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SEC Enforcement Actions

					
The  (SEC) is the United States agency with primary responsibility for enforcing federal securities laws. Whistleblowers with knowledge of violations of the federal securities laws can submit a claim to the SEC under the SEC Whistleblower Reward Program, and may be eligible to receive 听monetary rewards and protection against retaliation by employers.


Below are summaries of recent SEC settlements or successful prosecutions. If you believe you have information about fraud which could give 听rise to an SEC enforcement action and claim under the SEC Whistleblower Reward Program, please contact us to speak with one of our experienced whistleblower attorneys.

				

			

			
						
					
			

	
		
		

			

				
				
April 5, 2018

				 The SEC announced a whistleblower award of more than $2.2 million to a former company insider whose tips helped the agency open an investigation that led to an enforcement action. The whistleblower first reported the information to another federal agency and later provided the same information to the SEC.听This is the first award paid under the 鈥渟afe harbor鈥� of Exchange Act Rule 21F-4(b)(7), which provides that if a whistleblower submits information to another federal agency and submits the same information to the SEC within 120 days, then the SEC will treat the information as though it had been submitted to the SEC at the same time that it was submitted to the other agency.听				 					 

						
Tagged in:
													  SEC Whistleblower Reward Program, 
													  Whistleblower Case, 
													  Whistleblower Rewards, 
												
						

					
	
							
	
		
		
	


 			




	
		
		

			

				
				
April 2, 2018

				 The SEC charged听Sohrab 鈥淪am鈥� Sharma and Robert Farkas听two co-founders of a purported financial services start-up with orchestrating a fraudulent initial coin offering (ICO) that raised more than $32 million from thousands of investors last year. Criminal authorities separately charged and arrested both defendants. The SEC's complaint alleges that Sharma and Farkas, co-founders of Centra Tech. Inc., masterminded a fraudulent ICO in which Centra offered and sold unregistered investments through a "CTR Token." Sharma and Farkas allegedly claimed that funds raised in the ICO would help build a suite of financial products. They claimed, for example, to offer a debit card backed by Visa and MasterCard that would allow users to instantly convert hard-to-spend cryptocurrencies into U.S. dollars or other legal tender.听听In reality, the SEC alleges, Centra had no relationships with Visa or MasterCard. The SEC also alleges that to promote the ICO, Sharma and Farkas created fictional executives with impressive biographies, posted false or misleading marketing materials to Centra鈥檚 website, and paid celebrities to tout the ICO on social media.听				 					 

						
Tagged in:
													  Cryptocurrency, 
													  Misrepresentations, 
													  Regulatory Violations, 
												
						

					
	
							
	
		
		
	


 			




	
		
		

			

				
				
April 2, 2018

				 The SEC has charged Michael Liberty, the founder of the fintech startup now known as Mozido Inc., with a scheme to trick hundreds of investors into investing in his shell companies instead of Mozido. Liberty and his accomplices then allegedly stole most of the more than $48 million raised to fund a lavish lifestyle that included private jet flights, multi-million dollar residences, expensive cars, and movie production ventures.听The SEC鈥檚 complaint, filed March 30, 2018, alleges that Liberty, his wife Brittany Liberty, his attorney George Marcus, his cousin Richard Liberty, and his cousin鈥檚 friend Paul Hess induced investors to purchase unregistered interests in shell companies controlled by Michael Liberty that supposedly owned transferrable interests in Mozido. In reality, the shell companies either did not own or were not permitted to transfer interests in the company. The SEC also alleges that Michael Liberty and his accomplices lied to investors about Mozido鈥檚 valuation and finances, the amount Michael Liberty had personally invested in Mozido, and the use of their funds. According to the complaint, Michael Liberty and his accomplices later orchestrated a series of transactions in which they used investors鈥� own money to heavily dilute their interests and duped investors into trading securities for those worth more than 90 percent less.听				 					 

						
Tagged in:
													  Misrepresentations, 
													  Securities Fraud, 
												
						

					
	
							
	
		
		
	


 			




	
		
		

			

				
				
March 30, 2018

				 The SEC charged Kirbyjon Caldwell听the pastor of one of the largest Protestant churches in the country and Gregory Alan Smith, a self-described financial planner in a scheme to defraud elderly investors by selling them interests in defunct, pre-Revolutionary Chinese bonds.听The SEC's complaint alleges that, in 2013 and 2014, Caldwell, Senior Pastor at Windsor Village United Methodist Church in Houston, and Smith, who the Financial听Industry Regulatory Authority听has barred from the broker-dealer business since 2010, targeted vulnerable and elderly investors with false assurances that the bonds鈥攃ollectible memorabilia with no meaningful investment value鈥攚ere worth millions of dollars.听 Caldwell and Smith raised at least $3.4 million from 29 mostly elderly investors, some of whom liquidated their annuities to invest in this scheme.听Caldwell and Smith are alleged to have taken approximately $1.8 million of investor funds to pay for personal expenses, including mortgage payments in the case of Caldwell and luxury automobiles in the case of Smith.听Offshore individuals received most of the remaining funds.听				 					 

