Joseph Padilla Arrested and Charged in $7 Million Securities Fraud

On August 25, 2022, Joseph Padilla was arrested at the San Diego International Airport in connection with his alleged involvement in a sophisticated securities fraud scheme that generated over $7 million in illicit proceeds. 

Padilla, 53, of Carlsbad, Calif., was charged in the United States District Court District of Massachusetts (Boston) with one count of securities fraud. The charge provides for a sentence of up to 20 years in prison, three years of supervised release, and a fine of $5 million.

According to the Complaint, between February and April 2021, Padilla participated in a lucrative pump-and-dump fraud scheme involving the shares of Charlestowne Premium Beverages Inc., a thinly-traded microcap company that traded under the stock ticker symbol FPWM.

The Complaint alleges that Padilla (i) concealed control by one or more persons of a large portion of Charlestowne stock (including nearly 97% of the float), (ii) orchestrated the fraudulent manipulation of Charlestowne stock in order to inflate its price through his association with five traders and cooperating witness #2 (CW-2) and, (iii) orchestrated the dump of Charlestowne stock through Valor Capital, a broker-dealer in the Cayman Islands netting at least $7 million in illicit proceeds. Read More

SEC Charges Incarcerated Felon (Syed Arham Arbab) and Five Friends in $2 Million Fraud Scheme

On October 31, 2022, the Securities and Exchange Commission charged six individuals, including a federal inmate, for conducting a freeriding scheme that defrauded multiple broker-dealers.

The SEC’s complaint alleges that from May 2019 to early January 2021, Syed Arham Arbab, 25, and five others – Tomas Javier Jimenez, 24, of Dunwoody, Georgia; Blake Douglas McKinney, 26, of Plymouth, Michigan; Mushfiqur Rahman, 21, of Jamaica, New York; John Ryan Shows, 25, of Atlanta, Georgia; and William Carl Spagnoli, 24, of Alpharetta, Georgia – made more than $2 million in bogus deposits from empty or underfunded bank accounts into various brokerage accounts to deceive broker-dealers into providing instant deposit credit for online securities trading. Read More

What Is SEC Periodic Reporting?

PUBLIC COMPANY SEC REPORTING LAWYERS

Once the staff of the Securities and Exchange Commission (“SEC”) declares a company’s registration statement on Form S-1 effective under the Securities Act of 1933, as amended (the “1933 Act”), the company may offer and sell the registered securities covered by the Form S-1.

Once the registration statement is effective, the company becomes subject to the SEC’s periodic reporting requirements.  Companies can also become subject to the SEC’s periodic reporting requirements by filing a Form 10 Registration Statement. The SEC reporting requirements mandate that the company file annual reports on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K on an ongoing basis.  The company’s management must certify financial and certain other information contained in these periodic filings and reports.   Read More

SEC Registration Statements And Direct Public Offerings Q & A

Registration Statement Attorneys-Direct Public Offering Lawyers

SEC Registration Statements And Direct Public Offerings Q & A

Filing a Form S-1 registration statement is the most efficient and reliable method for a private company to obtain public company status. Using a Form S-1 registration statement, companies provide transparency to investors and avoid the risks of reverse merger transactions. Any issuer can use Form S-1. This blog post addresses some of the most common questions we are asked about Form S-1 and SEC registration statements during the going public process.
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Nasdaq puts the brakes on IPOs of at least 4 small Chinese companies while it probes suspicious market activity

According to various internet reports, Nasdaq Inc has halted the initial public offerings (IPOs) of at least four small Chinese companies while it investigates short-lived stock rallies of other recent Chinese IPOs after going public.

Several small Chinese companies that raised small amounts, typically $50 million or less, in their IPOs, saw their stock prices rise 2,000% – 32,000% in their debuts, only to crash in the days that followed, harming investors who chased the stocks at its higher prices.

This penny stock-style pump-and-dump action allegedly has NASDAQ officials concerned about manipulative trading, and until the causes of the price action can be determined, similar Chinese IPOs are on hold. Read More

Five Russians and Two Oil Traders Charged in Global Sanctions Evasion and Money Laundering Scheme

A 12-count indictment was unsealed on October 19, 2022, in federal court in Brooklyn, New York, charging five Russian nationals, Yury Orekhov, Artem Uss, Svetlana Kuzurgasheva, also known as “Lana Neumann,” Timofey Telegin and Sergey Tulyakov with various charges related to a global procurement, smuggling and money laundering network. 

