SEC Enforcement Proceedings

By: Jeffrey M. Haber As a general matter, “ cross trade is a practice where buy and sell orders for the same asset are offset without recording the trade on the exchange.” An adviser that arranges for a security to be purchased from or sold to a client from its own account (which can include an affiliate of the advisor) – as opposed to purchasing or selling the security in the secondary markets – is engaging in a “principal trade.” An “agency cross trade” occurs when an advi

By: Jeffrey M. Haber “Ensuring that potential whistleblowers can communicate directly with the Commission is a critical part of the SEC’s oversight mandate” On numerous occasions, we have written about the Securities and Exchange Commission’s (“SEC” or the “Commission”) whistleblower program and, in particular, the success of the program with respect to detecting and preventing violations of the federal securities laws. The success of the program depends, in large part, on th

By:  Jeffrey Haber A multi-level marketing program is a relative of pyramid scheme. “ pyramid scheme is an illegal investment scam based on a hierarchical setup.”  In the classic pyramid scheme, “participants attempt to make money solely by recruiting new participants, usually where: he promoter promises a high return in a short period of time; o genuine product or service is actually sold; and he primary emphasis is on recruiting new participants.” Promoters of a pyramid sc

By: Jeffrey M. Haber On December 22, 2020, the Securities and Exchange Commission (the “SEC” or the “Commission”) adopted significant amendments to Rule 206(4)-1 promulgated under the Investment Advisers Act of 1940 (the “Amended Marketing Rule”). Rule 206(4)-1 governs marketing by Commission-registered investment advisers. 1 Among other things, the Amended Marketing Rule states that it is unlawful for registered investment advisers, directly or indirectly, to disseminate any

By:  Jeffrey M. Haber In July of this year, we wrote about a fraud action involving the EB-5 Immigrant Investor Program (“EB-5 Program” or “Program”) ( here ). Under the EB-5 Program, investors are eligible for permanent residency status in the U.S. if they make a qualifying investment in a new commercial enterprise in the U.S. that creates a certain number of permanent full-time jobs for qualified U.S. workers. As we often do in our articles, we examine the legal issues invo

By: Jeffrey M. Haber In the merger and acquisition world it is common to form a special purpose acquisition company (“SPAC”). A SPAC is a company with no underlying business operations that is formed to raise capital through an initial public offering (“IPO”) for the purpose of using the proceeds to acquire an unidentified private operating company at a later date but within a specified period of time (typically two years). A SPAC is also known as a blank check company ( i.e.

By: Jeffrey M. Haber Taxes. Everyone hates paying them.  As one might expect, taxpayers often look for any opportunity to minimize their tax obligation. When securities are involved, especially in taxable accounts, a taxpayer may look to his or her broker or investment adviser to develop strategies that will mitigate the tax impact of their investments. An investment adviser may, for example, replace a security with an unrealized loss with another security to capture the tax

Market analysts study publicly traded companies and make recommendations on the securities of those companies. 1 Most analysts specialize in a particular industry or sector of the economy. 2 As noted by the Securities and Exchange Commission (“SEC” or “Commission”), analysts exert considerable influence on a company. “Analysts’ recommendations or reports can influence the price of a company’s stock—especially when the recommendations are widely disseminated through televisi

By: Jeffrey M. Haber “Legal cannabis is an emerging industry, which makes it prime hunting ground for financial predators who will use every trick in the book to lure investors into their schemes,” said Cari Fais, acting director of the New Jersey Division of Consumer Affairs ( here ). The Securities and Exchange Commission (“SEC” or the “Commission”) recognized this problem in 2014, when it issued an investor alert about investing in cannabis companies ( here ), and in 2018,

By: Jeffrey M. Haber The Securities Exchange Act of 1934 (“Exchange Act”) governs the way in which the securities markets and its brokers and dealers operate. Under the Exchange Act, most “brokers” and “dealers” must register with the Securities and Exchange Commission (“SEC” or the “Commission”) and join a “self-regulatory organization,” or SRO. Section 15(a)(1) of the Exchange Act, 15 U.S.C. §78o(a). Under Section 3(a)(4)(A) of the Exchange Act, 15 U.S.C. §78c(a)(4)(A), a b

