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Why It's Important to Disclose When Promotional Material Is Paid for by the Subject Company

On October 17, 2023, the SEC issued a press release relating to certain defendants in a case brought against RenovaCare, Inc. and certain other persons for their roles in alleged fraudulent activities trying to increase the trading price and trading volume of RenovaCare's common stock. What makes this particular case interesting is that part of the reason they were investigated is that RenovaCare allegedly indirectly paid a third-party promoter (StreetAuthority) to conduct a promotional campaign, but the promoter did not disclose the payment (in violation of Section 17(b) of the Securities Act), allegedly creating the false impression that the promoter's guidance about the company and its technology was independently developed by the promoter.

In order to disguise the payments to StreetAuthority for the promotional campaign, the SEC alleges that RenovaCare's controlling stockholder arranged for a third-party service provider to make payments on behalf of RenovaCare to StreetAuthority. When regulators began asling for information about the promotional campaign, RenovaCare issued a press release that affirmatively denied any involvement in the StreetAuthority promotional campaign. Meanwhile, the SEC alleges that certain individual defendants took advantage of the increase in the stock price by selling their shares at the inflated price.

In addition to having been enjoined against violating a number of securities laws, certain named individuals had to pay significant fines. Certain individuals involved were also prohibited from being an officer or director of a public company. This case highlights why reports and promotional materials paid for by the company always need to be reported as such.

An earlier version of this post inadvertently indicated that final judgments were entered against Renovacare and its controlling shareholder.  No such judgments were as of the date hereof.

The SEC’s amended complaint, filed on August 26, 2022, charges RenovaCare, Inc., a development stage company, and its controlling shareholder, Harmel S. Rayat, and his associates, Jatinder Bhogal, Sidhu, and Fleming, with securities fraud for their roles in a fraudulent scheme that included material misstatements to investors, undisclosed sales of shares while promoting the stock, and manipulative trading.


securities litigation & enforcement, white collar criminal defense & investigations, litigation, corporate governance