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Preview: SEC.gov Updates: Press Releases

Press Releases



Official announcements highlighting recent actions taken by the SEC and other newsworthy information.



Published: Thu, 23 Feb 2017 15:35:00 -0500

Last Build Date: Thu, 23 Feb 2017 15:35:00 -0500

 



SEC Announces Agenda for March 9 Investor Advisory Committee Meeting

Thu, 23 Feb 2017 15:35:00 -0500

The Securities and Exchange Commission today announced the agenda for the March 9 meeting of its Investor Advisory Committee.  The meeting will commence at 9:30 a.m. in the Multipurpose Room at SEC headquarters at 100 F Street, N.E., Washington, D.C. and is open to the public.  The meeting will be webcast live and archived on the committee’s website for later viewing.

The committee will hold two panel discussions, one on research into investor behavior and financial capability and another on unequal voting rights of common shares.

The committee welcomes new member Jerome H. Solomon, a fixed-income portfolio manager at Capital Group.  Members of the committee represent a wide variety of investor interests, including those of individual and institutional investors, senior citizens, and state securities commissions.  For a full list of committee members, see the committee’s webpage.

The Investor Advisory Committee was established under Section 911 of the Dodd-Frank Act to advise the SEC on regulatory priorities, the regulation of securities products, trading strategies, fee structures, the effectiveness of disclosure, and on initiatives to protect investor interests and to promote investor confidence and the integrity of the securities marketplace.  The Dodd-Frank Act authorizes the committee to submit findings and recommendations to the Commission.




SEC Staff Issues Guidance Update and Investor Bulletin on Robo-Advisers

Thu, 23 Feb 2017 11:30:00 -0500

The Securities and Exchange Commission today published information and guidance for investors and the financial services industry on the fast-growing use of robo-advisers, which are registered investment advisers that use computer algorithms to provide investment advisory services online with often limited human interaction. 

Because of the unique issues raised by robo-advisers, the Commission’s Division of Investment Management issued guidance for investment advisers with suggestions on meeting disclosure, suitability and compliance obligations under the Investment Advisers Act of 1940.

A second publication, an Investor Bulletin issued by the SEC’s Office of Investor Education and Advocacy, provides individual investors with information they may need to make informed decisions if they consider using robo-advisers.

The Investor Bulletin describes a number of issues investors should consider, including:

  • The level of human interaction important to the investor
  • The information the robo-adviser uses in formulating recommendations
  • The robo-adviser’s approach to investing
  • The fees and charges involved

“As technology continues to improve and make profound changes to the financial services industry, it’s important for regulators to assess its impact on U.S. markets and give thoughtful guidance to market participants,” said SEC Acting Chairman Michael Piwowar. “ This information is designed to help investors tap into the opportunities that fintech innovation can provide while ensuring fairness and investor protection.”

Investors can use the SEC’s Investment Adviser Public Disclosure (IAPD) database, which is available on Investor.gov, to research the background, including registration or license status and disciplinary history, of any individual or firm recommending an investment, including robo-advisers, which are typically registered as investment advisers with either the SEC or one or more state securities authorities.

Robo-advisers, as registered investment advisers, are subject to the substantive and fiduciary obligations of the Advisers Act. The Guidance Update notes that there may be a variety of means for a robo-adviser to meet its obligations to clients under the Advisers Act, and that not all of the issues addressed in the Guidance Update will be applicable to every robo-adviser.

Rochelle Kauffman Plesset, and Robert Shapiro from the Division of Investment Management contributed substantially to preparing the Guidance Update, with significant assistance from the Division of Investment Management’s Risk and Examinations Office and the Office of Compliance Inspections and Examinations. Owen Donley, Jill Felker, and Holly Pal from the Office of Investor Education and Advocacy contributed substantially to preparing the Investor Bulletin.

Both publications follow the Commission’s Fintech Forum, held Nov. 14, 2016, which included a panel discussion on robo-advisers.




SEC to Host Crowdfunding Dialogue February 28

Tue, 21 Feb 2017 11:45:44 -0500

The Securities and Exchange Commission will host a crowdfunding symposium Feb. 28, covering research, challenges, opportunities, and the effects of securities-based crowdfunding on various market participants.

The Commission’s Division of Economic and Risk Analysis is partnering with NYU’s Salomon Center for the Study of Financial Institutions to bring together regulators, practitioners, and academics for the half-day event. Presentations and discussions will focus on protecting investors while facilitating capital formation.

“We are excited to collaborate with NYU in this event focused on new sources of capital formation, and designed to bring together academics, industry participants, and the SEC,” notes Acting Chairman Michael Piwowar.

Regulation Crowdfunding, a key JOBS Act rulemaking that went into effect on May 16, 2016, allows for a large number of retail investors to be solicited on the web and through social media to purchase unregistered securities of small private companies. Additionally, the rule establishes a new type of intermediary – the funding portal – that brings buyers and sellers together online.

To date, 21 funding portals have emerged to facilitate these transactions, with 163 deals initiated, of which 33 have completed their fundraising. Approximately $10 million of new capital has been raised in total since Regulation Crowdfunding became effective.

The event is free and open to the public, and will kick off with welcoming remarks by SEC Acting Chairman Michael Piwowar at 9:15 am at the SEC’s headquarters building at 100 F Street, NE. A webcast will be available at sec.gov. For individuals wishing to attend, please register in advance and provide photo ID to the security personnel at the front desk.




SEC, NASAA Sign Info-Sharing Agreement for Crowdfunding and Other Offerings

Fri, 17 Feb 2017 11:45:52 -0500

The Securities and Exchange Commission and the North American Securities Administrators Association today signed an information-sharing agreement as new rules to facilitate intrastate crowdfunding offerings and regional offerings take effect.

The agreement signed by the SEC and NASAA is intended to facilitate the sharing of information to ensure that the new exemptions are serving their intended purpose of facilitating access to capital for small businesses. Under the memorandum of understanding (MOU), federal and state securities regulators will be better able to monitor the effects of the new rules and also guard against fraud.

The MOU was signed by SEC Acting Chairman Michael S. Piwowar and Mike Rothman, Minnesota Commissioner of Commerce and President of NASAA, which represents state securities administrators.

The agreement not only builds on an already productive relationship between the SEC and state regulators, it also offers additional insights and protections as we help companies grow and create jobs while providing new opportunities to investors.
-Acting Chairman Piwowar

“The agreement not only builds on an already productive relationship between the SEC and state regulators, it also offers additional insights and protections as we help companies grow and create jobs while providing new opportunities to investors,” said Acting Chairman Piwowar.

“This agreement will strengthen collaboration among state and federal securities regulators to help expand small-business investment opportunities while also protecting investors,” said Rothman. “Ongoing dialogue is essential to carry out our responsibilities going forward. With this MOU in place, we have an opportunity to share information that will bolster our efforts to support small business capital formation and prevent fraud."

