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The Second Circuit's pending decision in the Commission's Citigroup market crisis case continues to loom as Judge Marreno approved the over $600 million insider trading settlement involving SAC Capital - conditioned on the outcome of Citigroup. New Chairman Mary Jo White's former partner, Andrew Ceresney, is rumored to be on the way to becoming the Director of the Division of Enforcement, according to a report from Thomson Reuters.
The FCPA seems to be back, with the Commission and the DOJ announcing settled cases tied to an earlier investigation. The Commission also settled with one of the individuals in its corruption action against several former Siemens executives.
The agency brought an unusual fraudulent trading action this week in conjunction with criminal prosecutors. It centered on a scheme to buy $1 billion of Apple stock in advance of an earnings announcement with no risk.
Finally, FINRA filed an action against a New York brokerage and others claiming in part that its founder intimidated registered representatives. The firm and its founder are also alleged to have traded ahead and failed to obtain best execution for its clients.
Testimony: Commissioner Elisse B. Walter testified before the House Subcommittee on Oversight and Investigations, Committee on Financial Services (April 17, 2013). Her testimony focused on the implementation of the JOBS Act (here).
Remarks: Commissioner Luis A. Aguilar addressed The Regulatory Compliance Association Regulation, Operations & Compliance (ROC) 2013, New York, New York (April 18, 2013). He discussed having a culture of compliance, increased insider trading by advisers, conflicts of interest and the Aberrational Performance Inquiry (here).
Remarks: Commissioner Luis A. Aguilar addressed the North American Securities Administrators Association Annual NASAA/SEC 19(d) Conference, Washington, D.C. (April 16, 2013). His remarks included comments on the JOBS Act, disqualifying bad actors, strengthening private remedies for fraud victims and mandatory pre-dispute arbitration clauses and Dodd-Frank (here).
Remarks: Commissioner Elisse B. Walter addressed the 2013 NASAA Public Policy Conference, Washington, D.C. (April 16, 2013). Her remarks focused on the examination of investment advisers, the cooperation between the SEC and NASAA through the transition under Dodd-Frank and the challenges for the examination programs going forward (here).
Remarks: Commissioner Bart Chilton delivered remarks at the Federal Reserve Bank of St. Louis, St. Louis, MO titled "Kiss" (April 16, 2013). The Commissioner focused in part on the rationale for the Volker Rule (here).
Remarks: Commissioner Scott D. O'Malia delivered remarks, titled Making the CFTC's Surveillance Work: Efficient Data Management and Clear Rule Implementation, were delivered at the Financial Times Global Commodities Summit (April 16, 2013). Topics discussed include swap data reporting, futurization and position limits (here).
Remarks: Commissioner Bart Chilton delivered remarks titled "Kaleidoscopers" at Washington University, St. Louis, Mo. (April 13, 2013). He discussed position limits and high speed trading (here).
SEC Enforcement: Filings and settlements
Weekly statistics: This week the Commission filed 5 civil injunctive actions and 4 administrative proceeding (excluding tag-along-actions and 12(j) proceedings).
Misappropriation: In the Matter of Charles T. Fee, Adm. Proc. File No. 3-15284 (April 18, 2013) is a proceeding which names as a Respondent Mr. Fee, a former administrative and clerical employee of Vector Wealth Management, LLC. That firm is a registered investment adviser. From October 2008 through May 2011 Mr. Fee misappropriated $33,147. He forged checks of dividends owed to four advisory clients firm two pooled investment vehicles managed by Vector. The Order alleges violations of Exchange Act Section 10(b). To resolve the proceeding the Respondent consented to the entry of a cease and desist order based on Exchange Act Section 10(b). In addition, Mr. Fee agreed to the entry of an order barring him from the securities business and requiring him to pay a civil penalty of $10,000.
Custody/supervision: In the Matter of Vector Wealth Management, LLC, Adm. Proc. File No. 3-15282 (April 18, 2013) is the companion proceeding to the action against Charles Fee discussed above. The firm was charged with not having policies and procedures reasonably designed to prevent a violation of the custody rule and failing to reasonably supervise Mr. Fee. Although the firm had custody of the pooled vehicle assets, it failed to have quarterly account statements or audited annual financial statements for the pooled vehicles distributed to clients and it was not subject to an annual surprise audit. The Order alleges violations of Sections 203(e)(6) and 206(4) of the Advisers Act. To resolve the matter the firm agreed to implement a series of undertakings and consented to the entry of a cease and desist order based on the Sections cited in the Order and to a censure. No penalty was imposed based on the cooperation of the firm.
