SEC Enforcement Division Issues Report on Priorities and FY 2017 Results

In its ongoing efforts to protect Main Street investors, the Securities and Exchange Commission’s Enforcement Division today issued a report highlighting its priorities for the coming year as well as a review of enforcement actions that took place during FY 2017. 

In the report, Co-Directors Stephanie Avakian and Steven Peikin stated their overall enforcement approach: “Vigorous enforcement of the federal securities laws is critical to combat wrongdoing, compensate harmed investors, and maintain confidence in the integrity and fairness of our markets.”

They also stated five core principles that will guide their enforcement decision-making:  focus on the Main Street investor; focus on individual accountability; keep pace with technological change; impose sanctions that most effectively further enforcement goals; and constantly assess the allocation of resources.

“I applaud the excellent work of the men and women of our Enforcement Division. Through their tireless efforts to uncover wrongdoing and hold bad actors accountable, they defend our Main Street investors and support the integrity of our capital markets,” said SEC Chairman Jay Clayton.

“As Enforcement Directors our goal is to continue to protect investors, deter misconduct, punish wrongdoers and keep our markets the safest and strongest in the world,” said Stephanie Avakian, Co-Director of the SEC’s Enforcement Division. 

“The Enforcement Report clearly shows the broad range of the significant enforcement actions, penalties and money returned to investors,” said Steven Peikin, Co-Director of the SEC’s Enforcement Division. “We will continue to bring enforcement actions involving misconduct that directly harms investors and our markets.”

According to the report, fiscal year 2017 was a successful and impactful year for the Enforcement Division. The Commission brought a diverse mix of 754 enforcement actions, including 446 standalone actions and returned a record $1.07 billion to harmed investors. A significant number of the Commission’s 446 standalone cases concerned investment advisory issues, securities offerings, and issuer reporting/accounting and auditing, each comprising approximately 20 percent of the overall number of standalone actions. The Commission also continued to bring actions relating to market manipulation, insider trading, and broker-dealers, with each comprising approximately 10 percent of the overall number of standalone actions, as well as other areas.

And, it obtained judgments and orders totaling more than $3.789 billion in disgorgement and penalties.

SEC Press Release

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SEC Announces the Formation and First Members of Fixed Income Market Structure Advisory Committee

The Securities and Exchange Commission today announced the formation and first members of its Fixed Income Market Structure Advisory Committee.

The committee, whose initial focus will be on the corporate bond and municipal securities markets, will provide advice to the Commission on the efficiency and resiliency of these markets and identify opportunities for regulatory improvements.  The committee is comprised of a diverse group of outside experts, including individuals representing the views of retail and institutional investors, small and large issuers, trading venues, dealers, and self-regulatory organizations, among others. 

“Individual investors are highly active in fixed income markets, both directly as retail investors and indirectly through various types of funds,” said SEC Chairman Jay Clayton. “This committee will help the Commission ensure that our regulatory approach to these markets meets the needs of retail investors, as well as companies and state and local governments.  I appreciate the committee members’ willingness to participate, and I would like to thank Commissioners Stein and Piwowar for their highly collaborative efforts in establishing the committee.”

“During the past several years, the fixed income markets have changed significantly," said Commissioner Kara Stein. "The Fixed Income Market Structure Advisory Committee should provide the Commission with new ideas about how to enhance the efficiency and resiliency of these evolving markets.”

“I commend Chairman Clayton for making fixed income markets a priority at the Commission,” said Commissioner Michael Piwowar. “I look forward to benefitting from the insights of this talented group of fixed-income experts.”

Chairman Clayton has appointed Michael Heaney, Non-Executive Director, Legal and General Investment Management Americas, as the initial Committee Chairman.  Other committee members include:

