The Commission created a new task force within OCIE this week to assess emerging risk. It is portrayed as a compliment to the current inspection program, apparently designed to try and get ahead of the curve on new issues that may impact regulated entities.

The agency enforcement program continued to focus on retail investors last week. Three new offering frauds cases were filed. In addition, two cases were brought based on undisclosed conflict involving an investment adviser.

Cornerstone Research published a report last week, reviewing filings of securities class actions. For the first time in recent years the number of actions filed declined.

SEC

Meeting: The agency published the agenda for the Small Business Capital Formation Advisory Committee meeting on August 4, 2023 (here).

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怎么给加速器授权∨PN The Commission announced the creation of the Event and Emerging Risks Examination Team or EERT within OCIE. The new team is designed to proactively work with financial firms regarding emerging threats to protect investors, according to the July 28, 2023 announcement (here).

Securities Class Actions

Report: Cornerstone Research published their mid-year report on securities class action filings (here). It notes that the total number of filings for the first half of the year declined to 182, the lowest since the second half of 2016 when 160 new securities class actions were filed. The cases filed during the first half of the year were split between those the Report calls “core” – essentially basic securities class actions – and actions related to M&A activity. There were 117 actions in the former category and 65 in the latter for the first half of the year. The 117 core class actions is the lowest number since the second half of 2016 as is the 65 M&A related cases.

The industry heat map for firms in the S&P 500 reflects a change in the filing patterns of core actions. Over the last 20 years, according to Cornerstone, the industries drawing the largest percentage of core filings were: 1) Health case – 9.1%; 2) finance/real estate – 7.7%; and 3) communication -telecommunications – 6.5%. In contrast, during the first half of 2023 the mix changed if viewed on an annualized basis: a) Health care – 10%; b) consumer discretionary – 6.2%; and c) consumer staples – 6.1%.

SEC Enforcement – Filed and Settled Actions

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Offering fraud: SEC v. Alford, Civil Action No. 1:20-cv-03164 (N.D. Ga. Filed July 30, 2010). Defendant Clarence Dean Alford is the President and CEO of Allied Energy Services, LLC. He is also a five-term member of the Georgia state legislature and a former member of the Georgia Board of Regents. Beginning in 2017 Defendant raised over $23 million from at least 100 investors who purchased unregistered, high yield promissory notes. Those notes supposedly had a return ranging from 12% to 34% annually. In marketing the notes Mr. Alford distorted the firm’s finances and hid them from the CFO by using a bank account over which only he had control. By 2023 the firm was missing payments and ultimately collapsed. Mr. Alford was arrested by state authorities. The complaint alleges violations of each subsection of Exchange Act Sections 17(a) and Exchange Act Section 10(b). To resolve the matter, Defendant consented to the entry of a permanent injunction based on the sections cited in the complaint. He also agreed to submit the question of financial remedies to the Court.

Offering fraud: SEC v. Farias, Civil Action No. 5:20-cv-00885 (W.D. Tx. Filed July 30, 2023) is an action which names as defendants Victor Lee Farias, the founder and CEO of defendant Integrity Aviation & Leasing, LLC. Over a six-year period, beginning in 2013, Defendants raised over $14 million from investors that included a number of retired San Antonio Police Department officers. Investors were told that the funds would be used to purchase aircraft engines and other aviation assets that would be leased or sold to major airlines. Investors could expect that the notes they purchased – supposedly secured – would pay a return of 10-12% per year. In fact, large portions of the investor funds were used to make Ponzi like payments to others and for large fees. 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.

Manipulation: SEC v Sayid, Civil Action No. 17-cv-2630 (S.D.N.Y.) is a previously filed action which named as defendants Mustafa David Sayid and Norman Reynolds, respectively, a New York and Texas securities attorney. The complaint centered on taking control of two microcap firms by Mr. Sayid and having each issue convertible debt supposedly to secure payment of legal fees. The securities were manipulated, and the legends were removed based on an opinion issued by Mr. Reynolds. The Court granted summary judgment in favor of the Commission. Each Defendant consented to the entry of a permanent injunction based on Securities Act Section 17(a) and Exchange Act Section 10(b). Mr. Sayid will pay disgorgement of $25,000, prejudgment interest of $6,899 and a penalty of $160,000. Mr. Reynolds will pay disgorgement of $8700, prejudgment interest of $193 and a penalty of $75,000. Each man is barred from participating in any penny stock offering and from preparing or issuing opinion letters in connection with the issuance of securities. Mr. Sayid is also barred from acting as an officer director of any issuer. See Lit. Rel. No. 24858 (July 29, 2023).

