With the end of the government fiscal year looming, the key question becomes the number and types of cases filed over the year. For the staff it is typically a rush to the finish to file every case available.

This year the focus may be different, however. Significant issues such as payment for order flow, crypto, and the adoption of new environmental disclosure standards are key. While there has been a significant amount of discussion regarding these and other topics such as those mentioned in Chair Gensler’s recent Congressional testimony, little is actually known about the positions the agency may adopt. That of course creates uncertainty. It may well be some time before there is a resolution of that uncertainty.

Be careful, be safe this week

SEC

Whistleblower: The Commission awarded about $36 million to a whistleblower who contributed to the success of an enforcement action, according to a September 24, 2021 release.

SEC Enforcement – Filed and Settled Actions

Last week the Commission filed 15 civil injunctive actions and 3 administrative proceedings, exclusive of tag-along and other similar proceedings.

Fraudulent securitization: SEC v. Collins, Civil Action No. 21-cv-5040 (N.D. Ill. Filed September 23, 2021) is an action which names as defendants James Collins and Robert Dimeo. Defendant Collins worked for Honor Finance LLC, a subprime auto loans firm. Over a period of about two years defendants defrauded investors in the Honor Automobile Trust Securitization 2016-1 or HATS. The firm sold interests in securitized subprime auto loans. During the period Defendants repeatedly took in loans that were extremely poor quality and then improperly extended the due dates. They also covered up these actions. Within a relatively short period after selling the interests in the pool, the underlying loans defaulted. The complaint alleges violations of Securities Act Section 17(a) and Exchange Act Section 10(b). The case is pending. See Lit. Rel. No. 25219 (September 23, 2021).

Municipal advisers: SEC v. Choice Advisors, LLC, Civil Action No. 21-cv-1669 (SD.CA. Filed September 23, 2021) is an action which names as defendants the Advisory, a registered municipal advisor, and Matthias O’Meara, its founder. In 2018, prior to registering with the Commission and the Municipal Rule Securities Rulemaking Board, the Advisor and Ms. Permenter acted on behalf of four schools that were not informed that neither adviser was properly registered. Indeed, Defendants had been advised by counsel not to act as advisers prior to registration. In addition, Defendants impermissibly split fees with an underwriter of bond issues for the schools and also acted as underwriters. The complaint alleges violations of Exchange Act Section 15B(a)(5), 15B(c)(1), 15B(a)(1)B) and MSRB Rules A-12, G-17 and G-42. The case is pending. See also In the Matter of Paula Permenter, Adm. Proc. File No. 3-20593 (September 23, 2021)(proceeding against Advisory co-founder based on above; resolved with consent to cease-and-desist order based on Exchange Act Sections 15B(a)(1) and 15B(c)(1), a censure and the payment of a $26,000 penalty. See Lit. Rel. No. 25220 (September 23, 2021).

Microcap fraud: SEC v. Page, Civil Action No. 1:21-cv-05292 (E.D.N.Y. Filed September 23, 2021) is an action which names as defendants: Timothy Page, Trevor Page, Ticino Capital Ltd, Wellesley Holdings Ltd., Porerima Ltd., Emergent Investment Company, and FJ Investments International. Over a three-year period beginning in 2016 Defendant Timothy Page and his son Trevor, acting as nominees for the defendant entities, engaged in boiler room operations to sell the shares of the entities. When that approach began to wane, they retained the services of a person believed to be a broker who would, for a kickback, put the shares in brokerage accounts to sell. The broker turned out to be an undercover FBI agent. The complaint alleges violations of Securities Act Sections 5(a), 5(c), 17(a)(1) and 17(a)(3) and Exchange Act Sections 9(a)(2) and 10(b). The action is pending. See also SEC v. Cattlin, Civil Action No. 1:21-cv-05294 (E.D.N.Y. Filed September 23, 2021)(Action against Daniel Cattlin and William Shupe who participated in the manipulation alleged above; alleges violations of Securities Act Sections 17(a)(1) and (2), Exchange Act Section 10(b) and aiding and abetting; case is pending).

Front running: SEC v. Polevikov, Civil Action No. 1:21-cv-07925 (S.D.N.Y. Filed September 23, 2021) is an action which names as defendant Sergei Polevikov, an employee of two advisory firms. Defendant repeatedly obtained information from the firms he worked for and then placed trades in advance of those positions, a practice known as front-running. He did this by placing the trades in the accounts of his wife on 3,000 occasions. The complaint alleges violations of Securities Act Section 17(a), Exchange Act Section 10(b) and Investment Company Act Section 17j. The case is pending.

