by T. GormanPosted on Posted in SECActions

Last week the Commission filed four new enforcement actions. They were centered on Reg. BI, insider trading, a note scheme and an accounting fraud.

Be careful, be safe this week

SEC

SEC Enforcement – Filed and Settled Actions

Statistics: Last week the Commission filed 1 new civil injunctive action and 3 new administrative proceedings, excluding tag-along actions and those that present a conflict for the author.

Best interest: In the Matter of Lion Street Financial, LLC, Adm. Proc. File No. 3-22323 (Nov. 15, 2024) is an action which names as Respondent the registered broker-dealer. The Order alleges that between the effective date of Regulation Best Interest on June 30, 2020 and April 2021, Respondent made recommendations that clients purchase corporate securities known as “L Bonds.” Those instruments are high risk securities which were only suitable for sophisticated investors who could afford to lose their entire investment. Despite the high risk of the investments, the firm recommended L Bonds to clients. The Order alleges violations of Rule 1l-1(a)(1). To resolve the proceedings Respondent consented to the entry of an order precluding future violations of the Rule and imposing a censure. In addition, Respondent will pay disgorgement of $14,899.55, prejudgment interest of $3,683.32 and a penalty of $135,000.

Note selling scheme: SEC v. Money Magnet Platinum Membership Initiation LLC, Civil Action No. 22-cv-7640 (S.D.N.Y. Nov. 7, 2024) is a previously filed action that was settled as to defendant Lakenya Hopkins. Last week a final judgment was entered as to Ms. Hopkins. The Commission’s complaint alleged that Ms. Hopkins and the firm violated Securities Act Section 17(a) and Exchange Act Section 10(b) and Rule 10b-5. The alleged violations were based on the issuance of promissory notes that were issued and guaranteed investors extraordinary monthly returns for each investment. The complaint alleges there was no reasonable basis for the claims. The complaint also alleges that Defendant misappropriated a portion of the funds raised. In addition to imposing injunctions based on the Sections cited in the complaint, the final settlement executed by the court also mandates that Defendant Hopkins pay disgorgement of $262,280 plus interest of $20,056. Those obligations are satisfied by the payments made in the parallel criminal action. There, Defendant Hopkins was directed to pay restitution. Defendant was also ordered to serve a two-year prison sentence in a parallel action brought by the U.S. Attorney’s Office for the Southern District of New York. See Lit. Rel. No. 26169 (Nov. 7, 2024).

Insider trading: In the Matter of Umpathi Kakkera, Adm. Proc. File No. 3-22267 (Oct. 17, 2024) is a previously filed action. Respondent Umapathi Kakkera is employed as an information technology specialist at the New Jersey office of a Belgian manufacturer of chemicals. On November 4, 2021, Lumentum Holdings Inc. announced that it had agreed to acquire NeoPhotonics Corporation. Defendant Umapathic Kakkera traded in the shares of NeoPhotonics prior to that announcement. At the time of the trades, Defendant had inside information about the transaction. That information had been misappropriated by Amit Bhardwaj, the Chief Information Security Officer of Lumentum. Mr. Bhardwaj acquired the deal information through his work at Lumentum. During the weeks leading up to the Announcement, he tipped three friends. Those included Srinivasa Kakkera, Respondent’s brother. He tipped those individuals so they could trade in the securities prior to the deal announcement, according to the complaint. Based on the information furnished to him, Umapathi Kakkera purchased NeoPhotonics call option contracts. Following the deal announcement he had over $200,000 in profits from the trades. The Order alleges violations of Exchange Act Section 10(b) and Rule 10b-5. Respondent resolved the proceedings. The Commission deemed it appropriate to enter a cease-and-desist order based on the Section and Rule cited in the Order. In addition, Respondent was ordered to pay disgorgement of $206,077.62, prejudgment interest of $30,717.92 and a penalty of $206,077.62. Previously, the Commission settled insider trading charges against Srinivasa Kakkera and Abbas Saeedi. SEC v. Bhardwaj, Civil Action No. 1:22-cv—6277 (June 13, 2024).

