1.1 AD678 – Financial Regulation
AD678 is a comprehensive financial regulation course, focusing on the key federal statutes that regulate securities and participants in the securities markets: the Securities Act of 1933, the Securities Exchange Act of 1934, Sarbanes-Oxley, the Dodd-Frank Act of 2010, the Foreign Corrupt Practices Act, and several criminal statutes applicable to securities fraud and related offenses. We will read statutes and case law, and use examples and guest speakers to understand the practical application of the law in real life. Federal law governs the issuance of securities (“going public”), regulates companies whose shares are being traded (known as “issuers”), and makes rules for everyone working in the securities industry, including investment bankers, brokers, dealers, and investment advisors. Issuers and investment firms (and their employees or directors) who violate federal securities laws and regulations face civil litigation from shareholders, enforcement actions by the Securities and Exchange Commission, and criminal prosecution by the U.S. Department of Justice. After successfully completing the course requirements, students should be familiar with the complex system laws, government agencies, self regulatory organizations (“SROs”) and courts governing the securities industry to “protect investors, maintain fair, orderly, and efficient markets, and facilitate capital formation.” (www.sec.gov/about/whatwedo.shtml) Students should also have a basic understanding of the separate system of federal laws and regulations governing the commercial banking and insurance sectors of the U.S. financial services industry.
Prereq: No prerequisite courses; Suggested reading before class starts: Chapter 4 from “Legal Environment” book by Jeffrey F. Beatty, Susan S. Samuelson, and Patricia Sanchez Abril, 6th Ed. ISBN: 978-1-305-50748-7
General understanding of the US Legal System
2.4 Other Information
a) Getting Started, or What Should I Do First?
The job of a graduate student is to move forward human knowledge.
I know this is intimidating, but my job is to challenge you. I want you to improve—there wouldn’t be much point in taking this course if you didn’t. Taking this course is not about memorizing a statute or a case—you could do that by reading on your own. This course is about becoming a critical thinker, learning to evaluate what you read, investing your brain power to offer novel answers to critical questions and situations, and evaluating the far-reaching consequences of your own conclusions and solutions.
If that sounds ambitious, it is. I am here to help you through that process. This is challenging – and challenges are prerequisites for progress! Don’t expect to master financial regulation in the first week or even by the end of the course. There will always be room for growth in this area. However, when you successfully complete the class, you should expect to have a much better understanding of the securities industry and how and why it is regulated. I only know of one way to succeed at mastering this study material: be persistent, don’t give up, review the material until you master it, and attempt to explain it to someone who is new to the field!
b) General Guidance
There are no dumb questions. The really dumb thing is not to ask. I really believe and practice this. If you have a question, ask! Challenge everything! The problem isn’t usually not having information. The web has made information accessible to everyone. In fact, there is almost too much of it. The problem is that you don’t know where to turn or how to evaluate it. Where does it come from? Who wrote it and why? What is their agenda? So keep in mind this warning: “Use the Internet resources carefully!”
I encourage you to challenge anything and everything. Don’t just read the textbook or assigned statutes, and court decisions. Read with a viewpoint, with questions to challenging what is being explained. However, if you challenge something, be sure to be able to back up your claim with research and correct references. This is a financial regulation course, where art and science merge in various aspects, and there are often more than one right answers to given situations.
Wall Street Journal: www.wsj.com
Business Week: www.businessweek.com
NY Times (Business Section): www.nytimes.com
Financial Times www.ft.com
The Economist www.economist.com
4.1 Course Learning Goals and Objectives
4.2 Course Expectations
Current Event Research Paper:
One of the best things about studying securities regulation is that the topic is in the news every day. Every day a new company chooses to go public, another executive at a public company is charged with violating anti-fraud provisions, or another public company is investigated for attempting to bribe foreign government officials. The current event research paper assignment asks that you choose one current event relevant to any of the topics we will study this semester, and write a research paper describing what happened, the relevant law, and the significance of the story for the industry, the company, the law, and/or you.