• Carole Brown, CFO, City of Chicago
• Amy McGarrity, CIO, Colorado Public Employees’ Retirement Association
• Rachel Wilson, SVP, Finance, Iron Mountain
• Scott Krohn, SVP and Treasurer, Verizon
• Elisse Walter, Former Chairman of the U.S. Securities and Exchange Commission
• Mihir Worah, Managing Director and CIO Asset Allocation and Real Return, PIMCO
• Dan Allen, President, Anchorage Capital Group
• Matthew Andresen, Co-Chief Executive Officer, Headlands Technologies LLC
• Brian Archer, Head, Global Credit Trading, Citigroup
• Horace Carter, Managing Director and Head of Trading, Fixed Income Capital Markets, Raymond James
• Gilbert Garcia, Managing Partner, Garcia Hamilton & Associates
• Amar Kuchinad, Chief Strategy Officer, Trumid Financial 
• Ananth Madhavan, Managing Director, Global Head of Research for ETFs and Index Investing, BlackRock
• Lynn Martin, President and COO, ICE Data Services
• Richard McVey, CEO, MarketAxess
• Suzanne Shank, Chair and CEO, Siebert Cisneros Shank
• Larry Tabb, Founder and Research Chairman, TABB Group
• Tom Thees, Head of Fixed Income, Head of DirectPool, CastleOak Securities
• Kumar Venkataraman, James M. Collins Chair in Finance, SMU
• Larry Harris, Fred V. Keenan Chair in Finance, Professor of Finance and Business Economics, USC Marshall School of Business
• Tom Gira, Executive Vice President of Market Regulation and Transparency Services, FINRA
• John Bagley, Chief Market Structure Officer, Municipal Securities Rulemaking Board

The committee will be formally established on November 15 for an initial two-year term, which can be renewed by the Commission.  The Commission will announce further details about the committee in the near future.  

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 Warns Investors About Paid-to-Click Scams

The Securities and Exchange Commission is warning investors to beware online “paid-to-click” scams that promise an easy payday by merely purchasing a membership or an advertising product up front and then clicking on a certain number of online ads each day.

The SEC’s investor alert explains that these online advertising programs may have little to no revenues besides membership fees or sales of “ad packs” and may be nothing more than a Ponzi scheme.  The SEC filed an enforcement case that was unsealed last week in federal court in Florida, alleging that roughly 99 percent of the purported “profits” paid to earlier investors came directly from the buy-in fees collected from newer investors.  Meanwhile, according to the SEC’s complaint, the alleged perpetrator siphoned several million dollars out of investor funds to purchase a luxury home, automobiles, and private plane charters while also using the money to fund his other businesses.

According to the SEC’s investor alert, online advertising programs also can target those with something to advertise, promising to display a company’s ads on their network or guaranteeing traffic to a website by simply paying a membership fee or buying ad packs.

“Be skeptical if you are offered high returns for buying advertising products or clicking on online ads,” said Lori Schock, Director of the SEC’s Office of Investor Education and Advocacy.  “Some paid-to-click programs are actually Ponzi schemes.”

According to the SEC’s complaint filed against Miami-based Pedro Fort Berbel and his company Fort Marketing Group, they operated fraudulent internet advertising businesses under such names as Fort Ad Pays, The Business Shop, and MLM Shop.  They allegedly solicited investors through online posts and videos claiming they could share in the companies’ profits and earn investment returns as high as 120 percent by purchasing an ad pack for as little as a dollar and clicking on four banner ads per day.  The SEC alleges that Berbel and Fort Marketing Group raised more than $38 million from at least 150,000 investors.

“As alleged in our complaint, these companies had no viable source of revenue besides income from investor membership fees and the sale of ad packs, so this boiled down to an ad packs Ponzi scheme in which the promised investment returns to earlier investors were not possible without using funds from new investors,” said Eric I. Bustillo, Director of the SEC’s Miami Regional Office.

The SEC’s complaint charges Berbel and Fort Marketing Group with violating Sections 5(a), 5(c), and 17(a) of the Securities Act and Section 10(b) and Rule 10b-5 of the Securities Exchange Act.  They’re also charged with selling investments that are not registered with the SEC as required under the federal securities laws.  The SEC encourages investors to check the backgrounds of people selling them investments.  A quick search on the SEC’s investor.gov website shows that Berbel and Fort Marketing Group are not registered to sell investments.

The SEC obtained a court-ordered asset freeze against Berbel and his companies.

The SEC’s investigation was conducted by Sajjad Matin, Cecilia Danger, and Margaret Vizzi of the Miami Regional Office and supervised by Jessica Weissman.  The SEC's litigation will be led by Wilfredo Fernandez and Andrew Schiff.  The SEC appreciates the assistance of the Florida Office of Financial Regulation, Bureau of Financial Investigations.  The investor alert was prepared by M. Owen Donley III and Holly Pal in the SEC’s Office of Investor Education and Advocacy.

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 Biotech Company, Executives With Accounting Fraud

The Securities and Exchange Commission today charged a Maryland-based biotech company and four former top executives with prioritizing revenue growth over lawful accounting and misleading investors in the process.

