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  • SEC Brings Actions Against Underwriters In First-Ever Municipal Bond Disclosure Cases
     
    09/30/2022

    On September 13, 2022, the Securities and Exchange Commission (“SEC”) filed suit in the United States District Court for the Southern District of New York against an underwriter for allegedly failing to comply with the regulatory requirements of the Exchange Act’s Rule 15c2-12 (17 C.F.R. § 240.15c2-12), which provides a limited exception to certain disclosure requirements where underwriters have a reasonable belief that the municipal securities are being sold only to sophisticated investors that are each buying the securities for a single account.  See SEC v. Oppenheimer & Co., Inc., S.D.N.Y. No. 1:22-cv-7801 (Sept. 13, 2022).  The SEC also initiated settled enforcement actions with three other firms for similar alleged violations.  This is the first time that the SEC has initiated municipal-bond disclosure cases.
  • SEC Brings Enforcement Action Against Investment Advisor For Allegedly Failing To Disclose Conflicts Of Interest In SPACs Into Which It Invested Client Funds
     
    09/15/2022

    On September 6, 2022, the Securities and Exchange Commission announced that New York-based, registered investment advisor Perceptive Advisors LLC (“Investment Advisor”) had agreed to pay a $1.5 million civil penalty for allegedly failing to disclose conflicts of interest regarding ownership of its personnel in sponsors of special purpose acquisition companies (SPACs).  According to the SEC, the Investment Advisor used private client funds to facilitate transactions benefitting SPACs in which the Investment Advisor’s personnel and other clients had financial interests but failed to disclose the alleged conflicts resulting from those interests.
  • SEC And DOJ Bring First Ever Charges For Cryptocurrency Insider Trading Tipping Scheme
     
    07/28/2022

    On July 21, 2022, the Securities and Exchange Commission (“SEC”) filed a complaint and the Department of Justice (“DOJ”) unsealed an indictment against Ishan Wahi, a former Coinbase employee, his brother, Nikhil Wahi, and friend, Sameer Ramani, for alleged insider trading.  SEC v. Ihan Wahi, Nikhil Wahi, and Sameer Ramani, 2:22-cv01009 (W.D. Wa. July 21, 2022); United States v. Ishan Wahi, Nikhil Wahi, and Sameer Ramani, 22-cr-392 (S.D.N.Y. 2022).  Both the complaint and indictment concern the same underlying conduct by Wahi, who allegedly provided dozens of tips to his brother and friend over several months to purchase certain digital assets tied to cryptocurrencies (the “digital assets”) shortly before they were publicly listed on Coinbase’s exchange.
  • SEC Brings Its First Regulation Best Interest Enforcement Action
     
    06/23/2022

    On June 15, 2022, the Securities and Exchange Commission (“SEC”) filed a complaint in the U.S. District Court for the Central District of California against registered broker-dealer Western International Securities, Inc. (“Western”) and five of its registered representatives (the “Registered Representatives”), alleging that they had violated the Best Interest Obligation under Rule 15l-1(a) of the Securities Exchange Act of 1934 (“Regulation Best Interest” or “Reg BI”) in connection with their recommendations to retail customers to purchase certain unrated debt securities.  This is the first action brought by the SEC to enforce Reg BI, and the litigation could lead to important legal rulings clarifying its scope.
  • SEC Brings Action Against Investment Advisers For Allegedly Misleading Robo-Adviser Clients About Hidden Fees
     
    06/23/2022

    On June 13, 2022, the Securities and Exchange Commission (“SEC”), announced that it had instituted a settled administrative proceeding accusing several investment advisers (the “Advisers”) that focused on robo-advising, and all of which were themselves subsidiaries of a prominent investment adviser, of violating Sections 203(e) and 203(k) of the Investment Advisers Act of 1940 and Section 15(b) of the Securities Exchange Act of 1934.  Broadly, the SEC accused them of failing to invest client cash in ways that their own analyses showed would be optimal for the clients, and instead retaining cash in a way that benefitted the Advisers.  The Advisers did not admit or deny the SEC’s allegations as part of the resolution, but as part of the settlement agreed collectively to disgorge approximately $52 million and to pay a civil monetary penalty of $135 million and were also required to engage an independent consultant and engage in certain other undertakings.
  • Glencore Pleads Guilty And Agrees To $1.1 Billion Penalty To Resolve Manipulation And Foreign Corruption Allegations
     
