by T. GormanPosted on Posted in SECActions

Last week the Commission launched a public service campaign focused on making sure that older investors never stop learning. The agency also sought emergency relief to protect the assets of U.S. investors in Binance.

Be careful; be safe this week.

SEC

SEC Enforcement – Filed and Settled Actions

Statistics: Last week the SEC filed 2 civil injunctive actions and 1 administrative proceeding, excluding 12j and tag-along proceedings as well as those presenting conflicts for the author.

False estimate: In the Matter of David Dickson, Adm. Proc. File No. 3021491 (June 16, 2023) is a proceeding which names as respondents Mr. Dickson and Stuart Spenser, respectively the CEO and CFO of McDermott International Inc. In the second quarter of 2018 Respondents approved an estimate for a project called the Cameron Project. The estimate was developed outside of the normal processes and approved a $490 million loss for Q2 2018 despite the fact that the initial estimate was over $1.1 billion. The estimate was filed on a Form 10K and caused the company to have an incorrect estimate and accounting. The Order alleges violations of Exchange Act Sections 13(a), 13(b)(2)(B) and 13(b)(2)(B) and the related rules. Respondents resolved the matter by consenting to the entry of a cease-and-desist order based on the Sections cited in the order. Respondent Dickerson will pay a penalty of $100,000. Respondent Spence will pay a penalty of $40,000.

Offering fraud: SEC v. Verne, Civil Action No. 2:23-cv-02259 (E.D. Pa. Filed June 13, 2023) is an action which names as defendant Josh S. Verne, who previously worked in the family furniture business. Beginning in 2018, and continuing for the next two years, he raised about $31 million from at least 110 investors. The funds were solicited for two start-ups, Ownable, LLC an online rent-to-own business and its affiliate, Ownable Capital Partners I, LLC. The solicitations were made to pool investor money in Ownable and two other firms. While Defendant touted his expertise, in fact the money was sought to fund his lifestyle. Only about half of the money raised was used to fund the companies. In three instances Defendant also sold the investors’ securities without their knowledge. The complaint alleges violations of Securities Act Section 17(a) and Exchange Act Section 10(b). The case is in litigation. See Lit. Rel. No. 27744 (June 14, 2023).

SEC v. Mintz, Civil Action No. 2:23-cv-03201 (D. N.J. Filed June 12, 2023). Named as defendants in the action are Hal Mintz and Sabby Management LLC, a registered investment adviser where Mr. Mintz was employed. The firm has been sanctioned by the Commission previously for violating Regulation M, Rule 105 which governs improper trading in connection with an offering. The complaint centers on a two-year period, beginning March 2017. During that period Defendants used their knowledge of the Commission’s rules governing trading — primarily short selling — to game the system with improper transactions facilitated by false statements to obtain illicit trading profits. The scheme had two main facets. The first centered on what the market-place was told were long trades made by private funds. In fact, those funds did not have actual net long positions. As a result, the positions should have been marked as short. Defendants, however, did not locate cover for the positions as required by the rules governing short sales because the positions had been mismarked. Defendants thereby violated Regulation SHO. The second facet of the scheme is similar. In this instance Defendants actually put on short positions. Yet Defendants again failed to locate cover for their positions by acquiring or borrowing the securities necessary. The transactions again violated Regulation SHO. Over the course of the scheme Defendants took steps to conceal their activities. This was done in part by making false statements about their trades and positions when dealing with other market professionals. At the same time Defendants were, at times, unable to deliver the securities necessary to cover their positions. When this occurred Defendants’ actually had a naked short position. Defendants ignored the dictates of Regulation SHO regarding cover because it was profitable. By ignoring the locate requirements Defendants avoided the expense associated with the locate rule. Defendants increased their illicit gains, at times by converting their positions in stock at a cheaper price than would have otherwise been available by artificially deflating the price. Overall Defendants profited by about $2 million. The Order alleges violations of Exchange Act Section 10(b) and Advisers Act Sections 204 and 204(6). The case is in litigation.

FinCEN

AML: The agency joined a trilateral program that was part of the Drug Dialogue Workshop at the North American Drug Dialogue to address the question of money laundering activities associated with illegal drug trade, according to a release dated June 15, 2023)(here),

Australia

Remarks: ASIC Chair Joe Longo, speaking before the Committee for Economic Development of Australia on June 13, 2023, delivered remarks focused on his view that ESG is changing requiring that steps be taken to deal with those changes (here).

ESMA

Announcement: The European Securities and Markets Authority announced on June 15, 2023 that it is launching a Data Strategy for the next five years to facilitate the use of data (here).

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by T. GormanPosted on Posted in SECActions

Market Professional Misappropriates Client Funds For Years

Misappropriation of client assets seems to be an increasing issue in the securities business. Recently the Commission appears to be filing more actions centered on market professionals who misappropriate assets from their long time clients. Those actions are, of course, keyed to the trust of the client. In many of the cases the client vested the professional with authority regarding his or her account that was sufficient to permit the misappropriation. In other cases the clients appears to have failed to properly monitor ther account, thereby facilitating the wrongful conduct of the professional. This appears to be the situation in the Commission’s latest case in this areas, SEC v. Thayer, Civil Action No. 1:23-00362 (S.D. Ohio Filed June 13, 2023).

Named as defendant is Patrick N. Thayer, a resident of Cincinnati Ohio who held Series 6,7 and 66 licenses with the Commission. Between 2010 and 2022 Defendant Thayer was a registered representative of four different broker-dealers. Effective February 21, 2023 FINRA banned him from the securities business.

Since May 2010 Mr. Thayer has conducted business through his firm, Broadway Financial Solutions. Though that firm he provided investment services as well as broker services, executing trades for clients at times on a discretionary basis.

Mr. Thayer did not charge clients for his services except for the commissions he earned as a broker. He did, however, misappropriate about $1.3 million from one client for his benefit over a period of years. The fraud was accomplished by establishing a bank account under the client’s name and forging documents. The bank account had the address of Broadway Financial rather than that of the client. Defendant also set up the account so he could transfer funds from it.

On almost a monthly basis, from November 213 until August 2022, Defendant sold assets in the client’s brokerage account, transferred the proceeds to the Bank Account he established and later moving the funds to himself.

The complaint alleges violations of Securities Act Sections 17(a)(1) and (2), Exchange Act Sections 10(b) and Advisers Act Sections 206(1) and 206(2). The case is in litigation.