The SEC alleges that Osiris Therapeutics routinely overstated company performance and issued fraudulent financial statements for a period of nearly two years.  According to the SEC’s complaint, the company improperly recognized revenue using artificially inflated prices, backdated documents to recognize revenue in earlier periods, and prematurely recognized revenue upon delivery of products to be held on consignment.  Osiris Therapeutics and its executives also allegedly used pricing data that they knew was false and attempted to book revenue on a fictitious transaction, among other accounting improprieties.

“As alleged in our complaint, Osiris Therapeutics falsely portrayed to investors that its revenue was growing so rapidly that its performance was consistently exceeding expectations,” said Julie Lutz, Director of the SEC’s Denver Regional Office.  “Corporate cultures cannot be so fixated on higher revenues that they use illegal accounting gimmicks to meet the financial numbers they desire.”

Osiris Therapeutics agreed to settle the charges without admitting or denying the allegations and must pay a $1.5 million penalty.

The litigation continues against four executives who led Osiris during the alleged period of accounting fraud from 2014 to 2015: chief executive officer Lode B. Debrabandere, chief financial officers Philip R. Jacoby Jr. and Gregory I. Law, and chief business officer Bobby Dwayne Montgomery.  The SEC’s complaint seeks disgorgement of ill-gotten gains plus interest and penalties along with officer-and-director bars. 

The SEC’s investigation was conducted by Laura Ordaz and Anne Romero with assistance from Judy Bizu of the Denver office.  The case was supervised by Laura Metcalfe and Kurt Gottschall.  The litigation will be led by Danielle Voorhees and supervised by Gregory Kasper.  The SEC appreciates the cooperation of the U.S. Attorney’s Office for the Southern District of New York, which filed criminal charges against Jacoby.

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.

Charles Cain Named Chief of Foreign Corrupt Practices Unit

The Securities and Exchange Commission today announced that Charles E. Cain has been named chief of the Enforcement Division's national specialized Foreign Corrupt Practices Act (FCPA) Unit that focuses on violations of the anti-bribery provisions of the federal securities laws.

Since April 2017, Mr. Cain has served as Acting Chief of the FCPA Unit leading all aspects of the Enforcement Division's national enforcement of the FCPA. Prior to being appointed Acting Chief of the FCPA Unit, Mr. Cain served as the Deputy Chief of the Unit since 2011. In 2013, Mr. Cain received the Irving R. Pollack Award recognizing his scholarship and professional expertise in co-authoring the Resource Guide to the U.S. Foreign Corrupt Practices Act setting forth a detailed analysis of the FCPA and providing insight into SEC and U.S. Department of Justice (DOJ) enforcement practices.

"Charles's deep experience in FCPA matters is reflected in his outstanding efforts and results over the years as part of the Commission’s efforts to combat foreign bribery," said Stephanie Avakian, Co-Director of the SEC's Enforcement Division.

"Our anti-corruption program under our Foreign Corrupt Practices Unit remains a top priority for the Enforcement Division," said Steven Peikin, Co-Director of the SEC's Enforcement Division. "Charles 'wrote the book' on the Foreign Corrupt Practices Act and his strong leadership ensures that the great work of the FCPA Unit continues."

Mr. Cain said, "It's an honor and privilege to be selected to lead the enormously talented and dedicated people in the FCPA Unit. I look forward to building upon the important work the unit has done to combat corruption and level the playing field globally."

With over 15 years of experience investigating FCPA matters, Mr. Cain has spearheaded numerous significant and complex FCPA investigations during his tenure. In addition to his broader oversight roles in past six years, he also directly supervised several matters such as the investigations that led to charges against:

• Sweden-based telecommunications provider Telia Company AB, which agreed to pay $965 million in a global settlement, along with the DOJ and Dutch and Swedish law enforcement, to resolve FCPA charges to win business in Uzbekistan;
• Dutch telecommunications provider VimpelCom Ltd., which agreed to pay more than $795 million in a global settlement, along with DOJ and Dutch regulators, to resolve FCPA violations to win business in Uzbekistan; and
• Hungary telecommunications provider Magyar Telecom, PLC and three of its former top executives with bribing government and political party officials in Macedonia and Montenegro to win business and shut out competition in the telecommunications industry. 
• Magyar and its parent company, Deutsche Telekom, AG, agreed to settle the charges in a global resolution with DOJ under which Magyar paid $90.8 million and Deutsche Telkom paid $4.36 million. 
• After significant litigation, earlier this year, Magyar's former executives agreed to pay penalties and accept officer-and-director bars to settle the SEC's charges.

