Miscellaneous

Aegis Capital to Pay Over $1M to the SEC and FINRA to Settle Allegations Involving Low-Priced Securities and Anti-Money Laundering Violations

Published on: March 28, 2018 | by Shepherd Smith Edwards & Kantas, LLP

The Financial Industry Regulatory Authority has fined Aegis Capital Corp. $550K for inadequate supervision and anti-money laundering systems related to its low-priced securities sales. According to the self-regulatory organization, the firm’s supervisory system that oversees trading involving delivery versus payment (DVP accounts) was not designed in a manner reasonable enough to properly “monitor and investigate” trading in the accounts, especially those involving securities transactions that were priced low.

With DVP accounts, a broker-dealer making the trades does not have to be holding the securities that are bought and sold. FINRA said that Aegis did not “adequately monitor or investigate” seven DVP customer accounts, a number of which belonged to foreign financial firms, in which trading involved the liquidation of billions of dollars of such securities. These transactions resulted in millions of dollars in proceeds. A number of these institutional clients made the transactions for underlying customers whose identities Aegis did not know.

The SRO found that Aegis failed to mark these transactions as suspect even after a clearing firm highlighted that there were anti-money laundering-related red flags. Aegis is settling FINRA’s case but without denying or admitting to the regulator’s findings.

Securities News: Wells Fargo’s Wealth Management Division is Reportedly Under Investigation, Merrill Lynch is Accused of Gatekeeping Failures Involving Unregistered Securities Sales, and NYSE Must Pay $14M Over Regulatory Failures

Published on: March 7, 2018 | by Shepherd Smith Edwards & Kantas, LLP

SEC Reportedly Investigating Wells Fargo Over Possible Inappropriate Investment Sales to Wealth Management Clients

According to news reports, the US Securities and Exchange Commission is investigating Wells Fargo’s (WFC) Wealth Management unit to see whether its clients were inappropriately sold certain in-house investment services even though these were not in their best interests. A source told Bloomberg that the regulator’s role in the probe has not been publicly disclosed.

However, in a regulatory filing, Wells Fargo revealed that it is looking into whether inappropriate recommendations were made related to 401(k) plan rollovers, alternative investments, and brokerage customer referrals to the firm’s “investment and fiduciary-services business.” The bank noted that it was assessing these matters in its wealth management business in the wake of inquiries made by federal agencies.

Bloomberg notes that it was in 2015 that JPMorgan Chase & Co. (JPM) consented to pay $267M over allegations that its customers were not told that it had profited by placing their funds in certain hedge funds and mutual funds that charged particular fees.

UK Brokerage Firm is Accused of $50M Stock Fraud as SEC Files Manipulative Trading Charges

Published on: March 5, 2018 | by Shepherd Smith Edwards & Kantas, LLP

The SEC’s complaint contends that Beaufort and Kyriacou became involved in a pump-and-dump scam with a man that they didn’t know was working for the FBI. With him, they purportedly spoke about using promotions to raise stock prices, engaging in matched trades to affect the stock price, and selling the shares to make a profit.

The SEC filed another complaint contending that in recorded phone calls, HD View CEO Dennis Mancino and CEO of WT Consulting Group LLC William T. Hirschy consented to manipulate the company’s stock by utilizing the undercover agent’s broker network to create a “fraudulent” demand. The two of them were supposed to “manipulate HD View stock” so that its price would go up prior to having the brokers in the agent’s network liquidate their positions. In return, there would be a kickback paid from the money made from trading. The regulator has also filed civil charges against Mancino, Hirschy, and the entities TJM Investments Inc., WT Consulting Group, and DJK Investments 10 Inc.

Ex-Georgeson Employees Accused of Trading Bribes for Information Are on Trial for Fraud

Published on: February 27, 2018 | by Shepherd Smith Edwards & Kantas, LLP

Four ex-Georgeson LLC employees are now on trial for fraud. Michael Sedlak, Charles Garske, Donna Ackerly, and Richard Gottcent are accused of bribing an Institutional Shareholder Services (ISS) employee for information about the way Georgeson’s investor clients vote on shareholder proposals. Georgeson is a proxy solicitation firm. ISS is registered with the US Securities and Exchange Commission as an investment adviser.

