by T. GormanPosted on Posted in SECActions

This is the final installment of this series. The first installment focused on statistics for the second quarter of 2023, noting that 46 enforcement actions were filed by the SEC. The second part of the series provided examples of the cases in four largest categories of actions filed during the period – offering frauds, insider trading, manipulation and financial fraud. The third segment presented other cases of note filed during the period.

Neither the number of cases filed during the second quarter of 2023 nor the variety of actions initiated were noteworthy compared to other periods. During periods more that 46 new enforcement actions have been filed during a number of periods as noted earlier in the series. Equally clear is the fact that in some earlier periods the number of new cases initiated were less. Filing 46 new actions falls some place in the middle.

The number of cases filed is not, however, determinative of results. Those can only be evaluated over time and by considering a number of factors. When focusing on one period as here, period the other key metric is the variety of cases filed. During the second quarter not only was the number of cases initiated less that during the same period one year earlier, but those cases that were filed were more heavily concentrated in fewer areas. In contrast, one of the hallmarks of enforcement in recent periods has been the variety of cases initiated during the quarter.

The variety of actions filed in earlier periods helped to sending a clear and unequivocal signal to the market place that virtually anywhere one turned, SEC enforcement was about, monitoring the market and protecting investors. In contrast, the statistics on numbers of cases coupled with a concentration of about 30% in offering frauds for 2Q23 unfortunately sends the wrong signal to the markets and investors, strongly suggesting that the once ubiquitous market cop was not likely to be around and about to ensure investor protection and market integrity.

All of this is not to say there were not bright spots during 2Q23. Enforcement did cover a number of areas such as SARS, perks, municipal offerings and the liquidity rule. Each is an important area.

The agency also continued to focus on crypto assets, another important area given the amount of resources continually flowing into those assets. Perhaps the most significant cases in this respect were SEC v. Sun and SEC v. Bittrex. The former is an action against one of the world’s largest players in the crypto asset area. The latter is an action centered on a trading platform, a critical area of focus in this area given the role the platforms play in the market.

Finally, the key question presented by 2Q23 is its influence. In the future will enforcement continue to focus on only a handful of areas and dimmish the number of cases brought as in 2Q23 or return to the approach used earlier when more cases were filed in a much winder number of areas?

In the future, the Commission, investors and the markets would be well served by a return to the prior approach of large numbers of cases coupled with a far greater variety of areas of focus.

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by T. GormanPosted on Posted in SECActions

Last week the Commission filed one new enforcement action. That case centered on an offering fraud directed by a securities law recidivist.

Be careful, be safe this week.

SEC Enforcement – Filed and Settled Actions

Statistics: This week the Commission filed 1 new civil injunctive action and no new administrative proceedings, excluding tag-along actions and those that present a conflict for the author.

Offering fraud: SEC v. Pirello, Jr., Civil Action NO. 1:23 -cv-08953 (E.D.N.Y. Filed December 6, 2023) is an action which names as defendants: Raymond J. Pirrello who previously settled insider trading charges with SEC and has been barred from the securities business; Robert Cassino, co-owner of Pre-IPO Marketing, branch office of Prior 2 IPO; Anthony Ditucci, formerly a registered representative; Joseph Rivera, owner of JL Rivera Enterprises; Prior 2 IPO Inc.; Late Stage Asset Management, LLC; Pre IPO Marketing Inc.; and JL Rivera Enterprises Ltd., a branch of Prior 2 IPO. Defendants created a network of unregistered sales agents to make on offerings of securities to investors that provided access to shares of pre IPO companies. Investors were told that the only fees were those charged post investment and IPO. In fact, this claim was false. Investors paid above market fees. Over a three-year period, beginning in March 2019 about $528 million was raised from investors. Defendants also concealed the identity of Mr. Pirello and violated the registration provisions of the federal securities laws. Mr. Pirello, in addition, acted as a broker despite being previously barred from the business. The complaint alleges violations of Securities Act Sections 5(a), 5(c) and 17(a), and Exchange Act Sections 10(b), 15(a) and 15(b)(6)(B)(i). The case is in litigation. See Lit. Rel. No. 25907 (December 7, 2023).

Offering fraud: SEC v. CanaFarma Hemp Products, Corp., Civil Action No. 1:21-cv-8211 (S.D.N.Y.) is a previously filed action in which the Court entered final judgments against Defendants Frank Barone and Kirill Chumenko, both former Senior Vice Presidents of Sales & Marketing at CanaFarma Hemp. The judgment as to each precludes future violations of Securities Act Section 17(a) and Exchange Act Section 10(b) and imposes an officer and director bar. The complaint alleged that Defendants engaged in a fraudulent offering which raised about $15 million from investors. The complaint also alleged that investors were told the company was fully integrated and processed hemp of its own. The claims were false. The complaint alleged violations of Securities Act Section 17(a) and Exchange Act Section 10(b). See Lit. Rel. No. 25906 (October 5, 2023).

Manipulation: SEC v. DeScala, Civil Action No. 1:14-cv-4346 (E.D.N.Y.) is a previously filed action which named as defendant Marc Wexler. The underlying complaint alleges that Defendant Wexler was involved with a scheme to manipulate the share price of CodeSmart Holdings, Inc. by actions such as flooding the market with shares. Mr. Wexler is also alleged to have dumped his own stock on the market while working with two brokers who were at the same time purchasing CodeSmart stock for their clients. Defendant Wexler is alleged to have made about $2 million from the scheme. The complaint alleges violations of Securities Act Sections 5(a), 5(c) and 17(a) and Exchange Act Sections 9(a) and 10(b). The final judgement enjoined Defendant Wexler from violating the provisions of the federal securities laws in the future cited in the complaint in the future. He was, in addition, ordered to pay disgorgement of $2,218,599 and prejudgment interest. The payments will be deemed satisfied by the restitution ordered in the parallel criminal proceeding, U.S. v. DiScala, No. 14 Cr. 399 (E.D.N.Y.). See Lit. Rel. No. 25905 (December 5, 2023).

ESMA

Initiative: The European Securities and Markets Authority or ESMA is initiating a sustainable framework, according to its co-chair Verena Ross. The purpose is to ensure consistent measures are taken to protect investors and focus on building and maintaining a sustainable finance roadmap, according to a release dated December 5, 2023 (here).

Hong Kong

Report: A report issued by the Hong Kong Securities and Futures Commission on December 7, 2023 highlights key regulatory work and market data for the quarter (here).

Singapore

Remarks: Ravi Menon, Managing Directors, Monetary Authority of Singapore, delivered remarks titled “Getting Transition Finance Right” on December 3, 2023 (here).

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