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According to the lawsuit and Bass’ television interview, he gave the SEC everything it needed to take on UDF, then ignored him when he asked to be paid for his efforts.

“They denied our award when we gave them an 80-page PowerPoint that was connecting all the dots for them,” Bass said in the interview. “The SEC has to do a better job with whistleblowers. It’s that simple.”

Long Island Man Sentenced to 41 Months in Prison for Multi-Million-Dollar Ponzi Scheme (DOJ Release)
https://www.justice.gov/usao-edny/pr/long-island-man-sentenced-41-months-prison-multi-million-dollar-ponzi-scheme
In the United States District Court for the Eastern District of New York, John Quadrino, 57, pled guilty to one count of conspiring to commit wire fraud; and he was sentenced to 41 months in prison, and ordered to pay over $3.3 million restitution. As alleged in part in the DOJ Release: 

“Bear in the Woods” Remarks before the Investment Company Institute by SEC Chair Gary Gensler
https://www.sec.gov/news/speech/gensler-remarks-investment-company-institute-05252023

Thank you, Jose. As is customary, I’d like to note that my views are my own as Chair of the Securities and Exchange Commission, and I’m not speaking on behalf of my fellow Commissioners or the SEC staff.

Investment Company Act of 1940
There is a saying when you’re in the woods. “You don’t have to outrun the bear; you just have to outrun one of your fellow campers.”

A bit gruesome, yet this helps explain why investors might try to cash out of investments before the proverbial bear—of dilution and illiquidity—catches them.

It also helps explain why savers might try to cash out of deposits before that proverbial bear catches them at the bank.

Bear this in mind, this is not a new feature of finance; it has been around for centuries.

Runs, when otherwise uncorrelated actors suddenly become correlated, have brought down many a financial firm over time. Financial fires at banks and nonbanks alike have led policymakers to put in place laws to prevent such fires and associated runs, as well as to help fire departments contain fires.

The Panic of 1907 ultimately led to President Wilson’s reforms to establish the Federal Reserve with authorities both as a regulator and as a form of a fire department.[1]

The 1929 Crash and ensuing Great Depression led President Roosevelt and Congress to set up the Federal Deposit Insurance Corporation[2] and SEC.[3]

When I started at Goldman Sachs, there was lore about how the firm barely survived the crash, in part due to a closed-end fund, Goldman Sachs Trading Corp. Author and journalist William Cohan said it “nearly bankrupted all the investors that invested in it; it was a bit of a Ponzi scheme.”[4]

Due to many failures of investment trusts and investment companies, Congress adopted the Investment Company Act and Investment Advisers Act of 1940, also the year the Investment Company Institute was established.[5] Among the abuses that served as a backdrop for the Investment Company Act, were “practices which resulted in substantial dilution of investors’ interests.”[6]

In advocating for passage of the Acts, SEC Commissioner Robert Healy said, “The functions of investment trusts should be to afford the small investor an opportunity to spread his investment risks by a diversification of security holdings.”[7]

Benefits to Investors
Well-regulated collective investment vehicles—as opposed to the failures of the investment trusts of the 1920s and 1930s—are among the great financial innovations of the last 90 years. They provide everyday investors diversification and lower costs than buying individual stocks or bonds. As Jack Bogle aptly said: “Don’t look for the needle in the haystack. Just buy the haystack.”[8]

Registered investment funds have grown to more than $30 trillion, with more than 16,000 funds.[9] More than half of American households and more than 120 million individual Americans own registered funds.[10] When I started on Wall Street, it was less than 6 percent of households.[11]

There have been significant innovations over the decades. Money market funds came about in the early 1970s.[12] Individual retirement accounts and 401(k)s began investing in mutual funds after the Revenue Act of 1978.[13] Exchange-traded funds (ETFs) brought even lower costs to investors in the 1990s.[14]

Fund Dilution and Liquidity
The 1940 Acts along with SEC rules to implement them addressed the failures of the Depression-era investment funds and have lowered the risk of financial fires spreading from funds. They’ve done so through fiduciary duty obligations, liquidity requirements, leverage limits, daily net-asset valuations, and pricing rules for sales and redemptions to help guard against dilution.

