Tag Archives: SEC

SEC Charges Crowdfunding Portal, Issuer, and Related Individuals for Fraudulent Offerings

The Securities and Exchange Commission today charged three individuals and one issuer with conducting a fraudulent scheme to sell nearly $2 million of unregistered securities through two crowdfunding offerings. The SEC also charged the registered funding portal and its CEO, who placed the offerings on the portal’s platform.

According to the SEC’s complaint, Robert Shumake, alongside associates Nicole Birch and Willard Jackson, conducted fraudulent and unregistered crowdfunding offerings through two cannabis and hemp companies, Transatlantic Real Estate LLC and 420 Real Estate LLC.  Shumake, with assistance from Birch and Jackson, allegedly hid his involvement in the offerings from the public out of concern that his prior criminal conviction could deter prospective investors. The complaint alleges that Shumake and Birch raised $1,020,100 from retail investors through Transatlantic Real Estate, and Shumake and Jackson raised $888,180 through 420 Real Estate. Shumake, Birch, and Jackson allegedly diverted investor funds for personal use rather than using the funds for the purposes disclosed to investors. As alleged, TruCrowd Inc., a registered funding portal, and its CEO, Vincent Petrescu, hosted the Transatlantic Real Estate and 420 Real Estate offerings on TruCrowd’s platform. Petrescu allegedly failed to address red flags including Shumake’s criminal history and involvement in the crowdfunding offerings, and otherwise failed to reduce the risk of fraud to investors.

“Crowdfunding offerings enable issuers to cast a wide net for potential investors, emphasizing the importance of full and honest disclosure,” said Gurbir S. Grewal, Director of the SEC’s Division of Enforcement. “As companies continue to raise funds through crowdfunding offerings, we will hold issuers, gatekeepers, and individuals accountable and enforce the protections in place for all investors.”

The SEC’s complaint, which was filed in the U.S. District Court for the Eastern District of Michigan, charges Shumake, Birch, Jackson, and 420 Real Estate with violating the antifraud and registration provisions of the Securities Act of 1933 and Securities Exchange Act of 1934, and seeks disgorgement plus pre-judgment interest, penalties, permanent injunctions, and officer and director bars. The complaint also charges TruCrowd and Petrescu with violating the crowdfunding rules of the Securities Act and seeks disgorgement plus pre-judgment interest, penalties, and permanent injunctions.

The SEC’s Office of Investor Education and Advocacy has issued an investor bulletin on crowdfunding and investor alerts on the red flags of investment fraud. Additional information is available at Investor.gov.

The SEC’s investigation was conducted by Jerrold H. Kohn, Dante A. Roldán, Pesach Glaser, and Kristine Rodriguez, and supervised by Ana D. Petrovic, and the litigation will be led by John Birkenheier, all of the Chicago Regional Office. The SEC appreciates the assistance of the Financial Industry Regulatory Authority.

Prepared Remarks of Gary Gensler, Chair of the Securities and Exchange Commission, Before the American Bar Association Derivatives and Futures Law Committee Virtual Mid-Year Program

Thank you for the kind introduction. It’s good to be back with the American Bar Association’s Derivatives and Futures Law Committee.

As is customary, I’d like to note that I’m not speaking on behalf of my fellow Commissioners or the SEC staff.

When I first appeared before this committee more than a decade ago, Washington was still developing the regulatory response to the 2008 financial crisis.

That crisis had many chapters, but a form of security-based swaps — credit default swaps, particularly those used in the mortgage market — played a lead role throughout the story.

International banks were using credit default swaps to hedge their bank loan portfolios — or so they thought.

These derivatives were also at the core of the $180 billion bailout of AIG, whose near-failure accelerated the crisis.

Reliance on those same credit default swaps allowed many banks to lower regulatory capital requirements to dangerously low levels.

CDS also contributed to weak underwriting standards, particularly for asset securitizations. Investors and Wall Street allowed them to stand in for prudent credit analysis.

