Reported by The Securities and Exchange Commission

The Securities and Exchange Commission today announced that it filed 784 total enforcement actions in fiscal year 2023, a 3 percent increase over fiscal year 2022, including 501 original, or “stand-alone,” enforcement actions, an 8 percent increase over the prior fiscal year. The SEC also filed 162 “follow-on” administrative proceedings seeking to bar or suspend individuals from certain functions in the securities markets based on criminal convictions, civil injunctions, or other orders and 121 actions against issuers who were allegedly delinquent in making required filings with the SEC.

The stand-alone enforcement actions spanned the securities industry, from billion-dollar frauds to emerging investor threats involving crypto asset securities and cybersecurity, and charged violations by diverse market participants, from public companies and investment firms to gatekeepers and social media influencers. The SEC also brought numerous enforcement actions addressing conduct that undermines oversight of the securities industry, including actions to protect whistleblowers and actions to enforce recordkeeping requirements and other investor protection requirements applicable to industry participants, including broker-dealers and investment firms.

Below are highlights of some the enforcement actions for 2023.

Holding Fraudsters Accountable for Preying on Retail Investors

Protecting retail investors continues to be a focus for the Division.

Affinity Frauds and Ponzi Schemes

Based on investigations by Division staff, in fiscal year 2023, the SEC brought several actions against alleged fraudsters targeting various groups in affinity frauds and Ponzi schemes, including schemes targeting the Tongan American community, elderly church members, Spanish-speaking communities, law enforcement and first responders, and the Orthodox Jewish community.

Asset Freezes

The SEC’s ability to obtain meaningful financial remedies and to return money to harmed investors may turn on securing an asset freeze at an early stage. Based on the Division’s investigations, the SEC sought and obtained emergency relief freezing defendants’ assets in numerous litigated cases, including:

• Against a Florida resident for allegedly operating a more than $100 million Ponzi scheme targeting the Haitian American community; and
• Against Miami-based investment adviser BKCoin Management LLC in connection with an alleged $100 million crypto asset fraud scheme.

Public Company Misstatements

Accurate disclosures by public companies are foundational to the securities markets. In fiscal year 2023, the Division’s investigations resulted in charges against public companies involving a wide range of alleged misconduct, such as fraud, accounting misstatements, and deficient controls. Illustrative cases include:

• Charges against Fluor Corporation, a global construction company, for accounting errors that caused it to materially overstate its earnings. Fluor agreed to pay a $14.5 million civil penalty to settle the charges;
• Charges against Newell Brands Inc., a consumer products company, for misleading investors about its core sales growth. Newell agreed to pay a $12.5 million civil penalty to settle the charges; and
• Charges against Electric vehicle companies XL Fleet, Canoo Inc., Kandi Technologies Group, Inc., and Hyzon Motors, Inc. for making materially misleading statements regarding revenue projections, sales, or product launches.

Gatekeepers

Gatekeepers, such as accountants, auditors, and other professionals who share responsibility for protecting investors, play critical roles in the capital markets as the first lines of defense against misconduct. Ensuring that they comply with their obligations is a critical part of the Division’s mission.

In fiscal year 2023, the Division’s investigations resulted in numerous charges against gatekeepers, including:

• Charges against audit firm Marcum LLP for systemic quality control failures and violations of audit standards in connection with its audit work for hundreds of special purpose acquisition company (SPAC) clients. To settle the charges, Marcum agreed to pay a $10 million civil penalty and to comply with various undertakings, including retaining an independent consultant to review and evaluate its audit, review, and quality control policies and procedures and to abide by certain restrictions on accepting new audit clients;
• Litigated charges against accounting firm Prager Metis for allegedly violating auditor independence rules and aiding and abetting its clients’ violations of federal securities laws; and
• Charges against UK-based audit firm Crowe U.K. LLP, its CEO, and a senior audit partner in connection with the firm’s allegedly deficient audit of a SPAC merger target. To settle the charges, Crowe U.K., its CEO, and its senior auditor agreed to pay civil penalties of $750,000, $25,000, and $10,000, respectively. Crowe U.K. was also ordered to comply with various undertakings related to the firm’s acceptance of new clients. In addition, the CEO and senior auditor were denied the privilege of appearing or practicing before the SEC as accountants.

