Scott W. Bauguess, Deputy Director of the Division of Economic and Risk Analysis, to Leave the Agency After a Decade of Service

The Securities and Exchange Commission today announced that Scott W. Bauguess, Deputy Director of the Division of Economic and Risk Analysis (DERA) and Deputy Chief Economist, will leave the agency in January after more than 11 years of service. Dr. Bauguess joined the division in 2007 as a financial economist, assumed leadership of DERA's Office of Corporate Finance in 2011, and was appointed Deputy Director in 2013. In 2017, Dr. Bauguess served as the agency's Acting Director of DERA and its Acting Chief Economist.

During his tenure, Dr. Bauguess played a significant role in the Commission's regulatory impact analyses and market risk assessment activities. He led all of the economic analyses of rules implementing provisions of the JOBS Act and critical components of the Dodd-Frank Act, participated in the development of disclosure technologies related to registrant reporting, and oversaw the introduction of new and innovative data analytical methods and programs employing artificial intelligence technology to assist SEC staff in their supervisory and investigative activities.

"For more than a decade, Scott has played a leading role in designing and producing the economic analysis that allows us to better understand the effects of our work at the Commission," said Chairman Jay Clayton. "I thank Scott for his years of dedicated service to our investors and markets."

"Scott has long been a champion of using of data-driven methods to support our enforcement program," said Stephanie Avakian, Co-Director of the SEC's Division of Enforcement. "He has tremendous insight on how to leverage advanced analytics to identify potential securities law violations and we will miss collaborating with him."

Pete Driscoll, Director of the Office and Compliance Inspections and Examinations, added, “His dedication, vision, and willingness to promote collaboration between DERA and OCIE staff were critical to the advancement of quantitative methods to assess risks and analyze data throughout the agency, particularly in OCIE.”

Dr. Bauguess said, "I leave with fond memories and a great sense of accomplishment from my 11 years serving America's investors. My time working with staff in DERA and across the agency as we applied analytical methods to complicated economic and market issues to protect and strengthen our markets will stand out as particularly rewarding. I will miss my colleagues and the mission."

His service to the agency spanned a wide variety of economic, analytical, and technology activities, including:

• Directed the economic analyses of JOBS Act and related rules covering the elimination of the prohibition against general solicitation in Rule 506 offerings, Regulation Crowdfunding, amendments to Regulation D and Regulation A, and disqualification of bad actors in Rule 506 offerings.
• Directed the economic analyses of Dodd Frank Act rules covering security-based swap (SBS) communications, reporting, data repositories, conduct standards and dissemination, and cross-border application of SBS rules, and rules covering credit risk retention, pay ratio, and credit rating reference removal. 
• Advised in the development and responsible for the implementation of the SEC's "Current Guidance on Economic Analysis in SEC Rulemaking."
• SEC representative to the Financial Stability Board's Standing Committee on Assessing Vulnerabilities (SCAV) and the Analytical Group on Vulnerabilities (AGV).
• Oversaw the establishment of two new offices in DERA: the Office of Research and Data Services and the Office of Risk Assessment.
• Directed the economic analyses on rulemakings to make financial disclosures and market transactions machine readable through adoption and use of XML-based financial reporting languages such as XBRL.
• Directed the efforts that led to the adoption and use of Legal Entity Identifiers (LEIs) in regulatory filings by swaps dealers, investment advisers, broker-dealers, and investment companies.
• Developed programs that leverage machine learning and natural language processing of narrative disclosures in SEC filings to develop novel analytical insights in support of market supervision activities.
• Key contributor to cross-agency initiatives related to the oversight of the Tips, Complaints, and Referrals (TCR) system, identification of emerging market risks, and enhancement of the SEC’s data and computing environments. 

Prior to joining the SEC, Dr. Bauguess served on the finance faculty of Texas Tech University in the Rawls College of Business. He earned his Ph.D. from Arizona State University, and also holds a BS and MS in Electrical Engineering, spending six years working in the technology industry before beginning his doctoral studies.  

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BNY Mellon to Pay More Than $54 Million for Improper Handling of ADRs

The Securities and Exchange Commission today announced that Bank of New York Mellon will pay more than $54 million to settle charges of improper handling of “pre-released” American Depositary Receipts (ADRs).

ADRs – U.S. securities that represent foreign shares of a foreign company – require a corresponding number of foreign shares to be held in custody at a depositary bank.  The practice of “pre-release” allows ADRs to be issued without the deposit of foreign shares provided brokers receiving them have an agreement with a depositary bank and the broker or its customer owns the number of foreign shares that corresponds to the number of shares the ADR represents. 

The SEC’s order found that BNY Mellon improperly provided ADRs to brokers in thousands of pre-release transactions when neither the broker nor its customers had the foreign shares needed to support those new ADRs.  Such practices resulted in inflating the total number of a foreign issuer’s tradeable securities, which resulted in abusive practices like inappropriate short selling and dividend arbitrage that should not have been occurring. 

This is the seventh action against a bank or broker and third action against a depositary bank resulting from the SEC’s ongoing investigation into abusive ADR pre-release practices.  Information about ADRs is available in an SEC Investor Bulletin.

“Our ongoing industry-wide investigation into Wall Street misconduct marches on,” said Sanjay Wadhwa, Senior Associate Director of the SEC’s New York Regional Office.  “BNY Mellon is the seventh bank or broker being held accountable for improper practices that allowed banks and brokerage firms to profit handsomely while market participants were unaware of how the market was being abused.”

Without admitting or denying the SEC’s findings, BNY Mellon agreed to disgorge more than $29.3 million in alleged ill-gotten gains plus pay $4.2 million in prejudgment interest and a $20.5 million penalty for total monetary relief of more than $54 million.  The SEC’s order acknowledges BNY Mellon’s cooperation in the investigation and remedial acts.

