SEC Files Charges Seeking to Halt Recidivist and Associates in Scheme to Defraud Small Businesses

The Securities and Exchange Commission today charged three-time recidivist Steven J. Muehler with operating an unregistered broker-dealer, facilitating an unregistered securities offering, and defrauding small businesses, while promising to help them raise money from investors.  Three companies under Muehler’s control, Muehler’s wife, Claudia M. Muehler, and his associate, Koorosh “Danny” Rahimi, were also charged.  Because the scheme is ongoing, the SEC is also seeking a preliminary injunction to stop Muehler’s ongoing violations of the securities laws, pending trial of the action.

The SEC’s complaint, which was filed in federal court in Los Angeles, also charges Muehler with violating a cease-and-desist order issued by the Commission in 2016 barring Muehler from associating with any broker-dealer.  The SEC has filed a parallel action in the same court to enforce that Commission order.

According to the complaint, Muehler’s companies are not registered as broker-dealers.  But since at least November 2015, Muehler and his companies have nonetheless agreed to provide broker-dealers services to more than 20 small businesses, including identifying and soliciting investors and utilizing a purportedly proprietary online securities exchange to help raise funds from investors.  In return, Muehler and his companies received fees, the right to a percentage of any funds raised from investors, and the right to an equity stake in each small business customer. 

The SEC also alleges that in offering broker-dealer services, Muehler and his companies made numerous fraudulent claims to potential customers, including that Muehler and his companies had $50 million on-hand to invest in their customers’ securities, that they had previously helped customers raise millions of dollars, and that their proprietary online exchange was registered with the SEC.  They also concealed that Muehler is subject to a Commission cease-and-desist order and has been sanctioned by California and Minnesota securities regulators. 

The SEC’s complaint alleges that Claudia Muehler and Danny Rahimi helped Muehler carry out this scheme.

“As alleged in our complaint, Muehler tells small businesses that he runs a successful broker-dealer enterprise that can raise millions of dollars from investors.  In truth, Muehler is a repeat securities-law violator who already admitted to defrauding small businesses the last time the Commission brought an enforcement action against him.  The complaint demonstrates the Commission’s vigilance in enforcing its orders and dealing with recidivist violators,” said Michele Wein Layne, Director of the SEC’s Los Angeles Regional Office. 

The SEC’s complaint charges Muehler and the three companies he controls (AltaVista Capital Markets, LLC, AltaVista Private Client, LLC, and AltaVista Securities, LLC) with violating Section 5(c) of the Securities Act of 1933 and Section 15(a), Section 10(b), and Rule 10b-5 of the Securities Exchange Act of 1934, and also charges Muehler with violating Section 15(b)(6) of the Securities Exchange Act of 1934.  It charges Claudia Muehler with aiding and abetting Muehler’s and the AltaVista Companies’ violations of the Securities Exchange Act of 1934, and charges Rahimi with violating Section 15(a) of the Securities Exchange Act of 1934. 

The complaint also seeks permanent injunctions, disgorgement plus interest, and penalties.

The SEC’s investigation, which is ongoing, has been conducted by M. Lance Jasper and Benjamin Faulkner, and supervised by Spencer E. Bendell.  The litigation will be led by Donald W. Searles and supervised by Amy J. Longo.

SEC Press Release

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SEC Charges Ameriprise With Overcharging Retirement Account Customers for Mutual Fund Shares

The Securities and Exchange Commission today announced that a Minnesota-based broker-dealer and investment adviser has agreed to settle charges for recommending and selling higher-fee mutual fund shares to retail retirement account customers and for failing to provide sales charge waivers.

According to the SEC’s order, Ameriprise Financial Services Inc. disadvantaged certain retirement account customers by failing to ascertain their eligibility for less expensive mutual fund share classes.  Ameriprise recommended and sold these customers more expensive mutual fund share classes when less expensive share classes were available.  Ameriprise also failed to disclose that it would receive greater compensation from the purchases and that the purchases would negatively impact the overall return on the customers’ investments.

“Ameriprise generated greater revenue for itself but lower returns for its retirement account customers by recommending higher-fee share classes,” said Anthony S. Kelly, Co-Chief of the SEC Enforcement Division’s Asset Management Unit.  “As evidenced by our recently announced Share Class Selection Disclosure Initiative, pursuing these types of actions remains a priority for the Division as we seek to get money back in the hands of harmed investors.”

Approximately 1,791 customer accounts paid a total of $1,778,592.31 in unnecessary up-front sales charges, contingent deferred sales charges, and higher ongoing fees and expenses as a result of Ameriprise’s practices.  Ameriprise cooperated with the Commission and voluntarily identified the affected accounts, issued payments including interest to the affected customers, and converted eligible customers to the mutual fund share class with the lowest expenses for which they are eligible, at no cost.

The SEC’s order instituting a settled administrative and cease-and-desist proceeding finds that Ameriprise violated Sections 17(a)(2) and 17(a)(3) of the Securities Act of 1933.  Without admitting or denying the findings, Ameriprise consented to a cease-and-desist order, a censure, and a penalty of $230,000.

The SEC’s investigation was conducted by Salvatore Massa, Steven J. Meiner, and John Farinacci of the Asset Management Unit, and supervised by Jessica M. Weissman.

SEC Press Release

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SEC Announces Agenda for March 8 Investor Advisory Committee Meeting

The Securities and Exchange Commission today announced the agenda for the March 8 meeting of its Investor Advisory Committee. The meeting will begin at 9:30 a.m. in the Multipurpose Room at SEC headquarters at 100 F Street, NE, 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 with outside speakers:  a morning session on regulatory approaches to combat retail investor fraud, and an afternoon session on efforts to prevent the financial exploitation of vulnerable adults.  In addition, the committee will discuss two other topics: dual-class share structures, and financial support for law school clinics that support investors.  These latter two discussions may include possible recommendations.

