Friday, May 29, 2015

Enforcement Actions: Week in Review


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.

Tuesday, May 26, 2015

Smith v Centaurus Financial, Inc. - $914,650 DPP Award

In May 2015, a FINRA panel in Los Angeles, CA ordered Respondents to pay the Claimant at least $915,650 in compensatory damages, prejudgment interest, attorney's fees, expert witness costs and rescission of illiquid non-traded REITs still held. The broker had sold the Claimant nine non-traded REITs, three oil & gas partnerships, one equipment leasing partnership and one TIC. You can read the award here. Dr. McCann testified on behalf of the Claimant.

Friday, May 22, 2015

Enforcement Actions: Week in Review


Peter J. Curley, Associate Director in the Division of Trading and Markets, to Leave SEC
May 18, 2015 (Litigation Release No. 91)
Peter J. Curley, Associate Director for Clearance and Settlement in the Division of Trading and Markets, will be leaving the SEC later this month. Mr. Curley has made many contributions to the division and the agency during the time of development by heading the Office of Clearance and Settlement since October 2011. Mr. Curley’s had started at the SEC in August 2010 as Attorney Fellow in the Division of Trading and Markets. His previous qualifications include having the title of Head of Corporate Strategy and Head of IPO Regulation at Hong Kong Exchanges and Clearing Limited.

SEC Chief of Staff Lona Nallengara to Leave Agency
May 19, 2015 (Litigation Release No. 92)
SEC Chief of Staff Lona Nallengara will be leaving the agency at the end of June. Mr. Nallengara has been the Chief of Staff of U.S. Securities and Exchange Commission since May 2013, working as the lead advisor to Chair White on all issues involving the SEC. He serves as the SEC deputy to the Financial Stability Oversight Council and is the primary SEC liaison with other financial regulators. Mr. Nallengra’s past qualifications include serving in the Division of Corporation Finance as the acting director and serving as the division’s deputy director for legal and regulatory policy. Also, prior to joining the SEC, he was a partner at Shearman & Sterling LLP in New York, and has practiced in the corporate group where he began his law career at Osler, Hoskin & Harcourt LLP in Toronto.

SEC Charges BHP Billiton With Violating FCPA at Olympic Games
May 20, 2015 (Litigation Release No. 93)
BHP Billiton has been charged with violating the Foreign Corrupt Practices Act (FCPA) for its sponsoring of government officials during the 2008 Beijing Olympics. BHP Billiton paid for over 60 guests, of the 176 officials and state-owned business employees that they had invited. The three/four day hospitality packages ranged in value from $12,000 to $16,000. BHP Billiton has agreed to settle the charges by paying a $25 million penalty.

SEC Charges Brokerage Firm Co-Owners With Defrauding Investors
May 20, 2015 (Litigation Release No. 94)
Co-owners of Manhattan brokerage firm Arjent LLC have been charged for defrauding investors of holding company Pangaea Trading partners. Chairman and CEO Robert DePalo and Managing Director Joshua Gladtke are alleged to have misrepresented the value of Pangaea to investors and used investors’ funds for personal use, allegedly transferring the first $2.3 million of offering funds to DePalo’s personal bank account. Gregg Lerman, another principal at Arjent LLC, has agreed to settle the charges. Parallel criminal charges are also being pursued by New York County.

SEC Proposes Rules to Modernize and Enhance Information Reported by Investment Companies and Investment Advisers
May 20, 2015 (Litigation Release No. 95)
The SEC has proposed rules, forms and amendments to modernize and enhance data reporting and disclosure by investment companies and investment advisers which would improve the quality and accessibility of information for investors and regulatory monitoring. The requirements of the proposal include a new monthly portfolio reporting form (Form N-PORT) and a new annual reporting form (Form N-CEN) which would require census-type data reported in a structured data format. Comments on the proposal will close in 60 days after their publication in the Federal Register.