The SEC’s continuing investigation is being conducted by Andrew Dean, William Martin, Elzbieta Wraga, Philip Fortino, Joseph P. Ceglio, Richard Hong, and Adam Grace of the New York Regional Office, and is being supervised by Mr. Wadhwa. 

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Jeffrey S. Mooney Named Associate Director in the Office of Clearance and Settlement

The Securities and Exchange Commission today announced that Jeffrey S. Mooney has been named Associate Director of the Office of Clearance and Settlement in the agency’s Division of Trading and Markets. 

Mr. Mooney joined the SEC staff in 1996 and has served in a variety of roles, most recently as Assistant Director for the Office of Clearance and Settlement. He has been instrumental in regulatory and policy initiatives for clearing agencies and security-based swap data repositories, and has represented the agency in international working groups focused on standards for financial market infrastructure. Mr. Mooney served as a Senior Special Counsel in the division from 2000 to 2009, and participated in an interagency effort to develop provisions of Title VII of the Dodd-Frank Act. He also represented the agency in domestic and international working groups designed to improve the clearance and settlement process. In 1998, he served as counsel to SEC Chairman Arthur Levitt on matters related to market regulation, enforcement and compliance, and from 1996 to 2000 he was a Special Counsel in the division with responsibility for reviewing proposed rule changes submitted by registered clearing agencies. Before joining the SEC, Mr. Mooney served in the Office of General Counsel at the National Credit Union Administration and in the Office of Thrift Supervision at the U.S. Department of the Treasury.

The Office of Clearance and Settlement is responsible for developing and administering the Commission’s regulatory program for the national system of clearance and settlement of securities transactions. The office oversees systemically important financial market utilities and security-based swap clearing activity. The office also engages in oversight, rulemaking and other supervisory and policy matters for clearing agencies, transfer agents and security-based swap data repositories. 

“I am thrilled that Jeff, a veteran of our agency, has been selected to lead the dedicated staff in the Office of Clearance and Settlement,” said Chairman Jay Clayton. “Our markets and investors will be well served by Jeff’s more than two decades of public service – including 22 years at the SEC – and his deep experience on a broad range of clearance and settlement matters.”

“Jeff’s extensive experience and knowledge makes him extremely well suited for his new position,” said Brett Redfearn, Director of the Division of Trading and Markets. “I am confident that he will be an important leader in our ongoing efforts to oversee our nation’s system of clearance and settlement and to serve the long-term interests of Main Street investors.”

“I am excited and honored to be provided with this opportunity and responsibility. Over the course of my career, I have worked alongside extremely talented individuals and fully appreciate the important work that is being done by the staff in the Office of Clearance and Settlement, the Division of Trading and Markets, and across the Commission,” said Mr. Mooney.

Mr. Mooney holds a bachelor’s degree in economics from Fisk University in Nashville, Tennessee, and a J.D. from the Georgetown University Law Center. 

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SEC Charges Former New York Investment Advisor and Daughter With Conducting a Ponzi Scheme

The Securities and Exchange Commission today charged a former Rockland County, New York-based investment adviser and his daughter with conducting a multi-million dollar Ponzi scheme that defrauded local community members as well as members of their family and close friends.

The SEC alleges that Hector May, an investment adviser representative and the president and chief compliance officer of the now-defunct Executive Compensation Planners Inc. (ECP), and his daughter Vania Bell, who served as ECP’s controller and senior compliance administrator, misappropriated more than $7.9 million in a Ponzi scheme involving bonds.

According to the SEC’s complaint, with Bell’s help, May lied to investors by promising to invest their money in bonds when they actually used the money to pay for personal and business expenses, as well as extravagant items, such as jewelry, furs, vacations, and a limousine driver. To conceal the fraudulent scheme, they sent bogus account statements to clients referencing the bonds that had never been purchased.  

In a parallel action, the U.S. Attorney’s Office for the Southern District of New York today announced criminal charges against May, and he has pleaded guilty to those charges.

“As alleged, this father-daughter team betrayed the very people who knew and trusted them – including family members, close friends, seniors, and local community members,” said Marc P. Berger, Director of the SEC’s New York Regional Office.

The SEC’s Office of Investor Education and Advocacy (OIEA) and the Retail Strategy Task Force issued an Investor Alert discussing the classic warning signs of a Ponzi scheme targeting retail investors, including seniors. 

“The Enforcement Division protects retail investors by bringing impactful cases and partnering with OIEA to provide investors with tools to educate and empower themselves,” said Charu A. Chandrasekhar, Chief of the Division of Enforcement’s Retail Strategy Task Force.

The SEC’s complaint, filed in federal court in the Southern District of New York, charges May and Bell with violating the antifraud provisions of the securities laws. May has agreed to the entry of a partial judgment against him in which he consents to injunctive relief with monetary and other relief to be decided in the future. The SEC seeks the return of ill-gotten gains, with interest, as well as financial penalties.

The SEC’s investigation, which is continuing, is being conducted by Tracy E. Sivitz and Sandeep M. Satwalekar in the New York Regional Office, and Kimberly A. Yuhas and Charu A. Chandrasekhar of the Enforcement Division’s Retail Strategy Task Force. The case is being supervised by Lara Shalov Mehraban.  The SEC appreciates the assistance of the U.S. Attorney’s Office for the Southern District of New York, the U.S. Postal Inspection Service, and the Federal Bureau of Investigation.

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SEC, MSRB, FINRA to Hold Compliance Outreach Program for Municipal Advisors

The Securities and Exchange Commission (SEC), Municipal Securities Rulemaking Board (MSRB), and Financial Industry Regulatory Authority (FINRA) today announced the opening of registration for the Compliance Outreach Program for Municipal Advisors. 

There is no cost to attend the program, which provides an open forum for municipal advisory industry professionals to discuss regulatory and compliance issues with regulators. The event will be held at the Hyatt Regency in San Francisco on Feb. 7, from 8 a.m. to 4 p.m. PST. Additional information, including the agenda, is available on the SEC, MSRB, and FINRA websites.

