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09.01.2023 | 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.

Investment Advisers/Investment Companies

In the Matter of Exchange Traded Managers Group LLC, et al., Rel. 34-98034, IA-6362, IC-34979 (Aug. 1, 2023) – In a settled matter, an investment adviser to a mutual fund and the adviser’s parent company and principal owner were charged with improper use of mutual fund assets to the fund’s detriment. The respondents were charged with using the mutual fund’s securities lending revenue stream to obtain financing that the respondents needed to settle private litigation. Charges under Advisers Act Sections 206(1) and (2), Investment Company Act Section 17(d) and Rule 17d-1. Remedies included censure, cease-and-desist, an association bar (for the firm principal), and civil penalties of $4m for the adviser and parent company jointly, and $400k for the principal.

In the Matter of Theorem Fund Services, LLC, Rel. 33-11218, IA Rel. 6367 (Aug. 7, 2023) – In a settled matter, a fund administrator was charged with failing to respond to red flags relating to a fraud against a private fund and its investors. Theorem Fund Services (TFS) provided administrative services to a fund managed by EIA All Weather Alpha Fund Partners and Andrew M. Middlebrooks, both of whom the SEC charged in May 2022 with fraud for misappropriating investors funds over a five-year period. As administrator, TFS was responsible for calculating the fund’s net asset value and performance statistics, and for allocating gross profits to investors. At the direction of EIA and Middlebrooks, TFS allegedly sent investors account statements that materially overstated the value of the investments despite clear red flags. Charges under Advisers Act Section 203(k), 206(4) and Rule 206(4)-8 thereunder, Securities Act Section 8A, 17(a)(2), (3). Remedies included cease-and-desist, civil penalty of $100k, and disgorgement of $18k plus prejudgment interest.

SEC v. Chad Stickforth, Lit. Rel. 25806 (Aug. 8, 2023) – In a litigated matter, the SEC reached a settlement with a former managing director of RSF Capital, LP, related to the alleged misuse and misappropriation of millions of dollars from investors. The complaint alleges that between 2016 and 2021, the then-managing director raised approximately $5.4 million from 20 investors after telling investors that RSF would use their money to trade futures contracts, commodity interests, and options on their behalf. In reality, the SEC alleges that he misappropriated or misused most of the investors’ funds by using them for personal expenses, payments to his business partner, and Ponzi-like payments to investors. Charges under Securities Act Sections 17(a), Exchange Act Section 10(b) and Rule 10b-5 thereunder, and Advisers Act Sections 206(1) and (2). Remedies included permanent officer-and-director bar, disgorgement of $1.5m plus prejudgment interest, and civil penalty of $223k.

SEC v. Sisu Capital, LLC et al, Lit. Rel. No. 25807 (Aug. 10, 2023) – In a litigated matter, an advisory firm and its owner were charged with breaching their fiduciary duties to clients, including making unauthorized and unsuitable trades in accounts from 2017 through at least 2021. The SEC also charged the father of the firm’s owner with aiding and abetting the violations. The SEC alleges that the firm allowed its owner’s father to give investment advice to firm clients while the father had been suspended from providing investment advisory services by the state of California. The complaint alleges that the defendants traded contrary to client instructions and to benefit their own interest by investing client funds in a thinly-traded bank stock. The defendants allegedly purchased the stock as part of a plan to amass enough shares among firm clients so the firm’s owner could propose business partnership ideas with the bank. The complaint also alleges that they purchased unsuitable complex financial instruments intended for short-term use on the clients’ behalf, which the firm held for a month. As a result of this conduct, the complaint alleges that the firm generated over $2 million in advisory fees. Charges under Advisers Act Sections 206(1) and (2). Remedies sought include permanent injunctions, disgorgement with prejudgment interest, and civil penalties.

In the Matter of DST Asset Manager Solutions, Inc., Rel. 34-98153 (Aug. 17, 2023) – In a settled matter, a mutual fund transfer agent was charged with failing to exercise reasonable care to ascertain the addresses of lost security holders and failing to provide notice to avoid unnecessary state law escheatment, in violation of Exchange Act Rule 17Ad-17. The respondent’s policies and practices allegedly included unnecessarily restrictive filtering of database service results, possibly resulting in the unnecessary loss of contact with 78 securities owners whose accounts were escheated to the states. Charges under Exchange Act Rule 17Ad-17. Remedies included censure, cease-and-desist, certain undertakings and a $500k penalty. Commissioners Peirce and Uyeda dissented, on the grounds that the ordered undertaking that the respondent request that its mutual fund clients send out periodic notifications amounted to de facto rulemaking applicable to mutual funds.

