Court of Appeals partially Rules in Favor of Alpine Securities but Alpine not out of the woods yet
On November 22, 2024, the United States Court of Appeals for the District of Columbia Circuit in Washington, D.C., made its ruling in a case involving Alpine Securities Corporation (“Alpine”) and the Financial Industry Regulatory Authority (“FINRA“), reversing a decision by a lower court and siding, in part, with Alpine.
Alpine had brought a lawsuit against FINRA challenging FINRA’s constitutionality after FINRA initiated an expedited hearing to expel Alpine from the industry. Alpine sought a preliminary injunction from the district court against the expedited proceeding, arguing that FINRA is unconstitutional because its expedited action against Alpine violates either the private nondelegation doctrine or the Appointments Clause. The district court denied the preliminary injunction.
Alpine then appealed the district court’s decision to the United States Court of Appeals for the District of Columbia Circuit in Washington, D.C. In its Decision, the Court of Appeals reversed the district court’s decision to allow FINRA to expel Alpine without an SEC review saying that:
“FINRA may not expel Alpine either before Alpine has obtained full review by the SEC of the merits of any expulsion decision or before the period for Alpine to seek such review has elapsed.“
At the same time, the Court of Appeals declined to order the SEC not to expedite its own review, writing that:
“Alpine has not demonstrated that it will suffer irreparable harm from participating in the expedited proceeding itself as long as FINRA cannot expel Alpine until after the SEC conducts its own review. For that reason, Alpine has not shown that it is entitled to a preliminary injunction halting that proceeding altogether.“
For now, Alpine is in the clear and allowed to continue operating as a FINRA-member broker-dealer. But it’s not out of the woods yet. The Court of Appeals only ruled to allow Alpine to continue to operate pending a full review by the SEC, delaying its expulsion for the time being. Time will tell if Alpine can avoid expulsion altogether. Read More
What to Expect From Trump’s SEC
Market participants are speculating about the new Trump deregulation agenda and how it will impact the SEC. With Republicans in control of the 119th Congress, we expect to see SEC deregulation and changes aimed at capital formation and easing burdens on public companies. The incoming Trump administration will likely emphasize that reduced regulatory burdens may be beneficial to investments in new projects, expanded operations, and increased hiring. Of course, the existing regulatory scheme warns that deregulation would lead to excessive risk and lead to increased fraud.
Trump has been a strong supporter of digital assets and cryptocurrencies, which may result in scaling back enforcement actions as well as proposing new regulations or designating another enforcement agency to regulate this area, such as the the CFTC.
We also expect that controls and procedures violations will be reduced or eliminated and the SEC will scale back, eliminate, or not pursue enforcement actions for defective environmental, social, and corporate governance disclosures, absent an egregious fraud.
The SEC Announces Enforcement Results for Fiscal Year 2024
On November 22, 2024, the Securities and Exchange Commission announced that it filed 583 total enforcement actions in fiscal year 2024 while obtaining orders for $8.2 billion in financial remedies, the highest amount in SEC history.
The 583 enforcement actions represent a 26 percent decline in total enforcement actions compared to fiscal year 2023. Of those cases, the Commission filed 431 “stand-alone” actions, which was 14 percent less than in the prior fiscal year; 93 “follow-on” administrative proceedings seeking to bar or suspend individuals from certain functions in the securities markets based on criminal convictions, civil injunctions, or other orders, which was 43 percent less than the prior fiscal year; and 59 actions against issuers who were allegedly delinquent in making required filings with the SEC, which represented a decrease of 51 percent.
The $8.2 billion in financial remedies consisted of $6.1 billion in disgorgement and prejudgment interest, also the highest amount on record, and $2.1 billion in civil penalties, the second-highest amount on record. Approximately 56 percent of the $8.2 billion financial remedies ordered is attributable to a monetary judgment obtained following the SEC’s jury trial win against Terraform Labs and Do Kwon, who were charged with one of the largest securities frauds in U.S. history.
In addition, in fiscal year 2024, the SEC obtained orders barring 124 individuals from serving as officers and directors of public companies, the second-highest number of such bars obtained in a decade.
