SEC CORNER
SEC INKS SETTLEMENT WITH SPAC OVER FRAUD CHARGES
SEC v. Akazoo S.A., No. 1:20cv08101-AKH (S.D.N.Y. 2021)
The U.S. Securities and Exchange Commission (“SEC”) is continuing its pursuit into investigating special purpose acquisition company (“SPAC”) merger transactions, as evidenced by its recent settlement with a digital music streaming company.
The company agreed to a $38.8M settlement with the SEC over allegations it defrauded investors and lied about business prospects both before and after its SPAC merger with a media company.
The deal with the SEC comes on the heels of the settlement of private class action lawsuits, which targeted the company over fraud allegations. The private suits, as well as the SEC suit, revealed that, despite the company’s representations that it was rapidly growing with millions of monthly paying subscribers and over $124M in annual revenue, it in fact had limited revenue and no paying users.
The U.S. District Court approved the settlement agreement between the company and SEC, which required disgorgement as well as reimbursement to its investors. The company publicly admitted the above facts as true but stated that former members of the management team were behind the scheme to falsify its books and records.
FICC SETTLES WITH SEC OVER RISK MANAGEMENT INADEQUACIES
The U.S. Securities and Exchange Commission (“SEC”) recently entered an Order of Settlement in a matter involving the Fixed Income Clearing Corporation (“FICC”), in which the SEC alleged FICC failed to maintain adequate risk management policies and procedures.
The settlement included a civil penalty, as well as the implementation of a plethora of risk management procedures, including undertaking a review of current policies and procedures, the establishment of a Regulatory Committee to assume oversight responsibility, and the retention of an independent compliance consultant. As part of the settlement, FICC neither admitted nor denied the SEC’s allegations.
ELECTRIC CAR COMPANY TO SETTLE WITH SEC OVER FORMER CEO’S SOCIAL MEDIA ACTIVITY
The former CEO of an electric car company was charged by the U.S. Securities and Exchange Commission (“SEC”) for using social media to repeatedly mislead investors about the company’s technology and capabilities.
The company set aside $125 million in preparation to settle allegations with the SEC and also plans to seek reimbursement from the former CEO “for costs and damages arising from the actions that are the subject of government and regulatory investigations.”
The former CEO, who is now also facing criminal charges for misleading investors, stepped down shortly after a short-seller released a report labeling the company a fraud. The report also claimed that while the company purported to design key components in-house, it appeared to simply be licensing components from third parties. The company is already facing securities litigation alleging it misled investors after announcing it would go public through a multi-billion dollar merger with a special purpose acquisition company (“SPAC”).
SEC ENFORCEMENT ACTIONS AGAINST PUBLIC COMPANIES DECLINE IN FY 2021
According to a recent report from Cornerstone Research, the number of actions filed by the U.S. Securities and Exchange Commission (“SEC”) against public companies and public subsidiaries has declined for the second year in a row.
According to the report, the SEC filed 53 actions against public companies and subsidiaries, which is the lowest number since 2014, and down 15% from last year. The decrease in actions is likely due to the continuation of the COVID-19 pandemic, as well as the installation of a new SEC Chair. Like last year, the most common allegation type stemmed from Issuer Reporting and Disclosures, which accounted for more than half of all cases (commonly brought as administrative proceedings). 58% of actions brought by the SEC resulted in cooperation by public company defendants, with a median settlement amount of $1 million. Other noteworthy trends presented in the report are set forth below.
|
|
Average |
Reporting and Disclosure Actions |
Other Actions |
Total |
|
New Actions |
67 |
27 |
26 |
53 |
|
Actions Filed as Administratice Proceedings |
79% | 81% | 92% |
87% |
|
Defendants with Settlements Noting Cooperation |
58% | 46% | 71% |
58% |
|
Defendants with Monetary Settlements Imposed |
91% | 89% | 100% |
94% |
|
Average Monetary Settlements Imposed by SEC |
$27 Million | $29 Million | $47 Million |
$38 Million |
|
Median Monetary Settlements Imposed by SEC |
$4 Million | $1 Million | $1 Million |
$1 Million |
|
Disgorgement and Prejudgment Interest Imposed by the SEC in Civil Actions |
$326 Million | $113 Million | $0 |
$113 Million |
November 2021 Noteworthy Enforcement Actions Filed
Director/Officer | Role | Company |
Lina Maria Garcia | President, Chief Compliance Officer | UCB Financial Advisers, Inc. |
November 2021 Noteworthy Settlements And Judgments
Amount | Director/Officer | Role | Company |
$5,312,071.00 | Guy S. Griffithe | President | Renewable Technologies Solution, Inc. |
$1,816,817.00 | Kevin Kuhnash | Former CEO | Lucent Polymers, Inc. |
$831,670.00 | Jason Jimerson | Former COO | Lucent Polymers, Inc. |
$240,934.00 | William D. Wright | Corporate Controller | CEB Inc. |
$195,046.00 | Dale Redman | Former CEO | ProPetro Holding Corp. |
$100,000.00 | John A. Paulsen | Former Managing Director | New York State Common Retirement Fund |
Source: U.S. Securities and Exchange Commission