Each month, we publish a roundup of the most important SEC enforcement developments for busy in-house lawyers and compliance professionals. For the month when Paul Atkins was sworn in as SEC Chairman, we examine:
- The SEC’s position that “Covered Stablecoins” are not securities under federal securities law;
- An SEC victory in the Fifth Circuit regarding the imposition of a receivership over entities owned by a real estate investor accused of misappropriation;
- A grant of summary judgment against a would-be North Carolina real estate developer;
- An SEC action against the founder of a crypto asset and foreign exchange trading company; and
- Charges against an investment advisory firm for overconcentrating a mutual fund’s assets in a single industry.
1. SEC Issues Statement on Stablecoins
On April 4, 2025, the SEC’s Division of Corporation Finance issued a statement declaring that, in its view, “Covered Stablecoins” are not securities under federal securities law and are not subject to registration under such laws. As discussed in our recent client alert, the statement outlined three elements that the SEC will examine to assess if a stablecoin is covered: its characteristics, marketing, and reserve status.
Characteristics that typify a Covered Stablecoin are, in part, that it is low-risk, designed to maintain a stable value relative to U.S. dollars, backed by U.S. dollars or other liquid, low-risk assets, and can be minted on demand. To be considered a Covered Stablecoin, a coin must be marketed solely for use in commerce and not as an investment. Finally, the proceeds from the issuance of a Covered Stablecoin are required to be used to acquire assets that are held in a pooled, segregated account, called a reserve.
Emphasizing these factors, the SEC employed the Reves and Howey Tests in support of its view that Covered Stablecoins are not securities. First, the offer and sale of Covered Stablecoins serve commercial and consumer purposes rather than investment purposes. Additionally, Covered Stablecoins are not marketed for speculation, do not create profit expectations, and include risk-reducing reserve features.
This statement and recent dismissals of cryptocurrency enforcement matters highlight the SEC’s evolving cryptocurrency enforcement framework. But while current SEC leadership has expressed a commitment to reducing enforcement actions in the cryptocurrency space—particularly absent fraud—state regulators have begun to fill this perceived enforcement gap.[1] For example, the New York Attorney General’s Office recently announced a settlement for $200 million with Galaxy Digital Holdings Ltd. following an investigation for alleged market manipulation of the digital token Luna from late 2020 to 2022.
2. SEC Succeeds in Fifth Circuit Receivership Fight
On April 17, 2025, the Fifth Circuit upheld a district court’s decision to impose a receivership on entities controlled by Texas-based real estate investor Timothy Barton as part of a $26 million fraud case brought by the SEC. The Fifth Circuit also affirmed a preliminary injunction freezing Barton’s assets. The SEC’s civil case, alongside a parallel criminal case involving charges of wire fraud and securities fraud, alleged that Barton and his associates misled Chinese investors with inflated investment loan agreements, and misappropriated the proceeds from their investments. The threshold issue before the Court of Appeals was whether the district court had jurisdiction over the case, which would depend on whether the loan agreements at issue were securities.
The Fifth Circuit—relying on the same Howey Test described above that courts and the SEC have invoked in determining whether various cryptocurrencies are securities—affirmed the district court’s determination that the loan agreements were investment contracts which qualified as securities, establishing subject matter jurisdiction. The Court of Appeals explained that the loan agreements involved “an investment of money … in exchange for the promise of greater returns,” as supported by Barton’s own promotional materials; the investments were made to a “common enterprise,” in reliance on Barton’s expertise; and those investors expected profits that depended entirely on the efforts of others, including Barton.
Barton also argued that the imposition of a receivership was an abuse of discretion, but the Fifth Circuit disagreed, holding that the receivership is necessary to protect other investors’ interests and that the benefits of the receivership outweigh its burdens. Finally, Barton’s argument that the case should be reassigned to a different district judge was rejected as “nowhere near warranted” in the present case.
3. SEC Secures Summary Judgment Against North Carolina Developer
On April 17, 2025, the SEC secured a summary judgment in a North Carolina federal fraud suit against insurance agent Marshall Melton and his company, Integrated Consulting & Management, LLC. The SEC had alleged that Melton conducted a scheme whereby he solicited over $1 million in investments, largely from elderly investors, by claiming he would use the funds to purchase and flip or rent dilapidated properties in Laurinburg, North Carolina for a substantial profit.