In fiscal year 2024, the SEC distributed $345 million to harmed investors, marking more than $2.7 billion returned to investors since the start of fiscal year 2021. The SEC also received 45,130 tips, complaints, and referrals in fiscal year 2024, the most ever received in one year, including more than 24,000 whistleblower tips, more than 14,000 of which were submitted by two individuals. The SEC issued whistleblower awards totaling $255 million. Read More
SEC brings charges against BIT Mining Ltd, Azure Power Global Ltd and Adani Green Energy Ltd in alleged massive bribery schemes
This week, the Securities and Exchange Commission (the “SEC“) brought charges in three separate alleged massive bribery schemes.
In action #1, brought on November 18, 2024, the SEC announced that BIT Mining Ltd., formerly known as 500.com Limited, agreed to pay a $4 million civil penalty to resolve charges that it violated the Foreign Corrupt Practices Act (FCPA) from 2017 to 2019 by engaging in a widespread bribery scheme to influence numerous foreign officials, including members of Japan’s parliament, in efforts to establish an integrated resort casino in Japan.
500.com was an online sports lottery service provider headquartered in Shenzhen, China, whose shares traded on the New York Stock Exchange (“NYSE”) under the symbol “WBAI.” In 2021, the issuer changed course and entered the cryptocurrency industry, changing its name and symbol to BIT Mining Ltd (BTCM). As of today, it trades on the NYSE.
The SEC’s order finds that the bribery scheme involved illicit payments of approximately $2.5 million in the form of cash bribes, entertainment, and extravagant trips. The order further finds that the bribes were authorized by a 500.com senior executive and that, after the bribery scheme came to light, the company never entered the market. Read More
The SEC’s Amended “Dealer” Definition for Toxic Lenders
In the past five years or so, we’ve written many times about “toxic lenders”. These toxic lenders have been active since the end of the last century and have flourished providing financing to small publicly traded companies quoted by the OTC Markets. The kind of financing they offer is called “market adjustable” by the Securities and Exchange Commission and “toxic funding” or “death spiral funding” by many of its victims. The way it works is simple: the financier and the public company sign agreements binding each party to certain obligations and guaranteeing each party certain rights.
The public company will usually get money upfront. In return, the public company will issue market adjustable securities—a promissory note, preferred stock, warrants, debentures—to the toxic lender. The “market adjustable” part of the deal means that the securities sold will be convertible to common stock at a price that adjusts based on the public company’s trading price. Sometimes, the shares are registered with the SEC and can be sold immediately, and other times, the toxic lender can’t sell immediately because the convertible instrument will be subject to Rule 144, which means a holding period applies. The lender can’t sell for six months if the public company is an SEC registrant, or one year if it is not.
In a perfect world, these kinds of loans would be a great success for all involved: the public company, a startup, or at least a young company, would get the cash it needs in the short term and can use it to make more money, with which it could pay off the loan. In the end, the deal would cost him only a reasonable amount of interest.
But the world is not perfect, and this kind of financing comes with a catch. There is some risk for the toxic lender, because the value of the stock in question may be lower, not higher, when they seek to sell from the time the stock purchase agreement is signed. To compensate for this risk, the toxic lender will receive a large discount to the market price of the stock when he does convert and sell. The discount is usually between 40 and 50 percent but may be as high as 60 or 70 percent.
SEC Charges Olayinka Oyebola and His Accounting Firm With Aiding and Abetting Massive TINGO Fraud
On September 30, 2024, the Securities and Exchange Commission (the “SEC“) charged Olayinka Oyebola and his Public Company Accounting Oversight Board-registered accounting firm, Olayinka Oyebola & Co. (Chartered Accountants), with aiding and abetting a massive securities fraud perpetrated by Mmobuosi Odogwu Banye, also known as Dozy Mmobuosi, and three related U.S. companies that Mmobuosi controlled (the Tingo entities).
On December 18, 2023, the SEC announced charges against Mmobuosi Odogwu Banye, a/k/a Dozy Mmobuosi, and three affiliated U.S.-based entities of which he is the CEO – Nasdaq-listed Tingo Group Inc., OTC-traded Agri-Fintech Holdings Inc. (fka Tingo Inc.), and Tingo International Holdings Inc. – in connection with an alleged multi-year scheme to inflate the financial performance metrics of these companies and key operating subsidiaries to defraud investors worldwide.