Misrepresentation: In the Matter of Umesh Tandon, Adm. Proc. File No. 3-15282 (April 18, 2013). Respondent Tandon is a registered representative who provide investment advisory services through Simran Capital Management. The Order alleges that in 2008 Respondent submitted a materially false tender to the California Public Employees' Retirement System claiming to have over $200 million in assets under management. In fact there was only about $80 million. The firm was selected based on the false statement. Subsequently, Mr. Tandon touted the selection and in fourteen other instances misstated the amount of assets under management in an effort to secure clients. The Order alleges violations of Advisers Act Sections 206(1) and (2) and 207. To resolve the action Respondent consented to the entry of a cease and desist order based on the Sections cited in the Order. The Order also bars him from the securities business or acting in any capacity with an investment adviser or investment company. In addition, Mr. Tandon was directed to pay disgorgement of $20,018, prejudgment interest and a civil penalty of $100,000.
Insider trading: SEC v. Mancuso, Civil Action No. 13-cv-2555 (S.D.N.Y. Filed April 17, 2013) is an action against Joseph Mancuso, a former proprietary trader at Schottenfeld Group, LLC, a broker dealer. The complaint alleges that in 2007 he traded on inside information regarding the acquisitions of Avaya, Inc., 3Com Corp., Axcan Pharma Inc. Hilton Hotel Corp, and Knonos Inc. The inside information came from Zvi Goffer who was involved in several other cases. The information traced in part to former Ropes & Gray associates Arthur Cutillo and Brien Santarlas and in part to Roomy Khan who was involved in the Galleon cases. Collectively, Mr. Mancuso had trading profits of about $225,000. The SEC's complaint alleges violations of Exchange Act Section 10(b). The case is pending. See also Lit. Rel. No. 22679 (April 17, 2013).
Insider trading: SEC v. Moore, 13 Civ 2514 (S.D.N.Y. Filed April 16, 2013) is an action against Richard Moore, an investment banker at Canadian Imperial Bank or CBIC in Toronto.
The action centers on the acquisition of Tompkins plc, whose ADRs are traded in New York, by Canadian Pension Plan Investment Board or CPPIB and a Canadian private equity firm. The deal was announced on July 19, 2010. The complaint alleges that Mr. Moore, through a series of contacts with his friend and business associate, a Managing Director at CPPIB, in which he tried to obtain a part of the business from the transaction obtained inside information. According to the complaint, Mr. Moore learned: his friend the Managing Director was working on a large deal; that the deal was probably not for his bank; that the Managing Director was traveling to London,; and that the CEO of Tomkins was at a charity event attended by the Managing Director and Mr. Moore. Mr. Moore purchased 51,350 Tomkins ADRs, 42,000 Tomkins common shares on an exchange outside the U.S. in one transaction and 170,000 shares in another. The purchases represented about one third of his net worth. Following the deal announcement Mr. Moore had profits on the ADR purchases of $163,000. The complaint alleges violations of Exchange Act Section 10(b). The case is in litigation.
Investment fund fraud: SEC v. Stebbins, Civil Action No. CV 13-755 (D. AZ. Filed April 16, 2013) is an action against Jeffrey Stebbins and Corbin Jones. The defendants solicited investments for a tankless water heater venture, selling shares of Nobel Private and Noble Innovations, a public company. Over a period of three years starting in 2006 they raised about $6.3 million. Part of the money came from inducing one investor to swap publically held Nobel shares for private ones as the share price was increasing from their activities. The complaint alleges that the defendants misappropriated at least $1.8 million of investor money for their personal use. It alleges violations of Securities Act Section 17(a) and Exchange Act Sections 10(b), 13(d), 15(a) and 16(a). The case is in litigation. See also Lit. Rel. No. 22677 (April 16, 2013).