Offering fraud: SEC v. Johnson, Civil Action No. 5:20-cv-1493 (C.D. Cal. Filed July 28, 2023) is an action which names six individuals as defendants: Anthony Johnson, Jeremy Johnson, Richard Portillo, Michael Gregory, Charles Lloyd and Mark Heckele. Defendants raised over $25 million over a two year period from over 400 individuals to invest in two cannabis-related businesses, a marijuana farm and a cannabidiol extraction facility. Defendants used a series of nine issuers and three marketing companies to implement the scheme. Investors were promised returns of 100% or more. In fact, a portion of the money was misappropriated. The complaint alleges violations of Securities Act Section 17(a) and Exchange Act Sections 10(b) and 15(a). The case is pending. See Lit. Rel. No. 24857 (July 29, 2023).

Short selling: In the Matter of Celadon Financial Group, LLC, Adm. Proc. File No. 3-19893 (July 27, 2023) is a proceeding which names as a respondent the registered broker dealer. Over a period of about eighteen months, beginning in mid- July 2016, the firm facilitated order flow from other brokers in low priced and often thinly traded stocks. A portion of the orders were shorted by the broker. Respondent did not cover those positions as required by Rule 203(b)(1) of Regulation SHO. The firm also failed to comply with its anti-money laundering obligations. The Order alleges violations of Rule 203( b)(1) of Reg. SHO and Exchange Act Section 17(a). Respondent resolved the proceedings, consenting to the entry of a cease and desist order based on the provisions cited in the Order and to a censure. Respondent also agreed to pay a penalty of $125,000. The funds are subject to Exchange Act section 21F(g)(3).

Insider trading: SEC v. Altvater, Civil Action No. 17-cv-1118 (D. Mass. Filed June 27, 2017) is a previously filed action which named as a defendant Harold Altvater, the husband of an employee who worked at a Pharmaceutical Company. In 2013 and 2014 he obtained material non-public information about FDA notices to the firm by misappropriating the information from his wife. He traded, reaping profits of $112569. The Court entered a final judgment against him permanently enjoining Mr. Altvater from future violations of Exchange Act Section 10(b). He was also directed to pay disgorgement of $112,569. That amount is offset by the order of forfeiture entered in his criminal case where a jury found him guilty on three counts of securities fraud following a jury trial and sentenced to serve eighteen months in prison. See Lit. Rel. No. 24855 (July 24, 2023). pn加速器 No. 1:17-cr-10216 (D. Mass.). See also, SEC v. Curran, Civil Action No. 7-cv-11179 (D. Mass. Filed June 27, 2017); SEC v. Dubuc, Civil Action No. 17-cv-1118 (D. Mass. Filed June 27, 2017)(actions settled by two other employees who engaged in insider trading).

Conflicts: In the Matter of VALIC Financial Advisors, Inc., Adm. Proc. File No. 3-19894 (July 28, 2023) is an action which names as a Respondent the registered investment adviser. Over a thirteen year period, beginning in late 2006, Respondent did not disclose to certain Florida teachers who were potential or actual clients of the firm’s parent that it was providing cash and other financial benefits to a for profit company owned by Florida K-12 teachers’ unions. Specifically, that it received cash and other financial benefits in return for referring teachers to the adviser and its products and services. VFA’s conduct represented a course of conduct that operated as a fraud and deceit upon clients and potential clients in violation of Advisers Act Sections 206(2) and 206(4). To resolve the proceedings Respondent agreed to implement certain undertakings, consented to the entry of a cease and desist order based on the sections cited in the Order and to a censure. The firm also agreed to pay a penalty of $20 million. The payments are subject to Exchange Act Section 21F(g)(3). See also In the Matter of VALIC Financial Advisors, Adm. Proc. File No. 3-19895 (July 28, 2023)(Undisclosed 12b-1 fees; resolved with an agreement to implement certain undertakings, a consent to the entry of a cease and desist order based on the same sections cited above, a censure, the payment of disgorgement of $13,232,681, prejudgment interest of $2,211,072, a censure and a penalty of $4 million; a fair fund was created).

MAS

Loan facility: The Monetary Authority of Singapore announced the extension of a US $60 billion swap facility with the U.S. Federal Reserve. The facility is to facilitate USD lending to businesses in Singapore and the region.

Video Program: “Securities Fraud, the Pandemic and Compliance: Protect Your Organization,” August 6, 2023, 12:00 p.m. ET. Chair, Tom Gorman. Free registration, materials & CLE (here)