SEC Enforcement Issues Wells Notices for Meta Materials Execs
As summer peaked at the end of July, Meta Materials (MMAT) popped back into the news. What had happened? The company filed a Form 8-K explaining that MMAT, its CEO George Palikaras. and John Brda, the former CEO of Torchlight Energy Resources, the company with which Meta had merged in order to list quickly on the Nasdaq Stock Market, had received Wells notices from the Securities and Exchange Commission.
Wells notices are not good news. The SEC explains them as part of what it calls the “Wells process”:
A Wells notice is a communication from the staff to a person involved in an investigation that: (1) informs the person the staff has made a preliminary determination to recommend that the Commission file an action or institute a proceeding against them; (2) identifies the securities law violations that the staff has preliminarily determined to include in the recommendation; and (3) provides notice that the person may make a submission to the Division and the Commission concerning the proposed recommendation. Read More
SEC Charges Digital World Acquisition Corporation SPAC for Material Misrepresentations to Investors
On Thursday, July 20, 2023, the Securities and Exchange Commission (the “SEC“) announced settled fraud charges against Digital World Acquisition Corporation (DWAC), a special purpose acquisition company (SPAC), for making material misrepresentations in forms filed with the SEC as part of DWAC’s initial public offering and proposed merger with Trump Media & Technology Group Corp. (TMTG). The Commission finds that DWAC misled investors and the SEC by failing to disclose that it had formulated a plan to acquire and was pursuing the acquisition of TMTG prior to DWAC’s IPO.
The purpose of a SPAC is to identify and acquire an operating business. As such, steps taken by a SPAC in furtherance of a particular acquisition are important to investors. According to the SEC’s order, DWAC filed an amended Form S-1 in support of its IPO in early September 2021 that stated that neither DWAC nor its officers and directors had had any discussions with any potential target companies prior to the IPO. But, as found in the SEC’s order, dating back to February 2021, an individual who would later become DWAC’s CEO and Board Chairman, and others involved with DWAC, had extensive SPAC merger discussions with TMTG. Read More
SEC Charges James P. Anglim in Connection with Fraudulent Scheme to Manipulate Stock Prices
On Monday, July 17, 2023, the Securities and Exchange Commission (the “SEC”) charged New Jersey resident and former broker-dealer registered representative, James P. Anglim, for engaging in multiple deceptive and manipulative schemes to assist various people who controlled large blocks of public company stock (“Control Persons”) to sell that stock to investors in companies traded on the over-the-counter (or “OTC”) markets while concealing that they were behind those sales.
According to the SEC complaint, from November 2016 to February 2022, while Anglim was employed as a registered representative of two different United States-based brokerage firms that engaged in “market making” activities, Anglim abused his position as a trader to facilitate the illegal sale of stock into the public markets by several Control Persons in at least five different public companies.
FINRA broker records show that from 2016 – 2019, Anglim worked for Spartan Securities Group Ltd., and from 2019 – 2022, Anglim worked for Paulson Investment Company LLC.
According to the SEC, Anglim’s conduct helped the Control Persons to dump large quantities of stock into the public markets while concealing that they were the source of all of those sales, thus avoiding disclosure requirements imposed by the federal securities laws. Read More
Former SEC Attorney and Recidivist Securities Violator Phillip W. Offill Sentenced to Prison Again
On July 12, 2023, former securities attorney Phillip W. Offill was sentenced today to six years in prison and ordered to pay $1.385 million in restitution to victims for his role in a conspiracy to defraud over 1,000 investors in a penny-stock scheme.
According to court filings, from at least November 2016 through October 2018, Phillip W. Offill, 64, of Dallas, and others conspired to misappropriate millions of shares of a publicly traded company, Mansfield-Martin Exploration Mining Inc (MCPI), using aliases and fake paperwork.
The co-conspirators then fraudulently marketed MCPI shares to the public through call centers that made materially false statements to potential investors, including false claims that efforts were underway to list the stock on a national exchange.
Employees at call centers also omitted material information, including the fact that the co-conspirators were paying large commissions to the callers to peddle the stock to victim investors. Offill and his co-conspirators also pumped up demand by manipulating the market so that MCPI stock appeared to be trading more actively than it actually was, and by causing the publication of false press releases regarding millions of dollars in funding that the co-conspirators knew would never come.
