by T. GormanPosted on Posted in SECActions

Elon Musk is back in the SEC spotlight. This time the Commission filed a subpoena enforcement action against Mr. Musk, requesting that he be compelled to appear for testimony in an investigation captioned In the Matter of Certain Purchases, Sales and Disclosures of Twitter Shares, SEC File No. SF-4519 (Formal Order). The Commission is seeking under the Formal Order and Corrected Order to investigate if any persons or entities violated the federal securities laws in connection with Mr. Musk’s 2022 purchase of Twitter stock, now known as X, and his statements and SEC filings related to Twitter.

Mr. Musk has appeared and given testimony as part of this investigation. Twice in July of 2022 he appeared for half day testimony sessions. Since that testimony the Commission claims to have received thousands of new documents from various parties. For example, following the last testimony session Mr. Musk produced documents to the staff. Others have also produced documents following the date of the last testimony session in 2022.

As is customary, the staff and Mr. Musk’s counsel worked out a schedule for the testimony. Ultimately the parties agreed on September 14, 2023. It was to be conducted at the San Francisco regional office of the agency. The date was reset to September 15 at the request of Mr. Musk’s counsel. A subpoena was then served on Mr. Musk for testimony on September 15 at the San Francisco Office of the Commission.

Two days before the scheduled testimony, Mr. Musk notified the staff he would not appear. The refusal was supposedly based on several objections not previously asserted which included to the venue – the San Francisco office. During subsequent discussions the staff supposedly offered to change the venue for the testimony to the Fort Worth, Texas office near the home of Mr. Musk. A variety of dates were proposed. Each offer by the staff was rejected by Mr. Musk. This action followed. No date has been set for the hearing.

This is not the first time Mr. Musk has litigated with the Commission. His 2019 battle ended with a consent degree. SEC v. Musk, Civil Action No. 1:18-cv-8865 (S.D.N.Y. 2019). Later Mr. Musk unsuccessfully attempted to have the consent order lifted. He was not successful.

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by T. GormanPosted on Posted in SECActions

As the Government fiscal year drew to a close last week the Commission put on what can only be called an incredible show, filing over 50 new enforcement actions in one week. That is more cases than the agency at times files in one month. Equally incredible is the fact that over 20 different types of cases were filed. The entire week was an achievement.

Now, however, the pace of filing new cases has slowed too normal. This week one of the more notable cases filed is an offering fraud action. In this action Defendants were able to raise over $2 million supposedly for investments but actually diverted to their personal use for a variety of endeavors including the acquisition of tropical fish, perhaps a first. SEC v. Zera Financial LLC, Civil Action No. 8:23-cv-01807 (C.D. Cal. Filed September 27, 2023).

The case names as defendants the firm, a California based entity, and Luis Romero, the CEO, sole owner and control person of Zera. Since the beginning of 2021 Defendants have raised over $2.2 million from about 170 investors. Those investors were solicited through a website, Instagram, a mobile application and word of mouth.

The sales pitch was straight forward – good investment returns were promised. The website challenged investors with slogans such as “See How Much You Can Make.” The promise was 3% interest every month.

Defendants offered three different programs. One was for 6 months for an investment of $500 to $15,000; a second was for one year for investments of $15,000 to $100,000; and the third was for two years if the investment was over $100,000. The interest from each program could be withdrawn and redeposited each month. The principal investment could not be withdrawn until the end of the term. The deposits were, according to the sales pitch, FDIC insured.

Investor funds were deposited in crypto asset accounts. Some portions of the investor cash were used to make Ponzi type payments. Others were diverted to the personal use of Mr. Romero. He used substantial sums of investor capital to pay his personal expenses, purchase an electric truck and of course, tropical fish. The complaint alleges violations of Exchange Act Section 10(b), and Securities Act Section 17(a). The case is in litigation. See Lit. Rel. No. 25878 (October 3, 2023).

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