SEC Enforcement

SEC Cases: Och-Ziff Hedge Fund Settles FCPA Violation Charges for $413M, Employee is Accused of Insider Trading Prior to Drug Announcement, and Company Pays Fine After Firing Whistleblower

Published on: October 14, 2016 | by Shepherd Smith Edwards & Kantas, LLP

NY Hedge Fund to Pay $413M to Settle Civil and Criminal Charges Over FCPA Violations

Och-Ziff Capital Management Group has settled both criminal and civil charges accusing the New York hedge fund of paying bribes to obtain business in Africa. This is the first hedge fund to face punishment over violating the Foreign Corrupt Practices Act.

As part of its settlement with the SEC, Och-Ziff will pay almost $200M to the Commission. Meantime, the hedge fund’s CEO, Daniel S. Och, will pay the regulator almost $2.2M to resolve charges accusing him of causing certain violations. CFO Joel M. Frank also agreed to settle the SEC the charges against him and will pay a penalty.

Forcerank Will Pay $50K Fine for Illegally Offering Security-Based Swap Offering to Retail Investors

Published on: October 13, 2016 | by Shepherd Smith Edwards & Kantas, LLP

According to a Securities and Exchange Commission probe, Forcerank LLC will pay a penalty of $50K for illegally offering complex derivatives products to retail investors. The company did this via mobile phone games referred to as “fantasy sports for stocks.” Forcerank is settling the case without deny or admitting to the findings that it violated sections of the Securities Exchange Act and the Securities Act.

The SEC’s order said that Forcerank’s mobile phone games involved players predicting the order that 10 securities performed against one another.. Players earned points and sometimes even money prizes according to how accurately they predicted the outcomes. The New York-based company earned 10% of entry fees, as well as developed a data set regarding market expectations that it intended to sell to investors, including hedge funds.

The SEC said that the agreements between players and Forcerank were security-based swaps since they provided for a payment contingent upon an event linked to a possible commercial, economic, or financial result and were determined by individual securities’ values. The Commission also claims that Forcerank LLC neglected to submit a registration statement for a security-based swap offering and did not sell contracts using a national securities exchange. Both are required to make sure that full transparency about a security-based swap offering is provided to retail investors and transactions are restricted to platforms that are under the highest regulation.

Deutsche Bank Reaches $9.5B Settlement With the SEC For Not Properly Safeguarding Information

Published on: October 12, 2016 | by Shepherd Smith Edwards & Kantas, LLP

Deutsche Bank Securities (DB) will pay a $9.5B penalty to the U.S. Securities and Exchange Commission for not properly safeguarding material nonpublic research information. Even though it is settling, Deutsche Bank is not denying or admitting to the findings.

According to the regulator, Deutsche Bank urged its equity research analysts to communicate often with trading personnel, sales staff, and customers, but it did not have in place the proper procedures and policies to stop analysts from disclosing certain information, such as analyses and views that hadn’t been published yet, estimate changes, trading day squawks, short-term trading recommendations, non-deal road shows, and idea dinners. The SEC’s order also found that the bank had put out a research report that had a “BUY” rating for Big Lots, the discount retailer, but that the rating did not line up with the perspective of the analyst who had prepared and certified it as accurate.

This particular individual, analyst Charles Grom, had told others that the discount retailer should have gotten a downgrade. Grom was eventually charged by the SEC with certifying a stock rating in a manner that was not consistent with his own views. He settled the charges with a suspension from the securities industry and by agreeing to pay a $100K penalty.

SEC News: Regulator Proposes Amendment For Settling Securities Transactions, Adopts Rules to Improve Regulatory Framework for Clearing Agencies, Gives Authorities Access to Information from Security-Based Swap Data Repositories, and Enhances Investment Adviser Requirements for Providing Information

Published on: October 7, 2016 | by Shepherd Smith Edwards & Kantas, LLP

New Proposed Amendment Would Shorten Period for Settling Securities Transactions

The SEC has voted to propose a rule amendment that would abbreviate the typical length of a settlement cycle period for the majority of broker-dealer securities transactions. Instead of having this period run from three business day following the trade date it would be reduced to two days. The hope is that the amendment, if approved, would lower the risks that can occur due to the value and quantity of unresolved securities transactions before a settlement is completed.

