Preview: SEC.gov Updates: Press Releases
Official announcements highlighting recent actions taken by the SEC and other newsworthy information.
SEC Announces 2017 Compliance Outreach Program Seminars for Investment Companies and Investment Advisers
Thu, 23 Mar 2017 13:45:00 -0400
The Securities and Exchange Commission today announced the opening of registration for its compliance outreach program seminars for investment companies and investment advisers. The seminars will be offered in four cities and are intended to help Chief Compliance Officers (CCOs) and other senior personnel enhance compliance programs at investment companies and investment advisory firms.
The SEC’s Office of Compliance Inspections and Examinations (OCIE), Division of Investment Management, and the Asset Management Unit of the Division of Enforcement jointly sponsor the compliance outreach program.
All regional seminars will include an overview of OCIE’s 2017 priorities and individual seminars will feature the following panel discussions on current topics in investment management regulation:
- Portland, Oregon – May 17 (8:30 a.m. to 12:30 p.m.): Key examination program initiatives, examination procedures and selection process, and recent trends and issues in the Enforcement Division’s Asset Management Unit.
- New York – June 7 (12:30 p.m. to 5:00 p.m.): Staff examinations and observations, and topics of interest to advisers to private funds.
- Boston – June 13 (8:30 a.m. to 1:00 p.m.): Key examination program initiatives, typical examination process, and topics of interest to advisers to private funds.
- Chicago – June 13 (8:00 a.m. to 4:30 p.m.): Key examination program initiatives, examination procedures and selection process, common examination deficiencies, data analytics, and several hot topic panels generally applicable to both small and large firms. This seminar will be webcast.
Please register here to attend one of the compliance outreach program regional seminars. Registration for individual events will be closed at least two weeks before the event. Seating is limited and only the Chicago seminar will be webcast. If registrations exceed capacity, investment company and investment adviser CCOs will be given priority on a first-come, first-registered basis. For more information, please contact ComplianceOutreach@sec.gov.
SEC Adopts T+2 Settlement Cycle for Securities Transactions
Wed, 22 Mar 2017 12:10:00 -0400
The Securities and Exchange Commission today adopted an amendment to shorten by one business day the standard settlement cycle for most broker-dealer securities transactions. Currently, the standard settlement cycle for these transactions is three business days, known as T+3. The amended rule shortens the settlement cycle to two business days, T+2.
The amended rule is designed to enhance efficiency, reduce risk, and ensure a coordinated and expeditious transition by market participants to a shortened standard settlement cycle.
“As technology improves, new products emerge, and trading volumes grow, it is increasingly obvious that the outdated T+3 settlement cycle is no longer serving the best interests of the American people,” said SEC Acting Chairman Michael Piwowar. “The SEC remains committed to ensuring that U.S. securities regulation is reflective of modern times, and in shortening the settlement cycle by one day we aim to increase efficiency and reduce risk for market participants.”
Broker-dealers will be required to comply with the amended rule beginning on Sept. 5, 2017.
To assist broker-dealers, other securities professionals and the investing public in their preparation for the implementation of a T+2 settlement cycle, the Commission has established an e-mail address – T2settlement@sec.gov – for the submission of inquiries to SEC staff.
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Shortening the Trade Settlement Cycle
SEC Open Meeting
March 22, 2017
The amended Rule 15c6-1(a) would prohibit a broker-dealer from effecting or entering into a contract for the purchase or sale of a security that provides for payment of funds and delivery of securities later than T+2, unless otherwise expressly agreed to by the parties at the time of the transaction. As stated in the rule, the T+2 requirement would not apply to certain categories of securities, such as exempted securities.
- Generally, this change would mean that when an investor buys a security, the brokerage firm must receive payment from the investor no later than two business days after the trade is executed. When an investor sells a security, the investor must deliver to the brokerage firm the investor’s security no later than two business days after the sale. For example, if an investor sells shares of a particular stock on Monday, the transaction would settle on Wednesday.
- The amended rule would apply the T+2 settlement cycle to the same securities transactions currently covered by the T+3 settlement cycle. These include transactions for stocks, bonds, municipal securities, exchange-traded funds, certain mutual funds, and limited partnerships that trade on an exchange.
- The compliance date for the amendment to Rule 15c6-1(a) is Sept. 5, 2017, which is consistent with the target implementation date set by the Industry Steering Committee.
