SEC Order Imposes Fine On Ditto Holdings For $3.7 Million Unlawful Offering
On September 8, 2015, the Securities and Exchange Commission (“SEC”) initiated public cease-and-desist proceedings pursuant to Section 8A of the Securities Act of 1933 (“Securities Act”) against Ditto Holdings, Inc. (“Ditto Holdings”). In anticipation of the institution of these proceedings, Ditto Holdings submitted an Offer of Settlement (the “Offer”) which the SEC accepted.
Ditto Holdings owns 100% of Ditto Trade, Inc. (“Ditto Trade”), which purports to be a “first-of-its-kind social brokerage firm.” Since July of 2010, Ditto Trade has been registered with the SEC as a broker-dealer pursuant to Section 15 of the Exchange Act.
From April 2009 to September 2013, Ditto Holdings raised approximately $10 million from more than two hundred investors located throughout the United States through a series of common and preferred stock offerings which were purportedly exempt from the SEC’s registration provisions.
According to the SEC charges, Ditto Holdings did not maintain a complete and accurate set of financial records from its inception through at least September 2013. Ditto Holdings did not regularly prepare financial statements during that time period and has never had an audit performed on any of its financial statements.
According to the SEC Charges, Ditto Holdings prepared offering documents for several of its securities offerings, but it did not provide the offering documents to everyone who was offered the opportunity to purchase its securities. Further, the offering documents did not include financial statements or certain other required financial information about Ditto Holdings, and Ditto Holdings did not otherwise provide this information to any investors.
Beginning in August 2012, Ditto Holdings entered into a series of agreements with Marc Mandel (“Mandel”). Under the agreements, Mandel agreed to co-develop with Ditto Holdings an internet-based radio show covering the stock markets and provided a number of services to Ditto Holdings, including, among other things, marketing, product offerings, industry trends, and investor offerings. Mandel also hosted a radio program, on which Ditto Trade advertised, and distributed an investing newsletter. Mandel introduced his newsletter subscribers to Ditto Holding’s securities offerings and also to Ditto Trade’s features and services. Ditto Holdings paid Mandel at least $265,000 and granted him warrants to purchase more than 800,000 shares of Ditto Holdings’ common stock at a favorable exercise price.
According to the SEC charges, Marc Mandel sent numerous emails to his roughly 350 newsletter subscribers about Ditto Holdings and hosted a series of online webinars and in-person meetings for investors with Ditto Holdings’ Chief Executive Officer. More than seventy of Mandel’s subscribers purchased securities from Ditto Holdings at a total cost of approximately $3.7 million.
According to the SEC charges, no registration statement was filed in connection with any of Ditto Holdings’ securities offerings, and an exemption from registration was not available to all of the transactions. Pursuant to Section 8A of the Securities Act, the agreed upon Order requires Ditto Holdings to cease and desist from committing or causing any violations and any future violations of Sections 5(a) and 5(c) of the Securities Act. An amazing aspect of this settlement is that according to the SEC, Ditto received $3.7 million from the unlawful sale of securities yet, was only required to pay a civil money penalty in the amount of $50,000.
For further information about this securities law blog post, please contact Brenda Hamilton, Securities Attorney at 101 Plaza Real S, Suite 202 N, Boca Raton, Florida, (561) 416-8956, by email at [email protected] or visit www.securitieslawyer101.com. This securities law blog post is provided as a general informational service to clients and friends of Hamilton & Associates Law Group and should not be construed as, and does not constitute, legal and compliance advice on any specific matter, nor does this message create an attorney-client relationship. Please note that the prior results discussed herein do not guarantee similar outcomes.
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