by T. GormanPosted on Posted in SECActions

Offering fraud actions frequently are the largest group of cases filed by the Commission during any period or, if not the largest group, at least one of the largest groups. Within that group of cases are those which are based on targeting a particular group, frequently one to which the implementer of the scheme belongs. Over the years there have been schemes based on race, religion and a host of similar identifiable subgroups. The latest group may, however, plow new ground – it is composed of those with an affinity for the outdoors. SEC v. Melson, Civil Action No. 1:23-cv-10060 S.D.N.Y. Filed November 15, 2023).

Defendant Matthew Melton was a resident of Puerto Rico in 2018 when the scheme at the center of the case began. He had formed an entity named Price Physics in May 2017. Mr. Melton relocated to Colorado in 2018.

Over a period of about two and one half years, beginning in April, 2018, Defendant Melton targeted those who shared an affinity for the outdoors, soliciting them to purchase securities in his firm, Price Physics.

Investors were told that Mr. Melton would invest their funds in stock index futures using a trading algorithm of Price Physics. The trading, investors were told, could be expected to generate consistent returns of 12% per month.

To profit from the trading scheme, investors agreed to execute either a “loan agreement” or a “promissory note.” Each constituted a security. The funds obtained from the investors were sent directly to Defendant’s personal bank accounts and comingled with other investor funds.

Defendant Melton did not invest the funds obtained from investors as promised. To the contrary, about $1.5 million of the $3.4 the investor funds was misappropriated and either used to pay personal expenses of Defendant or for Ponzi like payments. The complaint alleges violations of Securities Act Section 17(a) and Exchange Act Section 10(b). The case is in litigation. A parallel criminal action has been filed by the U.S. Attorney’s Office for the Southern District of New York. See Lit. Rel. No. 25893 (November 15, 2023).

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by T. GormanPosted on Posted in SECActions

The Commission and the Division of Enforcement published a release detailing the results of the Enforcement program for Fiscal Year 2023 (here). The headline asserts that 784 enforcement actions were filed during the period, nearly $5 million in financial remedies imposed and nearly $1 billion was distributed to harmed investors. By any standard, these are impressive numbers.

The balance of the release amplifies and clarifies the numbers by providing details and examples of the results in three areas. First, another table clarifies the 784 number. This table states that in FY 2023 the Division of Enforcement filed 501 enforcement action if follow-on administrative proceedings and delinquent filing cases are not included in the total number of cases. That number is the second highest over a period tracing back to FY 2018. The largest number of cases filed in that period was 526 in FY 2019. FY 2023 represents the second largest number of case initiated during the period while the 490, filed in FY 2018, was third.

A second amplification comes in a table which shows the number of cases filed broken down by category. This “Primary Classification” chart lists 13 categories of cases. Four classifications in FY 2023 were the largest: Securities offering at 33% of the total cases filed; Investment advisers/investment companies, a tie for second/third place at 14%; and in third place was broker dealers cases at 12% of the total. The remaining categories or classifications listed had relatively small percentages of the overall total number of cases filed.

Third, the press release discussed select cases in a number of broad areas which differed from those in the table discussed above. The first category, for example, is the protection of investors and the integrity of the markets. This category was broken down into a series of sub-areas. An example of market shaping actions – one subcategory in the group — are those brought to enforce the new marketing rule that applies to investment advisers. There the agency filed a series of actions against advisors who failed to have policies and procedures in place to ensure proper enforcement of the new rule. Similarly, the release highlighted cases brought to protect whistleblowers.

Another group of cases focused on “accountability and remedial measures against individuals.” Examples of actions filed here included one against a Wells Fargo executive who was barred from serving as an officer or director of a public company for misleading investors involving certain disclosures.

A third category was “holding fraudsters accountable for preying on retail investors.” The examples of cases initiated involved affinity frauds and Ponzi schemes.

Crypto was another key area of focus. Cases in this group were initiated, according to the release, for the sale of unregistered securities. Similarly, actions were filed against those who failed to register and market professionals.

A final example the categories cited involved the FCPA. Here the release discussed two significant cases in which violations of the statutes were uncovered involving large, international issuers who were sanctioned. Overall, the release cited to a series of examples to illustrate the breach and scope of the actions investigated and initiated in an effort to protect investors and the markets.

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