Under the new rules, companies will have more flexibility to engage in intrastate offers through websites and social media without having to register their offering with the federal government. Companies now can also raise up to $5 million per year through other amended rules, which could facilitate the development of regional offering exemptions at the state level to permit companies to raise from investors in a specific region. The previous limit was $1 million.

New JOBS Act rules went into effect in 2015 and 2016.  New amendments to facilitate regional offerings went into effect in January and amendments to provide more flexibility for intrastate crowdfunding offerings will go into effect in April.  These amendments are intended to facilitate greater access to capital for entrepreneurs that may not have been able to otherwise access capital using other alternatives. The MOU will increase the regulators’ ability to share data to better monitor implementation of the new rules and guard against fraud.  

NASAA President Mike Rothman (L) and SEC Acting Chairman Michael Piwowar sign MOU.




SEC Charges Fuel Cell Company and Officers With Defrauding Investors

Tue, 14 Feb 2017 15:45:00 -0500

The Securities and Exchange Commission today charged a California-based penny stock company and four corporate officers with misleading investors about the research, development, and profitability of their purported business to manufacture power generation products such as fuel cells.

The SEC alleges that while raising approximately $7.9 million from investors in Terminus Energy Inc., the company and its officers claimed to have a viable prototype capable of being sold and earning revenue.  According to the SEC's complaint, Terminus did not have the fuel cell technology or the funding to match their claims, and the officers were instead converting substantial amounts of investor funds to their own use.

According to the SEC’s complaint, the company failed to disclose to investors that Terminus’s operations manager George Doumanis is a convicted felon who went to prison for securities fraud and was secretly acting as an officer of the company despite being barred from participating in penny stock offerings.  Emanuel Pantelakis served on the Terminus board of directors despite having been permanently barred by the Financial Industry Regulatory Authority.  Also charged in the SEC’s complaint are Terminus’s CEO Danny B. Pratte and its former president, director, and legal counsel Joseph L. Pittera. 

Terminus also allegedly used unregistered brokers to sell its securities and paid them more than twice as much in commissions than was disclosed to investors in offering documents.  Joseph Alborano is charged in the SEC’s complaint with soliciting and selling investments for which he received more than $1 million in commissions.

“As alleged in our complaint, these company insiders spent massive, undisclosed amounts of investor funds and left the company with no realistic chance of developing a fuel cell product,” said Eric I. Bustillo, Director of the SEC’s Miami Regional Office.

In a parallel action, the U.S. Attorney’s Office for the Southern District of New York today filed criminal charges against Pratte, Doumanis, and Pantelakis. 

The SEC’s complaint seeks disgorgement of ill-gotten gains plus interest and penalties as well as officer-and-director bars and penny stock bars.

The SEC’s investigation, which is continuing, is being conducted by Robert H. Murphy and Mark Dee in the Miami office.  The case is being supervised by Jessica M. Weissman, and the litigation is being led by Alejandro Soto.  The SEC appreciates the assistance of the U.S. Attorney’s Office for the Southern District of New York and the Federal Bureau of Investigation.




SEC Announces Cases Related to Disclosures During Battles for Corporate Control

Tue, 14 Feb 2017 15:40:00 -0500

The Securities and Exchange Commission today announced two enforcement actions involving disclosure violations that deprived investors of material information during battles for corporate control of publicly traded companies.

In one case, the SEC’s order finds that Texas-based oil refinery company CVR Energy made inadequate disclosures in SEC filings about “success fee” arrangements with two investment banks retained by the company to fend off a hostile takeover bid.  Shareholders were consequently unaware of potential conflicts of interest that stemmed from the fee arrangements, namely that the banks could still earn success fees even if the hostile bidder secured control of the company.  CVR agreed to settle the case without admitting or denying the findings in the SEC’s order, which notes that the company will not pay a penalty due to its remedial acts and extensive cooperation with the investigation.

The SEC’s order in the other case finds that groups of investors failed to properly disclose ownership information during a series of five campaigns to influence or exert control over microcap companies.  Jeffrey E. Eberwein and Charles M. Gillman collaborated with mutual fund adviser Heartland Advisors in some of these campaigns, and other campaigns involved a hedge fund adviser headed by Eberwein called Lone Star Value Management and a private fund advised by Gillman called Boston Avenue Capital.  In each of these campaigns, the groups collectively owned more than five percent and sometimes even more than 10 percent of the companies’ outstanding common stock, yet the required ownership filings to disclose that information to the investing public were either incomplete, untimely, or altogether absent.  Without admitting or denying the findings, they consented to the SEC’s order and agreed to penalties of $90,000 for Eberwein, $30,000 for Gillman, $120,000 for Lone Star Value Management, and $180,000 for Heartland Advisors.

“Full, fair, and accurate disclosures from all parties in a battle for corporate influence or control are critically important to investors particularly when they are called upon to make decisions about their investments,” said Gerald Hodgkins, Associate Director of the SEC Division of Enforcement.  “Investors in these companies were deprived of key facts needed to make informed investment decisions.”

The SEC’s investigation into CVR was conducted by Nicholas A. Brady and supervised by Anita B. Bandy, and the other investigation was conducted by Jonathan M. Cowen and supervised by Jeffrey P. Weiss.  Providing assistance in both investigations was Nicholas Panos of the SEC Division of Corporation Finance’s Office of Mergers & Acquisitions.




Purported Real Estate Investment Manager Settles Fraud Charges

Tue, 14 Feb 2017 12:35:00 -0500

The Securities and Exchange Commission today announced that a purported real estate investment manager has agreed to pay more than a half-million dollars to settle charges that he pocketed investor money in an investment scheme.

The SEC alleges that James P. Toner Jr. of Scottsdale, Ariz., siphoned $51,000 from investors who were falsely told that he would personally manage some of the real estate projects in which they were purchasing interests.  The stated purpose of each investor offering was to purchase a residential property in the Phoenix area, renovate that property, and then sell it for a profit. 

According to the SEC’s complaint, Toner took $31,000 in undisclosed management fees even though he did not manage any of the offerings, and stole $20,000 directly from an investor.  Without conducting any due diligence, Toner allegedly entrusted the management of the investments to a real estate broker who subsequently squandered investor funds.  According to the SEC’s complaint, the real estate broker was later imprisoned for other crimes.

In addition to falsely stating that he planned to personally manage some of the properties, Toner allegedly told investors he would make personal investments in the projects when in fact he never did.  In order to skirt the registration requirements for the offerings, Toner allegedly instructed some investors to falsely state that they were accredited investors.

“As alleged in our complaint, Toner defrauded investors with false promises that he would manage their investments and personally invest along with them.  Instead he siphoned off some investor money as management fees and handed over the rest to a third party without any due diligence,” said Andrew M. Calamari, Director of the SEC’s New York Regional Office.

Without admitting or denying the allegations, Toner consented to the entry of a court order requiring him to pay disgorgement of $51,358 plus interest of $4,893.98 and a penalty of $450,000.  The settlement is subject to court approval.

