Millennium Settles Charges of Illegal Short Selling in Advance of Stock Offerings

Investment advisory firm Millennium Management LLC has agreed to pay more than $630,000 to settle charges that it shorted U.S. stocks in companies planning follow-on offerings and then illegally bought shares in the follow-on offerings.   

An SEC investigation found that Millennium violated an anti-manipulation provision of the federal securities laws known as Rule 105 on four occasions in 2012.  Rule 105 prohibits short selling an equity security during a restricted period (generally five business days before a covered public offering) and then purchasing that same security through the offering.  By illegally purchasing shares in the follow-on offerings, Millennium reaped $286,889 in illicit profits.

“Millennium established and maintained certain accounts that improperly participated in public offerings despite other firm accounts being short the relevant securities,” said Sanjay Wadhwa, Senior Associate Director of the SEC’s New York Regional Office.  “We will continue to actively surveil for, and charge, violations of Rule 105 where appropriate.”

Millennium must pay disgorgement of $286,889 plus interest of $51,820.11 and a penalty of $300,000 for a total of $638,709.11.  Without admitting or denying the findings in the SEC’s order, Millennium agreed to cease and desist from violating Rule 105 in the future.

The SEC’s investigation was conducted by Nathaniel I. Kolodny, Elizabeth Butler, and Thomas P. Smith Jr.  The case was supervised by Mr. Wadhwa. 

SEC Press Release

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Day Trader Charged in Brokerage Account Takeover Scheme

The Securities and Exchange Commission today charged a day trader based in the Philadelphia area with participating in a scheme to access the brokerage accounts of more than 100 unwitting victims and make unauthorized trades to artificially affect the stock prices of various companies.

The SEC alleges that Joseph P. Willner generated at least $700,000 in illicit profits by trading in the same securities in his own accounts and taking advantage of the artificial stock prices that resulted from the unauthorized trades placed in the victims’ accounts.

Willner’s activities were detected despite his efforts to disguise his real identity while communicating with at least one other individual through online direct messaging applications using a pseudonym, according to the SEC’s complaint.  “Legal trading too hard” is among the online messages noted in the SEC’s complaint.  To mask his payments to the other individual as part of a profit-sharing arrangement, Willner allegedly transferred proceeds of profitable trades to a digital currency company that converts U.S. dollars to Bitcoin and then transmitted the bitcoins as payment. 

The SEC’s investigation is continuing.

“Account takeovers are an increasingly significant threat to retail investors, and it is exactly the type of fraud our new Cyber Unit is focusing on,” said Stephanie Avakian, Co-Director of the SEC’s Division of Enforcement.  “We are committing substantial resources to combating cyber-based threats to protect investors and our markets from intruders who manipulate the system for their own illicit gain.”

The SEC’s complaint, filed in U.S. District Court for the Eastern District of New York, alleges that Willner engaged in fraud and market manipulation in violation of federal securities laws and related SEC rules.  The SEC seeks the return of ill-gotten gains plus interest and penalties and a permanent injunction.

In a parallel action, the U.S. Attorney’s Office for the Eastern District of New York and the U.S. Department of Justice Criminal Division’s Fraud Section filed criminal charges against Willner.

The SEC’s investigation has been conducted by Susan Cooke Anderson, Eric Forni, Marcus Fruchter, Andrew McFall, Mark Albers, Darren Boerner, and John Marino with assistance from Alex Lefferts in the Center for Risk and Quantitative Analytics and Stuart Jackson in the Division of Economic and Risk Analysis.  The case is being supervised by Chief of the Cyber Unit Robert Cohen, Chief of the Market Abuse Unit Joseph Sansone, Kathryn Pyszka, and Michele Perillo.  The SEC appreciates the assistance of the U.S. Attorney’s Office for the Eastern District of New York, the Department of Justice’s Criminal Fraud Section, the Federal Bureau of Investigation, and the Financial Industry Regulatory Authority.

SEC Press Release

--- If you believe need help with a securities litigation, arbitration or litigation issue, email Mark Astarita or call 212-509-6544 to speak to a securities lawyer.

UBS Ordered to Pay Florida Broker $3 Million for Defamation

The unlawful terminations of brokers, and then U-5 defamation, has been with us for decades. FINRA's decision to place unfounded, unproven and unsworn allegations on its website has only made matters worse.



UBS is probably one of the worse offenders, but that may be changing. An arbitration panel has ordered UBS to pay a former top producer in Florida $3 million for defamation as a result of its attempts to keep his clients after he left the company. The firms do this far too often. They trump up a reason to fire a broker, hold is U-5 to delay his registration at a new firm, and have the entire branch office call his clients the second he leaves the office.



