Investment Category Archives — Page 3 of 9 — Securities Fraud Lawyers Blog Published by Securities Fraud Attorneys

Oil & Gas Securities Offerings: SEC Orders Cease & Desist, Civil Penalties Against Two Companies and Their Principals

Published on: September 28, 2021 | by Savage Villoch Law, PLLC

In an order issued on September 24^th, 2021, the Securities and Exchange Commission (“SEC”) settled with Thomas Powell, Stefan Toth, and two entities they owned, Homebound Resources LLC (“Homebound”) and Resolute Capital Partners LTD LLC (“RCP”) on several charges of investment and securities fraud relating to oil and gas securities offerings. [1]

The SEC’s order concerns a period of time from 2016 through 2019, during which the SEC alleged that respondents made material misrepresentations and omissions about their oil and gas securities offerings. [1] The order states that neither Powell nor Toth were registered nor even associated with a registered broker-dealer during the relevant time period as they sold unregistered securities to investors. [2]

RCP is described as a private equity firm that “gives smart investors access to beyond-Wall Street assets, such as oil and gas wells” by creating, and then offering, oil and gas debt and equity investment vehicles for oil and gas wells. [2] In so doing, RCP relies on Homebound to identify and purchase these oil and gas wells. [2] During the relevant time period, Thomas Powell owned RCP while Stefan Toth owned and managed Homebound. [2]

Alternative Data Provider App Annie Inc. Settles SEC Securities Fraud Charges for $10 Million

Published on: September 21, 2021 | by Savage Villoch Law, PLLC

On Tuesday, September 14^th, the Securities and Exchange Commission (“SEC”) announced its first enforcement action against an alternative data provider, charging the company App Annie Inc. with securities fraud. App Annie and Bertrand Schmitt, its co-founder and former CEO and Chairman, have agreed to pay more than $10 million in a settlement with the SEC on these charges. [1]

While this marks the SEC’s first enforcement action against an alternative data provider, it likely will not be its last, as the use of alternative data in the financial and investment sphere continues to rise. [2] Alternative data (“alt-data”) is data which goes beyond that of traditional corporate financial statements and helps guide investment strategies. [3] Examples of alt-data include mobile device data, credit card transactions, satellite imagery data, product reviews, and even social media activity. [4]

This type of data can be instrumental in making sound investment decisions when it is paired with traditional data from corporate sources, because it provides a broader view of a company’s financial viability. [4] However, it is notoriously difficult to aggregate and analyze given its vast breadth – it’s estimated that the world produces at least 2.5 quintillion bytes of such data daily. [4] This is where companies like App Annie come in.

SEC Alleges Ponzi Scheme Defrauding Investors of Over $70 Million

Published on: September 13, 2021 | by Savage Villoch Law, PLLC

In the midst of the COVID-19 pandemic, Ponzi schemes have continued to pose a serious threat to unsuspecting investors here in Florida and around the world. On August 9, 2021, the Securities and Exchange Commission (SEC) filed a complaint in federal court against Johanna Garcia, of Broward County, and two companies she owns, MJ Capital Funding, LLC and MJ Taxes and More, for an alleged Ponzi scheme. [1]

The complaint alleges that Garcia has been operating a Ponzi scheme in which she has taken upwards of $70 million from over 2,000 investors under the guise that the investments funded Merchant Cash Advances (MCAs) for small businesses in need. Instead, the complaint alleges, the investments are being used in a “classic Ponzi scheme fashion” not to fund MCAs, but to pay the “returns” of investors before them. [2]

While MJ Taxes has been in existence since 2016, MJ Capital Funding was formed in June 2020, after the COVID-19 pandemic had already taken hold. From June until October 2020, MJ Taxes solicited six-month investments which typically promised a 10% monthly return, extrapolated out to substantial 120% annual returns. MJ Capital took over in October 2020, continuing to advertise as a source for MCAs while promising investors large and consistent returns.

The Latest in SPACs – Investment Companies, or Not?

Published on: September 7, 2021 | by Savage Villoch Law, PLLC

Should a Special Purpose Acquisition Company (“SPAC”) be classified as an investment company? This is the question currently plaguing the SPAC industry, creating a divisive split between a long list of America’s biggest law firms on one side, and two preeminent securities law professors interested in investor protection on the other.

Robert Jackson, a professor at NYU School of Law and former SEC Commissioner, and John Morley, a Yale Law School professor, recently filed three suits against high-profiles SPACs in New York federal court. The suits argue that each SPAC is operating as an unregistered investment company, and under the Investment Company Act of 1940 (the “Act”), compensation paid to the SPAC’s sponsors and directors was illegal and void under the Act. However, in the decades-long history of SPACs, these entities have never been classified as investment companies under the Act, nor has the SEC purported that they should.

At the center of this debate lie two secondary, though potentially even more important, questions: what is a SPAC, and what is a SPAC’s primary purpose? The answer to these questions determines whether SPACs should indeed be classified as investment companies under the Act, as Jackson and Morley contend, or whether SPACs may continue to operate independently of the Act, as the SPAC industry and a wide coalition of law firms believe.

Investor Alert: Investment Adviser Impersonations on the Rise

Published on: August 16, 2021 | by Savage Villoch Law, PLLC

Instances of fraudsters disguising themselves as investment advisers and brokers are on the rise, prompting the U.S. Securities and Exchange Commission’s Office of Investor Education and Advocacy (OIEA), the FBI Criminal Investigative Division, and FINRA, each to release investor alerts and warnings.

