The Securities and Exchange Commission has filed an enforcement action against attorney Frederick Bauman alleging he played a vital role as legal counsel in facilitating the unregistered sale of securities by two groups engaged in a securities fraud.
Per the SEC complaint, from 2016 through August 2019, Bauman inked approximately a dozen legal opinions falsely opining that certain shareholders were unaffiliated with the public companies whose shares they possessed. The SEC complaint further contends that, in truth, the public companies and shareholders were under common control, thus making the shareholders affiliates of the public companies.
Relevant securities law provides that stock held by an affiliate of a public company is generally restricted, such that only small quantities of the security can be lawfully offered or sold to the investing public absent a securities registration statement being in effect. A registration statement provides critically material information about a public company, including its financial condition, operational results, inherent risks and management team.
Specifically, the SEC charged Bauman with providing the opinion letters to transfer agents – SEC regulated entities responsible for recording the ownership and transfer of securities, which track whether certain securities are subject to resale restrictions. The transfer agents then relied on Bauman’s opinion letters in deeming the shares to be unrestricted, and thus recording their transfers on that basis, the SEC maintained in its Complaint. Bauman’s opinion letters thereby facilitated the sale of millions of shares of stock that could not have otherwise been legally sold to the public absent a registration statement the SEC concluded.
In particular, the SEC charged Bauman in federal district court with the violation of Sections 5(a) and 5(c) of the Securities Act of 1933 – the securities registration provisions. On a neither admit nor deny basis, Bauman consented to a final judgment that permanently enjoined him from future violations of the charged statutory provisions, as well as to a 5 year penny stock bar and a 5 year conduct-based injunction restricting his ability to prepare opinion letters. Bauman further consented to pay a $60,000 civil monetary penalty, $13,000 in disgorgement, and $1,653 in prejudgment interest. The settlement is pending Court approval.
While for years securities transactional lawyers seemed to be immune from the cross-hairs of SEC enforcement actions, that has radically changed. Viewed as sophisticated gatekeepers who should know better, the SEC continues to aggressively target securities lawyers who it believes have crossed the line and have become facilitators of their client’s fraudulent securities conduct.
David Chase is an SEC defense lawyer, former Senior Counsel with the SEC’s Division of Enforcement and an Adjunct Professor of Law at the University of Miami School of Law where he teaches SEC Enforcement Regulation. His SEC defense law firm, based in South Florida, represents nationwide those under SEC investigation and prosecution. SEC defense attorney Mr. Chase may be contacted toll-free at: 800-760-0912, or email at david@davidchaselaw.com. Firm website: securitiesfrauddefense.net.