Mr. Cain joined the SEC in 1999 following private practice in Washington, D.C.  He began supervising investigations in 2004, and was promoted to Assistant Director in 2007. When the Enforcement Division created the national specialized units in 2010, he joined the FCPA Unit as an Assistant Director.

Following his service in the U.S. Navy, Mr. Cain earned his bachelor’s degree from the State University of New York at Stony Brook, graduating with high honors in 1993, and his law degree with honors from The George Washington University Law School in 1997.

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.

David Glockner, Regional Director of Chicago Office, to Leave SEC

The Securities and Exchange Commission today announced that David Glockner, Director of the Chicago Regional Office, is planning to leave the agency later this month.

Since late 2013, Mr. Glockner has led a staff of approximately 270 enforcement attorneys, accountants, investigators, and compliance examiners involved in the investigation and prosecution of enforcement actions and the performance of compliance inspections in the nine-state Chicago region that is home to roughly 20 percent of the nation’s population. Mr. Glockner also has served as chair of the SEC’s Cybersecurity Working Group and is generally recognized as one of the agency’s experts on cybersecurity matters related to examinations and enforcement.

“David has been a trusted advisor and a real visionary in heightening public awareness of the important intersection between enforcement and cybersecurity,” said Stephanie Avakian, Co-Director of the SEC’s Enforcement Division.

“David helped grow the Chicago office’s expertise, spearheaded significant initiatives, and led the office to having a tremendous impact in the Chicago region,” said Steven Peikin, Co-Director of the SEC’s Enforcement Division.

“David has been a tireless advocate for investors during his time in the Chicago Regional Office,” said Pete Driscoll, Director of the SEC’s Office of Compliance Inspections and Examinations (OCIE).  “His thoughtfulness and leadership on examination issues has greatly contributed to the advancement of OCIE’s mission.”

Mr. Glockner said, “I am proud of the work that the SEC’s examiners and enforcement staff in Chicago do every day to protect investors. The SEC’s Chicago staff has built a culture that is thoughtful and innovative in its approach to a range of important issues, and it has been a privilege to work alongside these talented and dedicated public servants.”

During Mr. Glockner’s tenure as Regional Director, the Chicago office has brought many significant enforcement actions, including charges against:

• State Street Bank and Trust Company, which agreed to pay $12 million to settle charges that it conducted a pay-to-play scheme through its then-senior vice president and a hired lobbyist to win contracts to service Ohio pension funds
• National audit firm Grant Thornton LLP and two of its partners for improper professional conduct arising from ignoring red flags and fraud risks while conducting deficient audits of two publicly traded companies – Broadwind Energy Inc. and Assisted Living Concepts Inc.
• Navistar International Corp. and its former CEO for misleading investors about its development of an advanced technology truck engine that could be certified to meet U.S. emission standards
• The City of Harvey, Ill. and its comptroller for a fraudulent bond offering that the city marketed to investors
• A former official of the nation’s third largest public pension fund and two brokers for orchestrating a pay-to-play scheme to steer billions of dollars to certain firms in exchange for luxury gifts, lavish vacations, and tens of thousands of dollars spent on cocaine and prostitutes
• Two exchanges formerly owned by Direct Edge Holdings and since acquired by BATS Global Markets for failing to accurately describe the order types being used on the exchanges
• Robert W. Baird & Co. for compliance failures within its wrap fee programs
• R.T. Jones Capital Equities Management for failing to establish required cybersecurity policies and procedures in advance of a breach that compromised the personally identifiable information of approximately 100,000 individuals, including thousands of the firm’s clients
• Several alleged perpetrators behind a $78 million pump-and-dump scheme involving the stock of Jammin’ Java

During Mr. Glockner’s tenure, the National Examination Program staff in Chicago significantly increased its examinations of investment advisers and broker-dealers, and expanded its use of data analytics and its risk-based approach to examinations. Mr. Glockner also enhanced coordination between examination and enforcement teams, deepened relationships with law enforcement authorities, and assisted the Commission’s expanded examination and enforcement efforts relating to public finance.

Before Mr. Glockner joined the SEC in December 2013 as the Chicago office’s Regional Director, he was a managing director and head of the Chicago office of a digital risk management and investigations firm. Mr. Glockner also spent nearly 25 years as a criminal prosecutor in the U.S. Attorney’s Office for the Northern District of Illinois, including 11 years as chief of the office’s criminal division. Prior to joining the U.S. Attorney’s Office, Mr. Glockner began his legal career as a law clerk to the Honorable Brian Duff of the U.S. District Court for the Northern District of Illinois. He earned his bachelor’s degree from the University of Chicago in 1982 and his J.D. from Stanford Law School in 1985.

