SEC Charges Investment Banker in Insider Trading Scheme

The Securities and Exchange Commission today charged an employee of a prominent investment bank with repeatedly using his access to highly confidential information in order to place illicit and profitable trades in advance of deals on which the bank was providing investment banking advisory services.

According to the SEC’s complaint, Woojae “Steve” Jung, a Vice President of Investment Banking who worked in the bank’s San Francisco and New York offices, used sensitive client information in order to trade in the securities of 12 different companies prior to the announcement of market-moving events.  The SEC alleges that between 2015 and 2017, Jung used an account held in the name of a friend living in South Korea to place these illegal trades and generate profits of approximately $140,000.  As alleged in the complaint, by using his friend’s brokerage account, Jung attempted to evade detection by skirting his employer’s requirements that he pre-clear his trades and that he use an approved brokerage firm that would have reported the trading to his employer.

“Jung tried to insulate himself by allegedly placing trades in the brokerage account of a friend who lived overseas,” said Joseph G. Sansone, Chief of the SEC’s Market Abuse Unit.  “Like others before him, Jung’s alleged scheme failed when our data analysis uncovered the account’s suspicious trading pattern and, despite Jung’s attempts at evasion, traced the trading back to him.”   

The SEC’s complaint, filed in federal district court in Manhattan, charges Jung with fraud and seeks disgorgement of allegedly ill-gotten gains, pre-judgment interest, penalties, and injunctive relief.  The complaint also names Jung’s friend, Sungrok Hwang, as a relief defendant to have him disgorge illicit gains that Jung generated by trading in his brokerage account.  The U.S. Attorney’s Office for the Southern District of New York today unsealed criminal charges against Jung.

The SEC’s investigation was conducted by Megan Bergstrom, David Brown, and Diana Tani of the Market Abuse Unit in the Los Angeles Regional Office with assistance from John Rymas of the unit’s Analysis and Detection Center.  Gary Leung will lead the SEC’s litigation.  The SEC appreciates the assistance of the U.S. Attorney’s Office for the Southern District of New York, the Federal Bureau of Investigation, and the Financial Industry Regulatory Authority.    

SEC Press Release

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SEC Announces Agenda for June 14 Investor Advisory Committee Meeting in Atlanta

The Securities and Exchange Commission today announced that the SEC Investor Advisory Committee (IAC) will hold its first-ever meeting outside Washington, D.C. on June 14, 2018 at 8:30 a.m. in Atlanta.

In another first, all five SEC Commissioners are planning to hold an “Investing in America” Town Hall in Atlanta on June 13 from 2 p.m. to 4 p.m. to meet with, and hear from, Main Street investors. For details, please see the event’s webpage.  Both the Town Hall and Investor Advisory Committee meeting will take place at Georgia State University College of Law, 85 Park Place NE, in Atlanta.  

The June 14 IAC meeting will include two panel discussions with outside speakers: “Discussion of the Commission’s Proposed Regulation Best Interest and Proposed Restriction on the Use of Certain Names or Titles,” and “Discussion Regarding the Commission’s Proposed Form CRS Relationship Summary, including Effective Disclosure and Design.” In addition, the committee will discuss disclosure enhancements for municipal and corporate bonds and may discuss a possible recommendation on that topic. For the full agenda, please see the IAC’s webpage.

The committee welcomes three new members: Paul Mahoney, David and Mary Harrison Distinguished Professor of Law, University of Virginia School of Law; Lydia Mashburn, Managing Director, Center for Monetary and Financial Alternatives, Cato Institute; and J.W. Verret, Associate Professor of Law (with tenure), Antonin Scalia Law School, George Mason University and Senior Scholar, Mercatus Center.  

Members of the IAC 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 IAC members, see the committee’s webpage. The June 14 IAC meeting will be open to the public and webcast live, and it will be archived on the IAC’s website for later viewing.

The IAC 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 Press Release

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SEC Proposes FAIR Act Rules to Promote Research Reports on Investment Funds

The Securities and Exchange Commission today proposed rules and amendments that would promote research on mutual funds, exchange‑traded funds, registered closed-end funds, business development companies, and similar covered investment funds. 

The proposal would reduce obstacles to providing research on investment funds by harmonizing the treatment of such research with research on other public entities. 

“The proposed changes are intended to provide investors with greater access to research to aid them in making investment decisions,” said SEC Chairman Jay Clayton.  “This congressional mandate recognizes the critical role that mutual funds and similar investment products play in helping Main Street investors meet their financial goals.” 

If adopted, the proposal would generally establish a safe harbor for a broker or dealer to publish or distribute research reports on investment funds under certain conditions.  This proposed safe harbor is similar to a regulatory safe harbor that currently exists for research reports about other public entities.

