This Week In Securities Litigation (Week of December 18, 2023)
As we move closer to the holidays and the end of the year, the Commission filed four new civil injunctive actions. One involved an offering fraud case, two centered on Ponzi schemes and one focused on a free riding scheme.
Be careful, be safe this week.
SEC Enforcement – Filed and Settled Actions
Statistics: This week the Commission filed 5 new civil injunctive actions and no new administrative proceedings, excluding tag-along actions and those that present a conflict for the author.
Offering fraud: SEC v. Murphy, Civil Action No. 3:23-cv-01621 (D. Con. Filed December 14, 2023) is an action which names as defendants Justin Murphy, a current resident of Brazil, and the principal owner of Mara Investments LLC, a registered investment adviser. Over a three-year period, beginning in 2016, Defendant and others raised funds for investment in Mara. Those potential investors were told the fund followed a conservative investment approach that made consistent profits. About $6.6 million was raised from 8 investors. Portions of the investor capital was never deposited in the fund. Ultimately Defendant Murphy misappropriated about $3.4 million of investor cash. The complaint alleges violations of Securities Act Section 17(a), Exchange Act Section 10(b) and Advisers Act Sections 206(1), (2) and (4). A parallel criminal action was filed by the U.S. Attorney’s Office for the District of Connecticut. See Lit. Rel. No. 25911 (December 14, 2023).
Ponzi scheme: SEC v. Titanium Capital, LLC, Civil Action No. 9:23-cv-81558 (S.D. Fla. Filed December 14, 2023) is an action which names as defendants: the firm which claims to be a secure multi-currency fixed income fund with assets of over $20 million; Henry Abdo, a Lebanese national with a U.S. visa and CEO of the company; and Carol Ann Barsh, a representative and promoter of the company. Since 2014 the company has raised over $5.3 million from at least 162 U.S. and foreign investors who purchased what were called High yield senior note agreements. Investors were guaranteed positive returns. In fact, the only returns paid were Ponzi type payments. Defendants recruited people to aid the sale of the securities. Defendants misappropriated much of the investor funds to pay other investors. Investors were told that the securities were registered with the Commission – a false statement. The complaint alleges violations of Securities Act Sections 5(a), 5(c) and 17(a) and Exchange Act Section 10(b). A parallel criminal action has been filed by the U.S. Attorney’s Office for the Southern District of Florida.
Ponzi scheme: SEC v. Agridime LLC, Civil Action No. 4-23CV-1224P (N.D. Tx. Filed Dec. 11, 2023) is an action which names as defendants: the company, supposedly in the meat distribution business, is co-owned by Defendants Link and Wood; Joshua Link, a co-owner of the company; and Jed Wood, also a co-owner of the company. Arizona and North Dakota securities regulators have each issued cease-and-desist orders against the company. Since 2021 Defendants have raised at least $191 million from over 2,100 investors in multiple states. Each purchased contracts for cattle. Investors were guaranteed returns ranging from 15% to 32%. While some investors received returns, the funds generally came from other investors. Defendants did not disclose the source of the payments or tell investors that over $11 million in commissions were paid. The complaint alleges violations of Sections 5(a), 5(c) and 17(a) and Exchange Act Section 10(b). The Court granted the Commission’s request for emergency relief to halt the scheme. The cases is in litigation.
Free-riding: SEC v. Komarow, Civil Acton No. 3:23-cv-01599 (D.Conn. Filed December 8 2023) is an action which defendant Andrew Komarow, formerly associated with a broker-dealer, engaged in a free-riding scheme beginning in October 13, 2022 and continuing until the end of January 2023. During the period he opened multiple bank accounts at four different brokerage firms and arranged to transfer funds by wire from other accounts. During the period prior to the arrival his cash was supposed to arrive (but did not since it was non-existent) he traded on what is effectively a no-charge extension of money from the broker in the 11 accounts involved, making profits of over $600,000. The brokerage firms, in contrast, had losses over about $3.3 million. The complaint alleges violations of Exchange Act Section 10(b). Defendant entered into a partial judgement in the case under which he is enjoined from future violations of the Section cited in the complaint and leaves the question of monetary relief to the Court. Defendant also agreed to the entry of an order prohibiting the opening of new brokeratge accounts. See Lit. Rel. No. 25908 (December 8, 2023).
The Cornerstone – NYU Pollack Center SEC Enforcement Report
Earlier this year the SEC published its enforcement statistics for fiscal 2023 which were discussed in this publication. Early next year we will publish enforcement statistics for calendar year 2023. And, Cornerstone Research and the NYU Pollack Center for Law & Business published a subset of the enforcement statistics for fiscal year 2003 in its publication, SEC Enforcement Activity: Public Companies and Subsidiaries, Fiscal Year 2023 Update (here).
In fiscal 2023 the SEC filed 91 enforcement actions against public companies and their subsidiaries. That represents a 34% increase over the prior fiscal year. At least part of the filings resulted from a series of sweeps conducted during the year.