SEC Settlements

SEC Cases: Oil and Gas Company is Charged With Accounting Fraud, Utah-Based Broker-Dealer is Accused of Not Complying With Anti-Money Laundering Laws, and Hemp Oil Company Allegedly Inflated Assets

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

Penn West Petroleum is Accused of Accounting Fraud

The US Securities and Exchange Commission has charged Penn West Petroleum Ltd., now called Obsidian Energy Ltd., and three of its ex-finance executives with involvement in an alleged accounting fraud. According to the regulator, the Canadian-based oil and gas company fraudulently transferred hundreds of millions of dollars in expenses to capital expenditure accounts from its operating expense accounts. As a result, Penn West was able to artificially lower operating expenses by up to 20% during some periods, as well as falsely enhance the metrics having to do with profitability and oil extraction efficiency. These metrics are important for selling barrels of oil.

The SEC is accusing ex-Penn West CFO Todd Takeyasu, ex-VP of Accounting and Reporting Jeffery Curan, and ex-Operations Controller Waldermar Grab of running the accounting fraud. The regulator claims that the three men violated federal securities laws related to antifraud, books and records, reporting, and internal controls provisions.

SEC Cases: Barclays Will Pay $97M for Overcharging Clients, Regulator Accuses Ex-Staffer of Securities Fraud, Whistleblower is Awarded Over $500K, and Two Chinese Citizens Face Penny Stock Scam Allegations

Published on: May 9, 2017 | by Shepherd Smith Edwards & Kantas, LLP

Barclays Must Pay Back Sales Charges, Advisory Fees
The US Securities and Exchange Commission announced that Barclays Capital (BARC) has settled securities charges accusing the firm of overbilling clients. As part of the resolution, which includes paying over $97M, Barclays must pay back advisory fees and mutual fund sales charges to clients that were affected. The firm is settling without denying or admitting to the SEC’s findings.

The SEC’s case involved three sets of violations resulting in almost $50M in client overcharges. According to the Commission, two of Barclays advisory programs charged over 2,000 clients for services that were not conducted as presented. Meantime, 63 broker-dealer clients paid too much in mutual fund sales charges or fees because Barclays recommended that they purchase more costly share classes even though there were less expensive ones available. Also, over 22K accounts paid Barclays excess fees because the firm made billing mistakes and miscalculations.

Ex-SEC Staffer Accused of Securities Fraud
The SEC has filed charges against David R. Humphrey, one of its ex-employees, for securities fraud related to trades that he made. Humphrey worked with the regulator from 1998 to 2014.

SEC Orders Barclays to Pay Over $16.5M Over Alleged RMBS Fraud by Former Traders

Published on: May 1, 2017 | by Shepherd Smith Edwards & Kantas, LLP

The US Securities and Exchange Commission said that Barclays Capital (BARC) has agreed to pay over $16.5M as part of a settlement resolving allegations accusing the company of failing to properly supervise two of its ex-mortgage bond traders. The men are accused of lying to clients, as well as overcharging some of them. According to the regulator, Barclays did not put into place or execute the proper supervisory procedures that could have stopped or detected the alleged residential mortgage-backed securities fraud.

The two traders, David Wong and Yoon Seok Lee, are accused of making misleading or false statements to the firm’s customers about RMBS securities, how much Barclays makes for facilitating the trades, and other pertinent information. Lee and Wong also are accused of making excessive mark-ups on certain transactions without telling customers.

The SEC said that the ex-Barclays traders’ actions, which would have occurred between 6/2009 and 12/2012, caused Barclays to earn $15.5M in profits.

SEC Insider Trading Cases Lead to Civil Charges, Frozen Brokerage Accounts, and Restitution

Published on: April 27, 2017 | by Shepherd Smith Edwards & Kantas, LLP

In a Securities and Exchange Commission case linked to parallel criminal charges, the regulator has filed insider trading charges against Avaneesh Krishnamoorthy, the risk management VP of a New York-based investment bank. Krishnamoorthy is accused of trading on confidential information prior to the acquisition of a publicly-traded tech company by a private equity firm. He allegedly made about $48K in illicit profits. Also charged as a relief defendant is his wife Shreya Achar.

According to the SEC, Avaneesh Krishnamoorthy began trading in Neustar Securities after learning that Golden Gate Capital was going to buy the company. He used two brokerage accounts that his employer didn’t know about. Golden Gate Capital had approached the investment bank about financing the acquisition.

Meantime, the U.S. Attorney’s Office for the Southern District of New York has filed its own case against Krishnamoorthy. He faces one criminal securities fraud charge.

Securities Cases: LPL Financial Fined $900K for Record-Keeping Issues, NY-Based Broker Deal to Pay $100K for Trading Surveillance and Compliance Failures, and Private Equity Adviser is Barred Over Improper Fund Withdrawals

Published on: February 15, 2017 | by Shepherd Smith Edwards & Kantas, LLP

FINRA Fines LPL Financial $900K

The Financial Industry Regulatory Authority has fined LPL Financial (LPLA) for either not sending or failing to create records showing that it had sent over 1.6 million mandatory account notices to customers over a 36-month period. Under industry rules, account notices have to be sent to customers at three-year intervals which is when a determination of suitability is evaluated. FINRA said that LPL did not send more than 25% of such written notices over a period of seven years.

