SEC.gov | SEC Monitoring Impact of Hurricane Ida on Capital Markets

SEC Chair Gary Gensler has directed the staff to carefully monitor developments as a result of Hurricane Ida making landfall on Aug. 29, 2021. The safety of local residents is our highest priority. We invite inquiries from any person with obligations under the federal securities laws that may be affected by Hurricane Ida. The staff will evaluate the appropriateness of providing regulatory relief for those affected by the storm.

• Division of Examinations staff in the SEC's Miami Regional Office (covers Florida, Mississippi, Louisiana, U.S. Virgin Islands, and Puerto Rico) can be reached at 305-982-6300 or miami@sec.gov.
• Division of Examinations staff in the SEC's Atlanta Regional Office (covers Georgia, North Carolina, South Carolina, Tennessee, and Alabama) can be reached at 404-842-7600 or atlanta@sec.gov. Contact information for other regional offices can be found at https://www.sec.gov/page/sec-regional-offices.
• Division of Corporation Finance staff can be reached at 202-551-3500 or via online submission at http://www.sec.gov/forms/corp_fin_interpretive.
• Division of Investment Management staff can be reached at 202-551-6825 or imocc@sec.gov.
• Division of Trading and Markets staff can be reached at 202-551-5777 or tradingandmarkets@sec.gov.
• Office of Municipal Securities staff can be reached at 202-551-5680 or munis@sec.gov.

Individuals experiencing problems accessing their securities accounts or with similar questions or concerns relating to the hurricane are encouraged to contact the SEC's Office of Investor Education and Advocacy by phone at 1-800-SEC-0330 or email at help@sec.gov.

Investors should be vigilant for Hurricane Ida-related securities scams and check the background of anyone offering them an investment by using the free and simple search tool on Investor.gov. The Division of Enforcement will vigorously prosecute those who attempt to defraud victims of the storm. The SEC is asking investors to report any suspicious solicitations at http://www.sec.gov/complaint/tipscomplaint.shtml.

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5500 Greenwood Plaza Blvd., Ste 230
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SEC.gov | SEC Obtains Emergency Relief, Charges Couple Who Operated $18 Million Ponzi scheme

The Securities and Exchange Commission today announced that it filed an emergency action and obtained a temporary restraining order and an asset freeze to stop an alleged Ponzi scheme perpetrated by Shakopee, Minnesota residents Jason Dodd Bullard and Angela Romero-Bullard and the entity they control, Bullard Enterprises LLC. The SEC also named four relief defendants in the action – entities controlled by Bullard and Romero-Bullard that received investor funds from the alleged scheme.

According to the SEC's complaint, filed in the United States District Court for the District of Minnesota, from at least 2007 to 2021, the defendants raised approximately $17.6 million from as many as 200 investors to invest in Bullard Enterprises' purported Flagship and Platinum Funds. Bullard and Romero-Bullard allegedly told investors – most of whom were friends and family, including many elderly retirees – that their investments would be used to trade foreign currencies, and sent investors account statements showing that their accounts were increasing in value. In reality, according to the complaint, Bullard Enterprises stopped trading in foreign currencies in 2015, and the defendants simply used new investor money to pay purported "returns" to existing investors. Also according to the complaint, Bullard and Romero-Bullard misappropriated investors' money to support other businesses they owned, including a horse racing stable, limousine service, and health and fitness studio.

"Many of the investor-victims in this case were friends and family of Bullard and Romero-Bullard who trusted their promises about investment strategy and expected returns," said Nekia Hackworth Jones, Director of the SEC's Atlanta Regional Office. "As alleged in the complaint, Bullard and Romero-Bullard breached that trust for years. Instead of delivering on their promises, these individuals used false statements and fraudulent documents to convince investors to pour millions of dollars into bank accounts used almost exclusively for Ponzi-style payments and for their personal benefit."

The SEC's complaint charges the defendants with violating the antifraud provisions of the federal securities laws. In addition to temporary relief, the complaint seeks, among other things, preliminary and permanent injunctions, disgorgement, prejudgment interest, civil penalties, and an asset freeze.

The SEC's ongoing investigation is being conducted by enforcement staff in the Atlanta Regional Office. The investigative team includes Justin Delfino, Krysta Cannon, and Tiffany Kunkle, and is supervised by Peter Diskin and Justin Jeffries. The SEC's litigation will be led by Patrick Huddleston.

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SEC.gov | SEC Announces Three Actions Charging Deficient Cybersecurity Procedures

The Securities and Exchange Commission today sanctioned eight firms in three actions for failures in their cybersecurity policies and procedures that resulted in email account takeovers exposing the personal information of thousands of customers and clients at each firm. The eight firms, which have agreed to settle the charges, are: Cetera Advisor Networks LLC, Cetera Investment Services LLC, Cetera Financial Specialists LLC, Cetera Advisors LLC, and Cetera Investment Advisers LLC (collectively, the Cetera Entities); Cambridge Investment Research Inc. and Cambridge Investment Research Advisors Inc. (collectively, Cambridge); and KMS Financial Services Inc. (KMS). All were Commission-registered as broker dealers, investment advisory firms, or both.

According to the SEC's order against the Cetera Entities, between November 2017 and June 2020, cloud-based email accounts of over 60 Cetera Entities' personnel were taken over by unauthorized third parties, resulting in the exposure of personally identifying information (PII) of at least 4,388 customers and clients. None of the taken over accounts were protected in a manner consistent with the Cetera Entities' policies. The SEC's order also finds that Cetera Advisors LLC and Cetera Investment Advisers LLC sent breach notifications to the firms' clients that included misleading language suggesting that the notifications were issued much sooner than they actually were after discovery of the incidents.

According to the SEC's order against Cambridge, between January 2018 and July 2021, cloud-based email accounts of over 121 Cambridge representatives were taken over by unauthorized third parties, resulting in the PII exposure of at least 2,177 Cambridge customers and clients. The SEC's order finds that although Cambridge discovered the first email account takeover in January 2018, it failed to adopt and implement firm-wide enhanced security measures for cloud-based email accounts of its representatives until 2021, resulting in the exposure and potential exposure of additional customer and client records and information.

According to the SEC's order against KMS, between September 2018 and December 2019, cloud-based email accounts of 15 KMS financial advisers or their assistants were taken over by unauthorized third parties, resulting in the PII exposure of approximately 4,900 KMS customers and clients. The SEC's order further finds that KMS failed to adopt written policies and procedures requiring additional firm-wide security measures until May 2020, and did not fully implement those additional security measures firm-wide until August 2020, placing additional customer and client records and information at risk.

"Investment advisers and broker dealers must fulfill their obligations concerning the protection of customer information," said Kristina Littman, Chief of the SEC Enforcement Division's Cyber Unit. "It is not enough to write a policy requiring enhanced security measures if those requirements are not implemented or are only partially implemented, especially in the face of known attacks."

