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This Week In Securities Litigation (Week of June 23, 2025)

by T. GormanPosted on June 23, 2025 Posted in SECActions

This Week In Securities Litigation (Week of June 23, 2025)

Last week the Commission filed 3 new enforcement actions. The agency also dismissed three other enforcement actions. As with earlier dismissals, the Commission offered no explanation for its actions.

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.

Microcap fraud: SEC v. Sripetch, Civil Action No. 3:20-cv-01864 (S.D. Cal.) is a settledment based on a series of microcap fraud actions and stock manipulation. Ongkaruck Sripetch and six others were named as defendants: Amande Flores; Brehnen Kinght; Andrew McAloine; Ashmit Patel; Onkaruck Sripeth; Michael Wexter; and Dominic Williams. The judgments entered are against:

Ms. Flores based on Securities Act Sections 5(a), 5(c), and 17(a)(1) & (3) and Exchange Act Sections 10(b) and Rule 10b-5; a penny stock bar and a penalty of $185,000;

Dominic Williams based on Securities Act Sections 5(a) and 5(c) and a penny stock bar and a penalty of $18,750;

Sripetch based on Securities Act Sections 5 & 17(a) and Exchange Act Sections 9(a)(1) a permanent penny stock bar; he is required to pay disgorgement of $2,251,923.16 and prejudgment interest of $1,051,353.77. Defendant has appealed the disgorgement order;

”Ashmit Patel based on Exchange Act Section 17(a) and Exchange Act Rule 10(b) and Rule 10b-5; the order requires the payment of $918,827.41 and disgorgement of $399,824;

ATG, Inc. based on the same Sections as in Petal and the payment of $12,317.69 in disgorgement and $3,409.07 based on Securities Act Section 17(a) and Exchange Act Section 10(b);

Michael Wexler based on Securities Act Sections 17(a) and Exchange Act Section 10(b) and Rule 10b – 5; it imposed an officer and director bar and penny stock bar along with the payment of disgorgement in the amount of $190,269.25 and prejudgment interest of $74,797.80; and

Knight based on Securities Act Sections 5(a), 5(c) 17(a)(1) and 17(a)(3); and imposing an obligation to pay disgorgement in the amount of $385,890.02 and payment of prejudgment interest of $59,693.55.

Charges as to eight others were dismissed. See Lit. Rel. No. 26332 (June 20, 2025).

Penny stock fraud scheme: SEC v. Ballout, Civil Action No. 924-81170 (S.D. Fla.). The court entered final judgments as to three individuals — Benjamin Ballout, William Fielding and Mohamed Zayed. The complaint alleged that Defendant Bailout inflated Enerkon’s stock prices. This was done through the distribution of false publicity. With the assistance of Defendant Ballout, Defendants Fielding and Zayed profited through the conversion of a bogus promissory note sold to a third party at an inflated price. Subsequently, the court granted summary judgment as to all claims against Defendants Ballout and Zayed. The Court entered orders as to Defendants Ballout and Zayed directing each to pay a civil penalty of $460,928. Defendant Zayed was directed to pay disgorgement of $96,000. The court also imposed a penny stock bar on each Defendant and an order as to Defendant Ballout, precluding him from serving as an officer or a director of a public company. See Lit. Rel. No. 26331 (June 20, 2025).

Dismissal of three cases: The Commission entered into agreements with the Defendants in each of the following cases to dismiss the cases: SEC v. Fife, Civil Action No. 1:20-cv-05227 (N.D. Ill.); SEC v. Auctus Fund Management LLC, Case No. 1:23-cv-11233 (D. Mass); and SEC v. Keramer, Civil Action No. 1:24-cv-03498 (S.D.N.Y.). There was no discussion regarding the merits of the case. There was no explanation of the reason for the dismissals. See Lit. Rel.26330 (June 18, 2025).

I

Custody rule: SEC v. Bright Advisors USA, Inc., Civil Action No. 26329 (S.D.N.Y.). Defendant Bright Advisers USA, Inc. is an investment adviser that advises on nearly $400 million of client assets maintained by Bright Advisors Pty. The advisor is an Australian financial services firm under common control with Bright USA. In 2019, Bright USA failed to comply with the custody rule requirement. Under that rule the adviser must confirm that the client assets are maintained. The purpose of the confirmation is to aid in safeguarding client funds and securities maintained by Bright Australia. The required confirmation was not obtained. During the same period Bright USA is alleged to have failed to disclose a material conflict regarding use of client assets. Specifically, Bright USA breached its fiduciary duties to its clients by failing to fully disclose conflicts of interest and risks to client assets resulting from Brite Australia’s borrowing of millions of dollars and using Bright USA’s client assets as collateral to provide operational funding for Bright USA and other related companies. The Commission filed an enforcement action alleging violations of Advisers Act Section 206(2) and Rule 206(4). To resolve the matter Bright USA consented to the entry of a final judgment that permanently enjoining the firm from violating the cited Section and Rules. A conduct based injunction was also imposed. See Lit. Rel. No. 26329 (June 17, 2025).

