SEC Whistleblower Submissions: Road to Riches or a Waste of Time?
On August 23, 2024, the Securities and Exchange Commission announced It had awarded a total of $98 million to two whistleblowers “whose information and assistance led to an SEC enforcement action and an action brought by another agency.” The first lucky tipster, whose contribution prompted the opening of an investigation and who provided continuing assistance, will pocket a cool $82 million. The second will receive $16 million.
In its press release about the awards, the SEC explained briefly how the program works:
Payments to whistleblowers are made out of an investor protection fund, established by Congress, which is financed entirely through monetary sanctions paid to the SEC by securities law violators. Whistleblowers may be eligible for an award when they voluntarily provide the SEC with original, timely, and credible information that leads to a successful enforcement action. Whistleblower awards can range from 10 to 30 percent of the money collected when the monetary sanctions exceed $1 million.
In the associated Order, the circumstances surrounding the awards are explained fully, but not to us. The document is heavily redacted to protect the whistleblowers’ identities. We do learn that Claimant I alerted Commission staffers to the conduct that prompted the opening of an investigation and that he or she met with them “multiple times” and provided “additional helpful submissions.” Claimant II, apparently acting independently of Claimant I, offered “new helpful information” a year after the investigation had been opened, saving staff time and resources. Claimant I’s information addressed all the transactions in the covered actions filed by the SEC and the “other agency,” while Claimant II’s submission addressed only one of them. Read More
Court Vacates Order in Unregistered Dealer, Crown Bridge Partners Case
On August 19, 2024, the United States Court of Appeals for the Second District in New York ruled in the case of Darkpulse, Inc., Social Life Network, Inc. and Redhawk Holdings Corp. v. Crown Bridge Partners LLC and its managing members, Soheil Ahdoot and Sepas Ahdoot. The Plaintiffs were appealing the ruling of the United States District Court Southern District of New York, which dismissed the case on September 29, 2023. Read More
GHS Investments LLC and its owners, Mark Grober, Sarfraz Hajee and Matthew Schissler, settle with SEC – agree to pay disgorgement and fines and surrender remaining notes, warrants and stock.
On August 19, 2024, GHS Investments, LLC (“GHS”) and its owners, Mark Grober, Sarfraz Hajee and Matthew Schissler, came to a settlement with the Securities and Exchange Commission (the “SEC“), agreeing to pay disgorgement and fines and surrender remaining notes, warrants and stock.
According to the SEC, from 2017 through 2022 (the “relevant period”), GHS operated as an unregistered securities dealer and sold billions of shares of stock from at least 23 issuers into the public market and generated millions of dollars in profits for its own account. During the relevant period, GHS engaged in the regular business of acquiring convertible, variable rate notes from penny stock securities issuers, converting the notes into stock at a substantial discount from the prevailing market price, and selling the resulting newly issued shares of the issuers’ stock into the public market to obtain profits from the difference between the discounted share price it received and the prevailing market price of the stock.
Because GHS was not registered with the SEC as a securities dealer, GHS avoided certain regulatory obligations that govern the conduct of dealers in the marketplace, including the requirements to follow financial responsibility rules and maintain certain books and records. Grober, Hajee, and Schissler managed the day-to-day operations of GHS and shared the decision-making authority over GHS’s acquisition and disposition of convertible notes during the relevant period. As a result, GHS violated and Grober, Hajee, and Schissler caused GHS’s violations of Section 15(a)(1) of the Exchange Act.
GHS will pay $2,030,806 in disgorgement, prejudgment interest of $221,458.43, and a civil penalty of $173,080.62. Each of Grober, Hajee and Schissler will also pay a $10,000 penalty and consent to cease and desist from committing or causing any violations and any future violations of Section 15(a)(1) of the Exchange Act.
GHS will also have to (i) surrender for cancellation all rights to all shares of common stock that it received in connection with convertible, variable rate notes; (ii) surrender all conversion rights under all remaining convertible, variable rate notes; and (iii) surrender for cancellation and retirement all remaining warrants that it received in connection with convertible, variable rate notes. Read More
SEC Charges OTC Link LLC with Failing to File Suspicious Activity Reports
On August 12, 2024, the Securities and Exchange Commission (“SEC“) announced charges against OTC Link LLC, a New York-based broker-dealer, for failing to file numerous reports of suspicious financial transactions, known as Suspicious Activity Reports (SARs), for a period of more than three years. OTC Link agreed to pay $1.19 million to settle the charges.
