by T. GormanPosted on Posted in SECActions

FTX continues to be a key story this week with its founder still giving interviews. The crash of the crypto exchange may soon give way to a proposed new plan from the SEC. Chair Gensler is reported to be about to issue a plan to reorganize the securities markets – the first in years.

Be careful, be safe this week

SEC

Regulation: The Commission reopened the comment period regarding its proposed rules regarding the repurchase of shares on December 7, 2022. The period will remain open for an additional 30 days following publication in the federal register.

SEC Enforcement – Filed and settled actions

Last week the Commission filed 2 new civil injunctive actions and 3 administrative proceedings, exclusive of 12j, default, conflicts (which are included in the tabulation of cases), tag-a-long and other similar proceedings.

Offering fraud: SEC v. Iakovou, Civil Action No. 4:22-v-00194 (M.D. Ga. Filed December 7, 2022) is an action which names as defendants: George Iakovou, Vika Ventures LLC and Penelope Zbravos. The firm was founded by the two individual defendants. Over a two-year period, beginning in late 2019, about 46 investors to put about $3.9 million dollars in what they were lead to believe would be pre-IPO shares of firms. In fact, there were no such shares – the representations were false. The complaint alleges violations of Securities Act Section 17(a) and Exchange Act Section 10(b). Defendant Zbravos, the girlfriend of Defendant Iakavou, resolved the matter, consenting to the entry of a permanent injunction based on the Sections cited in the complaint. The Court will determine the amount, if any, of a civil penalty. The U.S. Attorney’s Office for the Middle District of Georgia announced the filing of related criminal charges.

Insider trading: In the Matter of Vincent Issier, File No. 3-21251 (December 6, 2022) is an action which names as defendant Mr. Issier, an employee of Lumentum Holdings Inc. The case centers on a January 2021 announcement that Defendant’s employer had entered into an agreement to acquire Coherent, Inc. In the weeks before the deal announcement Defendant worked on the transaction for his employer. He also traded in the shares of Coherent prior to the announcement. The share price of Coherent rose 30% following the announcement. The Order alleges violations of Exchange Act Section 10(b). To resolve the matter Defendant consented to the entry of a cease-and-desist order based on the Section cited in the Order. He also agreed to pay disgorgement in the amount of $6,295.89, prejudgment interest of $266.04 and a penalty of $6,295.89.

Manipulation: SEC v. Landis, Civil Action No. 1:18-cv-12453 (D. Mass.) is a previously filed action which names as defendant Eric Landis, a recidivist manipulator. The complaint alleges that Defendant Landis orchestrated a scheme to manipulate the shares of 97 microcap stocks. In August 2019 the Court entered judgments against Mr. Landis, and another Defendant, that imposed multiple injunctions including one precluding the two defendants from participating in any offering of securities except for their own account. Here the Court ordered Defendant Landis to pay over $2.5 million in disgorgement, deemed satisfied by the order of forfeiture in the parallel criminal case. In that action, Mr. Landis pleaded guilty and was sentenced to serve six months in prison followed by two years of supervised release. The Court also directed that Mr. Landis pay a $50,000 fine and $2,505,488 in forfeiture. See Lit. Rel. No. 25587 (December 6, 2022).

Unregistered securities: In the Matter of PFP Entrust Corp., Adm. Proc. File No. 3-21250 (December 5, 2022) is a proceeding which names as respondents: the firm: Promotional Consulting Partners LLC: CPPC, Inc.; Nick Skrelja, the majority owner of PFP Entrust; Jack Skreljka, a defendant in another SEC enforcement action; and Neil Yaldo, also a defendant in another enforcement action. This case centers on the sale of over $15.8 million in unregistered notes to over 120 investors. The Order alleges violations of Securities Act Sections 5(a) and 5(c). To resolve the proceedings Respondents PFP Entities entered into certain undertakings. Each Respondent consented to the entry of a cease-and-desist order based on the Sections cited in the Order. In addition, each Respondent agreed to pay a penalty in the amount of: PFP Entrust, $100,000; PCP, $100,000; N. Skrelja $10,000; J. Skrelja, $25,000; and Yaldo, $10,000.

FCPA: In the Matter of ABB, Ltd., Adm. Proc. File No. 3-21248 (December 3, 2022) is a proceeding which names as respondent, ABB Ltd. The firm, based in Switzerland, focuses on motion and robotics technology. It has also settled two prior FCPA cases with the Commission. This action centers on the period March 2015 to December 2017. During that period the company paid bribes to the South African government in connection with obtaining a contract worth about $160 million. The Order alleges violations of Exchange Act Sections 30A, 13(b)(2)(A) and 13(b)(2)(B). To resolve this matter ABB consented to the entry of a cease-and-desist order based on the Sections cited in the Order. It also agreed to pay disgorgement of $58 million, prejudgment interest of $14,554,267 and a penalty of $75 million. See also ABB Agrees to Pay Over $315 Million to Resolve Coordinated Global Foreign Bribery Case, ABA, December 2, 2022 (here).

