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September 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.

New SEC Enforcement Director

As of September 2, the SEC has a new Enforcement Director, Judge Margaret “Meg” Ryan. Judge Ryan was a senior judge of the U.S. Court of Appeals for the Armed Forces. She also has been a lecturer on military law and justice at Harvard University Law School. She was a visiting professor at Notre Dame Law School and lecturer at The George Washington University Law School. Before her tenure as judge, she was a partner at two law firms, Wiley Rein & Fielding and Bartlit Beck Herman Palenchar & Scott, and she previously served as a law clerk to Justice Clarence Thomas and to Fourth Circuit Judge J. Michael Luttig. In announcing her appointment, SEC Chairman Paul Atkins said that Judge Ryan “will lead the Division guided by Congress’ original intent: enforcing the securities laws, particularly as they relate to fraud and manipulation.”

Remedies

Powell v. SEC, No. 24-cv-1899 (9th Cir. Aug. 6, 2025) – The Ninth Circuit rejected a challenge to the SEC’s “no deny” rule, Rule 202.5(e), that parties who settle enforcement actions may not publicly deny the allegations against them. Noting that defendants are not obligated to settle, the court found that there was no basis to conclude that, as to all or a substantial number of SEC defendants, the agreement to abide by Rule 202.5(e) is not “voluntary, knowing[,] and intelligent” as Supreme Court precedent would require in order to invalidate a waiver of First Amendment rights. Because this was a challenge to the rule’s facial validity, the panel indicated that its ruling was without prejudice to future challenges in individual cases. The court also rejected the petitioners’ contention that the rule violated the Administrative Procedure Act (APA), holding that the SEC’s enforcement powers provided sufficient authority to adopt the rule, and that because it is a statement of policy, enforced only if a defendant enters into a no-deny agreement, formal notice-and-comment rulemaking was not required by the APA. 

Investment Advisers/Investment Companies

In the Matter of Munakata Associates LLC, Rel. IA-6901 (Aug. 1, 2025) – In a settled matter, a registered investment adviser was charged with violating the Advisers Act Custody Rule when the firm’s principal acted as trustee, had power of attorney, or otherwise was authorized to withdraw assets from a number of client accounts. Because this arrangement meant the firm had custody of those assets, it was required to comply with the Custody Rule’s requirement of having a surprise examination by an independent auditor, which the firm allegedly failed to arrange. Charges under Advisers Act Section 206(4) and Rule 206(4)-2(a)(4). Remedies included cease-and-desist and a $50k penalty.

In the Matter of Sourcerock Group, LLC, Rel. 34-103629 (Aug. 4, 2025) – In a settled matter, the SEC charged a Denver-based registered investment adviser with violating Rule 105 of Regulation M of the Exchange Act. According to the SEC’s order, the investment adviser purchased an equity security for six private fund clients in a covered public offering after selling short the same security for those clients during Rule 105’s restricted period without qualifying for an exception. The adviser agreed to cease and desist from committing or causing violations of Rule 105 and to pay a $250,000 civil penalty.

SEC v. Moretz, Lit. Rel. 26372 (Aug. 12, 2025) – In the settlement of a litigated matter, the SEC had charged a registered representative and investment adviser with fraudulently selling high-risk debt securities known as L Bonds. The SEC alleged that the adviser deceived multiple retail investors by making repeated misrepresentations to them regarding the L Bonds and further alleged that the adviser repeatedly misrepresented L Bonds to investors as “guaranteed” when he knew that the L Bonds he offered and sold to investors were not guaranteed. Charges under Securities Act Section 17(a) and Exchange Act Section 10(b) and Rule 10b-5 thereunder. Remedies include $4,374.91 in disgorgement, $1,404.68 in prejudgment interest, a $35k civil penalty, and barring the adviser from acting as, or associating with, a broker, dealer, or investment adviser for one year.

SEC v. Chirico, Press Release No. 2025-107 (Aug. 14, 2025) – In a litigated matter, the SEC charged a private fund portfolio manager for directing a fund to invest in a business without disclosing that he had a significant personal investment in the company, orchestrating the buyout of his own position with the fund’s investment, continuing to receive loan repayment from the company’s founder, and ignoring purported red flag of fraud by the company. The company and its founder were separately charged in a parallel criminal action by the US Attorney’s Office. Charges under Advisers Act Sections 206(1) and (2). The SEC seeks injunctive relief and civil penalties, disgorgement of ill-gotten gains, and an industry bar.

