Securities Fraud Category Archives — Page 2 of 8 — Securities Fraud Lawyers Blog Published by Securities Fraud Attorneys

Retail Investor Beware: EV Companies Face Securities Fraud Scrutiny

Published on: August 9, 2021 | by Savage Villoch Law, PLLC

The recent announcement of securities fraud charges against Trevor Milton, the former CEO of Nikola Corporation, may prove to be the first in a line of similar cases involving electric vehicle (“EV”) companies, and more broadly, companies that go public via SPACs. This situation highlights the importance of careful investment decision making, particularly in the EV and other rapidly growing, highly complex industries.

At the heart of the civil and criminal complaints against Nikola are allegations that as its CEO, Trevor Milton, regularly spread false and misleading information about the progress of Nikola’s EV products and technologies. Nikola’s focus is on manufacturing low- and zero-emissions trucks, and the complaints allege in part that under Milton, Nikola published a promotional video of a prototype truck which did not actually work, but appeared to only because the truck was set in neutral and rolled down a hill. [1]

Promotional videos like that one, along with Milton’s enthusiastic social media posts and numerous podcast and television appearances, all painted a picture of exciting and impressive forward progress at Nikola, which Federal prosecutors and SEC regulators allege was nothing more than an illusion. [2]

Blueprint for SEC Climate Risk and ESG Disclosure Regulation Emerges

Published on: August 2, 2021 | by Savage Villoch Law, PLLC

As the popularity of environmental, social, and governance (ESG) investing booms, the SEC continues to make its support clear. In fact, this past Wednesday, July 28^th, SEC Chair Gary Gensler spoke at length on the regulator’s ESG and climate risk disclosure plans as part of a Principles for Responsible Investment (PRI) event.

The PRI is an independent network of investors who promote responsible and sustainable investing by incorporating ESG factors and considerations into their investment decisions. Although the PRI is not a part of the UN itself, the UN supports and partners with the group. In 2006, when the PRI was formed, it managed about $7 Trillion in assets, and in 2020, it managed over $100 Trillion. [1]

So why should you as an investor care about ESG investing? ESG factors and criteria empower investors to make “socially responsible” and sustainable investment decisions by providing important insight into a company’s operations, standard practices, and culture through the lens of Environmental, Social, and Governance considerations.

As Margin Debt Reaches Record-Highs, Does Market Downturn Loom?

Published on: July 26, 2021 | by Savage Villoch Law, PLLC

Margin debt levels within the market are on a meteoric rise, with June 2021 finishing out at a record-high $882 Billion. [1] But such an intense rise in margin debt may not be much cause to celebrate; instead, history tells us that this trend may indicate an imminent market downturn.

Margin debt can be simply understood as debt taken on by an investor in order to extend their buying, and earning, power in the market. In essence, an investor borrows money to increase their initial investment and, hopefully, to supercharge their eventual profit.

For example, an investor might borrow $10,000 from their broker on margin in order to increase their initial investment from $20,000 to $30,000. If the shares they’ve purchased increase by 10%, the investor stands to make 50% more than they would have with only their own $20k.

FINRA Orders Record-High Financial Penalty Against Popular Stock-Trading App, Robinhood

Published on: July 12, 2021 | by Savage Villoch Law, PLLC

On June 30, 2021, FINRA ordered an approximately $70 Million financial penalty against Robinhood Financial LLC, the highest such penalty ever levied by the regulatory organization.[1] Through its investigation of the firm, FINRA charged Robinhood with numerous violations which had resulted in significant losses to their customers. While Robinhood neither confirmed nor denied the validity of FINRA’s charges, they ultimately agreed to settle with these massive sanctions. [1]

FINRA noted three major violations from its investigation into Robinhood’s conduct and operations as a stock-trading app, each of which merited its own penalties.

First, FINRA found that Robinhood has pervasively and negligently provided false or misleading information to its customers. [1] This false information was circulated in spite of Robinhood’s core mission to “de-mystify finance for all” and “democratize finance,” and ranged from misrepresenting customer account balances and buying power, to erroneous communication about customers facing margin calls. [2]

FINRA Dispute Resolution Arbitration: An Investor’s Guide

Published on: April 26, 2021 | by Savage Villoch Law, PLLC

FINRA Dispute Resolution arbitration offers a fair and expedited dispute resolution pathway for investors looking to resolve a dispute with their broker or securities firm. The arbitration process works as an alternative to traditional litigation and operates completely independent of the court system. As a result, this process often allows parties to save on both cost and time in the process of resolving a dispute.

There are some situations in which FINRA arbitration is required, such as when a written agreement between the parties mandates it. In order to be eligible for FINRA arbitration, an investor must be seeking to file a claim stemming from the business activities of their broker or brokerage firm, and the event in question must have taken place within the last six years (in most states). [1]

Generally, FINRA arbitration allows an investor to seek either monetary or securities damages resulting from the business activities of their broker or brokerage firm. To get the filing process started, an investor must submit a Statement of Claim, a FINRA Submission Agreement, and related filing fees, all of which are available to view on FINRA’s website. [2]

Margin Investing with Robinhood – Do the Risks Outweigh Rewards?

Published on: April 12, 2021 | by Savage Villoch Law, PLLC

Margin investing offers the opportunity to super-charge investments, but it also holds quite a bit of risk. Recent market volatility has shed a light on some of these risks, particularly for users of app-based platforms like Robinhood.

