On February 5, 2024, the Securities and Exchange Commission obtained a final judgment against defendant Jeffrey Auerbach, whom the SEC previously charged for his role in a fraudulent scheme to bribe a stockbroker to buy a company’s stock in his customers’ accounts without the customers’ knowledge.

Case Summary

The Securities and Exchange Commission ("Commission") presents this Complaint against Defendants Jeffrey Auerbach ("Auerbach"), Jared Mitchell ("Mitchell"), and Richard Brown ("Brown") (referred to collectively as "Defendants") with the following allegations:

Between July 2014 and October 2015 (the “Relevant Period”), Auerbach, a former registered representative (i.e., a stockbroker) and purported investor-relations professional; Mitchell, a purported investor-relations professional with a prior securities fraud conviction; Richard Brown, a then-registered stockbroker; and Gino M. Pereira (“Pereira”), the then-CEO of Nxt-ID, Inc. (“NXTD”), a company specializing in security technology with publicly traded common stock on the Nasdaq Capital Market, allegedly defrauded investors through a stockbroker bribery scheme.

During the Relevant Period, Pereira arranged for NXTD to enter into what were purportedly “consulting agreements” with investor-relations firms owned by Auerbach and Mitchell. These agreements served as a facade for funneling bribes to Brown. Pereira transferred funds from NXTD's bank account to the firms’ accounts, disguising the transfers as payments for legitimate investor-relations services. However, Pereira, Mitchell, and Auerbach allegedly knew that some of these funds would be used to bribe Brown into purchasing NXTD stock in his client’s accounts.

In total, Pereira sent Mitchell and Auerbach at least $136,000, and they paid Brown at least $20,000 in cash bribes. In return, Brown recommended and purchased over $750,000 worth of NXTD common stock in his clients’ accounts without disclosing the bribes.

Violations

Based on the aforementioned conduct, Defendants are accused of violating Section 10(b) of the Securities Exchange Act of 1934 (“Exchange Act”) and Rules 10b-5(a) and (c) thereunder.

If not restrained, Defendants may continue engaging in similar acts, practices, transactions, or courses of business detailed in this Complaint.

Nature Of The Proceedings And The Relief Requested

The Commission brings this action under the authority of Section 21(d) of the Exchange Act.

The Commission seeks a final judgment: (a) permanently enjoining each defendant from engaging in the alleged acts, practices, and courses of business and from committing future violations of the federal securities laws; (b) ordering Defendants to disgorge any ill-gotten gains resulting from the alleged violations and pay prejudgment interest; (c) imposing civil money penalties on Defendants pursuant to Section 21(d)(3) of the Exchange Act; (d) permanently prohibiting Mitchell and Brown from participating in any penny stock offerings under Section 21(d)(6) of the Exchange Act; and (e) granting any other relief the Court deems appropriate.

Defendants

1. AUERBACH

Auerbach, aged 49 and residing in New York, purportedly provided investor-relations services to NXTD during the Relevant Period through two entities: Excelsior Global Advisors (“Excelsior”), in which both he and Mitchell were principals, and World Wide Holdings LLC, where he was the sole principal. Auerbach was a registered representative from approximately September 1993 to November 2013, facing scrutiny by the Financial Industry Regulatory Authority (“FINRA”) in 2015 for undisclosed private securities transactions, resulting in a $15,000 fine and a 90-day suspension. He also faced multiple customer complaints during his tenure.

2. MITCHELL

Mitchell, aged 37 and recently incarcerated in Pennsylvania, purportedly provided investor-relations services to NXTD both before and during the Relevant Period through Excelsior and Mitchell & Sullivan Holdings, LLC (“M&S Holdings”). He faced legal action from both the Commission and a grand jury in 2016 for involvement in a fraudulent broker bribery scheme related to ForceField Energy Inc.

3. BROWN

Brown, aged 40 and residing in North Bellmore, New York, was a registered representative during the Relevant Period at a Staten Island-based broker-dealer. He faced numerous customer complaints and legal actions in 2016, including suits by both the Commission and a grand jury.

