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

--- 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.

Michael Maloney, Enforcement’s Chief Accountant, to Leave SEC

The Securities and Exchange Commission today announced that Michael F. Maloney, Chief Accountant of the SEC’s Division of Enforcement, is planning to leave the agency next month.

Since February 2014, Mr. Maloney has led the Division’s Office of Chief Accountant, providing advice, consultation, and support on all of the Division’s accounting, auditing, and financial reporting enforcement matters.  He has provided leadership and support to the Division’s approximately 100 accountants through advice, guidance, and involvement on individual enforcement matters as well as facilitating communication, knowledge sharing, and training on emerging issues.  In addition, Mr. Maloney has worked on significant policy issues within the Division and with other Commission staff including the SEC’s Office of the Chief Accountant and the Division of Corporation Finance, and he has played a leadership role in the Division’s coordination with the Public Company Accounting Oversight Board’s enforcement program. 

“Mike has been a trusted advisor to the Division in accounting, auditing, and reporting matters,” said Stephanie Avakian, Co-Director of the SEC’s Enforcement Division.  “As the Division’s Chief Accountant, Mike has brought significant expertise and insight to the SEC’s financial fraud investigations.  His leadership and integrity have been tremendous assets in our fight against financial fraud, and we will miss his sage advice in these matters.”

Mr. Maloney said, “It has been the honor of my career to work with the incredibly talented and dedicated enforcement accountants and attorneys who work every day to protect investors on the Division’s complex and challenging financial reporting matters.  I am very proud of the results that the Division has achieved on financial reporting matters over the past four years.”

During Mr. Maloney’s tenure as the Division’s Chief Accountant, the SEC has brought financial reporting enforcement actions addressing a wide range of misconduct, including:

• Weatherford International and two senior executives for fraudulently inflating earnings reported to investors by using deceptive income tax accounting
• Penn West Petroleum Ltd. and three top finance executives for defrauding investors through an allegedly extensive, multi-year accounting fraud that moved hundreds of millions of dollars in expenses from operating expenses to capital accounts
• Monsanto Company and three executives for failing to recognize millions of dollars of expenses associated with rebates for a flagship product in the period in which they occurred, resulting in materially misstated earnings over three years
• ITT Educational Services and two senior executives for allegedly fraudulently concealing from investors the poor performance and looming financial impact of two student loan programs that ITT financially guaranteed
• Proceedings against BDO USA and five of its partners, Grant Thornton LLP and two of its partners, Ernst & Young LLP and two of its partners, and KPMG LLP and one of its partners for professional failures in audits of clients that faced SEC actions
• Ernst &Young LLP and three of its partners for auditor independence violations due to close personal relationships between auditors and client personnel

Mr. Maloney joined the SEC from Navigant Consulting Inc., where he was a managing director and led the firm’s forensic accounting practice.  He was previously a partner at Arthur Andersen LLP.  His experience includes performing complex forensic investigations of accounting, auditing, financial reporting, and other fraud matters, providing expert witness support and services, and performing and supervising financial statement audits at public and private entities in a variety of industries.  Mr. Maloney earned his B.S. in Accountancy with high honors from the University of Illinois.

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 Halts Alleged Initial Coin Offering Scam

The Securities and Exchange Commission obtained a court order halting an allegedly fraudulent initial coin offering (ICO) that targeted retail investors to fund what it claimed to be the world’s first “decentralized bank.”

According to the SEC’s complaint, filed in federal district court in Dallas on Jan. 25 and unsealed late yesterday, Dallas-based AriseBank used social media, a celebrity endorsement, and other wide dissemination tactics to raise what it claims to be $600 million of its $1 billion goal in just two months.

AriseBank and its co-founders Jared Rice Sr. and Stanley Ford allegedly offered and sold unregistered investments in their purported “AriseCoin” cryptocurrency by depicting AriseBank as a first-of-its-kind decentralized bank offering a variety of consumer-facing banking products and services using more than 700 different virtual currencies.  AriseBank’s sales pitch claimed that it developed an algorithmic trading application that automatically trades in various cryptocurrencies.

The SEC alleges that AriseBank falsely stated that it purchased an FDIC-insured bank which enabled it to offer customers FDIC-insured accounts and that it also offered customers the ability to obtain an AriseBank-branded VISA card to spend any of the 700-plus cryptocurrencies.  AriseBank also allegedly omitted to disclose the criminal background of key executives.

“We allege that AriseBank and its principals sought to raise hundreds of millions from investors by misrepresenting the company as a first-of-its-kind decentralized bank offering its own cryptocurrency to be used for a broad range of customer products and services.  We sought emergency relief to prevent investors from being victimized by what we allege to be an outright scam,” said Stephanie Avakian, Co-Director of the SEC’s Enforcement Division.

“This is the first time the Commission has sought the appointment of a receiver in connection with an ICO fraud.  We will use all of our tools and remedies to protect investors from those who engage in fraudulent conduct in the emerging digital securities marketplace,” said Steven Peikin, Co-Director of the SEC’s Enforcement Division.

Shamoil T. Shipchandler, Director of the SEC’s Fort Worth Regional Office, said, “Attempting to conceal what we allege to be fraudulent securities offerings under the veneer of technological terms like ‘ICO’ or ‘cryptocurrency’ will not escape the Commission’s oversight or its efforts to protect investors.”

The court approved an emergency asset freeze over AriseBank, Rice, and Ford and appointed a receiver over AriseBank, including over its digital assets.  The SEC intervened to protect the digital assets before they could be dissipated, enabling the receiver to immediately secure various cryptocurrencies held by AriseBank including Bitcoin, Litecoin, Bitshares, Dogecoin, and BitUSD.  AriseCoin’s public sale began around Dec. 26, 2017, and was originally scheduled to conclude on Jan. 27, 2018, with distribution to investors on Feb. 10, 2018.  The SEC seeks preliminary and permanent injunctions, disgorgement of ill-gotten gains plus interest and penalties, and bars against Rice and Ford to prohibit them from serving as officers or directors of a public company or offering digital securities again in the future.

The SEC’s investigation was conducted by David Hirsch and supervised by Jessica Magee and Eric Werner in the Fort Worth Regional Office in coordination with the Enforcement Division’s Cyber Unit.  The litigation is being conducted by Timothy Evans, Christopher Davis, and Mr. Hirsch, and supervised by B. David Fraser.  The SEC appreciates the assistance of the Federal Bureau of Investigation, U.S. Attorney’s Office for the Northern District of Texas, Federal Deposit Insurance Corporation, U.S. Patent and Trademark Office, and Texas Department of Banking.

Investors in the AriseBank ICO who believe they may be a victim are asked to report it to the SEC as a tip or complaint.

The SEC’s Office of Investor Education and Advocacy issued an Investor Alert in August 2017 warning investors about scams of companies claiming to be engaging in initial coin offerings.

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.

Davos: Bitcoin is not a currency - Jan. 26, 2018

"Davos is clear on bitcoin: It's an interesting investment, but please don't call it a currency."



Plus, the exchanges are under attack and being hacked.



More at CNN Money - Davos: Bitcoin is not a currency - Jan. 26, 2018

SEC Invites Regulated Entities to Voluntarily Submit Self-Assessments of Diversity Policies and Practices

The Securities and Exchange Commission (SEC) Office of Minority and Women Inclusion (OMWI) today introduced its Diversity Assessment Report for Entities Regulated by the SEC.

