by T. GormanPosted on Posted in SECActions

SEC Chairman Gary Gensler testified before a House committee this week. During his testimony the Chairman mentioned several of the pending issues on his agenda regarding items such as gamification, payment for order flow and equity market structure, noting that a report will be forthcoming. The new Chairman also discussed crypto currencies with the Committee.

Be careful, be safe this week

SEC

Repository: The Commission approved the registration of the first security-based swap data depository, announced on May 7, 2021. The repository will accept transaction reports for security-based swap transactions in equity, credit and interest rate derivatives asset classes (here).

Testimony: Chairman Gary Gensler testified before the House Committee on Financial Services on Thursday, April 6, 2021. His testimony focused on key issues facing the agency and crypto currencies (here).

SEC Enforcement – Filed and Settled Actions

Last week the Commission filed 1 civil injunctive actions and 2 administrative proceedings, exclusive of tag-along and other similar proceedings.

Manipulation: SEC v. Osegueda, Civil Action No. 25087 (C.D. Cal.) is a previously filed action which named as defendants David Osegueda and several other individuals. This week the Court entered final judgements against Defendants Calvin Ross and Jessica Snyder by consent and Zachery Logan by default. The complaint alleged a pump-and-dump scheme involving shares of Green Cures & Botanical Distribution, Inc., a cannabis company. The final judgements entered enjoined each Defendant from future violations of Securities Act Section 17(a) and Exchange Act Section 10(b). In addition, the judgments as to Mr. Ross and Ms. Snyder enjoined them as to Securities Act Section 5. Those judgments also directed Mr. Ross and Ms. Snyder to pay disgorgement and prejudgment interest of $781,868 and $184,293, respectively, and penalties of $400,000 and $100,000. Mr. Logan was ordered to pay a penalty of $164,000. Each judgement contains a penny stock and officer and director bars. See Lit. Rel. No. 25087 (May 7, 2021).

Undisclosed fees: In the Matter of Maxwell Drever, Adm. Proc. File No. 3-20280 (May 5, 20021) is a proceeding which named as a Respondent the owner and Chairman of Drever Capital Management LLC which provided management services in relation to a redevelopment project for 1401 Elm St. Over a period of several months, beginning in April 2016, Respondent raised about $53 million for the redevelopment project. Without telling investors he diverted about $10 million to himself. While he later reinvested much of the money in the project, he also used part of it to take an equity stake in another venture. In resolving the matter Respondent agreed to implement certain undertakings. The Order alleges violations of Securities Act Sections 17(a)(2) and (3). Respondent consented to the entry of a cease-and-desist order based on the Sections cited in the Order. He also agreed to pay disgorgement of $1,214,246, prejudgment interest of $282,979.17 and a penalty of $75,000.

Disclosure: In the Matter of Under Armour, Inc., Adm. Proc. File No. 3-20278 (May 3, 2021). Beginning in the second quarter of 2010 the firm reported year-over-year revenue growth exceeding 20%. The firm repeatedly highlighted this growth pattern. Yet by the second half of September 2015 the firm had seen signs that its long running streak of exceeding analysis expectations was ending. To stem the downward tide the firm began “pulling forward” orders it had for customers that were not to be delivered until a point in the future. In some instances, the practice was discussed with customers. For six consecutive quarters the practice continued. On January 31, 2017 the company missed analyst expectations for the fourth quarter and full-year 2016 period. The stock price dropped about 23%. The Order alleges violations of Securities Act Sections 17(a)(2) and (3) and Exchange Act Section 13(a) and the related Rules. To resolve the matter the company consented to the entry of a cease-and-desist order based on the Sections cited in the Order. Under Armour will pay a penalty of $9 million.

