by T. GormanPosted on Posted in SECActions

The article published each Monday typically reviews the actions filed the prior week. This week the article was divided into two parts in view of the number of cases filed by the Commission as the fiscal year closed on Wednesday. The first half of the article was published yesterday (here). The second part is set forth below.

SEC Enforcement – Filed and Settled Actions (continued from Monday)

Internal controls: In the Matter of Kroll Bond Rating Agency, LLC, Adm. Proc. File No. 3-20096 (Sept. 29, 2020) names the rating agency as a respondent. The firm’s internal controls relating to its rating of conduit/fusion commercial mortgage backed securities had deficiencies. Those issues resulted in material weaknesses in its internal control structure. The firm established procedures to determine credit ratings for the instruments which permitted the use of professional judgment to make adjustment. Unfortunately, the system failed to include any analytical method for determining the applicability of, the magnitude of, or recording the rational for the adjustments. The firm failed to detect or prevent the omissions. The Kroll’s written procedures from 2012 to 2017 also permitted the adjustments made to be done on a portfolio basis rather than by property. The Order alleges violations of Exchange Act Section 15E(e)(3)(A). To resolve the proceedings the firm consented to the entry of a cease and desist order based on the section cited and a censure. The firm will also pay a penalty of $1,250,000 which will be transferred to the U.S. Treasury. See also In the Matter of Kroll Bond Rating Agency, LLC, Adm. Proc. File No. 3-20097 (Sept. 29, 2020)(base on a failure to establish and maintain policies and procedures re if CLO combination notes will default; resolved with a cease and desist order based on Rule 17g-8(b)(1) of Exchange Act, a censure, a series of undertakings, payment of $160,000 in disgorgement, $4,836.33 in prejudgment interest and a penalty of $600,000}. A fair fund was created.

Offering fraud: SEC v. Stebbins, Civil Action No. 2:13-cv-00755 (D. Az.) is a previously filed action which named as defendants Jeffrey Stebbins and Corbin Jones. In a complaint filed in April 2013 the Commission alleged that Defendants had defrauded investors out of about $1.8 million on a tankless water heater scheme. In the parallel criminal case, the Arizona State Attorney General brought criminal charges based on essentially the same conduct. In 2019 Defendants pleaded guilty to three felony counts of selling unregistered securities. Mr. Stebbins was sentenced to 60 days in prison plus eight years of probation; Mr. Jones was sentenced to four years of probation. The Defendants were ordered to pay, on a joint and several basis, $1,771,995. In the Commission’s action, each Defendant consented to the entry of financial judgments based on Securities Act Section 17(a) and Exchange Act Sections 10(b), 13(d), 15(a) and 16(a). Each Defendant also consented to the entry of a penny stock bar. The judgments also direct the payment, on a joint and several basis, of disgorgement in the amount of $1,692,323 and prejudgment interest of $334,567 to the extent there are funds remaining from the criminal action. Mr. Stebbins was also barred from the securities business in a separate administrative proceeding. See Lit. Rel. No. 24927 (Sept. 29, 2020).

Unregistered securities/broker: SEC v Baqierozo, Civil Action No. 9:20-cv-8163 (S.D. Fla. Filed Sept. 29, 2020) is an action which names as defendants Christian Baquerizo and Kevin Cardenas, each of whom worked for NIT Enterprises Inc. as an unregistered broker. The firm has been the subject of a prior Commission enforcement action. Defendants defrauded retail investors from 2015 through 2019. During the period the firm raised at least $4.9 million from about 100 investors. Investors were told their funds would be used for research and development. They were not told that 30% to 50% of their investment would be used to pay commissions. The complaint alleges violations of Securities Act Sections 5(a), 5(c) and each subsection of 17(a) and Exchange Act Sections 10(b) and 15(a). The case is pending. See also SEC v. Newman, Civil Action No. 0:20-cv-61976 (S.D. Fla. Filed Sept. 29, 2020)(names as defendant Mason Newman who engaged in same conduct as above; complaint is based on same alleged violations).

