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SEC settles with company over misrepresentation of ICO
On July 14, the SEC announced a settlement with the owners and operators of a software platform provider, resolving allegations that the company violated anti-touting provisions by failing to disclose the compensation it received from issuers of the digital asset securities it profiled. According to the order, the company’s website, which was accessible in the U.S. from 2016 to August 2019, publicized offerings for digital tokens. The platform claimed to “list” or profile the “best” token offerings, such as so-called initial coin offerings (ICOs) and initial exchange offerings. The company also allegedly claimed that its “mission [was] to make it easy and safe for people around the world to join ICOs.” According to the order, the platform profiled more than 2,500 different token offerings, which compromised fundraising of over $10 billion. The SEC alleged that the company violated provisions of the Securities Act, such as Section 2(a), because the digital tokens publicized by the company included those that were offered and sold as investment contracts, and 17(b), because the company promoted a security without disclosing that they received compensation for doing so. The order, which the company consented to without admitting or denying the findings, imposes a civil money penalty of $154,434 and $43,000 in disgorgement, and provides that the company must cease and desist from committing or causing any future violations of the anti-touting provisions of the federal securities laws. SEC Commissioners Hester M. Peirce and Elad L. Roisman dissented from the settlement, stating they agreed that “touting securities without disclosing the fact that you are getting paid, and how much, violates Section 17(b)” but “[they] are disappointed that the Commission’s settlement with [the company] did not explain which digital assets touted by [the company] were securities[.]”
SEC awards $1 million to whistleblower
On June 24, the SEC announced that it awarded a whistleblower more than $1 million for providing information that, according to the redacted order, led to multiple successful SEC enforcement actions. The SEC noted that the whistleblower provided valuable information and ongoing assistance, participated in interviews with enforcement staff, and helped staff understand key players in the investigation. The whistleblower also helped conserve significant staff time and resources by providing information that was otherwise inaccessible to staff and suffered personal and professional hardships. The SEC added that there was also “substantial law enforcement interest in the information.”
The SEC has awarded approximately $938 million to 179 individuals since issuing its first award in 2012.
SEC charges liability company with Exchange Act violations
On June 23, the SEC announced charges against a New York-based limited liability firm for Securities Exchange Act violations because the firm allegedly used language in the firm’s compliance manual that prohibited potential whistleblowers from speaking out to regulators. According to the order, over a four year span, the firm’s compliance manual stated that employees were “strictly prohibited from initiating contact with any Regulator without prior approval from the Legal or Compliance Department,” and that violation of this policy may result in “disciplinary action by the Firm.” The order noted, however, that the agency was “unaware of any specific instances” where an employee of the firm was prevented from disclosing to the SEC staff about possible violations. In 2018 and 2019, the firm also provided annual compliance training to its employees that allegedly included similar language. Specifically, a slide in the training contained language that prohibited employees “from initiating contact with any regulator without prior approval from Legal or Compliance, including conversation[s] regarding an individual’s registration status with FINRA.” The SEC further alleged that the firm’s employees were also required to comply with the code of conduct maintained by the firm’s indirect parent company, but acknowledged that the code was not meant to restrict employees’ whistleblower protections, and employees were not prohibited from reporting to government agencies. However, the firm’s manual also noted that “personnel should follow the more restrictive” of the various policies, “absent explicit direction to the contrary.” The order noted that the firm took remedial steps to correct the issues, including altering the language in the compliance manual to instead advise employees of their right to communicate with regulators about possible concerns without obtaining prior approval. The firm communicated the revisions to its employees by administering a compliance alert, which linked to the revised manual. The SEC charged the firm with violating Rule 21F-17 of the Securities Exchange Act and ordered the firm, to cease and desist for committing future violations of Rule 21F-17 and pay a $208,912 penalty.
SEC sues mutual fund for diverting investor funds into shell companies
On June 21, the SEC filed a complaint against a Cayman Islands-registered mutual fund and its operators (collectively, “defendants”) in the U.S. District Court for the Southern District of New York alleging they diverted millions of dollars in investor funds to shell companies under the defendants’ control through uncollateralized loan transactions, and issued “false or misleading statements of material facts to investors to disguise their misconduct.” According to the SEC, the defendants have also blocked investors from redeeming the roughly $106 million they invested in the fund, and have transferred $64 million of the investors’ deposits into the fund’s brokerage account, from which the assets were allegedly “subject to further dissipation and misappropriation.” The SEC’s complaint alleges violations of the antifraud provisions of the Securities Act of 1933 and the Securities Exchange Act of 1934, and seeks a permanent injunction against the defendants, a permanent ban prohibiting the participation in future securities offerings through entities owned or controlled by the defendants, disgorgement of ill-gotten gains, civil penalties, and an asset freeze.
SEC settles with blockchain company over unregistered ICO
On June 22, the SEC announced a settlement with an intellectual property search software platform provider and its CEO resolving allegations that the company made materially false and misleading statements in connection with an unregistered initial coin offering (ICO) of digital asset securities. According to the order, the company raised $7.6 million from investors by offering and selling digital tokens. In promoting the ICO, the company and its CEO made multiple materially false statements to investors and potential investors, including false statements about the company’s revenues, number of employees, and the platform’s user base. The SEC alleges that the company violated Section 5(a) and 5(c) of the Securities Act because the digital assets it offered and sold were securities under federal securities laws, and the company did not have the required registration statement filed or in effect, nor did it qualify for an exemption from registration. The order, which the company consented to without admitting or denying the findings, imposes a $7.6 million penalty, and requires the company to “destroy all [of the digital tokens] in their possession or control,” publish notice of the order on the company’s social media accounts, request removal of the tokens from trading platforms, and refrain from participating in future offerings of a digital asset security.
