On May 1, 2024, the U.S. District Court for the Western District of North Carolina entered a final judgment against Martin A. Sumichrast for defrauding Stone Street Partners, LLC, a private fund he managed. The judgment highlights the critical importance of transparency, full disclosure, and due diligence in investment transactions. Investors are urged to be vigilant, conduct thorough assessments, and ensure regulatory compliance to protect their interests and avoid falling victim to fraudulent schemes.
In July 2023, the SEC finalized a rule requiring public companies to disclose material cybersecurity incidents under Item 1.05 of Form 8-K. This blog post explores the SEC's guidance on determining materiality, the risks of over-disclosure, and best practices for compliance. Companies must balance transparency with accuracy to effectively manage cybersecurity disclosures and uphold investor trust.
The SEC has charged Robert Tye Cournoyer and his controlled entities, Green Equity Group, LLC, and RS Group Holdings, LLC, with misappropriating over $755,000 of investor funds. Cournoyer allegedly used the funds for personal expenses, including gambling and luxury purchases, while misleading investors about the use of their money and his background. The SEC seeks permanent injunctions, disgorgement of ill-gotten gains, and civil penalties. This case highlights the critical importance of transparency, compliance with securities laws, and the integrity of financial market practitioners.
In a landmark case, Shane Hampton and Michael Kane were sentenced for manipulating the price of Hydrogen Technology’s cryptocurrency, HYDRO. Hampton received 2 years and 11 months, while Kane received 3 years and 9 months in prison. This case marks the first instance where a jury deemed cryptocurrency as a security, highlighting the severe legal consequences of market manipulation in the crypto industry.
On February 5, 2024, the SEC obtained a final judgment against Jeffrey Auerbach for his involvement in a fraudulent scheme to bribe a stockbroker to buy a company’s stock in customers' accounts without their knowledge. The case highlights the critical need for transparency and compliance in securities transactions and serves as a reminder of the severe legal consequences of violating securities laws. Investors are encouraged to conduct thorough due diligence and stay informed about regulatory actions to protect their investments.
The SEC has filed charges against Jerry D. Guess, a convicted felon, and his company, Guess & Co. Corporation, Inc., for engaging in a fraudulent stock offering. From June 2021 to April 2022, Guess and his company made numerous false and misleading statements to prospective investors, falsely claiming significant business operations and revenues. This case highlights the critical importance of due diligence, transparency, and ethical practices in the financial markets. Investors and financial professionals can learn valuable lessons from the SEC's action to avoid falling victim to similar schemes.
In a groundbreaking decision, a federal jury convicted Terren S. Peizer, former CEO of Ontrak Inc., for insider trading—marking the first prosecution based solely on the misuse of Rule 10b5-1 trading plans. Peizer was found guilty of evading losses exceeding $12.5 million by trading on insider knowledge about a significant contract termination. This case highlights the critical importance of compliance with securities laws for corporate executives.
IPO issuers face challenges such as lengthy Nasdaq/NYSE reviews and financial statement staleness. Learn how Rule 430A and SEC reporting obligations impact the IPO process, and how issuers can terminate Section 15(d) reporting obligations after an abandoned IPO.
On June 11, 2024, the SEC finalized new rules amending the definition of a "dealer" under the Exchange Act, focusing on large proprietary traders and liquidity providers. The rules aim to bring more market participants under dealer registration but leave small-cap and penny stock traders in regulatory uncertainty. With a compliance deadline of April 29, 2024, affected parties are urged to begin the registration process promptly.
The Supreme Court's 2024 decision in SEC v. Jarkesy has affirmed the Seventh Amendment right to a jury trial in cases where the SEC seeks civil penalties for securities fraud. This ruling significantly curtails the SEC's ability to impose penalties through administrative proceedings, requiring such actions to be tried before a jury in federal court. The decision is expected to impact the enforcement strategies of not only the SEC but other federal agencies as well, leading to increased litigation in federal courts and potential legislative reconsiderations.