    06/02/2022

    On May 24, 2022, Glencore International A.G. of Switzerland (“Glencore”), an energy and commodities trading firm, and its affiliates Glencore Ltd. of New York and Chemoil Corporation of New York resolved long-running investigations by the Department of Justice (“DOJ”), the Commodity Futures Trading Commission (“CFTC”), and regulators in the UK and Brazil related to alleged foreign bribery and market manipulation schemes.  The companies agreed to pay total fines and monetary penalties in excess of $1.1 billion, including the largest penalty and disgorgement ever ordered by the CFTC, for conduct that spanned over ten years.  As part of its resolutions with the CFTC and the DOJ, Glencore and Glencore Ltd. have agreed to retain independent compliance monitors for three years and continue to cooperate fully and expeditiously with both enforcement agencies.  In addition to the corporate resolutions, two Glencore former employees have previously been charged.  A Glencore Ltd. senior fuel oil trader, Emilio Jose Heredia Collado, pleaded guilty in March 2021 to one count of conspiracy to engage in commodities price manipulation.  His sentencing is scheduled for June 17, 2022.  Similarly, in July 2021, a senior trader in charge of Glencore’s West Africa crude oil desk pleaded guilty to one count of conspiracy to violate the FCPA and one count of conspiracy to commit money laundering.
  • SEC ESG Fines Investment Adviser For Alleged ESG Misstatements In ESG Task Force’s First Enforcement Resolution
     
    06/02/2022

    On March 4, 2021, the Securities & Exchange Commission (“SEC”) publicly announced the formation of a Climate and Environmental, Social and Governance (“ESG”) Task Force within its Enforcement Division.  This task force was reportedly staffed with 22 Enforcement staff members drawn from SEC headquarters, regional offices and specialized units.  The task force was assembled in response to, among other things, SEC Chairman Gary Gensler’s focus on investigating misstatements related to ESG disclosures.  In remarks by Chairman Gensler on July 7, 2021, he described the SEC as focused on “truth in advertising” and confirming that “funds that market themselves as ‘green,’ ‘sustainable,’ ‘low carbon,’ and so on” were in fact operating consistent with those disclosures.  Approximately 14 months later, the ESG Task Force has announced its debut enforcement action by ordering an investment adviser to pay a $1.5 million fine for alleged misrepresentations related to its ESG practices.
  • SEC Announces Settled Enforcement Action Alleging Management Of Earnings Figures To Meet Analyst Estimates
     
    04/27/2022

    On April 18, 2022, the SEC announced it had reached an $8 million settlement with Rollins Inc. (“Rollins”), a nationwide pest control services company, and its CFO for allegedly engaging in improper accounting practices to boost quarterly earnings per share (“EPS”) to meet consensus quarterly estimates.  The SEC found that the CFO directed the company to make certain adjustments to its records in multiple quarters without performing a generally accepted accounting principles (“GAAP”) analysis or memorializing the basis for the changes.  The changes allegedly caused the EPS to go up a penny, allowing the company to meet analysts’ consensus estimates, and the company often publicly touted the consistency of its earnings growth in its press releases and public filings.  Under terms of the settlement, Rollins neither admitted nor denied the SEC's findings and agreed to pay an $8 million civil penalty, while the CFO agreed to pay a $100,000 civil penalty.  However, the action was brought under Section 17(a)(2) of the Securities Act of 1933 as opposed to Section 10(b) of the Exchange Act of 1934, and although both the company and CFO agreed to the entry of a cease-and-desist order, the CFO was not required to agree to an officer or director bar.
  • SEC Announces Settled Insider Trading Action Against Former Director Of Investor Relations
     
    03/01/2022

    On February 22, 2022, the Securities and Exchange Commission (SEC) announced that John-Michael Havrilla, a former Director of Investor Relations of PAVmed Inc. (PAVmed), a medical device company, had agreed to settle claims of insider trading.  The SEC simultaneously filed a complaint in the Southern District of New York, together with a consent agreement and proposed final judgment wherein Havrilla, without admitting or denying liability, agreed to the imposition of a permanent injunction, civil penalties of $160,230, and a five-year officer or director ban.
  • Company Acquired By SPAC Agrees To Pay $125 Million To Settle SEC Probe Months After CEO Was Charged With Fraud
     
    01/11/2022

    On December 21, 2021, the Securities and Exchange Commission (SEC) announced that Nikola Corporation—a publicly traded company that develops, manufactures, and sells electric trucks—had agreed to a $125 million settlement agreement to end the SEC’s investigation into claims that the company, both directly and through its former CEO, Trevor Milton, had deceived investors about the company’s ability to build hydrogen-powered vehicles and other issues.  As part of the settlement, Nikola neither admitted nor denied the claims against it, and agreed to continue cooperating with the SEC in its separate investigation into Milton himself.  The SEC previously brought a suit against Milton, who was also charged by the Department of Justice (“DOJ”), and that case remains pending.
  • SEC Enforcement In FY 2021 Included Significant Actions In Traditional And Emerging Areas And Over $1 Billion In Whistleblower Awards
     
