Oct 11, 2018 | Shareholder & Investor Protection
On October 11, 2018, the Securities and Exchange Commission announced that it obtained an emergency court order halting a planned initial coin offering (“ICO”), which backers falsely claimed was approved by the SEC. The order also halted ongoing pre-ICO sales by the company, Blockvest LLC (“Blockvest”) and its founder, Reginald Buddy Ringgold, III (“Ringgold”).
According to the SEC, an SEC complaint unsealed on October 10, 2018 alleged that Blockvest falsely claimed its ICO and its affiliates received regulatory approval from various agencies, including the SEC. According to the SEC’s complaint, Blockvest and Ringgold, a/k/a Rasool Abdul Rahim El, were using the SEC seal without permission, a violation of federal law, and falsely claiming their crypto fund was “licensed and regulated.” The complaint also alleged Ringgold promoted the ICO with a fake agency he created called the “Blockchain Exchange Commission,” using a graphic similar to the SEC’s seal and the same address as SEC headquarters.
Allegedly, Blockvest and Ringgold also misrepresented Blockvest’s connections to a well-known accounting firm and continued their fraudulent conduct even after the National Futures Association (NFA) sent them a cease-and-desist letter to stop them from using the NFA’s seal and from making false claims about their status with that organization.
The federal court’s order froze defendants’ assets and temporarily prohibited Blockvest and Ringgold from violating the antifraud provisions and securities registration provisions. A hearing is scheduled for Oct. 18, 2018, to consider continuing the asset freeze and issuance of a preliminary injunction.
The SEC’s complaint charged Blockvest and Ringgold with violating the antifraud and securities registration provisions of the federal securities laws. The complaint seeks injunctions, return of ill-gotten gains plus interest and penalties, and a bar against Ringgold to prohibit him from participating in offering any securities, including digital securities, in the future or making misrepresentations about regulatory approval.
The SEC’s Office of Investor Education and Advocacy and the U.S. Commodity Futures Trading Commission’s (“CFTC”) Office of Customer Education and Outreach have jointly issued an investor alert on the use of false claims regarding SEC and CFTC endorsements.
Source: SEC.gov
Oct 5, 2018 | Shareholder & Investor Protection
On October 3, 2018, the Securities and Exchange Commission announced that it filed an emergency action and obtained an asset freeze against two individuals and their companies in a scheme that generated more than $165 million of illegal sales of stock in at least 50 microcap companies. SEC investigators unraveled the multi-year scheme with the assistance of more than a dozen international regulators and sophisticated analysis of nearly 400 bank and brokerage accounts.
According to the SEC’s unsealed complaint, U.K. citizen Roger Knox (“Knox”) and his Swiss-based company, Wintercap SA (“Wintercap”) helped microcap securities holders evade federal securities laws that restrict sales by large shareholders. The complaint charges that Knox and Wintercap, formerly Silverton SA, helped sellers conceal their stock ownership and provided anonymous access to brokerage accounts to sell the shares in the U.S. market. For three specific issuers detailed in the complaint, Knox sold the stocks when their price and trading volume were inflated by promotional campaigns. Michael T. Gastauer (“Gastauer”) allegedly aided and abetted the fraud by establishing several U.S. corporations and allowing Knox to use their bank accounts to disburse the proceeds of his illegal stock sales.
The SEC’s complaint, filed in federal district court in Boston, charged Knox and Wintercap with violating the antifraud and registration provisions of the federal securities laws and with acting as unregistered broker-dealers, and charged Gastauer and his entities with aiding and abetting Knox’s violations of the antifraud and registration provisions.
The complaint also named as relief defendants two family members of Gastauer and a U.K. entity Gastauer controlled. In addition to the asset freeze and other temporary relief obtained, the SEC has sought permanent injunctions, disgorgement of allegedly ill-gotten gains plus interest, penalties, and penny stock bars.
In a parallel criminal case, the U.S. Attorney’s Office for the District of Massachusetts announced criminal charges against Knox.
Source: SEC.gov
Oct 1, 2018 | Shareholder & Investor Protection
Salix and Its Former CFO Charged with Repeatedly Misleading Analysts and Investors
On September 28, 2018, the Securities and Exchange Commission announced that it charged Salix Pharmaceuticals Ltd. (“Salix”) and its former CFO with repeatedly misleading analysts and investors about the company’s future prospects. The former CFO, Adam Derbyshire (“Derbyshire”), will pay more than $1 million to settle the charges.
According to the SEC’s complaint, Salix and Derbyshire lied to analysts and investors during quarterly earnings calls by significantly understating the amount of Salix drugs that wholesaler customers held in inventory. Salix had engaged in a long-standing practice of flooding the distribution channel by using incentives to induce customers to purchase more products, creating a short-term revenue bump but excess supply that imperiled future sales. The complaint alleges that Salix and Derbyshire also failed to disclose in SEC reports that the practice had impacted earnings and presented a significant risk to Salix investors. Salix is now a subsidiary of Bausch Health Companies, which was previously known as Valeant Pharmaceuticals International. The alleged misconduct occurred prior to Salix’s acquisition by Valeant.