The SEC's orders against each of the firms finds that they violated Rule 30(a) of Regulation S-P, also known as the Safeguards Rule, which is designed to protect confidential customer information. The SEC's order against the Cetera Entities also finds that Cetera Advisors LLC and Cetera Investment Advisers LLC violated Section 206(4) of the Advisers Act and Rule 206(4)-7 in connection with their breach notifications to clients. Without admitting or denying the SEC's findings, each firm agreed to cease and desist from future violations of the charged provisions, to be censured and to pay a penalty. The Cetera Entities will pay a $300,000 penalty, Cambridge will pay a $250,000 penalty, and KMS will pay a $200,000 penalty.

The SEC's investigations were conducted by Arsen Ablaev, Christine Jeon, and Peter Senechalle of the Cyber Unit and Stephanie Reinhart of the Complex Financial Instruments Unit in the Chicago Regional Office, and supervised by Amy Flaherty Hartman and Ms. Littman of the Cyber Unit. The examinations that led to the investigations were conducted by the Chicago Regional Office and the New York Regional Office with the assistance of the National Examination Program. The examination teams included Joseph Atatsi, Kristine Baker, Daniel Dewaal, Mark Fearer, Richard Hannibal, Donald Hirata, Bradley Kartholl, Steve Lika, Thomas Meier, Paul Mensheha, Salvatore Montemarano, David Mueller, Edward Schmidt, Atif Shameem, Jennifer Spicher, Molly Thompson, Timothy Trainor, Mathew Varghese, and Michael Wells.

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SEC.gov | SEC Issues Whistleblower Awards Totaling $2.6 Million

The Securities and Exchange Commission today announced awards of approximately $2.6 million to five whistleblowers who provided information and assistance in three separate enforcement proceedings.

In the first order, the SEC awarded approximately $1.2 million to a whistleblower who provided valuable independent analysis based upon a complex algorithm the whistleblower developed and applied to publicly available data. The whistleblower’s information saved Commission staff time and resources and assisted the staff during settlement negotiations of an enforcement action.

In the second order, the SEC awarded over $1 million to three individuals whose information and assistance led to a successful enforcement action. While the whistleblowers held compliance roles at the company, they remained eligible for an award because they submitted their information to the Commission more than 120 days after the alleged conduct had been reported internally. The first claimant, who received the highest award, provided extraordinary assistance and comprehensive information that proved vital to the success of the enforcement action.

In the third order, the SEC awarded a whistleblower more than $350,000 for providing independent analysis that led to a successful enforcement action. Based on unusual effort and expertise developed over many years, the whistleblower identified patterns among publicly available information that allowed the Commission to quickly identify and prevent wrongdoing and to preserve assets.

"Today's awards demonstrate the Commission's commitment to reward whistleblowers who provide valuable information, developed either from a whistleblower's independent knowledge or the whistleblower's independent analysis, which substantially contributes to a successful enforcement action," said Emily Pasquinelli, Acting Chief of the SEC's Office of the Whistleblower.

The SEC has awarded approximately $959 million to 203 individuals since issuing its first award in 2012. All payments are made out of an investor protection fund established by Congress that is financed entirely through monetary sanctions paid to the SEC by securities law violators. No money has been taken or withheld from harmed investors to pay whistleblower awards. Whistleblowers may be eligible for an award when they voluntarily provide the SEC with original, timely, and credible information that leads to a successful enforcement action. Whistleblower awards can range from 10-30% of the money collected when the monetary sanctions exceed $1 million.

As set forth in the Dodd-Frank Act, the SEC protects the confidentiality of whistleblowers and does not disclose any information that could reveal a whistleblower's identity.

For more information about the whistleblower program and how to report a tip, visit www.sec.gov/whistleblower.

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SEC.gov | SEC Requests Information and Comment on Broker-Dealer and Investment Adviser Digital Engagement Practices, Related Tools and Methods, and Regulatory Considerations and Potential Approaches; Information and Comments on Investment Adviser Use of Technology

The Securities and Exchange Commission today announced that it is requesting information and public comment on matters related to the use of digital engagement practices by broker-dealers and investment advisers. These tools include behavioral prompts, differential marketing, game-like features (commonly referred to as gamification), and other design elements or features designed to engage with retail investors on digital platforms (e.g., websites, portals, and applications), as well as the analytical and technological tools and methods (collectively called digital engagement practices (DEPs)).

"While new technologies can bring us greater access and product choice, they also raise questions as to whether we as investors are appropriately protected when we trade and get financial advice," said SEC Chair Gary Gensler. "In many cases, these features may encourage investors to trade more often, invest in different products, or change their investment strategy. Predictive analytics and other DEPs often are designed with an optimization function to increase revenues, data collection, or customer time spent on the platform. This may lead to conflicts between the platform and investors. I’m interested in the varied questions included in the Request for Comment, and I’m particularly focused on how we protect investors engaging with technologies that use DEPs."

The Commission is issuing the Request, in part, to develop a better understanding of the market practices associated with firms' use of DEPs and the related analytical and technological tools and methods. The Commission also is hoping to learn what conflicts of interest may arise from optimization practices and whether those optimization practices affect the determination of whether DEPs are making a recommendation or providing investment advice.

The Request also is intended to provide a forum for market participants, including investors, and other interested parties to share their perspectives on the use of DEPs and the related tools and methods. This includes potential benefits that DEPs provide to retail investors, as well as potential investor protection concerns. The Request will facilitate the Commission's assessment of existing regulations and consideration of whether regulatory action may be needed to further the Commission's mission.

The public comment period will remain open for 30 days following publication of the Request in the Federal Register. The Commission encourages retail investors to comment on their experiences by submitting a Feedback Flyer, available here: https://www.sec.gov/rules/other/2021/online-trading-investment-platforms-feedback-flyer.html.

Fact Sheet

Request for Information and Comments on Broker-Dealer and Investment Adviser Digital Engagement Practices, Related Tools and Methods, and Regulatory Considerations and Potential Approaches; Information and Comments on Investment Adviser Use of Technology to Develop and Provide Investment Advice

Action

The Securities and Exchange Commission (Commission) is requesting information and public comment (the Request) on matters related to broker-dealers’ and investment advisers’ use of digital engagement practices. These tools include behavioral prompts, differential marketing, game-like features (commonly referred to as gamification), and other design elements or features designed to engage with retail investors on digital platforms (e.g., websites, portals, and applications), as well as the analytical and technological tools and methods (collectively called digital engagement practices (DEPs)).

Background

Broker-dealers and investment advisers employ a variety of DEPs when interacting with retail investors through digital platforms. Investment advisers also use these tools to develop and provide investment advice, including through online platforms or as part of more traditional investment advisory services. Investment advisers can use analytical tools to learn more about their clients and develop and provide investment advice based on that information.

