complaint alleges violations of Securities Act Sections 5(a), 5(c) and 17(a) and Exchange Act Section 10(b) and Rule 10b-5. A parallel criminal action was filed by the U.S. Attorney for the Eastern District of Virginia. See Lit. Rel. No. 26295 (April 29, 2025).

Offering fraud: SEC v. Motha, Civil Action No. 1:25-cv-21892 (S.D. Fla. Filed April 25, 2025) is an action that names as defendant Daniel J. Motha. This action is related to an earlier case which named as defendants Rishi Kaoor, the founder and former CEO of Location Adventures, LLC. Here Mr. Motha is alleged to have participated in the scheme of the company and others. The complaint claims that over $93 million was raised from about 50 investors to fund their real estate development companies. False statements were made to investors regarding the uses to be made of their finds. In fact, funds were shuffled about the various accounts. Mr. Motha is alleged to have misappropriated at least $6 million of the investor funds. The complaint alleges violations of Securities Act Section 17(a) and Exchange Act Section 10(b) and Rule 10b-5. See Lit. Rel. No. 26293 (April 28, 2025).

FinCen

Alert: The regulator issued an Alert on Oil Smuggling Schemes on the U.S. Southwest Boarder Associated with the Mecico-Based Cartels, dated May 1, 2025 (here).

ESMA

Report: The European Securities and Markets Authority issued a report showing increased data use across the EU and first effects of reporting burden reduction efforts, on April 30, 2025 (here).

Hong Kong

Update: The Securities and Futures Commission moved forward with the imposition of position limit increases for key index derivatives, according to an April 30, 2025 release (here).

Singapore

Report: The regulator issued a report titled “Why is the World Addicted to Debt?” dated April 28, 2925 (here).