At the end of 2007, the CDS market had notional value of $61 trillion[1] — more than 10 times larger than it had been in 2004.[2]

Though it’s a smaller market these days, credit default swaps still play an important role. The notional value of credit default swaps is more than $8 trillion.[3]

Further, the security-based swaps market involves more than just the credit default swaps that were at the center of the 2008 crisis. It also comprises single-name and narrow-based equity swaps, some of which are labeled total return swaps.

Though we don’t yet have reliable data on the size of equity swaps and total return swaps, from time to time they too have played an important role in our capital markets.

When Congress decided to bring reforms to the overall swaps market, they assigned authority over security-based swaps to the SEC. They assigned the bulk of the swaps market —including interest-rate, energy, agricultural, and other commodity-based swaps — to our sister agency, the Commodity Futures Trading Commission, which I had the honor of chairing at the time.

In these reforms, Congress sought to address two main issues in this previously unregulated market: reducing risk and increasing transparency.

The reforms included two main ways to reduce risk. First, dealers would have to register with the SEC. In doing so, they’d need to have key back-office controls and adequate cushions against losses, through both their capital levels and customer margin.

This year, the SEC is implementing rules related to some of those authorities mandated by Congress 11 years ago.

To that end, security-based swap dealers and major security-based swap participants will begin registering with the Commission by Nov. 1. We expect that 45 to 50 entities will register as security-based swap dealers — some of which will be from the same family of firms.

The registration requirements include new counterparty protections, requirements for capital and margin, internal risk management, supervision and chief compliance officers, trade acknowledgement and confirmation, and recordkeeping and reporting procedures. These areas are focused on reducing risk in our markets.

Further, given the global nature of the security-based swaps market, international dealers have asked the SEC for the ability to comply with rules from their home jurisdictions, while still meeting U.S. regulations.

There’s a process that the Commission established several years ago by which we consider whether to grant this substituted compliance to dealers. For the Commission to grant substituted compliance, dealers’ home jurisdictions must have comparable rules of the road to ours in the U.S. and effectively supervise and enforce those rules.

To grant substituted compliance, we must ensure that those other regimes indeed produce comparable outcomes to the SEC’s own regulations. We don’t want dealers to be incentivized to move among jurisdictions so they can take advantage of regulatory arbitrage.

For the last 18 months, the agency has engaged with a number of foreign authorities and security-based swap dealers in consideration of substituted compliance.

The Commission has finalized a substituted compliance determination order with respect to key back-office controls for German firms with a prudential regulator. We expect to receive additional applications for substituted compliance from foreign jurisdictions soon.

One of the features of the SEC’s application process is that completed applications for substituted compliance are also published for notice and comment, and we value the input of commenters into this process. The Commission has noticed applications for the UK and France.

Given the coordination with applicants and foreign authorities, evaluating these substituted compliance applications is a significant undertaking. For example, our substituted compliance regime requires, for jurisdictions where substituted compliance is granted, that there be a supervisory and enforcement memorandum of understanding or other arrangement in place to facilitate information-sharing between the SEC and the relevant foreign authorities. In light of that, SEC staff are working to finalize recommendations to the Commission for substituted compliance determination orders and for the Commission to enter into MoUs expeditiously.

The other part of Dodd-Frank’s risk-reduction regime is through central clearing.

In 2016, we adopted new rules for clearinghouses. The SEC regulates three clearinghouses that voluntarily clear security-based swaps: ICE Clear Credit, ICE Clear Europe, and LCH SA.

Next, I’d like to discuss transparency. Congress determined that the security-based swap markets would benefit from more transparency, promoting efficiency of markets and lowering risks.

Post-trade, this would mean the public could see the price and volume of transactions. Pre-trade, this would mean that buyers and sellers could meet on a trading platform with transparent prices.

In 2015 and 2016, the SEC completed rules related to post-trade transparency. On Nov. 8, these new rules will go into effect, requiring these transaction data to be reported to a swap data depository, and thus available to the SEC and, under appropriate circumstances, other regulators.

Then, beginning on Feb. 14, 2022, the swap data repositories will be required to disseminate data about individual transactions to the public, including the key economic terms, price, and notional value.

Together, this information will greatly enhance post-trade transparency on a transaction-by-transaction basis.

