by T. GormanPosted on Posted in SECActions

False statements made in connection with the purchase or sale of a security violate the antifraud provisions of the federal securities laws, assuming they are material. In the typical case the investor is deceived and unaware that he or she has been furnished with false information that will impact an investment. This is the classic false statement case.

In other cases investors are furnished with information about an investment that is accurate and presented as complete but contains omissions. Again, the investor is deceived but in this instance by an omission. The omission of the material information under the circumstances detailed here also violates the antifraud provisions because the person furnishing the information had a duty to present all the information, not just portions of it. The duty arose from the fact that the person furnishing the information knew that what was presented was represented to be complete but it was not – there were material omissions. This was the situation in one of the few cases the Commission has brought recently dealing with omissions, In the Matter of Equitable Financial Life Insurance Company, Adm. Proc. File No. 3-20931 (July 18, 2022).

Equitable is an insurance company. One of its products is a variable annuity called Equivest. It is marketed to investors as a retirement savings product. Each version has distinct terms and fees that are described in a prospectus. Typically, an investment is made followed by periodic payments. The company agrees that in return for the investments at retirement payments will be made to the investor that correspond, at least in part, to the performance of subaccounts that invest in various underlying mutual funds. The version here was marketed to grade school and high school teachers.

Since 2016 Equitable has presented its fees to investors in the form of a quarterly spreadsheets. Those spreadsheets show the various types of fees paid by the investors. Those include separate account expenses, portfolio operating expenses, administrative and transaction fees and planning expenses.

The teacher-investors understood that the spreadsheets were complete – all the fees were listed. They were not; there were omissions. The fees omitted from the spreadsheets were typically some of the largest incurred in connection with the operation of the plan. Those listed, in contrast, tended to be small and often insubstantial. Investors did not discern from the spreadsheets that in fact the large fees were omitted while the small ones were included. The investors relied on the spreadsheets to be correct and complete. Stated differently, they relied on the insurance company to tell the truth. It did not. The Order alleges violations of Securities Act Sections 17(a)(2) and 17(a)(3).

To resolve the matter the Company agreed to implement a series of undertakings and consented to the entry of a cease-and-desist order based on the Sections cited in the Order. In addition, Equitable will pay a penalty of $50,000. The funds will be placed in a Fair Fund.

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by T. GormanPosted on Posted in SECActions

It may be the summer doldrums that slowed the pace of activity this week, particularly Washington DC where many have not returned to the office full time and for at least for some agencies, the union is still negotiating the return schedule.

The Commission did file a series of unregistered broker action tied to a pay-day – lender. And an offering fraud case, the usual staple.

Be careful, be safe this week

SEC

Whistleblowers: Two whistleblowers were paid over $6 million for information that was critical critical to the Commission’s Enforcement Program, according to a July 15, 2022 announcement.

SEC Enforcement – Filed and settled actions

Last week the Commission filed 5 civil injunctive actions and no administrative actions, exclusive of 12j, default, tag-a-long and other similar proceedings.

Recidivist: SEC v. Eden, Civil Action No. 2:22-cv-04833 (C.D.Ca. Filed July 14, 2022) is an action which names as defendant Richard Eden. Defendant is subject to a 2019 injunction imposed in a Commission enforcement action which bars Mr. Eden from future violations of Exchange Act Section 15(a)(1) and precludes association with any broker. Following the entry of the injunction Mr. Eden operated as a broker in connection with securities offerings of multiple companies. The conduct violates the earlier injunction. The complaint alleges violation of Exchange Act Sections 15(a)(1) and 15(b)(6)(B)(i). The case is pending. See Lit. Rel. No. 2:22-cv-04833 (C.D. Ca. Filed July 14, 2022).

Unregistered broker: SEC v. Alvis, Civil Action No. 1:22-cv-22140 (S.D.Fla. Filed July 13, 2022) is one of four cases filed simultaneously alleging violations of the securities laws in connection with the sale of interests in a Pay-Day-Loan firm. Specifically, over a three year period, beginning in early 2016, Defendant sold unregistered securities from the Pay-Day-Loan firm, promising high returns. What investors did not known was that the securities were actually from a Ponzi scheme operated by the store and its founder. The complaint alleges violations of Securities Act Sections 5(a), 5(c) and Exchange Act Section 15(a)(1). The case is pending. See also SEC v. Boulos, Civil Action No. 1:22-cv-22142 (S.D. Fla. Filed July 13, 2024)(same); SEC v. Pingarron, Civil Action No. 1:22-cv-22143 (S.D. Fla. Filed July 13, 2022)(same); SEC v. Pingarron, Civil Action No. 1:22-cv-22143 (S.D. Fla. Filed July 13, 2022)(same); SEC v. Sorando, Civil Action No. 1:22-cv-22144 (S.D. Fla. Filed July 13, 2022)(same). See Lit. Rel. No. 25443 (July 13, 2024).

Offering fraud: SEC v. Rosenfeld, Civil Action No. 21-civ-3902 (E.D.N.Y.) is a previously filed action naming as defendant attorney Shimon Rosenfeld. Over a four-year period, beginning in May 2014, Defendant solicited investors to put their money into a pooled fund that was supposed to invest in real estate. In fact, Defendant misappropriated the funds. The complaint alleges violations of Securities Act Section 17(a) and Exchange Act Section 10(b). To resolve the matter Defendant consented to the entry of a permanent injunction based on the Sections cited in the complaint. In addition, he was ordered to pay disgorgement of $5,997, 525 and prejudgment interest of $1,104,353.84 which will be deemed satisfied by the payment of restitution and forfeiture ordered in the parallel criminal case. There Mr. Rosenfeld was sentenced to a prison term of 6 months followed by 3 years of supervised release and ordered to make restitution in the amount of $6,787,525 and $4 million in forfeiture. U.S. v. Rosenfeld, No. 21-CR-236 (E.D.N.Y.). See Lit. Rel. No. 25441 (July 11, 2022).

Singapore

Swap agreement: The Monetary Authority of Singapore and the People’s Bank of China announced the renewal of a Bilateral Currency Swap Arrangement. The agreement will continue until 2027 (here).

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