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
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
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
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
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
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
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
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,
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
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,
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.
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