    11/24/2021

    On November 18, the U.S. Securities and Exchange Commission (“SEC”) announced its enforcement results for the 2021 fiscal year, which ended on September 30, 2021.  The SEC reported that it filed 434 new enforcement actions in FY2021, a 7% increase over FY2020.  But perhaps the most striking thing about the SEC’s enforcement results for the year was its whistleblowing statistics.  The SEC has now awarded over $1 billion in whistleblower awards, and the SEC highlighted those figures in its press release—announcing that “[t]he SEC’s whistleblower program was critical to these efforts and had a record-breaking year.”
  • Consulting Firm Settles Allegations That It Had Inadequate Procedures For Handling Of MNPI Between Units
     
    11/24/2021

    On November 19, 2021, the Securities and Exchange Commission (“SEC”) announced that an affiliate of McKinsey & Company (“McKinsey”), McKinsey Investment Office Partners, Inc. (“MIO”), had agreed to pay an $18 million penalty for alleged compliance failures in its handling of material nonpublic investment information (“MNPI”).  While the SEC did not allege that MIO had ever improperly used material nonpublic investment information in executing trades, it alleged that MIO’s procedures were inadequate to account for the risk that certain members of its investment committee had access to such information due to other roles they had with McKinsey.  MIO neither admitted nor denied the allegations in resolving the matter through an administrative proceeding.
  • CFTC Fines Crypto Exchange That Offered Margin Trading For Failing To Register As FCM, Prompting Calls For Further Rulemaking From One Commissioner
     
    10/06/2021

    On September 28, 2021, the Commodity Futures Trading Commission (CFTC) entered an order that imposed a $1.25 million fine on Payward Ventures Inc., which does business as digital asset exchange Kraken, for allegedly failing to register as a futures commission merchant (FCM) and for offering certain margin trading services in violation of Sections 4(a) and 4d of the Commodity Exchange Act (CEA).  Although the decision did not purport to break new legal ground, one CFTC Commissioner, Dawn Stump, noted that the decision “is informed by” the CFTC’s Final Interpretive Guidance on retail commodity transactions involving certain digital assets issued in 2020, and issued a concurring statement calling upon the CFTC to issue rulemaking to clarify and codify that guidance, which is increasingly important in the cryptocurrency space.
  • SEC Vacates $1.6 Million In FINRA Fines Against Broker-Dealer And Officers
     
    09/29/2021

    On September 17, 2021, the Securities and Exchange Commission (“SEC”) vacated $1.6 million in fines and penalties that the Financial Industry Regulatory Authority (“FINRA”) had previously levied against Scottsdale Capital Advisors Corp. (“Firm”) and three of its officers (“Applicants,” collectively).  In 2015, FINRA alleged that the Firm failed to maintain appropriate internal controls and executed sales of unregistered microcap securities for its foreign financial institution customers.  The next year, following a disciplinary hearing, FINRA imposed a $1.5 million fine on the Firm, a lifetime bar on one of the Firm’s officers, and a $50,000 fine and a two-year suspension on the two remaining Firm officers.  In reviewing FINRA’s findings on appeal by the Applicants, the SEC overturned the sanctions after determining that FINRA’s National Adjudicatory Council (“NAC”) applied incorrect legal standards, failed to adequately explain the basis of its conclusions, and conflated applicable regulations in its case against the Firm.
  • DOJ And SEC File Securities Fraud Charges Against Founder Of Company Acquired By A SPAC
     
    08/03/2021

    On July 29, 2021, the Department of Justice (“DOJ”) announced the unsealing of a criminal indictment against Trevor Milton, the founder, former CEO, and former Chairman of Nikola Corporation, a company that went public in March 2020 through a merger with a special purpose acquisition company (“SPAC”), for allegedly knowingly misleading investors about the company’s ability to build electric and hydrogen-powered vehicles and other green technology.  The SEC filed a parallel civil action against Milton based on the same facts.
  • Financial Institution Settles SEC Claims Related To Allegedly Unsuitable Investments In Complex Exchange-Traded Product
     
    07/28/2021

    On Monday, July 19, 2021, the SEC announced that it had settled an action involving an alleged failure to prevent what the SEC contended were unsuitable investments by the respondent’s clients in a volatility-linked exchange-traded product (ETP).  As part of the settlement, the respondent agreed to pay a civil penalty of $8 million and disgorgement and prejudgment interest of $112,274.
  • SEC Announces Settled Enforcement Action In Connection With SPAC Business Combination
     
    07/20/2021

    On July 13, 2021, the SEC announced its settlement with Stable Road Acquisition Corp. (“Stable Road”), a special-purpose acquisition company (“SPAC”); its CEO; its sponsor; and its proposed merger target, Momentus Inc. (“Momentus”), an early-stage space technology company.  The resolution was based on alleged violations of the federal securities laws stemming from material misstatements and omissions related to Momentus’s space technology and national security concerns surrounding Momentus’s former CEO.  The SEC has brought charges against and is litigating against Momentus’s former CEO, who was not a party to the settlement.
  • SEC Announces New Enforcement Task Force On Climate And ESG
     
    03/09/2021

    On March 4, 2021, the Securities and Exchange Commission announced the creation of a Climate and ESG Task Force in the Division of Enforcement.  SEC Press Release 2021-42 (March 4, 2021).  The task force, led by Kelly L. Gibson, the Acting Deputy Director of Enforcement, and comprising 22 members, will aim to “develop initiatives to proactively identify ESG-related misconduct.”  Id.  The task force’s initial focus will be the identification of material gaps and misstatements in issuers’ disclosure of climate risks, and “will also analyze disclosure and compliance issues relating to investment advisers’ and funds’ ESG strategies.”  Id.  It is not clear why the SEC concluded that this specific subject matter merits its own task force, and it is worth noting that recent investigations of climate disclosures by other regulators have faced significant challenges.
     
