In SEC v. Cary, No. 8:17-cv-01649, 2017 (C.D. Cal. Sept. 21, 2017), the United States Securities and Exchange Commission (“SEC”) filed a complaint against Justin Samuel Cary (“Cary”) in the United States District Court for the Central District of California for alleged violations of the Securities Exchange Act Section 10(b) (“§ 10b”) and Rules 10b-5(a) and 10b-5(c) promulgated thereunder.

According to the complaint, Cary, a certified public accountant, worked as a consultant for NOW CFO, an accounting outsourcing firm.  NOW CFO placed Cary as a consultant with Adaptive Medias from March 2013 through March 2016.  Cary prepared financial statements for Adaptive Medias that were filed with the SEC, and acted as Adaptive Medias’ point of contact for its independent auditors.  SEC asserted that on January 27, 2016, AdSupply, Inc., a competitor of Adaptive Medias, made a confidential offer to purchase Adaptive Medias for $35 million, or $1.50 per share.  At the time, the offer was worth nearly ten times Adaptive Medias’ then current trading price.  Cary allegedly purchased 18,500 shares of Adaptive Medias’ stock upon receiving an email from Adaptive Medias’ controller about a press release regarding the purchase offer from AdSupply, Inc. When the news of the offer was made public on February 1, 2016, and Adaptive Medias’ stock price rose 428% in one day, Cary allegedly profited $8,140.25. 

Rules 10b-5(a) and 10b-5(c) prohibit the use of any device, scheme, or artifice to defraud and or engage in acts, practices or courses of business which operated or would operate as fraud or deceit upon any person in connection with the purchase or sale of any security.  Fraud is considered to be in connection with a securities transaction if it was material to the decision to buy or sell a security.

Through its allegations, the SEC asserted that Cary misappropriated confidential information he obtained through his position at NOW CFO and work with Adaptive Medias and used the confidential information for securities trading purposes. The SEC also argued Cary breached fiduciary and confidentiality duties to NOW CFO and Adaptive Medias by failing to maintain confidential information in trust and confidence. Due to this alleged misconduct and the evidence against Cary, the SEC requested the court enjoin Cary from violating §10b and Rules 10b-5(a) and 10b-5(c) thereunder.         

On January 5, 2018, Cary consented to the entry of a final judgment without admitting or denying the allegations of the complaint.  As part of the final judgment, Cary is permanently restrained and enjoined from violating §10b and Rules 10b-5(a) and 10b-5(c) thereunder.  Additionally, Cary is prohibited from acting as an officer or director of any issuer that has a class of securities registered pursuant to § 12 of the Exchange Act.  Finally, Cary is liable for disgorgement of $8,140.25, representing profits gained from his alleged conduct, and a civil penalty $8,140.25.

The primary materials for this case may be found on the DU Corporate Governance website.