SEC Enforcement Proceedings

By: Jeffrey Haber As we have noted in prior articles, fraudulent schemes come in many forms. One type of fraud that has gained favor among the unscrupulous involves cryptocurrency: in particular, using cryptocurrency as an investment platform. Unbeknown to investors – at least, until it is too late –these investment opportunities are both a Ponzi scheme and a Pyramid scheme at the same time.  On May 13, 2022, the Commodity Futures Trading Commission (“CFTC”) announced ( here

By: Jeffrey M. Haber On June 5, 2019, the Securities and Exchange Commission (“SEC” or the “Commission”) adopted “Regulation Best Interest” or “Reg BI”. 1 In connection with adoption of the regulation, the SEC issued a 175-page release in which it offered guidance on how the Commission interprets Reg BI. 2 The regulation established a standard of conduct for broker-dealers and associated persons when they recommend securities transactions to retail customers. Reg BI is inte

By: Jeffrey M. Haber Variable annuities are complex securities pursuant to which customers, typically seniors and vulnerable adults, enter into long-term contracts with an issuing company, such as a life insurance company. Variable annuities entitle customers to certain payments depending on the terms of the contract and the performance of an underlying portfolio of securities. Variable annuities often have surrender periods, before the end of which customers must pay a fee f

By: Jeffrey M. Haber Trust. Trust is an important part of investing. Studies show that trust has a significant impact on investor decision making, such as investing with a hedge fund manager. As one commentator observed, “Clients entrust their capital to advisers to invest, often at the advisers’ discretion … That requires an immense amount of trust. And when properly earned and thoughtfully applied, that trust pays off. It sets in motion successful ideas that benefit both th

By: Jeffrey M. Haber On May 6, 2022, the Securities and Exchange Commission (“SEC” or the “Commission”) announced ( here ) the filing of fraud charges against MCC International Corp. (“MCC”), which does business as Mining Capital Coin Corp., its founders Luiz Carlos Capuci, Jr. (“Capuci”) and Emerson Souza Pires (“Pires”), and two other entities controlled by Capuci, CPTLCoin Corp. (“CPTLCoin”) and Bitchain Exchanges (“Bitchain”), in connection with the unregistered offerings

By: Jeffrey M. Haber Affinity fraud is a type of securities fraud in which the promoter of the fraud preys upon members of an identifiable group, such as a religious or ethnic community, the elderly, or a professional group. The promoter of an affinity fraud frequently is – or pretends to be – a member or a good friend of the group. The promoter often enlists respected members of the community or religious leaders from within the group to disseminate information about the sch

By: Jeffrey M. Haber “A boiler room is a place or operation—usually a call center—where high-pressure salespeople call lists of potential investors (‘sucker lists’) to peddle speculative, sometimes fraudulent, securities. Sucker lists identify victims of previous scams.” 1 The term “boiler room” originates from the practice of running high-pressure sales operations in the basement or boiler room of a building. 2 A broker using boiler-room tactics provides only upbeat, positi

By: Jeffrey M. Haber Broker-dealers are required to file suspicious activity reports (“SARs”) for transactions suspected to involve fraud or a lack of an apparent lawful business purpose. In that regard, under Section 17(a) of the Securities Exchange Act and Rule 17a-8 promulgated thereunder, a registered broker-dealer is required to file a SAR when it knows, suspects, or has reason to suspect that certain transactions (1) involve funds derived from illegal activity, (2) invo

By:  Jeffrey M. Haber This Blog has written numerous articles about Ponzi schemes and the enforcement proceedings that resulted from them.  See ,  e.g. , here ,  here ,  here ,  here , and  here . In a Ponzi scheme, the operator creates an investment program in which “profits” are paid to earlier investors with money taken from later investors. The “profits” are, therefore, fictitious instead of returns on investment. Ultimately, Ponzi schemes collapse under their own weight,

