Welcome to the continuation of This Week in Securities Litigation (Week of July 10, 2023). Part I was published on Monday July 10, 2023 for those who made it back from the July 4, 2023 holiday. (here). For those who returned a bit later you can catch up here and below is Part II.

Have a great and safe day.

SEC Enforcement – Filed and Settled Actions (continuation)

Offering fraud: SEC v. Ichioka, Civil Action No. 3:23-cv-03093 (N.D.Cal. Filed June 22, 2023) is an action which names as defendant William K. Ichioka. Neither he nor is his fund is registered with the Commission. Beginning in 2019, and continuing for three years, Defendant raised over $25 million from about 75 investors. Investors were told that Defendant was a successful stock and crypto asset trader who would pay returns of 10% every 30 days. Only a portion of the investor funds were put in the fund. By late 2021 Defendant could not meet investor withdrawals. The complaint alleges violations of Exchange Act Section 10(b), Securities Act Section 17(a) and Advisers Act Sections 206(1) and 206(2). The case is in litigation. The U.S. Attorney’s Office for the Northern District of California filed parallel criminal proceedings. See Lit. Rel. No. 25753 (June 22, 2023).

Audit failure: In the Matter of Marcum LLP, Adm. Proc. File No. 3-21500 (June 21, 2023). Since at least 2020 Marcum, a PCAOB registered accounting firm, has had systematic quality control and audit standard failures. At nearly every stage of its operation, the firm failed to have the proper quality control standards. This resulted in multiple quality control violations. The Order alleges violations of Regulation S-X, Rule 2-02(b)(1). To resolve the proceedings the firm agreed to implement certain undertakings, including appointing an independent consultant, and to implement the resulting recommendations. The proceedings were resolved with the firm consenting to the entry of a cease-and-desist order based on the Regulation and Rule cited in the Order and agreeing to pay a $10 million penalty.

Offering fraud: SEC v. Williams, Civil Action No. 1:23-cv-02774 (N.D. Ga. Filed June 21, 2023) is an action which names as defendants: Michael Williams, an investment adviser representative; Highguard Capital LP, a Georgia state registered investment adviser; and Guardian Opportunity Management, LP an investment adviser to the Guardian Opportunity Fund. Over a six-year period, beginning in February 2016, Defendants engaged in three offering frauds: 1) They sold over $1.8 million of securities interests in Guardian Management that were described as interests in a new private Fund called Guardian Opportunity Fund, LP. The funds were supposed to be used to grow the fund. In fact they were largely misappropriated. 2) While acting as the investment managers of the Fund they falsified its performance by underreporting the Fund’s assets to create an artificially high rate of return. The false return information was given to investors. While investors were told that the Fund would be profitable in fact the one investor who owned about 90% of the shares had given notice that he was withdrawing. The complaint alleges violations of Securities Act Section 17(a) and Exchange Act Section 10(b) as well as Advisers Act Section 206(4). See Lit. Rel. No. 25752 (June 23, 2023).

Offering fraud: SEC v. Royal Bengal Logistics, Inc., Civil Action No. 023-cv-61179 (S.D. Fla. Filed June 20, 2023) is an action which names as defendants the firm and its founder – Sanjay Singh. The firm owns a number of tractor trailer rigs. Over a four year period defendants have raised about $112 million from over 1,500 investors by conducting a Ponzi scheme and affinity fraud targeting the Haitian-American population of South Florida. Defendant solicited investments supposedly to acquire more trucks. Investors were told that the returns were guaranteed to range from 12.5% to 325%. Investors were also told that the firm generated $1 million per month, owned over 200 semi-trucks and was growing. The claims were false. Portions of the investor funds were misappropriated. The complaint alleges violations of Exchange Act Section 10(b) and each subsection of Securities Act Section 17(a). The case is in litigation. See Lit. Rel. No. 25755 (June 26, 2023).

