by T. GormanPosted on Posted in SECActions

One of the hallmarks of Enforcement in recent months has been the reach of the program. While the agency continues to bring cases in traditional areas such as offering frauds and insider trading, in recent periods it has also focused on filing a wide variety of cases in areas not typically reached by the enforcement program. This approach helps create a kind of ubiquitous presence for the agency in the markets which can increase the effectiveness of the program.

A good example of this approach is the eleven cases recently filed. Each case names as respondent a broker-dealer and, in one case an investment adviser. Each case is based on a failure to maintain electronic communications over time. To resolve each case each respondent admitted the charges, agreed to the appointment of a consultant and to implement certain remedial steps and paid a penalty. The case against Wedbush Securities typical. In the Matter of Wedbush Securities Inc., Adm. Proc. File No. 3-21550 (August 8, 2023).

The Order begins with the basic record keeping requirements at issue, Exchange Act Section 17(a)(1) and Advisers Act Section 204. Together these Sections authorize the Commission to issue rules requiring broker-dealers and investment advisers to make and keep records that are necessary for the protection of investors. Thus, the Rules adopted under Section 17(a)(1) require broker-dealers to preserve certain key records. The Advisers Act has similar provisions and Rules.

Wedbush maintained policies and procedures that were designed to ensure the retention of business-related records required to be maintained by the Commission’s rules. Supervisors notified employees that under the applicable rules electronic communications were subject to surveillance by the firm. Messages sent through the firm’s systems were monitored, subject to review, and archived when appropriate. The system did not, however, have any follow-up. It also did not cover personal devices which employees were permitted to use.

The staff investigation uncovered what the Order calls “pervasive off-channel communications at all seniority levels” of the firm. Specifically, over a three-year period, beginning in 2019, employees at the firm had received and responded to Commission subpoenas for documents and records in numerous agency investigations. By failing to maintain and preserve records as required, “Wedbush likely deprived the Commission of these off-channel communications in various investigations.”

To resolve the matter Wedbush is implanting certain remedial matters. Under the terms of the settlement the firm is required to retain a Compliance Consultant and implement other remedial steps as well as adopt the recommendations of the Compliance Consultant. The Order alleges violations of Exchange Act Section 17(a) and Advisers Act Section 204.

Respondent admitted to the violations and consented to the entry of a cease-and-desist order based on Exchange Act Section 17(a) and Rule 17a-4 and Advisers Act Section 204 and Rule 204-2. The firm was also censured and will pay a penalty of $10 million. The ten other firms involved in this matter are listed here.

by T. GormanPosted on Posted in SECActions

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SPACs have for some time been one of the most talked about investment vehicles. Their popularity soared quickly in part because of the apparent simplicity of the behicles. At the same times there are many questions about the sufficiency of the disclosure and the risks that investors face. Few cases have been brought by the Commission however. And, their popularity continues. The Commission’s most recent case in this area provides some insights into the investment vehicles. SEC v. Ulrich Kranz, Civil Action No. 23-cv-06332 (C.D. Ca. Filed August 4, 3023).

Named as defendants in the action are: Ulrich Kranz, a special advisor to the Executive Chairman of Canoo Inc. who resigned in April 2021 and Paul Balciunas, the v.p. and CFO of Canno until his resignation in March 2021. At the center of the case is Canoo Inc., a firm that designs and produced EVs whose share have been registered with the Commission under Exchange Act Section 12(b) and trades under the thicker GOEV.

Over a period of several months, beginning in August 2020, the financial projections Canoo furnished investors and others projections for 2021 showing that the firm would have revenue of $120 million and $250 million for 2022. The revenue was for providing engineering services to other companies. At the time Defendants Kratz and Balcciunas had information showing that significant projects on which the projections were based were not likely to develop.

At the end of March 2021 Canoo, which had just raised substantial sums from the public, announced that it would “deemphasize the engineering services line and remove the revenue from its public filings. The next day the firm’s stock price dropped about 21%.

Previously, Mr. Kranz had entered into an agreement with two Canoo investors. Under the terms of the agreement, he would receive up to $1 million in compensation for his work at Canoo. In October 2020 Mr. Kranz received over $900,000 from the two individuals. The sum was not disclosed as compensation as required. The complaint alleges violations of Securities Act Section 17(a)(3) and Exchange Act Sections 13(a) and 14(a).

To resolve the action Mr. Kranz agreed to be enjoined from future violations of Securities Act Section 17(a)(3) and Exchange Act Section 14(a) and from aiding and abetting violations of Section 13(a). He also consented to the entry of a three-year officer/director bar and to pay a penalty of $125,000. Mr. Balcciunas consented to the entry of a permanent injunction based on Exchange Act Section 14(a), to the entry of a two-year officer/director bar and to pay disgorgement and prejudgment interest of $7,500 and a penalty of $50,000. Canoo agreed to pay a penalty of $1,500.

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