Justice Department Awards Nearly $100 Million to Help Reduce Recidivism and Support Successful Reentry to Communities
On Wednesday, October 5th, the Department of Justice announced awards totaling almost $100 million to reduce recidivism and support adults and youths in successfully returning to their communities after a period of confinement. Read More
IPO v Direct Listing Go Public Direct
IPO v Direct Listing Go Public Direct FAQ
Q: How is going public with a direct listing to the NASDAQ Capital Market different than the traditional IPO listing to NASDAQ Capital Market?
A: Both direct listings and Initial Public Offerings or IPOs result in a privately held company becoming publicly traded on a stock exchange. Read More
Rule 506(b) and Rule 506(c) Private Placements under Regulation D
The SEC’s Office of Investor Education and Advocacy recently issued an Investor Bulletin to educate investors about investing in unregistered securities offerings, sometimes called private placements, under Regulation D of the Securities Act. Rule 506(b) and Rule 506(c) are the most commonly used exemptions from SEC registration. Read More
SEC Charges Neil B. Swartz and Timothy S. Hart
On September 9, 2022, the Securities and Exchange Commission (the “SEC”) announced charges against TBG Holdings Corporation (“TBG”), its principals Neil B. Swartz and Timothy S. Hart, and sales agents Ted L. Romeo, Vincent J. Caputo, and Frank S. Dickerson alleging registration violations for unlawfully selling shares of health management company MediXall Group, Inc. (“MediXall”) to investors.
The SEC’s complaints, filed in U.S. District Court for the Southern District of Florida, allege that, from 2018 through March 2020, TBG and its principals, Swartz and Hart, hired and directed a group of unregistered sales agents to solicit investors to purchase shares of MediXall, a microcap company. According to the complaints, TBG and sales agents Romeo, Caputo, and Dickerson advised investors on the merits of the investments, described the offer to purchase the shares as time-sensitive, provided investors with promotional materials, and raised approximately $3 million by selling MediXall stock to more than 200 investors. As alleged, TBG, Hart and Swartz tracked the sales agents’ investor solicitations, and paid over $500,000 in commissions to the sales agents for their sales of MediXall stock, even though they were not registered as broker-dealers or associated with registered broker-dealers. Read More
Securities and Exchange Commission v. Manhattan Transfer Registrar Company and John C. Ahearn
On September 20, 2022, the Securities and Exchange Commission (the “SEC”) charged recidivists Manhattan Transfer Registrar Company (“Manhattan Transfer”), a registered transfer agent based in Port Jefferson, New York, and its former principal, John C. Ahearn, a resident of Erie, Colorado, for violations of a Commission order issued against them on May 17, 2018 (“Commission Order”). Read More
SEC Charges Kim Kardashian with Violating Section 17(b)
On October 3, 2022, the SEC Division of Enforcement entered into a settlement of charges with Kimberly Kardashian (“Kardashian” or “Respondent”).
The SEC Offer of Settlement (the “Offer”) includes findings that:
- On June 13, 2021, Kim Kardashian—a well-known media personality and businesswoman—touted a crypto asset security on social media that was being offered and sold. Kardashian did not disclose that she was being compensated for giving such security publicity by the entity offering and selling the security.
- Kardashian’s failure to disclose this compensation violated Section 17(b) of the Securities Act, which makes it unlawful for any person to promote a security without fully disclosing the receipt and amount of such consideration from an issuer.
Stock Manipulation, Bed Bath & Beyond as a Meme Stock, and Ryan Cohen
On Friday, September 2, the man who lived on the 18th floor of 56 Leonard Street in New York’s Tribeca district didn’t go to work or, perhaps, he came home very early. We know only that at about 12:30 in the afternoon, he fell from one of the balconies of his luxury apartment, landing on the roof of an adjacent building. Someone called 911. A crying woman appeared and accompanied the paramedics and the body to the hospital. Though some video was shot by journalists at the scene, the story didn’t get much publicity. It was carried by the New York Post, which said the man was pronounced dead at the scene, adding that the police had not offered further details.
