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.


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