Then to make sure the deal is done, the firm files a dirty U-5 which not only delays his registration at a new firm, but causes clients, and new employers, to look elsewhere.



The UBS award is reported to be one of the largest related solely to defamation and hopefully sends a message to these broker-dealers. Unfortunately in the case of UBS, it is not even a drop in the bucket.



UBS Ordered to Pay Florida Broker $3 Million for Defamation 

SEC Names Peter B. Driscoll as Director of the Office of Compliance Inspections and Examinations

The Securities and Exchange Commission today announced that Peter B. Driscoll has been named Director of the agency’s Office of Compliance Inspections and Examinations (OCIE).  Mr. Driscoll has served as OCIE’s Acting Director since January 2017.

OCIE is responsible for directing the SEC’s National Examination Program.  National Examination Program staff conduct examinations of SEC-registered investment advisers, investment companies, broker-dealers, self-regulatory organizations, and transfer agents, among others.  The National Examination Program uses a risk-based approach to fulfill its mission of promoting compliance with the U.S. securities laws, preventing fraud, monitoring risk, and informing policy.    

“Pete has been an exceptional leader of the National Examination Program since taking over as Acting Director of OCIE, including advancing the use of technology to make the Program more effective,” said Chairman Jay Clayton.  “With over 15 years of experience at the SEC as an attorney, examiner, and manager, I am confident that Pete and OCIE’s dedicated staff will continue to advance the interests of investors across the country.” 

Mr. Driscoll added, “I am grateful for the opportunity to lead OCIE, and to continue to work with Chairman Clayton, the Commissioners, and our colleagues across the agency to protect investors and ensure market integrity.  It is my privilege to work alongside our talented and dedicated examiners who serve as the eyes and ears of the Commission.”

Mr. Driscoll was named as OCIE’s first Chief Risk and Strategy Officer in March 2016 after previously serving as OCIE’s Managing Executive from February 2013 through February 2016.  He first joined the Commission as a summer legal intern in the Chicago Regional Office in 2000.  He rejoined the SEC in 2001 as a staff attorney in the Division of Enforcement and was later a Branch Chief and Assistant Regional Director in OCIE’s Investment Adviser and Investment Company examination program. 

Mr. Driscoll began his career with Ernst and Young LLP and held several accounting positions in private industry.  He earned a B.S. in Accounting as well as a J.D. from St. Louis University.  He is licensed as a certified public accountant and is a member of the Missouri Bar Association. 

SEC Press Release

--- If you believe need help with a securities litigation, arbitration or litigation issue, email Mark Astarita or call 212-509-6544 to speak to a securities lawyer.

SEC Announces Measures to Facilitate Cross-Border Implementation of the European Union's MiFID II's Research Provisions

Today, following consultation with European authorities, and in response to concerns that investors could lose access to valuable research, the staff of the U.S. Securities and Exchange Commission issued three related no-action letters. These letters are designed to provide market participants with greater certainty regarding their U.S. regulated activities as they engage in efforts to comply with the European Union’s (EU) Markets in Financial Instruments Directive (MiFID II) in advance of the Jan. 3, 2018, implementation date.

The no-action relief provides a path for market participants to comply with the research requirements of MiFID II in a manner that is consistent with the U.S. federal securities laws. More specifically, and subject to various terms and conditions: (1) broker-dealers, on a temporary basis, may receive research payments from money managers in hard dollars or from advisory clients' research payment accounts; (2) money managers may continue to aggregate orders for mutual funds and other clients; and (3) money managers may continue to rely on an existing safe harbor when paying broker-dealers for research and brokerage.

"Today's no-action relief was designed with input from a range of market participants to reduce confusion and operational difficulties that might arise in the transition to MiFID II's research provisions," said SEC Chairman Jay Clayton. "Staff's letters take a measured approach in an area where the EU has mandated a change in the scope of accepted practice, and accommodate that change without substantially altering the U.S. regulatory approach. These steps should preserve investor access to research in the near term, during which the Commission can assess the need for any further action.  Cooperation with European authorities, including the European Commission, has been instrumental to the SEC's efforts, and I welcome the additional guidance the EC published today. We look forward to continued dialogue on this and other important issues."

