Friday, May 29, 2015

Enforcement Actions: Week in Review

SEC ENFORCEMENT ACTIONS

SEC Charges Deutsche Bank With Misstating Financial Reports During Financial Crisis
May 26, 2015 (Litigation Release No. 99)
Deutsche Bank AG has agreed to pay a $55 million penalty to settle charges that they overvalued a portfolio of derivatives by failing to properly value their “gap risk”. The derivatives portfolio in question contained “Leveraged Super Senior” (LSS) trades that Deutsche Bank used in order to buy protection against credit default losses. The leverage of these trades meant that the collateral posted was roughly 9% of the $98 billion of protection which created the “gap risk”. Although Deutsche Bank initially adjusted for this risk by reducing the value of their LSS positions, they began altering their reporting starting with the deterioration of the credit markets in 2008, eventually not valuing the gap risk at all.

SEC Charges New York Lawyer and Two Promoters With Market Manipulation
May 26, 2015 (Litigation Release No. 100)
New York securities lawyer Adam S. Gottbetter and Canadian stock promoters Mitchell G. Adam and K. David Stevenson have been charged for their roles in a market manipulation scheme. Gottbetter allegedly directed promotional campaigns for microcap companies (Kentucky USA Energy Inc., Dynastar Holdings Inc., and HBP Energy Corp.) in order to sell shares at inflated prices. Gottbetter brought in Adam and Stevenson for the last of his three schemes. Gottbetter and Stevenson have agreed to settle charges, the former for $4.6 million. The U.S. Attorney’s Office for the District of New Jersey has announced parallel criminal charges against all three.

SEC Announces Agenda for June 3 Meeting of the Advisory Committee on Small and Emerging Companies
May 28, 2015 (Litigation Release No. 101)
The Advisory Committee on Small and Emerging Companies’ June 3rd meeting will focus on public company disclosure effectiveness, intrastate crowdfunding, venture exchanges, and treatment of “finders”. The Advisory Committee’s role is to be the SEC’s receiver for advice pertaining to small businesses. The meeting will be held at the SEC’s D.C. headquarters and will be open to the public, webcast and archived on the SEC website.

SEC Announces Charges Against Compliance Director Accused of Defrauding Investors and Stealing Brokerage Firm Assets
May 28, 2015 (Litigation Release No. 102)
Former Trident Partners Ltd. Compliance Director William Quigley has been charged by the SEC. It is alleged that Quigley solicited investors to purchase stocks then, after investors deposited funds into accounts controlled by Quigley, withdrew the money at nearby ATMs or wired the funds to a bank account in the Philippines where his two brothers, privy to the scheme, lived. Parallel criminal charges are being pursued by the U.S. Attorney’s Office for the Eastern District of New York.

SEC Names Andrew J. Donohue as Chief of Staff
May 28, 2015 (Litigation Release No. 103)
The SEC has announced that Andrew J. Donahue will succeed Lona Nallengara as chief of staff in June. Donahue served as the Director of the SEC’s Division of Investment Management from May 2006 to November 2010. Since then, he has been managing director, associate general counsel, and investment company general counsel at Goldman Sachs and partner at Morgan Lewis & Bockius LLP’s Investment Management Practice Group.

SEC Charges Two Stock Promoters With Conducting Market Manipulation Schemes
May 28, 2015 (Litigation Release No. 104)
Canadian penny stock promoters Mike Taxon and Itamar Cohen have been charged by the SEC for implementing a market manipulation scheme. Taxon and Cohen allegedly distributed phony newsletters that promoted the stocks of Raven Gold Corporation and Kentucky USA Energy with false price and volume trends. Taxon, Cohen, and others used their large stock holdings to artificially generate market activity in the stocks. Taxon and Cohen have agreed to partial settlements of the SEC’s charges but the U.S. Attorney’s Office for the District of New Jersey is opening parallel criminal charges.


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