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
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 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”).
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 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
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
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
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
On May 24, 2022, United States District Judge Katherine Menendez filed her Order in response to Carebourn Capital, L.P.’s Motion for Judgement on the Pleadings to dismiss the Securities and Exchange Commission (“SEC”) case filed against the penny stock financier, denying all of Carebourn’s claims.
The SEC filed charges against Carebourn and its managing partner Chip Rice of Maple Grove, Minnesota (collectively, the “Defendants”), on September 24, 2021, in the U.S. District Court for the District of Minnesota (the “Complaint”), charging the Defendants with acting as unregistered securities dealers in connection with their buying and selling of billions of newly-issued shares of microcap securities, or “penny stocks,” which generated millions of dollars for Carebourn and Rice. Read More
On May 24, 2022, the Public Company Accounting Oversight Board (PCAOB) announced that it has sanctioned Bo-Shiang (“Eric”) Lien, a former audit director and non-equity partner at BF Borgers CPA PC, for violations of PCAOB rules and standards in connection with the audits by BF Borgers of the financial statements of three public companies between 2017 and 2019.
Lien is a certified public accountant licensed by the state of Colorado (license no. 0030719). At all relevant times, Lien was an audit manager or director (non-equity partner) of BF Borgers and served as an engagement partner on issuer audits.
Since 2017, BF Borgers has been involved in providing audits for dozens (if not hundreds) of public companies.
The PCAOB found that Lien violated PCAOB rules and standards while serving as the engagement partner on BF Borgers’ audits of the 2019 financial statements of Chineseinvestors.com, Inc., the 2018 financial statements of United Cannabis Corporation, and the 2015 and 2016 financial statements of China Pharma Holdings, Inc. Read More
SEC obtains asset freezes and other emergency relief against StraightPath Venture Partners LLC, StraightPath Management LLC, Brian K. Martinsen, Michael A. Castillero, Francine A. Lanaia, and Eric D. Lachow
On May 16, 2022, the Securities and Exchange Commission (the “SEC”) obtained asset freezes and other emergency relief against StraightPath Venture Partners LLC, StraightPath Management LLC, Brian K. Martinsen, Michael A. Castillero, Francine A. Lanaia, and Eric D. Lachow (collectively, the Defendants) to halt ongoing securities violations, including allegedly selling pre-Initial Public Offering (IPO) shares they did not own, pocketing undisclosed fees, and commingling investor funds, resulting in Ponzi scheme-like payments. The relief arose from fraud and registration charges filed by the SEC.
The SEC alleges in its complaint that the Defendants, running an unregistered broker-dealer with a vast network of sales agents, raised at least $410 million from more than 2,200 investors from November 2017 through February 2022.
The OTC Markets OTCQX offers foreign issuers seeking to go public in the U.S. an appealing alternative to listing on a stock exchange. Foreign issuers whose securities are listed on a foreign stock exchange that qualify for the exemption from the reporting requirements of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), can go public in the U.S by quotation of their securities on the OTCQX without registration or reporting obligations to the Securities and Exchange Commission (the “SEC”).
Foreign issuers with a class of securities registered under Section 12(g) of the Exchange Act also qualify to list on the OTCQX. Read More
On Friday, May 12, 2022, the Securities and Exchange Commission announced that it obtained a final judgment against Canadian resident Frederick L. Sharp.
In August 2021, the SEC charged Sharp with leading a fraudulent scheme that generated hundreds of millions of dollars from unlawful stock sales and caused significant harm to retail investors in the United States and around the world. Among other relief, the judgment orders Sharp to pay over $50 million in monetary relief.
According to the SEC’s complaint, Sharp masterminded a complex scheme from 2011 to 2019 in which he and his associates enabled control persons of penny stock companies, whose stock was publicly traded in the U.S. securities markets, to conceal their control and ownership of huge amounts of penny stock and then surreptitiously dump the stock into the U.S. markets, in violation of federal securities laws.
