by T. GormanPosted on Posted in SECActions

Inside information is something that many tend to think of only in the classic insider trading model — participants in a merger or other non-public corporate transaction trading in the company shares prior to the deal announcement. Most do not think about the reverse of such a transaction such as “follow on transaction.” Yet it is essentially the same – trading with material, non-public inside information to garner what are riskless profits. For example, when a firm conducts a follow-on offering, the share price goes down because the addition of more shares to the market dilutes the share price – the share price will drop. The Commission’s latest “inside information” case is built on such transactions. SEC v. Lowe, Civil Action No. 2:25-cv-00260 (E.D.N.Y. Filed Jan 15, 2025).

Named as defendants in this action are a number of individuals and entities: John Lowe, Jr., JJL Capital LLC, Great South Bay Capital, LLC, Randy Grewal, Kierland Capital, LLC Richard Ringel, and David Cooper. The scheme began in 2018 and continued through March 2024. In the scheme Defendant Cooper and Representative A provided Defendants Lowe and/or Ringel with inside information. Defendant Cooper, a registered representative at a broker-dealer, provided Mr. Lowe or Mr. Ringel, with material non-public information concerned the timing and/or price of numerous follow-on offerings of public company stock prior the transaction announcement.

Mr. Lowe also provided information about the timing and/or price of follow-on offerings to Defendant Grewal. He in turn shorted the stock of companies involved before the information was disclosed. Similarly, Defendant Copper and Representative A received material, non-public information about such offerings from employees at underwriting firms that engaged the brokerage firm to be part of a group or selling syndicate that underwriters partnered with to sell allocations of shares of in follow-on offerings. In exchange Defendants Lowe and Ringel agreed to buy shares of stock in the offerings, generating sales credits that the underwriters paid to the brokerage firm which paid Mr. Copper and Representative A. They in turn provided the information to Defendants Lowe and/or Ringel which was prohibited by the broker’s controls.

Overall, Defendant Lowe and his two controlled firms traded through Defendants JJL and Great South Bay, selling short in advance of at least 200 offerings. The trading generated profits of at least $900,000. Defendant Grewal and his associated entity sold short in advance of over 90 offerings, earning at least $140,000. Defendant Ringel and his associated entity and another firm sold short in advance of over 300 offerings, yielding at least $1,500,000 in profits. The brokerage firm earned about $1 million in sale credits. Mr. Cooper received a portion of the compensation. Total illegal profits for the group exceeded $3 million. The complaint alleges violations of Securities Act Section 17(a) and Exchange Act Section 10(b). See Lit. Rel. No. 26236 (Feb. 3, 2025).

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by T. GormanPosted on Posted in SECActions

This Week In Securities Litigation (Week of February 3, 2025)

The Commission filed three new cases last week. Two centered on offering frauds while a third centered on a remote trader in an insider trading case.

Be careful, be safe this week and be warm

SEC Enforcement – Filed and Settled Actions

Statistics: Last week the Commission filed 2 new civil injunctive actions and 1 new administrative proceedings.

Pre-IPO shares scheme: SEC v. Max Infinity Management LLC, Civil Action No. 1:25-cv-549 (E.D.N.Y. Filed Jan. 31, 2025) is an action which names as defendants: Three entities, in addition to Max Infinity, participated – Elder Fund Management LLC, JJRP United Corp., and Grand Level Consulting Inc. Six individuals were named as defendants: John Cangialosi; Peter Girgis; Gene Sarabella; Ericio Carini; Caner Otar; Chester Chett Scotland; and Franz Lambert. The scheme, involving each of the Defendants, was organized and controlled by Defendants Cangialosi, Girgis and Sarabella. It began by July 2021 and continued for almost two years. Essentially, various individual defendants orchestrated a scheme based on false statements and deception used to market the shares of issuers claimed to be about to execute an IPO. Supposedly there were no up front fees, although investors were not told that the shares offered to them had been market up substantially. The individual Defendants also falsely told potential investors that that the investment was safe and would yield profits of 200% or more. In making this pitch Defendants were careful to conceal the prior regulatory difficulties of some of the individual defendants. The result was over $70 million invested by about 550 investors. The complaint alleges violations of Securities Act Sections 5(a), 5(c) and 17(a), Exchange Act Sections 10(b) and 15(a) and Advisers Act Sections 206(1), 206(2) and 206(4). See Lit. Rel. No. 26233 (Jan. 31, 2025).

Offering fraud: SEC v. Beckman, Civil Action No. 3:45-cv-00800 (N.D. Cal. Filed an. 23, 2025) is an action which names as defendants: Alexander Beckman, the former CEO of ON Platform Inc. (f/k/a/ GameOn Inc.), a San Francisco based firm, and his wife, attorney Valerie Lau. Defendant Beckman, with the assistance of his wife marketed firm shares with false financial statements and bank records showing the firm was profitable. Mr. Beckman also claimed that the company had a star studded cliental. That claims was false as were the financial records circulated. Eventually the board of directors learned about the scheme and brought it to an end. The complaint alleges violations of Securities Act Section 17(a) and Exchange Act Section 10(b). See Lit. Rel. No. 26232 (Jan 24, 2025).

Insider trading: In the Matter of Kenneth G. Miccio, Adm. Proc. File No. 3-22443 (Jan. 24, 2025). The Order alleges that Respondent Miccio traded in the shares of Maxar Technologies, Inc., while in possession of inside information. That information, which focused on a planned takeover transaction, traced to his nephew, Stephen Forlando Jr., who had obtained it from friend Anthony Viggiano, an employee of a global investment bank. The Commission previously brought an insider trading case against Mr. Viggiano based on trading on the same insider information. SEC v. Viggiano, No. 1:23-cv-08542 (S.D.N.Y. Filed Sept. 28, 2024). Mr. Miccio resolved the proceeding, which charged violations of Exchange Act Section 10(b), by consenting to the entry of a cease-and-desist order based on the Section cited, and agreeing to pay isgorgement of $10,023, prejudgment interest of $1,179.55 and a penalty of $20,023.

BaFin

Remarks: Mark Granson, President of BaFin, held a press conference on January 28, 2025, in which he projected that the German financial Sector will face a challenging environment through 2025 (here).

Hong Kong

Release: The Securities and Futures Commission issued a release, dated January 24, 2025) regarding its consultation on a proposal regarding fully digitalized public offerings. All participants agreed that once implemented online channels will serve as the only means to subscribe to public offers of equity securities or interests in collective investment schemes listed, or to be listed, on the Stock Exchange of Hong Kong Limited (here).

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