SEC Enforcement

Banc de Binary to Settle Fraud Charges With SEC, CFTC for $11M

Published on: March 9, 2016 | by Shepherd Smith Edwards & Kantas, LLP

Banc de Binary Ltd. has settled a fraud lawsuit by the Commodity Futures Trading Commission and the SEC accusing the Cypriot financial trading company of illegally signing American investors to join its binary options trading program. According to the regulators, from 2011 and 2013, Banc de Binary pursued and took orders from U.S. customers on contracts connected to currency, commodity, and stock prices. By doing this, the company purportedly got around a ban in the US that prohibited off-exchange binary option contracts and received net deposits of $11M from over 6,000 U.S. customers

As part of the settlement, the financial trading company has agreed to pay $7.1M in disgorgement and restitution and $2M in penalties to the CFTC. It will pay the SEC $1.95M in civil penalties. $9.05M of the settlement will go toward paying back the U.S. customers who suffered harm in this matter. Oren Laurent, who is the founder of Banc de Binary, will pay $150K in the settlement.

Banc de Binary is considered the biggest binary options operator. Binary options offer all or nothing payouts according to price moves. They remain unregulated in a lot of the world.

SEC Bars Former Investment Adviser Over Alleged Misuse of Exchange-Traded Funds

Published on: March 3, 2016 | by Shepherd Smith Edwards & Kantas, LLP

The U.S. Securities and Exchange Commission is barring Nicholas Rowe, the former owner of registered investment advisor Focus Capital Wealth Management, from the industry. The charges come in the wake of parallel proceedings in New Hampshire where state regulators barred him from being licensed as an investment adviser. The New Hampshire Bureau of Securities Regulation also said he had to pay $20K.

Rowe and his RIA are accused of using inverse and leveraged exchange-traded funds in a way that was not suitable for clients. They also purportedly made misrepresentations regarding the fees that the clients would be charged.

Focus Capital had been registered with the SEC until 2012 when it registered with New Hampshire instead. The state launched a probe into the RIA’s investment practices, which allegedly included placing the assets of older investors into unsuitable strategies without notifying them that was what was happening. A number of elderly clients, including three widows, allegedly lost close to $1.M.

Foreign Corrupt Practices Act Violation Allegations: VimpelCom, Qualcomm, and PTC Inc. Settle with Regulators

Published on: February 28, 2016 | by Shepherd Smith Edwards & Kantas, LLP

VimpelCom Resolves FCPA Violations for $795M
The U.S. Securities and Exchange Commission, the U.S. Department of Justice, and regulators in the Netherlands have arrived at a global settlement with VimpelCom Ltd. to resolve Foreign Corrupt Practices Act violations. The telecommunications provider purportedly committed the offenses in order win business in Uzbekistan.

According to the regulator, the company offered bribes to an Uzbek government official who was the relative of Uzbekistan’s President, just as VimpelCom entered that nation’s telecommunications market. VimpelCom needed government-issued licenses, channels, frequencies, and mobile blocks. At least $114M in bribes were funneled through an entity with ties to the official who was bribed, while about $500K was hidden under the guise of “charitable donations” that were also affiliated to the same official.

As a result of the alleged FCPA violations, said the SEC, the telecommunications company earned massive revenues in Uzbekistan. As part of the settlement, VimpelCom will pay $167.5M to the SEC, $130.1M to the DOJ, and $397.5M to Dutch regulators.

PTC Inc. is Accused of Bribing Chinese Officials to Win Business
PTC Inc. and its two Chinese subsidiaries (PTC-China) have consented to collectively pay $28M to resolve civil and criminal actions accusing them of violating the Foreign Corrupt Practices Act. According to the regulator, the two subsidiaries provided improper payments and non-business related travel to Chinese government officials to garner business. The SEC order, which institutes a settled administrative proceeding against the Massachusetts-based technology company, states that the two subsidiaries spent almost $1.5M on improper travel, entertainment, and gifts for the Chinese government officials who worked for state-owned entities that were customers of PTC. This purportedly made the company about $11.8M in profits from sales contracts with these entities.

Ex-Deutsche Bank Analyst to Pay $100K Penalty To Resolve SEC Charges Related to Rate Stock Certification

Published on: February 19, 2016 | by Shepherd Smith Edwards & Kantas, LLP

The Securities and Exchange Commission is accusing ex-Deutsche Bank (DB) research analyst Charles P. Grom of certifying a rating on a stock in a manner that was not in line with his personal view. According to the regulator, Grom certified that his research report on 3/29/12 about Big Lots was an accurate reflecting of what he honestly believed about the company and it securities even though in private communications with firm research and sales staff, he indicated that he decided not to downgrade the discount retailer from a “BUY” recommendation because he wanted to keep up his relationship with the company’s management. Now, Grom must pay a $100K penalty.