How to choose your current event:
The current event must have been in the news within the last six months. To find a topic of interest, start reading the financial and business news now. You might also visit the SEC’s website for press releases, or some of the many blogs on securities regulation, white-collar crime, or corruption. You can also follow the SEC on Twitter. Once you find a news story, you will research it more deeply, including the relevant law. Your story does not have to be a case that has gone to court already. It can be an investigation, a proposed new rule or regulation, or any other story that implicates the legal issues we discuss in class.
What to include in your paper:
Logistics:
Historic Financial Scams
Much of the law regulating the financial industry is reactive: Congress passes laws after things go badly. Thus, to truly understand securities regulation and white-collar criminal laws, one must know the historical context in which the laws were passed. For better or worse, financial scams usually involve larger than life characters and creative schemes. So I hope you have fun learning about the “bad guys” of the finance world.
In teams, you will be asked to research one of the historic financial scams that connect to our laws today. You will present your learning to the class. Each presentation should explain:
The Scams (by Team #)
Exams
You will have two exams in this course. The course material is dense, so we will divide it in half with each half being tested on separate exams. The exams are NOT cumulative. In most cases, the exams will ask students to answer a series of questions by applying the law they have learned to a hypothetical fact scenario.
E-Commerce Startup Charged with Defrauding Investors
Protecting investors and maintaining the securities markets’ integrity is the main task of the US Securities and Exchange Commission (SEC). Most first-time investors turn into the securities market to secure their future, send children to school, and pay for homes ((Christensen, Hail & Leuz, 2016). These goals are more compelling than ever, and a loss of money through fraud in the market can lead to devastating effects. Investing is complex, fascinating, and can be profitable. However, unlike banking, where the federal government guarantees deposits, stock bonds, and other securities have no guarantees (Christensen, Hail & Leuz, 2016). As a result, investing is not a spectacular sport, and investors should do extensive research before purchasing securities. Laws and rules that govern securities industry in the US are derived from a basic concept. That is, whether private individuals or institutions, investors should have access to material facts concerning an investment before buying it (Christensen, Hail & Leuz, 2016). Thus, the SEC must require public companies to disclose relevant financial and other information to the public. These information provide knowledge that investors can use to make decisions concerning securities to purchase. The information should flow steadily and timely and should be accurate and comprehensive for sound investment decisions.
SEC has enforcement authority and brings over 400 civil enforcement actions against persons and companies that violate the securities laws each year (Christensen, Hail & Leuz, 2016). Common infractions include fraud, insider trading, and provision of false information about securities and companies. With the help of other institutions such as federal departments, state securities, self-regulatory organizations, and other private sector organizations, the SEC has effectively executed its mandate. There is currently a fraud case in progress concerning Benja a San Francisco-based E-commerce and its Chief Executive Officer (CEO) Andrew J. Chapin. The event’s description, relevant law, and the event analysis are carried out in the next sections.
The Event
On 23rd November 2020, SEC charged Benja Inc and its CEO Chapin, 31, with misleading investors concerning purported contracts with well-established companies (Freedman, 2020). Between 2018 and 2020, Chapin, the CEO of Benja, told investors that the company was a successful online advertising platform that generated millions of revenues from well-established consumer clothing companies. The company was not in any business with the brands that the CEO named. SEC complaint describes a series of solicitations the CEO undertook to raise money for Benja from June 2018.
The first claim involves a San Francisco investor who is reported to have sunk one hundred thouSand dollars into Benja after the CEO fraudulently claimed that Patagonia had spent $161.5 thouSand, Nike, $275 thouSand Backcountry.com $170 thouSand with Benja (SEC Complaint, 2020). The investor allegedly wanted assurances that other investors have examined Benja as an investment. Chapin told the investor that the Saint Louis venture capital firm had decided to invest $1 million in Benja (SEC, 2020). He further arranged a call with the general partner and founder of St. Louis and the San Francisco investor (Freedman, 2020). On 23rd October 2018, the investor talked with an individual who was supposedly the founder of St. Louise. The investor became convinced that Benja is a credible investment and three days later, the investor purchased shares of Benja common stock worth one hundred thouSand dollars at the cost of $78.25 per share (Freedman, 2020). Later, ST Louse investor declaimed ever investing in Benja or taking part in such a call. If the CEO had issued accurate information concerning Benja, certainly, the investor could not have purchased the shares.
