by T. GormanPosted on Posted in SECActions

Regulation A created a limited exemption from the registration requirements of Section 5, Securities Act for those who comply with the dictates of the Regulation. Generally it requires that certain information be furnished to investors and that other requirements be met. Those seeking to use the exemption must comply with its dictates.

A good example of how the regulation works is In the Mater of Hemp Naturals, Inc., Adm. Proc. File No. 3-21430 (May 16, 2023). There the firm initially complied with the dictates of the regulation for a specific number of shares priced within a range. Ultimately, however, the issuer failed to comply with Regulation. It improperly changed the offering price and did not update its financial information as required. The firm’s offering of shares was thus found to be in violation of Section 5 of the Securities Act. The company resolved the case by consenting to the entry of a cease-and-desist order based on Section 5 and paying a penalty of $50,000.

Earlier this week the Commission concluded that nine other issuers had run afoul of one or more of the requirements for utilizing the Regulation in a fashion similar to the firm in the Hemp Naturals proceeding. Stated differently, each issuer was thus not entitled to an exemption from registration. Yet each issuer sold its shares to investors. Each issuer thereby violated Section 5 of the Securities Act.

Those named in the proceedings, in addition to Hemp Naturals, are: CW Petroleum Corporation; DNA Brands Inc.; Graystone Company, Inc., Green Stream Holdings Inc.; LiveWire Ergogonenics, Inc; Principal Solar Inc.; SFL Maven Corporation; The Marquie Group Inc.; and Verde Be Holdings Inc.

To resolve the charges each issuer consented to the entry of a cease-and-desist order based on Section 5. In addition, each issuer agreed to pay a penalty in an amount ranging from a high of $90,000 to a low of $5,000.

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by T. GormanPosted on Posted in SECActions

Crypto assets have become a key focus for the SEC in recent years. With Congress not taking any meaningful action in the area, SEC Chair Gensler added positions to the Enforcement Division to focus on the abuses taking place in the crypto space.

Last year DOJ joined the fight, forming a network of prosecutors to help clean up the area in the wake of President Biden’s March 9, 2022 Executive Order on the topic. Nevertheless, the cases keep on coming. A good example is the case filed on May 15, 2023 by the Commission in which over 700 lost at least part of their savings after being targeted to purchase Red Rock Premium Coins with their retirement funds by an outfit called Red Rock Secured.

SEC v. Redrock Secured, LLC, Civil Action No, 2:23-cv-03682 (C.D. Cal. Filed May 15, 2023) is an action which names as defendants: the firm and three of its executives, Sean Kelly, Anthony Spencer and Jeffrey Ward. Over a period of about five years, beginning in early 2017, Defendant Kelly, the CEO of the firm, and Defendants Spencer and Ward, sought to and often did, persuade investors to liquidate their retirement accounts and purchase what were called Red Rock premium coins to “protect” their retirement accounts. The Red Rock executives typically told potential investors that the markup to acquire the coins was minimal since the maximum was about 29% pf the cost of what they called premium metals. In making this sales pitch the executives claimed that the market value of the coins was substantially higher than that reported.

The claims were false. Nevertheless, at least 700 investors paid over $50 million to secure the coins, The complaint alleges violations of Exchange Act Section 10(b) and Advisers Act Sections 206(1) and 206(2). The case is in litigation, See Lit. Rel. No, 25727 (May 145, 2023).

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