According to prosecutors, the ISS employee, Brian Bennett, was given $14K in bribes in the form of tickets to different events, including a U2 concert and Boston Red Sox baseball game, as well as for meals and an airline ticket. Assistant U.S. Attorney Eric Rosen told a federal jury that the purpose of procuring the information was to obtain an illegal advantage in their work, which involved representing companies when there are shareholder votes. Rosen said that the defendants were “not entitled” to these “secrets” that they purchased.

It is the job of proxy advisory firms to give information and recommendations to institutional investors about proposals that publicly traded company shareholders are expected to vote on. These firms collect information about institutional investors’ holdings and public votes and they share that information with publicly traded companies. This allows proxy solicitors and their clients to assess how certain shareholder votes on proposals will likely go, which can help clients figure out how they might affect certain shareholder votes.

Barclays Faces New Criminal Fraud Charge Over $3B Qatar Loan

Published on: February 15, 2018 | by Shepherd Smith Edwards & Kantas, LLP

In the UK, the Serious Fraud Office is charging Barclays Bank (BARC) with engaging in illegal financial assistance when it gave Qatar Holdings LLC a $3B loan in 2008 so that the latter could acquire shares in Barclays Plc. British prosecutors had previously charged Barclays Plc. and four bank executives with conspiring to commit fraud and providing unlawful financial assistance.

In Britain, public companies are usually not allowed to lend out funds to be used to buy their own shares. Barclays has come under fire for the way it handled investments made by Qatar’s sovereign wealth fund, as well as by a group of investors. The money lent to Barclays is believed to have helped the British Bank avoid getting a tax bailout during the global financial crisis. Such assistance would have likely lead to greater oversight over Barclays and closer examination of how much the bank’s executives were making at the time.

Barclays denies the charges against Barclays Plc. and Barclays Bank, which is its operating arm. Prosecutors, however, believe that the loan funds were put back into the bank to give it the capital it needed.

BNP Paribas to Pay $90M After Pleading Guilty in FX Currency Rigging Probe

Published on: January 31, 2018 | by Shepherd Smith Edwards & Kantas, LLP

BNP Paribas USA (BNP), A BNP Paribas unit, will pay $90M to settle a criminal case alleging foreign currency price manipulation. It also pleaded guilty by admitting that it conspired to fix prices for Eastern European, Central European, African, and Middle Eastern (CEEMEA)currencies between 9/2011 and 7/2013.

According to the US Justice Department, the BNP Paribas unit engaged in rigging prices through fake trades, orchestrated trades, and by quoting specific prices to certain customers, all on an electronic trading platform. The settlement also settles investigations conducted by the New York State Department of Financial Services and the US Federal Reserve.

In a statement, BNP Paribas USA said that it regretted “the past misconduct” that resulted in this case. The unit will now cooperate with the US government’s ongoing investigation into currency rigging involving the FX market. The bank joins Barclays Plc (BARC), JPMorgan Chase & Co. (JP), Citigroup (C), UBS Group AG (UBS), and Royal Bank of Scotland Group Plc (RBS) in pleading guilty to currency rigging in US probes. Together, the six banks have agreed to pay over $2.8B in fines.

HSBC Arrives at $100M Currency Rigging Settlement with DOJ

Published on: January 22, 2018 | by Shepherd Smith Edwards & Kantas, LLP

In the US, HSBC Holdings Plc. will pay approximately $100M in penalties to settle a Department of Justice’s criminal probe into currency rate rigging—that’s a $63.1M fine and $38.4M in restitution. The bank’s deal is a three-year deferred prosecution agreement, which means that no criminal charges will be brought as long as HSBC fulfills the terms. As part of the settlement, HSBC will help the government with its criminal probe of individuals who may have played a part in the rate manipulation and enhance its internal controls.

The currency rate rigging allegations involved at least two ex-HBSC employees, including Mark Johnson, the ex-worldwide head of its foreign exchange trading and Stuart Scott, the ex-head of its European currency trading. Johnson has already been convicted in the front-running case involving a $3.5B trade by client Cairn Energy Plc. He is scheduled for sentencing next month. Scott is currently fighting a court order in the UK so as to avoid extradition back to the US to face the criminal charges against him.