SEC, National Bank of Belgium Agree to Enhanced Cooperation and Information Sharing Regarding Euroclear
Tue, 14 Mar 2017 15:45:01 -0400
The Securities and Exchange Commission today announced that it has entered into an arrangement with the National Bank of Belgium to enhance cooperation and information sharing regarding expanded services by Euroclear Bank, which provides clearance and settlement through its operation of the Euroclear System.
Brussels-based Euroclear Bank is subject to prudential supervision and oversight by the National Bank of Belgium as a credit institution and as a clearing agency. The SEC granted Euroclear’s predecessor an exemption from registration as a clearing agency in 1998, allowing it to provide clearing services for U.S. government securities. On Dec. 16, 2016, the SEC approved Euroclear’s application to modify its exemption from registration, enabling it to also provide limited clearing agency services for U.S. equity securities.
On March 9, 2017, the SEC and the National Bank of Belgium added an addendum to their 2001 Understanding Regarding An Application of Euroclear Bank for an Exemption under U.S. Federal Securities Laws regarding Euroclear’s clearing activities in the U.S., enhancing their ability to exchange information about Euroclear’s new services.
“This addendum will expand the signatories’ ability to cooperate and exchange information related to Euroclear Bank and augment the SEC’s oversight of Euroclear Bank’s activities under its exemption order,” said Paul A. Leder, Director of the SEC’s Office of International Affairs.
Auditor Charged With Insider Trading on Client’s Nonpublic Information
Tue, 14 Mar 2017 13:00:00 -0400
The Securities and Exchange Commission today announced that an auditor based in the Silicon Valley has agreed to settle charges that he traded on inside information about a client on the verge of a merger.
The SEC’s order finds that through his work at an independent audit firm, Nima Hedayati learned that Fremont, Calif.-based Lam Research Corporation was making preparations to acquire Milpitas, Calif.-based KLA-Tencor Corporation. The two companies manufacture equipment used in the creation of semiconductors.
According to the SEC’s order, Hedayati proceeded to purchase out-of-the money call options in KLA common stock in his brokerage account as well as his fiancée’s brokerage account, and he also encouraged his mother to purchase KLA common stock. After merger plans were publicly announced, KLA’s stock price increased nearly 20 percent, and Hedayati and his mother collectively profited by more than $43,000 from the illegal trades. Hedayati’s employer terminated him when it discovered his misconduct.
“Hedayati abused his important position of trust and responsibility by illicitly trading on an audit client’s nonpublic information in a quest for an easy profit, and it wound up costing him a lot more in the end,” said Jina Choi, Director of the SEC’s San Francisco Regional Office.
Without admitting or denying the SEC’s findings, Hedayati agreed to pay disgorgement of $43,027.59 plus $1,269.70 in interest and a $43,027.59 penalty for a total of more than $87,000. Hedayati agreed to be suspended from appearing and practicing before the SEC as an accountant, which includes not participating in the financial reporting or audits of public companies. The SEC’s order permits him to apply for reinstatement after five years.
The SEC’s investigation was conducted by Matthew Meyerhofer and supervised by Tracy L. Davis in the San Francisco office. The SEC appreciates the assistance of the Financial Industry Regulatory Authority.
SEC FOIA Office Receives Award for Exceptional Service
Mon, 13 Mar 2017 10:07:30 -0400
The Securities and Exchange Commission today announced that its Office of Freedom of Information Act (FOIA) Services was recognized by the U.S. Department of Justice for “exceptional service” by FOIA professionals.
The award to a team of 28 professionals recognized their work in handling a growing volume of FOIA requests while reducing the office’s backlog. Between fiscal 2010 and fiscal 2016, FOIA requests to the SEC rose by 38 percent while the number of completed requests in that period increased by 40 percent.
“This award is a well-deserved recognition of the SEC’s FOIA team for their efforts to keep our agency open and accountable to the American people by building one of the best FOIA programs in the Federal Government,” said SEC Acting Chairman Michael Piwowar. “We depend on the trust of the public to serve on their behalf, and it is our responsibility to earn that trust by ensuring the freedom of information.”
Despite being a medium-sized agency, the SEC processes FOIA requests at a level received at much larger federal agencies, averaging nearly 15,000 per year in each of the last four years. In addition to increased volume, the FOIA requests to the agency have become increasingly complex. While many requests previously involved minimal time and effort to process, they now often entail multiple records over a span of years, resulting in hundreds or thousands of pages that require line-by-line reviews.
The Department of Justice award for exceptional service by a FOIA professional or team of FOIA professionals was presented at a ceremony at the Department of Justice to kickoff Sunshine Week, an annual event to highlight the importance of open government.
