SEC.gov | SEC Charges Former Pharmaceutical Global IT Manager in $8 Million Insider Trading Scheme

The Securities and Exchange Commission today announced insider trading charges against Dayakar R. Mallu, of Orlando, Florida, who generated gains and avoided losses totaling over $8 million by trading in the securities of his former employer, Mylan N.V., ahead of four public announcements between Oct. 3, 2017, and July 29, 2019.

The SEC’s complaint, filed in the United States District Court for the Western District of Pennsylvania, alleges that Mallu received material nonpublic information about Mylan's unannounced earnings, drug approvals by the U.S. Food and Drug Administration, and impending merger with a division of Pfizer Inc. from his friend, a Mylan insider. The complaint alleges that Mallu traded on that information, and shared a portion of his trading profits with the Mylan insider by making cash payments in India.

"As alleged in our complaint, Mallu exploited his access to valuable information concerning Mylan’s earnings information, drug announcements, and merger plans to place highly successful options trades," said Scott A. Thompson, Co-Acting Regional Director of the SEC's Philadelphia Regional Office. "But Mallu's efforts to conceal his scheme through secure messaging apps and foreign cash payments were unavailing, as this case highlights the agency's ability to use sophisticated data analysis to detect suspicious trading patterns and identify the traders behind them."

The SEC's complaint charges Mallu with violating Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder. Mallu has consented to the entry of a judgment which, if approved by the court, would permanently enjoin him from violating the charged provisions and bar him from acting as the officer or director of a public company, with civil penalties, if any, to be decided later by the court.

In a parallel action, the U.S. Department of Justice, Fraud Section, today announced criminal charges against Mallu.

The SEC's investigation, which is continuing, is being conducted by Christine R. O'Neil, Matthew B. Homberger, Brian R. Higgins, Oreste P. McClung, and Christopher R. Kelly of the Philadelphia Regional Office and John S. Rymas of the Market Abuse Unit and supervised by Brendan P. McGlynn, Jennifer Chun Barry, and Mr. Thompson.  The SEC appreciates the assistance of the Financial Industry Regulatory Authority and the Options Regulatory Surveillance Authority.

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SEC.gov | SEC Awards $11.5 Million to Two Whistleblowers

The Securities and Exchange Commission today announced awards of approximately $11.5 million to two whistleblowers whose information and assistance contributed to the success of an SEC enforcement action.

The first whistleblower received an award of nearly $7 million, while the second whistleblower received more than $4.5 million. The larger award was in recognition of the fact that the first whistleblower was the initial source that caused the staff to open the investigation into hard-to-detect violations and thereafter provided substantial assistance. The second whistleblower, by comparison, submitted information later, after the investigation was already underway, and had delayed reporting to the Commission for several years after becoming aware of the wrongdoing.

"This case demonstrates the Commission's continued commitment to rewarding individuals who provide high-quality tips, and particularly timely ones," said Emily Pasquinelli, Acting Chief of the SEC's Office of the Whistleblower. "These whistleblowers reported credible information that aided the Commission's investigation and their subsequent cooperation allowed the Commission to better understand the violations that formed the basis of the enforcement action."

The SEC has awarded approximately $1 billion to 212 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 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 | RBC Charged With Failing to Give Priority to Retail and Institutional Investors in Municipal Offerings

The Securities and Exchange Commission today announced that RBC Capital Markets LLC has agreed to pay more than $800,000 to resolve charges that it engaged in unfair dealing in municipal bond offerings. The SEC also announced settled charges against Kenneth G. Friedrich, RBC's former head of Municipal Sales, Trading and Syndication, and Jaime L. Durando, the head of RBC's municipal syndicate desk.

According to the SEC's order, over a nearly four-year period, RBC improperly allocated bonds intended for institutional customers and dealers to parties known in the industry as "flippers," who then resold or "flipped" the bonds to other broker-dealers at a profit. In addition, the order finds that, in three instances where an issuer had instructed RBC to place retail customer orders first, RBC violated those instructions by allocating bonds to flippers ahead of orders for retail customers. The order finds that RBC knew or should have known that flippers were not eligible for retail or institutional priority and that allocating bonds to the flippers ahead of customers and other dealers violated RBC's internal priority policy for allocating municipal bonds in primary offerings. The order also finds that, in certain offerings not underwritten by RBC, RBC improperly obtained bonds for its own inventory by placing orders with flippers, which allowed RBC to circumvent the lower priority it would have been assigned had it attempted to place direct orders with the underwriters.