In the Matter of TZP Management Associates, LLC, Rel. IA-6908 (Aug. 15, 2025) – In a settled matter, the SEC charged a registered investment adviser with engaging in two fee offset calculation practices that created conflicts of interest that were not adequately disclosed to managed funds or limited partners and that were inconsistent with their limited partnership agreements. According to the SEC, the firm did not include interest collected on transaction fees in calculating contractually required offsets, and based the offset on a reduced allocation of transaction fees related to one portfolio company in which several LP funds invested. Charges under Advisers Act Section 206(2). Remedies included cease-and-desist, censure, disgorgement of approximately $500k plus interest, and a $175k penalty.

SEC v. Burleson, Lit. Rel. 26385 (Aug. 26, 2025) – In the settlement of a litigated matter, the SEC obtained a final judgment against the managing partner of a formerly SEC-registered investment advisory firm. The SEC alleged a cherry-picking scheme, whereby the SEC claims that the managing partner used his firm’s omnibus trading account to disproportionately allocate profitable option trades to his personal account, while disproportionately allocating unprofitable option trades to his clients’ accounts. The managing partner consented to a final judgment (i) permanently enjoining him from violating Exchange Act Section 10(b) and Rule 10b-5, Securities Act Section 17(a), and Investment Advisers Act Sections 206(1) and 206(2); (ii) ordering disgorgement of more than $1.8m, plus prejudgment interest; and (iii) ordering a civil penalty of more than $230k. A parallel administrative settlement also imposes a five-year bar from association with any broker, dealer, investment advisor, municipal securities dealer, municipal advisor, transfer agent, or nationally recognized statistical rating organization.

In the Matter of Empower Advisory Group, LLC, et al., Rel. 34-103809, IA-6911 (Aug. 29, 2025) – In a settled matter, the SEC alleged that an investment advisory firm failed to adequately disclose conflicts of interest and made misleading statements when its investment adviser representatives advised retail investors to enroll in a managed account service owned by a related entity. The managed account service was a fee-based advisory service that provides retirement plan participants with ongoing discretionary portfolio management of their retirement accounts. The SEC alleged that the advisory firm employed retirement plan advisors who were both registered representatives associated with the managed account service and investment adviser representatives with the advisory firm and that some retirement plan advisers were financially incentivized with bonuses and merit raises to enroll clients in the managed account service, without adequately disclosing the conflict of interest created by those incentives. Charges under Advisers Act Section 206(2) and Regulation BI. Remedies included cease-and-desist orders, approximately $4m in disgorgement plus prejudgment interest, and a $750k civil penalty.

In the Matter of Vanguard Advisers, Inc., Rel. IA-6912 (Aug. 29, 2025) – In a settled matter, the SEC alleged that a registered investment adviser failed to adequately disclose conflicts of interest when recommending that prospective and existing clients enroll in the firm’s managed account program. According to the SEC, the firm used a compensation system that financially incentivized advisers, through bonuses, salary increases, and promotions, to recommend that clients enroll in the program. The SEC alleged that the conflict of interest was not adequately disclosed because the firm’s disclosures contained contradictory statements about the adviser’s receipt of incentive compensation. The SEC also alleged that the firm’s website made misleading statements that advisers received “no outside incentives” to recommend certain products. Charges under Investment Advisers Act Sections 206(2) and 206(4) and Rule 206(4)-7. Remedies included a cease-and-desist order and a $19.5m civil penalty.

Broker-Dealers

In the Matter of MUFG Securities EMEA plc, Rel. 34-103646 (Aug. 6, 2025) – In a settled matter, the SEC charged a United Kingdom–based and SEC-registered security-based swap dealer (SBSD) for repeatedly violating SBSD capital recordkeeping, financial reporting, compliance, internal supervision, and internal risk management requirements of the Exchange Act and rules thereunder. According to the SEC’s order, when the firm conditionally registered as an SBSD, it elected to follow a substituted compliance order applicable to certain UK-regulated firms but failed to meet its conditions, requiring direct compliance with the Exchange Act provisions. The firm allegedly failed to compute its net capital in accordance with the Exchange Act, maintain required records, make certain financial disclosures public, and submit an annual compliance report identifying areas for improvement and material non-compliance matters. The firm also allegedly failed to address compliance deficiencies, implement adequate written policies and procedures, obtain necessary information to perform required functions, and maintain a robust risk management system. Charges under Exchange Act: Section 15F(f) and Rules 18a-5(a)(9), 18a-7(a)(1), 18a-7(b) and 18a-7(c), (SBSD capital recordkeeping and financial reporting); Section 15F(k) and Rules 15Fk-1(b)(2)(ii)-(iii) and 15Fk1(c)(2)(i)(C)-(D), (SBSD compliance); 15F(h), 15F(j)(2) and 15F(j)(4)(A) and Rules 15Fh3(h)(1)-(2) and 15Fh-3(h)(4), (SBSD internal supervision and internal risk management); and Rule 15Fb2-1 (SBSD registration application completion). Remedies included a $9.8m civil penalty and an undertaking to conduct a comprehensive review of its SBSD compliance program.

