Friday, February 6, 2015

Enforcement Actions: Week in Review

SEC ENFORCEMENT ACTIONS

SEC Alerts Investors, Industry on Cybersecurity
February 3, 2015(Litigation Release No. 20)
The SEC released a couple of publications regarding cybersecurity threats at brokerage and advisory firms. One publication focused on how firms should identify risks, establish policies, procedures, and oversight processes, protect networks and information, identify risks associated with remote access to client information and transfer requests, and detect unauthorized activity. The second publication outlined safety tips to investors, such as strong password selection, two-step verification procedures, and cautious use of public networks and wireless connections.

SEC Names David Grim as Acting Director of the Division of Investment Management
February 3, 2015 (Litigation Release No. 21)
The SEC announced that David Grim will be replacing Norm Champ, who left the SEC at the end of January, as the Director of the Division of Investment Management. Champ has worked for the SEC since 1995 and has been the division’s Deputy Director for the past two years. The Division of Investment Management strives to protect and inform investors as well as facilitate innovation in investment products.

SEC Approves 2015 PCAOB Budget and Accounting Support Fee
February 4, 2015 (Litigation Release No. 22)
The SEC approved a budget totaling $250.9 million for the Public Company Accounting Oversight Board (PCAOB) this year. The budget will primarily be funded by accounting support fees from public companies and registered broker-dealers. The PCAOB was established in 2002 by the Sarbanes-Oxley Act to oversee audits and auditors of financial statements filed by public companies and registered broker-dealers. The PCAOB’s 2015 budget is down three percent from its 2014 budget, but is up eight percent from the board’s actual spending last year.

SEC Charges Four in California Insider Trading Ring
February 5, 2015 (Litigation Release No. 23)
John Gray, a former analyst at Barclays Capital, Christian Keller, an insider at two Silicon Valley-based companies, Kyle Martin, and Aaron Shepard were all charged with insider trading. They made nearly $750,000 in illegal profits by using non-public information that Keller learned during his employment at Applied Materials Inc. and Rovi Corporation. Gray and Keller tried to conceal their trades by placing the orders in Kyle Martin’s brokerage account. In addition, Gray tipped Aaron Sheppard so that he too could make trades prior to public corporate announcements. Gray, Keller, Martin and Sheppard have agreed to pay more than $1.6 million combined.

SEC Charges Chicago-Area Alternative Energy Company for Accounting and Disclosure Violations
February 5, 2015 (Litigation Release No. 24)
Broadwind Energy, its former CEO J. Cameron Drecoll, and its CFO Stephanie K. Kushner have been charged with disclosure violations. Broadwind Energy anticipated substantial declines in the company’s long-term financial prospects as a result of reduced business from two significant customers. This information was privately shared with the company’s auditors, investment bankers, and lender, but was not disclosed publicly to investors until several months later. After the information was released publicly, Broadwind’s stock price declined by twenty-nine percent. J. Cameron Drecoll approved and certified the misleading public filings and newly hired CFO failed to take the appropriate steps to confirm the filings were accurate.

SEC Imposes Sanctions Against China-Based Members of Big Four Accounting Networks for Refusing to Produce Documents
February 6, 2015 (Litigation Release No. 25)
The SEC imposed sanctions on Deloitte Touche Tohmatsu CPA Limited, Ernst & Young Hua Ming LLP, KPMG Huazhen, and PricewaterhouseCoopers Zhong Tian CPA’s Limited Company for refusing to provide the SEC with documents related to several audits. The SEC was investigating potential fraud in these companies audits with nine China-based companies that had securities registered in the US when the firms refused to hand over related documents. The four firms have settled and agreed to each pay $500,000 cooperate with similar requests from the SEC in the future. If the firms fail to cooperate with similar request, they face harsher penalties, such as a temporary ban on certain audit work or commencement of new proceedings against the firm. Proceedings continue against a fifth China-based accounting firm, Dahua CPA Ltd.

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