As a result of the scheme, victim investors lost over $1.3 million. Read More
SEC Arrives Too Late; Ponzi Scheme Polka Ends in Murder-Suicide
On February 1, 2023, three Minnesota men met in a parking lot in Bloomington, about 10 miles from Minneapolis, to discuss business. Richard B. Myre, 44, arrived first, in his black Ford F-150. He pulled into the lot for France Place, an office building, at around 4:15 p.m. He parked and waited for his partners, father and son Dale and Dominick Dahmen, aged 55 and 25. They turned up shortly after, in a minivan, and joined Myre in his truck, Dale in the front passenger seat and Dominick in the back.
Surveillance video of the scene shows that the three men spent the next 90 minutes talking, when there was a sudden “commotion” in the truck, according to the authorities. Myre pulled a handgun and shot the elder Dahmen twice in the head. Dominick put up a fight, but Myre shot him seven times, and then, perhaps horrified by what he’d done, shot himself. By the time the police arrived, all three men were dead. Ten shots had been fired, and 10 shell casings were found in the truck, along with Myre’s gun. The Dahmens had been unarmed. Clearly, there’d been no mystery assailant. Read More
Crypto Community Takes Aim at SEC Chair Gary Gensler
As this year’s long Fourth of July holiday began, surprising “news” about Gary Gensler, chairman of the Securities and Exchange Commission, spread across social media. Its source was a blog called CryptoAlert. The headline was an attention grabber: “SEC Sources Confirm Gary Gensler Resignation.” No such move had been announced, or even hinted at, by Gensler or the regulatory agency itself. Read More
Hester Peirce Asks: Are SEC Penny Stock Bars Fair?
On June 21, 2023, the SEC announced the resolution of four administrative proceedings that had been filed against unregistered broker-dealers and associates of unregistered broker-dealers in 2019. All four respondents had defaulted on the Orders Instituting Proceedings served on them. For the offenses they failed to defend, they were permanently enjoined from violating the registration provisions of the federal securities laws. The SEC also found it in the public interest to bar them from “association with any broker, dealer, investment adviser, municipal securities dealer, municipal advisor, transfer agent, or nationally recognized statistical rating organization [… and] from participating in any offering of a penny stock, including acting as a promoter, finder, consultant, agent, or other person who engages in activities with a broker, dealer, or issuer for purposes of the issuance or trading in any penny stock, or inducing or attempting to induce the purchase or sale of any penny stock.”
Only one of the five Commissioners had a problem with these unremarkable adjudications particularly the penny stock bar. Hester Peirce, often controversial and always clever, immediately produced a statement titled “Perpetual Personal Penny Stock Prohibitions: Statement on the Recent Orders Imposing Penny Bars in the Public Interest”. What was the difficulty? Peirce explained: “I do not agree that the records in these matters establish that imposing a complete and permanent penny stock bar on each respondent is in the public interest, I dissented from the imposition of the bars.” Her reasons are more complicated than one might expect. Read More
FINRA Presents the Warning Signs of a Ramp and Dump Scheme
Just about everybody knows what a “pump-and-dump” scheme is. It’s a type of price manipulation where bad actors use falsified, heavily promoted news, financial statements or other marketing communications to increase volume and manipulate the market price of a stock while simultaneously selling their cheap stock into the market.
In a “ramp-and-dump” scheme, which is a new twist on the classic pump-and-dump scheme, the price manipulation is primarily the result of controlled trading activity conducted by the bad actors behind the scam. Ultimately, the outcome for unsuspecting investors is the same—a catastrophic collapse in share price that leaves investors with unrecoverable losses.
According to the Financial Industry Regulatory Authority (“FINRA”), there have been notable significant, unusual price increases on the day of or shortly after the IPOs of certain small-cap issuers, most of which involve issuers with operations outside the U.S. Regulators suspect some of these IPOs might have been manipulated in a ramp-and-dump scheme. Read More
SEC Charges Convertible Note Dealer, BHP Capital NY Inc, and Its Owner, Bryan Pantofel, for Failure to Register
On Thursday, June 16, 2023, the Securities and Exchange Commission (the “SEC”) announced settled charges against a convertible note dealer, BHP Capital NY, Inc., and its managing member, Bryan Pantofel, for failing to register with the SEC as securities dealers.