Valuation: In the Matter of Insight Venture Management, LLC, Adm. Proc. File No. 3-21499 (June 20, 2023) is an action which names the registered investment adviser as a respondent. The firm advises a number of private equity funds that focus on growth-stage software, software-enabled services and internet businesses. Over a three-year period, beginning in 2017 fees in the post-commitment period were to be each firm’s pro rata share of funds invested in the capital. If there is a permanent investment Insight agreed to remove an amount equal to the difference between the acquisition costs and the impaired value of the portfolio investment from the fund’s invested capital. Insight applied the criteria at the portfolio company level rather than the portfolio investment level as required. The firm also did not disclose a conflict stemming from the failure to disclose the permanent impairment criteria leaving investors unaware of how narrow and subjective the criteria were. The firm also did not adopt or implement policies and procedures designed to avoid the conflict. The Order alleges violations of Advisers Act Sections 206(2) and 206(4) and the related rules. To resolve the proceedings, Respondent consented to the entry of a cease-and-desist order based on the Sections cited above and to a censure. The firm agreed to pay disgorgement in the amount of $773,754.41, prejudgment interest of $91,203,76 and a penalty of $1.5 million.

Perks: In the Matter of Stanley Black & Decker, Inc., Adm. Proc. File No. 3-21497 (June 20, 2023) is a proceeding which names as respondent the provider of hand tools, power tools and other products and services. The Order alleges that over a three-year period, beginning in 2017 Respondent failed to disclose in its definitive proxy statements at least $1.3 million in perquisites and personal benefits paid to or on behalf of four of its named executive officers and directors. The Order alleges violations of Exchange Act Sections 13(a), 14(a) and the related rules. To resolve the proceedings Respondent consented to the entry of a cease-and-desist order based on the Sections cited in the Order. Respondent acknowledged that the Commission did not impose a penalty based on cooperation which included self-reporting, conducting an internal investigation and implementing remedial measures. See also In the Matter of Jeffery D. Ansell, Adm. Proc. File No. 3-21498 (June 20, 2023)(Respondent is EVP of the company and had a role in the failure to disclose perks; resolved with cease-and-desist order based on Exchange Act Sections 13(b)(2)(A) and 14(a) and the imposition of a penalty of $75,000).

Offering fraud: SEC v. Native American Energy Group, Inc., Civil Action No. 1:23-cv-04455 (E.D.N.Y. Filed June 16, 2023). Named as defendants are: the company, a firm reputed to have had operations in the Fort Peck Indian Reservation in Montana; later the company sold five wells it had operated to Shell Trading (US) Company but now has no business; Joseph D’Arrigo, the long-time president of the firm who had been sanctioned by the Connecticut Banking Commission; and David Hudzik, at one-time a consultant to the company and also a former registered representative. Over a six year period, beginning in October 2014, Defendants solicited investors to invest in what was called a subscription agreement, described as an “investment in the company” by Defendant D’Arrigo. Defendant Hudzik aided with the sale of the subscriptions. He told investors that commissions were not charged on the interests acquired. About $3.43 million was raised from the solicitations. In fact, the representations were false. The funds were not an investment in Native American. Rather, much of the money went to Mr. D’Arrigo who diverted it to his personal use. He also misappropriated about $958, 500. The claims about no commissions were also false. In fact, Mr. Hudzik was paid a commission of 20% and 30%. In the end, the sale of the interests was also prohibited — none were registered. The complaint alleges violations of Securities Act Sections 5(a), 5(c) and 17(a) and Exchange Act Sections 10(b) and 15(a). The case is in litigation. See Lit. Rel. No. 23-civ-4455 (June 16, 2023).

