SEC Charges Moody's, S&P and Other Credit Rating Agencies With Off-Channel Communications

SEC Charges Six Credit Rating Agencies with Significant Recordkeeping Failures

The Securities and Exchange Commission today announced charges against six nationally recognized statistical rating organizations, or NRSROs, for significant failures by the firms and their personnel to maintain and preserve electronic communications. The firms admitted the facts set forth in their respective SEC orders; acknowledged that their conduct violated recordkeeping provisions of the federal securities laws; agreed to pay combined civil penalties of more than $49 million, as detailed below; and have begun implementing improvements to their compliance policies and procedures to address these violations.

—Moody’s Investors Service, Inc. agreed to pay a $20 million civil penalty;

—S&P Global Ratings agreed to pay a $20 million civil penalty;

—Fitch Ratings, Inc. agreed to pay an $8 million civil penalty;

—HR Ratings de México, S.A. de C.V. agreed to pay a $250,000 civil penalty;

—A.M. Best Rating Services, Inc. agreed to pay a $1 million civil penalty; and

—Demotech, Inc. agreed to pay a $100,000 civil penalty.

SEC Charges Creative Legal Fundings CEO Maria Dickerson with Operating Multimillion Dollar Ponzi Scheme that Targeted Filipino-American Community

The Securities and Exchange Commission today charged Maria Dulce Pino Dickerson and her companies Creative Legal Fundings in CA and The Ubiquity Group LLC with raising approximately $7 million from more than 130 investors through a fraudulent securities offering targeting members of the Filipino-American community across the United States.

According to the SEC’s complaint, from approximately March 2021 through May 2023, Sacramento, California resident Dickerson convinced investors to acquire interests in Creative Legal Fundings by falsely claiming that she would use their investments to make loans to personal injury attorneys to fund their lawsuits. In exchange, Dickerson allegedly claimed, Creative Legal Fundings would receive a portion of any eventual settlements or recoveries. According to the complaint, Dickerson promised investors guaranteed high returns of 10 to 17.5 percent per month. In reality, the complaint alleges, Creative Legal Fundings did not make any loans, conduct any other business, or generate any returns. Instead, Dickerson allegedly spent at least $2.5 million in investor funds on personal real estate, gambling, travel and designer goods purchases. The complaint also alleges that Dickerson made Ponzi-like payments to earlier investors using funds from new investors in an attempt to keep the scheme going. The complaint further alleges that, after Dickerson ran out of money to pay Creative Legal Fundings’ investors in around May 2023, she shuttered that company, opened The Ubiquity Group, and tried to raise additional funds using similar misrepresentations.

States, Crypto Groups Back Challenge to SEC Market Surveillance

Texas, Virginia, and other states, along with leading crypto industry groups, are throwing their support behind a challenge to the Securities and Exchange Commission’s new market surveillance tool.

Nineteen states, represented by Republican attorneys general, argue the Consolidated Audit Trail would be an unprecedented threat to the privacy and security of millions of people. The SEC—and anyone who manages to hack the CAT database—will be able to spy on Americans’ trading activity, the states said.

SEC Charges Crypto-Focused Advisory Firm Galois Capital for Custody Failures

The Securities and Exchange Commission today announced settled charges against Florida-based Galois Capital Management LLC, a former registered investment adviser for a private fund that primarily invested in crypto assets, for failing to comply with requirements related to the safeguarding of client assets, including crypto assets being offered and sold as securities. The Commission also found that Galois misled fund investors about the notice period required for redemptions. To settle the SEC’s charges, Galois agreed to pay a civil penalty of $225,000, which will be distributed to its fund’s harmed investors.

The SEC’s order found that, beginning in July 2022, Galois Capital failed to ensure that certain crypto assets held by the private fund that it advised were maintained with a qualified custodian, a violation of the Investment Advisers Act’s Custody Rule. According to the order, Galois Capital held certain crypto assets in online trading accounts on crypto asset trading platforms, including FTX Trading Ltd., that were not qualified custodians. Approximately half of the fund’s assets under management from early to mid-November 2022 were lost in connection with the collapse of FTX. The SEC’s order also found that Galois Capital misled certain investors by representing to them that redemptions required at least five business days’ notice before month end while allowing other investors to redeem with fewer days’ notice.