It wasn’t until Sunday afternoon that the victim was identified as Gustavo Arnal, chief financial officer and executive vice president of troubled home décor retailer Bed Bath & Beyond (BBBY). Arnal, 52, lived in the “Jenga Building”—so-called because its asymmetrical balconies are reminiscent of the popular game—with his wife and two adult daughters. According to the Post, he “didn’t say a word to his wife before apparently leaping to his death.” Neither did he leave a note.
The medical examiner ruled the death a suicide. Bed Bath & Beyond’s interim chairwoman, Harriet Edelman, conveyed her condolences to the family in a company press release. Colleagues and social media friends said they were shocked; that what he’d done seemed to them out of character. Read More
US and China reach deal in dispute over Chinese company audits
The China Securities Regulatory Commission (CSRC) and U.S. Public Company Accounting Oversight Board (PCAOB) announced Friday that both sides signed an agreement to allow U.S. regulators to inspect the audits of Chinese companies whose stocks are traded on U.S. exchanges.
U.S. regulators have long demanded access to audit papers of Chinese companies listed in the United States, but Beijing has been reluctant to let overseas regulators inspect accounting firms, citing security concerns. As a result, U.S. regulators have threatened to boot around 150 Chinese companies, including Alibaba, off the New York Stock Exchange and Nasdaq. Read More
SEC Amends Whistleblower Rules to Incentivize Whistleblower Tips
On August 26, 2022, the Securities and Exchange Commission adopted two amendments to the rules governing its whistleblower program.
The first rule change allows the Commission to pay whistleblowers for their information and assistance in connection with non-SEC actions in additional circumstances.
The second rule affirms the Commission’s authority to consider the dollar amount of a potential award for the limited purpose of increasing an award but not lowering an award. Read More
SEC moves to revoke dozens of inactive issuers
Over the past week, the Securities and Exchange Commission (the “SEC”) has initiated 26 new administrative proceedings against inactive SEC issuers, moving towards revoking the issuers’ securities registered pursuant to Section 12 of the Exchange Act.
The 26 administrative proceedings against delinquent SEC filers filed by the SEC between August 17 and August 22 is more than the rest of 2022 combined. Read More
Going Public and Direct Public Offerings Provide Benefits in 2022
Going public is still considered a benefit to issuers seeking to raise capital or obtain recognition of their business. Even in a down economy, private companies seek the perceived benefits of being publicly traded. While there are a variety of ways to create a publicly traded company, each comes with its own unique requirements and risks. The Direct Public Offering (“DPO”) eliminates many of the risks and expenses associated with reverse mergers into public shell companies. Issuers going public using a DPO also have fewer hurdles to obtaining electronic trading from Depository Trust Company (“DTC”).
Reverse merger companies often encounter DTC chills and global locks because of prior unregistered securities issuances and the public shells prior management. Read More
SEC Targets Publicly Traded Chinese Issuers Under the Holding Foreign Companies Accountable Act
Since Baidu, Inc. (BIDU) completed its going public transaction in August 2005 on the NASDAQ Stock Market, many U.S. investors have found themselves fascinated and frustrated by Chinese companies. Baidu, a technology giant and AI developer offering, among many other things, the world’s second-largest search engine, has been a winner overall. But not all publicly traded Chinese companies in the States have been as kind to their investors. Some have simply failed to succeed, but others have committed serious fraud. Blatant as it often is, it’s also hard to nail down because Chinese companies, and even the Chinese government, have shown resistance to accounting safeguards we’ve come to consider normal in the wake of our own public company scandals of the first decade of the century.
