Archive

March 14, 2018

The SEC charged Silicon Valley-based private company Theranos Inc., its founder and CEO Elizabeth Holmes, and its former President Ramesh “Sunny” Balwani with raising more than $700 million from investors through an elaborate, years-long fraud in which they exaggerated or made false statements about the company’s technology, business, and financial performance.  Theranos and Holmes have agreed to resolve the charges against them.  Importantly, in addition to a penalty, Holmes has agreed to give up majority voting control over the company, as well as to a reduction of her equity which, combined with shares she previously returned, materially reduces her equity stake. The complaints allege that Theranos, Holmes, and Balwani made numerous false and misleading statements in investor presentations, product demonstrations, and media articles by which they deceived investors into believing that its key product – a portable blood analyzer – could conduct comprehensive blood tests from finger drops of blood, revolutionizing the blood testing industry.  In truth, according to the SEC’s complaint, Theranos’ proprietary analyzer could complete only a small number of tests, and the company conducted the vast majority of patient tests on modified and industry-standard commercial analyzers manufactured by others. Theranos and Holmes have agreed to settle the fraud charges levied against them.  Holmes agreed to pay a $500,000 penalty, be barred from serving as an officer or director of a public company for 10 years, return the remaining 18.9 million shares that she obtained during the fraud, and relinquish her voting control of Theranos by converting her super-majority Theranos Class B Common shares to Class A Common shares. SEC

March 9, 2018

The SEC has charged Brian Robert Sodi a penny stock promoter based in Florida with defrauding investors in a pair of gold mining stocks by secretly amassing shares before touting the companies publicly.  He allegedly sold the bulk of his stock and reaped more than $1.1 million in illicit profits after his promotions caused the share prices and trading volumes to skyrocket. The SEC’s complaint alleges that Sodi, known in penny stock circles as “Mailman” for his pervasive participation in direct-mailed penny stock promotions, committed a fraud known as scalping.  He allegedly disseminated promotions recommending the purchase of the stocks in Southern USA Resources Inc. and Goff Corporation without disclosing he owned shares and planned to sell them through a foreign bank.  Sodi also allegedly hid from investors that he was being paid in stock for one of these promotions.  According to the SEC’s complaint, Sodi proceeded to unload hundreds of thousands of his own shares to the detriment of other investors who bought in to the hype. SEC

March 9, 2018

The SEC barred Robert Ritch the president of a penny stock company from ever again serving as a public company officer or director after he was caught making false and misleading statements about the company to investors in an effort to increase demand for the stock. The SEC confronted him quickly and the misstatements were removed from the Internet and social media before any dramatic spike in stock price typically seen in pump-and-dump schemes could occur.  Following such spikes, fraudsters dump their shares and stop hyping the stock, the price typically falls, and investors lose their money. Without admitting or denying the SEC’s findings, Ritch consented to a cease-and-desist order, officer-and-director bar, penny stock bar, and $50,000 penalty.  The SEC also has suspended trading in MNZO. SEC

March 8, 2018

The SEC charged two investment adviser subsidiaries of Voya Holdings Inc. with failing to disclose conflicts of interest and making misleading disclosures in connection with their practice of recalling securities on loan so their affiliates could receive tax benefits. The advisers agreed to pay approximately $3.6 million to settle the charges, including more than $2 million directly to the affected mutual funds for the benefit of their investors. According to the SEC’s order instituting a settled administrative proceeding, Voya Investments LLC and Directed Services LLC served as investment advisers to certain insurance-dedicated mutual funds offered to annuity and life insurance customers through insurance companies affiliated with the advisers.  In order to generate additional income for the mutual funds and their investors, the Voya advisers lent securities held by the funds to parties looking to borrow the securities.  The Voya advisers recalled loaned securities before their dividend record dates so that the advisers’ insurance company affiliates, who were the record shareholders of the funds’ shares, could receive a tax benefit based on the dividends received.  But, as the order explains, the recall practice caused the funds and their investors to lose securities lending income without receiving any offsetting tax benefit.  The order found that the Voya advisers failed to disclose the conflict of interest to the funds’ board of directors or in the funds’ prospectuses. SEC

March 8, 2018

The SEC has filed fraud charges in a scheme to inflate the share price of an Israeli medical marijuana company’s common stock.  The court today entered a partial asset freeze of the proceeds of the alleged fraud. The SEC’s complaint, which was filed on March 5 in federal district court in Denver, alleges that Colorado resident Jeffrey O. Friedland touted OWC Pharmaceutical Research Corp. while misrepresenting both his own investment in OWC and the true nature of his professional relationship with the company.  As alleged in the complaint, Friedland was compensated with more than five million OWC shares for handling the company’s media and investor relations efforts.  Friedland then touted OWC to media, industry, and investors, creating the false impression that he was merely an early investor in OWC and later, a member of its advisory board, without disclosing his role as a paid promoter.  Friedland is alleged to have sold his OWC shares for almost $7 million, after which he and his spouse placed a portion of the proceeds in a investment account in the name of Lane 6552, acquired two homes in all-cash purchases, and made other purchases and uses of the funds.  Friedland’s sales took place from March through September 2017 and were made through accounts in the names of Lane 6552 LLC and Intiva Pharma LLC.  The United States District Court today, among other things, froze certain accounts that received proceeds of Lane 6552’s sales of OWC stock. SEC