Highlights

With respect to the use and development of DEPs by firms on their digital platforms, the Commission is issuing the Request to:

1. Assist the Commission and its staff in better understanding and assessing the market practices associated with the use of DEPs by firms, including: (1) the extent to which firms use DEPs; (2) the types of DEPs most frequently used; (3) the tools and methods used to develop and implement DEPs; and (4) information pertaining to retail investor engagement with DEPs, including any data related to investor demographics, trading behaviors, and investment performance.
2. Provide a forum for market participants (including investors), and other interested parties to share their perspectives on the use of DEPs and the related tools and methods, including potential benefits that DEPs provide to retail investors, as well as potential investor protection concerns.
3. Facilitate an assessment by the Commission and its staff of existing regulations and consideration of whether regulatory action may be needed to further the Commission’s mission, including protecting investors and maintaining fair, orderly, and efficient markets in connection with firms' use of DEPs and related tools and methods.

The Commission is also issuing the Request to assist the Commission and its staff in better understanding the nature of analytical tools and other technology used by investment advisers to develop and provide investment advice to clients, including (1) oversight of this technology; (2) how investment advisers and clients have been affected by technology; (3) potential risks to investment advisers, clients, and the markets more generally related to this technology; and (4) whether regulatory action may be needed to enhance investor protection while preserving the ability of investors to benefit from investment advisers’ use of technology.

The Commission is hoping to learn what conflicts of interest may arise from optimization practices and whether those optimization practices affect the determination of whether DEPs are making a recommendation or providing investment advice.

What’s Next

The public comment period will remain open for 30 days following publication of the Request in the Federal Register. The Commission will post all comments on the Commission's website. The Commission encourages retail investors to comment on their experiences by submitting a short Feedback Flyer, available here: https://www.sec.gov/rules/other/2021/online-trading-investment-platforms-feedback-flyer.html.

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Freedom Factory
5500 Greenwood Plaza Blvd., Ste 230
Greenwood Village, CO 80111
Phone: 844-MAX-VALUE (844-629-8258)
www.freedomfactory.com
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SEC.gov | SEC Charges Underwriter and Its Former CEO With Misconduct In Muni Bond Tender Offer

The Securities and Exchange Commission today instituted settled charges against Crews & Associates Inc., an Arkansas-based broker-dealer, and its former CEO, Rush F. Harding III, for unfair dealing in connection with a municipal bond tender offer.

The SEC's orders find that Crews, at Harding's direction, recommended to a county in West Virginia that the county attempt to reduce the amount of its outstanding debt service expense through a tender offer for bonds it had issued years earlier.  According to the orders, in the months following the discussions of the tender offer, Crews, with Harding's approval, purchased millions of dollars of the county's outstanding bonds and sold them to an entity affiliated with Crews and to Crews' customers. Almost all of the bonds Crews acquired were eventually sold to its affiliate and tendered back to the county at a price that Crews had recommended, resulting in a net profit to the affiliate. In recommending the purchase price, Crews did not disclose to the county that Crews' affiliate had acquired bonds to be tendered, or the resulting conflict of interest created by its affiliate's financial interest in the tender offer.

"In municipal bond offerings, underwriters must fully disclose to issuers their financial interests in the deal," said LeeAnn G. Gaunt, Chief of the Enforcement Division's Public Finance Abuse Unit, "Failure to do so is a violation of their obligation to deal fairly with issuers."

Crews and Harding have agreed, without admitting or denying the SEC's findings, to orders finding that they willfully violated fair dealing and supervision provisions of certain Municipal Securities Rulemaking Board (MSRB) Rules, finding that Crews willfully violated Section 15B(c)(1) of the Securities Exchange Act of 1934, which prohibits broker-dealers from effecting transactions in municipal securities in contravention of MSRB rules, and finding that Harding caused that violation. The orders also censure Crews and Harding and order Crews and Harding to cease and desist from violating Exchange Act Section 15B(c)(1). Crews is ordered to pay disgorgement and prejudgment interest of $44,072 and a civil penalty of $200,000, and Harding is ordered to pay disgorgement and prejudgment interest of $46,481 and a civil penalty of $100,000. Harding has also agreed to certain undertakings and limitations on activities.

The SEC's investigation was conducted by Sally Hewitt and Eric Celauro of the Public Finance Abuse Unit and the Chicago Regional Office with assistance from Jonathan Wilcox. The investigation was supervised by Brian D. Fagel.  The SEC examination that led to the investigation of Crews was conducted by John Brodersen, Michael Wells, David Kinsella, Karla Serna, Stephanie Werner, Catherine Cotey, and Jay Dietrich.

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SEC.gov | Chair Gensler Announces Addition of Barbara Roper to Senior Staff

The Securities and Exchange Commission today announced the appointment of Barbara Roper as Senior Advisor to the Chair. Ms. Roper's focus will be on issues relating to retail investor protection, including matters relating to policy, broker-dealer oversight, investment adviser oversight, and examinations. She is currently the Director of Investor Protection for the Consumer Federation of America (CFA).

"Barb is a champion for investors and will provide invaluable counsel on behalf of the American public," Chair Gary Gensler said. "I've had the pleasure of working closely with her on the Sarbanes-Oxley Act and the critical market reforms of the Dodd-Frank Act, and I’m thrilled to collaborate with her again at the SEC."

"I'm excited to join the SEC and Chair Gensler's leadership team," Ms. Roper said. "I've dedicated my career to ensuring that our capital markets work for the average investor. With investor protection at the core of the SEC's mission, I’m looking forward to bringing that same focus on the needs of individual investors to my work for the SEC."

Ms. Roper has worked at the CFA for 35 years and has been a leading consumer spokesperson on investor protection issues, particularly the standards that apply to investment professionals investors rely on for advice and recommendations. She has conducted studies of the financial planning industry, state oversight of investment advisers, and state and federal financial planning regulation. She has also conducted studies on the need for audit reform in the wake of the Enron scandal, the need for mutual fund reform in the wake of trading and sales abuse scandals, the information preferences of mutual fund shareholders, the potential of the Internet to improve disclosure, and securities law weaknesses as a cause of the financial crisis. She has served on numerous advisory committees at the SEC, Financial Industry Regulatory Authority, and other entities. She is a graduate of Princeton University with a degree in art history.

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SEC.gov | SEC Charges Former CEO of Technology Company With $80 Million Fraud

The Securities and Exchange Commission today charged Manish Lachwani, the former CEO of HeadSpin Inc., a Silicon Valley-based private technology company, with defrauding investors out of $80 million by falsely claiming that the company had achieved strong and consistent growth in acquiring customers and generating revenue.