Another allegation made in the complaint is that around march 2020, the CEO contracted a New York-based venture capital firm that funds startups with recurring revenues (Freedman, 2020). Benja provided misleading documents, agreements, and bank statements. Benja provided multiple documents to the firm that purported to show the sum of money it receives from well-established retail brands such as Zappos, Nike, Fanatics, Patagonia, and other companies. The complaint claims that these documents reported that Benja received approximately two million dollars every month from the retail companies and other purported customers (SEC Complaint, 2020). The revenue reflected in the firm’s documents was falsified. The complaint further states that Benja and the retail companies’ agreements show that the companies agreed to use Benja’s network advertising space yet it was not true (Freedman, 2020). Benja’s bank statements were doctored to show that the company received payments from the customer companies.
Moreover, the complaint alleges that Chapin invited the principal of the New York venture capital firm to two phone calls. The calls were purportedly with representatives from Nike and Fanatics (SEC Complaint, 2020). The principal was introduced to the two purported representatives by name by the CEO, yet, neither Fanatics nor Nike nor any employee in the two companies participated in the calls. The complaint claims that the CEO used his associate to impersonate the representatives. Using the fateful documents, agreements, and bank statements, the New York firm made an investment agreement with Benja. They made an advance payment of one million dollars on 4th June 2020 (Freedman, 2020). Chapin had agreed with the principal to use the proceeds to develop Benja’s technology. However, after receiving the funds, Benja company used the money to pay back in part a financing company. Benja had obtained approximately 4.5 million dollars from the financing company between April and May 2020. The complaint alleges that Benja allegedly sent the financing company doctored invoices, which falsely showed that the company had unsettled receivables for four months period beginning February 2020 from the popular brands already mentioned (SEC Complaint, 2020). When the financing firm learned that Benja had no receivables, it demanded payment from Chapin’s company (SEC, 2020). SEC alleges that when Chapin received the $4.5 million from the financing firm, he sent some to his personal bank account, where he used to pay off expenses and wired the remaining out of Benja’s account.
Chapin went back to the original San Fransico based investor for further discussion concerning possible additional investment. In August 2020, the CEO sent the investor a memorandum on a plan to raise capital. The memorandum falsely represented Nike as one of Benja’s customers. It also falsely stated that Benja had signed a contract with Spotify to place advertisements in Spotify podcasts. The memorandum claimed that Benja was to be the an exclusive e-commerce partner for Spotify for three years. The complaint states that, in reality, there was no such agreement between Benja and Spotify (SEC Complaint, 2020). Chapin claimed that the additional sought investment from the investor was to be used to purchase advertising space. However, as soon as the investor made the payment, the funds were used by Benja to repay in part the financing company. The investor paid Benja $50 thouSand on 2nd September 2020 based on false information (Freedman, 2020). After the payment, the investor was given a simple agreement for future equity security (SEC, 2020). The security provided that the investor will receive Benja common stock shares in the future based on certain conditions.
After a successful investment by the San Fransico investor, Chapin went back again to the New York financing company for additional investment in August 2020 (Freedman, 2020). He sent the same information that he has provided the San Francisco investor, which involved false purported relationships between Benja and both Nike and Spotify. Chapin informed the New York financing company principal that the investment would hire more software developers and purchase advertising space with TikTok, a popular video platform and Spotify (SEC Complaint, 2020). On 2nd September 2020, the accelerator company made an investment of half a million dollars in Benja based on the false information to exchange a simple agreement for future equity (SEC Complaint, 2020). Benja used the funds to repay in part the financing company as opposed to hiring new software developers as agreed.