In the Matter of Titan Global Capital Management USA LLC, Rel. IA-6380 (Aug. 21, 2023) – In a settled matter, an investment adviser was charged with violations of the Advisers Act performance advertising rule. The adviser allegedly advertised hypothetical performance of its strategies on its website without disclosing that the performance was based on hypothetical accounts and had been annualized based on a three-week period. The adviser was also charged with making conflicting statements about how crypto assets were custodied and with including liability disclaimer language in advisory agreements that could mislead investors into thinking they had waived rights that may not be waived under the Advisors Act. Charges under Advisers Act Section 206(2) and 206(4) and Rules 206(4)-1 and 206(4)-7. Remedies included censure, cease-and-desist, disgorgement of $192k plus interest and a civil penalty of $850k.

In the Matter of Fundrise Advisors, LLC, Rel. IA-6381 (Aug. 22, 2023) – In a settled matter, a registered investment adviser was charged with paying over $8 million to over 200 social media influencers and online publishers to solicit advisory clients without using disclosures and documentation required by Advisers Act Rule 206(4)-3. As a result, the firm’s clients were not fully informed about the solicitors’ financial interests in recommending the firm. Charges under Advisers Act Section 206(4) and Rules 206(4)-3 and 206(4)-7. Remedies included cease-and-desist, censure, and a penalty of $250k.

In the Matter of Wells Fargo Clearing Services, LLC and Wells Fargo Advisors Financial Network, LLC, Rel. 34-98221, IA-6387 (Aug. 25, 2023) – In a settled matter, two Wells Fargo entities were charged with overcharging advisory client accounts due to a failure to enter agreed-upon discounts into the firms’ billing systems, and with related compliance failures. Charges under Advisers Act Sections 206(2), 206(4) and Rule 206(4)-7. The respondents had previously refunded the affected clients approximately $26 million, plus interest. Remedies included cease-and-desist, censure, and a penalty of $35m.

Broker-Dealers

SEC v. Ustocktrade LLC, et al., Lit. Rel. 25799 (Aug. 2, 2023) – In a settled litigation matter, a broker-dealer holding company and its principal owner were charged with aiding and abetting the broker-dealer’s repeated net capital violations. The broker-dealer allegedly operated an alternative trading system that was marketed to college students and other retail investors to engage in day trading. The broker-dealer subsequently terminated its registration. Claims under Exchange Act Section 15(c)(3) and Rule 15c3-1. Remedies included permanent injunctions and penalties of $75k (company) and $10k (principal).

SEC Charges 11 Wall Street Firms with Widespread Recordkeeping Failures, Press Rel. No. 2023-149 – In settled matters, the SEC announced charges against 10 firms in their capacity as broker-dealers and one dually registered broker-dealer and investment adviser for widespread failures by the firms and their employees to maintain and preserve electronic communications. The firms acknowledged that their conduct violated recordkeeping provisions of the federal securities laws and agreed to pay combined penalties of $289 million and have begun implementing improvements to their compliance policies and procedures to address these violations. The SEC’s investigation uncovered longstanding “off-channel” communications at all 11 firms, including communications through various messaging platforms on personal devices, such as iMessage, WhatsApp, and Signal about the business of their employers. The firms did not maintain or preserve the substantial majority of these off-channel communications, in violation of the federal securities laws. Charges under Exchange Act and Rule 17a-4(b)(4) (as to all); Advisers Act Section 204, Rule 204-2(a)(7) thereunder (as to Wedbush). Remedies included civil penalties, cease-and-desist, and retention of independent compliance consultants. The CFTC announced settlements with several firms for related conduct.

SEC v. Bittrex Inc., et al., Press Rel. 2023-150 (Aug. 10. 2023) – In a litigated matter, crypto asset trading platform Bittrex Inc. and its co-founder and former CEO, William Shihara, agreed to settle charges that they operated an unregistered national securities exchange, broker, and clearing agency. Bittrex Inc.’s foreign affiliate also agreed to settle charges that it failed to register as a national securities exchange. Charges under Securities Act Sections 5, 15(a) and 17A. Remedies included on a joint-and-several basis disgorgement of $14.4m plus prejudgment interest of $4m, and a civil monetary penalty of $5.6m.

