Articles Posted in SEC

GPBWilliam Galvin, the Massachusetts secretary of state, has initiated a probe into the activities of broker-dealer firms who sold private placements sponsored by GPB Capital Holdings, according to news reports. The Massachusetts Securities Division has reportedly received information regarding the sales practice of a certain firm, and has requested information from a total of 63 involved in the sales of GPB Capital Holdings private placements. The probe follows an announcement that they have “temporarily stopped bringing in new funds and suspended redemptions” as it turns to examine accounting and financial reporting practices, according to ThinkAdvisor.

These reports also state that two of the private placements in question failed to meet filing deadlines with the Securities and Exchange Commission, despite requirements otherwise. Those private placements are GPB Automotive Portfolio and GPB Holdings II, according to InvestmentNews. Meanwhile GPB is involved in a lawsuit against “a former business partner who allegedly failed to follow through” in connection to a multimillion-dollar car dealership transaction, per ThinkAdvisor. The Securities Division will consequently scrutinize sales activity, disclosure and marketing data from 63 broker-dealers that sell GPB’s private placements.

Massachusetts Secretary of State William Galvin said in a statement: “While my Securities Division’s investigation is in the very nascent stages, recent activity within the company raises red flags of potential problems. These red flags, coupled with the fact that sales of private placements by independent broker-dealers have been an ongoing source of investor harm, have led to this investigation… I must also express my serious concerns regarding the expected proposal by the SEC to expand who can participate in private securities offerings. Without a strong fiduciary rule to prevent sales practice abuses, it is utter folly not to know that main street investors will be hurt.”

Adam DerbyshireAccording to a news release issued by the Securities and Exchange Commission on October 1, 2018, the SEC has issued charges against Salix Pharmaceuticals, as well as its former CFO, Adam Derbyshire, in connection to allegations the defendants misled analysts and investors on multiple occasions in regard to the company’s prospects. Mr. Derbyshire has agreed to pay over $1 million to settle these charges.

The SEC’s complaints allege against Mr. Derbyshire and Salix Pharmaceuticals allege specifically that they “made false statements to analysts and investors during quarterly earnings calls by significantly understating the amount of Salix drugs that wholesaler customers held in inventory.” The company allegedly had long taken actions to create “a short-term revenue bump” by “flooding the distribution channel” with incentives that induced customers to buy additional products; in spite of the short-term bump, according to the SEC, the practice created “excess supply that imperiled future sales.” According to the complaint against Salix, “wholesalers’ inventory levels of Salix’s products eventually grew so high that wholesalers did not need to purchase Salix products each quarter to keep up with prescription or retail demand.” At the beginning of 2013, the complaint notes, wholesalers had inventory levels exceeding “two or three months on hand” for the company’s two “key products,” Apriso and Xifaxan; the company’s overselling in the first quarter of 2013 resulted in those levels reaching nine months on hand.

As the overselling continued during 2013, wholesalers “cut back significantly on purchases” of these products during the first quarter of 2014, which led to Salix’s failure to meet that quarter’s earning targets. The SEC also alleges that Mr. Derbyshire and Salix Pharmaceuticals failed to disclose in reports to the SEC that this practice affected earnings and posed a substantial risk to investors in the company, which is currently a subsidiary of Bausch Health Companies, a company formerly known as Valeant Pharmaceuticals International; the SEC notes that the conduct alleged in its complaints took place before the Valeant’s acquisition of the company.

Crypto Asset Management LP

Publicly available records published by the Securities and Exchange Commission (SEC) on September 11, 2018 indicate that the SEC has filed an enforcement action against California-based hedge fund manager Crypto Asset Management LP in connection to its holdings in digital assets. Fitapelli Kurta is interested in hearing from investors who have complaints regarding Crypto Asset Management.

According to a press release, the SEC stated in an order that Crypto Asset Management “offered a fund that operated as an unregistered investment company while falsely marketing it as the ‘first regulated crypto asset fund in the United States.'” Per that order, Crypto Asset Management, as well as its principal Timothy Enneking, completed a raise of more than $3.6 million in 2017 while making false claims that the fund was under SEC regulation and that Crypto Asset Management had filed a registration statement with the SEC. However, according to the SEC, Crypto Asset Management participated in an unregistered public offering (which was not subject to any exemptions from registration) and invested “more than 40% of the fund’s assets in digital asset securities,” ultimately resulting in the fund’s operation “as an unregistered investment company.” Crypto Asset Management ended its public offering upon contact by the SEC about these matters and “offered buy backs to affected investors.”

More specifically, the fund in question was called Crypto Asset Fund, LLC, which had a net asset value of about $37 million as of December 31, 2017, according to the SEC’s order. Crypto Asset Fund was Mr. Enneking’s first fund based in the United States, and it raised more than $3.6 million from 44 investors  between August 1, 2017 and December 1, 2017, according to the SEC, which states that most were individual investors. Crypto Asset Management allegedly “engaged in a general solicitation of public interest” in the public offering via its website, social media, and media interviews, and it “did not file or cause to be filed a registration statement with the Commission,” according to the SEC’s order. In connection with these and other activities, the SEC found that Crypto Asset Management engaged in willful violations of the Securities Act, the Investment Company Act, and the Advisers Act.

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