Manipulation: In the Matter of J.P. Morgan Securities LLC, Adm. Proc. File No. 3-20094 (Sept. 29, 2020). The Order alleges that over series of months from April 2015 to January 2016 certain traders at the firm engaged in manipulative trading in the secondary market of U.S. Treasury cash securities. On one side of a trade orders would be entered that were bona fide. On the other trades were placed that were not bonified but were designed to either raise or depress the price. The non-bonified trades were generally cancelled. The Order alleges violations of Securities Act Section 17(a)(3). To resolve the proceedings the firm acknowledged that its conduct violated the federal securities laws, consented to the entry of a cease and desist order based on the section cited in the order and to a censure. The firm will pay a civil penalty of $25 million and disgorgement of $10 million. The penalty and disgorgement will be satisfied by amounts paid in the parallel DOJ and CFTC actions.

False statements: SEC v. Ledbetter, Civil Action No. 20-civ-61972 (S.D. Fla. Filed Sept. 29, 2020) is an action which names as a defendant attorney Andrew D. Ledbetter. The charges are based on the action brought against 1 Global Capital, LLC and its former CEO and CFO. That action alleged a $322 million fraud on over 3,600 investors. Attorney Ledbetter is alleged to have told investors that the offering did not involve securities and that it did not violate the securities laws. He helped raise about $2.9 million for the fraud. The complaint alleges violations of Securities Act Sections 5(a), 5(c) and 17(a) and Exchange Act Sections 10(b) and 15(a). The case is pending. The U.S. Attorney’s Office for the Southern District of Florida filed parallel criminal charges. See Lit. Rel. No. 24926 (Sept. 29, 2020).

Offering fraud: SEC v. Karlsson, Civil Action No. 1:20 -cv- 04615 (E.D.N.Y. Filed Sept. 29, 2020) is an action which names as a defendant Roger Nils-Jonas Karlsson, a Sweden borne resident of Thailand who claimed to be a “System Analysis Manager.” ( Lars Georgsson is listed in the case caption but is not a named defendant). Over a six-year period, beginning in late 2012, Defendant orchestrated a fraudulent scheme in which he sold a “pre Funded Reverse Pension Plan” that was supposedly the product of award winning economists and other professionals. The payout was to be based on the value of gold and offered investors a huge windfall for an initial investment of $99. The claims were false. Yet 2,200 investors from 49 states, the District of Columbia, Puerto Rico and 45 counties put up money. In the last two years of the scheme, for example, more than $3.5 million in investor funds were put in. The complaint alleges violations of Securities Act Sections 5(a), 5(c) and Securities Act Sections 17(a)(1) and (3) and Exchange Act Section 10(b). The case is pending.

Disclosure: In the Matter of Fiat Chrysler Automobiles N.V., Adm. Proc. File No. 3-20092 (Sept. 28, 2020) is a proceeding naming the auto manufacturer as a respondent. In early 2016, following the action brought against a German auto firm for circumventing environmental limitations on emissions with a “defeat mechanism,” the firm disclosed the results of an internal inquiry focused on the same issue. While the disclosures stated the findings of the inquiry that no defeat mechanism was used, it failed to state that the investigation was limited and that the EPA and California Air Resources Board engineers had raised concerns about certain of its engines. The Order alleges violations of Exchange Act Section 13(a). To resolve the proceedings Respondent consented to the entry of a cease and desist order based on the section cited. The firm will also pay a penalty of $9.5 million. A fair fund will be created.

Offering fraud: In the Matter of Scott Eugene Bachman, Adm. Proc. File No. 3-20089 (Sept. 28, 2020) is a proceeding which names as a respondent Mr. Bachman, a principal of Crudefunders, LLC, a website that collected information about potential investors and sold securities. From August 2017 to later that year Mr. Bachman had Crudefunders’ Director of Client Relations distribute promotional materials to potential investors regarding the Oddfellows Project which was associated with interests in an oil well that sought funds to drill. Along with that information was an invitation to purchase membership units through phone calls and the mails. Crudefunderes received transaction-based compensation. The securities were not registered nor were the sellers registered as brokers or dealer. The Order alleges violations of Securities Act Sections 5(a) and 5(c) and Exchange Act Section 15(a)(1). To resolve the proceedings Respondent consented to the entry of a cease and desist order based on the sections cited in the Order. He also agreed to pay a penalty of $8,824. A fair fund will be created. See also In the Matter of David Taylor, Adm. Proc. File No. 3-20088 (Sept. 28, 2020)(Respondent is one of the owners of Crudefunders; facts are similar to above but adds charges based on Securities Act Sections 17(a)(2) and (3); resolved with a cease and desist order based on sections cited in the Order and entry of a bar from the securities business and a penny stock bar; payment of disgorgement of $60,000, prejudgment interest of $14,111.06 that is waived except for $15,000 based on financial condition); In the Matter of Raymond Allan Fine, Adm. Proc. File No. 3-20087 (Sept. 28, 2020)(Respondent is a principal of Crudefunders; essentially the same conduct and violations alleged in Taylor; resolved with entry of a cease and desist order based on sections cited and entry of order directing payment of disgorgement in the amount of $110,000 and prejudgment interest of $17,263.05, all of which is waived except $21,000 based on financial condition; a bar order as to penny stocks and the securities business was also entered).