Also charged were Juan Fernando Serrano Ponce, also known as “Juanfe Serrano” and Juan Carlos Soto, who brokered illicit oil deals for Petroleos de Venezuela S.A. (PDVSA), the Venezuelan state-owned oil company, as part of the scheme. 

On October 17, 2022, Orekhov was arrested in Germany and Uss was arrested in Italy, both at the request of the United States, and will undergo extradition proceedings.   

According to the Indictment, the Defendants obtained military technology from U.S. Companies, smuggled millions of barrels of oil and laundered tens of millions of dollars for Russian Oligarchs, Sanctioned Entities and the world’s largest energy conglomerate based in Beijing, People’s Republic of China. Read More

SEC Defendant and FBI Fugitive Justin Costello Arrested

On October 4, 2022, SEC Defendant and FBI fugitive Justin Costello was arrested by an FBI SWAT team. Costello had been on the run from authorities as a fugitive since September 29th after failing to surrender to authorities after being charged with 22 counts of wire fraud and 3 counts of securities fraud as part of $35 million financial fraud.

According to the criminal Indictment, Costello, a 42-year-old resident of La Jolla, California, (i) diverted at least $3.6 million to himself from his company Pacific Banking Corp, which provided banking services to three marijuana companies, (ii) cost more than 7,500 investors about $25 million through pump-and-dump schemes fueled by false statements, (iii) scammed $6 million from 29 investors who invested directly with Costello based on false statements made to those investors about his background and experience, and (iv) misappropriated $42,000 to pay for his wedding with Katrina Rosseini, which included a Jame Bond-themed cake and ice sculptures. Read More

OTC Markets Group Reflects on Amended Rule 15c2-11

The last week of September marked the one-year anniversary of the compliance date for the Securities and Exchange Commission (“SEC”) amendments to Securities and Exchange Act Rule 15c2-11, which regulates the quotation of over-the-counter securities. As we shall see, OTC Markets Group, whose issuer-clients are directly affected by the amended rule, decided to commemorate the occasion with a webinar called “One Year On: The Impact & Outcomes of SEC Rule 15c2-11.”

An overhaul was long overdue; the rule had last been altered in 1991, more than 30 years ago. Since then, the ways in which most people manage their investments have changed enormously. Now they can do research on the internet, and buy and sell through online brokers, many of whom will charge them charge them no SECs or fees. They can communicate with their fellow investors on a large number of social media forums. All of that made the need for amended Rule 15c2-11 urgent.

Amended SEC Rule 15c2-11 took quite a while to make it to prime time. First, a concept release titled “Publication or Submission of Quotations Without Specified Information” was published by the SEC on September 25, 2019. Concept releases are relatively rare—none has appeared since the one under discussion here—and their purpose is to “solicit the public’s views on securities issues so that we can better evaluate the need for future rulemaking.” The SEC got what it wanted: though the deadline for comment was December 30, 2019, members of the public, market participants, and even politicians continued to send letters until July 26, 2022. Read More

Justice Department Awards Nearly $100 Million to Help Reduce Recidivism and Support Successful Reentry to Communities

On Wednesday, October 5th, the Department of Justice announced awards totaling almost $100 million to reduce recidivism and support adults and youths in successfully returning to their communities after a period of confinement. Read More

IPO v Direct Listing Go Public Direct

Form 5 SEC Reporting Requirements

IPO v Direct Listing Go Public Direct FAQ

Q: How is going public with a direct listing to the NASDAQ Capital Market different than the traditional IPO listing to NASDAQ Capital Market?

A: Both direct listings and Initial Public Offerings or IPOs result in a privately held company becoming publicly traded on a stock exchange.  Read More

Rule 506(b) and Rule 506(c) Private Placements under Regulation D

Securities Lawyer 101 Legal Blog

The SEC’s Office of Investor Education and Advocacy recently issued an Investor Bulletin to educate investors about investing in unregistered securities offerings, sometimes called private placements, under Regulation D of the Securities Act.  Rule 506(b) and Rule 506(c) are the most commonly used exemptions from SEC registration. Read More

SEC Charges Neil B. Swartz and Timothy S. Hart

On September 9, 2022, the Securities and Exchange Commission (the “SEC”) announced charges against TBG Holdings Corporation (“TBG”), its principals Neil B. Swartz and Timothy S. Hart, and sales agents Ted L. Romeo, Vincent J. Caputo, and Frank S. Dickerson alleging registration violations for unlawfully selling shares of health management company MediXall Group, Inc. (“MediXall”) to investors.