Market Manipulation

SEC v. Cole, Lit. Rel. 26371 (Aug. 11, 2025) – In a settled matter, the SEC charged a former trader with placing fake or “spoof” orders to manipulate the prices of thinly traded options and then executing different orders at the resulting manipulated prices. The alleged scheme included placing multiple spoof orders across neighboring options series. To facilitate desired executions across these series, the former trader allegedly used the complex order book to place multi-leg immediate-or-cancel orders. After his immediate-or-cancel orders were executed, the former trader then cancelled his spoof orders. The SEC’s complaint further alleges that the former trader took steps to conceal his spoofing scheme from the firm by providing false and misleading responses to questions posed about his trading. The former trader was ultimately fired by his firm. Charges under Securities Act Section 17(a)(1) and (3), Exchange Act Section 10(b) and Rule 10b-5(a) and (c), and Exchange Act Section 9(a)(2). Remedies include a permanent injunction, disgorgement of $234,803 plus prejudgment interest, a civil penalty of $70,441, and a five-year bar from trading in brokerage accounts.

U.S. v. Smith, Nos. 23-2840, 23-2846, 23-2849, (7th Cir. Aug. 20, 2025) – The Seventh Circuit affirmed the convictions of three former JP Morgan commodities traders for “spoofing” in the precious metals futures market, in violation of federal price manipulation, wire fraud, commodities fraud, and anti-spoofing statutes. The defendants principally argued that spoofing – publicizing orders that are not intended to be filled, in order to move the market price of genuine opposite-side orders – is not fraudulent because it only misrepresents market supply and demand, and not the price or other characteristics of the futures contract itself. The Seventh Circuit panel rejected this argument based on a recent U.S. Supreme Court decision holding that the wire fraud statute is “agnostic about economic loss” and requires only that a defendant “use[] a material misstatement to trick a victim into a contract that requires handing over her money or property.” Kousisis v. U.S., 145 S.Ct. 1382, 1388, 1391 (2025). The panel also rejected the defendants’ argument that the fraud statutes are unconstitutionally vague, and arguments regarding the sufficiency of the evidence, admission of lay expert testimony, and jury instructions.

Issuer Reporting/Audit and Accounting

SEC v. Patel, No. 24-cv-6405 (E.D.N.Y. July 16, 2025) – In a litigated matter, a judge in the E.D.N.Y clarified the standard for “scheme liability” in cases where there was also an alleged misstatement, declining to dismiss a majority of the SEC’s claims against former executives of the now-defunct online pharmacy Medly, but dismissing all claims related to “scheme” liability. Analyzing Supreme Court and Second Circuit authorities on the distinction between misstatement liability and scheme liability, the court held that the scheme liability requires something more than reiteration of the misstatement claim. The court thus ruled that the SEC overstepped in its scheme liability claims against the former CEO because dissemination of one’s own statements is not sufficiently distinct from the direct misstatements themselves.

SEC v. Oyebola, et al., Lit. Rel. 26373 (Aug. 13, 2025) – In the settlement of a litigated matter, the SEC had alleged that an accountant and his PCAOB-registered accounting firm deliberately failed to take action after learning that a businessman and three U.S. companies that he controlled created multiple fake audit reports and included them in SEC filings as though they were issued by the accounting firm. The accountant allegedly made material misstatements to one of the entities’ then-auditor, and the accountant and his firm helped the businessman conceal that the audit reports were fake, resulting in the auditor, investors, and regulators relying upon the misstatements and fake audit reports to their detriment. According to the SEC’s complaint, the accountant and his firm’s assistance enabled the businessman and his entities to carry out a multi-year scheme to inflate financial performance metrics and defraud investors worldwide. Charges under Securities Act Section 17(a) and Exchange Act Section 10(b) and Rule 10b-5 thereunder. Remedies include permanent injunctions, a $100k civil penalty, and a Rule 102(e) suspension from appearing and practicing before the SEC as accountants with a right to apply for reinstatement after six years.