The committee welcomes new members Jennifer Marietta-Westberg, Senior Economist at Cornerstone Research, and Heidi Stam, a former Managing Director and General Counsel (Retired) at Vanguard. 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 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 Committee is authorized to submit findings and recommendations to the Commission.

SEC Press Release

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SEC Charges Bitcoin Exchange with Fraud

The SEC has charged former cryptocurrency exchange BitFunder and its founder with fraud, alleginged that BitFunder and founder Jon E. Montroll ran the operation as an "unregistered securities exchange" and defrauded users of that exchange.



The SEC also alleges that Montroll also failed to disclose a cyberattack on the exchange's system and a bitcoin theft that happened as a result, according to the SEC statement."



SEC Press Release



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Mark Astarita is a securities attorney with 30 years of experience representing investors and financial professionals across the country. To discuss your issues with him, give him send him an email at mja@sallahlaw.com.

SEC Votes to Modify Compliance Date for Open-End Fund Liquidity Classification

The Securities and Exchange Commission today voted to extend by six months the deadline by which open-end funds must comply with certain elements of the Commission's liquidity risk management program rule. 

The new compliance date will provide funds additional time to complete implementation of the final rule's classification requirement, along with specified other elements that are tied to the classification requirement.  Other provisions of the rule that provide important investor protection benefits, including the requirements to adopt a liquidity risk management program and to limit illiquid investments to 15 percent of the fund’s portfolio, will go into effect as originally scheduled.

The Commission adopted the open-end fund liquidity rule in October 2016, in an effort to promote effective liquidity risk management programs in the fund industry. Management of liquidity risks is important to funds' ability to meet their statutory obligation — and their investors’ expectations — regarding redemption of their shares. Since adoption, staff has engaged in extensive outreach to identify any potential issues associated with the effective implementation of the rule.

Chairman Jay Clayton stated, "Today's Commission action is a measured step designed to help preserve key market oversight and investor protection benefits of the Commission's liquidity rule, while addressing certain concerns that have been raised since adoption. I expect that our action will promote a smoother and more effective implementation process for the rule. I appreciate the valuable engagement with stakeholders we have received thus far, and welcome further engagement, particularly from fund investors, as the implementation process continues."

Pursuant to today’s rule, the compliance date for implementation of the classification and classification-related elements of the liquidity rule is June 1, 2019, for larger fund groups, and Dec. 1, 2019, for smaller fund groups.  The other requirements will go into effect as originally scheduled:  Dec. 1, 2018, for larger fund groups, and June 1, 2019, for smaller fund groups.

Commission staff also today issued an additional set of FAQs related to the liquidity rule, focusing on questions that have arisen with respect to the liquidity classification process. These FAQs should provide additional clarity to funds as they implement the final rule during the additional time that the Commission provided.

Finally, the Commission anticipates considering in the future proposed amendments to Form N-PORT and Form N-1A related to disclosures of liquidity risk management for open-end management investment companies.

SEC Press Release

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SEC Charges Former Bitcoin-Denominated Exchange and Operator With Fraud

The Securities and Exchange Commission today charged a former bitcoin-denominated platform and its operator with operating an unregistered securities exchange and defrauding users of that exchange.  The SEC also charged the operator with making false and misleading statements in connection with an unregistered offering of securities. 

The SEC alleges that BitFunder and its founder Jon E. Montroll operated BitFunder as an unregistered online securities exchange and defrauded exchange users by misappropriating their bitcoins and failing to disclose a cyberattack on BitFunder’s system that resulted in the theft of more than 6,000 bitcoins.The SEC also alleges that Montroll sold unregistered securities that purported to be investments in the exchange and misappropriated funds from that investment as well.

“We allege that BitFunder operated unlawfully as an unregistered securities exchange.  Platforms that engage in the activity of a national securities exchange, regardless of whether that activity involves digital assets, tokens, or coins, must register with the SEC or operate pursuant to an exemption.  We will continue to focus on these types of platforms to protect investors and ensure compliance with the securities laws,” said Marc Berger, Director of the SEC’s New York Regional Office.

“As alleged in the complaint, Montroll defrauded exchange users by misappropriating their bitcoins and failing to disclose a cyberattack on the exchange’s system and the resulting bitcoin theft.  We will continue to vigorously police conduct involving distributed ledger technology and ensure that bad actors who commit fraud in this space are held accountable,” said Lara S. Mehraban, Associate Regional Director of the SEC’s New York Regional Office.

The SEC’s complaint, filed in federal district court in Manhattan, charges BitFunder and Montroll with violations of the anti-fraud and registration provisions of the federal securities laws.  The complaint seeks permanent injunctions and disgorgement plus interest and penalties. 

The SEC’s investigation was conducted by Daphna A. Waxman, Daphne Downes, and Valerie A. Szczepanik in the New York Regional Office.  Ms. Waxman and Ms. Szczepanik also are members of the SEC’s Distributed Ledger Working Group and the Enforcement Division’s Cyber Unit.  The litigation will be led by Dugan Bliss.  The case is being supervised by Lara S. Mehraban.

In a parallel criminal case, the U.S. Attorney’s Office for the Southern District of New York today filed a complaint against Montroll for perjury and obstruction of justice during the SEC’s investigation.  The SEC appreciates the assistance of the U.S. Attorney’s Office and the Federal Bureau of Investigation.

SEC Press Release

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SEC Adopts Statement and Interpretive Guidance on Public Company Cybersecurity Disclosures

Yesterday, the Securities and Exchange Commission voted unanimously to approve a statement and interpretive guidance to assist public companies in preparing disclosures about cybersecurity risks and incidents.

