Memorial Day is a time to remember. Originally established during the civil war, it was intended to look back and remember those who have served the nation. There is no doubt that we all owe much to those who have gone before us and sacrificed so much to build a better world. We remember and are most thankful.
It is also the unofficial kick-off of summer and vacations. As the school year ends or has ended a summer vacations begin with many heading for the highway or the airport. Best wishes to all for a wonderful time with family and friends.
Be careful; be safe this week.
SEC
Remarks: Chair Gary Gensler delivered remarks titled” Bear in the Woods” at the Investment Company Institute on May 25, 2023. His remarks reviewed the benefits to investors from the Investment Company Act, while noting that much still needs to be done. The Chair then recounted recent proposals in the area by the agency and touched on similar products overseen by bank regulators (here).
SEC Enforcement – Filed and Settled Actions
Statistics: Last week the SEC filed 1 civil injunctive action and no administrative proceedings, excluding 12j and tag-along proceedings as well as those presenting conflicts for the author.
False financial statements: SEC v. iFresh, Inc., Civil Action No. 1:22-cv-03200 (E.D.N.Y.) is a previously filed action which named as defendants the company and Long Deng, its former CEO. Defendant Deng agreed to settle the action. The complaint alleged that the firm failed to disclose related party transactions in the firm’s financial statements over a four-year period, beginning in August 2016 and continuing through August 2020. In addition, the firm failed to properly disclose numerous transactions in which the company failed to make the proper disclosures involving transactions with entities related to Mr. Deng and his brother. The firm also inflated its accounts receivable from the undisclosed related party transactions and did not disclose over $12 million in payments were made to a company owned by Mr. Deng’s brother over a four year period. Mr. Deng resolved the matter, consenting to the entry of a final judgment which permanently enjoins him from future violations of Securities Act Section 17(a) and Exchange Act Section 10(b) and from aiding-and-abetting violations of Exchange Act Sections 13(a), 13(b)(2)(A) and 13(b)(2)(B). Mr. Deng agreed to pay $44,706 in disgorgement and prejudgment interest and a $90,000 civil penalty as part of the settlement and to be barred from serving as an officer or director of any public company for five years. The litigation is on-going. See Lit. Rel. No. 25735 (May 25, 2023).
Offering fraud: SEC v. Integrated National Resouces, Inc., Civil Action No. 8:23-cv-00855 (C.D. Cal. Filed May 16, 2023). Named as defendants in the case are: the company, also known as “Weedgenics;” Rolf Max Hirschmann, known as “Max Bergmann;” and Patrick Earl Williams Bergmann. Over a period of four years, beginning in June 2019, Messrs. Hirschmann and Williams controlled Weedgenics. During that period Defendants raised over $61 million from about 350 investors. Investor funds were raised, according to the scheme promoters, to develop and expand a cannabis cultivation facility of the company in Adelamto, California. Investors were told that the company also had a facility in Nevada. Each facility was licensed by the appropriate state authorities; each facility was profitable, according to Defendants. Those profits would supposedly be used to make regular interest payments to investors. Investors were furnished with photos of each facility along with financial statements evidencing the claimed profits. Each representation made to the investors was false. The documents were false. The funds were not transferred to the company as promised. To the contrary, those funds were cycled through multiple accounts in an obvious attempt to conceal the actual location and further deceive investors. Eventually the funds went to the individual Defendants who enriched their personal life styles. Portions of the money went to make Ponzi-like payments. In the end the company essentially rekindled the fraud and raised additional funds. 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. 25733 (May 16, 2023).
Manipulation: SEC v. Ronk, Civil Action No. 18-civ-00607 (C.D. Cal.) is a previously filed action which named as defendant Thomas C. Ronk. The complaint is based on three schemes: 1) A fraudulent offering of shares in two microcap companies; 2) a private offering of shares based on misrepresentations; and 3) the manipulation of the shares in the prior schemes. The complaint alleged violations of Exchange Act Section 10(b) and Securities Act Section 17(b). To resolve the matter, Defendant consented to the entry of permanent injunctions based on the Sections cited in the complaint. The judgement also contains a 5 year officer/director bar and penny stock bar. In addition, Defendant agreed to pay a civil penalty of $75,000. See Lit. Rel. No. 25732 (May 22, 2023).
Offering fraud: SEC v. Antar, Civil Action No. 1:19-cv-11527 (S.D.N.Y) is a previously filed action which named as defendant Sam Antar. The complaint alleged that over a six month period, beginning in January 2019, Defendant Antar targeted friends and acquaintances from the Syrian Jewish Community in Monmouth County, New Jersey. He solicited them to invest in what were supposed to be pre-IPO shares that would be acquired at a low price. This sales pitch drew a number of investors who entrusted Defendant with over $550,000. In fact. the claims were false. Mr. Antar spent the investor funds on himself. The complaint alleges violations of Securities Act Section 17(a) and Exchange Act Section 10(b). On May 17, 2023 the Court entered a final consent judgement against Defendant which precludes future violations of the Sections cited in the complaint. In addition, the judgment requires the payment of disgorgement in the amount of $567,000 along with prejudgment interest of $8,754 with offsets paid in the parallel criminal case. There Defendant pleaded guilty and was sentenced to serve three years in prison and order to pay restitution of $15,000. See Lit. Rel. No. 25730 (May 19, 2023).
Unregistered broker: SEC v. Levin, Civil Action No. 23-civ-01025 (N.D. Tx. May 9, 2023) is a previously filed action which names as defendant Daniel Levin. The complaint alleged that Defendant solicited investors to purchase units in the CRP Fund which owned interests in funds managed by PB Capital. Over a period of about one year, beginning in 2017, 27 investors purchased interests. At the time Defendant Levin was not a registered broker as required for such transactions. The complaint alleges violations of Exchange Act Section 15(a)(1). Defendant resolved the matter, consenting to the entry of a permanent injunction based on the Section cited in the complaint. Monetary relief is to be resolved by the Court at a later date. See Lit. Rel. No. 25731 (May 19, 2023).
ESMA
Statement: The European Securities and Markets Authority issued a statement regarding the risks arising from dealing with investment firms that provide unregulated products and services, on May 25, 2023 (here).
Hong Kong
Consultation: The Securities and Futures Commission of Hong Kong released the consultation conclusions on the proposed regulatory requirements for virtual asset trading platform operators licensed by the SFC. During the period the SFC received 152 written submissions from industry and professional associates and professionals. Generally, they welcomed the proposals. There were also some who sought clarification, according to the May 23, 2023 release (here).
Singapore
Remarks: Ravi Menon, Managing Director, Monetary Authority of Singapore, addressed the Tenth Asian Monetary Policy Forum, May 26, 2023. In his remarks, the Managing Directors recalled remarks he made ten years ago about securing price and financial stability. He then took stock of what had been learned over the period since his last remarks, according to a release dated May 26, 2023 (here).
UK
Statement: The FCA, PCA, PRA and Bank of England issued a statement regarding the government’s proposed amendments to the CCP run-off regime. Specifically, the regulators fully support the continuity of these clearing services to UK firms in a manner consistent with the original amendment tabled for these purposes in January 2023 (here).