Market Abuse

In fiscal year 2023, the SEC brought enforcement cases addressing a variety of abusive trading practices, such as insider trading, front-running, and market manipulation. For example, the Commission charged:

• Eight social media influencers for allegedly using social media to manipulate exchange-traded stocks in a $100 million securities fraud scheme;
• Two financial services industry professionalsfor allegedly perpetrating a multi-year front-running scheme that generated at least $47 million in illegal trading profits; and
• An executive of a public healthcare companywith insider trading where he allegedly adopted a 10b5-1 trading plan while in possession of material nonpublic information and avoided losses of more than $12 million.

Crypto

Fiscal year 2023 was another highly productive and impactful year for the SEC’s enforcement efforts relating to crypto asset securities. In fiscal year 2023, the Division recommended enforcement actions addressing a range of alleged misconduct in the crypto asset securities space, including billion-dollar crypto fraud schemes, unregistered crypto asset offerings, platforms, and intermediaries, and illegal celebrity touting.

Fraud

In fiscal year 2023, the Division’s investigations resulted in litigated charges alleging massive crypto frauds, including charges against Terraform Labs and its founder Do Kwon; Richard Heart and three entities that he controls, Hex, PulseChain, and PulseX; FTX CEO Samuel Bankman-Fried, and other FTX executives.

Unregistered offerings

Noncompliance with the registration provisions of the federal securities laws deprives investors of the required disclosures necessary to make informed investment decisions.

The Division’s investigations led to charges against numerous firms for allegedly offering unregistered securities through crypto asset lending and/or staking programs, including Genesis/Gemini, Celsius, Kraken, and Nexo. Kraken and Nexo agreed to cease their unregistered offerings. Kraken also agreed to pay $30 million in combined civil penalty, disgorgement, and prejudgment interest, and Nexo agreed to pay a $22.5 million civil penalty.

In addition, in fiscal year 2023, the SEC filed its first actions against issuers of non-fungible tokens (NFTs). Based on the Division’s investigations and recommendations, the SEC charged Impact Theory LLC and Stoner Cats 2 LLC for conducting illegal unregistered offerings of crypto asset securities in the form of purported NFTs.

Unregistered exchanges and other intermediaries

Crypto intermediaries—whether they call themselves centralized or decentralized—often provide a suite of services that, in the rest of the securities markets, typically are separated from each other: exchange functions, broker-dealer functions, and custodial and clearing functions. The commingling of the various functions within crypto intermediaries creates inherent conflicts of interest and risks for investors.

The SEC brought a series of enforcement actions in fiscal year 2023 addressing the alleged rampant noncompliance in the crypto asset intermediary space, including actions against Beaxy, Bittrex, Binance, and Coinbase.

Touting

The SEC acted in several cases where “influencers” allegedly unlawfully touted crypto asset securities without disclosing that they were compensated to do so, depriving investors of required information indicating whether the celebrities’ promotion of the securities was biased. For example, NBA Hall of Famer Paul Pierce and media personality Kim Kardashian agreed to pay civil penalties, disgorgement, and prejudgment interest totaling $1.35 million and $1.26 million, respectively, to settle charges that they touted crypto asset securities without disclosing the payments they received for the promotion. The SEC also charged celebrities Lindsay Lohan, Jake Paul, Michele Mason (Kendra Lust), Miles Parks McCollum (Lil Yachty), Shaffer Smith (Ne-Yo), Aliaune Thiam (Akon), DeAndre Cortez Way (Soulja Boy), and Austin Mahone for allegedly illegally touting crypto asset securities without disclosing that they were compensated for doing so. All but Cortez Way and Mahone settled the charges.

Read full report: https://www.sec.gov/news/press-release/2023-234