“I believe that providing the Commission’s views on these matters will promote clearer and more robust disclosure by companies about cybersecurity risks and incidents, resulting in more complete information being available to investors,” said SEC Chairman Jay Clayton.  “In particular, I urge public companies to examine their controls and procedures, with not only their securities law disclosure obligations in mind, but also reputational considerations around sales of securities by executives.”

The guidance provides the Commission’s views about public companies’ disclosure obligations under existing law with respect to matters involving cybersecurity risk and incidents.  It also addresses the importance of cybersecurity policies and procedures and the application of disclosure controls and procedures, insider trading prohibitions, and Regulation FD and selective disclosure prohibitions in the cybersecurity context.

SEC Press Release

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SEC Obtains Bars and Suspensions Against Individuals and Accounting Firm in Shell Factory Scheme

The Securities and Exchange Commission today announced charges against three Israeli residents, a Washington, D.C. attorney, and an Israeli auditor and his Maryland-based accounting firm for their roles in a fraudulent scheme in the creation of numerous public shell companies.  Under the terms of their settlements with the SEC, the three Israeli residents will be subject to penny stock bars and the attorney and auditor will be prohibited from appearing and practicing before the Commission.

According to a complaint filed by the SEC in federal district court for the Eastern District of New York, Sharone Perlstein, Aric Swartz, and Hadas Yaron created at least 15 shell companies by filing false and misleading registration statements and periodic reports with the SEC, creating phony business plans, and appointing nominal officers and directors, who also acted as straw-man shareholders for the shell companies.  The defendants also conducted putative initial public offerings of certain shell companies.  In reality, the defendants continued to control the companies’ shares and the defendants subsequently sold certain shell companies at a profit of more than $1.8 million.

The SEC also filed complaints in federal district court for the District of Columbia against gatekeepers who provided substantial assistance in the fraudulent scheme.  According to the SEC’s complaint against Jonathan Strum, a Washington, D.C.-based attorney, he assisted in drafting false and misleading registration statements and periodic reports and signed fraudulent opinion letters.  In its complaint against Alan Weinberg, CPA, an Israeli resident, and his Baltimore-based accounting firm Weinberg & Baer LLC, the SEC alleges that they issued misleading audit reports for at least seven of the shell companies.  Despite numerous audit failures and red flags, Weinberg and his firm issued audit reports falsely asserting that the audits had been performed in accordance with the auditing standards promulgated by the Public Company Accounting Oversight Board.

The SEC’s complaints charge Perlstein, Swartz, and Yaron with violating Section 17(a) of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5; Strum, Weinberg, and Weinberg & Baer with aiding and abetting these violations; Weinberg and Weinberg & Baer with violating Exchange Act Section 10A(a)(2); and Weinberg & Baer with violating Rule 2-02(b)(1) of Regulation S-X.

“This matter underscores the SEC’s ongoing determination to protect investors from fraud and abuse, regardless of the location of the violators, and to hold accountable gatekeepers who facilitate fraud and fail to honestly discharge their duties,” said Antonia Chion, Associate Director of the SEC’s Enforcement Division. 

“The law requires truthful disclosures about a company and its business operations to protect investors,” said Marc P. Berger, Director of the SEC’s New York Regional Office.  “Here, we worked closely with foreign authorities to expose how the defendants spun up sham business plans, inserted placeholder shareholders, and with the assistance of gatekeepers filed false documents to reap over $1.8 million from companies that sold as worthless shells.”

To settle the SEC’s charges, the defendants agreed, without admitting or denying the allegations, to the entry of permanent injunctions as well as disgorgement and prejudgment interest totaling $1,656,121.18 for Perlstein; $307,510.15 for Swartz; $106,146.64 for Yaron; $62,899.82 for Weinberg and Weinberg & Baer, jointly and severally; and $33,610.89 for Strum.  Perlstein, Swartz, and Yaron have also agreed to the entry of penny stock bars.  Subject to court approval of the settlements, Weinberg and Weinberg & Baer have also consented to be suspended from appearing and practicing before the SEC as accountants, and Swartz and Strum have consented to the entry of orders suspending them from appearing and practicing before the SEC as attorneys. 

The SEC also instituted settled administrative proceedings against Simcha Baer, a Maryland-based accountant.  According to the SEC’s order, Baer failed to properly perform and document various engagement quality reviews for audits and interim reviews, and repeatedly back-dated and falsified documentation subsequently produced to SEC staff.  The SEC’s order finds that Baer engaged in improper professional conduct pursuant to Section 4C(a)(2) of the Exchange Act and Rule 102(e)(1)(ii) of the SEC Rules of Practice.  Without admitting or denying the findings of the SEC’s order, Baer consented to be permanently barred from appearing and practicing before the SEC as an accountant.

On Nov. 4, 2016, the SEC suspended trading in the securities of one of the Perlstein Group’s shell companies based on fraudulent statements contained in the company’s public disclosures.  On April 10, 2017, the SEC suspended the registration statements of four of the shell companies. 

The investigation was conducted in the SEC’s New York Regional Office by Daphne Downes, Joseph Darragh, Peter Pizzani, and Kristine Zaleskas and supervised by Michael D. Paley of the Microcap Fraud Task Force and Sanjay Wadhwa, and in Washington, D.C. by Greg Hillson and Jeffrey Anderson and supervised by Peter Rosario, Yuri B. Zelinsky, and Antonia Chion.  Preethi Krishnamurthy and Daniel Maher provided litigation counsel.  The SEC appreciates the assistance of the Israel Securities Authority, the Financial and Capital Market Commission of the Republic of Latvia, the British Columbia Securities Commission, the Internal Revenue Service Criminal Investigation Division, the Federal Bureau of Investigation, the Office of the United States Attorney for the Eastern District of New York, the Financial Conduct Authority of the United Kingdom, and the Financial Industry Regulatory Authority.  