The SEC’s Office of FOIA Services promotes transparency in government by making SEC records available to the public to the greatest extent possible under the Freedom of Information Act. The office is committed to providing a timely and efficient response to each of the requests for SEC documents and records it receives each year.
Executives Charged With Manipulating Company's Accounting Systems to Steal Money
Fri, 10 Mar 2017 16:30:35 -0500
The Securities and Exchange Commission today charged two former executives at a credit card processing company with masterminding a fraudulent scheme to steal millions of dollars through phony expense reimbursements, inflated invoices, and other improper accounting tactics.
The SEC’s complaint alleges that iPayment’s then-senior vice president of sales and marketing Nasir N. Shakouri and then-executive vice president and chief operating officer Robert S. Torino routinely reimbursed themselves for payments that were never actually made to third-party vendors using their personal credit cards. They also allegedly conspired with vendors to inflate invoices and receive kickbacks from the overpayments, and claimed improper commissions and bonuses related to other corporate funds they improperly diverted in various ways.
The SEC’s complaint also charges three other iPayment executives – Bronson L. Quon, John S. Hong, and Jonathan K. Skarie – with participating in the scheme and helping Shakouri and Torino falsify books and records to hide the thefts of corporate funds. Quon, Hong, and Skarie were allegedly rewarded for their assistance with misappropriated iPayment funds.
“As alleged in our complaint, these executives manipulated iPayment’s internal accounting systems, lied to the external auditor, and caused approximately $11.6 million in losses to the company,” said Sanjay Wadhwa, Senior Associate Director of the SEC’s New York Regional Office.
In a parallel action, the U.S. Attorney’s Office for the Central District of California today announced criminal charges against Shakouri and Torino.
The SEC is seeking disgorgement of ill-gotten gains plus interest and penalties as well as officer-and-director bars.
The SEC’s investigation has been conducted by Kristin M. Pauley, Melissa A. Coppola, Maureen P. King, Roseann Daniello, Diego Brucculeri, Richard Hong, Nicholas Pilgrim, Scott B. York, and Valerie A. Szczepanik in the New York office. The litigation will be led by Mr. Hong and Ms. Pauley along with John Bulgozdy, who works in the Los Angeles office. The case is being supervised by Mr. Wadhwa. The SEC appreciates the assistance of the U.S. Attorney’s Office for the Central District of California, the Federal Bureau of Investigation, and the Internal Revenue Service.
SEC Charges Firms Involved in Layering, Manipulation Schemes
Fri, 10 Mar 2017 16:10:31 -0500
The Securities and Exchange Commission today announced fraud charges against a Ukraine-based trading firm accused of manipulating the U.S. markets hundreds of thousands of times and the New York-based brokerage firm and CEO who allegedly helped make it possible.
The SEC’s complaint alleges that Avalon FA Ltd touted itself to traders as a destination to engage in layering, a scheme in which orders are placed but later canceled after tricking others into buying or selling stocks at artificial prices, resulting in illicit profits. Avalon allegedly made more than $21 million in the layering scheme involving U.S. stocks during a five-year period. According to the SEC’s complaint, Avalon also made more than $7 million in illicit profits through a cross-market manipulation scheme in which the firm bought and sold U.S. stocks at a loss in order to manipulate the prices of the stock and its corresponding options so that it could then profitably trade at artificial prices. Avalon allegedly used traders in Eastern Europe and Asia to conduct its trading, and the firm kept a portion of the profits and collected commissions from the traders.
The SEC’s complaint also describes fraud charges against Avalon’s named owner Nathan Fayyer and Sergey Pustelnik, who allegedly kept his controlling interest in Avalon undisclosed and embedded himself at Lek Securities as a registered representative, using his position to facilitate the schemes.
The SEC further alleges that Lek Securities and its owner Samuel Lek made the schemes possible by providing Avalon with access to the U.S. markets, approving the cross-market trading scheme, and improving its trading technology to assist Avalon’s trading. According to the SEC’s complaint, Lek Securities also relaxed its layering controls after Avalon complained. Avalon was the highest-producing customer for Lek Securities in terms of trading commissions, fees, and rebates generated.
“As alleged in our complaint, Avalon openly marketed itself as a destination for manipulative trading, and Lek Securities opened the gate to allow the schemes into the U.S. markets despite repeated warnings that its customer was manipulating the market,” said Stephanie Avakian, Acting Director of the SEC’s Division of Enforcement.
