This Week In Securities Litigation (Week of April 6, 2020)
Regulators such as the Commission in the U.S. and their counterparts around the globe continue to operate despite the shelter at home orders issued in many jurisdictions. Regulators also continue to issue orders granting specific, targeted relief.
SEC Enforcement is continuing its investigative efforts. Subpoenas are being issued for documents. Testimony, however, is another matter. While technology such as Zoom may facilitate meetings and discussions, testimony is another matter. At the same time there is little doubt that there are those who are engaging is unsavory conduct designed to take advantage of current market conditions.
SEC Enforcement this week filed another offering fraud action. In addition the agency secured a final judgment in another offering fraud case and in an trading case.
Stay safe, stay healthy.
Statement: Sagar Teotia, Chief Accountant, issued a statement on the Importance of High Quality Financial Reporting In Light of the Significant Impacts of COVID-19, dated April 3, 2020 (here).
Whistleblowers: The agency awarded about $2 million to a whistleblower who provided vital information and assistance that substantially contributed to an on-going investigation, announced on April 3, 2020.
Volker rule comments: Comments on the proposed modifications to the Volker Rule, requested by April 1, 2020, submitted after that date will be considered, according to an April 2, 2020 release by the Commission.
SEC Enforcement – Filed and Settled Actions
The Commission filed 1 civil injunctive action and no administrative proceedings last week, exclusive of 12j and tag-along actions, discussed below.
Offering fraud: SEC v. OwnZones Media Network, Inc., Civil Action No. 220-cv-03108 (C.D. Cal.) is a previously filed action which names as defendants the firm, an entertainment technology company, its CEO and President, Dan Gorman, and its stock sales agent, Joe Gorman, the CEO’s brother. Beginning in 2011 the firm raised capital from over one thousand investors who purchased interest in the firm for a total of about $45 million. Supposedly MGM and Mark Cuban had purchased shares. In fact, the claims were false. The complaint alleges violations of Securities Act Sections 5(a), 5(c) and 17(a) and Exchange Act Sections 10(b) and 20(a). The case is pending. See Lit. Rel. No. 24786 (April 2, 2020).
Offering fraud: SEC v. Wall, Civil Action No. 219-cv-00139 (D. Me.) is a previously filed action which named as defendants, Jeffrey Wall and his firm, The Lighthouse Events, LLC. The Court entered final judgments by consent as to each defendant. Each judgment precludes future violations of Securities Act Sections 5(a), 5(c) and 17(a) and Exchange Act Section 10(b). Each Defendants was also ordered to pay, on a joint and several basis, disgorgement in the amount of $1,589.815 and prejudgment interest of $202,056. In addition, each Defendant was directed to pay a penalty equal to the amount of the disgorgement. The underlying action is predicated on an offering fraud that began in April 2019 in which Defendants sought to raise capital for Christian music concerts and festivals. The offering focused on persons with Christian beliefs. About $3 million was raised from approximately 145 investors. Those solicited were assured the money would only be used for the stated purpose. Instead it was misappropriated by Defendants. See Lit. Rel. No. 24785 (April 1, 2020).
Insider trading: SEC v. Cohen, Civil Action No. 19-cv-09645 (S.D.N.Y.) is a previously filed action which names as defendants Bryan Cohen and George Nikas. The Court entered a final judgment as to Mr. Cohen by consent, enjoining him from future violations of Exchange Act Sections 10(b) and 14(e). The Court also directed Mr. Cohen to pay disgorgement in an amount to be offset by the Order of Forfeiture to be imposed in the parallel criminal action brought by the Manhattan U.S. Attorney’s Office. Mr. Cohen consented to the entry of an order barring him from the securities business and from participating in any penny stock offering. In the underlying case the Commission’s complaint alleged that Mr. Cohen obtained inside information about the potential acquisition of Syngenta AG and also of Buffalo Wild Wings, Inc. The information was obtained from his then employer. Mr. Cohen tipped a Swiss based trader who later tipped Defendant George Nikas. The Swiss based trader and Mr. Nikas each traded in the shares of Syngenta. Mr. Nikas also traded in the shares of Buffalo Wild Wings.
COVID – 19: The regulator issued a notice dated March 31, 2020 providing certain relief to futures commission merchants in response to the virus pandemic (here).
Obligations: The regulator issued a release dated April 3, 2020, focusing on the obligations of those subject to its regulations in view of the COVID – 19 pandemic (here).
COVID – 19: The Securities and Futures Commission, in conjunction with the Stock Exchange of Hong Kong Ltd., and after consultation with the HKSAR Government, issued guidance on conducting annual meetings as of April 1, 2020 (here).
COVID – 19:The Monetary Authority of Singapore announced on March 31, 2020 that it had acted in conjunction with the Association of Banks in Singapore, the Life Insurance Association, the General Insurance Association and the Finance Houses Association of Singapore to create a package of measures to help ease the financial strain on individuals and SMEs caused by the virus. The package complements the initiatives in the Government’s Unity Budget and Resilience Budget to preserve jobs and support enterprises and households (here).