The SEC’s Office of Compliance Inspections and Examinations (OCIE) and Office of Municipal Securities (OMS) are partnering with the MSRB and FINRA to sponsor the program.  Topics of discussion include the duties and standards of conduct for solicitor and non-solicitor municipal advisors under MSRB Rule G-42 and the Securities Exchange Act of 1934, and municipal advisor compliance with new MSRB rules. The program will include a discussion of municipal advisor and underwriter roles in a public offering of municipal securities and in the investment of bond proceeds, and SEC and FINRA staff will discuss examination processes, common exam observations, and relevant enforcement actions.

“This program, now in its fourth year, highlights our continued commitment to promote compliance with municipal advisor regulations by providing the industry the opportunity to engage first-hand with all three regulators regarding regulatory obligations,” said Rebecca Olsen, Director of the SEC’s Office of Municipal Securities.  

Pete Driscoll, Director of the SEC’s Office of Compliance, Inspections and Examinations added, “The Outreach Program for Municipal Advisors is one of the touchstones of OCIE’s efforts to be transparent and promote compliance by municipal advisors. I am happy to see that this forum provides municipal advisors an opportunity to stay abreast of developments in the regulatory regime, including a number of new rules, to better understand the examination process, and to hear some of the common compliance observations the SEC staff is identifying in its examinations.”

Mike Rufino, FINRA’s Head of Member Regulation-Sales Practice, said, “Any firm that wants to enhance its understanding of which activities fall within the definition of municipal advisory activity and how to apply the registration exemptions and exclusions will benefit from participating in the outreach program.”

MSRB President and CEO Lynnette Kelly said, “We are pleased to join forces with the SEC and FINRA to host a program that will help municipal advisors and other financial professionals gain a clearer understanding of MSRB rules for municipal advisors. Supporting compliance with our rules is one of the MSRB’s top priorities.”

Registration is being administered by FINRA and is open to all municipal advisor and securities industry professionals.  In-person attendance is limited to a first-come, first-served basis. For those who cannot attend in person, the program will be available live via audio webcast on the SEC’s website.

Register to attend the program here. Information about the program and links to program materials will be posted on the SEC, MSRB, and the FINRA websites.
 

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Jeffrey Minton, Office of the Chief Accountant Chief Counsel, to Retire from the SEC After 20 Years of Service

The Securities and Exchange Commission today announced that Jeffrey Minton, Office of the Chief Accountant (OCA)'s Chief Counsel, will be retiring from the agency next month after more than 20 years of service at the SEC, with over half of that time spent in his role in OCA. 

The Office of the Chief Accountant is responsible for accounting and auditing matters arising in the Commission’s administration of the federal securities laws, such as oversight activities of standard setting organizations and the PCAOB. 

Mr. Minton provided critical counsel and assistance on oversight activities, numerous rulemakings, and technical assistance to Congress on legislation. He also has directed OCA's enforcement liaison program, providing insightful analytical guidance and assistance to the Division of Enforcement on many enforcement actions and Commission on accountant suspension and reinstatement orders. Mr. Minton also devoted significant efforts to enhancing the Office’s polices and process.

Earlier in his career, he worked in the Office of the Chairman under Chairman William H. Donaldson, as well as in the Division of Corporation Finance as an attorney in the division's rule-writing office during implementation of the Sarbanes-Oxley Act of 2002. Among the many honors he has earned, he is a recipient of the SEC's Manuel H. Cohen Award, which recognizes outstanding legal ability and performance.

“Jeff 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.

“Jeff has been a dedicated public servant whose distinguished counsel, skill, intelligence, and wit has left an indelible mark on the SEC and OCA,” said SEC Chief Accountant Wes Bricker. “He demonstrated his steadfast commitment to protecting investors through his support for strong policies for financial reporting, audit, and independence. Jeff retires with a legacy of accomplishments, including the mentorship of a talented and dedicated group of professionals over the years, and we will miss him greatly.”

Mr. Minton said “It has been an honor and a privilege to have served America’s investors along with so many dedicated professionals at the SEC. Especially rewarding has been my service in OCA promoting high quality financial reporting, which is at the heart of this country’s disclosure-based approach to securities regulation.” 

Mr. Minton graduated magna cum laude from the Harvard Law School in 1996 and received his BA in economics from The Ohio State University in 1992.

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Executives Settle ICO Scam Charges

Two former executives behind an allegedly fraudulent initial coin offering (ICO) that was stopped by the Securities and Exchange Commission earlier this year have been ordered in federal court to pay nearly $2.7 million and prohibited from serving as officers or directors of public companies or participating in future offerings of digital securities.

AriseBank’s then-CEO Jared Rice Sr. and then-COO Stanley Ford were accused of offering and selling unregistered investments in their purported “AriseCoin” cryptocurrency by depicting AriseBank as a first-of-its-kind decentralized bank offering a variety of services to retail investors.

“Rice and Ford lied to AriseBank’s investors by pitching the company as a first-of-its kind decentralized bank offering its own cryptocurrency for customer products and services,” said Shamoil T. Shipchandler, Director of the SEC’s Fort Worth Regional Office.  “The officer-and-director bar and digital securities offering bar will prevent Rice and Ford from engaging in another cryptoasset-based fraud.”

To settle the SEC’s charges, Rice and Ford agreed to be held jointly and severally liable for $2,259,543 in disgorgement plus $68,423 in prejudgment interest, and each must pay a $184,767 penalty.  They also agreed to lifetime bars from serving as officers and directors of public companies and participating in digital securities offerings, and permanent prohibitions against violating the antifraud and registration provisions of the federal securities laws.  Chief Judge Barbara M.G. Lynn of the U.S. District Court for the Northern District of Texas ordered the sanctions on December 11.  Rice and Ford agreed to the settlements without admitting or denying the allegations in the SEC’s complaint.

On Nov. 28, 2018, the U.S. Attorney’s Office for the Northern District of Texas announced parallel criminal charges against Rice.

