This Week In Securities Litigation (Week of February 19, 2024)
Last week the Commission filed three new actions: One centered on Regulation BI, a second was based on an offering fraud and a third tied to disclosure issues. The staff also published its annual report on Nationally Recognized Statistical Rating Agencies.
Be careful, be safe this week.
SEC
Staff report: The Staff published its annual report on Nationally Recognized Statistical Rating Agencies on February 16, 2024 (here).
SEC Enforcement – Filed and Settled Actions
Statistics: This week the Commission filed 1 new civil injunctive action and 2 new administrative proceedings, excluding tag-along actions and those that present a conflict for the author.
Regulation BI: In the Matter of TIAA-CREF Individual & Institutional Services, LLC, Adm. Proc. File No. 3-21856 (February 16, 2024) is a proceeding which names as respondent the dual registered broker-dealer/investment adviser. Beginning at the end of June 2020, and continuing for over one year, the firm failed to comply with certain of its obligations under Regulation Best Interest or Reg BI when making recommendations to clients. Specifically, in recommending initial investments the firm focused on what it called “core investments.” What it failed to tell clients is that virtually the same investments were available at less cost. Similarly, when offering various types of funds only the more expensive ones were mentioned – clients were not informed that less costly but virtually the same funds could be acquired. The firm also failed to establish and maintain written policies and procedures to ensure that the Reg BI requirements were met. The Order alleges violations of Exchange Act Rules 15l-1(a)(1) & (2). To resolve the proceedings, Respondent consented to the entry of a cease-and-desist order based on the Exchange Act Rules cited. In addition, the firm agreed to pay disgorgement in the amount of $936,714, prejudgment interest of $103,424.91 and a civil penalty of $1.250 million. The Commission considered the remedial actions of Respondent.
Disclosure: In the Matter of Van Eck Associates Corporation, Adm. Proc. File No. 3-21857 (February 16, 2024) is a proceeding which names as respondent the registered investment adviser. The action centers on disclosure issues tied to the launch of the VanEck Social Sentiment ETF in March 2021. In connection with the launch of the ETF and thereafter, the firm used a controversial social media influencer to promote what it called BUZZ index and its launch. In doing so the firm failed to provide the board with information regarding a number of material issues. The planned involvement of the influencer was also not disclosed to the independent trustee of the VanEck ETF Trust or the Board. The Order alleges violations of Exchange Act Section 21F(g)(3). To resolve the proceedings Respondent consented to the entry of a cease-and-desist order based on the Section cited in the Order and to a censure. In addition, the firm agreed to pay a penalty of $1.750 million. The firm did undertake remedial efforts.
Offering fraud: SEC v. SHE Beverage Company, Inc., Civil Action No. 2:21-cv-07339 (C.D. Cal.) is an action which named as defendants the firm and its principals, Lupe L. Rose, Sonja F. Shelly, and Katherine E. Dirden. The complaint alleged that over a two year period, beginning in 2017, Defendants conducted a fraudulent offering of shares based on multiple false statement. Each Defendant agreed to and did settle the charges which alleged violations of Securities Act Sections 5 and 17(a) and Exchange Act Section 10(b). The Court entered final judgments against each Defendant, enjoining them from future violations of each Section cited in the Order. In addition, each Defendant is jointly and severally liable for the payment of disgorgement in the amount of $12,021,500 and prejudgment interest of $334,842. Each Defendant will also pay a penalty in the amount of: Rose $k738,774, Shelby $344,842, and Dirden $889,842. Each individual Defendant is also barred from serving as an officer or director of a public company. See Lit. Rel. No. 25943 (February 15, 2024).
Offering fraud: SEC . Exposito, Civil Action No. 1:16-cv-10960 (D. Mass.) is a previously filed action which named as defendants Jay Pignatelo, a consultant and Secretary for Cannabiz Mobile, Inc. The complaint claimed that Defendant Pignatelo and others concealed the ownership of the control person of the company while selling shares to the public. Defendant Exposito settled the matter, consenting to the entry of permanent injunctions based on Securities Act Sections 5(a), 5(c) and 17(a) and Exchange Act Section 10(b). The judgment also bars him from serving as an officer or director of a public company and from participating in any penny stock offering. He will also pay disgorgement and prejudgment interest in the amount of $43,337. That amount is deemed paid by the forfeiture order in the parallel criminal case. Previously, the co-defendants in the action defaulted. See Lit. Rel. No. 25941 (February 13, 2024).
Offering fraud: SEC v. Feloni, Civil Action No. 1:23-cv-12233 (D. Mass.) is a previously filed action which named as Defendants John Feloni and his company, Stock Squirrel, who raised about $2.5 million from over 180 investors. The sale pitch claimed that the funds would be used to develop a smartphone application for the rapidly growing youth market. Instead, the funds were misappropriated. The complaint alleged violations of Securities Act Sections 5(a), 5(c) and 17(a) and Exchange Act Section 10(b). To resolve the action Defendants consented to the entry of permanent injunctions as to each Section cited in the complaint, Each Defendant also agreed to pay, on a joint and several basis, disgorgement in the amount of $1,719,871 and prejudgment interest of $158, 839.51. In addition, Defendant Feloni will pay a penalty in the amount of $223,229. Mr. Feloni is also barred from serving as an officer or director of a public company and from participating in a penny stock offering. See Lit. Rel. No. 25940 (February 12, 2024).
FinCEN
Announcement: The Fnancial Crimes Enforcement Network – FinCEN – announced on February 13, 2024 that there is an increase in BSA reporting involving the use of convertible virtual currency for the use of online child sexual exploitation and trafficking (here),.
Singapore
Paper: The Monetary Authority of Singapore published a paper titled Recent Economic Development in Singapore on January 29, 2024 (here).