March 8, 2018

The SEC has charged Shezad Akbar, Americrude, Inc., and Daniel Waite with defrauding investors out of at least $950,000 through a string of fraudulent oil-and-gas securities offerings. The SEC’s complaint, which was filed yesterday in federal court in the Northern District of Texas, alleges that Akbar used his company, Americrude, Inc., to defraud multiple investors in seven securities offerings that purportedly raised funds to acquire working interests in oil-and-gas prospects.  The SEC alleges that Americrude, Akbar, and Waite, who was Americrude’s nominal President, used a combination of cold calls, high-pressure sales pitches, and false and misleading statements to lure investors into Americrude’s fraudulent offerings.  The defendants misrepresented Americrude’s track record, the reserve potential of its oil-and-gas prospects, and its intended use of proceeds from the offerings.  Akbar is also alleged to have used an alias to conceal his involvement in the offering fraud and to hide his prior felony convictions from potential investors. Waite consented, without admitting or denying the SEC’s allegations, to the entry of a final judgment that permanently restrains and enjoins him from violating multiple SEC law and regulations; restrains and enjoins him from participating in the issuance, purchase, offer, or sale of any oil-and-gas related securities, provided however that such injunction does not prevent Waite from purchasing or selling oil-and-gas related securities for his own personal account; and orders him to pay disgorgement of ill-gotten gains totaling $32,409.52, prejudgment interest of $1,763.30, and a penalty of $100,000. SEC

February 21, 2018

The SEC charged BitFunder and its founder Jon E. Montroll with operating an unregistered securities exchange and defrauding users of that exchange.  The SEC also charged the operator with making false and misleading statements in connection with an unregistered offering of securities. The SEC alleges that BitFunder and its Montroll operated BitFunder as an unregistered online securities exchange and defrauded exchange users by misappropriating their bitcoins and failing to disclose a cyberattack on BitFunder’s system that resulted in the theft of more than 6,000 bitcoins. The SEC also alleges that Montroll sold unregistered securities that purported to be investments in the exchange and misappropriated funds from that investment as well. SEC

February 16, 2018

The SEC announced the suspension  of trading in three companies due to similar statements made about the acquisition of cryptocurrency and block-chain technologhy assets. The three companies affected by the suspension are Cherubim Interests, Inc., PDX Partners, Inc., and Victura Construction Group, Inc. All three companies had made statements about acquiring AAA-rated assets in cryptocurrency and blockchain technology with one of the companies (Cherubim) announcing a financing commitment for an initial coin offering. The SEC determined there were questions as to the accuracy of the nature of the companies’ business and value of their assets as reported in press releases. SEC

February 12, 2018

The SEC announced an enforcement action against Deutsche Bank Securities, Inc. that resulted in a repayment of more than $3.7 million to consumers, including $1.48 million in disgorgement payments. The enforcement action was based on an SEC investigation that found traders and salespeople making false and misleading statements when negotiating sales of commercial mortgage-backed securities. The false and misleading statements led customers to overpay  for the securities and Deutsche Bank failed to have an adequate compliance program to prevent and detect the misconduct by its employees. SEC

February 2, 2018

The Securities and Exchange Commission today charged a purported hedge fund manager in New York City with a brazen offering and investment adviser fraud thereby putting an end to an ongoing scheme. The SEC alleges that, since at least 2014, Nicholas Joseph Genovese and his hedge fund Willow Creek Investments LP raised more than $5.3 million from at least six investors by affirmatively misrepresenting his prior money-management, securities industry experience, and size of operations. In particular, the SEC charged that Genovese: falsely stated that he managed $4 billion of the Genovese Drug Store family's assets; falsely stated that his hedge fund's investment adviser had $30-39 billion of assets under management, when, in reality, it appears to have had less than $10 million in assets under management; falsely stated that his advisory firm had between 42 and 60 employees, when, in reality, it had less than 10 employees; and falsely stated that his hedge fund had investment gains of 30-40 percent per year, when, in reality, it sustained losses. In addition, in furtherance of his scheme, Genovese lied about his education and prior work experience, and concealed his criminal past from investors. The SEC also alleges that Genovese and his advisory firm Willow Creek Advisors LLC misappropriated investor funds to fund securities trading in Genovese's personal brokerage account, which sustained over $8 million of trading losses between 2015 and 2017, and Genovese's lifestyle by paying approximately $263,000 for, among other things, ATM cash withdrawals, food, hotel and transportation charges, including being chauffeured in a Bentley. SEC