    CATEGORIES : Enforcement ActionsSEC
  • SEC’s 2021 Examination Priorities Reveal Few Surprises
     
    03/09/2021

    On March 3, 2021, the Securities and Exchange Commission’s Division of Examinations announced its examination priorities for this year.  Each year, the SEC publishes its list of examination priorities to identify areas that it believes present potential risks to investors and the integrity of the U.S. capital markets, and this year’s list is largely as expected.  It reflects an intent to focus on conflicts of interest and questions of whether investment advisors are fulfilling their fiduciary duties, information security and business continuity (something that took on particular importance in the last year as firms were forced to adapt to the pandemic), and various other perennial topics of interest.  The only “new” priority is one that dovetails with other recent announcements from the Commission—an addition of “enhancing its focus on climate and ESG-related risks by examining proxy voting policies and practices to ensure voting aligns with investors’ best interests and expectations, as well as firms’ business continuity plans in light of intensifying physical risks associated with climate change.”
     
    CATEGORIES : Enforcement ActionsSEC
  • SEC Invites Comment On Possible SEC Staff Participation In Undercover Fraud-Detection Program
     
    02/03/2021

    On January 7, 2021, the Securities & Exchange Commission (“SEC”) issued an unusual statement inviting comments on a proposal to create a fraud-detection program that had previously been considered internally.  Under the contemplated program, initially conceived in 2011, members of a new unit within the SEC, called the Fraud Surveillance Team (“FST”), would pose as prospective investors and contact individuals suspected of engaging in criminal violations of securities laws in an undercover capacity.
     
  • FTC Secures Large Restitution Award In Shadow Of Pending AMG Capital
     
    02/03/2021

    On January 21, 2021, the Federal Trade Commission (“FTC”) announced that a federal district court in Maryland entered final orders granting the FTC a $120.2 million restitution award against the operators of a large offshore real estate project alleged to have deceived American consumers, which follows an earlier memorandum opinion issued on August 28, 2020. 
     
  • Broker-Dealer Settles SEC Claims Alleging Violations Of The Duty Of Best Execution And Related Misstatements
     
    12/22/2020

    On December 17, 2020, the Securities and Exchange Commission (“SEC”) announced the filing of settled administrative proceedings against a significant retail broker-dealer (the “Company”) for alleged violations of the duty of best execution and related misstatements.  According to the SEC, the Company “fail[ed] to satisfy its duty to seek the best reasonably available terms to execute customer orders” and simultaneously made “repeated misstatements that failed to disclose the firm’s receipt of payments from trading firms for routing customer orders to them” in lieu of routing such orders to other trading firms that may have resulted in improved customer executions.  SEC Press Release 2020-321 (Dec. 17, 2020).  Without admitting or denying the allegations, the Company has agreed to settle the claims by agreeing to pay a $65 million civil penalty, as well as agreeing to hire an independent compliance consultant who will be required to review the Company’s policies and procedures relating to customer communications, payment for order flow, and best execution of customer orders, and to report to the SEC on the Company’s compliance.
     
    CATEGORY : Enforcement Actions
  • Second Circuit Upholds Jury Conviction Of Two Officials In FIFA For Honest Services Fraud, Rejecting Extraterritoriality Challenge
     
    06/30/2020

    On June 22, 2020, the Second Circuit Court of Appeals upheld the jury conviction of two former officials of the Federation Internationale de Football Association (FIFA) —the international sports organization based in Zurich, Switzerland—for committing multiple counts of conspiracy to commit honest services wire fraud.  United States v. Napout, Case No. 18-2750, (2d Cir. 2020).  Defendants, two Paraguayan employees of a Paraguayan company, were convicted by a jury in the United States District Court for the Eastern District of New York for their involvement in an alleged scheme to sell broadcasting and marketing rights to FIFA games in exchange for kickbacks transmitted through U.S. bank accounts and wires.  And on appeal, the Second Circuit held that the government permissibly applied the honest services wire fraud statute, 18 U.S.C. § 1346, rejecting defendants’ claim that it was an impermissible extraterritorial overreach.
     