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.

Petroleum Engineer Settles Charges of Insider Trading Ahead of Oil Discovery Announcement

A petroleum engineer who worked at Texas-based energy company Apache Corporation has agreed to settle SEC charges that he conducted insider trading ahead of a market-moving announcement about the company’s discovery of a significant new oil source.

The SEC alleges that Christopher J. Lollar traded on nonpublic information while working in the company’s San Antonio office that was performing the geologic and geophysical work to explore and develop the newly discovered resource play called Alpine High.  Lollar allegedly conducted trades in Apache shares and call options in the days and weeks leading up to the company’s Alpine High announcement on Sept. 7, 2016.  The value of Lollar’s brokerage account skyrocketed approximately 2,700 percent after the announcement, and his alleged profits from insider trading totaled $214,295.07.

“As detailed in our complaint, a telling piece of evidence we gathered was a recorded phone call to his brokerage firm during which a concerned Lollar found a faster way to get money into his account after learning the funds in his initial deposit request wouldn’t have been available for trading until September 8, too late for the Alpine High announcement,” said Jessica B. Magee, Associate Director for Enforcement in the SEC’s Fort Worth Regional Office.

Shamoil T. Shipchandler, Director of the SEC’s Fort Worth Regional Office, added, “Insider trading is an attack on the integrity of our markets, and Lollar allegedly exploited confidential information from his employer to do it.  Consequently, he was fired from his job and now must pay back more than double the amount of his ill-gotten gains.”

Lollar agreed to pay disgorgement of $214,295.07 plus $7,219.36 in interest and a $214,295.07 penalty for a total of $435,809.50.  Lollar agreed to the settlement without admitting or denying the allegations, and the settlement is subject to court approval.

The SEC’s investigation was conducted in the Fort Worth office by Tamara F. McCreary and Ty S. Martinez with assistance from Christopher Davis.  The case was supervised by Ms. Magee.  

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.

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

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

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

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

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

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

SEC Press Release

--- 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.

Day Trader Charged in Brokerage Account Takeover Scheme

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

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

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

The SEC’s investigation is continuing.

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

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

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

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

SEC Press Release

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

UBS Ordered to Pay Florida Broker $3 Million for Defamation

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



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



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



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



UBS Ordered to Pay Florida Broker $3 Million for Defamation 

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

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

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

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

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

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

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

SEC Press Release

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

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

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

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

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

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

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

FACT SHEET

Division of Investment Management No-Action Relief

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

Division of Trading and Markets No-Action Relief

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

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

SEC Press Release

--- 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.

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

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

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

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

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

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

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

SEC Press Release

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

Biotech Employee Charged With Insider Trading Ahead of Company’s Announcements About Breast Cancer Drug

The Securities and Exchange Commission today charged the former senior director of regulatory affairs for Puma Biotechnology with insider trading ahead of the company’s news announcements about its drug to treat breast cancer.

 

The SEC alleges that Robert Gadimian pocketed more than $1.1 million in illicit profits by secretly purchasing Puma stock and short-term call options based on nonpublic information he learned about positive developments in two clinical trials for Puma’s drug, neratinib.  Gadimian allegedly bought Puma securities before the results from the first trial were announced in December 2013 and again before the results of the second trial were announced in July 2014.

 

According to the SEC’s complaint, Puma confronted Gadimian after learning about his trades and he admitted to trading because of “greed.”  Gadimian allegedly proceeded to alter his trading records before providing them to Puma for its internal investigation, deleting certain trades in Puma securities and renumbering the pages of the altered documents to hide his changes.  Gadimian was fired in October 2014.

 

“We allege that Gadimian used valuable confidential information about his employer’s drug trials to trade illegally and enrich himself,” said Antonia Chion, Associate Director in the SEC’s Division of Enforcement. 

 

In a parallel case, the U.S. Attorney’s Office for the District of Massachusetts today announced criminal charges against Gadimian.