To be sure, however, risk remains—particularly in times of stress. Money market funds and open-end bond funds, by their design, have a potential liquidity mismatch—between investors’ ability to redeem daily on the one hand, and on the other, funds’ securities holdings that may have lower liquidity.

Indeed, in 2008 and 2020, sparks emanated from registered funds, particularly money market and open-end bond funds, putting everyday Americans at risk.

In 2008, after one money market fund “broke the buck,” the government’s fire departments stepped in with extraordinary actions. The Federal Reserve established liquidity facilities, and the Department of the Treasury temporarily guaranteed money market funds.[15]

In response, the SEC sought to address structural issues in these funds through a series of reforms adopted in 2010 and 2014.

At the onset of COVID-19, during the “dash for cash,” again there were calls for fire department support both for money market and open-end bond funds—in other words, Federal Reserve support.

I’m not going to name any names, but you in the industry who called the SEC and other agencies know who you are.

The government stepped in yet again to stabilize short-term funding markets, establishing the Money Market Mutual Fund Liquidity Facility[16] and other programs. It also, for the first time, broadened that support to the corporate and municipal bond markets, including through the Secondary Market Corporate Credit Facility[17] and the Municipal Liquidity Facility.[18]

As these real-world events demonstrate, stress on these funds is not unsubstantiated hypothesis.

President’s Working Group[19] and Financial Stability Oversight Council[20] reports under several Treasury secretaries and presidents have written about them. The Financial Stability Board has written about them as well.[21]

Liquidity and dilution management has been a bedrock principle of open-end funds since the passing of the Investment Company Act. As Commissioner Healy said in the hearings leading to the Act: “Due to the right of the stockholder to come in and demand a redemption, the [open-end fund] has to keep itself in a very liquid position. That is, it has to be able to turn its securities into money on very short notice.”[22] 

Recent events are a reminder there is more work to be done. Thus, we’ve put out proposals intended to address the structural issues and enhance liquidity risk management for both money market and open-end funds.

SEC Proposals
Money Market Funds
Money market funds came about in the 1970s, offering a cash management tool to investors. This was a time when high inflation surpassed Federal Reserve regulations limiting what banks could pay on deposits.[23] Money market funds gave shareholders market-based returns fully backed one to one in the markets.

Money market funds and banks both are involved in the transformation of maturity and liquidity risk. Thus, policymakers over the years have put in place laws and rules to address such risks.

Based on the reforms of the 1940s and subsequent SEC rules, money market funds’ assets are valued on a daily basis as well as priced for redeeming and purchasing shareholders.

Money market funds are invested dollar for dollar in readily marketable securities—in essence, a narrow bank concept.

Further, money market funds are invested in instruments with short maturity duration. Subsequent to the SEC reforms adopted in 2014, nearly 80 percent of money market fund assets are in government funds.[24] These funds primarily are invested in and funding the U.S. Treasury and Federal Reserve.

Such money market funds, though, are not without risk. Remember that bear rattling the campers—there still is the risk of runs and resulting dilution. Money market funds also have no capital buffer.

Money market funds now stand at $5.8 trillion. During the last year, when interest rates were rising, we saw an increase of $717 billion in these funds.[25]

Further, given the rise of the digital economy coupled with the higher-rate environment, we might see consequential changes to the deposit and banking landscape. Money market funds could potentially take a greater share.

This is all the more reason to update rules last addressed in 2014 to lower the chance the fire department, the Federal Reserve, has to be called in yet again.

Given the experience of the last nine years, we proposed changing a rule from 2014 that could be procyclical in times of stress. The proposal would prevent money market funds from imposing limits on redemptions in times of stress, such as so-called “gates.”