Unregistered dealer: SEC v. BHP Capital, NY, Inc., Civil Action No. 1:23-cv-22233 (S.D. Fla. Filed June 16, 2023) is an action which names as defendants BH Capital and its founder Bryan Pantofel. Over a five-year period, beginning in 2017, Defendants acted as security dealers despite the fact that they never registered. Defendants funded 47 issuers in exchange for more than 100 convertible notes and associated warrant agreements. When the notes were converted and the warrants exercised Defendants obtained billions of shares of stock. This permitted Defendants to sell about four billion new shares into the markets. The complaint alleges violations of Exchange Act Section 15(a)(1). Defendants resolved the matter, consenting to the entry of permanent injunctions based on the Section cited in the complaint. They also agreed to pay disgorgement and prejudgment interest of $2,353,073 and a penalty in the amount of $200,000. In addition, Defendants agreed to the entry of a five-year penny stock bar. The company will surrender all conversion rights it holds. See Lit Rel. No. 25749 (June 16, 2023).

Misappropriation: SEC v. Craffy, Civil Action No. 25770 (D.N.J. Filed July 7, 2023) is an action which names as defendant Cax L. Craffy, a former U.S. Army financial counselor alleged to have defrauded Gold Star Families. Defendant Craffy was permitted to provide a general financial education to service members’ families through his job as a U.S. Army financial advisor. Defendant used the opportunity not to educate but to manipulate and misappropriate. He would advise service members to transfer their benefits to brokerage accounts outside of his official duties. The funds were then used for unauthorized trading that did not match the customer’s risk profile. Over a 54 month span Craffy’s customers paid over $1.64 million in commissions and fees most of which was pocketed by Defendant. The accounts he managed suffered losses of about $1.79 million. Those accounts also face an additional $1.8 million in losses. In one instance Defendant misappropriated $50,000 from the IRA account of a minor child whose parent had died on active duty. The complaint alleges violations of Securities Act Section 17(a), Exchange Act Section 10(b) and Rule 151-1(a)(1), Regulation Best Interest. The case is in litigation. See Lit. Rel. No. 25770 (July 7, 2023).

See also U.S. v. Crafty (D.N.J)(criminal action charging Craffy with six counts of wire fraud and one count each of securities fraud, making false statements in a loan application, committing acts furthering a personal financial interest, and making false statements to a federal agency. The case is pending).

Sham transactions: SEC v. Empires Consulting Corp., Civil Action No. 22-cv-21995 (S.D. Fla.) is a previously filed action which named as defendant the firm and its founders, Emerson Sousa Pires and Flavio Mendes Goncalves. EmpiresX supposedly used a trading bot. In reality there was no bot; the investor funds were traded, resulting in large losses. Defendants also misappropriated large sums of investor capital. Defendants here have been charged in a parallel criminal action. Final judgments were entered in this case against Defendants by default. Each was enjoined from future violations of Securities Act Sections 5 and 17(a) and Exchange Act Section 10(b). The judgment directs Defendants to pay disgorgement of $32,175, 070, prejudgment interest of $2,661, 610 and imposes a penalty of $6 million on Mr. Pires and $ 5 million on Mr. Goncalves. The company consented to the entry of a final judgment earlier; it orders the company to pay, jointly and severally with Messrs. Pires and Goncalves, disgorgement in the amount of $32,178,397 plus prejudgment interest of $2,661,554. The obligation to pay is deemed satisfied by the amounts collected by a state-court appointed receiver. See Lit. Rel. No. 25769 (July 6, 2023).

Sham transactions: SEC v. Spartan Trading Company, LLC., Civil Action No. 0:23-cv-01997 (D. Minn. Filed June 29, 2023) is an action which names as defendants the company and the estate of Richard Myre. The action centers on a solicitation that was initiated in 2019 by Richard Myre, Dale Dahmen and Dominick Dahmen, the founders of Spartan. Investors were told that their funds would be pooled and invested. In addition, potential investors were told that no more than half of their funds would be used to pay commissions. In fact, much of the time the investor money just sat around while small portions were used by Defendants. Defendants took commissions that were contrary to their agreements with investors. Investors were furnished with account statements that were false. Over a four-year period, beginning in 2019, over $3.7 million was raised. The investment fund was a sham. The scheme ended when, on February 1, 2023, Messrs. Myre and Dahmens were found dead by police who reported the matter as a murder suicide. This action was filed to freeze the remaining investor funds. The complaint alleges violations of Securities Act Section 17(a), Exchange Act Section 10(b) and Advisers Act Sections 206(1), 206(2) and 206(4). The case is pending. See Lit. Rel. No. 25767 (July 5, 2023).