The financial firm accepted the self-regulatory organization’s settlement but is not denying or admitting to the findings. However, an LPL Financial spokesperson said in an email that the firm had self-reported the matter and was committed to “enhancing” structures for compliance and risk management.

CFTC Orders Citigroup to Pay $25M for Spoofing, Supervisory Failures

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

Citigroup Global Markets Inc. (C) has been ordered to pay $25M penalty by the U.S. Commodity Futures Trading Commission to settle charges alleging spoofing in US Treasury futures markets. The regulator is also accusing the firm of not doing a diligent enough job of supervising agents and employees that were involved with the spoofing orders, which purportedly took place between 7/16/2011 and 12/31/2012.

Spoofing

Spoofing involves a trader making an offer or bid but with the intention of calling off the bid or offer before it actually goes through. According to the CFTC’s order, through five traders, Citigroup took part in spoofing over 2500 times in different Chicago Mercantile Exchange (CME) U.S. Treasury futures products. The spoofing strategy purportedly applied involved making offers or bids of at least one thousand lots but with no intention of allowing them to be executed.

SEC Issues $7M Whistleblower Award

Published on: January 25, 2017 | by Shepherd Smith Edwards & Kantas, LLP

The US Securities and Exchange Commission is awarding $7M, to be split between the three whistleblowers who helped the regulator go after an investment scam. This latest whistleblower award, the second issued this year, ups the collective total that the SEC has granted to 41 whistleblowers to $149M.

Of the $7M, about $4M will go to the whistleblower who gave the SEC information that helped start the regulator’s investigation. The other two whistleblowers, who provided additional new information during the probe, will split the $3M.

To date, SEC enforcement actions resulting from whistleblower tips have led to over $935M in financial remedies. Whistleblowers who provide the tips that lead to successful enforcement actions resulting in at least a $1M remedy are eligible to receive 10-30% of the money collected. Because the SEC is committed to protecting the identity and confidentiality of whistleblowers, details from these enforcement cases that could reveal their identities are kept confidential.

State Street to Pay Over $64M to Settle US Probes Over Secret Fees Charged to Institutional Clients

Published on: January 20, 2017 | by Shepherd Smith Edwards & Kantas, LLP

State Street Corp. (STT) will pay $32.3M to the US Securities and Exchange Commission and $32.3 to the federal government to resolve probes accusing the firm of bilking six clients on billions of dollars of trades by charging them secret commissions. As part of the settlement, the Massachusetts-based bank agreed to a deferred prosecution deal and admitted to conspiring to include these secret commissions on the trades conducted. State Street reportedly made at least $20M in commissions without these clients knowing they were paying.

According to prosecutors, from ’10 to ’11, former State Street executive Ross McLellan and ex-senior managing director Edward Pennings conspired to charge the secret commissions involving equity and fixed income trades that were conducted for these clients.

These commissions were in addition to fees that clients had consented to pay even though there had been written instructions given to State Street traders noting that these six customers didn’t have to pay these fees. The clients had been working with a State Street unit that supports institutional customers in liquidating big investment portfolios or moving investments between asset managers.

SEC Cases: IT Specialist Settles Insider Trading Charges For Over $375K, San Francisco Firm Pays $80K for Unregistered Swaps Sales Involving Pre-IPO Companies, and EB-5 Fraud Cases Lead to Settlement for Florida Businessman and Civil Charges For California Lawyer

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

IT Specialist Accused of Hacking Expedia Executives and Insider Trading

The U.S. Securities and Exchange Commission has filed civil insider trading charges against Jonathan Ly, who worked as a technology specialist for online travel company Expedia. According to the regulator, Ly hacked senior company executives and traded on company secrets ahead of nine announcements between 2013 and 2016.

As a result of his alleged insider trading, Lyn made almost $350K in profits. To settle the SEC case against him, Ly will pay over $348K of disgorgement and more than $27K in interest. This is a deal that still has to be subject to court approval.

Meantime, the U.S. Attorney’s Office for the Western District of Washington has filed parallel criminal charges against Ly.

Braskem, Teva Pharmaceutical, and General Cable Corp. Settle FCPA Charges for $957, $519M, and $75M

Published on: December 29, 2016 | by Shepherd Smith Edwards & Kantas, LLP

A Brazilian-based petrochemical maker that trades its stock in US markets has arrived at a $95M global settlement with the US Securities and Exchange Commission, the US Justice Department, and authorities in Switzerland and Brazil. Braskem SA is accused of violating the Foreign Corrupt Practices Act and generating fake books and records to hide millions of dollars in bribes that it allegedly paid government officials in Brazil for the purposes of either keeping or winning business.

Braskem is accused of making about $325M in profits because of these purported bribes that were made via intermediaries and off-book accounts run by its biggest shareholder. The SEC believes that the petrochemical manufacturer lacked the internal controls to stop it from executing these bribes, which allegedly occurred over eight years.

As part of the settlement, Braskem will pay $325M in disgorgement—$65M of that will go to the SEC and $260 will go to authorities in Brazil. Another $632M will go toward criminal penalties and fines. Braskem will have to work with an independent corporate monitor for a minimum of three years.