Cherry picking: SEC v. Lambert, Civil Action No. 4:20-cv-03116 (D. Neb. Filed Sept. 28, 2020) is an action which names as a defendant Corbin Lambert, an Investment Adviser Representative at an Advisory. Over a two year period, beginning in early 2017, Defendant placed block trades for the clients, held them in an omnibus account until later and then allocated the profitable trades to his account and the others to clients who were assured that a fair method was used to make the allocations. Charles Schwab & Co., Inc. detected what was going on and confronted Defendant. The broker terminated the Advisory as a client. The advisory then terminated Defendant. The complaint alleges violations of Securities Act Sections 17(a)(1) & (2), Exchange Act Section 10(b) and Advisers Act Sections 206(1) and (2). The case is pending. See Lit. Rel. No. 24925 (Sept. 29, 2020).

Insider trading: SEC v. Bohra, Civil Action No. 2:20-cv-01434 (W.D. WA. Filed Sept. 28, 2020) is an action which names as defendants Laksha Bohra, Viky Bohra and Gotham Bohra, respectively an employee in the tax department of a large internet firm, the husband of Ms. Bohra, and her father in law. Over a two-year period, beginning in January 2016, Ms. Bohra repeatedly tipped the other defendants who traded in 11 separate brokerage accounts at least in part on inside information she provided. The complaint alleges violations of Exchange Act Section 10(b). Each of the Defendants consented to the entry of a final judgment imposing a permanent injunction based on the section cited. In addition, the order directs the payment of total disgorgement in the amount of $1,428,049, prejudgment interest of $118,406 and total penalties of $1,106,399. A parallel criminal action was filed by the U.S. Attorney’s Office for the Western District of Washington. See Lit. Rel. No. 24923 (Sept. 28, 2020).

Financial fraud: In the Matter of Interface, Inc., Adm. Proc. File 3-20085 (Sept. 28, 2020) is a proceeding which names as respondents the firm, a global manufacturer of modular carpet, Gregory J. Bauer, CPA and Patrick C. Lynch, CPA, respectively, the firm, its v.p. and controller and its CFO. Beginning in the second quarter of 2015, and continuing through the second quarter of the next year, the firm and its executives made manual adjustments to the firm records to adjust EPS to meet expectations. The entries were material. They did not comport with GAAP. The company cooperated with the investigation and undertook remedial actions. The Order alleges violations of Securities Act Sections 17(a)(1) and (2) and Exchange Act Sections 13(a), 13(b)(2)(A) and 13(b)(2)(B) and the related rules. Each Respondent consented to the entry of a cease and desist order based on the sections cited in the Order. Messrs. Bauer and Lynch were each denied the privilege of appearing and practicing before the Commission as accounts with the right to re-apply after, respectively, three years and one year. In addition, the firm will pay a penalty of $5 million, Mr. Bauer $45,000 and Mr. Lynch $70,000. The funds will be transferred to the U.S. Treasury. The action is part of Enforcement’s EPS initiative. See also In the Matter of Fulton Financial Corporation, Adm. Proc. File No. 3-20084 (Sept. 28, 2020)(similar action that also involved internal controls; alleged violations of the same Exchange Act Sections; firm undertook remedial actions; resolved with cease and desist order based on the Exchange Act Sections and the payment of a penalty of $1.5 million that was paid to the Treasury).