The SEC has issued new guidelines clarifying the disclosure requirements for material cybersecurity incidents under Item 1.05 of Form 8-K. Companies must assess and report significant cybersecurity breaches, considering factors like operational disruption, financial impact, and reputational harm. Learn how these rules affect corporate governance and the importance of proactive incident management in today’s digital landscape.
Smart contracts are poised to revolutionize industries by automating contractual obligations via blockchain. But are they legally enforceable? This blog explores the benefits, challenges, and legal implications of using smart contracts in business transactions.
A federal jury in Los Angeles convicted Terren Peizer, former CEO and chairman of Ontrak Inc., for insider trading using Rule 10b5‑1 trading plans. Peizer avoided over $12.5 million in losses by selling shares before negative news about Ontrak became public. This case marks the first insider trading prosecution based solely on the use of such trading plans, emphasizing the importance of transparency and legal compliance in the financial markets.
The SEC's biennial Diversity Self-Assessment initiative, starting June 5, 2024, invites regulated entities to voluntarily evaluate their diversity and inclusion practices. This initiative, led by the SEC’s Office of Minority and Women Inclusion (OMWI), aims to help organizations identify strengths, opportunities, and potential risks within their D&I frameworks, ultimately contributing to a more inclusive industry landscape.
In a significant international legal development, Estonian nationals Sergei Potapenko and Ivan Turõgin have been extradited to the U.S. to face charges related to a massive cryptocurrency Ponzi scheme and money laundering operation. The duo allegedly defrauded victims worldwide through their company, HashFlare, and an investment scheme with Polybius, facing severe penalties if convicted. This case underscores the importance of global cooperation in combating financial crimes in the cryptocurrency space.
On January 24, 2024, the SEC charged Jesus Rodriguez, a former financial advisor, with fraudulently embezzling more than $3.475 million from ten clients. The scheme involved unauthorized transfers and misappropriation of funds, highlighting the importance of direct account access, robust compliance programs, and vigilant monitoring. This case serves as a crucial reminder for investors and financial professionals alike to prioritize transparency, due diligence, and proactive risk management to safeguard against fraud.
On June 12, 2024, the SEC charged Ilit Raz, founder of the AI recruitment startup Joonko, with defrauding investors of at least $21 million. Raz allegedly inflated customer numbers, revenue, and other key metrics to attract investment. This case underscores the importance of transparency in AI-driven enterprises and serves as a warning to investors to conduct thorough due diligence. Regulatory bodies are increasingly vigilant against fraudulent practices in the tech sector.
Tochukwu Nwosisi, a 52-year-old Indianapolis resident, has been sentenced to three years in prison for his role in an elaborate $5.6 million advance-fee scheme orchestrated from Nigeria. As a money launderer, Nwosisi funneled funds from victims worldwide to the scheme's ringleaders, marking a significant victory against international financial fraud.
The SEC's decision to close its Salt Lake Regional Office in 2024 will transfer enforcement jurisdiction to Denver, affecting businesses and investors in Utah. This move highlights the need for companies to stay informed about changes in regulatory oversight and adjust their compliance strategies accordingly.
Emerging markets face challenges from currency depreciation and global interest rate volatility. This blog explores key factors influencing exchange rates and policy responses to maintain financial stability.
The SEC announced settled charges against Mass Ave Global Inc. and CEO Winston Feng for making false statements to investors and failing to disclose critical conflicts of interest. The firm will pay a $350,000 penalty, and Feng will face a $250,000 fine and a 12-month suspension from industry-related work. This enforcement action highlights the SEC's commitment to transparency and investor protection.
On June 24, the SEC released new Compliance and Disclosure Interpretations (CDIs) regarding Item 1.05 of Form 8-K, focusing on the reporting of material cybersecurity incidents. These guidelines emphasize the need for thorough assessments of incident materiality, even when ransomware payments are made or incidents seem minor. Legal firms must guide clients in implementing robust incident response plans and maintaining compliance with evolving regulatory requirements.