We also proposed enhanced liquidity requirements.

To better address pricing and reduce dilution in times of stress, we proposed so-called swing pricing as well as alternatives regarding liquidity fees. Such swing pricing or liquidity fees would apply only to institutional prime and tax-exempt money market funds, less than 20 percent of the field. These institutional funds invest in bank-issued commercial paper and certificates of deposit, which tend to be illiquid in stress times.

Open-end Funds 
Aside from providing investors diversification, open-end funds also provide maturity and liquidity transformation.

Lest we forget, the Federal Reserve in 2020 bought corporate bond ETFs, amongst other actions, to alleviate stresses in the markets. Thus, we’ve issued proposals regarding the liquidity, pricing, and plumbing of these funds.

First, we proposed updating the 2016 liquidity rule. The proposal would establish minimum standards for liquidity classifications, designed to prevent funds from overestimating the liquidity of their investments.

Second, as to pricing, we put forward a number of alternatives. These alternatives—either within the framework of swing pricing or liquidity fees—are being considered with the goal that redeeming shareholders bear the appropriate costs associated with their redemptions, particularly in times of stress.

Third, as to the plumbing, we proposed to shorten the lag between when investors’ orders are placed and when the fund receives those orders. Such lag in the data getting to fund companies can create vulnerabilities; shortening that lag can lessen risk.

Similar Products Overseen by Bank Regulators
Before I close, I want to touch upon two related forms of collective investment vehicles overseen by bank regulators, short-term investment funds and collective investment funds.

Such funds managed by bank trust departments or for certain tax-qualified retirement funds are exempt from SEC oversight.[26]

Short-term investment funds, estimated to total more than $300 billion in assets, operate similarly to money market funds. Collective investment funds are estimated to be $7 trillion, $5 trillion at the federal level and $2 trillion at the state bank level.[27] The Office of the Comptroller of the Currency last substantively revised rules for short-term investment funds in 2012.[28]

Rules for these funds lack limits on illiquid investments and minimum levels of liquid assets. There is no limit on leverage, requirement for regular reporting on holdings to investors, or requirement for an independent board.

We know from history that financial fires can spread from regulatory gaps as well as herding and network interconnectedness. Such gaps include when regulations don’t treat like activities alike. Market participants may then seek to arbitrage such differences.

We’re in discussions with the bank regulators on these topics.

Conclusion
I hope you can tell from my bear hug of collective investment vehicles that I believe they have really benefited investors. That doesn’t mean, though, that we don’t need to protect investors from the bear of dilution.

To me, this is about getting back to what Roosevelt and Congress were trying to address in 1940—that funds are liquid to meet redemptions, and valuations appropriately reflect the prices of the underlying portfolio.

We’ve benefitted from a great deal of feedback on the SEC’s proposals. The goal, if adopted, is that the rules help keep investors from getting eaten by the bear and minimize calls for fire department support.

 
[1] See “History of Economic Turmoil in the U.S. Part 1 of 3 – The Early Years,” available at https://americandeposits.com/history-economic-turmoil-united-states-early-years/.

[2] See Federal Deposit Insurance Corporation, “Historical Timeline,” available at https://www.fdic.gov/about/history/timeline/1930s.html.

[3] See Library of Congress, “National Recovery Administration (NRA) and the New Deal: A Resource Guide,” available at https://guides.loc.gov/national-recovery-administration/new-
deal#:~:text=The%20crash%20led%20to%20Congress,clear
%20rules%20of%20honest%20dealing.%22.

[4] See “Goldman Sachs’ Long History Of ‘Money And Power’” (April 11, 2011), available at https://www.npr.org/2011/04/11/135246269/goldman-sachs-long-history-of-money-and-power.

[5] See Investment Company Institute, “History of the Investment Company Institute,” available at https://www.ici.org/ici-history.                                                                    

[6] See Statement of SEC Commissioner Robert E. Healy before subcommittee of Committee on Banking and Currency on Wagner-Lea Act, S. 2580, to regulate investment trusts and investment companies (April 2, 1940), at 5, available at https://www.sec.gov/news/speech/1940/040240healy.pdf.    

