by T. GormanPosted on Posted in SECActions

The SEC has long focused on insider trading — it is an enforcement priority. As last week drew to a close, the Commission filed two new insider trading cases. The first it a good example of a classic insider trading case. The second is also an insider trading case – perhaps, it has trading and may also have actual material nonpublic information or inside information, but perhaps not.

SEC v. Watson, Civil Action No. 1:21-cv-05923 (S.D.N.Y. Filed July 9, 2021) is an insider trading case that names as defendants Eric Watson, Oliver-Barret Lindsay and Gannon Giguiere. Mr. Watson was the controlling shareholder and a corporate insider of Long Island Iced Tea Corporation, now known as Long Blockchain Corporation. He is also a securities law recidivist, having settled insider trading charges with the Commission in 2001 and pleaded guilty to a conspiracy charge in a manipulation case in 2019. Defendant Lindsay is a Canadian citizen who is an exempt broker registered in the Cayman Islands. Defendant Gannon Giguiere is a friend and associate of Mr. Watson, having engaged in market manipulation activities with him in the past. Both men were charged by the Commission in 2016 with market manipulation.

In late 2017 Defendant Watson told Mr. Lindsay that Long Island Iced Tea was planning to change its name and line of business. The announcement would be issued shortly.

Subsequently, on December 20, 2017 Mr. Lindsay told his friend, Defendant Giguliere, that Long Island Iced Tea planned to change its name to its current form. In connection with the renaming, the company planned to remake itself and its line of business. Within hours of the conversation Mr. Giguiere purchased 35,000 shares of Long Island Iced Tea stock.

The next day the company published an announcement stating the going forward the firm would engage in a new line of business. Specifically, the announcement stated in part that Long Island Iced Tea was “shifting its primary corporate focus toward the exploration of and investment in opportunities that leverage the benefits of blockchain technology . . .” The firm also planned to change its name to Long Blockchain Corporation, according to the December 21, 2017 announcement.

Following the announcement, the firm’s share price increased by 388% compared to the prior day’s close on large volume. Two hours after the announcement Mr. Giguiere sold all of his Long Island Ice Tea shares, reaping $162,500 in illicit profits. The complaint alleges violations of Exchange Act Section 10(b). The case is pending. The Commission also revoked the registration of the company under Exchange Act Section 12j.

SEC v. Trovias, Civil Action No. 1:21-cv-05925 (S.D.N.Y. Filed July 9, 2021) is also an insider trading case. Defendant Apostolos Trovias is a citizen of Greece. His last known residence is in that country. Since 2016 he has maintained vendor accounts on several Dark Web marketplaces where he is known as The Bull.

Beginning in 2016, and continuing until 2021, Mr. Trovias offered to, and did sell, what he claimed was inside information on the dark web. In part, The Bull claimed his tips came from order-book data from a securities trading firm. The statement was either false and misleading or, if true, a violation of his obligations in handling inside information. The market book tips were marketed through weekly and monthly subscriptions and as one-off assets. Mr. Trovias had over 100 subscriptions.

Defendant also sold pre-release earnings reports of publicly traded companies. The information was inside information. His customers included undercover Internal Revenue Service and Federal Bureau of Investigation special agents. The complaint alleges violations of Exchange Act Section 10(b). The case is pending. The U.S. Attorney’s Office for the Southern District of New York filed a parallel criminal action.

by T. GormanPosted on Posted in SECActions

Recently, the Supreme Court handed down rulings in two private securities actions. First, the High Court agreed to hear Pivotal Software, Inc. v. Zhung Tran, No. 20-1541 (Certiorari granted July 2, 2021). The issue presented for consideration is: Whether the Reform Act’s [PSLRA] discovery-stay provision applies to a private action under the Securities Act in state or federal court or solely as a private action in federal court.

The case began in the California Superior Court which permitted discovery to proceed prior to any ruling on a motion to dismiss. See, e.g., In re Pivotal Software, Inc. Securities Litigation, Case No. CGC 1956750 (S.C. CA, County of San Francisco)(order entered March 4, 2021). Lower courts are split on this issue. A parallel federal action was dismissed prior to discovery. In re Pivotal Sec. Litg., 2020 WL 4193384 at *5 *8 (N.D. Cal.).