Texas has enacted House Bill 19, establishing a new Business Court system set to launch on September 1, 2024. These specialized courts will handle complex commercial disputes, offering businesses a more efficient and consistent legal venue. This article details the scope, jurisdiction, judge selection, and procedures of the new Texas Business Courts, providing essential insights for businesses and legal professionals.
On January 18, 2024, the SEC charged Aryeh Goldstein and his entities, Adar Bays, LLC and Adar Alef, LLC, with failing to register as securities dealers while engaging in convertible note financing with over 100 microcap companies. The defendants agreed to settle by paying $1.25 million and surrendering remaining shares acquired through unregistered activities. This case highlights the importance of SEC registration, transparency, and compliance in securities transactions, particularly involving convertible debt and penny stocks.
On January 16, 2024, the SEC charged Jonathan Farber, Aarif Jamani, and Brian Keasberry with orchestrating a $5 million microcap fraud scheme involving County Line Energy Inc. The defendants manipulated stock prices, created a false market, and misled investors through promotional campaigns, resulting in significant illegal profits. This case underscores the importance of due diligence, regulatory compliance, and ethical practices in the financial markets.
In November 2023, Nasdaq introduced a new FAQ to guide companies on completing the electronic disclosure form required for advance notice to Nasdaq’s MarketWatch Department when announcing material non-public information. This post explores the specifics of Nasdaq Rule 5250(b)(1), which outlines these obligations, and highlights the events that necessitate a 10-minute advance notice to MarketWatch. Understanding these requirements is crucial for compliance and avoiding potential penalties.
Three former executives of Outcome Health have been sentenced for their involvement in a massive fraud scheme that defrauded clients, lenders, and investors of approximately $1 billion. The scheme involved falsifying data and inflating revenue figures, leading to severe legal repercussions. This case highlights the importance of transparency and integrity in business practices.
On January 8, 2024, the U.S. District Court for the Southern District of New York issued a final consent judgment against stock promoter Carl Smith for misleading investors during Nanobeak Biotech Inc.'s fundraising efforts. The judgment includes a $100,000 civil penalty and the disgorgement of $173,875, highlighting the critical importance of due diligence, transparency, and regulatory compliance in investment activities.
Publicly traded companies undergoing strategic pivots must be cautious to avoid being classified as "shell companies," a status that can lead to significant securities law challenges. This blog outlines the risks associated with becoming a shell company, including regulatory filing restrictions and heightened scrutiny, as well as the proposed NYSE rule changes that could complicate business transitions. Legal guidance is crucial for navigating these complex shifts while maintaining compliance and protecting shareholder value.
The engulfing candlestick pattern is a powerful trading signal, but traders must navigate legal and regulatory considerations to ensure compliance and mitigate risks. This blog explores the legal aspects of using engulfing patterns in trading strategies.
On June 6, 2024, the SEC’s Investor Advisory Committee will convene to discuss AI in investment advice, regulation in financial services, protection for self-directed investors, and initiatives to improve financial literacy. Investors and industry stakeholders are encouraged to attend the virtual meeting to stay informed on potential regulatory changes and future directions in the financial landscape.
The SEC, under Chair Gary Gensler, announced the transition of the U.S. securities market to a T+1 settlement cycle effective May 28, 2024. This move is aimed at improving market efficiency, reducing risks, and providing quicker access to funds for investors. The change follows rule amendments designed to facilitate a smoother and more resilient market operation.
On January 30, 2024, the SEC secured a final judgment against Comer Capital Group, LLC, and its principal, Brandon L. Comer, for violating fiduciary duties related to a $6 million bond issuance by the Harvey Public Library District. The case highlights the critical importance of fiduciary responsibility, due diligence, and transparency in municipal bond offerings. Investors and financial professionals must remain vigilant about market conditions, conflict of interest, and legal compliance to ensure fair and reasonable pricing in bond transactions.
The Joint Final Rule under the FDTA introduces standardized data reporting requirements, including the use of LEIs and other identifiers, posing significant compliance challenges and operational adjustments for financial entities.