Both men are accused of buying British pounds leading up to the Cairn Energy trade, with the expectation that their purchases, and the one by Cairn Energy, would cause the pound’s price to go up. After the Cairn Energy order went through and the value of their pounds rose, the two men sold their currency at a profit.

CFTC Cases: Commodity Investor Fraud Case Results in $4.5M Default Ruling and Federal Court Orders Arizona Company & Its Owner to Pay Over $2.2M in Anti-Fraud Case

Published on: November 11, 2017 | by Shepherd Smith Edwards & Kantas, LLP

CFTC Secures $4.5M Default Ruling in Investor Fraud Case Against STA Opus
The US Commodity Futures Trading Commission was able to get a default judgment that orders Gerard Suite and his STA Opus to pay over $1.1M in restitution and almost $3.4M in penalties for an alleged commodity pool fraud. Another defendant, Frank Collins, agreed to pay a $50K penalty and $50K in restitution over allegations that he misappropriated at least $50K from investors.

According to court filings, from 2013 through July 2016, Suite marketed an STA Opus commodity pool that touted yearly returns of 57% to almost 133% despite that nearly all of the money traded was lost. The CFTC said that Suite concealed the losses by sending investors bogus account statements.

The investors were purportedly told that they could invest even more if they sent over personal checks that were voided. Suite allegedly used the routing and account information to get new checks. This made it possible for his company to make withdrawals that were not authorized from the account of at least one customer.

Mining Company Rio Tinto Accused of Fraud, Settles with FCA for $36M

Published on: October 18, 2017 | by Shepherd Smith Edwards & Kantas, LLP

The US Securities and Exchange Commission has filed fraud charges against Rio Tinto and its ex-CFO Guy Robert Elliot and former CEO Thomas Albanese. The defendants are accused of hiding the Mozambique coal business’ swift and steep drop in value soon after they acquired it for $3.7B. The mining company later would go on to sell Rio Tinto Coal Mozambique for $50M—a much lower figure than the buying price.

The SEC contends that following the acquisition of the coal assets in 2011, the project experienced problems right away because there was “less coal and of lower quality” than what Rio Tinto, Elliot, and Albanese had anticipated. Also, the country of Mozambique, which is where the acquisition occurred, had turned down the barge application. This means that there was no infrastructure to transport the assets. All of this “significantly eroded” the acquisition’s value.

Rio Tinto and the two ex-executives purportedly knew that publicly disclosing the acquisition as a failure, after a previous acquisition of Canadian company Alcan had rendered big losses, would create doubts over their ability to identify and develop mining assets that were “long-term, low cost, and highly profitable.” This purportedly compelled them to hide the problems that arose with the Mozambique acquisition and issue misleading financial statements prior to a number of US debt offerings.

SEC Cases: Oil and Gas Company is Charged With Accounting Fraud, Utah-Based Broker-Dealer is Accused of Not Complying With Anti-Money Laundering Laws, and Hemp Oil Company Allegedly Inflated Assets

Published on: June 28, 2017 | by Shepherd Smith Edwards & Kantas, LLP

Penn West Petroleum is Accused of Accounting Fraud

The US Securities and Exchange Commission has charged Penn West Petroleum Ltd., now called Obsidian Energy Ltd., and three of its ex-finance executives with involvement in an alleged accounting fraud. According to the regulator, the Canadian-based oil and gas company fraudulently transferred hundreds of millions of dollars in expenses to capital expenditure accounts from its operating expense accounts. As a result, Penn West was able to artificially lower operating expenses by up to 20% during some periods, as well as falsely enhance the metrics having to do with profitability and oil extraction efficiency. These metrics are important for selling barrels of oil.

The SEC is accusing ex-Penn West CFO Todd Takeyasu, ex-VP of Accounting and Reporting Jeffery Curan, and ex-Operations Controller Waldermar Grab of running the accounting fraud. The regulator claims that the three men violated federal securities laws related to antifraud, books and records, reporting, and internal controls provisions.