						
Tagged in:
													  Misrepresentations, 
													  Securities Fraud, 
												
						

					
	
							
	
		
		
	


 			




	
		
		

			

				
				
March 28, 2018

				 Aegis Capital Corporation, a New York-based brokerage firm, has admitted that it failed to file Suspicious Activity Reports (SARs) on numerous suspicious transactions.Broker-dealers are required to file SARs for certain transactions suspected to involve fraudulent activity or have no business or apparent lawful purpose. The SEC鈥檚 order found that Aegis failed to file SARs on suspicious transactions that raised red flags indicating the transactions were potentially related to the market manipulation of low-priced securities.听The SEC鈥檚 order found that Aegis willfully violated an SEC financial recordkeeping and reporting rule.听Aegis agreed to pay a $750,000 penalty and retain a compliance expert.听听FINRA also听announced a settlement听with Aegis today that includes an additional $550,000 penalty.听In a separate settled order, Aegis鈥� former anti-money laundering (AML) compliance officer Kevin McKenna was found to have aided and abetted the firm鈥檚 violations.听Aegis CEO Robert Eide was found to have caused them.听Without admitting or denying the SEC鈥檚 findings, Eide and McKenna agreed to pay penalties of $40,000 and $20,000, respectively.听听McKenna also agreed to a prohibition from serving in a compliance or AML capacity in the securities industry with a right to reapply.听				 					 

						
Tagged in:
													  Financial and Investment Fraud, 
													  Financial Institution Fraud, 
													  Money Laundering, 
													  Regulatory Violations, 
													  Securities Fraud, 
												
						

					
	
							
	
		
		
	


 			




	
		
		

			

				
				
March 27, 2018

				 The SEC announced charges against Wedbush Securities Inc. for failing to supervise employee Timary Delorme after the broker-dealer ignored numerous red flags indicating that Delorme was involved in a long-running pump-and-dump scheme targeting retail investors. Delorme agreed to settle fraud charges stemming from the same scheme. This is the second SEC action against Wedbush this year and the third since 2014.听The SEC鈥檚 investigation found that Delorme 鈥� a registered representative of Wedbush 鈥� received undisclosed benefits for investing her customers in microcap stocks that were the subject of a 鈥減ump-and-dump鈥� scheme orchestrated by Izak Zirk Engelbrecht, who was previously charged by the Commission and criminal authorities in separate actions. According to the SEC鈥檚 order, Wedbush ignored multiple signs of Delorme鈥檚 fraud, including a customer email outlining Delorme鈥檚 involvement in the scheme and multiple FINRA arbitrations and inquiries regarding her penny stock trading activity. In response to these clear red flags, Wedbush conducted two flawed and insufficient investigations into Delorme鈥檚 conduct but failed to take appropriate action.听Without admitting or denying the findings, Delorme agreed to entry of the order, which requires her to pay a $50,000 penalty, imposes industry and penny stock bars, and orders her to cease and desist from future violations.听				 					 

						
Tagged in:
													  Regulatory Violations, 
													  Securities Fraud, 
												
						

					
	
							
	
		
		
	


 			




	
		
		

			

				
				
March 27, 2018

				 The SEC charged California-based energy storage and power delivery product manufacturer Maxwell Technologies, Inc. and one of its former sales executives Van Andrews in a fraudulent revenue recognition scheme designed to inflate the company鈥檚 reported financial results.听According to the SEC鈥檚 order, Maxwell Technologies prematurely recognized revenue from the sale of ultracapacitors - small energy storage and power delivery products - in order to better meet analyst expectations. Andrews, a former Maxwell sales executive and corporate officer, allegedly inflated the company鈥檚 revenues by entering into secret side deals with customers and by falsifying records in order to conceal the scheme from Maxwell鈥檚 finance and accounting personnel and external auditors. Maxwell鈥檚 former CEO David Schramm and former controller James DeWitt also were charged for failing adequately to respond to red flags that should have alerted them to the misconduct.听The SEC鈥檚 order found that Maxwell and Andrews violated antifraud, books and records, and internal accounting controls provisions of the federal securities laws and that Andrews caused certain violations by Maxwell. Both Maxwell and Andrews consented to the SEC鈥檚 order without admitting or denying the allegations and agreed to pay penalties of $2.8 million and $50,000, respectively. Andrews also agreed to be barred from serving as an officer or director of a public company for five years. Without admitting or denying the findings that they caused certain violations by Maxwell, Schramm agreed to pay a total of nearly $80,000 in disgorgement, prejudgment interest, and penalty and DeWitt agreed to pay a $20,000 penalty.听				 					 