Securities Attorney Matthew C McMurdo suspended by the SEC
On September 20, 2024, the Securities and Exchange Commission (the “SEC” or “Commission”) issued an Administrative Order against securities attorney Matthew C. McMurdo for violating Section 4C of the Securities Exchange Act of 1934 (“Exchange Act”) and Rule 102(e)(1)(ii) of the Commission’s Rules of Practice.
According to the Order, from 2016 – 2021, McMurdo, who has been licensed to practice law in the state of New York since 1998, was engaged as corporate counsel for Enviro Impact Resources, Inc., f/k/a Industry Source Consulting, Inc. (“INSO”), is a non-SEC reporting, microcap public company with multiple former names, including Vega Biofuels, Inc. (“Vega”). During that time, McMurdo signed and then issued 10 opinion letters (“Opinion Letters”) addressed to OTC Markets, in which he opined on various annual and quarterly disclosure reports issued by Vega and INSO. Vega and INSO used these Opinion Letters to be quoted on OTC Markets and to allow broker-dealers to quote the stock of Vega and INSO. Read More
SEC Charges Multiple Individuals and Entities in Relationship Investment Scams
On September 17, 2024, the Securities and Exchange Commission (the “SEC“) charged five entities and three individuals in connection with two relationship investment scams involving fake crypto asset trading platforms NanoBit and CoinW6, respectively. The SEC’s two complaints allege that the schemers used WhatsApp, LinkedIn, and Instagram to gain the trust and confidence of the victims before luring them to fake crypto asset trading platforms and stealing their money. These charges are the SEC’s first enforcement actions alleging these types of scams.
Commissioner Mark Uyeda Dissents in Unregistered Dealer SEC Enforcement Action
Over the past few years, we have closely followed the Securities and Exchange Commission (the “SEC” or the “Commission”) as it has brought a parade of actions against lenders that purchase variable-rate convertible notes from public companies.
- 11/17/2017 – SEC v. Ibrahim Almagarby and Microcap Equity Group LLC (Complaint)
- 2/26/2020 – SEC v. John D Fierro and JDF Capital, Inc. (Complaint)
- 3/24/2020 – SEC v. Justin W. Keener D/B/A JMJ Financial (Complaint)
- 9/03/2020 – SEC v. John M. Fife, Chicago Venture Partners, L.P., Iliad Research and Trading, L.P., St. George Investments LLC, Tonaquint, Inc., and Typenex Co-Investment, LLC (Complaint)
- 8/13/2021 – SEC v. GPL Ventures, Alexander J. Dillon, Cosmin I. Panait, GPL Management LLC, et. al., (Complaint)
- 9/24/2021 – SEC v. Carebourn Capital, L.P. and Chip Alvin Rice (Complaint)
- 6/07/2022 – SEC v. LG Funding, LLC and Joseph Lerman (Complaint)
- 8/02/2022 – SEC v. Crownbridge Partners, LLC, Soheil Adhoot, and Sepas Ahdoot (Complaint)
- 9/22/2022 – SEC v. Morningview Financial, LLC and Miles M Riccio (Complaint)
- 6/01/2023 – SEC v. Auctus Fund Management, LLC, Louis Posner and Alfred Sollami, and Auctus Fund LLC (Complaint)
- 6/16/2023 – SEC v. BHP Capital NY, Inc. and Bryan Pantofel (Complaint)
- 9/28/2023 – SEC v. Adam Long, L2 Capital, LLC., and Oasis Capital, LLC (Complaint)
- 1/23/2024 – SEC v. Aryeh Goldstein, Adar Bays, LLC, and Adar Alef, LLC (Complaint)
- 4/29/2024 – SEC v. Tri-Bridge Ventures, LLC and John Francis Forsythe, III (Complaint)
- 5/7/2024 – SEC v. Curt Kramer, Power Up Lending Ltd., Geneva Roth Remark Holdings, Inc., and 1800 Diagonal Lending, LLC (formerly known as Sixth Street Lending LLC) (Complaint)
- 8/19/2024 – SEC v. GHS Investments, LLC, Mark S. Grober, Sarfraz S. Hajee, and Matthew L. Schissler (Administrative Proceeding)