Let’s consider an example of margin investing with Robinhood. An investor deposits $5,000 cash into a margin account, and Robinhood lends another $5,000 to allow the investor $10,000 worth of securities. The “margin” is the difference between the value of the securities and the loan from Robinhood. This type of investing increases both purchasing power and financial leverage. [1]

If the securities in the margin account increase in value, the investor has the opportunity for a higher profit than they would have had they invested $10,000 of their own.

NFTs: Investment Boom or Bust?

Published on: April 5, 2021 | by Savage Villoch Law, PLLC

In the span of the last two months, a digital piece of art sold for nearly $70 million, Jack Dorsey, CEO of Twitter, sold his first tweet for $2.8 million, and a digital Lebron James basketball card went for $208,000. What do these three massive sales have in common? Each transaction was for a non-fungible token (NFT), and together, they signal rapidly growing interest in the cryptographic asset marketplace.

Starting with the basics, what is a non-fungible token?

An NFT is a type of digital, cryptographic asset which exists on blockchain. Fungibility refers to interchangeability – assets like dollars, gold, and even Bitcoin, are fungible, because each unit is worth the exact same amount, and is thus readily interchangeable. On the other hand, each unit of a non-fungible asset has its own unique value and thus is not readily interchangeable – think of assets like property, artwork, and other collectibles. [1]

Thoughts on the Risk of Fraud in Cryptocurrency Investments

Published on: February 9, 2021 | by Savage Villoch Law, PLLC

As they begin to move into the mainstream, it has become clear that cryptocurrencies pose a unique set of regulatory and legal challenges for investors and regulation agencies alike. In the past week alone, two high-profile securities fraud cases tied to cryptocurrency have come to light, and the total number of enforcement actions by the SEC on similar schemes has risen sharply over the past five years. In 2016, the SEC filed only one “Digital Assets/Initial Coin Offerings” enforcement action – in 2020, they filed 23.

The first cryptocurrency, Bitcoin, was introduced in 2009, and it has since been joined by over 1,900 competitors. Cryptocurrencies operate in a decentralized, purely digital block-chain network. Within the network, a supply cap on “coins” exists, and coin production is left in the hands of collective members of the system through a process known as “mining.” In Bitcoin’s case, there can only ever be 21 million coins mined, of which over 18 million have been mined thus far. Cryptocurrencies like Bitcoin derive their value largely from their limited supply, overall market demand, the cost to produce a bitcoin via mining, and competition from other cryptocurrencies.

Recently, Bitcoin’s price has been on the rise, stirring up a good deal of interest from prospective investors. As of February 6, 2021, one bitcoin is worth $39,255.90 –up about 300% year over year, and 34% year to date. But an investment in Bitcoin, or other cryptocurrencies like it, is unique in its risks. Experts caution that because cryptocurrency is a relatively new technology, and is not yet well understood by the public, prospective investors are at an increased risk of falling victim to fraudulent schemes.

GameStop Short Squeeze: Legal and Regulatory Implications?

Published on: February 1, 2021 | by Savage Villoch Law, PLLC

It has been a tumultuous week in the investment world, with rallies among a gaggle of unlikely stocks, spurred on by a group of even more unlikely investors – retail investors who have banded together on the popular social media site, Reddit.

As has been widely reported this week, when Reddit retail investors discovered that hedge fund managers were widely shorting GameStop, AMC, and others, they urged fellow users to begin buying up these stocks. This frenzy of investment activity resulted in a short squeeze, sending GameStop’s stock price soaring, causing hedge funds to incur huge losses on their short positions, and placing popular online trading platforms in a precarious financial situation. GameStop shares closed the week of January 25, 2021 up 400% in spite of market volatility and restrictions, and without any material change to the prospects of company.

But how did we get here?

Proposal to Let Hedge Funds Hide Their Holdings Likely Going Down in Flames

Published on: October 23, 2020 | by Savage Villoch Law, PLLC

In July 2020, the Securities and Exchange Commission made a proposal to vastly change the reporting requirements of hedge funds. The Securities and Exchange Commission’s proposal would permit hedge funds with less than $3.5 billion in assets to stop reporting their holdings in quarterly reports to the Securities and Exchange Commission. At this time, the Securities and Exchange Commission requires quarterly disclosure of stock positions held by hedge funds that have more than $100 million in assets under management.

According to the Financial Times, during the ‘consultation period’ when the Securities and Exchange Commission considers comments made about their proposed changes, 2.262 letters were submitted to the Securities and Exchange Commission regarding the proposed change to the disclosure rules. Of these 2,262 comment letters, 99% were against the proposed rule, according to Financial Times. The result of such a large number of letters opposing the rule change is that the Securities and Exchange Commission is expected to withdraw its proposal and keep the current disclosure threshold of $100 million.

The $100 million threshold has been in place since 1975 and it requires hedge funds to file a “13-F” report each quarter to disclose their holdings. The Securities and Exchange Commission looked at the fact that the US equity market capitalization has grown from $1 trillion to an $35 trillion and decided that it was time to raise the disclosure limit. The Securities and Exchange commission also claimed that the disclosure requirements at $100 million were a burden to the smaller hedge funds. This reasoning leaves out the impact that its actions would have on the transparency of the markets. The Financial Times reports that hedge fund managers were skeptical of the Securities and Exchange Commission’s reasoning. The smaller hedge fund managers and even the CFA Institute noted that the costs to file the 13F are negligible and the process was mostly automated by today’s portfolio accounting software programs.