OMWI created the Diversity Assessment Report to complement the Interagency Policy Statement Establishing Joint Standards for Assessing the Diversity Policies and Practices of Entities Regulated by the Agencies (Joint Standards) issued by the SEC and five other federal financial regulatory agencies on June 10, 2015.

The Diversity Assessment Report is designed to help regulated entities conduct self-assessments of their diversity policies and practices, as envisioned by the Joint Standards, and provides these entities with a template for submitting information about their self-assessments to OMWI. The Joint Standards also encourage regulated entities to publish information related to their self-assessments on their websites.

"This is an important step in our efforts to understand the diversity and inclusion efforts of our regulated entities, as well as promote transparency and awareness in this area," said Pamela Gibbs, Director of OMWI.

Use of the Joint Standards by regulated entities is voluntary. Likewise, conducting self-assessments and providing diversity assessment information to OMWI are also voluntary. The SEC may use the information from entities' self-assessments to identify which policies and practices reflected in the Joint Standards have been adopted by SEC-regulated entities and to highlight diversity policies and practices that have been successful.

SEC-regulated entities will receive an email from OMWI inviting them to complete the Diversity Assessment Report online using a secure web portal. Additionally, OMWI has published a set of Frequently Asked Questions on its webpage to provide more information about the Joint Standards and the Diversity Assessment Report. 

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.

Six Accountants Charged with Using Leaked Confidential PCAOB Data in Quest to Improve Inspection Results for KPMG

The Securities and Exchange Commission today announced charges against six certified public accountants – including former staffers at the Public Company Accounting Oversight Board (PCAOB) and former senior officials at KPMG LLP – arising from their participation in a scheme to misappropriate and use confidential information relating to the PCAOB's planned inspections of KPMG.

The SEC's Division of Enforcement and Office of the Chief Accountant allege that the former PCAOB officials made unauthorized disclosures of PCAOB plans for inspections of KPMG audits, enabling the former KPMG partners to analyze and revise audit workpapers in an effort to avoid negative findings by the PCAOB. Two of the former PCAOB officials had left the PCAOB to work at KPMG. The SEC's Enforcement Division and Office of the Chief Accountant allege the third official leaked PCAOB data at the time he was seeking employment with KPMG. The three former KPMG partners were all in the firm's national office. According to the SEC's order, the misconduct began in 2015 and persisted until February 2017. Soon after the conduct was discovered, the six respondents were terminated, resigned or placed on leave before separating from KPMG and the PCAOB, respectively.

"As alleged, these accountants engaged in shocking misconduct – literally stealing the exam – in an effort to interfere with the PCAOB's ability to detect audit deficiencies at KPMG," said Steven Peikin, Co-Director of the SEC's Enforcement Division. "The PCAOB inspections program is meant to assess whether firms are cutting corners, compromising their independence, or otherwise falling short in their responsibilities. The SEC cannot tolerate any scheme to subvert that important process."

In a parallel action, the U.S. Attorney's Office for the Southern District of New York today announced criminal charges against the six accountants.

The Chairman of the SEC, Jay Clayton, has issued a statement concerning these charges. The SEC stands ready to work with issuers to ensure that collateral effects, if any, to issuers and, in particular, their shareholders are minimized.

The SEC's Enforcement Division and Office of the Chief Accountant allege that while preparing to leave his supervisory position at the PCAOB for a job at KPMG, Brian Sweet downloaded confidential and sensitive inspection-related materials that he believed might help him at KPMG. KPMG had recruited him to join the firm at a time when it had a high rate of audit deficiencies. Indeed, nearly half of the KPMG audits that the PCAOB inspected in 2013 were found deficient.

After leaving the PCAOB, Sweet allegedly continued to gain access to confidential PCAOB materials through Cynthia Holder, a PCAOB inspector. After Holder joined Sweet at KPMG, a third PCAOB employee, Jeffrey Wada, allegedly leaked confidential information about planned PCAOB inspections of KPMG to Holder. According to the SEC's order, Wada leaked this information while he was seeking employment at KPMG.

The SEC's Enforcement Division and Office of the Chief Accountant allege that upon his arrival at KPMG, Sweet told his supervisors in KPMG's national office that he had taken confidential materials from the PCAOB and revealed, for example, the KPMG audit clients that the PCAOB intended to inspect that year. Allegedly encouraging Sweet to divulge the stolen information to them and others at the firm were his supervisors – David Middendorf, KPMG's then-national managing partner for audit quality and professional practice and Thomas Whittle, KPMG's then-national partner-in-charge for inspections and another high-level partner at the firm, David Britt, KPMG's banking and capital markets group co-leader. The SEC's Enforcement Division and Office of the Chief Accountant allege that Middendorf, Whittle, Sweet, Holder, and Britt worked together to review the audit workpapers for at least seven banks they were told the PCAOB would inspect in an effort to minimize the risk that the PCAOB would find deficiencies in those audits. Middendorf and Whittle allegedly instructed that no one disclose that they had confidential PCAOB information.

Sweet has agreed to settle to a Commission Order requiring that he cease-and-desist from violating PCAOB ethics rules and barring him from appearing or practicing before the Commission as an accountant based on findings that he, among other things, violated PCAOB ethics rules regarding confidentiality and lacks integrity.

The case will be scheduled for a public hearing before an administrative law judge, who will prepare an initial decision stating what, if any, remedial actions are appropriate.

The SEC's investigation, which is continuing, has been conducted by Ian Rupell and supervised by Rami Sibay. Along with Mr. Rupell, the litigation will be conducted by Melissa Armstrong, and supervised by Fred Block. The SEC appreciates the assistance of the U.S. Attorney's Office for the Southern District of New York as well as the U.S. Postal Inspection Service.

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.

Robert Jackson and Hester Peirce Sworn In as SEC Commissioners

Robert J. Jackson Jr. and Hester M. Peirce were sworn into office as SEC Commissioners this morning by SEC Chairman Jay Clayton.

Mr. Jackson and Ms. Peirce were nominated to the SEC by President Donald Trump, and their nominations were confirmed by the U.S. Senate on Dec. 21.  Both new commissioners participated in today’s inaugural meeting of the SEC’s Fixed Income Market Structure Advisory Committee.

“I look forward to working with Rob and Hester as we continue our focus on our vital mission and ensuring that our markets are working for the benefit of Main Street investors," Chairman Clayton said. “It is clear to me they will bring energy, commitment, and dedication to our work and have our mission at the front of their minds.”

“I’m honored to join Chairman Clayton and Commissioners Stein, Piwowar and Peirce in the SEC’s critical mission of ensuring that investors are protected, that our markets provide a level playing field for all Americans, and that entrepreneurs have access to the capital they need to create jobs," said Commissioner Jackson.  “The SEC boasts a talented and dedicated staff, and I’ll do all I can to support their efforts to make sure our securities laws keep pace with our ever-changing markets.”

“It is such an honor to return to the SEC to work with my colleagues on the Commission and the staff for the benefit of investors and the American economy,” said Commissioner Peirce. 

Commissioner Jackson comes to the SEC from NYU School of Law, where he was a professor of law.  He previously was professor of law and director of the Program on Corporate Law and Policy at Columbia Law School.  He also has served as an adviser at the Treasury Department and in the Office of the Special Master for TARP Executive Compensation.  Commissioner Jackson earned his BA from the University of Pennsylvania, a BS and MBA in Finance from Wharton, an MPP from Harvard University’s Kennedy School of Government, and his JD from Harvard Law School.