The temporary no-action relief facilitates compliance with the new MiFID II research provisions while respecting the existing U.S. regulatory structure. It also is intended to provide the staff with sufficient time to better understand the evolution of business practices after implementation of the MiFID II research provisions. During the period of the temporary relief, the staff will monitor and assess the impact of MiFID II's research provisions on the research marketplace and affected participants in order to determine whether more tailored or different action, including rulemaking, is necessary and appropriate in the public interest.

To facilitate the staff's monitoring and assessment efforts with respect to the temporary no-action relief, SEC staff encourages members of the public to make their views known on these matters via webform or e-mail.  In particular, staff invites the public to provide data and other information relating to the impact of MiFID II's research provisions on broker-dealers (including any changes to their business models), investors, and the quantity and quality of research. Comments would be appreciated by one year before the expiration of the period of temporary relief.

FACT SHEET

Division of Investment Management No-Action Relief

• The Division of Investment Management provided temporary relief for thirty (30) months from MiFID II's implementation date under the Investment Advisers Act of 1940 ("Advisers Act") to permit a broker-dealer to receive payments in hard dollars or through MiFID-governed research payment accounts from MiFID-affected clients without being considered an investment adviser. In connection with this temporary relief, the staff will continue to monitor and assess the impact of MiFID II's requirements on the research marketplace and affected participants in order to ascertain whether more tailored or different action, including rulemaking, is necessary and appropriate in the public interest.
• The Division of Investment Management also provided relief under the Investment Company Act of 1940 and the Advisers Act to permit investment advisers to continue to aggregate client orders for purchases and sales of securities, where some clients may pay different amounts for research because of MiFID II requirements, but all clients will continue to receive the same average price for the security and execution costs. This relief provides clarity and consistency to investment advisers by permitting the continued aggregation of orders while addressing the differing arrangements regarding the payment for research that will be required by MiFID II.

Division of Trading and Markets No-Action Relief

• The Exchange Act Section 28(e) safe harbor addresses the manner in which a money manager can use client commissions to purchase "brokerage and research services" without breaching its fiduciary duty. In the U.S., money managers often use client commission arrangements to obtain brokerage and research services from a broker-dealer, using a single, "bundled" commission that is separated after execution to pay for order execution and research.
• Under MiFID II, money managers may make payments to an executing broker-dealer out of client assets for research alongside payments for order execution, and the executing broker-dealer must transmit the payments for research into research payment accounts ("RPAs").

The Division of Trading and Markets provided relief to allow money managers to operate within the safe harbor if the money manager makes payments for research to an executing broker-dealer out of client assets alongside payments for execution through the use of an RPA that conforms to the requirements for RPAs in MiFID II, and the executing broker-dealer is legally obligated to pay for the research, provided that all other applicable conditions of Section 28(e) are met.

SEC Press Release

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Former Private Equity Firm Partner Charged With Secretly Billing Clients for His Vacations and Salon Visits

The Securities and Exchange Commission today charged Mohammed Ali Rashid, a former senior partner at Apollo Management L.P., with defrauding his fund clients by secretly billing them for approximately $290,000 in personal expenditures, including his family vacations, visits to a hair salon, and purchases of designer clothing and high-end electronics.

The SEC’s complaint alleges that Rashid falsely claimed that certain individuals accompanied him to dinners to make it appear various personal expenses had a business purpose, and he doctored a receipt in an effort to justify his purchase of a $3,500 suit for his father as a business expense.

“As alleged in our complaint, despite earning millions of dollars, Rashid used client money to fund his lifestyle and personal expenses, including family vacations, designer clothing, and spa services.  Rashid knew what he was doing was wrong because he took active steps to conceal his misconduct,” said Anthony Kelly, Co-Chief of the SEC Enforcement Division’s Asset Management Unit.

According to the SEC’s complaint, despite being caught by the firm and told to stop on two occasions in 2010 and 2012, Rashid continued to expense personal items to clients into 2013.  After he was confronted about his expenses for a third time, Rashid admitted that he charged approximately $220,000 in personal expenses.  A forensic accountant then uncovered additional personal expenses that Rashid improperly charged to clients.

The SEC’s complaint alleges that Rashid violated, and in the alternative aided and abetted violations of, Sections 206(1) and 206(2) of the Investment Advisers Act of 1940.

The SEC’s investigation was conducted by Donna Norman of the Asset Management Unit and Duane Thompson, and the litigation will be led by Mr. Thompson.  The case is being supervised by Jan Folena and Corey Schuster.

SEC Press Release

--- If you believe need help with a securities litigation, arbitration or litigation issue, email Mark Astarita or call 212-509-6544 to speak to a securities lawyer.