This Week In Securities Litigation (Week of March 28, 2022)

The Commission’s proposed rules regarding climate change, issued last week, continue to dominate the news. The proposals would require issuersto disclose information regarding the impact of climate change and how the firm monitors and deals with it. The proposals also requires the disclosure of information on the fir m’s carbon footprint.

FINRA has issued a release which discusses the impact of complex products. The Commission has previously brought enforcement actions in this area (here). Those cases present significant questions regarding trading in complex investment products and if advisers are furnishing retail investors sufficient guidance in the area.

Be careful, be safe this week


Whistleblowers: The Commission announced an award of $1.25 million to a whistleblower on March 25, 2022, and three awards totaling $3 million on March 18, 2022.

Proposed rules: The agency announced rule proposals designed to enhance the disclosure of information regarding climate disclosure (here) on March 21, 2022. A discussion of those proposals is available here.

Be careful; be safe

SEC Enforcement – Filed and settled actions

Last week the Commission filed no civil injunctive actions and no administrative actions, exclusive of 12j, tag-a-long and other similar proceeding.

Microcap fraud: SEC v. Knox, Civil Action No. 1:18-cv-12058 (D. Mass.) is a previously filed action which named as defendants Michael Gastauer of Germany and a Swiss firm he controlled, Silverton SA Inc., among others. The complaint alleges a scheme in which the shares of U.S. based entities were sold while concealing the identity of the controlling shareholders of each of whom could not sell their shares. Sharers of over 50 companies were involved with sales totaling $165 million. Mr. Gastauer and his firm are alleged to have aided the sales. Previously, the Court entered a preliminary injunction. A default judgment was entered against Mr. Gastauer on March 23, 2022. The Court has now entered permanent injunctions against him based on Securities Act Sections 5 and 17(a) and Exchange Act Section 10(b). The Court also concluded that Mr. Gastauer was liable for disgorgement in the amount of $11,264,415 plus prejudgment interest of $1,736,559 and a civil penalty of $4,350,843. In a parallel criminal case, defendant Roger Knox pleaded guilty to one count of securities fraud and one count of conspiracy to commit securities fraud. Sentencing is pending. See Lit. Rel. No. 25349 (March 24, 2022).

Settlements in securities class actions

The number of settlements in securities class actions last year increased, according to Cornerstone Research’s Securities Class Action Settlements, 2021 Year in Review (here). Last year the number of settlements in securities class actions reached a 10 year high. During that year 87 cases settled for a total of $1.8 billion. In contrast, the amount of the median settlement fell by 22% to $8.3 million. This is consistent with the fact that about 60% of the cases were resolved for less than $10 million with 14% settling under $2 million. During the same period there were three mega settlements that ranging from over $130 million to $187.5 million, according to the Report.


Remarks: Acting Director Himamauli Das delivered remarks at the NYU Program on Corporate Compliance and Enforcement on March 25, 2022. His comments focused on enhancing compliance procedures regarding ransomware in view of the war in the Ukraine (here)


Release: The Monetary Authority of Singapore or MAS issued a release titled Consumer Price Developments in February 2022, on March 23, 2022 (here).

Release: MAS announced the development of two experimental prototypes for a shared platform that could enable international settlements using digital currencies issued by multiple central banks (Australia, Malaysia, Singapore and South Africa) on March 22, 2022 (here).