The SEC’s investigation and litigation was conducted by David Hirsch and Chris Davis and supervised by B. David Fraser and Eric R. Werner of the Fort Worth Regional Office.  Staff from the SEC’s Cyber Unit assisted with the investigation and litigation.  The SEC appreciates the assistance of the Federal Bureau of Investigation, U.S. Attorney’s Office for the Northern District of Texas, Federal Depository Insurance Corporation, and U.S. Patent and Trademark Office.

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.

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Three Developers Settle Charges of Fraudulent EB-5 Offering

The Securities and Exchange Commission today announced that three Houston-area developers have agreed to settle charges that they misused investor funds raised from 90 Chinese investors under the EB-5 Immigrant Investor Program on unrelated projects.

The three developers – America Modern Green Senior (Houston) LLC, America Modern Green Community (Houston) LLC, and America Modern Green Residential (Houston) LLC – have repaid the $49.5 million that they raised from the Chinese investors.

According to the SEC’s order, the developers told investors that their funds would be used exclusively for a large mixed-use real estate development EB-5 project.  Instead, the SEC found that the developers improperly transferred $20.5 million of investor funds for various undisclosed and improper purposes, including funding purchases with respect to two unrelated real estate projects.  In addition, the SEC found that the developers’ offering materials improperly described the titles and roles of two real estate experts.

“These developers obtained almost $50 million from investors in connection with an EB-5 offering that was based on misleading statements and involved a misuse of the funds raised,” said Shamoil T. Shipchandler, Director of the SEC’s Fort Worth Regional Office.  “Today’s resolution provides full relief to all of the affected investors.”

The order finds that the developers violated the antifraud provisions of Section 17(a)(2) and Section 17(a)(3) of the Securities Act of 1933.  Without admitting or denying the SEC’s findings, the developers collectively agreed to pay disgorgement of $49.5 million plus $1,144,135 in interest, and an $800,000 penalty.  The order deems the disgorgement satisfied by payments to the Chinese investors made by the developers before the settlement, and also provides that the interest will be distributed to the investors.  The order also imposes a cease-and-desist order on the developers.

The SEC’s investigation was conducted by Sarah S. Mallett and supervised by Eric R. Werner and James E. Etri of the Fort Worth Regional Office.  The SEC appreciates the assistance of U.S. Citizenship and Immigration Services.

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SEC Names Danae M. Serrano Acting Ethics Counsel and Designated Agency Ethics Official

The Securities and Exchange Commission today announced that Danae M. Serrano has been named Acting Ethics Counsel and Designated Agency Ethics Official.

Ms. Serrano joined the SEC in 2010 as an Assistant Ethics Counsel, and has served as the Deputy Ethics Counsel and Alternate Designated Agency Ethics Official since 2013.  Ms. Serrano also served as the Agency’s Acting Chief Compliance Officer until August 2018. 

“Danae is widely respected by her colleagues throughout the Commission for her steady and thoughtful ethics counsel,” said Chairman Jay Clayton.  “I know that Danae and her team are committed to maintaining the highest ethical standards at the SEC, and I want to thank her for taking on this important role in support of the Commission and our dedicated staff.”

“I am grateful for this opportunity to lead the talented and dedicated staff in the Office of the Ethics Counsel, and for the Chairman’s support of the SEC’s robust ethics and compliance programs,” said Ms. Serrano.   

Before joining the SEC, Ms. Serrano served as an attorney in the General Counsel’s Office of the Pension Benefit Guaranty Corporation (PBGC), where she advised on government ethics and administrative law matters.  Prior to PBGC, Ms. Serrano served as an attorney and ethics official in the United States Air Force, Office of the General Counsel.  Ms. Serrano received her law degree from the University of Connecticut School of Law, where she was an Executive Editor of the Connecticut Insurance Law Journal. She received her B.A. in History from Yale University.   
 

SEC Press Release

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SEC Charges The Hain Celestial Group with Internal Controls Failures

The Securities and Exchange Commission today announced settled charges against a natural and organic food company stemming from weaknesses in the company's internal controls related to end-of-quarter sales practices that were designed to help the company meet its internal sales targets. Based upon its extensive cooperation with the SEC's investigation, which included self-reporting and remediation efforts, the SEC did not impose a monetary penalty on the company.

According to the SEC's order, between 2014 and 2016, sales personnel for The Hain Celestial Group, Inc. offered the company's two largest distributors incentives at the end of fiscal quarters to encourage the purchase of sufficient inventory for Hain to meet quarterly internal sales targets. The incentives offered by Hain included rights of return for products that spoiled or expired before they were sold to retailers, as well as cash incentives of up to $500,000, substantial discounts, and extended payment terms. According to the SEC's order, some of the incentives were agreed to orally and not documented, and others were documented only in email exchanges with the distributors. The SEC's order found that the company lacked sufficient policies and procedures to ensure the incentives were properly documented and accounted for and that Hain's finance department was not aware of the quarterly incentive practices until May 2016.  

After its finance department discovered the existence of the sales incentive practices, Hain undertook an internal investigation, and in August 2016, the company self-reported to the SEC its discovery of the sales incentives and announced it was delaying its financial reporting for 2016. Ten months later, Hain reported that financial restatements were not required and simultaneously disclosed material weaknesses in its internal control of financial reporting. As reflected the SEC's order, Hain has since made organizational changes, including the retention of staff in compliance positions, and has implemented changes to its revenue recognition practices.  

"Hain's internal control failures and poor documentation of the sales incentives contributed to the delay in its financial reporting," said Carolyn Welshhans, Associate Director of the SEC's Division of Enforcement. "But the terms of our final settlement take into account Hain's timely self-reporting, its cooperation during our investigation, and the significant changes it voluntarily made to its organization and to its revenue recognition practices."  

The SEC's order finds that Hain violated books and records and accounting controls provisions of the federal securities laws, and orders Hain to cease and desist from further violations. Hain consented to the SEC's order without admitting or denying the findings.  