In each of the above-listed cases, the SEC targeted the lender because they had engaged in the regular business of acquiring convertible, variable-rate notes from penny stock securities issuers, converting the notes into stock at a substantial discount from the prevailing market price, and selling the resulting newly issued shares of the issuers’ stock into the public market to obtain profits. Read More
Mullen Automotive (MULN): What to Do About Serial Reverse Splitters
At noon on September 13, 2024—Friday the 13th—Mullen Automotive (MULN) announced a 1:100 reverse stock split to become effective on September 17 at 12:01 a.m. The news did not come as a surprise to shareholders. MULN had held a Special [Stockholder] Meeting on September 9, 2024. The meeting, which was originally scheduled for September 13, was virtual. Its chief order of business was to vote on several issues. Votes from those not present had to be submitted electronically by 11:59 p.m. Pacific Standard Time on September 8. The company reports in its press release about the split that voting stockholders approved the split. And they did, by better than two to one. Of course, ballots not returned were presumably counted as votes in favor of the board’s proposals.
The press release also informs observers that “The Reverse Stock Split will not change the par value of the Common Stock nor the authorized number of shares of Common Stock, preferred stock or any series of preferred stock.” The company has 5 billion shares of common stock authorized. There are also three classes of preferred stock, warrants, and other convertible securities. Read More
SEC Charges Seven NASDAQ Listed Public Companies with Violations of Whistleblower Protection Rule
On September 9, 2024, the Securities and Exchange Commission (the “SEC”) announced settled charges against seven public companies for using employment, separation, and other agreements that violated rules prohibiting actions to impede whistleblowers from reporting potential misconduct to the SEC. To settle the SEC’s charges, the companies agreed to pay more than $3 million combined in civil penalties.
- Acadia Healthcare Company, Inc. (ACHC) agreed to pay a $1,386,000 civil penalty;
- a.k.a. Brands Holding Corp. (AKA) agreed to pay a $399,750 civil penalty;
- AppFolio, Inc. (APPF) agreed to pay a $692,250 civil penalty;
- IDEX Corporation (IEX) agreed to pay a $75,000 civil penalty;
- LSB Industries (LXU) agreed to pay a $156,000 civil penalty;
- Smart for Life, Inc. (SMFL) agreed to pay a $19,500 civil penalty; and
- TransUnion (TRU) agreed to pay a $312,000 civil penalty.
Are SEC Whistleblower Awards the Road to Riches or a Waste of Time?
On August 23, 2024, the Securities and Exchange Commission (“SEC”) announced It had awarded a total of $98 million to two SEC whistleblowers “whose information and assistance led to an SEC enforcement action and an action brought by another agency.” The first lucky tipster, whose contribution prompted the opening of an investigation and who provided continuing assistance, will pocket a cool $82 million. The second will receive $16 million.
In its press release about the awards, the SEC explained briefly how the program works:
Payments to whistleblowers are made out of an investor protection fund, established by Congress, which is financed entirely through monetary sanctions paid to the SEC by securities law violators. Whistleblowers may be eligible for an award when they voluntarily provide the SEC with original, timely, and credible information that leads to a successful enforcement action. Whistleblower awards can range from 10 to 30 percent of the money collected when the monetary sanctions exceed $1 million.