By:  Jeffrey M. Haber This Blog has written numerous articles about Ponzi schemes and the enforcement proceedings that resulted from them.  See ,  e.g. , here ,  here ,  here  and  here . In a Ponzi scheme, the operator creates an investment program in which “profits” are paid to earlier investors with money taken from later investors. The “profits” are, therefore, fictitious instead of returns on investment. Ultimately, Ponzi schemes collapse under their own weight, taking i

By Jeffrey M. Haber An investment adviser is a fiduciary, and as such is held to the highest standard of conduct and must act in the best interest of his/her client. 1 This means, among other things, that an investment adviser has an affirmative duty of utmost good faith and full and fair disclosure of all material facts. 2 An investment adviser’s fiduciary duties are made enforceable under Section 206 of the Investment Advisers Act of 1940 – the Act’s anti-fraud provisions.

By  Jeffrey M. Haber Cybersecurity disclosures are important for a number of constituencies. For example, consumers have a right to know if their data has been compromised at the company in which they do (or have done) business. Investors have a right to know if the company in which they have invested, or will invest, is the victim of a data breach and how such a breach has impacted (or will impact) the company’s business and operations.  As cybersecurity breaches become more

“Pumping a few squirts of vanilla hazelnut syrup into your latte—nothing wrong with that. Pumping up a coffee stock with hype and false statements? That’s illegal, and the Securities and Exchange Commission (SEC) recently announced fraud charges against alleged perpetrators of just such a scheme:” a long-running international securities fraud scheme in which the promoters and their associates allegedly sold millions of shares in multiple microcap—or “penny”—stock companies us

In today’s installment of Enforcement News, we examine an enforcement action brought by the Securities and Exchange Commission (“SEC” or the “Commission”) in the Southern District of New York against Aron Govil, the controlling shareholder and officer of two publicy traded companies – Cemtrex Inc. (“Cemtrex”) and Telidyne Inc. (“Telidyne”). According to the SEC, Govil committed a series of fraudulent activities, including scalping and the misappropriation of investor funds. T

The Securities Exchange Act of 1934 (“Exchange Act”) governs the way in which the nation’s 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 broker is def

Cherry picking is the process of selecting securities to invest in by mimicking the trading of other investors (both individual and institutions) who are successful over a long period of time. In other words, cherry-pickers base their trading around the techniques and strategies of other investors.  Anyone can implement a cherry-picking strategy. Indeed, cherry picking is used by both professional and retail investors alike.  Cherry picking can be an effective way to generate

Less than three weeks ago, this Blog wrote about an enforcement action brought by the Securities and Exchange Commission (“SEC” or the “Commission) against Zachary Horwitz, a.k.a. Zach Avery, a Los Angeles-based actor known for low budget features such as “Trespassers” and “The White Crow”, and his company 1inMM (one in a million) Capital, LLC, for allegedly running a Ponzi scheme that raised over $690 million ( here ). As discussed in the article, the scheme had two componen

In today’s installment of Enforcement News, this Blog examines, among other things, the fiduciary duties of investment advisers, in particular, the duty of loyalty. An investment adviser is a fiduciary, and as such is held to the highest standard of conduct and must act in the best interest of his/her client. SEC v. Capital Gains Research Bureau, Inc. , 375 U.S. 180, 194 (1963). This means, among other things, that an investment adviser has an affirmative duty of utmost good

It has been over 100 years since Charles Ponzi was indicted for the fraudulent scheme that bears his name. In a Ponzi scheme, the operator creates an investment program in which “profits” are paid to earlier investors with money taken from later investors. The “profits” are, therefore, fictitious instead of returns on investment. Ultimately, Ponzi schemes collapse under their own weight, taking investors, many of whom are the later ones in the scheme, down with them. Unfortun

March 2021 has been a busy month for the Enforcement Division of the Securities and Exchange Commission (“SEC” or “Commission”). Since our last Enforcement News article ( here ), the SEC has announced six enforcements proceedings and/or settlements involving some type of securities fraud.  The type of conduct addressed by the SEC in these proceedings and/or settlements is varied and limited only by the imagination of those who perpetrated the fraud. Thus, for example, fraudst