The SEC’s investigation was conducted in the New York office by Jorge G. Tenreiro, Elizabeth Butler, Neil Hendelman, and Sandeep Satwalekar, and the case was supervised by Sanjay Wadhwa.  The SEC appreciates the assistance of the Internal Revenue Service, U.S. Attorney’s Office for the District of Arizona, and Pennsylvania Attorney General’s office.




Morgan Stanley Settles Charges Related to ETF Investments

Tue, 14 Feb 2017 11:40:00 -0500

The Securities and Exchange Commission today announced that Morgan Stanley Smith Barney has agreed to pay an $8 million penalty and admit wrongdoing to settle charges related to single inverse ETF investments it recommended to advisory clients.

The SEC’s order finds that Morgan Stanley did not adequately implement its policies and procedures to ensure that clients understood the risks involved with purchasing inverse ETFs.  Among the order’s findings, Morgan Stanley failed to obtain from several hundred clients a signed client disclosure notice, which stated that single inverse ETFs were typically unsuitable for investors planning to hold them longer than one trading session unless used as part of a trading or hedging strategy.  Morgan Stanley solicited clients to purchase single inverse ETFs in retirement and other accounts, the securities were held long-term, and many of the clients experienced losses.

The SEC’s order further finds that Morgan Stanley failed to follow through on another key policy and procedure requiring a supervisor to conduct risk reviews to evaluate the suitability of inverse ETFs for each advisory client.  Among other compliance failures, Morgan Stanley did not monitor the single-inverse ETF positions on an ongoing basis and did not ensure that certain financial advisers completed single inverse ETF training.

“Morgan Stanley recommended securities with unique risks and failed to follow its policies and procedures to ensure they were suitable for all clients,” said Antonia Chion, Associate Director of the SEC Enforcement Division.

The SEC’s investigation was conducted by Breanne Atzert, Helaine Schwartz, and Stephan Schlegelmilch, and the case was supervised by Lisa Deitch and Antonia Chion. 

*   *   *

Investors can learn more about the risks involved with leveraged and inverse ETFs by reading an investor alert issued by the SEC and FINRA.




Brokerage Firm Paying Penalty for Compliance and Trading Surveillance Failures

Mon, 13 Feb 2017 14:40:00 -0500

The Securities and Exchange Commission today announced that a New York-based brokerage firm has agreed to pay a $100,000 penalty to settle charges of compliance and trading surveillance failures.

Federal securities laws require firms to enforce policies and procedures to prevent the misuse of material, nonpublic information to which their employees routinely have access.  The SEC’s order finds that Sidoti & Company LLC had no written policies or procedures in place from November 2014 to July 2015 as it pertained to those making investment decisions for an affiliated hedge fund that invested in issuers covered by Sidoti’s research department and some other issuers for which Sidoti provided investment banking services.  For example, Sidoti maintained a “daily restricted list” of securities restricting personal trading because Sidoti was involved in investment banking or marketing activities or the firm was publishing research on the security.  There were 126 instances from Nov. 3, 2014 to May 5, 2015 when the hedge fund traded in a stock that appeared on the daily restricted list. 

“Sidoti did not devote sufficient resources to set up the requisite trade surveillance and compliance systems and failed to meet its obligation to prevent the misuse of material nonpublic information,” said Andrew M. Calamari, Director of the SEC’s New York Regional Office.

Without admitting or denying the findings, Sidoti consented to the SEC’s order finding that the firm violated Section 15(g) of the Securities Exchange Act of 1934. 

The SEC’s investigation was conducted in the New York office by Pamela Sawhney, Jason W. Sunshine, and Sandeep Satwalekar, and the case was supervised by Sanjay Wadhwa.  The SEC examination that led to the investigation was conducted by Jennifer Grumbrecht, Lourdes Caballes, Evett Evelyn, and Sabrina Rubin.




SEC Charges Chinese Citizens Who Reaped Massive Profits From Insider Trading on Comcast-Dreamworks Acquisition

Fri, 10 Feb 2017 14:25:00 -0500

The Securities and Exchange Commission today announced that it obtained an emergency court order freezing brokerage accounts holding more than $29 million in illegal profits from insider trading in advance of the April 2016 acquisition of DreamWorks Animation SKG, Inc. by Comcast Corp.

The SEC alleges that in the weeks leading up to the news of the acquisition, Shaohua (Michael) Yin amassed more than $56 million of DreamWorks stock in the U.S. brokerage accounts of five Chinese nationals, including his elderly parents.  DreamWorks stock price rose 47.3% once the acquisition was announced.  

In a complaint filed in U.S. District Court in the Southern District of New York, the SEC alleged the five accounts reaped $29 million from the DreamWorks trades.  The complaint also alleges the accounts profited from other suspicious trading in another U.S.-based company and three China-based companies ahead of market-moving news.

Yin, a partner at Summitview Capital Management Ltd., a Hong Kong-based private equity firm, allegedly did not trade in DreamWorks stock through his own account but instead traded through five accounts from addresses in Beijing and Palo Alto and on a computer that also accessed Yin’s email accounts.

“Despite the defendant’s alleged attempts to hide his control over these accounts, the SEC’s data analytic investigative tools enabled us to determine who was behind the suspicious trading,” said Michele Wein Layne, Director of the SEC's Los Angeles Regional Office.  “Our action today shows that the SEC will not hesitate to freeze the assets of foreign traders when they use our markets to conduct illegal activity.”

On February 10, Judge J. Paul Oetken of the U.S. District Court for the Southern District of New York granted the SEC’s request for an asset freeze of the five brokerage accounts and issued an order to show cause why an injunction and other relief should not be issued. A hearing has been scheduled for February 17.

The SEC’s complaint charges Michael Yin with securities fraud and names the holders of the five brokerage accounts – Lizhao Su, Zhiqing Yin, Jun Qin, Yan Zhou and Bei Xie – as relief defendants.  The SEC is seeking a permanent injunction, return of allegedly ill-gotten profits, civil money penalties, and other relief.

The SEC’s investigation has been conducted by Jasmine Starr, Sarah Mitchell, and Finola H. Manvelian of the Los Angeles Regional Office, with assistance from John Rymas of the Enforcement Division’s Market Abuse Unit.  The SEC’s litigation will be led by Gary Leung and Amy Longo.  The SEC appreciates the assistance of the Financial Industry Regulatory Authority.