Reg FD: SEC v. AT&T, Inc., Civil Action No. 1:21-cv-01951 (S.D.N.Y. Filed March 3, 2021) is an action against the firm and three of its executives, Christopher C. Womack, Kent D. Evans and Michael J. Black. In March 2016 the firm learned that there would be a steep drop-off in the sale of smart phones. That in turn would cause revenue for the first quarter of 2016 to fall below the consensus estimate. The Chief Financial Officer instructed the head of the IR Department to work the analysts who had revenue estimates tied to equipment “to high.” The individual Defendants were then instructed to make calls to select analysts. Those calls were made to about 20 firms. During the calls material nonpublic information was disclosed, although there were efforts to disguise that fact. The complaint alleges violations of Exchange Act Section 13(a) and Regulation FD. To resolve the matter the company, and each of its executives, consented to the entry of a permanent injunction based on the Section and Regulation cited in the complaint. In addition, the company agreed to pay a penalty of $6.25 million while each executive will pay $25,000.

DOJ

Remarks: Principal Associate Deputy Attorney AG Marshall Miller delivered remarks at the American Bankers Association Financial Crimes Enforcement Conference, Washington, D.C. in which he discussed, among other things, cooperation, December 6, 2022 (here).
FinCEN

Remarks: The Acting Director of FinCEN, Himamauli Das, addressed the ABA Financial Crimes Enforcement Conference on December 6, 2022. In his remarks the Acting Director discussed beneficial ownership information reporting, anti-corruption, a roadmap for an effective AML/CFT program, MSBs & CVC and combating fraud on December 6, 2022 (here).

Hong Kong

Report: The Hong Kong Securities and Futures Commission issued its quarterly report on December 6, 2022 (here).

by T. GormanPosted on Posted in SECActions

Part I of this series presented basic statistics for the third quarter of this year – the number of cases filed as well as the largest areas of concentration (here). Part II presented examples of the cases in each of the largest areas of concentration (here). Part III of the series presents presented select cases initiated during the third quarter of 2022 that are significant but not included in one of the four largest categories of actions initiated (here). This is the concluding segment of the series.

Conclusion

This series has only charted the path of the first three quarters of 2022. Yet key trends for the year are emerging and certain points are clear. First is the number of cases filed. While the number of new enforcement actions initiated in the first two quarters of the year was generally consist with those in earlier periods, the 202 cases filed in the third quarter is noteworthy. That number are remarkable, and in probably, a record. While the number of cases initiated is not, in and of itself, a complete measure of an effective enforcement program, as noted in the initial segment of this series, the effort required to initiate the large number of cases filed to date does reflect the efforts of the Division to police the markets.

Some may argue that 3Q22 was the fourth quarter of the Government fiscal year when SEC Enforcement typically initiates increased numbers of cases. Clearly that is correct. Even by past standards for those periods however, the effort is quite remarkable. This is particularly true since the pandemic continues to impact the investigative efforts of the Division.

Second, the cases brought during the first three quarters of 2022 are the result, at least in part, of the increasing use of data analysis by the agency. While the staff has long used this approach, 2022 is the first time the agency has claimed that insider trading was uncovered by the approach. Unfortunately, the release stating this fact does not discuss how data analytics was employed in uncovering the cases. It appears, however, that it was used to help uncover trading trends that tie to the practice. No doubt the staff will continue to employ and refine this approach.

Third, while the four areas in which most actions were filed are traditional areas of focus for SEC Enforcement, the cases discussed in Part III of this series reveal a much different story. Those cases represent 18 different areas, in addition to the four largest categories of case. They include a range of areas and theories such as municipal bonds, Regulation BI, transfer agents, identity theft, complex products and free riding. Collectively, this paints a picture of a Division reaching not just traditional areas of focus, but pushing out to police the edges of the market place to protect investors. The approach also builds on one that appears to have been initiated in the second quarter of last year.
Finally, the results from the first three quarters of 2022 should be welcomed by all investors while serving as a caution to some. In one sense reassures investors that the markets are being effectively policed.

At the same time, it should serve as a caution to all to carefully consider and evaluate their actions. Regulated entities, for example, typically have compliance programs keyed to certain areas. The breath of the enforcement activities evidenced by the cases brought in the first three quarters of 2022 should serve as a cautionary note to all CCOs, prompting and examination of existing programs to ensure effectiveness.
The same is true of all other investors in the markets. To be sure, not every firm has the kind of compliance programs typically maintained by regulated entities. Clearly individual investors and traders do not. Yet the expanding reach of SEC Enforcement as reflected in the results from the first three quarters of calendar year 2022 should serve as notice that the Division is intent on bringing the new ethics to the market place envisioned by the federal securities laws. Those effort should be welcomed all. They should also serve as a caution to carefully adhere to the fundamental principles on which the federal securities laws are based, a result which can only serve to improve overall effectiveness of the markets for all.

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