 

The SEC’s investigation was conducted by Timothy K. Halloran with assistance from Martin L. Zerwitz and Michael C. Baker of the Enforcement Division’s Market Abuse Unit.  The case was supervised by Deborah A. Tarasevich, Ms. Chion, and Robert A. Cohen, Co-Chief of the Market Abuse Unit.  The litigation will be conducted by Jonathan P. Hooks and Mr. Halloran.  The SEC appreciates the assistance of the U.S. Attorney’s Office for the District of Massachusetts, the Federal Bureau of Investigation, and the Financial Industry Regulatory Authority.  

SEC Press Release

Supervisory Failures leads to 15 Million Dollar Fine

The SEC fined UBS $15 million for systematically failing to train its advisers in complex products they sold to unsophisticated investors

On Wall Street Article

SEC Files Insider Trading Charges Against Peruvian Traders Using Overseas Accounts

The Securities and Exchange Commission today charged two lawyers and a brokerage firm manager in Peru with insider trading prior to the merger of two mining companies.

 

The SEC alleges that Nino Coppero del Valle, who worked at Canadian-based HudBay Minerals Inc., tipped his close friend and fellow attorney Julio Antonio Castro Roca with material nonpublic information about a tender offer his company submitted to acquire the shares of Arizona-based Augusta Resource Corp.  Castro allegedly traded on the inside information through a brokerage account held by a shell company he set up in the British Virgin Islands in an attempt to avoid having the trades traced back to him and Coppero.  According to the SEC’s complaint, Castro and Coppero made more than $112,000 in illicit profits from these unlawful trades.

 

The SEC further alleges that Coppero tipped an acquaintance Ricardo Carrion when seeking his advice about making illegal trades untraceable.  According to the SEC’s complaint, Carrion exploited the inside information and caused his brokerage firm to purchase Augusta Resource shares ahead of the tender offer announcement.  Carrion’s firm obtained $73,000 in alleged profits.

 

“As alleged in our complaint, Coppero breached his duty to his employer by tipping Castro and Carrion in advance of any public announcement about HudBay’s impending tender offer,” said Andrew M. Calamari, Director of the SEC’s New York Regional Office.  “Try as they might, overseas traders shouldn’t presume they can cover their tracks to avoid detection and scrutiny from U.S. law enforcement when they violate insider trading laws.”

 

The SEC’s complaint charges Coppero and Castro with violating the antifraud provisions of the Securities Act of 1933 and the Securities Exchange Act of 1934.  Coppero, Castro, and Carrion are charged with violating the prohibitions against trading ahead of the announcement of a tender offer contained in Exchange Act Section 14(e) and Rule 14e-3.  The complaint seeks disgorgement of ill-gotten gains plus interest and penalties among other things.

 

The SEC’s investigation is continuing.  It is being conducted by Jorge G. Tenreiro and Thomas P. Smith Jr. of the New York office.  The litigation will be led by Preethi Krishnamurthy and Mr. Tenreiro.  The case is being supervised by Sanjay Wadhwa.  The SEC appreciates the assistance of the Financial Industry Regulatory Authority.

SEC Press Release

SEC Charges CEO and Boiler Room Operator With Fraud

The Securities and Exchange Commission today charged a former microcap company CEO and a boiler room operator with defrauding seniors and others who were pressured to invest in a pair of penny stock companies and promised lucrative profits.

 

The SEC alleges that Craig V. Sizer founded Sanomedics Inc. and Fun Cool Free Inc., which were purportedly in the business of selling non-contact infrared thermometers and software applications respectively, and he hired Miguel “Michael” Mesa to help him attract and defraud investors in both companies.  Sizer allegedly provided Mesa with a list of pitch points for use by boiler-room agents hired by Mesa to sell shares of the stocks based on misrepresentations that investor funds would be used for research and development and no sales commissions would be paid out of investor funds.  According to the SEC’s complaint, Sizer and Mesa misappropriated approximately 90 percent of the funds raised from investors, enriching themselves and paying sales commissions to the boiler-room agents.  Several hundred investors nationwide were allegedly defrauded out of a total of approximately $20 million.

 

“We allege that Sizer and Mesa fraudulently touted Sanomedics and Fun Cool Free stocks as profitable investments while in fact only Sizer and Mesa and the sales agents were profiting at the expense of investors, many of whom were seniors,” said Eric I. Bustillo, Director of the SEC’s Miami Regional Office.

 

In a parallel action, the U.S. Attorney’s Office for the Southern District of Florida today announced criminal charges.

