Friday, January 30, 2015

Enforcement Actions: Week in Review


SEC Charges Oppenheimer With Securities Law Violations Related to Improper Penny Stock Sales
January 27, 2015 (Litigation Release No. 14)
The SEC has charged Oppenheimer & Co. with breaking federal securities law over illegal sales of penny stocks. They are accused of allowing non-registered sales in their accounts, ignoring red-flags and failing to file Suspicious Activity Reports. Gibralter Global Securities, a Bahamas-based brokerage firm, is one customer alleged to have ordered sales, executed by Oppenheimer, of billions of shares of penny stocks, despite not being registered to do business in the US. Gibralter Global Securities has been charged separately. A second investigation has found Oppenheimer to have executed roughly $12 million in sales, of which $588,400 Oppenheimer collected in commissions. That investigation is ongoing. Oppenheimer has agreed to settle the charges for $10 million and admit to wrongdoing. They will also pay another $10 million to settle charges with the Treasury Department’s Financial Crimes Enforcement Network.

SEC to Hold Roundtable on Proxy Voting
January 27, 2015 (Litigation Release No. 15)
On February 19, the SEC will host a roundtable for the purpose of improving the proxy voting process. This roundtable will be held at the SEC’s Washington D.C. headquarters, and the roundtable will be open to the public as well as webcast which will be live on the SEC’s website. The roundtable will be divided into two panels, and the discussion will be focused on ways of improving the proxy voting proxy will be towards universal proxy ballots and retail participation.

SEC Names Erin Schneider as Associate Regional Director in San Francisco Office
January 28, 2015 (Litigation Release No. 16)
Today the SEC announced that Erin Schneider was named Associate Regional Director for enforcement in the San Francisco office. Schneider’s job will be to oversee the San Francisco office’s enforcement efforts for northern California and the Pacific Northwest. Schneider’s qualifications include working for the past 10 years with the SEC, she has investigated and litigated enforcement actions that have dealt with a variety of securities law violations, and she even has previous professional experience making her qualified for her new appointment.

Robert E. Rice, Chief Counsel to SEC Chair, to Leave SEC
January 29, 2015 (Litigation Release No. 17)
At the end of February, Chief Counsel to SEC Chair Mary Jo White, Robert E. Rice, will be leaving the agency by the end of February. Rice was named Chief Counsel in June 2013, and has been a senior legal and policy advisor to Chair White. Rice has worked on a variety of important enforcement and regulatory issues, serving as a great asset to Chair White. Rice has a variety of previous professional experience from other companies such as Deutsche Bank AG in New York before coming to the SEC.

SEC Charges Stock-Based Lender With Selling Billions of Penny Stock Shares as Unregistered Broker-Dealer
January 29, 2015 (Litigation Release No. 18)
The SEC has charged Chicago-based International Capital Group (ICG), its two co-founders Brian R. Nord and Larry Russell Jr., and its former COO Todd J. Bergeron with selling over nine billion shares of penny stocks without registering as a broker-dealer with the SEC. ICG acquired and sold these penny stocks via stock-based loans they issued. The stocks, obtained as collateral for the loan, were sometimes sold to the full amount of the loan, before customers received any money. On average, ICG started selling shares three days prior to funding a loan. The company and executives have agreed to settle charges for a total of $4.3 million.

Monday, January 26, 2015

Enforcement Actions: Week in Review


SEC Announces Charges against Standard & Poor’s for Fraudulent Ratings Misconduct
January 21, 2015 (Litigation Release No. 10)
The rating agency Standard & Poor’s violated a series of federal securities laws, according to an SEC investigation. Standard & Poor’s Rating Services loosened its rating criteria on certain commercial mortgage-backed securities in order to attract business. Additionally, Standard & Poor’s misrepresented their rating criteria on commercial mortgage-backed securities with a false publication outlying their new conservative rating criteria. Standard & Poor’s has agreed to settle the SEC’s charges for $58 million, with an additional $19 million in related cases by the New York Attorney General’s office and the Massachusetts Attorney General’s office. Standard & Poor’s also agreed to stop rating commercial mortgage-backed securities for a year.

