This Week In Securities Litigation (Week of October 25, 2021)
Chair Gensler raised two key points regarding environmental disclosures in remarks before the Financial Stability Oversight Counsel on October 21, 2021. First, with respect to issuers, the Chair noted that the “SEC has a role to play in cases like this to facilitate consistent, comparable, and decision-useful disclosures . . .” Second, concerning funds, he noted that it is time to update rules in this area “so that investors can see what data, methodologies, and criteria stand behind these names and claims” used.
SEC
Report: The Staff issued a Report on Equity and Options Market Structure Conditions in Early 2021. The report essentially focuses on the trading around GameStock earlier this year. At the conclusion it provides a list of items for reflection. The Report was issued on October 18, 2021 (here).
Whistleblowers: Two whistleblowers were awarded $40 million on October 18, 2021. The CFTC, however, issued a record $200 million to one whistleblower last week.
Be careful, be safe this week
SEC Enforcement – Filed and Settled Actions
Last week the Commission filed 1 civil injunctive actions and 1 administrative proceeding, exclusive of tag-along and other similar proceedings, excluding one FCPA case where the author has conflicts.
Offering fraud: SEC v. Bernardi, Civil Action No. 1:21-cv-08598 (S.D.N.Y. Filed October 20, 2021) is an action which names as defendants: Robert Bernardi, the founder of GigaMedia Access Corporation, a private encryption software firm and its CEO for a time; Nihat Cardak, Gia’s CFO for a period; and Sunil Chandra, an employee of the firm. Over a period of several months, beginning in early 2018, Defendants raised over $37 million from sophisticated investors in Giga. The plan was implemented through the use of fabricated bank statements, falsified audited financial statements and with the aid of an employee who impersonated a customer on an investor due diligence call. The complaint alleges violations of Securities Act Section 17(a) and Exchange Act Section 10(b). The case is pending. A parallel criminal action was brought by the U.S. Attorney’s Office for the Southern District of New York. See Lit. Rel. No. 25244 (October 20, 2021).
Offering fraud: SEC v. Trikantzopoulos, Civil Action No. 25243 (D. Mass.) is a previously filed action which named as defendants Vassillios Trikantzopoulos and Navis Ventures LLC. The complaint alleged an international real estate investment scheme. Following the solicitation of investors, their funds were misappropriated and used for the personal expenses of Mr. Trikantzopoulos. The Court granted the Commission’s motion for summary judgment, concluding that Defendants had defrauded investors. The Court entered judgements as to each Defendant on October 15, 2021, enjoining them from future violations of Securities Act Section 17(a) and Exchange Act Section 10(b). In addition, the Court directed that Mr. Trikantzopoulos pay $109,139 in disgorgement, $17,841 in prejudgment interest and a penalty of $195,046. Nevis was directed to pay a penalty of $250,000. See Lit. Rel. No. 25243 (October 15, 2021).
Controls: In the Matter of Amyris, Inc., Adm. Proc. File No. 3-20624 (October 15, 2021) is a proceeding which names the developer of chemical products as a respondent. During the first two quarters of 2018 the firm improperly recognized certain royalty revenues. As a result, the firm’s financial statements were materially inaccurate. This resulted because the company did not devise internal accounting controls to provide reasonable assurance that relevant information was communicated to the accounting staff. The company took remedial actions. The Order alleges violations of Exchange Act Sections 13(a), 13(b)(2)(A) and 13(b)(2)(B). To resolve the proceedings the company consented to the entry of a cease-and-desist order based on the Sections cited in the Order. The company will also pay a penalty of $300,000.
DOJ
Report: The Department issued its annual report on DOJ’s efforts to combat and prevent elder fraud and abuse, dated October 19, 2021 (here).
FinCEN
Exceptive relief: The regulator issued exceptive relief for casinos from certain identity verification requirements. Specifically, a casino may use suitable non-documentary methods to verify the identity of online customers. The method selected should be evaluated based on risk, according to the October 19, 2021 release (here).
Australia
Remarks: Cathie Armour, Commissioner, Australian Securities and Futures Commission, delivered the keynote address at the ISDA Annual Asia Pacific Commission, titled Regulating FICCA in today’s Age of Uncertainty on October 19, 2021 (here). Her remarks focused on the impact of the current pandemic.
ESMA
Report: Three European Supervisory Authorities delivered to the Commission their final report regarding financial products that make sustainable investments contributing to environmental objectives, according to an October 22, 2021 release (here).
Germany
Requirements: BaFin qualified its requirements for BAIT, that is, the supervisory requirements for banks, according to an October 14, 2021 release (here).
U.K.
Rules: The Financial Conduct Authority issued final rules under the Markets in Financial Instruments Directive which is part of the investment firm’s Prudential Regime. These Directive will streamline and simplify prudential requirements by refocusing on requirements and expectations away from certain risks. The focus is to consider and look to manage the potential harm firms can pose to consumers and markets (here).