by T. GormanPosted on Posted in SECActions

Crypto assets continue to be a controversial topic. Many believe that crypto can be a real source of value; others do not. Congress has considered if crypto assets should be regulated by an agency; despite years of consideration, regulation has yet to emerge. Now, of course, the question will essentially be tabled until after the election. Nevertheless, the Commission continues to debate questions about the assets while the enforcement division brings actions. The Commission’s latest case in this area centers on transactions involving two different crypto assets. The latest case in the area is SEC v. Vy Pham, Civil Action No. 1:24-cv-12588 (D. Mass. Filed Oct. 9, 2024).

Defendant Vy Pham is a citizen of Vietnam who resides in Los Angeles. She holds herself out as the leader of a project related to Robo Inn and as the CEO of Robo Global Investment PTE, Ltd.

In the spring of 2021 Defendant Pham participated in the launch of Saitama Inu, a crypto asset offered and sold as a security. Those involved with the promotion of the asset claimed it would create wealth through passive income. They also claimed that it would promote financial literacy and global financial well-being. Ms. Pham and the others promoting the crypto asset then engaged in a series of actions designed to increase the price and trading volume. Shortly thereafter Defendant Pham had a falling out with the leadership team. Members of that team were also named in a Commission enforcement action, SEC v. Russell Armand, et. al (D. Mass 2024).

Later in 2021 Ms. Pham launched another crypto asset – the Robo Inu Finance token. It was inspired by a NASA plan to launch Robo dogs to Mars. There was no real market for the asset. Defendant hired Gotbit Consulting LLC to provide market making services. They did. A process was used to create the illusion of public interest in Robo Inu. Trading in the assets was designed to attack public interest in the assets. It did. There was wash trading to induce public interest. Those efforts began in February 2022 and continued through June of 2023. Social media and other, similar avenues, were used to promote the assets. The complaint alleges violations of Securities Act Sections 5(a), 5(c) and 17(a)(1) & (3) and Exchange Act Section Sections 9(a)(2), 10(b) and Rules 10b-5(a) and (c). See Lit. Rel. No. 26153 (Oct. 15, 2024).

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by T. GormanPosted on Posted in SECActions

Following the blitz of cases last week for the end of the Government fiscal year, the wave of new cases subsided. This week there were only three new enforcement actions. One centered on an investment fraud, a second on crypto assets and a third on a pump-and-dump scheme.

Be careful, be safe this week

SEC Enforcement – Filed and Settled Actions

Statistics: This week the Commission filed 3 new civil injunctive actions and no new administrative proceedings, excluding tag-along actions and those that present a conflict for the author.

Investment fraud. SEC v. Meier, Civil Action No. 124-cv-12602 (D. Mass. Filed Oct. 11, 2024) is an action which names as defendant Norman Meier, a Massachusetts resident, who conducted a years long stock solicitation scheme that began in 2015. During the scheme, which continued until 2023, over 180 investors were solicited, largely from Germany but also from the United States. About $7.9 million was raised by cold calls placed from operations directed by Defendant. Investor funds were wired to the U.S. and then misappropriated by Defendant rather than invested as promised during the phone calls. One of the accounts was named “Treuhand” or “trust” or “escrow” in German. The complaint alleges violations of Securities Act Section 17(a) and Exchange Act Section 10(b). See Lit. Rel. No. 26152 (Oct. 11, 2024).

Crypto securities: SEC v. Cumberland DRW LLC, Civil Action No 24-CV-9842 (N.D. Ill. Oct. 10, 2024) is an action which names as defendant, Cumberland DRW, a privately owned entity based in Chicago. The firm at one time operated under the name of Cumberland Mining & Minerals, LLC. It is a subsidiary of DRW Holdings, LLC which also owns several registered broker-dealers. Cumberland calls itself “one of the world’s leading liquidity providers” in crypto assets – it operates 24 hours a day, seven days a week. Since 2018 the firm has, for its own accounts, offered and sold at least $2 billion worth of crypto security assets. The firm is not registered as a securities dealer. The complaint alleges violations of Exchange Act Section 15(a). See Lit. Rel. No. 26151 (Oct. 10, 2024).

Pump-and-dump: SEC v. Minerco Inc., Civil Action No. 1:24-cv-02870 (D.D.C. Filed October 9, 2024). Named as defendants in this action are: the company, essentially a Nevada shell entity; Bobby Schumake Japhia, a Dallas resident who has previously been named as a defendant in a Commission initiated action; and Julius Makiri Jenge, a Maryland resident who was the subject of an earlier Commission subpoena enforcement action. The action centers on the sale of Minerco stock which ultimately netted Defendants about $8 million. That firm was pared with psilocybin mushrooms, a plant-based hallucinogen popularly known as “magic mushrooms.”

The scheme began with personal friends of Mr. Shumake serving as nominees used to gain undisclosed control of the company. Control of Minerco was quickly obtained through devices such as the acquisition of a note that converted into millions of Minerco shares. Once control of Minerco was obtained, Defendants began to push-up the share price. This was done by using press releases hyping the fact that they partnered with a Jamaican firm that would lend expertise in growing a unique strain of psilocybin. The firm also transfered to Minerco its Jamaican cannabis licenses. Collectively these assets were valued at $1 billion by an independent third party. Additional false statements about Minerco and its operations were made despite the fact that its charter had been revoked. The public was told that Minerco was a thriving, growing business. A celebrity concert was used to promote the products and sell one million concert tickets. The scheme came to a conclusion with a dump of Minerco shares into the market that had been pumped through Defendants’ promotion efforts. Ultimately about $3.4 million was dumped back into the company by a Shumake controlled entity named Shubox LLC. Those funds were used to pay Mr. Shumake along with Defendant Jeng to defray the costs of the scheme. The complaint alleges violations of Securities Act Sections 17(a)(1) & (3) and Exchange Act Section 10(b). See Lit. Rel. No. 26150 (Oct. 9, 2024).

Australia

Release: The Australian Securities Investment Commission issued a report, dated October 1, 2024 (here) to update its licensing and professional activities for the period 2023-2024.

ESMA

Sanctions report: The regulator published its first consolidated report on sanctions. In 2023 over 270 administrative sanctions and measures were imposed across EU member states in financial sectors under ESMA’s remit, according to a release dated Oct. 1, 2024 (here).

Hong Kong

Release: The Hong Kong Securities and Futures Commission issued a release on the conclusion of its consultation proposals to enhance REIT regimes and SFO market conduct regimes for listed CIS on October 8, 2024 (here).

Singapore

Regulation: The Monetary Authority of Singapore issued a release which sets out the requirements for licensing, representative notification and conduct of business and for exemptions from licensing on October 8, 2024 (here).


 

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