Insider trading and misled investors in the weekly SEC charges roundup

In this week’s roundup there are cases of insider trading, more schemes to defraud investors, recordkeeping failures, and the failure to disclose perks and payments.

On March 2, the Greenbrier Companies Inc. and its founder and former CEO and Chairman, William A. Furman, were charged for failing to disclose perks that were provided to Furman and other Greenbrier executives. This included compensation that Furman received for using his private plane for travel by company executives and himself.

Greenbrier has agreed to pay $1m in civil penalties, and Furman $100,000, to settle the charges.

Insider trading using material nonpublic information

On March 1, Terren S. Peizer, the Executive Chairman of the healthcare treatment company Ontrak Inc, was charged with insider trading for selling more than $20m of Ontrak stock – while holding nonpublic negative information related to the company’s largest customer. He established a Rule 10b5-1 trading plan in the name of Acuitas Group Holdings LLC, and avoided a big loss by selling shares before stock freefall.

The SEC’s complaint charges Peizer and Acuitas with violating antifraud provisions of the federal securities laws and seeks permanent injunctive relief, disgorgement of ill-gotten gains with prejudgment interest, civil penalties as well as an officer and director bar for Peizer.

The DOJ is also charging Peizer, with one count of engaging in a securities fraud scheme and two counts of securities fraud for insider trading. If convicted, the maximum penalty is 25 years in prison on the securities fraud scheme charge, and 20 years imprisonment on each of the insider trading charges.

More charges connected to crypto fraud at FTX

On February 28, Nishad Singh, the former Co-Lead Engineer of FTX, was charged for his role in defrauding equity investors in FTX.

The complaint charges Singh with violating the anti-fraud provisions of the Securities Act and the Securities Exchange Act. It seeks an injunction against future securities law violations; a conduct-based injunction that prohibits Singh from participating in the issuance, purchase, offer, or sale of any securities (except personal), disgorgement of his ill-gotten gains; a civil penalty; and an officer and director bar. Singh has consented to a bifurcated settlement, which is subject to court approval.

In a parallel action, Singh is also facing charges by the US Attorney’s Office for the Southern District of New York and the CFTC.

“We allege that this was fraud, pure and simple: while on the one hand FTX touted its supposed effective risk mitigation measures to investors, on the other Mr. Singh and his co-defendants were stealing customer funds using software code Mr. Singh helped create.”

Gurbir S. Grewal, Director of the SEC’s Division of Enforcement

Fraud through misrepresentation

On February 23, the media and entertainment company Ozy Media Inc., its CEO Carlos R. Watson, Jr., its former COO Samir Rao, and its former Chief of Staff Suzee Han were charged with defrauding investors of almost $50m through repeated misrepresentations about the company’s financial status, business relationships, and fundraising work.

The complaint charges the defendants with violations of the anti-fraud provisions of the federal securities laws and related rules. The SEC seeks injunctive relief and civil penalties against all defendants, officer and director bars against Watson and Rao, and disgorgement with prejudgment interest against Ozy Media and Watson. Rao and Han have agreed to resolve the charges against them.

In a parallel action, the US Attorney’s Office for the Eastern District of New York has also announced criminal charges against Ozy Media, Watson, Rao, and Han.

Insider trading in businesses involved in fighting Covid-19

On February 23, Andrew Stiles was charged for insider trading in stocks of Eastman Kodak Company and Novavax Inc. – leveraging nonpublic information related to planned government partnerships to assist fighting Covid-19. His cousin Gray Stiles is also charged for insider trading which netted the two more than $1.5m in illegal profits.

The complaint charges the cousins with violating the antifraud provisions of the securities laws. The SEC also seeks a permanent injunction, disgorgement, and a civil penalty, as well as an officer and director bar against Andrew Stiles.

The US Attorney’s Office for the Southern District of New York has also announced criminal charges against the Stiles cousins. Both are charged with three counts of securities fraud, each carrying a maximum sentence of 20 years in prison, and one count of conspiracy to commit wire fraud and securities fraud, with a sentence of up to five years imprisonment.

Recordkeeping and control failures lead to misappropriation of funds

On February 22, the African Gold Acquisition Corp faced charges over internal controls, reporting, and recordkeeping violations – with $1.2m misappropriated as a result of the failures. The company has, without admitting or denying the findings, agreed to a cease-and-desist order and to the payment of a $103,591 civil monetary penalty.

The former CFO, Cooper J. Morgenthau, was also charged earlier in January for orchestrating a $5m fraud scheme.