This Week In Securities Litigation (Week of November 29, 2021)

As we head toward the Thanksgiving holiday the Commission updated and revised rules. First the agency proposed updates to its electronic record keeping requirements. Second, certain proxy rule amendments adopted just two years ago were revised to simplify the rules by essentially eliminating the recent revisions.

Have a great holiday!!


Proposed rule: The Commission published a proposed rule on November 18, 2021 that would require lenders of securities to provide material terms of the arrangements to a registered national securities association such as FINRA. The proposed rule is intended to bring transparency to lending transactions (here).

Proposed rules: The Commission proposed effectively revoking rules adopted in 2020 regarding proxy advice. The rules that would be rescinded required that advice be provided in a timely manner and that clients of proxy voting advice businesses be provided with a means of becoming aware of any written responses by registrants to proxy voting advice. The changes would also impact the liability sections of the rules. Investors have expressed concern about the confusion and risks of the rules (here).

New rules: The Commission adopted final rules on November 17, 2021 requiring parties in a contested election to use universal proxy cards. Those cards are required to include all director nominees presented for election at the shareholder meeting (here).

Enforcement results: The Commission announced the enforcement results for fiscal year 2021. According to the release, the total number of cases filed during the period was 434, an increase of about 7% over the prior year. An Addendum to the November 18, 2021 release lists the cases filed and provides statistics which include a table classifying the types of cases brought. The largest group of cases was initiated against investment advisers while the second largest group of actions centered on securities offerings. Other tables report the money ordered in actions and the amount returned to investors (here).

Be careful, be safe this week

SEC Enforcement – Filed and Settled Actions

Last week the Commission filed 2 civil injunctive actions and no- administrative proceedings, exclusive of Section 12(j), tag-along and other similar proceedings.

Crypto offering fraud: SEC v. Ginster, Civil Action No. 5:21-cv-01957 (C.D. Ca. Filed November 18, 2021) is an action against Ryan Ginster, who implemented two Bitcoin offering frauds, one under the name of Social Profimatic and the other under the name of Over a two year period, beginning in March 2018, Defendant raised about $3.6 million in BTC. The schemes focused on offering impossible rates of return. For example, in the SP scheme Defendant offered an 8% per day rate of return which analyzes to a rate of 1,583,692,108,826%. The MMP scheme for a period offered a rate of return of 0.13% per hour or 3.12% per day. Eventually Defendant transferred the Bitcoin from the digital wallets to his personal digital asset wallet. Defendant then converted the BTC to U.S. dollars. The complaint alleges violations of Securities Act Sections 5(a), 5(c) and 17(a) and Exchange Act Section 10(b). The case is pending.

Insider trading: SEC v. Clark, Civil Action No. 1:20-cv-01529 ((E.D.Va.) is a previously filed action which named as defendants Christopher Clark, the brother-in-law of William Wright, the former corporate controller of CEB Inc.,and also a defendant. Last week the Court entered a final judgment by consent against Mr. Wright based on a complaint that alleged insider trading. The complaint claimed that after Mr. Wright learned his company was to be acquired, he told his brother-in-law who repeatedly purchased out-of-the-money call options. After the deal announcement Mr. Clark liquidated his options and made a profit of $240,000. The judgment entered by the Court permanently enjoins Mr. Wright from future violations of Exchange Act Section 10(b) and orders him to pay a penalty equal to the amount of his trading profits. The judgment also bars him from serving as an office or director of a public company for two years.

Offering fraud: SEC v. Burrell, Civil Action No. 1:21-cv-09422 (S.D.N.Y. Filed November 15, 2021). Named as defendants are Joshua Burrell and Activated Capital, LLC. Mr. Bunnell is the founder and managing principal of Activated. Previously, he was a registered representative associated with a registered broker-dealer. Activated managed a fund that invested in properties in “Opportunity Zones,” known as Fund II. Opportunity Zones were established by Tax Cuts and The Jobs Act of 2017. Investors who have capital gains can put their funds into these Zones, which are economically disadvantaged, and obtain certain tax benefits. Activated promoted interests in Fund II. It also managed other funds. From early 2019 through early 2021 Defendants raised about $6.3 million from fourteen investors for Fund II. When Mr. Burrell began marketing interests in Fund II he made a series of misrepresentations. First, investors were told that their investments would be made in Fund II. In many instances, however, Mr. Burrell misappropriated the funds. Properties were then purchased in the name of other Activated entities. Second, the operating documents contained misrepresentations. The documents stated that investors would be paid distributions from revenue generated by the underlying properties. In fact, distributions were made through the use of Ponzi like payments. Finally, investors were told that Fund II had an outside custodian and that the principals of Activated had invested in it. Neither statement was true. The complaint alleges violations of Securities Act Section 17(a) and Exchange Act Section 10(b). The case is pending. See Lt. Rel. No. 25263 (November 15, 2021).


Cornerstone Research and the NYU Pollack Center issued their annual report titled “SEC Enforcement Activity: Public Companies and Subsidiaries for 2021” (here). The Report identifies trends in a subsection of the actions filed by the Commission focused on public companies and their subsidiaries. The Report concludes that the number of actions brought against public companies and their subsidiaries slowed last year to 53. That is the lowest number of cases brought in this area since fiscal 2014. The number of actions filed is 15% lower than fiscal 2020 and 32% lower than the average over the past five fiscal years. The actions filed in fiscal 2021 were about evenly split between those that involved reporting and disclosure cases and those which fell into other areas. Specifically, about 27 cases involving reporting and disclosure questions were initiated while 26 fell into the “other” category. The two largest groups of cases filed last year involved investment advisers and the Foreign Corrupt Practices Act. Approximately 26% of the cases fell into the former category while 8% were in the latter. Only 4% of the total cases initiated involved broker-dealers.


Objectives: BaFin set medium-term objectives for its supervisory activities. The Federal Financial Supervisory Authority set medium term objectives which are part of a forward-looking supervisory authority, according to a release issued on November 11, 2021(here).


Remarks: Ravi Menon, Managing Director, Monetary Authority of Singapore addressed the Singapore Exchange Capital Markets Symposium on November 17, 2021, delivering remarks titled “Singapore as a Centre for Fund-Raising in Asia” (here).

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