SEC issues whistleblower awards totaling nearly $5.3 million
On June 21, the SEC announced whistleblower awards to four individuals totaling nearly $5.3 million for information provided in separate enforcement actions. According to the first redacted order, the SEC awarded a whistleblower nearly $4 million for voluntarily providing original information to the Commission, leading to a successful enforcement action. The whistleblower also “provided extraordinary assistance,” participated in interviews, identified key witnesses, and provided documents to staff which led to a successful enforcement action. In the second redacted order, the SEC awarded three individuals a total of approximately $1.3 million. The first whistleblower, who received the largest award, provided substantial ongoing assistance that “saved the Enforcement staff considerable time and resources.” The other two whistleblowers provided important information concerning misconduct but did not provide any investigative leads.
The SEC has awarded approximately $937 million to 178 individuals since issuing its first award in 2012.
SEC charges settlement company with cybersecurity disclosure violations
On June 15, the SEC announced charges against a real estate settlement services company for its role in allegedly failing to disclose controls and procedures related to a cybersecurity vulnerability that exposed sensitive customer information. According to the SEC’s order, an independent cybersecurity journalist warned the company in May 2019 of a vulnerability concerning its system for sharing document images that exposed over 800 million images dating back to 2003, including images containing sensitive personal data such as social security numbers and financial information. In response, the company allegedly issued a press release for inclusion in the cybersecurity journalist’s report published in May 2019 and furnished a Form 8-K to the Commission on May 28, 2019. However, according to the order, the company’s senior executives responsible for these kinds of releases “were not apprised of certain information that was relevant to their assessment of the company’s disclosure response to the vulnerability and the magnitude of the resulting risk.” Specifically, the order states that senior executives were not informed that the company’s information security personnel had identified a vulnerability several months earlier, in January 2019, but failed to remediate the vulnerability in accordance with the company’s policies. The order finds that the company “failed to maintain disclosure controls and procedures designed to ensure that all available, relevant information concerning the vulnerability was analyzed for disclosure in the company’s public reports filed with the Commission.” The SEC charged the company with violating Rule 13a-15(a) of the Exchange Act and ordered the company, who agreed to a cease-and-desist order, to pay a $487,616 penalty.
SEC awards $3 million in whistleblower awards
On June 14, the SEC announced whistleblower awards to two individuals totaling an initial combined payment of approximately $3 million for information and assistance provided in a successful enforcement action. According to the redacted order, the SEC awarded the first whistleblower for providing assistance early in the investigation and helping enforcement staff focus its resources and theories. The second whistleblower was rewarded for helping to uncover misappropriated funds and fraudulent transfers. The SEC noted that both whistleblowers provided ongoing assistance in the investigation, including participating in interviews and providing helpful documents involved in the investigations.
The SEC has awarded approximately $932 million to 172 individuals since issuing its first award in 2012.
SEC awards $27 million in whistleblower awards
On June 2, the SEC announced whistleblower awards to two individuals totaling nearly $23 million for information and assistance provided in multiple successful enforcement actions. According to the redacted order, the SEC awarded the first whistleblower nearly $13 million for submitting a whistleblower tip that led to the initiation of the investigations. The second whistleblower received approximately $10 million for submitting a tip that contributed to the investigation, but according to the SEC, the whistleblower “unreasonably delayed by waiting several years to report the conduct.” The SEC noted that both whistleblowers provided substantial voluntary assistance in the investigation, including participating in interviews and identifying key individuals and systems involved in the investigations.
Earlier on May 27, the SEC announced that it awarded a whistleblower more than $4 million for voluntarily providing information that prompted the SEC to open an investigation leading to a successful enforcement action. According to the redacted order, the whistleblower provided substantial information to SEC investigative staff, identified key players, provided helpful information and documents, and cooperated with investigative staff. The SEC, however, determined a second claimant to be ineligible for an award, concluding, among other things, that the claimant “provided no information that was used in or otherwise contributed to the Covered Action” nor any “unique information or insight,” which would have led to the success of the enforcement action.
The SEC has awarded more than $928 million to 166 individuals since issuing its first award in 2012.
SEC issues $59 million in whistleblower awards
On May 19, the SEC announced that it awarded a whistleblower more than $28 million for providing information that, according to the redacted order, prompted the SEC and another agency to open investigations that resulted in significant enforcement actions. The SEC notes that under its whistleblower program, individuals who provide information to other agencies “may be eligible for an award in the related action if they are also eligible for an award in the underlying SEC action.”
Earlier, on May 17, the SEC announced whistleblower awards to four individuals totaling nearly $31 million for information provided in two different enforcement actions. According to the first redacted order, the SEC jointly awarded nearly $27 million to two claimants who voluntarily provided new information and ongoing assistance throughout an investigation that led to successful enforcement actions. In the second redacted order, the SEC awarded two other whistleblowers a total of approximately $3.8 million. The first whistleblower received a roughly $3.75 million award for voluntarily providing “original information to the Commission that contributed to an existing investigation” that led to a successful enforcement action. The second whistleblower received approximately $750,000 for providing “information that the staff previously lacked and that was useful in negotiating a settlement of one of the proceedings.” Though both whistleblowers independently provided information that was relevant in the ongoing investigation, the whistleblower who received the larger award supplied information and assistance that was more significant to the enforcement action.
The SEC has awarded approximately $901 million to 163 individuals since issuing its first whistleblower award in 2012.