[7] Ibid at 13.

[8] See Paul A. Merriman, “The genius of John Bogle in 9 quotes” (Nov. 25, 2016), available at

https://www.marketwatch.com/story/the-genius-of-john-bogle-in-9-quotes-2016-11-23.

[9] Staff analysis of Form N-CEN filings as of April 2023.

[10] See Investment Company Institute “2023 Investment Company Fact Book” (May 2023), available at https://www.ici.org/system/files/2023-05/2023-factbook.pdf.

[11] See Investment Company Institute, “ICI Research Perspective: Ownership of Mutual Funds and Shareholder Sentiment, 2022” (October 2022), at 1, available at https://www.ici.org/system/files/2022-10/per28-09.pdf.

[12] See Karen Arenson, “Impact of Money Market Funds” (March 6, 1979), available at https://www.nytimes.com/1979/03/06/archives/impact-of-money-market-funds-rapid-growth-could-distort-feds.html.

[13] See Kathleen Elkins, “A brief history of the 401(k), which changed how Americans retire” (Jan. 24, 2017), available at https://www.cnbc.com/2017/01/04/a-brief-history-of-the-401k-which-changed-how-americans-retire.html.

[14] See Bob Pisani, “The first ETF is 30 years old this week. It launched a revolution in low-cost investing,” (Jan. 23, 2023), available at “https://www.cnbc.com/2023/01/23/the-first-etf-is-30-years-old-this-week-it-launched-a-revolution-in-low-cost-investing.html.

[15] See Financial Stability Oversight Council, “Annual Report” (December 16, 2022), available at https://home.treasury.gov/system/files/261/FSOC2022AnnualReport.pdf.

[16] See Federal Reserve, “Money Market Mutual Fund Liquidity Facility,” available at (https://www.federalreserve.gov/monetarypolicy/mmlf.htm.

[17] See Federal Reserve, “Secondary Market Corporate Credit Facility,” available at https://www.federalreserve.gov/monetarypolicy/smccf.htm.

[18] See Federal Reserve, “Municipal Liquidity Facility,” available at https://www.federalreserve.gov/monetarypolicy/muni.htm.

[19] See “President’s Working Group on Financial Markets Releases Report on Money Market Funds” (Dec. 22, 2020), available at https://home.treasury.gov/news/press-releases/sm1219.

[20] See Gary Gensler, “Money Market Funds Statement” (June 11, 2021), available at https://www.sec.gov/news/public-statement/gensler-fsoc-money-market-funds-2021-06-11.

[21] See “FSB publishes final report with policy proposals to enhance money market fund resilience” (Oct. 11, 2021), available at https://www.fsb.org/2021/10/fsb-publishes-final-report-with-policy-proposals-to-enhance-money-market-fund-resilience/ to-enhance-money-market-fund-resilience/.

[22] See Investment Trusts and Investment Companies: Hearings on H.R. 10065 before a Subcommittee of the House Committee on Interstate and Foreign Commerce, 76th Cong., 3d Sess. 112 (1940), at 57 (Statement of Robert E. Healy). The SEC said in a report in 1942: “Open-end investment companies, because of their security holders’ right to compel redemption of their shares by the company at any time, are compelled to invest their funds predominantly in readily marketable securities.” See Investment Trusts and Investment Companies: Report of the Securities and Exchange Commission (1942), at 76.

[23] During the 1970s, the Federal Reserve Regulation Q limit ranged from 4.75 percent to 5.25 percent, while three-month Treasury bill rates rose to exceed 14 percent. See R. Alton Gilbert, “Requiem for Regulation Q: What It Did and Why It Passed Away” (February 1986), available at https://files.stlouisfed.org/files/htdocs/publications/review/86/02/Requiem_Feb1986.pdf. See also “The 1970s: New Inflation High Interest Rates, and New Competition” (1991) available at https://fraser.stlouisfed.org/files/docs/publications/ERP/pages/6688_1990-1994.pdf.