  • CFTC Settlement In Kraft  Unwound Due To Ineffectuality Of Confidentiality Provisions, Setting Up Possible Key Legal Rulings On Market Manipulation
     
    11/05/2019

    On October 23, 2019, Judge John Robert Blakey of the United States District Court for the Northern District of Illinois vacated the $16 million settlement consent order between the U.S. Commodity Futures Trading Commission (“CFTC”) and Kraft Foods Group Inc. (“Kraft”) that would have resolved allegations that Kraft improperly traded wheat futures and manipulated the commodity’s market price.  The Court reasoned that a prior Seventh Circuit ruling on the same case rendered certain confidentiality provisions within the settlement agreement “ineffectual,” and further concluded that these provisions, which were highly unusual within a regulatory settlement, were a material aspect of the parties’ decision to settle.  The decision reopens a closely watched case that, if it continues to dispositive motions or trial, could have significant implications for the CFTC’s interpretation of what constitutes market manipulation.
     
  • Reargument Sought On Whether Shareholders Can Be Victims Of FCPA Violation For Purposes Of Criminal Restitution
     
    09/17/2019

    On August 28, 2019, Judge Garaufis of the United States District Court for the Eastern District of New York held that investors in a mining company, Africo Resources Ltd. (“Africo”), could seek restitution from a defendant under the Mandatory Victims Restitution Act (“MVRA”) for harm caused by the corporation’s bribery scheme.The defendant is a subsidiary operating in Africa (“African Subsidiary”) of an asset manager.The African Subsidiary recently moved for reargument of the Order.
  • In Significant Shift, SEC Will Consider Offers Of Settlement And Collateral Waiver Applications Together
     
    07/09/2019

    On July 3, 2019, Chairman Jay Clayton of the Securities and Exchange Commission (“SEC”) issued a Statement Regarding Offers of Settlement (the “Public Statement”) to announce a significant shift in the SEC’s process of considering settlement offers and requests to waive collateral consequences of such settlements.  SEC Public Statement, Statement Regarding Offers of Settlement (2019).  Chairman Clayton stated that he recognized “that a segregated process for considering contemporaneous settlement offers and waiver requests may not produce the best outcome for investors in all circumstances,” and thus announced “that a settling entity can request that the Commission consider an offer of settlement that simultaneously addresses both the underlying enforcement action and any related collateral disqualifications.”  Id.
  • District Of Massachusetts Denies Motion To Dismiss, Finds Virtual Currency “My Big Coin” Is A Commodity Under Commodity Exchange Act
     
    10/09/2018

    On September 26, 2018, Judge Rya W. Zobel of the United States District Court for the District of Massachusetts denied a motion to dismiss a complaint filed by the Commodity Futures Trading Commission (“CFTC”) that alleged fraud in violation of the Commodity Exchange Act (“CEA”) arising out of the “My Big Coin” virtual currency.  See CFTC v. My Big Coin Pay, Inc., Case No. 1:18-cv-10077 (D. Mass. Sept. 26, 2018) (Memorandum of Decision).  The motion to dismiss, filed by various individual defendants, argued principally that My Big Coin is not a “commodity” within the meaning of the CEA, making the CEA’s prohibitions on fraud and market manipulation inapplicable.
  • CFTC Brings New Insider Trading Case In Conjunction With Announcing Insider Trading Task Force
     
    10/09/2018

    On September 28, 2018, the Commodity Futures Trading Commission (“CFTC”) filed a civil enforcement action in the Southern District of New York against an introducing broker and one of its associated persons, alleging that they misused material, nonpublic information in connection with block trades of energy contracts on the ICE Futures U.S. market in violation of 7 U.S.C. § 9(1) and 17 C.F.R. § 180.1(a).  CFTC v. EOX Holdings LLC, Case No. 1:18-cv-08890 (S.D.N.Y. Sept. 28, 2018) (Complaint for Injunctive Relief, Civil Monetary Penalties, and Other Equitable Relief).  In conjunction with the enforcement action, James McDonald, CFTC’s Director of Enforcement, announced the creation of a new Insider Trading & Information Protection Task Force.
    CATEGORY : Enforcement Actions
  • Medical Device Manufacturer Enters Into Second FCPA Settlement In Five Years With SEC
     
    10/09/2018

    On September 28, 2018, the Securities and Exchange Commission (“SEC”) announced a settlement with a Michigan-based manufacturer and distributor of medical devices, over allegations that the company had violated the books and records and internal accounting controls provisions of the Foreign Corrupt Practices Act (“FCPA”).  The SEC’s order instituting proceedings alleged that the company’s internal accounting controls were insufficient to detect the risk of improper payments in sales of its products in India, China and Kuwait, and that the company’s Indian subsidiary failed to maintain complete and accurate books and records.  See In the Matter of Stryker Corp., Admin. Proc. No. 3-18853 (September 28, 2018).  The company agreed to pay a $7.8 million penalty to settle the SEC’s claims without admitting or denying wrongdoing.  This is the second time in five years that the company has settled with the SEC over alleged shortcomings in its books and records and internal accounting controls.  See In the Matter of Stryker Corp., Admin. Proc. No. 3-15587 (October 24, 2013).
    CATEGORY : Enforcement Actions
  • SEC Charges Rating Agency With Internal Controls Failures And Ratings Symbols Deficiencies
     