Over the past ten weeks, we've explored the new SEC regulations affecting SPACs and shell companies. As we delve into what defines a "shell company" in reverse mergers, it's essential to understand the regulatory challenges that these entities face. From filing requirements to potential delisting risks due to the seasoning rule, these new rules present both opportunities and hurdles for companies seeking public listings. This article examines these implications and calls for clearer guidance from regulatory bodies to ensure a balanced approach to market access.
The SEC has charged Mario Gogliormella, Steven Lacaj, and Karim Ibrahim with fraud for raising $184 million through unregistered pre-IPO investments. Operating through boiler rooms, the defendants marked up shares by up to 105%, amassing $45 million in fees. The SEC seeks permanent injunctive relief and penalties. Investors are urged to perform due diligence, watch for red flags, and verify the regulatory status of investment offerings. Stay informed to navigate the high-risk pre-IPO investment landscape.
The legal battle between Amarin Pharma and Hikma Pharmaceuticals highlights the complexities of patent law, FDA regulations, and pharmaceutical marketing. The Federal Circuit’s decision underscores the risks associated with "skinny labels" and the potential for induced infringement claims, as Hikma’s marketing of a generic version of Vascepa® was found to potentially encourage off-label use covered by Amarin's patents.
A jury has convicted two former executives of Epsilon Data Management LLC for their roles in a decade-long scheme that sold data on millions of U.S. consumers to fraudsters, primarily targeting vulnerable populations such as the elderly. The case highlights the severe legal consequences for corporate executives who exploit consumer data for fraudulent purposes, with sentencing scheduled for September 30.
The SEC's recent amendments to the definition of a "dealer" under the Exchange Act aim to regulate large proprietary traders and liquidity providers, particularly in U.S. Treasury markets. However, these changes fail to address the legal ambiguity facing small-cap traders, especially those involved in penny stock convertible debt lending. While the new rules offer a clearer framework for certain market participants, the small-cap sector remains in a state of uncertainty. As the compliance deadline approaches, affected entities must navigate these complexities to ensure adherence to the updated regulations.
The U.S. IPO market is gaining momentum in 2024, with a significant increase in the number of IPOs and proceeds. As companies like Astera Labs, Reddit, and Stripe make strong entries into the public market, understanding the legal landscape becomes crucial. This blog highlights key trends, notable IPOs, and essential legal considerations for companies planning to go public. Stay ahead of the curve and ensure your IPO is a success with expert legal guidance.
The SEC has charged 25-year-old Tyrone Johnny Lacy, Jr. with orchestrating a fraudulent "free-riding" scheme, where he exploited instant deposit credits from broker-dealers to purchase over $300,000 in securities without sufficient funds. This case highlights the importance of due diligence, legal compliance, and robust internal controls for both investors and financial market practitioners. The SEC's action underscores the severe consequences of fraudulent trading activities and the need for vigilance in maintaining market integrity.
On January 18, 2024, the SEC charged Prosper E. Beyond Moore and his entity, Prosperity Investments & Solutions, LLC, with defrauding over 60 investors, mostly from the Nigerian-American community. The defendants falsely promised up to 50% monthly returns and fabricated account statements while using investor funds for personal expenses. This case underscores the importance of due diligence, transparency, and compliance in investment activities.
In response to the permanent suspension of BF Borgers CPA PC, the SEC has provided additional time for affected registrants to file their quarterly reports. This move allows companies the necessary time to engage new, qualified, independent auditors, ensuring continued compliance with federal securities laws.
On January 31, 2024, the SEC obtained final judgments against Jake Soberal and Irma Olguin, Jr., former co-CEOs of Bitwise Industries, for deceiving investors during a $70 million fundraising round. The co-founders were found to have falsified financial documents and provided misleading information about the company’s revenue and cash reserves. The court's rulings underscore the critical importance of transparency, leadership integrity, and rigorous due diligence in investment decisions.
The SEC’s Small Business Capital Formation Advisory Committee will discuss the recent changes to the SBA's Small Business Investment Company (SBIC) program at its upcoming meeting on July 30, 2024. The session, accessible via live webcast, will explore how these enhancements aim to broaden funding access for small businesses and foster economic growth.
