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June 1, 2025 | Legal Update

The Nutter Securities Enforcement Update is a periodic update of noteworthy recent securities enforcement activity, settlements, decisions, and charges. We provide brief summaries that highlight recent enforcement action filings and developments to help identify enforcement trends, changes in the law, new theories, and new areas of enforcement focus. For more information on these cases or about how they may impact you, contact your Nutter attorney.

The Trump Administration has brought clear changes in enforcement priorities at the SEC, with new Chair Paul Atkins still settling in and several key staff positions remaining to be filled.

To better reflect this transition period, we lead with a special section on significant developments in enforcement priorities. In addition, while reporting on significant litigation and settlement developments, we will indicate whether each matter is pre-transition (before January 21) or post-transition.

Key Developments in Enforcement Priorities

Climate Disclosure (Feb. 11, 2025) – Then-Acting Chairman Uyeda instructed SEC staff to delay oral arguments in Eighth Circuit litigation challenging the Climate-Related Disclosure Rule adopted under the prior administration on March 6, 2024. Noting that he and Commissioner Peirce, who were now in the majority, had voted against the rule, he asked the court “to provide time for the Commission to deliberate and determine the appropriate next steps in these cases.”

Crypto Asset Enforcement – On February 27, the SEC dismissed with prejudice its suit against Coinbase, in which it had alleged that the company acted as a broker-dealer and securities exchange without registration. On May 29, the SEC also dismissed its suit against crypto exchange Binance with prejudice, in which it had alleged that Binance had illegally served U.S. users, inflated trading volumes, and misled investors.

Meme Coins (Feb. 27, 2025) – The Division of Corporate Finance expressed its view that “transactions in the types of meme coins described in this statement, do not involve the offer and sale of securities under the federal securities laws” and do not need to be registered before sale. It described meme coins as being “akin to collectibles” and having “limit or no use or functionality.” Accordingly, they lack key characteristics of a security: purchasers are not making an investment in an enterprise; any expectation of profits would be driven by speculation rather than by the efforts of others; and the promoters are not undertaking any managerial or entrepreneurial effort. Nonetheless, meme coins not meeting this description may be subject to registration requirements and fraudulent conduct in the sale of meme coins may be subject to enforcement action.

Proof-of-Work Crypto Mining Activities (March 20, 2025) – The Division of Corporate Finance expressed its view that “Mining Activities” as described therein do not involve the offer or sale of securities and do not require registration. This guidance addresses “the mining of crypto assets that are intrinsically linked to the programmatic functioning of a public, permissionless network, and are used to participate in and/or earned for participating in such network’s consensus mechanism or otherwise used to maintain and/or earned for maintaining the technological operation and security of such network.” Because persons engaged in “Self (or Solo) Mining” and “Mining Pool” activities do not have the expectation of profits from the entrepreneurial or managerial efforts of others, the staff views these activities as outside the definition of a security.

Stablecoins (April 4, 2025) – The Division of Corporate Finance expressed its view that “Covered Stablecoins” as described therein do not involve the offer or sale of securities and do not require registration. It described “Covered Stablecoins” as “stablecoins that are designed to maintain a stable value relative to the United States Dollar, or “USD,” on a one-for-one basis, can be redeemed for USD on a one-for-one basis (i.e., one stablecoin to one USD), and are backed by assets held in a reserve that are considered low-risk and readily liquid with a USD-value that meets or exceeds the redemption value of the stablecoins in circulation.” In the staff’s view, “buyers do not purchase Covered Stablecoins with a reasonable expectation of profit derived from the entrepreneurial or managerial efforts of others” and the federal securities do not apply to instruments used to pay for consumer transactions.

Convertible Note Dealer Registration Matters – On May 22, 2025, the SEC filed stipulations of dismissal in four cases charging convertible debt lenders with failing to register as securities dealers. The SEC had charged the convertible debt lenders had acted as securities dealers by their debt to newly-issued equity securities of small cap companies and selling the securities into the market. The SEC’s filings stated that “in the exercise of its discretion and as a policy matter, the Commission believes” the dismissals of the matters “is appropriate,” but was careful to point out that its decision “does not necessarily reflect the Commission’s position on any other case.” SEC Commissioner Caroline Crenshaw issued a statement dissenting from the Commission’s decision in light of the Commission’s mostly successful litigation in similar prior cases, saying, “[i]t is astonishing that an agency tasked with enforcing the law has decided the law does not matter.”

