SEC Enforcement Proceedings

Concealment of material information and market manipulation. Both forms of improper conduct were on display in Securities and Exchange Commission v. Airborne Wireless Network , 21-cv-01772 (S.D.N.Y.) ( here ), a case we examine below.  The Importance of The Disclosure of Information Disclosure of information has long been a mission of the Securities and Exchange Commission (“SEC” or the “Commission”). As noted on the SEC’s website: “ he laws and rules that govern the securiti

In mid-December 2020, the Securities and Exchange Commission (“SEC” or “Commission”) issued an investor alert ( here ), warning of “Investment Scam Complaints on the Rise.” In the alert, the SEC urged investors to be on the lookout for investment scams, such as Ponzi schemes, fake CD scams, bogus stock promotions, and community-based financial scams. The SEC said that during the COVID-19 pandemic it had experienced a significant uptick in tips, complaints, and referrals invol

“Boiler room” brokerage firms are investment houses in which a broker uses high-pressure sales tactics to sell speculative and risky securities. A broker using boiler-room tactics provides customers – usually persons who received a cold call from the broker – with only positive information about the company and its stock. Boiler-room brokers typically tell customers that a stock is “a sure thing” or a “can’t miss, once in a lifetime” opportunity. Boiler-room brokers pressure

Affinity fraud is a type of securities fraud. In this form of fraud, the person committing 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 fraudster often enlists respected members of the community or religious leaders from within the group to disseminate information about the sc

In prior articles, we have examined enforcement actions (and settlements thereof) brought by the Securities and Exchange Commission (“SEC” or “Commission”) involving false statements about the subject companies and COVID-19. ( E.g. , here .) Those actions involved micro-cap companies and the products they claimed to offer to address the pandemic. As we noted in those articles, there was a common thread between the actions – they involved pump and dump schemes in which the com

Brokerage firms, financial institutions and investment advisers are required to provide suitable investment recommendations and strategies to a customer that are consistent with the customer’s investment objectives, risk tolerance and financial needs. See , e.g. , here and here (FINRA Rule 2111). This requirement is based on the “know your customer” rule ( here (FINRA Rule 2090)), which requires brokerage firms, financial institutions and investment professionals to be awa

The term “digital asset” or “digital token” generally refers to an asset that is issued and transferred using distributed ledger or blockchain technology, including “cryptocurrencies,” “coins,” and “tokens.” A blockchain or distributed ledger is a peer-to-peer database spread across a network, that records all transactions in theoretically unchangeable, digitally recorded data packages. The system relies on cryptographic techniques for secure recording of transactions. Blockc

A Ponzi scheme is an investment fraud that involves the payment of purported returns to existing investors from funds contributed by new investors. Ponzi scheme organizers often solicit new investors by promising to invest funds in opportunities claimed to generate high returns with little or no risk. With little or no legitimate earnings, Ponzi schemes require a constant flow of money from new investors to continue. Ponzi schemes inevitably collapse, most often when it becom

On August 10, 2020, the Securities and Exchange Commission (“SEC” or the “Commission”) announced ( here ) that Interactive Brokers LLC (“Interactive Brokers”) agreed to pay $11.5 million to settle charges it repeatedly failed to file Suspicious Activity Reports (“SARs”) for U.S. microcap securities trades it executed on behalf of its customers. In parallel actions, the Financial Industry Regulatory Authority (“FINRA”) and the Commodity Futures Trading Commission (“CFTC”) also

Our country’s teachers are everyday heroes whose hard work and dedication are vital to cultivating our future leaders and ensuring America’s continued strength.  Jay Clayton, Chairman, Securities and Exchange Commission. In June 2019, the Securities and Exchange Commission (“Commission” or “SEC”) launched the Teachers’ Initiative and the Military Service Members’ Initiative. The primary purpose of these initiatives is to ensure that public school educators, veterans, and acti

Risk. Every investment decision carries with it some degree of risk. The greater the risk, the greater the reward. Of course, the flip side is also true. The greater the risk, the greater the potential to lose some or all of the money invested. Thus, when it comes to investing, there is no such thing as a sure thing. Notwithstanding, there are people who promise no risk, no loss investing. They claim that they can place a person’s money into a “can’t miss” investment, where t

Elder financial exploitation is a significant problem. Everyone reading this article may be affected in some way. Family, friends, neighbors, colleagues, and/or customers can fall victim to financial exploitation. All of us are at risk of being financially abused and/or exploited as we grow older. Seniors are Particularly Vulnerable to Financial Abuse and Exploitation “Scam artists prey on seniors who are too polite and have difficulty saying ‘no’ or feel indebted to someone

Pandemic-related fraud is in vogue these days. The unscrupulous continue to disseminate false information to the public in the hope of securing a personal benefit from the fear surrounding the virus.   As we previously noted ( here ), since February of this year, the Securities and Exchange Commission (“SEC” or “Commission”)  has released several investor warnings about the prevalence of fraud, illicit schemes and other misconduct related to the coronavirus health emergency (

In times of crisis, unscrupulous people often disseminate false information to the public in the hope of securing a personal benefit from the fear and concern surrounding the event. Such is the case with the COVID-19 pandemic.  Since February of this year, the Securities and Exchange Commission (“SEC” or “Commission”)  has released several warnings to investors to beware of fraud, illicit schemes and other misconduct during the coronavirus health emergency ( here ). In fact,

Regulators and enforcement authorities have often expressed concerns about the revenue recognition practices of corporate entities and those who implement them. Indeed, improper revenue recognition is one of the most common accounting errors pursued by the Securities and Exchange Commission (“SEC” or “Commission”).  To properly recognize revenue, the revenue must be realized and earned. Under generally accepted accounting principles, revenue may be recognized when all the fol

“Spoofing is a type of scam in which criminals attempt to obtain someone’s personal information by pretending to be a legitimate business, a neighbor, or some other innocent party.” See Julia Kagan, Spoofing , Investopedia (updated Jan. 29, 2020) (“ Spoofing ”) ( here ). Spoofing can occur in any form of online communication, including emails, text messages, telephone calls, and websites. Id . Although spoofing comes in many forms, the goal of spoofing is the same: to deceiv

On February 27, 2020, the Securities and Exchange Commission (“SEC”) announced ( here ) that it settled charges against Wells Fargo Clearing Services and Wells Fargo Advisors Financial Network (collectively, “Wells Fargo”) for failing to supervise investment advisers and registered representatives who recommended single-inverse ETF investments to retail investors, and for lacking adequate compliance policies and procedures with respect to the suitability of those recommendati

Endorsements from the rich and famous, such as movie and television stars, professional athletes, and musicians, can be found on TV, radio, and social media. Virtually any product or service can be endorsed by a celebrity. Sometimes the endorsement concerns investment opportunities. But, as the Securities and Exchange Commission (“SEC” or the “Commission”) has warned, “a celebrity endorsement does not mean that an investment is legitimate or that it is appropriate for all inv

Investment scams come in many forms. Affinity fraud is one type of investment scam. In this form of fraud, the person committing 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 fraudster often enlists respected members of the community or religious leaders from within the group t

A common fact pattern for accounting fraud involves a public company recognizing revenues before they are realized or realizable and earned. Senior executives who engage in such fraud often do so to meet or beat analysts’ revenue and earnings estimates. Case after case shows that the pressure to satisfy Wall Street (that is, meet or beat analysts’ estimates) is strong. When a public company and its senior executives issue materially false and misleading statements about the c