This Week In Securities Litigation (Week of February 19, 2024)
Last week the Commission filed three new actions: One centered on Regulation BI, a second was based on an offering fraud and a third tied to disclosure issues. The staff also published its annual report on Nationally Recognized Statistical Rating Agencies.
Be careful, be safe this week.
SEC
Staff report: The Staff published its annual report on Nationally Recognized Statistical Rating Agencies on February 16, 2024 (here).
SEC Enforcement – Filed and Settled Actions
Statistics: This week the Commission filed 1 new civil injunctive action and 2 new administrative proceedings, excluding tag-along actions and those that present a conflict for the author.
Regulation BI: In the Matter of TIAA-CREF Individual & Institutional Services, LLC, Adm. Proc. File No. 3-21856 (February 16, 2024) is a proceeding which names as respondent the dual registered broker-dealer/investment adviser. Beginning at the end of June 2020, and continuing for over one year, the firm failed to comply with certain of its obligations under Regulation Best Interest or Reg BI when making recommendations to clients. Specifically, in recommending initial investments the firm focused on what it called “core investments.” What it failed to tell clients is that virtually the same investments were available at less cost. Similarly, when offering various types of funds only the more expensive ones were mentioned – clients were not informed that less costly but virtually the same funds could be acquired. The firm also failed to establish and maintain written policies and procedures to ensure that the Reg BI requirements were met. The Order alleges violations of Exchange Act Rules 15l-1(a)(1) & (2). To resolve the proceedings, Respondent consented to the entry of a cease-and-desist order based on the Exchange Act Rules cited. In addition, the firm agreed to pay disgorgement in the amount of $936,714, prejudgment interest of $103,424.91 and a civil penalty of $1.250 million. The Commission considered the remedial actions of Respondent.
Disclosure: In the Matter of Van Eck Associates Corporation, Adm. Proc. File No. 3-21857 (February 16, 2024) is a proceeding which names as respondent the registered investment adviser. The action centers on disclosure issues tied to the launch of the VanEck Social Sentiment ETF in March 2021. In connection with the launch of the ETF and thereafter, the firm used a controversial social media influencer to promote what it called BUZZ index and its launch. In doing so the firm failed to provide the board with information regarding a number of material issues. The planned involvement of the influencer was also not disclosed to the independent trustee of the VanEck ETF Trust or the Board. The Order alleges violations of Exchange Act Section 21F(g)(3). To resolve the proceedings Respondent consented to the entry of a cease-and-desist order based on the Section cited in the Order and to a censure. In addition, the firm agreed to pay a penalty of $1.750 million. The firm did undertake remedial efforts.
Offering fraud: SEC v. SHE Beverage Company, Inc., Civil Action No. 2:21-cv-07339 (C.D. Cal.) is an action which named as defendants the firm and its principals, Lupe L. Rose, Sonja F. Shelly, and Katherine E. Dirden. The complaint alleged that over a two year period, beginning in 2017, Defendants conducted a fraudulent offering of shares based on multiple false statement. Each Defendant agreed to and did settle the charges which alleged violations of Securities Act Sections 5 and 17(a) and Exchange Act Section 10(b). The Court entered final judgments against each Defendant, enjoining them from future violations of each Section cited in the Order. In addition, each Defendant is jointly and severally liable for the payment of disgorgement in the amount of $12,021,500 and prejudgment interest of $334,842. Each Defendant will also pay a penalty in the amount of: Rose $k738,774, Shelby $344,842, and Dirden $889,842. Each individual Defendant is also barred from serving as an officer or director of a public company. See Lit. Rel. No. 25943 (February 15, 2024).
Offering fraud: SEC . Exposito, Civil Action No. 1:16-cv-10960 (D. Mass.) is a previously filed action which named as defendants Jay Pignatelo, a consultant and Secretary for Cannabiz Mobile, Inc. The complaint claimed that Defendant Pignatelo and others concealed the ownership of the control person of the company while selling shares to the public. Defendant Exposito settled the matter, consenting to the entry of permanent injunctions based on Securities Act Sections 5(a), 5(c) and 17(a) and Exchange Act Section 10(b). The judgment also bars him from serving as an officer or director of a public company and from participating in any penny stock offering. He will also pay disgorgement and prejudgment interest in the amount of $43,337. That amount is deemed paid by the forfeiture order in the parallel criminal case. Previously, the co-defendants in the action defaulted. See Lit. Rel. No. 25941 (February 13, 2024).
Offering fraud: SEC v. Feloni, Civil Action No. 1:23-cv-12233 (D. Mass.) is a previously filed action which named as Defendants John Feloni and his company, Stock Squirrel, who raised about $2.5 million from over 180 investors. The sale pitch claimed that the funds would be used to develop a smartphone application for the rapidly growing youth market. Instead, the funds were misappropriated. The complaint alleged violations of Securities Act Sections 5(a), 5(c) and 17(a) and Exchange Act Section 10(b). To resolve the action Defendants consented to the entry of permanent injunctions as to each Section cited in the complaint, Each Defendant also agreed to pay, on a joint and several basis, disgorgement in the amount of $1,719,871 and prejudgment interest of $158, 839.51. In addition, Defendant Feloni will pay a penalty in the amount of $223,229. Mr. Feloni is also barred from serving as an officer or director of a public company and from participating in a penny stock offering. See Lit. Rel. No. 25940 (February 12, 2024).
FinCEN
Announcement: The Fnancial Crimes Enforcement Network – FinCEN – announced on February 13, 2024 that there is an increase in BSA reporting involving the use of convertible virtual currency for the use of online child sexual exploitation and trafficking (here),.
Singapore
Paper: The Monetary Authority of Singapore published a paper titled Recent Economic Development in Singapore on January 29, 2024 (here).