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10.01.2022 | Legal Update

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.

Remedies

SEC v. Sharp, Civil A. No. (D. Mass., Sept. 6, 2022) – In a case of first impression, a district court held that the extension of the statute of limitations from five to 10 years on SEC enforcement actions seeking disgorgement or penalties applies retroactively. The court held that the SEC may bring new charges seeking disgorgement for acts that took place up to 10 years prior to the filing of the action, even if the conduct took place prior to the passage of the amendment, because the amendment expressly applies “to any action or proceeding that is pending on or commenced on or after” January 1, 2021.

SEC v. Ambassador Advisors, LLC, et al., Civil A. No. 5:20-cv-02274-JMG (E.D. Pa., Sept. 7, 2022) – Following a jury verdict against defendants on charges that an RIA and individual representatives received undisclosed compensation of mutual fund 12b-1 fees, the court granted the SEC’s request for disgorgement and second-tier penalties, but declined to order injunctive relief because of the defendants’ clean prior record and subsequent changes to their business model. The court also ordered the defendants to remove statements on their website that clients had not been overcharged and to publish a clarifying notice. The court rejected the defendants’ argument that disgorgement of the 12b-1 fees should be reduced by offsetting their business expenses. Remedies for three individual defendants included disgorgement of approximately $623,000 plus interest, and penalties in the principal amounts. The firm was ordered to pay a penalty of approximately $623,000.

Investment Advisers/Investment Companies

In the Matter of Aventura Capital Management, LLC, Rel. IA-6103 (Sept. 6, 2022) – In a settled matter, an RIA was charged with failing to make full disclosure of compensation paid to an affiliated broker-dealer in connection with recommendations of mutual funds and money market funds that paid revenue sharing when lower-cost classes of the same funds were available, and in connection with mark-ups and mark-downs on principal trades. The firm was also charged with failing to disclose related conflicts of interest and failing to seek best execution. Charges under Advisers Act Sections 206(2), 206(4) and Rule 206(4)-7. Remedies included cease-and-desist, censure, disgorgement of $623,000 plus interest, and a civil penalty of $225,000.

In the Matter of Perceptive Advisors, LLC, Rel. 34-95673, Rel. IA-6106 (Sept. 6, 2022) – In a settled matter, an RIA was charged with failing to disclose conflicts of interest regarding RIA personnel ownership of special purpose acquisition companies (SPACs) when investing client assets in affiliated SPACs. The SEC also charged that the respondent failed to file Schedule 13D reports while negotiating a potential transaction between a SPAC and a public company of which the RIA was more than a five percent owner, and improperly acquired additional shares prior to filing a 13D. Charges under Advisers Act Sections 206(2), 206(4) and Rules 206(4)-7 and 206(4)-8, and Exchange Act Section 13(d) and Rule 13d-1. Remedies included cease-and-desist, censure, and a civil penalty of $1.5m.

In the Matter of NPA Asset Management, LLC, Rel. IA-6110 (Sept. 8, 2022) – In a settled matter, an RIA firm was charged with failing to monitor or conduct reviews for account suitability, in violation of its Form ADV representations and its duty of care, resulting in the collection of fees on inactive and high cash balance accounts. The firm was also charged with engaging in principal trades of fixed income securities and REITs through an affiliated broker dealer without obtaining required client consent. Charges under Advisers Act Sections 206(2), 206(3), 206(4) and Rule 206(4)-7. Remedies included cease-and-desist, censure, disgorgement of approximately $368,000 plus interest, and a civil penalty of $300,000.

Advisers Act Custody Rule Matters (Sept. 9, 2022) – In nine separate settled matters, investment advisers to private funds were charged with failing to have audits performed or to deliver audited financials to fund investors in a timely manner, and/or with failing to promptly file amended Form ADV to reflect the receipt of audited financials after having initially reported that they had not yet received the reports. Charges under Advisers Act Sections 204(a) and 206(4), Rules 204-1(a) and 206(4)-2, and Form ADV, Part 1A, Schedule D, Section 7.B.23.(h). Remedies included censure, cease-and-desist, and penalties ranging from $50,000 to $330,000.

In the Matter of Hudson Advisors, LP, et al., Rel IA-6120 (Sept. 12, 2022) – In a settled matter, two RIAs were charged with failing to fully disclose their practices for calculating and charging fees to private equity funds. In calculating fees under cost-plus-margin advisory contracts, the respondents included anticipated individual income tax liability of their founder as a cost. The parties undertook an internal review and ended the practice, and the founder separately reimbursed the funds, prior to any contact with SEC staff. Charges under Advisers Act Sections 206(2), 206(4) and Rules 206(4)-7 and 206(4)-8. Remedies included cease-and-desist, censure, and a civil penalty of $11.2m.