In 2020, Congress passed the Holding Foreign Companies Accountable Act (HFCAA); it was signed into law on December 18. Technically an amendment to the Sarbanes-Oxley Act of 2002, it requires “foreign issuers” to declare that they aren’t owned or staffed by the Chinese Communist Party. In addition, Chinese companies that have securities registered with the SEC must use auditors whose work can be inspected by the Public Company Accounting Oversight Board (“PCAOB”). The PCAOB was created by the Sarbanes-Oxley Act in 2002 and, since then, has regularly inspected auditing firms that deal with public companies. The HFCAA requires that the PCAOB do the same in China, inspecting the firms that audit Chinese companies trading on U.S. exchanges. Read More
SEC Charges Glenn B. Laken, Davies Wong, Richard Tang and 15 other Defendants and names Jason Black as a Relief Defendant in International Scheme to Manipulate Stocks Using Hacked US Brokerage Accounts
On August 15, 2022, the Securities and Exchange Commission (the “SEC”) charged 18 individuals and entities for their roles in a fraudulent scheme in which dozens of online retail brokerage accounts were hacked and improperly used to purchase microcap stocks to manipulate the price and trading volume of those stocks.
Those charged include Rahim Mohamed of Alberta, Canada, who is alleged to have coordinated the hacking attacks, and several others in and outside the U.S. who allegedly benefited from or participated in the scheme, including Zoltan Nagy, Robert Seeley, Phillip Sewell, Christopher Smith, Richard Smith, Anna Tang, Richard Tang, Breanne Wong, Davies Wong, Christophe Maerani, Glenn B Laken, Jeffery D Cox, and entities controlled by one or more of them, including Avatele Group LLC, Harmony Ridge Corp, H.E. Capital SA, Maximum Ventures Holdings LLC, and POP Holdings Ltd. Relief defendants include Jason Black and 9224-3708 Quebec, Inc. a/k/a Distributions Bano. Read More
SEC Charges Broker-Dealer Alpine Securities Corporation and Two Employees with Engaging in Unauthorized Securities Transactions
On August 10, 2022, the Securities and Exchange Commission (the “SEC”) charged broker-dealer Alpine Securities Corporation, its former Chief Executive Officer Christopher Doubek, and its current Chief Operations Officer Joseph Walsh with engaging in a series of unauthorized securities transactions.
According to the SEC’s complaint, filed in federal district court in Nevada, in May and June 2019, Alpine engaged in improper conduct in an attempt to force hundreds of retail customers to close their accounts. Specifically, Doubek and Walsh allegedly caused Alpine to sell approximately $268,000 in customer securities without notice or customer approval on the basis that Alpine deemed the securities “worthless.”
The complaint further alleges that without authorization, and contrary to how the term is defined in its customer agreements, Doubek and Walsh caused Alpine to declare 545 customer accounts “abandoned” and to transfer approximately $54 million worth of securities out of these “abandoned” accounts and into accounts that Alpine controlled. Read More
SEC Charges Simon Piers Thurlow, Roger Leon Fidler, Richard Oravec, Bradley Fidler, Bryce Emory Boucher, Joseph D. Jordan in Illegal Microcap Offering
On September 15, 2021, the Securities and Exchange Commission (the “SEC”) charged Simon Piers Thurlow, Richard Oravec, Bryce Emory Boucher, attorney Roger Leon Fidler, and his son, Bradley Fidler, for fraud and illegally offering unregistered securities. The SEC also charged Joseph D. Jordan and his company, Western Bankers Capital Inc., with illegally offering unregistered securities.
According to the SEC’s complaint, in 2016, Roger Fidler, Thurlow, and Oravec engineered a reverse merger between Dolat Ventures, Inc. (DOLV) and a Chinese company that purportedly manufactured electric cars and batteries and then undertook a fraudulent scheme to create false and backdated documents to make it appear that shares could be immediately sold to the investing public without filing the required registration statements with the SEC. Read More
SEC Charges Convertible Note Dealer Crown Bridge Partners, LLC, and its managing members, Soheil and Sepas Ahdoot for Failure to Register
August 2, 2022 — The Securities and Exchange Commission (the “SEC”) today announced settled charges against a convertible note dealer, Crown Bridge Partners, LLC, and its managing members, Soheil and Sepas Ahdoot of Great Neck, N.Y., for failing to register with the SEC as securities dealers.