The proposal would modify the Exchange Act’s Rule 15c6-1(a). Under the amendment, a broker-dealer would not be allowed to get into a contract for the sale or purchase of a security that provides fund payments unless it is an exempted security, municipal security, government security, banker’s acceptance, commercial paper, or commercial bill. The regulator hopes that the proposed amendment would reduce the market, credit, and liquidity risks for all participants in the U.S. market.

SEC Adopts Rules Impacting Securities Clearing Agencies

The Commission has adopted rules to enhance the regulatory framework for securities clearing agencies. The improved standards would preside over the running of and overseeing of securities clearing agencies that are either systemically important or are taking part in security-based swaps and other complex transactions. The SEC also voted to propose that the enhanced standards be applied to other securities clearing agency categories.

Securities Cases: Hawaii-Based Investment Adviser is Accused of Cherry-Picking Trades, Broker Ordered to Pay $600K for Elder Financial Fraud, and FINRA Bars Ex-Axa Advisors Broker

Published on: October 6, 2016 | by Shepherd Smith Edwards & Kantas, LLP

SEC Charges Hawaii-Based Investment Adviser for Misleading Clients and Cherry Picking

The U.S. Securities and Exchange Commission has filed civil charges against Oracle Investment Research, which is based in Hawaii, and its owner Laurence I. Balter. The regulator claims that the investment adviser cherry picked trades that were profitable for his own accounts. He is also accused is misleading clients, including senior citizens, about the risks involved in the investments he recommended, as well as about the fees they would be charged.

According to the SEC Enforcement Division, Balter and Oracle Investment Research bought options and equities in an omnibus account but waited to distribute the trades until their execution. Then, he would allegedly move the profitable trades into his accounts and the unprofitable ones to the accounts of clients.

Credit Suisse Settles for $90M Allegations that It Misrepresented Performance Metric

Published on: October 5, 2016 | by Shepherd Smith Edwards & Kantas, LLP

Credit Suisse Group AG (CS) has admitted wrongdoing and will pay a penalty of $90 M to the SEC settle civil claims accusing the firm of misrepresenting how much it brought into its wealth management business.

According to the regulator’s probe, Credit Suisse strayed from its methodology for figuring out NNA (net new assets), which it disclosed to the public. This is the metric that investors value to gauge a financial institution’s success in bringing in new business.

Although disclosures said that the bank was assessing assets individually according to each client’s goals and intentions, Credit Suisse would occasionally employ an undisclosed approach that was “results-driven” to determine NNA to satisfy specific targets that senior management had set. SEC Enforcement Division Director Andrew J. Ceresney said that the bank’s failure to reveal that it was employing a results-driven approach prevented investors from having the chance to properly judge Credit Suisse’ success in drawing in new money.

Oil Company Wants SEC’s Texas Fraud Case to Go to Trial

Published on: October 4, 2016 | by Shepherd Smith Edwards & Kantas, LLP

Sethi Petroleum Inc. and its founder Sameer P. Sethi are asking a federal judge to send the U.S. Securities and Exchange Commission’s fraud case against it to trial. Sethi Petroleum is based in Dallas, Texas. The regulator had sought summary judgment in the Texas lawsuit, which accuses Sethi Petroleum and Sethi of fraudulently selling securities to investors for a drilling project in Montana and the Dakotas. However, the two of them claim that a jury needs to decide whether the interests that investors are holding are even securities.

The Commission claims that Sethi raised over $4M in a little over a year for the oil venture with the promise of 20 gas and oil wells. 90 investors in nearly 30 states were promised 62.5% net working interest on these wells. They were purportedly told that wells were already making 1 million barrels/month, when Sethi Petroleum actually only held interests in just eight wells—and not all of them were being drilled—in which investors held only .15 to 2.5% interest. These wells produced far less than the 1 million barrels/month touted, claims the regulator. The actual figure was closer to 9,000 to almost 14,000 barrels/month.

