Securities and Exchange Commission

Institutional Fraud Cases: Shareholders Sue PJT Partners Over Andrew Caspersen’s $95M Fraud, Sabal Limited Sues Deutsche Bank, and Dallas Pension Fund Sues Firm

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

Securities Case Brought Over Caspersen Fraud
Shareholders of PJT Partners Inc. have brought a class action lawsuit against the publicly traded investment bank. The complaint comes in the awake of the arrest of Andrew Caspersen, who previously was one of the top officials at the bank’s Park Hill Group unit. Caspersen is accused of running a $95M fraud in secret. He is also a defendant in this lawsuit.

According to authorities, Caspersen falsely told investors that he was raising funds for supposed private equity investments when actually he was placing their money in high-risk options bets. He lost millions of dollars through options trading in his own accounts. Among his investors were the charitable foundation of a hedge fund and other institutional clients.

Caspersen was arrested and charged last month, as well as fired from PJT Partners. Investor Gregory Barrett claims that the investment bank misled shareholders by not disclosing that it had inadequate fraud prevention and compliance controls. The shareholder lawsuit points to purported evidence of alleged control failures, including an anonymous quote in the New York Times stating that Caspersen had availed of Park Hill Group’s payment system to give investors invoices and keep his scam going.

Sabal Sues Deutsche Bank Over Swap Transaction
Sabal Limited LP is suing Deutsche Bank AG (DB). Sabal claims that the German bank falsified documents after coming to the realization that the outcome of a swap transaction wasn’t going to be in its favor. Deutsche Bank is accused of improperly holding nearly $1M from the Texas asset management firm.

According to Sabal, in 2011, Deutsche Bank proposed a way of “cheapening” the firm’s capital costs through a swap tied to the DB Pulse USD Index. Deutsche Bank purportedly said that if the swap was based on this index it would generate a lot of funds. The transaction was finalized a few months later.

SEC Files Financial Fraud Cases Against Logitech and Ener1

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

The Securities and Exchange Commission has filed financial fraud cases against Logitech International and Ener1. Logitech, a technology manufacturer, will pay $7.5M to resolve the charges. Its former controller, Michael Doktorczyk and ex-accounting director, Sherallyn Bolles, will pay $50K and $25K penalties, respectively.

The SEC said that the two companies and their former executives committed accounting-related violations that caused investors to not have an accurate portrayal of what was going on financially at Logitech and Ener1.

According to the regulator, Logitech fraudulently inflated its financial results for the 2011fiscal year to satisfy earnings guidance, as well as committed other accounting violations over five years. The SEC also filed charges against the technology company’s former CFO, Erik Bardman, and ex-controller Jennifer Wolf, accusing them of purposely minimizing the write-down of millions of dollars of extra component parts for a product that had inventory in excess.

For the company’s financial statements, Bardman and Wolf are accused of falsely assuming that the company would construct the components into complete products even though they knew of contrary events and facts. Also, ex-CEO Gerald Quindlen, who is not accused of misconduct, gave back $194,487 in stock sale profits and incentive-based compensation that was given to him during a time when alleged accounting violations were taking place.

In the Ener1 financial fraud case, the battery manufacturer consented to pay penalties for its materially overstated assets and revenues for year-end 2010, as well as overstated assets from 2011’s first quarter. The SEC said that the financial misstatements were a result of management’s failure to impair certain receivables and investments. Ex-CFO Jeffrey A. Seidel, ex-CEO Charles Gassenheimer, and ex-chief accounting officer Robert Kamische consented to pay $50K, $100K, and $30K, respectively.

The SEC said that Robert Hesselgesser, who was the engagement partner of Price Waterhouse Coopers LLP’s audit of Ener1’s financial statements of 2010, violated auditing standards when he did not conduct the proper procedures to back his audit findings that Ener1’s management had properly accounted for revenues and assets.

SEC Charges New York Man With $95M Institutional Investor Fraud

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

The U.S. Securities and Exchange Commission is charging Andrew W.W. Caspersen and shell entity Irving Place III SPV, LLC with defrauding two institutional investors, including a non-profit charitable affiliate of an investment limited partnership. Caspersen is a securities professional associated with a registered brokerage firm. He also is one of the sons of deceased financier Finn Caspersen. According to the SEC, Caspersen offered the two clients promissory notes that were issued by the shell entity, which he controlled. However, Irving Place III SPV, LLC lacked any business operations that were legitimate.

The regulator contends that the New York securities professional obtained $25M from an institutional client last November by falsely representing that about $900 million of Irving Place III SPV’s assets would be securing the investment. According to USA Today, Caspersen told the investor, which was a charitable foundation, that he wanted to invest in an $80M credit facility that he said his firm had established to facilitate investments in the secondary market for private equities.