"We will continue to pursue those who undermine priority rules and crowd out legitimate retail or institutional customers from getting access to newly issued municipal bonds," said LeeAnn G. Gaunt, Chief of the Division of Enforcement's Public Finance Abuse Unit.

The SEC previously brought charges of municipal bond offering "flipping" and retail order period abuses in August 2018, December 2018, September 2019, April 2020, July 2020, September 2020, July 2021 and August 2021.

Without admitting or denying the findings, RBC consented to a public administrative and cease-and-desist order that finds it violated the order disclosure, fair dealing, and supervisory provisions of Municipal Securities Rulemaking Board (MSRB) Rules and the related Exchange Act provision, caused the flippers' violations of the broker registration provisions of the Exchange Act, and failed reasonably to supervise certain of its registered representatives within the meaning of the Exchange Act. The order requires RBC to pay a $150,000 penalty, disgorgement of $552,440, plus prejudgment interest of $160,886, and imposes a censure.

In related actions, the SEC instituted settled proceedings today against Friedrich and Durando.  The SEC's orders find that Friedrich and Durando permitted the improper allocation and sale of new issue bonds to the flippers, and that Friedrich also permitted the improper purchase of new issue bonds for RBC's own inventory through the flippers. Without admitting or denying the findings, Friedrich and Durando consented to public administrative and cease-and-desist orders finding they violated the order disclosure and fair dealing provisions of MSRB Rules and the related Exchange Act provision, and, as to Friedrich, that he violated the supervisory provisions of MSRB Rules and failed reasonably to supervise Durando within the meaning of the Exchange Act. Friedrich agreed to a censure and to pay a civil penalty of $30,000, and Durando agreed to a censure and to pay a civil penalty of $25,000. Friedrich further consented to a six-month limitation on supervisory activities and a six-month prohibition on trading negotiated new issue municipal securities.

The SEC's investigation was conducted by Kevin B. Currid, Sue Curtin and Heidi M. Mitza of the Public Finance Abuse Unit and Kathleen B. Shields of the Boston Regional Office, with assistance from Deputy Unit Chief Mark Zehner and Public Finance Abuse Unit members Joseph Chimienti, Laura Cunningham, Warren Greth, Cori Shepherd, and Jonathan Wilcox.

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SEC.gov | SEC Charges School District and Former Executive with Misleading Investors in Bond Offering

The Securities and Exchange Commission today charged a San Diego County school district, Sweetwater Union High School District, and its former Chief Financial Officer, Karen Michel, with misleading investors who purchased $28 million in municipal bonds.

According to the SEC's complaint against Michel and its order against Sweetwater, in April 2018, Sweetwater and Michel provided investors with misleading budget projections that indicated the district could cover its costs and would end the fiscal year with a general fund balance of approximately $19.5 million, when in reality the district was engaged in significant deficit spending and on track to a negative $7.2 million ending fund balance. The order finds that Michel managed the bond offering for the district and was aware of reports showing that the projections were untenable and contradicted by known actual expenses. Nevertheless, as stated in the order, Sweetwater and Michel included the projections in the April 2018 bonds' offering documents and also provided them to a credit rating agency that rated the district, while omitting that the projections were contradicted by internal reports and did not account for actual expenses. Additionally, the complaint alleges that Michel signed multiple certifications falsely attesting to the accuracy and completeness of the information included in the offering documents.

"As the order finds, Sweetwater and Michel presented stale and misleading financial information as current and accurate," said LeeAnn G. Gaunt, Chief of the Division of Enforcement's Public Finance Abuse Unit. "The SEC will continue to address deceptive conduct that prevents municipal bond investors from getting an accurate picture of the financial risks of their investments."

The SEC's complaint against Michel, filed in U.S. District Court for the Southern District of California, charges her with violating Section 17(a)(3) of the Securities Act of 1933. Without admitting or denying the allegations in the complaint, Michel agreed to settle with the SEC and to be enjoined from future violations of the charged provision as well as from participating in any future municipal securities offerings. She also agreed to pay a $28,000 penalty. The settlement is subject to court approval. Sweetwater also agreed to settle with the SEC and consented, without admitting or denying any findings, to the entry of an SEC order finding that it violated Sections 17(a)(2) and 17(a)(3) of the Securities Act, and requiring it to engage an independent consultant to evaluate its policies and procedures related to its municipal securities disclosures.

