SEC Settlements

Hedge Fund Managers Settle SEC Charges Accusing Them of Sharing Confidential Investment Information with Each Other

Published on: December 5, 2017 | by Shepherd Smith Edwards & Kantas, LLP

Nehal Chopra, founder of the hedge fund Ratan Capital Management, and her husband Paritosh Gupta have settled US Securities and Exchange Commission charges alleging that they acted improperly: He, by sharing confidential investment recommendations with her and she, by not disclosing to her clients that her husband was the one who gave her this information.

Gupta worked at Brahman Capital, a hedge fund firm. He later launched Adi Capital Management, also a hedge fund firm. Brahman and Ratan are competitors in their field.

According to the SEC, Gupta provided Chopra with information developed for Brahman’s own clients, as well as the timing of Brahman’s sizes and positions, and he advised her about certain investments. In one example noted by the regulator, Gupta asked his wife about the size of her firm’s position in one security. After she responded, he advised her to increase that position. Ratan would go on to buy more shares that day.

Ex-Illinois Mayor Accused in $5.2M Municipal Bond Fraud

Published on: November 30, 2017 | by Shepherd Smith Edwards & Kantas, LLP

David Webb, the ex-Illinois mayor of the city of Markham, has agreed to partially resolve fraud charges brought by the SEC accusing him of involvement in a $5.5M municipal bond scam. The regulator accused Webb of taking part in a pay-to-play scheme that involved a $75K bribe from a construction contractor. In return, Webb is accused of directing one of the city’s construction projects to the contractor. The alleged fraud involved a $5.5 muni bond offering that the city offered in 2012.

According to the Commission’s complaint, at a Markham council meeting that year, talks took place to authorize the $5.5M of general obligation bonds to help pay for certain city projects. It was during this conversation that an attendee spoke out saying she’d heard that the owner of a roller rink stood to “improperly benefit.” The owner of the rink was Markham’s city attorney at the time and the roller ring was one of the city projects involved. Webb, however, responded by saying “I don’t make deals” even though he purportedly had recently been paid the bribe to the construction contractor. The regulator claims that the pay-to-play scam involving the city’s Roesner Park development project was already in place.

The bond offering was approved.

Securities Firms: JP Morgan Securities to Pay $1.25 For Inadequate Background Checks of Thousands of Employees and Gray Financial Group Settles with SEC Over Unsuitable Investments to Pension Funds

Published on: November 22, 2017 | by Shepherd Smith Edwards & Kantas, LLP

FINRA Orders JPMorgan Securities to Pay $1.25M
The Financial Industry Regulatory Authority said that J.P. Morgan Securities LLC (JPM) will pay $1.25M for not conducting proper background checks—or, in certain instances, conducting them but not in a timely enough manner—from 1/2009 through 5/2017 on 8,600 of its associated persons that were non-registered. According to the self-regulatory organization, this included the failure to properly fingerprint about 2,000 non-registered associated persons. The lapses kept the brokerage firm from knowing whether these individuals should be disqualified from employment.

Meantime, other non-registered associates persons who were fingerprinted were only screened for criminal convictions as they related to federal banking laws, as well as to list that was “internally created.” Still, said FINRA, four people who warranted disqualification due to a prior criminal conviction were allowed to work as non-registered associated persons.

Under federal securities laws, breakage firms must fingerprint certain associated staff even if they are employed in a non-registered manner because they could still pose a risk to customers otherwise. Fingerprinting allows for the identification of folk convicted of past crimes that may disqualify them from working for a firm in an associated role.

SEC Cases: NY Town Accused of Municipal Securities Fraud, Jay Peak Owner Accused in $200M Immigrant Visa Fraud Arrives at Tentative Settlement, and Financial Judgment is Reached in $110M Investor Fraud Against Inofin

Published on: November 21, 2017 | by Shepherd Smith Edwards & Kantas, LLP

SEC Files Fraud Charges Against Oyster Bay, NY

The US Securities and Exchange Commission has filed municipal securities fraud charges against the New York City of Oyster Bay along with John Venditto, who was a former supervisor of the town. According to the regulator, the Long Island Town and Venditto defrauded investors through 26 municipal securities offerings from 8/2010 to 12/15. A parallel criminal action has been brought against the ex-town supervisor.