SEC Announces Agenda for February 15 Meeting of the Advisory Committee on Small and Emerging Companies

Wed, 08 Feb 2017 14:00:30 -0500

The Securities and Exchange Commission today announced the agenda for the February 15 meeting of its Advisory Committee on Small and Emerging Companies.  The committee will discuss secondary market liquidity for Regulation A companies and reporting companies not listed on an exchange, and explore why more companies may be choosing to stay private.  It also will consider recommendations on corporate board diversity and on the treatment of so-called “finders” that assist companies in capital raising activities. The February 15 meeting will begin at 9:30 a.m. in the multipurpose room at the SEC’s headquarters at 100 F Street, N.E., Washington, D.C., and is open to the public.  It will be webcast live on the SEC’s website and archived on the website for later viewing.  The committee provides a formal mechanism for the SEC to receive advice and recommendations on privately held small businesses and publicly traded companies with a market capitalization less than $250 million. Members of the public who wish to provide their views on the matters to be considered by the committee may submit comments electronically or on paper.  Please submit comments using one method only.  Information that is submitted will become part of the public record of the meeting. Electronic submissions: Use the SEC’s Internet submission form or send an e-mail to rule-comments@sec.gov. Paper submissions: Send paper submissions to Brent Fields, Secretary, Securities and Exchange Commission, 100 F Street, N.E., Washington, D.C. 20549-1090. All submissions should refer to File Number 265-27, and the file number should be included on the subject line if e-mail is used.   AGENDA 9:30 a.m. Co-Chairs Call Meeting to Order Introductory Remarks by Acting Chairman Piwowar and Commissioner Stein 9:50 a.m. Secondary Market Liquidity for Regulation A Tier 2 and Non-Exchange Listed Companies Presentations Richard I. Alvarez, Law Office of Richard I. Alvarez; Vice-Chair of the State Regulation of Securities Committee of the American Bar Association Martin A. Hewitt, Attorney at Law; Chair of the State Regulation of Securities Committee of the American Bar Association Committee Discussion 11:30 a.m. Broker Dealer Status of Finders Committee Discussion of Potential Recommendation 12:15 p.m. Lunch Break 1:45 p.m. Why Are More Companies Staying Private? Presentations James A. Hutchinson, Partner, Goodwin Procter LLP Glen Giovannetti, Global Biotechnology Sector Leader, Ernst & Youngo    Yanev Suissa, Founder, SineWave Ventures Committee Discussion 3:15 p.m. Finalize Board Diversity Recommendation 3:30 p.m. Adjournment [...]



Private Equity Adviser Barred From Industry for Improper Withdrawal From Funds

Tue, 07 Feb 2017 13:05:00 -0500

The Securities and Exchange Commission today announced that a private equity adviser has been permanently barred from the securities industry and must pay a $1.25 million penalty to settle charges that he withdrew improper fees from two private equity funds he managed.

The SEC’s order finds that Scott M. Landress formed the funds to invest in real estate trusts with underlying investments in properties throughout the UK.  His investment advisory firm SLRA Inc. earned management fees based on the net asset value of the underlying investments.  SLRA’s fees shrank and its management costs increased as real estate property values fell during the financial crisis, and the funds’ limited partners declined several requests by Landress for additional compensation to cover the shortfalls.

According to the SEC’s order, Landress directed SLRA to withdraw 16.25 million pounds from the funds in early 2014, purportedly as payment for several years of services provided by an affiliate.  He subsequently transferred the money to his personal account.  SLRA and Landress did not disclose the related-party transaction and the resulting conflicts of interest until after the money had been withdrawn.

According to the SEC’s order, Landress and SLRA returned the withdrawn service fees to the funds after the SEC began its investigation.

“Private equity fund advisers have a duty to act in the best interest of their clients, but Landress and SLRA helped themselves to millions of dollars’ worth of fees to which they had no legitimate claim,” said Scott W. Friestad, Associate Director of the SEC’s Division of Enforcement. 

Landress and SLRA agreed to the SEC’s cease-and-desist order without admitting or denying the findings.

The SEC’s investigation was conducted by David Becker, Gregory Padgett, Robert Dodge, and Brian Fitzpatrick, and the case was supervised by Amy Friedman and Jeffrey Finnell.




SEC Charges Financial Adviser With Stealing From Client Accounts

Fri, 03 Feb 2017 15:55:00 -0500

The Securities and Exchange Commission today charged an investment adviser representative with stealing approximately $5 million from client accounts by initiating unauthorized wire transfers and issuing checks to third parties to cover personal expenses.

The SEC alleges that Barry Connell, who worked in the New Jersey office of a major financial institution, conducted more than 100 unauthorized transactions by using falsified authorization forms misrepresenting that he received verbal requests from the clients.  Connell allegedly used money from client accounts to rent a home in suburban Las Vegas and pay for a country club membership and private jet service.

“As alleged in our complaint, Connell stole funds from clients who entrusted him their finances, choosing to fund his own lavish lifestyle rather than fulfill the fiduciary duty he owed them,” said Andrew M. Calamari, Director of the SEC’s New York Regional Office.

The SEC’s complaint charges Connell with violations of Sections 206(1) and (2) of the Investment Advisers Act of 1940.

In a parallel action, the U.S. Attorney’s Office for the Southern District of New York today filed criminal charges against Connell.

The SEC’s investigation, which is continuing, is being conducted by Jonathan Grant, George O’Kane, and Wendy Tepperman.  The litigation will be led by Dugan Bliss and the case is being supervised by Sanjay Wadhwa.  The SEC appreciates the assistance of the U.S. Attorney’s Office for the Southern District of New York and the Federal Bureau of Investigation. 




SEC Charges Investment Adviser With Stealing Investor Funds

Thu, 02 Feb 2017 12:10:00 -0500

The Securities and Exchange Commission today charged a Connecticut-based investment advisory business and its owner with stealing money from investors to settle a private lawsuit among other misuses.

The SEC alleges that Sentinel Growth Fund Management and its founder Mark J. Varacchi misrepresented to investors that money they deposited with the firm would be allocated to up-and-coming hedge fund managers for investment purposes.  According to the SEC’s complaint, Varacchi and Sentinel Growth Fund Management did not transfer all the money as promised, instead commingling investor assets and manipulating account activity, account balances, and investment returns as part of a scheme to siphon away investor funds.  Varacchi and his firm allegedly stole at least $3.95 million from investors, including more than $1 million to settle litigation brought by Varacchi’s prior employer.

“As alleged in our complaint, Varacchi promised investors that their money would be routed to up-and-coming hedge fund managers when in reality he was diverting significant portions for personal use and unauthorized business expenses,” said Anthony S. Kelly, Co-Chief of the SEC Enforcement Division’s Asset Management Unit.

The SEC’s complaint seeks disgorgement and penalties against Varacchi and Sentinel Growth Fund Management.  The complaint also names two hedge funds as relief defendants for the purposes of recovering investor assets in their possession.

The SEC’s investigation, which is continuing, is being conducted by the Asset Management Unit and the Boston Regional Office, including Robert Baker, Cynthia Baran, Trevor Donelan, Michael Moran, and Naomi Sevilla.  The SEC’s litigation will be led by Martin Healey, Mr. Baker, and Mr. Moran.    

Sentinel Growth Fund Management was not registered with the SEC or any state to do business as an investment adviser.  Investors can quickly and easily check the SEC’s investor.gov website before they invest to determine whether people selling them investments are properly registered.




Wenchi Hu, Associate Director in the Division of Trading and Markets, to Leave SEC

Mon, 30 Jan 2017 15:56:42 -0500

The Securities and Exchange Commission today announced that Wenchi Hu, an Associate Director in the Division of Trading and Markets, will leave the agency in early February.

