by T. GormanPosted on Posted in SECActions

 

One of the key things many investors want to determine when trading is the risk of loss. This may be of particular concern when adopting a new trading strategy or one which carries outsized risk.  There is always risk with any venture;  an outsized risk however can and often, but not always,  deter investors – but not if it is concealed. In the Commission’s most recent case in this area there was huge  risk in limited circumstances but it was not disclosed.  The result – no plan for the risk and a huge loss. SEC v. Caine, Case No. 21-cv02858 (N. D. Ill.).

 

Named as defendants in the action are Anthony Caine, Anish Parvataneni, LJM Funds Management, LTD and Lim Partners, LTD.  Defendant Anthony Cane is the owner, founder and Chairman of LJM Management Ltd. and LJM Partners. Ltd. (collectively the entities are referred to LJMFM).

Defendant Caine and others employed an option trading strategy for LJM Preservation & Growth Fund and several other private funds during  a two-year period.  Defendants told investors who were concerned about the risk that the “worst case” daily losses they should expect from the trading approach being used was a “consistent risk” profile. Investors were also told that the strategy had been tested.

In fact, Defendants’ investment strategy was known as a “short volatility strategy.”  It generated income by using margin to sell out-of-the-money options on S&P futures contracts.  The strategy supposedly carried risk that was remote but extreme.

Defendants reassured the investors about the risks of the strategy.  What the investors were not told was that nearly every trading day from late 2016 through early 2018 the historical scenarios stress tested showed loss exposure approaching or exceeding 100% of the funds’ value. Investors were also not told that the strategy employed permitted the assets under management to increase in value significantly and generate large payments to the traders but that there were other huge risks. In February 2018, when there was a large spike in the market volatility, the Funds suffered over $1 billion in trading losses. The complaint alleges violations of Securities Act Section 17(a), Exchange Act Section 10(b) and Rule 10b-5, Advisers Act Sections 206(1), 206(2) and 206(4) and  Investment Advisers Act and Investment Company Act Sections 34(b) Investment Advisers Act Sections 15(c).

Defendants settled the action.  All Defendants were enjoined under the provisions of the Securities Act and the Exchange Act cited in the complaint. Defendants Caine, LJMF and Parvataneni were also enjoined from future violations of Investment Company Act Section 15(c) and Section 206(4) of the Advisers Act and Rule 206(4)-7 thereunder.  In addition, LJMFM and Defendant Caine were directed to pay on a joint and several basis disgorgement in the amount of $1,567,713 with prejudgment interest of $637,112.  Defendant Parvataneni was directed to pay disgorgement of $512,724 with prejudgment interest of $208,368.  The final judgement also directed Defendant Cain to pay a $500,000 penalty and Parataneni to pay $200,000 as a penalty. Defendant Caine was  enjoined for 3 years and Parvataneni from 1 year from managing or advising on securities investments to any third party.  See  Lit. Rel. No. 26338 (July 1, 2025).

 

 

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by T. GormanPosted on Posted in SECActions

Last week the Commission filed three new enforcement actions.  Each centered on an offering fraud claim.

Be careful, be safe this week.

SEC Enforcement – Filed and Settled Actions

Statistics:  Last week the Commission filed 3 new civil enforcement actions and continued to settle others.

Offering fraud:  SEC v. Markan,  Civil Action No. 3:25-cv-01653 (N.D. Tx. Filed June 27, 2025) is an action which names as defendant Rajesh Markan.  He is a former representative at two different brokerage firms. Over a nine-year period, beginning in 2015,  Defendant Rajesh Markan convinced 10 clients to put money in an investment account  he called Intrinsic Value Portfolio.  The account had about $2.9 million in client funds.  The investors were told the money had to remain in the account for a period of six to twelve years. Defendant convinced the clients to put their money in the accounts and keep it there.  In fact, there was no fund – it did not exist. The complaint alleges violations of Securities Act Section 17(a) and Exchange Act Section 10(b) and Rule 10b-5. The U.S. Attorney’s Office for the Northern District of Texas filed parallel criminal charges.  Defendant pleaded guilty to those charges.  He settled with the Commission, consenting to the entry of permanent injunctions based on the Sections cited in the Order. Monetary sanctions will be assessed at a future date.  See Lit. Rel. No. 26337 (June 27, 2025).