As part of the settlement, Pantofel and BHP Capital agreed to pay more than $2.5 million in monetary relief and have BHP Capital surrender for cancellation the securities it allegedly obtained from its unregistered dealer activity.
The SEC’s complaint, filed in the U.S. District Court for the Southern District of Florida, alleges that, between December 2017 and mid-2022, BHP Capital purchased more than 100 convertible notes and associated warrants from 47 microcap issuers, and converted the notes into approximately four 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.
As alleged, neither BHP Capital nor Pantofel was registered as a dealer with the SEC or associated with a registered dealer, as their activities required them to be. Read More
SEC Charges Auctus Fund Management LLC and Its Co-Owners, Louis Posner and Alfred Sollami, with Acting as Unregistered Securities Dealers
On June 1, 2023, the Securities and Exchange Commission (the “SEC”) announced charges against Auctus Fund Management, LLC (“Auctus Management”) and its co-owners Alfred Sollami of Brookline, Massachusetts and Louis Posner of Mansfield, Massachusetts, for failing to register as securities dealers with the SEC.
Auctus Management, Sollami, and Posner allegedly bought and sold billions of newly-issued shares of microcap securities through their fund Auctus Fund, LLC (“Auctus Fund”), generating millions of dollars in profit, without registering as dealers or associating with a registered dealer, as required by the federal securities laws.
The SEC’s complaint, filed in federal district court in Boston, Massachusetts, alleges that from 2013 through 2021, Auctus Management, Sollami, and Posner engaged in the business of purchasing convertible notes and associated warrants from microcap 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.
Auctus Management, Sollami, and Posner allegedly purchased through Auctus Fund notes from more than 150 separate issuers and sold more than 60 billion shares of newly issued stock into the market, generating gross stock sale profits of over $100 million between 2017 and 2021 alone. Read More
SEC Obtains Final Judgment Against Thomas Ronk, Former Short Seller Opportunist
On April 14, 2023, the U.S. District Court for the Central District of California entered a final consent judgment against Thomas Carter Ronk imposing injunctive relief, a five-year officer-and-director bar, a five-year penny stock bar, and a civil penalty.
According to the SEC’s amended complaint, Ronk was involved in three separate fraudulent schemes. First, Ronk was allegedly engaged in fraudulent promotional efforts in order to sell or assist in the sale of two microcap stocks, Casablanca Mining Ltd. (“Casablanca”), and Gepco, Ltd (“Gepco”), by disseminating misstatements in newsletters. Second, the SEC alleged that Ronk made false statements to prospective investors in connection with a private stock offering in WealthMakers, Ltd (“WealthMakers”), a company that he founded. Third, according to the complaint, Ronk manipulated the price of common stock in the same two issuers for which he engaged in fraudulent promotional efforts. Read More
OTC Markets provides guidance on understanding FINRA Daily Short Sale Volume Data
Despite that the Securities and Exchange Commission adopted Regulation SHO more than 15 years ago, the age of meme stocks has caused “short squeeze” debates to become a regular and passionate topic on Reddit and social media, which is now flooded with conspiracy theories and misleading information. Because of this, OTC Markets has released guidance for investors to help them understand FINRA’s daily short volume. Read More
SEC Shuts Down WeedGenics – $60 Million Cannabis Offering Fraud
On March 23, 2023, the Securities and Exchange Commission (the “SEC”) obtained an emergency order to halt an alleged ongoing offering fraud and Ponzi-like scheme by Integrated National Resources Inc. (INR), which does business as WeedGenics, and its owners, Rolf Max Hirschmann, 52, of Eagle, Idaho, and Patrick Earl Williams, 34, of St. Petersburg, Florida, who have raised approximately $61.7 million—including over $22.4 million from November 2022 to April 2023—from approximately 350 investors nationwide to expand their cannabis operations, but instead have used the majority of funds to make $16.2 million in Ponzi-like payments and to enrich themselves.