SEC Press Release

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SEC Suspends Trading in Three Issuers Claiming Involvement in Cryptocurrency and Blockchain Technology

The Securities and Exchange Commission today suspended trading in three companies amid questions surrounding similar statements they made about the acquisition of cryptocurrency and blockchain technology-related assets.

The SEC’s trading suspension orders state that recent press releases issued by Cherubim Interests Inc. (CHIT), PDX Partners Inc. (PDXP), and Victura Construction Group Inc. (VICT) claimed that CHIT, PDXP, and VICT acquired AAA-rated assets from a subsidiary of a private equity investor in cryptocurrency and blockchain technology among other things.  According to the SEC order regarding CHIT, it also announced the execution of a financing commitment to launch an initial coin offering.    

According to the SEC’s orders, there are questions regarding the nature of the companies’ business operations and the value of their assets, including in press releases issued beginning in early January 2018.  Additionally, the Commission suspended trading in the securities of CHIT because of its delinquency in filing annual and quarterly reports.

In August 2017, the SEC warned investors to be on alert for companies that may publicly announce ICO or coin/token related events to affect the price of the company’s common stock.    

“This is a reminder that investors should give heightened scrutiny to penny stock companies that have switched their focus to the latest business trend, such as cryptocurrency, blockchain technology, or initial coin offerings,” said Michele Wein Layne, Director of the Los Angeles Regional Office.     

Under the federal securities laws, the SEC can suspend trading in a stock for 10 days and generally prohibit a broker-dealer from soliciting investors to buy or sell the stock again until certain reporting requirements are met.

The SEC appreciates the assistance of OTC Markets Group Inc. and the Financial Industry Regulatory Authority.

The SEC’s Office of Investor Education and Advocacy has produced a Spotlight on Initial Coin Offerings and Digital Assets to provide investors with more information. 

SEC Press Release

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Kyle Moffatt Named Chief Accountant in Division of Corporation Finance

The Securities and Exchange Commission today announced that Kyle Moffatt has been named Chief Accountant in the Division of Corporation Finance.

Mr. Moffatt has served as Acting Chief Accountant in the Division since January 2018.  In that role, Mr. Moffatt has overseen the Division’s work to assist companies with the implementation of revenue recognition and to develop the Division’s approach to reviewing companies’ disclosures.  Mr. Moffatt also led the Division’s efforts in evaluating the implications of recent changes to the tax laws and developing guidance for public companies.  As the Division’s Chief Accountant, Mr. Moffatt will continue leading these efforts as well as other ongoing initiatives to make disclosure and financial reporting more effective and relevant for investors and issuers.

“I am very happy that Kyle has agreed to serve as the Chief Accountant in the Division,” said Bill Hinman, Director of the Division of Corporation Finance.  “Kyle brings a strong combination of accounting expertise and experience in applying the disclosure requirements of the federal securities laws to public companies.  His leadership will serve us well as the Division continues its important work to protect investors and facilitate capital formation.”

“I am honored to take on this role and work with the talented staff in the Division and across the agency to support our collective efforts to further the Commission’s mission,” said Mr. Moffatt.

Prior to his role as Acting Chief Accountant, Mr. Moffatt was an Associate Director overseeing the Division’s disclosure review program.  In that role, he oversaw the selective review of transactional and periodic filings by issuers in financial services, healthcare, and insurance, and led staff efforts on a variety of auditor and PCAOB matters.  He previously established the Division’s Disclosure Standards Office serving as its first Associate Director providing Division leadership with recommendations to enhance the effectiveness of the disclosure review program.  He also served as Associate Chief Accountant in the Division’s Office of Chief Accountant.  In 2006, Mr. Moffatt received the agency’s Supervisory Excellence Award in recognition of his contributions as Accounting Branch Chief in the Division’s Office of Telecommunications.  Prior to joining the Division of Corporation Finance in 2000 as a Professional Accounting Fellow, Mr. Moffatt was an audit manager with Ernst & Young LLP.  He received his Bachelor of Science from the University of Maryland at College Park and is a certified public accountant.

SEC Press Release

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Karen Garnett, Associate Director of Division of Corporation Finance, to Leave Agency After 23 Years of Service

The Securities and Exchange Commission today announced that Karen Garnett, an Associate Director in the Division of Corporation Finance, will leave the agency in February.

As an Associate Director overseeing the Division’s disclosure review program, Ms. Garnett led the Division’s selective review of transactional and periodic filings by issuers in a range of industries, including real estate, commodities, insurance and life sciences.  As part of this work, she led the evaluation of a broad range of transactions that included novel governance structures and financial products including cryptocurrencies.  Ms. Garnett also guided the Division’s implementation of significant rule changes, including those related to loan-level asset disclosure and credit risk retention applicable to asset-backed issuers.  In addition, Ms. Garnett led the review of the Commission’s business and financial disclosure requirements in Regulation S-K, resulting in the issuance of a concept release by the Commission.

“Investors in our markets have been well served by Karen’s thoughtful approach to protecting investors and facilitating capital formation,” said Bill Hinman, Director of the Division of Corporation Finance.  “Her contributions, including her work to develop how our staff evaluates company disclosures, will have a lasting impact.”

Ms. Garnett said, “It has been an honor to serve with the dedicated staff in the Division of Corporation Finance and across the agency as we have worked together to protect investors and facilitate capital formation.  I am incredibly proud of what we have accomplished together.”

