Category: Disclosure Failures

Disclosure Failures in the financial markets refer to instances where entities, such as publicly traded companies, financial institutions, or investment funds, fail to accurately and adequately disclose material information to investors and stakeholders. This information includes financial results, risks, liabilities, strategic decisions, and other crucial details that could influence investment decisions or market perceptions. Such failures can involve misleading statements, omissions of important facts, or incomplete disclosures that misrepresent the true financial health or operational risks of the entity. Disclosure failures undermine market transparency, distort pricing mechanisms, erode investor confidence, and may violate securities laws and regulations designed to protect investors and ensure fair and efficient markets. Regulatory oversight by agencies like the SEC is crucial in detecting and addressing these failures to maintain market integrity and investor trust.

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Categories Disclosure Failures Investment Advisers SEC-2405
SEC NEWS - SEC-PR-2024-55SEC-PR-2024-55 (MAY. 14, 2024)
PRESS RELEASE | 2024-55

SEC Charges Hudson Valley Wealth Management Advisory Firm and Founder for Failing to Disclose Conflicts of Interest. Firm owner received undisclosed fee for investing clients’ money in films.

Washington D.C., May 14, 2024 — The Securities and Exchange Commission today announced settled charges against New York-based registered investment adviser Hudson Valley Wealth Management Inc. and its founder, Christopher Conover, for breaching their fiduciary duties by failing to disclose conflicts of interest and making misleading statements to their clients. To settle the charges, Hudson Valley agreed to pay a civil penalty of $200,000, and Conover agreed to pay more than $600,000 in disgorgement and prejudgment interest and a $150,000 civil penalty.

According to the SEC’s order, between September 2017 and October 2021, Hudson Valley and Conover advised a private investment fund and their individual clients to make investments in films produced by a particular film production company. At the same time, Conover, through his affiliated company, received approximately $530,000 from the production company in exchange for the money that the investment fund and the individual clients invested in these same films. Hudson Valley and Conover initially failed to disclose these payments to the clients and then later misrepresented that Conover earned this compensation for work as an executive producer on these films.

In addition, the SEC’s order finds that, in May 2021, Hudson Valley and Conover satisfied a redemption request from one fund investor but did not satisfy several redemption requests submitted at the same time by other fund investors who were Hudson Valley advisory clients. By preferencing one investor’s redemption request over other client redemption requests, Hudson Valley and Conover violated their fiduciary duties to the other clients.

“Fully and fairly disclosing conflicts of interest are at the heart of an investment adviser’s fiduciary duty,” said Andrew Dean, Co-Chief of the Enforcement Division’s Asset Management Unit. “Investors must have confidence that their investment advisers are treating them fairly and acting in their best interest when investing their funds.”

The SEC’s order finds that Hudson Valley and Conover violated the antifraud provisions of Sections 206(2) and 206(4) of the Investment Advisers Act of 1940 and Rule 206(4)-8 thereunder. In addition to disgorgement and penalties, Hudson Valley and Conover agreed to cease-and-desist orders and censures.

The SEC’s investigation was conducted by Brian Kudon of the Division of Enforcement’s Asset Management Unit and David Zetlin-Jones and Hermann Vargas of the New York Regional Office, with assistance from Kerri Palen and James Addison, also of the New York Regional Office. The investigation was supervised by Lee A. Greenwood, and Mr. Dean of the Asset Management Unit, and Sandeep Satwalekar and Antonia Apps of the New York Regional Office.

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Categories Disclosure Failures SEC-2403 Undisclosed Payments
SEC NEWS - SEC-PR-2024-33SEC-PR-2024-33 (MAR. 7, 2024)
PRESS RELEASE | 2024-33

SEC Charges Skechers with Making Undisclosed Payments to Executives’ Family Members. Company also charged with failing to disclose outstanding loans to its executives.

Washington D.C., March 7, 2024 — The Securities and Exchange Commission today announced that Skechers U.S.A. Inc., a footwear company based in California, agreed to settle charges for failing to disclose payments for the benefit of its executives and their immediate family members. Skechers agreed to pay a $1.25 million civil penalty to settle the SEC’s charges.

According to the SEC’s order, from 2019 through 2022, Skechers did not comply with related person transaction disclosure requirements when it failed to disclose its employment of two relatives of its executives and did not disclose a consulting relationship involving a person who shared a household with one of its executives. Furthermore, according to the SEC’s order, for multiple years, Skechers failed to disclose that two of its executives owed more than $120,000 to the company for personal expenses that had been paid for by Skechers but not yet reimbursed by the executives.