 

Sizer and Mesa have agreed to partial settlements of the SEC’s charges without admitting or denying the allegations.  They both agreed to be barred from future penny stock offerings, and Sizer agreed to be barred from serving as an officer or director of a public company.  Financial sanctions will be decided by the court at a later date.  The SEC’s complaint alleges that Sizer and Mesa violated Section 17(a) of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5.  Mesa also allegedly violated Section 15(a) of the Exchange Act, and Sizer allegedly aided and abetted Mesa’s violations.

 

The SEC’s continuing investigation is being conducted by Gary M. Miller and Eric E. Morales of the Enforcement Division’s Microcap Fraud Task Force in the Miami office, and the case has been supervised by Elisha L. Frank and Jason R. Berkowitz of the Microcap Fraud Task Force.  The SEC’s litigation is being led by Alejandro O. Soto.  The SEC appreciates the assistance of the Federal Bureau of Investigation and the U.S. Attorney’s Office for the Southern District of Florida.

SEC Press Release

''Movie Studio'' Executives Charged With Microcap Fraud

The Securities and Exchange Commission today charged three company executives with defrauding investors in a purported project to construct the largest movie studio in North America at a suburban location outside Savannah, Georgia.

 

The SEC alleges that Manu Kumaran, the founder and former chairman and CEO of a startup movie production company called Medient Studios and later Moon River Studios, schemed with his successor CEO Jake Shapiro to make an assortment of false and misleading statements in press releases and corporate filings.  They allegedly claimed that construction was underway and projected dates by which the studio would be operational while knowing full well they did not have anywhere near sufficient funding to begin building the touted "Studioplex."  In addition, Kumaran, Shapiro, and Roger Miguel – the CEO of a separate successor public company called Fonu2 that also operated under the name Moon River Studios – are alleged to have backdated and falsified promissory notes as part of a scheme to issue common stock in exchange for financing. 

 

The SEC further alleges that while the Studioplex never materialized and the company eventually shuttered without releasing a single movie or video game, Kumaran and Shapiro nonetheless enriched themselves in the process.  According to the SEC’s complaint, Kumaran spent an average of $1,700 per day of company funds on his globetrotting travel and personal expenses from April 2014 to June 2014 after claiming publicly that he did not draw a salary and assuring shareholders that all funds were being used to benefit the company.  Shapiro allegedly misappropriated company funds for personal use after becoming CEO and lived in a house worth nearly a million dollars that was paid for by the company.

 

Miguel agreed to settle the charges against him without admitting or denying the allegations.  He agreed to be barred from participating in any penny stock offerings or serving as a public company officer or director for five years, and the court will determine monetary sanctions at a later date.  The settlement is subject to court approval. The litigation continues against Kumaran and Shapiro.  The SEC's complaint was filed in U.S. District Court for the Southern District of Georgia.

 

Three company directors who are not alleged to have participated in the fraud were separately charged with violating federal securities laws by failing to timely report their stock transactions in the company while serving on its board.  Former New York Democratic Governor David A. Paterson and music producer Charles A. Koppelman each agreed to pay $25,000 penalties to settle the charges against them without admitting or denying the findings.  An administrative proceeding was instituted against Matthew T. Mellon II, a businessman and former chairman of the New York Republican Party Finance Committee.  The matter 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.

 

"We allege that Kumaran and Shapiro preyed upon investor interest in the movie industry and financed their own lifestyles rather than build the promised Studioplex,” said Walter Jospin, Director of the SEC’s Atlanta Regional Office.  "Koppelman, Paterson, and Mellon allegedly failed in their personal responsibility to comply with the beneficial ownership reporting requirements of the federal securities laws." 

 

The SEC’s continuing investigation has been conducted by Joshua M. Dickman of the Atlanta office under the supervision of Aaron W. Lipson and William P. Hicks.  The litigation to determine the merits of the allegations against Kumaran and Shapiro will be led by Wm. Shawn Murnahan and M. Graham Loomis with the assistance of Shannon Statkus from the U.S. Attorney’s Office for the Southern District of Georgia.  The SEC appreciates the assistance of the U.S. Attorney’s Office for the Southern District of Georgia.

SEC Press Release

SEC Charges Hedge Fund Manager Leon Cooperman With Insider Trading

The Securities and Exchange Commission today charged hedge fund manager Leon G. Cooperman and his firm Omega Advisors with insider trading based on material nonpublic information he learned in confidence from a corporate executive.