The SEC contends that Grom violated Regulation AC’s analyst certification requirement, which mandates that research analysts include a certification that the views expressed in a research report are an accurate reflection of what they believe about a company and its securities. The regulator said that Grom became worried about what he considered cautious comments by Big Lot executives when he and his firm hosted them during a non-deal roadshow the day before he certified the report at issue in March 2012.

Securities Fraud: Ex-Broker Jerry McCutchen Under Investigation for REIT Sales, Hedge Fund Manager Must Pay $18M to SEC, and NASAA Steps Up Fight Against Elder Financial Fraud

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

Former Broker Is Subject of Numerous Securities Claims
If you are an investor who sustained losses after purchased real estate investments trusts with the help of former broker Jerry McCutchen, you may have grounds for a securities claim. According to the Financial Industry Regulatory Authority’s BrokerCheck Report, McCutchen is accused of making unsuitable investment recommendations and he has been the subject of over a dozen broker fraud claims alleging negligence, misrepresentations, and other claims.

In one case, McCutchen, while registered with Berthel Fisher & Company Financial Services, Inc., is accused of placing a couple’s retirement funds in speculative, illiquid, alternative investments that he misrepresented as safe investments in line with the husband and wife’s investment goal to keep their money safe. In reality the Tier REIT, the Icon Leasing Fund Twelve LLC, and others, did not have proper diversity or allocation and were not suitable for the couple.

McCutchen is not registered with any firm at this time nor is he a licensed broker at the moment. He was registered with Berthel Fisher & Co., Bay City Securities, Next Financial Group, First Funds Inc., FSC Securities Corp, Central Brokerage Services, Commonwealth Equity Services, MML Investors, Proequities Inc., and Walnut Street Securities.

NY Hedge Fund Manager Ordered to Pay $18M
Moazzam “Mark” Malik, and his American Bridge Investment Group LLC are facing SEC charges accusing them of bilking 19 clients of over $1M through the sale of limited partnership interests in a fake hedge fund that was run under different names. The SEC said that Malik claimed that the fund held $100M when that amount was never more than about $90,000. Now, the regulator is ordering Malik to pay $18M.
Continue Reading ›

SEC News: Brokerage Firm Fined $1M to Resolve Anti-Money Laundering Violations, Ocwen Financial to Pay $2M Over Misstated Financial Results, and Software Company is Accused of FCPA Violations

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

E.S. Financial Accused of Anti-Money Laundering Violations
The Securities and Exchange Commission is charging E.S. Financial Services, now called Brickell Global Markets, with violating anti-money laundering rules. To resolve the charges, the Miami-based firm will pay a $1M penalty.

According to the regulator, on two occasions E.S. Financial did not provide the needed books and records to identify foreign costumers that they were soliciting and providing with investment advice. U.S. law mandates that financial institutions keep a customer identification program (CIP) that is adequate enough to make sure that the institutions know who their customers are so that don’t inadvertently get involved in terrorist financing or money laundering.

An SEC probe found that the firm’s CIP did not procure and keep up documentation to confirm the identities of certain foreign customers who used a brokerage account set up by a Central Bank affiliate. E.S. Financial has consented to hire an independent monitor to assess its CIP policies and anti-money laundering procedures, policies, and practices.

Ocwen Settles SEC Charges for $2M
Ocwen Financial Corp. will settle civil charges accusing the firm of misstating financial results via the use of an undisclosed, flawed methodology to value complex mortgage assets. The SEC found that Ocwen inaccurately disclosed to investors that assets were valued independently at fair value under GAAP when the firm had actually used valuation conducted by a related party that bought the rights to service certain mortgages that were still a financial liability in the company’s accounting.

The SEC that Ocwen’s audit committee did not examine the methodology with an outside auditor or company management and the valuation that occurred strayed from fair value measures. Because of this, Ocwen misstated its net income for four quarters.

SEC Files Fraud Charges Against American Growth Funding II

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

The Securities and Exchange Commission is pursuing a securities fraud case against American Growth Funding II, LLC. The regulator contends that the company, which raises money for business loans, lied to investors that bought high-yield securities. Also subject to charges is brokerage firm Portfolio Advisors Alliance, Ralph Johnson, Kerri Wasserman, and Howard Allen III.

In its complaint, the regulator said that AGF II sold about $8.6M AGF II units to at least 85 investors through Portfolio Advisers Alliance. The sales occurred in a private placement between 3/11 and 12/13.

