This Week In Securities Litigation (Week of December 12, 2022)
FTX continues to be a key story this week with its founder still giving interviews. The crash of the crypto exchange may soon give way to a proposed new plan from the SEC. Chair Gensler is reported to be about to issue a plan to reorganize the securities markets – the first in years.
Be careful, be safe this week
Regulation: The Commission reopened the comment period regarding its proposed rules regarding the repurchase of shares on December 7, 2022. The period will remain open for an additional 30 days following publication in the federal register.
SEC Enforcement – Filed and settled actions
Last week the Commission filed 2 new civil injunctive actions and 3 administrative proceedings, exclusive of 12j, default, conflicts (which are included in the tabulation of cases), tag-a-long and other similar proceedings.
Offering fraud: SEC v. Iakovou, Civil Action No. 4:22-v-00194 (M.D. Ga. Filed December 7, 2022) is an action which names as defendants: George Iakovou, Vika Ventures LLC and Penelope Zbravos. The firm was founded by the two individual defendants. Over a two-year period, beginning in late 2019, about 46 investors to put about $3.9 million dollars in what they were lead to believe would be pre-IPO shares of firms. In fact, there were no such shares – the representations were false. The complaint alleges violations of Securities Act Section 17(a) and Exchange Act Section 10(b). Defendant Zbravos, the girlfriend of Defendant Iakavou, resolved the matter, consenting to the entry of a permanent injunction based on the Sections cited in the complaint. The Court will determine the amount, if any, of a civil penalty. The U.S. Attorney’s Office for the Middle District of Georgia announced the filing of related criminal charges.
Insider trading: In the Matter of Vincent Issier, File No. 3-21251 (December 6, 2022) is an action which names as defendant Mr. Issier, an employee of Lumentum Holdings Inc. The case centers on a January 2021 announcement that Defendant’s employer had entered into an agreement to acquire Coherent, Inc. In the weeks before the deal announcement Defendant worked on the transaction for his employer. He also traded in the shares of Coherent prior to the announcement. The share price of Coherent rose 30% following the announcement. The Order alleges violations of Exchange Act Section 10(b). To resolve the matter Defendant consented to the entry of a cease-and-desist order based on the Section cited in the Order. He also agreed to pay disgorgement in the amount of $6,295.89, prejudgment interest of $266.04 and a penalty of $6,295.89.
Manipulation: SEC v. Landis, Civil Action No. 1:18-cv-12453 (D. Mass.) is a previously filed action which names as defendant Eric Landis, a recidivist manipulator. The complaint alleges that Defendant Landis orchestrated a scheme to manipulate the shares of 97 microcap stocks. In August 2019 the Court entered judgments against Mr. Landis, and another Defendant, that imposed multiple injunctions including one precluding the two defendants from participating in any offering of securities except for their own account. Here the Court ordered Defendant Landis to pay over $2.5 million in disgorgement, deemed satisfied by the order of forfeiture in the parallel criminal case. In that action, Mr. Landis pleaded guilty and was sentenced to serve six months in prison followed by two years of supervised release. The Court also directed that Mr. Landis pay a $50,000 fine and $2,505,488 in forfeiture. See Lit. Rel. No. 25587 (December 6, 2022).
Unregistered securities: In the Matter of PFP Entrust Corp., Adm. Proc. File No. 3-21250 (December 5, 2022) is a proceeding which names as respondents: the firm: Promotional Consulting Partners LLC: CPPC, Inc.; Nick Skrelja, the majority owner of PFP Entrust; Jack Skreljka, a defendant in another SEC enforcement action; and Neil Yaldo, also a defendant in another enforcement action. This case centers on the sale of over $15.8 million in unregistered notes to over 120 investors. The Order alleges violations of Securities Act Sections 5(a) and 5(c). To resolve the proceedings Respondents PFP Entities entered into certain undertakings. Each Respondent consented to the entry of a cease-and-desist order based on the Sections cited in the Order. In addition, each Respondent agreed to pay a penalty in the amount of: PFP Entrust, $100,000; PCP, $100,000; N. Skrelja $10,000; J. Skrelja, $25,000; and Yaldo, $10,000.
FCPA: In the Matter of ABB, Ltd., Adm. Proc. File No. 3-21248 (December 3, 2022) is a proceeding which names as respondent, ABB Ltd. The firm, based in Switzerland, focuses on motion and robotics technology. It has also settled two prior FCPA cases with the Commission. This action centers on the period March 2015 to December 2017. During that period the company paid bribes to the South African government in connection with obtaining a contract worth about $160 million. The Order alleges violations of Exchange Act Sections 30A, 13(b)(2)(A) and 13(b)(2)(B). To resolve this matter ABB consented to the entry of a cease-and-desist order based on the Sections cited in the Order. It also agreed to pay disgorgement of $58 million, prejudgment interest of $14,554,267 and a penalty of $75 million. See also ABB Agrees to Pay Over $315 Million to Resolve Coordinated Global Foreign Bribery Case, ABA, December 2, 2022 (here).
Reg FD: SEC v. AT&T, Inc., Civil Action No. 1:21-cv-01951 (S.D.N.Y. Filed March 3, 2021) is an action against the firm and three of its executives, Christopher C. Womack, Kent D. Evans and Michael J. Black. In March 2016 the firm learned that there would be a steep drop-off in the sale of smart phones. That in turn would cause revenue for the first quarter of 2016 to fall below the consensus estimate. The Chief Financial Officer instructed the head of the IR Department to work the analysts who had revenue estimates tied to equipment “to high.” The individual Defendants were then instructed to make calls to select analysts. Those calls were made to about 20 firms. During the calls material nonpublic information was disclosed, although there were efforts to disguise that fact. The complaint alleges violations of Exchange Act Section 13(a) and Regulation FD. To resolve the matter the company, and each of its executives, consented to the entry of a permanent injunction based on the Section and Regulation cited in the complaint. In addition, the company agreed to pay a penalty of $6.25 million while each executive will pay $25,000.
Remarks: Principal Associate Deputy Attorney AG Marshall Miller delivered remarks at the American Bankers Association Financial Crimes Enforcement Conference, Washington, D.C. in which he discussed, among other things, cooperation, December 6, 2022 (here).
Remarks: The Acting Director of FinCEN, Himamauli Das, addressed the ABA Financial Crimes Enforcement Conference on December 6, 2022. In his remarks the Acting Director discussed beneficial ownership information reporting, anti-corruption, a roadmap for an effective AML/CFT program, MSBs & CVC and combating fraud on December 6, 2022 (here).
Report: The Hong Kong Securities and Futures Commission issued its quarterly report on December 6, 2022 (here).