After filing its complaint in U.S. District Court for the Southern District of New York, the SEC obtained an emergency court order freezing Avalon’s assets held in its account at Lek Securities as well as freezing and repatriating funds that Avalon has transferred overseas.
The SEC’s investigation was conducted by Sarah S. Nilson along with Owen A. Granke and Carolyn Welshhans of the Market Abuse Unit. The case was supervised by Melissa Hodgman, Antonia Chion, and Robert A. Cohen. The litigation will be led by David J. Gottesman, Olivia S. Choe, and Ms. Nilson. The SEC appreciates the assistance of the Financial Industry Regulatory Authority.
SEC Charges Marijuana-Related Company and Executives With Touting Bogus Revenues
Thu, 09 Mar 2017 16:55:12 -0500
The Securities and Exchange Commission today charged a California-based company and its founder with falsely touting “record” revenue numbers to investors and claiming to be a leader in the marijuana industry while some of its earnings came from sham transactions with a secret affiliate.
According to the SEC’s complaint, Medbox provided marijuana consulting services and claimed to sell vending machines known as “Medbox” devices capable of dispensing marijuana on the basis of biometric identification. The SEC alleges that Vincent Mehdizadeh created a shell company called New-Age Investment Consulting to carry out illegal stock sales and used the proceeds from those sales to boost Medbox’s revenue. Medbox allegedly issued press releases headlining the phony revenues as record earnings to legitimize itself as a viable commercial operation when in fact nearly 90 percent of the company’s revenue in the first quarter of 2014 stemmed from sham transactions with New-Age. Mehdizadeh allegedly acknowledged in a text message that “the only thing we are really good at is public company publicity and stock awareness. We get an A+ for creating revenue off sheer will but that won’t continue.”
Meanwhile, according to the SEC’s complaint, Mehdizadeh funded the purchase of a luxury home in the Pacific Palisades with proceeds from New-Age’s illicit stock sales.
The SEC’s complaint additionally charges Medbox’s then-CEO Bruce Bedrick with being complicit in the scheme and personally profiting. The SEC also charged New-Age and Mehdizadeh’s then-fiancée Yocelin Legaspi with unlawfully selling unregistered securities. Mehdizadeh installed Legaspi as the supposed CEO of New-Age when he created the company.
“As alleged in our complaint, investors were misled into believing that Medbox was a leader in the burgeoning marijuana industry when the company was just round-tripping money from illegal stock sales to boost revenue,” said Michele Wein Layne, Director of the SEC’s Los Angeles Regional Office.
Mehdizadeh and Medbox, which has since changed its name to Notis Global, have agreed to settle the SEC’s charges. Mehdizadeh agreed to pay more than $12 million in disgorgement and penalties and agreed to be barred from serving as an officer or director of a public company or participating in any penny stock offerings. The settlements are subject to court approval. The SEC’s litigation continues against Bedrick, Legaspi, and New-Age.
The SEC’s investigation was conducted by Megan M. Bergstrom, Roger Boudreau, and Spencer Bendell of the Los Angeles office. The litigation will be led by Gary Leung. The SEC appreciates the assistance of the Financial Industry Regulatory Authority.
SEC Economist Receives Award for Academic Work on Market Insights
Mon, 06 Mar 2017 14:59:43 -0500
Securities and Exchange Commission economist Dr. Giulio Girardi today received the CFA Institute Financial Analysts Journal®’s Graham and Dodd Top Award for 2016. Dr. Girardi is a Branch Chief in the SEC’s Division of Economic and Risk Analysis’s (DERA) Office of Risk Assessment.
Dr. Girardi’s award-winning paper, “Interconnectedness in the CDS Market,” helps assess the stability of the credit default swap market and potential contagion among market participants. He co-authored the paper with former SEC Chief Economist Craig Lewis and former DERA visiting scholar Mila Sherman. Past recipients of the Graham and Dodd Award include numerous distinguished economists, including Nobel laureates.
“On behalf of the SEC, and as a fellow economist, it is my pleasure to congratulate Dr. Giulio Girardi and his co-authors on receiving The Financial Analyst Journal’s Graham and Dodd Top Award,” said SEC Acting Chairman Michael Piwowar. “His research and analysis on the potential for systemic risk in the credit default swap market has provided the public with valuable insights and is a testament to the high quality of economic research that our staff produces to advance the SEC’s mission.”