Offering fraud/misappropriation: SEC v. Bean, Civil Action No. 19 cv 6458 (N.D. Ill.) is a previously filed action which named as a defendant Marcus Bean. Mr. Bean solicited investors and obtained funds in connection with the advisory. Investors were promised the funds would be used to conduct an IPO. The money was misappropriated. Defendant resolved the matter, consenting to the entry of a permanent injunction enjoining Mr. Bean from violating Securities Act Section 17(a), Exchange Act Section 10(b) and Advisers Act Sections 206(1), 206(2) and 206(4). The Court ordered Defendant to pay disgorgement and prejudgment interest of $219,921 and a penalty of $207,000. See Lit. Rel. No. 24921 (Sept. 28, 2020).

Insider trading: SEC v Hill, Civil Action No. 3:20-civ-00536 (W.D.N.C. Filed Sept. 25, 2020) is an action which names as a defendant Eric Hill. He obtained inside information about the pending deal in which Piedmont Natural Gas Company, Inc. would merge with Duke Energy from a friend and former colleague. Within one hour he purchased call options. Subsequently, he purchase additional options and stock. After the deal was announced on October 26, 2015 Defendant liquidated his position. The complaint alleges violations of Exchange Act Section 10(b). The U.S. Attorney for the Western District of North Carolina filed parallel criminal charges. See Lit. Rel. No. 24919 (Sept. 25, 2020).

Conflicts: In the Matter of Hancock Whitney Investment Services, Inc., Adm. Proc. File No. 3-20074 (Sept. 25, 2020) is a proceeding which names as a respondent the registered investment adviser. This action centers on the failure of the adviser to properly inform its clients about the conflict that arise from the payment of certain fees on some shares acquired, held or sold for clients. First, over a three-year period the firm failed to advise its clients when buying, recommending a hold or selling fund shares that paid 12b-1 fees. Second, the same conflict arose with respect to certain money fund interests. Neither conflict was properly disclosed. The firm agreed to implement certain undertakings and took a series of remedial actions. The Order alleges violations of Advisers Act Section 206(2) and 206(4). Respondent consented to the entry of a cease and desist order based on the sections cited in the Order and to a censure. Respondent will also pay disgorgement, prejudgment interest and a civil penalty totaling $2,337,792.08 as follows: disgorgement of $1,651,686.59, prejudgment interest of $286,105.79 and a penalty of $400,000. A fair fund is created.

False statements: SEC v. Mueller, Civil Action No. 1:20-cv-00984 (D. N.M. Filed Sept. 25, 2020) is an action against Frank Mueller, the former CFO of Santa Fe Gold Corp. Previously the agency brought an action against the former CEO of the company, Thomas H. Laws, for misappropriating $1 million of investor funds. Mr. Mueller identified a series of red flags suggesting the theft. Rather than expose it he signed the firm’s annual report and the corresponding management representation letter for the outside auditor, both of which were false – they represented that $500,000 had been escrowed towards the purchase of a mine. The complaint alleges violations of Securities Act Sections 17(a)(1) & (3) and Exchange Act Sections 10(b), 13(a), 13(b)(2) and 13(b)(5). To resolve the matter Defendant consented to the entry of a permanent injunction based on the sections cited in the complaint and agreed to pay a penalty of $50,000. See Lit. Rel. No. 24917 (Sept. 25, 2020).

False statements: SEC v. Schena, Civil Action No. 5:20-cv-06717 (N.D.CA. Filed Sept. 25, 2020) is an action which names Mark Schena, the former president of Arrayt Corporation, as a defendant. The complaint alleges that over a period of about two years, beginning in October 2018, the firm made a series of false statements regarding its delinquent financial reports and the development of a COVID-19 test. The complaint alleges violations of Exchange Act Section 10(b). Trading in Arrayt’s stock was suspended. The case is pending.

False filings: SEC v. Lidner Capital Advisors, Inc., Civil Action No. 1:20-cv-03970 (N.D. Ga. Filed Sept. 25, 2020) is an action which names as defendants the registered investment adviser and its founder Robert J. Lindner. In 2018 and 2019 the firm made false filings with the Commission that were distributed to its investors. Those false statements related to the financial condition of the firm. In 2018 OCIE conducted an exam and wrote up the deficiencies which focused on its financial condition. Those included a loan on the books from Mr. Lindner that actually came from clients and a statement in Form ADV that the firm did not have any financial condition that was reasonably likely to impair its contractual obligations. Although the firm promised to remedy the matters identified by OCIE it did not. The Order alleges violations of Advisers Act Sections 206(1), 206(2), 206(4) and 207. The action is pending. See Lit. Rel. No. 24922 (Sept. 28, 2020).