Also named as relief defendants were Michael Delgado, 41, of Orange, California, John Eric Francom, 40, of Forney, Texas, Tyler Campbell, 35, of Norwalk, California, and Alexandria Porter Bovee, also known as “Aia Montgomery”, 37, of Las Vegas Nevada or Dalzell, South Carolina.
According to the complaint, since at least June 2019, Hirschmann and Williams have promised investors they would use raised funds to expand WeedGenics facilities, which they guaranteed would produce up to 36 percent returns, but in reality, Hirschmann and Williams never owned or operated any facilities—it was all a sham. Read More
Shell Hijacker, Mark Miller, Sentenced to One Year in Prison
On May 18, 2023, Mark Miller became the last of three men to be sentenced for a securities fraud scheme that involved hijacking several abandoned penny stocks, then using them for an illegal pump-and-dump stock manipulation scheme. Miller pleaded guilty to count 1 of the Indictment, Conspiracy to Commit Securities Fraud, and was sentenced to 12 months and 1 day in prison, followed by 2 years of supervised release.
In January 2022, Christopher James Rajkaran, 36, of Queens, New York, and Guyana, was sentenced to 18 months in prison. On May 10, 2023, Saeid Jaberian, 59, of Hopkins, Minnesota, was sentenced to 2 years probation.
According to court documents, Mark Allen Miller, 45, of Pequot Lakes, Minnesota, a former Breezy Point City Council member and owner of a construction company, together with Rajkaran and Jaberian, participated in a scheme to hijack and assume control over dormant public shell companies, then used their control over the companies to fraudulently manipulate and pump up the price of the companies’ stock so that they could profit from the sale of stock at inflated prices to unwitting investors.
According to the Indictment, between 2017 and 2019, Miller hijacked four publicly traded companies, Bell Buckle Holdings (BLLB), Digitiliti Inc (DIGI), Encompass Holdings (ECMH), and Utilicraft Aerospace Industries (UITA), using forged resignation letters and other falsified documents. Then, after illegally gaining control, he ran pump & dump schemes on the Issuers using false and misleading press releases and tweets. Read More
SEC Obtains Partial Summary Judgment Against Joshua Sason and Magna Group in IIIegal Microcap Securities Offerings
On May 4, 2023, the U.S. District Court for the Southern District of New York granted the Commission summary judgment on its non-fraud claims against three individuals and their related businesses.
According to the SEC’s complaint, from approximately December 2012 to June 2013, microcap stock financier Magna Group (“Magna”), which was founded and owned by Joshua Sason, engaged in a scheme to acquire fake convertible promissory notes supposedly issued by penny stock issuer Lustros Inc. and then to convert those notes into shares of Lustros common stock. Magna then allegedly sold the shares to unsuspecting investors without a registration statement or any applicable exemption to the registration requirements and the sales effectively destroyed the value of Lustros shares held by the public. The complaint alleges that Marc Manuel, Magna’s former head of research and due diligence, negotiated and executed the transactions. Read More
SEC Obtains Final Judgments Against Alexander J. Dillon, Cosmin I. Panait, and their corporate entities GPL Ventures LLC and GPL Management LLC
On May 2, 2023, the U.S. District Court for the Southern District of New York entered final judgments against Alexander J. Dillon, Cosmin I. Panait, and their corporate entities GPL Ventures LLC and GPL Management LLC, whom the SEC charged with acting as unregistered dealers and engaging in a penny stock fraud scheme. To settle the case, the defendants consented to pay more than $39 million in civil penalties and disgorgement.
The SEC’s complaint, filed on August 13, 2021, alleged that between July 2017 and August 2021, the defendants acted as unregistered securities dealers by privately acquiring numerous microcap stocks at a discount and subsequently publicly selling the securities to the investing public.