“I am happy to congratulate my colleague Dr. Girardi as his name is added to a distinguished list that includes Nobel laureates and other luminaries in the finance profession,” said SEC Acting Chief Economist Scott Bauguess. “Dr. Girardi’s award is an excellent example of how DERA, through its tremendous growth and maturation since the financial crisis, has been able to recruit and retain some of the brightest minds in the profession.”
About the SEC’s Division of Economic and Risk Analysis
DERA was created in September 2009 to integrate financial economics and rigorous data analytics into the core mission of the SEC. The division is involved across the entire range of SEC activities, including policy-making, rulemaking, enforcement, and examination. As the agency's "think tank," DERA relies on a variety of academic disciplines, quantitative and non-quantitative approaches, and knowledge of market institutions and practices to help the Commission approach complex matters in a fresh light. DERA also assists in the Commission's efforts to identify, analyze, and respond to risks and trends, including those associated with new financial products and strategies. Through the range and nature of its activities, DERA serves the critical function of promoting collaborative efforts throughout the agency and breaking through silos that might otherwise limit the impact of the agency's institutional expertise. More information is available here.
About the Graham and Dodd Award (from The Financial Analyst Journal’s website)
The Graham and Dodd Awards were created in 1960 to recognize excellence in research and financial writing and to honor Benjamin Graham and David L. Dodd for their enduring contributions to the field of investment analysis. More information is available here.
The U.S. Securities and Exchange Commission does not endorse the web site, its sponsor, or any of the policies, activities, products, or services offered on the site or by any advertiser on the site.
SEC Charges Mexico-Based Homebuilder in $3.3 Billion Accounting Fraud
Fri, 03 Mar 2017 02:08:41 -0500
The Securities and Exchange Commission today announced that Mexico-based homebuilding company Desarrolladora Homex S.A.B. de C.V. has agreed to settle charges that it reported fake sales of more than 100,000 homes to boost revenues in its financial statements during a three-year period.
The SEC used satellite imagery to help uncover the accounting scheme and illustrate its allegation that Homex had not even broken ground on many of the homes for which it reported revenues.
The SEC alleges that Homex, one of the largest homebuilders in Mexico at the time, inflated the number of homes sold during the three-year period by approximately 317 percent and overstated its revenue by 355 percent (approximately $3.3 billion). The SEC’s complaint highlights, for example, that Homex reported revenues from a project site in the Mexican state of Guanajuato where every planned home was purportedly built and sold by Dec. 31, 2011. Satellite images of the project site on March 12, 2012, show it was still largely undeveloped and the vast majority of supposedly sold homes remained unbuilt.
According to the SEC’s complaint, Homex filed for the Mexican equivalent of bankruptcy protection in April 2014 and emerged in October 2015 under new equity ownership. The company’s then-CEO and then-CFO have been placed on unpaid leave since May 2016. Homex has since undertaken significant remedial efforts and cooperated with the SEC’s investigation.
“As alleged in our complaint, Homex deprived its investors of accurate and reliable financial results by reporting key numbers that were almost completely made up,” said Stephanie Avakian, Acting Director of the SEC’s Enforcement Division. “The settlement takes into account that the fraud occurred entirely under the watch of prior ownership and management, the company’s new leaders provided critical information regarding the full scope of the fraudulent conduct, and the company continues to significantly cooperate with our ongoing investigation.”
Melissa Hodgman, Associate Director of the SEC’s Enforcement Division, added, “We used high-resolution satellite imagery and other innovative investigative techniques to unearth that tens of thousands of purportedly built-and-sold homes were, in fact, nothing but bare soil.”
The SEC separately issued a trading suspension in the securities of Homex.
Without admitting or denying the allegations in the SEC’s complaint filed in U.S. District Court for the Southern District of California, Homex consented to the entry of a final judgment permanently enjoining the company from violating the antifraud, reporting, and books and records provisions of the federal securities laws, and the company agreed to be prohibited from offering securities in the U.S. markets for at least five years. The settlement is subject to court approval.
The SEC’s investigation is being conducted by Alfred C. Tierney, Benjamin D. Brutlag, Andrew M. Shirley, Juan M. Migone and Richard Hong. The case is being supervised by J. Lee Buck II. The SEC appreciates the assistance of the Mexican Comisión Nacional Bancaria y de Valores.