FinCEN

Ransomware: Treasury issued, on October 1, 2020, an advisory regarding ransomware to increase awareness and thwart attacks (here).

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by T. GormanPosted on Posted in SECActions

The article published each Monday typically reviews the actions filed the prior week. This week the article is being divided into two parts in view of the number of cases filed by the Commission as the fiscal year closed on Wednesday. The first half of the article is being published today. The second part will be published tomorrow.

The Commission closed out the Government fiscal year by filing a torrent of cases. Many of the cases reflect the extensive data analysis the Enforcement Division has employed in recent years. Tha strongly suggests that issuers, private companies and market professions carefully analyze their current compliance policies and procedures to ensure that the proper statistical metrics are being analyzed and reviewed.

The cases filed by the agency in the closing days of the quarter and fiscal year cover a range of areas. Those included Regulation SHO on short selling, manipulative trading which includes spoofing, insider trading, offering fraud, microcap fraud, financial fraud, unregistered brokers, internal controls, cherry picking and share class selection issues despite the very successful initiative the Division conducted.

Be safe and healthy this week

SEC

Regulations ATS and SCI: The Commission proposed to extend Regulations ATS and SCI to include Treasuries and other government securities, according to a release dated September 28, 2020.

Whistleblowers: In a September 30, 2020 release the agency announced the payment of almost $30 million for information from two whistleblowers. Two days earlier another press release announced the payment of $1.8 million to a company outsider.

SEC Enforcement – Filed and Settled Actions

The Commission filed 21 civil injunctive actions and 19 administrative proceedings last week, excluding 12j and tag-along-proceedings.

Reg SHO: In the Matter of Morgan Stanley & Co., LLC, Adm. Proc. File No. 3-20103 (Sept. 30, 2020). Regulation SHO requires the netting of all positions in a particular equity security absent an exception. Here Respondent did not net the firm’s long and short swap positions in its prime brokerage business as required by the Regulation. Yet no exception permitted the firm to avoid the requirement. Respondent agreed to implement procedures which will result in compliance of its rules. The Order alleges violations of Regulation SHO. To resolve the proceedings Respondent consented to the entry of a cease and desist order based on the Regulation cited. The firm agreed to pay a $5 million penalty and was censured.

False records: In the Matter of Meredith A. Simmons, Esq., Adm. Proc. File No. 3-20144 (Sept. 30, 2020) is an action an attorney who served as the CCO for Adviser A and its affiliated broker dealer. In October 2016 Respondent’s supervisor asked her to memorialize the compliance reviews that she had previously conducted as CCO. The supervisor pointed out that he was making the request because he was concerned about a particular transaction and possible future regulatory inquiries into an earlier investment. The reviews were not done. About 11 months later when Respondent’s supervisor asked about the reviews. Respondent prepared two memos, one dated just after the investment transaction which was sent to the supervisor. The second was backdated to before that deal and was put in the file. Later, when OCIE conducted an inspection, they were furnished with the second backdated memorandum. The Order alleges violations of Advisers Act Section 204(a). Respondent consented to the entry of a cease and desist order based on the section cited. In addition, she is precluded from serving serving in any compliance capacity with a broker dealer or adviser but may apply after three years to end the restriction. She is also denied the privilege of appearing before the Commission as an attorney for 12 months after which she may request reinstatement. Respondent will pay a penalty of $25,000 that will be transferred to the U.S. Treasury.

Perks: In the Matter of Hilton Worldwide Holdings, Inc., Adm. Proc. File No. 3-20109 (Sept. 30, 2020) centers on a three year period beginning in 2015 when the global hospitality firm failed to disclose certain perks extended to its CEO, President and board members. Those include expenses associated with the use of the corporate aircraft and hotel stays. The Order alleges violations of Exchange Act Section 13(a) and 14(a) and the related rules. Respondent resolved the matter by consenting to the entry of a cease and desist order based on the Sections cited in the Order and agreeing to pay a penalty of $600,000 which will be transferred to the U.S. Treasury. The size of the penalty was limited in view of the firm’s cooperation.

Disclosure controls: In the Matter of HP Inc., Adm. Proc. File No. 3-20112 (Sept. 30, 2020). HP, the portion of Hewlett-Packard that retained the personal systems and personal investment segment of the firm in 2015 when segments were separated, was charged with engaging in a two-fold scheme. In one part that began in the second quarter of 2015, certain regional managers used a variety of incentives to accelerate or “pull in” sales that they otherwise expected to be pulled in later. In addition, the management in one region sold printing supplies to distributors known to be selling outside their territory, so-called “gray marketing.” Despite the risk that those sales practices could negatively impact operating profit in future quarters, there was no disclosure. In June 2016 the firm announced that it was changing its go-to-market model. The change was intended in part to address these two practices. The company took a net revenue reduction of about $450 million in the third and fourth quarters of that year. The Order alleges violations of Securities Act Sections 17(a)(2) and (3) and Exchange Act Section 13(a). To resolve the matter Respondent consented to the entry of a cease and desist order based on the sections cited in the Order. In addition, the firm will pay a penalty of $6 million that will be transferred to the U.S. Treasury.

Manipulation: SEC v. Cicarelli, Civil Action No. 1:20-cv-11789 (D. Mass. Filed Sept. 30, 2020) is an action that names Drew M. Cicarelli, a promoter of microcap stocks, as a defendant. In May 2012 Defendant was retained by a group to manipulate the share price of Rarus Technologies, Inc. to permit the group to secretly dump their stock. Defendant used a group of intermediaries to promote the stock and conceal the group. Defendant was paid $150,000. Between June 6 and 7, 2012 over 3.3 million shares of Rarus were sold during the promotion run in the name of Defendant’s firm. The complaint alleges violations of Securities Act Sections 5(a), 5(c) and each subsection of 17(a) and Exchange Act Section 10(b). The case is pending. See Lit. Re No. 24940 (Sep. 30, 2020). The U.S. Attorney’s Office for the district of Massachusetts filed a parallel criminal case.

Offering fraud: SEC v. Heckler, Civil Action No. 20-civ-4654 (E.D.N.Y. Filed Sept. 30, 2020) is an action which names as defendants Rand Heckler, a FINRA barred broker-dealer, and his firm. In 2015 Defendant Heckler solicited over $700,000 from an investor and his son, claiming that he ran a successful hedge fund. In fact, there was no hedge fund. Mr. Heckler misappropriated the funds and tried to conceal his misdeeds by sending phony account statements to the investors. The complaint alleges violations of Securities Act Section 17(a), Exchange Act Section 10(b) and Advisers Act Sections 206(1), 206(2) and 206(4). The action is pending. See Lit. Rel. No. 24938 (Sept. 30, 2020).

Microcap fraud/manipulation: SEC v. Everett, Civil Action No. 2:20-cv-08985 (C.D. Cal. Filed Sept. 30, 2020) is an action that names as defendants Patrick J. Johnson, Charles Everett and NVC Fund, LLC. Each is affiliated with various microcap issuers. This case centers on three Microcap Firms whose shares were suspended from trading in early 2018. Beginning in late November 2017 Defendant Johnson and Everett fabricated debts owned by two of the Firms whose shares were later suspended. Those debts were acquired by a third party and extinguished in return for shares that were then sold to the public although they were not registered. Defendant Everett received klick backs on the sales. The principal of private equity fund NVC then pumped the shares of the Microcap Firms. The complaint alleges violations of Securities Act Sections 5(a), 5(c) and each subsection of 17(a) and Exchange Act Section 10(b). The case is pending. See Lit. Rel. No. 24937 (Sept 30, 2020).

Manipulation: SEC v. Stohlman, Civil Action No. 20-civ-04803 (E.D. Pa. Filed Sept. 30, 2020) is an action which names as defendants Joel Stohlman, Riciardo Richardson, Gary Wolff and Edward Heil. Mr. Heil is an attorney while the other three defendants are stock promoter. Over a two-year period, beginning in 2014, Defendants sought to manipulate the shares of three microcap stocks. In connection with those efforts they retained a person who supposedly was tied to a network of corrupt brokers that would conduct the manipulation. In fact, the person was an undercover FBI agent. The complaint alleges violations of Securities Act Section 17(a)(1) and Exchange Act Sections 9(a)(1) and 10(b). The complaint is pending. See Lit. Rel. No. 24935 (Sept. 30, 2020).

