by T. GormanPosted on Posted in SECActions

Insider trading has long been a key focus for SEC Enforcement. Today is no different. The current enforcement program under Chair Gensler and his Enforcement Director, Gurbir Grewal, appears to focus on traditional enforcement areas such as insider trading and the use of time-tested tactics such as keying on gatekeepers and enhanced remedies. The latest insider trading action brought by the agency is consistent with this focus, SEC v. Forte, Civil Action No. 1:22-cv-10074 (D. Mass. Filed January 19, 2022).

The case focuses on the merger involving Linear Technology Corporation and Analog Devices, Inc., announced in July 2016. Named as defendants are: David Forte, a former police officer whose brother was the information officer of Analog; John Younis, the owner of a building company; and Gregory Manning, a senior accountant for a public healthcare technology company. Linear, whose common stock was traded on NASDAQ, is a manufacturer of integrated circuits used for a variety of applications. Analog, whose stock is registered with the Commission under Exchange Act Section 12(b), is also the manufacturer of integrated circuits.

Defendant David Forte misappropriated material nonpublic information about the Linear-Analog transaction prior to the announcement date from his brother, a former executive at Analog. Prior to the public announcement Defendant Forte is alleged to have told close friends John Youmis and Gregory Manning, both defendants in this action who purchased shares. The two traders purchased over 30 Linear call options.

On July 27, 2016, a news article reported rumors about the Linear-Analog deal. At the time the transaction was not public. Later that day the two firms issued a joint press release announcing the execution of a merger agreement. The next day the traders sold their securities. They realized profits of over $90,000. The complaint alleges violations of Exchange Act Section 10(b). The case is pending. The U.S. Attorney’s Office fed a parallel criminal action, charging the three men. See Lit. Rel. No. 25311 (January 19, 2022).

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by T. GormanPosted on Posted in SECActions

Crypto has been a key topic of conversation at the Commission, as well as in the market place for months if not years. At times it seems like there is a new coin, new term or new exchange at every turn. Trading many of these currencies can be a heady experience akin to riding on a huge roller coaster and at times even more. Add to this the ever-evolving terms such as “defy,” “smart contracts,” and a host of others — all being tracked by money laundering authorities such as FinCEN. It is little wonder that many people have no real idea what is going on in these markets.

There is no mystery, however, about the regulatory approach of the Commission, perhaps the primary regulator of crypto. The primary approach of the Commission to crypto is decades old. It is fraud, using weapons such as Exchange Act Section 10(b), coupled with registration violations based on Securities Act Section 5 for the sale of unregistered securities — investment contracts under the Supreme Court’s 1946 Howey decision. While Chair Gensler would like additional authority, the agency he leads continues to bring cases centered on crypto and either fraud or unregistered securities. The most recent action initiated in this area is SEC v. Garcia, Civil Action No. 1:22-cv-00118 (D. Colo. Filed January 18, 2020).

The case centers on the theft of about $123,000 from investors who believed they were purchasing interests in a new crypto currency called “gold haws” tokens. The huge profits promised by investors vanished ,with at least part, since part of their money was not actually invested but stole.

Named in complaint are: Defendant Paul Garcia and Relief Defendant Office Guru Franchise Group, Inc. Mr. Garcia is a 50% owner of Gold Hawgs Development Company, an entity formed in 2019 and located in Fort Collins, Colorado. Relief Defendant is controlled by Defendant Garcia. He used the company to conduct business unrelated to Gold Hawgs. That company was owned by its CFO. An agent of that company solicited investors to purchase interests in the company.

Over a period of a few months, beginning in August 2019, Mr. Garcia and Gold Hawgs raised about $400,000 from 16 investors. The gold hawg token was offered to investors as a new kind of crypto token. Investors were assured that the upside potential of purchasing the coins was significant based on to the business plan of the company.

There was never any time to actually implement the business plan, however. Beginning almost immediately, and continuing through July 2020 Mr. Garcia misappropriated about $123,000 the investor funds. The money was taken from the Gold Hawgs’ bank account that is in the name of Office Guru. The complaint alleges violations of Securities Act Sections 17(a)(1) and (3), Exchange Act Section 10(b) and disgorgement based on Section 6501 of the National Defense Authorization Act for Fiscal Year 2021, and equitable principles. The case is pending. See Lit. Rel. No. 25308 (January 18, 2022).

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