Advisor fraud: SEC v. Shillin, Civil Action No. 21-cv-601 (D. Wis. Filed September 23, 2021) is an action which names as a defendant Michael Shillin, an investment adviser who had his primary business at Shillin Wealth Management LLC. Over a period of about one year Mr. Shillin repeatedly lied to his clients, deceiving them so he could misappropriate their money. In one instance, for example, he told a client he had health insurance. When the client became ill it turned out there was no insurance. In another instance a client retired on learning he had an investment of $450,000 in Space X stock. In fact, there was no stock. The complaint alleges violations of Securities Act Section 17(a), Exchange Act Section 10(b) and Advisers Act Sections 206(1) and 206(2). The case is pending. See Lit. Rel. No. 25218 (September 23, 2023).

Micro cap offering fraud: SEC v. Biogenic, Inc., Civil Action No. 5:21-cv-12236 (E.D. Mich. Filed September 23, 2021) is an action which names as defendants the firm, Julie Youssef, Gary Youssef, Susan Cargnino, Zach Carngino and several entities affiliated with the individuals as defendants. The complaint alleges that over a four-year period, beginning in June 2021, defendants raised about $7 million from 55 investors who believed they were acquiring an interest in a medical testing device that would provide each investor with $250 of “passive income” every time it was used in a doctor’s office. The devices, in fact were largely worthless and little used. The complaint alleges violations of Securities Act Sections 5(a), 5(c) and each subsection of 17(a) and Exchange Act Section 10(b) and 20(a). The case is pending. See Lit. Rel. No. 25217 (September 23, 2021).

Offering scheme: SEC v. Simeon, Civil Action No. 1:21-cv-05266 (E.D.N.Y. Filed September 22, 2021) is an action which names as defendants Frantz Simeon and his firm, First Black Enterprises, Inc. Mr. Simeon began soliciting investments for his firm in 2019. Potential investors were led to believe that he was a successful businessman and that his firm was also a success. In fact, both claims were false – the operation was a Ponzi scheme. Yet about $335,000 was raised from 13 investors who were largely from the Haitian-American community in the New York City area. The complaint alleges violations Securities Act Section 17(a) and Exchange Act Section 10(b). The case is pending. See Lit. Rel. No. 254216 (September 23, 2021). The U.S. Attorney’s Office for the Eastern District of New York filed a parallel criminal action.

Offering fraud: SEC v. Back to Green Mining, LLC, Civil Action No. 3:21-cv-1455 (D. PR September 21, 2021) is an action which names as defendants: the company which executed a local regulatory consent decree not to sell securities in 2019; Jose Jimenez Cruz, president, CEO and managing member of Back to Green; and Manuel Portalatin, a founder of Back to Green. Over a four-year period, beginning in 2016, the firm and Mr. Portalatin solicited investors to purchase shares in Back to Green that were not registered. In 2016 and 2017 the company and Mr. Jimenez solicited investors to acquire interests in their profit-sharing venture through a series of false advertisements. While investors were assured of profits, in fact the mining venture did not even have the required permits to operate – the information given potential investors about the operations was false. The complaint alleges violations of Securities Act Sections 5(a), 5(c) and 17(a) and Exchange Act Section 10(b). Mr. Portalatin settled with the Commission, consenting to the entry of permanent injunctions based on the Sections cited in the complaint and agreeing to pay disgorgement in the amount of $605,462, prejudgment interest of $64,312.25 and a penalty of $160,000. See Lit. Rel. No. 25214 (September 21, 2021).

Insider trading: SEC v. Nall, Civil Action No. 2:19-cv-00702 (S.D.Ala.) is a previously filed action in which Mr. Nall is alleged to have illegally tipped four individuals who traded and settled with the Commission. Now Mr. Nall has settled, consenting to the entry of a permanent injunction based on Exchange Act Section 10(b). He also agreed to pay a penalty of $220,625.82 and to the entry of an officer/director bar. See Lit. Rel. No. 25213 (September 21, 2021).