[24] Based on Form N-MFP data (77 percent).

[25] Per Form N-MFP filings.

[26] 3(c)(3) and 3(c)(11) of the Investment Company Act.

[27] Estimates are based on SEC staff analysis of data from FFIEC Call Reports, Morningstar, Brightscope, and other industry reporting.

[28] 12 CFR § 9.18. 

CFTC Orders a California Commodity Trading Advisor to Pay More Than $4 Million for Fraud and Registration Violations (CFTC Release)
https://www.cftc.gov/PressRoom/PressReleases/8707-23
A CFTC Order filed/settled charges against Sharief Deona McDowell
https://www.cftc.gov/media/8621/enfshariefmcdowellorder052523/download for fraud in connection with options on commodity futures contracts by a commodity trading advisor ("CTA") and for failing to register as a CTA. The CFTC Order imposed a Cease-and-Desist and and permanent registration and trading bans upon McDowell, and required her to pay $2,376,509.96 in restitution and a $2,376,509.96 civil monetary penalty.. As alleged in part in the CFTC Release:

The order finds that from October 2018 through approximately March 2022, McDowell, doing business through a company she founded known as Presidential Investments LLC, engaged in a fraudulent scheme through which she solicited and accepted more than $2 million from at least 29 individuals or entities for the purported purpose of trading commodity futures contracts and options on commodity futures contracts on their behalf and then misappropriated the funds for her personal use.

By claiming to engage in discretionary trading of futures and options contracts on behalf of her clients, McDowell acted as a CTA, without being registered or exempt from registration with the CFTC as required by the CEA. In addition, in telephone, text message, and email communications with prospective and existing clients, McDowell knowingly made material misrepresentations and omitted material facts about her use of client funds and the profits purportedly earned by her clients. Among other misrepresentations, McDowell told clients that she used the funds they transferred to Presidential Investments to trade options and futures contracts on their behalf. Contrary to these statements, McDowell did not conduct any trading on behalf of her clients and instead knowingly misappropriated client funds for her direct personal benefit. To conceal and perpetuate her fraudulent scheme, McDowell issued fabricated trade confirmations and updates to clients that falsely reflected profitable returns from her supposed trading activity. 

Parallel Criminal Action

On November 30, 2022, McDowell entered a guilty plea in a related criminal case in the U.S. District Court for the Central District of California. She is scheduled to be sentenced on June 30, 2023. [See United States v. McDowell, 5:22-cr-00274-AB]

FINRA Censures and Fines Vanguard Marketing Corp. for Overstating Yield and Income
In the Matter of Vanguard Marketing Corp., Respondent (FINRA AWC 2018058111301)
https://www.finra.org/sites/default/files/fda_documents/2020068469601
%20Vanguard%20Marketing%20Corporation%20CRD%207452
%20AWC%20gg.pdf
For the purpose of proposing a settlement of rule violations alleged by the Financial Industry Regulatory Authority ("FINRA"), without admitting or denying the findings, prior to a regulatory hearing, and without an adjudication of any issue, Vanguard Marketing Corp. submitted a Letter of Acceptance, Waiver and Consent ("AWC"), which FINRA accepted. The AWC asserts that Vanguard Marketing Corp. has been a FINRA member firm since 1977 with 8,000 registered representatives at 13 branches. In accordance with the terms of the AWC, FINRA imposed upon Financial Security Management, Incorporated  a Censure and a $800,000 fine. As alleged in the "Overview" portion of the AWC:

From November 2019 to September 2020, VMC overstated projected yield and projected annual income for nine money market funds on approximately 8.5 million VMC account statements. From at least October 2019 to June 2021, certain VMC account statements inaccurately presented market appreciation/depreciation and investment returns. Additionally, VMC failed to reasonably supervise its account statements by failing to timely address customer reports of inaccuracies. Therefore, VMC violated FINRA Rules 2210, 3110, 4511 and 2010.