In the associated SEC Order, the circumstances surrounding the awards are explained fully, but not to us. The document is heavily redacted to protect the whistleblowers’ identities. We do learn that Claimant I alerted SEC staffers to the conduct that prompted the opening of an investigation and that he or she met with them “multiple times” and provided “additional helpful submissions.” Claimant II, apparently acting independently of Claimant I, offered “new helpful information” a year after the investigation had been opened, saving staff time and resources. Claimant I’s information addressed all the transactions in the covered actions filed by the SEC and the “other agency,” while Claimant II’s submission addressed only one of them. Read More
Court Vacates Order in Unregistered Dealer, Crown Bridge Partners Case
On August 19, 2024, the United States Court of Appeals for the Second District in New York ruled in the case of Darkpulse, Inc., Social Life Network, Inc. and Redhawk Holdings Corp. v. Crown Bridge Partners LLC and its managing members, Soheil Ahdoot and Sepas Ahdoot. The Plaintiffs were appealing the ruling of the United States District Court Southern District of New York, which dismissed the case on September 29, 2023. Read More
GHS Investments LLC and its owners, Mark Grober, Sarfraz Hajee and Matthew Schissler, settle with SEC – agree to pay disgorgement and fines and surrender remaining notes, warrants and stock.
On August 19, 2024, GHS Investments, LLC (“GHS”) and its owners, Mark Grober, Sarfraz Hajee and Matthew Schissler, came to a settlement with the Securities and Exchange Commission (the “SEC“), agreeing to pay disgorgement and fines and surrender remaining notes, warrants and stock.
According to the SEC, from 2017 through 2022 (the “relevant period”), GHS operated as an unregistered securities dealer and sold billions of shares of stock from at least 23 issuers into the public market and generated millions of dollars in profits for its own account. During the relevant period, GHS engaged in the regular business of acquiring convertible, variable rate notes from penny stock securities issuers, converting the notes into stock at a substantial discount from the prevailing market price, and selling the resulting newly issued shares of the issuers’ stock into the public market to obtain profits from the difference between the discounted share price it received and the prevailing market price of the stock.
Because GHS was not registered with the SEC as a securities dealer, GHS avoided certain regulatory obligations that govern the conduct of dealers in the marketplace, including the requirements to follow financial responsibility rules and maintain certain books and records. Grober, Hajee, and Schissler managed the day-to-day operations of GHS and shared the decision-making authority over GHS’s acquisition and disposition of convertible notes during the relevant period. As a result, GHS violated and Grober, Hajee, and Schissler caused GHS’s violations of Section 15(a)(1) of the Exchange Act.
GHS will pay $2,030,806 in disgorgement, prejudgment interest of $221,458.43, and a civil penalty of $173,080.62. Each of Grober, Hajee and Schissler will also pay a $10,000 penalty and consent to cease and desist from committing or causing any violations and any future violations of Section 15(a)(1) of the Exchange Act.
GHS will also have to (i) surrender for cancellation all rights to all shares of common stock that it received in connection with convertible, variable rate notes; (ii) surrender all conversion rights under all remaining convertible, variable rate notes; and (iii) surrender for cancellation and retirement all remaining warrants that it received in connection with convertible, variable rate notes. Read More
SEC Charges OTC Link LLC with Failing to File Suspicious Activity Reports
On August 12, 2024, the Securities and Exchange Commission (“SEC“) announced charges against OTC Link LLC, a New York-based broker-dealer, for failing to file numerous reports of suspicious financial transactions, known as Suspicious Activity Reports (SARs), for a period of more than three years. OTC Link agreed to pay $1.19 million to settle the charges.
To help detect potential securities law and money-laundering violations, broker-dealers like OTC Link are required to file SARs describing suspicious transactions conducted through their firms. According to the SEC’s order, OTC Link is an indirect, wholly-owned subsidiary of OTC Markets Group, Inc. It has been registered with the SEC as a broker-dealer since 2012. OTC Link’s sole line of business is its operation of three alternative trading system (ATS) platforms, OTC Link ATS, OTC Link ECN, and OTC Link NQB. The three OTC Link ATSs are used by broker-dealers on a daily basis to execute or facilitate tens of thousands of transactions in over-the-counter (OTC) securities, many of which are considered microcap or penny stock securities.
Cassava Sciences (SAVA) Faces an Indictment and at Least Two Investigations
Cassava Sciences (SAVA) is a Nasdaq issuer that claims to have developed a treatment for Alzheimer’s disease; the product is currently in Phase 3 trials. It’s called Simufilam, and the company says it not only stops the progression of the disease but also reverses its effects. In 2021, its stock spiked and sold off dramatically several times, though its price entered what would become an extended decline in the last months of the year. Read More
Meta Materials (MMAT) Declares Chapter 7 Bankruptcy
On Friday, August 9, 2024, Meta Materials Inc. (MMAT) filed for Chapter 7 bankruptcy. This turn of events was reported only in a Form 8-K filed with the SEC; no press release or announcement on the company website followed. The filing said simply:
Item 1.03. Bankruptcy or Receivership.