As part of the settlement, the Ahdoots and Crown Bridge agreed to pay more than $9 million in monetary relief and to surrender or cancel securities of 82 different issuers they allegedly obtained from their unregistered dealer activity.
The SEC’s complaint, filed in the federal district court in Manhattan, alleges that, between January 2016 and December 2020, Crown Bridge purchased about 250 convertible notes from 150 microcap issuers, and converted the notes into 35 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. Read More
SEC Charges Eleven Individuals in $300 Million Crypto Pyramid Scheme known as Forsage
August 1, 2022 — The Securities and Exchange Commission (the “SEC”) today charged 11 individuals for their roles in creating and promoting Forsage, a fraudulent crypto pyramid and Ponzi scheme that raised more than $300 million from millions of retail investors worldwide, including in the United States.
Those charged include the four founders of Forsage, Vladimir Okhotnikov, Jane Doe a/k/a Lola Ferrari, Mikhail Sergeev, and Sergey Maslakov, who were last known to be living in Russia, the Republic of Georgia, and Indonesia (the “Founders”), as well as three U.S.-based promoters, Samuel D. Ellis, of Louisville, Kentucky., Mark F. Hamlin, of Henrico, Virginia. and Sarah L. Theissen, of Hartford, Wisconsin (the “Promoters”), engaged by the founders to endorse Forsage on its website and social media platforms, and several members of the so-called “Crypto Crusaders”, Cheri Beth Bowen, of Pelahatchie, Mississippi., Ronald R. Deering, of Coeur d’ Alene, Idaho, Carlos L. Martinez, of Chicago, Illinois. and Alisha R. Shepperd, of Dunedin, Florida. Read More
SEC Charges Bradley Moynes and Digatrade Financial Corp in Fraudulent Microcap Scheme
On June 27, 2022, the Securities and Exchange Commission (the “SEC”) charged Canadian citizen Bradley Moynes and Canadian corporation Digatrade Financial Corp. for engaging in a deceptive scheme involving microcap companies that generated more than $1.5 million in unlawful stock sale proceeds at the expense of unsuspecting retail investors.
The SEC’s complaint alleges that Moynes was the President, CEO and Director of two small and thinly traded companies, Formcap Corporation (FRMC) and Digatrade Financial Corp (DIGAF), whose stock was publicly traded in the U.S. securities markets. Read More
SEC Charges Empires Consulting Corp and its founders, Emerson Sousa Pires and Flavio Mendes Goncalves, and head trader, Joshua David Nicholas, with Fake Trading Scheme
On June 30, 2022, the Securities and Exchange Commission (the “SEC”) filed fraud charges against Empires Consulting Corp (“EmpiresX”), its founders, Emerson Sousa Pires and Flavio Mendes Goncalves, and its head trader, Joshua David Nicholas, (collectively, the “Defendants”) for a scheme that allegedly raised at least $40 million by luring investors with false claims of one percent daily profits. Instead, the SEC alleges that the Defendants misappropriated large sums of investors’ money for personal uses. Read More
SEC Sues LG Capital Funding and Its Managing Member, Joseph Lerman, for Acting as Unregistered Securities Dealers
On June 7, 2022, the Securities and Exchange Commission (the “SEC”) announced charges against LG Capital Funding, LLC (“LG Capital”) and its managing member Joseph Lerman of Brooklyn, New York, for failing to register as securities dealers with the SEC.
LG Capital and Lerman allegedly bought and sold billions of newly-issued shares of microcap securities, or “penny stocks,” which generated millions of dollars for LG Capital and Lerman.
The SEC’s complaint, filed in the Eastern District of New York, alleges that between at least January 2016 and December 2021 (the “Relevant Period”), LG Capital engaged in the business of purchasing convertible notes from penny stock 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. Read More
SEC Charges Trends Investments Inc., Clinton Greyling and Leslie Greyling
On June 9, 2022, the Securities and Exchange Commission (the “SEC”) charged Trends Investments Inc. and five individuals, Clinton Greyling of Florida, Leslie Greyling (Clinton’s father, a resident of the United Kingdom), former Massachusetts resident Brandon Rossetti, Roger Bendelac and Thomas Capellini in connection with a securities fraud scheme involving the offer and sale of stock in two publicly traded penny stock companies.