The SEC's complaint, filed in the U.S. District Court for the Northern District of California, alleges that from at least 2018 through 2020, Lachwani engaged in a fraudulent scheme to propel HeadSpin's valuation to over $1 billion by falsely inflating the company's key financial metrics and doctoring its internal sales records. According to the complaint, Lachwani, who allegedly controlled all important aspects of HeadSpin's financials and sales operations, significantly inflated the value of numerous customer deals and fraudulently treated potential deal amounts that he had discussed with customers as if they were guaranteed future payments. The complaint alleges that Lachwani concealed this inflation by creating fake invoices and altering real invoices to make it appear as though customers had been billed higher amounts. As further alleged, Lachwani enriched himself by selling $2.5 million of his HeadSpin shares in a fundraising round during which he made misrepresentations to an existing HeadSpin investor. According to the complaint, Lachwani's fraud unraveled after the company's Board of Directors conducted an internal investigation that revealed significant issues with HeadSpin's reporting of customer deals, and revised HeadSpin's valuation down from $1.1 billion to $300 million.

"We allege that Lachwani misled investors into believing that HeadSpin had achieved a 'unicorn' valuation by winning hundreds of lucrative deals, including many with Silicon Valley's biggest and most high profile companies," said Monique C. Winkler, Associate Regional Director of the SEC's San Francisco Regional Office. "Companies and their executives must tell the truth when speaking about financial metrics that are material to the value of the business."

The SEC's complaint charges Lachwani with violating antifraud provisions of the federal securities laws and seeks penalties, a permanent injunction, a conduct-based injunction, and an officer and director bar.

The U.S. Attorney's Office for the Northern District of California today announced criminal charges against Lachwani. 

The SEC's investigation, which is continuing, was conducted by Erin E. Wilk and Ellen Chen, and supervised by Jennifer J. Lee and Ms. Winkler of the San Francisco Regional Office. The SEC's litigation will be led by Marc Katz, David Zhou, and Ms. Wilk.

The SEC appreciates the assistance of the U.S. Attorney's Office for the Northern District of California and Federal Bureau of Investigation.

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SEC.gov | SEC Obtains Emergency Relief, Charges Investment Adviser and Its Principal with Operating $110 Million Ponzi Scheme

On Aug. 20, 2021, the Securities and Exchange Commission filed an emergency action to stop a fraudulent Ponzi scheme allegedly perpetrated by Marietta, Georgia resident John Woods and two entities he controls: registered investment adviser Livingston Group Asset Management Company, d/b/a Southport Capital (Southport), and investment fund Horizon Private Equity, III LLC (Horizon). On Aug. 24, 2021, the United States District Court for the Northern District of Georgia granted a temporary restraining order and asset freeze with respect to defendants Woods and Horizon and ordered expedited discovery with respect to Southport, among other relief.

According to the SEC's complaint, filed in the United States District Court for the Northern District of Georgia, the defendants have raised more than $110 million from over 400 investors in 20 states by offering and selling membership units in Horizon.  Woods, Southport, and other Southport investment adviser representatives allegedly told investors – including many elderly retirees – that their Horizon investments were safe, would be used for different investment activities, would pay a fixed rate of return, and that investors could get their principal back without penalty after a short waiting period. According to the complaint, however, these statements were false and misleading: Horizon did not earn any significant profits from legitimate investments, and a very large percentage of purported "returns" to earlier investors were simply paid out of new investor money. The complaint also alleges that Woods repeatedly lied to the SEC during regulatory examinations of Southport.

"Investors felt comfortable investing in Horizon in large part because of their relationships with advisers at Southport," said Nekia Hackworth Jones, Director of the SEC's Atlanta Regional Office. "As alleged in the complaint, Woods and Southport preyed upon their clients' fears of losing their hard-earned savings and convinced them to place millions of dollars into a Ponzi scheme by falsely promising them a safe investment with steady returns."

The SEC's complaint charges the defendants with violating the antifraud provisions of the federal securities laws.  The complaint seeks preliminary and permanent injunctions, disgorgement, prejudgment interest, civil penalties, an asset freeze, and the appointment of a receiver.

The SEC's ongoing investigation is being conducted by enforcement staff in the Atlanta Regional Office, with assistance from the Division of Examinations. The investigative team includes Melissa Mitchell, Erin East, and Tiffany Kunkle and is supervised by Matthew McNamara and Justin Jeffries. The SEC's litigation will be led by Joshua Mayes and H.B. Roback.

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SEC.gov | SEC Charges Healthcare Services Company and CFO for Failing to Accurately Report Loss Contingencies as part of Continuing EPS Initiative

The Securities and Exchange Commission today announced that Pennsylvania-based Healthcare Services Group, Inc. has agreed to pay $6 million to settle charges that the company engaged in accounting and disclosure violations that enabled the company to report inflated quarterly earnings per share (EPS) that met research analysts' consensus estimates for multiple quarters. This is the third action to result from the Division of Enforcement's ongoing EPS Initiative, which uses risk-based data analytics to uncover potential accounting and disclosure violations caused by, among other things, earnings management practices.

The SEC's order finds that in 2014 and 2015, HCSG, a provider of housekeeping, dining, and other services to healthcare facilities, failed to timely accrue for and disclose material loss contingencies related to the settlement of private litigation against the company, as required by U.S. Generally Accepted Accounting Principles. By failing to properly record the loss contingencies in the appropriate quarters, which would have had the effect of reducing the company's income, HCSG reported EPS that met to the penny or came close to meeting research analyst consensus EPS estimates and reported multiple quarters of EPS growth, including then-record-high EPS. According to the order, HCSG's former CFO John C. Shea failed to direct the recording or disclosure of the loss contingencies on a timely basis. The order also finds that HCSG's Controller, Derya D. Warner, made other accounting entries that were not supported by adequate documentation as required by company policies.

"HCSG reported EPS that met analyst estimates for multiple quarters as a result of accounting violations that were uncovered by the Division of Enforcement's ongoing EPS Initiative," said Gurbir Grewal, Director of the SEC's Division of Enforcement. "As today's actions demonstrate, we will continue to leverage our in-house data analytic capabilities to identify improper accounting and disclosure practices that mask volatility in financial performance, and continue to hold public companies and their executives accountable for their violations."

"HCSG repeatedly failed to record loss contingencies related to litigation settlements despite mounting evidence that such liability was probable and reasonably estimable, while misleading investors by reporting inflated net income and consistent EPS growth," said Anita B. Bandy, Associate Director of the SEC's Division of Enforcement. "It is critical for public companies to ensure that accounting judgments, including those involving loss contingencies, are not being used to manage earnings and distort financial statements."

The SEC's order finds that HCSG and Shea violated Sections 17(a)(2) and (3) of the Securities Act of 1933, and that HCSG violated the financial reporting, books and records, and internal controls provisions of the Securities Exchange Act of 1934. The order further finds that Shea caused HCSG's violations, and Warner caused HCSG's books and records and internal controls violations. Without admitting or denying the SEC's findings, HCSG, Shea, and Warner have agreed to cease and desist from future violations of the charged provisions and pay civil penalties of $6 million, $50,000, and $10,000, respectively. Shea also has agreed to be suspended from appearing and practicing before the SEC as an accountant, which includes not participating in the financial reporting or audits of public companies. The order permits Shea to apply for reinstatement after two years.

