December 2022 SEC Updates

1. On December 23, 2022, the SEC instituted administrative proceedings against Roger Knox, a private investor.  Knox, while acting as an unregistered broker-dealer and working in coordination with others, used omnibus accounts he controlled to provide a layer of disguise to public company insiders and control persons, and intended to defraud investors by secretly dumping large quantities of stock, in circumvention of registration and disclosure requirements imposed by the federal securities laws. Knox’s actions operated as a fraud and deceit on investors and violated the securities registration and broker-dealer registration provisions of the federal securities laws. Knox was barred.

2. On December 22, 2022 the SEC charged Randall Goulding, owner and managing member of The Nutmeg Group LLC (Nutmeg), a registered investment adviser, for fraud for misappropriating client assets and misrepresenting the value of the fifteen investment pools he and Nutmeg advised. Judge Jeffrey Gilbert issued findings of fact and conclusions of law that Randall Goulding had commingled investor funds with his personal assets, implemented flawed internal systems and methods for valuing and reporting assets under management, and transferred millions of dollars out of the investment pools to himself and companies controlled by family members. The Court also found that Randall Goulding “used Nutmeg as his personal piggybank” and concluded that Randall Goulding knowingly violated. Goulding was ordered to pay over $1.8 million in disgorgement, prejudgment interest, and civil penalties.

3. On December 22, 2022, the SEC instituted administrative proceedings against Adam Mattessich, a former registered representative at Cantor Fitzgerald & Co. (“Cantor”). Mattessich failed to comply with Cantor’s established procedures for splitting commission payments among registered employees. After Mattessich’s requests to receive commission compensation through ordinary channels was denied, Mattessich arranged with a subordinate to split commissions off-the-books.  Mattessich and the subordinate agreed that certain accounts would be transferred to the subordinate and that the subordinate would split his commissions with Mattessich using personal checks. The matter is being litigated.

4. On December 21, 2022, the SEC instituted administrative proceedings against Eliseo Acosta. Acosta acted as an unregistered broker or dealer by selling the securities of Kinetic Funds I, LLC. Acosta has never been registered as a broker or dealer or associated with any registered broker-dealer.  Acosta offered and sold Kinetic Funds securities to investors. Acosta solicited at least sixteen potential investors to invest in Kinetic Funds securities, including two investors that invested a combined $22 million in Kinetic Funds; advised the investors about the merits of the investments; and received approximately $105,300 in transaction-based compensation for offering and selling the combined $22 million of Kinetic Funds securities to the two investors.  Acosta was barred.

5. On December 20, 2022, the SEC instituted administrative proceedings against Frank Dickerson. Dickerson acted as an unregistered broker or dealer while selling the securities of MediXall Group, Inc. At all relevant times, Dickerson was not registered as or associated with a registered broker-dealer. Dickerson solicited investors to purchase MediXall stock; advised investors about the merits of the investments; and received commissions of approximately $25,193 that were transaction-based compensation for his sales of MediXall stock. Dickerson was barred.

6. On December 19, 2022, the SEC instituted administrative proceedings against John Mendes, a former registered representative and investment adviser representative of Independent Financial Group LLC. Mendes purchased securities of Layne Christensen Company (“Layne”) for at least 18 different customers or clients based on material nonpublic information about the acquisition of Layne by Granite Construction Inc. Mendes also purchased securities of Layne in brokerage accounts in the name of his wife based on material nonpublic information about the acquisition. As a result of these pre-announcement Layne securities trades, his wife’s brokerage accounts earned profits of $33,232, his clients earned combined profits of approximately $136,500, and Mendes earned commissions of $8,754 on the trades in his clients’ accounts. Mendes was barred.

7. On December 5, 2022, the SEC’s Division of Examinations published a Risk Alert to highlight observations from investment adviser related to compliance with Regulation S-ID. The Risk Alert is intended to assist firms with implementing policies and procedures under Regulation S-ID, which requires the development and implementation of an identity theft prevention program for firms that offer or maintain covered accounts. The Risk Alert discusses the requirements of Regulation S-ID and issues observed with respect to the identification of covered accounts, establishment and administration of the identity theft program, and the required policies and procedures. Through this alert, the Division encourages broker-dealers and investment advisers to review their practices, policies, and procedures with respect to their identity theft programs and to consider whether any improvements are necessary.

8. On December 5, 2022, the SEC instituted administrative proceedings against Two Point Capital Management, Inc., a SEC registered investment adviser, and John McGowan, the firm’s CEO and CCO. Two Point failed to adopt and implement reasonably designed compliance policies and procedures and to conduct annual reviews of its compliance program. Two Point also failed to establish, maintain and enforce a written code of ethics that included provisions required by Section 204A of the Advisers Act and Rule 204A-1. Two Point also failed to follow the filing and delivery requirements with respect to Form CRS in 2020. McGowan was the only individual responsible for implementing and developing Two Point’s compliance policies and procedures and Code of Ethics. Two Point was ordered to pay a civil money penalty in the amount of $75,000 and McGowan was ordered to pay $25,000.

9. On December 1, 2022, the SEC announced that David Peavler, the Director of the Fort Worth Regional Office since 2019, is leaving the agency after more than 19 years of service. Eric Werner and Marshall Gandy will serve as the office’s Co-Acting Regional Directors when Mr. Peavler departs. In addition to serving as the Fort Worth Regional Director, Mr. Peavler served as a Staff Attorney, Branch Chief, Assistant Director, and Associate Director for Enforcement in the Fort Worth office. Mr. Peavler was recognized for his exemplary work by the agency with the Irving Pollack and Arthur Mathews Awards.