Robinhood Financial LLC v. Secretary of the Commonwealth, SJC-13381 (Mass. Supreme Judicial Court, Aug. 25, 2023) – In a litigated matter, the Massachusetts Supreme Judicial Court unanimously upheld the validity of the broker-dealer fiduciary duty rule adopted by the Secretary of the Commonwealth of Massachusetts. The Secretary, who oversees the Massachusetts Securities Division, had adopted a rule imposing a fiduciary conduct standard on broker-dealers when dealing with customers; in so doing, the Secretary intentionally diverged from the SEC’s Regulation Best Interest, which declined to impose a fiduciary standard on broker-dealers. Reversing the lower court judgment, the court held that the Secretary had not exceeded his authority under the Massachusetts Uniform Securities Act, that MUSA itself is not an impermissible delegation of legislative power to the Secretary, and that the Massachusetts rule is not pre-empted by the SEC’s Reg BI.

In the Matter of Archipelago Trading Services, Inc., Rel. 34-98234 (Aug. 29, 2023) – In a settled matter, the operator of the alternative trading system Global OTC was charged with failing to surveil for, investigate, or file suspicious activity reports (SARs) related to potential manipulative trading on Global OTC. The firm’s policies allegedly provided in part that because the firm did not carry customer accounts, it did not anticipate suspicious activity would occur. However, the Order cited the firm’s failure to consider red flags for potentially manipulative trading, particularly in penny stocks, such as: large volumes of non-marketable orders causing price swings, trading activity involving a large proportion of a stock’s daily trading volume, sudden spikes in demand for a particular security, and/or pre-arranged or non-competitive trading including wash or cross trades. Charges under Exchange Act Section 17(a) and Rule 17a-8, and the SAR Rule, 31 CFR 1023.320(a)(2). Remedies included cease-and-desist, censure, and a civil penalty of $1.5m.

In the Matter of Citigroup Global Markets Inc., Rel. 34-98238 (Aug. 29, 2023) – In a settled matter, Citigroup Global Markets, when acting as “billing and delivery bank” for securities underwriting syndicates, was charged with failing to implement policies and procedures or review processes to support its method of estimating reimbursable indirect expenses associated with underwriting securities offerings. The respondent used a fixed percentage of each deal’s underwriting fee, which were sub-categorized based on fixed percentages, without substantiating or maintaining records sufficient to support this method. Charges under the recordkeeping requirements of Exchange Act Section 17(a) and Rule 17a-3. Remedies included censure, cease-and-desist, and a $2.9m penalty.

Issuer Reporting/Audit and Accounting/Directors and Officers/Compliance

SEC v. Kranz, et al., Lit. Rel 25802 (Aug. 4, 2023) – In a settled litigation matter, an electric vehicle company and its CEO and CFO were charged with making inaccurate revenue projections and failing to disclose nearly $1 million in executive compensation. According to the complaint, the company, which had become public through a SPAC transaction, based its projected revenues upon two projects that were no longer active or feasible. Additionally, the CEO allegedly entered into side agreements with two individual company investors to receive additional compensation. Charges under Securities Act Sections 17(a)(2) and (3), and Exchange Act Sections 13(a) and 14(a) and Rules 12b-20, 13a-1, 13a-11, 14a-3 and 14a-9. Remedies for the officers included injunctive relief, individual director and officer bars, disgorgement of $7,5k (CFO) and civil penalties of $125k (CEO) and $50k (CFO). The company separately agreed to a cease-and-desist order and a civil penalty of $1.5m.

In the Matter of Crowe UK, LLP, et al., Rel. 34-98118, AAER-4438 (Aug. 14, 2023) – In a settled matter, an audit firm and two individual CPAs were charged with audit failures leading to the issuance of an unqualified opinion on the financial statements of Akazoo Limited, in connection with Akazoo’s merger with a special purpose acquisition company or SPAC. Akazoo had allegedly fabricated companies with which it entered into agreements that lacked a commercial purpose. The auditors allegedly failed to design audit procedures to test these contracts or to contact the fabricated companies directly. Charges under Exchange Act Sections 4C(a)(2), 13(a), 14(a) and Rules 13a-19 and 14a-9, Rule 2-02(b)(1) of Reg S-X, and Rule 102(e)(1)(iv) of the SEC’s Rules of Practice. Remedies included censure, cease-and-desist, undertakings that include agreement not to accept new audit engagements from SEC-registered clients, practice bars for the individual CPAs, and disgorgement of $188k plus prejudgment interest, deemed satisfied by settlement payments in private litigation.