In addition, the complaint charged the defendants with orchestrating a fraudulent scheme in which they acquired shares in microcap issuer HempAmericana, Inc. and secretly arranged for HempAmericana to use a percentage of the stock proceeds to fund stock promotions while the defendants sold their shares into the market. Read More
SEC Obtains Default Judgments Against Lesley Greyling and Trend Investments Inc
On April 25, 2023, the U.S. District Court for the District of Massachusetts entered final judgments against defendants Trends Investments Inc, Leslie Greyling and Brandon Rossetti, who were previously charged by the SEC with engaging in a scheme to defraud investors in private offers and sales of shares of two publicly traded penny stock companies.
According to the SEC’s complaint, filed in June 2022, Leslie Greyling and Rossetti, on behalf of Trends, allegedly lied to investors about whether Trends owned and could deliver to investors the shares it claimed to be selling. The SEC alleged that Leslie Greyling and Rossetti made a variety of misrepresentations to investors in order to keep investor funds, obtain further investments, placate investor concerns, and avoid detection. Rossetti was also charged with acting as an unregistered broker-dealer by soliciting investors, receiving transaction-based compensation from Trends, and claiming to be a “broker” or “wealth manager.”
The SEC’s complaint also alleged that Clinton Greyling, the son of Leslie Greyling, participated in the scheme.
Additionally, according to the complaint, Roger Bendelac participated in the scheme by placing manipulative trades in one of the securities Trends was offering and selling to investors. His relative Thomas Capellini was charged with aiding and abetting Bendelac in connection with the manipulative trades. Read More
Five People Charged in $2M Virtual Asset and Securities Manipulation Scheme
An indictment was unsealed on Monday, April 24th in Miami charging two U.S. citizens and a South African national with conspiring to manipulate the market for HYDRO, a virtual asset created by the Hydrogen Technology Corporation. Two other individuals were also charged in separate charging documents for their roles in the scheme filed in the Southern District of Florida.
According to court documents, from around June 2018 through April 2019, Michael Kane, 38, of Miami; Shane Hampton, 31, of Philadelphia; and George Wolvaardt, 38, of Johannesburg, South Africa, allegedly conspired to manipulate the market for HYDRO, a token on the Ethereum blockchain platform, and defraud market participants by creating the false appearance of supply and demand for HYDRO to induce other market participants to trade at prices, quantities, and times that they otherwise would not have traded. The defendants allegedly used a trading bot to place thousands of orders that they did not intend to execute, or “spoof orders,” and thousands of orders where the bot bought and sold tokens to itself through the same account, or “wash trades.” The co-conspirators allegedly reaped $2 million in profit through their sales of HYDRO at artificially inflated prices.
Gerald Shaw, a Disbarred Attorney and Convicted Felon, Arrested For Involvement In Multi-Million-Dollar Fraud Scheme
On Thursday, April 20, 2023, Damian Williams, the United States Attorney for the Southern District of New York, Michael J. Driscoll, the Assistant Director in Charge of the New York Field Office of the Federal Bureau of Investigation (“FBI”), and Ivan J. Arvelo, the Special Agent in Charge of the New York Field Office of Homeland Security Investigations (“HSI”), announced the arrest of GERALD SHAW, a convicted felon and disbarred attorney, in connection with his involvement in a multi-million-dollar fraud scheme. SHAW was arrested in Claremont, California.
SHAW is accused of serving as the purported “Chief Compliance Officer” for a purported financial institution, Dominion Bank and Trust Company Limited (“Dominion Bank”), which claimed to be able to extend financing for small businesses but, in fact, operated an advance fee fraud scheme. Read More
Reverse Mergers After Amended Form 15c-21
A “Reverse Merger” is a transaction whereby a privately held company becomes a Public Company (“Public Company” or “Public Company Candidate”) by acquiring or merging with a publicly traded company that is usually quoted on the OTC Markets OTC Pink or OTCQB. Reverse Mergers can be structured in a number of ways and involve a series of transactions that vary among issuers and specific situations. Public Companies may publish disclosure and financial statements as issuers reporting with the Securities and Exchange Commission (“SEC”) or may follow the Alternative Standard of the OTC Markets.