Based on these actions by Benja and its CEO Chapin, SEC’s complaint was filed in the US district court of the northern district of California. The complaint charges Benja and Chapin with violating section 17(a) of the Securities Act of 1933 and section 10(b) of the securities exchange act of 1934 which consists of anti-fraud provisions and Rule 10b-5 thereunder (SEC Complaint, 2020). It seeks permanent injunctions, disgorgement with prejudgment interest, civil penalties, and officer and director bar against Chapin (Freedman, 2020). A parallel case concerning Chapin in the US attorney’s office for California’s northern district runs where the CEO faces criminal charges (SEC, 2020). The SEC complaint states that Chaplin’s conduct was knowing and reckless since he violated federal securities laws. Chapin actions are not only illegal based on the securities laws and rules but are also unethical and should be discouraged in society. Within a short period, Benja managed to generate significant revenue from prominent clients successfully. SEC has the mandate to pursue executives and companies such as Benja who mislead investors. Mathew Meyerhofer is currently investigating Benja’s and Chapin’s case under the supervision of Tracy L. Davis and Moniques C. Winkler (SEC Complaint, 2020). The litigation against the company and the CEO is led by Mayerhofer, Marc Katz, and SuSan LaMarca.
The complaint’s prayer for relief consists of five requests that SEC would want the court to approve. First, SEC requests the court to permanently enjoin the defendants from violating section 10(b) of the securities exchange act and rule 10b-5 thereunder and section 17(a) of the securities act directly or indirectly (Freedman, 2020). Second, SEC requests the court to issue an order for the defendants to disgorge the unjust enrichment or the ill-gotten gains derived from the violations and to pay a civil penalty in the form of money according to section 20(d) of the securities act and section 21(d) of securities exchange act (SEC, 2020). Third, SEC requests the court to prohibit Chapin from serving as a director or officer of any company with securities registered with SEC pursuant to section 1 of the securities exchange act. Else, he can file reports under sections 15(d) and 20(e) of the Securities Exchange Act and the Securities Act, respectively (SEC Complaint, 2020). Fourth, the SEC requests the court to retain the jurisdiction of the action in accordance with the federal rules of civil procedure and the principles of equity (Freedman, 2020). Fifth, the SEC requests the court to grant other further relief as the court may be necessary and just.
Securities Act of 1933
The Securities Act of 1933 was the first Act concerning securities fraud to be developed by congress. It is often referred to as “truth in securities” and has two basic objectives. First, it ensures tha investors receive financial and other relevant information concerning the public’s securities (Wood, 2020). Second, it prohibit deceit, misrepresentation, and other forms of fraud in securities sales (LLC & Laurance, 2018). The need for money to fund new projects, investments, or expand operations made companies in the early 20th century attractively present themselves. As a result, some companies began using false and misleading information to attract more investors (Wood, 2020). The actions necessitated the need for regulation, which led to the development of the Act. The goal was to ensure that issuers selling securities disclose information that would affect investor’s stock evaluation.
Mandatory Disclosure
Securities act 1933 sets up disclosure through a mandatory registration process in any securities sale (LLC & Laurance, 2018). All issuers should register non-exempt securities with SEC in accordance with section 5 of the securities act. The section also regulates the distribution process and the timeline for issuers offering securities for sale (Securities, 2020). Section 6 gives the registration process in two parts (Wood, 2020). In the first part, an issuer should submit the information to form the prospectus’s basis to be provided to potential investors. In the second part, an issuer should submit more information not for prospectus but can be used by an individual in evaluating securities (LLC & Laurance, 2018). An issuer should use an appropriate registration form that depends on the securities offered and the issuer (Wood, 2020). SEC has authority to determine the information that issuers should submit. SEC gets this authority from section 7 of the securities act.
All offered securities in the US should be registered with SEC unless they qualify for an exemption. The form that an issuer files consist of extensive information including; one, including the description of the company’s business activities and its properties, past performance, and risks of the business (Wood, 2020). Two, the security description to be offered for sale, tax, legal issues and the terms of the offered securities. Third, company management information and executive compensation. Fourth, financial statements certified by independent accountants (Securities, 2020). Often an issuer will submit both registration statement and the prospectus, both of which are made public through SEC’s online EDGAR system within a short period after being filed with SEC electronically (LLC & Laurance, 2018). SEC’s corporate finance division can examine the filed registration statement to determine if they comply with the disclosure requirements. However, SEC does not determine whether the offered securities are good for investment nor evaluate the merits of offerings.