In the Matter of Ault Alliance, Inc., et al., Rel. 33-11222, 34-98131, AAER-4440 (Aug. 15, 2023) – In a settled matter, a publicly-traded holding company and its CEO and CFO were charged with financial misrepresentations and nondisclosures in financial statements. These claims included misrepresenting the performance of a $50 million purchase order from a related party, failing to disclose the officers’ personal interest in loans made by the company, and violations of reporting, books and records, and internal accounting control rules. Charges under Securities Act Sections 17(a)(2) and 17(a)(3), Exchange Act Sections 13(a), 13(b)(2)(A), 13(b)(2)(B) and 14(a), and Rules 12b-20, 13a-1, 13a-11, 13a-13, 13a-15(a), 13b2-1, 14a-3, and 14a-9. Remedies included cease-and-desist, certain undertakings, disgorgement of $75k plus interest (CEO), and civil penalties of $700k (AAI), $150k (CEO) and $20,720 (CFO).

In the Matter of Malvern Bancorp, et al., Rel. 33-11223, 34-98132, AAER-4441 (Aug. 15, 2023) – In a settled matter, a publicly traded bank holding company and its CFO were charged with failing to timely recognize and appropriately account for issues related to several large real estate loans, including restructurings, loan impairments, and charge-offs. Charges under Securities Act Sections 17(a)(2) and 17(a)(3), and Exchange Act Sections 13(a), 13(b)(2)(A) and 13(b)(2)(B) and Rules 12b-20, 13a-1, 13a-11, and 13a-1. Remedies included cease-and-desist and civil penalties of $350k (company) and $40k (CFO).

In the Matter of Black Spade Acquisition Co., Rel. 34-98188, AAER-4443; In the Matter of Alpine 4 Holdings, Inc., Rel. 34-98190, AAER-4444; In the Matter of Omnia Wellness Inc., Rel. 34-98192, AAER-4446; In the Matter of ReShape Lifesciences Inc., Rel. 34-98193, AAER-4447; and In the Matter of Vivic Corp. Rel. 34-98194, AAER-4448 (all Aug. 22, 2023) – In settled matters, five public companies were separately charged with violating Exchange Act Rule 12b-25 by failing to disclose the reasons that its Form 10-Q could not be timely filed and in each case, that the company anticipated a significant restatement of prior financial results. Charges under Exchange Act Section 13(a) and Rule 12b-25. Remedies included cease-and-desist and penalties ranging from $35k to $60k.

In the Matter of Plug Power Inc., Rel. 34-98243, AAER-4452 (Aug. 30, 2023) – In a settled matter, the respondent was charged with accounting failures involving sale-leaseback transactions, R&D costs, loss accrual estimates for extended-maintenance contracts, employee bonus expenses, and conversions of the issuer’s convertible preferred stock. The respondent was credited with prompt remedial actions and cooperation. Charges under Exchange Act Sections 13(a), 13(b)(2)(A), and 13(b)(2)(B), and Rules 13a-1, 13a-13, and 13a-15(a) – (c). Remedies included cease-and-desist and a penalty of $1.25m.

Securities Offerings

SEC v. Justin Sun, et al., Lit. Rel. 25803 (Aug. 7, 2023) – The SEC obtained a final judgment resolving its action against Austin Mahone, who the SEC charged with illegally touting crypto asset securities Tronix (TRX) and BitTorrent (BTT) without disclosing his compensation. The SEC alleged that Justin Sun and his companies organized a campaign to pay influential celebrities, including Mahone and codefendant DeAndre Cortez Wey (a/k/a Soulja Boy) to promote TRX and BTT on social media without disclosing the fact that they were being paid to do so. Charges under Securities Act Section 17(b). Remedies included three-year conduct-based injunction precluding any compensation touting crypto asset securities, $7,507 disgorgement plus prejudgment interest, and civil penalty of $37,535.

SEC v.Christopher A. Slaga a/k/a Keith Renko, et al., Lit. Rel. 25804 (Aug. 7, 2023) – In a litigated matter, the SEC filed a complaint charging Christopher Slaga and two entities he controlled with defrauding investors through an offering of interests in purported private and investment funds. Slaga, who the SEC alleges is a recidivist, allegedly conducted his scheme under the alias Keith Renko and marketed and sold interests in three private investment funds, while he allegedly never formed the investment funds and forged documents to conceal his fraud. Slaga allegedly received $3.5 million in proceeds from the scheme. Charges under Exchange Act Section 10(b) and Rule 10b-5 thereunder, Securities Act Section 17(a), 5(a), (c). Remedies sought include officer-and-director bar, disgorgement, prejudgment interest, and civil penalties.