Commissioner Peirce comes to the SEC from the Mercatus Center at George Mason University where she served as a Senior Research Fellow and Director of the Financial Markets Working Group.  She previously worked for U.S. Senator Richard Shelby on the Senate Committee on Banking, Housing, and Urban Affairs, and, prior to that, as counsel to then-SEC Commissioner Paul S. Atkins and as a Staff Attorney in the Division of Investment Management.   Commissioner Peirce earned her BA in economics from Case Western Reserve University and her JD from Yale Law School.

Commissioner Jackson fills a term that expires on June 5, 2019, and Commissioner Peirce fills a term that expires on June 5, 2020.

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.

Dr. Timothy Timura Named Deputy Chief Economist

The Securities and Exchange Commission has named Dr. Timothy Timura, CFA, as Deputy Director and Deputy Chief Economist in the agency’s Division of Economic and Risk Analysis (DERA).

Dr. Timura joins DERA from the faculty of the Kogod School of Business at American University, where he has been an Executive in Residence.  Dr. Timura has more than 30 years of experience serving individual and institutional investors as a professional money manager, and he has held senior management positions with private financial institutions and the State Teachers Retirement System of Ohio.  Dr. Timura also taught finance and economics at Ohio State University, Lehigh University, and Albright College.

Dr. Timura will assist the Chief Economist on a wide range of agency activities focusing initially on economic policy in agency rulemaking.

“Tim brings a wealth of academic knowledge and industry expertise in finance that will significantly help the Commission’s efforts in financial economics and risk analysis,” said Dr. Jeffrey Harris, DERA Director and Chief Economist.  “I’m looking forward to working with him and truly appreciate Tim’s willingness to help DERA serve investors.”

Dr. Timura said, “It is a great honor to serve the public here at the SEC and I’m excited to have this opportunity to share my experience with the dedicated staff in DERA as we work on behalf of the long-term interests of Main Street investors.” 

Dr. Timura is a graduate of Dickinson College and has an M.S. from the University of Pennsylvania, an M.B.A. from the University of Wisconsin-Madison, an Ed.D. from the University of Pennsylvania, and a D.M. from Case Western Reserve University.  Dr. Timura’s doctoral research focused on the challenges faced by average investors when seeking to secure their own financial futures specifically exploring interactions between investors and investment professionals and how their relationships may be enhanced.

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 and NYU to Host Jan. 19 Forum on Relationship Between Companies and Shareholders

The U.S. Securities and Exchange Commission’s Division of Economic and Risk Analysis is partnering with New York University’s Salomon Center for the Study of Financial Institutions to bring together regulators, practitioners, and academics for a half-day symposium January 19 at NYU. Panelists will discuss the evolution of shareholder engagement over time and its impact on corporate governance, focusing in particular on the shifting roles and influence of institutional and activist investors.

“Shareholder engagement serves as one of the cornerstones of good corporate governance, and the continually-changing landscape for retail participation in our markets means that we must continually examine the role and responsibilities of institutional investors and other intermediaries,” said Dr. Jeffrey Harris, Director of DERA and the SEC’s Chief Economist. “I appreciate our ongoing collaboration with NYU to foster academic dialogue around issues of importance for retail investors.”

Attendees can expect discussions focusing on the causes and consequences of current governance practices, the current state of shareholder engagement and its effects on management and shareholders, methods of engagement, and the evolution of key stakeholders’ roles in the corporate governance arena.

The event is free and is open to the public, and will kick off with welcoming remarks by SEC Chairman Jay Clayton at 9:15 am at NYU’s Salomon Center located at 44 West 4th Street, New York, NY. Information about the event agenda and webcast will be available at DERA Events. The public is welcome to attend, and are asked to register in advance. 

SEC Press Release

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SEC Names Richard Best As Regional Director of Atlanta Office

The Securities and Exchange Commission today named Richard R. Best as Regional Director of its Atlanta office.

Mr. Best will succeed Walter Jospin, who is leaving the agency at the end of this month. 

For the past two-and-a-half years, Mr. Best has served as Director of the SEC’s Salt Lake office, where he supervises the agency’s enforcement program in Utah.  He joined the SEC from the Financial Industry Regulatory Authority (FINRA) in New York, where he was a senior director and chief counsel in its Department of Enforcement.  Mr. Best previously held other supervisory and investigative positions within FINRA’s Enforcement function.  He also spent approximately 10 years as a prosecutor in the Office of the Bronx County District Attorney, where he handled and supervised high-profile public integrity and organized crime prosecutions, among other matters.

Under Mr. Best’s stewardship, the Salt Lake office has investigated, brought and litigated a number of impactful enforcement cases, including the agency’s actions against:

• Two Las Vegas-based individuals and their company for operating a prime bank investment scheme that promised investors sky-high returns
   
• A Cache County, Utah, man who solicited investors, including members from his church congregation, in a bogus scheme involving investments in “top secret” Iraqi currency and oil contracts
   
• Marquis Properties LLC and its CEO Chad R. Deucher for orchestrating a $28 million Ponzi scheme that defrauded more than 250 investors throughout the United States
   
• Las Vegas-based Hemp Inc., its CEO, and others with engaging in a long-running fraudulent scheme to evade the registration provisions of the federal securities laws

• The operator of a Utah-based international Ponzi scheme that raised more than $207 million from investors worldwide, primarily in the U.S., India and Russia

As Director of the SEC’s Atlanta office, Mr. Best will lead a staff of more than 160 enforcement attorneys, accountants, investigators, and compliance examiners involved in the investigation and prosecution of enforcement actions and the performance of compliance inspections in the Atlanta region, which covers Georgia, North Carolina, South Carolina, Tennessee, and Alabama.

“I am excited that Richard is taking over as head of our Atlanta Regional Office, and I thank Walter for his exemplary service,” said SEC Chairman Jay Clayton.  “Richard has made a lasting impression in the Salt Lake Regional Office and I am confident that he will continue to protect the long-term interests of American investors through his leadership in Atlanta.”

“Richard’s investigative experience, strong knowledge of industry practices and excellent trial skills position him well to lead the SEC’s Atlanta office,” said Stephanie Avakian, Co-Director of the SEC’s Enforcement Division.  “He is an experienced and inspirational manager who is held in high regard by our team in Salt Lake.”

“As leader of the SEC’s Salt Lake Regional Office, Richard has distinguished himself not only by bringing high-impact cases, but also through his creative efforts to connect with investors,” said Steven Peikin, Co-Director of the SEC’s Enforcement Division.  “We are thrilled he will bring his impressive qualities to the SEC’s Atlanta office.”

Peter B. Driscoll, Director of the SEC’s Office of Compliance Inspections and Examinations, said, “Richard has been a very strong leader of the Salt Lake Regional Office for several years, and we are delighted to have him lead our dedicated examination staff in Atlanta.”

Mr. Best added, “I am excited and honored to serve with such a talented group of professionals in the Atlanta Regional Office.  Their dedication and skill is evidenced by the office’s many significant accomplishments.  I look forward to working with them to protect investors and maintain fair and orderly markets.”

Mr. Best graduated from the State University of New York, College at Old Westbury and earned his law degree from the Howard University School of Law.

SEC Press Release

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SEC Issues Agenda for Inaugural Meeting of the Fixed Income Market Structure Advisory Committee

The Securities and Exchange Commission today released the agenda for the inaugural meeting of the Fixed Income Market Structure Advisory Committee, which will be held on January 11, 2018 beginning at 9:30 a.m. ET.  The Commission established the advisory committee to provide a formal mechanism through which the Commission can receive advice and recommendations on fixed income market structure issues.