Offering fraud: SEC v. McCabe, Civil Action No. 5:20-cv-04800 (E.D. Pa. Filed Sept. 30, 2020) is an action which names as defendants Robert McCabe and McCabe Properties. Over a 10 year period beginning in 2010 Defendant McCabe and his firm defrauded dozens of investors, raising over $1 million through the sale of shares in his entity. Mr. McCabe told investors his firm owned a profitable pharmaceutical firm and that by purchasing the shares they acquired an interest in that firm. In fact, there was no pharmaceutical firm. The complaint alleges violations of Securities Act Section 17(a) and Exchange Act Section 10(b). The action is pending. See Lit. Rel. No. 24934 (Sept. 30, 2020).

Unregistered broker/offering fraud: SEC v. Staisil, Civil Action No. 20-cv-2834 (D. Md. Filed Sept. 30, 2020). Previously the Commission brought a related action centered on Global Credit Recovery, a $345 million Ponzi-like scheme. A permanent injunction was obtained in September 2019. There was also a parallel criminal action. Defendant Michael Stasil, formerly a registered representative, acted as an unregistered broker and actively recruited investors over a five year period beginning in 2013 for that firm. He was paid $400,000 for his work. The complaint alleges violations of Securities Act Section 17(a) and Exchange Act Sections 10(b) and 15(a). The case is pending. See Lit. Rel. No. 24933 (Sept. 30, 2020).

Offering fraud: SEC v. Silea, Civil Action No. 4:20-cv-00737 (E.D. Tx. Filed Sept. 29, 2020) is an action which names as defendants Sebastian Silea, Christian Kranenberg and KS Cartel LLC, respectively the CFO of KS Cartel, the CEO of that firm, and an entity controlled by the two individual defendants. Over a period of about 3 years, beginning in 2017, Defendants raised about $1.1 million from 46 investors who purchased unregistered membership units in KS Cartel. The individual Defendants falsely claimed to be highly experienced industry professionals. They guaranteed no greater loss than half of the initial investment. Those individuals also estimated the investment would pay a 20-30% return per month. There was no basis for the claims; most of the money was not invested. The complaint alleges violations of Securities Act Sections 5(a), 5(c) and 17(a) and Exchange Act Section 10(b). The action is pending. See Lit. Rel. No. 24930 (Sept. 30, 2020).

Offering fraud: SEC v. Karlsson, Civil Action No. 20-civ-04615 (E.D.N.Y. Filed Sept. 29, 2020) names as defendants Roger Nils-Jonas Karlsson who describes himself as a System Analysis Manager. Over a period of about seven years, beginning in late 2012, Defendants marketed an investment called a Pre Funned Reversed Pension Plan that claimed to be the first such instrument. The instrument was supposedly developed by world class economists and had “huge” payouts tied to the value of gold. At least 2,200 investors acquired interests in Eastern Metals. The initial payment was $99. In the last 18 months about $3.5 million in digital assets were transferred to Defendants. The complaint alleges violations of Securities Act Sections 5(a), 5(c) and 17(a)(1) & (3) and Exchange Act Section 10(b). The case is pending. See Lit. Rel. No. 24932 (Sept. 30, 2020).

Offering fraud: SEC v. Mixon, Civil Action No. 3:20-cv-00650 (M.D.L.A. Filed Sept. 29, 2020) is an action which names Todd Mixon as a defendant. Mr. Mixon represented to investors that he had learned to invest in foreign currency and was now a trader. Over a two-year period, beginning in August 2017, Defendant raised about $576,000 from investors by using a series of misrepresentations about the use of the funds and his ability to redeem their investments. The complaint alleges violations of each subsection of Securities Act Sections 17(a) and Exchange Act Section 10(b). The case is pending. See Lit. Rel. No. 24931 (Sept. 30, 2020).