To help detect potential securities law and money-laundering violations, broker-dealers like OTC Link are required to file SARs describing suspicious transactions conducted through their firms. According to the SEC’s order, OTC Link is an indirect, wholly-owned subsidiary of OTC Markets Group, Inc. It has been registered with the SEC as a broker-dealer since 2012. OTC Link’s sole line of business is its operation of three alternative trading system (ATS) platforms, OTC Link ATS, OTC Link ECN, and OTC Link NQB. The three OTC Link ATSs are used by broker-dealers on a daily basis to execute or facilitate tens of thousands of transactions in over-the-counter (OTC) securities, many of which are considered microcap or penny stock securities.
Cassava Sciences (SAVA) Faces an Indictment and at Least Two Investigations
Cassava Sciences (SAVA) is a Nasdaq issuer that claims to have developed a treatment for Alzheimer’s disease; the product is currently in Phase 3 trials. It’s called Simufilam, and the company says it not only stops the progression of the disease but also reverses its effects. In 2021, its stock spiked and sold off dramatically several times, though its price entered what would become an extended decline in the last months of the year. Read More
Meta Materials (MMAT) Declares Chapter 7 Bankruptcy
On Friday, August 9, 2024, Meta Materials Inc. (MMAT) filed for Chapter 7 bankruptcy. This turn of events was reported only in a Form 8-K filed with the SEC; no press release or announcement on the company website followed. The filing said simply:
Item 1.03. Bankruptcy or Receivership.
On August 9, 2024, after consideration of all strategic alternatives, Meta Materials, Inc., a Nevada corporation (the “Company”), ceased operations and filed a voluntary petition for relief under the provisions of Chapter 7 of Title 11 of the United States Code, 11 U.S.C. §101 et seq. (the “Bankruptcy Code”) in the United States Bankruptcy Court for the District of Nevada (the “Bankruptcy Court”), Case No. 24-50792 (the “Bankruptcy Filing”).
As a result of the Bankruptcy Filing, a Chapter 7 trustee will be appointed by the Bankruptcy Court and will administer the Company’s bankruptcy estate, including liquidating the assets of the Company in accordance with the Bankruptcy Code. Once a Chapter 7 trustee is appointed, an initial hearing for creditors will be scheduled, and the Notice of Bankruptcy Case Filing will be sent to known creditors.
Item 5.02. Departure of Directors or Certain Officers; Election of Directors; Appointment of Certain Officers; Compensatory Arrangements of Certain Officers.
On August 7, 2024, the Company terminated all of its remaining employees and executive officers, including Uzi Sasson, its President and Chief Executive Officer, and Dan Eaton, its Chief Legal Officer, with the terminations of Messrs. Sasson and Eaton effective concurrent with the Bankruptcy Filing. Following the Bankruptcy Filing, the Company does not have any executive officers or employees.
Effective concurrent with the Bankruptcy Filing, each of John R. Harding, Allison Christilaw, Steen Karsbo, Kenneth Hannah, Vyomesh Joshi and Philippe Morali tendered their resignations as members of the Board of Directors. Each of the directors resigned due to the Bankruptcy Filing, and such resignations are not the result of any disagreements with the Company regarding the Company’s operations, policies, or practices. The resignation of the Company’s directors effectively eliminates the powers of the Board of Directors, and following the director resignations, the Company does not have directors serving on the Board of Directors.