Prior to her role as Associate Director, Ms. Garnett served as the Assistant Director of the Division’s Office of Real Estate and Business Services.  She previously served as Special Counsel and Attorney Advisor in the Divisions of Corporation Finance and Investment Management.  Prior to joining the SEC, Ms. Garnett was an associate at the law firm of Wright, Lindsey & Jennings.  She earned her undergraduate degree from Dartmouth College and her law degree from the University of Texas.  In 2005, Ms. Garnett received the agency’s Byron Woodside Award in recognition of her contributions to the SEC’s full disclosure program, and in 2016, she received the Chair’s Award for Meritorious Impact in recognition of her leadership of the disclosure effectiveness initiative.

SEC Press Release

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SEC to Hold National Compliance Outreach Seminar for Investment Companies and Investment Advisers

The Securities and Exchange Commission today announced the opening of registration for its compliance outreach program’s national seminar for investment companies and investment advisers.  The event is intended to help Chief Compliance Officers (CCOs) and other senior personnel at investment companies and investment advisory firms to enhance their compliance programs for the protection of investors.

The SEC’s Office of Compliance Inspections and Examinations (OCIE), Division of Investment Management (IM), and the Asset Management Unit (AMU) of the Division of Enforcement jointly sponsor the compliance outreach program.  The national seminar will be held on April 12 at the SEC’s Washington, D.C., headquarters from 8:30 a.m. to 5:30 p.m. ET.  In-person attendance is limited to 500; a live webcast will be available at www.sec.gov.

The agenda for the national seminar includes discussion of OCIE, IM, and AMU program priorities in 2018, issues related to fees and expenses, portfolio management trends, regulatory hot topics, cybersecurity, compliance, and rulemaking.

“Regularly hosting this seminar is one of the key ways we work to improve compliance in the industry,” said OCIE Director Peter Driscoll.  “The U.S. capital markets are among the most vibrant, fair, and effective in the world in large part because of the important work that compliance professionals do on a daily basis to ensure risks are addressed, securities laws are followed, and investors are protected.  This event allows us to share our thoughts and observations with these professionals and to listen to the ideas and concerns they want to share with us.”

“Chief Compliance Officers and their teams play an important role in protecting American investors, a goal that the SEC staff shares.  This outreach event is a valuable opportunity to engage and build relationships with these knowledgeable professionals so that we may benefit from their insights as we consider policies affecting investment companies and investment advisers,” said Division of Investment Management Director Dalia Blass. 

Investment adviser and investment company senior officers may register online to attend the event in-person. If registrations exceed capacity, investment company and investment adviser CCOs will be given priority on a first-registered basis.  Registration instructions also will be sent to SEC-registered advisers using the e-mail account on the adviser’s most recent Form ADV filing.  The event will also be made available via live and archived audio webcast.  For more information, contact: ComplianceOutreach@sec.gov.    

SEC Press Release

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Alberto Arevalo, Associate Director in the Office of International Affairs, to Retire From SEC

The Securities and Exchange Commission today announced that Alberto Arevalo, an associate director in the Office of International Affairs, will retire later this month after 28 years of public service.

Mr. Arevalo joined the SEC in 2004 and has been an associate director since 2014, with responsibility for international enforcement and supervisory cooperation, and technical assistance programs. 

“Alberto has played a direct and consequential role in key SEC enforcement cases and initiatives,” said Office of International Affairs Director A. Paul Leder.  “He leaves a lasting impact and a reputation as a wonderful colleague, a transformative leader, and a champion of diversity.”

“It has been my great privilege to have worked with my dedicated and talented colleagues in the Office of International Affairs and across the Commission. It also been an honor to engage with the SEC’s foreign counterparts to promote the Commission’s goals and to learn from those overseas partners,” Mr. Arevalo said. 

Mr. Arevalo assisted with numerous SEC enforcement actions including a 2015 settlement with China-based accounting firms that withheld documents sought in investigations of possible fraud; repatriation of $230 million held in an offshore account in a Ponzi scheme case against Francisco Illarramendi and his firm Highview Point Partners LLC; charges in an $8 billion Ponzi scheme involving Robert Allen Stanford and his companies and a settlement with UBS AG for acting as an unregistered broker-dealer and investment adviser, facilitating U.S. clients’ ability to avoid paying taxes on undisclosed accounts in Switzerland and elsewhere outside the U.S.

In addition, Mr. Arevalo oversaw the SEC’s comprehensive supervisory cooperation agreement in 2017 with the Hong Kong Securities and Futures Commission, taught anti-corruption and anti-money laundering courses internationally, and served as an advisor to the Argentine National Securities Commission.  He also served as co-head of the Cross Border Working Group, a proactive intra-agency working group that was formed to address international issues impacting the SEC and its enforcement mission.

Before joining the SEC, Mr. Arevalo spent 14 years as an Assistant U.S. Attorney in the Southern District of California where he served as Deputy Chief of the General Crimes Section and Deputy Chief of the Border Crimes Section. He also worked on special assignment training prosecutors and police in South America and the Caribbean.  He began his legal career practicing corporate and securities law in Silicon Valley and San Diego.

Mr. Arevalo holds an undergraduate degree from the University of California, Santa Barbara, a master’s degree in Latin American Studies from Stanford University, and a J.D. from Stanford Law School.

SEC Press Release

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Deutsche Bank To Pay About $4.4 Mln To Settle SEC Charge It Misled Consumers - Nasdaq.com

Deutsche Bank To Pay About $4.4 Mln To Settle SEC Charge It Misled Consumers - Nasdaq.com



Deutsche Bank AG ( DB ) agreed to pay more than $4.4 million to settle regulatory claims that it failed to supervise traders who misled customers about the price of commercial mortgage bonds.

The Securities and Exchange Commission said it instituted an enforcement action against Deutsche Bank Securities Inc., which has agreed to repay more than $3.7 million to customers, which includes $1.48 million that was ordered as disgorgement.

