by T. GormanPosted on Posted in SECActions

Offering fraud actions continue to be a staple of the Commission despite all the changes at the agency. The cases typically center on a “too good to be true” offer to potential investors. Rather than seeing the scheme for what it is – an invitation to losing their investment funds – the investors, anxious for quick profits, jump in only to lose their money. While tragic, these kinds of cases are most difficult for the agency to halt no matter how many actions they file, but it is an essential part of the job in policing the markets. Its latest case in this regard is SEC v. Pallek, Civil Action No. 2:25-cv-00364 (E.D. Wis. Filed March 10, 2025).

Named as defendant is Ronald Pallek, a resident of Lakemoor, Illinois. He is the sole member of RAP Enterprises LLC and an investment adviser.

Between February 2021 and September 2023, he raised about $1.54 million from 87 investors. His sales pitch was keyed to an option trading strategy which he claimed had been highly successful. Specifically, Defendant Pallek said he used an “Iron Condor” options trading strategy, which is highly risky to earn profits for them. That strategy uses two put options – one short and one long – that have four strike prices and the same expiration date. The strategy earns maximum profits when the underlying asset price closes between the two middle strike prices at expiration. Stated differently, the strategy profits largely from low volatility and suffer losses in volatile markets. Defendant also claimed that he had sufficient funds to cover any potential loses for inventors.

In reality, the scheme was a lie. While Mr. Pallek did invest the funds in trading, he did not invest as promised. In addition, he did not have sufficient funds to cover investor losses. The losses mounted quickly to about $991,000 from options plus others generated from trading securities. To cover his tracks, Mr. Pallek sent investors false account statements showing profits. See Lit. Rel. No. 26264 (March 11, 2025).

On March 10, 2025, Mr. Pallek was criminally charged for the scheme. U.S. v. Pallek, No. 25-CR-43. The Commission filed a complaint alleging violations of Securities Act Section 17(a), Exchange Act Section 10(b) and Rule 10b-5, and Advisers Act Sections 206(4) and Rule 206(4)-8.

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by T. GormanPosted on Posted in SECActions

One of the things government agencies do is protect the public health. Take for example, the FDA. One of its functions is to test new drugs to ensure that they are safe and effective. Accordingly, before new prescription drugs can be approved and sold to the public, the manufacturer must submit them to the agency for testing. If the FDA finds the drug is safe and effective it will authorize release. FDA approval can also aid the company in marketing the drug and, if the firm’s share are traded, the stock price. Failure to secure approval can have the opposite effect. The impact of agency approval is illustrated in the Commission’s most recent case involving FDA approval, SEC v. Carchedi, Civil Action No. 1:25-cv-10599 (D. Mass. Filed March 12, 2025).

Named as defendants in this action are: Stefano R. Carchedi, CEO, president and a member of the board of directors of Allarity Therapeutics, Inc., a small biopharmaceutical company based in Boston, from September 2019 to June 2022; Marie L. Foegh Ramwell, chief medical officer of Allarity; and James G. Cullen, CEO of the company from June 2022 to December 2023.

Over a two-year period, beginning in February 2020, Defendants Carchedi, Ramwell and Cullen concealed the impact of a new cancer drug of the firm, dovitinib. Specifically, beginning in February 2020 the firm did not submit a proposed drug application for the dovitinib because the data to support such an application was insufficient. While the FDA had reviewed the drug the agency recommended to the company that it not file a request for approval because the data was not sufficient.

Despite the FDA’s statements, the three executives circulated false statements that the drug would likely be approved. During the period the company raised money from investors. For example, on December 21, 2021, the firm issued a press release announcing the submission of its drug application. The firm failed to state that the FDA had advised against the submission. No new tests had been done.

The day of the press release Allarity announced it listed the firm’s stock for trading on NASDAQ. The same day the company also secured a $20 million investment from one investor. The investment was based in part on the assumption that a viable drug application for dovitinib had been made.

Subsequently, on February 18, 2022, the firm disclosed for the first time that the FDA had previously refused to even review the application, a drastic measure. The firm’s shares dropped 31% on the next trading day. The complaint alleges violations of Securities Act Section 17(a) and Exchange Act Section 10(b) and Rule 10b-5. See Lit. Rel. No. 26265 (March 12, 2025).

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