SEC Focus on Retail Investors — Microcap Fraud Actions
A key focus of SEC Enforcement is the protection of retail investors. In part this seems to btranslating into increasing numbers of actions involving investment advisers as reflected in the recently published Annual Report of the Division. In part the retail investor focus is also translating into increasing numbers of microcap fraud actions – cases which often impact retail investors. The latter focus is reflected in two recently filed actions.
SEC v. Landis, Civil Action No. 1:18-cv-12453 (D. Mass. Filed Nov. 28, 2018) is an action which names as defendants Eric Landis and his controlled firm, Ridgeview Capital Partners LLC. Mr. Landis is a recidivist securities law violator. He previously settled a securities manipulation suit with the Commission. He also pleaded guilty in a parallel criminal action to a felony charge for obstruction of justice.
Beginning in January 2015, and continuing for at least the next three years, Mr. Landis and his firm are purported to have manipulated the share price of 97 publicly traded companies. The purpose was to create the illusion of activity and high demand to attract others to trade in the shares.
In conducting these activities, Defendants defrauded persons in two groups. First, Defendant Landis represented himself to be a stock promoter who was paid by others to generate interest in the shares of various small companies. In making these representations Mr. Landis claimed to have access to email lists of tens of thousands of subscribers who could be solicited. In fact he did not have these lists and in some instances did not send emails in connection with his schemes.
Second, Defendants defrauded shareholders. Defendants arranged to place thousands of manipulative trades in the shares of firms that retained them. Multiple brokerage accounts were used, at times in the name of Ridgeview. In conducting these activities Mr. Landis intended to create the false appearance of active trading in the securities and infused the markets with false information regarding the actual supply and demand for the shares. The complaint alleges violations of Securities Act sections 17(a)(1) and (3) and Exchange Act sections 9(a)(1) and (2) and 10(b). The case is in litigation.
SEC v Tobin, Civil Action No. 1:18-cv-12451 (D. Mass. Filed Nov. 27, 2018) is similar. The action names as defendants Morrie Tobin; Milan Patel; a licensed attorney; Matthew Ledvina, also an attorney; and Daniel Lacher, a resident of Switzerland who provided services to undisclosed company insiders or control persons as an intermediary to foreign asset managers and brokers.
The action involves the manipulation of the shares of Environmental Packaging Technologies Holdings, Inc. and CURE Pharmaceutical Holding Corp. Beginning in 2013, and continuing to the present, Defendants took a series of steps to manipulate the share price of Environmental Packaging. First, steps were taken to conceal the fact that Mr. Tobin controlled the shares of Environmental Packaging. Those included transferring the shares to two offshore asset managers that included a Swiss firm run by Roger Knox. Messrs. Ledvina and Lacher served as the purported beneficial owners. Second, Individual A, a partner of Mr. Tobin promised shares for assistance, engineered a reverse merger involving public Environmental Packaging with a shell. That was followed by a $1 million promotional campaign designed to inflate the share price. The CEO of the private company in the merger raised the money for promotion. Finally, the money for the promotion was funneled to a firm that appeared to be independent of the group to inflate the share price. Similar steps were taken for CURE.
The shares for Environmental Packaging and CURE were not registered. In late June 2017 the Commission suspended trading in the shares of Environmental Packaging. Subsequently Defendants took further steps to conceal the role of Mr. Tobin and obstruct the Commission’s investigation. The complaint alleges violations of Securities Act sections 5(a), 5(c) and 17(a)(1) and (3) and Exchange Act section 10(b). The case is in litigation. See Lit. Rel. No. 24361 (Nov. 28, 2018).
Program: The Fifth Annual Dorsey Federal Enforcement Forum will be held on December 5, 2018. The program, centered on a tech theme and SEC enforcement, includes a keynote address on artificial intelligence and its impact on the legal profession, panels analyzing critical issues facing SEC enforcement, the question of broker protocols, trends in investment adviser inspections, how to conduct an ICO and concludes with an address on cyber-security and internal controls. A holiday gathering follows. The program and registration for it and the party are here or separate registration for the holiday party only here.