Administrative Procedure

Coinbase v. SEC (3d Cir. Jan. 13, 2025) – In an appeal from the SEC’s one-paragraph denial of Coinbase’s petition for formal rulemaking on digital asset issues (instituted before the new administration), the Third Circuit held that the SEC’s denial was “insufficiently reasoned, and thus arbitrary and capricious.” The court remanded the matter to the SEC for a more complete explanation but declined “at this stage” to order the agency to institute rulemaking proceedings. While the court rejected Coinbase’s arguments that the SEC lacked discretion to regulate digital assets through enforcement actions and that there was a significant change in the underlying factual predicates of prior regulations, it agreed that the SEC’s explanations for rejecting the Coinbase petition were insufficiently reasoned: for example, the SEC did not adequately explain why its enforcement program provided workable guidance or why its other rulemaking priorities should take precedence.

Remedies

SEC v. Lemelson (1st Cir. May 27, 2025) – In a litigated matter, the First Circuit vacated the district court’s order denying the motion of the defendant, an investment adviser, to recover his attorney fees under the Equal Access to Justice Act. The jury had previously found the defendant liable on some but not all of the SEC’s charges under Exchange Act Section 10(b) and Rule 10b-5 and Advisers Act section 206(4) and Rule 206(4)-8. The SEC then sought remedies including civil penalties of over $1.4 million and disgorgement and prejudgment interest of over $850k, but the district court ordered only injunctive relief and a $160k penalty. The investment adviser moved to recover his attorney fees under the EAJA on the grounds that the SEC’s demand was substantially in excess of the final judgment. The court held that the EAJA required a comparison of the SEC “demand” to the “the judgment finally obtained,” and that the district court therefore erred in ruling based on a comparing the demand to the “scope of the initial claims [the SEC] brought.” The court outlined, but did not decide, several other issues of statutory interpretation for the district court to consider on remand.

Investment Advisers/Investment Companies

In the Matter of VCP Financial LLC, Rel. IA-6819 (Jan. 14, 2025) – In a settled matter instituted before the new administration, the SEC alleged that an investment adviser failed to manage a conflict of interest consistent with representations in the firm’s brochures. According to the SEC, the investment adviser disclosed that it had a financial conflict of interest when recommending investments offered by private funds managed by an affiliated entity under common ownership and control with the investment adviser. The investment adviser disclosed that it would manage the conflict of interest by, among other things, reasonably ensuring all clients’ accounts were invested in accordance with client approved investment policy statements and adopting policies and procedures to reasonably ensure that investments and recommendations were in the best interest of clients. Rather than follow these described procedures, the SEC claims that the investment adviser required its clients who invested in the funds managed by the affiliated manager to acknowledge that the investment adviser was disclaiming its role in their investment decision and that it was not acting as their investment adviser in connection with their investment in those funds. The SEC alleged these statements contradicted the investment adviser’s firm brochure and further could lead a client to believe incorrectly that the client had waived a nonwaivable cause of action against the investment adviser that was provided by state or federal law. Charges under Advisers Act Section 206(2). Remedies included cease-and-desist, censure, and a civil penalty of $100k.

