The focus is on the future. Many are hazarding guesses on the direction of SEC Enforcement based on mixing the results from the last fiscal year together with current cases and recent statements by Commissioners. That blend of information tends to yield a focus on crypto, perhaps China in view of the new regulations discussed below, and a dash of environmental concerns.
Yet as Chair Gensler readily concedes, the authority of the agency in the crypto area is limited, perhaps the reason few cases are being brought. While there are new regulations on the books that will impact China based issuers, U.S. regulators have had the authority to more than effectively deal with the inspection issues those firms create for years– it traces to the 2002 SOX Act. And, the environment has yielded few enforcement actions over the year.
So where is enforcement headed? If recent trends continue, the path will likely have two characteristics. First, the focus will be broad, centered on a variety of cases with the usual microcap fraud actions dominating the numbers. Second, despite the claims about filing more cases in the last fiscal year, look for the overall number of new enforcement actions to decline, at least based on current trends.
SEC
Rules: The Commission adopted amendments to its rules regarding foreign issues under the Holding Foreign Companies Accountable Act. Those rules focus on identifying foreign issuers and ensuring that they comply with certain disclosures, including if the firm is controlled by a foreign government (here).
Be careful, be safe this week
SEC Enforcement – Filed and Settled Actions
Last week the Commission filed 5 civil injunctive actions and no administrative proceedings, exclusive of Section 12(j), tag-along and other similar proceedings.
Fraud – sham transactions: SEC v. Auzins, Civil Action No. 1:21-cv-0663 (E.D.N.Y. Filed December 2, 2021) is an action which names as defendant Ivars Auzins, a/k/a Ramsey and Daniel Gains. Defendant Auzins, a citizen of Lativa, used the other names listed periodically. Over a period of about one year, beginning in 2019, Defendant engaged is a series of fraudulent offerings. One focused on the Denaro ICO; another centered on the Innocamine cloud mining platform. The names used were fraudulent. While Defendant claimed to have collected at least $11 million in digital assets and fiat currency in connection with the Denaro offering scheme, and collected at least $7 million in digital assets and fiat currency in connection with the Innovamine scheme, in fact the collected assets were obtained from retail investors. The complaint alleges violations of Securities Act Sections 5(a), 5(c) and 17(a) and Exchange Act Section 10(b). The case is pending.
Insider trading: SEC v. Malik, Civil Action No. 2:21-cv-20300 (D. N.J. Filed December 2, 2021) is an action which names as defendants Usama Malik and Lauren Wood, respectively the CEO and Chief Business Officer of Immunomedics, Inc. or IMMU, and his girlfriend. In early 2020 the firm had a drug in clinical trials. Prior to the public announcement that the trials were successful, and no further trials were necessary, CEO Malik learned this fact and tipped his girlfriend and three relatives, all of whom traded and profited when the results were announced and the stock price increased. The three relatives had profits of $21,400 while Ms. Wood had profits of $67,060. The complaint alleges violations of Exchange Act Section 10(b). The case is pending.
Microcap fraud: SEC v. Carnovale, Civil Acton No. 1:21-cv-11938 (D. Mass. Filed December 2, 2021) is an action which names as defendants Vincenzo Carnovale and Amar Bahadoorsingh, both of whom are Canadian citizens. Over a period of about four years, beginning in 2016, Defendants sought to, and did, defraud investors by secretly securing control of a number of microcap issuers, misleading transfer agents and others to sell the securities, causing the firms involved to have false financial information and making false statements to investors. While the complaint cites examples of two companies involved, in fact there were a number of firms. The complaint alleges violations of Securities Act Section 5(a), 5(c) and each subsection of 17(a) and Exchange Act Section 10(b). The action is pending. See Lit. Rel. No. 25276 (December 2, 2021).
Insider trading: SEC v. Dobkin, Civil Action No. 5:21-cv-09285 (N.D. Cal. Filed December 1, 2021) is an action which names as defendants: Robert Dobkin, the founder of Linear Technologies, Corporation; Cynthia Braun, a sonographer at a hospital; Michael Fiorillo, the operator of a restaurant; and Jeffrey Gregersen. Mr. Dobkin learned that the firm he co-founded, Linear, was about to enter into a merger. He told his close friends Ms. Braun and Mr. Fiorillo. The latter tipped his friend, Jeffrey Gregersen. Each traded. Following the July 26, 2016 deal announcement the stock closed, up over 29%. Collectively, the traders had profits of over $325,000. The complaint alleges violations of Exchange Act Section 10(b). The case is pending. See Lit. Rel. No. 25275 (December 1, 2021).
Insider trading: SEC v. Debih, Civil Action No. 1:21-cv-10138 (S.D.N.Y. Filed November 30, 2021). Mr. Debih, a resident of Switzerland, is the only named defendant. There are other key players in this action, however. Benjamin Taylor and Darina Windsor, a couple in a romantic relation, were each employed in London as investment bankers at different banks. They are named defendants in another Commission enforcement action, SEC v. Taylor, Civil Action No. 19-cv-09744 (S.D.N.Y. Filed March 27, 2020). Mr. Debih is reference in the complaint. A second facet of this case centered around Bryan Cohen, employed at an international investment bank in the U.K. The complaint naming Mr. Debih as a defendant centers on two schemes. One involved Mr. Taylor and Ms. Windsor. The second involve Mr. Cohen. Both schemes generated substantial, illegal trading profits. The first scheme began in December 2012. Mr. Taylor obtained inside information from the investment bank at which he was employed. On more than one occasion the information was furnished to Mr. Debih. He traded and then tipped a friend, George Nikas, who also traded. Subsequently, in February Mr. Taylor, through an intermediary, again furnished inside information to Defendant Debih. The information traced to his girlfriend who obtained it from the investment bank at which she was employed. The information was again used by Mr. Debih to trade profitably. Again, the inside information was passed on to George Nikas who also traded. Mr. Nikas shared his trading profits. The tips involved multiple corporate transactions. As a result, Mr. Debih netted millions of dollars in trading profits. A second part of the scheme centered on Mr. Cohen who misappropriated inside information about two corporate deals from the investment bank where he was employed. That information was furnished to Mr. Debih and Nikas. Each traded profitably on the inside information. That information focused on separate transactions involving Syngenta AG and Buffalo Wiled Wings, Inc. Significant trading profits were again realized. The complaint alleges violations of Exchange Act Section 10(b) and 14(e). The complaint is pending. See Lit. Rel. No. 25274 (November 30, 2021).