According to the securities, the registration statement is effective within twenty days if there are no omissions or glaring deficiencies (Cox, Hillman & Langevoort, 2019). However, SEC can issue deficiency letters that suggest changes based on the evaluation of the prospectus and registration statement (Wood, 2020). SEC requires issuers to provide truthful and accurate data, but it cannot guarantee the filed information’s accuracy. Many companies tend to comply since SEC can accelerate the effective date allowing companies to sell securities and raise capital earlier (Wood, 2020). However, some companies still file false information, and the SEC brings enforcement actions towards the companies every year. Besides, there are recovery rights if an investor can prove a false or incomplete disclosure of material information. The registration process protects an investor in two ways; first, no issuer can sell securities without disclosing the company’s required information and delivering a prospectus that SEC has reviewed (LLC & Laurance, 2018). Second, an issuer is liable for any omissions, inaccurate information in the registration statement.
Enforcing the Act
The main instruments of enforcing federal securities laws are SEC enforcement actions. Violators of the provisions of the securities act are prosecuted by the SEC (LLC & Laurance, 2018). SEC can seek injunctions against the securities sale or issue under section 20(b). Besides, SEC can issue orders to issuers to desist from certain practices or bar officers who violate the securities act under section 8A (Wood, 2020). Furthermore, SEC can seek civil penalties in accordance with section 20(d), if a party violates the securities act.
SEC may not act on behalf of individual buyers, but individuals have provisions in the securities act that enable them to bring civil actions (Securities, 2020). Section 11 makes companies selling securities strictly liable for false registration statements or omitted information since the registration statements should not be misleading (Securities, 2020). As a result, an investor can bring suit under this section even when the investor made purchases after the initial offering on the secondary market (LLC & Laurance, 2018). The suit is accepted only if the purchase is within the statute of limitation and the investor can trace the purchase back to the initial offering.
Sections 5 and 12(a)(1) allow investors to prosecute issuers for selling non-exempt security without registration (Wood, 2020). Suppose a suit is within the statute limitations and the investor has proof that links the investor to the seller; In that case, the investor can obtain a recession with interest or damages if the buyer sold the securities at a price lower than the purchase price.
Section 12(a)(2) creates liability for any issuer through prospectus or omission or an oral communication containing misstatement (LLC & Laurance, 2018). The issuer is liable to an investor for damages or recession of purchase as long as the investor had no information on omission or misstatement during the purchase (Cox, Hillman & Langevoort, 2019). Suing under the section involves recovering only from sellers since.
Section 15 make control persons defendants liable in accordance with section 11 and section 12 under agency principals or by owning stock jointly (Wood, 2020). This provision helps buyers collect damages when the defendant does not have enough money to pay the buyer or is insolvent. In most securities’ litigation, defendants do not have enough money since a large proportion of investors sue after their investments have soured.
Section 17(a) is the main anti-fraud provision in the Securities Act 1933 (LLC & Laurance, 2018). It is this provision that is relevant in the case of Benja Inc and its CEO, Chapin. This provision provides liability for the fraudulent sale of securities. Private action on this provision is becoming less preferred (Cox, Hillman & Langevoort, 2019). Under this section, it is unlawful to use any scheme, device, or artificial defraud, obtain property or money by using misstatements, omissions, or engaging in any practice, transaction, or business that would operate as deceit or fraud upon the purchaser (Wood, 2020). Section 10b of the securities act and rule 10b-5 tract this provision and are used more widely by purchasers suing for fraud.
Benja and its CEO Chapin are accused of directly and indirectly in the sale of securities employed schemes, devices or artifices to defraud, obtained money through untrue statements of information or omitted to state material information needed by the investors in evaluating Benja and engaged in practices, transactions, or courses of business that operate as fraud or deceit upon purchasers.
Securities Exchange Act 1934
Securities exchange act governs transactions between parties that are not original issuers. Regulation FD is the main section of the Act, which regulates disclosures (Securities, 2020). Companies with publicly held registered securities and others large firms should make periodic disclosures. It involves filling annual 10-K and quarterly 8-K forms. Besides, they should report certain events called form 8-K. These reports are crucial in determining companies to buy shares from (Cox, Hillman & Langevoort, 2019). Under the exchange act, SEC can fine, Sanction, or discipline market participants who violate securities laws. Besides, it can issue rules under specific statutory provisions to help effectuate the provisions.