However, investors were purportedly not told that AGF II’s principal asset had significantly dropped in value, which lessened the chances that investors would be repaid in full let alone make the12% interest yearly they were promised.

In private placement memoranda that were put out in ’11 and ’12, Johnson is accused of misrepresenting that the lending company’s financial statements had been audited and would continue to be audited periodically. The statements for ’11 and ’12 were not audited until 2014.

The SEC believes that Johnson, who played a central part in preparing the private placement memoranda, knew and acted in reckless disregard and was aware that misrepresentations were made to investors. He also is accused of causing investors to get an email in 2013 that contained false statements noting that an accounting firm was working on an audit, which was not, in fact, the case, and issuing monthly statements that concealed the company’s financial woes. Investors were not made aware that because most of AGF II’s loans were likely uncollectible, the firm wouldn’t be able to pay the account balances that were noted in the statements.
Continue Reading ›

Credit Suisse and Barclays Settle Dark Pool Cases for $150M

Published on: January 30, 2016 | by Shepherd Smith Edwards & Kantas, LLP

Credit Suisse Securities (USA) LLC (CS) and Barclays Capital Inc. (BARC) will settle their respective cases brought against them by the U.S. Securities and Exchange Commission and the New York Attorney General. The firms are accused of violating federal securities laws will running dark pools. At issue is whether the banks disclosed enough information to clients about the trading that took place in their dark pools.

Barclays will pay $35M to the SEC and $70M to the NY AG. It has admitted wrongdoing in the Commission’s case. The bank had said that a Liquidity Profiling feature in its LX dark pool was going to “continuously police” the alternative trading system. The firm also stated that it would conduct weekly surveillance reports to look for order flow that was toxic.

Instead, contends the SEC, Barclays did not continuously regulate the dark pool with the tools it promised it would use nor did it conduct the surveillance runs. The firm also failed to properly disclose that it occasionally overrode the Liquidity Profiling feature when it transferred subscribers from categories that were the most aggressive to the ones that were the least aggressive. Because of this, said the regulator, subscribers that chose to block trading with subscribers that were aggressive ended up dealing with them anyways. Barclays is also accused of misrepresenting the kinds and amounts of market data feeds that it utilized to determine the Best Bid and Offer in the dark pool.

Meantime, Credit Suisse, which is not denying or admitting to the charges against it, will pay $84.3M I total—$24.3M to the SEC as disgorgement and prejudgment interest, along with a $30M penalty, and $30M to the NY AG.

SEC Sues Ex-Superior Bank Executives and Board Members

Published on: January 18, 2016 | by Shepherd Smith Edwards & Kantas, LLP

The U.S. Securities and Exchange Commission has filed a lawsuit against eleven ex-Superior Bank executives and board members. The regulator says that the bankers took part in numerous scams to hide just how bad the loan losses were at the bank after the financial crisis struck. Nine of the individuals have consented to settle the SEC’s charges.

The SEC is accusing the directors and officers of purposely misleading regulators and investors by using fake appraisals, straw borrowers, and insider deals to make the bank’s financial health seem more robust than what was actual. Bank officials are accused of improperly renewing, extending, and rolling over loans that were bad, in part to avoid having to report loan and lease losses.

Because of this, Superior Bank overstated its net income by 99% in public filings for 2009 and by 50% in 2010. The bank failed in 2011 and the Office of Thrift Supervision closed it last year. The Federal Deposit Insurance Corporation was appointed as its receiver.

State Street To Pay $12M To Resolve Pay-to-Play Scam Charges Involving Ohio Pension Funds

Published on: January 16, 2016 | by Shepherd Smith Edwards & Kantas, LLP

The SEC said that State Street Bank and Trust Company will pay $12M to resolve civil charges accusing the firm of involvement in a pay-to-play scam. The regulator is accusing State Street of trying to gain contracts so it could do business with Ohio pension funds.

Vincent Debaggis, who helmed the public funds group of State Street Corp., is accused of entering into a deal with the deputy treasurer of Ohio. The arrangement allegedly included both illicit payments and political campaign contributions. In return for the money, State Street is accused of obtaining sub-custodian contracts that involved keeping the investment assets of certain Ohio pension funds safe and effecting the securities transaction settlements of the funds.

DeBaggis and State Street have agreed to the SEC’s order without denying or admitting to the regulator’s findings. The $12M that State Street will pay includes an $8M penalty and $4M in prejudgment interest and disgorgement. Meantime, DeBattis will pay over $174K in disgorgement plus prejudgment interest and a $100K penalty.