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

The Commission concluded an action during this holiday shortened week with an admission of wrongdoing. In a municipal bond case the agency required an official who lied to investors to conceal the fact that there were significant questions regarding his ability to properly execute his position. The case was settled on a negligence basis.

Be careful, be safe this week


Strategic Plan: The Commission filed is Strategic Plan for FY 22-26 on November 23, 2022. The plan discusses the focus of the agency over the period for fighting fraud and maintaining the capital markets (here).

SEC Enforcement – Filed and settled actions

Last week the Commission filed 1 civil injunctive actions and 1 administrative proceeding, exclusive of 12j, default, conflicts (which are included in the tabulation of cases), tag-a-long and other similar proceedings.

Muni offering: SEC v. Rojas, Civil Action No. 5:19-cv-01799 (C.D. Cal.) is a previously filed action which named as defendant the Chief Business Officer of Montebello Unified School District. The complaint alleged that Defendant misled bond investors by not telling them that he had fired the independent auditor after the firm raised concerns about Defendant’s qualifications and integrity. Defendant agreed to resolve the matter by admitting wrongdoing and agreeing to the entry of a permanent injunction based on Securities Act Section 17(a)(3), agreeing to pay a penalty of $50,000. The Court signed an amended judgment which resolves the action. See Lit. Rel. No. 25580 (November 21, 2022).

Stop order: In the Matter of The Registration Statement of American CryptoFed DAO LLC, Adm. Proc. File No. 3-21243 (November 18, 2022). Respondent was established on July 1, 2021 as the successor to American CryptoFed, Inc. The firm has filed two registration statements with the Commission. The first was a Form 10 registration statement that sought to register the Ducat and Locke tokens under Exchange Act Section 12(g). The second was filed on September 17, 2021, on Form S-1. It sought to register the offer and sale of the tokens. Subsequently, the Commission issued an order Directing Examination and Designating Officers Pursuant to Section 8(e) of the Securities Act. The next day it issued an Order and Notice of Proceeding under Section 12(j) of the Exchange act against American CypoFed. Respondent claims to be a Decentralized Atomos Organization. The tokens, according to the firm, are not securities but utility tokens. Essentially the Registration Statements fail to comply with the applicable rules – little information is actually contained in the filings. There are, however, misstatements and material omissions. Respondent is also alleged to have failed to cooperate with the Section 8(e) examination. The matter will be set for hearing.

Unregistered broker: SEC v. Gel Direct Trust, Civil Action No. 1:22-cv-09830 (S.D.N.Y. Filed November 17, 2022) is an action which names as defendants GEL Direct Trust; GEL Direct, LLC, Jeffrey K Galvani; and Stuarts A. Jeffery. Beginning in 2019 the individual Defendants operated a business model through the two entity Defendants that focused on acting as an introducing broker in acquiring penny stocks and then selling them to customers and ultimately into the market. No defendant is registered in any capacity with the Commission. Nevertheless, from June 2019 through May 2022 Defendants used the business model to execute over 19,000 trades involving more than 300 billion shares. The transactions yielded over $12.4 million in compensation. The complaint alleges violations of Exchange Act Section 15(a). The case is pending. See Lit. Rel. No. 25579 (November 17, 2022).

Cornerstone-NYU on SEC Public Company and Subsidiary Cases

Cornerstone Research and NYU Pollack Center for Law and Business published their annual report on statistics and trends in SEC Enforcement actions involving public companies and subsidiaries on November 17, 2022 (here). The Report begins by noting that the number of actions filed against public company and subsidiary defendants increased to 68 in fiscal 2022. That represents an increase over the 53 such actions filed in FY 2021 and the 62 in 2022. The Report also notes that 16 cases were settled based on admissions of wrongdoing during the fiscal year. Finally, the it states that 63% of the public company and subsidiary cases brought in FY 2022 noted cooperation. That fact is consistent with the prior year when 62% of the cases noted cooperation. Despite the acknowledgement of cooperation by Commission, 97% of the settlements involved a monetary component, the highest percentage of any fiscal year in SEED. It is also consistent with the fact that in fiscal 2022 the percentage of actions that settled without a monetary component was the lowest in any fiscal year in SEED.


Agreement: The EU Agency for Cooperation of Energy Regulators or ACER and the European Securities and Markets Authority or ESMA announced on October 18, 2022, an agreement between the two regulators to further improve information exchange with a view to avoiding potential market abuse in Europe’s spot and derivative markets.


Agreement: The UK and Singapore held their seventh dialogue to deepen their commitment to the UK-Singapore Partnership agreed in 2021. The discussions focus on topics which include sustainable finance, FinTech and innovation (here).


ESG: The Financial Conduct Authority announced on November 11, 2022 the formation of a group to develop a Code of Conduct for Environmental Social and Governance or ESG data and ratings. Previously, the regulator encouraged firms to develop standards. The FCA has determined, however, that typically third parties are consulted. The development of ESG metrics will be an expansion of the regulator in this area.

Tagged with: , ,