The SEC's investigation was conducted by Mark Oh and Eric Hubbs, with assistance from Melissa Armstrong and David Misler of the Trial Unit, and was supervised by Fuad Rana and Ms. Bandy. 

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SEC.gov | SEC Enforcement Chief Counsel Joe Brenner Retires

The Securities and Exchange Commission announced that Joseph K. Brenner has retired as the Chief Counsel of the Division of Enforcement, a role he held since January 2011. As Chief Counsel, Mr. Brenner served as the head of the Division of Enforcement's Office of Chief Counsel, where he oversaw the process of providing legal and policy advice on potential enforcement actions and other critical issues to the Division’s leadership and 1400-person staff.

"Joe's expertise, counsel, and advice have been invaluable to more than half a dozen Enforcement Directors and countless members of the staff of the Division," said Gurbir S. Grewal, Director of the Division of Enforcement. "Joe's thoughtful approach to some of the thorniest issues we face has made us more effective in protecting investors and the integrity of the markets."

"We would like to thank Joe for his decade-long service to this agency as our Division of Enforcement's Chief Counsel," said SEC Chair Gary Gensler and Commissioners Hester M. Peirce, Elad L. Roisman, Allison Herren Lee, and Caroline A. Crenshaw in a joint statement.

"Under Joe's leadership, Enforcement's Office of Chief Counsel grew in expertise and responsibility and serves a critical role in advising the Director of Enforcement as well as the rest of the Enforcement staff on investigations and recommendations to the Commission. Joe has always been a staunch supporter of his team, the Enforcement staff, and the agency’s enforcement program," continued the Chair and Commissioners. "We have truly appreciated Joe's extensive knowledge, his wise counsel, and his strong commitment to protecting investors and our markets."

"It has been my honor and the highlight of my career to provide legal analysis and counsel to the Division of Enforcement," said Brenner. "I will greatly miss working alongside the dedicated staff to enforce securities laws, investigate possible violations, and prosecute federal civil suits on behalf of the SEC."

During his time as Chief Counsel, Mr. Brenner was also an Adjunct Professor at the Columbus School of Law, Catholic University of America. Prior to joining the SEC, Mr. Brenner was a partner at WilmerHale, where he focused on securities enforcement, internal corporate investigations, and related civil and criminal litigation. Before that, Mr. Brenner was a law clerk for the U.S. Court of Appeals for the District of Columbia Circuit. Mr. Brenner received his JD cum laudefrom Georgetown University Law Center and his undergraduate degree from Cornell University.

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SEC.gov | Fee Rate Advisory #1 for Fiscal Year 2022

The Securities and Exchange Commission today announced that in fiscal year 2022 the fees that public companies and other issuers pay to register their securities with the Commission will be set at $92.70 per million dollars.

Background

The securities laws require the Commission to make annual adjustments to the rates for fees paid under Section 6(b) of the Securities Act of 1933 and Sections 13(e) and 14(g) of the Securities Exchange Act of 1934. The Commission must set rates for the fees paid under Section 6(b) to levels that the Commission projects will generate collections equal to annual statutory target amounts. The Commission's projections are calculated using a methodology developed in consultation with the Congressional Budget Office and the Office of Management and Budget. As directed by the statute, the Commission determined the statutory target amount for fiscal year 2022 to be $747,806,372 by adjusting the fiscal year 2021 target collection amount of $709,554,300 million for the rate of inflation. The annual adjustment to the fee rate under Section 6(b) also sets the annual adjustment to the fee rates under Sections 13(e) and 14(g).

By law, the annual rate changes for fees paid under Section 6(b) of the Securities Act of 1933 and Sections 13(e) and 14(g) of the Securities Exchange Act of 1934 must take effect on the first day of each fiscal year. Therefore, effective Oct. 1, 2021, the Section 6(b) fee rate applicable to the registration of securities, the Section 13(e) fee rate applicable to the repurchase of securities, and the Section 14(g) fee rates applicable to proxy solicitations and statements in corporate control transactions will decrease to $92.70 per million dollars from $109.10 per million dollars. The Section 6(b) rate is also the rate used to calculate the fees payable with the Annual Notice of Securities Sold Pursuant to Rule 24f-2 under the Investment Company Act of 1940.

The Commission will issue further notices as appropriate to keep the public informed of developments relating to fees under Section 6(b), Section 13(e) and Section 14(g). These notices will be posted on www.sec.gov.

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SEC.gov | SEC Enhances Access to Financial Disclosure Data

The Securities and Exchange Commission today announced open data enhancements that provide public access to financial statements and other disclosures made by publicly traded companies on its Electronic Data Gathering, Analysis, and Retrieval system (EDGAR).

The SEC is releasing for the first time Application Programming Interfaces (APIs) that aggregate financial statement data, making corporate disclosures quicker and easier for developers and third-party services to use. APIs will allow developers to create web or mobile apps that directly serve retail investors.

"These new APIs make important information about public companies more accessible and usable than ever before," said Jed Hickman, Director, EDGAR Business Office. "This marks another important milestone in the SEC's continuing efforts to facilitate innovation and make financial disclosure data accessible to all market participants."

The free APIs provide access to EDGAR submission history by filer as well as eXtensible Business Reporting Language (XBRL) data from financial statements, including annual and quarterly reports, Forms 8-K, 20-F, 40-F, and 6-K. The SEC anticipates adding more datasets in the future.

The SEC updates APIs in real time throughout the day as EDGAR submissions are made public. In addition, a bulk ZIP file—making it possible to download all the API data—is updated and republished nightly.

The APIs were made available for beta testing prior to today’s release, allowing for a period of public testing and feedback. To learn more about the APIs and how to get started, visit the API documentation page at https://www.sec.gov/page/sec-api-documentation.

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SEC.gov | SEC Charges Netflix Insider Trading Ring

The Securities and Exchange Commission today announced insider trading charges against three former Netflix Inc. software engineers and two close associates who generated over $3 million in total profits by trading on confidential information about Netflix's subscriber growth.

According to the SEC's complaint, Sung Mo "Jay" Jun was at the center of a long-running scheme to illegally trade on non-public information concerning the growth in Netflix's subscriber base, a key metric Netflix reported in its quarterly earnings announcements. The complaint alleges that Sung Mo Jun, while employed at Netflix in 2016 and 2017, repeatedly tipped this information to his brother, Joon Mo Jun, and his close friend, Junwoo Chon, who both used it to trade in advance of multiple Netflix earnings announcements.