On April 29, 2022, the Securities and Exchange Commission obtained a judgment against Shawn Hackman, who was previously disbarred by the State of Nevada and suspended by the SEC, ordering him to comply with the SEC’s suspension order and to pay nearly $1 million in disgorgement and prejudgment interest for the money he earned in violation of the suspension order.
On May 4, 2022, the Securities and Exchange Commission (the “SEC”) filed a complaint alleging Michael Forster engaged in manipulative trading in connection with a microcap issuer he controlled, Cuba Beverage Company (CUBV), a purported energy drink company.
According to the SEC’s complaint, in or around February 2012, Forster gained control of CUBV for $40,000 through an undocumented agreement with the sole executive of the company at the time. During this same period, Forster entered into a consulting agreement with CUBV and his company, SLO 3 Holdings dba as designir.com and stockmailer.com, to increase the CUBV share price.
OTC Markets Group (“OTC Markets”) requires companies seeking quotation of their securities on the OTCQB® Venture Stage Marketplace (“OTCQB”) have an initial and ongoing $0.01 per share minimum bid price, submit an initial OTCQB application, pay annual fees, and submit annual certifications to the OTC Markets. Companies that do not meet all of these requirements are demoted to the OTC Markets Pink® Marketplace (“OTC Pink”). OTCQB companies must also be reporting with the Securities & Exchange Commission (“SEC”). The OTC Markets offers companies seeking public company status new alternatives for listing while ensuring transparency for investors.
On April 27, 2022, the Securities and Exchange Commission charged Sung Kook (Bill) Hwang, the owner of family office Archegos Capital Management, LP (Archegos), with orchestrating a fraudulent scheme that resulted in billions of dollars in losses. The SEC also charged Archegos’s Chief Financial Officer, Patrick Halligan; head trader, William Tomita; and Chief Risk Officer, Scott Becker, for their roles in the fraudulent scheme.
The SEC’s complaint alleges that, from at least March 2020 to March 2021, Hwang purchased on margin billions of dollars of total return swaps. These security-based swaps allow investors to take on huge positions in equity securities of companies by posting limited funds upfront. As alleged, Hwang frequently entered into certain of these swaps without any economic purpose other than to artificially and dramatically drive up the prices of the various companies’ securities, which induced other investors to purchase those securities at inflated prices.
As a result of Hwang’s trading, Archegos allegedly underwent a period of rapid growth, increasing in value from approximately $1.5 billion with $10 billion in exposure in March 2020 to a value of more than $36 billion with $160 billion in exposure at its peak in March 2021.
The Securities and Exchange Commission announced charges against 16 defendants, located in the Bahamas, the British Virgin Islands, Bulgaria, Canada, the Cayman Islands, Monaco, Spain, Turkey, and the United Kingdom, for participating in multi-year fraudulent penny stock schemes that generated more than $194 million in illicit proceeds.
The SEC investigations leading to these charges involved assistance from securities regulators and other law enforcement authorities in more than 20 countries and are associated, in part, with parallel criminal actions announced by the United States Attorney’s Office for the Southern District of New York.
In case number one, first announced on April 14, 2022, the SEC charged eight individuals for participating in a long-running fraudulent scheme that generated over $145 million from unlawful sales of at least 17 penny stocks, causing significant harm to retail investors in the United States and around the world.
According to the SEC’s complaint, UK-resident Ronald Bauer and his associates, Craig James Auringer, Adam Christopher Kambeitz, Alon Friedlander, Massimiliano (“Max”) Pozzoni, Daniel Mark Ferris, Petar Dmitrov Mihaylov, and David Sidoo – all of whom reside outside the U.S. – engaged in a complex scheme spanning from at least 2006 to 2020 to fraudulently unload on unsuspecting retail investors the respective defendants’ significant shareholdings of at least 17 microcap stocks quoted on U.S. markets.
Most of the companies quoted on OTC Markets are not able to meet the minimum listing requirements for trading on a national securities exchange. Many of these companies do not file periodic reports or audited financial statements with the SEC, making it difficult for the public to find current, reliable information about those companies. Companies quoted on the OTC Markets are divided into four tiers, the OTCQX, the OTCQB, the OTC Pink and the Expert Market. Companies on the Expert Market provide the lowest level of disclosure in comparison to other OTC Market tiers. As a result, trading is limited to quotation on an unsolicited basis.