The Chapter 7 filing has yet to turn up at the U.S. Bankruptcy Court for the District of Nevada, but it will be available soon. A trustee will be appointed, and he or she will handle the liquidation of the company’s assets. Read More
SEC Charges Ideanomics, its former Chairman and CEO, Zheng (Bruno) Wu, current CEO, Alfred Poor, and former CFO, Federico Tovar with Accounting and Disclosure Fraud
On August 9, 2024, the Securities and Exchange Commission (“SEC“) announced settled fraud charges against Ideanomics, Inc., formerly known as Seven Stars Cloud Group, Inc., and its former Chairman and CEO, Zheng (Bruno) Wu, for misleading the public about the company’s financial performance between 2017 and 2019. The SEC also announced settled charges against Ideanomics’ current CEO, Alfred Poor, and former CFO, Federico Tovar, for their roles in the scheme. Read More
SEC Awards Whistleblower a Bounty of More Than $37 Million
On July 26, 2024, the Securities and Exchange Commission (SEC) announced an award of more than $37 million to a whistleblower whose information and assistance led to a successful SEC enforcement action.
The whistleblower persisted in reporting the misconduct internally, which led the employer to conduct its own investigation and eventually report the results to the Commission. This self-report caused an SEC investigation. Further, without the SEC whistleblower’s ongoing, extensive, and timely assistance, the SEC staff would not have learned the full context and extent of the employer’s misconduct. Read More
Attorney Mark Basile to Participate in Federal Enforcement Action SEC v. Carebourn Capital L.P. and Chip Alvin Rice
Over the past seven years or so, we’ve followed the Securities and Exchange Commission’s efforts to rein in the excesses of predatory lenders who purchase convertible notes, preferred stock, debt, and sometimes warrants from issuers desperate for the cash needed to keep their businesses afloat. On July 23, 2024, a federal judge in Minnesota gave permission for Mark R. Basile, an attorney representing DarkPulse, Inc., to intervene in a SEC enforcement action against Carebourn Capital, L.P. To allow a third party to play a role in litigation brought by the SEC is unusual, perhaps unprecedented.
For startups and other very small companies, traditional financing can be hard to come by. Banks are uninterested, and while Regulation D offerings can always be floated by public companies, there’s no guarantee that interested investors will be found.
The so-called “toxic funders,” or “toxic lenders” however, are almost always available, willing to supply a needy startup with small amounts of cash on a regular basis. Some even deal in amounts in the millions. It can seem like a dream come true for an issuer sure that success is just around the corner. The toxic lender proposes a deal and prepares a stock purchase and other agreements that will be signed by the public company’s management. Read More
Andrew Left of Citron Research Indicted by the DOJ and Charged by the SEC
On July 26, 2024, the Securities and Exchange Commission announced litigation filed against activist short seller Andrew Left and his firm, Citron Capital LLC, for devising and executing a $20 million scheme to defraud retail investors who followed his frequent tweets and the research reports he published at his website. On the same day, the U.S. Attorney’s Office for the Central District of California announced a parallel criminal prosecution.
The actions should come as no surprise. In 2021, rumors first circulated about a Department of Justice investigation of professional short sellers. It apparently began with a young lawyer called Joshua Mitts. Mitts also has a Ph.D. in finance and teaches at Columbia University. Reuters explained a bit mysteriously that “[t]he 36-year-old securities law specialist has become an increasingly influential figure in the hot debate over activist short selling since publishing a 2018 analysis of trading data that suggested some players were manipulating the market.” It’s said he’s worked as a consultant for the DOJ, but he has declined to elaborate on his role. Read More
Jury finds Guy Gentile liable as control person of SureTrader in SEC case
On Tuesday, July 2, 2024, after a ten-day trial, a jury in the United States District Court for the Southern District of Florida found Guy Gentile, the founder, owner, and CEO of MintBroker International, Ltd., f/k/a Swiss America Securities Ltd. and d/b/a SureTrader, a Bahamas-based broker-dealer, liable as a control person of SureTrader, which operated as a broker-dealer in the United States without being registered, in violation of the federal securities laws. The jury also found Guy Gentile liable for inducing SureTrader’s registration violations.
