by T. GormanPosted on Posted in SECActions

<p>There seems to be little doubt that the current administration in Washington is impacting the SEC as well as many other government offices and agencies. While in theory the Commission is an independent regulatory agency, the recent testimony of its Chair seemed to leave little doubt that he was following a path created by the President. At the same time core matters like investigating and prosecuting insider trading should not be impacted by the political matters that swirl about the capitol as illustrated by its most recent insider trading case. See SEC v. Brewer, Civil Action No. 1:20 -cv-06175 (S.D.N.Y.).</p>

<p>Defendant Jack Brewer was the CEO and portfolio manager of registered investment adviser, Brewer Capital Management. He was also the CEO, president and president and owner of a related consulting firm, Brewer Group, Inc. </p>

<p>Defendant Brewer is alleged to have obtained inside information about the plans of COPsync Inc., a microcap company that operated a communication network for law enforcement officials. That firm planned to do a stock offering. Mr. Brewer participated in that offering, providing consulting services. The offering contained a clause that precluded Mr. Brewer from trading in the shares of that firm. The agreement also required him to maintain the confidentiality of the offering and not use information about the transaction for his benefit. </p>

<p>Nevertheless, Mr. Brewer sold over $100,000 of COPsync stock in advance of an announcement that caused its share price to fall. As a result, he had a profit of more than $35,000 than he would have otherwise had on their sale absent the inside information he held. The Commission prevailed in a motion for summary judgement against Mr. Brewer for trading on inside information. The case is still being litigated. See Lit. Rel. No. 26322 (June 10, 2025). </p>

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by T. GormanPosted on Posted in SECActions

This Week In Securities Litigation (Week of June 9, 2025)

The Commission filed two new cases last week. In addition, Chair Atkins testified before the Senate Appropriations Subcommittee on Financial Services and General Government. One of the points in his testimony referenced the fact that the leases for the LA and Philadelphia offices are being reviewed by the GSA.

Be careful, be safe this week.

SEC

Testimony: Chairman Paul S. Atkins testified before the Senate Appropriations Subcommittee on Financial Services and General Government. Unfortunately, the Chair offered few keys to his basic views other than the fact that he is closely aligned with the President. The Chair also stated that the size of the agency has contracted over the last year by about 15%. He also stated that GSA is reviewing the office space leases for the LA and Philadelphia he offered no comment other than to say he believes in the regional office approach for the agency. Overall, Mr. Atkins’ testimony offered few concrete statements regarding the future of the Commission in the age of Trump downsizing (here). See also Discussion of Congressional Testimony by Chair Paul Atkins (here).

SEC Enforcement – Filed and Settled Actions

Statistics: Last week the Commission filed 2 new civil enforcement actions.

Manipulation: SEC v. Medallion Financial Corp., Civil Action No. 21-cv-1115 (S.D.N.Y.) is a previously filed action which named as defendants the company and its president, Andrew Murstein along with Lawrence Meyers and his firm, Ichabod’s Cranium, Inc. The complaint alleged that Defendants Murstein and Medallion directed two separate schemes to inflate Medallion Financials’ stock price. Those actions were in part taken with the assistance of California-based media strategy firm Ichabod’s Cranium. Following the denial by the district court of Defendants’ motions to dismiss on all but one count, the action settled. The final judgment against Medallion Financial and Murstein permanently enjoins Medallion Financial from violating Section 17(a)(1), 17(3) and 17(b) of the Securities Act, Section 10(b) of the Exchange Act and Rule 10b-5 and Sections 13(a), 13(b)(2)(A) and (B) of the Exchange Act and Rules 12b-20, 13a-1, 13a -11 and 13a-13; orders payment of a $3 million penalty and compliance with undertakings to retain an independent consultant and create a Chief Compliance Officer role. The judgement enjoins Murstein from violating Sections 17(a)(1), 17(a)(3) and 17(b) of the Securities Act, Section 10(b) of the Exchange Act and Rules 12b-20, 13a-1, 13a-11 and 13a-13 and directs payment of a $1million penalty. The final judgment against Meyers and Ichabod’s Cranium permanently enjoins them from violating Section 17(a) and Section 10(b) of the Exchange Act and Rule 10b-5 thereunder; and orders Meyers to pay a $1,000,000 penalty. See Lit. Rel. No. 26321 (June 6, 2025).

Dismissal: James L. Koutoulas, No. 24-12376 (11th Cir. May 8, 2025). This is an appeal to the circuit court in a subpoena enforcement action brought by the Commission against Defendant Koutoulas. The Court granted Appellant’s unopposed motion to dismiss the appeal as moot and remand the case for dismissal. The request was granted.

Fees: SEC v. Nagler, Civil Action No. 25-cv-516 (D. N.M. Filed June 2, 2025). Named as defendants in this action are David A. Nagler and New Line Capital, Inc. Mr. Nagler is a resident of Santa Fe, New Mexico. He is registered with the state where he resides as an investment adviser representative. He is also registered with the state of Colorado and, during the period of this case, the state of California until about December 2020. Defendant is, in addition, the founder, sole owner and managing member of New Line. The company was founded in 2006 and withdrew its registration in August 2014. During the period of this action the firm was registered with the states of New Mexico, Colorado and New Jersey. This matter focuses on the period April 2019 through the end of December 2024. During that period Defendants are alleged to have charged clients fees in excess of what they represented and promised. Two points are key. First, Defendants are alleged by the complaint to have breached their fiduciary duties to New Line clients by making false statements and omitting material facts regarding the annual advisory fees charged to clients. Defendants claimed that they took care to cap their annual fees at 2%. The representations were incorrect. To the contrary, fees in excess of 2% were charged during the period. Defendants also did not disclose that they charged fees over 2%. Second, Defendants breached their duty when billing clients for services by failing to provide notice that they were imposing time charges. Defendants failed to reveal that they may impose fees without notice. Nevertheless, during the period clients were billed and paid New Line and Mr. Nagler for about $325,000 in hourly fees. The complaint alleges violations of Advisers Act Sections 206(1) and 206(2). See Lit Rel. No. 26319 (June 4, 2025).

FinCEN

Advisory: The regulator issued an advisory highlighting Iranian oil smuggling, shadow banking and weapons procurement technologies, dated June 6, 2025 (here).

Hong Kong

Protections: The Securities and Futures Commission of Hong Kong is cautioning brokers to enhance protections for clients regarding SMS phishing. Fraudsters have increases unauthorized trading in client accounts through hyperlinks in phishing mobile text messages, commonly known as SMS phishing. The regulator reports that there has been an increase in the number of losses resulting from SMS phishing, according to a release issued June 6, 2025 (here).

Singapore

Remarks: The Deputy Chairman of the Monetary Authority of Singapore, delivered remarks at the Nomura Investment Forum, Asia on June 4, 2025. His remarks focused on certain events in the trading markets (here).

 

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