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In May 2022, the Securities and Exchange Commission (SEC) announced that it had filed an emergency action to freeze the assets of StraightPath Venture Partners and other defendants. The SEC alleged that the defendants were committing ongoing securities violations, having already racked up $410 million from 2,200 defrauded investors. The defendants are said to have been running a large network of unregistered broker-dealers who sold shares of a pre-initial public offering (IPO) that the defendants did not have to sell. Pre-IPO sales are ripe opportunities for fraudsters. By definition, the very premise is that investors are being sold shares before they’re available to the public. So those considering an investment may find it difficult, if not impossible, to find reliable information about the stock’s potential value. And the very pitch from fraudsters may include that the investors should not go asking anyone about their purchase because it’s a rare opportunity to get on the inside (perhaps even with a hint of insider trading info mixed in). In May 2022, the Securities and Exchange Commission (SEC) announced that it had filed an emergency action to freeze the assets of StraightPath Venture Partners and other defendants. The SEC alleged that the defendants were committing ongoing securities violations, having already racked up $410 million from 2,200 defrauded investors. The defendants are said to have been running a large network of unregistered broker-dealers who sold shares of a pre-initial public offering (pre-IPO) that the defendants did not have to sell. Continue reading

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Securities sales is a hard business on a good day. And the pressure to sell and hit a quota is often hanging over many agents’ heads. That’s even more true when there’s a downturned market filled with skittish investors. But “boiler rooms” are another thing entirely. Typically run out of call centers filled with unregistered sales agents, boiler room scams convince unwitting investors into pouring money into worthless investments. And while boiler rooms are an old con, they’ve been getting recent technology updates that have law enforcement around the world taking notice. In fact, fraudsters don’t even need an actual boiler room. They work remotely, just as many of us do. In March 2022, the Securities and Exchange Commission and Financial Industry Regulatory Authority (FINRA) worked with the Argentinian, Mexican, Panamanian, Colombia, Singaporean, Swiss, and other nations’ governments to bring down a boiler room operating out of Medellin, Colombia. Even the Royal Canadian Mounted Police were on the case.Securities sales is a hard business on a good day. And the pressure to sell and hit a quota is often hanging over many agents’ heads. That’s even more true when there’s a downturned market filled with skittish investors. But “boiler rooms” are another thing entirely. Typically run out of call centers filled with unregistered sales agents, boiler room scams convince unwitting investors into pouring money into worthless investments. And while boiler rooms are an old con, they’ve been getting recent technology updates that have law enforcement around the world taking notice. Continue reading

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Financial fraud is a serious crime with heavy financial penalties and jail time. Yet people still try to mislead shareholders, bilking investors and destroying companies. Not every financial fraud case ends up on Netflix like biotech entrepreneur and Theranos founder Elizabeth Holmes. But many of the most notorious financial fraud cases are just as fascinating. Enron The Enron scandal is perhaps one of the best-known incidents of accounting fraud. Enron used accounting loopholes by using off-balance-sheet entities to hide billions in bad debt while simultaneously inflating its earnings. Shareholders lost more than $74 billion when its share price collapsed in the wake of the investigation. The CEO and former CEO were both sentenced to jail time, and the scandal led to Enron's bankruptcy and the dissolution of the accounting firm Arthur Andersen.Financial fraud is a serious crime with heavy financial penalties and jail time. Yet people still try to mislead shareholders, bilking investors and destroying companies. Not every financial fraud case ends up on Netflix like biotech entrepreneur and Theranos founder Elizabeth Holmes. But many of the most notorious financial fraud cases are just as fascinating. Continue reading

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People often believe that audits can help root out fraud in cases and that an audit is a magic wand bestowing financial stability upon a company. But an audit is simply an independent examination of a company's financial statements to ensure that its financial records are a fair and accurate assessment of its transactions. An audit is ultimately only as good as the information given to the auditors. Of course, an auditor's responsibilities do include providing reasonable assurance that a company's financial statements are free from material misrepresentations due to error or fraud. Auditors aren't infallible and can miss problems without outside information. But an audit is a good first step toward identifying red flags in a company's financial statements. People often believe that audits can help root out fraud in cases and that an audit is a magic wand bestowing financial stability upon a company. But an audit is simply an independent examination of a company’s financial statements to ensure that its financial records are a fair and accurate assessment of its transactions. An audit is ultimately only as good as the information given to the auditors. Continue reading

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What does a fraudulent CEO do when he discovers a whistleblower in his company? In the case of NS8’s founder and CEO Adam Rogas, he impeded the employee’s access to company systems, raided his personal electronic accounts, prevented the employee from contacting the SEC and fired them once discovering that they were reporting the fraud. From at least 2018 through mid-2020, Rogas falsified bank statements to show investors that NS8 was earning much more than it really was. The altered bank statements showed that the company was earning millions in customer revenue and had tens of millions in on-hand assets. The company had much less in both revenue and assets than the falsified bank statements showed.  Rogas used these falsified bank statements to raise $149 million after presenting the documents to two NS8 securities offerings in 2019 and 2020. From this fundraising, Rogas collected $17.5 million of investor funds for himself.What does a fraudulent CEO do when he discovers a whistleblower in his company? In the case of NS8’s founder and CEO Adam Rogas, he impeded the employee’s access to company systems, raided his personal electronic accounts, prevented the employee from contacting the SEC and fired them once discovering that they were reporting the fraud. Continue reading