On August 9, 2024, after consideration of all strategic alternatives, Meta Materials, Inc., a Nevada corporation (the “Company”), ceased operations and filed a voluntary petition for relief under the provisions of Chapter 7 of Title 11 of the United States Code, 11 U.S.C. §101 et seq. (the “Bankruptcy Code”) in the United States Bankruptcy Court for the District of Nevada (the “Bankruptcy Court”), Case No. 24-50792 (the “Bankruptcy Filing”).
As a result of the Bankruptcy Filing, a Chapter 7 trustee will be appointed by the Bankruptcy Court and will administer the Company’s bankruptcy estate, including liquidating the assets of the Company in accordance with the Bankruptcy Code. Once a Chapter 7 trustee is appointed, an initial hearing for creditors will be scheduled, and the Notice of Bankruptcy Case Filing will be sent to known creditors.
Item 5.02. Departure of Directors or Certain Officers; Election of Directors; Appointment of Certain Officers; Compensatory Arrangements of Certain Officers.
On August 7, 2024, the Company terminated all of its remaining employees and executive officers, including Uzi Sasson, its President and Chief Executive Officer, and Dan Eaton, its Chief Legal Officer, with the terminations of Messrs. Sasson and Eaton effective concurrent with the Bankruptcy Filing. Following the Bankruptcy Filing, the Company does not have any executive officers or employees.
Effective concurrent with the Bankruptcy Filing, each of John R. Harding, Allison Christilaw, Steen Karsbo, Kenneth Hannah, Vyomesh Joshi and Philippe Morali tendered their resignations as members of the Board of Directors. Each of the directors resigned due to the Bankruptcy Filing, and such resignations are not the result of any disagreements with the Company regarding the Company’s operations, policies, or practices. The resignation of the Company’s directors effectively eliminates the powers of the Board of Directors, and following the director resignations, the Company does not have directors serving on the Board of Directors.
The Chapter 7 filing has yet to turn up at the U.S. Bankruptcy Court for the District of Nevada, but it will be available soon. A trustee will be appointed, and he or she will handle the liquidation of the company’s assets. Read More
SEC Charges Ideanomics, its former Chairman and CEO, Zheng (Bruno) Wu, current CEO, Alfred Poor, and former CFO, Federico Tovar with Accounting and Disclosure Fraud
On August 9, 2024, the Securities and Exchange Commission (“SEC“) announced settled fraud charges against Ideanomics, Inc., formerly known as Seven Stars Cloud Group, Inc., and its former Chairman and CEO, Zheng (Bruno) Wu, for misleading the public about the company’s financial performance between 2017 and 2019. The SEC also announced settled charges against Ideanomics’ current CEO, Alfred Poor, and former CFO, Federico Tovar, for their roles in the scheme. Read More
SEC Awards Whistleblower a Bounty of More Than $37 Million
On July 26, 2024, the Securities and Exchange Commission (SEC) announced an award of more than $37 million to a whistleblower whose information and assistance led to a successful SEC enforcement action.
The whistleblower persisted in reporting the misconduct internally, which led the employer to conduct its own investigation and eventually report the results to the Commission. This self-report caused an SEC investigation. Further, without the SEC whistleblower’s ongoing, extensive, and timely assistance, the SEC staff would not have learned the full context and extent of the employer’s misconduct. Read More
Attorney Mark Basile to Participate in Federal Enforcement Action SEC v. Carebourn Capital L.P. and Chip Alvin Rice
Over the past seven years or so, we’ve followed the Securities and Exchange Commission’s efforts to rein in the excesses of predatory lenders who purchase convertible notes, preferred stock, debt, and sometimes warrants from issuers desperate for the cash needed to keep their businesses afloat. On July 23, 2024, a federal judge in Minnesota gave permission for Mark R. Basile, an attorney representing DarkPulse, Inc., to intervene in a SEC enforcement action against Carebourn Capital, L.P. To allow a third party to play a role in litigation brought by the SEC is unusual, perhaps unprecedented.
