Friday, January 16, 2015

Enforcement Actions: Week in Review

SEC ENFORCEMENT ACTIONS

SEC Charges Direct Edge Exchanges With Failing to Properly Describe Order Types
January 12, 2015 (Litigation Release No. 2)
In the first case focused on stock exchange order types, the SEC has settled with the EDGA and EDGX exchanges for $14 million over charges that they did not accurately describe their order types. These exchanges, formerly owned by Direct Edge Holdings before being acquired by BATS Global Markets, were found to have offered multiple “price sliding” order types despite describing a single “price sliding” process. Information regarding these order types was allegedly given out selectively. Three different processes (Hide Not Slide, Price Adjust, and Single Re-Price) were used without full descriptions from their inception as registered exchanges in 2010 until 2014 when their rules were updated.

SEC Announces 2015 Examination Priorities
January 13, 2015 (Litigation Release No. 3)
The SEC’s Office of Compliance Inspections and Examinations has announced its priorities for the new year. These priorities center around three focal areas: retail investors, market-wide risks, and data analytics. Attention is being given to retail investors because of newly offered products and services, such as structured products, illiquid investments, and retirement strategies. Market wide-risks will include oversight and examination of broker-dealers, clearing agencies and other multi-firm and industry issues. Focus is being brought to data analytics due to the OCIE’s increased ability to process and analyze large quantities of data.

SEC Charges Canadian Man With Conducting Fraudulent Trading Scheme
January 13, 2015 (Litigation Release No. 4)
The SEC has charged Aleksandr Milrud for orchestrating a “layering” market manipulation scheme. Milrud is alleged to have used online traders, primarily located in China and Korea, in order to artificially alter US stock prices. It is alleged that his traders used multiple computers, IP addresses and user names in order to avoid detection. Funds for these trades are alleged to have been transferred to traders via an offshore bank account, while profits were delivered back to Milrud in a suitcase of cash. Milrud is also being charged by the U.S. Attorney’s Office for the District of New Jersey. He was arrested in Aventura, Florida.

SEC Announces Members of New Equity Market Structure Advisory Committee
January 13, 2015 (Litigation Release No. 5)
The SEC has named the members of its newly formed Equity Market Structure Advisory Committee. The role of the committee will be to receive advice and recommendations that pertain to the equity market structure. The committee has a two year term and is expected to meet four times per year. Members, approved by all five Commissioners, were chosen from non-profits, the private sector, and academia.

SEC Adopts Rules to Increase Transparency in Security-Based Swap Market
January 14, 2015 (Litigation Release No. 6)
Two new sets of rules have been adopted by the SEC that regulate security-based swap data repositories. Security-based SDR’s will now have to register with the SEC and follow forthcoming requirements for reporting and public dissemination of transaction data. The proposed rules, Regulation SBSR, prevents fees and restrictions on the use of security-based SDR transaction data, details what information must be publicly disseminated and reported, and outlines a schedule for compliance with the new rules. The new rules have been added in compliance with Dodd-Frank mandates.

SEC Charges UBS Subsidiary With Disclosure Violations and Other Regulatory Failures in Operating Dark Pool
January 15, 2015 (Litigation Release No. 7)
Charges were made today against a UBS subsidiary for failing to fully disclose the policies of their dark pool to all of their subscribers. An SEC investigation has revealed an order type in the dark pool that was almost exclusively known to market makers and high frequency traders. The order type, PrimaryPegPlus, permitted orders to be made in sub-penny price increments, allowing PrimaryPegPlus orders to preempt regular orders in the queue. It was also found that a “natural-only crossing restriction” was in place that prevented execution of orders that would go against orders made by market makers and high frequency traders. UBS Securities LLC has agreed to settle the charges against them for over $14.4 million.

Fee Rate Advisory #3 for Fiscal Year 2015
January 15, 2015 (Litigation Release No. 8)
The SEC has announced that fee rates for most security transactions will be set at $18.4/million dollars beginning on February 14. This rate is down from $22.10/million dollars that will be in effect until through the 13th. Security futures trade fees will be unchanged at $0.0042/round trip transaction.

SEC Announces Charges Against Attorneys and Auditors in Microcap Scheme Involving Purported Mining Companies
January 15, 2015 (Litigation Release No. 9)
The SEC has announced multiple charges related to a microcap scheme allegedly orchestrated by Canada-based attorney, John Briner. Briner, who was barred from practicing for SEC regulated entities in 2010, is alleged to have created shell, mining companies for the purpose of fraudulent stock offerings. It is alleged that he recruited and appointed token officers for these companies, while controlling them himself behind the scenes. Three of the token CEO’s have been barred from being an officer or director of a publicly held company or playing a role in any future penny stock offerings, as part of their settlement with the SEC. Additionally, an attorney, two auditing firms, and the partners of those firms have been charged for providing fraudulent/improper opinions and audits of these companies, which allowed for the perpetuation of the fraud. A public hearing is set to be scheduled.

Friday, January 9, 2015

Enforcement Actions: Week in Review

SEC ENFORCEMENT ACTIONS

SEC Names Walter Jospin as Regional Director of Atlanta Office
January 8, 2015 (Litigation Release No. 1)
Walter Jospin will oversee enforcement and examinations as the Regional Director of the SEC’s Atlanta Office. Jospin graduated from the Wharton School at the University of Pennsylvania and graduated law school from Emory University. He has previously worked for the SEC’s Enforcement Division dealing with investigations into accounting and financial fraud, disclosure violations, insider trading, and other areas. He most recently worked for the law firm Paul Hastings LLP where he was a partner.


