SEC Charges Former Woodbridge Directors of Investment with Fraud

SEC Charges Former Woodbridge Directors of Investment with FraudOn April 11, 2019, the SEC charged two former directors of investments at Woodbridge Group of Companies LLC for their roles in its massive Ponzi scheme. The defendants, California-based Ivan Acevedo and Dane Roseman, were separately arrested and charged by criminal authorities, along with Woodbridge owner Robert H. Shapiro.

The SEC previously charged Woodbridge and Shapiro, and Woodbridge’s highest-earning unregistered brokers. In January, a federal court in Florida ordered Woodbridge, related companies, and Shapiro together to pay $1 billion for operating this Ponzi scheme. Read More

SEC Charges Dubai-Based Advisory Firm and Its Founder, Arif Naqvi

On April 11, 2019, the SEC charged Arif Naqvi and Abraaj Investment Management Limited, a Dubai-based investment advisory firm, with misappropriating funds from a private equity fund client.

On April 11, 2019, the SEC charged Arif Naqvi and Abraaj Investment Management Limited, a Dubai-based investment advisory firm, with misappropriating funds from a private equity fund client.

The SEC alleges that Arif Naqvi and his firm raised money for the Abraaj Growth Markets Health Fund (“Health Fund”), collecting more than $100 million over three years from U.S.-based charitable organizations and other U.S. investors. According to the SEC’s complaint, Arif Naqvi misappropriated money from the Health Fund and commingled the assets with corporate funds of Abraaj Investment Management Limited and its parent company, and used it for purposes unrelated to the Health Fund. The SEC alleges that Arif Naqvi and his firm made misrepresentations to investors and issued false and misleading financial statements to hide that they were spending investor money in unrelated ways. Read More

SEC Charges Investment Adviser, Gonzalo Ortiz with Securities Fraud

SEC Charges Investment Adviser, Gonzalo Ortiz with Securities FraudThe SEC filed a civil injunctive action on April 10,2019, charging a New Jersey resident, Gonzalo Ortiz with defrauding an investor by lying about his trading success, concealing trading losses, and misappropriating funds.

The SEC’s complaint, filed in federal court in Brooklyn, alleges that Gonzalo Ortiz, of Hackensack, New Jersey, falsely touted his success in investing in stocks and promised the investor a minimum 50% return in a year, and induced the investor to give him control of over $570,000 the investor’s retirement savings. The complaint alleges that contrary to these promises, Gonzalo Ortiz misappropriated almost half of the funds and invested the other funds in high-risk microcap companies that generated significant losses. Gonzalo Ortiz then concealed the misappropriation and losses by providing the investor with a phony account statement that falsely showed high returns. According to the complaint, Gonzalo Ortiz misappropriated approximately $224,500 of the investor’s money, and lost approximately $290,000 through his trading. Read More

SEC Brings Actions Against Fifteen Unregistered Brokers for Their Participation in an IIIegal Offering of Microcap Securities

SEC Brings Actions Against Fifteen Unregistered Brokers for Their Participation in an IIIegal Offering of Microcap Securities

On April 9,2019, the SEC charged fifteen individuals with acting as unregistered brokers or aiding-and-abetting such activity in connection with Intertech Solutions, Inc.’s fraudulent and unregistered securities offerings.

The SEC’s complaints allege that Alexander Bevil, Richard Bohnsack, Daniel Broyles, Charles Davis, Michael Duke, Joel Duncan, Martin Lewis, Mark Parman, William Roth, Paula Saccomanno, Kenneth Shelton, Billy Ray Statham, Jr., Glenn Story, Dennis Swerdlen, and Harold Wasserman were hired by Intertech Solutions to engage in or facilitate cold-call solicitations of hundreds of prospective investors throughout the United States and Canada from at least February 2014 through December 2016. The complaints allege that, as a result of the defendants’ conduct, Intertech Solutions raised over $7 million from retail investors. According to the complaints, Intertech Solutions paid the defendants exorbitant commissions ranging from 35% to 50% of the funds provided by each investor. The complaints allege that the defendants did not disclose their commission rates to investors and instead distributed private placement memoranda that indicated that only 10% of investor proceeds would be used as commissions. The SEC previously charged Intertech Solutions and its control persons with orchestrating the fraudulent and unregistered offerings. Read More

Does Regulation A+ Allow Testing the Waters?

Issuers utilizing Regulation A+ are permitted to “test the waters” with potential purchaser and use solicitation materials both before and after the offering statement is filed, subject to compliance with SEC rules on filing and disclaimers. Using Regulation A+, issuers can advertise the offering opportunity to solicit interests before spending hundreds of thousands of dollars on the actual filing itself, to see if there’s sufficient interest to spend the money to move forward with qualifying a Regulation A Offering

Issuers utilizing Regulation A+ are permitted to “test the waters” with potential purchaser and use solicitation materials both before and after the offering statement is filed, subject to compliance with SEC rules on filing and disclaimers.  Using Regulation A+, issuers can advertise the offering opportunity to solicit interests before spending hundreds of thousands of dollars on the actual filing itself, to see if there’s sufficient interest to spend the money to move forward with qualifying a Regulation A Offering.