The regulator’s complaint claims Oyster Bay and Venditto hid a number of side deals with a businessman who ran concession stands and restaurants at local facilities. Part of the deals included agreeing to “indirectly guarantee” a number of private loans totaling over $20M to this vendor. “Gifts, bribes, kickbacks, and political support” also were allegedly involved.

UBS to Pay $3.5M Penalty To Settle Allegations that It Disadvantaged Retirement and Charity Accounts During Mutual Fund Transactions

Published on: November 6, 2017 | by Shepherd Smith Edwards & Kantas, LLP

UBS Financial Services Inc. (UBS) has agreed to settle US Securities and Exchange Commission charges accusing the brokerage firm of not ensuring that certain charitable brokerage accounts and retail retirement accounts received the sales charge waivers or reduced fee share classes to which they were entitled when they purchased certain mutual funds. However, despite settling, including agreeing to pay a $3.5M penalty, the firm did not admit to or deny the SEC’s findings.

The regulator’s order states that from at least 1/2010 through 6/2015, UBS did not confirm certain customers’ eligibility to purchase from a less costly mutual fund share class and instead recommended that they buy more expensive ones. The customers that were affected purportedly did not have enough information at their disposal to understand that UBS had a conflict of interest when recommending the costlier share classes, such as Class A shares that came with an upfront sales fee and Class B/C shares that charged contingent deferred sales fees at the back-end plus came with costlier ongoing expenses and fees. All of the customers affected had been eligible to buy either no-load Class R shares or load-waved Class A shares.

As a result, claims the Commission, 15,250 customer accounts paid more than $18.5M in excess fees and expenses, upfront sales fees, and “contingent deferred sales charges.” Also, by selling investors the more expensive share classes, UBS earned higher compensations. The brokerage firm is accused of not disclosing to these customers that buying the costlier share classes would hurt their investments’ returns.

SEC Cases: Whistleblower Awarded Over $1M, Lawyers Accused in Microcap Fraud, and Former Executives Are Charged in $3.3B Accounting Fraud Involving Homex

Published on: October 13, 2017 | by Shepherd Smith Edwards & Kantas, LLP

Latest Whistleblower Award Raises Total Granted to $162M
The US Securities and Exchange Commission has awarded a whistleblower over $1M for providing “new information and substantial corroborating documentation” that allowed the regulator to bring a successful enforcement action. The securities violation involved a registered entity and had affected retail investors.

This latest award means that the SEC has now awarded over $162M to 47 whistleblowers since the awards program went into effect in 2013. Whistleblowers who give the Commission unique and “credible” information resulting in a successful enforcement case are eligible to receive 10-30% of the funds collected when the monetary sanction imposed is over $1M.

Attorneys Accused of Involvement in Microcap Fraud Scam
The SEC is accusing James M. Schneider and Andrew H. Wilson of involvement in a microcap fraud that involved more than 20 blank check companies that were sold in reverse mergers. Now, the regulator wants ill-gotten gains, civil penalties from the two lawyers, and other relief. A related criminal fraud case has also been brought against Schneider.

SEC Hacking Raises Concerns That Rogue Traders Might Access Filings in EDGAR Before They Are Public

Published on: September 22, 2017 | by Shepherd Smith Edwards & Kantas, LLP

According to The Wall Street Journal, news that the US Securities and Exchange Commission’s electronic filing system was hacked is raising concerns of what rogue traders may do if they gained market-moving information before the news went public. This week, the SEC disclosed that that its Electronic Data Gathering, Analysis, and Retrieval System (EDGAR), which stores public company filings, was hacked last year.

While the breach was noticed in 2016, regulators were not made aware that illicit trading could become a repercussion until last month. The majority of the commissioners reportedly didn’t know the hack had occurred until “recent days.” It wasn’t until SEC Chairman Jay Clayton launched a review of the agency’s “cybersecurity vulnerabilities” this Spring that the extent of the hack became clear.