Further, to allow the Commission and the public to see aggregate positions, Congress under Exchange Act section 10B gave us authority to mandate disclosure for positions in security-based swaps and related securities. I’ve asked staff to think about potential rules for the Commission’s consideration under this authority.

As the March collapse of the family office Archegos Capital Management showed, this may be an important reform to consider.

At the core of that story was Archegos’ use of total return swaps based on underlying stocks and significant exposure that the prime brokers had to the family office.

The limited transparency in this market, combined with potential shortcomings in market participants’ risk management, contributed to firms’ taking overly large positions and to subsequent system-wide tremors when firms started to unwind those positions.

I believe additional public disclosure of that fund’s positions, as well as public dissemination of individual transactions in total return swaps, may have helped.

This wasn’t the first time that one fund’s use of total return swaps had far-reaching implications for the capital markets, as the 1998 collapse of Long-Term Capital Management showed.[4]

In addition, the Commission has yet to finish the rules for the registration and regulation of security-based swap execution facilities (SEFs).

Back in 2011, the SEC proposed rules for security-based SEFs. I’ve asked staff to recommend how we can best harmonize security-based SEFs rules with those that have been in place under the CFTC for nine years and have been effective. To accomplish this, I would envision that we would put out another notice-and-comment rulemaking.

I believe aligning the SEC’s regime with the CFTC’s could garner many of the same benefits — bringing together buyers and sellers with transparent, pre-trade pricing and lowering risk in the marketplace.

This approach also could limit additional costs on security-based SEFs and their market participants because many of them already are subject to the CFTC’s rules.

Together, the rules going live this fall will increase transparency and reduce risk in the derivatives market. I believe they’re long overdue.

Various market events over the decades — from Long-Term Capital Management in 1998 to AIG in 2008 to Archegos in 2021 — remind us that we need to consider using all of our authority if we are to meet our obligations under the Dodd-Frank Act.

Thus, I’ve asked staff to consider ways we can continue to increase transparency and reduce risk through our unused authorities, particularly with regard to security-based SEFs and position reporting. I’ve also asked staff to make recommendations on proposed rules for the Commission’s consideration on the anti-fraud and anti-manipulation mandate from Dodd-Frank, as now included in Section 9(j) of the Exchange Act.

Before I conclude, I’d briefly like to discuss the intersection of security-based swaps and financial technology, including with respect to crypto assets. There are initiatives by a number of platforms to offer crypto tokens or other products that are priced off of the value of securities and operate like derivatives.

Make no mistake: It doesn’t matter whether it’s a stock token, a stable value token backed by securities, or any other virtual product that provides synthetic exposure to underlying securities. These platforms — whether in the decentralized or centralized finance space — are implicated by the securities laws and must work within our securities regime.

If these products are security-based swaps, the other rules I’ve mentioned earlier, such as the trade reporting rules, will apply to them. Then, any offer or sale to retail participants must be registered under the Securities Act of 1933 and effected on a national securities exchange.

We’ve brought some cases involving retail offerings of security-based swaps; unfortunately, there may be more.

We will continue to use all of the tools in our enforcement toolkit to ensure that investors are protected in cases like these.

Thank you again for having me today, and I look forward to answering your questions.


[1] See Bank for International Settlements, “The credit default swap market: what a difference a decade makes” (June 2018), available at https://www.bis.org/publ/qtrpdf/r_qt1806b.htm.

[2] See CFA Institute, “Credit Default Swaps and the Credit Crisis (Digest Summary),” available at https://www.cfainstitute.org/en/research/cfa-digest/2010/05/credit-default-swaps-and-the-credit-crisis-digest-summary.

[3] See BIS Statistics Explorer, “Credit default swaps, by type of position,” available at https://stats.bis.org/statx/srs/table/d10.1?f=pdf. Cited number refers to notional amounts outstanding for the second half of 2020.

[4] See “Treasury Under Secretary Gary Gensler Testimony Before the House Committee on Banking and Financial Services” (May 6, 1999), available at https://www.treasury.gov/press-center/press-releases/Pages/rr3137.aspx.

