Friday, March 27, 2015

Enforcement Actions: Week in Review


SEC Proposes Rule to Require Broker-Dealers Active in Off-Exchange Market to Become Members of National Securities Association
March 25, 2015 (Litigation Release No. 48)
The SEC has proposed a rule amendment to increase oversight of proprietary trading firms, some of which engage in high-frequency trading. The rule would require that broker-dealers not trading on exchanges must become members of a national securities association. Currently, membership is not required for members of a national exchange that do not have customer accounts and have a maximum gross annual income of $1,000 from securities transactions. However, off-exchange trades are not counted towards the $1,000 maximum. The rule in question, 15B9-1, was originally meant for limited off-exchange transactions by exchange specialists.

SEC Adopts Rules to Facilitate Smaller Companies' Access to Capital
March 25, 2015 (Litigation Release No. 49)
The SEC has adopted new rules that will assist smaller companies in raising capital. These rules, mandated by the JOBS act, are an update to the current Regulation A that provides exemption from registration for smaller security issuers. The update will now allow for up to a $50 million security offering in a twelve month period (Tier 2) or a $20 million security offering in a twelve month period (Tier 1). The updated rules, now known as Regulation A+, also provide preemption of state securities laws for Tier 2 offerings.

SEC Charges Nearly Two Dozen Unregistered Broker-Dealers
March 26, 2015 (Litigation Release No. 50)
The SEC has charged a group of companies and their executives for engaging in security trading without registering as broker-dealers. Global Fixed Income LLC was found to have made arraignments with ten non-registered companies to purchase large amounts of investment-grade corporate bonds. Global Fixed Income would then flip these bonds and split the small per-dollar profits with the third parties. In addition to disgorgement, Global Fixed Income will pay a $500,000 penalty, corporate participants of the scheme will pay $50,000 penalties, and individual participants will pay $5,000 penalties. Charles Perlitz Kempf, owner of Global Fixed Income, has been barred from associating with a registered entity and being involved in a penny stock offering for one year. All parties have agreed to the SEC’s orders without admitting or denying the allegations.

SEC Charges New York-Based Brokerage Firm With Faulty Underwriting of Public Offering by China-Based Company
March 27, 2015 (Litigation Release No. 51)
Macquarie Capital (USA) Inc. has agreed to settle charges with the SEC for underwriting a public offering that contained false information. The public offering was for Puda Coal, a now defunct China-based company that had claimed in its offering to own 90% of a coal company. A later revelation that Puda Coal owned 50% of the company caused their stock price to crumble. Executives from Puda Coal have previously been charged by the SEC. Macquarie Capital’s former managing director Aaron Black and former investment banker William Fang have also been charged and have agreed to pay $212,711 and $35,000 respectively. Macquarie Capital will pay $15 million as well as set up a compensation fund for affected investors of Puda Coal.

Friday, March 20, 2015

Enforcement Actions: Week in Review


Corporate Insiders Charged for Failing to Update Disclosures Involving "Going Private" Transactions
March 13, 2015 (Litigation Release No. 47)
Major shareholders of three different companies have been charged by the SEC for failing to disclose their intentions to privatize. “Beneficial owners” that acquire over 5% voting power are required to file a Schedule 13D with the SEC. This form contains information about the beneficial owners including the intentions behind their purchase. A prompt (within two business days) amendment is required whenever there are material changes to the facts of the form. Berjaya Lottery Management (H.K.) Ltd. has settled with the SEC for $75,000 for waiting eight months to disclose their activities to effect privatization of International Lottery & Totalizator Systems Inc. Similarly, for their delayed disclosure in relation to the privatization of First Physicians Capital Group, Inc., William A. Houlihan has settled for $15,000, SMP Investments I, LLC and Brian Potiker have settled for $63,750, and The Ciabattoni Living Trust, Anthony Ciabattoni and Jane Ciabattoni have settled for $75,000. Shuipan Lin, CEO and Chairman of Exceed Company Ltd., has settled with the SEC for $30,000 for his delayed disclosure of his efforts to privatize his company. Additionally, it was found that Lin’s Schedule 13D was filed over a year and a half late, at which time he had four times the voting power at which the form is required. All respondents have agreed to settle with the SEC without admission or denial of the investigations findings.

Monday, March 9, 2015

Williams v MCM - $1,218,969 Hedge Fund Award

In March 2015, a AAA arbitration panel in Los Angeles, CA ordered Montecito Capital Management to pay the Claimant $1,218,969 over the sale of the hedge funds. The AAA panel found that the Respondent was negligent in its excessive recommendation of hedge funds. You can read the award here. Dr. McCann testified on behalf of the Claimant.

