SEC Settlements

Whistleblower Cases: SEC Issues Almost $1MK Award to Another Tipster, JPMorgan is Defendant in IRS Whistleblower Case Involving Pension Funds, and Prudential Stops Selling Certain Term Life Insurance Policies Through Wells Fargo Following Employees’ Lawsuit

Published on: December 23, 2016 | by Shepherd Smith Edwards & Kantas, LLP

The U.S. Securities and Exchange Commission said that it has awarded a whistleblower over $900K for a tip that allowed the regulator to bring multiple enforcement actions. The regulator announced the award just a days after it awarded another whistleblower $3.5M, also for coming forward with information resulting in an enforcement action.

Since 2012, the regulator’s whistleblower program has awarded about $136M to 37 individuals. The SEC protects the identities of whistleblowers, which is one reason it doesn’t disclose details about the enforcement cases.

It is against the law for companies to retaliate against employers for turning whistleblower, and there are protections, as well as remedies in place in the event of retaliation. Whistleblowers who provide the SEC with unique and helpful information that makes it possible for a successful enforcement action rendering over $1M in monetary sanctions are entitled to 10-30% of the funds collected.

Securities News: Goldman Sachs to Settle Reno’s Auction Rate Securities for $750K, SEC Demands Remaining $5.4MFine Owed By Maine Developer, & a Federal Judge Rules in Jay Peak Resort EB-5 Case

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

Goldman Sachs and Reno, NV Settle Securities Fraud Case
According to the Reno Gazette-Journal, the city of Reno is about to settle its securities fraud lawsuit against Goldman Sachs (GS) for $750K. Nevada’s capital city claims that the firm misled it into taking on risky debt that nearly caused Reno to become insolvent. The Reno City Council will vote on approving the settlement next week. Other details of the settlement remain undisclosed at this time.

The auction-rate securities lawsuit involved over $210M in bonds issued by Reno in ’05 and ’06 to refinance the debt for an events center and another facility. The city claims that Goldman Sachs never disclosed that the ARS market was very risky or that the firm was bidding interest rates down to hold up the market.

When the financial collapse happened in 2008 and banks ceased to bid on auction rates, rates went soaring. This left Reno with a 15% debt interest rate and millions of dollars in penalties that it now owed Goldman. For example, in 2012 Reno paid the firm $2.6M. It paid the Goldman Sachs $7M the following year.

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.

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.

SEC Awards Whistleblower $4M

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

The U.S. Securities and Exchange Commission is awarding over $4M to a whistleblower for providing original information that led to a successful fraud case. This is individual is the 34th whistleblower that the SEC’s program has awarded since 2011, upping the total amount granted in such awards to over $111M.

In what was the second biggest award issued by the regulator to date, he SEC awarded $22M to an to an ex- Monsanto Co. financial executive last month. The individual had reported alleged accounting violations involving Roundup, the company’s weed killer. According to media reports, Monsanto offered distributor rebates to raise sales but moved the costs into the following fiscal year. As a result, the company moved up its revenue while postponing the reduction that resulted from the costs.

Under the SEC Whistleblower program, individuals who voluntarily give the regulator unique information that leads to a successful enforcement case are entitled to 10-30% of the sanctions collected when that amount is over $1M. Since the program’s inception five years ago, the Commission has received over 14,000 tips.

Securities Violations: Raymond James and Robert W. Baird to Pay Fines For Alleged Wrap Fee Compliance Failures, RBC Agrees to Pay $2.5M Over Proxy Statement Disclosures, and Ex- ARCP Accounting Executives Are Accused of Overstating REIT’s Performance

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

Raymond James and Robert W. Baird Are Charged With Compliance Failures

The Securities and Exchange Commission said that Robert W. Baird and Co. and Raymond James & Associates (RJF) will pay $250K and $600K, respectively, to settle charges accusing them of compliance failures in their own wrap free programs. Both firms resolved the charges without admitting or denying to them. They did, however, consent to the regulator’s orders, which found that they violated the Investment Advisers Act of 1940 and Rule 206(4)-7.

According to the SEC’s investigation, Raymond James and Robert W. Baird did not put into place the necessary policies and procedures that would have allowed them to figure out how much in commissions their clients were charged when sub-advisers “traded away” with a brokerage firm that was not part of the wrap fee programs. As a result, said the regulator, the advisers could not let clients know the “magnitude of the costs” nor did the firm consider these commissions when trying to figure out whether the wrap fee program or sub-advisers were appropriate for clients. Because of this, claims the SEC, some clients did not know that they were paying for more than the single wrap fee for investments that were bundled.

Two ARCP Ex-Accounting Executives Face SEC and Criminal Charges For Allegedly Inflating the REIT’s Performance

Brian S. Block and Lisa P. McAlister are facing criminal and civil charges for allegedly overstating the performance of the American Reality Capital Properties (ARCP), now called VEREIT Inc. The two former ARCP accounting executives are accused of inflating a key metric that investors and analysts used to evaluate the publicly-traded real estate investment trust.

13 Investment Advisers Pay Penalties Over F-Squared Investment’s False Performance Claims

Published on: August 25, 2016 | by Shepherd Smith Edwards & Kantas, LLP

The U.S. Securities and Exchange Commission has imposed penalties against more than a dozen investment advisory firms because they purportedly spread false claims made by F-Squared Investments about its Alpha Sector strategy. The SEC said that the firms violated securities laws.

According to the regulator, which conducted an enforcement sweep, 13 firms accepted y F-Squared’s false claim that its exchange-traded funds’ investing strategy had outperformed the S & P index for a number of years. The firms touted these claims when recommending the investment to their clients. The SEC said that they did this without first obtaining adequate documentation to confirm that what F-Squared had told them was true.

It was in 2014 that F-Squared admitted to wrongdoing and consented to pay $35M to settle allegations accusing it of using false performance information about its key product to bilk investors. The SEC said that F-Squared falsely advertised its supposed successful multi-year performance record. Unfortunately, that supposed time period for this performance record would have taken place before key algorithm that had been touted for this success even existed.

In reality, backtesting had been used to come up with a “hypothetical performance” from the noted period of supposed success. Yet, F-Squared and ex-CEO Howard Present marketed AlphaSector as “not backtested.” Also, the hypothetical information included a performance calculation mistake that increased results by about 350%.

Penalties for the 13 firms vary in amount from $100K to $500K. These were determined according to the fees they respectively made from strategies related to AlphaSector.

Apollo Global Management Settles Supervisory and Disclosure Failure Charges for $52.7M

Published on: August 23, 2016 | by Shepherd Smith Edwards & Kantas, LLP

Apollo Global Management (APO) has agreed to settle for $52.7M allegations that the firm misled fund investors regarding fees and a loan agreement, as well as failed to supervise a senior partner. The settlement was reached with the U.S. Securities and Exchange Commission, which found during its probe that Apollo advisers did not adequately disclose benefits they obtained. This ended up harming fund investors.

Four private equity fund advisors will be paying part of the settlement include:

· Apollo Management V, LP