The January 11 meeting will focus on bond market liquidity issues, and will also cover certain administrative items.  The meeting will be held at the SEC’s headquarters at 100 F Street, N.E., Washington, D.C., and is open to the public.  The meeting will be webcast live on the SEC’s website, www.sec.gov, and will be archived on the website for later viewing.

Members of the public who wish to provide their views on the matters to be considered by the Fixed Income Market Structure Advisory Committee may submit comments either electronically or on paper, as described below.  Please submit comments using one method only.  Information that is submitted will become part of the public record of the meeting.

Electronic submissions:

Send an e-mail to rule-comments@sec.gov

Paper submissions:

Send paper submissions in triplicate to Brent Fields, Secretary, Securities and Exchange Commission, 100 F Street, N.E., Washington, D.C. 20549-1090.

All submissions should refer to File Number 265-30, and the file number should be included on the subject line if e-mail is used.

*   *   *

Agenda

9:30 a.m. - Remarks by Chairman Clayton, Commissioner Stein, Commissioner Piwowar, Director, Division of Trading and Markets, Brett Redfearn, and Committee Chairman, Michael Heaney  

10:00 a.m.       Review and Consideration of Proposed Bylaws

10:10 a.m.       Bond Market Liquidity Conditions Research

• Michael Heaney, Committee Chairman (Moderator)
• Kevin McPartland, Head of Market Structure and Technology Research, Greenwich Associates
• Jeff Meli, Co-Head of Research, Barclays
• Sonali Theisen, Global Head of Market Structure and Data Strategy, Global Credit & Securitized Markets, Citigroup

10:55 a.m.       Break  

11:10 a.m.       Market Participant Perspectives on Bond Market Liquidity

• Brett Redfearn, Director, Division of Trading and Markets (Moderator)
• Paul Jakubowski, Global Head of Credit, Vanguard
• Drew Mogavero, Head of US Flow Credit Trading, Barclays
• Richie Prager, Head of Trading, Liquidity and Investments Platform, BlackRock
• Jim Switzer, Global Head of Credit Trading, Alliance Bernstein

12:15 p.m.       Lunch Break/Administrative Session

1:45 p.m.         FIMSAC Members and Panelists Discussion of Bond Market Liquidity   

3:00 p.m.         Break

3:15 p.m.         FIMSAC Members Discussion of Bond Market Liquidity

4:00 p.m.         Discussion of Committee Next Steps, Future Meeting Topics and Subcommittees

4:30 p.m.         Adjournment 

SEC Press Release

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Annual Staff Reports on Credit Rating Agencies Show Improvements

Credit rating agencies under Securities and Exchange Commission oversight show improved compliance, increased information technology resources, and continued competition, according to two SEC staff reports released today on nationally recognized statistical rating organizations (NRSROs).

"NRSROs are continuing to display a greater awareness of their obligations as regulated entities," said Jessica S. Kane, Acting Director of the SEC's Office of Credit Ratings.  "The staff will continue to engage with the firms and monitor potential risks to promote compliance, strengthen governance, and ensure that NRSROs provide robust disclosure for the benefit of investors."

The annual exam report, required by the 2010 Dodd-Frank Act, summarizes the staff examinations of each NRSRO. The staff observed improvements in the firms' compliance monitoring and internal audit functions. The report notes that NRSROs have further refined their policies, procedures, and controls related to securities laws and rules. 

The annual report, mandated by the 2006 Credit Rating Agency Reform Act, discusses the state of competition, transparency, and conflicts of interest among NRSROs and identifies applicants for NRSRO registration. The staff notes that smaller NRSROs continue to actively compete with more established rating agencies, and some are specializing in particular rating categories and classes.

The following SEC staff contributed to the examinations and reports:  Diane Audino, Michael Bloise, David Bobillot, Sondra Boddie, Rita Bolger, Patrick Boyle, Aaron Byrd, Roseann Catania, Kristin Costello, Doreen Crawford, Scott Davey, Franco Destro, Jill Flory, Ilya Fradkin, William Garnett, Kenneth Godwin, Michael Gonzalez, Barry Huang, Julia Kiel, Russell Long, Chichita Nickens, David Nicolardi, Sam Nikoomanesh, Kevin O’Neill, Harriet Orol, Abraham Putney, Jeremiah Roberts, Mary Ryan, Cynthia Sargent, Charles Schiller, Andrew Smith, Alexa Strear, Warren Tong, Evelyn Tuntono, Chris Valtin, Kevin Vasel, Andrew Vita, and Michele Wilham.

SEC Press Release

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Commission Staff Provides Regulatory Guidance for Accounting Impacts of the Tax Cuts and Jobs Act

The Securities and Exchange Commission today announced publication of staff guidance for publicly traded companies, auditors, and others to help ensure timely public disclosures of the accounting impacts of the Tax Cuts and Jobs Act (the Act).  Specifically, the staff of the Office of the Chief Accountant and the Division of Corporation Finance issued the following interpretations:

• Staff Accounting Bulletin (SAB) No. 118 expresses views of the staff regarding application of U.S. GAAP when preparing an initial accounting of the income tax effects of the Act.
• Compliance and Disclosure Interpretation 110.02 expresses views of the staff regarding the applicability of  Item 2.06 of Form 8-K with respect to reporting the impact of a change in tax rate or tax laws pursuant to the Act.

Director of the Division of Corporation Finance Bill Hinman stated, "This guidance recognizes that investors demand and deserve high-quality information, while also recognizing that entities may face challenges in accounting for one of the most comprehensive changes to the U.S. federal tax code since 1986." 

Chief Accountant Wes Bricker added, "Allowing entities to take a reasonable period to measure and recognize the effects of the Act, while requiring robust disclosures to investors during that period, is a responsible step that promotes the provision of relevant, timely, and decision-useful information to investors."

The statements in Staff Accounting Bulletins and Compliance and Disclosure Interpretations are not rules, regulations, or statements of the Commission. They represent interpretations and practices followed by the SEC's Office of the Chief Accountant and the Division of Corporation Finance in administering the disclosure requirements of the federal securities laws. As such, the Commission has neither approved nor disapproved these interpretations.

The SEC staff encourages publicly traded companies, auditors, and others to consult with the staff for interpretative assistance with respect to SEC rules, forms, or generally accepted accounting principles.  Guidance for consulting is available for the Division of Corporation Finance at http://ift.tt/2u6AvQQ and for the Office of the Chief Accountant at http://ift.tt/2BXgK69.   

Fact Sheet

• The Tax Cuts and Jobs Act represents one of the most significant overhauls to the United States federal taxcode since 1986 and could have a significant impact on an entity's domestic and international tax consequences.
• ASC Topic 740 provides guidance addressing changes in tax laws or tax rates to be recognized in the financial reporting period that includes the enactment date, which is the date the Act is signed into law — i.e., Dec. 22, 2017.
• The magnitude of the changes in the Act may give rise to certain operational challenges and constraints for entities when complying with the requirements under ASC Topic 740 upon issuance of an entity's financial statements for the reporting period in which the Act is enacted.