Second, the Court sent Goldman Sachs v. Arkansas Teacher Retirement System, No. 222 (Ruling dated June 21, 2021) back to the second circuit for further consideration. The Court held that a statement can be so generic and non-specific that it may not impact the price of the securities. Since the circuit court ruling on the question was not clear the matter was sent back for clarification.

Be careful, be safe this week

SEC Enforcement – Litigated Actions

Undisclosed conflicts: SEC v. Westport Capital Markets, LLC, Civil Action No. 3:17-cv-02064 (D. Conn. Verdict March 16, 2021) is an action which named as defendants the investment advisory firm and its owner, Christopher E. McClure. The complaint alleged a scheme in which Defendants repeatedly purchased securities that generated significant undisclosed compensation for Defendants. A jury returned a verdict in favor of the Commission on March 16, 2020, concluding that Defendants had violated Advisers Sections 206(1) and 207. On July 6, 2021, the Court entered judgment against defendants, jointly and severally, directing that they pay disgorgement in the amount of $632,954. In addition, the Court directed that the firm pay a penalty of $500,000. Mr. McClure was ordered to pay a penalty of $200,000. See Lit. Rel. No. 25138 July 7, 2021). Prior to the jury verdict the Court granted summary judgment in favor of the agency, finding Defendants had violated Advisers Act Sections 206(2) and 206(3). See Lit. Rel. No. 25138 (July 7, 2021).

SEC Enforcement – Filed and Settled Actions

Last week the Commission filed 2 civil injunctive actions and no administrative proceedings, exclusive of tag-along and other similar proceedings.

False statements: SEC v. Prallax Health Sciences, Inc., Civil Action No. 1:22-cv-05812 (S.D.N.Y. Filed July 7, 2021) is an action which names as defendants the firm, Paul R. Arena, its CEO, and Nathaniel T. Bradley, its CTO. In a period of approximately one month, beginning on March 11, 2020, the health care company issued a series of press releases to capitalize on the COVID pandemic. The releases claimed, for example, that the firm was developing a screening test that would be available shortly and had other medical equipment available such as ventilators. The firm’s CEO oversaw the preparation of the releases which were primarily penned by its CTO. In fact, the claims were false. The company was nearly bankrupt and did not have the FDA registrations required to support such products. The complaint alleges violations of Securities Act Sections 17(a)(1) and (3) and Exchange Act Section 10(b). Defendants resolved the matter by each consenting to the entry of a permanent injunction based on the Sections cited in the complaint. In addition, the company, along with CEO Arena and CTO Bradley will pay penalties in the amount of $100,000, $45,000 and $40,000 respectively. Finally, Messrs. Arena and Bradley each consented to the entry of a penny stock bar for, respectively, five years and three years. See Lit. Rel. No. 25137 July 7, 2021).

Front running: SEC v. Wygovsky, Civil Action No. 1:21-cv-05730 (S.D.N.Y. Filed July 2 2021) is a case which names as defendant Sean Wygovsky, who held a position with Asset Manager A. Over a six year period, beginning in January 2015, Defendant engaged in a fraudulent front running scheme by trading in the same stocks as his employer on the same day but entering his orders ahead of those placed by the firm. Stated differently, Mr. Wygovsky engaged in a fraudulent front running scheme. The complaint alleges violations of Securities Act Sections 17(a)(1) and (3) and Exchange Act Section 10(b). The case is pending. The U.S. Attorney’s Office for the Southern District of New York filed parallel criminal charges.

Australia

Consultation Paper: The Securities and Futures Commission released a consultation paper on guidance and relief for litigation funding schemes on July 9, 2021. The paper provides definitional guidance, and certain relief from the equal treatment duty regarding settlements as well as from select disclosure obligations. Comments are invited (here).

Hong Kong

Agreement: The Securities and Futures Commission of Hong Kong and Eight members of the Canadian Securities Administrators or CSA entered into an agreement regarding a framework for cooperation regarding financial technology, according to a release dated July 8, 2021 (here). The agreement represents the SFC’s continuing efforts to coordinate with other regulators and dedication to financial cooperation.

Singapore

Agreement: The Monetary Authority of Singapore and Banque de France announced in a release dated July 8, 2021, the successful completion of a wholesale cross-border payment and settlement experiment using CBDC. The arrangement simulated cross-border transactions involving multiple CBDCs on a common network between Singapore and France (here).

Tagged with: , , ,