Securities exchange act prohibits fraud and establishes severe penalties to sellers who defraud investors and those who practice trade activities that involve omitting important information which limits investors ability to make sound decisions. (Securities, 2020). Sec can bring civil enforcement, or its department of justice can bring criminal actions for serious violations. Besides, investors are allowed by the securities exchange act to sue market players who have defrauded them. Section 10(b) is the main anti-fraud provision in the securities exchange act (Cox, Hillman & Langevoort, 2019). This provision is mainly enforced under Rule 10b-5, which prohibits using any artifice, scheme, or device to defraud, similar to section 17(a) of the securities act. Besides, it imposes liability for the omission of factual information or misstatement when selling securities. This section is relevant for Benja and Chapin’s case and the SEC’s complaint claims that they violated this provision.
The securities exchange act also regulates proxy solicitations, trade offers, and insider trading. Proxy solicitations govern disclosure in resources used to ask shareholders’ votes (Securities, 2020). Tender offers regulation involves disclosing information by anyone seeking to obtain at least 5% of a company’s securities (Cox, Hillman & Langevoort, 2019). Insider trading regulation involves the prohibition of fraudulent activities connected with the purchase, offer, or sale of securities. Benja and Chapin’s conduct as described led to the violation of section 10(b)of the exchange act by employing schemes, artifices, and devices to defraud, made false statements of material information and omitted to state material information necessary for investors decision making and engaged in courses of business, acts, and practices that operate as a fraud or deceit upon other individuals including investors.
Analysis of The Event
The Benja and Chapin case is important for the securities industry in the US. Any fraud case within the industry catches the attention of many stakeholders. Firms who are buyers and sellers of securities are interested in the case since they would want to maintain a good reputation. Thus, none of them would want to associate themselves with the defendants. Investors, who are mainly individuals, are interested in the case since they wish to have a level playing field where there are no illegal players (Christensen, Hail & Leuz, 2016). Issuers can easily win buyers if they include illegal practices such as the ones practiced by Chapin. The state and politicians are also interested in this case since they would wish to minimize scandals by ensuring that execution of laws is executed accordingly.
This case is a reminder to issuers in the industry that illegal practices cannot go without being noticed and can attract huge penalties (United States Department of Justice, 2020). As a result, sellers will likely adhere to SEC regulations by providing accurate material data free from omissions to avoid enforcement actions. Besides, investors will learn more from this case concerning fraud and better evaluate investment companies’ mechanisms. For instance, an investor can learn that relying on a phone call to prove a company’s evaluation by another investor is not reliable. One should use better methods such as having a physical conversation with the real investor. Overall, the case will contribute to fair play in the industry by getting rid of participants who violate the securities laws directly or indirectly.
Several companies would be interested in the case, especially those purportedly reported by Benja to be having a business agreement with them. They include Nike, Spotify, TikTok, Patagonia, Fanatics, Zappos, and other companies. These companies have dissociated themselves with Benja and will likely support the case for hefty penalties against the defendants as a way of ensuring that no other company used their brand for illegal gains.
Other companies that would be interested in the case include all companies that have gone into an agreement with Benja Inc., for instance, Baseball.FYI entered into an agreement with the company in march 2020 to launch inbox commerce. Besides, other companies that have funded Benja would be interested in the case. They include California startups, united states apps companies, Western US advertising companies, San Francisco seed-stage companies, and other companies. All these funding companies and partners have money in Benja, and the case against the company might significantly affect their relationship, including recovering the money. Some companies that have realized Benja and Chapin’s illegal practices have asked for refunds from the company.
The case’s overall impact will be felt in the industry by some participants, especially those in business with Benja. The company’s share price will be significantly affected since the demand will decrease as investors learn the case (. Besides, many shareholders will likely sell the company’s shares to avoid an unexpected turn of events if the defendants are found guilty. Benja might not be able to raise more funds for investment, and there is a high chance of declaring itself bankrupt in the future. The company might also be able to effectively run its operations since its platforms might become less preferred by internet users and potential customers. However, if the court throws the case, the impacts might be positive for the company.