Ms. Hu has headed the division's Office of Clearance and Settlement Supervision since August 2015, after serving three months as its Acting Associate Director. The office oversees registered clearing agencies including those that are designated systemically important in the equity, options, government and mortgage-backed securities, and security-based swaps markets. It routinely coordinates with the Federal Reserve Board, the Commodity Futures Trading Commission, and regulators outside the U.S. to enhance supervision of clearing agencies.

"Wenchi has been a tremendous source of expertise on clearance and settlement matters and played a critical role with respect to the Commission's clearing agency supervision program. During her time at the Commission, she made invaluable contributions to the review of numerous clearing agency initiatives that have had a significant impact on the national clearance and settlement system and the financial markets." said Heather Seidel, Acting Director of the Division of Trading and Markets.

During her tenure, Ms. Hu has overseen more than 150 clearing agency initiatives, including National Securities Clearing Corp.'s Accelerated Trade Guaranty, Fixed Income Clearing Corp.'s permanent adoption of its GCF repo pilot program and suspension of the GCF repo interbank program, and ICE Clear Credit's default management, recovery, and wind-down rule change. She also oversaw LCH SA's application for registration as a security-based swap clearing agency, the first by a non-U.S. clearing house.

Ms. Hu said, "It has been a great honor to serve at the Commission. I have been privileged to work with extremely talented and dedicated staff members and contribute to the Commission's important work on clearing agency oversight."

Ms. Hu joined the SEC in November 2011 as a senior special counsel in the Office of Compliance, Inspections and Examinations and later moved to the Office of Derivatives Policy in the Division of Trading and Markets. She was named Assistant Director in the division's Office of Clearance and Settlement Supervision in June 2013. Ms. Hu is a graduate of the University of California-Berkeley School of Law (Order of the Coif) and holds master's degrees from the University of Wisconsin-Madison and Harvard Law School. Before joining the SEC she worked as managing director and senior counsel at Rabobank Nederland in New York and was an associate at Cleary, Gottlieb, Steen & Hamilton LLP. 




OCIE Director Marc Wyatt to Leave SEC

Mon, 30 Jan 2017 14:27:35 -0500

The Securities and Exchange Commission today announced that Marc Wyatt, Director of the Office of Compliance Inspections and Examinations, will leave the agency next month to return to the private sector.

Mr. Wyatt joined the SEC in December 2012 as a senior specialized examiner and co-founded the Private Fund Unit within OCIE. He was named Deputy Director in October 2014 and served as Acting Director in April 2015 before being named Director in November 2015. 

“OCIE has benefited greatly from Marc’s leadership and vision,” said SEC Acting Chairman Michael Piwowar. “His efforts on enhancing our risk based exam program and the organizational changes he has put in place will leave a lasting mark on the Commission.”

“It has been an honor to serve alongside the outstanding OCIE team who work tirelessly to improve compliance, prevent fraud, monitor risk, and inform policy,” said Mr. Wyatt.  “I am grateful to have had the opportunity to work with the Commissioners and staff across the SEC to execute on our mission.”

Mr. Wyatt worked with OCIE leadership and staff on a number of initiatives and accomplishments during his tenure, including:

  • In each year, Commission staff significantly increased its examinations, including over 2,400 examinations in fiscal year 2016, a 20 percent increase over fiscal year 2015 and a seven year high in examinations conducted. 
  • By the end of fiscal year 2016, OCIE completed a reallocation of resources within the examination program that, along with focused hiring, resulted in increasing the size of the investment adviser and investment company examination staff by more than 20 percent as compared to the prior year in response to rapid industry growth. 
  • OCIE created the Office of Risk and Strategy which combined the various quantitative teams and risk professionals across OCIE into one unit to significantly increase technology-based approaches to identify risks among SEC registrant populations.
  • OCIE formed the FINRA and Securities Industry Oversight Team, or FSIO, to enhance oversight of a key industry self-regulatory organization.
  • OCIE established the Technology Controls Program, or TCP, and its Cyberwatch unit to monitor for significant events and outages related to Regulation Systems Compliance and Integrity.

Before coming to the SEC, Mr. Wyatt was a principal and senior portfolio manager of a global multi-strategy hedge fund. Prior to that, he was a senior investment banker in the U.S. and U.K.  Mr. Wyatt is a Chartered Financial Analyst. He graduated from the University of Delaware with a B.S. in economics and holds an M.B.A. from Duke University’s Fuqua School of Business. 

Upon Mr. Wyatt’s departure, Pete Driscoll, OCIE’s Chief Risk and Strategy Officer, will become the acting director. Mr. Driscoll was previously OCIE’s managing executive from 2013 through early 2016. He joined the Agency in 2001 as a staff attorney in the Division of Enforcement in the Chicago Regional Office and was later a Branch Chief and Assistant Regional Director in OCIE. Prior to the Agency, Mr. Driscoll began his career with Ernst & Young LLP and held several accounting positions in private industry. He received his B.S. in Accounting and law degree from St. Louis University.  He is licensed as a certified public accountant and is a member of the Missouri Bar Association.




SEC Announces Charges in Hamilton Ticket Resale Ponzi Scheme

Fri, 27 Jan 2017 15:15:00 -0500

The Securities and Exchange Commission today announced fraud charges against two New York City men accused of running a Ponzi scheme with money raised from investors to fund businesses purportedly created to purchase and resell tickets to such high-demand shows as Adele concerts and the Broadway musical Hamilton.

The SEC alleges that Joseph Meli and Matthew Harriton misrepresented to investors that all of their money would be pooled to buy large blocks of tickets that would be resold at a profit to produce high returns for investors.  The bulk of investor funds were allegedly used for other undisclosed purposes, namely making Ponzi payments to prior investors using money from new investors.  Meli and Harriton allegedly diverted almost $2 million for such personal expenses as jewelry purchases, private school and camp tuition, and casino payments.

According to the SEC’s complaint, the scheme went so far as to misrepresent that an agreement was in place with the producer of Hamilton to purchase 35,000 tickets to the musical.  Investor money was supposedly paying part of that cost with the return on investment promised within eight months.  The SEC alleges no such agreement or purchase ever happened.

Meli and Harriton allegedly raised more than $81 million from at least 125 investors in 13 states.

“As alleged in our complaint, Meli and Harriton raised millions from investors by promising big profits from reselling tickets to A-list events when in reality they were moving investor money in a circle and creating a mirage of profitability,” said Paul G. Levenson, Director of the SEC’s Boston Regional Office.

In a parallel action, the U.S. Attorney’s Office for the Southern District of New York today announced criminal charges against Meli.

The SEC’s complaint, filed in U.S. District Court for the Southern District of New York, charges Meli and Harriton along with their four purported ticket reselling businesses named Advance Entertainment, Advance Entertainment II, 875 Holdings, and 127 Holdings.  The complaint seeks disgorgement of ill-gotten monetary gains plus interest and penalties.  Meli’s wife and another company are named as relief defendants in the complaint for the purposes of recovering investor funds allegedly in their possession. 