For startups and other very small companies, traditional financing can be hard to come by. Banks are uninterested, and while Regulation D offerings can always be floated by public companies, there’s no guarantee that interested investors will be found.
The so-called “toxic funders,” or “toxic lenders” however, are almost always available, willing to supply a needy startup with small amounts of cash on a regular basis. Some even deal in amounts in the millions. It can seem like a dream come true for an issuer sure that success is just around the corner. The toxic lender proposes a deal and prepares a stock purchase and other agreements that will be signed by the public company’s management. Read More
Andrew Left of Citron Research Indicted by the DOJ and Charged by the SEC
On July 26, 2024, the Securities and Exchange Commission announced litigation filed against activist short seller Andrew Left and his firm, Citron Capital LLC, for devising and executing a $20 million scheme to defraud retail investors who followed his frequent tweets and the research reports he published at his website. On the same day, the U.S. Attorney’s Office for the Central District of California announced a parallel criminal prosecution.
The actions should come as no surprise. In 2021, rumors first circulated about a Department of Justice investigation of professional short sellers. It apparently began with a young lawyer called Joshua Mitts. Mitts also has a Ph.D. in finance and teaches at Columbia University. Reuters explained a bit mysteriously that “[t]he 36-year-old securities law specialist has become an increasingly influential figure in the hot debate over activist short selling since publishing a 2018 analysis of trading data that suggested some players were manipulating the market.” It’s said he’s worked as a consultant for the DOJ, but he has declined to elaborate on his role. Read More
Jury finds Guy Gentile liable as control person of SureTrader in SEC case
On Tuesday, July 2, 2024, after a ten-day trial, a jury in the United States District Court for the Southern District of Florida found Guy Gentile, the founder, owner, and CEO of MintBroker International, Ltd., f/k/a Swiss America Securities Ltd. and d/b/a SureTrader, a Bahamas-based broker-dealer, liable as a control person of SureTrader, which operated as a broker-dealer in the United States without being registered, in violation of the federal securities laws. The jury also found Guy Gentile liable for inducing SureTrader’s registration violations.
The SEC filed a complaint on May 22, 2021, alleging that from no later than March 2016 until at least November 2019 (the “Relevant Period”), Defendants MintBroker International, Ltd., f/k/a Swiss America Securities Ltd., d/b/a SureTrader) (“SureTrader” or the “Company”) and its founder, owner, and chief executive officer Guy Gentile (a/k/a Guy Gentile Nigro) (“Gentile”) operated an offshore broker-dealer in the Bahamas designed to help day traders in the United States circumvent the U.S. rules that regulate pattern day trading. Read More
Important Changes Are in Store for the SEC and Other Federal Agencies
Last week, the Supreme Court handed down two opinions that have the potential to limit the authority of the Securities and Exchange Commission in fundamental ways and to curtail, or at least redirect, its ability to discipline individuals and entities who violate the securities laws. Both address what some call the “administrative state.” Unsurprisingly, the court’s current conservative majority voted unanimously to reduce the powers of federal agencies.
The Demise of the Chevron Doctrine Read More
Does FINRA Rule 6490 Impact Going Public Transactions?
FINRA Rule 6490, has evolved since it was enacted years ago. For some time, FINRA has required that issuers provide expansive disclosures and supporting documentation not only for the corporate change subject to the notice but for the company’s entire corporate history from inception. This often creates a substantial obstacle for issuers involved in going public transactions.
FINRA Rule 6490 procedures are required of both companies subject to SEC reporting requirements and and non-reporting issuers if they undertake corporate actions. Compliance with Rule 6490’s requirements is a minor task for companies going public by filing a registration statement with the SEC. Read More
Benefits of Direct Public Offerings
While going public offers many benefits, it also comes with risks and a large number of regulations with which issuers must become familiar. Despite the risks, the U.S. capital markets remain one of the most attractive sources of financing in the world.
