SEC Category Archives — Page 15 of 24 — Investor Lawyers Blog Published By Investment Fraud Attorneys

SEC Restructures Trial Unit in an Effort to Decrease Courtroom Losses

Published on: February 13, 2014 | by Shepherd Smith Edwards & Kantas, LLP

In the wake of recent losses in the courtroom, the Securities and Exchange Commission is changing up the way it gets ready for trial. The Wall Street Journal says that SEC Chairwoman Mary Jo White has retooled the agency’s trial unit. One of the reasons for the restructuring is so litigators and investigators can work more closely together.

The SEC’s victory rate has been dropping. The agency won just 55% of trials in the last four months, which a definite decline compared to the last three years when it had been winning over 75% of the time. Since October, however, juries and judges have ruled in favor of 10 out of 25 persons and firms in securities litigation against the SEC, and the government lost 5 of 11 trials. This is a definite downswing from the 12 months prior when just 5 of 34 defendants beat the regulator. Although the cases that the regulator lost were filed before White took over the helm, defense lawyers believe that the Commission’s current losing trend will compel more people to go up against it instead of settling.

The Commission’s trial unit has now been split into four groups so that this more closely mirrors the work of enforcement officials when they probe cases. Senior officials are also conducting practice openings for trials.

SEC Goes After Alleged Ponzi Scammers

Published on: November 15, 2013 | by Shepherd Smith Edwards & Kantas, LLP

The Securities and Exchange Commission is pursuing securities fraud charges against Wendy Ko and Yin Nan Wang and certain entities over their alleged involvement in a Ponzi-like scam. The regulator is asking for an asset freeze against Velocity Investment Group, its managed funds, and Rockwell Realty Management, Inc. These entities are controlled by Wang and Ko.

The SEC claims that the two of them offered and sold over $150 million securities as unsecured promissory notes through Velocity and its unregistered investment funds. The offerings promised a substantial investment return rate. That said, to fulfill these interest obligations the funds needed to make returns higher than the market average.

Wang purportedly ordered that an accountant be given financial information that included material overstatements of fund receivables. He also is accused of publishing false financial data on a website.

Imperial Petroleum Charged by SEC with Defrauding Investors

Published on: September 18, 2013 | by Shepherd Smith Edwards & Kantas, LLP

The Securities and Exchange Commission is charging Imperial Petroleum and a number of its executives and suppliers with involvement in an alleged renewable fuel production scheme. The complaint names the Indiana-based company, its CEO Jeffrey Wilson, three ex-owners of E-Biofuels, and New Jersey-located companies Cima Green LLC, Caravan Trading LLC, and CIMA Energy Group, as well as their operators.

The SEC is accusing them of presenting themselves to investors as a legitimate biodiesel production business while concealing the illegal activity that was going on, which was the source of 99% of the revenue. Imperial Petroleum bought E-Biofuels as a subsidiary in 2010, and the Commission said that the latter’s owners falsely presented that they were making renewable fuel from raw agricultural products. This let E-Biofuels receive government incentives based on such representations when, actually, contends the regulator, E-Biofuels had middlemen purchase finished biodiesel while making these buys appear on bogus invoices as raw feedstock for producing biodiesel. Imperial Petroleum’s subsidiary later would sell the biodiesel that was bought for up to double what it paid.

The regulator believes that Wilson discovered that E-Biofuels wasn’t making biodiesel from raw matter, he let the fraud continue and Imperial’s yearly revenue rose from $1 million to over $100 million. Meantime, its stock price flew upward as investors were falsely told that E-Biofuels was engaged in environmentally friendly biodiesel production.

SEC Votes to Amend Broker-Dealer Financial Responsibility Rules

Published on: September 2, 2013 | by Shepherd Smith Edwards & Kantas, LLP

By unanimous decision, the Securities and Exchange Commission has agreed to amendments to the Securities Exchange Act or 1934’s rules regarding customer protection, net capital, notification, and record books for broker-dealers. The regulator is seeking to enhance protections for investors and prevent business practices that are not sound.

Under The Act, broker-dealers have to satisfy certain financial requirements so that customers are protected in the event of the firm’s financial failure. The Act offers safeguards so that customer funds and securities being held by a broker are protected.

The Customer Protections Rule

Securities Headlines: UBS to Pay $4.5M Over Unregistered Assistants, $6M Ponzi Scam Allegedly Funded Reality Show, & Cherry Picking Allegations Lead to SEC Charges

Published on: August 30, 2013 | by Shepherd Smith Edwards & Kantas, LLP

UBS Settles Unregistered Assistant Allegations for $4.5M

UBS AG (UBS) has agreed to pay $4.5 million to settle state regulator allegations that its assistants may not have been licensed in the states where they conducted business. The New Jersey Bureau of Securities, which led the securities case, contends that for about six years, the financial had “client service associations” that lacked the necessary state registrations take orders.

An unknown amount of unsolicited trades were reportedly involved in these transactions between 2004 through 2010 when UBS had about 2,277 sales assistants on staff. The fine will be divided between the 50 States, DC, Virgin Islands, and Puerto Rico. By settling, the Zurich-based bank is not denying or admitting to the allegations. However, in late 2010 it modified its order-entry system so that employee state-registration statuses could be validated.

SEC Adopts Rules to Protect Investors that Have Brokerage Firm-Held Assets

Published on: August 7, 2013 | by Shepherd Smith Edwards & Kantas, LLP

In a 3-2 vote, the SEC adopted rules to provide substantially more protections to investors who have assets held by registered broker-dealers. SEC Chairman Mary Jo White issued a statement saying she was confident the rules would give customers’ assets key “additional safeguards,” including the strengthening of audit requirements and enhanced oversight.