The SEC filed a complaint on May 22, 2021, alleging that from no later than March 2016 until at least November 2019 (the “Relevant Period”), Defendants MintBroker International, Ltd., f/k/a Swiss America Securities Ltd., d/b/a SureTrader) (“SureTrader” or the “Company”) and its founder, owner, and chief executive officer Guy Gentile (a/k/a Guy Gentile Nigro) (“Gentile”) operated an offshore broker-dealer in the Bahamas designed to help day traders in the United States circumvent the U.S. rules that regulate pattern day trading. Read More
Important Changes Are in Store for the SEC and Other Federal Agencies
Last week, the Supreme Court handed down two opinions that have the potential to limit the authority of the Securities and Exchange Commission in fundamental ways and to curtail, or at least redirect, its ability to discipline individuals and entities who violate the securities laws. Both address what some call the “administrative state.” Unsurprisingly, the court’s current conservative majority voted unanimously to reduce the powers of federal agencies.
The Demise of the Chevron Doctrine Read More
Does FINRA Rule 6490 Impact Going Public Transactions?
FINRA Rule 6490, has evolved since it was enacted years ago. For some time, FINRA has required that issuers provide expansive disclosures and supporting documentation not only for the corporate change subject to the notice but for the company’s entire corporate history from inception. This often creates a substantial obstacle for issuers involved in going public transactions.
FINRA Rule 6490 procedures are required of both companies subject to SEC reporting requirements and and non-reporting issuers if they undertake corporate actions. Compliance with Rule 6490’s requirements is a minor task for companies going public by filing a registration statement with the SEC. Read More
Benefits of Direct Public Offerings
While going public offers many benefits, it also comes with risks and a large number of regulations with which issuers must become familiar. Despite the risks, the U.S. capital markets remain one of the most attractive sources of financing in the world.
Going public is a complicated and intricate procedure. So, it is essential to have a securities attorney with experience in going-public transactions to help your company navigate the process and deal with the Securities & Exchange Commission (“SEC”), Financial Regulatory Industry Authority (“FINRA”), and Depository Trust Company (“DTC”). Read More
Xeriant, Inc. Fights Toxic Funder Auctus Fund in Appellate Court
Since 2017, the SEC has been bringing enforcement actions intended to curb the excesses of lenders who deal in convertible securities like promissory notes, preferred stock, warrants, debentures, and more. While the word “lenders” seems anodyne or even beneficial, these individuals and the businesses they run have come to be known to issuers and investors as “toxic lenders” or “toxic funders.” The SEC calls them “unregistered dealers,” as defined in its own Guide to Broker-Dealer Registration. Most of the companies that agree to the financings they offer are OTC or Nasdaq CM issuers.
The Commission’s actions against unregistered dealers began in November 2017, with a suit brought against Ibrahim Almagarby and his Microcap Equity Group LLC. Unlike most of his fellow lenders, Almagarby didn’t initially deal with the companies whose convertible securities he was converting and selling into the market. He instead bought “aged debt” purchased from unaffiliated third parties. Aged debt is old enough to be exempt from the registration requirements of the Securities Act of 1933 under Rule 144. As the eventual appellate opinion explained, “[m]any of the instruments he purchased did not have an existing conversion feature. So Almagarby negotiated directly with the issuers to obtain agreements that allowed him to exchange existing, non-convertible debt for convertible instruments.” Read More
Meta Materials Executives, John Brda and George Palikaras, charged with Market Manipulation, Fraud and Other Violations
Thanks to an SEC Complaint filed today, MMTLP shareholders finally have the undisputable evidence needed to point their previously misguided blame for their massive losses at the proper culprits. For months after the Financial Industry Regulatory Authority (“FINRA“) halted trading of MMTLP shares following trading on December 8, 2022, to avoid settling issues for the scheduled preferred stock dividend set to take place on December 12, 2022, MMTLP shareholders have aimed their anger toward FINRA, blaming the organization that operates to protect America’s investors by making sure the broker-dealer industry operates fairly and honestly for spoiling their credulous short squeeze.
In reality, according to evidence collected and shared by the Securities and Exchange Commission (the “SEC“) in its complaint filed today, the rumors about the short squeeze were, in fact, started by the former CEOs of Meta Materials Inc., John Brda (“Brda”) and George Palikaras (“Palikaras”), as part of a sophisticated market manipulation scheme that they had planned months in advance. Read More
What are the SEC Reporting Requirements After My Form S-1 is Effective?
Once the SEC staff declares your company’s Securities Act registration statement on Form S-1 effective, the company becomes subject to the SEC’s reporting requirements under the Securities Exchange Act of 1934. These rules require your company to file annual reports on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K with the SEC on an ongoing basis.
