by T. GormanPosted on Posted in SECActions

This is one of a series that analyzing trends in SEC enforcement on a quarterly basis. The series traces back to the beginning of 2020, identifying the types and numbers of cases filed to discern trends. This is Part I of a four part series analyzing trends in SEC Enforcement during the first quarter of 2024. The remaining segments will be published over the next several days.

In the first quarter of 2024 the SEC filed a total of 52 new actions. That number is close to the ones recorded for 2020 and 2021. In the first quarter of each of those years a total of 48 enforcement cases were filed. Likewise, in the first quarter of 2022, 53 new cases were filed, just one more than in 2024. In contrast, 2023 appears to have been an outlier. In the first quarter of that year the Commission filed a total of 80 new enforcement actions.

The 52 actions filed during the first quarter of 2024 were primarily administrative proceedings. During the period 20 of the cases filed were civil injunctive actions while 34 were administrative proceedings. This contrasts with each other year since 2020. In each quarter since the beginning of this decade the largest number of actions filed has been civil injunctive cases. For example, in the first quarter of 2023, 48 civil injunctive actions were filed while only 32 administrative proceedings were initiated. Similarly, in the first quarter of each year beginning in 2020, the largest number of cases filed in the first quarter was civil injunctive cases, not administrative proceedings.

During the first quarter of 2024 the number of administrative proceedings was significantly impacted by the filing of sixteen administrative proceedings in February as part of an initiative focused on record keeping violations discussed below. Nevertheless, even setting aside the 16 administrative proceedings that were part of those filed in 1Q 24, just over half of the cases filed during the quarter were administrative proceedings.

The types of actions being initiated are also critical. In the first quarter of this year the types of actions filed are depicted in the table below:

Books and records   30%

Offering frauds   17%

False statements   17%

Manipulation   10%

Financial fraud    8%

As this table reflects, the type of cases filed during the period was dominated by the administrative proceedings filed as part of the focus on books and records. The mix of cases initiated during the quarter was dominated by the February effort focused on corporate books and records. That effort keyed to the practices of some firms which permitted professionals at various firms to use personal communication devices as a form of communications rather than those which were part of the system created and maintained by firm under the Commission’s rules.

Those results reflect more than just a technical violation of the rules. To the contrary, the repeated used of unauthorized processes of communication highlights what may be important gaps in firm record keeping since in many instances there was no written record of the communications done on personal devices. That contrasts with those systems used by most firms under Commission rules which require written records.

The mix of cases filed in the first quarter of 2024 – setting aside the books and records actions — is similar also, but not the same as those for other comparable periods. For example, in the first quarter of 2023, when 80 actions were filed, the largest categories of actions initiated were: offering fraud cases, crypto assets, insider trading and financial fraud. Two of the categories listed above for the first quarter of 2024 – offering fraud and financial fraud cases — are the same as those in 1Q23 while two are not.

Examination of the largest categories in 2022 and 2021 yields slightly different results. In 2022 the largest categories of cases initiated were those involving investment advisers, insider trading, offering fraud actions and corporate and financial cases. In contrast, for 2021 the largest categories were those involving misrepresentations, offering fraud, investment advisers and unregistered brokers. Thus, the only common category during those two years was offering fraud cases – most of the largest categories of cases in 2022 and 2021 were different. While in each year since 2020 one of the largest categories of cases is offering fraud actions, the other three or four largest groups of cases initiated differed. Overall, this reflects a shifting focus driven in part by typical areas of concern such as offering fraud cases and in part by the changing trends of the marketplace.

Next: Examples of key cases from the largest groups of action

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by T. GormanPosted on Posted in SECActions

As summer kicked off, the Commission filed four new actions and resolved others. The new cases centered on a fraudulent scheme, an offering fraud, misappropriation and a financial fraud case.

Be careful, be safe this week.

SEC

SEC Enforcement – Filed and Settled Actions

Statistics: This week the Commission filed 4 new civil injunctive actions and no new administrative proceedings, excluding tag-along actions and those that present a conflict for the author.

Fraudulent scheme: SEC v. McLellan, Civil Action No. 16-cv-10874 (D. Mass.) is a previously filed action which named as defendant Ross McLellan, formerly an executive at State Street Corporation employed in the firm’s transition management business. That section is involved with large, and often illiquid transactions, that are in flux with other institutional investors. During the period February 2010 to September 2011 Defendant participated in, and encouraged others, to personally profit from these transactions by adding inappropriate and in some instances hidden charges. Clients were overcharged about $20 million as a result of the scheme. The complaint alleges violations of Securities Act Sections 17(a) and Exchange Act Section 10(b). The court entered a final judgment against Mr. McLellan based on the Sections cited in the complaint. The judgement enjoins Mr. McLellan from future violations of the Sections cited in the complaint. In a parallel criminal action Defendant was found guilty by a jury and sentenced to serve 18 months in prison. See Lit. Rel. No. 26034 (June 20, 2024).

False financial claims: SEC v. Western Sierra Resources Corp., Civil Action No. 24-cv-01705 (D. Col. Filed June 18, 2024) is an action which names as defendants the company, Roger Johnson and Dennis Atkins, respectively a firm engaged in natural resource development and mining and the CEO and CFO of the company. Defendants are alleged to have repeatedly made claims that the company held interests in a gold mine worth millions of dollars. In fact, the claims were false. The complaint alleges violations of Exchange Act Section 10(b). The case is in litigation. See Lit. Rel. No. 26032 (June 18, 2024).