For further information about the SEC's enforcement actions involving fraud charges in connection with bond issuances by or on behalf of schools and colleges, see SEC v. Park View School, Inc. (D. Ariz. September 14, 2020), SEC v. Batchelor (N.D. Cal. April 27, 2020), SEC v. Rojas (C.D. Cal. September 19, 2019), and SEC v. Borge (S.D.N.Y. March 28, 2019).  The SEC has also brought a number of recent enforcement actions against municipal advisors who provide services to school district issuers.

The SEC's investigation was conducted by William T. Salzmann, Jessica A. Adams, Creighton Papier, and Joseph Chimienti of the Public Finance Abuse Unit. The investigation was supervised by Jason H. Lee. The SEC acknowledges the assistance of the San Diego County District Attorney’s Office.

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SEC.gov | SEC Surpasses $1 Billion in Awards to Whistleblowers with Two Awards Totaling $114 Million

The Securities and Exchange Commission today announced awards of approximately $110 million and $4 million to two whistleblowers whose information and assistance led to successful SEC and related actions.  With these awards, the SEC's whistleblower program has now paid more than $1 billion in awards to 207 whistleblowers, including over $500 million in fiscal year 2021 alone. The $110 million award stands as the second-highest award in the program's history, following the over $114 million whistleblower award the SEC issued in October 2020.

"Today's announcement underscores the important role that whistleblowers play in helping the SEC detect, investigate, and prosecute potential violations of the securities laws," said SEC Chair Gary Gensler. "The assistance that whistleblowers provide is crucial to the SEC's ability to enforce the rules of the road for our capital markets."

"The whistleblower program has been instrumental to the success of numerous enforcement actions since it was instituted a decade ago," said SEC Director of Division of Enforcement Gurbir S. Grewal. "We hope that today's announcement encourages whistleblowers to continue to come forward with credible information about potential violations of the securities laws."

The first whistleblower's $110 million award consists of an approximately $40 million award in connection with an SEC case and an approximately $70 million award arising out of related actions by another agency. The first whistleblower provided significant independent analysis that substantially advanced the SEC's and the other agency's investigations. The second whistleblower voluntarily provided original information that led to the successful enforcement action, but this information was provided to the SEC after the staff had opened an investigation and undertaken significant investigative steps, and was much more limited as compared to the information and assistance provided by the first whistleblower.

"Whistleblowers can play an extraordinary role in helping the SEC ferret out wrongdoing," said Emily Pasquinelli, Acting Chief of the SEC's Office of the Whistleblower. "Whistleblowers may provide critical information based on their own independent analysis that facilitates the SEC's investigation and the successful resolution of the enforcement action."

The SEC has awarded approximately $1 billion to 207 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 Charges App Annie and its Founder with Securities Fraud

The Securities and Exchange Commission today announced that App Annie Inc., a leading alternative data provider for the mobile app industry, and its co-founder and former CEO and Chairman Bertrand Schmitt, have agreed to settle securities fraud charges for engaging in deceptive practices and making material misrepresentations about how App Annie's alternative data was derived. App Annie and Schmitt have agreed to pay more than $10 million to settle the matter, which is the SEC's first enforcement action charging an alternative data provider with securities fraud.

According to the SEC's order, App Annie is one of the largest sellers of market data on mobile app performance, including estimates on the number of times a particular company's app is downloaded, how often it's used, and the amount of revenue the app generates for the company. Trading firms commonly refer to this type of information as "alternative data" because it is not contained within companies' financial statements or other traditional data sources. The order finds that App Annie and Schmitt understood that companies would only share their confidential app performance data with App Annie if it promised not to disclose their data to third parties, and as a result App Annie and Schmitt assured companies that their data would be aggregated and anonymized before being used by a statistical model to generate estimates of app performance. Contrary to these representations, the order finds that from late 2014 through mid-2018, App Annie used non-aggregated and non-anonymized data to alter its model-generated estimates to make them more valuable to sell to trading firms.

The order further finds that App Annie and Schmitt misrepresented to their trading firm customers that App Annie generated the estimates in a way that was consistent with the consents it obtained from companies that shared their confidential data, and that App Annie had effective internal controls to prevent the misuse of confidential data and to ensure that it was in compliance with the federal securities laws. According to the SEC's order, App Annie and Schmitt were aware that trading firm customers were making investment decisions based on App Annie's estimates, and App Annie also shared ideas for how the trading firms could use the estimates to trade ahead of upcoming earnings announcements.