If your company qualifies as a “smaller reporting company” or an “emerging growth company,” it will be eligible to follow scaled SEC reporting requirements for its reports. Read More
Going Public Using an S-1
Using a Form S-1 Registration Statement to Go Public
Private companies that go public commonly use a registration statement (“Registration Statement”) on Form S-1 under the Securities Act of 1933, as amended (the “Securities Act”) to go public. When a Form S-1 Registration Statement is used to go public, the company will submit the Registration Statement to the Securities & Exchange Commission (the “SEC”), registering securities it plans to sell or securities held by its shareholders (“Selling Shareholders”). Read More
Court denies James L. Koutoulas’ petition to quash SEC subpoena
On May 23, 2024, the U.S. District Court for the Southern District of Florida granted the Securities and Exchange Commission’s (the “SEC“) application to enforce a subpoena for the production of documents to James L. Koutoulas (“Koutoulas ”) and denied Koutoulas’s petition to quash that subpoena.
If a person or entity refuses to comply with a subpoena issued by SEC enforcement staff pursuant to a formal order of investigation, the Commission may file a subpoena enforcement action in federal district court seeking an order compelling compliance.
According to the SEC’s filing, the SEC is investigating whether Koutoulas or the entities he controlled violated the federal securities laws in connection with the offer and sale of the “Let’s Go Brandon” Coin (“LGBCoin”). As part of the investigation, the SEC issued an administrative subpoena to Koutoulas seeking documents and communications relevant to determining whether LGBCoin was offered and sold as a security. Read More
Why use a Direct Public Offering (DPO) to Go Public on the OTC Markets
An Initial Public Offering or IPO is used by issuers seeking to go public using an underwriter. IPOs are typically conducted by issuers listing on the NYSE Stock Exchange (“NYSE”) or NASDAQ Stock Markets (“NASDAQ”). Issuers most often use a Direct Public Offering or DPO in a going public transaction seeking quotation on the OTC Markets. Direct Public Offerings provide a means for a company to go public and sell its shares directly to investors without the use of an underwriter. Even after a Direct Public Offering, the issuer can plan to use the services of an underwriter in the future and/or uplist to NASDAQ or the NYSE.
With a Direct Public Offering, the company files a Form S-1 registration statement with the Securities and Exchange Commission (“SEC”) under the Securities Act of 1933, as amended (the “Securities Act”), if it is a domestic issuer. If the company is a foreign issuer, it can use SEC Form S-1 or Form F-1 for its registration statement.
Both Form S-1 and Form F-1 registration statements offer flexibility, and each can be used to register securities on its own behalf in an initial public offering, to register securities on behalf of its selling security holders in a secondary offering, or register securities on both its own behalf and for selling security holders.
A significant advantage of a Direct Public Offering using a registration statement on Form S-1 or Form F-1 is that the issuer can avoid many of the risks and expenses associated with reverse merger transactions. These can include undisclosed liabilities, sketchy corporate records, DTC Chills, and SEC trading suspensions. Both the NASDAQ and NYSE impose one-year waiting periods for companies after engaging in a reverse merger transaction. Read More
11th Circuit Upholds Unregistered Dealer Justin Keener SEC Judgment
On May 29, 2024, the U.S. Court Of Appeals for the Eleventh Circuit entered its Opinion in the Securities and Exchange Commission’s (“SEC“) case against Justin Keener dba JMJ Financial (together “Keener”), upholding the United States District Court for the Southern District of Florida’s earlier ruling on all points. Read More
Tips For Going Public With A Direct Public Offering
More and more issuers going public opt for a direct public offering. Unlike an Initial Public Offering (IPO), in a direct public offering, the issuer sells shares of its stock directly to investors rather than through an underwriter. Going public transactions using a direct public offering eliminates the costs and risks associated with a reverse merger transaction. Once public, the issuer is more easily able to raise capital in a secondary securities offering. Private companies conducting a direct public offering should consider the pointers below to ensure a successful and cost-effective going public transaction.
