This Week In Securities Litigation  (Week of July 7, 2025)  

The Commission filed three new actions last week. One centered on an offering fraud while the t others focused on false statements.

Be careful, be safe this week.

SEC Enforcement – Filed and Settled Actions

Statistics:  Last week the Commission filed 3 new civil enforcement actions and continued to settle others.

Offering fraud:  SEC v. Cheetah X, Inc.,  Civil Action No. 25-cv-23002 (S.D. Fla.).  This case is centered on an offering fraud by a scooter rental company, Cheetah X or Go X. It involves the firm’s CEO, and President, respectively, Alexander Debelov and Khodr Salam. Beginning in July 2021,  and continuing through July 2023,  Defendants raised about $4 million from approximately  300 investors. Each purchased interests in Go X. Investors were assured they would be recoup  their investment.  Investors were also guaranteed that 100% of their investment would be returned. By the end of 2023 investors had been paid back less than half of their investment.  None had received a return of all their investment. The Commission’s complaint alleges violations of  each subsection of Securities Act Section 17(a) and Exchange Act Section 10(b) and Rule 10b-5.  See  Lit. Rel. No. 26341 (July 3, 2025).

Free riding scheme:  SEC v. Hernandez,  Civil Action No. 23-civ-08110 (E.D.N.Y. ) is a previously filed action which named as defendant Eduard Hernandez.  The complaint alleges that he participated in a free riding scheme for about four years, beginning in November 2018.  As part of the scheme, he and others would open an account that was designated as the “loosing” account to get instant credit from a brokerage firm.  They would then open what was designated as the “winning” account that was used to manipulate stock prices. As other accounts were opened the credits at times were transferred to the so-called winning accounts. Eventually Defendants abandoned the losing accounts, leaving the brokerage firm with the losses.  This process was repeated over and over, eventually involving about 600 brokerage accounts. Mr. Hernandez was the alleged mastermind.  The complaint alleged violations of Exchange Act Section 10(b) and Rule 10b-5.  Previously, a bifurcated consent    judgment was entered as to Mr. Hernandez, enjoining him from violations of the charged provisions. He was also barred from trading securities except for his own account.  To resolve this case Defendant agreed to pay disgorgement of $525, 355 and prejudgment interest of $122,996 to satisfy an order of restitution entered against him in the parallel criminal action,  U.S. v. Hernandez,  No. 23-cr-428 (E.N.Y.). A  conduct-based injunction prohibiting Defendant from opening a brokerage account without first providing the firm a copy of the Commission’s complaint and judgment in this matter for a period of five years. See, Lit. Rel. No. 26340 July 3, 2025).

Improper fees:  SEC v. Prisno,  Civil Action No. 25-civ (N.D. Ill. N.D. Ill.) Named as defendants are P/E Capital Investment Management Partners and its CEO Eliseo Prisno. The complaint alleges that Defendants operated a fraudulent billing scheme from at least February 2019 through July 2023.  During the period Defendants charged clients about $2.4 million in fees that were not authorized or, in some instances, disclosed. The complaint alleges violations of Advisers Act Section 206(1) and 206(2).  See  Lit. Rel. No. 26339 (July 3, 2025).

False statements:  SEC v. Caine, Case No. 21-cv-2858 (N. D. Ill.).  Named as defendants in the action are Anthony Caine, Anish Parvataneni, LJ M Funds Management, LTD and Lim Partners, LTD.  Defendant Anthony Cane is the owner, founder and Chairman of LJM Management Ltd. and LJM Partners. Ltd. (collectively the entities are referred to as LJMFM). Defendant Caine and others employed an option trading strategy for LJM Preservation & Growth Fund and several other private funds during a two-year period.  Defendants told investors who were concerned about the risk that the “worst case” daily losses they should expect from the trading approach being used was a “consistent risk” profile. Investors were also told that the strategy had been tested. In fact, Defendants’ investment strategy was known as a “short volatility strategy.”  It generated income by using margin to sell out-of-the-money options on S&P futures contracts.  The strategy supposedly carried risk that was remote but extreme. Defendants reassured the investors about the risks of the strategy.  What the investors were not told was that nearly every trading day from late 2016 through early 2018 the tested showed loss exposure approaching or exceeding 100% of the funds’ value. Investors were also not told that the strategy employed permitted the assets under management to increase in value significantly and generate large payments to the traders but that there were other huge risks. In February 2018, when there was a large spike in the market volatility, the Funds suffered over $1 billion in trading losses. The complaint alleges violations of Securities Act Section 17(a), Exchange Act Section 10(b) and Rule 10b-5, Advisers Act Sections 206(1), 206(2) and 206(4) and Investment Company Act Sections 34(b) and 15(c).  Defendants settled the action.  All Defendants were enjoined under the provisions of the Securities Act and the Exchange Act cited in the complaint. Defendants Caine, LJMF and Parvataneni were also enjoined from future violations of Investment Company Act Section 15(c) and Advisers Act Section 206(4) and Rule 206(4)-7 thereunder.  In addition, LJMFM and Defendant Caine were directed to pay, on a joint and several basis, disgorgement in the amount of $1,567,713 with prejudgment interest of $637,112.  Defendant Parvataneni was directed to pay disgorgement of $512,724 with prejudgment interest of $208,368.  The final judgement also directed Defendant Cain to pay a $500,000 penalty and Parataneni  and to pay a penalty of  $200,000. Defendant Caine was  enjoined for 3 years and Parvataneni for 1 year from managing or advising on securities investments to any third party.  See  Lit. Rel. No. 26338 (July 1, 2025).

False statements:  SEC v. Markan,  Civil Action No. 3:25-cv-01653 (N.D. Tx. Filed June 27, 2025) is an action which names as defendant Rajesh Markan, formerly a registered representative at two different brokerage firms at the same time. The complaint clams that Defendant Markan, over a nine-year period beginning in 2015, made about $2.9 million selling interests in a fund he called Intrinsic Value Portfolio.  The complaint claims Defendant Markan told investors that a well known New York firm advised the fund and that over a period of several years it would pay substantial returns.  The claims were false. The compliant alleges violations of Securities Act Sections 5(a), 5(c), 17(a),  Exchange Act Section 10(b) and Rule 10-b-5 and Advisers Act Sections 206(1) & (2).  Defendant entered into a bifurcated settlement, consenting to the entry of permanent injunctions based on the Sections cited in the complaint. Monetary remedies will be considered at a later date. Parrell  criminal charges were filed by the U.S. Attorney’s Office for the Northern District of Texas.  Defendant pleaded guilty in that action. FINRA also entered an order barring him from association with its members. See  Lit. Rel. No. 26337 (June 27, 2025).

BaFin

Remarks: Mark Branson, President of BaFin, noted in recent remarks “that there has been progress in the financial sector. There is, however “currently a clear need for action in three areas.” Those include the physical risks of climate change which is on the rise; measuring physical risks quantitatively; and making disclosures easier to understand. His remarks were delivered on July 4, 2025.

ESMA

Consultation:   The European regulator entered into a Consultation on the Methodology for the calculation of market capitalization. (June 19, 2025 to July 25, 2025).

Hong Kong

New position limits:   The Securities and Futures Commission of Hong Kong announced that it welcomed the launch of an Oder Routing Service on its Integrated Fund Platform, on July 3, 2025.

Singapore

Remarks:   Gan Kim Yong, Deputy Chairman of the Monetary Authority of Singapore addressed the Association of Banks in Singapore Annual Dinner on June 25, 2025. His remarks focused on the new regulatory scheme for capital in Asia which reinforces it hub of trade.  At the same time he urged everyone to continue moving forward.