SEC Charges Investment Advisers With Cherry-Picking, Obtains Asset Freeze

The Securities and Exchange Commission today announced that it has obtained an asset freeze and other emergency relief, and filed fraud charges, against a Miami-based investment professional and two investment firms for engaging in an alleged “cherry-picking” scheme in which they channelled millions of dollars in trading profits to preferred accounts.

According to the SEC’s complaint filed under seal on June 10 in federal court in the Southern District of Florida and unsealed today, defendants Ramiro Jose Sugranes, UCB Financial Advisers Inc., and UCB Financial Services Limited engaged in a scheme since at least September 2015 to divert profitable trades to two accounts believed to be held by Sugranes’ relatives and saddle other clients with losing trades. The defendants allegedly used a single account to place trades without specifying the intended recipients of the securities at the time they placed the trades. As alleged, after the defendants established a position, if the price of the securities increased during the trading day, the defendants usually closed out the position and allocated those profitable trades to the two preferred accounts. Conversely, the complaint alleges that if the price of the securities decreased during the trading day, the defendants usually allocated the unprofitable trades to other client accounts. According to the complaint, the preferred clients, who are named as relief defendants, received approximately $4.6 million from profitable trades while other clients sustained more than $5 million in first-day losses.

“We allege that Sugranes used the UCB investment firms to funnel millions of dollars to two clients, while unloading over $5 million in first-day losses on their other clients,” said Joseph G. Sansone, Chief of the SEC Enforcement Division’s Market Abuse Unit.  “The SEC uses sophisticated analytical tools to ferret out investment professionals who abuse their positions to engage in cherry-picking and other fraudulent conduct, as we allege happened here.”

The SEC’s complaint charges Sugranes and the two UCB entities with violating the antifraud provisions of the federal securities laws, and seeks permanent injunctions, disgorgement, prejudgment interest, and civil penalties. The complaint also names the preferred clients as relief defendants and seeks to recover their unlawful gains and prejudgment interest. On June 14, the court granted the SEC’s request for emergency relief, including an asset freeze, accounting, and expedited discovery.

The SEC’s investigation, which is ongoing, stems from the Market Abuse Unit’s Analysis and Detection Center, which uses data analysis tools to detect suspicious patterns, including improbably successful trading. The investigation is being conducted by Jeffrey E. Oraker, Daniel M. Konosky, and Helena Engelhart Bean of the Market Abuse Unit and Denver Regional Office with assistance from John Rymas of the Market Abuse Unit and Stuart Jackson and Joshua Mallet of the SEC’s Division of Economic and Risk Analysis. The investigation is supervised by Danielle R. Voorhees and Joseph G. Sansone. The SEC’s litigation will be led by Christopher E. Martin and Mark L. Williams under the supervision of Gregory A. Kasper.

SEC Obtains Emergency Asset Freeze, Charges California Trader with Posting False Stock Tweets

The Securities and Exchange Commission today announced fraud charges and an asset freeze and other emergency relief against an Irvine, California-based trader who used social media to spread false information about a defunct company, while secretly profiting by selling his own holdings of the company’s stock.

According to the SEC’s complaint, which was filed under seal in federal court in the Central District of California on March 2, 2021 and unsealed today, Andrew L. Fassari used the Twitter handle @OCMillionaire to tweet false statements about Arcis Resources Corporation (ARCS), a defunct Nevada company with publicly traded securities, during December 2020. Specifically, the complaint alleges that, on Dec. 9, 2020, Fassari began purchasing over 41 million shares of ARCS stock shortly before tweeting false information about ARCS to his thousands of Twitter followers, including falsely claiming that ARCS was reviving its operations, expanding its business, and being backed by “huge” investors. The complaint further alleges that, between Dec. 9 and 21, 2020, Fassari made approximately 120 tweets that referenced “$ARCS,” dozens of which were false and misleading. For example, he tweeted, “$ARCS 380,000 indoor cultivation 1 Million+ sq ft processing. WEEEEEEEEE This CEO has big plans for us” and “a ton of news coming and backed by huge investors for its #cannabis operation[.]” In seeking an injunction, the SEC alleges that Fassari continued to tweet about other stocks as recently as January and February 2021.

