by T. GormanPosted on Posted in SECActions

Cyber security has emerged as a key issue facing virtually every company. While company security systems have undoubtedly improved over the years, it is also true that those involved in these incidents have added to, and improved, their skills. The stakes are huge not just for large public companies but also smaller private firms that may house quantities of employee and/or customer data. A cyber incident for any of these firms can result in the exposure of large troves of non-public personal data. If hacked the firm and its employees and customers may face potentially untold threats and damage from a cyber incident. The Commission’s latest case in this area involves a firm that was infiltrated by a threat actor. SEC v. Ashford, Inc., Civil Action No. 3:25-cv-00082 (N.D. Tex. Filed 1/13/25).

Ashford, a public company, provides product and services to the real estate and hospitality industries. In September 2023 the firm learned that it had been subjected to a cybersecurity attack and ransomware demand by a foreign-based threat actor. The threat actor gained access to the firm and exfiltrated about 12 terabytes of data stored on its internal systems.

As required, Ashford disclosed the incident after it was identified. In September 2023 the firm disclosed in a Form 10-Q that it had experienced a Cyber Incident. The filing stated that the firm had completed an investigation and identified “certain employee information that may have been exposed. . .” The report went on to state that the company “had not identified that any customer information was exposed.” Similar disclosures were made in two subsequent filings.

Ashford knew that contrary to its disclosures, customer information was exposed – the files exposed to the incident contained customer information. It included sensitive personally identifiable information for some customers according to documents produced by the company to the Commission during its investigation. The inaccurate disclosures violated Securities Act Sections 17(a)(3) and Exchange Act Section 13(a) as well as Rules 12b-20, 13a-1 and 13a-13.

To resolve the matter, the company consented to the entry of a permanent injunction based on the Sections cited. The firm also paid a civil penalty of $115,231 which took into account the cooperation of the company with the Commission’s investigation.

See Lit. Rel. No. 26215 (January 13, 2025)

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by T. GormanPosted on Posted in SECActions

As 2025 begins to move forward, the Commission continued to file new cases. Last week those included one a suspicious activity, two centered on offering frauds, another based on a trading scheme and an insider trading case.

Be careful, be safe this week

SEC Enforcement – Filed and Settled Actions

Statistics: Last week the Commission did not file any new civil injunctive action. The agency did file new administrative proceedings based largely on record keeping issues and excluding tag-along actions, those involving routine record filing matters, and any that present a conflict for the author.

Suspicious activity reports: In the Matter of SpeedRoute LLC, Adm. Proc. File No. 3-22396 (Jan. 10, 2025) is an action which names the registered broker-dealer as Respondent. The Order alleges that over a three-year period, beginning January 1, 2020 through the end of 2023, the firm, which specializes in routing U.S. equity orders for broker-dealer clients, failed to comply with the Bank Secrecy Act and file numerous suspicious trading activity reports as required. To resolve the proceedings the firm consented to the entry of a cease-and-desist order based on Exchange Act Section 17(a) and Rule 17a-8. The firm is censured and directed to pay a penalty of $600,000.

Offering fraud: SEC v. Cardi, Civil Action No. 1243 (D. Conn.) is a previously filed action which named as defendant Michael Caridi, chairman of board for TOKI or Tree of Knowledge International, Inc. At the end of March 2020, and at the outset of the Covid-19 pandemic, Defendant misled a third-party hospital into believing that the TOKI entities—unprofitable firms that operated three pain management clients and sold hemp-based cannabinoid products – had a vast international network of medical equipment supplies. A hospital paid the TOK entities about $13.7 million for about 3 million N-95 masks that were to be delivered within 2 days. As a result, the TOK entities had a huge liability. Defendant concealed his scheme regarding the masks, taking portions of the revenue but never delivering the masks. In part the scheme was concealed by issuing two false press releases that aided the TOK entities in their pivot for the transaction. The complaint alleges violations of Exchange Act Section 10(b) and Rule 10b-5. See Lit. Rel. No. 26213 (January 8, 2023)