SEC Launches Share Class Selection Disclosure Initiative to Encourage Self-Reporting and the Prompt Return of Funds to Investors

The Division of Enforcement of the Securities and Exchange Commission today announced a self-reporting initiative that seeks to protect advisory clients from undisclosed conflicts of interest and return money to investors.

Under the Share Class Selection Disclosure Initiative (SCSD Initiative), the Division will agree not to recommend financial penalties against investment advisers who self-report violations of the federal securities laws relating to certain mutual fund share class selection issues and promptly return money to harmed clients.

Section 206 of the Investment Advisers Act of 1940 imposes a fiduciary duty on investment advisers to act in their clients' best interests, including an affirmative duty to disclose all conflicts of interest. A conflict of interest arises when an adviser receives compensation (either directly or indirectly through an affiliated broker-dealer) for selecting a more expensive mutual fund share class for a client when a less expensive share class for the same fund is available and appropriate. That conflict of interest must be disclosed.

The Commission has long been focused on the conflicts of interest associated with mutual fund share class selection. Differing share classes facilitate many functions and relationships. However, investment advisers must be mindful of their duties when recommending and selecting share classes for their clients and disclose their conflicts of interest related thereto. In the past several years, the Commission has charged nine firms with failing to disclose these conflicts of interest. These actions included significant penalties against the investment advisers, and collectively returned millions of dollars to clients. In addition, the Commission's Office of Compliance Inspections and Examinations has repeatedly cautioned investment advisers and other market participants to examine their share class selection policies and procedures and disclosure practices.

"This focused initiative reflects our effort to allocate our resources in a way that effectively targets the continued failure by some advisers to disclose conflicts of interest around share class selection and, importantly, is intended to facilitate the prompt return of money to victimized investors," said Stephanie Avakian, Co-Director of the Division of Enforcement. 

"The legal and regulatory requirements in this area are clear, and the Commission will continue to pursue securities violations associated with mutual fund share class selection disclosure failures. We strongly encourage advisers to take advantage of the favorable terms we are offering; these terms will not be available to advisers who do not self-report under this initiative, and we will continue to proactively seek to identify and pursue investment advisers that fail to make the necessary disclosures," said Steven Peikin, Co-Director of the Division of Enforcement.

Under the SCSD Initiative, the Enforcement Division will recommend standardized, favorable settlement terms to investment advisers that 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. Among other things, for eligible advisers that participate in the SCSD Initiative, the Division will recommend settlements that will require the adviser to disgorge its ill-gotten gains and pay those amounts to harmed clients, but not impose a civil monetary penalty. The Division warns that it expects to recommend stronger sanctions in any future actions against investment advisers that engaged in the misconduct but failed to take advantage of this initiative.

"Proper disclosure of conflicts of interest is of utmost importance, and a necessity for any investment adviser to ensure that it is satisfying its obligations as a fiduciary to its clients," said C. Dabney O'Riordan, Co-Chief of the Asset Management Unit in the Division of Enforcement. "This initiative is designed to promote compliance with these obligations with respect to mutual fund share class selection, while at the same time quickly returning money to harmed clients."

Eligibility for the SCSD Initiative is explained in a detailed announcement by the Enforcement Division. Investment advisers must notify the Division of Enforcement of their intent to self-report no later than June 12, 2018, by email to SCSDInitiative@sec.gov or by mail to SCSD Initiative, U.S. Securities and Exchange Commission, Denver Regional Office, 1961 Stout Street, Suite 1700, Denver, Colorado 80294.

The SCSD Initiative is being led by the Asset Management Unit.

SEC Press Release

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Investor Protection, Capital Formation and Market Integrity Are Top Priorities in SEC Budget Request

The Securities and Exchange Commission today announced a $1.658 billion budget request for fiscal year 2019 to support its core mission and expand oversight and enforcement in emerging areas such as financial innovation, market structure and cybersecurity. The SEC’s funding is offset by matching collections of fees on securities transactions and is budget and deficit neutral.

“This year’s budget request reflects our top priorities of protecting investors and making sure we continue to have the most vibrant and well-functioning capital markets in the world," said Chairman Jay Clayton. “With the exceptional work and commitment of dedicated staff, the SEC will continue striving to maintain and expand an environment conducive to capital formation while ensuring investor protection.”

The SEC’s budget request would support 4,628 positions and enable the agency to enhance its efforts in its key market-facing Divisions and Offices, including Enforcement; Compliance, Inspections and Examinations; Trading and Markets; Investment Management; and Corporation Finance, as well as expand cybersecurity capabilities, leverage technology, and better oversee evolving markets.

In order to keep up with the rapid pace of technology advancement in the areas the SEC regulates, the request seeks a $45 million increase in funding for information technology enhancements to support the agency’s cybersecurity capabilities, risk and data analysis, enforcement and examinations, and automation of business processes. The fiscal year 2019 budget request level is a 3.5 percent increase over the fiscal year 2018 budget request of $1.602 billion.

The SEC was established in 1934 to protect investors, maintain fair and orderly markets, and facilitate capital formation. The agency today oversees more than 4,100 exchange listed public companies, $74 trillion in annual securities trading and the activities of nearly 27,000 registered market participants, including brokers, dealers and investment advisors. The SEC serves as the first line of defense in safeguarding the interests of Main Street investors.   

The full budget request is available at sec.gov.

SEC Press Release

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Deutsche Bank to Repay Misled Customers

The Securities and Exchange Commission today instituted an enforcement action against Deutsche Bank Securities Inc., which has agreed to repay more than $3.7 million to customers, which includes $1.48 million that was ordered as disgorgement.

