Each month, we publish a roundup of the most important SEC enforcement developments, for busy in-house lawyers and compliance professionals. This month, we examine:
The SEC also created a new Retail Fraud Working Group, signaling a renewed focus on misconduct affecting retail investors. According to the SEC, the group will use Commission-wide resources, data, and technology to generate cases involving offering fraud, pump-and-dump schemes, market manipulation, and breaches of duty by investment advisers and broker-dealers, while coordinating with domestic regulators and foreign counterparts.
On July 1, 2026, the U.S. District Court for the Southern District of New York entered consent judgments against former Enzolytics, Inc. CEO and Chief Science Officer Harry Zhabilov and his daughter, Dannie Zhabilov. The judgments represent the first two settlements in an SEC action alleging that the 12 defendants participated in a years-long penny-stock scheme that generated approximately $92 million in illicit proceeds.
The SEC’s September 2024 complaint alleges that the defendants accumulated large quantities of Enzolytics stock, concealed their control of the company and its shares, and then sold the shares to retail investors. As part of the alleged scheme, Harry Zhabilov and another defendant purportedly transferred stock to Dannie Zhabilov to evade restrictions on their own sales. Dannie Zhabilov, who was then a college student, allegedly received a contract to perform biology-related analytical work in exchange for 462 million Enzolytics shares.
The SEC further alleged that Harry and Dannie Zhabilov created false documents and made misrepresentations to a transfer agent to obtain 231 million unrestricted Enzolytics shares. Another defendant allegedly sold millions of those shares through an entity he controlled, which transferred at least $7.1 million to Dannie Zhabilov in 2021 and 2022. According to the SEC, she used the proceeds to purchase a home and provide financial support to her parents, including assistance with her father’s mortgage and luxury-vehicle lease.
Without admitting or denying the SEC’s allegations, Harry Zhabilov agreed to pay a $236,000 civil penalty and accept five-year officer-and-director and penny-stock bars. The SEC complaint sought disgorgement of all ill-gotten gains from defendants and Dannie Zhabilov agreed to pay approximately $1,578,000 in disgorgement and prejudgment interest, along with a civil penalty of $136,000, and to accept a three-year penny-stock bar. The settlements highlight the SEC’s continued scrutiny of nominee ownership, transfer-agent representations, and transactions designed to place unrestricted shares into the public market.
On July 13, 2026, the SEC instituted settled administrative and cease-and-desist proceedings against investment adviser representative Derek L. Copeland. The SEC found that Copeland failed to disclose conflicts of interest arising from compensation he received in connection with his advisory clients’ investments in private real-estate securities offerings.
Between August 2020 and January 2023, Copeland allegedly recommended that his clients invest more than $50 million in 25 offerings sponsored by three real estate development groups. The registered investment adviser with which Copeland was associated allegedly did not know about or approve his recommendations. The SEC noted, however, that investors generally received positive returns from the recommended investments.
According to the SEC, the offering sponsors paid placement fees ranging from 1% to 2.5% of the capital raised to managers of the investment vehicles. Because Copeland held ownership interests in those managers, he indirectly received portions of the placement fees. One sponsor also allegedly granted him ownership interests in affiliated entities that stood to profit if the underlying projects achieved certain milestones. Copeland received nearly $1.5 million in sponsor compensation during the relevant period.
Although the offering materials generally disclosed the payment of placement fees and management compensation, the SEC found they did not disclose that Copeland would personally receive compensation or explain the resulting incentive he had to recommend the offerings. The SEC also found Copeland recommended that at least 34 clients open securities-based lines of credit and use the proceeds to invest more than $15.5 million in 12 of the offerings, without disclosing that his compensation created an additional conflict concerning that advice.
The SEC found that Copeland willfully violated Section 206(2) of the Investment Advisers Act of 1940, which may be violated through negligent conduct. Without admitting or denying the findings, Copeland agreed to a censure, a cease-and-desist order from any future violations, and a $125,000 civil penalty.
The order underscores that generalized disclosures in offering materials may be insufficient when an adviser personally receives compensation and that favorable investment performance does not eliminate an adviser’s disclosure obligations.
On July 15, 2026, the SEC’s Office of Inspector General (OIG) issued an investigative summary concerning the unauthorized disclosure of nonpublic information relating to an active Division of Enforcement investigation. The OIG found that a now-retired SEC employee accessed information about the investigation through the Enforcement Division’s internal case-management system, without authorization or a need to know.
According to the OIG, the employee accessed the information on more than one occasion while working from home. The employee acknowledged that she allowed her adult son to view the information to prove that the SEC was investigating a particular matter, and she also allegedly accessed information about a related investigation without authorization.