Unregistered broker/offering fraud: SEC v. Newman, Civil Action No. 0:20-cv-61976 (S.D. Fla. Filed Sept. 29, 2020) is an action which names as a defendant Mason Newman, formerly a registered representative. This action centers on an offering fraud regarding the sale of shares in NIT Enterprises by its former CEO and two barred brokers. In that action the Commission alleged that over 100 retail investors were defrauded. In this case, and the companion action cited below, the agency alleges that Defendant Newman, and Christian Baquerizo and Kevin Cardenas in the companion action, raised about $1.4 million selling unregistered NIT shares to retail investors. About $500,000 was paid in undisclosed commissions. Investors were cold-called by the three Defendants and furnished with false information regarding the firm and its prospects. The complaint alleges violations of Securities Act Sections 5(a), 5(c) and 17(a) and Exchange Act Sections 10(b) and 15(a). The case is pending. See also SEC v. Baqueizo, Civil Action No. 9:20-cv-81763 (S.D. Fla. Filed Sept. 29, 2020); Lit. Rel. No. 24936 (Sept. 30, 2020).

Offering fraud: SEC v. Gity, Civil Action No. 2:20-cv-14342 (S.D.F.L. Filed Sept. 29, 2020) is an action which names as the defendant, Thomas J. Gity, a convicted felon with no professional financial industry experience. Over about 1 year, beginning in January 2018, Defendant raised at least $6.8 million from 18 investors who were told that Mr. Gity was a highly- profitable digital asset trader who had never lost money. In reality little of the investor capital was put in a trading account; a significant part of the money was transferred to Defendant’s son. The complaint violations of each subsection of Securities Act Section 17(a) and Exchange Act Section 10(b). The action is pending. See Lit. Rel. No. 2:20-cv-14342 (Sept. 29, 2020).

Financial fraud: In the Matter of Manitex International, Inc., Adm. Proc. File No. 3-20099 (Sept. 29, 2020) is a proceeding which names as a Respondent the manufacturer and distributor of heavy equipment. Beginning as early as 2014 the firm and its senior officers engaged in three schemes – COO Andrew Rooke and GM Stephen Harrison as to the first and CFO Michael Schneider as to the second. The schemes falsified the firm financial statements. In the first, the company improperly accounted for, and misled the auditors about, its inventory. Specifically, the firm created false inventory lists and shipping documents that were furnished to its auditors. There was a $1.39 million inventory short fall. In the second, Manitex improperly recognized revenue of about $12 million by using an improper bill and hold scheme. The firm undertook a series of remedial acts and cooperated with the investigation. The Order alleges violations of Securities Act Section 17(a) and Exchange Act Sections 10(b), 13(a), 13(b)(2)(A) and 13(b)(2)(B). To resolve the proceedings the firm consented to the entry of a cease and desist order based on the sections cited. It also agreed to pay a penalty of $350,000 which will be transferred to the U.S. Treasury. See also In the Matter of Andrew Rooke, Adm. Proc. File No. 3-20100 (Sept. 29, 2020)(based on same facts; settled with a cease and desist order based on the same sections as above, the denial of his privilege to appear before the Commission as an accountant; a bar from serving as an officer or director; and payment of a penalty of $80,000 that goes to the U.S. Treasury); In the Matter of Stephen Harrison, Adm. Proc. File No. 3-20101 (Sept. 29, 2020)(based on same facts; resolved with a cease and desist order on the same basis as the others and an officer and director bar; no penalty imposed based on cooperation; In the Matter of Michael Schneider, CPA, Adm. Proc. File No. 3-20102 (Sept. 29, 2020)(based on same facts; resolved with a cease and desist order as in the other cases; denial of privilege to appear before Commission as an accountant and an officer/director bar, with right to apply for re-entry as to each after 5 years; and payment of a penalty of $55,000 that will be transferred to the U.S. Treasury).

Offering fraud/Ponzi scheme: SEC v. Wallach, Civil Action No. 3:20-cv-06756 (Sept. 29, 2020) involved a Ponzi scheme operated by defendant Lewis Wallach, the former president of Professional Financial Investors, Inc. The firm was supposedly a real estate investment

management firm based in California. Over $26 million was raised from investors as part of a larger scheme operated by the now deceased founder of the firm. Misrepresentations were made about the finances of the firm and its resources. Mr. Wallach misappropriated the funds and diverted them to his personal use. The complaint alleges violations of each subsection of Securities Act Section 17(a) and Exchange Act Section 10(b). The case is pending.

Part II of this article will be published tomorrow

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