In the Matter of The Vanguard Group, Inc., Rel. 33-11359, IA-6830, IC-35453 (Jan. 17, 2025) – In a settled matter instituted before the new administration, the SEC alleged that Vanguard made misleading statements to investors in the Vanguard Investor Target Retirement Funds (“TRFs”) about potential tax consequences. According to the SEC, in November 2020, Vanguard recommended lowering the minimum initial investment for its Institutional TRFs, leading to larger capital gains distributions and tax consequences for certain retail investors holding Investor TRFs in taxable accounts. According to the SEC, the Investor TRFs’ prospectuses were misleading because they failed to disclose that the redemptions by investors switching to Institutional TRFs for lower expense ratios could trigger increased capital gains in the funds, which under tax law must be passed through to shareholders. The SEC considered Vanguard’s cooperation and remedial acts including providing factual summaries, key documents, and augmenting its policies and procedures concerning fund initiatives and its compliance program. Specifically, Vanguard enhanced its fund prospectus disclosures to disclose the risk of movement across Vanguard products that may result from the launch of competing funds or the reduction of expenses in other products. Charges under Advisers Act Section 206(4) and Rules 206(4)-8 and 206(4)-7 thereunder. In addition, the SEC charged that Vanguard caused Vanguard Chester Funds, a trust, to violate Securities Act Section 17(a)(2) and Investment Company Act Section 34(b). Remedies include cease-and-desist, censure, disgorgement of $14.7m, prejudgment interest of $3.5m, and a civil penalty of $13.5m. These amounts are deemed satisfied upon Vanguard’s payment of more than $92.9 million in remediation under the settlement agreements in parallel actions by the New York State Attorney General and the North American Securities Administrators Association.

In the Matter of One Oak Capital Management, Rel. 34-102425, IA-6855 (Feb. 14, 2025) – In a settled matter instituted before the new administration, an investment adviser and one of its investment adviser representatives were charged with failing to disclose advisory fees to clients who converted their brokerage accounts at an unaffiliate broker dealer to advisory accounts at the investment adviser. The SEC alleged that the conversions to asset-based fee accounts substantially increased the costs to clients over the commission-based brokerage accounts. The accounts allegedly had little trading activity before or after the conversions and clients generally received no additional services or benefits in the advisory accounts. Charges under Advisers Act Sections 206(2) and 206(4), and Rule 206(4)-7, as well as Section 204 and Rule 204-3 (concerning Form ADV brochure delivery). Remedies included cease-and-desist, censure (firm), suspension (IAR), and penalties of $150k (firm) and $75k (IAR).

SEC v. Commonwealth Equity Services, LLC (1st Cir. April 1, 2025) – In a litigated matter, the First Circuit vacated and remanded the district court’s grant of summary judgment to the SEC and the resulting disgorgement award. The SEC had charged an investment adviser under Advisers Act Section 206(2) with failing to adequately disclose to investors its conflicts of interest related to the receipt of revenue sharing and other payments from mutual fund share classes in which its clients invested. The court held that the district court applied the wrong standard of materiality, and that the issue should have been presented to a jury. Under the correct standard, a reasonable jury could have concluded that the additional disclosures demanded by the SEC “would not have so significantly altered the total mix of information made available . . . that summary judgment was appropriate.”

In the Matter of Advance Capital Management, Rel. IC-35522 (April 7, 2025) – In a settled matter, the investment adviser to a mutual fund was charged with providing false and misleading answers in its application to liquidate the fund because it allegedly failed to disclose that the fund continued to be a claimant in civil class action settlements after the fund closed and that the firm had retained the proceeds of settlements as they came in, primarily to recover expenses incurred in winding down the fund. Charges under Investment Company Act Section 34(b). Remedies included cease-and-desist, disgorgement of $300k plus prejudgment interest, and a civil penalty of $200k.

In the Matter of Transamerica Retirement Advisors, Inc., Rel. IA-6876 (April 25, 2025) – In a settled matter, a registered investment adviser was charged with failing to disclose conflicts of interest created by paying incentive compensation to investment adviser representatives for referring participants in employer-sponsored retirement plans record kept by an affiliate to consider rolling over their plan assets into advisory accounts. According to the order, about 7,300 plan participants rolled over $1.2 billion into such accounts during the relevant period of June 1, 2017 to February 1, 2022. Charges under Advisers Act Sections 206(2) and 206(4), and Rule 206(4)-7. Remedies included cease-and-desist, censure, and a $2.9m penalty.