The SEC’s complaints, filed in U.S. District Court for the Southern District of Florida, allege that, from 2018 through March 2020, TBG and its principals, Swartz and Hart, hired and directed a group of unregistered sales agents to solicit investors to purchase shares of MediXall, a microcap company. According to the complaints, TBG and sales agents Romeo, Caputo, and Dickerson advised investors on the merits of the investments, described the offer to purchase the shares as time-sensitive, provided investors with promotional materials, and raised approximately $3 million by selling MediXall stock to more than 200 investors. As alleged, TBG, Hart and Swartz tracked the sales agents’ investor solicitations, and paid over $500,000 in commissions to the sales agents for their sales of MediXall stock, even though they were not registered as broker-dealers or associated with registered broker-dealers. Read More

Securities and Exchange Commission v. Manhattan Transfer Registrar Company and John C. Ahearn

We recently wrote about two interesting SEC enforcement actions that examine the question of whether the individuals and entities that purchase convertible promissory notes from public companies are “dealers” according to the definition established in Section 15(a)(1) of the Securities and Exchange Act of 1934 (“Exchange Act”). Informally known as “toxic lenders” or “dilution funders” because the terms of their financing agreements contain provisions that almost always result in harm to investors and issuers alike, they’re considered by many to be the scourge of the penny stock market. Typically, the notes they buy can be converted at any time, often at a discount to market price of 70 percent or more. As the lender converts and sells, stock price drops. To avoid making insider filings to the SEC, the lender's financing agreements specify that he may own no more than 4.99 percent of the company’s stock at any time. But that in no way stops him from converting his note continuously, in a succession of tranches. Since the conversion ratio is pegged to the security’s recent average bid price, every time he converts, he gets more stock than the time before. As he sells tranche after tranche, the company’s stock price enters freefall. Sometimes the only remedy for the issuer is a large reverse split.

On September 20, 2022, the Securities and Exchange Commission (the “SEC”) charged recidivists Manhattan Transfer Registrar Company (“Manhattan Transfer”), a registered transfer agent based in Port Jefferson, New York, and its former principal, John C. Ahearn, a resident of Erie, Colorado, for violations of a Commission order issued against them on May 17, 2018 (“Commission Order”). Read More

SEC Charges Kim Kardashian with Violating Section 17(b)

On October 3, 2022, the SEC Division of Enforcement entered into a settlement of charges with Kimberly Kardashian (“Kardashian” or “Respondent”).

The SEC Offer of Settlement (the “Offer”) includes findings that:

  • On June 13, 2021, Kim Kardashian—a well-known media personality and businesswoman—touted a crypto asset security on social media that was being offered and sold. Kardashian did not disclose that she was being compensated for giving such security publicity by the entity offering and selling the security.
  • Kardashian’s failure to disclose this compensation violated Section 17(b) of the Securities Act, which makes it unlawful for any person to promote a security without fully disclosing the receipt and amount of such consideration from an issuer.

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Stock Manipulation, Bed Bath & Beyond as a Meme Stock, and Ryan Cohen

On Friday, September 2, the man who lived on the 18th floor of 56 Leonard Street in New York’s Tribeca district didn’t go to work or, perhaps, he came home very early. We know only that at about 12:30 in the afternoon, he fell from one of the balconies of his luxury apartment, landing on the roof of an adjacent building. Someone called 911. A crying woman appeared and accompanied the paramedics and the body to the hospital. Though some video was shot by journalists at the scene, the story didn’t get much publicity. It was carried by the New York Post, which said the man was pronounced dead at the scene, adding that the police had not offered further details.

It wasn’t until Sunday afternoon that the victim was identified as Gustavo Arnal, chief financial officer and executive vice president of troubled home décor retailer Bed Bath & Beyond (BBBY). Arnal, 52, lived in the “Jenga Building”—so-called because its asymmetrical balconies are reminiscent of the popular game—with his wife and two adult daughters. According to the Post, he “didn’t say a word to his wife before apparently leaping to his death.” Neither did he leave a note.

The medical examiner ruled the death a suicide. Bed Bath & Beyond’s interim chairwoman, Harriet Edelman, conveyed her condolences to the family in a company press release. Colleagues and social media friends said they were shocked; that what he’d done seemed to them out of character. Read More

US and China reach deal in dispute over Chinese company audits

cbd class action

The China Securities Regulatory Commission  (CSRC) and U.S. Public Company Accounting Oversight Board (PCAOB) announced Friday that both sides signed an agreement to allow U.S. regulators to inspect the audits of Chinese companies whose stocks are traded on U.S. exchanges.