In the Matter of SparkLabs Global Ventures Management, LLC, et al., Rel. IA-6121 (Sept. 12, 2022) – In a settled matter, two related venture capital fund managers and their principal were charged with causing certain funds to make loans to other funds under their management and to the respondents’ affiliates, in violation of the lending funds’ operating agreements, and with failing to enforce the loan terms. Charges under Advisers Act Sections 206(2), 206(4) and Rule 206(4)-8, and Exchange Act Section 13(d) and Rule 13d-1. Remedies included cease-and-desist, censure, and civil penalties of $200,000 (firms) and $25,000 (principal).

In the Matter of Buckman Advisory Group, LLC, et al., Rel. 34-95747, IA-6124 (Sept. 13, 2022) and SEC v Brander, No. 22 Civ. 5506 (D.N.J., filed Sept. 9, 2022) – These settled matters arise from charges that an individual investment advisory representative engaged in a cherry-picking scheme in which he allocated a greater portion of profitable trades to his personal account and a greater portion of unfavorable trades to client accounts. The RIA and its CEO were charged with failing to supervise the representative and failing to implement policies and procedures reasonably designed to prevent violations. The firm and CEO were charged under Advisers Act Sections 203(e)(6), 203(f), 206(2) and 206(4), and Rule 206(4)-7; remedies included cease-and-desist, censure, and a penalty of $400,000 (firm) and $75,000 (CEO). The IAR was charged with direct violations of Exchange Act Section 10(b) and Rules 10b-5(a) and 10b-5(c), and Advisers Act Sections 206(1) and 206(2); remedies included cease-and-desist, industry bar, disgorgement of approximately $813,000 plus interest, and a $200,000 penalty.

SEC v. Gabriel Edelman, Creative Advancement LLC and Edelman Blockchain Advisors LLC, Lit. Rel. No. 25509 (Sept. 15, 2022) – In a litigation matter, the SEC charged Gabriel Edelman and his affiliated entities, Creative Advancement LLC and Edelman Blockchain Advisors LLC, for fraudulently offering and selling securities using false and misleading statements to four investors, raising approximately $4.3 million. Charges under Securities Act Section 17(a), Exchange Act Section 10(b), and Rule 10b-5. Remedies sought include permanent injunctions, disgorgement with prejudgment interest, and civil penalties.

SEC v. Secured Income Group, Inc., et al., Lit. Rel. No. 25507 (Sept. 15, 2022) – In a settled matter, the SEC charged Secured Income Group, Inc., its owner and president, Max McDermott, and its investor relations representative, Stacey Porter, with misrepresenting material aspects of investments, resulting in the outstanding principal of the company’s real estate loan collateral—at all points in time—being substantially less than what it owed to its investors. Secured Income Group, McDermott, and Porter raised approximately $100 million from hundreds of investors for the company’s “Secured Debentures” offering between July 2017 and January 2021. Charges against Secured Income Group and McDermott under Securities Act Sections 5(a) and 17(a) and Exchange Act Section 10(b). Additional charges against McDermott under Exchange Act Section 20(a). Charges against Porter under Securities Act Sections 5(a) and 5(c) and Exchange Act Section 15(a). Remedies include permanent injunctions, disgorgement, prejudgment interest, and civil penalties against all defendants. Additional remedies against McDermott include an officer and director bar.

In the Matter of Canaan Management, LLC, Rel. IA-6126, In the Matter of Asset Management Group of Bank of Hawaii, Rel. IA-6127, In the Matter of Highland Capital Partners LLC, Rel. IA-6128, and In the Matter of StarVest Management, Inc., Rel. IA-6129 (Sept. 15, 2022) – The SEC charged separately four investment advisors—Asset Management Group of Bank of Hawaii, Canaan Management, LLC, Highland Capital Partners LLC, and StarVest Management, Inc.—for violating the SEC’s pay-to-play rule for investment advisors. The SEC alleged that each firm violated the rule by continuing to receive investment advisory fees from government entities following campaign contributions made by associates to elected officials and candidates for elected office. Charges under Advisers Act Section 206(4) and Rule 206(4)-5. Parties consented to cease-and-desist orders and civil penalties (Asset Management Group of Bank of Hawaii - $45,000; Canaan Management, LLC - $95,000; Highland Capital Partners LLC - $95,000; and StarVest Management, Inc. - $70,000).

In the Matter of Waddell & Reed, LLC, Rel. 34-95828, IA-6136 (Sept. 19, 2022) – In a settled matter, a dually registered broker-dealer and investment adviser was charged with failing to take reasonable steps with respect to clients in an investment advisory wrap fee program, after their accounts were flagged for potential “reverse churning.” The order notes that the firm’s compliance system flagged several hundred accounts that should have been converted to brokerage accounts, resulting in the clients paying unnecessary wrap fees. Charges under Advisers Act Sections 206(2) and 206(4) and Rule 206(4)-7. Remedies included censure, cease-and-desist, disgorgement of $485,000 plus interest, and a $200,000 penalty.