The complaint further alleges that, over the next several days, ARCS’s share price skyrocketed, ultimately increasing over 4,000%. The complaint also alleges that Fassari made false statements about his own trading in ARCS. Between Dec. 10 and 16, 2020, Fassari allegedly sold all his shares in ARCS for profits of over $929,000, all while continuing to publish false and misleading information about ARCS and his trading in ARCS.

“We allege that Fassari profited by using social media to deceive investors,” said Melissa R. Hodgman, Acting Director of the SEC’s Division of Enforcement. “The SEC is committed to protecting investors by proactively monitoring suspicious trading activity tied to social media, and by charging those who use social media to violate the federal securities laws.”

The SEC’s complaint charges Fassari with violating the antifraud provisions of the federal securities laws, and seeks a permanent injunction, disgorgement, prejudgment interest, and a civil penalty from Fassari.

In addition, on March 2, 2021, the SEC issued an order temporarily suspending trading in the securities of ARCS.

The SEC’s Office of Investor Education and Advocacy recently alerted investors to the significant risks of making investment decisions based on social media.

The SEC’s investigation, which is ongoing, is being conducted by John Dwyer, Leslie Hughes, Jeb Wildschut, and Kerry Matticks, with the assistance of Stephen Glascoe and Jessica Regan in the Office of Investigative and Market Analytics, and is supervised by Danielle R. Voorhees, Jason J. Burt, and Kurt L. Gottschall. The SEC’s litigation will be led by Ms. Hughes, under the supervision of Gregory A. Kasper. The SEC appreciates the assistance of the Financial Industry Regulatory Authority.

SEC Suspends Trading in Multiple Issuers Based on Social Media and Trading Activity

As part of its continuing effort to respond to potential attempts to exploit investors during the recent market volatility, the Securities and Exchange Commission today suspended trading in the securities of 15 companies because of questionable trading and social media activity.

Today’s action follows the recent suspensions of the securities of numerous other issuers, many of which may also have been targets of apparent social media attempts to artificially inflate their stock price. The SEC continues to review market and trading data to identify other securities where the public interest and the protection of investors require trading suspensions.

“The SEC’s recent suspensions of trading in nearly two dozen securities – including 15 today – are one facet of our ongoing efforts to police the market and protect investors,” said Melissa Hodgman, Acting Director of the SEC’s Division of Enforcement. “We proactively monitor for suspicious trading activity tied to stock promotions on social media, and act quickly to stop that trading when appropriate to safeguard the public interest. We also remind investors to exercise caution and do their diligence before investing generally, including in companies promoted on social media.”

Today’s order states that trading is being suspended because of questions about recent increased activity and volatility in the trading of these issuers, as well as the influence of certain social media accounts on that trading activity. The order also states that none of the issuers has filed any information with the SEC or OTC Markets, where the companies’ securities are quoted, for over a year. As a result, the SEC suspended trading in the securities of: Bebida Beverage Co. (BBDA); Blue Sphere Corporation (BLSP); Ehouse Global Inc. (EHOS); Eventure Interactive Inc. (EVTI); Eyes on the Go Inc. (AXCG); Green Energy Enterprises Inc. (GYOG); Helix Wind Corp. (HLXW); International Power Group Ltd. (IPWG); Marani Brands Inc. (MRIB); MediaTechnics Corp. (MEDT); Net Talk.com Inc. (NTLK); Patten Energy Solutions Group Inc. (PTTN); PTA Holdings Inc. (PTAH); Universal Apparel & Textile Company (DKGR); and Wisdom Homes of America Inc. (WOFA).

The SEC also recently issued orders temporarily suspending trading in: Bangi Inc. (BNGI)Sylios Corp. (UNGS)Marathon Group Corp. (PDPR)Affinity Beverage Group Inc. (ABVG)All Grade Mining Inc. (HYII); and SpectraScience Inc. (SCIE). Each of these orders stated that the suspensions were due at least in part to questions about whether social media accounts have been attempting to artificially increase the companies’ share price.

Under the federal securities laws, the SEC can suspend trading in a stock for 10 days and generally prohibit a broker-dealer from soliciting investors to buy or sell the stock again until certain reporting requirements are met.