"The federal securities laws prohibit deceptive conduct and material misrepresentations in connection with the purchase or sale of securities," said Gurbir S. Grewal, Director of the SEC's Enforcement Division. "Here, App Annie and Schmitt lied to companies about how their confidential data was being used and then not only sold the manipulated estimates to their trading firm customers, but also encouraged them to trade on those estimates—often touting how closely they correlated with the companies' true performance and stock prices."

"App Annie sought to distinguish itself in the alternative data space by providing securities market participants with valuable information in a new and innovative way," said Erin E. Schneider, Director of the SEC's San Francisco Regional Office. "It went to great lengths to assure its customers that the financial and app-related data it sold was the product of a sophisticated statistical model and that it had controls to ensure compliance with the federal securities laws. These representations were materially false and misleading."

The SEC's order finds that App Annie and Schmitt violated the anti-fraud provisions of Section 10(b) of the Exchange Act and Rule 10b-5 thereunder. Without admitting or denying the findings, App Annie and Schmitt consented to the entry of a cease-and-desist order under which App Annie is ordered to pay a penalty of $10 million, Schmitt is ordered to pay a penalty of $300,000, and Schmitt is prohibited from serving as an officer or director of a public company for three years.

The SEC's investigation was conducted by Sallie Kim, with assistance from Andrew Hefty, under the supervision of Steven Buchholz and Monique C. Winkler of the San Francisco Regional Office. Darren Boerner of the Market Abuse Unit's Analysis and Detection Center and Judy Tran of the Division of Economic and Risk Analysis also assisted the investigation.  Division of Examinations staff members Adam Storch of the Event & Emerging Risk Examination Team, and Matthew Harris and Christopher Marino of the Private Funds Unit, conducted examinations that contributed to the investigation.

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SEC.gov | SEC Charges Three Media Companies with Illegal Offerings of Stock and Digital Assets

The Securities and Exchange Commission today charged New York City-based GTV Media Group Inc. and Saraca Media Group Inc., and Phoenix, Arizona-based Voice of Guo Media Inc., with conducting an illegal unregistered offering of GTV common stock. The SEC also announced charges against GTV and Saraca for conducting an illegal unregistered offering of a digital asset security referred to as either G-Coins or G-Dollars. The respondents have agreed to pay more than $539 million to settle the SEC's action.

According to the SEC's order, from April through June 2020, the respondents generally solicited thousands of individuals to invest in the GTV stock offering. During the same period, GTV and Saraca solicited individuals to invest in the digital asset offering. The order finds that the respondents disseminated information about the two offerings to the general public through publicly available videos on GTV's and Saraca's websites, as well as on social media platforms such as YouTube and Twitter. Through these two securities offerings, whose proceeds were commingled, the respondents collectively raised approximately $487 million from more than 5,000 investors, including U.S. investors. As stated in the order, no registration statements were filed or in effect for either offering, and the respondents' offers and sales did not qualify for an exemption from registration.

"Issuers seeking to access the markets through a public securities offering must provide investors with the disclosures required under the federal securities laws," said Sanjay Wadhwa, Deputy Director of the SEC's Enforcement Division. "When they fail to do so, the Commission will seek remedies that make harmed investors whole, such as an unwinding of the offering and a return of the funds to the investors."

"Thousands of investors purchased GTV stock, G-Coins, and G-Dollars based on the respondents' solicitation of the general public with limited disclosures," said Richard R. Best, Director of the SEC's New York Regional Office. "The remedies ordered by the Commission today, which include a fair fund distribution, will provide meaningful relief to investors in these illegal offerings."

Without admitting or denying the SEC's findings that they violated Section 5 of the Securities Act of 1933, GTV and Saraca agreed to a cease-and-desist order, to pay disgorgement of over $434 million plus prejudgment interest of approximately $16 million on a joint and several basis, and to each pay a civil penalty of $15 million. Voice of Guo agreed to a cease-and-desist order, to pay disgorgement of more than $52 million plus prejudgment interest of nearly $2 million, and to pay a civil penalty of $5 million. The order establishes a Fair Fund to return monies to injured investors. The respondents also agreed to not participate, directly or indirectly, in any offering of a digital asset security, to assist the SEC staff in the administration of a distribution plan, and to publish notice of the SEC's order on their public websites and social media channels, including but not limited to, www.gtv.org and www.gnews.org.