The District Court found that the SEC made it undisputably clear that Melton’s statements were false, and that his real intentions were to use the funds for other unrelated projects and personal expenses. Additionally, the court found that Melton had not disclosed to investors that a court had enjoined him from violating Section 17(a) of the Securities Act, forced him to disgorge funds in connection with a previous securities fraud case, and that he had previously been convicted of securities fraud. Such omissions were material because Melton made affirmative statements about his expertise, creating a duty to disclose information to “properly contextualize his affirmative representation,” and because of Melton’s longstanding financial advisory relationship with certain investors.
In granting summary judgment, the court noted the SEC planned to move for remedies in a subsequent motion.
4. SEC Charges PGI Global Founder with Fraud
On April 22, 2025, the SEC charged the founder of PGI Global, Ramil Palafox, for allegedly orchestrating a fraudulent scheme to misappropriate millions of dollars in investor funds through a supposed crypto asset and foreign exchange trading company.
PGI Global allegedly represented to investors that it was a crypto asset and foreign exchange trading company that was generating large returns. From January 2020 to October 2021, PGI Global sold “membership packages” which promised high returns for investors. It is these packages—and not the underlying cryptocurrencies—that the SEC alleges are securities under the Howey Test, offering an example of how the SEC, consistent with its public statements, may continue to pursue fraud cases that involve cryptocurrencies, particularly where such cases do not require establishing that certain cryptocurrencies are securities.
As alleged by the SEC, purchasers of membership packages were encouraged to recruit new investors through multi-level, marketing-like referral incentives, offered in addition to their own passive returns from their investments. Palafox acquired more than $198 million in Bitcoin and fiat currency from investors who purchased these membership packages. The complaint alleges that Palafox misappropriated more than $57 million of these funds by purchasing real estate, vehicles, and other luxury items rather than trading with the funds as promised. Palafox also used funds to pay other investors, claiming that those payments represented profits and other rewards from PGI Global’s trading operations.
The SEC’s complaint charges Palafox with violating the anti-fraud and registration provisions of the federal securities law and the SEC seeks to permanently enjoin Palafox from participating in certain marketing and sales programs and from participating in the issuance or sale of securities for commercial use. The SEC also seeks disgorgement of Palafox’s ill-gotten gains.
5. SEC Files Amended Complaint Against Upright Financial Corp.
On April 11, 2025, the SEC filed an amended complaint against David Yow Shang Chiueh and his investment advisory firm, Upright Financial Corp. (“Upright”), alleging securities fraud by, among other actions, investing assets in the Upright Growth Fund they ran in a manner contrary to the fund’s investment mandate and lying in public filings about the investments.
Chiueh founded Upright and Upright Trust in the 1990s. Upright Trust consists of three series funds, including a mutual fund named Upright Growth Fund (the “Fund”). The Fund’s investment policy allegedly required that the Fund not invest more than 25% of its total assets in one industry, a rule that could only be changed with approval from a majority of the Fund’s shareholders. In November 2021, Chieuh and Upright settled SEC charges for allegedly violating this policy from July 2017 to June 2020 by investing more than 25% of the Fund’s assets in the semiconductor industry. However, the SEC now alleges that despite this settlement, Chiueh continued to violate the 25% policy from November 2021 to June 2024. The SEC further alleges that Chiueh purposefully misstated the Fund’s policy in public filings, stating in 2022 and 2023 that the Fund’s investment policy allowed 50% of the Fund’s assets to be invested in a single industry despite a lack of approval by shareholders required to make such a change.
In March 2022, Upright retained an independent compliance consultant who reviewed and recommended corrective measures for Upright’s compliance. The SEC alleges that Chieuh and Upright ignored the consultant’s proposals and continued to engage in noncompliance. The overconcentration of assets invested in semiconductor companies allegedly led to an investor loss of approximately $1.6 million. During this period, Upright also allegedly collected approximately $100,000 in advisory fees on assets that exceeded the 25% concentration limit.
The amended complaint also alleges that the defendants engaged in misconduct related to Upright’s Board of Trustees, by failing to provide key information required for the Board to evaluate the terms of the Fund’s advisory contract, misleading the Board about the defendants’ past securities violations and the 2021 SEC action, and by hiring an accountant without the required Board approval.
The SEC seeks relief including disgorgement of ill-gotten gains and civil monetary penalties.
[1] More information about these developments is available on our State + Local Government Enforcement resource page. ed
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