In the Matter of Arcadia Wealth Management, Inc., Rel. IA-6137 (Sept. 19, 2022)  and In the Matter of Matthew W. Dreyer, Rel. 34-95833, AAER-4335 (Sept. 19, 2022) – In settled matters, a registered investment adviser and its independent auditor were charged with violations of the Advisers Act custody rule. The RIA was deemed to have custody of certain client assets due to its principal’s role as trustee of two client trusts, and due to the firm’s possession of client credentials over certain client accounts held away. The RIA failed to seek the required surprise audit for several years; it then engaged the respondent auditor to conduct the surprise audit, but the respondent auditor “failed to take meaningful steps” to complete the engagement. Charges against the RIA under Advisers Act Section 206(4) and Rules 206(4)-2 and 206(4)-7; remedies included censure, cease-and-desist, and a $90,000 penalty. Charges against the auditor under Exchange Act Section 4C and Rule 102(e)(1)(ii) of the SEC Rules of Practices; remedies included a practice bar.

In the Matter of Toews Corporation, Rel. IA-6139 (Sept. 20, 2022) – In a settled matter, a registered investment adviser was charged with casting proxy votes of issuers of securities held in the RIA’s managed mutual funds without taking steps to determine if the votes were in its clients’ best interest. The respondent had directed a third-party proxy voting service to vote all proxies in favor of management proposals and against shareholder proposals, and did not itself review any of the proxy materials for those votes. Charges under Advisers Act Sections 206(2) and 206(4) and Rule 206(4)-6 thereunder. Remedies included censure, cease-and-desist, and a $150,000 penalty. Commissioners Peirce and Uyeda dissented, finding that an adviser could rely on standing instructions to vote proxies where its clients agree that such an approach is in the clients’ best interest because, for example, of the cost of reviewing and analyzing individual matters.

SEC v. Premium Point Investments, LP, et al., Lit. Rel. No. 25532 (Sept. 28, 2022) – In a settled litigation matter, the SEC obtained a final judgment by consent with a private fund manager and its CEO, on charges that they entered into a scheme to obtain inflated broker quotes for mortgage-backed securities in order to conceal poor fund performance and retain investors. Charges under Exchange Act Section 10(b) and Rule 10b-5, Securities Act Sections 17(a)(1) and 17(a)(3), and Advisers Act Sections 206(1), 206(2) and 206(4) and Rule 206(4)-8(a)(2). Remedies included an injunction against the firm, and an industry bar and a $450,000 penalty against the CEO.

In the Matter of Wave Equity Partners LLC, Rel. IA-6146 (Sept. 23, 2022) – In a settled matter, a Boston-based RIA was charged with failing to adequately disclose and properly offset management fees to a private equity fund it managed. Specifically, the SEC alleged that the respondent borrowed money from the fund to pay placement agent fees to a third-party vendor but failed to timely repay or reimburse the fund through management fee offsets. Charges under Advisers Act Sections 203(e), 203(k), 206(2), and 206(4). Remedies included censure and a penalty of $325,000.

SEC v. Lindell, Lit. Rel. No. 25542 (Sept. 30, 2022) – In a settled litigation matter, the former Chief Risk Officer and CCO of investment adviser Infinity Q Capital was charged with manipulating securities valuation models and pricing inputs to mask the poor performance of a mutual fund and hedge fund that Infinity Q advised. Charges under Securities Act Sections 17(a)(2) and (3), Exchange Act Rule 13b2-2, Advisers Act Sections 206(2), 206(4), and 207, and Rule 206(4)-8 thereunder, and aiding and abetting Infinity Q's violations of Advisers Act Sections 204(a) and 206(4) and Rules 204-2(a) and 206(4)-7. Remedies include an injunction, with disgorgement, penalties, and a possible officer-and-director bar to be determined by the court. Litigation against the Infinity Q CIO remains ongoing.

Broker-Dealers

In the Matter of Jefferies LLC, Rel. 34-95749 (Sept. 13, 2022) and In the Matter of BNY Mellon Capital Markets LLC Rel. 34-95750 (Sept. 13, 2022) and In the Matter of TD Securities (USA) LLC Rel. 34-95751 (Sept. 13, 2022) and SEC v. Oppenheimer & Co., Lit. Rel. No. 25505 (Sept. 13, 2022) – In three settled matters and one ongoing litigation matter, each broker-dealer was charged with failing to comply with Exchange Act Rule 15c2-12 when participating as an underwriter of municipal securities. The rule requires underwriters to reasonably determine that the municipal issuers have agreed to provide ongoing disclosures to the Municipal Securities Rulemaking Board (MSRB), and has an exemption for offerings sold to no more than 35 sophisticated investors who are not reselling or purchasing for the accounts of others. Each respondent was charged with selling to other broker-dealers or investment advisors without a reasonable belief that the purchasers were not buying on behalf of clients. The settled matters include charges under Exchange Act Section 15B-(c)(1) and Rule 15c2-12, and MSRB Rule G-27; remedies included censure, cease-and-desist, disgorgement, and civil penalties of $100,000 (Jefferies, TD) and $300,000 (BNY). The ongoing litigation includes the same charges plus a charge of violating MSRB Rule G-17.