						
Tagged in:
													  Accounting Fraud, 
													  Misrepresentations, 
													  Securities Fraud, 
												
						

					
	
							
	
		
		
	


 			




	
		
		

			

				
				
March 26, 2018

				 The SEC announced a settled action against Canada-based Kinross Gold Corporation for Foreign Corrupt 91吃瓜网 Act violations arising from the company鈥檚 repeated failure to implement adequate accounting controls of two African subsidiaries.听According to the SEC鈥檚 order instituting a settled administrative proceeding, Kinross Gold acquired the African subsidiaries in a $7.1 billion transaction in 2010, understanding that the subsidiaries lacked anti-corruption compliance programs and internal accounting controls. It took Kinross Gold almost three years to implement adequate controls, despite multiple internal audits flagging widespread deficiencies.听The SEC鈥檚 order finds that Kinross Gold violated books and records and internal accounting controls provisions of the federal securities laws. Without admitting or denying the findings, Kinross agreed to a cease-and-desist order, a penalty of $950,000 and undertakings to report on its remedial steps for a period of one year.听				 					 

						
Tagged in:
													  FCPA, 
													  Securities Fraud, 
												
						

					
	
							
	
		
		
	


 			




	
		
		

			

				
				
March 23, 2018

				 The SEC announced charges and a preliminary injunction and asset freeze against Niket Shah, a New Jersey resident who stole more than $250,000 in a Ponzi scheme in which his friends and coworkers invested.听Based on investor complaints, the SEC moved quickly to investigate and charge Shah.听According to the SEC's complaint, unsealed on March 22, 2018, in federal court in Brooklyn, New York, Shah used Spark Trading Group, LLC to defraud more than 15 investors into contributing hundreds of thousands of dollars to two funds that Shah marketed.听Shah obtained investments for the funds by lying about his success as a trader, Spark Trading's returns, and how he intended to use investors'听money, including altering financial statements to make the funds appear profitable when they were actually losing money.听For instance the complaint alleges that Shah promised investors he would pay them monthly returns and guaranteed against losses.听According to the complaint, Shah misused investor money for his own benefit and suffered substantial losses on the amounts actually invested.听When investors sought their money back, he lied and said the money had been frozen by government agencies, including the Commission.听				 					 

						
Tagged in:
													  Misrepresentations, 
													  Ponzi Schemes, 
													  Securities Fraud, 
												
						

					
	
							
	
		
		
	


 			




	
		
		

			

				
				
March 19, 2018

				 The SEC announced that Electronic Transaction Clearing听(ETC), a registered broker-dealer headquartered in Los Angeles, has agreed to settle charges that it illegally placed more than $25 million of customers鈥� securities at risk in order to fund its own operations.听Among other things, the SEC found that ETC violated the Customer Protection Rule, which is intended to safeguard customers鈥� cash and securities so that they can be promptly returned if a broker-dealer fails. It requires broker-dealers to maintain physical possession or control of customers鈥� fully paid and excess margin securities. According to the SEC鈥檚 order, ETC put customer securities at risk numerous times in 2015. ETC improperly transferred almost $8 million of fully paid securities belonging to cash customers to an account at another clearing firm to meet margin requirements on borrowed funds, and the firm used more than $17 million of securities of two customers to borrow funds without consent. The order also finds that ETC improperly commingled customers鈥� securities and allowed a customer鈥檚 excess margin securities to be loaned out by the other clearing firm.听The SEC鈥檚 order charged ETC with violating the Securities Exchange Act and Customer Protection Rule听as well as other related rules. Without admitting or denying the SEC鈥檚 findings, ETC agreed to entry of the order, to pay an $80,000 penalty, to cease and desist from committing or causing any similar violations in the future, and to be censured. ETC cooperated with the SEC鈥檚 investigation and has taken remedial steps to prevent future violations.听				 					 

						
Tagged in:
													  Financial Institution Fraud, 
													  Regulatory Violations, 
													  Securities Fraud, 
												
						

					
	
							
	
		
		
	


 			


											

						

								

									
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