SEC’s Office of the Investor Advocate to Hold Evidence Summit, Launch Investor Research Initiative
Thu, 02 Mar 2017 09:20:41 -0500
The Securities and Exchange Commission’s Office of the Investor Advocate today announced it will host an Evidence Summit to discuss strategies for raising retail investors’ understanding of key investment characteristics such as fees, risks, returns, and conflicts of interest.
The March 10 Evidence Summit will mark the official launch of the SEC’s new investor research initiative led by the SEC’s Office of the Investor Advocate, dubbed ‘POSITIER’, also known as Policy Oriented Stakeholder and Investor Testing for Innovative and Effective Regulation.
POSITIER seeks to inform the rulemaking process with evidence obtained from surveys and specific testing projects. Under this initiative, the SEC’s Office of the Investor Advocate has launched a specific study program to examine the topic of Retail Disclosure Effectiveness. This study program seeks to identify and test interventions that increase investor awareness of key investment features and, in turn, improve investment outcomes.
“I am excited about the launch of POSITIER,” said Investor Advocate Rick Fleming, “because it has the potential to make a significant contribution to evidence-based policymaking at the Commission. With this new tool, we can gain better insights into the potential benefits to investors from proposed rule changes, and we will be able to help identify the best options amongst competing policy choices.”
Acting Chairman Michael Piwowar and Commissioner Kara Stein will speak at the event, as well as an interdisciplinary group of leading scholars in household and behavioral finance, psychology, marketing, and law. Although the focus will be on disclosure in the context of investment funds, the insights on improving the cognitive salience of information will be relevant to other financial disclosure contexts.
The Evidence Summit will be held at the SEC’s Washington, D.C. headquarters on Friday, March 10, 2017 and will be open to the public and webcast live on the SEC’s website. The agenda is available at https://www.sec.gov/page/positier.
SEC Posts Notice of Availability of IFRS Taxonomy
Wed, 01 Mar 2017 14:22:25 -0500
The Securities and Exchange Commission today published a taxonomy on its website so that foreign private issuers that prepare their financial statements in accordance with International Financial Reporting Standards (IFRS) may submit those reports using XBRL. XBRL is a machine readable data format that allows investors and other data users to more easily access, analyze and compare financial information across reporting periods and across companies.
Foreign private issuers that prepare their financial statements in accordance with IFRS as issued by the IASB may begin immediately to submit their financial statements in XBRL. Otherwise, all such foreign private issuers must submit their financial statements in XBRL for fiscal periods ending on or after December 15, 2017.
“Foreign private issuers will use the published IFRS Taxonomy for IFRS financial statements, which will enable the public to take advantage of enhanced data analysis of those financial statements, as they already can with financial statements of issuers that prepare their financial statements in accordance with U.S. accounting standards,” said Acting Chairman Michael Piwowar.
In 2009, the Commission adopted requirements for structuring certain foreign private issuer financial statements in XBRL once an IFRS taxonomy was specified on the Commission’s website, SEC.gov.
SEC Proposes Rule Amendments to Improve Municipal Securities Disclosures
Wed, 01 Mar 2017 13:33:15 -0500
The Securities and Exchange Commission today voted to propose rule amendments to improve investor protection and enhance transparency in the municipal securities market.
Rule 15c2-12 under the Securities Exchange Act of 1934 requires brokers, dealers, and municipal securities dealers that are acting as underwriters in primary offerings of municipal securities subject to the Rule, to reasonably determine, among other things, that the issuer or obligated person has agreed to provide to the Municipal Securities Rulemaking Board (MSRB) timely notice of certain events. The amendments proposed by the SEC today would add two new event notices:
- Incurrence of a financial obligation of the issuer or obligated person, if material, or agreement to covenants, events of default, remedies, priority rights, or other similar terms of a financial obligation of the issuer or obligated person, any of which affect security holders, if material; and
- Default, event of acceleration, termination event, modification of terms, or other similar events under the terms of the financial obligation of the issuer or obligated person, any of which reflect financial difficulties.
“Today the SEC took steps to empower investors by improving their access to current information about the financial obligations incurred by municipal issuers and conduit borrowers,” said SEC Acting Chairman Michael S. Piwowar.
These proposed amendments would provide timely access to important information regarding certain financial obligations incurred by issuers and obligated persons that could impact such entities’ liquidity and overall creditworthiness.
The public comment period will remain open for 60 days following publication of the proposing release in the Federal Register.
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SEC Open Meeting
March 1, 2017
The Commission will consider whether to propose amendments designed to better inform investors and other market participants about the current financial condition of issuers of municipal securities and obligated persons. Specifically, the proposed amendments would facilitate timely access to important information regarding certain financial obligations incurred by issuers and obligated persons, which could impact an issuer’s or obligated person’s liquidity and overall creditworthiness and create risks for existing security holders.