The SEC’s investigation was conducted by Dahlia Rin, Rebecca Israel, John McCann, and Celia Moore of the Boston office, and the litigation will be led by Martin Healey.  The SEC appreciates the assistance of the FBI and the U.S. Attorney’s Office for the Southern District of New York. 




Chief Operating Officer Jeffery Heslop to Leave SEC

Fri, 27 Jan 2017 09:56:52 -0500

The Securities and Exchange Commission today announced SEC Chief Operating Officer Jeffery Heslop will leave the agency in February.

Mr. Heslop joined the SEC in 2010 when he was named the SEC’s first-ever COO. In the nearly seven years since joining the SEC, Mr. Heslop has led significant innovation in the agency’s approach to human capital management, business process, internal controls, and technology infrastructure.  Through his efforts, the agency has realized substantial operational cost reductions, increased efficiencies in staffing and operations, and strengthened the cooperation between various SEC offices and divisions.

In his role as COO, Mr. Heslop oversees the operations of the SEC’s Office of Human Resources; Office of Acquisitions; Office of Information Technology; Office of Strategic Initiatives; Office of Financial Management; and Office of Support Operations, which includes the SEC’s Office of Freedom of Information Act, Privacy, Records Management and Facility Operations.

During his time at the SEC, Mr. Heslop:

  • Led a team that significantly improved internal controls and compliance in financial management and information security, and eliminated persistent conditions of material weakness.
  • Developed and implemented a strategy to rehabilitate outdated technology infrastructure and organizational business process approaches to deliver dramatic improvements in customer satisfaction.
  • Championed the investment in, and oversaw the execution of, numerous business process redesign initiatives to move several SEC processes from manually-intensive, paper-based approaches to efficient, automated processes resulting in the realization of compelling cost reductions and enhanced employee productivity.

“As the SEC’s first COO, Jeff helped the agency streamline operations and leverage resources to more effectively serve the investors and markets,” said SEC Acting Chairman Michael Piwowar. “He has overseen significant improvements in technology and has helped ensure that our financial reporting controls and FOIA operations are top-notch.”

“It has been a true honor to serve with the extraordinarily dedicated and self-sacrificing professionals who comprise the agency’s staff,” said SEC COO Jeffery Heslop. “In particular, I would like to extend my deepest appreciation to the staff members from the offices under the Office of the Chief Operating Officer, who, through their collaborative effort, have played an instrumental role in an effort to modernize the agency’s human capital, business process, and technological capabilities. Their contribution to the SEC’s unwavering and deep commitment to protect America’s investors has been simply remarkable, and I am deeply grateful to have had the privilege of leading them.”

Before joining the SEC, Mr. Heslop worked at Capital One for 12 years, including in the role of Managing Vice President of Information Risk Management. He also served in the U.S. Army from 1976 to 1998, rising to the rank of Lieutenant Colonel. Mr. Heslop received his Bachelor of Arts from Davidson College and his MBA from the College of William and Mary.

Upon Mr. Heslop’s departure, Kenneth Johnson, SEC Chief Financial Officer, will become the Acting Chief Operating Officer.




Citigroup Paying $18 Million for Overbilling Clients

Thu, 26 Jan 2017 12:10:00 -0500

The Securities and Exchange Commission today announced that Citigroup Global Markets has agreed to pay $18.3 million to settle charges that it overbilled investment advisory clients and misplaced client contracts.

The SEC’s order finds that at least 60,000 advisory clients were overcharged approximately $18 million in unauthorized fees because Citigroup failed to confirm the accuracy of billing rates entered into its computer systems in comparison to fee rates outlined in client contracts, billing histories, and other documents.  Citigroup also improperly collected fees during time periods when clients suspended their accounts.  The billing errors occurred during a 15-year period, and the affected clients have since been reimbursed.

“Advisory clients have every expectation that the fees charged by their financial adviser reflect the negotiated rate.  Citigroup failed to take the necessary precautions to ensure clients were billed in a manner consistent with their advisory agreements,” said Andrew M. Calamari, Director of the SEC’s New York Regional Office.

The SEC’s order further finds that Citigroup cannot locate approximately 83,000 advisory contracts for accounts opened from 1990 to 2012.  Without those missing advisory contracts, Citigroup could not properly validate whether the fee rates negotiated by clients when accounts were opened were the same advisory fee rates being billed to clients over the years.  It is estimated that Citigroup received approximately $3.2 million in excess fees from advisory clients whose contracts were lost.

“It’s a fundamental responsibility of a financial adviser to preserve key account documents such as advisory contracts.  Citigroup failed to safeguard its client contracts, which seriously impeded its ability to determine the proper amount of fees the firm was authorized to charge,” said Sanjay Wadhwa, Senior Associate Director of the SEC’s New York office.

Citigroup consented to the SEC’s cease-and-desist order and agreed to undertakings related to its fee-billing and books-and-records practices.  The firm is censured and must pay $3.2 million in disgorgement of the excess fees collected due to the missing contracts plus $800,000 in interest and a $14.3 million penalty.

The SEC’s investigation has been conducted by Olivia Zach and Celeste Chase in the New York office and supervised by Mr. Wadhwa.




SEC Charges Two Former Och-Ziff Executives With FCPA Violations

Thu, 26 Jan 2017 11:00:01 -0500

The Securities and Exchange Commission today charged two former executives at Och-Ziff Capital Management Group with being the driving forces behind a far-reaching bribery scheme that violated the Foreign Corrupt Practices Act (FCPA).

Och-Ziff and two other executives previously settled charges against them in the case.

The SEC’s complaint filed today alleges that Michael L. Cohen, who headed Och-Ziff’s European office, and an investment executive on Africa-related deals, Vanja Baros, caused tens of millions of dollars in bribes to be paid to high-level government officials in Africa.  Their alleged misconduct induced the Libyan Investment Authority sovereign wealth fund to invest in Och-Ziff managed funds.  Cohen and Baros also allegedly directed illicit efforts to secure mining deals to benefit Och-Ziff by directing bribes to corruptly influence government officials in Chad, Niger, Guinea, and the Democratic Republic of the Congo. 

“As alleged in our complaint, Cohen and Baros were the masterminds of Och-Ziff’s bribery scheme that improperly used investor funds to pay bribes through agents and partners to officials at the highest levels of foreign governments,” said Kara Brockmeyer, Chief of the SEC’s FCPA Unit. 

The SEC’s complaint charges Cohen and Baros with violating the FCPA and Section 30A of the Securities Exchange Act, and aiding and abetting Och-Ziff’s violations.  Cohen also is charged with violating Sections 206(1) and 206(2) of the Investment Advisers Act.  The SEC is seeking monetary penalties against Cohen and Baros among other remedies.