There is a high chance that SEC will win the case due to several reasons. First, SEC has a registration statement filed by Benja and memorandums, agreements, and bank statements that the company used to attract investors (United States Department of Justice, 2020). According to SEC, a comparison of these documents shows that Benja used False information that was doctored and did not reflect what is in the registration statement. Second, there is evidence on how Chapin used funding for unintended purposes, including wiring them to private bank accounts (United States Department of Justice, 2020). Third, there is evidence that Benja was not in agreement with most of the mentioned well-established brands, such as Nike, since the companies have come out to disassociate themselves with Benja’s activities. Thus, Benja and its CEO have limited space of winning the case and will likely face hefty penalties, including repaying illegally acquired funds from investors such as the San Francisco based investor.
Conclusion
Investing in securities can be risky if issuers or sellers in the industry adopt illegal practices and schemes. Benja and its CEO is an example of a perfect illegal scheme on how companies can falsely acquire prominent investors’ funding. Chapin violated section 10(b) and section 17(a) of the exchange act and the Securities Act, respectively. As a result, Benja and Chapin are accused of fraud practices, and the SEC is charging them based on the enforcement mandate. Chapin engaged in fraud by failing to disclose a material fact to its investors and successfully using false information to acquire funding. The case against Benja and Chapin is likely to lead to the closure of the company’s operations since the defendants are likely to face huge financial constraints. The defendants would be required to repay sought funding, including other penalties. Besides, the company will not attract more investment, and its business activities might reduce significantly. As a result, the company might declare itself bankrupt.
References
Christensen, H. B., Hail, L., & Leuz, C. (2016). Capital-market effects of securities regulation: Prior conditions, implementation, and enforcement. The Review of Financial Studies, 29(11), 2885-2924.
Cox, J. D., Hillman, R. W., & Langevoort, D. C. (2019). Securities regulation: cases and materials. Aspen Publishers.
Freedman, R. (2020). SEC charges e-commerce startup with defrauding investors. Retrieved 03rd December 2020, from https://www.cfodive.com/news/sec-benja-fraud/589661/
LLC, T. E., & Laurance, D. T. (2018). Securities Act of 1933 Release.
SEC (2020). Press Release. SEC Charges E-Commerce Startup and CEO With Defrauding Investors. Retrieved 03rd December 2020, from https://www.sec.gov/news/press-release/2020-291
SEC Complaint (2020). Securities and Exchange Commission vs. Benja Incorporated and Andrew J. Chapin. Retrieved from https://www.sec.gov/litigation/complaints/2020/comp-pr2020-291.pdf
Securities, U. S. (2020). Securities act of 1933.
Securities, U. S. (2020). Securities exchange act of 1934.
United States Department of Justice (2020). CEO Charged with Securities and Bank Fraud in Alleged Scheme to Raise Funds for Digital Advertising Company. Retrieved from https://www.justice.gov/usao-ndca/pr/ceo-charged-securities-and-bank-fraud-alleged-scheme-raise-funds-digital-advertising
Wood, J. H. (2020). The Securities Act of 1933. In Who Governs? (pp. 15-61). Palgrave Macmillan, Cham.
As a renowned provider of the best writing services, we have selected unique features which we offer to our customers as their guarantees that will make your user experience stress-free.
Unlike other companies, our money-back guarantee ensures the safety of our customers' money. For whatever reason, the customer may request a refund; our support team assesses the ground on which the refund is requested and processes it instantly. However, our customers are lucky as they have the least chances to experience this as we are always prepared to serve you with the best.
Plagiarism is the worst academic offense that is highly punishable by all educational institutions. It's for this reason that Peachy Tutors does not condone any plagiarism. We use advanced plagiarism detection software that ensures there are no chances of similarity on your papers.
Sometimes your professor may be a little bit stubborn and needs some changes made on your paper, or you might need some customization done. All at your service, we will work on your revision till you are satisfied with the quality of work. All for Free!
We take our client's confidentiality as our highest priority; thus, we never share our client's information with third parties. Our company uses the standard encryption technology to store data and only uses trusted payment gateways.
Anytime you order your paper with us, be assured of the paper quality. Our tutors are highly skilled in researching and writing quality content that is relevant to the paper instructions and presented professionally. This makes us the best in the industry as our tutors can handle any type of paper despite its complexity.
Recent Comments