In re FirstEnergy Corp. Securities Litigation, Nos. 23-3940/3943/3945/3946/3947 (6th Cir. Aug. 13, 2025) – In a securities class action, the Sixth Circuit sided with other circuits that have adopted a narrow view when the Supreme Court’s Affiliated Ute presumption of reliance in omissions-based claims applies. The Sixth Circuit held that (1) the Affiliated Ute presumption applies in a case of mixed omission and misrepresentation claims only if the case is based primarily on omissions, and (2) that a mixed case is based primarily on omissions where (a) the omissions are not simply the inverse of a misrepresentation; (b) reliance is not practically possible to prove by pointing to a misrepresentation; (c) the primary thrust of the claim does not involve misrepresentations; and (d) the omissions do have impact standing alone from the misrepresentations. In misrepresentation cases, the fraud-on-the-market presumption of the Supreme Court’s Basic decision can still apply. The court went on to find that this case was not primarily omissions-based and vacated the district court’s class certification order to the extent that the district court applied the Affiliated Ute presumption.

Securities Offerings

SEC v. Barry, No.23-2699 (9th Cir. Aug. 11, 2025) – In a litigated matter, the SEC had charged three sales agents of Pacific West Capital Group (PWCG) with selling unregistered securities in the form of fractional interests in life insurance settlements, and with acting as unregistered brokers or dealers. The court held that these PWCG-created interests were “investment contracts” subject to Securities Act registration requirements because purchasers depended on the efforts of PWCG to profit through PWCG’s selection of policies, its determination of prices to be paid for those policies, and its premium reserve system to maintain the value of the investors’ fractional interests. The court rejected the defendants’ argument that the interests were exempt from registration under the intrastate offering exemption, though most sales were to California residents, finding that the separate sales met four of the five factors for determining whether sales were part of an integrated offering. The defendants were found liable for non-scienter-based charges for selling unregistered securities in violation of Securities Act Section 5. The Ninth Circuit affirmed the remedies ordered by the district court: an injunction against one defendant based on a finding that he failed to recognize the wrongfulness of his actions, disgorgement of one-third of each defendant’s commission compensation, and a penalty of $15k, double the then-applicable maximum first-tier per-violation penalty (which could also have included an amount up to their total pecuniary gains).

SEC v. Mufareh, Lit. Rel. 26374 (Aug. 15, 2025) – In the settlement of a litigated matter, the SEC charged an individual and his company with orchestrating a fraudulent and unregistered offering of securities in a business that was structured as a pyramid scheme and with making misrepresentations about the feasibility and likely profitability of the business. The SEC alleged that the individual and his company fraudulently raised more than $108 million from more than 800,000 investors by falsely claiming, among other things, to be developing a suite of online computer applications that used AI. The SEC also alleged that the individual and his company sold investors positions in a multi-level marketing arrangement and promised passive income from subscription fees paid by later investors for those computer applications. The company, however, allegedly had not yet launched any product for a fee and had not made a commission payment to any investor. Charges under Securities Act Sections 5(a) and (c), 17(a)(1)-(a)(3), Exchange Act Section 10(b) and Rules 10b-5(a)-(c) thereunder. Remedies include permanent injunctions, $26.2m disgorgement plus prejudgment interest against the company, separate $4m civil penalties against both the company and the individual, and an eight-year officer-and-director bar for the individual.

SEC v. Wear, Press Release No. 2025-107 (Aug. 14, 2025) – In a litigated matter, the SEC charged a founder and two companies he controlled with operating two related Ponzi-like schemes that raised more than $275 million from more than 250 investors. The SEC alleges that the founder and his companies raised more than $165 million, primarily from retail investors including veterans, by offering and selling investment contracts in which investors supposedly purchased water machines that would generate revenues. In reality, the SEC alleges, thousands of the water machines did not exist or had already been sold to other investors. The complaint further alleges that in a second, related scheme, the founder and his companies raised more than $110 million from institutional investors through the issuance of notes purportedly secured by water machines. The founder and his companies also allegedly misappropriated over $60 million of investor funds to make Ponzi-like payments to other investors and fund the founder’s other business ventures. Charges under Securities Act Section 17(a) and Exchange Act Section 10(b) and Rule 10b-5 thereunder. The SEC seeks injunctive relief and civil penalties, disgorgement of ill-gotten gains, and an officer-and-director bar against the founder.