Testing the waters materials used prior to the filing of the Form 1-A must be filed as an exhibit with the initial filing on Form 1-A.  Although the SEC does not pre-review pre-filing advertising, issuer should exercise caution with what they say in offering materials.  Solicitation materials are subject to the anti-fraud and other civil liability provisions of the federal securities laws and issuers can be sued for statements in the advertising materials, even if they don’t include the information in the 1-A Offering Circular itself. Read More

SEC Charges Former Seaworld Associate General Counsel, Paul Powers with Insider Trading

On April 10, 2019, the SEC charged Paul B. Powers, a former senior lawyer at SeaWorld Entertainment Inc with insider trading based on nonpublic information that the company's revenue would be better than anticipated for the second quarter of 2018.

On April 10, 2019, the SEC charged Paul Powers, a former senior lawyer at SeaWorld Entertainment Inc with insider trading based on nonpublic information that the company’s revenue would be better than anticipated for the second quarter of 2018.

The SEC alleges that Paul Powers had early access to key revenue information as the company’s associate general counsel and assistant secretary, and he purchased 18,000 shares of SeaWorld stock the day after he received a confidential draft of the 2018 second quarter earnings release that detailed a strong financial performance by the company after a lengthy period of decline.  According to the SEC’s complaint, Paul Powers immediately sold his SeaWorld shares for approximately $65,000 in illicit profits after the company announced its positive earnings and the company’s stock price increased by 17 percent. Read More

Final Judgment Against Robert DePalo, a Broker Charged with Stealing from Investors

Final Judgment Against Robert DePalo, a Broker Charged with Stealing from Investors

On February 5, 2019, the SEC obtained a final judgment against a New York-based broker, Robert DePalo who was charged with orchestrating a $6.5 million offering fraud.

In May 2015, the SEC charged Robert DePalo with defrauding over twenty investors by misrepresenting the value of their investments and use of their funds, including by sending the first $2.3 million of investor funds to his personal bank account.  The SEC also alleged that Robert DePalo made false statements to SEC examiners in an attempt to conceal the fraud. Read More

Does Offering Integration Apply in a Regulation A Offering?

The Regulation A + offering integration rules prevent companies from improperly avoiding the SEC’s  registration statement requirements by dividing a single securities offering into multiple securities offerings to take advantage of exemptions that would not be available for the combined offerings. Regulation A+ contains integration safe harbor provisions. Under Rule 251(c), a Regulation A+ offerings will not be integrated with prior offers or sales of securities. The Regulation A + offering integration rules prevent companies from improperly avoiding the SEC’s  registration statement requirements by dividing a single securities offering into multiple securities offerings to take advantage of exemptions that would not be available for the combined offerings. Regulation A+ contains integration safe harbor provisions. Under Rule 251(c), a Regulation A+ offerings will not be integrated with prior offers or sales of securities. Subsequent offers and sales of securities in Regulation A+ offerings will not be integrated with other securities offerings that are: Read More

SEC Charges College Official for Fraudulently Concealing Financial Troubles from Investors

SEC Charges College Official for Fraudulently Concealing Financial Troubles from Investors

On March 28, 2019, the SEC charged Keith Borge, the former controller of a New York-based not-for-profit college with defrauding municipal securities investors by fraudulently concealing the college’s deteriorating finances.

According to the SEC’s complaint, in recent years, the College of New Rochelle came under considerable financial stress because of declining student enrollment and plummeting revenue from tuition. To hide the college’s deteriorating financial condition from investors, the college’s former controller, Keith Borge, created false financial records, didn’t file payroll tax submissions, and didn’t assess the collectability of pledged donations that were increasingly unlikely to be received as donors became more frustrated with the college’s operations. Keith Borge’s misconduct resulted in the college’s financial statements for its 2015 fiscal year falsely overstating net assets by almost $34 million. Keith Borge also falsely certified the accuracy of the college’s financial statements. The financial statements were published by Keith Borge to an online repository in connection with the College’s continuing disclosure obligations stemming from a 1999 bond issuance, and significantly influenced investors’ decisions to invest in the bonds. Read More

SEC Shuts Down Fraudulent Investment Advisor Who Was Targeting the Israeli-American Community

SEC Shuts Down Fraudulent Investment Advisor Who Was Targeting the Israeli-American Community

The SE announced on April 1, 2019 that it had halted an ongoing investment fraud by Investment Advisor Motty Mizrahi targeting members of the Jewish community, primarily in the Los Angeles, California region.

The SEC filed an emergency action in federal court against Motty Mizrahi and MBIG Company, his sole proprietorship, alleging that, since June 2012, they defrauded at least 15 advisory clients out of more than $3 million. According to the SEC’s complaint, unsealed on March 29, 2019, Motty Mizrahi falsely claimed that MBIG used sophisticated trading strategies to generate “guaranteed” returns of between 2-3% per month, the investments were risk-free, and clients would not lose their money and could withdraw their funds at any time. Unbeknownst to his clients, however, MBIG had no bank or brokerage account of its own – rather, clients unwittingly sent money to Motty Mizrahi’s personal bank account. Motty Mizrahi used the money to fund his personal brokerage account, in which he engaged in high-risk options trading producing losses of more than $2.2 million, and to pay personal expenses. The SEC alleges that Motty Mizrahi covered up his fraud by issuing MBIG’s clients fabricated account statements, showing positive account balances and profits from trading. When clients demanded proof of MBIG’s securities holdings, Motty Mizrahi showed them brokerage statements reflecting a multi-million dollar balance for a fictitious MBIG brokerage account. Read More