New Guidance Contained in SAB 118

• The staff is issuing guidance in SAB 118 to address certain fact patterns where the accounting for changes in tax laws or tax rates under ASC Topic 740 is incomplete upon issuance of an entity's financial statements for the reporting period in which the Act is enacted.
• Under the staff guidance in SAB 118, in the financial reporting period the Act is enacted, the income tax effects of the Act (i.e., only for those tax effects in which the accounting under ASC 740 is incomplete) would be reported as a provisional amount based on a reasonable estimate (to the extent a reasonable estimate can be determined), which would be subject to adjustment during a "measurement period" until the accounting under ASC 740 is complete. The measurement period would be limited under the staff's guidance. 
• The staff's guidance would also describe supplemental disclosures that should accompany the provisional amounts, including the reasons for the incomplete accounting, the additional information or analysis that is needed, and other information relevant to why the registrant was not able to complete the accounting required under ASC 740 in a timely manner.

New Guidance Contained in C&DI 110.02

• The staff is issuing guidance in C&DI 110.02 to clarify how registrants making use of the measurement period approach in SAB 118 will be expected to comply with their obligations under 2.06 of Form 8-K with respect to disclosure of material impairments of assets.

SEC Press Release

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Gerald Hodgkins, Associate Director of the SEC's Enforcement Division, to Leave the Agency After 20 Years of Service

The Securities and Exchange Commission today announced that Gerald W. Hodgkins, an Associate Director of the Division of Enforcement, will leave the agency at the end of this year for private practice.

During his tenure of two decades at the SEC, Mr. Hodgkins has overseen more than 100 enforcement actions covering the full breadth of the agency's jurisdiction, including issuer reporting and disclosure fraud, violations of the Foreign Corrupt Practices Act, and misconduct by entities regulated by the agency. Since being appointed as Associate Director in 2010, Mr. Hodgkins also has served as a founding member of the SEC's Claims Review Staff, which makes recommendations to the Commission concerning when and how much to award whistleblowers under the SEC's whistleblower program. He also has served as a member of the SEC's National Labor Management Forum.

"Jerry embodies what it means to be a dedicated public servant," said Stephanie Avakian, Co-Director of the SEC's Enforcement Division. "He will be missed terribly by all of us in the Enforcement Division, but most especially by the scores of lawyers he has mentored and supervised over the years."

"Jerry has been an insightful and innovative leader of the SEC's enforcement program, and his contributions will have lasting impact," said Steven Peikin, Co-Director of the SEC's Enforcement Division.

Mr. Hodgkins said, "I am grateful for the opportunity to have served U.S. investors for much of my professional career. It was a pleasure and privilege to work alongside the dedicated and talented staff at the SEC, whose commitment to public interest has never wavered."

Under Mr. Hodgkins' leadership, the SEC has brought enforcement actions addressing a wide variety of misconduct, including charges against:

• WorldCom, Inc., which agreed in 2003 to pay a $750 million civil penalty – the largest penalty in SEC history for issuer reporting and disclosure fraud – as well as against WorldCom's former CEO, Bernard J. Ebbers, CFO, Scott D. Sullivan, and controller David F. Myers;
• MRI International and Edwin Fujinaga, for conducting a massive Ponzi scheme targeting Japanese citizens and against whom the SEC obtained over $580 million in monetary remedies on summary judgment in a civil action filed in 2013;
• William W. McGuire, M.D., the former CEO and Chairman of UnitedHealth Group Inc., who agreed in 2007 to pay $468 million in what was the first and still largest settlement involving Section 304 of the Sarbanes-Oxley Act of 2002; and
• Daimler AG, which agreed in 2010 to pay more than $185 million to resolve parallel SEC and U.S. Department of Justice investigations related to its violations of the Foreign Corrupt Practices Act.

Mr. Hodgkins also spearheaded a settlement in 2008 with a large financial institution that provided 5,500 individual investors, small businesses, and small charities the opportunity to sell back up to $4.7 billion in auction rate securities (ARS) they purchased before the ARS market collapsed in February 2008.

Mr. Hodgkins, 52, joined the SEC in 1997. He became a Branch Chief in 1999, an Assistant Director in 2007, and an Associate Director in 2010. Before joining the SEC, he served as a law clerk to the late Honorable Charles R. Richey of the U.S. District Court for the District of Columbia. He also was a litigation associate in private practice in Washington, D.C.  He graduated from the University of Virginia School of Law and received his undergraduate degree from Tufts 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 Charges Operators of $1.2 Billion Ponzi Scheme Targeting Main Street Investors

The Securities and Exchange Commission today announced charges and an asset freeze against a group of unregistered funds and their owner who allegedly bilked thousands of retail investors, many of them seniors, in a $1.2 billion Ponzi scheme.

SEC investigators filed this action to prevent further dissipation of investor assets after obtaining court orders in September and November in subpoena enforcement actions that forced the unregistered companies to open their books.

According to the SEC’s complaint, unsealed today in federal court in Miami, Florida, Robert H. Shapiro and a group of unregistered investment companies called the Woodbridge Group of Companies LLC formerly headquartered in Boca Raton, Florida, defrauded more than 8,400 investors in unregistered Woodbridge funds. 

“We allege that through aggressive tactics, Woodbridge and Shapiro swindled seniors into a business model built on lies, which the SEC’s Miami Regional Office staff moved to halt,” said Stephanie Avakian, Co-Director of the SEC’s Enforcement Division.

“Our complaint alleges that Woodbridge’s business model was a sham,” said Steven Peikin, Co-Director of the SEC’s Enforcement Division. “The only way Woodbridge was able to pay investors their dividends and interest payments was through the constant infusion of new investor money.”

“Our complaint further alleges that Shapiro used a web of layered companies to conceal his ownership interest in the purported third-party borrowers,” said Eric I. Bustillo, Director of the SEC’s Miami Regional Office.  “Shapiro used the scheme to line his pockets with millions of investor dollars.”

According to the SEC complaint, Woodbridge advertised its primary business as issuing loans to supposed third-party commercial property owners paying Woodbridge 11-15% annual interest for “hard money,” short-term financing.  In return, Woodbridge allegedly promised to pay investors 5-10 percent interest annually.  Woodbridge and Shapiro allegedly sought to avoid investors cashing out at the end of their terms and boasted in marketing materials that “clients keep coming back to [Woodbridge] because time and experience have proven results.  Over 90% national renewal rate!”  While Woodbridge claimed it made high-interest loans to third parties, the SEC’s complaint alleges that the vast majority of the borrowers were Shapiro-owned companies that had no income and never made interest payments on the loans.

The SEC complaint alleges that Shapiro and Woodbridge used investors’ money to pay other investors, and paid $64.5 million in commissions to sales agents who pitched the investments as “low risk” and “conservative.”  Shapiro, of Sherman Oaks, California, is alleged to have diverted at least $21 million for his own benefit, including to charter planes, pay country club fees, and buy luxury vehicles and jewelry.  According to the complaint, the scheme collapsed in typical Ponzi fashion in early December as Woodbridge stopped paying investors and filed for Chapter 11 bankruptcy protection.

The Honorable Judge Marcia G. Cooke granted the SEC’s request for a temporary asset freeze against Shapiro and a group of his unregistered investment companies, and ordered them to provide an accounting of all money received from investors.

The SEC’s complaint charges Shapiro, Woodbridge, and certain affiliated companies with fraud and violations of the securities and broker-dealer registration provisions of the federal securities laws.  The SEC is seeking return of allegedly ill-gotten gains with interest and financial penalties. A court hearing has been scheduled for Dec. 29, 2017 on the SEC’s request to continue the asset freeze.  The SEC’s motion for the appointment of a receiver over Woodbridge and the related companies is pending.  