The investigation was conducted by Kathleen McDermott, David Miller, and Eugene Bull, and was supervised by Assistant Director Laura Josephs and Associate Director Carolyn Welshhans. 

SEC Press Release

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SEC Charges Agria Corporation and Executive Chairman With Fraud

A multinational agricultural company has agreed to pay $3 million to settle charges that it concealed substantial losses from investors through fraudulent accounting in connection with its divestiture of its primary operating entity.  In a related action, the company’s executive chairman Lai Guanglin (aka Alan Lai) settled charges that he manipulated the company’s share price.   

As described in the SEC’s order, Agria Corporation sold its Chinese operating company in return for stock and land use rights to 13,500 acres of undeveloped land in a remote, mountainous area of China’s Shanxi Province.  The SEC order found that Agria overstated the value of the stock it received by $17 million and assigned a value of nearly $60 million to the effectively worthless land use rights.  A separate SEC order found that in March 2013, Lai used nominee brokerage accounts to engage in manipulative trading in Agria’s American Depository Shares in order to inflate their price above $1 and prevent the securities from being delisted by the New York Stock Exchange.   

“Agria’s fraudulent accounting hid from investors the significant loss it sustained when it divested its principal operation in China, and Mr. Lai artificially inflated the share price to maintain Agria’s NYSE listing,” said Charles E. Cain, Chief of the SEC Enforcement Division’s FCPA Unit.  “Disclosure of accurate information is vital to the integrity of our markets, and both Agria and Mr. Lai have been appropriately held to account for their deceptive misconduct.”

The SEC’s order found that Agria violated antifraud, reporting, books and records and internal accounting control provisions of the federal securities laws.  Without admitting or denying the findings, Agria agreed to pay a $3 million penalty and cooperate with the Commission’s staff in future investigations.  The SEC’s order as to Lai found that he violated antifraud provisions of the federal securities laws.  Without admitting or denying the findings, Lai agreed to pay a $400,000 penalty and be barred for a period of five years from acting as an officer or director of any public company.  

The SEC’s investigation was conducted by David Kagan-Kans, Michael Catoe, M. Shahriar Masud, and Kristen Dieter, and supervised by Robert I. Dodge.  The SEC appreciates the assistance of the New York Stock Exchange Regulation 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.

Three Broker-Dealers to Pay More Than $6 Million in Penalties for Providing Deficient Blue Sheet Data

The Securities and Exchange Commission today announced that three broker-dealers have agreed to pay more than $6 million to settle charges for providing the SEC with incomplete and inaccurate securities trading information in required SEC productions known as “blue sheet data,” which the SEC uses to carry out its enforcement and regulatory obligations, including the investigation of insider trading and other fraudulent activity. 

According to the SEC’s orders, over a period of several years, Citadel Securities LLC, Natixis Securities Americas LLC, and MUFG Securities Americas Inc. each made numerous deficient blue sheet submissions containing inaccurate or missing data; incorrect order execution times that failed to adjust for time zone changes; and incorrect or missing exchange codes, transaction type identifiers, opposing broker number and contra-party identifiers.  Citadel, the largest provider of blue sheet data of the firms charged today, submitted incorrect data for nearly 80 million trades while Natixis and MUFG submitted incorrect data for approximately 150,000 trades and 650,000 trades, respectively.  These deficiencies largely stemmed from undetected coding errors.  None of the firms had adequate processes designed to validate the accuracy of its submissions.   

“We routinely use blue sheet data to detect wrongdoing and protect Main Street investors through our enforcement efforts,” said Kelly Gibson, Associate Regional Director of the SEC’s Philadelphia Regional Office.  “Firms must be diligent and take seriously their obligations to provide accurate and complete data in response to our requests.” 

The orders further found that each of the firms has engaged in remedial efforts to address the causes for its deficient submissions, including the retention of an outside consultant and the adoption of new policies and procedures for processing blue sheet requests.  

The SEC’s orders also found that Citadel, Natixis, and MUFG willfully violated the broker-dealer books and records and reporting provisions.  The firms admitted the findings in the SEC’s cease and desist orders and agreed to be censured and to pay penalties of $3.5 million for Citadel, $1.25 million for Natixis, and $1.4 million for MUFG. 

The SEC’s investigations of Citadel and Natixis were conducted by Lawrence D. Parrish, Paulina L. Jerez, and Kingdon Kase of the Philadelphia Regional Office and Daniel L. Koster of the Complex Financial Instruments Unit.  The SEC’s investigation of MUFG was conducted by Han Nguyen, Rachael Clarke, and Scott A. Thompson of the Market Abuse Unit.  The investigations were supervised by Kelly L. Gibson and Joseph G. Sansone.  The SEC appreciates the assistance of the Financial Industry Regulatory Authority.

SEC Press Release

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SEC Announces Agenda and Panelists for the 37th Annual Small Business Forum

The Securities and Exchange Commission today announced the agenda and panelists for the 2018 Government-Business Forum on Small Business Capital Formation.
The December 12 event will begin at 9 a.m. ET with opening remarks from the SEC Chairman and Commissioners followed by two morning panel discussions.  The first panel will explore how capital formation options are working for small businesses, such as those in the Midwest.  The second panel will focus on diversity and capital formation.  Panelists will include Midwest-based representatives of small businesses, investors and advisors to the small business community.
Following the morning panel discussions, attendees will work in groups to formulate specific policy recommendations.  These breakout groups will develop recommendations on a variety of issues related to small business capital formation, including exempt securities offerings and smaller registered offerings.
As the Commission previously announced, this year’s annual small business forum is being hosted in partnership with the National Center for the Middle Market at The Ohio State University Max M. Fisher College of Business.  It will be held in the Fawcett Center on the campus of The Ohio State University at 2400 Olentangy River Rd. in Columbus.  The forum will be open to the public, and the opening remarks and morning panel discussions will be webcast live at www.sec.gov.  The webcast will not include the breakout group sessions, but those sessions will be open to the public and accessible by phone to anyone who pre-registers online by December 11, 2018.  More information, including forum materials, will be made available on the small business forum webpage.