In the Matter of CS Manager, LLC, et al., Rel. 33-11220, IA-6368 (Aug. 7, 2023) – In a settled matter, the manager of private funds and several RIAs, all controlled by one person, agreed to settle charges that investor funds were used in ways that were not disclosed to investors. Investor funds were commingled with other funds of the RIAs, which were used to pay the RIAs’ employees and other general operating expenses. The principal also directed the transfer of investor funds to himself. More than $375,000 in investor funds were spent for undisclosed purposes. Charges under Securities Act Sections 17(a)(2), (3), Advisers Action Section 206(2). Remedies included cease-and-desist, censure, disgorgement of $378k plus prejudgment interest, $175k civil penalty (joint and severally) (Sica, Sica Wealth, Circle Squared), and $35k civil penalty (Costa).

SEC v. George Iakovou, et al., Lit. Rel. 25808 (Aug. 11, 2023) – In a litigated matter, the SEC obtained a final judgment against Vika Ventures LLC, which was charged with fraudulently offering and selling securities of private companies that might hold an initial IPO, when Vika never owned or acquired the pro-IPO securities. Vika allegedly defrauded at least 46 individual investors of more than $6 million. Charges under Securities Act Section 17(a), Exchange Act Section 10(b), Rule 10b-5(a), (b), and (c). Remedies included permanent injunction and civil penalty of $8.9m.

 SEC v. Ashraf Mufareh et al., Lit. Rel. 25809 (Aug. 11, 2023) – In a litigated matter, the SEC announced charges against Ashraf Mufareh and his company ONPASSIVE LLC for orchestrating a fraudulent and unregistered offering. The complaint alleges that the defendants fraudulently raised over $108 million from over 800,000 investors across the globe related to the purported development of computer applications using artificial intelligence. The complaint alleges that as of June 2023, the defendants had not launched any applications, and the ONPASSIVE program is a pyramid scheme. Claims under Securities Act Section 17(a), Exchange Act Section 10(b) and Rule 10b-5 thereunder. Remedies sought include injunctive relief, disgorgement of ill-gotten gains plus prejudgment interest, civil penalties, and officer-and-director bar.

Kirschner v. JP Morgan Chase Bank, et al., No. 21-2726 (2d Cir. Aug. 24, 2023) – In a private action, in which the SEC declined an invitation to file an amicus brief, the Second Circuit found that the syndicated notes at issue were not securities for purposes of the plaintiff’s state law securities claim. The defendant banks had made loans to Millenium Health, LLC for the primary purpose of refinancing pre-existing debt, then syndicated the debt for sale to numerous institutional investors. The court applied the four-factor test of Reves v. Ernst & Young, 494 US 56 (1990). The first factor favored a finding that the notes were securities because the buyers had an investment motivation. However, the other three factors did not: the notes were sold only to institutions, not to a broad segment of the public; the investing public could not reasonably have perceived notes as securities; and there were risk-reducing factors that made securities regulation unnecessary, specifically the security interest in Millenium’s assets, and the bank regulatory scheme governing the banks’ activities.

In the Matter of Impact Theory, LLC, Rel. 33-11226, (Aug. 28, 2023) – In a settled matter of first impression, the respondent was charged with offering and selling non-fungible tokens (NFTs), characterized as crypto asset securities, without registration. In determining that the NFTs were securities under the Howey test, the Order cited the respondent’s public statements that the NFTs would deliver “tremendous value” and that the proceeds would be used for development, new staff hiring, and additional projects. Charges under Securities Act Sections 5(a) and 5(c). Remedies included undertakings to destroy unsold NFTs and eliminate future royalties on secondary market transactions, disgorgement of approximately $5.1m plus interest, and a civil penalty of $500k. Commissioners Peirce and Uyeda dissented, citing the lack of prior SEC guidance regarding NFTs.

In the Matter of Legacy Hospitality II, LLC, et al., Rel. 33-11227 (Aug. 28, 2023) – In a settled matter, the advisers to two REITs and the advisers’ CEO were charged with causing the REITs to pay the advisers’ overhead expenses, which was inconsistent with the disclosures made to investors. Charges under Securities Act Sections 17(a)(2) and (a)(3). Remedies included compliance undertakings, cease-and-desist, disgorgement of approximately $2.3m plus interest, and a civil penalty of $1.15m for one adviser, disgorgement of approximately $465k plus interest and a civil penalty of $225k for the second adviser, and a civil penalty of $100k for the CEO.