    09/05/2018

    On August 28, 2018, the Securities and Exchange Commission (“SEC”) announced two settlements with a rating agency (the “Company”) over allegations that it failed to maintain adequate internal controls and to clearly define and consistently apply credit rating symbols.  The SEC’s order instituting proceedings over internal control alleged that the Company failed to establish and document an effective internal control structure over models that it outsourced from an affiliate and used to rate Residential Mortgage Backed Securities (“RMBS”) from 2010 to 2013.  See In the Matter of Moody’s Investors Service, Inc., Admin. Proc. No. 3-18688 (August 28, 2018).  The SEC’s order instating proceedings relating to rating symbols alleged that the Company assigned ratings for 26 “combo notes” with a total notional value of approximately $2 billion in a manner that was inconsistent with other securities that use the same rating symbols.  See In the Matter of Moody’s Investors Service, Inc., Admin. Proc. No. 3-18689 (August 28, 2018).  The Company agreed to pay a $15 million civil penalty to settle the SEC’s claims relating to internal controls and a $1.25 million civil money penalty to settle the SEC’s claims relating to rating symbols, both without admitting or denying wrongdoing.
     
    CATEGORY : Enforcement Actions
  • SEC Announces Settled Enforcement Action Over Failure To Preserve Documents
     
    07/24/2018

    On July 17, 2018, the Securities and Exchange Commission (“SEC”) announced a settlement with a New York-based broker-dealer over allegations that the broker-dealer failed to preserve records requested by the SEC and inaccurately reported certain expenses. The SEC’s order instituting proceedings alleged that the broker-dealer failed to preserve records requested by the SEC staff by deleting certain audio files, and failed to maintain accurate books and records regarding certain expenses, in willful violation of Section 17(a)(1) of the Securities Exchange Act, and Rules 17a-3 and 17a-4 thereunder. The broker-dealer agreed to pay a $1.25 million civil penalty to settle the SEC’s claims without admitting or denying wrongdoing. See In the Matter of BGC Financial, L.P., Admin Proc. No. 3-18598 (July 17, 2018).
    CATEGORY : Enforcement Actions
  • FINRA And SEC Fine Two Entities For Anti-Money Laundering Compliance Deficiencies And Other Violations
     
    05/22/2018

    ​On May 16, 2018, the Financial Industry Regulatory Authority (FINRA) announced a $5.3 million fine on a financial services company (ICBCFS) for alleged systemic anti-money laundering (AML) compliance failures, including an alleged failure to have a reasonable AML program in place to monitor and detect suspicious transactions, and alleged financial, recordkeeping, and operational violations involving penny stock shares.  FINRA Fines ICBCFS $5.3 Million for Anti-Money Laundering Compliance Deficiencies and Other Violations, May 16, 2018, https://www.finra.org/newsroom/2018/finra-fines-icbcfs-53-million-anti-money-laundering-compliance-deficiencies-and-other.  ICBCFS consented to entry of FINRA’s findings without admitting or denying the charges against it.  In a separate but related matter, the U.S. Securities and Exchange Commission (SEC) announced settled charges against a broker-dealer (CCM)—a correspondent of ICBCFS—and ICBCFS for allegedly failing to file Suspicious Activity Reports (SARs) when CCM sold more than $12.5 billion penny stock shares between 2013 and 2014.  In the Matter of ICBCFS, Admin. Proc. No. 3-18488 (May 16, 2018).  The SEC also settled charges against ICBCF for failing to promptly produce documents missing from its productions to the Commission during its investigation, despite repeated requests for the records.  Id.  Without admitting or denying the SEC’s findings, ICBCFS agreed to pay the SEC a civil penalty of $860,000, CCM agreed to pay a fine of $1 million, and CCM's anti-money laundering officer, who allegedly aided and abetted the violations, agreed to pay $15,000.  Id.In the Matter of CCM, Admin. Proc. No. 3-18486 (May 16, 2018); In the Matter of JB, Admin. Proc. No. 3-18487 (May 16, 2018).

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    CATEGORY : Enforcement Actions
  • SEC, Under New Safe Harbor, Awards More Than $2.2 Million To Whistleblower Who First Reported To Another Federal Agency
     
    04/17/2018

    On April 5, 2018, the Securities and Exchange Commission (“SEC”) announced a whistleblower award of more than $2.2 million in connection with a report of misconduct.  The whistleblower, a former company insider, first reported information to a federal agency other than the SEC, which in turn referred the matter to the SEC, which promptly opened an enforcement investigation.  Subsequently, within 120 days of the original reporting to the other federal agency, the whistleblower reported the same information directly to the SEC.  The resulting SEC enforcement action resulted in monetary sanctions, and the whistleblower received a percentage of the sanctions as an award.  Despite initially reporting to another federal agency, the whistleblower received an award because he or she reported the same information to the SEC within 120 days and subsequently cooperated with the enforcement investigation.