In the Matter of Loop Capital Markets, LLC, Rel. 34-95764 (Sept. 14, 2022) – In a settlement of the first case involving failure to register as a municipal advisor, the respondent, a registered broker-dealer, was charged with providing advice to a municipal entity regarding the investment of municipal bond offering proceeds, without being registered as a municipal advisor. The SEC brought associated charges of failure to maintain a system to supervise the municipal securities activities of its associated persons. Charges under Exchange Act Section 15B(a)(1)(B) and MSRB Rule G-27. Remedies included cease-and-desist, censure, disgorgement of approximately $5,000 plus interest, and a $100,000 penalty.

In the Matter of Morgan Stanley Smith Barney LLC, Rel. 34-95832, IA-6138 (Sept. 20, 2022) – In a settled matter, the respondent was charged with failure to protect customer personal identifying information (“PII”), and failing to properly dispose of consumer report information, in connection with decommissioning two data centers in 2016. According to the order, a subcontractor of the respondent’s third party moving and storage vendor re-sold technology equipment with unwiped hard drives. In a later project, the respondent was unable to locate or verify encryption on 42 decommissioned devices. Charges under Section 30(a) and 30(b) of Reg S-P. Remedies included censure, cease-and-desist, and a $35m penalty.

SEC v. David Sheldon Wells, Lit. Rel. No. 25513 (Sept. 21, 2022) – In a litigation action, the SEC filed charges against David Sheldon Wells, a former representative of an SEC-registered broker-dealer and investment advisory firm for misappropriating over $638,000 from three of his investment advisory clients. The complaint alleges that Wells fraudulently solicited clients to give him money to invest on their behalf through the broker-dealer and investment advisory firm and then transferred their funds to personal brokerage accounts he owned or controlled. Charges under Exchange Act Section 10(b), Investment Advisers Act Sections 206(1) and 206(2) and Rule 10b-5. Remedies sought include permanent injunctions, disgorgement and prejudgment interest, and a civil penalty.

In the Matter of Raymond James & Associates, Rel. 34-95875 (Sept. 22, 2022) – In a settled matter, the respondent was charged with failure to reasonably supervise a registered representative who misappropriated several hundred thousand dollars from an elderly customer, and failure to develop related policies and procedures. The order noted that some of the misappropriations took place after a supervisor escalated his concerns to the respondent’s senior and at-risk client group, and that no follow-up action was taken. Charges under Exchange Act Sections 15(b)(4)(E), 10(b) and Rule 10b-5. Remedies included censure and a $500,000 penalty.

SEC v. Morningview Financial, LLC and Miles M. Riccio, et al., Lit. Rel. 25520 (Sept. 23, 2022) – In a litigated action, the SEC charged Morningview Financial, LLC and its managing member for failing to register as securities dealers with the SEC. The complaint alleges that between at least July 2017 and December 2021, Morningview Financial engaged in the business of purchasing convertible notes and warrants from penny stock issuers, converting the notes into stock at a large discount from the market price, and selling those newly issued shares into the market at a significant profit. The SEC further alleges the defendants’ convertible notes and warrants business generated over $14.8 million in profits. Charges under Exchange Act Sections 15(a)(1) and 20(a).

In the Matter of Barclays Capital Inc. (34-95921), Citigroup Global Markets Inc. (34-95920), Goldman Sachs & Co. LLC (34-95922), Morgan Stanley & Co. LLC (34-95924), Credit Suisse Securities (USA) LLC (34-95925), and 10 others (Sept. 27, 2022) – In settled matters, the SEC charged 15 broker-dealers and one affiliated investment adviser for failing to maintain and preserve electronic communications. The SEC alleged that employees of the respondents sent and received off-channel communications that related to the firm’s business and that the respondents did not maintain or preserve the substantial majority of these written communications. Charges under Exchange Act Section 17(a) and Rule 17a-4(b)(4). Remedies included cease-and-desist, censure, and a combined penalty of more than $1.1b. The respondents also agreed to undertakings to retain compliance consultants to conduct comprehensive reviews of the respondents’ policies and procedures related to the retention of electronic communications found on personal devices and their respective frameworks for addressing non-compliance.

Market Manipulation

SEC v. James T. Patten, et al., Lit. Rel. No. 25526 (Sept. 27, 2022) – In a litigated action, the SEC charged a father and son and an associate for their roles in orchestrating fraudulent manipulative securities trading schemes. The complaint alleges the schemes included artificially inflating the share price of Hometown International from approximately $1 per share to nearly $14 per share. The complaint further alleges that the father and son took control of the outstanding shares of Hometown International and a separate shell company, E-Waste Corp., artificially inflated the price of both issuers’ stock through manipulative trading, and used the entities to acquire privately-held companies in reverse mergers, with the intent to thereafter dump their shares at inflated prices. Charges under Securities Act Sections 17(a)(1) and (3) and Exchange Act Sections 10(b), 9(a)(1) and Rules 10b-5(a) and (c).