The goal of a Reverse Merger is to cause the private company to become a Public Company in a faster, more efficient and cost-effective way than a direct public offering (“DPO”) or initial public offering (“IPO”). Read More
SEC Charges Sean Wygovsky and Christopher Matthaei in Multi-Million Dollar SPAC Insider Trading Scheme
On March 30, 2023, the Securities and Exchange Commission (the “SEC“) filed insider trading charges against Sean Wygovsky, a former trader at a Canadian asset management firm, and Christopher Matthaei, a former partner at a U.S. broker-dealer, for using nonpublic information in advance of at least seven merger announcements involving Special Purpose Acquisition Companies (SPACs) to earn illicit profits of more than $3.4 million.
The SEC’s complaint alleges that Wygovsky learned material non-public information about upcoming SPAC mergers from his employer’s involvement in transactions related to the mergers. The complaint further alleges that, from May 2020 through April 2021, Wygovsky used encrypted messaging through Telegram to tip his close friend and trading client, Matthaei, about the upcoming mergers. According to the complaint, Matthaei, who ran a trading and research group focused on SPACs during the relevant period, allegedly traded on Wygovsky’s tips. Read More
Lindsay Lohan, Jake Paul and six other celebrities charged by the SEC in crypto fraud
On Wednesday, March 22nd, the Securities and Exchange Commission (the “SEC“) announced charges against eight celebrities in connection with a broader investigation of crypto entrepreneur Justin Sun and three of his companies: Tron Foundation Limited, BitTorrent Foundation Ltd., and Rainberry Inc., which marketed crypto asset securities under the brand names Tronix (TRX) and BitTorrent (BTT).
The SEC charged the following eight celebrities for illegally touting TRX and/or BTT without disclosing that they were compensated for doing so and the amount of their compensation.
- Actress Lindsay Lohan
- Youtuber Jake Paul
- Rapper DeAndre Cortez Way (aka Soulja Boy)
- Singer Austin Mahone
- Adult Film Star Michele Mason (aka Kendra Lust)
- Rapper Miles Parks McCollum (aka Lil Yachty)
- Singer Shaffer Smith (aka Ne-Yo)
- Singer Aliaune Thiam (aka Akon)
Motion to Dismiss Denied by Court in DarkPulse Case Against EMA Financial LLC
On March 1, 2023, EMA Group, LLC (“EMA Group”) and Felicia Preston (“Preston”), the sole owner of EMA Group, lost a motion to dismiss RICO charges in a lawsuit filed against the lender by Darkpulse, Inc. (“Darkpulse”).
Darkpulse filed a civil action against EMA Financial LLC (“EMA”), EMA Group and Preston (collectively, the “Defendants”) in January 2022 in the United States District Court of the Southern District of New York, represented by The Basile Law Firm P.C.
In the suit, Darkpulse refers to EMA as a “death spiral” or “toxic” lender and unregistered securities dealer that purchases convertible debt securities from small public companies (that are often struggling to raise capital) in order to get their hands on heavily-discounted stock.
Referencing recent Securities and Exchange Commission (“SEC”) prosecutions against lenders like EMA (specifically, Ibrahaim Almagarby and Microcap Equity Group), Darkpulse accused EMA of avoiding registration so they could evade regulatory oversight and make predatory loans that generate outrageous profits. Read More
SEC Charges The Church of Jesus Christ of Latter-day Saints and Its Investment Management Company for Disclosure Failures and Misstated Filings
On February 21, 2023, the Securities and Exchange Commission (the “SEC“) announced charges against Ensign Peak Advisers Inc., a non-profit entity operated by The Church of Jesus Christ of Latter-day Saints to manage the Church’s investments, for failing to file forms that would have disclosed the Church’s equity investments, and for instead filing forms for shell companies that obscured the Church’s portfolio and misstated Ensign Peak’s control over the Church’s investment decisions.
The SEC also announced charges against the Church for causing these violations. To settle the charges, Ensign Peak agreed to pay a $4 million penalty and the Church agreed to pay a $1 million penalty. Read More
SEC Charges NBA Hall of Famer Paul Pierce for Unlawfully Touting and Making Misleading Statements about Crypto Security
On February 17, 2023, the Securities and Exchange Commission (the “SEC“) charged yet another celebrity for promoting a crypto asset security without disclosing the nature, source, and amount of compensation they received in exchange for the promotion. This time is was NBA Hall of Famer Paul Pierce.