To settle the charges, Salix agreed to be enjoined from future violations of the antifraud and corporate reporting provisions of the federal securities laws. The proposed settlement is subject to district court approval.
Derbyshire agreed to a permanent injunction against violations of the antifraud provisions and from aiding and abetting violations of the corporate reporting provisions. He also agreed to pay $558,534 in disgorgement and interest plus a penalty of $494,836, and to be barred for five years from serving as an officer or director of a public company. The proposed settlement is subject to court approval. Derbyshire separately agreed to be suspended from appearing and practicing before the SEC as an accountant, which includes not participating in the financial reporting or audits of public companies. Derbyshire would be permitted to apply for reinstatement after five years.
Walgreens and Two Former Execs Charged with Misleading Investors About Forecasted Earnings Goal
On September 28, 2018, the Securities and Exchange Commission announced that it charged Walgreens Boots Alliance Inc., former CEO Gregory Wasson (“Wasson”), and former CFO Wade Miquelon (“Miquelon”) with misleading investors about increased risk that the company would miss a key financial goal announced when Walgreen Co. entered into a merger with Alliance Boots GmbH in 2012.
Walgreens agreed to pay a $34.5 million penalty to settle the SEC’s enforcement action.
According to the SEC’s order, Walgreens announced a two-step merger with Alliance Boots in June 2012, and at the same time projected that the combined entity would generate $9 billion to $9.5 billion in combined adjusted operating income in the 2016 fiscal year. After completing the first step of the merger, Walgreens’ internal forecasts indicated that the risk of missing its 2016 projection had increasing significantly. But Walgreens, Wasson, and Miquelon repeatedly publicly reaffirmed the projections without adequately disclosing the increased risk. When Walgreens subsequently announced that it was moving forward with the second step of the merger in August 2014, it announced a new earnings per share goal that translated to an adjusted operating income projection of $7.2 billion for fiscal 2016, a 20 percent decline over its initial projection. Walgreens’ stock price dropped 14.3% on the day of the announcement.
Without admitting or denying the findings, Walgreens, Wasson, and Miquelon consented to the entry of an SEC order finding that they violated the antifraud provision contained in Section 17(a)(2) of the Securities Act of 1933, which prohibits the use of untrue statements or omissions in the offer or sale of securities. The SEC’s order requires each of the respondents to cease and desist from further violations of that provision, and also requires Walgreens Boots Alliance to pay a $34.5 million penalty, and Wasson and Miquelon to each pay a $160,000 penalty.
LendingClub Asset Management and Former Executives Charged with Misleading Investors and Breaching Fiduciary Duty
On September 28, 2018, the Securities and Exchange Commission announced that it charged San Francisco-based LendingClub Asset Management LLC (formerly known as LendingClub Advisors LLC) and its former president Renaud Laplanche (“Laplanche”) with fraud for improperly using fund money to benefit LendingClub Corporation, LCA’s parent company that Laplanche founded and for which he served as CEO. LCA and Laplanche along with Carrie Dolan (“Dolan”), LCA’s former CFO, also were charged with improperly adjusting fund returns.
All three have agreed to settle the agency’s charges against them and will pay more than $4.2 million in combined penalties. The SEC also barred Laplanche from the securities industry.
According to the SEC’s order, LCA provides investment advisory services to several private funds that purchase loan interests offered by LendingClub Corporation, a publicly-traded online marketplace lending company. LCA and Laplanche caused one of the private funds it managed to purchase interests in certain loans that were at risk of going unfunded, to benefit LendingClub, not the fund, in breach of LCA’s fiduciary duty. The order also finds that LCA, Laplanche, and Dolan improperly adjusted monthly returns for this fund and other LCA-managed funds to improve the returns they reported to fund investors.
The SEC’s order finds that LCA, Laplanche, and Dolan each violated the antifraud provisions of the Investment Advisers Act of 1940. To settle the SEC’s charges, LCA, Laplanche and Dolan agreed to pay penalties of $4 million, $200,000, and $65,000, respectively. Laplanche also agreed to a securities industry bar and investment company prohibition. The SEC’s order permits Laplanche to apply for re-entry after three years. LCA, Laplanche, and Dolan agreed to the entry of the SEC’s order without admitting or denying the findings.
The SEC’s Enforcement Division determined not to recommend charges against LendingClub Corporation, which promptly self-reported its executives’ misconduct following a review initiated by its board of directors, thoroughly remediated, and provided extraordinary cooperation with the agency’s investigation. LCA also reimbursed approximately $1 million to investors who were adversely impacted by the improperly adjusted monthly returns.
Source: SEC.gov
Sep 30, 2018 | Shareholder & Investor Protection
Musk Required to Step Down as Tesla’s Chairman as Part of Settlement; Tesla to Appoint Additional Independent Directors; Tesla and Musk Agree to Pay $40 million in Penalties
On September 29, 2018, the Securities and Exchange Commission announced that Elon Musk (“Musk”), CEO and Chairman of Silicon Valley-based Tesla, Inc. (“Tesla”), has agreed to settle the securities fraud charge brought by the SEC against him last week. The SEC also charged Tesla with failing to have required disclosure controls and procedures relating to Musk’s tweets, a charge that Tesla has agreed to settle. The settlements, which are subject to court approval, will result in comprehensive corporate governance and other reforms at Tesla—including Musk’s removal as Chairman of the Tesla board—and the payment by Musk and Tesla of financial penalties.