Securities Offerings

SEC v. Vivera Pharmaceuticals, Inc., EFT Global Holdings, Inc. d/b/a Sentar Pharmaceuticals, and Paul P. Edalat, Lit. Rel. No. 25538 (Sept. 30, 2022) – In a litigated action, the SEC charged Vivera, a California-based pharmaceutical company, its CEO, and a related entity, Sentar, for an alleged offering fraud that raised approximately $6.6 million. The SEC alleges that the respondents claimed to hold an exclusive global license to a sublingual drug-delivery technology for the pharmaceutical use of CBD and THC, but failed to disclose that there was an ongoing dispute around the validity of that license. The SEC also alleges that Sentar received approximately $4.5 million in purported licensing fees from Vivera and then transferred significant sums into various account controlled by its CEO. Charges under Securities Act Sections 17(a)(1), 17(a)(2), and (3) and Exchange Act Rules 10b-5(a) and 10b-5(b).

Issuer Reporting/Audit and Accounting/Compliance

SEC v. AT&T Inc, Civil A. No. 1:21-cv-01951-PAE (S.D.N.Y, Sept. 8, 2022) – In a “rare litigated enforcement action” of charges that a publicly traded company and investor relations personnel violated Reg FD, the court denied all parties’ motions for summary judgment. The SEC alleges that the defendants selectively disclosed key metrics to Wall Street analysts in an attempt to lower the consensus earnings estimate to the range of the company’s expected Q1 2016 results, in violation of Reg FD’s prohibition on selective disclosure of material information. The court rejected the defendants’ arguments that the information provided was not material and that it was discernable from publicly available information, but held that the issue of scienter was for the jury.

In the Matter of VMware, Inc. Rel. 33-11099, 34-95744, AAER-4333 (Sept. 12, 2022) – In a settled accounting case that involved no GAAP violations, VMware was charged with holding back sales orders from quarterly financial reporting, in an effort to control the timing of revenue recognition and the level of its reported backlog. Charges under Securities Act Section 17(a)(2) and 17(a)(3), and Exchange Act Section 13(a) and Rules 13a-1, 13a-11, 13a-13, and 12b-20. Remedies included cease-and-desist and an $8m penalty.

SEC v. Granite Construction, Inc., and SEC v. Swanberg, Lit. Rel. No. 25507 (Sept. 15, 2022) – In a settled matter, the SEC charged Granite Construction, Inc. and its former Senior VP, Dale Swanberg, with fraud for inflating the financial performance of the major subdivision Swanberg managed. In 2021, the company restated its financial statements from 2017 to 2019 to correct errors allegedly caused by Swanberg’s misconduct. Charges under Securities Act Section 17(a) and Exchange Act Section 10(b), 13(a), 13(b)(2)(A), and 13(b)(2)(B). Remedies include a $12m penalty. The complaint credits Granite with self-reporting and undertaking remediation. In separate administrative proceedings, Granite’s former CEO, James H. Roberts, and CFOs, Kaurel Krseminski and Jigisha Desai, who were not charged with misconduct, agreed to return more than $1.4 million, $327,000, and $176,000, respectively. In separate administrative proceedings, Granite’s former CEO, James H. Roberts, and CFOs, Laurel Krzeminski and Jigisha Desai, who were not charged with misconduct, agreed to return more than $1.4 million, $327,000, and $176,000, respectively, in compensation “clawbacks” under Section 304 of the Sarbanes-Oxley Act.

SEC v. Nutra Pharma Corp., et al., Lit. Rel. No. 25510 (Sept. 16, 2022) – In a litigation matter, the United States District Court for the Eastern District of New York granted the SEC summary judgment on various claims against Nutra Pharma Corporation and its CEO, Rik Deitsch. In its complaint, the SEC alleged that, among other things, the company and Deitsch had issued or posted a series of press releases that materially misled investors and had engaged in manipulative trading to try to stabilize and increase Nutra Pharma’s stock price and create the appearance of active trading. The court denied the SEC’s motion as to its claims that Deitsch aided and abetted Nutra Pharma’s failure to make required filings. Charges against Nutra Pharma under Securities Act Sections 5(a) and (c), Exchange Act Section 13(a), and Rule 13a-11. Charges against Deitsch under Exchange Act Sections 13(d)(1) and 16(a) and Rules 13d-2(a) and 16a-3.

SEC v. Manhattan Transfer Registrar Company and John C. Ahearn, Lit. Rel. No. 25514 (Sept. 21, 2022) – The SEC charged recidivists Manhattan Transfer Registrar Company and its former principal, John C. Ahearn, for violations of an SEC order issued against them in May 2018. The complaint alleges, among other things, that they violated the order and the transfer agent associational bar provisions when Ahearn acted as inspector of elections while he was subject to a bar from association with any transfer agent. Ahearn consented to entry of a civil court judgment against him. Charges under Exchange Act Section 17A(c)(4)(C). Remedies against Ahearn include permanent injunction, disgorgement of $1,075 and prejudgment interest of $200, and a civil penalty of $75,000.

