by T. GormanPosted on Posted in SECActions

Insider trading has long been a focus for the Commission’s enforcement program. It is a violation of Section 10(b) of the Exchange Act and Rule 10(b)-5 thereunder. Yet those provisions do not even mention insider trading. The violation has traditionally been viewed as a breach of duty – the insider information was entrusted to the person for the benefit of the company, not the insider. The Commission’s latest case in this area highlights the point, SEC v. Gupta, Civil Action No. 1:24-cv-12316 (D. Mass. Filed Sept. 10, 2024).

The case centers on a transaction involving two pharmaceutical firms. One is Epizme, Inc. a publicly traded Massachusetts company. The other is Ipsen Biopharmaceuticals, Inc., a public French biopharmaceutical firm which announced on June 27, 2022, that it was being acquired by Epizme. The firm’s securities were traded on NASDAQ. Ipsen, based in Paris, had about 5,000 employees in thirty countries. One of its global hubs is in Cambridge.

Mr. Gupta joined Ipsen in September 2019. He was a “Business Insight Lead.” In that role Mr. Gupta managed data analytics projects to facilitate the assessment of business strategies. In November 2021 he was promoted to Director of Data Strategy and Operations.

In January 2022 Ipsen and Epizyme first discussed the possibility of Ipsen purchasing Epizyme’s premier product, a cancer drug called Tarverik. A confidentiality agreement was executed on February 7, 2022. By early April the two firms had progressed to discussing a potential acquisition of Epizyme by Ipsen.

As the discussions between the two companies progressed, Mr. Gupta became aware of the potential deal. On March 25, 2022, he sent an email to his colleagues thanking them for bringing him into the deal. He attached a slide deck titled Ipsen US One – Capacity Planning, which related to the commercial sales model for Ipsen’s oncology business. Later he attended a meeting focused on Ipsen’s strategy for oncology acquisitions. In early April Mr. Gupta had additional conversations with an Ipsen employee related to that business. Subsequently, he continued to be involved in the conversations. On June 27, 2022 Mr. Gupta was tasked with projects regarding the transaction.

Between April 7, 2022, and June 24, 2022, Mr. Gupta purchased shares of Epizyme on 27 different days. He accumulated 325,317 shares at prices ranging from $0.43 to $1.05 per share. Following the deal announcement on June 27 the share price increased 65% from the prior day close. Mr. Gupta had profits of $250,078.27.

The complaint alleges violations of Exchange Act Section 10(b) and Rule 10(b)-5. Defendant resolved the charges, consenting to the entry of a permanent injunction based on the Section and Rule and an officer/director bar. Monetary relief will be considered at a later date. The U.S. Attorney’s Office filed parallel criminal charges. See Lit. Rel. No. 26103 (Sept. 10, 2024).

by T. GormanPosted on Posted in SECActions

This Week In Securities Litigation (Week of September 9, 2024)

The Commission filed three new actions in the first days of September. Two of those cases were offering frauds while a third focused on an unregistered investment adviser. Typically, this is the time of year when the agency files a large number of cases in anticipation of the end of the government fiscal year. If the agency plans to continue this traditional trend it should begin shortly.

Be careful, be safe this week

SEC Enforcement – Filed and Settled Actions

Statistics: This week the Commission filed 3 new civil injunctive actions and no new administrative proceedings, excluding tag-along actions and those that present a conflict for the author.

Offering fraud: SEC v. Miller, Civil Action No. 2:24-cv-00479 (S.D.W.Va. Filed September 4, 2024) is an action which names as defendants: Theodore Miller and two of his firms, Bear Industries, LLC and Bear Investment and Business Consulting, LLC. Beginning in 2022 Defendant engaged in the offer and sale of two real estate-related investment programs. Mr. Miller solicited investors through social media and various websites to take part in the offerings from Bear Industries and Bear Investments. Investors were told that Mr. Miller was a millionaire, that the investments were safe and that the funds would only be used for real estate. The claims raised about $370,000 from investors. In fact, the claims were false. Much of the investor money was diverted to Defendant. The complaint alleges violations of Securities Act Sections 5(a), 5(c) and 17(a) and Exchange Act Section 10(b) and Rule 10(b)(5). The U.S. Attorneys Office for the Southern District of West Virginia filed parallel criminal charges against Mr. Miller. See Lit. Rel. No. 26096 (September 5, 2024).

