This Week In Securities Litigation (Week of September 5,2022)
Leading up to what turned out to be a sweltering holiday weekend in many areas the Commission filed actions focused on: investment fraud, a Ponzi scheme and compliance.
Be careful this week, be safe this week
SEC Enforcement – Filed and settled actions
Last week the Commission filed 3 civil injunctive actions and -1 administrative action, exclusive of 12j, default, tag-a-long and other similar proceedings.
Investment fraud: SEC v. Lindberg, Civil Action No. 22-cv-715 (M.D. N.C. Filed August 30, 2022) is an action naming as defendants: Gregory Lindberg, the founder of Eli Global, a privately held investment firm in North Carolina, and a Director of Defendant SAS; Christopher Herwig is the CIO of Eli Global; and Standard Advisory Services Ltd. is a Malta based, registered investment company. Beginning in mid-2017, and continuing through 2018, Defendants convinced their clients to invest in complex schemes that typically ended with Defendants misappropriating much of their money. For example, in one scheme the individual defendants convinced their clients to invest in a number of complex transactions that were designed to conceal their misappropriation of client funds. The others were similar. The complaint alleges violations of Advisers Act Sections 206(1) and 206(2). The case is pending. See Lit. Rel. No. 25491 (August 30, 2022),
Ponzi scheme: SEC v. Ruia, Civil Action No. 0:22-cv-61609 (S.D. Fla. August 29, 2022) is an action which names as defendant Pavel Ruiz, a board member and sales agent for MJ Capital, supposedly a firm in the lending business which was actually a Ponzi scheme that collapsed in the wake of a Commission enforcement action. Beginning in June 2021, Defendant and others raised millions of dollars for MJ Capital. Investors were told about large returns for the claimed lending business. In this case, Defendant raised over $46 million for the scheme. Overall, MJ Companies raise over $196 million from about 15,400 investors. The complaint alleges violations of Securities Act Sections 5(a), 5(c) and each subsection of 17(a) and Exchange Act Sections 10(b) and 15(a)(1). The case is pending. The U.S. Attorneys Office for the Southern District of Florida filed a parallel action. See Lit. Rel. No. 25490 (August 30, 2022).
Unauthorized trading: SEC v. Bressler, Civil Action No. 1:22-cv-07391 (S.D.N.Y. Filed August 30, 2022) is an action which names as defendant Lee Bressler, an investment adviser and the Portfolio manager of the Carbon Investment Master Fund in this matter. In late 2016 Defendant and two others founded the Fund and Carbon Investments LLC. In addition to the primary investors, 10 others invested in the fund. The primary strategy was to limit risk through limitations on position by avoiding a concentration in any one security while monitoring volatility. Trading was through the Primary Account. In mid- 2017 Defendant opened two other accounts without making any disclosure. He then placed high risk trades through these accounts again without disclosing the matter. During the period Mr. Bressler also continued to solicit outside investors. The complaint alleges violations of Exchange Act Section 10(b), Securities Act Section 17(a) and Advisers Act Sections 206(1), 206(2) and 206(4). The case is pending. See Lit. Rel. No. 25488 (August 30, 2022).
Compliance: In the Matter of Kovack Advisors, Inc., FileNo. 3-21008 (August 26, 2022) is a proceeding which names as Respondent the advisory, a subsidiary of a financial services company. The firm is a registered investment adviser. Over a three year period, beginning in 2015, the firm charged an all inclusive “wrap fee” for its services. To implement this the firm generally reviewed the activity in accounts to ensure that only active accounts were billed and charged, a point it advertised. Despite representing to clients that these procedures were in place, in fact they often were not. Specifically, clients were charged when they should not have been. The Order alleges violations of 206(2) and206(4). Respondent agreed to implement certain undertakings. Respondent resolved the proceedings, consenting to the entry of a cease-and-desist order based on the Sections cited in the Order and to a censure. In addition, the firm agreed to pay disgorgement of $166,239, prejudgment interest of$33,274 and a penalty of $700,000.
Options: The Australian Securities Commission announced on September 5, 2022 that is is extending its ban on binary options until 3031.
Remarks: Edward Robinson, Deputy Managing Director for Economic Policy & Chief Economist, MAS, delivered remarks titled An Update on Domestic Economic Conjuncture (Sept. 1, 2022)(here).