The promissory note promised 15% yearly interest that was payable quarterly. The note was supposed to be totally redeemable within 90 days upon notice. After receiving the money, Caspersen allegedly took the money for his own use. He later used similar misleading and false statements to solicit another $20M from that investor and $50M from a NY private equity firm. This was after purportedly losing most of the $25M through high-risk options trading. Both times he was unsuccessful in obtaining the founds. In fact, the charitable foundation became suspicious and demanded that he return the $25M, which has yet to happen.

Florida Man Accused of Insider Trading to Return Illegal Profits

Published on: March 11, 2016 | by Shepherd Smith Edwards & Kantas, LLP

The U.S. Securities and Exchange Commission announced this week that Jay Y. Fung, a Florida man accused of insider trading, has agreed to repay over $700K in illegal profits plus over $60K in interest that he made after he bought stock and call options in Pharmasset Inc. prior to its acquisition by Gilead Sciences. Fung made the trades after a friend tipped him about the pending deal.

In addition to buying shares of Pharmasset, he passed the insider tip onto his business partner who bought options, too. That individual has not been charged nor has he been accused of knowing that the information that Fung gave him was non-public and privileged.

Fung has since pled guilty in a parallel criminal case accusing him of conspiracy to commit conspiracy fraud. He could be facing up to five years in prison. His cooperation with authorities, however, will likely lessen his time under his plea deal.

SEC Files Fraud Charges Against Aequitas Management Over Ponzi Scam

Published on: March 10, 2016 | by Shepherd Smith Edwards & Kantas, LLP

The Securities and Exchange Commission says that Aequitas Management LLC and four affiliates allegedly bilked over 1,500 investors. One of the affiliates, Aequitas Capital Management, has been in the headlines recently in the wake of news that the investment firm was letting go of almost all of its employees because of financial problems.

According to the regulator, the Oregon-based investment group and three of its executives tried to hide their financial woes while raising over $350M from investors. Meantime, investors were allegedly fooled into believing that they were putting their money in transportation, education, and health-care related investments when really their funds were going toward trying to save the firm. Earlier investors were purportedly paid with the money of newer investors, which is a trademark of a Ponzi scam.

The SEC’s complaint contends that CEO Robert Jesenik and EVP Brian Oliver knew about Aequitas financial problems but kept soliciting investors so they could continue bringing in money to cover the firm’s expenses, including redemptions and interest payments to earlier investors, and try to keep the business afloat. Ex-COO and CFO N. Scott Gillis is accused of hiding the fact that the firm was insolvent. He purportedly knew that Oliver and Jesenik were still soliciting investors.

Meantime, Aequitas’s top executives continued to make “lucrative” salaries as they brought more investors into a “losing venture.” They traveled in private jets and paid for golf outings and dinners for potential investors. They also persuaded prior investors to bring in more funds.

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.

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.

Senator Warren Accuses the SEC of Poor Enforcement

Published on: January 31, 2016 | by Shepherd Smith Edwards & Kantas, LLP

U.S. Senator Elizabeth Warren has issued a report in which she claims that the U.S. Securities and Exchange Commission and the U.S. Department of Justice have been doing a poor job on enforcement when it comes to going after companies and individuals for corporate crimes.

In Rigged Justice: How Weak Enforcement Lets Corporate Offenders off Easy, Warren takes a closer look at what she describes as the 20 worst federal enforcement failures of 2015. The Senator noted that that when federal agencies caught large companies in illegal acts, they failed to take substantial action against them. Instead, companies were fined for sums that in some cases could be written off as tax deductions.

Some of the 2015 cases that Warren Mentions:
• Standard & Poor’s consented to pay $1.375B to the DOJ, DC, and 19 states to resolve charges that it bilked investors by putting out inflated ratings misrepresenting the actual risks involved in collateral debt obligations and residential mortgage-backed securities. Warren Points out that the amount the credit rater paid is less than one-sixth of the fine the government and states had sought against it, and at S & P did not have to admit wrongdoing. No individuals were prosecuted in this case.

• Citigroup (C), Barclays (BARC), JPMorgan Chase (JPM), Royal Bank of Scotland (RBS), and UBS AG (UBS) paid the DOJ $5.6B to resolve claims that their traders colluded together to rig exchange rates. As a result, the firms made billions of dollars while investors and clients suffered. While admissions of guilt were sought, no individuals were prosecuted. Also, the SEC gave the banks waivers so they wouldn’t have to deal with collateral damages from pleading guilty.

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.