SEC Names Jessica Kane Director of Municipal Securities Office
May 20, 2015 (Litigation Release No. 96)
Jessica Kane has become director of the SEC’s Office of Municipal Securities. Ms. Kane, the SEC’s former deputy director since April 2014, is replacing former director John Cross. As deputy director, Ms. Kane oversaw all aspects of the office, and now she will further proceed with her duties in carrying out SEC’s mission in overseeing the administering of SEC rules on practices dealing with the municipal securities markets. Ms. Kane has many qualifications which include having experience in the SEC’s corporate-finance division from 2007 to 2012, and having experience within the agency’s Office of Legislative and Intergovernmental Affairs from 2012 to 2013.

SEC Names Rebecca Olsen Deputy Director of Municipal Securities Office
May 20, 2015 (Litigation Release No. 97)
Rebecca J. Olsen has been named deputy director where she will continue in overseeing all aspects of the Office of Municipal Securities. She will be replacing Jessica Kane has been named director of the office as of today. Ms. Olsen has many qualifications including having served as chief counsel since April 2014 and also having more than 10 years spent at Ballard Spahr LLP where she practiced in the municipal securities area.

SEC Announces Charges Against Investment Firm and Two Executives Accused of Defrauding Police and Firefighter Pension Funds
May 21, 2015 (Litigation Release No. 98)
Fraud charges have been announced against Atlanta investment advisory firm Gray Financial Group, its President Laurence O. Gray, and its co-CEO Robert C. Hubbard IV for selling unsuitable investments to city employee pension funds. They are charged for breaching their fiduciary duty when they advised the pension funds to invest in an alternative investment fund that they allegedly knew was not compliant with state restrictions. The SEC alleges that Gray Financial received over $1.7 million in fees from selling this fund to its pension fund clients.

Friday, May 15, 2015

Enforcement Actions: Week in Review


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.

Tuesday, May 12, 2015

Enforcement Actions: Week in Review


SEC Announces Outreach Programs to Help Firms Comply With Regulation Systems Compliance and Integrity
May 5, 2015 (Litigation Release No. 80)
Registration has opened for two outreach programs, created by the SEC to facilitate compliance with newly adopted technology regulations. Compliance with Regulation Systems Compliance and Integrity (Regulation SCI) will be held at the SEC’s regional offices in New York and Chicago on July 16th and July 29th respectively. Seating for both events will be limited and neither will be webcast. Priority will go to executives from entities to be affected by the new regulations.

SEC Charges Four Former Officers of Delaware Bank Holding Company With Disclosure Fraud
May 6, 2015 (Litigation Release No. 81)
Four former officers of Wilmington Trust have been charged for deliberately falsifying financial reports in 2009 and 2010. They are accused of omitting over $300 million in past due real estate loans in order to hide the effect of the real estate market’s decline on Wilmington Trust’s commercial real estate loan portfolio. Wilmington Trust paid $18.5 million last September to settle related charges. The SEC is seeking return of ill-gotten gains with interest, monetary penalties, and to have two of the four men barred from serving as corporate officers or directors.

SEC Approves Pilot to Assess Tick Size Impact for Smaller Companies
May 6, 2015 (Litigation Release No. 82)
The SEC has approved a proposal for a two year pilot program to determine the effect of wider tick sizes on the market quality of stocks of smaller companies. The pilot, proposed by the national securities exchange and FINRA, will begin on May 6 of next year and will consist of a control group of roughly 1,400 securities, and three, 400 small cap stock test groups.

David Grim Named as Director of the Division of Investment Management
May 8, 2015 (Litigation Release No. 83)
David Grim has been named as Director of the Division of Investment Management. Since Grim joined the SEC in 1995, he has served as a Staff Attorney in the division’s Office of Investment Company Regulation, Assistant Chief Counsel in the division’s Office of Chief Counsel, Deputy Director, and Acting Director since February. Grim graduated from Duke University with a degree in political science and received his law degree from George Washington University.