--- 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 Insider Trading Ring Spanning Three Countries

The Securities and Exchange Commission has filed insider trading charges against an IT contractor and two others he illegally tipped with confidential client information he stole while working in the Singapore branch of an investment bank.

The SEC obtained a court-ordered freeze of assets in three U.S. brokerage accounts and one U.S. bank account connected to the alleged trading. The SEC's complaint alleges that Rajeshwar Gannamaneni provided nonpublic information about impending mergers, acquisitions, and tender offers to his wife, Deepthi Gandra, and his father, Linga Rao Gannamaneni, who lives in India. Gannamaneni also allegedly traded in an account that he controlled that was opened in the name of a family member, who was living in the U.S. at the time. According to the allegations in the SEC's complaint, the three collectively reaped approximately $600,000 in profits by trading while in possession of inside information in advance of at least 40 corporate events.

"As alleged in our complaint, Gannamaneni abused his work-related access to sensitive, market-moving nonpublic information to enrich himself and those he tipped," said Kelly L. Gibson, Associate Director of Enforcement in the SEC's Philadelphia Regional Office. "Our continued use of innovative analytical tools to find suspicious trading patterns and expose misconduct demonstrates our resolve to catch insider traders who seek to take illegal advantage of the U.S. markets for personal gain."

The SEC's complaint charges the defendants with fraud and seeks disgorgement of allegedly ill-gotten gains, pre-judgment interest, penalties, and injunctive relief.

The SEC's continuing investigation was conducted by Polly Hayes and Assunta Vivolo of the Philadelphia Office, with assistance from John Rymas and Pat McCluskey of the Market Abuse Unit’s Analysis and Detection Center. The case was supervised by Ms. Gibson. Julia C. Green, Karen Klotz, and Jennifer C. Barry will lead the SEC's litigation. The SEC appreciates the assistance of the Financial Industry Regulatory Authority and the Monetary Authority of Singapore.

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 Investor Advisory Committee to Meet on December 13

The Securities and Exchange Commission will hold a meeting of its Investor Advisory Committee on Dec. 13, 2018. The meeting will begin at 9 a.m. ET in the Multipurpose Room at SEC Headquarters at 100 F Street NE, Washington, D.C. and is open to the public. The meeting will be webcast live and archived on the committee’s website for later viewing.    

The committee will hold panel discussions with outside speakers on two topics: a morning discussion on Sustainability and Environmental, Social, and Governance disclosures and an afternoon session on unpaid arbitration awards. In addition, the committee will discuss disclosures on human capital. The discussion may include a recommendation from the Investor as Owner subcommittee. The agenda for this meeting is available here.

Members of the committee represent a wide variety of investor interests, including those of individual and institutional investors, senior citizens, and state securities commissions. For a full list of committee members, see the committee's website.

The Investor Advisory Committee was established to advise the SEC on regulatory priorities, the regulation of securities products, trading strategies, fee structures, the effectiveness of disclosure, and on initiatives to protect investor interests and to promote investor confidence and the integrity of the securities marketplace. The Committee is authorized to submit findings and recommendations to the Commission.

SEC Press Release

--- 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.

Aaron Lipson, Associate Regional Director of Atlanta Office, to Leave Agency After 14 Years of Service

The Securities and Exchange Commission today announced that Aaron Lipson, Associate Regional Director for enforcement matters in the Atlanta Regional Office, is leaving the agency this month after 14 years of service.

Mr. Lipson joined the SEC in 2004 as a staff attorney and was promoted to Assistant Regional Director in 2010 before being named Associate Regional Director in 2016.  As the Atlanta office’s Associate Regional Director for enforcement matters, Mr. Lipson has supervised a staff of more than 60 attorneys, accountants, and other professionals responsible for investigating potential violations of the federal securities laws by a wide range of market participants.  Mr. Lipson received the agency’s Ellen B. Ross Award in recognition of his “exemplary commitment, enthusiasm and performance in working to fulfill the Commission’s responsibilities for the fair and effective enforcement of the federal securities laws,” and the Chairman’s Award for Excellence for his work in protecting the financial interests of senior citizens.

“Aaron is a dedicated public servant whose distinguished record of cases has left an indelible mark on the SEC and its Atlanta office,” said Stephanie Avakian, Co-Director of the SEC’s Division of Enforcement.  “Time and time again, he has demonstrated his commitment to protecting investors and the fair and orderly function of our markets.”

“Aaron is incredibly tenacious, intelligent, and skilled at developing cases,” said Steven Peikin, Co-Director of the SEC’s Division of Enforcement.  “Under Aaron’s stewardship of Atlanta’s enforcement program, the SEC has brought programmatically significant cases that have had an outsized impact on the Atlanta region and throughout the nation.”

Richard Best, Regional Director of the SEC’s Atlanta office, added, “Aaron leaves behind a legacy of accomplishments in Atlanta.  He has been a strong mentor who has always been willing to provide counsel to all who seek it.  The Atlanta office and the SEC have benefited tremendously from Aaron’s leadership.”

Mr. Lipson said, “It has been a true privilege to spend the past almost 15 years in the service of U.S. investors.  The core of my professional career has been spent working with and learning from the exceptionally skilled and dedicated professionals throughout the SEC.  I am particularly grateful to my colleagues in Atlanta for their kindness and steadfast commitment to the agency’s mission.”