The SEC’s investigation, which is continuing, has been conducted by Scott A. Lowry, Linda S. Schmidt, Russell Koonin, Christine Nestor, and Mark Dee in the Miami Regional Office with assistance from Alistaire Bambach, David Baddley and Neal Jacobson.  The case has been supervised by Jason R. Berkowitz and Fernando Torres, and the litigation will be led by Mr. Koonin, Ms. Nestor, and Mr. Lowry.  The SEC appreciates the assistance of the Florida Office of Financial Regulation, California’s Department of Justice and Department of Business Oversight, the Colorado Division of Securities, and the Texas State Securities Board.

The SEC’s Office of Investor Education and Advocacy has issued an Investor Alert to help seniors identify signs of investment fraud.  The SEC also strongly encourages investors to check the backgrounds of people selling them investments by using the agency’s investor.gov website to quickly identify whether they are registered professionals.

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.

Broker Charged With Giving Special Access to IPOs for Cash Kickbacks

The Securities and Exchange Commission today charged a Wall Street stockbroker with illegally accepting more than $1 million in undisclosed kickbacks for giving certain customers preferential access to lucrative IPOs, enabling them to reap major trading profits in the secondary markets.

The SEC alleges that Brian Hirsch subverted allocation policies and procedures at two brokerage firms where he worked on the wealth syndicate desk, making long-running arrangements with certain customers to give them larger allocations of coveted public offerings being marketed by the firms.  In most instances, the customers sold their stock into the market as soon as possible to turn a substantial profit at the expense of the firms’ other brokerage customers and the issuers’ interests in raising capital from long-term investors.

“Kickback schemes are pernicious and have no place in the securities markets,” said Sanjay Wadhwa, Senior Associate Director for Enforcement in the SEC’s New York Regional Office.  “As alleged in our complaint, Hirsch lined his own pockets by secretly sharing in customer trading profits that he engineered in violation of his obligations to his employers.”

The SEC’s complaint also charges Hirsch’s customer Joseph Spera, who allegedly made approximately $4 million in trading profits on the offering allocations he received from Hirsch.  Spera allegedly paid Hirsch approximately $1 million in cash. 

The U.S. Attorney’s Office for the District of New Jersey has filed parallel criminal charges against Hirsch.

The SEC’s investigation, which is continuing, is being conducted by David Austin, Chevon Walker, Matthew Lambert, Stephen Johnson, and George Stepaniuk.  The litigation is being led by Todd Brody, and the case is being supervised by Mr. Wadhwa.  The SEC appreciates the assistance of the U.S. Attorney’s Office for the District of New Jersey 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.

Marc P. Berger Named Director of New York Regional Office

The Securities and Exchange Commission today announced that Marc P. Berger has been named Director of the New York Regional Office.  He will join the agency in January 2018.

Mr. Berger is presently global co-head of Ropes & Gray LLP’s Securities and Futures Enforcement Practice.  Before joining Ropes & Gray, Mr. Berger spent 12 years as an Assistant U.S. Attorney in the Southern District of New York, including serving as Chief of that office’s Securities and Commodities Fraud Task Force.  In that role, he supervised the investigation and prosecution of some of the nation’s highest profile financial and investment fraud cases, including the largest crackdown on hedge fund insider trading in U.S. history.  Mr. Berger also has significant experience conducting and investigating violations of the federal securities laws, as well as extensive trial and appellate experience.

Mr. Berger will lead a staff of more than 390 enforcement attorneys, accountants, investigators, and compliance examiners involved in the investigation and prosecution of enforcement actions and the performance of compliance inspections in the New York region.  The New York office has responsibility for the largest concentration of SEC-registered financial institutions, including more than 4,000 investment banks, investment advisers, broker-dealers, mutual funds, and hedge funds.

“We are thrilled that Marc will bring his substantial experience and judgment to the SEC as the leader of our New York office,” said Stephanie Avakian, Co-Director of the SEC’s Enforcement Division.  “I’m confident that Marc will help the Commission provide rigorous oversight of Wall Street and be a strong contributor to its overall mission of investor protection.”

“Marc has served with great distinction as a supervisor and prosecutor of securities and other white collar matters,” said Steven Peikin, Co-Director of the SEC’s Enforcement Division.  “He is well-known in the SEC’s New York office and throughout the securities bar as a strong and effective leader who has a keen mind and sound judgment.  We are very fortunate to have him join the SEC staff.”

“Marc is a proven leader who brings a wealth of expertise to this role,” said Peter B. Driscoll, Director of the SEC’s Office of Compliance Inspections and Examinations.  “From his experience in the U.S. Attorney’s Office to his securities practice, Marc has demonstrated leadership and outstanding legal skills.  I am delighted that he will be joining the dedicated examination team in New York.”

Mr. Berger added, “I am honored and excited to return to public service and join the SEC’s New York office.  As a federal prosecutor in New York, I had the privilege to work with many of the lawyers, accountants, and examiners in the New York office and see firsthand their talent and dedication.  I now look forward to joining their ranks and leading the office’s efforts to protect investors and maintain fair markets.”

Mr. Berger earned his bachelor’s degree with distinction from Cornell University in 1996 and his law degree from the University of Virginia School of Law in 1999.  Before joining the U.S. Attorney’s Office in Manhattan, he served as a law clerk for the Honorable Richard M. Berman of the U.S. District Court for the Southern District of New York and was an associate with Orrick, Herrington & Sutcliffe LLP in New York.

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 Kenneth A. Johnson as Chief Operating Officer

The Securities and Exchange Commission today announced that Kenneth A. Johnson has been named the agency's Chief Operating Officer (COO). Mr. Johnson has served as Acting COO since February 2017.

In his role as COO, Mr. Johnson oversees the SEC's operational and administrative functions, including the agency's Office of Human Resources; Office of Acquisitions; Office of Information Technology; Office of Strategic Initiatives; Office of Financial Management; and Office of Support Operations, which includes the agency's Freedom of Information Act, Records Management, and Facilities Management functions.

"Ken has done a terrific job leading the SEC's critical operational functions, which allow the agency to advance the long-term interests of investors," said Chairman Jay Clayton. "Since I joined the Commission, I have had the opportunity to observe firsthand the mutual respect evident between Ken and staff across the agency. I am confident that Ken, supported by his dedicated team in the COO's office, will achieve continuous improvements in SEC operations and maintain a strong control environment."  

Mr. Johnson added, "I am deeply thankful to Chairman Clayton for the opportunity to serve as COO, and to lead the dedicated professionals that provide operational support for everything the agency undertakes. Together, we will continue to advance initiatives that enable the SEC to be as effective as possible in looking out for investors across the country."

Mr. Johnson previously served as Chief Financial Officer since 2010, where he focused on improving the agency's financial controls and budget management. He first joined the SEC in 2003, in the role of Management Analyst and then Chief Management Analyst within the former Office of the Executive Director. Before joining the SEC, Mr. Johnson served as an analyst for the Congressional Budget Office.

Mr. Johnson earned his Masters in Public Policy from the Harvard Kennedy School of Government and his B.A. from Stanford 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 Warning on Cryptocurrencies and ICOs

SEC Chairman's comments on cryptocurrencies and initial coin offerings. Before jumping into an Initial Coin Offering, understand that no ICO has been registered with the SEC, and as of December 11, the SEC has not approved for listing or trading any exchange traded products relating to cryptocurrencies or assets related to such currencies.