Insider trading: In the Matter of Scott Reiman, Adm. Proc. File No. 3-15277 (April 15, 2013) is a proceeding against Mr. Reiman who is the founder and president of Hexagon, Inc., a one time investment adviser that invests in marketable securities and other investments. In 2007 Mr. Reinman was told in advance of the deal announcement that Tracinda Corporation would acquire a substantial stake in Delta Petroleum Corporation. The information was from Delta's CEO, Roger Parker. Mr. Reinman purchased shares of Delta, profiting on the year end deal announcement. To resolve the proceeding, Mr. Reiman consented to the entry of a cease and desist order based on Exchange Act Section 10(b). In addition, he agreed to be barred from the securities business, pay disgorgement of $398,000, prejudgment interest and a civil penalty equal to his trading profits.
Disclosure: SEC v. True North Finance Corp., Civil Action No. 10-cv-3995 (D. Minn. Filed Sept. 21, 2013) is a previously filed action against Michael Bozora, Timothy Redpath, Capital Solutions Distributors, LLC and Capital Solutions Management, LP. Messrs. Bozora and Redpath, controlled Capital Solutions, the distributor of the Capital Solutions Monthly Income Fund, and Capital Solutions Management. The two men failed to provide meaningful disclosure about the default of the Fund's sole borrower, the foreclosure on the borrower's assets and the loss of significant investment income while reporting that it was doing well through the downturn in the markets, according to the complaint. The defendants settled, consenting to the entry of permanent injunctions prohibiting future violations of Securities Act Sections 17(a)(2) and (3). In addition: Mr. Bozora was directed to pay disgorgement of $538,529, prejudgment interest and a penalty of $130,000; Mr. Redpath was directed to pay disgorgement of $606,424, prejudgment interest and a civil penalty of $130,000; Capital Solutions was required to pay disgorgement of $2,819,015, prejudgment interest and a civil penalty of $130,000; and Capital Management was required to pay disgorgement of $1,342,581, prejudgment interest and a civil penalty of $130,000. See also Lit. Rel. No. 22675 (April 16, 2013).
Fraudulent trading: SEC v. Miller (D. Mass. Filed April 15, 2013); U.S. v. Miller, 3:12-mj-00288 (D. Mass.). David Miller, employed as a registered representative at Rochdale Securities LLC, executed a plan with a customer to profit from an October 25, 2012 earnings announcement by Apple. In part the plan called for the entry of purchase orders on the announcement date for 1,625,000 shares of Apple. If the stock went up Mr. Miller and the customer planned to take the profits. If it went down the customer would disavow the transactions as an error. On the day of the announcement orders were entered for $1 billion of Apple stock. At the same time the buy orders were placed Mr. Miller, through another broker, used a series of misrepresentations to induce the firm to take a 500,000 share short position in Apple. When the price declined the purchase orders were disavowed, leaving Rochdale with a $5.3 million loss which eventually drove it into liquidation. The other firm eventually traded out of the position, making a small profits. In the criminal case Mr. Miller pleaded guilty to one count of conspiracy to commit wire and securities fraud and one count of wire fraud. In the SEC's action, the complaint alleges violations of Exchange Act Section 10(b) and Securities Act Sections 17(a)(1) and (3).
Insider trading: U.S. v. Lee, No. 3:13-cr-00180 (N.D. Cal. Filed March 21, 2013) is an action against Jauyo Lee, a investment banker in the San Francisco office of Leerink Swann LLC and his friend Victor Chen. Mr. Lee is alleged to have furnished his friend inside information on the then pending merger of firm client Syneron Medical Ltd with Candela Corporation. Mr. Chen used the information to trade, garnering profits of $547,510. This week both pleaded guilty to one count of conspiracy and one count of securities fraud. Sentencing is scheduled for July 23, 2013. See also SEC v. Lee, Civil Action No. 3:12-cv-05031 (N.D. Cal. Filed Sept. 27, 2012).
Market crisis: U. S. v Serageldin, 12 Crim 090 (S.D.N.Y.) is an action in which Kareem Serageldin, the former Global Head of Structured Credit Trading at Credit Suisse, pleaded guilty to a conspiracy charge based on falsifying asset values which ended with the financial institution to take a $2.65 billion write down. Two other members of his department, David Higgs and Salmaan Siddiqui, also entered guilty pleas.