Offering fraud: SEC v. Brown, Civil Action No. 4:24-cv-00558 (N.D. Tx. Filed June 17, 2024). This offering fraud action is tied to space. Named as defendants in the action are: Matthew Brown and Mathew Brown Companies, LLC. Mr. Brown is believed to reside in the Dallas-Fort Worth area, although it is not clear. Defendant Matthew Brown Companies is a Delaware limited liability company based in Fort Worth, that was created in April 2020 and operated by Defendant Matthew Brown. This action centers on Virgin Group which spun off newly formed Virgin Orbit from Virgin Galactic Holdings, Inc. (“Virgin Galactic”) in 2017. The former was involved primarily with space tourism services. The latter provided commercial satellite launch services. Virgin Orbit began trading publicly on the Nasdaq after it the spinoff. In March 2023 Mr. Brown sent an unsolicited message to Virgin Orbit executives. It offered to invest $200 million in Virgin Orbit. At the time Virgin Orbit was on the verge of bankruptcy. Defendant Brown offered a series of statements regarding his investment experience and personal financial situation. For example, he claimed to have invested “hundreds of millions of dollars” of his “personal capital” primarily in space companies. He also sent the executives what appeared to be a screen shot of his personal bank account showing a balance of over $182 million. The claims were false; the bank account balance was less than $1. The media began publishing the claims. The share price for Virgin Orbit rose over 30%; Mr. Brown was asked to, and did, appear on CNBC. During his appearance Mr. Brown discussed his so-called investment experience and over 13 space companies as well as the legitimacy of his $200 million offer. Subsequently, Defendant Brown demanded a “break-up fee” from Virgin Orbit when the firm made inquiries. The deal never moved forward. The complaint alleges violations of Exchange Act Section 10(b). The case is in litigation. See Lit. Rel. No. 26031 (June 17, 2024).

Misappropriation: SEC v. Goltry, Civil Action No. 3:24-cv-06976 (D. N.J. Filed June 12, 2024). Named as defendants in this action are: Joshua Goltry and JAG Capital Advisors, LLC. Mr. Goltry is the founder and investment manager of JAG Capital. The firm’s principal place of business was Miramar, Florida; JAG is a Florida limited liability company. It purported to be a long/short equity fund and pooled investment vehicle. The firm invested in e-commerce, software, cybersecurity, semiconductor, fintech, gaming and alternative energy industries. Over a three-year period, beginning in 2020, Defendants raised at least $3 million from about nine investors. In doing so, Defendants “lied about nearly every aspect of JAG Fund’s operations, including its performance, investment activity and its risk protocols,” according to the complaint. Defendants lost over $1.7 million of the investor funds through high-risk trading and speculative investments. Defendants also misappropriated over $1.1 million of the investor funds, diverting them to personal use. And, Defendants concealed the losses from the fund administrator, as well as the clients, by falsely inflating the value of other assets. By August 2023 the Fund was depleted; now it is defunct. The complaint alleges violations of Securities Act Section 17(a), Exchange Act Section 10(b), and Advisers Act Sections 206(1), 206(2) and 206(3). Defendants agreed to settle the action, consenting to the entry of permanent injunctions based on the Sections cited in the complaint. The court will determine monetary penalties at a later date. The U.S. Attorney’s Office for the District of New Jersey announced criminal charges against Mr. Goltry.

Financial fraud: SEC v. Rosenberger, Civil Action No. 1:22-cv-4736 (S.D.N.Y.) is a previously filed action which names a defendant Karen Rosenberger. The complaint alleges that Defendant engaged in accounting misconduct that caused Snchronoss Technologies, Inc., to materially overstate revenue. Subsequently, Defendant sought to conceal her wrongful conduct. The complaint alleged violations of Exchange Act Sections 10(b), 13(a), 13(b)(2)(A), 13(b)(2)(B) and the related rules. Earlier in the case the court granted the Commission’s motion for partial summary judgment. Subsequently, Defendant settled with the agency, consenting to the entry of permanent injunctions based on each of the sections cited in the complaint. The court entered judgments based on each of the sections. It also barred Defendant from serving as an officer or director. The final judgment, in addition, directed that Defendant pay a penalty of $125,000 and reimburse the company over $430,000 under SOX Section 304 in an order dated June 14, 2024. See Lit. Rel. No. 26030 (June 14, 224).

Fraudulent offering: SEC v. Tassey, Civil Action No. 2:24-cv-01120 (D. Nev. Filed June 1, 2024) is an action which names as defendant Yanni Tassev, currently believed to be a resident of Bulgaria. The complaint alleges that between April 2022 and January 2023 Defendant, though an entity named Sigmas Power, and while employed at Boxable Inc., raised about $1.595 million from seven investors. The shares were of a company named Boxable, Inc. Yet Defendant did not have the ability to offer the shares for sale. The complaint alleges violations of each subsection Securities Act Section 17(a) and Exchange Act Section 10(b). The case is pending. See Lit. Rel. No. 26033 (June 18, 2024).

Australia

Remarks: ASIC Commissioner Alan Kirkland, addressed the Professional Planner Licensee Summit on June 18, 2024. The Australian Securities and Futures Executive delivered remarks focused on the current priorities of the regulatory agency (here).

BaFin

Remarks: “Now is the time to prepare” is the title of remarks published by the regulator. The publication is designed to urge investors that while the economy is doing well as now, the risk of defaults is rising. Accordingly, now, June 20, 2024, is the time to prepare. (here).

Hong Kong

Release: The Securities and Futures Commission of Hong Kong issued a release on June 19, 2024 (here) titled “SFC’s 35th year and beyond: guiding Hong Kong’s capital markets with mission and vision” (here).

Singapore

Release: The Monetary Authority of Singapore issued a release titled “8th Bilateral MAS-CSRC Roundtable Fosters Greater Cooperation in Capital Markets Activities, June 18, 2024 (here).


 

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