The direct public offering process provides options for multiple structures, each with its own unique benefits and requirements. The decision about the appropriate going public structure often involves complex legal issues that vary depending upon the needs of the particular company involved. Read More
SEC Obtains $5.9 Million Judgment Against John Fierro in Unregistered Penny Stock Dealer Case
On May 21, 2024, Judge Georgette Castner of the United States District Court for the District of New Jersey entered a final judgment against John D. Fierro and JDF Capital, Inc. The SEC’s complaint alleged that the Defendants failed to register as securities dealers with the SEC or to associate with a registered dealer when they bought and sold billions of newly issued shares of penny stock from at least January 2015 through November 2017.
The Defendants obtained the shares directly from issuers after converting debt securities known as convertible notes. By failing to register, Defendants avoided certain regulatory obligations for dealers that govern their conduct in the marketplace, including regulatory inspections and oversight, financial responsibility requirements, and maintaining books and records.
The court previously granted summary judgment to the Commission. On June 29, 2023, the court found that Fierro and JDF Capital engaged in a regular business of buying and selling securities for their own account and that their failure to register as dealers violated the dealer registration requirements of Section 15(a) of the Securities Exchange Act of 1934.
In its final judgment, the court ordered Fierro and JDF Capital to pay a joint-and-several disgorgement of $4,053,148, prejudgment interest of $1,326,440, and a civil penalty of $500,000, for a total judgment of $5,879,588. The court also entered a permanent injunction against the Defendants and ordered them to surrender certain stock and conversion rights under existing convertible securities for cancellation. Read More
Are You Ready? T+1 Trade Settlement Begins Next Week
On May 21, 2024, Securities and Exchange Commission Chair Gary Gensler formally announced the U.S. securities market’s switch to a T+1 standard settlement cycle. “T+1” means all trades in all U.S. markets will be settled the day after execution. The change will become effective on Tuesday, May 28. Gensler explained briefly:
For everyday investors who sell their stock on a Monday, shortening the settlement cycle will allow them to get their money on Tuesday. Shortening the settlement cycle also will help the markets because time is money and time is risk. It will make our market plumbing more resilient, timely, and orderly. Further, it addresses one of the four areas the staff recommended the Commission address in response to the GameStop stock events of 2021. Read More
PCAOB Imposes a $400,000 Fine and Sanctions MaloneBailey, LLP for Pervasive Quality Control Violations
Less than a month after one of the biggest auditing firms in the public markets, BF Borgers, and its owner, Benjamin Borgers, were permanently banned and fined a combined $14 million by the Securities and Exchange Commission (the “SEC”) for massive quality control issues, another large auditing firm involved in the public markets is facing fines and sanctions, this time from the Public Company Accounting Oversight Board (PCAOB). On May 21, 2024, the PCAOB announced it was imposing a $400,000 fine and sanctions against MaloneBailey LLP (“MaloneBailey” or the “Firm”) for violations of PCAOB rules and quality control standards.
MaloneBailey is a public accounting firm headquartered in Houston, Texas. It is licensed to practice public accounting by the Texas State Board of Public Accountancy (License No. P05522), among other states.
