Friday, May 15, 2015

Enforcement Actions: Week in Review

SEC ENFORCEMENT ACTIONS

SEC Sues Retirement Planners for Making False Claims to Investors
May 11, 2015 (Litigation Release No. 85)
Novers Financial and its principals, Christopher A. Novinger and Brady J. Speers, were charged with falsely informing customers that interests in life settlements they sold were guaranteed and federally insured. Interests in life settlements are investments that are based on life insurance policies purchased by others. These interests are not risk-free or guaranteed and are not insured federally. Furthermore, these interests usually can only be sold to people with a minimum net worth or income level. Novers Financial used an inflated net worth calculator that included future income, such as social security and pensions, to calculate their clients’ net worth.

SEC Announces Fraud Charges Against ITT Educational Services
May 12, 2015 (Litigation Release No. 86)
ITT Educational services, its CEO Kevin Modany, and its CFO Daniel Fitzpatrick are charged with fraud for failing to disclose the poor performance of two loan programs to investors. The two loan programs, “PEAKS” and “CUSO”, provided off-balance sheet loans for ITT students. In order to get these loans financed, ITT offered a guarantee to mitigate the risk of defaults on the student loans. By 2012, these loan programs were performing so poorly that ITT’s guarantee obligations began to explode. ITT and its executive officers tried to hide its poor performance by making payments on delinquent student borrower accounts to avoid triggering guarantee payments, without disclosing its actions. They also failed to adequately report the loan programs’ performance in financial statements and withheld important information from their auditor. ITT finally began to disclose all the information in 2014, which caused its stock price to decline about two-thirds.

Deputy Chief Accountant Dan Murdock to Leave SEC
May 14, 2015 (Litigation Release No. 87)
Daniel Murdock, who has been a deputy chief accountant in the SEC’s Office of the Chief Accountant since October 2013, announced he is leaving at the end of May to work in the private sector. The Office of the Chief Accountant regularly advises the other offices within the SEC on accounting and auditing matters.

SEC Names Wesley R. Bricker as Deputy Chief Accountant
May 14, 2015 (Litigation Release No. 88)
The SEC hired Wesley R. Bricker as Deputy Chief Accountant overseeing the accounting group in the Office of the Chief Accountant. Bricker has a B.S. in accounting from Elizabethtown College and a law degree from American University. He is a licensed certified public accountant and a member of the New York State Bar Association. Bricker formerly worked for PricewaterhouseCoopers where he was a partner responsible for clients in banking, capital markets, financial technology, and investment management.

SEC Charges Nationwide Life Insurance Company with Pricing Violations
May 14, 2015 (Litigation Release No. 89)
The SEC found Nationwide Life Insurance to be routinely violating pricing regulations in its daily processing of purchase and redemption order for variable insurance contracts and mutual funds. Mutual Fund pricing rules regulate an investment company to calculate the value of its shares daily at a specific time. Accordingly, orders received before 4 p.m. will be processed using the current day’s price, and orders arriving after 4 p.m. will be processed using the following day’s price. The time the orders arrive “in the building” is the time it is processed. Nationwide intentionally delayed the arrival of certain orders to be received after 4 p.m. An SEC investigation found Nationwide hired a private courier to collect and deliver their mail containing customer orders. The private courier was instructed to deliver mail relating the Nationwide’s variable contracts business no sooner than 4:01 p.m., even if the mail was received at the P.O. Box several hours prior to the 4 p.m. cutoff time. Nationwide agreed to settle and will pay a $8 million penalty.

SEC Charges Father and Son in $1.1 Million Insider Trading Scheme
May 14, 2015 (Litigation Release No. 90)
The SEC charged Sean R. Stewart, a managing director at an investment bank, and his father Robert K. Stewart with insider trading. Sean R. Stewart allegedly provided his father with nonpublic information about mergers and acquisitions involving his clients he was working with. Robert Stewart then used a trading partner to profit on the tips and generated approximately $1.1 million over a four-year period. Robert’s trading partner would then send small cash payments back to Robert to avoid suspicion from the SEC. Additionally, Robert and his son would communicate in coded messages disguised as discussions about golf to discuss their trading strategy.


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