The SEC's complaint further alleges that after Sung Mo Jun left Netflix in 2017, he obtained confidential Netflix subscriber growth information from another Netflix insider, Ayden Lee. Sung Mo Jun allegedly traded himself and tipped Joon Jun and Chon in advance of Netflix earnings announcements from 2017 to 2019. The SEC alleges that Sung Mo Jun's former Netflix colleague Jae Hyeon Bae, another Netflix engineer, tipped Joon Jun based on Netflix's subscriber growth information in advance of Netflix's July 2019 earnings announcement. Sung Mo Jun, Joon Jun, and Chon allegedly used encrypted messaging applications to discuss their trading in an attempt to evade detection. According to the complaint, Sung Mo Jun, Joon Jun, and Chon made approximately $3 million in total profits from the illegal scheme. The SEC Market Abuse Unit's Analysis and Detection Center uncovered the trading ring by using data analysis tools to identify the traders' improbably successful trading over time.

"We allege that a Netflix employee and his close associates engaged in a long-running, multimillion dollar scheme to profit from valuable, misappropriated company information," said Erin E. Schneider, Director of the SEC's San Francisco Regional Office. "The charges announced today hold each of the participants accountable for their roles in the scheme."

"The defendants allegedly tried to evade detection by using encrypted messaging applications and paying cash kickbacks," added Joseph Sansone, Chief of the SEC's Market Abuse Unit. "This case reflects our continued use of sophisticated analytical tools to detect, unravel and halt pernicious insider trading schemes that involve multiple tippers, traders, and market events."

The SEC's complaint, filed in federal court in Seattle, charges Sung Mo Jun, Joon Jun, Chon, Lee, and Bae with violating the antifraud provisions of Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder. Sung Mo Jun, Joon Jun, Chon, and Lee have consented to the entry of judgments which, if approved by the court, would permanently enjoin each from violating the charged provisions, with civil penalties, if any, to be decided later by the court. Sung Mo Jun also agreed to an officer and director bar. Bae consented to the entry of a final judgment, also subject to court approval, permanently enjoining him from violating Section 10(b) of the Exchange Act and Rule 10b-5 and imposing a civil penalty of $72,875.

In a parallel action, the U.S. Attorney's Office for the Western District of Washington filed a criminal information against Sung Mo Jun, Joon Jun, Chon, and Lee.

The SEC's investigation was conducted by Rahul Kolhatkar of the San Francisco Regional Office and Jonathan Warner of the Market Abuse Unit, with assistance from John Rymas, Hugh Beck, and Darren Boerner of the Market Abuse Unit's Analysis and Detection Center and Rachita Gullapalli and Erin Smith of the SEC's Division of Economic and Risk Analysis. The case was supervised by Jennifer J. Lee and Monique C. Winkler of the San Francisco Regional Office, and Steven Buchholz and Mr. Sansone of the Market Abuse Unit. The litigation will be led by Marc Katz, Mr. Kolhatkar, and Mr. Warner.

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SEC.gov | Sanjay Wadhwa Named Deputy Director of Enforcement Division

The Securities and Exchange Commission today announced the appointment of Sanjay Wadhwa as Deputy Director of the Division of Enforcement. Mr. Wadhwa most recently served as the Senior Associate Director of the Division of Enforcement in the New York Regional Office (NYRO), where he managed more than 150 personnel in enforcing federal securities laws. His new role is effective immediately.

"Over the hundreds of investigations he has overseen, Sanjay has helped the SEC root out wrongdoing, pursue charges against those who seek to manipulate or defraud investors, and partner with criminal authorities to prosecute bad actors," said SEC Chair Gary Gensler. "Sanjay's breadth of experience and dedication to protecting investors make him well qualified to serve as Deputy Director of the Enforcement Division. I look forward to working with him in his new role."

"I also would like to thank Melissa Hodgman and Kelly Gibson for their leadership service in the Enforcement Division," Chair Gensler added. "They will continue to be instrumental advisers to Gurbir Grewal, Sanjay, and me, and I look forward to continuing our important work."

"Sanjay brings a tenacious approach to our work, and he is passionate about protecting American investors," said Gurbir Grewal, the SEC's Director of Enforcement. "I am eager to work closely with him in his new role."

"It has been an honor to serve alongside the SEC's esteemed Enforcement staff for the past 18 years," said Mr. Wadhwa. "I look forward to working with Gurbir and the entire Enforcement Division to oversee investigations and litigation matters to help protect investors and promote integrity in the marketplace by holding wrongdoers accountable."

Mr. Wadhwa joined the SEC as a staff attorney in 2003. As co-head of Enforcement in the SEC's New York office, he was responsible for the day-to-day functions of that office's enforcement program. He also previously served in additional roles in the Enforcement Division, including Deputy Chief of the Market Abuse Unit and Assistant Director in NYRO. Prior to joining the SEC in 2003, Mr. Wadhwa served as a tax associate at Cahill Gordon & Reindel LLP and Skadden, Arps, Slate, Meagher & Flom LLP.

Mr. Wadhwa has a B.B.A. from Florida Atlantic University, a J.D. from South Texas College of Law Houston, and an LL.M. in taxation from New York University School of Law.

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SEC.gov | SEC Charges Investment Adviser and Associated Individuals with Causing Violations of Regulation SHO

The Securities and Exchange Commission today announced settled charges against Murchinson Ltd.; its principal, Marc Bistricer; and its trader, Paul Zogala (the respondents), for providing erroneous order-marking information that caused executing brokers to violate Regulation SHO. In addition, Murchinson and Bistricer settled charges for causing a dealer to fail to register with the SEC.

According to the SEC's order, from June 2016 through October 2017, the respondents provided erroneous order-marking information on hundreds of sale orders of their hedge fund client to the hedge fund's brokers, causing those brokers to mismark the hedge funds' sales as "long." The order finds that in providing the inaccurate information, the respondents also caused the hedge fund’s brokers to fail to borrow or locate shares prior to executing the sales. The order further finds that Murchinson and Bistricer caused the hedge fund to engage in dealer activity without registering with the SEC or being exempt from registration.

"The SEC's order finds that Murchison, its principal, and its trader caused broker-dealers to violate Regulation SHO," said Jennifer S. Leete, Associate Director of the SEC Enforcement Division. "Regulation SHO protects our markets against uncovered short sales and other problematic trading practices, so it is important to hold accountable market participants who cause violations of its critical requirements."

The SEC's order finds that the respondents caused the hedge fund’s executing brokers to violate the order-marking and locate requirements of Regulation SHO, and that Murchinson and Bistricer caused the hedge fund to violate the dealer registration requirements of the Securities Exchange Act of 1934. Without admitting or denying the findings, the respondents each agreed to cease-and-desist orders. In addition, Murchinson and Bistricer agreed to pay, jointly and severally, disgorgement of $7,000,000, with prejudgment interest of $1,078,183. Murchinson, Bistricer, and Zogala also agreed to pay penalties of $800,000, $75,000, and $25,000, respectively. Finally, Murchinson and Bistricer agreed to certain undertakings to ensure future compliance with Regulation SHO.