Going public is a complicated and intricate procedure. So, it is essential to have a securities attorney with experience in going-public transactions to help your company navigate the process and deal with the Securities & Exchange Commission (“SEC”), Financial Regulatory Industry Authority (“FINRA”), and Depository Trust Company (“DTC”). Read More
Xeriant, Inc. Fights Toxic Funder Auctus Fund in Appellate Court
Since 2017, the SEC has been bringing enforcement actions intended to curb the excesses of lenders who deal in convertible securities like promissory notes, preferred stock, warrants, debentures, and more. While the word “lenders” seems anodyne or even beneficial, these individuals and the businesses they run have come to be known to issuers and investors as “toxic lenders” or “toxic funders.” The SEC calls them “unregistered dealers,” as defined in its own Guide to Broker-Dealer Registration. Most of the companies that agree to the financings they offer are OTC or Nasdaq CM issuers.
The Commission’s actions against unregistered dealers began in November 2017, with a suit brought against Ibrahim Almagarby and his Microcap Equity Group LLC. Unlike most of his fellow lenders, Almagarby didn’t initially deal with the companies whose convertible securities he was converting and selling into the market. He instead bought “aged debt” purchased from unaffiliated third parties. Aged debt is old enough to be exempt from the registration requirements of the Securities Act of 1933 under Rule 144. As the eventual appellate opinion explained, “[m]any of the instruments he purchased did not have an existing conversion feature. So Almagarby negotiated directly with the issuers to obtain agreements that allowed him to exchange existing, non-convertible debt for convertible instruments.” Read More
Meta Materials Executives, John Brda and George Palikaras, charged with Market Manipulation, Fraud and Other Violations
Thanks to an SEC Complaint filed today, MMTLP shareholders finally have the undisputable evidence needed to point their previously misguided blame for their massive losses at the proper culprits. For months after the Financial Industry Regulatory Authority (“FINRA“) halted trading of MMTLP shares following trading on December 8, 2022, to avoid settling issues for the scheduled preferred stock dividend set to take place on December 12, 2022, MMTLP shareholders have aimed their anger toward FINRA, blaming the organization that operates to protect America’s investors by making sure the broker-dealer industry operates fairly and honestly for spoiling their credulous short squeeze.
In reality, according to evidence collected and shared by the Securities and Exchange Commission (the “SEC“) in its complaint filed today, the rumors about the short squeeze were, in fact, started by the former CEOs of Meta Materials Inc., John Brda (“Brda”) and George Palikaras (“Palikaras”), as part of a sophisticated market manipulation scheme that they had planned months in advance. Read More
What are the SEC Reporting Requirements After My Form S-1 is Effective?
Once the SEC staff declares your company’s Securities Act registration statement on Form S-1 effective, the company becomes subject to the SEC’s reporting requirements under the Securities Exchange Act of 1934. These rules require your company to file annual reports on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K with the SEC on an ongoing basis.
If your company qualifies as a “smaller reporting company” or an “emerging growth company,” it will be eligible to follow scaled SEC reporting requirements for its reports. Read More
Going Public Using an S-1
Using a Form S-1 Registration Statement to Go Public
Private companies that go public commonly use a registration statement (“Registration Statement”) on Form S-1 under the Securities Act of 1933, as amended (the “Securities Act”) to go public. When a Form S-1 Registration Statement is used to go public, the company will submit the Registration Statement to the Securities & Exchange Commission (the “SEC”), registering securities it plans to sell or securities held by its shareholders (“Selling Shareholders”). Read More
OTC Markets Group Guidance on Dilution Risk with Respect to OTCQX and OTCQB Applicants
OTC Markets offers three unique marketplaces for trading over-the-counter (OTC) stocks: the OTC Pink Market, the OTCQB Market and the OTCQX Market. The OTCQB Market and the OTCQX Market offer many benefits not offered by the OTC Pink Market, including:
The OTCQX is the top tier of the OTC Markets Group’s three marketplaces, so it has the strictest eligibility requirements. The following chart provides a snapshot comparison of the current Eligibility Standards for US Issuers to be listed on either the OTCQB or OTCQX. Read More