Offering fraud: SEC v. Randall, Civil Action No. 3:21-cv-979 (N.D. RTx. Filed April 30, 2021) is an action which names as a defendant Richard Randall. Over a period of over one year, beginning in March 2015, an offering of the shares of Wireless Power, LLC, controlled by Defendant, raised about $17.2 million. Potential investors were told that the firm had a revolutionary new technology. In fact, the funds raised were almost immediately diverted to other firms by Defendant. The complaint alleges violations of subsections (a) and (c) of Securities Act Section 17(a) and Exchange Act Section 10(b). The case is pending. See Lit. Rel. No. 25086 (May 3, 2021).

Australia

Report: The Australian Securities & Investment Commission published a quarterly update for January to March 2021 on May 6, 2021 (here).

Singapore

Announcement: The Monetary Authority of Singapore announced the launch of a Global FinTech Hackcelerator for a Greener Financial Sector. The theme is Harnessing Technology to Power Green Finance. The goal is to unlock the potential of FinTech in accelerating the development of green fiancé in Singapore and the region.

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by T. GormanPosted on Posted in SECActions

This is the final segment of a three part series reviewing and analyzing the actions brought by SEC enforcement during the first quarter of 2021. Part 1, which analyzed the overall number and types of cases brought during the quarter and provided examples of the cases in the largest groups of actions was published on Wednesday (here). Part II, published yesterday, reviewed select cases brought during the quarter that were not in the largest four categories of cases (here). This concluding segment analyzes the quarter, the cases brought, select related issues and suggests the future direction of the program.

The cases discussed above illustrate the primary areas of focus during the first quarter of 2021. More importantly, they depict a broad range of issues that range from the FCPA and internal controls to Regulation FD. Thus, while the number of cases filed is low compared to 2020, the diverse range of actions initiated in 1Q21 suggests that the new senior staff was moving forward and building the program. This is particularly true in view of the significant increase in actions filed in March compared to the earlier two months of the period.

Three other points regarding the Enforcement program should be considered when evaluating its direction for the remainder of the year.

First, in Blaszczak v. U.S., No. 20-5649 (January 11, 2021) the Supreme Court remanded an insider trading case to the Second Circuit for reconsideration. In that case the convictions for insider trading were based on the Sarbanes Oxley Act, Section 1343 and Section 666(a)(1)(A) of Title 18, not Exchange Act Section 10(b). Many believed the Second Circuit decision might suggest an alternative to the court crafted elements of a Section 10(b) insider trading claim.

No so. The High Court remanded the decision on a writ of certiorari to the Second Circuit for reconsider in view of its decision in Kelly v. United States . . .” 590 U.S. — (May 7, 2020). The remand essentially rejects the notion that federal statutes other than Exchange Act Section 10(b) may be used to prosecute insider trading. See Blaszczak v. U.S., 947 F. 3rd 19 (2nd Cir. 2019).

Second, the statute of limitations for SEC actions was extended to ten years by Congress at the close of 2020. The adverse rulings the Commission suffered in the Supreme Court’s Kokesh and Liu decisions were legislatively overruled in part by a provision tucked into the National Defense Authorization Act. Section 6501 of the Investigations and Prosecution of Offenses for Violations of the Securities Laws, incorporated in the National Defense Authorization Act, modified Exchange Act Section 21(d), adding language authorizing the agency to obtain disgorgement and reach back 10 years rather than five years. See e.g., Section 6501(a)(7)(Commission can obtain disgorgement); (a)(8)(extends statute of limitations to 10 years); (a)(8)(B)(can seek equitable remedies including an junction, bar, cease and desist order for up to 10 years). Interestingly, while the statute affirms the right of the agency to recover disgorgement without defining the term it says nothing about prejudgment interest, a question that may be litigated in the future.

Finally, just prior to the close of the quarter Gary Gensler was sworn in as the new Chairman of the agency. While Mr. Gensler got off to a bit of a rocky start with his new Enforcement Director resigning after just two weeks, he has a track record for being an aggressive enforcer. That more than suggests that the enforcement program can be expected to build quickly on the broad based approach represented by 1Q21 and continue to increase the number of actions brought in the future.

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