The SEC claims that Sethi invested just $950K of investor funds in the wells, while he used $577K to pay himself and his dad. $1.1M of investor funds purportedly went to employees at Sethi Financial Group, with sales employees getting $1.04M. Seth is accused of lying about his own record of regulatory and criminal violations and his company is accused of lying when it claimed that it was working with Hess Corp. and Mobil Corp.

SEC Accuses Peruvian Traders of Insider Trading, Charges Anheuser Busch InBev with Whistleblower Protection and FCPA Rule Violations, and Orders an Oil Services Company to Pay $140M Over Accounting Fraud Allegations

Published on: September 29, 2016 | by Shepherd Smith Edwards & Kantas, LLP

SEC Claims Peruvian Attorneys and Broker-Dealer Manager Used Accounts to Insider Trade

The U.S. Securities and Exchange Commission has filed charges against three people in Peru, accusing them of insider trading prior to the merging two mining companies. The regulator wants penalties, disgorgement, and interest.

According to the Commission, HudBay Minerals Inc. employee Nino Coppero del Valle told fellow lawyer and friend Julio Antonio Castro Roca about a tender offer the mining company had turned in to acquire shares in August Resource Corp., which is located in Arizona. Hudbay is based in Canada.

Castro then allegedly traded using this materially nonpublic information via a brokerage account that was held by a shell company in the British Virgin Islands. He is accused of doing this so that the trades couldn’t be traced back to the two of them. They purportedly made over $112,000 in illicit profits.

SEC Accuses Pennsylvania Broker of $3.2M Securities Fraud Involving 120 Investors

Published on: September 29, 2016 | by Shepherd Smith Edwards & Kantas, LLP

The U.S. Securities and Exchange Commission has put out an emergency asset freeze against Peter Kohli, a former broker. According to the regulator, the Pennsylvania resident bilked at least 120 investors when he fraudulently raised over $3.2M from them between 2012 and 2015. The regulator attributes the funds collapse to the ex-broker’s “extreme recklessness.”

At the time, Kohli was CEO and president of DMS Advisors, a dually-registered investment adviser and brokerage firm. He began the DMS Funds series, comprised of four emerging market mutual funds, in 2012. The SEC claims that he overstated the funds’ level of sophistication while disregarding the risk that he and DMS Advisors might not be able to cover certain expenses.

The Commission claims that Kohli stole money from investors as the funds became beleaguered and he committed three other frauds to keep his scam going. He also purportedly misappropriated money he solicited to invest in one of the funds and his accused of drawing in two kinds of investments in Marshad Capital Group, which was DMS advisors’ holding company.

SEC Files Charges in Alleged Microcap Fraud

Published on: September 27, 2016 | by Shepherd Smith Edwards & Kantas, LLP

The U.S. Securities and Exchange Commission has filed charges against three men accusing them of defrauding investors in a project that was supposed to build the largest movie studio on the continent in Georgia. They are: Matthew T. Mellon, Manu Kumaran, and Roger Miguel.

According to the regulator, Kumaran, the ex-chairman, CEO and founder of movie production company Moon River Studios, previously called Medient Studios, and his CEO successor Jake Shapiro issued misleading and false statements in corporate filings and press releases. Among their alleged claims is that construction was already happening and there were already projected dates for when the studio would be running even though the two men knew that they didn’t have the money to start building the “Studioplex.”

The two men and Roger Miguel, who was the CEO of Fonu2, are accused falsifying and backdating promissory notes in a scam to put out common stock in return for financing. Fonu2 operated under Moon River Services, Even though the movie studio never became a reality the three men allegedly became rich because of their scam. For example, Shapiro is accused of misappropriating company money for his own spending, including a nearly million-dollar home, and Kumaran allegedl spent about $1700 of company money daily for his travels and personal spending.