In the Matter of The Boeing Company, Rel. 33-11105 (Sept. 22, 2022) and In the Matter of Dennis A. Muilenburg, Rel. 33-11106 (Sept. 22, 2022) – In settled matters, the company and its former CEO were charged with making misleading statements about the safety of its 737 MAX aircraft after two fatal crashes that the FAA determined were caused by a malfunction of a flight control system. The statements included a press release stating that the 737 MAX was “as safe as any airplane that has ever flown the skies” and a comment to reporters that the company had confirmed that it had not missed any steps in the aircraft certification process. Charges under Securities Act Sections 17(a)(2) and 17(a)(3). Remedies included cease-and-desist order and penalties of $200m (firm) and $1m (CEO).

SEC v. James R. Thompson, et al., Lit. Rel. No. 25517, AAER-4341 (Sept. 23, 2022) – In a litigated action, the SEC charged Spyr, Inc.’s former CEO, CFO, and director for making false and misleading statements to Spyr’s auditors. The SEC also charged the former CEO and CFO for filing periodic reports with the SEC that failed to include required information in financial statements. The SEC alleges that the former CEO, CFO, and director provided auditors with false and misleading information about an SEC investigation into Spyr’s investment in a biotechnology company even though Spyr had received a Wells notice, participated in settlement discussions with the SEC, and that management believed that an SEC action would be filed soon. Charges under Exchange Act Section 13(a) and Rules 13b2-2, 12b-20, 13a-1, 3a-13 and Securities Act Sections 17(a)(2) and 17(a)(3).

In the Matter of Friedman LLP, Lit. Rel. No. 95887, AAER-4339 (Sept. 23, 2022) – In a settlement, the SEC charged a registered public accounting firm for failing to comply with the standards of the PCAOB in conducting audits of two public issuers. Specifically, the SEC alleged the respondent conducted the audits without including procedures that were adequately designed to identify related party transactions and stated the audits had been conducted in accordance with PCAOB standards, when they had not. Charges under Exchange Act Section 10A(a)(2) and Regulation S-X Rule 2-02(b)(1). Remedies include cease-and-desist, censure, disgorgement of $524,138 plus interest, and a penalty of $40,574. The respondent agreed to an undertaking to certify that each of its audit professionals serving public company audits successfully complete a minimum of 24 hours of audit-related training.

In the Matter of Compass Minerals International, Inc., Rel. 33-11107, 34-95889, AAER-4340 (Sept. 23, 2022) – In a settled matter, the respondent was charged with misleading investors about a technology upgrade that the company claimed would reduce costs at its salt mine (the biggest underground salt mine in Canada) when in reality, it had increased costs. The SEC also charged the respondent for failing to properly assess whether to disclose the financial risks associated with the company’s discharge of mercury. Charges under Securities Act Section 17(a)(2) and (3) and Exchange Act Sections 13(a), 13(b)(2)(A), 13(b)(2)(B) and Rules 13a-1, 13a-13, 12b-20, and 13a-15. Remedies included cease-and-desist and a penalty of $12m. The respondent agreed to an undertaking to retain an independent compliance consultant to review and make recommendations concerning its disclosure controls and procedures.

SEC v. Farnsworth, Lit. Rel. No. 25525 (Sept. 27, 2022) – In a litigated matter, the SEC charged the CEOs of MoviePass and its parent, HMNY with making material misstatements in SEC filings and public statements about MoviePass’s potential profitability with a dramatically cheaper subscription price, and about HMNY’s ability to fund MoviePass operations. Another MoviePass executive was charged with submitting false invoices, approved by the CEO respondents, enabling him to wrongfully obtain over $300,000 for his personal benefit. Charges under Securities Act Section 17(a), Exchange Act Section 10(b) and Rule 10b-5, and Exchange Act Section 13(b)(2)(A) and 13(b)(5) and Rules 13b2-1 and 13b2-2.

In the Matter of Tupperware Brands Corporation, Rel. 34-95943, AAER-4343 (Sept. 29, 2022) – In a settled matter, a consumer products company was charged with failing to devise and maintain a sufficient system of internal accounting controls and to maintain accurate books and records. The SEC alleged these failures allowed management to override controls and inaccurately record financial results by improperly increasing sales via the shipment of unordered products, without purchase orders, and improperly reserving for various other expenses. Charges under Exchange Act Sections 13(b)(2)(A) and 13(b)(2)(B). Remedies included cease-and-desist and a penalty of $900,000.