The employee’s son photographed the SEC’s internal case-management system and posted one of the images on X (formerly Twitter). He also allegedly transmitted additional photographs of his parent’s SEC laptop through direct messages on X, including an image that disclosed the contact information of an SEC employee working on the investigation.
The OIG referred its findings to the U.S. Attorney’s Office for the District of Columbia, which declined to prosecute either the former employee or her son. Although the investigative summary does not identify the underlying investigation or describe any administrative action against the former employee, it highlights the reputational and investigative risks created by unauthorized access to and disclosure of confidential government information. It also provides a reminder that remote-work protocols should address not only cybersecurity controls but also the physical visibility and handling of sensitive information outside the office.
On July 10, 2026, the SEC filed a settled enforcement action in the U.S. District Court for the Northern District of Ohio against electric-vehicle manufacturer Battle Motors, Inc. and its CEO and chairman, Michael W. Patterson. The SEC alleged that Battle Motors and Patterson made materially misleading statements about the company’s customer orders and dealer network in connection with a convertible-debt offering that raised $112.5 million from two outside investors.
According to the SEC’s complaint, Battle Motors represented that it had obtained 115 electric-vehicle purchase orders worth approximately $30 million in a three-month period. In fact, the company allegedly had purchase orders for only eight vehicles, representing approximately $2 million in sales. The remaining figures were based on nonbinding expressions of customer interest rather than actual purchase orders.
The SEC also alleged that Battle Motors overstated the size of its dealer network. The company allegedly told investors that its network included 180 dealers operating at 320 locations, when it actually consisted of approximately 47 dealers operating at 156 locations.
Without admitting the allegations, Battle Motors and Patterson consented, subject to court approval, to final judgments permanently enjoining them from negligently violating Sections 17(a)(2) and 17(a)(3) of the Securities Act. The proposed judgments would require Battle Motors to pay a $591,127 civil penalty and Patterson to pay a $118,225 civil penalty and would impose a two-year bar prohibiting Patterson from serving as an officer or director of a public reporting company. The proposed final judgment does not require defendants to pay any money as disgorgement.
The settlement highlights the SEC’s willingness to pursue misleading statements made to a small number of sophisticated investors in a private financing, rather than only statements disseminated broadly to the public markets.
On July 29, 2026, the SEC filed an enforcement action in the U.S. District Court for the Middle District of Florida against RAD Diversified REIT, Inc. (“RADD”) and its founders, Brandon “Dutch” Mendenhall and Amy Vaughn, naming The Seminar Solution, LLC (TSS) as a relief defendant. The SEC alleges that, between November 2019 and March 2024, the defendants raised at least $152 million from more than 5,500 retail investors through RADD stock offerings and investments offered through its “Inner Circle” program. According to the complaint, many of the investors were not accredited, and the defendants encouraged prospective investors to fund their investments through self-directed retirement accounts, credit cards, home-equity loans, and life-insurance proceeds.
The SEC alleges that the defendants misrepresented RADD’s profitability, stock valuation, and liquidity. Although the defendants allegedly promoted RADD as a profitable real estate investment trust with rental income and property sales that supported investor returns, the complaint alleges that RADD recorded annual net losses from 2020 through 2024 and relied on financing and new investor funds to operate. The SEC also alleges that the defendants repeatedly represented that no investor had lost money and assured investors that they could redeem their investments through an established process, even though RADD allegedly lacked sufficient liquidity, routinely failed to honor redemption requests, and froze stock redemptions in February 2024.
The complaint further alleges that RADD’s reported stock price, which increased from $10 to $25.04, was not based on the independent property valuations and involvement of external accountants described to investors, but on valuations performed by a team led by Mendenhall’s brother, a RADD employee described as having no meaningful property-valuation experience.
According to the complaint, Mendenhall and Vaughn misappropriated approximately $2.3 million and $2.5 million, respectively, for personal expenses, and diverted approximately $54 million in investor funds to TSS, an affiliated entity they owned and controlled. RADD filed for Chapter 11 bankruptcy in March 2026.
The SEC asserts claims under Sections 5(a), 5(c), and 17(a) of the Securities Act and Section 10(b) of the Exchange Act and Rule 10b-5 and asserts an unjust-enrichment claim against TSS as relief defendant. The complaint seeks permanent injunctions; disgorgement and prejudgment interest against the defendants and TSS; civil penalties against Mendenhall and Vaughn; conduct-based injunctions barring Mendenhall and Vaughn from participating in securities transactions other than for their personal accounts; and permanent officer-and-director bars against them.