Under stated liabilities: In the Matter of View, Inc., Adm. Proc. File No. 3-21505 (July 3, 2023) is a proceeding which names as respondent the manufacturer of “smart” windows. The firm was a private entity until it was acquired by a SPAC, CF Finance Acquisition Corp. II. In a series of reports filed with the Commission, Respondent stated that the firm estimated warranty liability of $22 to $25 million. The reports were published from December 2020 to May 2021. View, however, also decided to pay to ship and install the replacement windows. When those expenses were included, the cost was $48 million to $53 million. GAAP required under these circumstances that the firm recognize a warranty liability of $48 to $53 million. Thus, the firm misstated its warranty liability for fiscal years 2019 and 2020 and the first quarter of 2012. View also had inadequate internal controls. The Order alleges violations of Securities Act Sections 17(a)(2) and (3) and Exchange Act Sections 13(a), 13(b)(2)(A), 13(b)(2)(B) and 14(a). No penalty was imposed in view of the firm’s cooperation. See also SEC v. Preakash, Civil Action No. 3: 23-cv-03300 (N.D. Ca. Filed July 3, 2023)(Vidual Prakash was the CFO of the firm; the action is based on the same facts as above; it alleges violations of Securities Act Section 17(a)(3) and Exchange Act Section 14(a); the case is in litigation).

FinCEN

AML: The Financial Action Task Force identifies jurisdictions with Anti-Money Laundering and Combatting the financing of terrorism and counter-proliferation deficiencies, according to a statement released by the regulator dated June 29, 2023.

Hong Kong

Remarks: Julia Leung delivered remarks at the HKSI Institute Regulatory Luncheon, July 7, 2023 titled “Sustainable and Healthy Ecosystem for Small Cap Stock Segment of Hong Kong Market (here)

Singapore

Report: The Monetary Authority of Singapore released a Sustainability Report 2022/2023 on July 5, 2023 (here).

Report: MAS released its Annual Report 2022/2023, July 5, 2023 (here).

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Welcome back from the July 4 holiday. This report will update you on matters since shortly prior to the holiday until today. Because of its length it will be presented in two parts. Part I is below. Part II will be presented on Wednesday July 12, 2023.

Be careful; be safe this week.

SEC

Proposed rules: The Commission reopened the comment period on proposed rules related to reports on large security based swap positions, according to the release dated June 22, 2023 (here).

SEC Enforcement – Filed and Settled Actions

Statistics: Since June 16, 2023 the SEC has filed 18 civil injunctive actions and 4 administrative proceedings, excluding 12j and tag-along proceedings as well as those presenting conflicts for the author.

Manipulation: SEC v. DeFrancesco, Civil Action No. 23-Civ-00131 (S.D.N.Y.) is a previously filed action which named as defendants: Andrew DeFrancesco, a former stock broker turned investor; Marlio Mauricio Dias Cardona, a former director of Cool Holdings, Inc.; Carlos Felipe Rezk, also a former Director of Cool Holdings; and Nikola Faukovic, an assistant to Mr. DeFrancesco at a firm owned by his former wife, Defendant Catherine DeFrancesco. The complaint centered on a manipulation of Cool Holding’s shares by Mr. DeFrancesco and others in September 2018 for their benefit. The manipulation also ended an offering of shares about to be launched by Cool Holdings that would have diluted Mr. DeFrancesco’s control over the firm. The judgment as to Mr. DeFrancesco, enjoins future violations of Securities Act Sections 5 and 17(a) and Exchange Act Sections 10(b), 13(d) and 16(a). Defendant will pay disgorgement of $1,034,051.52, prejudgment interest of $242,018.97 and a civil penalty of $1,737,224.52. Defendant is also barred from serving as an officer or director of a public company. Note, the author represents the two former Cool Holdings directors in the on-going litigation. All other Defendants previously settled.

