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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by T. GormanPosted on Posted in SECActions

The Commission and others have periodically cautioned investors and market professionals about complex products and educating Main Street investors about them to minimize their risk. Chair Gensler, for example, has delivered remarks on the subject. Chair Gary Gensler, Statement on Complex Exchange Traded Products (Oct. 4, 2021)(here). Indeed, the risk is highlighted by the fact that the Commission has filed enforcement actions against market professionals who did not furnish investors with adequate warnings and information when recommending investments in complex products. See, E.g. UBS Financial Services, Inc. Adm. Proc. File No. 3-20912 (June 29, 2022); In the Matter of American Financial Services, Inc., Adm. File No. 3-20151 (Nov. 13, 2020). Nevertheless, investors continue to purchase these products and suffer losses.

Last week Commissioner Caroline A. Crenshaw published remarks reiterating here concerns about certain complex products (here). The Commissioner begins by focusing on Rule 6c-11, enacted in 2019, which created a framework that permits exchange-traded funds or ETFs meeting certain criteria to come directly to market without going through the regulatory process. Under the Rule single-stock ETFs are coming directly onto the market. Yet according to the Commissioner that product present a high level of risk : “The complexity of the product is such that “it would likely be challenging for an investment professional to recommend such a product to a retail investor while also honoring his or her fiduciary obligations or obligations under Regulation Best interest.” Nevertheless, an investor can purchase the product without consulting with any market professional. Under these circumstances it seems likely that many investors are purchasing products about which they have little understanding.

It is this prospect that propelled Commissioner Crenshaw to renew her call for the agency to fashion a comprehensive and consistent approach to the review of complex exchange-traded products to better protect investors — last year she and Commissioner Allison Herren Lee initiated this suggestion. Yet none has emerged to date. See also Lori J. Schock, Director, Office of Investor Education and Advocacy (July 11, 2022)(here)(cautioning investors re investments in complex products). Given the complexity of those products which likely is not mitigated by disclosure – a point well illustrated by the enforcement actions cited above — perhaps these products should be readily available until an approach is created to properly protect investors.

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