Pierce was charged for touting EMAX tokens, crypto asset securities offered and sold by EthereumMax, on social media without disclosing the payment he received for the promotion and for making false and misleading promotional statements about the same crypto asset. Pierce agreed to settle the charges and pay $1.409 million in penalties, disgorgement, and interest. Read More
Rule 506(b) and Rule 506(c) State Blue Sky Laws
While the Securities and Exchange Commission (the “SEC“) regulates and enforces the federal securities laws, each state has its own securities regulator who enforces what is known as “blue sky” laws. If a company is selling securities, it must comply with both federal regulations and state securities laws and regulations in the states where securities are offered and sold. Read More
General Solicitation and Advertising in Rule 506 Offerings
Both public and private companies may conduct securities offerings using Rule 506. The exemption provides a valuable tool for enabling issuers to obtain shareholders in connection with a going public transaction particularly issuers electing to go public direct.
Rule 506(b) of Regulation D
Section 4(a)(2) of the Securities Act exempts from registration “transactions by an issuer not involving any public offering.” Rule 506(b) is a rule under Regulation D that provides conditions that an issuer may rely on to meet the requirements of the Section 4(a)(2) exemption. One of these conditions is that an issuer must not use general solicitation to market the securities.
“General solicitation” includes advertisements published in a variety of media including but not limited to newspapers and magazines, public websites, communications broadcasted over television and radio, and seminars where attendees have been invited by general solicitation or general advertising. Importantly, the use of an unrestricted, and therefore publicly available, website constitutes general solicitation. The solicitation must be an “offer” of securities, but solicitations that condition the market for an offering of securities may be considered to be offers. Read More
Regulation D Rule 504, Rule 506(b), Rule 506(c) Offering Exemptions
Securities offerings must be registered with the Securities and Exchange Commission (“SEC”) or exempt from registration. Private placements are unregistered, non-public securities offerings that rely on an available exemption from registration. Unregistered offerings of securities must rely on an exemption from registration under either Sections 3 or 4 of the Securities Act of 1933 (the “Securities Act”). Most private offerings, however, are sold pursuant to three “safe harbor” rules promulgated under the Securities Act; Regulation D, Rules 504, 506(b), and 506(c). These rules provide issuers with a clearer and more objective set of requirements for which their offerings may qualify for exemption from registration.
Regulation D provides for three types of securities offerings that can be used by private or publicly traded companies. The Regulation D exemptions can also be used by issuers conducting initial or direct public offerings as part of the going public process. The most commonly used exemption from SEC registration is Rule 506© of Regulation D. This blog post outlines each of the exemptions provided by Regulation D. Read More
Gonzalo Ortiz Sentenced to 30 Months’ Imprisonment for Defrauding Investor and Lying about his Trading Experience
Gonzalo Ortiz was sentenced on February 2, 2023, in federal court in Brooklyn to 30 months in prison for defrauding an investor of nearly $600,000 by making false representations about his trading expertise and the profitability of various investments. The Court also ordered Ortiz to pay $224,500 in restitution to the victim and imposed two years of supervised release to follow his custodial sentence. In November 2021, Ortiz pleaded guilty to one count of investment advisor fraud. Read More
SEC Obtains Over $5 Million Final Judgment Against Charlie Abujudeh in Multi-Million Dollar Microcap Pump and Dump Scheme
On January 20, 2023, the U.S. District Court for the Eastern District of New York entered a final judgment against California resident Charlie Abujudeh whom the SEC had charged for his role in a microcap fraud scheme targeting retail investors. Among other things, the judgment orders Abujudeh to pay a total of over $5 million.
According to the SEC’s complaint, filed on July 22, 2021, from August 2019 to at least September 2020, Abujudeh worked with others to fraudulently sell several microcap companies’ stock to investors by making misleading statements during high-pressure sales calls and/or email promotions.
The SEC alleges that, as part of the scheme, Abujudeh and his associates convinced investors to invest in the stock of Odyssey Group International, Inc. (ODYY), as well as other microcap companies, including Scepter Holdings, Inc. (BRZL), and CannaPharmaRx, Inc (CPMD). Read More