Manipulation: SEC v. Collins, Civil Action No. 4:23-cv-00676 (N.D. Tx. Filed June 30, 2023) is an action which names as defendants: Thomas Collins, sentenced to serve 41 months in prison for securities fraud in another matter; Patrick Thomas, sentenced to serve 18 months in prison for securities fraud in the same matter; Gary Kouletas, sentenced to serve 43 months in prison in the same case; Scott Levine, awaiting sentencing in the same case; and Brian Kingsfield, sentenced to serve 37 months in the same case. In this action Defendants are alleged to have profited from a fraudulent scheme yielding about $1.7 million. Defendants Collins and Thomas engaged a network of people to sell shares of Global Resource Energy, Inc., the distributor of a ready-to-drink hemp-infused cocktail called Hemp Hazed. Messrs. Collins and Thomas secretly obtained control of most of the outstanding shares which were restricted. An entity owned by Mr. Louletas was used to park the shares. Subsequently, the shares were sold to the public using sham consulting agreements to generate substantial profits. The complaint alleges violations of Securities Act Sections 17(a)(1) & (3) and Exchange Act Sections 10(b) and 15(a). The case is in litigation. In a separate proceeding Damon Surante, another sales person who worked for Defendants Collins and Thomas, consented to the entry of a cease-and-desist order based on Exchange Act Section 15(a) and was ordered to pay disgorgement, a civil penalty and, in addition, a penny stock bar was imposed and an industry bar. See Lit. Rel. No. 25761 (June 30, 2023).

Offering fraud: SEC v. Christensen, Civil Action No. 3:23-cv-00959 (D. Or. Filed June 30, 2023) is an action which names as defendants Robert Chrisensen, the founder of Foresee, Inc., and co-founder and partner of Commission PDX and Policy PDX and beneficial owner and controlling person of Innings 150; Anhony Matic, is the co-founder and a partner of Commission PDX and Policy PDX and benefidcial owner and controlling person of Innings 150; Foresee, Inc. is a company that issued promissory notes during the period of the case; Commission PDX, LLC, Policy PDX LLC, are beneficially owned and controlled by Messrs. Christensen and Matic; and Innings 150, LLC was beneficially owned and controlled by Defendants Christensen and Matic. Defendants Christensen and Maic initiated what appeared to be a simple business in the mid-west. They solicited investors to acquire promissory notes that paid interest at rates ranging from 9% to 15%. The idea was to invest the funds in real estate and pay returns to the investors. The business model was completely flawed. Defendant ended up using funds from other investor to make repayments on the notes which were securities. They also paid themselves from the investor funds. Essentially Defendants ended up operating a Ponzi scheme. The complaint alleges violations of Securities Act Sections 5(a), 5(c) and 17(a) and Exchange Act Section 10(b). The case is in litigation.

Insider trading: SEC v Meadow, Civil Action No. 1:23-cv-05573 (S.D.N.Y. Filed June 29, 2023) is an action which names as defendants Jordan Meadow and Steven Teixeira, respectively, an employee of a brokerage firm and an employee of an international payment processing firm who serves as its Chief Compliance Officer. The action centers on insider trading in several stocks based on information Mr. Teixeira misappropriated from his romantic partner’s laptop while both worked from home during the COVID-19 pandemic. The romantic partner was an executive assistant at a New York based investment bank. The inside information was misappropriated from late 2020 through May 2022. It related to M&A deals for Domtar Corporation, Proofpoint Inc., Score Media and Gaming Inc, and VMWare, Inc. The trading profits for Mr. Teixeira exceeded $28,000. Mr. Teixeira shared the information with several friends. Mr. Meadow was tipped by Individual 1 and Mr. Teixeria. His trading profits from two stocks totaled $730,000. The complaint alleges violations of Exchange Act Section 10(b). The case is in litigation. The U.S. Attorney’s Office filed parallel criminal charges against Messrs. Meadow and Teixeira. The cases are pending.