The SEC’s investigation was conducted by Neil Smith and Paul Block of the FCPA Unit and Rory Alex of the Boston Regional Office.  The litigation is being led by Marc Jones and Martin Healey of the Boston office.  The SEC appreciates the assistance of the Fraud Section of the U.S. Department of Justice, the U.S. Attorney’s Office for the Eastern District of New York, the Federal Bureau of Investigation, and the Internal Revenue Service’s Criminal Investigations Division.  The SEC also appreciates the assistance of the United Kingdom’s Financial Conduct Authority as well as the Guernsey Financial Services Commission, Jersey Financial Services Commission, Malta Financial Services Authority, Cyprus Securities and Exchange Commission, Gibraltar Financial Services Commission, and Swiss Ministry of Justice.




Brokerage Firm Charged With Gatekeeper Failures Related to Pump-and-Dump Scheme

Wed, 25 Jan 2017 16:40:00 -0500

The Securities and Exchange Commission today announced administrative proceedings against New York-based brokerage firm Windsor Street Capital and its former anti-money laundering officer John D. Telfer.  The SEC’s Enforcement Division alleges that the firm, formerly named Meyers Associates L.P., failed to file Suspicious Activity Reports (SARs) for $24.8 million in suspicious transactions, including those occurring in accounts controlled by microcap stock financiers Raymond H. Barton and William G. Goode who are separately charged today by the SEC with conducting a pump-and-dump scheme.  The SEC’s Enforcement Division alleges that Meyers Associates and Telfer should have known about the suspicious circumstances behind many transactions occurring in customer accounts.  Customers like Barton and Goode allegedly deposited large blocks of penny stocks, liquidated them typically amid substantial promotional activity, and then transferred the proceeds away from the firm.  The SEC’s Enforcement Division further alleges that the shares deposited by Barton and Goode could not be sold legally because no registration statement was in effect and no registration exemption was available.  Rather than conduct a reasonable inquiry into the deposits, Meyers Associates allegedly accepted registration exemption claims by Barton and Goode at face value. “The SEC’s Broker-Dealer Task Force AML initiative is focused precisely on the conduct charged against Meyers Associates, which we allege systematically flouted its obligations under the securities laws to report suspicious activity,” said Andrew M. Calamari, Director of the SEC’s New York Regional Office and Co-Chair of the Enforcement Division’s Broker-Dealer Task Force.  “We allege that when other brokerage firms were rejecting similar deposits by Barton and Goode, Meyers Associates not only effectuated their illegal stock sales but then failed to report them as required by law.” The matter pertaining to Meyers Associates and Telfer will be scheduled for a public hearing before an administrative law judge, who will prepare an initial decision stating what, if any, remedial actions are appropriate. The SEC separately filed a complaint in federal court against Barton and Goode along with Matthew C. Briggs, Kenneth Manzo, and Justin Sindelman.  The complaint alleges they participated in a pump-and-dump scheme that acquired shares of dormant shell companies supposedly in the dietary supplement business, falsely touted news and products stemming from those companies, and dumped the shares on the market for investors to purchase at inflated prices. Without admitting or denying the allegations, Barton, Goode, and Briggs agreed to settle the charges and consented to court orders requiring them to pay disgorgement plus interest and penalties totaling more than $8.7 million.  Manzo agreed to admit wrongdoing and pay more than $95,000 to settle the charges.  The litigation continues against Sindelman. The SEC’s investigation was conducted by Phil Fortino, Bennet Ellenbogen, Diego Brucculeri, Jordan Baker, Sandeep Satwalekar, and Charles D. Riely, and the case was supervised by Lara Shalov Mehraban, Associate Director for Enforcement in the New York office, and Joseph Sansone, Co-Chief of the Market Abuse Unit.  The litigation will be led by Jack Kaufman, Mr. Fortino, and Mr. Ellenbogen.  The SEC’s examination that led to the investigation was conducted by Steven C. Vitulano, Terrence P. Bohan, Stephen Bilezikjian, and Her[...]



SEC Uncovers Cherry-Picking Scheme, Charges Investment Adviser Behind It

Wed, 25 Jan 2017 14:30:00 -0500

The Securities and Exchange Commission today announced that a Massachusetts-based investment adviser agreed to be banned from the securities industry after the agency uncovered an illegal cherry-picking scheme through its data analysis used to detect suspicious trading patterns.

The SEC filed fraud charges in federal district court against Michael J. Breton and his firm Strategic Capital Management, alleging they defrauded clients out of approximately $1.3 million.  Breton allegedly placed trades through a master brokerage account and then allocated profitable trades to himself while placing unprofitable trades into the client accounts. 

Breton and his firm agreed to a partial settlement subject to court approval.  Monetary sanctions would be determined at a later date.  In a parallel action, the U.S. Attorney’s Office for the District of Massachusetts today announced criminal charges against Breton.

“As alleged in our complaint, Breton assured clients that he would put their interests first but did just the opposite, taking the firm’s most profitable trades for himself and dumping the losing trades on his clients,” said Joseph G. Sansone, Co-Chief of the SEC Enforcement Division’s Market Abuse Unit.  “Our probing analytical work will continue to root out investment advisers who subject their clients to cherry-picking.”

The Market Abuse Unit’s analysis of Breton’s trading showed that he defrauded at least 30 clients during a six-year period as outlined in the SEC’s complaint.  Breton allegedly purchased securities for his own accounts and the client accounts through a block trading or master account on days when public companies scheduled earnings announcements.  He typically delayed allocation of those trades until later in the day after learning the substance of the announcement. 

According to the SEC’s complaint, when companies announced positive earnings that would presumably increase the stock value, Breton disproportionately allocated those trades to his accounts.  And when a company announced negative earnings that would presumably decrease the stock value, Breton disproportionately allocated those trades to client accounts.

The SEC’s complaint charges Breton and Strategic Capital Management with violating Section 10(b) of the Securities Exchange Act and Rule 10b-5 as well as Sections 206(1) and 206(2) of the Investment Advisers Act.  Breton and his firm agreed to be permanently enjoined from future misconduct, and Breton consented to the issuance of an SEC order barring him from the securities industry.

The SEC’s investigation was conducted by Caitlyn M. Campbell, Eric Forni, David Makol, and Michele T. Perillo of the Market Abuse Unit in the Boston Regional Office with assistance from John Rymas of the Market Abuse Unit and Stuart Jackson and Raymond Wolff in the Division of Economic and Risk Analysis.  The SEC appreciates the assistance of the U.S. Attorney’s Office for the District of Massachusetts and the Boston field office of the Federal Bureau of Investigation.  