The SEC alleges that Cooperman generated substantial illicit profits by purchasing securities in Atlas Pipeline Partners (APL) in advance of the sale of its natural gas processing facility in Elk City, Oklahoma.  Cooperman allegedly used his status as one of APL’s largest shareholders to gain access to the executive and obtain confidential details about the sale of this substantial company asset.  Cooperman and Omega Advisors allegedly accumulated APL securities despite explicitly agreeing not to use the material nonpublic information for trading purposes, and when APL publicly announced the asset sale its stock price jumped more than 31 percent. 
 

According to the SEC’s complaint, when Omega Advisors received a subpoena nearly a year-and-half later about its trading in APL securities, Cooperman contacted the executive and tried to fabricate a story to tell if questioned about this trading activity.  The executive was shocked and angered when he learned that Cooperman traded in advance of the public announcement. 

 

“We allege that hedge fund manager Cooperman, who as a large APL shareholder obtained access to confidential corporate information, abused that access by trading on this information,” said Andrew J. Ceresney, Director of the SEC’s Division of Enforcement.  “By doing so, he allegedly undermined the public confidence in the securities markets and took advantage of other investors who did not have this information.”

 

The SEC’s complaint further charges Cooperman with failing to timely report information about holdings and transactions in securities of publicly-traded companies that he beneficially owned, alleging that he violated federal securities laws more than 40 times in this regard. 

 

The SEC’s complaint was filed in federal district court in Philadelphia and seeks disgorgement of ill-gotten gains plus interest, penalties, and permanent injunctions against Cooperman and Omega Advisors as well as an officer-and-director bar against Cooperman.

 

The SEC’s investigation was conducted by Brendan P. McGlynn, Oreste P. McClung, Patrick A. McCluskey, and Polly A. Hayes of the Philadelphia Regional Office, and supervised by G. Jeffrey Boujoukos.  The litigation will be led by David L. Axelrod and Mark R. Sylvester.  The SEC appreciates the assistance of the Financial Industry Regulatory Authority.

SEC Press Release

“Stock Trading Whiz Kid” to Pay $1.5 Million to Settle Stock Newsletter Fraud Charges

The Securities and Exchange Commission today announced that a self-proclaimed “stock trading whiz kid” and his stock newsletter company in Los Angeles have agreed to pay nearly $1.5 million to settle charges that they defrauded subscribers through false statements and misrepresentations.

According to the SEC’s complaint, Manuel E. Jesus and his newsletter company Wealthpire Inc. used advertising materials and websites touting him as “the untutored prodigy of stock investing” under the alias Manny Backus.  A self-purported “math whiz” who boasted a “skyscraping” IQ and training as a professional chess player, Backus claimed to be actively trading in the stock market with “real money” by age 19.  The SEC’s complaint also states that Wealthpire materials claimed that Backus made millions of dollars before “deciding to help other investors” by starting an alert service that let traders copy his every trading move.

The SEC alleges that from at least January 2012 to September 2014, Backus was not trading in the same stocks recommended by his services as he claimed.  He wasn’t the one making all of the recommendations either.  For instance, the SEC’s complaint alleges that Robert C. Joiner was paid by Wealthpire to make all of the stock picks for one alert service without any guidance from Backus on how to choose them.  Joiner allegedly posed as Backus during chat room sessions by signing in using a password that Backus supplied, and Joiner told investors that he was buying and selling certain recommended stocks when no such transactions were actually taking place.  Joiner also is named in the SEC’s complaint and agreed to settle the case.

The SEC’s complaint alleges a series of other misrepresentations to Wealthpire subscribers as well, including false claims about one particular stock alert service that purportedly made historic trading recommendations that yielded huge past returns higher than 1,400 percent.

“Investors who subscribe to trading alert services are relying on the purported expertise and success of those making the stock recommendations, but Wealthpire and Backus instead circulated repeated lies and falsehoods,” said Michele Wein Layne, Director of the SEC’s Los Angeles Regional Office.

The SEC has warned investors that investment newsletters can be used as tools for fraud, noting in an investor alert for example to beware false performance claims misrepresenting the track record of the newsletter’s investment recommendations and be suspicious if the newsletter does not disclose having received any compensation.

Backus and Wealthpire agreed to pay disgorgement of $1,135,145 plus interest of $112,902, and Backus also must pay a $235,000 penalty.  Without admitting or denying the allegations, Backus, Wealthpire, and Joiner consented to the entry of a final judgment permanently enjoining each of them from future violations of the antifraud provisions of the federal securities laws.  

The SEC’s investigation was conducted by Lucee Kirka and supervised by Robert Conrrad of the Los Angeles office.  

SEC Press Release