Securities and Exchange Commission

SEC Awards Whistleblower $20M

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

In its third highest award to a tipster since the inception of its whistleblower program, the Securities and Exchange Commission has awarded an individual $20M for coming forward right away to disclose “valuable information” that allowed the regulator to swiftly bring an enforcement action against the wrongdoers before they could spend the funds. This latest award ups the total awarded by the SEC to whistleblowers to $130M since 2012. The regulator issued its highest award to date, of $30M, in 2014 and awarded another whistleblower $22M in August.

The SEC Whistleblower Program allows the regulator to award the person who provided the tip 10-30% of monetary sanctions collected. The sanctions, however, must exceed $1M. The tip should relate to a federal securities law violation that already happened, is currently taking place, or is about to happen, and it must be unique information. More than one whistleblower may qualify to receive an award from an over $1M sanction obtained as a result of the tips provided.

Because the law protects whistleblower confidentiality, more specifics about this latest case, including who was involved or who received the award, were not disclosed.

SEC Adopts Final Rules to Modernize Fund Raising for Intrastate and Regional Offerings, Enhance Information that is Reported by Funds, and Enhance the Effectiveness of Risk Management Programs

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

The SEC has adopted final rules to modernize the way companies are allowed to raise funds for their businesses via small and intrastate offerings, all the while keeping investor protections in place. The final rules include amendment to Securities Act Rule 147 and a new Securities Act Rule 147A for out-of-state residents and companies organized or incorporated outside the state.

Under the Rule 147A and Securities Act Rule 147 amendments, the current intrastate offering framework, which allows companies to raise funds from investors in their state without having to federally register the sales and offerings, would be modernized. New Rule 147A would differ from Rule 147 in that it would permit out-of-state residents and companies outside the state, or companies that were incorporated outside the state, to access these securities offerings.

There are also now amendments to Regulation D’s Rule 504 that would grant registration exemption for offers and sales as high as $1M of securities within a one-year period, as long as the issuer does not qualify as an Exchange Act reporting company, blank check company, or investment company. The aggregate quantity of securities that could be offered and sold under Rule 504 within any yearlong period would go up from $1M to $5M. Meantime, the new final rules would repeal Rule 505, which allowed for offerings of up to $5M yearly that were sold only to accredited investors or 35 non-accredited investors maximum.

Securities Cases: Merrill Lynch Ordered to Pay $2.8M for Supervisory And Other Violations, Ernst & Young Agrees to Pay $11.8M for Failed Audits, and Ex-Morgan Stanley Client Administrator is Suspended Over Fraudulent Wire Transfer

Published on: October 20, 2016 | by Shepherd Smith Edwards & Kantas, LLP

Financial Industry Regulatory Authority Fines Merrill Lynch $2.8M

FINRA has fined Merrill Lynch, Pierce, Fenner and Smith Inc. $2.8 million. By settling, the firm is not denying or admitting to the self-regulatory organization’s charges.

FINRA said because of system errors, Merrill Lynch inaccurately reported millions of trades. The regulator said that Merrill Lynch’s supervisory system as it relates to specific matters related to documenting, reporting, and records was not designed in a reasonable manner.

Ernst & Young Settles Audit Failure Charges By Agreeing to Pay Over $11.8M

Ernst & Young LLP has agreed to resolve U.S. Securities and Exchange Commission charges accusing it of audit failures. The monetary settlement, along with the $140M penalty that audit client Weatherford International agreed to pay separately, will go back to investors who were hurt in the accounting fraud.

Artis Capital Management Accused of Not Preventing $6M Insider Trading

Published on: October 17, 2016 | by Shepherd Smith Edwards & Kantas, LLP

A San Francisco-based hedge fund advisory firm has agreed to settle U.S. Securities and Exchange Commission charges alleging its failure to notice that one its employees was engaged in insider trading. Artis Capital Management will disgorge the more than $5.1M in illicit rating profits made by employee Matthew G. Teeple for the firm plus over $1.1M of interest. The hedge fund firm will also pay a more than $2.5M penalty.

According to the regulator, Artis Capital did not maintain policies and procedures adequate enough to prevent insider trading from taking place at the firm. The Commission contends that Teeple’s supervisor, Michael W. Harden, did not respond as needed when red flags arose to indicate that Teeple was engaging in wrongful behavior.

To settle the SEC charges against him, Harden will pay a $130K penalty and serve a 1-year suspension from the securities industry. He and Artis Capital consented to the regulator’s order. However, they did not deny or admit to the Commission’s findings.

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.

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.

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.

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.

Merrill Lynch Ordered to Pay $12.5M to the SEC and $3M to Six Exchanges Over Mini-Flash Crashes

Published on: September 26, 2016 | by Shepherd Smith Edwards & Kantas, LLP

Merrill Lynch, a Bank of America Corp. (BAC) unit must pay a $12.5M fine to resolve Securities and Exchange Commission allegations accusing the brokerage firm of having weak controls that led to mini-flash crashes. This is the largest penalty ever imposed for alleged market access rule violations.

According to the SEC, at least 15 times from 2012 to 2014, the bank established internal trading limits that were too high and, as a result not effective. These caused disruptions in the market.

Even though there were red flags, said the regulator, Merrill Lynch purportedly did not adequately assess whether it had controls that were reasonably designed and the brokerage firm did not remedy the issues when they arose fast enough. In one example cited by the SEC, Merrill Lynch purportedly applied a 5-million shares/order limit for one stock that traded at only about 69,000 shares/day. Because of this erroneous orders compelled certain stock prices to drop and then recover abruptly within seconds. For example, nearly 3% of Google’s stock dropped in under a second.