The SEC's investigation was led by Michael Brennan and Emily Shea, with assistance from Sarah Heaton Concannon and Fred Block, and was supervised by Kevin Guerrero and Ms. Leete. Market Specialists Leigh Barrett, Kevin Gershfeld, and Brian Shute of the SEC Enforcement Division's Office of Investigative and Market Analytics also provided assistance. The SEC appreciates the assistance of the British Virgin Islands Financial Services Commission, the Hellenic Republic Capital Markets Commission, the Central Bank of Ireland, the Jersey Financial Services Commission, the Nova Scotia Securities Commission, and the Ontario Securities Commission.

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SEC.gov | SEC Charges Biopharmaceutical Company Employee with Insider Trading

The Securities and Exchange Commission today charged a former employee of California-based Medivation Inc. with insider trading in advance of Medivation's announcement that it would be acquired by pharmaceutical giant Pfizer Inc.

According to the SEC's complaint, filed in the U.S. District Court for the Northern District of California, Matthew Panuwat, the then-head of business development at Medivation, a mid-sized, oncology-focused biopharmaceutical company, purchased short-term, out-of-the-money stock options in Incyte Corporation, another mid-cap oncology-focused biopharmaceutical company, just days before the Aug. 22, 2016, announcement that Pfizer would acquire Medivation at a significant premium. Panuwat allegedly purchased the options within minutes of learning highly confidential information concerning the merger. According to the complaint, Panuwat knew that investment bankers had cited Incyte as a comparable company in discussions with Medivation and he anticipated that the acquisition of Medivation would likely lead to an increase in Incyte's stock price. The complaint alleges that Medivation's insider trading policy expressly forbade Panuwat from using confidential information he acquired at Medivation to trade in the securities of any other publicly-traded company. Following the announcement of Medivation's acquisition, Incyte's stock price increased by approximately 8%. The complaint alleges that, by trading ahead of the announcement, Panuwat generated illicit profits of $107,066.

"Biopharmaceutical industry insiders frequently have access to material nonpublic information about mergers, drug trials, or regulatory approvals that impacts the stock price of not only their company, but also other companies in the industry," said Gurbir Grewal, Director of the SEC's Enforcement Division. "The SEC is committed to detecting and pursuing illegal trading in all forms."

The SEC's complaint charges Panuwat with violating the antifraud provisions of the federal securities laws, and seeks a permanent injunction, civil penalty, and an officer and director bar.

The SEC's investigation was conducted by Tracy Combs with the assistance of John Rymas of the Enforcement Division's Market Abuse Unit. The case was supervised by Steven Buchholz, Monique C. Winkler, and Joseph G. Sansone, Chief of the Market Abuse Unit. The litigation will be led by Marc Katz, David Zhou, and Ms. Combs.

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SEC.gov | SEC Charges Penny Stock Company, CEO and Others with Multi-Million Dollar Fraud

The Securities and Exchange Commission today announced it charged an issuer, its CEO, and six other entities and individuals with participating in a penny stock fraud scheme. The SEC also charged certain of the participants with operating as unregistered dealers, and obtained emergency relief to halt their ongoing conduct.

According to the SEC's complaint, filed in the United States District Court for the Southern District of New York, GPL Ventures purchased, since at least July 2017, more than 1.5 billion shares of HempAmericana Inc. stock through a Regulation A offering, with the understanding that HempAmericana would use a portion of the offering proceeds to secretly finance stock promotions that would enable GPL Ventures to sell its HempAmericana shares at a profit. The complaint alleges that HempAmericana misled investors regarding its use of the offering proceeds, and that co-defendants Seaside Advisors and Lawrence Adams paid a stock promoter who, in turn, funded promotions of HempAmericana’s stock that failed to disclose HempAmericana's role in financing the promotions and that GPL Ventures intended to unload its shares into the promotion. GPL Ventures and certain of the defendants allegedly reaped about $11 million in illegal profits from this fraudulent scheme.

The complaint further alleges that GPL Ventures' owners, co-defendants Alexander Dillon and Cosmin Panait, falsely represented to their brokers that GPL Ventures was not involved in any stock promotions with respect to the shares GPL Ventures was depositing and selling into the market. Finally, the complaint alleges that GPL Ventures, affiliate GPL Management LLC, Dillon and Panait are operating as unregistered securities dealers, having privately obtained discounted stock in more than 140 microcap issuers and subsequently generated gross proceeds of at least $81 million by publicly reselling such stock to the investing public at a substantial profit.

"Investors are entitled to accurate and complete information about how proceeds from Regulation A offerings will be used, and the identity and intent of people funding stock promotions," said Richard R. Best, Director of the SEC's New York Regional Office. "We will vigorously pursue those who work together to dump microcap shares on an unsuspecting public."

The SEC's complaint charges the defendants with violating the antifraud provisions of the federal securities laws, and seeks disgorgement of ill-gotten gains with prejudgment interest, civil penalties, permanent injunctive relief, and penny stock and officer and director bars against various defendants. The complaint also charges Dillon, Panait and the GPL entities with operating as unregistered dealers, and given their ongoing conduct, the SEC sought and obtained an order temporarily restraining these defendants and freezing their assets until further order of the court.

The SEC's investigation, which is ongoing, is being conducted by Brenda Chang, John Lehmann, Peter Lamore, and Adam Grace, and the litigation will be led by Paul Gizzi, Ms. Chang, and Mr. Lehmann, all of the New York Regional Office. The case is being supervised by Sanjay Wadhwa. 

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SEC.gov | SEC Charges Pearson plc for Misleading Investors About Cyber Breach

The Securities and Exchange Commission today announced that Pearson plc, a London-based public company that provides educational publishing and other services to schools and universities, agreed to pay $1 million to settle charges that it misled investors about a 2018 cyber intrusion involving the theft of millions of student records, including dates of births and email addresses, and had inadequate disclosure controls and procedures.

The SEC's order finds that Pearson made misleading statements and omissions about the 2018 data breach involving the theft of student data and administrator log-in credentials of 13,000 school, district and university customer accounts. In its semi-annual report, filed in July 2019, Pearson referred to a data privacy incident as a hypothetical risk, when, in fact, the 2018 cyber intrusion had already occurred. And in a July 2019 media statement, Pearson stated that the breach may include dates of births and email addresses, when, in fact, it knew that such records were stolen, and that Pearson had "strict protections" in place, when, in fact, it failed to patch the critical vulnerability for six months after it was notified. The media statement also omitted that millions of rows of student data and usernames and hashed passwords were stolen. The order also finds that Pearson's disclosure controls and procedures were not designed to ensure that those responsible for making disclosure determinations were informed of certain information about the circumstances surrounding the breach.