U.S. regulators have long demanded access to audit papers of Chinese companies listed in the United States, but Beijing has been reluctant to let overseas regulators inspect accounting firms, citing security concerns. As a result, U.S. regulators have threatened to boot around 150 Chinese companies, including Alibaba, off the New York Stock Exchange and Nasdaq. Read More

SEC Amends Whistleblower Rules to Incentivize Whistleblower Tips

On August 26, 2022, the Securities and Exchange Commission adopted two amendments to the rules governing its whistleblower program.

The first rule change allows the Commission to pay whistleblowers for their information and assistance in connection with non-SEC actions in additional circumstances.

The second rule affirms the Commission’s authority to consider the dollar amount of a potential award for the limited purpose of increasing an award but not lowering an award. Read More

SEC moves to revoke dozens of inactive issuers

SEC Charges Former Woodbridge Directors of Investment with Fraud

Over the past week, the Securities and Exchange Commission (the “SEC”) has initiated 26 new administrative proceedings against inactive SEC issuers, moving towards revoking the issuers’ securities registered pursuant to Section 12 of the Exchange Act.

The 26 administrative proceedings against delinquent SEC filers filed by the SEC between August 17 and August 22 is more than the rest of 2022 combined. Read More

Going Public and Direct Public Offerings Provide Benefits in 2022

Going Public Securities Lawyers Direct Public Offering OTC Markets

Going public is still considered a benefit to issuers seeking to raise capital or obtain recognition of their business. Even in a down economy, private companies seek the perceived benefits of being publicly traded.   While there are a variety of ways to create a publicly traded company, each comes with its own unique requirements and risks.  The Direct Public Offering (“DPO”) eliminates many of the risks and expenses associated with reverse mergers into public shell companies. Issuers going public using a DPO also have fewer hurdles to obtaining electronic trading from Depository Trust Company (“DTC”).  

Reverse merger companies often encounter DTC chills and global locks because of prior unregistered securities issuances and the public shells prior management. Read More

SEC Targets Publicly Traded Chinese Issuers Under the Holding Foreign Companies Accountable Act

Holding Foreign Companies Accountable Act

Since Baidu, Inc. (BIDU) completed its going public transaction in August 2005 on the NASDAQ Stock Market, many U.S. investors have found themselves fascinated and frustrated by Chinese companies. Baidu, a technology giant and AI developer offering, among many other things, the world’s second-largest search engine, has been a winner overall. But not all publicly traded Chinese companies in the States have been as kind to their investors. Some have simply failed to succeed, but others have committed serious fraud. Blatant as it often is, it’s also hard to nail down because Chinese companies, and even the Chinese government, have shown resistance to accounting safeguards we’ve come to consider normal in the wake of our own public company scandals of the first decade of the century. 

In 2020, Congress passed the Holding Foreign Companies Accountable Act (HFCAA); it was signed into law on December 18. Technically an amendment to the Sarbanes-Oxley Act of 2002, it requires “foreign issuers” to declare that they aren’t owned or staffed by the Chinese Communist Party. In addition, Chinese companies that have securities registered with the SEC must use auditors whose work can be inspected by the Public Company Accounting Oversight Board (“PCAOB”). The PCAOB was created by the Sarbanes-Oxley Act in 2002 and, since then, has regularly inspected auditing firms that deal with public companies. The HFCAA requires that the PCAOB do the same in China, inspecting the firms that audit Chinese companies trading on U.S. exchanges.  Read More

SEC Charges Glenn B. Laken, Davies Wong, Richard Tang and 15 other Defendants and names Jason Black as a Relief Defendant in International Scheme to Manipulate Stocks Using Hacked US Brokerage Accounts

On August 15, 2022, the Securities and Exchange Commission (the “SEC”) charged 18 individuals and entities for their roles in a fraudulent scheme in which dozens of online retail brokerage accounts were hacked and improperly used to purchase microcap stocks to manipulate the price and trading volume of those stocks.