The SEC's continuing investigation is being conducted by William Conway, Amanda Rios, Kerri Palen, and Sandeep Satwalekar. The investigation that led up to the filing of this action was conducted by Mr. Conway, Ms. Rios, Ms. Palen, Jorge Tenreiro, and Mr. Satwalekar. The case is being supervised by Messrs. Wadhwa and Best. The SEC appreciates the assistance of the Arizona Corporation Commission and the British Columbia Securities Commission.

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SEC.gov | SEC Charges The Kraft Heinz Company and Two Former Executives for Engaging in Years-Long Accounting Scheme

The Securities and Exchange Commission today charged The Kraft Heinz Company with engaging in a long-running expense management scheme that resulted in the restatement of several years of financial reporting. The SEC also charged Kraft's former Chief Operating Officer Eduardo Pelleissone and its former Chief Procurement Officer Klaus Hofmann for their misconduct related to the scheme.

According to the SEC's order, from the last quarter of 2015 to the end of 2018, Kraft engaged in various types of accounting misconduct, including recognizing unearned discounts from suppliers and maintaining false and misleading supplier contracts, which improperly reduced the company's cost of goods sold and allegedly achieved "cost savings." Kraft, in turn, touted these purported savings to the market, which were widely covered by financial analysts. The accounting improprieties resulted in Kraft reporting inflated adjusted "EBITDA," a key earnings performance metric for investors. In June 2019, after the SEC investigation commenced, Kraft restated its financials, correcting a total of $208 million in improperly-recognized cost savings arising out of nearly 300 transactions.

"Investors rely on public companies to be 100% truthful and accurate in their public statements, especially when it comes to their financials. When they fall short in this regard, we will hold them accountable," said Gurbir S. Grewal, Director of the SEC's Division of Enforcement.  "Today's action demonstrates that no matter how complex and far-reaching the financial misconduct, we will vigorously pursue wrongdoers because that’s what investor protection requires."

As alleged in the SEC's order and in its complaint against Hofmann, Kraft failed to design and maintain effective internal accounting controls for its procurement division. As a result, finance and gatekeeping personnel repeatedly overlooked indications that expenses were being improperly accounted for. In addition, Pelleissone was presented with numerous warning signs that expenses were being managed through manipulated agreements with Kraft's suppliers, but rather than addressing these risks, he pressured the procurement division to deliver unrealistic savings targets. Hofmann approved several improper supplier contracts used to further the misconduct despite numerous warning signs that procurement division employees were circumventing internal controls, and certified the accuracy and completeness of the procurement division's financial statements when the misconduct was occurring. As a member of Kraft's disclosure committee, Pelleissone then improperly approved the company's financial statements.

"Kraft and its former executives are charged with engaging in improper expense management practices that spanned many years and involved numerous misleading transactions, millions in bogus cost savings, and a pervasive breakdown in accounting controls. The violations harmed investors who ultimately bore the costs and burdens of a restatement and delayed financial reporting," said Anita B. Bandy, Associate Director of the SEC's Division of Enforcement.  "Kraft and its former executives are being held accountable for placing the pursuit of cost savings above compliance with the law."

The SEC's order finds that Kraft violated the negligence-based anti-fraud, reporting, books and records, and internal accounting controls provisions of the federal securities laws. The order also finds that Pelleissone violated the negligence-based anti-fraud, books and records, and internal accounting controls provisions of the federal securities laws and additionally, failed to provide Kraft's accountants with accurate information and caused Kraft's reporting, books and records, and internal accounting controls violations. The SEC's complaint against Hofmann alleges that he violated the negligence-based anti-fraud provisions, failed to provide accurate information to accountants, and violated the books and records and internal accounting controls provisions of the federal securities laws.

Without admitting or denying the SEC's findings as to them, Kraft consented to cease and desist from future violations and pay a civil penalty of $62 million, whereas Pelleissone consented to cease and desist from future violations, pay disgorgement and prejudgment interest of $14,211.31, and pay a civil penalty of $300,000. And without admitting or denying the SEC's allegations, Hofmann consented to a final judgment permanently enjoining him from future violations, ordering him to pay a civil penalty of $100,000, and barring him from serving as an officer or director of a public company for five years. The settlement with Hofmann is subject to court approval.

