This Week In Securities Litigation (Week of March 22, 2021)
Climate change and ESG continue to be key topics of conversation at the Commission. Acting Chair Allison Herren Lee invited everyone to provide the agency with their thoughts and ideas on the topics, guided by a series of points and questions. Over the next 90 days that comments can be submitted the Commission is sure to get a variety ideas, views and comments.
Once the Commission writes new rules in the area it is likely that the agency will also receive a significant number of comments. Those may begin with ideas trying to minimize the impact of any rules adopted. Later undoubtedly there will be a series of legal challenges arguing a variety of viewpoints but essentially claiming the SEC should stick to financial and business data. Nevertheless, it is critical that the agency continue to move forward, assume a leadership role among world regulators in this area, and adopt meaningful and effective rules and standards – what is at stake is far to important to fail.
Be careful, be safe this week
Remarks: Acting Chair Allison Herren Lee delivered remarks titled A Climate for Change: Meeting Investor Demand for Climate and ESG Information at the SEC (Washington, D.C. March 15, 2021) (here). The Acting Chair’s remarks reviewed her directive on climate change to the staff, the recent request for comments (below) and briefly touched on ESG, shareholder rights and proxy voting.
Remarks: Commissioner Elad Roisman delivered remarks titled An Honest Conversation about ESG Regulation, Washington, D.C. (March 19, 2021). His remarks focused on potential recommendations from the Diversity and Inclusion Subcommittee while reviewing considerations regarding ESG for advisers and investors (here).
Statement: Acting Chair Allison Herren Lee invited the public to provide comments over the next 90 days on the subject of climate change and ESG: Public Statements – Public Input Welcomed on Climate Changes (March 15, 2021)(here).
SEC Enforcement – Filed and Settled Actions
The Commission filed 5 new civil injunctive actions and 1 administrative proceedings last week, excluding 12j, tag-along proceedings and other similar matters.
Unregistered broker: SEC v. Dantin, Civil Action No. 021-cv-60588 (S.D.Fla. Filed March 17, 2021) is one of three new cases that center on the sale of shares in 1 Global Capital, LLC, a merchant cash advance company, the subject of an earlier Commission enforcement action (here); see also SEC v. Ortiz, Civil Action No. 0:21-cv-60588 (S.D.Fla. Filed March 17, 2021); SEC v. White, Civil Action No. 0:21-cv-60589 (S.D. Fla. Filed March 17, 2021). Each complaint alleges violations of Securities Act Sections 5(a) and 5(c) and Exchange Act Section 15(a). Two of the three actions settled. In each the Defendant or Defendants consented to the entry of injunctions based on the Sections cited in the complaint and agreed to pay disgorgement, prejudgment interest and a penalty. In the first action cited above , Defendant Chris Danti agreed to pay disgorgement of $33,818.27, prejudgment interest of $2,403.29 and a penalty of $30,000. In the same action Defendant Christopher Danti will pay disgorgement of $1,279,886.84, prejudgment interest of $123,157.47 and a penalty of $100,000. Mr. White, in the third action cited above, will pay disgorgement of $129,672, prejudgment interest of $7,279 and a penalty of $30,000. The action against David Ortiz is in litigation. See Lit. Rel. No. 25053 (March 17, 2021).
Offering fraud: In the Matter of Ettro Capital Management Corp. Adm. Proc. File No. 3-20243 (March 15, 2021) is an action which names as Respondents the firm, an unregistered investment adviser, and its founder and president, Peter Ettro. Over a three-year period, beginning in 2016, Respondents made material misrepresentations to prospective investors regarding the past performance of the fund, capital raised and the amount under management and the firm’s experience. They also raised about $4.4 million for the Fund from 13 investors in an unregistered, non-exempt securities offering of membership interests. The Order alleges their conduct violated Securities Act Section 5(a) and 5(c) and 17(a) in addition to Exchange Act Section 10(b). In resolving the matter Respondents agreed to certain undertakings. They also consented to the entry of cease-and-desist orders based on the Sections cited in the Order. Mr. Ettro is barred from the securities busines. Respondents will pay, on a joint and several basis, a penalty of $60,000.
Investment fraud: SEC v. Haarman, Civil Action No. 1:21-cv-235 (W.D. Tx. Filed March 11, 2021) is an action which names as defendants Paul W. Haarman, Patrick E. Duke and Apeg Energy GP, LLC. Over a period of about nine months, beginning in December 2015, Defendants sold interests in the firm to about 115 investors, raising approximately $17.4 million. A series of misrepresentations were made which included, claims of a safe return, that Mr. Duke had expertise in the oil and gas industry and that fees were limited to 2%. The representations were false. Defendants also managed a fund from which channeled almost $2.7 million in illicit payments to themselves that were concealed from investors. The complaint alleges violations of Securities Act Section 17(a), Exchange Act Section 10(b) and Advisers Act Sections 206(1) and 206(2). The case is in litigation. See Lit. Rel. No. 25051 (March 12, 2021).
Pump and dump manipulation: SEC v. Fassari, Civil Action No. 8:21-cv-00403 (CD CA Filed March 2, 2021) is an action which named Andrew Fassari as a defendant. In December 2020 Mr. Fassari published a series of false statements on social media about Arcis Resources Capital, a public company that had been defunct since 2016. He purchased huge quantities of stock while touting its claimed revived prospects through Twitter and other platforms. The price rose, reached a closing price of $0.054, an increase of about 4,0000%. On three separate dates Defendant sold all of his shares for a profit of over $929,000. The complaint alleges violations of Securities Act Section 17(a) and Exchange Act Section 10(b). The case is pending. The Commission suspended trading in the stock. See Lit. Rel. No. 25052 (March 17, 2021).
Acting Chairman Rostin Behnam announced the establishment of the Climate Risk Unit on March 17, 2021. Its focus is the role of derivatives in understanding, pricing, and addressing climate-related risk in transitioning to a low-carbon economy (here).