Those charged include Rahim Mohamed of Alberta, Canada, who is alleged to have coordinated the hacking attacks, and several others in and outside the U.S. who allegedly benefited from or participated in the scheme, including Zoltan Nagy, Robert Seeley, Phillip Sewell, Christopher Smith, Richard Smith, Anna Tang, Richard Tang, Breanne Wong, Davies Wong, Christophe Maerani, Glenn B Laken, Jeffery D Cox, and entities controlled by one or more of them, including Avatele Group LLC, Harmony Ridge Corp, H.E. Capital SA, Maximum Ventures Holdings LLC, and POP Holdings Ltd. Relief defendants include Jason Black and 9224-3708 Quebec, Inc. a/k/a Distributions Bano. Read More

SEC Charges Broker-Dealer Alpine Securities Corporation and Two Employees with Engaging in Unauthorized Securities Transactions

On August 10, 2022, the Securities and Exchange Commission (the “SEC”) charged broker-dealer Alpine Securities Corporation, its former Chief Executive Officer Christopher Doubek, and its current Chief Operations Officer Joseph Walsh with engaging in a series of unauthorized securities transactions.

According to the SEC’s complaint, filed in federal district court in Nevada, in May and June 2019, Alpine engaged in improper conduct in an attempt to force hundreds of retail customers to close their accounts. Specifically, Doubek and Walsh allegedly caused Alpine to sell approximately $268,000 in customer securities without notice or customer approval on the basis that Alpine deemed the securities “worthless.”

The complaint further alleges that without authorization, and contrary to how the term is defined in its customer agreements, Doubek and Walsh caused Alpine to declare 545 customer accounts “abandoned” and to transfer approximately $54 million worth of securities out of these “abandoned” accounts and into accounts that Alpine controlled. Read More

SEC Charges Simon Piers Thurlow, Roger Leon Fidler, Richard Oravec, Bradley Fidler, Bryce Emory Boucher, Joseph D. Jordan in Illegal Microcap Offering

On September 15, 2021, the Securities and Exchange Commission (the “SEC”) charged Simon Piers Thurlow, Richard Oravec, Bryce Emory Boucher, attorney Roger Leon Fidler, and his son, Bradley Fidler, for fraud and illegally offering unregistered securities. The SEC also charged Joseph D. Jordan and his company, Western Bankers Capital Inc., with illegally offering unregistered securities.

According to the SEC’s complaint, in 2016, Roger Fidler, Thurlow, and Oravec engineered a reverse merger between Dolat Ventures, Inc. (DOLV) and a Chinese company that purportedly manufactured electric cars and batteries and then undertook a fraudulent scheme to create false and backdated documents to make it appear that shares could be immediately sold to the investing public without filing the required registration statements with the SEC.  Read More

SEC Charges Convertible Note Dealer Crown Bridge Partners, LLC, and its managing members, Soheil and Sepas Ahdoot for Failure to Register

 

August 2, 2022 — The Securities and Exchange Commission (the “SEC”) today announced settled charges against a convertible note dealer, Crown Bridge Partners, LLC, and its managing members, Soheil and Sepas Ahdoot of Great Neck, N.Y., for failing to register with the SEC as securities dealers.

As part of the settlement, the Ahdoots and Crown Bridge agreed to pay more than $9 million in monetary relief and to surrender or cancel securities of 82 different issuers they allegedly obtained from their unregistered dealer activity.

The SEC’s complaint, filed in the federal district court in Manhattan, alleges that, between January 2016 and December 2020, Crown Bridge purchased about 250 convertible notes from 150 microcap issuers, and converted the notes into 35 billion newly issued shares of stock at a large discount from the market price. It then allegedly sold the newly issued shares into the market at a significant profit. Read More

SEC Charges Eleven Individuals in $300 Million Crypto Pyramid Scheme known as Forsage

August 1, 2022 — The Securities and Exchange Commission (the “SEC”) today charged 11 individuals for their roles in creating and promoting Forsage, a fraudulent crypto pyramid and Ponzi scheme that raised more than $300 million from millions of retail investors worldwide, including in the United States.

Those charged include the four founders of Forsage, Vladimir Okhotnikov, Jane Doe a/k/a Lola Ferrari, Mikhail Sergeev, and Sergey Maslakov, who were last known to be living in Russia, the Republic of Georgia, and Indonesia (the “Founders”), as well as three U.S.-based promoters, Samuel D. Ellis, of Louisville, Kentucky., Mark F. Hamlin, of Henrico, Virginia. and Sarah L. Theissen, of Hartford, Wisconsin (the “Promoters”), engaged by the founders to endorse Forsage on its website and social media platforms, and several members of the so-called “Crypto Crusaders”, Cheri Beth Bowen, of Pelahatchie, Mississippi., Ronald R. Deering, of Coeur d’ Alene, Idaho, Carlos L. Martinez, of Chicago, Illinois. and Alisha R. Shepperd, of Dunedin, Florida. Read More

SEC Charges Bradley Moynes and Digatrade Financial Corp in Fraudulent Microcap Scheme

On June 27, 2022, the Securities and Exchange Commission (the “SEC”) charged Canadian citizen Bradley Moynes and Canadian corporation Digatrade Financial Corp. for engaging in a deceptive scheme involving microcap companies that generated more than $1.5 million in unlawful stock sale proceeds at the expense of unsuspecting retail investors.