Under Mr. Lipson’s leadership of the Atlanta office’s enforcement program, the SEC has brought dozens of enforcement matters, including charges against:

• Bank of America and two of its subsidiaries for defrauding investors in an offering of residential mortgage-backed securities by failing to disclose key risks and misrepresenting facts about the underlying mortgages
• Eleven former executives and board members at Superior Bank and its holding company who were allegedly involved in various schemes to conceal the extent of loan losses as the bank was faltering in the wake of the financial crisis
• The former chairman and majority owner of Taylor, Bean & Whitaker Mortgage Corp., which was once the largest non-depository mortgage lender, for orchestrating a $1.5 billion securities fraud scheme and attempting to scam the U.S. Treasury’s Troubled Asset Relief Program
• TBW’s former CEO and former treasurer, and a vice president of Colonial Bank, for their roles in the TBW fraud
• KPMG and an engagement partner for failing to properly audit the financial statements of an oil and gas company, resulting in investors being misinformed about the energy company’s value
• The investment services subsidiary of SunTrust Banks for collecting more than $1.1 million in avoidable fees from clients by improperly recommending more expensive share classes of various mutual funds when cheaper shares of the same funds were available
• Four former Atlanta-area brokers for fraudulently inducing federal employees to roll over holdings from their federal Thrift Savings Plan retirement accounts into higher-fee, variable annuity products

Before joining the SEC, Mr. Lipson worked as a litigation associate at Parker, Hudson, Rainer & Dobbs LLP in Atlanta, Georgia.  Mr. Lipson earned his law degree with honors from the University of Georgia School of Law in 2000, and his bachelor’s degree in history with honors from Yale University 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.

SEC Adopts FAIR Act Rules Promoting Research Reports on Investment Funds

The Securities and Exchange Commission today adopted rules and amendments designed to promote research on mutual funds, exchange‑traded funds, registered closed-end funds, business development companies, and similar covered investment funds. These changes reduce obstacles to providing research on investment funds by harmonizing the treatment of such research with research on other public companies. The Commission took this action in furtherance of the mandate in the Fair Access to Investment Research Act of 2017 (FAIR Act).

“These rules will promote greater access to research for investors in funds,” said SEC Chairman Jay Clayton. “Our response to this legislation is crafted to facilitate more informed decision making, which in turn should improve the quality of a market that has become important to our Main Street investors.”

The rules and amendments generally establish a safe harbor for a broker or dealer to publish or distribute research reports on investment funds under certain conditions. This new safe harbor is similar to a regulatory safe harbor that currently exists for research reports about public companies.  

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.

Jina L. Choi, Regional Director of the SEC’s San Francisco Office, to Leave the Agency After Over 16 Years of Service

The Securities and Exchange Commission today announced that Jina L. Choi, Director of the agency’s San Francisco Regional office, will leave the agency at the end of this month after more than 16 years of service. Under Ms. Choi’s leadership since 2013, the San Francisco office has brought numerous groundbreaking enforcement actions that have benefited Main Street investors, including most recently actions involving Tesla and its CEO and now former Chairman Elon Musk, Theranos and its founder Elizabeth Holmes, as well as Yahoo!.

Since 2013, Ms. Choi has led a staff of approximately 130 enforcement attorneys, accountants, investigators, and compliance examiners who investigate and enforce the federal securities laws and perform compliance inspections in the San Francisco region. The San Francisco office has jurisdiction over nearly 1,200 investment advisers with over $6 trillion in assets under management, over 50 mutual fund complexes, and over 240 broker-dealers, as well as many public and pre-IPO companies in Silicon Valley, San Francisco, Seattle, and Portland, Oregon.

“Jina’s leadership and thoughtful approach to new and complex issues has served the Commission and investors very well,” said Chairman Jay Clayton. “Under Jina’s direction, our dedicated staff in San Francisco has established important precedents that benefit the interests of our long-term investors which we will continue to follow in the years ahead.” 

“Jina is an exceptional attorney and a dedicated public servant who has led and supervised an array of complex and high-impact actions,” said Stephanie Avakian, Co-Director of the SEC’s Division of Enforcement. “She has demonstrated time and time again her commitment to protecting Main Street investors and the integrity of our markets and we will miss her.”

“Under Jina’s leadership, the San Francisco Regional Office brought a series of ground-breaking enforcement actions, including against public and private technology companies in Silicon Valley and their senior officers,” said Steven Peikin, Co-Director of the SEC’s Division of Enforcement.  “Through these and other actions, Jina has left an enduring stamp on securities enforcement in the San Francisco region.”

“Jina has made significant contributions to the examination program during her tenure,” said Peter B. Driscoll, Director of the SEC’s Office of Compliance Inspections and Examinations.  “Her strategic thinking on examination initiatives, particularly those involving developing technology, has advanced OCIE’s mission and protected investors.”

Ms. Choi added, “It has been an honor and a privilege to have served the public with so many skilled and dedicated professionals. The talent, values, and unwavering dedication of the San Francisco office staff is extraordinary and I am grateful to have been part of the culture of excellence, integrity, teamwork and generosity that exists in San Francisco and throughout the SEC.”

During Ms. Choi’s tenure as Regional Director, she has supervised investigations into financial reporting fraud, insider trading, misconduct by investment advisers and brokers, and other securities law violations, including those that led to SEC charges against:

• Elon Musk, CEO and former Chairman of Silicon Valley-based Tesla Inc., for securities fraud for a series of false and misleading tweets about a potential transaction to take Tesla private, and Tesla for failing to have required disclosure controls and procedures relating to Musk’s tweets
• Theranos Inc., its founder and CEO Elizabeth Holmes, and its former President Ramesh “Sunny” Balwani for raising more than $700 million from investors through an elaborate, years-long fraud in which they exaggerated or made false statements about the company’s technology, business, and financial performance
• The entity formerly known as Yahoo! Inc. for misleading investors by failing to disclose one of the world’s largest data breaches in which hackers stole personal data relating to hundreds of millions of user accounts
• LendingClub Asset Management LLC (formerly known as LendingClub Advisors LLC) and its former president Renaud Laplanche for fraud for improperly using fund money to benefit LendingClub Corp., LCA’s parent company that Laplanche founded and for which he served as CEO
• A professional sports gambler who allegedly made $40 million based on illegal stock tips from a corporate insider who owed him money
• An Oregon-based investment group and three top executives for hiding the rapidly deteriorating financial condition of its enterprise while raising more than $350 million from investors
• Diamond Foods and its former CFO for an accounting scheme to falsify walnut costs to boost earnings and meet stock analyst estimates; and its CEO for falsifying financial statements filed with the SEC

Ms. Choi began her SEC tenure as a staff attorney and rose through the ranks to her leadership position. Prior to her work at the SEC, Ms. Choi served as a trial attorney in the Civil Rights Division at the U.S. Department of Justice. She also served as an Assistant U.S. Attorney in the Northern District of Texas. She began her legal career as a law clerk to the Honorable Robert P. Patterson, Jr. in the U.S. District Court for the Southern District of New York after which she worked in private practice.