According to the SEC’s complaint, Trends Investments Inc., an unregistered entity, and Trends personnel Clinton Greyling, Leslie Greyling and Brandon Rossetti engaged in a scheme to defraud investors in private offers and sales of shares of Alterola Biotech Inc. (ABTI) and Token Communities Ltd. (formerly TKCM).
The Greylings and Rossetti allegedly lied to investors about whether Trends owned and could deliver to investors the shares it claimed to be selling. They are further charged with making a variety of misrepresentations to investors in order to keep investor funds, obtain further investments, placate investor concerns, and avoid detection. Read More
In Jarkesy v. Securities and Exchange Commission, the US Court of Appeals for the Fifth Circuit held that the Securities and Exchange Commission’s (SEC) adjudication of fraud cases in administrative proceedings is unconstitutional
On May 18, 2022, the US Court of Appeals for the Fifth Circuit in Jarkesy v. Securities and Exchange Commission held that the Securities and Exchange Commission’s administrative proceedings adjudicating securities is unconstitutional.
On March 22, 2013, the SEC brought an enforcement action against hedge fund operator George R. Jarkesy, Jr. and Patriot 28, L.L.C (collectively “Jarkesy”)., alleging that they engaged in securities fraud under the Investment Advisors Act of 1940, Securities Act of 1933 and the Securities Exchange Act of 1934. The Jarkesy filed an interlocutory challenge in the US District Court for the District of Columbia seeking to enjoin the SEC administrative proceedings based on constitutional defects. The district court held, and the US Court of Appeals for the District of Columbia Circuit later affirmed, that the SEC administrative proceedings lacked jurisdiction over the case and that Jarkesy had to exhaust administrative remedies before raising their constitutional claims before a federal court of appeals. Read More
Court Denies Carebourn Capital’s Motion for Judgement on the Pleadings in SEC Case
On May 24, 2022, United States District Judge Katherine Menendez filed her Order in response to Carebourn Capital, L.P.’s Motion for Judgement on the Pleadings to dismiss the Securities and Exchange Commission (“SEC”) case filed against the penny stock financier, denying all of Carebourn’s claims.
The SEC filed charges against Carebourn and its managing partner Chip Rice of Maple Grove, Minnesota (collectively, the “Defendants”), on September 24, 2021, in the U.S. District Court for the District of Minnesota (the “Complaint”), charging the Defendants with acting as unregistered securities dealers in connection with their buying and selling of billions of newly-issued shares of microcap securities, or “penny stocks,” which generated millions of dollars for Carebourn and Rice. Read More
PCAOB Sanctions Former BF Borgers Audit Director Bo-Shiang (“Eric”) Lien
On May 24, 2022, the Public Company Accounting Oversight Board (PCAOB) announced that it has sanctioned Bo-Shiang (“Eric”) Lien, a former audit director and non-equity partner at BF Borgers CPA PC, for violations of PCAOB rules and standards in connection with the audits by BF Borgers of the financial statements of three public companies between 2017 and 2019.
Lien is a certified public accountant licensed by the state of Colorado (license no. 0030719). At all relevant times, Lien was an audit manager or director (non-equity partner) of BF Borgers and served as an engagement partner on issuer audits.
Since 2017, BF Borgers has been involved in providing audits for dozens (if not hundreds) of public companies.
