Unregistered Dealers – The Scam Goes On

2020 has been a historic year for Securities and Exchange Commission (“SEC”) enforcement action against toxic lenders as unregistered dealers.

What is a SPAC?

SPACs, which stand for special purpose acquisition companies, are similar to blank check companies. The SPAC does an Initial Public Offering (an “IPO”) as a shell company with no commercial operations to raise money from the public for the purpose of acquiring an existing private company with real operations.

Possible replacements for Jay Clayton as SEC Chair

With Jay Clayton stepping down as the Chairman of the Securities and Exchange Commission at the end of the year, president-elect Joe Biden will have an opportunity to pick his replacement. Who are some of the top candidates as a full-time replacement for SEC chief?

Jay Clayton won’t be sitting on his hands during his last month as the SEC Chair

On November 16, 2020, Jay Clayton, Chairman of the Securities and Exchange Commission, announced that he would be stepping down at the end of the year after 3 years and 238 days on the job.

Jeffrey D. Martin Charged with Manipulating Publicly Traded Stocks in Multiyear “Pump and Dump” Securities Fraud Scheme Worth Over $19 Million

On November 19, 2020, the United States Attorney William M. McSwain filed a superseded Indictment against Jeffrey D Martin, 61, of Orlando, FL. Martin was charged with conspiracy and multiple counts of securities fraud and wire fraud, related to his manipulation of several publicly-traded securities in a “pump and dump” scheme in which Martin and his co-schemers allegedly defrauded investors out of over $19 million.

SEC Charges Benja and Andrew J. Chapin With Defrauding Investors

Today, the Securities and Exchange Commission (the “SEC”) charged a San Francisco-based e-commerce startup and its chief executive officer with misleading investors about purported contracts with well-known consumer brands.

SEC Warns Broker-Dealers of Risks Associated with Offshore Omnibus Accounts Transacting in “Penny Stocks”

Last week, the SEC Division of Trading and Markets published a staff bulletin highlighting various risks for broker-dealers arising from certain transactions in “penny stocks” and other low-priced securities. The Commission emphasized that these risks are heightened when the identities of a foreign financial institution’s underlying customer and/or the ultimate beneficial owner of the funds and securities are unknown to a broker-dealer because of the omnibus account structure.

SEC Enforcement Actions Decline in 2020

According to the annual report published by the Division of Enforcement of the U.S. Securities and Exchange Commission (the “SEC”), there were 715 overall enforcement actions in fiscal 2020, down 17% from the previous year.

Despite the slow down, financial remedies ordered “set a new high,” according to Stephanie Avakian, the agency’s enforcement chief. The Commission obtained judgments and orders totaling approximately $4.68 billion in disgorgement and penalties – the highest amount on record.

Caveat Emptor Securities Hit with a Big Setback

Last week, E*TRADE, a subsidiary of Morgan Stanley, which offers an electronic trading platform to trade financial assets including common stocks, announced that effective November 21, 2020, customers will no longer be able to open positions in Caveat Emptor securities due to the risks associated with trading shares in these companies.

SEC Awards Two Unique Whistleblower Awards

On November 13, 2020, the Securities and Exchange Commission (the “SEC”) announced an award of over $1.1 million to a whistleblower whose independent analysis led the staff to look at new conduct during an ongoing investigation. 

SEC Amends Regulation A, Crowdfunding and Rule 504 Securities Exemptions

The SEC adopted amendments to: (1) establish a new integration framework for issuers to move from one securities offering exemption to another; (2) increase the current offering and investment limits for Regulation A  Offerings, Regulation Crowdfunding – Regulation CF and Rule 504 offerings; and (3) amend “Test-the-Waters” and “Demo Day” offering communications rules.

SEC Charges John McAfee, Jimmy Watson, Jr with Fraudulently Touting ICOs

On October 6, 2020, the Securities and Exchange Commission (the “SEC”) charged businessman and computer programmer, John McAfee, for promoting investments in initial coin offerings (ICOs) to his Twitter followers without disclosing that he was paid to do so. McAfee’s bodyguard, Jimmy Watson, Jr., was also charged for his role in the alleged scheme.

Edward T. Kelly, Aceto Corporation Controller, Charged with Insider Trading

Edward T. Kelly, Aceto Corporation, Insider Trading, Lakewood Ranch Florida

SEC Obtains Final Judgment Against Nicholas Tornello, Hill International, Inc

On October 1, 2020, the U.S. District Court for the Eastern District of Pennsylvania entered a final consent judgment against Nicholas Tornello, a former senior accountant at Hill International, Inc.

SEC Proposes Exemptive Relief for Finders

At its October 7, 2020 open meeting, the Securities and Exchange Commission (the “SEC”) voted to propose exemptive relief for certain finders engaged in raising capital  from accredited investors. If the proposal is adopted, it would allow them to receive commissions and other transaction-based compensation without registration as a broker-dealer under Section 15 of the Securities Exchange Act of 1934 (the “Exchange Act”).