In the Matter of Deloitte Touche Tohmatsu Certified Public Accountants, LLP, Rel. 34-95938, AAER-4342 (Sept. 29, 2022) – In a settled matter, the respondent, a Shanghai-registered accounting firm and member of the global Deloitte network of firms, was charged with failing to perform necessary confirmation procedures in auditing the Chinese operations of Deloitte’s U.S.-registered clients. Specifically, the respondent was charged with failing to obtain or document receipt of supporting evidence of client account balances and transactions, and with failing to select samples for testing, relying instead on client-selected samples. Charges under: Exchange Act Sections 4C(a)(2) and (a)(3); SEC Rules of Practice 102(e)(1)(ii) and (iii); AS standards 1015, 1105, 1201, 1215, 2201 and 2315; PCAOB quality control standards QC 20; and Reg S-X Rule 2-02(b)(1). Remedies included censure, cease-and-desist, and a $20m penalty.

In the Matter of Barclays PLC and Barclays Bank PLC, Rel. 33-11110, 34-95944, AAER-4344 (Sept. 29, 2022) – In a settled matter, the respondent bank was charged with failing to track the securities being offered under an SEC shelf registration, with the results that the bank sold securities over $17 billion in excess of the amount registered and both respondents’ annual filings with the SEC were inaccurate. After discovery of the issue, the respondents conducted a rescission offer with respect to the over-issuance. Charges under Securities Act Section 5, and Exchange Act Sections 13(a), 13(b)(2)(A) and 13(b)(2)(B), and Rules 12b-20 and 13a-1 and 13a-15(a). Remedies included cease-and-desist, disgorgement of approximately $150m plus interest, and a $200m penalty.

In the Matter of RSM US LLP and Steven Kirn, CPA, Michael Piqueira, CPA, and Richard Condon, CPA, 34-95948, 34-95949, AAER-4346, AAER-4347 (Sept. 30, 2022) – In a settled matter, a public accounting firm and three senior-level employees were charged with improper professional conduct for failing to conduct audits of Revolution Lightening Technologies, Inc.’s financial statements and internal control over financial reporting over a four-year period when Revolution was violating accounting principles by inflating revenue with bill and hold sales. The SEC alleged respondents did not adhere to the Public Company Accounting Oversight and their failures caused material misstatements in Revolution’s financial statements and audit reports and, after recognizing the misstatements, the respondents improperly concluded that Revolution’s misstatements were immaterial. Charges under Exchange Act Sections 102(e)(1)(ii) and 13(a) and Rule 13a-1 and Regulation S-X Rule 2-02(b). Remedies included cease-and-desist, censure, penalty of $3,750,000, and a three-year suspension for Kirn and Piqueira. The respondents agreed to an undertaking to retain an independent consultant to review and evaluate its audit, review, and quality control policies and procedures.

In the Matter of Lisa Sanford, Rel. 33-11111, 34-95947, AAER-4345 (Sept. 30, 2022) – In a settled matter, the former CFO and principal accounting officer of Emerald Health Pharmaceuticals was charged with authorizing payments to middlemen engaged as consultants who facilitated a purportedly independent recommendation of Emerald Health from Palm Beach Venture. The SEC also alleged the respondent signed and certified Emerald Health’s offering circulars and other filings which failed to disclose to investors (1) the true nature of Emerald Health’s consulting agreements with middlemen, (2) that Emerald Health engaged in a paid promotion through Palm Beach, and (3) that investor funds would be used to pay for Palm Beach’s recommendation. Charges under Securities Act Section 17(a)(2) and 17(a)(3). Remedies included cease-and-desist and a three-year suspension.

In the Matter of BrookWeiner, LLC; James E. Schmidt, CPA; and Sheldon Weiner, CPA, 34-95958, AAER-4349 (Sept. 30, 2022) – In a settled matter, a public accounting firm and two of its former partners were charged in engaging in improper professional conduct by failing to conduct a proper audit of State Funds – Enhanced Ultra-Short Durational Mutual Fund. Specifically, the SEC alleged the respondents failed to (i) exercise due professional and skepticism, (ii) adequately plan the audit to address significant risks or develop appropriate audit plans or procedures, (iii) adequately train and supervise the engagement team, (iv) prepare adequate audit documentation, (v) obtain sufficient appropriate audit evidence to support the audit opinion, (vi) sufficiently identify, consider, and assess risks of material misstatement and fraud, and (vii) inquire about and perform procedures to assess related parties, relationships, and related-party transactions. The SEC also alleged respondent Weiner’s engagement quality review was deficient because he had no formal training or experience auditing and failed to (i) review and inquire about a number of key documents and issues, (ii) evaluate the engagement team’s assessment of, and audit responses to, significant risks, and (iii) evaluate the significant judgments made by the engagement team and the related conclusions reached. Charges under Exchange Act Section 4C(a)(2) and Commission’s Rules of Practice Rule 102(e)(1)(ii). Remedies included a two-year suspension. The respondents agreed to an undertaking to cooperate fully with the Commission with respect to this proceeding and any related judicial or administrative proceeding or investigation.