The SEC’s investigation found that traders and salespeople made false and misleading statements while negotiating sales of commercial mortgage-backed securities (CMBS).  According to the SEC’s order, customers overpaid for CMBS because they were misled about the prices at which Deutsche Bank had originally purchased them.  According to the SEC’s order, Deutsche Bank failed to have compliance and surveillance procedures in place that were reasonably designed to prevent and detect the misconduct that consequently increased the firm’s profits on CMBS transactions to the detriment of its customers.

The SEC’s order finds supervisory failures by the former head trader of Deutsche Bank’s CMBS trading desk, Benjamin Solomon, who did not take appropriate action after becoming aware of false statements made to customers by traders under his supervision, including specific misrepresentations about the prices that Deutsche Bank paid for the CMBS.

“We’re committed to ensuring that firms communicate accurate pricing information when transacting with customers in opaque markets,” said Daniel Michael, Chief of the SEC Enforcement Division’s Complex Financial Instruments Unit.  “Deutsche Bank and Solomon failed to keep watch as traders generated profits for the firm at the expense of CMBS customers by misrepresenting purchase prices and other important details.”

To settle the charges, Deutsche Bank agreed to reimburse customers the full amount of firm profits earned on any CMBS trades in which a misrepresentation was made.  According to a payment schedule in the order, Deutsche Bank will distribute more than $3.7 million.  Deutsche Bank also agreed to pay a $750,000 penalty.  Solomon agreed to pay a $165,000 penalty and serve a 12-month suspension from the securities industry.  

Deutsche Bank and Solomon consented to the SEC’s order without admitting or denying the findings.  The order notes that the penalty amounts reflect substantial cooperation by Deutsche Bank and Solomon during the SEC’s investigation, including remedial efforts by the firm to improve its internal controls, compliance training, and surveillance efforts.

The SEC’s investigation was conducted by staff in the Complex Financial Instruments Unit and the New York Regional Office, including William Finkel, Elisabeth Goot, and Richard Hong.  The case was supervised by Mr. Michael.

SEC Press Release

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SEC Office of Compliance Inspections and Examinations Announces 2018 Examination Priorities

The Securities and Exchange Commission's Office of Compliance Inspections and Examinations (OCIE) today announced its 2018 examination priorities. OCIE publishes its exam priorities annually to improve compliance, prevent fraud, monitor risk, and inform policy. Of particular interest this year will be matters involving critical market infrastructure, duties to retail investors, and developments in cryptocurrency, initial coin offerings, and secondary market trading. 

"I appreciate OCIE's dedication to maximizing the effectiveness of their resources with a keen eye toward asset verification, market infrastructure, and duties owed to retail investors," said SEC Chairman Jay Clayton. 

"As the markets continually evolve and the products and services available to investors adapt, OCIE remains committed in its risk-based examination program to prioritizing the interests of retail investors and examining those aspects of securities firms posing risks to investors and the proper functioning of our capital markets," said OCIE Director Pete Driscoll.

This year, OCIE's examination priorities are broken down into five categories:  (1) compliance and risks in critical market infrastructure; (2) matters of importance to retail investors, including seniors and those saving for retirement; (3) FINRA and MSRB; (4) cybersecurity; and (5) anti-money laundering programs. 

Compliance and Risks in Critical Market Infrastructure – OCIE will continue to examine entities that provide services critical to the proper functioning of capital markets. OCIE will conduct examinations of these firms which include, among others, clearing agencies, national securities exchanges, and transfer agents, focusing on certain aspects of their operations and compliance with recently effective rules. 

Retail Investors, Including Seniors and Those Saving for Retirement – Protecting Main Street investors continues to be a priority in 2018. OCIE will focus examinations on the disclosure and calculation of fees, expenses, and other charges investors pay, the supervision of representatives selling products and services to investors, and the execution of customer orders in fixed income securities. OCIE will continue to monitor the growth of cryptocurrencies and initial coin offerings and examine registrants involved in their offer and sale to ensure that investors receive adequate disclosures about the risks associated with these investments. 

FINRA and MSRB – OCIE will continue its oversight of FINRA by focusing examinations on FINRA's operations and regulatory programs and the quality of FINRA's examinations of broker-dealers and municipal advisors. OCIE will also examine MSRB to evaluate the effectiveness of select operations and internal policies, procedures, and controls.

Cybersecurity – Each of OCIE's examination programs will prioritize cybersecurity with an emphasis on, among other things, governance and risk assessment, access rights and controls, data loss prevention, vendor management, training, and incident response. 

Anti-Money Laundering Programs – Examiners will review for compliance with applicable anti-money laundering requirements, including whether firms are appropriately adapting their AML programs to address their regulatory obligations. 

The published priorities for 2018 are not exhaustive. Further, additional priorities may be added in light of market conditions or as OCIE identifies emerging risks and trends. The collaborative effort to formulate the annual examination priorities starts with feedback from examination staff, who are uniquely positioned to identify the practices, products, and services that may pose significant risk to investors or the financial markets. OCIE staff also seek advice of the Chairman and Commissioners, staff from other SEC Divisions and Offices, the SEC's Investor Advocate, and the SEC's fellow regulators.

SEC Press Release

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SEC Obtains Asset Freeze and Halts Ongoing Fraud by Purported Hedge Fund Manager

The Securities and Exchange Commission today charged a purported hedge fund manager in New York City with a brazen offering and investment adviser fraud thereby putting an end to an ongoing scheme.