SEC v. Shang Chiueh and Upright Financial Corp., Lit. Rel. 26286 (April 15, 2025) – In a litigated matter, the SEC charged an investment adviser and his firm with misconduct for investing more than 25 percent of the assets of a firm-managed mutual fund in a single company over a period of nearly three years, resulting in over $1.6 million in losses. This was the second action against the defendants, who in 2021 settled charges that they violated their own fund’s policies by investing more than 25 percent of its assets in one industry from 2017 to 2020, committing fraud and breaching fiduciary duties. Despite being ordered to cease such conduct in the November 2021 settlements, the defendants allegedly continued this misconduct by violating the Investment Company Act’s 25 percent industry concentration limit and making representations about this concentration to the firm’s trustees. Charges under Sections 17(a)(1), 17(a)(2), and 17(a)(3) of the Securities Act, Section 10(b) of the Exchange Act and Rules 10b-5(a) and 10b-5(c) thereunder, Sections 206(1), 206(2), and 206(4) of the Investment Advisers Act, and Section 15(c) of the Investment Company Act.

SEC v. Derek Taller, Lit. Rel. 26300 (May 1, 2025) – In a litigated action, the SEC charged an investment adviser with fraud by allegedly misleading prospective investors that an investment fund was overseen by an independent board and would be audited. The SEC also alleges that the adviser invested in a startup and directed his funds to lend the startup a combined $2 million without disclosing his interest. The SEC alleges that these loans were a joint arrangement, and that since one fund was a business development company, the other fund needed an SEC order to proceed and the adviser never obtained it. Additionally, the adviser allegedly directed one of the funds to loan more than $21 million to the startup and its affiliates, without disclosing the conflict of interest. The SEC also alleges the investment adviser misappropriated funds. Charges under Securities Act Section 17(a), Exchange Act Section 10(b) and Rule 10b-5 thereunder, Advisers Act Sections 206(1) and 206(2), and Investment Company Act Section 57(a)(4) and Rule 17d-1 thereunder.

In the Matter of Agentis Capital Advisors, Rel. 103154 (May 30, 2025) – In a settled matter, a consulting firm was charged with providing municipal advisory services when it was not registered as a municipal advisor. The Commission alleged that the firm had advised six private sector entities engaged in public-private partnerships in connection with municipal security issuances. The activities included providing detailed analysis of debt financing options, advice on the structure, timing and terms of the municipal securities offerings, coordinating the credit rating process, and soliciting others, including underwriters. The order notes that the registration requirement applies when providing advice to or on behalf of a municipal entity or an “obligated person” who is committed to support the payment of all or part of the municipal securities obligations. Charges under Exchange Act Section 15B(a)(1)(B). Remedies included censure, cease-and-desist, and a $100k civil penalty.

Broker-Dealers

In the Matter of BMO Capital Markets Corp., Rel. 34-102160 (Jan. 13, 2025) – In a settled matter instituted before the new administration, a registered broker-dealer and investment adviser firm was charged with failure to supervise certain registered representatives. According to the SEC, certain representatives sold Agency Collateralized Mortgage Obligation Bonds using manipulated collateral information from a third-party provider, making them appear to be backed by higher-interest mortgages. This misleading information was included in sales communications. According to the SEC, over $3 billion worth of misleading bonds were sold during this period. The SEC alleged that the broker-dealer failed to implement adequate supervisory procedures to prevent and detect these violations. Charges under Securities Act Section 17(a)(3) and Exchange Act Section 15(b)(4)(E). Remedies included disgorgement of about $19.4m, prejudgment interest of about $2.2m, a civil penalty of $19m, and a censure.

In the Matter of Velox Clearing, Rel. 34-102769 (April 4, 2025) – In a settled matter, a clearing broker-dealer was charged with failing to reasonably design and implement anti-money laundering policies and procedures to address the risks associated with its business of clearing for foreign broker-dealers, and with failing to file over 200 suspicious activity reports. Charges under Exchange Act section 17(a) and rule 17a-8. Remedies included cease-and-desist, censure, and a civil penalty of $500k.

Issuer Disclosure/Audit and Accounting

In the Matter of Vincent Kennedy McMahon, Rel. 34-102143 (Jan. 10, 2025) – In a settled matter instituted before the new administration, former Executive Chairman and CEO of WWE Vincent McMahon was charged with failing to disclose that he signed two settlement agreements individually and purportedly on behalf of WWE relating to allegations of improper conduct, but he did not disclose the settlements to WWE’s Board of Directors, legal department, or its auditor. The SEC alleges McMahon’s failure to disclose the agreements caused material misstatements in WWE’s 2018 and 2021 SEC filings. Charges under Exchange Act Sections 13(a), 13(b)(2)(A), and 13(b)(5) and Rules 12b-20, 13a-1, 13a-13 ,13b2-1 and 13b2-2(a)(1), as well Section 304 of the Sarbanes-Oxley Act. Remedies included cease-and-desist, a civil penalty of $400k, and Section 204 reimbursement of WWE of about $1.3m.

