Nutter Securities Enforcement Update: February 1, 2022Print PDF
The Nutter Securities Enforcement Update is a periodic summary of noteworthy recent securities enforcement activity, settlements, decisions, and charges. For more information on these cases or about how they may impact you, contact your Nutter attorney.
Investment Advisers/Investment Companies
SEC v. Bóveda Asset Management, Inc. and George Kenneth Witherspoon, Jr., Lit. Rel. No. 25299 (Jan. 4, 2022) – In an unsettled action, a small RIA and principal were charged with not complying with exam requests, making false statements in Form ADV about AUM and background, and violating custody rules. Claims under IA Sections 203A, 204(a), 206(1), 206(2), 206(4), and 207.
O.N. Investment Management, Rel. IA-5944 (Jan. 11, 2022) – In a settlement, a mid-sized RIA was charged with failure to adequately disclose conflicts of interest from their receipt of revenue sharing on recommended mutual fund share classes, no-transaction fee funds and cash sweep products, and related violations of the duty of care (rather than best execution). Claims under IAA Sections 203(e), 203(k), 206(2), 206(4), and Rule 206(4)-7. Undertakings to review disclosures and move clients to less expensive products, but no independent consultant. Cease and desist, censure, fine ($210k), and disgorgement ($866k).
Comprehensive Capital Management, Rel. IA-5943 (Jan. 11, 2022) – In a settlement, a small RIA was charged with misrepresenting its fees, failing to disclose conflicts of interest from its affiliate’s receipt of commissions, and using a liability disclaimer in its IA agreements, as well as failing to comply with related policy and procedure and recordkeeping rules. Claims under IAA Sections 203(e), 203(k), 206(2), 206(4); 204(a); and Rules 204-2(a)(8) and 206(4)-7. Undertaking to inform certain customers of the SEC Order. Independent Consultant ordered. Cease and desist, censure, fine ($300k), and disgorgement ($75k).
CMG Capital Management Group, Inc., Rel. IA-5945 (Jan. 13, 2022) – In a settlement, a small RIA was charged with failing to provide appropriate disclosures regarding hypothetical backtested investment performance, and failing to comply with related policy and procedure and recordkeeping rules. Claims under IAA sections 203(e), 203(k), 206(2), 206(4) and Rules 206(4)-7, 204(a) and 204-2(a)(11). The SEC credited the RIA for voluntarily prohibiting itself from advertising hypothetical backtested performance. Cease and desist, censure, and fine ($70k); no disgorgement.
tZERO ATS, LLC, Exchange Act Rel. 93938 (Jan. 10, 2022) – In a settlement, a small broker-dealer operating an alternative trading system was charged with failing to make all disclosures required to comply with a Reg ATS registration exemption, specifically regarding a subscriber’s display of order book information for certain NMS stocks, and with failing to comply with the Fair Access Rule for certain non-NMS securities. Claims under Exchange Act Rules 3a1-1(a), 15c3-5, Reg ATS Rules 301(b)(2) and 301(b)(5). Cease and desist, censure, and fine ($800k).
SEC v. Keener, Lit. Rel. No. 25314 (S.D. Fla., Jan. 21, 2022) – In ongoing federal court litigation, the SEC won summary judgment on its claim that a convertible debt lender violated the Exchange Act by not registering as a “dealer” based on defendant’s regular business of buying convertible notes from penny stock issuers and later converting the notes to newly issued shares at a discount and selling them into the public market. Claim under Exchange Act Section 15(a)(1).
In re January 2021 Short Squeeze Trading Litigation - Robinhood Tranche. Case No. 21-02989-MDL (SD Fla., Jan. 26, 2021) – In federal multidistrict class action litigation, the district court dismissed with prejudice investor claims for losses arising from the broker-dealer defendant’s suspension of purchases of certain “meme” stocks pursuant to its customer agreement in January 2021. The investors alleged that defendant’s business model had induced the investors’ trading strategy, and asserted state law claims of negligence, implied contract, breach of the covenant of good faith and fair dealing, and breach of fiduciary duty.
SEC v. Panuwat, Case No. 21-cv-06322-WHO (N.D. Cal., Jan. 14, 2021) – In ongoing federal court litigation, the district court denied defendant’s motion to dismiss SEC’s “shadow trading” allegations that defendant used material nonpublic information regarding his employer to trade in securities of another publicly traded company in the same industry.
Issuer Reporting/Audit and Accounting
Leaf Group Ltd. Exchange Act Rel. 93929 (Jan. 7, 2022) – In a settled action filed as an Administrative Proceeding, a NYSE-listed corporate registrant was charged with failing to adequately evaluate and disclose material information about the independence of its board of directors, including interlocking relationships between its directors and executive officers. Claims under Exchange Act Sections 12, 13(a) and 14(a), and Rules 13a-15(a), 13a-1, 13a-11, 12b-20, and 14a-3. Cease and desist, fine ($325k).
Jennifer F. Wolf, CPA Exchange Act Rel. 94099, AAE Re. 4279 (Jan. 28, 2022) – The Commission reinstated an accountant who was previously barred from appearing before the Commission under Rule 102(e). The accountant settled a Rule 102(e) action in 2019 after settling an injunctive action charging that while serving as Acting Controller of Logitech International, S.A., she caused the company to file a misleading Form 10-K based on the failure to record an inventory reserve in violation of Securities Act Section 17(a)(3) and Exchange Act Rule 13b2-1. The reinstatement order allows her to participate in the preparation or review of financial statements, but not serve on an audit committee.
SEC v. HeadSpin, Inc., No. 5:22-cv-00576 (N.D. Cal.); Lit. Rel. No. 25320 (Jan. 28, 2022) – In ongoing litigation, the Commission settled fraud charges against a private technology company without a penalty, due to the company’s cooperation and remedial efforts. The SEC alleged the company falsely inflated its revenue growth in order to boost its valuation for its 2019 investor fundraising round. The company’s board conducted an internal investigation, removed the CEO who had “controlled all important aspects” of the company’s financials, and undertook remedial efforts including repaying investors. Claims under Securities Act Section 17(a) and Exchange Act Section 10(b) and Rule 10b-5.
SEC v. Robert Samuel Shumake, Jr., et al, Lit Rel. No. 25298 (Jan. 3. 2022) – In a partial settlement of a previously filed action, a cannabis company and its officers were charged with conducting an unregistered crowdfunding offering and making false statements to investors. The settlements included (i) civil penalties of $200,000, $9,700, and $97,500; (2) disgorgement of $600,712 and $129,380 against TruCrowd; (3) an officer and director bar; and (4) Rule 102(e) bars against an attorney and an accountant. Claims under Securities Act Sections 4A(a)(5), 5, and 17(a) and Rule 301(c)(2), Exchange Act Section 10(b) and Rule 10b-5, and Rule 102(e)
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