SEC Enforcement

BlackRock Advisors Settles SEC Charges Over Conflict of Interest Disclosures for $12M

Published on: April 25, 2015 | by Shepherd Smith Edwards & Kantas, LLP

BlackRock Advisors (BLK) has consented to be pay $12M resolve Securities and Exchange Commission charges claiming that a conflict of interest that occurred because a former portfolio manager’s outside business activity was not disclosed. Additionally, the firm agreed to a censure and will retain an independent compliance consultant to perform a review.

According to the regulator, when Daniel J. Rice III founded Rice Energy, an oil and natural gas company, he was also managing energy-focused funds and separately managed accounts at the firm. Also, he’d invested $50M in Rice Energy and was general partner.

The oil and natural gas company eventually went into a joint venture that became the biggest holding in the BlackRock Energy & Resources Portfolio. This also happened to be the biggest fund managed by Rice.

SEC Files First Enforcement Action Protecting Whistleblower Confidentiality Agreements

Published on: April 8, 2015 | by Shepherd Smith Edwards & Kantas, LLP

The SEC has brought its first case for whistleblower protection violations involving Rule 21F-17. The Commission claims that KBR Inc. used language in confidentiality agreements that were improperly restrictive and could potentially impede the whistleblower process.

According to the regulator, KBR required that witnesses involved in certain internal investigative interviews sign confidentiality statements that contained language warning about potentially disciplinary action, including termination, if the matters involved were discussed with an external party without the legal department’s approval. Such probes typically involved claims of possible securities law violations. Because of this, the agency said the terms violated the rule, which bars companies from getting in the way of whistleblowers being able to report securities law violations to the Commission.

To settle, KBR will pay a $130,000 penalty. The company, however, is not denying or admitting to the charges. It did voluntarily consented to modify its confidentiality statement to include language that lets employees know they can report possible violations to federal agencies without the company’s approval or fear of reprisal. KBR also agreed to cease and desist from future Rule 21F-17 violations.

SEC Cases: Brothers-In-Law Charged in Louisiana Insider Trading Scam, NY-Based Broker-Dealer Accused of CDO Liquidation-Related Fraud, & Colorado Ponzi Scam is Halted

Published on: February 20, 2015 | by Shepherd Smith Edwards & Kantas, LLP

The Securities and Exchange Commission is charging former VP of The Shaw Group’s construction operations Scott Zeringue and his brother-in-law Jesse Roberts III with insider trading. Zeringue has already agreed to settle the regulator’s charges by consenting to pay disgorgement of ill-gotten gains plus a penalty.

The SEC says that the insider trading took place in 2012 when Zeringue, while working at The Shaw Group, became privy to confidential data about the company’s upcoming acquisition by Chicago Bridge & Iron Company. Prior to the announcement of the deal, he bought 125 shares of Shaw stock and asked Roberts to buy for him, too. Roberts went on to tip others and they collectively made close to $1 million in illicit profits.

Meantime, parallel criminal charges have been filed against Roberts. Zeringue has already pleaded guilty to the criminal charges against him.

SEC Cases: Insider Trading Charges Filed Against Georgia Resident, Mutual Fund Adviser Accused of Improper Asset Handling, & Two-Ex CFOs Agree to Give Back Bonuses Because of Accounting Fraud

Published on: February 14, 2015 | by Shepherd Smith Edwards & Kantas, LLP

Atlanta, GA Man Accused of Making $740,000 for Insider Trading

The Securities and Exchange Commission is filing charges against a Georgia man who is accused of insider trading and making about $740,000 in illicit profits. Charles L. Hill allegedly traded in Radiant Systems stock based on the confidential insider data a friend gave him about an upcoming tender offer to purchase the company. The friend was a friend of a Radiant Systems executive.

In 2011, Hill bought about 100,000 shares valued at close to $2.2 million on the final day of trading prior to the public announcement of the acquisition. That was his first time buying stock of Radiant Systems, and before that it had been years since he’d purchased equity securities.

Securities Fraud Cases: NY Hedge Fund Manager Bilks Investors of Over $800K, Maize Fund Scam Leads to Restitution, Madoff Ponzi Scheme Victims Get $355M, and Kentucky Scheme Ends with Probation, Compensation

Published on: February 13, 2015 | by Shepherd Smith Edwards & Kantas, LLP

SEC Says New York Hedge Fund Manager Stole From Investors

The U.S. Securities and Exchange Commission says that Moazzam Malik, a purported hedge fund manager in NYC, stole money from investors. Malik allegedly falsely claimed to be running a hedge fund holding about $100 million in assets under management. He is accused of touting high returns.

Malik raised over $840,000, but his fund, which didn’t make actual investments, never held over $90,177 in assets. Instead, he kept taking out money and spending the funds. He refused to give investors back their money, even pretending to be a fund employee and sending out an e-mail saying that he had passed away. Mailk purportedly kept soliciting investors even as he received redemption requests.

SEC Commissioners Oppose Regulator’s Leniency Toward Oppenheimer, Despite Violations

Published on: February 12, 2015 | by Shepherd Smith Edwards & Kantas, LLP

SEC Commissioners Luis Aguilar and Kara Stein, both Democrats, say that they were among those that voted to grant Oppenheimer & Co. (OPY) special benefits even after the brokerage firm committed rules violations. It was just last month that the broker-dealer consented to pay a $20 million penalty while admitting to failures and resolving charges related to its failure to detect money laundering.