In the Matter of Presto Automation Inc., Rel. 33-11352, 34-102177 (Jan. 14, 2025) – In a settled matter instituted before the new administration, a restaurant technology company was charged with making false statements about its AI product in SEC filings. According to the SEC, the restaurant technology company misled investors about the technology by failing to disclose use of third-party AI for its product. After beginning to use its own AI, human intervention was still needed for most orders although the company claimed the AI product eliminated the need for human intervention per the SEC. According to the order, the SEC did not impose a civil penalty against Presto based on the company’s cooperation during the staff’s investigation and remedial efforts. Charges under Section 17(a)(2) of the Securities Act and Section 13(a) of the Exchange Act and Rules 13a-11 and 13a-15(a) thereunder. Remedies include cease-and-desist.

In the Matter of Soichiro “Michael” Moro, Rel. 33-11358 (Jan. 17, 2025) – In a settled matter instituted before the new administration, the CEO of an unregistered company was charged with engaging in negligent conduct when his company offered investors yield in return for the investors tendering bitcoin or other crypto assets to it. The SEC’s order alleges that the company commingled investors’ crypto assets and lent those assets out to institutional borrowers, generating revenue by charging interest to those borrowers. The SEC alleges that when the company suffered a significant financial loss due to a large borrower’s default, the CEO misleadingly downplayed the impact of that default. The company ultimately suspended withdrawals due to the amount of redemption requests that it could not satisfy and filed for bankruptcy in January 2023. Charges under Securities Act Section 17(a)(3). Remedies included cease-and-desist and a civil penalty of $500k.

In the Matter of Allarity Therapeutics, Rel. 33-11367, 34-102646 (Mar. 12, 2025) – In a settled matter, a pharmaceutical company was charged with failing to disclose adverse comments from the FDA concerning its application for approval of its flagship cancer drug candidate. In addition, the SEC charged that the company filed to disclose that it had resubmitted its drug application without conducting a new trial, as recommended by the FDA. Charges under Securities Act Sections 17(a)(2) and 17(a)(3), and Exchange Act Section 13(a) and Rule 13a-11. Remedies included cease-and-desist and a $2.9m civil penalty.

SEC v. Glen Leibowitz, Lit. Rel. 26271 (Mar. 17, 2025) – In a litigated matter, the SEC charged a CPA and former financial officer of a publicly-traded company with allegedly lying to the company’s auditor and falsifying the company’s accounting records. The SEC alleged that the defendant issued a round-trip transfer of $4.2 million from an affiliated entity to the company to boost its publicly reported year-end 2019 cash balance before sending that money back to the affiliated entity in early 2020. The accountant also allegedly directed his staff to create journal entries that mischaracterized the round-trip transaction, first as a repayment of debt and later as a short-term loan, and when the transfer was brought the company’s board’s attention, the defendant allegedly directed the staff to create another journal entry effectively reversing the transaction. Finally, the defendant allegedly misrepresented and omitted material facts about the round-trip transfer in written and oral statements made to the company’s auditors. Charges under Exchange Act Section 13(b)(5) and Rules 13b2-1 and 13b2-2 thereunder.

In the Matter of Emergent BioSolutions, Inc., Rel. 33-11371 (April 7, 2025) – In a settled matter, a publicly-traded global life sciences company that manufactured COVID-19 vaccines was charged with making materially misleading statements about its abilities to produce vaccines from April 2020 to April 2021 while omitting the company’s state of readiness to implement the production process. According to the SEC, in 2020, the company entered into agreements with two pharmaceutical companies to produce their vaccines. As part of these agreements, the U.S. government required the life sciences company to maintain the cleanliness and readiness of its facilities, equipment, and personnel. The company then allegedly made a series of public statements projecting confidence about its manufacturing capabilities, including on investor calls, industry conferences, and TV. While making these statements, however, the company was warned about issues in its facilities’ ability to support commercial-scale manufacturing, and these issues were uncovered by investigations by the company’s personnel, two federal agencies, and investigators from the pharmaceutical companies. Internal emails allegedly showed executives of the company found the FDA’s inspection report “deeply concerning” despite the fact that the company was telling the public it was ready for commercial manufacturing. The company ultimately entered into an agreement with the FDA to halt production in April 2021. Charges under Securities Act Section 17(a)(2). Remedies include a cease-and-desist and a $1.5m civil penalty.