"As the order finds, Pearson opted not to disclose this breach to investors until it was contacted by the media, and even then Pearson understated the nature and scope of the incident, and overstated the company's data protections," said Kristina Littman, Chief of the SEC Enforcement Division's Cyber Unit. "As public companies face the growing threat of cyber intrusions, they must provide accurate information to investors about material cyber incidents."

The SEC's order found that Pearson violated Sections 17(a)(2) and 17(a)(3) of the Securities Act of 1933 and Section 13(a) of the Exchange Act of 1934 and Rules 12b-20, 13a-15(a), and 13a-16 thereunder. Without admitting or denying the SEC's findings, Pearson agreed to cease and desist from committing violations of these provisions and to pay a $1 million civil penalty.

The SEC's investigation was conducted by Arsen Ablaev and Christine Bautista Jeon of the Chicago Regional Office and supervised by Amy Flaherty Hartman and Ms. Littman of the Cyber Unit.

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SEC.gov | U.S. Securities and Exchange Commission and the European Central Bank Sign Memorandum of Understanding Regarding Cooperation with Respect to Security-Based Swap Entities

The Securities and Exchange Commission and the European Central Bank (ECB) today announced the signing of a Memorandum of Understanding (MOU) to consult, cooperate, and exchange information in connection with the supervision, enforcement, and oversight of certain security-based swap dealers and major security-based swap participants that are registered with the SEC and supervised by the ECB. This is the first MOU between the SEC and ECB.

The MOU was executed on Aug. 16, 2021, and is intended to facilitate the SEC's oversight of all SEC-registered security-based swap entities in EU Member States participating in the Single Supervisory Mechanism (SSM). The SSM refers to the system of banking supervision in the European Union. It is composed of the ECB and the relevant national competent authorities of participating EU Member States. 

The MOU will also support the SEC's oversight of the operation of substituted compliance orders that the Commission has issued for security-based swap entities in France and Germany, as well as any future substituted compliance orders for such firms in other EU Member States that participate in the SSM. Substituted compliance allows a security-based swap entity to comply with particular U.S. requirements under Title VII of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 through compliance with comparable EU and EU Member State laws. The MOU also enhances the ability of the SEC and the ECB to consult, coordinate, and share information with each other with respect to these entities, including in connection with cross-border inspections. 

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SEC.gov | SEC Obtains Emergency Relief, Charges Two Florida Companies and their Principal Officer with Operating a Ponzi Scheme

The Securities and Exchange Commission today announced that it filed an emergency action and obtained a temporary restraining order, an asset freeze, and the appointment of a receiver to stop an alleged Ponzi scheme and misappropriation of investor proceeds perpetrated by Coral Springs, Florida resident Johanna M. Garcia and two entities she controls.

According to the SEC's complaint, which was filed in federal court in the Southern District of Florida, since about June 2020, Garcia and her companies raised at least $70 million from more than 2,150 investors in a fraudulent securities offering. The complaint alleges that Garcia, and her companies MJ Capital Funding LLC and MJ Taxes and More Inc. told investors that offering proceeds would be used to fund small business loans called "merchant cash advances," and promised investors annual returns of 120-180%. In fact, according to the complaint, the defendants only made, at most, $2.9 million in merchant cash advance loans and earned very little in revenue. Instead, the defendants allegedly used at least $20 million of new investor money to pay purported returns to existing investors in a classic Ponzi scheme fashion. In addition, the complaint alleges that the defendants misused another $27.4 million of investor money by making payments to various other entities, a substantial portion of which represented payments to sales agents for promoting these investments.

"As alleged in our complaint, Garcia and her companies lured unsuspecting investors with false claims and promises of triple-digit annual returns," said Eric I. Bustillo, Director of the SEC's Miami Regional Office. "We continue to caution investors to be wary of any investment that promises returns that are too good to be true."

The SEC's complaint, filed on Aug. 9, 2021, and unsealed today, charges the defendants with violating the antifraud and registration provisions of the federal securities laws. In addition to the emergency relief granted by the court, the complaint seeks preliminary and permanent injunctions; disgorgement, prejudgment interest, and a civil penalty from each of the defendants; and an officer and director bar against Garcia. The court set a hearing for Aug. 25, 2021, to determine if a preliminary injunction should be entered and whether the asset freeze should remain in force for the duration of the litigation.

The SEC's investigation was conducted by Raynette R. Nicoleau and Julia A. D'Antonio in the Miami Regional Office, and was supervised by Chedly C. Dumornay, Fernando Torres and Glenn S. Gordon. The SEC's litigation will be led by Andrew Schiff and Stephanie Moot. The SEC acknowledges the assistance of the Florida Office of Financial Regulation.

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SEC.gov | SEC Obtains Court Order to Stop Investment Adviser's Alleged Ongoing Offering Fraud

The Securities and Exchange Commission today announced the filing of an emergency action against Martin A. Ruiz of New York, and two entities he controls, Carter Bain Wealth Management, LLC (Carter Bain) and RAM Fund, LP (RAM). Shortly after filing the complaint, the SEC obtained a temporary restraining order and asset freeze against Ruiz, Carter Bain, and RAM to stop an allegedly ongoing fraudulent securities offering through which Ruiz and his entities allegedly misappropriated millions of dollars from investors.

According to the SEC's complaint, filed in the United States District Court for the Southern District of New York on Aug. 6, 2021, and unsealed Aug. 12, 2021, Ruiz induced at least 56 investors, many of whom are elderly clients of Ruiz's New Mexico-based investment adviser Carter Bain, to invest at least $10.6 million in RAM by falsely claiming that their funds would be used to acquire real estate and to make commercial loans. According to the complaint, however, Ruiz misappropriated the vast majority of the investors' funds to support his lavish lifestyle by, among other things, paying for his residences in Manhattan and Santa Fe, covering millions of dollars in credit cards bills, and making student loan payments. The complaint also alleges that Ruiz hid the fraud from investors by making Ponzi-like payments, and providing investors with false valuations concerning their RAM investments.

"As we allege in the complaint, Ruiz recommended that his advisory clients invest in an entity based on false claims, and then stole their money," said Kurt L. Gottschall, Director of the SEC's Denver Regional Office. "Clients should be able to trust that their investment adviser will invest their assets as promised."

The complaint charges Ruiz, Carter Bain, and RAM with violating the antifraud provisions of the federal securities laws. The SEC obtained emergency relief, including a temporary restraining order and asset freeze, against Ruiz, Carter Bain, and RAM on Aug. 9, 2021.The SEC seeks additional remedies in the ongoing litigation, including permanent injunctions, disgorgement of ill-gotten gains with prejudgment interest, and civil penalties, against Ruiz, Carter Bain, RAM, and other entities Ruiz owns and controls.

The SEC's investigation was conducted by J. Lee Robinson, Kenneth Stalzer, and Donna B. Walker and supervised by Ian S. Karpel and Jason J. Burt. The litigation will be led by Stephen C. McKenna and Kenneth Stalzer, and supervised by Gregory A. Kasper.

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