The Commission took this action in furtherance of the mandate of the Fair Access to Investment Research Act of 2017 (FAIR Act).

The public comment period will remain open for 30 days following publication of the proposing release in the Federal Register.

SEC Press Release

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Investing in America: SEC Commissioners are Heading to Atlanta to Interact with Investors

The Securities and Exchange Commission today announced that the five-member Commission and staff from across the agency will be in Atlanta on June 13 for an interactive event with investors at Georgia State University College of Law. The event is an opportunity for all Main Street investors—from those who just started their first job to those approaching retirement—to hear directly from, and share feedback with, the SEC’s leaders on topics that directly affect their personal finances and the regional and national economies. 

“With its dynamic population, innovative ideas, and thriving economy, Atlanta is an ideal place for us to discuss the work we do and hear directly from the people we serve,” said SEC Chairman Jay Clayton, who will be joined in Atlanta by Commissioners Kara Stein, Michael Piwowar, Robert Jackson, and Hester Peirce.

The Commissioners will kick the day off with a town hall-style event covering a range of topics from choosing a financial professional, to initial coin offerings and digital assets, to cybersecurity. Directly after the town hall, attendees are invited to join the Commissioners and SEC staff at one of the interactive breakout sessions to gain greater insight into some of the most requested topics before the SEC today. 

Breakout session topics:

• The Investor Experience: Does the Information You Get From Mutual Funds and ETFs Work for You?
• Tips for Savers, Including Military and Early Career
• Stopping Fraud
• Bitcoin & ICOs
• Investing in, and Raising Money by, Small Companies

“As anyone in the Atlanta Regional Office can tell you, this area has no shortage of people with great ideas, and I know their input will make this event a meaningful learning opportunity both for our agency and the region,” said Richard Best, Director, SEC Atlanta Regional Office. 

Seating is first come, first served and attendants are encouraged to RSVP via the SEC’s Atlanta Regional Office’s webpage, which has event details. There is convenient parking and a MARTA Station nearby. The event is free and open to the public and the media.

SEC Press Release

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SEC Charges Three Former Healthcare Executives With Fraud

The Securities and Exchange Commission today announced fraud charges against three former Constellation Healthcare Technologies Inc. executives who falsified financial and other information they provided to a private firm in the course of negotiating the private firm’s acquisition of a majority stake in Constellation. Houston-based Constellation filed for bankruptcy in March, a little more than a year after the January 2017 acquisition.

According to the SEC’s complaint, the executives convinced a private firm to acquire a majority of Constellation’s equity and provided fake information, including financial statements for three fictitious subsidiaries supposedly acquired for more than $62 million. The complaint alleges that the former executives funded the sham acquisitions with stock sales in London and then diverted the proceeds to themselves.  The complaint charges former Constellation chief executive Parmjit (Paul) Parmar, former chief financial officer Sotirios (Sam) Zaharis, and former company secretary Ravi Chivukula.  In September 2017, amid concerns about Constellation’s financial condition, Parmar resigned and Zaharis and Chivukula were put on administrative leave. 

“Using phony balance sheets, doctored bank statements, and other fabrications to conceal the theft of investor monies, which we allege occurred in this case, will not go undetected or unpunished,” said Marc P. Berger, Director of the SEC’s New York Regional Office.

In a parallel action, the U.S. Attorney’s Office for the District of New Jersey today announced criminal charges against Parmar, Zaharis, and Chivukula.

The SEC’s complaint, filed in U.S. District Court in New Jersey, charges Parmar, Zaharis, and Chivukula with violating the antifraud provisions of the federal securities laws.  The SEC is seeking permanent injunctions, return of allegedly ill-gotten gains plus interest, civil penalties, and officer-and-director bars against the Parmar, Zaharis, and Chivukula.

The SEC’s investigation, which is continuing, has been conducted by John O. Enright and Sheldon L. Pollock of the New York Regional Office and supervised by Lara S. Mehraban.  The SEC appreciates the assistance of the U.S. Attorney’s Office for the District of New Jersey and the FBI.

SEC Press Release

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SEC Charges Owner of Alternative Investment Firm in Belize Airport Financing Scam

The Securities and Exchange Commission today charged the owner of a Manhattan-based alternative investment firm with misappropriating close to $6 million in investor funds earmarked to finance the construction of an international airport in Belize. 

The SEC’s complaint alleges that between 2014 and 2017, Brent Borland sold more than $21 million of promissory notes to dozens of investors, promising that the funds would be used as bridge financing for development of an international airport in Placencia, Belize, and that the investments would be protected by pledges of real estate as collateral.  Borland marketed and sold the notes through two companies, Borland Capital Group LLC, which purports to be active in “alternative investment,” and Belize Infrastructure Fund I, LLC, which purports to be in the business of construction finance. 

The complaint alleges that Borland used millions of dollars of investor funds for personal expenses and unrelated business expenses, including mortgage and property tax payments on his family’s Florida mansion, multiple luxury automobiles, private school tuition for his children, $36,000 for his family’s beach club membership, and almost $2.7 million to pay off credit cards.  Borland also allegedly deceived investors by pledging the same collateral to multiple investors.

“Investors should be able to count on the fact that their invested funds are used as promised,” said Robert J. Burson, Associate Regional Director of the SEC's Chicago Regional Office.  “We seek an asset freeze and immediate injunctive relief in this case to protect victims from alleged false promises.”

The SEC's complaint charges Borland, Borland Capital Group and Belize Infrastructure Fund with violating the antifraud provisions of the federal securities laws.  The SEC seeks asset freezes, an accounting of investor assets, disgorgement, and civil penalties.  The complaint also names as relief defendants Borland’s wife, Alana LaTorra Borland, and a corporation controlled by Borland and his wife, Canyon Acquisitions, LLC.  The SEC seeks to recover investor proceeds that Borland transferred to the relief defendants.

In a parallel action, the U.S. Attorney’s Office for the Southern District of New York announced criminal charges against Borland who was arrested earlier in the day.

The SEC's investigation, which is continuing, was conducted by Andrew O’Brien and Donald Ryba and supervised by C.J. Kerstetter.  The SEC's litigation will be led by Benjamin Hanauer and Timothy Leiman.

SEC Press Release

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The SEC Has an Opportunity You Won’t Want to Miss: Act Now!

If you’ve ever been tempted to buy into a hot investment opportunity linked with luxury travel, the Securities and Exchange Commission has a deal for you.

Check out the SEC’s Office of Investor Education and Advocacy’s mock initial coin offering (ICO) website that touts an all too good to be true investment opportunity. But please don’t expect the SEC to fly you anywhere exotic—because the offer isn’t real.

The SEC set up a website, HoweyCoins.com, that mimics a bogus coin offering to educate investors about what to look for before they invest in a scam. Anyone who clicks on “Buy Coins Now” will be led instead to investor education tools and tips from the SEC and other financial regulators.

“The rapid growth of the ‘ICO’ market, and its widespread promotion as a new investment opportunity, has provided fertile ground for bad actors to take advantage of our Main Street investors,”said SEC Chairman Jay Clayton. “We embrace new technologies, but we also want investors to see what fraud looks like, so we built this educational site with many of the classic warning signs of fraud. Distributed ledger technology can add efficiency to the capital raising process, but promoters and issuers need to make sure they follow the securities laws. I encourage investors to do their diligence and ask questions.” [1]

The website features several of the enticements that are common to fraudulent offerings, including a white paper with a complex yet vague explanation of the investment opportunity, promises of guaranteed returns, and a countdown clock that shows time is quickly running out on the deal of a lifetime.

“Fraudsters can quickly build an attractive website and load it up with convoluted jargon to lure investors into phony deals,” said Owen Donley, Chief Counsel of the SEC’s Office of Investor Education and Advocacy, who doubles as “Josh Hinze” on the HoweyCoins website. “But fraudulent sites also often have red flags that can be dead giveaways if you know what to look for.”

The website’s name, HoweyCoins, is a bit of an Easter egg—a tongue-in-cheek reference to the Howey test that’s used to determine whether a transaction is an investment contract.

In a landmark 1946 U.S. Supreme Court decision, SEC v. W.J. Howey Co., the Court held that a transaction is an investment contract, or security, if “a person invests his money in a common enterprise and is led to expect profits solely from the efforts of the promoter or a third party.”

The SEC was able to build the HoweyCoins website in-house in very little time, which demonstrates just how easy it is for someone to create a scam opportunity.

Remember, a free and simple way to protect your money is to research investments and the people who sell them. You can do all that and more on the SEC’s investor education website, Investor.gov.

Before you invest, Investor.gov.

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[1]For example, SEC Chairman Jay Clayton’s Statement on Cryptocurrencies and Initial Coin Offerings includes questions investors and other market participants should consider asking.  https://www.sec.gov/news/public-statement/statement-clayton-2017-12-11

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 Charges Brokerage Firms and AML Officer With Anti-Money Laundering Violations

The Securities and Exchange Commission today announced settled charges against broker-dealers Chardan Capital Markets LLC and Industrial and Commercial Bank of China Financial Services LLC (ICBCFS) for failing to report suspicious sales of billions of penny stock shares.  

Broker-dealers are required to file Suspicious Activity Reports (SARs) for transactions suspected to involve fraud or with no apparent lawful purpose.  According to the SEC, from October 2013 to June 2014, Chardan, an introducing broker, liquidated more than 12.5 billion penny stock shares for seven of its customers and ICBCFS cleared the transactions.  Chardan failed to file any SARs even though the transactions raised red flags, including similar trading patterns and sales in issuers who lacked revenues and products.  The SEC found that ICBCFS similarly failed to file any SARs for the transactions despite ultimately prohibiting trading in penny stocks by some of the seven customers. 

“As gatekeepers to the securities markets, brokerage firms, including clearing firms, must take their anti-money laundering obligations seriously,” said Marc P. Berger, Director of the SEC’s New York Regional Office.  “The failure to file SARs in the face of numerous red flags is unacceptable.”

The SEC’s orders found that Chardan and ICBCFS violated the Exchange Act and an SEC financial recordkeeping and reporting rule and that Chardan’s anti-money laundering (AML) officer, Jerard Basmagy, aided and abetted and caused the firm’s violations.  The SEC also found that ICBCFS failed to produce documents promptly to SEC staff.  Without admitting or denying the SEC’s findings, the parties agreed to settlements requiring Chardan to pay a $1 million penalty, ICBCFS to pay $860,000, and Basmagy to pay $15,000.  Both firms consented to censures and, along with Basmagy, to cease and desist from similar violations in the future.  Basmagy also agreed to industry and penny stock bars for a minimum of three years. 

The SEC’s investigation was conducted in conjunction with a broader inquiry by FINRA into ICBCFS’s AML program and alleged financial, recordkeeping, and operational violations.  FINRA today announced a related settled action against ICBCFS in which the firm agreed to pay a $5.3 million penalty and to retain an independent compliance consultant.

The SEC’s investigation was conducted by Debbie Chan, Lindsay S. Moilanen, James Burt IV, and Sheldon L. Pollock of the New York Regional Office with assistance from the Enforcement Division’s Bank Secrecy Act Review Group. It was supervised by Sanjay Wadhwa.  The SEC’s examination that led to the enforcement referral in this matter was conducted by Theresa Gleason, Josephine LaFata, Stephanie Morena, and Roseanne Smith, and was supervised by Robert A. Sollazzo of the New York Regional Office.  The SEC appreciates the assistance of FINRA.

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 Names James Reese Chief Risk and Strategy Officer of the Office of Compliance Inspections and Examinations

The Securities and Exchange Commission today announced that James Reese has been named the Chief Risk and Strategy Officer of the agency’s Office of Compliance Inspections and Examinations (OCIE). Mr. Reese has served as Acting Chief since February 2017.  

The Chief Risk and Strategy Officer leads the Office of Risk and Strategy (ORS), which was established in 2016 to consolidate OCIE’s risk assessment, market surveillance, large firm monitoring and quantitative analysis teams, and provide operational risk management and organizational strategy for the National Exam Program. ORS is responsible for supporting the NEP’s risk-based and data driven processes through the identification of risks and emerging issues in the financial markets, exam targeting and selection efforts, resource allocation, and investment in quantitative-based examination initiatives.   

“Jim is a strong, talented leader with a depth of experience, background, and expertise that is a valuable asset to the Commission and to OCIE,” said Peter B. Driscoll, Director of the Office of Compliance Inspections and Examinations. “I’m excited Jim will serve as OCIE’s Chief Risk and Strategy Officer and lead our Office of Risk and Strategy.”

Mr. Reese added, “I am truly honored and excited to have been given the opportunity to serve as the Chief Risk and Strategy Officer for OCIE.  It continues to be a great privilege to work alongside of the dedicated and talented examiners and senior staff in OCIE and across the agency.”      

Mr. Reese joined the SEC in 1999 as an examiner in the Investment Adviser/Investment Company program area.  He later served as a branch chief, senior staff accountant, and Assistant Director in OCIE’s Office of Risk Analysis and Surveillance.  Mr. Reese has participated in more than 500 examinations and assisted on numerous rulemaking efforts, including Investment Company and Investment Adviser Reporting; Use of Derivatives by Funds; Dodd-Frank Act Amendments to the Investment Advisers Act; and Private Fund Systemic Risk Reporting.  Mr. Reese was also part of the Commission’s Aberrational Performance Inquiry team, which was comprised of staff from across the agency.

Mr. Reese graduated from Virginia Wesleyan University, where he received a Bachelor of Arts in Accounting and Finance.  He holds the Certified Fraud Examiner (CFE) designation and is a frequent speaker for the SEC’s Technical Assistance Programs with the Office of International Affairs.

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 Files Charges in International Manipulation Scheme

The Securities and Exchange Commission today charged four individuals for their roles in a fraudulent scheme that generated nearly $34 million from unlawful stock sales and caused significant harm to retail investors.

According to the SEC’s complaint, the defendants manipulated the market for and illegally sold the stock of microcap issuer Biozoom Inc.  As part of the alleged scheme, the defendants hid their ownership and sales of Biozoom shares by using offshore bank accounts, sham legal documents, a network of nominees, anonymizing techniques, and other deceptive practices.  The defendants also allegedly directed a wide-ranging promotional campaign and employed sophisticated, manipulative trading techniques to artificially inflate Biozoom’s share price.  The alleged scheme culminated in the defendants’ illegal sales of Biozoom, which netted them nearly $34 million in unlawful proceeds.

“Manipulative and deceptive conduct undermines the integrity of our markets,” said Antonia Chion, Associate Director in the SEC’s Division of Enforcement.  “The charges announced today demonstrate our commitment to unraveling even the most sophisticated international schemes that exploit retail investors.”

The SEC’s complaint, which was filed in federal district court in the Southern District of New York, charges Francisco Abellan Villena, Guillermo Ciupiak, James B. Panter Jr., and attorney Faiyaz Dean with violating antifraud and registration provisions of the federal securities laws and seeks monetary and equitable relief.  The SEC previously obtained a judgment against Abellan for his role in another market manipulation scheme. In separate actions, the SEC charged two registered representatives for their roles in the unregistered sales of Biozoom stock and a brokerage firm for supervisory and recordkeeping failures. 

The SEC obtained a court order in 2013 freezing proceeds from the unlawful Biozoom sales.  It subsequently obtained a default judgment and established a fair fund, which has returned more than $14 million to harmed investors.  The SEC also previously charged a lawyer and officer of Biozoom’s predecessor entity. 

The SEC’s continuing investigation is being conducted by Marc E. Johnson and Jennie B. Krasner with the assistance of the Enforcement Division’s Information Technology Forensics Group, and under the supervision of Deborah A. Tarasevich and Ms. Chion.  The litigation is being conducted by Duane K. Thompson and Daniel Maher, and supervised by Cheryl Crumpton.  The SEC appreciates the assistance of the Financial Industry Regulatory Authority, the British Columbia Securities Commission, the Comision Nacional del Mercado de Valores of Spain, the Cyprus Securities and Exchange Commission, the Hong Kong Securities and Futures Commission, the Ontario Securities Commission, and the Supertendencia del Mercado de Valores of Panama.

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 Names Caryn E. Kauffman as Chief Financial Officer

The Securities and Exchange Commission today announced that Caryn E. Kauffman has been named the agency's Chief Financial Officer (CFO). Ms. Kauffman has served as Acting CFO since February 2017.  The CFO plays a key role in making sure SEC resources are effectively allocated to the activities that best accomplish the agency’s mission.

In her role as CFO, Ms. Kauffman is responsible for leading the agency’s Office of Financial Management, which handles the SEC’s financial reporting and accounting operations, coordinates the development of agency budgets and budget requests, and monitors the use of the dollars entrusted to the agency. 

“I am very pleased to appoint Caryn as our Chief Financial Officer,” said SEC Chairman Jay Clayton.  “She has demonstrated excellent leadership in improving financial controls, managing the SEC’s budget resources, and continuously improving our financial management operations, all of which remain key priority areas for the SEC.”

Ms. Kauffman added, “I am greatly honored to have the opportunity to serve in this new capacity alongside the talented and dedicated staff of the Office of Financial Management and across the agency.  Under Chairman Clayton’s leadership, the SEC is deeply committed to strong financial management, and I'm proud to lead the agency's efforts in this area."

Ms. Kauffman previously served as Deputy Chief Financial Officer since 2013, where she led the agency's financial accounting and reporting, controls and accounting operations.  She first joined the SEC in 2011, in the role of Chief Accounting Officer.  Before joining the SEC, Ms. Kauffman spent twelve years in the audit practice of PricewaterhouseCoopers LLP. 

Ms. Kauffman received her B.S. in Accounting from the University of Richmond and is licensed as a certified public accountant.

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 Charges Hedge Fund Adviser With Deceiving Investors by Inflating Fund Performance

The Securities and Exchange Commission today announced that it has charged New York-based investment adviser Premium Point Investments LP with inflating the value of private funds it advised by hundreds of millions of dollars.  The SEC also charged Premium Point’s CEO and chief investment officer Anilesh Ahuja as well as Amin Majidi, a former partner and portfolio manager at the firm, and former trader Jeremy Shor. 

According to the SEC’s complaint, the scheme ran from at least September 2015 through March 2016 and relied on a secret deal where in exchange for sending trades to a broker-dealer, Premium Point received inflated broker quotes for mortgage-backed securities (MBS).  In addition, the defendants allegedly used “imputed” mid-point valuations, which were applied in a manner that further inflated the value of securities. This practice allegedly boosted the value of many of Premium Point’s MBS holdings and further exaggerated returns.  The complaint alleges that the defendants overstated the funds’ value in order to conceal poor fund performance and attract and retain investors.

“Investors rely on their investment advisers to fairly and accurately value securities, and that is especially true when the securities trade in opaque markets,” said Daniel Michael, Chief of the Enforcement Division’s Complex Financial Instruments Unit.  “As we allege, Premium Point masked its true performance, which denied investors the opportunity to make informed investment decisions.”

The SEC’s complaint, filed in U.S. District Court for the Southern District of New York, charges the defendants with fraud, with aiding and abetting fraud, or both.  The SEC complaint seeks permanent injunctions, return of allegedly ill-gotten gains with interest, and civil penalties.

The U.S. Attorney’s Office for the Southern District of New York, which conducted a parallel investigation of this matter, today announced charges against Ahuja, Majidi, and Shor. 

The SEC’s investigation, which is continuing, was conducted by H. Gregory Baker and Brian Fitzpatrick of the Asset Management Unit, Osman Nawaz of the Complex Financial Instruments Unit, and Preethi Krishnamurthy of the New York Regional Office under the supervision of Mark D. Salzberg of the Asset Management Unit.  The litigation is being conducted by Ms. Krishnamurthy, Mr. Baker, and Mr. Nawaz.  The SEC acknowledges the assistance and cooperation of the U.S. Attorney’s Office and the FBI in this matter.

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 Levies Fraud Charges Against Texas-Based Municipal Advisor, Owner for Lying to School District

The Securities and Exchange Commission today announced it charged a registered municipal advisor and its owner with defrauding a south Texas school district in connection with multiple municipal bond offerings. 

The SEC’s order instituting proceedings found that in connection with three municipal bond offerings between January 2013 and December 2014, Mario Hinojosa and his wholly-owned municipal advisor, Barcelona Strategies LLC, misrepresented their municipal advisory experience and failed to disclose conflicts of interests to their client, a local school district in South Texas.  While working as a paralegal, Hinojosa set up Barcelona, registered it as an SEC municipal advisor, drafted a marketing brochure about the firm, and circulated the brochure to the school district and other municipalities.  The brochure created the misleading impression that Hinojosa and Barcelona had served as a municipal advisor on numerous municipal bond issuances and failed to disclose that Hinojosa had a financial interest in the school district’s offerings.  By virtue of their misrepresentations and omissions, Barcelona and Hinojosa improperly earned hundreds of thousands of dollars in municipal advisory fees. 

“Municipal advisors owe a fiduciary duty to their municipal clients, who rely on advisors to make important financial decisions,” said Shamoil T. Shipchandler, Director of the SEC’s Fort Worth Regional Office.  “Undisclosed conflicts of interest can lead to significant investment losses, and prevent municipal entities from making informed decisions in their selection of municipal advisors.  As described in today’s order, Barcelona fell well short of its obligations to this school district client.”

The SEC’s order found that Hinojosa and Barcelona engaged in fraudulent, deceptive, or manipulative acts and breached their fiduciary duties to municipal clients.  Without admitting or denying the allegations, Barcelona and Hinojosa consented to a cease-and-desist order and are jointly and severally liable for paying $362,606 in disgorgement and $19,514 in prejudgment interest.  Barcelona was also assessed a civil penalty of $160,000 while Hinojosa was assessed a civil penalty of $20,000.  Finally, Hinojosa was barred from association with various regulated entities, including municipal advisors.

 

The SEC’s investigation was conducted by Christopher Reynolds and Melvin Warren with assistance by Mark Zehner of the Public Finance Abuse Unit, and supervised by Scott F. Mascianica, David Reece, and Eric Werner.    

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.

Hedge Fund Firm Charged for Asset Mismarking and Insider Trading

The Securities and Exchange Commission today announced the hedge fund advisory firm Visium Asset Management LP has agreed to settle charges related to asset mismarking and insider trading by its privately managed hedge funds and portfolio managers.  Separately, the firm’s CFO agreed to settle charges that he failed to respond appropriately to red flags that should have alerted him to the asset mismarking. 

The SEC’s order finds that two portfolio managers of New York-based Visium falsely inflated the value of securities held by hedge funds it advised, causing the funds to falsely inflate returns, overstate their aggregate net asset value, and pay approximately $3.15 million in excess fees to Visium.  The order also finds that certain Visium portfolio managers traded in the securities of pharmaceutical companies in advance of two generic drug approvals by the U.S. Food and Drug Administration (FDA).  The trades were based on confidential information received from a former FDA official working as a paid consultant to Visium.  Trades were also made in the securities of home healthcare providers in advance of a proposed cut to certain Medicare reimbursement rates by the Centers for Medicare and Medicaid Services (CMS), based on confidential information received from a former CMS employee working as a paid consultant to Visium. 

In a separate order issued today, the SEC finds that Visium’s CFO Steven Ku failed reasonably to supervise the two portfolio managers, Christopher Plaford and Stefan Lumiere, who perpetrated the asset mismarking scheme, by failing to respond appropriately to red flags that should have alerted Ku to their misconduct. 

The SEC previously charged Plaford and Lumiere, and the former FDA official, among others, for their misconduct, in an enforcement action filed in June 2016.  The former CMS employee was charged for other misconduct in May 2017.  Earlier this year, the SEC barred Lumiere from the securities industry based on a final judgment entered against him in the SEC’s case as well as his conviction in a parallel criminal case.  The SEC’s case against Plaford has been stayed pending the completion of a parallel criminal case.

“Advisory firms must create a culture of zero tolerance when it comes to unlawful conduct, and supervisors at those firms must take reasonable measures necessary to detect and prevent securities law-related violations by their personnel,” said Marc P. Berger, Director of the SEC’s New York Regional Office.  “Here Visium’s portfolio managers engaged in illegal asset mismarking and insider trading, and Ku failed to act in the face of red flags that should have exposed the asset mismarking scheme.”

Visium agreed to settle the SEC’s charges by, among other things, disgorging illicit profits totaling more than $4.7 million plus interest of $720,711, and paying a penalty of more than $4.7 million.  Ku agreed to pay a $100,000 penalty and to be suspended from the securities industry for twelve months.  Visium and Ku each consented to the applicable SEC order without admitting or denying the findings. 

The SEC’s investigation was conducted by Philip Moustakis, Jason W. Sunshine, Brian Fitzpatrick, Valerie A. Szczepanik, and Charles D. Riely in the New York office.  The case was 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 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 Names Jessica Kane Director of Office of Credit Ratings

The Securities and Exchange Commission today announced that Jessica Kane has been named the Director of the agency’s Office of Credit Ratings, where she has served as Acting Director since September 2017.

The Office of Credit Ratings is responsible for oversight of nationally recognized statistical rating organizations (NRSROs).  The office conducts annual examinations of NRSROs and works to ensure that credit ratings are not unduly influenced by conflicts of interest and that NRSROs provide greater transparency and disclosure to investors.

“Jessica’s strong leadership, dedication, and diverse experience at the SEC will serve her well in this role,” said Chairman Jay Clayton.  “The Office of Credit Ratings is integral to the SEC’s mission and plays an important role in ensuring that NRSROs meet their obligations, investors are well informed, and our markets function effectively.” 

“I am honored to continue leading the Office of Credit Ratings and working with the talented and dedicated staff in this office and across the agency,” said Ms. Kane.  “I look forward to continuing to work with Chairman Clayton, the Commissioners, and the staff to ensure effective oversight of NRSROs.”  

Before joining the Office of Credit Ratings, Ms. Kane was Director of the SEC’s Office of Municipal Securities, which administers SEC rules on participants in the municipal securities market and coordinates with the Municipal Securities Rulemaking Board (MSRB) on rulemaking and enforcement.  Key initiatives advanced under Ms. Kane’s leadership include the implementation of SEC municipal advisor registration rules and a new regulatory regime for municipal advisors; Commission approval of MSRB rules on best execution and mark-up disclosure; and a Commission proposal to improve municipal securities disclosure regarding certain financial obligations incurred by issuers and obligated persons.  

Ms. Kane joined the SEC in 2007 and spent five years in the Division of Corporation Finance before moving to the Office of Legislative and Intergovernmental Affairs.  She later served as Deputy Director and Senior Special Counsel to the Director of the Office of Municipal Securities.

Ms. Kane graduated with honors from Georgetown University, where she received her B.A. degree in English, with a minor in Economics.  She holds a J.D. degree from George Mason University School of Law, where she was Executive Editor of the Civil Rights Law Journal.
 

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.

Diane Blizzard, Associate Director of Rulemaking for the SEC’s Division of Investment Management, to Leave the Agency After 18 Years of Service

SEC Launches Additional Investor Protection Search Tool

The Securities and Exchange Commission today announced the launch of an additional online search feature that enables investors to research whether the person trying to sell them investments has a judgment or order entered against them in an enforcement action. The new tool is intended to assist the public in making informed investment decisions and avoiding financial fraud.  

The SEC Action Lookup for Individuals – or SALI– will help identify registered and unregistered individuals who have been parties to past SEC enforcement actions and against whom federal courts have entered judgments or the SEC has issued orders.  

