by T. GormanPosted on Posted in SECActions

Climate is a topic that has gone from largely ignored to most talked about by the Commission. Then a new sheriff came to town — the Biden Administration. The SEC hired a climate expert to serve on the senior staff. The Acting Chair asked the Division of Corporation Finance to evaluate the 10 year old agency disclosure requirements in the area. The Division of Enforcement announced the formation of a Task Force that will investigation questions relating to ESG. The Division of Examinations announced its 2021 Exam Priorities in a release that focused in part on the issue.

As last week drew to a close the Acting Director of the Division of Corporation Finance, John Coates, delivered remarks on the adoption of ESG standards at the Annual Tulane Corporate Law Institute (here). His remarks centered on questions and considerations which are the keys to an effective ESG disclosure system.

The SEC, Mr. Coates stated, “should help lead the creation of an effective ESG disclosure system so companies can provide investors with information they need in a cost-effective manner.” The creation of the applicable standards is not likely to be simple or quick, the Acting Director noted, citing a series of important questions. Those include: 1) What disclosures are most useful; 2) the proper balance between principles and metrics; 3) the degree of standardization across industries; 4) the best way to “verify or provide assurance” about disclosures; and 5) how to compare global disclosures.

Consideration of an ESG disclosure system might begin with an evaluation of the framework – should it be based on mandatory or voluntary standards — and if a single, global ESG reporting framework should be adopted, according to Mr. Coates. The former is not as simple as “an on/off switch between mandatory and voluntary disclosure.” The current disclosure system, for example, is more nuanced. It contains elements of each type of system. Currently issuers are required to disclose how the company board considers diversity in identifying director nominees. The system also permits what he called “significant differences” in how firms respond to a variety of mandatory disclosure requirements.

Finally, establishing a global framework is “complex and raises a number of considerations. Funding, governance and public accountability are all critical elements. . .” of a reliable disclosure system. “By seeking to address those considerations . . . the SEC can and should play a leading role in the development of a baseline global framework . . .” that all can use to build upon Mr. Coates concluded.

Comment

The repeated actions and directives of the Commission in recent weeks about climate and ESG suggest its readiness to discuss the question. Whether the agency is prepared to assume a leading role on these issues as Mr. Coates suggests is another question.

Presently regulators around the globe are moving forward with the kind of global framework Mr. Coates mentioned. The IOSCO , for example, as well as country regulators such as the Securities and Futures Commission of Hong Kong, are aggressively moving forward in this area. Until recently the U.S. SEC has not been a participant in those matters to any significant degree. Perhaps when Mr. Gensler arrives the agency will be ready to move forward on these critical issues.

by T. GormanPosted on Posted in SECActions

Gary Gensler still has not been confirmed by the Senate; but it could be any time . . .

This is beginning to approach Samuel Becket’s play, Waiting for Godot. Each week the topic de jure at the agency seems to be climate/EDG. Last week it was Corporation Finance. The Acting Division of Corp Fin delivered remarks on the complexity and difficulty of adopting a framework for issuer disclosures on climate/EDG (here).

Be careful, be safe this week

SEC

Whistleblowers: The agency awarded about $1.5 million to a whistleblower, according to a release dated March 9, 2021.

SEC Enforcement – Filed and Settled Actions

The Commission filed 5 new civil injunctive actions and no administrative proceedings last week, excluding 12j, tag-along proceedings and other similar matters.

Fraudulent share transfers; SEC v. Kabylafkas, Civil Action No. 1:21-cv-0210 (S.D.N.Y. Filed March 11, 2021) is an action which names as a defendant Nicholas Kabylafkas. The complaint centers on a fraudulent scheme involving the sale of Airborne Wireless Network shares. The firm supposedly was developing marketing and licensing for a high-speed meshed broadband airborne network by linking commercial aircraft in flight. The shares of the penny-stock issuer were cleared through the transfer agent with false statements and sold to the public. The complaint alleges violations of each subsection of Securities Act Section 17(a) and Exchange Act Section 10(b). The case is pending. See Lit. Rel. No. 25048 (March 11, 2021). Previously, the Commission brought an action against the firm (here). SEC v. Airborne Wireless Network, Civil Action No. 21-civ-01772 (S.D.N.Y. Filed March 2, 2021)(here).

Adviser fraud: SEC v. Heckler, Civil Action No. 2:21-cv-04587 (D.N.J. Filed March 9, 2021) is an action which names as a defendant, George Heckler, an unregistered investment adviser. Over a ten-year period, beginning in 2009, Defendant used two funds he created as vehicles to cover up an earlier failed venture, repay some investors and line his pocket. Over the period Mr. Heckler raised at least $90 million from investors. The funds were not invested as promised. Rather, they were used to cover-up past failures and for personal use. The complaint alleges violations of Securities Act Section 17(a), Exchange Act Section 10(b) and Advisers Act Sections 206(1), (2) and (4). The case is pending. See Lit. Rel. No. 25047 (March 11, 2021).