The SEC’s Office of Investor Education and Advocacy recently alerted investors to the significant risks of making investment decisions based on social media.

SEC Suspends Trading in Inactive Issuer Touted SpectraScience on Social Media

The Securities and Exchange Commission today suspended trading in an inactive company (SpectraScience) amid questions surrounding online promotion of the company’s securities and recent trading activity.

The SEC’s trading suspension order states that since late January 2021, certain social media accounts may be engaged in a coordinated attempt to artificially influence the share price of SpectraScience Inc. (OTC: SCIE), an inactive Minnesota-based corporation. The order further states that during the same period, the share price and trading volume of SpectraScience shares increased even though there was no publicly available news from the company.

The SEC’s order also states that SpectraScience is delinquent in its reporting, having not filed any periodic reports since 2017, and that its most recent website and phone number are non-functional.

On January 30, the SEC issued an alert warning investors to understand the significant risks of trading based on social media, noting that discussions on social media can tempt investors to “jump on the bandwagon,” leading to significant investment losses.

“This is a reminder that investors should exercise tremendous caution when investing based on social media or a sudden surge of enthusiasm for a particular security, especially where that interest does not appear tied to any news about the company or industry,” said Melissa Hodgman, Acting Director of the SEC’s Division of Enforcement.

Under the federal securities laws, the SEC can suspend trading in a stock for 10 days and generally prohibit a broker-dealer from soliciting investors to buy or sell the stock again until certain reporting requirements are met.

SEC Charges Investment Adviser and Others With Defrauding Over 17,000 Retail Investors

The Securities and Exchange Commission today charged three individuals and their affiliated entities with running a Ponzi-like scheme that raised over $1.7 billion from securities issued by a New York-based asset management firm and registered investment adviser, GPB Capital.  The SEC also charged GPB Capital with violating the whistleblower protection laws. 

The SEC’s complaint alleges that David Gentile, the owner and CEO of GPB Capital, and Jeffry Schneider, the owner of GPB Capital’s placement agent Ascendant Capital, lied to investors about the source of money used to make an 8% annualized distribution payment to investors.  According to the complaint, these defendants along with Ascendant Alternative Strategies, which marketed GPB Capital’s investments, told investors that the distribution payments were paid exclusively with monies generated by GPB Capital’s portfolio companies.  As alleged, GPB Capital actually used investor money to pay portions of the annualized 8% distribution payments.  GPB Capital and Gentile with assistance from Jeffrey Lash, a former managing partner at GPB Capital, also allegedly manipulated the financial statements of certain limited partnership funds managed by GPB Capital to perpetuate the deception by giving the false appearance that the funds’ income was closer to generating sufficient income to cover the distribution payments than it actually was.

The SEC’s complaint further alleges that GPB Capital and Ascendant Capital made misrepresentations to investors about millions of dollars in fees and other compensation received by Gentile and Schneider.  As alleged, the fraudulent scheme continued for more than four years in part because GPB Capital kept investors in the dark about the limited partnership funds’ true financial condition, failing to deliver audited financial statements and register two of its funds with the SEC.  GPB Capital allegedly violated the whistleblower provisions of the securities laws by including language in termination and separation agreements that impeded individuals from coming forward to the SEC, and by retaliating against a known whistleblower.

“As alleged in our complaint, the defendants told investors that they would be paid distributions from profits of the portfolio companies when, in reality, many of the payments were being made from the investors’ own funds,” said Richard Best, Director of the SEC’s New York Regional Office.  “This action shows our continued pursuit of those who deceive investors and conceal their misconduct to reap profits for themselves.”

Jane Norberg, Chief of the SEC’s Office of the Whistleblower, added, “Whistleblower protections are a cornerstone of the SEC’s whistleblower program.  The charges filed today reinforce the Commission’s commitment to protecting whistleblowers from retaliation and attempts to stifle the free flow of information to the Commission about possible securities law violations.”