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  • SEC And FINRA Fine Broker-Dealer, CEO, And Compliance Officer For Failing To File Suspicious Activity Reports
     
    04/03/2018

    ​On March 28, 2018, the Securities and Exchange Commission (“SEC”) instituted settled administrative proceedings against broker-dealer Aegis Capital Corporation (“Aegis”), its founder and Chief Executive Officer (“CEO”), and its anti-money laundering compliance officer (“AML CO”) for allegedly failing to file hundreds of Suspicious Activity Reports (“SARs”) between late 2012 and early 2014.  In the Matter of Aegis Capital Corporation, Admin. Proc. No. 3-18412 (Mar. 28, 2018); In the Matter of Kevin McKenna and Robert Eide, Admin. Proc. No. 3-18413 (Mar. 28, 2018).  The SEC also instituted a contested administrative proceeding based on the same allegations against a former Aegis compliance officer.  In the Matter of Eugene Terracciano, Admin. Proc. No. 3-18414 (Mar. 28, 2018).  Separately, the Financial Industry Regulatory Authority (“FINRA”) announced it had settled claims against Aegis based on the same SAR-related allegations.  FINRA Fines Aegis Capital Corp. $550,000 for Anti-Money Laundering and Supervision Rule Violations, Mar. 28, 2018, http://www.finra.org/newsroom/2018/finra-fines-aegis-capital-corp-550000-aml-and-supervision-rule-violations.  In connection with its settlement with the SEC, Aegis admitted to willfully failing to file SARs and was fined $750,000.  In addition, the CEO agreed to pay the SEC a $40,000 fine, and the AML CO agreed to pay the SEC a $20,000 fine.  In connection with the settlement, the individuals neither admitted nor denied the SEC’s allegations. 

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    CATEGORY : Enforcement Actions
  • DOJ Announces DPA And Guilty Plea Involving Netherlands-Based Energy Services Firm That DOJ Claims Failed To Promptly Report Alleged FCPA Violations
     
    12/12/2017

    ​On November 29, 2017, the U.S. Department of Justice (“DOJ”) announced that SBM Offshore N.V. (“SBM”), a Netherlands-based maker of offshore drilling equipment for the energy industry, entered into a deferred prosecution agreement (“DPA”) to resolve criminal charges alleging that SBM violated the Foreign Corrupt Practices Act (“FCPA”).  United States v. SBM Offshore N.V., Crim. No. 17-686 (S.D. Tex).  The DOJ alleged that SBM executives made payments in excess of $180 million to intermediaries knowing that intermediates would use some of that money to bribe foreign officials in Brazil, Angola, Equatorial Guinea, Kazakhstan, and Iraq.  According to the DOJ, officials in those countries proceeded to award SBM contracts valued at $2.8 billion.  SBM agreed to pay a $238 million criminal penalty, including a $500,000 criminal fine and $13.2 million in criminal forfeiture, to the United States settle the charges.  Moreover, its U.S. subsidiary, SBM Offshore USA Inc. (“SBM USA”), agreed to plead guilty to one count of conspiracy to violate the FCPA’s anti-bribery provisions.  Three years ago, SBM settled charges with the Dutch Public Prosecutors over related conduct, and paid the Netherlands $200 million in disgorged profits and a $40 million fine.

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    CATEGORY : Enforcement Actions
  • SEC Announces Cease-and-Desist Order Against Couple And Their Respective Hedge Funds Over Sharing Of Confidential Strategies From Another Fund
     
    12/12/2017

    On December 5, 2017, the Securities and Exchange Commission (“SEC”) filed an administrative proceeding against Paritosh Gupta (“Gupta”), his hedge fund, Adi Capital Management LLC (“Adi Capital”), his wife, Nehal Chopra (“Chopra”), and her hedge fund, Ratan Capital Management, LP (“Ratan”).  In the Matter of Paritosh Gupta, et. al., Admin. Proc. No. 3-18296 (Dec. 5, 2017).  The SEC alleged that Gupta caused violations of Section 206(2) of the Advisers Act by sharing confidential information, obtained during his employment at a hedge fund described only as “Adviser A,” with Chopra (Gupta’s eventual wife), who used that information in operating Ratan Capital.  Moreover, the SEC alleged that Gupta, Adi Capital, Chopra, and Ratan willfully violated Section 207 of the Advisers Act—and that Gupta caused Ratan and Chopra to violate Sections 206(4) of the Advisers Act and Rule 206(4)-8 thereunder—by failing to disclose the nature of Gupta and Chopra’s communications and the role that Gupta played in advising Chopra on Ratan’s investment strategy.  Without admitting or denying the findings, Gupta, Chopra, and their hedge funds agreed to settle the charges and cease and desist from committing or causing any further violations.  Additionally, Gupta agreed to pay a civil penalty of $250,000, Chopra agreed to pay a civil penalty of $200,000, and Ratan Capital agreed to pay a civil penalty of $200,000.  All four Respondents were censured.