SEC v. Scalise, Civil Action No. 2:25-cv-03088 (E.D. Pa. Filed June 17, 2025). Named as defendants in this action are: Peter Scalise III and The3rdBevco Inc. Mr. Scalise is the founder and largest shareholder of the company. He is also the CEO, President, Principal Accounting Financial Officer and sole member of the board of directors. The company, founded in October 2019, has had one employee during most of its existence – Mr. Scalise. The firm does not have any securities registered under the Exchange Act. Over a five-year period, beginning in 2019, Mr. Scalise and The3dBevco have brought in about $3.6 million. Investors were told that the firm was in the beverage business. Key to the business was Individual 1, a person who would potentially collaborate on a claimed rum alcohol product. Individual 1 supposedly had a famous name, an image, a trademark and music that would be important to building the beverage business, potential investors were told. Those investors were also told that Individual 1 was a “Global Superstar and Music Icon.” It was Individual 1 who apparently facilitated raising about $3.6 million for the firm. Negotiations were supposedly underway with Individual 1’s brother for a deal. Defendants were able to raise funds by selling unregistered securities in the firm. At the same time, after five years of work and marketing beverages, it was the investor funds that kept the company going. The company and its investors had little to show for their investment. Much of the investor funds were actually transferred to family member bank accounts while payments for the benefit of company went largely to Mr. Scalise who took far more out of the firm than his share. Indeed, he misappropriated substantial portions of the investor funds to pay for a variety of expenses. While the offing of shares was supposedly under Reg A, its limitations were not followed. The complaint alleges violations of Securities Act Sections 5(a), 5(c) and 17(a) and Exchange Act Section 10(b) and Rule 10b-5. Defendants resolved the matter. Under the terms of the settlement, each Defendant was permanently enjoined based on the Sections cited in the complaint. In addition, each will pay, on a joint and several basis, disgorgement of $856,461 plus prejudgment interest of $34,677. In addition, Mr. Scalise will pay a penalty of $236,451. He is also prohibited from participating in the offer or sale of securities except for his personal account. An officer/director bar and a penny stock bar were also imposed. The judgments have not been approved by the court. See Lit. Rel. No. 26328 (June 17, 2025).

Misappropriation: SEC v. El Capitan Advisors, Inc., Case No. 2:25-cv-05066 (C.D.Ca. Filed June 4, 2025) names as defendants El Capitan Advisors, Inc., a Commission registered investment adviser based in Santa Barabara, California; and drew Daniel Nash, the CEO of the firm and its majority owner. This case centers on the misappropriation of $15.3 million in advisory client funds. In June 2021 the firm entered into an agreement with Client A to provide cash management services. Rather than manage the funds, between June 2022 and March 2023, Defendant Nash transferred over $15 million of the client funds to accounts. About $4.6 million of the client’s funds were used to purchase Defendant Nash a home. Subsequently, Defendants opened new accounts for the benefit of the client at two financial institutions. Following client approval about $8 million was transferred into a well-known federal money market fund. The client was furnished with account statement – they were fabricated. Overall, during the period Defendants misappropriated about $15.3 million dollars. The transactions were concealed through the use of false statements and filings. The complaint alleges violations of Advisers Act Sections 206(1), 206(2) and 207. Defendants settled the matter, consenting to the entry of permanent injunctions based on the Sections cited in the complaint. In addition, Defendant Nash agreed to pay disgorgement of $4.6 million plus prejudgment interest of $791,153.48 and prejudgment interest of $1,840,291.82 and a penalty of $3,456,942. See Lit. Rel. 26327 (June 17, 2025).

Australia

Remarks: ASIC Chair Joe Longo delivered remarks on June 10, 2025. He addressed the future direction of public and private remarks.

ESMA

Report: The European regulator published the Final Report on the active account requirement sunder EMIR, June 19, 2025.

Singapore

Nominations: The Monetary Authority of Singapore and the Singapore FinTech Festival invited nominations for the 2025 Singapore FinTech Festival Excellence Awards.

Adviser Settles Action Based on Custody Rule Violations and Conflicts

by T. GormanPosted on June 19, 2025 Posted in SECActions

Investment advisers are heavily regulated professions. Their actions, when using investor money or assets, are covered by a number of regulations. For example, if the adviser has custody of client securities, the custody rule imposes requirements which include an obligation that the adviser periodically obtain confirmation from an independent party that the assets are under the adviser’s control or that there be an audit.

In other instances, the adviser’s fiduciary duties impose certain disclosure obligations. For example, where there is a material conflict, disclosure must be made. The point of each obligation is the same – to protect the property of the investor. Each of these obligations converged recently to become the predicate for an enforcement action, SEC v. Bright Advisors USA, Inc., Civil Action No. 26329 (S.D.N.Y.).

Defendant Bright Advisers USA, Inc. is an investment adviser that advises on nearly $400 million of client assets maintained by Bright Advisors Pty. The advisor is an Australian financial services firm under common control with Bright USA.

In 2019, Bright USA failed to comply with the custody rule requirement. Under that rule the adviser is required to obtain confirmation that the client assets are maintained. The purpose of the confirmation is to aid in safeguarding client funds and securities maintained by Bright Australia. The required confirmation was not obtained.

During the same period Bright USA is alleged to have failed to disclose a material conflict regarding use of client assets. Specifically, Bright USA breached its fiduciary duties to its clients by failing to fully disclose conflicts of interest and risks to client assets resulting from Brite Australia’s borrowing of millions of dollars using Bright USA’s client assets as collateral to provide operational funding for Bright USA and other related companies.

The Commission filed an enforcement action alleging violations of Advisers Act Section 206(2) and Rule 206(4). To resolve the matter Bright USA consented to the entry of a final judgment that permanently from violating the cited Section and Rules. A conduct based injunction was also imposed. See Lit. Rel. No. 26329 (June 17, 2025).

Tagged with: investment advisers, SEC

This Week In Securities Litigation (Week of June 23, 2025)

Adviser Settles Action Based on Custody Rule Violations and Conflicts

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