Grayscale Investments, LLC v. SEC, No. 22-1142 (DC Cir. Aug. 29, 2023) – In a litigated matter, the DC Circuit vacated the SEC’s order denying NYSE Arca’s application to list shares of a Grayscale exchange traded product (ETP) that would hold bitcoin. The court found that the Commission had failed to “treat like cases alike,” because it had previously approved listing two bitcoin futures ETPs before rejecting Grayscale’s offering. Grayscale had cited the same risk-mitigating factors as the previously approved bitcoin futures ETPs, and the court found that the Commission had not adequately explained why these were insufficient in Grayscale’s case. Specifically, the Commission had found that the Grayscale product failed both prongs of the “significant market test,” i.e., that there is a reasonable likelihood that someone trying to manipulate the price of the proposed ETP would have to trade on a market that is subject to a surveillance agreement (here, such an agreement existed with the Chicago Mercantile Exchange, where bitcoin futures trade); and that it is unlikely that trading in the proposed ETP would dominate the surveilled market. On the first prong, the court found that the Commission had not explained why the CME’s oversight of the bitcoin futures market would not detect fraud, in light of the 99% correlation of prices between the bitcoin and bitcoin futures markets. On the second prong, the Commission had not adequately explained how the Grayscale ETP could become the predominant influence on the CME futures market, in light of the facts that Grayscale holds just 3.4% of outstanding bitcoin, and that the much larger bitcoin spot market would be more difficult to manipulate than the CME futures market.

Insider Trading

SEC v. Charles Rustin Holzer et al., Lit. Rel. 25805 (Aug. 7, 2023) – In a litigated matter, the SEC obtained a final consent judgment against a family office executive and former broker charged with insider trading in stock of Dun & Bradstreet Corp. (DNB). The complaint alleges that nine days before an acquisition announcement, the executive traded on MNPI about the prospective acquisition that he received from an investment adviser pursuant to a non-disclosure agreement, resulting in $391,000 in ill-gotten profits. Charges under Exchange Act Section 10(b) and Rule 10b-5 thereunder. Remedies included permanent injunction and civil penalty of $1.2m.

SEC v Catenacci, Lit. Rel. 25813 (Aug. 21, 2023) – In a settlement of a litigated matter, the SEC alleged that a medical doctor, who was a lead clinical investigator for a cancer treatment developed by Five Prime Therapeutics, purchased Five Prime stock after learning of positive clinical trial results. The final judgment includes a permanent injunction and a civil penalty of $50k.

SEC v. Costa Neto, Lit. Rel. 25815 (Aug. 24, 2023) – In a litigated matter, an attorney from Brazil was charged with trading on MNPI he obtained while working as a visiting attorney at a global law firm, concerning an upcoming acquisition of CIT BioPharma by Swedish Orphan Biovitrium AB. Charges under Exchange Act Section 10(b) and Rule 10b-5.

FCPA

In the Matter of Grupo Aval Acciones y Valores S.A., et al., Rel. 34-98103, AAER-4437 (Aug. 10. 2023) – In a settled matter, a Colombian financial holding company and its merchant bank subsidiary were charged with participating in a bribery scheme related to the largest highway construction project in the history of Colombia, known as Rua del Sol II. The bribe scheme took place against a backdrop of a failure to maintain sufficient internal accounting controls and books and records that concealed the bribes as legitimate expenses. Charges under Exchange Act Section 13(b)(2)(A), (B). In a related action, the DOJ imposed a $20.3m penalty. Penalties included cease-and-feist and disgorgement of $32m plus prejudgment interest of $8.1m.

In the Matter of 3M Company, Rel. 34-98222, AAER-4450 (Aug. 25, 2023) – In a settled matter, 3M’s Chinese subsidiary was charged with arranging for Chinese health care officials to attend overseas conferences and other events, ostensibly for marketing purposes but in fact to provide the officials with “Tourism Activities.” Related recordkeeping and internal accounting controls violations were also charged. The respondent was credited for self-reporting, cooperation, and remedial efforts. Charges under Exchange Act Sections 13(b)(2)(A) and (B). Remedies included cease-and-desist, disgorgement of approximately $3.5m plus prejudgment interest, and a civil penalty of $2m.

(NSEU 23-10)

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.