The PCAOB found that Lien violated PCAOB rules and standards while serving as the engagement partner on BF Borgers’ audits of the 2019 financial statements of Chineseinvestors.com, Inc., the 2018 financial statements of United Cannabis Corporation, and the 2015 and 2016 financial statements of China Pharma Holdings, Inc. Read More
SEC obtains asset freezes and other emergency relief against StraightPath Venture Partners LLC, StraightPath Management LLC, Brian K. Martinsen, Michael A. Castillero, Francine A. Lanaia, and Eric D. Lachow
On May 16, 2022, the Securities and Exchange Commission (the “SEC”) obtained asset freezes and other emergency relief against StraightPath Venture Partners LLC, StraightPath Management LLC, Brian K. Martinsen, Michael A. Castillero, Francine A. Lanaia, and Eric D. Lachow (collectively, the Defendants) to halt ongoing securities violations, including allegedly selling pre-Initial Public Offering (IPO) shares they did not own, pocketing undisclosed fees, and commingling investor funds, resulting in Ponzi scheme-like payments. The relief arose from fraud and registration charges filed by the SEC.
The SEC alleges in its complaint that the Defendants, running an unregistered broker-dealer with a vast network of sales agents, raised at least $410 million from more than 2,200 investors from November 2017 through February 2022.
OTCQX Markets Foreign Issuer Dual Listings – OTCQX Eligibility, Listing, Quotation
The OTC Markets OTCQX offers foreign issuers seeking to go public in the U.S. an appealing alternative to listing on a stock exchange. Foreign issuers whose securities are listed on a foreign stock exchange that qualify for the exemption from the reporting requirements of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), can go public in the U.S by quotation of their securities on the OTCQX without registration or reporting obligations to the Securities and Exchange Commission (the “SEC”).
Foreign issuers with a class of securities registered under Section 12(g) of the Exchange Act also qualify to list on the OTCQX. Read More
SEC Obtains Final Judgment Ordering Frederick Sharp to Pay $52,925,214
On Friday, May 12, 2022, the Securities and Exchange Commission announced that it obtained a final judgment against Canadian resident Frederick L. Sharp.
In August 2021, the SEC charged Sharp with leading a fraudulent scheme that generated hundreds of millions of dollars from unlawful stock sales and caused significant harm to retail investors in the United States and around the world. Among other relief, the judgment orders Sharp to pay over $50 million in monetary relief.
According to the SEC’s complaint, Sharp masterminded a complex scheme from 2011 to 2019 in which he and his associates enabled control persons of penny stock companies, whose stock was publicly traded in the U.S. securities markets, to conceal their control and ownership of huge amounts of penny stock and then surreptitiously dump the stock into the U.S. markets, in violation of federal securities laws.
Attorneys Gone Wild: Shawn Hackman, Elaine A. Dowling, and Harold P. Gewerter
On April 29, 2022, the Securities and Exchange Commission obtained a judgment against Shawn Hackman, who was previously disbarred by the State of Nevada and suspended by the SEC, ordering him to comply with the SEC’s suspension order and to pay nearly $1 million in disgorgement and prejudgment interest for the money he earned in violation of the suspension order.
SEC Files Charges Against Michael Forster
On May 4, 2022, the Securities and Exchange Commission (the “SEC”) filed a complaint alleging Michael Forster engaged in manipulative trading in connection with a microcap issuer he controlled, Cuba Beverage Company (CUBV), a purported energy drink company.
According to the SEC’s complaint, in or around February 2012, Forster gained control of CUBV for $40,000 through an undocumented agreement with the sole executive of the company at the time. During this same period, Forster entered into a consulting agreement with CUBV and his company, SLO 3 Holdings dba as designir.com and stockmailer.com, to increase the CUBV share price.
OTC Markets Listing and Quotation – OTCQB Requirements
OTC Markets Group (“OTC Markets”) requires companies seeking quotation of their securities on the OTCQB® Venture Stage Marketplace (“OTCQB”) have an initial and ongoing $0.01 per share minimum bid price, submit an initial OTCQB application, pay annual fees, and submit annual certifications to the OTC Markets. Companies that do not meet all of these requirements are demoted to the OTC Markets Pink® Marketplace (“OTC Pink”). OTCQB companies must also be reporting with the Securities & Exchange Commission (“SEC”). The OTC Markets offers companies seeking public company status new alternatives for listing while ensuring transparency for investors.