SEC v. Parker Drilling Co., Civil Action No. 1:13 CV 4611 (E.D. Va. Filed April 16, 2013); U.S. v. Parker Drilling Co., 13-cr-00176 (E.D. Va. April 16, 2013). Parker Drilling Company, a provider of worldwide drilling services whose shares are listed on the NYSE, settled bribery charges with the DOJ and the SEC. The charges are an outgrowth of the earlier FCPA actions involving Panalpina World Transport Holding Ltd. They center on the payment of bribes in Nigeria concerning customs and duties owed in that country relating to certain drilling equipment. Parker had retained Panalpina regarding a temporary import permit for its drilling equipment. The freight forwarding company submitted false paperwork to the Nigerian Customs Service showing that the rigs had left the country. When a government panel discovered this was false a $3.8 million fine was imposed on the company. In 2001 and 2002 an intermediary was paid $1.25 million in an effort to resolve the situation. Portions of the payment were used to entertain government officials. As a result Parker's fine of $3.8 million was reduced to $750,000 without a factual basis, according to the court papers.
The company resolved the criminal case, in which it was charged with one count of violating the anti-bribery laws, by entering into a three year deferred prosecution agreement. Under the terms of that agreement the company will enact enhanced procedures, periodically report to the DOJ and pay a criminal fine of $11.76 million. The company also resolved the SEC's action which alleged violations of Exchange Act Sections 30A and 13(b)(2)(A) and (B). In that case Parker will also pay disgorgement of $3,050,000 and pre-judgment interest. Both the DOJ and the SEC cited the cooperation of the company in the settlement process. See also Lit. Rel. No. 22672 (April 16, 2013).
SEC v. Sharef, Civil Action No. 11-Civ-09073 (S.D.N.Y. ) is an action against Uriel Sharef, Ulrich Bock, Carlos Sergl, Stephan Signer, Herbert Steffen, Andres Truppel and Bernd Regendantz. Each is a former senior executive at Siemens Aktiengesellschaft. Mr. Sharef settled with the SEC. He was a member of Siemens A.G. Managing Board, or "Vorstand," and the senior most executive from the company charged by the SEC. He resolved the charges against him by consenting to the entry of a permanent injunction prohibiting future violation of Exchange Act Sections 30A and 13(b)(5) and from aiding and abetting violations of Sections 13(b)(2)(A) and 13(b)(2)(B). He also agreed to pay a civil penalty of $275,000.
The case focused on a segment of the action brought by the DOJ and the SEC against Siemens. Specifically, it centered on a large contract in Argentina. Subsidiaries of the German parent paid bribes to secure the contract in 1998. When the agreement was suspended the next year additional discussions were held with the new President of Argentina. Eventually more bribes were paid. When the contract was canceled, Siemens brought an arbitration in 2002 with the World Bank's International Centre for Settlement of Investment Disputes in Washington, D.C. to recover the lost profits. Since disclosure of the bribes would constitute a defense, more bribes were paid as part of a cover-up. The action remains pending as to the other defendants except Mr. Steffen who prevailed in a motion to dismiss based on personal jurisdiction earlier this year. See also Lit. Rel. No. 22676 (April 16, 2013).
Best execution: Merrill, Lynch, Pierce, Fenner & Smith, Inc. was fined $1.05 million and will pay $323,000 in restitution for failing to provide best execution in certain customer transactions involving non-convertible preferred securities executed on one of its proprietary order management systems. Merrill Lynch had programmed faulty pricing logic into its system so that it only incorporated quotations published on the primary listing exchange. As a result when better quotations were available their customers did not benefit. The firm also failed to conduct any post-execution review of the transactions to ensure compliance with its best execution obligations.
Trading ahead/best execution/intimidation: Fraud charges were brought against broker dealer John Thomas Financial, its CEO, Anastasios "Tommy" Belesis, Michaele Misit, Branch Office Manager, John Ward, trader, Joseph Casstelland, CCO and Ronald Cantalupo, Regional Managing Directors. The charges center around trading in penny stock America West Resources on February 23, 2012. As the price of the thinly traded stock spiked that day from 28 cents to a peak of $1.80 JTF and Tommy Belesis held customer sell order while executing only one order at the high price. Customers were later given a series of false excuses for failing to execute their orders. A cover up was attempted by "losing" the order tickets. The charges include trading ahead and failing to provide best execution. Mr. Belesis is also charged with intimidating registered representatives. The case is pending.
For more commentary on developing securities issues, visit SEC Actions, a blog by Thomas Gorman.
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