SEC Amends Rule 15c2-11, Form 211 Amendments

On September 16, 2020, SEC amended Exchange Act Rule 15c2-11 and Form 211. Changes to Rule 15c2-11 were proposed last year. The OTC Markets will be impacted by the changes as will penny stock issuers on the OTCQB and OTC Pink tiers.

Can I Use an Online Portal For My Rule 506(c) Offering?

Online Platforms for Rule 506(c) Offerings The most common exemption from SEC Registration is Rule 506(c) of Regulation D which provides for two unique exemptions from SEC registration that allow the issuer to raise unlimited amounts of capital… Read More

SEC Amends Regulation S-K Item 101, 103 and 105

On August 26, 2020, the United States Securities and Exchange Commission (the “SEC”) finalized its proposed rule amending the disclosure requirements under Items 101, 103, and 105 of Regulation S-K. The revisions to Regulation S- K modernize SEC disclosure requirements and provide investors with more meaningful information about an issuer’s business, legal proceedings, and risks of an investment in the issuer’s securities. They also reduce the burden on issuers to disclose certain information that might be immaterial to the issuer’s business. Items 101, 103 and 105 have not been substantially revised for over 30 years.  Issuers conducting direct public offerings or filing registration statements on Form F-1 or S-1 should be aware of these changes.

SEC Amends Accredited Investor Definition – Rule 506 Offerings

Rule 506 Offerings are the most common of the Regulation D exemptions from registration under the Securities Act of 1933, as amended (the “Securities Act”).  Rule 506 contains two distinct offering exemptions.  Rule 506(b) and Rule 506(c). Rule 506 (b) provides an exemption to an unlimited number of accredited investors and up to thirty-five non-accredited investors without the use of general solicitation and advertising while Rule 506(c) allows the issuer to sell to an unlimited number of accredited investors so long as it verifies that each investors is an accredited investor.

SEC Says toxic funder John M. Fife is an Unregistered Dealer

The SEC filed an enforcement action against John Fife, an unregistered dealer and 5 companies he controlled including St. George Investments LLC and Tonaquint, Inc. According to the SEC, Fife and his companies had acted for years as securities dealers, but failed to register with the SEC and with the Financial Industry Regulatory Authority (“FINRA”) as the Securities Exchange Act of 1934 (“Exchange Act”) requires.

SEC Says Ibrahaim Almagarby and Microcap Equity Group Are Unregistered Dealers

We’ve previously written about Securities and Exchange Commission (“SEC”) enforcement actions pending against John Fierro and Justin Keener alleging unregistered dealer activity. Filed in February and March 2020 respectively, they are similar to a lawsuit the agency brought… Read More

Business Identity Theft: State of the Industry Report

As business owners, it’s important that you watch out for all of these forms of business identity theft. Your business, whether big or small, is vulnerable to all of these schemes, just by virtue of being in business.

AmTrust and Ronald E. Pipoly, Jr Charged with Faulty Loss Reserves Disclosures

On June 17th, 2020, the SEC charged international insurance company AmTrust Financial Services, Inc. and its former CFO Ronald E. Pipoly Jr. with failing to disclose material facts …

SEC Obtains Final Judgments Against Daniel Adams, Michael Flanders, Spiderworx Media LLC, and An L.A. Minute LLC

The SEC has obtained final judgments against movie director and convicted felon Daniel Adams, music producer Michael Flanders, and companies under their control for defrauding two investors in connection with financing the movie entitled An L.A. Minute.

SEC Says Dilution Funder John Fierro is a Dealer Not a Trader

Dilution Funders and Dilution Financings Challenged by SEC

SEC Obtains Judgment Against Giga Entertainment, Inc. CEO Gary Nerlinger

The U.S. District Court for the Eastern District of New York entered a final judgment as to monetary relief against the former de facto CEO of Giga Entertainment Media, Inc., Gary S. Nerlinger, whom the SEC previously charged in connection with a scheme to mislead investors.

SEC Settles with Three Defendants in Boiler Room Scheme

The SEC announced that it has obtained final judgments by consent against Ronald Hardy, Anthony Vassallo, and Sergio Ramirez charged for their roles in a $10 million boiler room scheme.

SEC Reaches Settlements with Traders in Newswire Hacking and Trading Scheme

The SEC announced  that it has obtained court approval of settlements with eight defendants: Arkadiy Dubovoy, Igor Dubovoy, Southeastern Holding and Investment Company LLC, APD Developers, Inc., Leonid Momotok, Aleksandr Garkusha, Vladislav Khalupsky, and Memelland Investments Ltd, charged in connection with an international scheme to trade on hacked news releases.

What Is a Control Person? Control Securities, Resale Requirements

Sales of restricted securities by affiliates and control persons of publicly traded companies are subject to requirements not applicable to other sellers under federal securities laws. Control person and affiliate are defined by Rule 405. 

SEC Form 3, Insider Reporting Requirements

Form 3 must be filed within ten (10) calendar days after a person becomes a Section 16 insider. Form 3 is a simplified SEC form that allows insiders to report initial ownership information.