According to the SEC’s complaint against him, Musk tweeted on August 7, 2018 that he could take Tesla private at $420 per share — a substantial premium to its trading price at the time — that funding for the transaction had been secured, and that the only remaining uncertainty was a shareholder vote. The SEC’s complaint alleged that, in truth, Musk knew that the potential transaction was uncertain and subject to numerous contingencies. Musk had not discussed specific deal terms, including price, with any potential financing partners, and his statements about the possible transaction lacked an adequate basis in fact. According to the SEC’s complaint, Musk’s misleading tweets caused Tesla’s stock price to jump by over six percent on August 7, and led to significant market disruption.
According to the SEC’s complaint against Tesla, despite notifying the market in 2013 that it intended to use Musk’s Twitter account as a means of announcing material information about Tesla and encouraging investors to review Musk’s tweets, Tesla had no disclosure controls or procedures in place to determine whether Musk’s tweets contained information required to be disclosed in Tesla’s SEC filings. Tesla also, according to the SEC’s complaint, did not have sufficient processes in place to ensure that Musk’s tweets were accurate or complete.
Musk and Tesla have agreed to settle the charges against them without admitting or denying the SEC’s allegations. Among other relief, the settlements require that:
- Musk will step down as Tesla’s Chairman and be replaced by an independent Chairman. Musk will be ineligible to be re-elected Chairman for three years;
- Tesla will appoint a total of two new independent directors to its board;
- Tesla will establish a new committee of independent directors and put in place additional controls and procedures to oversee Musk’s communications;
- Musk and Tesla will each pay a separate $20 million penalty. The $40 million in penalties will be distributed to harmed investors under a court-approved process.
“As a result of the settlement, Elon Musk will no longer be Chairman of Tesla, Tesla’s board will adopt important reforms —including an obligation to oversee Musk’s communications with investors—and both will pay financial penalties,” added Steven Peikin, Co-Director of the SEC’s Enforcement Division. “The resolution is intended to prevent further market disruption and harm to Tesla’s shareholders.”
Source: SEC.gov
Sep 28, 2018 | Shareholder & Investor Protection
On September 27, 2018, the Securities and Exchange Commission announced that it filed charges against an international securities dealer and its Austria-based CEO for allegedly violating the federal securities laws in connection with security-based swaps funded with bitcoins.
According to the SEC’s complaint, 1pool Ltd., a/k/a 1Broker, registered in the Republic of the Marshall Islands, and its CEO, Patrick Brunner (“Brunner”), solicited investors from the United States and around the world to buy and sell security-based swaps. Investors could open accounts by simply providing an email address and a user name – no additional information was required – and could only fund their account using bitcoins.
The SEC alleged that a Special Agent with the Federal Bureau of Investigation, acting in an undercover capacity, successfully purchased several security-based swaps on 1Broker’s platform from the U.S. despite not meeting the discretionary investment thresholds required by the federal securities laws. The SEC also alleged that Brunner and 1Broker failed to transact its security-based swaps on a registered national exchange, and failed to properly register as a security-based swaps dealer.
“The SEC protects U.S. investors across a variety of platforms, regardless of the type of currency used in their transactions,” said Shamoil T. Shipchandler, Director of the SEC’s Fort Worth Regional Office. “International companies that transact with U.S. investors cannot circumvent compliance with the federal securities laws by using cryptocurrency.”
The SEC’s complaint, filed in United States District Court for the District of Columbia, seeks permanent injunctions, disgorgement plus interest, and penalties. In a parallel action, the Commodity Futures Trading Commission announced charges against 1pool Ltd. arising from similar conduct.
Source: SEC.gov
Sep 28, 2018 | Shareholder & Investor Protection
On September 28, 2018, the Securities and Exchange Commission announced that it charged Elon Musk, CEO and Chairman of Silicon Valley-based Tesla Inc., with securities fraud for a series of false and misleading tweets about a potential transaction to take Tesla private.
On August 7, 2018, Musk tweeted to his 22 million Twitter followers that he could take Tesla private at $420 per share (a substantial premium to its trading price at the time), that funding for the transaction had been secured, and that the only remaining uncertainty was a shareholder vote. The SEC’s complaint alleges that, in truth, Musk had not discussed specific deal terms with any potential financing partners, and he, allegedly, knew that the potential transaction was uncertain and subject to numerous contingencies. According to the SEC’s complaint, Musk’s tweets caused Tesla’s stock price to jump by over six percent on August 7, 2018 and led to significant market disruption.
The SEC’s complaint, filed in federal district court in the Southern District of New York, alleges that Musk violated antifraud provisions of the federal securities laws, and seeks a permanent injunction, disgorgement, civil penalties, and a bar prohibiting Musk from serving as an officer or director of a public company.
Source: SEC.gov