Ms. Choi earned her bachelor’s degree from Oberlin College and her J.D. from Yale Law School.

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.

Two Celebrities Charged With Unlawfully Touting Coin Offerings

The Securities and Exchange Commission today announced settled charges against professional boxer Floyd Mayweather Jr. and music producer Khaled Khaled, known as DJ Khaled, for failing to disclose payments they received for promoting investments in Initial Coin Offerings (ICOs). These are the SEC's first cases to charge touting violations involving ICOs.

The SEC's orders found that Mayweather failed to disclose promotional payments from three ICO issuers, including $100,000 from Centra Tech Inc., and that Khaled failed to disclose a $50,000 payment from Centra Tech, which he touted on his social media accounts as a "Game changer." Mayweather's promotions included a message to his Twitter followers that Centra's ICO "starts in a few hours. Get yours before they sell out, I got mine…"

A post on Mayweather's Instagram account predicted he would make a large amount of money on another ICO and a post to Twitter said: "You can call me Floyd Crypto Mayweather from now on."  The SEC order found that Mayweather failed to disclose that he was paid $200,000 to promote the other two ICOs.

Mayweather and Khaled's promotions came after the SEC issued its DAO Report in 2017 warning that coins sold in ICOs may be securities and that those who offer and sell securities in the U.S. must comply with federal securities laws. In April 2018, the Commission filed a civil action against Centra’s founders, alleging that the ICO was fraudulent. The U.S. Attorney's Office for the Southern District of New York filed parallel criminal charges.

Without admitting or denying the findings, Mayweather and Khaled agreed to pay disgorgement, penalties and interest. Mayweather agreed to pay $300,000 in disgorgement, a $300,000 penalty, and $14,775 in prejudgment interest. Khaled agreed to pay $50,000 in disgorgement, a $100,000 penalty, and $2,725 in prejudgment interest. In addition, Mayweather agreed not to promote any securities, digital or otherwise, for three years, and Khaled agreed to a similar ban for two years. Mayweather also agreed to continue to cooperate with the investigation.

"These cases highlight the importance of full disclosure to investors," said Enforcement Division Co-Director Stephanie Avakian. "With no disclosure about the payments, Mayweather and Khaled's ICO promotions may have appeared to be unbiased, rather than paid endorsements."

"Investors should be skeptical of investment advice posted to social media platforms, and should not make decisions based on celebrity endorsements," said Enforcement Division Co-Director Steven Peikin. "Social media influencers are often paid promoters, not investment professionals, and the securities they’re touting, regardless of whether they are issued using traditional certificates or on the blockchain, could be frauds."

The SEC's investigation, which is continuing, is being conducted by Alison R. Levine of the New York Regional Office and Jon A. Daniels, Luke M. Fitzgerald, and John O. Enright of the Enforcement Division’s Cyber Unit. The case is being supervised by Cyber Unit Chief Robert A. Cohen.

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 Self-Described Promoter With Microcap Market Manipulation Scheme

The Securities and Exchange Commission today charged a self-described penny stock promoter and an entity he controlled with orchestrating a scheme to manipulate trading in at least 97 microcap stocks.

According to the SEC’s complaint, Eric Landis of Charlottesville, Virginia, falsely claimed to third-party media buyers for microcap companies that he would distribute promotional materials for the stocks via email lists with tens of thousands of subscribers. In reality, his distribution lists were a sham. To generate trading volume and create the false impression that he was drumming up investor interest, the SEC alleges that Landis traded thousands of microcap shares himself using brokerage accounts in his own name, in the name of an entity he controlled, Ridgeview Capital Partners LLC, and in the names of several third parties. Altogether, the SEC alleges that Landis placed thousands of manipulative trades over three years, including approximately 1,300 “matched trades,” which involved simultaneously selling and buying stocks in the microcap companies he was paid to promote.

“Microcap investors should know that sometimes market volume in a particular stock can be driven by a single fraudulent actor, as alleged here,” said Paul Levenson, Director of the SEC’s Boston Regional Office. “Our thorough analysis allowed us to detect thousands of manipulative trades by Landis.”

The SEC’s complaint, filed in the U.S. District Court for the District of Massachusetts, charges Landis and Ridgeview with violating the antifraud and market manipulation provisions of the federal securities laws. The SEC seeks a permanent injunction against future violations, disgorgement of ill-gotten gains plus prejudgment interest, monetary penalties, and a penny stock bar.

Landis was previously found liable in a lawsuit brought by the SEC and convicted of related criminal charges based on his role in a prior market manipulation scheme.  Before investing, microcap investors should review the investor-education materials available at Investor.gov.

The SEC’s case is being handled by Trevor Donelan, Jonathan Allen, Eric Forni, Kathleen Shields, J. Lauchlan Wash, Rebecca Israel, David Scheffler, and Amy Gwiazda of the SEC’s Boston Regional Office and assisted by Alex Lefferts in the SEC’s Office of Market Intelligence and coordinated with the Enforcement Division’s Microcap Fraud Task Force. The SEC appreciates the assistance of the Federal Bureau of Investigation, the U.S. Attorney’s Office for the District of Massachusetts, 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.