Friday, January 2, 2015

Enforcement Actions: Week in Review

SEC ENFORCEMENT ACTIONS

SEC Announces Charges Against N.Y.-Based Firm and Three Executives Accused of Siphoning Investor Money
December 29, 2014 (Litigation Release No. 294)
The SEC has charged VERO Capital Management, its president, general counsel, and CFO with channeling investors’ money into a side venture. Robert Geiger, George Barbaresi and Steven Downey managed a pair of funds invested primarily in mortgage-backed securities at VERO Capital Management. The SEC alleges that, while in the process of discontinuing the funds, the three fund managers diverted $4.4 million through undocumented loans to a side company of theirs, under the guise of a bridge loan to an affiliated company in the risk management business. This is alleged to never have been disclosed to investors of either fund. They have also been accused of other malpractices. A public hearing is being scheduled.

SEC Announces Program to Facilitate Analysis of Corporate Financial Data
December 30, 2014 (Litigation Release No. 295)
The SEC has announced the launch of a pilot program that will be used to facilitate the analysis of corporate financial data. Initially, organized structured data sets will be filed in eXtensible Business Reporting Language (XBRL) as exhibits to company filings, which will be expanded in 2015 to formats other than XBRL. The data sets will contain all relevant structured data, and this data will be posted on the SEC’s website which can then be downloaded for investor and academic purposes.

Tuesday, December 23, 2014

Enforcement Actions: Week in Review

SEC ENFORCEMENT ACTIONS

SEC Charges Investment Manager F-Squared and Former CEO With Making False Performance Claims
December 22, 2014 (Litigation Release No. 289)
It’s been announced today that F-Squared Investments has agreed to settle with the SEC over charges that they defrauded investors of their AlphaSector indices. The SEC alleged that F-Squared falsely claimed a seven year performance track record, created by applying their model to historical data. The backtested record is also alleged to have been calculated with a performance inflating mistake. Despite this error being brought to the attention of then-CEO Howard Present in September of 2008, the backtested record was used in advertising for the following five years. F-Squared has agreed to admit to wrongdoing and pay $35 million. Present has been charged separately.

SEC Charges Corporate Attorney and Wife With Insider Trading on Client’s Confidential Information
December 22, 2014 (Litigation Release No. 290)
The SEC has charged Shivbir and Preetinder Grewal with insider trading for their sales of Spectrum Pharmaceuticals days before a press release that resulted in a 35% decline in stock price. The SEC has alleged that Shivbir Grewal, during his employment as their outside counsel, learned that Spectrum Pharmaceuticals was about to announce a decline in projected revenue stemming from decreased sales of Fusilev, their number one selling drug. Within days, Shivbir Grewal sold his stake in the company and relayed the information to his wife, Preetinder Grewal, who sold her shares. The couple avoided losses of roughly $45,000. The couple have agreed to settle charges for $90,000. Additionally, Shivbir Grewal has been barred from representing any company under the regulation of the SEC in his capacity as an attorney.

SEC Charges Two Traders in Chile With Insider Trading
December 22, 2014 (Litigation Release No. 291)
Juan Cruz Bilbao Hormaeche and Tomás Andrés Hurtado Rourke have been charged by the SEC with insider trading. The SEC alleges that Bilbao was present during board meetings of CFR Pharmaceuticals in which a tender offer by Abbott Laboratories was being discussed. He is then alleged purchased millions of dollars of CFR Pharmaceuticals, through Hurtado, who also purchased shares for himself. From the tender of their shares, Bilbao and Hurtado received $10.6 million in illegal profits.

SEC Charges California-Based Stock Promoter With Defrauding Investors Seeking Pre-IPO Facebook and Twitter Shares
December 23, 2014 (Litigation Release No. 292)
The SEC charged Efstratios Argyropoulos and Prima Capital for violating the antifraud provisions and broker-dealer registration provisions. Argyropoulos had raised nearly $3.5 million by embezzling investors who sought Pre-IPO Facebook and Twitter shares. Argyropoulos settled the SEC charges and has been suspended from working for an investment advisor or broker-dealer. Also, the SEC separately charged Khaled A. Eldaher for being involved with Argyropoulos’s fraudulent actions, violating the Exchange act by selling unregistered securities; Eldaher was receiving 50 percent of the mark-up Facebook shares that he sold while also working for a registered broker-dealer. Eldaher was released from working for the registered broker-dealer, and a public hearing is to be scheduled to determine if any remedial actions will be placed.

SEC Issues Annual Staff Reports on Credit Rating Agencies
December 23, 2014 (Litigation Release No. 293)
The SEC issued its annual staff report on credit rating agencies that are registered as nationally recognized statistical rating organizations (NRSROs). Also, the SEC has submitted a separate report to Congress on NRSROs, fulfilling the requirement to the Credit Rating Agency Reform Act of 2006. The 2014 examinations concluded that there were noticeable improvements concerning compliance resources, monitoring, culture document retention, and governing committee oversight. Recommendations for further improvement included management of conflict of interest related to the rating of business operations and use of affiliates in the credit rating process. Furthermore, the report included a discussion of new NRSRO requirements meant to improve the quality of credit ratings and increase credit rating agency accountability.