Under the new rules, broker-dealers would have to file reports with the Commission that are supposed to lead to greater compliance with financial responsibility rules. Brokerages have to start filing new quarterly reports with the regulator and yearly reports with the Securities Investor Protection Corporation by year’s end. Effective June 1, 2014, they will have to file yearly reports with the SEC.

These latest rules amend the Securities and Exchange Act of 1934’s Rule 17a-11 and Rule 17a-5. Per the rule amendments, a broker-dealer with custody of customers’ assets will have to file a compliance report with the Commission and work with an independent public accountant that is PCAOB-registered to put together a report based on a study of statements in the compliance report. Brokerage firms without custody of these assets need to submit an exemption report with the regulator noting its exemption from the requirements. Also, whether/not a broker-dealer has custody of clients’ assets, a firm has to let SRO or SEC staff look at the independent public accountant’s work papers if this information is needed to examine the brokerage firm and the accountant is allowed to talk about its findings with examiners.

Spotlight on the SEC: Regulator Sues China Entities for Fraud and Votes to Turn Down Falcone-Related Securities Settlements

Published on: July 31, 2013 | by Shepherd Smith Edwards & Kantas, LLP

Two China Companies Slapped With SEC Securities Lawsuit For Allegedly Fraudulent Scams

In the U.S. District Court for the Southern District of New York, the Securities and Exchange Commission is suing consumer electronic company NIVS IntelliMedia Technology Group Inc., lighting company China Intelligent Lighting and Electronics Inc., and the Chinese companies’ CEOs Tianfu Li and Xuemei Li, who are siblings, for taking part in allegedly fraudulent scams to raise offering proceeds and then divert them. The regulator believes that they lied to auditors and made filings that were materially misleading to hide their purported misconduct.

In a release, the SEC says that NIV and CIL are US issuers that raised about $21.5 million and $7 million, respectively, in public registered offerings in American capital markets in 2010. The siblings then allegedly took most of the funds from the companies’ accounts and diverted the offering proceeds from what the offering documents said they would be used for. The Commission wants disgorgement and prejudgment interest, injunctive relief, civil penalties, and other relief that is deemed appropriate.

SEC Focuses More Attention On Accounting Fraud, Variable Annuities, & Market-Maker Risk

Published on: June 26, 2013 | by Shepherd Smith Edwards & Kantas, LLP

Securities and Exchange Commission Chairman Mary Jo White says that the agency will direct more resources toward going after financial fraud and accounting fraud. She was, however, clear to point out that this did not mean that a new accounting and financial fraud unit would be created, despite calls for one by some industry members. White spoke at the CFO Network 2013, where she also announced that the Commission was modifying its “neither admit, nor deny” settlement practice. This is an announcement that our stockbroker fraud law firm addresses in a different blog post.

The Commission is currently assessing its Enforcement Division’s specialized units, and this review is expected to result in certain size refinements and mandates, as well as the establishment of maybe one or more new units. Enforcement Division co-director George Canellos, however, said that the same reason why such a unit wasn’t set up three years ago when five specialized units (focusing on market abuse, asset management, the Foreign Corrupt Practices Act, public pensions, and municipal securities) were established still holds.

The SEC said then that nearly every regional office has attorneys and experienced accountants they believed are able to handle such cases. That said, the Commission will give over more resources to surveillance and become even more proactive about identifying where there are risks in accounting issues. This will include the Division of Economic and Risk Analysis’s development of an “Accounting Quality Model” that would let the SEC identify financial statement outliers. There also will be more partnering between the Enforcement Division’s Office of the Chief Accountant and the Division of Corporation Finance to come up with more accounting leads.

Congress Regulates the Securities Regulators

Published on: April 30, 2013 | by Shepherd Smith Edwards & Kantas, LLP

At a hearing in the US House of Representatives about putting the Jumpstart Our Business Startups Act into effect, Rep. Patrick McHenry (R-N.C.) expressed worry that the Securities and Exchange Commission has lost the power to enforce the private offerings general solicitation ban because the rulemaking for the statutory deadline has come and gone. Per the JOBS Act’s Title II, the SEC could write rules to lift the ban for offerings that take place under Rule 144A and Regulation D Rule 506.

The SEC, which put out a proposal, has yet to make a final rule. SEC Chairman Elisse Walter defended the agency’s actions, noting that a comment period is normal. The Commission has been criticized by Republicans and industry members, who contend that its decision to vote on a proposal instead of interim final rules is a way of kowtowing to investor groups. Walter maintains that she has always favored notice and comment rulemaking to put a provision into effect (per the Administrative Procedure Act).

Meantime, Rep. Maxine Waters (D-Calif.), a ranking member of the House Financial Services Committee, once again introduced a bill that would use industry user fees to fund the SEC’s investment adviser examinations. HR 1627 would make advisers under the Commission’s oversight pay fees to cover the “funding gap” in the oversight program. A similar bill that she previously had presented did not move forward, in part because it was competing with former Committee Chairman Spencer Bachus (R-Ala.)’s legislation to place investment advisers under the oversight of a regulator. That bill, too, did not progress.

SEC OCIE Finds Custody-Related Deficiencies Involving Investment Advisers

Published on: April 3, 2013 | by Shepherd Smith Edwards & Kantas, LLP

According to the Securities and Exchange Commission Office of Compliance Inspections and Examinations, it discovered “significant deficiencies” related to custody issues with a third of the investment advisers that it examined, including:

• Failure of an investment adviser to recognize when it has custody • Failure to satisfy the rule’s surprise exam requirements • Failure to fulfill the rule’s qualified custodian requirements

Custody by investment advisers refers either to the holding of securities or client funds or the authority to possess them, including the power of attorney to get securities or funds from client accounts. The 1940 Investment Advisers Act’s Rule 206(4)-2 regarding custody prescribes specific requirements for client asset safety.