by T. GormanPosted on Posted in SECActions

Regulation FD was supposed to be a significant achievement when it was passed over a decade ago. At the time it was touted as a regulation that would be important in creating a level playing field for all. Essentially the rule was supposed to be a kind of insider trading for corporations. No longer could the company selectively disclosure material events to some but not all sources. Moving forward material information would be available to all.

Once passed many wondered if Reg FD would be a new Enforcement Priority. While a few cases were initially filed in 2010, since the Netflix 21(a) Report in April 2013 virtually no other case was brought until 2019. Stated differently, the new enforcement priority seems to have become just another afterthought.

Now however, the Commission has brought a significant Reg FD case. SEC v. AT&T, Inc., Civil action No. 1:21-cv-01951 (S.D.N.Y. Filed March 5, 2021). The action is straight forward. 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 prior to the release — the third consecutive quarter. This resulted from a steep decline in the upgrade of smartphones by customers.

The Director of Investor Relations then directed Messrs. Momack and Black to call analysts and talk them down their equipment revenue number to ameliorate what could be a billion-dollar miss. The executives made the call 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).

The question now is whether this action is just a one off case or the beginning of a new focus?

Tagged with: ,

by T. GormanPosted on Posted in SECActions

Many follow the individuals have who built the highly successful tech and other companies on social media, aspiring to do the same. The lure for many is virtually hypnotic – the challenges of building a new company that becomes an essential cog in the economy, the success and the fame that follows — and of course the buckets of cash that seem to flow from all of this. While the fame, glitter and money often follows from the success, all to frequently there is another side laced with struggle, doubt, difficulties and even failures. And, in some instances there is a much darker side as reflected in a recent case brought by the U.S. Attorney’s Office for the Eastern District of New York against one well known software titan, 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).

Tagged with: , , , , ,