CFPB Action to Require Citizens Bank to Pay $9 Million Penalty for Unlawful Credit Card Servicing / Citizens failed to properly manage and respond to customers’ credit card disputes and fraud claims (CFPB Release)
https://www.consumerfinance.gov/about-us/newsroom/cfpb-action-require-citizens-bank-pay-9-million-unlawful-credit-card-servicing/
  In the United States District Court for the District of Rhode Island, CFPB filed a Complaint alleging that Citizens Bank, N.A. failed to reasonably investigate and appropriately resolve billing error notices and claims of unauthorized use, failed to properly credit consumers’ accounts when unauthorized use and billing errors occurred, and failed to provide credit counseling disclosures to consumers as required by Regulation Z.
https://files.consumerfinance.gov/f/documents/cfpb_citizens-bank_complaint_2020-01.pdf

  Pursuant to a Stipulated Final Judgment and Order, CFPB and Citizens Bank reached a settlement of the charges and the Bank will pay a $9 million civil money penalty. 
https://files.consumerfinance.gov/f/documents/cfpb_citizens-bank_proposed-final-stipulated-judgment-order_2023-05.pdf

As alleged in part in the CFPB Release:

Citizens Bank is a large bank headquartered in Providence, Rhode Island, with branches and ATMs in 14 states and the District of Columbia. Citizens Bank is a subsidiary of Citizens Financial Group (NYSE:CFG), which reported $222 billion in assets as of March 31, 2023, and is one of the 15 largest consumer banks in the country. The CFPB originally sued Citizens Bank in January 2020.

. . .

In the 2020 lawsuit, the CFPB alleges that Citizens Bank violated the Truth in Lending Act and its implementing Regulation Z by:

• Improperly denying customer reports of fraud and errors and failing to provide refunds: The bank failed to reasonably investigate and resolve billing error notices and claims of unauthorized use by making customers jump through unnecessary and burdensome hoops, which are not required under the Truth in Lending Act, to report fraud. The bank also failed to fully credit customers’ accounts when unauthorized use and billing errors occurred by sometimes not refunding all finance charges or fees owed to customers.
• Failing to provide required documents and referrals: The bank did not provide certain individuals who submitted billing error notices with required acknowledgment and denial notices, which inform them that their disputes have been received and, if applicable to a person’s case, that the dispute was denied. The bank also did not disclose required credit counseling information to individuals who called the bank’s toll-free number designated for that purpose, and instead routed some individuals to the bank’s collections department.

Florida man charged in multi-million dollar elder fraud scheme (DOJ Release)
https://www.justice.gov/usao-ndwv/pr/florida-man-charged-multi-million-dollar-elder-fraud-scheme
In the United States District Court for the Northern District of West Virginia, an Indictment was filed charging Samuel Kristofer Bunner with wire and bank fraud, identity theft and money laundering. As alleged in part in the DOJ Release:

[B]unner befriended the victim while they were both working at the American Legion in Charles Town. The victim had cognitive impairment and Bunner began assisting with his medical appointments. Bunner then accompanied the victim to a law firm, where the victim made Bunner his power of attorney and gave him the ability to control his financial accounts. Over a two-year period, Bunner enriched himself by selling the victim’s real estate, emptying investment and bank accounts, and opening a credit card in the victim’s name. Bunner and his wife purchased real estate, motor vehicles, and luxury items, along with taking vacations.

