SEC Announces Formation of Cross-Border Task Force to Combat Fraud

On September 5, 2025, the US Securities and Exchange Commission (SEC) announced the formation of a new Cross-Border Task Force focused on investigating potential US federal securities law violations related to foreign-based companies, including potential market manipulation, such as so-called “pump-and-dump” schemes. This is the first major initiative announced under the SEC’s new Enforcement Director Margaret Ryan and reflects heightened SEC scrutiny of foreign issuers, while also signaling a broader cross-border enforcement push involving foreign-based actors who access US capital markets.

In addition to targeting foreign-based fraudulent actors, the Cross-Border Task Force will also scrutinize the role of gatekeepers who facilitate access to US markets for these foreign entities, including auditors and underwriters. The Task Force will pay special attention to companies from jurisdictions with heightened investor risks, such as China, where governmental control and other factors can obscure transparency and accountability. The Task Force’s focus on China is consistent overall with the Trump Administration’s policies and a continuation of the agency’s efforts over the past several years to address the risks related to Chinese companies listed on US exchanges.

Finally, in the announcement, Chairman Paul Atkins tasked divisions and offices within the SEC—including the Divisions of Corporation Finance, Examinations, Economic and Risk Analysis, Trading and Markets, and the Office of International Affairs—to consider new disclosure guidance and rule changes that would protect US investors.

Ongoing Concern with Pump-and-Dump Schemes and the Role of Gatekeepers

Pump-and-dump-schemes, explicitly identified in the SEC’s announcement, typically involve fraudulent actors who gain control of a low-priced security, promote it using false and misleading statements to inflate demand (the “pump”), and then sell their holdings once the price peaks (the “dump”), leaving investors with losses. “Ramp-and-dump” actions are a type of pump-and-dump scheme in which bad actors inflate the price of a security through trading activity, such as by encouraging victims to purchase a large volume of a low-priced security.

In recent years, law enforcement and regulatory authorities have become increasingly concerned with foreign financial institutions providing their clients access to US markets. The SEC, Financial Industry Regulatory Authority (FINRA), and the Financial Crimes Enforcement Network (FinCEN) have all released guidance on the risks associated with “pump-and-dump” fraud schemes in which foreign actors execute trades in the United States. The FBI also recently issued a public service advisory warning that cybercriminals running fake accounts are targeting US investors through social media to purchase inflated, low-priced securities. 

In guidance from 2022, FINRA expressed concern about foreign financial institutions that have been liquidating large blocks of shares of small-cap issuers at the peak of price spikes associated with suspected pump-and-dump schemes (FINRA refers to them as ramp-and-dump), and stressed the role of its member firms as gatekeepers.

Particularly, FINRA described a number of common themes in pump-and-dump schemes. Typically, foreign actors obtain control of low‑priced issuers and use nominee accounts, offshore intermediaries, and layered structures to conceal their identities and manipulate trading. A common pattern involves the transfer of large quantities of low-priced securities to offshore nominees, who then distribute the holdings to avoid detection. These securities are traded through a series of nested, layered accounts at foreign financial institutions. Commonly, those engaged in pump-and-dump schemes use underwriters or auditors to help facilitate the fraud.

FINRA noted that underwriters, who serve as the “link in the distribution of securities from issuers to investors,” and perform an important role as “gatekeepers to the public markets,” are subject to potential liability under Sections 11 and 12 of the Securities Act of 1933. Underwriters can raise a “due diligence” defense offering protection against such liability only if they establish that, after reasonable investigation, they had reasonable grounds to believe the statements made in the registration statement were true and that there were no omissions of material facts. As a result, underwriters should be “motivated to take the investigative steps necessary to establish the ‘due diligence’ defense.”

Likewise the SEC’s interest in gatekeeper liability is longstanding. In 2022, the chief accountant for the SEC stated that auditors for issuers have a responsibility to consider fraud and to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether caused by fraud or error. Section 10A of the Exchange Act imposes requirements on auditors related to the detection of illegal acts during the audit. Moreover, the Public Company Accounting Oversight Board requires auditors to exercise due professional care and to apply appropriate levels of professional skepticism throughout the audit.

Recent Enforcement Actions

The SEC’s enforcement efforts in this area are ongoing and robust, and include cases that exemplify the cross-border fraud risks the new Task Force is designed to address. For example, in October 2024, the SEC charged a corporation and two individuals with orchestrating a multimillion-dollar pump-and-dump scheme that defrauded investors out of approximately $8 million.

The SEC alleged that an individual defendant gained control of a large stock position in the corporation, an inactive penny stock company, and arranged for his co-defendant to assume control of the company. The defendants then allegedly promoted the company as a pioneering company in the psychedelics sector, issuing false and misleading statements about the company’s value and operations. They further concealed their activities by allegedly engaging offshore entities to sell shares and transfer illicit proceeds back to an entity controlled by the individual defendants.

The complaint seeks permanent injunctions, disgorgement with prejudgment interest, and civil monetary penalties against each defendant, as well as conduct-based injunctions and penny stock and officer-and-director bars against the individual defendants. This case exemplifies the cross‑border fraud risks the Task Force is designed to address.

Similarly, in 2022, the SEC charged 16 individuals located in nine different jurisdictions outside of the United States for participating in a fraudulent penny stock scheme that generated more than $194 million in illicit proceeds. These individuals used a network of offshore accounts and encrypted messaging systems to avoid detection.  Several defendants accumulated the majority of shares in penny stocks via offshore nominee companies. Thereafter, certain defendants allegedly amassed a significant majority of the shares of the stocks and secretly funded promotional campaigns to boost the stocks to unsuspecting investors in the United States and elsewhere. After the promotional campaigns increased the price of the penny stocks, defendants sold their shares via trading platforms in Asia, Europe and the Caribbean for significant profits.

The SEC sought permanent injunctions, disgorgement of allegedly ill-gotten gains plus interest, and civil penalties against all the defendants. The SEC also sought penny stock bars against all the individual defendants and conduct-based injunctions against 11 of the 15 individual defendants. On emergency applications, a court froze and directed repatriation of the assets of six defendants. Two defendants have appealed their extradition to the United States.

Recommendations for Financial Institutions with Foreign Clients

Given the SEC’s renewed focus on cross-border fraud and the risks associated with foreign accounts and low-priced securities, financial institutions should take proactive steps to mitigate exposure and ensure compliance:

• Enhance Due Diligence: Implement robust, risk-based due diligence procedures for all foreign financial institution clients, especially those involved in low-priced securities.
• Know Your Customer (KYC): Implement KYC for accounts and require that they in turn have AML/KYC to identify beneficial owners of accounts, particularly in high-risk scenarios involving layered or nested account structures.
• Monitor for Red Flags: Train staff to recognize suspicious patterns, such as sudden spikes in trading volume, use of offshore nominees, or clients operating from high-risk jurisdictions.
• Strengthen AML Programs: Regularly review and update AML policies and procedures to address evolving risks, including those highlighted in recent SEC guidance and enforcement actions.
• Restrict or Refuse High-Risk Transactions: Be prepared to restrict, reject, or close accounts or transactions where compliance or legal risks cannot be adequately managed.
• Stay Informed: Monitor regulatory developments and enforcement trends, and consider engaging legal counsel to assess and enhance compliance frameworks. Firms with cross‑border clients in low‑priced securities should anticipate increased scrutiny and prepare for more robust SEC and FINRA inquiries.