SEC and FINRA to Hold National Compliance Outreach Program for Broker-Dealers
May 8, 2015 (Litigation Release No. 84)
Registration has opened for the 2015 National Compliance Outreach Program for Broker-Dealers, a program to facilitate discussion amongst regulators and industry professionals of compliance structures and practices. The SEC (Office of Compliance Inspections and Examinations and Division of Trading and Markets) and FINRA have partnered in sponsoring the program, which will be held on July 14 at the SEC’s D.C. headquarters. Seating is limited but free; the program will be webcast.

Friday, May 1, 2015

Enforcement Actions: Week in Review


SEC Announces Award to Whistleblower in First Retaliation Case
April 28, 2015 (Litigation Release No. 75)
The SEC has announced that the whistleblower connected with the SEC’s first retaliation case will receive the maximum allowed award of 30% of amounts collected in relation to the case (~$600,000). Paradigm Capital Management was charged by the SEC for retaliating against said whistleblower once it was discovered they had reported potential conduct to the SEC.

SEC Charges Santa Barbara-Based Hedge Fund Firm, Executives, and Auditor for Improper Expense Allocations
April 29, 2015 (Litigation Release No. 76)
The SEC has charged Alpha Titans LLC (a hedge fud advisory firm), its principal Timothy McCormack and general counsel Kelly Kaeser for allegedly using its clients’ fees to pay for undisclosed operating expenses. Over $450,000 was used to pay office rent, employee salaries and benefit, and similar expenses without approval or complete disclosure from the fund clients. The firm’s outside auditor, Simon Lesser, was also charged for conducting the audit of misleading financial statements. The SEC charges were settled with Alpha Titans and McCormack paying disgorgement of $469,522, prejudgment interest of $28,928 and a penalty of $200,000. McCormack and Kaeser will each be barred from the securities industry for one year and Kaeser will be suspended from practicing as an attorney for an SEC-regulated entity, also for one year. Also, Lesser agreed to pay a penalty of $75,000 and will be suspended from practicing as an accountant on behalf of any entity regulated by the SEC for at least three years.

SEC Proposes Cross-Border Security-Based Swap Rules Regarding Activity in the U.S.
April 29, 2015 (Litigation Release No. 77)
The SEC has proposed cross-border security-based swap rules regarding activity in the U.S. The proposed rules would ensure that both U.S. and non-U.S. dealers fit under certain regulations and requirements in efforts to provide the SEC enhanced oversight and transparency. This means that the proposal would require a non-U.S. company to include any dealing transactions that it arranges, negotiates or executes using its personnel or personnel of its agent located in the United States in order to determine whether it must register with the SEC. Specified transactions would be subjected to external business conduct standards and also be subject to Regulation SBSR reporting requirements. Comments on the proposal will close in 60 days after their publication in the Federal Register. Click here to view the proposed rule.

SEC Proposes Rules to Require Companies to Disclose the Relationship Between Executive Pay and a Company’s Financial Performance
April 29, 2015 (Litigation Release No. 78)
The SEC has proposed rules to require companies to disclose the relationship between executive compensation and the finance performance of a company in order to help shareholders gauge their executives’ pay against performance. The rules would require large and mid-sized companies to provide the disclosures for the past five fiscal years, and smaller companies to offer three fiscal years’ worth of data. Comments on the proposal will close in 60 days after their publication in the Federal Register. Click here to view the proposed rule.

SEC Announces Compliance Outreach Program Seminars for Investment Adviser and Investment Company Senior Officers
April 30, 2015 (Litigation Release No. 79)
The SEC has announced the schedule for Compliance Outreach Program. The regional seminars are specifically for investment adviser and investment company senior officers. The regional seminars will be sponsored in six cities (Miami, New York, Chicago, Denver, Philadelphia and Los Angeles) later this year (from June to September). The seminars will include an overview of the SEC’s National Exam Program, as well as a discussion of current topics of interest for the Division of Investment Management, and the Enforcement Division’s Asset Management Unit. Click here for a link to the SEC’s release which include the dates, location, description and registration link for each seminar. For more information contact: