Thursday, August 16, 2018

Citigroup to Pay More Than $10 Million for Books and Records Violations and Inadequate Controls

The Securities and Exchange Commission today announced that Citigroup has agreed to pay $10.5 million in penalties to settle two enforcement actions involving its books and records, internal accounting controls, and trader supervision. The charges stem from $81 million of losses due to trader mismarking and unauthorized proprietary trading and $475 million of losses due to fraudulently-induced loans made by a Mexican subsidiary.  

In the first action, Citigroup Inc. and its U.S. broker-dealer subsidiary Citigroup Global Markets Inc. (CGMI) agreed to pay a $5.75 million penalty to settle charges of inaccurate books and records and CGMI’s failure reasonably to supervise traders. Citigroup and CGMI settled without admitting or denying the SEC’s findings and agreed to cease and desist from future violations.  

The SEC found that from 2013 to 2016, three CGMI traders mismarked illiquid positions in certain proprietary accounts they managed, in two cases covering losses from widespread unauthorized trading. The discovery of the mismarking led to the termination of the traders and the recognition of $81 million in losses not previously reflected in CGMI’s or Citigroup’s books and records. The SEC’s order finds that CGMI failed to detect the traders’ misconduct earlier because it had inadequate supervisory procedures and systems and did not independently verify the valuations of the mismarked positions. 

In the second action, Citigroup agreed to pay a $4.75 million penalty to settle charges that it failed to devise and maintain adequate internal accounting controls. Citigroup settled without admitting or denying the SEC’s findings and agreed to cease and desist from future violations. The SEC’s order finds that Citigroup subsidiary Grupo Financiero Banamex S.A. de C.V. loaned approximately $3.3 billion to Oceanografia, S.A. (OSA) between 2008 and 2014 based on invoices and work estimates for services that OSA provided to Petroleos Mexicanos (Pemex), the Mexican state-owned oil company. According to the order, many of the OSA work estimates were fraudulent and did not reflect amounts Pemex actually owed to OSA. Citigroup ultimately lost approximately $475 million as a result of OSA’s fraud. The SEC’s order finds that Banamex and Citigroup lacked the controls necessary to verify the invoices before making loans to OSA and ignored numerous red flags that should have led to discovery of the fraud.

“Today’s charges reflect the Commission’s view that Citigroup fell short of its obligations to supervise its traders and maintain appropriate controls to guard against fraud,” said Marc P. Berger, Director of the SEC’s New York Regional Office.  “Citigroup’s lax supervision and weak internal accounting controls allowed a handful of rogue traders to mismark positions over several years and, separately, resulted in the unnecessary loss of hundreds of millions of dollars of its shareholders’ assets to fraud.”

The mismarking and unauthorized trading investigation was conducted by Derek Schoenmann, Janna Berke and Celeste Chase. The Banamex investigation was conducted by Olivia Zach, Jorge Tenreiro, James Addison and Ms. Chase. Both investigations were conducted out of the SEC’s New York office and supervised by Sanjay Wadhwa.



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.

Wednesday, August 15, 2018

SEC Charges Ameriprise Financial Services for Failing to Safeguard Client Assets

The Securities and Exchange Commission today announced that Ameriprise Financial Services Inc. will pay $4.5 million to settle charges that it failed to safeguard retail investor assets from theft by its representatives. 

According to the SEC’s order, five Ameriprise representatives committed numerous fraudulent acts, including forging client documents, and stole more than $1 million in retail client funds over a four-year period. The SEC found that Ameriprise, a registered investment adviser and broker-dealer, failed to adopt and implement policies and procedures reasonably designed to safeguard investor assets against misappropriation by its representatives. 

The five representatives were based in Minnesota, Ohio, and Virginia, and three previously pled guilty to criminal charges. Each of the representatives was terminated by Ameriprise for misappropriating client funds. The SEC’s order found that Ameriprise has implemented a new system to safeguard clients’ money and that Ameriprise reimbursed all impacted clients for the losses they incurred due to the misconduct of the five representatives.

“A critical obligation of an investment adviser is to safeguard investor assets,” said Fuad Rana, an Assistant Director in the SEC’s Division of Enforcement. “Ameriprise failed to meet that obligation and as a consequence was unable to prevent the theft of its clients’ assets.”

The SEC’s order charged Ameriprise with failing to have reasonably designed policies and procedures to prevent its representatives from misappropriating client funds and failing to reasonably supervise the five representatives. Without admitting or denying the findings, Ameriprise agreed to be censured and pay a penalty of $4.5 million.

The SEC’s investigation was conducted by H. Norman Knickle and supervised by Mr. Rana, and was assisted by Thomas Meier, Josh Herbst, and Susan M. Weis of the Chicago Regional Office’s examination staff. The SEC appreciates the assistance of 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.

Tuesday, August 14, 2018

SEC Files Charges in Municipal Bond “Flipping” and Kickback Schemes

The Securities and Exchange Commission today charged two firms and 18 individuals in a scheme to improperly divert new issue municipal bonds to broker-dealers at the expense of retail investors.  According to the SEC’s complaint, the defendants – known in the industry as “flippers” – purchased new issue municipal bonds, often by posing as retail investors to gain priority in bond allocations. The defendants then “flipped” the bonds to broker-dealers for a fee. The SEC also charged a municipal underwriter for accepting kickbacks from one of the flippers.

The SEC alleges that from at least 2009 to 2016, Core Performance Management LLC, RMR Asset Management Co., their principals, and certain of their associates, misrepresented their identities to gain priority in new issue municipal bond allocations. Municipal issuers typically require underwriters to give retail investor orders the highest priority when allocating new issue bonds, particularly retail investors within the municipal issuer’s jurisdiction. According to the SEC’s complaint, these defendants used fictitious business names, falsely linked their orders to ZIP codes within the issuer’s jurisdiction, and split orders among dozens of accounts. After acquiring the bonds, the SEC alleges that the defendants quickly resold them to broker-dealers, typically for a fixed, pre-arranged commission, and often sought to hide the flipping activity from issuers and underwriters by manipulating sales tickets.

“More than a dozen of the individuals charged today are alleged to have engaged in plainly deceptive conduct,” said Stephanie Avakian, Co-Director of the Enforcement Division. “We are committed to investigating and charging individuals, especially where, as here, the alleged misconduct by many of these industry professionals harmed retail investors.”   

“By improperly placing retail orders on behalf of broker-dealers, we allege the flippers prevented true retail investors from receiving priority in municipal bond offerings,” said LeeAnn G. Gaunt, Chief of the Division of Enforcement’s Public Finance Abuse Unit.  “We are continuing our investigation to determine whether other market professionals had a role in these improper practices.”   

Core Performance and managing director James P. Scherr, RMR and its president, Ralph Riccardi, and 13 of their associates settled the SEC’s charges without admitting or denying the allegations, agreeing to injunctions, to return allegedly ill-gotten gains with interest, pay civil penalties, be subject to industry bars or suspensions, and to cooperate with the SEC’s ongoing investigation. The settlements are subject to court approval. The SEC’s charges against RMR associates Richard C. Gounaud, Jocelyn M. Murphy, and Michael S. Murphy will be litigated in U.S. District Court for the Southern District of California.  

In a related action, the SEC instituted settled proceedings against Charles Kerry Morris, the former head of municipal underwriting at broker-dealer NW Capital Markets Inc. The SEC found that Morris took kickbacks from Scherr and engaged in a parking scheme in which Morris allocated new issue bonds to Scherr with the understanding that Morris would repurchase them. As a result of this trading, the SEC found that Morris and NW Capital caused Scherr and Core Performance’s improper unregistered broker activity. The SEC found that Morris’s supervisor, James A. Fagan, failed reasonably to supervise Morris’s activities.  

Morris, NW Capital, and Fagan agreed to settle the charges without admitting or denying the SEC’s findings. Morris agreed to pay a total of $254,009 and to consent to an industry bar. NW Capital agreed to be censured and pay a total of $87,065 and Fagan agreed to pay a $10,000 penalty and to consent to a six-month supervisory suspension.

The investigation, which is continuing, is being conducted by the Division of Enforcement’s Public Finance Abuse Unit, including Joseph Chimienti, Laura Cunningham, Warren Greth, Cori Shepherd, and Jonathan Wilcox, with assistance from Deputy Unit Chief Mark Zehner and litigation counsel Nicholas Pilgrim. Kevin Guerrero and Ivonia Slade supervised the investigation.  Mr. Pilgrim will lead the litigation against Gounaud, Jocelyn Murphy, and Michael Murphy.



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 Bars Perpetrator of Initial Coin Offering Fraud

The Securities and Exchange Commission today obtained permanent officer-and-director and penny stock bars against the founder of a company who perpetrated a fraudulent initial coin offering (ICO) to fund oil exploration and drilling in California.

According to the SEC’s order, David T. Laurance and Tomahawk Exploration LLC attempted to raise money through the sale of blockchain-based digital tokens called “Tomahawkcoins.” The SEC’s order finds that the defendants’ promotional materials used inflated projections of oil production that were contradicted by the company’s own internal analysis and misleadingly suggested that Tomahawk possessed leases for drilling sites when it did not.  According to the order, the materials described Laurance as having a “flawless background” without disclosing his prior criminal conviction for his role in fraudulent securities offerings. The order also finds that Tomahawk claimed that token owners would be able to convert the Tomahawkcoins into equity and potentially profit from the anticipated oil production and secondary trading of the tokens.  Although the ICO failed to raise money, Tomahawk issued tokens through a “Bounty Program” in exchange for online promotional services.  

“Investors should be alert to the risk of old-school frauds, like oil and gas schemes, masquerading as innovative blockchain-based ICOs,” said Robert A. Cohen, Chief of the SEC’s Cyber Unit.  

The SEC’s Office of Investor Education and Advocacy (OIEA) today issued an Investor Alert to encourage investors to check the background of anyone selling or offering them an investment using the free and simple search tool on Investor.gov. OIEA’s Investor Bulletin about ICOs is another resource that describes potential warning signs of investment fraud including “guaranteed” high investment returns and unlicensed sellers.

The SEC’s order finds that Tomahawk and Laurance violated the registration and antifraud provisions of the federal securities laws. Without admitting or denying the SEC’s findings, Tomahawk and Laurance consented to a cease and desist order and Laurance consented to an officer and director bar, penny stock bar, and a $30,000 penalty.  

The SEC’s investigation was conducted by Victor Hong, Justin Lichterman, and Serafima Krikunova of the San Francisco Regional Office, with assistance from Joseph Dugan of the Fort Worth Regional Office. The case was supervised by Steven Buchholz of the SEC’s Cyber Unit and Mr. Cohen. The SEC appreciates the assistance of the California Department of Conservation’s Division of Oil, Gas, and Geothermal Resources.



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.

Wednesday, August 08, 2018

SEC Charges U.S. Congressman and Others With Insider Trading

The Securities and Exchange Commission today announced the filing of insider trading charges against Congressman Christopher Collins, the U.S. Representative for New York’s 27th Congressional District, his son, Cameron Collins, and a third individual, Stephen Zarsky. In a parallel action, the U.S. Attorney’s Office for the Southern District of New York today announced related criminal charges.

Christopher Collins, who served as an independent director of an Australian biotech company, Innate Immunotherapeutics Ltd., is charged with tipping Cameron Collins after receiving confidential information about negative clinical trial results for Innate’s multiple sclerosis drug. Cameron Collins and his girlfriend’s father, Stephen Zarsky, are charged with trading and tipping others on the basis of the material, nonpublic information.  

The SEC’s complaint alleges that Christopher Collins learned of the negative clinical trial results on the evening of June 22, 2017 in an email from Innate’s CEO to the board of directors, which stated that the CEO had “extremely bad news” indicating that drug trial results “pretty clearly indicate ‘clinical failure’.” The SEC alleges that Christopher Collins replied to the CEO’s email within minutes, expressing his surprise at the results, and then called and spoke to his son minutes later.

According to the SEC’s complaint, later that same evening, Cameron Collins drove to Stephen Zarsky’s home and tipped him. The next morning, almost two hours prior to the market opening, Cameron Collins and Zarsky allegedly entered orders to sell Innate shares, which were executed just after the market opened. Over the next two trading days, Cameron Collins allegedly sold a total of nearly 1.4 million Innate shares. According to the complaint, a few hours after the last of these sales, Innate publicly announced the negative results of the clinical trial. The company’s stock price then plummeted by more than 92 percent.  Through their sales, Cameron Collins and Zarsky avoided losses of more than $700,000. The complaint also alleges that they contacted other friends and family members who also sold Innate shares in advance of the negative announcement.

“We allege that Christopher Collins breached his duty of confidentiality to Innate’s shareholders, exploiting his access to nonpublic information about the company’s clinical trial results so that his son could avoid significant financial losses,” said Stephanie Avakian, Co-Director of the SEC Enforcement Division. “Our laws are designed to prevent and punish such misconduct, which undermines investors’ trust in the fairness and integrity of our markets.” 

“In the hours and days after learning of the drug trial results, Christopher Collins, his son, and their associates exchanged a flurry of calls,” said Steven Peikin, Co-Director of the Enforcement Division. “The investigation yielded a detailed footprint left by the defendants, revealing their frantic efforts to sell shares and warn others before Innate announced bad news.”     

The SEC’s complaint, filed in U.S. District Court for the Southern District of New York, charges Christopher Collins, Cameron Collins, and Stephen Zarsky with violating Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 as well as Section 17(a) of the Securities Act of 1933. The complaint seeks disgorgement of ill-gotten gains plus interest, penalties, and permanent injunctions.  It also seeks an officer and director bar against Christopher Collins.  

The SEC also announced settled charges today against Lauren Zarsky, Cameron Collins’ girlfriend, and her mother, Dorothy Zarsky, for trading on the basis of material, nonpublic information. Lauren Zarsky and Dorothy Zarsky consented to the entry of final judgments without admitting or denying the charges that they sold their shares of Innate based on tips they received from Cameron Collins. Lauren Zarsky agreed to disgorge her ill-gotten gains of $19,440, plus prejudgment interest of $839, and pay a civil penalty of $19,440.  Dorothy Zarsky agreed to disgorge her ill-gotten gains of $22,600, plus prejudgment interest of $975, and pay a civil penalty of $22,600. The final judgments, which require court approval, would enjoin Lauren Zarsky and Dorothy Zarsky from violating Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder and Section 17(a) of the Securities Act of 1933. Lauren Zarsky, a CPA, has also agreed to be suspended from appearing or 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 Zarsky to apply for reinstatement after five years.

The SEC’s investigation has been conducted by William Max Hathaway, Colby A. Steele, Patrick McCluskey, and Carolyn M. Welshhans in the Enforcement Division’s Market Abuse Unit. The case has been supervised by Joseph G. Sansone, Chief of the Market Abuse Unit, and Robert A. Cohen. The litigation will be led by Melissa Armstrong and Cheryl Crumpton. 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.

Tuesday, August 07, 2018

SEC Charges Cloud Communications Company and Two Senior Executives With Misleading Revenue Projections

The Securities and Exchange Commission today charged a cloud communications company and two executives with providing misleading quarterly revenue estimates.  The company and executives agreed to pay over $1.9 million in penalties to settle the SEC’s charges.

According to the SEC’s order, Sonus Networks Inc.’s former CFO, Mark Greenquist, was aware of red flags which undermined the company’s first quarter 2015 revenue estimates.  These red flags included that Sonus had pulled forward deals initially projected to close in 2015 in order to achieve its revenue guidance for the fourth quarter of 2014.  Despite recognizing these risks, Greenquist said in a press release that he was comfortable with the consensus analyst revenue estimate of $74 million for the first quarter.  About six weeks later, the company issued guidance of $74 million which reflected certain forecasted sales that had been improperly reclassified, due to pressure from Michael Swade, Sonus’s Vice President of Global Sales, in order to support the $74 million estimate.

Seven days before the close of the quarter, Sonus announced that it was lowering its first quarter revenue estimate to between $47 million and $50 million.  Following this announcement, Sonus’s stock price dropped over 33 percent.

“The investing community expects that when companies choose to provide public financial projections, there is a reasonable basis underpinning those projections,” said Antonia Chion, Associate Director in the SEC’s Division of Enforcement.  “When a company ignores red flags or takes steps to make public financial projections inaccurate we will take appropriate action.”

Without admitting or denying the findings, Sonus, which following a merger conducts business as Ribbon Communications Inc., Greenquist and Swade consented to the entry of the SEC’s order, which found that they violated Section 17(a)(2) of the Securities Act of 1933, and that Ribbon violated, and Greenquist and Swade caused Ribbon’s violations of, the reporting provisions of the Securities Exchange Act of 1934, and ordered Ribbon, Greenquist and Swade to pay penalties of $1.9 million, $30,000, and $40,000 respectively.

The SEC’s investigation was conducted by Jonathan Austin and Elizabeth Doisy, with assistance from Peter Rosario, Avron Elbaum, Nick Pilgrim, and Cheryl Crumpton, and was supervised by Deborah Tarasevich and Ms. Chion.
 



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.

Monday, August 06, 2018

SEC Updates List of Firms Using Inaccurate Information to Solicit Investors

The Securities and Exchange Commission today announced that it has updated its list of unregistered firms that use misleading information to primarily solicit non-U.S. investors, adding 16 soliciting entities, four impersonators of genuine firms, and nine bogus regulators.

The updates by the SEC Division of Enforcement’s Office of Market Intelligence, in coordination with the SEC’s Office of Investor Education and Advocacy and the Office of International Affairs, are part of the agency’s continuing effort to protect retail investors.

The SEC’s list of soliciting entities that have been the subject of investor complaints, known as the Public Alert: Unregistered Soliciting Entities (PAUSE) list, enables investors to better inform themselves and avoid being a victim of fraud.  The latest additions are firms that the SEC staff found were providing inaccurate information about their affiliation, location, or registration.  Under U.S. securities laws, firms that solicit investors generally are required to register with the SEC and meet minimum financial standards and disclosure, reporting, and recordkeeping requirements.

“While SEC registration is no guarantee against fraud or mismanagement, it does bring a higher level of security and accountability to protect the public,” said Jennifer Diamantis, Chief of the SEC’s Office of Market Intelligence.  “Investors should proceed with caution if any unregistered entity attempts to solicit them.”

In addition to alerting investors to firms falsely claiming to be registered, the PAUSE list flags those impersonating registered securities firms and bogus “regulators” who falsely claim to be government agencies or affiliates.  Inclusion on the PAUSE list does not mean the SEC has found violations of U.S. federal securities laws or made a judgment about the merits of any securities being offered.

How to protect yourself:

Before you invest, the SEC strongly encourages you to check the background of anyone selling you an investment using the free and simple search tool on Investor.gov.  Always verify that the seller is currently licensed or registered.  This is a great first step toward protecting your money. 

For more information, explore these resources:



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.