According to the Disciplinary Order issued by the PCAOB, from 2018 to 2021, PCAOB inspection staff conducted three inspections of MaloneBailey. During each of these inspections, the PCAOB notified the firm of significant audit deficiencies that raised concerns about the firm’s engagement performance. Despite the firm’s awareness of these deficiencies and concerns, it failed to make effective changes to improve its system of quality control. Read More
SEC Issues BF Borgers Exemptive Order For SEC Reporting Companies
On May 20, 2024, the Securities and Exchange Commission (“SEC”) provided exemptive relief to certain SEC reporting companies affected by the SEC’s permanent suspension of BF Borgers CPA PC and its owner, Benjamin F. Borgers (together, “BF Borgers”), from appearing and practicing before the SEC as an accountant. It is expected that public companies that previously retained BF Borgers will need to engage a new, qualified, independent, PCAOB-registered public accountant to audit or review the financial information included in their SEC filings to comply with SEC Reporting Requirements. Read More
CAT’s Cradle – Ongoing Problems with the SEC’s Consolidated Audit Trail
In July 2012, the SEC adopted a new Rule 613 under Section 11A(a)(3)(B) of the Securities Exchange Act of 1934 (“Exchange Act”). It would require national securities exchanges and national Self-Regulatory Organizations (“SROs’) “to act jointly in developing a national market system (‘NMS’) plan to develop, implement, and maintain a consolidated order tracking system, or consolidated audit trail, with respect to the trading of NMS securities.” While the Financial Industry Regulatory Authority (“FINRA”) and the SROs did have their own audit trail systems, they were “limited in their scope in varying ways.” The answer was to create a new, truly comprehensive system:
A consolidated audit trail would significantly aid in SRO efforts to detect and deter fraudulent and manipulative acts and practices in the marketplace, and generally to regulate their markets and members. In addition, such an audit trail would benefit the Commission in its market analysis efforts, such as investigating and preparing market reconstructions and understanding causes of unusual market activity. Read More
Trump Media’s auditing firm, BF Borgers, busted for “massive fraud”
On May 3, 2024, the Securities and Exchange Commission announced an enforcement action against auditing firm BF Borgers CPA PC and its principal, Benjamin F. Borgers. The regulator charged the firm with “deliberate and systemic failures to comply with Public Company Accounting Oversight Board (PCAOB) standards in its audits and reviews incorporated in more than 1,500 SEC filings from January 2021 through June 2023.” Moreover, Borgers assured its many clients that their work was compliant with PCAOB standards when that was not the case, and went so far as to fabricate documentation to make it look as if PCAOB standards had been met.
Gurbir S. Grewal, director of the SEC’s Division of Enforcement, called the matter “one of the largest wholesale failures by gatekeepers in our financial markets,” adding that:
As a result of their fraudulent conduct, they not only put investors and markets at risk by causing public companies to incorporate non-compliant audits and reviews into more than 1,500 filings with the Commission but also undermined trust and confidence in our markets. Because investors rely on the audited financial statements of public companies when making their investment decisions, the accountants and accounting firms that audit those statements play a critical role in our financial markets. Borgers and his firm completely abandoned that role, but thanks to the painstaking work of the SEC staff, Borgers and his sham audit mill have been permanently shut down.
Benjamin Borgers and the firm agreed to settle the charges. BF Borgers will pay a $12 million civil penalty and Benjamin Borgers will pay a $2 million civil penalty. Both are immediately suspended from appearing or practicing before the Commission. Read More
SEC permanently bans BF Borgers and its owner Benjamin Borgers and fines them a combined $14 million for accounting fraud
On May 3, 2024, the Securities and Exchange Commission (the “SEC“) charged audit firm BF Borgers and Its owner, Benjamin F. Borgers (together, “Respondents”), with Massive Fraud affecting more than 1,500 SEC filings. The SEC found that Borgers committed deliberate and systemic failures to comply with Public Company Accounting Oversight Board (PCAOB) standards in its audits and reviews incorporated in more than 1,500 SEC filings from January 2021 through June 2023.
The SEC also charged the Respondents with falsely representing to their clients that the firm’s work would comply with PCAOB standards; fabricating audit documentation to make it appear that the firm’s work did comply with PCAOB standards; and falsely stating in audit reports included in more than 500 public company SEC filings that the firm’s audits complied with PCAOB standards.
According to the Order against the Respondents, from January 2021 through June 2023, BF Borgers had 350 clients who were required under the SEC’s rules and regulations to have their financial statements audited and/or reviewed by a PCAOB-registered accounting firm in accordance with PCAOB standards and to incorporate those financial statements into filings made with the SEC. Read More
OTC Markets Group Guidance on Dilution Risk with Respect to OTCQX and OTCQB Applicants
OTC Markets offers three unique marketplaces for trading over-the-counter (OTC) stocks: the OTC Pink Market, the OTCQB Market and the OTCQX Market. The OTCQB Market and the OTCQX Market offer many benefits not offered by the OTC Pink Market, including:
The OTCQX is the top tier of the OTC Markets Group’s three marketplaces, so it has the strictest eligibility requirements. The following chart provides a snapshot comparison of the current Eligibility Standards for US Issuers to be listed on either the OTCQB or OTCQX. Read More