On October 15, OTC Markets reported that “2,247 former Pink No Information securities shifted to the Expert Market tier, where securities may only be quoted on an Unsolicited (customer order) basis. Quotes of securities in the Expert Market are “Unsolicited Only,” which means that trades of securities subject to unsolicited quotation in the Expert Market are only available to broker-dealers, institutions and other sophisticated investors, and not average investors.
The SEC’s amendments to Rule 15c2-11 became effective on September 28, 2021. Amended Rule 15c2-11 eliminated broker-dealer quotes of securities of issuers that fail to make current information publicly available. With the amendments to Rule 15c2-11, the OTC Markets Group Expert Market became the platform for broker-dealers to publish unsolicited quotes of securities designated as “No Information” securities. Typically, these are companies not subject to or not in compliance with SEC public company reporting requirements.
Because of the restrictions imposed on securities quoted on the Expert Market, most investors will not be able to publicly sell their shares. Additionally, they will not have access to bid and ask prices or other information, including trading volume. As such, Expert Market shares are illiquid.
Companies moved to the Expert Market from another OTC Markets tier can apply to relist on the OTC Pink or other OTC Markets tier by becoming an SEC reporting company, submitting a new Form 211, and meeting OTC Markets requirements for the particular tier.
The Securities and Exchange Commission today announced charges against Anthony Salandra, for his role in a market manipulation scheme in which he and several other individuals created false rumors about public companies in order to profitably trade around the temporary price increases caused by the publication of the rumors.
According to the complaint, filed in the United States District Court for the Northern District of Georgia on April 11, 2022, Salandra, Ross and a third individual created false rumors about purported market-moving events, such as corporate mergers or acquisitions, involving publicly-traded companies.
As alleged, the false rumors were then shared with Melnick and another individual who disseminated the false rumors through real-time financial news services, financial chat rooms, and message boards, causing the prices of the subject companies’ securities to rise temporarily.
SEC Obtains Final Judgments from Chrysilios Chrysiliou and Panagiotis Bolovis for Their Roles in $45 Million Fraudulent Scheme
On April 4, 2022, the U.S. District Court for the Southern District of New York entered final judgments against Chrysilios Chrysiliou and Panagiotis Bolovis for their respective roles in a fraudulent scheme to gain control of Airborne Wireless Network, promote its stock, and defraud investors.
According to the SEC’s complaint, filed on March 2, 2021, in October 2015, Kalistratos “Kelly” Kabilafkas secretly purchased essentially all the outstanding stock of the public shell company, Ample-Tee, Inc., which ultimately became Airborne. More specifically, Kabilafkas bought both the control block of about 84.1 million restricted shares and about 30 million shares that had purportedly been issued to about 30 residents of Thailand in a 2013 distribution submitted on Form S-1. In fact, the Thai Shareholders were simply nominees who never owned the stock. Kabilafkas then distributed millions of shares among himself and his associates, including Chrysiliou and Bolovis.
On March 24, 2022, as an anxious world hoped for positive results from a NATO meeting convened to address the ongoing war in Ukraine, former President Donald Trump sought to redress the harm he believes was done to him by Hillary Clinton “and her cohorts” in the run-up to the 2016 presidential election, an election he ultimately won. In order to accomplish that, he’s brought a civil lawsuit against her, her campaign, certain of her campaign officials, a number of former government and law enforcement officials, and the Democratic National Committee. The suit was filed in federal district court for the Southern District of Florida because Trump’s principal place of residence is in Palm Beach, and several of the other defendants have ties to the state.
The action was filed and signed by Peter Ticktin, a Florida attorney who attended the New York Military Academy with Trump when both were teenagers. In 2020, Ticktin wrote a 160-page book about his friendship with the future president called What Makes Trump Tick. My Years with Donald Trump from New York Military Academy to the Present.