“Disclosure of related person transactions provides important information for investors to evaluate the overall relationship between a company and its officers and directors,” said Scott A. Thompson, Associate Director of Enforcement in the SEC’s Philadelphia Regional Office. “Today’s action is a reminder that companies should take appropriate measures to ensure proper disclosure of such transactions.”

The SEC’s order finds that Skechers violated reporting and proxy solicitation provisions of the Securities Exchange Act of 1934. Without admitting or denying the SEC’s findings, Skechers agreed to a cease-and-desist order and to pay the civil monetary penalty referenced above.

The SEC’s investigation was conducted by Oreste P. McClung and Brian R. Higgins and was supervised by Brendan P. McGlynn, Mr. Thompson, and Nicholas P. Grippo, all with the Philadelphia Regional Office.

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Categories Disclosure Failures Investment Advisers Mergers & Acquisitions SEC-2403
SEC NEWS - SEC-PR-2024-30SEC-PR-2024-30 (MAR. 1, 2024)
PRESS RELEASE | 2024-30

SEC Charges Advisory Firm HG Vora for Disclosure Failures Ahead of Ryder Acquisition Bid.

Washington D.C., March 1, 2024 — The Securities and Exchange Commission today announced settled charges against New York-based investment adviser HG Vora Capital Management LLC for its failure to make timely ownership disclosures in the lead-up to its May 2022 acquisition bid for trucking fleet company Ryder System Inc. HG Vora agreed to pay a $950,000 civil penalty to settle the SEC’s charges.

Under the federal securities laws, a company that owns more than five percent of a public company’s stock must report its position and whether it has a control purpose, which is an intention to influence or control the company. According to the SEC’s order, on Feb. 14, 2022, HG Vora disclosed that it owned 5.6 percent of Ryder’s common stock as of Dec. 31, 2021, and certified that it did not have a control purpose. The order states that HG Vora then built up its position to 9.9 percent of Ryder’s stock and formed a control purpose no later than April 26, 2022. The federal securities laws therefore required it to report its control purpose and its current ownership position by May 6, 2022, but it did not report this information until May 13. On that same day, HG Vora sent a letter to Ryder proposing to buy all Ryder shares for $86 a share, a sizeable premium over the trading price. Before the letter to Ryder and its filing, and after forming a control purpose, HG Vora purchased swap agreements that gave it economic exposure to the equivalent of 450,000 more shares of Ryder common stock. After HG Vora’s public announcement of its bid on May 13, 2022, Ryder’s stock price increased significantly.

“The federal laws and SEC rules covering ownership disclosure help keep investors fully informed about control – and potential changes in control – of publicly traded companies,” said Mark Cave, Associate Director of the SEC’s Division of Enforcement. “But, according to today’s order, HG Vora deprived Ryder shareholders of information about its significant stake in the company, while building a large swaps position from which it stood to profit after announcing the Ryder takeover bid.”

The SEC’s order finds that HG Vora violated the beneficial ownership provisions of the Securities Exchange Act of 1934. Without admitting or denying the findings, HG Vora agreed to cease and desist from future violations and to pay the civil penalty discussed above. On Oct. 10, 2023, the SEC adopted rules shortening the deadline for filing an initial Schedule 13D from 10 to five business days. HG Vora was found to have violated the rules in effect at the time of the conduct at issue in the SEC’s order by filing this report more than 10 days after forming a control purpose.

The SEC’s investigation was conducted by Jonathan Cowen with assistance from Robert Nesbitt of the Office of Market Intelligence and Nicholas Panos from the Office of Mergers & Acquisitions. The investigation was supervised by Assistant Director Jeffrey Weiss and Mr. Cave.

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Categories Disclosure Failures ETF Launch SEC-2402

SEC NEWS - SEC-PR-2024-20SEC-PR-2024-20 (FEB. 16, 2024)

PRESS RELEASE | 2024-20

SEC Charges Van Eck Associates for Failing to Disclose Influencer’s Role in Connection with ETF Launch.

Washington D.C., Feb. 16, 2024 — The Securities and Exchange Commission today announced that registered investment adviser Van Eck Associates Corporation has agreed to pay a $1.75 million civil penalty to settle charges that it failed to disclose a social media influencer’s role in the launch of its new exchange-traded fund (ETF).