The SEC's investigation was conducted by Seth M. Nadler, Thomas B. Rogers, James Connor, Gary Peters, with assistance from Sarah Concannon and Thomas Bednar, and was supervised by Greg Faragasso and Ms. Bandy.

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SEC.gov | SEC Investor Advisory Committee to Meet Remotely on Sept. 9

The Securities and Exchange Commission's Investor Advisory Committee will hold a public meeting on Sept. 9 by remote means. The meeting will begin at 10 a.m. ET, is open to the public via live webcast, and will be archived on the committee's website for later viewing.

The committee will hold two panel discussions: a panel discussion entitled "Reimagining Investor Protection in a Digital World: the Behavioral Design of Online Trading Platforms;" a panel discussion regarding competition and regulatory reform at the Public Company Accounting Oversight Board; as well as a discussion of a recommendation regarding 10b5-1 plans; and a discussion of a recommendation regarding SPACs. The full agenda is available here.

For a full list of committee members, see the committee's member biographies webpage.

The Investor Advisory Committee was established to advise the SEC on regulatory priorities, the regulation of securities products, trading strategies, fee structures, the effectiveness of disclosure, and on initiatives to protect investor interests and to promote investor confidence and the integrity of the securities marketplace. The committee is authorized to submit findings and recommendations to the Commission.

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SEC.gov | SEC Charges Global Crypto Lending Platform and Top Executives in $2 Billion Fraud

The Securities and Exchange Commission announced today that it has filed an action against BitConnect, an online crypto lending platform, its founder Satish Kumbhani, and its top U.S. promoter and his affiliated company, alleging that they defrauded retail investors out of $2 billion through a global fraudulent and unregistered offering of investments into a program involving digital assets.

According to the SEC's complaint, filed in the United States District Court for the Southern District of New York, from early 2017 through January 2018, Defendants conducted a fraudulent and unregistered offering and sale of securities in the form of investments in a "Lending Program" offered by BitConnect. The complaint alleges that, to induce investors to deposit funds into the purported Lending Program, Defendants falsely represented, among other things, that BitConnect would deploy its purportedly proprietary "volatility software trading bot" that, using investors' deposits, would generate exorbitantly high returns. However, the SEC alleges that instead of deploying investor funds for trading with the purported trading bot, defendants BitConnect and Kumbhani siphoned investors' funds off for their own benefit by transferring those funds to digital wallet addresses controlled by them, their top promoter in the U.S., defendant Glenn Arcaro, and others. The SEC's complaint further alleges that BitConnect and Kumbhani established a network of promoters around the world, and rewarded them for their promotional efforts and outreach by paying commissions, a substantial portion of which they concealed from investors. According to the complaint, among these promoters was Arcaro, the lead national promoter of BitConnect for the United States who used the website he created, Future Money, to lure investors into the Lending Program.

"We allege that these defendants stole billions of dollars from retail investors around the world by exploiting their interest in digital assets," said Lara Shalov Mehraban, Associate Regional Director of SEC's New York Regional Office. "We will aggressively pursue and hold accountable those who engage in misconduct in the digital asset space."

The SEC's complaint charges Defendants with violating the antifraud and registration provisions of the federal securities laws. The complaint seeks injunctive relief, disgorgement plus interest, and civil penalties. The SEC previously reached settlements with two of the five individuals it charged in a related action for promoting the BitConnect offering. In a parallel action, the Department of Justice today announced that Arcaro has pleaded guilty to criminal charges.

The SEC's investigation was conducted by Gwen Licardo of the SEC's Retail Strategy Task Force, Michael Baker and Pamela Sawhney of the SEC's Cyber Unit, and Jorge Tenreiro and Jordan Baker of the SEC's New York Regional Office. The case was supervised by John O. Enright, Ms. Mehraban and Kristina Littman, Chief of the Cyber Unit. The litigation is being conducted by Mark Sylvester, Richard Primoff, Ms. Licardo, Mr. Baker, and Ms. Sawhney. The Commission appreciates the assistance of the Cayman Islands Monetary Authority, the Hong Kong Securities and Futures Commission, the Monetary Authority of Singapore, the Ontario Securities Commission, the Romanian Financial Supervisory Authority, and the Thailand Securities and Exchange Commission.

The SEC's Office of Investor Education and Advocacy and Enforcement's Retail Strategy Task Force has issued an Investor Alert on Digital Asset and Crypto Investment. Investors can find additional information about digital asset and "crypto" investment schemes, including the warning signs of fraud, at Investor.gov.

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