Friday, March 6, 2015

Enforcement Actions: Week in Review


SEC Suspends Trading in 128 Dormant Shell Companies to Put Them Out of Reach of Microcap Fraudsters
March 2, 2015 (Litigation Release No. 44)
The SEC has announced the suspension of trading in 128 inactive penny stock companies in order to avoid pump-and-dump schemes from microcap fraudsters. The SEC uses Operation Shell-Expel, a microcap fraud-fighting initiative which began in 2012, to search the over-the-counter marketplace in order to prevent microcap fraudsters from manipulating thinly-traded stocks. Operation Shell-Expel has resulted in trading suspension greater than 800 microcap stocks.

Former Company Officer Earns Half-Million Dollar Whistleblower Award for Reporting Fraud Case to SEC
March 2, 2015 (Litigation Release No. 45)
The SEC announced a whistleblower payout to a former company officer for reporting securities fraud that led to an SEC enforcement action which sanctioned more than $1 million. The whistleblower award amounted around $475,000 to $575,000. This was the first whistleblower payout paid to an officer under the circumstances that the information was reported to the SEC after other responsible compliance personal, who possessed the information, failed to address the issue. Information about the whistleblower program and reporting can be found at

SEC Charges Texas-Based Brokerage Firm With Violating Supervisory and Customer Protection Rules
March 4, 2015 (Litigation Release No. 46)
H.D. Vest Investment Securities was charged by the SEC for violating key customer protection rules. H.D. Vest failed to have standard rules and procedures in order to supervise registered representatives’ outside business activities which resulted in the representatives misappropriating customer funds by transferring or depositing customer brokerage funds into their outside business accounts. Investment Securities settled the SEC’s charges by paying a $225,000 penalty and to have an independent compliance consultant to improve its supervisory roles.

Monday, March 2, 2015

Enforcement Actions: Week in Review


SEC Charges Goodyear with FCPA Violations
February 24, 2015(Litigation Release No. 38)
The SEC found Goodyear Tire & Rubber Company to be in violation with the Foreign Corrupt Practices Act (FCPA) due to bribes paid by subsidiaries in Kenya and Angola to land tire sales. According to the SEC, Goodyear failed to prevent or detect over $3.2 million in bribes over a four-year period. Bribes were paid to employees of private companies and government-owned entities and local police and city council officials. Goodyear has agreed to pay more than $16 million in a settlement.

SEC Salt Lake Office Director Karen Martinez to Retire from Public Service
February 26, 2015(Litigation Release No. 39)
Karen Martinez is retiring this summer after serving as Regional Director of the SEC’s Salt Lake office since 2013. She first joined the SEC’s Salt Lake office as a Trial Counsel in 2002 and was promoted to Assistant Director in 2010. Ms. Martinez earned her bachelor’s degree from the University of Idaho and went on to earn a Master’s in Mathematics and a law degree from the University of Utah.

SEC Announces Agenda for March 4 Meeting of the Advisory Committee on Small and Emerging Companies
February 27, 2015(Litigation Release No. 41)
The SEC’s Advisory Committee on Small and Emerging Companies will next meet on March 4 and will discuss secondary market liquidity and the definition of “accredited investor.” The committee will primarily focus on ways to increase secondary market liquidity for investors in small and emerging companies, making it easier for investors to resell company shares. Small and emerging companies include any privately held small businesses and publicly traded companies with a market cap less than $250 million.

SEC Halts Ponzi-Like Scheme by Purported Venture Capital Fund Manager in Buffalo
February 27, 2015(Litigation Release No. 43)
The SEC issued an asset freeze on Gregory W. Gray Jr. and his firms Archipel Capital LLC and BIM Management LP to stop his Ponzi-like scheme. Gregory W. Gray allegedly raised $5.3 million for a fund to purchase 230,000 pre-IPO shares of Twitter. However, Gray only purchase 80,000 pre-IPO shares before Twitter went public in November 2013. When investors of the fund demanded their shares and profits, Gray stole money from three of his other unrelated funds to make up the difference. The majority of the money allegedly came from one investor who believed he was investing $5 million in Uber Technologies. In actuality, Gray did not purchase any shares of Uber Technology and used fabricated documents, including signature pages from another legitimate stock purchase, as proof of his Uber purchases to the investor. The investigation is still ongoing.