Investment Management Director Norm Champ to Leave SEC
January 21, 2015 (Litigation Release No. 11)
Norm Champ, Director of the Division of Investment Management, will leave the SEC this month to become a Visiting Scholar at Harvard Law School, where he also lectures a course on investment management law. Mr. Champ has spent five years in senior leadership positions at the SEC. Some of his highlights at the SEC include adopting money market mutual fund reforms, approving the first actively managed exchange traded product that is a hybrid of a mutual fund and an exchange traded fund, and adopting rules requiring asset managers to better protect against identity theft.

SEC Charges Investment Adviser and Manager in South Florida-Based Fraud
January 21, 2015 (Litigation Release No. 12)
The SEC filed a complaint against Elm Tree Investment Advisors LLC in Fort Lauderdale, its manager, Frederic Elm, and three related funds. The unregistered investment advisory firm appears to have been running a Ponzi scheme as Elm misled investors and used their money to purchase a personal home, luxury cars, and jewelry. The SEC was granted a temporary restraining order and a temporary asset freeze against the firm, Frederic Elm, and his wife, Amada Elm. A court hearing is set for January 29.

SEC Charges Former Executive at Tampa-Based Engineering Firm with FCPA Violations
January 22, 2015 (Litigation Release No. 13)
The SEC charged Walid Hatoum with violating the Foreign Corrupt Practices Act (FCPA). Hatoum offered to funnel nearly $1.4 million in bribes to a local company owned by a foreign official to secure government contracts for a hotel resort project in Morocco and a light rail project in Qatar. The SEC also announced a deferred prosecution agreement against Hatoum’s employer, PBSJ Corporation, which requires PBSJ to return all illicit profits with interest and a penalty of $375,000. PBSJ ignored multiple red flags, but once they discovered the scheme, the company self-reported the illegal activity and fully cooperated with the SEC.

Friday, January 16, 2015

Enforcement Actions: Week in Review


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.

Friday, January 9, 2015

Enforcement Actions: Week in Review


SEC Names Walter Jospin as Regional Director of Atlanta Office
January 8, 2015 (Litigation Release No. 1)
Walter Jospin will oversee enforcement and examinations as the Regional Director of the SEC’s Atlanta Office. Jospin graduated from the Wharton School at the University of Pennsylvania and graduated law school from Emory University. He has previously worked for the SEC’s Enforcement Division dealing with investigations into accounting and financial fraud, disclosure violations, insider trading, and other areas. He most recently worked for the law firm Paul Hastings LLP where he was a partner.

Friday, January 2, 2015

Enforcement Actions: Week in Review


SEC Announces Charges Against N.Y.-Based Firm and Three Executives Accused of Siphoning Investor Money
December 29, 2014 (Litigation Release No. 294)
The SEC has charged VERO Capital Management, its president, general counsel, and CFO with channeling investors’ money into a side venture. Robert Geiger, George Barbaresi and Steven Downey managed a pair of funds invested primarily in mortgage-backed securities at VERO Capital Management. The SEC alleges that, while in the process of discontinuing the funds, the three fund managers diverted $4.4 million through undocumented loans to a side company of theirs, under the guise of a bridge loan to an affiliated company in the risk management business. This is alleged to never have been disclosed to investors of either fund. They have also been accused of other malpractices. A public hearing is being scheduled.

SEC Announces Program to Facilitate Analysis of Corporate Financial Data
December 30, 2014 (Litigation Release No. 295)
The SEC has announced the launch of a pilot program that will be used to facilitate the analysis of corporate financial data. Initially, organized structured data sets will be filed in eXtensible Business Reporting Language (XBRL) as exhibits to company filings, which will be expanded in 2015 to formats other than XBRL. The data sets will contain all relevant structured data, and this data will be posted on the SEC’s website which can then be downloaded for investor and academic purposes.