While these regulatory agencies have identified multiple concerning fraudulent schemes, each type is centered around impersonation of investment advisers – a particularly worrisome and dangerous trend. A recent example was reported by the Texas State Securities Board, which announced that a Texas fraudster created a website for Prestige Assets Mgnt LLC, a name which is almost identical to that of the registered investment adviser Prestige Asset Management LLC. [1]

The regulator alleges that while the website is phony and does not represent a licensed dealer or investment adviser, it was built to look authentic, and actually directed users to the registered firm’s office location and CRD number. [1]

Retail Investor Beware: EV Companies Face Securities Fraud Scrutiny

Published on: August 9, 2021 | by Savage Villoch Law, PLLC

The recent announcement of securities fraud charges against Trevor Milton, the former CEO of Nikola Corporation, may prove to be the first in a line of similar cases involving electric vehicle (“EV”) companies, and more broadly, companies that go public via SPACs. This situation highlights the importance of careful investment decision making, particularly in the EV and other rapidly growing, highly complex industries.

At the heart of the civil and criminal complaints against Nikola are allegations that as its CEO, Trevor Milton, regularly spread false and misleading information about the progress of Nikola’s EV products and technologies. Nikola’s focus is on manufacturing low- and zero-emissions trucks, and the complaints allege in part that under Milton, Nikola published a promotional video of a prototype truck which did not actually work, but appeared to only because the truck was set in neutral and rolled down a hill. [1]

Promotional videos like that one, along with Milton’s enthusiastic social media posts and numerous podcast and television appearances, all painted a picture of exciting and impressive forward progress at Nikola, which Federal prosecutors and SEC regulators allege was nothing more than an illusion. [2]

Blueprint for SEC Climate Risk and ESG Disclosure Regulation Emerges

Published on: August 2, 2021 | by Savage Villoch Law, PLLC

As the popularity of environmental, social, and governance (ESG) investing booms, the SEC continues to make its support clear. In fact, this past Wednesday, July 28^th, SEC Chair Gary Gensler spoke at length on the regulator’s ESG and climate risk disclosure plans as part of a Principles for Responsible Investment (PRI) event.

The PRI is an independent network of investors who promote responsible and sustainable investing by incorporating ESG factors and considerations into their investment decisions. Although the PRI is not a part of the UN itself, the UN supports and partners with the group. In 2006, when the PRI was formed, it managed about $7 Trillion in assets, and in 2020, it managed over $100 Trillion. [1]

So why should you as an investor care about ESG investing? ESG factors and criteria empower investors to make “socially responsible” and sustainable investment decisions by providing important insight into a company’s operations, standard practices, and culture through the lens of Environmental, Social, and Governance considerations.

FINRA Orders Record-High Financial Penalty Against Popular Stock-Trading App, Robinhood

Published on: July 12, 2021 | by Savage Villoch Law, PLLC

On June 30, 2021, FINRA ordered an approximately $70 Million financial penalty against Robinhood Financial LLC, the highest such penalty ever levied by the regulatory organization.[1] Through its investigation of the firm, FINRA charged Robinhood with numerous violations which had resulted in significant losses to their customers. While Robinhood neither confirmed nor denied the validity of FINRA’s charges, they ultimately agreed to settle with these massive sanctions. [1]

FINRA noted three major violations from its investigation into Robinhood’s conduct and operations as a stock-trading app, each of which merited its own penalties.

First, FINRA found that Robinhood has pervasively and negligently provided false or misleading information to its customers. [1] This false information was circulated in spite of Robinhood’s core mission to “de-mystify finance for all” and “democratize finance,” and ranged from misrepresenting customer account balances and buying power, to erroneous communication about customers facing margin calls. [2]

Margin Investing with Robinhood – Do the Risks Outweigh Rewards?

Published on: April 12, 2021 | by Savage Villoch Law, PLLC

Margin investing offers the opportunity to super-charge investments, but it also holds quite a bit of risk. Recent market volatility has shed a light on some of these risks, particularly for users of app-based platforms like Robinhood.

Let’s consider an example of margin investing with Robinhood. An investor deposits $5,000 cash into a margin account, and Robinhood lends another $5,000 to allow the investor $10,000 worth of securities. The “margin” is the difference between the value of the securities and the loan from Robinhood. This type of investing increases both purchasing power and financial leverage. [1]

If the securities in the margin account increase in value, the investor has the opportunity for a higher profit than they would have had they invested $10,000 of their own.

NFTs: Investment Boom or Bust?

Published on: April 5, 2021 | by Savage Villoch Law, PLLC

In the span of the last two months, a digital piece of art sold for nearly $70 million, Jack Dorsey, CEO of Twitter, sold his first tweet for $2.8 million, and a digital Lebron James basketball card went for $208,000. What do these three massive sales have in common? Each transaction was for a non-fungible token (NFT), and together, they signal rapidly growing interest in the cryptographic asset marketplace.

Starting with the basics, what is a non-fungible token?

An NFT is a type of digital, cryptographic asset which exists on blockchain. Fungibility refers to interchangeability – assets like dollars, gold, and even Bitcoin, are fungible, because each unit is worth the exact same amount, and is thus readily interchangeable. On the other hand, each unit of a non-fungible asset has its own unique value and thus is not readily interchangeable – think of assets like property, artwork, and other collectibles. [1]