Hudson County Man Sentenced to 21 Months in Prison for Conspiracy to Steal Cryptocurrency (DOJ Release)
https://www.justice.gov/usao-nj/pr/hudson-county-man-sentenced-21-months-prison-conspiracy-steal-cryptocurrency
In the United States District Court for the District of New Jersey, Ebrahem Adeeb, 20, pled builty to conspiring to commit wire fraud; and he was sentenced to 21 months in prison plus three years of supervised release, and ordered to pay restitution of $504,418. As alleged in part in the DOJ Release:

From October 2020 through May 2021 Adeeb and his conspirators “swapped” the subscriber identity module (SIM) associated with a victim’s  phone number for another SIM loaded into a mobile device they controlled in order to access and control the victim’s accounts. Adeeb and his conspirators then sent a password reset request to a digital currency exchange platform, which caused the company to send a password reset link to the victim’s email account. Adeeb and his conspirators then accessed the victim’s email account and account at the currency exchange company and transferred cryptocurrency from the victim’s account to a cryptocurrency wallet they controlled. Adeeb and his conspirators stole cryptocurrency valued at more than $500,000 at the time of the thefts.

SEC Charges Internet Streaming Company for Overstating Paying Subscribers and Violating the Whistleblower Protection Provisions (SEC Release)
https://www.sec.gov/enforce/33-11196-s
Without admitting or denying the findings in an SEC Order
https://www.sec.gov/litigation/admin/2023/33-11196.pdf that Gaia, Inc. violated Section 17(a)(2) and 17(a)(3) of the Securities Act of 1933, as well as Section 13(a) of the Securities Exchange Act of 1934 and Rules 12b-20 and 13a-11 thereunder; and that the company's Chief Financial Officer Paul C. Tarell caused said violations; and, further, that the company violated the securities whistleblower protection provisions of Section 21F(h) of the Exchange Act, and Rule 21F-17 thereunder; Gaia consented to a Cease-and-Desist Order and a $2 million civil penalty and certain specified undertakings; and Tarell agreed to a $50,000 civil penalty. As alleged in part in the SEC Release:

[G]aia overstated the number of its paying subscribers for the first quarter of 2019 in an earnings call and a current report. According to the order, on April 29, 2019, Gaia announced that it met its previously forecasted subscriber target and "ended the [first] quarter with 562,000 paying subscribers." The order also finds that on an earnings call that same day, Tarell represented that this figure excluded "subscribers for whom we were unable to successfully charge on our last renewal due to their credit cards becoming invalid." These statements were false, according to the order, because (i) Gaia's reported number of paying subscribers for the quarter included approximately 15,000 subscribers that had been gifted a free month in mid-March 2019, and had neither paid through the end of the month nor reactivated their paying memberships; and (ii) the reported number of paying subscribers also included approximately 4,500 others that Gaia was unable to successfully charge because the associated credit cards were declined.

According to the order, Gaia also retaliated against a whistleblower who reported the subscriber count issue both internally to Gaia management and to the Commission, when it terminated the whistleblower "for cause." The order further finds that from July 2018 through August 2021, Gaia included provisions in 23 employee severance agreements that required employees to forgo any monetary recovery in connection with providing information to the Commission, and thereby impeded individuals from communicating directly with Commission staff about possible securities law violations.

SEC Shuts Down WeedGenics $60 Million Cannabis Offering Fraud (SEC Release)
https://www.sec.gov/news/press-release/2023-97
In the United States District Court for the Central District of California, the SEC filed a Complaint charging Integrated National Resources Inc. ("INR") and its woners RolfRolf Max Hirschmann and Patrick Earl Williams with violating the antifraud provisions of the securities laws.
https://www.sec.gov/litigation/complaints/2023/comp-pr2023-97.pdf
The Court granted the SEC emergency relief against INR, Hirschmann, Williams, and several relief defendants, including a temporary restraining order, an order freezing their assets, and appointment of a temporary receiver over INR and the entity relief defendants. As alleged in part in the SEC Release:

[S]ince at least June 2019, Hirschmann and Williams have promised investors they would use raised funds to expand WeedGenics facilities, which they guaranteed would produce up to 36 percent returns, but in reality Hirschmann and Williams never owned or operated any facilities—it was all a sham. The complaint alleges that when Hirschmann and Williams received investors' funds, they transferred the money through multiple accounts to enrich others and for personal use such as entertainment, jewelry, luxury cars, and residential real estate. The complaint further alleges that in an attempt to avoid detection, Hirschmann, acting as the face of the company, used the fake name Max Bergmann the entire time he communicated with investors, while Williams, as Vice President of the company, worked behind the scenes while spending investor funds on his more public career as a rap musician known as “BigRigBaby.”

