The Nutter Securities Enforcement Update is a periodic update of noteworthy recent securities enforcement activity, settlements, decisions, and charges. We provide brief summaries that highlight recent enforcement action filings and developments to help identify enforcement trends, changes in the law, new theories, and new areas of enforcement focus. For more information on these cases or about how they may impact you, contact your Nutter attorney.
Rulemaking
SEC Formally Withdraws Notices of Proposed Rulemaking Related to Definition of “Exchange” and Cryptocurrency Custody (June 12, 2025) – On June 12, 2025, the SEC withdrew 14 proposed rules, including proposed Exchange Act Rule 3b-16 and the “Safeguarding Advisory Client Assets” rule under the Advisers Act. Proposed Rule 3b-16 would have expanded the definition of “exchange” to include decentralized finance protocols and tightened cryptocurrency custody standards for investment advisers. The “Safeguarding Advisory Assets” rule would have brought cryptocurrency assets into the group of assets advisers would have to hold with a qualified custodian.
Remedies
SEC v. Ripple Labs, Inc. (S.D.N.Y. June 26,2025) – In a litigated action, the district court rejected for a second time a joint motion of SEC and Ripple to dissolve the previously awarded injunction and civil penalty. The court previously entered partial summary judgment against Ripple for certain unregistered crypto asset sales in violation of Securities Act Section 5 and entered a final judgment that included an injunction against future violations and a $125 million penalty. The parties later agreed to settle and sought to reverse or modify those elements of the earlier judgment. The parties pointed to changing regulatory attitudes at the SEC regarding cryptocurrency asset enforcement (including listing recent SEC dismissals of similar actions) and a shared desire between both parties to avoid further litigation. But the court denied the motion, finding that the parties had again failed to establish that “exceptional circumstances” existed as needed to modify a final judgment. On June 30, Ripple’s CEO announced the company would abandon further appeals of the action, and it is expected the SEC will do the same.
Investment Advisers/Investment Companies
SEC v. David A. Nagler and New Line Capital, LLC, Lit. Rel. 26319 (June 2, 2025) – In a litigated matter, an investment adviser and his investment advisory firm were charged with fraud and breaches of fiduciary duties for allegedly promising to ensure their advisory clients never paid advisory fees exceeding 2.0% of assets under management when many of their clients allegedly paid more than that rate. The complaint also alleges the adviser hid material conflicts from clients by failing to disclose the practice of charging additional discretionary fees without first obtaining client approval. Claims under Advisers Act Sections 206(1) and 206(2).
In the Matter of North East Asset Management Group, Inc. and Gregory Zandlo, Rel. 34-103173, IA-6881 (June 3, 2025) – In a settled matter, a state-registered investment advisory firm and its principal were charged with cherry-picking, by disproportionately allocating profitable trades to favored accounts owned by persons related to the principal. The brokerage firm that custodied client accounts offered the option of aggregating block trades to all accounts at an average price, but the SEC claims that the adviser allocated multiple purchase orders separately without pre-allocating the orders. The complaint alleges that favored accounts had a first day appreciation rate or “win rate” of over 90%, while unfavored accounts had a win rate of about 30%. Charges under Exchange Act Section 10(b) and Rules 10b-5(a) and (c), and Advisers Act Sections 206(1) and (2). Remedies included cease-and-desist, an industry bar of the principal, censure of the firm, disgorgement totaling over $100k plus interest, and a civil penalty of $141k against the principal.
SEC v. Brite Advisors USA, Inc., Lit. Rel. 26329 (June 17, 2025) – In a litigated matter, the SEC obtained a consent judgment against an investment advisory firm on charges that it failed to comply with the Advisers Act Custody Rule. The SEC alleges that the firm advised about $400 million in client assets maintained by an affiliated Australian financial services firm and failed to obtain the internal control report regarding safeguarding of client funds as required by the rule. The firm also allegedly failed to disclose conflicts of interest resulting from the affiliate’s use of client funds as collateral for operational funding. Charges under Advisers Act Section 206(2) and Rule 206(4)-2. Remedies included a permanent injunction precluding the firm from acting as an investment adviser.
SEC v. Rajesh Markan, Lit. Rel. 26337 (June 27, 2025) – In a settled matter, the SEC charged a former representative of two dually registered broker-dealer and investment advisory firms with defrauding investors through a nonexistent private equity fund. The SEC alleged that from 2015 through July 2024, the former registered representative allegedly solicited approximately $2.9 million from around 10 brokerage customers by falsely representing that their money would be invested in a legitimate private equity fund advised by a well-known New York firm. According to the SEC, the fund did not exist, the firms had no involvement, and the defendant misappropriated investor funds for personal use. Charges under the antifraud provisions of the federal securities laws. The former registered representative consented to a bifurcated settlement including a permanent injunction, with monetary remedies to be determined by the court. In a parallel action, the U.S. Attorney’s Office for the Northern District of Texas filed criminal charges to which the former registered representative pleaded guilty. FINRA permanently barred the former registered representative from associating with any FINRA member.
Broker-Dealers
NASAA Announces Multi-Million Dollar Settlement with Edward Jones, LPL Financial, RBC, Stifel, and TD Ameritrade (June 9, 2025) – In settled matters, the North American Securities Administrators Association (NASAA) announced that Edward Jones, LPL Financial, RBC, Stifel, and TD Ameritrade were ordered to pay a total of $19 million in restitution and up to $9.87 million in fines and costs in settlements with nearly 30 state securities regulators. The multijurisdictional investigation alleged that over a five-year period, the target firms charged unreasonable commissions to retail customers on small-dollar transactions, totaling $19 million over the course of 1.12 million small-dollar equity transactions and trades. As part of the settlements, the firms are also required to update internal policies and procedures to prevent the recurrence of such practices.