Facts Of The Case

1. FORCEFIELD ENERGY INC. CHARGES

On May 13, 2016, the Commission filed a civil action against Mitchell, Brown, and others for a broker bribery scheme involving ForceField Energy Inc. The same day, Mitchell and Brown were arrested and indicted by a grand jury, leading to Mitchell's guilty plea and a final judgment in the Commission’s action.

2. AUERBACH AND MITCHELL’S ROLE IN THE BRIBERY SCHEME

During the Relevant Period, Pereira engaged firms run by Auerbach and/or Mitchell to provide investor-relations services to NXTD, intending for them to use part of their fees to bribe Brown into buying NXTD stock in his clients’ accounts.

In total, Pereira sent Mitchell and Auerbach at least $136,000, resulting in Brown purchasing over $750,000 worth of NXTD stock in his clients’ accounts. This caused substantial losses to Brown’s clients, who were unaware of the bribery scheme.

Auerbach, Mitchell, and Pereira used encrypted messaging to conceal their communications regarding the scheme.

From July to November 2014, Pereira paid Mitchell around $74,000, part of which was used to bribe Brown into buying NXTD stock.

In January 2015, Pereira began paying Auerbach and Mitchell, totaling over $62,000, to bribe Brown into purchasing more NXTD stock.

Auerbach paid Brown $5,000 in cash from the proceeds of pawning a Rolex watch, while Mitchell facilitated payments to Auerbach and himself for their roles in arranging the bribes.

Between January and October 2015, Pereira wired Excelsior over $62,000, part of which was used to bribe Brown into buying NXTD stock.

Brown purchased over 107,000 additional shares of NXTD stock for his clients during this period without disclosing the bribes.

Claim For Relief

Defendants allegedly employed fraudulent schemes and engaged in deceitful acts in connection with the purchase or sale of securities, violating Section 10(b) of the Exchange Act and Rules 10b-5(a) and (c).

Relief Sought By The SEC

The Commission requests the Court to issue a Final Judgment:

I. Permanently enjoining Defendants from violating Section 10(b) of the Exchange Act and Rules 10b-5(a) and (c);

II. Ordering Defendants to disgorge ill-gotten gains with interest, and

III. Imposing civil monetary penalties.

IV. Permanently enjoining Mitchell and Brown from particpitaing in any offering of penny stock under Section 21(d)(6) of the Exchange Act.

Final Judgment

Auerbach, without admitting or denying the SEC’s allegations, agreed to a final judgment that permanently enjoins him from violating the antifraud provisions of Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder.

The judgment mandates disgorgement of $3,000.00, representing Auerbach’s ill-gotten gains from the conduct cited in the SEC’s complaint, plus prejudgment interest of $5,846.

However, this obligation is considered fulfilled by the restitution order imposed on Auerbach in the parallel criminal case, United States v. Auerbach, 19 Cr. 607 (E.D.N.Y.), which addresses the same conduct. No civil penalties are imposed due to Auerbach’s conviction and sentence in the criminal case.

Key Takeaways For Investors

Here are the key takeaways for investors from this case:

1. TRANSPARENCY AND COMPLIANCE

Investors should prioritize transparency and compliance when dealing with securities transactions. Any suspicion of fraudulent activities should be reported and investigated promptly.

2. LEGAL RAMIFICATIONS

The case highlights the legal consequences individuals face for violating securities laws. In this instance, the defendant faced both civil and criminal actions for their involvement in fraudulent schemes.

3. IMPORTANCE OF DUE DILIGENCE

Investors should conduct thorough due diligence before engaging in any investment opportunity. Understanding the backgrounds and histories of individuals and companies involved can help mitigate risks associated with fraudulent activities.

4. REGULATORY OVERSIGHT

The case underscores the role of regulatory bodies like the Securities and Exchange Commission (SEC) in enforcing securities laws and protecting investors. Investors should stay informed about regulatory updates and actions to safeguard their investments.

Risk Management: Implementing robust risk management strategies is essential for investors to protect their portfolios from potential losses resulting from fraudulent activities or market manipulation.

5. LEGAL PRECEDENTS

This case sets legal precedents regarding enforcement actions and penalties for securities fraud. Investors can learn from these precedents to better assess and navigate similar situations in the future.