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.

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