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In a recent press release, the SEC announced that it had awarded a $20 million bounty to a whistleblower who provided credible and useful information, which helped the Enforcement Division complete an enforcement action much quicker. Through offering additional information and continuing to assist staff, the SEC’s enforcement action was ultimately successful. The SEC whistleblower offered information voluntarily, offering substantial information and ongoing assistance that resulted in the success of the enforcement action. The whistleblower was involved in the wrongdoing for only a short period of time, and was acting at the direction of a supervisor. According to the SEC whistleblower order, the SEC took into consideration these facts when issuing the award. In a recent press release, the SEC announced that it had awarded a $20 million bounty to a whistleblower who provided credible and useful information, which helped the Enforcement Division complete an enforcement action much quicker. Through offering additional information and continuing to assist staff, the SEC’s enforcement action was ultimately successful. Continue reading

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In their latest announcement, the SEC has awarded $10 million to a whistleblower who provided considerable assistance that led to a successful enforcement action. The whistleblower met with SEC staff twice and brought them significant information. The charges in the enforcement action were closely aligned with the whistleblower’s allegations, which were essential to the SEC’s investigation. In a statement in the SEC’s press release, Chief of the SEC’s Office of the Whistleblower Creola Kelly stated, “The whistleblower awarded today provided information that resulted in the return of a significant amount of money to harmed investors. This illustrates how the Whistleblower Program works to benefit, via financial remediation, investors who are victimized by those who violate our securities laws.” Payments to investors are paid from a Congressionally established fund which collects from fines and financial sanctions paid by companies who violate securities laws. Investor money is returned to the defrauded investors and never used to pay whistleblowers. Identities of whistleblowers are always kept confidential and any identifying information is redacted from the order when published.In their latest announcement, the SEC has awarded $10 million to a whistleblower who provided considerable assistance that led to a successful enforcement action.

The whistleblower met with SEC staff twice and brought them significant information. The charges in the enforcement action were closely aligned with the whistleblower’s allegations, which were essential to the SEC’s investigation. Continue reading

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On September 26, 2022, the Federal Bureau of Investigation arrested three men for running a $100 million fraud based out of Hometown International, the corporate owner of a small New Jersey deli. According to the Securities and Exchange Commission (SEC), it was a classic “pump and dump” scheme. While the deli had less than $40,000 in annual revenue, the defendants claimed Hometown had a market capitalization of $100 million. But two years ago, the stock was worth just one dollar a share. When prosecuting a pump-and-dump, the SEC usually focuses on how the defendants misled the investors by providing false information about the company. Under the Securities Act of 1933, the “truth in securities” law, investors must receive accurate information about securities that are being offered for public scale. Further, sellers of securities are prohibited from making deceitful claims, misrepresentations, and other fraud to entice investors to make an investment. On September 26, 2022, the Federal Bureau of Investigation arrested three men for running a $100 million fraud based out of Hometown International, the corporate owner of a small New Jersey deli.

According to the Securities and Exchange Commission (SEC), it was a classic “pump and dump” scheme. While the deli had less than $40,000 in annual revenue, the defendants claimed Hometown had a market capitalization of $100 million. Continue reading

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The Securities and Exchange Commission (SEC) just announced the creation of two new offices—an Office of Crypto Assets (OCA) and an Office of Industrial Applications and Services (OIAS)—within its Division of Corporation Finance's Disclosure Review Program (DRP). While the offices haven't yet opened, it's already worth understanding their significance and expected roles. DPR is charged with reviewing company filings, to ensure that firms are in compliance with SEC rules relating to disclosure and accounting requirements. They analyze documents to determine if the disclosures for investors are complete and accurate, or if they are materially deficient in clarity or explanations. The scope of review varies, but DPR has at least some level of review for all reporting companies at least once every three years, while some companies receive more frequent reviews.  OIAS will focus on companies in the non-pharma, non-biotech, and non-medicinal product fields. This isn't necessarily a signal of increased enforcement, but it's more a recognition of the growth in these sectors. Therefore, OIAS will bring more specialized subject matter expertise than the existing staff can provide.The Securities and Exchange Commission (SEC) announced the creation of two new offices—an Office of Crypto Assets (OCA) and an Office of Industrial Applications and Services (OIAS)—within its Division of Corporation Finance’s Disclosure Review Program (DRP). While the offices haven’t yet opened, it’s already worth understanding their significance and expected roles. Continue reading

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