The SEC’s complaint, filed in federal court for the Eastern District of New York, charges Gentile, Schneider, GPB Capital, Ascendant Alternative Strategies, and Ascendant Capital with violating the antifraud provisions of the Securities Act of 1933 and the Securities Exchange Act of 1934, and Lash with aiding and abetting certain of those violations.  The complaint also charges GPB Capital and Gentile with violating the antifraud provisions of the Investment Advisers Act of 1940 and charges GPB Capital with violating the registration and whistleblower provisions of the Exchange Act and the Advisers Act’s custody and compliance rules.  The complaint seeks disgorgement of ill-gotten gains plus prejudgment interest and penalties.

The SEC appreciates the assistance of the U.S. Attorney’s Office for the Eastern District of New York, Federal Bureau of Investigation, Financial Industry Regulatory Authority, Alabama Securities Commission, Illinois Securities Department, South Carolina Office of the Attorney General’s Securities Division, Office of the Georgia Secretary of State’s Securities Division, Missouri Securities Division, New Jersey Bureau of Securities, New York State Office of the Attorney General, and Texas State Securities Board.

The SEC’s investigation was conducted by Kristin M. Pauley, Lindsay S. Moilanen, Kerri L. Palen, David Stoelting, Neal Jacobson, Melissa A. Coppola, Alistaire Bambach, and Sheldon L. Pollock, and supervised by Lara S. Mehraban.  The SEC’s examination that led to the investigation was conducted by Anthony P. Fiduccia, Kristine E. Geissler, Todd Naznitsky, Amritpal Sidhu, Merryl Hoffman, and Thomas J. Butler. The litigation will be led by Mr. Stoelting, Ms. Pauley, and Ms. Moilanen. 

SEC Charges Deutsche Bank With FCPA Violations Related to Third-Party Intermediaries

The Securities and Exchange Commission today announced charges against Deutsche Bank AG for violations of the Foreign Corrupt Practices Act (FCPA).  As part of coordinated resolutions with the SEC and the Department of Justice, Deutsche Bank (DBK) has agreed to pay more than $120 million, which includes more than $43 million to settle the SEC’s charges. 

According to the SEC’s order, Deutsche Bank engaged foreign officials, their relatives, and their associates as third-party intermediaries, business development consultants, and finders to obtain and retain global business.  The order finds that Deutsche Bank lacked sufficient internal accounting controls related to the use and payment of such intermediaries, resulting in approximately $7 million in bribe payments or payments for unknown, undocumented, or unauthorized services.  The order further finds that these payments were inaccurately recorded as legitimate business expenses and involved invoices and documentation falsified by Deutsche Bank employees. 

“While third parties can assist in legitimate business development activities, it is critical that companies have sufficient internal accounting controls in place to prevent payments to third parties in furtherance of improper purposes,” said Charles Cain, Chief of the SEC Enforcement Division’s FCPA Unit

The SEC’s order finds that DBK violated the books and records and internal accounting controls provisions of the Securities Exchange Act of 1934. Deutsche Bank agreed to a cease-and-desist order and to pay disgorgement of $35 million with prejudgment interest of $8 million to settle the action.  The SEC did not impose a civil penalty in light of the $79 million criminal penalty paid in the criminal resolution. 

The investigation was conducted by Jennifer Moore and Tanya Beard of the FCPA Unit in the Salt Lake Regional Office under the supervision of Daniel Wadley. 

SEC Obtains Emergency Asset Freeze Charges Crypto Fund Manager with Fraud

The Securities and Exchange Commission (SEC) today announced that it filed an emergency action and obtained an order imposing an asset freeze and other emergency relief against Virgil Capital LLC and its affiliated companies in connection with an alleged securities fraud relating to Virgil Capital’s flagship cryptocurrency trading fund, Virgil Sigma Fund LP. The Commission’s action alleges that the fraud was directed by Stefan Qin, an Australian citizen and part-time resident of New York, who owns and controls Virgil Capital and its affiliated companies.