“Our Main Street Investors themselves are a key line of defense in detecting and preventing fraud. One of the SEC’s most important tasks is to arm our investors with the tools necessary to identify potential fraudsters. An important risk factor is whether the person you are dealing with has a disciplinary history with the SEC or other regulators,” said SEC Chairman Jay Clayton. “SALI provides Main Street investors with an additional tool they can use to protect themselves from being victims of fraud and other misconduct.”

The new tool’s results are not limited to registered investment professionals, as with many existing online search functions. Instead, SALI allows the public to identify individuals who have settled, defaulted, or contested an enforcement action brought by the SEC, provided that a final judgment or order was entered against them in a federal court or an administrative proceeding.  

SALI supplements existing SEC-provided investor education resources available on Investor.gov, including a free investment professional search tool, that provides access to information on investment adviser representatives as well as individuals listed in FINRA’s BrokerCheck system. Investors are encouraged to take advantage of the considerable resources, such as Investor Alerts and Bulletins, planning tools and answers to frequently asked questions, provided by the Office of Investor Education and Advocacy on Investor.gov.

Currently, SALI search results include parties from SEC actions filed between October 1, 2014 and March 31, 2018. The SEC will update the search feature periodically to add parties from newly-filed actions and actions filed prior to October 1, 2014.

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Additional information about SALI can be found on sec.gov. For more information about SEC federal court actions and administrative proceedings, select the Enforcement tab on sec.gov. There, you can search for documents related to SEC actions by using the “Search Litigation Materials” feature located at the bottom of that page. For other resources and tools, see information for the individual investor or visit Investor.gov.

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 Names Raquel Fox Director of the Office of International Affairs

The Securities and Exchange Commission today announced that Raquel Fox will succeed Paul Leder as the Director of the Office of International Affairs, which advises the Commission on cross-border enforcement and regulatory matters and coordinates the SEC’s involvement with regulatory authorities outside the United States.  Ms. Fox will formally assume the position in July 2018. 

Most recently, Ms. Fox served as a senior advisor to SEC Chairman Jay Clayton focusing on matters involving the Division of Corporation Finance and the Office of International Affairs, and assisted on enforcement matters.  Ms. Fox joined the SEC in 2011, previously serving as a Senior Special Counsel to the Director of the Division of Corporation Finance and an attorney fellow in the offices of Capital Markets Trends and Rulemaking.  Before joining the SEC, Ms. Fox was a counsel at WilmerHale LLP, specializing in capital markets transactions, corporate governance and disclosure.  She began her career as a certified public accountant, specializing in taxation.

“I am thrilled that Raquel has agreed to serve the Commission in this key role.  International cooperation is an important part of the SEC’s work to protect investors and facilitate capital-raising,” said SEC Chairman Jay Clayton. “The Office of International Affairs will benefit greatly from Raquel’s leadership and her commitment to serving the long-term interests of our Main Street investors.”

Ms. Fox said, “I am honored to have this opportunity to serve at the SEC and continue working with my talented and dedicated colleagues in the Office of International Affairs and across the agency, as well as with our foreign counterparts.” 

Ms. Fox earned her J.D. from Harvard Law School and her master’s degree in taxation and bachelor’s degree, summa cum laude, from Baylor University. 

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 Enforcement Division Issues FAQs for Share Class Selection Disclosure Initiative

The Securities and Exchange Commission’s Division of Enforcement today issued answers to frequently asked questions (FAQs) on the Share Class Selection Disclosure Initiative, providing additional information about adviser eligibility, disgorgement, and the distribution of funds to clients.

The Share Class Selection Disclosure (SCSD) Initiative, announced on February 12, seeks to protect advisory clients from and return money to those affected by undisclosed conflicts of interest.

“It appears that many investment advisers are working diligently to evaluate whether they can take advantage of the initiative and we believe that providing these FAQs will help them make that determination,” said C. Dabney O’Riordan, Co-Chief of the Division of Enforcement’s Asset Management Unit.  “The initiative provides a framework to quickly and efficiently resolve these issues with self-reporting advisers and return money to their clients.”

Under the SCSD Initiative, the Enforcement Division will recommend standardized, favorable settlement terms to investment advisers who self-report that they failed to disclose conflicts of interest associated with the receipt of 12b-1 fees by the adviser, its affiliates, or its supervised persons for investing advisory clients in a 12b-1 fee paying share class when a lower-cost share class of the same mutual fund was available for the advisory clients.  In such cases the Enforcement Division will recommend settlements that do not impose a civil monetary penalty while requiring participating advisers to return ill-gotten gains to harmed advisory clients.

The cut-off date for self-reporting under the initiative is June 12.

Please direct questions regarding the initiative to SCSDInitiative@sec.gov.

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.