Securities Offerings

SEC v. Palafox, Lit. Rel. 26295 (April 29, 2025) – In a litigated matter, the SEC charged an individual with orchestrating an alleged fraudulent scheme that raised approximately $198 million from investors and misappropriated more than $57 million of investor funds. The defendant’s company claimed to be a crypto asset and foreign exchange company that sold “membership” packages with guaranteed high returns and offered members multi-level-marketing-like referral incentives to recruit new investors. The defendant allegedly individually used the misappropriated funds to buy luxury cars and clothing, and to fund other personal expenses. Additionally, the defendant allegedly used the remaining investor funds to pay other investors their promised returns in a sort of Ponzi scheme until its collapse in 2021. The defendant was also charged in parallel criminal proceedings by the U.S. Attorney’s Office for the Eastern District of Virginia. Charges under Securities Act Sections 5(a), 5(c) and 17(a) and Exchange Act Section 10(b) and Rule 10b-5.

SEC v. Loral L. Langemeier and Live Out Loud, Inc., Lit. Rel. 26303 (May 7, 2025) – In a litigated action, the USDC for the District of Nevada entered a final judgment against a self-described “money expert” and her company. The SEC alleged that the individual held herself out as a financial expert and through her company developed a roster of clients consisting of small business owners and retirees. The individual allegedly instructed her clients to liquidate conservative investments, transfer their funds to self-directed IRAs, and purchase securities in unregistered oil and gas securities offerings. The SEC further alleged that the individual received undisclosed sales commissions when her clients purchased the oil and gas securities and that she held undisclosed equity interests in certain issuers of the securities. The court previously granted summary judgment to the SEC, finding that the individual and her company violated Securities Act Sections 5(a) and (c), Exchange Act Section 15(a), and Advisers Act Section 206(2). The court ordered disgorgement of $404,807, prejudgment interest of $121,302.28, a civil penalty of $50k, and permanently enjoined the individual and her company from violations of the charged provisions.

Insider Trading

SEC v. Eamma Safi and Zhi Ge a/k/a Josh Ge, Lit. Rel. 26268 (Mar. 14, 2025) – In a litigated matter, the SEC charged a German national and a Singaporean national with orchestrating an international insider trading scheme that generated over $17 million in illicit profits in advance of market-moving announcements from 2017 to 2024. The tipper allegedly obtained material nonpublic information from corporate insiders and investment bankers, and tipped her co-defendant and another individual recruited into the scheme. Thereafter, all three traded profitably in advance of ten corporate announcements based on information transmitted through coded and “disappearing” messages about the trading. The defendants were also charged in parallel criminal proceedings by the U.S. Attorney’s Office for the District of Massachusetts. Charges under Exchange Act Section 10(b) and Rule 10b-5.

SEC v. Kliushin, Lit. Rel. 26318 (May 30 2025) – In a litigated matter, the district court (D. Mass) granted the SEC’s unopposed summary judgment motion on insider trading charges. The complaint had charged the individual defendant, a Russian citizen, and four others with hacking into the systems of two U.S. companies that assist publicly-traded companies in preparing and filing reports with the SEC, and trading on the nonpublic information so obtained. The defendant had been convicted in parallel criminal proceedings, and his sentence was later commuted as part of a prisoner exchange among several countries. The final judgment in the civil matter includes permanent injunctive relief, disgorgement, and prejudgment interest which would be deemed satisfied by payment of the forfeiture and restitution orders in the criminal matter.

(NSEU 25-02)

This update is for information purposes only and should not be construed as legal advice on any specific facts or circumstances. Under the Rules of the Supreme Judicial Court of Massachusetts, this material may be considered as advertising.