Unregistered investment adviser: SEC v. Black Dragon Capital, LLC, Civil Action No. 9:24-cv-81067 (S.D. Fla. Filed September 3, 2024) is an action which names as defendants: Louis Hernandez, Jr., and his firms, Black Dragon Capital, LLC, Black Dragon Capital Investment Management LLC and Capital Investment Management, Inc. Since 2014 Defendants have acted as investment advisers. During the period they have continuously and regularly provided management services to private fund clients. Clients paid a 2% management fee for the services. Since 2021 the funds under management had a total value of over $188,221. Despite the fact that the total value of the assets under management previously exceeded the statutory $150 million point at which registration is generally required, they did not file until recently. Defendants also failed to comply with other obligations such as filing Form PF, complying with the applicable marketing rules obligations, providing marketing information to clients and maintaining the appropriate books and records. The complaint alleges violations of Advisers Act Sections 203(a), 204, 204(a), 204A, 206(4), 204(a), 204A, 206(4)-8 and the related rules. To resolve the matter Defendants consented to the entry of permanent injunctions based on the Sections and Rules cited. Each Defendant has also agreed to pay civil penalties. See Lit. Rel. No. 26095 (September 3, 2024).

Offering fraud: SEC v. Toller Stern Financial, LLC, Civil Action No. 1:24-cv-23370 (S.D. Fla. Filed Sept. 3, 2024). Named as defendants in the action are: the company, Toller Stern Financial, LLC, which claims that it is an investment adviser; Francisco Javier Malave Hernandez, a Venezuelan citizen residing in Florida; and Richard Javier Guerra Farias, also a Venezuelan citizen residing in Florida who, during the offerings involved here, was a manager, member and key executive controlling JDVP Financial Services LLC. Beginning in April 2019, and continuing for the next several years, Defendant Malave, through JDVP Financial Services Group, LLC, and Defendant Toller Stern, marketed about $5 million in promissory notes. Most of the investors were members of the Venezuelan-American community. To market the notes Defendants used a combination of sales approaches. Those include an in-person pitch, e-mails, text messages and written marketing materials, as well as a website. Potential investors were assured that their funds would be used solely for the day-to-day operations of the company and for working capital. Potential investors were also told that their funds would be invested in notes that would pay them annual returns of 24% to 72%. The securities purchased by investors were represented to be safe — Defendants Malave and Guerra supposedly had other companies with substantial assets. Those investments and assets were claimed to have a value of more than $20 million other than the investment funds contributed by the solicited investors. In fact, the representations made to investors were false. The complaint alleges violations of Securities Act Sections 5(a), 5(c) and 17(a), Exchange Act Section 10(b) and Rule 10b-5 and Advisors Act Sections 206(1) and 206(2). Defendants Malave, Guerra and Toller Stern each resolved the action, consenting to the entry of permanent injunctions based on the Sections cited in the complaint and to the entry of an officer/director bar as to Defendants Malave and Guerra. Mr. Malave will also pay disgorgement of $558,900, prejudgment interest of $158,078 and a penalty of $200,000. Mr. Guerra will pay disgorgement of $147, 152, prejudgment interest of $29,223 and a penalty of $200,000. Defendant Toller Stern will pay disgorgement of $748,300, prejudgment interest of $211,660 and a penalty of $1 million. See Lit. Rel. No. 26094 (Sept. 3, 2024).

FinCEN

Meeting: Treasury officials assembled a group composed of public and private interests in New York City on September 5, 2024, to discuss combating Fentany (here).

Hong Kong

Remarks: Christopher Wilson delivered the Keynote speech at GIR Live Asian Pacific Investigations Summit on September 3, 2024 (here).

MAS

Announcement: The Equity Market Review Group convened its Inaugural Meeting on August 24, 2024. At the meeting it announced priorities and identified members of workstreams, according to a release issued on the date of the meeting (here).


 

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