The SEC has issued numerous alerts, and statements on ICOs. Read them.

And read his statement:

Statement on Cryptocurrencies and Initial Coin Offerings

If you have an issue with cryptocurrencies, visit New York Securities Lawyer Mark Astarita's web site, or call him at 212-509-6544

SEC Warning on Cryptocurrencies and Initial Coin Offerings

SEC Chairman's comments on cryptocurrencies and initial coin offerings. Before jumping into an Initial Coin Offering, understand that no ICO has been registered with the SEC, and as of December 11, the SEC has not approved for listing or trading any exchange traded products relating to cryptocurrencies or assets related to such currencies.

The SEC has issued numerous alerts, and statements on ICOs. Read them.

And read his statement:

Statement on Cryptocurrencies and Initial Coin Offerings

For more on cyptocurrencies, check The Securities Law Blog

Division of Trading and Markets Deputy Director Gary Barnett to Retire

The Securities and Exchange Commission today announced that Gary Barnett, Deputy Director in the Division of Trading and Markets, will retire from the agency at the end of the year.

Since January 2015, Mr. Barnett has overseen the division’s Office of Broker-Dealer Finances, Office of Derivatives Policy, Office of Trading Practices, its Volcker rule team, and its participation in various global regulatory initiatives.  In addition, he has been a member of the agency’s Cybersecurity Working Group and its Fintech Working Group and has been its senior most representative on multiagency groups including the Senior Supervisors Group and the Supervisors Roundtable on Governance Effectiveness.  In the course of his work for the agency, Mr. Barnett has provided vision and leadership in connection with advancing broker-dealer supervisory practices in the areas of capital, liquidity, margin, risk management, culture and conduct, governance effectiveness, new products, and outsourcing and vendor risk.  He also significantly contributed to the agency’s work on broker-dealer cybersecurity and fintech, including blockchain, big data and artificial intelligence.  He focused on the uses of fintech by regulators and the ways in which new technologies may affect the regulatory approach.  

“Gary has provided valuable leadership on a number of important rulemaking and policy initiatives and his dedication to promoting strong capital markets has served investors well,” said Chairman Jay Clayton.

“Gary has been an insightful and innovative leader of our broker-dealer supervisory efforts,” said Brett Redfearn, the Director of Trading and Markets.  “Gary has made invaluable contributions by proactively focusing attention and pursuing progress on a variety of emerging issues, from risk management to cybersecurity to fintech.”

Mr. Barnett said, "It has been a great honor to serve at the Commission.  I have been privileged to work with extremely talented and dedicated staff members and to contribute to the Commission's important work on a number of fronts."

Before Mr. Barnett joined the SEC in January 2015, he was the director of the Division of Swap Dealer and Intermediary Oversight at the CFTC from 2011.  Prior to joining the CFTC in 2011, he was a partner at Linklaters LLP in New York and head of its US derivatives and structured finance practice, and before that he was a partner at Shearman and Sterling LLP in New York and co-head of its structured finance and derivatives group.

Mr. Barnett earned his bachelor’s degree from the University of Tulsa, his J.D. from the University of Tulsa College of law and an LL.M. from New York University School of Law. He has been an adjunct professor in derivatives regulation at Cornell Law School, is co-chair of the Practising Law Institute’s annual programs on fundamental and advanced derivatives, and is a member of the New York, California and Oklahoma bars. 

SEC Press Release

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SEC Appoints New Chairman and Board Members to PCAOB

The Securities and Exchange Commission today announced the appointment of William D. Duhnke III as Chairman and J. Robert Brown, Kathleen M. Hamm, James G. Kaiser, and Duane M. DesParte as Board members of the Public Company Accounting Oversight Board (PCAOB).

The Sarbanes-Oxley Act of 2002 established the PCAOB to oversee the audits of public companies and broker-dealers in order to protect the interests of investors and further the public interest in the preparation of informative, accurate, and independent audit reports. The PCAOB accomplishes these goals through registering public accounting firms, setting auditing standards, conducting inspections, and pursuing disciplinary actions. The PCAOB is subject to oversight by the SEC.

"Bill, Jay, Kathleen, Jim, and Duane bring substantial experience to the Board and a shared commitment to serve in the interests of our Main Street investors," said SEC Chairman Jay Clayton. "Their individual and collective talents position the PCAOB to execute its mission effectively in our local, national, and international markets."

SEC Chief Accountant Wes Bricker said, "We look forward to working with these new Board members in connection with furthering the PCAOB's central mission. The new Board members are well-qualified to lead the PCAOB as it carries out its critical role in promoting investor protection and strengthening audit quality."

Chairman Clayton added, "I would like to thank Jim Doty for his excellent leadership in serving as Chairman of the Board. I also would like to thank Steve Harris, Lew Ferguson and Jeanette Franzel for their dedicated service as members of the Board. They have achieved a great deal on behalf of our investors and the public, including, most recently, the adoption of a new auditor's reporting model which should provide investors with meaningful additional insight into auditor-audit committee communications."

New PCAOB Members

William D. Duhnke III, Chairman is currently the Staff Director and General Counsel to the U.S. Senate Committee on Rules and Administration. He previously served as Staff Director and General Counsel to the U.S. Senate Committee on Banking, Housing and Urban Affairs and the Committee on Appropriations. Prior to joining the Senate staff, Mr. Duhnke served in the U.S. Navy and the Commission on the Assignment of Women in the Armed Forces. He received a J.D. from Catholic University and a B.A. from the University of Wisconsin.

J. Robert Brown is currently a professor of law at the University of Denver, where he is Director of the Corporate and Commercial Law program and is the Lawrence W. Treece Professor of Corporate Governance. Prior to beginning his teaching career 25 years ago, he served on the staff of the SEC and worked in private practice. He has a Ph.D. and M.A. from Georgetown University, a J.D. from the University of Maryland, and a B.A. from the College of William and Mary.

Kathleen M. Hamm is currently the Global Leader of Securities and Fintech Solutions and Senior Strategic Advisor on Cyber Solutions at Promontory Financial Group. She previously worked at the U.S. Department of the Treasury, the American Stock Exchange, and the SEC. She received a LL.M from Georgetown University, a J.D. from Duke University, and a B.S. from the State University of New York at Buffalo.

James G. Kaiser is currently a partner and the Global Assurance Methodology & Transformation Leader at PricewaterhouseCoopers (PwC), where he leads the firm's efforts to drive innovation in auditing and has responsibility for the firm's adherence to international auditing standards. He has been with PwC for 38 years and has held numerous leadership roles with the firm. He received a MBA from the University of Pennsylvania and a B.S. from St. Joseph's University.

Duane M. DesParte will soon retire as Senior Vice President and Corporate Controller of Exelon Corporation, where he has been employed for the past 14 years. He previously was an audit partner at Deloitte & Touche and, prior to that, Arthur Andersen. He received his B.S. in Accountancy from the University of Illinois at Urbana-Champaign—College of Business.

SEC Press Release

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SEC Charges Biopharmaceutical Company With Failing to Properly Disclose Perks for Executives

The Securities and Exchange Commission today charged a biopharmaceutical company with committing a series of accounting controls and disclosure violations, including the failure to properly report as compensation millions of dollars in perks provided to its then-CEO and then-CFO.