Offering fraud: SEC v. Cutting, Civil Action No. 2:21-cv-0103 (D. Id. Filed March 5, 2021) is an action which names as a defendant Shawn Cutting. Over a period of about four years Defendant raised approximately $6.9 million from over 450 investors. In raising the funds Mr. Cutting claimed to be an experienced asset manager and that he would invest the capital in digital assets. In fact, he made numerous Ponzi like payments while taking portions of the investor funds for personal use. The complaint alleges violations of Securities Act Sections 5(a), 5(c) and 17(a) and Exchange Act Section 10(b). The case is pending. See Lit. Rel. No. 25046 (March 11, 2021).

Offering fraud: SEC v. Garrick, Civil Action No. 2L21-cv-00135 (D. UT. Filed March 5, 2021) is an action which names as a defendant Craig C. Garrick, a convicted felon on probation. Over a period of about one year, beginning in 2018 Defendant raised about $450,000 by selling shares in his firm. Investors were not told he was on probation from a felony conviction or that much of their capital was diverted to his personal use. The complaint alleges violations of Securities Act Sections 5(a), 5(c) and 17(a)(2) and (3) and Exchange Act Section 10(b). The case is pending. See Lit. Rel. No. 25044 (March 5, 2021).

Reg FD: SEC v. AT&T, Inc., Civil Action No. 1:21-cv-01951 (S.D.N.Y. Filed March 5, 2021). The complaint names as defendants the firm and three of its executives, Christopher Womack, Kent Evans and Michael Black. In early 2016 the company learned that it was going to miss its revenue projections for the third consecutive quarter. This resulted from a steep decline in the upgrade of smartphones by customers. The Director of Investor Relations then had Messrs. Momack and Black call analysts and talk down their equipment revenue number to ameliorate what could be a billion-dollar miss. The executives made the calls despite the firm’s Reg FD regulations and compliance procedures. A total of 20 firms were called. In some instances those contacted were told the information being furnished was public – it was not. Following the calls from AT&T executives, the analysts adjusted their numbers. When the 1Q16 numbers were released AT&T beat the reduced consensus estimates. The complaint alleges violations of Exchange Act Section 13(a). The case is pending. See Lit. Rel. No. 25045 (March 5, 2021).

Criminal cases

Touting – manipulation: U.S. v. McAfee, No. 21-043 (E.D.N.Y. Filed March 5, 2021). John D. McAfee is the founder of McAfee Associates, a very successful antivirus software company. The company is one of the best known in the tech-software space. Yet now, after incredible success, Mr. McAfee and one of his advisers, Jimmy Watson, Jr., are facing criminal charges of conspiracy to commit commodities and securities fraud, conspiracy to commit securities fraud and touting fraud, money laundering conspiracy and other charges. The charges are tied to two fraudulent schemes. The first is a classic pump-and-dump market manipulation. Beginning in December 2017, and continuing until the fall of 2018, Defendants acquired large quantities of publicly traded cryptocurrency altcoins which qualified as commodities or securities. Once the coins had been acquired Mr. McAfee used his McAfee Twitter account to tout the coins to the investing public. Millions of followers jumped into the market. As the price spiked up Defendants dumped their coins, reaping over $2 million from the manipulative scalping scheme. In the second scheme, Messrs. McAfee, Watson and others again used Mr. McAfee’s Twitter account to defraud investors. This time Defendants touted fundraising events – initial coin offerings – for startups. Neither Mr. McAfee nor Mr. Watson told investors that they had been paid by the issuers to tout the firms. Stated differently, Defendants illegally touted. The scheme netted the men and their associates over $11 million. The criminal charges are detailed in a seven-count indictment. See also SEC v. McAfee, Civil Action No. 20 Civ 8281 (S.D.N.Y. Filed October 5, 2020)(here); CFTC v. McAfee, Civil Action No. 21-cv-1919 (S.D.N.Y. Filed March 5, 2021).

FinCEN

Release: The regulator issued a notice related to trade in antiquities and art on March 9, 2021 (here). The release discussed the AML 2020 Act and sources of information regarding illicit activity tied to antiquities and art. It also provides instructions for filing any necessary SAR tied to antiquities and art.

Singapore

Remarks: Ravi Menon, Managing Director, Monetary Authority of Singapore, delivered remarks at the IMAS-Bloomberg Investment Conference on March 9, 2021. His remarks focused on the need to broaden the range of green financing solutions and markets and improve transparency of ESG reporting and disclosure as well as capabilities in sustainable finance (here).

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