The proposed amendments to Exchange Act Rule 15c2-12 would amend the list of event notices that a broker, dealer, or municipal securities dealer acting as an underwriter in a primary offering of municipal securities subject to the Rule must reasonably determine that an issuer or obligated person has undertaken, in a written agreement for the benefit of holders of municipal securities, to provide to the Municipal Securities Rulemaking Board within ten business days of the event’s occurrence.
Specifically, the proposed amendments would add two new events to the list included in the Rule:
Incurrence of a financial obligation of the issuer or obligated person, if material, or agreement to covenants, events of default, remedies, priority rights, or other similar terms of a financial obligation of the issuer or obligated person, any of which affect security holders, if material and
Default, event of acceleration, termination event, modification of terms, or other similar events under the terms of the financial obligation of the issuer or obligated person, any of which reflect financial difficulties
The proposed amendments also would set forth a definition for the term “financial obligation.”
Adopted in 1989, Rule 15c2-12 is designed to address fraud and manipulation in the municipal securities market by prohibiting the und[...]
SEC Proposes Inline XBRL Filing of Tagged Data
Wed, 01 Mar 2017 13:32:32 -0500
The Securities and Exchange Commission today voted to propose amendments intended to improve the quality and accessibility of data submitted by public companies and mutual funds using eXtensible Business Reporting Language (XBRL).
The proposals would require the use of Inline XBRL, which has the potential to benefit investors and other market participants while decreasing, over time, the cost of preparing information for submission to the SEC. The recommendations are part of the SEC’s disclosure modernization initiative.
“While XBRL technology has made disclosures easier to access for investors, there are legitimate concerns about the burdens smaller companies face when preparing their filings,” said SEC Acting Chairman Michael Piwowar. “Today, the SEC is asking comment on a way to streamline this process to ensure usability for the public while keeping compliance costs down.”
The SEC will seek public comment on the proposed rules for 60 days.
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SEC Open Meeting
March 1, 2017
The proposed amendments would require the use of Inline XBRL format for the submission of operating company financial statement information and mutual fund risk/return summaries. The proposal would also eliminate the requirement for filers to post XBRL data on their websites.
Among additional potential benefits:
- Inline XBRL allows filers to embed XBRL data directly into their filings instead of as attachments, reducing the likelihood of inconsistencies.
- Inline XBRL would give the preparer full control over the presentation of XBRL disclosures within the HTML filing. In addition, tools like the open source Inline XBRL Viewer on SEC.gov can be used to review the XBRL data more efficiently.
- For mutual funds, the proposed amendments would facilitate efficiencies in the filing process by permitting the concurrent submission of XBRL data files with certain post-effective amendment filings. The proposed amendments also would improve the timeliness of the availability of risk/return summaries in XBRL by eliminating the current 15 business day filing period accorded to all filings containing risk/return summaries.
- Under the proposals, requirements for operating company financial statements would be phased in over a three-year period. Requirements for mutual funds risk/return summaries would be phased in over a two-year period.
In 2009, the Commission adopted rules requiring operating companies to provide financial statement information in registration statements and periodic and current reports in XBRL by submitting it to the Commission in an Interactive Data File as an exhibit to these filings and posting it on their corporate websites, if any.
In 2009, the Commission also adopted rules requiring mutual funds to provide risk/return summaries in XBRL by submitting them to the Commission in Interactive Data Files as exhibits and posting them on their websites, if any.
There is a wide range of users of XBRL data, including investors, financial analysts, economic research firms, data aggregators, academic researchers, filers, and Commission staff. Machine-readable financial market data, including XBRL-formatted data, enhances the Commission’s rulemaking and market monitoring activities by allowing staff to efficiently analyze large quantities of information.
SEC Approves Rules to Ease Investor Access to Exhibits in Company Filings
Wed, 01 Mar 2017 13:31:53 -0500
The Securities and Exchange Commission today voted to adopt rule and form amendments to make it easier for investors and other market participants to find and access exhibits in registration statements and periodic reports that were originally provided in previous filings.
The amendments will require issuers to include a hyperlink to each exhibit in the filing’s exhibit index. Currently, someone seeking to retrieve and access an exhibit that has been incorporated by reference must review the exhibit index to determine the filing in which the exhibit is included, and then must search through the registrant’s filings to locate the relevant filing.