Fraud – bankruptcy: SEC v. Kamensky, Civil Action No. 1:20-cv-07193 (S.D.N.Y.) is a previously filed action against attorney Daniel Kamesky. Defendant served as a member on the unsecured creditors committee in the bankruptcy estate for Neiman Marcus. He used his position on the committee to benefit a portfolio he managed at the expense of the other unsecured creditors. Mr. Kamesky sought to purchase securities being distributed as part of the proceedings. He coerced a competing bidder into withdrawing its bid which was higher than the one he placed for the portfolio he represented. When his actions were discovered, the attorney attempted to cover them up. Mr. Kamensky pleaded guilty to criminal charges in a parallel action and was sentenced to six months imprisonment, six months of supervised release and ordered to pay a $55,000 criminal fine. In this action he consented to the entry of a permanent injunction based on Securities Act Section 17(a). In a separate action he was barred from appearing or practicing before the Commission. The Commission has, in addition, instituted proceedings against Mr. Kamensky to determine what other remedial sanctions may be appropriate. See Lit. Rel. No. 25212 (September 21, 2021).

Offering fraud: SEC v. Shumake, Civil Action No. 2:21-cv-12193 (E.D. Mich. Filed September 20, 2021). Named as defendants in the action are: Truecrowd, Inc. dba Fundanna, a Commission registered portal, based in Chicago which hosted crowdfunding offerings for Transatlantic Real Estate and 420 Real Estate — a real estate entities that focused on hemp properties; Vincent Petrescu, a CPA and the founder and CEO of Truecrowd; Robert Shumake, a convicted felon who violated the terms of his probation by participating in this venture; Willard Jackson; and Nicole Birch, an attorney. Mr. Shumake was the moving force behind the two Truecrowd offerings on which this case is based. Transatlantic and 420 Real Estate raised funds through the offering portal. Defendant Petrescu was responsible for selecting which issuers could use the platform to conduct offerings. Accordingly, under the applicable regulations he served as the gatekeeper for the offerings. Defendants Shumake, Birch and Jackson sold the securities of the entity defendants through the portal. Defendants Shumake and Birch sold shares of Transatlantic from September 2018 through May 2019. Defendants Shumaker and Jackson sold the securities of 420 Real Estate through the portal from May 2019 through June 2020. Investors for each of the offerings were assured that the investments would provide substantial profits tied to the cannabis industry. The profits would flow from acquiring real estate and leasing it to firms engaged in the cannabis industry. Unfortunately for investors, the sale pitch was false. Mr. Shumake’s criminal record was not disclosed. While the funds were supposed to be dedicated to acquiring real estate to lease to the cannabis industry, the claim was not true. Rather, much of the investor money was diverted to the personal use of Defendants. The complaint alleges violations of Securities Act Sections 4A(a)(5), 5(a), 5(c) and 17(a) and Exchange Act Section 10(b). The case is pending.

Offering fraud: SEC v. Jaitley, Civil Action No. 1:21-cv-00832 (W.D. Tx. Filed September 20, 2021) is an action which names as defendants Leena Jaitley, d/b/a Managed Options Trading, and Options by Pros. Beginning in 2018 Defendant began doing business as OptionsbyPros and Managed Option Trading, two websites she created. The sites appeared to be profitable options trading venues. To convince investors to use the sites, Defendants claimed to have a unique, proprietary trading system that generated profits over a long period. In fact, the claims were not true. There was no unique system and no long track record. While initially some trading was profitable. In the end, much of the investor funds were lost, approximately $808,000. The complaint alleges violations of Securities Act Section 17(a), Exchange Act Section 10(b), and Advisers Act Sections 206(1) and 206(2). The case is pending. See Lit. Rel. No. 25211 (September 20, 2021).

Muni bonds: In the Matter of Kenneth G. Bredrich, Adm. Proc. File No. 3-20569 (September 17, 2021) is an action which named as a respondent the registered representative. He was employed at Major Broker. The internal procedures of Major Broker required that municipal bond sales be prioritized to allocate bonds per a standard methodology that prioritized customers and dealers over flipper absent different instructions from the issuers. Over a four-year period beginning in 2014, however, the firm, in a number of instances, failed to follow the procedures. Indeed, at times Major Broker used the flippers to circumvent issuer priorities. As a result, the Order alleges violations of Exchange Act Section 15B(c)(1). To resolve the proceedings, Respondent consented to the entry of a cease-and-desist order based on the Section cited in the Order and to a censure. In addition, Respondent shall not act in the securities business or negotiate the purchase and sale of municipal bonds for a period of six months. He will also pay a penalty of $30,000. See also In the Matter of Jaime I. Durando, Adm. Proc. File No. 93044 (September 17, 2021)(Respondent is also employed by Major Broker and engaged in essentially the same conduct cited above; resolved with a cease-and-order based on the same Section and the payment of a $25,000 civil penalty).