Timothy L. Warren, Associate Director of Enforcement in Chicago Office, to Retire After 30 Years of Service

Tue, 24 Jan 2017 15:30:00 -0500

The Securities and Exchange Commission today announced that Timothy L. Warren, Associate Director of Enforcement in the Chicago Regional Office, is retiring at the end of this month after more than 30 years of service. Since his appointment to Associate Director, Mr. Warren has supervised a staff of more than 40 attorneys and other professionals responsible for investigating potential violations of the federal securities laws by a wide range of market participants.  Mr. Warren also has been significantly involved in international enforcement training with the Office of International Affairs to build capacity and strengthen partnerships with the SEC’s international counterparts, including conducting programs held in India, Malaysia, Vietnam, South Korea, Kenya, Swaziland, Romania, Saudi Arabia, Bahrain, Jordan, Indonesia, United Arab Emirates, and Turkey.  Before his appointment to Associate Director in 1998, Mr. Warren previously served as Assistant Regional Director, Branch Chief, and Staff Attorney.  Mr. Warren joined the SEC’s staff in 1985 following his graduation from law school. “Tim has been a dedicated public servant who has contributed greatly to the SEC’s mission,” said Stephanie Avakian, Acting Director of the SEC’s Enforcement Division.  “Tim is an institution in the Chicago Regional Office with an extremely long list of creative and high-impact actions that have protected investors and our markets.” David Glockner, Director of the SEC’s Chicago Regional Office, added, “Tim handled and oversaw scores of significant cases during his career, but his most enduring legacy is the generation of lawyers that he mentored during his 18 years as a leader of our office’s enforcement program.” Mr. Warren added, “I am extremely fortunate to have had the opportunity to spend my entire legal career at the Commission working for the benefit of the investing public, I relish the time I spent working with like-minded overseas regulators, and am very grateful to have worked with such talented and extraordinary individuals as those resident in the SEC’s Chicago Office.” Under Mr. Warren’s leadership, the SEC has brought enforcement actions addressing a wide variety of misconduct, including: A proceeding against national audit firm Grant Thornton LLP and two of its partners for improper professional conduct arising from ignoring red flags and fraud risks while conducting deficient audits of two publicly traded companies – Broadwind Energy Inc. and Assisted Living Concepts Inc.   Securities fraud charges against the State of Illinois for allegedly misleading municipal bond investors about the state’s approach to funding its pension obligations.   Fraud charges against Hollinger International’s former chairman and CEO Conrad M. Black, former deputy chairman and COO F. David Radler, and Hollinger Inc., a Canadian public holding company controlled by Black, alleging that they diverted cash and assets from Hollinger International and concealed their self-dealing from Hollinger International’s public shareholders.   Charges against Bristol-Myers Squibb Co. for allegedly perpetrating a fraudulent earnings management scheme by, among other things, selling excessive amounts of pharmaceutical products to its wholesalers ahead of demand, improperly recognizing revenue from $1.5 billion of such sales to its two largest wholesalers and using “cookie jar” reserves to meet its internal sale[...]



Morgan Stanley, Citigroup Charged With Misleading Investors About Forex Trading Program

Tue, 24 Jan 2017 12:40:00 -0500

The Securities and Exchange Commission today announced that Morgan Stanley Smith Barney and Citigroup Global Markets have agreed to pay more than $2.96 million apiece to settle charges that they made false and misleading statements about a foreign exchange trading program they sold to investors.

According to the SEC’s orders, Citigroup held a 49 percent ownership interest in Morgan Stanley Smith Barney at the time, and registered representatives at both firms were pitching a foreign exchange trading program known as “CitiFX Alpha” to Morgan Stanley customers from August 2010 to July 2011.  The SEC’s orders find that their written and verbal presentations were based on the program’s past performance and risk metrics, and they failed to adequately disclose that investors could be placed into the program using substantially more leverage than advertised and markups would be charged on each trade.  The undisclosed leverage and markups caused investors to suffer significant losses.

“Citigroup and Morgan Stanley sold securities in a complex trading program without giving certain investors important information about the risks and costs of the program,” said Eric I. Bustillo, Director of the SEC’s Miami Regional Office.  “Investors simply cannot be sold investments based on disclosures that are inaccurate or incomplete.”

The SEC’s orders find that Morgan Stanley and Citigroup violated Section 17(a)(2) of the Securities Act of 1933, which prohibits obtaining money or property by means of  any material misstatement or omission in the offer or sale of securities.  Without admitting or denying the SEC’s findings, Morgan Stanley and Citigroup each agreed to pay disgorgement of $624,458.27 plus interest of $89,277.34 and a penalty of $2.25 million for a total of more than $5.9 million combined.

The SEC’s investigation was conducted in the Miami office by Eric C. Kirsch and Gary M. Miller with assistance from Amie Riggle Berlin.  The case was supervised by Elisha L. Frank.  The examination that led to the investigation was conducted by Carlos Gutierrez and supervised by Nicholas A. Monaco and John C. Mattimore of the Miami office.




Shipping Conglomerate and Former CFO Charged With Failure to Recognize Hundreds of Millions in Tax Liabilities

Mon, 23 Jan 2017 15:45:00 -0500

The Securities and Exchange Commission today charged shipping conglomerate Overseas Shipholding Group (OSG) and its former chief financial officer Myles R. Itkin with failing to recognize hundreds of millions in tax liabilities in its financial statements that had accumulated over nearly 12 years resulting from its controlled foreign subsidiary guaranteeing OSG’s debt that had been borrowed under various credit financing agreements.  As a result of the misconduct, OSG materially understated its income tax liabilities by approximately $512 million (17 percent) of its total liabilities.  In November 2012, following the discovery of the tax liabilities, OSG filed for bankruptcy protection.

“Where public companies derive economic benefits from their offshore earnings, it is critical that those responsible for the company’s accounting and financial reporting understand the federal income tax consequences triggered from these benefits,” said Gerald Hodgkins, Associate Director of the SEC’s Enforcement Division.

According to the SEC’s order instituting settled cease-and-desist proceedings, OSG’s credit agreements from 2000 to the second quarter of 2012 contained a provision making OSG’s controlled foreign subsidiary Overseas International Group Inc. (OIN) and another subsidiary Overseas Bulk Ships (OBS) “jointly and severally” liable for OSG’s debt.  The provision triggered current income tax liability under Section 956 of the Internal Revenue Service Code, which addresses “investments in United States property,” for amounts that OSG borrowed, and deferred tax liabilities for amounts not borrowed but available under the credit agreements.  During this period, OSG and Itkin, who participated in the negotiation of the credit agreements and signed them, failed to recognize OSG’s tax liability despite significant indicia that the structure of its credit agreements in effect made OIN a guarantor under the agreements and could trigger tax consequences, including tax memos from outside counsel and communications with the banks during the negotiation phase of the credit agreements.

Without admitting or denying the charges, OSG and Itkin each consented to the order finding they violated or caused the violation of, among other provisions, the negligence-based antifraud provisions as well as reporting, books-and-records, and internal controls provisions of the federal securities laws.  OSG agreed to pay a $5 million penalty subject to bankruptcy court approval, and Itkin agreed to pay a $75,000 penalty. 

The SEC’s investigation was conducted by Cory C. Kirchert, Nancy E. McGinley, and Brian Palechek with assistance from Kevin Lombardi.  The investigation was supervised by Anita B. Bandy.