by T. GormanPosted on Posted in SECActions

Last week the Commission filed two new actions. One centered on insider trading and was partially resolved. The second focused on violations of Rule 105 by an investment adviser. The proceeding was resolved.

Be careful, be safe this week.

SEC

Remarks: SEC Chairman Gary Gensler delivered remarks tilted “AI, Finance, Movies and the Law,” at Yale Law School on February, 13, 2024 (here). The Chairman’s remarks used well known lines from various films to illustrate points regarding SEC enforcement actions that might stem from or involve IA.

SEC Enforcement – Filed and Settled Actions

Statistics: This week the Commission filed 1 new civil injunctive action and 1 new administrative proceedings, excluding tag-along actions and those that present a conflict for the author.

Insider trading: SEC v. Loudon, Civil Action No. 24-cv-622 (S.D. Tx. Filed February 22, 2024) is an action which names as defendant Tyler Loudon who resides in Huston Tx. His wife is an M&A manager for BP p.l.c. On February 16, 2023, TravelCenters of America, Inc., a full service truck stop and travel center based in Ohio announced it had signed an agreement to be acquired by BP. Prior to the announcement Defendant misappropriated material, confidential information about the transaction from his wife. He then purchased 46,450 shares of TravelCenters stock. Following the deal announcement the share price increased about 70.8%. Mr. Loudon sold his shares for over $1.76 million in profits. The complaint alleges violations of Exchange Act Section 10(b). Defendant partially resolved the action, consenting to the entry of a permanent injunction based on the Section cited in the complaint. The U.S. Attorney’s Office for the Southern District of Texas announced parallel criminal charges.

Rule 105: In the Matter of Contrarian Capital Management, LLC, Adm. Proc. File No. 99578 (February 21, 2024) is a proceeding which names the registered investment advisor as a Respondent. In two instances between April 2020 and July 2020 Respondent purchased offering shares for clients from an underwriter or broker-dealer participating in a follow-on or secondary public offering of stock. Yet Respondent caused at least one advisory client to sell short the same security during the Rule 105 restricted period. In each instance the short sale booked as a result of the assignment of previously sold call options during the five business day period that preceded the pricing of the offering, thereby violating Rule 105. To resolve the proceedings Respondent consented to the entry of a cease-and-desist order based on Rule 105. In addition, the firm will pay disgorgement of $351,726.86, prejudgment interest of $29,600.50 and a penalty of $140,000.

FinCEN

Meeting: The Financial Crimes Enforcement Network or FinCEN held its first exchange with Puerto Rican Financial Institutions and Law Enforcement, according to a released dated February 222, 2024. The purpose of the meeting was to facilitate cooperation between the agency and officials in Puerto Rico (here).

Hong Kong

Remarks: Julia Leung, Hong Kong Securities & Futures Commission, delivered remarks at the Launch Ceremony of Greenhouse Gas Emissions Calculation and Estimation Tools event, February 21, 2024 (here). Her remarks focused on the institution of the new calculation tools.

Singapore

Publication: The Monetary Authority of Singapore or MAS published a consultation paper titled “Good Practices for Auditors of Fund Management Companies,” dated February 2024 (here).

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by T. GormanPosted on Posted in SECActions

It is axiomatic that the publication of favorable articles can be quite helpful to the share price of stocks. This may be particularly true if the favorable article is published in a respected investment newsletter or another industry publication. The use of this approach to secure favorable publicity for certain issuers is at the center of a recent proceeding brought by the Commission, In the Mater of Christian Fernandez, Adm. Proc. File No. 99559 (February 20, 2024).

These proceedings revolved around articles published in Palm Beach Venture, an investment newsletter and related emails about two issuers. The newsletter is published by Palm Breach Research Group. Jonathan W. Mikula is the chief analyst and author of the publication. He has been previously been charged by the Commission in three cases, one of which is currently pending. SEC v. Mikula, Civil Action No. 2:22-cv-07096 (C.D. Cal. Filed September 30, 2022).

In 2020 and 2021 Mr. Mikula authored articles that were published in Palm Beach Venture and circulated, along with emails, touting Issuer 1 and Issuer 2, each of whom had shares that were OTC traded. Each firm is based in Canadian The articles and emails did not state that Palm Beach Venture was being paid to publish and circulate the articles or emails.

In fact, for Issuer I Respondent was paid $326,502.23 for the publication and circulation of the material. Similarly, Respondent was paid $280,000 for the publication and circulation of the material regarding Issuer II. Portions of the funds paid went to Mr. Mikula as his compensation. The Order alleges violations of Securities Act Section 17(b) and Exchange Act Section 10(b).

To resolve he proceedings, Respondent consented to the entry of a cease-and-desist order based on the Sections cited in the Order. He also agreed to pay disgorgement of $331,782.11 and prejudgment interest of $30,094.34. The funds will be held in an account by the Commission pending a decision if it will seek to distribute them or transfer the funds to the Treasury. A penalty was not imposed based on cooperation.

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