SEC v. Sanberg, Lit. Rel. 26382 (Aug. 21, 2025) – In a litigated matter, the SEC charged the co-founder of a company with engaging in a scheme to create the appearance of tens of millions of dollars in revenues from customers for reforestation services, whereby customers interested in lowering their carbon footprint paid Aspiration Partners, Inc. to plant trees. The co-founder allegedly recruited friends and other associates into reforestation deals and presented them as bona fide customers, while in reality, none of these purported customers had committed to pay for any services. The complaint alleges that Sanberg used the inflated revenue figures to raise over $300 million from investors and receive millions in compensation. Charges under Securities Act Section 17(a) and Exchange Act Section 10(b) and Rule 10b-5. The SEC seeks permanent injunctions, including a conduct-based injunction, disgorgement with prejudgment interest, civil penalties, and an officer-and-director bar.

Insider Trading

SEC v. Tavlin, et al., Lit. Rel. 26367 (Aug. 6, 2025) – In settlement of a litigated matter, the SEC obtained a final judgment against the former executive of Mazor Robotics Ltd., who was previously charged with insider trading in advance of Medtronic PLC’s announcement that it would acquire Mazor. According to the SEC’s complaint, while involved in acquisition discussions, the executive tipped material nonpublic information about the pending deal to a close friend, who then tipped off a second individual. The two allegedly purchased Mazor securities and realized approximately $500,000 in combined trading profits, after which the executive received a $25,000 kickback. The former executive consented to a final judgment permanently enjoining him from violating Exchange Act Section 10(b) and Rule 10b-5 thereunder, imposing an officer-and-director bar, and ordering disgorgement of $25k, plus prejudgment interest.

SEC v. Yedid, et al., Lit. Rel. 26376 (Aug. 18, 2025) – In a bifurcated settled matter, the SEC charged a former managing director of an investor relations consulting firm and two tippees with trading in biotech and pharma companies based on nonpublic information about drug test results, pending acquisitions, and other financial and regulatory information. Charges under Exchange Act Section 10(b) and Rule 10b-5. All three defendants consented to the entry of an order permanently enjoining them from violating the charged provisions and authorizing the court to determine disgorgement, prejudgment interest, and civil money penalties. The former managing director also consented to broker-dealer association and officer-and-director bars.

SEC v. Cranmer, et al., Lit. Rel. 26378 (Aug. 18, 2025) – In a litigated matter, the SEC charged a former executive of a subsidiary of Kaman Corp. and two alleged tippees with trading on material nonpublic information obtained in the ordinary course of his work regarding an offer to acquire Kaman by Arcline Investment Management, L.P. Charges under Exchange Act Section 10(b) and Rule 10b-5. The complaint seeks remedies, including injunctions, disgorgement and civil penalties, and an officer-and-director bar against the former executive.

SEC v. Chen, Lit. Rel. 26380 (Aug. 18, 2025) – In a litigated matter, two former employees of a company that assists clients with public filings on the SEC’s EDGAR system were charged with trading in advance of clients’ announcements of major corporate events on at least 13 occasions, in violation of their employer’s prohibition of such trading. Charges under Exchange Act Sections 10(b) and 14(e) and Rules 10b-5 and 14e-3(a). The complaint seeks remedies, including injunctions, disgorgement, and civil penalties.

In the Matter of David J. Minson, Rel. 34-103764 (Aug. 22, 2025) – In a settled matter, an individual trader was charged with trading on material nonpublic information in advance of the announcement of the acquisition of Blue Apron Holdings, Inc. by Wonder Group, Inc. The individual was charged with misappropriating information shared in confidence by a Blue Apron executive with whom he has a “close personal relationship and a history, pattern and practice of sharing confidences.” Charges under Exchange Act Sections 10(b) and 14(e) and Rules 10b-5 and 14e-3(a). Remedies included cease-and-desist, disgorgement of approximately $550k plus interest, and penalties of approximately $550k.

SEC v. Haghighat, et al., Lit. Rel. 26383 (Aug. 22, 2025) - In a litigated matter, the SEC charged a former director of biopharma company Chinook Therapies, Inc., two of his family members, and two of his friends with trading on material nonpublic information in advance of the announcement of the acquisition of Chinook by Novartis AG. Charges under Exchange Act Section 10(b) and Rule 10b-5. The complaint seeks remedies, including injunctions, disgorgement and civil penalties, and an officer-and-director bar against the former director.

(NSEU 25-05)

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.