By: Jeffrey M. Haber Celebrities often use their fame and likeness to promote goods and services. After all, it is a way to make extra money.  Sometimes, when securities are involved, the celebrity will promote an investment opportunity without making any disclosure about whether they are paid for their endorsement. Even worse, the celebrity makes materially false and misleading statements about the investment opportunity. When the investment opportunity involves a virtual to

By: Jeffrey M. Haber We have often written about the SEC’s whistleblower program and, in particular, the success of the program with respect to detecting and preventing violations of the federal securities laws. The success of the program depends, in large part, on the ability of would-be whistleblowers to have the freedom to report wrongdoing without fear of reprisal. Taking steps to impede a departing employee from sharing information with the SEC impairs this free flow of

By: Jeffrey M. Haber In promoting a scam, fraud operators expect investors will jump at the opportunity to obtain a life-changing financial reward from their investment, especially if the investment opportunity does not require a large outlay of money. For this reason, many investment frauds involve false promises of extraordinary payouts with minimal risk. Unfortunately, too many investors are lulled into believing these promises and give their hard-earned money to these fra

By:   Jeffrey M. Haber “Front-running” involves trading ahead of large, nonpublic orders of market participants to benefit from the market impact of those large orders. Large orders can have an impact on the price of a security when they cause an imbalance in the supply or demand for that security, thereby causing the price of that security to increase or decrease. Front-running was the focus of an enforcement action that the Securities and Exchange Commission (“SEC”) brought

By: Jeffrey M. Haber As a general matter, a “broker” must register with the SEC in order to transact business on behalf of another person. It is, therefore, unlawful for any person to “effect any transactions in, or to induce or attempt to induce the purchase or sale of, any security” unless that person is registered with the Securities and Exchange Commission (“SEC”). 1 Whether a person is acting as a “broker” is governed by Section 3(a)(4)(A) of the Exchange Act, 15 U.S.C.

By: Jeffrey M. Haber Tasty Minstrel Games LLC (“TMG”) is a company, located in Utah, that produces board games. 1 The best-known game released by TMG is Yokohama, a board game that takes place in the Meiji era of Japanese history.  Another game that TMG produces is “Ponzi Scheme”. In Ponzi Scheme, players try to trick each other into funding fraudulent investments with the promise of extremely high returns. Like a real Ponzi scheme, the scheme works as long as new investors

Financial statements provide important information about a corporation’s financial health. 1 They give insight into the corporation’s operations, cash flow, and overall financial condition. 2 Investors and shareholders use financial statements to make decisions about whether to purchase the securities of a corporation and, once purchased, the performance of their investment. 3 Given the importance of accurate financial statements to the decision-making process of investors

By: Jeffrey M. Haber The disclosure of related-party transactions is an important part of a company’s corporate governance and financial statements. It provides transparency as to how the entity’s financial position and financial performance may be affected by transactions with related parties. 1 The definition of a related party is not limited. A related party may be someone who has direct or indirect control (including common control), joint control or significant influence

By:  Jeffrey M. Haber “Understanding what investors value and look for in a financial adviser is critical to both the client’s and adviser’s success.” 1 One factor investors consider is reputation. For an adviser, a good reputation can be a valuable tool. It can be used to attract new clients and generate revenue. But, it can also undermine an advisor’s business in complex litigation. Indeed, there are many circumstances that can negatively impact an adviser’s reputation (

By: Jeffrey M. Haber The growth of information technology and electronic communication over the past few decades has made it increasingly easy to collect, maintain, and transfer personal information. 1 With the advancement of technology, the public faces repeated threats to the integrity and privacy of their personal information. The federal government has taken steps to help protect individuals, and to help individuals protect themselves, from the risks of theft, loss, and