Accounting fraud: In the Matter of Robert H. Turner, Adm. Proc. File No. 3-22238 (Oct. 11, 2024) is a proceeding centered on the CEO of Respondent of Pareteum Corporation, a telecommunications company. During the period from 2018 through mid-2019. During the firm materially overstated revenue by about $12 million for fiscal year 2018, or 60%, and about $30 million for the first two quarters of 2019, or 91%. The firm restated its quarterly financial results for the first half of 2019 on March 12, 2021. The incorrect revenue numbers were the result of improperly recognizing from recognizing revenue on non-binding purchase orders and prior to product shipments, contrary to GAAP. To resolve the matter Respondent Turner consented to the entry of a permanent injunction based on Securities Act Sections 17(a)(2) and (3) and Section 304 of SOX. In addition, Respondent agreed to pay a penalty of $75,000.

FinCEN

Alert: The regulator issued an alert on Fraud Schemes involving Deep Flake Media targeting financial institutions, Nov. 13, 2024 (here).

Australia

Initiative: The Australian Securities & Futures Commission announced new enforcement priorities with a focus cost of living priorities on November 14, 2024 (here).

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by T. GormanPosted on Posted in SECActions

The Commission filed only one new case last week. It focused on false statement made by an investment adviser regarding references to ESG in discussions regarding the management of funds and investments. The advisory appeared to have no standards regarding ESG.

Be careful, be safe this week

SEC

Remarks: Keith Cassidy, Acting Director, Division of Examinations, delivered remarks at the National Compliance Outreach Seminar, on November 7, 2024. His remarks were titled Compliance: Staying on Mission. The comments focused on how to strengthen compliance (here).

Remarks: Sanjay Wadhwa, Acting Director, Division of Enforcement, delivered remarks at the Securities Enforcement Forum, Washington, D.C. 2024, Nov. 6, 2024. He focused on points to evaluate when resolving enforcement investigations (here).

Remarks: Commissioner Hester M. Peirce delivered remarks titled Hobs and Hobbes: Wharton FinTech Lecture, on Nov. 1, 2024. Her remarks focused on the balance necessary when regulating the markets here.

Future events: The PLI 56th Annual Institute on Securities Regulation to be held on November 14, 2024, will feature an appearance by Commission Chair Gary Gensler..

SEC Enforcement – Filed and Settled Actions

Statistics: Last week the Commission filed no new civil injunctive actions and 1 new administrative action, excluding tag-along actions and those that present a conflict for the author.

False statement: In the Matter of Invesco Advisers, Inc., Adm. Proc. File No. 3-22306 (Nov. 8, 2024) is a proceeding which names the registered investment adviser as Respondent. The firm, based in Atlanta, Georgia, has over 37,000 clients with about $746 billion in regulatory AUM, over 37,000 clients and about $746 billion in regulatory AUM, including over 450 pooled investment vehicles that collectively hold over $580 billion. The proceeding centers on a period from April 2020 to July 2022. During that period the Order alleges that the firm made misleading statements regarding the use of the term ESG integrated in presentations to boards and others. By late 2019 Invesco believed that ESG considerations were commercially important. An internal analysis demonstrated that at least $370 billion in AMU was at risk of moving to a new advisory based on ESG integration considerations. As part of its marketing efforts the firm made claims about the percentage firmwide of AMU that was ESG integrated. The percentages used in presentations varied from 70% to 94%. The variations depended on how the tabulation was done – no comprehensive set of written policies and procedures was used to make the estimates. Indeed, the advisory did not have a comprehensive set of written policies and procedures that determined how the calculations should be done. Accordingly, the Order alleges violations of Advisers Act Sections 206(2) and 206(4) and Rules 206(4)-1 and 206(4)-7 and 206(4)-8. To resolve the proceedings Respondent cooperated with the investigation and consented to the entry of a cease-and-desist order based on the Sections and Rules cited in the order. In addition, the firm is censured and will pay a penalty of $17.5 million.

Hong Kong

Program: The Securities & Futures Commission hosted a forum to encourage responsible Reg-tech adoption for anti-money laundering and the counter-financing of terrorism, November 4, 2024 (here).

Singapore

Transcript of forum: The Monetary Authority of Singapore held a “fireside chat” involving Chia Der Jium, Managing Director, Monetary Authority of Singapore, with Ms. Manisha Tank, Broadcaster & TV Presenter, at Singapore FinTech Festival, 2024, on 7 November 2024. A transcript of the program is available here.


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