According to the SEC, Tennessee-based Provectus lacked sufficient controls surrounding the reporting and disclosure of travel and entertainment expenses submitted by its executives.  The order further finds that Provectus’ former CEO, Dr. H. Craig Dees, obtained millions of dollars from the company using limited, fabricated, or non-existent expense documentation, and that these unauthorized perks and benefits were not disclosed to investors.  Provectus’ former CFO, Peter R. Culpepper, also allegedly obtained $199,194 in unauthorized and undisclosed perks and benefits.

The SEC separately charged Dees in federal district court in Knoxville, Tennessee, alleging that, while Dees was Provectus’ CEO, he treated the company “as his personal piggy bank.”  According to the complaint, Dees submitted hundreds of falsified records to Provectus to obtain $3.2 million in cash advances and reimbursements for business travel he never took.  Instead, he concealed the perks and used cash advances to pay for personal expenses such as cosmetic surgery for female friends, restaurant tips, and personal travel.

“Reimbursement of travel and entertainment expenses, and other perks paid to executives, can be material information, and companies must ensure that the perks they pay for executives are properly recorded and disclosed in public filings,” said Stephanie Avakian, Co-Director of the SEC’s Enforcement Division.  “Provectus failed to give its shareholders all of the relevant information about how its top executives were being compensated by the company.”

“The SEC’s settlement with Provectus – which does not include any penalty – takes into account the proactive remediation and cooperation by the company’s new leadership.  Provectus fired wrongdoers, took other steps to remedy its controls, and provided SEC staff with critical information regarding its former executives’ expense reimbursement abuses,” said Steven Peikin, Co-Director of the SEC’s Enforcement Division.

Provectus and Culpepper consented to separate orders, without admitting or denying the SEC’s findings.  They each agreed to cease-and-desist orders, and Culpepper agreed to pay $152,376 in disgorgement and interest, a civil penalty, and to be suspended from appearing and practicing before the SEC as an accountant, which includes not participating in the financial reporting or audits of public companies.  The SEC’s order permits Culpepper to apply for reinstatement after three years.  The SEC’s complaint against Dees seeks an injunction, disgorgement plus interest, penalties, and an officer-and-director bar.  The SEC considered Provectus’ internal investigation regarding Dees and Culpepper, firing of Culpepper, cooperation in the staff’s investigation, as well as its implementation of new controls around reimbursement of travel and entertainment expenses, in determining to accept Provectus’ offer.

The SEC’s investigation was conducted by Brittany Hamelers, Christina McGill, Paul Harley, and Allen Genaldi, and supervised by Timothy N. England and Melissa R. Hodgman.  The SEC’s litigation against Dees will be led by Nicholas A. Pilgrim.

SEC Press Release

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Stock Trader Charged in Insider Trading Ring

The Securities and Exchange Commission today charged a former day trader with making more than $1 million in illegal insider trading profits as part of a ring that allegedly stole confidential information from investment banks and clients so they could trade in advance of secondary stock offerings.

The SEC alleges that Joseph Spera schemed with former colleagues, posing as legitimate portfolio managers to induce investment bankers to bring them ''over the wall'' and share nonpublic details about upcoming secondary offerings while agreeing not to disclose the information to others or trade before the offerings were announced.  Spera and the others involved allegedly violated those agreements and tipped each other with confidential information that enabled them to trade for a profit ahead of public announcements.

The SEC and criminal authorities previously charged four others in the alleged insider trading ring in parallel actions.  In total, the alleged insider trading by Spera and the others generated approximately $5.5 million in illicit profits, including illegal trades they made based on nonpublic information they obtained ahead of a major announcement by a large pharmaceutical company.

''We unraveled many strands of this alleged insider trading scheme by following the chain of tips downstream to those who benefited unlawfully by trading on confidential information that was obtained under false pretenses,'' said Sanjay Wadhwa, Senior Associate Director for Enforcement in the SEC's New York Regional Office.

The U.S. Attorney's Office for the District of New Jersey has filed a parallel criminal action against Spera, who agreed to plead guilty.  Spera’s childhood friend Paul Petrello and two others charged initially, Steven Costantin and Ronald Chernin, have pleaded guilty in the criminal actions and agreed to partial settlements in the SEC cases with potential monetary sanctions to be determined at a later date.  Litigation continues against the alleged ringleader of the scheme, Steven Fishoff, who recruited Spera into the fold along with Petrello.

The SEC's investigation, which is continuing, has been conducted by David Austin, Chevon Walker, Matthew Lambert, Stephen Johnson and George Stepaniuk.  The litigation is being led by Todd Brody, and the case is being supervised by Mr. Wadhwa.  The SEC appreciates the assistance of the U.S. Attorney's Office for the District of New Jersey and the Federal Bureau of Investigation as well as the Financial Industry Regulatory Authority and the Options Regulatory Surveillance 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.

Company Halts ICO After SEC Raises Registration Concerns

A California-based company selling digital tokens to investors to raise capital for its blockchain-based food review service halted its initial coin offering (ICO) after being contacted by the Securities and Exchange Commission, and agreed to an order in which the Commission found that its conduct constituted unregistered securities offers and sales.

According to the SEC’s order, before any tokens were delivered to investors, Munchee Inc. refunded investor proceeds after the SEC intervened.  Munchee was seeking $15 million in capital to improve an existing iPhone app centered on restaurant meal reviews and create an “ecosystem” in which Munchee and others would buy and sell goods and services using the tokens.  The company communicated through its website, a white paper, and other means that it would use the proceeds to create the ecosystem, including eventually paying users in tokens for writing food reviews and selling both advertising to restaurants and “in-app” purchases to app users in exchange for tokens. 

According to the order, in the course of the offering, the company and other promoters emphasized that investors could expect that efforts by the company and others would lead to an increase in value of the tokens.  The company also emphasized it would take steps to create and support a secondary market for the tokens.  Because of these and other company activities, investors would have had a reasonable belief that their investment in tokens could generate a return on their investment.  As the SEC has said in the DAO Report of Investigation, a token can be a security based on the long-standing facts and circumstances test that includes assessing whether investors’ profits are to be derived from the managerial and entrepreneurial efforts of others.

“We will continue to scrutinize the market vigilantly for improper offerings that seek to sell securities to the general public without the required registration or exemption,” said Stephanie Avakian, Co-Director of the SEC’s Enforcement Division.  “In deciding not to impose a penalty, the Commission recognized that the company stopped the ICO quickly, immediately returned the proceeds before issuing tokens, and cooperated with the investigation.”

“Our primary focus remains investor protection and making sure that investors are being offered investment opportunities with all the information and disclosures required under the federal securities laws,” said Steven Peikin, Co-Director of the SEC’s Enforcement Division.

Munchee consented to the SEC’s cease-and-desist order without admitting or denying the findings.

The SEC’s new Cyber Unit is focused on misconduct involving distributed ledger technology and initial coin offerings, the spread of false information through electronic and social media, brokerage account takeovers, hacking to obtain nonpublic information, and threats to trading platforms.  The SEC also has a Distributed Ledger Technology Working Group that focuses on various emerging applications of distributed ledger technology in the financial industry.

The SEC’s investigation was conducted by the Enforcement Division’s Cyber Unit and Complex Financial Instruments Unit, including Jeff Leasure, Brent Mitchell and James Murtha.  The case was supervised by Robert Cohen, Reid Muoio, and Valerie A. Szczepanik. 

The SEC’s Office of Investor Education and Advocacy issued an Investor Bulletin in July 2017 to make investors aware of the potential risks of participating in initial coin offerings.

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.