Trading scheme: SEC v. Jaitley, Civil Action No. 1:21-0cv0832 (W.D. Tx.) is a previously filed action which names as defendant Leena Jaitley and two supposed entities, Managed Options Trading and Options by Pros. Since 2018 Defendant Jaitley has been trading under the two entity names. Using a series of misstatements regarding her expertise and that of the two supposed entities, investors were convinced to give her access to their trading accounts. The misstatements were enhanced through the use of false testimonials on the website. While initially trades were successful, over time the losses piled up. About 15 individuals invested approximately $800,00 which was ultimately lost. The clients paid about $525,000 in what were called “start-up” and other fees in addition to the investment funds. In total the clients lost about $1.48 million. The complaint alleges violations of Securities Act Section 17(a), Exchange Act Section 10(b) and Rule 10b-5 and Advisers Act Section 206(1) & (2). On December 12, 2024, the court entered a final judgment imposing permanent injunctions based on the Sections cited and ordering the payment of disgorgement in the amount of $672,833. A penalty of $672,833 was also imposed. See Lit. Rel. No. 26212 (January 7, 2025).

Offering fraud: SEC v. Kirchner, Civil Action No. 4:23-cv-00147 (N.D. Tx.) is a previously filed case which names as defendant Christopher Kirchner, a cofounder of Slyne, Inc. and a former CEO of the firm. Over a period of about one year, beginning in January 2020, Defendant raised approximately $67 million from investors primarily through an initial offering of shares tied to follow-up transactions. The funds were supposed to be used for product development. Instead, Defendant misappropriated about $28 million of the client funds. The complaint alleged violations of Securities Act Section 17(a) and Exchange Act Section 10(b). Defendant resolved the action, consenting to the entry of permanent injunctions based on the Sections. The action was resolved. Defendant consented to the entry of permanent injunctions based on the Sections cited and to an officer/director bar. In addition, he will pay disgorgement of $28,074,080 and. prejudgment interest of $6,770,535.02. The sums are deemed satisfied by the conviction in the parallel criminal. Mr. Kirchner was sentenced to serve 20 years in prison. U.S. v. Kirchner, No. 23-127 (N.D. Tx.).

Insider trading: SEC v. Dagar, Civil Action No. 1:23-cv-5564 (S.D.N.Y.) is a previously filed action in which the court entered final judgments against defendant Amit Dagar, a former Pfizer Inc., employee, and his friend and business associate, Atul Bhiwapurkar. The judgments were entered following a jury conviction of Defendant Dagar and the entry of a criminal guilty plea by Mr. Bhiwapurkar. Each precludes violations of the Exchange Act Section 10(b). The resolutions are based on a complaint which alleges that Mr. Dagar, a former Pfizer employee and his friend traded in advance of a November 5, 2021, announcement that a study of a COVID-19 drug by Pfizer had successful tests. The announcement was followed by an 11% stock price impact. The announcement is false. The court judgments directing the payment of disgorgement of $214,395 plus prejudgment interest of $41,908 as to Mr. Dagar. Mr. Bhiwapurkar was ordered to pay disgorgement of $60,300 and a penalty in the same amount. The obligations to pay are deemed satisfied by an order in the parallel criminal case. See Lit. Rel. No. 26210 (January 6, 2025).

Insider trading: SEC v. Dupont, Civil Action No. 1:23-cv-05565 (S.D.N.Y.) is a previously filed action in which final judgments were entered as to four defendants named in the action: Joseph Dupont, Shawn Cronin, Paul Feldman and Jarett Mendoza. The complaint alleges an insider trading scheme in which Joseph Dupont, then a vice president of at Alexion Pharmaceuticals, Inc., tipped his close friend, Defendant Cronin, to inside information regarding the acquisition of Portola Pharmaceuticals, Inc. Defendant Cronin then tipped Messrs. Mendoza and Kaplan. The latter tipped Defendant Feldman. Each traded successfully. Messrs. Kaplan and Feldman also passed the information on to family members. Each Defendant previously pleaded guilty to criminal actions filed in New York, U.S. v. Dupont, No. 1:23-00320 and U.S. v. Mendoza, No. 1:23-cr-00316. Mr. Cronin was sentenced to serve 3 months in prison and forfeit profits of $71996.06 and pay a fine of $5,000. Mr. Kaplan was sentenced to serve 5 months in prison and forfeit profits of $472,053.61; Mr. Feldman was ordered to serve three months in prison and forfeit trading profits of $1,730,827.54. Mr. Mendoza was ordered to forfeit profits of $38,648.58; Mr. Dupont was fined $75,000. See Lit. Rel. No. 26209 (January 3, 2025)

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