Insider trading: SEC v. Mallu, Civil Action No. 2:21-cv-1251 (W.D. PA. Filed September 17, 2021). Defendant Dayakar Mallu previously worked at Mylan N.V. for a number of years. After resigning he was told by a long time friend at the company about the firm’s financial results, an acquisition and two drug application approvals by USDA in advance of each event. Following the communications, he traded in each instance in the firm’s securities. He had profits of $7,348,207 and avoided losses of $703,337. He shared a portion of the profits with his friend. The complaint alleges violations of Exchange Act Section 10(b). The U.S. Department of Justice Fraud Section announced a parallel criminal action. The case is pending.

Muni bonds: SEC v. Michel, Civil Action No. 21CV1623 (S.D. CA. Filed September 16, 2021) is an action which names as defendant Karen Michel, the former CFO of Sweetwater Union High School District. The case is based on a fraudulent bond offering. It is discussed in detail here. See Lit. Rel. No. 25251 (September 22, 2012).

FCPA

In the Matter of WPP Plc, Adm. Proc. File No. 3-20595 (Sept 24, 2021) is a proceeding which charges the Jersey multinational marketing communications firm, headquartered in London and NYC, with violations of the FCPA. The Order centers on anti-bribery, books and records and control violations centered regarding a majority owned India subsidiary. Beginning in 2015, and continuing for two years, bribes were paid to Indian officials to obtain and retain business. The payment of about $1million in bribes resulted in obtaining approximately $5 million in business over the time period. In addition, the firm’s China subsidiary made unjustified payments to a vendor to effect certain tax savings, a subsidiary in Brazil made improper payments in connection with certain government contracts, and the Peruvian subsidiary channeled funds through other firm entities to disguise the source of funding for a Peruvian political campaign. The Order alleges violations of Exchange Act Sections 30A, 13(b)(2)(A) and 13(b)(2)(B). To resolve the proceedings Respondent consented to the entry of a cease-and-desist order based on the Sections cited in the Order. In addition, Respondent will pay disgorgement in the amount of $10,114,424.86, prejudgment interest of $1,110,234.68 and a penalty of $8 million. The firm also undertook remedial acts and cooperated with the investigation.

Singapore

Report: The Monetary Authority of Singapore published a report updating the latest consumer price developments in Singapore for August 2021, on September 23, 2021 (here).

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Municipal bonds are an important area in which few cases are typically filed. Frequently, when a case is filed it focuses on the financial information included in an offering which is at times not updated as required. Another key area, however, involves “flippers,” that is, those who improperly obtain bonds in an offering not for an investment but to sell to others. Offering procedures for municipal bonds typically prioritize investors over flippers. Yet there are increasing numbers of cases where the offering procedures are thwarted. This week the Commission brought another case based on flippers.

In the Matter of Kenneth G. Bredrich, Adm. Proc. File No. 3-20569 (September 17, 2021) is an action which named as a respondent the registered representative. He was employed at Major Broker. The internal procedures of Major Broker required that municipal bond sales be prioritized to allocate bonds per a standard methodology that prioritized customers and dealers over flipper absent different instructions from issuers. Over a four-year period beginning in 2014, however, the firm in a number of instances failed to follow the procedures. Indeed, at times Major Broker used the flippers to circumvent issuer priorities. As a result, the Order alleges violations of Exchange Act Section 15B(c)(1). To resolve the proceedings, Respondent consented to the entry of a cease-and-desist order based on the Section cited in the Order and to a censure. In addition, Respondent shall not act in the securities business or negotiate the purchase and sale of municipal bonds for a period of six months. He will also pay a penalty of $30,000. See also In the Matter of Jaime I. Durando, Adm. Proc. File No. 93044 (September 17, 2021)(Respondent is also employed by Major Broker and engaged in essentially the same conduct as above; resolved with a cease-and-order based on the same Section and the payment of a $25,000 civil penalty).

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