The SEC alleges that, since at least 2014, Nicholas Joseph Genovese and his hedge fund Willow Creek Investments LP raised more than $5.3 million from at least six investors by affirmatively misrepresenting his prior money-management, securities industry experience, and size of operations. In particular, the SEC charged that Genovese: falsely stated that he managed $4 billion of the Genovese Drug Store family's assets; falsely stated that his hedge fund's investment adviser had $30-39 billion of assets under management, when, in reality, it appears to have had less than $10 million in assets under management; falsely stated that his advisory firm had between 42 and 60 employees, when, in reality, it had less than 10 employees; and falsely stated that his hedge fund had investment gains of 30-40 percent per year, when, in reality, it sustained losses. In addition, in furtherance of his scheme, Genovese lied about his education and prior work experience, and concealed his criminal past from investors.

The SEC also alleges that Genovese and his advisory firm Willow Creek Advisors LLC misappropriated investor funds to fund securities trading in Genovese's personal brokerage account, which sustained over $8 million of trading losses between 2015 and 2017, and Genovese's lifestyle by paying approximately $263,000 for, among other things, ATM cash withdrawals, food, hotel and transportation charges, including being chauffeured in a Bentley.

"As alleged in our complaint, Nicholas Genovese represented himself as a successful hedge fund manager with a sterling pedigree and track record. In truth, he was a recidivist convicted felon who lost or outright stole most of the money that investors entrusted to him," said Marc P. Berger, Director of the SEC's New York Regional Office. "In this case, we quickly sought emergency relief to stop Genovese's ongoing fraud and to prevent the further dissipation of investors' remaining funds."

According to the SEC's complaint filed in U.S. District Court for the Southern District of New York, Genovese's fraud appears to be ongoing as evidenced by recent money coming into his account as well as a recent refusal of an investor's redemption request.

The SEC's complaint charges Genovese and his hedge fund with violating Section 17(a) of the Securities Act of 1933, and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder, and charges Genovese and his advisory firm with violations of Sections 206(1), 206(2) and 206(4) of the Investment Advisers Act of 1940 and Rule 206(4)-8 thereunder. The SEC is seeking a temporary restraining order to freeze their assets and prohibit them from committing further violations of the federal securities laws.  The SEC seeks a final judgment ordering them to disgorge their ill-gotten gains plus prejudgment interest, and for Genovese and his investment advisory firm to pay financial penalties.

The U.S. Attorney's Office for the Southern District of New York has filed parallel criminal charges against Genovese.

The SEC's investigation, which is continuing, is being conducted by Gerald Gross, Alexander Vasilescu, James Hanson, Karen Lee, and Adam Nowicki of the New York Regional Office. The litigation will be led by Mr. Vasilescu, Mr. Hanson and Ms. Lee. The case is being supervised by Sanjay Wadhwa. The SEC examination that led to the investigation was conducted by Steven Vitulano, Terrence P. Bohan, Edward Janowsky, and Javen Zhong. 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

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Alleged Perpetrator of Ski Slope Investment Scheme Agrees to Pay Back Investor Money, Surrender Properties

The Securities and Exchange Commission today announced that the Miami-based businessman behind an alleged scheme involving investments in a Vermont-based ski resort has agreed to pay back more than $81 million of investor money that he used illegally.

According to an SEC complaint filed in 2016 in federal court in Miami, Ariel Quiros allegedly misused more than $50 million in investor funds to purchase a different ski resort and to fund personal expenses such as income taxes and two luxury New York City condominium purchases. Investors were told their money would specifically be used for construction projects at the Jay Peak Resort and a nearby proposed biomedical research facility.

Companies owned by Quiros also allegedly failed to contribute approximately $30 million in investor funds toward Jay Peak construction, with two projects going uncompleted. This jeopardized investors' investments as well as their participation in the EB-5 Immigrant Investor Program under which Quiros and his businesses solicited the money.

In a settlement subject to court approval, Quiros agreed to be held liable for more than $81 million in disgorgement of ill-gotten gains plus a $1 million penalty, and he must forfeit approximately $417,000 in cash that was frozen after the SEC filed the case. Quiros also agreed to surrender ownership of the two condos and ski resort he purchased with investor funds and give up his stake in more than a dozen other properties, including the Jay Peak Resort. Under the proposed settlement, the properties would be turned over to the court-appointed receiver in the case for the purpose of selling them for the benefit of defrauded investors.

"In pursuing fraudulent actors, we seek not only to hold wrongdoers accountable, but also to return as much money as possible to victims," said Eric I. Bustillo, Director of the SEC's Miami Regional Office. "This settlement achieves both objectives by stripping Quiros of the proceeds of his fraudulent scheme and requiring him to turn over valuable property for the benefit of harmed investors."

"The SEC's emergency action halted an alleged massive fraud that Jay Peak, Quiros, and Stenger perpetrated on more than 700 investors from at least 74 countries," said Stephanie Avakian, Co-Director of the SEC's Enforcement Division.

"As a result of the SEC's action, a court-appointed receiver has successfully turned around the resort's finances, and the case will result in hundreds of investors receiving significant portions and, in some cases, all of their investments returned to them," said Steven Peikin, Co-Director of the SEC's Enforcement Division.

The SEC also announced that a business associate of Quiros, William Stenger of Newport, Vermont, agreed to settle the charges against him in the SEC's complaint. While Stenger was not alleged to have personally profited from the fraud, he agreed to pay a $75,000 penalty and be barred along with Quiros from participating in any future EB-5 offerings. Quiros and Stenger agreed to their settlements without admitting or denying the allegations in the SEC's complaint.

The SEC's litigation has been led by Robert K. Levenson and Christopher Martin and supervised by Andrew O. Schiff. The investigation, which is continuing, has been conducted by Brian Theophilus James, Tricia D. Sindler, Michelle Lama, and Mark Dee, and supervised by Chedly C. Dumornay. The SEC appreciates the assistance of the Vermont Department of Financial Regulation, Office of the Vermont Attorney General, and other authorities in Vermont.

SEC Press Release

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