According to the SEC’s order, in March 2021, Van Eck Associates launched the VanEck Social Sentiment ETF (NYSE:BUZZ) to track an index based on “positive insights” from social media and other data. The provider of that index informed Van Eck Associates that it planned to retain a well-known and controversial social media influencer to promote the index in connection with the launch of the ETF. To incentivize the influencer’s marketing and promotion efforts, the proposed licensing fee structure included a sliding scale linked to the size of the fund so, as the fund grew, the index provider would receive a greater percentage of the management fee the fund paid to Van Eck Associates. However, as the SEC’s order finds, Van Eck Associates failed to disclose the influencer’s planned involvement and the sliding scale fee structure to the ETF’s board in connection with its approval of the fund launch and of the management fee.

“Fund boards rely on advisers to provide accurate disclosures, especially when involving issues that can impact the advisory contract, known as the 15(c) process,” said Andrew Dean, Co-Chief of the Enforcement Division’s Asset Management Unit. “Van Eck Associates’ disclosure failures concerning this high-profile fund launch limited the board’s ability to consider the economic impact of the licensing arrangement and the involvement of a prominent social media influencer as it evaluated Van Eck Associates’ advisory contract for the fund.”

Van Eck Associates consented to the entry of the SEC’s order finding that it violated the Investment Company Act and Investment Advisers Act. Without admitting or denying the SEC’s findings, Van Eck Associates agreed to a cease-and-desist order and a censure in addition to the monetary penalty.

The SEC’s investigation was conducted by Salvatore Massa, Gregory Padgett, and John Farinacci under the supervision of Virginia Rosado Desilets, Mr. Dean, and Corey Schuster, all with the Enforcement Division’s Asset Management Unit.

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SEC-PR-2024-05

Categories Disclosure Failures Manipulative Trading SEC-2401

SEC NEWS - SEC-PR-2024-05SEC-PR-2024-05 (JAN. 11, 2024)

PRESS RELEASE | 2024-5

SEC Charges Future FinTech CEO Shanchun Huang With Fraud and Disclosure Failures.

Washington D.C., Jan. 11, 2024 — The Securities and Exchange Commission today charged Shanchun Huang with manipulative trading in the stock of Future FinTech Group Inc., using an offshore account shortly before he became Future FinTech’s CEO in 2020. The SEC also charged Huang with failing to disclose his beneficial ownership of Future FinTech stock as well as transactions in such stock.

According to the SEC’s complaint, in late 2019 or early 2020, Huang was approached by Future FinTech’s founder and former CEO about the possibility of Huang becoming CEO of Future FinTech. Huang allegedly used an account in Hong Kong to place trades in Future FinTech stock beginning in January 2020, at a time when Future FinTech was at risk of being delisted from NASDAQ because its stock price had fallen below NASDAQ’s minimum bid price requirement of $1.00 per share. Huang allegedly bought more than 530,000 shares of Future FinTech over a two-month period and repeatedly traded at a volume so large that his trades constituted a high percentage of the daily volume of Future FinTech stock transactions. Huang also allegedly placed multiple buy orders in short timeframes, placed limit buy orders with escalating limit prices from one order to the next, and made trades that generally would not make economic sense for an investor seeking to buy the stock at the lowest available price. The SEC’s complaint alleges that Huang’s trades were intended to, and at times did, push the Future FinTech stock price up. For example, on February 6, 2020, when Huang’s trading constituted 60 percent of the daily trading volume, he placed multiple buy orders within nine minutes, driving the price up from $0.89 to $1.05, at which point his trading stopped.

Huang was named Future FinTech’s CEO in March 2020. Upon becoming CEO of Future FinTech, Huang was required to file initial, annual, and change of ownership forms about his holdings of Future FinTech stock, but he failed to do so for the year after he became CEO. As alleged in the complaint, in March 2021, after he no longer owned any Future FinTech stock, Huang belatedly filed a misleading initial form representing that he owned no Future FinTech stock.

“Timely disclosure of insider stock transactions is a fundamental component of the federal securities laws that ensures the fair operation of our securities markets,” said Sheldon L. Pollock, Associate Regional Director of the SEC’s New York Regional Office. “CEOs should assume that the use of an offshore account will not prevent the staff of the SEC from identifying manipulative trading.”

The SEC’s complaint, filed in the U.S. District Court for the Southern District of New York, charges Huang with violating the antifraud and beneficial ownership disclosure provisions of the Securities Exchange Act of 1934 and seeks permanent injunctive relief, a civil penalty, and an officer-and-director bar.

The SEC’s investigation has been conducted by Yitzchok Klug, Howard Kim, and Adam S. Grace, and supervised by Mr. Pollock. The SEC’s litigation will be led by Travis Hill.

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