This Week In Securities Litigation (Week of February 1, 2021)
The week of Robinhood and Gamestop, of the small investors and the large shorts, finally ended – or at least stopped – on Friday. Until then the news shows could not stop talking about the fight between the big shorts and the little investors. Of course, nobody actually knows who is trading through Robinhood and against the shorts. One thing we do know, however, is that in the past when large traders shorted a stock and pushed down little was done. This is the first time anyone has really fought back.
The Commission is undoubtedly monitoring the trading and related activities carefully. The agency has the tools to do that. The agency may even know who is doing the pushing back, although it is not saying.
Perhaps the clearest point about this battle of someone and the shorts is this: What we are watching now is the beginning, not the end. As Bob Dylan said years ago, “The times they are a changing. . .”
Be careful, be safe this week
SEC Enforcement – Litigated Actions
Prime bank fraud: SEC v/ Baker, Civil Action No. 25015 (N.D. Ga.) is an action in which the Commission prevailed on summary judgement. The complaint named as defendants Peter Baker and Elizabeth Oharriz. It alleged that Defendants sold fictitious prime bank investments to investors. The investors were told that the instruments were legitimate. Investors were also told they would reap substantial profits. Overall, about $2 million was raised. The Court concluded that Mr. Baker had violated Securities Act Section 17(a) and Exchange Act Sections 10(b) and 15(a). Penalties and other relief will be considered at a later time. Mr. Oharriz previously entered into a bifurcated settlement with the agency. See Lit. Rel. No. 25015 (Jan. 26, 2021).
SEC Enforcement – Filed and Settled Actions
The Commission filed 3 new civil injunctive actions and no administrative proceedings last week, excluding 12j, tag-along proceedings and other similar matters.
Offering fraud: SEC v. Viktor Gjonaj, Civil Action No. 2:21-cv-10199 (E.D. Mich. Filed Jan. 28, 2021) is an action which names as a defendant Viktor Gjonaj. Over a three-year period, beginning in 2016, Defendant raised about $26.4 million. Rather than use the funds to purchase and invest in real estate as represented to investors, Mr. Gjonaj invested at least $10 million of the investor funds in his obsession – the Michigan Lottery. Some investors did receive part of their money back –Defendant redistributing part of the funds received from others. The complaint alleges violations of Exchange Act Section 10(b) and Securities Act Section 17(a). The case is pending. See Lit. Rel. No. 25018 (Jan. 28, 2021).
Offering fraud: SEC v. Ramos, Civil Action No. Civil Action No. 2:21-cv-01180 (D. N.J. Filed Jan. 26, 2021) is an action which named Ivan Ramos as a defendant. Mr. Ramos is an insurance salesman. Over a period of about three years, beginning in mid-2017, Defendant raised over $1 million from 18 investors. The funds were supposed to be invested in conservative investments that paid rate of return of about 5%. Instead, Mr. Ramos put the funds into a high risk investment – a restaurant. The complaint alleges violations of Securities Act Section 17(a) and Exchange Act Section 10(b). The case is pending. See Lit. Rel. No. 25016 (Jan. 27, 2021). The U.S. Attorney’s Office for the District of New Jersey filed parallel criminal charges.
Offering fraud: SEC v. Vuuzle Media Corp., Civil Action No. 2:21-cv-01226 (D. N.J. Filed January 27, 2021). The company Defendant is in the video streaming business. Defendant Ronald Flynn is a resident of the Philippines and the UAE and the founder of the firm. He is also its majority shareholder and is subject to at least two state cease-and-desist orders, one issued by the Ohio Department of Securities and the other by the California Department of Business Oversight. Defendant Ricard Marchitto, a retired dentist, claimed to be a vice president of marketing. The history of Vuuzle is one of shifting sale pitches to raise cash from investors – sales programs orchestrated by Mr. Flynn. Beginning in September 2016 Mr. Flynn told investors that Vuuzle was in the process of building a mobile phone application called Bonk.live initially and later Bonk.be.live. The application was supposed to stream live performances. While it was supposed to make millions from huge numbers of subscribes, it did not. From late May through mid-November 2018 the average number of devices using Bonk.live was 371. By year end the company and its major shareholder were refocusing on TV streaming. Subsequently, the firm became a “front,” in the words of the complaint, for Mr. Flynn and a boiler room operation. The focus was to sell shares of the company, primarily from the Philippines. Investors were told that 99% of the funds raised would be plowed into developing the business. It was a lie. Large portions of the funds raised were used to pay commissions. About $10 million was misused by Mr. Flynn. Marketing was conducted using a series of misrepresentations. Those include false promises of an IPO; false claims of future dividends; and concealing the role of Mr. Flynn in the company. Overall, only $2 million of the $14 million raised from investors was put back into the company. Defendant Marchitto substantially assisted with these efforts. The complaint alleges violations of Securities Act Sections 5(a), 5(c) and 17(a) and Exchange Act Sections 10(b) and 15(a)(1). The complaint is pending. See Lit. Rel. No. 25017 (January 27, 2021). s
Environment: An Industry taskforce launched an environmental risk management handbook to support green finance on January 28, 20921 (here).
Keynote address: Mrs. Josephine Teo, Minister of Manpower, delivered the keynote address at the Institute of Banking and Finance Awards Ceremony 2020 (Jan. 27, 2021)(here). Her remarks focused on opportunities amid the crisis, noting that the regulator is doubling its efforts, strengthening connectivity with the local business community and helping businesses to seize opportunities.
Remarks: Ms. Jacqueline Loh, Deputy Managing Director, MAS delivered remarks on January 22, 2021 at the conference listed above. She highlighted the trends and opportunities available from harnessing technology in the area of sustainable finance (here).
Market volatility: The Financial Conduct Authority issued a statement on trading in volatile markets. First, the regulator noted that buying shares in such markets can be very risky. Second, the FCA stated that brokers have no obligation to offer trading facilities for clients. To the contrary, they may withdraw their services in accord with the terms of its customer agreements and conditions of service.