FINRA Fines and Suspends Rep Over High-Risk Options Strategy
In the Matter of Matthew Platnico, Respondent (FINRA AWC 2020067385401)
https://www.finra.org/sites/default/files/fda_documents/2020067385401
%20Matthew%20Platnico%20CRD%202102086%20AWC%20vr.pdf
For the purpose of proposing a settlement of rule violations alleged by the Financial Industry Regulatory Authority ("FINRA"), without admitting or denying the findings, prior to a regulatory hearing, and without an adjudication of any issue, Matthew Platnico submitted a Letter of Acceptance, Waiver and Consent ("AWC"), which FINRA accepted. The AWC asserts that Matthew Platnico was first registered in 1991, and by 2019 was registered with Allied Millenial Partners, LLC. In accordance with the terms of the AWC, FINRA imposed upon Platnico a $10,000 fine and a nine-month suspension from associating with any FINRA member in all capacities. No restitution was imposed in consideration of a customer settlement with the firm. As alleged in part in the AWC:

Prior to September 2019, Platnico recommended a high-risk options trading strategy in a joint account held by the customer and her late husband. Platnico communicated about that strategy regularly with the customer’s husband. In September 2019, however, following the death of the customer’s husband, the customer and Platnico spoke by telephone once, and Platnico continued to execute the trading strategy in the account. Platnico did not contact the customer before placing the options transactions at issue, nor did he have discretionary trading authority in the customer’s account. Additionally, although Platnico occasionally called the customer’s son to discuss the options trading strategy employed in the customer’s account, Platnico never obtained written trading authorization from the client for her son to direct the trading in the account.

Moreover, Platnico did not conduct reasonable diligence to confirm that the options strategy continued to be suitable for the customer’s investment profile. In fact, it was not given that the strategy involved a substantial risk of loss, the customer was retired, had limited investment knowledge and experience, and the customer had only a moderate risk tolerance. Platnico placed at least 100 unsuitable and unauthorized options trades in the customer’s account from September 2019 through March 2020, which caused her to suffer substantial losses in February and March 2020.

As a result of the foregoing, Platnico violated FINRA Rules 2111 and 2010.

FINRA Bars Associated Person For Accessing Internet During Series 7 Examination
In the Matter of Antonino Giaccone, Respondent (FINRA AWC 2021072383703)
https://www.finra.org/sites/default/files/fda_documents/2021072383703
%20Lizbeth%20Saavedra%20CRD%206785677%20AWC%20lp.pdf
For the purpose of proposing a settlement of rule violations alleged by the Financial Industry Regulatory Authority ("FINRA"), without admitting or denying the findings, prior to a regulatory hearing, and without an adjudication of any issue, Antonino Giaccone submitted a Letter of Acceptance, Waiver and Consent ("AWC"), which FINRA accepted. The AWC asserts that Antonino Giaccone entered the industry in March 2021 with eToro USA Securities Inc. In accordance with the terms of the AWC, FINRA imposed upon Giaccone a Bar from associating with any FINRA member in all capacities. As alleged in part in the AWC:

Giaccone took the FINRA Series 7 examination on June 16, 2022. Prior to beginning the examination, Giaccone attested that he had read and would abide by the FINRA Rules of Conduct. During the examination, Giaccone accessed the internet, including online forums, to assist with answering examination questions. By cheating on the Series 7 examination, Giaccone violated FINRA Rule 1210.05 and Rule 2010, both independently and by virtue of his violation of Rule 1210.05.