According to the SEC’s complaint, Qin and his entities have been defrauding investors in the Sigma Fund since at least 2018 by making material misrepresentations about the fund’s strategy, assets, and financial condition.  The complaint alleges that the defendants misled investors to believe their money was being used solely for cryptocurrency trading based on a proprietary algorithm, while Qin and the entities used investment proceeds for personal purposes or for other undisclosed high-risk investments. Since at least July 2020, Qin and Virgil Capital have told investors who requested redemptions from the Sigma Fund that their interests would be transferred instead to another fund under the ultimate control of Qin but with separate management and operations, the VQR Multistrategy Fund LP. The complaint alleges that no funds were transferred and the redemption requests remain outstanding. The SEC’s complaint further alleges that Qin is actively attempting to misappropriate assets from the VQR Fund and to raise new investments in the Sigma Fund.

“This emergency action is an important step to protect investor assets and prevent further harm,” said Kristina Littman, Chief of the SEC Enforcement Division’s Cyber Unit. “Qin allegedly made false promises to lure investors and then continued his deception to conceal his misuse of investor funds.”

The SEC‘s complaint, filed in the Southern District of New York on Dec. 22, 2020, charges Qin, Virgil Technologies LLC, Montgomery Technologies LLC, Virgil Quantitative Research LLC, Virgil Capital LLC, and VQR Partners LLC with violations of the antifraud provisions of the federal securities laws, and seeks permanent injunctions, including conduct-based injunctions, disgorgement with prejudgment interest, and civil penalties.

The SEC’s ongoing investigation is being conducted by Fitzann Reid of the San Francisco Regional Office and Amanda Straub of the Enforcement Division’s Cyber Unit. The litigation will be led by Susan LaMarca, Ms. Straub, and Ms. Reid, and the case is being supervised by Steven Buchholz and Ms. Littman of the Cyber Unit.

SEC Charges Ripple and Two Executives with Conducting $1.3 Billion Unregistered Securities Offering

The Securities and Exchange Commission announced today that it has filed an action against Ripple Labs Inc. and two of its executives, who are also significant security holders, alleging that they raised over $1.3 billion through an unregistered, ongoing digital asset securities offering.

According to the SEC’s complaint, Ripple; Christian Larsen, the company’s co-founder, executive chairman of its board, and former CEO; and Bradley Garlinghouse, the company’s current CEO, raised capital to finance the company’s business. The complaint alleges that Ripple raised funds, beginning in 2013, through the sale of digital assets known as XRP in an unregistered securities offering to investors in the U.S. and worldwide. Ripple also allegedly distributed billions of XRP in exchange for non-cash consideration, such as labor and market-making services. According to the complaint, in addition to structuring and promoting the XRP sales used to finance the company’s business, Larsen and Garlinghouse also effected personal unregistered sales of XRP totaling approximately $600 million. The complaint alleges that the defendants failed to register their offers and sales of XRP or satisfy any exemption from registration, in violation of the registration provisions of the federal securities laws.

“Issuers seeking the benefits of a public offering, including access to retail investors, broad distribution and a secondary trading market, must comply with the federal securities laws that require registration of offerings unless an exemption from registration applies,” said Stephanie Avakian, Director of the SEC‘s Enforcement Division. “We allege that Ripple, Larsen, and Garlinghouse failed to register their ongoing offer and sale of billions of XRP to retail investors, which deprived potential purchasers of adequate disclosures about XRP and Ripple’s business and other important long-standing protections that are fundamental to our robust public market system.”

“The registration requirements are designed to ensure that potential investors – including, importantly, retail investors – receive important information about an issuer’s business operations and financial condition,” said Marc P. Berger, Deputy Director of the SEC’s Enforcement Division. “Here, we allege that Ripple and its executives failed over a period of years to satisfy these core investor protection provisions, and as a result investors lacked information to which they were entitled.”

The SEC’s complaint, filed today in federal district court in Manhattan, charges defendants with violating the registration provisions of the Securities Act of 1933, and seeks injunctive relief, disgorgement with prejudgment interest, and civil penalties.

The SEC’s investigation was conducted by Daphna A. Waxman, Jon A. Daniels, and John O. Enright of the SEC’s Cyber Unit. The case is being supervised by Kristina Littman, Chief of the SEC Enforcement Division’s Cyber Unit. The SEC’s litigation will be conducted by Jorge G. Tenreiro, Dugan Bliss, Ms. Waxman, and Mr. Daniels, and supervised by Preethi Krishnamurthy.