Issuer Reporting/Audit and Accounting
SEC v. Edward O’Donnell and Victor Bozzo, Lit. Rel. 26334, AAER 4571 (June 24, 2025) – In a litigated matter, the SEC obtained final judgments against the former CFO and CCO of telecommunications company Pareteum Corp. for their roles in a fraudulent revenue recognition scheme. The SEC alleged that the CFO and CCO caused Pareteum to falsely recognize revenue from non-binding purchase orders for SIM card services, knowing the customers had not committed to payment and the SIM cards had not shipped. This misconduct resulted in overstated revenue of $12 million (60%) for FY 2018 and $27 million (91%) for the first half of 2019. Charges under Securities Act Section 17(a), Exchange Act Section 10(b), and Rule 10b-5. The CFO was also charged under Exchange Act Section 13(b)(5) and Rules 13a-14, 13b2-1, and 13b2-2, and for aiding and abetting Pareteum’s violations of Exchange Act Sections 13(a), 13(b)(2)(A), and 13(b)(2)(B) and Rules 12b-20, 13a-1, 13a-11, and 13a-13. Both individuals consented to final judgments imposing permanent injunctions, officer-and-director bars, and disgorgement totaling $285k, which are deemed satisfied by criminal forfeiture orders. In a parallel action, both were sentenced to prison terms of one year and one day.
Securities Offerings
SEC v. Lopez, Lit. Rel. 26325 (June 13, 2025) – In a settled matter, the SEC charged a stock promoter with a scheme to fraudulently promote the securities of issuers that were purporting to conduct offerings pursuant to Regulation A. The SEC alleged that an associate of the promoter paid him to promote the stocks pursuant to sham consulting agreements, and the promoter funneled a portion of these funds back to the associate. The SEC alleged that these actions gave investors the misleading impression that the recommendations were objective. Charges under Securities Act Sections 17(a) and 17(b) and Exchange Act Section 10(b), and Rule 10b-5. Penalties include permanent injunction, promotional campaign bar with a carve-out for attorney approval, disgorgement of approximately $250k plus prejudgment interest, civil penalty of $115k, and three-year public company officer-and-director bar.
SEC v. Vanderbilt, Lit. Rel. 26326 (June 13, 2025) – In a settled matter, the SEC charged a director of Vinco Ventures, Inc. with participating in a scheme to defraud investors in the digital media company. The SEC alleged that Vinco was in fact controlled by the director’s longtime business associate and former romantic partner, and that the defendant signed SEC filings including proxy statements that failed to disclose the associate’s involvement in Vinco’s management and misrepresented Vinco’s operational status. Charges under Securities Act Section 17(a)(1) and (3), and Exchange Act Sections 10(b) and 14(a) and Rules 10b-5 and 14a-9. Remedies will be determined by the court at a later date.
SEC v. Scalise, et al., Lit. Rel. 26328 (June 17, 2025) – In a settled matter, a beverage company and its control person were charged with raising about $3.6 million in an unregistered securities offering based on misleading statements about a collaboration with a celebrity on a new brand of rum, using the celebrity’s name and image without authorization. In addition, the individual was charged with misusing over $850,000 of investor funds for personal expenses. Charges under Securities Act Sections 5(a), 5(c) and 17(a), and Exchange Act Section 10(b) and Rule 10b-5. The consent judgment included injunctive relief, disgorgement of over $850k plus interest, and a penalty against the individual of over $200k.
SEC v. Mausner and Evolution Lending, LLC, Lit. Rel. 26333 (June 24, 2025) – In a litigated matter, the SEC charged an individual and his firm with conducting a fraudulent offering. The SEC alleges that the individual, who had a previous cease-and-desist order for violating securities laws, and his firm raised more than $400,000 from at least 11 investors in connection with an unregistered offering of limited partnership interests in a cryptocurrency fund. According to the SEC, the individual’s prior disciplinary history was not disclosed to investors and the fund did not invest in or hold crypto assets as investors were told. Further, the SEC alleges the individual comingled investor funds, violating his and his firm’s fiduciary duties. Charges under Securities Act Sections 5(a), 5(c), and 17(a), Exchange Act Section 10(b) and Rule 10b-5, and Advisers Act Sections 206(1), 206(2), and 206(4) and Rule 206(4)-8, as well as aiding and abetting. The SEC seeks remedies including permanent injunctive relief, disgorgement with prejudgment interest, and civil penalties.
SEC v. Alexander, Lit. Rel. 26336 (June 26, 2025) – In a litigated matter, the SEC charged a New Hampshire resident with defrauding investors out of at least $3 million through real estate investment schemes. The SEC alleges that from 2018 to 2024, the defendant allegedly solicited investors to buy securities in property renovation and resale projects in New Hampshire and Massachusetts, but instead misused investor money to pay fictitious returns, repay unrelated investors and lenders, and fund her personal expenses. Charges under Securities Act Section 17(a), Exchange Act Section 10(b), and Rule 10b-5. The individual consented to a permanent injunction, a bar from participating in securities offerings, an officer-and-director bar, and potential disgorgement, prejudgment interest, and civil penalties to be determined by the court. In parallel actions, criminal charges were filed by the U.S. Attorney’s Office for the District of New Hampshire, and administrative charges were filed by the New Hampshire Bureau of Securities Regulation.
(NSEU 25-03)
This update is for information purposes only and should not be construed as legal advice on any specific facts or circumstances. Under the Rules of the Supreme Judicial Court of Massachusetts, this material may be considered as advertising.
