Markets Wired

The Securities and Exchange Commission has charged a Brooklyn, N.Y. resident, Michael Ajzenman, and his wholly-owned entity, Cutting Edge Business Services, Inc., for selling unregistered shares that did not qualify for any exemption into the public markets from at least January 2014 through September 2015.

The SEC’s complaint, filed in the U.S. District Court for the Eastern District of New York, alleges that Ajzenman, acting through Cutting Edge, purchased two notes purportedly issued by publicly-traded Bebida Beverage Co. with a feature allowing them to be converted into Bebida stock. According to the SEC’s complaint, these notes had been fraudulently created by Bebida’s CEO, and Ajzenman, acting through Cutting Edge, purchased the notes at steep discounts at a time when the price of Bebida stock ensured that even the first round of conversions would result in significant gains for Ajzenman and Cutting Edge. The complaint alleges that Ajzenman negotiated the purchases only with Bebida’s CEO, which was inconsistent with Ajzenman’s standard business practice. As alleged, within days of purchasing each of the notes, Ajzenman, acting through Cutting Edge, began exercising the convertible feature of the notes and selling the resultant Bebida stock into the public market when no registration statement was in effect and no exemption from registration was available.

The SEC’s complaint charges Ajzenman and Cutting Edge with violating the securities registration provisions of Sections 5(a) and 5(c) of the Securities Act of 1933. Without admitting or denying the allegations in the complaint, Ajzenman and Cutting Edge have consented to the entry of a final judgment permanently enjoining them from violating the charged provisions, ordering disgorgement plus prejudgment interest, to be paid on a joint and several basis, of $233,336.90, and imposing a $40,000 civil penalty against Cutting Edge and a $7,500 civil penalty against Ajzenman. The settlement is subject to court approval.

The SEC previously charged Bebida’s CEO and Bebida alleging, among other things, misconduct relating to the claims asserted in the complaint.

The SEC’s investigation has been conducted by Megan R. Genet, Hane Kim and Steven G. Rawlings. The SEC’s litigation will be handled by Todd Brody and Ms. Genet. The case is being supervised by Sanjay Wadhwa. The SEC examination that led to the investigation was conducted by Steven Vitulano, Kenneth Liebl, Stephen DeBella and Joseph H. Connolly.