The SEC’s complaint alleges that Moynes was the President, CEO and Director of two small and thinly traded companies, Formcap Corporation (FRMC) and Digatrade Financial Corp (DIGAF), whose stock was publicly traded in the U.S. securities markets. Read More

SEC Charges Empires Consulting Corp and its founders, Emerson Sousa Pires and Flavio Mendes Goncalves, and head trader, Joshua David Nicholas, with Fake Trading Scheme

On June 30, 2022, the Securities and Exchange Commission (the “SEC”) filed fraud charges against Empires Consulting Corp (“EmpiresX”), its founders, Emerson Sousa Pires and Flavio Mendes Goncalves, and its head trader, Joshua David Nicholas, (collectively, the “Defendants”) for a scheme that allegedly raised at least $40 million by luring investors with false claims of one percent daily profits. Instead, the SEC alleges that the Defendants misappropriated large sums of investors’ money for personal uses. Read More

SEC Sues LG Capital Funding and Its Managing Member, Joseph Lerman, for Acting as Unregistered Securities Dealers

On June 7, 2022, the Securities and Exchange Commission (the “SEC”) announced charges against LG Capital Funding, LLC (“LG Capital”) and its managing member Joseph Lerman of Brooklyn, New York, for failing to register as securities dealers with the SEC.

LG Capital and Lerman allegedly bought and sold billions of newly-issued shares of microcap securities, or “penny stocks,” which generated millions of dollars for LG Capital and Lerman.

The SEC’s complaint, filed in the Eastern District of New York, alleges that between at least January 2016 and December 2021 (the “Relevant Period”), LG Capital engaged in the business of purchasing convertible notes from penny stock issuers, converting the notes into shares of stock at a large discount from the market price, and selling those newly issued shares into the market at a significant profit. Read More

SEC Charges Trends Investments Inc., Clinton Greyling and Leslie Greyling

On June 9, 2022, the Securities and Exchange Commission (the “SEC”) charged Trends Investments Inc. and five individuals, Clinton Greyling of Florida, Leslie Greyling (Clinton’s father, a resident of the United Kingdom), former Massachusetts resident Brandon Rossetti, Roger Bendelac and Thomas Capellini in connection with a securities fraud scheme involving the offer and sale of stock in two publicly traded penny stock companies.

According to the SEC’s complaint, Trends Investments Inc., an unregistered entity, and Trends personnel Clinton Greyling, Leslie Greyling and Brandon Rossetti engaged in a scheme to defraud investors in private offers and sales of shares of Alterola Biotech Inc. (ABTI) and Token Communities Ltd. (formerly TKCM).

The Greylings and Rossetti allegedly lied to investors about whether Trends owned and could deliver to investors the shares it claimed to be selling. They are further charged with making a variety of misrepresentations to investors in order to keep investor funds, obtain further investments, placate investor concerns, and avoid detection. Read More

In Jarkesy v. Securities and Exchange Commission, the US Court of Appeals for the Fifth Circuit held that the Securities and Exchange Commission’s (SEC) adjudication of fraud cases in administrative proceedings is unconstitutional

On May 18, 2022, the US Court of Appeals for the Fifth Circuit in Jarkesy v. Securities and Exchange Commission held that the Securities and Exchange Commission’s administrative proceedings adjudicating securities is unconstitutional.

On March 22, 2013, the SEC brought an enforcement action against hedge fund operator George R. Jarkesy, Jr. and Patriot 28, L.L.C (collectively “Jarkesy”)., alleging that they engaged in securities fraud under the Investment Advisors Act of 1940, Securities Act of 1933 and the Securities Exchange Act of 1934. The Jarkesy filed an interlocutory challenge in the US District Court for the District of Columbia seeking to enjoin the SEC administrative proceedings based on constitutional defects. The district court held, and the US Court of Appeals for the District of Columbia Circuit later affirmed, that the SEC administrative proceedings lacked jurisdiction over the case and that Jarkesy had to exhaust administrative remedies before raising their constitutional claims before a federal court of appeals. Read More