SEC Brings Yet Another Unregistered Securities Dealers Enforcement Action – The Trend Continues

SEC investigation

Over the last few years, the Securities and Exchange Commission (SEC) has increasingly been focusing its enforcement efforts on prosecuting those in the securities markets that are in the business of buying convertible notes from microcap issuers, converting them into shares typically at a significant discount and then selling for a handsome profit. The SEC’s legal position is that such conduct violates the dealer registration provisions of the federal securities laws, specifically Section 15(a)(1) of the Securities Exchange Act of 1934. Notably, this is a strict liability statutory provision such that the SEC is not required to prove intent to violate the law to support its charge; merely engaging in the prohibited activity, even in good-faith and without knowledge, is sufficient and provides no legal defense. It is not, however, a fraud-based charge and thus does not implicate deceit, material misrepresentation or omission.

Recently, the SEC filed yet another in a series of securities dealer registration cases, thus demonstrating its commitment to aggressively police this line of business in the securities markets and enforce this federal securities law registration provision.

The SEC’s complaint contends that from 2013 through 2021, Auctus Management and its principals were in the business of buying convertible notes and related warrants from microcap issuers, then converting the notes at a major discount from market price into stock shares and then liquidating the newly issued stock for big profits. The SEC further alleges defendants bought notes from more than 150 issuers and sold in excess of 60 billion shares of newly issued stock reaping over $100 million in profits. Not a bad business model. Yet the SEC claimed that the Fund should have registered as a securities dealer with the SEC, and its principals should have associated themselves with it. By not registering, according to the SEC, defendants evaded legal obligations designed to regulate their activities in the securities market and to protect investors. By failing to register, per the SEC, the firm evaded oversight via regulatory inspections, and other obligations, like the preservation of books and records.

The SEC’s complaint alleges violations of Sections 15(a)(1) and 20(b) of the Securities Exchange Act of 1934. In typical fashion, the SEC seeks permanent injunctions, civil penalties, disgorgement, prejudgment interest, and penny stock bars, and other forms of equitable relief.

Representing Individuals Currently Under SEC Investigation

David Chase, Esq. of the Law Firm of David R. Chase, a former SEC prosecutor, now SEC defense lawyer, represents individuals in SEC investigations nationwide, including federal securities registration violations, insider trading cases and market manipulation schemes. If you have just received a SEC Subpoena or are currently under SEC investigation, contact David for a no-cost consultation toll-free at: 800-760-0912 or e-mail at:, and can visit the Firm’s website for more information and content at:

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