In the Matter of Berkower, LLC, et al., Rel. 33-95959, AAER-4350 (Sept. 30, 2022) – In a settled matter, an audit firm and two firm partners were charged with failing to conduct the audit of a mutual fund in accordance with PCAOB standards. Specifically, the respondents failed to identify reverse repurchase agreements, which accounted for 30% of the fund’s assets and 67% of its income, as a significant risk in the audit, and did not take steps to understand, evaluate and test key aspects of the transactions. Charges under: Exchange Act Sections 4C; SEC Rules of Practice 102€; AS standards 1015, 1105, 1201, 1220, 2101, 2410; PCAOB quality control standards QC 10, 20, and 30. Remedies included censure (firm), and practice bars of one and two years for the engagement partner and review partner, respectively.

Insider Trading

SEC v. Doucette, Lit. Rel. No. 25498 (Sept. 7, 2022) – In settled litigation, the SEC alleged that the defendant, an officer of Align Technology, Inc., purchased Align common stock in advance of earnings announcements while in possession of material nonpublic information regarding its financial performance, and during blackout periods when he was prohibited from trading. Charges under Exchange Act Section 10(b) and Rule 10b-5. The settlement included injunctive relief, disgorgement of approximately $350,000 plus interest, and a penalty of approximately $350,000.

SEC v. Mendes, Lit. Rel. No. 25512 (Sept. 20, 2022) – In a settled litigation matter, the SEC alleged that a dually registered broker and advisory professional obtained nonpublic information about a corporate acquisition from his co-defendant, an employee of the acquiring company. The investment professional allegedly used the information to purchase securities of the target company for accounts of his clients and family members. Charges under Exchange Act Section 10(b) and Rule 10b-5. Remedies included injunctions against both defendants, and disgorgement of approximately $42,000 plus interest and a $51,000 penalty against the investment professional.

SEC v. Weiss, Lit. Rel. No. 25516 (Sept. 22, 2022) – In a settled litigation matter, an Ernst & Young business development director was charged with purchasing securities of E&Y client firms in advance of earnings and acquisition announcements on four separate occasions. Charges under Exchange Act Section 10(b) and Rule 10b-5. Remedies included an injunction, and disgorgement with interest and a civil penalty totaling $23,900.

In the Matter of Sheng Fu, et al., Rel. 33-11104, 34-95874 (Sept. 21. 2022) – In a settled matter, the CEO and President/CTO of Cheetah Mobile, a Chinese technology company with ADS listed on the New York Stock Exchange, were charged with failing to disclose a known negative revenue trend from its largest customer, and with selling Cheetah Mobile securities in advance of a corrective announcement. The respondents’ efforts to make their stock sales pursuant to 10b5-1 advance trading plans did not provide a defense because, according to the order, the respondents had material nonpublic information at the time of the plans’ adoption. Charges under Exchange Act Section 10(b) and Rule 10b-5 (both respondents), Securities Act Sections 17(a)(2) and 17(a)(3) and Exchange Act Section 13(a) and Rules 12b-20 and 13a-1 (CEO only). Remedies included cease-and-desist and penalties of approximately $557,000 (CEO) and $201,000 (CTO).

SEC v. Saini, Lit. Rel. No. 25548 (Sept. 30, 2022) – In a litigated matter, the SEC charged two software engineers employed by a newswire service provider with trading in advance of over 1,000 market-moving corporate announcements released by the newswire company. Charges under Exchange Act Section 10(b) and Rule 10b-5.

SEC v. Holzer and SEC v. Moraes, Lit. Rel. No. 25545 (Sept. 30, 2022) – In related litigation settlements, a former broker for a family office and the family office COO were charged with trading in options of Dun & Bradstreet Corp. prior to an acquisition announcement, based on information the defendants obtained under a non-disclosure agreement. The defendants allegedly tipped two other traders who traded in advance of the announcement. Charges under Exchange Act Section 10(b) and Rule 10b-5. Remedies against the broker included an injunction, public company director and officer bar, and disgorgement and penalties to be determined by the court. The CCO agreed to an injunction, disgorgement of $8,800, and a $49,000 penalty.

Foreign Corrupt Practices Act

In the Matter of Oracle Corporation, Rel. 34-95913 (Sept. 27, 2022) – In a settled matter, Oracle Corporation, a multinational informational technology company, was charged with violating provisions of the FCPA when subsidiaries in Turkey, the United Arab Emirates, and India created and used slush funds to bribe foreign officials in return for business between 2016 and 2019. Specifically, the SEC alleged that Oracle subsidiaries used the funds to pay for foreign officials to attend technology conferences in violation of Oracle policies and procedures and, in some cases, used these funds for the officials’ families to accompany them. The SEC previously sanctioned Oracle in 2012 with the creation of slush funds. Charges under Exchange Act Sections 12, 13(b)(2)(A), 13(b)(2)(B). Remedies included cease-and-desist, disgorgement of $7,114,376.44 plus interest, and a penalty of $15m.

(NSEU 22-09)

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