In that case, also settle with the Financial Crimes Enforcement Network, the firm did not properly identify and report suspicious penny stock trades, even though numerous Oppenheimer customers reportedly were involved in such activities. The broker-dealer admitted that it failed to establish a suitable anti-money laundering program and did not perform proper due diligence on a foreign correspondent account.

Yet, the regulator overturned the automatic disqualification that should have come with the violation. That happened when SEC Chairman Mary Jo White and the other two members (both Republicans) outvoted the Democratic member. Now, Oppenheimer is allowed to continue selling hedge funds to rich individuals. As part of the condition for the leniency, the broker-dealer will retain a law firm and consultant to make sure that its procedures and policies fall in compliance.

Oppenheimer to Pay $20M Settlement to the SEC and FinCEN Over Penny Stock Violations

Published on: January 28, 2015 | by Shepherd Smith Edwards & Kantas, LLP

Oppenheimer & Co. (OPY) has consented to pay $20 million to resolve settlements with the U.S. Securities and Exchange Commission and the Financial Crimes Enforcement Network. The firm is accused of not properly identifying and reporting suspect trades in penny stocks. The low priced, highly speculative securities are easy to manipulate and involve in pump-and-dump scams.

At least 16 Oppenheimer customers in several U.S. states were reportedly identified as having engaged in “suspicious activity.” Admitting guilt, the broker-dealer acknowledged that it did not set up and implement a proper anti-money laundering program nor did it perform sufficient due diligence on a foreign correspondent account. Oppenheimer also said that it failed to comply with the USA PATRIOT Act’s Section 311, which allows FinCEN’s director to decide whether a foreign financial firm is a money laundering risk.

The government agency said that because Oppenheimer did not notify its foreign correspondent financial institutions of the special measures under Section 311, the firm ended up conducting business without setting up the necessary procedures, policies, and internal controls that allow it to reasonably report and detect suspect fraud activity from ’08 to ’14.

Insider Trading News: SEC Sues Ex-Capital One Data Analysts, U.S. Attorney Bharara Wants Rehearing in Case Involving Overturned Convictions, and Judge Vacates Four Men’s Guilty Pleas

Published on: January 23, 2015 | by Shepherd Smith Edwards & Kantas, LLP

Ex-Capital Data One Analysts Are Defendants in SEC Insider Trading Lawsuit

The U.S. Securities and Exchange Commission is suing Nan Huang and Bonan Huang, two former Capital One data analysts, for insider trading. The regulator contends that the two of them used nonpublic data to trade in consumer retail companies’ shares before earnings and sales reports were issued. They allegedly used sales information that the credit card company had collected from millions of customers.

According to the SEC lawsuit, from 11/13 to 1/15 the two analysts made hundreds, perhaps thousands of keyword searches for sales information on at least 170 companies that are publicly traded. They had access to this data because part of their job was to serve as fraud investigators.

Investment Adviser Fraud Cases Lead to Civil Charges, Criminal Convictions, and Investor Losses

Published on: January 21, 2015 | by Shepherd Smith Edwards & Kantas, LLP

SEC Accuses Elm Tree Investment Advisors, its Founder, of $17M Securities Fraud

The Securities and Exchange Commission has filed fraud charges against Elm Tree Investment Advisors LLC and its founder Frederic Elm for running a Florida-based securities scam that raised over $17 million in a little over a year. The regulator contends that Elm, his firm, and the funds Elm Tree Motion Opportunity LP, Elm Tree “e”Conomy Fund LP, and Elm Tree Investment Fund LP misled investors and used the bulk of the funds to issue Ponzi-like payments. Elm also is accused of using the money to purchase expensive homes, jewelry, and autos, as well as cover his daily living expenses.

According to the SEC, Elm, his unregistered advisory firm, and the three funds violated the regulator’s anti-fraud rules as well as federal securities laws. The Commission wants relief for investors as well as the restoration of the purportedly ill-gotten gains and financial penalties.

SEC Accuses Canadian Man of Fraudulent Trading Scam, Use of “Layering” Strategy

Published on: January 15, 2015 | by Shepherd Smith Edwards & Kantas, LLP

The Securities and Exchange Commission is charging a Canadian citizen with running a market manipulation scam that involved making orders to trick others into selling or purchasing U.S. publicly traded stocks at prices that were depressed or artificially inflated. The strategy is known as “layering.” U.S. Attorney’s Office for the District of New Jersey has filed criminal charges against Aleksandr Milrud in a parallel action.

According to the SEC’s complaint, submitted in a federal court, Milrud started recruiting online traders primarily in Korea and China beginning at least as early 2013 and giving them the cut of the profits made from the scheme. He purportedly gave traders access to trading accounts and told them how to avoid coming under the regulatory scrutiny when layering.

To avoid detection, Milrud would wire funds to an offshore account and have the money delivered to him in a suitcase, as well as use middlemen. He also allegedly had traders use multiple user names, addresses, computers, and Internet protocols (IP).