Offering fraud:  SEC v. Alexander,  Civil Action No. 1:25-cv-00242 (D. N.H. June 26, 2025) is an action which names as defendant Robynne Alexander, a real estate developer.  Over a six-year period beginning in 2018, Defendant convinced at least 28 investors to put their money in a fund that supposedly would use the funds to enhance the operations of certain real estate projects. In fact, the representations were false – there were no investments.  As a result,  investors lost at least $3 million. The complaint alleges violations of Securities Act Section 17(a) and Exchange Act Section 10(b) and Rule 10b-5. Defendant resolved the claims, consenting to the entry of permanent injunctions and also enjoining her from engaging in activities for the purpose of buying and selling securities or serving as an officer or director of a public company.  Monetary sanctions will be resolved at a later date.  The U.S. Attorney’s Office for the District of New Hampshire filed charges and administrative charges brought. See  Lit. Rel. No. 26336 (June 26, 2025).

False statements:  SEC v. American Patriot Brands, Inc.,  Civil Action No. 2:23-cv-05379 (CD. Cal.) is a previously filed action which named as defendants: the firm, a cannabis cultivation and distribution company;  CEO Robert Y. Lee; COO Brian F. Pallas; J. Bernard Rice, a former executive; and J. Bernard Rice, a former executive at the company;  and certain APB subsidiaries. The complaint alleged that Defendants defrauded investors using a series of misrepresentations. Those concerned the firm assets, collateral for the investment fund,  financial performance of the company and the use of company funds. The complaint alleges violations of Securities Act Section 17(a) and Exchange Act Section 10(b) and Rule 10b-5.   The court granted summary judgment in favor of the Commission.  Remedies will be assessed in the future. See  Lit. Rel. No. 26335 (June 26, 2025).

Financial fraud:  SEC v. O’Donnell,  Civil Action No. 1:23-cv-08543 (S.D.N.Y.) is a previously filed action which named as defendants Edward O’Donnell and Vicor Bozzo, respectively, the former Chief Financial Officer and Former Chief Commercial Officer of telecommunications company Pareteum Corp.  Over a period of about five years defendant engaged in a fraudulent revenue recognition scheme. During the prior defendants recognized revenue based on orders that were incomplete.  Through this process they materially overstated revenue by $12 million or 60% for fiscal 2018, and $27 million or 91% for the first and second quarters of 2019. The complaint alleges violations of Securities Act Section 17(a) and Exchange Act Section 10(b) and Rule 10b-5.  In addition, Mr. O’Donnall was charged  with violations of Exchange Act Section 13(b)(5),   13(b)(2)(A) and 13(b)(2)(B) as either a primary or secondary violations. Defendants resolved the action by consenting to the entry of permanent injunctions, an officer – director bar and Disgorgement of $225,000 and $60,000, respectively, as to Defendants Bozzo and O’Donnell. Those amounts will be satisfied by payments of the forfeiture in the parrel criminal case.  There each pleaded guilty and was directed to pay forfeiture in amounts equal to those in the Commission’s action. Mr. O’Donnell was also sentenced in the criminal case to serve one year and a day in prison. See  Lit. Rel. No. 26334 (June 24, 2025).

Offering fraud:  SEC v. Mausner,  Civil Action No. 3:25-cv-01591 (S.D. Cal. Filed June 23, 2025). Named as defendants in this action are Ian O. Mausner and his firm, Evolution Lending, LLC.  Ian Mausner is a recidivist.  He was an investment adviser registered with the Commission until 2004. At that point he was named as a defendant by the agency in a fraud case, In the Matter of J.S. Oliver Capital Management, L.P., AP File No. 3-15446, Release Nos. 10100, 78098, 4431 and 32152, 2016 SEC LEXIS 2157 (June 17, 2016).  That action was settled with sanctions against Mr. Mausner. He was the principal member, manager and owner of Evolution. That firm now has no known bank accounts. Mr. Mausner was barred from the industry based on the following: Defendant Mausner implemented a scheme over a two-year period. It began in late 2020. The scheme defrauded clients out of over $400,000.  Specifically, Defendant used the Fund to defraud investors who were told that Mr. Mausner had 30 years of experience in the financial advisory and money management industry.  Investors were told the Mr. Mausner and the Fund were investment advisers who would invest their money in specific crypto asset trading.  The claims were false.  Defendants did not disclose their regulatory background. Investors were not furnished with any registration statements or other records showing that the interests being sold were in accord with Commission regulations or that either Mr. Mausner or his Fund operating in accord with Commission regulations.  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 Advisers Act Sections 206(a) and 206(2) and Rule 206(4)-8.  See  Lit. Rel. No. 26333 (June 24, 2025).

ESMA

 

Comments:   The European regulator is calling for input on ways to streamline financial transaction reporting, according to a report published on June 23, 2025.

Hong Kong

Remarks: Kelvin Wong delivered the Keynote speech at the 11th Investor Relations Awards Ceremony on June 27, 2025.

Singapore

 Consultation paper:  The paper discusses a Proposed Regulatory Approach, Regulations, Notices and Guidelines for Digital Token Service Providers issued under the Financial Services and Markets Act of 2022 (May 30, 2025).