The WSJ reports that according to market veterans, there are several ways in which intruders could trade using the nonpublic information available through Edgar. Companies usually submit earnings filings in advance of them become public knowledge and it is during this time, before market release, when a rogue trader could strike. Another potential target for hackers might be the 8-K form, used by companies to disclose big events, including acquisitions, not yet disclosed medical trials, and other potentially market moving information. 13-D filings submitted by investors with a greater than 5% position in a company—this is information that could generate investor interest—could also be a target.

Insider Trading: Ex-Amazon Financial Analyst Allegedly Tipped Former Fraternity Brother, Man Accused of Giving Merger Info to Brother, Ex-Pricewaterhouse Coopers Auditor is Subject of Securities Case, and Deutsche Börse to Pay $12.5M in Fines

Published on: September 16, 2017 | by Shepherd Smith Edwards & Kantas, LLP

Ex-Amazon Employee and Former College Schoolmate Accused of Insider Trading
The US Securities and Exchange Commission has brought civil insider trading charges against Brett Kennedy and Maziar Rezakhani. Kennedy, an ex- Amazon financial analyst, is accused of leaking confidential information to Rezakhani, who was a former fraternity brother, prior to a company earnings announcement for Amazon being disclosed to the public. Kennedy is also facing criminal charges.

According to the regulator, Kennedy shared the 2015 first quarter earnings information without authorization while employed at Amazon. Rezakhani then allegedly illegally traded on the information in advance of the information’s release to the public and he made over $116K in illicit profits.

Also, on two online communications platforms involving trading, Rezakhani accurately predicted Amazon’s first quarter performance. He is accused of paying Kennedy $10K for the tip and sharing the money with Sam Sadeghi, who gave him trading advice. Sadeghi also faces civil charges.

Ex-Morgan Stanley Broker Pleads Not Guilty to Insider Trading

Published on: September 5, 2017 | by Shepherd Smith Edwards & Kantas, LLP

Michael Siva, a former Morgan Stanley broker (MS), has pleaded not guilty to criminal charges accusing him of insider trading. Siva is one of several people charged over their alleged participation in a group of “tipping chains” and trading on tips about upcoming acquisitions and mergers. The information was provided by Bank of America (BAC) consultant Daniel Rivas. Siva is said to have gotten the tips from the James Moodhe, who is the father of Rivas’ girlfriend.

Rivas and Moodhe have both pleaded guilty to the criminal charges accusing them of insider trading. They are cooperating with the government’s probe.

Moodhe is said to have shared Rivas’s tips with Siva from at least 2015 up through earlier this year. Siva allegedly used the information so he could make successful trades for clients as well as for himself. Moodhe and Siva allegedly met at eating places outside NYC during which time the former would read details about upcoming deals to Siva, including the value of the deals and when news about them was expected to go public. The two men allegedly made over $3M trading prior to and after the announcement of the deals.
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Securities News: Deutsche Bank, Citigroup, JPMorgan, and Interactive Brokers Are Fined for Market Access Violations & Halliburton Settles FCPA Charges for $29.2M

Published on: July 28, 2017 | by Shepherd Smith Edwards & Kantas, LLP

Four Firms Are Ordered to Pay $4.75M for Market Access Rule Violations

The Financial Industry Regulatory Authority, CBOE Holdings company Bats, the New York Stock Exchange, NASDAQ, and their affiliated Exchanges have fined four financial firms $4.75M collectively for violating the Securities Exchange Act of 1934’s Rule 15c3-5, which is also known as the Market Access Rule. The fines are: $2.5M for Deutsche Bank (DB), $800K for J.P. Morgan (JPM), $1M for Citigroup (C), and $450K for Interactive Brokers (IBKR).

The firms have given market access to quite a number clients that engage in millions of trades daily. However, according to FINRA, Bats, NASDAQ, and NYSE, when doing so, they purportedly did not comply with at least one of the Market Access Rule’s provisions when they did not put in place certain risk management controls and procedures so that orders that were “erroneous or duplicative,” or went beyond certain kinds of thresholds, could be detected or prevented. The firms are also accused of not having systems in place for properly supervising customer trading so that “potentially volatile and manipulative activity” could be avoided.