by T. GormanPosted on Posted in SECActions

This has been the week of settlements for the Commission. Since the 4th of July holiday, the agency has not filed a new enforcement action as either a civil injunctive action or an administrative proceeding. The agency has filed two settled actions this week of previously filed actions and secured a default in another case. Below are the two settled actions

Offering fraud: SEC v. Iakovou, Civil Action No. 4:22-cv-00194 (MD Ga.) is a previously filed action which named as defendants George Iakovou, Vika Ventures, LLC and Penelope Zbravos. Defendants George Iakovou and Penelope Zbravos are from New York. They control Vika Ventures. The complaint claimed that over a three-year period, beginning in 2019, the two individual defendants, who are dating, and their company conducted an offering fraud centered on the sale of what were supposed to be pre-IPO shares. Investors were solicited using claims that the shares in the offering were of firms that were about to go public. Elaborate documents were created for review by potential buyer about the opportunity. In fact, there was no opportunity because Defendants never had any shares, just a fictitious story spun by two individual defendants who supposedly had over $80 million in assets under management. Investors entrusted Defendants with over $6 million dollars. The only actual investments made, unfortunately, were in the lifestyles of Mr. Iakovou and Ms. Zbravos. The complaint alleged violations of Securities Act Section 17(a) and Exchange Act Section 10(b). Previously, the court entered a final judgment against Mr. Iakovou. He also resolved parallel criminal charges in January 2024. In that case he pleaded guilty to one count of conspiracy to commit wire fraud and was sentenced to 97 months in prison followed by three years of supervised release. Defendant Iakovou was also ordered to pay restitution of more than $5,958,505 and entered into a pretrial diversion agreement. The firm was ordered to pay a penalty of $8,929,120. Finally, although the Commission alleged that initially Ms. Zbravos did not know about the fraud, there were sufficient red flags over time that she must have learned about it. She consented to the entry of a permanent injunction based on the Securities Act Section 17(a)(3). The final judgement imposes disgorgement and prejudgment interest of $1,843,472.09. See Lit. Rel. No. 26048 (July 9, 2024).

Misrepresentations: SEC v. Amah, Civil Action No. 7:21-cv-06694 (S.D.N.Y) is an action which named as defendant, Evarist C. Amah, an investment adviser. The complaint alleged that Defendant ran a years-long scheme centered on providing clients with false information about his performance as an investment adviser. In September 2023, the court granted the Commission’s motion for summary judgment, concluding that Defendant was liable for fraudulently soliciting investments using positive projections while failing to disclose the losses. A final judgement was entered this week. It enjoins future violations of Securities Act Section 17(a), Exchange Act Section 10(b) and Advisers Act Sections 206(1), 206(2) and 206(4)-8. The court also orderd the payment of disgorgement in the amount of $10,000, prejudgment interest of $1,617.82 and a civil penalty of $669,6667. See Lit. Rel. No. 26047 (July 8, 2024).

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by T. GormanPosted on Posted in SECActions

Insider trading has long been a key component of the Commission’s enforcement program. Yet over the years the exact theory being employed has varied. Nevertheless, the core theory has remained constant – using inside information for personal benefit in connection with the purchase and sale of a security is prohibited. When, however, all the basic elements are admitted, standard criminal remedies are imposed in the parallel case, what should the SEC demand for remedies. Stated differently, what remains as remedies in an SEC civil enforcement action? This was the issue in SEC v. Levoff, Civil Action No. 2:19-cv-054536 (D. N.J. July 2, 2024).

Gene Daniel Levoff is a lawyer and the Director of Corporate Law from 2008 to 2013 and later the Senior Director of Corporate Law at a large, well-known Company. He also served on Company Disclosure Committee from 2008 through 2018 and at one point served as Chair. This position gave him access to inside information about Company.

Over a five-year period, beginning in 2015 Mr. Levoff engaged in insider trading, using information obtained from Company to trade in its shares. Through a series of six trades Mr. Levoff had profits of, or avoided losses, which yielded him $382,480. At the time he had a net worth of over $30 million.

In 2023 Mr. Levoff’s insider trading scheme ended. He was charged by the U.S. Attorney’s Office with insider trading. He pleaded guilty in December 2023. The Court sentenced him to four years of probation, 2,000 hours of community service and ordered that he pay a fine of $30,000 and forfeit $604,000. Mr. Levoff had a mental disorder which did not erase his liability. Mr. Levoff described his disorder as “self-sabotage.” While Defendant was wealthy, he did not live a lavish life-style.

The Commission moved for summary judgement in its case following the resolution of the criminal action. Its motion was based on the guilty plea in the criminal case. Mr. Levoff also moved for summary judgment. The ultimate question for resolution, however, was not guilt or innocence but the amount of the penalty. Frequently, in cases such as this the Commission agrees that monetary remedies are satisfied by those paid in the parallel criminal case.

Not here. The key question in this case became the amount of the penalty. The agency wanted three times the profits made/losses avoided or $1,147,440. The Court considered the standard factors – the egregiousness of the violations, the isolated or recurrent nature of them, the degree of scienter and the individual’s net worth. While the Court cited Mr. Levoff’s “mental disorders,” those were not determinative.

Ultimately the Court issued a written opinion which seemed to focus on the high degree of scienter. While Mr. Levoff did have a mental disorder and made little money from the trades, he also served on the committee at the Company that “ensured compliance with securities laws and applicable trading restrictions,” the Court wrote. No credit from the criminal case offset the remedies ordered in the civil case. Mr. Levoff was ordered to pay a penalty of $1,147,440.

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