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    CATEGORY : Enforcement Actions
  • Charges Unsealed Against Five Individuals, Including Two Executives, In Foreign Bribery Scheme Involving Rolls-Royce
     
    11/14/2017

    On November 7, 2017, the Department of Justice (“DOJ”) unsealed charges against five individuals—including two executives—alleging violations of the Foreign Corrupt Practices Act (“FCPA”) in connection with an alleged foreign bribery scheme at Rolls-Royce plc, the United Kingdom-based manufacturer and distributor of power systems for the aerospace, defense, marine, and energy sectors.  All five individuals are accused of participating in a scheme to bribe officials in Central Asia and China to win equipment supply and power services contracts, which partly formed the basis for the DOJ’s enforcement action against Rolls-Royce in January 2017.  Four of the five individuals had pleaded guilty at the time of the unsealing, which represents the latest example of the DOJ’s commitment to prosecute individuals for alleged FCPA violations. 

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    CATEGORY : Enforcement Actions
  • DOJ And SEC Bring Major FCPA Enforcement Actions Against Swedish Telecom Firm, Imposing One Of Largest FCPA Penalties In History
     
    09/26/2017

    On September 21, 2017, the Department of Justice (“DOJ”) and Securities and Exchange Commission (“SEC”) announced significant enforcement actions against Telia Company AB, a Swedish telecommunications firm, for alleged violations of the Foreign Corrupt Practices Act (“FCPA”).  United States v. Telia Company AB, No. 1:17-cr-00581 (S.D.N.Y. 2017); In the Matter of Telia Company AB, Admin. Proc. No. 3-18195 (September 21, 2017) (“Order”).  Specifically, the DOJ charged Telia and its Uzbek subsidiary, Coscom, with conspiring to violate the anti-bribery provisions of the FCPA by offering and paying at least $330 million in bribes to a shell company in Uzbekistan under the guise of payments for lobbying and consulting services that never actually occurred, while the SEC alleged that Telia violated the anti-bribery and internal accounting controls provisions of the FCPA through the same conduct.  Telia’s subsidiary Coscom pleaded guilty in U.S. District Court for the Southern District of New York; meanwhile, Telia entered into a three-year deferred prosecution agreement (“DPA”) with the DOJ, and the SEC instituted settled administrative proceedings against the company.  In aggregate, Telia agreed to pay criminal penalties of approximately $548 million to resolve the DOJ charges and related charges filed by the Public Prosecution Service of the Netherlands, and agreed to pay approximately $457 million in disgorgement to settle the SEC allegations.  Because of certain offsets, Telia’s total payments to the DOJ, SEC, and foreign regulators will be approximately $965 million.  However, Telia was not required to engage a compliance monitor, in light of the company’s remediation and the state of its compliance program.

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    CATEGORY : Enforcement Actions
  • SEC Files Administrative Proceeding Against An Investment Services Firm For Improperly Recommending Higher-Fee Mutual Funds To Investment Clients
     
    09/18/2017

    On September 14, 2017, the Securities and Exchange Commission (“SEC”) filed an administrative proceeding against SunTrust Investment Services, Inc. (“STIS”), the investment services subsidiary of SunTrust Banks.  STIS consented to the filing of the proceedings and settled the allegations, without admitting or denying them.  STIS agreed to pay a penalty totaling $1,148,071.77, as well as disgorgement plus interest.  In addition, the STIS agreed to be censured.
    CATEGORY : Enforcement Actions
  • SEC Brings First Corporate FCPA Enforcement Action Under Its New Leadership
     
    08/01/2017

    On July 27, 2017, the Securities and Exchange Commission (“SEC”) brought an enforcement  action against Halliburton Company, a Houston-based oilfield services corporation.  Specifically, the SEC alleged that Halliburton violated the books and records and internal accounting controls provisions of the Foreign Corrupt Practices Act (“FCPA”) by utilizing a local Angolan company to obtain business from the Angolan state oil company.  In the Matter of Halliburton Company and Jeannot Lorenz, Admin. Proc. No. 3-18080 (July 27, 2017) (“Order”).  Without admitting or denying the alleged conduct and charges, Halliburton agreed to pay approximately $29.2 million to settle SEC charges stemming from the long-running investigation which commenced in 2011.  As part of the Order, former Halliburton Vice-President Jeannot Lorenz, who allegedly spearheaded the conduct that formed the basis for the company’s settlement, agreed to pay a $75,000 penalty for “causing” the company’s underlying violations, circumventing internal accounting controls, and falsifying books and records.
    CATEGORY : Enforcement Actions