Insider trading: SEC v. Dagar, Civil Action No. 1:23-cv-5564 (S.D.N.Y. Filed June 29, 2023) is an action which names as defendants: Amit Dagar and Atul Bhiwapurkar, respectively an employee of Pfizer Inc. and an engineer for a publicly traded computer drive manufacturer. The action centers on insider trading in the securities of Phizer in advance of a November announcement that its COVID -19 antiviral treatment significantly reduced hospitalization and death – it was a game changer. Mr. Dagar was a senior member of the team that collected the statistical information on the trials. He was blinded. Before the company announced the results, however, on November 5, 2021 he learned the results. Within hours he traded in Pfizer call options and tipped his friend, Mr. Bhiwapurkar who then traded. The firm’s stock price increased 11% on the announcement. Mr. Dager had a one day profit of $214,395; his friend had a one day profit of $60,300. An individual tipped by Mr. Bhiwapurkar had profits of $29,770. The complaint alleges violations of Exchange Act Section 10(b). The case is in litigation. A parallel action was filed by the Manhattan U.S. Attorney’s Office.

Insider trading: SEC v. Dupont, Civil Action No. 23 Civ. 5565 (S.D.N.Y. Filed June 29, 2023) is an action which names as defendants: Joseph Dupont, v.p. of business operations at Alexion Pharmaceuticals, Inc.; Shawn Cronin, a Sargent in the Dghton Police Department who later became chief; Stanley Kaplan, a medical doctor; Paul Feldman, also a medical doctor; and Jarett Mendoza, regional sales director at a medical supply company. The case centers on insider trading by Defendant in advance of the May 5, 2020 announcement of a tender offer for Alexion shares. Mr. Dupont a senior employee at Alexin, worked on the firm’s acquisition of Portola – the Alexion-Portola Deal. He tipped Mr. Cronin, one of his closest friends, who traded. Mr. Cronin, in turn tipped his friend, Mr. Kaplan, who then passed the information to a colleague, Mr. Feldman. Both traded. Mr. Cronin also tipped his close friend, Mr. Mendoza who traded. The complaint alleges violations of Exchange Act Sections 10(b) and 14(e). The case is in litigation.

Insider trading: SEC v. Garelick, Civil Action No. 23-CV-5567 (S.D.N.Y. Filed June 29, 2023) names as defendants: Bruce Garelick, a director of SPAC DWAC; Michael Shv Artsman, the owner of several businesses who took the Fifth Amendment in testimony; Rocket One Capital LLC, a venture capital firm owned by Michael Shvartsman; and Gerald Shv Artsman, the owner of a furniture store who also took the Fifth Amendment in testimony. The case centers on trading in the securities of Digital World Acquisition Corporation or SWAC by each Defendant. The SPAC was supposed to raise money to acquire another firm. Defendants Garelick and the Shvartsman brothers executed a confidentiality agreement that precluded trading on inside information and in the shares of the SPAC. Defendants Garelick and the Shvartsman brokers were given inside information stating that DWAC planned to pursue a merger with Trump Media and Technology Group Corp. While Defendant Garelick had a duty not to trade as the deal progressed, he repeatedly purchased shares. He also shared inside information on the deal progress with Trump Media, his employer, and Michael Shvartsman who also purchased SWAC securities on the basis of that information. In addition, Michael Shvartsman tipped his brother who also traded. Following the deal announcement Defendants sold their DWAC securities, realizing profits of $23 million. The case is in litigation. The U.S. Attorney for the Southern District of New York announced parallel charges against Messrs. Garelick and Shvartsmans. See Lit. Rel. No. 25760 (June 30, 2023).