“As the SEC looks for new ways to modernize financial disclosures, one of the easiest things we can do is add hyperlinks that automatically direct users to additional information on our EDGAR system,” said SEC Acting Chairman Michael Piwowar. “We are so accustomed to clicking hyperlinks on basically every website we visit, this commonsense solution will make life simpler for a lot of people.”
The final rules will take effect on September 1, 2017.
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SEC Open Meeting
March 1, 2017
The amendments require registrants that file registration statements or reports subject to the exhibit requirements under Item 601 of Regulation S-K, or that file Forms F-10 or 20-F, to include a hyperlink to each exhibit listed in the exhibit index of these filings, and to submit such registration statements and reports on EDGAR in HyperText Markup Language (HTML) format.
Registrants will be required to include a hyperlink to each exhibit identified in the exhibit index, unless the exhibit is filed in paper pursuant to a temporary or continuing hardship exemption under Rules 201 or 202 of Regulation S-T, or pursuant to Rule 311 of Regulation S-T. This requirement will apply to the forms for which exhibits are required under Item 601 of Regulation S-K as well as Forms F-10 and 20-F. The final rules, however, will exclude exhibits that are filed with Form ABS-EE and exhibits filed in the eXtensive Business Reporting language (XBRL).
Registrants will be required to file in HTML format the registration statements and reports subject to the exhibit filing requirements under Item 601 of Regulation S-K, as well as Forms F-10 and 20-F, because the text-based American Standard Code for Information Interchange (ASCII) format cannot support functional hyperlinks. While the affected registration statements and reports will be required to be filed in HTML, registrants may continue to file in ASCII any schedules or forms that are not subject to the exhibit filing requirements under Item 601, such as proxy statements, or other documents included with a filing, such as an exhibit.
The final rules will provide a longer compliance date for non-accelerated filers and smaller reporting companies and for certain filings on Form 10-D. Under the final rules:
Non-accelerated filers and smaller reporting companies that submit filings in ASCII will not have to comply with the final rules until September 1, 2018.
The compliance date for any Form 10-D filing that will require a hyperlink to an exhibit filed with Form ABS-EE will be delayed until SEC staff completes programming changes to EDGAR that will allow registrants to include the Form 10-D and Form ABS-EE in a single submission so that the required exhibit hyperlinks can be created at the time the Form 10-D is filed. The SEC will publish a notice in the Federal Register and on the SEC website announcing the compliance date for those Form 10-D filings.
SEC Votes to Seek Public Input on Possible Change to Industry Guide 3
Wed, 01 Mar 2017 13:30:32 -0500
The Securities and Exchange Commission today voted to publish a request for public comment on disclosures called for by Industry Guide 3 - Statistical Disclosure by Bank Holding Companies.
Specifically, the Commission is soliciting public input on whether Guide 3 continues to elicit the information that investors need for informed investment and voting decisions. The Commission also seeks comment on whether there are new types of disclosures about the activities of bank holding companies that investors would find important.
“As an agency designed to serve the American people, it is imperative to constantly look back on the SEC’s rules and engage the public on ways to improve,” said SEC Acting Chairman Michael Piwowar. “Today, we are asking for public comment on whether Industry Guide 3 continues to elicit the information that investors need for informed investment and voting decisions.”
The request for comment will be published on the SEC website and in the Federal Register. The comment period will remain open for 60 days.
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SEC Open Meeting
March 1, 2017
The request for comment seeks public input on statistical and other disclosures provided by bank holding company registrants. Among other things, the request for comment covers:
- Existing disclosure guidance for bank holding companies called for by Guide 3, as well as other sources of disclosure for bank holding companies and other registrants in the financial services industry
- Potential improvements to the disclosure regime, which could include new disclosures, the elimination of duplicative or overlapping disclosures, or revisions to current disclosures
- The scope and applicability of Guide 3
- The effects of regulation on bank holding companies, including with regard to their operations, capital structures, dividend policies and treatment in bankruptcy
For each of these topics, the request for comment presents specific questions for public comment.
Industry Guide 3 was first published in 1976 as a convenient reference to the statistical disclosures sought by the staff of the Division of Corporation Finance in registration statement and other disclosure documents filed by bank holding companies. The financial services industry is dynamic and has changed dramatically since Guide 3 was first published. Consequently, our disclosure guidance may not in all cases reflect recent industry developments or changes in accounting standards related to financial and other reporting requirements.
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.
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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.