False opinions: SEC v. Rubin, Civil Action No. 20-civ-10084 (S.D.NY.) is a previously filed action which named as defendants two attorneys, Richard Rubin and Thomas Craft, Jr. The complaint alleged that the two attorneys issued fraudulent legal opinions to facilitate the sale of shares of unregistered securities. Each attorney separately consented to the entry of permanent injunctions based on Section 17(a) of the Securities Act and Exchange Act Section 10(b). Penny stock bars were also imposed. Previously, Defendants had each pleaded guilty to one count of securities fraud in a parallel criminal case. Defendant Rubin was sentenced to one year of probation and ordered to forfeit $117,068.15 and was directed to pay a $1,000 penalty. Mr. Craft was sentenced to 4 months of home confinement and ordered to forfeit $55,000 and to perform 200 hours of community service. He also agreed to surrender his law license. See Lit. Rel. No. 25756 (June 27, 2023).

Financial fraud: SEC v. Casutto, Civil Action No. 2:23-cv-05104 (C.D. Cal. Filed June 27, 2023) is an action which names as defendants: Brian Casutto, a.v.p. of sales at MusclePherm, Inc.; Matthew Zucco, an analyst at the same firm; and Kevin Harris, CPA, was the CFO at the same firm. The firm materially overstated revenues by: 1) prematurely recognizing $9.2 million in revenue by booking sales at quarter end even though it did not ship the product; 2) recognized $12.8 million by recognizing revenue at the time of shipment and before delivery despite the terms of the contract that required delivery prior to revenue recognition; and 3) overstating revenues by $15.5 million by classifying credits the company granted to certain customers as expenses rather than reductions of revenue as required by GAAP. As a result of these practices the company financial statements were materially incorrect. Defendant Harris also failed to ensure that all perquisites were properly disclosed. The complaint alleges violations of Securities Act Sections 17(a)(1), (2) and (3), and Exchange Act Sections 10(b), 13(a), 13(b)(2)(A), 13(b)(2)(B), 13(b)(5), and 14(a). The case is in litigation. See Lit. Rel. No. 25757 (June 29, 2023).

Offering fraud: SEC v. Baston, Civil Action No. 23 Civ. 5347 (S.D.N.Y. Filed June 23, 2023) is an action which names as defendant William Baston a/k/a Chanon Gordon, a name he used to conceal his criminal background. Since 2018 Defendant has raised over $10 million from investors based on false representations about his business, Gordon Management Group. The funds were supposedly used to invest in real estate and pay substantial returns. Eventually Defendant began to run short of cash from making Ponzi type payments. The complaint alleges violations of Securities Act Section 10(b) and 17(a). The case is in litigation. A parallel criminal action was filed by the Manhattan U.S. Attorney’s Office. See Lit. Rel. No. 25759 (June 28, 2023).

Offering fraud: SEC v. Legend Venture Partners, LLC, 23 Civ. 5326 (S.D.N.Y. Filed June 22, 2023) is an action which names as defendant the firm, founded in 2021, which acts as the investment adviser for the Legend Funds which are not registered. Over a three-year period, beginning in 2019, Legend’s principals worked as sales agents for StraightPath, running boiler rooms used to sell interests in private pre-IPO funds. At about the same time, StraightPath’s principals in about February 2022 commenced operations. Legend was presented as a new division of StraightPath. See SEC v. StraightPath Venture Partners, LLC, 22 Civ. 3897 (S.D.N.Y Filed May 13, 2022). Investment advisers like Legend seek to make pre-IPO shares available. Legend’s business was to sell interests in a series of its Funds. From about February to October 2022 the firm raised over $35 million from 300 investors. The solicitations from Legend were based on misrepresentations regarding the fees charged and the profits made by those conducting the solicitations. The complaint alleges violations of Securities Act Section 17(a), Exchange Act Section 10(b) and Advisers Act Sections 206(1), 206(2), 206(3) and 206(4). The case is in litigation. The Commission obtained a preliminary injunction in this action. See Lit. Rel. No. 25758 (June 28, 2023).

The second portion of this article will be published on Wednesday, July 13, 2023

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